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Daily Newsletter, Tuesday, 09/18/2001

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The Option Investor Newsletter                 Tuesday 09-18-2001
Copyright 2001, All rights reserved.                       1 of 2
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
        9-18-2001          High      Low     Volume Advance/Decline
DJIA     8897.24 - 17.30  9022.06  8861.05 1.67 bln   1228/1926	
NASDAQ   1554.50 - 24.47  1605.06  1548.85 1.83 bln   1440/2300
S&P 100   526.24 -  2.30   533.74   524.25   Totals   2668/4226
S&P 500  1031.95 -  6.03  1046.42  1029.25             
RUS 2000  411.03 -  6.01   419.25   410.18
DJ TRANS 2217.26 - 54.61  2296.21  2212.88
VIX        42.50 -  2.44    46.67    41.70 
VXN        74.74 +  1.48    75.32    72.28
TRIN        1.10 
Put/Call Ratio      1.13
*******************************************************************

Outlook Too Bearish?

Several readers thought I was too bearish on Monday night. I 
wonder if they still feel that way? The expected rebound/relief
rally appeared right on schedule on Tuesday but the bounce only
provided a new entry point for sellers as worries about the new
world economy started hitting home. There was even a flurry of
upside warnings, companies affirming their guidance, but there
were simply no buyers. 

 

 

There were persistent rumors that mutual funds were being forced
to sell to meet redemption's after the big drop on Monday. That 
along with all the negative news convinced a new wave of investors 
to look for safety elsewhere. We will not get the fund flows from
TrimTabs.com until Thursday but odds are good there will be a
net outflow. This would be ironic since now is the time real
investors should be scrounging up every dollar they can find to
put into investments for the long term.

Hedge funds were also rumored to be jumping on the short bandwagon
with brokers, airlines, hotels and semiconductor stocks being the
targets. Several analysts said that we could see some airlines
file for bankruptcy as early as next week. UAL and AMR remained
positive as the likely winners in any industry shakeup but CAL
continued to dive with another -2.33 loss. It is a shame the
options on the airline index, XAL, were not more heavily traded
because the sector is severely oversold and any government bailout
is sure to provide a huge bounce. I checked out the options and
the November 80 call, nine dollars out of the money, was quoted
at $6.50x$9.50, a whopping $3 spread between bid and ask. To
put this option in perspective the index was near $120 only a
couple days ago and is now $71.66. I doubt any government solution
would recover that drop because air travelers have simply cancelled 
their trips. The industry is losing -$350 million per day according
to their estimates and the government has said that their help
will not pay for past sins, only direct results of the disaster.

The new wave of business surveys is starting to show that business
across America came to an abrupt halt last week. Not just in New
York but all across America. The business community is just now 
starting to show a pulse. This is critical. The third quarter is
the most critical for end of quarter weighting. Business is sold
in the last three weeks for delivery before year end. Take out a
complete week or more from this cycle and put a big cloud of
uncertainty over the rest of the month and you have a recipe for
ugly earnings. 

Have you noticed that there were almost ZERO earnings warnings last
week? There has only been a trickle this week. We all know that 
there was going to be hundreds due to the slowing U.S. and global
economy that was inching towards recession. Nothing happened to 
stop that and one can only guess that corporations did not want
to further depress the market last week and were hoping for a
patriotic bounce this week. No bounce, now what? I can only 
speculate that there are dozens if not hundreds of companies that
are faced with a shrinking time horizon for making a warning call
for the third quarter. I would also suspect that any warning could
be severe since they are likely to use the attack as an excuse to
clean up their books as well as lower expectations going forward.
If you are going to get beaten severely then at least make it
worthwhile, right? 

Based on the prior scenario, guidance, that was already weak at
best, is likely to slow even more. SunMicro said they felt that
the increased purchases spurred by the disaster could boost the
tech sector. Many analysts disagreed. The expected boost from the
Windows-XP launch is now in doubt. Consumers may not be buying 
computers until things are clearer and jobs are secure. 

The disaster had other unexpected results as well. The "just in
time" parts delivery standard that many companies have adopted,
failed. The week long shutdown of airlines, longer and more
difficult security checks and stringent import reviews have left
many companies without inventory. Auto makers took it on the chin
as NAFTA deliveries came to a complete stop for several days.
Ford closed several plants for lack of supplies and S&P has placed
the big three auto makers on credit watch. The double whammy of
slowed production and nonexistent sales has and will cost them
millions. Dell, the champion of just in time delivery of parts
from overseas manufacturers has not made any negative comments
but the week is still young. Electronics manufacturers not only
had the WTC disaster to deal with but Typhoon Nari completely
shut down traffic to and from Taiwan. Analysts in Taiwan estimated
that at least 20% of the sales for the month were lost in a critical
month.

Consumer confidence is dropping like a rock. Retail sales for last
week dropped -3.5% even as consumers were cleaning out store shelves
of batteries, water, can goods, gas cans and blankets. The constant
repetition of how long and difficult the "war" may be has locked
wallets on the home front. The peace dividend we have been enjoying
over the last ten years has ceased. The check is not only not in
the mail, the last one may bounce! Consumers have no interest in
air travel at any price. Online travel firms say business has
dropped to only 30% to 40% of normal. Tales of tragedy on the ill
fated airliners are hitting the TV news shows and each feature makes
more people take the "no fly" pledge. Even visitors to Las Vegas,
which many people would classify as "risk takers", have fallen
dramatically. 45,000 visitors cancelled reservations for the last
two weeks and the convention bureau estimated $55 million in revenue
was lost already. Streets were deserted and casino analysts said
drops in bookings would cause a -20% to -50% drop in earnings for
stocks like PPE and MGM. Park Place Entertainment said it will
postpone construction of a new $475 million hotel in Vegas due
to the drop in bookings from last weeks attacks and may cut workers
also. 

The only bright side for the consumer is the outlook for gas prices.
With refineries expecting a -30% to -35% drop in the demand for jet
fuel they have already started switching to more gasoline, heating
oil and other distillates. The constant tanker convoy from the
middle east has to be offloaded regardless of what the need is on
this side of the pond. Until the prior orders for crude can be
worked off the oil companies have to convert it to something they
can sell. This means that consumer supplies of gasoline are going
to rocket higher and to burn off these supplies they will lower
prices drastically. This puts the oil companies on a slippery slope
and stock prices are starting to show the results. Phillips, Chevron,
BP, and Shell were all lower.

Bulls are being slaughtered daily. Salomon Smith Barney strategist
Tobias Levkovich lowered his forecast for the S&P for the end of year
to 1200 from 1400. He also lowered his 2002 estimates to 1350 from
1500. Can Abbey Cohen be next? Even Joe Battapaglia was far from
bullish when interviewed on Monday. Is hell freezing over yet? 

The volume on Tuesday was much lower than Monday with the NYSE only
posting 1.6 bln and 1.8 bln on the Nasdaq. Repeatedly commentators
remarked that both Monday and Tuesday were very orderly. That the
selling was very "orderly and reserved" was a constant refrain. 
This is bad news. Even with the big drop on Monday, there was no 
capitulation! The relief rally today was met with more sellers 
including short sellers. The consensus is still down and while 
the Dow closed slightly off the lows of the day it was due to a 
little short covering in the last 10 min. The Nasdaq closed only 
six points off the lows and the semiconductor sector led the drop. 
Demand estimates are falling and investors are fleeing the sector. 
Market internals are simply still negative and without a successful
patriotic rally the outlook grew worse. 

The VXN, or Nasdaq volatility index, rose to 74.74 while
the VIX fell to -2.44 to 42.50. The Dow has lost over -700 points
this week and it is only Tuesday. I could go on but you get the idea.
While everyone wants to see a rally, it requires a lot of people
spending real cash and as yet we have not seen it. Retail investors
are fighting margin calls and selling winners to raise cash. Some
brokers are selling stocks to raise cash as well. Not a recipe for 
a rally. There is still plenty of institutional cash on the 
sidelines but they are not spending it. 

 

It may be heresy but the market may actually be supported by the new 
buyback rules which expire on Friday. Volume in Cisco was over 80 
million shares and the artificial bottom we had been seeing collapsed 
at 2:PM with almost 30 million shares traded between 2 and 4. That is 
almost $500 million in CSCO stock in two hours of trading. 194 million 
shares of CSCO have traded this week which amounts to almost $3 
billion. The entire buyback for CSCO was $3 billion and while nobody
expects that they spent it all, they could have spent all they could
afford for this week. Multiply this by the more than 75 companies 
that announced buybacks and you can see the problem. The rest of
this week could be very exciting or frustrating depending on which
side of the market you are on. Trade what you see and not what you
believe. Belief is for long term investing where you are buying the
promise of larger earnings and prosperous outlooks years down the 
road. For investors this is a great buying opportunity. Otherwise,
trade the trend or don't trade at all!
  
Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

Stable But Indecisive

It wasn't the big snapback rally that everyone was hoping for, 
but stocks are starting to show signs of stabilization.

Dow Jones Industrial Daily Chart

 

The Dow briefly resided above 9,000, but closed down 17 points at 
8,903.  A close above 9,000 would have helped investor 
psychology, but we did get the second day of a possible morning 
star candlestick pattern.  This three-day reversal pattern starts 
with a steep decline on day one.  Day two a small candle forms 
just below the first day's close as indecision takes over.  
Confirmation should come on day three with a long white candle.  
Without confirmation tomorrow, today's close just marks a day of 
indecision.

Market Volatility Index Weekly Chart

 

One thing missing from recent attempts at a bottom was worried 
bullish investors.  For months the Market Volatility Index (VIX), 
which measures the level of fear in the markets, resided at low 
levels that suggested complacency.  Now the VIX has jumped to 
fearful levels not seen since October of 1998.  This doesn't 
guarantee a bottom, but does suggest that a lot of sellers have 
been shaken out.

CBOE Put/Call Ratio

 

The CBOE Put/Call Ratio has also climbed to overly bearish levels 
not seen since October of 1998.  Past performance does not 
guarantee future results, but readings over 1.00 have generally 
led to market turning points.

S&P 500 Bullish Percent Chart

 

Lastly, bullish percent data for the S&P 500, the number of 
stocks trading on a buy signal on their point and figure charts, 
is at historically oversold levels.  This indicator could fall 
lower like it did in 1998, but we are certainly oversold.

So have all the sellers been shaken out of the market, leaving 
only buyers?  I'm not going out on that limb, but bearish traders 
might want to stay on their toes for a reversal.  Bullish traders 
should start lining up stocks they feel have been unjustly sold, 
but that four-letter stock CASH looks pretty good for the next 
few days.  Until the fog clears, keep positions small.


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

Market Volatility

VIX   42.50
VXN   74.74

-----------------------------------------------------------------
 
          Put/Call Ratio  Call Volume   Put Volume
Total          1.13        875,143       989,123
Equity Only    1.03        723,282       744,140
OEX            1.02         38,825        39,601
QQQ             .77         89,548        68,756

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

Bullish Percent Data

           Current   Change   Status
NYSE          26      -6      Bear Confirmed
NASDAQ-100     6      -6      Bear Confirmed
DOW           24      -4      Bear Confirmed
S&P 500       26     -12      Bear Confirmed
S&P 100       20     -10      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  0.97
10-Day Arms Index  1.29
21-Day Arms Index  1.32
55-Day Arms Index  1.28

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      1232           1924
NASDAQ    1442           2298

        New Highs      New Lows
NYSE       31            332
NASDAQ     15            350

        Volume (in millions)
NYSE     1,672
NASDAQ   1,859
-----------------------------------------------------------------

Advisory Sentiment 

*New data not yet available

Bullish  Bearish  Correction  Net Bullish   Change 
  44.3%    30.9%     24.8%       13.4%       +0.1%

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: 09/10/01

This data is from 9/10/01, and does not reflect positions taken
after last week's terrorist attacks.  

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

As of last Monday, Commercial traders got 3.4% more bearish.  This 
is still below the most bearish reading of the year, but marks 
three straight weeks of increasing bearishness.

Commercials   Long      Short      Net     % Of OI 
8/28/01      342,742   421,868   (79,126)   (10.35%)
9/04/01      350,626   430,613   (79,987)   (10.24%)
9/10/01      359,360   442,070   (82,710)   (10.32%)

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
8/28/01      141,046     58,001   83,045     41.72%
9/04/01      147,080     62,004   85,076     40.69%
9/10/01      156,500     69,090   87,410     38.75%

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 dumped 207 short positions, but also dropped 
1,973 long positions, causing the net bearish position to 
increase by 1,766.

Commercials   Long      Short      Net     % of OI 
8/28/01       29,255     36,551   ( 7,296)  (11.09%)
9/04/01       28,757     38,119   ( 9,362)  (14.00%)
9/10/01       26,784     37,912   (11,128)  (17.20%)

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
8/28/01       11,131     9,694    1,437       6.90%
9/04/01       12,341     9,806    2,535      11.45%
9/10/01       15,263    12,555    2,708       9.73% 

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

The Dow continues to be the only index with a commercial net 
bullish position.  12,412 is the most bullish reading of the 
year, but that may change next week.

Commercials   Long      Short      Net     % of OI
8/28/01       22,141    14,959    7,182     19.4%
9/04/01       23,459    14,099    9,360     24.9%
9/10/01       25,445    13,033   12,412     32.3% 

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 12,412  - 9/10/01

Small Traders  Long      Short     Net     % of OI
8/28/01        5,240     9,835    (4,595)   (30.48%)
9/04/01        6,952    12,744    (5,792)   (29.41%)
9/10/01        7,460    12,735    (5,275)   (26.12%) 

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:
*****
NBR $22.05 -1.55 (-2.70) The tensions in the middle-east failed
to escalate to a level that concerned the energy market.  Concerns
were instead raised about the potential impact on demand.  As
such, energy prices as well as energy-related equities fell
further into Tuesday's session.  Although a conflict in the
oil producing area of the world could surface at any time, we're
cutting losses in the NBR play.

BRCM $24.35 -1.92 (-6.24) Chip shares slide lower Tuesday, taking
the lead of the SOX and its plunge to a new 52-week low.  BRCM
is technically weak and appears headed lower over the short-term.
Bullish traders with open positions can use any strength Wednesday
to exit positions.

TSM $9.85 -0.70 (-2.82) TSM continued to weaken into Tuesday's
session as fears of slumping demand spread across the chip sector.
Asia's woes certainly aren't helping our bullish cause in this
play.  We are therefore dropping coverage this evening; bullish
traders with open positions can use any forthcoming strength to
exit call positions.

LH $66.90 -4.00 (-7.27) Monday's selling spree intensified
today, as LH failed to find any buying support.  Even the $70
level couldn't help the stock as price declined by another $4.
With the stock closing on its low today on strong volume, we
just can't justify keeping it on the call list.  We'll focus
our efforts on more favorable plays.


PUTS:
*****
GMST $17.28 -1.73 (-8.16) Fears of lost ad revenues are weighing
heavily on media-related stocks.  GMST is no exception.  The
stock continued along its path lower Tuesday.  And although the
stock could work its way into the lower teens, we're dropping
coverage this evening after capturing nearly $19 in the play
since inception.  We're not greedy!  Open positions can be exited
on any further weakness from current levels.

VZ $51.70 +1.90 (+1.00) The wireless and telecom sectors were
about the only group of stocks to finish strongly Tuesday.
VZ was among those who traded well Tuesday, which was most
unfortunate for those of us on the bearish side in this stock.
Bearish traders should look for any weakness Wednesday to exit
open positions.

QCOM $46.37 +0.58 (-4.17) Giving us good moves to the downside,
both before and after last week's tragedy, QCOM looks like it
might be done falling.  QCOM is now more than $13 below where it
was when we picked it and resting just above major support near
$44.  The high-odds move at this point is to book our gains and
go on the hunt for new plays.


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The Option Investor Newsletter                  Tuesday 09-18-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/0918_2.asp


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

QQQ $30.50 +0.70 (-3.60) We're still waiting for the
QQQs to come to us.  The contract has yet to fall as low as the
$29 level this week, but it could see that level in the coming
sessions.  To recall, we'd like to see the QQQs trade down around
the $29 level, which would have us on bullish alert.  From there,
a subsequent advance back above the $30 level would offer an
action point.  If the aforementioned scenario unfolds this week,
bullish traders would be well-served to monitor the big dogs of
the Nasdaq-100 in MSFT, INTC, QCOM, CSCO, ORCL, and DELL.  The
individual issues can offer insight into the QQQs, and can often
serve as leading indicators.  Our short-term target lies around
the $34.50 level.

DJX $89.03 -0.18 (-7.03) The Dow's plunge past the 9200 level
during Monday's session carried the DJX below the 92 level,
accordingly.  Its pull back offered the entry point we had been
gaming, but its subsequent weakness was obviously disconcerting.
The Dow and DJX had trouble with the 9000 and 90 levels,
respectively, during Tuesday's session.  Going forward, a strong
advance past that level should allow for higher price over the
short-term.  If the DJX fails at $90, our play could be headed
lower over the short-term.  As such, bullish traders should be
thinking about managing risk at this point in the play with a
tight stop.  We're maintaining coverage on this play without a
stop at this point, but traders could turn to the DJX's intraday
low Tuesday at $88.61 for a potential stop level, depending upon
risk tolerance.  As for new entries, dip buyers can consider
positions at current levels.  In addition, momentum types can
use a strong advance above the $90 level.

ATK $77.10 -1.60 (+11.81) We weren't surprised with ATK's rally
Monday morning.  But we were certainly surprised with its
magnitude.  The stock's gap higher obviously made it impossible
to gain a favorable entry into the play.  So, at this point,
we're looking for a pullback to support.  Two levels to keep in
mind in the coming days are $75 and $73.  Both could attract
buyers and both could serve as entry points, depending upon your
risk tolerance and trading style.  On the upside, the $78.50 to
$79 area should serve as resistance, but a breakout above that
area would allow momentum types to ride ATK higher.  News from
Washington could potentially impact this play intraday and
overnight, so bullish traders should keep that much in mind when
eyeing this play.

IMCL $50.01 -1.59 (-3.72) All things considered, IMCL has held
up relatively well during the recent sell-off in the biotech
sector.  The stock held above the lower-end of its trading range
at the $50 level Tuesday, which was an encouraging sign.  We
feel that IMCL will lead any rally in the biotech sector once
the group turns around.  But timing that move may be difficult.
For insight into the time variable, bullish traders can use the
BTK.X as a guide.  The index stopped right on a retracement level
Tuesday at 439.  The technical level, by itself, could attract
bottom fishers, who would, in turn, carry IMCL higher.  Since
IMCL is very near support, new entries can be taken at current
levels with a tight stop at $49.50, or a looser stop around
$48.50.  As for upside, a rebound in the BTK could carry IMCL back
up to the $54 area.

AMR $20.00 +2.00 (-9.70) Gaps, whether they be up or down, are
most likely to be a frequent occurrence in this play.  That's
because of the government-related news flowing from Washington.
A bailout of the airlines is imminent, but the magnitude of
money sent to the carriers and the terms of any deal remain to
be seen.  However, the U.S. government won't allow the airline
industry to fail.  That much may have been discounted into AMR
Tuesday, but the stock could see further upside on a favorable
Congressional decision.  Still, this is a very aggressive play
and only those predisposed to risk should consider trading AMR
under current conditions.  New plays can be taken off the $20
level if the Airline Index (XAL.X) is advancing.  Otherwise,
a pullback down around $18 might provide a solid entry.

MO $48.30 -0.60 (+0.15) MO pulled back Tuesday, then rallied
smartly into the close.  As we alluded to Monday, the most
favorable approach in this play is to enter new bullish positions
on a pullback.  Chasing rallies is just not a smart move in this
market.  Enter on weakness!  Going forward, MO could see the
upside of $48.50 to $49 in the coming sessions, before pulling
back again.  At that point, support around the $48 level would
be a good place to look for entries.  Lower, traders can turn
to the $47.50 level from which MO bounced Tuesday.

AMGN $59.38 -1.47 (-4.75) AMGN is moving towards solid support
at the $58.25 level, plus or minus 10 cents.  The stock has
attracted buyers near that level on several occasions in the
recent past, and may do the same again this time around.  What's
more, the BTK.X is right at support at the 439 level.  That means
AMGN is setting up for a potentially low risk/high reward
situation.  If the stock continues to pullback, an entry around
the $58.25 level can be taken with an ultra tight stop just
below around the $58 level, or slightly lower.  That way, risk
is easily managed while reward could be measured as high as
$61 over the short-term.  But, let the stock come to you in this
particular case.  If AMGN rebounds from current levels early
Wednesday, we'll address the situation from there.
 
BGEN $56.70 -1.21 (-3.61) With the past two days showing losses,
it may seem strange to refer to BGEN as showing relative
strength, but there it is.  Compared to the broad market,
Biotech stocks are holding up relatively well, due to the fact
that they are less economically sensitive.  While BGEN has lost
a bit of ground in the past couple days, it looks like the stock
could be trying to put in a bottom in the $55-56 area.
Stochastics are almost into oversold, and up to this point the
stock has managed to hold above its 50-dma ($56.26).  Looking
at the chart of the Biotech index (BTK.X), there have clearly
been some active sellers, but they have left BGEN relatively
unscathed, down only 5.7% so far this week.  We're re-activating
our stop and placing it at $55.  A bounce above this level that
is accompanied by strong buying volume could provide an
attractive entry for a rebound when the markets attempt to
recover from their deeply oversold condition.


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

FDX - FedEx Corp. $35.90 -2.40 (-4.08 this week)

FedEx Corp. is a global provider of transportation, e-commerce
and supply chain management services.  Services offered by FDX,
through over 215,00 employees and contractors, include worldwide
express delivery, ground small-parcel delivery, supply chain
management, customs brokerage, trade facilitation and electronic
commerce solutions.

When trading resumed on Monday, Transportation stocks were sold
as a group amid fears that volume would go down and costs would
go up.  FDX got caught in the selling rush, but fundamentally
the changes in the world as we knew it may be beneficial to
shipping companies.  While there may be a decline in shipping
volumes in the near term, the supportive stance of OPEC will
likely keep energy prices lower, possibly offsetting the impact
of reduced shipping volumes.  Apparently some investors came to
the same conclusion yesterday as the stock recovered sharply
from the $33 level on heavy volume.  Some of that enthusiasm got
rung out of FDX's share price on Tuesday, but support
materialized near $35.  It looks like the stock could be poised
for a recovery, especially if we see the price of Crude Oil
continue to decline from its spike highs earlier this week.  The
dip on Tuesday bottomed just above $34.50, so that's where we
are placing our stop.  Consider new entries on a dip and bounce
above $35 or wait for a rally that clears $38 (the highs on
Monday) on strong volume.

BUY CALL OCT-35*FDX-JG OI= 344 at $2.65 SL=1.25
BUY CALL OCT-40 FDX-JH OI=1687 at $0.60 SL=0.00
BUY CALL JAN-35 FDX-AG OI=2591 at $4.10 SL=2.50
BUY CALL JAN-40 FDX-AH OI=1621 at $0.75 SL=0.00

SELL PUT OCT-35 FDX-VG OI= 975 at $1.30 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 896 K



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

CHKP $29.50 -1.10 (-3.49) Going into Tuesday's session, we were
debating whether or not we'd hold CHKP for much longer.  But the
stock's solid breakdown below the $30 level sealed our decision
to hold the play.  Remember prior to last week's events that we
were looking for a solid breakdown below $30 in CHKP.  And that's
exactly what we got Tuesday.  Although the stock rebounded a bit
into the close on short covering, it looks to be headed lower over
the short-term.  Going forward, the $30 level will serve as
resistance and could provide entries on rollovers from that level.
Momentum bears can look for a breakdown below Tuesday's lows for
new entry points also, just make sure volume accompanies any
further weakness below current levels.

HDI $39.60 -1.14 (-4.58) As expected, HDI gapped down Monday and
kept falling through Tuesday's session.  Bearish traders who
entered puts prior to last week's events should most definitely
be thinking about booking partial gains in this play.  While
further downside is likely, discipline begs taking some money off
the table down here.  Let the house's money ride!  For new entry
points into the play, the most favorable approach would be to
use any rally up to resistance to gain entries.  After all, the
stock is oversold.  For resistance, HDI should face congestion
just above around $40, or slightly higher around $41.  Monitor
market conditions, and look for a rollover at either of the
aforementioned levels.

PHA $39.60 +0.10 (-0.55) After falling with the rest of the
market yesterday, PHA tried valiantly to put in a bounce this
morning from the $39 level.  While that level did hold as
support, there was no strength in the move.  The buyers ran out
of steam near $39.80 and it looks like it is going to take a
concerted effort to get the stock above the $40 level.  We're
placing our stop at $41, and would look for any weakness below
this level as an opportunity to initiate new positions.  Daily
Stochastics are still diving back to earth and the
Pharmaceutical index (DRG.X) is struggling as well.  Due to
anticipation that the broad market could attempt a rally towards
the end of the week, we would be cautious about entering the
play as PHA breaks to new lows unless selling volume is heavy.

QLGC $23.00 -2.78 (-3.78) The bulls valiantly attempted to get
a rally going in shares of QLGC on Monday, but all they managed
to do was give us a great entry point.  They managed to propel
the stock above $29 for a brief period of time before the bears
came back and they put QLGC back into a steep decline.  Closing
near its lows on Tuesday, the stock is resting right at $23,
its lowest level since early April.  It looks like the trend
will continue too.  Daily Stochastics had managed to poke out
of oversold, but crossed in bearish fashion again today, giving
the oscillator enough room to the downside so that QLGC can take
a run at its April lows near $18.  Except for the early strength
yesterday, QLGC seems to have some solid resistance near $27, so
that is where we are placing our stop.  Use any failed intraday
rally to initiate new positions, although a continued decline
from current levels could provide attractive entries as well--so
long as selling volume remains strong.

SEBL $14.77 -1.94 (-4.81) There hasn't been the slightest hint
of a bounce in the Software sector (GSO.X) since trading resumed
yesterday, and shares of SEBL are no exception.  With the GSO
index moving to new all time lows, SEBL has continued to fade,
falling below potential support at $15 on Tuesday.  Continued
fundamental weakness along with the unknown economic picture
are keeping the stock in sell mode.  While the stock is deeply
oversold, that hasn't motivated the bulls to start buying yet.
It looks like the next possible level of support may be near
$12, while it wouldn't be out of the question to see shares
decline to the $8-9 range before putting in a bottom.  We'll
continue to ride SEBL lower, with the caution that an oversold
bounce could occur at any time.  Set stops at $18.50, and use
any failed rally below this level for initiating new positions.


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

CHV - Chevron $87.76 -2.46 (-3.94 this week)

Chevron manages its investments in, and provides administrative,
financial and management support to, United States and foreign
subsidiaries and affiliates that engage in fully integrated
petroleum operations, chemicals operations, coal mining and
energy services.

In the wake of last Tuesday's terrible terrorist attacks on the
United States, many market participants felt that energy
related stocks would advance.  But just the opposite has come
true.  The idea is that due to a drastic decline in air traffic,
among other transportation, the demand for energy will cause
prices to plunge.  And even if tensions escalated in the middle
east, OPEC has said that it would compensate its production
levels in order to keep prices at bay.  As a result, shares of
the major integrated oil companies have slid lower so far this
week and look to be heading lower over the short-term.  CHV
epitomizes this event as the stock solidly closed below its
200-dma Tuesday, which currently sits at $89.  Bearish traders
can take new positions in this play on further weakness from
current levels, after confirming weakness in the Oil Index
(OIX.X).  Any relief rally from current levels could take CHV
back up to its 200-day, which would provide a solid entry
point on a rollover.  Our stop is initially in place just above
the 200-dma at the $89.50 level.  By using a more liberal stop,
we can let the stock work off its oversold condition without
being stopped out.  Then again, oversold can always become
more oversold.  So, CHV could continue lower.

BUY PUT OCT-90*CHV-VR OI= 887 at $4.40 SL=3.00
BUY PUT OCT-85 CHV-VQ OI=1066 at $2.00 SL=1.25

Average Daily Volume = 2.38 mln



NVLS - Novellus Systems $31.21 -2.52 (-6.62 this week)

Novellus manufactures, markets and services advanced systems
used to deposit think conductive and insulating films on
semiconductor devices, as well as equipment for preparing
the device surface for these deposition processes.

The Philadelphia Semiconductor Sector (SOX.X) took out its
April lows Tuesday.  The low for the SOX was at 453.  The SOX
closed Tuesday at 435.  Leading the losses in the semiconductor
sector were large equipment manufacturers, such as Applied
Materials, KLA-Tencor, and Novellus.  Of the three, we were
particularly attracted to the bearish prospects of Novellus
because of what the company said during its recent third
quarter update.  Although Novellus warned at the time, it said
that it was relying on strong orders during the last two weeks
of the quarter.  Unfortunately, last week was one of those
weeks, when the company likely lost a lot of business.  As
such, we're expecting another warning from the company or
a short-fall when it reports.  That much should is being
discounted in the stock and should continue to do so in the
coming weeks.  The stock has some minor support around current
levels at $31, but nothing much below until the $25 area.
Therefore, a solid breakdown below the $31 level Wednesday,
accompanied by further weakness in the SOX, would allow
bearish traders to gain new entries into put positions.  We
are aware that the stock is oversold, so perhaps the "better"
entry point would come on any short covering rally from
current levels.  Resistance could form around the $33 area,
so be on the lookout for rollovers if the stock does see some
relief buying.  Initially, our stop is in place at the $34.75
level.

BUY PUT OCT-35*NLQ-VG OI=914 at $5.80 SL=4.25
BUY PUT OCT-30 NLQ-VF OI=556 at $2.95 SL=1.75

Average Daily Volume = 6.52 mln



PMCS - PMC-Sierra $20.05 -0.87 (-4.69 this week)

PMC-Sierra designs, develops, markets and supports high
performance semiconductor networking solutions.  The company's
products are used in high speed transmission and networking
systems, which are being use to restructure the global
telecommunications and data communications infrastructure.

The chip and networking sectors took the brunt of selling
during the last two days.  The tech sector, as a whole, is
susceptible to further setbacks in light of last week's
events.  And the two aforementioned sectors are likely to
witness further selling.  For its part, the Philadelphia
Semiconductor Sector (SOX.X) dropped to a new 52-week low
Tuesday.  The Networking Index Sector (NWX.X) has fared
much worse during recent months.  But it, too, fell to a
new 52-week low Tuesday.  PMCS is concerned with both sectors
because it is first a chip maker, but a chip maker that
caters to networking equipment makers.  A quick glance over
the charts of some of its customers reveals a telling
picture.  Shares of Juniper, Cisco, CIENA, and others reveal
an ugly picture.  PMCS' chart reveals that the stock stopped
right around its April lows Tuesday.  But they should soon
be taken out as the selling continues in chip and networking
issues.  As for new entries, bearish traders can take positions
at current levels with further deterioration in the SOX and
NWX.  Momentum types might wait for the stock to take out its
April lows at $18.66 before entering puts.  As for those who
like to fade rallies, look for resistance up around the $22 to
$23 area.  Our stop is initially in place at $24. 

BUY PUT OCT-25 SQL-VE OI=793 at $6.50 SL=5.00
BUY PUT OCT-20*SQL-VD OI=533 at $3.20 SL=1.75

Average Daily Volume = 8.53 mln



ENE - Enron $28.08 -2.58 (-4.68 this week)

Originally only an energy company, in recent years ENE has moved
into the communications market as well.  Through its
subsidiaries, the company is primarily engaged in the
transportation of natural gas through pipelines throughout the
United States, and the generation, transmission and distribution
of electricity to markets I the northwestern United States.  ENE
also markets natural gas, electricity and other commodities and
finance services worldwide.  Most recently, the company has
moved into the Communication business, developing an intelligent
network platform to provide bandwidth management services and
deliver high bandwidth applications.

In the wake of last week's terrorist attack, Energy companies
are being squeezed from both sides.  OPEC has pledged to increase
production as necessary to keep prices from increasing due to
potential political instability in the Mideast.  On the other
side, energy demand in the US is expected to decline, possibly
putting the pinch on ENE's profits from both sides.  Technically,
ENE was on the ropes before last week's tragic events, barely
holding onto the $30 support level.  Tuesday's trading action
clearly violated that level and now the bulls are trying to hold
things together at the $28 support level.  Odds favor a continued
descent, with possible support at $25, then $23, before finding
strong support near $20.  Target failed intraday rallies for
initiating new positions, ideally just below the $30 level,
which should now provide formidable resistance.  Accordingly,
we are setting our stop at $30.25.  Of course, entering new
positions on continued weakness is a viable entry strategy; just
make sure to keep a tight reign on the position in case of an
oversold bounce.

BUY PUT OCT-30*ENE-VF OI=9726 at $3.50 SL=1.75
BUY PUT OCT-25 ENE-VE OI= 137 at $1.10 SL=0.50

Average Daily Volume = 4.62 mln



P - Phillips Petroleum $55.65 -2.94 (-2.91 last week)

Founded in 1917. Phillips Petroleum is a fully integrated
petroleum company.  Engaged in exploration and production on
a global scale, the company gathers, processes and markets
natural gas in North America through its equity interest in
Duke Energy Field Services.  Additionally, P refines, markets
and transports petroleum products in the United States.
Finally, the company is involved in the production and
distribution of chemicals and plastics worldwide through its
equity interest in Chevron Philips Chemical Company.

In the wake of last week's terrorist attack, OPEC has pledged
to provide whatever additional oil supplies are necessary to
keep prices stable.  In addition, it looks like we are likely
to see energy declining demand due to reduced travel, both
domestically and abroad.  Those two factors are likely to
squeeze profits for the large integrated oil companies over the
near and medium term.  P ran into formidable resistance near
$59.50 over the past month and had already begun to roll over
before last week's tragic events.  Negative sentiment drove the
stock below the $57.50 support level (also the site of the
200-dma) on Tuesday, as well as the $56 support level.  There
may be some near-term support near current levels, but with
daily Stochastics still falling sharply, P looks like it will
fall near the $53 support level before finding solid support.
While momentum traders can target fresh entries on a drop below
$55, the best entry opportunities will likely emerge from a
failed intraday rally near $57.  Set stops initially at $57.50.

BUY PUT OCT-60*P-VL OI= 27 at $5.30 SL=3.25
BUY PUT OCT-55 P-VK OI=120 at $2.40 SL=1.25

Average Daily Volume = 1.56 mln



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

CHKP - Check Point Software $29.50 -1.10 (-3.49 this week)

Check Point Software is the worldwide leader in securing the
Internet.  The company's Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure
and reliable Internet communications.

Most Recent Update

Going into Tuesday's session, we were debating whether or not
we'd hold CHKP for much longer.  But the stock's solid breakdown
below the $30 level sealed our decision to hold the play.
Remember prior to last week's events that we were looking for a
solid breakdown below $30 in CHKP.  And that's exactly what we
got Tuesday.  Although the stock rebounded a bit into the close
on short covering, it looks to be headed lower over the
short-term.  Going forward, the $30 level will serve as
resistance and could provide entries on rollovers from that
level.  Momentum bears can look for a breakdown below Tuesday's
lows for new entry points also, just make sure volume accompanies
any further weakness below current levels.

Comments

Most software companies have back-end loaded quarters.  In other
words, a lot of their sales come in the final few weeks of the
quarter.  Unfortunately, many software companies lost a week
worth of sales last week.  That could lead to an increase in
warnings and shortfalls this quarter, which should in turn pressure
shares of stocks such as CHKP.  In its case, CHKP's visible
breakdown below $30 seemed to suggest a coming short-fall.  As
such, bearish traders can look for further weakness from current
levels over the short-term.

BUY PUT OCT-35 KEQ-VG OI=11457 at $7.60 SL=5.50
BUY PUT OCT-30*KEQ-VF OI= 3259 at $4.30 SL=3.00

Average Daily Volume = 10.5 mln



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