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Daily Newsletter, Thursday, 12/06/2001

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The Option Investor Newsletter                Thursday 12-06-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       12-06-2001           High     Low    Volume Advance/Decline
DJIA    10099.14 - 15.15 10169.44 10079.77  1.4 bln   1572/1539
NASDAQ   2054.27 +  7.43  2065.69  2037.64  2.1 bln   2068/1558
S&P 100   596.77 -  0.93   599.97   595.56   Totals   3640/3097
S&P 500  1167.10 -  3.25  1173.35  1164.43
RUS 2000  482.23 +  2.81   482.80   478.72
DJ TRANS 2619.40 +  6.91  2643.24  2596.81
VIX        25.09 +  0.30    25.66    24.63
VXN        48.39 +  0.95    48.99    47.76
TRIN        1.09
Put/Call Ratio       .80
*************************************************************

Bullishness Breaking Out All Over!

"Better than expected" appears to be the key word for the day!
Heavyweights SUNW, INTC, AMD appeared on the leader board after
all said that sales were better than expected in this quarter.
The consumer may not dead but in the case of SunMicro they want
to see the next four weeks of orders before proclaiming a complete
turnaround. IDTI was about the only complainer in the tech sector
and said their earnings would be -15/20% less than expected. Who
do you think will have more influence on our market? INTC, SUNW
and AMD with combined quarterly revenues over $10 billion or IDTI
with revenues of only $77 million.





The good news is breaking out all over but we may not be out of
the woods yet. Beginning with the biggest tech with a major
announcement on Thursday, Intel raised their estimates for their
fourth quarter revenue to $6.7-$6.9 billion from $6.2-$6.8 billion.
They said margins were going to come in on the higher side of their
targets and that orders for their P4 processors were better than
expected. No complaints here!

AMD also said that they were experiencing stronger demand than
previously expected especially in their high speed Athalon processor.
They said their 4Q loss would be narrower than expected and they
would return to profitability in the 2Q.

SUNW said orders were on pace for their prior estimates (whatever
that means) but the last four weeks of this quarter would be
critical. The cautious words kept SUNW down in after hours. Analysts
were questioning whether SunMicro's orders were from fewer competitors
or new storage products. In other words they were unable to decide
if SUNW was doing better due to increased demand or simply because
alternatives had gone away. They did say that microprocessor sales
were stronger than expected.

The companies most likely to profit from this news are Dell and
Gateway. If Intel and AMD are racing to meet demand for processors
then somebody is selling computers. With 60% of all computers being
sold in the fourth quarter, Dell and GTW could be heading for a
strong quarter. Dell is already trading at an eight month high but
still taking market share from competitors.

Not all the news was from tech stocks. Great news came from the
Jobless Claims which fell -18,000 to 475,000. This was encouraging
but the drop in continuing claims from 3.987 million to 3.638
million was the largest drop in eighteen years. It is still at
an elevated level but the big drop could indicate that hiring
has begun. Friday's Jobs Report will be the next indication of
economic recovery through job growth.

Productivity grew by only +1.5% last quarter as a result of massive
layoffs and was much weaker than the +2.1% growth rate in the prior
quarter. Greenspan commented that he expected productivity to
continue growing and the fact that it grew at all in the 3Q after
the WTC attack speaks good things about our current quarter.

The only negative economic news was the slowdown in retail sales
but everyone had pretty much discounted that already. Retailers
have been complaining about warm weather keeping shoppers out
of the stores. The warm weather has not been a problem here in
Denver with cold temperatures and heavy snow in the high country.
I spoke about my "parking lot indicator" (PLI) at our office. Our
office building is in a mall parking lot and during normal years
it is tough to find a parking spot between Thanksgiving and
Christmas. Not this year however! Shoppers are only about 10-15
cars deep around the mall and only once since Thanksgiving have
several cars spilled over into our parking lot. Easily half of
the shoppers have failed to appear. This will eventually work its
way into the stock prices of retailers but today nobody wants to
face this fact. Current bullishness is too rampant.

The bulls should be excited. The Nasdaq closed more than +100 points
above its 200 DMA and posted another gain after a huge day on
Wednesday. The tech news after the bell today should give bears
another case of indigestion with better than expected results
from the two major chip makers. Sounds like a recipe for another
leg up, EXCEPT, for the already overbought conditions. How many
investors would jump on a tech stock up over +30% since Monday?
(PMCS for example) Not many I would guess!

The S&P-500, a broader indication of the market, came to a dead
stop at 1167, its 150 DMA and only eight points under its 200 DMA
at 1175. It has serious resistance between 1172 and 1200. The
Dow hit a high of 10169 only six points below serious resistance
at 10175. The Dow and S&P have a tough road ahead. The Nasdaq
could move up to 2100 before hitting the same type of resistance.

Now here is our quandary. Technically the markets are overbought
and due for a rest. Even with the three week consolidation on
the Nasdaq (13th - 5th), where it traded in a tight 100 point range,
individual stocks were still making progress. Despite the technical
indicators the sentiment is strongly bullish and should get stronger
after the Intel/AMD comments. There is still a mountain of money
on the sidelines but many funds are still waiting for a clear buy
signal. TrimTabs.com said $7.7 billion in cash came into stock
funds in the week ended on Wednesday. Over $6 billion came in on
Wednesday alone when the Dow/Nasdaq crossed 10000/2000. You want
a clearer signal? Retail investors are coming back. The 10K/2K
barrier was a signal to John Q Public that happy times are ahead.

Whether the road ahead is made of gold bricks or land mines is still
up for discussion. Tax selling may begin any day and investors will
be wondering what hit them. So far the earnings warnings for this
quarter have been nonexistent. The economy may be recovering and
investors may be willing to put money back to work. The wall of
worry that the successful markets must climb appears to be eroding
daily but there are still challenges ahead including significant
resistance. Remember the Fed meeting next Tuesday? Everyone expects
them to cut rates another 25 basis points but what happens to our
rally if they don't?

I am happy as you about the huge rebound this week. I would however
urge you to remain cautious on Friday. Nobody should expect big gains
on the day after a big gain and that is exactly what happened on
Thursday, nothing! That lack of follow through is also a concern.
Look at the charts for Tuesday/Wednesday. The majority of the strong
gains came in just over three hours. This was mainly a short covering
rally. Friday could easily see profit taking pushing stocks down again.
Don't worry, be happy, it will only be temporary. I am long term bullish
and still believe that buying the dips is the correct strategy. We
have been very successful using that strategy the over the last three
weeks. I am however short term skeptical. There is simply strong
resistance above us and that resistance could impede our progress.
Be patient, there is a better entry point in our future. Wait for it!

Enter very passively, exit aggressively!

Jim Brown
Editor


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

More On The QQQs
By Eric Utley

I've been watching the put/call ratio in the QQQs with amazement.
The ratio spiked above 3.00 late last week.  It came down in the
last few sessions in the wake of the massive rally in big cap
technology.  But spiked higher again in Thursday's session, back
above 3.00.  The reading reveals that more than 3 puts traded for
every call in the QQQs Thursday.

Were the traders of those puts buying, selling, or hedging?  It's
difficult to accurately discern an options market participant's
intentions.  Generally, I read into the put/call ratios as if
the traders were buying.  It's very subjective and requires other
metrics in order to reach an accurate conclusion.  As such, I'm
starting to think that the excessive trading of puts in the QQQs
is something other than outright buys.

With Sun (NASDAQ:SUNW), Intel (NASDAQ:INTC), and Advanced Micro
(NYSE:AMD) saying good things in the after hours, I find it hard
to believe that "smart money" loaded up on QQQ puts Thursday.
But they could have.  And the QQQs could be set for another
short covering rally Friday.

In addition to the QQQ put/call ratio, I observed a rare reading
in the OEX put/call ratio Thursday.  The OEX ratio fell below
1.00; or, more calls traded than puts.  The OEX ratio almost
always trades above 1.00.  However, on the rare occasions that
I've seen it fall below 1.00, the market has generally rallied
in the following days.  I don't have any studies or data to
back that up, it's just something that I've observed over the
years.  The OEX ratio, unlike most others, isn't a good
contrarian indicator.  I think it's a preferred hedging tool of
institutions.

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

Market Volatility

VIX   25.09
VXN   48.39

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.79        626,927       499,351
Equity Only    0.62        564,260       349,953
OEX            0.96         10,926        10,504
QQQ            3.19         16,736        53,402

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

Bullish Percent Data

           Current   Change   Status
NYSE          49      + 1     Bull Confirmed
NASDAQ-100    78      + 2     Bull Correction
DOW           63      + 0     Bull Confirmed
S&P 500       65      + 0     Bull Confirmed
S&P 100       65      + 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  0.82
10-Day Arms Index  1.05
21-Day Arms Index  1.03
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      1572           1539
NASDAQ    2068           1558

        New Highs      New Lows
NYSE      140             32
NASDAQ    125             33

        Volume (in millions)
NYSE     1,464
NASDAQ   2,165

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

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:
*****

MLNM $29.56 -5.89 (-4.53) Proof positive that news will trump
technicals every time, MLNM cratered on the announcement that
the company would be buying Corr Therapeutics (NASDAQ:CORR) for
a premium.  The stock gapped lower by more than $5 and continued
to bleed throughout the day.  Needless to say, MLNM violated our
stop and we're dropping the play tonight.  While the stock
provided some solid profits earlier in the week, this morning's
huge drop is a screaming advertisement for taking profits;
those that harvested gains near the top of the ascending
channel yesterday didn't suffer that sickening feeling as the
stock tumbled today.


PUTS:
*****

VRSN $42.93 +2.60 (+5.57) Late to the party, shares of VRSN have
been screaming higher over the past two days.  While the sharp
rise on Wednesday gave us a hint that our play might be in
danger, confirmation arrived this morning as the bulls vaulted
the stock through the $41 stop shortly after the opening bell.
It's time to cut our losses and remove VRSN from the put list.
If you're still hanging onto open positions, use any weakness on
Friday as an opportunity to exit at a more favorable price.


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

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

CALLS              Mon    Tue    Wed    Thr

SPW     131.39   -0.99   3.55   3.82   3.51  Above resistance zone
PMCS     29.24   -0.91   2.66   2.84   1.86  Super strong chip
PDLI     40.57   -0.99   0.34   2.52   1.01  Results Friday
CNXT     17.48   -0.14   1.56   1.19  -0.02  Waiting for an entry
MCDT     28.85   -0.52   1.37   3.85  -1.05  Profit taking today
INTC     34.16   -0.62   0.77   1.80  -0.45  After hours news
IBM     120.14   -1.46   2.51   4.76  -1.26  Roll Beam, Go Blue
IMCL     71.94   -0.05   0.40   2.18  -1.89  Approaching support
MLNM     29.56   -1.99   1.41   1.94  -5.89  Dropped, acquisition
NVDA     61.84    0.83   4.33   4.69  -0.99  Taking a breather
QLGC     55.49   -1.12   4.62   3.23  -0.69  Next leg higher?


PUTS

NOC      95.00    1.22   1.03  -1.06  -0.07  Calm before the storm
KKD      38.90   -0.05  -0.51   1.49   0.67  Ready for an entry
WWCA     23.62   -0.78   0.08  -0.10  -0.15  Bearish trend intact
VZ       48.56    0.47   0.51   0.26   0.41  Close to the stop
LH       77.80    0.20   0.43   0.75  -0.45  Pesky 200-dma
VRSN     42.93   -0.63   0.85   2.75   2.60  Dropped, good news
CB       66.55   -1.15  -0.47   0.06  -1.95  New, uninsured
CAH      65.95    0.20   0.37  -1.35  -1.57  New, rotation


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The Option Investor Newsletter                 Thursday 12-06-2001
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
**************

What Have We Learned?
Austin Passamonte

Last week's article generated email feedback from many old friends
at OI and it's good to hear from you again. May I share one of
many valid thoughts that hold the same theme? As follows:

"Hi Austin; Excellent article and some good lessons pointed out by
yourself and Eric (in last Wed writeup). Also diversification is
the way to go as mentioned by Eric to avoid such hits.

However, since May 2000 all companies came down drastically after
the internet bubble burst. I doubt anyone did not get hit, except
for those who shorted. Great names such as INTC, CSCO, SUNW to
name a few were also not immune from this impact. This brings me
to the question, do long term investors shy away from these
companies (specially INTC which is a leader in its industry) just
because the technicals are shouting EXIT or do you use it as an
opportunity to buy the dip for the next leg up?

Lets face it, business cycles consist of ups and downs.  We are
now down and can only be followed by upward move.  There is no
third criteria. The strongest will survive and weak will perish.

Cheers, Mehdi."

There are a few common themes in this note that reflects much of
the mail I currently receive, so let me offer a few personal
observations to answer en masse. But first, a true story:

It's Impossible To Know What We Do Not Know
Back in the early 1980's I worked for a processing plant that
packaged fresh vegetable crops. The workforce was roughly 30% area
residents and 70% straight from Puerto Rico. One night late in the
summer when in the midst of converting sweet corn from husked cobs
to frozen niblets a live skunk wandered into the plant thru its
drainage grates.

What would you do if a live, adult skunk came waddling past your
work station? Rest assured all of the local upstate NY residents
did: they ran screaming from that section of the building. Can you
guess what the citizens from Puerto Rico did? Nothing.

That's right... they thought the locals had gone mad! A few of
them reacted with concern in sympathy with the others on the off
chance something might be amiss. However, the vast majority of
non-locals laughed at the silly "chicken littles" who ran in
unfounded fear.

I was called up to the area from my department as someone with
fair experience handling wildlife. I arrived at the scene just in
time to see one of the sanitation crew cornering the skunk and
closing in to snatch it up. The crowd around him was laughing and
giggling at the fun, a most welcome distraction from hour's long
tedium at their stations. I froze in my tracks knowing full well
what would happen next as the sanitation worker, a semi-pro
bodybuilder in his muscular prime tried to scoop "kitty" up by the
belly as it faced him tail-on.

A streak of yellow-green fluid from beneath that fluffy black tail
hit him square in the face and massive upper body. Seconds later,
waves of nausea hit the crowd and all pandemonium broke out.
Yelling and screaming (in Spanish) reverberated off the walls as
the uneducated crowd stormed the exits. At least the ones who
weren't momentarily blinded and vomiting did.

What's The Point?
Local factory workers knew exactly what a skunk is because they've
been exposed to them before and acted accordingly. The imported
workers have no experience with skunks whatsoever, and the clear &
vocal warnings from others were ignored. After all, how dangerous
can a little black & white "el Gatos" be? Silly locals... what's
all the fuss about?

Keep in mind that most recent investors/traders came into the
market in late 1998 or after and cut their teeth on the 1999 bull
run aberration. With no bear market experience to reflect back on,
it was impossible to convince some rags to riches newbies that the
sky was indeed looking very heavy if not about to fall.

Investors and traders become enamored with companies whose stock
they own thru an emotional process. They buy a "great name"
because the story is good. The C.E.O. is seen across media venues
pumping the company as it rises in market share, cap value and
stock price. Shareholders are part of the team; part of the story
and it feels awesome to win. The thought of this great company or
its stock ever faltering is painful, too painful to bear. Those
emotions of fear (reality) are repressed as solace & comfort is
found amongst common shareholders in chat-rooms, meetings and
other forms of communication.

Heaven help voices of dissent that might question this great
company! Fear of such negative news being correct spurs the long
holders into swift & severe flaming of bearish dissent. I had the
pleasure of writing Market Sentiment in OI for much of year 2000
and can assure you each bearish warning I issued (and there were
many) was met with some number of flaming emails and threats of
cancellation to the service. Where are these blind bulls now after
living thru the dips in 2001? Most are retired from investing or
trading at this time.

"He's An Animal!"
I walked into some friends' office in late summer 2000 just as an
earnings conference call was wrapping up. The excitement in their
room was electric with eye pupils a mile wide from adrenaline
excitement. Looked to me like they just finished a Tony Robbins
seminar instead.

"That [CEO] is an animal! This stock is going to the moon!" was
their response when I asked how the tone was for that call. Keep
in mind I'd never listened to a conference call myself at that
time and frankly, still never have. I'll trust the charts instead
as they give the clear picture about supply/demand dynamics and
what should happen next.

(Weekly Chart: Bullish Conference Call)


As you can see, the company was down from recent highs and looked
near a crossroads for action. Weekly charts were coiling into a
clear wedge, and oscillators were long-term overbought and that
three-week candle pattern looks like a bearish "Evening Star"
reversal. If flat I would not buy long to say the least, and if
already long I'd be thinking capital and/or profit's defense
instead.

(Weekly Chart: CSCO)


Oops... I forgot to name the company on that chart. The CEO is
John Chambers and his company call was for Cisco Systems. Ol'
Johnny Boy was spouting 50% annual growth into the next
millennium, etc. Might be for all I know about fundamentals of
that company, but it sure was an ugly investor's chart at the
time.

Thousands of investors and traders were sitting on massive profits
from the monster run northward in this stock. What would a mere
fraction of those gains spent on OTM puts as insurance have cost?
A whole bunch less than riding this baby into the turf did!

But that period of time is exempt from happening again: when was
the last time such a market darling suitable for widows and
orphans crashed?

Monthly Chart: PD)


Polaroid, one of the hottest "Nifty Fifties" back in the last
bubble isn't so hot any more. Think a few people held from before
the left side of this chart until the right? My mother owns an
instamatic bought near my birthday 37 years ago this month that’s
worth more than 1,000 shares of this former high flyer. It takes
faded, fuzzy pictures this day but at least it still works. Buy &
hold on 1,000 shares failed to work years ago.

Time Erases All Error?
After all, we are taught to buy & hold good companies "for the
long haul" to let time take over and make us rich. Even Peter
Lynch himself touts in television commercials how the market has
always gone up thru any TWENTY-YEAR time period in history. But
what happens within that twenty-year period? Must the market only
go up or down?

It's quite true that economic cycles move up & down but stocks do
not always follow suit. Just ask investors who held Polaroid,
Bethlehem Steel or countless other former "great names" for many
decades and see if time heals all. The historical anomaly of 1999
will not be repeated anytime soon and we could easily see this
market trade sideways for years ahead. Perish the thought? Look at
some monthly charts at different times in history and see for
yourself the possibility or lack thereof.

Now we're in the midst of another rally where the Fed's pumped
liquidity and chased money out of bonds at warp speed. Sound like
1998 - 1999 to you? Nothing wrong with riding the bull to massive
gains and I for one hope it lasts forever, but what is our exit
plan if it doesn't?

More on that next week.

Hope This Helps!
austinp@sungrp.com


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

SPW $131.39 +3.51 (+9.89) Not by surprise, SPW worked higher
today.  The stock broke above its congestion range that we've
been writing about.  The advance past the $130 level signaled
the breakout.  There isn't any near-term resistance above
current levels, so SPW could continue higher as hard as that
is to believe.  The stock's rebound from the $120 level earlier
this week proved to be a solid entry point into this solid
play.  Traders who took the entry down at $120 might consider
setting a tight trailing stop to protect profits, or locking in
short-term gains around current levels.  On future weakness,
look for a rebound from between the $123 and $125 levels.  Our
stop has been raised to $124.

PMCS $29.24 +1.86 (+6.45) PMCS exploded above the $25 level in
Wednesday's session and continued higher today.  The stock is
close to a historical resistance level at $30.  It closed above
the 200-dma at $28.64 today, which could induce more institutional
buying of the stock.  However, given the big run and the close
location of resistance, traders with open positions might look
to take profits at current levels or on further strength.
While a breakout above $30 may offer momentum traders an entry
into this play, it does involve more risk than waiting for a
pullback before entering new plays.  Support is hard to find
immediately below current levels because of PMCS' big run over
the last three days.  Traders might look for weakness down
around the $26 to $27 levels for a possible entry point.  Or,
look for a bounce from $25 on any future extended weakness.
OUr stop has been raised to $26.

PDLI $40.57 +1.01 (+2.88) PDLI will reveal th results of its
late stage trials of Zamyl, its drug under development for the
treatment of leukemia.  The company will present at the
American Society of Hematology and the announcement could
cause a lot of volatility in the stock.  There's no
scheduled time for the release, so readers might want to keep
a close eye on the stock intraday Friday.  As for the recent
trading, PDLI broke above the $40 level today and traded
as high as $41.63.  The strength over the last several
sessions could've allowed readers to book gains from entries
down around the $36 level earlier this week.  Going forward,
further strength could allow for favorable entries.  Future
weakness down around the $38 to $39 levels may offer new
entries into this play.  Stops have been raised to $37.

CNXT $17.48 -0.02 (+2.59) CNXT followed through in
spectacular fashion yesterday.  The stock spiked above the
$18 level after dipping down to $14.50 just a few days
earlier.  Some readers may be thinking that a $2.50 move in
the stock isn't that big of a deal, but it is a big deal in
the options in a low priced stock such as CNXT.  The stock's
pattern of higher lows and highs is well and alive.  Seeing
that CNXT is at a relative high currently, it may be best
to wait for it to pullback to support before considering
chasing it higher.  At this point, weakness between the
$14.50 and $15.50 levels may offer another entry on any
pullback.  Our stop has been raised to the lower-end of
that range.  INTC's news after the bell may push CNXT
higher tomorrow.  Traders with open positions could consider
any such strength as a possible exit point.

MCDT $28.85 -1.05 (+3.65) Big Mac rocketed higher during
Wednesday's tech rally, again out performing the broader
tech measures.  The pullback today was routine and
expected after such a big move the day before.  Resistance
appears to be forming at the $30 level.  Another massive
rally in tech, however, could carry MCDT above that level
and offer traders a momentum based entry point into
strength.  If the stock continues pulling back, look for
a bounce from the $25 level.  That's a far ways off from
current levels, but we could see MCDT pullback down to
that level if the broader tech sector weakens.  Our stop
remains in place at $25, which is very liberal.  We're
choosing to keep our stop at $25 because MCDT is a volatile
stock.  But that doesn't mean readers should use the same
stop level.  Consider your entry point and risk tolerance
when determining a stop.  Don't let yesterday's gains slip
away.

INTC $34.16 -0.45 (+1.50) INTC's much anticipated update
brought good news after the bell Thursday.  The company
boosted its revenue target for the fourth quarter.  The
company also said that gross margins would be higher than
previously expected.  While the Street had anticipated
good news from the chip maker, INTC's update may have been
better than expected.  The stock was higher in the after
hours session by a significant amount over Thursday's
close.  We could see more upside in Friday's session.
Traders who entered on the breakout above $33 in Wednesday's
session might look for a short-term exit on further strength
in tomorrow's session.  The next level of resistance above
current levels sits at $36.

IBM $120.14 -1.26 (+4.55) The strong rally in the broad markets
yesterday lit the afterburners on shares of Big Blue, as IBM
shot through both near-term resistance at $117 and year-long
resistance at $120.  Closing at a new 52-week high on heavy
volume (is a strong point of confirmation for this bullish move
and traders that held onto long positions are smiling all the
way to the bank.  There was some natural profit taking on
Thursday, as IBM settled just above the $120 level.  We've now
raised our stop to $115, as it appears unlikely that the stock
will dip that low without a major reversal.  We could very well
be moving into a new range, with old resistance now acting as
support.  Target new entries on intraday dips near $119-120 or
even $117, as the DJIA continues to work higher.

IMCL $71.94 -1.89 (-0.06) Another rebound in the Biotech sector
(BTK.X) helped lift shares of IMCL to another 52-week high on
Thursday, but the stock couldn't maintain altitude, falling back
to support near $72 at the close.  While the stock could be
putting in a near-term top, it is encouraging to see that the
price lows are moving higher while the daily Stochastics is
drifting lower.  It's entirely possible that the stock is
building another base from which to launch itself to new highs.
Chasing IMCL higher is not the best approach, so we want to
continue targeting bounces from support for initiating new
positions.  Any volume-backed bounce from the $70 or $72 level
looks attractive for new positions, especially if the BTK
manages to push through near-term resistance near $620.  Keep
stops in place at $69.

NVDA $61.84 -0.99 (+7.20) Nothing goes up in a straight line,
and after the stellar gains seen over the past few days, profit
taking finally arrived for shares of NVDA.  Given the nearly $9
(16.5%) rise on Tuesday and Wednesday, it was encouraging to see
the mild dip in the stock on Thursday as the broad markets try
to digest their recent gains.  Intraday support has been
building near $60.50 over the past couple days, and aggressive
traders can consider new entries near that level.  But with our
stop sitting down at $55 (the site of the recent breakout), we'd
like to see a dip to perhaps $58 or even $56 before opening new
positions.  Traders with solid profits in the play might want to
harvest some gains here and wait for a the next dip to initiate
new positions.  Watch the broader Semiconductor sector (SOX.X)
in the wake of INTC's report tonight to gain a perspective on
the near-term prospects for the chip sector.

QLGC $55.49 -0.69 (+6.04) After 2 days of outstanding gains, it
was only natural to see a bit of profit taking in shares of QLGC,
and the fact that the stock only dipped near $54 is certainly
encouraging.  We'd like to see a bit more consolidation before
initiating new positions at this juncture, possibly giving us
another entry point near the $53 level.  $53-54 was a prior level
of resistance, and could provide support in the near term.  More
concerted profit taking ahead of the weekend could give us a
sharper dip, possibly to the $50 level, the level from which the
recent breakout commenced.  A bounce near $50 would make for a
gift of an entry point, but only if $50 holds as support.  We're
raising our stop to $50, as a close below that level would likely
indicate the end of the current rally.


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

No New Calls for Thursday.


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

NOC $95.00 -0.07 (+1.12) NOC did a whole lot of nothing in
today's session.  The stock traced an inside day which is
indicative of indecision.  Hopefully traders will act in
Friday's session and sell the stock lower.  The defense
sector (DFI) was weaker in today's session, which could
catch up with NOC tomorrow if the sector selling continues.
The stock is near resistance and currently overbought on the
daily stochastics reading.  Target entries into weakness
tomorrow, and confirm any weakness from current levels with
a breakdown below the $94.50 level.  Rollovers near the $96
level may offer additional entry opportunities.

KKD $38.90 +0.67 (+1.70) KKD traded higher in the past two
sessions, working off the oversold condition we had
written about in previous updates.  The stock's strength
yesterday was attributable to the broad market strength, but
its out performance to the upside in today's session has us
on the lookout for further upside in tomorrow's session.
However, a rally up to and subsequent rollover from the $40
level may be the entry point we've been waiting for.  If the
market is higher tomorrow and KKD is too, then we won't be
too upset with the strength.  In that situation, look for
the rollover from $40.  But, if KKD continues higher without
the support of the market, then be cautious about swimming
against the current.

WWCA $23.62 -0.15 (-0.95) The trend in WWCA remains
decidedly bearish.  The stock traced another new low at the
$23.18 level in today's session.  WWCA's bounce up to the
$24.50 level yesterday may have offered traders new entries
into this weak wireless play.  Look for continued weakness
below current levels in Friday's session, especially if the
market and the Wireless Services Sector Index (YLS.X) are
lower.  Ideally, we'll see WWCA rally and subsequently
rollover from its 10-dma at $24.60 in the coming session to
offer another entry point into the play.  But with the pattern
of lower lows continuing, we may not see a rally for a while.

VZ $48.56 +0.41 (+1.56) VZ inched up to our stop at the $49
level today, but was unable to break above.  The stock has
worked off its short-term oversold condition in the past
several sessions, which could have set-up a potentially
favorable entry point in the coming sessions.  Look for a
rollover at the $49 mark in tomorrow's session.  But just
make sure that the Wireless Services Index (YLS.X) is
lower.  In addition, the higher probability trade to the
downside will come if the market is lower, so consider
waiting for weakness in the broader market before targeting
a rollover.

LH $77.80 -0.45 (+0.90) Propelled by broad market strength the
past few days, LH continues drifting higher.  Despite the recent
rise in Stochastics, the stock has been unable to post a close
above the descending trendline, currently at $78.  Wednesday's
intraday spike near $80 provided a great entry point for
vigilant bears, as the stock quickly fell back near $78.  While
LH has been unable to advance significantly, we're seeing signs
of strength, as it is finding support at the 200-dma (now at
$76).  While we're getting nervous about the stock's resilience,
we're going to give it one more day to break down.  Target
intraday spikes near $80 for new entries, but watch the stock
closely as it approaches the 200-dma.  If support holds again,
consider harvesting those gains, as bullish pressure seems to
be building.  Keep stops in place at $80.


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

CAH - Cardinal Health $65.95 -1.57 (-2.37 this week)

Cardinal Health is the second largest US wholesaler of
pharmaceuticals, surgical and hospital supplies.  The healthcare
service provider offers these products and services to
independent and chain drugstores, hospitals, alternate care
centers, and the pharmacy departments of supermarkets throughout
the United States.  The company also offers support services
including computerized order entry and confirmation systems.
Through its subsidiary, Pyxis Corporation, CAH develops,
manufactures, leases, sells and services systems that automate
the distribution, management, and control of medications and
supplies in healthcare facilities.

If it seems like every sector in the market is rising, you
aren't far from the truth.  But the Health Care index (HCX.X)
is seeing selling pressure after failing to push through
resistance near the $850 level.  And that isn't helping shares
of CAH, which began sliding sharply again yesterday.  Potential
support near $67.50 gave way this morning and the stock fell
through the 20-dma ($67.10) before coming to rest near $66 at
the closing bell.  Selling volume has been rising sharply over
the past 2 days and nearly 3.8 million shares (vs. the ADV of
2.28 million) traded hands on Thursday.  While there is some
mild support near $64, it wouldn't be out of the question to see
CAH retest its November lows just above $60.  And there is a
looming development on the technical front that doesn't bode
well for the stock.  The 50-dma ($69.95) is just about to cross
below the 200-dma ($69.33), and this will likely produce more
downward pressure.  Any sort of rebound near the $67-67.50
resistance area would likely make for an attractive entry,
although we might not get that lucky given the recent selling
pressure.  An alternative entry would be any drop below today's
intraday support at $65.75.  We are initially placing our stop
at $69.

BUY PUT DEC-70 CAH-XN OI=3392 at $4.40 SL=2.75
BUY PUT DEC-65*CAH-XM OI=2684 at $1.50 SL=0.75

Average Daily Volume = 2.28 mln



CB - Chubb Corporation $66.55 -1.95 (-3.51 this week)

Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

As the source of Enron's woes become better understood, companies
with exposure to the unraveling utility are getting hit by
selling pressure despite an overall rising market.  When CB
announced late last week that their debt exposure to the Enron
disaster came in at $220 million, the sellers started piling on,
and the stock has been falling ever since.  Then this morning,
Royal & Sun Alliance announced the completion of its sale of 6
million shares of the insurer in a previously announced
allocation shift, helping to drive the price of CB below the
$67.50 support level.  With selling volume on the rise and
violated support, CB looks like it could have further to fall.
While there could be some support found near current levels, the
stock will likely see $64 or lower before the pain stops.  The
relative weakness of the Insurance index (IUX.X) is only adding
to the stock's problems and we would expect CB to continue to
feel the selling pressure so long as the IUX is headed lower.  A
near-term oversold bounce could provide an attractive entry near
the $67-68 level, the site of this morning's gap.  We're setting
a fairly tight stop at $69, as a close above that level would
break the recent pattern of lower highs.

BUY PUT DEC-70*CB-XN OI=224 at $4.50 SL=2.75
BUY PUT DEC-65 CB-XM OI= 67 at $1.50 SL=0.75

Average Daily Volume = 1.26 mln



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

NOC - Northrup Gruman $95.00 -0.07 (+1.12 this week)

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

Most Recent Update

NOC did a whole lot of nothing in today's session.  The stock
traced an inside day which is indicative of indecision.  Hopefully
traders will act in Friday's session and sell the stock lower.
The defense sector (DFI) was weaker in today's session, which
could catch up with NOC tomorrow if the sector selling continues.
The stock is near resistance and currently overbought on the
daily stochastics reading.  Target entries into weakness
tomorrow, and confirm any weakness from current levels with
a breakdown below the $94.50 level.  Rollovers near the $96
level may offer additional entry opportunities.

Comments

NOC's inside day and the weakness in the DFI.X Thursday may
portend weakness in the stock Friday.  Look for continued
weakness in the DFI.X to pressure shares lower.  Confirm any
early weakness with a decline below the $94.50 level.

BUY PUT DEC-95*NOC-XS OI=1561 at $2.45 SL=1.50
BUY PUT DEC-90 NOC-XR OI=1594 at $0.75 SL=0.25

Average Daily Volume = 1.19 mln



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