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Daily Newsletter, Tuesday, 10/23/2001

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The Option Investor Newsletter                 Tuesday 10-23-2001
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)
*******************************************************************
      10-23-2001          High     Low     Volume Advance/Decline
DJIA     9340.08 - 36.95  9439.21  9300.37 1.31 bln   1522/1591
NASDAQ   1704.44 -  3.64  1739.47  1695.22 1.82 bln   1679/1913
S&P 100   559.05 -  3.47   566.89   557.02   Totals   3201/3504
S&P 500  1084.78 -  5.12  1098.99  1081.53
RUS 2000  427.37 -  3.13   431.99   427.35
DJ TRANS 2261.99 + 58.41  2289.20  2202.85
VIX        33.19 +  0.08    33.82    32.25
VXN        63.73 -  3.63    67.03    63.18
TRIN        1.19
Put/Call    0.50
*******************************************************************

Autumn, err, Fall

Correction, it's Earnings Season.  It was a day full of earnings
reports.  Where should I start?

Amazon.com (NASDAQ:AMZN) reported a 16 cent per share loss, which
was in-line with what analysts had been expecting.  But the
company missed revenue estimates by about $10 million.  It was
a small miss, but enough to drive the stock lower by about 75
cents in the after hours session at the time of this writing.  The
company also reaffirmed that it would turn pro forma profitable in
the fourth-quarter, but the overwhelming theme in its guidance
was the fact that sales growth had slowed during the most recent
quarter, which was what was reflected in the sell-off in after
hours.  The Internet Sector Index (INX.X) has been hanging tough
recently, but Amazon's light sales number could pressure the
index Wednesday morning.  A breakdown in the INX.X below 110
could carry the index back down to the century mark.

AT&T (NYSE:T) reported third-quarter numbers that, for the most
part, met expectations.  But the company guided to expect further
deterioration in revenues during the fourth-quarter due to
extended weakness in its long-distance business.  If AT&T is
going to sell less during the fourth-quarter, then it's more
likely to spend less, which is something to consider before
jumping head first into any networking equipment shares.  Along
that line of thinking, it might be worth while to monitor the
Networking Sector Index (NWX.X) Wednesday morning to see if the
market shares my opinion.

The NWX.X finished fractionally higher Tuesday, but would've
done better if it had not been for Lucent (NYSE:LU).  The beat
down equipment maker, after its massive write-down, reported
a loss of 27 cents per share, wider than its 23 cent per share
loss estimate.  The company is making strides to clean up its
balance sheet and getting back to profitability, but didn't
offer much in bullish guidance for the immediate future.  Shares
finished almost four percent lower.

Haliburton (NYSE:HAL) reported bottom- and top-line numbers
that met expectations.  But the company remained relatively
cautious going forward, which was similar to what ExxonMobil
(NYSE:XOM) said earlier in the day.  Still, the Oil Service
Sector Index (OSX.X), of which Haliburton is a member, finished
1.36 percent higher Tuesday.  The OSX.X has traded quite well
over the past three sessions and could see some more upside
Wednesday if the Haliburton numbers are received well.

Compaq (NYSE:CPQ) missed estimates by one penny by reporting
a seven cent loss.  But the company did report in-line revenue
numbers.  The stock headed a bit lower in the after hours on
light trading.  Mild weakness was also seen in shares of other
box makers such as Dell (NASDAQ:DELL), but a lot of bad news
had been discounted in Compaq, so its miss may be a moot point
going forward.  Anyway, DELL has already reaffirmed its quarter,
which is set for release in a few weeks.

In the software sector, Citrix Systems (NASDAQ:CTXS) reported
a pretty solid quarter, which came in ahead of estimates.  The
company is a sort of mini Microsoft (NASDAQ:MSFT), so as goes
Softee so goes Citrix.  The stock added about 40 cents in the
evening session, so readers might want to watch the Software
Sector Index (GSO.X) Wednesday morning as Citrix is a component
of that index.  For its part, the GSO.X pulled back late last
week, but rebounded from the 140 level.  A breakout above the
156 level could carry software shares, such as Citrix and
Microsoft, higher.

Pharmacia's (NYSE:PHA) lowering of guidance knocked down drug
shares.  The company said that its profits would fall next year
due to a slowdown in sales growth of Celebrex, the company's
arthritis drug.  Pharmacia lowered next year's profit estimates
by about seven cents, but that was enough to take more than ten
percent off the stock as shares slid by more than $4.  A
component of the Drug Sector Index (DRG.X), Pharmacia's warning
pulled the index back from its breakout attempt Monday.  The
DRG.X had been holding up well relative to the market recently,
so it remains to be seen if Pharmacia's warning was an isolated
event, which is this trader's opinion.

Pullback or Push Higher?

At best, I'd label this week's earnings reports cloudy.  The
bar was lowered so much, especially by tech companies, in the
preceding months that many companies have been able to stumble
over their estimates.  The question that has yet to be answered
is whether or not third-quarter numbers will be the trough in
this down cycle of corporate profits.  It might be so for some
companies, but I don't have the answer yet.

In the meantime, I'd like to point out a few developments across
the major market averages this week.  For a few weeks, I had
been writing about the overbought nature of the averages as
measured by Stochastics.  Last Wednesday's reversal did a lot to
work off the overbought status of the averages.  Then, last
Friday, the averages rebounded into the close then followed
through in Monday's trading.  That sequence of events caused
a crossover to the upside in Stochastics across the Big Three
averages: Dow, S&P, and Nasdaq.  But Tuesday's reversal across
the averages didn't offer any insight into short-term direction,
which begs the question: Was the recent crossover in Stochastics
on daily charts merely "noise."

I won't pretend to have the answer to that question.  But I can
set forth some levels to help find the answer in the coming days.
In the S&P 500 (SPX.X), I'm still watching the 1085 area, which
is a retracement level that I've been writing about for a while
now.  The 1085 level has been acting as price magnet of sorts,
which continues to attract the SPX.  If the SPX continues to find
bids around 1085, then I think it has a shot at breaking above the
1100 level in the coming days, eventually working to relative
highs.  Any forthcoming breakout attempt above 1100 should have
some staying power because the SPX has worked off its overbought
nature as measured by daily Stochastics.  Recall that last
Wednesday morning the SPX tried to advance past 1100, but the
buying pressure had been exhausted at that point, so there wasn't
anybody left to carry to index higher.  I can conclude that buying
pressure was exhausted last Wednesday because Stochastics were so
overbought.



If the SPX does attempt to breakout above 1100 in the coming
days, I'll be watching for participation across several key
sectors, including Bank (BKX.X), Tech (SOX.X, NWX.X, GHA.X),
Energy (OSX.X, OIX.X), Retail (RLX.X), and Cyclical (CYC.X).
If I don't see broad participation in a breakout attempt, I'm
less convinced of the move.

To the downside, there aren't many near-term levels to reference
in the SPX.  The closest meaningful support level that I can find
in the SPX is at 1050, which is more than 30 points away from
Tuesday's close.  Until that level is lost, I think we could see
a lot of "noisy" trading in between levels.

The Dow Jones Industrial Average's ($INDU) technical set-up is
pretty close to the S&P's.  For its part, the INDU is churning
around its 50 percent retracement level at 9250.  Again, Tuesday's
reversal didn't offer much insight into shorter-term direction.
So I'll be watching for either a breakout above 9500 in the
coming days, or a breakdown below 9100.

In the event of a breakout above 9500, I would confirm any such
attempt with an advance past the 61.8 percent retracement level
at 9525.  If that is cleared on any rally attempt, then I think
the INDU could work up around 9750 over the short-term.  And like
the S&P, I think that a breakout in the INDU can be pursued
because there aren't as many buyers around as there were last
Wednesday morning, which means demand could build on a breakout
attempt.



To the downside, the INDU has some support at 9100.  And if it
doesn't breakout above 9500 in the coming days, it could
grow top-heavy, which could lead to the re-test of 9100.  Below
9100 sits the 9000 level, which is the BIG near-term support
level that I'm monitoring.

The Nasdaq-100 (NDX.X) is in-between levels and more difficult
to get a read on currently, at least for me.  The NDX finished
fractionally higher Tuesday, and there were many mixed signals
within the NDX as measured by the randomness of its sectors,
such as the Internets up 1 percent, while Chips and Biotechs
finished lower by almost 1 percent each.  Without the
participation of the Semis (SOX.X) and Biotechs (BTK.X), the
NDX.X will have a hard time advancing over the short-term.
But if those two sectors rebound Wednesday, I'll be watcing
for the NDX.X to advance back above 1400.  From there, the
two levels to monitor are 1420 and 1440, Tuesday's high and
last Wednesday's high, respectively.  Above those two levels
lies the NDX.X's retracement level at 1460, which should
serve as meaningful short-term resistance.



To the downside, the range between 1350 and 1360 could serve
as support, but I tend to believe that those levels are more
random than anything.  The NDX's Bullish Percent chart just
recently reversed into a column of 'Os' which hints towards
profit taking in the index.  For that reason, I'd prefer to
be bullish on strong NDX stocks near support instead of chasing
stocks higher near resistance.  In other words, buying stocks
near support makes more sense to me, if one were bullish on
NDX components.

Tuesday's reversal offered little, if any, insight into future
short-term direction.  In fact, it went against the crossovers
in the major market averages' Stochastics readings.  One
could argue that the continued anthrax fears was the reason for
the reversal, while others might suggest that Tuesday's
reversal was due to profit taking.  Additionally, with the
averages between major support and resistance levels, it's hard
to have a lot of conviction either way.  That's why in times of
uncertain short-term price action it makes sense to do less in
the form of trading smaller, which is what I've been doing so
far this week.

What I'd like to see in the coming sessions is progress in
either direction, up or down, I really don't care so long as
the averages move.  The worst kind of market is the one that
does nothing because I'm an impatient person.  And impatience
generally leads to losses.  Pick your spots and be tough.

Eric Utley
Option Investor


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

Right Idea, Wrong Timing
By Eric Utley

Last weekend, I wrote about the set-up in the Dow Jones
Industrial Average ($INDU) and Nasdaq-100 (NDX.X).  Unfortunately,
all did not go as planned.

I was looking for a rebound in the INDU and NDX this week, but
that rebound took place a bit too early as measured by price.
The INDU and NDX both rebounded Monday well above their
respective support levels that I set forth in the weekend
column.  Meanwhile, both of their daily Stochastics readings
crossed over and to the upside Tuesday morning.  Close, but
close doesn't make you money.  I'll get the next one, just you
wait.

Sentimental Observations

"There's nothing to fear but fear itself."

I don't know if President Roosevelt was big on implied volatility,
but I think he'd be proud of the market's reaction to recent
reports of anthrax discoveries.  Funny thing is that the Market
Volatility Index (VIX.X) and Nasdaq-100 Volatility Index (VXN.X)
have been falling in the face of perceived fears over anthrax.
Remember, the market is omniscient, the media is not!

I'm still weighing whether or not the recent drop-off in put/call
ratios is a product of October expiration.  I think it is.  Kind
of funny how the volatility (fear) measures fall in synch with
put/call ratios, isn't it?  But, I did notice a spike in the
QQQs' put/call ratio Tuesday...

The INDU is still on Bull Confirmed - the strongest of point &
figure buy signals - on its bullish percent chart, although it
did lose 3 percent Tuesday because of SBC Communication's
(NYSE:SBC) triple bottom breakdown.  Meanwhile, the NYSE
Composite ($BPNYA) and S&P 500 ($BPSPX.X) bullish percent
readings climbed higher.  Over on the Nasdaq-100 ($BPNDX), it
remained in Bull Correction mode, which is indicative of longs
taking profits.

The ARMS Index (INDEX:TRIN), also known as the TRIN, only
works at extreme levels.  The ARMS Index is not at extreme
levels.

The internals of the market worsened Tuesday, with decliners
outpacing the advancers on both the NYSE and Nasdaq markets.
Also, new lows continued to outpace new highs, but that's
nothing new.  When the new high/new low line makes a significant
turn, it could indicate the beginning of a new bull market.

Hey, did anybody notice that S&P commercial traders positioned
to their most bullish levels of the year last week?  I did.  I
wonder if those commercial interests are getting longer this
week?

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

Market Volatility

VIX   33.19
VXN   63.73

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.58        703,978       408,869
Equity Only    0.50        645,688       323,581
OEX            1.62          6,593        10,687
QQQ            0.89         32,252        28,698

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

Bullish Percent Data


           Current   Change   Status
NYSE          28      + 1     Bull Alert
NASDAQ-100    59      + 2     Bull Correction
DOW           50      - 3     Bull Confirmed
S&P 500       44      + 1     Bull Alert
S&P 100       40      - 2     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  1.16
10-Day Arms Index  1.02
21-Day Arms Index  1.03
55-Day Arms Index  1.22

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      1522           1591
NASDAQ    1679           1913

        New Highs      New Lows
NYSE       45             48
NASDAQ     44             55

        Volume (in millions)
NYSE     1,314
NASDAQ   1,817

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

Commitments Of Traders Report: 10/16/01

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

Commercial interests continued to posture to increasingly
bullish levels last week.  While still net bearish, the % of
open interest is approaching 0.  The positioning of small traders
last week neither confirmed nor refuted what commercial traders
did, as small traders were relatively flat week-over-week.

Commercials   Long      Short      Net     % Of OI
10/05/01      365,200   408,567   (43,367)   (5.6%)
10/12/01      369,049   407,804   (38,755)   (4.9%)
10/16/01      378,866   415,289   (36,423)   (4.5%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,423) - 10/16/01

Small Traders Long      Short      Net     % of OI
10/05/01      124,249     73,882   50,367     25.4%
10/12/01      122,292     74,539   47,753     24.0%
10/16/01      124,568     73,779   50,789     25.4%

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 grew slightly more bullish last week from the
week ago period as measured by a slight drop in % of open interest
currently short.  Still, they remain decidedly bearish while small
traders grew more emboldened last week and added about 1,000 long
positions while short interest dropped among small traders.

Commercials   Long      Short      Net     % of OI
10/05/01       26,703     37,669   (10,966)  (17.0%)
10/12/01       24,662     38,020   (13,358)  (21.4%)
10/16/01       27,398     40,397   (12,999)  (19.2%)

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
10/05/01       10,918     6,804    4,114      23.2%
10/12/01       11,948     7,012    3,936      20.6%
10/16/01       12,901     6,893    6,008      30.5%

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

Commercial traders moved to their most bullish net stance of the
year last week in the Dow.  Meanwhile, small traders eased off
from their most bearish reading of the year two weeks ago, but
remained decidedly bearish on the prospects of the Dow.

Commercials   Long      Short      Net     % of OI
10/05/01       22,755    10,124   12,631     38.3%
10/12/01       24,873    10,194   14,679     41.7%
10/16/01       25,402    10,267   15,135     42.5%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
10/05/01        4,731    11,868    (7,137)   (43.0%)
10/12/01        3,517    12,294    (8,777)   (55.5%)
10/16/01        4,514    12,104    (7,590)   (45.7%)

Most bearish reading of the year:  (8,777) - 10/12/01
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:
*****

ABGX $28.10 -1.45 (-0.21) Buyers attempted to push ABGX through
the $30 resistance level both of the past 2 days, but there was
just no follow through.  With earnings set to be released tonight
after the close, ABGX is a drop tonight anyways.  Use any opening
strength tomorrow as an opportunity to close out any remaining
open positions.


PUTS:
*****

ADI $37.81 -0.93 (+1.64) Despite leading the NASDAQ rally on
Monday, Semiconductor stocks couldn't continue their advance on
Tuesday.  That would seem to make for an attractive put play,
but there doesn't appear to be any selling pressure either, as
shown by the higher low posted both on the SOX index and on our
ADI play.  The 20-dma seems to be providing support and with
daily Stochastics turning upwards, we are concerned that the
bulls once again have the ball.  Rather than wait for them to
charge up the field, we'll step out of the way and drop ADI
tonight.  Signals are mixed and we'd rather be on the sidelines
than on the wrong side of the trade.


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The Option Investor Newsletter                  Tuesday 10-23-2001
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/659_2.asp


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* Option Chains Linked to Order Screens, and Interactive Charting
* NBBO Guaranteed so you get Best Execution Prices
* Stock and Option Watch Lists
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Note: Options involve risk. Risk disclosure:
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**************************************************************


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

DELL $24.64 +0.09 (+0.59) A bit at a time, DELL is inching closer
to breaking above the $25 resistance level, which has kept buyers
in check for much of the past 2 weeks.  As the clear winner in
the PC war, DELL was unaffected in the afterhours session by the
CPQ earnings report and appears poised to continue working higher
in the days ahead.  Target fresh positions on intraday pullbacks
near the aggressive ascending trendline at $24, or near $23.
We'll need solid buying volume to continue the advance, but for
now we're content to continue riding the gradual advance.
Alternative entry points will materialized as DELL pushes
through resistance, and more cautious investors will want to wait
for this development before stepping into the play.  Move stops
up to $22.

FFIV $15.04 -0.36 (-0.39) FFIV has been oscillating about the
$15 level recently, so it was no great surprise to see prices
settle near that point in what was another rangebound session.
The last three trading days have seen support materialize at the
10-dma, which sits right at $15.04, today's closing price.
Intraday bounces near $14.50 are providing for good entries,
although we'd prefer to see FFIV use the 10-dma as a launch pad
for the next upward move.  Daily Stochastics are starting to
turn and this could be the first sign that the bulls want to push
our play through the $16 resistance level.  Volume was anemic on
Tuesday, so we'll clearly need to see it pick up if FFIV is going
to clear the $16 level.

NVDA $44.61 -0.80 (+0.25) Despite an unknown future for PC
stocks, NVDA continues to move higher, keeping its rich valuation
intact.  Bullish investors are trying to push through the
resistance found between $45-47, and for now the verdict is still
up in the air.  The candle pattern is encouraging for the bulls
though, as NVDA continues to post higher highs and higher lows
on a daily basis.  Look for attractive entry points to
materialize as the stock bounces from support in the $43-44
area.  Solid buying volume on any bounce will provide the
confirmation needed for bullish traders, and we'll continue to
protect our positions with a stop at $41.50.

IMNX $23.56 -0.28 (+1.02) Enthusiastic bulls held their breath
this morning as IMNX once again challenged the $24 resistance
level, but today was not the day to look for breakouts.  The
early optimism failed to clear resistance and the stock spent
the remainder of the day consolidating its recent gains.  Given
the solid rebound from the prior 3 days, the small fractional
loss on Tuesday is a healthy sign of consolidation.  The pattern
of higher lows is still intact and the stair-step pattern
provides logical entry points as well.  Dip buyers will want to
target new positions on a bounce from the $22 level or even $21.
Those looking for confirmation of the stock's strength will
want to wait for a volume-backed move through Tuesday's high
($24.30) before taking a new position.  Keep stops at $20.

JNJ $58.85 -0.12 (+0.43) Showing incredible resilience in the
face of broad market weakness, our JNJ play has been
consolidating since yesterday's open near the $59 level.  With
only a 12-cent loss today, the stock is continuing its breakout,
although it seems to be doing so in slow motion.  With our stop
now resting at $56, a dip near the $57 triple-top could provide
for an attractive entry point.  Daily Stochastics are now buried
deep in overbought territory, but it is looking like they could
stay there for awhile as investors continue to bid the shares
higher in their search for safety in this volatile, news-driven
market.  If you don't have the stomach for buying the dips, then
wait for JNJ to move to new highs above $59.40 before taking a
position.

JNPR $23.89 +0.64 (+0.23) After a pre-market upgrade to CSCO this
morning, it looked like a sure bet that the Networking sector
(NWX.X) would be a leading sector again today, and it was.  The
only problem was that it gave back most of its gains by the
closing bell.  We saw similar action for shares of JNPR, as it
fell back from its opening highs to spend much of the day
bouncing above and below the $24 level.  This was the site of
prior resistance and we'd look to initiate new positions if JNPR
can continue its move higher.  Target a push above $25 or a
renewed bounce from the $23 or $22 levels.  Keep stops set at
$20.50.

ORCL $15.01 +0.06 (+0.47) The ascending trendline continues to
provide attractive entries to the long side for ORCL and early
strength this morning had shares moving through the 50%
retracement at $15.06.  As has been the pattern lately, traders
sold into the rally, pulling ORCL back down near the opening
price by the time the closing bell rang.  While frustrating to
see the day's gains melt away, today's close is the highest for
the software company since late August.  We're looking for the
stock to continue to work higher, especially if the NASDAQ can
clear the 1750 level on a closing basis.  Consider new entries
on intraday dips near the $14 level or on a rally through the
$15.50 resistance level.  Keep stops set at $13.50.

SNPS $49.77 +0.60 (+2.61) After clearing the $45 level last
week, shares of SNPS continue to work higher on a daily basis,
and this week has seen the bulls push the price right through
the long-term descending trendline near $48.  We have now seen
the late August gap get filled and the stock is within striking
distance of the 200-dma at $50.66.  With volume on the rise,
SNPS appears headed higher, at least in the near term.  Target
intraday dips near $48 or even $46 for new positions, as the
stock continues to post higher lows and higher highs.
Confirmation will come from a volume-backed move through the
200-dma, and that will provide entry opportunities for momentum
players.  As long as our stop (now at $46) isn't violated, SNPS
provides bullish traders a rare spot of strength in a
rangebound, news-driven market.


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

BRCM - Broadcom Corporation $31.45 +1.15 (+2.20 this week)

Sitting in the sweet spot between the Broadband and
Semiconductor sectors, BRCM is a provider of highly integrated
silicon solutions that enable broadband digital transmission
of voice, video and data to and throughout the home and within
the business enterprise.  These integrated circuits permit the
cost-effective delivery of high-speed, high-bandwidth networking
using existing communications infrastructures that were not
originally designed for the transmission of broadband digital
content.  Using proprietary technologies, the company designs,
develops and supplies integrated circuits for several markets
including digital cable set top boxes, cable modems, high-speed
office networks, home networking, and digital subscriber lines.

While it took longer than expected, Chip stocks finally found a
bottom from which they could stage a significant rally and the
Semiconductor index (SOX.X) has moved into a coiling pattern with
the lows getting higher and the highs getting lower.  BRCM is
building a coil of its own, and now that the stock has moved back
above both the $30.50 resistance level and the 50-dma ($30.71).
With the company stating they are seeing revenues begin to
stabilize, the stock appears to be starting another upward leg
as demonstrated by the uptick in the daily Stochastics
oscillator.  We can target new positions on low-volume dips near
the $28-29 support zone, and set an aggressive stop at $27.50.
The first area of resistance will appear near $33, and a
volume-backed rally through this level can also be used for
initiating new positions.  Make sure the SOX index is seeing
good buying support too, as BRCM will have a hard time staging
a significant advance without support from its index.

BUY CALL NOV-30*RCQ-KF OI=3952 at $4.20 SL=2.50
BUY CALL NOV-35 RCQ-KG OI=4030 at $1.90 SL=1.00
BUY CALL DEC-30 RCQ-LF OI=  10 at $5.80 SL=4.00
BUY CALL DEC-35 RCQ-LG OI=  84 at $3.70 SL=2.25
BUY CALL DEC-40 RCQ-LH OI= 244 at $2.20 SL=1.25

Average Daily Volume = 11.2 mln



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

WFC $40.00 +0.27 (+1.00) WFC put in two back-to-back days of
gains so far this week.  We addressed the stock's stabilization
and out performance to the upside late last week, but with its
sector (BKX.X) rallying this week, it's hard to tell whether or
not WFC's strength is sector-related.  Plus, the stock rolled
over at its 10-dma at $40.26 Tuesday, which may have indicated
that it's losing steam.  If readers entered puts on the rollover
at the 10-dma Tuesday, consider using a tight stop to manage
risk just above that level as it could mark a relative high in
the stock if the BKX.X and broader market rollover.

GDW $47.31 -1.49 (-1.51) Through Tuesday, we had captured about
$2 to the downside in GDW.  Not a big move by any means, but it
should have produced some gains for readers in the play early.
With that being the case, those who were in early on the play
should be looking to lock in some gains on any further weakness
below current levels.  That way, readers can leave some of the
house's money on the table to let the position ride.  With its
oversold nature, GDW is due for a relief rally, which makes
entering new positions on further weakness more of a risky
proposition.  Instead, we'd look to initiate new positions only
on a relief rally from current levels, possibly up to the $49
level.  Those with open positions should at the very least be
sliding stops lower.

CMA $46.01 +1.35 (+1.03) CMA rebounded with the Bank Sector
Index (BKX.X) Tuesday.  The stock may have been due for a short
covering rally, and the strength in the BKX.X may have been the
catalyst that ignited the relief rally.  The stock doesn't have
much resistance above current levels until the $47.25 area, so
further upside is possible.  Traders with open positions should
consider their risk tolerances and set an appropriate stop to
protect against any further upside from current levels.  Those
looking for entries into this play could look for a rollover
near the aforementioned resistance level, accompanied with a
tight stop.  Ideally, we'd like to see weakness in the BKX.X
before taking on new positions in CMA, but divergence to the
downside on the part of CMA might also allow for early entries.

THQI $49.92 -0.28 (+0.07) THQI tried to rebound with the Nasdaq
Monday but couldn't get past the $50 level.  Tuesday, THQI
strengthened a bit more earlier in the day, only to rollover
at its 10-dma, which currently sits at $51.61.  Its rollover
and subsequent bearish close indicate further downside going
into Wednesday's session, but much of that speculation may
depend on the price action of the Nasdaq.  Also worth noting
was THQI's out performance to the downside Tuesday.  The stock
shed 0.55%, while the COMPX lost a mere 0.21%.  Although a
small amount, we liked the idea of THQI trading weaker than
the market and we're looking for that pattern to continue.  New
plays can be taken on future rollovers near the 10-dma, or on
a breakdown below relative lows around $48.70 if the Nasdaq
is declining.

ADVS $41.87 +0.64 (+0.09) After the sharp drop to the $40 level
last week, shares of ADVS have been confined to an ever
tightening range.  Defined by support at the 20-dma (currently
$41.05) and resistance at the 10-dma (now at $42.65) the stock
appears to be biding its time.  While daily Stochastics have
begun to recover, the fact that the price advance has stalled
leads us to conclude the next significant move will be to the
downside.  Use failed rallies near the 10-dma as an opportunity
to initiate new put positions or wait for selling pressure to
drive price below the $40 level before playing.  For now, we're
keeping our $44 stop in place.

EBAY $55.58 +2.50 (+3.63) There has been some concerted buying
of EBAY in the wake of the company's earnings report, and it is
serving to set us up for the next attractive buying opportunity.
We have placed our stop at $60, as we expect this level to
present formidable resistance, at least for the near term.  Now
that EBAY has moved into the gap left last Friday, we're
focusing on the top of that gap (near $57) as the first likely
area of resistance.  Wait for the buying pressure to subside and
look for a rollover in the $57-58 area before initiating new
positions.  The valuation compression we are expecting will take
some time, but judging by the company's comments with earnings
last week, the vise is already starting to tighten.

MBI $46.17 -0.23 (+2.13) Monday's sharp rally in shares of MBI
was just what the bears have been waiting for, as it brought the
stock right up to the 10-dma (now at $46.78) after this morning's
opening pop.  Then it was the sideways shuffle for the remainder
of the day as investors awaited the next catalyst to motivate
buying or selling.  While we're still sitting above $46 and the
38% retracement level, this strength appears unlikely to last.
Support at $46 and resistance at $47 give us solid entry points
on which to focus.  Target new positions on a rollover from
resistance or a drop below support, so long as volume confirms
the move.  Lower highs and lows appear to be the dominant trend
and we'll play it as long as it lasts.  Keep stops set at $49
until we see further weakness.


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

EMLX - Emulex Corporation $23.16 -1.24 (-1.49 this week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial
distributors.

After bottoming near the $9 level earlier this month, shares
of EMLX have seen heavy buying interest, with daily volume
running as high as 20 million shares vs. the ADV of 6 million
shares.  That might have you thinking calls on EMLX, but hold
your horses.  Right here, the stock is looking a bit top heavy,
especially following last Friday's more than 20% rally.  The
stock price is starting to sag, and it seems only a matter of
time until the oscillators start to follow suit.  Look for the
$25 level to offer significant resistance and use any failed
rally near there to provide attractive entry points as the
stock reverses back into a downtrend.  There will likely be some
mild support near $20, but the first test of the bulls' resolve
will come near the 38% retracement ($19) of the gains of the
past 3 weeks.  Traders that would prefer to wait for the
rollover before playing will want to target a drop below $22, as
this level has been a site of both support and resistance several
times since last spring.  We're looking for EMLX to revisit the
$17 level (the 50% retracement level)and close the gap left on
October 11th before it is able to move back into rally mode.
To protect our position while we wait for the bears to take
control, we're placing our stop at $26.

BUY PUT NOV-25*UMQ-WE OI=10512 at $4.30 SL=2.75
BUY PUT NOV-22 UMQ-WX OI= 1320 at $2.85 SL=1.50
BUY PUT NOV-20 UMQ-WD OI= 1099 at $1.75 SL=1.00

Average Daily Volume = 5.59 mln



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

EBAY - eBay $55.58 +2.50 (+3.63 this week)

eBay is a United States based dynamic pricing online trading
platform located at ebay.com.  eBay developed a Web based
community in which buyers and sellers are brought together in
an efficient format to buy and sell items, such as collectibles,
automobiles, high end or premium are times, jewelry, electronics
and a host of other items.

Most Recent Update

There has been some concerted buying of EBAY in the wake of the
company's earnings report, and it is serving to set us up for the
next attractive buying opportunity.  We have placed our stop at
$60, as we expect this level to present formidable resistance, at
least for the near term.  Now that EBAY has moved into the gap
left last Friday, we're focusing on the top of that gap (near
$57) as the first likely area of resistance.  Wait for the buying
pressure to subside and look for a rollover in the $57-58 area
before initiating new positions.  The valuation compression we
are expecting will take some time, but judging by the company's
comments with earnings last week, the vise is already starting to
tighten.

Comments

EBAY's trading in the past two sessions has been a natural
reaction following the stock's big sell-off last week.  The
buying that has carried EBAY higher over the past two days,
however, may soon run out of steam.  The stock is approaching
the lower end of its gap and its 10-dma, both of which sit
around the $57.25 area.  A rally up to that area could take
place, which would allow for a solid entry point into new put
plays.  Although we might be a bit early, a solid entry point
should show itself in the next few days in EBAY.

BUY PUT NOV-60 QXB-WL OI=1217 at $9.50 SL=7.75
BUY PUT NOV-55*QXB-WK OI=1964 at $6.40 SL=5.25
BUY PUT NOV-50 QXB-WJ OI=3964 at $3.90 SL=2.50

Average Daily Volume = 7.50 mln



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


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