Option Investor
Newsletter

Daily Newsletter, Thursday, 04/04/2002

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Thursday 04-04-2002
Copyright 2001, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        4-4-2002           High     Low     Volume Advance/Decline
DJIA  10,235.17  + 36.88 10,261.88 10157.26 1.3 bln   1652/1361
NASDAQ   1789.73 +  5.38  1800.83  1770.16  1.7 bln   1761/1649
S&P 100   566.72 +  0.69   568.69   563.40   Totals   3413/3010
S&P 500  1126.34 +  0.94  1130.45  1120.06
RUS 2000  498.37 +  1.77   498.58   494.74
DJ TRANS 2783.62 + 36.31  2781.51  2741.81
VIX        21.77 +   .13    22.45    21.77
VXN        40.22 -  0.81    42.09    40.17
TRIN         .96
CBOE Put/Call Ratio: .83
************************************************************
HAND ME A BUD
by Leigh Stevens

Well the stock anyway! Anheuser Bush (BUD) was making steady new 
(52-week) highs into last week -- the stock dipped today, but had a 
strong close, helping the Beverage sector make a new high.  What 
does this tell us, besides the fact that the non-traveling stay-at-
homes are getting more exercise tilting those buds? That sectors 
considered "defensive" are the ones still doing well.  The food 
stocks are another such group.  Nice to remember that someone is 
making money in the stocks they are holding.    

Sameo, sameo -- the market is waiting for earnings and hoping for 
good news.  Dell reassures us last night and Bristol Myers pulls 
the rug out today. So it goes on the Street of Dreams. Meanwhile, 
extreme unease continues over the Mid-East horrors it's possible 
impact on oil prices.   

The Dow's ability to regain perceived support in the 10,200 area 
this morning, then holding this area on the top of every hour 
today, helped modify the continued negative tone. Of course, the 
market is oversold on a short to intermediate term basis as a 
result of the decline, so there is a natural reluctance to press 
the short side overly much. Just as the bulls are fence sitting, 
the bears don't have a major conviction that the market is going to 
fall apart - maybe Dow 10,000, not 9,000.

INDEX LEVELS TO WATCH FRIDAY -- BLUE CHIP DOW JONES INDUSTRIALS - 
10,260 has been the low end of the recent hourly trading range in 
the Industrials (INDU), until yesterday, when the Industrials 
slipped under this level. Subsequent hourly highs were topping in 
this area -- proving once more that support levels, once broken 
often become resistance, as prior buyers at previous support, bail 
when prices come back up to that area.

The hourly chart below is of interest for what happens tomorrow, 
especially with the Employment Report due. By the way, the 
Employment report is expected to show a gain in non-farm payrolls 
of 50,000.    Watch for the ability for the Dow to get back above 
resistance (R) at  10,260 and a subsequent ability to hold this 
level on declines. 



 

SPEAKING OF DEFENSIVE -
The utility stocks have been good performers of late and someone 
buying the AMEX Utilities HOLDR's (AMEX:UTH), such as from when 
Jeff Bailey was beating the drum for them a couple of weeks ago, 
resulted in solid gains. By the way, the HOLDR's are just poking 
above the 200-day moving average. (More on them, in the Sector-
trader section of Index Trader.) A chart of the interest-sensitive 
Utility average below, shows the trend.  It has not usually been 
the case that commodities inflation has been a future problem if 
this sector is going up strongly. In fact if gold rallies more, 
I've been suggesting buying the XAU May puts.



 


WHERE HAVE THE BEARS GONE?
Speaking of Dow 10,000, a close below this level would turn traders 
and investors more actively bearish and could get trades more 
aggressively short. I'm wondering if there is something that will 
trigger a "final" washout, if one develops. What I most notice is 
what is not there -- a high level of bearishness, such as expressed 
in heavy put buying. Such sentiment usually goes hand in hand with 
good buying opportunities. Actually, a lack of bullish or bearish 
conviction (or, lack of interest?) may be a factor in the low VIX 
level, the widely followed implied (options) volatility index.

Same weak technical action has occurred in the Dow 20 transports 
(TRAN). There were a number of prior lows in the 2800 area last 
August (before the train wreck in Sept), that subsequently became 
resistance as the transports topped out there several times early 
in the year. Thinking was that given the high at 3050 level, a 
pullback might hold 2800. NOT! 

The Transportation average back below 2800 is being perceived as a 
distinct technical negative. I can get downside objectives to as 
low as the 2600 area now. 2646 is the 200-day moving average. 

STOCKS & EARNINGS NEWS -
Investor remained quite cautious amid another batch of earnings 
warnings or on negative corporate news, including a badly received  
pre-announcement warning from Bristol-Myers Squibb  (BMY: 32.15 –
5.55 ) and other pre-announcement warnings provided by CheckPoint 
Software (CHKP: 22.07 -5.39) and Compuware (CPWR: 8.28 -2.82). 

Bristol-Meyers told analysts late-Wednesday that its first-quarter 
profit would fall well short of expectations due to dwindling sales 
and efforts to work down inventories. This caused a hit in the 
other drug stocks such as Pfizer (PFE: 39.00 -1.00), Merck (MRK: 
55,80 -1.49), and Johnson & Johnson (JNJ: 63.48 -0.54%). Of course, 
pharmaceuticals are a sector of the market that has been a place 
where money managers have sought safe haven. 

Check Point Software fell sharply after revealing that its first-
quarter results would fall short of expectations because of 
depressed IT spending. CHKP reduced its Q1 outlook to $0.24-$0.25 
(consensus $0.29) and guided revenues to $104-$105 million 
(consensus $122.2 million). 

Check Point was featured as a short recommendation on the Option 
and Premier Investor play list last month (3/14 - short at 33.28).  
An update to the play list suggested closing out this position on 
today's close. Take the money and take yourself to a nice dinner on 
us!  Compuware stock price tanked after issuing a substantial 
profit shortfall warning late-Wednesday for its first quarter due 
to softening sales.

Continuing the tech bad news pictures, Inktomi (INKT: 3.01 -.42) 
fell sharply after announcing after the Wednesday close that its 
fiscal second-quarter revenue would substantially miss the 
consensus estimate. The company projected a larger loss per share, 
which was attributed to a continued slide in global technology 
spending.

Affecting another sector, Merrill Lynch lowered its ratings on 
several major chemical companies: DuPont (DD: 45.70 -.97), PPG 
Industries (PPG: 52.76 -1.13) and Lyondell Chemical (LYO:15.18 –
.35) were all cut to a "neutral" from a "buy".  Rohm and Haas (ROH: 
39.09 -.96) was lowered to a "reduce" from a "neutral." 

On Wednesday, DuPont announced it expected first-quarter earnings 
to exceed the high end of the current Wall Street estimate. 
However, Merrill said it believes chemical companies stock prices 
have already priced into them, an improved U.S. and global economic 
outlook. Their report went to say that surging energy prices and 
raw material costs will likely increase potential for disappointing 
earnings down the road.  

In our Sector Trader section (within INDEX TRADER), you'll note 
that we're holding a short position from 45.25 in the AMEX iShares 
of the US Chemical Index trust; Symbol: IYD - 4/4 close: 43.60 – 
1.05). By the way, the US Energy trust iShares, which we are also 
short, suffered a minor downside reversal today (SYM: IYE - 4/4 
close: 49.63 -.67), after forming an apparent top in the 51.00 
area. 

May Crude futures at recent highs in the $28 area appear extended 
and look vulnerable to a correction. These markets are also 
registering overbought on the oscillators. If Bush can calm things 
down in the Mid-east, the sizable "risk premium" in crude oil 
futures should shrink.   

POLITICS & OIL - 
On the political front, President Bush will send Secretary of State 
Colin Powell to the Middle East next week in an effort to prod the 
two parties to quell the violence and find a way to bring the two 
warring sides together.  Bush commented on the deteriorating 
situation among the Israelis and Palestinians in a morning address. 

Getting the peace process back on track would calm the oil markets 
and probably curb the appetite for precious metals. The rise in XAU 
index appears overdone to me, as highlighted in the Index Trader 
section where I suggested buying puts on further rallies in the 
precious metals. They may be precious, but gold has also been a 
pretty reliable short when it periodically pops up over $300.  

ECONOMY - 
The market saw negatives on the news that initial claims for 
unemployment benefits surged 64,000 to 460,000 in the week of March 
30.This release was well ahead of the consensus estimate of 
380,000.The increase however, was attributed to federal extension 
filings as it reflects a legislative change rather than an economic 
change. There remains the concern about the strength of the 
economic recovery that is in the consensus view of the economy.  

Remember too that unemployment in general is a lagging measure of 
the economy in that it doesn't tend to peak until months after the 
typical economic recovery begins in terms of when GDP begins 
growing again.  

TRADING STRATEGY & WHAT I'M WATCHING - 
I still consider that in terms of the S&P 500 (SPX), a further drop 
to the 1100-1105 area would be the most attractive level to make 
new stock purchases and to do some buying of May Index calls. 
Absent this kind of further move lower, staying with any shorts and 
Index puts is still riding the right side of the current trend. A 
decisive move above 1150 would suggest a bullish turnaround. So, 
I'm bullish in the 1100 area, and above 1150, but 1120-1125 area, 
which looks like minor support may not be the final lows.  Right in 
the middle such as 1120-1125 is iffy for a "final" bottom, as 
illustrated by the last chart below. 

S&P 500 (SPX):


 
 

I have found over the years, that in terms of planning entry into 
or out of the market based on what the averages and indexes are 
doing, watching a simple 21-day moving average and corresponding 
envelopes, (lines that are plotted 3.5 - 4.5% above and below each 
day's closing average), is insightful. It has been uncanny how 
often a decisive upside or downside penetration of the 21-day 
moving average has led to a further move in this direction.  Until, 
that is, the Index reaches the outer lines, as can be seen in the 
examples that have the circles and highlights below on the S&P 500 
(SPX) below.   

I am interested in buying at the lower end of the band, especially 
if there is a corresponding reversal from the area of the prior 
lows or around the 1100-1105 area.  The area for the OEX is in the 
560 area, down to around 555 as a place where I would be looking 
for overall signs of a bottom.    

Leigh Stevens
Chief Market Strategist
LStevens@OptionInvestor.com


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

IN BETWEEN
Leigh Stevens

I said today that I was bullish above 1150 and at 1100-1150,
 whereupon someone asked me would I still be a buyer in the 1125 
area, which represents a 50% retracement of the last advance.  
This area may prove to be a bottom, but have come to feel that 
something will trigger another move lower.  At least, I can't 
recall a major buying opportunity when traders are not heavily 
buying puts galore. 

Plus I have been reminding myself, that current levels are not at 
the lower extreme of the 21-day moving average envelopes I use. 
So, sentiment indicators and envelope bands are saying maybe this 
is not the extreme and I like to buy and sell extremes.  

Of course, price is the ultimate determinant and at 1125, I'm 
concerned that we are still in the middle of a trading range, 
even though the market is oversold on a short to intermediate 
term basis.  Buying cheap (1100 area) and at a prior bottom, if 
it becomes a DOUBLE bottom, makes sense, yes?  But, buying 
"high", above 1150 may seem crazy, also yes?  

I've found that a breakout above a key resistance area confirms 
that momentum is up and buyers are piling in.  Just as I consider 
upside volume, willingness to buy on up ticks, is the MOST 
important measure of volume, ability to get through overhead 
resistance is key. 

The other consideration is risk to reward.  At 1100, I can risk 
to 1095 on long calls, and risking 5 is good relative to upside 
potential at that point.  At 1150, I can risk to just under this 
area, to 1145, as if the breakout move is valid, SPX won't come 
back down under this area.  Again, reward potential is good 
relative to risk. At 1125, if it may be in the middle of a range, 
it's iffy to risk that same 5 Index points (e.g., buy at 1125, 
sell stop at 1120), as I have less clarity about whether the next 
move is 15 pts. up or down.  

When I first got into trading, which was in futures, I followed a 
trader who entered almost all his trades on buy stops, that 
triggered entry only on a move to above recent highs or lows. It 
amazed me when I started making money by following this person's 
system. We are all habituated to buying low and selling high.  
Sometimes you have to chuck out the rules when you are in 
between, IF you make risk to reward the guiding light of your 
trading and investment activities.   

I GOT TO THINKING - 
It has been uncanny how often a decisive upside or downside 
penetration of the 21-day moving average (center red line) has 
led to a further move in this direction on the indexes.  Until, 
that is, the Index reaches the outer band, as can be seen in the 
chart below on the S&P 100 (OEX) below. I would be a buyer on a 
further move down toward the 555 area, at the lower envelope line 
which is 4.5% under the 21-day average.  

On the other hand, upside penetration of the average suggests 
potential for a move to at least the upper band in the 607 area. 
My risk at that point would in relation to the 21-day average and 
I feel I have a basis on where to risk to.  Risk to reward. All 
you need is love AND good Risk to Reward.  


S&P 100 (OEX) - 


 


The next best new trading opportunity will occur when my key 
market indicators line up as all oversold and in buy territory 
(see bottom of this column).  If this occurs at the same time 
that prices get to the lower end of the trading or envelope 
bands, this is a plus.  

ON THE OTHER HAND -
I do not currently see a favorable risk to reward on NEW short 
and put positions.  Those short or holding put options, should 
stay put (pun intended!) until there is good evidence of a change 
in the intermediate trend.    

MY TRADING ENVELOPE GUIDE - 
Trading envelopes are a simple idea.  Relative to a particular 
daily moving averages of the close of an index (I use 21-days), a 
line is calculated that represents some percentage above and 
below the closing moving average that day. There is a tendency 
for the various averages and indexes to trade at anywhere from 3% 
to 9% above or below the moving average. The percentage amount 
varies according to the average volatility of that index.  

Over time, the bands will tend to narrow or widen, depending on 
market trends.  Of course, in a bull market trend, prices will 
tend to move up along (rather than reverse from) the "line" of 
the upper band. In a bear market trend, prices will tend to move 
down along (rather than reverse from) the "line" of the lower 
band. 

When there is an apparent reversal in trend from the upper or 
lower envelope line, the subsequent move will tend to carry 
prices back to the 21-day average, which may then act as support 
or resistance. However, once there is an upside or downside close 
that pierces the 21-day moving average, there is tendency for the 
index to continue in that same direction until the outer envelope 
line or band is reached.     

Nasdaq 100 (NDX) Indexes:


 

COMMENTARY:
The 1345 area looks like our downside objective in the 
NDX as an "ideal" entry.  However, there is some support where we 
are and I want to emphasize that a good-sized rally in the 
oversold techs can start on any spark of good news.   


Nasdaq 100 tracking stock, QQQ:


 

COMMENTARY -
Now that I'm "officially" stopped out of a long QQQ position, no 
doubt it's finally ready to RALLY! Anyone, long on the recent 
decline, could risk to just under 34 and see what happens if prices 
get up toward the upper channel resistance line. 

It appears from the above QQQ chart analysis that there may be a 
rebound to the high end of the hourly downtrend channel, but 
resistance at 35.50-35.75 needs to be overcome to suggest that 
this is more than a short-lived bounce.  

My interpretation yesterday of the decline in the Q's possibly 
tracing out a bullish falling wedge in the daily chart, seems 
unlikely.  More likely is that we are in a simple downtrend price 
channel, as has been drawn on the chart above. With such a 
channel, the best trades are to cover shorts at the low end of 
the channel, re-short at the upper line and stop out and reverse 
to the long side on a breakout above the upper channel line.     

A falling wedge pattern is when a narrowing range between 
intraday highs and lows further along in a decline, suggests 
scale down buying and "compression" -- that is, buying and 
selling is more and more in balance, as the market gets more 
oversold.  Usually the result of this pattern is an upside 
reversal.   

NEW LONG TRADE SUGGESTIONS: NONE 

NEW SHORT TRADE SUGGESTIONS: NONE

NOTE: Risk to Reward guidelines:  Determining an objective is 
important, even if it is a moving target, as this is the reward 
potential.   Determining reward potential is critical to 
establishing whether a stop that makes “sense” (e.g., a sell stop 
that was placed under a key support level) would, if triggered, 
result in a dollar loss that is in proportion to profit 
potential; e.g., 1/3 of it.  (On occasion, when the purchase 
price of call or put is equal to 1/3 or less of the estimated 
reward potential, there may not be a specific exit suggestion, as 
the cost of the option is equal to the amount that is being 
risked.)   


KEY LONG-TERM MARKET INDICATORS:

Major signals occur when ALL key indicators are in oversold or 
overbought territory, followed by a reversal in the direction of 
the indicators; e.g., the indicator reverses from down to up. 

1. ADVANCE/DECLINE OSCILLATOR: 
Oversold reading exists for NYSE stocks but not yet for Nasdaq

2. UPSIDE VOLUME INDICATOR: 
The 10-day averages of upside volume have contracted to a level 
that suggests bullish potential when the average next turns UP on 
the NYSE and the Nasdaq.

3. SENTIMENT INDICATORS: 
Neutral on put/call & bearish on VIX

4. LONG-RANGE OVERBOUGHT/OVERSOLD & MOVING AVERAGE STUDIES
At or close to oversold readings on weekly overbought/oversold 
indicators; current prices are below longer-term weekly moving 
averages.

The charts of these indicators will be reposted at least weekly, 
or when there is a significant change. To review the last posted 
update to these charts, go to the Index Trader Wrap for 4/3.  

Relevance and use of these longer-term Indicators:  
These indicators are considered to be primary indicators that 
indicate market internals that would suggest a continuation or 
reversal of the current intermediate trend; e.g., the 3 to 6-week 
or longer time-frame.  While some index trading suggestions will  
be short-term in duration (e.g., 2-3 days up to 2-3 weeks) the 
picture present of the market on a more medium-term basis will 
form the foundation of trading strategy.  For example, a short-
term put position taken when the market is in process of coming 
down to an intermediate low and an oversold condition, will not 
warrant a “full” position or warrant the same trading capital 
that could be committed on a high-potential trade, such as where 
a significant bottom is indicated, or, conversely, when a major 
top is suggested. The 4 major indicators, plus moving averages 
and their variations (envelopes), will help keep market 
perspective and manage risk.


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

Tech Tells
By Eric Utley

Corporate IT spending is weak, terribly weak.  Is it safe to
assume that much?  The market, specifically the tech sector, is
coming to that realization.  Hopefully readers of this column
were informed ahead of the crowd by the shift in the Nasdaq-100
Bullish Percent ($BPNDX), which seems like it happened forever
ago.  Interestingly, some of the hardest hit tech stocks have
been the components of the Nasdaq-100 (NDX.X).  PeopleSoft
(NASDAQ:PSFT), CheckPoint (NASDAQ:CHKP), and Compuware
(NASDAQ:CPWR) come to mind.

After the bell, McData (NASDAQ:MCDT) warned...again.  The
Emc (NYSE:EMC) spinoff was whacked in the after hours for its
shortfall.  Watch others in the data storage biz tomorrow,
such as Brocade (NASDAQ:BRCD), QLogic (NASDAQ:QLGC), and
Emulex (NASDAQ:EMLX).

End market demand has not returned to the information technology
segment of the market.  That's the space -- the NDX.X -- which
holds the greatest downside risk in my opinion.  If this
economy is truly headed for a rebound, then we need to see
further improvement in those stocks most tied to the business
cycle before even thinking bullish about tech.  It's far too
early in the cycle.

I was encouraged by the rebound in the Dow Jones Transports
($TRAN) Thursday, but want to see some follow-through.  The
transports are type of stocks that are going to carry the
market higher at this point in the cycle, not technology.  The
3Ms (NYSE:MMM) of the world are going to do it.

The only major development in sentiment data over the last two
days was the reversal of the Dow Jones Industrial Average
Bullish Percent ($BPINDU) into Bear Alert.  The $BPNDX did
drop five more stocks Thursday.  ARMS numbers are approaching
extreme, while the fear gauges are ticking higher.  The
combination of these events, I think, adds to bearish
conviction over the intermediate-term.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10235

Moving Averages:
(Simple)

 10-dma: 10348
 50-dma: 10152
200-dma:  9967



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1126

Moving Averages:
(Simple)

 10-dma: 1140
 50-dma: 1128
200-dma: 1139



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1397

Moving Averages:
(Simple)

 10-dma: 1440
 50-dma: 1468
200-dma: 1527



Airlines ($XAL)

The XAL bounced back in Thursday's session after several days
of weakness.  The index captured the day's best performing sector
spot with its 3.32 percent gain.  The strength in the Dow Jones
Transports ($TRAN) helped.

Leading gainers included shares of America West (NYSE:AWA), U.S.
Airways (NYSE:U), Northwest (NASDAQ:NWAC), and Continental
(NYSE:CAL).

52-week High: 153
52-week Low :  59
Current     : 100

Moving Averages:
(Simple)

 10-dma: 102
 50-dma:  98
200-dma: 102


Software ($GSO)

The GSO won the day's worst performing sector spot once again
Thursday.  Compuware (NASDAQ:CPWR) and CheckPoint (NASDAQ:CHKP)
were to blame.

The worst performing components of the GSO included the
aforementioned two names, along with Inktomi (NASDAQ:INKT),
Rational (NASDAQ:RATL), WebMethods (NASDAQ:WEBM).

52-week High: 246
52-week Low : 112
Current     : 148

Moving Averages:
(Simple)

 10-dma: 160
 50-dma: 169
200-dma: 173

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

Market Volatility

The VIX hit another weekly high Thursday morning but pulled back
as the day wore on and stocks gained strength.  I'm watching the
50-dma at 22.72 as a possible pause in fear.

The VXN finally broke above the 40 level in Wednesday's session
and continued higher in Thursday's.  Fear is on the rise among
NDX shares.

CBOE Market Volatility Index (VIX) - 20.68 +0.63
Nasdaq-100 Volatility Index  (VXN) - 39.32 +2.87

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.82        463,651       379,790
Equity Only    0.78        410,397       319,390
OEX            0.91         10,822         9,805
QQQ            1.17         47,884        56,053
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          64      + 0     Bull Confirmed
NASDAQ-100    45      - 5     Bull Correction
DOW           67      - 3     Bear Alert
S&P 500       72      - 2     Bull Confirmed
S&P 100       73      - 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  1.42
10-Day Arms Index  1.30
21-Day Arms Index  1.15
55-Day Arms Index  1.21

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE      1722           1390
NASDAQ    1778           1696

        New Highs      New Lows
NYSE       85             40
NASDAQ    110             51

        Volume (in millions)
NYSE     1,267
NASDAQ   1,544

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

Commitments Of Traders Report: 03/26/02

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

Commercial traders grew more bearish during the most recent
reporting period by dropping a number of long positions while
maintaining their number of shorts.  Meanwhile, small traders
reached their most bullish net position in more than a year.

Commercials   Long      Short      Net     % Of OI 
03/12/02      396,050   483,606   (87,556)   (9.9%)
03/19/02      322,938   410,494   (87,556)  (11.9%)
03/26/02      317,671   410,186   (92,515)  (12.7%)

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
03/12/02      179,825     75,025  104,800     42.6%
03/19/02      145,262     43,066  102,196     54.3%
03/26/02      148,111     40,409  107,702     57.1%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 107,702 - 3/26/02
 
NASDAQ-100

Commercials didn't do much in the last week.  The group's
net bearish position dropped by only 300 contracts.  Small
traders added a small number of longs.

Commercials   Long      Short      Net     % of OI 
03/12/02       37,415     42,942    (5,527)   (6.9%)
03/19/02       24,792     33,699    (8,907)  (15.2%)
03/26/02       25,275     33,880    (8,605)  (14.5%)

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

Small Traders  Long     Short      Net     % of OI
03/12/02       14,571    13,045     1,526      5.5%
03/19/02       11,637     5,527     6,110     35.6%
03/26/02       12,760     6,264     6,496     34.1% 

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

DOW JONES INDUSTRIAL

Commercial traders shed a significant number of long positions,
while dropping a small number of short positions.  The result
was a drop in the group's net bullish position.  Small traders
added longs and dropped shorts for a drop in the group's net
bearish position.

Commercials   Long      Short      Net     % of OI
03/12/02       35,080    23,204   11,876     20.4%
03/19/02       20,858    13,283    7,575     22.2%
03/26/02       17,973    12,539    5,434     17.8% 

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
03/12/02        6,400    13,070    (6,670)   (34.3%)
03/19/02        4,651    10,367    (5,716)   (38.1%)
03/26/02        5,818     9,308    (3,490)   (23.1%) 

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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

“7 Steps to Success – Trading Options Online”.  

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

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


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

SELL OIL AND BUY SMOKESTACKS
Leigh Stevens
 
Oil looks toppy (also Gold) and Utilities which burn the stuff, 
look like they are smoking.  

DOW Transportation Average (TRAN - close: 2783) has fallen under 
a key support at 2800 -- if it stays under this level, a further 
downside objective could be to 2600-2650 area. This sector should 
theoretically benefit if oil prices ease, but these stocks may 
not have already priced in all of the impact of higher fuel 
costs.      

The utility stocks have been good performers of late and someone 
buying the AMEX Utilities HOLDR's (AMEX:UTH), such as from when 
Jeff Bailey was beating the drum for them a couple of weeks ago, 
has some solid gains. By the way, the HOLDR's are just poking 
above the 200-day moving average. (More on them, in the Sector-
trader section of Index Trader.) 

A chart of the interest-sensitive Utility average below, shows 
the trend.  It has not usually been the case that commodities 
inflation has been a future problem if this sector is going up 
strongly.

 

Additional purchases are suggested in the UTH HOLDR for a longer-
term hold.  My target (next 12 months) is to 116, which is a 
decent return relative to treasuries and the historical average 
of the market.  

 
TRADE PLAYS AND GUIDELINES: 

Sector: XAU (PHLX Gold & Silver Index)
PRECIOUS METALS INDEX - 

The suggestion to buy puts remains, but another rally may not 
develop as there is the possibility that prices have peaked.  

 


BUY May 65 and May 60 XAU puts on a scale up basis with XAU above 
73, BUT not above 80, as any further upswing should not exceed 
this area, if my analysis is correct.  

Objective: XAU to 61
Stop: XAU close above 80
Time frame: 4-6 weeks.


OPEN TRADE SUGGESTION:

Sector: RTH (AMEX: Retail sector trust stock)
Trade Entry: SHORT at 99.00 or better  
Objective: 90
Stop: 102 
Time frame: 3-6 weeks.


OPEN LONG TRADES: NONE
Suggest buying the UTH HOLDR's per the discussion above

OPEN SHORT TRADES:

Sector: XLB at 23.75
Stop: 24.50

Sector: XLP at 26.00
Stop: 26.25

Sector: IYD at 45.25
Stop: 46.60

NOTE: Merrill Lynch lowered its ratings on several major chemical 
companies. On Wednesday, DuPont announced it expected first-quarter 
earnings to exceed the high end of the current Wall Street 
estimate. However, Merrill said it believes chemical companies 
stock prices have already priced into them, an improved U.S. and 
global economic outlook. Their report went to say that surging 
energy prices and raw material costs will likely increase potential 
for disappointing earnings down the road.  IYD 4/4 close: 43.60 – 
1.05.

Sector: IYR at 84.75
Stop: 86.00 

Sector: IYE at 49.70
Stop: 52.00 

NOTE: US Energy trust iShares, which we are short, had minor 
downside reversal today (IYE - 4/4 close: 49.63 -.67); chart is 
showing signs of a top in the 51.00 area.

RISK to REWARD guidelines:  
Determining an objective is important, even if it is a moving 
target, as this is the reward potential.   Determining reward 
potential is critical to establishing whether a stop that makes 
“sense” (e.g., a sell stop that was placed under a key support 
level) would, if triggered, result in a dollar loss that is in 
proportion to profit potential; e.g., 1/3 of it.  (On occasion, 
when the purchase price of call or put is equal to 1/3 or less of 
the estimated reward potential, there may not be a specific exit 
suggestion, as the cost of the option is equal to the amount that 
is being risked.)   


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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

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

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


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

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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


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

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

Contact Support
The Option Investor Newsletter                 Thursday 04-04-2002
Copyright 2001, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.



****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

EOG $39.71 -1.40 (-0.85) After breaking out a couple weeks ago,
shares of EOG have been trying mightily to power higher on the
back of the rally in the price of Natural Gas.  Alas it wasn't to
be and with the pullback in the price of the underlying commodity,
EOG has been falling back to the level of its breakout over the
past 2 sessions.  With the violation of our $40 stop today and
bearish Stochastics divergence beginning to appear on the daily
chart, it is time to close out our EOG play before the bears get
vicious.


PUTS:
*****

None


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

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

CALLS              Mon    Tue    Wed    Thu

COF      61.74   -0.30   0.39  -2.04  -0.21  Downgrade gives entry
EOG      39.71    0.82   0.94  -1.22  -1.40  Dropped, sagging oil
CAH      70.09    0.80  -0.36  -0.17  -1.21  Bristol sympathy sell
THC      67.40    0.25   0.89  -0.85   0.00  Rebound from 10-dma
UNH      76.84   -0.29   1.13  -0.37   0.19  Marking time at highs
HLIT     11.65    0.05  -0.66   0.83   0.20  Needs tech to rally
SLAB     34.94    0.21  -0.65  -0.04   0.12  Holding its own well
VARI     36.85    1.30  -1.02  -0.77  -0.59  Light volume pullback


PUTS

ISSX     20.90   -1.07  -0.09   0.38  -1.29  Lock in some gains
TMPW     32.11    0.79  -1.29  -0.82  -0.96  Working in our favor
GNSS     23.00    0.33  -1.53  -0.84  -0.95  Support at $20 level
IBM     100.84   -1.37  -1.85  -1.05   0.88  Dell's news inspired
CVG      29.04   -0.73  -0.35  -0.10   0.59  Low volume reversal
CTX      49.92   -1.59  -1.27   1.11  -0.32  Heavy housing stock
CDWC     49.89   -0.58  -1.83   0.27   1.63  Dell short covering
VRSN     24.20   -0.08  -1.75   0.52  -1.57  Good looking breakdown
RETK     23.16    0.06  -1.03  -1.71  -0.41  New, software shorts
SGP      29.25   -0.66  -0.70   0.83  -1.52  New, drug sector woes


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

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

CAH $70.09 -1.21 (-0.80) CAH pulled back in today's session
after slightly stumbling in yesterday's session.  The stock's
pullback today was most likely related to the Bristol Myers
warning.  The broader drug sector finished lower by 2.4% which
was a big move for that index.  CAH's weakness was most likely
out of sympathy for that weakness in the broader drug group.
But the pullback may have presented us with the entry
opportunity we've been waiting for.  The only major concern
we have with CAH's pullback is that a came on relatively higher
volume.  We'll want to monitor the relationship between price
and volume closely in tomorrow's trading.  Those who are
looking to enter on the dip should be eyeing the 200-dma
below at the $69 level.  Our stop remains intact at the $68.50
level which can be used to manage positions taken off of a
rebound from the 200-dma.  Look for a trade down to that level
in tomorrow's session if the broader health care group
continues to weaken.  Look for volume to come in a slower
pace as CAH approaches its 200-dma.  Then target any rebound
above the $69 mark.

COF $61.74 -0.21 (-2.11) COF was downgraded by Prudential
yesterday morning.  The brokerage firm lowered its investment
rating to a hold from a buy.  That downgrade resulted in a
steep sell-off in yesterday's session.  The good news is that
the sell-off slowed during today's session.  Actually, the
downgrade may have paved the way for an opportune entry
point into new bullish plays in COF near its support.  COF
has been attracting the bulls around the $61 level for the
last week and we're looking for that buying interest to
continue.  What we need to see for a play at support to work
is further upside in the financial measures of the market.
The Bank Sector Index (BKX.X) finished in positive territory
in today's session.  Further strength in that index should
inspire the buyers to carry COF higher into tomorrow's
session and next week.  Look for intraday bounces on light
volume down around the $61 level and play the positions
tight with a stop just below $60.

THC $67.40 +0.00 (+0.38) THC bucked the fractional weakness
in the broader healthcare sector today by finishing strongly
into the close.  The stock offered an entry point that we've
been writing about with its trade down to and subsequent
rebound from its 10-dma.  The stock's day low was set earlier
in the day at the $65.90 level.  The rally back through the
10-dma at $66.45 inspired buyers to push the stock back up to
its relative highs.  Those who took the entry on today's
earlier weakness might think about using a stop just below
today's low in order to manage risk.  To the upside, we'll
look for the HMO.X to get moving again to the upside, thereby
sponsoring further strength in THC.  Traders can confirm
strength early tomorrow by watching for a move above the $68
level.  From there, look for a breakout above the all time
high.  Exit points might be targeted above $69 or up to the
$70 level.  Continue to look for those intraday pullbacks to
support such as the 10-dma for entry points on weakness.

VARI $36.85 -0.59 (-1.09) VARI pulled back for the third
consecutive session in today's trading.  The stock threatened
to close below our coverage stop at the $36.50 level, but
managed to put together a strong rebound into the close that
kept the play alive for one more day.  We noticed that volume
has been extremely light during the last three sessions worth
of weakness in price.  The volume coupled with the price action
is very indicative of routine backing and filling.  If the
buyers are still serious about taking this stock higher,
they should start to show up in tomorrow's session as the
stock is trading near its 10-dma.  In fact a rebound early
tomorrow could materialize and take this stock back up to the
$38 level.  Traders need to be cognizant of the action in the
broader Nasdaq.  A positive market is required for this play
to be a success.  Use tight stops just below today's intraday
low at $36.25 to manage positions.

HLIT $11.65 +0.20 (+0.05) Following the upgrade in yesterday's
session, HLIT followed through to the upside in today's
session but was unable to hold on to the majority of its
gains.  The short covering that we were looking for above
the $12 level never really transpired.  We think that the
lackluster trading in the broader technology sector didn't
induce enough fear into the bears to cover their short
positions.  As such, the stock pulled back as the day wore
on.  But we were happy with the penetration of the $12
level intraday, because it removed some of the short term
overhead supply in this stock.  The key going forward will
be the broader technology space.  From a sector perspective,
traders can monitor the Networking Index (NWX.X) for
insights into HLIT's peers.  Obviously a strong NWX.X would
increase the odds for a sustainable breakout and a rally
with legs possibly up to the $13 level.  As long as the
day to day pattern this week of relatively higher lows
continues, we're comfortable with taking new entries.  A
pullback to a new relatively higher low between $11.25 and
$11.50 could offer entries on weakness.  Those who took the
entry on the failed rally above $12 today might consider
using a stop below today's or yesterday's low to manage risk.

SLAB $34.94 +0.12 (-0.39) We're still holding our breath on SLAB,
waiting to see if it is going to break out of its month-long
range between $33-37.  Late last week, it looked like it might
actually break out over resistance, but the persistent weakness
in the Semiconductor index (SOX.X) this week has kept the bulls
in check.  But it has been encouraging to see the stock hold its
ground and improve its strength relative to the SOX.  If the Chip
bulls get running as we head into earnings season, SLAB could very
well lead the charge.  For now, use dips near the lower end of its
range ($33-34) to initiate new positions ahead of the run back to
the upper end of the range.  Our stop remains at $32.50.

UNH $76.84 +0.19 (+0.42) Despite the carnage in the Drug stocks
lately, shares of the Health Care stocks like UNH have remained
strong.  This strength can be clearly seen in the Health Care
index (HMO.X), which is still threatening to break out to new
highs in the face of the broad market weakness.  After charging
as high as the $77.60 level on Tuesday, the stock has been
consolidating its recent gains above the $76 level.  An intraday
dip to the $75.50-76.00 area would make for the best entries
ahead of the bulls' next run at new highs.  Recall that buying
the breakout is not the way to play this one as it surges higher
and then consolidates before repeating the process.  So we want
to enter during the consolidation and then take profits on the
surge, and then repeat the process as long as the HMO index
remains in its bullish mode.  


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

None


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

“7 Steps to Success – Trading Options Online”.  

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

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


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

IBM $100.84 +0.88 (-3.16) IBM traded slightly higher in
today's session.  The Dell news after the bell yesterday
could have inspired a small short covering rally in IBM today.
But the volume that accompanied IBM's 88 cent gain was
pathetic.  The stock traded only 5.9 million shares in today's
session, well below the 7 million plus shares we saw
exchanged in the last few days.  The light volume today and
tepid price action led to the creation of an inside day, in
which IBM's price range today was inside of yesterday's price
range.  The inside day can often lead to the next leg lower
in a stock that is in a descending trend, which IBM certainly
is.  The way to play for those still searching for an entry
point is to look for a breakdown below yesterday's low at the
$98.90 level.  From there, bearish momentum traders should
target the $97 level to the downside.  If IBM does continue
higher into tomorrow's session, look for the stock to rollover
just short of yesterday's high at the $101.50 level.

CVG $29.04 +0.59 (-0.53) The shorts finally decided to cover
their bearish positions in CVG today after the stock fell
lower for five straight sessions.  Today's reversal took out
the highs of the past two days, but fell short of Monday's
high.  Today's relief rally on lower volume could lead to
favorable entry points in the coming sessions for new put
positions.  One potential rollover point is at Monday's high
at the $29.35 level.  Look for continued light trading on
any further strength up to that level.  If that level is
broken, however, look for the 10-dma to come into play.  The
descending 10-dma currently sits overhead just above Monday's
high at the $29.71 mark.  The stock hasn't traded above its
10-dma for several weeks now, so it should encounter selling
pressure on the first test of that resistance.

CDWC $49.89 +1.63 (-0.45) Dell's reaffirmation of previous
guidance after the bell yesterday inspired the bulls to
carry CDWC higher in today's session.  Or maybe Dell inspired
the bears to cover their shorts in today's trading.  One can't
say for sure, but the tepid trading activity in today's
session sure does seem to reveal that today's 3.37% rally was
based on short covering.  The lack of serious buying
interest should lead to another rollover in the coming days
if the technology sector of the market weakens.  Today's
rally took CDWC back up to the upper end of its short term
descending channel, which has formed a short term low at the
$48 level.  Entries can be taken early tomorrow near current
levels or slightly above the $50 mark.  Such entries can be
managed with a tight stop at our coverage level of $51.  From
there we'll look for CDWC to retest its support at $48 and
ultimately breakdown.

CTX $49.92 -0.32 (-2.01) After the big slide in Housing stocks
last week, it is to be expected that there is a bit of
consolidation to do this week.  That has certainly been the case
with CTX over the past couple days, as the stock has been
confined to a rather narrow range between $49-51.  The Home
Construction index ($DJUSHB) continues along its course of
posting lower highs and appears ready to break down below the
$325 support level.  All it needs is a little push.  CTX is in a
similar situation, although it is much nearer to its critical
support, which rests at $48.50.  We need to exercise caution with
the daily Stochastics buried in oversold territory, but a
breakdown under the $48.50 level looks like a good entry, as we
target a drop to the $45 level.  Bargain-hunters could do even
better by entering new positions on a failed rally below the
$51.50 level.  To preserve our gains in the event of an oversold
bounce, we are ratcheting our stop down to $52 tonight.

GNSS $23.00 -0.96 (-3.00) Patience is rewarded and GNSS has been
very kind to us this week.  After rolling over at the $26.50
level, it was an amazingly quick trip to the $20 level this
morning.  You had to be quick to catch it, but the sharp rebound
from that level should have had bears tightening stops or locking
in profits.  Following news on Wednesday that the company was
losing market share, GNSS fell sharply right from the opening
bell this morning.  It appears that somebody thinks the selling
frenzy was overdone, as the stock bounced sharply in the final
30 minutes of trade on Thursday, clawing its way back above the
$23 level.  Until proven wrong, we'll regard this as a gift of a
second entry point delivered to our front door.  Look for the
current rebound to run out of steam and roll over near the $24
level.  That will be our trigger to initiate new positions.
We're lowering our stop to $25 tonight.

ISSX $20.90 -1.29 (-1.95) This has been the week to abuse
Software stocks and the Internet Security group has definitely
not been immune from the shoddy treatment.  Shares of ISSX have
fallen precipitously since the end of last week and they broke
below the 62% retracement of the fall rally this morning at the
opening bell.  The bulls got a brief respite when ISSX hit the
$19.50 level, as it seemed to prompt some short-covering,
bringing the stock back almost to the $21 level by the closing
bell.  It is important to note that the stock was unable to get
back above the 62% retracement, so we could be looking at more
weakness heading into the weekend.  The catalyst for Thursday's
drop in price was the earnings warning from CHKP, which happens
to be in the same line of business.  So ISSX's drop was due to
its connection to CHKP, not anything directly related to the
company.  But with CHKP warning, don't you think odds favor a
similar confession from ISSX?  Use failed rallies to initiate
new positions ahead of the next leg down.  Intraday resistance
is now looming at $22 and then $22.75.  Should the bulls manage
to stage a decent rally through the $23 level, we'll want to move
to the sidelines.  So ratchet stops down to $23 tonight.

TMPW $32.03 -1.04 (-2.44) Just 2 short days ago, it seemed that
our TMPW play was never going to get moving, but Wednesday's
brief dip below the $32 level gave us new hope.  That was the
chink in the bulls armor that we were looking for and the bears
came out with claws extended again on Thursday to test that level
of support.  While it hasn't completely given way, it is certainly
weakening, with the pattern of lower highs and lower lows
continuing.  A short-term bounce back to the $33 level looks good
for fresh entries as TMPW rolls over again.  Traders looking to
trade the breakdown will want to enter new positions as the stock
breaks Thursday's intraday lows and falls below $31.  We are
lowering our stop tonight to $34.

VRSN $24.20 –1.57 (-2.80) Like the rest of the Internet Security
stocks, VRSN got hit by the bears on Thursday in the wake of
CHKP's earnings warning, as investors confronted the reality that
other stocks in the sector may be having trouble meeting their
numbers.  VRSN gapped lower this morning, taking out the $25
support level and fell all the way to $23.50 before finding any
support.  While there was a bit of a bounce going into the close,
there certainly wasn't any bullish conviction as the stock
finished near the lower end of the day's range.  We can now look
at a failed rally near the $25 level an attractive point for
initiating new positions in advance of the stock moving to new
lows.  Support is currently waiting near the $22 level, but with
the deteriorating picture in this sector, we don't expect it to
hold.  Tonight we're lowering our stop to $26, prior support
which now looks like resistance.


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

RETK - Retek $23.16 -0.41 (-3.09 this week)

Retek Inc. provides advanced application software to help
retailers create, manage and fulfill consumer demand. The
Company's software solutions enable retailers to use the
Internet to communicate and collaborate efficiently with
their suppliers, distributors, wholesalers, logistics
providers, brokers, transportation companies, consolidators
and manufacturers.

The sentiment in the software sector has shifted to decidedly
bearish this week.  That much could be seen by the under
performance of the Software Sector Index (GSO.X) in today's
session.  The bearish ball got rolling when Oracle warned
yet again several weeks ago.  Earlier this week, PeopleSoft
did the same.  And then last night Compuware disappointed.
Checkpoint topped it off with a lower profit outlook today.
The building bearish momentum pressured the GSO.X lower by
2.82% in today's session while the broader market measures
finished fractionally positive.  The weakness in the software
group has us turning our attention to RETK, which broke down
earlier this week and seems to be gaining momentum to the
downside.  Volume has seen a significant spike in the last
few days as the stock has continued lower.  Late in today's
session, we saw a small short covering rally across the
broader technology space that carried RETK higher into the
close.  Hopefully we'll see the stock continue to rally up
to resistance into tomorrow's session which would allow for a
solid entry point into this weak software stock.  A rally up
to and rollover from the $25 level could serve as a solid
entry point.  If the stock continues higher on additional
short covering, look for a rollover from the $25 level.  Our
stop is in place at the $26 level, which is the site of the
stock's descending 10-dma.  To the downside, traders can
use a breakdown below the $22 level on heavy volume to enter
put plays.

BUY PUT APR-25*QRD-PE OI=2315 at $2.75 SL=1.75
BUY PUT APR-22 QRD-PX OI=  88 at $1.15 SL=0.50

Average Daily Volume = 1.17 mln


SGP – Schering-Plough Corp. $29.25 –1.52 (-2.05 this week)

Schering-Plough is a holding company that, through its
subsidiaries, is engaged in the discovery, development,
manufacturing and marketing of pharmaceutical products
worldwide.  The company has three principal product lines;
prescription products, animal health products, and over the
counter (OTC) health care products.  At the head of SGP's
prescription drug roster is Claritin, the world's top
antihistamine.  The company's OTC brand names include Afrin
(nasal sprays), Dr. Scholl's (foot care), and Coppertone and
Bain de Soleil (sun care).

There has been a seemingly-endless onslaught on the share prices
of the big Drug companies lately, and on Thursday, the
Pharmaceutical index (DRG.X) broke to a new 6-month low.  So much
for the Drug sector being defensive!  Leading the hit parade of
problem companies reporting problems in recent weeks has been BMY,
but this week has not been kind to shares of SGP either.
Beginning with Friday's admission of subpoenas being received
with respect to pricing, SGP was then hit with allegations that
the criminal arm of the FDA was investigating a potential conflict
of interest related to the firm's Clarinex allergy drug.  Although
the allegations have been denied, that hasn't stopped investors
from dumping the stock in large volumes.  The sharp declines on
both Tuesday and Thursday came on volumes approaching double the
ADV and now the stock has solidly broken the $30 support level for
the first time since late 1997.  Now that definitely isn't a
pretty picture!  This looks like a decline that has room to go,
especially with another double-bottom breakdown on the PnF chart.
We want to target new positions on a failed rally at either the
$30 or $31 levels, or else a continued slide below the $28.75
level.  Note that the stock has been unable to crest its 10-dma
(currently $30.80) since crashing through it in early March, and
a rollover near this level would also make for a solid entry.
Given the heavy selling volume recently, we can play with a fairly
tight stop at $31.50.  SGP announces earnings the morning of April
18th, so we've got exactly 2 weeks to play.

BUY PUT APR-32 SGP-PZ OI=2518 at $3.50 SL=1.75
BUY PUT APR-30*SGP-PF OI=5964 at $1.40 SL=0.75
BUY PUT APR-27 SGP-PY OI= 213 at $0.35 SL=0.00

Average Daily Volume = 6.90 mln



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

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

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


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

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


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

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

Contact Support
The Option Investor Newsletter                 Thursday 04-04-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.



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

CDWC - CDW Computers $49.89 +1.63 (-0.45 this week)

CDW Computer Centers, Inc. is a direct marketer of microcomputer
products, primarily to business, government, educational,
institutional and home office users in the United States. The
Company sells a broad range of multi-brand microcomputer products,
including hardware and peripherals, software, networking and
communication products and accessories through knowledgeable sales
account managers. 

Most Recent Update

Dell's reaffirmation of previous guidance after the bell yesterday
inspired the bulls to carry CDWC higher in today's session.  Or
maybe Dell inspired the bears to cover their shorts in today's
trading.  One can't say for sure, but the tepid trading activity
in today's session sure does seem to reveal that today's 3.37%
rally was based on short covering.  The lack of serious buying
interest should lead to another rollover in the coming days
if the technology sector of the market weakens.  Today's
rally took CDWC back up to the upper end of its short term
descending channel, which has formed a short term low at the
$48 level.  Entries can be taken early tomorrow near current
levels or slightly above the $50 mark.  Such entries can be
managed with a tight stop at our coverage level of $51.  From
there we'll look for CDWC to retest its support at $48 and
ultimately breakdown.

Comments

Given the weak volume during today's rally, CDWC is suspect
to further downside.  A rollover seems likely in the coming
days.  Look for sentiment to reverse in the PC sector tomorrow
by monitoring Dell, Intel, and Microsoft.  Weakness in the
big three should spread to CDWC.  Watch for a rollover near
the resistance line near $50.

BUY PUT APR-50*DWQ-PJ OI=1897 at $2.35 SL=1.00
BUY PUT APR-45 DWQ-PI OI= 576 at $0.80 SL=0.50

Average Daily Volume = 1.13 mln



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

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

Do You Have Trader Status, Part III?
Buzz Lynn
buzz@OptionInvestor.com

We interrupt this timely interview with traders' accounting expert 
Jim Crimmons, so that we can bring you the latest news.  It has 
come to our attention that more than a few would rather spend a 
few moments on accounting basics before we move on to completion 
of our "interview" with Jim Crimmons.  

The question continues to arise for those new to trading as to how 
to find the right person to handle these taxing situations 
(unintended, but bad pun - sorry).  Why have a CPA and not just a 
bookkeeper?  (Fundamentals Guy smart-alecky answer: To bring in an 
expert at the end to share in the blame)  Might a tax attorney be 
better?  What about "enrolled agents" (EA) like H&R Block?  Or, 
the now famous, "I don't even know the right questions to ask - 
HELP!"

We posed the questions to Gary Young, a CPA and fellow trader/OIN 
reader.  Let's go live to the scene to make some sense of it all.  
Gary, give us the basics on what you know that might be helpful to 
those staring with glazed eyes at the IRS truck headed straight 
for them.  So, Gary - how do we find a knowledgeable person to 
help us with our taxes?

Gary: As a practicing C.P.A., I am constantly asked how people can 
find a good tax advisor in their area. The answer is both 
complicated and simple. However, it will be necessary to give you 
a little background information.

The three most commonly known types of tax advisors are C.P.A.’s 
(Certified Public Accountant), Tax attorneys and E.A’s.  In my 
opinion, the difference in their tax advisor abilities cannot be 
readily identified by their titles.  There are other designations 
but in the interest of brevity I will only included these three as 
examples.

A C.P.A. is an accountant whose title or license entitles the 
practitioner to issue an “Opinion” on a set of financial 
statements as to their completeness and accuracy.  You may realize 
that all publicly traded companies issue financial statements with 
a C.P.A’s Opinion attached.  A C.P.A. may or may not practice in 
the tax area at all.  The primary reason for the designation 
C.P.A. is to show that an individual has knowledge and expertise 
in financial statement preparation, only.

A Tax attorney is an individual who is allowed to represent a 
client in a court of law (including tax court).  Their primary 
expertise is the knowledge and understanding of court procedures 
and the ability to interpret laws and regulations.  They may or 
may not even prepare tax returns.  I personally know an excellent 
tax litigator who hasn’t prepared a tax return in years.  But 
believe me he is very effective in the courtroom.

An E.A. (Enrolled Agent) is an individual who is specifically 
authorized by the I.R.S. to prepare tax returns.  They do not 
issue opinions on financial statements and they generally cannot 
represent you in court.  Of the three, this designation is the 
only one that focuses almost exclusively on taxes.

Each of these three designations have extensive education and 
testing requirements and all three can and do in most cases 
prepare tax returns and advise clients on tax matters and 
strategies. (Please note that this information is a very 
simplified description of each designation).

If you need audited financial statements as well as a tax return, 
you may choose a C.P.A.   If you feel you may have committed an 
illegal act or you feel your tax position may be litigated you may 
want a tax attorney.  If neither of these situations applies to 
you, you could choose from any of the above designations and do 
very well.  However, that really doesn’t help you decide which is 
better if your needs don’t include these two issues.  

It also never hurts if your advisor has more skills than you 
currently need, as your relationship can grow without the need for 
a new advisor. I also don’t want you to just rely on 
recommendations from friends based on how big of a refund they got 
or how cheap their return was.  Neither of these two conditions 
really indicates how good a tax advisor really is.  

For example, most of my clients love getting big refunds, however, 
I tell my clients that they have effectively made a zero interest 
loan to the government and should consider better planning in the 
future to reduce the excess payments made during the year and they 
could possibly use those funds for other purposes.  (Like making 
or keeping more money through investments, paying down non-tax-
deductible debts, etc.)

The two most important factors I would use to pick a tax advisor 
would be the ability to communicate well with your advisor and the 
level of experience how much experience does your potential 
advisor have dealing with your kind of tax transactions.

You should consider interviewing at least three advisors.  You may 
even pick some out of the phone book, ask your friends, or respond 
to ads.  Again your needs really should help you narrow down the 
field quickly.  You should also do this during the period from say 
the end of April to late October as this is when they have the 
ability to spend as much time as needed discussing your situation 
and needs and still have enough time to help you with any planning 
decisions before the end of the year.

Me:  So this means it's probably too late right now to find a 
suitable tax advisor for the 2001 tax year unless you can cause an 
extension to be filed.  That would give us a few months after 
April 15 to diligently do our search for an acceptable advisor.  
With time then our side, what questions do we ask in separating 
wheat from chafe?

Gary:  Questions you need to ask are:  What type of practice does 
the practitioner have?  Where does he/she spend most of their 
time?  What kind of client base does he/she have?  Is their 
business open all year long or only during tax season?  Is the 
practitioner familiar with the wash sale rules, section 1256 
transactions, and business entity selection, etc? (There are 
literally hundreds of potential questions you could ask.  Some 
other examples would be, questions about retirement plans, payroll 
taxes and use of family members as employee’s and business use of 
the home and on and on).  Ask questions that are relevant to you.

How do you know if the person you interview is actually 
knowledgeable?  Like Buzz has said in a few of the tax related 
articles he has recently written, YOU need to educate yourself 
first.  At least to the point of having a basic understanding of 
the types of transactions you make and any potential tax issues 
related to those transactions.

You also need to consider how much time the tax advisor is willing 
to spend with you.  You shouldn’t feel rushed or feel you were 
treated like you were stupid or you were wasting their time.  If 
the tax advisor is really good, but really doesn’t have the time 
to work with you, find another.  If you don’t feel good about your 
interview, keep looking.

Me:  OK, suppose I find someone that sounds good, that I think I 
like, and that can probably do the job.  But I don’t want to get 
stuck with a good talker and lousy performer.  Any advice there 
before we wrap it up?

Gary:  Yes, the last test I recommend is to have at least two 
finalists, prepare your return.  This will really give you the 
ability to compare their services even though you will pay a 
little more.  If your volume of transactions and the complexity of 
those transactions warrant the extra fee, you may find a real 
talented and knowledgeable individual by comparing the actual work 
done.

Me:  Great!  Thanks, Gary.  We really appreciate you taking a few 
minutes to give us these helpful hints on the very basics of 
selecting a good tax advisor.  For those that don't know him, Gary 
has generously offered to answer a limited number of questions as 
time permits.  This is tax season after all!  If you have tax-
related questions, send them in to me with "For Gary" in the 
subject line.  While we can't get to all of them, I will forward 
the most interesting and helpful ones to Gary for answer in a 
later column.  Our thanks again to Gary Young for his contribution 
to this news flash.

Until next week when we'll pick up again with Jim Crimmons, this 
has been Fundamentals Guy at the Numbers Junkie desk of Dewey, 
Tradem, and Howe.  Good Day!


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

“7 Steps to Success – Trading Options Online”.  

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

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


************
MARKET WATCH
************

With several plays triggered this week, we're adding two more 
explosive ideas tonight.  Both are bullish.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/040402.asp


**************
MARKET POSTURE
**************

Two major breakdowns occurred in the major market averages.  Several 
sectors were on the move also.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/040402_1.asp


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

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


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

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

Contact Support

DISCLAIMER

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

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

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

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives