Option Investor
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Daily Newsletter, Tuesday, 08/21/2001

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The Option Investor Newsletter                 Tuesday 08-21-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       8-21-2001          High      Low     Volume Advance/Decline
DJIA    10174.14 -145.93 10378.75 10156.02 1.03 bln   1345/1744	
NASDAQ   1831.30 - 50.05  1893.39  1831.28 1.30 bln   1303/2348
S&P 100   590.27 -  8.73   602.95   589.75   Totals   2648/4090
S&P 500  1157.26 - 14.15  1179.85  1156.56             
RUS 2000  472.24 -  6.63   479.65   472.24 
DJ TRANS 2780.51 - 59.91  2841.79  2778.95 
VIX        25.80 +   .66    26.42    24.00 
VXN        52.54 +   .90    52.54    50.43
Put/Call Ratio      0.68
*************************************************************

"Risks Still Weighted To the Downside"

This was not what investors wanted to hear. The complete statement
went something like this, "continuing weak profits and corporate
spending along with slowing growth overseas". Ouch! In English it
meant to traders that more job cuts could be ahead along with more
profit warnings and no recovery this year. With the possibility of
more layoffs ahead analysts worried that the consumer might start
leaving their credit cards at home and instead payoff bills 
instead of add to them with more purchases. The Fed maintained its
easing bias and will look at the picture again in about six weeks.


 


 

The Fed kept alive the largest series of rate cuts since the nine
cuts over eighteen months during the 1991 recession. The current
seven cuts have knocked the Fed funds rate in half from the 6.50% 
rate last December. The drop is the most aggressive since the early
1980s. While the Fed calmly cut by 25 points for the second time
in a row the world economy continued to spiral downward at an
increasing rate. With core inflation in the U.S. at 2.5% there
is no reason for the Fed to worry about over easing anytime soon.
After raising rates to the point where the economy literally
choked to death, they now appear to be perplexed over why it 
has not just jumped out of the grave to lead the world back 
down the yellow brick road to prosperity. 

Fears of further layoffs started coming true after the close as
AOL announced that 1200 employees would lose their jobs and take 
a third quarter charge up to $125 million. Another 500 jobs will
be cut from the prior alliance of SUNW and Netscape. This is the
third series of layoffs since the AOL/Time Warner merger. The
Washington Post had speculated last week that layoffs would be
announced in the 1100 range soon. Inside information anyone?

Signs of a consumer boycott may be appearing with the earnings
warning from American Eagle. AEOS traded over 20 times its 
average daily volume and lost -$9.06 after telling analysts that
inventories were up +14.5% which was much more than analysts
expected. It appears that fashion conscious teenagers have
turned fickle with so many choices available from discount
retailers. Analysts fear that the company will have to dump
its high priced inventory at deep discounts in order to move the 
product. Could it be that allowances are becoming tighter and 
that extra birthday card cash is turning into cheaper McDonalds 
gift certificates? 

At least Abbey Joseph Cohen is still bullish! Well sort of...
Abbey choked down her pride and started shaving her estimates
for the S&P at year end. She cut her target to 1500 from 1550
which is still a +28% gain should it come to pass. The question
here is not the 50 point drop but is it the first in a series
of target cuts to avoid the tar and feathers. "Oh gosh guys, I
changed my mind to 1200 for my year end target because I wanted
something that was easily attainable." Thanks Abbey! Everyone
who bought stocks over the last 60 days on your suggestion while 
the market was tanking are not happy you are now listening to a
different drummer. You know I am just poking fun at Abbey but
I would not be surprised to see her lower the estimate again a
few weeks from now. 

Not all companies are warning. TriQuint Semiconductor may be
the hero of the day after affirming their earnings targets
for the third quarter. "From almost every customer, we are 
seeing a pickup and resumption of shipments," CEO Steven Sharp
said. Gross margins will remain at 35% and we have enough 
bookings already to hit our revenue targets. Good job! Any
ray of hope is greatly appreciated. Now go on CNBC every hour
and repeat your comments! The semiconductor book to bill number
was also released after the close and came in at .67 which means
$67 of new orders were processed for every $100 of product
shipped. This marks the third month in a row that the ratio
has risen from the .44 April low. This is bullish and could
power the semiconductor sector on Wednesday.

General Motors also affirmed its earnings outlook for the third
quarter and its production targets for the rest of 2001. After
falling for the last two days on the Ford warning, GM said sales
were supporting production thanks to new truck models. It also
said it was going to layoff more than the previously announced
layoffs of 5700 workers. GM rose in after hours and should be
a positive impact on the markets tomorrow.

Negative sentiment was so bad at the close that no bulls were
visible and everyone was predicting Nasdaq 1638 this week. Not!
In fact the sentiment was so bad that it could almost be construed 
as a contrarian indicator and a buy signal. After a little research
I was not very convinced. The VIX closed at only 25.80 which is
not a buy signal. The VXN was only 52.54. The put/call ratio
was only .68 which was significantly less than it has been 
averaging on other down days lately. Advances were less than
decliners by only a 2:3 margin. New lows on the Nasdaq barely
beat new highs at 136/159. While things looked very bad on the
surface the internals were not painting the same picture. 

The mixed messages are very confusing for traders. Do we buy
the dip or wait for another opportunity? The Nasdaq is well below
prior support and the afternoon chart looked like pure free fall.
The Dow bounced off upper resistance at 10400 once again and then
broke through 10200 convincingly. Now, on the surface it looks
bad. It looks like we are on track to retest the April lows.
However if you look at the after hours action you will see a
rebound in semiconductor stocks. We all know that semis lead
any Nasdaq rally. Now, I will be the first to tell you that I
am not bullish but the markets are very oversold. The Nasdaq
has fallen from 2100 to 1831 since August 2nd with only a handful
of positive days in the middle. Nothing prevents it from falling
further but there is a trading rally around here somewhere. The
problem we are still facing is the lack of volume due to August.
There is still no reason to own stocks, especially after the
Fed said there were still risks to the downside. If we have a
dead cat bounce on Wednesday it is likely to eventually fail.
The economy may have bottomed but until traders know for sure
we are stuck in the current trend. Dead cat bounce on Wednesday?
Maybe. Fall rally starting tomorrow? I doubt it!

Enter passively, exit aggressively!

Jim Brown
Editor


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

Weak
By Jeffrey Canavan

Risks going forward remain weighted mostly toward conditions that 
may generate economic weakness in the foreseeable future.  Not 
exactly the words the market was looking for.  We all know that's 
the situation, but it just sounds bad when the Fed says it.  
Perhaps if the Fed would have given investors something to cling 
to, they could have resisted the temptation to sell.  But the Fed 
took a wait and see approach, and some investors decided to do 
likewise, with their money safely on the sidelines.

Nasdaq-100 Index Tracking Stock Daily Chart


 

The situation isn't looking good for the Nasdaq-100 Tracking 
Stock (AMEX:QQQ).  Every time I think I've found an obscure point 
of support, the Qs quickly crash through it.  If I get creative 
I'm sure I could come up with a support level, but the most solid 
support looks like the April low at $33.60, $3.10 away.  An 
argument could be made that the Qs are due for a snap back rally, 
but determining when, where, and if that will happen is 
difficult.  Riding this lower looks a little easier right now.

S&P 500 Daily Chart


 

The S&P 500 is clinging to Friday's low at 1,156 for support.  If 
this level is lost before the S&P 500 can climb back above the 
1,177 level, perhaps 1,133 can offer some support.  This level is 
the mid-point of the last two retracement levels, and admittedly 
a bit of a stretch.  Desperate times call for desperate measures.

So why the desperate search for support?  Part of the concern 
stems from bullish percent data that has turned down.  The 
Nasdaq-100 has reverted back into bear confirmed status, which is 
one of the riskiest situations for going long.  The S&P 500 has 
dropped into bull correction status, which alerts bullish traders 
to take defensive action.  The bullish percent for the 5 major 
indices agree with Greenspan, risks going forward remain weighted 
mostly toward conditions that may generate stock market weakness 
in the foreseeable future

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

Market Volatility

VIX   25.80
VXN   52.54

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .68        566,274       382,976
Equity Only     .59        518,651       305,412
OEX             .89          9,995         8,927
QQQ             .42         47,292        19,764

3 of the four put/call ratios are overly bearish, but options did 
expire on Friday.

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

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    26      -4      Bear Confirmed
DOW           30      -6      Bear Confirmed
S&P 500       48      -6      Bull Correction  
S&P 100       40      -6      Bull Correction  

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  1.50
10-Day Arms Index  1.55
21-Day Arms Index  1.38
55-Day Arms Index  1.29

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      1342           1746
NASDAQ    1293           2348

        New Highs      New Lows
NYSE      201             54
NASDAQ    110            146

        Volume (in millions)
NYSE     1,029
NASDAQ   1,323

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

Advisory Sentiment 

Bullish  Bearish  Correction   Net   Change 
  49.0%    29.1%     21.9%    19.9%   +0.9%

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: 08/14/01
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
No significant changes (refer to graph at the bottom of the page).  
Since this is the most heavily traded contract, it tends to carry 
the most weight.

Commercials   Long      Short      Net     % Of OI 
7/31/01      335,532   409,352   (73,820)   ( 9.91%)
8/07/01      331,881   406,210   (74,329)   (10.07%)
8/14/01      337,327   411,504   (74,177)   ( 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
7/31/01      129,648     54,552   75,096     40.77%
8/07/01      128,454     53,191   75,263     41.43%
8/14/01      130,432     55,750   74,682     40.11%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100
The net bearish position of commercial traders continues to 
improve.  Breaking the 7,000 level would be even better.
 
Commercials   Long      Short      Net     % of OI 
7/31/01       28,009     39,613   (11,604)  (17.16%)
8/07/01       28,867     38,956   (10,089)  (14.88%)
8/14/01       29,909     37,822   ( 7,913)  (11.68%)

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
7/31/01       11,216     8,938    2,278      11.30%
8/07/01        9,715     8,098    1,617       9.08%
8/14/01       11,165     9,508    1,657       8.02%

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
Commercial are slowly adding more long positions, and improving 
their net bullish stance.

Commercials   Long      Short      Net     % of OI
7/31/01       17,748    13,669    4,079     13.0% 
8/07/01       18,644    13,733    4,911     15.2%
8/14/01       21,652    15,856    5,796     15.5%

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
7/31/01        5,049     9,079    (4,030)   (28.52%)
8/07/01        4,841     9,909    (5,068)   (34.36%)
8/14/01        4,441     8,528    (4,087)   (31.51%)

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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**************
BROKERS CORNER
**************

Hope, Fear and Greed
By Robert Ogilvie

The title is an old saying that refers to the three ways to lose
money in the market.  It is also the premise of the article.  The
market’s lack of conviction has most investors sitting on their
hands waiting for the conditions to improve.  However, the most
common question I am asked is “When is the market going to get
better?”  Investors are looking for brighter days before they
start trading again.  But when I dig a little deeper into why they
are so curious to when the market will improve, the truth comes
out.  They, like many others, are in deep with their current
positions that they have been holding for the entire decline,
hoping that the market will come back.  The fear of selling the
position and missing the rebound keeps investors in these
positions.

The greed in all of us makes us hope that the position will come
back so that we don’t have to face defeat.  My advice to those
investors that are hanging in there because “they have waited
this long and might as well continue to wait” should look at the
security as if you were beginning to analyze it for the first
time.  If your fundamental and technical parameters still suggest
holding onto the position, then do so.  However, if you wouldn’t
buy it now, then why hang onto it any longer.  If the analysis
suggests that it isn’t worth buying or holding onto, then don’t
allow your emotions to control your trading. Too many short-term
traders became long term investors by not setting strict selling
parameters.

Making a lateral move into a security that has better fundamentals
and technical characteristics can offset the fear of missing the
recovery. In previous articles, I have outlined different
selection processes for determining strong securities.  You can
read them in the Broker’s Corner section of the website or email
me for the articles (KISS, Trading Rulebook, and Trade Smart).
If you are stuck in a declining position, you might as well make
a move into either a position that is moving up or take advantage
of the current market’s direction.

It doesn’t matter where I am, people always talk to me about the
market.  They mostly ask, “when is the NASDAQ going to go back
up?”  I give them a short explanation of the fundamentals and
explain that it doesn’t have to go back up anytime soon.  Everyone
says, “it has to go back up.”  It hasn’t yet.  I’ve heard the same
whiny phrase for a long time.  The markets don’t have to do
anything.  I can’t wait until people start selling because they
have given up.  That may finally signal that the fear level has
peaked and the market will bounce back.  The NDX only has 1516.5
points left to go down until it has to go back up.  To be clear, I
do think the market will recover at some point.  I want the market
to get better because it is good for business.  

So when is it over?  Until I see the indexes significantly advance
and stabilize above the 200 DMA.  This might happen when the dollar
weakens a little, unemployment decreases and corporate profits
increase.  The strategies I employ now and in the future depend on
the client’s investment goals and risk tolerance.  

Happy trading!

Robert J. Ogilvie, ROP
Cutter & Company, Inc.

I am an Options Broker and ROP that trades for and educates
investors on many strategies.  Please contact by email at
Robert.Ogilvie@verizon.net if there are any questions.

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness of
any charts, formulas, and /or research opinions presented herein.
This article is intended solely for educational purposes. Nothing
herein should be construed as an offer or solicitation to buy or
sell any securities. Cutter and Company is a Member of the NASD,
MSRB, and SIPC. Please read the Optioninvestor Disclaimer:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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:
*****
IBM $101.89 -2.21 (-2.70) So much for support.  After the market
showed its disappointment with the outcome of the FOMC meeting,
IBM fell right through the ascending trendline before closing
below our $102 stop.  We've been patient with this play, but it
looks like the bulls lost the battle for now, and we are ready
to move on.


PUTS:
*****

No dropped puts tonight 


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The Option Investor Newsletter                 Thursday 08-21-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/4787_2.asp


**************************Advertisement**************************
MR. STOCK:  Your Expert Guide to the Dynamic World of Options 
Trading Options aren't easy.  We know.  That's why, with over 
20 years of trading experience, we've designed a website 
specifically for options traders.  With fast executions, the 
ability to place complex orders online, and option trades 
starting at only $15.50, we have the tools you need to 
implement your strategies.  To find out more or open an 
account, visit our site at www.mrstock.com.
Click Here:
http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1
*****************************************************************


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

MRK $70.75 +0.17 (+1.60 this week) MRK is advancing solidly
above the $70 level despite the weakness in the Dow and S&P.
We maintain that as long as the dollar continues dropping MRK
could continue climbing.  And the dollar did slide further
during Tuesday's session, following the Fed's announcement on
interest rates.  Bullish traders can look for entry points on
weakness if MRK pulls back down to the $70 level.  Also,
momentum traders can use an advance above Tuesday's high at
$71.50 to get long this play.  Just make sure to confirm
direction in the Drug Sector Index (DRG.X) before entering a
momentum-based play in MRK.  We're moving stops up to $69. 

ELNT $35.92 -1.28 (-1.19) The rampant weakness in the broader
semiconductor sector continues dragging ELNT lower.  Those
traders who prefer to enter call plays on such weakness should
be on alert as ELNT approaches support around the $35 level,
which is also the site of our stop.  Traders who like entering
on dips can use a bounce from $35 in the coming days if ELNT
dips that low.  If the trend reverses, an advance back above
$37.50 may also allow for an entry point into strength.  In
that case, confirm direction in the Semiconductor Sector
Index (SOX.X).  For its part, the SOX is flirting with a
significant relative low at the 530 level.  Traders in this
play should make special note of the SOX and its potential
impact on this play.  A breakdown in the chip index should
have traders playing defense. 

PG $74.78 -0.90 (+0.03) We couldn't be more pleased with PG's
trading up through Monday's session.  Of course we would've
liked to see follow-through Tuesday, but the weakness in the
Dow and S&P 500 most likely induced a round of profit taking
in PG.  The stock has had a nice run recently and a natural
reaction is not out of the ordinary.  However, a profit taking
pullback can be detrimental to options traders, which is why
having discipline and taking profits is so important.  That
said, hopefully PG's pop above $75 and its subsequent rally
up to $76 Monday offered options traders plenty of favorable
exit opportunities.  Going forward, we'd like to see PG hold
above the $74.50 level, if it doesn't, the stock could trade
down to support at $74, which is the new site of our stop.
Both levels may serve as entry points, depending upon market
conditions.  And if weak market conditions persist

NVDA $81.44 -1.75 (-2.30) We're doing it again!  Although NVDA
closed below our stop at $83, we're keeping the play alive.
And the reason for ignoring the stop in this case is because
we believe that NVDA has the potential to rally big if the
Nasdaq turns around.  The stock is the best performing
component of the Nasdaq-100 so far this year and for good
reason.  Because it's been outperforming, NVDA should lead
any forthcoming rally across the tech sector.  Further, the
stock is holding above the $80 level.  Bullish traders can
use a bounce from that $80 level in the coming sessions, with
a relatively tight stop in place just beneath to game any
rebound.  In addition, an advance back above $85 may offer
trend traders entry points into the play.

CNXT $9.63 -0.85 (-0.30) CNXT was trading well Tuesday, prior
to the Fed's announcement, but that could be said for most of
the market.  It was discouraging to see CNXT rollover with
such velocity, especially after its excellent price action
Monday.  We need to see CNXT's series of higher lows continue,
which means the stock should find support somewhere around its
current levels.  Buyers could begin to materialize somewhere
around the $9.25 area, thus keeping the pattern of higher lows
going.  If they don't, our stop at $9 will take us out of the
play.  That scenario sets up a good entry point on further
weakness from current levels.  On the flip side, an advance
back above $10 would offer momentum traders an entry point. 

ABT $52.74 -0.25 (+0.45) "I think I can, I think I can."  ABT
tried to clear the $53.50 level again on Tuesday, but the
disappointment over the Fed's interest rate decision sent the
bulls packing again.  Falling in the afternoon session, ABT once
again came to rest right on the ascending trendline, now at
$52.75.  The ascending wedge is narrowing, and as long as the
bears can't break the back of the uptrend, we could be looking
at an upside breakout in the next few days.  Target intraday
dips to the $52.50 level (old resistance becomes support) for
fresh entries or else wait for the bulls to charge through the
$54 level on strong volume.  Keep stops in place at $52.

BGEN $57.07 -0.51 (+0.71) Biotech bulls helped BGEN to charge
higher right from the open this morning and by early afternoon,
the stock was flirting with the $59 resistance level.  Alan
Greenspan quickly reined in this enthusiasm with the outcome
of the FOMC meeting at 2:15pm ET.  BGEN spent the rest of the
afternoon following the Biotechnology index (BTK.X) and the
rest of the market south.  While BGEN posted a fractional loss
for the day, it was encouraging to see it close above the $57
support level.  Our stop is still in place at $55, so we can
use any solid bounce from the $56-57 level for initiating new
positions.  But wait for the bounce.  Bounces from support are
the more favorable entry strategy, as the 200-dma (near $60)
will put a damper on any breakout over $59 in the near-term.

IMPH $45.05 -1.30 (-0.93) It was pretty much a nothing day for
IMPH shareholders, until the outcome of the FOMC meeting was
announced that is.  The stock quickly fell from near the
unchanged level to close at the low of the day, right in the
middle of the $44.50-45.50 congestion/support zone.  With
weakness throughout the Biotech sector, it's no wonder IMPH
ended the day in the red.  Even with the increased volume in
the final hour of trading, volume was downright anemic, with
less than half the daily average crossing the tape.  Target a
bounce from current levels for new positions, or wait for the
bulls to push the stock through the $47 level on strong volume.
Our stop remains at the $44 level.

NTIQ $34.50 -1.28 (+0.21) Despite a rough day in the markets
following the Fed's latest interest rate reduction, NTIQ
managed to once again hold above the $34 support level.  As we
mentioned over the weekend, it looked like NTIQ would retest the
$34 support level, and retest it did, both yesterday and today.
We are keeping our stop in place at this level and will continue
to target new entries near this level, particularly if the
overall Technology sector can start to show some signs of life.
Resistance is looming overhead at $35, giving us another
possible entry setup if the bulls can get a rally going.


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

CHKP $34.65 -1.40 (-1.52) CHKP hit and subsquently closed below
our most recent short-term, downside price target at $35.  Its
breakdown could've resulted in one of two scenarios Tuesday,
depending upon whether or not readers had existing positions.
First, and for the sake of discipline, CHKP's weakness may have
allowed readers to book some gains in the play, provided they
had entered puts at higher prices.  Second, it may have allowed
for readers to establish new positions, especially those who
prefer to trade momentum, in this case a breakdown.  With $35
now past, our next downside target is at the $30 level, which
may be reached in short order if the Software Sector (GSO.X)
continues weakening.

PSFT $34.11 -1.83 (-1.74) PSFT is working as planned.
Interestingly, the stock stopped right around the $34 level
in the wake of Tuesday's sell-off.  The $34 level is significant
because it's the site of PSFT's 50% retracement level of a big
bracket.  If we see $34 give way soon, it should be a good
indication that PSFT is heading lower, much lower.  Below $34,
PSFT doesn't have support until $30, which will be the site of
our next short-term target if $34 is lost in the coming days.  In
terms of execution, bearish traders can either enter new puts
on a break below $34, or on any short covering rally.  In the
case of the latter, look for resistance to materialize around
$37, or higher around $38.  And remember to keep an eye on the
GSO (Software Index).

GMST $33.06 -0.59 (-0.47) GMST is still working in our favor,
but that's only after Tuesday's big market sell-off.  The
reason we emphasize this point is because it appears that GMST
is starting to bottom out.  Although that's only speculation on
our part, we don't want to get stuck in a sideways position, or
in the worse case scenario having GMST rebound from current
levels.  Therefore, it may be prudent for bearish traders to
at the very least book some gains on any further weakness from
current levels.  GMST could very well make another leg lower
if the COMPX continues sliding.  And we'll use the $31 level
as further confirmation of weakness in GMST.  In the meantime,
defer to discipline.

EBAY $57.92 -2.58 (-1.08) We concede that this is an aggressive
play due to EBAY's much-loved nature.  But it has the potential
for big rewards.  In the meantime, we're going to have to deal
with a great deal of volatility in this play.  The good news is
that EBAY closed well beneath the $59 level Tuesday, which is
the level that we have deemed pivotal.  Whether or not that much
is true is debatable, but there's no debating that EBAY's 3-month
low sits at $56.75.  A decline below that level should lead the
stock to support around $55, which could be an exit point for
those in puts above $60.  In terms of new entry points from
current levels, bearish traders can use any future rollover near
the $60 level to enter plays, or on further weakness from
Tuesday's close, depending upon market conditions and risk
preference.  Our stop has been moved down to $63.

AIG $78.23 +0.09 (-0.98) Talk about a lack of follow-through.
Investors tried to rally shares of AIG this morning, but barely
crested the $79 level before running out of steam.  Then the
stock began the long afternoon slide that brought it to rest
nearly unchanged from Monday's close.  Investors are having a
hard time getting excited about the stock and it shouldn't be
any surprise with the Insurance index (IUX.X) continuing to
slide.  Although the IUX is now finding support near $720, it
looks like it could be headed for more significant support in
the $700-705 area before buyers start to show up in sufficient
volume to stem the bleeding.  This weakness should help to drag
AIG down to the $74-75 level, which should become the bottom of
the new trading range.  As AIG falls into the $75 area, that
would make an excellent point to consider locking in profits.
With our stop at the $80 level, use any failed rallies below
that level for initiating new positions for the next leg down.

CLS $36.55 -1.00 (-2.92) Six days and counting.  That's how
long it has been since CLS has managed to post a positive close
and the pain continues to mount, with the stock quickly
approaching critical support in the $33.50 area.  That is the
level from which CLS launched higher when the Fed dropped
interest rates on April 18th.  Deep in oversold territory, but
capable of becoming more so, is an apt description.  Stochastics
are deep in oversold territory and RSI is the most oversold it
has been in years.  So keep a sharp eye for an oversold bounce,
which will likely give us a fresh put entry.  A bounce to the
$39-40 level would provide an attractive level for initiating
new positions.  Note that our stop has moved to $42 this week,
as the stock will need to see some serious buying interest to
get that high after the recent breakdown through the $39.50
level.

CPN $29.90 +1.63 (+0.62) Bullish traders finally rejoiced this
morning on the heels of bullish comments from CPN, which stated
that it is on track to meet it generating capacity goal of
70,000 MW by the end of 2005.  UBS Warburg analyst Ronald Barone
thinks there will be more additional capacity available than
projected by CPN officials but doesn't expect the power glut,
whose spectre has cast a dark cloud over the power generators,
to materialize.  Investors took this as good news and bid the
stock right through the $30 level (also the level of our stop)
and right up to the $31 level.  The stock then fell on the heels
of the Fed's rate cut announcement, but is resting right below
our stop.  A continued decline from current levels looks
attractive for new positions, although more cautious investors
may want to wait for the $28 support level to fail before taking
a position.  Major support near $24-25 looks like a good place
to consider taking profits off the table.

LEH $63.90 -0.91 (-0.10) Financial stocks attempted to stage a
rally this morning, but couldn't hold it together after the Fed
announced their decision on interest rates.  Selling volume
ramped up significantly and LEH fell sharply right up to the
closing bell, coming to rest just below the $64 level.  Ignoring
the attempted rally this morning (which just paints a bearish
shooting star doji candle pattern), LEH hasn't been able to get
out of its own way over the past 3 weeks.  And despite being in
oversold territory for more than 2 weeks, LEH is showing no
signs of being able to break out of this condition.  Solid
resistance is sitting at $67 and any failed rally (like we had
today) looks attractive for new positions.  Alternatively, wait
for the stock to fall through near-term support at $62.75 on
increasing volume before taking a position.  Keep stops set at
$68.

VRTS $32.01 -0.84 (-0.94) Storage stocks still can't seem to
advance and that is keeping VRTS on our put list.  After moving
up this morning, the stock found resistance near $34.25, which
held until the afternoon selloff began.  Then VRTS fell right
back to the $32 support level on increasing volume.  While the
day's volume was less than the ADV, there is no question that
the selling volume in the final 2 hours was heavy.  VRTS looks
like it is ready to head lower again, despite the daily
stochastics trying to turn up out of oversold territory.  A
break below the $31 intraday low from last Thursday could
provide for fresh entries as could a weak intraday bounce that
fails to scale the $35 level (the location of our stop) before
rolling over.


*************
NEW CALL PLAY
*************

LH – Laboratory Corp. of America $82.20 +2.20 (+0.55 this week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

In the search for stocks to play to the upside, Medical
diagnostic stocks like LH and DGX keep rising to the top, even
with the markets continuing to deteriorate.  The most likely
reason is their insensitivity to weakness in the economy and
the fact that we continue to have more and more medical tests
done in our endless pursuit of health.  After falling back from
its attempted breakout above the $90 level in late July, LH
looks like it is gathering its strength for another attempt.
It has been finding support near $80, right along the 5-month
ascending trendline.  Daily Stochastics are turning around from
above the oversold zone, setting up a nice bullish divergence
situation.  We're setting a tight stop at $79, so we can target
intraday dips near $80 for new positions and still limit our
risk to acceptable levels.  Should the bulls get moving in the
near-term, consider using a breakout over the $84 resistance
level as a trigger for new positions as well.  Watch for signs
of sector strength by keeping an eye on competitor DGX.  If the
#1 and #2 stocks in the medical diagnostic business are in rally
mode, that seems like a good place to be.

BUY CALL SEP-80 LH-IP OI=111 at $6.10 SL=4.00
BUY CALL SEP-85*LH-IQ OI=272 at $3.70 SL=2.25
BUY CALL SEP-90 LH-IR OI=416 at $2.10 SL=1.00
BUY CALL NOV-85 LH-KQ OI=110 at $6.50 SL=4.25
BUY CALL NOV-90 LH-KR OI=110 at $4.60 SL=2.75

SELL PUT SEP-80 LH-UP OI=733 at $3.30 SL=5.25
(See risks of selling puts in play legend)

Average Daily Volume = 539 K



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

GS - Goldman Sachs $75.40 -2.44 (-1.85 this week)

The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services
worldwide to a substantial and diversified client base.  The
company operates offices in over 20 countries.

Deals are dead.  Trading volume is dry.  And lower interest
rates aren't much help.  Eight months after the Fed's first
interest rate cut in this cycle and shares of leading brokerage
firms are at or very near 52-week lows.  GS falls into the
former category.  The stock slipped to a fresh 52-week low
in Tuesday's session, following yet another cut in rates.  The
stock is technically weak at current levels in looks to be
heading for $70 in short order.  In addition, the money business
doesn't show any signs of improving anytime soon, at least
judging by the increasingly larger number of layoffs on Wall
Street.  So we have a play that is both technically and
fundamentally bearish.  Our only trepidation is that fast
stochastics, on a daily chart, is in oversold territory.  But
that might not be much of a concern if GS is falling into
a new descending trend, which very well may be the case.  In
either case, traders should examine their style and risk
preference before proceeding.  Those how prefer entering puts
on strength might wait for GS to rollover between the $77 to
$78 resistance range.  Conversely, those who like entering
puts with the trend (on weakness) can look for a decline
below $75 to enter plays.  Initially, our downside target is
at $70, while our upside protective stop is in place at $80.

BUY PUT SEP-75*GS-UO OI=12694 at $3.70 SL=2.25
BUY PUT SEP-70 GS-UN OI= 1169 at $2.00 SL=1.25

Average Daily Volume = 2.38 mln



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

BGEN - Biogen, Inc. $57.07 -0.51 (+0.71 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.

Most Recent Write-Up

Biotech bulls helped BGEN to charge higher right from the open
this morning and by early afternoon, the stock was flirting
with the $59 resistance level.  Alan Greenspan quickly reined
in this enthusiasm with the outcome of the FOMC meeting at
2:15pm ET.  BGEN spent the rest of the afternoon following the
Biotechnology index (BTK.X) and the rest of the market south.
While BGEN posted a fractional loss for the day, it was
encouraging to see it close above the $57 support level.  Our
stop is still in place at $55, so we can use any solid bounce
from the $56-57 level for initiating new positions.  But wait
for the bounce.  Bounces from support are the more favorable
entry strategy, as the 200-dma (near $60) will put a damper on
any breakout over $59 in the near-term.

Comments

BGEN fared comparatively well Tuesday, as did the broader
Biotechnology sector.  In fact, the BTK.X was one of the last
sectors to go into the red Tuesday.  That relative strength
may resurface Wednesday and we want to be there if it does.
After confirming direction in the BTK.X, bullish traders can
use a bounce from $57 to gain an intraday entry point into
BGEN.

BUY CALL SEP-55 BGQ-IK OI=1463 at $4.30 SL=2.75
BUY CALL SEP-60*BGQ-IL OI=1831 at $1.75 SL=1.00
BUY CALL SEP-65 BGQ-IM OI= 791 at $0.55 SL=0.00
BUY CALL OCT-60 BGQ-JL OI=3501 at $3.20 SL=2.25
BUY CALL OCT-65 BGQ-JM OI=4065 at $1.60 SL=0.75

Average Daily Volume = 2.89 mln



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