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Daily Newsletter, Tuesday, 05/14/2002

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The Option Investor Newsletter                 Tuesday 05-14-2002
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)
************************************************************
      05-14-2002           High     Low     Volume Advance/Decline
DJIA    10298.14 +188.48 10304.44 10119.34 1.41 bln   2207/ 984
NASDAQ   1719.05 + 66.51  1722.26  1691.42 2.60 bln   2432/1119
S&P 100   545.42 + 11.84   545.89   534.66   Totals   4639/2103
S&P 500  1097.28 + 22.72  1097.71  1074.56             
RUS 2000  511.40 + 12.00   511.99   499.72
DJ TRANS 2767.70 + 64.73  2770.04  2702.12
VIX        21.89 -  1.62    22.90    20.81
VXN        44.34 -  1.78    46.61    44.01
TRIN        0.57 
PUT/CALL    0.57
************************************************************

Chips, No Dip!

Starting the day off in style Robertson Stevens upgraded INTC
to a buy from market perform and the race was on. Yesterday as
you remember AMAT was upgraded before the open and the markets
reacted strongly as shorts covered early to avoid the rush. 
Today those remaining short wished they had covered on Monday
as the news sent the Nasdaq to a almost a three week high at
1718. The SOX gained +6% today on top of a strong gain on Monday. 




 




 




 


The RS upgrade of Intel stressed the fact that this could be the
first quarter in over five years that Intel has failed to cut 
prices on its leading computer chip. Either demand has increased 
or AMD is no longer a viable competitor. This news prompted traders
to cover short positions on anything PC related. Dell for instance
gained +1.54, MSFT +2.30 and even IBM added +3.29 on the day before
its bi-annual analyst conference. What is a bear to do?

The tech news was helped by good news from the retail sector where 
Wal-Mart announced record earnings, which increased nearly +20% on
a +15% increase in sales. The $.37 cent profit beat the street by
a penny with sales approaching $55 billion for the quarter. The
guidance was less than stellar but decent. The company said the
rate of improvement in the economic recovery was slowing but they
should have an inline quarter. This cautious guidance did not keep
WMT from adding +2.35 to its stock price.

Helping the Retail bullishness was the Retail Sales numbers which
jumped +1.2% in April, the largest monthly gain since October. The 
retail sales numbers impressed upon traders that a) the recovery 
may actually be in progress and b) the consumer is spending their
tax refunds at a record pace. Nearly 4.5 million more people have
received their tax refunds than at this time last year. This money
is being poured back into the economy at the retail level. 

The Retail rally had plenty of chips to celebrate with and it was
quite a party for everyone but WorldCom. WCOM was removed from the
S&P-500 at the close and the volume nearly doubled the previous
record for any single issue day on the Nasdaq. At 670 million shares 
it passed the 308 million record held by Intel, 281 million held 
by Cisco and 266 million held by SUNW. The next two places were 
already held by WCOM at 256 and 254 million respectively. Enron
holds the NYSE record at 346 million shares. The 670 million shares
represented nearly 25% of the 2.9 billion shares outstanding. WCOM
accounted for 25% of the 2.6 billion shares traded on the Nasdaq
today.

Brocade previewed its Wednesday earnings on a webcast today by 
mistake. Their complete earnings were not released but question 
and answer notes that related to guidance. The company indicated 
they expected to beat estimates and for 3Q revenue to rise to 
nearly $150 million from $116 million last year. This guidance 
along with the AMAT news continues to paint a positive tech 
picture. Analysts were only looking for $141.8 million. They
also announced that their SilkWorm switch would be offered through
an OEM agreement with IBM.

After the close AMAT followed through with optimistic expectations
and beat the street by a penny but blew away estimates for new
orders. The company was expected to announce $1.35 billion in 
new orders but they announced $1.69 billion instead. They said 
renewed demand for consumer electronics helped push orders up +51%
and beating expectations. The company also predicted up to a +15%
increase in orders for the 3Q. The company said they were seeing 
a moderate recovery, driven by "strong" consumer-related demand
and a strengthening "wireless" market in Europe and Asia. WOW!
Strong consumer and wireless? What next, fiber optics? (grin)

HWP (HPQ) in case anyone is interested also announced earnings 
after the close and met estimates on profits but missed revenue
by a mile. This is the last time they will report earnings without
including CPQ in their results. HPQ lost -$1.00 in after hours.
HPQ warned that IT spending will remain weak with no real
recovery until next year. They stressed that consumer spending
was weak and corporate spending was showing no signs of improving.
Ouch! Carly said, "a muted recovery for 2002 was still possible
but don't count on any meaningful improvement until 2003." Is
it just HWQ or is it everyone? Dell will offer their translation
on Thursday.

The next two giants to rule our fate this week are IBM and Dell.
IBM will hold its biannual analyst meeting on Wednesday and after
two strong days of gains almost anything good they may say is 
already priced into the stock. This sets up a lose/lose situation.
Good news is priced in, stock drops. Bad news is not priced in,
stock drops. Of course IBM investors could be so disillusioned that
any excuse for a rally will be met with open arms, but remember they
are rumored to be planning another -10% cut of their workforce. It
does not look like a positive outlook in their future. 

Dell will announce earnings after the close on Thursday and they 
are expected to show sequential drops in sales and earnings. This
will probably be overlooked with Michael Dell expected to be very
happy about the HWP/CPQ merger and his chances for gaining market 
share while those two porcupines attempt to mate. I suspect IBM 
will be the bigger problem of the week.

It was interesting that the transports gained ground today even
as oil hit new highs at $29.54 a barrel. Could it be that the 
Dow theory is alive and well despite the prospects of even lower
earnings by airlines due to rising fuel costs? That idea may be
tested again tomorrow because oil data released after the close
showed an unexpected drop of over seven million barrels in current
oil supplies. Looks like $30 could be in our future.

All dressed up and nowhere to go? The markets have put together 
two days of strong gains that remind traders of the tech bubble
days. The Dow came to a dead stop just under strong resistance 
at 10300 with the next level of 10400 liable to limit any gains
for the rest of the week. Are investors ready to buy stocks on
principle and hold them despite the short term volatility? I
doubt it. Visions of increasing earnings are there to see but 
even with the better than expected AMAT results there was still
caution in the guidance. 

The Nasdaq also stopped right under resistance at 1725 but if 
that is broken the next strong resistance is not until 1825. 
These are numbers that were unthinkable just a week ago when
it was threatening the low 1500 range. Old habits die hard and
just like dip buyers persisted for a year after the crash began
the rally sellers may continue to pressure us for some time.

The S&P stopped right under resistance at 1100, (getting the
picture I hope), with next strong resistance at 1130. Every 
major index is right below resistance. This is great if we have
the power to break it tomorrow but the futures are actually down
as I write this. If we can't break through at the open then the
all the gains from the past two days will be called into question.
We all know that the buying from the last two days was mainly 
short covering of tech stocks prior to the AMAT earnings. Those
earnings are now record and as we have seen in the past they 
could end up roadkill for the "buy the rumor, sell the news"
crowd. 
 
Everyone would like to wake up in the morning to another triple
digit open but you can only have so many of those days in a 
row before the house of cards collapses. The VIX has died and
has sunk to a low of 20.81 on Tuesday. The TRIN is at a miserable
.57 as well as the put/call ratio. Any market technician will 
tell you that is a recipe for a drop. That drop could be just
a severe profit taking dip intraday or several days of retreat
like we had last week. Remember that +300 point gain that
evaporated before the week was out?

I am not advocating that everyone buy puts at the open. We 
don't need to try and correct the put/call ratio by ourselves.
I just want everyone to be aware that what goes up quickly 
sometimes comes down just as fast. I do believe the evidence 
of the economic recovery is becoming too strong to ignore by
even the staunchest bears. For every hundred points the Dow 
and Nasdaq add there are several thousand more investors who
have been on the sidelines that decide to venture back into 
the market. This is building some upward pressure as you can
see by the strength of these short covering rallies. The sellers
are not as strong and the buyers are nibbling. While it may be
a little early to start calling for the beginning of the next
bull market (sorry Jeff/Leigh) we are getting close to that
magic day. However, nobody will be able to point to it until
long after it has passed and we still have the summer doldrums
ahead of us. 

I do think it is time to start rounding that extra cash and 
start sending it to your broker. Spring is here and garage 
sales are in the air. Sell the rest on EBAY and get ready 
to turn that idle money into some real dough. The 3Q earnings 
estimates appear to be improving and that is the real key. 
The bulls will have their day again and the bears will 
be forced back into hibernation. Until then, keep those stops 
tight on your longs and let's see just how the rest of the 
week goes. Before we can breakout to new highs there is a
lot of resistance to be broken and that can be a painful 
experience as we all know.

There are still economic hurdles to be overcome this week as 
well. The CPI and Industrial Production on Wednesday, Housing 
Starts on Thursday and the ever-present Consumer Sentiment on 
Friday. They can either be potholes on our path or kindling 
for the next advance but they should not be ignored. 

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

GAP AND GO
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
We saw a similar pattern to last week, with sizable upside gaps 
on the indexes.  As with last week, these gap areas are now worth 
watching, as it is common for the indices to decline back into 
these gap areas on a subsequent correction. We saw what happened 
when the gaps were filled in partially or entirely on Friday. At 
this point buyers came in again and took the market higher.  

An upside gap is simply where the High of one period (hour, 
daily, weekly) is below the Low of the next. The gap is the 
difference between the High and the Low. It is an empty space - 
seemingly no big deal.  However, this price area had no buying as 
no offers were present. When prices come back to these gap areas 
and trading in the chart gap space "fills" it in, there tends to 
be strong buying interest again as stock prices are back at 
levels where the gap event occurred.  

Gaps commonly do get filled in within a few days of the gap.  
They don't always get filled in, but the ones that don't, due to 
buying interest being high at the top end of the gap area, are 
more common to individual stocks.  

So, the gap areas highlighted on the charts below, are of 
interest to traders who might want to buy puts in resistance 
areas - possible downside objectives then becomes the gap areas.  
Conversely, for frustrated bulls feeling like they may be 
watching the train pull out of the station without them, the gap 
areas represent a possible area where you can get long calls. Of 
course on such a retreat in prices, you need to not lose your 
bullish conviction.  

There has been a lot from the talking heads on CNBC, etc., 
constantly saying that P/E ratios are still high relative to 
expected earnings - therefore, stock prices must come down.  
However, stocks are an asset class that must be viewed in terms 
of the main competing asset class for our investment dollars.  
The main competing asset is fixed-income.  With interest rates so 
low, bond holders have gone shopping for something with more 
upside potential - that would be equities. 

It is instructive to take a look at one of the longer-term yield 
charts on the most popular Treasury issues, the 5-year Note.  
Yields have been rising since October, as bond investors demanded 
higher yields to own bonds, as they looked ahead to possible Fed 
rate tightening.  However, yields are now into some longer-term 
resistance as suggested by the analysis of the weekly chart 
below: 



 
  

When yields stop going up, and I think they will moderate over 
the coming weeks, there is less interest in bonds and more 
interest in equities, especially now that a major bottom may be 
forming in stocks. So, it is not just analysis of P/E ratios that 
should be taken into account in judging the prospects for stocks, 
but what other alternative investments are out there.  

Real estate is another possibility, but in a low inflation era, 
we don't have hoards of people buying second houses to rent out 
or to flip. There is gold, but its appreciation potential has 
always been limited unless there was a major inflation trend 
eroding the value of financial assets.    


S&P 500 (SPX) Daily/Hourly charts: 


 

I suggested yesterday that a close over 1088, at the 21-day 
moving average, was needed to create a clear cut bullish 
breakout.  We got that today and then some. We now have the 
possibility of SPX reaching the upper trading band, which 
suggests a target to as high as the 1130 area.  

There may be of course, pullbacks along the way.  For example, 
corrections from the upper trendline of the emerging uptrend 
channel on the hourly chart. Potential resistance comes in around 
1105-1108 currently.  Near support is at 1088-1090. 

A possible eventual downside objective is to 1080. The gap area on 
the hourly charts is in the 1075 area.  This should be a strong 
area of support, if reached. 

I favor the buy side on balance, but buying "safely" may take 
waiting to avoid the first sharp shakeout.  The risk is that we 
don't get the pullback until much higher levels - momentum is 
strongly higher and the close at the intraday high suggests that 
more buying will come in Wed. morning.  

S&P 100 (OEX) Hourly/Daily charts:


 


The close above 540.7, at the 21-day moving average, now suggests 
potential to as high as 560-565.  However, as I noted with the 
500, a close over this particular resistance should mean that it 
then becomes support on pullbacks. If not, look for a pullback. 

Near support is in the 540 area. I would like to buy calls again, 
but on a setback, particularly back down to the gap area around 
535. Patience will be required to wait for corrective action and 
a hoped for "safer" spot to buy into this market if you are not 
long or are holding index puts.  
 
Dow Industrials 1/100 Index ($DJX.X) Daily/Hourly charts: 


 


The second day of trading above the 21-day moving average 
suggested that DJX may reach the top trading band in the 105 
area.  How we get there is another story. The odds of a 
correction early is limited, given the close at the high.  The 
bulls are not letting the bears off the hook easily!  

Looks like the top of the emerging hourly uptrend channel might 
signal resistance developing in the 103.8-104 area. Nimble 
traders might take a stab at shorting there, with a stop at 
104.5.  

Support is at 101 - 101.5. I most favor buying calls in this 
area. A move to 101.11 would "fill in" the upside hourly chart 
gap and offer strong support in my estimation. 
 
Nasdaq Composite ($COMPX) Weekly/Daily charts:


 

I anticipate a pullback into the gap area.  The question is WHEN? 
With the Nasdaq, I am more inclined to suggest selling into 
resistance around 1740, looking for a pullback to at least the 
1693.  I favor buying Nasdaq calls if and when the Composite gets 
back into the 1693 to 1653 zone.  1660 may the area to focus on 
as a realistic downside possibility.  

The question again is how we get there.  Do we first go up toward 
the upper trading band in the 1795 area and then correct?  This 
may be the case, but tomorrow should tell the story. If the 
Composite cannot maintain a second day close over the 21-day 
average at 1693, it suggests a correction sooner rather than 
later.      

Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: 


 


As I said yesterday, the close over 31.9 at the 21-day moving 
average created a bullish looking chart picture.  One close over 
this level is not enough however, as tomorrow should be watched 
to see if the rally holds up. The close at the high suggests 
early strength. 

Assuming the up trend continues unabated, I don't see a major 
shorting opportunity coming before the upper band area is reached 
on the daily charts -- 34.4-35 looks like a possible objective.    

Today, on the Market Monitor I suggested selling in the 33.00 
area, risking to 33.50, with an objective to 31.25-31.00. This is 
the most "optimistic" on the downside potential. However, near 
support is in the 32-31.80 area.  I most favor buying calls 
again, wherever support develops. 


INDEX TRADE RECOMMENDATIONS: 

LIQUIDATIONS: 
Recommendation: 5/12 - Buy SPX on 5/13 at 1048 or on advance 
above 1060, whichever came first. Objective: 1075

CALL EXAMPLE: 
5/13: June 1190 Call level at SPX 1160 = 15.00
5/14: Open greater than 1075 trade objective  
5/14: Sale of June 1190 Call at Open = exit at 25.70, for a 
      10.70 profit    


MAJOR MARKET INDICATORS - 

On 5/8, the day of the large 1-day advance last week, my Index 
Trader column had all my general market indicator charts; e.g., 
sentiment, advance-decline, volume and TRIN. 

All were pointing to a major trend turnaround and a significant 
rally.  If you are interested in reviewing those indicators, you 
can scroll back on the Option Investor Home page to my 5/8 
column: "Holy Cow!"  

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Full Steam Ahead?
By Eric Utley

As it turned out, we were a few days early on the tepidly bullish
market call last Thursday.  But our trusted indicator didn't let
us down.  It was, after all, right again!  The Nasdaq-100
Bullish Percent ($BPNDX) reversal into bull alert mode, below the
30 percent level we might add, last Thursday foreshadowed what
we've seen in the technology sector so far this week.

So where do we go from here?  To me, there appears to be more
upside in this rally from Tuesday's close.  But that's not based
upon Applied Materials' (NASDAQ:AMAT) perceived bullish earnings
report after the bell today.  Rather, I see room to the upside
in key technology measures.  Certainly enough room to trade.  If
you're still bearish on technology, I think you're better off
waiting for a better entry point at higher prices until the bulls
run their course.  

I've seen a significant shift in several of my indicators that
suggests the upside is where the risk lies.  But looking out past
this recent upside, I do see some troubling signs as they relate
to the intermediate term.  Namely the lack of stick in the CBOE
Market Volatility Index (VIX.X).  For whatever reason, investors
continue to believe in every rally that even hints towards carrying
stocks higher over the short term.  What we need to see in order
for a rally to last over the intermediate to long terms is a wall
of worry to form.  That way to monitor for that wall is through
the volatility measures.  I just don't see it yet.

An interesting study of a wall of worry can be found in the Gold
and Silver Index (XAU.X).  Readers can examine the trading of
puts versus calls on the XAU.X, and the relationship with price
in the index, to observe what a wall of worry looks like, and how
an asset's price climbs that wall.

Nevertheless, over the short term, it appears that the easier
direction to trade is the bullish direction.  Until we see a
significant shift in the indicators, most accurately the $BPNDX,
the bears will likely remain on the run, while the bulls will
press ahead.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10298

Moving Averages:
(Simple)

 10-dma: 10323
 50-dma: 10261
200-dma:  9907



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1097

Moving Averages:
(Simple)

 10-dma: 1074
 50-dma: 1120
200-dma: 1122



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1306

Moving Averages:
(Simple)

 10-dma: 1226
 50-dma: 1378
200-dma: 1468



Software ($GSO)

The GSO.X was the best performing sector in today's technology
led rally.  The sector edged past other tech sectors such as
the SOX, BTK, and INX to earn the top spot.  The GSO.X gained
6.40 percent for the day.

Top movers included Novell (NASDAQ:NOVL), Veritas (NASDAQ:VRTS),
Agile Software (NASDAQ:AGIL), Ariba (NASDAQ:ARBA), and BEA
Systems (NASDAQ:BEAS).

52-week High: 246
52-week Low : 112
Current     : 133

Moving Averages:
(Simple)

 10-dma: 124
 50-dma: 148
200-dma: 162


Gold ($XAU)

The tech led rally Tuesday caused a shift out of defensive
sectors of the market.  And gold is as defensive as it gets.
The XAU.X earned the day's worst performing sector spot with
its 5.49 percent drop.

Movers to the downside included Meridian Gold (NYSE:MDG),
Agnico Eagle Mines (NYSE:AEM), Newmont Mining (NYSE:NEM),
and Harmony Gold (NASDAQ:HGMCY).

52-week High: 81
52-week Low : 49
Current     : 76

Moving Averages:
(Simple)

 10-dma: 78
 50-dma: 71
200-dma: 60

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

Market Volatility

The VIX imploded Tuesday following Monday's move lower.  The
fear gauge isn't revealing much of that emotion with the return
of the bulls.  There's no wall of worry here.

After kissing its 200-dma for the second time last Friday, the
VXN headed lower on the strength of tech shares during Monday's
session.  Tuesday, the VXN lost another 3.85 percent.

CBOE Market Volatility Index (VIX) - 21.89 -1.62
Nasdaq-100 Volatility Index  (VXN) - 44.34 -1.78

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.57        896,455       508,222
Equity Only    0.49        748,853       364,059
OEX            0.76         44,887        34,322
QQQ            0.66         69,759        45,755

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

Bullish Percent Data

           Current   Change   Status
NYSE          62      + 0     Bull Confirmed
NASDAQ-100    28      + 1     Bull Alert
DOW           53      + 0     Bear Confirmed
S&P 500       57      - 1     Bear Alert
S&P 100       53      - 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  1.15
10-Day Arms Index  1.31
21-Day Arms Index  1.32
55-Day Arms Index  1.25

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      2228            986
NASDAQ    2433           1117

        New Highs      New Lows
NYSE      139             28
NASDAQ    170             55

        Volume (in millions)
NYSE     1,419
NASDAQ   2,598

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

Commitments Of Traders Report: 05/07/02

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 eased further from their extreme bearish
positioning.  The group added more longs than shorts for a
reduction to their net bearish position.  Small traders backed
off from their most bullish reading by adding more shorts than
longs.

Commercials   Long      Short      Net     % Of OI
04/16/02      322,578   411,245   (88,667)  (12.1%)
04/30/02      340,936   421,673   (80,737)  (10.6%)
05/07/02      348,019   422,801   (74,782)   (9.7%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
04/16/02      150,529     50,424  100,105     49.8%
04/30/02      153,158     56,372   96,786     46.2%
05/07/02      154,664     59,583   95,081     44.4%

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 stayed on the fence during the most recent
reporting period.  The group's net position is short 814
contracts; not much conviction there.  Same thing with small
traders; they're long a full 68 contracts.

Commercials   Long      Short      Net     % of OI 
04/16/02       32,024     35,723    (3,699)   (5.5%)
04/30/02       34,591     35,933    (1,342)   (9.7%)
05/07/02       38,338     39,152      (814)   (1.1%)

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
04/16/02       12,458    10,572     1,878      8.2% 
04/30/02       12,271    12,703     (432)      1.7%
05/07/02       13,229    13,161        68      0.3%

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 remained flat during the most recent reporting
period.  The group added a few longs and shorts.  Small traders
grew more aggressive on the bearish side by bringing their net
position to short 4,700 contracts.

Commercials   Long      Short      Net     % of OI
04/16/02       19,080    14,267    4,813     14.4% 
04/30/02       17,275    13,341    3,934     12.8%
05/07/02       19,967    14,045    5,922     17.4%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
04/16/02        5,644     9,448    (3,804)   (25.2%)
04/30/02        5,813     8,869    (3,056)   (20.8%)
05/07/02        5,124     9,831    (4,707)   (31.5%)

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 - 5/14
by Leigh Stevens

 
The same tech sectors were the top gainers again today, with the 
Semiconductors ($SOX.X) in the forefront. SOX today gained 
another 6 percent and I indicated yesterday that I would focus on 
the SOX if there was a second day of strong gains.  

SECTOR TRENDS AND TRADING IDEAS - 


 

The jury is still out on whether the SOX is reversing its trend. 
The sector index needs to advance to above 580 on a weekly 
closing basis to suggest that SOX had reversed its downtrend. 

An initial bullish positive this week would be a close above the 
40-week moving average. Stay tuned, as SOX needs to close over 
540.   

One stock in this sector that IS acting already like it has made 
a bottom, is Intel Corp (INTC). 



  

INTC has completed a 62% retracement at the recent low.  The gap 
up today was bullish, but I think that the stock can drop back 
into this gap area and retreat back to the 28.50 area. If so, out 
of the money (OTM) calls like the one shown are a possible play.  

Healthcare Payors Index ($HMO.X): 

Healthcare ($HMO.X) continues its corrective action. As said 
before, after a correction, these stocks are likely to have still 
more upside, so view this pullback as a buying opportunity.  

PacifiCare Health Systems (PHSY) dropped a second time into my 
suggested buying zone at 23.5-24.7, with a low at 24.1, but with 
a close at 26.98. The August 30 calls were one possible play; 
close: 2.30.  

Oxford Health Plans (OHP)  - Buy suggested in $43 area. Down to 
44 today, back up to 45.84 at the close. 

United Health Care (UNH) - Suggested buy at 82-83. Not close yet, 
but still correcting.  Sept. 95 calls are a possible option play.   
 
Wellpoint Health Networks (WLP) - suggestion was to buy at 72.00 
area, a doable purchase today with dip to nearly 70.  I 
suggested further purchases around $70 - today we saw a low at 
67.77, but a close back above 70, at 70.35.  

The July 80 calls are getting fairly cheap - today's close: .80, 
down from the 2.60 area at the beginning of the month. 

AETNA (AET) - My revised entry suggestion is in the $44 area. 
Today AET held its up trendline, in its close at 46.66. Not there 
yet.   

HUMANA (HUM) - purchase suggestion is first, at 15.60, at 
its support (up) trendline; then if further weakness develops, in 
the 15.00-15.15 area. 

Today, HUM reached a low of 14.75, rebounding to close at 15.33. 
The August 17.5 calls are getting cheaper - close today: .70  

MID ATLANTIC MEDICAL (MME) - buy point suggested in the 32.80-
33.00 area. Low today was 34.  

TENET HEALTHCARE (THC) - buy in the 66 area. Today saw a dip to 
just under the 70 area, with a close at 71.53.  


LIQUIDATION OF TRADES PREVIOUSLY RECOMMENDED:

>> Cyclical sector ($CYC.X) - 4/15 suggestion:
1.) iShares Cyclical Trust (IYC)  - Bought at 56.95
5/14 close: 56.15
2.) OPTION play: CYC Sector stock, - Alcoa (AA) 
May 40 calls (AA EH) - Bought at .60
3/14 close: .05
  
5/14: Exited on the rally to and above $36 today. The stock still 
looks vulnerable to another downswing, which may develop from 
resistance in the 37 area. 

 

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                  Tuesday 05-14-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

SGR - Shaw Group $34.29 +0.94 (+1.04 this week)

The Shaw Group Inc. (Shaw) is a vertically integrated provider of
complete piping systems and comprehensive engineering, procurement
and construction services to the power generation industry. Shaw
has supplied fabricated piping systems in over 375 power plants
with an aggregate generation capacity in excess of 200,000
megawatts of piping systems in the United States and worldwide.

Most Recent Update

SGR kicked off the week with a favorable analyst coverage.  Frost
Securities initiated coverage on the stock with a strong buy
rating Monday morning.  But despite the bullish analyst actions,
the stock didn't respond.  Instead, SGR spent the day meandering
in a tight trading range on very light volume.  In other words,
Monday's session for like a consolidation day for SGR.  That was
even more evident at session's end when the stock completed an
inside day session. But it did manage a breakout from that inside
day during today's session, which saw the stock trace a new
relative high in its most recent leg higher.  The stock now
appears fully broken out of its ascending wedge pattern, which
looks to carry SGR higher over the short term.  For new entry
points, we favor pullbacks on light intraday trading volume to
between the $33 to $33.50 support zone.  We also like the
upward curling action of the 10-dma, which sits just above the
$32 level now.  During any extended pullback in the market
or the stock alone, the 10-dma may come into play as support
and provide a favorable entry point upon a rebound from near
that level.

Comments

SGR is displaying very impressive technicals.  The stock is coming
off of an inside day breakout, plus a short term ascending wedge
pattern.  The shorts should be nervous in this stock's failure to
give up ground to the downside, and the buyers are gaining
confidence by the day.  Look for a move above today's high at the
$34.53 level.  Confirm with an increase in volume.

BUY CALL JUN-30 SGR-FF OI=138 at $5.10 SL=3.25
BUY CALL JUN-35*SGR-FG OI=552 at $1.75 SL=0.75
BUY CALL JUL-35 SGR-GG OI=661 at $2.40 SL=1.25
BUY CALL JUL-40 SGR-GH OI=142 at $0.90 SL=0.25

Average Daily Volume = 620 K



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

Wow!  Plays are triggering action points, mostly to the upside.  
Here are two more bullish stocks to monitor this week.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/051402.asp


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

Technology sectors were on the move in the last two days.  
Financials too.  Will the rally continue?


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http://www.OptionInvestor.com/marketposture/051402_1.asp


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