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Daily Newsletter, Thursday, 08/16/2001

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The Option Investor Newsletter                 Thursday 08-16-2001
Copyright 2001, All rights reserved.                        1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       8-16-2001          High      Low     Volume Advance/Decline
DJIA    10392.52 + 46.57 10395.21 10271.57 1.06 bln   1681/1389 
NASDAQ   1930.32 + 11.43  1930.46  1879.07 1.59 bln   1755/1857
S&P 100   605.03 +  2.01   605.31   596.26   Totals   3436/3246
S&P 500  1181.66 +  3.64  1181.80  1166.08
RUS 2000  481.68 +  2.73   481.68   474.06
DJ TRANS 2864.22 + 30.56  2868.36  2826.41
VIX        23.83 +   .06    24.81    23.42
Put/Call Ratio      0.96
*************************************************************


HWP Shines, Dell Struggles, Ciena Implodes!

The markets were hit hard before the open with Ciena announcing
results that beat the street slightly but warning that they would
miss for 2001 and 2002 due to a continued slump in the economy
and in their sector. Analysts expected them to meet and warn but
the severity of the warning surprised everyone. CIEN dropped -8.50
or -30% on the news and sent the networking index NWX.X to a new
52-week low along with most of their competitors. The Dow fell
-76 points by noon and the Nasdaq lost -40 points to a new intraday
low of 1879. The day did finally get better!







Investors were bombarded with conflicting economic reports and
traders did not know which way to turn. The Philadelphia Fed Survey
of general business conditions continued to show contraction with
a -23.5% August number compared to -12.2% in July. This was well
below consensus expectations and showed a sharp deterioration of
manufacturing in the Philadelphia region. Estimates were -10%.
New home sales continued to be strong with 1.67 million new
starts in July which represented a +13% gain over last July.
The lower interest rates continue to spur sales and are strongly
influencing consumer sentiment. Jobless claims fell unexpectedly
this week by -8,000 claims. Estimates had been for a gain of 15,000
jobs. Could it be that the labor markets are stabilizing? It is
too soon to tell and the numbers are still experiencing seasonal
volatility. The CPI also fell unexpectedly by -0.3% for July after
posting a slight gain for June. It is a chicken/egg problem. Is
the CPI falling due to lower energy prices or are the energy prices
falling due to the weak economy? Either way the result is a lack
of inflation and it is Fed friendly.

While the economic reports did nothing to move the markets the
CIEN, BRCD warnings definitely hammered the indexes. The volume
was strong for an August Thursday and declines beat advances by
better than 2:1 in the morning as investors fled not only the
networking stocks but PC stocks as well. CIEN, TLAB, JNPR, PMTC
and ITWO all hit new 52-week lows. The Internet economy was
called into question yet again and analysts were trading barbs
about their outlooks instead of stocks.

Fear of a similar warning by Hewlett Packard or Dell kept traders
from buying the dip before lunch. However exactly at 12:00 a buy
program kicked in when the Dow was at the low of the day for the
second time at 10271 and shorts started covering from oversold
conditions. After being down eight of the last nine days the put
call ratios were climbing significantly indicating that fear was
coming back into the markets.

After the close Hewlett Packard announced earnings that beat the
street and actually forecast slightly better times ahead. Revenue
was slightly below estimates at $10.1 billion. HWP said they were
seeing "higher levels of channel interest" for the current quarter
and they forecast sequential growth for the next quarter. A PC
maker with a positive outlook? The markets cheered and HWP rose
in after hours trading.

Dell did not surprise traders with their earnings which only
met estimates and they followed the earnings with a warning
that earnings will fall as much as two cents for the 3Q. They
said margins were under pressure but they did claim to garner
slightly more market share from competitors. Dell fell in
after hours after the COO gave cautious comments on CNBC.
Analyst Ashok Kumar said he was not as optimistic as others
that the sector would rebound with a seasonal trend and he
said he could not see any improvement until the first/second
quarter.

The common thread tonight was the 1Q/2Q comments. It appears
that most analysts and companies are just not seeing any bounce
in orders for the last quarter of this year. HWP which said
they were expecting sequential 4Q growth, further qualified
the statements with "historical and seasonal" adjectives
meaning they were hoping more than counting on the rebound.

In the back from the dead category Lucent said they had
received permission from their lenders to proceed with a massive
restructuring cutting 20,000 jobs in the hopes to return to
profitability by 2002. They could take as much as a $9 billion
charge in the 4Q for this restructuring. They are going to
delay the Agere spin off for 6-9 months as well.

The Nasdaq struggled to hang on to a new five month low of
1879. The sub 1900 number did trigger some bottom fishing as
well as several buy programs. However it probably did not cause
recent money outflows to reverse. TrimTabs.com said after the
close that -$2.6 billion flowed out of mutual funds for the week
ended on Wednesday which followed a similar -$2.5 billion outflow
the prior week. $2.5B here and $2.5B there and pretty soon you
have lost a lot of money. Nothing after the bell had the desired
impact of stopping that outflow.

It was encouraging to see the bounce from very oversold conditions
and back into positive territory but even though the volume was
good it was still just a short covering rally. The advance
decline numbers only came back into the 17:16 range which is
a basic dead heat. The Vix spiked at the open to near 25 but
fell back into the mid 23 range before the close. This is not
a buy signal. 1940 was upper resistance on Wednesday for the
Nasdaq and now that 1900 has been breached again on the downside
it may be easier to move down than up. The Dow is stuck under
current resistance at 10400 and leaning toward the bottom of
its trading range.

There is still no reason to rush back into stocks before the
Fed meeting next Tuesday. Everyone expects a 25 point cut and
some analysts are worried that a larger cut now could undermine
the markets. Traders are also afraid of a "no change" announcement
if the Fed thinks the economy has really bottomed. The Nasdaq
rally back to 1929 at the close simply brought it back to
bottom support from last week. The warning from Dell may
overshadow the cautiously optimistic comments from HWP and
we could see another sell off attempt. The down trend from
the last nine days is still intact and this oversold bounce
may not have any legs. Nothing material has changed and the
uncertainty about the Tuesday Fed meeting should keep big
money on the sidelines. Should we get a close under 1900 all
bets are off and it will become more likely we will see a
retest of the April lows. You can see why August is historically
the second worst month of the year for the last 30 years. Be
patient and be profitable. Nasdaq 2100 is still my entry point
benchmark. It will probably be revised down in the next couple
weeks if the situation warrants but until then - stay tuned!

Enter passively, exit aggressively!

Jim Brown
Editor


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

Back From the Brink
By Jeffrey Canavan

Once again the market was able to pull itself back from the brink
of disaster, and finish the day in positive territory.  In the
morning the focus was on poor future guidance from Ciena and
Brocade.  Perhaps it was some short covering, program buying, or
traders deciding to focus on some of the positive economic news,
but the major indices managed to finish in positive territory.
Housing starts came in better than expected, the unemployment
picture improved, and the CPI showed no signs of inflation, which
allows the Fed to cut interest rates as needed.

S&P 500 Daily Chart



For the fourth time in 5 weeks, the S&P 500 tested 1,177, the
61.8% retracement of the April to May gains, and rallied to close
above it.  No bounce off of this level has gone higher than
1,230, and the last one was especially weak, failing to clear
1,204.  For today's move to have any credence, we need some
follow through tomorrow.  Momentum would have to build off of
that to clear resistance in 1,204 to 1,211 range.


Nasdaq Composite Daily Chart



The late-day rally in the Nasdaq came up a little shy of the
previous support area at 1,934.  If that level doesn't act as
resistance tomorrow, perhaps the Nasdaq could approach 2,000 over
the next few days.  Testing 2,100 would be the longer-term, more
optimistic target.

Buying stocks when the situation looks bleakest has worked over
the past few months, but in order for stocks to get a bounce
going tomorrow, they are going to have to fight past a gloomy
outlook from Dell, HP, and Gap.  Should that happen, the best
bounce scenario for the S&P 500 looks like a 4% gain.  Bears
still have the longer-term upper hand, but way want to consider
lowering some stops should a bounce mount.

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

Market Volatility

VIX   23.83
VXN   50.64

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .96        680,315       653,498
Equity Only     .85        532,716       453,303
OEX            1.18         32,792        38,551
QQQ             .90         66,132        59,517

The total and equity only put/call ratios have hit levels that
can mark a possible bullish turning point, but I am a bit
skeptical due to options expiration.

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

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    40      -2      Bear Confirmed
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

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

The 10-Day Arms Index has reached a point that usually signals a
bottom.  This signal tends to be early, and doesn't mean the
market is going to rally tomorrow.

 5-Day Arms Index  1.23
10-Day Arms Index  1.52
21-Day Arms Index  1.32
55-Day Arms Index  1.26

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      1680           1393
NASDAQ    1755           1862

        New Highs      New Lows
NYSE      156             53
NASDAQ    102            184

        Volume (in billions)
NYSE     1.060
NASDAQ   1.608

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

Advisory Sentiment

Bullish  Bearish  Correction   Net   Change
  46.0%    27.0%     27.0%    19.0%   +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: 08/07/01
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 net bearish position of commercial traders increased slightly,
but that was the result of more long positions being dumped than
short positions, and not a significant amount of new shorts being
added.  The % of Open Interest for small traders is at bullish
levels similar to February and March.

Commercials   Long      Short      Net     % Of OI
7/24/01      317,241   392,146   (74,905)   (10.56%)
7/31/01      335,532   409,352   (73,820)   ( 9.91%)
8/07/01      331,881   406,210   (74,329)   (10.07%)


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
7/24/01      141,372     61,665   79,717     39.26%
7/31/01      129,648     54,552   75,096     40.77%
8/07/01      128,454     53,191   75,263     41.43%

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

NASDAQ-100
Commercial traders added a few long positions and dropped a few
shorts, but the most encouraging sign is the fact that small
traders are starting to give up hope.

Commercials   Long      Short      Net     % of OI
7/24/01       27,396     39,198   (11,802)  (17.72%)
7/31/01       28,009     39,613   (11,604)  (17.16%)
8/07/01       28,867     38,956   (10,089)  (14.88%)

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
7/24/01       12,170     7,744    4,426      22.23%
7/31/01       11,216     8,938    2,278      11.30%
8/07/01        9,715     8,098    1,617       9.08%

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
Commercials continue to get slightly more bullish, small traders
continue to get more bearish.

Commercials   Long      Short      Net     % of OI
7/24/01       16,080    12,812    3,268     11.3%
7/31/01       17,748    13,669    4,079     13.0%
8/07/01       18,644    13,733    4,911     15.2%

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
7/24/01        5,599     9,526    (3,927)   (25.96%)
7/31/01        5,049     9,079    (4,030)   (28.52%)
8/07/01        4,841     9,909    (5,068)   (34.36%)

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


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

I Can Relate
By Eric Utley

After asking a seemingly inappropriate question the other night
at the bar, a woman retorted, "Who do you think you are?"  Once
the beer had been wiped from my face and the crowed dispersed, I
thought about her question: Who am I?  I think the thought
process that followed went something like this:

I grinned, "Huh, I'm a trader."

I thought, "I fancy myself as a writer from time to time,
but need a lot of work in that area."

I remembered, "On my better days, I'm a decent fly fisherman."

I dreamed, "Sometimes I wish I was a rock star, but who doesn't?"

I paused, "Dear Lord, I'm a consumer.  That's it, that's my
existence, a damned consumer."

I don't think that consumerism is found anywhere in Maslow's
Hierarchy of Needs.  If I recall correctly, the pinnacle of the
pyramid and thus human nature is self-actualization - something I
hope to achieve one day, but not today.

Today, I'm a consumer.  I've accepted that much.  I define myself
by the Land Rover that I drive.  The last time I checked, Land
Rover was a division of Ford (NYSE:F), but that doesn't concern
me.  What concerns me are the commercials I see on TV of the Land
Rover and its adventurous driver making their collective way
through the jungles of South America.  I can identify with that.

I don't really mind too much that The Gap (NYSE:GPS) is struggling
in a big way, judging by its earnings report Thursday.  But I do
care about the clothing sold at the Banana Republic, which is one
of The Gap's divisions.  I don't know what it is about the Banana
Republic brand that I like.  It's just my style.  And so is
Kenneth Cole's (NYSE:KCP) footwear.

When I'm out with my buddies, I tend to relate quite well to the
brands of Anheuser Busch (NYSE:BUD) and Adolph Coors (NYSE:RKY).
And once in a while I try to make like the Marlboro Man, who's
the driving force behind one of Phillip Morris' (NYSE:MO) better
known products.

I spent the other day with my colleague Jeffrey Cananvan in
search of a sexy loft in downtown Denver.  I was looking for a
place that I can relate to.  Something that is a little edgy,
with character, and that metro feel.  I can no longer relate to
the suburban townhouse where I currently reside.  It's just not
me.  The loft that I found is in the financial district of
Denver, near a Morton's (NYSE:MRG) that I like to frequent and
just begging to be filled with a bunch of stuff from Pier 1
Imports (NYSE:PIR).  It's perfect!

I can't speak for others, but I tend to purchase those things
that I can relate to.  Things that I can identify with - I think
I've made that obvious.  I'm a victim of consumerism and it's a
choice.  And I'm not ashamed to admit that much.

But what I am afraid of is letting my desire to consume and
identify with products and services carryover into my trading
and investing activities.  And I don't think I'm alone in this
perceived weakness.  In fact, I think it's a common flaw of
many investors and traders to relate to a stock so much as to
lose objectivity.  I think that investors both consciously and
subconsciously identify with particular stocks, and as a result
are generally unwilling to sell when a stock begins to tank.
After spending countless hours of doing fundamental research,
chart work, and ultimately pulling the trigger, it can be so hard
to "let go" of a stock after it's purchased.

To take this idea of identifying with stocks a step further, I
think there's a relationship with it and investors' reluctance
to short stocks; that is, playing the role of bear.  I get the
sense that the majority of Option Investor's readers don't
short stocks or buy puts.  And it's in the spirit of learning
that I'm going to begin a series on playing the role of bear,
starting next week.  I think some traders feel that betting on
a stock falling is unnatural, or even perhaps un-American.  But
it's not.  Betting on stocks falling is as American and natural
as, well, consumerism.

If there are any ideas that my readers would like touched upon in
my upcoming series on selling stocks short/buying puts, please
feel free to drop me a line at the following address:

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:
*****

BRCM $41.19 -0.83 (-1.36) CIEN's warning Thursday morning didn't
help our bullish cause in BRCM.  Although the stock rebounded
into the close, it still settled well below our stop at the
$42 level.  We're dropping the play because of its stop
violation and traders with open positions should use any strength
early Friday to cut losses.


PUTS:
*****

CERN $53.12 +0.62 (+0.98) Sometimes things just don't go your
way, and that is the case with CERN.  The stock found support
shortly after we added it and the buying volume has been brisk
the past 2 days.  Even though our $54 stop is still intact, it
looks like bears are losing their conviction.  We'll err on the
side of caution and drop CERN tonight in favor of more
attractive opportunities.


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The Option Investor Newsletter                 Thursday 08-16-2001
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
********************

MRK $69.99 +1.09 (+0.96) MRK continues working higher and its
bounce from the 10-dma Thursday was encouraging.  Traders should
still be watching the Drug Sector Index (DRG.X) when trading MRK.
For its part, the DRG is having trouble with the 400 level, and
it should be noted that its 200-dma is just above around 404.
So traders with some gains built up in MRK should be thinking
about pairing back positions around current levels IF the DRG
can't get past 400 in the next few days.  In terms of new entry
points in MRK, traders should be looking for entries on
pullbacks.  With resistance overhead in the DRG, it's a bit more
risky to use a momentum-based strategy in MRK, such as buying
into strength.  We're moving OUR stop up to $68.

ELNT $39.33 +2.64 (+2.71) Intelligent speculation!  When stocks
refuse to go lower when the broader market is slipping, those
stocks tend to out perform once the broader market lifts.  Case
in point, our play on ELNT.  The stock provided several entry
opportunities, from its dip down to support around $35 early
Thursday to its strong advance above resistance at $37.50.
Either entry approach should have traders sitting pretty
currently.  Therefore, it's prudent to start thinking about
exit points.  The stock has near-term resistance around $40,
and slightly higher around $41.50; above those two levels, there's
blue sky up until $47.  But to reiterate, in order for ELNT to
continue advancing, the SOX MUST also advance.  For support,
bullish traders can now turn to the 200-dma at $37.75.  We're
sliding our stop up to $35, which is very liberal; traders
with open positions should determine their own unique stops.

PG $74.19 +2.01 (+2.32) Weak dollar, strong PG!  Goodness, we
certainly didn't expect PG to pop for $2 in one day, but we'll
certainly take it!  Because of its large move and the low cost
of its options, traders should be thinking about locking in
some gains after Thursday's advance.  Call us crazy, but booking
gains is just a smart thing to do in this market.  Although our
short-term price target is just above current levels at $75,
traders should be thinking about taking profits in this case.
Furthermore, at this point, new entries should only be taken on
pullbacks, as opposed to chasing PG higher.  The first site to
turn to when looking for support, thus an entry point, is $73.
Just make certain to confirm light volume with any weakness from
this point forward.  And keep an eye on the dollar!  Stops have
been moved up to $72.

ABT $52.97 -0.18 (+0.69) Falling at the open with the rest of
the market, ABT found buying support just above our $52 stop
and rebounded from there, closing just under $53 and a short hop
away from a retest of resistance at $53.80.  While it is
anything from a pretty chart with all those long wicks, ABT is
holding its 8-week ascending trendline, which has now risen to
$52.35.  Once again providing support on this morning's dip, it
should be clear the trendline needs to hold on intraday dips in
order to keep the play alive.  Target either a dip above $52 or
a breakout over $54 for initiating new positions and keep stops
in place at $52.

IMPH $46.45 +0.60 (+1.86) Investors in IMPH don't seem to care
which way the Biotechnology index (BTK.X) trades, as they
continue to push our play a little higher every day.  By
contrast, the BTK has been vacillating about the $500 level for
the past week.  After rebounding from the 30-dma (near $43.50)
last week, IMPH has climbed back over the 20-dma (currently
$45.78) and just managed to crest the 200-dma ($46.43) by
today's closing bell.  $46 resistance is now in the rear-view
mirror and we are looking for it to provide support as IMPH
continues higher.  The stock has been riding a more aggressive
uptrend (now at $46) for the past 7 days and intraday dips near
this level should continue to provide attractive entry points.
Significant profit taking could hand us the gift of a dip to
$45 or even $44.50, but don't chase it too low -- remember to
keep stops at $44.

IBM $105.75 +0.74 (+0.80) What a rebound!  After falling to the
$104 level in the midst of market-wide selling this morning, IBM
launched higher into the close and is once again setting up for
a test of the $106.50 resistance level.  Intraday dips in the
$103-104 area are still providing attractive entries and we
might get another shot at that level on the heels of DELL's
less-than-stellar earnings report tonight.  Just remember to
keep those stops set at $102 as a drop below that would clearly
break the fledgling uptrend (pattern of slightly higher lows).
Additional entry points will materialize as the bulls push IBM
back above $107, setting the stage for a run at the $109-110
resistance level.

NTIQ $35.29 -1.37 (-1.11) Profit taking has been the rule for
the past couple days in shares of NTIQ as the NASDAQ has
continued to weaken.  Dipping to just above the 20-dma (now at
$34.48), the stock found willing buyers, but not a lot.  Closing
near the lows, our play needs to head up again to keep the
pattern of higher lows intact.  That may be a tough trick to
manage with daily stochastics now rolling over without even
getting into overbought territory.  Our stop is still resting at
$34, and intraday dips above that level can be used for
initiating new positions, but only if volume begins to
strengthen.  Resistance at $40 is still intact and now the bulls
will need to scale the $37 obstacle before contemplating a
breakout to new recent highs.

WAG $36.41 -0.06 (-0.91) Another day, another entry point.  WAG
was kind enough to dip back to the $36 level today in the midst
of the early market weakness.  Once again the bulls stepped
forward and we saw buying volume increase into the close,
lifting our play off the lows.  It remains to be seen whether
WAG can re-establish its uptrend, but things are looking
promising with the stock holding above the 50-dma and
approaching the month-long ascending trendline, now at $35.50.
Target new entries above this level as buying volume picks up or
wait for the stock to clear intraday resistance at $36.50.
Stops are still at $35.


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

CHKP $38.14 +1.18 (-1.06) Hopefully CHKP's early weakness Thursday
allowed for traders to book some gains.  Remember, greed is out
of fashion in this market.  Book 'em when you got 'em.  The
software stocks had grown oversold going into Thursday's session,
so a bounce is not out of the ordinary.  However, we must be
careful going forward.  We need to see CHKP's pattern of lower
highs persist over the coming sessions in order for this play
to continue working.  That means CHKP should rollover somewhere
between $40 and $41 IF it continues advancing into Friday's
session.  On the other hand, if the stock weakens Friday we can
breathe a little easier.  Bearish traders should keep an eye $35
as it marks CHKP's relative low.  But, even after Thursday's
bounce, we've got about $6 in downside since picking up coverage
on this play.  We therefore disagree with Mr. Gordon Gekko; greed
is NOT good.

PSFT $38.19 -0.90 (-0.65) Down, up, and back again.  PSFT's been
a real whipsaw as of late, making the stock most difficult to
trade.  PSFT's price action Thursday reinforced that in this
market it's best to buy puts when the stock is rallying and
sell them for profit into weakness.  Nevertheless, it's NO
coincidence at all that CHKP closed where it did Thursday.  Recall
that our "pivot" point lies around $38.25.  Ideally, we'd like to
see the stock rollover from this level early Friday morning,
which should, in turn, send the stock down towards the $35 level.
If PSFT continues climbing, however, the 10-dma around $40.50
could serve as resistance.  Our stop has been move down to $41.

GMST $34.57 -0.02 (-1.29) Call it lucky, but we're happy with
the "mistake" we made holding GMST over its earnings announcement.
Since gapping higher up around $38.50, GMST has fallen as low
as $32.76 in short order.  The stock's breakdown below $35
Wednesday should've allowed for a solid entry point.  And its
subsequent weakness Thursday hopefully allowed traders to book
some decent gains in a short-term trade.  But GMST did bounce
back along with the Nasdaq late Thursday, so we'll want to keep
close watch on its price action around $35 going into Friday's
session.  This level should now serve as support and we'd
like to see GMST rollover at it, which should provide a solid
entry point for those not already in the play.  Stops have been
moved down to $36.

AIG $81.18 -0.26 (-0.50) Reacting to the sharp drop on Tuesday,
anxious bulls snapped up shares of AIG yesterday, pushing the
stock up, but not enough to touch our $82 stop.  The descending
10-dma ($81.37) continues to pressure AIG as it has for the past
month.  The Insurance index (IUX.X) is trying to firm near the
$726 level, and this is helping AIG to hold above the $80 level.
Attractive entries for the next leg down can be taken either on
another failure to penetrate the $82 level or a volume-backed
move under $80.  Keep an eye on the IUX, as further weakness in
the broad sector will push AIG lower.

VRTS $32.95 -1.45 (-5.71) There's nothing like being in the
right place at the right time.  It's too bad we didn't initiate
coverage a couple days earlier, but we're more than happy to
take a chunk of gains from the middle of the move.  Analysts
from Morgan Stanley and Banc of America Securities have been
duking it out in the press about the company's second quarter
performance.  The outcome of the feud isn't important, just that
it creates uncertainty.  Investors hate uncertainty and have
taken leave of the stock, driving it as low as $31 this morning.
With the late day recovery, VRTS is nearing the $34 intraday
resistance level, and we could be setting up for another
rollover and subsequent entry point.  Stops are being tightened
to $36 this evening, just in case the bulls wake from their
slumber and charge higher from here.


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

NVDA - NVIDIA $89.57 +3.62 (+4.93 this week)

NVIDIA designs, develops and markets graphics processors and
related software for personal computers and digital entertainment
platforms.  NVIDIA provides a "top-to-bottom" family of
performance 3D graphics processors and graphics processing units
that, in the company's opinion, has set the standard for
performance, quality and features for a broad range of desktop
PCs.

If you're looking for multiple catalysts in a play then read on.
This one has earnings, a new application, and a split, too.  Two
days ago, NVIDIA announced second-quarter earnings that were
impressive indeed.  The company recorded 50% earnings growth over
the year ago period.  What's more, its officials raised guidance
during the conference call by a measurable amount over their
last guidance back in February.  NVIDIA also makes chips that
are going into the Microsoft XBox video game console, which is
due for release in the near-future for the upcoming holiday
season.  That alone may continue to drive shares of the stock
higher.  Finally, in conjunction with its earnings release,
NVIDIA set a 2-for-1 stock split.  With several catalysts in
the mix, the stock should continue working higher so long as the
Nasdaq cooperates.  For entry points, bullish traders can use
any advance above the $90 level in an advancing market.  For
those who prefer entering call plays on a pullback, look for
NVDA to find support around the $87 level, or lower around
$84, the latter of which is our stop initially.  For market
confirmation, keep close tabs on the Nasdaq, and watch the
Semiconductor Sector (SOX.X) for sector confirmation.

BUY CALL SEP-85 RVU-IQ OI=1438 at $10.50 SL= 7.50
BUY CALL SEP-90*RVU-IR OI=2370 at $ 7.30 SL= 5.25
BUY CALL SEP-95 RVU-IS OI=1439 at $ 5.10 SL= 3.50
BUY CALL DEC-90 RVU-LR OI= 319 at $15.40 SL=11.50
BUY CALL DEC-95 RVU-LS OI= 348 at $13.00 SL=10.00

Average Daily Volume = 4.60 mln



BGEN - Biogen, Inc. $58.64 +0.76 (+1.00 this week)

Biogen is a biopharmaceutical company primarily engaged in the
business of developing, manufacturing and marketing drugs for
human healthcare.  BGEN currently derives revenues from sales
of its Avonex product for the treatment of relapsing forms of
multiple sclerosis and from royalties on worldwide sales by
the company's licensees of a number of other patented products.
Other products include certain forms of alpha interferon,
hepatitis B vaccines and hepatitis B diagnostic test kits.  In
order to maintain its leadership role in the industry, BGEN
continues to have an active research and development program.

Comments from BGEN officials stating that rival multiple
sclerosis drugs do not present a serious threat seemed to give
the stock new life this week as it once again bounced from the
$57 support level.  The stock got a boost late last month after
posting solid earnings and since then has been building a
series of higher lows, using the 20-dma (currently $56).  With
the lows getting higher and resistance sitting at $59, we have
a nice bullish wedge forming and there are two ways to play it.
First we can wait for the bulls to crank up the volume and push
the stock through $59.  The concern here is the 200-dma,
resting at $60.11, and a potential roadblock for the bulls.  The
better entry point will likely be to target a pullback near $56,
but the rebound needs to come on solid volume.  Risk can be
pretty easily managed in BGEN by setting a stop at $55, the site
of solid resistance (now support) throughout the month of July.

BUY CALL SEP-55 BGQ-IK OI=1418 at $5.70 SL=3.75
BUY CALL SEP-60*BGQ-IL OI=1621 at $2.75 SL=1.50
BUY CALL SEP-65 BGQ-IM OI= 573 at $1.20 SL=0.50
BUY CALL OCT-60 BGQ-JL OI=3224 at $4.20 SL=2.50
BUY CALL OCT-65 BGQ-JM OI=4017 at $2.25 SL=1.00

SELL PUT SEP-55 BGQ-UK OI=1162 at $1.60 SL=3.25
(See risks of selling puts in play legend)

Average Daily Volume = 2.89 mln



************
NEW PUT PLAY
************

CPN - Calpine Corporation $30.44 -0.56 (-1.65 this week)

Calpine Corporation is engaged in the generation of electricity
in the United States and Canada.  Involved in the development,
acquisition, ownership and operation of power generation
facilities, CPN also sells the electricity and its by-product,
thermal energy, primarily in the form of steam.  The company
has ownership interests in and operates gas-fired cogeneration
facilities, gas fields, gathering systems and gas pipelines,
geothermal steam fields and geothermal power generation
facilities.  Each of the generation facilities produces and
markets electricity for sale to utilities and other
third-party purchasers.

Profits have continued to come in strong for the independent
power producers, but that hasn't motivated buyers in the least.
It appears the fat profits were already priced into the stock
and now investors are locking in their gains from the sharp
rise in price earlier this year.  With the power problems in
the Western U.S. apparently easing up, CPN has been headed down
for months now.  Lower lows and lower highs have led the stock
down to the $30 level, just above critical support at $29, the
site of the intraday lows in early January.  While there is some
support near $28 (dating back to the first half of last year),
the most likely level where bulls will step forward to defend
the stock is $24-25, and we want to take a piece of that
decline.  Overhead resistance will be a tough nut to crack with
sellers lying in wait at $32, $33 and then $34.  The safest
entry will be to initiate new positions on a failed rally in the
$32-34 range.  Further weakness could keep us from getting so
lucky, and if that is the case, then we'll target fresh entries
as the stock falls through the recent double bottom at $30.  Set
stops at $34.

BUY PUT SEP-35 CPN-UG OI= 889 at $5.60 SL=3.50
BUY PUT SEP-30*CPN-UF OI=4417 at $2.35 SL=1.25

Average Daily Volume = 5.04 mln



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

VRTS - Veritas Software $32.95 -1.45 (-5.71 this week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Most Recent Write-Up

There's nothing like being in the right place at the right time.
It's too bad we didn't initiate coverage a couple days earlier,
but we're more than happy to take a chunk of gains from the
middle of the move.  Analysts from Morgan Stanley and Banc of
America Securities have been duking it out in the press about
the company's second quarter performance.  The outcome of the
feud isn't important, just that it creates uncertainty.
Investors hate uncertainty and have taken leave of the stock,
driving it as low as $31 this morning.  With the late day
recovery, VRTS is nearing the $34 intraday resistance level, and
we could be setting up for another rollover and subsequent entry
point.  Stops are being tightened to $36 this evening, just in
case the bulls wake from their slumber and charge higher from
here.

Comments

VRTS rebounded in concert with the Nasdaq late Thursday, but
still finished well into negative territory.  Its under
performance could portend further weakness in Friday's
session.  Bearish traders can look for rollovers near the
$34 resistance mentioned above, or on a breakdown below $32.

BUY PUT SEP-35*VIV-UG OI=4375 at $5.00 SL=3.50
BUY PUT SEP-30 VIV-UF OI=1309 at $2.45 SL=1.50

Average Daily Volume = 12.0 mln



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