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Daily Newsletter, Tuesday, 12/04/2001

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The Option Investor Newsletter                 Tuesday 12-04-2001
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)
*******************************************************************
      12-04-2001          High     Low     Volume Advance/Decline
DJIA     9893.84 +129.88  9893.84  9743.05 1.31 bln   2185/ 928	
NASDAQ   1963.10 + 58.20  1963.22  1913.92 1.87 bln   2282/1324
S&P 100   585.63 +  6.97   585.63   577.90   Totals   4467/2252
S&P 500  1144.80 + 14.90  1144.80  1128.86
RUS 2000  467.84 + 10.81   467.85   457.03
DJ TRANS 2534.85 + 51.79  2534.90  2478.78
VIX        25.33 -  0.67    26.92    24.78
VXN        48.09 -  1.65    50.55    47.66
TRIN        0.65
Put/Call    0.54
*******************************************************************

Stocks post solid gains as big NASDAQ trades strong

Stocks managed to show solid gains today with technology shares
showing impressive results.  The NASDAQ-100 (NDX.X) closed at a
2-month high as many of the larger capitalized technology stocks
continue to show strength above their 200-day moving averages.
The continued bullishness for many of the larger capped stocks is
sign for many investors that a longer-term bull is beginning to
grow horns and this looks to have bears eager to move to the
sidelines with each pullback.

NASDAQ-100 Index (NDX.X) Chart -



The last time the NASDAQ-100 (NDX.X) closed above the 1,634 level
was on August 13th, when the NASDAQ-100 finished the trading
session at 1,653.27.  The falling 200-day moving average will be
closely watched as it is the longer-term moving average that many
technicians monitor for a longer-term feel on "big tech"
performance.

And "big tech" has been doing well.  When we look at the NASDAQ-
100 trust (AMEX:QQQ) and some of the larger weighted components
there, we see that Microsoft (NASDAQ:MSFT) accounts for an 11.97%
weighting.  Intel (NASDAQ:INTC) is weighted 6.08%, Qualcomm
(NASDAQ:QCOM) is weighted 5.51% and Cisco (NASDAQ:CSCO) is
weighted 4.02% in the trust.  Right now, these are the "4
horsemen" and after today's action, all four are trading above
their 200-day MA's.  Qualcomm (NASDAQ:QCOM) got back above its
200-day MA just today.

Qualcomm (QCOM) Chart -



Retracement from $38.31 to $70.99 matches retracement almost
identically as that found in the NASDAQ-100 chart.  It's the
current trading right near the 200-day moving average at $57.49
that has my interest.  With Microsoft (MSFT), Intel (INTC) and
Cisco (CSCO) trading above their 200-day MA's for more than 2-
weeks, bears in Qualcomm (QCOM) should have some tight stops set
just above the $60 level as risk from retracement becomes $64.74.
A trader in Qualcomm will also want to monitor the NASDAQ-100
also to get a feel for any index trading above its 200-day moving
average.

Will the fuse fizzle?

Equity bears have yet to see equity bulls throw in the towel and
I think the action in the bond market helps keep tension high.
Is it any wonder that we're seeing 100 point swings in the Dow
Industrials (INDU) and good volatility in the NASDAQ?  Was
today's comeback in stocks another "look to the future" type of
move in anticipation that bond market bears will begin selling
the lower YIELDS and recent short-term gains found in that market
as stocks hold tough?  Today's lower YIELD in the 10-year
($TNX.X) came just above our key level of near-term YIELD
support.

In recent commentary, I've been using a much "broader range" of
retracement on the 10-year YIELD to get a "longer-term"
perspective of the bond market's view by anchoring to the YIELD
high found in January of 2000.  Our "support for YIELD" from
retracement work came in at the 4.621% YIELD level.  Today's low
YIELD on the 10-year was 4.624%.  But lets also try and use the
same retracement range as that from above in the NASDAQ-100
(NDX.X) and Qualcomm (QCOM), by anchoring to a recent relative
high found on May 18th.  In both of those charts, we anchored to
the May 21st close and then the recent lows to "define the
range."  Let's do that now with the 10-year YIELD to get a
different view and perhaps further insight as to "why" the 10-
year YIELD action at current levels could play a big role in
tomorrow's trading, if not this week's trading.

10-year YIELD Chart -



Equity bears that are trading the scenario of "lower YIELD bad
for stocks" are going to have to hold their breath overnight.
While the YIELD did fall today in the 10-year, it did not break
the retracement level of 4.621% identified from longer-term
retracement and it didn't break "conventional retracement" above.
In fact, today's low YIELD trade came at 4.624%, which is right
on conventional retracement as those ranges used for the NASDAQ-
100 and Qualcomm.

In recent commentary, I've said that "bears aren't out of the
wood yet" and the YIELD chart and current stock market action
gives hint that that's the right attitude to have up until
tonight.  Tomorrow morning, I'll be watching this bond's YIELD
action closely.  If we see any hint of higher YIELD during the
opening of trading there, then I will be thinking higher stock
prices.

The 10-year YIELD has seen buying for six straight sessions, yet
the NASDAQ-100 has gained 15-points (+0.9%), the NASDAQ Composite
has gained 22 points (+1.13%), the S&P 500 has lost 13 points
(-1.13%) and the Dow Industrials has lost 89 points (-0.89%).

While last week I thought "something had to give" as it relates
to stocks vs. bond YIELDS, that something should have been stock
prices.  We've yet to see that happen, so it is only fair to be
able to turn the tables on things.  Should we see a higher YIELD
near the open of trading tomorrow morning we might see equity
bears get squeezed and get a tradable rally for stocks.


NASDAQ-100 Index rebalancing

The NASDAQ-100 Index (NDX.X) rebalancing is expected to be
announced on December 17th.  Jefferies expects the following 14
companies to be removed from the index.  XOXO, MFNX, MCLD, INKT,
CMGI, BVSN, RNWK, ARBA, CNET, NOVL, COMS, PALM, PMTC, LVLT.  Some
stocks Jefferies feels are candidates to replace the
aforementioned are APOL, IMCL, CHTR, CDWC, SYMC, SEPR, ICOS,
IVGN, ESRX, CEPH, CYTC, PDLI, IDTI, SNPS.  Traders may want to
monitor the following for any suspicious volume spikes where bets
are being taken by market makers with inventory positions.

Jeff Bailey
Option Investor


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

QQQ Powder Keg
By Eric Utley

Monday was another difficult day to read into.  But Tuesday's
trading provided more fireworks.  I wonder if Tuesday's big cap
tech-led rally had anything to do with all of those puts we
observed trade in the QQQs last week?  Anybody notice that the
Nasdaq-100 (NDX) was higher by 4.25 percent Tuesday.  The
Nasdaq Composite (COMPX) advanced far less with its 3.05 percent
rally.  Nasdaq-100 = QQQ = Big Cap Tech.

I opined late last week that the "trader types" shorted into the
rally Thursday and Friday.  I came to that conclusion by
observing the excessive amount of put buying in the QQQs -- a
favorite trading vehicle of active market participants.  The
QQQs put/call ratio spiked to 3.00 last Friday, which was an
unusually high reading.  Long time readers know how I feel
about crowds.

When so many traders buy puts/short stocks, who's left to sell
in order to provide the necessary liquidity to cover the
shorts?  The answer is the longs liquidating.  Not many longs
were selling Tuesday, so the shorts got nervous and "brought in"
their puts and stock.  A short covering rally ensued, which was
fueled by momentum buying and the next thing you know, the NDX
is higher by 4.25 percent.

But will the short covering last?  From what I observed, the
bears were active again into Tuesday's late rally.  The QQQ
put/call ratio finished above 1.00, which means that more puts
traded than calls.  I don't expect another 4.25 percent day in
the NDX ahead of Cisco's (NASDAQ:CSCO) report.  Although,
stranger things have happened.  Moreover, Intel (NASDAQ:INTC)
hosts an analyst meeting Thursday after the bell.  And then
there's the employment report on Friday...

Cisco and Intel currently account for roughly 12 percent of
the Nasdaq-100.  That's big, very big.  I wouldn't expect a
lot of big bets to be placed ahead of the two critical events.
But each event has the potential to provide the necessary
fuel to power the NDX higher into the end of the year.  The
remaining shorts in the QQQs could feel more heat before too
long.  The next few days should be interesting.

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

Market Volatility

VIX   25.33
VXN   48.09

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.59        546,639       324,389
Equity Only    0.49        492,260       239,727
OEX            1.68          6,549        10,973
QQQ            1.23         19,088        23,540

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

Bullish Percent Data

           Current   Change   Status
NYSE          46      + 0     Bull Confirmed
NASDAQ-100    71      + 1     Bull Correction
DOW           60      + 0     Bull Confirmed
S&P 500       61      + 0     Bull Confirmed
S&P 100       62      + 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  1.32
10-Day Arms Index  1.19
21-Day Arms Index  1.04
55-Day Arms Index  1.05

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      2185            928
NASDAQ    2282           1324

        New Highs      New Lows
NYSE      108             38
NASDAQ    102             51

        Volume (in millions)
NYSE     1,305
NASDAQ   1,875

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

Commitments Of Traders Report: 11/27/01

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 backed off their most bullish reading of the
year over the past two weeks.  While the number of short
contracts remained relative flat, about 10,000 longs were closed.
Meanwhile, small traders added a significant number of new long
positions for a net bullish increase of 10,000 contracts.

Commercials   Long      Short      Net     % Of OI
11/06/01      376,807   416,063   (39,256)   (5.0%)
11/13/01      381,539   421,284   (39,745)   (5.7%)
11/27/01      371,336   421,405   (50,069)   (6.3%)

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
11/06/01      132,106     81,208   50,898     23.9%
11/13/01      136,047     87,645   48,402     22.0%
11/27/01      151,317     92,807   58,510     24.0%

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 and small traders shifted in the same direction
recently.  Commercial traders added to their net bearish
position while small traders reduced their net bullish
position.

Commercials   Long      Short      Net     % of OI
11/06/01       39,410     47,890   ( 8,480)  ( 9.7%)
11/13/01       38,751     49,257   (10,506)  (12.0%)
11/27/01       37,259     48,315   (11,056)  (12.9%)

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
11/06/01       11,406     8,143    3,263      16.7%
11/13/01       11,568     6,505    5,063      28.0%
11/27/01       12,540     8,359    4,181      20.0%

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

Neither commercial nor small traders shifted positions on a
large scale since the last reporting period.  Commercials
remained decidedly bullish while the small traders continued
to lean bearish on the Dow.

Commercials   Long      Short      Net     % of OI
11/06/01       25,977    11,951   14,026     37.0%
11/13/01       24,145    10,204   13,941     40.6%
11/27/01       24,243    11,496   12,747     35.7%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
11/06/01        3,569    12,281    (8,712)   (55.0%)
11/13/01        4,094    12,121    (8,027)   (50.0%)
11/27/01        4,228    10,630    (6,402)   (43.1%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

No Dropped Calls for Tuesday.


PUTS:
*****

YUM $49.46 +1.45 (+1.98) YUM exploded to the upside in today's
session.  Traders who tried entering puts near resistance into
the strength should be on high alert for any follow-through into
tomorrow's session.  It's best to take losses while they're
small and manageable.  We were wrong with this one and now are
looking to get out.  Use any weakness tomorrow to cut losses.
Tight stops should be in place just above today's highs in order
to prevent any further upside.


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

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

CALLS              Mon    Tue

SPW     124.06   -0.99   3.55  Entry point on the bounce from $120
PMCS     24.54   -0.91   2.66  Up on the positive CSCO comments
PDLI     37.04   -0.99   0.34  Held back by the weak BTK.X
CNXT     16.31   -0.14   1.56  One of the strongest chip stocks!!!
MCDT     26.05   -0.52   1.37  Out performing the tech measures
INTC     32.81   -0.62   0.77  Look out $33, here INTC comes!
IBM     116.64   -1.46   2.51  Provided yet another entry point
IMCL     71.65   -0.05   0.40  BTK lagged the "other" techs
MLNM     33.51   -1.99   1.41  Climbing its ascending channel
NVDA     58.14    0.83   4.33  New, looking for a breakout?
QLGC     52.95   -1.12   4.62  New, sharp storage stock


PUTS

NOC      96.13    1.22   1.03  Make or break, at the entry point
KKD      36.74   -0.05  -0.51  Consolidating and diverging
WWCA     23.87   -0.78   0.08  Another new 52-week low, very weak
VZ       47.98    0.47   0.51  Dragged higher by the YLS
YUM      49.46    0.53   1.45  Dropped, watch your risk!!!
LH       77.50    0.20   0.43  Buoyed by positive market
SEBL     22.98   -1.15   1.78  Looking for resistance setup
VRSN     37.58   -0.63   0.85  Not a performer in the Nasdaq


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The Option Investor Newsletter                  Tuesday 12-04-2001
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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Note: Options involve risk. Risk disclosure:
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********************
PLAY UPDATES - CALLS
********************

SPW $124.06 +3.55 (+2.56) SPW dropped ever so slightly below the
$120 level in Monday's session, but for the most part rebounded
from the entry level we wrote about over the weekend.  The
stock's pattern of pulling back to support and rebounded persisted
with the advance in Tuesday's session.  Hopefully the recent
weakness allowed traders to enter call plays in these ultra strong
stock.  We'll be looking for follow-through into Wednesday's
session.  Ideally, the stock will take out its relative high at
the $125.60 which would confirm its rebound from $120.  Traders
who took entries on the rebound from $120 might consider booking
partial profits on strength above the $125.60 level.  At the very
least, use a tight trailing stop to protect profits.  Continue to
monitor the broader market in the form of the S&P 500 into
Wednesday's session.  Further strength in the S&P should support
a continued advance in SPW.

PMCS $24.54 +2.66 (+1.75) The rebound from $22 worked out well
following today's session.  PMCS sharply advanced in the wake of
Cisco's upbeat comments.  PMCS is a large supplier to Cisco.  The
stock tested the upper-end of its trading range between $24 and
$24.50 but was unable to breakout.  A breakout won't occur until
PMCS advances past the $25 level.  An advance past $25 would offer
an entry into this play.  PMCS worked off its overbought condition
recently.  Therefore, a breakout may not carry as much risk
currently.  Just make sure to confirm strength in the NWX and
SOX before entering new plays on strength.  While some readers
might consider an advance past $25 as an entry point, those
who bought calls down around $22 might use any strength above
$25 to lock in short-term gains.  In terms of entering on future
pullbacks, look for a bounce from the $22 to $23 area.

PDLI $37.04 +0.34 (-0.65) The biotech sector didn't participate in
Tuesday's tech rally.  The under performance of the BTK in turn
held back PDLI.  The stock sharply rebounded from the $35.50 area
but didn't make it past its short-term congestion zone immediately
above current levels.  PDLI needs the BTK to get moving to the
upside in order to breakout.  What we'll be watching for tomorrow
is for the BTK to play catch with the Nasdaq and out perform to
the upside.  If the broader biotech sector continues to lag
or weakens, then our PDLI bullish play may be in trouble.  Traders
with open positions might consider tightening stops if the
weakness in the BTK persists.  On the other hand, if the BTK
stages a sharp advance in tomorrow's session, then look for
PDLI to power through its immediate overhead resistance.  A
breakout above $38 might offer a favorable entry into strength.
From there, look for an advance onto the $40 level.  Take
entries on weakness carefully in light of the BTK's under
performance Tuesday.  The COMPX gained 3%, while the BTK only
added 1.37%.

CNXT $16.31 +1.56 (+1.42) Quite frankly, we're upset with CNXT.
We really, really wish the stock would've come down more during
its recent pullback.  Such is the market.  CNXT bounced about 20
cents above its 10-dma in yesterday's session.  We would've liked
to seen CNXT trade down to its 10-dma or lower to the $14 level to
provide a better risk/reward set-up.  Hopefully readers went
with their own judgment and entered on the weakness yesterday
because CNXT's 10% advance today sure felt good!  To reiterate,
this stock is one of the strongest chip stocks and if you're
looking for exposure to a strong tech stock, this one is worth
a closer look.  Short-term traders who took entries on the
weakness yesterday might look to book short-term gains on
strength into Wednesday's session.  It might not make sense
to take profits into strength for some people, but good
money management dictates taking at least partial gains after
the massive rally CNXT staged today.  We'll continue to pound
the table on waiting for weakness to enter new call plays
in this stock.  Trade however you feel best and what fits your
style and risk tolerance.  But we feel best about CNXT call
plays on entries on weakness.

MCDT $26.05 +1.37 (+0.85) MCDT burst higher in today's
session along with the rest of the tech sector.  We liked the
out performance to the upside on the part of MCDT.  The stock
tacked on 5.5% while the COMPX added 3%.  We're happy to be
in a stock that is advancing more than the broader market.
That's the way to do it.  The difficult lies in the execution
of new entries.  MCDT hasn't displayed significant weakness to
support that would allow for favorable entries on weakness.  The
stock is crawling higher on a very aggressive ascending support
line.  The support, depending upon how you draw your trend line,
currently sits between $24 and $24.50.  That's the area to look
for a bounce following any weakness in the broader markets that
may pressure MCDT lower.  Of course momentum fans might
consider entering new plays on strength above current levels.
If you pursue a momentum-based strategy, it's necessary to
confirm strength in others in the group, such as SUWN, IBM, EMC,
QLGC, EMLX, and BRCD.

INTC $32.81 +0.77 (+0.15) Something is about to give, can you
feel it?  INTC traded within ten cents of our magical $33 level
in today's session.  The strength in the broader tech sector
certainly helped.  The stock could breakout in tomorrow's
session which, to reiterate, would be signaled with an advance
past $33.  It's a highly visible level that we're sure many
other traders are watching.  A move past $33 may induce a
rapid short covering rally that could carry the stock higher
over the short-term.  Look for continuing strength in the SOX
and watch for the break above $33.  Keep in mind that Cisco
reports after the bell.  The event could impact INTC.

IBM $116.64 +2.51 (+1.05) True to form, shares of IBM dipped
slightly on Monday, only to provide yet another entry point near
the lower end of its recent range and after drifting throughout
the day on Tuesday, rallied sharply in the afternoon session,
ending the day near the upper end of its recent range.  Will
this be the time that the stock manages to break out over $117,
or will we remain in the range?  Only time will tell.
Conservative players may want to consider harvesting some
profits if the stock weakens near current levels, as the bulls
will have to work hard to push through overhead resistance in
the $118-120 area.  If IBM rolls over again, we'll look to
initiate new positions on another dip and bounce in the $112-113
area.  Keep stops in place at $112.

IMCL $71.65 +0.40 (-0.35) Although it has been a leader in the
recent Technology rally, the Biotech sector (BTK.X) lagged the
sexier Chip and Networking stocks in Tuesday's explosive
afternoon rally.  Even IMCL, which has been on a tear in recent
weeks, has been rather docile this week, consolidating near the
$71 support level.  This area could turn out to be a good entry
for the next leg higher, but we'll need to see confirmation from
the BTK index.  On a more significant pullback, we could see a
really juicy entry point if IMCL dips to the $68 level, from
which IMCL launched its most recent rally.  The stock is being
added to the NASDAQ 100 on December 17th due to the index
rebalancing, and that could provide a boost to the stock.  IMCL
has seen one heck of a run from the September lows, so we want
to continue initiating positions at support, rather than
targeting breakouts over resistance, which currently sits at
$73.50.  Our stop remains at $67.

MLNM $33.51 +1.41 (-0.58) Consistency is the name of this play,
as that is exactly what MLNM has been delivering over the past 2
months.  The stock has been rallying with the broader Biotech
sector (BTK.X), but with far less volatility, as it climbs its
ascending channel.  Sure enough, MLNM dipped to the lower
channel line near $32 on Monday before doing an about face on
Tuesday and rallying more than 4% to close just below the $34
resistance level.  Alert traders that took advantage of the
entry point today are sitting pretty and looking to harvest some
profits as the stock nears its upper channel line (currently $36)
right at the next level of resistance.  Continue to trade the
extremes of the channel (entering at support and exiting at
resistance) so long as the pattern remains intact.  Raise stops
to $31.


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

NVDA - NVIDIA Corporation $58.14 +4.33 (+3.50 this week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Looking for a breakout?  Boy have we got one for you!  After
breaking out to new highs above $50 last month, shares of NVDA
have been consolidating between $50-55, as the bulls have
gathered their strength for the next push higher.  And it isn't
as though the stock's strength is a new development.  Prior to
Tuesday's breakout move, NVDA was already up 270% since the
first of the year and 141% since the October lows.  No matter
what you compare the stock to, it looks like relative strength,
in spades.  With a surge of volume on Tuesday, the stock
rocketed through the $55 resistance level, closing at the high
of the day, also a new all-time high.  And it looks like there
is more strength where this breakout came from.  We want to
exercise caution after Tuesday's 8% rally and would prefer to
pick up the stock on a pullback, ideally near the $55 level.
Broad market weakness could even give us an entry on an intraday
dip near the $53 support level.  We are initiating the play with
our stop set at $52.  If the breakout in the NASDAQ is going to
continue higher from here, NVDA should continue to lead the
charge.

BUY CALL DEC-57*RVU-LA OI=4755 at $3.40 SL=1.75
BUY CALL DEC-60 RVU-LL OI=6423 at $2.10 SL=1.00
BUY CALL DEC-62 RVU-LB OI=1134 at $1.40 SL=0.75
BUY CALL JAN-60 RVU-AL OI=6886 at $4.70 SL=2.75
BUY CALL JAN-62 RVU-AB OI=1826 at $3.70 SL=2.25
BUY CALL JAN-65 RVU-AM OI=1485 at $2.75 SL=1.50

Average Daily Volume = 9.16 mln



QLGC - QLogic Corporation $52.95 +4.62 (+3.50 this week)

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

Storage stocks have been rallying sharply over the past 2
months, and shares of QLGC are up more than 200% since the
September lows.  Strong volume confirms that the stock is once
again a favorite of the Technology bulls, and Tuesday's session
was no exception, as more than 13 million shares traded hands.
In conjunction with the 9.5% rally that propelled shares through
the $50 resistance level, the stock is looking particularly
strong.  Point and Figure aficionados already knew the stock
looked good, as it recently completed a triple top breakout,
when QLGC finally cleared $50.  While there is likely to be some
consolidation of Tuesday's dramatic rise, it appears the bulls
have their sights set on challenging the $60 resistance level,
followed by the June highs near $65.  So how do we get onboard
this express train to profits, you ask?  We don't want to chase
the stock higher right here, as some profit taking is clearly
necessary.  Look for a pullback to the $50 level to provide for
attractive entry points, although we wouldn't rule out a dip as
low as the $48 support level.  We need to see the profit taking
take place on lighter volume, and then we can step into the play
as buying volume picks up once again.  We are initially placing
our stop at $46.50.

BUY CALL DEC-50*QLC-LJ OI=4315 at $5.40 SL=3.25
BUY CALL DEC-55 QLC-LK OI=2782 at $2.70 SL=1.25
BUY CALL DEC-60 QLC-LL OI=1999 at $1.20 SL=0.75
BUY CALL JAN-55 QLC-AK OI=1610 at $5.10 SL=3.00
BUY CALL JAN-60 QLC-AL OI=2243 at $3.30 SL=1.75
BUY CALL JAN-65 QLC-AM OI= 791 at $2.05 SL=1.00

Average Daily Volume = 11.0 mln



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

NOC $96.13 +1.03 (+2.25) NOC worked higher again today.  Why
are we maintaining coverage on this put play?  NOC is trading
higher out of sympathy with its sector.  The DFI finished
higher again today, which boosted NOC higher.  We don't mind
holding a put play if the stock is working higher because of
its sector.  If NOC were moving higher on its own then that
would be a different story.  Of course, we don't like seeing
any of our plays working against us because we know our readers
could be at risk.  To digress, the reason we're holding NOC
is because it's once again nearing a potential rollover point
and is overbought on the daily stochastics reading.  Traders
can look for an entry point, with an ultra tight stop, on any
strength in tomorrow's session between the $96.50 and $97
levels.  A tight stop can be placed just above the $97 level
to as high as $98, depending upon your specific risk tolerance.
It's a simple strategy: NOC is overbought, near resistance, and
risk can be managed relatively easy at current levels.  That
doesn't guarantee a successful play.  NOC needs weakness in
the DFI to work lower.

KKD $36.74 -0.46 (-0.51) KKD is diverging from the broader
market to the downside this week, which is a positive development
for us.  The stock acts as if it's consolidating its recent
sell-off.  Not much progress has been made in either direction
so far this week.  The stock is still relatively oversold, but
a few more days of sideways trading would help to work off that
risk.  The pattern of relatively lower intraday highs over the
past three sessions is another encouraging development and
may portend further downside once the markets pullback.  But
remember, pressing puts during a rally in the market is a
difficult game to play.  That said, rollovers near the $37.20
level may offer favorable entry points in the coming sessions.
Otherwise, wait for weakness in the market and watch for KKD
to breakdown below the $36 level.

WWCA $23.87 +0.08 (-0.70) It's been on new low after another.
Sure, WWCA finished fractionally higher today, but not before
setting a new 52-week low at the $23.32 level.  Here's the name
of this game: enter puts on strength near resistance, and exit
those puts on weakness to a new 52-week low.  Resistance can
be found between the $24.25 and $24.75 area.  Above that zone
is the 10-dma which currently sits at the $25 level.  A rally
and subsequent rollover from either of the aforementioned
resistance levels could produce a favorable entry point.  To
the downside, there's no immediate support.  Look for an exit
point near a whole number, such as $23, $22, et cetera.  Monitor
the Wireless Sector Index (YLS.X) for insight into WWCA's
trading behavior.  We're moving our coverage stop down to $25.50.
Your own stop should depend upon your entry point, risk tolerance,
and trading style.

VZ $47.98 +0.51 (+0.98) VZ's strength this week has worked off
a small part of the stock's overbought price.  It's still
relatively overbought, but that risk is lessening with each day
VZ trades higher.  We're not upset with the rally in the stock
so far this week because it could allow for a more favorable
entry point at higher prices.  Plus, the Wireless Sector Index
(YLS.X) is working higher.  VZ's rally is most likely a product
of sector-related strength.  The stock is approaching its
descending 10-dma at $48.18.  Look first for a rollover near that
area, but make sure that you only pursue put entries in a market
that is conducive to doing so.  In other words, if the market and
YLS.X are sharply advancing, don't try to fight the trend.  If
VZ trades above its 10-dma, look for an entry between the $49 and
$49.50 levels.

LH $77.50 +0.43 (+0.60) The positive market environment this
week has helped to buoy shares of even poorly performing stocks
and LH has certainly been a beneficiary of this effect over the
past couple days.  Finding support near the 200-dma ($75.92)
and recovering back towards the descending trendline (currently
$78.50).  With historical resistance at this level and the
declining 10-dma ($78.85) looming overhead, a rollover in price
near $78.50 looks attractive for initiating new positions.  The
longer-term ascending trendline is currently resting at $72, and
we would look to harvest profits on a dip near that level.  For
now, we are keeping our stop in place at $80.

SEBL $22.98 +1.78 (+0.63) Following its sharp price drop on
Monday, SEBL was due for a bounce, and the strength in the
Software sector (GSO.X) on Tuesday provided just what the bulls
were looking for.  SEBL gained more than 8% on solid volume and
is now approaching solid resistance in the $23.50-24.50 area,
reinforced by the 20-dma (currently $23.73).  Weakness near that
level could be just the setup we need to consider initiating new
positions, should today's rally prove to be a one-day wonder.
Target rollovers near resistance and consider taking profits as
the stock approaches major support near $19-20.  Keep stops at
$24.50.

VRSN $37.58 +0.85 (+0.22) With the NASDAQ Composite breaking out
over resistance and its 200-dma on Tuesday, there were strong
performers throughout the Technology sector that were
contributing to the move.  VRSN was clearly not one of them as
it continued to languish between $36-38, just above its recent
lows.  The mild rise in price shows us the relative weakness in
VRSN, which is what attracted us to the play in the first place.
While a rollover near current levels can be used to initiate new
positions, we'd really like to see the stock rise near $39-40 to
provide a truly attractive entry point.  Our stop remains at $41,
as it appears unlikely that the stock will be able to take out
resistance at that level.  Traders that would prefer to see
confirmation before playing, can target new entries as VRSN
falls below its recent lows at $35.50.


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

No New Puts for Tuesday.


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

INTC - Intel $32.81 +0.77 (+0.15 this week)

Intel is a semiconductor chip maker, supplying the computing and
communications industries with chips, boards and system building
blocks that are integral to computers, servers and networking
and communications products.  Its products are offered at various
levels of integration, and are used by industry members to create
advanced computing and communications systems.

Most Recent Update

Something is about to give, can you feel it?  INTC traded within
ten cents of our magical $33 level in today's session.  The
strength in the broader tech sector certainly helped.  The stock
could breakout in tomorrow's session which, to reiterate, would
be signaled with an advance past $33.  It's a highly visible
level that we're sure many other traders are watching.  A move
past $33 may induce a rapid short covering rally that could carry
the stock higher over the short-term.  Look for continuing
strength in the SOX and watch for the break above $33.  Keep in
mind that Cisco reports after the bell.  The event could impact
INTC.

Comments

Could tomorrow be the day?  INTC edged within 10 cents of the
$33 level Tuesday.  The stock is on the verge of making a big
breakout.  Look for strength in the chip sector (SOX.X) early
tomorrow.  A follow-through from today's rally could set INTC
a light.

BUY CALL DEC-30 INQ-LF OI= 52722 at $3.40 SL=2.25
BUY CALL DEC-32*INQ-LZ OI= 73482 at $1.60 SL=0.75
BUY CALL JAN-30 INQ-AF OI= 88295 at $4.20 SL=3.00
BUY CALL JAN-32 INQ-AZ OI= 74273 at $2.50 SL=1.75
BUY CALL JAN-35 INQ-AG OI=185276 at $1.30 SL=0.75

Average Daily Volume = 51.4 mln



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**************************************************************


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