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Daily Newsletter, Thursday, 04/18/2002

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The Option Investor Newsletter                Thursday 04-18-2002
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)
************************************************************ 
        4-18-2002           High     Low     Volume Advance/Decline
DJIA  10,205.28  - 15.50 10,258.84 10057.00 1.6 bln   1513/1805
NASDAQ   1802.43 -  8.24  1818.79  1778.10  1.8 bln   1538/1621
S&P 100   559.36 -  0.37   562.34   550.9997 Totals   3051/3426
S&P 500  1124.47 -  1.60  1130.48  1124.47
RUS 2000  518.57 -  0.20   519.56   513.78
DJ TRANS 2799.21 - 49.10  2852.06  2799.21
VIX        21.31 +  1.13    22.34    20.46
VXN        39.34 +  0.05    40.86    38.82
TRIN        1.15
CBOE Put/Call Ratio: .97
************************************************************
WHIPPY
by Leigh Stevens

Whip-saw action mid-morning was the story of the day in terms of 
price action. A sharp intraday market drop occurred in a buying 
vacuum as bids evaporated on the story of a plane crashing into 
the tallest office building in Milan. No world trade center, at 
only 30 stories high, it nevertheless created a drop like a 
kamikaze dive and the snap back was enough to give you whiplash. 
The act turned out not to be terrorism, but only a tragic 
accident.    

The Dow and the overall market began today on a weak note 
influenced by follow through selling that showed up in Boeing 
(BA), down 3.7%, continuing yesterday's weakness stemming from 
the company's weak earnings report.  (Sell offs in Honeywell, 
(HON) off 5% and United Technologies (UTX) down 3.7%, also 
contributed to Dow and S&P index weakness.) Considerable early 
notice also went to the sharp London sell off in Nokia (NOK), 
down 10% there, after the company sharply lowered its estimates 
of its handset sales this year by 20 million. 

NOK stated that its full year sales growth of 15 percent would be 
slashed to an estimate of around 5 percent. If we needed any 
reminder that the global economy remains very moribund, we got it 
in Nokia and Boeing's businesses. Also, as if we needed any 
reminder, most every market rally is predictably followed by a 
sharp downdraft.  

Advanced Micro Devices (AMD), a key chip-maker, was another dead 
weight on the market, after reporting a loss and guiding the 
estimates of second quarter sales lower as they are now 
estimating a sales decline off 5-10 percent from the previous 
quarter. The Semiconductor (SOX) index was down 3 percent on the 
day, but this came after a very strong rise on Tuesday. The 
Wireless Telecom sector ($YLS.X) was also down 3 percent.

On the upside, McDonald's (MCD) up 5%, IBM gaining nearly 5%, and 
American Express (AXP) with its profit jumping 15% -- stock was 
up 3%, would have supplied some lift and an even an up day, 
without the drag of the losers. 

Other than these Dow rebounders, money managers also stashed some 
money in the defensive type stocks like Pharmaceuticals, 
Healthcare and Utilities.    

AFTER HOURS EARNINGS REPORTS - 

Microsoft was disappointing (off a few dollars in after hours 
trading on heavy trading). Microsoft fell short of per-share 
estimates by 2 cents. Sun Microsystems was OK, with a net loss of 
a penny, reporting a narrower-than-expected loss for their 
quarter, after a 24% dip in revenue.  Compaq reported a small 
first quarter profit despite revenue being off. It did match its 
guidance of last week.  

What does it all mean?   

Investors are and will be, quite nervous, until an improving 
earnings trend is seen over next quarter or two. This is fairly 
typical of a market that is moving from a full-blown bear to one 
that I would best characterize as a transitional one, or as a 
trading range market -- rather than a bull market, even an 
emerging one.  We could talk about an emerging bull market by the 
fall perhaps.  Meanwhile the key market averages will continue to 
whip back and forth or meander.  However this meandering does 
create a trading range, that is wide enough for index and stock 
options plays.

Fundamentally, there is a twist on buying the rumor selling the 
fact.  There tends to be a lift in the market when we get through 
half or more of the earnings reports.  At some point there is not 
enough further bad news to drive down the overall market anymore 
and money managers feel they should put some more money to work 
in the market as does the investing public.  In other words, hope 
for an accelerating recovery takes over.  If we continue to get 
even minor positives in the economy per the economic reports, 
this alone will tend to lift an oversold market.    


Possible trading ranges ahead look like:

S&P 500: 1100-1175. Short-term: 1120-1150  
S&P 100: 545-600; Short-term: 555-570
DOW: 10,000 - 10,600; Short-term: 10,100-10,400
Nasdaq 100: 1330 - 1700; Short-term: 1330 - 1500


TWO CHARTS WORTH WATCHING -
 
S&P 500(SPX) Daily Chart - 


 


The key factors here, technically, on the S&P 500 (SPX) daily 
chart is the probable up trendline that now has 3 key points of 
intersection, given the recent lows. I think the formation of 
this pattern of higher downswing lows suggests that the price 
trend is up, maybe not strongly, but up nevertheless. And, that 
the decline dating from the mid-March peak has run its course 
suggesting to me, that we are not likely to see lower lows, under 
1100. Of course any 1-2 day close under this key area, would 
seriously dent this bullish technical outlook.  The daily 
stochastic is showing upward momentum, which is a related 
positive.

Nasdaq Composite (COMP) Daily Chart -


 

I think it is likely, technically, that we have put in a double 
bottom given recent lows forming right in the area of the late-
Feb/early-March bottom.  The other technical positive here is 
that RSI, on a 14-day basis, made a higher relative low than at 
that earlier bottom. I find that these bullish type divergences, 
is a good related sign for an upside reversal.    

STRATEGY -

1. Play stocks in the strong sectors -
I emphasize looking at calls (out to May or June, or to Sept.), 
with candidates drawn from stocks in the strong sectors, buying 
pullbacks.  Example sectors would include healthcare, oil 
services, financials like select insurance stocks (e.g., 
Hartford), forest and paper products. 

There are also plays to be made in oversold sectors that appear 
due for a bounce. Recently, I have been highlighting 
representative option plays on stocks in sectors that look like 
they are due for a decent trading bounce (in Sector Trader). 

Of course shorting opportunities and put plays abound, more than 
enough are presented every week by our team of advisors. For 
example, I'll suggest in Sector Trader tonight to buy the Gold 
and Silver Index ($XAU.X) puts (again) as this index appears to 
have failed or reversed from the area of a prior top; i.e., 
making a double top. Gold futures price activity, topping out 
repeatedly in the $307-309 area, is indicating that bullion 
prices may now be at the top end of a trading range.  I have yet 
to see gold sustain prices over $300 without some driving 
economic influence, besides political unrest, especially 
inflation. 

2. Play the Index options - 
I suggest buying the indexes calls near-term on pullbacks, as it 
appears that the market is stabilizing around recent lows and 
pullbacks like today offer an entry opportunity for what will 
probably be a moderate rebound but with enough upside to make 
this strategy worthwhile from a risk to reward standpoint. 

The view to take to the long side ahead is borne out by what I am 
seeing in the market "internals" like the improving advance-
decline figures and the increase in stocks making new 52-week 
highs. These factors, along with technical factors, like possible 
double bottoms in OEX and NDX and the oversold condition 
suggested by oscillator type indicators, also favor some further 
upside.  

Leigh Stevens
Chief Market Strategist
LStevens@OptionInvestor.com


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

BLINK OF AN EYE  
by Leigh Stevens

No more "orderly" quiet pullback!  Price action on the Indexes 
today was a real whip-saw and the intraday lows were made in 
the "blink of an eye" it seemed. However, for the most part the 
indexes rebounded from the support areas I identified last night 
in the Index wrap, based on what the hourly charts read. 

For example, my 4/17 Index Trader write up on the Dow (INDU) 
contained this projection:
"I lean to covering DJX puts and buying calls when both the 
hourly stochastic gets into an oversold area again at one of the 
better support areas, like around 10,100-10,150." 

I went on to say that next lower support was "10,100-10,080". 
Today Dow low was 10,057 or, basis the (1/100) INDU used for the 
DJX options, 100.57. The Dow got down to my lower support area, 
although at the time, the hourly oscillator I've been using was 
not yet registering in the fully oversold area. I would like to 
see this get fully oversold again too.  

Knee-jerk reactions to wild news stories, such as the situation 
today on the sharp sell off on the news off due to the plane 
flying into that Milan office building, can create opportunities 
but trade orders often have to be in beforehand to get in while 
the getting is good. Tough to do! 

In index options trading it’s much more tough - if you see 
something as fast and wild as today, by time the signal goes to 
your brain and you think about for even a moment, it can be too 
late already -- try to chase the rebound -- the market makers 
will jack the premiums up much faster than the blink of an eye. 
This is why I always try to anticipate levels to buy or sell. 

A useful aspect, and why I use the envelope levels I show on the 
daily Index charts from time to time, is that it gives an idea of 
price areas from which there is potential for an upside or 
downside reversal. The hourly chart trend channel lines tend to 
highlight potential reversal areas also.  Price patterns can do 
this too.  If I put together a few of these things, it helps 
provide the confidence to put in orders ahead of time -- on the 
options, unlike futures, I also need to accurately figure the  
equivalent price level on the option I'm using, relative to the 
index. 

Of course, per the daily DJX chart shown below, the lower 
envelope line in a downtrend may end up just defining where 
intraday lows will tend to form on the way down, in a continuing 
downtrend. This tendency is apparent in the last couple of weeks 
in the Dow. So, sometimes that lower band defines a reversal 
area, sometimes not. Once there is a rally from the lower band, 
the key test is then whether the index can also pierce the middle 
moving average, or the center line. It's not happened yet.  

Since I am going on about this, it's also not enough to see just 
a 1-time rally through the average. Subsequent dips need to 
bounce off this area. Resistance, once broken, should "become" 
support -- at least this is the way good rallies will tend to 
unfold. So, for example, if there is one close above this level 
like with the Composite the other day and the index falls back 
below it the next day, this is a pattern failure.  

To keep some numbers in mind, I anticipate further upside if we 
get a close, with ability to hold the level on a subsequent 
pullback, above the following levels:

Key resistance levels
SPX: 1130
OEX: 567
DJX: 103.0
COMP: 1803(vs. today's close at 1802.4)
NDX: 1408
QQQ: 35
    

THE CHART PARADE  -    
 

Dow (DJX) Daily chart: 


 


DJX Hourly chart: 


 


The hourly channel and resistance implied by prior upswing highs 
has been working well as an area to sell the DJX -- resistance is 
in the 103 area, where I would be a seller.  A close over 103.25 
starts to worry me about possible further upside.  

On balance, especially given the longer-term viewpoint I present 
in the Option Investor wrap up tonight, I favor call purchases 
ahead, if the index gets near 100 again. That would put the index 
down toward the low end of the channel. Support is between 100.5 
and 100. A close below 99 would suggest an exit.  

S&P 500 (SPX) Hourly chart: 


 

I suggested last night that near support was seen at 1118, then 
extending down to 1110 area.  We got the PRICE (SPX low: 1109.29) 
today, but the S&P was not yet registering oversold at the time. 
Oversold levels again would be a plus before looking to play the 
calls. 

Except for the one hourly spike down, the index is hugging the 
top end of the channel -- what was resistance has become support, 
on balance.  I take this a bullish positive for now. 


I suggest call purchases on dips into the 1110-1115 area, with an 
objective for a move back up to the 1130 resistance.  I think we 
will continue to see two sided trading swings. Buy puts on an 
approach to the 1130 area, with tight stops but watch for a close 
over this level, as this would be bullish move.  Not that I would 
chase such a rally looking to buy on the upswing, as there has 
not been upside follow through to these rallies. I would rather 
see where prices go to and look to play the downside again. 

An approach to 1150, would be the area to take profits for anyone 
staying long.           

S&P 100 (OEX) hourly chart:


 


OEX low turned out to be above the lower support area I saw as in 
547-548 area. Low was 550.97.  Of course, that low was made in 
the blink of an eye. Again, would buy a dip that got the index 
into an oversold area again.  If that occurred with OEX in the 
555-550 area I favor buying the OEX calls.  Buy puts in the 565-
570 area.    
 
QQQ: 

I was looking at 34.40-33.90 as a likely support. Low today in 
the Q's was 34.00. The sharp dip today took prices back into the 
upside price gap of the other day and it nearly got "filled in" 
today. I think we will see another shot down in the Q's. I would 
be a buyer on a successful test of 33 again, especially if the 
hourly oscillator gets oversold again. For that I use a setting 
of 21 for length. I suggest selling in the 35.5-36.0 area.    

Long/Call Positions:
Long QQQ at 34.30 
Stop: 32.50.  
Objective: 38.00  


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

It's Tough Out There
By Eric Utley

News reports of a plane crashing into a building sent the buyers
into hiding Thursday.  But they re-emerged later in the day to
repair much of the earlier damage.  If nothing else, Thursday's
tape reinforced that there's a new element of risk at play in the
stock market.

Away from stocks, Treasuries opened weaker Thursday morning, but
saw a rush of defensive posturing following the reports from
Italy.  But the rally in Treasuries faded as the day wore on
and fears subsided.  Still, Treasuries finished higher for the
day.  Across the curve, buying was most concentrated in the
shorter-end.  Shorter maturities obviously carry less risk, so
the aggressive buying of the 13-Week, for example, isn't positive
for stocks.  The 13-Week Yield (IRX.X) finished at 1.670%.  The
benchmark 10-Year Yield (TNX.X) close at 5.215%.

The same defensive buying that was taking place in Treasuries
drove the Gold and Silver Index (XAU.X) to a new yearly high,
just shy of the 74 mark.  But buying that move proved a mistake
as the XAU.X staged a sharp reversal into the close of trading.
The XAU.X finished 2.29 percent lower on the day.

The most important development over that last two sessions was
the Nasdaq-100 Bullish Percent ($BPNDX) reversal into Bull
Confirmed in Wednesday's session.  What I found completely
perplexing is the level from which the $BPNDX reversed.  It
traded down into the February bottom, maintaining the pseudo
bullish support line in the indicator.  Support lines for the
bullish percent charts just don't make sense, but apparently
that didn't stop some big money folks from brining in some
shorts over the last two days.

To digress, the Nasdaq-100's (NDX.X) reversal into bull
confirmed in February led to a six day rally of about 8
percent.  It remains to be seen if there's a repeat performance,
but it should be dually noted that the rally in February
failed.

The way I'm playing the $BPNDX bull confirmed status is through
very selective bearish positions, only those that offer very
good downside with small upside risk.  I'm also getting slightly
more aggressive with bullish plays, particularly NDX type stocks
in upward trends near support.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10205

Moving Averages:
(Simple)

 10-dma: 10230
 50-dma: 10242
200-dma:  9947



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1124

Moving Averages:
(Simple)

 10-dma: 1119
 50-dma: 1128
200-dma: 1134



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1396

Moving Averages:
(Simple)

 10-dma: 1372
 50-dma: 1436
200-dma: 1509



Biotechnology ($BTK)

The BTK earned the day's best performing sector spot Thursday.
It gained 2.43 percent on the day, narrowly outpacing the 2.04
percent pop in the HMO Index (HMO.X) -- what a run in that group!

Sector leaders included Andrx (NASDAQ:ADRX), Protein Design
Labs (NASDAQ:PDLI), Enzon (NASDAQ:ENZN), and MedImmune
(NASDAQ:MEDI).

52-week High: 676
52-week Low : 411
Current     : 491

Moving Averages:
(Simple)

 10-dma: 471
 50-dma: 496
200-dma: 525


Wireless ($YLS)

The YLS returned to the day's worst performing sector Thursday,
when the index shed 3.19 percent.  The gorilla of handset makers
in Nokia (NYSE:NOK) lowered its forecast.  Incidentally, Nokia
was the worst performing component of the sector, losing 12.26
percent on the day.

Other notable movers included Nextel (NASDAQ:NXTL), Ericsson
(NASDAQ:ERICY), AT&T Wireless (NYSE:AWE), and Vodafone (NYSE:VOD).

52-week High: 131
52-week Low :  61
Current     :  69

Moving Averages:
(Simple)

 10-dma: 67
 50-dma: 70
200-dma: 89

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

Market Volatility

The VIX spiked intraday on the news of a plane hitting a building
in Milan.  Curiously, the VIX spiked to its 50-dma, from where it
rolled over.

The VXN finished fractionally higher on the fractional weakness in
the Nasdaq-100 (NDX.X).  The VXN is having trouble sticking above
the 40.00 level, which is a short-term benchmark of mine.

CBOE Market Volatility Index (VIX) - 21.31 +1.13
Nasdaq-100 Volatility Index  (VXN) - 39.38 +0.09

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.97        676,625       653,163
Equity Only    0.81        528,825       430,708
OEX            1.37         30,546        41,808
QQQ            1.75         27,640        48,441
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          66      + 0     Bull Confirmed
NASDAQ-100    43      + 3     Bull Confirmed
DOW           57      - 7     Bear Alert
S&P 500       71      + 0     Bull Confirmed
S&P 100       66      - 2     Bear Alert

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  0.95
10-Day Arms Index  1.33
21-Day Arms Index  1.31
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      1540           1566
NASDAQ    1823           1652

        New Highs      New Lows
NYSE      179             19
NASDAQ    213             32

        Volume (in millions)
NYSE     1,367
NASDAQ   1,622

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

Commitments Of Traders Report: 04/09/02

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' net bearish position dropped by about 2,500
contracts during the most recent reporting period.  But the
group remained decidedly bearish.  Even more disconcerting
for the bulls was the revelation that the spread between
commercials and small traders remained near a one-year high.
Small traders grew slightly less bullish, but not by a lot.
The group only reduced its net bullish position by about
3,000 contracts.

Commercials   Long      Short      Net     % Of OI 
03/26/02      317,671   410,186   (92,515)  (12.7%)
04/02/02      313,294   406,337   (93,403)  (13.0%)
04/09/02      320,101   411,075   (90,974)  (12.4%)

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
03/26/02      148,111     40,409  107,702     57.1%
04/02/02      149,449     43,139  106,310     55.2%
04/09/02      151,237     47,678  103,559     52.1%

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

Nasdaq commercials grew slightly more bearish last week.  The
group added about 600 contracts to their net bearish position.
Small traders went the other direction by adding to their net
bullish position.  The position gained about 600 contracts.

Commercials   Long      Short      Net     % of OI 
03/26/02       25,275     33,880    (8,605)  (14.5%)
04/02/02       26,211     31,840    (5,629)   (9.7%)
04/09/02       28,985     35,221    (6,236)   (9.7%)

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
03/26/02       12,760     6,264     6,496     34.1% 
04/02/02       10,615     7,769     2,846     15.5%
04/09/02       11,640     8,353     3,287     16.4%

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

Dow commercials reduced their net bullish position by a small
amount during the most recent reporting period.  They did it
through adding more short than long positions.  Meanwhile,
small traders remained relatively flat.

Commercials   Long      Short      Net     % of OI
03/26/02       17,973    12,539    5,434     17.8% 
04/02/02       18,717    12,549    6,168     19.7%
04/09/02       19,393    13,445    5,948     16.7%

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
03/26/02        5,818     9,308    (3,490)   (23.1%) 
04/02/02        5,192     9,007    (3,815)   (26.9%)
04/09/02        5,459     9,340    (3,881)   (26.2%)

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

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


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

THE SECTOR BEAT - 4/18
by Leigh Stevens

As per the Option Investor wrap up tonight, a core strategy is to 
look at call purchases (going out to May or June, or to Sept.), 
with stocks in the strong sectors, buying pullbacks.  Strong 
uptrends are especially apparent in healthcare, oil services, some 
of the financials like select insurance stocks (e.g.,Hartford), 
and forest and paper products. 

There is also a different strategy involved in some of my recent 
play suggestions, by looking at sectors in a decline, but oversold 
or near a lower support trendline, that appear due for a bounce. I 
have been highlighting representative option plays on stocks in 
sectors that look like they are due for a decent trading bounce 
such as the Telecom, Internet and Airlines sectors as described in 
the trade suggestion recap below. 


NEW TRADE PLAYS and GUIDELINES:

I am repeating a recommendation to buy the Gold and Silver Index 
($XAU.X) puts, from a higher level in XAU.  The index now appears 
to have failed or reversed from the area of a prior top, making a 
double top -- this same reversal area is from the resistance trend 
line shown in the chart. 

I suggest buying the May 65 Puts (XAU QM), which closed tonight at 
1.10. I suggest this price in this Put, or cheaper, as an entry.  
As with the earlier recommendation, I suggest exiting if the XAU 
goes to a new closing high above 72.33. 


 

As I said in the Option Investor wrap up tonight, gold futures 
have been topping out repeatedly in the $307-309 area, suggesting 
that bullion prices may now be at the top end of a trading range.  
I have yet to see gold sustain prices over $300 without some 
driving economic influence, besides political unrest, especially 
inflation.  My downside objective is for a decline back to the 60 
area, which is noted as the dashed level line on the chart. This 
is where I see technical support and where, on a fundamental basis 
reflects an area where gold is more realistically priced.  Of 
course, the wild card for higher gold prices is worsening problems 
in the Middle East, especially if oil prices shot up dramatically, 
say to above $30.    


LONG/CALL TRADES, PREVIOUSLY RECOMMENDED:

>> Internet Sector index ($INX.X) - 4/17 Sector Trader suggestion:
OPTION play: $INX sector stock, JNPR (Juniper Networks)
Buying the May 15 Call (JUX EC) at 4/18 opening was suggested.  
4/18 open: .35; JNPR objective: to $18

>> Telecom ($XTC.X) index - 4/15 Sector Trader suggestion:
OPTION play: Sector stock, Level 3 Communications (LVLT)-
1)June 5 Call (HGY FA) suggested: 4/16 open: .60
2)LVLT outright purchase, with stock under $5, also suggested: 
4/6 open: 4.16; Objective on LVLT stock: to 5.5/6.

>> Semiconductor Index ($SOX.X) - 4/15 Sector Trader suggestion:
Most active OTM May 650 calls (SOW EJ): 4/16 opening: 14.30
NOTE: May 650 call closed at 4.60 on 4/12.
Individual Semiconductor stocks were a better play 

>> Cyclical sector ($CYC.X) - 4/15 Sector Trader suggestion:
1.) iShares Cyclical Trust (IYC)  - 4/16 open: 56.95
Objective: new high above 63.00
2.) OPTION play: CYC Sector stock, - Alcoa (AA) 
May 40 calls (AA EH) - 4/16 open: .60   

>> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion:
OPTION PLAY: XAL sector stock Southwest Airlines (LUV) 
Sept. 20 (LUV ID) call suggested - 4/16 open: 1.25  
OBJECTIVE: $22 near-term in the stock; $24, longer-term. 

>> Utilities Index - Holders trust shares (AMEX: UTH) 
Long at 95.25 
Stop: 91.00; Longer-term objective: 105 

OPEN SHORTS/PUT PLAYS:

>> RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 
Objective: 90; Stop: 102 
4/17 NOTE: This HOLDR still looks like it is forming a top

>> XAU (PHLX Gold & Silver Index)
Bought May 65 puts at 1.80; also, recommended May 60 Puts  
STOP: Exit puts if XAU moves to new closing high above 72.33
Objective: XAU to 60.50, where it has support

LIQUIDATIONS:

Short IYE (US Energy Index iShares) at 49.70
Stopped out at 50.00, for a .30 loss before commission


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.)   


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                 Thursday 04-18-2002
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:
*****

None


PUTS:
*****

SGP $30.54 +1.28 (+1.92) If you needed a reminder to not hold
over earnings, then SGP provided it this morning.  As we noted
over the weekend, all positions should have been closed by
yesterday afternoon to prevent being caught on the wrong side
of the trade should the market react positively to the company's
earnings.  SGP matched the consensus numbers and shot through
our $30 stop at the open before slowly grinding higher
throughout the day.  With earnings now out and the stock closing
above our stop, SGP clearly moves to the drop list tonight.


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

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

CALLS              Mon    Tue    Wed    Thu

AZO      75.34    0.74   1.10   1.24   2.09  Big breakout, success
TKTX     41.42   -1.92   1.31  -1.50   2.17  Back and forth, break
RYL      97.75   -0.95  -1.25  -0.35  -1.50  Pullback entry point
PNRA     67.56   -0.87   1.23  -2.06   0.66  Ready to rock at $70
GENZ     41.86    1.22   0.86  -2.24  -0.13  Buyers at $40.50 mark
TMX      39.80    0.62   1.31   0.44  -0.55  Ready to enter at $39
AET      42.55   -0.25   0.69   0.56   0.58  New, earnings runner
LH       98.40    1.20   0.23   0.67   1.75  New, momentum favorite

PUTS

SGP      30.54    0.59   0.64  -0.59   1.28  Dropped, stopped out
WPI      24.80   -0.03   0.55  -0.27   0.40  Tight stops to upside
OVER     23.96    0.40   0.18  -0.40   0.28  Ready to breakdown
JDEC     12.05   -1.70  -0.42  -0.50   0.29  Short covering, entry
MU       29.00   -0.36   1.41   0.13  -1.24  Ready to break at $28
IGT      54.00    1.45  -2.50  -0.20  -1.65  Nice move, exit point? 
MXIM     55.83    0.72   2.12   0.13  -1.10  Rolled at resistance
VRSN     24.84    0.58   0.55  -0.34  -1.27  New, heading to $20
EBAY     53.04    1.19   0.79  -1.15  -1.89  New, guided lower


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

TKTX $41.42 +2.17 (+0.06) The tension is building between the
bulls and bears.  The back and forth price action over the last
seven days should lead to a breakout in TKTX very soon.  The
stock continues attracting bids at its 10-dma, which now stands
around the $39.70 level.  Just below the moving average sits
the $39 level, where the buyers have been parked for the last
five days.  But to the upside, TKTX has been finding a lot
of congestion between the $41 and $41.60 levels.  A breakout
above that resistance zone in conjunction with strength in the
Biotechnology Sector Index (BTK.X) should carry TKTX higher
over the short term.  Those who favor trading momentum based
breakouts can look for such a move to develop in the short
term.  On the other hand, those who like to enter on weakness
ahead of a potential breakout can look for intraday weakness
down around the $39 mark for entry points.  There, bulls can
set a tight stop to manage risk in positions.  Make sure to
confirm sector sentiment in the BTK.X before entering new
positions.

PNRA $67.56 +0.66 (-1.05) PNRA's pullback in today's session
offered the entry point that we had been waiting for.  Granted,
it came a little lower than we had expected with the stop
falling below our coverage stop earlier today.  But the
extremely strong finish into the close of trading, back above
our stop and the 10-dma has us bullish on this stock over the
short term.  Bullish traders looking to gain new entries can
use further intraday weakness for call plays on pullbacks.
Ultimately, we're looking for a breakout above the $70 level
over the short term.  Such a move would be tradable, but the
upside from there might be limited versus entering on intraday
pullbacks, then looking to exit on a breakout above the $70
level up around $72 or $73.  Look for the $65 level to continue
attracting buyers on weakness.

TMX $39.80 -0.55 (+1.82) TMX pulled back on the weakness in the
broader markets today.  But the pullback wasn't all that
disconcerting.  We would actually like to see the stock slide
back a little further, removing some of the downside risk in
this strong telecom play.  Speaking of telecom, the North
American Telecom Index (XTC.X) finished 2.09% lower in today's
trading.  Meanwhile, TMX out performed by a small margin with
only a 1.36% loss.  This is why we're in this play, because of
its relative strength.  With some cooperation from the broader
telecom sector, we should see TMX continue marching higher.  But
over the very short term, look to get ready to bid this play on
a pullback down into the $38 to $39 area.  Confirm weaker than
normal volume on any weakness in price from here as profit taking
or a routine pullback.  Look for buyers to step in near the 10-dma
at $39.

AZO $75.34 +2.09 (+5.17) There haven't been a lot of tradable
breakouts in the market recently, but AZO certainly provides
proof that they still exist.  After clearing the $72 resistance
level on Tuesday, strong buying volume has come in, quickly
propelling the stock right through the $75 resistance level
today.  Given the fact that volume came in at nearly double the
ADV and the triple-top breakout on the PnF chart, it looks like
the stock has more room to run.  The vertical count on the PnF
chart gives us a price target of $86, and if achieved, will take
AZO to a new all-time high.  We want to watch for some profit
taking before adding new positions, with support likely to
present itself in the $73-74 area, resistance from last
December.  Provided AZO can push through the $76 area, the next
overhead resistance comes from the all-time highs near $80.
We're raising our stop to $71.50 tonight.

GENZ $41.86 -0.13 (-0.24) GENZ snuck a fast one by us yesterday,
by announcing earnings earlier than expected.  Missing estimates
by 2 cents sent the stock down as low as $40.45 on both of the
last 2 days, but given the stock's ability to repeatedly bounce
from this level, has us cautiously willing to keep the play
alive.  Note that both of the past 2 days, GENZ has been able to
close above our $41.50 stop level.  The other positive factor
prompting us to keep the play alive is the fact that the Biotech
sector (BTK.X) is looking healthier, pushing through its 20-dma
($488) on Thursday.  Use a rebound from the vicinity of the $41
level to initiate new positions, and lower stops to $40.50, as
that is clearly the important support level now.  Alternatively,
we can target new positions as GENZ pushes through the $42
intraday resistance level, but only if the BTK continues to rally.

RYL $97.75 -1.50 (-4.05) Back and forth goes the tug-of-war
between the bulls and bears in the Housing sector ($DJUSHB).
Shares of RYL have been outperforming the overall sector for the
past several months, and after pushing to a new all-time high
last week, a bit of profit-taking is to be expected.  But to keep
the play alive, the stock needs to hold above the $97 support
level.  The DJUSHB has been struggling to push back above the
$360 level for more than a week, but also holding above support
near $348, also the site of the 20-dma at $347.89.  In order for
RYL to advance and challenge last week's highs, we'll need to see
the DJUSHB heading north again.  Use an intraday bounce from the
$97 level to initiate new positions, or else wait for a
volume-backed move through the $102.50 resistance level (highs
from last week) before playing.  We are leaving our stop in place
at $96.75.


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

LH - Laboratory Corp. $98.40 +1.70 (+3.80 this week)

Laboratory Corporation of America Holdings (LCAH) is an
independent clinical laboratory company. Through a national
network of laboratories, LCAH offers more than 4,000 different
clinical laboratory tests, which are used by the medical
profession in routine testing, patient diagnosis, and in the
monitoring and treatment of disease. Since its founding in 1971,
the Company has grown into a network of 24 primary testing
facilities and approximately 1,200 service sites consisting of
branches, patient service centers and STAT laboratories, serving
clients in 50 states. 

90 percent of stocks that trade $90 go onto to hit $100.  The
century mark is approaching.  In addition to that technical
tidbit, investors have grown fond of healthcare stocks this year.
That's because of the relative quality and quantity of earnings
that the healthcare sector offers.  Just take a look at the HMO
Index (HMO.X) over the last few days.  It's gone parabolic.  Along
that thinking, we're taking a closer look at LH again.  The stock
is poised to blast through the $100 level in the very short term
which should entice a whole new bunch of momentum players into
this high priced stock.  But pricey it is not.  LH trades with a
P/E of 25 for this year.  Take that valuation into context with
this year's expected earnings growth north of 40 percent, and that's
the quality that investors are piling into with reckless abandon.
The move out of the short term base in today's trading on a spike
in volume versus the last few days could very well lead to the
ultimate momentum move above the $100 level.  We want to be there to
try the trade, but are willing to give some room to the downside
by setting a fairly liberal stop, because this stock could be a
big winner going into the summer months, when technology typically
stumbles.  Look for a move above today's intraday high as one
possible entry point.  Or, wait for intraday weakness down into the
$95 to $96 range.  We're setting our wide stop first at the $93
level.

BUY CALL MAY- 90 LH-ER OI= 177 at $9.70 SL=6.75 
BUY CALL MAY- 95*LH-ES OI=1556 at $5.50 SL=3.50 
BUY CALL MAY-100 LH-ET OI= 385 at $2.50 SL=1.25 
BUY CALL AUG-100 LH-HT OI= 312 at $5.90 SL=3.75 

Average Daily Volume = 627 K
 


AET - Aetna $43.13 +0.58 (+1.58 this week)

Aetna Inc., incorporated in December 1982, is a health benefits
company whose business operations are conducted in the Health
Care, Group Insurance and Large Case Pensions segments. On
December 13, 2000, the Company was spun off, with the remaining
entity merged into a subsidiary of ING Groep N.V. The Health
Care segment consists of health and dental benefit products
including health maintenance organization, point-of-service,
preferred provider organization and indemnity products, and
group insurance products including life, disability and long
term care insurance products.

We're turning to this medical insurance provider for an earnings
run.  While it may not sound sexy on the surface, the momentum in
this market is in health care.  These companies have the earnings
growth and positive outlooks to justify higher prices.  And
that's exactly what the managers of the major health insurance
providers have seen this year.  They've been scooping up shares
like mad, helping to propel the bullish momentum in the group.
We're using AET as a way to play the trend going into the
company's earnings report next week.  The company is expected to
show continued improvement in its financial performance.  AET
is expected to earn 3 cents for its first quarter, which would be
a marked improvement over the year ago loss of 26 cents.  But
there's plenty of room for upside.  The analysts are mixed for
this quarter, with a range of a 24 cent loss to a 26 cent profit.
Judging by the price action in recent weeks, AET is going to
beat its consensus expectations.  That should leave some further
room to the upside for this stock to move going into the earnings
report later next week.  Look for a one day pullback down into the
$41.30 to $42 range.  That would offer a nice entry on a pullback
in the coming days.  On the other hand, if the stock continues
marching higher, look for a momentum move above today's high at
the $43.35 level.  Our stop is in place at $40.75.

BUY CALL MAY-40*AET-EH OI=1751 at $4.10 SL=2.75 
BUY CALL MAY-45 AET-EI OI= 527 at $1.10 SL=0.50 
BUY CALL JUL-40 AET-GH OI=3728 at $5.00 SL=4.00 
BUY CALL JUL-45 AET-GI OI=  45 at $2.20 SL=1.25 

Average Daily Volume = 857 K



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

OVER $23.96 +0.28 (+0.46) OVER spiked higher in yesterday's
trading on what appeared to a be nervous short covering.  The
stock's daily volume was relatively lower, plus it rolled over
right at the descending 10-dma at the $25.70 level.  There's
still a big long selling in this stock, judging by the rollover
at the 10-dma.  Hopefully the rollover yesterday offered the
bears a favorable entry into new put plays, ahead of a possible
breakdown.  The tightening trading range continues to portend
a break in one direction or the other.  Using the recent trend
as our guide, we're betting that the stock breaks lower.  But
much of OVER's short term movement will depend on the action
in the broader market, as well as its sector, the Internet
Index (INX.X).  Keep that in mind when managing open positions
and looking for new entries.  If we get another rollover in
the broader tech space and INX.X, then we should see OVER
breakdown below the $23 level that we've been looking for in
the last several days.  Confirm the return of declining
volume on such a breakdown and use it to gain entry into new
plays.  Otherwise, continue using rollovers from resistance
during intraday short covering rallies.

JDEC $12.05 +0.29 (-2.29) JDEC continued lower in yesterday's
session below the $12 level.  The stock traded down to the
$11.50 mark in today's trading, in doing so tracing yet another
relative low in the recent downward trend.  After setting its
low for the day, JDEC crept higher on what appeared to be mild
short covering.  We think that today's fractional strength was
short covering because of the lackluster volume.  It's possible
that short term selling was exhausted, and that now the stock is
due for a brief relief rally.  We wouldn't frown upon such a rally
as it would help to remove some of the upside risk in the play,
and reduce the oversold nature of the stock.  Continued short
covering should lead to a more favorable entry point on a
rollover near resistance.  Bearish traders can start looking for
a rollover between the $12.50 to $13 levels.  We're playing it
pretty tight with a closing stop at $13.05, but an intraday
rally up to and rollover from the $13.50 level would be very
playable.  Also, keep an eye on the 200-dma which sits around the
$12.44 level.  That moving average could serve as short term
resistance if the trend in the stock continues.  On further
weakness, we'll target the $10.50 level to the downside, where
we'll first look to take profits.

MU $29.00 -1.24 (-0.06) The play on MU in the last two days worked
to near perfection.  After starting bearish coverage on the play,
the stock traded up to the $31.50 level in yesterday's session from
where it rolled over, following the positive chip news from
Texas Instruments and Novellus.  In today's session, the rollover
continued in a big way as the Semiconductor Sector Index (SOX.X)
continued falling.  The lukewarm guidance from KLAC was to
blame.  Whatever the reason, we were very pleased with the
rollover in MU over the last two days.  The stock is now near
short term support at the $28 area.  We'll be looking for a
breakdown below the $27.75 area as a sign that the stock is
heading lower over the short term.  Those who didn't take plays
on the rollover might look for a break below $27.75 to enter new
put plays on weakness.  Those who took the entry on the rollover
can consider either adding to positions or taking partial gains,
depending on individual risk tolerance and time frame.

IGT $54.00 -1.65 (-2.90) "Help, I've fallen and I can't get up!"
Shares of IGT have been losing steam in a hurry this week and
the rollover at the descending trendline on Tuesday shows just
how weak the stock is.  Another way to measure IGT's weakness is
to look at the Dow Jones Casino index ($DJUSCA), which is trading
at all-time highs.  Contrast this with IGT, which is now 25% off
its highs.  That said, we now need to be more careful, as IGT has
dropped to solid support near $54, which also happens to be the
site of the 50% retracement ($53.82) of the fall rally.  Odds
favor an oversold bounce in the near term, and we want to look
for another failure at the descending trendline (now at $56.50)
to set the stage for fresh entries.  With the PnF chart still on
a sell signal and giving us a price target of $43 from the
late-March breakdown, it looks like there is plenty of room for
bearish plays.  Lower stops to $57.

MXIM $55.83 -1.10 (+1.88) Doling out a nearly perfect entry point
yesterday morning, shares of MXIM rallied right to the $58
resistance level before rolling over.  Note that this resistance
level has held 3 times in the past 2 months and with daily
Stochastics just starting a bearish roll, it looks like the stock
will go 3-for-3.  With the Semiconductor index (SOX.X) reversing
from resistance near $617, sector momentum seems to be to the
downside as well.  The key level to watch on the SOX will be $570
support.  Another intraday rally to the $57-58 area would be a
gift of an entry point, as it appears that the nearly 5-month
descending trendline will continue to keep the stock under
pressure.  Should MXIM head south from current levels, momentum
traders can consider new entries on a violation of the $54.50
level, which is the bottom of the gap from Tuesday.  We're keeping
our stop in place at $58.50, as a rally through there would likely
set off a round of short-covering.

WPI $24.80 +0.40 (+0.65) Still grinding its way higher, WPI has
been working off its oversold condition for nearly 2 weeks now
and that can be seen in the daily Stochastics which are starting
to roll over, now almost to overbought territory.  A clear case
of a rising tide lifting all boats, WPI is rising in sympathy with
the rebound that we've seen in the Biotechnology index (BTK.X).
Peeking in at the relative strength chart of the stock relative
to the BTK shows the stock is poised to break down under the $24
level should the current rally in the BTK falter.  Use a rollover
from the $25 resistance level to initiate new positions or else
wait for a violation of the $24 support level before entering.

EBAY – eBay, Inc. $53.04 -1.89 (-1.04 this week)

After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in
the United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

There are few high-valuation Technology stocks in our universe
and those that there are, have maintained their enviable position
through continuing to impress with strong earnings growth
throughout the bear market.  EBAY is one of those, as it still
sports a PE ratio of 165, but given the market's reception of
the company's earnings tonight, we can see that the high valuation
comes with some fine print.  That fine print says, "you better not
ever disappoint!"  Despite the fact that EBAY reported inline
earnings tonight, the stock sold off sharply in the after-hours
session (briefly dropping below $49 before rebounding near $51),
reflecting investor disappointment with the fact that the guidance
wasn't more positive.  Prior to the earnings report, price action
had been weak and with daily Stochastics already heading south,
it appears that the $51 support level will be broken.  We want to
take advantage of any bounce in the morning to initiate new
positions.  Look for a rollover near the $53 level (intraday
support for most of the day on Thursday) as an opportunity to open
new plays.  We could even see a rebound into the $54-55 area
before the stock resumes its decline, so we are initiating the
play with a generous stop at $56.  Failing that, use a drop below
$51 on solid volume (after amateur hour) as an entry point.  Note
that the PnF chart is currently on a sell signal and the vertical
count shows the stock vulnerable to the $44 level.  When the stock
prints $50, we’ll have a fresh triple-bottom breakdown.  

BUY PUT MAY-55 QXB-QK OI=3615 at $4.80 SL=3.00
BUY PUT MAY-50*QXB-QJ OI=3278 at $2.50 SL=1.25
BUY PUT MAY-50 QXB-QI OI= 937 at $1.25 SL=0.50

Average Daily Volume = 5.53 mln


VRSN – VeriSign, Inc. $24.84 –1.27 (-0.48 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

With the persistent weakness in the Internet Security group, it
seems we've had one of those stocks (CHKP, VRSN and ISSX) on our
put list for almost a month now.  The most recent development in
the group was the earnings report from ISSX, which although
meeting estimates, lowered guidance for the future.  That
development has seen the whole group under pressure over the past
2 sessions, and our attention once again focused on VRSN.  The
descending trendline (now at $28.50) has been turning back every
bullish advance since last May and looks like it will continue to
do so.  The gap down from mid-March left behind some formidable
resistance at the $28 level and it is no surprise that the stock
rolled over from $27.40 yesterday.  Playing a persistent trend
like this helps to stack the odds in our favor, and we'll play it
until it is broken.  A rebound and subsequent rollover near the
$27 level would make for the optimum entry point, but given the
stock's weakness Thursday afternoon, we may have to settle for an
entry on a rollover from the $25.50-26.00 area.  Alternatively, a
drop below $24.50 on strong volume can be used for fresh entries,
but we'll need to look out for a reaction bounce near $23, the
site of last week's support.  Initially, we are placing our stop
at $28.  Note that this will be a quick play, as VRSN announces
its earnings next Thursday after the close and we'll want to have
all positions closed by that time.

BUY PUT MAY-25*QVR-QE OI= 765 at $2.45 SL=1.25
BUY PUT MAY-22 QVR-QX OI=2960 at $1.40 SL=0.75

Average Daily Volume = 8.42 mln



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

EBAY – eBay, Inc. $53.04 -1.89 (-1.04 this week)

After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in
the United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

There are few high-valuation Technology stocks in our universe
and those that there are, have maintained their enviable position
through continuing to impress with strong earnings growth
throughout the bear market.  EBAY is one of those, as it still
sports a PE ratio of 165, but given the market's reception of
the company's earnings tonight, we can see that the high valuation
comes with some fine print.  That fine print says, "you better not
ever disappoint!"  Despite the fact that EBAY reported inline
earnings tonight, the stock sold off sharply in the after-hours
session (briefly dropping below $49 before rebounding near $51),
reflecting investor disappointment with the fact that the guidance
wasn't more positive.  Prior to the earnings report, price action
had been weak and with daily Stochastics already heading south,
it appears that the $51 support level will be broken.  We want to
take advantage of any bounce in the morning to initiate new
positions.  Look for a rollover near the $53 level (intraday
support for most of the day on Thursday) as an opportunity to open
new plays.  We could even see a rebound into the $54-55 area
before the stock resumes its decline, so we are initiating the
play with a generous stop at $56.  Failing that, use a drop below
$51 on solid volume (after amateur hour) as an entry point.  Note
that the PnF chart is currently on a sell signal and the vertical
count shows the stock vulnerable to the $44 level.  When the stock
prints $50, we’ll have a fresh triple-bottom breakdown.  

BUY PUT MAY-55 QXB-QK OI=3615 at $4.80 SL=3.00
BUY PUT MAY-50*QXB-QJ OI=3278 at $2.50 SL=1.25
BUY PUT MAY-50 QXB-QI OI= 937 at $1.25 SL=0.50

Average Daily Volume = 5.53 mln


VRSN – VeriSign, Inc. $24.84 –1.27 (-0.48 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

With the persistent weakness in the Internet Security group, it
seems we've had one of those stocks (CHKP, VRSN and ISSX) on our
put list for almost a month now.  The most recent development in
the group was the earnings report from ISSX, which although
meeting estimates, lowered guidance for the future.  That
development has seen the whole group under pressure over the past
2 sessions, and our attention once again focused on VRSN.  The
descending trendline (now at $28.50) has been turning back every
bullish advance since last May and looks like it will continue to
do so.  The gap down from mid-March left behind some formidable
resistance at the $28 level and it is no surprise that the stock
rolled over from $27.40 yesterday.  Playing a persistent trend
like this helps to stack the odds in our favor, and we'll play it
until it is broken.  A rebound and subsequent rollover near the
$27 level would make for the optimum entry point, but given the
stock's weakness Thursday afternoon, we may have to settle for an
entry on a rollover from the $25.50-26.00 area.  Alternatively, a
drop below $24.50 on strong volume can be used for fresh entries,
but we'll need to look out for a reaction bounce near $23, the
site of last week's support.  Initially, we are placing our stop
at $28.  Note that this will be a quick play, as VRSN announces
its earnings next Thursday after the close and we'll want to have
all positions closed by that time.

BUY PUT MAY-25*QVR-QE OI= 765 at $2.45 SL=1.25
BUY PUT MAY-22 QVR-QX OI=2960 at $1.40 SL=0.75

Average Daily Volume = 8.42 mln



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The Option Investor Newsletter                 Thursday 04-18-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


*********************
PLAY OF THE DAY - PUT
*********************

MU - Micron $29.00 -1.24 (-0.06 this week)

Micron Technology, Inc. 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. 

Most Recent Update

The play on MU in the last two days worked to near perfection.
After starting bearish coverage on the play, the stock traded up
to the $31.50 level in yesterday's session from where it rolled
over, following the positive chip news from Texas Instruments and
Novellus.  In today's session, the rollover continued in a big
way as the Semiconductor Sector Index (SOX.X) continued falling.
The lukewarm guidance from KLAC was to blame.  Whatever the
reason, we were very pleased with the rollover in MU over the last
two days.  The stock is now near short term support at the $28
area.  We'll be looking for a breakdown below the $27.75 area as
a sign that the stock is heading lower over the short term.  Those
who didn't take plays on the rollover might look for a break below
$27.75 to enter new put plays on weakness.  Those who took the
entry on the rollover can consider either adding to positions or
taking partial gains, depending on individual risk tolerance and
time frame.

Comments

MSFT's warning after the bell should put the PC stocks into play
Friday.  MU could be set up for a breakdown below the $28 level.
A decline below $28 should bring in additional sellers; confirmation
of a new downtrend would be provided on a move below the $27.75
level.  Traders who took the rollover from the $31.50 level yesterday
might look for such a move to book short term gains.  Those how like
momentum entries can look for the move below $28.

BUY PUT MAY-32 MU-QS OI= 6619 at $4.60 SL=3.25
BUY PUT MAY-30*MU-QF OI=10224 at $2.85 SL=1.75

Average Daily Volume = 8.07 mln



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

The divergence in the market remains at play.  So does that of the 
Watch List.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/041802.asp


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

The major averages remain on hold.  But the usual suspects were on 
the move again during the last two sessions.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/041802_1.asp


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**********

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