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Daily Newsletter, Thursday, 12/20/2001

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The Option Investor Newsletter                Thursday 12-20-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       12-20-2001           High     Low    Volume Advance/Decline
DJIA     9985.18 - 85.31 10076.03  9985.18  1.4 bln   1264/1851
NASDAQ   1918.54 - 64.35  1972.32  1918.50  2.0 bln   1278/2410
S&P 100   584.30 -  4.42   590.34   584.26   Totals   2542/4261
S&P 500  1139.93 -  9.63  1151.42  1139.93
RUS 2000  474.08 -  7.99   482.07   474.08
DJ TRANS 2602.85 - 41.81  2659.21  2596.13
VIX        24.37 +   .80    24.76    23.70
VXN        52.91 +  3.23    53.07    50.50
TRIN        1.06
Put/Call Ratio       .92
*************************************************************

Networks Crash, Chips Dip, Enron Strikes Again

It was a disaster buffet with something for everyone on Thursday. The
networking sector, already under pressure from declining economic 
conditions, was crushed by negative news from Juniper. The chip sector,
which was already leading the Nasdaq down this week, was hit again by
a warning from JBL. Just when you thought the Enron debacle was over
JPM said it could have as much as $1 billion in additional exposure.
Plus, tomorrow we will get a chance to see if the Argentina problem
is really already priced in with the announcement that their president
resigned after the close on Thursday. Can we just start the holidays
early, please?



 



 

The biggest hit to tech hopes came in the form of an earnings warning
from Juniper. JNPR said that weakness in the communication sector
would cause a drop in 4Q earnings to half what analysts had expected.
Part of the problem is the shrinking router market. More than 25%
of the demand has evaporated and Cisco is gaining market share on 
Juniper and Sycamore. Juniper also had nothing positive to say about 
our future recovery prospects. JNPR fell over -$4 for the day.

The chip dip continued to sour as JBL warned that continued soft
demand would cause them to miss estimates for this quarter after
announcing an -82% drop in profits for the last quarter. "There is
not going to be a dramatic recovery anytime soon" said James Savage,
an analyst at Thomas Weisel. This echoed sentiments from JBL and
sent their stock into a -14% drop to $21.25. PLXS also warned and
added to the chip sector dive. S&P downgraded Solectron's debt to 
junk status and ACTM, another competitor said it was considering
bankruptcy.

Microsoft was not immune from the market weakness with a drop of 
-$2.73 after saying there were "critical" security problems with
their new WindowsXP product. Reviewers said this was the most 
serious flaw in the history of windows. Intel, the second biggest 
tech in the Dow also fell on worries that the recovery might be 
slower and farther away then previously expected.

Just when you thought the Enron problem had gone away JPM reported
that they may have an additional $1 billion in exposure because of
failure by insurance companies to honor debt guarantees. This one
billion in additional exposure is double what JPM had previously
disclosed. JPM lost -1.48 on the news.

This worry on "insured debt default" soured prices on other banks
as investors worried that others could announce new problems. 
Other news depressing banks was the continued story out of 
Argentina. With a state of siege in progress investors worried
about possible losses from international companies from riots
or mobs. The president of Argentina resigned after the markets
closed and the state banking authority announced that banks
would be closed on Friday for a "bank holiday". This is normally
a prelude for some kind of government activity like seizing 
deposits and nationalizing assets. Authorities do not expect
a big problem from this holiday since there have been severe
restrictions on withdrawals for some time. Still, the resignation
of the president because he could not get approval for needed
economic reforms, is not a good sign. We will get to see just
how much of this is priced in when markets open on Friday.

Another challenge investors face is the death of the stimulus
package. Most analysts, predicting a 2002 recovery, had factored
in another stimulus package, however bloated, with some incentives 
for corporations to jump start new investment. With this package 
now dead amidst political wrangling they will need to remove the
potential impact from their profit estimates. 

The economic news today was bullish with new jobless claims
falling to lows not seen since September 29th at 384,000. This
is the most significant indicator that the bottom of the recession
may be behind us. We could still be in it but the worst is behind
us as reflected by the mid-October peak in jobless claims. The
markets should have celebrated the event had it not been for the
numerous earnings warnings. Adding to the positive indicators
was the Philadelphia Fed Index jumping to -5.5 for the December
period. This is remarkable considering analysts expected -18.
This is very optimistic with the new orders component jumping
from -15.7 to -3.8 indicating a pickup in business for the near
term.

Friday we will get several more reports which could reveal the
true direction of the economy. The GDP for Q3, Personal Income
and Spending and the University of Michigan Sentiment Survey.
Also, something that could turn around the semiconductor drop
is the Book-to-bill ratio for November. If that shows an increase
then bulls will cling to it like the holy grail and buy tech stocks.
Likewise a decrease would be negative but the bulls would try
very hard to ignore it. With warnings from just about every chip
maker recently I am hard pressed to believe it will show gains.

There was a large amount of volatility on Thursday associated 
with the "triple witching" expiration this week. There were 
many stocks that have hit resistance right at a major strike
price with heavy open interest. This was a factor in holding 
back many issues that could have helped the markets. There were
many stocks that just got whacked for big losses for no reason
which could be associated with tax selling. Symantec (SYMC)
was one example with +125% gains since Sept-21st it fell victim
to profit taking/tax selling which pushed it back to support 
at $64. NVDA was another stock, which had gained from $22 to
$69 since Sept-21st and got whacked with strong profit taking.
Both of these stocks violated our stops but I requested that
we keep them as plays because I think these are good entry
points for any post holiday rally. NVDA would best be entered
around $60 and SYMC around $61 if we can get a pullback to 
those areas. GNSS was another stock that took a bigger beating
than the rest of the crowd. I would look to enter it in the $64
range if possible.

Predicting Friday's direction may be harder than finding Bin
Laden. The sell off today was overdone in the leaders but
there were many stocks that did not sell off at all. It really
looked more to me that traders were clearing the books before
the holiday and just dumped the winners to take profits. 
Considering the markets were moving up earlier this week despite
the earnings warnings and move to push the recovery into 2003
I think there is still plenty of underlying bullishness. The
Nasdaq bore the brunt of the chip/networking warnings and the
Dow shook off the Alcoa warning as though it never happened.
The semiconductor index has shed nearly -75 points from the
highs this week and is only 13 points away from decent support
which could spark a rebound, even if only temporary. Support
for the Nasdaq is pretty heavy in the 1875-1900 range and
should provide a nice bottom if tested.

The Nasdaq is below my exit point of 1950 but the Dow is well
above the 9800 level. The S&P is also above 1125. Clearly the
Nasdaq, which had gained significantly more than the other two
indexes since Sept-21st needed to digest some gains. We are 
stuck in a twilight zone of investor indecision. If investors 
think that a recovery is underway, as evidenced by the economic 
reports on Friday morning, then get ready for a Santa Claus rally 
after the holiday. If a SC rally is indicated with the Friday 
reports then Friday could see investors moving into stocks they 
think will out perform next week. At the risk of seeming too 
simplistic I think the game plan should look like this. If the 
economic reports are positive and the Nasdaq starts moving up 
again, I would open new positions to get a jump on any post holiday
buying. Earnings warnings could fade from view the next several
days with only a few suspects trying to slip in under the cover
of holiday boredom hoping to be unseen. 

One of the biggest problems investors face is the recognition
of a trend. Once recognized it ceases to exist. The trend for
the markets to rally the last five days of the year and the
first two of the next year has been recognized for some time.
The new trend, which will develop, is buying earlier, like we
had earlier this week, and then selling into those post holiday
rallies. I am not trying to make a case for that this year but
considering the gains from the September lows it is entirely
possible that sellers will appear next week. Confused yet?

This all boils down to just one point. We need to trade what
the markets give us or not trade at all. If we jump into the
markets "expecting" a Santa Claus rally and continue to hold
our positions with the market falling because "it WILL start
tomorrow", we WILL lose money. I have done this more times
than I care to recount and I lost money every time I played
the "historical trend" instead of what the market was giving 
me. The markets NEVER "have to go up" when they are supposed 
to and normally fail to fall when most expected. 

Everyone should have received notice by now that IndexSkybox
is merging back into Option Investor as of Jan-2nd. Current
subscribers will have the benefit of Austin Passamonte, 
Buzz Lynn and Russ Moore and their excellent market analysis
and trades at no additional cost. The Option Investor 
subscription price will remain the same at $39.95. We are 
taking this step to help our readers be fully prepared for 
all the opportunities that 2002 may present us. Just another
good reason to sign up for the year end renewal special below.

Enter very passively, exit aggressively!

Jim Brown
Editor



************************  
YEAR END RENEWAL SPECIAL
************************ 

I am really happy to announce this years annual renewal special.
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There are myriad technical analysis tools for today's trader. Eric 
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Aggressive, conservative or income producing, there are funds for
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You will get two of these handy mousepads with the 2002 options
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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
^^^^^

OAKT $12.91 -1.58 (-1.78) So much for support.  OAKT had been
consolidating its recent rally above the $14 level and the
ascending trendline.  That all came crashing down on Thursday,
as market weakness sent the bulls running for cover, with shares
of OAKT crashing below the $13 level.  While there was a bit of
a late-day bounce, the bulls couldn't regain the level of our
stop, so we're dropping the play tonight.  Use any continuation
of the bounce to exit the play at a more attractive level.

ADIC $15.88 -0.14 (-0.49) If you were waiting for a dip in ADIC
then today was your day.  Actually, yesterday could have been
your day too.  The 10-dma that had been acting as support
failed to hold up in Wednesday's trading and the tech pull back
in the Nasdaq continued on Thursday.  Even though shares of
ADIC bounced exactly where we thought they would, at $15.50,
the unexplained sell-off in the hardware group may not be over.
Volume on Thursday was pretty hefty for ADIC and the MACD is
starting to roll over again.  Therefore we are closing the play
to look for more fertile ground.  The afternoon rollover in
shares of ADIC at the $16 level didn't encourage us for a
bounce on Friday.  Those still interested might be able to pull
off a relatively low-risk entry with our current stop at $15.25
if shares do bounce higher.

RATL $19.19 -1.55 (-1.67) Trouble started with shares of RATL on 
Wednesday when the stock gapped down upon weakness in the software 
sector.  The selling pressure increased shortly after twelve noon 
on Wednesday when word that UBS Warburg had started coverage of 
the stock with a "hold" and a $12 price target - some 45% below 
Tuesday's close.  The UBSW analyst felt that RATL had exceeded its 
current valuations and things would not improve for the company 
until 2003.  Surprisingly, shares of RATL managed to hold the $20 
level despite this dismal opinion.  Unfortunately, the sell-off in 
RATL continued on Thursday powered by a weak software sector in 
general.  The GSO.X fell through its 200-dma and closed below 
expected support at 180.  Likewise, RATL fell through support at 
$20 and closed 20 cents above its own 200-dma, losing almost 7.5% 
in the process.  OI would have been stopped out at $19.50.

INTC $31.98 -1.07 (-1.29) Some traders probably saw yesterday's
drop in  the SOX.X as a warning that there was more to come.
The chip index fell below its 200-dma and closed below expected
support between 545 and 550.  Later that night (Wednesday) a
report came out claiming that sales of semiconductors had seen
the sharpest decline in history, about 33% in 2001, and more
"consolidation" in the industry was expected.  The same Reuters
story estimated that Intel's sales were down about 22 percent
for the year.  In response, the SOX.X fell another 30 points
today closing right on its 50-dma at 507.  This 5.58% loss in
the index was seen across the board with big drops in chips
stocks and INTC declined over 3%.  We had placed our stop at
$32 for Intel and thus will close the play and look for other
strategies.  If the sector continues to fall, INTC might slip
to the $30 level or below.  Currently its 50-dma is found near
$29.25.


puts
^^^^

CERN $50.45 -0.75 (+1.45) We're turning a little conservative on
CERN  and choosing to drop the play before it gets a chance to
surprise  us.  The late afternoon rally on Wednesday that drove
it above the $50 level and the subsequent bounce at the same
level late in the day on Thursday might be enough to keep the
bulls and bears fighting over this area without any clear
winners.  If you are still bearish on the stock and feel that
a put play may still be successful, we would keep an eye on
what should be overhead resistance between $51.50 and $52.00.
Conservative traders not willing to give up yet may choose to
lower their stop (ours was $54) even though the better play may
be to wait for shares to close back under the $50 mark.  OI is
filing this one as closed.

FRE $65.56 +0.71 (+1.51) New comments that mortgage financiers
may have a strong year next in 2002 have lent strength to the
stock and may  show signs of a nascent bullish trend.  Recent
reports show that  rates have hit five-month highs with
30-year rates averaging 7.17  percent.  One industry pundit
said that these were still  relatively low rates and believed
that they should continue to  keep the housing and mortgage
markets strong.  Shares of FRE  rallied both Wednesday and
Thursday on this sentiment but today's move failed at the
$66.20 level (twice) and failed to close over the 200-dma.
Our stop was at the $66 level and at this time we'd prefer to
look for bearish plays elsewhere.


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

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


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


CALLS              Mon    Tue    Wed    Thr

ADIC      15.88   -0.02  -0.23  -0.78  -0.14  Dropped, rolled over
EMMS      21.30    0.06   1.35  -0.09   0.39  New, advertising
GNSS      64.90   -0.91  -0.21   0.47  -4.26  SOX weakness
INTC      31.98    0.70  -0.16  -0.76  -1.07  Dropped, hit stop
KRON      48.63    0.76   1.59   0.16  -2.73  Software selling
MDT       50.03    1.27  -1.33   0.91   0.33  Relative strength
NVDA      61.90    2.36  -1.75  -1.81  -2.54  Entry point?
OAKT      12.91    0.25   0.03  -0.48  -1.58  Dropped, hit stop
RATL      19.19    0.68   0.56  -1.36  -1.55  Dropped, hit stop
SYMC      64.12    0.09   2.52  -0.97  -4.68  Entry point?
VRTS      41.75    0.35   1.72  -2.13  -2.14  Entry point
XMSR      16.30    0.48   0.33   0.25  -1.00  Resilient


PUTS

ADVS      47.61   -0.69   0.74  -0.53  -3.01  New, broke support
BBOX      50.11    1.32  -0.10  -0.99  -2.73  New, broke 200-dma
CERN      50.45    0.75   0.32   1.13  -0.75  Dropped, $50 support
DYN       23.85   -3.24  -0.80   3.08  -0.13  Rebound looks tired
FLIR      38.84    1.25   1.16  -4.21  -3.36  New, looks weak
FRE       65.56   -0.15  -0.02   0.97   0.71  Dropped, recovering?
QCOM      49.56   -2.32   0.08  -1.32  -2.72  Still falling


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The Option Investor Newsletter                 Thursday 12-20-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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Tales Of Woe: Lessons To Know
Austin Passamonte

Got a call this morning from a good friend of mine. He began with 
courteous small talk but rigid tightness in his voice told me idle 
chitchat about deer season past was not the purpose of our visit. 

(Weekly Chart: EEL)
 


My friend's father started a private company decades ago that grew 
into a very successful venture. Back in year 1999 he sold out to a 
conglomerate type holding company attempting to consolidate the 
industry by purchasing key players in every region of the country. 
Back then the stock of that "CMGI" type-company was trading near 
$25 and the share conversion was made. 

My friend (his son) was a major shareholder in the family business 
who wisely divested some money into hard assets but kept a solid 
chunk of the new issue. His father had plenty of outside money but 
an even larger stake in the stock as one might imagine. After all, 
his company, his baby, his life's work was represented in those 
shares and selling out would be akin to severing all emotional 
ties.

See where this story's going?

My friend asked for an opinion throughout this period on how the 
stock was looking. I reiterated each time that stock strength or 
weakness differed from company fundamentals. Good companies can 
have a bad stock and vice-versa at any moment in time. It's not a 
mirror relationship, so try to separate emotion from the equation. 

I suggested they sell or at the very least hedge somehow if it 
broke below $9 at the first wedge and then below $8 at the second 
wedge. Each time my friend consulted with his father who consulted 
with their broker. Guess what the broker said? "Sell now and walk 
away?" Come on now; does that sound like any broker you ever 
heard? Of course he didn't say that... told them to hang in there 
for the "long haul" until it bounced back above $10.

I'm thinking the broker has a license and maybe even more college 
degrees than a thermometer but that "professional" doesn't know 
the sheer, simple warning of a double-top failure when it smacks 
him in the chart. Assuming he even looks at any charts to begin 
with.

Needless to say, my friend made one last call today for my advice 
and then told me he was getting out. Had enough of the painful, 
gut-wrenching ride down. Cost him two year's salary for the buy & 
hold lesson and his daddy's still hanging in there. Hanging in 
there with a seven-figure paper loss and I don't mean barely seven 
figures, either.

Why didn't they listen when warned to get out, especially after 
seeking out advice? Think that's an anomaly? Please read on.

(Weekly Chart: GLW)
 


I grew up less than fifty miles from Corning and Rochester, New 
York respectively. Right betwixt both cities. Corning has GLW and 
Rochester has Kodak, Xerox, Bausch & Lomb and Global Crossing as 
the big employers there.

A middle-age couple's husband I'm friends with down in Corning 
worked at GLW all his life. Guess what his 401K was chock full of? 
That worked like crazy when prices took off and they saw their 
retirement wealth rocket up almost +300% in one year's time. The 
husband promptly retired early, locked in his 401K gains and they 
lived rich & happy ever aft.

Well, not quite.

Everything seemed groovy until GLW stock broke down to $80 level 
and they saw roughly $175K evaporate from the rosy future. Guess 
who got the infamous call? Yep... me again. I told them the truth: 
telecom and networking was going to (and still is) get whacked in 
a big way. That was the bulk of their retirement future at risk 
and they needed to either hedge it off with long GLW put LEAPS or 
switch to bonds. 

But there's a catch: they have an eldest son who sells insurance, 
who has a best buddy that's a stockbroker. Guess who got the 
second call? Rightio... they called sonny-boy who spoke to the 
broker. Broker said stay the course, forget about bonds and for 
gosh sakes don't get mixed up with options. 90% of options expire 
worthless and that wouldn't help them at all. I never heard from 
them again on this matter and forgot we even had the conversation.

When later told what the broker said to them I felt like reaching 
thru the phone to that broker's throat and squeezing until his 
eyeballs popped out. This joker passed a series-something test and 
didn't know enough to simply hedge a half-million dollars with 
puts? Come on... what do these clueless experts learn for their 
"professional" exams? His ill-advice changed my friend's lives and 
their families' lives forever, with one careless dismissal.

End result is my trusting, conservative, devout Christian middle-
aged friends listened to their son and his friend the expert. They 
did nothing except for watch more than $500K bleed away in front 
of their horrified eyes to the point it rests at today. That money 
invested in bonds back then would throw off enough yearly interest 
for them to live very well in Corning NY where expenses are cheap. 
I'm thinking interest earned on $40K remaining might not make ends 
meet quite so well.

Think these two cases are unique? I can tell you dozens of others 
who refused to sell Kodak, Xerox or Global Crossing for all the 
usual lame reasons after specifically asking my advice. Tax 
implications, averaging down, new products in the pipeline, 
restructuring at the various companies, analyst upgrades, etc ad 
nauseum.

Few Listen At The Top
Back in 1999 I told both my aforementioned friends about a simple 
strategy to earn +100% to +150% annually with almost zero risk to 
their capital. I assured them it was far less risky than holding 
stocks, covered calls etc but neither cared. After all, GLW was up 
almost +300% and my other friend did his stock conversion at the 
top and was fixated on just getting back to even. Back to even 
never arrived and back to $575K from $40K will never happen for 
the Corning couple in their lifetime.

Moral of the story? No one wanted a berth on Noah's Ark until the 
raindrops fell. Few people listen to words of warning when skies 
are bright and nary a cloud is seen. Why would they? To think of 
anything else brings on emotional feelings of worry, anxiety and 
distress. Pain. Ignore those thoughts and focus on the positive, 
the happy, the bright side. Pleasure. Tony Robbins touts that all 
living things seek pleasure and avoid pain. Is this what my 
friends did? How did such a comfortable approach turn out?

Know anyone else who might have fallen hapless prey to such 
circumstance yourself? More than a few emailed me over the past 
two years with tales of massive loss as well. Sadly, for many 
people their first lesson of significant loss in the markets was 
one that cannot be recovered from.

Will History Repeat?
For two years now we've heard that the worst is over, a recovery 
is straight ahead and all that drivel. Nobody knows that. Not at 
all. I hope & pray the markets return to new all-time highs ASAP 
myself but don't mistake hope for opinion. My opinion is that 
markets will move in one big sideways range for months and maybe 
even years to come. Dick Arms, John Bollinger, Bernie Schaeffer 
and Warren Buffett (among many others) believe the same thing and 
said so before long I did. 

What if that's true? Are we prepared to buy support and sell 
resistance as it appears? Are we prepared for a prolonged period 
where buy & hold doesn't work and mutual funds get gutted like 
fish? Do we have defensive strategies in mind or is all of that 
too painful to ponder? Is it easier and more pleasurable to block 
out all such possibility while hanging on the words of analysts 
who've called the last twelve bottoms since March 2000?

I wonder.

Let me share this fundamental reality with you: the telecom and 
networking sectors have been touted by many analysts to lead the 
"V-shaped" recovery in 2002. I promise you beyond shadow of a 
doubt that will not happen: matter of fact, telecom is poised to 
collapse in one big consolidation of players and will drag the 
dependant sectors with it. 

Such is not my wish or desire, but since when do the markets care 
about me? It is fundamental fact based upon inside insight from 
several dozen personal contacts scattered thru the telecom 
industry at all levels. Most of those companies are in huge, huge 
trouble and cannot survive any scenario except a return to the 
1999 go-go days. Anyone who cares to read more on this opinion can 
do so from this OI link:
http://www.asianinvestoronline.com/traderscorner/121301_1.asp

I share this educated, insider's opinion with you knowing that it 
could help a number of people hedge and defend current holdings or 
avoid stepping into an abyss. I also know full well that it will 
be met with anger, animosity, disbelief and probably flames from 
more than it helps. Why? Why would such a statement illicit strong 
emotional response? Could it be that many people NEED such a 
dismal forecast to be wrong in order to avoid pain and/or enjoy 
pleasure? 

If my opinion on telecom and networking sectors' future brings any 
kind of emotional response in you, please ask yourself why. Why 
does it matter what these sectors will do? If their future is 
insignificant to you there will be no emotional response. If by 
chance you need them to perform, there will certainly be an 
emotional response. 

That is basic human nature at work. That's what my friends 
experienced during their catastrophic rides down charts holding 
dead fish stocks praying they'd turn to caviar instead. See the 
emotional trap? See how easy it can ensnare any one of us?

Most importantly, are you prepared to spot such a noose lying in 
your financial path ahead? Please be careful where you step and 
don't be afraid to jump off the path when danger signs appear. 

Hope This Helps!
Contact Support

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

GNSS $64.90 -4.26 (-4.91) As noted in the wrap last night, the
Semiconductor index (SOX.X) was sitting precariously on support
near $536 and was susceptible to another drop today.  Sure
enough, the SOX gave up more than 5.5% on Thursday and even
strong stocks in the sector like GNSS were unable to dodge the
weakness.  Our play gave up more than 6%, closing very near the
low at $64.90.  This is the first time in nearly a month that
the stock has violated the 10-dma (currently $65.83), and it is
now resting right on the ascending trendline.  This could be
yet another entry point, but we only want to play if the SOX can
show signs of recovery.  Target new entries on a bounce near
current levels, but only if buyers come back in force.  The
daily Stochastics fell out of overbought territory, and we don't
want to catch a falling knife.  Keep in mind that our stop is
currently resting at $63, and a violation of that level will
move the stock to the drop list this weekend.

KRON $48.63 -2.73 (-0.22) Bullish traders pushed KRON higher
early on Wednesday, but were unable to hold altitude, resulting
in a "doji" candlestick by the close.  This is typically a sign
of weakness, and that was confirmed this morning as KRON plunged
with the rest of the Software sector (GSO.X).  The GSO failed
on its breakout attempt over the $190 level and violated its
ascending trendline on Thursday, with the index coming to rest
below its 20-dma ($180.90) for the first time since late
October.  While this could be a fresh entry point in the making,
we need to exercise caution.  Daily Stochastics rolled over at
a lower level than in early December, clearly forming bearish
divergence and setting the stage for further weakness.  Consider
new positions on a bounce from current levels or possibly the
$47 level, but make sure the bounce comes on solid volume.
We're maintaining our stop at $45.

MDT $50.03 +0.33 (+1.18) A rare pocket of strength on Thursday,
MDT managed to reclaim the $50 level, as the stock builds
strength for a breakout above this level.  The bounce from $48
earlier in the week turned out to be a great entry point and
traders that took advantage of it are smiling tonight.  The
lows have been moving higher for the past 3 sessions, and we
would look for any dip near $49 to be attractive for initiating
new positions in anticipation of a breakout over the $50.25
level.  Alternatively, waiting for the breakout could be a
decent approach as well.  Look for solid volume to support the
move, as Stochastics are currently overbought, indicating that
the stock is susceptible to a failed breakout.  We're
maintaining our stop at $47

NVDA $61.90 -2.54 (-3.74) What was looking like a choice entry
near the $64 level yesterday afternoon, was shattered this
morning as the Tech sector reeled under the pressure of JNPR's
earnings warning.  The Semiconductor sector continued to
deteriorate on Thursday, dragging our NVDA play down with it.
After a valiant attempt to defend the $62 support level (also
the site of our stop), the bulls finally gave up, allowing NVDA
to close at the low of the day.  Despite the violated stop,
we're going to give the stock one more chance to prove itself
and get back on the rally track.  The selling over the past 2
days may be an over-reaction to the recent series of earnings
warnings, but we don't want to get caught trying to catch a
falling knife.  We're resetting our stop to $59.50 and will
consider new positions on a bounce above $60 but only if buying
volume is strong and the Semiconductor sector (SOX.X) manages
to find buying support.

SYMC $64.12 -4.68 (-3.04) Despite all the bullish signs that
appeared on Tuesday, shares of SYMC couldn't continue their
rally and ended up putting in a double-top at the $70 level.
Since then the stock has seen some heavy selling, partly due
to the breakdown in the Software index (GSO.X) which broke
its ascending trendline on Thursday.  With SYMC falling below
our $65.50 stop level, it looks like our hopes for a split
run were premature.  Adding to our consternation was the fact
that SYMC broke below its 20-dma (currently $66.48) for the
first time since early October on above average volume.  We
still like the prospects for SYMC, so we're going to give it
one more chance.  This could be a new entry point, but we need
to exercise caution.  Consider initiating new positions only
on a strong bounce from above the $61 level.  We're resetting
our stop at the $60 level.

VRTS $41.75 -2.14 (-2.20) Caught up in the JNPR-induced
downdraft on the NASDAQ, VRTS had a rough day on Thursday,
falling nearly 5% and coming to rest just above the 20-dma
($41.61).  The last 2 times the stock has fallen to the 20-dma,
it has turned out to be a great entry point, as the rebounds
have been strong.  Will it work a third time?  That is our hope,
but we need to see confirmation from the Software sector
(GSO.X).  The GSO failed to sustain its breakout and has been
weak over the past 2 days.  We'll need to see it reverse the
recent slide if VRTS is going to continue riding the ascending
trendline, which currently rests right at $41.50.  Look for a
bounce near current levels before initiating new positions,
preferably on strong volume.  Recall that our stop is sitting at
$41.  A close below that level will see VRTS moving to the drop
list this weekend.

XMSR $16.30 -1.00 (+0.06) It would appear that XMSR is taking time
to consolidate its heady gains over the last couple of weeks.
Shares gapped over the $16.30 level on Monday and have not
violated this level of support all week.  An article came out
after the close tonight that said XMSR was comfortable with
analysts estimates of 20K to 30K new subscribers signing up by
year's end.  This might be enough impetus to start the next leg up
for the stock.  Otherwise, we could get a sell the news sort of
effect.  The key appears to be the $16.30 level.  If shares trade
below it consider it an alarm that bears have the ball and are
headed for our stop at 15.99.  If the stock does begin to see more
extended profit taking we would look for a potential dip to its
10-dma at $14.68 or its 15-dma near $14.00.  At this point, only
aggressive traders should consider new entry points and then at
dips to $16.00 or $16.30.  Since the stock closed at $16.30 today
we could be looking at a new entry point or an omen that traders
will choose to take more profits heading into the weekend.


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

EMMS – Emmis Communications $21.30 +0.39 (+1.71 this week)

Emmis Communications is a diversified media company with radio
broadcasting, television broadcasting and magazine publishing
operations.  The company operates the sixth largest publicly
traded radio portfolio in the United States based on total
listeners.  The company serves the nation's three largest radio
markets of New York City, Los Angeles and Chicago.  EMMS' 15
television stations serve geographically diverse mid-sized
markets in the U.S., and the company has a variety of television
network affiliations including five with CBS, five with FOX,
three with NBC and one each with ABC and WB.

With the decrease in advertising dollars over the last two
years, it has been tough to earn a buck in the radio business.
Yet EMMS has bucked the trend even as analysts sought to
downgrade the stock on four occasions since late September,
including removal from Goldman's Recommended List in
mid-November when it traded at $15.  Bet they wish they'd kept
it since EMMS is up 30% in 30 days.  Technically, the cup and
handle formation at $18-$20 has since broken out above $20
three days ago - much strength compared to the rest of the
market.  The long-term chart is nowhere near overbought with
room to run.  With EMMS habit of popping up one day then
consolidating for a few, it now is in another consolidation
period.  Use this time to pick up calls on dips to $20.20, or
for the fast and brave seeking a day trade, dips to $21.
Next resistance is $23.40.  Earnings are scheduled for release
on January 8th, which should keep buying pressure up until
then.  Use limit orders for entry, as options are not heavily
traded.  Initial stops are set at $18.50.

BUY CALL JAN-20 QMJ-AD OI=62 at $2.25 SL=1.00
BUY CALL JAN-22*QMJ-AX OI= 0 at $1.05 SL=0.50
BUY CALL MAR-20 QMJ-CD OI=23 at $3.30 SL=1.75
BUY CALL MAR-22 QMJ-CX OI=10 at $2.05 SL=1.00

Average Daily Volume = 899 K



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

QCOM $49.56 -2.72 (-6.28) After 2 days of finding support just
above $53, shares of QCOM gave us another bearish entry point
on Wednesday.  Recall that we were looking for the stock to move
below this support level, which is precisely what it did.
Patient investors got an even better entry as the stock put in
a weak rally, allowing for new entries to be taken as the stock
rolled over near $53.80.  The earnings warning from JNPR this
morning kept the stock under pressure, driving it under the $50
support level, smashing through the 50% retracement of the rally
off the September lows.  We can now target fresh entries on
failed rallies below the $53 level (also the site of the
descending trendline).  Look for support to materialize near the
62% retracement level ($47.63), which is also the location of
the next solid historical support.  Consider harvesting profits
if the stock shows signs of strength near that level.  We are
lowering our stop to $54 tonight.

DYN $23.85 -0.13 (-1.09) In the shadow of Enron's collapse, a day 
doesn't go by without someone reporting about, arguing about or 
highlighting the energy sector.  The last two days have not been 
any different.  DYN has been in the news due to its frantic 
efforts to shore up its financials and repair damage done to 
investor confidence.  After bottoming near $20 on Tuesday, the 
stock has bounced higher with positive news for shareholders.  DYN 
recently announced a deal with ChevronTexaco for Texaco's natural 
gas production assets.  Additionally, the company announced a sale 
of 25M shares of stock that netted DYN almost $500M that 
management plans to apply towards debt reduction.  Just to show 
that they're pulling out all the stops in an effort to bolster 
investor confidence, DYN executives, including the Chairman and 
the President, will buy over 1.2M shares of DYN stock.  Whether 
this will be enough to stem the selling is the question.  Shares 
rallied to within a quarter of overhead resistance near $25 (and 
our stop).  Volume was pretty heavy but DYN closed off its highs 
for the day.  Aggressive traders might consider new put plays at 
failed rallies near $25 but more conservative types may want to 
look for shares to fall back below $22.50 or even $20 before 
considering new positions.  You'll definitely want to confirm 
stock direction before starting any new plays.


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

ADVS – Advent Software $47.61 -3.01 (-3.49 this week)

ADVS is a provider of Enterprise Investment Management solutions
that automate and integrate mission-critical functions of
investment management organizations through software products,
services and data integration.  The company's solutions enable
organization of all sizes to run their business more effectively,
enhance client service and performance, and improve productivity
and communication throughout their organization.

The Software sector (GSO.X) has definitely been a leader over
the past 3 months, but if the price action over the past couple
days is to be believed, that run may be over.  While it is only
a 2-day decline, the sharp slide today punctured the 200-dma
($185.39), the ascending trendline ($183.50) and the 20-dma
($180.90).  That puts the sector's uptrend in serious jeopardy.
That brings us to ADVS, which has shed its bullish horns over
the past couple weeks and appears to be growing bearish claws.
Since topping out near $56 in early December, the stock has
fallen back below the 200-dma ($50.43) and today broke below the
ascending trendline, currently $48.  While a lot of air has been
taken out of the stock already, the weakness on the chart
suggests a drop to at least $45, and more likely the $40 support
level.  That gives us more than enough room to harvest a profit
in the meantime.  Ideally, we could get an oversold bounce to
the $50 resistance level, but we may have to content ourselves
with initiating new positions as the stock continues lower.  In
that case, jump into the play as sellers push ADVS below $47.50.
Place stops at $52.

BUY PUT JAN-50 UIV-MJ OI=30 at $5.10 SL=3.00
BUY PUT JAN-45*UIV-MI OI=54 at $2.40 SL=1.25
BUY PUT JAN-40 UIV-MH OI=18 at $1.00 SL=0.50

Average Daily Volume = 542 K


BBOX – Black Box Corporation $50.11 -2.73 (-2.50 this week)

As a technical services company, Black Box Corp. designs, builds
and maintains network infrastructure systems.  The Black Box
team serves more than 150,000 clients in 132 countries,
providing technical services on the phone, on site and online.
Through its catalogs and Website, the company offers more than
90,000 infrastructure and networking products, and designs and
builds more than 650,000 custom products each year.

Breakdown alert!  Shares of BBOX have been steadily trending up
since finding support near the $40 level in early October, but
that trend was soundly broken on Thursday.  The stock has been
flirting with the 200-dma for most of the past week, but that
came to an end today as selling volume increased sharply and the
stock plunged by more than 5%.  Breaking below the 200-dma is
bad enough, but also smashing the ascending trendline (currently
$53) paints a decidedly bearish picture.  After such a sharp
decline, we wouldn't be surprised to see a bit of a bounce, and
that will give us our high-odds entry opportunity.  Resistance
now looms at $51.50 (with the 50-dma at $51.61) and then again
at $52.50.  We're placing our stop $54, the site of the rollover
from earlier in the week.  Of course, there is nothing to
preclude the stock continuing to decline from current levels
and momentum traders can consider initiating new positions on a
volume-backed drop below $50.  That will allow for a test of
$48 support, followed by stronger support at $45.

BUY PUT JAN-50 QBX-MJ OI=74 at $3.30 SL=1.75
BUY PUT MAR-50 QBX-OJ OI=81 at $5.60 SL=3.50
BUY PUT MAR-45 QBX-OI OI=27 at $3.40 SL=1.75

Average Daily Volume = 399 K


FLIR – FLIR Systems $38.84 -3.36 (-5.16 this week)

FLIR is engaged in the design, manufacture and marketing of
thermal imaging and stabilized camera systems for a wide variety
of commercial, industrial and government applications.  The
company's products are divided into two categories, which
include the thermography products and imaging products.  In the
Thermography division, FLIR manufactures products that are sold
to commercial, industrial, research and machine vision customers.
For industrial customers, FLIR has developed thermography
systems that feature accurate temperature measurement, storage
and analysis.  The Imaging division caters to military, law
enforcement, surveillance and security customers.

Shares of imaging firm FLIR had been on a solid uptrend for
months ahead of the September attacks, having risen from $5 in
February to as high as $35 in the middle of August.  The stock
had been consolidating near the $27 level en early September,
and expectations of an increase in orders sent the stock soaring
again.  By late October, FLIR was flirting with the $47 level.
Well, here we are 2 months later, and the stock hasn't been able
to manage a close above $48.  In fact it has been weakening
significantly lately, and the recent issuance of 1.5 million
shares at the $44 level certainly didn't help the stock's
bullish hopes.  Selling volume was astronomical yesterday as
FLIR saw its shares decline by 9% on volume nearly 6 times the
daily average.  Today's decline came on lighter volume, but the
damage on the price chart was significant.  FLIR closed below
its ascending trendline for only the second time since mid-June,
setting the stage for a serious breakdown.  This stock has run a
long ways, and potentially has a lot to give back.  We are
looking for a continued breakdown in price to confirm the
stock's weakness, as we don't want to get caught in a strong
rebound like the one that occurred a month ago.  Consider new
positions on a failed rebound as the stock rolls over near the
$40 level, or possibly $42.  We are setting a stop at $43, as a
rally through that level would indicate more strength than we
want to trifle with.  A more conservative strategy would be to
only play a continued breakdown.  If FLIR continues to fall
below Thursday's lows ($37.84), it increases the likelihood that
the stock will drop to retest the $27-30 consolidation zone,
although we could see a bit of buying support near the $35 level.

BUY PUT JAN-40 FFQ-MH OI=212 at $4.40 SL=2.75
BUY PUT JAN-35 FFQ-MG OI=131 at $2.20 SL=1.00

Average Daily Volume = 378 K



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

QCOM - Qualcomm $49.56 -2.72 (-6.28 this week)

Qualcomm is engaged in developing and delivering digital
wireless communications products and services based on the
company's CDMA digital technology.  The company's business
area include integrated CDMA chipsets and system software,
technology licensing, Eudora email software, and satellite
based systems.

Most Recent Update

After 2 days of finding support just above $53, shares of QCOM
gave us another bearish entry point on Wednesday.  Recall that
we were looking for the stock to move below this support level,
which is precisely what it did.  Patient investors got an even
better entry as the stock put in a weak rally, allowing for new
entries to be taken as the stock rolled over near $53.80.  The
earnings warning from JNPR this morning kept the stock under
pressure, driving it under the $50 support level, smashing
through the 50% retracement of the rally off the September lows.
We can now target fresh entries on failed rallies below the $53
level (also the site of the descending trendline).  Look for
support to materialize near the 62% retracement level ($47.63),
which is also the location of the next solid historical support.
Consider harvesting profits if the stock shows signs of strength
near that level.  We are lowering our stop to $54 tonight.

Comments

Despite the fact that the daily oscillators are buried in
oversold, QCOM is showing no signs of finding bottom yet.  Look
for a short term bounce to give us a fresh entry as old support
near $53 becomes resistance.  Note that the Wireless sector
(YLS.X) has been caught in a powerful downdraft for the past 2
weeks and is threatening to break below the $90 support level,
which will open the door for a retest of the October lows.  That
sector weakness should easily drag QCOM down to the $47 level,
and quite possibly the $43-44 level before buyers are able to
halt the slide.

BUY PUT JAN-50 AAO-MJ OI=25797 at $3.90 SL=2.50
BUY PUT JAN-47*AAO-MW OI= 5329 at $2.85 SL=1.50
BUY PUT JAN-45 AAO-MI OI=16244 at $2.05 SL=1.00

Average Daily Volume = 16.9 mln



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


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