Option Investor
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Daily Newsletter, Tuesday, 08/28/2001

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The Option Investor Newsletter                 Tuesday 08-28-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       8-28-2001          High      Low     Volume Advance/Decline
DJIA    10222.03 -160.32 10382.83 10214.34  .98 bln   1232/1868
NASDAQ   1864.96 - 47.43  1916.28  1864.72 1.41 bln   1337/2303
S&P 100   594.13 - 10.09   604.59   593.95   Totals   3569/4171
S&P 500  1161.51 - 17.70  1179.68  1161.17
RUS 2000  474.20 -  4.73   479.27   473.99
DJ TRANS 2831.13 -  0.78  2838.52  2807.81
VIX        24.02 +  1.58    24.23    22.51
VXN        48.74 +  1.52    49.46    47.79
Put/Call Ratio      0.88
*************************************************************

Consumers Moving to Sidelines?

While it is still too soon to draw any conclusions the Consumer
Confidence numbers on Tuesday sent a chill through the markets
and raised questions about the future of the economy. Depending
on who you questioned the analysts expected a slight rise in
the confidence numbers to between 116 and 118. Nobody really expected
a drop for the second month in a row to a four month low. Surprise,
Halloween came early. The drop was not dramatic but the tone of
the release slammed the markets with a dose of reality. Could
the GDP, which will be announced on Wednesday, also drop and
possibly go negative? That was the real fear expressed by traders.






The drop in the consumer confidence was entirely in the current
conditions index. The expectations for the future actually improved
slightly showing that consumers are like investors, they always
expect the best even when the worst is right in front of them.
Plans for future purchases of appliances were flat but plans
to buy automobiles dropped substantially. If auto sales really
fall substantially then the GDP has no chance of remaining
positive. Some analysts already expect the revised numbers on
Wednesday to fall into negative territory for the first time
since 1993. The challenge is still the consumer. Once the "official"
recession gauge (GDP) goes negative and the hometown newspapers
start hyping the "economy officially in recession" mantra then
consumers will close those wallets and hunker down to weather
the coming storm. This would be the kiss of death for the economy
and more anemic rate cuts will not be able to jump start the
economy or the markets. We would be faced with simply waiting
for the recession flu to run its course. The U.S. economy is
already being held hostage by the worsening global picture.
The news from Japan just makes official what analysts have been
saying for some time and other Asian/European economies are not
far behind.

Stocks in the news included SunMicro which was cut by Goldman
Sachs on views that their server oriented product mix would not
be helped by any seasonal consumer PC buying. They cut estimates
for 2002 to $.28 from $.37 cents. SUNW fell to a four month low
at $13.56 and was a big factor in the Nasdaq drop. SUNW will
make its fourth quarter update call on Wednesday. It will give
a "state of the union" like market call and it is not expected
to be positive. Being squeezed between 1.4 GHZ Intel desktops
on the low end and giant IBM processors on the high end, SUNW
may be forced to warn on Wednesday.

Gateway announced that they were going to implement a massive
restructuring, take almost a $500 million charge and layoff
25% of their workforce. They also said they would close operations
around the Pacific Rim and possibly Europe. They are getting
killed in their global price war with Dell and by closing the
Japan, Australia, Malaysia, New Zealand and Singapore operations
they can reduce expenses and stay in the fight. The positive
news was a forecast that unit sales would be up slightly in
the 3Q and 4Q and the stock traded up slightly after the
announcement. Computer sales fell in the second quarter for
the first time since 1987. Prudential said prices for desktops
fell by -3% last month and notebooks -5%. From all accounts
it looks like the back to school bounce did not happen and
PC makers may be pressured to warn again in September.

The Dell/Gateway price war is not the only nuclear exchange
currently underway. Intel announced the first 2 GHZ processor
and vowed to keep increasing the pace of improvements. AMD
quickly fired back with a price cut of as much as 49% on their
high end Athlon line. This follows a price cut last week of the
older models in the Athlon line and the Duron line of chips by
as much as 49%. The Intel news was good for Rambus as the new
chips use Rambus technology. That news was short lived since
Intel then announced that they would produce the 845 chip
set in mid-September that would compete with Rambus. That
new chip set will cut the price of the high end processors
from $1500 to around $800. Did anybody think that Intel would
never produce a compatible product eventually? I doubt any
chip analyst ever thought Intel would stand on the sidelines
and watch those dollars go into a different corporate pocket.
Rambus better hurry and come up with a new product soon or get
really accustomed to penny stock status.

Oracle fell to $14 after they announced that one of their three
executive vice presidents, Edward Sanderson, was going to take
a leave of absence for personal reasons. Rumors had driven the
stock down on worries of a top level defection and the announcement
failed to stop the drop. Oracle spokeswoman Jennifer Glass said,
"nobody's resigned, nobody is planning to resign!" when pressured
about the news.

There were no pockets of safety on Tuesday. Biotech, chips,
drugs, chemicals, airlines, etc, all down. The advance decline
line was negative by almost 2:1 most of the day and the VIX
and put/call ratios rose. A little fear coming into the market?
Could be or simply traders moving to the sidelines in advance
of September. I would vote for simply fear and lack of interest.
The volume was not bad but by all accounts it was simply a
lazy day. Traders were not rushing to get out of positions.
It was simply a lack of buyers that drove prices down. I hate
it when TV analysts use those terms. "Just a lack of buyers"
So, does that mean I did not lose money and the numbers are
imaginary? Sorry, whatever the reason the money is still gone!
That is why this is a good week to sit on the sidelines. The
SUNW conference call at 4:30 Wednesday afternoon is sure to
weigh on the markets and the GDP in the morning could be
disastrous if is goes negative. However, we are going to
recommend calls on Thursday to hopefully capture any post
Labor day rally. Typically the first week in September is
positive and then everything self destructs when the earnings
warnings hit the fan. As investors we cannot predict market
bottoms but we can prepare for the rebound rally. We should
be preparing for a trading rally only as a way to keep sharp
and stay tuned up. Better times are ahead but they may be
farther ahead than we care to speculate.

The Nasdaq appears headed for a retest of last Wednesday's
low of 1817. The Dow hit 10134 last Wednesday and could easily
hit that number again this week. 28 of the 30 Dow stocks were
negative on Tuesday. 10120 is the very low end of the recent
trading range and any break under that would cause trading
programs to be triggered both on the sell side and the buy
side. The bears betting on a retest of the 9106 spring lows
and the bulls betting that a Labor Day rebound would push the
Dow back to the upper end of the range at 10500. The severity
of the sell off on Tuesday would indicate no faith by the bulls
and it will take some seriously positive news to power the
markets forward. Should the GDP be higher than expected or
SUNW brag about increasing orders then a Labor Day relief
rally could start sooner. In my opinion it would only be a
relief rally and would not last. In short, prepare to trade
but not to invest unless your time horizon is measured in
months instead of weeks.

Enter passively, exit aggressively!

Jim Brown
Editor


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

Stocks and Confidence Drop
By Jeffrey Canavan

A decline in consumer confidence was not what a jittery market
needed, but that's what they got.  The Conference Board reported
that consumer confidence fell to a four-month low of 114.3 in
August amid concerns about unemployment.

Wall Street was hoping for a slight increase in consumer
confidence, and went into sell mode when they didn't get what
they wanted.  Intel tried to inject some positive news into the
market by saying they expect a seasonal improvement in second
half demand, but the stock still closed down 50 cents.

Nasdaq Composite Daily Chart




Intel couldn't help the Nasdaq Composite either, which lost 2.48%
and closed on its low.  Today's drop erases most of Friday's
gains, and sets up the composite for a test of last week's low at
1817.

S&P 500 Daily Chart




Just when it looked like the S&P 500 might be able to hold above
1,177, it drops 1.50% and also erases all of Friday's gains.
That puts the S&P 500 within 8 points of last weeks low.

While charts are nice, today's action was all about economic
data, and tomorrow should be more of the same.  The tone will be
set early when revised 2nd Quarter GDP numbers are released at
8:30AM EST.  Expectations are for flat growth, and anything less
could spark another selling spree.

Gateway may be able to help computer stocks tomorrow after
announcing that they expect to be pretax profitable in Q4 by
exiting the European market and cutting 25% of its global
workforce.  The stock is up 49 cents in after hours trading.

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

Market Volatility

VIX   24.02
VXN   48.74

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .88        398,269       349,369
Equity Only     .80        349,708       278,525
OEX            1.12         10,697        12,021
QQQ             .89         37,260        33,106

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

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    24       -      Bear Confirmed
DOW           36       +6     Bull Alert
S&P 500       48       -      Bull Correction
S&P 100       38       -      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  1.10
10-Day Arms Index  1.30
21-Day Arms Index  1.38
55-Day Arms Index  1.27

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      1230           1874
NASDAQ    1338           2301

        New Highs      New Lows
NYSE      100             50
NASDAQ     47             94

        Volume (in millions)
NYSE       982
NASDAQ   1,414
-----------------------------------------------------------------

Advisory Sentiment

Bullish  Bearish  Correction  Net   Change
  46.9%    30.2%    22.9%    16.7%   -3.2%

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: 08/21/01
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
Flat line.  Commercials' net position hasn't budged in three
weeks.

Commercials   Long      Short      Net     % Of OI
8/07/01      331,881   406,210   (74,329)   (10.07%)
8/14/01      337,327   411,504   (74,177)   ( 9.91%)
8/21/01      342,332   416,372   (74,040)   ( 9.76%)

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
8/07/01      128,454     53,191   75,263     41.43%
8/14/01      130,432     55,750   74,682     40.11%
8/21/01      134,280     58,785   75,495     39.10%

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

NASDAQ-100
Commercials have gotten slightly more bearish.  It looks like a
range is setting up between (8,000) and (10,000). See chart
below.

Commercials   Long      Short      Net     % of OI
8/07/01       28,867     38,956   (10,089)  (14.88%)
8/14/01       29,909     37,822   ( 7,913)  (11.68%)
8/21/01       30,348     38,964   ( 8,616)  (12.43%)

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
8/07/01        9,715     8,098    1,617       9.08%
8/14/01       11,165     9,508    1,657       8.02%
8/21/01       10,499     7,576    2,923      16.17%

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 are closing in on their most bullish reading of the
year, 8,925 set back on May 22nd.

Commercials   Long      Short      Net     % of OI
8/07/01       18,644    13,733    4,911     15.2%
8/14/01       21,652    15,856    5,796     15.5%
8/21/01       22,710    14,625    8,085     21.7%

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
8/07/01        4,841     9,909    (5,068)   (34.36%)
8/14/01        4,441     8,528    (4,087)   (31.51%)
8/21/01        5,059    10,410    (5,351)   (34.59%)

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

COT Commercial Net Position Charts





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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:
*****
NVDA $87.08 -1.15 (+1.80) NVDA just can't seem to get above the
$90 level.  As such, we're dropping coverage on this play.
But, continuing to trade the range between support at $80 and
resistance at $90 may offer traders lucrative opportunities
in the near future.

LH $82.95 -3.35 (-1.90) The anemic volume that accompanied
yesterday's price rise had us getting a bit concerned and
tightening up our stop on LH to $84.  It's a good thing we did,
because the early morning market weakness was more than the
bulls could stand, dumping their shares at the open.  While the
stock managed to rebound a bit near the end of the day, it
didn't get anywhere close to reclaiming the level of our stop
at the close.  So LH moves to the drop list tonight.


PUTS:
*****
AIG $77.20 +0.45 (-0.00) Relative strength has us winding up
our AIG put play after having ridden the stock down for a nice
slow gain in the past several weeks.  It has also provided
numerous opportunities for late-comers to get on board.  But
today we saw the beginning of the end, as shares of the insurer
rebounded while the broad market melted down on the heels of
poor economic news.  We'll take this opportunity to lock in our
gains and focus on the next winning play.

IDPH $59.91 -0.43 (-1.01) Our speculative put play on IDPH was
based on our opinion that the stock had run too far, too fast
and was poised for an abrupt breakdown.  Well, broad market
weakness wasn't enough to tank either the Biotech sector or our
IDPH play.  IDPH only lost $0.43 today and there was no selloff
in Biotech stocks.  It looks like there is some inherent
strength in the stock and rather than tilt against windmills,
we'll move to the sidelines.


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The Option Investor Newsletter                  Tuesday 08-28-2001
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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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
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Click Here:
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********************
PLAY UPDATES - CALLS
********************

ELNT $41.00 +0.43 (+1.10) ELNT broke above the $40 level Monday
afternoon and subsequently traded as high as $43 early Tuesday.
Hopefully its early morning strength allowed for bullish traders
with open positions to lock in some gains.  The stock continues
to perform exceptionally well relative to the COMPX and the SOX.
But without participation from the two, it's going to be very
difficult for ELNT to advance much higher.  That said, traders
should wait for the COMPX and SOX to rebound before entering new
positions.  Furthermore, ELNT's close Tuesday wasn't very
encouraging, as the stock slid lower throughout the session after
posting its high around $43.  We need to see a rebound early
Wednesday, or at the very least the $40 level hold, because old
resistance morphs into new support!  Bullish traders who prefer
entering on weakness can use any dip down to the $40 level to
enter new positions.

PG $74.99 -1.85 (-2.01) PG pulled back Tuesday in the wake of the
weaker than expected consumer confidence numbers.  The fear being
that consumer spending might fall off in the near future.
However, the fears seem a bit overblown in light of last Friday's
relatively strong housing numbers.  Furthermore, PG was due for
a profit taking pullback after its long, steady advance recently.
In fact, Tuesday's pullback down to support at $75 may offer
bullish traders a solid entry point into this play.  Look for
strength in the Dow Jones Average before entering new positions
and consider using a tight stop at current levels in order to
mitigate risk if entries are pursued.  Support below current
levels lies at $74.50 and $74.

CNXT $12.06 -0.40 (+0.45) CNXT's relative strength has been
inspiring recently.  The slightest strength in the SOX and COMPX
has resulted in exceptional rallies in this little stock.  Its
pop up to the $12.85 level Tuesday morning should've allowed for
bullish traders with open positions to at least book some
partial gains.  And that's exactly what the profit takers in the
underlying did this afternoon.  Going forward, CNXT could find
support around Tuesday's intraday low at the $11.80 level, or
slightly higher around $12.  Bullish traders looking for new
entry points should look for stabilization in the COMPX and SOX,
then turn to CNXT's current support levels for possible bounces.
Below current levels, CNXT should find support around the $11
area, which may also provide additional entry opportunities should
the COMPX and SOX drag CNXT down any further.

FFIV $15.40 -1.81 (-1.36) FFIV's recent trend was abruptly halted
early this week in the wake of weakness in the COMPX along with
the Networking Index (NWX.X).  In fact, the NWX appears technically
weak at current levels as it's testing the critical 300 level.
Bullish traders in FFIV should pay special attention to the price
action in the NWX in the coming sessions.  A breakdown below 300
should have traders playing defense.  Conversely, any bounce from
300 could lift some supply from FFIV and allow the stock to
reverse from its most recent pullback and head higher.  In terms
of execution, FFIV could bounce from the $15 level in conjunction
with a bounce in the NWX.  Or, look for an advance back above the
$16 level on healthy volume if a momentum-based entry strategy
is preferred.

CY $23.34 -0.78 (-0.56) CY rolled over early this week in
conjunction with the weakness in the Semiconductor Sector Index
(SOX.X).  Despite the early weakness, CY still does appear that
it's trying to build a base.  The stock is holding above the
$23 level and as long as it continues to do that, it should
rally once the broader market and the Chip sector rebound.  While
traders are waiting for a breakout, trading the stock's range
between $23 and $25 may produce favorable outcomes.  If you're
looking for a breakout in the stock instead, consider waiting
for the SOX to rebound from its current slump.  Then, look for
CY to breakout above the $25 level in conjunction with an
advancing market and sector, but confirm that any breakout
attempt is on strong volume.

BGEN $59.47 -1.68 (-1.32) After the solid upward move over the
past week, BGEN was due for a day of rest and the broad market
weakness was the perfect excuse to take it.  Volume on the drop
picked up from yesterday's anemic level, but still came in 20%
below the ADV.  It was a bit disconcerting to see the stock
violate the $60 level after its push through there, just 2 short
market days ago.  But the price is still holding above solid
support near $58.50, also the site of the 6-week ascending
trendline.  Our stop is currently sitting at $59, but aggressive
dip buyers may be able to gain an attractive entry into the play
on an intraday bounce from the $58.50 support level.  Just make
sure that buying volume is strong on the bounce.  Investors
looking to enter on renewed strength will want to target a
renewed rally that clears the $62 level, just above Monday's
high.

JBL $23.24 -0.96 (-1.62) Rallying right to the $25 level on
renewed strength in Semiconductor stocks last week, JBL found
itself unable to continue higher without the support of strong
buying volume.  So the stock has been falling back over the past
2 days and with another down day will be in danger of moving to
the drop list.  Our stop is currently sitting at $22.50, just
above the lows from last week.  We need to see a solid bounce
above that level in order to consider new positions.
Alternatively, wait for JBL to clear the $25 resistance level
before jumping into the play.

IWOV $7.20 -0.79 (-0.78) Our bottom-fishing play on IWOV may be
in trouble after failing for 2 days in a row to hold above the
20-dma (currently at $8.03).  Stochastic are weakening and we
saw selling volume on Tuesday in excess of the ADV.  Broad market
weakness may have been largely responsible for the sharp drop in
price, but we need to see the stock hold above support to keep
the play alive.  Look for a bounce from the vicinity of $7.00,
and note that our stop is just below that at $6.85.  More
conservative traders will want to wait for renewed strength in
the stock before taking a position.  If that fits your
investment style, look for IWOV to push above the $8.00
resistance level on strong volume.

NXTL $12.24 -0.47 (-0.30) Is it an entry point, or a reversal?
After a strong rebound from the $11.50 support level last week,
NXTL has been running out of steam, rolling over right at the
descending 10-dma (currently $12.55) on Monday and moving lower
today.  We still have our stop in place at $11.50, as a bounce
from that level could be just what the bulls need to gain some
traction.  More aggressive traders may want to target fresh
entries near $12, where NXTL found some buying support today.
Consider new entries at that level or on a strong (read:volume)
rally through the $13 level of resistance.

VRSN $44.64 -3.05 (-2.37) Extending its gains on Monday, VRSN
was looking like it might be able to challenge the $50
resistance level by the middle of the week.  That was until
sellers showed up in the final half hour of trade.  They held
the upper hand throughout Tuesday's trading session as the stock
followed the broader markets sharply lower.  Coming to rest just
above the $44 support level, VRSN is at a critical juncture.  We
need to see buyers defend the $44 level and any solid bounce
from that level looks attractive for new positions.  We've
tightened our stop to $43.75, and a drop through that level will
bring our VRSN play to a premature close.  Renewed strength
could provide for new entries as VRSN moves back through the $46
intraday resistance level, but make sure that buying volume
supports the move.


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

CHKP $33.26 -1.53 (-0.62) CHKP is having trouble moving, and
staying above the $35 level, which isn't much a surprise.  Going
forward, traders can look for rollovers from that level for new
put entry points.  On the other hand, a breakdown below the $32.50
level in the coming days may offer momentum traders an entry
point into weakness.  Those with open positions at higher prices
might look for exit points around CHKP's relative lows around the
$32 level.  While those new to the play might consider waiting
for weakness into the high $20's before thinking profit taking;
however, that much most definitely depends upon personal preference
and risk tolerance, so take that into account when trading this
play.  Also, make sure to continue monitoring the GSO.X when
trading CHKP.  The software index looks weak at current levels,
and could continue dragging CHKP lower if it falls further.

GMST $31.26 -1.77 (1.76) GMST's series of lower highs continues!
At this point, the stock's 10-day moving average is keeping it
in check.  Currently, the 10-day resides at the $32.75 level,
where bearish traders might look for rollovers in the coming
session.  Last Friday's big ramp higher appears to have been
no more than short covering, so it may be prudent to expect
GMST to revisit its relative lows just beneath the $30 level if
the COMPX and broader market continue sliding.  If it does,
bearish traders with open positions might use any weakness
down to the $30 level to book gains in this play, especially
if they're in at higher prices.

EBAY $53.98 -2.42 (-5.03) This play is not for the faint hearted.
It's amazing how volatile this stock is, which is the reason we
maintain a fairly liberal stop on the play.  But, the stock did
manage to close back below the $55.25 level, which we deem as
a critical support level.  As such, we expect EBAY to continue
lower in the coming sessions, and it may take out its relative
lows just below current levels around $53.25.  If it does that,
bearish traders with open positions should consider booking
gains, especially if they're in up around the $60 level!  Also
worth noting is the fact that the Internet Index (INX.X) is
hovering just above its ALL-TIME low!  Bearish traders in this
play should pay close attention to the INX in the coming
sessions as it relates to EBAY, which is a component of the
index.  As for NEW entry points in this play, momentum traders
might look for a breakdown below relative lows with an exit
point at $50.35.  Although, rollovers near resistance are
probably the more prudent entry strategy, such as near the
10-dma, which currently sits at $58.

IMPH $43.88 -0.77 (+0.10) Bullish traders tried to light a fire
under IMPH on Monday, but ran into formidable resistance at
the ascending trendline (now at $45), which had been providing
support up until last Thursday.  Daily stochastics are flattening
out in oversold territory and volume has been downright anemic,
but the price chart is still looking weak.  We would expect a bit
of an oversold bounce, but it is likely to find resistance near
$45.  A rollover near that level would make for an attractive
entry into the play, as would a drop through the $43.50 support
level, preferably on increasing volume.  Our stop is resting at
$47, just above the stock's recent highs.

QLGC $31.71 -1.94 (-2.61) Friday's rally came to an abrupt end
just below the $35 level and QLGC spent most of yesterday
meandering sideways.  Then with poor economic news, the stock
headed sharply lower at the open, coming to rest below $32
again.  Volume near the ADV confirmed that there wasn't a lack
of sellers and the stock looks like it is setting up for
another downward leg.  The 10-dma (currently $34.30) has been
providing consistent resistance for the past 2 weeks and any
failed rally that takes the stock near that level can be used
for new entry points.  Momentum traders will want to target a
drop through the $30 level for new entries, looking for strong
volume to continue to confirm the bearish trend.  Our stop is
currently at $35.

SEBL $22.74 -1.30 (-0.79) Friday's short-covering rally did
nothing to change the bearish sentiment in Software stocks and
after a tight rangebound day on Monday, the sellers were back
in control.  SEBL rolled over, once again from the 10-dma
(currently at $24.43) and appears ready to fall to new yearly
lows.  Any weak intraday rally near the 10-dma can be used for
initiating new positions, although momentum traders may want
to wait for SEBL to fall through the $21.75 level before
initiating new positions.  Move stops down to $25.


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

STJ - St. Jude Medical $69.85 +1.35 (+0.75 this week)

St. Jude Medical, together with its subsidiaries, is engaged in
the development, manufacturing and distribution of medical
technology products for the cardiac rhythm management, cardiology
and vascular access, and cardiac surgery markets.

The market - at least those participants who are buyers - is
looking for stability and consistency in earnings.  And there are
only a handful of sectors of the economy that have those
attributes.  One of which is the health care sector, which, in and
of itself, is rather broad, including biotech, pharma, HMOs, among
other segments.  While select pockets of the health care sector
may be impacted by extraneous developments, such as a rallying
dollar, certain segments remain relatively unscathed.  St. Jude
is one such company that has produced consistent results.  Its
business is relatively immune from the broader economic slowdown
and other events that are adversely impacting the broader economy.
The company's earnings track record and estimates prove that
much, which are nothing but stable.  Granted, this play is not
the sexiest of plays.  But sexy does not work in this market, at
least not easily.  Therefore, those in search of a relatively
stable play may find STJ interesting.  Because the stock is
sitting right on its next strike at $70 and it's a relatively
slow mover, it might make more sense to opt for a higher delta
contract when trading this play.  That way, theta decay won't
be as much of an issue as it would be in a contract with a near
50 delta.  As for entries, traders who like the momentum
approach can use an advance above the $70 level on healthy
volume to enter calls.  Those who prefer entering on a pullback
can use a bounce from the $69 level, or lower around $68.50.

BUY CALL SEP-65*STJ-IM OI= 22 at $5.70 SL=3.50
BUY CALL SEP-70 STJ-IN OI=164 at $1.95 SL=1.00
BUY CALL OCT-70 STJ-JN OI=395 at $3.40 SL=2.00
BUY CALL OCT-75 STJ-JO OI=127 at $1.25 SL=0.50

Average Daily Volume = 622 K



UNH - UnitedHealth Group $68.93 +0.43 (+0.82 this week)

Providing a broad range of resources to help people improve
their health through all stages of life, UNH forms and operates
markets for the exchange of health and well being services.
The company's Health Care Services segment consists of the
UnitedHealthcare and Ovations businesses.  UnitedHealthcare
coordinates network-based health services on behalf of local
employers and consumers in six broad regional U.S. markets.
Ovations is a business dedicated to advancing the health and
well-being goals of Americans over the age of 50.  Additionally,
the company's Ingenix business operates in the field of health
care data and information, analysis and application.

It's tough finding solid bullish plays in the current market,
but aggressive traders will like this one.  UNH broke out above
long-term resistance at $67.50 last week and has held up very
well in the face of the broad market weakness we have seen this
week.  In fact, the stock has been inching higher over the past
3 days, posting higher lows and continuing to test the next
level of resistance at $69.50.  The stock is outperforming its
sector, the S&P Healthcare index (HCX.X) as well, which has been
falling back over the past 2 days, coming to rest right on its
ascending trendline (now at $818).  Since this is an aggressive
play, we are placing a tight stop at $67.75, just below the $68
support level.  Target intraday bounces above this level, but
make sure the bounce is accompanied by solid buying volume.
Also watch the HCX index to make sure the broader sector is
recovering from support.  The more cautious approach will be to
wait for UNH to clear $69.50 before taking a position.

BUY CALL SEP-65*UHB-IM OI=2262 at $4.70 SL=2.75
BUY CALL SEP-70 UHB-IN OI=2399 at $1.55 SL=0.75
BUY CALL OCT-70 UHB-JN OI= 177 at $2.90 SL=1.50
BUY CALL OCT-75 UHB-JO OI= 237 at $1.10 SL=0.50

Average Daily Volume = 1.62 mln



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

QLGC - QLogic Corporation $31.71 -1.97 (-2.61 this week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Most Recent Write-Up

Friday's rally came to an abrupt end just below the $35 level
and QLGC spent most of yesterday meandering sideways.  Then with
poor economic news, the stock headed sharply lower at the open,
coming to rest below $32 again.  Volume near the ADV confirmed
that there wasn't a lack of sellers and the stock looks like it
is setting up for another downward leg.  The 10-dma (currently
$34.30) has been providing consistent resistance for the past 2
weeks and any failed rally that takes the stock near that level
can be used for new entry points.  Momentum traders will want
to target a drop through the $30 level for new entries, looking
for strong volume to continue to confirm the bearish trend.
Our stop is currently at $35.

Summary

QLGC's pattern of lower highs is well intact.  The 10-dma at
$34.30 continues capping each of the stock's rally attempts.  A
poor reception to GDP figures Wednesday morning could lead to
new relative lows in QLGC.  Look for a breakdown below Tuesday's
intraday low or a decline below $30 on heavy volume.

BUY PUT SEP-35*QLC-UG OI= 1213 at $5.50 SL=3.75
BUY PUT SEP-30 QLC-UF OI=13768 at $2.60 SL=1.50

Average Daily Volume = 7.02 mln



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