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Daily Newsletter, Thursday, 05/16/2002

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The Option Investor Newsletter                Thursday 05-16-2002
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)
************************************************************ 
        05-16-2002        High      Low     Volume Advance/Decline
DJIA    10289.20 + 45.50 10318.80 10230.70 1237 mln   1419/1732
NASDAQ   1730.40 +  4.80  1734.71  1713.81 1437 mln   1568/1930
S&P 100   547.88 +  5.86   548.17   541.08   totals   2987/3662
S&P 500  1098.23 +  7.16  1099.29  1089.17
RUS 2000  507.40 -  6.14   513.10   506.02
DJ TRANS 2768.97 – 29.01  2805.18  2765.82
VIX        21.45 -  0.57    22.25    20.88
VIXN       44.52 -  0.34    45.42    44.20
Put/Call Ratio      0.86
************************************************************

Slow down, no reversal 
by Leigh Stevens

The recent strong tech rebound, that had the Nasdaq up 7% in two 
back to back barn burner days this week, abated today as the tech 
sector managed a gain, but was struggling to keep in the plus 
column for parts of the day as profit taking set in.  

Big gains in the blue chip stocks also were fewer, with the Dow 
only marginally higher. However, gins in the Dow today included 
SBC, which was up nearly 4%; General Electric (GE), +3.5%, Wal 
Mart (WMT), +2.8% and JP Morgan Chase (JPM) with a gain of 2.4%. 
Microsoft (MSFT) and Intel (INTC), gained on the day by between 1 
and 2% and the two big-cap techs helped support the Nasdaq, which 
otherwise would have been lower on the day.

Providing a slightly negative backdrop was some soft economic 
data on the labor and housing markets.

This morning, the Commerce Department estimated housing starts of 
new single-family homes fell 2 percent to 1.27 million from 1.30 
million. Consensus estimates were for starts to be higher. 
Construction of new housing units fell in April also, off about 
5% to an annual rate of 1.56 million from 1.64 million. The 
housing report suggested some slowing from a very high building 
rate from early in the year - of course, weather was unusually 
mild then. 

This morning's jobless claims number showed that jobless claims 
rose again last week by 2000. The advance figure for seasonally 
adjusted initial jobless claims for the week ending May 11 was 
418,000, well above the 407,000 forecast.  

Today, the Philadelphia Federal Reserve's monthly index fell to 
9.1 in May from 12.3 in April, indicating a slowing down in 
improvement of the manufacturing sector in the Philadelphia 
region. Economists, the practitioners of the "dismal science", 
were expecting the index to rise above the prior month, to the 14 
area. However, the context here is that the Philadelphia Fed 
index was below zero prior to 5 months ago, with each succeeding 
month since then, in plus territory.

These clues of a less than robust economic pickup provided some 
encouragement to the bears and a mild dose of disappointment to 
the bulls. However, the bulls seem to have their eyes firmly 
fixed on a hoped for time a few months out when strong business 
spending is the difference between 3% or 5% on GDP for some 
future quarter. 

COMPANY/MARKET INFLUENCES -
Talk of market moving events ahead today was about Dell Computer 
(DELL) earnings due after the close. Dell was expected to 
announce slightly lower earnings than the prior quarter, but in 
line with estimates. The company has been optimistic about their 
chances of gaining some market share as a result of the Hewlett 
Packard/Compaq merger, so positive guidance was also expected. 

While consumers have been holding up much of the economy 
throughout the recession and economic downturn, businesses have 
scaled back budgets for IT and other technology purchases as 
corporate profits have been hampered by falling sales and 
revenues. With signs of improvements in the economy, investors 
were clearly hoping that the corporate sector might be buying 
again, so Dell's numbers and ancillary information were due to be 
scrutinized for signs of any increase in business spending. 

AFTER HOURS - 
Dell Computer announced its earnings after the close and they 
beat the Street estimate slightly. Dell reported net income of 
$457 million, or 17 cents a share, on revenue of $8.066 billion. 
During the same quarter last year, net income was $462 million, 
or 17 cents a share, on revenue of $8.028 billion. Street 
expectations were 16 cents a share on revenue of 7.86 billion.  

The all-important new holy grail, GUIDANCE on future earnings, 
was upbeat from Dell also. For Q2, Dell expects to earn 18 cents 
a share with improved (operating) margins - on revenue of $8.2 
billion. On average, consensus estimates were for Q2 earnings of 
17 cents a share, on revenue of $8 billion.

Dell's results generated a bit of a tech-buying spree in after 
hours trading Thursday, due to their increases in revenues and 
profits based partly on the strength of corporate sales. NDX 
(Nasdaq 100) added about 4 points initially. Dell's stock was 
about 1% higher.  This bullish action should influence a firm 
opening tomorrow, absent any bearish news. 

Agilent Technologies (A) reported a wider-than-expected second-
quarter net loss, reversing gains pocketed a year ago, as 
revenues declined by nearly 40%. A also indicated it sees a Q3 
operating loss of 10 to 20%. However the stock did not move much. 
Cisco Systems (CSCO) rose sharply, before falling back some in 
after hours trading as industry tracker Dell'Oro revealed that 
Cisco  gained market share in almost every category in which it 
does business.

TRADING STRATEGY - 
The market looks headed higher. I can find a lot of "reasons" why 
stocks should not go much higher, at least now. You know all the 
reasons that could or should work against any sizable bull move. 
However, technical action is bullish, buying is coming in and the 
other technical factors look bullish.  Therefore, I assume the 
market is "right" in its outlook and former bearish influences 
are not going to be the key determinants of trend for now.  

My anticipation has been that there would be a (downside) 
correction and more of a pullback here in the near-term, before 
another move higher.  However, both Nasdaq and NYSE-related 
indices look like they may be consolidating their recent gains by 
just trading sideways for 1-3 days above recent near-support, in 
the area of some of the indices last hourly price peaks.  

Key near-term support levels are: 
SPX -1090; OEX -541; DJX -102; COMP -1700; NDX -1288; QQQ -32

If these hourly support levels are pierced or broken, follow 
through selling could then take the indexes back into the areas 
where I favor call purchases, around and in the chart gap areas:

SPX at 1080; OEX at 535; DJX at 101; QQQ at 31

If the foregoing declines don't happen - if say, it’s the bulls 
turn to punish the bears! - getting into new positions may 
necessitate buying the indices if they exceed their implied 
breakout points:  

SPX above 1100-1103 - objective to 1128; trend reverses at 1085
EX above 547 - objective to 563; reverses at 538 
DJX above 103 - objective to 105.3; downside reversal at 100.3
COMP above 1736 stop  - objective to 1785; trend reverses at 1683
NDX above 1325 - objective to 1376; reversal point at 1272
QQQ above 33.5 - objective to 35; trend reverses at 31.5

A breakout move assumes strong upside follow through after it 
occurs. If, instead there is a reversal, we need consider what 
levels would indicate possible downside reversals and these exit 
or reversal points are also indicated above.

CHARTS OF INTEREST -

At the juncture of what might be a major or intermediate trend 
reversal, it's important to examine the longer-term weekly charts 
for analysis of what is going on.    

DJIA - Dow Jones Industrial Average ($INDU) - Weekly:   


 

The Dow has clearly broken out to the upside from a well-defined 
weekly downtrend channel. This did not occur from an oversold 
level, according to the RSI (Relative Strength index). This is of 
less importance than watching for when the DJIA again moves into 
an overbought situation at the upper RSI line.  10,675, at the 
prior peak, would be the next major potential resistance.   

The S&P 500 ($SPX.X) - Weekly:


 

The S&P 500 has some distance to go before a weekly closing high 
would clear the major downtrend line at 1125.  The recent 
apparent weekly upside reversal, occurred after the Index 
completed an approximate 50% retracement of the last big advance.  
This is a common retracement amount before a countertrend move 
occurs. Above 1125, there is major resistance at the 1175 double 
top. 

The Nasdaq 100 Tracking Stock (QQQ) - Weekly:


 

QQQ is just beginning a possible upside penetration of the long-
term down trendline.  The Q's need to close at or above 32.9-33 
to achieve a decisive upside penetration of this line.  Next key 
resistance then is at the 40-week moving average at 36.   

Some of the shorter-term daily and hourly charts, with notations 
on the very near-term outlook can be found in my Index Trader 
sector. 


SECTOR NEWS and EVENTS - 
The Internet index ($INX.X) was the strongest gainer today, up 
2.8%. Until today, much of the sector's rebound has most been due 
to the strong rally in Amazon (AMZN); today leadership in this 
group, was provided by Juniper Networks (JNPR), CNET Networks 
(JNPR) and Check Point Software (CHKP).

Showing that there is some level at which telecoms will be 
bought, the Telecoms Index (XTC.X) was up 2/3% mostly led by a 
gain in SBC Communications (SBC), after the No. 3 U.S. regional 
telephone company told analysts it was on track to meet its 2002 
growth targets. 

The Gold stocks, or the Gold and Silver sector index ($XAU.X) was 
an old familiar name on the top 3 performers, with a gain of 2%.  
The drug and biotech sectors were under sell pressure today, 
after rebounding some lately, after Pfizer (PFE) reported a 
pricing investigation. Also, IMClone Systems (IMCL) had bigger 
losses for the quarter than expected. NPS Pharmaceuticals (NPSP) 
fell sharply on a Merrill Lynch earnings downgrade. The stock is 
not part of the Pharmaceutical sector index, but had some 
influence in the sector as it was off 22%.   

The Pharmaceutical Index ($DRG.X) fell about 1% and the 
Biotechnology Index (BTK.X) stocks took the biggest sector hit and 
closed 3.3% lower on the day. 

Crude oil was off slightly today, with nearby crude oil futures 
closing just under $28, after a very volatile session, with an 
intraday high of 29.5. Bonds yields fell today, with the 5-year 
T-Note index ($FVX.X) declining 1.46%, to close at 4.52.


Leigh Stevens
LStevens@OptionInvestor.com


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





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

Expired
By Eric Utley

The bulls took a break from their recent buying binge during
today's session, leaving the major market averages slightly
higher for the day.  Bonds were higher too.  And for good measure,
gold equities found a bid to the tune of 2 percent.

In other words, there wasn't much to conclude from Thursday's
session other than stocks finished fractionally higher.  The
S&P 500 (SPX.X) traded in a very narrow range for the day;
intraday high to low measured 10 points.  The lack of volatility
during the session was a product of May options expiring tomorrow.
Traders finished their squaring of positions ahead of
expiration, with most sitting from the sidelines watching the
paint dry on the charts.

In the risk department, we've seen several major markets shift
back to bullish positions.  Most notably, the Nasdaq-100 Bullish
Percent ($BPNDX) and S&P 500 Bullish Percent ($BPSPX) reversed
back into bull confirmed mode, confirming the bull alert
positioning that we observed last week.  The Dow and OEX measures
reversed back up into a bear correction mode.

Like we talked about a few columns ago, the risk has now shifted
to the upside in the major averages.  That's not to say that
stocks go straight higher, but that the risk is now higher
rather than lower.  To the bears, that means covering short
positions, resulting in demand to the upside.  For the bulls,
that means trying bullish positions with good risk management.

As for tomorrow's action, the options expiration may continue to
lend to the lack of volatility in the market.  Put/call ratios as
well as market fear gauges are difficult to read into this close
to expiration.  

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10289

Moving Averages:
(Simple)

 10-dma: 10071
 50-dma: 10251
200-dma:  9907



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1098

Moving Averages:
(Simple)

 10-dma: 1075
 50-dma: 1117
200-dma: 1122



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1315

Moving Averages:
(Simple)

 10-dma: 1240
 50-dma: 1370
200-dma: 1465



Internet ($INX)

The INX was the best performing sector during today's session
with its 2.77 percent gain.  Most tech sectors finished in
positive territory, but the Internet sector gained the most for
the day.

The best performing stocks in the sector included Juniper
(NASDAQ:JNPR), Checkpoint (NASDAQ:CHKP), Cisco Systems
(NASDAQ:CSCO), and CMGI (NASDAQ:CMGI).

52-week High: 243
52-week Low :  76
Current     : 100

Moving Averages:
(Simple)

 10-dma:  92
 50-dma: 106
200-dma: 118


Biotech ($BTK) 

The BTK was the worst performing sector during Thursday's
session with its 3.26 percent drop on the day.  The poor
earnings report from ImClone (NASDAQ:IMCL) pressured the
already beaten down sector.

The worst performing stocks in the group included the
aforementioned ImClone, Protein Design Labs (NASDAQ:PDLI),
MedImmune (NASDAQ:MEDI), Enzon (NASDAQ:ENZN), and Millennium
(NASDAQ:MLNM).

52-week High: 676
52-week Low : 375
Current     : 409

Moving Averages:
(Simple)

 10-dma: 402
 50-dma: 468
200-dma: 512

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

Market Volatility

The VIX continued lower during today's session, in a way
confirming the recent bullishness we've seen in the broader
market.  But it's slipping back towards historic lows.

The VXN has slipped into a short term descending trend, dropping
another 2 percent during Thursday's session.  I'll be watching
for the curling 50-dma near 42 to provide a lift.

CBOE Market Volatility Index (VIX) - 21.10 -1.03
Nasdaq-100 Volatility Index  (VXN) - 44.55 -0.85

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.86        610,176       522,160
Equity Only    0.72        476,655       343,676
OEX            1.40         29,868        41,694
QQQ            0.83         56,745        47,074

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

Bullish Percent Data

           Current   Change   Status
NYSE          63      + 0     Bull Confirmed
NASDAQ-100    50      + 1     Bull Confirmed
DOW           53      + 0     Bear Correction
S&P 500       63      + 3     Bull Confirmed
S&P 100       61      + 3     Bear Correction

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  1.23
10-Day Arms Index  1.32
21-Day Arms Index  1.37
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      1429           1742
NASDAQ    1576           1919

        New Highs      New Lows
NYSE      122             49
NASDAQ    148             78

        Volume (in millions)
NYSE     1,227
NASDAQ   2,645

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

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 - 5/16
by Leigh Stevens


HIGHER ON THE DAY - 


 


DOWN ON THE DAY - 


 


SECTOR NEWS and TRENDS -
The Internet index ($INX.X) was the strongest gainer today, up 
2.8%. Until today, much of the sector's rebound has most been due 
to the strong rally in Amazon (AMZN); today leadership in this 
group, was provided by Juniper Networks (JNPR), CNET Networks 
(JNPR) and Check Point Software (CHKP).

Showing that there is some level at which telecoms will be 
bought, the Telecoms Index (XTC.X) was up 2/3% mostly led by a 
gain in SBC Communications (SBC), after the No. 3 U.S. regional 
telephone company told analysts it was on track to meet its 2002 
growth targets. 

The Gold stocks, or the Gold and Silver sector index ($XAU.X) was 
an old familiar name on the top 3 performers, with a gain of 2%.  

The drug and biotech sectors were under sell pressure today, 
after rebounding some lately, after Pfizer (PFE) reported a 
pricing investigation. Also, IMClone Systems (IMCL) had bigger 
losses for the quarter than expected. 

NPS Pharmaceuticals (NPSP) fell sharply on a Merrill Lynch 
earnings downgrade. The stock is not part of the Pharmaceutical 
sector index, but had some influence in the sector as it was off 
22%.   

The Pharmaceutical Index ($DRG.X) fell about 1% and the 
Biotechnology Index (BTK.X) stocks took the biggest sector hit 
and closed 3.3% lower on the day.
 
SECTOR TRADING IDEAS - 

Oil Services ($OSX.X)-

As with the Healthcare stocks, I want to examine if the sectors 
that were up strongly, while the overall market was falling, will 
continue to be market leaders when more areas of the market get 
in gear.  And, within OSX, Smith International (SII), BJ Services 
(BJS) and Cooper Cameron (CAM) look like representative or OSX 
"proxy" stock plays, and with listed options.  These 3 stocks 
have leading their sector. 
 


 

OSX's strong up trend has slowed and may be faltering. Momentum 
has slowed and an approximate double top has formed in the 111 
area. The index could now retreat to the 100 area, support 
implied by the low end of daily chart uptrend channel. However, 
from here, provided the lower trendline, or the prior downswing 
low is not penetrated, I have an eventual upside objective of 120 
for OSX.

OIL PRICES - 

Oil price rises strongly influence the oil and oil services 
stocks and their potential to increase their revenues and 
earnings as the commodity becomes increasingly valuable.  



 

Oil prices have worked considerably higher from the closing 
double bottom low in the $18 area. However, the 2000 price peak 
was much higher than current levels in the nearby futures 
contract.  

One key on oil prices will be whether they retrace more than 62% 
of the last advance, by climbing to and above $29.  If so, the 30 
or 31 dollar levels could be seen.    

Smith International (SII) -


 

SII looks vulnerable to a pullback to the 68 area, perhaps lower.  
The recent new relative high was accompanied by a diverging RSI, 
which is suggestive for at least an interim top. We'll monitor 
this sector for a possible buy point after a further price 
correction.  

BJ Services (BJS) -


 


BJS has formed an apparent double top and may be heading lower 
for awhile, and could pull back to 34-35, which may be an area to 
buy the stock or calls on it.  Stay tuned!  

Cooper Cameron (CAM) - 


 

CAM is still in a strong uptrend, but the last higher high was 
not "confirmed" by a similar new high in the 14-day stochastic.  
This is a minor divergence at this point but the stock bears 
watching to see if it might start slipping under its support 
trendline at 56.5. 

Next lower potential support is 54; below 54, a possible downside 
pullback objective is to 50-51 where purchases may be warranted.  
Time will tell.   

Healthcare Payors Index ($HMO.X): 

HMO sector stocks (3) that were suggested in Sector Trader and 
where entry was possible at the suggested entry prices and also 
having listed options:

PacifiCare Health Systems (PHSY) dropped a second time into my 
suggested buying zone at 23.5-24.7. The August 30 calls were one 
play. (5/16 close: 27.33)

Wellpoint Health Networks (WLP) - Two price entry points were 
suggested with subsequent declines to and under these levels 
allowing trade entry - at 72.00, then again at 70 or less. (5/16 
close: 70.59).   

HUMANA (HUM) - Purchase suggestion was at 15.60, at its support 
(up) trendline; then again in the 15.00-15.15 area. HUM reached 
recent low of 14.75. (5/16 close: 15/32)  



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


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                 Thursday 05-16-2002
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:
*****

RYL $108.51 -5.44 (-2.56) The weaker than expected Housing Starts
number this morning knocked the legs out from under the Home
Construction stocks and RYL got hit harder than most, falling
nearly 5% by the close.  Even firm support at $110 couldn't stop
the decline and the stock closed at the low of the day.  With a
violated stop at $110 and the bearish news from the sector this
morning, prudence demands that we move the play to the drop list
tonight.


PUTS:
*****

None


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

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

CALLS              Mon    Tue    Wed    Thu

SII      74.62    1.87   0.08  -2.91   1.39  Entry point at support
SRCL     70.55    1.91   0.80   0.46  -2.41  Rebound point at $70
RTN      42.99    1.01   0.22  -0.57  -1.44  Bulls taking profits
SGR      34.13    0.10   0.94   0.86  -1.02  Ready to consolidate
LLL     129.61    1.02   0.36  -2.70   0.46  Short term rest
MMM     129.41    1.60   1.49  -0.49  -0.09  Tried to at $130
HET      50.00    2.83   0.81   0.17   1.16  Rebound on schedule
NVDA     37.97    1.93   3.36   0.73   0.07  Still ticking higher
RYL     108.51    0.51   4.02  -1.65  -5.44  Dropped, poor data
SYMC     38.08    1.30   2.86   0.24  -0.71  Needs Nasdaq rally
TEVA     62.45    0.60   0.10   1.85   0.60  New, bio strength

PUTS               

IDPH     45.61   -1.39   1.35   1.67  -2.01  Rolled over yet again
RE       62.25    0.11   0.18  -0.12  -1.62  Broke at consolidation
GENZ     34.77    0.05   0.79  -0.50  -1.43  Still trending lower
FLR      36.05    0.04   0.67  -0.19  -1.58  Broke down from $38
MGG      38.79    1.36   0.78  -0.52   0.07  Rolling from 10-dma


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

SII $74.62 +1.39 (+0.43) SII was downgraded Wednesday morning
by Deutsche Securities.  The stock was lowered from an
investment rating buy to a market perform rating.  The downgrade
may have helped to add weakness to the stock, but the overriding
theme in yesterday's session was the continued pullback in the
price of oil as well as the Oil Service Sector Index (OSX.X).
With news flow continuing from the Middle East, traders
decided to take profits in yesterday's session in both the
equities and the commodity.  But as we've seen time and time
again, the buyers returned in today's session to lift the oil
and equity shares higher.  Traders who've been waiting for a
short term pullback in the stock, now is the time to start
looking for entry points near the rising 10-dma, which finished
just below the $74 level today.  Look for intraday bounces
near that rising support line combined with strength in the
energy market. 

SGR $34.13 -1.02 (+0.88) SGR gave back more than $1 during
today's session, but not before tracing a new relative high
earlier in the session.  The stock reached an intraday peak at
the $35.70 level before reversing lower.  We very much liked
to see the stock trade up to a new relative high, and were
expecting a pullback earlier in the week, so today's move
wasn't all that discouraging in the bigger scheme of things.
From here, we'd like to see the stock drift lower in the
coming sessions on relatively lighter trading activity.  We'd
like to see volume drop off as the stock pulls back down into
the $33 level, which is only about $1 away from today's
close, and just above the rising 10-dma which should help to
reinforce the $33 level as support.

HET $50.00 +1.16 (+4.97) The rebound in HET that we observed
earlier in the week kept on moving to the upside during today's
session in which the stock tacked on another buck and change to
finish at the $50 level.  That level, also a key strike point,
may act as a magnet surrounding tomorrow's expiration of equity
options for the month of May.  So if the stock doesn't respond
to any upside in tomorrow's session if the broader market moves
higher, then don't get too discouraged.  The long term
fundamentals and technicals for HET's are shaping up for a nice
summer rally, so we're willing to give this stock time to work
in our favor.  As for new entry points, a pullback down to the
10-dma at the $48 level would suit us just fine.  Or just as
favorable, a breakout above relative highs near the $51 level
on increased upside volume.

NVDA $37.97 +0.07 (+6.09) NVDA spent most of today's session
consolidating its gains from earlier in the week.  The stock
did tick fractionally higher during intraday trading to take
out yesterday's relative high, which revealed that the buyers
were still willing to pay up for this stock, which is a good
thing looking out into the next several sessions of trading.
Momentum based entry points into strength above short term
highs can be taken if the broader technology sector of the
market is moving significantly higher.  Such strategies will
only work in a momentum fueled tech rally, so keep that in
mind before pulling the trigger on entries into strength.  We'll
take them, but just not as aggressively as maybe entries on a
pullback to support, where downside risk is slightly less.  We
still like the idea of a trade down to and rebound from the
upward sloping 10-dma now at $34.50.

SRCL $70.55 -2.41 (+0.04) SRCL announced a 2-for-1 stock split
this morning payable to shareholders on May 31.  The company also
said that it planned to repurchase up to 1.5 million shares of its
own stock on a post split basis.  So while this play had been a
relative strength run, it has now become a split play.  But the
split announcement didn't inspire the buyers into the stock.
Instead bulls rotated out of defensive issues such as the
healthcare space, which ended up pressuring SRCL to the downside.
The stock traded down to where it rebounded from during Monday's
session.

LLL $129.61 +0.46 (-0.86) Two more days of consolidation in the
Defense index (DFI.X) was just what the doctor ordered in order
to bring LLL back to support at its ascending trendline
(currently $128).  This is a critical juncture for our play, as
we will either get another bounce near current levels, yielding
another solid entry point, or this time support will fail and
the play will be over.  We're still favoring the upside in shares
of LLL with the still-intact sector momentum and the solid bullish
trend in the stock.  Bulls will want to see a solid bounce off
the trendline (not the feeble attempt we witnessed on Thursday)
along with a resurgence of the sector bullishness before opening
new positions.  The nice thing about initiating new positions
near current levels is that risk is easy to manage with a tight
stop at $127.50.  More cautious traders may want to wait for LLL
to break out above resistance again, now at $134, before playing.

MMM $129.41 -0.09 (+2.51) MMM has been biding its time for the
past couple days, waiting for some conviction from the rest of
the DOW components to help push through the 10,300 resistance
level.  The breakout above the $127 level on Monday was just what
we were waiting for and now we're looking for some sort of follow
through.  MMM has traded in a very tight range over the past 2
days, coiling for another move up the charts.  Intraday support
is building in the $128.75 area, with resistance now at $130.50,
yesterday's intraday highs.  Consider opening new positions on a
dip and bounce from $128.75 or possibly the $128 area, or else
wait for the bulls to push the stock through resistance, with
the DOW rallying through its own resistance.  With option
expiration tomorrow, that breakout move isn't likely to occur
until next week.  

RTN $42.99 -1.44 (-0.78) A bout of selling hit shares of RTN
over the past couple days, possibly in response to news that
the company's chairman filed to sell 250K shares.  Since topping
out at $45.70 on Tuesday, the stock has shed nearly 6% and the
brisk selling volume on Thursday is not a good sign.  With daily
Stochastics now firmly rolling over in bearish fashion and the
ascending trendline now broken, we need to be on the lookout for
further downside ahead.  The one glimmer of hope is the fact that
RTN caught a mild bounce near the end of the day from the $42.50
level.  This was just fractionally above the 20-dma and historical
support, and we want to see the stock rebound from that level
before initiating new positions.  Our stop remains at $42 and if
it is violated, we'll drop the play in short order.  Look for a
rebound in the Defense index (DFI.X) to support any bullish action
in RTN before playing.

SYMC $38.08 -0.07 (+4.33) SYMC managed to achieve the breakout
over the $38 level that we were looking for when we initiated
coverage on Tuesday, but the stock is having a hard time getting
any momentum going.  The lack of follow through from the Software
sector (GSO.X) and the NASDAQ in general on Thursday is likely to
blame as investors were likely waiting to see what DELL had to
say in their earnings report tonight.  The other factor holding
SYMC back is resistance at the top of the gap from early April,
which rests at $39.37.  Is it any wonder that the intraday highs
for SYMC for the past 2 days have been $39.40 and $39.25?  Simply
put, we moved through the $38 resistance level, but we haven't
really seen the breakout yet.  Look to initiate new positions on
mild intraday dips near the $37.00-37.50 level, or else wait for
a decisive move (read:volume) through the top of the gap.  For
additional confirmation watch the GSO index for a push through
the $134 level.


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

TEVA - Teva Pharmaceuticals $62.45 +0.60 (+3.15 this week)

Teva Pharmaceutical Industries Ltd. is a fully integrated global
pharmaceutical company producing drugs in all major therapeutic
categories. In the area of proprietary drugs, Teva has focused
on products for central nervous system disorders, primarily the
development of Teva's first globally marketed branded drug,
Copaxone, a treatment for relapsing-remitting multiple sclerosis.
Teva also possesses significant manufacturing operations for
active pharmaceutical ingredients (API). Teva Pharmaceuticals USA,
Inc., Teva's principal United States subsidiary, is a generic
drug company in the United States.

Even despite the recent relief rally, the biotech sector remains
one of the most beaten down segments of the broader market.
ImClone helped to remind investors of that much during today's
session which saw the stock drop another 13% on the day.  Yet
even though the sector is extremely oversold and trading poorly
relative to the broader market, there are signs of strength in
the biotechnology index which are most promising for the bulls.
For instance, TEVA broke out above its 200-dma during yesterday's
session and continued higher through today's session.  The
breakout above the technically important 200-dma most certainly 
inspired another round of short covering in the stock, but it
could have also begun a trend of institutional accumulation in
the stock which could see it move higher over the coming weeks.
TEVA is certainly one of the strongest stocks in the sector,
and for that reason alone we like the play due to the oversold
nature of its sector.  The breakout above the 200-dma is only
an added bonus.  Look for follow through in tomorrow's session
above today's relative high, and confirm any such rally
attempt with strength in the AMEX Biotechnology Sector Index
(BTK).  A pullback from here down back to the 200-dma now
below at the $61 level would off a favorable entry point upon
a rebound.  Our stop is in place at the $60 level. 

BUY CALL JUN-60*TVQ-FL OI=1222 at $3.70 SL=2.25
BUY CALL JUN-65 TVQ-FM OI= 811 at $1.15 SL=0.75
BUY CALL SEP-60 TVQ-IL OI= 913 at $5.60 SL=4.00
BUY CALL SEP-65 TVQ-IM OI= 892 at $3.10 SL=1.75

Average Daily Volume = 910 K
 


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

FLR $36.05 -1.58 (-1.06) As the broad markets have been trying
to gather enough strength to punch through strong overhead
resistance, shares of FLR have been showcasing their relative
weakness, falling through another level of support on Thursday
to end the day just above the pivotal $35-36 support level.
Increasing the stock's bearish posture is the fact that selling
volume has been on the rise over the past 2 sessions, with
today's tally coming in at 767K shares, more than double the
ADV.  It looks like there is another breakdown in the works and
when the $35 level finally gives way as support, that should
unleash another wave of selling, with $32 being the next level
of probable support.  Resistance is now firming near the
$37.50-38.50 area and any sort of rebound near that level would
make for a high-odds entry point.  Failing that, we can target
a breakdown under $35 for initiating new positions.  Lower
stops to $39.25, just above the 200-dma and the top of last
week's gap.

GENZ $34.77 -1.43 (-0.64) The euphoric pop in Biotechnology
shares on Wednesday had nothing behind it and after posting its
high for the week in the opening hour, GENZ drifted lower into
the close.  And that selling pressure intensified on Thursday
with GENZ falling another 4% and the Biotechnology index (BTK.X)
posting a bearish Evening Star candle pattern.  "Uh Oh", say the
bulls.  At the closing bell, GENZ came to rest just fractionally
above its recent lows.  A fall through the $34.50 level will have
the stock trading at fresh 52-week lows and will have us eyeing
the $30 level as the next solid level of support.  If the BTK
peels lower, it has downside to at least $395 and that decline
could easily have GENZ testing that resistance.  The best entry
this week was the failed rally near the $37.50 level on Wednesday
morning, as shorting the rallies in Biotechnology continues to
work well for the bears.  Use another failed bounce near $36 or
even back up near $37.50 to initiate new positions ahead of the
seemingly inevitable breakdown.  Otherwise consider entering the
play on a drop through the $34.50 level.

IDPH $45.61 -2.01 (-0.38) Despite a feeble rally attempt on
Wednesday, the Biotech sector (BTK.X) just can't hold altitude.
After running as high as $432, the BTK reversed and closed below
its 20-dma on Wednesday.  Thursday's red candle gives us a the
3-day candle pattern known as the Evening Star, which is a major
top reversal signal.  IDPH ran up with the sector on Wednesday,
but the selling on Thursday dragged it back down to sit just
above the $45 support level.  With the negative developments in
the BTK, it looks like the stock could take a run at the lows
from earlier in the week, near $41.  Use a failed bounce near the
$47.50 or $48.50 resistance levels to initiate new positions or
else look for a break below the $45 intraday support level.
We're lowering our stop tonight to $49.

RE $62.25 -1.62 (-1.45) Yes indeed!  The breakdown in RE from
the $64 level during today's session was most welcome.  That
came even though the industry giant in American International
Group (NYSE:AIG) rallied for more than 4 percent during the day.
Back to RE, the stock collapsed during the day and continued
lower into the close on an increased level of downside trading
volume.  From here we're targeting the $60 level to the downside,
and potentially lower from there.  Traders who took entries from
the recent consolidation at the $64 level should be able to sit
back in comfort with firm risk management in place.  Those who
are still waiting for an entry point may start to consider one
or two day rallies on relatively lighter volume as entry point.

MGG $38.79 +0.07 (+1.69) Sure enough, MGG rolled over from its
10-dma twice in the last three days.  It started in Tuesday's
session when the stock traded up to the $39.48 level, which was
two ticks above the 10-dma at that time.  Then the stock traded
up to the $39.25 level today, which was a dime above the 10-dma.
Clearly we're starting to see that there's either shorts selling
at the 10-dma or longs using the intraday rallies as an
opportunity to exit positions.  In addition to the stock
failing to breakout above its 10-dma, we're pleased with the
divergence that we've begun to witness in MGG versus the rest
of the casino sector.  Over on the call list, we have HET which
has been powering higher in recent days, but obviously MGG has
not been able to catch this short term wave higher.  Continue to
watch for rollovers from the 10-dma, and look for $38 to be
broken to the downside.


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

None


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The Option Investor Newsletter                 Thursday 05-16-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

RE - Everest RE Group $62.25 -1.62 (-1.45 this week)

Everest Re Group, Ltd.'s principal business, conducted through
its operating subsidiaries, is the underwriting of reinsurance
and insurance in the United States, Bermuda and international
markets. The Company underwrites reinsurance both through
brokers and directly with ceding companies, giving it the
flexibility to pursue business regardless of the ceding
company's preferred reinsurance purchasing method.

Most Recent Update

Yes indeed!  The breakdown in RE from the $64 level during
today's session was most welcome.  That came even though the
industry giant in American International Group (NYSE:AIG) rallied
for more than 4 percent during the day.  Back to RE, the stock
collapsed during the day and continued lower into the close on an
increased level of downside trading volume.  From here we're
targeting the $60 level to the downside, and potentially lower
from there.  Traders who took entries from the recent
consolidation at the $64 level should be able to sit back in
comfort with firm risk management in place.  Those who are still
waiting for an entry point may start to consider one or two day
rallies on relatively lighter volume as entry point.

Comments

There's something down with the insurance industry.  That much
is exacerbating the downside in the already weak RE.  The stock
broke down from its four day consolidation during today's
session on an increase in volume.  The move confirmed the longer
term breakdown evident on the weekly chart.  Look for the down
volume to continue into tomorrow's session and look to take
bearish positions on a trade below the $62.20 level.

BUY PUT JUN-65*RE-RM OI=1037 at $4.00 SL=2.75
BUY PUT JUL-65 RE-SM OI= 294 at $4.60 SL=3.00

Average Daily Volume = 528 K



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

Fixing the Bad Fill
By Buzz Lynn
buzz@OptionInvestor.com

Scenario: The stock is moving and you want in, but you don't want 
to pay too much by having the "ask" price jump $0.50 before you 
hit the "send" button.  The logical solution is to place a limit 
order at the current "ask" price, and then wait for the fill - and 
wait, and wait, and wait.  The fill never happens even though the 
"ask" price remains the same as your limit order.  Worse, you see 
others getting filled at the same price.  What's going on here?

There are a couple of possibilities.  One is that many others were 
lined up in front of you.  There may have been 500 contracts in 
size available at the "ask" and you have the misfortune of being 
number 501 in line, thus no fill.  Has this ever happened to you? 
It certainly has with me.

The second possibility is that your order was intentionally 
ignored.  Believe it or not, that happens.  It's wrong, but it 
happens.

Let me outline another similar scenario.  Say a stock is trading 
at $25 and the point and figure ("pointy finger", as we sometimes 
joke) chart suggests that it will move up to $35.  Observing that, 
we place an order for back month $30 calls (30C) with the idea 
that we will get in cheap and capture some gamma rather than buy 
more expensive $25 calls (25C) to capture some delta.  Say too 
that the 30C is currently priced at $1bid/$1.25 ask.

So with a temporary lull in the action, you place your order to 
buy the 30C "at market" figuring you will get a fill at $1.25 
since that is the current ask.  Poof, your confirmation comes back 
that you were filled at $1.75, $0.50 higher than the current ask!!  
What the. . .?  It might be that the trading floor did a no-no.

There they are.  Two scenarios that are all too common within a 
trader's career.  One doesn't get filled at all.  The other is a 
bad fill.  So what do we do?  The solution is similar for both, 
and it involves research in either case.

One caveat - it helps a bunch to have a cooperative broker and to 
have access to time & sales information.

A word on each - your broker should have a good working 
relationship with the floor brokers.  If they do and you have a 
legitimate case after talking with your broker, the broker will go 
to bat to get a bad fill reversed or adjusted in price.

As for time and sales data, your broker will have this too or 
(!!!) it can be found in Q-Charts!  That's about as close as we'll 
get another q-charts article for now.

Anyway, our first step to correction is made before we even 
receive our confirmation of trade (or lack thereof).  Here it is: 
write down the time we entered the order in our trading journals.  
For those that don't keep a journal of their trading, it is a 
requirement in my book.  Our trading journals are an excellent 
place to record this information precisely because it gives us a 
record of what and when we entered the order.  This become 
critical if we have to find out what the bid/ask was at a 
particular time of day in order to see if we are owed a fill or 
entitled to a better one.  Imagine trying to sift through just one 
hour's worth of bid/ask prices in the time and sales information.  
Since those prices change every second, it's no easy task if we 
haven't written it down.  It pays to make it easy on ourselves by 
writing down the time we placed the order.  Our broker will ask 
for that too. 

So in the heat of battle (and after a mere four minutes elapsed 
time since entering our order, which should have already been 
filled), we still have no confirmation.  Since we recorded the 
time of order placement, we know under what time frame to locate 
the then current bid/ask trading data.  If you have Q-charts, how 
to get the time and sales information is buried in one of the Q-
Chart series so deep that I can't find it myself.  So here's a 
refresher.

After typing our option symbol in to the Symbol window, simply 
click on the T&S icon.  This will drop down a time and sales sheet 
with every bid, ask, and trade listed on it.  It also lists the 
corresponding time that the quote or trade was listed.  So, if we 
did the right thing by logging the order entry time in our 
journal, we simply scroll down to the time neighborhood of when we 
placed that order.

Once in that time neighborhood, say roughly 10:02 a.m., in the 
case of the non-filled order, we might see that, in fact, that a 
whole bunch of little trades went off - perhaps 500 of them - and 
we simply had to wait our turn in line.  Unfortunately, as we were 
number 501 in line, we were not filled and rightfully so.  If that 
is the case, we should see the ask price move up shortly after 
placing the order.

On the other hand, we might see that the ask price remained at 
$1.25 for a full 4 minutes after our order was entered.  If so, we 
would be entitled to that fill and we should expect our broker to 
make that right.  Most likely they will do so by calling the floor 
broker handling the transactions, point out that a good client is 
owed a fill based on time and sales that our broker and the floor 
broker can verify.  Poof, the contracts show up in your account.

Now about the bad fill - click the same T&T button on your option 
symbol and scroll down to the time you placed the order.  Is the 
ask price at $1.25 and does it remain there for a while?  What we 
are looking for is to see our fill at $1.75, which WILL show up in 
time and sales if it was truly filled.  Say that we see the fill 
at $1.75, but the ask price never budges from $1.25 before we see 
our fill at $1.75 on the T&S.  That's a bad fill and can easily 
corrected by contacting the broker.  He or she will ask for the 
approximate time of order entry too and will already have a record 
of the fill (so the broker knows what time we got the bad fill).  
The broker corroborates your story with you and then goes to the 
trading floor broker with the complaint.  In this case, if the ask 
never reaches $1.75 by the time we get our fill, the floor broker 
has done a big-time no-no and should willing rescind the trade.  
Poof, we're off the hook!

On the other hand, if the ask price advanced to $1.75 in the T&S 
quotesheet - even just for 1 second - following our order entry at 
market before returning back to $1.25, we will get a legitimate 
fill at $1.75 that cannot be successfully argued by our broker 
with the floor trader.  We will be stuck with that trade.

There are a thousand different nuances and variations to the 
scenarios above.  But being righted when we think we have been 
wronged will always come down to time and sales data.  While floor 
traders may occasionally try to pull a fast one at our expense, 
keeping a sharp eye on the time and sales information and using it 
to make our case with our broker can help us fix that all too 
often bad fill or get the fill we deserved.


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traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

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and clicking on the link to the book on its home page.

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**************************************************************


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

Bulls take a breather.  Are they ready to run higher?


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/051602.asp


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

It's been a bit more quiet during the last two days.  But there's 
been movement to report nevertheless.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/051602_1.asp


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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.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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