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Daily Newsletter, Monday, 01/07/2002

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The Option Investor Newsletter                   Monday 01-07-2002
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)
******************************************************************
        01-07-2002        High      Low     Volume Advance/Decline
DJIA    10197.05 - 62.69 10300.15 10188.12 1.30 bln   1468/1675	
NASDAQ   2037.10 - 22.20  2081.09  2036.86 2.08 bln   1658/2008
S&P 100   594.41 -  4.20   600.65   593.56   totals   3126/3683
S&P 500  1164.89 -  7.62  1176.97  1163.55
RUS 2000  493.18 -  6.12   501.30   493.18
DJ TRANS 2821.39 +  8.81  2838.87  2817.50
VIX        22.09 +  0.07    23.31    21.98
Put/Call Ratio      0.70
******************************************************************

All Pumped Up With no Place to Go
By Buzz Lynn
buzz@OptionInvestor.com

The gains seen on major indexes last week could not be sustained 
in the first fully staffed trading day of the New Year.  That's 
not to say that last week didn't count in the bulls' favor as the 
markets moved up three days in a row.  Just that the bullish 
sentiment could not be fully trusted as long as the faithful at 
the trading desks were still on holiday vacation.  After all, good 
technical ground was gained in the process, which kept many a bull 
optimistic about the future even as the market sputtered following 
the opening green arrows today.  More on the technicals in a 
minute.

The happenings today fall more under the heading of market noise 
rather than market news.  There were a few spotlight hogs 
including the new i-Mac introduction, the introduction of new 
speed-demon chips from Intel (INC) and AMD (AMD) and a settlement 
fine of $1.5 to be paid by Knight Securities (NITE) to the NASDAQ 
as settlement for trading violations that put the firms interest 
ahead of investors during the late '90's.  (Gomer says, "Sur-
prize!  Sur-prize!  Sur-prize!").  

But the attention grabber was that Patricia Russo after only eight 
months as President and COO of Eastman Kodak (EK) was hired back 
by Lucent (LU) as President and CEO, where she had been following 
the spin off from AT&T in 1996 and prior to join EK.  Despite the 
hoopla in the press, the markets were unimpressed and the stocks 
went nowhere.  LU was down $0.15 to close at $6.95 and EK was down 
$0.95 to $27.94.  

My personal take on it is that EK has got to be a world of hurt.  
First of all, their dividend yield at over 6% is in real danger of 
being cut because their sales are falling from loss of market 
share to Fuji and Agfa.  Second, that the top dog would leave 
after only eight months to be top dog at her previous company, 
itself a laggard among corporate giants - a company where she was 
part of their demise - are warning signals that EK could end up in 
the scrap heap of corporate America along with its de-fanged 
former nemesis, Polaroid (PRD), which is no longer traded.  This 
is on my personal list of LEAP put candidates based on 
fundamentals even though the charts don't support it (yet).

What else?  Long ago, there was a saying that as goes GM, so goes 
the country.  Today it could be said that as goes GE, so goes the 
market.  Unfortunately for GE, we learned earlier this morning 
that Florida Power and Light (FPL) is canceling 6 projects and 22 
GE gas turbines on order for 2002.  While CS First Boston removed 
GE from its focus list (but didn't change its rating or earnings 
estimate), it cited that many other power companies may come to 
the same conclusion to cancel orders in the next six months.  

While that would be significant for GE, the roots of this can be 
traced back to Enron's (ENE) failure.  ENE began operation of 42 
power plants last year - a good number probably with GE turbines, 
as GE is the only "big iron" supplier in the business.  If you 
operate a utility, are you going to buy a new turbine from GE or 
pick up a power plant (with multiple turbines cheap in the ENE 
bankruptcy sale?  More cancelled orders are not out of the 
question, which could lop billions of dollars from the top line.  
GE is on my suspect list too now that the price is under $40 - a
pivotal point.

One last thing before we get to the charts.  This item has to do 
with the Fed.  Now I'm not big on quoting the Fed chapter and 
verse since their record of economic prediction has been no better 
than Madam Abbey's house of crystal balls, which frequently 
shatter.  Evidence?  Ever notice how Greenspan always uses the 
caveat "in the foreseeable future" in all his comments?  If the 
"foreseeable future" was so clear, how come the Fed lowered 
interest rates on 10 plus/minus occasions by nearly 500 basis 
points?  The "foreseeable future" for the Fed clearly isn't.  

But that didn't stop the Atlanta Fed President from offering his 
two cents.  I'm paraphrasing here courtesy of briefing.com, 
"Atlanta Fed president Guynn sees negative GDP growth for another 
quarter or two with second half growth picking up to 3%. Despite 
this optimism further out, he indicated that there is room for the 
Fed to ease further and that he is not going to call the economy 
'stable.'"  No matter, bulls will be bulls and the potentially 
bearish tones went largely unacknowledged as the market pulled 
back in lackluster fashion.  No one on the floor appeared to 
regard today's mild slide with any concern.  So what do the charts 
say?

Dow Industrial chart (INDU):


 


Floor traders are right not to worry at this moment.  While 
today's NYSE volume was a respectable 1.3 bln shares, the Dow was 
off only 62 points to 10,197.  Advancers lost out slightly to 
decliners 15:17.  Even so, the Dow managed to remain above the 
psychological 10,000 mark by a long shot, above its 200-dma of 
10,092, and above its 68% retracement level off the low in 
September from its May 2001 high.  Weekly and daily stochastics 
are muddled at or near overbought and could turn down over a 
longer period of time.  However, the 60/30 chart stochastics are 
at or near oversold and look fresh for a bounce soon from a higher 
low.

NASDAQ chart (COMPX):


 


The NASDAQ is looking a bit tired thanks to biotech and semis 
undergoing a bit of a selloff following last week's gains.  Like 
the Dow, it too has a muddled weekly/daily stochastic, though 
trending to overbought.  The only possible warning sign here (and 
it isn't even a confirmed warning yet) is the possible bearish 
divergence on the daily chart as the index reaches a new high 
unmatched by its corresponding stochastic.  Meanwhile the 60/30 
charts are entering oversold at a higher candlestick low - 
slightly bullish.  The NASDAQ gave up 22 points to close at 2037 
on 2.1 bln shares traders with decliners trumping advancers 5:4.

S&P 500 chart (SPX):


 


A more ominous technical picture looms for the bulls (to bears 
possible delight) on the index of the pros.  The SPX failed to 
hold above its 200-dma of 1166.  And while the 5-priod stochastic 
appears muddled near overbought, the 10-period stochastic is 
beginning to roll over.  That would not come as a surprise to 
those watching the commercial commitment of traders as they 
lightened up on long positions as of last Tuesday by some 10,000 
contracts bring their net short positions to the highest level in 
a few months at over 68,000 contracts.  Therein lies a danger for 
the investor.  However, the trader need only look to the oversold 
or nearly oversold stochastic on the 60/30 min charts to see that 
a reversal is due at yet a higher candlestick low.

What of our friend the VIX?  At 22.09, this bull run since late 
September may be coming to a close.  As Austin Passamonte 
rightfully pointed out over the weekend, bears stand to make a 
bunch of $$$ if the VIX falls under 20.  Heck, even at 24 VIX 
following a 21 VIX might be enough to tip the scales in favor of 
the bears.  The fact is there is nearly too much complacency on 
part of the bulls right now and it is statistically about time for 
them to get nervous again.

As for tomorrow, not much can be read into today's action, except 
to say that the short term (60/30 min) charts suggest a mild 
trader's rally may ensue, which could win a few points for the 
swing and day traders.  Not much economically until Thursday that 
would substantially move the markets though - only factory orders 
and consumer credit tomorrow, which will likely show a decline and 
an increase, respectively.  It will be hard for a rational person 
to look at those numbers tomorrow and conclude that the economy 
has reached a bottom.  However, bulls will give it their best shot 
and likely continue to suggest that the rising market is telling 
us that fatter profits loom in the latter half of 2002, further 
justifying their bullish action.

Earnings are the horizon too and a few tech companies have come 
out with what they consider to be positive news - yes, a 
reiteration of past guidance is positive and "proof" that the 
economy is recovering.  (Never mind the substantial downward 
revisions of September and October.  Look at any bounce as 
tradable but not "investable".  Trade them.  Don't keep them.

See you at the bell!


********************
INDEX TRADER SUMMARY
********************

Index Wrap
Glittering Gold?
Austin Passamonte

Our birthday "cowboy" Eric Utley pointed out in Market Monitor 
today that the XAU is poised to break above important resistance 
and about to signal some sort of bull market status in point & 
figure charting. I'll take his word for that without question, and 
indeed we see some interesting things in the long-term for gold as 
well.

(Weekly Chart: XAU)


 

This very sleepy index makes a big move every now & then. A 
monstrous rally in late 1999 (just out of sight) on the fear of 
Y2K debacle quickly plunged when the lights stayed on in Georgia 
post-2000 arrival. Since then is has formed a descending line of 
resistance touched several times in 2001 and whaddya know... it 
broke AND closed above it today!

One session does not a weekly candle make, but I'd say this is an 
interesting start. Revisit the 11:00am intraday update showing the 
bullish reversal head & shoulders pattern via daily charts and 
check out Placer Dome.

(Weekly Chart: SOX)


 

Personally I'm enamored with gold in various forms, but most 
retail traders prefer chips. Well here they are or perhaps I 
should ask, "Where are they?"

Sixteen straight weeks of price action (I know: I counted the 
candles!) continue to build an ascending channel which is of 
course a bearish flag pattern. Last time we saw something similar 
was Oct 2000 thru Feb 2001 to a recent high near 775 before 
sliding several hundred points lower from there.

Again, one session does not a weekly candle make, and there is 
numerous technical studies converging in here to clutter up the 
picture once more. I wouldn't call that descending line (red) 
resistance right now because the first touch was just last week 
and today is not measure enough for weekly chart action. However, 
we could get bullish on a pop above and cautious on further 
descent from here.

Summation
As noted in the various index gameplans tonight, this continues to 
be a sideways market. On a short-term basis is allows us to track 
some very orderly call plays last week and put plays currently. 
Trading the short-term noise is all I'm apt to do these days, as 
we still reside in the midst of noisy markets. 

As a good friend of mine is wont to say, these indexes need to 
"cowboy up", pick a direction and go!

Best Trading Wishes,
austinp@OptionInvestor.com


************************  
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
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Over 200 pages of strategies from simple calls and puts to 
spreads, straddles, naked puts, combination plays, leaps etc.
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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 
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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 
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If you have never used Point-&-Figure charts in your investment 
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Technical Analysis Explained - Eric Utley

There are myriad technical analysis tools for today's trader. Eric 
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Long-time subscribers of Option Investor have seen tools such as 
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used by our Leaps Editor, Mark Phillips. This manual details the
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2002 Mutual Fund Guide - Steve Wagner

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Aggressive, conservative or income producing, there are funds for
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we hope!

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You will get two of these handy mousepads with the 2002 options
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**************
Traders Corner
**************

New Tools for the New Year
By Mark Phillips
Contact Support

Several weeks ago, Jeff Bailey wrote an article on the Inside
Day and how to successfully use that particular chart formation.
It reminded me that I used to use that formation on a regular
basis.  But more importantly, it got me thinking about some of
the less common technical tools that I use.

Long-time readers will remember that I was an engineer in a
former life and before I moved full-time into the trading
world, I spent countless hours in search of the holy grail of
investing - the fully automated (and profitable) trading system
that takes in stock symbols and price data and spits out
consistent winning trades.  I spent enough time in pursuit of
that elusive goal that I came to the conclusion that it didn't
exist.  But in the process, I discovered some interesting
technical indicators that actually can deliver some profitable
trading signals.

So I'd like to take some time over the next few weeks sharing
some of those indicators along with rules for their use.
Tonight I'd like to talk about a very simple, but also very
useful moving average system that can be very useful,
particularly in markets that refuse to move smoothly between
overbought and oversold extremes.  Sound familiar?

The system is easy to construct, consisting of two simple
moving averages.  The first moving average is an 8-day moving
average of the lows, and the second is a 10-day moving average
of the highs.  The behavior of the stock price with respect to
these moving averages, as well as the interaction of the two
moving averages provides some good near-term trading signals.

Trading signals (for entry) are created whenever all 4 prices
(high, low, open, close) are outside of the ribbon or channel
created by the two moving averages.  Buy signals are generated
by 2 consecutive days with all four prices above the 10-dma,
and sell signals are created when all four prices are below the
8-dma.  It is much easier to understand when looking at a chart
example, so let's go shall we?

First up, I'd like to look at a daily chart of International
Business Machines (NYSE:IBM) for the 2 months of October and
November last year.



 

With two days above both moving averages in the first week of
October, we were off to the races with our first buy signal at
(1).  After bouncing just above the 8-dma of the lows (red line)
on October 10th, IBM ran more than $10 before pausing for
breath.  But it wasn't much of a pause, as the stock once again
bounced before even touching the lower moving average (2).  This
bounce resulted in about a $6 advance before IBM consolidated
for a week, setting up the 3rd and 4th entry signals (3) and (4)
in quick succession.

This brings up the issue of where and when to exit the play.
Understand that I use this moving average system both to enter
the play, as well as to give warning signals that the trend may
be coming to an end.  As long as the lower moving average is not
violated on a closing basis, I can continue to buy the dips all
the way up.  My first warning signal is the first time the stock
dips below the lower moving average on an intraday basis.  For
our IBM example, that occurred on November 16th when the stock
violated the red line, but recovered at the end of the day.  It
doesn't mean the trend is over, but it is a warning sign to
tighten up those stops.

That screaming exit signal came on November 28th, when the stock
closed below the shorter moving average for the first time in 2
months.  While IBM did go on to work significantly higher, it's
hard to complain about taking $15+ out of the middle of the move.
Let me reiterate, that first buy signal back in early October
just set the tone.  It told me that IBM was in a solid uptrend
and that I could use short-term dips as buying opportunities, so
long as the lower moving average was not violated.  Very simple,
very easy.  Risk management is straightforward too.  Each night,
all I have to do is reset my stop just below the lower moving
average.

Note that throughout that 2-month period, the daily Stochastics
didn't even get close to oversold, and each dip out of overbought
only resulted in another buying opportunity.  Traders that relied
only on that indicator for entry signals (emerging from oversold)
and exit signals (falling out of overbought) found themselves
locked out of a profitable play.

So how about a bearish example?  Pulled right from recent
headlines, we have Imclone Systems (NASDAQ:IMCL).  The stock has
been in the news a lot lately due to their recent FDA rejection,
but the charts told the story well before CNBC did.  



 

After the second day below the lower moving average (December
21st), we had ourselves a sell signal and entries taken the next
morning (despite the oversold Stochastics oscillator) performed
beautifully.  We could have entered the play well in advance of
the FDA decision, picking up puts on the cheap before the
volatility expanded.  Once again, the charts forecasted the bad
news before CNBC could report it.  And then after the
announcement, we got a confirmation of the signal on December
31st.  With the dramatic drop in price, prudent traders would
have now harvested profits on most of the position and have
fairly tight stops on the remainder.

This isn't a replacement for any of the technical trading tools
you currently employ...it is a supplement.  Our goal is to look
at many different indicators and have as many as possible line up
on the same side of a potential trade.  That gives up higher odds
of trading success, and therein lie profits.  I use the moving
average system described here to define the longer term trend,
and then use tools like oscillators and support/resistance to
fine-tune my entry into the play.  But tools like this one help
to keep my emotions in check and keep me on the right side of the
trend.

Pick a few stocks and apply this rather unconventional tool to
their charts.  See if you can see some of the patterns we talked
about here tonight.  Like every other indicator, it is
occasionally (frequently) wrong, but using it in conjunction
with our other tools can help to increase our rate of success in
the challenging world of trading.

Unfortunately, I ran out of time before I got a chance to talk
about the inter-relationship between the two moving averages.
Take a look at some charts this week, and see if you can identify
the pattern.  I'll come back to this discussion next week and
finish up with some fine points in the system's application.

Hopefully you found this useful.  Remember, questions are always
welcome!

See you next week.


Mark Phillips
Contact Support


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***********************
INDEX TRADER GAME PLANS
***********************

IS Swing Trade Model: Monday 1/07/2002
Free Plays

News & Notes:
------------
Major indexes behaved exactly as intraday chart patterns and 
signals suggested. We have the benefit of very orderly market 
action right now, courtesy of low volatility as measured by the 
VIX. Open put plays currently tracked within this model are 
holding modest gains and looking for more. Is that a realistic 
outlook? Let's see:


Featured Markets:
----------------
[60/30-Min Chart: OEX]


 

The OEX broke below its recent ascending trendline and moved lower 
from there. Very methodical price action and we cannot ask for 
much better than this. A 50% retracement of Wednesday lows to 
Friday highs last week is near 590 in the OEX as noted in the 30-
min chart (right) and red horizontal line (left). I wouldn't count 
out an early bounce on Tuesday near 38% retrace, either.

[60/30-Min Chart: SPX]


 

Same picture for the SPX. Looking at 1156 area for ultimate target 
to reach, but 38% just below offers the first stop for price 
action next. 


[60/30-Min Chart: QQQ]


 

Likewise the QQQ, which exhibits weak stochastic values as do the 
previous indexes as well. Now resting on its 38% retrace from the 
most recent move, we could see price action head either way for 
Tuesday.


Summation
Now that we are tracking open put plays that enjoy some measure of 
gain since entry, the key is not to let them turn to net loss. 
Unless the markets pop higher on a very large gap-up move Tuesday, 
there is no chance of taking a capital loss on these. Why? Because 
we will advance our trailed stop orders up to near entry cost. A 
bit below, right on the mark or slightly above is fine for each 
individual as circumstance permits. 

We will set these stops for the sake of this website model right 
at entry and suggest traders take any exit for par if price action 
reverses upward to reach these marks. Nothing wrong with exiting 
near the open with any gains intact, and I expect a market bounce 
near the 50% or later on 62% retrace of last week's move as 
portrayed on the charts.

Further trade management instructions will post in Market Monitor 
on Tuesday as price action dictates.


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
Our preference is usually OTM contracts except for the last few 
days of expiration when ATM or ITM contracts are preferred.

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on option contract price as noted.

*No entry targets listed mean the models are idle at that time.


New Play Targets:
----------------
         QQQ                          DJX
Jan Calls: 41 (QQQ-AO)            Jan Calls: 102 (DJV-AX)  
Long: BREAK ABOVE                 Long: BREAK ABOVE 
Stop: Break Below                 Stop: Break Below 
                                

Jan Puts:  41 (QQQ-MM)            Jan Puts: 102 (DJV-MX)
Long: BREAK BELOW                 Long: BREAK BELOW 
Stop: Break Above                 Stop: Break Above 


=====

         OEX                         SPX
Jan Calls: 600 (OEY-AT)           Jan Calls: 1125 (SPT-AE)
Long: BREAK ABOVE                 Long: BREAK ABOVE 
Stop: Break Below                 Stop: Break Below 

Jan Puts: 590 (OEB-MR)            Jan Puts: 1150 (SPT-MJ)
Long: BREAK BELOW                 Long: BREAK BELOW 
Stop: Break Above                 Stop: Break Above 



Open Plays:
----------                                                       
Jan Puts:  41 (QQQ-MM)            Jan Puts: 102 (DJV-MX)
Long: BREAK BELOW 41.50           Long: BREAK BELOW 102.50
Stop: Stop: Entry Cost            Stop: Entry Cost


=====

         OEX                         SPX
Jan Puts: 590 (OEB-MR)            Jan Puts: 1150 (SPT-MJ)
Long: BREAK BELOW 598.00          Long: BREAK BELOW 1170.00
Stop: Stop: Entry Cost            Stop: Entry Cost


Sector Share Trade Model: Monday 1/07/2002
Catching A Trend

News & Notes:
------------
Our intent within this model is to go long or short some plays and 
let them run for a while. That type of success is predicated upon 
directional market action, which may be absent right now.


Featured Plays:
--------------
[60/30-mi Charts: PPH]


 

Drug Index continued lower today even as other indexes sagged as 
well. No rotation out of anything else into this traditionally 
defensive sector we are still tracking short plays in.

[60/30-Min Charts: QQQ]


 

The QQQ and other tech sectors within looks weak on an intraday 
basis and took out our stop just above entry on the long play 
attempt from last week as well as the IAH. Retail HOLDRs got 
stopped on a gap-up move above the trailed stop as well. 


Summation
Mostly a wash across the board as markets continue to churn 
sideways. We are crowding stops on open plays to prevent capital 
loss as a primary objective while trying to catch solid, long term 
directional moves in the process. No runaway markets either way 
are expected right now. We'd welcome the surprise, but just don't 
see any hint of a trend in the charts.


Trade Management:
----------------
Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on share price as noted.

No entry targets listed mean the model is idle at that time.

* Asterisk means stop-loss level changed since prior posting


New Play Targets:
----------------
None


Open Plays:
----------
01/02
XLI
Short: BREAK BELOW  27.70
Stop:  Break Above  29.00 

RTH                        
Short: BREAK BELOW 96.45         
Stop:  Break Above 96.50 [hit = 97.53]
Result: -1.03 points        

PPH
Short: BREAK BELOW  98.50
Stop:  Break Above  97.50 *


01/03
QQQ                        
Long:  BREAK ABOVE 40.60   
Stop:  Break Below 40.75 [hit]        
Result: +0.15 points

IAH                        
Long:  BREAK ABOVE 40.00   
Stop:  Break Below 40.75 [hit]        
Result: +0.75 points


IS Position Trade Model: Monday 1/07/2002
Chop, Chop, Chop

News & Notes:
------------
Price action within the broad market continues to chop its way up 
& down in one large trading range the past several weeks with no 
end in sight. Monday's pullback was expected after three green 
sessions to end last week, but immediate & firm rejection at 
resistance today is not bullish breakout material by any means.


Featured Plays:
--------------
[60/30-Min Charts: PPH]


 

The Drug Index put play seems to be working as this index trends 
lower and intraday charts look poised for continuation downward 
straight ahead.


[60/30-Min Charts: SPX]


 

Broad markets show zero signs of immediate strength within 
intraday charts, and slightly lower prices should follow through 
on Tuesday.

Summation:
---------
Our OEX put play was stopped out today on the initial spike higher 
off the open before markets sold off in very methodical fashion. 
We look for lower price action to begin tomorrow, but clear signs 
of range-bound action breaking for directional moves ahead do not 
exist in our crystal ball tonight.


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
Position Trade model usually tracks OTM contracts with several 
weeks of time premium left until expiration for buy & hold plays.

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on option contract price as noted.

*No entry targets listed mean the models are idle at that time.


New Play Targets:
----------------
None


Open Plays:
----------
DJX
Feb Puts: OTM 98 (DJV-NT)
Long: 2.00
Stop: 1.00

OEX
Feb Puts: OTM 560 (OEB-NL)
Long: 11.10
Stop:  5.50 [hit]

SPX
Feb Puts:  OTM 1125 (SPT-NE)
Long: 24.60
Stop: 13.00

RTH                         
Feb Puts: ITM 41 (RTH-NR)         
Long: 1.60
Stop: 0.90

PPH
Feb Puts: ITM 95 (PPH-NS)
Long: 1.70
Stop: 0.90

XLI                         
Feb Puts: ITM 28 (XLI-NB)         
Long: 1.00
Stop: 0.60         


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*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

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and click on "subscribe" to use our secure credit
card server or you may simply send an email to

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or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                   Monday 01-07-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.



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*****************
STOP-LOSS UPDATES
*****************

CERN - put
Adjust from $52 down to $51

CORR - put
Adjust from $26 down to $25

EDMC - put
Adjust from $37.25 down to $36.25

ELBO - put
Adjust from $39.50 down to $37

QCOM - put
Adjust from $53.50 down to $51


*************
DROPPED CALLS
*************

EMMS $25.60 +0.74 (+0.74) Earnings are here and we're bringing
our successful play to a close.  Traders that used the stock's
last spurt higher this morning as an opportunity to exit at a
better price are looking pretty smart tonight.  EMMS reports
earnings before the opening bell tomorrow, and the profit taking
looks like it got an early start this afternoon as the price
drifted lower into the close.  Let's hope there are more earnings
runs like this one over the next couple weeks.  If playing those
earnings runs, just make sure to close out your positions before
the actual announcement.

RFMD $19.62 -2.18 (-2.18) The Wireless sector has not been a
bullish place over the past couple days, and that weakness hit
RFMD again this morning.  Opening at the high and closing at the
low is a bearish sign anytime, but when it comes on heavy volume,
it is a sure sign to stay away.  Friday's weakness was a warning
sign, and then when the stock plunged through the 20-dma again
this morning, it looked like it was all over.  Sure enough, RFMD
continued lower into the closing bell, violating our $20 stop
even before the lunch hour.  That's what stop losses are for,
and needless to say, we're dropping coverage of the play tonight.


************
DROPPED PUTS
************

None


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*********************
PLAY OF THE DAY – PUT
*********************

QCOM – Qualcomm, Inc. $47.20 -3.21 (-3.21 this week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

Most Recent Write-Up

When looking for bearish plays in an overall bullish market, we
need to look for relative weakness, and QCOM is giving it to us
in spades.  After falling sharply for the first half of
December, there was a bit of buying interest, but it quickly
faded.  Given the strength across the broad market, and even
other wireless stocks like NOK, QCOM is notable for its
inability to put together more than a quick 2-day rebound.
Looking at a retracement of its recent action is instructive as
to what to expect going forward.  Since last finding support
near $49, QCOM has been stuck between the 38% ($53.30) and 50%
($50.47) retracements of its advance between early October and
early December.  With the daily Stochastics flattening out and
threatening to roll over without getting anywhere near
overbought territory, QCOM looks particularly weak.  The price
action bears this out too, as the stock couldn't even manage to
touch its sharply descending 20-dma ($53.43) on its half-hearted
rebound last week.  We're expecting to see resistance hold near
$53 and would consider any failed rally near that level to be an
attractive level for initiating new bearish plays.  Traders
looking to buy into the play on further weakness, will want to
see QCOM fall below the $49.50 level before taking a position.
Note that the selling volume was particularly heavy on Friday.
Momentum traders that are planning on playing the breakdown will
want to see continued heavy selling.  We are initiating the play
with our stop set at $53.50 just above the recent highs and the
38% retracement level.

Comments

It doesn't get much better than this.  QCOM opened at the high
of the day, and continued lower throughout the session,
consolidating early near the $49 level to allow fresh entries
before continuing its slide.  At the closing bell, QCOM was
trading at its low of the day, off more than 6% on volume 33%
above the ADV.  The technical damage was pretty severe, with the
stock violating its 62% retracement at the close, and it now
looks like a sure thing that it will close the gap left in early
October.  The bottom of that gap ($45) is likely to provide some
short term support, and that will be a good point to harvest
some profits in anticipation of re-entering the play on the next
bounce and rollover below the $50 resistance level.  Lower stops
to $51.

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

BUY PUT JAN-50 AAO-MJ OI=24251 at $3.90 SL=2.50
BUY PUT JAN-47*AAO-MW OI= 6592 at $2.40 SL=1.25
BUY PUT JAN-45 AAO-MI OI=20249 at $1.40 SL=0.75

Average Daily Volume = 15.1 mln



************************Advertisement*************************
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Does your broker offer Stop Losses on Options?

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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
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or any Premier Investor Network newsletter please contact:

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