Option Investor
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Daily Newsletter, Thursday, 12/27/2001

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The Option Investor Newsletter                Thursday 12-27-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       12-27-2001           High     Low    Volume Advance/Decline
DJIA    10131.31 + 43.17 10147.23 10080.87   .9 bln   2084/1066
NASDAQ   1976.42 + 15.72  1982.73  1962.12  1.2 bln   2156/1519
S&P 100   590.87 +  3.37   590.87   587.31   Totals   4240/2585
S&P 500  1157.13 +  7.76  1157.13  1149.37
RUS 2000  492.62 +  2.43   493.28   490.19
DJ TRANS 2637.25 +  7.03  2647.19  2625.43
VIX        22.28 -   .65    23.05    22.04
VXN        47.46 -  1.60    49.03    47.35
TRIN         .77
Put/Call Ratio       .62
*************************************************************

Santa Losing Steam

For the second day the markets closed higher but the outcome
was in question as late as 3:PM as both the Dow and Nasdaq
flirted with negative territory. The opening bounce was powered
by better than expected holiday sales at Wal-Mart and Target.
The discounters stole the show with positive comments about
the holiday period but the real retail shoe will drop next week.
The expectation that the majority of retailers will post the
worst sales in over a decade kept a lid on the major averages.





The gains were broad based with the emphasis on the smaller
stocks. Only two Dow components posted more than $1 in gains,
IBM and UTX, but only eight Dow stocks posted losses. Despite
the late day brush with negative numbers the markets were
showing surprising breadth. New highs beat new lows by almost
the same numbers on the NYSE/Nasdaq. NYSE 124 hew highs, 24
new 52-week lows. Nasdaq 113/25. Advancers beat decliners by
almost 2:1. So why were the major averages drifting lower for
most of the day.

Santa is tired. The markets have posted strong gains since the
September attacks, Santa is struggling to lift the load. The
bullish sentiment is fading and worries of another post New
Years crash like we saw in 2001 are growing. Despite the good
news from Target and Wal-Mart it is feared that clothing retailers,
jewelry stores, auto dealers and other big ticket stores will post
losses for the season. This is the recession reality that is
overhanging the markets and the economy.

The Help Wanted Index for November fell to 45 and a low not seen
since the 1960's. To put this in perspective it was around 90
at Y2K. Job advertising is continuing to fall and the technology
area is the hardest hit. The rate of decline is slowing but we
will not see the proof of a recovery until companies begin hiring
again. The ABC News/Money Magazine consumer confidence survey
showed the biggest drop for the week ended 12/22 in the last six
weeks, almost doubling the prior weeks number. Their survey showed
that confidence weakened most among higher income adults. This
drop explains why big ticket retailers are suffering so much this
holiday season.

Other factors in the drop in confidence included rising mortgage
rates and falling mortgage loan applications. Applications have
dropped to half of their November levels. The 30-year fixed rate
is now 7.39% and the trend is up. This incentive to refinance or
buy a new house has finally waned just when the first signs of
a recovery were starting to show. Homebuilders, which have soared
on the low interest rates, should start to struggle as demand slows.
This will produce a ripple down effect and slow any fledging recovery.
This impacts feeder industries like furniture, appliances, carpets,
glass and raw materials.

Investors are hoarding money just like consumers. In the last five
day period, ending on Wednesday, funds saw an outflow of -1.579
billion dollars. Not a good omen when this is normally a positive
cash flow period. By comparison the two week period ending on
Jan-4th 2000 saw a +$20 billion inflow of money into funds.
This is not the boom times of 2000 as we all know but you would
expect at least a positive cash flow into funds if the trillions
of dollars in money markets were convinced the rally was for real.

Granted you cannot draw any conclusions from the markets over the
last two days since volume was minimal. The NYSE failed to break
a billion shares either day and the Nasdaq traded under 1.3 billion
both days. The resolve of the bulls will be tested on Friday. The
economic calendar is huge. Jobless claims, delayed from Thursday,
 Durable Goods Orders, New Home Sales, Existing Home Sales, Consumer
Confidence and Chicago Purchasing Managers Index (PMI). There is
ample opportunity for the market to rally or crash depending on
those reports. All of these, with the exception of Jobless Claims,
cover periods as far back as November which could distort the
current picture. Next week we get the Payroll Report for December.

The economy is likely to suffer another blow on Friday if OPEC
cuts production by 1.5 million bbls as expected. The drop in
energy prices has been a free economic rate cut for which the Fed
is no doubt grateful. If this comes to pass as expected then the
free energy lunch for manufacturers will start disappearing.
Another factor is the coming Japan crash. Argentina was truly
priced in since we saw no materially adverse impact of their
problems last week. Japan is not yet in the mix. We have been
hoping they would pull out of their current spiral for years but
it just does not appear it will happen. The situation is becoming
worse as each day passes. As individual investors we could probably
care less about Japan but it will weigh on our markets if they fall.

What does all this mean to us today. The Dow is struggling the
closer it gets to strong resistance at 10167. On a positive note
it did close above its 200DMA of 10094 on Thursday. That had been
a successful ceiling since August. Still with the Dow losing
momentum the closer it gets to resistance we will need much more
than wishful thinking to break that level. The Nasdaq struggled
to remain positive on Thursday and appears weaker than the Dow.
Tech stocks, led by chips and networkers, are still showing
no increase in orders. Even an upgrade of AMD by Merrill Lynch
did very little for the SOX or the Nasdaq. The Nasdaq has strong
resistance at 2000, only 24 points away. With negative money flow
in a normally positive period we are faced with a tough road ahead.

As traders we need to stay in the markets as long as they remain
positive but we need to tighten up those stops to prevent any
surprises. If the Nasdaq rolls over on Friday it will be the
fourth lower high since Dec 6th and another bearish signal. 1950
would be my exit point for Nasdaq stocks. Stay long above, flat below
this level. Should it fail we will look for a new entry point in
the 1900 range. The Dow looks stronger but I would start looking
for an exit if it breaks 10075. This number is pretty "tight"
since 10,000 is the probable first stop should the Dow roll over.
I am just being cautious ahead of next week. This is definitely
an important week for investors and one we should watch closely,
especially if we have open long positions.

Enter very passively, exit aggressively!

Jim Brown
Editor


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

I am really happy to announce this years annual renewal special.
We spent considerable time and effort deciding what would be
something traders could actually use instead of something to
collect dust. Each of the editors was tasked to produce an
investor guide covering the topics that our readers have requested
most. We spent hundreds of hours compiling these five special
investor guides to help our readers be better investors. Each
is done with full color charts and graphs and is something you
can refer back to for years to come.

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Over 200 pages of strategies from simple calls and puts to
spreads, straddles, naked puts, combination plays, leaps etc.
Each strategy is explained in detail and then followed with
real life applications of how to profit from each one. Jim
teaches entry points, market cycles and general trading
psychology as well as money management and money saving
tips for dealing with your broker when errors occur.

Swing Trading For Success - Austin Passamonte

A descriptive outline providing simple guidelines that allow
you to identify current market direction and profit from the
high-odds price swings that occur within.

The secret of swing trading is exposed: Identify underlying
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This guide has been written as only Austin can and is full of
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Point-and-Figure Charting - Jeff Bailey

In this trading guide, Jeff Bailey reveals the secrets to
interpreting those intriguing supply and demand charts
characterized by columns of X's and O's - Point & Figure
charts.

If you have never used Point-&-Figure charts in your investment
analysis you're missing a vital clue that institutional traders
have been using for years.

Jeff illustrates the basic interpretations for beginners while
also discussing more advanced concepts like the bullish percent
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Jeff's point-and-figure charts can now understand and profit
from this powerful charting method. Real winning tips from our
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Technical Analysis Explained - Eric Utley

There are myriad technical analysis tools for today's trader. Eric
has sorted through the choices and found a mix that provides traders
with a solid foundation for observing and operating in the market.

Long-time subscribers of Option Investor have seen tools such as
Fibonacci retracement brackets used by Eric Utley and Bollinger bands
used by our Leaps Editor, Mark Phillips. This manual details the
aforementioned indicators and others used by the Option Investor
staff. Within the manual, subscribers will discover the philosophy,
integration, and application of many of the most effective technical
analysis tools used by the professionals. For the first time, the
tools used by the Option Investor staff will be made available in
a resource that will enrich and educate its readers.

2002 Mutual Fund Guide - Steve Wagner

Our 2002 Mutual Fund Guide has everything you need to know about
mutual funds. It covers the basics of mutual funds, such as what
they are, how they work and are traded, as well as the different
types and objectives of mutual funds. The guide also offers our
top fund choices in eight broad investment objectives for 2002
and beyond. We provide an unbiased perspective on fund performance,
risks and costs, speaking in terms you can understand and use.

As of May 2001, 93 million individuals, representing 52 percent
of all U.S. households, owned mutual funds. Whether you are an
experienced mutual fund investor or new to mutual funds, you'll
find something of value in our 2002 Mutual Fund Guide.

Aggressive, conservative or income producing, there are funds for
everyone. Where should your retirement savings be? Not in options
we hope!

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You will get two of these handy mousepads with the 2002 options
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****************
MARKET SENTIMENT
****************

Sentiment Check
By Eric Utley

It's been a little while since I reviewed the data in this column.
Yea, I missed it.  So let's get it on.

The fear gauges of the market in the CBOE Market Volatility Index
(VIX) and Nasdaq-100 Volatility Index (VXN) are revealing a great
deal of complacency among option market participants.  Both the
VIX and VXN are trading near historical lows.  Some say:

When the VIX is high (Read: Fear), time to buy.  When the VIX is
low (Read: Complacency), it's time to go.

Although only one metric, the low levels of the VIX and VXN are
worth consideration.  The crowd can't be right, can it?  When
so many are revealing confidence in the market something has got
to give.  Where's the wall of worry?  I think a few bricks are
missing judging by the VIX at 22!

The put/call readings are mixed.  I noticed that the QQQ
put/call ratio fell back below 1.00, which is in contrast to its
high reading about two weeks ago.  Aside from that development,
there's not much to read into the put/call ratios Thursday in
light of the tepid volume and absence of many market participants.

Bullish percent data remains, for the most part, bullish.  The
Nasdaq-100 bullish percent reading has given up a great deal of
ground in the past two weeks.  The tech-laden index remains in
bear confirmed territory, which still should have tech bulls on
high alert for further downside.

The Dow's bullish percent reading is nearing the upper-end of
its historical range.  The Dow has had a recent history of topping
out at 80 percent on its bullish percent chart.  There's still
some room to move higher from the current level (67), but upside
may be limited over the intermediate-term.

The S&P 500 is also nearing the upper-end of its historical
range on the bullish percent chart.  For its part, the S&P 500
has a history of topping out between 64 and 74 percent.  It's
currently at 65.

Thursday's advance/decline line was solidly positive, but that
was to be expected this week.  Volume remains light, which
diminishes the validity of the advance/decline reading Thursday.
But, the new high/new low index was decidedly bullish, which may
have been a product of some end-of-the-year "work" by money
managers.  I'll be watching the new high/new low index next
week for a better indication of the internal strength of this
market.

The COT data is dated, with a new release scheduled for Friday.
It will be interesting to see if the trend of bullishness
among Nasdaq commercials continues.

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

Market Volatility

VIX   22.28
VXN   47.46

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.62        400,956       249,490
Equity Only    0.49        375,263       185,168
OEX            2.23          3,088         6,874
QQQ            0.82         12,890        10,532

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

Bullish Percent Data

           Current   Change   Status
NYSE          52      + 0     Bull Alert
NASDAQ-100    59      + 0     Bear Confirmed
DOW           67      + 0     Bull Confirmed
S&P 500       65      + 0     Bull Confirmed
S&P 100       64      + 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  1.03
10-Day Arms Index  0.99
21-Day Arms Index  1.10
55-Day Arms Index  1.07

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      2084           1066
NASDAQ    2156           1519

        New Highs      New Lows
NYSE      124             24
NASDAQ    112             25

        Volume (in millions)
NYSE       881
NASDAQ   1,218

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

Commitments Of Traders Report: 12/18/01

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

Commercials   Long      Short      Net     % Of OI
12/04/01      360,315   420,919   (60,604)   (7.8%)
12/11/01      367,397   429,640   (62,243)   (7.8%)
12/18/01      391,995   456,968   (64,973)   (7.6%)

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
12/04/01      159,336     86,534   72,802     29.6%
12/11/01      158,490     86,717   71,773     29.2%
12/18/01      158,300     80,507   77,793     32.4%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01

NASDAQ-100

Commercials   Long      Short      Net     % of OI
12/04/01       42,191     51,426    (9,235)  (9.9%)
12/11/01       45,468     51,392    (5,924)  (6.1%)
12/18/01       55,276     58,433    (3,157)  (2.8%)

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
12/04/01       11,808     8,311    3,497      17.4%
12/11/01       12,425    11,754      671       2.7%
12/18/01       17,649    18,626     (977)    (2.7%)

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

Commercials   Long      Short      Net     % of OI
12/04/01       22,703    10,739   11,964     35.8%
12/11/01       23,135    12,576   10,559     29.6%
12/18/01       21,919    13,810    8,109     22.7%

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

Small Traders  Long      Short     Net     % of OI
12/04/01        3,677     9,799    (6,122)   (45.4%)
12/11/01        3,469     9,065    (5,569)   (44.4%)
12/18/01        6,790    10,943    (4,153)   (23.4%)

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:
*****

SLAB $34.18 -5.88 (-2.82) In an apparent delayed reaction,
shares of SLAB finally sold off this morning, whacking the stock
for a nearly 15% loss on volume more than triple the ADV.  The
trigger for the selloff appears to be a class-action lawsuit
against the company and several of the underwriters that
participated in the company's IPO in March of 2000.  While the
press release of the suit came out on Christmas day, SLAB
continued northwards on Wednesday, almost reaching the $41 level
in the afternoon.  But the selling began in earnest this morning,
smashing through our $36 stop and bringing our play to an abrupt
end.  Needless to say, all positions should now be closed.

SYMC $65.01 -0.30 (-0.90) The sharp selloff in shares of SYMC a
week ago violated our stop, and we held the play in anticipation
of a bounce.  Sure enough, we got the bounce, as the stock
recovered back above the $65 level, but since then it has become
clear that the momentum is gone.  SYMC has spent this week
trading sideways and we'll take this opportunity to exit the
play.  Use any intraday strength on Friday to gain a more
profitable exit and set your sights on the next strong candidate.


PUTS:
*****

QCOM $52.20 +1.59 (+2.21) After last week's dip below the $50
level, we've been waiting to see if we were going to get another
bearish entry into our QCOM play.  The verdict is in, at least
if today's rally is to be believed and it looks like the bulls
are gaining the upper hand.  QCOM pushed through the descending
trendline and closed above $52 on light volume.  With daily
Stochastics poking up out of oversold, it looks like it is time
to close the book on this play and focus on other, weaker put
candidates.


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

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


CALLS              Mon    Wed    Thu

XMSR     18.25    1.28  -0.70  -0.21  Two day pullback, entry pt?
BRKS     41.15   -0.95   1.32  -0.60  Sideways trading, inside day
EMMS     23.04    0.48   0.86   0.12  200-dma above at $23.84
ESRX     46.59   -0.66  -0.64  -0.10  Profit taking pullback
GNSS     68.56   -1.45   2.06   2.11  Still strong, watch $70...
MDT      51.24    0.14   0.38   0.17  Trending, new 52-week high
NVDA     69.38    1.57   1.66   1.57  Amazingly strong, $70's next
SLAB     34.18    1.00   2.06  -5.88  Dropped, old news sell-off??
SYMC     65.01   -1.51   0.96  -0.30  Dropped, trouble with 10-dma
VRTS     46.45    0.66   0.91   0.89  Solid close above 200-dma!!!


PUTS

ERTS     59.15   -0.14  -0.41   0.10  Took out yesterday's low
THC      58.05    0.88  -0.36   0.56  Sideways, not much going
WEBX     24.86   -0.94   0.32   0.73  Upgrade induced bounce
CORR     24.35   -0.62   0.36  -0.46  New, ugly merger play
ANN      34.22   -0.77   0.83  -0.28  New, at resistance at $35
ADVS     49.81   -0.62  -0.46   1.08  Stopped at its 200-dma
FLIR     37.00    0.40  -1.48  -0.92  DFI up + FLIR down = good!


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The Option Investor Newsletter                 Thursday 12-27-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


**************
TRADERS CORNER
**************

We Get Mail
By Austin Passamonte

Truth is, I could probably write a fresh how-to article about some
aspect of trading or another until the day I tip over. But you
needn't worry about suffering through all my own ideas... there
will be plenty of suffering through readers email questions as
well! Care to share two of them with me tonight? I'll do my best
to answer what may be of group interest here together. As follows:

"First, I want to which you and all of the staff a very happy
holiday and a prosperous New Year and above all a healthy new
year. You all do an excellent job.

Second, I am over my constipation after reading your article
(12/20/01 Traders Corner). It is difficult to evaluate all of the
different opinions on the market some times. Michael Murphy says
we should buy JDSU because the fiber optic companies are going to
expand due to demand that will be developed (I think) the use of
digital picture in all kinds of devices and flat panel display.

The reports on GLW say the company is not just a fiber optic
company and that the largest factor in the company's growth will
be in flat panel display, which by 2005 will be in 70% of PCs and
TV's. The company is also a major provider of ceramic substrates
for catalytic converters, has high-tech laboratory products for
health care research and has strong international markets for
fiber optics. With all of that the company has survived several
downturns and has solid financials.

Third, what specific companies fall within the sector you are
writing about?

I respect this newsletter and the people that write for it but I,
like most investor, do get confused at times when you read so much
about different stocks. I do a lot of research on my own, so when
an article like yours comes along it makes you think.
Hope I hear from you, [BH]"

[Austin] Well "BH", thanks on behalf of the OI family for kinds
wishes and words. Sorry to hear about the digestive imbalance you
speak of, and I'll do my best to help get things moving for you
again.

I probably should know who Michael Murphy is but don't recognize
the name off-hand. I'm sure that advice is based on fundamentals
which as we have all seen can change faster than the technical
pictures do. One quarter all's great with company: next quarter
they're in bankruptcy and ruin. See Enron for latest example of
such.

The verbiage you paraphrased on GLW sounds like something written
straight out of their P.R. department, which indeed I assume it
did. Can we honestly expect a non-biased, objective assessment of
their future from that? What does it say about several thousand
recent layoffs, downsizing and skilled workers being shown the
door? Does that omission of detail from the PR release suggest
they have plans for expansion soon?

Every year for the past two decades I've read the Miami Dolphins
pre-season team guide and by the last pages would swear that
they'll go undefeated and win the Super Bowl for sure. With all of
that incredibly positive prose, how couldn't they? Since then I've
learned that P.R. prose and real world reality are vastly
different things. The Dolphins record of 0 and 20 for Super Bowls
won since then is far less painful than recent investors who
listened to corporate internal fluff that assured them green
pastures were ahead while their stocks got gutted up to -90% or
more.

Keep one fact in mind: what is written by any company's PR
department is FAR LESS important than the facts that do not see
print in the light of day.

The telecom and networking sector components you asked of can
always be found at the public websites noted below:
www.cboe.com
www.amex.com
All indexes, sectors and shares that cover them have component
info listed within available to all of us cost free. You gotta
like that price!

I do a lot of research on my own which is vital to success.
However, my research is over 90% chart work. I am convinced that a
good investor or trader could be sealed in a vacuum with access to
bar and point & figure charts alone would still vastly outperform
the broad market and most hapless mutual fund managers as well.

One thing I learned about fundamental research long ago: bigger
players always have more of it than I do, and they act on it
sooner. Therefore, I merely watch the charts to see where all of
that big money fundamental research is being put to work and I act
upon that myself. Let them spend countless hours preparing for the
fishing trip and more hours in a boat waiting for the fish to
bite. Once they've done all that for me, I'll happily toss my line
in behind them and reel fish in to enjoy immediate success and the
gratification that comes along with it!

On another note, we hear from a very good trader and long time OI
reader with questions on trading methodology and approach:

"Dear AP
Don't know if you offer trader analysis, but I really appreciate
your perspective on the markets. After 4 years of trading I am
trying to take a fresh look for the new year and adjust my trading
style to the upside. If you could spare a few minutes, here's my
quick story...

I am one of those who follow the market and OIN very closely for
the past 2+ yrs. I work in Honolulu and have a pretty demanding
day job that occupies the day from 7am on. The markets open early
here (3:30 or 4:30 a.m.), so there's a few hours to study and
trade before work each day. After four years of searching for a
workable trading style, it's still not there. I fail to hold
positions long enough to really go to the bank.

Instead, I have become a "Dr. Jekyll & Mr. Hyde" trader. Dr. J is
the OIN follower and long term/swing player, and Mr. Hyde is the
intra-day scalper.

Dr. Jekyll account did great in 1999 and 2000, making about 120k
with about 2 years of trading experience. Did some great
conservative option and stock trades, held positions for days,
sold too soon, went to the bank steadily.

Well, Dr. J was long big in September 2001 anticipating a gradual
naz rebound this fall trying to hold good stocks and wrote covered
calls monthly. We got hammered badly and then basically unloaded
our positions too soon after only a 10% recovery in October. Since
then, we have flailed away since, basically "chase trading" for
nil over the last two months. Down from 130k in January to 50k now
and really kinda spooked, and have lost most of my prior gains.

Mr. H is the frenetic scalp-trader, doing lots of stock trades
with a no-commission brokerage, and this has been somewhat
profitable. It allows me to protect my trading cap to stays in
cash 95% of the time, punching out 50-100+ quick trades in 2-3
hours each morning (whew).

Last year I paid the mortgage with a 25k account, making a steady
2k+ per month. Making less than half that this year with a ton of
effort. Now the lower stock prices, lower intra-day price movement
and penny spreads has made it much less profitable. Now trying to
use bigger size on scalp trades, but moving to 500/1000 share
positions and holding for intra-day swings has been kinda
stressful.

I'm away from the screen after 7am (market closes at 10/11 am) and
I can't take action to close or open positions. Some days I hold a
position with a stop but that's provided mixed results. Meanwhile
time and the market ticks on.... This doesn't seem to be a
sustainable existence.

OK -- So, I'm hoping to re-group here over the holidays and try
getting into seriously reading charts and study materials,
entering smart trades and holding positions long enough to be
rewarded. Need some advice on re-directing my strong interest and
huge effort. Maybe some reading guidance? I need to understand
stochastics much better, chart set-ups, indicators, etc. I love
participating in the market and want it to become a more real part
of my income generation in the years to come. Appreciate anything
you can offer here. Happy holidays [JO]"

[Austin] "JO", I'm betting you aren't alone with this request.
Matter of fact, we're sharing it with others who may wonder the
very same things.

First let me say that most of us have a complete & total lack of
sympathy for your employment "plight" in Honolulu. There are far
less desirable places to be indentured in! But I do realize that
financial freedom in such a Garden of Eden would be much better
still.

You are the square peg and U.S. equity markets are the round hole.
The limitations that exist between your life's schedule and open
market hours cannot be thwarted... it must be worked within. That
means you must find methods that work in harmony with your ability
to play limited market hours. And by the way: you need to do so
wisely as well.

As you realized and noted yourself, a better understanding of the
technical picture is very important. I cannot really suggest any
incredible books on the market but there are lots of good ones. A
trip to any major bookstore and time spent thumbing thru them is
the best method of selection I know. Two out of three titles that
I buy sight unseen disappoint me.

OI subscribers who select the annual renewal special right now are
soon to receive some solid teachings on this subject as well. Not
a bad place to start or continue and education for sure.

Selection of proper methodology for you in harmony with current
and future market action is critical. Too many people with part
time market access attempt full-time strategies with disastrous
results. Day trading is not for you right now. Neither are
volatile, fast moving symbols either.

I would strongly suggest becoming familiar with low beta stocks
and/or their options for you. Next week begins our enhanced focus
on iShares and HOLDRs that cover narrow-market indexes & sectors.
These are a fine place to look for deliberate, methodical moves
that allow tight stops and gradual execution. Many of the
individual stock components offer the same. Playing Apache Corp on
a possible natural gas squeeze is a far easier play to manage than
OEX or SOX index options that usually require intraday management
and wider stop-loss settings.

Traders forced to play sections of a market may not like the fact
one iota. I fully understand... I don't like the fact that Wendy &
I aren't living on a secluded ranch in WY or MT rife with
wildlife, either. But that will happen for us soon enough if we
just take care of business right where we are. So goes the same
for you.

Play within slow moving markets that allow part-time management to
prosper, do a good job of risk management and let the power of
time and exponential math take over. I'm not sure where would be
better than Honolulu (none in Wendy's opinion), but freedom to do
exactly what you want instead of what you must is sure within
reach before long.

Next week we'll begin coverage of entry points on low beta
markets, how to manage such trades, how to manage trading account
balances properly and heaven knows what all after that. So many
topics to have fun with, so little time...

Hope This Helps!
austinp@OptionInvestor.com


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

XMSR $18.25 -0.21 (+0.37) XMSR pulled back for the second day in
a row today.  The good news is that the stock bounced just above
its 10-dma, which currently rests at $17.14.  XMSR's intraday
low was traced at $17.24.  Today's bounce from the 10-dma could've
been the entry point into this strong stock, but only time will
tell.  The trend is still intact after the recent pullback and
if the tech sector continues higher into tomorrow's session,
XMSR could climb higher.  Traders searching for entries into this
play might consider weakness down around the 10-dma.  Such entries
should be managed with a tight stop.  Those in search of strength
and confirmation might wait for an advance back above the $19 level
in conjunction with a strong market.

BRKS $41.15 -0.60 (-0.23) Still vacillating near the 20-dma
(currently $40.80), shares of BRKS have been unable to make much
headway this week.  While support is still looking solid near
$40, the 200-dma ($42.80) has been keeping a lid on any rally,
confining the stock to a fairly narrow range.  Light trading
volume has been the rule this week (as would be expected in a
holiday week), but that is allowing the stock to coil for its
next move.  Dip buyers will want to target new positions near
the 20-dma, while momentum traders will want to wait for the
stock to clear resistance before taking a position.  The first
level of resistance to focus on will be the 200-dma, with the
confirming level being a move through the recent highs at
$43.75.  We are ratcheting our stop up to $40 tonight.

EMMS $23.04 +0.12 (+1.46) Somebody has neglected to inform EMMS
traders that this is supposed to be a quiet trading week, as the
stock has continued to rally to new post-attack highs each of
the past 5 sessions.  In fact, Wednesday say the stock vault
sharply higher with more than double the average number of
shares trading hands.  Thursday's fractional gain brought the
stock ever closer to significant resistance near $24, just above
the declining 200-dma ($23.84).  Momentum traders have been doing
well buying each successive breakout, but with the deeply
overbought Stochastics, we are more comfortable waiting for a
pullback before opening new positions.  Pullbacks to the 10-dma
($21.14) would make for a great entry, although we might have to
content ourselves with buying dips to the 5-dma ($22.18), which
has been providing support for more than 3 weeks.  Protect open
positions by raising stops as the stock approaches resistance.

ESRX $46.59 -0.10 (-1.40) Is that an entry point building in
shares of ESRX?  It is hard to gauge buying and selling pressure
in such a light volume environment, but it looks like we could be
setting up for a bounce near the $46 level, so long as the NASDAQ
can maintain its upward trend.  The peak on Friday and subsequent
decline are likely due to a buy-the-rumor, sell-the-news reaction
to the stock's addition to the NASDAQ-100 effective on Monday.
The overbought condition has now been relieved and we're looking
to initiate new positions on a bounce near $46, reinforced by the
supportive 10-dma (currently $45.86).  A bounce near that level
will likely set the stage for another run at the 200-dma ($47.73)
and a possible breakout over the $48 resistance level.

GNSS $68.56 +2.11 (+2.72) Weakness in the Semiconductor sector
delivered another entry point into our GNSS play earlier this
week as the stock found support just above the 20-dma (currently
$64.01), before pushing strongly higher over the past couple
days, clawing its way back above the ascending trendline ($68)
by the close of trading on Thursday.  Daily Stochastics have
posted a bullish crossover before entering oversold territory
(an inherent sign of strength), and we could be looking at
another breakout attempt in the making.  Continue to target dips
near the $64-65 area for initiating new positions, or else buy
the breakout over $70.  If targeting new positions on a breakout,
make sure the Semiconductor index (SOX.X) is in rally mode,
preferably back over the $540 level.

MDT $51.24 +0.17 (+0.69) If slow and steady wins the race, MDT
is looking good.  After last week's dip and bounce near the $48
level, the bulls managed to complete the breakout over the $50
level and each day this week has seen the stock posting another
fractional gain.  Thursday's fractional advance was no exception,
bringing the stock to its highest level since late February.
Buying volume has been weak in an overall light volume
environment, but MDT looks like it could continue its rally into
next week.  Target intraday dips near the 5-dma ($50.72) for
initiating new positions, or a more extreme dip near the $50
level.  We've raised our stop to $49.75 tonight, which is just
below the 10-dma.  A violation of that level would be a tough
blow for the bulls to shrug off.

NVDA $69.38 +1.57 (+4.80) It looks like the violation of our
stop last week was indeed a great entry point, as shares of NVDA
have been rocketing higher over the past 4 sessions.  The stock
is once again in new high territory, closing at a new all-time
high on Thursday.  Will the rally continue into the end of the
year?  It certainly looks that way, with the daily Stochastics
on a steep ascent towards overbought territory.  The ascending
trendline is currently resting at $65, with solid intraday
support just below at $64.  We'd like to see a mild pullback to
intraday support (perhaps near $66) before initiating new
positions, but wouldn't rule out a test of the ascending
trendline before the stock makes a serious run at the $70 level.
The movement of the Semiconductor index (SOX.X) will likely
remain important to this play, and continued upward movement
there could allow NVDA to continue its rally unimpeded into the
end of the year.  Momentum players can continue to target new
positions on a solid rally above the $70 level.  We've raised
our stop to $64, as a close below that level would be very
negative to the momentum that is currently building back up in
the stock.

VRTS $46.45 +0.89 (+2.46) Who says there aren't any good trades
during low-volume holiday weeks?  While volume has been anemic,
that hasn't stopped the bulls from pushing shares of VRTS
gradually higher throughout the past few sessions.  And they
actually are making solid technical progress.  On Thursday, VRTS
closed at its highest level since mid-July, and above the 200-dma
for the first time in over a year.  Daily Stochastics are still
heading towards overbought, so this rally should still have some
life in it.  Our only concern is that it is coming on rather
light volume.  Play the rally as long as it lasts, buying the
intraday dips near the ascending trendline, currently resting
near $43.  This support level is confirmed by the 20-dma, which
has now risen to $42.73, right at a recent level of support.
Keep an eye on resistance at $48 (the top of the July gap) and
stronger historical resistance near $50.  Weakness near those
levels might be giving us a signal to harvest our gains.  We
have raised our stop to $42 tonight.


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

No New Calls for Thursday.


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


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

ERTS $59.15 +0.10 (-0.45) ERTS finished fractionally higher in
today's session.  The stock ever so slightly took out its day
low from the prior session.  Wednesday's session low as traced
at $58.53, while today's session low was traced at $58.51.  While
we're only talking about pennies, ERTS' failure to hold above
yesterday's low kept its pattern of consecutively lower lows
intact.  Plus, the stock's highs continue being traced at
relatively lower levels.  The negative trend is still in place.
But with the recent bounces from the $58.50 area, traders might
watch for a breakdown below that level before increasing bearish
conviction in this play.  If the tech sector begins to weaken
tomorrow, there's a good chance that ERTS will fall under selling
pressure, which could take the stock below the $58.50 area.  From
there, a decline down to $55 to $56 is possible.

THC $58.50 +0.56 (+1.08) THC meandered higher in Thursday's
session, continuing its recent bounce.  The positive development
for the bears was THC's rollover from its 10-dma.  The stock hit
an intraday high at $58.79, which was just short of the 10-dma at
$58.89.  We were encouraged by THC's inability to advance past its
10-dma.  Its failure may indicate that the sellers still lurk in
the stock.  Bearish traders can continue to watch for selling to
emerge near the 10-dma.  Entries near that level are worth
considering for their ease of risk management.  In terms of
support, THC has been catching a bid near the $58 level in the
last few sessions.  A decline below that level could reveal a
short term change in the supply and demand dynamic.  Weakness
below $58 can be confirmed with a breakdown below the $57.25 level,
which would allow for entries into weakness.

WEBX $24.86 +0.73 (+0.11) WEBX was upgraded by Jeffries & Co. to
a buy rating from an accumulate this morning.  The news caused
WEBX to gap higher.  But the stock for the most part gyrated around
the $25 level for the better part of today's session.  The stock's
failure to work higher into the close with help from the upgrade
was encouraging for those of us leaning bearish.  Further failure
to trade above the $25 level could indicate that WEBX is heading
lower on market weakness.  If the stock starts drifting lower in
tomorrow's session, look for a decline below the $24.50 level,
where traders might start looking for entries into weakness.  From
there, watch for a move below $24, thereafter a retest of the
stock's relative low at $23.

ADVS $49.81 +1.08 (+0.00) One casualty of the light trade this
week is any momentum that had build up either to the up or down
side.  Shares of ADVS have halted their slide from last week,
and have been trading sideways for the past several sessions.
But the stock is still pinned under the 200-dma at $50.55.  ADVS
is resting just above its ascending trendline at $49, but if that
level is violated, it will open the door for the stock to revisit
the $46 and possibly the $44 support levels.  Target new entries
on a rollover below the $51 resistance level, with an eye towards
capitalizing on the breakdown.  Alternatively, wait for the bears
to push ADVS below the $48.50 level before taking a position.

FLIR  $37.00 -0.92 (-2.00) While the bulls attempted to get back
over the previously-supportive trendline on Monday, there just
wasn't enough buying volume in the market to get the job done.
Shares of FLIR have spent the holiday shortened trading week
drifting lower, and it is no surprise that the stock found
intraday support today near the $36 level.  That corresponds with
the level of support that came in during the stock's rise in
mid-November, so it is a logical stopping point on the way down.
Daily Stochastics are bottoming in oversold and with the heavy
volume seen on Thursday, we could be seeing a near-term bounce.
Whether it will become another entry point remains to be seen.
The best entry point would be a failed rally near the $40
resistance level, but we may have to settle for entering on a
rollover near the $38 intraday resistance level.  Move stops
down to $41.25.


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

CORR - COR Therapeutics $24.35 -0.46 (-0.72 this week)

COR Therapeutics is engaged in the discovery, development and
marketing of novel therapeutic products to establish new
standards of care for treating and preventing acute and chronic
cardiovascular diseases.  The company recently entered into a
merger agreement with Millennium.

A wave of consolidation recently swept through the biotech
sector.  But the market didn't approve of the deals.  Such was
evident in the Millennium (NASDAQ:MLNM) and COR Therapeutics
deal.  Following the announcement of the merger, MLNM sold
off sharply and so did CORR.  The terms of the deal call for
a stock for stock exchange, where CORR shareholders will
receive 0.9873 shares of MLNM.  At the time of the announcement,
the deal totaled about $2 billion.  It's much less today.  That's
because investors feel that MLNM is paying too much for CORR.
The weakness in MLNM reflects investors' disapproval for the
deal as MLNM looks poised to breakdown below the $25 level.
Further weakness in the Biotech Sector (BTK.X) could pressure
MLNM below the $25 level.  Because MLNM is the acquirer, traders
should play this position with CORR since the two trade in tandem.
The best case scenario would be a failure for the deal to go
through, either because of regulatory issues or because of
shareholder's voting against it.  Neither outcome is likely in
this case, but it's why you short the acquired in a merger
play.  If the deal does fall through, CORR, because it's the
acquired, will sell-off on arbitrage-related selling.  To
digress, and keep this play simple, watch for a breakdown in
MLNM below the $25 level and use CORR to play such a move.  Our
stop is initially in place in CORR at $27.65, which is the
equivalent of $28 in MLNM.

BUY PUT JAN-30 CHQ-MF OI=2142 at $6.00 SL=4.75
BUY PUT JAN-25*CHQ-ME OI=1264 at $2.15 SL=1.25

Average Daily Volume = 2.14 mln



ANN - Ann Taylor Stores $34.22 -0.28 (-0.22 this week)

Ann Taylor Stores is a national specialty retailer of women's
apparel, shoes and accessories sold primarily under the Ann
Taylor brand name.  Ann Taylor merchandise represents classic
styles, updated to reflect current fashion trends.

The recent retail sales reports have been positive for the
discount merchants.  Wal-Mart reported yesterday that its
sales would come in better than expected for the month.  But
others in the group haven't fared as well.  Specifically the
high-end retailers, such as the department store chains and
retailers of expensive items.  ANN is one such retailer that
falls into the higher end spectrum.  The company recently
reaffirmed guidance for the current quarter and the stock
received multiple upgrades in the past two weeks.  But the
good news may have already been built into the stock price.
What's more, there's the potential for disappointment in
the coming weeks.  Our recent checks of high end retailers
revealed an overwhelming trend of deep discounting the day
after the holiday.  Companies are slashing prices in an
attempt to clear inventory and compensate for lackluster
demand.  The result could mean lower margins and consequently
profits for the likes of ANN.  In addition, the stock recently
climbed up to a historical resistance level and in the process
grew overbought according the to daily oscillators.  We like
the set-up in ANN from a fundamental and technical perspective.
Look to enter new plays at current levels, which could allow
for easy risk management just above the $35 level.  We're
setting our coverage stop at $36, but traders entering at
current levels can use a tighter stop.  Watch the overbought
nature of the oscillators, waiting for a crossover and look
for weakness in the Retail Sector (RLX.X).  There exists
downside potential to $32 in the short-term, and lower to $30
in the coming weeks.

BUY PUT JAN-35*ANN-MG OI=1336 at $2.50 SL=1.75
BUY PUT FEB-35 ANN-NG OI=   0 at $3.40 SL=2.25  Wait for OI!!

Average Daily Volume = 734 K



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


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

VRTS - Veritas Software $46.45 +0.89 (+2.46 this 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.

Most Recent Update

Who says there aren't any good trades during low-volume holiday
weeks?  While volume has been anemic, that hasn't stopped the
bulls from pushing shares of VRTS gradually higher throughout
the past few sessions.  And they actually are making solid
technical progress.  On Thursday, VRTS closed at its highest
level since mid-July, and above the 200-dma for the first time
in over a year.  Daily Stochastics are still heading towards
overbought, so this rally should still have some life in it.
Our only concern is that it is coming on rather light volume.
Play the rally as long as it lasts, buying the intraday dips
near the ascending trendline, currently resting near $43.  This
support level is confirmed by the 20-dma, which has now risen
to $42.73, right at a recent level of support.  Keep an eye on
resistance at $48 (the top of the July gap) and stronger
historical resistance near $50.  Weakness near those levels
might be giving us a signal to harvest our gains.  We have
raised our stop to $42 tonight.

Comments

VRTS' close above its 200-dma could induce a few more
institutions into the stock tomorrow.  Look for accumulation
to continue in Friday's early going.  Watch for an advance
past the $47 level and make sure the broader tech sector is
supporting such a move.

BUY CALL JAN-40 VIV-AH OI=15830 at $7.80 SL=5.75
BUY CALL JAN-45*VIV-AI OI=11086 at $4.30 SL=2.75
BUY CALL JAN-50 VIV-AJ OI= 8206 at $2.00 SL=1.25
BUY CALL FEB-50 VIV-BI OI= 1636 at $3.70 SL=2.25
BUY CALL FEB-55 VIV-BJ OI= 2268 at $2.15 SL=1.00

Average Daily Volume = 14.4 mln



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Stop Losses based on the option price or the stock price.
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**************************************************************


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