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Daily Newsletter, Monday, 01/28/2002

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The Option Investor Newsletter                   Monday 01-28-2002
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)
*******************************************************************
      01-28-2002          High     Low     Volume Advance/Decline
DJIA     9865.75 + 25.67  9994.53  9798.56 1.20 bln   1674/1472
NASDAQ   1943.91 +  6.21  1958.96  1925.43 1.50 bln   1818/1723
S&P 100   574.91 -  0.23   578.45   571.44   Totals   3492/3195
S&P 500  1133.06 -  0.22  1138.63  1126.66             
RUS 2000  481.28 +  1.93   481.57   468.04
DJ TRANS 2803.97 + 24.92  2808.44  2778.95
VIX        21.78 -  0.15    22.82    21.69
VXN        43.06 -  2.61    44.66    43.05
TRIN        1.18 
Put/Call    0.69
*******************************************************************

ZZZZZZZZ. . .Lulled to Sleep Awaiting the Fed
By Buzz Lynn
buzz@OptionInvestor.com


Investors stopped their horses mid-stream today figuring that the 
Fed's FOMC decision will weight heavily on the market's future.  
Indecision became today's hallmark, not that that's a bad thing.  
As Eric, Austin and Jeff frequently point out, our jobs as traders 
are to manage risks, not predict market direction, though I 
personally harbor opinions, and at times will act on them.  (See 
tomorrow's Trader's Corner titled, "A Personal Bet on Market 
Direction")

But before we get started talking about the current market and 
goings on today, I have been itching to share the following joke 
about Enron (though no laughing matter) that may help laymen 
understand, or at least laugh at what passes for intelligent 
accounting practice and corporate financial wisdom in this era of 
"pro-forma" profit/loss statements and balance sheets.  It was 
sent by friend of mine who swears he does not know the author, as 
it has been passed down five times.  So if anyone reading this is 
the author, the credit is yours!

Two Enron auditors walk into a bar.  The bartender asks them if 
capitalism failed Enron or Enron failed capitalism.

First auditor says, "Capitalism is when you have two cows.  You 
sell one cow and buy a bull.  Your herd multiplies and the economy 
grows.  You sell the herd and retire on the income."

Second auditor says, "Enron capitalism is when you have two cows.  
You sell three of them to your publicly listed company, using 
letters of credit opened by your brother-in-law at the bank.  You 
then execute a debt/equity swap with an associated general offer 
so that you get all four cows back, with a tax exemption for five 
cows.  You then transfer the milk rights of six cows via an 
intermediary to a Cayman Island company secretly owned by the 
majority shareholder of your publicly listed company who sells the 
rights to all seven cows back to your publicly listed company.  
The Annual Report to Shareholders says the company owns eight 
cows, with an option on one more.

[Editor's note: the first two cows were probably leased.]

OK, to the markets. . .This just in. . .Americans continue to 
borrow themselves rich.  With layoffs mounting and consumer debt 
rising to all time highs in recent months, consumers spent 
themselves silly on new homes in December.  946K new homes were 
sold last month, greater than the 925K expected, and far greater 
than the post 9/11 October low of 851K.  The takeaway is that not 
even poor economic fundamentals stalled the interest rate 
sensitive housing sector.  Though rising rates may dim the hope of 
yet higher sales, housing is on solid ground.

Yet scant attention was paid to the "revision" of November's 
numbers, which went from 934K reported last month down to 895K 
when released this morning.  Wonder what December's 946K will be 
revised to in January.  No clue, but it is a safe bet that the 
numbers will not be upward.  Seems the commerce department has 
taken to reporting "pro-forma" numbers too, and should not be 
trusted to mean all that they imply.

I promise this is not all prose tonight and that there are charts 
to decipher further down, however. . .

More from the sheer lunacy department, I did not hear this for 
myself - another editor who was listening to CNBC at the time 
passed it on - but CIBC has come out with the most bullish market 
projection I've heard since Henry Blodgett predicted AMZN would 
rise to $1000 per share.  Get this.  CIBC expects the NASDAQ to 
rise 50% in 2002 to 3300 and the S&P 500 to rise 25% to over 1400.  

Seems they have borrowed a page of Ken Fisher's Great Humiliator 
theory.  Under the theory that the market will seek to embarrass 
as many as possible, Fisher contends that the majority can never 
be right.  After polling more than 50 major brokerage analysts and 
noting their best guess for market gains, he postulates that the 
market will produce returns where there are no estimates.  Since 
most estimated gains range from 0% to 40% (excepting some 20% loss 
and greater guesses), Fisher's thinking is that the market will 
lose money in the minus 10% to minus 2% range (see article in 
Forbes February 4th issue).  CIBC apparently took the opposite bet 
and is expecting over 40%, at least on the NASDAQ.  Even the CNBC 
talking heads were snickering over that one.

Maybe CIBC will be right, but it will be a stroke of luck, not 
genius.

Elsewhere in the news, Global Crossing (GBLX), the debt-racked 800 
lb. gorilla overseeing the world's largest fiber optic network 
filed for bankruptcy today wiping out all hope of the stock's 
recovery.  Swooping in for the kill was Hutchinson-Wampoa, the 
lucky soon-to-be owner of the ports at either end of the Panama 
Canal, who along with Singapore Technologies (Fundamentals Guy is 
itching to know the backers) has made a $750 mln bid for a 60% 
interest in GBLX.  Many years from now, this will be viewed as one 
of the great buys in industrial and technological infrastructure.  
Unfortunately for current shareholders, they will be wiped out 
completely if/when the bankruptcy judge approves the deal.  

Another notched scribed by a bear claw in this market.  Add it to 
Ford layoffs, K-Mart bankruptcy, Enron implosion, etc.  GBLX is 
not an isolated market incident, and as I've noted in previous 
writings, these are commons threads that form a rope from which 
bull market believers may swing.  Get use to it.  This is a bear 
market.

I have to add one more corporate musing before we turn to the 
charts tonight.  Texas Instruments (TXN) reported numbers that 
blew away the estimates.  That's great - good for them!  Their 
stock price popped nicely after hours tonight.  So just one 
question.  If the CFO says that the 3rd quarter was the bottom and 
recovery is underway, why did he also say that TXN was reducing 
its R&D budget from $1.8 bln to $800 mln in 2002?  Does that sound 
like a company gearing up for recovery?  Not to me, which is why I 
always look at a company's actions, not its words when separating 
deceit from truth.  In my opinion, TXN has a credibility problem 
and I wouldn't trust the spin they want us to believe.

So Mr. Doom and Gloom is alive and well.  The market is going to 
heck in a hand basket.  The sky is falling, etc.  Maybe so.  Maybe 
not.  But we can still earn a living in this crazy ol' market if 
we become agnostic and let the market give us the direction rather 
than us predict its direction!  Profits are where you find them, 
not in what you believe.  As traders we don't care which way the 
market moves just so long as it does, and we can scalp a couple of 
points from it "as the oscillators oscillate".  (That would make a 
great soap opera, eh Austin?)  So let's see what the market is 
trying to tell us.

Dow Industrials chart (INDU - weekly/daily/60/30):


 


Bears are having a tough time believing this, but the instruments 
don't lie.  Weekly trend still supports the bears' position.  
However, the daily charts have reversed over the past four days 
and are moving bullishly up.  Trouble is that 9900 has become a 
resistance point on the daily/60/30 setup.  Then confounding that 
are daily/60/30 stochastics that are pointed bullishly up on the 
5-period lookback.  I have the 10-period stochastic in there too, 
which is sending a mixed message on true strength of the move.


NASDAQ chart (COMPX - weekly/daily/60/30):


 

I don't usually run a QQQ chart in place of the NDX, but tonight I 
will because it is easier to focus on the price action.  In short, 
the long-term down trend is still intact.  The daily is squirrelly 
with no clear-cut direction either.  Resistance at the 200/50/20 
dma's are not far off at just under $40.  The 60/30 charts are 
showing indecisive whipsawing too as evidenced by the neutral 
wedge on the 60-min chart, yet the stochastic is showing less 
strength as it hits lower highs.  Still the oscillators on all but 
the weekly chart are bullishly pointing up.  Confounded and 
confused, the market waits for breadcrumbs from Uncle Al.


S&P 500 chart (SPX - weekly/daily/60/30):


 

SPX is a better measure of the market, but it too has no definable 
direction even though, like the others, daily/60/30 stochastics 
are now pointed up.  But where's the price move to match?  Beats 
me?  Definitely not a sign of strength, but hope lingers strong in 
the air.  Note resistance at 1140 on the daily chart and a broken 
ascending support line on the 60-min chart - could prove tough to 
penetrate.

Confused?  The market is too.  On one hand, the market is looking 
for good news from the Fed on Wednesday.  On the other hand, 
fundamentals still stink despite corporate spin on lousy numbers 
(MSFT and IBM proved that two weeks ago), and government spin on 
indicators.  There is tug-o-war going on here or more to the 
point, at midstream, nobody knows which way to take the horses.

With prices acting like they want to rise, but seemingly afraid to 
do so, it is interesting to me that the VIX and the VXN have 
staged new 52-week lows.  That's a splurge of optimism and/or 
complacency undeserved based on candles' lack of conviction and 
merely average exchange volume.  I think we may be setting up for 
the big downdraft, as the 21.78 VIX reading and the 43.06 VXN are 
huge red flags signaling the bulls charge.  Surprise!  There may 
be a brick wall of bears on the other side of the market matador's 
cape.  Every time in the last few years the VIX has been this low, 
it has proven an opportune time to buy puts for nice returns.

Now, I'm not suggesting everyone load up on put plays tomorrow at 
the open.  In fact, charts would suggest that day traders will get 
their first scalp on the bullish side of the trade if stochastics 
are any indication.  However, the long-term traders among us 
should heed the warnings of the VIX and VXN as it represents 
substantial risk to bullish trades at this level.  We've all heard 
the warning, "VIX is low, time to go."  I've missed that too many 
times and had to close losing trades fast as a result.  I am 
mindful of it now.

Fact is that until the Fed does its thing, it's going to be tough 
to make $$$ on directional trades.  The best we can hope for are 
scalps until the Fed announces its policy, which at this point, 
will likely go unchanged.  To me, that would be a disappointment, 
and the market may yet come to that conclusion.  But for now, I 
stay on my horse and keep my powder dry until I know which river 
bank - with bulls or bears - looks more attractive.

See you at the bell!


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

Plodding Along
Austin Passamonte

A challenging session for intraday scalpers and much less for 
anyone else. Current index (in)action is very tough for all, and 
trying to eke out a few gains on options or shares between the 
bells is more work than pleasure lately, too.

Expect that to persist until at least Wednesday afternoon if not 
beyond. The chance exists for a pre-FOMC pop, but lately we've 
seen as much selling as buying into the news. I don't see any real 
directional conviction poised to break in long-term charts so if 
it does, that would come as a surprise to the charts and me as 
well!

(Weekly/Daily Charts: XBD)


 

Some people believe the market knows all and forecasts directional 
turns long before they begin. I believe markets are stone stupid, 
have no clue and just keep guessing until eventually they get it 
right and look clairvoyant in the process. Hence the past umpteen 
failed rallies (big ones!) that the market forecast a bottom was 
in each time and then corrected itself.

But for those who have a different opinion, I highly respect that. 
Which leads me to wonder why the XBD Broker/Dealer Index is taking 
so much heat. In an improving economy where all of these stocks 
are going to flourish in bullish fashion, shouldn't that be great 
for the brokers? Why are weekly chart price measurements in a 
power dive? Why is the daily chart marking a nosebleed downtrend 
line that the index closed below again today?

Is the market stone stupid, or does its wisdom tell us brokers 
will suffer further from here because traders will? Wondering 
minds want to know. In either event, I would not be looking for 
longs in this sector right now, or at least until the 478 area is 
visited again.

(Weekly Chart: BTK)


 

Speaking of weak sectors, the kinky stocks are really getting 
whipped. IMCL was a very naughty stock and has led the sector into 
a real spanking. No surprise here, as true valuations are scant 
and figments of the imagination. Who can aptly quantify any of 
them? Will they cure cancer, baldness or my Miami Dolphins' 
running game? Or will their new discoveries cause "retriever head" 
in babies (loved that old DATEK online commercial) instead?

I for one don't really care what Biotechs ultimately do. My job is 
to be on the right side of their inevitable move. At this point we 
see stiff overhead resistance at the 544 level. It comes from two 
different Fib retracements values, one drawn in and the other 
noted. The 50-Week Moving Average (250 DMA) is also right at that 
point.

An "ultimate" low might be where the year-long trendline meets 
another retracement value near 446. Weekly stochastic values are 
now reaching oversold zone but could take a while to reverse, and 
daily chart signals (not shown) are pointing straight down.

We have plenty of news ahead this week, daily chart stochastic 
values nearing overbought once more and a VIX continuing to fall. 
Things could get quite interesting in the big indexes late this 
week and beyond, but beware of some seasick chop before then. 

Best Trading Wishes,
austinp@OptionInvestor.com


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

Another Tool For The Toolbox
By Mark Phillips
mphillips@OptionInvestor.com

Any trader that has spent any significant time in the Technical
Analysis world will probably tell you that at some point in time,
they have been lured by the siren's song of that elusive "Perfect
Indicator".  You know the one I'm talking about, the one that
serves up one winning trade after another and is rarely, if ever
wrong.  I've fallen prey to that yearning in the past, just as
you probably have.  But if we keep our wits about us in the quest,
what we are left with is a collection of good indicators or
trading signals that we can use together.

Now I'm not talking about 5 different oscillators that give
Buy/Sell signals at the same time.  That is just 5 different ways
of looking at essentially the same information.  That is
perceived confirmation, and without understanding that they are
all based on the same inputs, we can be lured into a false sense
of security.  So if we really want to build a reliable trading
system, what we need is a group of indicators/price patterns that
give us independently derived trading signals.  If each signal
has a certain level of reliability, using them together (when all
or the majority of them are in agreement), then it should follow
that our trading results will improve.

I've collected/created quite a mountain of tools along these
lines over the years.  Some are successful, while others are hit
and miss.  But when I use them together, my results are markedly
better.  Earlier this month, I shared one such successful
indicator, composed of 2 different moving averages (one of the
high price and one of the low price), which I dubbed the Moving
Average Ribbon System.  In the right setting, that system can
produce some great trading signals, but used by itself it can
produce some colossal losers as well.  What we need to do is add
a few other tools to the mix and see if we can filter out those
losers while hanging onto the big winners.  Doesn't that sound
like a worthwhile pursuit?

So, along that vein, I'd like to talk about another trading
system/price pattern that I've found useful over the years.  I
call it the 2-Day Gap.  We all know that gaps are nearly always
filled, but many times it takes weeks and months before the gap
is filled.  If we can identify which gaps are likely to fill
over the near term and which ones are likely to result in a
breakaway move, there exists the opportunity to identify some
solid winning trades, don't you think?

The basic strategy is to look for a gap open move that doesn't
get filled during the day.  That is our alert signal.  The
confirmation comes on the following day if the gap remains
unfilled.  The fact that the gap doesn't immediately get filled
tells us that there is very likely some significant pressure
pushing the stock in the direction of the initial gap.  So on the
second day following the gap, we enter a new position in the
direction of the gap.  If the gap was up, then we buy calls,
while a gap down will result in the purchase of puts.  How's that
for simple?

A picture is worth a thousand words, and since time and space are
limited, let's jump right to an example.  Long-time readers are
familiar with our first candidate, Nvidia (NASDAQ:NVDA), as it
was one of the darlings of 2001, staging one momentum run after
another.  Could this 2-Day Gap system have gotten us a piece of
that action?  You bet!


 

It was no great surprise to see NVDA gap down after the 9/11
attacks, but when there had been no serious attempt at a bounce
2 days later, we had a reasonably high odds entry signal to the
downside, as price action was telling us that the bears had some
decent momentum going.  The gap down/gap up action a couple days
later didn't fit the model of what we are looking for and it
didn't take long before NVDA was back on the down slope.  By the
time the bears had run out of steam, NVDA had dropped nearly $10
from our point of entry.  Judicious use of stop losses would have
netted most of that move into our account.

How about trades to the upside?  One could make an argument for
a bullish gap entry following the high volume gap higher on
October 3rd (the day after the first big white candle), but the
price action came very close to filling the gap.  It could have
been traded, but I would have liked to see a cleaner signal
before taking a position.  That clean signal came just over a
week later, as NVDA gapped higher again.  But this time there was
no retracement to speak of as the stock just powered higher.
Once again, the stock would have handed us more than a $10 gain
in very short order before the bulls ran out of steam near the
$50 level.  I'm perfectly happy to take chunks out of the middle
like that over and over.  And the position is easy to manage with
a trailing stop.

Let's look at one more example before we wrap this up.  There are
lots of beleaguered players in the Telecom sector, and shares of
Western Wireless Corp. (NASDAQ:WWCA) have certainly taken center
stage over the past few weeks.  This 2-Day Gap system would have
given us a very clean entry on January 10th, with the real pay
day arriving today as the stock gave up more than a third of its
value on very heavy trade.  Let's take a look and see what we the
2-Day Gap would have done for us.



 

The party really got started on January 8th, when WWCA warned of
slowing subscriber growth and got hit by a series of analyst
downgrades.  That produced the BIG GAP that gave us the alert
signal to pay attention.  After failing to stage even a modest
recovery, much less try to fill the gap, we had our entry signal
on January 10th.  The play was working nicely right up to
today's trading session, when the stock scored a huge drop on
fears that the company won't be able to compete against the
combined might of AT&T Wireless and Cingular, as the two
companies team up to horn in on WWCA's territory.  All but the
most complacent traders would be closing out the position this
afternoon for a great profit and looking for the next big score.
By the way, notice that there were a couple of additional bearish
gaps in the process of the overall move.  They could have been
used as additional triggers to enter the play or as good levels
for tightening up stops on the way down.

This system won't catch all the big moves, and it will even catch
some that never happen.  But it is definitely one to keep in the
toolbox due to its ability to get us into moves that can't be
captured if all we do is focus on oscillators.  Note how the big
bullish move in NVDA occurred while Stochastics were buried in
overbought and the collapse in WWCA didn't get moving until
Stochastics were deep into oversold territory.  The 2-Day Gap
system does something very important, and that is capture a fat
portion of momentum moves.

But remember our underlying premise in this discussion.  We
aren't looking for that one magic indicator, but instead want to
find a handful of indicators based on different inputs that work
together to capture the high-odds moves, while ignoring the
noise.  So next week, we'll look at how to combine the 2-Day Gap
system with the Moving Average Ribbon system.  In discussion of
these 2 systems so far, I've only highlighted the places where
one system or the other would have produced winning trades.  To
refresh your memory, we've looked at IBM, IMCL, NVDA and WWCA.
Take a look at those charts again this week, and see if you can
find instances where combining the 2 systems would have kept us
out of losing or mediocre moves.  Then ask the next important
question: did the combination of the 2 systems keep us OUT of any
home run trades.  That will be the focus of our discussion next
week.

See you next week.

Mark


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

IS Swing Trade Model: Monday 1/28/2002
Double Dud Day


News & Notes:
------------
Price action broke just outside chart patterns this morning on an 
early pop & drop move, then fell back thru support from there. 
Subsequent put plays attempted worked enough to wash both sides at 
session lows but them bounced higher to trigger trailed stops 
right at entry. A very minimal session for intraday scalps and 
failure for directional swing either way.


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


 

The OEX lies below resistance right now. Look for it to trade back 
up to the 577 – 578 area and quite likely fail from there. This 
would be an excellent place to look for shorts if/when stochastic 
values go overbought in unison as well.


[60/30-Min Chart: SPX]


 

Same deal for the SPX. The 1138 area may pose another challenge 
and send price action right back down or chopping sideways along.


[60/30-Min Chart: QQQ]


 

The Qs are trapped in tighter fashion and could break out sooner. 
these are the pivot points from which to act. 

Summation:
---------
Again we have no viable swing trade entry setups tonight. Expect 
tight range action as the most likely with the ever-present 
possibility of a strong break either way.

How to play it? Longs could try to play the breakouts if depicted 
chart patterns are penetrated up or down. I would only play in 
harmony with stochastic directional action myself and risk missing 
a surprise move counter to them. The tradeoff for this caution is 
avoiding more rangebound chop as witnessed today.

Aggressive traders can play the pattern breaks while conservative 
traders should see high-odds setups later this week. Tight stops 
and smaller than usual positions are definitely in order!


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
Feb Calls: 39 (QQQ-BM)            Feb Calls: 99 (DJV-BA)  
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 
                                

Feb Puts:  38 (QQQ-NL)            Feb Puts: 98 (DJV-NT) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 


=====


         OEX                         SPX
Feb Calls: 580 (OEY-BP)           Feb Calls: 1150 (SPT-BJ)
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 


Feb Puts: 570 (OEB-NN)            Feb Puts: 1125 (SPT-NE)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 



Open Plays:
----------
         OEX                         SPX
Feb Calls: 580 (OEY-BP)           Feb Calls: 1150 (SPT-BJ)
Long: BREAK ABOVE 576.00          Long: BREAK ABOVE 1137.00
Stop: Break Below 573.50 [hit]    Stop: Break Below 1133.00 [hit]


Feb Puts: 570 (OEB-NN)            Feb Puts: 1125 (SPT-NE)
Long: BREAK BELOW 573.50          Long: BREAK BELOW 1133.00
Stop: Break Above 573.50 [hit]    Stop: Break Above 1133.00 [hit]


IS Position Trade Model: Monday 1/28/2002
Nothing Until Wednesday

News & Notes:
------------
Major indexes refuse to begin any directional trend and continue 
their range bound ways. This merely results in time (theta) decay 
for the buy & hold trader, a losing proposition right now. I do 
not expect any potential buy & hold index or sector option plays 
until at least Wednesday beyond 2:15pm at the earliest.


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


Summation:
---------
This remains a sideways market right now, persisting until past 
the FOMC (non)event if not beyond. No viable option play entries 
exist right now.


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:
----------
SPX
Feb Puts: OTM 1125 (SPT-NE)
Long: 24.60
Stop: 15.00 [hit 14.40]
Result: -38.21% of contract cost

RTH
Feb Puts: ITM 41 (RTH-NR)
Long: 1.60
Stop: 1.00*

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


Sector Share Trade Model: Monday 1/28/2002
Banks Suffering Withdrawals

News & Notes:
------------
Not much new to note this session, besides a couple more short 
side triggers being hit. Markets are chopping sideways in broad 
fashion but internal weakness lies in many sectors.


Featured Plays:
--------------


 

One weak sector is banking and financials. Another is the 
broker/dealer index as noted in tonight's Index Wrap. These 
longer-term charts suggest directional action is at hand and 
stochastic values are poised for downside reversal.


Summation:
---------
We'll continue to short overbought weekly/daily charts in any 
sectors showing weakness while waiting for the next long-share 
play setups to emerge as well.


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:
----------------
1/24
XLF Financial SPDR
Short: BREAK BELOW 26.00
Stop:  Break Above 28.00

FFF Fortune 500
Short: BREAK BELOW 80.00
Stop:  Break Above 82.00


Open Short Plays:
----------
01/02
XLI
Short: BREAK BELOW 27.70
Stop:  Break Above 26.00 [hit 26.32]
Result: +0.68

01/14
DIA Dow Industrial Diamond
Short: BREAK BELOW  99.00 
Stop:  Break Above  97.50 [hit]
Result: +1.5

HHH Internet HOLDR
Short: BREAK BELOW 34.00 
Stop:  Break Above 33.00 *

01/15
XLV U.S. Consumer SPDR
Short: BREAK BELOW 27.00 
Stop:  Break Above 27.00 [hit]
Result: PAR

01/25
IYF Dow Jones U.S. Financial
Short: BREAK BELOW 80.00
Stop:  Break Above 83.00

IYR Dow Jones Real Estate
Short: BREAK BELOW 79.75
Stop:  Break Above 82.00

01/28
IYG Dow Jones Financial
Short: BREAK BELOW 91.50
Stop:  Break Above 93.00

RKH Regional Bank HOLDR
Short: BREAK BELOW 115.00
Stop:  Break Above 118.00


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

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

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price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
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**********
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**********

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**************************************************************
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The Option Investor Newsletter                   Monday 01-28-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


************************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.
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Anything else is too slow!

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


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

DPMI - call
Adjust from $44 up to $46

LLL - call
Adjust from $91.20 up to $96

TGH - call
Adjust from $70 up to $71

ADRX - put
Adjust from $65.50 down to $63

CIMA - put
Adjust from $31 down to $30

IVGN - put
Adjust from $60 down to $59


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

None


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

None


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more; call 1-888-889-9178 or click for more information.

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


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

ADRX - Andrx $57.83 -3.24 (-3.24 this 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 Write-Up

Like clockwork, ADRX rolled over in last Friday's session after
rallying in the previous two days of trading.  The stock's
rollover last Thursday at the $64 level proved once again that
entering stocks near resistance for put plays is a good way to
trade.  The Biotechnology Sector (BTK.X) pulled back in last
Friday's session which may have been the cause for ADRX's
weakness despite the company's good news.  ADRX said last
Friday that it had received final marketing approval for
its generic form of Glucophage.  The drug is aimed to compete
with Bristol Myers' (BMY) treatment for glycemia.  The news
may have already been factored into the stock, making last
Friday's announcement a non-event.  Our play is going to
remain tied to the trading in the broader biotech sector.  For
that reason, traders should continue to monitor the BTK.X
closely into next weeks trading.  Further weakness in the BTK.X
could finally pressure ADRX below its support at the $60
level.  Traders should look for a high volume breakdown below
$60 in conjunction with weakness in the BTK.X.  Otherwise,
future rollovers from the $65 level can serve as entries into
new put plays with a tight stop just above the 200-dma currently
at $65.72

Comments

After spending the past week stubbornly refusing to break down,
ADRX finally fell victim to the bears assault today.  The stock's
weakness was primarily due to AstraZeneca moving to further delay
ADRX's generic version of heartburn drug Prilosec.  The issue is
mired in the courts, and the latest development not only caused a
breakdown in shares of ADRX, but the weakness clearly contributed
to the breakdown in the broader Biotech sector (BTK.X) below the
$515 level.  With heavy volume (more than double the ADV)
accompanying the breakdown under the $60 level, look for support
to become resistance.  Use an oversold bounce near this level or
even as high as $62 to initiate new positions as ADRX once again
rolls over.  Momentum traders likely entered into the play on
today's breakdown, and their next high-odds opportunity will come
as ADRX breaks below the next level of support near $55.  We are
ratcheting our stop down to $63 tonight.

BUY PUT FEB-60 QAX-NL OI=2568 at $4.10 SL=2.50
BUY PUT FEB-55*QAX-NK OI= 693 at $1.85 SL=1.00

Average Daily Volume = 1.34 mln



************************Advertisement*************************
”If you haven’t traded options online – you haven’t really traded 
options,” claims author Larry Spears in his new compact guide 
book:  

“7 Steps to Success – Trading Options Online”.

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

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


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

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

Contact Support

DISCLAIMER

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