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Daily Newsletter, Tuesday, 11/27/2001

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The Option Investor Newsletter                 Tuesday 11-27-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       11-27-2001           High     Low    Volume Advance/Decline
DJIA     9872.60 -110.15  9992.72  9831.15  1.3 bln   1396/1724
NASDAQ   1935.82 -  5.27  1965.09  1902.89  2.1 bln   1758/1914
S&P 100   590.83 -  5.41   598.57   586.86   Totals   3154/3638
S&P 500  1149.49 -  7.93  1163.38  1140.81
RUS 2000  460.71 -  0.51   463.25   457.92
DJ TRANS 2509.30 - 16.55  2539.62  2500.64
VIX        25.21 -  0.03    26.35    24.08
VXN        49.27 +  1.05    51.30    48.01
TRIN        1.09
Put/Call Ratio       .74
*************************************************************

Consumer Confidence?

As expected the consumer confidence index fell again in the
November reporting period. The drop to 82.2 was due to the
weak jobs market in October and is the lowest number since 1994.
The confidence numbers also showed that consumers are slowing
plans to make major purchases. That slowing coupled with the
news that we have been in a recession since March gave traders
another excuse to take profits. Traders did not need much of an
excuse since the 10,000 level on the Dow was starting to appear
tougher than they thought.





In addition to the Consumer Confidence report this morning the
market also got a wake up call from Nokia. The company held an
analyst meeting in New York and lowered sales estimates slightly
for 2001. That is all analysts needed to hear to reach for cell
phones to issue sell orders. Nokia dropped -1.50 on the day but
investors may have wished they had gotten a busy signal instead
of a broker. Nokia concluded their meeting with glowing words
about their new products and up graded sales estimates for 2002
to between 420-440 million units. They said they would make their
profit estimates and would grow revenue between +15% and +25%.
While some analysts were issuing a sell on the stock others were
calling for buying the dip.

After the bell today Anadigics (ANAD) announced winning two big
CDMA contracts from Korean companies and said they expected
increased revenue over the next year as more CDMA networks
ramp into production. Wireless is not dead as many thought
when the Nokia analyst meeting began this morning. Qualcomm
should benefit from this news as well.

Flextronics (FLEX) announced after the close that they were
comfortable with estimates and business was good. FLEX is a
contract component manufacturer which includes HWP printers,
the MSFT Xbox, and cell phones. Analysts feel FLEX is a leading
indicator of the health in the tech sector since they are the
first line of production in many areas. CEO, Michael Marks, said
demand for mobile phones was beating expectations and sales of
PCs and related items were doing okay but the telecommunications
sector was still problematic. FLEX said they were seeing the early
signs of an economic recovery.

Intel also added to the positive feeling intraday after CFO Andy
Bryant was confident that it will meet fourth quarter revenue
forecasts of between $6.2 and $6.8 billion. Bryant said Intel
was getting more and more comfortable every day with current
projections. Bryant said the WTC attack and resulting business
slowdown had made projections difficult but that the current
rebound was encouraging. He did however say they were less
confident predicting an end to the current recession. INTC
rallied to resistance at $32.50 but failed to break through.

Does all this news sound bearish or bullish? If your answer is
bullish then why did the market sell off again? Some feel that
the first blush on the Nokia news coupled with the expanding
war news was all the excuse traders needed to take profits again.
News that IRAQ was bombed again is not new. IRAQ has been bombed
repeatedly for the last ten years whenever they try to shoot
down coalition planes. What was new was the idea that Bush was
trying to find an excuse to go after Saddam and this was the
prelude to that attack. I really do not think this was a market
problem. More marines are going ashore in Afghanistan but I do
not think that is a problem either. Both of those events are
already priced into the market.

I think is the problem is fear of falling. The major averages
have had a significant run and have come to a dead stop at serious
resistance. The longer we linger here without breaking through
the more worried investors will become that the rally has run
its course. Despite the negative numbers on Tuesday I think the
long term trend is still positive.

The Consumer Confidence numbers this morning was bullish in my
opinion. The headline number is a summary of the past. We all
know that the recent past has been bleak but how many layoffs
have you heard of recently? Not near as many as 60-90 days ago.
The "expectations" component of the index actually rose by four
points to 74.6 and shows that consumers expect things to get
better soon. Do you think $.95 cent gas is hurting anyone? How
about home mortgages under 7%? How about cheaper prices in the
malls during the holiday season? I doubt anyone is complaining
about any of these things. Confidence actually rose sharply for
those under age 35, from 91.9 to 97.4, evidencing confidence in
a coming recovery. Contrary to the confidence numbers, existing
home sales rose significantly last month to an annual rate of
5.17 million. Housing inventory also dropped and buyers raced
to take advantage of the low rates.

Still, the headline Consumer Confidence numbers may have cemented
another rate cut on Dec-11th and several analysts even feel there
will be one after that. While I am not quite that optimistic I do
think that the bottom in the market and the economy is behind us.
However, just because the bottom is behind us does not mean that
there are only blue skies ahead. We still have that resistance
problem to deal with. The Nasdaq actually traded above its 200DMA
of 1964 on Tuesday for the first time since Sept-8th 2000. While
it closed below this level this is a positive event. The S&P-500
traded briefly over strong resistance at 1160 and the Dow came
within eight points of 10,000 for the sixth time in the last two
weeks.

The Dow is stuck solidly in a 200 point trading range between
9800 and 10,000. This means traders will buy 9800 and sell 10,000
every time until one of those ranges fails. Even with the "bad"
news today the Nasdaq managed to hold at 1935, a level which had
proved tough overhead resistance for the last two weeks. The bounce
today came exactly at the 5-DMA of 1900 which should provide support
unless something new appears to shock the markets. 1850 is still
strong support for the Nasdaq and traders should buy any dip to
that level.

Remember on Sunday I talked about this being the make or break
week for this rally. The drop from the highs today showed how
scared traders are that it will not last. This is good! If
everyone was bullish we would be doomed. Our targets for a new
bullish confirmation are 10,000 on the Dow, 1965 on the Nasdaq
and 1160 on the S&P. Continue to buy any move above those levels
or any dip back to support. (9800/1900/1130) Avoid opening any
new long positions if the markets continue to move sideways in
the middle of those current ranges. Wait for either extreme to open
new positions. Remember, without a continuation of this rally the
season for tax selling will begin sooner than mid-December. Also
next week marks the beginning of January earnings warnings. If
we do not make it out of this week with new highs the result
could be early selling to avoid those events.

Enter passively, exit aggressively!

Jim Brown
Editor


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

Dippity Doo
By Eric Utley

I use American Crew's pomade in my hair.  It smells manly and
leaves a nice shine.  It's not too greasy; it's just right.  I
can relate to the character, Ulysses Everett McGill, in the
Cohen brothers' O Brother, Where Art Thou?  Oftentimes in the
early hours of the morning I've been known to ask: "How's my
hair?"  In case you're wondering, I don't wear a hair net.

For reasons unknown to me, Jeff Bailey refers to my pomade as
dippity doo.  I don't laugh with him.

I think dippity doo better describes the trading across the
broader markets Tuesday than the product I use in my hair.  I
recall writing about the omnipresence of whipsaws over the
weekend, but had no idea that they'd surface so audaciously
Tuesday.  The dip following the consumer confidence numbers
was met with buying.  But the rally attempt in the afternoon
was followed by heavy selling into the close.  Short stocks/buy
puts on a breakdown.  Wrong!  Buy stocks/calls on a breakout.
Wrong!  I'm sure there were plenty of stops triggered Tuesday,
plenty of mine were.

Why the indecision and volatility?  Monday's advance was
another that felt like the economy would be sailing full
steam ahead next summer.  But the lousy confidence numbers
brought expectations back down Tuesday.  The market is
undecided on how much the economy and corporate profits will be
growing by next summer and fall.  How does a trader cope?

Until a new trend emerges, whether it be a continuation of
the rally or a reversal into a new descending trend, you might
consider picking your spots carefully.  Let the stock come to
you.  If it doesn't, move on.  Opportunities are easy to find,
losses are difficult to make up.  Above all, remember to first
consider risk before entering any market operation.  In the
worst case scenario, run some dippity doo through your hair.
It's quite therapeutic.

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

Market Volatility

VIX   25.21
VXN   49.27

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.74        628,410       462,296
Equity Only    0.66        563,235       371,107
OEX            1.40          7,812        10,931
QQQ            1.39         39,479        54,762

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

Bullish Percent Data

           Current   Change   Status
NYSE          46      + 1     Bull Confirmed
NASDAQ-100    77      + 3     Bull Correction
DOW           60      - 3     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  1.07
10-Day Arms Index  0.94
21-Day Arms Index  1.08
55-Day Arms Index  1.06

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      1396           1724
NASDAQ    1758           1914

        New Highs      New Lows
NYSE       79             24
NASDAQ     88             24

        Volume (in millions)
NYSE     1,301
NASDAQ   2,106

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

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

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

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

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:
*****

AOL $36.76 -0.61 (+0.00) What little buying occurred in shares
of AOL on Monday looked suspect as the price was really unable
to advance and the volume was rather light.  Sure enough, the
sellers had a little party today and the big red candle doesn't
look good, especially given the rather heavy volume.  While our
stop has yet to be violated, it just doesn't appear that the
risks justify the rewards in this play any more.  Use any
strength tomorrow to exit open positions, and look for stronger
stocks to play.

DGX $63.75 -1.55 (-1.93) Based on the past 2 days of trading,
it doesn't look like DGX is going to follow through on the rally
from last week.  The stock couldn't advance on Monday, and
sellers ruled the day on Tuesday, knocking our play back below
its 20-dma ($64.41).  While our $61.50 stop is still intact, it
looks like the $66 resistance level is going to hold for the
time being.  Rather than wait and hope, we'll remove DGX from
the playlist to make room for healthier plays.

JNJ $60.01 -0.49 (-0.96) What looked like a solid breakout a
week ago in shares of JNJ has since deteriorated into sideways
trade that took a nasty turn on Tuesday.  Opening and closing at
the low of the day gives us a shooting star "doji" pattern,
typically a sign of weakness.  Combine that with the stock
closing below its 10-dma and right on the ascending trendline,
and it seems like JNJ is about to break that trend.  While we
haven't violated our stop yet, the stock looks poised to break
below $60, violating the uptrend.  We'll take pre-emptive
action tonight and remove the play from the call list before
it digs a small crater.


PUTS:
*****

No Dropped Puts for Tuesday.


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

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


CALLS              Mon    Tue

SPW     122.52    4.85  -0.90  Another new high in the trend
PMCS     23.31    1.76   0.07  Strong chip, recent breakout
PDLI     38.05    2.59  -0.73  Closely tracking the BTK
NOK      23.72    1.06  -1.52  Talked down by the bears
AFFX     37.13    0.74  -0.74  Attempting to break $38 level
BRCM     49.92    3.45  -0.07  Big doji has bears frothing
IBM     114.20    0.98  -2.13  Tantalizing trading range
JNPR     26.30    0.54  -0.09  Volatile trading in NWX shares
QCOM     60.02    0.91  -1.29  Watch the highs and lows
CNXT     15.50    0.79   0.77  New, strong trending chip stock
FFIV     23.61    0.84   0.05  New, network breakout!!!
AOL      36.76    0.61  -0.61  Dropped, Harry Pottered out
DGX      63.75   -0.38  -1.55  Dropped, sellers ruling
JNJ      60.01   -0.47  -0.49  Dropped, deteriorating trend


PUTS

NOC      92.29   -2.25   0.49  Trending lower, late-day covering
KKD      38.34   -0.80  -0.81  Selling-off, bounced from $37
ERTS     54.64    0.63   0.31  Will patience pay off?
WWCA     24.90   -0.64  -0.26  New, bearish divergence from YLS
LH       77.40   -0.90  -3.50  New, healthcare at resistance


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The Option Investor Newsletter                  Tuesday 10-27-2001
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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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
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Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


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

SPW $122.52 -0.90 (+3.95) Amazingly, SPW powered to a new relative
high again Tuesday.  The stock is one of strength.  Its brief
dips have allowed entry points into the trend, but agility has
been the key.  Entering new call plays into strength, on
breakouts, has been working too.  At this point in the trend, the
stock is nearing historical congestion.  That resistance sits
between the $120 and $129 levels.  It's possible that SPW could
continue through its congestion zone onto new highs.  But at
the same time, it's possible that the stock could pause at
current levels.  In either case, consider your risk tolerance
and trading strategy before entering new plays.  Those with open
positions should consider a tight trailing stop to protect
profits or exiting open positions into strength above current
levels.  We raised our stop up to $117 Monday.  Traders with
open positions should consider a tighter stop and only use OI's
stop as a reference.

PMCS $23.31 +0.07 (+1.83) PMCS broke out above its most recent
high with its advance up to the $24.50 level.  That move pushed
the stock closer to our short-term price objective of $25.  The
move could've allowed traders who entered on the dip a favorable
exit point into strength.  The stock remains one of the stronger
in the broader Semiconductor (SOX) sector in addition to the
Networking (NWX) sector.  The former finished fractionally
higher Tuesday, while the latter slide lower.  The strength in
PMCS in light of the weakness in the NWX was encouraging for
future short-term direction.  Traders searching for new plays
can look for an advance back above the $24 level in conjunction
with an advancing market the relevant sectors.  Those who prefer
entering bullish plays into weakness might wait for a pullback
down to the $22 area.

PDLI $38.05 -0.73 (+1.86) The Biotech (BTK) sector edged lower
in Tuesday's trading following its big day Monday.  PDLI
tracked its sector closely.  After making a run on the $40
level, PDLI pulled back in concert with the biotech group.  Its
pullback was discouraging following the breakout attempt, but
we can blame it on the sector.  Ideally, we'll witness the BTK
rebound in the coming days.  Strength in the sector should
allow for PDLI to advance back above near-term highs and onto
the $40 level.  Bullish biotech traders can look for strength
in the BTK and consider entering new plays on a move above
short-term resistance.  If the BTK continues to pressure PDLI
lower into Wednesday's session, look for a bounce from the $36
level, which would mark a higher relative low in PDLI's
latest trend.  Our current coverage stop is in place at the
$35 level.

NOK $23.72 -1.52 (-0.46) The anticipation of Tuesday's analyst
meeting helped to carry NOK higher the day prior.  But the
results of the meeting didn't help the stock to breakout above
its short-term resistance at $25.  The bears tried to highlight
NOK's cautious comments Tuesday, while the bulls tried to
emphasize the positive news.  The indecision was clearly
reflected on the stock's Daily chart.  From a technical
standpoint, it was encouraging to witness NOK bounce from its
200-dma.  The 200-dma currently sits at $23.24.  The bounce
combined with the positive attributes of the analyst meeting
may be enough of a reason to consider NOK's weakness Tuesday
a buying opportunity, especially for traders with a longer
time horizon.  If the tech and telecom sectors rebound in
Wednesday's session, we should see NOK follow suit.  Continue
monitoring the Wireless (YLS) sector and watch for a bounce
from the 200-dma or an advance above $24.50.

AFFX $37.13 -0.74 (+0.00) Following Monday's follow through of
Friday's rally, AFFX traced another post-attack high but
couldn't keep it up on Tuesday.  After two days of attempting
to break through the $38 level, traders gave up in the final
two hours of trade and let the stock fall back to end the day
right where it ended on Friday.  The late-day weakness was
reflected throughout the broad market and the Biotech sector
(BTK.X), indicating that this could just be another round of
profit taking.  Until the ascending trend is broken, buying the
dips and selling weakness near resistance should continue to
serve us well.  Target entries on a bounce at either the 10-dma
($34.95) or intraday support near $33, also the site of the
20-dma.  Move stops up to $32.  A breakout over $38 should take
AFFX up to the $42 level, but chasing the stock higher when it
is clearly overbought should only be attempted by the fleet of
foot, and even then only if the BTK continues to be strong.

BRCM $49.92 -0.07 (+3.38) Investors that chose to chase BRCM
higher in the early afternoon got their heads handed to them by
ready sellers in the final hour.  After testing the $50 level
on Monday and clearing it nicely today after lunch, a wave of
buyers pushed the stock briefly above the $52 level and eager
sellers piled on into the close.  What was looking like a
breakout move for the stock, finished with a big "doji" that
could have the bears salivating tonight.  Buying the dips
continues to be the way to play the current momentum run and
we could be looking at another entry point in the making.
Target new entries on a solid bounce from support at $49 or $48.
A dip to the $46.50 level could be a gift of an entry, but only
if volume is solid on the rebound.  Keep stops in place at $46.

IBM $114.20 -2.13 (-1.15) As the broad markets continue to work
higher, the trading range in IBM continues to tantalize both the
bulls and the bears.  Resistance near $117 is holding the stock
back, while buyers continue to appear near the $113 level, also
the site of the 20-dma ($113.38).  Sure enough, yesterday's push
back above the $116 level provided the incentive for the bears
to flex their muscle today, as they twice pushed IBM back
towards the $114 level.  Continue targeting intraday dips near
$113 and taking profits on weakness near resistance.  The
current range will eventually break and if the markets continue
to work higher, IBM should be able to work back towards its
year-highs near $120.  If the markets break lower, IBM will
likely test our stop at $112.  If it is violated, we'll have to
bring the play to an end.

JNPR $26.30 -0.09 (+0.45) Volatile trading continues to be the
pattern in Networking stocks and Tuesday was no exception.
After the early dip below $26, shares of JNPR vaulted through
the $27 level after lunch, only to be hit by a wave of selling
that stole away all the intraday gains.  Although closing with
a fractional loss, the stock managed to hold above the $26
level, keeping the modest uptrend in place.  Buying the dips
is still the way to go, as the bulls continue to chip away at
overhead resistance.  JNPR continues to ride the ascending
trend that began in early October, with significant overhead
resistance in the $28-29 area.  Target pullbacks to the
ascending trendline (near $26) or intraday support between
$24-25 for initiating new positions.  Our stop remains at $24.

QCOM $60.02 -0.38 (-1.29) Continuing to battle for dominance,
the bulls and the bears have neither been able to attain a
distinct advantage since QCOM broke above $60 last week.  Of
some concern is the fact that the highs and lows are gradually
moving lower, with the $60 level acting as a price magnet.
The ascending trendline at $58.50 was briefly violated this
morning following less-than-stellar news from Nokia relating to
CDMA handset sales, but buying support quickly vaulted the
price back over $61.50 in early afternoon trade.  Then a wave
of selling appeared in the final 2 hours, pushing the stock down
for a fractional loss.  Candle aficionados will recognize the
"doji" from today's session, which normally indicates
indecision.  We can still use intraday dips near the $58 level
for initiating new positions, but need to exercise caution
below the 200-dma (currently $58.11), as a drop below that
level would likely negate the breakout from last week.  Protect
open positions with a stop at $57.


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

CNXT - Conexant Systems $15.50 +0.77 (+1.56 this week)

Conexant provides semiconductor products and system solutions
for a wide variety of communications electronics.  Conexant
delivers semiconductor integrated circuit products and system
level solutions for a broad range of communications applications.

The wireless and PC markets are among the hot topics in tech
currently.  Both are levered to the consumer.  Conexant
provides chips for manufacturers of handsets and PCs.  The
company reaffirmed guidance about two weeks ago, reporting
that demand for its wireless chips was improving.  The strength
in the company's fundamentals has provided the underlying
strength in its stock price.  Indeed, CNXT has been one of the
stronger stocks in the group since early October.  The stock
broke out to a new relative high in its trend Tuesday and
could continue working higher over the short-term.  However,
the stock has had a big run over the past four sessions.  A
pullback is a risk that short-term traders may have to contend
with.  But those with longer time horizons might also take a
closer look at this chip company.  A pullback between the
$12 and $14 range may offer long-term trader types and
investors a favorable entry into this strong stock.  Short
term traders might look for follow-through into Wednesday's
session or a pullback down around the $14 area.  Our trading
stop is in place initially at the $13 level.

BUY CALL DEC-12 QXN-LV OI=5982 at $3.50 SL=2.75
BUY CALL DEC-15*QXN-LY OI=3826 at $1.60 SL=0.75
BUY CALL JAN-15 QXN-AY OI=3092 at $2.50 SL=1.50
BUY CALL JAN-17 QXN-AW OI= 482 at $1.40 SL=0.75

Average Daily Volume = 4.71 mln



FFIV - F5 Networks $23.61 +0.05 (+0.89 this week)

F5 Networks is a provider of integrated Internet traffic and
content management solutions designed to improve the
availability and performance of mission-critical Internet-based
servers and applications.  The company's products monitor and
manage local and geographically dispersed servers and
intelligently direct traffic to the server best able to handle
a user's request.  FFIV's content management products enable
network managers to increase access to content by capturing and
storing it at points between production servers and end users,
while ensuring that newly published or updated files and
applications are replicated uniformly across all target servers.

The recent breakout of the Networking index (NWX.X) over
resistance near $310 lit a fire under shares of FFIV, and now
the stock is approaching major resistance in the $24-25 area.
So why are we adding it to the call list, you ask?  Because the
ascending trend is pushing the stock into an ever tightening
bullish wedge and the breakout could be explosive, especially if
Tech stocks continue to find favor with the bulls.  The
ascending trendline is currently resting near $22.50, and
intraday pullbacks near this level will provide for solid
entries into the play.  This is also the site of the 10-dma
($22.58), which has been providing support since early November.
We might even get lucky and get a chance to enter on a brief
pullback to stronger support near $21, but we only want to
take advantage of a dip that low if it is followed by a strong
bounce.  Alternatively, a solid breakout over $24.50 can be used
for new momentum-based positions, but keep a sharp eye out for
a reversal, maintaining a tight trailing stop.  We are
initiating the play with our stop at $20.25.  That's the bottom
of the gap on November 13th, and we don't want to consider
bullish positions in the stock if FFIV drops below that.

BUY CALL DEC-22*FLK-LX OI= 885 at $2.85 SL=1.50
BUY CALL DEC-25 FLK-LE OI=1281 at $1.50 SL=0.75
BUY CALL JAN-22 FLK-AX OI= 351 at $3.90 SL=2.50
BUY CALL JAN-25 FLK-AE OI= 362 at $2.55 SL=1.25
BUY CALL JAN-30 FLK-AF OI= 157 at $1.05 SL=0.50

Average Daily Volume = 630 K



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

NOC $92.29 +0.49 (-1.76) NOC's slide Monday was most welcome.
Tuesday, the stock traced a new low in its most recent
descending trend with its decline down to the $91 level.  Those
traders who entered puts on the rollover up around $97 should
be thinking about locking in short-term gains around current
levels; at the very least, locking in partial gains on
positions just makes good trading sense.  The stock's pop
higher into the close Tuesday may have been routine short
covering after the recent weakness.  Look for a rollover and
continued weakness during Wednesday's session.  Let the Defense
(DFI) sector be your reference.  Also, keep in mind that the
200-dma is down at the $90 level - another good site to
consider taking profits in open positions.

KKD $38.34 -0.81 (-1.61) We can't complain about the price
action in KKD over the past two days.  The stock found
support at the $37 level Tuesday morning.  We highlighted
the possibility for the $37 level to provide support in the
short-term which came to pass Tuesday morning.  Traders
who entered put plays above $40 could've used the weakness
down to $37 as an exit point.  It's all about having a plan
and sticking with it, especially when trading stocks like
KKD.  The stock is a volatile one and requires more discipline
on the part of those who trade it.  With the $37 level
established as near-term support, traders might look for a
breakdown below that level in a declining market for a
possible entry point into new plays.  Although, additional
support exists at $35, which may limit the downside on a put
entered at $37.  Entering a put near resistance may offer a
better risk/reward set-up in light of KKD's current
positioning.  If the stock rallies, look for resistance to
form between $39.75 and $40.  A failure to trader past that
resistance zone may offer traders a favorable entry into
put plays.  We're lowering our stop to $41 to reflect KKD's
recent decline.  Traders with open positions can consider a
tighter stop to protect any gains that have been made up
until this point.

ERTS $54.64 +0.31 (+0.94) ERTS hasn't done much in the last
two days.  We'd like to see the stock make a move in one
direction or another.  The tedium of a trading range is the
worst pain.  If ERTS rallies up to its resistance range
around the $57 level, then bearish traders would be presented
with a favorable risk/reward dynamic in entering put plays.
In other words, a rally up to $57 would allow traders to
enter puts accompanied with tight stops.  Conversely, a
breakdown below $51 would signal a break below ERTS' short
term trend line and potentially offer momentum traders an
entry into weakness.  In the meantime, we're better off
waiting for a move.


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

WWCA - Western Wireless $24.90 -0.26 (-0.90 this week)

Western Wireless provides wireless communications services in
the United States, principally through the ownership and
operation of cellular systems.  The cellular operations are
primarily in rural areas.

The broader telecom sector has been on the mend recently.
Specifically, wireless stocks have discounted a rebound in
demand for services.  The Wireless (YLS) index has
reflected the recently renewed optimism for the group.  NOK,
a component of the YLS, dampened the bullishness in the
group Tuesday.  Interestingly, while the YLS has been working
higher, a few of the service providers and other components
of the YLS have been working lower.  The bearish divergence
can be observed in VZ as well as WWCA.  We're picking up
bearish coverage on WWCA this evening because of its
bearish divergence from the YLS along with its break to
a new 52-week low Tuesday.  If NOK's comments continue to
pressure the group, which is open for debate, WWCA should
receive continued selling seeing that its one of the weakest
in the wireless sector.  Momentum fans can consider new
entries early Wednesday if the market and YLS are declining.
Those who'd prefer to wait for a rally and subsequent
rollover might look for a move up to the $26 level, which is
the current site of the 10-dma.  Our stop is currently set
at the $26.25 level.

BUY PUT DEC-30 WRQ-XF OI=83 at $5.60 SL=4.25
BUY PUT DEC-25*WRQ-XE OI=58 at $1.40 SL=0.75

Average Daily Volume = 822 K



LH - Laboratory Corp. of America $77.40 -3.50 (-4.40 this week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

If you've been watching the Health Care index (HCX.X) you have
noticed that it has been approaching major resistance at $850.
Well, judging by the abrupt reversal today, it looks like rather
than a breakout we may be looking at a breakdown in the making.
We were playing shares of DGX on the call list as a likely
breakout candidate due to its recent relative strength, so now
that the HCX appears to be weakening, let's shift to puts and
play one of the weaklings, LH.  A darling of last year, LH has
been struggling with the $80 level lately.  While this level has
acted as support in the past, it is looking more like resistance
in the current market environment.  LH managed to push above this
level last week, but ran into the 20-dma (then at $83.34) and
promptly rolled over.  Without so much as a whimper, the stock
slid below $80 this morning and continued falling right up to
the closing bell.  Adding insult to injury, the volume was
robust too, coming in 50% above the daily average.  Our first
downside target will be the 200-dma ($75.71), as the $75 level
has been supportive in the past.  If that level fails to halt
the bears advance, we'll be looking for support in the $68-70
range to provide a profitable exit from the play.  Target new
positions on a failed rebound near $78.50 or possibly even in
the $80-81 area.  The descending 20-dma ($82.35) should halt
any bullish advance in the near-term, so we are placing our
stop at $82.50.

BUY PUT DEC-80 LH-XP OI= 508 at $5.20 SL=3.25
BUY PUT DEC-75*LH-XO OI= 270 at $2.85 SL=1.50
BUY PUT DEC-70 LH-XN OI=1230 at $1.35 SL=0.75

Average Daily Volume = 713 K



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

KKD - Krispy Kreme $38.34 -0.81 (-1.61 this week)

Kripy Kreme is a branded specialty retailer of premium quality
doughnuts.  Krispy Kreme is a vertically integrated company
structured to support and profit from the high volume production
and sale of high quality doughnut products.

Most Recent Update

We can't complain about the price action in KKD over the past
two days.  The stock found support at the $37 level Tuesday
morning.  We highlighted the possibility for the $37 level to
provide support in the short-term which came to pass Tuesday
morning.  Traders who entered put plays above $40 could've
used the weakness down to $37 as an exit point.  It's all
about having a plan and sticking with it, especially when
trading stocks like KKD.  The stock is a volatile one and
requires more discipline on the part of those who trade it.
With the $37 level established as near-term support, traders
might look for a breakdown below that level in a declining
market for a possible entry point into new plays.  Although,
additional support exists at $35, which may limit the
downside on a put entered at $37.  Entering a put near
resistance may offer a better risk/reward set-up in light
of KKD's current positioning.  If the stock rallies, look
for resistance to form between $39.75 and $40.  A failure to
trader past that resistance zone may offer traders a
favorable entry into put plays.  We're lowering our stop to
$41 to reflect KKD's recent decline.  Traders with open
positions can consider a tighter stop to protect any gains
that have been made up until this point.

Comments

After failing to hurdle $42, KKD slid lower in the past four
sessions.  The downside momentum may pick up Wednesday if the
broader markets continue weakening.  Look first for a rollover
near the $38.60 level, or for a breakdown below $38.  Confirm
weakness below $38 will follow-through below the $37 level.

BUY PUT DEC-40*KKD-XH OI=2187 at $3.20 SL=2.50
BUY PUT DEC-35 KKD-XG OI=2688 at $1.10 SL=0.50

Average Daily Volume = 814 K



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