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Daily Newsletter, Thursday, 05/23/2002

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The Option Investor Newsletter                Thursday 05-23-2002
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)
************************************************************ 
        05-23-2002        High      Low     Volume Advance/Decline
DJIA    10216.10 + 58.20 10216.10 10087.00 1180 mln   1988/1150
NASDAQ   1697.63 + 24.18  1697.77  1651.89 1536 mln   2028/1417
S&P 100   547.57 +  5.65   547.57   538.73   totals   4016/2567
S&P 500  1097.08 + 11.06  1097.10  1080.55
RUS 2000  501.24 +  7.33   501.34   490.85
DJ TRANS 2762.50 + 46.30  2762.94  2715.04
VIX        20.35 -  1.23    22.21    20.24
VIXN       43.20 -  1.75    45.74    42.75
Put/Call Ratio      0.62
************************************************************

Never short a dull market 
by Leigh Stevens

As my dear old pappy used to say, "son, never short a bull - I 
mean DULL -  market" - stocks continued to flounder early and 
then came alive in the afternoon on relatively low volume.  
Nevertheless, I'll take the gains on the DJX and QQQ, which are 
the indexes I had enough confidence in to suggest buying for a 
rebound. 

On the NYSE, volume was 1.4 billion, but up volume (UPVOL.NY) ran 
2.7 times declining volume (DNVOL.NY). On the Nasdaq, volume was 
1.8 billion, but up volume (UPVOL.NQ) was double that of down 
volume (DNVOL.NQ). Useful to check in on those numbers if you're 
checking overall market levels during the day. Up volume of 
course being total volume of stocks bought on up ticks, so its 
really the willingness to pay up for stocks.  

The small and mid cap stocks, as reflected in the Russell 2000 
($RUT.X), have been correcting some of late, demonstrating that 
if you pile enough investors onto to any bandwagon, you can cause 
it to stall. However, the American Stock Exchange Composite Index 
($XAX.X) spiritual home of small caps (except 800 pound gorilla, 
QQQ), went to both a new absolute and new closing high today - 
proving that at least this ark is not capsizing yet. Who said 
small is beautiful?

Stand out Dow gainer today was General Electric (GE), up 3.2%. GE 
is more than a big conglomerate that makes the light bulbs we 
have in our closets. The stock is a significant bellwether stock 
for the S&P - when it leads the market higher or lower, it’s 
worth noting.  Today, technically, GE broke out above its March - 
May down trendline. Watch to see if there is some follow through 
tomorrow of if just holds its gains of today. 

A comparable Nasdaq bellwether stock is Cisco Systems (CSCO), 
which is nearing its December-May down trendline, at 17.2, which 
is also around the level of its 200-day moving average at 17.14.  
A couple of consecutive closes above this 17.2 would help get the 
Nasdaq in gear.  As would similar chart breakouts in Microsoft 
(MSFT) which was up 2% today - more upside would be suggested if 
MSFT climbs above 55.2 at the intersection of its down trendline 
(slightly higher is the 50-day moving average at 55.8 which is 
also a level to monitor over the next couple of sessions.

Of course, a couple of low volume days and maybe quiet trade, may 
result by a lot of market participants being out of town  
tomorrow and Tuesday - in New York, they will be grateful to be 
out of tall buildings, off the Brooklyn Bridge and well away from 
the Statute of Liberty. 

In fact, there was significant trader sentiment that today's 
rally was more due to short-covering as traders wanted to square 
up their positions ahead of what may be a 5-day weekend for many 
market participants. And, of course, new sellers were not going 
to step in as much in this kind of setting. (What are they afraid 
of, peace breaking out over the weekend?!) I know that in years 
toiling in Wall Street that you could fire a cannon in the 
executive wings and not hit anyone on the day before the 3-day 
Memorial Day weekend.  

Bush is in Moscow collecting on IOUs, of which Putin has a few 
Providing a slightly negative backdrop was some soft economic 
data on the labor and housing markets.

ECONOMIC/COMPANY INFLUENCES TODAY -
The morning brought cheer to the bulls, as April durable goods 
orders were reported 1.1% higher. March orders were revised 
upward by 0.2%. The expectations from the practitioners of the 
dismal science (Economists), was for a gain of only 0.4%, 
suggesting that the economic activity was actually starting to 
accelerate. 

Durable goods shipments were up 3.5% in March. Sometimes a build 
up of orders and production is more due to inventory re-building. 
Not so, when they ship the stuff out the door. 

In the Nasdaq, the chip ($SOX.X) and Networking (NWX.X) sectors 
were a bit lower, whereas there were decent gains in the Internet 
($INX.X: +2.6%) and the software sectors ($GSO.X: +2.6%), which 
more than made up for the few slightly lower sectors. 

Deutsche Bank Securities lowered estimates on a group of software 
companies today, following a similar, though more widespread  
call from Goldman Sachs on Wednesday. However, the damage had 
already been done over the prior 3 trading sessions, and the 
sector rebounded today. The Internet segment was influenced by an 
advance in Priceline.com shares (PCLN) after the company 
reaffirmed its Q2 revenue and earnings targets.

Oracle (ORCL) rallied on an upgrade - an actual upgrade! - from 
RBC Capital Markets to an "outperform" from a "sector perform" on 
belief that most of the bad news ahead is already priced into the 
stock and that the company's risk/reward ratio is very favorable.

In the old economy sectors, defense stocks ($DFI.X) traded lower
 - a group that I highlighted in my Sector Trader summary tonight 
while investors bid up Biotech ($BTK.X) substantially (+7.4%), 
Financial ($NF.X - NYSE Financial index: +1% & S&P Bank Index – 
$BIX.X: +1.3%), Utility ($UTY.X: +.8%) and Airlines ($XAL.X: 
+2.2%). 

And, gold stocks ($XAU.X: +2%) continued its unrelenting, take no 
prisoners, run up as nearby gold futures end up $4.50 at $322.80.  
Gold stocks already have probably "priced in" gold at $340 an 
ounce already, although these stocks are still advancing - I 
highlighted XAU in yesterday's Sector Trader. 
  
TRADING STRATEGY - 
As I said last week in this space the market looks headed higher 
still. I continue to assume that the market is telling us that 
the economy is starting to pull out of its slump and this is 
going to be a trend in the next few months. 

Key support levels are: 
S&P 500 (SPX): 1080-1081; S&P 100 (OEX): 536; DJX: 101; Nasdaq 
Composite (COMP): 1670; NDX: 1256; QQQ: 31.3.  I would maintain a 
bullish bias as long as closing levels are maintained over these 
levels. Note the key word: close; e.g., COMP has finished 2 days 
when its intraday lows dipped under it's pivotal 21-day average 
in 1670 area, but then closed slightly or well above this level 
(today at 1697).

I also have been a bit nonplussed by the relative position of the 
daily oscillator levels, coming off an overbought reading - 
however, these momentum models are pulling back to a more neutral 
reading which is my minimum requirement I wanted to see in this 
very nervous market.  Bearish events impact an overbought market 
more severely than one that is registering either neutral or 
oversold levels.  The backing and filling that we may see for a 
couple of more sessions will continue to help out in this regard. 

Even if not, the market has performed quite bullishly in the way 
it "needed" to, by rebounding after filling in the chart gaps 
from last week that I kept writing about. Like most simple, and 
accurate market phenomenon, this gap filling idea (as areas where 
buying or selling tends to come back in strongly) is too simple 
of an idea for most people to pay attention to consistently.  

One of the psychological influences I have noticed strongly over 
the years is the tendency for many traders and analysts to trust 
more in complex ideas than simple ones. If you want an example of 
someone getting rich from an uncomplicated investment style and 
criteria, witness Warren Buffet's success.  Not that he isn't 
very smart, rather he's just not distracted - in that sense is he 
simple and straightforward in his approach. 

CHARTS OF INTEREST -

Because its hard not to see the forest for the trees, I am trying 
to keep a weekly chart in view from time to time, so these are
 the charts I find most instructive at this juncture when I think
 we are transitioning out of a bear market: 

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


 

The primary thing here is that the Dow is maintaining a level 
that keeps the average above its weekly downtrend channel. While 
you probably would expect prices to keep moving higher, rather 
than having an "inside" week like this (highs and lows are within 
the highs and lows of last week), the important thing right now 
is that INDU is maintaining a patter of higher relative lows. 

The breakout above last week's high may well come next week, 
especially with a bullish seasonal tendency for the week after 
Memorial Day weekend to be an up period, sometimes acting as the 
kick off period for a late-spring/early summer rally. Eventually, 
of course, the Dow will face a test the prior 10,675 high if the 
current rally is going to extend into a longer-term bull trend. 

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


 

In case you haven't seen one before this is a Head and Shoulder's 
bottom pattern.  Assuming a break out above the neckline, which 
intersects at 1143 next week and at 1133 the following week, this 
pattern would project a "minimum" eventual upside objective to 
around 1435.  This may seem wildly bullish now, but merely 
represents a 50% retracement of the decline from the September 
2000 top to the September 2001 bottom.   

And, yes a "double" shoulder on the right side is a not uncommon 
variation of the head and shoulders pattern. And, this pattern as 
a top or bottom formation is one of the more reliable technical 
patterns, per research done by Dr. Andrew Lo at M.I.T. Dr. Lo's 
group had the computer power and mathematical ability to test 
some common technical patterns in terms of having predictable 
(greater than chance) outcomes.  He found 5 that were so and this 
is one of them.   

The Nasdaq 100 Tracking Stock (QQQ) - Weekly:


 

QQQ has continued to rise above its long-term down trendline 
going back to the Nasdaq top.  I liked the action this week and 
the key Nasdaq stocks are all getting near to related and 
confirming bullish breakouts. Stay tuned!


Leigh Stevens
LStevens@OptionInvestor.com


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

LOW VOLUME BUT HIGH REACH
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

On less than stellar volume, the market rebounded sharply from 
the low end of the hourly downtrend channels that I seem to have 
gotten right after a few hourly lows. In the indices where I had 
only ONE initial low, it’s a bit of an exercise. Since I had 3 or 
more points at the top of upswing highs with which to construct 
the assumed upper trendline or top boarder of an uptrend channel, 
the initial technique is to construct an initial parallel line 
through the lowest low, relative to the upper line. 

Since I wrote the main Option Investor wrap up tonight, the guts 
of my trading point of view or where I think we're going here - 
call em the broad strokes -- is there. Since the "devil is in the 
details", I'll finish up here.

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


 

 
The main thing here in terms of trading strategy is to get on 
board the emerging uptrend. The indices have performed in a 
picture perfect fashion according to my experience in using the 
21-day moving average envelopes for the indices, most often. The 
drop back to the average either holds at or near this level, or 
there is a decisive downside penetration of it. Sometimes a day 
is needed to see if an index is going to close back above the 21-
day moving average. 

What put me off from suggesting a wholehearted buy em here, is 
the overbought daily oscillator readings.  We get so used to the 
market falling apart when it gets even slightly overbought, that 
it is hard to shift gears and just rely on price points. However, 
I've found price patterns should be the chief determinant, as 
they consistently tend to be the most reliable guide to 
determining trading strategy.   

I suggest buying any dips back to the 1090 area looking for 1117-
1120 or higher on a longer-term play. A stop/exit point could be 
place 3 points under this level (1087), but there is no 
significant trend reversal unless 1080 gives way. 

Key near resistance is 1103-1105. More significant resistance is 
likely at the high end of the hourly uptrend channel.

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


 

Buy in the 541-542 area, if available, with an exit point at 536, 
and an objective to the high end of the hourly uptrend channel 
around 562.

Key near resistance is 551-552. Key near support, at the prior 
recent hourly lows in the 536-536.5.  I say "key" as meaning an 
area that is either a breakout or a breakdown point, usually 
found at previous upswing highs or downswing lows.  

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


 

Buy a breakout above 102.2 and/or a pullback into the 101.7-101 
zone with a stop/exit point at 100. I estimate upside potential 
to the 104-105 area by next week. Key near resistance is at 
103.2-103.5.  Key near downside support is at 100.5-100.7.   

Nasdaq Composite Index ($COMPX) Daily/Hourly charts:


 


The Composite closed at resistance implied by the prior lows - 
support, once broken, "becomes" resistance. This is the breakout 
point, with further upside potential above this level, to around 
1716 at the low end of a cluster of hourly lows; above this area, 
there is a broad band possible resistance starting around 1740, 
that extends up to the 1750 area.   

If it drops back from the closing level of yesterday (red dashed 
level line - 1697), which I doubt with the biotech sector on fire 
(an important component of QQQ), then we should see COMP near 
support at 1671-1672. 1645 is the most significant support, as a 
break of this level reverses the trend lower again.  

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


 

Anyone who bought the 31 area per my suggestion that this was 
a good support, maintain a stop at 30.5. Near resistance in the 
32 area has been exceeded, 33 looks like a next upside target, 
extending up to 33.5.  

My longer term objective is to the 34-35 price zone. 

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Rally of Substance?
By Eric Utley

Do the last two late day ramps portend a summer rally?  Or were
they just more of the same?  That is, short covering.  Well, by
my estimation, the late day rallies were nothing more than short
covering.  I surmise that much by the blatant display of emotion
in the upside movement; the fear to the upside on the part of
the shorts.

That kind of buying isn't the type that bottoms are built on,
but what's new?  We've been noting that sort of thing for quite
a while now.  Meanwhile, my favorite gauge into the market's
sentiment, the CBOE Market Volatility Index (VIX.X), imploded,
again, in the last two days.  Once again, without fear of the
downside on the part of longs, there's no wall of worry -- a
necessary aspect of a bull market -- to climb higher.  The lack
of stick in the VIX tells me that the crowd still believes, err,
hopes in the rally. 

Meanwhile, the ARMS Index numbers are moving off of extreme
levels thanks in part to the general strength in stocks in the
last two days.  The longer term measures are now closer to an
extreme overbought level than the shorter measures.

Market internals were not as pretty as the picture in the
averages.  Decliners outpaced advancers on both the NYSE and
the NASDAQ, but it was only by a fractional amount on the
former.  The new high/new low line, however, improved during
the day by a wide margin especially on the NYSE.  Volume was
less than active.

As for bullish percent, well the Nasdaq-100 reading has been all
over the map recently because of the increased volatility.  It's
back in bull correction mode, below the 50 percent level, which
is not as bullish as bull confirmed.  But hey, did you know the
week following Memorial Day is most bullish based on history?

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10216

Moving Averages:
(Simple)

 10-dma: 10194
 50-dma: 10215
200-dma:  9901



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1088
 50-dma: 1110
200-dma: 1119



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1287

Moving Averages:
(Simple)

 10-dma: 1279
 50-dma: 1346
200-dma: 1454



Biotech ($BTK)

The BTK exploded by more than 7 percent Thursday ahead of the
ruling on Biogen's (NASDAQ:BGEN) psoriasis drug.  Biogen got
approval and the BTK earned the day's best performing sector
spot.  The upside movement in individual equities was even
more impressive.

The day's best performing individual components included
Human Genome Sciences (NASDAQ:HGSI), MedImmune (NASDAQ:MEDI),
Sepracor (NASDAQ:SEPR), Protein Design Labs (NASDAQ:PDLI),
and Abgenix (NASDAQ:ABGX).

52-week High: 676
52-week Low : 375
Current     : 431

Moving Averages:
(Simple)

 10-dma: 409
 50-dma: 458
200-dma: 509


Fiber Optic ($FOP)

A completely different news event was responsible for the day's
worst performing sector: Ciena's (NASDAQ:CIEN) talk.  A
component of the FOP, Ciena weighed on the group to the tune of
0.65 percent in the index.  The FOP was the worst performing
sector for the day.

Leading individual downside movers included Ciena, Corning
(NYSE:GLW), Finisar (NASDAQ:FNSR), MRV Communications
(NASDAQ:MRVC), Alcatel (NYSE:ALA), and Vitesse (NASDAQ:VTSS).

52-week High: 139
52-week Low :  65 
Current     :  69

Moving Averages:
(Simple)

 10-dma: 72
 50-dma: 81
200-dma: N/A

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

Market Volatility

Hey, guess what?  The VIX is trading with a 20 handle.  Shocking!

The VXN is trading near the lower end of its ascending channel.
I would view a breakdown as confirmation of the recent strength
in stocks.

CBOE Market Volatility Index (VIX) - 20.34 -1.25
Nasdaq-100 Volatility Index  (VXN) - 43.28 -1.42

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.90        482,992       434,205
Equity Only    0.71        403,203       288,899
OEX            1.14         17,797        20,344
QQQ            0.77         46,002        35,202

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

Bullish Percent Data

           Current   Change   Status
NYSE          63      + 0     Bull Confirmed
NASDAQ-100    41      - 1     Bull Correction
DOW           67      + 0     Bear Correction
S&P 500       64      + 0     Bull Confirmed
S&P 100       66      + 0     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  0.93
10-Day Arms Index  1.08
21-Day Arms Index  1.26
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      2006           2025
NASDAQ    1155           1417

        New Highs      New Lows
NYSE     107             23
NASDAQ    82             63

        Volume (in millions)
NYSE     1,183
NASDAQ   1,759

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

Commitments Of Traders Report: 05/14/02

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 reverted to their bearish commitments by reducing
their longs and adding to shorts.  Small traders grew more bullish
by adding a large amount of longs; small traders are 3,000
contracts away from their most bullish reading of the year.

Commercials   Long      Short      Net     % Of OI 
04/30/02      340,936   421,673   (80,737)  (10.6%)
05/07/02      348,019   422,801   (74,782)   (9.7%)
05/14/02      343,941   424,893   (80,952)  (12.1%)

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
04/30/02      153,158     56,372   96,786     46.2%
05/07/02      154,664     59,583   95,081     44.4%
05/14/02      163,035     58,587  104,448     49.8%

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 shifted to a decidedly bullish position last
week by adding longs and dropping shorts.  Commercials are net
long more than 5,000 contracts.  Small traders meanwhile went in
the opposite direction by establishing a position that was net
short more than 5,000 contracts.

Commercials   Long      Short      Net     % of OI 
04/30/02       34,591     35,933    (1,342)   (9.7%)
05/07/02       38,338     39,152      (814)   (1.1%)
05/14/02       40,858     35,761      5,097   (5.5%)

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

Small Traders  Long     Short      Net     % of OI
04/30/02       12,271    12,703     (432)      1.7%
05/07/02       13,229    13,161        68      0.3%
05/14/02       11,920    17,479    (5,559)     8.2% 

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

DOW JONES INDUSTRIAL

Dow commercials added a few more longs than shorts for an
increase in the group's net bullish position.  Small traders
went in the opposite direction by reducing their longs and
adding to their shorts.  

Commercials   Long      Short      Net     % of OI
04/30/02       17,275    13,341    3,934     12.8%
05/07/02       19,967    14,045    5,922     17.4%
05/14/02       21,080    14,725    6,355     14.4% 

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
04/30/02        5,813     8,869    (3,056)   (20.8%)
05/07/02        5,124     9,831    (4,707)   (31.5%)
05/14/02        4,930    10,899    (5,969)   (25.2%) 

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

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


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

THE SECTOR BEAT - 5/23
by Leigh Stevens


HIGHER ON THE DAY ON Thursday - 


 


DOWN ON THE DAY on Thursday - 


 

$FOP.X is the Fiber Option sector index. DFI is the Defense sector 
index.

In the Nasdaq, the chip ($SOX.X) and Networking (NWX.X) sectors 
were a bit lower, whereas there were decent gains in the Internet 
($INX.X: +2.6%) and the software sectors ($GSO.X: +2.6%), which 
more than made up for the few slightly lower sectors. 

Deutsche Bank Securities lowered estimates on a group of software 
companies today, following a similar, though more widespread  
call from Goldman Sachs on Wednesday. However, the damage had 
already been done over the prior 3 trading sessions, and the 
sector rebounded today. The Internet segment was influenced by an 
advance in Priceline.com shares (PCLN) after the company 
reaffirmed its Q2 revenue and earnings targets.

Defense stocks ($DFI.X) traded lower, a group highlighted 
yesterday.Investors bid up Biotech ($BTK.X) substantially (+7.4%) 
and this is the HIGHLIGHTED sector today; the Financials were 
up($NF.X - NYSE Financial index: +1% & S&P Bank Index - $BIX.X: 
+1.3%), also the Utility ($UTY.X: +.8%) and Airlines ($XAL.X: 
+2.2%) groups. 

Gold stocks ($XAU.X: +2%) continued the unrelenting run up; 
nearby gold futures end up $4.50 at $322.80. As per my XAU 
highlight in yesterday's Sector Traders, Gold stocks already have 
probably "priced in" gold at $340, even $350, an ounce already, 
although these stocks are still advancing.  I think the gold 
stocks are probably "ahead" of where bullion is trading.  


SECTOR HIGHLIGHT OF THE DAY -

Biotechnology Index ($BTK.X)
STOCKS: ABGX; ADRX; AFFX; AMGN; BGEN; CELG; CEPH; CHIR; CRA; DNA; 
ENZN; GENZ; GILD; HGSI; ICOS; IDPH; IMCL; IMNX; INCY; MEDI; MLNM; 
MYGN; PDLI; TARO; TEVA; VRTX; XOMA

Biotech has been in pronounced downtrend, which appeared to have 
reversed at the early-May lows in the 380 area. The very strong 
advance of today has taken out the line of near resistance at 
425. 

The next key resistance area is 449-450, at several prior lows 
and the intersection of its down trendline. Further resistance 
could be found at the top of its downtrend channel at 475. 



 

The Biotech Holdr's (BBH) now looks like they are a buy with this 
apparent bottoming action in biotech.  Note the very heavy volume 
today on this strong upside reversal, a confirming indicator for 
an upside (trend) reversal). First significant resistance is not 
apparent before 113. 

BBH should hold above its breakout point now at 99, on a closing 
basis, so would use this as a stop/exit point on a long position. 
I would anticipate a gap up opening tomorrow (Friday). Would 
attempt purchase at 103 or less. 



 
 


NEW SECTOR TRADER FORMAT - 

AM GOING TO LEAVE UP THIS EXPLANATION THIS WEEK - OBVIOUSLY, YOU 
CAN SKIP PAST IT IF YOU KNOW ABOUT THE SECTOR TRADER CHANGES 
ALREADY.

I will be starting a daily chart/technical review of all the 
major popular sectors. Sectors will not be updated every day IF 
there is NO significant CHANGE FROM the LAST update. If there is 
a chart, with technical patterns and/or indicators that may be of 
particular interest, I will include the chart on the sector 
index. 

Over time, I will be listing the stocks that comprise each 
sector, at least by symbol. In addition, if there is a 
complimentary iShare or HOLDR that represents the sector, its 
symbol and name will be noted also [NOTE: COMING IN NEXT FEW 
DAYS], although it will take me some time to pull all this 
information together. The advantage of a HOLDR/iShares is that 
you have immediate diversification as the shares represent 
ownership in a basket of stocks in that sector. 

If you enter a trade in only one sector stock or its option, 
within the sector, that particular stock may not perform in line 
with the Index in question; e.g., there is a broker downgrade on 
the stock, but not others in the sector.  

Options do, of course, offer the benefit and attraction of 
offering a leveraged and limited risk (long options) means to 
participate in a sector's trend.  However, the ideal means to 
play individual stocks is to select at least 3 of the group for 
the sector play, using representative stocks in that group. 

You'll also note that there are two Indexes, that are not sectors 
per se - the Amex Composite Index and the Russell 2000.  One of 
the popular investment "themes" this year, is buying the small 
and mid cap stocks. These two indexes are composed of many of 
these companies. As such, they are of interest to many traders 
and investors. 


SECTOR REVIEW - ** COMPLETION OF THESE REVIEWS OVER COMING DAYS **

Airline Index ($XAL.X)
STOCKS: ALK; AMR; AWA; CAL; DAL; FRNT; KLM; LUV; NWAC; U; UAL

Still in a downtrend, well under its 50 and 200-day moving 
averages. Sector would not break out above its down trendline 
before 89. Major support looks like 70 area, but the Airline 
group could be bottoming near the prior 5/13 low at 77.6. XAL was 
fully oversold based on 14-day RSI on that date, but reading is up 
a bit from this extreme. Last Update: 5/23

Amex Composite Index ($XAX.X)
The small cap stocks so predominating in the Amex, as a group, 
had a minor correction from recent highs and from an overbought 
oscillator reading.  Today's rebound action has put XAX back to a 
new all intraday and closing high. XAX's up trendline intersects 
at 949 currently.  Only a close under this level would suggest 
that the strong trend was reversing. Last Update: 5/23  

Bank Index ($BKX.X)
STOCKS: BAC; BBT; BK; C; CMA; FBF; FITB; GDW; JPM; KEY; KRB; MEL; 
NCC; NTRS; ONE; PNC; SOTR; STI; STT; USB; WB; WFC; WM; ZION

The bank index has made at least a temporary double top in the 
916 area - closing penetration of this prior top, and subsequent 
support developing in this area, would suggest a new up leg.  

If BKK fell under its up trendline at 880 on closing basis, it 
would be a bearish signal that the up trend had reversed.  If so, 
significant support lies in low 860 area. Last Update: 5/23

Biotechnology Index ($BTK.X)

See ** SECTOR HIGHLIGHT OF THE DAY ** 


Computer Technology Index  ($XCI.X)
STOCKS: to be listed 

Remains in a downtrend; May rally recently reversed at 50-day 
moving average and from an overbought reading on the daily 
oscillators; e.g., 4-day RSI.  Key resistance is at 672, then 
682. Close over these levels would turn the trend up. 

Early-May lows in the 580 area now looks like major support as 
current levels are well above this area. Last update: 5/23
 
Computer Boxmaker Index ($BMX.X) 
STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS  

Boxmakers sector, an unglamorous term for PC manufacturers, had a 
mid-May rally right to its down trendline at it's 50-day moving 
average, where BMX reversed - this was also area of its 50-day 
moving average.  

Current downtrend reverses with a close above 96. Break of near 
support at 91, on a closing basis, suggests a possible further 
retreat to major support in the 83-85 area. Last Update: 5/23 

Cyclical Index; Morgan Stanley; ($CYC.X)
STOCKS: AA; C; CAT; CSX; DCN; DD; DE; DOW; ETN; F; FDX; GP; GT; 
HON; HWP; IP; IR; JCI; KRI; MAS; MMM; MOT; PBI; PD; PPG; PTV; R; 
S; UTX; WHR; X 



 

The cyclical index has been locked in a 595-552 trading range 
since early- March, with current levels close to the high end of 
this range. Interestingly, the recent advance did not hit an 
overbought extreme on the daily oscillators, so the sideways 
trade could be setting up for an eventual breakout when/if the 
economy really gets going.  

A breakout above 395 on a closing basis, with subsequent ability 
to hold this level on pullbacks, would suggest that another up 
leg was developing in CYC. A close below 564, at its up 
trendline, would reverse the trend down. Last Update: 5/23

Defense Index; Amex ($DFI.X)
STOCKS: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; 
ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC



 

The Defense sector, a very strong performer in the January to May 
timeframe, formed a May top after repeated failures to get 
through resistance in the 680 area - retreat from the top area 
was accompanied by the a downside break of the Jan-May up 
trendline. The last rally to this area occurred on less relative 
strength, forming a classic price/RSI divergence.  

Resistance at the previously broken up trendline is at 673 
currently, not far under the major 680 resistance.  Am watching 
to see if the 50-day moving average acts as support beyond today. 
Downside possibilities for a pullback in DFI may lie either in 
the 615 or 595 areas, representing the 38% and 50% retracements, 
respectively. Last Update: 5/23 

Disk Drive Index ($DDX.X)

Dow Transportation Average ($TRAN)

Fiber Optics Index ($FOP.X)

Financial Index; NYSE ($NF.X)

Forest & Paper Products Sector Index ($FPP.X)

Gold & Silver Sector Index ($XAU.X)
STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL

XAU continues to accelerate to the upside, but may find near 
resistance at the top end of its steep uptrend channel at around 
90. My longer-term objective is 100 however. Near support looks 
like 80, with major support at 70.  
 
If you want to buy into this sector it is high risk, although 
gold bullion has a possible per ounce target to $340-345, maybe 
350. The question is how much of the potential further price rise 
in gold is priced into the XAU stocks already. 

Health Providers Index; Morgan Stanley ($RXH.X)


Healthcare Index; Morgan Stanley ($HMO.X)
Last Update: 5/22

** 3 HMO stocks already suggested -

PacifiCare Health Systems (PHSY) dropped twice into  
suggested 23.5-24.7 buy zone. Stop/exit point: 23.3

Wellpoint Health Networks (WLP) - Entry suggested at 72.00, then 
again at 70. Stop/exit point: 65 Additional buy suggested at 66 
if available.

HUMANA (HUM) - Purchase suggestion made at 15.60, and again at  
15.00-15.15. HOLD only.
Stop/exit point: 13.2; Stock needs to climb above 
14.76 to suggest bullish trend is back on track. 

** Other HMO stocks suggested ** 

Oxford Health Plans (OHP) - Favor buys at 42 

Unitedhealth Group Inc. (UNH) - Suggest buying stock/calls at 
80.50 

Aetna (AET) - Anticipating pullback to 44.35 area, where 
prior upside gap would be filled and buying is suggested. Stock 
may have reversed with partial fill of this gap. Time will tell, 
as AET has not regained its up trendline.   

** There has not been a good way to play the Healthcare Payors 
index in iShares of HOLDR's as, for example, the iShares US 
Healthcare Index (IYH) is not a "pure" HMO play and in fact the 
charts look very different. To participate in the strong 
performance of the HMO group, it's been necessary to buy a basket 
of the stocks or a basket of their calls. 


High Tech Index; Morgan Stanley ($MSH.X)

Internet Index; CBOE ($INX.X)

Natural Gas Index  ($XNG)

Networking Index ($NWX.X)

Oil Index; CBOE ($OIX.X)

Oil Service Sector Index ($OSX.X)

Pharmaceutical Index ($DRG.X)

Retail Index; S&P - CBOE ($RLX.X)

Russell 2000 Index ($RUT.X)

Securities Broker Dealer Index ($XBD.X)

Semiconductor Sector Index ($SOX.X)

Software Index; Goldman Sachs ($GSO.X)

Telecoms Index; No. American ($XTC.X)

Utility Sector Index ($UTY.X)

Wireless Telecom Sector Index  ($YLS.X)




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 05-23-2002
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:
*****

MTB $88.00 +0.40 (-1.94) The inside day set up that we addressed
during the last update lead to a breakdown in yesterday's session,
which hopefully kept traders out of trouble with either a tight
stop or the indication to jump out of positions.  The stock
finished fractionally higher today, but not before falling earlier
in the session.  With the trend appearing broken in this stock,
it looks poised to pullback into consolidation.  We're dropping
coverage in favor of plays on the move.


PUTS:
*****

CVC $21.00 +0.17 (+1.65) Despite our expectations for a breakdown,
trading in shares of CVC has been about as exciting as watching
paint dry.  The stock managed to bounce on the new Buy rating
from JP Morgan on Monday, and we were looking at the rebound as
a potential entry point.  But the past few days have seen the
stock trade flat as a pancake and it is looking less likely that
it is going to provide a good tradable drop.  We're dropping it
tonight in favor of better plays.

FLR $37.77 +2.31 (+1.83) Short-covering came into shares of FLR
in a big way on Thursday, with the stock bouncing from the $35.50
level again and then going on to stage an impressive 6.5% advance
by the closing bell.  Add in the fact that volume was extremely
heavy at nearly triple the ADV, and there is clearly something
bullish going on.  While our $38 stop has yet to be triggered,
we're going to drop coverage tonight to remove the risk of the
as-yet-unknown catalyst driving the stock higher.  Use any
opening weakness on Friday to exit open positions at a more
favorable level.


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

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

CALLS              Mon    Tue    Wed    Thu 

MMM     128.49   -1.83  -1.26   1.18   0.95  Good news sparks climb
HET      49.35   -0.52  -0.44  -0.40   1.15  Recovery from 10-dma
TEVA     67.03    2.58   0.21   0.66   0.98  Favorable ruling rally
BAC      76.65   -1.10  -0.81   0.44   1.22  Ready for run to highs
ERTS     64.96    0.20  -2.30   1.60   1.75  Looking very strong!!
QLGC     48.71   -1.41  -1.69  -0.40   0.30  Ready to rally Friday
AOL      19.04   -0.60  -0.80  -0.03   0.49  Relatively higher low?
MTB      88.00   -1.06   0.14  -1.42   0.40  Dropped, breakdown
SIMG     10.59   -0.25   0.67  -0.33   0.25  Ready to explode above
NOVN     23.48    1.22   0.96   0.20   0.61  Poised for big break
RYL     112.58   -0.14  -2.53   0.32   2.94  New, won't go down


PUTS               

RE       62.95   -0.33  -0.63  -0.53   1.45  Short covering rally
FLR      37.77    0.21  -0.49  -0.20   2.31  Dropped, ramp higher
CVC      21.00    1.30   0.30  -0.12   0.17  Dropped, recovering?
MU       24.30   -0.55  -0.86  -0.05   0.75  Short term relief
TTI      26.30    0.19  -0.44   1.02  -0.42  $25.70 still holding
HB       60.56   -0.31  -0.84  -0.25   0.82  Nearing entry point
GS       79.17   -0.13  -1.04  -1.00   0.97  Broad market bounce
BRCM     24.43   -1.03  -2.02   0.42  -0.21  Very heavy chip stock
PLAB     24.65   -0.45  -1.14  -0.21  -0.95  New, trending lower


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

HET $49.35 +1.15 (-0.21) HET rebounded in a strong way during
today's revival in stocks following its four days of consecutive
weakness back down from the $50 level which was eclipsed during
late last week's trading.  The stock's rebound came after it
tested its 10-dma during yesterday's session, and again during
today's trading.  The failure of the shorts to press the stock
below its 10-dma sparked a short covering rally today, which
was most certainly helped right along by the strength in the
broader market.  From here, we would expect a retest of short
term resistance at the $50 level on further market strength.
Entries recently taken near the 10-dma can confirm the position
with a breakout above the $50 level as early as tomorrow, or
looking into next week's holiday shortened trading.  For new
entry points, continue to watch for intraday dips to the 10-dma
now at the $48.52 level.

TEVA $67.03 +0.98 (+4.43) Trading desk talk surfaced late Thursday
afternoon that TEVA had received a favorable court ruling in its
lawsuit against Glaxo Smith Kline over Augmentin.  Though details
had yet to surface through the close of trading, the market
reacted with a violent move higher which saw TEVA trade as high
as $67.50 before coming back to earth in the later part of the
session.  Hopefully that move higher during intraday action
offered traders a solid exit point from positions taken earlier
in the trend.  However, the breakout today could very well
portend further upside in tomorrow's session if the biotech
sector continues marching higher.  Look for a revisit of today's
intraday high for an exit point if you didn't book gains today.
For new entry points, we'd still like to see a pullback and
rebound from support for a favorable trigger point.  Watch for
an intraday retreat into the $65 level, then wait for the bounce.

AOL $18.50 +0.49 (-0.96) AOL rebounded during today's session on
the strength in the broader market after dipping further during
yesterday's session on talk of the company potentially losing
more than previously expected some of its online subscribers to
the AOL dial up internet service.  The stock briefly dipped below
its 10-dma during intraday trade, but rebounded into the close
of trading to finish right near the 10-dma.  The stock then
popped back higher today, potentially tracing a higher relative
low.  If in fact AOL has reached bottom, the higher relative low
that was potentially traced today and yesterday could lead to the
next leg higher in the rebound off of the lows, leading the stock
above the psychologically significant $20 level, perhaps sparking
renewed institutional interest in shares.  Look for entries near
the now rising 10-dma during tomorrow's session and confirm any
such entries with a breakout above the $20 level.  Breakouts above
the $20 level by themselves could be used as momentum entries into
new positions but only in a rising market environment.

SIMG $10.59 +0.25 (+0.34) SIMG spent the last two days
consolidating its recent rally without really participating in
the broader market strength yesterday and again today.  The
stock's failure to rally is at all alarming because it had already
staged a good run going into yesterday's session, and as it turns
out, was due for a break before resuming its upward trend.  The
last two days of consolidation could be setting up an actionable
breakout in the coming sessions, especially if the broader market
continues strengthening.  Obviously a strong market would stack
the odds in our favor for a breakout lasting in SIMG, but the
stock may be able to go it alone with the last two days of
consolidation now behind.  Watch for a high volume advance above
the $10.75 level for a breakout attempt, and confirm that attempt
with an advance above the $11 level.

NOVN $23.48 +0.61 (+2.99) NOVN powered through the $23.50 level
during today's trading on broad strength in the biotech sector.
The group as a whole performed very well during today's session,
which obviously helped NOVN through its short term congestion at
the $23.50 level.  The stock is setting up for a major intermediate
term breakout if it can only advance above the $24 level and hold
over the close.  Such a move should bring in additional buying from
both sides of the market, the shorts who will need to cover as well
as the bulls who will gain confidence in the trend in place in NOVN.
Further strengthening in the biotech sector would certainly help to
confirm the trend in NOVN, but the stock's relative strength may be
enough to carry it through $24.  We'll be watching for volume to
come into the stock on any move above the $24 level to confirm the
breakout.

BAC $76.65 +1.22 (-0.25) Following the pattern of its recent
trend, BAC showed some profit taking weakness earlier in the week
before bottoming just above our $74.50 stop Wednesday morning.
That turned out to be a great entry as the stock pushed higher
by almost $1 in the afternoon.  Then on Thursday, BAC gapped
higher, dropped to find support at the top of that gap twice
before rebounding to close very near the high of the day.  It
looks like the next bullish move is underway, with the distinct
possibility of a breakout to new highs ahead of the weekend.
With daily Stochastics now turning bullish again, intraday
pullbacks (ideally in the $75.50-76.00 are) are buyable in
advance of the breakout.  More cautious bulls will want to see
BAC clear $77 with conviction before taking new positions.

ERTS $64.96 +1.75 (+1.25) The selling that seemed to consume
gaming stocks on Tuesday did an abrupt about face over the past
2 days, with shares of ERTS completing the first phase of their
breakout on Thursday.  Support near $61.50 held firm and the
bulls used that level as a springboard to launch the stock
through the $64 resistance level this afternoon as the broad
markets poked into the green.  The next level of resistance
looks to be $66, where ERTS topped out in early December.  Use
intraday dips in the $63-64 area to get onboard before the
bullish express takes off.  Note that volume was heavy today,
coming in 60% above the ADV and it was all buying volume, as
the stock opened positive and remained in the green despite the
broad market weakness.  While part of today's move may have been
short-covering, we're looking for the bulk of the short-covering
to occur when the stock posts new all-time highs with a trade
at $67.  Raise stops to $61.

MMM $128.49 +0.95 (-1.58) With the DOW weakening, MMM languished
for the first part of the week before once again finding its legs
near the $126 level on Wednesday.  This was the area of resistance
that the stock broke out above a couple weeks ago, and it was
encouraging to see it hold as support.  The resultant buying has
gotten MMM out of the danger zone where we were concerned about
having to drop it and sure enough, its rebound presaged another
rebound in the DOW.  The past 2 days have seen the bears pressing
the 10,100 level and the fact that they couldn't manage a
breakdown leads one to conclude that we could see another push to
recent highs.  Look for broad market strength (possibly on the
heels of tomorrow's GDP report) to propel the stock higher for
another assault on the $130 resistance level.  Should that rally
fail to materialize ahead of the weekend, we want to look for
another entry point on an intraday dip and bounce near the
$127.50 level (the bottom of Thursday's gap).  Keep stops in
place at $126.

QLGC $48.71 +0.03 (-3.11) Bullish investors want to know if
today's action was another oversold bounce or the beginning of
the next bullish move.  Can't it be both?  Shares of QLGC were
looking mighty weak right up until the final 2-hours of trading
on Thursday, when the stock managed to find support near the $47
level and rebounded smartly into the close, ending virtually
unchanged.  The past 2 days' action were virtually identical to
each other, except that Thursday's dip was deeper.  With daily
Stochastics starting to form a bottom without dipping into
oversold territory, we're leaning towards this being a solid
tradable move.  Friday's action is likely to provide us with
another opportunity to enter the play, although QLGC isn't
likely to post a major rally ahead of the Holiday weekend.  Look
for another bounce from the vicinity of $48 to trigger new
entries.  Otherwise, we'll want to see QLGC top intraday
resistance near $50 before committing fresh cash to the trade.
Remember, we won't have a clean breakout until the stock clears
the $53 level and takes aim on its January highs near $57.


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

RYL – The Ryland Group $112.58 +2.94 (+0.59 this week)

The Ryland Group is a homebuilder and mortgage-finance company
that has built more than 175,000 homes.  Additionally, the
Ryland Mortgage Company (RMC) has provided mortgage financing
and related services for more than 155,000 homebuyers.
Currently, Ryland homes are available in more than 260
communities in 21 markets across the United States.

After the impressive run in Housing stocks over the past 7 months,
there are a lot of bears that are just itching to short this
group, but judging by the recent price action, they are way too
early.  Sure some profit taking was necessary, and that is just
what has transpired in the DJ Home Builders index ($DJUSHB) over
the past 3 weeks, as it has fallen from its all-time highs near
$400 to consolidate just above the $360 level.  Looking at a
daily chart, we can see the constructive nature of this
consolidation, as it has brought the DJUSHB back to its ascending
trendline that began with the September lows.  RYL has become a
favorite here in the call list due to its strength relative to
the sector and it looks like it is ready to flex its muscles once
again.  After setting new all-time highs in early May, the stock
has been working gradually lower, solidifying its support near
the $108 level.  Today's action looked particularly good for the
bulls as the stock traded in positive territory from the opening
bell and then accelerated its gains in the afternoon, ending near
the high of the day.  There is some resistance near the $113 level
that needs to be overcome, but with the daily Stochastics turning
bullish again, and the broad markets looking like they're ready
for their next rally, we're leaning bullish on the stock.  A
renewed bounce from the $108 level would be ideal, but we'd be
content with a pullback near the $110 level for new entries.
Momentum traders will need to be careful here with trying to buy
the breakout.  While a push through the $113 level on strong
volume can be used, the more prudent approach will be to wait for
a trade above $116 resistance before playing.  And don't forget
the one-day push to the $118 level -- a trade above that level
will be necessary for the stock to clear its last vestiges of
resistance.  Our initial coverage stop is in place at $107.50,
just below the recent lows.

BUY CALL JUN-110 RYL-FB OI= 321 at $6.80 SL=5.00
BUY CALL JUN-115*RYL-FC OI=1174 at $4.10 SL=2.50
BUY CALL JUN-120 RYL-FD OI= 245 at $2.25 SL=1.00
BUY CALL JUL-115 RYL-GC OI=1507 at $7.30 SL=5.25
BUY CALL JUL-120 RYL-GD OI=  28 at $5.20 SL=3.25

Average Daily Volume = 656 K



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

RE $62.95 +1.45 (-0.04) After three consecutive down days, RE was
due for a relief rally which is exactly what we saw during today's
trading as the stock lifted along with the broader market.  But it
may have been nothing more than a routine short covering rally
ahead of the holiday weekend, and the rally in RE could've offered
yet another favorable entry point into this weak insurance put
play.  After all, volume was fairly light on the way back up today,
hinting that perhaps the strength in the stock was indeed related
to short covering.  Plus the stock really didn't make any
convincing move above its short term congestion built up during the
last three days above between the $63 and $64 level.  From here,
a little more upside would offer a favorable entry point into new
put plays especially on an intraday rollover from resistance.  Look
for a roll from the $64 level.

TTI $26.30 -0.42 (+0.39) The obscure $25.70 level held for
another day during yesterday's session.  In fact TTI opened right
at that level and proceeded to rally throughout the day finishing
right on its high for the day, but volume was abysmal.  Clearly
the stock put together a rally on short covering, but its advance
fell short of the overhead 10-dma, which put pressure on the stock
during today's session, in which the stock couldn't even muster a
positive tick during the recovery in the broader market.  In
doing so, TTI traced a very clear inside day set up, which could
lead to the breakdown below the $25.70 level that we've been waiting
for.  Simply watch for a decline below that level either tomorrow
or early next week, and use such a move as an entry into new put
positions.  Otherwise, continue to look for intraday rallies to the
10-dma, then wait for rollovers to pull the trigger.

HB $60.56 +0.82 (-0.58) HB continued lower in yesterday's session,
approaching the relative low down around the $58.30 level that
we have been targeting since initiating coverage on this play.  But
the stock's slide halted at the $59.50 level yesterday when the
recovery in the broad market lifted all boats.  The same thing
happened today when HB snapped higher on the strength in the
broader market, but its rally wasn't all that inspiring for the
bulls.  Volume was extremely light, and the stock's rally couldn't
even manage to carry HB up to its descending 10-dma, which now sits
overhead at the $61 and change level.  Rollovers from the moving
average could be used as entry points in the coming days, with
that potential resistance level being reinforced by the short term
congestion overhead at the $61.20 level.  Tight stops just above
that level could be used to manage risk in entries from the 10-dma.

BRCM $24.43 -0.21 (-2.87) The last 2 weeks have seen a nip and
tuck battle between the bulls and the bears, as BRCM struggles
to hold support near the $24 level.  It traded on both sides of
that level numerous times over the past 2 days, but in the end,
support held on Thursday and the stock ended with a fractional
loss for the day.  Despite that minor victory, the bulls can't
ignore that the stock has been tracing a bearish wedge since
breaking down just over two weeks ago, and these patterns
normally resolve themselves to the downside.  Resistance seems
to be firming up in the $25 area and another rollover from this
area or even up at $26 should make for a solid entry.  We're
still focused on the triple-bottom breakdown on the PnF chart
(bearish target of $18), and with BRCM's lack of participation
in the late-day rally today, we like its bearish prospects.
Momentum traders will want to see BRCM break the $23.50 level
before playing.  Watch the action in the SOX for an indication
of BRCM's future.  The $500 level held up as support today, but
if it fails going into the long weekend, that will give us a
strong indication that BRCM is likely to see more weakness.

GS $79.17 +0.97 (-1.33) Now that the effect of the Merrill Lynch
settlement has faded from investors' minds, they can get back to
trading the Brokerage stocks on their merits.  Judging from the
action in GS over the past 2 days, they just can't make up their
collective minds.  The Broker/Dealer index (XBD.X) is still
vacillating about its 200-dma near $474 and GS fell sharply
yesterday, only to gain it all back today in the late-session
market rebound.  What's a bear to do?  Use these failed rallies
as entry points, initiating new positions each time the stock
fails to clear resistance.  After the breakdown on Tuesday, the
$80 level is looking like pretty formidable resistance, as it is
also the site of the 50% retracement of the fall rally.  GS has
been trying to get through that level for the past 3 weeks and
the bulls' lack of success in that endeavor has us eyeing the
downside with gusto.  Above the $80 level, GS will be challenged
by the descending trendline at $81.50 and a brief pop up to that
level would be a gift of an entry point (unlikely, but welcome).
Confirmation of our bearish slant will come with GS breaking
below the 62% retracement level at $76.25 and closing in on the
early May lows.

MU $24.30 +0.75 (-0.71) The Semiconductor sector (SOX.X) is
trying valiantly to put in a near-term bottom and that battle
took place on Thursday near the $500 support level.  In the end
the bulls prevailed, managing a rebound back to almost the
unchanged level by the closing bell.  Shares of MU have shown
some impressive resilience over the past couple days, as the
stock has firmed up and rebounded from the $23 support level.
The euphoric gap from last week has now been filled and with
daily Stochastics now attempting to turn bullish, our play may
be nearing the end of its useful life.  That said, the bearish
trend of the past 8 days is still intact and another rollover
at that trendline ($24.50) could make for a solid entry.  We are
still looking for the summer doldrums to create significant
downward pressure on MU (as well as the rest of the Chip sector),
so we'll play this trend as long as it lasts.  Even if MU
manages to crest its descending trendline with some help from
a rebounding SOX, there is strong resistance, both at $25 and
$26, and a failed rally near those levels looks even tastier to
a hungry bear.


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

PLAB - Photronics $24.65 -0.95 (-2.75 this week)

Photronics, Inc. and its subsidiaries manufacture photomasks,
which are high precision photographic quartz plates containing
microscopic images of electronic circuits. Photomasks are a key
element in the manufacture of semiconductors, and are used as
masters to transfer circuit patterns onto semiconductor wafers
during the fabrication of integrated circuits and, to a lesser
extent, other types of electrical components. The Company
operates principally from 11 facilities, five of which are
located in the United States, three in Europe and one each in
Korea, Singapore and Taiwan.

After company's moved the bar to ridiculously low levels, missing
estimates for the quarter is inexcusable.  The market is
punishing those offenders.  Since PLAB fell short of its
forecasted numbers, the stock has been punished and looks to be
headed much lower in the near term.  During its most recent
quarter, which was reported about a week ago, the company was
expected to earn 10 cents per share.  But PLAB only posted 8
cents in profits even though revenues grew during the period.
In conjunction with its earnings release, the company said that
its business visibility remained limited.  That guidance was none
too assuring for investors who were expecting much more from this
semiconductor company.  Its stock rallied from a low of $18 to
as high as $35 on the expectations that business had improved.
But it didn't, and now the stock is being punished.  Look for the
downward momentum to continue in this relatively weak chip play
into tomorrow's session.  Volume should remain relatively active
on the way down, at least over 1 million shares per day which has
been achieved quite easily in recent sessions.  A breakdown below
today's low at the $23.84 level could be used a momentum based
entry point into weakness, or wait for a relief rally to pass,
then look for a rollover from resistance.  A good place to start
to look for resistance is overhead at $26.  Stops are at $27.50.

BUY PUT JUN-25*PQF-RE OI=1430 at $2.15 SL=1.00
BUY PUT JUL-25 PQF-SE OI= 350 at $2.70 SL=1.75

Average Daily Volume = 699 K



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The Option Investor Newsletter                 Thursday 05-23-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

SIMG - Silicon Image $10.59 +0.25 (+0.34 this week)

Silicon Image, Inc. designs, develops and markets semiconductors,
including transmitters, receivers, controllers and video
processors, for applications that require high-bandwidth, cost-
effective solutions for high-speed data communications. The
Company's primary focus has been on the local interconnect between
host systems, such as PCs, set-top boxes and DVD players, and
digital displays, such as flat-panel displays, CRTs and
televisions. 

Most Recent Update

SIMG spent the last two days consolidating its recent rally
without really participating in the broader market strength
yesterday and again today.  The stock's failure to rally is at all
alarming because it had already staged a good run going into
yesterday's session, and as it turns out, was due for a break
before resuming its upward trend.  The last two days of
consolidation could be setting up an actionable breakout in the
coming sessions, especially if the broader market continues
strengthening.  Obviously a strong market would stack the odds in
our favor for a breakout lasting in SIMG, but the stock may be able
to go it alone with the last two days of consolidation now behind.
Watch for a high volume advance above the $10.75 level for a
breakout attempt, and confirm that attempt with an advance above
the $11 level.

Comments

SIMG is ready to explode higher.  We can sense it.  The stock is
coiling ever tighter in its ascending wedge, with energy building
and just waiting for a breakout.  We could get that move tomorrow
given the last few days of consolidation and the recovery in the
broader market.  Watch for a move above $10.75, followed by a
confirmation breakout above the $11 level.

BUY CALL JUN-7  QSI-FU OI=60 at $3.40 SL=2.00
BUY CALL JUN-10*QSI-FB OI=60 at $1.30 SL=0.75
BUY CALL JUL-10 QSI-GB OI=11 at $1.70 SL=0.75
BUY CALL JUL-12 QSI-GV OI=71 at $0.75 SL=0.25

Average Daily Volume = 702 K
 


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

Milking Q-Charts, Part XIII, An Owner's Manual
Buzz Lynn
buzz@OptionInvestor.com

Housekeeping first - mia culpas galore on Monday's Market Wrap.  
Many of your wrote in to point out that Manic Monday was performed 
by the Bangles, not the Go-Go's.  DOH!  Misfired synapse.  Pulled 
a muscle in my head.  Forgot the ginseng.  Etc.  I'm chalking it 
up to my first senior moment of public notoriety.  I just flat 
blew it out of forgetfulness and laziness.  

So can you stand another entertainment reference?  In what seems 
like Friday the 13th, Part 13 - Jason goes to Wall Street, we 
bring you Milking Q-Charts, Part XIII!  Not to worry - this won't 
be an on-going series.  Why run another article?  Having 
downloaded the new version 4.2 about 5 weeks ago, one of our 
trusted editors, Mark Phillips, gave the big thumbs down due to 
many bugs.  A few of our faithful readers wrote inquiring if we 
might be doing more on Q-charts with the new version.  My answer 
then was, "No".

Since then, the bugs appear to be worked out and the new version 
4.2 is fully functional (far as I can tell).  Having used it for a 
bit since, I am happy to tell you that there are some great new 
features on Q-Chart, which we'll bring you today.  There are more, 
but I'll have to swerve into them as I use the new version.  Thus, 
these Q-Charts articles will continue sporadically.

Of course, everything we've done so far through episode XII still 
applies.  Those features and functions didn't go away.  But there 
are new functions worthy of note, and more importantly, of use.  
Before we get started, new readers who have yet to see the 
previous series can find them here:

http://www.OptionInvestor.com/traderscorner/011002_1.asp

http://www.OptionInvestor.com/traderscorner/011702_1.asp

http://www.OptionInvestor.com/traderscorner/012402_1.asp

http://www.OptionInvestor.com/itrader/archive/traderscorner/031801_1.asp

http://www.OptionInvestor.com/traderscorner/013102_1.asp

http://www.OptionInvestor.com/traderscorner/020702_1.asp

http://www.OptionInvestor.com/traderscorner/021402_1.asp

http://www.OptionInvestor.com/traderscorner/022602_1.asp

http://www.OptionInvestor.com/traderscorner/022802_1.asp

http://www.OptionInvestor.com/traderscorner/030702_1.asp

http://www.OptionInvestor.com/traderscorner/031402_1.asp

http://www.OptionInvestor.com/traderscorner/032102_1.asp

http://www.OptionInvestor.com/traderscorner/032902_1.asp

These comprise the only (mostly) comprehensive owner's manual for 
Q-Charts that I am aware of.

The first new feature I discovered is the ability to minimize or 
maximize any particular chart on your workspace.  Say that within 
a workspace of multiple time frames like the 
weekly/daily/60/30/10/5 charts, we want to look back on the 10-
minute chart to an earlier period that is not currently visible on 
the candles due to small size of the condensed chart on our 
desktop real estate.  The logical solution is to maximinze the 
chart so we get more detail.  In the past, we would have to click 
on Maximize icon located in the upper right-hand corner of the 
active chart in question.  It looked like this:



 

Now for the fun part - all we have to do now to maximize the chart 
to full screen is double-click the mouse anywhere on the chart!  
Just double-click and POOF, instant big.

Great, now that it's big, how do we shrink it down?  The same way 
we made it big - we double-click and the image is reduced back to 
original size as shown above.  Simple and helpful, no?

Here's another one.  Suppose we are looking at a chart that is 
cluttered with moving averages, Bollinger bands, and the like.  
Highly likely they get in the way and are easily confused with 
trend lines that we be trying to draw.  My charts regularly look 
like this:



 

Wouldn't it be great to temporarily get rid of the clutter without 
having to reinvent the chart? In the old version of Q-Charts, we 
would have to remove each study by hand, then draw our lines, then 
add the study back by hand.  That quickly becomes a nuisance to 
the point that we would no longer even bother - a deterrent to 
discovery for many, including me.

Good news!  Now we can temporarily eliminate the clutter.  Let's 
say we want to do it to the above chart.  From the active chart 
above, we would click on the Studies button at the top of the menu 
bar, scroll down the menu until Hide all Chart Studies is 
highlighted, then click.



 

Follow the steps above to see the new results below.


 


Look, no more clutter!  OK, now say we're done plotting our line 
and we want to restore our studies without having to re-enter the 
details by hand.  Simply click the Studies button on the top menu, 
scroll down to Unhide all Chart Studies, then click.  



 

We are back to where we started, moving averages, clutter and all.

Here's another neat trick.  Are you sick and tired of modifying 
each and every chart by hand for retracement percentages, ray or 
line color, and thickness?  Wish there were a way to have the 
program remember your preferences on everything you ever draw 
instead or re-inventing the wheel?  Personally, I hate the default 
color green showing up on every support or resistance line I ever 
drew.  I like my lines red but would always have to do that by 
hand each time I drew one.  Now, it remembers for me.  

Let's say we want our lines to always be red every time we draw 
one.  First we select Line using either the Draw dropdown menu 
(not preferred) or clicking on the Line icon (preferred).  While 
that isn't necessary right now, we're going to want to draw a line 
darn quickly so we might as well get cued up for it.  That done. 
Click on the Preferences icon, which looks like a hand holding up 
a cue card.



 

Once we click on the Preferences icon, the preferences box pops 
up, which looks like this:



 


Notice the default shows up in green measuring 1 diameter of 
thickness.  This is hard for me to see in the heat of battle so I 
want it to jump out at me.  We can do this by dropping down the 
color arrow and selecting red (or another color we choose), then 
setting the thickness of the line.  3 diameters practically jumps 
it off the page.  It's what I use in all my charts that you see in 
the Wrap or any other article where I show charts.  The following 
outlines the process:



 

Once we select our preferred color and thickness, we simply click 
OK.  That way, every time we go to draw a line, the program 
remembers to do it 3 diameters thick in red - no more hand 
changing.

Of course, as probably became obvious in this exercise, we can 
select preferences for every one of the tools shown in the Toll 
Preferences tab above.  I'm sure that I'll get a question on 
projections like, "What is that and how do we use it?"  The simple 
answer is that I don't know everything about it yet, but it 
behaves similar to a retracement.  More on the Projections in 
another episode.

That about wraps it up for today, as I am very close to pulling 
another muscle in my head and have to stay off it for a while.  
(big grin)  For those that have yet to make the migration to 
version 4.2, it appears to be worth it, especially with so many 
neat little features that make operations much smoother.  We'll 
bring you more on these upgrades as demand requires.  Of course, 
questions and comments are welcome.

Make a great Memorial Day weekend for yourselves and remember what 
we should be in memory of - all dead servicemen of all wars in 
which the U.S. was involved.  To all those we hold in memory, we 
owe our thanks.


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

Watch the two biotech stocks on the list tomorrow.  Plus a 
curiously strong box maker.

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/052302.asp


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

Tech and biotech were on the move again today.  But the major 
market averages didn’t make any meaningful progress in either 
direction.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/052302_1.asp


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

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