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Daily Newsletter, Thursday, 10/04/2001

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The Option Investor Newsletter                Thursday 10-04-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      10-04-2001          High     Low     Volume Advance/Decline
DJIA     9060.88 - 62.90  9187.37  9045.38 1.53 bln   1493/1648	
NASDAQ   1597.31 + 16.50  1641.56  1581.08 1.73 bln   1380/2243
S&P 100   548.45 -  2.15   557.16   547.22   Totals   2873/3891
S&P 500  1069.62 -  2.66  1084.12  1067.82
RUS 2000  417.04 +  3.82   420.57   413.22
DJ TRANS 2210.98 - 11.88  2238.43  2204.53
VIX        34.40 +  1.30    34.57    32.98
VXN        61.94 -  0.23    63.98    60.47
TRIN        1.18
Put/Call    0.46
*******************************************************************

Tech Slithers Higher

The Dow Jones Industrial Average ($INDU) and S&P 500 (SPX.X)
curled lower Thursday, while the Nasdaq-100 (NDX.X) managed to
post another positive day.  Tech's gains came in spite of a
decidedly negative jobless report.

The Labor Department reported Thursday morning that initial
jobless claims rose to 528,000 in the week ended September 29,
which was well above consensus estimates.  While the broader
market averages didn't immediately reflect the negative
surprise, two sectors levered to the consumer did.  Both the
Retail Sector (RLX.X) and the Bank Sector (BKX.X) were among
the poorest performing sectors in the broader market Thursday.
The retailers were hit due to demand concerns and the banks
were taken down due to credit concerns.

The BKX is especially critical to the broader market because it
is the largest industry component of the S&P 500.  And, the bank
business is essentially the heartbeat of the economy.  Perhaps
the weakness in the BKX Thursday led to the rollover in the SPX
during midday trading.  For its part, the SPX stalled right at
its retracement level that I highlighted in the Market Wrap
Wednesday.  (For those not yet convinced of the power of
retracement brackets, I hope Thursday's rollover in the SPX
added some credence to the tool.)

The SPX bumped up right against its retracement level around 1084
and proceeded to pullback.  What's more, the SPX's Stochastics
reading measurably crossed over during Thursday's session.  With
the SPX overbought in the short-term and near resistance, traders
should be thinking about a few things concerning new positions
and/or open positions.  First, because the SPX failed to
follow-through above its resistance level at 1084, it may portend
a short-term pullback over the next few days.  If the SPX does
continue to weaken, led by the RLX and BKX, traders with open
bullish positions should be thinking about sliding stops up to
manage risk.  After all, the SPX has had a heck of a run over
the past two weeks and traders probably have some gains built up.

Second, because the SPX failed to follow-through above 1084,
there may be some short-term bearish opportunities in some of the
weaker stocks in the index.  The reason bearish plays are
appealing around current levels is because they can be managed
quite easily with a mental stop in the SPX above 1084.  However,
the pullback in the SPX may be short in duration.  And, traders
seeking out bearish plays in the SPX should employ some relative
strength techniques when searching for trades.  It's a simple
process: Look for the weakest sectors, then the weakest stocks
within the sectors.



Because the SPX has had a substantial run over the past two weeks,
it's difficult to intelligently discern short-term support.  The
SPX is quite a distance from its lower retracement level at 1012
currently, so traders might turn to whole numbers that are easy
to relate to, such as 1060, 1050, or 1040 -- the latter of which
was the SPX's intraday low Wednesday.

The SPX's technical position is similar to that of the INDU.
Granted, the SPX is closer to its resistance, but the INDU is
"in between" levels, too.  Plus, the INDU's Stochastics also
decidedly crossed over in overbought territory Thursday.  Now,
I appreciate that Stochastics is only one metric in a market of
many, but the crossover in the INDU and SPX should have bullish
traders on alert for potential downside.



Support in the INDU is a tough call, too.  The 9000 level, for its
easiness to relate to, may attract some buyers if the INDU drops
to that level Friday.  Below 9000, the INDU has some technical
support between the 8800 and 8900 area.

On a side note, I should note that the INDU dropped about 100
points when the news hit the wires that a Russian airline went
down over the Black Sea.  I think that the market's reaction is
important to note because it revealed that participants are
still on edge and lent to the notion that further attacks, be
they on America or any other country, could be met with further
fear in the markets.  I know that's obvious, but something worth
thinking about.

Following the news of the downed airline, fears were mitigated
by Dell's (NASDAQ:DELL) reaffirmation of guidance for the
third-quarter.  Company officials said earnings would fall
between 15 to 16 cents per share, which is in-line with previous
consensus estimates of 15 cents per share.  Revenues are
expected to come in around $7.3 billion, which is at the lower
end of the previous range of $7.2 to $7.6 billion.

On the heels of Cisco's (NASDAQ:CSCO) comments Wednesday,
Dell's comments added to the froth of tech shares in Thursday's
session.  But, like we witnessed Wednesday with the NDX bumping
up against resistance at 1270, the tech-laden index once again
paused at resistance Thursday.  Yes, the NDX was able to advance
past the 1270 level Thursday, but it was unable to advance past
the 1310 area I highlighted as resistance in Wednesday's
Market Wrap.  The 1310 level is significant because that was the
day high on September 17, which was the first day of trading
following the terrorist attacks.  I would speculate that 1310 is
not only technically significant, but that it's also very
psychologically significant due to the events surrounding the
formation of that level.

Looking forward, a solid advance past 1310 could take the NDX up
to 1365 over the short-term.  But, the fact that the NDX closed
back below the 1270 level Thursday may put any run on the 1310
level on the back burner.  The weak close in the NDX has the
index looking suspect to downside in Friday's session.



The late day fade we saw in the NDX, as well as the INDU and SPX,
was most likely a combination of catalysts.  First, the major
market averages have had a decent run this week and part of
Thursday's late day weakness may have been no more than routine
profit taking.  Second, the weak initial jobless claims number
Thursday portends an equally weak jobless rate number Friday
morning.  The consensus is calling for a 5 percent unemployment
rate.  Third, traders may have been exiting bullish positions
ahead of the weekend for fear of any further terrorist attacks
and/or military conflict.  And finally, there's the issue with
earnings warnings in the after hours.

The earnings guidance was mixed late Thursday.  Some companies
had good things to say, such as Micromuse (NASDAQ:MUSE) and
Starbucks (NASDAQ:SBUX).  While others had bad things to say,
like BMC Software (NYSE:BMC), Genentech (NYSE:DNA), and Gateway
(NYSE:GTW).

The Gateway warning following Dell's reaffirming guidance was
kind of interesting in my opinion.  We heard of a similar
dynamic with Cisco and Nortel (NYSE:NT) Wednesday.  I wonder if
Intel (NASDAQ:INTC) will be the next to reaffirm guidance then
Advanced Micro (NYSE:AMD) warns again?

The warnings after the bell had little impact on the after
hours trading session.  SPX futures were slightly lower while
NDX futures were slightly higher.  Judging by the market's
reaction to the jobless claims report Thursday morning, the
unemployment report may or may not have a big impact on trading
Friday.

The scenario I talked about in Wednesday's Market Wrap showed
itself Thursday with the INDU and SPX pulling back, with the
NDX out performing to the upside.  I tend to believe that that
will be the case again in Friday's session, and possibly over
the very short-term into next week's trading.  But, with the
INDU and SPX already turning lower, I think it's only a matter
of time before the NDX does the same.  As I alluded to above,
it may be time to look for short-term bearish trades in weak
sectors of the S&P and moving up stops on bullish positions
in the tech sector.  But those ideas should only concern
short-term traders, which I think is the majority of our readers.
If I'm wrong let me know through the e-mail link below.

For those waiting on the sidelines for a big buy signal, I
think that the best strategy is to wait for one or all three of
the major market averages to go into bull confirmed mode on the
point & figure front.  I recognize that a lot of our readers
are unfamiliar with the concept of bullish percent, but that's
why I'm here, so I'll relay the buy signal once it's generated.
In the meantime, make sure to read Thursday's Market Sentiment.

Eric Utley
Option Investor
eutley@OptionInvestor.com


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

On High Alert
By Eric Utley

Not surprisingly, the three major market averages made more
progress on the bullish percent front since Tuesday.  The
Dow Jones Industrial Average ($BPINDU) is one stock away from
giving the strongest of buy signals as far as point & figure
charting is concerned.

Last Tuesday, when we last visited the bullish percent of the
three major market averages (SPX, INDU, NDX), the INDU's
bullish percent was at 26.  Thursday, the INDU's bullish
percent climbed up to 36, which is the site of its last two
highs.  This is a critical juncture for the INDU because if
the bullish percent gives a buy signal by printing an X in
the 38 box, or higher, then the INDU will most likely advance
much higher than most expect.  (The bull confirmed status is
generated when the current column of Xs exceeds the most
recent past column of Xs.)

On the other hand, the 36 box is the point at which the INDU
has reversed lower in the recent past -- in this case, the INDU
has reversed lower from 36 twice.



There are several ways to approach the INDU's current bullish
percent position.  First, if one were bearish on the INDU, or
any of its components, over the short-term, then new short/put
positions can be entered around current levels, accompanied with
a tight mental stop at the 38 box on the point & figure chart.
The reasoning behind that strategy is that the INDU has
reversed lower twice in the recent past from the 36 box.

The second strategy is to consider a straddle or strangle in
the options market because the INDU has reached an inflection
point insofar as the bullish percent indicator is concerned.
Either the INDU is going to go on a bull confirmed signal and
potentially trade much higher, or it's going to reverse from
its current levels and trade measurably lower.  The benefit
of the straddle and/or strangle position is that it offers a
little less risk than speculating on one direction.  But,
being long options entails managing time decay and the potential
for a loss of implied volatility, so a straddle or strangle
isn't a risk-less proposition.

The third strategy to consider is waiting for the INDU to give
the bull confirmed signal by printing an X in the 38 box, or
higher.  That would allow bullish traders to get aggressive on
the INDU itself through the medium of Diamonds (AMEX:DIA) or
DJX.X options.

In addition to trading an INDU instrument such as the
aforementioned two, traders can turn to the 30 components of
the index when considering any of the three strategies I set
forth.  Of course if you're bearish on the INDU and think it's
going to trade lower, you'll want to look for the weakest
component(s) within the index when considering a bearish play.
Conversely, bullish biases should be employed with the
strongest stocks within the index, which can be found through
a little bit of relative strength chart work.

On a final note, it's important for to point out that the
bullish percent indicator isn't time sensitive.  In other
words, it isn't linear.  The INDU's current bullish percent
reading could sit at its current levels even if the index
itself does pullback from current levels, or continues to
climb higher for that matter.  But, the INDU does appear to
be a critical juncture, an inflection point of sorts, that
could lead to a big move in one direction or another.

The S&P 500 (SPX.X) is still quite a ways off from a
potential bull confirmed signal, but the Nasdaq-100 (NDX.X)
is fast approaching a potential bull confirmed signal.  What
I discussed concerning the INDU can also be related to the
NDX.

(Chart created using www.StockCharts.com.)

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

Market Volatility

VIX   34.40
VXN   61.94

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.60        883,457       532,192
Equity Only    0.46        795,328       369,959
OEX            1.55         16,344        25,347
QQQ            0.51         85,322        43,202

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

Bullish Percent Data


           Current   Change   Status
NYSE          24      + 2     Bear Confirmed
NASDAQ-100    43      +12     Bull Alert
DOW           37      + 3     Bull Alert
S&P 500       36      + 5     Bull Alert
S&P 100       30      + 5     Bull Alert

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  0.91
10-Day Arms Index  0.92
21-Day Arms Index  1.12
55-Day Arms Index  1.24

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      1789           1318
NASDAQ    2093           1522

        New Highs      New Lows
NYSE       71             48
NASDAQ     49             95

        Volume (in millions)
NYSE     1,580
NASDAQ   2,527

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

Commitments Of Traders Report: 09/25/01

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

Bears have gotten 40% less bearish over the past two weeks, but
the numbers are a bit deceiving.  Rather than institutions adding
new long positions, there was a mass exodus out of S&P 500
futures.  For the period ending 9/25, open interest, the number
of contracts outstanding, fell 103,420, or 17%.  The 64,787 drop
in institutional short positions suggests short covering, and
the lack of new positions, long or short, being added echoes the
wait and see approach.

Commercials   Long      Short      Net     % Of OI
9/10/01      359,360   442,070   (82,710)   (10.32%)
9/18/01      406,387   471,823   (65,436)   ( 7.45%)
9/25/01      357,873   407,036   (49,163)   ( 6.43%)

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
9/10/01      156,500     69,090   87,410     38.75%
9/18/01      172,988    100,531   72,457     26.49%
9/25/01      122,613     71,721   50,892     26.19%

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

NASDAQ-100

Nasdaq futures - big drop in open interest, but little change in
commercial net positions.

Commercials   Long      Short      Net     % of OI
9/10/01       26,784     37,912   (11,128)  (17.20%)
9/18/01       35,497     45,731   (10,234)  (12.60%)
9/25/01       26,761     36,812   (10,051)  (15.81%)

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
9/10/01       15,263    12,555    2,708       9.73%
9/18/01       22,876    21,702    1,174       2.63%
9/25/01       10,699     6,580    4,119      23.84%

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

Slight drop in institutions net bullish stance, but the % of
open interest jumped due to the drop in open interest.

Commercials   Long      Short      Net     % of OI
9/10/01       25,445    13,033   12,412     32.3%
9/18/01       28,425    15,077   13,348     30.7%
9/25/01       20,013     7,806   12,207     43.9%

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
9/10/01        7,460    12,735    (5,275)   (26.12%)
9/18/01        7,335    15,044    (7,709)   (34.45%)
9/25/01        4,530    12,621    (8,091)   (47.18%)

Most bearish reading of the year:  (8,091) - 9/25/01*
Most bullish reading of the year:   1,909  - 1/16/01

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


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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:
*****
PPDI $29.35 +0.35 (+0.06) We got a nice little run out of PPDI,
but in the past few days, the bulls seem to losing their
momentum, unable to push the stock through the $30 level.  While
price has been holding up, the Stochastics are starting to
weaken.  Rather than wait for price weakness to materialize,
we'll book our gains tonight and shift our attention to stronger
plays.


PUTS:
*****
KLAC $33.55 +1.31 (+1.97) It's no secret that a lot or at least a
strong part of Wednesday's rally has been attributed to short covering
in the markets.  The chip sector was a big beneficiary of this move
with yesterday's rally propelling the beleaguered group from support
near 350 to just under the 400 level.  Thursday, the bulls were able
to keep control and kept the SOX climbing despite the late day fade in
the markets to keep the chip sector above the 400 level.  KLAC was
more than happy to participate in the SOX rally and added 10% by
Wednesday's close.  Today's move pushed shares as high as overhead
resistance at $35 before pulling back.  This was enough to stop us
out of the play at $33.00.


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The Option Investor Newsletter                 Thursday 10-04-2001
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/1004_2.asp


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* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

Note: Options involve risk. Risk disclosure:
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**************************************************************


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

BAC $58.89 -1.10 (+0.49) After the strong rally in Financial
stocks over the past 2 weeks, it was only natural to see a bit
of profit taking, and that's exactly what we got on Thursday.
After attempting to clear the $60 resistance level over the
past 2 days, the bulls gave up, at least for the day.  We'll be
looking for the stock to find support near $58.50 (also the
location of our stop) to usher us into the play for the next
attempt to breakout.  Target fresh entries near this level, but
make sure buying volume is coming back.  The more conservative
approach will be to wait for the bulls to push BAC through the
$60 level before initiating new positions.

CMCSK $37.42 +0.02 (+1.55) Having another good week, CMCSK is
having some trouble clearing the $38 level and given the solid
support there, it is no wonder.  Add in the upper Bollinger band
just over $38 and the daily Stochastics weakening in overbought
territory, and you have the recipe for some profit taking.
Fortunately, the selling has been rather orderly and volume
dropped off after yesterday's strong rise.  Support is holding
at $37, and we'd consider fresh entries on any bounce between
$36-37.  Any drop below that will have us getting concerned, as
it will put our $35.50 stop at risk.  Momentum traders will want
to keep an eye on the $38.50 level; a volume-backed rally
through that level would also make for a nice entry as CMCSK
attempts to push into the gap left in early August.

GE $37.39 -0.76 (+0.19) After leading the broad market higher
for the past 2 weeks, GE was due to take a little breather, and
that is precisely what happened on Thursday.  After pushing
through the 20-dma (currently $36.84) earlier this week, shares
of the industrial giant consolidated above this level.  The
10-dma (currently $36.19) is racing north to help provide
support and we are looking for GE to find support above our
$36.50 stop in preparation for the next leg up the chart.
Target new entries on a volume-backed bounce from the $37 level
or wait for the stock to clear near-term resistance near $38.50
before playing.  Either way, resistance will likely be firm
near $40, and we would look to harvest some profits at that
level.

ORCL $13.79 +0.13 (+1.21) The CSCO-fueled NASDAQ rally on
Wednesday is just what ORCL investors were waiting for and they
bought shares of the Software company by the fistful.  Driving
volume above 70 million shares, they propelled ORCL briefly
above $14 before settling a bit at the close.  Thursday saw some
solid follow through too, with ORCL tagging $14.60 early in the
day before falling back with the broader NASDAQ at the close.
Despite the pullback, things are looking up for our play, with
the $13 resistance level now likely to provide support and daily
stochastics starting to turn up again.  We've ratcheted our stop
up to $12.25 and aggressive traders could target shoot any dips
that find buyers above that level.   If ORCL follows its recent
pattern, it should consolidate sideways for a few days before
taking a serious run at the $15 resistance level.

PPG $47.01 -0.35 (+1.26) Adhering to the pattern of the broader
markets, PPG put in another strong performance on Wednesday and
then consolidated those gains today.  The pivotal point for PPG
looks to be the 20-dma (currently $47.09) which kept a lid on
the price advance over the past 2 days.  Daily Stochastics are
overbought now, so mild profit taking could reverse into a trend
change, but it's too early to call an end to our play.  $46 may
provide some support, and then we have stronger support at $45,
also the site of our stop.  Target dips to this level, but only
if they are followed by solid buying.  Momentum traders will do
best by waiting for PPG to clear both the 20-dma and the $48
resistance level before playing.  That will put the stock in the
gap left on September 17th and open the door for the bulls to
push towards the $52 level, which is also the site of the
stock's 200-dma.

TEVA $65.20 +0.95 (+4.75) Continuing its upward trend, TEVA
continues to post higher highs and higher lows, establishing
an ascending trendline that currently rests just above $64.
Aggressive traders can continue to buy the intraday pullbacks to
this line, as long as the trend remains intact.  With the daily
stochastics so deep in overbought territory, some profit taking
is due to take place and when that activity has run its course,
we'll likely get a much better entry point.  Support should be
rock-solid near $61, which is the site of the bottom of the gap
from September 17th, as well as the 200-dma.  A pullback and
bounce near the 20-dma ($66.91) could also afford attractive
entry points.  Let volume be your guide, and if it is strong on
the bounce, that will be a good sign.  We've moved our stop up
to $60.50.  Resistance could be strong near $67 and after such a
strong run, that may be a good place to take some profits off
the table.

ATK $89.00 +1.60 (+3.40) The bullish momentum in defense stock ATK
is still looking strong.  Twice in the last two days shares of ATK
have bypassed our original $89 price target to hit 89.99.  The $90
level could very well be tough support but the bullish chart
pattern is still showing buyers pushing for more with higher lows.
One potential concern is the slowdown in volume and a slowdown in
the MACD histogram.  Under normal conditions this would have us
concerned that the move was running out of steam and the stock
looks tired or overextended.  Unfortunately, these are not normal
circumstances.  Some individuals have expressed their beliefs that
as soon as U.S. bombs start dropping on the bad guys that the
zealous buying in defense equities will return even stronger.
Another concern traders should be aware and we mentioned it on
Tuesday was to watch the other issues in the defense group.
Stocks like BA, TDY and NOC all lost ground today but GD and EASI
both made solid gains.  We would hesitate to initiate new call
positions at this time and probably consider taking profits if
you have not already.  The next clear entry point would be a close
over $90, hopefully on decent volume.  It's hard to pinpoint
support after such a violent rally and it appears the 10-dma has
been some support but we would probably look to $85, $82.50 or $80
as potentially bounce areas under strong profit taking.  However,
if this occurred we would be very concerned about the short-term
strength of the play.  Traders should take note that we moved
our stop up to $83 on Wednesday.  Plus, ATK is expected to report
earnings on October 25th, 2001.

MO $49.85 +0.40 (+1.56) Phillip Morris is just not getting the
respect its share price deserves.  MO has been ever so slowly
making the advance to resistance at $50.  One would have hoped
that with a cooperative Dow Jones this stock would move a little
faster.  I'd be concerned that my option premium was eroding
faster than this stock was climbing (if you're trading front month
calls).  As we discussed on Tuesday, the clear entry point to
go long would be a breakout over the $50 level.  However, if it
does occur there has been so much expectation of a breakout it
might "get away" from us.  I doubt it since this stock hasn't been
such a big mover lately but it is a possibility.  Thus for
those of us that don't have the patience to wait one could look
for a dip back to $49.  With our stop at $48 we're not allowing
much room for error.  Sometimes that is the best policy.

RTN $34.83 -0.27 (+0.08)  RTN is another defense play that appears
to be on the verge of a breakout.  Maker of the Patriot and Hawk
missile systems, RTN is bound to receive a nice chunk from the
recently passed $345 billion defense bill passed by the Senate.
The stock actually managed to trade over resistance at the $35
level only to find more selling pressure at $36.  This is a very
similar play to ATK (another OI call play).  The chart is showing
a very bullish formation, poised for a breakout, but we remain
concerned about slowing volume and the need to rest and digest
its gains.  As of Sept. 10th, the stock was less than $25, now
it's trading near $35 or a 40% gain.  However, per our comments
on ATK, the defensive sector could get another burst of buying
the moment we start launching missiles at the bad guys.  We would
remain hesitant to start new calls plays here.  Potential entries
would be a close over $36 for those looking for confirmation or
a dip to $34, which should be bolstered by the 10-dma.  RTN is
expected to announce earnings on October 18th.

ENZN $56.94 -1.04 (+5.94) Frankly, ENZN has put in an amazing run.
We saw a terrible drop from $66 to $43 and now the stock has
regained most of its losses.  The up days for ENZN have all been
on rising volume and the mild down days on lower volume.  It's
almost perfect when you look at the dips to $50, the pause at
$55, the overhead resistance at $60.  Someone pass me a kleenex.
Okay, I know I'm being a bit corny here but the rally in the
biotech sector has really helped ENZN make some great gains.  The
BTK was up almost seven days in a row and a few on our staff had
been expecting it to hit resistance at 480.  It did and profit
taking took the BTK back down to 459.  If it is going to pullback
some more we'd look for 450 or 440 to be support (obviously 450 is
preferred).  On the same notion, ENZN hit resistance at $60 on
Wednesday before pulling back below its 200-dma.  Today's trading
saw it attempt to break $60 again but was rebuffed and sold off
with the market and the biotech sector.  If you haven't taken
profits yet traders should be encouraged to do so - or tighten
your stops.  Since ENZN is providing a normal pullback one might
expect to see it dip down to $55 before buyers might begin to step
in again.  Don't forget that OI raised its stop on ENZN to $54 on
Wednesday.  Earnings are not expected until the first week of
November.

MTG $67.30 +0.30 (+1.96) Wednesday saw a strong move up for the
markets and insurance was no except.  MTG staged a big rally to
trade above resistance at its 200-dma (65.84) and actually hit
67.75 before slipping back to close at $67.  The stock actually
traded higher today as the markets tried to build on yesterday's
move but couldn't hold it.  With a high of 68.20 on Thursday it
looks like MTG's July 11th, 2001 low of 68.12 is going to be the
new overhead resistance.  Actually, looking at the intraday
charts, shares of MTG struggled between 67.50 and 67.75.  We
are very encouraged by the stock's close over $65 and its 200-dma.
However, because of the big move we would probably not consider
new entries to go long calls unless the stock close over $68 (or
$68.25) or we see a dip back to $66 (or even $65 with a nice
bounce).  The insurance sector has managed an amazing comeback
and is currently trading about 5% higher than it's pre-Sept. 11th
levels.  You'll notice that MTG is still lagging behind the
group with only a 1.9% gain over its Sept. 10th close.  Looking
out further MTG will probably encounter more obstacles at $70.
Trade accordingly.  Be aware that MTG is expected to announce
earnings on Wednesday, October 10th, 2001.


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

No Put Updates for Thursday.


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

AIG - American International Grp. $80.14 -0.56 (-2.14 this week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

After the initial panic-induced selloff, Insurance stocks have
had quite a rebound in the past 2 weeks.  While the charts have
looked great, it is hard to look past the underlying
fundamentals.  These stocks are likely to see a substantial hit
to their bottom lines due to the costs associated with the
September 11th attack, and many of them are trading well above
where they were a month ago.  AIG is a perfect example, having
provided us with a couple of profitable moves to the downside
over the past couple months, it was sitting near $74 on
September 10th and has now risen to test the $80 resistance
level.  With daily Stochastics weakening in overbought territory,
price hitting the upper Bollinger band and formidable resistance,
AIG looks ready to retrace some of its recent gains.  We're
looking for a drop near $74-75 in fairly short order.  Target
intraday rallies in the $81-82 level for new entries, or pounce
as the stock falls below $79.50 on solid volume.  Keep an eye on
the Insurance index (IUX.X) for confirmation of weakness in the
sector.  The IUX has recently risen to resistance near $730 and
is similarly showing signs of imminent weakness.  Place stops
at $83.

BUY PUT OCT-80*AIG-VP OI=1458 at $2.00 SL=1.00
BUY PUT OCT-75 AIG-VO OI=3871 at $0.60 SL=0.00

Average Daily Volume = 6.41 mln



TQNT - Triquint Semiconductor $16.10 +0.35 (+0.11 this week)

A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services.  The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices.  Playing with the big boys, its clientele
includes Nortel, Alcatel, Ericsson, Lucent, and Raytheon.

Semiconductors have been one of the strong sectors over the past
2 days of gains on the NASDAQ, but that doesn't mean the rising
tide is going to lift all boats.  TQNT steadfastly refused to
participate in today's rally, finding solid resistance at the
20-dma (currently $17.66), and pulled back to end the day with a
paltry 2% gain.  That, on a day when the Semiconductor index
(SOX.X) tacked on 4.3%.  While the SOX may yet have some more
gains up its sleeve, weak performers like TQNT are likely to
show the first signs of weakness that will pull the SOX back to
earth.  As if the 20-dma weren't enough for TQNT to deal with,
the stock has heavy resistance just overhead between $18-19, and
a failed intraday rally near this level could provide for a
great entry point.  Despite strengthening stochastics, the
candles suggest that the stock wants to go down, and we'll be
happy to play that direction.  TQNT has been posting lower lows
since mid-August, so targeting entries on a drop below the
recent lows near $14 is also a viable entry strategy.
Initially, we're placing our stop at $19, as a move above there
would be a sign that the bulls are gaining some upward momentum.

BUY PUT OCT-17*TQN-VW OI=1072 at $2.50 SL=1.25
BUY PUT OCT-15 TQN-VC OI=1215 at $1.15 SL=0.50

Average Daily Volume = 3.26 mln



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

TEVA - Teva Pharmaceutical Inds. $65.20 +0.95 (+4.75 this week)

Producing drugs in all major therapeutic categories, TEVA is a
fully integrated global pharmaceutical company.  In the area of
proprietary drugs, TEVA has focused on products for the central
nervous system disorders, primarily the development of Copaxone,
a treatment for relapsing-remitting multiple sclerosis.  Through
its U.S.-based subsidiary, the company manufactures 137 generic
products in 210 generic forms, which are distributed and sold in
the United States.  TEVA also manufactures over 270 generic
products, which are sold primarily in the Netherlands, the
United Kingdom and Hungary.

Most Recent Update

Continuing its upward trend, TEVA continues to post higher highs
and higher lows, establishing an ascending trendline that
currently rests just above $64.  Aggressive traders can
continue to buy the intraday pullbacks to this line, as long as
the trend remains intact.  With the daily stochastics so deep in
overbought territory, some profit taking is due to take place
and when that activity has run its course, we'll likely get a
much better entry point.  Support should be rock-solid near $61,
which is the site of the bottom of the gap from September 17th,
as well as the 200-dma.  A pullback and bounce near the 20-dma
($66.91) could also afford attractive entry points.  Let volume
be your guide, and if it is strong on the bounce, that will be a
good sign.  We've moved our stop up to $60.50.  Resistance could
be strong near $67 and after such a strong run, that may be a
good place to take some profits off the table.

Comments

Although TEVA is overbought at current levels, it's relative
strength today is something to consider.  The stock traded
higher despite further weakness in the DRG.X and a hefty pullback
in the BTK.X.  If those two sectors rebound Friday, TEVA could
continue advancing to the upside.  Take a cue from the DRG.X and
BTK.X early in the morning, and if they're advancing consider
momentum-based entries with an upside target near the stock's
gap lower.

BUY CALL OCT-60 TVQ-JL OI= 254 at $5.90 SL=4.00
BUY CALL OCT-65*TVQ-JM OI=1122 at $2.40 SL=1.75
BUY CALL NOV-60 TVQ-KL OI=  10 at $7.20 SL=5.25
BUY CALL NOV-65 TVQ-KM OI= 357 at $4.10 SL=2.50

Average Daily Volume = 1.26 mln



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