Option Investor

Daily Newsletter, Sunday, 03/03/2002

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The Option Investor Newsletter                   Sunday 03-03-2002
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 3-01          WE 2-22          WE 2-15           WE 2-8
DOW    10368.86 +400.71  9968.15 + 65.11  9903.04 +158.80  -163.02
Nasdaq  1802.74 + 78.20  1724.54 - 80.66  1805.20 - 13.68  - 92.36
S&P-100  576.16 + 22.12   554.04 -  5.61   559.65 +  2.37  - 12.07
S&P-500 1131.78 + 41.94  1089.84 - 14.34  1104.18 +  7.96  - 25.98
W5000  10560.01 +380.72 10179.29 -136.19 10315.48 + 66.16  -240.85
RUT      478.34 + 13.27   465.07 -  4.18   469.25 +  2.58  - 13.37
TRAN    2897.13 +171.48  2725.65 + 41.42  2684.23 + 24.29  - 99.39
VIX       22.13 -  2.76    24.89 +   .80    24.09 -  1.38  +  2.60
VXN       41.94 -  6.63    48.57 +  3.58    44.99 -  4.29  +  6.20
TRIN       0.74             1.33             1.89              .64
TICK      +1029            +1044             -128             +957
Put/Call    .94              .90              .73   

Oracle Tries To Pull A Fast One!  
by Jim Brown

Bullishness was breaking out all over with resistance evaporating
like morning fog. One minute you can't see fifty feet and suddenly
the sun breaks through and a beautiful day appears. That is what
happened in the markets on Friday. All the bearish and cautious
comments that were clouding investor's decisions were blown away
by the mornings economic reports. Euphoria reined supreme and after
three days of afternoon sell offs the bears got a Friday surprise.
Stocks rallied strongly into the close producing even more short 




Traders woke up to a combination of positive surprises on Friday.
Economically, the ISM index rocketed to 54.7, well over the estimates
of 50.8 and showed a huge increase in manufacturing for February.
This was the first time the number reflected an expansion in the
manufacturing sector in the last eighteen months. This was the 
highest level since April-2000. The news that manufacturing was
expanding after 18 months of decline was bolstered by a huge jump
in new orders to 62.8 from 55.3 in January. Even order backlog 
jumped to 53.0 from 44.5 in January. Every indicator of the index
rose except the critical inventory component which fell again to
39.5 from 40.5. This of course is also bullish since it shows a
drop in inventory even after a jump in production. The new orders
rose to the highest level since 1994 suggesting that the ramp up
of production has begun. 

The ECRI Weekly Leading Index edged upward again spurred by robust
growth in new mortgages and the increasing money supply. The index
is predicting a good chance of recovery over the next three to six 
months. The Monthly Mass Layoffs also declined in January compared
to the prior two months but still remains at an elevated level. 
There were 2146 mass layoffs in January including 263,821 workers.
Despite the continued rise in unemployment Personal Income rose by
a larger than expected +0.4% in January. However the gains did not
come in salaries. It was in insurance payments and unemployment
insurance benefits. This means most households did not see any gain
and could have contributed to the drop in consumer sentiment.

The final Consumer Sentiment numbers for February were announced at
90.7 compared to 93 in January. The current conditions component rose
slightly but the expectations component fell sharply to 87.2 from 
91.3. This means consumers are expecting less from a future rebound
and are again becoming worried about their jobs. This index could
also have been impacted by large numbers of workers coming to the
end of their 26 weeks of unemployment without a job as well as the
falling Nasdaq. Historically, consumer confidence has tracked the
rise and fall of the Nasdaq since tech employment and retirement
contributions have been tied to tech stock prices. The nearly -20%
drop in the Nasdaq from the 2098 high in January to the 1696 low in
February depressed investor hopes and expectations. This was reflected
in the drop in the consumer confidence index. This was the first
drop in five months.

Adding to the positive economic news was a surprising announcement
from Novellus that the December quarter was their bottom and they
were raising guidance for 1Q 2002. They even went so far as to 
predict a return to profitability in Q2. They raised their guidance
for 1Q by a penny but a return to profits by Q2 would beat analyst's
estimates of a four cent loss by a mile. Robertson Stevens upgraded
the stock to a buy after the company said bookings were increasing
from DRAM makers. The CEO said bookings could rise +36% from the
4Q levels. It is not a broad based recovery yet but it is becoming
broad based, Hill said. They said DRAM prices were rising and dormant
DRAM buyers were coming back to life. NVLS jumped nearly +$6 to close
at $48.51 and powered the entire chip sector. The SOX was within 
10 points of a three-month low on Thursday but rallied to add over
+56 points on Friday's news. Gains in other chips included KLAC +6.31,
CCMP +5.50, VSEA +4.94, NVDA +4.93, MXIM +4.92, SLAB +4.88, AMAT +4.51,
BRCM +4.41, DPMI +4.25, LLTC +4.14, XLNX +3.70, IDTI +3.33. You can
see by the huge gains that many and I repeat MANY traders were short
chip stocks and the NVLS news caught them off guard. 



As you can from the charts on KLAC and VSEA above this was not
normal buying. VSEA did not trade over four times its daily volume
because investors suddenly decided that chips were where it was at.
They bought these stocks because they were short chips based on
the negative comments from CEOs and analysts over the last several

If the chip sector is in the middle of a recovery it has not 
rubbed off on the telecom sector. Sprint went the way of the other
telecoms and announced a -$400 million drop in cap-ex spending 
for 2002. There is just no life in the telecom/networking sector
and even the blowout market day only succeeded in adding .73 to
the Cisco stock price which closed at $15.

The software sector voted to join the rally with gains by
everybody but Oracle and after the bell the reason was clear. 
After a bullish day with soaring markets ORCL tried to slip in
after the bell with an earnings warning. Oracle shares dropped
over -$1.25 to $14.79 after warning that they would miss estimates
and that software sales and income growth would be flat. Oracle
blamed slow sales in Asia as the main culprit. They had already
lowered the bar for the quarter but the results proved even weaker
than expected. Analysts expected comparisons for this quarter to
be easy considering the bounce out of the September lows. Merrill
Lynch warned on Friday morning that there was "pretty severe
discounting" and an absence of large deals in the U.S. and Europe.
Several analysts polled by Reuters said Oracle would also need to
lower guidance for the next quarter when they release earnings on
March 14th. The current estimate is for .17 to .18 cents which
analysts now say is very unrealistic. 

Merck became the first major blue chip to drop Arthur Anderson
as their auditor after a 30 year history. They chose to go with
Price Waterhouse Coopers instead. This was the first domino to
fall and doubtless there will be many more. Check out the article
by Buzz Lynn last week for the complete list of all the AA major 
accounts. AA also agreed to pay $217 million for their part in 
the collapse of a non-profit fund raising company. It was the
second-largest payout by a big five, soon to be big four, firm.
Ernst & Young paid $335 million in 1999 for concerns related to
Cendant. That number is also likely to fall from the record books
as rumors now place the Enron settlement number being discussed
at between $750 million and $1 billion. 

+400 points! That is the gain by the Dow for the week. Considering
the other major indexes were teetering on the edge of support
last Friday it is a remarkable achievement. The close at 10368
clearly broke resistance at 10300 from the first week in January
and will have many traders questioning direction over the weekend.
The leading consumer and cyclical stocks HON, BA, UTX, PG, JNJ,
MMM, MO, MRK, KO, EK and even SBC were joined by MSFT, INTC and
IBM for a major gain. Every component of the Dow closed the day
positive with IBM rebounding for a +$4.90 gain and a close back
over $100. The Dow close was the highest since August-27th last
year and the biggest one day point gain since September-1st.

The Nasdaq, which has been a laggard and a serious weight on the
Dow rallied over strong resistance at 1790 and closed over 1800
for the first time in two weeks. Considering the steady down 
trend for the Nasdaq since Jan-9th this was a strong performance.
Much of the gains were driven by the chip stocks which I outlined
above. It is amazing how the markets can go from nearing new lows
to nearing new highs in just a matter of several trading sessions.
While we should be pleased with the show of strength we need to
also be aware that what goes up quickly can fall even more quickly.
While I am not predicting a Nasdaq sell off the gains by the chip
stocks were nothing short of amazing when you consider that the
picture only changed for one stock, not the whole sector. Cooler
minds may prevail soon and even considering the positive economic
data we should never chase gains made quickly. The Nasdaq still 
has to break even stronger resistance at 1875 in order to confirm
a change in the trend. We should remain cautiously optimistic
on tech stocks until that occurs.

The S&P performed even better than the Nasdaq in my opinion. It
broke resistance at 1125 with convincing strength and appears
ready to conquer the next level at 1135-1140. Once that is
accomplished the double bottom reversal will be complete and
a new up trend firmly in place. That trend will be challenged 
at 1175 but that could be several weeks away.

I am impressed. Doubtless thousands of other analysts are also
looking at charts this weekend and actually beginning to believe
that a new bull market is about to be born. Positive economic 
reports, raised guidance, upgrades to GDP estimates and a gradual
dulling of the senses to the Enron accounting crisis all added
to the explosion we saw on Friday. The range bound down trending
markets suddenly appeared to have new life and floor traders
were seen smiling and dialing with great enthusiasm. The market
internals were strong with advances beating declines by 2:1 on
decent volume. Decent volume, not great. Only 1.8 billion on the
Nasdaq on a +71 point day. The NYSE managed over 1.4 billion as
listed stocks saw the greatest interest. It was a great party
while it lasted. 

The janitors have long since finished sweeping away the debris 
from the days trading and the profits and losses have already
been booked by computers. The hangovers from the post trading
happy hour are gone and everyone is facing a new week. That
new week will be met by another round of shorting by bears that
can't accept that the economy may be powering stock prices. It 
will also be met by fund managers that are sitting on a pile of
cash while watching a +400 point gain last week. Questions will
be flying. Are cyclicals overextended yet? Will techs have the
historical April slump and should I buy now or wait? Are the
credit worries over yet and if not why are BAC and WFC about to
break out? There is no clear-cut answer and that is what makes
a market. Indecision and reaction, fear and greed, profits and
bonuses. A fund manager is faced with committing money to a
runaway market which could fail again at any moment or wait on
the sidelines for the next crash that may never come. One path
creates a winner and the other another previous job listing on 
his resume. 

My bet is that most fund managers would rather take the bet
and get into the market now. They will assume the risk that 
the next pull back will stop at a higher level and not below
where we closed today. I believe that the real risk is not being
in the market if the economic numbers are to be believed. Real
investors are probably deciding this weekend that they may not
get another chance at this level. It is decision time. Some
will vote to buy, others will vote to wait. You have heard the
old adage. Burn me once, shame on the market. Burn me twice 
shame on me. Most investors of the last two years have been
burned so many times they could qualify as smoke eaters for
the coming forest fire season. Still, I think most of these
crispy critters are seeing that ray of light through the smoke
and are about ready to take one more chance at investing. Will
this happen next week? Did the next multiyear bull market begin
last week? It is entirely possible and while most of our readers
were not around to see the start of the last one in the early 
90s, they are conscious, educated and ready to rock on this one. 
Let's hope that Friday was not the mother of all bear traps. Let's
hope that the Oracle warning is seen as company specific. Let's
hope that the Dow resistance at 10450-10600 evaporates as easily
as 10300. Let's hope that the next round of profit taking is
just another buying opportunity and not the market breakdown we
were worried about last week. Let's buckle our seat belts and 
let the new bull market begin! Was that overly bullish? If I
am dreaming, please don't wake me up! Monday will come soon
enough and reality always has a sobering effect. 
Enter Very Passively, Exit Aggressively!

Jim Brown

Have you tried the Market Monitor yet?



Fridays Are Poppin'!
Austin Passamonte

Next time I have company in from out of town I'll be sure to let 
you know. It never fails we see the big market moves on days when 
I'm wrenched from the screens long before I wish to be.

The early gap-up this morning was somewhat expected as intraday 
charts we drew up in Swing Trade Gameplan Thursday night showed 
clear bullish price patterns and nearing oversold zones for the 
oscillators. Personally I'd have loved to see an opening drop 
bounce and head higher, which would have been the buy signal to 
die for. The gap-up open still left a nice 20-index point range in 
the S&P to trade, but I watched most of it just keep walking 
higher without really stepping in for a big play.

But that's my tale of woe, which has nothing to do with you. 
hopefully you got long or at least out of shorts in a timely 
fashion. Whether we continuation or counter to Friday's action on 
Monday remains to be seen, but most Fridays except for the past 
expiration have resulted in big upmoves by the close. We'll keep 
this pattern in mind for next week, too.

(Hourly Chart: QQQ)


A continuation chart from last night's Swing Trade Gameplan. Note 
the bullish wedge (pink) which broke on a very slight gap-higher 
open? It also placed price action above resistance near 34.25 and 
left room to run. I for one never expected another 1.5 points 
higher from there, but markets have a way of surprising us. The 
SOX was en fuego and fueled most of this move.

Now we have near-term overbought oscillators and price action up 
against resistance in this channel. A pullback on Monday may be 
the next high-odds upside play.

(Hourly Chart: OEX)


Same for the leading indexes (OEX here by proxy) but not topped 
out yet. A touch at 580 could see pullback for next thrust higher 
if indeed this rally is real.

(Weekly/Daily Charts: SOX)


If Friday's rally is real, techs will be led by the SOX. It had 
quite an adventurous day as hot money streamed into the favored 
momentum sector via buying, shorts covering or both. In any event 
this one looks poised to move higher and nothing in the way except 
air & opportunity next week.

(Daily Charts: VIX & Dow)


Oh that vexing VIX! Readers continue to write an expound on how 
low volatility levels are. I wholeheartedly agree, but hasten to 
add we've seen this indexe stay below 19.00 for an entire month 
back in year 2000. That being said, we do note that the last four 
breaks of 22.00 level resulted in the Dow shedding several hundred 
index points in short order. S&Ps and NDX followed suit, of 

Macroview of this week was bullish. The Dow began below 10,000 and 
closed about +375 index points higher in the end. Along the way 
there was gut-wrenching whipsaw volatility that wiped out many 
call and put plays along the way, sometimes both in one day. The 
three doji sessions between Mon & Fri large up days are more than 
stops on option plays can sometimes handle but perhaps we can 
enjoy more methodical, trending markets in the coming week(s) 
ahead. For everyone's sake I pray for deliberate, trending markets 
but in the end we do get what the markets give us and no more.

I'd also like to see a sustained rally for weeks on end, but with 
a VIX reading back to recent lows we know that isn't likely. At 
VIX 28 - 32 I'd be looking for longs like crazy, but at 22 - 18 I 
know what experience has proven to me: play the upside moves right 
now with trepidation and care!

Best Trading Wishes,

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Editor's Plays

Play both ways!

While the broader markets may be exploding the biotech stocks
are still under pressure. HGSI appears headed to $10 which would
be a multi-year low. Since HGSI was only able to post a four
cent gain on a blowout day last Friday I can only surmise that
there is still stock for sale. 

I would set a buy stop at $19.75 and buy the April $17.50 put.

If the stock does continue to $10 it would be a home run.
Set your stop loss at $21.25 once the play is entered.



Combination play

Naked puts with insurance

SRCL has been wedging up to $65 for two weeks. During this period
the biotech index has been struggling with leading biotech stocks
losing ground. Those stocks are now oversold and should benefit
from the next sector rotation.

The way I would play this is to sell a naked put on SRCL. The
May-$80 for $14.60 offers the maximum reward. For every dollar
that SRCL closes over $66 at expiration returns $1 of profit 
from the naked put. 

For those that fear a possible exercise or a breakdown of the
stock below $65 I would buy the March $65 put for $1.65. This
protects me from any serious loss should SRCL collapse. It also
lowers my possible gain on the play by $1.65 but the risk/reward
is still very favorable. 


The obvious question is what happens on expiration Friday in
March when the $65 put expires. That becomes decision day.

Assume SRCL is at $70 or over. Ignore the $65 put and let it
expire worthless. Set a stop loss on the naked put at $67.00 
and let the play continue. The reason for $67 is that you should 
recover the $1.65 lost on the long put by stopping out the 
naked put at a higher stock price than where you sold it. Follow
the stock price up with a higher stop loss as the play progresses.

Assume SRCL is at $60. Close both put positions for a
small loss probably around $1.65. The $80 put should be around
$20 and the $65 put around $5. 

Assume SRCL is still at $65. The $65 put expires worthless and
the $80 put is still around $15. You can close both for a 
minimal loss and find another play or you can leave the short 
side open and buy an April $65 put and risk another $1.65 or so.

Personally, I look at the $65 put as insurance against disaster
for the first three weeks. If the play is not moving in my 
direction by then I want to cancel the trade and find something
else to do. There is no reason to be in any trade if it is not
moving in your direction. Idle money is wasted money and the
law of averages is working against you.

Any trade that does not go in your favor eventually goes against
you. It may not always be true but it is more often than not.
Any trader that has nursed a position that has barely moved for
several days or weeks knows that eventually they will wake up
to bad news and the play will be busted. 

Always exit any play that does not go in your direction before
the insurance runs out!


Good Luck



Sharpening Our Horns
By Eric Utley

Sentiment shifted to decidedly bullish last Friday after that
stellar NAPM number.  Or, the ISM Index.  Whatever you want to
call it, the number was stellar and helped our bullish stance
along in the one- two-, and three-letter names.

Yes, we missed the massive rally in the technology sector.  Such
are the rallies unique to a bear market.  And, yes, the Nasdaq
remains in a bear market as dictated by this weekend's bullish
percent readings.  Interestingly, the Nasdaq-100 Bullish
Percent ($BPNDX) remained unchanged in Friday's session.  Its
inability to add to the bullish percent reading may reveal
inherent weakness in the Nasdaq-100 (NDX.X) names.  We will
maintain our bearish outlook on the Nasdaq-100 until we get a
reversal in the bullish percent data.  That's not to say tech
stocks can't be traded to the upside.  It does suggest, however,
that higher probability bullish trades lie in the NYSE names,
more specifically the deep cyclical and transportation sectors.

To further along the rally in the aforementioned sectors, I
think we need to see some more selling in the Treasury
market.  That would generate the necessary liquidity to
propel stocks higher and strengthen the bullish sentiment on
the economy and market.  The benchmark 10-year Yield (TNX.X)
is a good indicator to watch early next week as it closed
near an important resistance area last Friday.  A breakout
in the TNX.X above the 50.00, followed by a print at 50.50,
would have me filing my horns and ready to charge ahead in


Market Averages


52-week High: 11350
52-week Low :  8062
Current     : 10369

Moving Averages:

 10-dma: 10026
 50-dma:  9944
200-dma: 10034

S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1132

Moving Averages:

 10-dma: 1101
 50-dma: 1127
200-dma: 1153

Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1435

Moving Averages:

 10-dma: 1392
 50-dma: 1530
200-dma: 1575

Semiconductor ($SOX)

The SOX exploded to the upside last week.  The index finished
the day 56 points higher, or 11.04 percent.  The bullishness
in the group was spurred by Novellus Systems' (NASDAQ:NVLS)
comments.  The chip equipment maker reported that it was
seeing signs of a turnaround in the semiconductor business.
The company raised its financial targets for the current
quarter and in doing so sparked a broader rally.

In addition to Novellus' guidance, Thomas Weisel raised its
earnings estimates and price target for shares of Micron
(NYSE:MU).  The analyst said that the maker of DRAM
products was shipping new product at an increasing rate.

Standouts in the sector included Novellus, National
Semiconductor (NYSE:NSM), Integrated Device Tech (NASDAQ:IDTI),
Micron, Cree Research (NASDAQ:CREE), and Advanced Micro
Devices (NYSE:AMD).

52-week High: 711
52-week Low : 344
Current     : 567

Moving Averages:

 10-dma: 533
 50-dma: 543
200-dma: 546

Biotechnology ($BTK)

The biotech sector was the only group that I track that finished
in negative territory last Friday.  Its 0.43 percent drop earned
the BTK.X the worst performing sector spot.

Invitrogen (NASDAQ:IVGN) said in a conference call last Thursday
that it was seeing less demand than last year.  The warning
resulted in a host of analyst reductions and a discount in the
stock price.  Shares of Invitrogen finished 25.24 percent

Additionally, Protein Design Labs (NASDAQ:PDLI) said that it
expected revenues to decline by about 12 percent during this
year due.  The company also said that it did not expect to
turn a profit this year.  Shares of Protein Design finished
5.86 percent lower.

The negative news from Invitrogen and Protein Design Labs
overshadowed other positive developments in the broader
biotech group.  Andrx (NASDAQ:ADRX) rose 25.29 percent on
favorable news, while ImClone (NASDAQ:IMCL) tacked on 21.59

52-week High: 676
52-week Low : 382
Current     : 477 

Moving Averages:

 10-dma: 487
 50-dma: 528
200-dma: 542


Market Volatility

Whoa, Nelly!  Implied volatility plunged last Friday on the
strength in stocks.  The VIX fell to 22, dropping nearly 4.5
percent in Friday's session.  No doubt that the bears are
watching for the VIX to dip below the magical 20 level.

In the Nasdaq-100 world, the VXN fell to and closed at an
all-time low at 41.94.  I keep going back to the fact that
the VXN is relatively young and in its year of existence
experienced historical levels of volatility, so I don't know
how much credence to give the current all-time low levels.
Nevertheless, I do believe that its 9.20 percent plunge last
Friday revealed a market without fear.

CBOE Market Volatility Index (VIX) - 22.09 -1.04
Nasdaq-100 Volatility Index  (VXN) - 41.94 -4.25


          Put/Call Ratio  Call Volume   Put Volume
Total          0.66        687,880       453,569
Equity Only    0.53        567,126       302,387
OEX            1.22         21,467        26,255
QQQ            1.07         52,998        56,961

Bullish Percent Data

           Current   Change   Status
NYSE          55      + 0     Bull Alert
NASDAQ-100    34      + 0     Bear Confirmed
DOW           63      + 0     Bull Confirmed
S&P 500       63      + 0     Bull Confirmed
S&P 100       66      - 1     Bull Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


 5-Day Arms Index  0.94
10-Day Arms Index  1.26
21-Day Arms Index  1.24
55-Day Arms Index  1.24

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 


Market Internals

        Advancers     Decliners
NYSE      2223            926
NASDAQ    2305           1229

        New Highs      New Lows
NYSE      192             27
NASDAQ    129             61

        Volume (in millions)
NYSE     1,446
NASDAQ   1,871


Commitments Of Traders Report: 02/26/02

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

S&P commercials were wrong in the most recent reporting
period.  The group increased its net position through February
26.  They may have scrambled to cover in last Friday's
session, helping the market higher.  Small traders got it
right by adding almost 10,000 contracts to their net bullish
position.  Interestingly, just the opposite occurred in the
Dow as you'll read below.

Commercials   Long      Short      Net     % Of OI 
02/12/02      355,276   412,868   (57,592)   (7.5%)
02/19/02      355,905   416,664   (60,759)   (7.9%)
02/26/02      366,258   432,258   (66,000)   (8.3%)

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
02/12/02      126,730     59,902   66,828     35.8%
02/19/02      130,856     63,311   67,545     34.8%
02/26/02      139,183     62,087   77,096     38.3%

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

Nasdaq commercials grew increasingly neutral in the most
recent report period by shedding a few more shorts than
longs.  Small traders added a mere 6 contracts to their
net bullish position.  Pretty quiet in Nasdaq land, but
that could've changed in last Friday's session.

Commercials   Long      Short      Net     % of OI 
02/12/02       32,712     34,841    (2,129)  (3.2%)
02/19/02       33,871     35,690    (1,819)  (2.6%)
02/26/02       33,589     34,091      (502)  (0.7%)

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

Small Traders  Long     Short      Net     % of OI
02/12/02        9,009     7,415     1,594      9.7% 
02/19/02        9,966     8,073     1,893     10.5%
02/26/02        9,517    11,416     1,899      9.1%

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


Commercial traders grew more bullish in the most recent
reporting period.  Although the group added a number of
short positions, its additions of longs more than
compensated for an increase in the net bullish position.
Small traders were wrong by adding to their net short

Commercials   Long      Short      Net     % of OI
02/12/02       26,811    16,488   10,323     23.8% 
02/19/02       29,606    17,953   11,653     24.5%
02/26/02       33,322    21,110   12,212     22.4%

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
02/12/02        4,562    10,038    (5,476)   (37.5%) 
02/19/02        4,654    10,431    (5,777)   (38.3%)
02/26/02        6,333    12,547    (6,214)   (32.9%)

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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The Other Grammy's
By Eric Utley
The recording industry held its annual showcase last week.  A
few awards didn't make it on the telecast.

My go-to rock & rollers, U2, bagged four awards.  And the O'
Brother, Where Art Thou folks took home a few, too.  The movie
that accompanied the award-winning soundtrack is one of my
favorites.  A post-depression era interpretation of Homer's
The Odyssey: brilliant!

Here are a few awards you might not have seen announced on TV:

Group or Duo of the Week
Semiconductors, featuring Micron (NYSE:MU) and Novellus

Group or Duo of the Weak
Genesis (NASDAQ:GNSS) and Invitrogen (NASDAQ:IVGN)

Best Pop Performance

Best Alternative Performance

Best Metal Performance
Phelps Dodge (NYSE:PD)

Please send your questions and suggestions to:

Contact Support 


Conexant (NASDAQ:CNXT)

With a breakup into three companies in about 6 months do you
think that the 10/11 level would be a good entry point? - 
Thanks, Frank

Thanks for the question, Frank.

I was bullish on Conexant in a big way last fall when the
company said that it was experiencing an increase in orders
for its wireless components, while its PC business had
stabilized.  Well, that increase in wireless orders and
stabilization of its PC business lasted all of a few months
as conditions have since worsened.

I don't understand the bullish argument ahead of the company
spinning off its chip businesses; I don't get it.  Instead of
one company operating in several weak industries, you'll end
up with three companies in three weak industries.  Without an
improvement in business conditions, buying on the break-up
thesis is a mistake.

If you must speculate and try to pick a bottom ahead of the
break-up, I'd wait for more downside risk to be removed.  I'd
watch for the stock to trade down to the $8 area, where it
should spend some time forming a base.  Such a development
could at the very least reveal that the company's various
business lines have stabilized.  As of this weekend, they have



H&R Block (NYSE:HRB)

I am writing to you as a novice "chartist."  I had made some
money on buying calls on H&R Block back in October when it
made what I think was a triple bottom.  In looking at the
chart now I am unsure if it is topping out or getting ready
for the next leg higher?  Any input would be appreciated. - 
Best regards, Mike

Thanks for the question, Mike, we were all novices once.

H&R Block is kicking butt.  The company flew past expectations
when it reported last week and reaffirmed its upbeat outlook
for the remainder of the tax season.  Its results for the
most recent quarter were padded by a double-digit increase
in revenues from its mortgage business.  With as strong as the
housing business remains, HRB's mortgage business should
continue so shine.

The company is strong and so is the stock.  It has the
earnings momentum to justify the two-year rally and the price
momentum to take the stock higher.  But is the stock toppy?
Excellent question.  My answer is yes.

The rally into last week's earnings report has left some
downside risk to contend with.  Don't confuse downside risk,
however, with a loss of bullish conviction.  I think the
stock goes higher this year.  I think it trades $60 before
the year is over.  But how it gets to $60 I don't know.  I
would guess through a series of pullbacks followed by a
consolidation.  My best offering: At $43, HRB is a gift.



Fuel Cell Stocks

I've been watching some fuel cell stocks for awhile now,
specifically Plug Power (PLUG) and Ballard Power (BLDP).  It
seems to me they could be marvelous performers once we shift
more in that direction for energy.  Even an OPEC decrease
could cause these stocks to move quickly.  Plug Power has some
kind of joint venture with a division of GE (GE Power Systems).
One big contract awarded to GE could make Plug go into the
stratosphere.  My feeling is that these are more news driven
than fundamentals driven at the present time.  Do you see any
price objectives, bullish or bearish, you could share?  Also,
any thoughts on near and longer term prospects based on the
company fundamentals?  - Thanks, Rob

Thanks for the question, Rob.

I consider the fuel cell stocks driven by speculation.  I
have some solid contacts in the energy business who believe
that the fuel cell technology is a long way off from
commercial adoption.  The economies aren't there yet to
support the business so they tell me.  I'll admit that I
don't know much about the business, but I do know how to read
financial statements.

Plug Power (NASDAQ:PLUG)

Plug Power recently reported fiscal year-end and fourth-
quarter results.  The company recorded sales of $5.7 million
for its last year.  Its revenues were down by 32 percent
from 2000's figures.  The company did defer a large amount
of sales from its contract with Long Island Power Authority.
Including the deferral, revenues would have totaled $11.2
million last year.  That's still a very small sum.  Giving
Plug the benefit and using its deferred revenues, I reached
a price to sales of about 40 times.  Clearly, the company is
a speculative endeavor.  Read this line from the most recent

"There can be no assurance that [Plug Power] will
manufacture or sell fuel cell systems successfully or
achieve or sustain product revenues or profitability."

Buying Plug is a speculative bet.  Nothing more.  Why take
the associated risk that comes with a stock like Plug when there
are so many easier areas of the market to make money from the
long side?  The way I see it, you have about $8 and change of
risk in Plug through Friday.

Finally, Plug is a heavily shorted stock and for good reason.
I see no nervousness on the part of shorts to cover even
though the stock has traded sideways for about six months and
the economy is picking up steam.  Current bearish price
objective is $6.



This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


Major Earnings This Week...

Symbol  Company               Date           Comment      EPS Est

BLDP   Ballard Power Systems  Mon, Mar 4  -----N/A-----     -0.30
ABV    Companhia Bebidas Ame  Mon, Mar 4  -----N/A-----      0.38
HBC    HSBC Holdings plc      Mon, Mar 4  -----N/A-----       N/A
JWa    John Wiley & Sons      Mon, Mar 4  Before the Bell     N/A
PSO    Pearson plc            Mon, Mar 4  -----N/A-----       N/A

BJ     BJ's Wholesale Club    Tue, Mar 5  Before the Bell    0.77
CHS    Chico`s FAS            Tue, Mar 5  Before the Bell    0.20
COST   Costco Wholesale Corp  Tue, Mar 5  -----N/A-----      0.41
CRHCY  CRH plc ADR            Tue, Mar 5  -----N/A-----       N/A
FMS    Fresenius Medical Care Tue, Mar 5  -----N/A-----      0.22
KSS    Kohl`s                 Tue, Mar 5  After the Bell     0.66
SPLS   Staples                Tue, Mar 5  -----N/A-----      0.26
TLS    Telstra                Tue, Mar 5  After the Bell      N/A
UNEWY  United Business Media  Tue, Mar 5  Before the Bell     N/A
V      Vivendi                Tue, Mar 5  -----N/A-----       N/A

AEOS   American Egl Outfit    Wed, Mar 6  Before the Bell    0.58
ANN    AnnTaylor Stores       Wed, Mar 6  After the Bell     0.33
ENT    Equant NV              Wed, Mar 6  After the Bell      N/A
GLH    Gallaher Group PLC     Wed, Mar 6  -----N/A-----      1.31
MIK    Michaels Stores        Wed, Mar 6  After the Bell     0.95
PAA    Plains Am Pipeline     Wed, Mar 6  Before the Bell    0.36
RA     Reckson Ass Realty     Wed, Mar 6  After the Bell     0.64

AEG    AEGON N.V.             Thu, Mar 7  -----N/A-----      0.42
DYS    Dist y Serv D&S SA.    Thu, Mar 7  -----N/A-----      0.18
ICCI   Insight Communications Thu, Mar 7  -----N/A-----     -0.41
MDZ    MDS                    Thu, Mar 7  -----N/A-----       N/A
NSM    National Semiconductor Thu, Mar 7  -----N/A-----     -0.27
NXL    New Pln Excl Rlty Trst Thu, Mar 7  Before the Bell    0.43
REXMY  Rexam PLC ADR          Thu, Mar 7  -----N/A-----       N/A
AHO    Royal Ahold N.V.       Thu, Mar 7  -----N/A-----      0.53
SKS    Saks                   Thu, Mar 7  After the Bell     0.50
SCO    Scor ADS               Thu, Mar 7  -----N/A-----       N/A
VDM    Van Der Moolen         Thu, Mar 7  Before the Bell     N/A

KKD    Krispy Kreme Doughnut  Fri, Mar 8  Before the Bell    0.13
LVMHY  LVMH Met-Hen Luis Vttn Fri, Mar 8  -----N/A-----       N/A

Upcoming Stock Splits This Week & Next...

Symbol  Company Name              Ratio    Payable     Executable

NJR     New Jersey Resources      3:2      03/01       03/04
RMCF    Rcky Mtn Chocolate Factry 4:3      03/04       03/05
TRR     TRC Companies             3:2      03/05       03/06
GILD    Gilead Sciences           2:1      03/07       03/08
WERN    Werner Enterprises        4:3      03/14       03/15
GNWR    Genesee & Wyoming         3:2      03/14       03/15
WLP     WellPoint Health Network  2:1      03/14       03/15
SMD     Singing Machine           3:2      03/15       03/18

Economic Reports

The week ahead of us still has a number of economic reports but
none as market moving as last week's.  Economists will be 
interested in the Factory Orders and the Fed's Beige book on Weds. 
plus the Unemployment number and the Avg. workweek and hourly 
earnings on Friday.

Monday, 03/04/02
Auto Sales               Feb Forecast:   n/a   Previous:    5.3M
Truck Sales              Feb Forecast:   n/a   Previous:    7.1M

Tuesday, 03/05/02
ISM Services (DM)        Feb  Forecast:   51.0  Previous:    49.6

Wednesday, 03/06/02
Factory Orders(DM)       Jan  Forecast:   1.0%  Previous:    1.7%
Fed’s Beige Book

Thursday, 03/07/02
Initial Claims (BB)    03/02  Forecast:   380K  Previous:    378K
Productivity-Rev. (BB)    Q4  Forecast:   4.2%  Previous:    3.5%
Consumer Credit (AB)     Jan  Forecast:  $3.2B  Previous:  -$5.1B

Friday, 03/08/02
Nonfarm Payrolls (BB)    Feb  Forecast:    N/A  Previous:    -89K
Unemployment Rate (BB)   Feb  Forecast:   5.8%  Previous:    5.6%
Average Workweek (BB)    Feb  Forecast:   34.1  Previous:    34.0
Hourly Earnings (BB)     Feb  Forecast:   0.3%  Previous:    0.0%

DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 03-03-2002
Sunday                                                      2 of 5

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IS Swing Trade Model: Saturday 3/02/2002
Bullish Wedges Confirmed!

News & Notes:
Wedges drawn in Thursday Gameplan were not lying, even though I 
was suspect of the gap-higher open. Intraday traders who attempted 
upside plays fared quite well indeed but those who didn't exit by 
the close face extended market uncertainty thru the weekend.

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


We have added a potentially new channel (green) indexes may follow 
next week. Watch for a pullback to support area where upper green 
meets blue and if chart signals are oversold at that time, call 
plays should be in order!

[60/30-Min Chart: SPX]


The same is true for SPX: 1118 area on a dip should be good for 

[60/30-Min Chart: QQQ]


Qs look more extended than S&Ps, so we might expect the first 
pullback to begin in this index.

Intraday traders may fare well with put plays soon, but the trend 
for this week was up and that must be respected going forward 
until otherwise changed from that. Call plays from support are 
highly possible in the next session or two but obviously 
impossible to gauge at this time. Traders looking to play calls in 
current extended markets and/or puts upon descent must keep hair 
trigger fingers for now.

Trade Management:
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
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
Mar Calls: 37 (QQQ-CK)            Mar Calls: 102 (DJV-CX)  
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 

Mar Puts: 34 (QQQ-OH)             Mar Puts: 100 (DJV-OV) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break above 


         OEX                         SPX
Mar Calls: 570 (OEB-CN)           Mar Calls: 1125 (SPT-CE)
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 

Mar Puts: 550 (OEB-OJ)            Mar Puts: 1075 (SPQ-OO)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 

Open Plays:

IS Position Trade Model: Saturday 3/02/2002
Friday's Squeeze = Monday's ??

News & Notes:
Indexes started higher in the morning and stuck to it thru the 
day. Short-term extended and nearing key resistance, don't be 
surprised for a dip straight ahead early this week!

Featured Plays:

We cannot in good faith suggest any index or sector option plays 
that will hold for several days or weeks for high-odds success 
right now. 

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

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. 

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

New Play Targets:

Open Plays:

Sector Share Trade Model: Friday 3/01/2002
Big Friday

News & Notes:
Indexes rallied big today, we'll see how Monday shapes up for 

Featured Plays:

Current open plays have stops trailed closer, and no new entries 
to track are listed tonight.

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:

Open Short Plays:

Open Long Plays:
IIH             BHH
Long: 4.75      Long: 3.50
Stop: 4.50      Stop: 3.50

HHH             XLE             IYV
Long: 28.00     Long: 26.75     Long: 11.40
Stop: 29.00     Stop: 26.50     Stop: 11.50

BDH             WMH             MKH
Long: 12.75     Long: 45.60     Long: 57.60
Stop: 12.25     Stop: 45.00     Stop: 57.60
OEF             SPY             FFF
Long: 56.65     Long: 111.60    Long: 80.15
Stop: 57.00     Stop: 112.60    Stop: 80.00

IYZ             IYW             IYC
Long: 26.60     Long: 48.10     Long: 55.60
Stop: 26.00     Stop: 48.00     Stop: 56.00

IYG             IVE             IVW
Long: 87.00     Long: 53.10     Long: 58.10
Stop: 88.00     Stop: 54.00     Stop: 58.20

MDY             XLF             XLK
Long: 92.70     Long: 25.25     Long: 21.40
Stop: 94.00     Stop: 25.00     Stop: 21.00


Please view this in COURIER 10 font for alignment

CALLS              Mon    Tue    Wed    Thu   Week

SII      64.79    2.01   0.19  -0.60   1.30   3.04  Still strong
TDW      39.47    1.32   0.22  -0.40   0.44   2.07  Another break?
UTX      74.20    0.35   1.75   1.15   0.00   4.50  Leading INDU
HON      39.79    1.54  -0.34   1.04   0.97   4.40  Monster week
BA       47.84    0.18   0.21   0.75   0.06   3.08  Flying high
MMM     120.32    1.45  -1.15  -0.30  -1.07   1.32  Rebound Friday
ETN      82.34    1.69   0.70  -0.81  -0.25   2.93  New, cyclical
ACS      50.19    0.11   0.81   1.20   1.29   4.69  New, breakout


GS       83.47    2.96  -0.56  -0.51   0.05   4.47  Dropped
QLGC     43.06    1.86   0.08  -3.69  -1.85   2.21  Dropped
MXIM     50.68    1.71  -1.42  -1.43  -2.07   1.65  Dropped
ISSX     25.20   -0.22   0.94  -1.50  -2.26  -1.55  Entry point
NVDA     51.01    3.91   1.17  -1.85  -2.14   6.02  Resistance
ALTR     20.76    1.72  -0.78  -1.82  -0.92   0.89  Weak vs. SOX
CLS      32.52    1.41  -0.05   1.71  -2.81  -0.12  New, down Fri
ENZN     42.78   -0.14   1.20   1.24  -2.39  -1.12  New, breakdown
LPNT     32.96   -1.11  -2.47   0.89  -0.98  -3.55  New, weakening

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Call Play of the Day:

ACS – Affiliated Computer Services, Inc. $50.19 (+4.69 last week)

See details in play list

Put Play of the Day:

LPNT – LifePoint Hospitals $32.96 (-3.55 last week)

See details in play list


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.




GS $83.47 (+4.47) Looking like it was going to roll over again
right up until the final hour of trading, GS finally got with
the spirit of things and launched through the $82.50 resistance
level to close almost $1 above that level.  Volume surged
strongly into the close, signaling that there might actually be
some life to the rebound.  We had some favorable moves from GS
over the past couple weeks, but with the stock violating our
stop, it is clear that the bearish party is over for now.  There
is no question that GS is a drop this weekend.

MXIM $50.68 (+1.65) Chip stocks were definitely in favor on
Friday, following the positive economic news showing the
recession is over and the positive comments made by MU.  That
dual effect launched the Semiconductor index (SOX.X) to an 11%
gain and just about every chip stock posted strong gains.  That
included our new put play, MXIM, which wasn't far behind the
sector, posting a 10.75% gain of its own.  Blasting through our
$49.25 stop brings our play to an abrupt close, as Thursday's
breakdown has now been erased from investors' collective memory.
Use any weakness on Monday to find a better exit from any open

QLGC $43.06 (+2.21) After breaking down to new recent lows on
Thursday, shares of QLGC gapped higher on Friday and pushed
higher throughout the day, ending with a nearly 16% daily gain.
Clearly there was some short-covering in there, but the bottom
line is that our $41 stop was obliterated in the afternoon push
to close at the highs, and it is time to move to the sideline
on our bearish play.  After such a huge rally on Friday, there
could be some weakness early next week.  Take advantage of that
weakness to exit any remaining plays at a better price.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.

If you trade options online, then you need an online broker 
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.



Please read our disclaimer at:


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

Contact Support
The Option Investor Newsletter                   Sunday 03-03-2002
Sunday                                                      3 of 5

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Anything else is too slow!



ETN - Eaton Corp. $82.34 (+2.93 last week)

Eaton Corporation, incorporated in 1916, is a global diversified
industrial manufacturer. Eaton is in the business of fluid power
systems, electrical power quality and controls, automotive air
management and fuel economy, and intelligent truck components for
fuel economy and safety. The Company segments its business as
Automotive, Fluid Power, Industrial and Commercial, Controls,
and Truck.

Cyclical stocks remain one of the highest probability bullish
bets in the market.  Not only that, but they carry the least
amount of downside risk.  Last week's trading further reinforced
that notion as the Dow Jones Industrial Average ($INDU), heavy
with cyclical components, finished at a six month high.  The
basic materials, equipment, and automotive sectors continued on
their respective climbs higher.  Fortunately, our new call play
in ETN has operations in each of these sectors.  The stock
received a boost from Merrill Lynch analysts last week, when
they upgraded their investment rating on the stock from neutral
to a buy rating.  Analysts cited the company's improved outlook
and strides to increase its profit margins in several business
lines.  Merrill raised its earnings per share estimates for
next to $5.70, from $5.23.  That was a significant boost in
earnings estimates which gave the stock a significant boost
last week.  The stock climbed to a 22 month high last week
and has more upside ahead of it.  There exists mild historical
resistance between the $84 and $86 levels, but from there it's
a clear shot to the $100 mark.  We don't expect the stock to
move straight up to $100, but it is a target for the longer
term traders among our readers.  In a strong market, as
measured by the Dow and S&P 500, short-term traders can look
for a high volume advance past the $83 level.  Trading
activity has remained relatively higher in recent weeks and
should continue to do so if ETN works higher from here.  Those
in search of a pullback in this strong cyclical stock can
look for a light volume retreat down to the $79.50 to $80
range.  The 10-dma sits below at the lower end of that range.
We're placing our stop at the $78 level to give this stock
room to operate higher.  A bounce above $78 would also serve
as a favorable entry point.

***March contracts expire in two weeks***

BUY CALL MAR-80 ETN-CP OI=  39 at $3.10 SL=1.25 
BUY CALL MAR-85 ETN-CQ OI=   0 at $0.50 SL=0.00  High Risk!!
BUY CALL APR-80*ETN-DP OI=2261 at $4.30 SL=2.75 
BUY CALL APR-85 ETM-DQ OI=  12 at $1.60 SL=0.75 

Average Daily Volume = 375 K

ACS – Affiliated Computer Services, Inc. $50.19 (+4.69 last week)

ACS is a global Fortune 1000 company that delivers comprehensive
business process outsourcing and information technology
outsourcing solutions, as well as system integration services,
to both commercial and federal government clients.  

The usual pattern for a stock after its splits is to languish for
awhile, recovering from the run that went before.  Not so in this
case.  Without so much as a hesitation, shares of ACS followed up
on the 2-1 split a week ago Friday by staging an impressive
rally, all in the face of a market that couldn't decide what it
wanted to do.  After dipping to the $44 level to confirm support,
the bulls drove the stock solidly higher all last week and volume
really picked up the last two days of the week, running more than
triple the ADV.  Resistance levels were falling quickly too, with
the $48 level removed on Thursday and $49 on Friday, as the stock
continued its impressive momentum run.  While a consolidation dip
would provide for the best entries, there is nothing to say that
the stock can't just keep right on running until it runs into the
next level of resistance.  Right now, mild resistance is waiting
at $51 with a firmer level of congestion up at $52.  Of course,
it will become more difficult for the bulls the closer ACS gets
to its mid January highs near $55.  Pick the entry strategy that
works for you, either buying a breakout over the $50.25 level, or
wait for a dip and bounce from either of the recently cleared
support (old resistance) levels, first at $49, and then $48.
We're initiating the play with our stop set at $47.50.

*** March contracts expire in 2 weeks ***

BUY CALL MAR-50*ACS-CJ OI=1374 at $1.75 SL=0.75
BUY CALL MAR-52 ACS-CT OI= 470 at $0.65 SL=0.25
BUY CALL APR-50 ACS-DJ OI=1020 at $3.20 SL=1.50
BUY CALL APR-52 ACS-DT OI= 568 at $2.00 SL=1.00
BUY CALL APR-55 ACS-DK OI=1900 at $1.20 SL=0.50

Average Daily Volume = 776 K

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SII - Smith Int'l $64.79 (+3.04 last week)

Smith International, Inc. is a worldwide supplier of products and
services to the oil and gas exploration and production industry,
the petrochemical industry and other industrial markets. The
Company provides a comprehensive line of technologically advanced
products and engineering services, including drilling and
completion fluid systems, solids-control equipment, waste
management services, three-cone and diamond drill bits, fishing
services, drilling tools, underreamers, casing exit and
multilateral systems, packers and liner hangers. 

The Oil Service Sector Index (OSX.X) tacked on another 3.13%
in last week's trading.  The sector remains strong even after
its recent three week rally.  The group could be benefiting
from renewed optimism over the economy.  Increase in economic
activity, as the ISM Index revealed late last week, will
increase the demand for energy.  And that demand will
obviously trickle down to the exploration and production
companies in the oil service arena.  For its part, the OSX.X
completed a very short term consolidation during the latter
half of last week's trading.  A breakout above the 95 level
in the OSX.X could have that index advancing up to the 98 to
99 range, which would lift our SII play higher.  SII traced
a similar short-term consolidation last week, although SII is
trading slightly better than its index.  If the aforementioned
move is completed in the OSX.X, then we'd look for SII to
climb up to the $68 area, where traders can look to take
profits.  Given the short-term consolidation in the sector
late last week, traders can use a breakout in the OSX.X in
conjunction with an advance in SII past $65.50 to enter new
positions.  A pullback to the $63 area could offer entries
on weakness in the sector.  We're raising our coverage stop
to $62.  Traders with open positions might use a tighter
stop to protect profits.

***March contracts expire in two weeks***

BUY CALL MAR-60 SII-CL OI= 421 at $5.60 SL=3.50 
BUY CALL MAR-65*SII-CM OI= 336 at $2.15 SL=1.00 
BUY CALL APR-60 SII-DL OI=3783 at $7.50 SL=5.75 
BUY CALL APR-65 SII-DM OI= 734 at $4.40 SL=3.00 

Average Daily Volume = 1.14 mln

TDW - Tidewater $39.47 (+2.07 last week)

Tidewater, Inc. provides services and equipment to the offshore
energy industry through the operation of the world's largest
fleet of offshore marine service vessels. The Company is one of
the world's largest provider of offshore supply vessels and
marine support services serving the energy industry.

TDW added 5.53% last week, far out pacing the gains in its
sector, the Oil Service Sector Index (OSX.X).  The OSX.X tacked
on 3.1% in last week's trading.  TDW's relative strength is
impressive as it should help to minimize the downside on any
sector weakness as well as help the stock higher on any
continued strength in its group.  In fact, TDW traced a new
relative high in last Friday's session at the $39.97 level,
just short of the $40 mark.  An advance past the $40 level
next week would have TDW above all of its meaningful
intermediate-term resistance and could portend more upside
in the short-term.  The sector still could be due for a
pullback, but much of that will depend on the broader
market.  Traders looking for a breakout above $40 in TDW
should pay close attention to the OSX.X as well as the Dow
Jones and S&P 500.  Only pursue a breakout entry in an
advancing sector and market environment.  In terms of a
pullback, dip buyers might look for weakness down around
the $38 area as an entry opportunity.  We're raising our
coverage stop to $37.50.

***March contracts expire in two weeks***

BUY CALL MAR-35 TDW-CG OI=9159 at $4.80 SL=2.75 
BUY CALL MAR-40 TDW-DG OI= 692 at $1.10 SL=0.50 
BUY CALL APR-40*TDW-DH OI=1842 at $2.15 SL=1.25 
BUY CALL JUL-40 TDW-GH OI=1002 at $3.50 SL=2.25 

Average Daily Volume = 730 K

UTX - United Technologies $74.20 (+4.50 last week)

United Technologies Corporation, through its operating segments,
manufactures, installs and services elevators and escalators;
manufactures commercial and residential heating, ventilating and
air conditioning systems; produces commercial, general aviation
and military aircraft engines, and military and commercial
helicopters; and supplies transport helicopters. 

UTX continued to perform well in last Friday's trading, led
higher by the strong rally in the Dow Jones Industrial
Average ($INDU).  Since breaking from its base at the $70
level earlier in last week's trading, UTX advanced as high
as the $74.95 mark in Thursday's session before pulling back
on routine profit taking.  The stock could be due for
additional consolidation as there exists some congestion
immediately overhead current levels.  The first level of
resistance we're monitoring is the $75 mark, followed by $76,
then $77.  An advance past that congestion could have UTX
trading back up to the mid $80s in the short to intermediate
terms.  Whether or not UTX makes that high in the next few
weeks is dependent on the price action in the INDU.  UTX
needs the blue chip index to continue higher, so it's
important to monitor the sentiment in the INDU when gaming
new entries in UTX.  Continued strength in the INDU early
next week and an advance in UTX above $75 could be used as
an entry opportunity.  Those who prefer entering new call
plays on a pullback can look for weakness in the INDU to
pressure the stock back down to support.  In the very
short term, the $72 level could serve as a bounce point,
where traders can look to target shoot new entry points.
An extended pullback in the INDU could have UTX all the
way back down to the $70 mark, where traders can look to
aggressively enter new call plays.  The 10-dma at the $70.83
level could prevent any fall down to the $70 level.

***March contracts expire in two weeks***

BUY CALL MAR-70 UTX-CN OI=2004 at $4.70 SL=3.00 
BUY CALL MAR-75*UTX-CO OI=1888 at $1.30 SL=0.75 
BUY CALL APR-75 UTX-DO OI= 707 at $2.95 SL=1.75 
BUY CALL MAY-75 UTX-EO OI=4585 at $3.90 SL=2.75 

Average Daily Volume = 2.21 mln

HON - Honeywell $39.79 (+4.40 last week)

Honeywell International Inc. is a diversified technology and
manufacturing company, serving customers worldwide with
aerospace products and services, control technologies for
buildings, homes and industry, automotive products, power
generation systems, specialty chemicals, fibers, plastics and
electronic and advanced materials. 

The economic release last Friday really got HON moving to
the upside again.  The ISM Index rose by a much higher than
expected amount during February.  The consensus estimates
going into the release Friday morning were calling for a
rise to 49.9, while the actual reading came in at 54.7%.  The
reading indicated expansion in the manufacturing sector,
which inspired the bulls in the Dow Jones Industrial
Average ($INDU).  That inspiration in turn spread to shares
of Honeywell which was the fourth best performing component
of the index with its 4.30% gain in Friday's session.  The
stock traded up past its intermediate resistance levels but
may encounter resistance at the $40 level going into next
week's session.  Of course if the INDU continues on its
rampage higher then HON should have no problem clearing the
$40 level.  The thing to watch for is weakness in the INDU.
If the index pulls back, then the $40 level is the logical
place for bulls to take some short-term profits.  Options
traders holding open positions should consider tightening
stops in order to protect profits gained last week.  As for
new entries, a breakout above $40 and continued strength in
the INDU could be used as an entry point into strength.
While a pullback down into the $36 to $36.50 range would
offer dip buyers an entry into new plays on weakness in the
INDU.  We're maintaining our stop at the $34 level.

***March contracts expire in two weeks***

BUY CALL MAR-35 HON-CG OI=8162 at $5.20 SL=3.75 
BUY CALL MAR-37*HON-CU OI=3600 at $2.80 SL=1.75 
BUY CALL MAR-40 HON-CH OI=2795 at $1.00 SL=0.50 
BUY CALL APR-40 HON-DH OI=2841 at $1.95 SL=1.00 

Average Daily Volume = 3.65 mln

MMM - 3M $120.32 (+1.32 last week)

Minnesota Mining & Manufacturing (3M), an integrated enterprise,
is engaged in the research, manufacturing and marketing of
products related to its technology in coating and bonding for
coated abrasives. Characterized by substantial inter-company
cooperation, 3M's business has developed upon the research and
technology of its original product, coating and bonding. 

3M announced last Friday morning that sold $400 million in three
year notes.  We suspect that the weakness we observed in the MMM
in the three days prior to Friday was related to the debt
offering.  We're pointing fingers, but it could be that part of
the selling against the trend of the market could've been
related to the announcement Friday morning.  After the
announcement, MMM proceeded to trade higher through the day,
making that rebound from above the $117 level earlier in the
session very smart if readers took plays.  With the Dow Jones
Average looking strong going into next week's trading, MMM
could continue marching higher after its pullback last week.
The level to watch for momentum traders going into next week
is at $121.  MMM ever so slightly rolled over from that level
in last Friday's session, which could mean that a breakout
above could have the stock retesting the $122 relative highs in
a hurry.  In an advancing Dow, look for MMM to breakout above
that $121 level.  From there, we'll be looking for the retest
of the stock's all-time high up around the $127 mark.  In terms
of pullbacks, we still like the idea of targeting entries on
bounces above the $117 up to the $118 range.

***March contracts expire in two weeks***

BUY CALL MAR-115 MMM-CC OI=2800 at $6.60 SL=4.75 
BUY CALL MAR-120*MMM-CD OI=3176 at $2.95 SL=1.50 
BUY CALL MAR-125 MMM-CE OI=1656 at $0.85 SL=0.25 
BUY CALL APR-120 MMM-DD OI=3094 at $5.60 SL=3.25 

Average Daily Volume = 1.97 mln

BA – Boeing $47.84 (+3.08 last week)

One of the world's major aerospace firms, BA operates in three
principal segments: commercial airplanes, military aircraft and
missiles, and space and communications.  Commercial airplanes
operations involves the development, production and marketing
of commercial jet aircraft, principally to the commercial
airline industry.  The Military Aircraft and Missiles division
is involved in the research, development, production,
modification and support of military aircraft, including
transport and attack aircraft.  The Space and Communications
segment is involved in the research, development, production,
modification and support of space systems, rocket engines and
battle management systems.

Transport stocks are flying high and led the way for the DJIA
to post its best session since late September on Friday.  The
DJ Transports ($TRAN) blasted through their long-standing
resistance at $2840, shortly after pushing through the
descending trendline that had capped every rally since the
highs posted in the middle of 1999.  With the Airline index
(XAL.X) setting a new post-9/11 high too, it should come as no
surprise that BA is continuing to shoot to new highs,
obliterating the resistance that could have materialized at the
200-dma.  The stock spent all day trading above that level on
Friday though, and appears intent on challenging the first
resistance level in the near future.  Speaking of resistance,
the 50% retracement of the May-September decline lies just
overhead at $49, followed by the psychologically significant
$50 level.  Serious resistance doesn't start to materialize
until about $52.50, so it looks like this momentum play has
room to run.  While a breakout above Friday's highs can
certainly be used for fresh entries, with the stock up for each
of the past 7 days, it may be time for a bit of consolidation.
A rebound from intraday support near $46 (near the 200-dma)
would be ideal.  Move stops up to $45.50 (just below the top
of Wednesday's gap) this weekend.

*** March contracts expire in 2 weeks ***

BUY CALL MAR-47 BA-CW OI=1562 at $1.35 SL=0.75
BUY CALL APR-47*BA-DW OI=1519 at $2.35 SL=1.25
BUY CALL APR-50 BA-DJ OI=2062 at $1.30 SL=0.75
BUY CALL MAY-50 BA-EJ OI=4871 at $1.70 SL=0.75

Average Daily Volume = 3.61 mln


CLS – Celestica, Inc. $32.52 (-0.12 last week)

Celestica is a provider of electronics manufacturing services
(EMS) to original equipment manufacturers worldwide.  The
company provides a wide variety of products and services to its
customers, including manufacture, assembly and test of complex
printed circuit assemblies.  The company's broad range of EMS
services includes design, procurement, product assurance,
assembly, full supply chain management, worldwide distribution
and after sales support.  CLS complements its EMS services by
providing memory and power products to its customers.

You are now entering the pending breakdown zone.  Breakdowns
have definitely been the most profitable plays in this market,
and we've got another play that is right on the cusp of doing
just that.  Contract manufacturers are dependent on strength in
the manufacturing sector, particularly for electronics products
focused on the Telecom industry.  On Thursday, ABN Amro lowered
estimates for the entire contract manufacturing group, saying
that the recovery in the Telecom industry is progressing more
slowly than expected.  That drove shares of CLS down to the
$32.50 level, and the weakness continued on Friday with the
stock trading below $32 intraday before finally rebounding right
to the $32.50 level at the close.  Looking at the PnF chart, you
can see how critical the current support level is to any bullish
hopes, as trading at $31 will create another double-bottom
breakdown and a fresh signal.  The most recent sell signal yields
a price target of $19, which is actually below the September low
of $20.69.  While we can use a failed intraday rally to gain a
better entry point into the play (assuming the breakdown will
happen), the best way to play looks to be waiting for CLS to
trade the $31 level, giving the actual PnF sell signal.  If you
want to fade any near-term rebound in entering the play look for
any rally to fail below the $34.50 level.  In order to give the
stock some room to move before breaking down, we are initiating
the play with a liberal stop at $36.25.

*** March contracts expire in 2 weeks ***

BUY PUT MAR-35*CLS-OG OI=4877 at $3.50 SL=1.75
BUY PUT MAR-30 CLS-OF OI=2697 at $1.10 SL=0.50
BUY PUT APR-30 CLS-PF OI= 566 at $2.50 SL=1.25

Average Daily Volume = 2.41 mln

ENZN – Enzon, Inc. $42.77 (-1.22 last week)

Enzon is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary
platform technologies: polyethylene glycol (PEG) and
single-chain antibodies.  The company applies PEG technology
to improve the delivery, safety and efficacy of proteins and
small molecules with known therapeutic efficacy.  ENZN applies
its single-chain antibody technology to discover and produce
antibody-like molecules that offer many of the therapeutic
benefits of monoclonal antibodies while addressing some of
their limitations.

Stocks are breaking down so fast we can hardly keep up with
them all.  That's right, the broad markets staged their best
rally day since late September, but there are still plenty of
laggards to play to the downside.  One of the weakest sectors
of the market over the past two days has been the Biotechs, and
the BTK index once again dipped precariously close to the early
February lows on Friday before managing to recover most of its
losses with the help of the broad market strength.  But the BTK
is once again underperforming (relative weakness) the broader
NASDAQ, and the NASDAQ remains weak relative to the broad market.
Enter ENZN, a Biotech that has dramatically under-performed even
the lowly BTK over the past month and is right now on the cusp
of another big breakdown.  We've been seeing this pattern develop
in other weak Biotech stocks lately, most recently IVGN, which
blew up to the tune of a 25% loss on Friday following a 9% loss
on Thursday.  That doesn't mean that ENZN will do the same thing,
but the chart looks eerily similar to that prior to IVGN's
breakdown.  ENZN is tenuously holding onto support near $41.50
and should that level break, it may find some last ditch defense
near the $40 level, which provided some support in March/April
of last year.  Target new entries either on a failed rebound at
$44 or even $45.50, or wait for a breakdown below the $41.50
level.  Our stop is initially in place at $46.50.

*** March contracts expire in 2 weeks ***

BUY PUT MAR-45*QYZ-OI OI= 610 at $3.60 SL=1.75
BUY PUT MAR-40 QYZ-OH OI=1649 at $1.15 SL=0.50
BUY PUT APR-40 QYZ-PH OI= 347 at $2.90 SL=1.50

Average Daily Volume = 1.24 mln

LPNT – LifePoint Hospitals $32.96 (-3.55 last week)

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

The Health Care sector (HMO.X) has been leading the broad markets
higher for months, but in the past few weeks, it has been losing
its position of relative strength as money rotates into other,
more economically sensitive stocks.  Peaking in early February,
the HMO index has been gradually drifting earthward for the past
few weeks and then fell sharply on Wednesday and Thursday.  The
dramatic broad market rally dragged the HMO out of its slump for
a positive day, but it still greatly under-performed the broad
market, with the relative strength chart taking a dramatic turn
for the worse.  We successfully played LPNT to the upside earlier
this year, when the HMO index was still on the rise.  Now that
the tables have been turned, we can see that it is starting to
significantly Underperform the HMO.  Weak stock in a weak sector.
That's the perfect recipe for puts, don't you think?  After
falling back below the 200-dma, LPNT has plunged through all of
its moving averages in short succession, and the only think
holding it up at this point is the tenuous support between
$32-33.  The recent decline has given the stock its first PnF
sell signal since it began recovering in early November, and the
current column of O's gives us a tentative price target of $25.
A failed rally from current levels would likely provide the best
entry, and we would look for a rollover near failed support at
$34.50, also the site of the 50-dma.  Barring that, look to
initiate new positions as the stock falls below the $32 intraday
support level, preferably on increasing volume.  In order to give
the play some room to work, we're initiating it with a liberal
stop at $36, just above the 20-dma ($35.86).

*** March contracts expire in 2 weeks ***

BUY PUT MAR-35*PUN-OG OI=27 at $2.85 SL=1.50
BUY PUT MAR-30 PUN-OF OI= 0 at $0.40 SL=0.00
BUY PUT APR-30 PUN-PF OI= 0 at $1.00 SL=0.50

Average Daily Volume = 486 K

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The Option Investor Newsletter                   Sunday 03-03-2002
Sunday                                                      4 of 5

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ALTR - Altera $20.76 (+0.89 last week)

Altera Corporation designs, manufactures and markets programmable
logic devices (PLDs) and associated development tools. PLDs are
semiconductor integrated circuits that customers can program using
its proprietary software, which operate on personal computers and
engineering workstations. 

The Semiconductor Sector Index (SOX.X) erupted last Friday with
a 11.01% gain.  The SOX.X was powered higher by bullish analysts
actions and positive news from within the group.  Novellus
(NASDAQ:NVLS), a chip equipment maker, said that it sees signs
of recovery in the chip industry and raised its revenue targets
for the current quarter.  The positive guidance was well
received by Wall Street as several firms rushed to upgrade the
stock.  Separately Thomas Weisel raised its earnings estimates
and price target on shares of the DRAM memory maker Micron
Technology (NYSE:MU).  The renewed bullish sentiment lifted
ALTR from its recent sell-off, but it was interesting to watch
ALTR under perform its sector.  ALTR finished 8.86% higher,
well below the benchmark performance as indicated by the SOX.X.
If the sellers return to the chip sector next week, ALTR
should be high on the list for its relative weakness.  What's
more, the stock approached significant overhead resistance last
Friday.  The 10-dma, which has served as resistance on the
way down recently, currently sits overhead at the $20.97 level.
ALTR failed to reach that level last Friday, but if it does
early next week, a rollover from there would serve as a solid
entry point into new put positions.  Entries taken at the
$21 area can managed with tight stop.  Our coverage stop can
be used, which is currently at the $21.50 level, to manage
potential upside risk on entries at the 10-dma.  To the
downside, we'll target the recent relative lows down around
$19 on entries taken from rollovers at the 10-dma.  Just make
sure to keep a close eye on the SOX.X when attempting to
target shoot an entry on a rollover next week.  We need to
see some weakness in the SOX.X if ALTR is going to trade
lower from here.

***March contracts expire in two weeks***

BUY PUT MAR-22*LTQ-OS OI=1603 at $2.25 SL=1.00
BUY PUT MAR-20 LTQ-OD OI=4420 at $0.90 SL=0.25

Average Daily Volume = 6.86 mln

ISSX – Internet Security Systems $25.20 (-1.55 last week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services

Following the descending triple-bottom breakdown in shares of
ISSX on Thursday, we were hoping for a rebound in the stock to
give us a better entry point to the downside, and Friday's broad
market rally looks like it gave us just what we were looking for.
The stock has been under heavy selling pressure for all of the
month of February, losing 37% of its value, and that decline was
punctuated by the breakdown below the long-standing $25 support
level.  Taking a closer look at the PnF chart, we can see that
the initial sell signal that was generated last month gave the
stock a bearish target of $14, and that is well below its current
price near $25.  Adding to the pivotal status of the current level
is the 50% retracement of the September through January rally,
which rests right at $25.  Big breakdowns have been common lately
and the bearish patterns on the PnF charts have been very reliable
at catching a lot of them.  Use the current broad market-induced
rebound to initiate new positions near the $25-26 area,
anticipating the eventual breakdown in price.  If momentum
trading is your preference, then you'll want to see ISSX drop
below the $22 level (Thursday's intraday low) before taking a
position.  Our stop remains in place at $26.50.

*** March contracts expire in 2 weeks ***

BUY PUT MAR-25*ISU-OE OI=4680 at $2.65 SL=1.25
BUY PUT MAR-22 ISU-OX OI= 229 at $1.50 SL=0.75
BUY PUT APR-22 ISU-PX OI=  60 at $2.80 SL=1.50

Average Daily Volume = 2.75 mln

NVDA – NVIDIA Corporation $55.94 (+6.02 last week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Entry point, or end of the line?  Clearly we haven't had an
opportunity for an entry in our NVDA play, as we added it on
Thursday and Friday saw Semiconductor stocks rallying sharply
on the combined stimulation of positive economic numbers and
sharply revised upward guidance from MU.  That sent the
Semiconductor index (SOX.X) on a more than 11% journey to the
upside, bringing it right to the long-term descending trendline,
and just a bit below heavy resistance near $580.  Either this
rebound will fail like all the others or there is some
significant upside to come.  Based on the fact that NVDA is on
the put list, we think it is the former.  Once the enthusiasm
of Friday's rally fades, we're looking for NVDA to roll over
and challenge the lows from last week enroute to taking out the
$50 support level.  The current downside target from the PnF
chart is currently $35, but if NVDA trades $57 next week, that
target will be negated by the fresh buy signal.  If you're going
to play, make sure to play with caution.  NVDA is only 6 cents
below our stop and it could take that out if the SOX continues
to rally next week.  A rollover from current levels would make
for a great entry if our premise for the play is correct, but if
our stop is taken out on Monday, we'll be moving the play to the
drop list.  More conservative traders will want to wait for NVDA
to fall back below intraday support at $53.75 before taking a
position.  We'll be honoring our stop at $56; make sure you do

*** March contracts expire in 2 weeks ***

BUY PUT MAR-55*RVU-OK OI= 6169 at $2.75 SL=3.75
BUY PUT MAR-50 RVU-OJ OI=10964 at $1.25 SL=1.50
BUY PUT APR-50 RVU-PJ OI= 1495 at $3.90 SL=2.50

Average Daily Volume = 9.99 mln

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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.



Upgrades and Downgrades and Rumors, Oh My!
By Mark Phillips
Contact Support

The week that was.  And what a wild and wooly week it was.
Highlights for me included the upgrade/downgrade war over EBAY
between Holly Becker and Mary Meeker, the GNSS acquisition of
Sage that suddenly became dilutive rather than accretive to
earnings, and of course we can't leave out the rumors that the
U.S. already had ground troops in Iraq.  Any of these factors on
their own don't really mean much, but taken together with a slew
of conflicting economic reports and Greenspan testifying before
Congress, and you have the makings for a volatile week in the
sandbox we call the stock market.

The DJIA failed on three separate days to power through overhead
resistance and each time was turned back in a weakening afternoon
session.  But on the fourth day, the sun shone through and the
major indices managed to keep their lofty gains as we headed into
the closing bell.  Lighting the bullish path were some impressive
economic numbers that seem to be saying that the recession is over
and the recovery is underway.  That's truly encouraging, but I
take note that the SPX and NASDAQ markets are pinned at resistance
at the upper bounds of their recent ranges, and the DJIA has a lot
of overhead resistance to plow through.  Can the bulls power
through?  I don't know, but I can tell you that with the VIX down
at 22, I'm certainly nervous about initiating new long-term
bullish plays.  But an action plan is an action plan and we need
to follow it, right?

I'm sure you all noticed the entry signals we got on Friday in 3
of our Watch List plays, IBM, BRCM and BBH, all of which posted
strong rebounds from our entry targets.  Particularly impressive
was the fact that the BBH was able to shake off the negative news
from IVGN, bounce right at the $115 support level that we have
been targeting for new entries.  So BBH makes it into the
Portfolio tonight.  I've got mixed feelings on the other two
stocks that gave us entry signals today.  I tend to think that
much of the positive action in Technology names on Friday stemmed
from a lot of short-covering.

BRCM vaulted higher by nearly 15% on Friday and volume was
strong.  So why isn't it moving to the Portfolio this weekend?
I just don't feel comfortable that the gains are going to stick
on this cycle, and would prefer to grab an entry on the next dip
down that confirms the $31-32 support level.  Recall, that when
we list plays here in the LEAPS column, we take our entries at
the end of the day, listing closing prices.  If you took an entry
on Friday when the stock rebounded from our entry target, then
protect yourself with a tight stop just below Thursday's lows.
We'll keep BRCM on the Watch List this weekend and look to enter
the play on the next rebound from support.

But I like IBM better than BRCM due to the fact that it is a
broad-based technology enterprise and is less leveraged to the
troublesome Telecom industry.  I really like the way the stock
refused to break below the $95 support level and then blasted
off with the broad market, handily clearing our secondary target
level of $100.  So we'll go ahead and add it into the Portfolio.

Here's the problem that I run into when contemplating new Watch
List plays.  Technology is in the process of being drilled into
the dirt -- with the NASDAQ looking to likely test (and possibly
break) the September lows, as one richly valued stock after
another takes a serious valuation haircut.  Don't let Friday's
short-covering rally fool you; the NASDAQ is still stuck in its
2-year descending channel and the bulls have a lot of work to do
before this index will be considered strong again.  GNSS was the
poster child for that this week, but what we'd really like to
know is who is next!

We tried to play that game with EBAY last fall, with dismal
results.  We were just too early to the party, as the stock began
its downward slide just a couple weeks after we were stopped out
of our LEAP Put play and threw in the towel.  Timing is
everything and ours was definitely off.  Isn't hindsight great!
With the markets as volatile as they have been in recent months
it seems that just when we get into what looks like a good
position, the stock moves just enough to kick us out of the
position and convince us we were wrong.  Then it reverses
abruptly, heading in favor of the direction we picked, going on
to hit levels that would eventually have been quite profitable.

How about AIG?  We played that one to the downside from last
November through mid-January, looking for the stock to break down
to the $70 level or thereabouts.  Well, I got just a wee bit too
aggressive on the stop loss and no sooner had we closed out the
play for par, then it cratered as low as $66.50.  Right on the
expectation, but wrong on the implementation.  And since then,
the stock has violated the $70 level on four different days and
continues to post lower highs.  My point in highlighting this is
to show that playing the downside with position trades is a
difficult business over a period of weeks and months.  You never
know if the spike in price is a recovery or just another failed
rally.  Set that stop too tight and you'll be taken out of the
play.  Set it too loose and you take on too much risk or risk
giving back too much of your profits.

See how tricky it can be picking downside plays in a market
that is desperately trying to find its sea legs again?

The other half of the problem is that stocks that look healthy to
me and are moving to the upside have already made most of the move
that I think they have in store.  The likes of BA, HON, UTX (all
OI Call plays right now) are moving nicely to the upside, but
weekly and daily Stochastics are already buried in overbought
territory.  Amazing but true, I actually contemplated adding BA
as a new LEAP play back in early November, but avoided it due to
the uncertainty surrounding the Airline industry.  Big mistake, as
the stock has now moved up more than $14 from the point where we
likely would have taken an entry.

So what is going on with the rest of the Watch List?  GS is
finally getting booted off the list.  We've been waiting for a
bottom to form in the stock and the Brokerage sector, and while
we might be there for now, the fundamental picture is still
looking ugly.  We'll cancel that one out before placing it on
the Portfolio due to an unfavorable risk-reward dynamic.

Out lone remaining Put candidate is getting really close to giving
us an entry, but I think it just might inch a bit higher before
giving us that much anticipated rollover.  Wait for the weakness
to materialize and then we'll be ready to pounce.  I've raised the
entry target to $34-35 (the next level of resistance), but if it
fails and rolls over from current levels, that would make for an
acceptable entry as well.

No matter how many times I miss solid entry points, I know there
is another one just waiting around the corner to taunt me.  The
latest in this perpetually-growing list is GE.  After dipping
and closing below $36 a few weeks back, I became convinced that
a test of $32 support would be necessary before recovery could
really begin.  Wrong!!  Rebounding back above $36 would have
given us the optimum entry, but by that time I had dropped the
entry target to $32 and I ignored the strength, instead waiting
for the next rollover.  Well it came, and bottomed above the $36
level, and it now looks like a test of resistance near $41-42 is
next on GE's agenda.  I'm not willing to chase it higher at this
point, but I am resetting the entry target back to where it was,

Speaking of missed entry points, I can't believe I stood by and
didn't take aggressive action when JNJ tested the $55 level a
month ago.  That was the high odds entry point for that play, and
the stock is up sharply since that bounce, as consumer cyclicals
have continued to outperform.  In fact, if the rebound is for
real (as the economic numbers would seem to suggest), then I
expect JNJ to continue working higher in the months ahead.  I'm
not willing to chase it higher at this point, but would consider
any dip on the daily chart that gives us a bounce near $60 (the
level of the recent breakout) would set us up nicely for a run
from current levels to at least $70.

Despite those failures, I'm not wasting my time crying over spilt
milk.  Accepting and learning from those mistakes, I've got
another new entry for the Watch List this weekend, this time in
the Airline sector.  It has been steadily recovering since the
September lows, and with the breakout of the XAL index over
recent resistance on Friday, I think it has room to run.  We're
adding LUV to the Watch List this weekend, as I expect it to
continue to outperform the overall sector over the long term.

And that ought to do it for this week.  Lessons learned, new
plays and expectations for a an economic recovery made for a busy
week.  Enjoy your weekend, and we'll regroup for more excitement
next week.

Mark Phillips

LEAPS Portfolio

Current Open Plays


BBH    03/03/02  '03 $120  OEE-AD  $16.60  $16.60  + 0.00%  $110
                 '04 $120  KBB-AD  $26.20  $26.20  + 0.00%  $110
IBM    03/03/02  '03 $110  VIB-AB  $ 9.80  $ 9.80  + 0.00%  $95
                 '04 $110  LIB-AB  $17.00  $17.00  + 0.00%  $95


LEAPS Watchlist

Current Possibles


GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
BRCM   10/28/01  $31-32        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
JNJ    12/09/01  $60           JAN-2003 $ 60  VJN-AL
                            CC JAN-2003 $ 57  VYN-AY
                               JAN-2004 $ 55  LJN-AL
                            CC JAN-2004 $ 50  LJN-AK
LUV    12/09/01  $19-20        JAN-2003 $ 20  VUV-AD
                            CC JAN-2003 $ 15  VUV-AC
                               JAN-2004 $ 20  LOV-AD
                            CC JAN-2004 $ 15  LOV-AC


EK     01/27/02  $34-35, $32   JAN-2003 $ 30  VEK-MF
                               JAN-2004 $ 30  LEK-MF

New Portfolio Plays

BBH - Biotech HOLDR $119.38

We've had our eye on the Biotech sector (BTK.X) for the past
few weeks, as it has been looking like it is trying to put in a
solid bottom after declining as low as the $450 level a few
weeks back.  Since then the BTK has attempted several times to
break down again, but each time, it has found strong arms waiting
in the $475-480 level.  We're using the BBH HOLDR for this trade,
and that support level has corresponded to the $115 level, our
entry target.  Bad news from numerous Biotechs has continued to
crop up, but the BBH keeps bouncing from support.  IVGN was the
latest bearer of bad news on Friday, giving up more than 30%
intraday.  That drove the BBH down to $115.20, but it rebounded
strongly, gaining ground all day and actually closing positive.
While the weekly Stochastics are starting their recovery, we can
see that the dailies are actually pointed down.  But we're looking
for this to be another short-cycle bullish reversal on Stochs,
just like we had a couple weeks ago.  While we take our entries
in the LEAPS portfolio at the end of the day, traders that jumped
into the play on the rebound from our target area are already
sitting on a modest gain.  This one may take a little time to
actually get moving, as the March-April period is usually the
toughest for Biotechs.  So we're giving this one some room to
move, placing our stop at $110, just below the early February
lows and also the site of the year-long ascending trendline.  If
you missed this entry, look for any renewed dip near $114-115 to
provide entry into the play.  While there is some near-term
resistance near $123-124, we aren't looking for a serious battle
with resistance until the BBH moves up to challenge its
long-term descending trendline, currently $130.

BUY LEAP JAN-2003 $12.50 OEE-AD $16.60
BUY LEAP JAN-2004 $12.50 KBB-AD $26.20

IBM - International Business Machines $103.02

As I mentioned above, I am actually rather nervous about taking
this position, with the VIX resting near 22.  But with prospects
that the economy is actually recovering, and smartly at that, I
think this is one of the better plays for those that want to bet
on a recovery in the Technology arena.  Despite the bears' best
attempts over the past two weeks, they couldn't push IBM down to
even touch the $95 entry target we had listed, and that alone had
me leaning towards taking a position on Friday.  But then the
bulls really got serious, propelling the stock up for a 5% gain
on the day on robust volume, shooting solidly through our
secondary target of $100.  While I don't like taking a position
on such a huge upward move (since our entries are all marked at
the end of the day), we'll have to take what we can get.  For
those of you still on the sidelines, I would recommend looking
for IBM to give back some of Friday's gains and confirm the
$99-100 level as new-found support before taking a position.  So
long as the economy truly is headed north, IBM should benefit
and go along for the ride, working its way back toward the
January highs in the vicinity of $125.  We're initiating the
play with our stops set at $95, just below the recent lows and
also the location of the long-term ascending trendline.

BUY LEAP JAN-2003 $110 VIB-AB $ 9.80
BUY LEAP JAN-2004 $110 LUE-AV $17.00

New Watchlist Plays

LUV - Southwest Airlines $20.80  **Call Play**

I can't tell you the number of times I talked myself into and
then out of adding LUV to the Watch List over the past several
months.  Even when the rest of the Airline industry looked like
it might go into the trash heap, LUV continued to look strong
both from a fundamental and technical standpoint.  After
bottoming near $12 following the September terrorist attacks,
the stock began marching northward, dramatically outpacing the
Airline index (XAL.X) through early November, when the XAL
actually began to behave better on prospects that travel habits
were starting to return to normal.  So while LUV has recently
given back some of its relative strength, it is still much
stronger relative to the sector than it was in early September.
What really clinches an Airline play for me this week is Friday's
strength that pushed the XAL to its highest close since September
10th, and it looks like it is still in ascent mode.  Now, I know
this is a bit out of character for me, as the weekly Stochastics
are nowhere near oversold territory, but once again they are
turning up, posting a short-cycle reversal.  That's a sign of
internal strength, signaling that the group is poised for further
upside.  That point is reinforced by the economic reports in the
past week that point towards further growth in Transportation
stocks and Deep Cyclicals, as Jeff Bailey has been talking about
for weeks now.  So on to entry points.  After recently blasting
through the $20 resistance level, the stock rang right up to the
next level of resistance ($21.50-22.00) and is now experiencing
a bit of weakness.  That weakness should work in our favor, as
LUV comes back to confirm support near $20 before taking off for
the next leg higher.  Ideally, we'll get the daily Stochastics
reversing from oversold in conjunction with a bounce from
support.  We're setting our entry target at $19-20, and will
place our stop at $18.25.

BUY LEAP JAN-2003 $20.00 VUV-AD
BUY LEAP JAN-2003 $15.00 VUV-AC  For Covered Call
BUY LEAP JAN-2004 $20.00 LOV-AD
BUY LEAP JAN-2004 $15.00 LOV-AC  For Covered Call


GS $83.47 I'm finally throwing in the towel on GS after letting
it languish on our Watch List for the past 2 months.  While
we've seen that there is some significant support near the $78
level and the weekly chart is trying to reverse from oversold
territory, I just don't like the way the overall Broker/Dealer
Sector (XBD.X) is trading.  Driven by both credit concerns in
the wake of the Enron meltdown and a complete lack of a revival
of investment banking business, I expect to see the XBD break
its current support level over the near to intermediate term.
As a key component of the XBD, GS looks both technically and
fundamentally weak, and I see no reason to put myself at risk
in an area of the market that continues to under-perform the
broad market.  Even the sharp rebound on Friday does little to
change my mind on this one, and I think we can find better areas
of the market to focus on.


Readers Stuff
Austin Passamonte

It always happens that readership feedback on Q&A articles we 
share in here draw great reviews from our peers out there in the 
trenches. Like "Survivor IV" in the new reality series, I'll go to 
the well at least one more time here with a batch of recent emails 
this week I think we all can learn something from. Let's begin:

"Dear Austin:  In your experience would you say that when the 30 
and 60 min stochastics separate and change direction at the same 
time that is a hint that that trend may be a little stronger than 
when the 30 min stochastics has begun to separate and change 
directions 1-2 hours before the 60 min stochastics begins to 
separate and change direction? Hope that was not confusing!" 

[Austin] My answer to that is emphatically yes! First of all, 
there are many methods of successful trading that do not include 
stochastic values. I happen to lean on them out of ease and 
familiarity after many years use. What oscillators essentially 
measure is the underlying strength or weakness of current price 
action... i.e. is the buying or selling about to reverse. 

The very best directional trades arrive when all various time 
frame charts begin reversing stochastic value directions in 
sequence. When weekly, daily, hourly, 30-min, 10-min and 5-min 
charts all have stochastic values in overbought or oversold 
extreme zones, pressure has built that will soon release in the 
opposite direction with power. When varied time frame charts have 
signals going different directions, it tells us the symbol is weak 
this hour but strong during that day but weak in a weekly measure 
of trend, etc. Mixed chart signals doesn't necessarily tell us a 
directional move can't or won't occur, but we just have no clear 
measure to define risk/reward.

But when all time frames in charts align to extreme, that's when 
the very best entries occur. And by nature downside play entries 
setup when the masses are totally bullish and upside plays when 
the masses can barely stomach to go long!

"Morning Austin! Thanks for your great articles over the weekend. 
I would comment further here, but I would rather make money. And 
like you wrote, let's get on with FOCUSING on technical analysis, 
etc., and making money! Question: Would it be correct to say that 
it is more significant (preferable, or necessary?) when stochastic 
values cross below 20 or above 80 than if they stall and turn 
before they get there? Today with the SPX, we had weekly turning 
up from before 20, daily too. I would have thought that might be a 
pretty clear "bullish" signal, and I am sure they COULD go up from 
there. But do the odds favor a continuation (down in this case) 
because they haven't yet reached their oversold potential? Thanks 
for your comments when you get a chance, (S)"

[Austin] Excellent question! What you are describing is called a 
"short cycle" in the oscillators. In other words a move from one 
extreme towards the next stops part way between and reverses back 
again. This happens during a defined trend. If the trend is up, 
stochastic values remain pinned near overbought for awhile, cycle 
back down towards oversold only to quickly reverse and head back 
up again. When we see this type of behavior it is important to use 
other market measures as well. Is the symbol in a defined 
ascending channel? A powerful entry near support comes when an 
ascending trendline or channel bottom is touched while stochastic 
values reverse from pointing downward to pointing back up. Now we 
have confirmation that the trendline will hold rather than poke & 

Short cycles are found mostly in trending markets and also less 
liquid symbols where stochastic (and other oscillator) values can 
get a tad erratic.

"I'm having trouble finding good charts.  Where can I find 10/5/1 
minute charts?" (RL)

[Austin] Most of us here use Qcharts service at quote.com but any 
professional charting service should offer these time frames as 
well. There are some free and/or inexpensive chart services on the 
web that some traders attempt to cut costs using, but I can tell 
you for sure that anyone using such short-term time frames to 
trade must have advanced level, full streaming real-time charts to 
work with. End of day traders can easily rely on low cost or even 
free chart services, but intraday traders MUST have professional 
equipment to succeed.

"Hi Austin...I know you're busy, but I'm looking @ last night's 
SOX charts in Summary and notice how smooth your fast stochastic 
line is on the weekly and daily chart. I'm using the 5,3,3 setting 
and the fast line is all over the place...slow line is cool and 
lines up like yours. What am I doing wrong. What settings are the 
best? Thanks (LA)" 

[Austin] I cannot explain why the same chart settings would create 
different results, so you stumped me on that one. But I can tell 
you that 5,3,3 settings are my current choice for stochastic 
values. This sequence is very common in volatile markets such as 
illiquid futures (pork bellies, lumber, etc) because they track 
fast turns. Trending, deliberate markets like currency futures use 
a slower setting (larger numbers) to filter out market noise and 
not get whipped out of a long-term trend.

No surprise here, but we haven't seen any trends in the equity 
markets last more than several weeks. Lately it's been several 
hours, but that's another story. In any event I favor the faster 
setting that is sometimes early signaling and entry and exit but 
that's the type of equity market conditions we have right now.

"Hey Austin! Wanted to throw my 1/2 cent' worth into this one. I 
still work a day job but am able to watch the market - I run 
Qcharts on a laptop via wireless modem; have to hide it behind my 
table-sized engineering workstation but I can at least see it. 
Still have to go to meetings intermittently, never know when or 
where so learning the business of trading & being able to
implement properly have taken quite a while. With many thanks to 
you, Buzz, Mark, Jim and lots of reading, internalizing and 
implementing self-control over risk & emotion I am now routinely 
successful. Not getting filthy rich but the equity curve is rising 
orders of magnitude faster than my salary & bonus from the day 

I cannot even attempt to play on a 1-min chart for entries, since 
my attention is divided - but at least the limitation is accepted. 
However, I can certainly hit the majority of 60/30/10/5 alignments 
or chart breaks (AND CLOSE). This morning I was called into an 
impromptu meeting @ 11; fifteen minutes earlier I had entered an 
OEX 560 put play on the break, picked it up @ 6.2. Within minutes 
the bid reached my cost so I moved the stop up to cost to prevent 

Some folks were late to the meeting so I took 2 minutes to return 
& check the action - hey, waddaya know, price moved up! Moved up 
the stop to 10% gain to lock profits, went back to the meeting. An 
hour later I find out I locked in minor profits - cool, maybe next 
time it'll go higher. By the way, did the same thing yesterday for 
a 35% gainer, same play. Being able to make even minor cash on an 
intra-day basis, in THIS market, while working full-time day job, 
should speak volumes on the education you folks have provided. 
Keep it up!  Regards, Gumby

[Austin] My good buddy Gumby pretty much said it all about the 
individual trader adapting their lifestyle, time allotment and 
preference of trade method to all fit within the circle of life. I 
can't help but imagine this will spark some ideas for others!

"Austin, Until yesterday I was buy & hold investor, After loosing 
lot and margin calls, today I am using your technique "trade using 
chart". Today I made about $900 with three trades. Thanks, got the 
good education, Regards [A]"

[Austin] I'd love to be a buy & hold investor myself, even if it 
was several weeks at a time. Trust me... day or intraday trading 
is hard work full of angst, sweat and stress. But it does pay a 
monthly (or yearly) salary several days a week, on average. Key to 
success here is NOT giving back solid gains the next day when 
trade setups and entries aren't clear. Enjoy the short-term game 
until we can all once again relax a bit and trade LEAPS for a 
living in the future.

"Austin, Just wanted to share with you our (me and you) record.:)
I did get the bounce, closed out two more positions to bring my 
record to 7-0. I have one negative trade, DJX 100 PUT which I will 
probably close out on a dip today.  (I felt like a needed some 
insurance should my DJX & QQQ calls fail to pay). Many, many 
thanks. [S]"

[Austin] "S", here's a newsflash: we are in danger of a losing 
string ahead. That's the good news. The best news is you & I both 
know it and can amply prepare ourselves. No questionable entries 
or "fliers" unless it's with tiny amounts of capital. No holding 
onto a loser that might break the streak to see if it will "come 
back". No getting cocky and leveraging capital beyond safety. 
Oh... I was giving that speech to myself on this one but I imagine 
it may help you to!

"Greetings Austin, you are quite correct about Abby and her types. 
Abbey Cohen recommended IBM in Barron's a few months ago at 124!! 
When analysts/strategists recommend a stock, they should define 
their parameters: intraday, swing, positional, or long...long 
term. These hot shots are very irresponsible. I have been learning 
so much from IndexSkybox to OptionInvestor. I can call my own play 
now still making money. I am a professor at many universities  
teaching Computer Science. The money I made from the market is 
much, much more than my salary at the university. One good trading 
week can equate with a three-month teaching load. Thanks to you 
all. Please keep up the good work. Have a great weekend. Best (V)"

[Austin] Nothing, and I mean nothing replaces self-education for 
success. As a professional educator you realize the info given to 
students is not the beginning & end, it is just the beginning. My 
two-year tenure here with OI group has been spent trying to teach 
others how to teach themselves, teach them how to learn. 

Many of us have learned a lot together in the process. Successful 
traders make money and remain loyal readers. Those who insist on 
forcing dated tactics that only worked in 1999 and may never work 
again are destined to fail. Those waiting for 1999 conditions to 
return are destined to fail. Those who make the personal decision 
to learn how to trade today's market and tomorrow's market will be 
around a long, long time. Reward for that willingness can be one 
good trading week equaling three month's teaching load. Keep doing 
what you're doing and I'll do the same!

Hope This Helps (And Entertains),

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Technical Analysis 101: A Tool For Analyzing Broad Market Trends
By Mark Wnetrzak

One of our readers asked about using the advance-decline (A/D)
line to determine the outlook for the market in light of the
recent volatile conditions.

The Advance-Decline (AD) line represents the cumulative total
or the difference between the number of advancing stocks and
declining stocks in a given market such as the New York Stock
Exchange (NYSE), which a widely used measure of market breadth.
There are several ways to use a statistical summary of advances
and declines.  Weekly figures offer a perspective for long-term
investment analysis while daily numbers can be charted to indicate
reversals of a short-term nature, suitable for trend-trading or
scalping.  The methods of A/D interpretation are basic to chart
analysis and the results are accurate and easy to understand.  One
of the most common evaluations is based on the divergence of the
A/D line and other market indices.  Another successful indication
involves the use of long-term moving averages of the daily data.
A well-known axiom suggests that a trend in motion can be expected
to continue until it reverses.  Utilizing a long-term average of
the A/D statistics can help identify this trend and recognize the
true momentum of the market.  Interpreting this type of indicator
is similar to other momentum-based techniques in that the primary
signal is a crossing (in either direction) of the median line.  A
move from one area to the other confirms a trend in that direction
and the longer the period that the gauge has been either above or
below the median, the more meaningful the signal when it occurs.

The most significant trends are those indicated when a move has
come from deep in positive or negative territory.  In a bearish
market, this indicator will usually achieve new lows before any
of the major indices and a preemptory buy signal is identified by
a sharp spike from the lowest range while it's still in negative
territory.  The most significant buy signals occur when the gauge
has been in the lower region for extended periods and reached the
furthest extreme before finally issuing a bullish signal.  This
unique indicator can help identify the beginning of a character
change well before the future trend surfaces and when utilized on
a regular basis, it can provide added insight into the strength
and character of the current cycle.  The ability to recognize
fundamental changes in the market outlook is a requirement for
successful investing.

As far as acquiring the current figures for trend analysis, you
will need a charting service to plot the data (unless you want to
do it yourself manually), and there are a number of free products
on the Internet that have that information readily available.

Here is an example using the NYSE:


For additional information:

One of the most respected technicians in the business is Steven B.
Achelis.  He has some excellent data and background information
on the A/D line and other broad-market indicators at:


For more information, consider these books: Technical Analysis of
the Financial Markets by John J. Murphy; Technical Analysis for
the Trading Professional by Constance Brown and Stan Weinstein's
Secrets for Profiting in Bull & Bear Markets.

We all know that the stock market moves in identifiable cycles,
and to be a successful investor, you must be able to determine
the current phase of activity.  This allows you to formulate an
accurate perception of the overall trend and manage the positions
in your portfolio with the appropriate outlook.  It is also very
important to be familiar with the common technical indicators
used to determine the overall movement of financial issues and
apply this knowledge as a practical part of your trading strategy.

Trade Wisely!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

MACR   15.61  18.85   MAR  15.00  1.50  *$  0.89   9.1%
AVII   10.50   9.90   MAR  10.00  1.45   $  0.85   8.2%
CANI    5.93   7.20   MAR   5.00  1.20  *$  0.27   6.4%
IMCL   18.44  27.28   MAR  12.50  6.60  *$  0.66   6.3%
ATVI   26.71  29.82   MAR  25.00  2.70  *$  0.99   6.0%
UTHR   11.20  12.26   MAR  10.00  1.70  *$  0.50   5.9%
OSIS   22.82  21.10   MAR  20.00  3.80  *$  0.98   5.8%
XMSR   13.98  13.50   MAR  12.50  2.25  *$  0.77   5.7%
DCTM   20.39  18.70   MAR  17.50  3.90  *$  1.01   5.3%
WNC    10.86  11.21   MAR  10.00  1.20  *$  0.34   5.1%
GT     25.14  26.99   MAR  25.00  0.95  *$  0.81   4.8%
FFIV   22.66  21.45   MAR  20.00  3.30  *$  0.64   4.8%
FDP    17.61  17.50   MAR  17.50  0.65   $  0.54   4.6%
HAL    16.27  16.90   MAR  15.00  1.85  *$  0.58   4.5%
AVII   11.22   9.90   MAR  10.00  1.70   $  0.38   4.5%
PECS   28.55  24.71   MAR  25.00  5.00   $  1.16   4.3%
BSML    5.22   4.70   MAR   5.00  0.65   $  0.13   3.2%
CRGN   17.44  16.36   MAR  17.50  1.15   $  0.07   0.6%
VPHM   19.50  16.30   MAR  17.50  3.00   $ -0.20   0.0%

*$ = Stock price is above the sold striking price.


The end-of-week rally should help the covered call portfolio
remain respectable but a few issues are fairly weak and will
be closely watched or exited.  F5 Networks (NASDAQ:FFIV) is
acting fairly horrid and may test its 150-dma around $19.
Will AVI BioPharma (NASDAQ:AVII) continue to rally off its
150-dma?  Is the rally offering a second-chance exit for Pec
Solutions (NASDAQ:PECS)?  Is it time to take the small-loss
exit in ViroPharma (NASDAQ:VPHM) as the stock has moved to a
new low?  Next week should offer some more answers as the
puzzle called the "Market" slowly unfolds.

Positions Closed: Packeteer (NASDAQ:PKTR), Inrange Technologies


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACF    25.30  MAR 22.50   ACF CX  3.30 3654  22.00   14    4.9% 
IBI    20.17  MAR 20.00   IBI CD  0.75 209   19.42   14    6.5% 
IMCL   27.28  MAR 25.00   QCI CE  3.30 4136  23.98   14    9.2% 
LTXX   23.72  MAR 22.50   UXT CX  1.90 1139  21.82   14    6.8% 
MACR   18.85  MAR 17.50   MRQ CW  1.85 236   17.00   14    6.4% 
NXTP    6.05  APR  5.00   KTU DA  1.50 12     4.55   49    6.1% 
OI     15.10  MAR 15.00    OI CC  0.50 86    14.60   14    6.0% 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

IMCL   27.28  MAR 25.00   QCI CE  3.30 4136  23.98   14    9.2% 
LTXX   23.72  MAR 22.50   UXT CX  1.90 1139  21.82   14    6.8% 
IBI    20.17  MAR 20.00   IBI CD  0.75 209   19.42   14    6.5% 
MACR   18.85  MAR 17.50   MRQ CW  1.85 236   17.00   14    6.4% 
NXTP    6.05  APR  5.00   KTU DA  1.50 12     4.55   49    6.1% 
OI     15.10  MAR 15.00    OI CC  0.50 86    14.60   14    6.0% 
ACF    25.30  MAR 22.50   ACF CX  3.30 3654  22.00   14    4.9% 

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

ACF - AmeriCredit  $25.30  *** Economy On The Mend ***

AmeriCredit (NYSE:ACF) has been operating in the automobile 
finance business since September 1992.  Through its branch net-
work, AmeriCredit purchases auto finance contracts without 
recourse from franchised and select independent automobile 
dealerships and makes loans directly to consumers buying late
model used and new vehicles.  AmeriCredit targets consumers who
are typically unable to obtain financing from traditional sources.
Funding for the company's auto lending activities is obtained 
primarily through the sale of loans in securitization trans-
actions.  AmeriCredit services its automobile lending portfolio 
at regional centers using automated loan servicing and collection
systems.  AmeriCredit's typical borrowers have experienced prior 
credit difficulties or have limited credit histories.  The long
economic slowdown, combined with possibly poor borrower selection,
has worried investors that ACF might experience a deterioration
in credit quality.  But signs of economic recovery and a recent 
pricing of a $1.6 billion offering of automobile receivables-
backed securities may ease the near-term monetary worries.  The 
chart depicts a 4-month base with support at $20 which makes for
reasonable short-term speculation.

MAR 22.50 ACF CX LB=3.30 OI=3654 CB=22.00 DE=14 TY=4.9% 

IBI - Intimate Brands  $20.17  *** Climbing Higher? ***

Intimate Brands (NYSE:IBI) includes specialty retail stores and 
direct-response (catalog and e-commerce) businesses that offer 
women's intimate and other apparel, personal care products and 
accessories.  The company consists of Victoria's Secret Stores,
Victoria's Secret Beauty, Victoria's Secret Direct and Bath & 
Body Works.  Victoria's Secret Stores is a specialty retailer
of women's intimate apparel and related products.  Victoria's 
Secret Beauty is a specialty retailer of high-quality beauty 
products.  Bath & Body Works is a specialty retailer of personal
care products.  Victoria's Secret Direct is a catalog and e-
commerce retailer of intimate and other women's apparel.  Through
its Website, www.VictoriasSecret.com, many of its products may be 
purchased worldwide.  Intimate Brands said 4th-quarter profits 
climbed by almost 33% amid strong holiday sales at Victoria's
Secret, but they also warned that current-quarter earnings would
be flat.  Analysts are speculating that IBI's forecast appears
"too conservative," and they think the company's profits could
be much higher, if they deliver similar margin and same-store
improvements as they did during the holidays.  We simply favor
the strong Stage II climb that has reached a new 52-week high.

MAR 20.00 IBI CD LB=0.75 OI=209 CB=19.42 DE=14 TY=6.5% 

IMCL - ImClone Systems  $27.28  *** Speculators Only! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
The company focuses on three strategies for treating cancer, growth 
factor blockers, cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic mono-
clonal antibody that inhibits stimulation of a receptor for growth
factors upon which certain solid tumors depend in order to grow.
ImClone's share price recently suffered over concerns regarding one
of its cancer drugs.  Now there is speculation that company may be
a take-over target.  IMCL said that it had adopted a shareholder 
rights plan or "poison pill," which would distribute new shares to
current stakeholders if anyone tried to acquire a greater than 15% 
stake in ImClone.  Was this in response to billionaire financier 
Carl Icahn, who is looking to buy $500 million worth of shares or 
is it a shield against a larger threat?  This week, ImClone said
regulators may consider its request to bring a promising colon
cancer drug to market if the biotechnology company resubmits its 
U.S. clinical data and includes new data from Europe.  Bristol
Myers Squibb (NYSE:BMY) also announced that it has dropped its 
threat to end its $2 billion marketing partnership with ImClone 
but still wants to renegotiate the terms.  This position offers 
favorable speculation on a bullish "break-out" in the issue.

MAR 25.00 QCI CE LB=3.30 OI=4136 CB=23.98 DE=14 TY=9.2% 

LTXX - LTX Corp.  $23.72  *** Bracing For A Break-out ***

LTX Corporation (NASDAQ:LTXX) designs, manufactures, markets and
services semiconductor test equipment.  The company sells its 
test systems to semiconductor designers and manufacturers world-
wide, such as Texas Instruments, Philips Semiconductor, National
Semiconductor, Motorola, NEC, Vitesse Semiconductor, etc.  These
customers use semiconductor test equipment to test every semi-
conductor device at two different stages during the manufacturing
process.  LTX reported a loss in February but did manage to meet
their revenue, expense and earnings targets for the quarter.  The
company remained positive on the future due to strong incoming
orders and early signs that their business cycle is moving in a
positive direction.  We favor the strong rally off the January low
on increasing volume, which suggests higher prices in the future.

MAR 22.50 UXT CX LB=1.90 OI=1139 CB=21.82 DE=14 TY=6.8% 

MACR - Macromedia  $18.85  *** Successful Test Of The Lows? ***

Macromedia (NASDAQ:MACR) develops, markets, and supports software
products, technologies, and services that enable people to define 
what the Web can be.  The company's customers, from developers to 
enterprises, use Macromedia solutions to help build compelling and
effective Websites and eBusiness applications.  Throughout the 
majority of fiscal year 2001, the company operated in two segments:
the Software segment and shockwave.com, Inc.  The Software segment
develops software that creates Website layout, graphics and rich 
media content for Internet users.  shockwave.com designs, develops,
and markets aggregated content to provide online entertainment on
the Web.  Macromedia currently operates in one primary business 
segment, the Software segment, as a result of the deconsolidation
of shockwave.com.  Macromedia is continuing its restructuring and
cost containment plans as it recently announced a restructuring 
charge of $30 million to $40 million in its 4th-quarter ending
March 31.  The company will soon be shipping new products, which
should help revenues, and is on the verge of a significant product 
upgrade cycle.  Salomon Smith Barney raised it rating on the stock
from "neutral" to a "buy."  We noticed the apparent successful test
of the September low in the short-term, and the recently emerging
"head-n-shoulders" bottom in the long-term.

MAR 17.50 MRQ CW LB=1.85 OI=236 CB=17.00 DE=14 TY=6.4% 

NXTP - Nextel Partners  $6.05  *** If Bill Gates Likes It... ***

Nextel Partners (NASDAQ:NXTP) provides digital wireless communi-
cations services in mid-sized and smaller markets throughout the
US.  The Nextel digital mobile network uses a single digital 
transmission technology called integrated digital enhanced net-
work, which Motorola (NYSE:MOT) developed.  The company offers a
package of wireless voice and data services under the Nextel 
brand name targeted to business users.  Services include digital
mobile, or interconnect, telephone service; Nextel Direct Connect
service, which allows users to contact co-workers instantly, on 
private one-to-one calls or on a group call; the ability to 
receive and send pages and short text messages, and Nextel 
Wireless Web service (formerly Nextel Online), which provides 
wireless Internet services, including Web-based applications and 
content to Internet-capable subscriber telephones.  Nextel has
suffered over the last several months on earnings warnings and
overall weakness in the sector.  The company did manage to double
revenue as it added more U.S. subscribers than expected in the 
4th-quarter and gave upbeat guidance for 2002.  On Friday, it was
reported that Billionaire Bill Gates quietly gained a 5.45% stake
in the wireless communications operator.  We simple favor the move
above the February high on heavy volume and the current bullish
momentum.  This position offers conservative "bottom-fishers" a
favorable risk-reward entry point from which to speculate on the
company's future.

APR 5.00 KTU DA LB=1.50 OI=12 CB=4.55 DE=49 TY=6.1% 

OI - Owens-Illinois  $15.10  *** The Trend Is Your Friend ***

Owens-Illinois (NYSE:OI) is a worldwide manufacturer of packaging
products.  The Company manufactures glass and plastic containers,
plastic closures, plastic prescription containers and multi-pack 
plastic carriers for beverage bottles. Owens-Illinois has two
product segments: Glass Containers and Plastics Packaging.  The 
Glass Containers unit produces containers in a wide range of sizes,
shapes and colors for many markets.  The Plastics Packaging segment
is comprised of three business units: Plastic Containers, Closure 
and Specialty Products and Prescription Products.  No recent news
since Owens-Illinois reported a 50% increase (before unusual items)
in earnings per share for the 4th-quarter of 2000.  The company's
outlook remains bright as lower energy costs, improved pricing in
a number of product lines, higher U.S. unit volumes, and the 
recently acquired Canadian glass container operations should 
have a favorable impact on the company's performance in 2002.   
The bullish up-trend shows no sign of stopping and the stock has
now reached a new 18-month high.  

MAR 15.00 OI CC LB=0.50 OI=86 CB=14.60 DE=14 TY=6.0% 



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

GMST   20.28  MAR 20.00   QLF CD  1.40 4064  18.88   14   12.9% 
AMT     5.51  MAR  5.00   AMT CA  0.75 2205   4.76   14   11.0% 
AMZN   15.39  MAR 15.00   ZQN CC  0.95 10139 14.44   14    8.4% 
MRVL   35.39  MAR 32.50   UVM CZ  4.00 776   31.39   14    7.7% 
U       5.40  APR  5.00     U DA  0.85 40     4.55   49    6.1% 
INVN   40.10  MAR 35.00   FQQ CG  5.90 459   34.20   14    5.1% 
NOVN   20.88  MAR 20.00   NPQ CD  1.25 146   19.63   14    4.1% 
TER    37.55  APR 35.00   TER DG  4.70 2001  32.85   49    4.1% 


Success Basics: Q&A With The Naked-Puts Editor
By Ray Cummins

Today's questions concern the fundamental goals of this section
and the selection process used to identify favorable candidates
for the strategy of selling puts.

Attn: Naked Puts Editor

I recently became a subscriber to your newsletter and I am very
interested in your low-risk approach to selling puts.  I want to
learn more about the way you pick the plays and how successful
you have been since the market turned downward.  Also, do you
have any suggestions for good books or other information on the
strategy and the best ways to trade these types of positions?

Thanks for your time!


Hello TS,

First, thanks for your inquiry concerning the Naked-Puts section
of the OIN.  This section is written primarily for new traders
that need simple strategies.  To generate the majority of plays,
we search through lists of issues with overpriced options (the
OTM positions), reviewing the technical outlook of the underlying
and its industry group/sector.  If we feel the issue has bullish
potential and there is a fair risk-reward, then it goes on a list
of final candidates.  After we have all the possible plays for a
specific day, we simply choose those which (in our opinion) appear
most favorable.  In most cases, we try to achieve a 4-6% monthly
return with at least 15-20% downside protection.  If the options
market has relatively low implied volatility, that can be a very
difficult task.  In addition, writing "covered" calls and selling
"naked" puts are generally not favorable strategies for a bearish
market but the readers want plays regardless of the overall trend.
However, if we don't have confidence in what we have to offer, it
won't be published, and that's the overriding measure of any play
we list in the section.

We also provide a selection of additional candidates to supplement
your search for profitable positions.  For one reason or another,
they simply did not make the final list; which is usually limited
to 7 or 8 candidates.  Of course, the process of selecting the
"published" plays is very subjective and there are always other
issues that warrant consideration.  That is why we include some of
the stocks that just missed our final list (for various reasons),
so that YOU may decide if they meet your criteria for a favorable
play.  Remember, our job is to provide a list of potential plays,
greatly reducing your research time.  Your job is to decide which
positions fit your risk-reward profile and hopefully (with further
scrutiny and analysis far beyond that which we can provide in the
few hours between Friday market close and the Saturday publishing
deadline), you will select only those that are winners.

As far as ongoing position management, we try to monitor the plays
in the section regularly but we do not make specific suggestions
about when they should be closed or adjusted.  Again, our job is to
provide candidates for your more-thorough examination and also to
identify positions that have a favorable risk-reward outlook.  The
determination to trade is solely yours.  We will however, attempt
to point out those occasions when a play offers a favorable "early
exit" return, or when we see an issue that has reversed direction
and may require closure or adjustment of the underlying position.
Keep in mind that we usually have over 100 plays in four sections
to track on a daily basis and we may not always notice the crucial
turning point or "change in character" of a specific issue.  The
weekly "comments" section is not intended as a substitute for your
own trading techniques nor does it replace your duty to manage the
positions in your portfolio.  In addition, any actions taken based
on the commentary would be far too late to be effective.  As far
as the success ratio/average returns; this strategy, when employed
correctly and managed diligently, generally yields a 4-8% monthly
(annualized) profit.  Regardless of how you utilize our research,
we hope you will eventually benefit from some of the plays offered
in this section.  At the same time you must remember, they are all
just candidates and should only be considered with respect to your
personal risk-reward attitude and trading style.

For more information:

Here are my suggestions for the best books on option trading and
strategies that profit from premium disparities.  The rules have
not changed in years and the bibles remain the same: "Options as
a Strategic Investment" (McMillan), and of course, "Option Pricing
and Volatility" (Natenburg), both available in the OIN bookstore.
The CBOE (www.cboe.com) also has some excellent articles on basic
trading techniques and combination positions in their educational
section.  As far trading strategies, I have written a number of
narratives for the techniques used in the section and those are
still listed in the web-site archives (and Options 101 etc).  Of
course, there are also a plethora of great articles by other OIN
researchers, covering just about every imaginable option trading
strategy that is commonly used by retail investors.  Unfortunately,
there is no way to produce a complete list of specific guidelines
or step-by-step techniques on entering/exiting plays.  The methods
we use are much the same as those that Jim and the other traders
discuss in the daily narratives and each one is based on simple,
proven money-management techniques; the most important of which is
"keep the losses small."  The older articles in Options 101 and
Broker's Corner (by Robert Ogilvie) cover the basic combination
strategies and their possible outcomes (good and bad) and many of
Jim's more recent trading lessons describe the use of adjustments
(such as rolling into spreads) to minimize losses in conventional
option positions (buy call/sell call etc).  Of course, the most
valuable position management information for option traders comes
from the knowledge of option pricing, time erosion, volatility and
probability and those subjects have been covered at length in the
various educational series (now in the web-site archives).

Contrary to what you might believe, there are no simple and easy
answers.  Option trading is not free money in any way -- lots of
hard work and research -- and success generally occurs only after
a series of failures.  The key is to find something you do well
and stick to it.  Don't use complex strategies just because they
are unique or intriguing.  Often the best course of action is the
simplest.  In addition, you must understand that the newsletter
is designed primarily to provide a list of candidates to assist
in your search for profitable trading positions.  You still have
to decide what you are looking for and if any of the candidates
meet your criteria for potential plays.  Only you can know what
type of strategies are suitable for your portfolio outlook, skill
level, risk-reward tolerance and trading style.

Good Luck! 

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

AMZN   12.52  15.39   MAR  10.00  0.50  *$  0.50  14.5%
HAL    16.49  16.90   MAR  15.00  0.50  *$  0.50  12.9%
HAL    13.95  16.90   MAR  12.50  0.70  *$  0.70  12.6%
ASW    10.81  11.68   MAR   5.00  0.35  *$  0.35  12.1%
OSIS   22.06  21.10   MAR  17.50  0.70  *$  0.70  11.9%
PPD    26.30  24.46   MAR  20.00  0.45  *$  0.45  11.4%
PLMD   20.76  21.44   MAR  17.50  0.40  *$  0.40  10.7%
DDS    18.70  20.00   MAR  15.00  0.30  *$  0.30  10.7%
FFIV   23.15  21.45   MAR  17.50  0.45  *$  0.45  10.0%
PPD    26.11  24.46   MAR  17.50  0.45  *$  0.45   8.9%
OCLR   27.25  27.23   MAR  25.00  0.55  *$  0.55   8.7%
ACN    27.45  26.20   MAR  22.50  0.50  *$  0.50   8.6%
MANH   29.80  32.11   MAR  22.50  0.65  *$  0.65   8.5%
MDR    14.14  14.30   MAR  12.50  0.25  *$  0.25   8.5%
TER    32.70  37.55   MAR  27.50  0.60  *$  0.60   8.0%
TXN    30.29  31.50   MAR  27.50  0.85  *$  0.85   7.3%
FTI    17.64  18.95   MAR  15.00  0.30  *$  0.30   7.2%
OII    23.79  26.80   MAR  22.50  0.55  *$  0.55   7.1%
DDS    17.40  20.00   MAR  15.00  0.30  *$  0.30   7.0%
MU     34.90  36.29   MAR  27.50  0.60  *$  0.60   6.9%
PLMD   20.75  21.44   MAR  15.00  0.25  *$  0.25   6.4%
LUX    18.13  18.00   MAR  17.50  0.30  *$  0.30   6.3%
SANG   19.75  21.85   MAR  17.50  0.25  *$  0.25   6.1%
AMAT   47.20  47.98   MAR  40.00  0.60  *$  0.60   5.5%

*$ = Stock price is above the sold striking price.


Friday's broad-market rally virtually guaranteed that all
of our positions would remain "in the black."  Now if we
can only convince the "bears" that it is time to go long!

Positions Closed:

PMC Sierra (NASDAQ:PMCS) - Still positive though...


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AMAT   47.98  MAR 40.00   ANQ OH  0.30 6244  39.70   14    5.7% 
DCN    19.10  APR 15.00   DCN PC  0.55 5910  14.45   49    7.8% 
FST    26.24  MAR 25.00   FST OE  0.25 40    24.75   14    5.7% 
INVN   40.10  MAR 35.00   FQQ OG  0.85 1042  34.15   14   15.7% 
MU     36.29  MAR 32.50    MU OS  0.55 4341  31.95   14   10.6% 
PSUN   25.21  MAR 22.50   PVQ OX  0.30 145   22.20   14    8.5%
SLAB   30.90  MAR 25.00   QFJ OE  0.30 101   24.70   14    9.6% 
TER    37.55  MAR 32.50   TER OZ  0.25 465   32.25   14    5.3% 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

INVN   40.10  MAR 35.00   FQQ OG  0.85 1042  34.15   14   15.7% 
MU     36.29  MAR 32.50    MU OS  0.55 4341  31.95   14   10.6% 
SLAB   30.90  MAR 25.00   QFJ OE  0.30 101   24.70   14    9.6% 
PSUN   25.21  MAR 22.50   PVQ OX  0.30 145   22.20   14    8.5%
DCN    19.10  APR 15.00   DCN PC  0.55 5910  14.45   49    7.8% 
AMAT   47.98  MAR 40.00   ANQ OH  0.30 6244  39.70   14    5.7% 
FST    26.24  MAR 25.00   FST OE  0.25 40    24.75   14    5.7% 
TER    37.55  MAR 32.50   TER OZ  0.25 465   32.25   14    5.3% 

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

AMAT - Applied Materials  $47.98  *** Hot Chip Stock! ***

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment and related
spare parts for the worldwide semiconductor industry.  Many of
Applied's products are single-wafer systems designed with two or
more process chambers attached to a base platform.  The platform
feeds wafers to each chamber, allowing the simultaneous processing
of several wafers to enable high manufacturing productivity and
precise control of the process.  Their platforms support chemical
and physical vapor deposition, etch and rapid thermal processing
technologies.  Customers for their products include semiconductor
wafer manufacturers and integrated circuit (chip) manufacturers.
Shares of Applied Materials rallied in early February, even after
the company posted a fiscal first quarter loss of $45 million, or
6 cents a share, on revenue of $1 billion.  However, the company
surprised investors by announcing that new orders rose for the
first time in four quarters.  AMAT's CEO also noted that chip
revenues have apparently reached a bottom because memory prices
have risen and activity in chip factories has increased.  Traders
who think Friday's rally to a recent high is an indication of
future upside potential can establish a low risk entry point in
the issue with this play.

MAR 40.00 ANQ OH LB=0.30 OI=6244 CB=39.70 DE=14 TY=5.7% 

DCN - Dana Corporation  $19.10  *** Premium Play! ***

Dana (NYSE:DCN) is an independent supplier of components and
systems to vehicular manufacturers and related aftermarkets.  The
company's operations are comprised of its Automotive Systems Group,
Automotive Aftermarket Group, Heavy Truck Group, Engine Systems
Group, Fluid Systems Group, and Off-Highway Systems Group.  Dana
also is a provider of lease financing services in selected markets
through its wholly owned subsidiary, Dana Credit Corporation.  The
premium in Dana's options are higher than normal and there does
not seem to be any fundamental explanation for the robust implied
volatility.  However, the issue has been very active in recent
weeks and there is certainly a potential for future volatility,
based on the company's earnings outlook and restructuring plan.
Investors who think the worst is over for this icon of the auto
industry can speculate on the future movement of its share value
with the position. (NOTE: April expiration for this position.)

APR 15.00 DCN PC LB=0.55 OI=5910 CB=14.45 DE=49 TY=7.8% 

FST - Forest Oil  $26.24  *** Oil Sector Bottom-Fishing! ***

Forest Oil Corporation (NYSE:FST) is an independent oil and gas
company engaged in the exploration, development, acquisition,
production and marketing of natural gas and liquids.  Forest
operates from production offices located in Lafayette and
Metairie, Louisiana; Denver, Colorado; Anchorage, Alaska; and
Calgary, Alberta.  The company runs its international business,
excluding Canada, from an office located in Houston, Texas.
Forest Oil is one of the smaller companies in the Alaska oil
industry but their presence has increased in the wake of a
ramp-up of investment in Anchorage's Cook Inlet.  Indeed, the
oil industry is beginning to show signs of a recovery and we
favor the technical support near the cost basis in this play.
Investors who are interested in a long-term portfolio position
in the oil sector should consider this issue.

MAR 25.00 FST OE LB=0.25 OI=40 CB=24.75 DE=14 TY=5.7% 

INVN - InVision Tech.  $40.10  *** Bombs Are Their Business! ***

InVision Technologies (NASDAQ:INVN) markets advanced detection
and inspection products by adapting various medical and laboratory
technologies for government and commercial uses, such as security,
defense and process control.  InVision is the worldwide leader in 
explosive detection technology and has produced the first automated
explosive detection systems to be certified by the FAA as meeting
its stringent requirements.  Shares of InVision have stabilized
over the past few weeks as investors decide the real value of the
leading company in explosive-detection technology.  The company
recently asked its shareholders to approve an increase in the number
of authorized shares of common stock from 20 million to 60 million
shares and the request was overwhelmingly approved.  Does that mean
a stock-split announcement is possible in the near-future?  No one
knows for sure but this relatively conservative position offers a
good way to speculate on the company's future share value.

MAR 35.00 FQQ OG LB=0.85 OI=1042 CB=34.15 DE=14 TY=15.7% 

MU - Micron Technology  $36.29  *** Chip Sector Leader! ***

Micron Technology (NYSE:MU) and its subsidiaries are principally
engaged in the design, development, manufacturing and marketing
of semiconductor memory products.  The company offers products
that include dynamic random access memory, synchronous dynamic
random access memory, double data rate dynamic access memory,
legacy dynamic random access memory products, static random
access memory products and Flash products.  Dynamic random
access memory (DRAM) is the Company's primary semiconductor
memory product.  DRAMs are high-density, low-cost-per-bit,
random access memory components that store digital information
and provide high-speed storage and retrieval of data and DRAMs
are a widely used semiconductor memory component in computer
systems.  DRAM sales represented approximately 87%, 94% and 95%
of the company's net sales in 2001, 2000 and 1999, respectively.
Micron has been a popular position in our portfolio over the
past few weeks and Friday's rally in the chip sector has brought
it back to the forefront in the technology group.  The current
technical outlook for Micron is bullish and our position offers
a great way to speculate on the future movement of the issue
with relatively low risk.

MAR 32.50 MU OS LB=0.55 OI=4341 CB=31.95 DE=14 TY=10.6% 

PSUN - Pacific Sunwear  $25.21  *** Earnings Speculation! ***

Pacific Sunwear of California (NASDAQ:PSUN), together with its
wholly owned subsidiaries, is a specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the
needs of active teens and young adults.  The company operates
three nationwide, primarily mall-based, chains of retail stores
under the names Pacific Sunwear (PacSun), Pacific Sunwear Outlet
and d.e.m.o.  PacSun and the PacSun Outlet stores specialize in
board-sport-inspired casual apparel, footwear and accessories
catering to teenagers and young adults.  d.e.m.o. specializes in
hip-hop music-inspired casual apparel and related accessories
catering to teenagers and young adults.  The company also has a
web-site through a wholly owned subsidiary that sells merchandise
online, provides content and community for its target customers
and provides information about the company.  Pacific Sunwear is
slated to announce quarterly earnings this week and based on the
recent activity in the stock, investors expect the report to be
positive.  Traders who agree with that outlook can profit from
a favorable announcement with this speculative position.

MAR 22.50 PVQ OX LB=0.30 OI=145 CB=22.20 DE=14 TY=8.5%

SLAB - Silicon Laboratories  $30.90  *** Chip Sector Rally! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits for
the wireless, wireline and optical communications industries.  The
company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers utilize standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.  Shares of SLAB rallied Friday in
conjunction with the bullish activity in the chip sector and the
strong upside move suggests the issue may have reversed its recent
downtrend.  The close above the 30-dma on heavy volume is also a
favorable indication and the cost basis in this position provides
a great speculation opportunity for traders who like the outlook
for the chip sector.

MAR 25.00 QFJ OE LB=0.30 OI=101 CB=24.70 DE=14 TY=9.6% 

TER - Teradyne  $37.55  *** More Chips - Bring The Dip! ***

Teradyne (NYSE:TER) is a maker of automatic test equipment
and related software for the electronics and communications
industries.  Products include systems to test and inspect
semiconductors; circuit boards; high-speed voice and data
communication, and software.  Teradyne is also a manufacturer
of back-planes and associated connectors used in performance
electronic systems.  Semiconductor and chip-equipment stocks
have been among the best performing technology groups during
the recent market sell-off and based on Friday's rally, the
group is going to lead any future recovery in the technology
industry.  TER appears to be one the stronger issues in the
chip-equipment sector and investors who wouldn't mind owning
the issue at a discounted basis can speculate on the future
performance of the company's share value with this position.

MAR 32.50 TER OZ LB=0.25 OI=465 CB=32.25 DE=14 TY=5.3% 



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

LTXX   23.72  MAR 22.50   UXT OX  0.70 10    21.80   14   17.0% 
YHOO   16.61  MAR 15.00   YHZ OC  0.30 8494  14.70   14   12.2% 
NPRO   11.59  APR 10.00   NYQ PB  0.70 50     9.30   49   11.6% 
AMZN   15.39  APR 12.50   ZQN PQ  0.60 8119  11.90   49    9.6% 
PENN   37.13  MAR 35.00   UQN OG  0.55 36    34.45   14    9.0% 
GPI    38.00  MAR 35.00   GPI OG  0.45 5     34.55   14    7.7% 
OCLR   27.23  MAR 25.00   QLO OE  0.30 0     24.70   14    7.3% 
HOT    36.47  MAR 35.00   HOT OG  0.40 128   34.60   14    6.4% 
NOVN   20.88  APR 17.50   NPQ PW  0.40 56    17.10   49    4.6% 
TMCS   26.96  APR 22.50   QMF PX  0.50 1050  22.00   49    4.5% 



Stocks Soar Amid Optimistic Economic Reports
By Ray Cummins

                         - MARKET RECAP -
Friday, March 1

The major equity averages rallied strongly today in the wake of
upbeat data on manufacturing, construction and consumer spending.

The Dow Industrial Average surged 262 points to 10,368, closing
at a six-month high after a key index revealed that the flagging
manufacturing sector grew in February for the first time since
July 2000.  All but three of the blue-chip components rose and
the day's losers, McDonald's (NYSE:MCD), Home Depot (NYSE:HD),
and Alcoa (NYSE:AA) were down less than 1%.  The NASDAQ Composite
Index gained an amazing 71 points to finish at 1,802 on renewed
strength in the semiconductor sector.  The broader market S&P 500
Index rose 25 points to 1,131.  For the week, the NASDAQ rose 4.5%
percent, snapping a month-long losing streak, while both the Dow
and the S&P 500 gained roughly 4%.  Market breadth was promising
on the Big Board, where 2,221 stocks rose and 925 fell on trading
volume of 1.45 billion shares.  The win-loss ratio was similar on
the technology exchange, where 1.87 billion shares changed hands.
Bond prices plunged as investors shifted money into stocks.  The
10-year Treasury slumped 7/8 point while its yield rose to 4.98%
and the 30-year bond tumbled 1 1/4 point to yield 5.50%.

Last week's new plays (positions/opening prices/strategy):

Flir Sys.  (NSDQ:FLIR)  MAR40P/MAR45P  $0.45  credit  bull-put
Tidewater  (NYSE:TDW)   APR40C/APR35P  $0.40  debit   synthetic
St. Jude   (NYSE:STJ)   APR85C/APR75P  $0.50  credit  synthetic
Dupont     (NYSE:DD)    JUL50C/APR50C  $0.95  debit   calendar
Pactiv     (NYSE:PTV)   AUG20C/APR20C  $0.85  debit   calendar
Applera    (NYSE:CRA)   JUN20C/JUN20P  $4.65  debit   straddle

Monday's opening rally did little to help our new plays in Flir
Systems and Tidewater as both issues offered few opportunities
to initiate the bullish positions at favorable prices.  In the
FLIR "bull-put" spread, the credit was slightly less than our
target but there was no chance for entry into a similar spread
in TDW.  In addition, the synthetic position in Tidewater did
not trade at a credit on a simultaneous order basis, rather the
best price observed was a debit of $0.40.  Of course, the play
was still quite profitable even at that price as the position
reached a high of $1.40 credit Friday; a gain of $1.00 in less
than one week.  Both of our new calendar spreads were available
at acceptable prices and the underlying issues are trading much
as expected.  The synthetic position in St. Jude Medical was the
only disappointment as the stock plummeted Monday and continued
to move lower during the week.  The issue is now at a proverbial
"key moment" and we will monitor it closely for signs of further
downside activity.

Portfolio Activity:

The big surprise of the week was ImClone Systems as the issue
almost doubled in value on renewed optimism for the company's
experimental cancer treatment Erbitux.  The company said its
recent meeting with the Food and Drug Administration about the
application for its Erbitux cancer drug was "very productive"
and it now appears ImClone and its partner Bristol-Myers Squibb
could win clearance to sell Erbitux without having to launch an
entirely new round of patient testing.  ImClone reported that it
and Bristol-Myers discussed an approach to get the application
back on track by providing the FDA with additional data from a
European clinical trial currently being conducted by Merck KgaA.
ImClone's CEO said he assured the FDA that he was committed to
working towards a resolution of the current issues and that he
would continue to focus his efforts on gaining approval for the
product.  The news was overwhelmingly positive for investors and
the "short-covering" rally drove the share value from $14 to $27
in only five days.  Needless to say, our bullish calendar spread
achieved the target exit profit and much more, in less than two
weeks.  Another surprise winner was the synthetic position in
Goodyear Tire and Rubber (NYSE:GT), which achieved a favorable
"early-exit" profit of $1.00, well ahead of its expiration in
April.  The long call (APR-$30) traded as high as $2.10 during
Thursday's session, offering investors a great opportunity to
lock-in profits in the speculative play.  The straddles section
has been the best performer among the various categories in the
Spreads/Combos portfolio over the past month and this week was
no exception with positions in Credence Systems (NASDAQ:CMOS),
Serena Software (NASDAQ:SRNA) and Qlogic (NASDAQA:QLGC) offering
excellent profits.  In addition, the neutral position in Waste
Management (NYSE:WMI) is near the upside "break-even" point and
should achieve profitability in the coming week.  Last, but not
least, it was nice to see our one and only "collar" back in the
black.  Sandisk (NASDAQ:SNDK) closed Friday's session at $17.17,
slightly above the cost basis in the bullish, long-term position.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -

Friday's volatile upside activity has left even the most savvy
traders with little insight as to the market's future direction
so rather than risking our hard-earned capital in this difficult
environment, we have decided to avoid any new directional plays
until the near-term trend in stock prices is firmly established.
For those of you who favor volatility trading, the opportunities
are virtually endless and here are just a few of the many great
candidates in this strategy.

All of these issues meet our criteria for a favorable straddle;
cheap option premiums, a history of adequate price movement and
the potential for volatility in the stock or its industry.  This
selection process provides the foremost combination of low risk
and potentially high reward but, as with any positions, they must
be evaluated for portfolio suitability and reviewed with regard
to your strategic approach and trading style.

NRG - NRG Energy  $11.88  *** Low Risk = Low Reward! ***

NRG Energy (NYSE:NRG) is a global energy company engaged in the
acquisition, development, ownership and operation of power
eneration facilities, and the sale of energy, capacity and
related products.  As of 1/1/02, NRG Energy had interests in
power generation facilities (including those under construction)
having a total design capacity of 25,000 megawatts.  Most of NRG
Energy's North American projects are grouped under regional
holding companies corresponding to their domestic core markets.
The company has established regional offices in Pittsburgh,
Pennsylvania (Northeast region), Baton Rouge, Louisiana (South
Central region) and San Diego, California (West Coast region).
NRG Energy's North Central region (a recently added region, as
of year-end 2000) is managed from its Minneapolis headquarters.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUN-12.50  NRG-FV  OI=785  A=$0.60
BUY  PUT   JUN-12.50  NRG-RV  OI=233  A=$1.25

Note:  The Delta or "hedge ratio" in the position suggests that
we should buy 2 calls for every put (2:1 ratio) to maintain a
neutral outlook.  However, any upward movement in the issue in
the coming week should allow both sides of the position to be
purchased at similar prices.

GNSS - Genesis Microchip  $25.50  *** Where To From Here? ***

Genesis Microchip Incorporated (NASDAQ:GNSS) designs, develops
and markets integrated circuits that receive and process digital
video and graphic images.  Its integrated circuits are typically
located inside a display device and process images for viewing
on that display.  The company also supplies reference boards and
designs that incorporate its proprietary integrated circuits.
Genesis is focused on developing and marketing image-processing
solutions and targets the flat-panel computer monitor and other
potential mass markets.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAR-25  QFE-CE  OI=1166  A=$2.25
BUY  PUT   MAR-25  QFE-OE  OI=841   A=$1.85

SEIC - SEI Corporation  $40.20  *** Probability Play! ***

SEI Corporation's (NASDAQ:SEIC) principal subsidiaries are SEI
Investments Distribution (SIDCO), SEI Investments Management
Corporation (SIMC) and SEI Trust Company (SEI Trust).  SIDCO is
a broker-dealer registered with the Securities and Exchange
Commission (SEC).  SIMC is an investment advisor.  SEI Trust is
a trust entity chartered in the Commonwealth of Pennsylvania.
SIDCO and SIMC also provide a full range of administration and
distribution services to proprietary mutual funds established by
banks and other financial institutions and intermediaries.  The
client serves as the investment advisor for the proprietary funds
and the funds are sold primarily to customers of the client.  SEI
is organized around its four primary business lines, which are
Technology Services, Asset Management, Mutual Fund Services and
Investments in New Businesses.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-40  QEI-CH  OI=1355  A=$1.30
BUY  PUT   MAR-40  QEI-OH  OI=991   A=$1.20

STK - Storage Technology  $19.75  *** Recently Active! ***

Storage Technology Corporation (NYSE:STK) designs, develops,
manufactures and markets a broad range of information storage
products, and provides maintenance and consulting services.
These storage products and services are designed to provide
customers with a broad range of solutions for the storage and
retrieval of digitized electronic data.  StorageTek's solutions
are designed to be easy to manage and allow universal access to
data across servers, media types and storage networks.  Their
products are used by a broad range of customers that include
large multinational companies, mid-size and small businesses
and governmental agencies encompassing a range of industries,
such as financial services, retail sales, telecommunications,
transportation and a variety of manufacturing industries, as
well as educational, scientific and medical institutions around
the world.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-20  STK-CD  OI=606  A=$0.70
BUY  PUT   MAR-20  STK-OD  OI=117  A=$0.95

CREE - Cree Inc.  $15.80  *** Big Mover! ***

Cree, Inc. (NASDAQ:CREE) develops and manufactures a wide range
of compound semiconductor materials and electronic devices made
from commercialize silicon carbide and gallium nitride.  Cree
operates its business in two segments: the Cree segment, which
consists of its SiC based products; and the UltraRF segment,
which consists of radio frequency transistors and amplifiers on
a silicon platform.  The company's customers include Siemens AG,
Sumitomo Corporation and Spectrian.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAR-15  CVO-CC  OI=1294  A=$1.50
BUY  PUT   MAR-15  CVO-OC  OI=1221  A=$0.75

                        - CREDIT STRANGLES -
CI - Cigna  $94.50  *** Trading Range? ***

CIGNA Corporation (NYSE:CI) is one of the largest investor-owned
employee benefits organization in the United States.  CIGNA is a
holding company and its subsidiaries are primary providers of
employee benefits offered through the workplace; healthcare
products and services, group life, accident and disability
insurance, retirement products and services and also investment
management.  CIGNA's major insurance subsidiary is Connecticut
General Life Insurance Company.  The company's principal business
segments are Employee Health Care, Life and Disability Benefits,
Employee Retirement Benefits and Investment Services and also
International Life, Health and Employee Benefits.

The implied volatility in options has been so low for so long
that we had all but given up on looking for favorable credit
strangles.  However, the recent share-price activity (amid a
Justice Department probe of Medicare reimbursements at one of
CI's very minor subsidiaries) in the issue has generated excess
premium in its options and traders who believe the range-bound
trend will continue for the next few weeks can profit from that
outcome with this position.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  MAR-100  CI-CT  OI=189  B=$0.75
SELL PUT   MAR-85   CI-OQ  OI=363  B=$0.80
INITIAL NET CREDIT TARGET=$1.50-$1.70  PROFIT(approx)=10%
UPSIDE B/E=$101.50  DOWNSIDE B/E=$83.50


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Several watch list candidates have been working in our favor. 
We're looking at two more additions this weekend in hopes of 
successful outcomes.

To Read The Rest of The OptionInvestor.com Market Watch Click Here


Three of the major market averages plowed past resistance levels 
last Friday. Several sectors require close monitoring into next 
week's trading.

To Read The Rest of The OptionInvestor.com Market Posture Click Here


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