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Daily Newsletter, Thursday, 09/06/2001

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The Option Investor Newsletter                Thursday 09-06-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        9-6-2001          High      Low     Volume Advance/Decline
DJIA     9840.84 -192.43 10028.35  9826.09 1.34 bln    997/2106	
NASDAQ   1705.64 - 53.37  1753.83  1702.92 1.85 bln   1101/2537
S&P 100   565.51 - 13.38   578.89   564.98   Totals   2098/4643
S&P 500  1106.40 - 25.34  1131.74  1105.83
RUS 2000  453.39 -  9.12   462.51   452.60
DJ TRANS 2804.84 - 30.33  2834.83  2800.66
VIX        32.42 +  3.46    32.80    30.12
VXN        62.01 +  3.28    62.01    60.06
TRIN        2.38
Put/Call Ratio      0.98
*************************************************************

Out Of The Frying Pan, Into The Fire!

The news just after the open this morning, that the Justice Dept
had dropped plans to ask for a breakup of Microsoft, provided a
momentary bounce for the beaten down indexes but the relief was
short lived. The good news, no breakup plans and no intent to
pursue the browser bundling question. The bad news, the government
wants to impose very strict guidelines and penalties for the
charges that have already been judged. Now that breaking up the
company is not an option it means that Microsoft will end up
with a government oversight committee of some kind that will rule
on all future business practices. This means Windows-2004 may not
be released until 2010 if every feature has to be approved in
advance by the Justice Dept. In 1984 the same thing happened to
AT&T after their breakup. They had to ask Judge Harold Greene
for permission on every decision it made. The Justice Dept also
said late today that they would not seek to delay Windows-XP
because the damage had already been done and Windows-DOJ may be
the next release you see.







The Labor Day rally is officially over and the gains made since
last Thursday's low of 9869 have all disappeared with today's
close of 9839. The +313 point bump in the beginning of the week
has gone the way of prior weeks rally to 10440. Lower lows and
lower highs, not a pretty picture. Welcome to the dog days of
September!

The layoffs continue with Motorola warning today that it would
cut -2000 more jobs and they would not return to profitability
this quarter as they previously predicted. The 3Q is now expected
to be flat compared to estimated gains of +5%. The CEO apologized
to shareholders for consistently providing poor performance and
said again that he thought the sector was near the bottom. He
also said Motorola was gaining market share in the handset business
but that sales in that sector were still slowing. A bigger piece
of a much smaller pie doesn't pay the bills in the case of MOT.

The economic news today was mixed with the NAPM falling another
-3.4% to 45.5, the lowest level in eight months. New orders
fell -2.7% as the economic contraction continued to deepen. The
only bright side was a continued fall in inventories. Traders
were cheered by the news that the Fed was a long way from done
and could shift into aggressive mood again, but they were also
worried that the economy could continue to get worse before it
gets better. As a result the stock markets fell as earnings
estimates fell yet again.

The Jobless claims previewed a possible problem with the Jobs
Report on Friday. Claims fell slightly to 402,000 from a revised
405,000 from last week but continuing claims rose to 3.2 million
for the first time since 1992. Workers are finding it hard to
get a new job with layoffs continuing across all sectors. The
market is scared that jobs are finally getting critical and the
unemployment is about to skyrocket as companies in denial of
the trend finally capitulate and trim the ranks. Traders will be
holding their breath as they watch the Jobs Report on Friday.
The other report will be Wholesale Inventories and any real
reduction in this number will be welcomed.

Chain Store Sales increased slightly by +3.5% which was mostly
credited to consumers spending their tax checks. Discount retailers
benefited the most and apparel retailers the least, especially
the higher priced retail stores. Tax holidays in several states
also fueled the bounce but indicate that there may not be any
follow through. The tax checks will probably impact September
as well but then retailers will be on their own as of the start
of the holiday season. Worst hit was the Gap which reported a
sales slump of -17% and a drop in share price of 22% on the news.

The biggest piece of news which had the market teetering on
the edge was the Intel mid quarter update after the bell. The
bulls were hoping for an affirmation of prior guidance and the
bears were afraid they would warn like MOT, AMD and several
other chip makers. The results...INTC split the difference and
said revenue would be in the middle of the lower end of prior
estimates and margins would be slightly higher from reduced
expenses. Sounds like nit picking but considering how traders
were straining for good news they wanted to be very careful in
how they phrased the release. Margins were quoted at 47% but
were far less than recent quarters as high as 64%, so how can
the margins be higher due to improved expenses? Did I miss
something? Intel and the chip sector were up only slightly
after the news.

Phraseology is becoming more important as evidenced by a MSFT
statement from yesterday. Microsoft CFO, John Connors, was
quoted as saying that MSFT was reiterating its company and
revenue goals for 2002. Several sources including the WSJ
reported it. Today Microsoft issued a statement correcting his
comments saying they were NOT reiterating estimates but they
were not changing estimates either. So...when is a positive
statement not a positive statement? Evidently this one. If
they went to the effort to say they were NOT reiterating
then the obvious conclusion is a pending drop. Will they warn?
It may be too soon to tell but I would not bet against it.



Investors are dropping stocks at record rates. The TrimTabs.com
cash flow report today showed that outflows from mutual funds
were accelerating. After losing more than $15 billion in all
of August the first week of September, including the holiday,
accounted for -$10 billion of outflows from stock funds. OUCH!
There are also rumors of stock funds being forced to liquidate
like the big hedge fund scandal from a couple years ago. Fund
liquidation? Now that would be a really big hurdle for the
already shaky markets to overcome. We all know that money in
funds may go up and down with the markets but suddenly a scare
of losses due to liquidations, that would shake ma and pa investor
back into CDs and cash in mason jars. These are only rumors but
you can bet the boys at the Fed would meet this problem
head on and do everything possible to avoid any messy public
fund failures.

We don't need any fund failures when we already have a really
messy market failure. We are quickly heading below the April
lows on some indexes and not far away on others. The S&P-500
low on April 4th was 1103.25 and the close today at 1105.94
was only a hair above it. The Nasdaq 100, not the comp, set
a new 52-week low today at 1361 by slipping below the 1370
April low. The Dow has over 800 points to cover before being
in danger of the 9106 March low but at the current rate of
fall that is only about a week. Other global markets are
continuing to fall with the German Dax also setting a new
52-week low today.

Traders can no longer complain that they are waiting for
volume to return after Labor Day. The NYSE posted 1.3 billion
shares and the Nasdaq a whopping 1.84 billion shares. The
internals were very bad with decliners beating advancers
2:1. The put/call ratio rose to almost 1.0 as investors
feeling real fear bought puts to protect portfolios. Speaking
of fear the VIX has now risen to a five month high of 32.42
after seven straight days of gains. The last time we were at
these levels....April. Can we go higher from here? You bet,
the VIX spiked over 40 several times in Feb/March of this
year. The VXN, the Nasdaq equivalent, hit a four month closing
high of 62.01 but well below the April high well over 80.
The TRIN also closed at 2.31 with a spike over 4 at the open
this morning. What does all this mean?

The market internals and indicators mentioned above show that
the market is very oversold again. In fact it is indicating a
possible relief rally on Friday. I have said here many times
that nothing goes straight up or straight down. We all know
that stocks and markets oscillate from overbought to oversold
and back again. Sometimes quickly, sometimes slowly. If funds
are truly liquidating to raise cash to pay those redemption
requests then we could become a lot more oversold before we
see any real bounce. When investors call for their money the funds
have no choice but to sell anything with value to raise that
cash. It makes no difference how good a deal the fund managers
think stocks may be at these levels, the investor rules and
they have to raise cash. -$35 billion has left stock funds in
the last five weeks and with September and October still ahead
of us the cash drain may not be over. 17% of the Nasdaq-100 hit
new 52-week lows today but investor sentiment still shows over
40% of analysts are still bullish. Until the indexes see a
washout of this sentiment we will not see a bottom.

The global economy is still a factor. Japan continues to fall
and is only days away from even more serious problems. Intel
said tonight that sales in Japan had fallen significantly and
the outlook was worsening. Brazil markets hit another 52-week
low. As investors we need to be aware of the world around us
and not be so introverted that we are fixated on some index
number like S&P-1100 or Nasdaq 1638. These numbers would be
critical in any normal market as clear turning point signals
but in today's environment they may be meaningless.

The forecast for Friday is a good possibility of a relief or
short covering rally. Highly profitable shorts may want to
clear the table and start over on Monday. However, last Friday,
while positive did not really show a rush to cover. Shorts are
becoming more confident that the markets have much farther to
fall and therefore are less likely to cover. There are no
bargain hunters. There will be some investors averaging down
but funds will be using any bounce to raise cash and that is
not a recipe for a long term rally. Sell the rally is the
battle cry and until that strategy fails it will continue to
create repeat profits for those who trade the trend instead
of their beliefs.

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

Capitula

Tech warnings, weak retail sales, and worse than expected
economic data was almost enough to make bulls capitulate.  The
S&P 500 lost 2.23%, and closed within 16 points of the April 4th
low.  The Nasdaq finished the day at 1,705, 86 points away from
its April low.  It's almost as if bulls were running scared.

Market Volatility Index Daily Chart



Since May, bulls have been relatively fearless, but over the last
seven days the Market Volatility Index (VIX) has jumped 10
points, 3.40 of that today, to 32.36.  A rising VIX means
increasing fear, but readings above 35 are generally interpreted
as overly pessimistic and possible turning points.  We are not
there yet, but fear is starting to permeate Wall Street.

Bullish percent data, which measures the number of stocks trading
on a point and figure buy signal, is also telling us that stocks
may be getting too skewed to the downside.  Readings below 30
generally mean that an index is too oversold.  The Nasdaq-100
bullish percent is currently sitting at 14 and closing in on
oversold levels not seen since April.  The S&P 500 bullish
percent is also closing in on April levels.  Throw in some
put/call ratios that are leaning to the bearish side and an Arms
Index above 1.50, and perhaps were getting somewhere.

But then Intel had to come out and say that they are "as
comfortable as [we] can be with the third quarter."
Microprocessors continue to follow seasonal growth patterns,
sales in Japan are weak, but revenues and margins should come in
just below the mid-point of estimates.  Not a stellar report, but
not too bad when everyone was expecting the worst.

That should prevent a sharp sell off tomorrow, which would have
helped to push contrarian indicators to extreme levels, but
instead we might have to wait for the next warning for that to
happen.  That shouldn't take long.

So in conclusion, things are getting so bad that they are almost
good.  The arguments against are deteriorating advance/decline
and new high/new low readings, failure of bonds to continue their
sell off, and consistent flows out of equity mutual funds.

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

Market Volatility

VIX   32.36
VXN   62.01

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

          Put/Call Ratio  Call Volume   Put Volume
Total           .98        742,052       728,941
Equity Only     .82        598,331       489,344
OEX            1.13         25,292        28,602
QQQ            1.05         95,054        99,387

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

Bullish Percent Data

           Current   Change   Status
NYSE          32      -2      Bear Confirmed
NASDAQ-100    18      -6      Bear Confirmed
DOW           30       -      Bear Confirmed
S&P 500       42      -2      Bear Confirmed
S&P 100       32      -4      Bear Confirmed

Readings above 70 are considered overbought, and readings below
30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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


 5-Day Arms Index  1.60
10-Day Arms Index  1.46
21-Day Arms Index  1.47
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       997           2107
NASDAQ    1098           2533

        New Highs      New Lows
NYSE       67            150
NASDAQ     35            267

        Volume (in millions)
NYSE     1,340
NASDAQ   1,872
-----------------------------------------------------------------

Advisory Sentiment

Bullish  Bearish  Correction  Net Bullish   Change
  43.9%    30.6%     25.5%       16.7%       -3.4%

A bearish reading of 25% to 30%, combined with a bullish reading
greater than 55% is typically considered bearish by contrairians.
A net percentage greater than 30% is also viewed as bearish.

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

Commitments Of Traders Report: 08/28/01
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

Commercial traders increased their net bearish by 6.9%.  This
isn't a drastic move, but (79,126) is the most bearish commercial
traders have been since 3/13/01.

Commercials   Long      Short      Net     % Of OI
8/14/01      337,327   411,504   (74,177)   ( 9.91%)
8/21/01      342,332   416,372   (74,040)   ( 9.76%)
8/28/01      342,742   421,868   (79,126)   (10.35%)

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
8/14/01      130,432     55,750   74,682     40.11%
8/21/01      134,280     58,785   75,495     39.10%
8/28/01      141,046     58,001   83,045     41.72%

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

NASDAQ-100

Commercial traders didn't add any long positions, but did dump a
few short positions, so the net bearish position improved
slightly.

Commercials   Long      Short      Net     % of OI
8/14/01       29,909     37,822   ( 7,913)  (11.68%)
8/21/01       30,348     38,964   ( 8,616)  (12.43%)
8/28/01       29,255     36,551   ( 7,296)  (11.09%)

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
8/14/01       11,165     9,508    1,657       8.02%
8/21/01       10,499     7,576    2,923      16.17%
8/28/01       11,131     9,694    1,437       6.90%

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

Last week commercials came close to the most bullish reading of
the year, but have pulled back this week.

Commercials   Long      Short      Net     % of OI
8/14/01       21,652    15,856    5,796     15.5%
8/21/01       22,710    14,625    8,085     21.7%
8/28/01       22,141    14,959    7,182     19.4%

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
8/14/01        4,441     8,528    (4,087)   (31.51%)
8/21/01        5,059    10,410    (5,351)   (34.59%)
8/28/01        5,240     9,835    (4,595)   (30.48%)

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:
*****
CNXT $10.13 -1.20 (-1.78) CNXT gave up some its relative strength
Thursday as recent buyers appeared to capitulate.  The stock did
stop around its two month ascending support line, but closed well
beneath our stop at the $11 level.  As such, we're dropping
coverage so traders with open positions should use any bounce
off the Intel news to exit plays.

IWOV $6.82 -0.18 (-1.33) After a valiant battle, the bulls have
finally abandoned their defense of the $7 support level, and
IWOV fell through our $6.85 stop at the close.  While a bottom
may be near for the current cycle in the markets, our threshold
of pain has been reached and it is clearly time to pack up and
go home.  IWOV moves to the drop list tonight.

LLTC $38.41 -1.82 (-2.67) Not only did the descending upper
trendline contain the bulls attempt to rally LLTC earlier in the
week, but the lower trendline (near $39) failed as support on
Thursday as the bears intensified their attack.  Semiconductor
stocks have been hit particularly hard in advance of INTC's
mid-quarter update tonight.  Even though our $38 stop is still
intact, with the less-than-stellar news from INTC, we'll cut our
losses hear and remove LLTC from the playlist.

UNH $66.86 -1.44 (-1.20) The bullish follow-through that we were
looking for in shares of UNH never materialized, and the stock
has slowly succumbed to the bearish pressure.  It looked like
the $68 support level might actually hold until the broad
markets fell apart again today, sending UNH to the showers with
a sharp loss on the day, falling under support and the 20-dma.
The stock has now lost all traces of bullishness, leaving us no
choice but to remove it from the Call list.


PUTS:
*****
No Dropped Puts for Thursday


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The Option Investor Newsletter                 Thursday 09-06-2001
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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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
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********************
PLAY UPDATES - CALLS
********************

STJ $69.39 -0.45 (+0.59) STJ is hanging in there.  The stock, with
amazing regularity, continues to bounce from its 10-dma, which
currently sits at the $69.01 level.  That site is the ideal place
to look for entry points for those who are gunning for an eventual
breakout above the $70 level.  Momentum traders can use an actual
breakout above $70, on high volume, to gain entry.  But entering
on any future dip would allow for easier risk management and being
early to the move.  Once above the $70 level, if STJ eventually
breaks out, we'll turn towards its relative high at the $72.25
level for a short-term exit point.

ADVP $73.31 +1.69 (-1.65) ADVP rebounded in spectacular fashion
from roughly the $70 level Thursday.  Following the stock's gap
lower, buyers took control of shares and drove them higher
throughout the day.  Going forward, further strength above the
$74 level may offer entry points for those who prefer following
the trend, albeit a very, very short-term trend.  If the stock's
weakness early Thursday allowed for bullish traders to enter
positions, they might be thinking about booking some gains if
ADVP walks back up to its relative highs around the $76 level.
ADVP is more a defensive play due to the nature of the company's
business.  As such, we expect that any stabilization in the
broader Nasdaq would allow for the stock to work higher from
current levels.

VOD $19.92 -1.04 (-0.23) A bearish article in the Journal
concerning the massive debt loads of European telecom companies
caused VOD to gap sharply lower Thursday morning.  The article
came at a most inopportune time as VOD was finally building
some momentum to the upside.  The stock pretty much traded
sideways following its gap lower.  And despite the gap lower, its
pattern of higher lows remained intact, which was nice.  As for
new entry points, bullish traders can look for an advance back
above the $20 level, which should occur if the tech and telecom
sectors of the market stabilize.

TSM $12.70 +0.17 (-0.28) TSM managed to plow higher Thursday in
the face of a terribly weak sector and broader market.  We'd
like to think that its out performance Thursday was a testament
to the stock's relative strength, as opposed to merely short
covering.  We'll know more about that speculation going into
Friday's session if the stock sees any follow-through buying.
Intel's not-horrible-news after the bell may allow for some
relief on the supply side of the equation for chip stocks and,
indeed, that follow-through.  For new entry points, an advance
above the $12.80 level may offer bullish traders a favorable
momentum entry.  In terms of pullbacks, entries can be found
from bounces around the $12 level, which would offer a better
risk/reward dynamic from the long side of things.

BGEN $61.76 +1.10 (+1.40) The tug-of-war continues between the
bulls and the bears around the $61 level, but it looks like the
bulls are gaining the upper hand.  Despite the abysmal broad
market and Biotech weakness, shares of BGEN are showing good
relative strength.  The stock actually traced a high above $62
today (its highest level since late June) on heavy volume.  This
could be the breakout we are looking for, but we need to be
cautious of a potential headfake.  Consider new positions on
renewed strength above $62 or look for a renewed bounce from the
$59-60 level, which should now act as support.  Raise stops to
$59.

IBM $98.00 -2.35 (-1.95) IBM is holding onto the $98 support
level, but just barely, as shareholders continue to be buffeted
by bearish news in the PC sector.  We're still holding onto the
play in anticipation of a rebound with the broader market, in
which IBM should be a strong performer.  But that doesn't change
the fact that this is an aggressive play.  We are looking for a
rebound from current levels to provide new entries, but need to
keep a tight reign on the play - our stop is set at $97.75.  The
best approach might be to wait for any rally to prove it has
some staying power by waiting for IBM to clear the $100
resistance level.


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

AMGN - Amgen $65.66 +0.46 (+1.36 this week)

Amgen is a global biotechnology company that discovers, develops,
manufactures, and markets human therapeutics based on advances
in cellular and molecular biology.  The company manufactures and
markets four human therapeutic products, Epogen, Neupogen,
Infergen, and Stemgen.

The biotech sector remains one of the strongest groups within
the Nasdaq.  And Amgen is one of the strongest stocks within
the sector.  Although the Biotechnology Index (BTK.X) has
recent pulled back from the 550, Amgen has managed to continue
working higher.  This bodes extremely well for Amgen should
the broader markets rebound.  If the stock can absorb the
massive amount of supply currently, yet trade higher, it
should move substantially higher once the broader Nasdaq
rebounds.  So in one sense, this is a play on relative
strength in both sector and individual issue.  The other bullish
issue concerning Amgen is the favorable drug pipeline the
company possesses.  In fact, Bear Sterns upgraded Amgen to a
buy rating Thursday morning based upon that very issue.  The
stock was on the verge of breaking out in a big way thanks to
that upgrade Thursday morning, but was pulled back to earth
due to the broad market weakness.  Going forward, bullish
traders can enter new positions on a high volume advance above
the $66 level, only if the BTK is advancing, too.  Pullbacks
might also offer viable entry points.  A shorter time period
chart reveals the neat wedge that AMGN has traced recently.
A pullback down to the lower-end of that wedge around $65 may
offer a solid entry point.  Lower, support exists around the
$64 level.  Our stop is initially in place at $63.50.

BUY CALL SEP-60 YAA-IL OI= 4048 at $6.40 SL=4.75
BUY CALL SEP-65 YAA-IM OI=23535 at $2.55 SL=1.50
BUY CALL SEP-70 YAA-IN OI=11417 at $0.70 SL=0.25
BUY CALL OCT-65 YAA-JM OI=13105 at $4.40 SL=2.75
BUY CALL OCT-70 YAA-JN OI=21139 at $1.95 SL=1.00

Average Daily Volume = 3.13 mln



LH - Laboratory Corp. of America $75.45 +0.70 (-2.45 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.

What goes up must come down and that is exactly what shares of
LH have done over the past 2 weeks.  The selloff appears to have
culminated with a drop to $74.75 yesterday on more than four
times the daily average volume.  That isn't normally the setup
we want for a call play, but today's action was very encouraging
with LH rebounding from the open on similarly heavy volume.  The
bounce came just as the stock touched its 5-month ascending
trendline, just above the 200-dma (currently $73.52).  Daily
stochastics are in oversold and trying to stage a recovery and
there is substantial support near $73.50.  This is an aggressive
play and we are initiating it with a tight stop at $73.50.
While we can use renewed dips near $75 for initiating new
positions, we want to make sure buyers are still coming into the
stock before making the leap.  The more prudent approach might
be to wait for price to rally through the $76.50 level (intraday
resistance on Thursday) before taking a position.

BUY CALL SEP-75*LH-IO OI= 29 at $2.85 SL=1.50
BUY CALL SEP-80 LH-IP OI=517 at $0.95 SL=0.50
BUY CALL OCT-75 LH-JO OI= 15 at $4.80 SL=3.00
BUY CALL OCT-80 LH-JP OI= 20 at $2.65 SL=1.25
BUY CALL OCT-85 LH-JQ OI= 16 at $1.30 SL=0.75

SELL PUT SEP-75 LH-UO OI=277 at $2.20 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 524 K



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

CHKP $30.08 -0.27 (-1.91) CHKP has been catching a bid around the
$30 level, which has us on alert.  Since we've captured about
$14 in the play, we don't want to get careless with those gains.
The $30 level should eventually break IF the COMPX and GSO
continue lower.  But in the event that the two indexes don't,
bearish traders with open positions should think about locking
in some profits at this level.  A bounce from $30 would offer
new entry possibilities, such as a rollover near the $32 level -
the 10-dma - or higher around $33.  Gaming a breakdown from
current levels, however, may be a little more tricky as whipsaws
and bear traps abound.  However, those who do pursue new entries
from current levels should only do so after confirming direction
in first the COMPX and second the GSO.  For its part, the GSO
might find support around the 135 level, but not much help before
that area.

GMST $26.49 -0.60 (-3.17) Chances are that GMST's pop up to its
10-dma around $29.56 Thursday morning didn't allow for bearish
traders to gain new entries.  After all, the pop was over in a
blink of an eye.  Not by surprise, GMST rolled lower into the
afternoon, following the broader market.  However, the fact
remains that the stock is extremely oversold at current levels
and is due of a relief rally.  Although the stock could continue
lower, discipline begs taking some gains off the table at current
prices.  As for new entry points, the more intelligent approach
might be to wait for the stock to advance, on lighter volume, up
to its 10-dma or slightly higher at $30.  At that point, the
stock may work off some of its oversold condition and provide
a better entry point.

BA $48.84 -1.77 (-2.36) Breakdown!  Thank you BA!  The stock
fell beneath the $49.50 level, pressured by the Dow, allowing
traders to gain entry points into the weakness.  BA proceeded
to trade as low as $48.50, which may have allowed for a nice,
quick day trade.  For those still holding positions, which we
assume is the majority, BA doesn't have much support below
current levels.  As such, we expect it to continue lower.  One
level to keep in mind is around the $47 area, which, on the
weekly chart, is the site of the stock's 200-weekly moving
average.  That site may serve as an exit point for short-term
traders.  If the stock does rebound in the coming days, a
rollover near $50 may offer an entry point.

VZ $49.04 -0.81 (-0.96) Slowly, but steadily, VZ is working in
our favor.  VZ's cohorts look terrible, including but not
limited to, Q, AWE, and BLS.  With the sector and market
working in our favor, VZ is positioned to build upon its recent
losses, which translate into profits for bears.  However,
although the stars are lining up in this play, we do need to
see VZ trade down to the $48 level in the coming sessions.  A
decline down to $48 would confirm that the stock's down trend
is going to persist.  If we do see a trade down to $48, bearish
traders might then start thinking about exit points down around
$47 or $46, depending upon risk tolerance.  The 10-dma is way
back at $50.50, which would provide a solid entry point if
traders decide to rally this stock.

AIG $75.55 +1.56 (-2.65) We got a great start to our AIG play
yesterday after the company announced more layoffs as a
consequence of the American General acquisition.  The Insurance
index didn't help the bullish case either, as it fell to a
5-month low of $683.  Similarly, AIG plunged all the way to
$72.65 before buyers began to step up, helping the stock to trim
its losses by the close.  As we mentioned on Tuesday, a dip to
the $73 level will be a good time to take profits off the
table...traders that followed that advice booked a nice profit
on Wednesday and are looking for another opportunity to repeat
the process.  Thursday was a recovery day, as AIG found lots of
willing buyers, which helped the stock to rebound throughout the
day.  After the sharp drop earlier this week, AIG should find
resistance near $77, the site of previous support.  Look for a
rollover near this level to trigger new entries and set stops
at $77.

JPM $36.94 -1.41 (-2.46) We added JPM to the Put list, looking
for the stock to fall through the $38.50 support level and
that's just what it did the last 2 days, helped along by
continuing weakness in the broad markets and the Brokerage
sector (XBD.X) in particular.  Selling volume has been heavy
as JPM declined all the way to $36.50, just below the low
traced in mid-October.  With Stochastics still pointing down
on the daily chart, it looks like there may be more room to
fall, although there may be some short-term support near
current levels.  The $38.50 level should now act as resistance,
so that is the new level of our stop.  Any failed rally that
rolls over below that level can be used to initiate new
positions, as can a continued selloff below Thursday's lows.
Monitor the XBD index for continued weakness and let continued
heavy selling volume be your confirmation that there is more
downside available.

PHA $40.81 +0.01 (+1.21) Bucking the broad market trend, PHA has
been staging a modest recovery over the past 2 days.  The price
recovery is being confirmed by strong volume, and it is looking
like the stock could take out our stop $41.50 on Friday if there
is any strength in the market.  But we're keeping it alive, just
in case we are setting up for a fresh entry.  Although it only
gained a penny on Thursday, that is still a sign of relative
strength with the continued selloff in the broad markets.  A
rollover below the $41.50 level can be used for fresh entries,
but only if the selling is accompanied by solid volume.  Daily
Stochastics are in a steady ascent right now, so we may be on
the wrong side of the trade in the stock.  Keep those stops in
place, just in case the bulls manage to pull a rabbit out of
their collective hat.

QCOM $48.51 -4.70 (-10.34) There's nothing like a continued
market meltdown to help a put play along, and QCOM has been a
stellar performer this week, losing $10 in the past three days
on very heavy trade (more than double the ADV the past 2 days).
Numerous support levels are now just memories as the stock
continues to swoon under the weight of a poor outlook for the
Wireless sector.  We have solid support at current levels and
then the April lows near $44 as potential support levels, and
with the deep oversold condition of the stock, a relief bounce
could be in order.  Tighten up those stops or consider taking
some profits off the table as the NASDAQ is approaching its
April lows.  New positions can be considered on a failed
rebound, so long as our $54 top remains unviolated.

QLGC $25.40 -1.30 (-4.61) There just hasn't been any letup in
the selling of Technology stocks and QLGC is feeling the pain,
having fallen though one support level after another.  It is
now resting right on the edge of the $25 support level and
looks like it could fall off with just the slightest push.
Selling volume has been strong the past couple days and
although now in oversold, the stochastics are still pointing
south.  Target fresh entries on a drop through the $25 level so
long as selling volume remains robust.  Any relief rally is
going to have a lot of overhead resistance to slog through, so
we'll look for any rollover below intraday resistance at $28.50
to provide fresh entry points.  Lower stops to $29.

SEBL $19.39 -1.66 (-2.21) Software stocks continue to bleed, and
even good news on the Microsoft front couldn't halt the damage.
SEBL has been setting new yearly lows on a daily basis, and
Thursday was no exception, as it traded below $19 for the first
time since October, 1999.  It's hard to find support levels to
focus on here, but we would look for the $16.50 level to provide
some respite from the marauding bears.  It has been a profitable
run so far, but we want to make sure we preserve our gains by
ratcheting our stop down to $22 (just above the 10-dma at
$21.86).  The best new entries will be to target a failed
rebound below that level.  The deeply oversold condition of the
stock is raising the risk of continuing to chase the stock lower.
Wait for the pop and then establish a position.

TSG $40.90 -1.55 (-1.28) It took some doing, but the bears
finally gained the upper hand in trading of shares of TSG on
Thursday.  The brief recovery in the past couple days just set
us up for an attractive entry point as the stock rolled over yet
again without even touching the declining 10-dma (currently
$43.16).  After today's sharp selloff on heavy volume, the stock
is now resting just above the $40 support level.  Renewed
selling that drives TSG below that level will provide attractive
entries for momentum traders, although a relief bounce to the
$42-43 resistance level may provide a better entry point.  Stops
are set at $43.


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

BGEN - Biogen, Inc. $61.76 +1.10 (+1.40 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

The tug-of-war continues between the bulls and the bears around
the $61 level, but it looks like the bulls are gaining the upper
hand.  Despite the abysmal broad market and Biotech weakness,
shares of BGEN are showing good relative strength.  The stock
actually traced a high above $62 today (its highest level since
late June) on heavy volume.  This could be the breakout we are
looking for, but we need to be cautious of a potential headfake.
Consider new positions on renewed strength above $62 or look
for a renewed bounce from the $59-60 level, which should now act
as support.  Raise stops to $59.

Comments

BGEN managed to beat the market once again Thursday.  The stock
is technically and fundamentally strong and appears poised to
follow-through into Friday's session.  Momentum traders can use
a strong advance above the $62 level to gain entry into this
play.  Confirm direction in the BTK in doing so.

BUY CALL SEP-60*BGQ-IL OI=2920 at $3.10 SL=1.50
BUY CALL SEP-65 BGQ-IM OI=1262 at $0.85 SL=0.00
BUY CALL OCT-60 BGQ-JL OI=4685 at $5.00 SL=3.00
BUY CALL OCT-65 BGQ-JM OI=9560 at $2.50 SL=1.25
BUY CALL OCT-70 BGQ-JN OI=4684 at $1.10 SL=0.50

Average Daily Volume = 2.92 mln



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**************************************************************


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