Option Investor
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Daily Newsletter, Thursday, 10/25/2001

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The Option Investor Newsletter                Thursday 10-25-2001
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)
******************************************************************
       10-25-2001           High     Low     Volume Advance/Decline
DJIA     9462.90 +117.30  9462.90  9177.90  1.3 bln   1902/1189
NASDAQ   1775.47 + 43.93  1775.51  1683.61  2.3 bln   2155/1403
S&P 100   565.62 +  6.93   565.62   548.02   Totals   4057/2592
S&P 500  1100.09 + 14.89  1100.09  1065.64
RUS 2000  435.96 +  8.31   435.97   422.20
DJ TRANS 2239.99 + 18.98  2241.35  2175.10
VIX        31.36 -  1.51    35.08    31.18
VXN        56.93 -  4.98    64.20    56.93
TRIN        0.82
Put/Call Ratio       .93
******************************************************************

Reality Check?  Don't Flinch, Stay Long!

The economic news this morning bombed the markets back into the
current reality of the business climate. The jobless claims came
in at 504,000 or +8,000 more than expected but the worst jobless
data was the continuing claims. At 3.65 million that number has
now reached an 18 year high. More workers are losing jobs every
day and fewer are able to find new jobs quickly. This would normally
be very negative considering the continued drag on consumer sentiment
that this creates.





Other news included Durable Goods Orders that fell -8.5%. Capital
goods orders fell -10% indicating the continued deterioration of
the business climate. Communications fell the most at -40% and
that news depressed LU, CSCO, NT and AT&T at the open.
Semiconductors posted a gain for the second month in a row which
would indicate the beginnings of a possible recovery in
manufacturing underway even though computer equipment orders fell
-6.2%. Semi stocks were the first stocks to rebound off their lows
as the day progressed.

Existing Home Sales fell by a dramatic -11.7% to an annualized
pace of 4.89 million homes. This however must be taken into
context with the record numbers from August of 5.54 million
units. The drop in sales, even in a time of very low interest
rates, shows the impact of the nearly four million workers
on unemployment and the continuing layoff announcements. The
slowdown in sales impacted the average selling price which fell
-3.6% and showed the competitiveness of the resale market. Comments
from the Dallas Fed head on Wednesday indicated that future rate
cuts, at least one more, were on tap. Analysts are now speculating
that this cut could be for 50 basis points again. Once rates start
back up the sales numbers will slow even more if the job market
does not pick up. The next Fed meeting is Nov-6th.

The Employment Cost Index showed labor costs rising +1.0% but
overall job cost inflation is almost nonexistent. The biggest
gain was in benefit costs which rose +1.6% which was pushed by
medical insurance. Employers are offering more benefits for
workers that escaped the layoffs to ease the fears of future
job losses. Wage growth is still decelerating compared with
the +5.0% average from last year. That growth has fallen to
only +3.7% in the last quarter. Help wanted ads continued
to fall as well with the help wanted index falling to a decade
low of 52 indicating that there is zero pickup in hiring and
wages are likely to continue falling.

Dell also helped pull the Nasdaq back from the cliff after
Michael Dell said consumer demand was better than expected
and was powering their recovery in the 4Q. They had already
affirmed their earnings for the quarter and claim to be
gaining market share from every competitor. The stock has
had problems crossing the $25 barrier since hitting it on
Oct-11th but that level fell today. While talking at the
Windows-XP launch Dell was flanked by eight other CEOs
including those from CPQ and GTW. When asked about XP boosting
computer sales he took a jab at those around him and said
"I speak only for those companies that are actually increasing
their sales." Zing!

The drop at the open was simply a knee jerk reaction to the
economic news and each report added to the impact of the
one before it. The -160 Dow drop took out stop losses from
those traders who profited from the Monday rally and those
stops accelerated the selling after the open.

Did anybody really expect the economic news to be good? Of
course not but this shows the amount of fear still felt by
traders as October draws to a close. There was also a flood
of downgrades at the open across multiple sectors. This is
of course normal as summer earnings show the true strength
of each company in each sector. For instance JNPR and HLIT
were downgraded but CSCO was upgraded. The weak earnings
report from FDRY cause analysts to rethink that sector and
take profits in those that had recently seen strong gains.

By 1:PM the markets had recovered their losses and the Dow
was well on its way to its +117 point gain. Remarkable
considering the continued bioterror news but proof that
we need to be more concerned about being long instead
of contracting anthrax. The continuing rebound in the
semiconductor orders is our strongest clue that things
will get better over the next couple quarters.

The fear of tax loss selling by funds with October year
ends has all but disappeared. There was some concern that
funds with significant losses would sell winners during
October to offset those losses. This is not likely since
funds have an eight year carry forward and cutting the
flowers to let the weeds grow, as Peter Lynch is fond of
saying, would not be a wise decision. There is no rush
to mitigate the losses as there would be to offset any
taxes from gains as in a normal year. If funds were going
to sell, the drop this morning should have triggered those
sales. Instead buyers appeared almost immediately and
the -160 point drop proved to be another buying opportunity.

There was strong volume on the Nasdaq as the rebound took
hold and the Dow closed at a post 9/11 high. The range on
the Dow was nearly 300 points and almost 100 on the Nasdaq.
The volatility indicators VIX/VXN both closed at levels not
seen since September 11th. Both are making new lows as traders
fear missing a rally more than they fear a new bottom. Puts
are falling out of favor and long calls are climbing. CSCO
has traded near 100,000 calls twice this week already and
today broke out of the post 9/11 $17.50 top.

Speaking of breakouts there were quite a few today. Besides
CSCO and Dell, AMAT and most of the chips stocks, Microsoft
broke over the $61.50 barrier and closed at a new two month
high. With many of the Nasdaq leaders hitting new relative
highs the index is poised to test the next level of resistance
which is 1915. The Dow closed at a new post 9/11 high and
that alone should cause another wave of short covering. With
a close over the 9450 level the investors who were still
capitulating this week may rethink their decision. TrimTabs.com
reported that over $7 billion flowed out of equity funds in
the week ended on Wednesday. Those investors were probably
patting themselves on the back at the open today and tonight
they are kicking themselves instead.

I still think the market is behaving remarkably well especially
in light of the over $20 billion in new high grade corporate
bonds that were priced this week. If the $4 bln in GMAC bonds
are priced tomorrow that will be a whopping $25 billion in
cash leaving the sidelines for safety in one week alone.
Granted, some of the money would have never ended up in stocks,
but that is still a huge drain for investable cash.

Friday could easily see another bounce instead of the normal
dip at the open as investors go flat before the weekend.
The bounce is based purely on the rebound today and the urge
to not miss any future gains. THE BAD NEWS IS PRICED IN!
After the economic news today AND the continued anthrax updates,
investors understand this is a new environment and they have
decided it will not get any worse. The almost +300 point
recovery on Thursday will be very convincing to anybody still
on the sidelines. My advice is still "stay long and prosper"!

Sell too soon!

Jim Brown
Editor


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

Right Idea, Right Timing
By Eric Utley

I hope you read the Market Wrap Wednesday night.  I think that
I partially redeemed myself.  The call for the rebound from
retracement levels and simultaneous crossover in Stochastics last
weekend for the INDU and NDX was close.  But the call on the
Software Index (GSO.X) Wednesday night was money.


The GSO pulled back, like clockwork, to its ascending support
line Thursday morning and proceeded to continue higher following
its breakout Wednesday.  Components of the GSO, such as the
two I wrote about Wednesday night (SYMC, INTU), finished solidly
higher from their early morning lows.

Three points I'd like to make:

1) Have a set-up in place and trade it.  If the set-up doesn't
unfold as planned then move onto the next idea.

2) Getting in ahead of the breakout is best.  Agoraphobia isn't
a bad thing no matter what my therapist says.  In other words,
buy weakness and take profits on strength in the case of
breakouts.

3) Austin Passamonte, Editor of IndexSkybox.com, and his
wedges are very cool!

You might be thinking to yourself: "Is Eric so insecure that
he needs to boast about some silly rebound in the GSO?"

That's the farthest from the truth.  The point of this little
object lesson, which has nothing to do with market sentiment,
is that this game isn't as hard as it seems.  And I can help
you make money.  Isn't that how we keep score in this game?

Point Of Interest

I noticed a drastic spike in QQQ (AMEX:QQQ) puts Thursday.  The
put/call ratio finished at 1.27.  I recall the last time the
put/call ratio in the QQQs spiked that high that the underlying
finished higher the next day.  To reiterate: Agoraphobia is NOT
a bad thing when the crowd of people are other traders.

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

Market Volatility

VIX   31.36
VXN   56.93

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.65        762,554       494,786
Equity Only    0.53        690,663       369,417
OEX            1.32         10,516        13,844
QQQ            1.27         37,514        47,970

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

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  0.95
10-Day Arms Index  1.09
21-Day Arms Index  1.00
55-Day Arms Index  1.21

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      1902           1189
NASDAQ    2155           1403

        New Highs      New Lows
NYSE       52             53
NASDAQ     59             37

        Volume (in millions)
NYSE     1,367
NASDAQ   2,231

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

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:
*****

ORCL $13.95 -0.71 (-0.59) ORCL has given us a nice move higher
over the past few weeks, but the bulls seem to be losing their
resolve.  The downdraft this morning was more than they could
take, as the stock fell under our $14 stop and continued to
bounce around $13.50 throughout the day.  Despite a mild
afternoon recovery, we're moving ORCL to the drop list tonight
due to our violated stop.


PUTS:
*****

WFC $41.40 +1.10 (+2.40) WFC rebounded in a big way Thursday,
thanks in part to strength in the BKX.X.  The stock bounced from
the $40 level earlier in the day and strengthened as the day went
on.  With its strong finish and the strength in the BKX.X, WFC
looks to have further upside from current levels.  Traders with
open positions should look for any weakness early tomorrow to
exit plays.

CMA $48.01 +0.30 (+3.03) CMA rallied along with the Bank Sector
Index (BKX.X) today.  The stock broke above its 10-dma at $47.31
and continued higher.  With the breakout in the BKX.X, banking
related shares look to have further upside.  As such, we think
it best to step out of this play in an attempt to minimize
further upside risk.  Any weakness early tomorrow can be used
to cut losses.


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The Option Investor Newsletter                 Thursday 10-25-2001
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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* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
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Note: Options involve risk. Risk disclosure:
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********************
PLAY UPDATES - CALLS
********************

FFIV $15.89 +0.77 (+0.46) FFIV soared higher into the close of
trading Thursday.  The rapid climb into the close felt like
short covering, but we'll still be looking for follow-through
into tomorrow's session.  The stock has had trouble getting above
the $15.50 are over the last several sessions, so Thursday's
close may induce further short covering and buying on the
part of longs.  Look for an advance past the $16 level early
Friday and further strength above relative highs at $16.50.
Just make sure to confirm strength in the Networking Sector
Index (NWX.X) and the Nasdaq before entering on momentum.  A
pullback down into the $15.50 area may serve as an entry on
any weakness.

DELL $25.86 +0.96 (+1.81) DELL gave several entry opportunities
Thursday, on its way to breaking above short-term resistance.
The stock bounced from the $24 level earlier in the day, and
subsequently advanced past the $25.25 area we addressed in the
last update.  Either move should've allowed for a solid entry
point as the stock went on to trade as high as $26 in the late
part of the day.  Looking forward, we'll look for DELL to work
its way up to the $27 to $27.50 if the Nasdaq continues higher.
Further strength above the $26 level might be used as a momentum
based entry point if the Nasdaq is advancing.  Conversely, a
pullback down to the previous resistance zone around $25.25 may
provide an entry point if buyers step in at that level.  We're
raising our stop up to the $23.50 level, so traders with open
positions should consider raising stops based upon entry points
and risk tolerance.

NVDA $49.31 +2.73 (+4.96) Nice move in NVDA today.  We'll take
it!  Hopefully readers entered some call positions in NVDA over
the past two days because its ramp Thursday made it well worth
while.  The stock soared into the close up to its 52-week high
around the $50 level.  Any follow-through into Friday's session
would only be icing on the cake.  Traders who do have open
positions at lower prices should be looking to at least book
partial gains into the stock's strength.  And while it could
very well continue above the $50 level, the better approach in
terms of risk versus reward would be to wait for a pullback on
light volume before targeting a new entry.  The first support
zone to look for a bounce is at the $47 level, then lower down
around $45.  We're raising our stop to the $45 level, but those
with open positions with profits should consider a tighter stop.

BRCM $39.00 +3.21 (+9.75) Semiconductor stocks continue to
outperform the broad Technology market and positive news from
the Durable Goods report this morning only helped their cause.
Investors looking for a bullish Semiconductor play would be
hard pressed to find a better candidate than BRCM.  When the
stock moved back through the $30.50 level and the 50-dma earlier
this week, it set off a wave of buying that has pushed the stock
sharply higher over the past couple days.  The bulls are now
setting their sights on the $40 level, last seen in mid-August.
Lending credence to the bullish move is the heavy trading volume
that has accompanied the strong rally.  The opening dip this
morning took BRCM down to the $33.50 level, and we would look
at intraday dips near this level or even $32 for fresh entry
points.  Given the sharp rise in price over the past couple days
we are raising our stop again, this time to $32.

IMNX $25.18 +0.80 (+2.64) Inching its way higher, IMNX finally
crested the $24 resistance level yesterday and more gains in
the Biotech index (BTK.X) helped the stock to extend those gains
on Thursday.  Now that the stock has cleared this level, the
bulls are focused on the $27.50 level and then $30, the site of
significant support (now resistance) earlier this year.  As long
as the series of higher highs and higher lows continue to be
posted, buying the dips is the way to go.  Intraday support can
also be found near $23.50 and $23, and near our $22 stop, just
above the supportive 20-dma at $21.80.  Both IMNX and the BTK
are in overbought territory, but a breakout of the BTK over $553
would be a nice confirmation of bullish strength.  Watch the
market's reaction to AMGN's earnings tonight before initiating
new positions.

JNJ $58.97 -0.29 (+0.55) Suffering with the rest of the market
this morning, JNJ dipped near $58 before staging an impressive
afternoon rally back to the $59 level.  After such an extended
rally, a bit of weakness was to be expected, and the dip this
morning provided us with another attractive entry point.  Action
points are easy to define now, with attractive entries appearing
on another bounce from the $58 support level or on a breakout
above yesterday's highs near $59.75.  Use these levels as
trigger points for new positions, and confirm the stock's
strength by watching for strong volume to accompany the buying.
Leave stops at $57.

JNPR $26.38 -0.63 (+2.72) The much worse than expected Durable
Goods Orders report this morning sent the market sharply lower
and JNPR dropped right to support near $24.50 before buyers
began to appear and the stock staged an impressive recovery
throughout the afternoon.  Volume has been extremely heavy over
the past 2 days, helping the stock to solidify its breakout over
the $25 resistance level.  The Networking index (NWX.X) is
confirming JNPR's strength as it continues to work higher.  Look
for continued strength to push our play up to test the next major
level of resistance at $28.50 over the next few sessions.
Consider new positions on renewed dips near $25, or else wait for
JNPR to clear the $27.50 level.  Given the recent strength and
the fact that the stock has been locked in overbought territory
for the past 2 weeks, we are protecting our gains by raising our
stop to $24.

SNPS $49.03 +0.13 (+1.87) After such a strong breakout last week,
it was only natural to expect a bit of profit taking and that is
precisely what we have seen over the past 2 days.  After running
into resistance at $50, SNPS fell back to the $48 level, but the
selling pressure quickly subsided, allowing the stock to reclaim
the $49 level by the closing bell on Thursday.  While we can
consider fresh entries on renewed dips near the $48 level, it
wouldn't be out of line to look for a dip near $46 before the
next upward move takes hold.  Investors that would prefer to
target the next breakout for new positions will want to see SNPS
clear the $50 level on strong volume before playing.  Our stop
is currently resting at $45, the site of the stock's breakout
last week.


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

CSCO - Cisco Systems $17.74 +0.51 (+1.02 this week)

Cisco Systems is engaged in networking for the Internet Cisco
Internet Protocol (IP)-based networking solutions are installed
at corporations, public institutions and telecommunications
companies, and are found in a growing number of medium-sized
commercial enterprises.

The Networking Sector (NWX.X) has been trading strongly
recently.  We're naturally attracted to the king gorilla of
the sector.  Cisco systems has been trading strongly lately,
recently tracing an ascending wedge technical formation, which
is a pattern indicative of further upside.  The stock broke out
above the upper-end of its wedge today at the $17.50 level.
The NWX.X staged a similar breakout today.  With the breakouts
in CSCO and its sector, the current nature of this play is
more momentum than anything.  By initiating coverage on CSCO,
we're going with its trend.  A pullback may be possible in the
coming sessions, but any such weakness would provide a preferred
entry point into new positions.  Traders might look for a
pullback and subsequent bounce between the $17 and $17.50
levels.  Conversely, new positions can be entered into strength
above relative highs as early as Friday morning if the Nasdaq
and NWX.X continue advancing.  Cisco reports earnings on
November 5, and may rally into those numbers if the market
thinks Cisco will beat numbers.  The company reaffirmed guidance
a few weeks ago, so it's possible that an upside surprise is
in the making.  We're setting our stop at $15.50.

BUY CALL NOV-15 CYQ-KC OI=43861 at $3.20 SL=2.00
BUY CALL NOV-17*CYQ-KW OI=63797 at $1.35 SL=0.75
BUY CALL DEC-17 CYQ-LW OI= 4430 at $2.00 SL=1.25
BUY CALL DEC-20 CYQ-LD OI=10004 at $1.00 SL=0.50

Average Daily Volume = 69.1 mln



VRTS - Veritas Software $34.85 +3.33 (+5.77 last week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Software stocks have been performing well relative to the broad
Technology sector and were one of the leading sectors in
Thursday's turnaround rally.  After dipping back to the 150
level, the Software index (GSO.X) completed its breakout, moving
above 160 by the closing bell.  Storage stocks have been making
some positive moves lately too, so why not combine the best of
both worlds?  If that idea sounds good, you'll want to look at
VRTS, a leader in the Storage Software industry.  The stock has
been building up for a breakout and that's exactly what
transpired today, as it rallied more than 10%, blasting through
the top of a bullish wedge at $31.  Buying volume was more than
50% above the ADV and now VRTS is right at its next level of
resistance at $35.  Given the strong move today, we'd expect a
bit of a pullback, perhaps near $33 before the bulls continue
their buying spree.  Target a bounce near this level or wait for
price to clear the $35.50 level before initiating new positions.
We're initially placing our stop at the $31 breakout level.

BUY CALL NOV-30 VIV-KF OI=19538 at $6.20 SL=4.00
BUY CALL NOV-35*VIV-KG OI= 7252 at $3.00 SL=1.50
BUY CALL NOV-40 VIV-KH OI= 5800 at $1.25 SL=0.50
BUY CALL DEC-35 VIV-LG OI=  265 at $4.90 SL=3.00
BUY CALL DEC-40 VIV-LH OI=  268 at $3.10 SL=1.50

Average Daily Volume = 13.6 mln



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

GDW $48.74 +0.07 (-0.08) GDW didn't participate in today's
rebound, which suggests that the stock could fall further if
the broader market weakens.  Although the stock didn't make it
as far as the $49 level Thursday, that level could serve as a
rollover point Friday if the stock continues to act weak.  Our
stop is still at the $50 level, which is another potential
rollover level if GDW makes it that far on a relief rally.  An
entry at the $49 level on a rollover could be employed with a
stop tighter than the $50 level, in order to better manage risk
if CMA does reverse from that level.  Conversely, if the stock
weakens further tomorrow, bearish traders could look for a
breakdown below the $48 level on active volume.  Just make sure
to confirm weakness in the Banking Sector (BKX.X) and other
stocks similar to GDW such as WM.

ADVS $43.70 +1.86 (+1.92) The Software Sector (GSO.X) propped
up ADVS today.  The stock still hasn't given the sell signal
we've been waiting for by breaking down below the $40 level,
and that reluctance recently helped to spark the short covering
rally in the stock today.  ADVS rallied up near its resistance
zone Thursday and the stock may be setting up for a put entry
near the $44 to $45 resistance area.  However, picking tops in
this market is dangerous.  So if you're planning on targeting
an entry in this play, gaming a rollover near resistance, only
do so with an extremely tight stop to protect against any
further upside.  Other than the potential for a rollover near
resistance, we'll sit back and wait for a breakdown below $40.

THQI $53.80 +2.42 (+3.60) More than anything, we tend to think
that THQI's rally Thursday was a product of short covering.  That
buying today may have set THQI up for a rollover at our stop at
the $54 level tomorrow.  That level has served as strong
resistance in the past and might continue to do so in the coming
sessions.  However, if the Nasdaq continues advancing THQI may
very well follow suit, so bearish traders will want to be very
careful in trying to pick a top around current levels.  That
means setting a tight stop on any new positions.  Those who'd
rather wait for further confirmation of weakness might look for
THQI to fall back below the $52 level before targeting new
positions.

EBAY $59.13 +1.95 (+7.18) EBAY filled its gap Thursday with its
big rally into the close.  While we're cognizant of the recent
strength of the stock, we also like the prospects of an entry
around current levels based upon the stock's retracement of its
gap.  When we initially wrote this play up, we mentioned that
we'd like to see a retracement of the gap lower and use that
as an entry point.  Well, we're at that point now, so it's
make or break time.  New positions can be taken around current
levels with a tight, tight stop to manage risk, possibly at
the $60 level, which is the current site of our coverage stop.
HOWEVER, if the Nasdaq continues advancing, EBAY will most
likely follow its lead, so be very careful about picking a top
at current levels and be aware of the direction of the Nasdaq
and Internet Index (INX.X) before entering new positions.

MBI $47.81 +0.32 (+3.77) The solid rally in shares of MBI may
have looked bullish, but the dead stop at the 20-dma ($47.86)
had us looking at the move as more of a bearish entry point.
Add in the fact that the Insurance index (IUX.X) is continuing
to weaken and the case for more weakness is even stronger.
While MBI managed to advance a bit more on Thursday, the
advance came on rather weak volume and looks like it is running
out of steam.  Repeated failed tests of the $48 level look
attractive for fresh entries, as we look for a rollover in the
IUX to push MBI back towards its recent low of $43.50.  Our $49
stop is still in place and a move through that level will
clearly have us abandoning our bearish stance.


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

AIG - American International Grp. $83.89 +0.09 (+2.29 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 posting a sharp recovery since September 21st, Insurance
stocks have been struggling in recent days after the Insurance
index (IUX.X) smacked into its 200-dma at $738.  Since then the
index has been weakening and looks like it could roll over
further, possibly heading back below the $700 level.  As one of
the world's largest insurers, AIG tracks the IUX very closely
and after topping out near $86 just over a week ago, appears to
be building a new bearish trend.  Both the highs and lows have
been drifting lower, as the bulls try to defend support near
$81.  AIG tested this level again this morning as stocks dropped
sharply at the open, but then rebounded back near $84 on the
back of the afternoon rally in the broad market.  Stochastics
are starting to weaken without even reaching overbought and a
rollover in this oscillator could portend weakness back into the
mid-$70s.  AIG announced earnings today, and despite beating
estimates, all is not rosy.  The company posted its first profit
decline in 2 years, due in large part to the effects of the WTC
disaster.  While aggressive traders can consider new positions
as the stock fails to break above its descending trendline (now
at $84), the higher odds play will be to wait for further
selling to push shares of the insurer below the critical $80
support level.  Keep a sharp eye on the IUX, as a failure of the
index will indicate there is some hidden strength we didn't
expect.  Set stops at $86.50, just above the recent highs.

BUY PUT NOV-85*AIG-WQ OI=1096 at $3.10 SL=1.50
BUY PUT NOV-80 AIG-WP OI=7073 at $1.25 SL=0.50

Average Daily Volume = 6.99 mln



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

GDW - Golden West Financial $48.74 +0.07 (-0.08 this week)

Golden West Financial is a savings and loan holding company,
the principal business of which is the operation of a savings
bank business through its wholly owned savings bank subsidiary,
World Savings Bank, FSB.  The company operates in California,
Florida, Colorado, Texas, Arizona, New Jersey, Kansas, and
Illinois.

Most Recent Update

GDW didn't participate in today's rebound, which suggests that
the stock could fall further if the broader market weakens.
Although the stock didn't make it as far as the $49 level
Thursday, that level could serve as a rollover point Friday
if the stock continues to act weak.  Our stop is still at the
$50 level, which is another potential rollover level if GDW
makes it that far on a relief rally.  An entry at the $49
level on a rollover could be employed with a stop tighter than
the $50 level, in order to better manage risk if CMA does
reverse from that level.  Conversely, if the stock weakens
further tomorrow, bearish traders could look for a breakdown
below the $48 level on active volume.  Just make sure to
confirm weakness in the Banking Sector (BKX.X) and other
stocks similar to GDW such as WM.

Comments

GDW's slight divergence Thursday may hint towards downside
in Friday's session.  Its counterpart, WM, also diverged
from the Banking Sector (BKX.X) Thursday.  Bearish traders
can look for early weakness Friday morning and consider entering
new put plays around current levels.

BUY PUT NOV-50*GDW-WJ OI=181 at $3.20 SL=2.25
BUY PUT NOV-45 GDW-WI OI= 42 at $0.90 SL=0.50

Average Daily Volume = 966 K



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