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Daily Newsletter, Tuesday, 10/30/2001

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The Option Investor Newsletter                 Tuesday 10-30-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       10-30-2001           High     Low    Volume Advance/Decline
DJIA     9121.22 -147.52  9264.52  9065.59  1.3 bln    944/2156
NASDAQ   1667.41 - 32.11  1686.68  1646.30  1.7 bln   1276/2323
S&P 100   545.06 -  8.28   553.34   541.25   Totals   2220/4479
S&P 500  1059.79 - 18.51  1078.30  1053.61
RUS 2000  422.83 -  6.58   429.41   420.11
DJ TRANS 2195.26 - 23.70  2219.69  2168.89
VIX        34.80 +  2.41    36.28    34.43
VXN        53.41 +  3.12    65.94    62.09
TRIN        2.15
Put/Call Ratio       .91
*************************************************************

October Going Out With A Bang!

Remember Sunday? I cautioned you that a pullback was likely this
week even though "historically" the last five days of October are
bullish. I actually believe the last two days have been bullish.
No, I did not lose my mind but you will have to read the entire
article to see why. The "excuse of the day" was the disastrous
consumer confidence report which hit a 7.5 year low after the
attack. It is incomprehensible that anyone thought confidence
would be up or even down only slightly so where is the beef?




The Consumer Confidence fell to the lowest reading since 1994
at 85.5 and well below analysts estimates of 96. The magnitude
of the drop "surprised" analysts (duh!) and caused an instant
reassessment of the forecasts for the 4Q. If the consumer is
nailing their doors shut and avoiding the malls then the coming
holiday season could be very dreary. How anybody could expect
consumers to be buoyant and carefree with weekly FBI warnings
about impending terrorist attacks is beyond me. Still I think
analysts had taken all the patriotic flag waving as evidence
the consumer was going to clean out their savings accounts and
buy something as their patriotic duty. It is not going to happen!

The excuse of the day helped the indexes pick up speed but the
direction was already known. The Dow was getting hit from all
sides and PG was the only stock showing green most of the day.
Phillip Morris was cut from the Goldman Sachs recommended list
saying that profit growth is likely to slow in tobacco. Raising
prices will continue to be harder and smoker drop off is growing.
MO fell -2.00 to September levels.

Eastman Kodak fell after Lehman Brothers said Wal-Mart would
introduce its own private label brand of film. Kodak is already
under price pressure from overseas competitors and Wal-Mart has
the power to take serious market share immediately upon introduction
of the new label. EK lost -2.07 for the day.

McDonalds also went on a diet today after warning that earnings
will grow by only 5-10% in 2002 and much less than the 12% analysts
were expecting. MCD lost -1.29 and closed at a seven month low.

IBM and PG were the only Dow stocks that finished positive for the
day. PG was up on news that although sales fell -5% they managed
to beat analysts estimates. IBM was up on news that the board had
authorized another $3.5 billion share buyback. They have already
repurchased $4.3 billion shares this year. We added IBM as a call
play today due to their strong relative strength and positive
outlook, but only buy them on a breakout above $110.

The negative corporate news today was broad based with a flurry
of tech stock earnings misses and downgrades. JNPR was cut by
Merrill after doubling its price in the last month. OPWV fell
more than 20% after disappointing results. ENE continued to
head for penny stock status on the basis of questionable
accounting. CSGS warned that revenues would be at the low end
of estimates and lost -7.53 to close at 31.67.

Not to be left our Argentina continued to be a looming shadow
of impending debt default to the tune of $132 billion. The
president of Argentina is trying to work out a new plan but
rumors are rampant that a default will come first. How this
news could not already be priced in is beyond me. Traders
have been listening to this for months.

The market event we saw Tuesday was a follow through from
the profit taking on Monday. The Consumer Sentiment report
was just another excuse to take them lower. The markets are
scared of the economic picture that is being painted this
week. The consumer sentiment was the first hurdle and the
GDP on Wednesday morning is the next. The estimate is for
a recessionary -.8% to -2.7% drop in GDP. The -0.8% number
would be bad enough but gladly accepted by investors compared
with the lower number. What most investors are forgetting is
that the GDP number on Wednesday is for the 3Q, the last quarter
not the current quarter! It was already looking bad before
the attack but not -2.7% bad. There are three post-attack
weeks in the quarter and analysts will be trying to project
the 4Q based on what impact those last three weeks had. Here
is the rub, if they knocked the GDP into deeply recessionary
levels then the 4Q is not likely to be positive either.

The rest of the week is not looking any better for economic
high points. The Chicago PMI is also out Wednesday and NAPM,
Personal Income/Spending and Jobless Claims on Thursday.
Friday has Nonfarm payrolls. This week’s calendar is more
Dangerous to investors than any mine field in Afghanistan.
This is really good news!

Yes, good news! Every institutional investor has been waiting
for a retest of the prior lows to confirm a base. The lows on
Tuesday fell to exactly the lows of Oct-19th, our last bout
of profit taking. Without a much better than expected GDP on
Wednesday I think we will see lower numbers still. A good
reference point would be 8969, the intraday support from
Oct-5th and the last time the Dow traded under 9000. Volume
was decent on Tuesday which would increase the validity of
another washout coming. The best of all scenarios would be
a blowout in one of the remaining economic reports this week.
That blowout could cause another spike down to the sub 9000
level and then a quick recovery as investors rush in to take
advantage of the dip.

Many investors watched the +20% rally from the Sept-21st lows
and thought I will wait until the "October" crash. That crash
had failed to appear until this week and many were wringing
their hands thinking they missed the train. Well that train
is coming back to the station and this time there will be
no empty seats. Remember, once a recession is official the
markets typically rally into the hope of a recovery. They
crash into a recession but rally once it bottoms. From all
signs the economy will not be worse than the 3Q/4Q of this
year. Most forecasts have the rebound gaining speed in 2Q
of 2002 and investors will want to be onboard long before
that.

Even without any new economic disasters the markets are
approaching very oversold conditions again. The TRIN closed
at 2.15, very high, and the put/call ratio settled at .91
which also signifies a near term buy. The VIX/VXN spiked
to highs corresponding to the last profit taking dip. We
are getting closer to an action point but we need to be
patient.

The wildcard here is still the "impending" attack. When/if
it occurs and the severity will decide our future. News that
airspaces over nuclear plants had been cleared due to the
current alert this week brings up visions of new challenges
ahead of us. All bets will be cancelled if the magnitude of
the next wave increases substantially.

I said on Sunday that this week would probably offer a new
buying opportunity and we certainly got it. Wait for the
rebound before taking new positions. I would buy any rebound
from under 9000 on the Dow. The next stop on the Nasdaq
could be 1625, the Oct-19th low, and worst case 1550, the
Oct-5th low. I think institutions will buy 9000/1550 again
with all available cash without any new terrorist attack.
If you followed my instructions on Sunday you were stopped
out on Monday morning and you are in cash and waiting on
the sidelines for the bottom to appear. As always we will
not know it is the bottom until after it passes so use the
levels recommended above for entering new positions. BUT,
in no case should you enter positions on the way down. WAIT,
for the rebound back through those levels instead!

Conspiracy in play? If a group of funds with billions of
dollars to invest wanted to make sure the bottom had passed
AND reap a side benefit how could they do it? By taking
advantage of the current instability and low volume ahead
of the economic reports, funds could sell short stocks and
try to force the market down and using their clout to
accomplish it. Once the market stops falling and stocks
reach support levels that hold up under attack then they
cover their positions and go long confident of the bottom
in place. The side benefit? With the Fed meeting next week
they might influence a larger rate cut than expected if the
markets are looking unstable again. Add a -50 point cut to
already depressed stocks and their risk in going long is
just that much less. A conspiracy? The truth is out there
somewhere but we may never know it. As traders we need to
only trade what we see not what we believe.

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

Rising Fear, Falling Yields
By Eric Utley

Jeff Bailey wrote an interesting piece this morning about the bond
market that's worth elaborating upon as it relates to current
market sentiment.

The gamut of Treasury yields broke to multi-year lows Tuesday.
The shorter end of the curve in the 13-week bill (IRX.X) and the
5-year note (FVX.X) fell to levels not seen in years.

IRX.X and FVX.X Weekly



While the benchmark 10-year note (TNX.X) and longer-dated 30-year
bond (TYX.X) fell to levels not seen since late 1998/early 1999.

TNX.X and TYX.X Weekly



Recall that around that time period, the massive hedge fund
Long-Term Capital Management (LTCM) was in danger of bringing the
global financial system down.  It was in conjunction with the
Russian default and the Asian flu coming to a head.

The bond market was foretelling of something bad back in late
1998.  History could be repeating itself.  Argentina has
received some press recently by the financial media.  The
country is in financial trouble, and some have speculated that
it's only a matter of time before the country defaults.  What
impact Argentina could have on the U.S. market and economy is
beyond my scope.

The Argentina-related fears seem too obvious to me for that
alone to be the cause for the recent slide in yields.  It's
been too highly publicized by the media.  The LTCM debacle
was relatively unknown prior to the bailout engineered by the
Fed.  So, if I had to, I'd guess that the Argentina-related
fears are not the root cause of the flight to quality to
Treasury bonds.  I think there's more at play.  Maybe the
fear of future terrorist attacks is driving capital into
bonds.

In any case, the flight to bonds may make it harder for stocks
to move higher.  It's certainly revealing more fear in the
market and could lend to an avoidance of equities.  If you
haven't already, I'd suggest reading Jeff Bailey's Intraday
piece on this subject:

http://members.OptionInvestor.com/intraday/103001_3.asp

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

Market Volatility

VIX   34.80
VXN   63.41

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.90        589,012       535,615
Equity Only    0.76        532,566       406,811
OEX            0.91         16,357        14,866
QQQ            1.48         51,116        75,691

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

Bullish Percent Data

***Bullish Percent Data Unavailable for 10/30***

           Current   Change   Status
NYSE          00      + 0     Unknown
NASDAQ-100    00      + 0     Unknown
DOW           00      + 0     Unknown
S&P 500       00      + 0     Unknown
S&P 100       00      + 0     Unknown

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  1.38
10-Day Arms Index  1.27
21-Day Arms Index  1.11
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       944           2156
NASDAQ    1276           2323

        New Highs      New Lows
NYSE       28             90
NASDAQ     36             66

        Volume (in millions)
NYSE     1,304
NASDAQ   1,774

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

Commitments Of Traders Report: 10/23/01

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 remained relatively flat week-over-week.
In the 10/16 reporting period, commercial interests reached
their most bullish reading of the year by collectively holding
a net short position of 36,423.  That net position barely
changed last week, but small traders grew more aggressive.
Small traders increased long positions while covering short
positions last week, in all, increasing their collective net
long position by more than 5,000 contracts.

Commercials   Long      Short      Net     % Of OI
10/12/01      369,049   407,804   (38,755)   (4.9%)
10/16/01      378,866   415,289   (36,423)   (4.5%)
10/23/01      377,177   413,658   (36,481)   (4.6%)

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
10/12/01      122,292     74,539   47,753     24.0%
10/16/01      124,568     73,779   50,789     25.4%
10/23/01      127,016     71,212   55,804     28.2%

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 interests, for the most part, left short positions
alone last week, while adding to long positions.  The drop in
% of OI short reveals the bullish positioning last week.
Meanwhile, small traders' net long position dropped by more
than 1,000 contracts.

Commercials   Long      Short      Net     % of OI
10/12/01       24,662     38,020   (13,358)  (21.4%)
10/16/01       27,398     40,397   (12,999)  (19.2%)
10/23/01       29,920     40,358   (10,438)  (14.9%)

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
10/12/01       11,948     7,012    3,936      20.6%
10/16/01       12,901     6,893    6,008      30.5%
10/23/01       11,567     6,934    4,633      25.0%

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 grew a little less bullish last week as
measured by the nearly 6 percent drop in % of OI long.  Small
traders, on the other hand, went the other direction.  While
still decidedly bearish, small traders did bring in some short
positions last week and added to longs.

Commercials   Long      Short      Net     % of OI
10/12/01       24,873    10,194   14,679     41.7%
10/16/01       25,402    10,267   15,135     42.5%
10/23/01       25,568    11,832   13,736     36.7%

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
10/12/01        3,517    12,294    (8,777)   (55.5%)
10/16/01        4,514    12,104    (7,590)   (45.7%)
10/23/01        4,902    11,900    (6,998)   (41.6%)

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:
*****

FFIV $14.75 -0.44 (-1.80) FFIV retreated sharply yesterday
and again today, after breaking out last week.  We're
disappointed with FFIV's inability to follow through after
its breakout last week and its close below our stop today at
$15.00.  The stock did rebound from teh $14 level early today,
but not before suffering some technical damage.  We're dropping
coverage this evening and would look for strength early
tomorrow to exit plays.

DELL $23.20 -0.89 (-2.30) DELL pulled back sharply over the
past two days on market weakness.  The stock gapped below the
$24 level this morning and finished below that level.  Traders
with open positions could look for any move back above the $24
level in the coming days as an exit point to cut losses.

SMH $34.22 -1.48 (-4.34) The SMH dropped steadily throughout
Monday's session with little signs of life.  The contract
slid lower again in Tuesday's session.  We didn't expect such a
big pullback so soon.  But the recent weakness in the semis
could be used as an entry point.  Look for a bounce from the
$34 level tomorrow.  However, with our stop violated, we're
dropping coverage this evening.


PUTS:
*****

No Dropped Puts for Tuesday.


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The Option Investor Newsletter                  Tuesday 10-30-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
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* Option Chains Linked to Order Screens, and Interactive Charting
* NBBO Guaranteed so you get Best Execution Prices
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********************
PLAY UPDATES - CALLS
********************

CSCO $16.55 +0.13 (0.74) CSCO bounced from the $16 level Tuesday
which has served as support in the stock's recent trading.  A
future bounce from that level could be used as an entry point.
The stock traded well Tuesday, which have been a product of the
company's upcoming earnings report.  CSCO reports Monday, and
rumors have been swirling in recent weeks that the company is
going to surprise to the upside.  Those rumors may be the
reason that CSCO continues catching a bid after any pullback.
As pointed out earlier, a pullback down to the $16 area could
be used as an entry point ahead of the company's earnings
report.  In addition, a strong advance back above the $17 level
in an advancing market could be used to gain new entries into
this play.

ZION $48.10 -0.22 (-0.22) ZION has spent the early part of this
week consolidating last week's big gains.  The stock is trading
strongly relative to the broader market and the its sector, the
Bank Sector (BKX.X).  If we see the market and the BKX rebound
in the coming days, we see should ZION breakout to the upside.
The stock is finding resistance between the $48.50 and $49
levels.  A breakout beyond that resistance zone in an advancing
market could be used as an entry point.  The stock's pattern of
higher relative lows could also be used as an entry medium.
Look for a rebound from the $47.75 area on any weakness Wednesday.

SPW $99.01 -2.19 (-5.07) SPW has pulled back in the last two
sessions on what appeared to be market-related weakness and
profit taking.  The stock was due for a pullback, so its weakness
so far this week could be used as an entry point.  We'd like to
see the stock show some strength before pulling the trigger on
new plays.  A move back above the $100 level could be used to
confirm a resumption of trend and confirm entries around current
levels.  If the stock's pattern of higher relative highs
continues, then an entry around current levels could look above
the $105 level as a potential exit point.

BRCM $32.70 -1.78 (-4.35) With Semiconductor stocks coming off
their recent highs, it is no surprise that BRCM has seen some
concerted profit taking so far this week.  But now it looks like
our play might be in trouble, with the daily Stochastics rolling
lower and the stock trading within sight of our $32 stop.  The
Semiconductor index (SOX.X) has shed nearly 11% in the past 2
days, and BRCM has mirrored that decline with a loss of 11.7%.
What really has us concerned though is the fact that both BRCM
and the SOX have violated their ascending trendlines and the
selling volume is heavy.  We're keeping BRCM alive tonight, but
our $32 stop is the line in the sand.  A bounce on solid volume
from above that level can be used for aggressive entries.
Otherwise we'll be shedding BRCM from the playlist on Thursday.

IMNX $23.50 -0.98 (-2.01) After leading the NASDAQ to an
impressive rally over the past month, it was natural to expect a
bit of profit taking in the Biotech sector (BTK.X).  And that's
exactly what we've seen this week with the BTK pulling back from
the $580 resistance level.  Fortunately, support held today near
$530 and the index spent the remainder of the day consolidating
near $540.  Which isn't much different from what we saw in
shares of IMNX.  After failing to break above $26.50 on Friday,
the stock pulled back over the past 2 days, finding support near
the 20-dma ($22.56) and then recovering a bit in the afternoon.
Dip-buyers could have used the early weakness to initiate new
positions after seeing the stock hold above the month-long
ascending trendline (now at $23.40), just below today's closing
price.  So the uptrend remains intact, but just barely.  We're
keeping our $22 stop in place and would consider new entries on
a dip and bounce from the $23 level, but would prefer to see
IMNX get back over the $24.50 level before charging into new
positions.

JNJ $57.85 -0.71 (-0.82) Skating on thin ice, JNJ is either
getting close to providing us a fresh entry point or moving to
the drop list, and tomorrow could very well provide that
verdict.  Although still holding above our $57 stop, the lows
have been drifting lower and volume is on the rise.  Look for
intraday weakness to provide an attractive entry if JNJ can
deliver a solid bounce from above $57, just above the 20-dma
($56.98).  One encouraging point for the bulls is the fact that
Stochastics have been weakening, but the price is holding above
support.  Look for a rebound in the DJIA from above the 9000
level to help boost shares of JNJ and stimulate the next move
up.  More cautious investors may want to wait for our play to
trade through the $59.50 level before taking a position.

SNPS $47.58 +0.27 (-1.82) After Monday's sharp drop in shares
of SNPS, things weren't looking too good at the open.  The
price quickly dropped to just a fraction above our $45 stop
(also the site of the 20-dma) before buyers emerged to push the
stock higher for a small fractional gain on the day.  This is
encouraging because SNPS managed to close just above the
descending trendline (now at $47.25) that it broke through early
last week.  Although volume has been on the rise in recent days,
it is still running below the ADV, and if SNPS can hold above
our stop, we could see another attractive entry in the next day
or two.  Target intraday dips in the $45-46 area, but only if
the dips continue to be met by eager buyers.  Alternatively,
waiting for the stock to decisively rally through the $50
resistance level may be the most prudent course of action.


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

IBM - Int'l Business Machines $108.65 +0.03 (-2.51 this week)

International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

It is becoming increasingly difficult to find attractive bullish
plays as the broad markets sell off, particularly in the
Technology sector, but IBM looks like it just might fit the
bill.  While it is by no means a sure-thing trade, IBM's
relative strength should make it a strong performer, at least
relative to the broad markets.  The announcement of a $3.5
billion share buy-back is definitely a bullish factor to
consider, and IBM could give us a great entry if the DJIA holds
above the 9000 support level.  Despite selling off this morning
with the rest of the market, IBM rallied back from just below
$108 to actually close positive, one of only two DOW components
to pull off that feat.  Any intraday dip above the $107 level
(also the location of our stop) should provide an attractive, if
aggressive, entry.  Watch the DJIA for a bounce from the 9000
level, as IBM could very well lead the "old-economy" index
higher due to its good relative strength.  Investors that would
prefer to see some strength before taking a position will want
to target new positions as strong volume propels IBM through the
$110 level, just above Tuesday's intraday high.

BUY CALL NOV-105 IBM-KA OI=15558 at $5.70 SL=3.75
BUY CALL NOV-110*IBM-KB OI=20964 at $2.70 SL=1.25
BUY CALL NOV-115 IBM-KC OI=14063 at $1.10 SL=0.50
BUY CALL DEC-110 IBM-LB OI= 5653 at $5.20 SL=3.00
BUY CALL DEC-115 IBM-LC OI= 3727 at $3.00 SL=1.50

Average Daily Volume = 8.41 mln



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

GDW $48.74 -0.91 (-0.22) GDW's rebound late last week carried
over into Monday's session when the stock stalled around the
$50 level.  We were happy to see GDW unable to advance past the
$50 level and more happy with its rollover Tuesday.  However, the
stock did rebound from the $48 level Tuesday, which was a support
level that propped up the stock last week.  Going into Wednesday's
session, we'd like to see that $48 level give way to further
selling.  A breakdown below that level on heavy volume could be
used as a possible entry point.  Continue monitoring the Banking
Sector (BKX.X) when trading GDW.  The sector has been weak for
far this week and could continue to pressure GDW if it continues
sliding.

EBAY $53.41 +0.89 (-3.59) It's been a volatile two days for our
EBAY put play.  The company held its analyst meeting yesterday
and initially said some good things concerning the future, which
had the stock higher earlier in the day.  But near the close of
trading, the company guided lower for next year, which sent the
stock sliding lower in a big way.  EBAY's weakness yesterday
could've allowed for a favorable exit point for those who
entered up around the $59 area last week, when EBAY filled its
gap.  Again Tuesday, EBAY slid further, down to the $50 level,
which allowed for yet another exit point, but rebounded sharply
in the middle of the day.  With its big move down yesterday, the
stock could continue higher, retracing its recent losses.  At
this point, a rollover at the $55 level could serve as another
entry point into put positions, or possibly higher around $56.
In either case, wait for the market to weaken before gaming
a rollover.

THQI $48.90 -2.81 (-3.42) Those who entered THQI put plays up
near its resistance at $55 last week should be sitting pretty
after Tuesday's big drop.  The stock fell back below the $50
support level during the day.  There exists some minor support
around THQI's closing level today at the $48.90 area.  Going
into Wednesday's session, we'd like to see more weakness below
that level, which could indicate further downside over the
short term.  After the $48.90 area, THQI has some support at
the $47 level, which should serve as an exit point for those
with open positions at higher prices.  If the stock does
rebound in the coming days, the next resistance point to look
for a rollover is at $52.  We're lowering our stop to $53.75.

AIG $81.44 +0.44 (-2.36) Talk about being in the right place at
the right time!  Although the neutral triangle on the Insurance
index (IUX.X) has yet to break one way or the other, the dip
below $700 this morning sure has the outcome leaning in favor
of the bears.  AIG dropped sharply on Monday along with the IUX,
once again testing the $80 support level.  And that test was
repeated this morning, with our play trading as low as $79.65
before the stubborn bulls helped to stage a decent afternoon
recovery.  But the big picture is looking bearish, with both the
highs and lows moving lower, and daily Stochastics starting to
roll over again.  Use a failed breakout above the descending
trendline ($83.25) as your trigger to initiate new positions, or
wait for strong selling volume to push the stock below $80.
Keep an eye on the IUX, as a solid move below today's reaction
low ($694) will likely pave the way for the decline we're
awaiting in shares of AIG.

MDT $40.38 -0.77 (-1.87) Along with the broad markets, the
Health Care index (HCX.X) is continuing to weaken and today fell
to major support near $808 before a slight bounce at the close.
Our MDT play got moving to the downside ahead of the HCX (a sign
of relative weakness) and broke below the $41 support level at
the open this morning before heading south for the remainder of
the day.  Selling volume has been strong, running slightly above
the ADV and it looks like a test of the $40 support level is
assured in the next couple days.  Daily Stochastics have now
fallen in to oversold territory, but that isn't helping the bulls
to build any confidence.  We're ratcheting our stop down to
$42.75 and would target any failed rally that rolls over below
there, ideally near the $42 resistance (prior support) level.
We're targeting a retest of the $38 lows seen in September, and
that will likely provide an opportunity to harvest some profits.

STJ $69.20 -1.32 (-2.30) The emerging weakness in Health Care
related stocks gave us an early indication that STJ was going to
be in trouble, and the drop to the 20-dma (then at $71.50) last
Friday was just the opening volley from the bears.  That
potential level of support was shattered at the open on Monday
and the selling pressure pushed the stock as low as $67.61 this
morning.  Although there was some buying support near that level,
it didn't have much conviction and by the closing bell, STJ was
rolling over again, this time from the $70 level.  Daily
Stochastics continue to head for oversold territory, and it
looks like there is more downside ahead.  We're moving our stops
down to the $72.75 level (just above the 20-dma) and would
consider new positions on a failed rally below this level.
Alternatively, we would look to add new positions as the stock
declines below $67.50 on increasing volume.


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

HD - The Home Depot $37.60 -1.02 (-2.69 this week)

A home improvement retailer, The Home Depot operates more than
1100 stores throughout the United States.  The do-it-yourself
warehouse retail stores offer building materials, home
improvement products and related furnishings.  Additionally,
the company provides lawn and garden products and an assortment
of services to both individual home-owners and independent
contractors.

The almighty consumer has been keeping the economy afloat, at
least up until now.  But based on the recent declines in both
Consumer Confidence and housing sales is giving us what could
turn out to be a great put play.  After rebounding from the
September lows, HD has already started to weaken.  The stock
has been capped by the descending trendline (now at $39.90) and
the past 2 days have been downright ugly, as the $38 support
level has fallen victim to the bearish assault.  There is some
support at $37 as well, but given the heavy selling volume on
Tuesday, it looks like that will fall in short order, meaning
that HD will have to look for support at $35, followed by the
September low at $30.  Daily Stochastics continue to weaken and
are once again pointed south, after posting another lower high.
Earnings are just around the corner on November 13th, but we
wouldn't look for that event to provide any near-term strength.
We're looking for both the Retail and Housing sectors to
continue to weaken, and HD is a great way to play the downside
in both.  New entries look attractive either on a drop below $37
or on any intraday rally that fails before taking our $39.90
stop.

BUY PUT NOV-40*HD-WH OI=13027 at $3.10 SL=1.50
BUY PUT NOV-35 HD-WG OI= 9191 at $1.00 SL=0.50

Average Daily Volume = 7.39 mln



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

ZION - Zions Bancorp $48.10 -0.22 (-0.22 this week)

Zions Bancorporation is a financial holding company that owns and
operates six commercial banks with a total of 374 offices.  The
company provides a full range of banking and related services
through its banking and other subsidiaries, primarily in Utah,
Idaho, California, Nevada, Arizona, Colorado, and Washington.

Most Recent Update

ZION has spent the early part of this week consolidating last
week's big gains.  The stock is trading strongly relative to the
broader market and the its sector, the Bank Sector (BKX.X).  If
we see the market and the BKX rebound in the coming days, we see
should ZION breakout to the upside. The stock is finding
resistance between the $48.50 and $49 levels.  A breakout beyond
that resistance zone in an advancing market could be used as an
entry point.  The stock's pattern of higher relative lows could
also be used as an entry medium.  Look for a rebound from the
$47.75 area on any weakness Wednesday.

Comments

The banks could be due for a bounce tomorrow.  Traders working
with ZION should watch for the sector closely tomorrow for signs
of a rebound.  Watch for others in the group such as FITB, STT,
STI, USB, and WFC to exhibit strength.  If the group and market
are moving higher, watch for ZION to breakout above its short
term highs.

BUY CALL NOV-45*ZNQ-KI OI=222 at $3.70 SL=2.75
BUY CALL NOV-50 ZNQ-KJ OI=430 at $0.85 SL=0.40
BUY CALL DEC-45 ZNQ-LI OI= 60 at $4.60 SL=3.50
BUY CALL DEC-50 ZNQ-LJ OI=453 at $1.90 SL=1.25

Average Daily Volume = 602 K



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


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