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Daily Newsletter, Tuesday, 08/07/2001

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The Option Investor Newsletter                  Tuesday 08-07-2001
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        8-7-2001          High      Low     Volume Advance/Decline
DJIA    10458.74 + 57.43 10472.72 10376.05  .97 bln   1702/1382 
NASDAQ   2027.79 -  6.47  2043.48  2013.75 1.28 bln   1741/1941
S&P 100   618.71 +  3.50   619.70   613.13   Totals   3443/3323
S&P 500  1204.40 +  3.92  1207.56  1195.64
RUS 2000  480.33 -  0.63   481.19   477.49
DJ TRANS 2921.46 + 13.19  2922.67  2898.05
VIX        22.65 -  1.09    23.46    22.56
Put/Call Ratio      0.81
******************************************************************

Three Days And Counting!

The Nasdaq has posted three down days in a row on three of
the lightest volume days of the year. The analyst war over the
fate of semiconductors took center stage while investors waited
for Cisco earnings. Microsoft called for help and Emulex can't
get any. Just another trading day in August.







CS First Boston took exception with the Merrill Lynch chip upgrade
last week and took revenge with a downgrade of twelve chip stocks
to hold from buy. Analyst Charlie Galvin said valuations in the
sector were expensive based on the recent chip rally. He felt
that the current inventory glut would take all of 2002 to remedy
and based on this chip stocks were 20-30% over valued. Some of
the big names in his downgrade were AMAT, KLAC, NVLS, ASML, ALTR,
AMCC, ATML, LSCC, MXIM. He did leave buy ratings on LRCX, BRKS,
DPMI and FEIC. The downgrade put pressure on the Nasdaq as PC
and storage stocks also fell on the news. Ahead of the Cisco
earnings tech stocks were especially vulnerable to these negative
comments. The Semiconductor Index had soared over +15% in the
last two weeks and profit taking was due.

The big news that has kept a lid on the tech sector this week
was of course the Cisco earnings after the close tonight. Cisco
announced earnings inline with estimates of two cents and posted
more than an 80% drop in earnings compared to last year. Sales
in some areas are improving but others were still "challenging."
After initially trading up on the announcement that inventory
had dropped -$572 million, the conference call removed those
gains. They said earnings would be flat to -5% down for next
quarter, overseas sales could get worse before they got better
and future quarterly growth could be in the low single digits.
When pressed about their previous estimates of +30-50% annual
growth, Chambers said it was still "possible" but that it would
be a "stretch." Not what the market wanted to hear. CSCO and
all the Cisco related suppliers promptly lost all the after
hours gains and were heading down. One item that almost escaped
notice was a cut in R&D spending of $77 million which would
have brought CSCO in a penny light. Managing earnings John?
In an interview he said they were "cautiously optimistic" about
the future but were not ready to "call the bottom" yet. He said
their enterprise business had leveled off and book to bill was
greater than one. He said they gained significant market share
over Lucent and Nortel and 3-5 points from Juniper. He said
turns went from 3.9 to 4.6 and suppliers in their growth
products could see an increase in orders soon. He emphasized
that CSCO has $19 billion in cash and was in a much better
position than his competitors.

Emulex announced earnings after the close and beat the street
by a penny with eleven cents but warned that revenue would
fall to $55 million for the next quarter compared with analyst's
estimates of $62 million, and a penny light on earnings at nine
cents. They warned that full year revenue would be $250 million
compared to estimates of $279 million. The storage sector sold
off on the news. Aspen Technology also announced earnings and
then warned of a shortfall ahead. Serena Software also warned
that earnings would fall.

Earnings in non-techs were not any better with a warning from
Conseco that if business conditions remain on their present
course they will have a $50 million short fall over the next
two quarters. Zale Corp (ZLC), Carreker (CANI), Mandalay Resorts
(MBG) were among others who confessed that they would miss.
There were some pleasant surprises from companies that most
investors have never heard of like AMRI, OPTN, RCCC, MET,
HPT and ETM which announced decent earnings.

Microsoft decided to call for help to the Supreme Court. The
equivalent of a "hail Mary" pass as the case was about to expire
and return to the lower courts for a new penalty assessment,
could put the decision on hold for another couple months.
Should the Supreme Court decide to hear it then Microsoft
would benefit from months or even years before the final
decision. Should the court decide not to hear it then nothing
changes. They seem to have nothing to lose and everything to
gain. Their claim is that Judge Jackson was so biased that
nothing he ruled on could be considered impartial. If MSFT
is successful on getting the "illegal monopoly" label removed
then the many class action suits by users could also be killed.
Observers feel MSFT has little chance of getting the case heard
by the Supremes but the move could allow them to release the
XP version of Windows without judicial intervention.

The productivity crash predicted for Tuesday by Dresdner Bank
failed to appear. Productivity gained +2.5% compared to estimates
of only +1.5% and far in excess of any drop expected by Dresdner.
This was definitely a positive report which means the steps
manufacturers are taking to trim costs are making an impact.
Increases in productivity come when more goods are produced
by the same number of people or the same output is maintained
by fewer workers. Layoffs historically increase productivity
since the remaining workers tend to assume more duties without
an increase in labor costs. This means the same goods are
produced for less cost. This quarter output of goods grew
slightly while hours worked fell -2.4%. This was the largest
drop in hours in a quarter since the last recession in 1991.
Dresdner had also forecast a revision in the first quarter
estimate downward and instead it was actually revised
upward to 0.1 from -1.2%. The crash prediction that muddied
the markets on Friday is now history and it may be sometime
before Dresdner repeats such a highly visible market call.

Wednesday is a toss up. Futures and QQQs are down slightly
after the CSCO earnings and cautious guidance. The name of
the game is rotation. There are no safe sectors. Every sector
is taking its day in the spotlight and then getting hammered
a day or two later. Biotechs, semiconductors, homebuilders,
energy, networkers, drugs, basic materials, none are immune.
Welcome to August trading. No clear direction and no clear
winners. The prospects are more of the same. With volume at
yearly lows the markets are trading in very narrow ranges.
The VIX is nearing a monthly low but the put/call ratio is
high at .81. Conflicting signals? Yes. The CSCO earnings
doubtlessly influenced the volume of puts purchased.
Even with the markets trading sideways the new highs on the
Nasdaq beat new lows 98/66. The NYSE saw a much higher ratio
of 140/24 and shows that investors are still nibbling at stocks
even though the major averages don't show it. We are still
in a basing mode and as long as 1950-2000 holds on the Nasdaq
and 10400 holds on the Dow we should be okay. There is just
no compelling reason to buy. Welcome to August!

Enter passively, exit aggressively!

Jim Brown
Editor


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

Finally
By Jeffrey Canavan

Finally we have the much awaited Cisco numbers.  No more relying
on worker productivity data, analyst upgrades/downgrades, or
Procter and Gamble's new cavity fighting gum for market
direction.  Finally we have something we can sink out teeth into,
or do we?

Cisco earnings came in at $0.02 a share, in line with estimates.
Revenues were $4.3 billion.  25% lower than last year, but within
the lower range of expectations.  Revenues for the next quarter
are expected to come in flat to down 5 percent.  Inventory came
in lower than the April quarter, but still remains high at $1.68
billion.  Days sales outstanding fell to 31 from 38, but
allowance for doubtful accounts rose to $288 million from $150
million.

So what's it all add up to?  Short-term visibility is improving,
but long-term outlook is still challenging, or as John Chambers
himself said, "We are not there yet."  Not quite the stellar
results everybody was hoping for.

With Cisco down $0.37 and the triple Qs down $0.18 in after
hours, it doesn't look like we got the bullish catalyst the
market needed.  Most likely will we fall back into a pattern of
drifting from one economic event to the next, waiting for that
elusive signal that the bottom is here?  Bullish percent data is
saying that it is safe to test the waters, and the low readings
in the VIX and VXN tell us that bulls are unafraid.  But could
these indicators also be telling us that everybody who is bullish
is already in, and everybody else is waiting for some more good
news?

Talk of a summer rally has turned into talk of a late-summer
rally, and as August continues fade away, we may soon find
ourselves waiting for the Great Pumpkin.  Until we get a string
of positive news events, buying at support and selling at
resistance continues to look better than a trend following
approach.

===

Market Volatility

VIX   22.65
VXN   48.76

===

          Put/Call Ratio  Call Volume   Put Volume
Total           .81        548,803       445,629
Equity Only     .73        479,427       351,277
OEX             .94          8,665         8,176
QQQ             .83         81,118        67,517

A total put/call reading above 80 is usually considered overly
pessimistic.  An equity only reading above .75 is often viewed as
bullish.  Not quite there, but close.

===

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    50       -      Bull Alert
DOW           36       -      Bull Alert
S&P 500       54       -      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  1.21

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      1703           1383
NASDAQ    1734           1946

        New Highs      New Lows
NYSE      134             20
NASDAQ     81             57

===

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: 07/31/01
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
There were no significant changes in the bullish percent data this
week.

Commercials   Long      Short      Net     % Of OI
7/17/01      336,836   403,561   (66,725)   ( 9.01%)
7/24/01      317,241   392,146   (74,905)   (10.56%)
7/31/01      335,532   409,352   (73,820)   ( 9.91%)

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
7/17/01      122,525     50,211   72,314     41.86%
7/24/01      141,372     61,665   79,717     39.26%
7/31/01      129,648     54,552   75,096     40.77%

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

NASDAQ-100
There were no significant changes in the bullish percent data
this week.

Commercials   Long      Short      Net     % of OI
7/17/01       26,721     37,225   (10,504)  (16.43%)
7/24/01       27,396     39,198   (11,802)  (17.72%)
7/31/01       28,009     39,613   (11,604)  (17.16%)

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
7/17/01       11,680     8,183    3,497      17.61%
7/24/01       12,170     7,744    4,426      22.23%
7/31/01       11,216     8,938    2,278      11.30%

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
There were no significant changes in the bullish percent data this
week.

Commercials   Long      Short      Net     % of OI
7/17/01       14,145    12,963    1,182      4.4%
7/24/01       16,080    12,812    3,268     11.3%
7/31/01       17,748    13,669    4,079     13.0%

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
7/17/01        5,255     9,144    (3,889)   (27.01%)
7/24/01        5,599     9,526    (3,927)   (25.96%)
7/31/01        5,049     9,079    (4,030)   (28.52%)

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:
*****

MSFT $66.35 +0.22 (-0.54) MSFT just couldn't get out of its
own way.  The stock continues to bounce along the $66 level
with much indecision.  What's more, the company appealed to
the Supreme Court on Tuesday, which may reverse the sentiment
in the stock over the short-term.  As such, we're dropping
coverage this evening and traders with open positions can
use any strength offered Wednesday morning to exit positions.


PUTS:
*****

No dropped puts for Tuesday


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The Option Investor Newsletter                  Tuesday 08-07-2001
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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********************
PLAY UPDATES - CALLS
********************

JBL $31.50 -1.02 (-1.49) JBL and the rest of the contract
manufacturers pulled back in concert early this week.  But Cisco's
report after the bell Tuesday may halt the group's slide over
the short-term.  JBL, among several of its peers, does a lot of
business with Cisco.  And judging by Cisco's comments during its
conference call, business may be improving for the likes of JBL.
The stock popped a bit higher in the after hours session,
echoing the price action of several other Cisco suppliers.  As
such, we're expecting strength in JBL early Wednesday morning.
But traders should be wary of gaps.  Bulls might consider entering
new positions if JBL only modestly gaps higher, then subsequently
advances above $32.  Otherwise, an advance above $33 may offer a
favorable momentum-based entry, but the risk in doing so is a
little larger than it is in entering on a pullback.

BRCD $37.94 -0.07 (+1.35) BRCD has traded exceptionally well over
the past two sessions.  There seems to be bids materializing
around the $36 to $37 range recently, which may prove to be a
good area to turn for entry points should BRCD pullback from its
current levels.  However, the stock can't seem to trade past
$39.  The Cisco news may help boost BRCD from its recent trading
range between the $36 area to roughly $39.  But for those who
pursue a breakout-based strategy, that is an advance above $39,
it may be prudent to be quick to lock in profits.  Alternatively,
continued range bound trading between $36 and $39 should allow
for short-term trades to enter on weakness and sell into strength.

SUNW $17.08 -0.05 (-0.64) SUNW has been trading lock-step with
the Nasdaq this week, working steadily lower.  SUNW's bounce from
its 10-dma at $16.71 Tuesday was encouraging, and may portent that
the recent selling pressure is subsiding.  However, we need to see
the stock reverse course in the very short-term if the play is
going to stay alive.  The recent pullback makes sense in that it
offered entry points on weakness and any forthcoming rally in
shares should offer exit points and profits in SUNW.  From current
levels, assuming traders used SUNW's weakness to get long calls
this week, risk can be managed with stops at the 10-dma, or lower
around $16.50.  And any strength above the $18 level could offer
favorable exit points for a quick trade.

BRCM $45.48 -2.23 (-1.51) BRCM pulled back Tuesday in sync with
the SOX.  The stock did however manage to bounce from around the
$45 level which it has done in the past several sessions.  We'd
like to see this level hold in the coming days which should allow
for the stock to trade higher once the Nasdaq rebounds.  If the
stock does continue to weaken, on the other hand, watch first for
support to materialize around its 10-dma at $44.50.  If that
level fails, traders with open positions should be thinking risk
management.  Although our stop remains at the $42 level, traders
should use their own best judgment to determine stop levels.
In addition, bullish traders should keep close watch on the
direction of the SOX.  If the SOX rebounds in the coming days,
BRCM should be able to rebound.

MXIM $49.01 -0.99 (-1.33) With the strong rise in shares of MXIM
over the past couple weeks, it should come as no surprise that
we have seen some mild profit taking so far this week.  Given
the abrupt retracement in the Semiconductor index (SOX.X) over
the past 3 sessions, MXIM has actually held up pretty well
despite the CSFB downgrade this morning, and appears to be
finding support just above $48.  Bolstering the profit-taking
theory is the fact that volume has been light, running near 65%
of the ADV.  The SOX rebounded from the $605 level this
afternoon, the site of historical support/resistance and the
38% retracement of the May-July decline.  If the SOX can resume
its upward trend, MXIM should be set to lead the rally. Target
new positions on a renewed bounce from the $48 level or wait
for the stock to clear the $51 resistance level on increasing
volume.  Keep stops at $47.

PDLI $57.15 +1.49 (-0.60) As the Biotechnology index (BTK.X)
once again heads lower, shares of PDLI are bucking the trend.
After finding support near $52, the stock has posted a modest
advance this week.  Like the rest of the market, the stock is
seeing rather light trading volume and we'll need to see more
buying interest to get the stock moving up through resistance,
which is still looming just over $58.  If the bulls can gain
some traction later this week and move the BTK higher, PDLI
should benefit nicely due to its recent relative strength.
Intraday dips near the $55 support level still look attractive
for new positions, so long as the selling abates before our $54
stop is violated.  Momentum traders will want to target new
entries on a rally through $58.50, but will want to see
increasing volume accompany the move.


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

DIGL $17.64 -0.93 (-1.64) DIGL is trading the way it should be.
Once the Nasdaq weakened, we had speculated that DIGL would head
south, which is the direction that it's been trading so far this
week.  Depending upon specific entry points and risk tolerances,
traders may have used Tuesday's weakness as an exit point to
lock in gains.  For those holding open positions, weakness down
to the $15 level may serve as an exit point in the short-term.
As has been the case up until this point, bearish traders should
keep close tabs on the broader market (Nasdaq) when trading
DIGL.  Our stop has been lowered to $20.

CHKP $42.76 -0.18 (-0.53) CHKP is meandering lower, but without
much conviction.  Perhaps that much stems from the support
that continues to prop the stock up around the $42 level.  In
the coming days, a breakdown below that level in conjunction
with further weakness in the Nasdaq should allow for new entry
points into the play.  Below $42, CHKP doesn't have much
support until $40, which could serve as an exit point for
traders with open positions.  Bearish traders should continue
monitoring the Software Index (GSO.X) for confirmation of the
direction of the play.

JEC $54.30 +3.42 (-2.36) JEC staged a significant decline Monday,
which may have allowed for a quick and profitable day trade for
those with the ability.  Conversely, its big rebound Tuesday
may have those bearish traders with open positions tightening
stops down to breakeven.  The volatile trading in JEC so far
this week definitely heightens the emotions involved with large
price swings, so it's paramount that we remained disciplined
when managing this trade.  As for new entry points, a rollover
near our recently lowered stop at the $55 level may offer new
entry points with limited risk.

ADBE $34.42 -2.34 (-3.52) A revenue warning got the recent slide
in shares of ADBE started, but now the stock is being pressured
by both technical factors and the continued pressure on the
broader Software index, (GSO.X).  After failing to crest the
$200 resistance level last week, the GSO has once again resumed
its downtrend, dragging our play down with it.  ADBE really got
moving (and gave us a solid entry to boot) as it fell through
major support at $37 yesterday and the decline picked up steam
today, bringing the two-day loss to 8.7% as it closed near the
low of the day on nearly double the ADV.  This dropped the stock
into the congestion zone between $32-35.  We are lowering our
stop to $37 and will continue to target new entries on failed
intraday rallies below that level.  Momentum players will want
to look for ADBE to fall below the $33.50 level on continued
heavy volume before adding new positions.

ADP $48.24 +0.29 (+1.30) "Bullish recovery or fresh entry point"
is the question that ran through investors' minds as shares of
ADP popped sharply higher at the open yesterday on the Robert
W. Baird upgrade.  There wasn't any momentum in the move, and
since then the stock has trended slightly lower on declining
volume, despite Legg Mason chiming in with their own upgrade
this morning.  Current levels look attractive for fresh entries,
although we might be lucky enough to get a better entry on a
short-term move up to significant resistance near $50, also the
level of our stop.  More conservative traders will want to focus
on the $47 level, as increased selling volume that pushes the
stock under that point will open the door for fresh entries as
well.  Recall that our Point and Figure price target is $42,
and traders will want to consider harvesting profits as ADP
approaches that level.

AIG $81.90 +0.45 (-0.26) Insurance stocks got a little bit of
a boost yesterday afternoon, helping AIG to find support near
$80 and recover sharply into the close.  The positive sentiment
continued this morning, but faded almost as quickly as the
opening bell.  Rolling over from the $82 level, the price
followed the trend of the Insurance index (IUX.X), which seemed
to lose what positive momentum existed on Monday.  This looks
like an attractive entry, as the pattern of lower highs
continue.  We are keeping our stop at $83.  Support seems to be
weakening and a drop through the $80 level will open the door
for AIG to move into a lower trading range.

CHBS $23.52 -0.19 (-1.23) The decline has lost some of its
momentum in recent days, but CHBS continues to be a favorite
of the bears.  Driven by the fledgling rollover in the Retail
index (RLX.X), shares of CHBS fell through the $24 support level
on Monday and despite a modest recovery in the RLX today, the
stock posted another fractional decline.  The bulls managed to
reverse the opening drop this morning, but then the stock spent
the rest of the day in slow descent, unable to reclaim the $24
level.  Use any weak intraday rallies to $24 or $25 as
attractive entry opportunities and lower stops to $26.
Alternatively, wait for selling volume to pick up, pushing the
stock below $23 before adding new positions.

LSS $19.90 +0.39 (+0.55) "Boring" is definitely the word that
describes the trading in shares of LSS this week.  As investors
try to determine if there is more downside in the Oil Service
stocks, LSS has traded in a narrow $1 range on light volume.
With such small movement it is tough to find attractive entry
points, so we continue to wait.  Target a rollover from
resistance at $21 or $22 (the location of our stop) for new
entries or else wait for the stock to fall under $19.
Increasing volume on the sell side would be a nice confirmation,
as would renewed downward pressure in the Oil Services index
(OSX.X).


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

MRK - Merck & Co. $68.48 +1.06 (+0.37 this week)

Merck is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range
of human and animal health products, directly and through its
joint ventures, and provides pharmaceutical benefit services
through Merck-Medco Managed Care.

Shares have been on the mend recently, following the
company's profit disappointment in late June.  The stock has
been trading strongly relative to the broader market and is
poised to breakout above near-term resistance.  MRK, along
with the broader drug sector as measured by the Drug Sector
Index (DRG.X), has been attracting capital recently as the
tech sector continues to churn.  That much may persist in the
very short-term after Cisco's less-than-inspiring earnings
report after the bell Tuesday.  For its part, MRK has been
tracing a series of higher lows over the past week of
trading while being contained by resistance around the $68.50
level.  However the stock is poised to breakout above that
level in the coming sessions.  In fact, it traded right up to
$68.50 near Tuesday's close.  As such, bullish traders can
look for follow-through into Wednesday's session by watching
for a breakout above $68.50 and confirming such a move with
an advance above $69.  Those who prefer entering on a pullback
might turn to any bounce from the $67.50 area.  Initially,
stops are in place at $67.

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

BUY CALL AUG-65*MRK-HM OI=3297 at $3.80 SL=2.50
BUY CALL AUG-70 MRK-HN OI=7361 at $0.55 SL=0.25
BUY CALL SEP-65 MRK-IM OI=1637 at $4.80 SL=3.25
BUY CALL SEP-70 MRK-IN OI=2394 at $1.80 SL=1.00

Average Daily Volume = 5.48 mln



LXK - Lexmark International $49.21 +1.61 (+2.58 this week)

Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

Disappointment over the company's earnings report in the third
week of July sent shares of LXK for a tumble, eventually shaving
25% from their price before support materialized just above the
$45 level last week.  As the selling volume abated, the stock
firmed and has actually been finding some buying interest over
the past 3 days.  Despite continued anemic volume in the broad
markets, LXK traded 30% more shares than the daily average on
Tuesday, as the bulls pushed the price higher by more than 3%.
While not a stellar gain, it is pretty impressive, given the
action in the broader markets.  With daily Stochastics on a
smooth ascent, it looks like there is still some room to run
before LXK encounters mild resistance at $50, followed by
firmer resistance at $55.  We are initiating the play with our
stop at $46, just above the recent lows.

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

BUY CALL AUG-45 LXK-HI OI=237 at $4.70 SL=2.75
BUY CALL AUG-50*LXK-HJ OI=625 at $1.45 SL=0.75
BUY CALL SEP-45 LXK-II OI= 12 at $6.30 SL=4.25
BUY CALL SEP-50 LXK-IJ OI=282 at $3.40 SL=1.75
BUY CALL SEP-55 LXK-IK OI=245 at $1.60 SL=0.75

SELL PUT SEP-45 LXK-UI OI=319 at $1.55 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.52 mln



ABT - Abbott Laboratories $52.59 +0.88 (+0.33 this week)

Abbott Laboratories is engaged in the discovery, development,
manufacture and sale of healthcare products and services.
ABT's pharmaceuticals and hospital products (accounting for
more than 40% of sales) include antibiotics, synthetic hormones,
and drugs such as Norvir, which is used to treat HIV.  Its
products are sold directly to retailers, wholesalers,
healthcare facilities, laboratories, and government agencies
throughout the world.

Recovering on the back of the fledgling uptrend in the
Pharmaceutical index (DRG.X), shares of ABT are stubbornly
trying to advance through the $53-54 resistance level.  The DRG
index has posted a series of higher lows over the past month and
the next big test will be whether the bulls can push through
resistance near $400.  ABT has built some solid support near
$51.50 and continues to bounce from the rising 50-dma ($51.46).
Look for buyers to continue to defend the stock near these
levels, providing attractive entries on any bounce that is
accompanies by solid volume.  A more cautious approach will be
to wait for the stock to push through the $54 resistance level
on increasing volume, preferably accompanied by continued
strength in the DRG index.  Place stops at $51.50.

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

BUY CALL AUG-50*ABT-HJ OI=7529 at $2.95 SL=1.50
BUY CALL AUG-55 ABT-HK OI=8817 at $0.20 SL=0.00
BUY CALL SEP-50 ABT-IJ OI= 283 at $3.80 SL=2.50
BUY CALL SEP-55 ABT-IK OI=1532 at $1.05 SL=0.50
BUY CALL NOV-55 ABT-KK OI=5549 at $2.00 SL=1.00

Average Daily Volume = 3.60 mln



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

SKX - Skechers U.S.A. $20.15 -1.40 (-2.23 this week)

Skechers designs and markets branded contemporary causal,
active, rugged and lifestyle footwear for men, women and
children.  The company, through its international distributors,
sells its products in over 100 countries and territories.
Skechers offers footwear in a broad range of styles, fabrics
and colors.

The stock has its running shoes on.  But its running in the
wrong direction.  Shares of Sketchers have been in a severe
downtrend since peaking around the $40 level way back in May.
Its recent consolidation around the $20 appears to be coming
to an end, which means the stock could be setting up for further
downside from current levels.  Although this stock typically
doesn't move with great velocity, it could potentially make its
way down to the $15 level in the matter of a few weeks.  Bearish
traders can use any future rollover around the $21.50 level to
gain entry into the play, with the understanding that our stop
sits just above that level at $22.  Additionally, bearish,
momentum traders can use a breakdown below the $20 to gain
entry into new put plays.

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

BUY PUT AUG-22.5 SKX-TX OI= 36 at $3.00 SL=1.75
BUY PUT AUG-20.0*SKX-TH OI=200 at $1.25 SL=0.50

Average Daily Volume = 708 K



VRTX - Vertex Pharmaceuticals $36.39 -2.65 (-3.54 this week)

Seeking to discover, develop and commercialize novel
small-molecule drugs that address significant markets with
major unmet medical needs, VRTX is a relatively small, but
potent biotechnology company.  Targeting the treatment of
viral diseases, cancer, auto-immune and inflammatory diseases
and neurological disorders, the company's drug design platform
integrates advanced biology, chemistry, biophysics and
information technology to make the drug discovery process
more efficient and productive.

Locked in a two month downtrend, the Biotechnology index
(BTK.X) is once again approaching major support at $500, and
VRTX is leading the decline.  After rolling over from the
descending trendline near $44 three weeks ago, the stock fell
back under the 50-dma (currently $43.72) and the decline is
picking up steam.  Volume surged 30% over the ADV on Tuesday
as VRTX fell through support at $38, closing very near the low
of the day.  Daily stochastics are in oversold territory, but
they are continuing to fall and it looks like the bears are
getting set to challenge support near $30.  The Point and
Figure chart is presenting an even more bearish picture with
today's double-bottom breakdown giving a preliminary bearish
price target of $26.  That corresponds nicely with the March
low of $25.62.  While the stock could be ready for an oversold
bounce, when it happens, it will likely present a more
attractive entry point.  Target new positions on a failed rally
below $39, also the location of our stop.  Further weakness
from current levels will present entries for momentum traders
as the stock falls below the $26 support level.

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

BUY PUT AUG-40 VQR-TH OI= 40 at $4.50 SL=2.75
BUY PUT AUG-35*VQR-TG OI=216 at $1.55 SL=0.75

Average Daily Volume = 1.04 mln



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

CHKP - Check Point Software $42.76 -0.18 (-0.53 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.

Most Recent Write-Up

CHKP is meandering lower, but without much conviction.  Perhaps
that much stems from the support that continues to prop the
stock up around the $42 level.  In the coming days, a breakdown
below that level in conjunction with further weakness in the
Nasdaq should allow for new entry points into the play.  Below
$42, CHKP doesn't have much support until $40, which could serve
as an exit point for  traders with open positions.  Bearish
traders should continue monitoring the Software Index (GSO.X)
for confirmation of the direction of the play.

Comments

CHKP may be setting up for a big breakdown in the coming days.
The stock has slowly been working lower, but may be poised to
lose support in the short-term.  Bearish traders can look for
a breakdown below $42 early Wednesday morning to enter new put
plays in CHKP.

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

BUY PUT AUG-45*KEQ-TI OI=4208 at $3.60 SL=2.00
BUY PUT AUG-40 KEQ-TH OI=4436 at $1.20 SL=0.50

Average Daily Volume = 10.5 mln



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