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Daily Newsletter, Tuesday, 12/11/2001

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The Option Investor Newsletter                 Tuesday 12-11-2001
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)
************************************************************
       12-11-2001           High     Low    Volume Advance/Decline
DJIA     9888.37 - 33.08 10015.90  9866.85  1.3 bln   1557/1564
NASDAQ   2001.93 +  9.81  2032.63  1995.09  1.9 bln   1948/1703
S&P 100   579.32 -  1.92   587.42   577.93   Totals   3505/3267
S&P 500  1136.76 -  3.17  1150.89  1134.32
RUS 2000  474.77 +  0.59   478.19   473.43
DJ TRANS 3586.59 - 12.51  2602.70  2573.79
VIX        25.69 -  0.31    26.27    24.96
VXN        50.73 -  1.39    52.10    49.49
TRIN        1.35
Put/Call Ratio       .73
*************************************************************

Merck Knocks -100 Points Off Dow, Another Entry Point?

For those who wanted another buying opportunity Dow component
Merck (NYSE:MRK) provided it with a strategically released earnings
warning for 2002. Shortly after the markets rallied on the eleventh
Fed rate cut to 10015/2032 Merck warned that earnings would be flat
for 2002 due to expiring patents and slowing sales of VIOXX. The
Dow dropped instantly even though MRK was halted from trading but
when MRK reopened it got ugly. Merck's high for the day before the
announcement was 67.55 and it traded as low as $59.81 when trading
was restarted. After being up +97 points post Fed the Dow closed
down -33 at 9885.





The Merck announcement caught everyone off guard and deflated the
optimistic sentiment in the market at the time. Most analysts see
this as company specific. The pipeline has dried up for new drugs
and their blockbuster drug Prilosec is coming off patent. Vioxx
sales are slowing. The company has new drugs coming, just not soon
enough for 2002 profits.

Proctor and Gamble fired a return volley after the close by
announcing that their earnings would beat analyst's estimates by
two to three cents due to better than expected sales and additional
external income. Outstanding PG, not that it can help the Dow after
the close but it should help to offset the impact on Wednesday.

Other market news included CMVT which announced earnings inline
with estimates after the close but said they were feeling the
pressure from the hard business climate and would cut 900 jobs
or 15% of its workforce. CMVT lost about a dollar in after hours.

XLNX rose after saying sales would come in at the low end of the
prior estimates. The affirmation of only a -5% drop in sales held
up the semiconductor sector most of the day and helped the Nasdaq
remain positive after the Merck news tanked the indexes.

IBM set the tone for the tech market as it traded up to $122.74
and a new 52-week high. The blue chip tech (and current play) just
refuses to stay down and should be an indication of investor
expectations. Buying Cisco at $20 does not require as much faith
or commitment as IBM at $120. Obviously this is also a good place
for funds to park money with little risk and still appear to be
invested in the market.

Nokia also made news today saying they were gaining market share
worldwide. When the current economic downturn began cell phones
were one of the first items hit. After the WTC attack sales soared
and inventory shrank. This reduced the price war impact and provided
a consumer driven inventory direction. Nokia which makes one third
of all the phones in the world said they would gain significant
market share this quarter as consumers upgraded to faster phones
with more features. Nokia said they expected earnings to be at
or above the high end of expectations this quarter. While most
cell phone sales are upgrades the market still has plenty of depth
in non-phone users. Only 45% of U.S. residents have phones and in
some other countries cell phones are more prevalent than land lines.
It is easier to add cell towers than phone lines. The positive
comments from Nokia also helped the chip stocks which supply
components.

EBAY was also a major factor in keeping the Nasdaq positive. W.R.
Hambrecht analyst, Derek Brown, issued a research report on Tuesday
saying the company was performing well despite the poor economic
environment. They reiterated a strong buy on the stock and said
the company was on track to beat his 4Q estimates of twelve cents
per share. EBAY had fallen from a 52-week high of $72.74 set just
last week but the stock rallied +3.10 today and to close at $70.10.
I do not know what valuation model the analyst uses but he said
EBAY is trading at a 20% discount to a broad group of "technology
bellwethers." He said there was no justification for this valuation
discrepancy. How about a PE well over 200 Derek?

The economic news was bleak again with the Richmond Fed Manufacturing
Survey showing a drop in manufacturing yet again. The biggest drop
came in the new orders index which fell -17 points to a -16. This
report is from the Fifth Fed District which is possibly the worst
area with North Carolina responsible for half of all jobs lost.

The biggest news of the day was of course the 11th rate cut by the
Fed to 1.75%. This is a forty-year low. The Fed said economic
conditions still were weighted toward softness. They saw the
weakness in demand abating somewhat but called it "preliminary
and tentative." With their language they left the door open for
yet another cut in January. They really don't have many bullets
left in their gun at this point. With rates at a 40yr low of 1.75%
we are already at the "who cares" point. The difference between
6.5% and 1.75% is huge but another quarter point or two will not
make that much long term difference. They said inflation was still
low and likely to move lower and they remained ready to act as
needed.

So what now? The Nasdaq closed slightly above 2000 again and the
Dow could have closed over 10000 had it not been for Merck. Is
this another buying opportunity or a new down trend evidenced by
the lowest close since December 5th? Let's see. The Dow has support
at 9800 which is only 85 points away. The Nasdaq closed above
yesterday's low but still has a huge gap up from the 5th which is
totally unsupported. That support is around 1950 and rising. On
the surface it would appear that the downside risk is minimal.
However we are, as shown by Merck today, in the twilight zone of
December earnings warnings. Also, tax selling has not really
caused much trouble but could with any more major warnings.

One of the wild cards we are facing is the huge amount of debt
and new IPOs coming to market in December. Literally billions
of dollars of new supply which must be absorbed. Liquidity is
there to fill the need, IF owners wanted to use it. There is an
estimated $4.5 trillion in cash on the sidelines and the excess
cash drain over the next two weeks could easily go unnoticed if
those owners wanted it. There is the drag. If stock bargains
have failed to pull that cash off the sidelines over the last
three weeks then why would new unproven issues be more attractive?

Don't get me wrong. I am still B-U-L-L-I-S-H. (sometimes I have
to spell it out for people) Bonds yields are so low that any
possibility of a gain in stocks is better than the sure yield in
bonds. We are just not entirely out of the woods yet. I would buy
this dip. I think we should see another run at breaking out to new
highs again before Christmas. Almost everyone is still projecting
a recovery soon although the second half of 2002 is quoted more
and more frequently. That is fine for investors, just as long as
it is coming. The administration is applying pressure for another
stimulus package and that should also give the markets another
boost.

My bullishness wanes when the Dow reaches 10150. Strong resistance
begins there and continues for several hundred points. 2100 on
the Nasdaq begins strong resistance as well. The S&P faces the
same problem between 1173-1250. Despite the bullishness in the
markets and an expected Santa Claus rally there will need to be
strong conviction to power the markets over those hurdles. We have
not seen ANY of that conviction yet. As traders we need to be ready
to move to the sidelines if the markets exhibit any weakness when
those levels are reached. I have repeatedly said "buy the dips"
since November 1st. I still suggest that tactic (actually buy the
rebounds) and think that this tactic will continue working as
investors fight through this overhead resistance. I think we will
see a "MRK" rebound in the markets at Wednesday's open. Not MRK
itself but stocks that sold off on the MRK scare. Look for direction
after that bounce and trade accordingly. My levels to go flat are
9800/1950/1125. Above those, "buy the dips."

Enter very passively, exit aggressively!

Jim Brown
Editor

Note:  The annual end of year renewal special is coming! Be prepared
for an incredible deal!


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

Rates And Stocks Fall
By Eric Utley

As widely expected, the Fed cut rates by another 25 basis points
Tuesday.  They even left the door open for another cut in late
January.  Stocks were higher before and shortly after the Fed's
announcement, but sold off in the final hour of trading.

Bonds were modestly higher ahead of the Fed's announcement, spiked
higher on the news, but pulled back into their 3:00 EST close.
The pullback in the final hour of the bond market trading may have
helped to buoy stocks.  But once the bond market closed, the slide
in stocks really picked up steam.

The yield curve, from the 13-week (IRX) to the 30-year (TYX),
moved lower Tuesday, but steepened at the same time.  The IRX
was lower by 4.18 percent, while the TYX shed only 0.64 percent.
The steppening of the curve reflected the Fed's willingness to
cut rates again in January and the potential for inflation next
year.  But with inflation generally comes economic growth, which
may have left some bewildered with Tuesday's pullback in stocks.

The IRX fell to yet another new yearly low; more like a ten year
low.  The yield on the 13-week Bill hit 1.60 percent Tuesday.
Remember, bond prices move inverse to yield.  As the IRX moves
lower, the price moves higher.  What makes price move higher?
The answer is buying.  Therefore, the cascade in the 13-week yield
(IRX) is revealing money piling into short-term securities.  If
the economy is rebounding next year, then why is money finding its
way into the safest of Treasuries?

One possible scenario is that while investors may believe that
the economy is on the mend, they may not be willing to take the
risks that are associated with stocks quite yet.  It might be
too early.  But the money piling into the 13-week could find its
way into stocks quickly if investors perceive that the "train
is leaving the station" without them, causing a performance
chasing rally.

The scenario in the bond market may reflect the broader market
sentiment.  Yes, the economy is rebounding.  But maybe by not
enough to entice some money managers into stocks.  That could
explain the reason stocks pulled back following the rate cut
Tuesday.

But with rates historically low, and possibly going lower, and
inflation contained, it's hard not to like stocks going into
next year.  There were isolated bullish events Tuesday, such as
the breakout in Big Blue (NYSE:IBM).  Beam at a 52-week high?
Now that's big!

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

Market Volatility

VIX   25.69
VXN   50.73

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.72        567,045       411,115
Equity Only    0.65        518,915       339,921
OEX            0.80         13,705        11,009
QQQ            1.00         28,811        28,863

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

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 0     Bull Confirmed
NASDAQ-100    75      + 0     Bull Confirmed
DOW           63      + 0     Bull Confirmed
S&P 500       66      + 0     Bull Confirmed
S&P 100       66      + 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  1.11
10-Day Arms Index  1.21
21-Day Arms Index  1.07
55-Day Arms Index  1.08

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      1557           1564
NASDAQ    1948           1703

        New Highs      New Lows
NYSE       57             49
NASDAQ     86             38

        Volume (in millions)
NYSE     1,357
NASDAQ   1,937

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

Commitments Of Traders Report: 12/04/01

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 shed a significant number of longs in the
prior reporting period, while the group's short position
remained relatively flat.  While the commercials' net position
is far off from the year's most bearish reading, it did increase
by a measurable amount last week.  Meanwhile, small traders
added a meaningful number of long positions and simultaneously
dumped a number of short positions.

Commercials   Long      Short      Net     % Of OI
11/13/01      381,539   421,284   (39,745)   (5.7%)
11/27/01      371,336   421,405   (50,069)   (6.3%)
12/04/01      360,315   420,919   (60,604)   (7.8%)

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
11/13/01      136,047     87,645   48,402     22.0%
11/27/01      151,317     92,807   58,510     24.0%
12/04/01      159,336     86,534   72,802     29.6%

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 traders added to both long and short positions, with
a decrease in their net short position.  Small traders exited
a few long positions while holding their total short position
relatively flat during the prior reporting period.

Commercials   Long      Short      Net     % of OI
11/13/01       38,751     49,257   (10,506)  (12.0%)
11/27/01       37,259     48,315   (11,056)  (12.9%)
12/04/01       42,191     51,426   ( 9,235)  ( 9.9%)

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
11/13/01       11,568     6,505    5,063      28.0%
11/27/01       12,540     8,359    4,181      20.0%
12/04/01       11,808     8,311    3,497      17.4%

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

Both commercial and small traders held to their biases in the
prior week.  Commercials shed long and short positions, amounting
to unchanged % of OI.  Small traders shed long and short
positions, growing slightly more bearish.

Commercials   Long      Short      Net     % of OI
11/13/01       24,145    10,204   13,941     40.6%
11/27/01       24,243    11,496   12,747     35.7%
12/04/01       22,703    10,739   11,964     35.8%

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
11/13/01        4,094    12,121    (8,027)   (50.0%)
11/27/01        4,228    10,630    (6,402)   (43.1%)
12/04/01        3,677     9,799    (6,122)   (45.4%)

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:
*****

SPW $129.01 +1.02 (-2.72) All good things must come to an
end.  We've rode the SPW play for some time now, all the
way from the low $100s.  We're cutting the play loose this
evening, but that doesn't mean SPW won't go higher.  The
stock is still very strong and could continue higher if the
market does the same.

MCDT $26.80 -0.74 (-1.30) MCDT rolled over in a big way
today and closed near its day low.  We're nervous about the
potential for further downside in tomorrow's session.
Instead of risking it, we're dropping coverage this
evening.  Look for a bounce early tomorrow to exit plays.


PUTS:
*****

LH $76.02 +1.77 (-0.23) There is no question that LH has been
a profitable play for nimble day-traders, as the daily range
has continued to move lower over the past week.  The bears
really started salivating on Monday, as the stock fell back
under the 200-dma, but their enthusiasm was short-lived, as
buyers appeared again at the $73 level.  While the descending
trendline is still keeping the buyers in check, we are rather
disappointed that the stock was once again (on Tuesday) able
to recover above the 200-dma.  There are better plays to be
had, so we are closing the book on LH in favor of better
opportunities.


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

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


CALLS              Mon    Tue

PMCS     27.10   -0.46   0.78  Trading below the 200-dma at $28.33
CNXT     17.22    0.54  -0.37  Was that the pullback for entry?
INTC     33.19   -0.29   0.24  Pulled back to trend line support
XMSR     13.50    0.01   0.55  Broke above the $13.50 level
AMR      22.75   -0.52  -0.07  News already priced in the stock
SANM     25.60   -0.45   2.10  New, breakout above $25, no news
SPW     129.01   -3.74   1.02  Dropped, a good thing must end
MCDT     26.80   -0.56  -0.74  Dropped, rolled over in a big way
CI       91.94   -2.82   0.46  Consolidating near the $92 level
FFIV     27.45   -0.30   2.30  Continues to push higher
IBM     120.50   -0.74   1.84  Another yearly closing high today
LOW      45.51   -0.61  -0.19  Profit taking and consolidation
NVDA     62.72    0.61   2.17  Momentum traders on the move
QLGC     54.07    0.69   0.41  Consolidating recent big gains
LH       76.02   -2.00   1.77  Dropped, bounced back above 200-dma


PUTS

VZ       47.86    0.45  -0.45  Diverging from the strong YLS.X
FRE      65.20    0.75   0.20  On alert for more strength Wed
DYN      25.95   -2.48  -1.85  New, lower because of Enron
CAH      63.70   -1.37  -1.07  Like a textbook put play
CB       66.02   -1.60  -0.09  Rolled over at the $68 level Mon
HGSI     34.04   -1.70  -0.35  Biotechs looking decidedly weak


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Stop Losses based on the option price or the stock price.
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Anything else is too slow!

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The Option Investor Newsletter                  Tuesday 12-11-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/2204_2.asp


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

SERVICE AND PRICE

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

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


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

PMCS $27.10 +0.78 (-0.32) PMCS is sliding lower below its 200-dma.
The stock has traced a pattern of three consecutive lower highs in
as many sessions.  We need to see the stock advance past its
200-dma in the coming sessions so that selling pressure doesn't
break the stock's trend.  The 200-dma currently sits at the $28.33
level, not by coincidence PMCS' high today was at $28.30.  A
breakout above the 200-dma could offer momentum traders a new
entry point into this play.  Our stop is still in place at the
$26 level, which is where PMCS bounced from in yesterday's
session.  Look for another rebound from the $26 area upon further
weakness in the Nasdaq and SOX.  To the upside, if PMCS clears
its 200-dma, look for the stock to make a run on its relative
highs up around $30.

CNXT $17.22 +0.54 (+0.17) CNXT traded lower in the three
sessions prior to today's.  It remains to be seen if that's all
the pullback we're going to see in this stock before its next
rally higher.  The Nokia news was a boost for a play as CNXT is
a supplier of mobile phone circuits.  Hopefully the news will
continue to buoy the stock if the Nasdaq continues to pullback.
If the tech sector does weaken in tomorrow's session, start
searching for a favorable bounce level.  One possible spot is
at the 10-dma, which is currently at $16.24.  Below there, the
$15 level, while quite a ways down, may offer a solid entry
into this strong chip stock.  If the Nasdaq and SOX rebound in
the coming sessions, look for CNXT to make its way up to the
$19 area, where trades with open positions might look to book
gains.

INTC $33.19 +0.24 (-0.05) INTC was busy charging higher before
and shortly after the Fed's announcement today, but rolled
over in spectacular fashion along with the broader market.  The
good news is that it's bullish trend is still very much in
place.  In fact, INTC rebounded from its 10-dma in yesterday's
session.  The 10-dma currently sits at the $32.97 level, which
was pretty close to today's intraday low.  Traders looking to
enter on the dip might look for a quick rebound from the 10-dma
early tomorrow.  But make sure that the SOX is cooperating.
Further weakness in the Nasdaq and SOX could pressure INTC
below its 10-dma.  If that happens, look for INTC to trade
down to the $32 level, and then watch for the bounce in the
market.  To the upside, watch for INTC to clear the $34 level.
From there, it should retest the $35 area.

XMSR $13.50 +0.55 (+0.56) XMSR attempted to breakout in
yesterday's session, but was held back by the weakness in
the broader tech sector.  The stock attempted again in
today's session and fortunately was able to hold onto the
majority of its gains.  The stock remains a strong one and
should continue to work higher as long as the market
cooperates.  Our biggest cause for concern is the tech sector.
If the Nasdaq continues to weaken, XMSR may not be able to
follow-through to the upside.  But, if the Nasdaq
strengthens in tomorrow's session, then it's a green light
to ride XMSR higher.  The short-term upside target is
between the $14.50 and $15 levels.  There exists some
serious resistance in that zone, which is why it may make
sense to book short-term gains if XMSR trades up that high.
On weakness, look for the pattern of relatively higher
lows to continue with a bounce anywhere between $12 and
$13.

AMR $22.75 -0.07 (-0.59) AMR issued a warning this morning
saying that it would suffer a "very, very big" loss next
year.  But the company also said that it was seeing some
positive signs of a rebound in demand.  The news didn't
have a big impact on AMR today as the stock drifted lower
with the broader airline measure, the XAL.  The XAL
finished slightly lower in today's session, which echoed
the sentiment in AMR.  Obviously AMR needs participation
from the XAL in order to move higher.  That said, continue
to monitor the XAL when targeting entries into AMR.  A
stable XAL and bounce in AMR may provide the entry point
on weakness.  In an advancing market and advancing XAL,
look for AMR to sail past the $23 to $23.75 area.

CI $91.94 +0.46 (-2.36) Giving back some ground this week,
shares of CI have now fallen back below the 200-dma (currently
$93.35) to consolidate near the $92 level.  While the selling
has come on rather light volume (just over half the ADV on
Tuesday), the weakness has pushed the daily Stochastics out of
overbought territory, and we need to be careful about initiating
new positions.  While we can consider new positions on a solid
upward move from the $91.50 level, it wouldn't be out of line to
wait for a dip and bounce near the $90 support level before
initiating new plays.  A primary source of the weakness seen so
far this week is the drop in the Insurance sector (IUX.X) on
Monday, and CI will need this index to firm above the $700 level
if it is going to continue higher.  We are keeping our stop in
place at $89.

FFIV $27.45 +2.30 (+2.00) We've seen a bit of profit taking in
the broader Networking sector (NWX.X) this week, but that hasn't
phased investors in FFIV, as they have continued to push the
stock higher.  Beginning at the open on Tuesday, the stock shot
through the $26 resistance level and continued higher for most
of the day, topping out just below $29 and giving back some of
its gains in the final hour.  Buying volume was strong
throughout the session, with volume nearly four times the ADV.
This strong buying conviction along with FFIV's relative
strength points to more upside ahead.  Continue to target
intraday pullbacks for optimum entry points.  Intraday support
exists at $26 and then $25, followed by stronger support at
$24.25, the site of the recent breakout.  We are raising our
stop to $23.50 tonight.  Momentum traders will want to be
careful about chasing FFIV higher here due to strong resistance
resting near the $30 level.

IBM $120.50 +1.84 (+1.10) After last week's stellar breakout
through the $120 level, shares of IBM were due for some
consolidation.  That's just what we got, as Big Blue dipped
back near the $119 level before resuming rally mode on Tuesday.
Buying volume surged again, as the stock rebounded to post
another yearly closing high of $121.50.  Traders that bought
the most recent dip are waiting with bated breath to see if IBM
can blow through the $123 level and start the next ascent
towards the $127.50 level, last visited in September 2000.
Continue to target new entries on dips near $119-120.  A
breakout over $123 is buyable, but be quick to harvest profits
with the looming $127.50 resistance level.  Due to the strong
performance over the past week, we are raising our stop to
$117.

LOW $45.51 -0.19 (-0.80) Profit taking and consolidation has
been the dominant market theme over the past week, and trading
in shares of LOW has been no exception.  After shooting to a
new all-time high a week ago, the stock has given back a bit of
ground, falling back to consolidate above the $45 level.  Volume
has dropped off significantly (roughly two-thirds of the ADV on
Tuesday), adding credence to the argument that this weakness is
simple profit taking.  Note that LOW is still holding above the
10-dma ($45.42), a level that has been providing support since
early November.  A rebound from near current levels would
provide for solid entries, although we wouldn't rule out a dip
to the 20-dma ($43.75) before buyers return in sufficient
numbers to propel LOW to its next high.  Move stops up to
$43.50.

NVDA $62.72 +2.17 (+2.77) Momentum traders couldn't wait any
longer, and started moving back into buy mode again on Monday.
After two days of mild profit taking, the renewed buying
interest gave us a solid buyable bounce in shares of NVDA near
the $59 level on Friday and Monday.  Renewed strength in the
Semiconductor sector (SOX.X) has brought our play back near
its highs from last week, closing just below the $63 level.
If not for the late-day weakness, we would have seen our play
closing at another all-time high.  Intraday dips near the
$59-60 level look attractive for new entries, although momentum
traders may be able to move into new positions as NVDA clears
Tuesday's intraday high and clears the $64 level.  Target dips
for new positions on mild weakness in the SOX, and consider
chasing the stock higher if the SOX manages to break out above
the highs seen last week.  Raise stops to $58.

QLGC $54.07 +0.41 (+1.10) After last week's breakout move,
shares of QLGC needed to consolidate a bit before resuming their
upward trend.  After running as high as $57 last Wednesday, the
stock has been essentially trading sideways between $52.50-$56.
This consolidation range gives us a usable range for determining
fresh entry points.  Dip buyers can target intraday bounces in
the $52-53 area, while momentum traders will want to wait for
strong volume to return, propelling the stock through the $57
level before initiating new positions.  In either case, traders
will want to consider harvesting profits again near the $60-61
level, as that is the next serious area of resistance.  The one
sticking point in the play is the fact that Storage stocks were
fairly strong on Tuesday, while QLGC finished with a slight
fractional gain after seeing some heavy selling at the end of
the day.  This could be the beginning signs of weakness, so
we'll want to continue to protect our gains with aggressive
stop losses.  We are moving our stop up to $51, just below the
supportive 10-dma (currently $51.93).


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

SANM - Sanmina $25.60 +2.10 (+1.65 this week)

Sanmina provides customized integrated electronic manufacturing
services, including turnkey electronic assembly and
manufacturing management services to original equipment
manufacturers in the electronics industry.

We noticed a peculiar divergence in this stock Tuesday.  While
the rest of the tech sector was rolling over following the
Fed's official announcement on short-term interest rates, this
stock was plowing higher into the close on heavy volume.  SANM
broke above its 200-dma about one week ago, pulled back on
profit taking, then burst higher above the $25 level in today's
session.  The stock has one of the stronger trends in the
technology space and is benefiting from the positive news
coming from the manufacturers of electronics, such as Nokia's
news Tuesday morning.  Speaking of news, there wasn't any to
explain the burst of buying in SANM late in the day Tuesday.
It's possible that there's good news coming out in the next
few days.  After clearing the $25 level today, the stock
doesn't have any near-term resistance until the $28.70 area,
which was the stock's high back in June.  If the Nasdaq is
positive in the coming sessions, it's very possible that SANM
could work up to its next resistance level.  If the Nasdaq
rallies tomorrow, look to target entries in SANM around
current levels.  If the stock pulls back after today's
late day run, watch for support to materialize at the $25
level, where traders might consider taking an entry.  Our
stop is initially in place at $23.

***December contracts expire in less than two weeks***

BUY CALL DEC-25 SQN-LE OI=2006 at $1.30 SL=0.75
BUY CALL JAN-22 SQN-AR OI=1984 at $4.10 SL=2.50
BUY CALL JAN-25*SQN-AE OI=2487 at $2.50 SL=1.25
BUY CALL JAN-30 SQN-AF OI=1374 at $0.75 SL=0.25

Average Daily Volume = 8.45 mln



AMZN - Amazon.com $12.24 +0.59 (+0.53 this week)

Amazon.com is a website where customers can find virtually
anything they want to buy online.  The company lists millions of
unique items in categories such as books, music, DVDs, consumer
electronics, toys, software, computer and video games, lawn a
patio items, kitchen products and wireless products.  Through
its Amazon Marketplace, Auctions and zShops services, any
business or individual can sell virtually anything to AMZN's
approximately 30 million cumulative customers.

Although it took a bit longer to get moving than some other
Technology companies, AMZN has been building a nice pattern of
higher highs and higher lows since early November.  Making the
pattern that much easier to play is the fact that the stock has
been moving sharply higher, consolidating, and then moving
sharply higher again.  The last upward move was nearly 3 weeks
ago, and since then we can see the formation of another bullish
wedge.  Resistance has been building near the $12.50 level,
while the lows have been rising along the ascending trendline
(currently $11.50).  The most recent low happened to coincide
nicely with the 200-dma (now $11.57), confirming the stock's
recent breakout over that level.  It looks like AMZN is setting
up for another breakout move, and now is the time to position
ourselves to profit from that event.  Intraday dips to support
in the $11.50-12.00 range look attractive for initiating new
positions.  Otherwise, we'll want to wait for a bullish move
over the $12.50 level on strong volume before initiating a new
momentum position.  Buying volume has been on the rise over the
past 2 days, indicating that breakout move could be just around
the corner.  We are initiating the play with a fairly tight stop
at $10, just below the 20-dma ($10.50).  If enough weakness
develops to break below that level, it will be a clear sign that
the bulls have lost their traction.

***December contracts expire in less than two weeks***

BUY CALL DEC-10 ZQN-LB OI=16073 at $2.40 SL=1.25
BUY CALL DEC-12 ZQN-LQ OI=10752 at $0.70 SL=0.25
BUY CALL JAN-10 ZQN-AB OI=12410 at $3.10 SL=1.50
BUY CALL JAN-12*ZQN-AQ OI=18526 at $1.60 SL=0.75
BUY CALL JAN-15 ZQN-AC OI= 9810 at $0.80 SL=0.25

Average Daily Volume = 9.64 mln



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

VZ $47.86 -0.45 (+0.00) VZ looks like it's resuming its
downward trend.  The stock traded lower in today's session,
which was very positive for the bears because the Wireless
Services Index (YLS.X) was higher by more than 2%.  The
broader wireless sector received a boost from Nokia this
morning, so it's all the more positive for the bears that
VZ didn't respond to the good news.  The stock traced an
inside day today, which is a day in which the stock's high
and low were in a smaller range than the previous day.  The
trading indicates indecision, and traders looking for new
entries into the play might look for the decision to be
made with selling below today's or yesterday's low in
tomorrow's session.  Look first for a decline below the
$47.75 level, then for confirmation with a slide below the
$47.55 level.

FRE $65.20 +0.20 (+0.95) FRE poked its head above the $66
level in today's session.  The stock has rebounded in the
last two days, which is certainly discouraging.  We're on
high alert for continued strength in tomorrow's session.
If the stock continues to rally, look to cut losses
quickly as all bets will be off.  Conversely, if FRE begins
to weaken in tomorrow's session, look for a breakdown
between the $64.85 and $65 level.  Such a move may offer
traders new entries into this play.

CAH $63.70 -1.07 (-2.44) Behaving like a perfect textbook put
play, shares of CAH are following the Health Care index (HCX.X)
lower and really started breaking down on Monday.  As the HCX
index broke below the $838 support level, CAH started getting
beaten up by the bears again, plunging below the $66 level.
Selling volume has been on the rise the past 2 days and CAH is
now close to closing the gap left on November 13th.  With daily
Stochastics now buried deep in oversold territory, we need to be
on the lookout for a good opportunity to harvest profits.  If
strength materializes near $63, that would make for a good
profit taking opportunity.  Otherwise look to take profits in
the $60-61 level, near the November lows.  Of course, if the
HCX continues to fall, we could see even more profits
materialize over the near-term.  Target new entries on a failed
rally below the $66 level and keep stops in place at $67.75.

CB $66.02 -0.09 (-1.69) Handing us a picture perfect entry point
on Monday, shares of CB moved just north of $68 at the open
before rolling lower throughout the remainder of the day.  The
stock continues to post lower highs and lower lows as it steps
its way towards the $64 support level.  If that level fails to
slow the bears' assault, we could see shares of CB testing the
next major level of support near $59.  Continue to target
failed rallies near intraday resistance (first at $66 and then
$67.50) for new entry points, while keeping stops in place at
$69.  So long as the Insurance index (IUX.X) continues to
weaken, shares of CB should continue to be pressured lower and
we'll continue to ride that trend.

HGSI $34.04 -0.35 (-2.05) The Biotech sector (BTK.X) is looking
decidedly weaker than the broad NASDAQ and has solidly broken
its ascending trendline.  The past 2 days have seen the BTK
closing below that trendline (currently $595) and solidly
breaking below the $585 support level.  That weakness has been
too much for HGSI traders to resist and they have been hitting
the sell button, driving the stock down to the $34 level.
Trading volume has continued to be heavy, running 50% over the
ADV, adding to the likelihood that HGSI will need to revisit
the $30 support level before the buyers return.  Failed rallies
near intraday resistance ($35.25) should make for attractive
entry points, while momentum traders will want to target a drop
below the $33 level (recent intraday support) for initiating
new positions.  Keep stops in place at $39.


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

DYN - Dynergy $25.95 -1.85 (-4.33 this week)

Dynergy is a provider of energy and communications solutions
to customers in North America, the United Kingdom and
Continental Europe.  The company's expertise extends across
the entire convergence value chain, from broadband, power
generation and wholesale and direct commercial and
industrial marketing and trading of power, natural gas, coal,
emission allowances, and weather derivatives.

The Enron fiasco has caused a chain reaction in the energy
sector.  Not to mention the recent problems at Haliburton.
Traders are nervous about energy stocks.  The fear has been
seen this week in the likes of Calpine and Dynergy.  We're
looking to trade the downside in DYN as the fears look
poised to persist.  Over the weekend, a newspaper article
examined the similarities between CPN and Enron, which sent
CPN screaming lower.  Despite attempts by management to
stem fears, CPN went lower again today.  DYN is following
a similar path lower as traders find the stock guilty by
association.  DYN is one of the larger traders of energy,
which implicates it with Enron.  Not to mention its failed
merger with Enron.  Enron is no suing DYN for breaking off
the merger, which is likely to be tied up in court.  In
the meantime, look for the fears to persist.  DYN broke to
a new low in today's session, and could continue lower in
the coming sessions.  Watch for a decline below the $25.50
level.  Gauge sentiment in the sector by monitoring CPN
and the Utility Index (UTY.X) or Dow Jones Utilities
Average ($UTIL), which hit a new low in today's session.  Our
stop is initially in place at $29.50.

***December contracts expire in less than two weeks***

BUY PUT DEC-25 DYN-XE OI=5276 at $1.35 SL=0.75
BUY PUT JAN-25*DYN-ME OI=5677 at $2.95 SL=1.75

Average Daily Volume = 4.88 mln



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

XMSR - XM Satellite Radio $13.50 +0.55 (+0.56 this week)

XM Satellite Radio is a development stage company that seeks to
become a premier nationwide provider of audio entertainment and
information programming.  The company owns one of two FCC licenses
to provide a satellite digital radio serve in the United States.
It plans to transmit its XM Radio service by satellites to
vehicle, home and portable radios.

Most Recent Update

XMSR attempted to breakout in yesterday's session, but was held
back by the weakness in the broader tech sector.  The stock
attempted again in today's session and fortunately was able to
hold onto the majority of its gains.  The stock remains a
strong one and should continue to work higher as long as the
market cooperates.  Our biggest cause for concern is the tech
sector.  If the Nasdaq continues to weaken, XMSR may not be able
to follow-through to the upside.  But, if the Nasdaq
strengthens in tomorrow's session, then it's a green light
to ride XMSR higher.  The short-term upside target is
between the $14.50 and $15 levels.  There exists some
serious resistance in that zone, which is why it may make
sense to book short-term gains if XMSR trades up that high.
On weakness, look for the pattern of relatively higher
lows to continue with a bounce anywhere between $12 and
$13.

Comments

XMSR finished higher today despite the rollover in the
broader market.  The stock continues to trade strongly
relative to the rest of tech and should work higher tomorrow
if the Nasdaq is positive.  Look for an advance past today's
intraday high of $13.74, or a bounce from the $13 level.

***December contracts expire in less than two weeks***

BUY CALL DEC-10 QSY-LB OI=1542 at $4.00 SL=2.75
BUY CALL DEC-12 QSY-LV OI=1382 at $1.75 SL=1.00
BUY CALL JAN-12*QSY-AV OI=1273 at $2.15 SL=1.25
BUY CALL JAN-15 QSY-AC OI=1484 at $1.55 SL=0.75

Average Daily Volume = 1.30 mln



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