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Daily Newsletter, Thursday, 08/02/2001

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The Option Investor Newsletter                 Thursday 08-02-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        8-02-2001          High      Low    Volume Advance/Decline
DJIA    10551.18 + 41.17 10609.65 10513.47 1.22 bln   1781/1275	
NASDAQ   2087.36 + 19.00  2103.16  2061.75 1.66 bln   1853/1771
S&P 100   626.27 +  2.66   629.20   623.56   totals   3634/2986
S&P 500  1220.75 +  4.82  1226.27  1215.31
RUS 2000  488.99 -   .25   491.89   486.53
DJ TRANS 2940.59 +  6.81  2941.71  2903.31
VIX        23.28 +  0.30    23.80    22.57
Put/Call Ratio      0.55
******************************************************************

Bullish News Breaking Out All Over!

Merrill Lynch, Goldman Sachs even Intel gets into the act. Everyone
is aware of the upgrade of eleven chip stocks by Merrill Lynch on
Wednesday which lit the rally fire. Not to be out done, Goldman
Sachs promptly sent Abbey Joseph Cohen out to trumpet her year end
numbers and a new "the worst is over message." Also, in an effort
to grab the spotlight Intel CEO, Craig Barrett, said chips had
bottomed and lent the credibility of Intel to the Merrill chip
upgrades. All is well in tech land or so everyone would have you
believe.







The major indexes are poised to break out of overhead resistance
that has held for over a month. It has been an uphill battle as
the Dow has bounced off 10600 for three days in a row only to
fall back again. The Nasdaq saw daylight over 2100 for about ten
minutes Thursday before falling back to negative territory for a
regroup.

I have been quoting these two levels for several weeks and every
time they were touched they failed. It is a very good possibility
that their time has come and a rare August rally is about to break
out. Shorts are getting scared and contrary to the patterns from
earlier in the week of selling off in the afternoon, there was a
buy spurt at the close on Thursday. Shorts afraid of holding over
the jobs report on Friday? Could be! The unemployment numbers
on Thursday were surprisingly positive and caught traders by
surprise. Secondly the trend of public announcements could start
at any time. By this I mean the "jump on the bandwagon" type that
appear positive even when nothing is said.

The Intel announcement appeared positive with statements about
low inventory overhang and improving sales expected in the 4Q.
However the real facts are Intel never had an inventory overhang
like Cisco for instance. Intel was ramping up the new processors
and still selling chips two and three generations old. The
breadth of their product line keeps them from being a one trick
pony. Sales of the P4 processor were only 25% of analysts estimates
but they did not make an extra hundred million or so just because
they did not yet have the capacity. But, I am getting distracted
here. They are saying things about improvements in the 4Q which
got retail investors excited. However they are basing this news
on "the expected return of seasonal buying trends," not new demand.

Intel was widely credited today with energizing the markets with
their bullish remarks which were really not new or bullish at all.
Still they get the credit. Now we can expect other companies eager
to grab their share of the spotlight to come out with their own
"we think the worst is over" press releases. They will be hard
pressed to say anything concrete after "zero visibility" comments
with their recent earnings. Still the lure of fame and hopes to
improve the fortunes of their stockholders will provide ample
opportunities to posture. AMD promptly fired back at Intel and
took exception with their comments. Using the term "give me a
friggin break", CEO Sanders said "Intel is just trying to appear
invincible when in fact they are not." "They are the most arrogant
group in the world." Sour grapes Mr. Sanders? Don't rain on our
parade! Issue your own bullish press release, the market could use it!

Don't get me wrong. I want to see a rally as much as anyone and
I will take it from any source available. It is just that there
is so much bullishness based on pure hope and no facts that there
is a good possibility there could still be problems ahead. The
Merrill Lynch upgrade of eleven chip stocks was laughable. "We
feel the chip sector may bottom in the next quarter or two and
we feel that the chip sector may improve in 3-4 quarters." No
jury in the world would convict you of being bullish or truthful
with that kind of qualification. Instead the Nasdaq has moved up
to within 13 points of major resistance.

Goldman Sachs fired back with their queen of spin, Abbey Joseph
Cohen, who actually said some bullish things without qualification
which is quite contrary to her usually scripted performance. "We
feel the worst is over and strongly recommend over weighting techs.."
Pretty bullish Abbey! She did affirm her year end targets for the
Dow of 12500 and 1550 on the S&P-500. Let's hope she is right!
That is almost a +2000 point gain for the Dow and +330 point gain
on the S&P in only five months.

Economic reports do not show any broad improvement yet. Factory
Orders for June fell almost twice as much as expected at -2.4%
although semiconductor orders posted a significant gain for the
second month in a row. This would lend some credence to the Merrill
upgrade even though the sector is a long way from healthy. The
biggest surprise today was the unemployment claims. With massive
layoffs still being announced the Jobless report posted its third
week of significant drops to 346K from a high of 449K on July 7th.
Continuing claims also fell. Analysts caution reading too much
into this report since seasonal auto and textile worker layoffs
cause big swings in the late summer months.

The economic reports on Friday include the NAPM and non-Farm payroll
report. The payroll report is the market mover and last months was
a shocker. Traders will be looking for signs of a recovery in this
report and the Fed will be looking for a reason to not cut rates
again at the Aug-21st meeting.

The Nasdaq has now posted five days of gains out of the last six
days. Sounds good but the total gain was only 65 points. The
sell off early on Thursday on what was interpreted as bullish
Intel comments showed that there are still sellers in the house.
The advance/decline ratio on the Nasdaq was 18:17 or basically
a dead heat. There is still not a ground swell of bullish buying.
However, this stealth rally has quietly snugged up to within 13
points of strong resistance. Every day here provides more explosive
potential once 2100 is broken. The basing pattern is very positive
and with the Dow knocking on the 10600 door three days in a row
it is possible we could see a breakout any day.

Volume is very high for August. 1.2 bil on the NYSE and almost
1.7 bil on the Nasdaq. I would be much happier to see more up
volume because 7:5 is not particularly bullish. This tight trading
range pattern with a bullish bias, no matter how slight, if very
encouraging. Earnings are basically over, which may be a good thing,
and enough momentum is being provided by company press releases and
analysts to challenge resistance. Wow, just think what will happen
when real data starts to show up!

This may sound like a bullish article. It is, but it is based on
market technicals not fundamental developments. Technically the
Dow and Nasdaq are poised to breakout Friday or Monday assuming
the jobs report is not a black hole and there is no negative
news from elsewhere in the world over the weekend. Actually the
switch by the Bush administration to supporting loans for
Argentina should remove the fuse from that powder keg as well. The
S&P has already broken resistance at 1217 and appears ready to
rock. The markets have been so beaten up over the last two months
that there appears to be little risk at this point. Considering
August is normally a bad month this is also encouraging. Big cap
tech stocks are showing signs of a recovery. The Dow and S&P both
had successful retests of the July 11th low.







While the economic conditions have not yet improved the rate of
decay has slowed. Consumers have started getting their rebate check
and heading to the malls. Sounds like a recipe for nibbling on stocks
and the heavier than normal August volume shows that bargain hunting
is alive and well. I said on Tuesday night that the bad news was
already priced in and all the market was waiting on was a good
news event. With the Merrill chip upgrade the following morning
and Abbey Cohen and Craig Barrett dueling for the press spotlight,
we got that positive news momentum. Tenuous at best but it is
momentum. Nasdaq 2100, time to go long? Yes, but be just as ready
to go flat should that level fail again!

Enter passively, exit aggressively!

Jim Brown
Editor


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

Sit Ubu, Sit.  Good Dog
By Jeffrey Canavan

After throwing a stick, it's hard to keep a dog from instantly
fetching it.  While trying to make the dog heel, his tail will
start wagging, his legs start shaking, and he starts barking.
When finally released, the dog explodes towards the stick.

Bullish traders are trying to be patient, but their tails are
starting wag, and their legs are starting to shake.  Each time an
economic report comes in better than expected, or another person
quips that "the worst is over," bulls become more and more
anxious.  Young pups rush in at the opening bell and bid stocks
higher, but the older and wiser mutts step in and sell into the
rallies, muting any significant gains.

Semiconductors continue to be the alpha male, gaining another
three percent, and closing above key resistance at 650.  The
major indices slightly retreated from resistance levels today,
but remain within striking distance.  Biotechnology, today's runt
of the litter, managed to recoup some of its losses, and closed
above support at 510.

With resistance levels starting to crack, and bullish percent
data reversing into bull alert and bull confirmed status, it
might be time for bulls to slowly start marking their territory.
As long as traders are thrown a positive news bone every now and
then, it certainly looks like the market wants to go higher.  But
each day stocks become a little more overbought, so it might be
wise to cautiously sniff around rather than blindly chasing
stocks.  Ironically enough, tomorrow is the last trading day for
August cattle options, will it be the last day of this mini bull
run?

Tomorrow's Scooby Snack takes the form of the unemployment
report, which is expected to show a 36,000 drop in payrolls, and
an up tick to 4.6 percent in the unemployment rate.

===

Market Volatility
The VIX and VXN temporarily halted their 6-day decline.

VIX   23.28
VXN   48.53

===

          Put/Call Ratio  Call Volume   Put Volume
Total           .55        660,924       363,290
Equity Only     .47        615,314       290,833
OEX             .95         10,603        10,055
QQQ             .25        120,228        29,656

===

Bullish Percent Data

The S&P 500 has turned into bull confirmed status, and the
Nasdaq-100 is one box away from going bull confirmed.

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    50     +12      Bull Alert
DOW           36       -      Bull Alert
S&P 500       54      +6      Bull Confirmed

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  1.22

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      1782           1279
NASDAQ    1849           1776

        New Highs      New Lows
NYSE      132             26
NASDAQ    113             61

===

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


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

Retracement Brackets 4.0
By Eric Utley

This is Part 4 of a series on the theory and application of
retracement brackets.  Please read Part 1, Part 2, and Part 3
if you haven't already.

Through the determination of potential support and resistance
levels, retracement brackets not only help traders game entry
points, but they also help to determine exit points.  That
much is probably intuitively obvious.  But it's worth a closer
examination.

The biggest difference between super traders/institutions and
amateurs/pikers is how the two view risk and reward.  Typically,
amateurs focus the greater part of their efforts on the reward
aspect of the equation.  This is most dangerous because it
clouds objectivity.  Conversely, super traders and institutions
give the most credence, by far, to risk.  Measuring risk,
monitoring risk, and managing risk.  Only after the risk in a
particular operation is fully quantified will a super trader
enter a position.

My reason for differentiating between pikers and pros is to make
it clear to my readers that only after fully investigating risk
should the thought of exit points be addressed.  It's the last
step in the equation of profits, and far less important than
measuring risks.

With that said, there are two ways of determining exit points
through the use of retracement brackets.  The first is
straightforward and rather rudimentary.

Last week, we set up a bullish trade on the Software Index
(GSO.X).  At the time, the GSO had rallied up to resistance at
189 - the 61.8 percent retracement level of the bracket measuring
the GSO's advance from late April to mid-May.  The 189 level
served as resistance as well as an action point.

Upon breaking above the 189 level, the GSO continued higher up
through Thursday.  And with our retracement levels in place, we
could already see ahead of time that the 200 level would act as
resistance, which is exactly what transpired Thursday.

For traders buying breakouts above retracement levels, an
intelligent way of determining an exit point is to turn to the
next retracement level in the bracket which could serve as
resistance.  (Just the opposite would be true for traders
shorting breakdowns below retracement levels.)  In the case of
the GSO, if we bought its break above the 61.8 percent
retracement level at 189, we could simply turn to the 50 percent
retracement level at 200 when searching for an exit point.  If
the GSO breaks above 200 in the coming sessions, we could then
turn to the 38.2 percent retracement level at 211 for an exit
point.




The second, and a bit more esoteric, method of determining an
exit point through the employment of retracement brackets
involves stocks breaking above relative highs or breaking down
below relative lows.

Retracement brackets measure either an advance or decline, then
slice that move up into parts: 38.2, 50, and 61.8.  The retracement
brackets can also be used to forecast future advances or declines
beyond the initial move that was measured.

Let's take a look at Emulex (NASDAQ:EMLX) to better illustrate
this method of determining exit points.  EMLX traced a relative
high on May 22 at $49.55.  The stock subsequently slid lower, and
traced a relative low on May 30 at $32.75.  If we had measured
the magnitude of the decline, we arrived at $16.80.  By multiplying
this number first by 127 percent, we arrive at $21.34.  If we
then subtract $21.34 from the stock's relative high at $49.55,
we can determine a future support level if EMLX took out its
relative low at $32.75.  Subtracting $21.34 from $49.55 gives a
future support level around $28.20.  We can repeat the process
with another multiplier: 161 percent.  Therefore, taking the
initial move of $16.80 and multiplying by 161 percent yields
$27.05.  Subtracting that number from the stock's high at $49.55
gives a second future support level around $22.50.

The chart below depicts the support levels forecasted by the
retracement bracket that measured EMLX's decline from $49.55 to
$32.75.  In short, $28.18 is the 127 percent retracement level
and $22.36 is the 161 percent retracement level.  And the chart
shows that bids materialized around those levels after EMLX
broke below the $32.75 level.  So a trader who shorted EMLX at
any price below $32.75 might have turned to the 127 or 161
percent retracement levels when searching for an exit point.




Fortunately, most software programs already have the forecast
retracement levels built in, so traders don't have to go
through the tedious calculations.  In essence, by measuring 127
and 161 percent of a stock's particular move a trader can
forecast future support or resistance levels once the stock
takes out its relative high or low that was used to measure its
initial move.  The numbers 127 and 161 come from a derivation of
the Fibonacci sequence and are used by market makers to measure
risk.

Send questions and comments to 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:
*****

LH $84.90 -1.45 (-5.90) Medical stocks came under heavy selling
pressure yesterday on the heels of the CI earnings warning.
Although LH held above its stop on Wednesday, the continuous
selling was too much for the bulls today as they let the stock
fall through our $86 stop.  Closing at the low of the day, LH
has now fallen below its long-term ascending trendline, making
a convincing case for sticking to our stops.

TGH $65.62 -1.59 (+1.31) Another victim of the CI earnings
warning, TGH managed to stem its losses yesterday, only to
continue bleeding today.  Volume was strong again as the stock
fell as low as $64.50 before finding any buying support.
Although the afternoon saw some decent buying interest, it
wasn't nearly enough for the stock to reclaim the $66.50 level,
the location of our stop.  The bullish trend has clearly been
broken, so we're dropping TGH and going in search of better
plays.


PUTS:
*****

No Dropped Puts for Thursday


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The Option Investor Newsletter                 Thursday 08-02-2001
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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*************************ADVERTISEMENT*********************
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index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

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


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

CSCO $20.25 -0.05 (+1.19) CSCO's close above the $20 level
Wednesday, and again Thursday, is a testament to the stock's
relative strength and bodes very well for further advancement
ahead of the company's earnings report on August 7.  However,
since picking up bullish coverage on CSCO, we've captured
almost $2 in the underlying.  While relatively small, the $1.87
we've captured in the underlying translates into a meaningful
gain in the options.  For the bullish traders who got into the
play early, start thinking about locking in some gains at
current levels.  Any future strength above current levels should
allow for favorable exit points for those traders with open
positions.  Going forward, bounces from the $19.50 to $20 range
may offer solid entry points, while the momentum crowd can look
for entries on strength above the $20.70 level.  The strategy
of entering on the dip has proven more successful than the
momentum based strategy recently, so keep that thought in mind
when trading CSCO.

JBL $33.02 -1.09 (+0.30) The contract manufacturing group as a
whole traded pretty well Thursday.  JBL's early run-up to the
$34.90 level could've allowed for traders to book some quick,
short-term gains as we suggested using the $35 level as a
short-term target.  For those traders who didn't use JBL's
strength to book gains early Thursday, the stock's relative under
performance through the remainder of the day is obviously a cause
for concern, and may have traders on alert.  Its weakness
Thursday may have been routine profit taking, but traders should
nevertheless be cautious going forward.  While our stop sits at
$31, traders can use their own discretion to snug up stops to
protect against any further weakness.  On the other hand, if JBL
rebounds Friday, traders can again turn to the $35 level for a
possible exit point.

BRCD $38.08 +0.38 (+6.40) BRCD traded in a fairly tight range
Thursday, which made it difficult to gain a solid entry point
into the play.  The stock's solid rebound into the close of
trading was encouraging, but we still need to see it trade above
the $40 level in the short-term to confirm our bullish leanings.
As for entry points, bullish traders might look to enter new
call positions around current levels if the Nasdaq is advancing.
Traders can also monitor the Hardware Index (GHA.X) for further
indication on BRCD's direction.  If the GHA decidedly moves
above 300 Friday, it may support further upside in BRCD.
Otherwise, pullbacks in the $37 vicinity may offer entry points
on weakness.

AHAA $40.36 +1.28 (+2.36) Like the Energizer Bunny, AHAA
continues to power higher in a very tradable stairstep pattern.
After piercing $40 resistance 3 times in the past week, the
stock finally managed a close above that critical level on
Thursday.  Continuing its predictable pattern of finding support
at its prior high, the stock fell back to the $39 level on
Wednesday, before moving through resistance in the final hour
on Thursday.  Given the stock's recent trading pattern, buying
the dips seems the most prudent strategy.  Target new positions
on a renewed dip to the $39 level, keeping stops in place at
$38.  More aggressive entries can be considered as AHAA pushes
through $41, but only if volume remains robust.

JDAS $21.05 -0.07 (+0.00) Can you say flat?  That is the only
way to describe the action in shares of JDAS this week, as the
stock has meandered in a $0.75 range between $20.75 and $21.50.
While it is frustrating to watch if you already have a position,
the defined range makes picking entries a little easier.  Target
new entries either on a bounce from the lower end of the range
or as JDAS breaks out above $21.50.  The rangebound trading
makes sense given the stock's recent rally from the $16 level as
JDAS consolidates its gains.  But we need to be on the lookout
for more significant profit taking, as the daily Stochastics
oscillator has now rolled over and dropped out of overbought
territory.  Keep stops set at $20.

MERQ $40.18 +0.71 (-0.04) It isn't pretty, but MERQ finally
managed to post another close above $40.  This level has acted
as a price magnet for the past week after MERQ managed to
breakout last Thursday.  Support is building near $38, and
intraday dips near this level will make for attractive entry
points as we wait for the stock to get moving again.  Volume
is providing little help, as it meanders around the ADV, and we
will need to see it pick up before we'll know the rally is for
real.  Momentum traders will want to see MERQ clear $41 on solid
volume before initiating new positions.  Keep stops in place at
$36.

PHCC $25.35 +0.27 (+0.57) Mimicking the broad markets' reluctant
advance, shares of PHCC posted a gain on Thursday, but not by
much.  The bulls are trying to consolidate the recent gains and
hold the price above $25, and if the broad markets can continue
their ascent through resistance, this level could provide a
launching pad for the next leg of the stock's advance.  Volume
has dwindled to only two-thirds of the ADV over the past week,
and we will need to see it increase if PHCC is going to continue
higher.  Intraday dips near the $24 support level will make for
attractive entry points, especially if the bounce is accompanied
by increasing volume.  Momentum traders will want to wait for
the stock to clear the $26 level before adding new positions.
The next major resistance to clear is sitting at $28, near the
top of the gap down from early July.  Keep stops at $23, as a
drop below that level would push PHCC off of its current
recovery path.


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

DIGL $20.30 -0.30 (-0.08) Different day, same story.  DIGL just
can't stay above the $21 level.  That much is the reason for
keeping the play alive, although it's essentially traded
sideways for about a week-and-a-half.  Traders need to be
careful of the time decay element in a sideways market such as
DIGL's.  Therefore, it may be prudent to wait for weakness
below the $20 level before considering entering new plays.
Although rollovers from the $21 area may offer better risk/reward
entries.  We'll give the stock one more day to breakdown,
otherwise we'll move onto more beta.

CHKP $45.77 +0.28 (+1.33) CHKP closed just below our stop at $46
Thursday.  Because of that, we're on alert for further strength
in the stock Friday.  As such, bearish traders should be extra
careful when considering new plays.  Keep close tabs on the
COMPX.  Also worth monitoring is the Software Index (GSO.X).  If
the GSO gets above 200 Friday, CHKP is likely to follow its lead.
At this juncture, traders should wait for weakness in the COMPX
and GSO before considering new put plays in CHKP.

ADBE $38.55 -0.06 (-4.51) Shares of ADBE are still under
pressure following the software firm's earnings warning on
Monday.  Bulls in the Software index (GSO.X) have managed to
push right up to the $200 resistance level, but that hasn't done
much for the bulls.  Yesterday's buying only brought the stock
up to $39.50 before the bears resumed their attack bringing the
stock back near $37 this morning.  Technology stocks saw some
buying this afternoon, lifting ADBE to just under the $39 level.
There is a short term bearish wedge forming over the past couple
days, and waiting for this pattern to break will give us higher
odds of success.  The base of the wedge is just above $37, the
site of major support.  A break below this level looks
attractive for new entries, while more aggressive traders can
target failed rallies in the $39-40 range.  Keep stops set at
$41.

AIG $82.45 -0.15 (+0.73) Sure enough, the highs on Tuesday
provided an attractive entry for AIG as the stock proceeded to
break down yesterday on the heels of Cigna's earnings warning.
We got a bit of a recovery on Thursday, but that only brought
the stock up to the $82.50 level at the close, despite the
strong volume.  The Insurance index (IUX.X) can't build any
upward momentum, and that should continue to keep AIG under
pressure.  The current range still looks tradable as we continue
to target entries near the $84 resistance level and take profits
near the $81.50 support level.  Keep stops in place at $84 and
look for fresh entries in the days ahead as the bulls run out of
steam near resistance, reinforced by the descending 50-dma at
$83.23.

MEDI $37.38 -0.91 (-3.21) Another profitable Biotech play, MEDI
continues to drift lower, helped along by the Biotechnology
index (BTK.X), which just can't seem to gain any traction.  The
recent ban on all cloning activity isn't helping to motivate
buyers in the sector and MEDI has now dropped to significant
support in the $36-37 area.  While there may be further downside
in the play, we would advise taking some profits off the table
and waiting for a bounce before re-entering the play.  Daily
stochastics are buried in oversold and are starting to turn up,
so a modest recovery could be at hand.  Lower stops to $38.  A
weak bounce tomorrow could provide for fresh entries on a
rollover below our new stop, but beware of anxious bulls.

PDII $57.34 -5.16 (-7.36) Our much-anticipated breakdown
appeared in PDII on Thursday as the bears overwhelmed the
weakening bulls.  After testing the $63 support level several
times in recent days, PDII fell through that level on heavy
volume on Thursday, coming to rest just above $57.  Since
picking the play at $70, the stock has fallen almost $13,
giving us some pretty juicy gains.  Even though the daily
stochastics is still falling, the prudent course of action
would be to lock in some profit at current levels and wait
for a new entry point, as a near-term bounce seems likely.
We're lowering our stop to $61 tonight.  Any bounce that fails
to clear this level could provide for new entries, but we'd be
cautious entering new positions on a drop under today's lows,
as there is significant support waiting near $55.


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

SUNW - Sun Microsystems $18.17 +0.82 (+1.88 this week)

Sun Microsystems is a worldwide provider of products, services
and support solutions for building and maintaining network
computing environments.  The company sells scalable computer
systems, high speed microprocessors and high performance
software for operating network computing equipment and storage
products.

The SUNW is shining again.  For the past two weeks, shares of
Sun Micro have been steadily working higher, en route to taking
out a 3-month bearish resistance line on its point & figure
chart.  So at this point, SUNW is definitely a momentum play as
it closed Thursday's session at about a two month high.  Bullish
traders should take that much into account before entering new
positions.  But SUNW could certainly continue working higher if
the COMPX breaks out above 2100.  In fact, SUNW has traded better
than the COMPX over the past two weeks, relatively speaking.
Therefore, any further strength in the COMPX should be led by
SUNW.  Not only is SUNW's relative strength and momentum
attractive, but its options are rather cheap due to the low cost
to carry and implied volatility.  As such, if we can capture $2
in the underlying stock, we should be able to reap some solid
gains in the options.  A $2 advance from current levels would put
SUNW right around the psychologically significant $20 level -
that'll be our short-term, upside price target in this play.  To
begin with, we're setting a loose stop at $16.  Traders should
take into account their own risk tolerance and trading style
when determining a proper stop loss.

BUY CALL AUG-17.5 SUQ-HW OI=34196 at $1.15 SL=0.50
BUY CALL AUG-20.0 SUQ-HD OI=12665 at $0.25 SL=0.00
BUY CALL SEP-17.5*SUQ-IW OI=15634 at $2.00 SL=1.00
BUY CALL SEP-20.0 SUQ-ID OI= 4579 at $0.95 SL=0.25
BUY CALL OCT-20.0 SUQ-JD OI=18468 at $1.30 SL=0.50

Average Daily Volume = 39.9 mln



MSFT - Microsoft $67.45 +0.98 (+1.98 this week)

Microsoft develops, manufactures, licenses and supports a wide
range of software products for a multitude of computing devices.
Microsoft software includes scalable operating systems for
servers, personal computers and intelligent devices, server
applications for client/server environments, knowledge worker
productivity applications, and software development tools.

Forget about the drama in the courts.  Forget about the conflict
with AOL-Time Warner.  If the technology sector is going to
advance, MSFT will participate.  For its part, MSFT has been
languishing near super significant support for the last two
weeks.  The stock continues to bounce above the $65 level, and
for good reason.  Aficionados of point & figure charting will
note that MSFT's long standing bullish support line currently
sits at $65.  The support line has been in place since late
March and has not yet been broken.  Furthermore, the last time
MSFT rebounded from its support line it traded up to $73.  We're
betting that the stock will repeat again, that is IF the COPMX
continues advancing.  At this point, the risk versus reward
is most favorable because the risk in MSFT at current levels is
easy to quantify and manage.  Traders can use a relatively tight
stop just below current levels (our stop is at $64) and could
potentially see upside to the $70 area.  Again, MSFT needs the
COMPX to breakout above 2100, which should free the stock from
some supply and allow it to trade higher.  Also worth noting
is that MSFT, for the first time since early July, closed above
its 10-dma Thursday, which currently sits at $66.79.  That
level may serve as support going forward, and offer entry points
on weakness.  In terms of entering new call plays on strength,
bullish traders can use an advance above Thursday's intraday
high at $67.54 to enter new positions.  Finally, keep a close
watch on the Software Index (GSO.X).  If it can decidedly
advance above 200, then MSFT should be able to pop higher.

BUY CALL AUG-65*MSQ-HM OI=41144 at $3.50 SL=1.75
BUY CALL AUG-70 MSQ-HN OI=61992 at $0.80 SL=0.25
BUY CALL SEP-65 MSQ-IM OI= 3417 at $5.30 SL=3.25
BUY CALL SEP-70 MSQ-IN OI= 4199 at $2.50 SL=1.25
BUY CALL OCT-70 MSQ-JN OI=20347 at $3.80 SL=2.50

SELL PUT AUG-65 MSQ-TM OI=39717 at $0.85 SL=1.75
(See risks of selling puts in play legend)

Average Daily Volume = 35.6 mln



CDWC - CDW Computer Centers $48.93 +3.25 (+6.39 this week)

Providing customized computing solutions to its customers, CDWC
is a direct marketer of over 80,000 computer products, including
hardware, software, peripherals, networking/communication and
accessories.  The company provides a nearly endless list of
products, from companies such as Apple, Canon, Epson,
Hewlett-Packard, IBM, Microsoft, Adobe, Cisco, and 3Com.
Using catalogs, telesales, and the Internet, the company has
over 630,000 customers and receives most of its business
online.

The recent series of upgrades in the Semiconductor sector are
having far reaching effects, with investors making the leap in
logic that an improvement in chip sales means increasing
computer and computer equipment sales.  Whether or not there is
any merit to that argument, there is no disputing the strength
on the CDWC chart.  The stock broke above the $40 resistance
level a couple weeks ago, consolidated its gains on light volume
before entering rally mode in the past 2 days.  Volume hit
almost double the ADV on Thursday as the stock surged through
the spring highs near $47, closing at its highest level since
late November.  While the stock is just below solid resistance
at $50, it looks like momentum is on the side of the bulls for
now.  The Point and Figure chart agrees, showing an ascending
triple-top breakout with the stock's move on Thursday.  Target
new entries on a successful retest of the $45 support level or
wait for a move through $50 before taking a position.  Keep an
eye on the volume, as we need it to remain robust for CDWC to
continue its advance.  We are initially placing our stop at $44.

BUY CALL AUG-45 DWQ-HI OI= 332 at $5.00 SL=3.00
BUY CALL AUG-50*DWQ-HJ OI= 101 at $2.10 SL=1.00
BUY CALL OCT-45 DWQ-JI OI=4396 at $8.50 SL=6.00
BUY CALL OCT-50 DWQ-JJ OI= 737 at $5.80 SL=3.75

SELL PUT AUG-45 DWQ-TI OI= 113 at $0.90 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 614 K



MXIM - Maxim Integrated Products $51.06 +2.16 (+6.54 this week)

MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

The Semiconductor stocks have had plenty of bullish news this
week, with analyst upgrades, and the like.  Today, Intel's CEO
had positive things to say as well and the Semiconductor index
(SOX.X) continued its advance, clearing the $650 level at the
close.  MXIM has been moving nicely the past couple days also.
After breaking out above the $46-47 level on Wednesday, buyers
continued to flock to the stock, sending it above the $50
resistance level on heavy volume.  Daily stochastics are now
deep in overbought territory, but with earnings approaching on
August 16th, this could be the beginning of a momentum run into
that event.  The road ahead is littered with potential land
mines though, mainly in the form of overhead resistance, first
at $52 (reinforced by the 200-dma at $52.75) and then $55.  With
the 50-dma ($47.08) now in the rear view mirror again, it should
help provide support in case of any near-term weakness.  We are
targeting a dip to intraday support at $49 or $48 for new
entries, with our stop initially placed at $47.  Momentum
players will need to see the stock clear the 200-dma before
initiating new positions.  Keep a sharp eye on the volume; if
it starts to dry up, that will be an early warning that the
bulls are losing their conviction.

BUY CALL AUG-50*XIQ-HJ OI=2384 at $3.60 SL=1.75
BUY CALL AUG-55 XIQ-HK OI=2926 at $1.35 SL=0.50
BUY CALL OCT-50 XIQ-IJ OI=1053 at $5.50 SL=3.50
BUY CALL OCT-55 XIQ-IK OI= 398 at $3.30 SL=1.75
BUY CALL OCT-60 XIQ-IL OI= 270 at $1.75 SL=1.00

SELL PUT AUG-45 XIQ-TI OI=5065 at $0.90 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 4.43 mln



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

CHBS - Christopher & Banks Corp. $24.00 -2.00 (-4.39 this week)

Formerly known as Braun's Fashions, Christopher & Banks is a
Minneapolis-based regional retailer of women's specialty
apparel.  CHBS sells sportswear, sweaters, dresses, and
accessories in nearly 250 stores, spread over 27 states, mostly
in the northern U.S.  The company is currently expanding its
offerings for larger women with a new store format - C.J.
Banks - which will carry plus-size apparel.  The C.J. Banks
concept is expected to launch with 20 stores by the end of 2001.

If you're looking for a bearish play in the Retail sector, look
no further than CHBS.  Sellers have been ruling the roost with
the stock since it topped out at $47 in late May.  Since then, it
has taken a 49% haircut and the selling volume is on the rise
again hitting 150% of the ADV on Thursday.  All this while the
Retail index (RLX.X) is attempting to break out above the
formidable $920 resistance level.  As a matter of fact, RLX is
looking top-heavy near current levels, with the formation of
bearish stochastics divergence on the daily chart.  So we're
following our pattern of picking on the weakling in a sector
that looks like it is ready to head down.  Add in the fact that
CHBS fell through its $25 support level (which had held since
February) and closed at its lowest level since late January.
Daily stochastics are deep in oversold already, so this is
plain, old-fashioned momentum play, but to the downside.  The
$25 level should now act as resistance, but if not, we have
more resistance looming overhead at $27, the level of our stop.
Failed rallies near these resistance levels will provide the
best entries, although momentum players can also consider new
positions on a volume-backed move below $23.50.  Look for
support to materialize at $22 and then $20, as CHBS heads down
for a retest of its December lows near $15.

BUY PUT AUG-25*URH-TE OI=291 at $2.25 SL=1.00
BUY PUT SEP-25 URH-UE OI=139 at $3.50 SL=1.75

Average Daily Volume = 554 K



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

MERQ - Mercury Interactive $40.18 +0.71 (-0.04 last week)

As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.

Most Recent Write-Up

It isn't pretty, but MERQ finally managed to post another close
above $40.  This level has acted as a price magnet for the past
week after MERQ managed to breakout last Thursday.  Support is
building near $38, and intraday dips near this level will make
for attractive entry points as we wait for the stock to get
moving again.  Volume is providing little help, as it meanders
around the ADV, and we will need to see it pick up before we'll
know the rally is for real.  Momentum traders will want to see
MERQ clear $41 on solid volume before initiating new positions.
Keep stops in place at $36.

Comments

MERQ's close above $40 Thursday may portend strength into
Friday's session.  Watch the COMPX and GSO.X for indication of
market and sector direction.  Entries at current levels could
be taken if both the COMPX and GSO.X are advancing.

BUY CALL AUG-35 RQB-HG OI= 922 at $6.40 SL=5.00
BUY CALL AUG-40*RQB-HH OI=2295 at $2.95 SL=2.00
BUY CALL AUG-45 RQB-HI OI=6750 at $1.10 SL=0.75
BUY CALL OCT-40 RQB-JH OI=3249 at $7.20 SL=5.25
BUY CALL OCT-45 RQB-JI OI=4284 at $5.00 SL=3.25

Average Daily Volume = 4.41 mln



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