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Daily Newsletter, Tuesday, 12/18/2001

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The Option Investor Newsletter                 Tuesday 12-18-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       12-18-2001           High     Low    Volume Advance/Decline
DJIA     9998.39 +106.42 10015.34  9892.59  1.3 bln   1975/1152
NASDAQ   2004.76 + 17.31  2010.91  1989.81  1.8 bln   2123/1589
S&P 100   583.38 +  4.41   585.07   578.97   Totals   4098/2741
S&P 500  1142.92 +  8.56  1145.10  1134.36
RUS 2000  485.49 +  5.55   485.49   479.94
DJ TRANS 2657.27 + 38.21  2658.87  2613.02
VIX        24.13 -  1.30    25.06    24.02
VXN        49.02 -  2.05    51.02    48.93
TRIN        1.00
Put/Call Ratio       .62
*************************************************************

Good News Opens, Bad News Closes, Who Is Listening?

The news wires were smoking today with dozens of conflicting earnings
reports, warnings and affirmations. Surprising economic numbers added
to the excitement and the Dow traded over 10,000 again for a whole
fifteen minutes. The Dow ran out of steam and slipped back under the
psychological level at the close but the Nasdaq managed to hold over
its equivalent at 2000.









Jeffery Immelt, GE CEO, put on a Santa hat today and then pulled a
Dow 10000 event out of his bag of presents. The biggest Dow company
said it expected to meet 4Q and full year estimates and raised its
growth estimates for 2002 to as much as +18%. These estimates were
made assuming NO turn around for the economy until 2003. This means
that any rebound which comes sooner than that would increase their
results. Jeff said GE was a stock you could own and sleep at night.

Pfizer added to the holiday cheer with news that they would meet
of exceed 2001 and 2002 estimates and raised 2003 and 2004 estimates
to reflect +15% expected growth. They said they would request approval
for fifteen new drugs over the next five years. This boosted the
stock of PFE at the open but it weakened as the day progressed.
Contrasting the warnings from MRK and BMY last week it would appear
that PFE is leading the league.

Banc of America raised estimates on Siebel Systems and the stock
soared over previous resistance to gain +3.74 or +13.75% for the
day. He said field checks indicated that Siebel's quarter closed
strongly and included one very large deal. He said commissions
as well as increasing advertising indicated that the company was
enjoying strong revenues at the expense of Oracle and PeopleSoft.

Dupont was upgraded by Merrill to a strong buy and gained +1.10
on the day and helped the Dow to hold its initial gains.

The most surprising news was economic with new housing starts
soaring +8.2% in November. It was the biggest gain since July and
many analysts said it was due to the warmer weather than normal in
November. This surge in building will filter through the economy
as orders for components and indicate the consumer is still not
dead. The news from Best Buy and Circuit City, both of which beat
estimates, showed that the consumer was still cocooning. They are
buying electronics like big screen TVs. For the first time ever
DVD players are outselling VCRs which means the industry has finally
overcome the cost barrier and achieved consumer acceptance of the
new medium.

The flood of all that positive news at the open helped to power the
indexes back up to their recent psychological resistance levels. I
say psychological because the real technical resistance lies at
10100 on the Dow and 2030-2050 on the Nasdaq. As they say, it looks
good on paper but it does not mean anything. Those magic 10000/2000
levels may evaporate again before the open because of the massive
amount of negative news that came out after the bell.

Where to start? Motorola tried to pull a fast one on investors after
the close by saying they expected to post a $.15 cent profit in 2002.
The stock soared to almost $18 in after hours after closing at $16.61.
Almost immediately investors found out that the announcement had more
land mines than Afghanistan. They said they were laying off 9400 more
employees, they would see lower revenues in 2002 due to falling sales
and they would be closing some businesses. Analysts quickly saw that
the 2002 profits would come from cutting expenses and product lines
and not increased business. The stock immediately gave back all of
its gains and continued dropping in after hours. This was not a
good omen for tomorrow.

Following up on that news was Micron which missed earnings by a
nickel and said that their average selling price was down by -88%
over last year. They also announced that they were buying a DRAM
plant from Toshiba and were in talks with Hynix, the third largest
DRAM maker in the world, regarding their plants. Micron dropped
over -$2 in after hours on the news.

The chip sector, already reeling from a 1-2 punch from MOT/MU, was
not out of trouble yet. Triquint Semiconductor warned after the
bell that it would miss estimates due to weaker than expected
sales in its communication chips. They said lower than expected
phone sales had impacted their revenue. This could impact the
phone makers on Wednesday as well as the other communication chip
makers. They also warned about the next quarter saying they did
not feel comfortable with a recovery in the immediate future.

Solectron (SLR), the world's largest contract electronics manufacturer
reported a loss at the open and then warned about the next quarter
as well. It looks like the semiconductor sector, which had rallied
for the last three sessions, may have a tough road ahead on Wednesday.
With all the negative chip news which should spill over into cell
phones and communications equipment, Nasdaq 2000 could be in trouble.

The Dow did not escape either with a major warning from Alcoa. AA
got hammered in after hours after saying that they would miss
4Q estimates. Customers failure to pay for contracts and charges
for restructuring to cut costs would cause the earnings shortfall.
AA expects to post a ten cent profit compared with estimates of
thirty cents by analysts. AA dropped over -$2 in after hours.

So, who are you going to listen to? GE and Pfizer or Motorola, Micron
and Triquint? Even after a very strong affirmation of earnings GE
failed to break resistance at $40, again. The catch I think was a
clear message that they expect trouble ahead in 2002. They still
expect to meet estimates but do not expect any rebound until 2003.
If that is true than the markets are clearly ahead of themselves.
Motorola, Micron and Triquint, manufacturers of components for
electronics to be sold next quarter, all saw weaker results ahead.
Do you see the common thread here? Weakness still ahead.

We also are faced with a deflation in the "war premium" and an
increase in the terrorist problem. Usama Bin Laden apparently escaped
and now the task of hunting him down BEFORE he can cause more trouble
has suddenly become much more complicated. An angry Laden that is
free to communicate with operatives around the world is a prospect
that nobody wants to face. A scared terrorist dodging 250 bombs a
day on a remote hilltop is much less dangerous than the same man
several countries away in a safe house with telephone and Internet.
In light of the GE/PFE news that carried the market all day the war
news was mostly ignored. It will eventually hit home and the impact
on the markets may not be favorable.

Despite the gains in the markets on Tuesday the internals were not
pretty. Up until the last hour the advance/declines were basically
even. Only a buy program in the last thirty minutes pushed them into
strongly positive territory. All the major indexes are still below
resistance with a strongly negative after hours session. What do you
think will power the markets on Wednesday? There are no major economic
reports and earnings warnings are picking up speed. According to
First Call quarter to date earnings affirmations are much stronger
than last year by 319 to 160 but warnings are also ahead at 491 to 378
last year.

Basically it is a toss up for the rest of the week depending on how
much of this bad news is already priced in. Still without any good
news to break through the current ceiling the path of least resistance
is down or flat. S&P futures are down almost four points as I write
this but there is plenty of holiday bullishness still present. Our
task for Wednesday is to keep our stops in place and trade what the
market gives us. The VIX is hovering near a post attack low and the
possibility of another entry point is very good! I would be hesitant
about buying the next dip. We are approaching the end of year flash
point and there are way too many variables to just blindly buy the
next drop. If consensus changes to a recovery in 2003 instead of 2002
then we do not want to be long.

Enter very passively, exit aggressively!

Jim Brown
Editor


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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:
*****

FFIV $24.00 -1.55 (-1.14) We have been rewarded with several
profitable moves in FFIV over the past couple weeks, but it
looks like the stock has finally succumbed to the weakness in
the Networking sector (NWX.X).  After 3 attempts to clear the
$28 resistance level, FFIV has been under significant selling
pressure for the past week.  The final straw was today's
selloff, amounting to a 6% loss on volume nearly double the ADV.
By the closing bell, the stock had fallen to $24 (the site of
our stop) and violated the 20-dma for the first time since early
October.  Clearly, it is time to let this one go.  For those
holding onto open positions, use any strength on Wednesday to
exit at a more favorable price.

SEPR $53.92 -1.48 (-1.55) After pushing to a new post-attack
closing high last Friday, shares of SEPR have taken a break this
week, falling back to the 10-dma ($53.68) on Tuesday.  While
this could just be normal profit taking before the stock takes
another run at the $56 resistance level, it is somewhat
disconcerting that today's selling volume was 30% above the ADV,
it's highest level since December 5th.  Rather than take the
chance, we are dropping SEPR tonight to make room for stronger
bullish plays.

AMR $22.50 (-0.62) Downgraded again.  This time the downgrade came
from Moody's who lowered their credit rating on AMR's bonds, which
were already in junk status.  Moody's believes that airlines will
continue to face a difficult business climate and that airlines
will be hard pressed to stop the daily cash burn for the industry.
In additional news, the DOJ is taking a hard stance on AMR's
proposed alliance with British Airways and some analysts feel that
the European Union will be even stricter.  Despite all the
negative news, shares of AMR continue to hover near the $22 level.
Unfortunately, the XAL.X has drifted lower and is searching for
support near the 85 level.  We feel it may be best to just drop
this one before something else sends tremors through an already
fragile business.  If the XAL can begin to strengthen and traffic
numbers continue to improve then maybe we'll come back and visit
this sector again.


PUTS:
*****

AFFX $35.20 +0.86 (+1.55) With the rebound in Biotech stocks
over the past couple days, AFFX has been catching a bid.  While
clearly not in rally mode, it looks like the bears are taking a
rest.  AFFX moved up fractionally again on Tuesday, nearly
reaching our $36 stop before falling back a bit at the close.
Rather than wait for the stock to roll over again near the
20-dma, we'll move to the sidelines and focus our attention on
higher-odds plays.

VZ $48.05 (-0.85) As instructed we kept our eye on the YLS.X
wireless index which tried to move higher this week but failed to
close over the 95 level in its Tuesday spike higher.  However,
just as we suspected, VZ suddenly found enough strength to rally
off its lows from Friday to close at $48.36 on Monday.  The rally
continued today but Verizon didn't have enough gas despite the
positive market and shares failed to push through resistance at
$49.  With shares resting near $48 and the YSL.X trying to rally,
even unsuccessfully, we feel it may be best to drop the stock as a
put play.


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

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

CALLS              Mon    Tue

ADIC      16.80   -0.02  -0.23   Consolidating
AMR       22.50   -0.62   0.00   Dropped, downgrade
FFIV      24.00    0.40  -1.55   Dropped, poor relative strength
GNSS      68.69   -0.91  -0.21   New, reduced competition
INTC      33.81    0.70  -0.16   Lagging the SOX, $33 is support
KRON      51.20    0.76   1.59   New, breaking out to new highs
MDT       48.79    1.27  -1.33   Nice bounce!
NVDA      66.25    2.36  -1.75   Profit taking
OAKT      14.97    0.25   0.03   Building pressure for a breakout
RATL      22.10    0.68   0.56   Software breaking out
SEPR      53.92   -0.07  -1.48   Dropped, ran out of steam
SYMC      69.77    0.09   2.52   New, split run
VRTS      46.02    0.35   1.72   New, software strength
XMSR      17.05    0.48   0.33   Still being squeezed


PUTS

AFFX      35.20    0.69   0.86   Dropped, Biotech strength
CERN      50.07    0.75   0.32   Recovery looks weak
DYN       20.90   -3.24  -0.80   Investors still nervous
FRE       63.88   -0.15  -0.02   Nearing support
QCOM      53.60   -2.32   0.08   Can't find buyers
VZ        48.05    1.16  -0.31   Dropped, stuck in neutral


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The Option Investor Newsletter                  Tuesday 12-18-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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charts and graphs, click here:
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********************
PLAY UPDATES - CALLS
********************

ADIC $16.80 -0.23 (-0.25) Although ADIC failed to participate
in the rally that has been seen on the NASDAQ this week, it is
continuing to post a series of higher lows, right along the
ascending 10-dma (currently $16.68).  The bullish wedge is
rapidly approaching the point where it should break out.  Once
free of the $17 resistance level (actually $17.30 on the
intraday charts), it looks like ADIC is set to challenge the
$18.50 level, also the site of the 62% retracement of the loss
between the May highs and the early October lows.  Today's
coverage at Market Outperform from Robert W. Baird was a
nonevent, as the technical chart seems to be the dominant theme.
We'll continue to wait for the breakout, and a volume-backed
rally through the $17.30 level can be used for initiating new
positions, while dip buyers may want to take advantage of
intraday dips to the 10-dma or even intraday support near
$15.50.  Just remember that our stop is set at $15.25.

MDT $48.79 -1.33 (-0.06) After last week's sharp rally (which
continued through Monday), some profit taking in shares of MDT
was bound to occur.  Sure enough, the stock went into free fall
this morning, giving vigilant traders a fresh entry point on the
solid bounce right at the $48 support level.  It should come as
no surprise that this support level coincides with the 10-dma
($48.09), which frequently provides fresh entry points into
stocks that are undergoing solid rallies.  Sure enough, buying
volume picked up in the afternoon session, helping MDT to
recover well off its lows.  Continue to target fresh entries on
dips near the 10-dma, or else wait for strong volume to propel
the stock through near-term resistance at $50 before opening new
positions.  We're keeping our stop in place at $47.

NVDA $66.25 -1.75 (+0.61) Monday's break out to new highs
reinforced the bullish mood in shares of NVDA, and the move
likely would have kept going today if not for this morning's
comment from Jeffries, downgrading game-maker Electronic Arts
due to concerns that Xbox sales would be unable to continue
their current sales momentum.  While that could create some
weakness in that one area of business for NVDA, the company
blunted fears of slowing sales with the announcement that its
GeForce Titanium series of graphics processors has gained
widespread adoption from more than 50 of the top PC OEMs and
system builders around the world.  It looks like NVDA
shareholders are still going to have a very Merry Christmas
(especially if PCs continue to be built and sold), and we
intend to continue harvesting a piece of that action.  Today's
dip to the $66 level could be a good entry point into the play,
although greedy players might want to hold out for a dip near
stronger support at $64 before playing.  Keep stops set at $62.

OAKT $14.97 +0.03 (+0.28) Last Friday's breakout move over the
$14 level would have been expected to motivate some profit
taking, but so far it hasn't come to pass.  OAKT is still
sitting just below the $15 level, and with little in the way of
overhead resistance, looks like it could easily challenge the
$18 level before the end of the year.  We would really like to
see a dip and bounce at the $14 level (right at the 2-week
ascending trendline) to confirm the breakout before initiating
new positions, but we may have to content ourselves with buying
a breakout to new post-attack highs above $15.  Our stop is
currently at $13, as a drop below that level would violate the
ascending trendline that has been in place since mid-October.

INTC $33.81 -0.16 (+0.54) Shares of the chip giant appear to be
lagging behind some of its brethren in the semiconductor sector.
The SOX actually closed back above its 200-dma on Monday and held
that move today with another small gain.  INTC did rise with the
sector yesterday but today's action was merely frustrating.  The
stock traded to $34.40 this morning, which preceded a dip to
$33.36 before noon.  Intel was supposed to have a technology
briefing conference call scheduled for 1:00 PM ET today but we
haven't heard or seen any analyst reaction to it.  Continue to
keep your eyes on the SOX and its 200-dma near 558.  We would look
for INTC to build on new support near $33.  Look for intraday
bounces there.

RATL $22.10 +0.56 (+1.24) The software sector has been a leader in
the technology groups this week and the GSO.X has closed above
price resistance at 190 for the first time since early August.
Shares of RATL have enjoyed the rebound and the stock has
continued its ascent from the late Friday bounce.  The close above
$22 for RATL is encouraging and it looks like bulls are going to
try and breakthrough resistance at $23 shortly.  Volume has been a
bit lighter than we expected or prefer for a rally but this is the
holidays and many big traders may not be as active.  The positive
close in the Nasdaq over the 2000 level and the strong moves in
MSFT are all positive signs for RATL's short-term trend as well.
Keep an eye on the GSO.X.  Additionally, if MSFT can break out
above $70, it might lead the sector on its next leg higher.

XMSR $17.05 +0.33 (+0.81) A couple of our analysts had suspected
that XMSR could be in the middle of a short squeeze but without
any short interest data we couldn't confirm it.  The stock does
have at least 58M shares in float but a squeeze is/was possible.
The huge move on Friday could have scared a few bears into
covering their positions.  Add to that any momentum traders
willing to chase the stock and we get a big gap up on Monday
morning at the open.  XMSR opened at $17.37 then traded to a high
of $18.48 before sliding back to close at $16.72 on Monday.  We
mentioned in the weekend letter that it may have been a good time
to consider taking profits and the fading rally on Monday could
have been affected by profit takers.  However, the stock has
continue to make gains as it tries to hold on to its new position
above the $16 level.  We get the impression that buyers may be too
eager to buy XMSR.  The high on Friday was $16.30.  XMSR continued
to consolidate on Tuesday and bounced several times at $16.30
effectively "filling the gap" from Monday's open.  More volume
followed this bounce and the stock traded higher again on Tuesday
afternoon.  We're going to raise our stop on the play to $15.99
now that shares have bounced at $16.30.  XMSR could see resistance
at $18 or $18.50.


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

GNSS – Genesis Microchip $68.69 -0.21 (-1.12 this week)

Genesis Microchip designs, develops and markets integrated
circuits that receive and process digital video and graphic
images.  Its integrated circuits are typically located inside a
display device and process images for viewing on that display.
The company also supplies reference boards and designs that
incorporate its proprietary integrated circuits.  GNSS is
focused on developing and marketing image-processing solutions
and targets the flat-panel computer monitor and other potential
mass markets.

Clearly one of the strongest stocks in the Semiconductor index
(SOX.X), GNSS has been rallying strongly ever since the
September lows.  With the steep rate of ascent, the stock has
been getting more volatile over the past couple weeks, which
normally could be indicating a near-term top.  But there is no
question that we have a bullish momentum run underway, and
therein lies the opportunity.  Adding to the bullish picture is
the fact that the company is merging with Sage, Inc.
(NASDAQ:SAGI).  This solidifies GNSS' leadership role in the
flat-panel business and paints an even rosier picture for the
future.  The MOT earnings warning after the bell could be just
the catalyst we need to gain an attractive entry into the play.
Although GNSS could trade down on the news tomorrow, the dip
should be short-lived due to the fact that the company is in a
different business than MOT.  GNSS continues to bounce at the
aggressive ascending trendline (currently $67).  Target new
entries on a dip to this level or even on a dip near stronger
support at $64.  We are initiating the play with our stop set
at $63.

BUY CALL JAN-65 QFE-AM OI= 394 at $8.10 SL=5.75
BUY CALL JAN-70*QFE-AN OI=2255 at $5.30 SL=3.25
BUY CALL JAN-75 QFE-AO OI= 193 at $3.40 SL=1.75
BUY CALL APR-70 QFE-CN OI= 228 at $9.70 SL=6.75
BUY CALL APR-75 QFE-CO OI= 271 at $7.50 SL=5.25

Average Daily Volume = 2.52 mln


KRON - Kronos Inc. $51.20 +1.59 (+2.35 this week)

Kronos develops, manufactures and markets frontline labor
management systems that improve workforce productivity and the
utilization of labor resources by capturing, measuring and
delivering time and activities information about employees,
including hourly workers and salaried professionals.  The
company's labor management systems are designed for a wide range
of businesses from single-site to large multi-site enterprises.
Using the company's application service provider delivery model,
customers can obtain KRON's labor management solutions on a
monthly subscription basis.

It seems that Software stocks are breaking out all over, and that
perception is confirmed by the renewed rally over on the Software
index (GSO.X).  The GSO pushed back through the 200-dma and broke
out above the $190 level on Tuesday.  Our new play, KRON used
that sector strength to mount a gain of more than 3%, bringing it
right to the cusp of breaking out to new all time highs.  The
stock tested the $51 level last week, and after a bit of profit
taking, it is right back at that level.  KRON is a thinly traded
stock, but that isn't holding back the buyers, who have been
pushing volume to 50% over the ADV lately.  We're looking for
KRON to breakout of the bullish wedge that has been forming since
last week.  Target new entries on an intraday dip near the
ascending trendline or stronger support near $47.50.  Momentum
traders will want to enter on a breakout above today's highs
($51.25), but need to keep a sharp eye out for profit taking.  We
are starting coverage with a stop set at $45, just below the
20-dma and the site of the most recent breakout.

BUY CALL JAN-50*KUE-AJ OI= 17 at $4.60 SL=2.75
BUY CALL JAN-55 KUE-AK OI= 30 at $2.15 SL=1.00
BUY CALL APR-50 KUE-DJ OI=172 at $8.00 SL=5.75
BUY CALL APR-55 KUE-DK OI=500 at $5.90 SL=4.00

Average Daily Volume = 244 K


SYMC – Symantec Corp. $69.77 +2.52 (+2.61 this week)

A world leader in Internet security technology, SYMC provides
a broad range of content and network security solutions to
individuals and enterprises.  The company is a leading provider
of virus protection, risk management, Internet content and
e-mail filtering, remote management and mobile code detection
technologies.  The desktop battleground is where SYMC derives
nearly 60% of its sales.  Duking it out with Network Associates
in this arena, the company is best known for its security
software (Norton AntiVirus), desktop efficiency (Norton
CleanSweep), and PC utility (Norton Ghost) products.

It seems like forever since we've had a decent split run to
play, but it looks like that is just what SYMC is set to deliver
to us.  Yesterday, the company announced a 2-1 split with a
record date of January 17th, which dovetails nicely with the
company's next earnings report, set to be released on the 16th.
So we have a nice confluence of events, with the Software index
(GSO.X) breaking out to new post-attack highs, and SYMC being
added to the NASDAQ-100, effective on December 24th.  It looks
like the move might already be starting, if today's 3.7% advance
is to be believed.  After last week's run to the $70 level, the
stock was consolidating for another run at that resistance level,
and it is no coincidence that that was exactly the high price on
Tuesday.  Over the past couple months, the 20-dma (currently
$66.09) has provided consistent support on significant pullbacks
and sure enough, that's where the profit taking halted again last
week.  While we'd like to get another dip near the 20-dma to
provide attractive entries, we may have to content ourselves with
a bounce from the $68 intraday support level.  Alternatively,
waiting for a volume-backed move through $70 can be used for
initiating new momentum-based positions.  SYMC has built strong
support in the $65.50 area, so that is the site of our stop.

BUY CALL JAN-70*SYQ-AN OI=2612 at $4.90 SL=3.00
BUY CALL JAN-75 SYQ-AO OI=1422 at $2.70 SL=1.25
BUY CALL APR-70 SYQ-DN OI= 469 at $9.60 SL=6.75
BUY CALL APR-75 SYQ-DO OI=1175 at $7.40 SL=5.25

Average Daily Volume = 2.72 mln


VRTS – Veritas Software $46.02 +1.72 (+2.07 last week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

While Storage-related stocks have been making a comeback
recently, it is the Software sector (GSO.X) that really got our
attention today, with its rally through the $190 level on its
way to posting a new post-attack closing high.  Since VRTS
effectively is a member of both groups, it should not come as
any surprise to see that it is trading at a new post-attack
high.  Having finally cleared the $44.50 resistance level, the
bulls are now setting their sights on the 200-dma (currently
$46.68) as their next hurdle.  After consolidating between
$43-45 for more than a week, it looks like the stock may be
ready to run.  Depending on the movement in the GSO index, VRTS
could see one more dip before taking a run at the 200-dma, and
if it does, we would look to initiate new positions on a bounce
from either the $44 or even $43 support levels.  We are
initially setting our stop at $41, the site of the 20-dma.
Those that would prefer to play a breakout move than buy the
dips will want to see the stock clear the 200-dma on strong
volume before stepping into the play.

BUY CALL JAN-45 VIV-AI OI=8433 at $4.80 SL=3.00
BUY CALL JAN-50*VIV-AJ OI=6436 at $2.65 SL=1.25
BUY CALL JAN-55 VIV-AK OI=1417 at $1.35 SL=0.75
BUY CALL FEB-50 VIV-BJ OI=1413 at $4.10 SL=2.50
BUY CALL FEB-55 VIV-BK OI=2128 at $2.60 SL=1.25

Average Daily Volume = 15.6 mln



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PLAY UPDATES - PUTS
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CERN $50.07 +0.32 (+1.07) After clawing the stuffing out of CERN
last week, the bears have taken a breather over the past couple
days, allowing the stock to find support near the $48 level and
recover right to $50 by Tuesday's closing bell.  Whether this is
the end of the bearish trend or another entry setup remains to
be seen.  Volume has been very light over the past 2 days, so
there definitely isn't an overabundance of bullishness waiting to
muck up our play.  There is now some serious overhead resistance
to contend with near $52, and that is the site of the 10-dma
($51.97).  Consider new entries on a rollover near that level or
even near $53.50, currently the site of heavy resistance and the
declining 20-dma.  Keep stops set at $54.

DYN $20.90 -0.80 (-4.04) Enron's woes continue to trickle down
through the power generation and trading industry, inflicting
significant damage on other stocks in the sector such as our
current play, DYN.  In an attempt to reassure skittish
investors, the company unveiled a $1.25 billion plan to shore up
its balance sheet, but the stock continues to tumble.  In just
the past 2 weeks, shares of DYN have tumbled 33%, giving up
another 3.7% on Tuesday.  Selling volume remains heavy at nearly
triple the ADV, as investors remain nervous.  While the stock
did post a mild bounce after reaching the $20 support level,
buying volume certainly doesn't indicate that this is a bottom.
Look to initiate new positions on another rollover near $23, or
even $24.  We're moving our stop down to $25 tonight.  Momentum
traders may even want to wait for a breakdown under the $20
level on heavy volume before initiating new positions.

QCOM $53.60 +0.08 (-2.24) Market up or market down, QCOM just
can't seem to get out of its own way.  Even positive comments
from Gerard Klauer Mattison last week, based on the company's
dominant market position couldn't inspire the buyers.  So far
this week, the NASDAQ has posted a modest advance, while shares
of QCOM have continued to drift lower.  It now looks like the
stock is intent on revisiting the $50 level before the bulls
show any interest, and we are looking to take a piece of that
decline.  QCOM has been finding resistance at the 2-week
descending trendline ($54.75), which happens to coincide nicely
with intraday resistance, currently resting at $55.  Target new
positions on a failed intraday rally near this level, or even
the $56 resistance level.  Momentum traders may want to buy a
breakdown under the $53.50 near-term support level, but be aware
that the daily Stochastics are already buried in oversold
territory.  That could mean that the best entry approach will be
to wait for the failed intraday rally before playing.  Stops are
still resting at $57.

FRE $63.88 -0.02 (-0.17) The yield on the 10 year note rose
sharply on Monday and shares of FRE also spike higher to $65.14.
This rise in bond yields will continue to put upward pressure on
mortgage rates and shares of FRE gave back all of its Monday gains
to close under the $64 level.  The stock lost another two cents on
Tuesday but the TNX.X retreated from its gains on Monday.  Bulls
on the stock were probably expecting FRE to move higher with the
Housing Starts report that came out today.  The report said that
home builders started the highest number of new projects since
July.  The average interest rate for a 30-year fixed-rate mortgage
last month was 6.7% versus 7.7% in November 2000.  Traders
should notice that the chart on FRE is clearly showing how the
stock is producing lower highs and is approaching important
support between $63 and $62.50.  The 10 & 15-dmas are also acting
as resistance and volume was pretty heavy in today's trading.
Confirm bond and stock direction before committing any new
capital.


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

None


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

MDT - Medtronic, Inc. $48.79 -1.33 (-0.06 this week)

As a medical technology company that provides lifelong solutions
for people with chronic disease, MDT offers therapies to restore
patients to fuller, healthier lives.  Reading like a medical
journal, applications for the company's primary products
include bradycardia pacing, tachyarrhythmia management, atrial
fibrillation, heart failure, coronary and peripheral vascular
disease, cardiac surgery, spinal and neurosurgery and
neurodegenerative disorders.

Most Recent Update

After last week's sharp rally (which continued through Monday),
some profit taking in shares of MDT was bound to occur.  Sure
enough, the stock went into free fall this morning, giving
vigilant traders a fresh entry point on the solid bounce right
at the $48 support level.  It should come as no surprise that
this support level coincides with the 10-dma ($48.09), which
frequently provides fresh entry points into stocks that are
undergoing solid rallies.  Sure enough, buying volume picked up
in the afternoon session, helping MDT to recover well off its
lows.  Continue to target fresh entries on dips near the 10-dma,
or else wait for strong volume to propel the stock through
near-term resistance at $50 before opening new positions.  We're
keeping our stop in place at $47.

Comments

The $48 level clearly provided support on Tuesday, as buyers
stepped forward to take advantage of the perceived bargain at
that level.  Buying volume ramped up into the close, which could
portend more strength on Wednesday.  Continue taking advantage
of intraday dips to establish positions for the next attempt at
the $50 resistance level.

BUY CALL JAN-45 MDT-AI OI=8380 at $4.40 SL=2.75
BUY CALL JAN-50 MDT-AJ OI=4971 at $1.15 SL=0.50
BUY CALL FEB-50 MDT-BJ OI=6027 at $1.70 SL=0.75
BUY CALL MAY-50 MDT-EJ OI=3082 at $3.40 SL=1.75
BUY CALL MAY-55 MDT-EK OI=1890 at $1.55 SL=0.75

Average Daily Volume = 4.28 mln



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