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Daily Newsletter, Thursday, 11/29/2001

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The Option Investor Newsletter                Thursday 11-29-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       11-29-2001           High     Low    Volume Advance/Decline
DJIA     9829.42 +117.56  9829.42  9691.39  1.3 bln   1961/1155
NASDAQ   1933.25 + 45.28  2933.46  2889.29  1.9 bln   2271/1394
S&P 100   585.28 +  6.36   585.39   577.13   Totals   4232/2549
S&P 500  1140.20 + 11.68  1140.40  1125.51
RUS 2000  463.33 +  9.63   463.33   453.70
DJ TRANS 2485.60 + 27.65  2489.20  2459.56
VIX        26.26 -  1.49    28.56    25.89
VXN        48.95 -  3.26    53.27    48.95
TRIN        1.29
Put/Call Ratio       .78
*************************************************************

Enron Gases Market But Portfolio Dressing Prevails

The markets rallied off support and posted strong gains going
into the close. While the move was welcomed it may not be as
strong underneath as it appeared on the surface. After trading
in a tight range between 9700-9760 for most of the day the
Dow caught fire shortly after 3:PM when several Dow stocks
exploded. The Nasdaq reacted as well but with less velocity.
The reason could have been a press release quoting Bush as
saying the Taliban had been destroyed OR end of month portfolio
dressing by fund managers. Which do you think was more likely?





The Enron news continued to weigh on the markets to the extent
that companies were issuing press releases disclaiming any
exposure to avoid being sold. Everyone appeared susceptible
to damage from Enron self destructing. Fund managers were
denying investments, large retirement accounts like company
401K programs were pleading not guilty and other energy
companies were going out of their way to be positive. Williams
went so far as to say they would meet or exceed ALL previously
announced profit targets. Pretty aggressive comments by the
Williams CEO.

The Enron story has been beaten to death so I will try to cut
my comments short. The bottom line remains "the fat lady is
singing." Enron bonds were cut to junk status, the stock was
dropped from the S&P and will be cut from the Dow Utilities
Index as well. In slightly more than 27 days it could be
delisted from the NYSE and become another footnote in financial
history. An expensive footnote after falling from $65 billion
in market cap to $265 million in a very short period of time.
That market cap drop equates directly with the drop in asset
value on millions of stockholders statements and represents a
significant loss of net worth for retiring baby boomers.

The worry that the Enron disaster, widely speculated to be in
the $1 trillion range earlier in the week, was the major blow
to the stock market. How many banks would lose how much money
because of loans to Enron? How many energy companies would
lose because of defaulted contracts in an Enron bankruptcy?
How many bond holders would be left holding worthless paper?
Would energy prices rise or fall from the debacle? Would any
mutual funds go under from speculating in an Enron comeback?
You can see why investors were running for cover and the
safety of cash.

Helping bring the averages back from the brink of disaster
were stocks like DELL, PALM, VTSS, BRCD, A, SAP, XLNX, CNXT,
HAND and SEBL which all affirmed earnings and their outlook
going forward. Surprise - surprise! Intel said they could not
keep up with demand for the P4 going into Asia and said they
were comfortable with their estimates. Techs surprising to the
upside, what a change in direction. Unfortunately the Nasdaq
rebound may be short lived due to a warning after the close
by Novellus. They affirmed estimates but sad they were less
optimistic about a 2Q upturn. Orders were not coming in as
expected for their chip making equipment and they felt the
upturn would take longer than previously expected. Chip stocks
were down in after hours but not significantly.

Helping power the rebound was news that Durable Goods orders
exploded in October with a +12.8% gain. This was the largest
gain since May and the first time in five months that the
number was positive. The huge number was helped by a large
number of aircraft and defense orders as well as computers.
Semiconductors still showed a -17% loss for the month but that
is widely expected to change in the November number. Excluding
aircraft orders the gain was still over +5%. Inventories also
continued to shrink.  New home sales also rose to an annualized
rate of 880,000 from 850,000 for October but inventory remained
steady at a 4.3 month excess supply. The lower interest rates
have help this indicator as well as existing home sales but
with mortgage rates rising back over 7% the pace of sales could
slow.

Jobless claims rose again by +54,000 as more previously announced
layoffs continued to be enacted. This was the highest level in
four weeks but the key number is in the continuing claims. Those
rose to 4,018,000 and a new high for the current cycle and indicate
that the current jobless market is still deteriorating. The Help
Wanted Index fell drastically to 46 from 52 in September. This is
the lowest reading since 1982 and indicates that employers are
simply not hiring and not advertising job openings. Some analysts
are expecting a 6.3% unemployment rate in 2002 and this is leading
us in that direction. Until help wanted ads increase the economy
is still moving down.

More importantly to us was the -$6 billion outflow in equity
funds for the week ended on Wednesday. This was punctuated by
the big -160 point Dow drop in Wednesday. The drop by the Dow
at the open today to 9691 represented the flushing of that cash
out of the system and panic selling after the drop. The Enron
factor also influenced the cash drain with almost one billion
shares trading in the last week. This cash outflow countered
a rally in the bond market today. With bonds and stocks both
up strongly something has to give soon.

The 3:PM rally in stocks was questionable. The rally came
immediately after a comment by Bush that the Taliban had been
destroyed. While it was not a proclamation that the war had
ended it appeared to spark the markets. Several Dow stocks
soared to strong gains including IBM +2.28, MSFT +2.04, MO
+2.05, UTX +2.41, HWP +1.23, MRK +1.50, PG +1.44. Several of
those had been lethargic until the 3:PM starters gun. Was it
the Bush statement or blue chip portfolio dressing. I think
the latter since the Bush statement is nothing new. If it was
dressing then it is not a keeper rally. When the Dow broke
below 9800 on Wednesday I turned bearish on the markets. The
Nasdaq is back in neutral territory at 1933 and right at
resistance again. The Dow just nudged over my 9800 threshold
level but I am not convinced. I will trade any continued bounce
above these levels but the time has come to be more cautious.

This is typically a bullish week which has gone contrary to the
trend. We had many companies preannounce positive results this
week but as we saw from Novellus tonight, next week may be much
different. Earnings warnings will begin for the 4Q and year-end
tax selling will begin. We need to keep an eye on the bond market
as a leading indicator of market direction. If bonds continue to
rally on Friday then next week could be ugly. The net outflow of
cash from funds could be for holiday presents or it could just
be investors moving to the sidelines because of the possible
rocky December ahead of us. There was news tonight that the 800K
of cars sold in the last two months at bargain rates would impact
substantially cars sold over the next three months. (Duh!) Anyone
who was even remotely in the market was enticed to buy and nobody
with credit or money is left to visit the dealerships. This will
impact the auto sector significantly.

Another possible problem for the markets is the possible @Home
shutdown. With 3.7 million high bandwidth subscribers possibly
being cut off as of Friday the Internet sector will suffer. These
surfers are the cream of the crop which buys Amazon products,
bids on Ebay auctions, Priceline tickets, etc. If the judge shuts
them down there could be ripples throughout the Internet. Yahoo
page views will suffer along with advertising revenue and so on.
Also on Friday we will get the PMI numbers and another look at
the 3Q GDP. If the GDP shows a significant decline the markets
could react negatively. It may add fuel to another Fed rate cut
on the 11th or reduce chances of that cut.

To put it in a nutshell, there are a lot of factors that will
be impacting the markets over the next week and most of them
are leaning to the bad side. We need to trade anything over
9800/1925/1150 on the major indexes but stay flat or short
below that. One analyst phrased it this way, "the patient
(economy) is still in the hospital recovering from the wreck
but is doing better. Investors are acting like he is leading
a marathon instead. When will reality appear?" Interesting
concept and some of that reality may appear next week. Be very
cautious about opening new positions on Friday.

Enter very passively, exit aggressively!

Jim Brown
Editor


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

Dressed To Please
By Eric Utley

I walked past the local Banana Republic Wednesday evening.  The
store's windows were done up with a festive motif.  Banana
Republic, a division of Gap Stores (NYSE:GPS), is my favorite
retailer of clothing.  Their pretty windows reminded me that it's
that time again: end of the month window dressing.

After Wednesday's broad and deep sell-off, I expected
follow-through to the downside in Thursday's session.  But what
I expect and what actually happens in the market are normally
diametrically opposed.  Thursday's rally was a microcosm for
this market.  One day it powers higher, the next day it folds.
It's difficult to hold a position for more than a day.

What was at the root of Thursday's rally?  The bullish guidance
coming from tech companies?  Or, was it money managers up to
their usual shenanigans?  Maybe a combination of both.

Judging by the sharp rise in the QQQs put/call ratio, I'd
guess that a lot of traders shorted into Thursday's rally.
While I don't like to give a lot of credence to a one-day change
in put/call ratios, I think it's worth noting in light of the
magnitude of the jump in the QQQs' puts.  We'll know more
Friday afternoon.

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

Market Volatility

VIX   26.26
VXN   48.95

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.78        538,681       418,664
Equity Only    0.66        481,472       317,797
OEX            1.69          8,794        14,882
QQQ            1.76         21,483        37,779

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

Bullish Percent Data

           Current   Change   Status
NYSE          45      + 0     Bull Confirmed
NASDAQ-100    73      + 0     Bull Correction
DOW           60      + 0     Bull Confirmed
S&P 500       61      + 0     Bull Confirmed
S&P 100       61      + 0     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  1.27
10-Day Arms Index  1.16
21-Day Arms Index  1.18
55-Day Arms Index  1.10

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      1961           1155
NASDAQ    2271           1394

        New Highs      New Lows
NYSE       57             38
NASDAQ     77             45

        Volume (in millions)
NYSE     1,365
NASDAQ   1,920

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

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:
*****

No Dropped Calls for Thursday.


PUTS:
*****

ERTS $58.01 +4.40 (+4.31) ERTS presented bullish comments
at an investor conference late Wednesday in addition to
announcing that it would discontinue one of its weaker
products.  Apparently a few too many bears, ourselves
included, were leaning the wrong way in ERTS judging by
the massive short covering rally Thursday, which carried
the stock above our stop at the $57.50 level.  Those who
took entries near the resistance range around $57.50
should use a tight stop to manage risk in the event of
further upside.


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

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

CALLS              Mon    Tue    Wed    Thr

SPW     121.71    4.85  -0.90   1.48  -2.29  Profit taking weakness
PMCS     23.02    1.76   0.07  -1.49   1.20  Bounced from support
PDLI     37.51    2.59  -0.73  -1.94   1.40  Strong biotech
AFFX     37.01    0.74  -0.74  -0.77   0.65  Rebounded from 10-dma
BRCM     46.03    3.45  -0.07  -2.97  -0.92  Rolling over???
IBM     114.43    0.98  -2.13  -2.05   2.28  Rebound from $112 again
JNPR     24.74    0.54  -0.09  -2.13   0.57  Make or break time
QCOM     58.42    0.91  -1.29  -2.73   1.13  Reversal in the offing?
CNXT     15.48    0.79   0.77  -0.43   0.41  Sell on the news
FFIV     23.18    0.84   0.05  -1.69   1.26  Tough networker
MLNM     33.10    2.29   0.02  -2.09   1.67  New, biotech bounce


PUTS

NOC      93.34   -2.25   0.49   1.18  -0.13  Diverging from DFI
KKD      36.20   -0.80  -0.81  -1.64  -0.50  Growing oversold
ERTS     54.64    0.63   0.31  -1.03   4.40  Dropped, caught
WWCA     24.96   -0.64  -0.26   0.57  -0.51  Resistance rollover
LH       77.25   -0.90  -3.50  -1.40   1.25  Bounced at 200-dma
VRSN     37.73    0.01   0.01  -0.73  -1.57  New, weak


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The Option Investor Newsletter                 Thursday 11-29-2001
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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**************
TRADERS CORNER
**************

Lucent, Enron, Etc: Could Loss Have Been Prevented?
Austin Passamonte

Countless disasters in the stock market literally stripped
trillions of dollars from equity investor's net worth. Most
hapless investors simply shrugged this tragedy off as inevitable
or incurable. But is it? Could learned investors and traders spot
clear warning signs, heed them accordingly and survive with
capital intact if not outright prosper?

Eric Utley spoke of an Enron employee in Wednesday's Market Wrap
who worked for several DECADES and had the bulk of his retirement
in ENE stock. Needless (and tragically) to say, he will be one of
the next Wal-Mart greeters working far into geriatrics rather than
enjoying the retirement fruits of life-long labor.

And that thought makes me absolutely sick inside. It doesn't have
to be this way. It never had to be that way, if only more people
tuned into educational services as OptionInvestor, PremierInvestor
and IndexSkybox where we strive so hard to teach survival and from
there prosperity in the markets. Seen exhaustive studies on exit
or risk reduction strategies on CNBC lately? Only at the very
bottom of this recent bear market were they paying lip service to
stops, hedges and collars when the horses had not only left the
barn, they'd been shipped to the glue factory as well!

(Weekly Chart: LU)



Lucent Technologies was one of the biggest disasters we've seen to
date. It was and still remains one of the widest-held shares
amongst investors which means maximum damage was done upon its
price collapse. Totally unnecessary to ride this loser down and
never happened to savvy players.

Eric also made the ridiculous statement that he isn't much of a
technician. Wrong... he is an excellent technical and fundamental
student of the game! But Lucent investors didn't need to use any
more than the simplest, most basic market tools to save themselves
from loss or ruin.

First sign of major warning came in June/July 2000 when the long-
term bullish ascending triangle broke out to the upside for one
week and promptly reversed to break lower instead. How hard is it
for an investor to update their chart once a week by extending
some trendlines until the ends touch? Poof - there's a chart
pattern to heed.

Failure of that bullish triangle is very bearish in nature and
should have red-flagged everyone who watches for simple chart
patterns to form. Any good technical analysis book teaches these
simple patterns, and a couple of books are dedicated solely to the
study. Confirmation of this failure came near LU's $55 area.

The second warning arrived in September 2000 when it then broke
below the 200 week moving average near $38 range. This is a weak
market and getting worse! Look at that volume: dominated by
selling (red lines). Let's see: price action broke below moving
averages on increasing down volume. Does that look healthy right
there?

A third & final warning came in January 2001 when the 50 week
moving average crossed below the 200 week moving average as the
stock traded near $20. Investors who rode it down thru the first
two warning signs thought that it was too low to sell at $20, but
we wonder how such an offer for remaining shares would be viewed
today? Is it ever too late to sell? Maybe, but not at the three
screaming danger zones observed in this chart.

(Weekly Chart: ENE)



Lest we thought such a monumental collapse in giant market
darlings could never happen again, think again. Refusal to sell
while riding plummeting stocks to devastating loss is inherent
human nature only reinforced from the "buy & hold for the long
haul" crowd. Being in for the long haul is by no means a guarantee
for success as too many have painfully learned the hard way.

Early this spring we saw Enron break below its 50-week moving
average that also violated one version of a long-term wedge. It
did so with a large-range negative week demonstrated by the long
red candle of descent. That $70 to $75 area could have been easily
protected by those who were long without suffering further loss
from there. How nice would a Jan 2002 60 put LEAP for a couple
bucks on every 100 shares back in Jan 01 have been to those long
the stock? Would that have made a difference in some retirement
plans for those concentrated in this stock?

Those who didn't heed such early warning had a second rescue ship
come around a few weeks later when price action broke below its
200 week moving average. It did so twice near the $45 range,
another area to exit or protect with puts or call/put collars.

The final slide from $35 to $20 offered numerous warning bells &
whistles. Price action formed a bearish expanding wedge (not
drawn) that ended with a gap-down week on huge volume as major
players rushed for the exit. Too many retail traders mistakenly
believed $20 was too cheap to sell and some even bought more to
"average down" their higher cost. Ouch!

Wednesday of course saw the final end to tragic this chapter as
340 million shares traded on what is now a penny stock destined
for bankruptcy.

Defense Wins Championships
Polaroid. Bethlehem Steel. Former titans that ruled the markets in
their day, had huge floats and held widely across the world. Also
dead & gone. No investor or trader should ever buy a single share
without clear exit plans in mind. No investment should ever lay
exposed to massive ruin without several plans to exit or hedge in
place.

Traders and investors could have easily sold each of these stocks
at far higher prices than where they trade (or not) today. They
could have bought puts for protection that would have negated all
loss. They could have even sold covered calls and bought more puts
that would have resulted in NET PROFIT on the decline of each.

But most investors didn't do any of these simple measures and
withstood painful loss instead. Does it have to be this way next
time? To be forewarned is forearmed, and rest assured many will
watch their charts more carefully next time for clear signs of
cracks in the dam. These former behemoths will not be the last to
go hooves up, and simple timing tools and risk-removal strategies
are there for our use to defend precious capital.

Abbey Joseph-Cohen stated in October Money Magazine that Enron
represented a good value. Its own weekly chart clearly stated
otherwise. Time has exposed Abbey as clueless to market action.
You on the other hand are smart. Ignore Abbey and her ilk. Trust
the charts instead, and enjoy your retirement in luxury by
managing and eliminating risk from your working capital.

Hope This Helps & Best Trading Wishes,
austinp@sungrp.com


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

SPW $121.71 -2.29 (+3.14) SPW reaffirmed its fiscal guidance
this year for $6.36 in earnings per share.  The company also
said that it expected little if any organic growth in revenues
next year.  The news sparked a pullback on heavier volume.  We
want to monitor the stock closely going into Friday's session
for a continuation of the decline may portend an end in trend.
Those traders with open positions and big gains should
consider tightening stops to their appropriate risk levels in
order to protect against any further downside.  On the other
hand, the weakness Thursday may have been the pullback we've
been waiting for.  If SPW stabilizes in Friday's session,
consider new entries near support levels accompanied with a
tight stop.  A bounce could occur at the $120 level.

PMCS $23.02 +1.20 (+1.54) PMCS bounced from the $22 area and
subsequently traded higher into Thursday's close.  The stock
is poised to retest its relative highs around the $24 level
if the market and its sectors cooperate.  Both the Network
(NWX) and Semiconductor (SOX) sectors traded higher today,
with out performance to the upside seen in the SOX.  If the
two sectors along with the Nasdaq market continue higher
into Friday's session, traders might look for a move in
PMCS up to $24.  Such a move might allow short-term traders
to book quick profits on any recent entries on the weakness
yesterday and today.  The stock has some short-term
resistance around the $23.25 level.  Look for a move above
that level early Friday in conjunction with an advancing
market and the appropriate sectors.

PDLI $37.51 +1.40 (+1.39) PDLI bounced from the $36 level
Thursday and proceeded higher into the close.  The stock
staged a powerful advance in the final hour of trading
and we'll be looking for follow-through of that move early
Friday.  With Thursday's bounce, PDLI's pattern of
relatively higher lows continued.  Hopefully that was a
sign that a new relative high is in the near future, which
would put PDLI above roughly $39.50.  Traders who entered
on the bounce near $36 Thursday might look for a quick
exit point with further strength Friday; for example, a
an advance above $39.  Three points in two days wouldn't
be bad!  Over the next several sessions, however, we will
be looking for PDLI to break to new relative highs.  The
stock will need participation from the Biotech (BTK)
sector in order to work higher.  Confirm strength in the
BTK Friday with an advance in PDLI.

CNXT $15.48 +0.41 (+1.54) CNXT raised guidance Thursday.  But
was anyone really surprised?  The recent price action of the
stock has been indicating that business has been improving
for Conexant.  The company said that it expected revenues to
rise by 5 to 7 percent during December due to strong demand
for its chips used in wireless applications.  The stock
pulled back after its gap open Thursday morning in a classic
"sell on the news" fashion.  While short-term traders may
have been disappointed with the pullback, the new relative
high and raised guidance Thursday helped to reinforce our
longer term bullish stance on this company.  The developments
Thursday bode very well for future higher prices in this
stock.  We're in the right stock, it's just a matter of
gaining a favorable entry into a play.  That said, market
related weakness could be a positive development as it would
pressure CNXT back down to a support level where traders can
target a favorable entry.  Look first for a pullback and
subsequent bounce from the $14 to $14.25 range.

AFFX $37.01 +0.65 (-0.12) A couple days of profit taking and
then a bounce right at support is what we saw in the Biotech
sector (BTK.X) this week.  The BTK fell right to its ascending
trendline, also the site of the 20-dma ($583) and historical
support, providing a great entry for those that are trading
stocks in the group to the long side.  Our AFFX play only dipped
to its 10-dma ($35.71) before buyers started nibbling again, but
that was right at the ascending trendline that has been in place
since late October.  Intraday oscillators are pointing towards
another bullish move, and this could be the one that takes AFFX
over the $38 resistance level.  Dips near $35 still look buyable
for new positions, but make sure to keep your stop set at $34.
Any weakness below that level or a rollover in the BTK could
hint at problems for our bullish play.  Once AFFX clears the $38
level, we'll be looking at a move to the $42 level as our first
target for harvesting profits.  Keep stops set at $34.

BRCM $46.03 -0.92 (-0.42) After shooting as high as $52 earlier
this week, shares of BRCM have come under some selling pressure,
and the company's lack of glowing forward guidance today at the
CSFB Tech Conference didn't help matters in the least.  Intraday,
BRCM fell as low as $44 on heavy trade before buyers started
supporting the stock.  By the end of the day, BRCM had just
barely clawed its way above our $46 stop.  We're concerned here
about the recent technical damage, but we'll give it one more
chance to get back into bullish gear.  The afternoon rebound got
BRCM back to its ascending trendline, but it couldn't push
through it at the close. New positions can be considered near
current levels, but keep in mind that our stop is set at $46.  A
more prudent approach might be to wait for buying volume to push
our play back above the $47 intraday resistance (prior support)
level before adding new positions.  The action of the
Semiconductor sector (SOX.X) will be important here, as it is
once again testing the descending trendline near $535.  If it is
again turned back, BRCM could be in trouble, due to the fact it
has given up a fair amount of relative strength in the past few
days.

FFIV $23.18 +1.26 (+0.46) Yesterday's selling spree had an ugly
look to it as it pushed our FFIV play right to its ascending
trendline at the close.  But after the opening weakness this
morning, we could see that FFIV was giving us a great entry
point.  Buyers started snapping up shares at the $22 level,
quickly pushing the stock off its lows.  Then we got another
push in the afternoon, raising the stock back above the $23
level and setting us up for another run at the $24 resistance
level.  The wedge continues to tighten, and we should see the
breakout in the next few days.  Continue to target new entries
near the $22 level (site of the ascending trendline) or wait for
a solid breakout over the $24-25 resistance zone.  A
volume-backed breakout could provide enough strength to test
resistance at $30 in short order.  Keep a sharp eye on the
Networking index (NWX.X).  A drop below its 20-dma ($320) could
create problems for our FFIV play.  Keep stops set at $20.25.

IBM $114.43 +2.28 (-0.92) The pullback in the broad markets was
a boon to those that have been playing IBM lately, as it
produced another great entry point.  The stock fell just
slightly below the $112 level before buyers appeared to prop up
the stock, sending it soaring back over $114 this afternoon.
The bounce kept the trading range alive, and it looks like the
bulls are going to take another run at resistance near $117 in
the days ahead.  While IBM has been rangebound for nearly a
month now, it continues to provide swing trade opportunities for
those that can play the range ($112-117).  Note the sharp
increase in buying volume today as the stock pushed back above
the $113 level.  Target entries near support and harvest profits
near resistance until the stock breaks out of the range.  We are
leaving our stop in place at $112.

JNPR $24.74 +0.57 (-1.11) Our JNPR play went through a rough
patch over the past couple days, falling below the ascending
trendline that has been in place since early October.  Just as
things were looking darkest (this morning with the stock trading
just above $23), the buyers came back and helped to solidify the
stock near the $24 level.  And then in the final two hours, JNPR
finally advanced into the close, ending near the highs of the
day.  At the same time, the Networking index (NWX.X) dropped
right to the 20-dma before bouncing at the end of the day.
Another bounce from the vicinity of our $24 stop could provide
for fresh entries, but we'll want to be cautious of any weakness
below that level.  And of course, we'll need to see the NWX move
back up from current levels.  Resistance has been stiff in the
$27-27.50 area, and we'll need to see JNPR clear this level if
the rally is going to remain intact.

QCOM $58.42 +1.13 (-2.89) Profit taking has been the theme in
the Tech sector lately, and QCOM has fallen from its recent
highs along with the broader NASDAQ.  But support continues to
hold and we got another great entry point this morning when the
stock found support just below our $57 stop and advanced
steadily right into the closing bell.  It was encouraging to see
QCOM recover back above both the 200-dma ($57.83) and the 20-dma
($57.47), as the bulls once again confirmed these levels as
being supportive.  Consider new positions near current levels,
but beware of another drop.  We are keeping our stop set at $57,
and a close below that level will have QCOM moving to the drop
list in a hurry.  The stock has dropped below the ascending
trendline (currently $60) that had been supporting the price
since early October and we'll need to see a recovery above that
level before we'll know that the bulls are still hungry enough
to continue pushing our play higher.


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

MLNM - Millennium Pharmaceuticals $33.10 +1.67 (+1.88 this week)

Through an integrated approach called "gene to patient", MLNM
is engaged in the development of breakthrough drugs and
predictive medicine products for the treatment of major human
illnesses.  By discovering disease-related genes, the company
seeks to produce validated drug targets and develop new,
proprietary drugs to treat cancer, metabolic disease (including
obesity) and inflammation.  MLNM's LeukoSite subsidiary has
developed Campath, a potential leukemia treatment that has
received FDA fast-track status.  The company also has
significant programs in infectious diseases, cardiovascular
diseases and diseases of the central nervous system.  MLNM
derives its revenue from research and development alliances
with such companies as Bayer AG, Pharmacia and American Home
Products.

Since bottoming near $16 in late September, MLNM has been
trading in a nearly picture-perfect ascending channel for the
past 2 months.  Every time the stock dips to the lower channel
line (currently $31), buyers support the price and drive it
towards the top of the channel (now at $34.90).  While the
channel could be broken at any time, it gives us a stable trend
that we can play in the meantime.  After reaching the $34 level
earlier this week, MLNM pulled back and found support over the
past 2 days just above $31 (right at the 10-dma) and judging by
the strong buying volume on Thursday (50% above the ADV), it
looks like the bulls are getting ready to take another run at
the upper bound of the channel.  There is a fair amount of
congestion between $34-36, and we can take advantage of weakness
to enter new positions near support, positioning ourselves for
the next leg higher.  Target new entries near $31 and consider
harvesting profits as MLNM challenges the top of its channel.
We are initiating coverage of the play with a stop at $29.75,
just below recent support and the 200-dma (currently $29.88).
The broader Biotech sector (BTK.X) is continuing to trend
higher, and as long as that trend remains intact, MLNM should
continue to ride higher in its channel.

BUY CALL DEC-30*QMN-LF OI=5041 at $4.20 SL=2.50
BUY CALL DEC-35 QMR-LG OI=2191 at $1.50 SL=0.75
BUY CALL JAN-30 QMN-AF OI= 153 at $5.30 SL=3.25
BUY CALL JAN-35 QMR-AG OI= 488 at $2.80 SL=1.50
BUY CALL JAN-40 QMR-AH OI= 246 at $1.40 SL=0.75

Average Daily Volume = 3.20 mln



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

NOC $93.34 -0.13 (-0.71) NOC acts like it's consolidating its
recent pullback.  The trend is still decidedly negative, but
it appears that the stock is pausing at current levels.  The
short-lived intraday rallies have proven to be solid entry
points into put plays over the last several sessions.  Traders
might continue to look to intraday strength for potential
entry points.  Overhead resistance is fairly solid in the
$97 area and lower at the $95 level.  A rollover from either
after a protracted bounce would offer a solid entry into new
puts.  Momentum fans who prefer trading breakdowns might wait
for weakness in the Defense (DFI) sector and a decline in NOC
below $91.50, confirmed with weakness below $88.  Continue
monitoring the DFI for insights into NOC's price action.  The
stock's bearish divergence from the DFI Thursday was another
positive development and lends to further weakness in price.

KKD $36.20 -0.50 (-3.75) That pesky $37 level finally gave
way and a cascade of selling followed.  Those traders who
entered puts above the $40 level in KKD should be thinking
about locking in some gains down around current levels.  We
hate to tell our subscribers what to do, but it just makes
sense to take some capital off the table after a more than
$4 move to the downside in the last six sessions.  KKD's
next major support level is at $35.  Further weakness down
to that level in the next several sessions could offer
additional exit opportunities.  With four consecutive
sessions of lower prices, KKD is oversold over the very
short-term.  Take that into consideration when thinking
about entering new put plays on further weakness below
current levels.  The downside may be limited over the very
short-term because of KKD's oversold reading.  It could
always work lower, but in search of a better risk/reward
dynamic, traders looking for new positions might wait for
a relief rally up to resistance.  The first level to look
for a rollover is at $37.  Thereafter, a rollover around
$39.25 might offer a favorable entry point.

WWCA $24.96 -0.51 (-0.89) WWCA bounced in Wednesday's
session which turned out to be a good entry point into
new put plays.  We can't complain about taking entries
at higher prices in put plays.  That's of course assuming
you did take an entry yesterday.  The stock reached as
high as $25.75, which was just short of the $26 level but
right at its 10-dma.  WWCA reversed lower in Thursday's
session, diverging from the broader market as well as its
sector in the Wireless (YLS) index.  The bearish divergence
bodes well and hopefully hints towards further weakness in
this stock.  Look for a breakdown below the $24.50 level in
a declining market.  Confirm weakness in the YLS.

LH $77.25 +1.25 (-4.55) Almost as soon as we initiated coverage
on shares of LH, the stock broke down, giving nimble traders a
quick profit as the stock fell briefly below $73.50.  But the
bounce was quick, and we're starting to see buyers help undo
some of the damage that was done.  After climbing from
Wednesday's lows, LH is now getting close to the $78.50
resistance level, and a rollover near that level could provide
for fresh entries to the downside.  The 200-dma ($75.80) is
still providing support on a closing basis, but if it fails, LH
could see the $72.50 level in a hurry, followed closely by solid
support near $70.  Target new entries on a rollover from
resistance and look to harvest profits near the $70 level.  Keep
stops in place at $80.


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

VRSN - VeriSign, Inc. $37.73 -1.57 (-2.29 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

Trading rather poorly relative to the broader Technology sector,
VRSN has been unable to break out of its descending trend, which
has been in place since the May highs near $68.  Sure enough,
the rally attempt was turned back at the descending trendline
($47) a couple weeks ago, and since then the stock has been
heading sharply lower on heavy trade.  VRSN is approaching major
support near $36, and with daily Stochastics already buried in
oversold territory, we might be a bit late to this party.  But
we're going to give it a shot.  Intraday rallies have been
capped near the $41 level for the past week, so that gives us a
logical place to locate our stop.  The sharp decline in price on
Thursday broke the $39 support level on heavy volume, giving us
another likely spot to target new entry points.  Intraday
rallies near $39 or even $40 can be used for initiating new
positions as the sellers arrive to push the stock lower again.
Traders looking to take advantage of a breakdown from current
levels will want to wait for VRSN to fall below $36.25 before
taking a position.  That breakdown would likely pave the way
for the bears to test the September lows.  We would consider
harvesting some profits near the $33-34 area and then wait to
re-enter the play on the next failed rally.

BUY PUT DEC-40*QVR-XH OI=3881 at $4.40 SL=2.75
BUY PUT DEC-35 QVR-XG OI=3481 at $1.90 SL=1.00

Average Daily Volume = 11.7 mln



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

FFIV - F5 Networks $23.18 +1.26 (+0.46 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.

Most Recent Update

Yesterday's selling spree had an ugly look to it as it pushed our
FFIV play right to its ascending trendline at the close.  But
after the opening weakness this morning, we could see that FFIV
was giving us a great entry point.  Buyers started snapping up
shares at the $22 level, quickly pushing the stock off its lows.
Then we got another push in the afternoon, raising the stock
back above the $23 level and setting us up for another run at
the $24 resistance level.  The wedge continues to tighten, and
we should see the breakout in the next few days.  Continue to
target new entries near the $22 level (site of the ascending
trendline) or wait for a solid breakout over the $24-25
resistance zone.  A volume-backed breakout could provide enough
strength to test resistance at $30 in short order.  Keep a sharp
eye on the Networking index (NWX.X).  A drop below its 20-dma
($320) could create problems for our FFIV play.  Keep stops set
at $20.25.

Comments

Given its strong performance since late September, FFIV could
be a candidate for end-of-the-month window dressing Friday.
The stock should work higher if the Nasdaq and Networking
Sector (NWX.X) advance into Friday's session.  Look for a
move above Thursday's high or a breakout above relative highs
around the $24 level.

BUY CALL DEC-22*FLK-LX OI= 893 at $2.35 SL=1.50
BUY CALL DEC-25 FLK-LE OI=1202 at $1.25 SL=0.75
BUY CALL JAN-22 FLK-AX OI= 360 at $3.40 SL=2.50
BUY CALL JAN-25 FLK-AE OI= 378 at $2.40 SL=1.25
BUY CALL JAN-30 FLK-AF OI= 169 at $0.90 SL=0.50

Average Daily Volume = 630 K



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