Option Investor
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Daily Newsletter, Tuesday, 02/12/2002

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The Option Investor Newsletter                 Tuesday 02-12-2002
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)
************************************************************
      02-12-2002           High     Low     Volume Advance/Decline
DJIA     9863.70 – 21.10  9906.00  9811.60 1.09 bln   1520/1560
NASDAQ   1834.21 – 12.45  1852.22  1817.13 1.59 bln   1708/1804
S&P 100   562.51 -  2.57   565.30   560.02   Totals   3228/3364
S&P 500  1107.50 -  4.44  1112.68  1102.98             
RUS 2000  472.01 +   .69   473.55   467.67
DJ TRANS 2730.76 +  7.10  2747.75  2697.32
VIX        23.47 -  0.07    24.98    23.29
VXN        45.45 -  0.96    47.59    44.87
TRIN        1.40 
PUT/CALL    0.80
*************************************************************

Old Resistance Tested Again

After two big days of gains the markets rested. Actually the 
performance was nothing short of remarkable. The +300 point
gain on the Dow in two days of trading held in the face of 
possible terrorist attacks, low volume and continued accounting
questions. The Nasdaq managed to hold its gains in front of the 
AMAT and NTAP earnings. Even a warning by Nortel failed to tanks
the techs again.



 



 


Nortel announced this morning that their CFO had quit for 
inappropriate stock trades and that weak first quarter demand
would make it hard to meet earnings targets. The CFO had traded
Nortel stock illegally in his 401K and Nortel had reported the
trades to stock regulators. CFO Hungle said he was resigning due
to two mistakes he made in 2001 when he traded the stock. The 
regulators are said to only be looking at his trades and not
the company as a whole like in the Enron case. Hungle reportedly
sold stock in his 401K just prior to an earnings warning and
then bought stock back in December just prior to a positive
earnings announcement. He lost his million dollar a year job
for $20K in stock profits. Sounds like he needs to take math
class over again.

Nortel said that customers trimming orders in the 1Q were going
to cause NT to report lower earnings than previously expected.
They said shrinking orders in the last 25 days showed that 
customers were not going to spend any money which was not
absolutely required. They still feel that they will return to 
profitably by the 4Q. The warning hit the already depressed
networking/telecom sectors but only slightly.

The heat on Nortel this morning was mild compared to the heat
on Kenneth Lay as he was verbally flogged for over an hour even
though he declined to testify. He was called worse than a carnival 
barker and worse than Charles Ponzi as each of the panel members
took advantage of the high profile news event to campaign for 
future votes. 

EMC and KKD were the focus stocks of the day for accounting 
problems. EMC lost -1.04 after a report that a former vice 
president, who claimed EMC booked revenue improperly, met with
the SEC. Details of the meeting were not known but he said in
a deposition last year he was troubled by dealings with certain
resellers and related earnings. KKD went on the offensive after
questions arose about questionable accounting methods. They
changed their method of financing construction of a new 
dough-mixing plant from a synthetic lease to conventional 
financing that will show up on their balance sheet. They also
took the opportunity to raise the estimates of the cost of the
plant to $35 million and affirm their earnings estimates for 
the last quarter.

Another one bites the dust. Kaiser Aluminum, KLU, filed for 
bankruptcy blaming a weak economy, depressed prices and asbestos
litigation. They received $300 million in emergency funding from
BAC and assured analysts it would be enough to see it through
the bankruptcy process.

On the earnings front there were two high profile tech stocks
that announced after the bell. AMAT beat the street by two cents
on a -54% drop in orders from the same period last year. They
said the current quarter was a challenging environment but they
expected orders in the 2Q to rise +10-15%. They still see a drop
in capital spending in 2002 of about -25% but feel the bottom is
behind them. 

Network Appliance (NTAP) also beat the street on a solid quarter
even though they booked only two thirds the revenue of the same
quarter the prior year. The CEO said competition had eased and 
earnings per share would be steady (flat) this quarter on a 
revenue rise of 2-5 percent. "We found the bottom and we are
actually seeing a slight trend up." Cheaper component prices
improved gross margins to 62.2%. Let's see, EMC is facing 
accounting questions and NTAP is seeing less competition, higher
gross margins and a rise in revenue. Who do you think will get
investor votes?

Investors attempted to continue the two-day winning streak by
the Dow but were simply unable to power through the 9900 level
on the low volume. 9900 has been strong upper level resistance 
since mid-January and is the next hurdle the Dow will have to 
cross. After the successful penetration of 9750 on Monday the 
index simply ran out of steam with the weight of possible 
terrorist attacks and AMAT earnings looming overhead.
Wednesday could be much different. With the Nasdaq knocking on 
the door at 1850 the positive comments from both AMAT and NTAP
might be enough to push the averages to the next level. 

Even though the markets finished slightly lower on Tuesday there
was a slight uptrend from the morning lows. It was as though they
were finally drifting up instead of down. I would advise traders
to tighten up their stops at this point and watch as the battle
for 9900/1850 progresses. Should the bulls win, it would be on
the continued evidence of a slight upturn in the economy. Should 
this concept continue to pan out a real rally could be in our
future. Keep your fingers crossed but also keep those stops in
place.

Jim Brown


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

One Out Of Three Will Rock
Austin Passamonte

One very reliable market pattern during expiration week is at 
least one out of the final three trading sessions is usually a 
large-range day. Of the three, Wednesday and/or Thursday tend to 
move the most. Was Tuesday's sideways chop the precursor for such 
a setup?

I don't know, but one thing is for sure: between Wednesday's open 
and Friday's close there will be some number of February equity 
and/or index option contracts that gain +100% to 1,000% in value 
along the way. Trading expiring options is no more risky than 
LEAPS... the level of risk/reward is totally and completely up to 
us, and how we manage our allotted capital on either type play 
makes all the difference. Time remaining until expiration makes 
zero difference in the equation of risk/reward when moving markets 
are chosen and entered properly.

(60-Min Chart: SOX)


 

Here is a trading channel that has held the Semi-Conductor Index 
since first week of January. Today the sector broke its oppressive 
resistance line dating back six weeks. Will it hold? Oscillators 
are bearish and price action closed below the 200 hourly moving 
average. A break below 539 could be looking for support near 
recent lows, and holding current levels of support if/when 
stochastic values go oversold may be the next solid call play 
entry as well. 

One thing we know about the SOX for sure: it is a volatile index 
prone to making big moves on any given day. Option prices this 
week could expire worthless or soar into the stratosphere as they 
often have before.

(60-Min Chart: OEX)


 

Both S&Ps have behaved very nicely within these descending 
channels and allowed us to sell every rally that failed at various 
lines of resistance within to print plenty of c-notes these past 
six weeks. Now we have price action above it and wedged to break 
free. Which way? With oscillators in midstream I wouldn't bet 
either side heavily, but my thoughts on that are noted within 
Swing Trade Gameplan tonight.

(60-Min Chart: QQQ)


 

Similar pattern in the QQQ, except it lies just below resistance 
after rejection yet again. Pinned between an action point of 
support and resistance on that final red candle, I wouldn't be 
surprised is the Feb 36 strike call or put options don't see some 
considerable price swings over the next three days.

Perfect Storm!
We seldom get such a perfect setup like this on expiration week, 
yet here it is. Contracts are stripped of their worthless time 
premium and pure market movement drives their value to incredible 
degrees. Each index shown is coiled and ready to move. Three 
sessions remain for the cycle, and at least one of them should be 
big. I'm not saying everyone should go out and buy calls, puts or 
both at the open, but I do suggest keeping an eye on where option 
prices for these indexes go. The education will be priceless and 
if the markets behave the way we think they might, it could be a 
fun time ahead from bell to bell this week!

A Large-Range Session Lies Ahead,
austinp@OptionInvestor.com


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

Holding Pattern
By Eric Utley

Sentiment has reverted from fear to a wait-and-see stance.  Stocks
have worked off their short-term oversold nature, which reached a
peak through last Thursday's session.  Monday's follow-through
felt like more short covering, thus working off the oversold
position of stocks.  Tuesday's trading was indicative of a market
on hold.  Volume was light and several of the market's leaders
traced what traders refer to as an inside day.

An inside day is a day in which price trades within the previous
day's range.  The inside day can reveal either a reversal of
recent trend or a pause before a continuation in the trend.
Judging by Tuesday's omnipresent inside days, a decent move may
be just over the short-term horizon.  Typically, the direction in
which the asset breaks from its inside day portends short-term
direction.  Here's a list of a few of the stocks that traced
inside days Tuesday:

Microsoft      (NASDAQ:MSFT)
AOL Time Warner   (NYSE:AOL)
Intel          (NASDAQ:INTC)
Citigroup           (NYSE:C)
Goldman Sachs      (NYSE:GS)
Cisco Systems  (NASDAQ:CSCO)
J.P. Morgan Chase (NYSE:JPM)
Qualcomm       (NASDAQ:QCOM)

The above are the who's who of big cap stocks and have a
large impact on the averages.  A breakout or breakdown of
the inside days in these stocks could give insight into the
next short-term move in the market.

Separately, the Nasdaq-100 ($BPNDX) has put in some basing
work over the last two days.  The indicator is now two stocks
away from bull alert.  I'll be watching this indicator closely
in the next two sessions for a switch from bearish to bullish.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9864

Moving Averages:
(Simple)

 10-dma:  9773
 50-dma:  9918
200-dma: 10080



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1108

Moving Averages:
(Simple)

 10-dma: 1103
 50-dma: 1135
200-dma: 1162



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1465

Moving Averages:
(Simple)

 10-dma: 1481
 50-dma: 1586
200-dma: 1602



Biotech ($BTK)

The biotechnology sector was once again the best performing
sector, following last Friday's impressive showing.  The BTK.X
gained 4.23 percent in Tuesday's session.  The buying in the
group was again broad-based, ranging from the high flying
genomics concerns to the established firms with earnings.  Top
performers within the group included Myriad Genetics
(NASDAQ:MYGN), Vertex (NASDAQ:VRTX), and Affymetrix (NASDAQ:AFFX).

52-week High: 676
52-week Low : 382
Current     : 521

Moving Averages:
(Simple)

 10-dma: 491
 50-dma: 550
200-dma: 545


Networking ($NWX)

The NWX.X quietly slid lower in Tuesday's session, earning the
day's worst performing sector spot.  The NWX.X shed 3.29
percent for the day.  Nortel (NYSE:NT) cast a bearish cloud
over the group with its downbeat comments late Monday night.
Leading the way down: Avaya (NYSE:AV) -12.03%, Juniper
(NASDAQ:JNPR) -7.59, and Sonus (NASDAQ:SONS) -7.34 percent.

52-week High: 707
52-week Low : 201
Current     : 275 

Moving Averages:
(Simple)

 10-dma: 288
 50-dma: 323
200-dma: 330

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

Market Volatility

The VIX has been in free fall for the last three days prior to
Tuesday's session, when it finally stabilized at the 23 and
change level.  Fear has subsided.

The VXN has followed a similar path, shedding about six points
in the last three sessions.  It's approaching its all-time lows
once again.

CBOE Market Volatility Index (VIX) - 23.47 -0.07
Nasdaq-100 Volatility Index  (VXN) - 45.45 -0.96

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.80        557,497       447,336
Equity Only    0.74        440,142       325,187
OEX            1.87         17,211        32,220
QQQ            2.22         14,306        31,763
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          51      + 1     Bull Alert
NASDAQ-100    32      + 3     Bear Confirmed
DOW           53      + 0     Bull Correction
S&P 500       55      + 1     Bull Correction
S&P 100       58      + 1     Bull Correction

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  0.88
10-Day Arms Index  1.24
21-Day Arms Index  1.32
55-Day Arms Index  1.21

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      1520           1560
NASDAQ    1708           1804

        New Highs      New Lows
NYSE       97             39
NASDAQ     71             39

        Volume (in millions)
NYSE     1,099
NASDAQ   1,595

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

Commitments Of Traders Report: 02/05/02

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

The prior week was fairly quiet in the S&P.  Commercials added
a few longs, while small traders added a few shorts.  No major
changes to report as you'll see the positions remained similar
to the prior week.

Commercials   Long      Short      Net     % Of OI 
01/22/02      342,841   394,041   (51,200)   (6.9%)
01/29/02      345,583   401,923   (56,340)   (7.5%)
02/05/02      347,583   401,569   (53,986)   (7.2%)

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
01/22/02      125,451     65,423   60,028     31.4%
01/29/02      128,826     63,127   65,699     34.2%
02/05/02      128,235     64,404   63,831     33.1%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Commercials added a few more shorts than longs in the last
week for a net gain in the group's bearish position.  Meanwhile,
small traders added longs and subtracted shorts.

Commercials   Long      Short      Net     % of OI 
01/22/02       30,671     34,103    (3,432)  (5.3%)
01/29/02       31,577     33,651    (2,074)  (3.2%)
02/05/02       32,357     35,405    (3,048)  (4.5%)

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
01/22/02       11,885     8,787     3,098     15.0% 
01/29/02        9,709     8,293     1,416      7.9%
02/05/02       10,416     8,173     2,243     12.1%

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 traders grew more bullish last week by adding to
their longs and taking away from their short positions.  The
result was a net increase in the bullish position by about
2,000 contracts.  Small traders, as they often do, went in
the opposite direction by growing more bearish.  The group
added nearly 1,000 shorts to their net bearish position.

Commercials   Long      Short      Net     % of OI
01/22/02       18,152    11,013    7,139     24.5% 
01/29/02       19,956    12,171    7,785     24.2%
02/05/02       21,868    12,068    9,800     28.9%

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
01/22/02        5,424     8,969    (3,545)   (24.6%) 
01/29/02        5,872     9,709    (3,837)   (24.6%)
02/05/02        5,764    10,528    (4,764)   (29.2%)

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: Tuesday 2/12/2002
Nothing At All

News & Notes:
------------
That pretty much sums up the swing trade opportunities available 
today. We continue to wait for the next entry point and may have 
something in development tonight.


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


 

We've played the same price channel relationship for a few weeks 
now. Nothing has been changed on these charts. Notice today's 
consolidation wedge shaping up right near the upper channel line. 
This dates back to the highs from 1st week of January and should 
offer firm support. A break below it would be bearish indeed, 
right near the 560 level.

[60/30-Min Chart: SPX]


 

The SPX is coiling right on S/R line spanning the past six weeks 
and actually closed just below. This difference from the OEX is 
influenced by greater sector diversity, and suggests broader 
weakness short-term right now. Note that stochastic values for 
both S&P indexes are weak to bearish.

[60/30-Min Chart: QQQ]


 

The NDX also struggles near resistance right now and stochastic 
values are bearish. Highest odds are for price action to move 
lower again before bouncing from support if a bounce is in the 
offing.

Summation:
---------
We have posted both call and put play triggers to game. With three 
days of trading left for Feb QQQ and OEX options and two days left 
for the SPX, any modest to large index moves will result in solid 
to massive gains. Therefore, aggressive traders can press the 
pedal a bit more on entry attempts but using 100% risk capital 
instead of stops is strongly suggested.

If one side of the triggers are hit and new plays entered to 
track, we will follow them until sufficient gains accrue or they 
expire OTM whichever comes first. A market reversal that triggers 
the other direction will see a second batch of plays tracked for 
the same duration as well. 

We are prepared to hold long strangles from Wednesday volatile 
action into cessation of trading on the chance that big moves in 
one or both directions will see favorable results from our effort. 
Hence, tight triggers set to catch maximum distance from resting 
prices and willingness to hold long strangles for hedged gain into 
the likelihood of at least on large range session in the next 
three.

Again, zero dollar stops will be applied... this is 100% risk loss 
capital only from here until the closing bell on Friday. Do not 
buy more option contracts than you are willing to lose 100% of the 
total cost on!


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 36.50           Long: BREAK ABOVE 98.50
Stop: None – 100% risk loss       Stop: None – 100% risk loss
                                

Feb Puts:  36 (QQQ-NJ)            Feb Puts: 98 (DJV-NT) 
Long: BREAK BELOW 36.25           Long: BREAK BELOW 98.25
Stop: None – 100% risk loss       Stop: None – 100% risk loss


=====


         OEX                         SPX
Feb Calls: 570 (OEB-BN)           Feb Calls: 1125 (SPT-BE)
Long: BREAK ABOVE 564.00          Long: BREAK ABOVE 1110.00
Stop: None – 100% risk loss       Stop: None – 100% risk loss


Feb Puts: 555 (OEB-NM)            Feb Puts: 1100 (SPT-NT)
Long: BREAK BELOW 560.00          Long: BREAK BELOW 1105.00
Stop: None – 100% risk loss       Stop: None – 100% risk loss



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


IS Position Trade Model: Tuesday 2/12/2002
Nowhere In Dull Fashion

News & Notes:
------------
As we warned last night and this morning, indexes merely chopped 
around without finding much headway this session.


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: Tuesday 2/12/2002
Sideways Session

News & Notes:
------------
Markets chopped up & down in volatile fashion today, much 
like we expected they would. Stop-loss orders on current 
plays tracked have been tightened down as we remain in 
turbulent market conditions still.


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


Summation:
---------
chart signals are mixed and so is price action accordingly.
No new entry setups at this time, we remain in management 
mode for now.


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


Open Long Plays:
---------------
LONG
QQQ
Long: BREAK ABOVE 36.25
Stop: Break below 36.00 *

SMH
Long: BREAK ABOVE 44.00
Stop: Break below 43.00 *

BHH
Long: BREAK ABOVE 3.80
Stop: Break below 3.00 *

BDH
Long: BREAK ABOVE 14.00
Stop: Break below 13.90 

HHH
Long: BREAK ABOVE 31.00
Stop: Break below 30.25

IAH
Long: BREAK ABOVE 35.00
Stop: Break below 34.50

TTH Telecom
Long: BREAK ABOVE 39.00
Stop: Break below 38.00

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 57.00 *

IYH Healthcare
Long: BREAK ABOVE 59.75
Stop: Break below 59.00 *

PPH Drugs
Long: BREAK ABOVE 94.75
Stop: Break below 95.25 *

BBH Biotech
Long: BREAK ABOVE 117.75
Stop: Break below 119.00 *

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


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The Option Investor Newsletter                  Tuesday 02-12-2002
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:
*****

LH $86.26 -0.29 (-1.24) Take the money and run!  We got just what
we were looking for on Friday, as LH rocketed sharply higher
along with the broader Health Care sector, reaching as high as
$88 in afternoon trading.  Yesterday saw this level tested again,
before the stock pulled back a bit and then weakened a bit more
on Tuesday.  While there could still be some gas in the tank,
we're going to pull the plug on LH tonight ahead of the company's
earnings report due out tomorrow after the closing bell.  Use any
strength on Wednesday to gain a better exit ahead of the
announcement.


PUTS:
*****

None


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

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

CALLS              Mon    Tue

UPS      56.70    1.43  -0.08  Thanks FedEx, resistance at $57
ASYT     16.90    0.95  -0.29  Needs the SOX.X to breakout
UNH      75.56   -0.03   1.16  Right group to be a bull
LH       86.26   -0.95  -0.29  Dropped, nice pop, earnings
ESRX     52.61    3.08  -0.52  Very nice Monday, look for more
TYC      30.50    1.92  -1.30  Rebounded to the 10-day Monday
TRW      43.81    1.18  -0.16  Relative strength working well
CTX      57.24   -0.04   1.28  New, strong sector, strong stock


PUTS

TLAB     13.33    0.69  -0.48  Waiting for market weakness again
ADI      40.25    2.03  -0.65  Weak chip stock, earnings Thursday
MMS      32.60    1.37   0.59  Relief rally up to the 10-dma
KLIC     15.85    1.05   0.11  Shorts covering, AMAT tomorrow
A        26.16    0.76  -0.58  Buoyed by market, next leg lower?
KSS      68.31    1.69  -0.08  New, retail rollover near resistance
CHKP     31.49   -1.03  -1.25  New, weak software growing weaker


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

UPS $56.70 -0.08 (+1.35) UPS competitor FedEx delivered a
positive outlook Monday, which helped to lift both stocks.  FDX
said that it might top its third quarter earnings expectations
due to use of its relatively cheaper ground services and cost
cutting.  The bullish sentiment surrounding FedEx helped to
push UPS higher for the second consecutive session since
rebounding from its 200-dma last week.  But of course the
market had been higher in the two days.  Notably, UPS finished
fractionally lower in today's session, which mirrored the
performance of the broader market as seen in the S&P 500 and
Dow Jones.  This play continues to be tied to the broader
market, so it's important to take that into consideration when
planning entries and exits.  If the market continues higher in
tomorrow's session, look for an advance past the $56.86 level.
If market weakness pressures UPS lower, wait for a rebound from
the 200-dma down at $55.50.

ASYT $16.90 -0.29 (+0.66) ASYT used its relative strength in
yesterday's session to work nicely higher, but gave back a
little of that gain in today's session.  The stock is
obviously tracking the Semiconductor Sector Index (SOX.X)
very closely.  The SOX.X was strong in yesterday's session
but pulled back in today's ahead of Applied Materials'
(NASDAQ:AMAT) earnings report and conference call.  The company
has clout as it's the largest maker of chip equipment.  The
market's reception of AMAT's guidance will determine the
direction of the SOX.X in today's trading, which will in turn
impact our ASYT play.  Watch the broader sector closely.  If
the SOX.X rallies, look for ASYT to breakout from its recent
trading range.  Look for an advance above the $17.50 level on
strong volume.  Otherwise wait for a pullback down into the
$16 support zone.  

ESRX $52.61 -0.52 (+2.56) Large gains tend to be followed by
small-range consolidation days and that is certainly the case
with shares of ESRX.  After breaking out above the $48 level and
the 200-dma late last week, the stock experienced a sharp rally,
culminating with trading near the $53.75 level yesterday
afternoon.  The bulls took another run at that level on Tuesday,
but the unsupportive broad market action kept them at bay.  The
stock is building some intraday support near $52 and it is
encouraging to see this consolidation taking place on rather
light volume.  It is no surprise to see the bulls taking a
breather here, as there is a fair amount of resistance beginning
near $53 and continuing up to the $56 level.  The best approach
here is to initiate new positions on intraday dips to support,
rather than trying to chase the stock higher into solid
resistance.  Short-term support at $52 is the first target,
followed by $50.  A drop near $50 needs to be followed by solid
buying volume to keep the play alive.  We're raising our stop to
$50, as a drop below this level would seriously weaken last
week's breakout move and have us moving to the sidelines.

TRW $43.81 -0.16 (+1.02) After two strong days of gains, it
should have come as no surprise that shares of TRW needed to
pause for a bit of consolidation on Tuesday.  It is encouraging
that the stock managed to keep its loss to a mere 16 cents in
light of the broad-based market weakness.  Monday's rally put
the Defense Industry index (DFI.X) right on the cusp of a
breakout above the $587 resistance level.  Look for renewed
strength in the sector to help propel TRW through its recent
highs near $44.25 and then stronger resistance near $45.  In
the meantime, use intraday dips to support between $42-42.50
(confirmed by the supportive 10-dma at $42.53) to initiate new
positions in anticipation of the breakout.  Stops should
currently be set at $41.75.

TYC $30.50 -1.30 (+0.62) After rebounding nearly 50% from its
intraday lows of a week ago, shares of TYC were due to take a bit
of a breather, and the broad market weakness on Tuesday was just
the catalyst for a bit of profit taking.  Fears of accounting
issues at the company appear to have been overblown and we are
playing the stock for the rebound off of the fear-induced lows of
last week.  The profit taking appears to be quite orderly, as
volume has dropped back from the extreme levels seen recently,
as the price has settled in just above the $30 level. Use the
current weakness as an opportunity to initiate new positions,
ideally on a bounce from the $30 level, or possibly as low as
$29, the level of our stop.  Traders who want to play further
strength will want to wait for TYC to push back above the $32
level before adding new positions.

UNH $75.56 +1.16 (+1.13) Oh those amazing Health Care stocks.
They keep going and going.  While the HMO index has done a bit
of necessary consolidation over the past couple days, shares
of UNH caught a bid again on Tuesday, rallying on solid volume
to end the day at another all-time high.  UNH is not a fast
mover, but its pattern is certainly consistent, as it pushes
higher, consolidates, and then repeats the process.  We could
see more upside on Wednesday, particularly if the HMO index
takes another run at the $503 resistance level.  Dip buyers
continue to be rewarded, so that approach continues to be our
preference with this stock.  Target intraday dips near the $75
level or even $74 support for initiating new positions.  We're
inching our stop up to $73.50 tonight.


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

CTX – Centex Corporation $57.24 +1.28 (+1.24 this week)

The top home builder in the U.S., CTX operates in 20 states and
Washington DC, as well as in Latin America and the UK.  The
company builds almost 19,000 homes a hear with an average price
tag of $190,000 for both first-time and move-up buyers.  The
company has subsidiaries that offer home security systems and
pest-control services, as well as construction contracting for
hospital, school, office building and hotel projects.  Rounding
out the picture, CTX has interests in land development, mortgage
banking, commercial real estate, and construction supply
manufacturing.

In blatant defiance of the recession in the U.S. economy, the
housing market hasn't missed a beat, continuing to fire on all
cylinders.  Nowhere is this more apparent than in the current
picture depicted by the DJ U.S. Home Construction index
($DJUSHB).  The index rallied off the September lows in fine
fashion, setting new all time highs in December before undergoing
a bit of necessary consolidation near the $300 level (the site of
its breakout).  Then in the last week of January, the DJUSHB took
off again, propelled by continued strong housing numbers,
breaking out above resistance near $323 and running up near $347.
Over the past couple weeks, it has been consolidation time again,
and the index found support near the $323 level and looks like
it is ready to take off again.  One of the key players in this
arena is CTX, and a look at their recent earnings report ($1.54
vs. estimates of $1.39) speaks volumes about the strength both in
the sector and this particular home builder.  Since topping out
near the $60 level, CTX found support at the $55 level and has
been heading higher again this week on solid volume, raising
investors expectations that another breakout to new highs is just
around the corner.  While the PnF chart is currently in a column
of O's, the most recent buy signal gives a bullish price target
of $77.  That gives the bulls plenty of room to run.  Dip buyers
will want to initiate new positions on an dip and bounce from
intraday support near $56, or possibly as low as Friday's lows
near $55.  We are initiating the play with our stop set at
$54.75.  A breakout over $58 would make for a solid entry as
well, but as is the case with all momentum trades, we need to
see strong volume support such a move.

BUY CALL MAR-55 CTX-CK OI= 11 at $4.40 SL=2.75
BUY CALL MAR-60*CTX-CL OI=126 at $1.85 SL=1.00
BUY CALL APR-60 CTX-DL OI= 89 at $3.10 SL=1.50
BUY CALL APR-65 CTX-DM OI=125 at $1.45 SL=0.75

Average Daily Volume = 840 K



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

TLAB $13.33 -0.48 (-0.21) Prior to today's trading, it appeared
as if the shorts were covering their bearish positions in TLAB.
The stock traded higher in last Friday's and yesterday's
session along with the broader market.  But its trading volume
during the short-term rally was relatively light.  The stock
traded 2.8 million shares in yesterday's session, while its
30 day average volume is around 5.3 million.  Volume was even
lighter in today's session, which revealed further lack of
conviction on the part of traders.  We're watching for the
stock to breakdown from its short-term consolidation, signaled
by a decline below the $13 level.  Selling pressure in the
broader markets, as well as the SOX.X and YLS.X, should
pressure TLAB below its support.

ADI $40.25 -0.65 (+1.38) Analog Devices reports after the
bell Thursday.  Keep that much in mind when planning around
your positions and exit points.  There have been conflicting
views concerning the company's financial performance.  Some
analysts are expecting a strong quarter from Analog because
of its product breadth.  While others point to its exposure
to the communications segment and the implications of being
involved in such a crummy space.  Prior to the earnings
release, however, ADI will most likely trade with the broader
semiconductor sector.  We saw that in yesterday's and today's
sessions.  ADI rebounded on what appeared to be short
covering in yesterday's session but slipped lower in today's
along with the weakness in the SOX.X.  Traders need to pay
attention to how AMAT trades early tomorrow, as the stock
will likely set the tune for the rest of the chips.  In ADI,
look for a break below the $39.50 on sector weakness. 

MMS $32.60 +0.59 (+1.96) Our bearish momentum play in MMS
is not working as initially planned.  That means we're now
looking for the stock to rollover from short-term overhead
congestion ahead the last two days of short covering.  The
stock's 10-day moving average rests overhead at the $33.05
level which is one possible site to look for a rollover.  Our
coverage stop is in place just above that level at $33.25, so
entries taken near the 10-day can be managed with a tight
stop, allowing for minimal risk to the upside.  Volume has
been light in the last two sessions and especially weak in
today's trading.  The lack of conviction during the recent
strength hints towards the possibility for a rollover.  The
stock hasn't traded above its 10-dma since gapping down off
of the bearish earnings report and guidance about a week
ago, so sellers may return on a move up to the 10-dma. 

KLIC $15.85 +0.11 (+1.16) KLIC traded above our $16 stop in
today's session but fell back below it near the close of
trading.  We're holding the play for another day to see
how the market reacts to the Applied Materials (NASDAQ:AMAT)
earnings report and guidance after the bell today.  AMAT
was trading slightly higher in the after hours session, but
it remains to be seen how the news is received tomorrow
morning.  If the SOX.X rallies off of the news, then we'd
expect KLIC to trade higher with its sector, which would
most likely result in a drop of coverage.  But the stock
could rollover if the semiconductor sector falls under
selling pressure, and given that KLIC is near resistance,
we want to wait for the market to dictate tomorrow morning.
Have stops in place above today's high for open positions.
Those looking to enter new plays should look for weakness
in the SOX.X before pulling the trigger.

A $26.16 -0.58 (+0.18) A rising tide may lift all boats, but
when that tide recedes, you certainly get to see which boats are
the heaviest.  As the broad markets rebounded from oversold
territory Friday afternoon and Monday, the Networking index
(NWX.X) rebounded sharply, helping A to move right up to the
$27 resistance level.  In fact it has tested that level twice in
the past 2 days, both times pulling back under renewed selling
pressure.  Note that the NWX was the worst performing sector on
Tuesday, highlighting that it is still weak relative to the
broad market.  Continue to use failed rallies near the $27 level
as attractive entry points in anticipation of a renewed test of
the $25 support level.  Recall that the bearish target for A is
currently $19, so momentum traders that wait for the stock to
break below support before initiating new positions will still
have plenty of room to harvest profits.  Monitor the NWX for
signs of renewed sector weakness and keep stops set at $28.


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

KSS - Kohls $68.31 -0.08 (+1.61 this week)

Kohl's Corporation currently operates 354 family oriented,
specialty department stores that feature quality, national
brand merchandise priced to provide value to customers. The
Company's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income
customers shopping for their families and homes. Kohl's
stores have fewer departments than traditional, full-line
department stores, but offer customers dominant assortments
of merchandise displayed in complete selections of styles,
colors and sizes. 

There's a growing debate in the retail sector.  It centers
around the group's cost cutting efforts which have boosted
sales.  The question concerns at what expense the sales
numbers were achieved.  Take Kohls, for example, who reported
same store sales growth of 11.5 percent for the month of
January.  The sales numbers were indeed impressive given the
economic environment.  However, it remains to be seen what
impact, if any, the deep discounting used to achieve those
sales numbers has on the bottom-line.  Bears are arguing that
the retailers are going to have margin pressure this year in
the wake of massive mark-downs.  Robertson Stephens recently
used that argument to downgrade its investment rating on
shares of Kohls.  The brokerage house cut its rating to a
buy from strong buy, citing the company's heavy discounting
in addition to costs from expansion as impediments on earnings
growth this year.  From a technical perspective, shares appear
to be under distribution noting the recent series of relatively
lower highs and lows.  The market related rebound in the last
week could have provided traders with an opportunity to enter
bearish bets on KSS as the stock is near significant resistance.
The $70 level should contain any strength from current levels,
offering traders a close stop level.  Our coverage stop is in
place at $70.25.  To the downside, if the pattern of lower
lows continues, the stock could have downside to the low $60s.
The 200-dma at $61 is a possibility.  The risk to reward is
favorable in this play over the short-term. 

BUY PUT MAR-70*KSS-ON OI= 368 at $3.70 SL=2.25
BUY PUT MAR-65 KSS-OM OI=1251 at $1.60 SL=0.75

Average Daily Volume = 1.78 mln


CHKP Check Point Software $31.49 –1.25 (-2.28 this week)

Check Point provides Internet security.  The company provides
secure enterprise networking solutions that enable customers
to implement centralized policy-based management with enterprise-
wide distributed deployment.  Simply put, CHKP has benefited
from rising demand for its virtual private networks software
which lets remote workers, business allies and customers
securely access corporate computer networks.

It has frequently been said that a rising tide lifts all boats,
but it isn't always true.  While the Software index (GSO.X) did
manage to catch a bounce off the lows on Friday, that recovery
ran out of steam yesterday and is in danger of reversing if
Tuesday's price action is any indication.  The GSO attempted to
move higher this afternoon, but was promptly rebuffed at its
declining 10-dma (currently $174.50) without even challenging
solid resistance at the $177 level.  In the broader Technology
arena, the GSO is definitely a weak sister right now.  But our
new play, CHKP is even weaker than its sector.  The stock has
been drifting lower for the past 3 weeks and the past 2 days have
been a big disappointment for the bulls as the stock was turned
back at the 50% retracement level ($34.50) of the September
through January rally, also the site of the 20-dma.  The real
clincher to our bearish bias on the stock came as the stock
broke below $32, giving a fresh PnF sell signal.  While it is
likely that CHKP will find support near $31 (the site of the 62%
retracement), the increase in selling volume over the past 2
days indicates that that support is likely to be short-lived.
There's some solid resistance overhead near $33 and another
failed rally near that level would make for an attractive entry.
A move near the 20-dma would look even better, but we probably
won't get that lucky.  Given the stock's recent weakness, the
next solid entry might very well be a further breakdown in price,
and our trigger point for new entries in that direction will be
a drop below $31.  We are initiating the play with our stop set
at $34.50.

BUY PUT MAR-35 KEQ-OG OI=4438 at $4.90 SL=3.00
BUY PUT MAR-30 KEQ-OF OI=2104 at $2.05 SL=1.00

Average Daily Volume = 8.87 mln



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DISCLAIMER
**********

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


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Contact Support

The Option Investor Newsletter                  Tuesday 02-12-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.




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

ASYT - Asyst Technologies $16.90 -0.29 (+0.66 this week)

Asyst Technologies, Inc. is a provider of integrated automation
systems for the semiconductor manufacturing industry. The Company
designs systems that enable semiconductor manufacturers to
increase their manufacturing productivity and protect their
investment in silicon wafers during the manufacture of integrated
circuits. The Company offers isolation systems, work-in-process
materials management, substrate-handling robotics, automated
transport and loading systems, and connectivity automation
software. The Company has incorporated the technologies from these
areas to create its Plus-Portal System for OEMs (original
equipment manufacturers).

Most Recent Update

ASYT used its relative strength in yesterday's session to work
nicely higher, but gave back a little of that gain in today's
session.  The stock is obviously tracking the Semiconductor
Sector Index (SOX.X) very closely.  The SOX.X was strong in
yesterday's session but pulled back in today's ahead of Applied
Materials' (NASDAQ:AMAT) earnings report and conference call.
The company has clout as it's the largest maker of chip
equipment.  The market's reception of AMAT's guidance will
determine the direction of the SOX.X in today's trading, which
will in turn impact our ASYT play.  Watch the broader sector
closely.  If the SOX.X rallies, look for ASYT to breakout from
its recent trading range.  Look for an advance above the $17.50
level on strong volume.  Otherwise wait for a pullback down
into the $16 support zone.

Comments

AMAT's report after the bell could spark a rally in chip
shares.  It remains to be seen how the market reacts in
tomorrow's session.  If the SOX.X turns positive early, keep
a close eye on AYST.  A strong day in the chip sector could
break this stock out of its short-term base.  Watch for an
advance past $17.50

BUY CALL MAR-17*QQY-CY OI=420 at $1.05 SL=0.50 
BUY CALL JUN-17 QQY-FY OI=146 at $2.45 SL=1.25 
BUY CALL JUN-20 QQY-FD OI=291 at $1.45 SL=0.75 

Average Daily Volume = 371 K
 


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

Use Pro-forma, Go To Jail
Buzz Lynn
buzz@OptionInvestor.com

Do not pass go.  Do not collect $200.  Look out!  Fundamentals Guy 
is on a rant with an open letter to corporate CEO's and CFO's!

Dear CEO and CFO:

I realize that most of you out there are doing a great job of 
trying to maximize the returns of your shareholders, whether 
through appreciation or the return of capital on the invested 
dollar.  Unfortunately, more than 2% of you make a bad name for 
the rest.  I am speaking to that obvious 2%, but mostly to the 
remaining bad apples among you who still have negative surprises 
in store for shareholders, and have yet to spill your guts or be 
found out.  I'm glad I don't own your shares.  Or do I?

I am ticked off when I read about companies still reporting the 
misleading "pro forma" earnings figures to a litter of analyst 
kittens willingly lapping up the spilled milk.  Lemmings!  Get a 
backbone and tell it like it is!  If the company makes money, say 
so.  If the company loses money, say so.  The notion of having to 
be a forensics accountant to parse the intentionally deceptive 
figures is more than most investors can handle.  Furthermore, it 
is the auditors' job to test managements' numbers.  Such is the 
position of public trust created by the auditors, to the likes of 
whom I'm also writing.  Investors can handle the truth about 
earnings numbers much easier than they can handle deception 
associated with Enronitis.  The latter is too costly a mistake to 
make any longer.

So, to corporate CEO's and CFO's, if you and your management team 
are serious about maximizing shareholder value, quit accounting 
gimmickry known as "pro forma", even if it is "legal" and 
recognize that by continuing to offer up pro forma numbers, you 
are hurting the shareholders.  

How so?  Simple.  Nobody wants to buy something for more than it's 
worth based on overstated earnings.  That includes fractional 
ownership interests in your business, otherwise known as stock 
purchases.  Restore the integrity of your reporting, and 
shareholders will restore their belief in your management and your 
stock by rewarding you with higher multiples and share prices.  
It's ludicrous to purport that shareholder value is best created 
by inflated earnings numbers born of minimal, hidden, or off-book 
expenses.  That notion is counterproductive toward the goal.  The 
share price will suffer until you fess up.  That's where your 
company's integrity will win you long-term investors in the 
marketplace, and you eliminate one more source of negative 
surprises.

You say that pro forma EBITDA (Earnings Before Interest, Taxes, 
Depreciation and Amortization) is a perfectly legitimate way of 
reporting income because it shows that the business model makes 
money?  I disagree.  Since when does a company make money just 
because it ignores some large expenses in the cost of doing 
business?

You borrowed money?  You have to pay back the interest, at least 
as it comes due and perhaps some of the principle.  The "I" and 
the "A" are a recurring cost of production.  More power to you the 
less you have to borrow because it also means the less you have to 
repay from gross sales.  But it is still an expense.

Taxes are negligible too, you say?  I suppose that's true if the 
company earned no money.  But if the company did earn money (after 
all, that's why I bought in), and the company owes taxes as a 
result, the act of convincing me the company made $X when the 
company in fact made $X minus taxes (less than reported) is 
sleight of hand.  What's important to shareholders it the amount 
available for distribution once those taxes are paid.  State it.

Depreciation doesn't matter?  Is it acceptable for GM with its 
huge plant and equipment cost to disregard depreciation when 
equipment, which costs billions of dollars, will need replacement 
on a regular basis?  That evasion allows you to disregard very 
REAL expenses that are a part of most businesses.  You have plant 
and equipment or other assets like software, computers, or a fleet 
of cars.  Do you mean to tell me those will last forever and will 
never need replacement?  Every asset will eventually need 
replacement and will cost money, whether you account for it now or 
not.  Depreciation allowances need to be made as the assets are 
used up.  It too is a cost of production that figures into profit 
or loss.  

While we're discussing EBITDA, how about the root of E?  It is 
derived from gross revenue.  Are you reporting revenue accurately, 
or with gimmickry that only makes it look like revenue?  One of 
the most outlandish accounting schemes I've seen is the "swap" so 
commonly executed by bandwidth builders and carriers.  That's when 
two carriers each agree to swap some capacity for mutual benefit 
to the network.  For instance Qwest (Q) agrees to swap its 
capacity in the Rockies for some of Global Crossing's (GX) 
capacity between say New York and Europe (and vice versa).  So 
they swap.  Yes, this is legal.

Trouble is that Global Crossing would book the swap as a sale of 
GX capacity to Q in order to inflate revenue, but amortize the 
cost of the capacity purchased from Q over a period of years 
thereby "manufacturing" false earnings - all in the name of 
shareholder value.  This is (or at least was) a very common 
practice within that industry.  Now there are a whole bunch of 
telecom companies with overstated revenues and understated 
expenses.  How long can that elephant hide in the cherry tree?  It 
can't anymore, which might help explain one of the many reasons 
why those telcos with surplus "dark fiber" are suffering.  Now 
they have the expense of the swap, but no more swap-induced 
revenue to offset the expenses of the swap.  The truth catches up.  
While it may be legal, the abuse is intentional deception.

And one last thing on maximizing shareholder value, especially to 
you companies that continue to use Arthur Anderson in either your 
consulting or audit functions.  I mean no disrespect to Arthur 
Anderson personnel who are sinking with the ship but have nothing 
to do with the poor business decisions of some partners.  
Unfortunately, they suffer through rogue partners' mistakes too 
since the rogues tarnished and disgraced the AA brand.  And I am 
referring only to the "brand" here.

Be that as it may, fire AA.  To continue to use them is a 
liability to shareholder value.  As a shareholder of a company 
that does continue to use AA, my confidence in your business 
judgment is greatly diminished and I am tempted to sell company 
stock now before I or anyone else gets "Enroned".  If I was 
considering the purchase of an interest in your company, interest 
has since passed once I found out that AA did your books and 
offered you advice.  I can't trust them and I don't know why you 
do now knowing what you do about their involvement in numerous 
similar incidences, though none as spectacular as Enron.  
Nonetheless, shareholder value is of far more importance to the 
owners than any loyalty you have to the fox guarding your 
henhouse.

If I did my books every year as you do yours, the only shareholder 
I'd be fooling would be me.  What good would that do for value in 
the end?  None!  So if every you desire to increase the value of 
your business and want me to buy an interest in it, prove to me 
the business can make money and give me a return on my investment 
using full disclosure of your accounting practices and drop the 
use of pro forma, an (until now) acceptable name for the 
confidence racket.  If that's you, go to jail

You report accurately, I buy shares.  You don't, I save cash.  
Simple as that.

Sincerely,

Buzz Lynn


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