Option Investor
Newsletter

Daily Newsletter, Tuesday, 05/07/2002

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                 Tuesday 05-07-2002
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)
************************************************************
      05-07-2002           High     Low     Volume Advance/Decline
DJIA     9836.55 + 28.51  9919.03  9810.53 1.35 bln   1394/1758
NASDAQ   1573.82 -  4.66  1594.57  1560.29 1.87 bln   1433/2076
S&P 100   518.22 -  1.26   523.31   517.90   Totals   2827/3834
S&P 500  1049.49 -  3.18  1058.67  1048.96             
RUS 2000  498.98 -  3.93   504.07   498.97
DJ TRANS 2683.84 - 19.57  2723.17  2681.60
VIX        24.38 -  0.50    25.10    23.94
VXN        50.00 +  0.88    50.99    49.73
TRIN        1.22 
PUT/CALL    0.75
*************************************************************

Thanks For Nothing Alan!

The FOMC meeting closed with no change in the current 1.75% Fed
funds rate. Nobody expected a change so no problem there. The
language of the announcement, while not specifically negative,
gave the distinct impression that substantial problems still 
exist in the economy. This sent traders into turmoil. It was not
bullish or bearish but was tinged with more caution than traders
wanted to consider. After the normal 30 minutes of post Fed 
volatility the markets attempted a weak rebound which failed 
just below the highs of the afternoon. Once the slide began 
there was little doubt of the outcome. 



 



 



 


The morning began with a nice calm rally with the Dow posting 
gains over +100 points for some time. This was due to short 
covering by those who were afraid to hold over the announcement
and some retail buying by Fed optimists. Once the news was out
and the lack of optimism was evident, traders decided discretion
was the best move and started lightening up. Bears developed a
wide grin as they loaded up again in preparation for the next 
leg down. 

The wild card here was the Cisco earnings after the bell. Would
they beat, hit or miss estimates? Only John Chambers knew for sure.
The stock slid to $12.27 intraday as investors feared the worst.
The key here was "feared the worst." Shorts have been leaning on
Cisco for a month and most feared they would make statements
similar to the IBM comments yesterday. When the earnings were
announced they beat the street by two cents but were close on 
revenue. Shorts got creamed in after hours trading as CSCO jumped
from a $13.08 close to near $15. The $.11 cent profit beat the
$.03 profit for the same period last year. Suddenly CSCO netted
nearly a billion dollars for the quarter and the networking 
downturn became an upturn. 

The bounce in Cisco led to a bounce in tech stocks across the
board in after hours and S&P futures soared +8.00 to 1055. This
should provide another short covering spike at the open on 
Wednesday but nothing fundamental has changed. The economy is 
still weak and the recovery is crawling. Cisco simply wrote off
enough losses over the last several quarters to post a profit
going forward. Remember, revenue was slightly less than expected.
Also, Cisco has taken a page from the IBM playbook and has been
buying back shares to improve the earnings per share. There is
no recovery here when sales are flat. The CFO said sales for 
the current quarter could be flat and the book to bill ratio
was less than one. Last quarter it was one and the quarter before
that it was higher than one. Looks like business is going down,
not up. Now where is that recovery?

Economic reports showed that productivity soared +8.6% and labor
costs dropped -5.4% This was due to a surge of inventory replacement
orders without a rise in employment. Until the order stream becomes
stable employers will not hire more workers and simply work the
current staff harder. This was not some major change in the economic
landscape but simply an anomaly based on the surge in inventory
replacement orders.  

The news that big blue was going to become smaller blue was met 
with surprising results. IBM finished up +.50 for the day. 
Investors sometimes have a short memory and the drop on Monday
was evidently seen as a buying opportunity by some. $82 held as 
support for quite a while but $75 may be in our near future. At
$75 institutional traders could become interested again despite
the shrinking company.

With CSCO CEO Chambers claiming current visibility to be "limited"
and IBM cautioning against minimal growth through 2003 and the Fed
saying that "degree of growth still uncertain", why buy? This is
the challenge for investors going forward. There is still no 
burning reason to buy stocks. This problem could continue for 
another month or so. Investors should wait until there is clear
evidence of a trend change before opening any new long positions.

The Nasdaq has lost ground in 13 of the last 15 sessions but that
could improve on the Cisco bounce tomorrow. The index closed at
1574 and next support is not until 1560. There is no strong 
support until 1475 although 1545 could provide a pause. 1625 is
overhead resistance which could be tested tomorrow. That may 
provide a good entry point for shorting the next drop. The S&P
closed at a low not seen since October-3rd. It is below support
and is currently in danger of a significant drop. Any tech bounce
would stall this fall but without stronger profits there is 
nothing to power a sustained rally. The Dow is resting near 
support at 9810 and a drop below that level would put us at
risk to 9750. 10000-10100 is still strong resistance.

Obviously the outlook is still very cloudy. Techs "could" bounce
on the Cisco spin on Wednesday. How long that bounce may last
is anybody's guess. I would not suggest buying any bounce here.
Wait patiently for a real trend to appear. Once we see where 
the bounce ends we will have a very good idea where our entry 
points should be going forward. The morning rebound from the -198
Monday loss leveled the oversold conditions, which could mute any 
tech gains tomorrow. Wednesday should be an interesting day!

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


Swing Trade QQQ/OEX/SPX
Jim Brown

Beginning Tuesday May-7th, I will begin hosting intraday index
trading on the Market Monitor. The concept for this Option Investor 
product is to capture moves in these three indexes, up or down.

This will not be a tick-by-tick, adrenaline inspired, trade until
we drop method. Most of you know I am a news and event trader as
well as a trader of cycles. Nothing goes up or down in a straight
line. There are numerous cycles in every market, even one that
is moving sideways. 

For those technical junkies in the crowd I would like to warn
you up front that I am not planning to post endless 5, 10, 15, 30,
60 minute charts with 84 lines crossing and expect everyone to 
see the same ink blot pattern I am imagining. 

This will be swing trading for the cautious trader. We will 
pick our entry points carefully and wait for them to be hit. 
We will follow all open trades with generous stop losses to 
avoid being closed for a loss on the intraday peaks and valleys. 

I am not a purely technical trader which means I listen and
watch for things that can impact the market that may not be
available on a chart. What is the significance of Microsoft
breaking $50, IBM breaking $82, QCOM $29? They are sentiment 
indicators that tell us the major average will have a tough 
time moving up when the heavyweights are in trouble. They are
keys that tell us what may happen despite averages nearing
support. 

I do not claim to have a crystal ball and I guarantee there
will be losing trades. However, we will all get the signal at
the same time and we will let the chips fall or pile up as they
may. 

We may not trade every day and we will definitely not trade
several times a day. We only want to trade when the odds of 
making a profit are strongly in our favor. That may be from
a strongly oversold/overbought condition. It may be a failed
support/resistance level or a opportunity play like a news event.
Rest assured there will be plenty of chances to make money.

The trading signals will be delivered through the Market
Monitor only. Because of the timing involved we will not
email anything intraday. There will be an end of day recap
and a projected scenario for the next trading session. This
will be provided on the Market Monitor as well.

One deviation from normal Option Investor procedure is the
lack of recommendations on specific option strikes. We have
thousands of readers and everyone likes to trade differently.

Some like current month strikes at the money, some 20-30 points 
out of the money and some like to minimize time premium by going 
deep in the money. Others like to use that same variety and go 
30-60 days out to minimize the intraday volatility.

Every time we pick strikes on indexes we are swamped with email 
demanding a rationale for our selection. I would rather spend 
my time and effort picking accurate and profitable entry points 
instead of debating option strike preferences.

You, the reader know what type of option you like to buy and 
I will leave that individual decision up to you.

If you do not want to trade SPX options because of the higher 
dollar requirements you can still use the SPX triggers to play 
the OEX which has cheaper options. You can also play the AMEX:SPY 
(SPDRS), which is a basket of stocks that represents the S&P-500.
The SPY is traded like the QQQ only there are no options. Traders
that cannot trade options in their IRA can trade the QQQ/SPY.

As always, any new section on Option Investor is a work in
progress and it will evolve based on reader input. Don't be
bashful!

This trading tool will begin on Tuesday morning, May-7th, with 
a pre-market view and the trade setup for the day. If you like
to trade the OEX/SPX/QQQ then tune in and have some fun.

Jim Brown
Editor 


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

Volatility rises
by Leigh Stevens

I thought I would turn things around and first look at charts of 
the two common measures of market volatility, the CBOE Volatility 
Index ($VIX.X) that uses the OEX options in its formula and the 
CBOE Nasdaq market volatility index (VXN.X), which uses the 
Nasdaq 100 ($NDX.X) as the means of measuring implied volatility. 

Volatility has been rising strongly of late, in both the S&P and 
in the Nasdaq. There have been e-mails to myself and others at 
O.I. about what this means.  VXN has jumped to over 50 - does 
this mean that the market is about to reach a major bottom? VIX 
has just recently moved from low levels at and under 22 and this 
index has been fluctuating in the 23-26 area for the past 7 
sessions - does this suggest that a trend change is coming?

The answer is yes, maybe!  The best thing to do is to look 
carefully at the history of the two, to see what levels have 
marked market extremes.  And, to determine the correlation of 
high or low readings, at what levels and have those extremes  
occurred in areas where either S&P or Nasdaq have had significant 
tops or bottoms.

First, the OEX volatility index, VIX, has been kept for nearly 10 
years, so has a history that takes it through more bull and bear 
market cycles. The Nasdaq 100 volatility index, VXN, has been 
calculated only since 1997, but this period does encompass the 
major Nasdaq bull market of the late-90's and through the big 
bear market that followed. 

TRADING ACTIVITY AND OUTLOOK -
The big news events affecting the overall market was the FMOC 
report that traders took somewhat bearishly, as they expressed 
the view that they couldn't say yet how strong the economic 
recovery would be.  At last, a true confession from the Fed!  

And, Cisco (CSCO) didn't know either in their talk to analysts 
after they announced better than expected earnings - they don't 
yet see signs of a strong recovery in orders.  Nevertheless, 
Cisco's "walk", their earnings, was more important than their 
"talk".  Cisco is a bellwether stock for Nasdaq.  Like GE in the 
"old" economy, Cisco does business in all key sectors of the 
Nasdaq economy.  As a bellwether, Cisco has been good in 
predicting the future course of the Nasdaq.  

VIX & OEX Daily Chart: 


 

What I found in general and that we can see in the chart, is that 
closing levels under 22.1, when they first occurred and during 
the remaining periods of low VIX levels, have been associated 
with significant tops and subsequent intermediate declines.  

Conversely, closing daily levels at or above 27, have been 
associated with significant bottoms, such as occurred last 
September and in February.  These general "guidelines" based on 
the past recent behavior of VIX, relative to the OEX, are not 
completely precise and have varying degrees of lag time before 
the associated trend change occurs.  Why high volatility is more 
associated with bottoms is hard to explain, except that it 
indicates a changing market outlook. Whereas, low levels of 
implied volatility, implies (not proves) that traders and 
investors have a high degree of complacency. 

This take on volatility fits with the other types of "sentiment" 
indicators that are part of the theory of contrary opinion.  This 
theory maintains that market bottoms are associated with a high 
degree of bearishness -- the contrary of the expectation that the 
market would bottom when investors turn bullish.  Conversely, the 
theory of contrary opinion holds that that market tops are 
associated with an extreme in bullishness or the conviction that 
the market is going to go a lot higher still.  

This is not a new idea, as Charles Dow observed this tendency 
over 100 years ago. Dow noted that most investors are bullish at 
tops and bearish at bottoms.  This is the real or original 
meaning of overbought and oversold. At bottoms, everyone that 
wants to sell has sold already. An improving economy means that 
stocks have nowhere to go but up. The same is true at tops - most 
everyone that wants to buy, has done so.  Who is left to buy?  
This is the origin of the saying that "bull markets fall of their 
own 'weight'."  



 

VXN, that measures Nasdaq 100 volatility has a fairly narrow band 
that appears to be a "normal" range, or one not at an extreme.  
Based on the amount of history showing in the chart above, tops 
and bear market trends have been associated with periods when VXN 
is closing at or under 46.3.  Conversely, significant bottoms and 
bull trends have occurred after VXN has gone to and above 60. 

Another thing that is apparent from the study of the VIX and VXN 
charts is that, like prices, once a definite and strong trend has 
begun, it has tended to continue.  Lately, of course, the trends 
for both VIX and VXN are strongly up and appear to be heading 
toward areas where we could expect the beginnings of a strong 
uptrend. 



 

I don't know if Cisco will test its prior low or not.  The Nasdaq 
indexes look like they will.  Based on Cisco's chart, there is a 
good chance the Nasdaq may hold the prior lows, because there is 
a good chance that Cisco will.  The most noticeable thing is that 
the stock is at a significant new low, but is less oversold than 
it was at its late-February bottom. 

This is a classic price/RSI divergence, that usually suggests 
that an upside reversal is coming.  Maybe this starts tomorrow, 
maybe the rally is short-lived and the stock goes down again.  
But I would expect that it will hold its prior low and even if 
Nasdaq does not, you want to be a buyer on that final tip.  
Especially, if the VIX and VXN indexes also get into what has 
been a bullish area for them.  

S&P 500 (SPX) and S&P 100 Hourly Charts: 


 


Resistance at the former lows and the minor hourly down 
trendlines come in at the 1060 and 525 areas in SPX and OEX, 
respectively. A breakout above these minor resistance areas may 
be playable for those watching the market, but I favor buying on 
weakness such as to the lower channel lines, where we again see 
oversold readings on the stochastic models.  

I would rather buy puts on a rally that runs of steam, whether it 
was at the upper channel line or not, as long as it occurs with 
overbought extremes as least on the 5-hour stochastic -- however, 
the closer to the upper boundary the better.  

Potential support comes into play in the areas noted on the 
charts, at the lower channel line.  Conversely, more significant 
resistance is seen at the upper channel boundaries, which are the 
areas I would favor new put plays.     

Dow Industrials 1/100 Index ($DJX.X) Hourly Chart: 


 

DJX -
Minor resistance comes into play in the 99 area, at the hourly 
down trendline, where the rally reversed today. If the index gets 
above 99, look to buy puts in the 100 area, exiting on a move 
above 101. Downside objectives are apparent in the 96.5-97.00 
area, if DJX retreats again to the low end of its downtrend 
channel. If this is accompanied by an oversold reading again on 
the stochastics models, it might offer a short-term bullish play.   


Nasdaq 100 ($NDX.X) and QQQ Hourly Charts: 


 

It looks like a wide potential range between the top and bottom 
of just the hourly downtrend channel.  This evidence of increased 
volatility certainly is reflected in the jump in VXN volatility 
iscussed in the beginning.  The 1130 area in the NDX appears to 
be an area to turn to the call side for a short-term play only, 
if the stochastic models are again at the bottom of their range. 
The equivalent level in QQQ is 28, with a stop out point just 
under 27.  

29.2 in the Q's, 1170 in NDX, offer minor resistance. A break out 
above these levels may be short-lived.  However, if a 1-2 day 
rally gets going, shorting/buying puts around 1240 and 31.7 are 
the "ideal" areas from a technical standpoint, to buy puts.  Not 
that the market often presents an ideal anything.  Stay tuned.

Index Trade Recommendations 

- Informal trade guidance offered recently only 


Long/Call Positions:

Date: 
Bought; Stop or risk parameters;  
Trade Objective: 
Comments: 

Short/Put Positions: 

Date: 
Bought; Stop or risk parameters;     
Trade Objective: 
Comments:


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com


************************Advertisement**********************************
GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS

* EASY screens for spreads, collars, covered calls or butterflies!
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest012

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
***********************************************************************


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

Capitulation Coming?
By Eric Utley

My thinking was that we were going to get a big one or two
day capitulation event before a trading rally.  I'm starting
to wonder if the slow bleed will continue.  Although it feels
as if we're on the edge of a major washout in the technology
space.  Several sentiment measures are reaching extreme levels
that point towards that end.

The Nasdaq-100 ($VXN.X) has entered into a near parabolic move
higher during the last two days.  Usually when you see fear
increase at the rate at which the VXN has rallied in the last two
days it signals that a short term bottom is around the corner.
In today's session, the VXN traded up to its 200-dma, which
hasn't been traded above since last November.  At this point,
however, the VXN is confirming the fear in the Nasdaq.  It's
not by itself signaling a bottom.  What we need to see in the
coming days is skepticism in the face on any rally attempt.
Obviously if the VXN implodes on any signs of strength in NDX
stocks, then we're still far off from any meaningful trading
rally.  But a VXN with "stick" in the face of strength in stocks
may indeed confirm a turning point in the tech sector.

Certainly the oversold nature of the Nasdaq-100 Bullish
Percent ($BPNDX) lends to the possibility of a rally.  But we
must remember that the bullish percent is only a measure of
market risk, and not necessarily a forecasting tool.  We saw
the BPNDX reach zero last fall, so it's also important to
remember that the indicator can always grow more oversold.
Still, a great deal of downside risk is now out of the NDX
as measured by the low level of the NDX bullish percent.

The notoriously early ARMS Index is trading in extreme
ranges, specifically the shorter term measures of the
indicator.  The 5 and 10 day measures are now into the
extreme territory, above the key 1.50 reading.  Again, this
indicator is historically early, but generally reliable in
the bigger scheme of things.  Anytime you see Mr. Arms on
CNBC, as he was last week, you know that his index is in
extreme territory.

Whether or not we see a big one day capitulation event
remains to be seen.  That may not happen with the slow
bleed that has taken place up to this point.  Instead, we
may have been experiencing a capitulation during the last
two weeks judging by the way that some stocks have been
trading, especially in the technology space.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9837

Moving Averages:
(Simple)

 10-dma:  9955
 50-dma: 10276
200-dma:  9919



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1049

Moving Averages:
(Simple)

 10-dma: 1078
 50-dma: 1125
200-dma: 1126



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1159

Moving Averages:
(Simple)

 10-dma: 1238
 50-dma: 1394
200-dma: 1478



Paper ($FPP)

The FPP edged into the best performing sector spot again today
with a measly gain of 0.68 percent on the day.  Continued
rotation into cyclical names boosted shares in the sector.

Sector leaders included Louisiana Pacific (NYSE:LPX),
Meadwestvaco (NYSE:MWV), Smurfit Stone & Container (NASDAQ:SSCC),
International Paper (NYSE:IP), and Boise Cascade (NYSE:BCC).

52-week High: 381
52-week Low : 269
Current     : 368

Moving Averages:
(Simple)

 10-dma: 356
 50-dma: 363
200-dma: 335


Disk Drive ($DDX)

The DDX under performed the broader market today to earn the
day's worst performing sector spot.  The index shed 2.87
percent on the day.  PC related stocks such as Dell Computer
(NASDAQ:DELL) traded poorly all day, playing into the weakness
we observed in the disk drive space.

Leaders to the downside included shares of Maxor (NYSE:MXO),
Sandisk (NASDAQ:SNDK), Read Rite (NASDAQ:RDRT), Hutchinson
(NASDAQ:HTCH), and Iomega (NYSE:IOM).

52-week High: 120
52-week Low :  59
Current     :  82

Moving Averages:
(Simple)

 10-dma: 92
 50-dma: 96
200-dma: 92

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

Market Volatility

The VIX ended higher in Monday's session, but fell back on today's
strength in blue chip names.  I'm watching for a retest of the
overhead 200-dma now at 26.37 on any short term future weakness
in the S&P 100.

Fear is on the rise in the Nasdaq-100!!  The VXN traded up to
its 200-dma in today's session before easing intraday.  Downside
risk is becoming less and less in the NDX with fear levels
rising in a near parabolic fashion.

CBOE Market Volatility Index (VIX) - 24.38 -0.50
Nasdaq-100 Volatility Index  (VXN) - 50.00 +0.88

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.75        690,185       517,539
Equity Only    0.69        579,955       401,684
OEX            1.01         19,815        20,065
QQQ            0.39         89,849        34,714

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

Bullish Percent Data

           Current   Change   Status
NYSE          63      + 0     Bull Confirmed
NASDAQ-100    17      - 2     Bear Confirmed
DOW           47      + 0     Bear Confirmed
S&P 500       58      - 1     Bear Alert
S&P 100       51      - 1     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  1.56
10-Day Arms Index  1.52
21-Day Arms Index  1.43
55-Day Arms Index  1.27

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      1399           1776
NASDAQ    1443           2069

        New Highs      New Lows
NYSE      102             78
NASDAQ    131            175

        Volume (in millions)
NYSE     1,360
NASDAQ   2,127

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

Commitments Of Traders Report: 04/30/02

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

Commercials grew less bearish again during the most recent
reporting period by adding more longs than shorts.  It was the
third week of decreased bearishness for the S&P commercials.
Meanwhile, small traders grew less bearish by adding more
short positions.

Commercials   Long      Short      Net     % Of OI 
04/09/02      320,101   411,075   (90,974)  (12.4%)
04/16/02      322,578   411,245   (88,667)  (12.1%)
04/30/02      340,936   421,673   (80,737)  (10.6%)

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
04/09/02      151,237     47,678  103,559     52.1%
04/16/02      150,529     50,424  100,105     49.8%
04/30/02      153,158     56,372   96,786     46.2%

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 less bearish by adding a number of
long positions last week.  The group is still net bearish, but
growing less so with each week.  On the other side, small
traders slipped from a net bullish to a net bearish position.

Commercials   Long      Short      Net     % of OI 
04/09/02       28,985     35,221    (6,236)   (9.7%)
04/16/02       32,024     35,723    (3,699)   (5.5%)
04/30/02       34,591     35,933    (1,342)   (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
04/09/02       11,640     8,353     3,287     16.4%
04/16/02       12,458    10,572     1,878      8.2% 
04/30/02       12,271    12,703     (432)      1.7%

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 reduced their net bullish position again during
the most recent reporting period.  The group grew less bullish
by dropping more longs than shorts.  Meanwhile, small traders went
in the opposite direction by reducing their net bearish position.

Commercials   Long      Short      Net     % of OI
04/09/02       19,393    13,445    5,948     16.7%
04/16/02       19,080    14,267    4,813     14.4% 
04/30/02       17,275    13,341    3,934     12.8%

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
04/09/02        5,459     9,340    (3,881)   (26.2%)
04/16/02        5,644     9,448    (3,804)   (25.2%) 
04/30/02        5,813     8,869    (3,056)   (20.8%)

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

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


************************Advertisement********************************
OptionsXpress: "FOUR STARS"; 1 of the "BEST ONLINE BROKERS"--Barron's

* 8 different FREE options pricing, strategy, and charting tools
* Outstanding customer service--access to options specialists 
* Real-Time Buying Power, Account Balances or Cancels
* EASY screens for spreads, collars, covered calls or butterflies!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest013

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
*********************************************************************


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

THE SECTOR BEAT - 5/7
by Leigh Stevens

SECTOR ACTIVITY/OUTLOOK - 


 

The top five performing sectors are not the familiar names 
tonight EXCEPT this never-ending run of the forest products 
stocks.  Is this because the west is burning already?  And, its 
not even summer yet! 

I will take at a look at the Forest & Paper Products sector index 
($FPP.X) and Oil services tomorrow. FPP sector is looking like it 
may top on concluding this current rally, so a put play may 
develop. The Oil services ($OSX.X) sector is correcting and a 
call play may be attractive after a correction runs its course 
and providing that a reversal in trend is not developing.    
     


SECTOR TRENDS AND TRADING IDEAS - 

Healthcare Payors Index ($HMO.X): 

STARTING TO CORRECT FINALLY - 


 

Would like to purchase of Oxford Health Plans (OHP) on a 
pullback as a play on this sector. Buy the stock or deferred OTM 
calls in the 40-41.00 area. In terms of the sector, am looking 
for a correction of the HMO Index back to the lower end of its 
daily uptrend channel around 570.  


 
A POSSIBLE GOLD PLAY - 
Maybe XAU is ALSO starting to correct -


 

Examination of the weekly XAU chart suggests we may have gotten 
into resistance finally and there will be a correction that would 
take this index back into the middle of the uptrend channel. If 
so, a way to play this sector, rather than buying the XAU calls, 
is to buy Newmont Mining (NEM) around near support (upper dashed 
line) at 28.50, with a preference to buy on a more substantial 
pullback to the 25 area, at the lower support area identified. 



>> DRG, the Pharmaceutical sector index ($DRG.X). 

The drug sector, DRG, which was looking like it was stabilizing 
at the low end of multimonth trading range, is slipping under it.

NO SUGGESTED PLAY 


LONG/CALL TRADES, PREVIOUSLY RECOMMENDED:

>> Cyclical sector ($CYC.X) - 4/15 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  

UPDATE: HOLD only.  Today's rally does not make a trend. 


>> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion:
OPTION PLAY: XAL sector stock Southwest Airlines (LUV) 
Sept. 20 (LUV ID) call suggested at 1.25 or less.  
OBJECTIVE: $22 based on a rebound back toward the high end of the 
current uptrend channel.

Exit if stock closes under 17.25. 


>> Utilities Index - Holders trust shares (AMEX: UTH) 
Long at 95.25 
Stop: 91.00

UPDATE: UTH broke sharply today, and looks headed lower.  Cancel 
the stop and liquidate on the Wed. opening.



OPEN SHORTS/PUT PLAYS:

>> RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 
Stop: 100 

UPDATE: Sector is approaching its 200-day moving average and is 
oversold -- the good-sized rebound of today is suggesting that 
there may not be a lot of downside left. Take profits on the 
short position on Wed. Tuesday close was 96.22.  



LIQUIDATIONS:

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


************************Advertisement*****************************
OptionsXpress: "BEST OF THE WEB""FAVORITE OPTIONS SITE"--Forbes

* 8 different FREE options pricing, strategy, and charting tools
* No Hidden Fees for balances, limit orders, or service charges
* Real-Time Buying Power, Account Balances or Cancels
* EASY screens for spreads, collars, covered calls or butterflies!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest014

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
******************************************************************


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                  Tuesday 05-07-2002
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:
*****

FLIR $39.50 -0.81 (-0.15) Following the major price breakdown
in shares of FLIR last week, we expected to see some follow
through to the downside, especially with the weakness in the
Defense index (DFI.X).  Instead, the stock firmed up near the
$37.50 level and has been gradually creeping higher.  Since the
play isn't performing as we expected, we're going to drop 
coverage tonight even though our stop has not been violated.
It is notable that FLIR reversed from the level of its 200-dma
on Tuesday, but the rebound off of the $38 level has the stock
looking more bullish.  Use any weakness in the morning to exit
open positions.


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

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

CALLS              Mon    Tue

DGX      94.63   -0.23  -0.05  Hovering around the $65 mark
SII      70.39   -2.97  -0.98  Pulling back on recent oil weakness
THC      73.52    1.18  -1.26  New high, then pulled back on PT
SRCL     72.33    0.65  -0.42  Incredible relative strength!!!
WM       38.01   -0.72  -0.62  Pulled back to platform entry point
RTN      42.72   -1.54   0.51  Rebounded from the 10-dma, entry
EXPE     81.65   -1.55  -0.83  Pulled down by the market weakness
AZO      77.00    0.40   1.10  New, right sector, right stock

PUTS

ADI      34.43   -0.62   0.38  Lows still being traced lower
LRCX     23.29   -0.40  -0.16  Very close to reaching downside
SEBL     19.89   -0.62  -0.65  Lost the $20 level today, lookout!
VRTS     24.10   -1.13  -0.67  Broke below recent support at $25
FLIR     39.50    0.66  -0.81  Dropped, strength despite weakness
GS       74.85   -3.39  -0.31  Breaking down in a very big way!
IDPH     47.57   -3.37   0.70  Biotechs getting no love at all
KMI      46.23   -0.86  -1.27  New, seasonal trend at work


************************Advertisement*******************************
BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck"

* Free Streaming Quotes with 5 or more trades per month
* 8 different FREE options pricing, strategy, and charting tools
* Real-Time Buying Power, Account Balances or Cancels
* EASY screens for spreads, collars, covered calls or butterflies!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor015

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
********************************************************************


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

SII $70.39 -0.98 (-3.95) SII has pulled back in the last two
sessions on the weakness in the broader energy sector, as well
as the crude oil market.  The futures market saw the price of
oil dip in the last two days, but the oil related equities saw
the brunt of the weakness.  The Oil Service Sector Index (OSX.X)
dipped down below the 103 level in today's session before the
buyers stepped back in to bring the sector higher.  Iraq's
announcement over the weekend has been the primary reason for
the weakness in the OSX.X, but the weakness in the OSX.X and
SII was more likely a product of profit taking, setting up
possibly the next favorable entry point into bullish plays.
The bounce near the double bottom today around the $69 level was
encouraging in SII and could lead to the next leg higher.  Use
intraday dips down to the $69 level from here as entry points
with tight stops.

SRCL $72.33 -0.42 (+0.23) SRCL has held up very well in the last
two sessions despite the weakness we've seen developing in the
broader health care sector, such as the slide in the biotech and
pharmaceutical segments, as well as the pullback in the health
maintenance organization (HMO) shares.  We're looking for the
stock's relative strength to power shares higher once the buyers
return to the broader health care space.  In the meantime, a
pullback down to the $70 support level in SRCL would offer a
favorable entry point into new call plays into this super strong
stock and its rising trend.  The raising 10-dma now below at the
$68.98 level should reinforce buying pressure near the $70
level.  Look for volume to lighten up on the way back down to
confirm that any weakness in price is nothing more than routine
profit taking.  A spike in declining volume might flash a warning
signal and keep traders out of a falling knife situation.  Plus,
we'd like to see some of the overbought nature of daily
oscillators ease in the coming days.

WM $38.01 -0.62 (-1.34) WM has pulled back in the last two days
on relatively lighter volume to set-up a very favorable entry
point into bullish positions.  The stock has ticked lower in
the face of weakness in the broader market, so it looks like the
weakness is nothing more than normal backing and filling.  From
here, what we want to see is some stabilization in price between
our stop at the $37.50 level to today's closing level near the
$38 mark.  The bond market today further pushed out the
expected rise in short term interest rates following the Fed's
official announcement.  That's good news for this very interest
rate sensitive play.  Look for the stabilization in this stock
and use intraday bounces.  Play new entries with tight stops near
the $37.50 level.

EXPE $81.65 -0.83 (-2.38) The only real talk concerning EXPE so
far this week has been the company's steps to take market share
away from weaker competitors.  Indeed, the company's expanding
market presence and aggressive marketing have led to a great deal
of market share this year, as revealed by the steady rise in
shares of this super strong online player.  But the positive
chatter this week hasn't helped push the stock any higher.
Instead, we've seen EXPE pullback in the last two days on the
continued weakness in the broader market, and specifically in the
Nasdaq market.  The market weakness has been nothing more than
an excuse for traders to take profits in EXPE, and wait for its
next run higher to new yearly highs.  The pullback down to the
10-dma in today's session may lead to a rebound rally in the
coming sessions, but most likely only if the broader market
shows some signs of life.  If the stock does continue lower
along with the broader market, look for a rebound from the
$77.50 level, but make sure to set a tight stop to protect
against a potential breakdown.

DGX $94.63 -0.05 (-0.28) The past week has seen a fair amount
of profit taking in the Health Care related stocks and in the
face of that weakness, shares of DGX have been holding up
remarkably well.  Strong earnings from the likes of DGX and LH
last month are clearly helping these stocks to remain favorites
of investors looking for strength in the current market.  Since
the first of the month, DGX has been consolidating its recent
run between $92-96 and we'll want to see the bulls push through
the upper end of this range to give us the confirmation of
further upside over the near term.  In the meantime, intraday
bounces in the $93-94 area continue to provide attractive entry
points ahead of the next bullish move.  Once the current round
of profit taking in the Health Care index (HMO.X) has run its
course and the bulls move back into control, we'll want to look
for new entries as DGX rallies through the $96 resistance level.
Keep stops in place at $91.50.

RTN $42.72 +0.51 (-1.03) After some sharp profit taking over the
past couple days, shares of RTN are once again finding some
buying support.  Even with the Defense index (DFI.X) still seeing
some selling, it is encouraging to see the stock holding its
relative strength as compared to its sector.  The excitement
surrounding the award of the $2.9 billion Navy contract has now
dissipated and the stock is once again left to trade on its
ascending trendline, which currently rests at $41.75.  Intraday
bounces from the $41.50-42.00 area still look good for initiating
new positions, although more cautious traders might want to wait
for a rally back above the $44 highs from last week before
playing.  In either case, we'll want to see the DFI index hold
support above the $650 level and see some buying interest to
support RTN's bullish trend.  Move stops up to $41.

THC $73.52 -1.26 (-0.08) The past week hasn't been pretty for the
Health Care index (HMO.X) as the profit taking has really tested
the bulls' resolve.  But just when it looked like the HMO index
was going to break down on Tuesday, the bulls voted with their
wallets, helping to stage a minor rebound off the $600 support
level.  The recent weakness has been more than our THC play could
ignore and once again it pulled back from the $74.50 resistance
level.  Despite that weakness on Tuesday, the trend of higher lows
is still in place and that keeps the play going in the right
direction.  With the HMO index trying to find a bottom and THC
bouncing from the $73 level on Tuesday, dips remain buyable.  Look
to initiate new positions on another rebound from the $73 level,
but look out for a drop through the 20-dma (currently $72.52).
This moving average has been providing support since late April
and a violation would be an early warning sign of more weakness
ahead before the next high odds entry.  Momentum traders need to
be cautious as well, as recent breakouts have not had any staying
power.  If trading a breakout over $75.50, make sure that the HMO
index is in rally mode and THC is seeing strong buying volume
again.  Stops remain at $72.


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

AZO – AutoZone, Inc. $77.00 +1.10 (+1.50 this week)

AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its
more than 2900 stores in 42 states and Mexico carries an
extensive product line for cars, vans and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items and accessories.  Approximately half of its
domestic stores also have a commercial sales program, which
provides commercial credit and prompt delivery of parts and
other products to local repair garages, dealers and service
stations.

Retail stocks have been hit by the bears in recent weeks, with
the RLX index falling from the vicinity of its 2-year highs to
the $900 support level in rather short order.  But that took a
dramatic turn for the better on Tuesday with the RLX posting a
solid "Tweezer-bottom" and closing up by 1.7%.  This area of the
market has performed much better than most over the past several
months and today's chart formation should have observant bulls
scanning through stocks in this area of the market for fresh
bullish plays.  Never fear, we're way ahead of you on this one.
Shares of AZO (no stranger to the OIN Call list) have been
gaining strength relative to the RLX for the past 6 weeks and
that strength can be seen on AZO's PnF chart.  We played the
stock on its recent rise to the $80 level and it looks like
there is room to play the upside again, with the bullish price
target still resting up at $86.  After some profit taking just
over a week ago, AZO has been gradually walking its way up the
charts again in a nice little ascending channel (best seen on
the hourly chart).  Add in the likelihood that the RLX is
starting a new bullish move and AZO could be challenging its
highs near $80 in short order.  Target new entries on either a
rebound from the lower end of its fledgling channel (currently
$76.50).  A dip and bounce near the $75.50 support level would
be a gift at this point.  Initial stops are in place at $74,
just below last week's lows.

*** May contracts expire in less than 2 weeks ***

BUY CALL MAY-75 AZO-EO OI= 962 at $3.00 SL=1.50
BUY CALL MAY-80*AZO-EP OI=1246 at $0.60 SL=0.25
BUY CALL JUN-75 AZO-FO OI=1226 at $4.80 SL=2.75
BUY CALL JUN-80 AZO-FP OI=1301 at $2.40 SL=1.25

Average Daily Volume = 952 K



************************Advertisement*****************************
DOES YOUR BROKER OFFER TRAILING STOPS ON OPTIONS?

Trade online with trailing stops at OptionsXpress
Trailing stops based on the option price or the stock price.

Also: Contingent, Stop Loss, and "One Cancels Other" ordering

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest016

Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
******************************************************************


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

ADI $34.19 +0.38 (-0.24) The pattern of lower relative lows in
ADI continued into today's session before the stock popped higher
on what appeared to be routine short covering profit taking from
the bearish camp.  Volume was pretty active, but price action
confirmed that the strength in today's session was not related to
real buying by the mutual funds, but instead probably a big short
taking some gains off the table after the big slide lower in
recent weeks.  Traders would do well to follow the big money
and use any future dips to new relative lows as a chance to book
partial or full gains as the stock is growing increasingly
oversold by the day.  A retest of today's low near the $33 level
would offer a favorable exit point from profitable positions.
At the very least, traders should be looking to lower stops to
tight levels to protect against any further upside.  A stop at
yesterday's or today's highs would offer a good place to set a
tight stop.

LRCX $23.29 -0.16 (-0.56) After we saw LRCX close below its
200-dma in late last week's trading, the sellers continued to
pile on with gusto.  The stock continued lower in yesterday's
session by a fractional amount, but the stock played catch up
in today's session with out performance to the downside.  The
stock nearly touched the $22 level we had been targeting to the
downside.  It traded down to the $22.17 level on an intraday
basis in today's session, which was probably close enough to the
$22 level for most to book quick profits based off of the $22
level as an exit point.  To the upside, if any forthcoming rally
is limited, we'd expect LRCX to rollover from its now overhead
200-dma on the retest following the breakdown from last week.
Of course a massive short covering rally would probably take
LRCX past that level.  Because of that potential upside risk,
traders with open positions should lower stops to protect against
upside risk, and to protect any profits captured up through this
point.

GS $74.85 -0.31 (-3.70) Leading the way lower during yesterday's
200 point plunge in the DOW, the Broker/Dealer index (XBD.X) fell
right to the 50% retracement level near $435 and appeared to be
stabilizing above that level this afternoon.  The sharp decline
gave us a solid gain in our GS play as the stock plunged through
the $76 support level to end at its lowest level since October
3rd.  The legal wrangling between the NY AG and Merrill Lynch is
still weighing heavily on the sector and GS hasn't been immune.
Even with the broad market attempting to rally, the stock still
finished in negative territory on Tuesday and is perilously close
to another breakdown.  But with the market due for an oversold
bounce, we could be looking at a rebound in shares of GS over the
next couple days.  Keep those stops tight on open positions and
start trolling for fresh entry points on a rollover in the
vicinity of $78.50, which should now provide solid resistance.
Should the bounce fail to materialize, consider initiating new
positions on a breakdown below Tuesday's intraday low ($74) so
long as selling volume remains robust.  Lower stops to $79.50.

IDPH $47.57 +0.07 (-3.30) Will the pain in the Biotechnology
sector (BTK.X) ever end?  On Tuesday, the BTK fell to an
intraday low of $375.24, it's lowest level in over 2 years before
catching a mild rebound.  This level is critical for the BTK to
hold if the bulls are going to come back out and play, as a
breakdown will leave the BTK vulnerable to the $290 level before
meaningful support can be found.  Shares of IDPH have been under
a fair amount of selling pressure lately, in the wake of the
breakdown under the $52 support level last week.  After dropping
sharply over the past two days, the stock appeared to be firming
in the $47-48 area throughout the afternoon session.  If the BTK
is going to bounce, it is a safe bet that IDPH will participate.
That argument applies to the downside as well, and a breakdown
in the BTK below $375 will likely have IDPH falling below its
Tuesday intraday lows.  Use a rollover near the $49.50 or $52
resistance levels to initiate new positions or else wait for a
drop below $46.25 (with the BTK violating $375) before playing.
Our stop remains at $52.50.

SEBL $19.89 -0.65 (-1.27) September lows are here again.  The
Software sector (GSO.X) can't seem to get out of its own way,
falling below the $116 level on Tuesday.  This is the lowest
level for the index since late September, and the lowest closing
level since the index was created in the middle of 1997.  How
many different ways can you say "Ouch"?  Shares of SEBL aren't
doing much better, although the stock is still holding above the
September lows.  Even with an attempted rebound in the Technology
market Tuesday afternoon, SEBL ended up near the lows of the day
and the $20 support level is at risk of being broken decisively
tomorrow.  The next likely level of support is found at $18.75.
Despite the current weakness, we would favor locking in gains on
the slightest hint of a rebound tomorrow.  CSCO's earnings report
has the futures solidly in positive territory and with the deeply
oversold nature of the market, a short-covering rally could ensue
in the morning.  Better to lock in gains and look for a fresh
rollover near resistance ($21 or $21.75-22.00) to provide new
entries.  Keep stops at $22.50.

VRTS $24.10 -0.67 (-1.80) Slow and steady, VRTS keeps heading
lower.  Pressured both by the Software index (GSO.X) falling to
a new all-time closing low on Tuesday as well as VRTS' own 6-week
descending trendline, currently at $26.  This is also the level
of prior support, which should now act as resistance on any
attempted rally.  But there are some issues of concern for eager
bears.  VRTS came to rest right on the $24 support level on
Tuesday and with the positive earnings report from CSCO tonight,
it is a safe bet that the stock will open in the green on
Wednesday.  The action after the opening move will give a good
indication of whether we'll be looking to initiate new positions
in VRTS or look for an exit from this successful play.  Another
rollover from the descending trendline would make for a solid
entry point, especially if the GSO index fails to lift off its
lows.  But we don't want to be caught unawares, so we're lowering
our stop to $26.25 tonight.


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

KMI - Kinder Morgan $46.23 -1.27 (-2.13 this week)

Kinder Morgan, Inc. is an energy storage and transportation
company in the United States, operating, either for itself or on
behalf of Kinder Morgan Energy Partners, L.P., more than 30,000
miles of natural gas and products pipelines. The Company owns and
operates Natural Gas Pipeline Company of America, a major
interstate natural gas pipeline system with approximately 10,000
miles of pipelines and associated storage facilities.

It's well known that this time of year is normally weak for the
natural gas sector.  The Natural Gas Index (XNG.X) is confirming
the seasonal trend.  The XNG is lower by 16 points since the first
of April, or a little more than 8 percent.  Some of the weakness
may have been attributable to the weakness in the broader markets,
but it's worth noting the divergence between the XNG.X and other
energy measures, such as the Oil Service Index (OSX.X), which is
trading near its relative highs.  With the XNG breaking down in
today's session, and looking poised to work lower through the end
of this month, we're turning to a relatively weaker component of
the index in KMI.  The stock recently rolled over near its 200-dma,
which was near the same level as its long term descending trend
line, and has since broken down in similar fashion to the XNG.X.
The stock could have downside from here to the lower $40s, or
possibly near the March lows around the $40 level.  The first
possible site of support will come into play at the $45 level,
which may result in a relief rally if the XNG.X stabilizes.
Rallies from here would offer a favorable entry point on rollovers
from the downward sloping 10-dma now overhead at the $48.13
level.  Tight stops can manage risk on such entries, or just
above short term highs at $49.11.  We'll initiate coverage on
this play with a stop at $49.25.

***May contracts expire next week***

BUY PUT MAY-45 KMI-QI OI=2497 at $1.05 SL=0.50
BUY PUT JUN-45*KMI-RI OI=  86 at $2.50 SL=1.25

Average Daily Volume = 895 K



************************Advertisement**********************************
GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS

* EASY screens for spreads, collars, covered calls or butterflies!
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest012

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
***********************************************************************


**********
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                  Tuesday 05-07-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

EXPE - Expedia $81.65 -0.83 (-2.38 this week)

Expedia, Inc. is a provider of branded online travel services for
leisure and small business travelers. The Company operates full
service travel agency Websites targeted at customers in a number
of geographies. The Company operates Expedia.com in the United
States; Expedia.co.uk in the United Kingdom; Expedia.de in
Germany; and Expedia.ca in Canada. The Company also operates 
theTravelscape.com, LVRS.com, VacationSpot.com and
Rent-a-Holiday.com websites.

Most Recent Update

The only real talk concerning EXPE so far this week has been the
company's steps to take market share away from weaker
competitors.  Indeed, the company's expanding market presence
and aggressive marketing have led to a great deal of market share
this year, as revealed by the steady rise in shares of this super
strong online player.  But the positive chatter this week hasn't
helped push the stock any higher.  Instead, we've seen EXPE
pullback in the last two days on the continued weakness in the
broader market, and specifically in the Nasdaq market.  The market
weakness has been nothing more than an excuse for traders to take
profits in EXPE, and wait for its next run higher to new yearly
highs.  The pullback down to the 10-dma in today's session may
lead to a rebound rally in the coming sessions, but most likely
only if the broader market shows some signs of life.  If the
stock does continue lower along with the broader market, look for
a rebound from the $77.50 level, but make sure to set a tight stop
to protect against a potential breakdown.

Comments

EXPE has pulled back on light volume in the last two days,
following its heavy trading activity surge higher two weeks ago.
Its weakness has come on a further slide in the broader markets.
A relief rally in the near future should see EXPE retesting, if
not taking out, its recent highs.  Look for a rebound in the
market tomorrow and for EXPE to resume its upward trend.  Entries
at current levels can be played with tight stops.

***May contracts expire next week***

BUY CALL MAY-80*UED-EP OI=1300 at $4.20 SL=2.50
BUY CALL MAY-85 UED-EQ OI=1351 at $1.70 SL=0.75
BUY CALL JUN-85 UED-FQ OI= 357 at $4.90 SL=2.75
BUY CALL JUN-90 UED-FR OI= 399 at $3.10 SL=1.75

Average Daily Volume = 1.51 mln



************************Advertisement********************************
OptionsXpress: "FOUR STARS"; 1 of the "BEST ONLINE BROKERS"--Barron's

* 8 different FREE options pricing, strategy, and charting tools
* Outstanding customer service--access to options specialists 
* Real-Time Buying Power, Account Balances or Cancels
* EASY screens for spreads, collars, covered calls or butterflies!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest013

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
*********************************************************************


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

More than a few plays were recently triggered, while a few less 
meandered away from action points.  We’re going with a new mix 
tonight.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/050702.asp


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

It’s been a busy two days for Market Posture.  Sectors from tech 
to transports have been on the move, mostly below support levels.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/050702_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