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Daily Newsletter, Thursday, 08/09/2001

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The Option Investor Newsletter                 Thursday 08-09-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       8-9-2001          High      Low     Volume Advance/Decline
DJIA    10298.56 +  5.06 10312.19 10205.56 1.10 bln   1725/1358	
NASDAQ   1963.32 -  3.04  1971.61  1941.24 1.43 bln   1680/1985
S&P 100   607.83 +  0.30   608.74   602.76   Totals   3405/3343
S&P 500  1183.43 -  0.10  1184.71  1174.68
RUS 2000  474.17 +  1.55   474.17   469.50
DJ TRANS 2834.63 - 47.41  2885.96  2830.64
VIX        23.64 -  0.72    25.01    23.42
Put/Call Ratio      0.76
******************************************************************

Nasdaq Extends Losing String to Five Days!

While the Nasdaq traded in a very narrow 30 point range again,
closing within eight points of the high of the day, it still
managed to lose ground for the fifth day in a row. The Dow moved
in a 107 point range and came within two points of its July 24th
low before recovering to close positive on a short covering rally.
The news today? Gold rose the dollar fell, unemployment was up and
retail sales gained slightly on the first wave of tax checks.
Yawn! Is summer over yet?







It was one of those days. Boring! The markets whipsawed back and
forth giving investors a migraine in place of profits. The Nasdaq
rose and fell from positive or near positive territory four times
during the trading day. The upside limits were not the material
factor but the lows of the day were critical. The low of 1941 was
two points above the July-24th low of 1939 and seven points above
the July 11th low of 1934. This is very critical since it is
technically bullish for it to hold above those lows. More on this
later.

The main worry that the Nasdaq had to overcome today was the news
on Wednesday that Gateway was pulling out of Europe and could also
pull out of Asia. While the news was more company specific to
Gateway it showed that global PC sales were simply nonexistent.
Companies the size of Gateway do not simply abandon huge investments
in multiple countries on a whim. A better choice of direction
would have been to sell their European assets to a competitor but
the implications here are that nobody wanted them. Dell, HWP and
CPQ may have been taking market share from them in those markets
but you would have thought one of those companies would have been
interested in what little share Gateway did have. They could have
got it cheap! Also local PC companies could have bid on the business
but didn't. Dell, HWP and Compaq all lost ground in the markets
as investors reading between the Gateway lines saw weak sales for
everyone else as well. This real life "rubber meets the road" event
brought home the severity of the recent generic "global weakness"
comments by others.

The Gateway news came after the Beige Book knocked the bottom out
of the market with a "no growth" picture. A 1-2 combination punch
that blew out the 2000 support level and followed on with another
drop today. The economic news did not change with Jobless Claims
rising again to 385,000 and showing that companies are still
cutting their workforce to cope with the economic slowdown. Auto
and textile industries distort the numbers in August as plants
are retooled for the new designs. We cannot draw any serious
conclusions from the jobs data but on the surface it appeared
the drop from the prior three weeks is over.

The Import/Export picture improved in July when import prices
contracted more than export prices. Shrinking global demand is
causing worldwide disinflation. Dropping oil prices are helping
while North American economies are holding their own against
Europe and Asia. In the U.S. retail sales accelerated slightly
with a boost from the first wave of tax loan/advance/rebate
checks. Sales rose +3.4% at chain stores with Wal-Mart accounting
for 1/3 of the gain. Still retail prices continued to slide which
was good for consumers with sales on sales prompting them to buy
but bad for retailers as margins shrink. Many tax checks will
not even see a personal bank account with retailers starting
a "cash it here" promotion in hopes they will spend the money
while in the store. This short term cash inflow will expire
at the end of August when the tax payments will be completed.
The back to school season will then be on its own. There is
an increasing debate on what the checks are actually from. Bush
used the word "rebate" on TV but the official language is more
like an advance payment. Some say the checks are simply a credit
against what you may owe for 2001 and the economy will implode
in the first quarter when taxpayers expecting a $1000 refund only
get $700 after their check is factored in. Regardless, the concept
of the payment was to jump start the economy now and we will not
know until after the August data if that actually happened.

About the only brand names reporting earnings today were Pixar,
which beat the street by four cents and raised guidance. WebMD
(HTLH) met the street but warned that the next two quarters
could be light. They also said 2002 estimates were conservative
so investors could pick and choose what they wanted to hear.
Iomega, yes there are still investors in Iomega, said declining
sales of Jaz and Zip drives would force it to cut -38% of its
work force or about 1250 workers. They said they would take a
charge of about $65 million for restructuring in order to bring
their business back to a point of "break even" in the short term
and a return to profitability in 2002.

Back to the critical Dow/Nasdaq levels I mentioned earlier.
The Nasdaq screeched to a dead stop only a handful of points
above the two prior July lows. This is critical. Should the 1934
level fail it is entirely possible that the April lows near 1600
could be tested again. The Dow did exactly the same thing. The
low for Thursday was 10205 which was only two points above the
July 24th low. It is very critical that it holds this low. Both
indexes are now in oversold territory and could see a bounce at
the open. There was a bounce at the close on short covering
caused by the rebound off the bottom. Do not confuse this with
a rally or investors buying the dip. It was purely short covering.

We should not expect any help from economic reports on Friday
since the PPI is mainly an inflation indicator and inflation
is near zero. We are totally on our own and Friday is likely
the day that market direction for the rest of August will be
determined. August appears to be living up to its reputation
as a very bad month for the markets even in good economic times.
Should investor lethargy allow the markets to meltdown below
those levels mentioned above then the heat wave and energy
shortage on the East Coast will be only a side bar to next
weeks news reporters.

Don't get me wrong. I really wanted to buy this dip today. We
had several serious discussions around the office on whether it
would hold or this was simply an oversold bounce. Here are the
points I see. Bonds were being bought with abandon. Money is
being taken out of stocks or at least out of the cash on the
sidelines available for stocks. $3 billion went into the Lucent
and Nortel convertible bonds as well. Volume has actually increased
slightly over the last couple days and higher volume on down
days is not a good sign. Japan will likely report on Friday
that the economy is falling back into the dumps as evidenced
by the biggest drop in the Nikkei in three months on Thursday.
Argentina is far from out of trouble. Tensions are escalating
in the Middle East to all out warfare. The trading patterns on
today's charts showed ONLY short covering not investor interest.
The Beige book simply showed that there was no recovery in
progress. The tax check windfall is already factored into the
economy. The majority of prior interest rate cuts have already
been discounted into the markets. The odds of further aggressive
rate cuts by the Fed on August-21st are slim. One article compared
the markets to being alone in the woods at midnight without a
light. Every sound is magnified and even the smallest noises
are imagined to have horrible causes. Investors are afraid of
being blindsided in the markets today by something they have
not yet seen or factored in. Add all of this to a historically
negative month and the markets have a huge wall of worry to climb.

Guess what? Markets tend to thrive in those conditions. Investors
know all of those details and typically buy stocks in advance of
the recovery by six months or more. New highs are still beating
new lows and total advancers beat total decliners. The markets are
very oversold, especially the Nasdaq after five days down. Sounds
like a recipe for a rally but there is still a big problem.
Investors are on vacation. They are simply not paying attention
and after being burned by buying the dip multiple times in the
last 12 months there is simply no rush to buy. Until enough
investors decide that they should come in out of the heat and
put money back to work, the markets are at risk. Dow 10400 and
Nasdaq 2000 failed showing there are no sacred support levels.
There are sixteen trading days left in August. Are we having fun
yet?

Enter passively, exit aggressively!

Jim Brown
Editor


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

To Hold or Not to Hold
By Jeffrey Canavan

That's the question facing the markets on Friday.  We've heard
enough people spout that the bottom is here and the worst is
over, but now is the time for them to put their money where their
mouth is.  But should we?

Dow Jones Industrial Daily Chart



The Dow gained five points today.  Not great, but considering the
Dow was down over 80 points today, it was a small victory.  What
that price action formed was a hammer.  This one-day candlestick
pattern signals that perhaps buyers have been able to wrestle
back control from sellers.  This pattern is just a potential
turning point, and requires bullish confirmation tomorrow.
Should that fail to happen, like it did on June 11th, keep a
close eye on support in the 10,200 to 10,120 area.

Nasdaq Composite Daily Chart



Similar story over at the Nasdaq, early morning sell off followed
by an afternoon rally.  The Nasdaq finished 3 points in negative
territory, but formed what is known in candlestick lingo as a
doji.  Same interpretation as the hammer, after an extended
decline, buyers have fought back to end the day in a draw,
signaling a possible turning point.  Combined with a stochastic,
one-day candle patterns have done a good job of marking turning
points (see chart above).  If the Nasdaq doesn't turn, monitor
support at 1,934 for signs of additional weakness.

So if buying at support and selling at resistance has been the
way to play this market, we should be at a buying point, most
likely a short-term one.  Going long in the face five straight
days of selling is a tough thing for any trader to do, and can
lead to painful losses if done too soon.  Since the bond market
opens before the stock market, look for rising bond yields as a
potential reversal sign.  The PPI number also comes out before
the bell, so keep an eye on how bonds and stock index futures
react to that news.  The first hour of trading has been an awful
indicator of how the day is going to go, so it might be wise to
wait for all the rookies to place their orders first.

Depending on your trading time frame, bears may want to consider
lowering stops or locking in profits should we get a reversal.
Aggressive bulls may want to consider small long positions (1/4
the size of normal) as market conditions dictate.  Conservative
bulls should start lining up long candidates with good
risk/reward ratios and support close by.  Based on today's up and
down trading, and the fact that tomorrow should be a light volume
summer Friday, getting an early jump on weekend traffic doesn't
sound bad either.

*****

As we strive to improve the quality of the Market Sentiment
column, based upon our readers' responses, please feel free to
continue sending suggestions.

eutley@OptionInvestor.com

-----------------------------------------------------------------

Market Volatility

VIX   23.64
VXN   48.15

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total           .76        584,760       446,984
Equity Only     .69        491,696       341,601
OEX            1.09         19,619        21,363
QQQ            1.61         35,901        57,962

1.61 is one of the most bearish readings in the triple Qs this
year.  Another possible sign of a turning point?

-----------------------------------------------------------------

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

-----------------------------------------------------------------

 5-Day Arms Index  0.96
10-Day Arms Index  1.21
21-Day Arms Index  1.13
55-Day Arms Index  1.07

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      1723           1363
NASDAQ    1681           1984

        New Highs      New Lows
NYSE      143             59
NASDAQ     55             99

-----------------------------------------------------------------

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


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

Retracement Brackets 5.0
By Eric Utley

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

Up until this point, we've addressed the nuances associated
with Fibonacci retracement brackets.  But like every other tool
of technical analysis, Fibonacci retracement brackets are not
the final answer.  The prudent thing to do is to incorporate
the use of Fibonacci retracement brackets with other technical
tools, such as Stochastics, MACD, Momentum, RSI, Point & Figure
charts, and/or whatever other indicator.

In my very humble opinion, trading can be reduced to the
measuring of supply and demand, and the quantifying of risk
versus reward.  And Fibonacci retracement brackets, by
themselves, are not necessarily the best tool for measuring
supply and demand.  They are, however, excellent tools for
measuring risk versus reward.

Sure, by monitoring the actions of market participants closely
through the use of Fibonacci retracement brackets, a trader
might be able to get a sense of the supply and demand dynamic in
a particular market, sector, or stock.  For example, careful
examination of the price action of a Nasdaq listed stock as it
trades around its Fibonacci retracement bracket could shed
light onto the levels at which market makers are either building
inventory or liquidating inventory.  But that much is more
inexact than employing the use of a truer supply and demand
indicator.  That's why I like to use Point & Figure charts in
conjunction with Fibonacci retracement brackets.

Point & Figure charts are one of the - if not THE - purest
forms of measuring supply and demand in the marketplace.  And
because Fibonacci retracement brackets are an excellent
device for quantifying risk versus reward, the two are an
excellent fit into any trading methodology.

The essence of Point & Figure charts is deciphering when
demand overtakes supply, or vice versa, resulting in an
actionable point.  Whereas the essence of Fibonacci retracement
brackets is deciphering when the risk/reward dynamic shifts.
So naturally, when the supply and demand shifts on the P & F
chart in conjunction with a shift in risk/reward, a strong
signal is produced.

Let's look at an example.  Shares of Oracle (NASDAQ:ORCL) have
been trading like a big pig lately, that is they've been
heavy.  On the daily chart below, I've laid an advancing
retracement bracket over the stock's move from its April lows
to the $20 level.  I opted for the $20 level instead of its
relative high around $21 because it was blatantly obvious
during July that market participants were controlling risk at
the $20 level.  How many times did ORCL print $20, or
thereabouts, without follow-through?

The 38.2 percent level of this particular retracement bracket
sits right around $17.50 ($17.44 on the chart below).  The
$17.50 level was also a double bottom, as evidenced by the
relative low on July 11.  Therefore, one might come to the
conclusion that buyers would be at the $17.50 level, either
shorts covering, longs defending, and/or market makers
controlling inventory.  As soon as ORCL broke and closed
below $17.50 on August 6, it signaled a shift in risk/reward.
That is, the buyers who'd been active above $17.50 most likely
turned into sellers.  So instead of the risk being to the
upside, ORCL's close below $17.50 shifted the risk to the
downside.  And that's why market makers probably began getting
heavy on the offer.



Meanwhile, over on ORCL's Point & Figure chart, an interesting
development transpired in the supply and demand dynamic.  Prior
to printing an 'O' at $17.00, ORCL was in reversal mode and
already on a sell signal.  Clearly, supply was overwhelming
demand and continues to do so at time of this writing.  But
what I'd like to focus on is the 'O' (supply) printed in the
$17.00 box.  The print at $17.00 marked further confirmation
that supply was overwhelming demand, and the confirmation from
the Fibonacci retracement bracket with the close below $17.50
provided further conviction that ORCL was heading lower in the
short-term.  The result, had a trader shorted ORCL once it
printed $17, would've been a $1 gain through Thursday's
session with no heat whatsoever.  Sure it's only $1, but it
was easy and decent relative to ORCL's current price.  Hey,
I'll take easy in this market.




Along with the Point & Figure charts, I especially like using
Stochastics in conjunction with Fibonacci retracement
brackets.  Stochastics are beneficial when shorting stocks
near resistance or buying stocks near support, as defined
by Fibonacci retracement brackets.  It's as simple as
looking for overbought stocks (as defined by Stochastics)
near resistance, and looking for oversold stocks (as defined
by Stochastics) near support, waiting for the crossover in
Stochs, and pulling the trigger.

I sincerely hope this series on Fibonacci retracement
brackets has been beneficial to our readers.  As always,
I welcome feedback or any questions and will do my best to
reply.  In addition, I'm open to suggestions or requests
for future trading series.

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:
*****

MXIM $46.51 -0.49 (-3.83) The continuing pullback in the
Semiconductor sector spared few stocks from the selling
pressure.  MXIM fell under the onslaught of solid volume to
end the day fractionally below our $47 stop.  While support at
$46 is still holding, with the daily Stochastics in decline
and a violated stop, there is nothing to keep us from dropping
the play tonight.

PDLI $52.50 -3.29 (-5.25) Unable to buck the continuing Biotech
weakness, PDLI finally gave up the ghost and plunged right from
the open today.  Although the stock did find some support near
$52, our $54 stop fell victim to the bears in the opening hour.
Accordingly we are dropping the play tonight.


PUTS:
*****

ADP $48.70 +0.59 (+1.76) ADP seems to have reached the end of
its long downward slide and there has been a consistent advance
this week.  Although our stop has yet to be violated, with daily
Stochastics emerging from oversold, it looks like the stock will
crest the $50 level in the near future.  Rather than wait for
that to happen, we'll do the prudent thing and drop ADP tonight.

CHBS $26.96 +2.72 (+2.21) Boosted by the Retail Sales report
this morning, shares of CHBS posted more than a 10% gain on
heavy trade (nearly triple the ADV).  The stock rocketed through
our $26 stop at the open and nearly reached $28 before the
upward momentum faded.  Although the stock closed well off their
daily highs, the close just below $27 leaves us with a solidly
violated stop and another play to move to the drop list.


*************************ADVERTISEMENT*********************
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index instead?

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

Sign up for a two week free trial and see for yourself at
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The Option Investor Newsletter                 Thursday 08-09-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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*************************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:
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************************************************************


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

BRCD $33.69 -0.01 (-2.90) BRCD continues to meander lower with
the Nasdaq.  We're waiting for the techs to turn around in order
for reaping profits in BRCD.  That said, the Nasdaq's hint
towards bouncing Thursday may offer some upside trades in BRCD
going into Friday's session.  Bullish traders can use an
advance above the $34 level to enter new call plays, with a
very short-term upside target up around $36.  Those who are not
predisposed to day trading, per se, have two options.  First, an
entry around current levels (Buying the Dip) can be taken,
thereafter setting an ultra tight stop according to risk
tolerance.  Second, one can sit on the sidelines until BRCD
regains its momentum and advances above the $38 area.  Traders
should note that Brocade reports earnings next Wednesday.

SUNW $16.76 -0.49 (-0.96) After a solid day Wednesday, in the
wake of a deal with Hitachi, SUNW pulled back Thursday.  Early
rumors circulated that SUNW is facing a difficult quarter, which
led to the stock's gap down.  But its rebound into the close
was encouraging and enough to keep the play alive.  In terms of
new entry points, bullish traders can either enter on an advance
back above $17, or any further dip down to $16.50, depending upon
market conditions and trading style.  Our stop still sits at $16,
therefore a dip back down to the $16.50 may offer a low risk
entry point.  Otherwise, momentum traders should wait for the
stock to rebound back above the $18 level.

BRCM $43.75 +0.96 (-3.24) Broadcom was the target of a downgrade
Wednesday, which was on top of the weakness in the wake of Cisco's
earnings report.  However, the stock did manage to rebound late
Thursday, after trading as low as $41.  Although the stock
dipped below OI's stop at $42, its big rebound into the close is
reason to continue covering BRCM.  Going forward, bullish traders
can look for follow-through into Friday's session by entering on
an advance above the $44 level, only after confirming strength
in both the COMPX and the SOX.  Further weakness could offer
entries on any bounce from the $42 support area.

MRK $67.82 -0.03 (-0.29) MRK could've been slightly impacted by
the suit filed against SGP, which may explain some of the stock's
weakness Thursday.  Nevertheless, MRK continues to essentially
trade sideways, which, if it persists, can offer short-term
traders profits.  Bounces from the $67.10 area, coinciding with
a reversal in stochastics, could be a lethal strategy going
forward for $2 moves.  The upper-end of MRK's trading range is
defined by the $69 level, which would mark an exit point for
those who enter on any dip around the low $67's.  Additionally,
a breakout above $69 could offer an entry point for those who
prefer that style of trading.  With the continued weakening of
the U.S. dollar, MRK could see some substantial upside in the
coming weeks.  MRK blamed the strong dollar for weaker profits
recently, and a reversal of that un-fortune could mean upside
for MRK. 

ABT $51.57 -0.30 (-0.69) Saved by a hair from heading to the
drop list, ABT managed to claw its way back from its early dip
to close just over our $51.50 stop.  While we can see that
support is holding near $51.25, the stock is having a hard time
moving up.  Symptomatic of the directionless markets in which
we find ourselves, ABT is looking for direction too.  Current
levels can still be considered for fresh aggressive entries, but
beware of bears hiding around the corner.  We are keeping our
stop in place and a close below the $51.50 level will send ABT
packing.  Perhaps the better entry strategy will be to wait for
buying volume to pick up, pushing the stock through the $53
resistance level.  Keep an eye on the Pharmaceutical index
(DRG.X) too.  The index has had a couple rough days and has now
broken below the ascending trendline, now resting at $393.  We
need the DRG to reclaim this level if ABT is going to start
heading up again.


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

DIGL $16.96 -0.34 (-2.25) Traders who've ridden DIGL's trend down
since we picked the stock should be thinking exit point around
current levels.  Although the stock continues to drift lower,
discipline should dictate taking a little off the table down here.
With that said, our view is that as long as the Nasdaq trades
poorly, DIGL will continue working lower.  The stock's sharp rise
near the close of trading Thursday smelled of short-covering, and
not a meaningful reversal of trend.  For those looking for new
entries into the play, rollovers near $17.50 or $18 can be
pursued.  However, entering new put plays on further weakness is
discouraged because of the stock's oversold condition.  Stops have
been moved down to $18.

CHKP $40.51 +0.81 (-2.78) CHKP's price action Wednesday followed
the action plan we set forth last Tuesday very closely.  Hopefully
the stock's breakdown below $42 and subsequent dip below $40
offered day traders a quick, profitable trade.  The stock did
rebound Thursday, but it felt more like a short covering rally as
opposed to "real" buying.  That being the case, further downside
is expected if the Nasdaq continues falling.  Bearish traders can
keep close tabs on the GSO when trading CHKP, and look for
rollovers near meaningful resistance when picking new entry points.
Look first for resistance at $42, then higher at $43, which is
the current site of our stop.

SKX $20.40 -0.07 (-1.98) SKX's highs are getting lower, but the
$20 level seems to be a short-term floor.  That being the case,
it may take some time for this play to work in our favor.  What
we'd like to see is continued weakness in the RLX, which should
eventually pressure SKX below $20.  There are two entry
strategies to consider going forward.  First, enter new puts on
a breakdown below $20, after confirming weakness in the S&P 500
(SPX.X) and the Retail Sector Index (RLX.X).  Second, since the
stock's highs are getting lower, a rollover near resistance may
offer a "better" entry point in terms of risk management.
Resistance around $21 level may offer such an entry point.

ADBE $34.77 +0.71 (-3.17) Software stocks went nowhere on
Thursday, as bullish traders held the line at the $180 level
on the Software index (GSO.X).  ADBE actually fared a bit
better, posting a fractional gain as the stock recovered from
an opening dip to $33.50.  There is a fair amount of congestion
near that level, and the bears may just be gathering their
strength for the next push south.  Daily stochastics have
flattened in oversold and are beginning to turn up, so the
sellers will have their work cut out for them.  After the sharp
decline in the past 2 weeks, a mild bounce makes sense and may
be just what we need to initiate new positions.  Our stop is
still resting at $36, and if the bounce fails to carry through
that level, it could allow for fresh entries.  Alternatively,
you may want to wait for the decline to pick up steam again and
move below $33 before initiating new positions.

AIG $81.40 -0.25 (-0.24) The trading range continues, and AIG
is continuing to weaken.  Even with the daily Stochastics
attempting to rise, the daily closing price is moving lower - a
sign of weakness.  The bulls have successfully defended the $81
support level several times in the past 2 weeks, but the bearish
pressure is increasing as the highs continue to move lower.  The
10-dma (currently $82.07) has acted as consistent resistance
ever since the stock broke below it back on July 20.  With
downward pressure mounting, it looks like AIG may be getting set
to break down into a lower trading range ($75-80).  We can
continue to use intraday strength to enter new positions at a
more favorable price, so long as the bulls are unable to scale
our stop at $83.  Otherwise wait for AIG to fall through major
support at $80 before opening new positions.

LSS $19.00 -0.17 (-0.35) It has been a struggle this week, but
the bears are gaining the upper hand again.  Having the Oil
Services index (OSX.X) fall back to its recent lows near $80
seemed to increase the selling pressure on our LSS play.  Volume
was anemic again on Thursday, but we saw the stock move to yet
another closing low, inviting fresh entries as price continues
below the $19 level.  Intraday rallies are weak and short-lived,
so they are providing attractive entries.  Use any short-term
strength to enter the play as LSS rolls over from the $20 or $21
level.  Keep stops in place at $22.

VRTX $34.89 -0.75 (-5.04) Following the Biotechnology index
(BTK.X) lower as it broke the $495 support level, VRTX has been
a favorite of the bears as well.  The stock fell to $34 this
morning before finding support, and staging a modest recovery
this afternoon.  With daily Stochastics once again buried in
oversold territory, the stock could be due for a bounce, and we
would look at any rollover below $36 (the new level of our stop)
as an attractive point to initiate new positions.  The BTK is at
a crossroads here and could break down or find support and
recover.  VRTX is likely to follow the lead of the BTK, breaking
down on further sector weakness or finding support from the
group.  Look for VRTX to fall below $34 accompanied by further
weakness in the BTK (ideally a drop below today's $475 intraday
low) before initiating new momentum-based positions.


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NEW CALL PLAYS
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QQQ - Nasdaq-100 Tracking Stock $40.67 +0.17 (-2.51 this week)

Representing 100 of the largest non-financial U.S. and non U.S.
companies listed on the National Market tier of The Nasdaq Stock
Market, the Nasdaq-100 Index reflects Nasdaq's largest companies
across major industry groups, including computer hardware and
sotware, telecommunications, retail/wholesale trade and
biotechnology.

We're looking for an oversold bounce in the tech sector.  And
thought, what better instrument to use than the Qs?  In addition
to that speculation, there exists a good risk/reward dynamic in
the Nasdaq currently, as such it also exits in the QQQ contract.
We're alluding to the fact that traders can set a tight stop
relative to the current level of the QQQs, with a potentially
higher reward.  OI is choosing to set our stop on this play
initially at the $39.30 level, which is the QQQs relative low
traced on July 24.  If we're correct in our speculation that
the Nasdaq is going to rebound, the QQQs could see the upside
of the $43 level in the short term.  Moreover, there are several
companies reporting earnings next week that have the potential
to lift the QQQs from their current levels.  Those companies
include Maxim (MXIM), CIENA (CIEN), Brocade (BRCD), and Dell
(DELL); all of which are large components of the Nasdaq-100.  In
addition to monitoring the QQQs itself, along with the COMPX,
bullish traders can watch the Semiconductor Index (SOX), the
Software Index (GSO), the Hardware Index (GHA), the Biotechnology
Index (BTK), and the Networking Index (NWX) to get a better
grasp on the short term direction of this play.

***August contracts expire next week***

BUY CALL AUG-39 QQQ-HM OI=10280 at $2.25 SL=1.25  
BUY CALL AUG-40*QQQ-HN OI=37049 at $1.50 SL=0.75
BUY CALL AUG-41 QQQ-HO OI=37377 at $1.00 SL=0.50
BUY CALL SEP-40 QQQ-IN OI=32665 at $2.90 SL=1.50
BUY CALL SEP-41 QQQ-IO OI=10409 at $2.35 SL=1.25

Average Daily Volume = 66.0 mln



ADSK - Autodesk, Inc. $37.20 +1.11 (-0.58 this week)

Beginning with the AutoCAD computer-aided drafting program, ADSK has
built itself into a software design and digital content company
for the architectural design and land development,
manufacturing, utilities, telecommunications and entertainment
industries.  The company provides design software, Internet
portal services, wireless development platforms and
point-of-location applications that empower more than four
million customers in over 150 countries.

It's been a long time, but is anyone in the mood for an earnings
run?  Since bottoming near $25 in early April, shares of ADSK
have been posting a series of higher lows while continuing to
find resistance just below the $39 level.  Support has been
materializing at the ascending trendline, which has now risen to
$36.  The bounds of the wedge are now a mere $2.50 apart and
something will have to give soon.  We are favoring a breakout
above resistance and the company's earnings report on August
16th could be just the catalyst to do it.  Throughout the past
18 months, ADSK has continued to beat analyst estimates and
expectations that they will be able to do it again looks like
it is starting to move the stock up in advance of the news.
We'd like to get an intraday dip back to the ascending trendline
to allow us to enter the play at a better price, but given the
strong volume that accompanied today's gain, we may have to
content ourselves with entering on continued strength.  A push
through $37.50 can be used for aggressive traders.  Otherwise,
wait for the stock to push through $39 on continued strong
volume.  Place stops at $35.50.

***August contracts expire next week***

BUY CALL AUG-35*ADQ-HG OI= 668 at $2.95 SL=1.50
BUY CALL AUG-40 ADQ-HH OI=1280 at $0.80 SL=0.00
BUY CALL SEP-35 ADQ-IG OI=   2 at $4.30 SL=2.75
BUY CALL SEP-40 ADQ-IH OI= 130 at $1.80 SL=1.00

SELL PUT SEP-35 ADQ-UG OI=  15 at $1.65 SL=3.25
(See risks of selling puts in play legend)

Average Daily Volume = 730 K



IMPH - IMPATH, Inc. $44.37 +0.47 (-4.68 this week)

Applying their broad knowledge and research capabilities, IMPH
specializes in providing patient-specific cancer diagnostic
and prognostic information, with a particular expertise in
difficult to diagnose tumors, prognostic profiles in breast
and other cancers, and lymphoma/leukemia analysis.  The
company currently works with more than 7400 physicians
specializing in the treatment of cancer patients and their
database currently contains more than 550,000 patient profiles.
In addition IMPH can link its information with that of its
tumor registry business to provide data on the full continuum
of care, from diagnosis through treatment and outcomes on many
patients.

Hit by a series of downgrades in late April, IMPH suffered a
precipitous decline on heavy volume, bringing the stock back to
earth near $30 before buyers showed up to the rescue.  Since
then it has been a choppy ride, but the stock has been
gradually advancing.  Sellers were lying in wait for the stock
when it finally broke above the $45 resistance level last week,
but it looks like the selling may have run its course.  The past
two days have seen support materialize just above $43 - another
higher low.  Daily Stochastics have bottomed and although we may
be early to the party, this play looks like it offers a good
risk/reward ratio, especially with our tight stop at the $43
level.  A bounce from current levels looks attractive for new
plays, although more conservative traders may want to wait for
the stock to prove itself.  A volume-backed move back above the
$45 level would seem to fit the bill.  Both the Biotechnology
(BTK.X) and Pharmaceutical (DRG.X) indices are sitting near
critical support, so look for some life to come back to these
sectors in order to confirm we are on the right side of the
trade.  Once the overall sector gets moving to the upside, IMPH
looks like it will benefit handsomely from the recovery.  The
next level of resistance is sitting at $49.

***August contracts expire next week***

BUY CALL AUG-40 QPH-HH OI=100 at $4.80 SL=3.00
BUY CALL AUG-45*QPH-HI OI=348 at $1.40 SL=0.75
BUY CALL SEP-40 QPH-IH OI= 10 at $6.30 SL=4.25
BUY CALL SEP-45 QPH-II OI=307 at $3.50 SL=1.75
BUY CALL SEP-50 QPH-IJ OI= 26 at $1.45 SL=0.75

SELL PUT SEP-40 QPH-UH OI= 45 at $1.30 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 250 K



WAG - Walgreen Company $36.97 +1.06 (+1.07 this week)

Serving customers in 43 states and Puerto Rico, WAG is a
drugstore retailer operating over 3200 stores and three mail
service facilities.  The drugstores are engaged in the retail
sale of prescription and non-prescription drugs and carry
additional product lines such as cosmetics, toiletries,
household items, food and beverages.  Customer prescription
purchases can be made at the drugstores, as well as through
the mail, telephone and Internet.  A testament to the company's
growth, it expects to open 500 new stores in fiscal 2000 and
have a total of 6000 drugstores by the year 2010.

Benefiting from a series of analyst upgrades, shares of WAG
have experienced a nice rise so far this month.  While we have
learned that analyst ratings are suspect, at best, we think
they might be on the right track with this one.  With the
aging population of the U.S. and our obsession with health,
Americans are continuing to increase their expenditures at the
local drugstore.  Still on an aggressive growth path, WAG is
poised to profit from this trend.  After launching through the
$35 resistance level on the heels of the CSFB upgrade, shares
of the company have continued to advance on solid volume this
week.  Cresting the 50-dma ($36.32) today is a good sign and it
looks like the bulls are focused on challenging resistance at
the $38 level.  The $36 level should now act as support and an
intraday dip back near this level will provide for attractive
entry points, so long as it is followed by strong buying volume.
A push through the $38 resistance level can be used for
momentum-based entries, but look out for profit-taking, given
the fact that daily Stochastics are deep in overbought
territory.

***August contracts expire next week***

BUY CALL AUG-35.0*WAG-HG OI=3842 at $2.00 SL=1.00
BUY CALL AUG-37.5 WAG-HU OI=1137 at $0.45 SL=0.00
BUY CALL SEP-35.0 WAG-IG OI=1059 at $2.75 SL=1.50
BUY CALL SEP-37.5 WAG-IU OI= 517 at $1.25 SL=0.50
BUY CALL OCT-37.5 WAG-JU OI=1040 at $1.70 SL=0.75

Average Daily Volume = 3.16 mln
 


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

PSFT - PeopleSoft $40.71 +1.20 (-2.25 this week)

PeopleSoft designs, develops, markets, and supports a family of
enterprise application software products for use throughout large
and medium sized organizations.  These organizations include
corporations, higher-education institutions and federal, state,
provincial and local government agencies worldwide.

While speculative, this play has the potential for big gains.  But
isn't that generally the case?  Thursday morning, Dain Rauscher
Wessells suggested that BEA Systems (BEAS) would be forced to
reduce its earnings estimates when the company reports next week.
BEA Systems is scheduled to report after the bell on Tuesday,
August 14, and according to Dain Rauscher Wessels and its channel
checks, the July quarter was most difficult for BEAS and the
result could be a measurable reduction in future guidance.  As
it relates to PSFT, BEA Systems is a competitor and if it
reduces earnings estimates early next week that could be the
catalyst that carries PSFT below its pivotal support level around
the $38.25 level.  In the meantime, there's the chance that PSFT
could bounce higher, possibly up to the $43 to $44 range, hence
our liberal stop at $45.  Therefore, there are two possible
entry strategies ahead of BEA Systems' earnings report next
week.  First, should PSFT advance from current levels, bearish
traders can look to enter new puts on a rollover around $43.
Second, a breakdown below $38.25, in a declining market and
software sector (GSO.X), would offer a favorable entry point
for momentum traders.

***August contracts expire next week***

BUY PUT AUG-45 PQO-TI OI= 478 at $4.80 SL=3.00
BUY PUT AUG-40*PQO-TH OI=4547 at $1.60 SL=0.75
BUY PUT SEP-40 PQO-UH OI= 393 at $3.80 SL=2.50

Average Daily Volume = 7.67 mln

 

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

BRCM - Broadcom $43.75 +0.96 (-3.24 this week)

Broadcom Corporation is a leading provider of highly integrated 
silicon solutions that enable broadband digital transmission of 
voice, video and data. For the 3 months ended 3/31/01, revenues 
rose 62% to $310.5M. Net loss totaled $356.9M, vs. an income of 
$38.6M. Revenues reflect increased volume shipments of 
semiconductor products. Net losses reflect a $109.7M in-process 
R&D charge and a $200.7M amortization of goodwill charge.

Most Recent Write-Up

Broadcom was the target of a downgrade Wednesday, which was on
top of the weakness in the wake of Cisco's earnings report.
However, the stock did manage to rebound late Thursday, after
trading as low as $41.  Although the stock dipped below OI's
stop at $42, its big rebound into the close is reason to
continue covering BRCM.  Going forward, bullish traders can look
for follow-through into Friday's session by entering on an
advance above the $44 level, only after confirming strength
in both the COMPX and the SOX.  Further weakness could offer
entries on any bounce from the $42 support area.

Comments

BRCM led the rebound in the Nasdaq Thursday, and we're looking
for the stock to follow-through into Friday's session.  This
stock could be the target of short covering Friday if the
Nasdaq strengthens.  Bullish traders can use a break above $44
early on to get long calls.

***August contracts expire next week***

BUY CALL AUG-45*RCQ-HI OI=7319 at $1.65 SL=0.75
BUY CALL SEP-45 RCQ-II OI=3736 at $4.50 SL=2.25
BUY CALL SEP-50 RCQ-IJ OI=1320 at $2.50 SL=1.25

Average Daily Volume = 10.2 mln

 

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