Option Investor
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Daily Newsletter, Tuesday, 11/06/2001

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The Option Investor Newsletter                 Tuesday 11-06-2001
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)
************************************************************
       11-6-2001            High     Low    Volume Advance/Decline
DJIA     9591.12 +150.09  9600.60  9386.51  1.3 bln   2053/1054
NASDAQ   1835.08 + 41.43  1835.49  1777.91  1.9 bln   2079/1513
S&P 100   576.30 +  9.62   576.86   563.14   Totals   4132/2567
S&P 500  1118.86 + 16.02  1119.73  1095.36
RUS 2000  442.78 +  5.24   442.79   435.70
DJ TRANS 2291.15 +  6.43  2292.36  2257.71
VIX        29.85 -  2.09    32.66    29.22
VXN        57.34 -  1.62    60.13    57.26
TRIN        0.91
Put/Call Ratio       .58
*************************************************************

Shorts On The Run!

You have heard it before but today was really pretty. The tenth
Fed rate cut energized traders and contrary to historical trends
the markets rose significantly into resistance. Once that resistance
was broken the shorts started covering in mass. Volume increased
significantly in both the cash markets and the futures markets.
Disbelief abounded and traders were scratching their heads as the
final bell rang.





The Fed cut rates by another 50 basis points lowering the target
rate to 2% and the lowest rate in forty years. You have to go back
to 1961 for a lower rate. Traders were caught by surprise after
the consensus of opinion fell from a 65% chance of a 50 point cut
at the open on Tuesday to only a 43% chance by the time the decision was
announced. Essentially the 50 point cut was subtracted from the
market with the morning weakness. Traders then over reacted to the
decision and bought the cut and the "bias toward weakness" statement,
which suggests future cuts, and all bets were off.

Today went against the historical trend for the year. For the five
scheduled FOMC meetings this year the historical trend was for a
sell off on the news. On the day of the meeting the Dow lost an
average of -63 points. Only one meeting day resulted in a gain
out of the five so far this year. What this will do to the day
after historical trend remains to be seen. The day after the last
five meetings averaged a +103 point gain with only one day posting
a loss. The day after the March meeting lost -233 points but every
other meeting resulted in triple digit gains. May +343, Jun +132,
Aug +102, Oct +173.

The ramifications here are clear. The markets rose to close over
previous resistance levels of 9575/1795 respectively and any further
gain on Wednesday could send a serious message to anyone still short.
Cover at any cost! If the 2001 historical trend of a triple digit
gain the day after a meeting holds true then we could have a major
blow out on Wednesday. Should, would, could? If it was as easy as
simply analyzing recent history to forecast future trends there
would be a lot more billionaires in the stock market.

Events after the close gave bears a ray of hope to cling to and
that creates more unknown for tomorrows open. Qualcomm missed its
earnings estimates and got slaughtered in after hours trading to
the tune of -$5. They also warned about sales and earnings going
forward and the sector tanked taking with it many of the chip stocks
that depend on cell phones for survival. This tainted the broader
tech market which traded lower on the news. Never a dull moment!

Cisco beat estimates and said sales were increasing and that helped
power investor sentiment on Tuesday even though Cisco was basically
flat. Maxim Integrated also beat estimates on increasing order rates
and said good things about their business which would have helped the
chip sector. Both of those could be ignored as a result of the QCOM
news.

The Qualcomm news may make traders pay more attention to the already
record rate of earnings warnings for the 4Q. Still isn't this news
already priced in? The Qualcomm stock drop in reaction to the news
could be isolated to QCOM since the recent low was in the $38 range
and they never miss earnings. They blamed the miss on lower interest
rates for carriers that they financed but still lowered the guidance
going forward. Company specific or not, nobody knows what the market
reaction will be tomorrow.

Will the shorts that covered today go back short again tomorrow?



Would you feel comfortable shorting IBM again after seeing the jump
at the close as prior resistance levels were broken? I suspect that
shorts were hoping to see a 25 point cut and selling on the news and
most will want to wait on the sidelines for a couple days before
testing the water again on the short side.

This brings us back to Wednesday. The only economic reports are the
Productivity and Wholesale Inventories. Neither have major market
moving histories but anything is positive. The Dow has been up four
days in a row and has gained +574 points since the 9014 low last
Thursday. Can you say profit taking soon? The Nasdaq has gained
+189 points since the last dip to 1646 six days ago.

I get hate mail for talking about the VIX but the facts remain that
it closed at a post attack low of 29.85 on Tuesday. This is not
bullish and added to the low put/call ratio of .58 it means that
fear has left the markets. The post meeting rally could have been
just short covering and with almost 600 points under our belt we
need to be cautious. However, the S&P-500 did break above strong
resistance at 1100 and would have to suffer some real selling to
fall below that level again!



It appears on the surface that we could be facing a very strong
move on Wednesday. Even in the face of the lack of bullish fear
there could easily be another strong leg up before profit taking
creeps back into the picture. The VIX could easily fall another
three points and still be in historical buy territory. The fear
we have had over the last two months has thrown short term
historical analysis into a shambles. About the only thing an
investor can do today is trade what the market gives us and try
not to form opinions about what should be happening. Key resistance
has been broken on every major index. Hedge funds and equity funds
could easily decide that the time is right to put available cash
back to work. We are riding the crest of a +600 point gain but
history is on our side. Five of the last six Novembers have seen
nice gains and limited profit taking. Could we be so lucky again?
Tighten up those stops and buy any dip below 9500.

Don't Sell Too Soon Just Yet!

Jim Brown
Editor


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

Decision: Rally
By Eric Utley

Johnny take a ride with your sister in the rain
Let her talk about the things you can't explain...
It's alright, it's alright, it's alright
She moves in mysterious ways

The decision was made, a big move followed.  What's next?

They were expecting a pullback following the Fed's 50 basis
point cut Tuesday afternoon.  They were wrong.  In two days,
the market's sentiment has gone from indecision to fear; fear
not of downside, but fear of further upside.  The fear on the
part of those leaning the wrong way (Read: Shorts) and fear on
the part of those not holding enough stock.  Make no mistake
about it, the masses are not fearful.  The CBOE Market
Volatility Index (VIX.X), also known as the fear gauge, broke
and closed below the 30 level Tuesday.  The VIX hasn't traded
below 30 since September 5.

How about Beam (NYSE:IBM)!  Over the weekend, I pointed out
the consolidation in IBM as an example of the market's
indecisiveness.  The chart that I used over the weekend looks
a little different today.  Notably, a few large green candles
lie at the right edge.


Two points with IBM: First, look for the type of set-up that
I highlighted over the weekend; wait for an advancing market;
buy the breakout!  Forget what you believe.  At times, she
(The market) is too mysterious.  Trade what you observe.

Second, the rate at which IBM rallied into the close reinforces
the fear element at play.  Stocks like IBM don't rally $5 in
the space of five hours unless someone REALLY wants to buy the
stock; only when they're fearful of further upside do buyers
carry higher a stock like IBM so quickly.

For its part, IBM is nearing a historical congestion area,
but I can foresee the stock trading as high as $118 over the
short-term.  Plus, the breakout in the Nasdaq-100 (NDX.X)
above the 1500 level Tuesday looked solid.  However, Qualcomm
(NASDAQ:QCOM) may dampen fears of further upside.  As of
Tuesday's close, QCOM accounted for 4.79 percent of the
Nasdaq-100.  The stock was down by more than $4 in the evening
session.

Who else is attending the U2 concert Wednesday night in Denver?

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

Market Volatility

VIX   29.85
VXN   57.34

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.70        757,446       440,237
Equity Only    0.57        661,281       313,378
OEX            1.26         11,933        20,149
QQQ            1.06         48,558        35,631

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

Bullish Percent Data

           Current   Change   Status
NYSE          30      + 1     Bull Alert
NASDAQ-100    62      + 3     Bear Correction
DOW           53      + 3     Bull Confirmed
S&P 500       49      + 2     Bull Alert
S&P 100       46      + 3     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  1.23
10-Day Arms Index  1.21
21-Day Arms Index  1.11
55-Day Arms Index  1.17

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      2053           1054
NASDAQ    2079           1513

        New Highs      New Lows
NYSE      111             45
NASDAQ     59             48

        Volume (in millions)
NYSE     1,342
NASDAQ   1,919

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

Commitments Of Traders Report: 10/30/01

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 traders, for the most part, maintained their most
bullish posture of the year last week.  % of OI was virtually
unchanged.  Open interest among small traders was a little more
volatile last week, but didn't reveal any conviction either way.

Commercials   Long      Short      Net     % Of OI
10/16/01      378,866   415,289   (36,423)   (4.5%)
10/23/01      377,177   413,658   (36,481)   (4.6%)
10/30/01      377,468   413,729   (36,261)   (4.6%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
10/16/01      124,568     73,779   50,789     25.4%
10/23/01      127,016     71,212   55,804     28.2%
10/30/01      123,546     71,225   52,321     26.9%

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 significantly added to short positions last
week by more than 3,000 contracts net.  Small traders went the
other way, adding to longs and shedding a few shorts.

Commercials   Long      Short      Net     % of OI
10/16/01       27,398     40,397   (12,999)  (19.2%)
10/23/01       29,920     40,358   (10,438)  (14.9%)
10/30/01       32,055     45,574   (13,519)  (17.4%)

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
10/16/01       12,901     6,893    6,008      30.5%
10/23/01       11,567     6,934    4,633      25.0%
10/30/01       12,725     6,475    6,250      32.5%

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 interests grew slightly less bullish last week as
measured by the drop in % of OI.  It's worth noting that that
trend has been in place for the past few weeks.  Small traders,
meanwhile, went back to more of a bearish stance from the week
ago period, albeit a modest change.

Commercials   Long      Short      Net     % of OI
10/16/01       25,402    10,267   15,135     42.5%
10/23/01       25,568    11,832   13,736     36.7%
10/30/01       25,872    12,556   13,316     34.7%

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
10/16/01        4,514    12,104    (7,590)   (45.7%)
10/23/01        4,902    11,900    (6,998)   (41.6%)
10/30/01        4,261    11,220    (6,959)   (45.0%)

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:
*****

No Dropped Calls for Tuesday.


PUTS:
*****

EBAY $55.68 +1.83 (+3.98) With the Nasdaq breaking out Tuesday,
EBAY looks like it could work higher.  While the stock is still
one of the weaker tech plays, it could be buoyed by the strength
in the Nasdaq over the coming days.  Instead of risking any
further upside, we're dropping coverage this evening.  Traders
with open positions could look for weakness early Wednesday to
exit plays.

AIG $82.85 +0.85 (+1.25) While AIG has been languishing in a
persistent downtrend for much of the past month, providing a
solid downside play, the stock started to show signs of recovery
late last week.  Consistent buying interest drove the stock
right up to the descending trendline by the end of trading
yesterday and enthusiasm for the Fed's interest rate cut drove
the stock solidly higher today.  Although AIG is still below our
$83.50 stop, its push through resistance today has us thinking
that the bulls are back in control.  We'll drop AIG tonight due
to the underlying bullish action.


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The Option Investor Newsletter                  Tuesday 11-06-2001
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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* NBBO Guaranteed so you get Best Execution Prices
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********************
PLAY UPDATES - CALLS
********************

ZION $49.34 +0.33 (+1.30) ZION broke out from its trading range
yesterday.  The stock's advance past the $48.75 level signaled
the breakout.  Traders who took that entry point could be looking
for a move up to the $50 level over the short-term.  Beyond the
half-way mark, ZION has some resistance around the $52 area.  The
$52 level could serve as an exit point over the next several
weeks.  But for ZION to reach $52 it will need the support of
the Bank Sector Index (BKX.X), so be sure to monitor the action
of the sector closely.  Future pullbacks down to the $48.75 level
could serve as entry points provided ZION bounces after any
weakness.   Our stop has been raised to the $48 level.

SPW $106.39 +1.49 (+2.74) SPW broke above its relative highs
yesterday and continued higher today.  The stock is steadily
trending higher and looks poised to test its 200-dma over the
short term.  The 200-dma currently sits at the $108.10 level which
may serve as an exit point for those traders who entered SPW
calls back down around the century mark.  The stock has traded
higher in the past five sessions, so a pullback may be in order
in the next few days.  Look for that pullback near the 200-dma.
Support is currently located around the $104 level and lower
around the 10-dma at $102.22.  The $102 area is also the site
of SPW's ascending trend line.  A pullback down to the $102
area should provide a solid entry point on weakness if the stock
pulls back that far.  Stops have been raised to $101.

SUNW $12.39 +0.33 (+0.95) SUNW's gap higher yesterday morning
was certainly welcome.  Although, the tight trading range
following the gap didn't offer favorable entry points into the
play.  Hopefully the majority of readers were already in SUNW
calls ahead of the gap.  The stock traded in a tight range
again today.  It looks like the $12 area could serve as support
over the short term, judging by SUNW's rebound from that level
today.  Entries at the $12 level are worth considering because
traders can set a tight stop to manage risk as below the $12
level exists the gap from Monday morning.  Entries on continued
strength above the $12.50 level are also worth considering, but
only in an advancing market.  Also, confirm strength in SUNW's
sector (GHA.X) before entering on a breakout above $12.50.  Stops
have been raised to $10.50.

SIAL $40.23 +0.88 (+0.82) SIAL put in another solid day Tuesday.
The stock followed the CEX.X higher; in fact, the CEX.X put in
a very solid day with its more than 2% gain, out performing the
Dow and S&P!  Continue monitoring the CEX.X when trading SIAL;
confirm strength in the sector when entering new SIAL plays on
any forthcoming breakout.  To the upside, SIAL may find some
resistance between the $41.25 to $41.50 area.  Look for an
exit point in that zone.  To the downside, the stock continues to
find support at its ascending support line.  That support line
currently sits around the $39 level.  We're raising our stop on
SIAL to the $38 level.

AMAT $39.92 +1.46 (+1.95) Maintaining its leadership role, the
Semiconductor index (SOX.X) handily cleared the $500 resistance
level ahead of the FOMC meeting and then launched higher on the
news of the half-point cut.  Poised for a breakout ahead of the
meeting, shares of AMAT didn't disappoint, shooting through the
$38 resistance level and coming to rest at Tuesday's close just
below the $40 level, right at the top of the gap left when
trading resumed after the September 11th attacks.  Given the
strength today, it looks like there could be more room for the
bulls to run, but they're going to need strong volume if they
are going to clear current resistance and seriously challenge
the $42 level.  Consider new positions on pullbacks to the $38
level (new support) or the 10-dma (36.49) and raise stops to
$36.  Don't forget about earnings, which are set to be released
next Wednesday, November 14th.

BAC $62.11 +1.08 (+1.24) Today's interest rate cut provided the
catalyst for bullish investors to rally Bank stocks, and BAC
went along for the ride, gaining more that $1 to handily clear
the $62 resistance level.  The repeated bounces this week from
the $61 level solidifies support and sets the stage for our play
to challenge resistance at $63.50 and then $65 (the site of the
stock's all-time high).  Stronger support exists at $60, also
the location of the ascending trendline and reinforced by the
10-dma (currently $60.28).  Any weakness in the days ahead could
provide attractive entry points on a dip and bounce from either
the $60 or $61 levels.  Keep an eye on the Banking index
(BKX.X), as we'll need to see it push through the $822 triple-top
if BAC is going to continue its advance.  Raise stops to $60.

BRCM $41.43 +1.17 (+3.58) Outperforming the broad market lately,
the Semiconductor sector (SOX.X) finally broke through the
formidable $500 resistance level yesterday ahead of the FOMC
meeting.  That set the stage for another powerful rally on the
Fed news, and that's exactly what we got, as the index vaulted
higher in the afternoon.  Despite an early dip this morning,
BRCM found support just above $38, allowing investors to enter
the play just before the rally got moving again.  On the heels
of the Fed's half-point interest rate cut, BRCM got moving again
on strong volume and confirmed yesterday's breakout over the $40
level.  The continued strong behavior of the stock over the past
week appears likely to continue, so we'll continue to buy the
dips.  With support solidified at the $38 level, and the
ascending trendline now at $37, also the site of the 10-dma
(actually $37.03), target new entries on bounces from above $37,
so long as the SOX can continue to advance further above its
breakout level of $500.  Keep stops at $36.

IBM $114.19 +4.22 (+4.69) It took a lot of patience, but IBM
finally managed to break out over the formidable $110 resistance
level, thanks in no small part to the actions of the Fed.  The
buying got started this morning after amateur hour, but didn't
really kick into high gear until after the Fed announcement.
Then buying volume ramped up sharply, leading IBM to a nearly
4% gain on solid volume.  Now that the stock has cleared
resistance at $110-111, that level should now act as support, as
we move back into the $111-120 trading range from earlier this
year.  The strong rally today will likely see some profit taking
in the days ahead, so we would hesitate to chase the stock
higher at this point.  Look for fresh entries to materialize on
a dip and bounce in the vicinity of the $110-111 area, and raise
stops to $109.

NVDA $50.59 +3.25 (+3.42) Breakouts were happening fast and
furious on the heels of the Fed's interest rate cut, and our
NVDA play was one of many in the Semiconductor sector (SOX.X).
With the SOX advancing sharply above the $500 level, that opened
the door for NVDA to finally push through the $50 resistance
level, closing the trading day at a new all-time high on volume
that nearly doubled its ADV.  There could be some profit taking
after such a strong rally, and we'll be looking for an
attractive dip to initiate new positions.  Intraday support
exists at $45 (the new location of our stop), $46.50 and then
$49.  A dip followed by solid buying volume should provide
attractive entries for the next leg of the rally.  As one of the
stronger components of the SOX, NVDA will likely be one of the
leaders to help this index continue its rally.  Unfortunately,
the fuse on our play is growing short.  Don't forget that the
company is due to report earnings on Thursday after the closing
bell, so we'll want to close any open plays by then.


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

MSFT - Microsoft $64.78 +1.51 (+3.38 this week)

Although best known for its ubiquitous Windows PC operating
system, MSFT develops, manufactures, licenses and supports a
wide range of software products for a multitude of computing
devices.  The company's software products include scalable
operating systems for servers, PCs and intelligent devices,
server applications for client/server environments and software
development tools.  The MSFT's online efforts include the MSN
network of Internet products and services and alliances with
companies involved with broadband access and various forms of
digital interactivity.

With the Department of Justice's anti-trust case against MSFT
effectively over, investors have been venturing back into the
stock this week.  The removal of the legal hurdle has enabled
MSFT to break through the $62.50 resistance level, which also
happens to be the site of the 200-dma.  Then with the bullish
effect of the Fed's latest interest rate cut, buyers finally
propelled the stock through the $64 level on Tuesday, for the
first time since mid-August.  The entire Software sector (GSO.X)
has been in rally mode for the past week as well, and today
managed to clear its own $161 resistance level.  With the GSO
breaking out and all the major indices clearing recent levels
of resistance, it looks like the tide is shifting in favor of
the bulls and MSFT should continue to benefit.  Over the past
month the stock has been building a solid upward trend, and that
trendline currently rests at $61.40, also the site of the
10-dma.  We can place our stop at $61 (also the site of solid
intraday support) and target intraday dips above this level for
entering new positions.  Another possible target for entry is a
bounce near the 200-dma (currently $62.50).

***November contracts expire next week***

BUY CALL NOV-60 MSQ-KL OI=56207 at $5.60 SL=3.50
BUY CALL NOV-65*MSQ-KM OI=50916 at $1.85 SL=1.00
BUY CALL DEC-65 MSQ-LM OI=16488 at $4.20 SL=2.50
BUY CALL DEC-70 MSQ-LN OI=22857 at $2.90 SL=1.50

Average Daily Volume = 34.6 mln



QLGC - QLogic Corporation $46.16 +1.53 (+5.32 this week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Stocks were breaking out all over on Tuesday after the Fed's
10th interest rate cut of the year, with some of the strongest
performers in the Technology sector.  Storage stocks have been
moving strongly over the past week and shares of QLGC managed
to complete their own breakout today.  After moving through the
200-dma ($43.25) yesterday, the stock extended its gains today,
after finding support early in the day near $43.50.  QLGC is
now trading above $45 for the first time since late July and the
bulls are rejoicing.  The 10-dma (currently $41.80) has been
providing support for much of the past month and if the current
rally is to continue, the 10-dma should continue to provide
support on the pullbacks.  There is some significant resistance
overhead between $48-49, so a pullback in the next couple days
would seem to be our best opportunity to enter the play.  Look
for an intraday dip either to the $43.50 level or $42 (also the
site of the 3-week ascending trendline) to provide attractive
entry points.  We are initially placing our stop at $41.50.

***November contracts expire next week***

BUY CALL NOV-45*QLC-KI OI=4518 at $3.60 SL=1.75
BUY CALL NOV-50 QLC-KJ OI=1904 at $1.45 SL=0.75
BUY CALL DEC-45 QLC-LI OI= 983 at $6.80 SL=5.00
BUY CALL DEC-50 QLC-LJ OI= 754 at $4.80 SL=3.00
BUY CALL DEC-55 QLC-LK OI= 304 at $3.00 SL=1.50

Average Daily Volume = 9.59 mln



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

DYN $36.00 +0.43 (+2.55) DYN has climbed higher so far this week
thanks to the broader market.  The stock may have been due for a
relief rally and the strength in the broader markets this week
may have served as the catalyst.  Although DYN is still
technically weak, traders should heed the broader market when
targeting this play.  If the markets continue higher, DYN has
the potential to advance to its 10-dma at $36.60.  A pullback
in the markets in conjunction with a rollover at the $36.60
level could set-up a favorable entry point into new put positions.
Above the 10-dma, DYN has resistance at $37.25.

AHC $57.56 -0.50 (-0.80) The energy sector has continued to trade
poorly relative to the broader market this week.  The price
action of AHC so far this week has confirmed the trend in the
energy sector.  Although the stock and its sector remain weak,
traders should be cognizant of the strength across the major
averages.  The broad-based buying Tuesday may carryover into the
energy sector over the coming days, which would spell trouble for
our put play on AHC.  The best scenario for this play would be
to see the major averages weaken and for the energy sector to
continue lower.  When monitoring the energy sector, traders can
keep an eye on the Oil Index (OIX.X) and the Oil Service Index
(OSX.X).  Also, AHC reversed into the close Tuesday.  Traders
with open positions might consider lowering protective stops in
the event of follow-through into Wednesday's session.

CVTX $38.10 +0.40 (+1.64) Shares of CVTX have been heading south
for more than 2 weeks with brief pauses for buyers to attempt to
halt the decline.  That looks like what is going on right now,
as the stock has found support near $36.50.  The past couple
days have seen some decent buying volume, but not enough to push
above the aggressive descending trendline, now at $38.75.
Despite a strongly positive market over the past couple days,
CVTX have barely managed to hold their own and look ripe for
another leg down.  Intraday bounces that fail to break
resistance at $39 or up higher at $40-41, reinforced by the
10-dma ($40.42) could be just what we want to see for initiating
new positions.  Wait for the rollover to commence and then jump
aboard for the next push on the $36 triple-bottom support level.
Keep stops in place at $42.50.

MDT $39.71 -0.81 (-0.75) What do you get when you find a stock
that can't benefit from an expected half-point interest rate
cut?  That's right, an attractive put play!  Shares of MDT were
already down sharply over the past 2 weeks, and that selling
pressure intensified ahead of the Fed announcement, driving the
stock down to $39 intraday.  While the afternoon rally lifted
MDT off its lows, it wasn't enough to reclaim the $40 level,
prior support.  Volume was nearly 50% above the ADV on Tuesday,
and that selling pressure underscores the stock's inherent
weakness.  The 10-dma (currently $41.18) has been capping rally
attempts for more than 2 weeks now, and we would expect it to
continue to do so.  We're lowering our stop to $41 tonight and
would consider new positions on any failed rally below this
level.  Alternatively, wait for MDT to drop below the $39
intraday support level on continued strong volume before
playing.


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

PPDI - Pharmaceutical Product Dev. $24.31 -0.73 (-1.69 this week)

Pharmaceutical Product Development and its subsidiaries provide
a broad range of research and development and consulting services
in two segments, development and discovery sciences.  The
company provides services under contract to clients in the
pharmaceutical, general, chemical, agrochemical, biotechnology,
and other industries.

Most stocks have rallied recently.  Most stocks.  There have been
a few diverging from the rally.  Defensive stocks have been
under selling pressure recently; possibly a product of rotation
into the cyclical and growth areas of the market.  PPDI is more
of a defensive stock given the nature of its business.  Some of
its recent weakness may be attributable to sector rotation, but
not all of its weakness.  The stock has measurably under performed
recently and looks to be heading back towards its relative lows.
Shares were downgraded today from a buy to an accumulate rating
by Jeffries.  That downgrade may have contributed to PPDI's
divergence from the major averages.  The stock has been in a
descending trend since breaking down four sessions ago.  Traders
who like playing downside momentum might take a closer look at
PPDI.  The stock bounced from the $24 level late Tuesday.  A
breakdown below $24 could signal further weakness, especially if
the major averages pullback.  PPDI doesn't have much support
immediately below current levels, which is why the stock could
revisit its relative lows around the $20 area over the short
term.  Our stop is initially in place at the $27 level.

***November contracts expire next week***

BUY PUT NOV-25*PJQ-WE OI=91 at $0.95 SL=0.50
BUY PUT DEC-25 PJQ-XE OI=38 at $2.85 SL=1.75

Average Daily Volume = 751 K



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

BAC - Bank of America Corp. $62.11 +1.08 (+1.24 last week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

Most Recent Update

Today's interest rate cut provided the catalyst for bullish
investors to rally Bank stocks, and BAC went along for the ride,
gaining more that $1 to handily clear the $62 resistance level.
The repeated bounces this week from the $61 level solidifies
support and sets the stage for our play to challenge resistance
at $63.50 and then $65 (the site of the stock's all-time high).
Stronger support exists at $60, also the location of the
ascending trendline and reinforced by the 10-dma (currently
$60.28).  Any weakness in the days ahead could provide attractive
entry points on a dip and bounce from either the $60 or $61
levels.  Keep an eye on the Banking index (BKX.X), as we'll need
to see it push through the $822 triple-top if BAC is going to
continue its advance.  Raise stops to $60.

Comments

The Bank Sector Index (BKX.X) is on the brink of a major
breakout.  Watch for the BKX.X to advance past 823 in the
coming sessions.  If the BKX.X breaks out, BAC should follow
suit as the stock is one of the stronger in the group.  BAC
has minor resistance at current levels, but not much above.

***November contracts expire next week***

BUY CALL NOV-60*BAC-KL OI=33457 at $2.95 SL=1.75
BUY CALL NOV-65 BAC-KM OI=19643 at $0.45 SL=0.00
BUY CALL DEC-60 BAC-LL OI= 3343 at $4.40 SL=3.25
BUY CALL DEC-65 BAC-LM OI= 5774 at $1.65 SL=0.75

Average Daily Volume = 6.31 mln



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