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Daily Newsletter, Tuesday, 11/13/2001

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The Option Investor Newsletter                 Tuesday 11-13-2001
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)
************************************************************
       11-13-2001           High     Low    Volume Advance/Decline
DJIA     9750.95 +196.60  9755.80  9551.40  1.3 bln   2220/ 930
NASDAQ   1892.11 + 51.98  1893.92  1867.27  2.1 bln   2346/1261
S&P 100   587.04 + 10.91   587.28   576.13   Totals   4566/2191
S&P 500  1138.90 + 20.76  1139.14  1118.33
RUS 2000  448.34 +  7.86   448.34   440.48
DJ TRANS 2340.94 + 69.02  2342.06  2272.07
VIX        28.63 -  2.63    30.34    28.51
VXN        55.94 -  3.05    58.43    55.91
TRIN        0.46
Put/Call Ratio       .58
*************************************************************

Bears Getting Sleepy?

It is that time of year when all good bears, fat on profits
from the 3Q earnings season, slink off to their dens for a long
winters nap. Amazingly the flood of "Nasdaq 700 is coming" emails
have fallen off in the last several days and those predicting the
demise of the current market have lost few converts. Negative
earnings news as well as misquotes from Cisco CEO John Chambers
were not able to stop the huge Tuesday gains.





This was the day that Monday should have been! The markets had
been setting up for a surprise farewell party for the bears but
the American Airlines crash on Monday allowed them one last fling.
The dip on fears that terrorists had caused the crash took the
Dow all the way back to strong support at 9400 but the rebound
was very quick. Without the crash drag on Dow components UTX and
GE it probably would have made it back to positive territory.
There was a pause just above support at 9525 while bulls held their
breath but the news that Kabul had been abandoned and the crash was
likely mechanical was all they needed.

Labeled the "Kabul rally" the markets gained strength and shook off
bad news to power ahead. The concept that the Taliban may have
given up the country's capital city without a fight and was heading
to more remote areas to avoid being pounded into dust by the coalition
was welcome news. The fierce 40,000 Taliban fighting force was AWOL
and it now appears that the noose is tightening around Al Queda.
This news sparked buying by those who felt that the war was under
control and we would slowly grind down the opposition until they
were gone.

The news from New York that the American Airlines flight was in
trouble almost from the second the wheels left the ground also
brought a concealed sigh of relief from investors. Nobody is
ever glad when over 260 people die but the relief was that it was
not a terrorist event. The longer we go without a significant
terrorist event on our soil, the more investors will forget that
the threat exists.

The real news that the market ignored was massive earnings misses,
earnings warnings and misquoted CEO statements. Any of which could
have cratered the averages just several weeks ago. The first event
was a giant earnings miss from Watson Pharmaceutical, (WPI) which
announced earnings of $.32 when analysts were expecting $.65. The
company cited stiff pricing pressure which was increasing in the
generic drug market and a redirection of their efforts. OOPS!
Investors don't like surprises and WPI lost -$18.61 to $28.54.
This produced a drag on other drug stocks but did not slow the
markets.

Oracle CEO, Larry Ellison, warned that ORCL would miss analyst's
estimates of $.11 by a penny or two. Ellison blamed a tough
environment since 9/11 and said sales would fall on a year over
year basis for the first time in ten years. They expect licensing
revenue to fall -20% compared to the same quarter last year.
ORCL fell -$.88 to $14.51 but normally a warning like this would
have knocked several dollars off the stock. This shows that the
investor has factored in the impact of 9/11 and is willing to
overlook some weakness going forward.

Cisco CEO, John Chambers, was misquoted around 1:PM and CSCO
stock lost about -.75 from its intraday highs. He was quoted
as saying that he expected another 2-8 quarters of weakness
ahead which would have been a change in forecast for him and
Cisco. What he actually said was "some economists are forecasting
another 2-8 quarters of weakness for the economy, but we really
don't know". He said sales were increasing slightly after having
plateaued after the first post attack gains. CSCO recovered to
close up +.32 for the day after the comments were explained.

The biggest point here is that there were three separate and
major news events and none of them tanked the markets. The trend
from last week continued. As I mentioned in the Sunday newsletter
the materials stocks continued to climb with stocks like Alcoa
having banner days. Even MMM tacked on another +2.46 and remember
they said this was the worst year in 30 years. Bullishness is
breaking out all over.

The retail sales numbers are coming in stronger than expected
as most retailers report this week and according to many analysts
this means the bottom is behind us. They are now looking for a
better holiday season and the good war news is like icing on the
cake.  Homebuilder stocks (BZH, CTX, PHM) and home materials supply
stocks (HD, LOW) are soaring again as cheap interest rates filter
down to the buying public. The October Retail Sales report will
be announced at 8:30 on Wednesday.

The rally was not concentrated in just a few sectors. The Networking
sector was up +5%, Semiconductors +4.25%, Computer Hardware +4% and
so on. Volume was good on the NYSE and Nasdaq and the internals
were strongly positive at 2:1 for advancers over decliners. The
broader S&P-500 has broken out of its May-Nov decline and is now
well above resistance at 1100 which worries the bears. The bullish
percent on the S&P-500 was only 55% on Monday which indicates that
we could have some more bullish days ahead of us.



We are still in a recession and nobody is claiming a magic rebound
on that as of yet. This means that earnings will not reflect the
optimism of investors for at least a couple quarters. Still this
is not an insurmountable problem. The markets have shown a
remarkable ability to climb the current mountain of worry as I
discussed last week. The bears have tried to put as many obstacles
in our path as possible but they were unable to even hold the
indexes down below the closest support level at 9525 on Monday much
less 9400. Fighting the tape has become a losing proposition for
shorts and we are very close to some real breakout possibilities.

The Dow has no real resistance between here and 10,000. Once the
Nasdaq clears 1925 it appears almost a given that 2000 will only
be a couple days away. The S&P closed over resistance at 1133 and
the next major barrier is not until 1185. In short, there appears
to be little if no resistance for the next several days and that
is really scary. Without a sequence of obstacles, steps to a goal
as an example, can the markets survive in this rarified atmosphere?
The volatility in the markets is dropping like a rock as everyone
lines up on the same side of the debate.

I think the washout at the open on Monday took all the weak holders
and stop losses in this area and flushed them. The quickness of
the rebound showed we are not oversold and there is money waiting
on the sidelines. However, as with any major gain, +196, there
will be those who will want to take profits soon. The trend is
definitely up but it will not be in a straight line. There are
many traders just waiting for their stocks to get back to the
price they paid last summer to sell and get out whole. There
are several high profile earnings reports on Wednesday including
AMAT, HWP, FD and LIZ. They will help portray the health of the
tech sector and the retail sector.

We need to practice caution as we move forward and be ready for
that next dip. Nothing should be taken for granted. Rejoice for
every positive day we get but keep raising your stops to prevent
giving it all back. The closer we get to 10,000/1925 the more
likely the next round of profit taking becomes. As I have been
telling you for the last three weeks, buy the dips. That still
stands until we touch those levels above but then we need to
be even more cautious and re-evaluate the tactic.

Take profits on weakness and buy the dips!

Jim Brown
Editor@OptionInvestor.com


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

Is It A New Bull Market?
By Eric Utley

Two of the three major averages pushed through short-term
resistance Tuesday.  Somewhere from the corner of the office
echoed: "It's a new bull market!"

The fear factor that I've been writing about recently took an
interesting turn Tuesday.  Both the CBOE Market Volatility
Index (VIX.X) and Nasdaq-100 Volatility Index (VXN.X)
continued lower.  Both gauges have further to fall before
flashing bearish signals.  The interesting turn, however, was
observed in the defense sector of the market.  Stocks like
Lockheed Martin (NYSE:LMT) and General Dynamics (NYSE:GD) were
whacked lower Tuesday in the wake of the development in Kabul.
The market is foretelling of a bad ending for the Taliban regime.

The pullback in fear has obviously emboldened the bulls, noting
the price action across the major averages.  So, is it a new
bull market?  It may be.  It may be another bear market rally.
There's a difference.

The bullish percent reading of the Nasdaq-100 ($BPNDX) is
quickly approaching overbought.  And the weekly Stochastics
readings of the major market averages are in overbought
territory.  I appreciate the fact that a market can grow
more overbought, but the condition needs to be worked off at
some time in the future.

In the meantime, it's expiration week.  The Wednesday prior
to October expiration I watched a QQQ put contract expand by
more than 1,000 percent in the space of six-and-a-half hours.
Those gains are out there and I hope you find a few this week.

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

Market Volatility

VIX   28.63
VXN   55.94

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.58        857,114       494,124
Equity Only    0.46        708,335       327,812
OEX            1.03         35,528        36,553
QQQ            1.16         29,958        34,673

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

Bullish Percent Data

***Bullish Percent Data unavailable for 11/13***

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

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  0.99
10-Day Arms Index  1.11
21-Day Arms Index  1.13
55-Day Arms Index  1.12

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      2220            930
NASDAQ    2346           1261

        New Highs      New Lows
NYSE      118             27
NASDAQ     68             31

        Volume (in millions)
NYSE     1,348
NASDAQ   2,156

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

Commitments Of Traders Report: 11/06/01

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 grew slightly more bearish last week.  Their
positioning wasn't pronounced.  Small traders added more
contracts.  Their collective position grew less bullish.

Commercials   Long      Short      Net     % Of OI
10/23/01      377,177   413,658   (36,481)   (4.6%)
10/30/01      377,468   413,729   (36,261)   (4.6%)
11/06/01      376,807   416,063   (39,256)   (5.0%)

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
10/23/01      127,016     71,212   55,804     28.2%
10/30/01      123,546     71,225   52,321     26.9%
11/06/01      132,106     81,208   50,898     23.9%

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 interest grew measurably less bearish last week
by adding a substantial number of new long positions.  Their
net short position dropped by 5,000 contracts.  Small traders
went the other way by shedding long positions and adding to
shorts.

Commercials   Long      Short      Net     % of OI
10/23/01       29,920     40,358   (10,438)  (14.9%)
10/30/01       32,055     45,574   (13,519)  (17.4%)
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)

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
10/23/01       11,567     6,934    4,633      25.0%
10/30/01       12,725     6,475    6,250      32.5%
11/06/01       11,406     8,143    3,263      16.7%

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 added a few longs and covered a few shorts
last week to increase their bullish position, which is about
1,000 net long contracts away from the year's most bullish
reading.  Meanwhile, small traders went the other way.  Small
traders are 65 net short contracts away from their most
bearish reading of the year.

Commercials   Long      Short      Net     % of OI
10/23/01       25,568    11,832   13,736     36.7%
10/30/01       25,872    12,556   13,316     34.7%
11/06/01       25,977    11,951   14,026     37.0%

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
10/23/01        4,902    11,900    (6,998)   (41.6%)
10/30/01        4,261    11,220    (6,959)   (45.0%)
11/06/01        3,569    12,281    (8,712)   (55.0%)

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:
*****
AMAT $40.80 +1.84 (+2.23) Recent volatility in Semiconductor
stocks has provided numerous entry points as we have ridden our
AMAT play right up to the $40 resistance level.  Helping the
stock to rally has been the strength on the SOX, which moved up
to the $540 resistance level this morning.  With AMAT
announcing earnings tomorrow, it is time to close out another
winning play.  Harvest your profits before the company makes
their announcement tomorrow after the closing bell.


PUTS:
*****

CAH $65.05 +2.01 (+1.75) The Healthcare sector hasn't traded
strongly this week.  But CAH has.  The stock gapped higher
Tuesday morning.  Its bearish trend appears to have reversed.
Traders with open positions should look to weakness in the
coming days to cut losses.

ENZN $60.39 +2.58 (+2.85) The Biotech Index (BTK.X) rebounded
to the tune of 5% Tuesday.  The sector strength carried ENZN
higher after the stock traded as low as $55 Monday.  The big
reversal has us uneasy about the short-term downside potential
of ENZN.  Bearish traders who are holding open positions might
look for ENZN to rollover near its 10-dma at $66.70.  If it
doesn't, look to cut losses quickly.


***********************************************************
DAILY RESULTS
***********************************************************

Please view this in COURIER 10 font for alignment
*************************************************


CALLS              Mon    Tue

SPW     109.18    0.18   2.93  Gap filled, trend intact.  Solid.
SUNW     13.13   -0.19   0.40  Consolidating recent run.  Yawn.
PMCS     22.10    1.05   1.53  Breakout over $20, look out!
FFIV     22.01    1.23   1.59  Strong, strong networking stock.
PDLI     36.84    0.27   3.12  New, leading the biotech charge.
BRCM     45.59    0.71   1.15  Momentum favorite returns!
IBM     116.70    0.78   1.84  Nearing resistance at $119-120.
AMAT     40.80    0.39   1.84  Dropped, earnings Wednesday night.
BAC      63.46   -0.03   0.44  BKX.X leading the market higher.
AOL      38.00    0.67   1.57  Media stocks continue to advance.
GE       40.56   -0.98   1.13  Needs to the Dow to work higher.
QLGC     48.09    1.01   1.08  Quite the run for QLGC.
MSFT     67.90    0.58   2.11  Rallied right through $65.50 level.
CMVT     23.41    0.14   2.15  Next leg higher underway.
CHKP     41.90    2.55   3.39  Shooting to the moon, Alice!

PUTS

BRL      62.49    0.66  -5.82  Generic drugs lower thanks to WPI.
NOC      54.06   -1.04  -4.17  New, defense sector selling off.
CAH      65.05    0.26   2.01  Dropped, bucking HCX.X.
ENZN     60.39    0.27   2.58  Dropped, big rebound in biotechs.


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The Option Investor Newsletter                  Tuesday 10-13-2001
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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personal assistance in plain English with an option friendly broker.
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Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


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

SPW $109.18 +2.75 (+2.93) SPW broke above its 200-dma Tuesday en
route to filling its pre-attack gap at the $110 level.  The
pullback from that level was not unexpected as it was most likely
an exit point for those in at lower prices.  Looking forward, the
stock will face congestion in the $110 area.  An advance past
that congestion in an advancing market may offer an entry point
into the trend.  Beyond the $110 congestion area, SPW will face
resistance between the $113 and $115 area.  There's still some
upside potential in this play, but traders should be aware of the
supply that lies ahead between the aforementioned resistance
levels.  It may be best to wait for a profit taking pullback to
enter bullish plays instead of entering into strength.  A pullback
on light volume to the 200-dma at $108 or the $106.50 level would
offer an entry.  Stops have been raised to $103.50.

SUNW $13.13 +0.40 (+0.21) It would appear that SUNW is
consolidating its recent run, judging by the last two days of
price action.  The stock bounced just above the 10-dma Monday; the
10-dma may be a good site to look for entries on any weakness over
the short term.  Further strength in the Nasdaq should carry SUNW
back up to its relative highs around $14.  Bullish traders can
look either for a bounce from $13 or an advance past $13.50 to game
such a scenario.  If SUNW slips to the downside, look for a bounce
from the $12 level for a favorable entry point.  But, make sure to
confirm lighter volume and a weak broad market before entering on
weakness.  Our stop has been raised to $11.75.

PMCS $22.10 +1.53 (+2.58) PMCS broke above the $20 level Monday
and stayed above it Tuesday.  The stock was briefly knocked down
Tuesday afternoon on comments from Cisco Systems.  But PMCS
rebounded into the close.  The stock doesn't have much in the way
of resistance immediately above current levels.  The $24 level is
the next hurdle, which is another $2 from current levels.  That
being the case, bullish traders can opt for a break above Tuesday's
intraday highs with a target at the $24 level.  Beyond $24, the $25
level could serve as resistance (Read: Exit Point).  If the market
pulls back, traders might look for PMCS to bounce from support near
its recent breakout point between $20 and $20.50.  The stock bounced
from $20.55 Tuesday, so that may be a level to watch for support
going forward.  The stock out performed both the Semi Index (SOX.X)
and the Networking Index (NWX.X) by a wide margin Tuesday.  We
like the out performance to the upside and are looking for that
pattern to continue.

FFIV $22.01 +1.59 (+2.82) It didn't take long for FFIV to get back
to relative highs.  After its brief dip late last week, the stock
rebounded from its 10-dma (currently at $18.82) Monday morning
and hasn't looked back since.  The move above the $20 level late
Monday could've allowed for an entry into strength.  Traders who
entered positions early Monday, or even on the move above $20,
could be thinking about locking in some gains around current levels.
After all, a 10% move in the underlying in two days is a healthy
move.  That's not to say FFIV can't or won't trade higher.  The
stock is one of the stronger in the Networking sector.  The group,
as measured by the Networking Sector Index (NWX.X), traded well
Tuesday.  Further strength in the NWX.X should allow FFIV to
break above relative highs.  Watch for strength in the NWX.X in
conjunction with FFIV taking out relative highs up around $23.  In
the event of a pullback, look for a bounce from the $20 level.
Our stop has been raised to $18.50.

AOL $38.00 +1.57 (+0.90) Strength in media stocks got our AOL
play moving last week, and now investors are looking towards the
release of the much-anticipated Harry Potter movie this weekend.
Whether that event will have much of an effect on the company's
bottom line, it appears that the hype for the movie may be
helping in the stock's advance.  After breaking above the $34
resistance level, buying volume has been strong, driving the
stock right up to the $38 resistance level on Tuesday.  Given
the strength in Technology stocks today, it looks like AOL
should push through that level in the days ahead, as the bulls
take aim on stronger resistance at $40, also the site of the 38%
retracement of the decline since May.  Target new entries on
intraday pullbacks to support at either $37 or $36 and raise
stops to $34.50.

BAC $63.46 +0.44 (+0.41) Banking stocks continue to lead the
broad market recovery, and this is clearly seen in the daily
chart of the Banking index (BKX.X), which pushed through the 840
level on Tuesday to close at a new post-attack high.  While our
BAC play is still looking strong and closed at a new post-attack
high itself, we can see that there is significant resistance at
$64.  At the same time, the ascending trendline and the 10-dma
(61.83) are providing support at ever-higher levels.  We are
moving our stop up to $62, and would look to initiate new
positions on intraday dips to the $63 intraday support level,
or even $62, so long as buying volume remains robust on the
bounces.  Keep a sharp eye on the BKX, as strength there will
be necessary if BAC is going to successfully challenge its
all-time highs near $65.

BRCM $45.59 +1.15 (+1.86) Still going strong, BRCM pushed higher
over the past 2 days, helped along by continuing strength in the
broader Semiconductor sector (SOX.X), which is one of the key
leading sectors in the current NASDAQ advance.  Now that the
bulls have cleared the $45 resistance level, they'll be looking
to challenge the spring and summer highs between $47-48.  While
the stock is looking a bit over-extended here based on the daily
Stochastics, it is hard to argue with the strong buying volume
(50% above the ADV) over the past couple days.  Buying the dips
continues to be the prudent approach, as demonstrated by the way
BRCM bounced from the 5-dma (currently $43.18) nearly every day
for the past 2 weeks.  Firm support is now sitting at $39, with
intraday support arrayed above between $40-41 (also the site of
the 10-dma at $40.77) and then again near $43.  Ride the upward
trend as long as it lasts and raise stops to $39.

CHKP $41.90 +3.39 (+5.94) Zoom!  What more can we say about CHKP
except that it has been shooting to the moon since breaking out
above the $35 resistance level last week.  Yesterday's morning
dip to that level provided a great entry into the stock, and it
proceeded to rally right into the close before continuing the
rocket ride today on the heels of a JP Morgan upgrade.  To
recap, the stock is up nearly 20% from Monday's morning low,
and with daily stochastics buried in overbought, and price above
the upper Bollinger band, it looks like there will be some
profit taking in the near future.  Consider taking profits near
current levels, or at least tightening up those stops.  We're
raising our stop to $35 and would look at any intraday dip to
intraday support at $38 or even $36 as a gift of an entry point.
While CHKP could head higher from current levels, we wouldn't
be chasing it higher here, but would instead wait for a bit of
a pullback.

CMVT $23.41 +2.15 (+2.29) After breaking out above the $20 level
last week, shares of CMVT have been consolidating for the next
leg higher, and it looks like it is underway.  The early
weakness yesterday morning provided an attractive entry into the
play as buyers stepped in to snap up shares near $20, and the
broad-based buying in Technology shares on Tuesday helped the
stock to move through the $23 level.  While the upward trend is
encouraging, we would like to see stronger buying volume, which
has been running only about two-thirds of the ADV.  We are
raising our stop to the $20 level and would look for any
successful tests of this support level to provide fresh entries.
Major resistance is looming near $26, and it would make sense
to harvest some profits as CMVT approaches this level.

GE $40.56 +1.13 (+0.15) Mirroring the action of the broad
market, GE is moving ever closer to major resistance.  After
clearing the $40 level last week, the stock was due for a bit of
profit taking.  Could it be that the morning dip yesterday
provided that?  GE dipped right to the $38.50 support level and
then resumed its rally today, moving solidly through the $40
level again and closing at a fresh post-attack high.  There is a
lot of congestion between $40.50-42.50, with the 50% retracement
of the decline from the May highs resting right in the middle at
$41.20.  Use intraday dips to support near $39-40 to initiate
new positions, and raise stops to $38.50.  If the DJIA can
continue to work higher, it will help GE to push through
overhead resistance.

IBM $116.70 +1.84 (+2.62) Shares of IBM struggled for nearly
2 weeks before finally pushing through the $111 resistance
level and moving back into the $111-120 range from earlier in
the year.  Then it only took 5 days for IBM to punch through
the $115 level and on Tuesday the stock achieved that breakout
on solid volume.  Looking at the daily chart, we can see that
IBM has been using the 10-dma (currently $112.49) as support
and appears likely to continue doing so.  Look for intraday dips
to continue providing attractive entry points, now in the
$114-115 area, with additional support coming from the ascending
trendline (now at $114).  Raise stops to $112 to preserve
profits in the event of any substantial selling.  As IBM nears
the $119-120 resistance level, consider taking some profits off
the table, as there will likely be some weakness in this area.

MSFT $67.90 +2.11 (+2.69) We would have expected some profit
taking after MSFT broke above the $64 level last week, but it
was limited to some healthy consolidation before the bulls took
off running again over the past couple days.  The stock rallied
right through the $65.50 level, running almost to $68 on Tuesday
before closing just off the day's highs.  The 10-dma (currently
$63.69) has been providing support for the past 3 weeks and
should continue to do so.  We are raising our stop to $64 and
would consider intraday dips above this level as attractive
entries, as MSFT continues to work towards major resistance near
$70, leading the broader Software sector (GSO.X) higher.  Should
the rally continue unabated, we would look to harvest profits in
the $69-70 area, as the bulls will have to work hard to push the
stock higher than that.

QLGC $48.09 +1.08 (+2.09) Storage and Networking stocks have
been on quite a run lately, helping the NASDAQ to gradually
push through one resistance level after another.  Shares of QLGC
have been in a solid uptrend since bottoming near $18 in early
October.  Since then, the stock has scaled numerous resistance
levels, the most recent of which was $44 last week and $46.50
this week.  The stock is getting close to another breakout and
bulls are hoping to see QLGC push through the $50 level for the
first time since mid-July.  With the 10-dma (currently $44.55)
continuing to provide support and looming resistance, we will
be looking for intraday dips to initiate new positions.  Target
bounces from either the 10-dma or $46 for fresh entries and
raise stops to $44.  The Networking index (NWX.X) pushed through
the $310 resistance level on Tuesday, and we'll need to see
continued strength in that sector if QLGC is going to power
through the $50 resistance level.


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

PDLI - Protein Design Labs $36.84 +3.39 (+3.12 this week)

Protein Design Labs is engaged in the development of humanized
monoclonal antibodies for the prevention and treatment of
disease.  The company has licensed certain rights to its first
humanized antibody product, Zenapaz, to Hoffman-La Rouche and
its affiliates Roche, which markets Zenapaz for the prevention
of kidney transplant rejection.

The AMEX Biotechnology Sector Index (BTK.X) opened at its day
low Tuesday and closed at its day high.  The day prior, the
BTK.X rebounded from its 200-dma at the 537 mark.  Judging by
its big rebound over the past two days, the Biotech Sector is
poised to work higher over the short-term.  The BTK.X has
resistance at the 600 level.  Above 600, congestion sits at
620.  A component of the BTK.X, PDLI has been one of the
stronger stocks in the group.  In fact, it was the best performing
stock in the BTK.X Tuesday.  If the BTK.X is going to test
resistance near 600 or breakout, then PDLI should follow suit
with a breakout of its own.  The stock faces short-term
resistance at the $37 level.  A move above that level could
carry PDLI up to the $40 level over the short-term, possibly as
high as $43.  In terms of execution, a breakout above $37
could be used as an entry point, but only if the BTK.X and
Nasdaq are advancing.  Otherwise, look for a pullback to
support between the $33.75 and $34 levels, which is the site
of PDLI's gap created by Tuesday's opening.  The 10-dma at
$35 may provide support, too, so keep an open mind about the
potential for a bounce from the 10-dma.  Our stop is initially
in place at $32.

BUY CALL DEC-30 PQI-LF OI= 114 at $8.20 SL=6.25
BUY CALL DEC-35*PQI-LG OI= 973 at $4.70 SL=3.25
BUY CALL DEC-40 RPV-LH OI= 554 at $2.60 SL=1.25
BUY CALL FEB-35 PQI-BG OI=1530 at $7.00 SL=5.00
BUY CALL FEB-40 RPV-BH OI= 556 at $4.80 SL=3.25

Average Daily Volume = 2.17 mln



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

BRL $62.49 -5.82 (-5.16) BRL traded up to its converged 10- and
200-dmas Monday around the $69.50 level.  The subsequent rollover
from that level turned out to be a most ideal entry point.  The
sell-off Tuesday was a welcome development and sparked by the
Watson (WPI) weakness.  BRL is now comfortably below its immediate
support levels, but has some historical support dating back to
July 11th at the $62 level.  We may witness a bounce from that
level if the bulls try to defend the stock.  Whether or not BRL
bounces from $62, readers who entered puts Monday should be
looking to book some solid gains after Tuesday's big drop.  Those
still looking for entries into this play might consider trading
a breakdown below the $62 level.  However, the potential downside
below $62 may be limited to the $60 level over the short-term.
A better entry might be had on a rollover near resistance,
possibly near the $65 level, or higher around $66.  Our stop has
been lowered to $68.


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

NOC - Northrup Gruman $92.39 -4.17 (-5.21 this week)

Northrop Gruman is a global aerospace and defense company.  The
company provides technologically advanced products, services and
solutions in defense and commercial electronics, systems
integration, information technology and non-nuclear shipbuilding
and systems.

Buy the rumor sell on the news?  Or, is the war over?  Whatever
the case may be, defense stocks have been taking it on the chin
recently.  The group severely weakened Tuesday in the wake of
news that Taliban forces had fled Kabul.  Perhaps the market had
been discounting a long battle against terrorism, which would've
required protracted government spending on defense.  If so, the
market may have had it wrong.  The weakness in defense issues
such as NOC Tuesday seems to suggest that the group is poised for
downside.  Indeed, NOC has an unfilled gap down to the $82 area,
which was created following the post-attack buying of defense
shares.  The stock broke down in a big way Tuesday, into its gap,
and on heavy volume.  Bullish traders might look for further
weakness early Wednesday for potential entry points.  However,
confirm weakness in others in the group such as ATK, LMT, and
GD before entering on further weakness.  NOC could find support
around its 200-dma at the $90 level, so be aware of the potential
for a bounce from $90.  Below $90, however, NOC doesn't have
any support until the $82 area.  If the defense sector as a
whole bounces, look for NOC to rollover first near the $95 level,
and second around the $96.50 area.  Our stop is initially in
place at the $97.85 level.

BUY PUT DEC-95*NOC-XS OI= 44 at $5.70 SL=4.00
BUY PUT DEC-90 NOC-XR OI=685 at $3.00 SL=2.00

Average Daily Volume = 1.19 mln



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

AOL - AOL-Time Warner $38.00 +1.57 (+0.90 this week)

AOL-Time Warner is an integrated, Internet-powered media and
communications company.  The company was formed when America
Online and Time Warner merged in January, 2001.  The company's
America Online branch consists of interactive services, Web
brands, Internet technologies and electronic commerce.  The
Time Warner division contributes cable television systems,
filmed entertainment and television production.  Additionally
the joint company is involved in cable and broadcast
television networks, recorded music, music publishing and
magazine and book publishing.

Most Recent Update

Strength in media stocks got our AOL play moving last week, and
now investors are looking towards the release of the much-
anticipated Harry Potter movie this weekend.  Whether that event
will have much of an effect on the company's bottom line, it
appears that the hype for the movie may be helping in the
stock's advance.  After breaking above the $34 resistance
level, buying volume has been strong, driving the stock right
up to the $38 resistance level on Tuesday.  Given the strength
in Technology stocks today, it looks like AOL should push through
that level in the days ahead, as the bulls take aim on stronger
resistance at $40, also the site of the 38% retracement of the
decline since May.  Target new entries on intraday pullbacks to
support at either $37 or $36 and raise stops to $34.50.

Comments

AOL broke above short-term resistance today.  The stock should
work higher in the coming sessions if the broader market
continues advancing.  Look for a strong S&P and Dow early
Wednesday and consider entries around current levels.

BUY CALL DEC-35 AOE-LG OI=18709 at $4.40 SL=2.75
BUY CALL DEC-37*AOE-LU OI= 9252 at $2.80 SL=1.75
BUY CALL DEC-40 AOE-LH OI=13746 at $1.50 SL=0.75
BUY CALL JAN-37 AOE-AU OI=26476 at $3.50 SL=2.25
BUY CALL JAN-40 AOE-AH OI=43301 at $2.35 SL=1.75

Average Daily Volume = 18.1 mln



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