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Daily Newsletter, Tuesday, 11/20/2001

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The Option Investor Newsletter                 Tuesday 11-20-2001
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)
************************************************************
       11-20-2001           High     Low    Volume Advance/Decline
DJIA     9901.38 - 75.08  9976.73  9893.49  1.3 bln   1451/1678
NASDAQ   1880.51 - 53.91  1930.21  1877.79  1.9 bln   1363/2246
S&P 100   590.03 -  5.04   595.65   589.61   Totals   2814/3924
S&P 500  1142.66 -  8.40  1152.45  1142.17
RUS 2000  453.90 -  3.81   458.82   453.76
DJ TRANS 2489.44 - 43.08  2530.67  2484.33
VIX        25.93 +  1.13    26.55    24.97
VXN        51.41 +  1.14    51.69    50.05
TRIN        1.51
Put/Call Ratio       .60
*************************************************************

Profit Taking Means Lower Prices

This may sound crazy but many overly optimistic people think that
profit taking only happens to other people or to stocks they don't
own. A day like Tuesday catches them totally by surprise even
though the "profit taking ahead" warning has been prevalent. The
Dow was up over +20% from September lows and the Nasdaq +35%. The
topic of conversation for Monday was the appearance of the "new
bull market" now that the twenty percent threshold had been breached.
Today was simply a case of sell on the news coupled with a desire
to be flat over the long Thanksgiving weekend.





The market news was slim Tuesday with nothing much to power the
markets in front of the holiday. Microsoft is considering a deal
that would settle the majority of the private antitrust cases against
the company. The deal would require that the company provide free
software and computers to the 14,000 poorest U.S. schools over the
next five years. The deal would cost Microsoft between $1.1 billion
and $1.7 billion but that could easily be seen as an incredible
windfall for Microsoft. By supplying PC based computers and software
to the next generation of computer users, children, they effectively
get a jump on Apple Computer in the future sales cycle. People tend
to buy what they are familiar with and shun that which is different.
After years of critical errors and lapses by Microsoft it appears
that all the stars are in alignment for them now. The Justice Dept
rolled over with a slap on the wrist and a pat on the back and
now a chance of a lifetime with the civil case settlement. MSFT
lost -1.14 for the day with the pre-thanksgiving profit taking but
it pulled back to support at $65. With even stronger support at $64
and all the bad news disappearing this could be the last entry point
before triple digits again next spring.

IBM fought the trend with a fractionally positive gain based on
news that their server revenue climbed +7% to a year over year 30.3%
in the third quarter and extended the companies lead as the world's
largest server vendor according to Gartner Dataquest. According to
Gartner, IBM was the only one of the top four Intel processor based
server vendors to gain revenue share in the last two quarters. They
based their gains on a complete line of servers from entry level to
giants running all types of operating systems including UNIX. IBM said
their competitors try to shoehorn customers into one-size-fits-all
solutions. SUNW, CPQ and DELL all lost ground on the news. IBM has
been moving sideways in price since Nov-7th with a solid top at $117
but also a solid bottom at $112.50. I would use any weakness to that
level to institute new long positions in IBM. $110 is the next stronger
support level.

Not all news on Tuesday was good. ADI announced earnings and an -88%
drop in net income and warned that revenue growth would not resume
until the 2Q of the next year. They said demand for their signal
processing chips remained weak. They lowered guidance to $.11 instead
of the prior $.15 estimate. ADI fell to $39.50 in after hours after
trading near $47 on Monday.

Triquint Semiconductor also warned after the close that sales were
less than expected and said revenue would be at the low end of the
prior estimates. They said most of this quarters sales were booked
in the last quarter and bookings this quarter were not as strong.
Both ADI and TQNT said they were beginning to see a bottom forming
but that bottom is ahead of us not behind us. This is contrary to
prior thoughts that the 3Q-2001 was the bottom.

Mandalay Resort Group, a Vegas hotel group, also warned that 4Q
earnings would be light because gambler visits had not yet picked
up due to the reluctance to travel. While this is a recreational
hotel chain the same is true for the regular business destinations
as well.

Goldman Sachs' chief investment strategist Abby Joseph Cohen went
on record again as being bullish on the current market. She raised
her equity allocation to 75%, the highest ever, on Sept-24th after
the 9/21 lows. She feels that earnings may bottom in the 4Q even
if the economy doesn't. Her lowest level for the year-end S&P-500
is still 1300 which is +158 points higher. Her upper target is 1425.
She moved to a range recently after being soundly trounced on her
last few specific predictions. Still, she is on the right track.

We looked at a lot of charts today after the market closed and the
consensus of opinion was a draw. As everyone knows the markets have
been on a really good run and have been due for profit taking for
several days. That profit taking will be assisted by the negative
chip news after the bell today. BUT, most of the charts had only
given back their gains from Monday. Normal profit taking is not
giving back one days gains. Many of these charts pulled back to
just above support and while they could still fall further they
are not likely to fall much farther.

The fix is in for the markets. The war is almost over or at least
the highly visible portions. Now it is just a manhunt and not a
150 plane daily bombing campaign. American citizens are becoming
more secure in their daily lives with no further terrorist attacks
and stronger and stronger security safeguards. Gas prices are falling
to double digit levels with no strong indications that they will
be successful in cutting production ahead. (Thank Bush for the barbecue
and handshake with Russia for that. One word from Russia that they
will go along with the cuts and prices could have soared again.
Don't think it was not discussed and agreed!) The earnings warnings
for the 4Q have been dire and will get worse but therein lies the
possibility of better than expected real results. Stocks are warning
because of the past 90 days trend. Cheaper oil will break that trend
and show up as better than expected earnings on the manufacturing
side and the trend on the consumer side is also changing.

How do I know? Our office building shares a parking lot with a
shopping mall. After thanksgiving it is almost impossible in
normal years to find a parking place. Over the last several months
it has literally been vacant with only dozens of cars instead of
thousands. That has changed in the last two weeks. The numbers of
cars are increasing daily and are almost back to their pre-holiday
levels. I can't say for sure until next week but I expect the lines
into the lot will return this weekend and continue through December.
Why am I so sure? The retailers have been making it clear that they
plan to discount everything to rock bottom. Remember, they ordered
their current inventory well before the 9/11 attack. Now they have
money tied up in merchandise that they have to move at any price.
This produces sales that will be legendary in magnitude. Those "sell
at any price events" will drag consumers board with war TV off the
couch and into the malls. Consumer confidence will soar as cheap
purchases produce the same feelings as 99 cent gas. I will keep
you posted on the PLI (parking lot indicator) as the holidays
approach.

The bottom line for me is still bullish. I see any dip as another
buying opportunity unless conditions change. About the only things
that could change the picture would be another big terrorist attack
or a change in Fed policy on Dec-11th. Until then any further dip
in stocks is an undeclared "blue light special" which we should
buy.

Enter passively, exit aggressively!

Jim Brown
Editor@OptionInvestor.com


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

Save Me A Slice
By Eric Utley

Do you remember that overbought "thing" we'd been writing
about?  The major averages moved towards working off that
condition Tuesday.  There's more work to be done before the
averages can be considered short-term oversold.  But Tuesday's
big sell-off makes one wonder if it was day of distribution,
especially noting the heavy volume in the Nasdaq market.
I think Tuesday's sell-off was needed, but want to factor the
blow-off in tech into the bigger picture.  How can you ignore
a six percent drop in the Chips (SOX.X) or a five percent
slide in the Networkers (NWX.X)?

The bullish percent data of the major averages is in bull
market territory.  However, the Nasdaq-100 ($BPNDX) reached an
extremely overbought level Monday at 78 percent.  Recall that
the NDX bullish percent hit 82 in May.  What happened after the
NDX hit 82 percent?

When a market grows as overbought as the NDX recently has, it
requires action on the part of traders.  Those who've
participated in the recent run in tech stocks could be looking
for defensive means of protecting or hedging gains.  There are
several strategies to consider, such as buying protective puts,
selling covered calls on current stock holdings, or simply
setting tight stops.  The point is to manage risk.  With the
NDX bullish percent where it is, risk has shifted to the
downside.  Whereas risk was to the upside eight weeks ago when
the NDX bullish percent was at zero, which brings up an
interesting point:

  If the NDX bullish percent can go to zero, what prevents it
  from going to 100?  The answer is nothing.  Anything can
  happen in the market.  Nevertheless, the point is to know
  where your risk lies and to manage that risk.  If you do
  that, you'll stay in this game longer than most.

Despite the sell-off across the market Tuesday, the new high/
new low index stayed positive, which is..well...a positive.
The fear gauges, specifically the CBOE Market Volatility
Index (VIX.X) and Nasdaq-100 Volatility Index (VXN.X), are
back down to historical norms, possibly revealing complacency,
which is a negative.  The VIX.X hit a low of 25 Tuesday.
The 10-dma of put/call ratios have been lower recently, which
reveals more complacency.  The put/call ratio of the QQQ
options is the exception; it spiked Tuesday, which may have
been a product of last week's NOV paper expiring.  The ARMS
Index is trading within reasonable levels.

Hopefully the family will help me make sense of the market.
I'll be traveling back home to battle over a Thanksgiving feast
with many, many relatives.  It's a big, competitive gathering.
Darwin would be proud.

To compound the competition, my brother and father are what I
like to refer to as "BIG boys."  At six foot three and 200
pounds, I'm the runt by a wide margin.  Seriously.  Pops
stands six foot eight and "little" brother has me by about two
inches and 50 pounds.

I'd really like a slice of pumpkin pie following dinner; I was
late to the pies last year.  Hopefully grandma bakes four this
year.

Despite their, uh...gluttony, I wouldn't have them any other
way.

I wish you and your family a safe and peaceful Thanksgiving.
And if you have any leftover pumpkin pie, you know where to
send it.

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

Market Volatility

VIX   25.93
VXN   51.41

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.53        699,765       367,934
Equity Only    0.48        652,615       298,785
OEX            1.67          7,888        13,158
QQQ            3.36         11,647        39,087

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

Bullish Percent Data

           Current   Change   Status
NYSE          44      + 1     Bull Confirmed
NASDAQ-100    75      - 3     Bull Confirmed
DOW           63      + 0     Bull Confirmed
S&P 500       61      + 0     Bull Confirmed
S&P 100       62      - 1     Bull Confirmed

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  0.87
10-Day Arms Index  0.98
21-Day Arms Index  1.08
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      1451           1678
NASDAQ    1363           2246

        New Highs      New Lows
NYSE       92             35
NASDAQ     66             34

        Volume (in millions)
NYSE     1,323
NASDAQ   1,956

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

Commitments Of Traders Report: 11/13/01

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 added to long and short positions last week
with a slight bias to bearish positions.  Small traders did the
same.

Commercials   Long      Short      Net     % Of OI
10/30/01      377,468   413,729   (36,261)   (4.6%)
11/06/01      376,807   416,063   (39,256)   (5.0%)
11/13/01      381,539   421,284   (39,745)   (5.7%)

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
10/30/01      123,546     71,225   52,321     26.9%
11/06/01      132,106     81,208   50,898     23.9%
11/13/01      136,047     87,645   48,402     22.0%

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 dropped a few long positions and added more
short positions for a bearish gain in their net position.  Small
traders went the opposite direction by adding to longs and shedding
short positions for a net bullish gain.

Commercials   Long      Short      Net     % of OI
10/30/01       32,055     45,574   (13,519)  (17.4%)
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)
11/13/01       38,751     49,257   (10,506)  (12.0%)

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
10/30/01       12,725     6,475    6,250      32.5%
11/06/01       11,406     8,143    3,263      16.7%
11/13/01       11,568     6,505    5,063      28.0%

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 shed a few more longs than shorts last week,
which lowered the net bullish position from the previous week's
reading.  However, the % of OI net long grew.  Small traders
added to long positions and lightened short positions.  The
small traders remain decidedly bearish on the Dow.

Commercials   Long      Short      Net     % of OI
10/30/01       25,872    12,556   13,316     34.7%
11/06/01       25,977    11,951   14,026     37.0%
11/13/01       24,145    10,204   13,941     40.6%

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
10/30/01        4,261    11,220    (6,959)   (45.0%)
11/06/01        3,569    12,281    (8,712)   (55.0%)
11/13/01        4,094    12,121    (8,027)   (50.0%)

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:
*****

CREE $23.67 -1.19 (-1.58) CREE spiked above the $25 level
early Monday but fell back below the level later in the
day.  The stock closed at its day low Tuesday and looks to
have further downside as the $24 level failed to hold late
in the day.  Traders with open positions might consider a
tight stop below Tuesday's intraday low to manage risk in
the event of further downside.

CHKP $38.15 -4.33 (-1.21) Profit taking hit the software sector
(GSO.X) on Tuesday, and it is no surprise, given the sector's
strong move off the September lows.  Our CHKP play got hit much
harder than the overall sector though, giving up more than 10%
and falling through our $39 stop.  Although the selling abated
as CHKP found support near $38, the heavy selling volume, close
at the low of the day and violated stop has us dropping the play
like a hot potato.  All positions should have been closed due to
the violated stop, but if you're still hanging in there, take
advantage of any bounce on Wednesday to exit the play.

CMVT $22.50 -1.07 (-1.32) The momentum run was bound to run out
of steam eventually, and judging by the sharp drop in shares of
CMVT on Tuesday, that time has arrived.  Profit taking in
technology drove the stock below its ascending trendline and
right to the 10-dma ($22.60) at the close.  While our $21 stop
is still intact, the rollover in daily Stochastics has us moving
CMVT to the drop list this evening.  We'd rather harvest our
gains now, rather than wait for the decline to really get
rolling over the holiday shortened trading sessions still to
come this week.  Use any bounce tomorrow as an opportunity to
gain a more favorable exit.


PUTS:
*****

No Dropped Puts for Tuesday.


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

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


CALLS              Mon    Tue

SPW     118.09    3.15  -0.41  Solid week, new relative high
PMCS     20.83   -0.03  -2.38  Pulled lower by the NWX and SOX
PDLI     36.26    2.62  -2.30  Broke out Mon, pulled back Tue
NOK      23.42   -0.37  -1.20  Analyst meeting in one week
FNSR     12.05    0.96  -1.50  Could bounce from the 10-dma
CREE     23.67   -0.39  -1.19  Dropped, closed at day low
AOL      36.97    0.85  -0.78  Media stocks lower on profit taking
BRCM     44.07   -1.74  -1.74  SOX close to testing 480 support
IBM     115.44    0.50   0.44  Chipping away at resistance at $117
JNPR     25.02    0.97  -1.55  Fell below ascending support line
MSFT     65.40    0.79  -1.14  GSO tested its 10-dma Tuesday
QCOM     59.22    2.39  -3.25  Cause for concern in the YLS
CHKP     38.15    3.12  -4.33  Dropped, gave up more than 10%
CMVT     22.50   -0.25  -1.07  Dropped, momentum losing steam
JNJ      60.78   -0.02   0.88  New, defensive breakout



PUTS

NOC      96.75    4.45   0.80  Rebounded, now ready to rollover
KKD      41.33    1.29  -0.46  Ceiling of resistance at $42
MXIM     50.58   -0.41  -3.11  Textbook put play on this chip


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Stop Losses based on the option price or the stock price.
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The Option Investor Newsletter                  Tuesday 10-20-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/8734_2.asp


************************Advertisement*************************

SERVICE AND PRICE

$1.50 Per contract or $14.95 minimum, plus live
personal assistance in plain English with an option friendly broker.
How do we do it?  Click here
http://www.optionsxpress.com/marketing.asp?source=optinv3

Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


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

SPW $118.09 -0.41 (+2.74) SPW put in another solid day yesterday.
The stock followed the broader market higher en route to hitting
yet another relative high at $119.  Monday's strength was yet
another opportunity for traders with open positions to take
profits into the rally.  SPW pulled back early Tuesday but
rebounded into the close.  Traders looking for new entries into
this strong play should wait for another pullback on lighter
volume near the ascending support line between $116 and $116.50.
An extended pullback may pressure SPW down to the $115 level or
potentially $112.  We've raised our stop to the $112 level,
which is very liberal.  Traders with open positions should use
a tighter stop to protect profits.  Let the broader market be
your indicator.  Monitor the trading in the Dow and S&P when
gaming this play.

PMCS $20.83 -2.38 (-2.41) PMCS pulled back sharply in today's
session.  The stock stopped its decline near our coverage stop
at the $20.50 level.  Going into Wednesday's session, we'd
like to see PMCS rebound from its pullback in order to keep its
ascending trend intact.  Both the Network (NWX.X) and
Semiconductor (SOX.X) sectors pulled back sharply in today's
session.  We'll need to see a rebound in both sectors Wednesday
if PMCS is going to reverse from Tuesday's sell-off.  Traders
looking for a bounce might look for buyers to step in between
the $20 and $20.50 levels early tomorrow.  Look for early
strength in the aforementioned sectors before attempting to
pick a short-term bottom in PMCS.  A rebound and subsequent
advance back above the $21 to $21.50 range may offer more
confirmation of a short-term reversal.

PDLI $36.26 -2.30 (+0.32) PDLI finally broke out of its trading
range yesterday in conjunction with the Biotech (BTK.X) sector's
advance past the 600 resistance level.  It was a "green light"
move in PDLI yesterday, which should've offered traders new
entry points into the play.  Unfortunately, the broader market
dragged both PDLI and the BTK lower in Tuesday's session.
Traders who took positions on the breakout yesterday should be
thinking about managing risk.  The market could continue lower
and pressure PDLI.  The one positive in Tuesday's session was
PDLI's bounce from its 10-dma at $35.81.  Traders looking to
manage risk could consider a stop at the 10-dma.  If the stock
does continue lower in Wednesday's sessions, traders looking for
new entries might wait for weakness down to the $33.50 to $34
range.  The stock has an unfilled gap in that area.  A filled
gap and subsequent rebound would offer a favorable entry into
new positions if the BTK rebounds.

NOK $23.42 -1.20 (-1.57) NOK poked above the $25 level in
Monday's sessions but slid lower in Tuesday's trading along
with the broader market.  The stock stopped at its converged
10- and 200-dma at the $23.40 level.  We may see a short-term
bounce from this level as early as tomorrow morning.  Traders
looking for a new entry might consider taking positions on
strength from the converged moving averages.  Below, the stock
has support between the $22.50 and $23 levels.  That area may
serve as another possible entry zone upon a rebound.  NOK is
hosting its analyst meeting on November 27.  The stock may
strengthen ahead of that meeting as investors discount the
company's new product and launch and additional good news from
the mobile phone maker.

FNSR $12.05 -1.50 (-0.54) FNSR advanced past its 200-dma in
yesterday's session but gave back those gains and more during
today's pullback.  The Network (NWX.X) sector was particularly
hard hit among technology sectors, which obviously added
pressure on FNSR.  The stock's 10-dma is lurking below at the
$11.32 level.  Further weakness in the market and NWX.X could
pressure FNSR down to its 10-dma, where traders might look for
the stock to stabilize.  A rebound in the market and NWX.X
tomorrow in conjunction with a bounce in FNSR from its 10-dma
would offer an entry point on weakness.  We've raised our
coverage stop on FNSR to the $11 level.  Traders with open
positions might consider a tighter stop.

AOL $36.97 -0.78 (+0.07) Prior to the profit taking this week,
media stocks had posted quite a run, with the group more than
20% off their recent lows.  It looks like ad revenue may be
firming up and that is encouraging to the bulls, given the fact
that this group relies heavily on advertisers.  After moving up
to the $39 level, AOL has been seeing some profit taking lately,
and appears to be building support near $36.50.  While trading
will likely be light for the remainder of the week, it could
provide an attractive entry for a resumption of the bullish move
as traders return next week.  Target renewed bounces from
support, but move stops up to $36.25.  If AOL can't hold this
level, it will be a strong signal that the bulls have lost their
traction and it will be time to move on to other plays.

BRCM $44.07 -3.48 (-1.74) Nervous bulls in the Semiconductor
sector (SOX.X) decided to harvest some profits ahead of the
holiday weekend and the selling got a bit carried away.  After
rolling south near the $540 descending trendline last week, the
SOX dropped under the $500 level by the close of trading on
Tuesday, and could easily test the $480 support level later this
week.  The result of that test will likely determine the fate of
our BRCM play, which also saw some concerted selling on Tuesday.
Falling back more than 7%, BRCM fell fractionally below the
10-dma ($44.32) for the first time since the end of October.
This is a pivotal point for our play, as it should find support
soon, or risk falling into a significant decline.  Look for
support to materialize above $43, as a drop below that would
break significant support (prior resistance) and the 2-month
ascending trendline.  Raise stops to $42.75.

IBM $115.44 +0.44 (+0.94) The rally in the broad markets is
looking a little battle-weary, but that hasn't kept shares of
IBM from continuing to chip away at intraday resistance near
$117.  While profit taking has repeatedly driven the bulls back
from their breakout attempts, the intraday lows are getting
higher again, building another bullish wedge.  Continue to
target new positions on intraday dips, so long as they are met
by eager buyers.  The ascending trendline is resting at $115,
with firmer support near $114 and then down at $112.50, backed
up by the rising 20-dma at $112.32.  We're leaving our stop in
place at $112, as a drop below that level would likely result
in a drop out of the recent $112-117 trading range.  Likewise,
until IBM can break through resistance, continue to harvest
profits whenever the stock weakens near the $117-118 level.

JNPR $25.02 -1.55 (-0.58) After the stellar rally that
Networking stocks have seen in recent weeks, a little bit of
profit taking would seem to be the natural course of events.
Well, we got that in spades on Tuesday, as the NWX.X fell back
from the $358 level, losing more than 5.5% on the day.  JNPR
saw some early relative strength, running briefly above $27
before the sellers made their move.  After the bulls exhausted
themselves in the first hour, the bears ruled the day, with
JNPR falling nearly 6% by the closing bell, coming to rest just
above $25.  While it looks like simple profit taking on the
surface, there was some technical damage done, as the stock fell
under the ascending trendline ($25.50) that has been supporting
the stock for the past 2 weeks.  Particularly disconcerting is
the accelerating volume into the close.  We need to see the $24
level hold as support if we are going to consider this another
buyable dip.  Target solid bounces above this level for fresh
entries and move to the sidelines if our $23.50 stop is violated.

MSFT $65.40 -1.14 (-0.35) The recent rally in shares of Software
stocks is well, ah...softening.  That much is clear from a quick
glance at the daily chart of the GSO.X, which fell sharply on
Tuesday, coming to rest just above the 10-dma ($168).  MSFT has
been weakening over the past week after pulling back from the
$68 resistance level.  Since then, the bulls have barely been
holding their ground, near $65, which also happens to be the
site of the ascending trendline.  Not only that, but Tuesday's
close puts MSFT below its 10-dma ($65.73) for the first time
since the end of October.  We need to see buyers support the
stock near current levels if our play is going to remain active.
We can target new entries on a solid (read: volume) bounce
above our $64.50 stop, but if that is violated, we'll be
dropping the play from our call list.  Daily Stochastics are
rolling, so we want to look for strength in the GSO to confirm
any positive movement in MSFT before initiating new plays.

QCOM $59.22 -3.25 (-0.86) Is the run in Wireless stocks over?
While we aren't prepared to say that after a single-day, 5.5%
drop, we are concerned with the degree of weakness demonstrated,
as the YLS.X closed at its low of the day, retracing the past
3 days' gains.  QCOM got hit by the sellers too, falling back
under the $60 level and coming to rest just above the 200-dma
($58.61).  Either we are setting up for another attractive entry
point, or QCOM is about to reverse the breakout over the
descending trendline from last week.  It will be tough to gauge
in the abbreviated sessions remaining this week, but we have
our action points in mind.  Target fresh entries on a solid
bounce from the 200-dma or support between $57-58.  More
cautious traders will want to wait for QCOM to push back above
the $60 level and hold before venturing into new positions.  We
are moving our stop up to $57 to minimize the damage if the
bulls fail to hold back the selling pressure.


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

JNJ - Johnson & Johnson $60.78 +0.88 (+0.86 this week)

Johnson & Johnson is engaged in the manufacture and sale of a
broad range of products in the healthcare field.  The company
conducts business in virtually every corner of the globe.
JNJ's activities are divided into three primary business
segments; Consumer, Pharmaceutical and Professional.  The
Consumer division is focused on personal care and hygiene
products, while the Professional segment provides a wide range
of products used by the healthcare profession.  The
Pharmaceutical group provides a broad range of over-the-counter
and prescription medications for the treatment of afflictions
ranging from antifungal to dermatological to pain management
conditions.  In June of 2001, the company merged with ALZA Corp,
a research-based pharmaceutical company which became a direct,
wholly owned subsidiary of JNJ.

After breaking out to new highs in October, shares of JNJ have
been building up for another move higher, and Tuesday the
catalyst arrived.  The U.S. Food and Drug Administration
approved the company's newest ground-breaking pharmaceutical
product.  Ortho Evra is the first ever contraceptive skin patch,
which releases hormones into the bloodstream through the skin
to prevent pregnancy.  That just caps off a series of positive
news announcements from the company over the past week and gave
the bulls the fuel they needed to push the stock decisively
through the $60 resistance level.  While shares of JNJ won't
rocket higher like so many tech stocks, it looks like this
breakout could be just the beginning of another solid push
higher.  During the most recent consolidation, the stock has
been posting higher lows, forming an ascending trendline that
currently rests at $59.30.  Further supported by the 20-dma
($59.16) and historical support (prior resistance) at $59, we
have the ability to manage our risk with a tight stop at $58.50.
Look for attractive entry points to materialize either on a
bounce from above $59, or a continuation of the rally, with a
push above $61.

BUY CALL DEC-55 JNJ-LK OI= 5298 at $6.10 SL=4.00
BUY CALL DEC-60*JNJ-LL OI= 5863 at $1.90 SL=1.00
BUY CALL JAN-57 JNJ-AY OI=15374 at $4.30 SL=2.75
BUY CALL JAN-60 JNJ-AL OI=30943 at $2.55 SL=1.25
BUY CALL JAN-62 JNJ-AZ OI=12441 at $1.30 SL=0.75

Average Daily Volume = 7.79 mln



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

NOC $96.75 +0.80 (+5.25) The Defense (DFI.X) sector worked
off its oversold condition in the last three session.  NOC
did the same.  Its daily oscillators, which were buried in
oversold territory just last week, have measurably moved out
of oversold territory.  In addition, the stock rolled over
near recent historical congestion between $97 and $98.  We
would've liked to have seen the stock pause and rollover at
a slightly lower level, but Tuesday's action was encouraging
nonetheless.  The DFI.X finished fractionally higher, which
put NOC fractional gain into perspective.  If the sector and
stock are going to rollover, the weakness should begin to
emerge in tomorrow's session.  Traders who took entries on
the intraday rollover today should have a tight stop set to
manage risk.  Those looking to enter new positions should
watch for weakness in the DFI.X and consider entries at
current levels.  Those looking for more confirmation to the
downside might wait for the DFI.X to weaken and look for
NOC to decline below the $95 to $95.50 range.

KKD $41.33 -0.46 (+0.83) There's a ceiling in place at the
$42 level.  It's been fun to watch KKD trade in the last
two days as each time the stock attempts to hurdle $42 it
has been knocked down.  KKD has traded in a similar fashion
in the past; it struggled to advance past the $38 level in
mid-October; the stock couldn't rally past $40 in late June/
early July.  In each instance, KKD sold off after failing
to rally pas resistance.  Hopefully history repeats.  Traders
looking to enter new put plays can do so at current levels,
where risk is easily managed.  Quite simply, a stop just above
$42 would serve as an excellent risk management tool such as
our coverage stop at $42.25.  Ideally, we'll get more market
weakness in the coming days which if it occurs should pressure
KKD lower.  Momentum traders might look for a high volume
decline below the $41 level.

MXIM $50.58 -3.11 (-3.52) Performing like a textbook put play,
MXIM started to breakdown on Monday, briefly falling below its
ascending trendline, but recovering that level at the close.
The sellers really got serious on Tuesday, as profit-taking hit
the Semiconductor sector (SOX.X) ahead of the holiday weekend.
MXIM fell through the trendline on solid volume and closed just
off the low of the day and below the 20-dma ($50.76) for the
first time since late October.  If this is the beginning of a
bearish move on the SOX, MXIM's relative weakness could lead it
significantly lower.  Target new positions on a breakdown below
the next level of support ($49) or on a failed rally attempt
below $53.  Move stops down to $54 and monitor the action on
the SOX for confirmation of sector weakness before playing.


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

MXIM - Maxim Integrated Products $50.58 -3.11 (-3.52 this week)

MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

Most Recent Update

Performing like a textbook put play, MXIM started to breakdown on
Monday, briefly falling below its ascending trendline, but
recovering that level at the close.  The sellers really got
serious on Tuesday, as profit-taking hit the Semiconductor sector
(SOX.X) ahead of the holiday weekend.  MXIM fell through the
trendline on solid volume and closed just off the low of the day
and below the 20-dma ($50.76) for the first time since late
October.  If this is the beginning of a bearish move on the SOX,
MXIM's relative weakness could lead it significantly lower.
Target new positions on a breakdown below the next level of
support ($49) or on a failed rally attempt below $53.  Move
stops down to $54 and monitor the action on the SOX for
confirmation of sector weakness before playing.

Comments

The less-than-bullish guidance from ADI after the close Tuesday
may pressure the semis in Wednesday's sessions.  Bearish traders
can watch for the SOX to breakdown below its near-term support
at 492.  A breakdown in the SOX should pressure MXIM lower.
Consider entries at current levels if the Nasdaq and SOX show
signs of weakness.

BUY PUT DEC-55 XIQ-XK OI=1147 at $6.40 SL=5.00
BUY PUT DEC-50*XIQ-XJ OI= 847 at $3.70 SL=2.75
BUY PUT DEC-45 XIQ-XI OI=2230 at $1.70 SL=1.00

Average Daily Volume = 5.80 mln



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