Option Investor
Newsletter

Daily Newsletter, Monday, 02/11/2002

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 02-11-2002
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)
*******************************************************************
      02-11-2002          High     Low     Volume Advance/Decline
DJIA     9884.78 +140.54  9892.80  9710.68 1.14 bln   2106/1001
NASDAQ   1846.66 + 27.78  1946.93  1815.38 1.55 bln   2003/1548
S&P 100   565.08 +  7.80   565.20   555.88   Totals   2109/1549
S&P 500  1111.94 + 15.72  1112.01  1094.68             
RUS 2000  471.32 +  4.65   472.14   466.45
DJ TRANS 2723.66 + 63.72  2724.53  2656.00
VIX        23.27 -  2.20    25.71    23.27
VXN        46.41 -  2.87    49.30    46.41
TRIN        0.49 
PUT/CALL    0.78
*******************************************************************

New Week, New Plan
By Buzz Lynn
buzz@OptionInvestor.com

Remember the battle cry from last week, "Short Every Rally"?  It worked 
like a charm until the final hour on Friday where shorts began an 
orderly, albeit low volume, covering rally.  While volume remained 
merely low to average, there is no denying the clear-as-day point gains 
across major indexes that had bullish reversal patterns forming on the 
charts today.  So in a nutshell, as Austin aptly pointed out in today's 
Market Pulse, we now ought to be looking at points of support to go 
long.

Make no mistake, this in not a battle cry for the bulls, but it may 
morph into that over the course of weeks only to be met on the other 
side by once again hungry bears.  While the shorts may be covering with 
few bears selling into the rally, the low volumes of Friday and today 
(1.14 bln NYSE; 1.55 bln NASDAQ) tell us buyers are on strike too.  For 
the time being though, the Mother Of All Put Opportunities (MOAPO, or 
"MOPO" for short) will again have to wait.

Speaking of which. . .a few Index SkyBox readers have asked me lately 
about my fundamental outlook on the economy.  Thankfully, we do not have 
a venue big enough or a soapbox tall enough for me to jabber on about 
the state and future of the world economy.  In a nutshell, I can only 
guess.  That makes my bearish prognostication no more valuable than 
anyone else', bearish or bullish.  Though I still fall to the economic 
bear camp as a "buy and holder", as a trader, I could care less.  I just 
want the equity markets to move, and I believe they will move in fits 
and starts, up and down for months perhaps years.  The raging bull is 
dead and consolidation rules.  But there will be mini-bulls and mini-
bears, all tradable to the best of our abilities.

So, my revised thinking on MOPO - not going to happen.  There are simply 
too many people hard-wired to think bullish thanks to the last 20 years 
of bovine action.  Yes, one by one, they will throw in the towel and 
realize that yesterday's tech darlings will never again have their 
starlet allure.  In the words of Eric Clapton, "She's gone".  But dreams 
die hard and once again, the price re-alignment of businesses owned for 
the purpose of earning a return becomes a process, not an event that 
takes place overnight in one big drastic price move.  MOPO is a wish by 
a bear, much as AMZN $1000 was a wish by a bull.

To that end, I'm still of the belief that excess leverage and fictional 
accounting - read that, huge debt - world-wide deflation, even greater 
declines in the Japanese economy, and recent demand for gold suggest all 
is not well in the world, which I expect will lead to falling equity 
prices in the long run.  My ballpark take on it all?  100-point lower 
highs and 100-point lower lows on the Dow for months, maybe years, to 
come.  

Even so, that will not stop the equity markets from moving in harmony 
with the ebb and flow of human emotion, which we can thankfully read in 
the charts.  As traders we don't have to guess.  We just have trade in 
the direction of the prevailing trend, and that trend appears to be 
reversing to the bullish side for now.

Shall we take a look at the charts of human emotion to see where we 
might be headed next?  In the end for us traders, charts should be all 
that matter as long as we carefully measure risk and reward.  Bulls, be 
ready to TRADE (not INVEST).  First up, the Dow.

Dow Industrials Weekly/Daily/60/30 (INDU):


 


Big picture:  The Dow weekly/daily chart stochastics are aligning in 
bullish reversal.  However, coupled with low NYSE volume and a midstream 
change of stochastic reversal, rather than emergence from oversold tips 
the markets hand that bears are scared to stay short, but "buy and hold" 
is not gaining any favor yet either.  Noticeable absence of 
institutional buyers here as the magenta 50-dma line of resistance looms 
near at 9914.  

Also note that today's candle at 9884 is a full 300 points above 
Friday's low of 9580.  That's a long way to run, and deserving of some 
giveback - exactly what the 60/30 chart stochastics suggest will happen.  
Support is at 9750, a full 120 points down, thanks to today's 
stratospheric trajectory - up.  Scalpers can likely expect some downward 
action tomorrow.  But pullbacks to support can be tested for profits on 
the long call side.


NASDAQ Weekly/Daily/60/30 (COMPX):


 


Same story, different symbol.  But if you can believe it, a bit more 
strength thanks in the COMPX, which actually reached overbought shores 
on the weekly/daily charts before attempting to cross the stream back to 
overbought, as it is now wont to do.  

Daily/ weekly stochastic is now pointed up, and would thus look for 
support at 1830 and 1815, the latter being today's low.  However, the 
rocket-trajectory of the 60/30 charts all but assures a pullback.  
Scalpers can take a whack at puts down to support given that volume is 
not supporting the bullish move

S&P 500 Weekly/Daily/60/30 (SPX):


 


Very similar to the Dow, the SPX weekly stochastic has halted its slide 
mid-course (lots of speed, no horsepower) while the daily stochastic has 
reversed from a true oversold reading.  This speaks to near-term 
strength in the charts, but the lack of volume tells us that there is an 
absence of resistance rather than huge investor desire to stampede the 
bull higher.  Nonetheless, we won't argue with the numbers.  Take it to 
mean an overall emerging bullish environment for a few days or couple of 
weeks.  But for scalpers, oversold 60/30 stochastics portend a little 
cap on the head until oversold oscillators again turn up.  Ideally, this 
happens at 1198-1102 support.  A move under 1098?  Look for 1090.

Any information to be gleaned from the VIX or VXN?  Perhaps.  The VIX is 
already approaching a lopsided bullish stance at 23.27 and falling fast 
while the VXN is similar, falling to 46.41 just off its all-time low of 
42.46.  Both of these low reading suggest the bulls have already 
(mostly) staked their claim - a contrarian sign that ought to have bears 
scratching again soon at the honey pot.  The point is that by volatility 
standards, most traders are already of bullish persuasion, which again 
lends credibility that the recent advances are weak, though still 
sustainable.

The point of all this?  The already bullish outlook, but with low market 
volume has me thinking the 300 Dow point we have seen in the last two 
days are without much staying power.  It seems that those points are 
more short covering than anything else.  Investors desirous of owning 
interests in on-going concerns are still hesitant to step up in droves 
and appear to be on strike, while short sellers seem scared of their own 
shadows.  This is not strength, but lack of current weakness.

That said, expect a modestly bullish movement during this expiration 
week with only the light breeze of news willing to shove markets in 
either direction intraday at the slightest provocation.

Still not an investors market - but traders can scalp the dips.  Long-
term investors can sell into candle strength or shore up some of last 
week's damage for modest recovery


See you at the bell!


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

Catching The Turns
Austin Passamonte

For the past six weeks we've shorted indexes and sectors with 
aplomb, racking up win after win along the way. The past two weeks 
I've gotten volumes of email that ceased asking if this or that 
was a bottom for potential call plays. Instead the majority now 
wants to know if such and such is resistance to short.

As noted in today's Market Monitor, the masses are usually correct 
in the midst of a trend but wrong on both ends. They are wrong the 
ends because most people need time for their emotional comfort 
level to accept directional change. By then it's middle to late in 
the move and another turn is already upon them. Don't be part of 
the herd: anticipate change right when the masses get comfy with a 
market's direction, especially now that the 1990s era of sustained 
trend is dead & gone for months or years to come.

Don't Sell Into A Running Bull
Whenever traders have success repeating a pattern they naturally 
want to continue forever. Basic human nature. Selling overbought 
markets is the latest high-odds method that may be changing for 
the moment.

(10-Min Charts: ES02H & NQ02H)


 

All 60/30 minute chart signals were pinned in overbought extreme 
and my inbox enjoyed a steady flow of questions wondering where to 
go short. That's easy: wait for the first "lower-high" pattern to 
post and go short when it breaks lower from there.

There were at least three clear continuation flags posted in 
today's 10-min charts for the S&P 500 and Nasdaq 100 futures. We 
use these charts for intraday setups because their signals usually 
lead the cash market. How many lower-high failures to we see? 
None. Zero. Nada. 

That means we should be going long, not short on days like this. 
The first time one of those flags was followed by a consolidation 
at lower price levels we would have looked to get short on a break 
lower, but it never happened. And this little filter kept us from 
losing a few year's worth of OI's subscription price trying to get 
short in a rising market session!

(Weekly/Daily Charts: SPX)


 

All major indexes are represented by this chart. Bullish for now 
with resistance overhead. Savvy traders will play the upside 
heavier or exclusively so long as these weekly/daily chart signals 
remain bullish. Could be four days or four weeks and no one on 
Earth can aptly guess, but none need to. Just buy support when 
chart signals remain bullish and sell resistance when they turn 
bearish later on.

(Weekly/Daily Charts: XAU.X)


 

And support looks to be next for the precious metals. Frightened 
money flocked to the XAU the past few weeks and poured out in 
rapid fashion today. This sector index was grossly overbought and 
due to relax soon. It is doing so while rotation plays ring around 
the sector, and may hit the 61.00 area soon. These chart signals 
can cycle quite rapidly so gold bugs need watch for the next 
overbought stochastic reversal as price action rests on support to 
get ahead of money cycles ahead.

Summation
We must assume the next bear market rally has now begun. Its 
distance or duration is unknown, but playing the upside while 
weekly/daily charts are bullish is where easier money lies.

Buy The Dips For Now,
austinp@OptionInvestor.com


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!

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


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

Combining Technical Tools Improves Confidence and Results
By Mark Phillips
mphillips@OptionInvestor.com

We've spent most of our time together since the first of the
year, discussing two technical tools I have found useful over the
years, the Moving Average Ribbon System and the 2-Day Gap System.
Today we're going to look at one of the charts that have recently
given signals for both systems and see how combining the 2 systems
can both improve the outcome, and give us a higher degree of
confidence in signals that appear in the future.

For those that may have missed the earlier articles that I refer
to here, I've provided links to each of them below:

New Tools for the New Year
More On The Application of Moving Averages
Another Tool For The Toolbox

In this final installment of my articles on these two indicators,
I want to focus on what I think is the meat of what enables us to
trade more profitably, no matter what system we employ for picking
our trades.  Once we decide on a particular strategy for selecting
trades, we need 3 things; confirmation, a solid entry strategy and
a solid exit strategy.

In order to properly cover the topic, we're going to focus all of
our attention on just one daily chart, that of NVDA.  In the
months since the 9/11 attacks, NVDA has really been a standout
performer in that the stock has continued to move higher, leading
the broad market.  But what I like about it is the way the trading
trigger signals have confirmed one another.



 

As the broad markets bottomed in late September, NVDA continued
to fall right up until October 3rd.  With a surge of buying
volume, NVDA launched higher from the $24 level on heavy volume.
That buying volume picked up on the 4th, as nearly twice the
average daily number of shares traded hands on a gap-up open
(Gap #1).  A high volume gap is a strong indicator that the move
will continue in the direction of the gap; We need to watch this
stock.  After the next day's price action continued to work
higher, we had a solid entry signal according to our 2-Day Gap
system.  That would have freed us up to either just enter near
the open on October 8th, or start watching for an intraday dip to
let us into the play at a more favorable price.

Trying to pick the optimum entry point is a matter of personal
preference and there are pros and cons to either approach.  Just
buying at the open on October 8th could have gotten you in at the
high of the day (in this case it was the low of the day, but you
never know at the time).  Waiting for a dip to let you in at a
better price can sometimes leave you standing at the station as
the train pulls away from the platform.  Trying to get too "cheap"
an entry can sometimes cost you far more than what you would have
saved on a slightly cheaper entry.  Making that decision is a
matter of personal preference and experience, something that can
only be acquired through time in the trenches, whether on paper
or with real money.

In this particular case though, either approach would have
worked.  Buying the open on the 8th, or catching the dip on the
9th (for those patient enough to wait for it), would have yielded
an entry in the neighborhood of $32.  The neat thing about waiting
for the dip on the 9th is that by that time, we have a bullish
entry signal coming from the Ribbon system as well -- Confirmation
between two systems is a beautiful thing!

So we've entered the position, now its time to set a stop and
protect our capital, don't you think?  I would have personally set
my initial stop at $28.50, just below the bottom of Gap #1 and
support that was resting at $29.  Then it is just a matter of
gradually moving the stop higher in concert with price action.
So it is October 10th, we are in the position with a cost basis
of $32 and we have a stop at $30 ( I would have moved it up to
here based on the fact that even the weakness on the 9th couldn't
push even close to entering that gap) and we have solid entry
signals from both the Ribbon and Gap systems.  Life is good.

Then look at the gift we get on the 11th.  Another gap move that
handily clears the $35 level.  The action on the 11th and 12th
constitutes fresh entry signals (for the 15th) from both the Gap
and Ribbon systems.  A solid double entry (Gap and Ribbon)
repeated just one week after the original signal is a powerful
confirmation.  But more importantly, Gap #2 allows us to raise
our stop to $34 on the 10th (bottom of Gap #2), and by the 15th
I would have raised it to $36 (top of Gap #2).  The neat thing
with this second gap is that we are now guaranteed a profitable
exit from the play (barring some unforeseen catastrophic event)
with our stop well above our point of entry.

This is a gorgeous momentum run underway, with new highs on
virtually every day.  Stop adjustments are easy from here on out.
Each day, I raise my stop to the low from 2 days earlier (so
long as that is higher than my current stop).  So on October
18th, my stop would be $39.37, on the 19th it would be $41.40 (I
try to avoid using round numbers), etc.  Notice that up through
the 25th of October, Stochastics are virtually worthless, as
they meander along in overbought territory, as price continues
northwards.

Then look what happens on October 26th.  A big red candle that
has a nasty effect on our daily Stochastics, causing the fast
line to drop out of overbought territory for the first time in
over 3 weeks.  While it isn't an exit signal, it is a warnings
that our run could be coming to an (at least temporary) end.
Following our discipline, the stop gets adjusted to $44.80 (the
low from the 25th) and we await further market action.  Well, we
don't have to wait long, as our stop is taken out shortly after
the open the next day, as the prior day's selloff continues.
Allowing for some slippage, it is reasonable to say that we
likely got out of the play near $44, making for a $12 gain
(37.5%) in 3 weeks.  

These are the kind of big moves that we want to capture over and
over, but we need to remember that they are the exception, not
the rule.  Many signals from either the Gap or Ribbon systems
will be met by sideways trade or even an abrupt reversal.
Confirmation is the first key to success, with proper position
management being the essential tool to keeping those profits
after they have materialized in your account.  When trading
momentum moves like the one we just walked through in NVDA, I
like to use the 2-day rule for ratcheting my stop higher.  I just
move it to the low of 2 days ago as the price of the stock works
higher.  For put plays, just move the stop to the high of 2 days
ago as the stock works lower.

While I haven't shown it here, NVDA gave us several other signals
to the upside following the one we just dissected.  Some were
good, and others were mediocre or even poor.  One of the bad ones
came with a simultaneous Gap and Ribbon entry on November 13th,
after which the stock immediately headed south for a $6 7-day
decline.  The first sign of trouble here came from the daily
Stochastics once again dropping out of overbought territory.
Remember, it is hard to have a momentum run to the upside with
daily Stochastics dropping.  So when you have a bullish entry
from the Gap or Ribbon systems and daily Stochastics are rolling
south, it may be a warning signal to stay away from the play.

Also not shown here, the recent gap higher in shares of RATL
(1/24/02) immediately started to look bad.  Price started falling
into the gap almost immediately, daily Stochastics rolled over
before even entering overbought, we got no confirming signal from
the Ribbon system and volume remained heavy, although the price
was unable to advance.  Remember that heavy volume with a stock
trading sideways is a sign of churning; there are lots of shares
trading hands, but none of that action can move the price either
direction.  It is a sign of a possible trend reversal.  Sure
enough, that is what happened last week as the stock broke down
in a big way.

Here's one more to look at in the comfort of your own home.  Look
at the powerful gap up on NVDA on December 4th, followed by
another one on the 5th, accompanied by increasingly heavy volume.
Entry on the following day would definitely have given the best
entry, but a stop at the bottom of the second gap would have kept
you in the play while waiting for the stock to get moving up
again.  The trade would eventually have been stopped out on
December 19th for a modest gain ($3-6, depending on entry point),
but the entry setup contains all the positive elements we are
looking for; Gap entry and Ribbon entry at the same time,
overbought Stochastics and strong buying volume.

While the system will occasionally give bad signals, disciplined
application of a stop loss approach should keep you on the winning
side of trades most of the time and keep losses small when a
trade goes against you.  By the way, one of the neat things about
waiting for signals from the Ribbon system to be confirmed by the
Gap system is that the gaps give us a great point to initially
place our stop.  The Gap and Ribbon systems do not relieve us
from the disciplined approach that is necessary to consistently
trade profitably, but hopefully you will find their application a
useful addition to your trading toolbox.

We'll all be on vacation next Monday, but join me the following
week, as I have another little technical tool to share -- this
one I just found over the weekend, but it certainly looks
interesting to me.  I'm certainly looking forward to sharing it
with all of you!

See you then,

Mark


************************Advertisement*************************
If you trade options online, then you need an online broker that:
offers true direct access to each option exchange offers stop and 
stop loss online option orders offers contingent option orders 
based on the price of the option or stock offers online spread 
order entry for net debit or credit offers fast option executions

PreferredTrade offers these online option trading features and 
more; call 1-888-889-9178 or click for more information.

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


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

IS Swing Trade Model: Monday 2/11/2002
Trending Session

News & Notes:
------------
Intraday charts looked a bit extended for call-play entries this 
morning, but such was not the case. Buying the open would have 
worked favorably into the close on a very methodical rally today.


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


 

We weren't late to the party this morning, but didn't know that at 
the time. Price action trended upward with minor pause and no 
pullbacks along the way. Now trading at/above resistance points, 
the next successful pullback to support is our call-play entry.


[60/30-Min Chart: SPX]


 

Same for the SPX. Watch for channel lines or moving average to 
hold price action above support when stochastic values release 
from overbought extreme and then turn bullish once more. That's 
our next high-odds swing trade setup.


[60/30-Min Chart: QQQ]


 

Same for the QQQ. A pullback to support should be bought with 
bullish plays on the first sign of a bounce from there.


Summation:
---------
Intraday charts are pinned in overbought extreme but will not 
remain there very long. Soon they will cycle back down towards 
oversold extreme but might not make the entire trip. Watch for 30-
min chart signals to hit oversold and possibly reverse almost 
immediately while 60-min chart signals short cycle. This would 
suggest a continuation move higher from there.

Price action will pull back soon, but not in swing trade setup 
fashion. Playing the downside might work great, but swing trades 
follow the weekly/daily chart oscillator trend and right now it is 
pointing upward. Day traders attempting to play puts/short the 
next move down must be wary of fading this trend and nimble to 
exit at a moment's notice as well.

We expect to enter call plays in the next session or two and ride 
our next winner from there.


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

Feb Puts:  36 (QQQ-NJ)            Feb Puts: 98 (DJV-NT) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above none            Stop: Break Above 


=====


         OEX                         SPX
Feb Calls: 570 (OEB-BN)           Feb Calls: 1125 (SPT-BE)
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 


Feb Puts: 560 (OEB-NL)            Feb Puts: 1100 (SPT-NT)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 



Open Plays:
----------
None


IS Position Trade Model: Monday 2/11/2002
Pop Goes The Market

News & Notes:
------------
As expected from the weekend Gameplan section, indexes posted a 
solid pop today and ushered in a new series of March call plays 
tracked.


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


Summation:
---------
We will track Feb put option contracts following the 100% risk-
loss capital method in lieu of stops right into expiration. If the 
market dives this week they have a chance. If not, we took the 
maximum loss possible right at the point of entry so no harm done.

March contracts also use 100% risk capital and no stops. We will 
initiate stops if/when gains accrue above entry in order to manage 
capital from there.


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. 

*No entry targets listed means the model is idle at this time.


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


Open Plays:
----------
Feb Puts: 36 (QQQ-NJ)          Feb Puts: 96 (DJV-NR) 
Long: BREAK BELOW 36.00        Long: BREAK BELOW 96.50
Entry: 1.10                    Entry: 1.30
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

Feb Puts: 540 (OEB-NH)         Feb Puts: 1075 (SPQ-NO)
Long: BREAK BELOW 549.00       Long: BREAK BELOW 1083.00
Entry: 5.40                    Entry: 14.00
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital


QQQ                            SMH
March Calls: 36 (QQQ-CJ)       March Calls: 44 (SMH-CI) 
Long: BREAK ABOVE 36.25        Long: BREAK ABOVE 44.00
Entry: 2.10                    Entry: 2.15
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

BBH                            HHH
March Calls: 125 (GBZ-CE)      March Calls: 30 (HHH-CF)
Long: BREAK ABOVE 117.75       Long: BREAK ABOVE 31.00
Entry: 2.10                    Entry: 2.50
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

PPH                            OIH
March Calls: 95 (PPH-CS)       March Calls: 60 (OIH-CL)
Long: BREAK ABOVE 95.00        Long: BREAK ABOVE 56.75
Entry: 2.20                    Entry: 1.50
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital


Sector Share Trade Model: Monday 2/11/2002
Big Pop On Little Volume


News & Notes:
------------
All of our long share play entries tracked open this session and 
all but one of the previous short plays tracked were closed. This 
tells us that market action is either getting choppy or turning 
direction, and weekly/daily charts suggest the latter. 


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


Summation:
---------
Our focus is now to the upside, although any potential gains in 
this direction usually come at a slower, staccato pace compared to 
downside action. We will be picky & patient about play selection 
and management from here.


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:
----------------
02/06
XLV U.S. Cyclical/Transport
Short: BREAK BELOW 28.50 
Stop:  Break Above 27.50 [hit]
Result: +1.00 [+03.50%]

UTH Utilities HOLDR
Short: BREAK BELOW 84.50 
Stop:  Break Above 85.50 [hit]
Result: -1.00 [-01.12%]

RTH Retail HOLDR
Short: BREAK BELOW 96.40 
Stop:  Break Above 97.00 [hit]
Result: -0.60 [-00.06%]

IDU Dow Jones U.S. Utilities
Short: BREAK BELOW 60.00 
Stop:  Break Above 60.50 [hit]
Result: -0.50 [-00.08%]

IYF Dow Jones U.S. Financials
Short: BREAK BELOW 74.50 
Stop:  Break Above 77.00 [hit]
Result: -2.50 [-03.36%]

IYR Dow Jones U.S. Real Estate
Short: BREAK BELOW 80.00 
Stop:  Break Above 80.50 *

IJJ Mid-Cap 400 BARRA SPDRs
Short: BREAK BELOW 88.20 
Stop:  Break Above 89.00 [hit]
Result: -0.80 [-00.90%]


Open Long Plays:
---------------
LONG
QQQ
Long: BREAK ABOVE 36.25
Stop: Break below 35.00

SMH
Long: BREAK ABOVE 44.00
Stop: Break below 42.00

BHH
Long: BREAK ABOVE 3.80
Stop: Break below 2.90

BDH
Long: BREAK ABOVE 14.00
Stop: Break below 12.90

HHH
Long: BREAK ABOVE 31.00
Stop: Break below 29.75

IAH
Long: BREAK ABOVE 35.00
Stop: Break below 33.00

TTH Telecom
Long: BREAK ABOVE 39.00
Stop: Break below 37.00

OIH Oil Services
Long: BREAK ABOVE 56.75
Stop: Break below 56.00 *

MKH Market 2000+ Big Caps
Long: BREAK ABOVE 57.25
Stop: Break below 55.00

IYH Healthcare
Long: BREAK ABOVE 59.75
Stop: Break below 56.50

PPH Drugs
Long: BREAK ABOVE 94.75
Stop: Break below 91.50

BBH Biotech
Long: BREAK ABOVE 117.75
Stop: Break below 113.00

XLB Basic Technology
Long: BREAK ABOVE 22.00
Stop: Break below 20.50


************************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
The Option Investor Newsletter                   Monday 02-11-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!

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


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

ESRX - call
Adjust from $47 up to $49

TRW - call
Adjust from $41 up to $41.75

TYC - call
Adjust from $27 up to $29


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

None


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

CCMP $66.68 +3.15 (+3.15) Shorts were getting squeezed all over
the place Friday afternoon and on Monday.  Since CCMP took off
from the $62 level on Friday, it has tacked on nearly $5.00.
Despite the fact that volume has been rather light, we can't
argue with the price action, which propelled the stock through
our $66.50 stop on its way to closing at the high of the day.
We'll have to take our lumps on CCMP and move it to the drop
list tonight.

GS $84.85 +1.05 (+1.05) How quickly things change in the markets
lately.  The unloved Broker/Dealer index (XBD.X) couldn't find a
buyer to prop it up this time last week, but the past two days
have seen buyers ruling the show.  With the gap from last week
now filled, GS looks like it will continue to work higher along
with the rest of the broad market.  This play gave us a nice ride
to the downside as the XBD collapsed last week, but it is clear
that it is time to get off.  With our stop violated and buyers
in control, GS moves to the drop list tonight.


************************Advertisement*************************
If you trade options online, then you need an online broker that:
offers true direct access to each option exchange offers stop and 
stop loss online option orders offers contingent option orders 
based on the price of the option or stock offers online spread 
order entry for net debit or credit offers fast option executions

PreferredTrade offers these online option trading features and 
more; call 1-888-889-9178 or click for more information.

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


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

ESRX – Express Scripts $53.13 +3.08 (+3.08 this week)

Express Scripts provides health care management and
administration services on behalf of clients that include
health maintenance organizations, health insurers,
third-party administrators, employers and union-sponsored
benefit plans.  The company's fully integrated pharmacy
benefit management services include network claims processing,
mail pharmacy services, benefit design consultation, drug
utilization review, formulary management, disease management,
medical information management services and informed decision
counseling services through its Express Health Line division.

Most Recent Write-Up

Investors looking for a solid bullish play will have to look
awfully hard to find a better sector than the Health Care index
(HMO.X).  Reflecting investors' positive reception of earnings
in this sector, the HMO index has rocketed higher over the past
month, clearing resistance first at $450, then $480, and on
Friday eclipsing its all-time high of $503.  There must be some
tasty grass in these pastures, because the bulls seem very
happy.  After consolidating in the wake of its addition to the
NASDAQ-100 in late December, shares of ESRX have gone along for
the ride, completing their own breakout on Friday by pushing
through the $49 resistance level and simultaneously clearing the
200-dma (currently $48.45).  While there is definitely some
congestion immediately overhead, near $51, resistance doesn't
become heavy until the $53 level.  Clearly investors were pleased
with the company's earnings report last Wednesday, as it was
followed by the buying surge that propelled the stock through
resistance.  Look for a pullback to support in the $48-49 area
to provide attractive entry opportunities.  Set stops at $47.

Comments

A positive market was precisely what ESRX needed to get its
breakout firing on all cylinders, as Monday's broad market rally
propelled the stock to a 6% gain, with volume exceeded the ADV by
more than 100%.  Who says you can't find a good breakout move to
play these days?  ESRX really got started when it pushed through
the 200-dma last Thursday, and today's buying momentum took ESRX
right to the next level of resistance in the $53-54 area.  There's
some serious congestion here, so the best bet for new entries will
be to buy the dips, rather than attempting to chase the stock
higher.  Look for new entries on a bounce from intraday support
near $52.  We're raising our stop to $49 tonight, and although a
dip near the $50 level would provide a better entry point, if ESRX
were to fall back that far, we would have to be concerned about
the possibility that the bulls have lost their resolve.  So only
initiate new positions near the $50 level if the bounce is
accompanied by strong volume.

*** February contracts expire this week ***

BUY CALL FEB-52 XTQ-BX OI=1225 at $1.30 SL=0.75
BUY CALL FEB-55 XTQ-BK OI= 107 at $0.50 SL=0.00
BUY CALL MAR-50 XTQ-CJ OI= 383 at $4.40 SL=1.50
BUY CALL MAR-55*XTQ-CK OI=  60 at $1.70 SL=0.50
BUY CALL MAY-55 XTQ-EK OI= 107 at $3.50 SL=1.75

Average Daily Volume = 1.42 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

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives