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Daily Newsletter, Thursday, 01/17/2002

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The Option Investor Newsletter                Thursday 01-17-2002
Copyright 2001, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       1-17-2002           High     Low     Volume Advance/Decline
DJIA     9850.04 +137.77  9857.79  9712.21  1.3 bln   1958/1179
NASDAQ   1985.82 + 41.38  1985.83  1954.06  1.8 bln   2167/1414
S&P 100   581.63 +  6.64   581.97   574.99   Totals   4125/2593
S&P 500  1138.88 + 11.31  1139.27  1127.57
RUS 2000  482.39 +  5.97   482.40   475.71
DJ TRANS 2674.89 + 38.55  2674.89  2627.68
VIX        23.74 -  1.52    25.21    23.72
VXN        47.03 -  2.40    50.23    46.92
TRIN        1.18
Put/Call Ratio       .79
*************************************************************

Difficult Times Ahead?

The markets were finally attempting to climb out of the Intel
bomb crater from Tuesday night when two more high profile tech
stocks repeated the event. Microsoft and IBM went on record with
cautious comments and decreased guidance and promptly got whacked
in after hours trading. This news was contrary to better than
expected results from Citigroup and another affirmation of earnings
for GE. The Enron disaster drones on and talking heads are
trying to make Kmart the next news event. Bored yet?









IBM announced earnings after the bell and it was not pretty. IBM
beat the street by a penny but missed their revenue numbers by a
cool billion dollars. The attempt by IBM to continually manage
their earnings by buying back shares fell short yet again. IBM said
that there are difficult times ahead and while they expect to
continue to maintain their earnings it will come from cost savings
instead of robust growth. Part of the reason they beat estimates
this quarter was a reduction in expenses of $1 billion. That is a
huge amount and investors should be impressed but you don't grow
businesses by reducing expenses. They said in order to maintain
this earnings level for 2002 they were relying on their services
division and plan to cut another $2 billion in expenses. Billion
here, billion there but they can't keep it up forever. The negative
comments pushed IBM to $114.65 in after hours after closing near
$120. This will impact the Dow significantly at the open IF the
sentiment carries through. Several analysts affirmed their positive
views on IBM, which will earn $10 billion in 2002 regardless of
current economic problems. They have well over $100 billion in
backlogged services contracts to work and more coming in every day.
Could be a buying opportunity according to Lehman Brothers which
affirmed their price target of $140 today. While IBM said it saw
difficult economic times ahead it did say they thought the bottom
in the chip sector had passed.

Microsoft beat the street by six cents or so, depending on who
you listen to and beat revenue estimates by almost $700 million.
They boasted that 17 million windows XP systems had been sold
and that XBox sales had come in at the high end of estimates.
While their guidance for the full year increased slightly MSFT
said that they had yet to see a rebound. "While we are pleased
with our results this quarter, we are concerned about the health
of the global economy and have yet to see a recovery in many of
the worlds largest markets," CFO John Connors said in a statement.
He also said they were more pessimistic about PC sales than in
the recent past. The negative comments pushed MSFT down to trade
at $67.15 after closing near $70.00 during regular trading. This
would be another negative to the Dow at the open if the trend
continued.

Confusing the negative profit/outlook picture above, Larry Ellison,
ORCL CEO said that the bottom was behind us and business was good.
Compaq beat estimates by a penny and made some positive comments.
APPL met earnings estimates and said it should beat estimates in
the future.

The networking/telecom sector took another hit in after hours
when Nortel met lowered estimates but warned again for the next
quarter. The long awaited bottom in the telecom sector collapse
was expected to have occurred in the 4Q. Nortel said they were
expecting sales for 1Q to be -10% lower than the 4Q. They said
visibility was still limited and while they expect growth to
begin in the 2Q they still had no evidence of that fact. They
did say sales from 4Q to 1Q were flat and the lack of further
declines in orders gave them a little confidence in the future.
NT, already beaten up, fell only slightly in after hours to
$7.36.

The economic reports were encouraging with jobless claims falling
for the second week in a row and even the spike in California
claims due to the higher benefit failed to move the numbers.
Continuing claims also fell slightly indicating a possible turn
in the job situation. Still to early to tell but analysts were
pleasantly surprised. Even better numbers came from the Philly
Fed Survey. For the first time in more than a year manufacturing
company responses indicated an increase in activity. New orders
jumped from a -3.8 in December to +12.6% in January. This is huge
in terms of economic news. It only represents one geographical
area of the country but any good news is welcomed. This was the
main catalyst in powering the markets on Thursday. The University
of Michigan consumer sentiment is due out again on Friday and a
slight increase is expected. That would help sentiment but hurt
chances for another Fed rate cut in two weeks.

The outlook for Friday's open does not look good. S&P futures
are down -7 but appear to have bottomed and are rising again
slightly now that traders have had time to digest the IBM/MSFT
news. Since both companies expected to do well despite "difficult
times ahead" it is entirely possible the knee jerk reaction
to the earnings announcements could already be over done. On
Friday SUNW, MMM and VC lead the list of earnings warners, oops,
announcers! The IBM comments about a bottom in the chip sector
being behind us could lead to nibbling in the chip sector but
I would not count on it. Investors have been burned so many
times in the last two years that skepticism is deeply imbedded
in any positive comment.

My worst case support level from Tuesday of 9725 for the Dow
was hit at the close on Wednesday and broken by 14 points. The
Dow rebounded off that level Thursday morning for a +137 point
gain. I missed the Nasdaq support level of 1950 by six points as
it hit 1944 at the close on Wednesday to rebound +41 on Thursday.
Personally I will take that as a win but there is a good chance
we will get to test those levels again on Friday IF MSFT and
IBM hold their losses at the open. If SUNW and/or MMM make any
negative comments with their earnings before the open then a
retest of those levels may be assured. I will repeat my suggestion
from Tuesday, if you have to buy the dip those levels would be my
choices. (9725/1950) The market is still doing its imitation of
Jekel and Hyde and the only real trend is still down. For that
reason I have no upside entry targets at this time. The rally on
Thursday was simply an oversold bounce after dropping from a
high of 10300 on the 7th to a low of 9711 on the 16th in only
seven sessions. That is -589 points which put us in severely
oversold territory which reacted to the Fed Survey news. The
bounce today corrected that oversold and Friday will now be
totally earnings guidance driven.

Enter very passively, exit aggressively!

Jim Brown
Editor

Have you tried the Market Monitor yet?

http://www.OptionInvestor.com/itrader/marketbuzz/


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

Futures Go Bump In The Night
THUD!

We had all our favored 60/30-minute chart signals on their way to
setting up the next high-odds put play entries ahead when IBM and
MSFT spoiled the fun. As you know by now, neither had much to say
that hopeful bulls needed to hear about economic strength and
post-market S&P futures promptly shed -11.50 points in a heartbeat
past 4:00pm tonight.

So goes the action this expiration week... "gappy" at the opens.
We caught Wednesday's drop but couldn't get in front of Thursday's
pop. Unless something serious happens to shore up post-market
direction, we'll see today's probable dead-cat bounce smacked down
once again.

(10-Min Charts: OEX and QQQ)




Not much of an intraday entry offered itself today. Back out the
opening gaps and we see the OEX traded a 3.97 index point range
and the QQQ within 0.96 index points. For those who didn't toss a
coin and buy calls on Thursday close, nothing happened. Those who
gambled calls had a good day, and those who wagered puts had a bad
day. This was another gap-open day same as Wednesday, but without
the wide range of market action inside extremes.

(30-Min Charts: SPX & QQQ)




We were watching various loose chart patterns form within intraday
index charts via hope for a setup into Friday's action. No real
definitive entry points exist right here, and tonight's news will
totally erase this picture if current post-market price action
holds.

Conclusion
So much for methodical market action all year. Nervous shorts and
emotional bulls knee-jerked the Philly folly report today that
served hope to purport a V-shaped recovery in global economy is
nigh. INTC, MSFT, IBM and heaven knows how many more companies it
will take for reality to sink in have told us otherwise, and
eventually the market will listen.

We've endured a parade of Fed Heads out jawboning the markets
lately on how they see signs of a strong economic recovery soon.
I'd like to trust their clairvoyant vision, but isn't this the
bunch that just engineered a soft landing from the market bubble
with Stinger missiles? Too many interest rate cuts cannot offset
too many rate hikes in year 2000, it will just make us all airsick
instead.

One theory of market action believes markets know all and signal
economic turns long before they happen. I totally disagree.
Markets are ignorant and without any foresight at all. That is
true because markets are merely a collection of human thoughts,
opinions, hopes, dreams and emotion as voted by real dollars.
Humans as a collective voice have no ability to forecast future
market action, they just apply guesses either way.

Markets do not forecast future economic recoveries by mounting a
rally several months before: "The Market" mounts numerous rallies
based on hope until one finally sticks out of sheer luck into the
recovery. Lest you doubt this is true, scroll back thru two year's
worth of index charts and see how many predictive rallies were
right. Each failed rally since March 2000 was a failed attempt to
call the end of this bear market. So far success rate is exactly
zero of all those hapless forward outlook rally attempts "The
Market" has made in two full years. If the market could correctly
anticipate future price action, we would never have failed rallies
and selloffs ever again.

Right or right?

The economy will recover when it's good and ready. Stocks will
perform closer to reality than expectation as we move forward. We
don't have to like it, but must accept it as fact in order to make
the most money we can or at the very worst, lose the least amount
of precious capital possible.

Summation
Friday can be expected to open strong and probably flatten from
there, with another brief move right into the bell. Monday next
will clear options expiration cobwebs and give clearer picture on
where next measures of resistance or support will be visited from
here.

Best Trading Wishes,
austinp@OptionInvestor.com


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

Bulls: Achtung!
By Eric Utley

No fluff tonight.  Strictly business.  There were some serious
developments in the bullish percent data Wednesday.  The
Nasdaq-100 Bullish Percent Reading ($BPNDX) dropped by 9 percent,
or 9 stocks went on sell signals, in Wednesday's session alone!
It lost another three during today's session.  And could lose
more tomorrow.  The drop in the $BPNDX is the fastest and biggest
since the week beginning September 17.

Recall that the $BPNDX went into Bear Confirmed a few weeks ago.
In other words, it's been flashing bearish signals for about two
weeks.  During that period, the Dow and S&P 500 remained well
into bullish territory through Wednesday's session.  That all
changed Wednesday.

The S&P 500 slipped into Bull Correction Wednesday and the Dow
did the same, although the Dow rebounded into Bull Confirmed
during Thursday's session.

The dynamic shaping up in the bullish percent data is eerily,
and I do mean eerily, similar to what took place last June, when
the market thought that the economy was on the mend, this trader
included.  The $BPNDX was the first to go into Bear Confirmed,
followed by the S&P 500 and Dow.  Moreover, there are similar
happenings in the bond market, given the recent steep fall-off
in yields, although yields did pop higher Thursday off of the
Philly Fed Index release.  The similarities right now compared to
last May and June are uncanny.  Bulls be careful.

Jeff Bailey and I will be monitoring the dynamic in the bullish
percent data as it unfolds through the Market Monitor, Intraday
Updates, and of course I'll be continuing the dialogue in this
column.  Stay tuned.

Corrections and Clarifications:

I'll once again take the blame for last Tuesday's error in the
S&P 500 COT data, even though it wasn't my fault.  Hey, I'm
not afraid to be accountable.  That's my style.

In all seriousness, today's S&P 500 COT data is correct.  I
sincerely apologize for the mistake.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9850

Moving Averages:
(Simple)

 10-dma: 10013
 50-dma:  9922
200-dma: 10105



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1139

Moving Averages:
(Simple)

 10-dma: 1151
 50-dma: 1143
200-dma: 1167



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1602

Moving Averages:
(Simple)

 10-dma: 1631
 50-dma: 1607
200-dma: 1612



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

Market Volatility

The VIX and VXN once again failed to breakout above their
resistance levels in Thursday's session.  Hey, what was there to
fear Thursday with the Dow up by triple digits and the $NDX
better by almost 3 percent?  I'm guessing that fear will return
in tomorrow's session, which should make for an interesting
expiration Friday.  Finally, look at the narrowing range of the
VIX as it's locked between its 10- and 50-dmas.  It's got break
in one direction.  Maybe tomorrow.

CBOE Market Volatility Index (VIX) - 23.74 -1.52
Nasdaq-100 Volatility Index  (VXN) - 47.03 -2.40

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.79        792,301       623,312
Equity Only    0.68        651,937       441,052
OEX            1.31         30,218        39,588
QQQ            0.93         45,262        42,064

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

Bullish Percent Data

           Current   Change   Status
NYSE          54      + 1     Bull Alert
NASDAQ-100    47      - 3     Bear Confirmed
DOW           63      +13     Bull Confirmed
S&P 500       63      + 4     Bull Correction
S&P 100       63      +10     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  1.64
10-Day Arms Index  1.47
21-Day Arms Index  1.28
55-Day Arms Index  1.16

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.

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

Market Internals

        Advancers     Decliners
NYSE      1958           1179
NASDAQ    2167           1414

        New Highs      New Lows
NYSE       77             32
NASDAQ     81             29

        Volume (in millions)
NYSE     1,371
NASDAQ   1,853

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

Commitments Of Traders Report: 01/08/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

Commercial interests shed 4,500 long an 8,734 short positions in
the most recent reporting period.  Their net bearish position grew
to 64,544 contracts.  Meanwhile, small traders added more than
5,000 short positions while adding a fewer number of longs, for a
net decrease in their bullish position.

Commercials   Long      Short      Net     % Of OI
12/21/01      412,581   471,239   (58,658)   (6.6%)
12/28/01      338,288   407,017   (68,729)   (9.2%)
01/08/02      333,742   398,286   (64,544)   (8.8%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
12/21/01      152,521     79,444   73,077     31.5%
12/28/01      127,419     55,576   71,843     39.3%
01/08/02      130,335     60,780   69,555     36.4%

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

NASDAQ-100

Commercial interest remained decidedly bearish for the second
consecutive week in the Nasdaq-100 market.  Their net bearish
position grew by about 400 contracts.  Small traders remained
bullish, but reduced their net position by more than 1,000
contracts.

Commercials   Long      Short      Net     % of OI
12/21/01       55,250     47,476      7,774    7.6%
12/28/01       29,801     37,497    (7,696) (11.4%)
01/08/02       30,786     38,913    (8,127) (11.7%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   7,774  - 12/21/01

Small Traders  Long     Short      Net     % of OI
12/21/01       15,810    25,687   (9,877)   (23.8%)
12/28/01       10,649     5,913     4,736     28.6%
01/08/02       10,073     6,404     3,669     22.3%

Most bearish reading of the year:  (9,877) - 12/21/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Commercial interests added a small number and a few more short
positions.  Their net bullish position dropped by a small
amount from the prior reporting period.  Small traders added
about 1,000 longs and roughly 500 short positions for a net
reduction to their bearish position.

Commercials   Long      Short      Net     % of OI
12/21/01       15,492     7,335    8,157     35.7%
12/28/01       15,820     7,553    8,267     35.7%
01/08/02       15,921     7,981    7,940     33.2%

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
12/21/01        4,293     9,086    (4,793)   (35.8%)
12/28/01        3,368     8,668    (5,300)   (44.0%)
01/08/02        4,380     9,188    (4,808)   (35.4%)

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

IS Swing Trade Model: Thursday 1/17/2002
Wasted Day


News & Notes:
------------
For those who didn't wager long calls at Wednesday's close,
Thursday was a wasted day. The gap-up open ate away most potential
gains of the entire move and inflated call prices near the open
only worsened the scenario. Modest intraday gains existed for the
nimble scalper, but nothing even close to swing trade entries
existed.


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




The OEX finished trading on Thursday resting on top of support at
its recent short-term channel. It will not likely open there on
Friday. The intraday wedge (right) could break on another gap-down
open tomorrow if current post-market price action holds.


[60/30-Min Chart: SPX]




Same picture for the SPX. January option contracts for this and
the DJX ceased trading at 4:15pm tonight and settle in value on
Friday's calculated open for each respective index.

[60/30-Min Chart: QQQ]




The QQQ appears similar, and is poised to open near 39.00 or lower
at the open on Friday.


Summation:
---------
Very unlikely any swing trade attempts will be made within
Friday's session, as we have no plans to track Feb option
contracts until next week. That leaves current action suitable for
nimble day traders only, and observations that could aid such will
be noted in Market Monitor window.


*Note* Both SPX and DJX Jan option contracts ceased trading
Thursday night at 4:15pm EST and settle in value on Friday's
calculated open.


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 - NONE          Long: BREAK ABOVE - NONE
Stop: Break Below                 Stop: Break Below


Jan Puts:  39 (QQQ-MM)            Jan Puts: 99 (DJV-MU)
Long: BREAK BELOW - NONE          Long: BREAK BELOW - NONE
Stop: Break Above                 Stop: Break Above


=====

         OEX                         SPX
Jan Calls: 600 (OEY-AT)           Jan Calls: 1125 (SPT-AE)
Long: BREAK ABOVE - NONE          Long: BREAK ABOVE - NONE
Stop: Break Below                 Stop: Break Below


Jan Puts: 575 (OEB-MO)            Jan Puts: 1140 (SPT-MH)
Long: BREAK BELOW - NONE          Long: BREAK BELOW - NONE
Stop: Break Above                 Stop: Break Above



Open Plays:
----------
NONE


IS Position Trade Model: Thursday 1/17/2002
As Expected

News & Notes:
------------
We didn't figure the recent market slide would continue without
pause and indeed it didn't. A sharp reflexive rally covered shorts
and raised bullish hope for 6.5 hours until MSFT and IBM dished
out the latest dose of market reality. Steady as she goes for us
right now, with no changes at this time.


Featured Plays:
--------------
No viable changes in market picture tonight.


Summation:
---------
No new plays on tap for now, and we'll look to track new put plays
on any failed rally attempts that set up for us ahead.


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

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

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


Sector Share Trade Model: Thursday 1/17/2002
Robust Bounce

News & Notes:
------------
Dropped on Wednesday, popped on Thursday... what for Friday?
"Drop" may finish the yo-yo trifecta this week.


Featured Plays:
--------------
None


Summation:
---------
Our QQQ and SWH short share plays closed for minimal gain or par
as the reflexive rally took them out. Still waiting for market
direction to prevail, but may not be there yet.


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 Short Plays:
----------
01/02
XLI
Short: BREAK BELOW 27.70
Stop:  Break Above 26.00

01/14
SPY S&P 500 SPDR [*Bailey Play]
Short: BREAK BELOW  114.80
Stop:  Break Above  113.80

DIA Dow Industrial Diamond
Short: BREAK BELOW  99.00
Stop:  Break Above  98.50

SMH Semi-Conductor HOLDr
Short: BREAK BELOW 45.00
Stop:  Break Above 45.00

SWH Software HOLDr
Short: BREAK BELOW 48.00
Stop:  Break Above 47.00 [hit 47.55]
Result: +0.45

HHH Internet HOLDR
Short: BREAK BELOW 34.00
Stop:  Break Above 34.00

01/15
QQQ Nasdaq-100 HOLDr
Short: BREAK BELOW 39.50
Stop:  Break Above 39.50 [Hit]
Result: PAR

IAH Internet Architecture HOLDr
Short: BREAK BELOW 39.00
Stop:  Break Above 40.00

XLY Cyclical Transport SPDR
Short: BREAK BELOW 28.00
Stop:  Break Above 30.00

XLV U.S. Consumer SPDR
Short: BREAK BELOW 27.00
Stop:  Break Above 29.00


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


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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


**************************************************************
ADVERTISING INFORMATION

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Contact Support

The Option Investor Newsletter                 Thursday 01-17-2002
Copyright 2001, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


****************
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:
*****

RSTN $18.51 -0.19 (-2.04) RSTN is not acting right.  It sure
didn't behave like one of the stronger networking stocks in
today's session.  The Networking Index (NWX.X) was higher by
more than 2%.  RSTN was lower by 1%.  We don't like the
divergence and would rather not wait around for more downside.
Look to exit open positions on any bounce in tomorrow's session.


PUTS:
*****

MMM $104.52 +1.05 (-9.27) MMM changed its earnings reporting date
from January 23, to Friday, January 18.  That's tomorrow morning.
Needless to say, we're unhappy with the change.  Traders with
open positions can look for any early weakness to exit plays.
With the negative after hours news from IBM and MSFT, the broad
market weakness expected tomorrow may work in the favor of MMM
put traders.  And keep an eye on that $100 level, which has held
twice in as many days.


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

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

CALLS              Mon    Tue    Wed    Thr

ACS     108.65   -0.52   2.95  -2.70   1.96  Earnings on Tuesday
RSTN     18.51   -0.48  -0.21  -1.16  -0.19  Dropped, acting sick
LLY      75.43    0.60   0.05  -0.99  -0.63  Look for a pop Friday
EPNY     10.97   -0.10   0.10  -0.47   0.47  $10.50 holding strong
MRVL     42.18   -1.87   0.04  -1.04   3.53  Ready to take on $43?
PVN       4.59    0.27   0.19  -0.46   0.26  Pullback, still strong
BRCM     48.46   -1.34   1.52  -2.45   1.41  Holding at support
TGH      70.85   -0.42   0.70   0.09  -0.94  Flight to tech woes
LPNT     35.00    1.31   1.20   1.39   0.68  New, breakout at $35


PUTS

ADRX     62.03   -0.67   0.03  -0.22  -0.93  Down big after hours
ELBO     32.89   -1.87   0.33  -0.98   0.84  Routine rebound Thr
QCOM     47.27    0.64  -0.60  -0.95   1.77  Broad tech pressure
AZO      63.99   -1.01   1.29  -0.76  -0.39  Waiting for breakdown
KBH      39.25    0.56   0.65  -0.35   0.70  Watch interest rates
THQI     44.04   -2.03  -0.04  -1.66   1.86  Another entry point?
MMM     104.52   -2.03  -2.26  -6.03   1.05  Dropped, changed date


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

BRCM $48.46 +1.41 (-0.86) BRCM slid down to the $47 level,
below its very short-term support at $38, in yesterday's
session.  The stock was adversely impacted by the Intel's
news of its capital expenditures reduction.  The Semiconductor
Index (SOX.X) shed almost 30 points in yesterday's session.
We knew going into this play that BRCM would be pressured
lower by the Intel news, so its weakness yeterday wasn't
expected.  The $48 level failed to hold, but we did see buying
emerge at the $47 level.  BRCM continued lower in today's
session to the $46.50 area, then rebounded.  The last two
days of trading reinforced that this play is one in which
traders should look for entries into call plays on weakness
instead of chasing BRCM higher above short-term resistance
levels, where the danger of a rollover or failure exist.
Until the tech sector makes a clear rebound, we're looking to
enter bullish plays near support and exiting near resistance,
then repeating the process.  We misprinted our stop in the
initial write-up at $36.  The stop is at $46.

ACS $108.65 +1.96 (+1.69) ACS' dip during yesterday's market
weakness provided yet another entry point into this play on
weakness.  The AG Edwards downgrade only proved to be an
opportunity to get into this play.  We wish the stock would've
pulled back more than it did, in doing so, providing us with a
better entry point into the play.  ACS pulled back down to its
10-dma during yesterday's session, and if you were quick,
could've turned around and booked a quick gain on today's
strength above the $108 level.  However, a $2 move in a $100+
stock is not necessarily the biggest move and it does require
a great deal of precision to capture a gain in that small of a
move taking into account slippage and commissions.  Hopefully
we'll get some follow-through into tomorrow's session, possibly
up to the $110 level for a better exit point.  The company
reports at 11:00 a.m. EST next Tuesday, so we'll be dropping
coverage ahead of the weekend, tomorrow.  The main variable in
this play remains the broader market.  If we get a rally in
tomorrow's session, ACS should continue higher, possibly into
next Monday's session, where traders can look for a more
favorable exit point ahead of the company's earnings report.
But market weakness will most likely hold the stock back, so
take that into account when assessing risk in your open
positions.

EPNY $10.97 +0.47 (+0.00) EPNY formally announced that it will
release its earnings after the bell, next Thursday, January
24.  The company also announced that it had won another
contract, this time with Cigan, to supply the healthcare giant
with software.  The news was announced yesterday, but couldn't
help fend off the broad market weakness.  However, the magical
$10.50 support area held again in EPNY.  The buyers continue to
emerge at the $10.50 level.  If the bounces from the $10.50
level continue, following market weakness, then options traders
can look for entries near that level ahead of the earnings report
next week.  An entry taken at $10.50 could be managed tightly
with a stop at, for example, $10.25 or $10.00, depending upon
your own risk tolerance.  While the good news has been the
consistency of the $10.50 support level, on the other side,
the $11 to $11.15 area continues to serve as strong resistance.
It's most likely going to take a broad tech rally, especially in
the Software Sector (GSO.X), to allow EPNY to breakout above its
near-term resistance.  Continue to monitor for that set-up in
the coming sessions and keep in mind that we'll be dropping
coverage on this stock ahead of its earnings report next week.

MRVL $42.18 +3.53 (+0.66) MRVL once again flirted with closing
below our coverage stop at $38.50 in yesterday's and today's
sessions.  We use closing prices for our stops for good reason.
Closing prices have more credence than intraday swings.  We
think that the $38.50 level is an important level in MRVL.  The
bulls in this stock have agreed with our opinion in the last
three sessions as they continue to close the stock above that
level.  We're certainly happy that we didn't drop coverage on
the stock in last two days as MRVL rebounded in a big way in
today's session, to the tune of more than 9%.  The stock
eclipsed its recent relative highs by a fractional amount,
which was encouraging to observe.  But it wasn't able to make
much progress beyond the $42 level.  We maintain that an
advance above the $43 level would signal a full-fledged
breakout.  But, we also believe that it will take the broader
tech sector, specifically the Semiconductor Sector (SOX.X),
to support any breakout attempt in MRVL.  By the looks of
the after hours trading, the stock will most likely open
lower in tomorrow's session.  Traders can look for another
entry opportunity on weakness in tomorrow's session.  Look for
another bounce from the $38.50 level.  Hopefully it will hold
once again and eventually lead to a breakout above $43 next
week.

LLY $75.43 -0.63 (-0.97) Despite a valiant attempt, bullish
traders couldn't push LLY through the $78 resistance level on
Wednesday and after trading sideways for most of the session,
the stock plunged to close at the low of the day.  That weakness
persisted on Thursday, with our play dropping right to our $75
stop level, erasing all of the gains from the last bounce at this
level.  While the picture isn't pretty right now, we're keeping
the play alive for one more day, due to our expectation that the
stock will bounce at the $75 level again on expiration Friday.
With a lack of encouraging news from Tech giants IBM and MSFT in
their earnings reports tonight, we could see a rotation back into
Health Care stocks as we head into the long weekend.  Use a
rebound from support as an opportunity to gain a better exit
point.  We'd be cautious about opening new positions on a bounce
unless it comes on strong volume.

PVN $4.59 +0.26 (+0.26) A bit of profit taking on Wednesday
provided the entry that dip buyers were waiting for, as PVN fell
to the $4.30 level (which has been providing support for the past
week) before recovering with the broad market on Thursday.
Volume on the rebound though was anemic, indicating that we could
be in for a bit more consolidation before continuing upwards.  A
renewed bounce at intraday support can still be used for new
entries, although we wouldn't rule out a retest of the $4.00
breakout level.  Momentum traders will want to wait for PVN to
rally through the $4.85 level on strong volume before opening
new positions.  Raise stops to $3.90.

TGH $70.85 -0.94 (-0.57) Participating in the profit taking seen
in the Morgan Stanley Healthcare index (HMO.X) on Thursday, shares
of TGH fell sharply, right to the $70 level.  Driving the sharp
decline in price was a rating cut on Aetna by Salomon Smith
Barney, lowering their rating on the stock to Neutral.
Fortunately, TGH bounced at the $70 support level, but the volume
was downright anemic.  That makes us cautious about initiating
new positions unless we see the HMO index continue with its
rebound and a pickup in buying volume in TGH.  A renewed bounce
from the $70 level looks good for new entries, as does a
volume-backed move through the $71 level enroute to a fresh
attempt at the $72.50 resistance level.


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

LPNT – LifePoint Hospitals $35.00 +0.68 (+4.58 this week)

LifePoint Hospitals operates 21 acute care hospitals in growing
non-urban communities in Alabama, Florida, Kansas, Kentucky,
Tennessee, Utah and Wyoming.  The hospitals usually provide
commonly available medical and surgical services, as well as
diagnostic, emergency and outpatient services.  The company also
makes available a variety of management services to its
facilities including information systems, leasing contracts,
accounting, financial and clinical systems, as well as internal
auditing and resource management.

Looking for another way to play the rally in Health Care related
stocks?  Then LPNT might be just what you're looking for.  The
stock has been running hard over the past few days, and in
contrast to the pattern in the broad markets, volume has been
increasing as the stock is rising.  This fits in with the model
of Health Care stocks doing well in times of market weakness, and
with investors seeming to cool to the Technology sector recently,
stocks like LPNT could be the beneficiary.  Since mid-November,
LPNT has been stuck in a range between $29.50 and $34.90, but the
surge in buying volume on Thursday pushed the stock through the
top of that range.  The recent rally in the Morgan Stanley
Healthcare index (HMO.X), has definitely helped with the rebound
in LPNT over the past 6 sessions, and now that it is free of
recent resistance, we could be looking at a run into earnings.
Set to be released on February 4th, that gives us just over 2
weeks to play.  For those wondering why we are looking for a run
into earnings, just take a look at the company's recent history.
The past 4 quarters, LPNT has beat street estimates every time,
and bullish traders may be looking for a repeat.  There's always
a risk to adding new bullish positions when a stock is up big,
and LPNT has tacked on 17% in the past 6 sessions, making it a
prime candidate for some profit taking.  And that's where we want
to initiate new positions.  Look to initiate new positions on a
dip and bounce from intraday support at $34.50 or $34.  We're
setting a tight stop at $33, as a close below that level would
break the back of the recent momentum run.  And speaking of
momentum, if momentum trading is your style, you'll want to
consider new entries on a push through the $35.10 level, just
above Thursday's highs.  The first serious obstacle for the
bulls will be the 200-dma at $36.95.

BUY CALL FEB-30 PUN-Bf OI= 14 at $5.40 SL=3.50
BUY CALL FEB-35*PUN-BG OI=218 at $1.75 SL=0.75
BUY CALL MAY-35 PUN-EG OI= 12 at $4.00 SL=2.50
BUY CALL MAY-40 PUN-EH OI=  3 at $2.05 SL=1.00

Average Daily Volume = 661 K



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


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

ADRX $62.03 -0.93 (-1.79) The Biotech Sector ($BTK) finally
broke down below the its support level at 530 in today's
session, but unfortunately ADRX didn't breakdown as much as
we would've liked.  The stock traded as low as $60.80 in
today's session.  We would've liked to see ADRX decline
below the $60 level.  That level has acted as support in the
past, so a bounce would've been likely today if ADRX would've
been weaker.  Unfortunately, judging by the after hours news
and trading, we may never know if ADRX would've bounced from
the $60 level.  Talk surfaced after the bell that ADRX lost
a key legal battle with Biovail.  The stock was trading
below the $59 level in the after hours session.  If tonight's
after hours trading follows through into tomorrow morning's
session, traders should be thinking about setting exit points
ahead of time based upon your specific entry point and risk
level.  One level to watch closely tomorrow is $58.  ADRX
hasn't traded below $58 since early last year.  A breakdown
below $58 could open the selling floodgates.  But it's
possible that the buyers defend that level.  Monitor its
price action closely around $58 and watch for stabilization
at that level as a sign that the buyers are trying to make a
stand.

AZO $63.99 -0.39 (-0.87) You can almost hear the bears chanting
"I think I can, I think I can", as they continue to put pressure
on shares of AZO.  The $64 support level appears to be weakening
and the declining 10-dma (currently $65) is acting as resistance.
With the narrow trading range over the past week, it makes it
much easier to manage risk.  Enter new positions on a drop below
the $63.50 level or target a failed rally near the 10-dma.  Note
that the daily Stochastics have been rising over the past week,
while price has been falling.  This is an inherent sign of
weakness, indicating that the stock is setting up for another
fall.  It should come as no surprise that the $64 level has been
acting as a price magnet lately, as this is the 38% retracement
of AZO's gains between September and early December.  The 50%
level is down at $59, which also happens to be the next level of
historical support.  A drop to that level would be a good time
to consider harvesting some profits.  Lower stops to $66.

KBH $39.25 +0.70 (+1.56) Housing stocks have been gradually
working their way higher this week, trying to overcome the
negative effect of Alan Greenspan's cautionary comments last
Friday.  We're still waiting for an acceptable entry to
materialize in our TGH play as the stock has yet to show us
any definable weakness.  But that entry could arrive soon.
With significant resistance just overhead at $39.50 and the
20-dma rounding at $39.40, this will be the point of decision.
Use a rollover from resistance as an opportunity to open new
positions for our expected drop to the $36 support level.  Keep
stops in place at $40, as a move through that level would be a
strong indication that the bulls have not yet given up.

QCOM $47.27 +1.77 (+0.76) Taking advantage of the broad market
weakness on Wednesday, the bears tried once again to push QCOM
below the $45.50 support level.  But it wasn't in the cards as
support held and the stock rebounded nearly 4% on Thursday.
While this could look like the beginning of a meaningful rebound
in QCOM, we don't think so.  Even with the increase in buying
volume going into the close, QCOM traded down in the after hours
session on the heels of lukewarm earnings reports from MSFT and
IBM.  Rather than an end of a trend, we're looking at Thursday's
rally as a possible entry point in the making.  IF the stock
rolls over tomorrow below our $48 stop, we'd consider new
positions, but only if volume is heavier on the sell side.  The
better entry point will likely come as the stock punctures the
$45.50 support level, accompanied by an increase in volume.  If
QCOM just experiences a mild decline and once again finds
support, we would take advantage of the weakness to close any
open positions.

THQI $44.01 +1.86 (-1.87) Wednesday's decline made it 8 days in
a row for shares of THQI, as the stock plunged through the $43
support level late in the day, hitting a low of $41.25.  The late
day bounce was a clue to harvest profits and look for the next
entry.  While Thursday's solid recovery started the process, we
aren't there yet.  Look for any strength in the Software sector
(GSO.X) on Friday (perhaps on positive reception of MSFT's XBOX
sales numbers in their earnings report tonight) to lift THQI to
$44.75 resistance or possibly $46.  A rollover at either of these
levels (especially on increasing volume) will be just the setup
we want for initiating new positions.  Lower stops to $47.

ELBO $32.89 +0.84 (-1.68) ELBO bounced back in today's session
after continued selling yesterday.  We liked the close below
the 200-dma yesterday, and today's strength was market and
sector-related, which was all right and no reason to worry.
The group was higher, led by ERTS and THQI, the latter of which
is the other OI put play in the electronic gaming sector.  We
were encouraged with ELBO's inability to advance past the $34
level, keeping in mind that the 10-dma rests just above that
level at $34.25.  The sellers definitely emerged on the stock's
intraday strength.  Hopefully the sellers overpower the buyers
in tomorrow's session.  Judging by the market's reaction to
MSFT and IBM in the after hours, the tech sector will be weak
again tomorrow, which could pressure ELBO lower.  The stock has
support at the $31.50 level, which has been demonstraded in
two separate sessions recently.  That level might be a good
place to look to book gains, depending upon your specific
entry point.  We've captured about $4 in this stock since
starting coverage, so don't be afraid to book some of those
gains on further weakness.  As for new entry points, we still
feel more comfortable with intraday rollovers rather than
entering on breakdowns below resistance.  The rollover today
at $34 was a good example of an entry point close to resistance.


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

None


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Anything else is too slow!

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


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

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                 Thursday 01-17-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

ADRX - Andrx $62.03 -0.93 (-1.79 last week)

Andrx formulates and commercializes controlled-release oral
pharmaceuticals using its proprietary drug delivery technologies.
Andrx markets and sells Catria XT and Dilitia XT, its generic or
bioequivalent versions of Cardizem CD and Dilacor XR.

Most Recent Update

The Biotech Sector ($BTK) finally broke down below the its support
level at 530 in today's session, but unfortunately ADRX didn't
breakdown as much as we would've liked.  The stock traded as low
as $60.80 in today's session.  We would've liked to see ADRX
decline below the $60 level.  That level has acted as support in
the past, so a bounce would've been likely today if ADRX would've
been weaker.  Unfortunately, judging by the after hours news
and trading, we may never know if ADRX would've bounced from
the $60 level.  Talk surfaced after the bell that ADRX lost
a key legal battle with Biovail.  The stock was trading
below the $59 level in the after hours session.  If tonight's
after hours trading follows through into tomorrow morning's
session, traders should be thinking about setting exit points
ahead of time based upon your specific entry point and risk
level.  One level to watch closely tomorrow is $58.  ADRX
hasn't traded below $58 since early last year.  A breakdown
below $58 could open the selling floodgates.  But it's
possible that the buyers defend that level.  Monitor its
price action closely around $58 and watch for stabilization
at that level as a sign that the buyers are trying to make a
stand.

Comments

Bloomberg reported late Thursday night that Biovail won a
court ruling, keeping generic versions of its high blood
pressure drug off the market.  Unfortunately, Andrx is a
maker of a generic high blood pressure drug.  Fortunately,
ADRX is a put play of ours.  We acknowledge that ADRX was our
Play of The Day for Thursday.  We felt that tonight's news
warranted coverage for those readers with open put positions
in ADRX.  The stock could have a big down day tomorrow
depending on how the market receives the news.  Be prepared
with pre-defined exit points in the event of fast trading
tomorrow morning.

BUY PUT FEB-65*QAX-NM OI=2186 at $5.70 SL=3.75
BUY PUT FEB-60 QAX-NL OI=1135 at $3.20 SL=1.75

Average Daily Volume = 1.54 mln



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


**************
Traders Corner
**************

Milking Q-Charts, Part II, An Owner's Manual
Buzz Lynn
buzz@OptionInvestor.com

How to set up Q-Charts was a popular series last year that
generated a bunch of e-mail and ultimately a seminar on its use.
Trouble was that only subscribers to Index Skybox got to apply and
use it.

Ta Da!  In the name of higher education, I'm going to bring it
back in this column for the next two Thursday's in a row, and
perhaps more if a significant number of readers find it helpful.
With that in mind, let us begin our follow-up to Part I last week,
which went into using some of the technical indicators available
on the Q-Charts Basic service.  If you missed that one On January
10th, subscribers can catch it again at the following link:

http://www.OptionInvestor.com/traderscorner/011002_1.asp

Anyway, many in the recent past have asked us how we come up with
our trade signals that get us in or out of the market.  As noted
last week, the answer is that we use really just four indicators –
Bollinger bands, stochastics, MACD, and divergence patterns as a
basis for trading.  Last week we embarked on the chart settings
for the first three, but left divergence for another week.

Since then, we’ve had a few more questions on the setup and use of
Q-charts.  So the divergence part will have to wait a bit.
Besides Q-charts offer no canned way to perform it on the site and
it must be drawn by hand.  However, now that we know how to do the
settings on the Bollinger bands, stochastics and MACD, how do we
get the charts to pop up side-by-side?  We’ll keep this to just
the basics tonight.  We’d run out of room and time otherwise so
let’s get started.

What we want to do is build the charts side by side.  We’ll build
a 60/30-min chart set up tonight, but you’ll soon see you can
change it to a daily/60, or a weekly/daily just by changing the
time interval.  Want three charts side by side?  Just add a third
chart.  Step one obviously is to launch Q-charts.  From there,
click on file, new, then bar chart.  It looks like this:






That should pop up a fresh chart on your screen.  From there,
build it as we described last week.  Again, click on the link
above for last weeks Trader’s Corner to see how this was done.  We
want to get the stochastic and MACD at the bottom of the chart,
and the Bollinger bands at the top in the candlestick portion.
Now for the tough part – converting to candlesticks from bars (not
really).  It looks like this:






As soon as you click on candles, the bar chart will change to
candles.  Set your first chart for 60 minutes and be sure the
Auto-scale button is checked.  On my charts I’ve set that menu bar
off to the left side of the chart page, but you can put it
anywhere you want that’s most convenient just by dragging and
dropping.  I’ve circled it on the left so you won’t miss it here.

You can change the colors of the candles too from the default of
red/white to red/green, or any other color combo you want.  Here’s
how it looks:






Go to Charts on the overhead menu, select Format, then Colors.
Another box pops up with the standard default.  It looks like
this:






Pick your favorites.  We chose green for the up candles and red
for the down.  Click OK when you are finished.  After you’ve added
the stochastic, MACD, and Bollinger bands, you should have a chart
on the main screen that looks like this:






Obviously this is no longer to scale in the write-up, but this is
the part where you put your mouse cursor on the lower right-hand
corner of the chart and size to fit, and then move it where you
want.  We choose 2.5 – 3 inches wide by about 5 inches high for
the first chart.

After sizing, place your mouse on the blue title line at the top
of the chart, then drag and drop the newly sized chart where you
want it.  We’ll put it in the upper-left hand side of the
workspace.  Once sized and positioned, the first chart will look
like this on the whole screen.






Now it’s time to build chart number two.  Remain in the same
workspace, click on File, then New, then Bar Chart again and
follow the same sequence as above to build the second chart.  Be
sure to change the time interval. . .30-min in this case.  Your
screen should look like this once you have completed the second
chart.






Now just size to fit again – roughly three inches by five inches
and move it next to the other chart.  You may actually find it
easier to first move the second chart into place next to first
one, and then size it appropriately.  When all is said and done,
you screen should look like this.






Now be sure to press the "symbol" buttons as shown below so they
are both green as shown below.  That way, when you change the
symbol in one chart, the other chart automatically changes to the
same symbol.  Your final product will now look like the following!






You can add as many of these in any size and shape you want into a
single workspace.  Let it reflect your personality.  Being
Fundamentals Guy, I like to squeeze about four time frames on a
page.  Austin Passamonte is about the purest technical trader I
know who adheres to a minimalist code of trading.  He prefers
three and sometimes uses just two.  I tend to load mine up with
moving averages (also available in the Studies drop down menu) but
try to keep that to a minimum with just the 200-dma and the 50-
dma.  I'll also use two stochastic settings.  The first is the
10(5)3 setting.  The second is a 5(3)3 setting (again see last
week's article if this is not entirely clear).  In contrast,
Austin uses only one stochastic setting - 5(3)3 - for his Index
Skybox trading.  The point is to let the screen visual suit your
particular trading style.

Experiment with it and have fun!

The only thing missing now is a quote sheet with a list of your
favorite stock symbols, market indicators like TICK and TRIN, and
index values, which we will cover next week.

Questions always welcome.  Until then, happy charting!


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