Option Investor
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Daily Newsletter, Tuesday, 09/25/2001

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The Option Investor Newsletter                 Tuesday 09-25-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       9-25-2001           High     Low     Volume Advance/Decline
DJIA     8659.97 + 56.11  8695.54  8506.36  1.9 bln   1896/1290
NASDAQ   1501.64 +  2.24  1528.33  1480.69  2.2 bln   1975/1978
S&P 100   517.92 +  4.89   521.00   510.13   Totals   3871/3268
S&P 500  1012.27 +  8.82  1017.14   998.33
RUS 2000  396.18 +  2.39   397.29   392.20
DJ TRANS 2092.80 - 37.19  2150.63  2062.53
VIX        38.87 -  2.46    40.41    38.38
VXN        67.56 -  1.85    69.81    66.34
TRIN        0.99
Put/Call    0.51
*************************************************************

Bears Getting Nervous?

The Dow confounded many analysts by rebounding from the days lows 
to close positive by +56 points. After being up over +100 points 
shortly after 10:AM the Dow sold off to drop -88 points into
negative territory. The shorts, who were loading up for the next 
leg down, were suddenly confronted with a rising market again. The
back to back positive days contributed +421 points to the Dow and
marked the first time since Sept 5th there was a two day positive
string.

The Nasdaq was not so lucky. The +28 point morning bounce gave way
to negative afternoon numbers and only a minimal +2 point close.
The positive close was due in part to fractional gains by INTC,
DELL, WCOM, JDSU and a strong showing by QCOM. Tech stocks have just
not caught fire like some of the Dow blue chips. Fears that there 
is still bad news ahead is keeping a lid on the Nasdaq.

We were remarking around the office this afternoon that there has
been very few warnings in the last week. With the third quarter
being the most back loaded of the year we can only theorize that
corporations are scrambling to shift as many sales into this week
as possible and minimize the severity of the warnings. The current
outlook for most techs is very grim and many are probably very
reluctant to go public with the severity of the news. They are 
grasping at the hope that something will change.

A glimmer of the coming storm came from the RBAK warning after the
close today. They warned that revenue could drop as much as -33%
due to uncertainty surrounding the WTC disaster. They said they
were seeing sales and orders being cancelled and it would have to
take substantial charges for excess inventory and significantly
cut its cost structure in the near term. 

Micron did not blame the attack for its poor performance but
announced a loss of $576 million on revenue of $480 million for
the last quarter. Analysts expected a loss of about half that
amount but average selling prices fell -55% during the quarter
due to excess inventories, price competition and lack of buyers.
CSFB analyst Tim Mahon said they did not expect any positive
pricing trends until the middle of 2002 which does not bode well
for the industry.

The markets in general reacted amazingly well to the bottom falling
out of the consumer confidence in September. The number reported
today was 97.6 and the biggest drop in a decade. The consensus
number was 105 and had factored in a drop from the 114 in August.
The number was primarily derived from data collected before the
WTC disaster which means the October numbers could be substantially
less. By all accounts the country has now fallen into a deep recession
but a quick series of positive events on the global terrorist problem
could make it a short one. Consumers will put off spending and 
traveling until they feel more comfortable about the risk factor.

Contradicting the consumer confidence numbers was the jump in
existing home sales to a record 5.5 million units in August. This 
was substantially more than the 5.2 million estimated. Low interest
rates are driving the trend and another cut on Oct-2nd could help
this trend overcome the falling confidence. After all, interest
rates will be at the lowest in years and everyone knows it will
not last forever. There was also a corresponding rise in inventory
levels of existing homes suggesting that there is a huge number of
homes coming onto the market for various reasons. That supply could
also depress prices again prompting more sales.

AMD took another hit today with Gateway announcing that it would
no longer make computers with chips from AMD. They have decided to
use only Intel chips in order to cut costs and ensure reliability.
AMD said it will cut 2300 more employees and close two plants.
With the PC market weakening Intel is still producing and the
over capacity is going to pressure prices and make AMD chips less
competitive. New price cuts by Intel are coming and manufacturers
are finding that there is not enough difference in the price points
to warrant the multiple assembly paths, parts lists and advertising
differences. Take out the part about price erosion and excess
inventory and it would be more bullish for Intel now but long 
term Intel is looking more like a buy every day. 

The positive close today was refreshing. The bounce on Monday was
expected since the extremely oversold conditions could not continue
without a pressure release. When the midday sell off began on
Tuesday I was afraid we were going back down again. Fortunately
buyers were lurking just under the bid and hoping for another dip
to buy stocks cheaper. There was not enough sellers to push the
prices down and the bulls won the day. This was a moral victory
but not the end of the war.

Remember, this is the end of the quarter and mutual funds are 
buying stocks to dress up their statements. Long term investors
are nibbling at stocks with the understanding that they could
dip another -5% to -10% before hitting bottom. If your time
horizon is 10-20 years than another $3-$5 is immaterial. The
pension funds, which are faced with interest rates under 3%, are 
also moving money into stocks a little at a time. Everyone knows
that once earnings start to fly in two weeks there is going to
be a lot of really negative guidance and the October crash is
likely to make its appearance again. 

Until then the Dow is not likely to make any more big moves to
the upside. Volatility will stay with us and the trading range
could be 8000-9000. We are still in a news driven environment 
and that is not likely to change in the next several weeks. The
Fed meeting next week will be watched not so much for a rate
cut but for the economic direction language after the meeting.
If the Fed still sees the risk to the downside then earnings
news will have a bigger impact. If the Fed sees a bottom being
formed then the earnings will be ignored to some extent. 

The Nasdaq is still showing weakness or more appropriately a
lack of strength. 1550-1600 could be a top for any continued
rally. Personally I don't consider a +2 point day a rally but
at least it was moving up at the close. 

The volume on the NYSE was weak at 1.6 billion shares and showed
that there was no conviction on the follow through. We have had
a great week already and the oversold pressure HAS been relieved.
The put/call ratio for instance has fallen from record levels
back to .51 which is complacent. Definitely not a buy signal. The 
window of opportunity for buying has passed for the moment. We
need to be keenly aware of the internals in the market and be
ready to trade the trend when it reappears. There is no incentive
to enter the market now that the oversold conditions have eased.
Be patient, time is on our side!

Definitely, enter passively, exit aggressively!

Jim Brown
Editor 


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

Cautious Consumers
By Jeffrey Canavan

Today's price action wasn't quite as riveting as Monday's, but it 
was enough to keep the bear market rally alive.

Initially Wall Street was greeted with the largest drop in 
consumer confidence since October 1990, but took the news in 
stride.  The Conference Board reported that consumer confidence 
fell to 97.6 from a reading of 114 in August.  A drop was 
expected, but not necessarily one of that magnitude.  

Layoffs are one of the concerns weighing on consumers' mind, and 
Advanced Micro Devices added to those concerns by announcing they 
were cutting 15% of their workforce.  The company will also close 
two factories, and refocus their company around PC processors and 
flash memory devices.  

AMD closed down 7.74%, but the Semiconductor Index managed to 
post a fractional gain.

While consumers may be less confident, they continue to buy 
houses.  The National Association of Realtors reported that 
existing home sales jumped to a record 5.50 million in August.  
That number is expected to taper off in September.

Through it all Dow gained 56 points.  SBC Communications was one 
of the best performing components, as well as beaten down Boeing 
and United Technologies.  Merck and General Motors posted $1.54 
and $1.87 losses.

Dow Jones Industrial Daily Chart

 

So how high could the Dow rally?  9,000 looks like a reasonable 
target.  That would be a 38.2% retracement of the late-summer 
losses and a nice round number.  That's also the level where 
buyers who jumped in last Monday could get out with minimal 
losses.  Whether short sellers can wait that long to pounce on 
this rally remains to be seen.

Market Volatility Index

 

Today's mild gains helped to remove some of the fear from the 
market and reduce volatility.  The VIX still remains at fearful 
levels, but is slowly working its way back to normal levels.

Tomorrow's lack of economic data could clear the way for higher 
prices and further reduced volatility, but profit warnings can 
always pose a problem to nervous investors.

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

Market Volatility
    
VIX   38.87  
VXN   67.56   

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.51        897,137       455,332
Equity Only    0.43        808,967       345,904
OEX            0.95         14,707        13,999
QQQ            0.43         59,403        25,833
 
-----------------------------------------------------------------

Bullish Percent Data

The bullish percent for the Nasdaq-100 has dropped to zero.  That 
means no Nasdaq-100 stocks are currently trading on a buy signal.

           Current   Change   Status
NYSE          18       -      Bear Confirmed
NASDAQ-100     0       -      Bear Confirmed
DOW           18       -      Bear Confirmed
S&P 500       16       -      Bear Confirmed
S&P 100       16       -      Bear Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  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  0.86
10-Day Arms Index  0.91
21-Day Arms Index  1.17
55-Day Arms Index  1.26

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      1890           1280
NASDAQ    1864           1836

        New Highs      New Lows
NYSE       19            145
NASDAQ     31            157

        Volume (in millions)
NYSE     1,601
NASDAQ   2,165
-----------------------------------------------------------------

Advisory Sentiment 

Bullish  Bearish  Correction  Net Bullish   Change 
  35.7%    37.6%     26.7%       -1.9%      -15.3%

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: 09/18/01

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

This week's data only reflects trading on Monday and Tuesday, but 
in those two days commercial traders added 47,027 long positions 
and only 29,753 short positions.  That drops their net bearish 
stance by 17,274 contracts.  Small traders on the other hand 
loaded up with 31,441 short contracts.  Right now it looks like 
small traders made the right move, but we shall see next week.

Commercials   Long      Short      Net     % Of OI 
9/04/01      350,626   430,613   (79,987)   (10.24%)
9/10/01      359,360   442,070   (82,710)   (10.32%)
9/18/01      406,387   471,823   (65,436)   ( 7.45%)

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
9/04/01      147,080     62,004   85,076     40.69%
9/10/01      156,500     69,090   87,410     38.75%
9/18/01      172,988    100,531   72,457     26.49%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Small traders have gotten more bearish, and are approaching their 
most bearish levels of the year.

Commercials   Long      Short      Net     % of OI 
9/04/01       28,757     38,119   ( 9,362)  (14.00%)
9/10/01       26,784     37,912   (11,128)  (17.20%)
9/18/01       35,497     45,731   (10,234)  (12.60%)

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
9/04/01       12,341     9,806    2,535      11.45%
9/10/01       15,263    12,555    2,708       9.73% 
9/18/01       22,876    21,702    1,174       2.63%

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

Institutions continue to increase their net long position in Dow
futures.

Commercials   Long      Short      Net     % of OI
9/04/01       23,459    14,099    9,360     24.9%
9/10/01       25,445    13,033   12,412     32.3% 
9/18/01       28,425    15,077   13,348     30.7%

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 13,348  - 9/18/01

Small Traders  Long      Short     Net     % of OI
9/04/01        6,952    12,744    (5,792)   (29.41%)
9/10/01        7,460    12,735    (5,275)   (26.12%) 
9/18/01        7,335    15,044    (7,709)   (34.45%)

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:
*****

No Dropped Calls for Tuesday.


PUTS:
*****

NVLS $31.20 +1.24 (+2.65) NVLS has stabilized over the past
several sessions.  The stock looks like it has traced a short-term
bottom.  We'd like to maintain bearish coverage on the play, but
for the time being it looks like NVLS has a shot at further
strength.  Those with open positions should move down stops to
protect any gains in the play, or use any weakness early
Wednesday to exit positions.

SEBL $14.33 +0.53 (+1.00) We've gotten quite a drop out of our
SEBL play since we added coverage near $22.  In an effort to
keep those gains, we tightened our stop to $14 over the weekend
and nearly got taken out of the play yesterday before the sharp
drop at the close.  The bulls came back today and after
struggling and straining throughout the day managed to hold SEBL
above our $14 stop at the close.  The downside seems to have
been played out for now, and we'll close out our SEBL play
tonight.


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The Option Investor Newsletter                  Tuesday 09-25-2001
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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* Option Chains Linked to Order Screens, and Interactive Charting
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********************
PLAY UPDATES - CALLS
********************

ATK $84.79 +4.79 (+4.18) ATK is forming a distinct pennant
pattern on its daily and 60-minute charts, which may very well
portend much higher prices.  The aggressive support line of the
pattern currently lies right around the $81 level, which is the
site to target entries on any pullback from current levels.
The upper-end of the formation, or the resistance, lies right
around the $85.50 area, plus or minus $0.50.  Since ATK closed
right around that level Tuesday, a solid follow-through into
Wednesday's session may allow momentum traders an opportunity to
enter new plays.  On the other hand, if you entered call
positions down around the $80 level Monday, any further strength
above current levels should allow for the booking of partial
gains.  We're raising our stop up to $79.

MO $47.04 -0.33 (+0.36) MO has been a little frustrating over the
past two sessions.  The stock didn't rally nearly as much as we
expected during Monday's advance.  And Tuesday's broad rally in
tobacco issues left MO behind.  This relative under performance
is something of a concern to those of us with a bullish bias in
the play.  As such, traders with open positions should be on
alert for further weakness from current levels.  Further, traders
should have risk management procedures firmly in place.  MO
could very well rebound from current levels.  But, for the time
being, bullish traders should approach new entries lightly.  We'd
like to see the stock move back above the $48 level before getting
real aggressive with new entries.

CMVT $24.49 -1.52 (-0.59) CMVT is having a terribly difficult time
getting above its 50-dma.  That level currently resides at $26.67.
It's worth noting that CMVT's last two intraday highs were traced
right around the 50-dma.  It's obvious that someone is sitting on
the offer around that level and it's going to take further strength
in the NWX as well as the COMPX in order for CMVT to break above
its 50-dma.  But, if CMVT does breakout above that level, it should
pop much higher as the pent-up demand for the stock unwinds.
Support at $24 is holding the stock up, so we'll need to see that
level continue to hold in the coming days.

SYMC $38.50 +1.00 (+1.54) SYMC is working its way higher in a
farily steady fashion.  If the COMPX continues higher in the
coming sessions, then we could see SYMC work its way up to the
$40 level.  The stock has a solid trend working, so traders will
want to look for pullbacks on light volume near the trend line
when gauging new entry points.  Pullbacks down around the $37.50
to $38 range could be used as entry points.  On the other hand,
we need to see the stock take out its relative high around the
$39 level in the coming days to demonstrate that the buying
pressure remains strong.  We have moved our stop up to the $36
level.

RTN $32.90 +0.80 (-1.14) RTN, along with most defense-related
issues, pulled back during Monday's sessions.  But like most
other defense stocks, RTN rebounded fairly strongly in Tuesday's
session.  The last two days of trading should reinforce the
idea of entering bullish plays on weakness and exiting those
very same plays on strength.  Or, fade the crowd.  RTN's support
line is well intact, which could continue producing bids around
the $32.00 level.  As for resistance, the stock could face some
congestion around the $33 area, with $34 just above as another
potential resistance zone.  Make sure to monitor others in the
group such as NOC, ATK, and GD when gaming entries and exits in
this play. 

GE $35.50 +0.30 (+4.20) Investors showed up on Monday with one
word on their lips, "buy", at least where shares of GE are
concerned.  Apparently CEO, Jeffrey Immelt assuaged their
concerns with his comments on Friday and after getting through
the weekend without any political unrest, they gobbled up shares
of GE and other diversified industrial companies.  Tuesday's
narrow trading range defines our action points for us, with
intraday support forming just below $35 and resistance at $36.
Look for intraday dips near $35 or even $34 to provide
attractive entries for the next upward leg.  If waiting for
confirmation is your strategy, then entries will materialize
as GE clears the $36 resistance level.  But look out for the $37
level, the bottom of last Monday's gap, which will take some
serious bullish conviction to break through.  We've moved our
stop up to $33.50.

NOK $17.07 -0.01 (+1.42) Wireless stocks continue to see upside
pressure in the wake of the destruction of the WTC and NOK has
now risen above the $17 level.  While that is a real positive in
the current market environment, we need to be cautious as the
stock attempts to push through the congestion found between
$17-18.  And just above that level is the upper Bollinger band
at $18.81.  Normally this wouldn't be a major factor, but the
fact that it is horizontal could present a formidable barrier
to the bulls.  So we only want to look at intraday dips for
initiating new positions in the near term.  We've raised our
stop to $15 and would look for a bounce at support ($15-16) to
trigger new entries into the play.  Look for buying volume to
increase, indicating buyers have solid conviction in the upside
before plunging into new positions.

ORCL $12.25 -0.27 (+1.49) The NASDAQ Big Caps led the way higher
on Monday, and despite a lack of follow through on Tuesday, it
was encouraging to see these stocks hold onto most of their
gains from Monday's strong rally.  ORCL managed to clear its
20-dma (currently $12.42) on Monday, but fell back fractionally
on Tuesday.  If the current bullish move is going to continue,
we need to see buyers push the stock back over this critical
level, and on continued heavy volume.  With all of the overhead
supply creating resistance at $13 and then $14, it looks like we
might need to see the stock retrace a bit further first, and the
best entry strategy will be to buy the dips.  Look for a bounce
in the $11.50-12.00 range and raise stops to $11.50

PPDI $28.89 +1.38 (+3.27) Continuing to outperform the broad
market, PPDI has been on a tear so far this week, clearing both
the 200-dma ($27.86), the $28 resistance level and the 20-dma
($28.05) on Tuesday.  This brings the gains over the past 4 days
to 34% and the buying volume is still strong, running at better
than 50% over the ADV.  With the sharp advance over recent days,
PPDI could be due for some profit-taking and we could see that
as early as tomorrow with the stock approaching solid resistance
at $30 and daily Stochastics now buried deep in overbought
territory.  Consider harvesting some profits near that level,
and looking for a fresh entry on the pullback.  We've moved our
stop up to $25 and would look for any dip and bounce above that
level as an attractive entry into the play for the next leg
higher.


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

QCOM - Qualcomm $48.82 +1.22 (+3.93 this week)

Qualcomm is engaged in developing and delivering digital wireless
communications products and services based on the company's
CDMA digital technology.  The company's business area include
integrated CDMA chipsets and system software; technology
licensing; Eudora email software for Windows and Macintosh
computing platforms; satellite-based systems including portions
of the Globalstar system and wireless fleet management systems,
OmniTRACS and OmniExpress.

The wireless sector has been performing exceptionally well as
of late.  That includes the carriers and equipment makers.
QCOM is no exception as the stock has traced a short-term base
over the past week and actually began to advance from that
base over the last two days.  Moreover, what was especially
encouraging about QCOM last week is that the stock didn't take
out its April lows.  In fact, those lows from April served as
the reference for the base that QCOM traced over the past week.
Because of its implied relative strength, QCOM should continue
to out perform to the upside if the broader market continues to
rally.  The premise behind this play is just that.  If the
market, especially the COMPX in this case, continues advancing
this week, QCOM should lead to the upside.  Others in the
broader wireless sector such as SBC, BLS, VZ, and AWE finished
with solid gains Tuesday.  If the carriers are improving, QCOM
should be, too.  In terms of execution, bullish traders can
look for an advance above Tuesday's intraday high at $48.85.
Beyond that level, $50 could serve as psychological resistance,
while the $51.75 level should serve as technical resistance.
If the COMPX really regains its footing, QCOM could make its way
up to the $53.60 area.  To the downside, support is currently
located at $47, which may be a level to look for an entry if
the stock pulls back.  Below, our stop is in place at $46.

BUY CALL OCT-45*AAO-JI OI=9892 at $6.10 SL=4.75
BUY CALL OCT-50 AAO-JJ OI=8194 at $3.10 SL=2.00  
BUY CALL NOV-45 AAO-KI OI= 200 at $7.80 SL=6.00  
BUY CALL NOV-50 AAO-KJ OI= 381 at $5.00 SL=3.75  

Average Daily Volume = 11.8 mln



CMCSK - Comcast Corp. $34.97 +1.48 (+2.46 this week)

Comcast and its subsidiaries are involved in three principal
lines of business: cable, commerce and content.  The cable
communications side of the business in involved in the
development, management and operation of broadband cable
networks in the United States.  Electronic retailer QVC
constitutes the company's commerce arm, through which a wide
variety of products are marketed directly to consumers on
merchandise-focused television programs.  Content is provided
through CMCSK's subsidiaries Comcast-Spectator, Comcast
SportsNet and E! Entertainment Television Inc., and through
other programming investments including The Golf Channel,
Speedvision and Outdoor Life.

The post-attack decline in shares of CMCSK seems to have come
to an abrupt end when the stock hit a low of $32 last Friday.
Along with the broad markets, the stock moved up sharply on
Monday, but had a hard time adding to the gains at the open.
This morning was a different story altogether, as CMCSK launched
higher right at the open and managed to claw its way right to
the $35 level by the closing bell.  Although below the levels
seen last week. trading volume is still running well above the
ADV and it looks like the bulls are still in a buying mood.
With a nearly 7% move on Tuesday, we want to be careful about
how we initiate new positions; looking for an intraday pullback
will likely be the best strategy.  We are setting our stop at
$33 and would like to see a dip and bounce from the $34 level to
enter new positions.  Resistance is looming right at the $35
level and it will take a concerted effort to move through that
obstacle.  But once CMCSK clears that level, it could quickly
move to $36 before beginning to chip away at all the overhead
supply that rests between $36-38.  Daily stochastics are in a
steep ascent and should lead the price higher in the next
several days.

BUY CALL OCT-32 CQK-JZ OI= 178 at $3.40 SL=1.75
BUY CALL OCT-35*CQK-JG OI=1841 at $1.85 SL=1.00
BUY CALL OCT-37 CQK-JU OI=4171 at $0.80 SL=0.00
BUY CALL DEC-30 CQK-KZ OI=  24 at $4.10 SL=2.50
BUY CALL DEC-32 CQK-KG OI=   6 at $2.65 SL=1.25
BUY CALL DEC-35 CQK-KU OI=  10 at $1.55 SL=0.75

SELL PUT OCT-32 CQK-VZ OI=7551 at $0.70 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 7.19 mln



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

CHKP $24.02 -1.23 (-0.10) CHKP diverged from the broader markets
Tuesday and headed back down to its relative lows around the $24
level.  Its divergence should lead to further weakness if the
COMPX pulls back in the coming sessions.  Trend traders can look
for a breakdown below the $24 level early Wednesday for new
entry points.  As for downside, we could very well see CHKP make
its way down to the $20 level over the next week.  Traders who
enter put plays around current levels will want to keep the $20
level in mind when determining an exit point.  As for the upside,
CHKP had a tough time around the $26 level Tuesday, so bearish
traders might keep that level in mind when managing risk or
looking for entries on strength.  We're moving our stop down to
the $27 level.

CHV $79.70 -1.40 (-4.31) The miniscule strength in energy issues
last Friday proved to be no more than short covering.  The
continuing drop in the price of crude oil is weighing heavily on
the group, including the integrateds such as CHV.  For its part,
CHV has continued measurably lower this week, but looks to have
some historical support around the $78 level.  We've captured a
significant move in this play so far, and those with entries at
much higher prices should be thinking about locking in some gains
down around current levels, especially with the $78 level fast
approaching.  Our stop has been slid down to the $82 level, which
reflects our philosophy of waiting for a multi-day relief rally
before aggressively entering new put plays.

PMCS $13.53 -1.97 (-1.43) Lookout $10, here comes PMCS!  In all
seriousness, PMCS is trading according to plan.  Since losing the
$20 level, PMCS has put together six consecutive losing days.
At this point, it's obviously oversold.  But there's nothing
written that says an oversold stock can't grow more oversold.
In that vein, continued weakness in the SOX and NWX could offer
bearish traders momentum type entries at current levels.  Although,
the preferred strategy is to wait for PMCS to rebound and work off
its oversold condition before entering new put plays.  Resistance
between $15 and $16 may be a good area of search for rollovers
should PMCS rebound.  In terms of exit points, bearish traders
can begin scaling out of plays at current levels or on any
further weakness, depending upon individual entry points.  Our
stop has been lowered to $16.50.

CTX $32.26 +0.71 (+2.18) The danger in entering a put play on an
oversold stock is that that stock could rebound on short covering.
That's exactly what's happened with CTX over the past two days.
However, Monday morning, CTX opened at its day high and proceeded
to slide throughout the day.  Tuesday's action also implied
inherent weakness in the stock as it could not hold onto its
early gains.  As such, entries around current levels may prove
profitable if the broader market slips lower.  Those in search
of confirmation might use a breakdown below the $31.40 level to
enter new plays into weakness.

BBY $45.10 -1.35 (+1.70) BBY charged higher in Monday's session
in the wake of the rebound in the RLX.  But its strength Monday
only proved to be another solid entry point into put positions.
The stock did bounce from the $44.50 level Tuesday, but any
weakness below that level in the coming days should offer trend
traders an entry point in plays.  Below that level, we'll
monitor the $43 to $43.50 area for potential support over the
short-term.  To the upside, resistance around $47 could serve
as future entry points on any strength.

SV $19.81 -0.14 (+0.91) Friedman, Billings, Ramsey & Co.
initiated coverage on SV Tuesday morning with a buy rating.
While it was a good effort, SV didn't respond to the news.
It instead slipped lower despite the positive finish in the
S&P 500.  Monday's rally of course halted SV's slide, but the
stock looks like it's going to rollover from current levels and
head lower.  If that's the case, bearish traders can take
positions at current levels with a relatively tight stop.
Momentum traders can use any weakness below the $19.55 level
to enter new plays.

EBAY $46.89 +0.11 (+3.10) Select Internet stocks have managed
to recover this week on the back of the broad market rebound,
and we've seen the AMEX Internet index (IIX.X) recover off the
$100 lows.  EBAY has benefited from the rebound, briefly pushing
above the $48 level on Tuesday before falling back for much of
the day.  Daily stochastics are moving higher as well, but the
stock is about to run into some formidable resistance near $49,
reinforced by the 200-dma ($50.42).  We gave this play a wide
stop because we were expecting a rebound from the recent low at
$41.50.  That rebound looks like it is running out of steam and
we should get an attractive entry into the play as EBAY rolls
over in the $49-50 range.  One other interesting observation is
that the daily Stochastics hasn't been able to move above the
mid-line since early August, so it would seem reasonable to
expect a rollover in this oscillator in the near term,
especially with the RSI indicator continuing to post lower
highs.  We're leaving our stop in place at $50.

ENE $27.00 +0.00 (-1.30) ENE investors tried to rally the stock
through the $30 level at the open on Monday, but were firmly
turned back.  This allowed us another attractive entry into the
play, as the stock rolled over, and we are now looking for the
rollover to continue.  The tenuous rally towards the end of last
week lifted the daily Stochastics out of oversold territory, but
this indicator is rolling over again and as it retraces into
oversold again, ENE will likely challenge or even violate its
recent lows near $26.  The stock is currently resting right on
its $27 intraday support level and a volume-backed drop below
that level could provide for a decent entry point.  And of
course, any intraday rally that rolls over below our $30 stop
(likely at $28 or even $29) will provide for an even better
entry for the next leg down.  Energy demands and prices are
continuing to fall, and that will continue to weigh heavily on
ENE's share price.

PHA $37.86 +0.26 (-0.49) The bulls couldn't gain any traction on
Monday as PHA fell back from its gap-up open near the $39
resistance level.  That weakness continued to pressure the stock
this morning, driving the price as low as $36.50 before buyers
began to vote with their wallets, helping PHA to rebound off its
lows in the final 90 minutes of the trading day.  Daily
stochastics are turning higher, so we could be looking at a
continuation of the late-day rally tomorrow.  The heavy
congestion overhead will make it tough for bulls that are trying
to buck the prevailing downtrend, so until the trend changes,
we'll continue to fade the rallies.  We have lowered our stop to
$39 and any rally that runs out of steam and rolls over below
that level will likely offer attractive entries.


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

TRMS - Trimeris, Inc. $32.93 -1.17 (-0.18 this week)

Trimeris is a biopharmaceutical company engaged in the
discovery and development of a class of antiviral therapeutics
called viral fusion inhibitors (Fis).  The company's most
advanced product candidates, T-20 and T-1249, are for the
treatment of human immunodeficiency virus (HIV), type I.
T-20 is a first-generation FI that prevents HIV from entering
and infecting cells, while T-1249 is a rationally designed
second-generation FI in an earlier stage of development.  Using
its proprietary viral fusion platform technology, TRMS has
identified and filed patent applications disclosing numerous
discrete peptide sequences that appear to inhibit fusion for
several viruses.

As the economy continues to slow (and at an ever-increasing
pace), stocks without real earnings are becoming less attractive
to investors.  They are looking for safer and more stable stocks,
and those companies that are burning through their cash are being
purged from the portfolios.  While TRMS has a portfolio of
products and intellectual property that has the potential to be
very lucrative over the long term, the stock is being sold
heavily, especially over the past 2 weeks.  After completing a
double-top near $49 in late August, TRMS rolled over and the
decline picked up speed over the past 2 weeks, finally plunging
through the $37 support level late last week.  The stock's
inability to reclaim that level has turned it into resistance
and price has continued to decline this week, ending Tuesday
right at the $33 support level.  With selling volume still
running well over double the ADV, it looks like the bears will
be successful in pushing the stock down at least to the $30
level and possibly $27.  Any weak intraday rally will provide
attractive entries as the stock rolls over, so long as the bulls
are unable to push through our $35 stop.  A continuation of the
current downward momentum could also give us a viable entry
point as TRMS falls below $32 on continued strong volume.

BUY PUT OCT-35*RQM-VG OI=420 at $3.70 SL=2.25
BUY PUT OCT-30 RQM-VF OI=150 at $1.25 SL=0.50

Average Daily Volume = 145 K



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

CHKP - Check Point Software $24.02 -1.23 (-0.10 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

CHKP diverged from the broader markets Tuesday and headed back
down to its relative lows around the $24 level.  Its divergence
should lead to further weakness if the COMPX pulls back in the
coming sessions.  Trend traders can look for a breakdown below
the $24 level early Wednesday for new entry points.  As for
downside, we could very well see CHKP make its way down to the
$20 level over the next week.  Traders who enter put plays
around current levels will want to keep the $20 level in mind
when determining an exit point.  As for the upside, CHKP had a
tough time around the $26 level Tuesday, so bearish traders
might keep that level in mind when managing risk or looking for
entries on strength.  We're moving our stop down to the $27
level.

Comments

CHKP's relative weakness Tuesday may indicate that the stock
has further to fall.  The stock fell back down to its relative
low Tuesday, and is poised to lose that level.  Bearish traders
should look for weakness in the GSO.X and COMPX Wednesday,
which may exacerbate any downside pressure in CHKP.

BUY PUT OCT-25*KEQ-VE OI=6179 at $3.50 SL=2.50
BUY PUT OCT-22 KEQ-VX OI=2596 at $2.10 SL=1.25

Average Daily Volume = 10.5 mln



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


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