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Daily Newsletter, Thursday, 08/30/2001

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The Option Investor Newsletter                Thursday 08-30-2001
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       8-30-2001          High      Low     Volume Advance/Decline
DJIA     9919.58 -171.32 10117.54  9869.14 1.16 bln   1065/2021	
NASDAQ   1791.68 - 51.49  1833.29  1777.11 1.71 bln   1245/2371
S&P 100   574.38 - 11.96   587.96   572.41   Totals   2310/4392
S&P 500  1129.03 - 19.53  1151.75  1124.87
RUS 2000  468.06 -  5.28   473.34   465.42
DJ TRANS 2806.84 - 21.03  2844.12  2779.29
VIX        28.08 +  2.35    28.67    25.97
VXN        52.28 +  3.00    52.68    51.15
TRIN        2.26
Put/Call Ratio      0.94
*************************************************************

Sun(W) Sets on August Trading!

The scorched earth warning from SunMicro on Wednesday led the
markets down on Thursday as September storm clouds gathered on
the horizon. Other big caps also came under fire as volume
increased to the downside. There was no joy on the floor as
positive comments by key analysts failed to have any impact
and negative expectations increased exponentially. Microsoft,
Dell, Oracle, Qualcomm, JDSU and Broadcom all gained speed to
the downside.





If it is this bad in August how bad can it be in September?
The Dow has fallen -502 points this week and closed under 10000
for the first time since April 9th. The Nasdaq gapped down at
the open below the 1817 low from last week and never looked
back. Advancers were severely beaten by decliners by as much
as 3:1 on the Nasdaq. Volume increased substantially to 1.7
billion on the Nasdaq and over 1.1 billion on the NYSE. The
lack of buyers from earlier in the week turned into a wave of
sellers as down volume beat up volume by 9:2 on the NYSE.

What prompted the new dive? Starting the new worries was the
GDP on Wednesday which was barely positive at +0.2% and way
down from the prior estimates of 0.7%. With the global economy
under attack and many of the European and Asian exchanges
hitting new yearly lows there is simply no support for the
"economy has bottomed" crowd. The Nikkei broke below 11000,
a critical support level and with major banking changes to
take effect in September many analysts expect to go much
lower. This index has not been this low since Oct 1984.

The SUNW warning that orders from Europe and Asia were slowing
dramatically, was simply the last straw for the market bulls.
The bulls cannot point to any evidence of a rebound and even
the positive Cisco comments from last week have come under
increased skepticism. Add to the mix the umpteenth warning
from Corning that business was just bad, really bad, and the
networking sector appeared headed to penny stock status. SUNW
fell -17% to $11.00 and several analysts forecasted a $7 stock
price at historical multiples.

Dell took another hit after IBM announced a low cost ($699)
server for small business and aimed directly at Dell's market
share. With more power and double the storage for less money
than Dell it was seen as serious competition. Dell's server
share had fallen from 22.4% to 20.7% over the last year and
IBM rose to 28.6% according to Gartner Dataquest.

Oracle fell to $12 on Thursday as its quarter came to a close
amid fears that it failed to close those critical "end of
quarter" sales to make estimates. With the global economy
still slowing analysts said decisions were being put on hold
and getting contracts signed was next to impossible. The stock
is down -21% for the week and -34% for the month. If it warns
next week it will set the tone for the September warnings
season and convince investors that maybe October is looking
more like an entry point every day.

Microsoft was experiencing serious flashbacks on Thursday
after the European Commission said MSFT was in violation of
anti-competitive laws by bundling components into its operating
system. Haven't we been here before? The EC combined two prior
complaints on server software and then attacked Microsoft for
bundling Media Player with windows. Contrary to the U.S. the
EC views on antitrust are focused on unfair competition and
not unfair consumer practices. They said Microsoft withheld
from vendors of alternative server software, key inter-operability
information that they needed to allow their software to talk
to other servers. MSFT fell -3.31 to $56.92 and a four month
low.

Qualcomm got caught in the negative comments from Ericsson
and an analyst downgrade of estimates for the cell phone sector.
NOK, ERICY, MOT and QCOM all suffered with QCOM breaking through
support at $61 and accelerating to the downside. Cell phone
sales rates are slowing globally and the market is flooded
with excess handsets. Ironically China approved 19 companies
to make cell phones using the QCOM CDMA technology.

The ECB cut rates by a quarter of a point today for the second
time this year. They made comments which worried traders that
they were not planning on any future cuts. Considering the
worsening conditions in the European economy the ECB appears
more concerned with inflation instead of growth and this
could put further pressure on any European recovery.

After the close on Thursday Novellus issued their mid-quarter
report similar to the SUNW call on Wednesday. NVLS restated
their 3Q targets but said bookings would come in at the very
low end of the target range. They said shipments would fall
below initial expectations but they had no major cancellations.
Good news? No major cancellations? Does that mean there was
a bunch of minor cancellations? NVLS fell on the news and
the contagion spread to the other chip equipment makers as
well.

Banks and mortgage lenders fell on fears that there would be
more bankruptcies and loan defaults due to increasing unemployment
and declining economic conditions. Credit card lenders COF, KRB
and PVN fell as well as Citibank. Jobless claims fell by -1000
last week but the continuing claims rose to 3,170,000 the highest
level in nine years. Last weeks numbers were revised upwards
and the four week moving average rose very close to 400,000.
This indicates that workers are having a hard time finding new
jobs and this will eventually contribute to a fall in the
consumer confidence index. The help wanted index for July was
58 again and the lowest level since the 1990 recession. This
lack of advertised jobs indicates there has been no pickup in
hiring by U.S. companies.

Any anticipated Labor Day rally has suffered a serious setback.
While the 50 point bounce off the lows for the Dow gave traders
some breathing room, it was still not significant. The close
under 10,000 was the first time since mid-April and there was
not even a blink as the average fell through the 10K level.
No buy programs, zero, zip, zilch. This is troubling given
the increased volume to the downside. It appears that there
was an increase in sell program volume although there were
no obvious culprits. The Nasdaq never had a chance with MSFT,
DELL, ORCL, SUNW and QCOM leading the losers list and followed
by 95% of the four letter stocks. There were only 42 new highs
compared to 190 new lows. This is a complete reversal of the
ratios from just a couple weeks ago.

Much had been said about the "stealth bull market" that was
underway in the non-techs over the last few weeks but those
stealth gains were so hidden that they have now disappeared
completely with this weeks losses. Institutions are not the
only investors to bail out of the market prior to the September
warning season. According to TrimTabs.com over $6 billion left
stock funds in the week ended on Wednesday bringing the total
for August to over $15 billion in stock outflows. For the seven
months ending in July only $48 billion had come into stock
funds compared with $231 billion for the same period last year.
Take the $15 billion outflow for August and that accounts for
almost one third of the total cash that came into the markets
prior to August. One third!

Buy low, sell high. We have all heard that since we were old
enough to know what stock means but it is very hard to do it.
Using that axiom as well as the many others that mean the
same thing, now would be the time to buy. However, it appears
that almost every trader still in the market thinks we will
see a complete retest of the April lows and waiting on the
sidelines for that retest is the prudent thing to do. I agree!
I have suggested that long call investors stay out of the
market until the Nasdaq broke 2100 again since early July.
I have taken a lot of heat about this stance but that comes
with the job. Obviously that number is much lower now but
until the drop stops I will not make that call. I also took
heat for suggesting that we could have a trading rally the
next four sessions if history repeated itself. The Dow is
down over -500 points this week alone. The Nasdaq is down
-142 points from the Monday high. Can you spell "oversold"?

The TRIN closed at the high of the week at 2.26 and the put/call
ratios are high at .94 but not yet in buy territory. The VIX
closed at 28.08 and near a four month high. Can we continue
to sell off? You bet! Could there be a relief bounce here
somewhere? You bet! Nothing goes up or down in a straight
line and it is time for a bounce. The fly in this ointment
is the Novellus news tonight. The semiconductor sector was
starting to ease up at the close in anticipation of the Labor
Day event. The Novellus news has stopped those gains cold and
we are back to business as usual, selling. Still the indexes
are very oversold and the farther we compress this spring
the more likely a trading rebound.

We struggled with adding calls tonight, as I promised on
Tuesday, due to the convincing break by the Dow under 10,000.
This is a serious psychological level which could persuade
traders to stay on the sidelines until October. Traders
short on Friday are likely to cover instead of holding over
the long weekend. Some of that short covering obviously
produced the end of day bounce on today. This would normally
produce a Friday bounce as well but with the strong negative
sentiment there is also a good chance that traders still
long and in denial will want to go flat as well. What this
means is the tug of war will continue and we may not have a
clear victor for some time. The new calls tonight ADVP, DNA,
IBM and LLTC are ONLY to be entered as a trading play if
a relief rally appears. Otherwise please play puts or stay
flat. The LLTC play was picked and written up before the
NVLS news and I would only enter that play if it stabilizes
above $38.50 on Friday morning. $100 is a crucial support level
for IBM and with the new server announcement IBM could easily
regain some of the eight dollars lost this week on any positive
sentiment. I repeat however that these are only to be entered
in a positive market.

This is a very tough market and unless you have been playing
puts instead of calls it is very frustrating. Remember the
goal of trading is to produce profits not tax deductions.
We may be very oversold and the indicators are approaching
extremes but there is nothing to prevent us from seeing yet
another leg down before any bounce. When that bounce does
occur it may only last a day or two or even just intraday.
If Friday morning does not look encouraging then simply sit
out and start your holiday weekend early.

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

Parsimony Prevails
By Jeffrey Canavan

Investors remain skeptical about the economic outlook, and today
their concerns were justified.  Consumer spending rose an anemic
0.1%, Sun chimed in with a gloomy outlook, and Corning and
Charles Schwab announced they would be exacerbating the
unemployment situation.  When the closing bell finally rang,
there was evidence of severe bear mastication all over the
charts.

Dow Jones Industrial Average



It was a dour day for the Dow.  The industrials lost 171 points,
and plunged through psychological support at 10,000, as well as
regular support at 9,970. The Dow did manage to climb off its
lows, but the damage has been done.

Nasdaq Composite Daily Chart



The Nasdaq fell 2.79% today, and easily took out last week's low.
It hasn't quite filled the gap from April 10th, but is only 34
points away from doing so. Holding above 1,757 would be a small
victory for the Nasdaq to end the week on.

The last two days of August have been abysmal the last few years,
and so far the pattern has held.  Tomorrow's action could hinge
on the Chicago Purchasing Mangers Index, and University of
Michigan Consumer Sentiment, which are released at 9:45 and 10:00
AM EST.

After hours conference calls should cancel each other out after
Novellus said they will meet financial targets, but bookings will
come in at the low end of expectations.  Rambus confirmed it's
fourth quarter guidance, and TiVo posted a narrower than expected
loss.

It should be a light volume day, which would limit the
possibility of any significant rallies.  There is the possibility
of a short covering rally in the afternoon, since bears might be
happy to take profits ahead of the holiday weekend.

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

Market Volatility

VIX   28.08
VXN   52.28

The VIX and VXN are starting to move, but are still well shy of
"fear" levels.

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .94        618,088       582,405
Equity Only     .74        520,088       383,066
OEX            1.65         18,157        29,917
QQQ             .58         54,641        31,785

Even with today's sell off, only the total and OEX put/call
ratios are overly pessimistic.

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

Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    24       -      Bear Confirmed
DOW           36       -      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  1.51
10-Day Arms Index  1.46
21-Day Arms Index  1.46
55-Day Arms Index  1.30

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      1065           2025
NASDAQ    1238           2375

        New Highs      New Lows
NYSE      104             94
NASDAQ     39            180

        Volume (in millions)
NYSE     1,166
NASDAQ   1,729
-----------------------------------------------------------------

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

Rule 2520
By Eric Utley

Editor's Note: Eric had planned to publish Part 2 of his series
Ursus Arctos Thursday.  Instead, he thought it would be prudent
to make readers aware of the changes to NASD Rule 2520.

A few readers I have spoken with day trade with less than $25,000
and use maring.  Because of that, I thought it would be
appropriate to address a few changes in margin requirements for
day traders.

The National Association of Securities Dealers (NASD) filed with
the Securities Exchange Commission (SEC) to impose more strict
margin requirements on day traders.  The NASD has proposed to make
six changes to Rule 2520, which concerns margin requirements.

The first proposed change is to redefine who a day trader is.
The new rule will include anyone who a brokerage firm knows or
thinks will engage in day trading.  It will also include anyone
who trades four or more times over five business days.  The
exception is if that person's day trading activities don't
exceed six percent of their overall trading activity for that
given time period.  In short, if you trade more than three
times per week, you're a day trader.

The second proposed change is to require a minimum equity of
$25,000 to be deposited into an account in order for a customer
to day trade on margin.  The current minimum equity requirement
for margin is $2,000, which the NASD feels is not sufficient to
prevent day traders from continuingly generating losses.  They
feel that a $25,000 requirement would better address risks of
day trading on margin.

The third proposed change is certainly a benefit to those who
meet the initial $25,000 requirement.  The NASD has proposed to
permit up to four time buying power of a day trader's margin
excess.  That means instead of twice your available capital,
day traders will be made available up to four times their
capital.  Here again, the NASD feels that four times buying
power will better address the risks of day trading.

The fourth proposed change is to impose a margin call if day
trading buying power is exceeded.  The NASD would require day
traders to deposit additional funds to meet the margin call.
If the day trader doesn't meet the margin call, the account
would be restricted to trading on a cash only basis.

The fifth proposed change is to no longer allow meeting a
margin requirement with a cross guarantee.  Instead, only
resources within the account would be available to meet margin
calls, such as newly deposited funds.

The sixth and final proposed change would alter the classification
of holding a security over night, then selling or covering the
next day.  As it is now, buying a stock yesterday, selling today,
and buying the same stock back today is considered a day trade
insofar as the SEC is concerned.  The proposed changes would treat
that transaction as a liquidation and establishment of a new
position, or in other words, not a day trade.

Now, keep in mind that the new rules are only for those who day
trade on margin.  For those who trade on a cash only basis, the
new rules don't mean anything to you.  And remember that buying
and selling options is a cash only transaction.  But I have spoken
with plenty of readers who have small day trading accounts on the
side and do in fact use margin.  Because of the new rules, these
traders won't be able to employ margin unless the $25,000 is in
the account, which in my opinion is a disservice to individual
investors.

I tried, for the life of me, to get in touch with the appropriate
person at the NASD to discuss the rule changes further.  But
after spending about three hours on the phone, transferring from
the Denver office to D.C., and back again, the "right" person had
apparently gone home for the day.  From what I gathered from
various individuals at the NASD, the rule changes have already
been imposed on NYSE listed stocks.  And were going into effect
on NASDAQ listed stocks in late September.  But I haven't heard
anything from either of my two brokerages that I do business
with.  In fact, I called both of my brokers and neither could
lend a hand.

Anyway, I think the proposed changes - especially the requirement
for $25,000 - are bunk.  Let me know what you think:

eutley@OptionInvestor.com


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:
*****
CY $21.19 -0.82 (-2.71) CY took it on the chin Thursday in the
wake of the demise of the broader tech sector.  The stock
settled below our $22 stop and as such we're dropping bullish
coverage on the play.  Use any strength in Friday's session to
exit open positions.

JBL $22.06 -0.75 (-2.80) Looking weak yesterday, JBL managed to
claw its way back over our $22.50 stop by the close and thus
managed to stay on the call list for one more day.  But with
another major market selloff, the bulls couldn't hold their
ground on Thursday.  After falling through our stop at the open,
JBL recovered from its $21.10 low to close just over $22.  It
was nice to see a bit of recovery, but it wasn't enough to keep
us interested in trying to play the upside.

NXTL $11.74 -0.17 (-0.80) Showing that the bulls have no
conviction, NXTL rose to intraday resistance near $12.50 at the
open on Thursday before beginning the long slide lower.
Although there was some buying interest near that level that
helped to push the stock off its lows by the close, the daily
trend has now turned decidedly bearish.  We'll take this
opportunity to close the play and look for more favorable
candidates.

PUTS:
*****

No dropped puts tonight


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The Option Investor Newsletter                 Thursday 08-30-2001
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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MR. STOCK:  Your Expert Guide to the Dynamic World of Options
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20 years of trading experience, we've designed a website
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********************
PLAY UPDATES - CALLS
********************

ELNT $38.20 -1.33 (-1.20) ELNT continued pulling back into
Thursday's session after popping its head above the $43 level
Tuesday.  Its subsequent sell-off has been a reminder of why it's
so important to book gains early in this market!  Nevertheless,
ELNT's bounce Thursday may have offered entry points for those
who prefer entering call plays on weakness.  The stock rebounded
from the $37 level, and proceeded to advance back above $38, which
in and of itself may be a sign of a rally back to relative highs.
But for that happen, ELNT needs the SOX and COMPX to at the very
least stabilize.  So for those who trade in a momentum fashion,
namely going with the trend, don't consider entries in this play
until the COMPX and SOX are advancing.

CNXT $11.15 -0.62 (-0.46) CNXT was dragged lower Thursday,
following its run-up to the $12.50 level.  It seems that the
weakness in the SOX finally caught up with this play.  For the
most part, the $11 level held during Thursday session, which was
encouraging.  This site may provide entry points, allowing for
a relatively tight stop below CNXT's intraday low Thursday.
Those who'd rather enter on strength can use any forthcoming
advance above the $11.40 level to enter new plays.  Just make
sure that the SOX and volume accompany any CNXT rally attempt.

FFIV $15.00 +0.18 (-1.76) FFIV refused to go below the $14 level
Thursday, indicating that a buyer lay at that level.  Once the
selling across the broader market subsided, FFIV staged a solid
advance back above the $15 level.  For those who entered call
plays on the weakness Thursday, a stop below the $14 level may
be a good idea.  For new entry points, an advancing market
Friday should allow for FFIV to rally above $15, which may provide
an entry point provided volume reinforces the move.  The
Networking Index (NWX.X) doesn't look particularly healthy at
this point, so it may be prudent to wait for that sector to
reverse trend before entering this play.

STJ $68.90 +0.10 (-0.20) STJ pulled back to its ascending support
line Thursday, which has been in place for the last three weeks.
It currently lies at $68.50, which may be a level that offers
favorable entry points on any future weakness.  The stock is
having trouble getting above the $70 level, but as long as its
pattern of higher lows remains intact then it should eventually
breakout above $70.  That said, the better entry point may be
on weakness.  That way bullish traders can more easily manage
risk and be ahead of any potential breakout, in turn using the
strength from the breakout to book some gains.  However, if
your strategy is more conducive to breakouts, wait for the
markets to firm and reference volume on any advance above $70.

BGEN $60.71 +1.51 (-0.08) Are you looking for a pocket of
strength in the current market carnage?  BGEN is delivering for
bullish investors, gaining more than $1.50 (with heavy volume,
too) on a day that saw the major markets moving sharply lower.
Yesterday's dip to the ascending trendline at $58.50 provided
an attractive entry point, and traders that took it were
certainly pleased with the results today.  The Biotechnology
index (BTK.X) was one of the few sectors that managed a positive
close on Thursday as it continued to consolidate its recent
gains, preparing for the next leg higher.  Renewed bounces from
either $59 or $60 look attractive for new entries, while
momentum traders will want to wait for BGEN to clear $62 on
solid volume before adding new positions.

IWOV $7.60 +0.13 (-0.38) Another sharp selloff in the broad
markets couldn't dislodge the IWOV bulls, as they stubbornly
held onto support near $7 and actually managed a small gain by
the close.  Volume has been falling off the past couple days,
as the stock has been struggling to clear the descending
20-dma (currently $7.79).  It is encouraging to see the
relative strength of IWOV in the face of the overall
Technology weakness, and any recovery over on the NASDAQ should
help to lift our play higher from here.  Target bounces from
the $7 level or a rally through $8.50 for initiating new
positions, but stand aside if sellers drive the price under
the $6.85 stop.

UNH $68.73 -0.52 (+0.62) The bulls went on the offensive
yesterday afternoon, pushing UNH up from the $69 intraday
support level and they continued their buying this morning.  It
wasn't meant to last though, as they ran out of steam right at
the $70 level.  Sellers appeared in heavy volume, driving the
stock as low as $68.43 before price stabilized a bit at the
close.  With such a large pullback, our play could be in danger
of reversing course, especially with the continued broad market
weakness.  We can still consider new entries on a bounce from
the $68 level, while more conservative entries will have to wait
for a more convicted move over $70 before taking a position.


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NEW CALL PLAYS
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ADVP - AdvancePCS $76.12 +1.45 (+5.88 this week)

AdvancePCS is a provider of health improvement services in the
United States.  As a pharmacy benefit management company,
AdvancePCS currently serves more than 75 million health plan
members and manages more than $21 billion in prescription drug
spending on an annualized basis on behalf of the company's
health plan sponsors.

A new 52-week high in this market?  Forget about it.  As hard
as it may be to believe, shares of AdvancePCS hit an all-time
high in Thursday's session.  But don't let its four-letter
ticker nor the acronym PCS fool you.  The company is about as
low-tech as they come and, as a result, is hitting on all
cylinders.  The company manages prescriptions and is going
to benefit from the patent coming off Prozac, which is one of
Lilly's (NYSE:LLY) products.  As a result of Prozac's patent
expiring, the drug becomes more expensive to any one of Advance
PCS' 75 million members who use it.  That's because the drug
is removed from its preferred brand list on October 1, which
means co-payments rise.  While it's not necessarily a good
thing for consumers, it's definitely a boost to the company's
bottom line.  Speaking of which, the company's earnings are
blooming during the economic meltdown are institutions are
taking notice.  Institutional buying is on the rise, which is
allowing the stock to trade ever-higher.  But because ADVP
hit a new relative high Thursday, it may be a little tricky
getting a favorable entry into the play.  While momentum traders
might look to enter new calls at current levels, a more
prudent strategy may be to wait for a pullback, on light volume
of course, to support around the $75 area.  Lower, bounces
may occur at $74 or $72.  Meanwhile, our stop is initially set
at the $71 level.

BUY CALL SEP-70 QVD-IN OI=323 at $7.70 SL=5.50
BUY CALL SEP-75*QVD-IO OI=836 at $4.10 SL=2.50
BUY CALL SEP-80 QVD-IP OI=259 at $1.80 SL=1.00
BUY CALL NOV-75 QVD-JO OI= 11 at $6.30 SL=4.75

Average Daily Volume = 898 K



DNA - Genentech $47.95 +0.70 (+1.45 this week)

Genentech is a biotechnology company that uses human genetic
information to discover, develop, manufacture and market human
pharmaceuticals that address significant unmet medical needs.
The company manufactures and markets nine protein-based
pharmaceuticals and licenses several additional products to other
companies.

The biotech sector remains one of the strong in the broader
market.  And DNA is trading well, too.  The stock has
rebounded rather strongly since early July, and is close to
retracing its gap lower; the stock gapped lower on July 9,
and there's nothing but empty space above current levels to
the $52 level.  Beyond that, the stock's 200-day moving average
lies at the $55 level.  We'll target both sites, with $52
serving as a shorter term bullish price objective.  A biotech
journal reported Thursday that Genentech scientists had
discovered a molecule that makes blood vessels in a part of
the human body.  Companies are searching for ways to promote
blood vessel growth in an attempt to combat heart disease.  This
discovery could allow for short-term strength in DNA's shares.
In addition, the relative strength of the biotech sector
should support the stock and if/when the broader market
rebounds, the biotechs should lead higher.  For entry points,
bullish traders can use a pullback to DNA's ascending support
line, which currently resides at the $46 level.  If the
Biotechnology Sector Index (BTK.X) continues higher Friday,
along with the broader market, bullish traders can consider
entry points around current levels.  Additionally, momentum
styled traders can use any forthcoming advance above the $49
level to enter new call plays.

BUY CALL SEP-45*DNA-II OI=2115 at $4.10 SL=2.50
BUY CALL SEP-50 DNA-IJ OI=4290 at $1.30 SL=0.50
BUY CALL OCT-45 DNA-JI OI= 893 at $5.50 SL=3.75
BUY CALL OCT-50 DNA-JJ OI= 785 at $2.85 SL=1.50

Average Daily Volume = 2.33 mln



IBM - Int'l Business Machines $100.36 -3.77 (-6.63 this week)

IBM provides customer solutions through the use of advanced
information technology. These solutions include technologies,
systems, products, services, software and financing. For the 3
months ended 3/31/01, total revenues rose 9% to $21.04B. Net
income applic. to Common rose 15% to$1.75B. Revenues reflect
higher Global Services, Hardware, Personal and Printing Systems
and Enterprise Systems revenues. Net income also reflects
improved margins.

A warning from SUNW last night that they would likely be unable
to post a profit in the upcoming quarter sent the Technology
sector into free fall this morning and IT giant IBM fell sharply
along with the broader markets.  Briefly dipping below $99, IBM
found buyers at support dating back to March and April.  Rising
off the lows to close just above $100, the stock looks like it
may have further to fall, but we're playing it for a possible
rebound from current levels.  IBM closed right on its 8-month
ascending trendline, the overall markets are due for a
bounce, and IBM would likely benefit from any broad rally.  So
we'll target a renewed bounce from above $98 or a continued
rebound from current levels for new positions, setting a tight
stop at $97.75.  This is a speculative play, and with it comes
higher risk.  Take that into account when considering adding it
to your list of candidates as we head into the long weekend.

BUY CALL SEP-100*IBM-IT OI=24893 at $3.80 SL=2.25
BUY CALL SEP-105 IBM-IA OI=10959 at $1.65 SL=0.75
BUY CALL OCT-100 IBM-JT OI= 8540 at $6.10 SL=4.00
BUY CALL OCT-105 IBM-JA OI= 5481 at $3.60 SL=1.75
BUY CALL OCT-110 IBM-JB OI=12321 at $1.95 SL=1.00

SELL PUT SEP- 95 IBM-US OI= 9951 at $1.45 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 6.77 mln



LLTC - Linear Technology Corp. $40.25 +0.46 (-2.18 this week)

Linear Technology designs, manufactures, and markets a broad
line of standard high performance linear integrated circuits.
These circuits translate analog data (such as sound, pressure,
temperature, and speed) into digital information that can be
used by electronic devices, and to regulate and control power
and voltage.  The company's amplifiers, regulators, interface
circuits, and other chips are used in a wide variety of
products, including cellular phones, radar systems, satellites,
computers, and factory automation systems.  Primarily through
its distributor network, LLTC sells its products to more than
15,000 manufacturers, with more than 50% of sales generated by
non-US customers.

While Semiconductor stocks continue to see significant selling
pressure, LLTC is one of the few that is holding above both its
July and April lows.  In fact, it posted a gain on Thursday
after finding support at the 4-month ascending trendline,
keeping the $38 support level intact.  It was encouraging to
see the stock actually advance on heavy volume (50% over the
ADV) on a day when the Semiconductor index (SOX.X) lost another
1.8%.  This is another aggressive play, where we are looking
for a bounce, even though the daily Stochastics are heading
south.  A renewed bounce from the $39 level (the site of the
ascending trendline looks buyable, and we are limiting our
downside risk with a tight stop at $38.  If buyers emerge ahead
of the holiday weekend, we could consider new positions on a
volume-backed move through $41.  Look for continued strong
buying volume before taking a position and beware of continued
heavy selling on the SOX.  If the SOX worsens significantly,
our new play might be unable to resist the urge to go lower.

BUY CALL SEP-40*LLQ-IH OI=1556 at $2.95 SL=1.50
BUY CALL SEP-45 LLQ-II OI= 961 at $1.05 SL=0.50
BUY CALL OCT-40 LLQ-JH OI= 126 at $4.40 SL=2.75
BUY CALL OCT-45 LLQ-JI OI= 186 at $2.35 SL=1.25
BUY CALL OCT-50 LLQ-JJ OI= 343 at $1.15 SL=0.50

SELL PUT SEP-35 LLQ-UG OI= 347 at $0.70 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 4.33 mln



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

CHKP $31.32 -0.93 (-2.56) CHKP continued lower Thursday and
closed very near its day low.  At this point, the stock is in
danger of taking out its relative lows around the $30.80
area.  But that danger is not necessarily a bad thing as far
as we're concerned.  If the stock does fal below that lever
in the coming trading days, CHKP is likely to make its may
towards the $20's over the short-term.  As for entry points,
a breakdown below $30.80 may allow for momentum traders to
enter new positions.  If the market does bounce Friday, look
for resistance around the $33 level, then higher around $34.
A rollover from either level would allow for a favorable
entry point into the play.

GMST $28.75 -0.91 (-4.27) GMST fell beneath the $28 level early
Thursday, marking a new relative low in the stock's descending
trend.  The weakness should've allowed for bearish traders with
open positions an opportunity to book some gains.  Although the
stock did rebound Thursday afternoon, its price action felt
more like short covering than real buying.  Nevertheless, traders
with open, profitable positions should be thinking about
protecting those gains with tight stops.  As for new entry points
for those on the sidelines, a rollover near the $30 level should
offer a favorable entry point into this play.

EBAY $55.55 +1.65 (-3.46) EBAY's rally was a bit peculiar
Thursday in light of the rampant weakness across the broader
markets.  But, its advance may have provided yet another a
favorable entry point into this put play.  The stock's long
standing descending trend line is still very much intact and
at this point a rally up to the $58 area would offer a most
favorable entry point into the play.  Its pattern of lower lows
over the past three weeks reinforces our conviction that EBAY
is heading lower over the short-term, despite its market
bucking rally Thursday.

IMPH $42.90 +0.90 (-0.88) Biotechs were back in favor on
Thursday, at least relative to the broader markets which were
headed sharply lower right from the opening bell.  IMPH found
significant buying support near the $40.50 level in the morning
and then again near $41 in the afternoon.  Closing just below
$43, the stock has overhead resistance looming at the 50-dma
($43.54) then $44, and $45, the site of the 20-dma.  Target new
entries on a rollover near $44-45, but keep an eye on the
volume.  If buying volume continues to strengthen, it could be
a sign that the bulls are regaining the upper hand.

QLGC $29.06 -0.90 (-5.26) Tech stocks took another beating on
Thursday, and QLGC wasn't immune to the effect, briefly falling
below $28 before finding some buying support.  There wasn't
much conviction though, and the stock weakened into the close,
keeping the downward trend very much intact.  The bears are
still in control and momentum traders will want to watch for a
drop through the $27 support level as their trigger to initiate
new positions.  The declining 10-dma (currently $32.88) is
consistently providing resistance.  A rollover near that level
could open the door for fresh entries to the downside as well.
Keep stops set at $34.

SEBL $21.12 -1.25 (-2.41) Proof that Software stocks are still
seeing extreme selling pressure, the Software index (GSO.X) fell
to a new yearly low on Thursday, dragging our SEBL play below
the $22 support level.  Ending the day at another yearly low,
our play just can't seem to find any consistent buying interest.
Just what we're looking for, right?  The declining 10-dma
(currently 23.48), just below our $24 stop, is continuing to
pressure SEBL lower and a rally that fails near this level looks
attractive for fresh entries.  Momentum-based entries seem to
be working well too, and if that fits your approach, look for a
drop under Thursday's $20.50 intraday low to trigger new
entries.


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

QCOM - Qualcomm, Inc. $59.59 -3.13 (-6.52 this week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

Much like the broader Technology sector, wireless stocks are
having a hard time maintaining any traction.  QCOM's most recent
rally attempt came to an abrupt end on Monday morning, as the
stock rolled over from the $66 resistance level, also the site
of the month-long descending trendline.  The stock quickly
dropped through the 10, 20 and 30-dmas, and on Thursday QCOM
violated its 50-dma at $62.11.  Price has now fallen back to
levels not seen since the end of July.  If the bulls can't
defend support at current levels, QCOM could be headed
significantly lower, with initial support likely to materialize
at $56 and $52.  Significant resistance is resting at $63.50,
and a failed rally up near this level would provide an
attractive entry point to enter the play.  Likewise, a
continued decline below the $59 level will provide entries for
momentum traders.  Look for continued heavy selling volume to
confirm the bearish trend is still intact and set stops at
$63.50.

BUY PUT SEP-65 AAO-UM OI= 6714 at $6.50 SL=4.50
BUY PUT SEP-60*AAO-UL OI=12000 at $3.90 SL=2.50
BUY PUT SEP-55 AAO-UK OI= 7179 at $1.90 SL=1.00

Average Daily Volume = 11.2 mln



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

BGEN - Biogen, Inc. $60.71 +1.51 (-0.08 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

Are you looking for a pocket of strength in the current market
carnage?  BGEN is delivering for bullish investors, gaining
more than $1.50 (with heavy volume, too) on a day that saw the
major markets moving sharply lower.  Yesterday's dip to the
ascending trendline at $58.50 provided an attractive entry
point, and traders that took it were certainly pleased with the
results today.  The Biotechnology index (BTK.X) was one of the
few sectors that managed a positive close on Thursday as it
continued to consolidate its recent gains, preparing for the
next leg higher.  Renewed bounces from either $59 or $60 look
attractive for new entries, while momentum traders will want to
wait for BGEN to clear $62 on solid volume before adding new
positions.

Comments

BGEN traded extremely well again Thursday, ever-closer to breaking
out above the pivotal $62 level.  Indeed, the broader biotech
sector performed exceptionally well Thursday.  Any market strength
should allow for BGEN to advance above $62 Friday.  Make certain
to confirm any breakout above the $62 level on heavy volume.

BUY CALL SEP-60*BGQ-IL OI=2163 at $2.90 SL=1.75
BUY CALL SEP-65 BGQ-IM OI=1126 at $0.90 SL=0.50
BUY CALL OCT-60 BGQ-JL OI=4617 at $4.60 SL=3.00
BUY CALL OCT-65 BGQ-JM OI=9258 at $2.40 SL=1.25
BUY CALL OCT-70 BGQ-JN OI=4605 at $1.10 SL=0.75

Average Daily Volume = 2.84 mln



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