Option Investor
Newsletter

Daily Newsletter, Tuesday, 07/31/2001

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                  Tuesday 07-31-2001
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/2859_1.asp

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       7-31-2001          High      Low     Volume Advance/Decline
DJIA    10522.81 +121.09 10595.05 10402.97 1.13 bln   1893/1221	
NASDAQ   2027.12 +  9.28  2057.10  2014.06 1.58 bln   1935/1813
S&P 100   622.16 +  3.27   628.90   618.89   Totals   3828/3034
S&P 500  1211.23 +  6.71  1222.74  1205.32
RUS 2000  484.78 +  0.07   489.15   483.07
DJ TRANS 2906.18 -  6.04  2924.63  2891.92
VIX        23.87 -  0.16    25.02    23.43
Put/Call Ratio      0.60
******************************************************************

Dead Stop!

10595, Resistance with a capital R. The Dow rallied on mixed economic
news and jumped +194 points only to give back almost half after hitting
strong resistance. There was never any doubt that 10600 would be a
serious challenge when the Dow returned to that level but we still
had to go through the exercise. The Nasdaq came within three points
of its own down trend resistance level at 2060 and closed -30 points
off the high of the day. A dead stop at resistance for each index.







The economic reports this morning provided a mixed picture and were
definitely nothing to power the markets to a nearly +200 point gain.
The Consumer Confidence numbers fell more than consensus estimates
to 116.5 in July from 118.9 in June. Estimates were for a drop to
only 118.5. Current results and expectations both eroded. The only
bright side was a strong bounce in consumer plans to buy in the next
six months. Ironically consumers felt worse about the economy but
planned to spend more. Is it the tax rebate that is causing them
to plan on buying a new car and new house? I doubt it but if we can
figure out how to buy a house on a $300 tax rebate I think we can
make a killing with an infomercial on late night TV.

The drop in confidence came after two months of gains and could be
the first signs of the continued deterioration in the job market
taking a toll on consumers. The percentage of consumers that believe
jobs are plentiful fell to 36% but is still a long way from the 5%
felt during the 1991 recession. Some analysts speculate that severance
pay and termination packages have provided consumers with excess
cash during the summer months and until that cash evaporates with
no immediate new job the consumers will continue to feel safe.
The Personal Income/Spending Report also showed an increase in income
of +0.3% and was slightly higher than expected. Personal spending
also rose +0.4% and continued to confound analysts who do not
understand how soaring layoffs and higher income can occur at the
same time. The bright side here is limited to the expectations that
the Fed will be forced to continue cutting rates for several more
months until conditions improve. Also as long as consumers keep
spending more than they make a recession also appears unlikely.

The Chicago Purchasing Managers index fell to 38% in July and
marked the tenth consecutive month below 50. Order backlog fell
to 30.2% suggesting that there is no relief yet in sight. Gains
from last month were completely erased. This shows that
manufacturing has yet to manage any improvement and an economic
rebound has yet to appear.

Market moving events today included a downgrade on Dell by Merrill
Lynch. Citing continued erosion of European demand the analyst
cut estimates for 2002 and 2003. The move helped put a top on the
Nasdaq as chip and software stocks sold off. Dell fell below $27
on the news.

Microsoft and AOL are going back to war. Just days after the
kindlier gentler Microsoft said they were relaxing rules about
icons on the desktop, Microsoft has reneged. Moving back into
bully mode Microsoft has said that there are rules that must
be followed to prevent anyone from gaining unfair advantage over
MSN. Who would have thought anyone could get an advantage? Do
you think it had anything to do with Microsoft moving to block
the AOL/AT&T cable deal? There are numerous issues on the table
here including credit card security programs (MSFT - Passport),
Hotmail, RealNetworks, Media Player, etc. With AOL becoming
more of a monopoly with every acquisition, Microsoft is forced
to deal with an 800 pound gorilla of their own and this ape
is not afraid of the courthouse. Both stocks closed well off
their highs and only fractionally higher.

After the bell KLAC announced earnings that beat the street
by three cents and beat even their own revenue forecasts. They
said they had cut their workforce to appropriate levels and
therefore were riding out the downturn without serious problems.
KLAC makes equipment for testing chips and therefore is not
directly impacted by retail supply and demand. Manufacturers
typically use slow periods to upgrade equipment which helps
manufacturers like KLAC as long as the dip is only temporary.

In the "can it get any worse" department, Lucent filed to raise
$1 billion from a private sale of redeemable preferred stock
convertible into Lucent shares. Traders already ticked about the
sub $7 price saw their shares fall to $6.07 in after hours on
fears of dilution. Let's see...is dilution better than
bankruptcy? It is in my book. Quit complaining. If they are
still in Lucent they should be glad somebody will invest $1
billion in the company! Makes you wonder however how a company
that "had all the money it needed" two weeks ago suddenly needs
another billion.

Priceline rises from the ashes! After the close PCLN announced
real earnings for the first time, beating analyst estimates
and raising guidance for the next quarter. Did I miss something?
I thought the airlines were pulling support, users were flocking
to other services for better deals and analysts had written them
off as another WebVan. Somebody obviously did something right!
An Internet revival? Not hardly but PCLN owners are thrilled
to see their stock trading over $9 after spending way too much
time near $1. Before you rush out and buy this Internet recovery
you should remember that at $9 PCLN is trading at a PE of 300
depending on which earnings estimate you use. If they were
very successful over the next five years and actually made
a quarter profit they would still be extremely overpriced
by historical standards. Maybe there is hope for Amazon after all!

It is official! July 2001 was the worst July on record for the
Nasdaq and the fourth July in a row to post a drop. This is
news to anybody? We should be grateful it was not any worse.
June closed at 2160 only 133 points above the July close. That
is only a heartbeat in last years terms but it seems like an
eternity today. -133 points from the June close but still
+93 points off the July lows. (you have to grab these straws
when you can) Since mid-April the Nasdaq has been trading in
a narrower range each month and the trend is continuing.
Support is now 2000 and resistance at 2060-2100. Something
has to give soon or tech traders will be looking for something
more exciting to do during the day like checkers or hearts!

We should not complain about this narrow trading range. It
is building a base to launch the eventual rally. Putting July
behind us we are wading deeper into a historically negative
period. August has been the second worst month behind September
for the Dow and S&P over the last 50 years. For the last 15
years August has been the worst month. This was in years that
the Nasdaq has soared from 300 to 5000. Now that the Nasdaq
is down -60% from its highs and trading at 1998 levels it
may be the time for that August/September jinx to be broken.
Can the economic news get any worse? Sure but will SUNW trade
much lower than $15? No! I used SUNW as an example but the big
cap Nasdaq stocks have put in bottoms and are just marking
time until better economic times arrive. Thus the narrow
trading range. There is a hoard of cash still on the sidelines
and every day that ticks off on the calendar brings us closer
to a long term rally. Will it be in August? Who knows
for sure but with lower highs and higher lows something has
to give soon. The bad news is already priced in so the
alternative is a good news event. What that will be we don't
know yet but traders are holding on to 2000 for dear life and
hoping the news comes soon. Was it KLAC or PCLN tonight? I
doubt it but there is an event in our future that will trigger
the next long term rally. It needs to hurry!

The sell off from the intraday highs on Tuesday was frustrating
and professional traders were not happy. This sets the markets
up for a down day tomorrow and the Nasdaq does not have that
much room to move. I would not like to see support tested this
early in August. I would not be a call buyer here. Wait for a
close over 2100.

Enter passively, exit aggressively!

Jim Brown
Editor

	
*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
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
************************************************************


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

Goodbye July
By Jeffrey Canavan

And so we end another month of trading.  When we add up the
numbers, the Dow gained .002%, the S&P 500 lost 1.1%, and the
Nasdaq finished 6.2% lower.  This is the fourth straight year the
Nasdaq finished the month of July lower.

So what will August hold?  Based purely on the numbers since
1950, August is the second worst month of the year for the Dow
and S&P 500, with September being the worst.  Over the past ten
years, the Dow has closed the month of August higher 6 times,
with the best gain being 6.6%.  The Dow has only closed lower 4
times, but the biggest loss was 15.1%.  When we average it out,
the Dow lost an average 1.1% in August over the past ten years.

The Nasdaq faired a little better over the past ten years,
closing higher seven times and lower 3 times, for an average gain
of 1.4%.  Last year the Nasdaq gained 11.8%, but lost 19.8% in
1998.

But enough about history, what about the future?  Early in the
day it looked like the major indices were poised to crash through
resistance, but the fade into the close doesn't bode well for the
first day of August.  We have a lot of overhead resistance to
deal with, and it may take several attempts to break it all.

Based on the latest data from the Investment Company Institute,
we are going to need some more fuel to crack those levels.  After
contributing $18.1 billion into stock funds in May, investors
only placed $10.6 billion into stock funds in June.  That
compares to levels well over $30 billion in early 2000, and is a
decline for the second straight month.  Basically, investors on
the sideline are still hesitant about getting back in the game.

===

Market Volatility
The VIX has dropped for 5 straight days, which hints that bullish
traders are starting to get a little complacent.

VIX   23.87
VXN   48.35

===

          Put/Call Ratio  Call Volume   Put Volume
Total           .60        608,410       363,358
Equity Only     .51        541,676       274,615
OEX            1.18         13,638        16,135
QQQ             .27         84,181        23,007

3 of the 4 put/call ratios also hint at bullish complacency, but
not enough to signal a turning point.

===

Bullish Percent Data

The Nasdaq-100 has reversed into bull alert status.

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    38       -      Bull Alert
DOW           36       -      Bull Alert
S&P 500       48       -      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  1.15

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      1897           1216
NASDAQ    1928           1819

        New Highs      New Lows
NYSE      152             24
NASDAQ    156            100

===

Advisory Sentiment

Bullish  Bearish  Correction   Net   Change
  52.6%    23.7%     23.7%    28.9%   -0.4%

A bearish reading of 25% to 30%, combined with a bullish reading
greater than 55% is typically considered bearish by contrairians.
A net percentage greater than 30% is also viewed as bearish.

===

Commitments Of Traders Report: 07/24/01
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. COT data
can be found at www.cftc.gov.

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 three-week reduction in the net bearish position of
commercials came to an end. This wasn't the result of new short
positions being added, but rather more long positions being
dropped than short positions.

Commercials   Long      Short      Net     % Of OI
7/10/01      309,374   385,178   (75,804)   (10.91%)
7/17/01      336,836   403,561   (66,725)   ( 9.01%)
7/27/01      317,241   392,146   (74,905)   (10.56%)

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
7/10/01      135,587     59,889   75,698     38.72%
7/17/01      122,525     50,211   72,314     41.86%
7/24/01      141,372     61,665   79,717     39.26%

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

NASDAQ-100
The net bearish position of institutions has increased for the
third week in a row.  (11,802) is the third highest bearish
reading of the year.

Commercials   Long      Short      Net     % of OI
7/10/01       26,688     34,640   ( 7,952)  (12.97%)
7/17/01       26,721     37,225   (10,504)  (16.43%)
7/24/01       27,396     39,198   (11,802)  (17.72%)

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
7/10/01        9,073     7,486    1,587       9.58%
7/17/01       11,680     8,183    3,497      17.61%
7/24/01       12,170     7,744    4,426      22.23%

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
Institutions added a few more long positions, increasing their
net bullish stance on the Dow.

Commercials   Long      Short      Net     % of OI
7/10/01       13,743    12,999      744      2.8%
7/17/01       14,145    12,963    1,182      4.4%
7/24/01       16,080    12,812    3,268     11.3%

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     % of OI
7/10/01        5,048     7,835    (2,787)   (21.63%)
7/17/01        5,255     9,144    (3,889)   (27.01%)
7/24/01        5,599     9,526    (3,927)   (25.96%)

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


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.sungrp.com/tracking.asp?campaignid=2214
**************************************************************


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:
*****

MOT $18.69 -0.34 (-0.31) Motorola's analyst meeting did little to
boost the stock Tuesday, which was certainly discouraging.  Its
relative weakness in light of the advance across the broader
markets was a cause for concern, since the stock has recently
been a leader.  MOT still could trade $20 in the short term if
the Nasdaq can rally above its resistance; nevertheless, we're
dropping coverage.  Traders with open positions can use any
strength Wednesday around $19 to exit plays.

RFMD $27.36 -1.04 (-1.97) RFMD has been knocked down so far this
week from bearish talk on the wireless sector.  The selling hasn't
been all that strong, but RFMD has shed about 7 percent so far
this week, so it's certainly worth noting.  The break in its
momentum is reason enough to exit RFMD.  Use any relief rally
Wednesday to exit open positions.

CTXS $33.47 -0.81 (-1.57) We could have managed a bit of weakness
in CTXS before it broke out.  But the losses so far this week
are a bit more than we anticipated.  As such, we're dropping
CTXS due to its weakness relative to the Software Sector Index
(GSO.X).  CTXS had out performed the GSO through last Friday;
perhaps its weakness early this week is a function of fund
managers rotating out of their winners at month's end and
deploying capital elsewhere.

DO $29.34 -1.36 (-1.42) After gradually creeping higher over the
past 2 weeks, Oil Service stocks took a beating on Tuesday, with
the OSX index giving up more than 4%.  Our DO play promptly fell
through its $30 stop on heavy volume.  Although there was some
buying support near $29, it looked pretty anemic, as
demonstrated by the stock's inability to rescale the $30 level.
The oscillators have now fully rolled over and with a violated
stop, we have no choice but to drop the play.


PUTS:
*****

FD $38.60 +1.34 (+2.77) Retail stocks responded positively to
the economic reports on Tuesday, with the RLX index moving as
high as $928 before pulling back throughout the day.  But that
late-day weakness wasn't enough to undo the damage to our FD
play.  The stock extended its gains from Monday, pushing
through our $38 stop at the open and never coming close to that
level throughout the remainder of the day.  Even the late day
market weakness could only bring the stock back to the $38.50
level, leaving us no choice but to remove FD from the put list
tonight.


*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
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.sungrp.com/tracking.asp?campaignid=2202
************************************************************


FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                  Tuesday 07-31-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/2859_2.asp


*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
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
********************

CSCO $19.22 +0.33 (+0.16) CSCO continues to slide higher along its
10-day exponential moving average.  The moving average currently
sits at $18.65, and may provide yet another entry point this week
during any pullback.  On its daily chart, CSCO is clearly forming
an ascending wedge, with resistance just above current levels at
$20.  We've addressed the fact that a tremendous amount of calls
are open at the AUG 20 strike, which may keep a lid on shares of
CSCO.  But, should the "right" catalyst arrive, the stock could
pop for $2 if it can decidedly clear $20.  That's right, the
buyers are higher.  In the meantime, entering calls on weakness
and exiting positions into strength could continue producing
profits for short-term, agile day traders.  As CSCO approaches
the 20 strike, the delta of that contract increases, which makes
the options more responsive.  Of course the 17.5 strike has a much
higher delta, which is probably the preferable strike for day
traders.  We're inching the stop up to $18.25, but traders should
use their own best judgment when determining individual stop
levels.

JBL $32.50 +0.55 (-0.22) JBL rebounded rather well Tuesday, and
held onto the majority of its gains, unlike the Nasdaq Composite.
In fact, most contract manufacturers finished well into positive
territory, including CLS, FLEX, and SANM.  That certainly bodes
well for the group going forward especially if the COMPX continues
climbing this week.  But that much is the critical variable in
this trade.  If the COMPX cannot surpass short-term resistance,
JBL will most likely pullback in sympathy with the broader tech
sector.  So it's paramount to monitor the direction of the
broader market and sector peers before entering new JBL call
plays.  However, the stock's short-term ascending trend is in
place, which could allow for a breakout above $33 this week if
the COMPX continues advancing.  A breakout above $33 could offer
momentum traders an entry point, with a short-term target of
$35 on the upside.  We've moved the stop on JBL up to $30.50.

AHAA $38.12 +0.92 (+0.12) Keeping the uptrend alive, AHAA
rebounded from its mornings lows to post another gain today,
keeping the stock comfortably above its ascending trendline
(currently $36).  Volume was solid too, topping the ADV by 50%
on Tuesday and adding to the bullish picture.  Intraday support
appeared over the past two days near $37, and that level could
make for an attractive entry point on any intraday weakness.
Support is even stronger at $36, making it a logical location
for our stop.  Momentum traders will want to wait for the stock
to scale the $40 level again on continued heavy volume before
adding new positions.

JDAS $20.90 -0.35 (-0.15) As would be expected after Friday's
heavy trading session, JDAS has spent the past two days
consolidating its recent gains.  After establishing near-term
resistance at the $21.50 level, the stock has pulled back on
reduced volume, and it looks like the bulls are trying to defend
the stock near current levels.  A bounce from the $20.75
intraday support level looks decent, but an even better entry
would come from a rebound near the $20 level, also the new
location of our stop.  As the stock unwinds its near-term
overbought condition, it could be setting up for another run
higher, and momentum traders will want to target a breakout
over the $21.50 level on increasing volume for new entry points.

LH $89.96 -0.24 (-0.84) After bursting through the $90 level
last week, bullish traders are attempting to catch their breath
before pushing LH higher again.  Trading this week has been
pretty quiet, with the stock stuck in a range between $89-91.
We'd like to see a bit more of a pullback to provide attractive
entries, perhaps to the $88 level or near the level of our stop
($86).  Of course we will need to see strong volume on the
rebound, but those levels will better allow us to manage our
risk.  Momentum traders will want to focus on a breakout over
$91 to provide fresh entry opportunities.

MERQ $38.66 +0.12 (-1.56) The rise in MERQ's price has run into
solid resistance at the $40 level in recent days following the
large gain last Thursday.  The stock has mirrored the Software
index (GSO.X) over the past 3 days as the bulls and bears have
fought for control with the competing good and bad news coming
out of the various components of the sector.  It has been
encouraging to see MERQ hold up as well as it has, finding
intraday support near $37.50.  Target intraday dips near this
level for new positions, or wait for bullish traders to push the
stock above the $40.50 resistance level on increasing volume.
The one factor that has us a bit concerned is the daily
Stochastics which is starting to weaken in overbought territory.
That makes the momentum strategy (buying the breakout) the more
conservative strategy at this point, as it keeps us from
potentially trying to catch a falling knife.  Stops have been
moved up to $36.

PHCC $23.95 -0.05 (-0.83) After the meteoric post-earnings rise
in its share price, it is no wonder PHCC is taking a pause to
consolidate those gains.  The stock has been finding resistance
at $25 over the past 4 days, but it has been encouraging to see
that the consolidation has been accompanied by light volume,
which fell today to only 40% of the ADV.  The stock is finding
support right at the 30-dma ($23.69).  When the volume comes
back, the movement of the stock is likely to provide significant
gains for traders on the right side of the move.  So we want to
wait for the stock to tell us which way it wants to move before
initiating new positions.  A breakout over $25 looks attractive
for momentum traders, while a dip and bounce at support between
$23-24 looks attractive for new entries.  Let volume be your
guide and keep stops set at $22.


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

DIGL $20.47 +0.27 (+0.09) DIGL just can't trade higher.  The $20
level continues to act as a price magnet of sorts, in that the
stock can't get away from that level.  It seems awful early into
August contracts for the stock to be pinned, so it's probably a
function of relative weakness.  That being the case, any weakness
in the COMPX this week should morph into DIGL taking out its
relative lows.  While the stock continues to flirt with our $21
stop intraday, it has yet to SETTLE above that level, which tells
us that the sellers are in control.  As for entry points, bearish
traders can look to enter new put positions on a decline below the
magical $20 level IF the COMPX is declining.  Exit points should
be provided on any weakness near DIGL's relative lows around
$18.50.

AIG $83.25 +0.62 (+1.53) As we mentioned over the weekend, AIG
tends to trade in lockstep with the broader Insurance index
(IUX.X), so it should come as no surprise that the bounce in the
IUX over the past couple days has lent some support to shares of
AIG.  Sure enough, the stock found support at $81.50 and
advanced to the $83.50 level on Tuesday on volume slightly above
the ADV.  Daily Stochastics have now reversed into ascent mode
and our play could be in jeopardy.  The stock began to weaken
late in the day, providing new entries for agile traders.  While
we can still target failed intraday rallies for establishing new
positions, we need to be cautious, especially as the stock
approaches our $84 stop.  The more prudent approach will be to
wait for a drop through the $83 intraday support level before
taking a position.

MEDI $38.52 -0.77 (-2.07) The Biotech bullishness from late last
week faded into obscurity on Monday and MEDI felt the bearish
pressure, returning to its losing ways.  The downtrend that has
been in place for the past month is showing no sign of
reversing, and positive days continue to provide attractive
entry points for the next downward leg.  The 10-dma (currently
$41) is providing consistent resistance, prompting us to ratchet
the stop down to $41 tonight.  Reinforcing the bearish case,
MEDI fell through the $39 support level on Tuesday, posting its
lowest close since the middle of May.  With volume increasing to
60% over the ADV, it looks like there may still be some room to
fall before the stock finds a bottom.  Look for continued
weakness in the Biotechnology index (BTK.X) to keep the stock
in descent mode.  Target new entries either on a drop through
the $38 level or on a rollover from the $40-41 level.

PDII $64.50 +1.38 (-0.20) The bulls tried valiantly on Tuesday
to reverse PDII's recent decline but it looks like they may have
bitten off more than they could chew.  With the stock advancing
to the $65 level, the bears flexed their muscle and capped the
stock's advance right there.  The subsequent decline was fairly
mild, but resistance is looking solid, providing for attractive
entries near that level.  Our stop is now at $66, as a close
above that level would tilt the scales in favor of the bulls and
would have us moving to the sidelines.  The broad market advance
on Tuesday is likely the primary catalyst for the day's gains
and if it fails to follow through, we should get another failed
rally entry in the $65-66 range.  Alternatively, wait for
renewed weakness in the form of a drop through the $61.50 level
(near the lows from Monday) before initiating new positions.


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.sungrp.com/tracking.asp?campaignid=2215
**************************************************************


**************
NEW CALL PLAYS
**************

WLP - WellPoint Health Network $107.00 +1.50 (+3.99 this week)

WellPoint Health Networks, one of the nation's largest publicly
traded managed health care companies, serves the health care
needs of approximately 7 million medical members and approximately
30 million specialty members nationally.  The company offers a
broad spectrum of quality network-based health plans, including
health maintenance organizations (HMOs), preferred provider
organizations (PPOs), point of serves (POS) plans, other hybrid
plans, and traditional indemnity products.

The market is in search of consistency and visibility.  WellPoint
has both.  The company recorded another solid quarter last week,
which has helped to propel the stock above its near-term,
relative highs this week.  What's more, the stock is a leader
within its sector.  The S&P Health Care Index (HCX.X) rebounded
in a big way Tuesday, following its recent pullback.  And although
the HCX eased into the close of trading, it did take out some
significant resistance Tuesday which should allow for it to work
higher over the short-term, market permitting.  Traders can keep
a close watch on the HCX when gauging WLP.  If the HCX advances
above 835 this week, new positions can be entered at WLP's
current levels with a short-term, upside target at $110.  Those
who prefer to enter on pullbacks can also use the HCX as an
indicator.  The HCX has solid support at 820, and lower around
810.  A bounce from either level in conjunction with a bounce in
WLP from its support could allow bullish traders to enter new
plays.  In terms of support, WLP should attract buyers around
$105.  Just below, our stop lies at $104.  Bullish traders in
WLP should monitor the S&P 500 (SPX.X) for broad market
indication, keeping in mind, however, that WLP is more of a
defensive issue and can attract capital while sectors such as
tech and finance are weak.

BUY CALL AUG-105*WLP-HA OI=599 at $4.50 SL=2.75
BUY CALL AUG-110 WLP-HB OI=283 at $2.05 SL=1.25
BUY CALL SEP-105 WLP-IA OI=  2 at $7.30 SL=5.25
BUY CALL SEP-110 WLP-IB OI= 15 at $4.80 SL=3.00

Average Daily Volume = 836 K



TGH - Trigon Healthcare $68.48 +1.31 (+1.55 this week)

Based in Virginia, TGH is a managed healthcare company, serving
over two million members primarily through statewide and
regional provider networks.  The company divides its business
into four segments, which include health insurance, government
programs, investments and all other.  The health insurance
segment provides a comprehensive spectrum of managed care
products primarily through three network systems with a range
of utilization and cost-containment controls.  The government
is TGH's largest customer, as the company services the Federal
Employee Program.  The 'all other' category includes disease
management programs, third-party administration for medical
and workers compensation, and health promotions.

HMO stocks got a shot in the arm on Tuesday as Health Net
announced inline earnings results for the quarter, advancing
more than 11% on the day.  This bullish sentiment pervaded the
whole sector today, and TGH tacked on a healthy $1.31 gain as
well.  The stock has been in rally mode for the past week
anyways, after finding support near $65.  Mimicking the broader
markets, TGH has had fairly light volume the past two days, and
that is really the only weak point in the play.  TGH is
challenging its $69 mid-July highs, and this time the daily
Stochastics oscillator is cooperating, having moved solidly into
ascent mode.  With earnings just 2 weeks away (TGH announces its
results the morning of August 14th), this could be the beginning
of a run into earnings.  The Healthcare Payor index (HMO.X) is
looking bullish too with its daily Stochastics emerging from
oversold and the price recovering from the $400 level.  Target a
dip to support at $68 or $67 for new entries, and enter as price
rebounds with the assistance of increasing buying volume.
Conversely, wait for the return of volume to propel the stock
through the $69 resistance level before taking a position.  We
are initially placing stops at $66.50, just below the 10-dma at
$66.82.

BUY CALL AUG-65*TGH-HM OI=275 at $4.40 SL=2.75
BUY CALL AUG-70 TGH-HN OI=220 at $1.40 SL=0.75
BUY CALL OCT-65 TGH-JM OI=160 at $7.50 SL=5.25
BUY CALL OCT-70 TGH-JN OI= 34 at $4.80 SL=3.00
BUY CALL OCT-75 TGH-JO OI=181 at $2.80 SL=1.50

Average Daily Volume = 310 K



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

CHKP - Check Point Software $44.24 +1.73 (-0.20 this week)

Check Point Software is the worldwide leader in securing the
Internet.  The company's Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure
and reliable Internet communications.

We're not quite sure if bears can see the color red.  But
they seem to be indifferent to Code Red nonetheless.  The most
recent hacker scheme has given security software shares a recent
pop, but that may be short-lived.  For its part, CHKP rallied up
to a long standing bearish resistance line Tuesday, but failed
to follow-through as the stock rolled over, following the lead
of the Nasdaq.  Whether or not the latest computer bug in the
form of Code Red had anything to do with CHKP's recent rally
is difficult to intelligently quantify.  But the overriding
theme of trouble in tech should continue to pressures shares of
the software maker, especially if the Nasdaq pulls back from its
current levels.  Entering puts at current levels in CHKP does
offer a solid reward versus risk dynamic.  That's because we've
set our stop at the $46 level, which should allow for sound risk
management.  While the potential reward on the downside could
see CHKP visiting the $40 in the short term.  That simple
calculation gives this play a favorable 2-to-1 reward/risk
ratio.  Perhaps higher if the Software Sector (GSO.X) rolls
over from current levels.  On that note, monitor the GSO when
gaming entries into CHKP puts.  A momentum-based entry strategy
would be to wait for the GSO to display weakness and enter new
positions should CHKP breakdown below $43.

BUY PUT AUG-45*KEQ-TI OI=1497 at $3.30 SL=2.00
BUY PUT AUG-40 KEQ-TH OI=3790 at $1.20 SL=0.50

Average Daily Volume = 10.5 mln



ADBE - Adobe Systems $37.49 -3.05 (-5.57 this week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Doing its part to put a damper on the Software sector, ADBE
issued a revenue warning yesterday, citing weakness in all of
its business segments due to the continuing global economic
weakness.  Even though the company said they would meet their
earnings forecast, the damage to investor psychology was done,
as evidenced by the price action on Tuesday.  The $40 support
level failed at the open and continued right up to the closing
bell, with the stock posting its first close below $38 since
April 9th.  With selling volume heavy at nearly 6 million
shares, it looks like a significant breakdown in the share price
is in process.  The Point and Figure chart agrees with a
double-bottom breakdown today painting a bearish picture.  The
recent breakdown forecasts a bearish price target of $29.
Significant support exists at $37, and a drop through that level
will likely galvanize the sellers to take aim on that $29 level
in the days ahead.  Weakness is developing on the Software index
GSO.X) as well, as it has been unable to break through the $200
resistance level and we now have bearish stochastics divergence
developing on the daily chart.  Target failed intraday rallies
in the $39-40 level for new positions and place stops at $41.
Alternatively, wait for confirmation of the stock's weakness as
it falls through the $37 level on continued strong volume.

BUY PUT AUG-40*AEQ-TH OI= 218 at $3.80 SL=2.25
BUY PUT AUG-35 AEQ-TG OI=1279 at $1.40 SL=0.75
BUY PUT SEP-40 AEQ-UH OI= 144 at $5.30 SL=3.25

Average Daily Volume = 3.85 mln



************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.sungrp.com/tracking.asp?campaignid=2223
**************************************************************


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

MEDI - MedImmune Inc. $38.52 -0.77 (-2.07 this week)

MedImmune is a biotech company focused on developing and
marketing products that address medical needs in areas such as
infectious disease, autoimmune disorders, cancer, and
transplantation medicine.  The company has six products on the
market and a diverse product development portfolio.  The
products currently on the market include Synagis, CytoGam,
RespiGam, Ethyol, Neutrexin, and Hexalen.

Most Recent Write-Up

The Biotech bullishness from late last week faded into obscurity
on Monday and MEDI felt the bearish pressure, returning to its
losing ways.  The downtrend that has been in place for the past
month is showing no sign of reversing, and positive days continue
to provide attractive entry points for the next downward leg.
The 10-dma (currently $41) is providing consistent resistance,
prompting us to ratchet the stop down to $41 tonight.  Reinforcing
the bearish case, MEDI fell through the $39 support level on
Tuesday, posting its lowest close since the middle of May.  With
volume increasing to 60% over the ADV, it looks like there may
still be some room to fall before the stock finds a bottom.  Look
for continued weakness in the Biotechnology index (BTK.X) to keep
the stock in descent mode.  Target new entries either on a drop
through the $38 level or on a rollover from the $40-41 level.

Comments

MEDI continues to trade heavily, as evidenced by Tuesday's price
action relative the Biotechnology Index (BTK.X).  Further downside
should be seen with any weakness in the broader markets.  Bearish
biotech traders can look to enter new positions early Wednesday
if the BTK is in the red and MEDI falls below Tuesday's intraday
low at $38.34.

BUY PUT AUG-40*MEQ-TH OI=555 at $3.10 SL=2.00
BUY PUT AUG-35 MEQ-TG OI=867 at $1.00 SL=0.50

Average Daily Volume = 2.66 mln



*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
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.sungrp.com/tracking.asp?campaignid=2203
************************************************************


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives