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Daily Newsletter, Sunday, 06/09/2002

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The Option Investor Newsletter                   Sunday 06-09-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 6-07          WE 5-31          WE 5-24          WE 5-17
DOW     9589.67 -335.58  9925.25 -179.01 10104.26 -248.82  +413.16
Nasdaq  1535.48 - 80.25  1615.73 - 45.76  1661.49 - 79.90  +140.54
S&P-100  507.32 - 21.88   529.20 - 10.72   539.92 - 13.38  + 30.06
S&P-500 1027.53 - 39.61  1067.14 - 16.68  1083.82 - 22.77  + 51.60
W5000   9752.69 -353.80 10106.49 -144.15 10250.64 -223.54  +456.71
RUT      470.51 - 16.96   487.47 -  6.17   493.64 - 15.30  + 16.21
TRAN    2686.66 - 62.60  2749.26 +  5.59  2743.67 - 54.69  +155.26
VIX       26.65 +  3.75    22.90 +  1.64    21.16 +   .88  -  4.75
VXN       52.24 +  6.29    45.95 +  3.09    42.86 -   .08  -  7.79
TRIN       1.30             1.11             1.59             0.78
Put/Call    .79              .73              .82              .72
******************************************************************

 
Intel To Gross $25 Billion, Market Loses Billions?  
by Jim Brown

What a fun day! The hangover from the Intel party on Thursday
night lasted through the day on Friday. The chipmaker lowered
guidance to $6.2 to $6.5 billion for the quarter and margins to 
about 50%. Would you like to have a business with that type of
earnings potential? A flock of investors decided that was not
good enough and they dumped over 150 million shares for a -$5 
loss over yesterday's close. The rest as they say is history.



 



 

Friday morning started out bad with a -100 point gap down but 
all the major indexes struggled back into positive territory in 
late afternoon. End of day profit taking pushed them back to
negative but floor traders were mostly satisfied with the 
results. They would have liked a roaring V bottom rebound 
reminiscent of the olden days but were happy to just settle
close to even for the day. 

The Intel guidance drew downgrades faster than a picnic in July
draws flys with everyone jumping on the bandwagon to get their  
name in print. The key here is how long it will take before 
somebody like Merrill jumps back on the Intel bus at this 
"attractive" level as they say. Knock them down before the 
meeting and prop them back up after the smoke clears. How else 
are you going to generate commissions.

Am I the only one that thought the news was not that bad? Now
before you answer that remember I was bearish the chip/upgrade
cycle process in last Sunday's commentary. They said the 
weakness was an "overly enthusiastic estimate" of business in
Europe that caused the guidance change. The sales in Europe in
the first quarter were so good they used too large an estimate
for the second quarter. They said sales were still good, just
not at the same growth rate as in 1Q. Is that bad? They also 
said they were still expecting a ramp up in business for the
second half. Did I miss something? Their profit margins were
3-4 points lower because of product mix. They were selling 
more Celeron processors than they expected. That could mean 
AMD is selling less of their products? Gaining market share is
not negative even if it means -3% lower margins. It did mean
the higher priced, high performance P4 processors were not 
selling at the expected pace. That ties in with the slower
upgrade cycle comments from last week. Intel still expects 
this segment to pick up as pent up business demand accelerates
in the second half. Buy good stocks when nobody else wants 
them. Sounds like a long-term opportunity to me. I am not 
saying Intel does not have problems but compared with other
available tech stocks it looks like a "safe" port in the storm.
Safe because much of the risk was removed on Friday with the
-$5 drop back to October levels. 

In a related news event Dell announced it had dumped IBM in 
favor of Intel and is jointly developing a new chipset with 
Intel. Dell was going to offer servers based on IBM's 
proprietary "Summit" technology. They are now going with 
Intel to develop a high-end server to compete with Unix 
platforms. This should boost sales for each company since 
these servers tend to be sold to larger clients and include 
storage systems and other computer products. 

If it is Biogen it must be warning season. The company warned
today that increased competition was eroding sales and profits
would suffer. The warning cut nine cents off the 40 cents 
analysts had expected. The warning itself is only a passing
news item but the more critical point is it telegraphs the 
advent of the 2Q warning season which begins in earnest next
week. While the trend has been fewer warnings so far this 
quarter that does not mean they will not happen. Many companies
face an extremely back end loaded quarter and will not know
had bad "bad" is for a couple more weeks. They may have put
off warning until the last minute to put things in the best
light possible. 

The sum of all fears stock, Tyco, took another pounding Friday
when Moody's and S&P cut their debt to one notch above junk. 
This happened during a conference call where Tyco management
was trying to circle the wagons against the onslaught of 
accusations being brought by authorities. No interest loans, 
undisclosed compensation and criminal probes continue to
plague the company. The IPO for the companies CIT Group could
be delayed and the value received could be much less due to 
the negative connotations. TYC lost another -4.50 to $10.15 
on the news with 200 million shares traded. (10% of the NYSE
volume)

Just when you thought it was safe to go outside (in Kashmir)
things went to heck again. Several press stories about cooling
tensions between India and Pakistan made the rounds during 
the trading day and the possible resolution of the nuclear
war worries was a positive impact to the market bounce. After
the close it was announced that an Indian spy plane was shot
down by Pakistan and the heated rhetoric flamed once again. 
India/Pakistan, Israel/Palestine and now Argentina and Brazil
heating up again. At least there are no war worries in South
America but economic woes are growing. A friend told me last
week that people in Argentina wait in lines three blocks long
just to get an "application" for a visa to the few countries 
that will accept them. They have to prove they have
sufficient assets in Argentina to convince authorities they
will actually come back. 

Economically the Employment situation in the U.S. improved 
with 41,000 jobs created in May. This was less than the
65,000 expected but just another plus in the recovery
column. The unemployment rate fell to 5.8% from 6.0% in
April. Not a particularly exciting report but the overall
evidence of the recovery is growing.

Next week is going to be critical. (How many times have you 
heard that in the last few months?) The Dow closed under key
support at 9600 and the Nasdaq barely finished above the key
1525 level. For the S&P it seems that every close is one step
closer to retesting the September lows. The intraday low on
Friday of 1012 was an exact -71% retracement of the gains since
the 9/11 attack. That post 9/11 low was 944.75 which suddenly
does not seem that far away. The trading on Friday was not 
your typical V bottom rocket rebound. It was slow, orderly 
and while it was on heavier than recent volume, it set no
records. The NYSE volume was 1.7 billion and the Nasdaq was
just over 2.0 billion. Good volume but not great and up
volume was only slightly higher than down volume on the NYSE
and down volume won on the Nasdaq. This was not a capitulation
day as everyone had hoped. 

Traders look for a monster dip followed by 2:1 or even 3:1 or 
4:1 up volume to down with advancers beating decliners 3:1 or
4:1. They barely broke even today. New lows at 385 beat new 
highs at 96 by a landslide. The best indication of the broader
market direction, the S&P, closed at 1027.53. The low for the 
day was 1012, the 71% retracement level as stated above but the
high of the day at 1033 was the 61.8% retracement. The S&P
stopped dead in its tracks at that 1033 level which is also 
just below down trend resistance from May-24th to present. 



 

These resistance levels would tend to indicate that the broader
markets could struggle to make substantial gains from the
current levels. With heavy resistance coming together around
the 1034 level that would be my target for any bounce on
Monday morning. This is very reminiscent of the dip and bounce 
on June 4th/5th. The markets dropped to the bottom of the
channel (and the 61% retrace) only to fail again at the top
of the channel. 

This is key for the bulls. They must show up with money in
their pocket on Monday. Considering $6.8 billion flowed out
of mutual funds in the week ended on Wednesday according to
TrimTabs.com this could be a tall order. The economic calendar
is void of any material events until the PPI and Retail Sales
on Thursday. Not that stocks had been trading on economic
news lately but for the first three days next week they will
be on their own. Supported by stock news only and that is
where the earnings warnings will come into play. We will be
hostage to anybody that warns and to whatever world news
captures traders attention. There are rumors that IBM will
have a negative announcement soon to compensate for bankruptcies
of some high profile customers impacting nearly $4 billion in
services orders. That could be a market mover! The bottom 
line remains KEEP THOSE STOPS TIGHT regardless of which direction
you are trading. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

HOLY COW!  
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

In the words of the great Phil Rizuto - Holy Cow! Friday was some 
day, hey. I would like everyone to remember that THIS day is what 
it means to be "oversold" in a market. Bad news does not have the 
same impact as otherwise.  Imagine if the Market was "overbought" 
- we would have been down Dow 200 points as a starter and ended 
up down 250, rather than trading down 152 Dow points at the low, 
then closing off 35 points.   

Part of my thinking that we were bottoming (with an "ing") is 
that the indexes might have a lower low before there was a 
tradable bottom and a more sustained rally given the tendency for 
significant bottoms to do so over a 4-7 day period. Todays 
action is why I figured risk to reward for NEW positions as 
better to buy a sharp further dip than to short on a break at 
this juncture. 

Again, that's why I use those envelope lines and that daily (14-
day) stochastic on the daily charts that you see in this column 
night after night.  Hey, catch 3-4 intermediate-term bottoms and 
a similar number of tops in a year, before the index option 
premiums get jacked to the moon and ride them so you are not 
making Charles Schwab even RICHER and pretty soon you are talking 
about REAL money from index options trading.  

GENERAL MARKET INDICATORS - 


  


Very bullish normally when the NYSE 10-day Arms Index (TRIN) gets 
above 1.5 - "three times the charm"? Would like to see it (the 
10-day moving average) turn down next. Also, am encouraged, re 
the S&P and Dow that bellwether GE has made an apparent double 
bottom low.     



 

Trader "sentiment" got pretty bearish on Thursday - along with 
the other oversold and bullish indicators, this one is pointing 
to a good-sized rally ahead. This is not to say that there won't 
be another pullback on Monday. I suspect there will. Don't get 
too bearish!

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


 


Suggested buying higher, before this break, and then buying in 
the 500 area, with a risk/exit point to 497 (Friday low: 498.5). 
This rec (recommendation) made up for the earlier one hopefully. 
Suggest keeping the stop point, for now, at 497.  Buy another dip 
on Monday - the chart pattern looks like we could see another 
bout of weakness - anywhere in the low-500 area looks like an 
area to accumulate some calls for a "position" type play, going 
out beyond June expiration, say to July.    

I also suggested on my last daily update (Thursday night) as I 
surveyed the tech rout, the Friday decline might be sharp, but 
short-lived. Time will tell on this. I think 500 is a definite 
area that will find buying interest.

On the use of the trading envelope lines - when there is a dip 
under them AND the market is oversold on a price oscillator basis 
AND the general market indicators are also at oversold extremes, 
risk to reward is very favorable if you just go "against" the 
panic and keep to a game plan.    

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


  


Again, on a risk to reward basis suggested buying if 95 were seen,  
with stop protection at 94.5. Someone asked me if I it was wise to 
buy in an area that you identify as "support", but before you see 
if that area will hold (e.g., catch a "falling knife?"). 
Well, the point is a good one, but yes I will have orders in to 
play an likely support, if I have a good reason off the charts to 
do so PROVIDED that:
- the market is oversold
- the decline is an extension of a decline
- there is a good technical "reason" to do so; e.g., the price 
point is at the low end of a well-defined downtrend channel
- AND there is also a fairly tight stop point entered at the same 
time.

I was forced to try to perfect this technique - of trying to 
ANTICIPATE buy/sell areas - cause I used to work during the day 
at something other than watching and commenting on the market and 
because it was the only way I could hope to catch index options 
premiums when before the market makers raised them so much that 
the odds were all in their favor when they sold them to me.

Subscriber NOTE: "I think it's very important to point out to 
readers that a price change of $1 for (each stock) in the DJIA 
does NOT have the same impact on the Average and that it varies 
according to the stock and that stock's relative weight" 

RESPONSE: It would be better to say each stock's relative PRICE 
(not "weight"), as divided by a special "divisor". 

There is a factor (divisor) involved in the price-weighted Dow 
Industrial average, so it is not a straight-line division, unlike 
the Value Line Index. 

"Weighting" here in the DJIA average is not capitalization 
weighting like the S&P - simply an arithmetic adjustment to 
account for how many price splits the stocks have had. The reason 
the Dow was called an "average" was that Charles Dow just added 
the 30 stock prices and divided by 30; i.e., the divisor was 30. 

Now the divisor is .14452124. Add the stock prices at end of the 
day and divide by .1445. If Intel (INTC) is down 4.76 - divided 
by .1445 - the stock is accounting for -33 Dow points. The habit 
of calling the Dow, an "Average" has stuck however. 

The Nasdaq 100 ($NDX) - 
Suggested Thursday night, that if NDX got down to around 1120 and 
stabilizes in this area, buy for a rebound. Well, NDX got to an 
intraday low around 1107, then rebounded the next hour to well 
above 1120 - nothing like playing an index that MOVES!  Suggest 
using stops at 1103 if long.  

I thing that we can get a move back up to the 1200 to 1245 area 
in the coming 3 weeks.  Time will tell.           

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


 


I was long QQQ per my suggestion to buy in 29 area, but figured I 
would lose on the Friday drop, so suggested 27.50 as a hopefully, 
out of the way stop.  Low was within 2 ticks of it.  My strategy 
is normally to adhere to risk points.  Sometimes it can pay to 
stay out of the bear's way, when we smell capitulation final blow 
off type lows AND the market is quite oversold.

If long QQQ, suggest leaving a stop in at 27.50 for one more day. 
Will update Monday night. Stay tuned! Continue to like buying 
dips, such as back to the 28 area. Key overhead resistance is at 
the top of the downtrend channel, currently intersecting around 
29.4.	The lower envelope band on the Q's was pointing to a good 
place to buy also, just like the last low.   

Friday was funky but had a nice surprise - there is life in 
tech if it's cheap enough or oversold enough.  The bears are 
getting a little more nervous at this point.  Notice how 
surprises come not JUST on the short side, which suggests not 
getting complacent on either side of the market. 

As said before watch MSFT, ORCL, CISCO and QCOM, beside INTC - 
the first 4 of the "Fab 5" are holding up pretty well and may be 
poised to rally. I think Intel can at least "fill in" most if not 
all of its downside gap from Thursday-Friday, at some point.  

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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**************
Editor's Plays
**************

Long Term Thinking

Before we get into this weekend's play I need to update the SMH
semiconductor puts from last week. The $40 puts profiled last 
week at $2.65/$3.50 hit highs of $6.40/$7.00 on Friday with the
SMH closing at $34.60. While I would expect the SOX/SMH to go 
lower based on the Intel guidance, they could bounce on Monday
on oversold conditions. Snug up your stops and take your profits.
Look for a bounce if you want to get back in.

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

Intel - Call Options, A Free Play

Did I get your attention? For the reasons spelled out in my
commentary this weekend I think Intel at a $22 close on Friday
is a gift. The slight change in guidance knocked them back in
time to October 10th. That was the last time Intel traded at 
this level. This is only $3 above the September disaster lows  
of $19.08 and you have to go back to Oct-1998 to find a lower 
low.  

Despite all the gloom and doom you would be hard pressed to 
find anyone who does not expect the economy to not only recover
but grow again over the next two years. The longer we tread
water at these levels the stronger the eventual recovery will
be. Computers will need to be upgraded from the Y2K replacement
wave and even if it is only half of them it will be a huge
jump in IT spending. Add in any new growth and business 
development and Intel could be back at peak earnings potential
within two years. Consider also that they have cut costs
substantially which will increase profits. Excess chip 
production capability at competitors has been shut down 
which will lead to higher prices when the demand picks up. 

Two years is a lifetime in chip development. With power doubling
every 18 months that puts another generation of processors in
the hands of the public. Their 64 bit processors will be online
and entirely new server models will be commonplace. The 2.2 GHZ
PC I bought last week will be obsolete and a 5 GHZ or faster
will be the "standard" for business computers. Not upgrading your
3yr old 400-600 mhz computer today may be ok but when the world 
moves to the next 5 GHZ level it will be on Intel chips. Your
PC will then be 5 years old and qualify as "antique" in computer 
terms.

All this drum beating is simply to convince investors that Intel
at $22 in Jan-2005 is not a very likely possibility.

The way to play this is with Call leaps. The Jan-2004 $25 leap is
$4.50 as of the close on Friday. The Jan-2005 $25 leap is only 
$6.10. Both of these are much less than simple call options a
year ago. 



 

If that is too much money to risk on a two year investment then
sell the same strike Leap Put to offset the price of the call.
The Jan-2004 $25 put is $6.50. Subtract the $4.50 price of the 
call and you have a $2 credit and unlimited upside. Should Intel
close under $25 you will own the stock with a basis of $23, only
$1 more than today's price.

Sell the Jan-2005 $25 put and you get $6.80, which produces only
a $.70 credit but you have an extra year for Intel to increase 
in profits and price and reduce the odds of a close under $25
at expiration. 

You cannot get a much better deal than this in option investing.


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

Remember, these are all high risk plays and should only be made
with 100% risk capital.

Good Luck

Jim Brown    


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

Bears To The Rescue?
By Eric Utley

I think Friday's saviors were, ironically enough, the shorts.
What had the potential to be a very ugly day turned out to be
not so bad after all.  Over the intermediate- and longer-terms,
I think Friday's reversal bodes poorly for stocks.  I don't
have an intelligent idea for what the short-term holds, so I
won't even try to speculate.

From what I observed on the tape Friday morning, supply coming
from longs selling dried up at the open.  Without the necessary
supply to cover into without causing an imbalance, the shorts
did just that.  Two high profile warnings from very important
sectors should have caused more fear on the part of the bulls.
Of course I'm talking about Biogen (NASDAQ:BGEN) in the Biotech
arena, and Intel (NASDAQ:INTC) in the semis.  These two were
enough to induce a capitulation, but they didn't.  For whatever
reason, the longs weren't scared enough to throw in the towel,
which I think only delays the inevitable, or we're in store for
more of the bleed lower.  But enough of the news, let's take
a look at the sentiment indicators.

The sector spotlight was pretty interesting Friday, with two
commodity-based sectors earning the best and worst spots.  The
Oil Service Index (OSX.X) rebounded after a big slide lower
earlier in the week.  Yet Gold (XAU.X) was dismantled.  My
thinking is that the rally in the OSX.X was in relief, and that
the group gets weaker into the coming weeks.  As for gold, I
don't know if Friday's move was enough to remove the excessive
bullishness in that corner of the market, or if it was the
beginning of a deeper contraction.

The CBOE Market Volatility Index (VIX.X) had the makings of a
big day in the early going, but failed to penetrate the 30
level.  Above the 30 level is generally when we'll hear the
VIX start being talked about in the financial media.  For some
reason, that is a level of importance.  And they were most
certainly watching it Friday as the index rolled over from
29.94, reaching the same level it did back in late January.
Two things stick out to me in the VIX.  The first is that
fear is on the rise judging by the close above the 200-dma.
But the second, which I've been writing for about for quite
a while, is the VIX's inability to hold onto a gain in
conjunction with a rally in stocks.  Heck, stocks didn't even
finish in the green Friday, but the VIX still closed lower.
In other words, there's no skepticism among the big money
crowd once they see stocks lift from the mat.  This indicator
alone, and I think it can be used as a stand alone indicator,
and the way that it is acting suggests to me that the worse is
not yet over.  Plus, the disadvantage of a higher VIX to
options traders means that you'll have to pay up for premium
in the form of increased implied volatility.  All that means
is that it's much more difficult to control risk in options
trades in the current market environment.

Next the VIX, the most compelling action is taking place in
the bullish percent data.  The five markets we track are in
either a corrective phase, or downright bearish.  The one
that I'd like to focus on this weekend in the Nasdaq-100
Bullish Percent ($BPNDX) which fell to 20 percent last Friday
on a drop of another 4 stocks during Friday's session.  At
20 percent, the indicator is just above where it was prior
to the Cisco (NASDAQ:CSCO) ignited rally.  The NDX is getting
very, very oversold.  That doesn't automatically mean that
it's going to rally.  But what it does tell us is that risk
to the downside is growing smaller and smaller with the loss
of each stock.  If risk is smaller to the downside by a wide
margin, then it makes sense to be managing your short
positions closely, and looking to start getting bullish.  I
don't know what will finally shift the market back into a
bullish mode, but the catalyst is usually unknown just like
CSCO was about a month ago.

The final piece of evidence that I'd like to examine this
weekend in the activity among the Nasdaq traders in the
Commitments of Traders (COT) report.  Nasdaq commercials
reached their most bullish reading in more than a year last
week, while, get this, small traders just missed their most
bearish reading of the year.  The divergence between the two
groups is what to really focus on when examining COT data,
and that's exactly what we're getting with the most recent
report.  This piece of data combined with the oversold
nature of the $BPNDX I think warrants a closer look to the
bullish side of the tech sector FOR A TRADE.  I did just
that last Friday by putting some of my money to work in
NDX names that were either at support levels or had
achieve price targets during last Friday's session.  We'll
see how they pan out next week.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9590

Moving Averages:
(Simple)

 10-dma:  9825
 50-dma: 10084
200-dma:  9871



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1027

Moving Averages:
(Simple)

 10-dma: 1054
 50-dma: 1090
200-dma: 1111



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1140

Moving Averages:
(Simple)

 10-dma: 1198
 50-dma: 1291
200-dma: 1431



Oil Service ($OSX)

The OSX narrowly out paced the HMO last Friday to earn the
day's best performing sector spot.  The OSX gained 2.04
percent on the day on what appeared to be a reaction to the
sell-off in the first half of the week

Leaders to the upside included Varco (NYSE:VRC), Transocean
(NYSE:RIG), Rowan Companies (NYSE:RDC), Baker Hughes (NYSE:BHI),
Noble (NYSE:NE), and Nabors (NYSE:NBR).

52-week High: 130
52-week Low : 58
Current     : 100

Moving Averages:
(Simple)

 10-dma: 102
 50-dma: 103
200-dma: 87


Gold and Silver ($XAU)

Forget about the SOX, the real beating took place in the XAU
last Friday.  The index shed nearly 6 percent, easily earning
the day's worst performing sector spot.  

The selling was pretty broad, and most likely a sector related
sell program as there wasn't an individual disaster.  The
leading downside movers included Harmony Gold (NASDAQ:HGMCY),
Anglogold (NYSE:AU), Newmont Mining (NYSE:NEM), and Gold
Fields (NYSE:GFI).

52-week High: 89
52-week Low : 49
Current     : 79

Moving Averages:
(Simple)

 10-dma: 85
 50-dma: 77
200-dma: 63

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

Market Volatility

Well, the VIX ticked up to, but barely missed, the key 30 level
from which it promptly reversed to finish, get this, lower for
the day.  Amazing, just amazing.  I think it points to more
downside eventually.  A lot more.

The VXN is getting more bullish, however, noting its ability to
hold onto a more than 6 percent rally.  It's now above the
200-dma.

CBOE Market Volatility Index (VIX) - 26.70 -0.76
Nasdaq-100 Volatility Index  (VXN) - 52.78 +3.02

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.79        636,476       504,550
Equity Only    0.67        509,336       340,841
OEX            1.29         33,953        43,796
QQQ            0.47         67,057        31,248

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

Bullish Percent Data

           Current   Change   Status
NYSE          56      - 1     Bull Correction
NASDAQ-100    20      - 4     Bull Correction
DOW           47      - 3     Bear Confirmed
S&P 500       50      - 2     Bear Confirmed
S&P 100       50      - 1     Bear Confirmed

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  1.72
10-Day Arms Index  1.63
21-Day Arms Index  1.36
55-Day Arms Index  1.36

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       1794          1694
NASDAQ     1367          1711

        New Highs      New Lows
NYSE       43            131
NASDAQ     43            259

        Volume (in millions)
NYSE     1,800
NASDAQ   2,111

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

Commitments Of Traders Report: 06/04/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials brought in a few of their shorts last week and added
a few longs.  Small traders grew slightly less bullish, but not
by a meaningful amount.

Commercials   Long      Short      Net     % Of OI 
05/21/02      354,039   429,803   (75,764)   (9.7%)
05/28/02      362,607   442,845   (80,238)   (9.9%)
06/04/02      369,298   440,027   (70,729)   (8.6%)

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

Small Traders Long      Short      Net     % of OI
05/14/02      163,035     58,587  104,448     49.8%
05/21/02      172,313     57,803  114,510     49.8%
06/04/02      167,713     58,885  108,828     48.0%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Nasdaq commercials grew quite a bit more bullish last week by
bringing in a large number of short positions.  Small traders
meanwhile grew increasingly bearish with their addition of a
number of short positions, to just off of their yearly high in
bearishness.

Commercials   Long      Short      Net     % of OI 
05/21/02       51,448     45,375     6,073   (6.3%)
05/28/02       49,669     44,900     4,769   (5.0%)
06/04/02       47,875     39,100     8,775   (9.3%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   8,775  - 06/04/01

Small Traders  Long     Short      Net     % of OI
05/21/02       12,567    19,899    (7,332)    22.6%
05/28/02       12,562    16,969    (4,407)    14.9%
06/04/02       12,162    21,420    (9,258)    27.2% 

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 shorts than longs last week for
a reduction in their new bullish position.  The small traders
were much more active with a significant drop in their bearish
position.

Commercials   Long      Short      Net     % of OI
05/21/02       20,173    15,317    4,856     13.7%
05/28/02       20,289    15,513    4,776     13.3%
06/04/02       20,564    16,169    4,395     11.0% 

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
05/21/02        3,661     9,585    (5,924)   (44.7%)
05/28/02        5,709     9,180    (3,471)   (23.3%)
06/04/02        7,114     9,639    (2,525)   (14.7%) 

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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***************
ASK THE ANALYST
***************

Summer Time Blues
By Eric Utley

It's shaping up to be a long, cold summer for the bulls.  Unless
something gives real soon, a summer rally is looking very
elusive to me.  The lack of earnings, negative sentiment,
mistrust of corporate America, and heightened global tensions
are combining to put some serious pressure on this market.  They
like to say that it's always darkest before dawn, but I sure don't
see any light on the horizon.

When it gets so negative as it has during the last few weeks,
it almost always pays to go against the prevailing sentiment
since the crowd is generally wrong at major turning points.
But doing so in a reckless way is a recipe for losses.  If
you're going to try to fight the crowd, do so in an intelligent
way with precise stock picking.  This weekend's column includes
the review of one such stock that I would be looking at from
a bullish perspective in this market environment.

The point and figure charts that appear in this column were
created using www.StockCharts.com.

Please send your questions and suggestions to:

Contact Support 

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

Apple Computer (NASDAQ:AAPL)

I was wondering what your thoughts were on AAPL after the INTC
news.  AAPL is holding above what looks like strong support
even after the sell off today.  Would you play this one or
stay away? - Vingh

Excellent observation, Vingh.  Thanks for the question.

AAPL has been one of the stronger stocks in the realm of
technology.  It has essentially traded sideways since the
beginning of the year, consolidating its rally from last
fall.  For the most part, the stock has held onto its
rally as it has yet to give a sell signal this year even after
last Friday's draw down because of Intel.  Yet, as Ving
pointed out, AAPL's decline last Friday stopped at a very
key support level at $21.

I don't know what's going on at AAPL from a fundamental
perspective, but Steve Jobs is obviously doing something
right currently, or at least that is the perception of the
market.  I don't think that the stock would be displaying
such relative strength in this market environment if at
least a few things weren't going right at AAPL.

The support level that Vingh observed is at $21.  At
current levels, that support level has held four times now,
or it's become a quadruple-bottom.  I'm of the belief that
support grows weaker on each subsequent retest of a
specific level because demand is finite.  Nevertheless, I
think AAPL represents an interesting bullish trade at
current levels given the risk to reward dynamic at play
in the stock, plus its relative strength ranking versus
the Nasdaq.  The stock hasn't displayed any signs whatsoever
of deterioration in price versus the Nasdaq, which tells
me that its most recent slide lower was purely a function
of the broad market weakness.

The $21 level is not only a quadruple bottom, but it's also
the site of the stock's bullish support line coming off of
the September low.  What I like about the stock currently
from a bullish perspective is that a tight stop can easily
be determined and set at the $20 level.  From current
levels you're taking about $1.50 of risk, while the upside
should be about twice that much if not more if the stock
does in fact rebound.

AAPL - Strong Support


 

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

Gold - (XAU.X)

I don't have a stock question for...was wondering if you
could share your thoughts on the gold sector and its recent
round of weakness.  Is this a buying opportunity in the
sector.  What do your point and figure charts say about the
sector? - Thanks, Ray

Thanks for the question, Ray, and good timing!

Gold has been on fire this year for several reasons.  The
first is because of a defensive bid in the asset due to the
crumbling of confidence in Wall Street as well as the nature of
the political world.  Gold will go up for two reasons, which are
fears of inflation and turmoil of one sort or another.  In the
current case, there's turmoil all over the place.  But there
may also be some fear of inflation on the horizon, which is
adding to the strength in the metal and the equities.

The falling dollar versus other majors is a cause for concern
for inflation watchers as a weaker currency diminishes
purchasing power.  That much has been talked about a lot in
the financial media.  Furthermore, I haven't traded currencies,
but from what I've researched and studied, the currency
markets tends to trend in long, deliberate moves, so I don't
know if the trend in the dollar is about to end.  It didn't
show any signs of letting up last week, so that's something
to keep in mind as we move forward.

The move lower in the gold stocks last week was quite a
divergence from the metal itself.  Spot prices closed up
around the $325 per ounce level, just off of the recent highs
up around the $330 mark.  Yet the XAU.X was off by more than
6 percent.  I haven't done much valuation work in the gold
sector due to a lack of time, but from what little I've
studied the gold stocks seem pretty expensive on a historical
basis and relative to the where the metal is trading.  I'm
wondering if last Friday's sharp sell-off was a correction of
that imbalance.

To directly answer the question, I think there's more downside
to come for gold equities but the index is setting up for a
bounce from a significant trend line in the not too distant
future which may be tradable.  From there I don't have a
guess, although I'm thinking that gold and the equities have
NOT reached their yearly highs yet.

XAU – 


 

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

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


*************
COMING EVENTS
*************

==================================================
Market Watch for the week of June 16th
==================================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

RYAAY  Ryanair Holdings       Mon, Jun 10  Before the Bell   0.18

------------------------- TUESDAY ------------------------------

None

-----------------------  WEDNESDAY -----------------------------

HRB    H & R Block            Wed, Jun 12  After the Bell    2.44

------------------------- THURSDAY -----------------------------

ADBE   Adobe Systems          Thu, Jun 13  -----N/A-----     0.25
HNZ    Heinz                  Thu, Jun 13  Before the Bell   0.62
SIGY   Signet Group           Thu, Jun 13  Before the Bell   0.38

------------------------- FRIDAY -------------------------------

AEP    American Electric Pwr  Fri, Jun 14  After the Bell    0.90

----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

AWR     American States Water     2:1      06/07       06/10
FOSL    Fossil, Inc.              3:2      06/07       06/10
ATK     Alliant Tech              3:2      06/10       06/11
SABB    Pacific Capital           4:3      06/10       06/11
APPB    Applebees                 3:2      06/11       06/12
IFIN    Investors Fincl. Srvcs    2:1      06/13       06/14
WTRS    Waters Instruments        3:2      06/14       06/17
OZRK    Bank of the Ozarks, Inc.  2:1      06/14       06/17
MI      Marshall & Ilsley         2:1      06/14       06/17
ALFA    Alfa Corp                 2:1      06/14       06/17
SGA     Saga Communications       5:4      06/15       06/17
HCBK    Hudson City Bancorp       2:1      06/17       06/18
WL      Wilmington Trust          2:1      06/17       06/18
YUM     Tricon Global Restaurants 2:1      06/17       06/18
PMI     PMI Group, Inc.           2:1      06/17       06/18
MHO     Schottenstein Homes       2:1      06/18       06/19
KSWS    K-Swiss Inc.              2:1      06/21       06/24
JNC     John Nuveen Co            2:1      06/21       06/24


--------------------------
Economic Reports This Week
--------------------------

Earnings are finally out of the way. So look for investors  to 
concentrate on this week's indications of economic activity.  
Although the Federal Reserve releases its "Beige Book" report on
Wednesday, more influential reports will be presented on Thursday
(PPI & Retail Sales).  Don't forget, though, that Friday will
shoulder the bulk of potentially market-moving data: Industrial
Production, Capacity Utilization, Business Inventories and 
Consumer Sentiment. 

==============================================================
                       -For-           

Monday, 06/10/02
----------------
None

Tuesday, 06/11/02
-----------------
None

Wednesday, 06/12/02
-------------------
Export Prices ex-ag. (BB)May  Forecast:    N/A  Previous:    0.3%
Import Prices ex-oil (BB)May  Forecast:    N/A  Previous:    0.4%
Fed’s Beige Book (DM)

Thursday, 06/13/02
------------------
Initial Claims (BB)    06/08  Forecast:    N/A  Previous:    383K
PPI (BB)                 May  Forecast:   0.1%  Previous:   -0.2%
Core PPI (BB)            May  Forecast:   0.1%  Previous:    0.1%
Retail Sales (BB)        May  Forecast:   0.0%  Previous:    1.2%
Retail Sales ex-auto (BB)May  Forecast:   0.3%  Previous:    1.0%

Friday, 06/14/02
----------------
Business Inventories (BB)Apr  Forecast:  -0.2%  Previous:   -0.3%
Industrial Production(DM)May  Forecast:   0.4%  Previous:    0.4%
Capacity Utilization (DM)May  Forecast:  75.6%  Previous:   75.5%
Mich Sentiment-Prel. (DM)Jun  Forecast:   97.0  Previous:    96.9


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 06-09-2002
Sunday                                                      2 of 5


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**********************
INDEX TRADER GAMEPLANS
**********************

THE SECTOR BEAT - 6/9
by Leigh Stevens

Software Index ($GSO.X) - This was one of 3 sectors that looked 
like they could have been bottoming, based on possible double 
bottom lows - Semi's and the Broker group being the others, with 
these 2 taking out their prior early-May lows on Fri. Not so with 
the software group, GSO, which, at Friday's low at 114.75 held 
above its prior bottom (114.75). 

The Broker sector index ($XBD) did stop going down Friday at low 
end of its daily downtrend channel (at 423.84) and then closed 
well above (438.5) key prior technical support 429.10 - this 
close is suggesting we've seen at least a temporary bottom in the 
brokers - maybe even mother Merrill will regain its credibility 
as it scrambles to make changes! (CHART is below under "B's".)

The Gold sector ($XAU.X), fell under its March-May up trendline 
at 81.00 - see chart below - suggesting that a full-blown 
correction has finally hit this high-flying group. (See CHART 
below under "G's".)

HIGHER ON THE DAY ON Friday - 


 

DOWN ON THE DAY on Friday - 


 


SECTOR HIGHLIGHT -

I think the small and midcap "size" sectors, as represented by 
the various iShares shown in the charts below, are a buy at 
current levels. The S&P SmallCap 600 and the Russell 2000 are the 
areas that I would target as buying opportunities for a longer 
term buy and hold and there are iShares that can purchased. 

The profit taking and rotational correction may have run its 
course as seen especially in the rebounds in IJR and RUT from 
areas of important prior lows. I suggest purchase at the Monday 
opening. 

Within the S&P 600, the iShares "Value" segment iShares (SYM: IJS 
- Friday close: 90.74) represents my preferred choice.  However, 
if both value and S&P 600 "Growth" iShares (SYM: IJT - Fri. 
close: 74.64) were bought, along with the Russell 2000 iShares 
(SYM: IWM - Fri. close: 93.55), it would also offer a diversified 
selection within the small to mid-cap sectors. 
 
Stops are suggested at: IJS - 87.30; IJT - 72.00; IWM - 89.70

iShares, S&P SmallCap 600 (IJR): 


  


iShares, S&P SmallCap 600, "Growth" segment (IJT):


 


iShares, S&P SmallCap 600, "Value" segment (IJS):


 


iShares, Russell 2000 ($RUT.X):


 
 
SECTOR REVIEW - 

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

So far, the Airlines are holding key closing level support in the 
76.50 area. A close under 76.00 would suggest the possibility 
that XAL could go lower still - next potential support looks like 
70. This sector is quite oversold - a further sideways move would 
suggest basing activity. 

Resistance, on a closing basis is at 82, then 84. A close over 84 
would be a bullish positive and at least suggest that some 
further upside progress would be made.  
LAST UPDATE: 6/6

Amex Composite Index ($XAX.X)

The Amex Composite downside momentum has accelerated as XAZ 
pierced its up trendline and 50-day moving average.  The next 
downside target area looks like 897. 
LAST UPDATE: 6/6 

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

After a significant double top, BKX accelerated to the downside 
after taking out support in the 860-862 area, falling under its 
200-day moving average as it fell. A next downside target is to 
830, equal to a 62% retracement of the sharp Feb. to March 
advance and at a key prior high. 
LAST UPDATE: 6/6

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

Looked like double bottom low could set up in the 374-375 area, 
but the prior low was exceeded, suggesting the biotech (BTK) 
sector will go lower still.  
LAST UPDATE: 6/6 

(Securities) Broker Dealer Index ($XBD.X)

Stopped going down Friday at low end of its daily downtrend 
channel (at 423.84) and then closed well above (438.5) key prior 
technical support 429.10 - this close is suggesting we've seen at 
least a temporary bottom in the brokers - maybe even mother 
Merrill will regain its credibility as it scrambles to make 
changes!



   

The other bullish aspect, like the Software sector, is the 
bullish RSI/Price divergence that has set up in this sector, as 
the move to new lows was unconfirmed by a similar lower relative 
low in the RSI.
LAST UPDATE: 6/9

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

Bottom may be setting up, but XCI chart also looks like there 
could be a retest of the early-May lows in the 574-579 area. 
LAST UPDATE: 6/6
 
Computer Boxmaker Index ($BMX.X) 
STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS  

Bottom may be setting up here, but further market action and time 
is needed to tell.  Key support is 85, then 83, which were 
intraday lows of early-May 
LAST UPDATE: 6/6

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 

Double top was made in March and May in 595 area which suggests 
strong resistance at that level.  Next level to watch is key 
support in the 552 area. If this level is penetrated, next 
downside objective and a key support zone looks like 530-535. 
LAST UPDATE: 6/6

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

Double top and bearish RSI divergence has manifested in a 
continued weakness and correction, as suggested previously.  
Think we have lower to go still, perhaps back to the 
600 area. 
LAST UPDATE: 6/6

Disk Drive Index ($DDX.X)
STOCKS: ADIC; ADPT; DSS; FLSH; HTCH; IOM; MXO; RDRT; SNDK; STK

The Disk Drive Sector has been very week, with continued downside 
momentum - next objective is to the 75 area; then, if exceeded, 
we could be looking at a 100%, "round-trip" retracement to the 
September lows at 59-60.

LAST UPDATE: 6/6

Fiber Optics Index ($FOP.X)
STOCKS: ADCT; ALA; AMCC; AVNX; CIEN; CORV; CSCO; FNSR; GLW; JDSU; 
JNPR; LU; MRVC; NEWP; NT; NUFO; ONIS; PMCS; Q; SCMR; TLAB; VTSS; 
WCG

Continues to make new lows, and I have no downside price target 
for the sector index. The sector is very oversold, but extreme 
overcapacity continues to weigh on the group.  A close above 78 
is needed to signal a reversal.  
LAST UPDATE: 6/6

Financial Index; NYSE ($NF.X)
STOCKS: This index is composed of all the financial stocks on the 
NYSE; e.g., banks, insurance, etc. 

The financials have continued to weaken, recently falling under 
its 200-day moving average. Downside momentum has been seen since 
the rally failure of mid-May. The question is whether NF's second 
down "leg" has run its course after the double top of March-
April. If 580 gives way, a next potential downside target is 570.
LAST UPDATE: 6/6

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

Relevant to the March-May double top, the further apart (in time) 
for a double top the more significant it tends to be - months 
apart is more significant than days or weeks. The key level to 
watch on the downside now is the prior (down) swing low in the 
345 area - this was also the level of price peak in Dec. and the 
again in late-January.  If 345 is penetrated, the next level of 
potential support looks 338.
LAST UPDATE: 6/6


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

75.00 is the next potential support, after the decisive downside 
penetration of the March-May up trendline, a 50% retracement of 
the March-June advance.  XAU needs to climb back above 82 to 
suggest that its bullish trend is back on track and that is more 
upside than seen already year to date.
LAST UPDATE: 6/9



 


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


Healthcare Index; Morgan Stanley ($HMO.X)
STOCKS: AET; AHG; ATH; CAH; CI; FHCC; HUM; MME; OHP; OPTN; PHSY; 
TGH; THC; UNH; WLP

645, at recent top is key resistance.  HMO has been in strong 
uptrend, but appears to running into some selling in the group as 
the momentum has slowed. Analysis of key stocks in the group 
suggests that the sector is quite vulnerable to a downside 
reversal and deeper correction than has been seen to date. 

Near support is at 600, then 576. A daily close under 600 would 
suggest possible downside to the later support.   
LAST UPDATE: 6/6

6/6 UPDATE: Suggest exit on PacifiCare Health Systems (PHSY) 
bought on suggestion at 23.5-24.7. Stock momentum has slowed and 
is now sideways to lower. Close: 26.07.

6/6 UPDATE: Suggest taking profits on Wellpoint Health Networks 
(WLP) relative to entry at 70 and 72.00. Stock may be making a 
double top. Close: 75.66

6/6 UPDATE: Suggest exit on Humana (HUM) on entry suggested at 
15.60 & 15.00-15.15. Close: 15.06. Stock is trending sideways and 
further upside potential looks doubtful.

THC good be making a double top; AET is trending sideways and may 
be building a top; MME shot to new high above a "line" of 
resistance at 37 - then reversed to close on its lows - in a 
possible bull trap reversal pattern; OHP may be making a double 
top here - same pattern on UNH.   

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)

Semiconductor Sector Index ($SOX.X)
STOCKS: AMAT; AMD; CMOS; CREE; IDTI; INTC; KLAC; LLTC; LSCC; LSI; 
MOT; MU; NSM; NVDA; NVLS; PMCS; RMBS; TER; TXN; XLNX

As with the Software sector, a possible double bottom looked like 
it was forming in the 448-450 area.  This now looks doubtful.  A 
close under 450,suggests a further drop, with a target to around 
417. 

The 14-day stochastic is reading oversold of course it can get 
more oversold. Another down leg would appear to underway based on 
the Intel price break after hours today.
LAST UPDATE: 6/6


Software Index; Goldman Sachs ($GSO.X)
STOCKS: ERTS; INFA; INKT; INTU; ISSX; ITWO; IWOV; JDEC; MANU; 
MENT; MSFT; MUSE; NATI; NOVL; NTIQ; ORCL; PMTC; PRGN; PRSF; PSFT; 
RATL; RETK; REY; RHAT; RNWK; SEBL; SNPS; SY; SYMC; TIBX; VIGN; 
VRTS; WEBM; WIND; YHOO

The Software Index, on a technical basis, has been looking like 
it was forming a double bottom at 114-115. If there is a break of 
this area, next potential technical support looks to be well 
under this, at 100-101. There is also a possible bullish wedge 
pattern on the daily chart, but this would only be "confirmed" 
with a move above 123.

GSO, at Friday's low at 114.75 has held its prior bottom (114.75) 
and this sector is looking more like it is forming a double 
bottom.
LAST UPDATE: 6/9 

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

Transportation Average; Dow Jones ($TRAN)

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


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

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

CALLS              Mon    Tue    Wed    Thu   Week

ERTS     63.25   -1.07   1.35  -0.18  -1.15  -0.75  Dropped
DGX      90.93   -0.02  -0.71   1.48   0.58   3.51  Trending higher
INTU     44.03   -1.13   0.40   1.43  -0.60   0.30  Wait on NASDAQ
BRCD     19.49   -1.38   1.72   0.01  -0.23  -0.16  Holding steady
NVDA     32.32   -1.97   1.58  -0.48   0.01  -1.14  Dropped
LXK      60.99   -0.53   1.57  -1.98  -0.36  -1.46  Dropped
AZO      82.95   -0.84  -2.15   1.81   1.04   1.10  Market leader
PSFT     20.94   -1.22   1.05   1.35  -0.63   0.43  Ready to pop
WLP      78.06    0.48  -0.56   2.42  -0.84   3.90  New, new high!
OHP      49.05   -0.22  -1.23   1.30  -0.45   0.85  New, breakout  


PUTS               

GS       73.95   -1.66   0.01   1.95  -1.80  -1.55  Still sliding
COHU     20.52   -2.86   0.55  -1.30  -0.77  -3.98  Entry approach
WHR      68.75   -1.25  -1.80   1.97  -2.01  -2.65  Consolidating
DUK      30.00   -1.31   1.00  -0.38  -0.64  -2.01  More bad news
BLL      42.18   -1.30  -0.98   1.77   0.73   0.60  Dropped
IDPH     38.24   -3.13  -1.66   0.80  -1.40  -4.65  More to come
PMI      82.80   -0.91  -1.71  -0.48  -0.69  -2.80  Short covering
DHI      25.00   -0.67  -1.48   1.40   0.61   0.48  Dropped, stop
ICOS     19.63   -1.30  -0.51   0.15  -1.78  -2.98  Sector relief
ATN      36.62   -1.50  -0.60  -0.01  -1.64   0.07  Dropped, stop
MMC      96.34   -2.40  -0.06   1.12  -1.64  -4.56  New, no support
MIL      37.22   -1.44   0.42  -0.02  -0.96  -2.36  New, breaking
OMC      72.69   -2.96  -1.41  -1.63  -4.85 –13.64  New, panic


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

WLP - Wellpoint Health Networks $78.06 (+3.90 last week)

See details in play list




Put Play of the Day:
********************

OMC – Omnicom Group $72.69 (-13.68 last week)

See details in play list





**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

ERTS $63.25 (-0.75) After more than 2 weeks of banging its head
on resistance at the $65 resistance level, it is looking less and
less likely that the stock is going to be able to break out above
that level.  While nothing material has changed in terms of the
company's business growth prospects, the sentiment in the
broader Technology market is continuing to worsen in the wake of
INTC's reduced revenue guidance.  With daily Stochastics
continuing to roll over and the series of lower highs on the
daily chart over the past several days, it is time to remove ERTS
from our call list in favor of stronger candidates.

NVDA $32.30 (-1.16) As if INTC's reduced revenue guidance wasn't
bad enough, JP Morgan came out on Friday morning and reduced
their rating on NVDA to Market Perform.  Given that bearish
environment, it was impressive that the stock could battle back
from its early deficit to close more than $2 higher, near the
high of the day.  But with the technical damage that has now
been done to the Semiconductor sector and sentiment taking another
blow from the downgrade, it is hard to justify the risk of
looking bullish at NVDA.  We're dropping the play this weekend
in an effort to avoid getting caught in a downdraft next week.

LXK $60.99 (-1.46) The woes in the technology sector continued
to pressure LXK into Friday's session, two days after the stock
was downgraded.  That analyst downgrade changed the tone of
sentiment in this not too long ago strong stock, plus the
mounting troubles in technology are making matters worse.  Given
last Friday's breakdown, we're dropping coverage this weekend.
Look for a relief rally to follow through early next week to
cut losses in this play.


PUTS
^^^^

DHI $25.00 (+0.48) The strength in the housing stocks continued
last week despite the less than friendly broader market
environment.  DHI continue up through its 10-dma and closed
right on our coverage stop at the $25 level.  The stock may
rollover from this level early next week, but we don't want to
hang around in the event of further upside in the sector and
this stock.  Use any such rollover to exit plays into intraday
weakness.

ATN $36.62 (+0.07) What was shaping up to be another good move
lower in ATN last Friday turned into a complete reversal of
trend as the shorts came in to cover the stock following its
trade down below the $32 level.  The stock powered through its
short term congestion and slightly above its 10-dma and our
coverage stop.  The reversal probably didn't offer too many
good entry points, but in case you did pull the trigger on puts
last week, look to use very tight stops above Friday's close or
for any pullback as an exit point early on in Monday's session.

BLL $42.18 (+0.60) It seems that the Salomon Smith Barney
upgrade in BLL Thursday helped the stock gain some momentum
in Friday's session when it again tested the 10-dma and tried
to breakout.  We fear further upside in this stock, so we're
dropping coverage this weekend ahead of the next possible
round of short covering.  Use a tight stop just above Thursday's
intraday high or use an pullback during intraday action early
next week to exit plays.


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                   Sunday 06-09-2002
Sunday                                                      3 of 5


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

WLP - Wellpoint Health Networks $78.06 (+3.90 last week)

WellPoint Health Networks Inc. is a managed healthcare company.
As a result of the January 2002 completion of its merger with
RightCHOICE Managed Care, Inc., the Company had approximately
12.5 million members as of January 31, 2002. The Company offers
a broad spectrum of network-based managed care plans, including
preferred provider organizations (PPOs) and health maintenance
organizations (HMOs), as well as point-of-service (POS) and
other hybrid plans and traditional indemnity plans. In addition
the Company offers managed care services, including underwriting
actuarial services, network access, medical cost management and
claims processing.

Healthcare is on fire!  After a very brief consolidation, the
group headed back for yearly highs last week.  The Morgan
Stanley Healthcare Index (HMO.X) hit a multi year high in
late April/early may just below the 650 level.  Following that
move higher, the sector spent the better part of May
consolidating its big rally since the beginning of the year.
And just last week, it began to emerge from its consolidation
between the 575 and 625 levels.  The index is poised to make
a run for the relative high near the 650 level, if not stage
another big time breakout.  That has us turning our bullish
focus back to some of the stronger stocks in the group that
are already trading at or near yearly highs.  WLP turned up on
the scan as one such stock that is once again ready to break
into a new upward trend.  The stock broke out from and closed
above the $78 level during last Friday's session and appears
to be ready for another run higher.  Bullish healthcare
traders can look for the momentum to continue into next week's
trading.  Watch for further weakness in the broader market to
drive HMO index higher as investors seek a place of relative
safety.  A pullback down into the $75 support level would
offer favorable entries on profit taking.  Our stop is
initially in place at $74.50.

***June contracts expire in two weeks***

BUY CALL JUN-75 WLP-FO OI=820 at $4.00 SL=3.00
BUY CALL JUN-80*WLP-FP OI=144 at $1.20 SL=0.75
BUY CALL JUL-77 WLP-GW OI=461 at $4.00 SL=3.00
BUY CALL JUL-80 WLP-GP OI=277 at $2.75 SL=1.75

Average Daily Volume = 2.41 mln


OHP – Oxford Health Plans, Inc. $49.05 (+0.85 last week)

Oxford Health Plans is a healthcare company providing health
benefit plans primarily in New York, New Jersey and Connecticut.
The company's product line includes its point-of-service plans,
the Freedom Plan and the Liberty Plan, health maintenance
organizations, preferred provider organizations, Medicare+Choice
and third-party administration of employer-funded benefit plans.

It is hard to find a stronger sector of the market than Health
Care right now, and a big part of that is due to the fact that
the companies in the sector are continuing to grow their
earnings, demonstrating their relative insensitivity to the
vagaries of the economy.  After its stellar run this spring, the
Health Care Payor index (HMO.X) has been catching its breath in
a healthy consolidation pattern.  Judging by the recent series of
higher lows and higher highs, it looks like the bulls are ready
to run again.  Friday's nearly 2% rally brought the HMO index
within 10 points of its all-time closing high set in early May.
As one of the stronger HMO stocks, OHP likewise needed some time
to consolidate its gains from the spring, and judging by Friday's
breakout to a new high, the stock is ready to run again.  With
volume 30% above the ADV supporting Friday's 3% rally, it is clear
that there is some bullish conviction at work here.  Going back
to the long column of X's on the PnF chart that were posted as
the stock recovered from its October lows, we can see that the
stock still has plenty of room to run before reaching its bullish
price target of $71.  And Friday's move through the $49 level
created a fresh buy signal.  As a measure of the stock's strength,
note how it once again found support at its ascending support
line (beginning in early October) 2 weeks ago and has been
moving strongly ever since.  Entering on a pullback would be the
preferred method of initiating new positions, but given the
breakout on Friday, we may not get that lucky.  Consider new
positions on a bounce from the $48 level, but the really solid
entry would come on a rebound near the $46.50 support level, also
the site of the ascending trendline.  Alternatively, a push
through the $50 level can be used for momentum-based entries, but
keep a sharp eye out for profit taking.  Afterall, it is still a
nervous market.  Initial stops will be set at $46.

*** June contracts expire in 2 weeks ***

BUY CALL JUN-47 OHP-FT OI=1962 at $2.45 SL=1.25
BUY CALL JUN-50 OHP-FJ OI=1019 at $0.90 SL=0.50
BUY CALL JUL-47 OHP-GT OI= 264 at $3.30 SL=1.75
BUY CALL JUL-50*OHP-GJ OI=  27 at $1.80 SL=1.00
BUY CALL AUG-50 OHP-HJ OI=1655 at $2.60 SL=1.25

Average Daily Volume = 764 K



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

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******************
CURRENT CALL PLAYS
******************

AZO – AutoZone, Inc. $82.95 (+1.10 last week)

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

Apparently relative strength still counts for something in this
market, and AZO has got it in spades.  Following the profit-taking
dip early in the week, the stock bucked the broad market trend
and marched right back up the chart over the past 3 days, ending
the week by posting a new all-time closing high.  While volume
hasn't been explosive, it is definitely solid, with Friday's
tally coming in about 10% above the ADV.  For the reason behind
the stock's bullish behavior, all we have to do is look at the
earnings.  AZO blew away estimates again on May 21st and in the
weak market environment, investors continue to be attracted to
companies that are posting solid earnings growth.  Even with the
huge gap down in the broad market averages, AZO didn't so much as
blink on Friday before continuing on its northward trek, opening
where it left off on Thursday and moving up to close just below
its high of the day.  Intraday dips to support are proving to be
high odds entry points, and we want to look to initiate new
positions on a rebound from the $81-82 area or possibly near
strong support at the $80 level.  Given the strength of the
stock's trend, we don't expect the $80 level to be violated even
if the broad market has another hiccup next week, so we are
raising our stop to $79.50 this weekend.  Momentum traders will
want to watch the $83.50 level, as a breakout over the stock's
intraday highs at that level will likely usher in a fresh wave
of buying.  And we want to point out that a print at $84 will
generate a fresh triple-top buy signal on the PnF chart, adding
to the bullish outlook.

*** June contracts expire in 2 weeks ***

BUY CALL JUN-80 AZO-FP OI=3133 at $4.10 SL=2.50
BUY CALL JUN-85 AZO-FQ OI=2258 at $1.20 SL=0.50
BUY CALL JUL-80 AZO-GP OI= 201 at $5.40 SL=3.50
BUY CALL JUL-85*AZO-GQ OI= 731 at $2.65 SL=1.25

Average Daily Volume = 1.05 mln


BRCD – Brocade Communications $19.49 (-0.16 this week)

Brocade Communications is a provider of Fibre Channel switching
solutions for Storage Area Networks (SANs), which apply the
benefits of a networked approach to the connection of computer
storage systems and servers.  The company's family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements and improve the performance
between their servers and storage systems.  This provides the
ability of increasing the size and scope of a company's SAN,
while allowing them to operate data-intensive applications,
such as data backup and restore, and disaster recovery on the
SAN.

Technology stocks don't seem to be the place to look for bullish
plays, given the recent weakness in the NASDAQ, but there are
areas of relative strength that seem to deserve our attention.
The storage stocks like BRCD and QLGC recently tried to get some
bullish action going, but were unable to overcome the weakness in
the overall Technology arena.  But with the Bullish Percent on
the NASDAQ-100 now entering oversold territory, perhaps it is
time to start looking for select bullish plays.  BRCD has been
finding support in the $18 area for the past week and it is
encouraging that in the midst of the most recent NASDAQ decline,
the bears couldn't put a dent in that support level.  If you're
looking for some bullish news to hang your hat on, then look no
further than the company's recent guidance.  On Wednesday, BRCD
reaffirmed its revenue and earnings guidance for Q3 and Q4, and
investors have cheered that news by not pummeling the stock with
those areas of Technology that have fallen out of favor.  Friday's
action was a picture perfect entry point, with the stock falling
right to major support at $18.25 before rebounding and rallying
throughout the day.  Sure the stock ended the day with a
fractional loss, but in light of where it started the session, it
made for a nice recovery.  Continue to target intraday dips to
support in the $18-19 area, or else enter new positions on a
volume-backed rally through the $20.50 intraday resistance level.
Above that there is significant resistance at the $23 level, the
site of the descending trendline, but it looks like we can
definitely post some gains between here and there.

*** June contracts expire in 2 weeks ***

BUY CALL JUN-20 BQB-FD OI=14590 at $1.25 SL=0.50
BUY CALL JUN-22 BQB-FX OI= 5064 at $0.45 SL=0.00
BUY CALL JUL-20*BQB-GD OI= 2605 at $2.20 SL=1.00
BUY CALL JUL-22 BQB-GX OI= 3556 at $1.30 SL=0.75
BUY CALL JUL-25 UBF-GE OI= 7408 at $0.70 SL=0.25

Average Daily Volume = 17.0 mln


DGX – Quest Diagnostics $90.93 (+3.51 last week)

Quest Diagnostics was the result of a 1996 Corning spinoff,
and currently holds the title of the world's #1 clinical
laboratory.  DGX performs more than 100 million routine tests
annually, including cholesterol, HIV, pregnancy, alcohol, and
pap smear tests.  Operating laboratories throughout the US and
in Brazil, Mexico, and the UK, DGX also performs esoteric
testing (complex, low-volume tests) and clinical trials.  The
company serves doctors, hospitals, HMOs, and other labs as well
as corporations, government agencies, and prisons.

Health Care-related stocks flexed their relative strength muscles
again on Friday, with the Health Care Payor index (HMO.X) ending
the day with a nearly 2% gain and closing at its highest level in
over a month.  The pattern of higher lows and higher highs over
the past four weeks seems to be pointing to a move to new
all-time highs in short order.  While not a component of the HMO
index, DGX is benefiting from the strength in the group along
with its own positive earnings growth trend.  After falling back
in late May to the $85 support level, we suspected that DGX had
been gathering its strength for another bullish run and we were
right.  The flight-to-quality buying propelled the stock through
near-term resistance at $88 on Thursday and that close over the
20-dma led to a stellar performance on Friday.  DGX blasted
through the $90 resistance level on solid volume.  While the stock
actually pushed as high as $92 intraday, DGX couldn't hold that
level with the broad markets backing off from their highs in the
final hour of trade.  It is no surprise to see the late day
weakness in DGX, as $92 is a significant level of resistance that
will take a bit of momentum to get through.  DGX will likely need
to pull back a bit before advancing further, so we want to look
to initiate new positions on intraday dips near support.  Look
for buyers to show up first at $90, but more likely in the $88-89
area.  The recent bullish move gives us the freedom to move our
stop up to $87.

*** June contracts expire in 2 weeks ***

BUY CALL JUN-90 DGX-FR OI= 744 at $2.60 SL=1.25
BUY CALL JUN-95 DGX-FS OI=2174 at $0.55 SL=0.25
BUY CALL JUL-90 DGX-GR OI= 154 at $4.40 SL=2.75
BUY CALL JUL-95 DGX-GS OI=  71 at $2.05 SL=1.00

Average Daily Volume = 904 K


PSFT – PeopleSoft, Inc. $20.94 (+0.41 this week)

PSFT designs, develops, markets and supports a family of
enterprise application software products for use throughout large
and medium-sized organizations.  The company provides enterprise
application software for customer relationship management (CRM),
human resource management, financial management and supply chain
management (SCM), along with a range of industry-specific
products.  In addition to enterprise application software, PSFT
offers a variety of services to its customers, including
implementation assistance, project planning, online analytical
processing deployment, consulting, maintenance, customer
education, product support and training.

The sharp market decline that resulted on Friday in the wake of
INTC's reduced revenue guidance hit every area of Technology hard.
The Software index (GSO.X) was interesting though in that it once
again fell to its September lows and then rebounded to end the
day with a fractional gain.  It seems that each time this level
is tested, the bulls come out of hiding to support it.  Could it
be that the GSO is ready to stage a meaningful rally?  If we can
believe the news from ORCL earlier in the week, the answer may be
a cautious "Yes".  A quick look at the GSO chart certainly doesn't
show a screaming buy signal in place, but it is encouraging that
the worsening sentiment in the Technology sector hasn't been able
to pressure it below its major support.  PSFT is presenting a very
similar picture, as it continues to hold the $19 support level,
and it is encouraging that the stock hasn't yet tested its
September lows.  This is clearly a play where we're looking to
pick a bottom, but risk should be easy to manage.  Intraday dips
near the $20 level continue to provide solid entry points
(Friday's early dip was the latest proof of that) as the bulls
continue to whittle away at overhead supply between $21-22.  Buy
the dips near that level or else wait for a breakout over $22 on
solid volume.  Monitor the GSO index too, as a failure of the
index to hold its current support near the $115 level would be a
very bad sign.  We are currently protecting ourselves with a stop
set at $19.

*** June contracts expire in 2 weeks ***

BUY CALL JUN-20 PQO-FD OI=3244 at $2.00 SL=1.00
BUY CALL JUN-22 PQO-FX OI=7141 at $0.90 SL=0.50
BUY CALL JUL-20*PQO-GD OI= 410 at $2.95 SL=1.50
BUY CALL JUL-22 PQO-GX OI=2371 at $1.75 SL=0.75
BUY CALL JUL-25 PQO-GE OI=5922 at $1.00 SL=0.50

Average Daily Volume = 8.82 mln


INTU - Intuit $44.03 (+0.30 last week)

Intuit, Inc. is a provider of small business, tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals. The Company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

INTU put in another week of relative out performance to the
upside versus the broader Nasdaq measures.  The stock finished the
week fractionally higher, which was not a small feat given the
meltdown in the technology sector.  Still, we're not going to
make any profits on stock that is moving sideways given the decay
of time value in options, not to mention the bid/ask spread.  We
need to see some upside movement start taking place in INTU next
week, which is very likely as long as the Nasdaq doesn't continue
pushing lower.  The oversold nature of the broader technology
segment of the market should mitigate any further downside.  And
if the market isn't going down, INTU has a good chance of moving
higher.  The stock worked along its 10-dma late last week, finding
support near that short term moving average during its intraday
pullbacks.  Friday's  session saw the stock trace an inside day
within Thursday's range of the low at the $43.38 level to a high
of $44.70.  Those are the two points of reference for support and
resistance going into next week's trading.  A breakdown below the
low could reverse the stock's short term trend higher, while a
breakout above Thursday's high could set up an ultimate move
higher out of the recent consolidation and above the $46 level.
Either level is tradable depending on style and risk tolerance.

***June contracts expire in two weeks***

BUY CALL JUN-40 IQU-FH OI=1557 at $4.60 SL=3.75
BUY CALL JUN-45*IQU-FI OI=1983 at $1.25 SL=0.75
BUY CALL JUL-40 IQU-GH OI=3835 at $5.40 SL=4.00
BUY CALL JUL-45 IQU-GI OI=2058 at $2.40 SL=1.75

Average Daily Volume = 2.41 mln



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

MIL - Millipore $37.22 (-2.36 last week)

Millipore Corporation is a multinational bioscience company that
provides technologies, tools and services for the discovery,
development and production of new therapeutic drugs. The
Company's products serve the worldwide life science research,
biotechnology and pharmaceutical industries. Millipore's products
are based on a variety of enabling technologies, including the
Company's membrane filtration and chromatography technologies.
In life science research, Millipore offers products for genomics,
proteomics, drug discovery and general laboratory applications.

The recent slump in the Biotechnology industry is spreading down
to other segments dependent on its success.  Unfortunately,
many are struggling under the weight of the bearish momentum in
the BTK.  MIL is a company that provides biotech concerns with
the technology and tools to conduct research on new drugs, and
drugs already in developmental stages.  The thinking is that the
large biotech companies that are issuing big earnings warnings,
Biogen being the most recent company to deliver bearish news,
aren't going to be spending a lot of new money on capital
expenditures such as research and development tools such as the
ones that MIL provides.  That much is being reflected in the
stock that is coming out of a two month consolidation following
its own earnings warning in late February.  The stock is now
slipping into a new negative trend and looks to be heading much
lower over the short term as the trend picks up speed and
downward momentum.  Bearish traders can look for further
weakness in the biotech sector next week to continue pressuring
MIL lower along its descending trend line.  Use rollovers from
the upper end of the declining trend near the $39 level as
entry points during any intraday relief rallies.  Or look for
a breakdown below last Friday's low at the $36.90 level to
usher in more selling.  Or stop is initially in place at the
$40 level, about 0.75 above the stock's 10-dma.

***June contracts expire in two weeks***

BUY PUT JUL-40*MIL-SH OI=40 at $3.70 SL=1.75
BUY PUT JUL-35 MIL-SG OI=13 at $1.05 SL=0.50

Average Daily Volume = 401 K



MMC - March Mclennan $96.34 (-4.56 last week)

Marsh & McLennan Companies, Inc. is a professional services firm.
MMC subsidiaries include Marsh Inc., a risk and insurance
services firm; Putnam Investments, LLC, an investment management
company in the United States; and Mercer Consulting Group, Inc.,
a global provider of consulting services. Approximately 58,000
employees worldwide provide analysis, advice and transactional
capabilities to clients in over 100 countries. MMC operates in
three principal business segments: risk and insurance services,
investment management and consulting.

The prospects of another terrorist attack on the United States
is a foregone conclusion.  That is putting pressure on the major
insurers.  But the bigger theme at work that is hurting the
major insurers is the growing belief that the U.S. economy is
heading for a double dip after the most recent recession was
declared ended recently.  Major insurers are breaking down left
and right, and MMC appears to be the next one ready to move
lower.  The stock closed precipitously just above key support at
the $95 level in last Friday's session on another nearly 2
percent drop on very heavy declining volume.  The stock's
fall from grace began earlier this spring when it rolled over
from relative highs up above the $110 level.  From there, the
stock sank to as low as the $97 level before staging a month
long consolidation between that support level and just below
the $105 mark.  The formation is a classic long liquidation
pattern, and it appears ready to enter the next leg of selling
upon the breakdown and confirmation below the $95 level next
week.  Look for further weakness in the broader market to
pressure the stock lower, especially in the Dow Jones
Industrial Average ($INDU) and the S&P 500 (SPX.X).  Further
breakdowns in those two should most likely be enough to
pressure MMC below its short term support.  We would just as
happily take new put entry points from a rollover near
resistance.  The closest short term area of congestion lies
overhead at the $100 level, where the 10-dma closed last
Friday.  Our stop is just above that level at the $101 mark.

***June contracts expire in two weeks***

BUY PUT JUL-100*MMC-ST OI= 277 at $6.10 SL=4.75
BUY PUT JUL- 95 MMC-SS OI=1029 at $3.40 SL=1.75

Average Daily Volume = 906 K


OMC – Omnicom Group $72.69 (-13.68 last week)

Omnicom Group is a marketing and corporate communications company.
The company has grown its strategic holdings to over 1500
subsidiary agencies operating in more than 100 countries.  OMC's
wholly and partially owned businesses provide communications
services to clients on a global, pan-regional and national basis.
The company's agencies provide an extensive range of marketing
and corporate communications services, including advertising,
brand consultancy, crisis communications, custom publishing,
database management, digital and interactive marketing,
business-to-business advertising, employee communications and
environmental design.  OMC also provides field marketing,
healthcare communications, marketing research, promotional
marketing and sports and event marketing.

As one weak stock after another has been taken apart in recent
weeks, it is increasingly easy to find stocks that are breaking
major levels of support.  What is harder to do is find a stock
breaking down that still has room to fall.  Have we got a
candidate for you!  And as a bonus, there are issues of potential
accounting irregularities at play.  OMC has been in free fall for
much of the past week, and the slide seemed to accelerate once
major support at $83.50 and the 200-dma were violated.  With
heavy volume (6 times the ADV on Friday) confirming the stock's
weakness, it goes without saying that there must be an underlying
catalyst.  On May 30th, Merrill downgraded the stock to Buy on
valuation concerns and then the rumors started flying about
accounting irregularities.  A few days later and OMC was trading
more than $11 below where it was when the downgrade was issued.
That prompted Merrill to come out with an upgrade to Strong Buy
on Friday morning, followed by a statement from the company
reaffirming guidance and stating that it knows of no corporate
development to account for the recent price weakness.  That good
news was good for another 3.75% haircut on Friday on extremely
heavy volume.  Investors have clearly gotten into a pattern of
disbelieving what companies have to say and OMC is now responding
to the effects of the technical breakdown.  In recent history,
stocks have shown a pattern of not recovering from this sort of
news, even if the rumors are later proved to be false.  Given the
deeply oversold nature of OMC, a bounce is to be expected in the
near-term, and the best entries will come as that bounce runs out
of steam.  Look for a rollover near the $75-76 area to provide the
best entry point.  We don't want to rule out the possibility that
OMC could just continue to fall either, as the recent
double-bottom sell signal is pointing to $54 as an eventual
target.  Momentum traders can look to enter the play on a drop
under the $72 level.  Judging by the way the price collapsed in
the final hour, this might be the most likely scenario next week.
To make room for a possible oversold bounce, we are setting a wide
stop at $79.  Traders that enter on a breakdown will want to set
a tighter stop, ideally at $76.

*** June contracts expire in 2 weeks ***

BUY PUT JUN-75 OMC-RO OI= 925 at $4.10 SL=2.75
BUY PUT JUL-75*OMC-SO OI=2671 at $5.20 SL=3.25
BUY PUT JUL-70 OMC-SN OI=1199 at $3.00 SL=1.50

Average Daily Volume = 1.47 mln



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The Option Investor Newsletter                   Sunday 06-09-2002
Sunday                                                      4 of 5


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*****************
CURRENT PUT PLAYS
*****************

COHU - Cohu Inc. $20.52 (-3.98 last week)

Cohu, Inc. is the owner and operator of businesses in the
semiconductor equipment segment, and the television camera segment.
The Company's wholly owned subsidiary Delta Design, Inc., designs,
manufactures and sells semiconductor test handling equipment to
semiconductor manufacturers and semiconductor test subcontractors
throughout the world. The Company's Electronics Division designs,
manufactures and sells closed circuit television cameras and
systems to original equipment manufacturers, contractors and
government agencies. 

Here we are, a week later, and COHU is about $4 lower from the
last weekend review, when the stock was poised to rollover from
its 10-dma which at the time was up above the $24.50 level.  The
last week was kind to put players in COHU, who should be either
looking to protect profits or lock in gains going into next week's
trading, if those measures haven't already been taken.  As for
the latest price action, we started to see the short covering that
we have been preparing for during last Friday's rebound in the
broader technology segment of the market.  COHU dipped down to
about the $19 level during the day, along the way offering plenty
of exit opportunities for those in plays from last week.  The
stock then rebounded to close the week back above the $20 level
and looks to be exposed to further short covering next week, which
would be a welcome development as far as we're concerned.  Another
round of short covering would help to remove some of the stock's
oversold nature and offer another good set of entry points.  We
will be watching closely for rollovers near the 200-dma in next
week's trading.  That level is currently above current levels at
the $21.70 mark.  The falling 10-dma, now at $22.50, should
reach the 200-dma by next week, and possibly give a bearish
crossover sell signal.  The 10-dma should help to reinforce the
longer term moving average as resistance, which is why we like
the prospects for a rollover from the $21.75 area.

***June contracts expire in two weeks***

BUY PUT JUN-25*QCH-RE OI=49 at $4.80 SL=4.00
BUY PUT JUL-22 QCH-SX OI=20 at $2.95 SL=1.75

Average Daily Volume = 160 K


WHR - Whirlpool $68.75 (-3.15 last week)

Whirlpool Corporation is a worldwide manufacturer and marketer
of major home appliances. The Company manufactures in 13
countries under 11 major brand names and markets products to
distributors and retailers in more than 170 countries. The
Company manufactures and markets a full line of major
appliances and related products, primarily for home use. The
Company's principal products are home laundry appliances, home
refrigerators and freezers, home cooking appliances, home
dishwashers, room air-conditioning equipment, and mixers and
other small household appliances. The Company also produces
hermetic compressors and plastic components, primarily for the
home appliance and electronics industries.

WHR didn't display much conviction in either direction during
last Friday's session despite the volatility in the broader
market and the Dow Jones Industrial Average ($INDU).  The stock
did though shed more than $3 for the week, making it a most
successful put play given the lack of implied volatility in the
options for WHR.  In last Friday's session, we saw the stock
breakdown from its inside day set up from the previous session,
which should help to shift the short term bias even lower going
into next week's trading.  The stock's consolidation during the
latter half of last week's trading above its 200-dma should
prove to be only a short term pause in the overwhelming downward
trend now in place for the last three weeks.  A little
consolidation before the next leg lower is to be expected as no
stock moves down in a straight line, so let's try to be patient
with this stock.  Future rollovers from below the $70 level
would offer favorable entry points into new put positions, with
pressure coming from the downward sloping 10-dma, which closed
last Friday's session at the $70.68 level.  To the downside,
we've seen support around the $67.75 level hold several times,
but that level should give way to further pressure from the
broader market.  Below that short term support, let's target the
$65 level to the downside.

***June contracts expire in two weeks***

BUY PUT JUN-70*WHR-RN OI=602 at $2.65 SL=1.75
BUY PUT JUL-70 WHR-SN OI= 25 at $3.90 SL=2.75

Average Daily Volume = 555 K


DUK - Duke Energy $30.00 (-2.01 last week)

Duke Energy Corporation offers physical delivery and management
of both electricity and natural gas throughout the United States
and abroad. Duke Energy provides these and other services through
seven business segments: Franchised Electric, Natural Gas
Transmission, Field Services, North American Wholesale Energy
(NAWE), International Energy, Other Energy Services and Duke
Ventures.

DUK reported Friday morning that the U.S. government had
requested additional information on round trip trades from the
company.  The SEC asked last week for additional documents
relating to potential wash trades, but the company didn't
disclose the specifics of the request because it was a non
public request by the SEC.  DUK issued another press release
later in the day trying to clarify its earlier announcement,
saying that it was fully cooperating with the request and that
it believe that it had not done anything wrong.  The earlier
news item caused the stock to drop as low as the $28.75 level
before rebounding back above the $30 level to close out the
week slightly better than might have happened if the massive
short covering had not come into the stock.  The trade lower
during the morning should have offered traders a good exit
point from the inside day set up earlier in the week when we
highlighted DUK as a play of the day.  Plus the trade down
helped to further break short term support, and keep the
stock's series of lower relative lows alive and well.  From
here we'll look for future rollovers from resistance as
additional entry opportunities.  A relief rally up to and
rollover from the $31 level should offer the next solid
entry point into put plays.  And try to keep an eye on the news
wires for the latest events surrounding the energy sector.

***June contracts expire in two weeks***

BUY PUT JUN-32*DUK-RZ OI=2591 at $2.90 SL=1.75
BUY PUT JUL-30 DUK-SF OI=6462 at $2.10 SL=1.00

Average Daily Volume = 4.16 mln
 

PMI - PMI Group $82.80 (-2.80 last week)

The PMI Group, Inc. is an international provider of credit
enhancement products and lender services that promote home
ownership and facilitate mortgage transactions in the capital
markets. Through its wholly and partially owned subsidiaries,
the Company offers residential mortgage insurance and credit
enhancement products domestically and internationally, title
insurance, financial guaranty reinsurance, mortgage servicing
and other residential lender services. Residential mortgage
insurance protects lenders and investors against potential
losses in the event of borrower default.

PMI staged a very weak relief rally during last Friday's
session when the broader market finished lower for another
day.  Coming into Friday's session, PMI had closed lower for
six consecutive days, making the stock quite oversold over
the near term and due for a relief rally.  That's exactly
what happened in last Friday's session as the shorts decided
to take some profits off the table going into the weekend,
and the longs decided to hold off on liquidations for the
time being.  The stock's relief rally came on extremely light
volume as a mere 186,900 shares crossed the tape.  Compare
that volume to the previous days of trading activity that
were close to 400,000 shares per day while the stock was
moving lower.  Even the 30-day average trading volume of
325 K is well above Friday's mark, which is all the more
reason to believe that the stock's strength was nothing more
than short covering.  But PMI did trace a bullish engulfing
candle on its daily chart, meaning that Friday's low and
high took out the prior day's range and the stock closed
above that range.  The pattern hints at a very short term
reversal, which would be fine by us as it would set up yet
another great entry point into this trending stock.  Look for
further strength to run into resistance at the 10-dma now
overhead at the $84.32 level, and watch for a rollover to
target shoot new entry points from.

***June contracts expire in two weeks***

BUY PUT JUN-85*PMI-RQ OI= 37 at $3.20 SL=1.50
BUY PUT JUL-80 PMI-SP OI=150 at $2.15 SL=1.00

Average Daily Volume = 325 K
 

ICOS - ICOS $19.63 (-2.88 last week)

ICOS Corporation develops pharmaceutical products with significant
commercial potential by combining its capabilities in molecular,
cellular and structural biology, high-throughput drug screening,
medicinal chemistry and gene expression profiling. The Company
applies its integrated approach to erectile dysfunction and other
urologic disorders, sepsis, pulmonary arterial hypertension and
other cardiovascular diseases, as well as inflammatory diseases.
The Company has established collaborations with pharmaceutical
and biotechnology companies to enhance its internal development
capabilities and to offset a substantial portion of the financial
risk of developing its product candidates.

The earnings warning from industry heavyweight Biogen cast a
dark cloud over the biotechnology sector during last Friday's
early going as ICOS, along with the broader sector, gapped
lower into further weakness.  But the stock turned on a dime at
the $17.88 level following its sector higher through the rest of
the day on a sector wide case of short covering ahead of the
weekend.  The biotech sector had been heavily sold going into
Friday's session, and Biogen's bearish earnings warning was
the news event that the shorts were looking for to cover their
bearish bets and take short term profits.  But the Biogen
warning did help to reveal just how difficult the earnings
environment has become in the biotechnology sector, and why the
group is still a good bearish bet after this current round of
short covering runs its course.  As for ICOS, its rebound during
last Friday's session will set up another entry point near
resistance sometime next week.  That could come as soon as the
$20 level is touched on the way back up as institutional
investors look to unload at what is now a serious resistance
level for the stock.  If the $20 level is breached on the way
back up to retracing its recent downward push, then the 10-dma
now overhead at the $21.79 level should come into play as a
potential rollover point and as such an entry point into new
put plays.  Just make sure to confirm the direction in the
Biotechnology Sector Index (BTK.X) before attempting to enter
on a rollover near resistance.

***June contracts expire in two weeks***

BUY PUT JUN-20*IIQ-RD OI=349 at $1.45 SL=0.75
BUY PUT JUL-20 IIQ-SD OI=133 at $2.60 SL=1.75

Average Daily Volume = 1.60 mln



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*****
LEAPS
*****

Capitulation?  I Think Not!
By Mark Phillips
mphillips@OptionInvestor.com

The VIX wins again!  Despite much speculation to the contrary,
that pesky VIX creeping along in the low 20's once again presaged
a significant market decline.  I've said it before and I'll say
it again (as much to remind myself, as all of you), the markets
are unable to stage any kind of meaningful rally if the rally
attempt begins with the VIX near the lower end of its historical
range.  Every meaningful rally over the past 4 years has begun
with the VIX trading at or above the upper end of its historical
range.  File this little factoid away and revisit it every time
you are thinking the markets are poised to rally.  If the VIX is
near the lower end of the range, then I would strongly recommend
staying away.  More important than making money is preserving
capital, and just following this one simple rule will save you a
bundle over the course of your investing career.

I should have paid more attention to this fact before allowing
myself to believe that we might see some bullish action over the
past few weeks.  Simply put, it just didn't happen with all of the
major indices violating important support levels.  Certain areas
of the market are already testing their September lows (Software
stocks) and others like the Biotechs have already broken well
below the lows set shortly after the terrorist attacks.

The good news is that we're starting to see signs of disgust in
the investing community and once this cycle of despair runs its
course, we should be poised for the next substantial bear-market
rally.  The bad news is that I don't think we're there yet.  On
the contrary, I think the old bear is just getting warmed up,
despite the fact that the VIX came within striking distance of
the 30 level on Friday.  There is nothing magical about 30, just
that it is a level that seems to typify the upper edge of the
typical trading range.  What causes me to doubt that we are ready
to have a meaningful rally here (aside from the fact that the
market internals were still pretty bad even after the recovery
throughout the day) is the rapidity with which the fear denoted
by the sharp rise in the VIX dissipated.  After running to a high
of 29.94, the VIX backed off to close out the day at 26.65.  I'm
sorry, but that does not signal real fear in the market when the
VIX can reverse that quickly.  I'll go out on a limb here
(although I think it's a pretty sturdy limb) and say that all of
the lows in the major averages from last week will be broken
before the 4th of July.  Heck, it could even happen before Flag
day, which is a mere 2 weeks away.  There just isn't anything to
prop them up and I expect that they will fall under their own
weight.

With that being said, you are probably going to think I've taken
leave of my senses when you see a new Call play on the NASDAQ-100
Trust (AMEX:QQQ) this weekend.  But take the time to read it and
I think you'll see the logic in my thought process.  It is
definitely an aggressive play, but if our bearish target is hit,
I think it has high odds for success.

What will likely puzzle you even more is the new bearish play on
the Biotech HOLDR (AMEX:BBH).  Yes, that's right.  I pulled the
plug on the bullish play due to another broken level of support,
this one far more significant in my mind than any of the prior
levels that have given way over the past couple months.  Even if
the broad technology sector manages to firm up, the negative
fundamentals in the Biotechnology sector should continue to drive
this group significantly lower than where it is this weekend.

It appears I've already started ruminating on plays, so let's go
through the whole list in an orderly fashion.

Portfolio:

JNJ - Stopped out again on this play as it continues to be
pressured by the poor action in the Pharmaceutical sector.  It's
a drop this weekend and we're done with this one.

MDT - Still consolidating and drifting slightly lower throughout
the week, but actually holding up fairly well.  Look for a
rebound (however mild) in the broad markets (along with more
bullish action in the Health Care sector) to propel the stock
through its recent resistance near the $47.50-48.00 level.

MSFT - It wasn't a pretty week for any play even remotely tied to
the PC market, and for that reason we were actually pretty
pleased with Mr Softee's performance.  Even with INTC's major
misstep on Thursday night, MSFT managed to hold support near $49
and bounce back to close out the week with a gain.  As long as
the lows near $48 are not violated, buying the dips continues to
make sense.

XOM - While it clearly hasn't gone anywhere since we added it,
the action in XOM is actually encouraging.  Even with the price
of Crude Oil drifting down to the $25 level, the stock is holding
up nicely.  In fact, the relative strength chart of XOM relative
to the August Crude Oil contract (CL02Q) is just about to break
to a new 6-week high.  Continue to use intraday dips near support
in the vicinity of $39 to initiate new positions, but keep those
stops in place just in case.

PG - Well the initial euphoric pop off the ascending channel
didn't get very far before the bearish tone in the broad markets
dragged it back to earth.  But that worked out nicely for late
comers to the play, as it gave them an opportunity for an entry
on the rebound from the $88 level on both Tuesday and Friday.
Dips near the lower channel line are still buyable and we're
protected with our stop at the $86 level.


Watch List:

WMT - I didn't really care for the action in WMT this week,
although it did hold up rather well.  After dipping to the $52
level, the stock meandered in the $54-55 range.  Note how the
50% retracement of the fall rally is acting as a price magnet
right now.  I'm looking for it to give way as support and for
the stock to gravitate down towards the 62% level near $51.50.
Then we'll look to take an entry on an intraday dip near the
$50-51 level, which should provide very strong support going
forward.

BRCM - A bit more weakness appeared this week, but did you notice
how well the stock held up relative to the overall Semiconductor
index (SOX.X)?  Definitely starting to see some support build and
it looks like the current entry target could give us a very nice
entry point once the SOX finds a bottom and carries BRCM along
with it on the rebound.

AMAT - Dropped

BBH - Dropped

BBY - That was interesting little drop to the $42 level now
wasn't it?  That's precisely why we're looking aggressively lower
for our entry into the play.  BBY reaffirmed its Q1 earnings
estimates on Thursday and that was all the bulls needed to hear
to push it off its lows.  Friday's early weakness filled the gap
left on Thursday, allowing the stock to hold above the 200-dma,
despite a downgrade to Hold by Jefferies.  Despite the solid
rebound, the $40 level still has my attention as a solid entry
point.

So where do we go from here?  Look for a short-lived rebound next
week so that the markets can somewhat relieve their oversold
condition and then it should be back to the bearish party.  The
bears are starting to hit their stride again, and are feeding off
the increasing fear in the marketplace.  It is worth noting that
the bullish percent on all of the meaningful broad market measures
have now moved in favor of the bears (see Market Sentiment this
weekend) and this should help to propel the markets down and
volatility measures higher over the next few weeks.  When we
finally get some capitulation, look for the rebound to provide a
solid trade to the upside.  In the meantime, keep your powder dry
and get ready to rumble.

Have a great week!

Mark



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
MDT    05/15/02  '03 $ 45  VKD-AI  $ 4.00  $ 4.40  +10.00%  $44
                 '04 $ 45  LKD-AI  $ 7.30  $ 7.70  + 5.48%  $44
MSFT   05/13/02  '03 $ 55  MSQ-AK  $ 5.90  $ 5.60  - 5.08%  $48
                 '04 $ 55  LMF-AK  $10.20  $10.50  + 2.94%  $48
XOM    05/22/02  '03 $ 40  XOM-AH  $ 3.00  $ 2.85  - 5.00%  $38.50
                 '04 $ 40  LXO-AH  $ 5.10  $ 4.80  - 5.88%  $38.50
PG     05/30/02  '03 $ 95  PG -AS  $ 3.70  $ 4.40  +18.92%  $86
                 '04 $ 95  KBJ-AS  $ 9.00  $10.30  +14.44%  $86


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  $18-20        JAN-2003 $ 25  OGJ-AE
                            CC JAN-2003 $ 20  ORD-AD
                               JAN-2004 $ 25  LGJ-AE
                            CC JAN-2004 $ 20  LGJ-AD
WMT    03/31/02  $50-51        JAN-2003 $ 55  VWT-AK
                            CC JAN-2003 $ 50  VWT-AJ
                               JAN-2004 $ 55  LWT-AK
                            CC JAN-2004 $ 50  LWT-AJ
BBY    06/02/02  $40           JAN-2003 $ 50  VBY-AJ
                            CC JAN-2003 $ 45  VBY-AI
                               JAN-2004 $ 50  LBS-AJ
                            CC JAN-2004 $ 45  LBS-AI
QQQ    06/09/02  $25           JAN-2003 $ 28  OZC-AB
                            CC JAN-2003 $ 25  OZC-AY
                               JAN-2004 $ 28  LRI-AY
                            CC JAN-2004 $ 25  LRI-AJ


PUTS:
BBH    06/09/02   $100-102     JAN-2003 $90  GBZ-MR
                               JAN-2004 $90  KOV-MR
                               JAN-2005 $90  XBB-MR


New Portfolio Plays

None


New Watchlist Plays

BBH - Biotech HOLDR $85.35  **Put Play**

Don't ever let it be said that I'm not flexible.  With the
bearish action in the Biotechnology sector (BTK.X) again last
week, I had to pull the plug on our bullish play.  With the BTK
breaking multi-year support at the $375 level along with an
earnings warning from BGEN, sentiment in the group has taken a
nasty turn for the worse.  Expect the broken support to now
become formidable resistance and we want to take advantage of
that on any sort of oversold rebound.  The PnF charts now tell
an interesting story, with the recent breakdowns pointing to
bearish objectives of $320 for the BTK and $76 for the BBH.  Now
keep in mind that the bullish percent is already deep in oversold
territory, as is the daily Stochastics oscillator.  We obviously
don't want to plunge into this play early on Monday morning, but
want to take advantage of the time it takes for the oversold
condition to relieve itself, by getting set up to play the next
downward leg.  Looking at the chart of BBH, we can see that there
is solid resistance at $100-102, which could make for a solid
entry into the play.  Be patient and wait for the bulls to
exhaust themselves on the upside and then we'll step in for the
easy pickings on the way back down.  Even though I have listed
the 2005 Put below, I don't favor its use for this play.  I think
that is buying more time than is necessary, limiting the
potential return on what will likely be a relatively quick (2-4
month) bearish move.

BUY LEAP JAN-2003 $90 GBZ-MR
BUY LEAP JAN-2004 $90 KOV-MR
BUY LEAP JAN-2005 $90 XBB-MR

QQQ - NASDAQ-100 Trust $28.30  **Call Play**

Given my bearish outlook for Technology stocks in general you may
be scratching your head, wondering what I'm thinking.  First off
let me be clear on 2 things.  This is an aggressive play and is
NOT predicated on the belief that we saw a successful test of the
September lows on Friday.  For a downside target on the QQQ, I am
relying on the PnF chart, which currently has a bearish price
target of $25 for the QQQ.  While a bearish target can be
exceeded, I am expecting that with a bit more selling in the
broad market, we could see a real spike in the volatility
measures resulting from real capitulation.  I'm looking for that
to take the NASDAQ below the September lows and would consider
the $25 level to be a good risk/reward play on the overall
Technology sector.  Don't jump the gun on this one, as I expect
any bounce that we see next week will be short-lived.  That isn't
the bounce we want to trade.  Note that the weekly Stochastics
oscillator is still diving back to earth from the last failed
rally attempt.  We want to wait for the one that comes on heavy
volume, significantly heavier than the 2 billion shares we saw
on Friday.  The NASDAQ could bleed lower through the summer or
it could get the pain over with in short order (which would be
my preference) but once the QQQ drills down to the $25 level
(assuming it is achieved), we could see a solid rally off the
lows and I would expect that rally to be a tradable event over
the intermediate term.  As a secondary indicator, keep an eye on
the VXN.X, the NASDAQ Volatility indicator.  Look for it to spike
up above the 60 level (possibly much higher) in conjunction with
the QQQ falling to the vicinity of our price target.  Then when
price begins to recover, with Stochastics emerging from oversold
(on both the daily and weekly timeframes) and the VXN falling
back from its extreme high reading, that will be the time to
strike.  Because of the fact that we will be target-shooting a
bottom on this play, it will give us the freedom to set a tight
stop just below the lows once we enter the play.

BUY LEAP JAN-2003 $28 OZC-AB
BUY LEAP JAN-2003 $25 OZC-AY  For Covered Call
BUY LEAP JAN-2004 $28 LRI-AY
BUY LEAP JAN-2004 $25 LRI-AJ  For Covered Call


Drops

JNJ $59.40 How frustrating!  The Great Humiliator showed up on
Tuesday to remind me that I should have left well enough alone
when JNJ kicked us out of our play with a violated stop the
first time.  Stubborn as I am, I insisted on jumping right back
in and it was a mistake.  The consolidation pattern broke lower
on Tuesday and things worsened from there right into the close
on Friday.  Note that JNJ is now below its 200-dma for the first
time in over a year, and with the 50-dma now curling lower and
the rising bearish sentiment in the Drug sector, it is definitely
time to get out.  For those of you still holding onto open
positions, I would recommend using the next cycle up on the daily
chart to exit the trade before things get worse.

AMAT $20.62 It was a safe bet that INTC was going to set the tone
for the Semiconductor sector (SOX.X) for the summer, but few
investors (myself included) expected the news to be as bad (or
badly received) as it was.  The SOX plunged as low as $421 on
Friday, and while there may be a short-term rebound from
oversold, there is likely to be more pain in the group over the
weeks and months ahead.  And AMAT didn't fare too well on Friday
either, falling below the $20 level on an intraday basis and
generating the first PnF sell signal since last September.  That
sell signal projects a price target of at least $11!  Clearly, we
don't even want to contemplate new bullish positions here until
both the broad market and the sector can show renewed signs of
bullish life.

BBH $59.40 Forget about it!  While I was looking for some sort of
bounce from above the early May lows, the Biotech sector (BTK.X)
spent another week in free fall, taking out every form of support
subsequent to the end of 1999.  Sure there was a bit of a bounce
on Friday afternoon, but with multi-year support giving way, this
is clearly not the arena in which we want to be speculating.  We
may revisit the BBH in the future, but not until it shows some
definitive signs of bottoming.  And that may not occur until we
see levels well below $300 for the BTK.


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*************
COVERED CALLS
*************

Charting Basics: Is It Finally Time To Buy?
By Mark Wnetrzak

In response to a reader's request for information about reversal
signals in technical analysis, today we will review some popular
candlestick patterns.

The majority of technicians use historical price charts to reflect
the daily movement and volume action in a specific instrument.  A
chart is simply a representation of the conditions that exist in
the underlying instrument.  Technical traders watch for clues that
alert them to changes in the market psychology and primary trend
and reversal signal implies that a prior trend (or its character)
is likely to change in the near future.  Common bar-chart reversal
indicators include "double-top" (or bottom), "head-n-shoulders,"
and "island" formations.  Although the term "reversal pattern" is
commonly used to identify a relatively abrupt change in direction,
most trend reversals occur over a slightly longer period, often
days or even weeks.  Primary trends usually transition to sideways
price actions or consolidation patterns before continuing with a
definitive directional movement and for this reason, it is more
accurate to think of reversals as simply changes in the current
trend.

The majority of candlestick patterns are trend-change or reversal
indicators.  Two of the most common formations are the "hammer"
and "hanging-man."  These candlesticks have long lower shadows
and small real bodies that are near the top of the daily range.
The color of the body is not as important but it is slightly more
bullish if the body of the hammer is white, and in contrasts, more
bearish if the body of the hanging man is black.  The long lower
shadow should be twice the height of the real body and it ideally
it will have almost no upper shadow.  The longer the lower shadow
and the smaller the real body the more meaningful the indication.



 


These candlestick lines can be bullish or bearish depending on
when they appear in a trend.  When this candlestick emerges in a
downtrend, it is a signal that a bullish change in character may
soon occur.  If this line appears after a rally, the bullish move
may be at an end.  It may seem strange that the same candlestick
can identify both bullish and bearish reversals but the outlook is
based on results similar to those that follow "Island" formations
in standard bar charts.

As with any technical indication, it is important to confirm the
trend with this type of signal.  The difficulty is determining
when the actual reversal will occur and one of the most important
components of technical reversal patterns is the trading volume.
When trading volume is light during the final phase of a trend
(the first candlestick) and increases during the beginning stages
of a reversal (the candlestick following the last Star), there is
a higher probability of follow-through in the new character.  The
enthusiasm with which investors accept the new direction can be
defined by the presence (or lack) of trading activity.  In fact,
when the overall trend is less defined, the change in volume can
be almost as significant as the actual candlestick formation.

Another commonly used reversal indicator in candlestick chart
analysis is the "Star."  The Star is a signal that a trend may
be coming to an end.  The pattern occurs when the current day's
candlestick has a small body that gaps away from a large body in
the prior session.  Stars can occur near resistance or support
and the color of the Star is generally not significant.  If the
Star has no body, it is called a "Doji" Star.  The significance
of this pattern is a change in the market environment.  The
appearance of a Star during a substantial rally indicates that
buying strength is dwindling and the stock is susceptible to a
correction.  In contrast, a Star that occurs in the middle of a
major downtrend suggests that buyers may be gaining control of
the issue.  Overall, the emergence of a Star indicates that the
previous bias in the market (buying or selling) is beginning to
equalize and thus a change in character may soon occur.



 


The Star is the primary indication in a number of basic reversal
patterns; Shooting Star, Doji Star and the Morning/Evening Star.
The Morning Star pattern occurs at the end of a downtrend.  It
consists of a lengthy black body followed by a small body which
begins below the previous day's (closing) low.  The final line
is a white body that is enveloped by the black body of the first
session.  The appearance of the small body (the Star) after a
major downtrend suggests that selling is at an end and when the
following session produces an opening gap with a white body, the
bullish pattern is confirmed.  While the gap-up is not necessary
to define the pattern, it does produce much better results.  Of
course there are many variations of the Morning Star, the most
common of which includes more than one Star in the reversal
pattern.

Recognizing the emergence of reversal patterns is a valuable tool
that will help increase profits in all of your trading positions.
With timely knowledge of a prospective change in character, you
can adjust your trading style to reflect the new outlook for the
issue.  There is one important fact to remember.  When a potential
change is underway, new positions should be opened only when the
reversal pattern signals a move in the direction of the primary
trend.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

COB     5.29   5.35   JUN   5.00  0.55  *$  0.26   7.9%
MACR   20.32  19.77   JUN  20.00  2.25   $  1.70   6.8%
INFA    8.16   8.76   JUN   7.50  1.30  *$  0.64   6.8%
EXTR   11.28  11.16   JUN  10.00  1.70  *$  0.42   6.4%
UNTD   11.00  10.60   JUN  10.00  1.75  *$  0.75   5.9%
NTIQ   22.10  23.49   JUN  20.00  3.50  *$  1.40   5.5%
PCLE   10.59  11.14   JUN  10.00  1.15  *$  0.56   5.2%
VVTV   21.99  20.10   JUN  20.00  3.10  *$  1.11   5.1%
SIE    18.50  19.16   JUN  17.50  2.00  *$  1.00   4.4%
SRP     7.81   7.30   JUN   7.50  0.75   $  0.24   3.8%
VVTV   21.75  20.10   JUN  20.00  2.40  *$  0.65   3.8%
KROL   23.40  22.75   JUN  22.50  1.45  *$  0.55   3.6%
QSFT   15.06  13.91   JUN  15.00  1.70   $  0.55   3.6%
DLTR   40.27  38.99   JUN  40.00  1.55   $  0.27   1.0%
ACXM   17.78  17.04   JUN  17.50  0.85   $  0.11   0.9%
MEDC   14.00  12.00   JUN  12.50  2.00   $  0.00   0.0%
INET    7.95   7.05   JUN   7.50  0.90   $  0.00   0.0%
USU     8.05   6.95   JUN   7.50  1.10   $  0.00   0.0%
USU     9.34   6.95   JUN   7.50  2.30   $ -0.09   0.0%
VSNX   11.49   9.48   JUN  10.00  1.90   $ -0.11   0.0%
ULGX   15.63  14.00   JUN  15.00  1.15   $ -0.48   0.0%
GIVN   13.99  11.15   JUN  12.50  2.25   $ -0.59   0.0%
MEDC   16.30  12.00   JUN  15.00  1.80   $ -2.50   0.0%

*$ = Stock price is above the sold striking price.

Comments:

Should we be encouraged by the rebound on Friday after the
Intel (NASDAQ:INTC) warning?  Or, should we be frustrated that
the major averages continue to avoid a capitulation sell-off?
Maybe investors are keying off a potential "double-bottom" in
the NASDAQ and S&P-500?  Unfortunately, the answer may be: No
panic = no bottom!  We closed more positions this week as now
is not the time to disregard money management.  Quest Software
(NASDAQ:QSFT) did manage to end the week positive as it held
the line at $13.  The biggest disappointment was the reversal
in Med-Design (NASDAQ:MEDC).  The $15 position will be shown
closed and the $12.50 position may be closed also.  The "early
exit" watch-list grew a bit this week.  Monitor the following
stocks closely and exit or adjust as appropriate:  Quest Soft-
ware (NASDAQ:QSFT), Sierra Pacific Resources (NYSE:SRP), Acxiom
(NASDAQ:ACXM), USEC (NYSE:USU), Macromedia (NASDAQ:MACR), and
Given Imaging (NASDAQ:GIVN).

Positions Closed:  Northfield Labs (NASDAQ:NFLD), Endocare
(NASDAQ:ENDO), AirGate PCS (NASDAQ:PCSA), MIPS Technologies 
(NASDAQ:MIPS), CheckFree (NASDAQ:CKFR), and Retek (NASDAQ:
RETK)



NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CANI   11.26  JUL 10.00   CDU GB  1.85 33     9.41   42    4.5%
CLHB   11.76  JUN 10.00   QPB FB  2.15 868    9.61   14    8.8%
COB     5.35  JUL  5.00   COB GA  0.70 23     4.65   42    5.5%
EXTR   11.16  JUN 10.00   EXJ FB  1.50 2385   9.66   14    7.6%
HPLA   13.95  JUL 12.50   QHP GV  2.40 23    11.55   42    6.0%
IPXL    8.01  JUL  7.50   UPR GU  1.10 24     6.91   42    6.2%
MCDT    8.99  JUL  7.50   DXZ GU  1.90 193    7.09   42    4.2%

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CLHB   11.76  JUN 10.00   QPB FB  2.15 868    9.61   14    8.8%
EXTR   11.16  JUN 10.00   EXJ FB  1.50 2385   9.66   14    7.6%
IPXL    8.01  JUL  7.50   UPR GU  1.10 24     6.91   42    6.2%
HPLA   13.95  JUL 12.50   QHP GV  2.40 23    11.55   42    6.0%
COB     5.35  JUL  5.00   COB GA  0.70 23     4.65   42    5.5%
CANI   11.26  JUL 10.00   CDU GB  1.85 33     9.41   42    4.5%
MCDT    8.99  JUL  7.50   DXZ GU  1.90 193    7.09   42    4.2%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
CANI - Carreker  $11.26  *** Break-Out! ***

Carreker (NASDAQ:CANI) is a provider of integrated consulting and
software solutions that enable banks to identify and implement
e-finance solutions, increase their revenues, reduce their costs
and enhance their delivery of customer services.  The company's
offerings fall into four groups: Revenue Enhancement, which enable
banks to improve workflows, internal operational processes and 
customer pricing structures; PaymentSolutions, which address the
needs of a critical function of banks, the processing of payments
made by one party to another; Enterprise Solutions, which provides
conversion, consolidation and integration consulting services and
products on a bank-wide basis; and CashSolutions, which optimizes
the inventory management of a bank's cash on hand.  CANI rallied
sharply this week after reporting revenues for the 1st quarter of
$37.9 million (a 33% increase) and operating income of $2.6 million,
87% higher than the year-ago period.  We simply favor the bullish
break-out on heavy volume and this position offers a conservative
entry point in the issue.

JUL 10.00 CDU GB LB=1.85 OI=33 CB=9.41 DE=42 TY=4.5%


*****
CLHB - Clean Harbors  $11.76  *** The Last Bidder Standing? ***

Clean Harbors (NASDAQ:CLHB) provides a wide range of environmental
services to a diversified customer base in the U.S. and Puerto 
Rico through its subsidiaries.  The services provided by Clean 
Harbors are classified in four primary categories: treatment and 
disposal of industrial wastes (Treatment and Disposal); site 
services provided at customer sites (Site Services); specialized 
repackaging, treatment and disposal services for laboratory 
chemicals and household hazardous wastes (CleanPack), and out-
sourcing of customer's environmental management program (Onsite
Services).  Clean Harbors also provides transportation for all 
forms of hazardous wastes, analytical testing services, inform-
ation management and training services.  Clean Harbors rallied
strongly on Friday after the company announced that its bid to 
acquire assets of Safety-Kleen chemical services division has 
been designated by Safety-Kleen as the only qualified bid and 
will present the bid to bankruptcy court on June 13 for approval.
Investors cheered the news and this position offers a way to 
conservatively speculate on the final outcome.  CLHB stock has
been down recently due to fears that Vivendi Environment would
win the bidding and a court hearing on the sale process which
was challenged by Vivendi is still set for June 10.

JUN 10.00 QPB FB LB=2.15 OI=868 CB=9.61 DE=14 TY=8.8%


*****
COB - Columbia Labs  $5.35  *** Stage I Speculation ***

Columbia Laboratories (AMEX:COB) develops women's healthcare 
and endocrinology products, including those intended to treat 
infertility, endometriosis and hormonal deficiencies.  Columbia
is also developing hormonal products for men and a buccal 
delivery system for peptides.  The company's products primarily
utilize its patented Bioadhesive Delivery System technology. 
Products include Crinone, a vaginally delivered, natural pro-
gesterone product; Advantage-S, a female contraceptive gel; 
Replens, a vaginal moisturizer, and other products, as well as
a testosterone-progressive hydration buccal tablet, a testost-
eroned progressive hydration vaginal tablet, and a peptide 
delivery system.  In early May, Columbia announced favorable
results in the company's analyses of clinical pharmacokinetic 
trials.  On May 14, the company announced that it had sold
454,545 shares of its common stock to Acqua Wellington North
American Equities Fund, Ltd, raising $2.0 million.  Last week,
Columbia announced a supply agreement with Mipharm S.p.A. for
the manufacture and supply of commercial forms of Columbia's 
testosterone buccal tablet.  We simply favor the move above
the October-November 2001 resistance area and the current
"bullish" momentum in the issue.

JUL 5.00 COB GA LB=0.70 OI=23 CB=4.65 DE=42 TY=5.5%


*****
EXTR - Extreme Networks  $11.16   *** Change Of Character ***

Extreme Networks (NASDAQ:EXTR) is a provider of network infra-
structure equipment for business applications and services.  The
company delivers high-performance application and services infra-
structure for enterprise, service provider and metropolitan area 
networks (MANs)-based on technology that combines high performance,
intelligence and a low cost of ownership.  The company's family of 
Summit stackable, BlackDiamond and Alpine chassis switches share
the same consistent hardware, software and management architecture,
enabling businesses to build a network infrastructure that is 
simple, easy to manage and scalable to meet the demands of growing 
businesses.  Prudential recently initiated covered on Extreme with
a "buy" rating as analysts believe the company's fourth quarter
will come in strong.  We like the strong technical support area at
$10 and the move through the long-term down-trend line (two-year
chart) which suggests a positive change of character.

JUN 10.00 EXJ FB LB=1.50 OI=2385 CB=9.66 DE=14 TY=7.6%


*****
HPLA - HPL Technologies  $13.95  *** Bracing For A Rally ***

HPL Tech. (NASDAQ:HPLA) provides yield-optimization software that
enables semiconductor companies to enhance the efficiency of the 
semiconductor production process.  The company's products include
a flexible software platform supported by over 600 software 
modules, which allow customers to accelerate the process in which
they identify, and measure and correct sources of failure in the
production process.  By accelerating this learning and corrective
process, HPL enables its customers to recognize the higher levels
of revenue and profitability that are typically associated with 
the early part of a new semiconductor product cycle.  Identifying
production failures early in a semiconductor product cycle also 
allows customers to improve the quality of their products, reduce 
production costs and meet volume production requirements in a 
timely manner.  HPL recently announced that it has signed a major
multi-year volume purchase agreement (VPA) with leading integrated
circuit manufacturer, STMicroelectronics (NYSE:STM).  We favor the
current technical signals which suggest higher future prices for
this relatively new issue.

JUL 12.50 QHP GV LB=2.40 OI=23 CB=11.55 DE=42 TY=6.0%


*****
IPXL - Impax Laboratories  $8.01  *** Drug Sector Speculation ***

Impax Labs (NASDAQ:IPXL), formerly known as Global Pharmaceutical,
is a technology-based, specialty pharmaceutical company focused on
the development and commercialization of generic and brand name
pharmaceuticals.  In the generic pharmaceuticals market, Impax is
primarily focusing its efforts on selected controlled-release 
generic versions of brand name pharmaceuticals.  In the brand name
pharmaceuticals market, the company is developing products for the
treatment of central nervous system disorders. Impax's initial 
brand name product portfolio consists of development-stage projects
to which it is applying its formulation and development expertise
to develop differentiated, modified or controlled-release versions
of marketed drug substances.  The company intends to expand its 
brand name products portfolio primarily through internal develop-
ment, and, in addition, through licensing and acquisition.  Impax
announced at the end of May that it received tentative approval 
from the Food and Drug Administration for a generic version of 
Claritin-D 12-Hour extended-release tablets.  Good news, but final
approval is contingent upon the resolution of the lawsuit filed by 
Schering-Plough against Impax, the expiration of the 30-month stay
process under the Hatch-Waxman amendments or the expiration of any
generic marketing exclusivity.  Investors who believe Impax will
prevail can speculate on the future performance of the company 
with this conservative position.

JUL 7.50 UPR GU LB=1.10 OI=24 CB=6.91 DE=42 TY=6.2%


*****
MCDT - McDATA  $8.99  *** Bottom Fishing! ***

McDATA (NASDAQ:MCDT) is a provider of open-storage networking 
solutions and provides highly available, scalable and centrally
managed storage area networks (SANs) that address enterprise-wide 
storage problems.  The company's core-to-edge enterprise solutions
consist of hardware products, software products and professional 
services.  Its SAN solutions improve the reliability as well as 
the availability of data, simplify the management of SANs and 
reduce the total cost of ownership.  In May, McData reaffirmed its
second quarter 2002 guidance as the company continues to anticipate
that revenue for the second quarter will be roughly comparable to
its $64.5 million first quarter revenue results.  McDATA will 
report actual second quarter results in mid-July.  We simply 
favor the stock's recent move back above its 30-dma as McData
forges a Stage I base.  A reasonable entry for those who wish
to speculate on the company's future. 

JUL 7.50 DXZ GU LB=1.90 OI=193 CB=7.09 DE=42 TY=4.2%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

OPMR   15.25  JUN 15.00   OQG FC  1.10 580   14.15   14   13.1%
PSFT   20.94  JUN 20.00   PQO FD  1.90 3244  19.04   14   11.0%
SOI     8.27  JUL  7.50   SOI GU  1.35 477    6.92   42    6.1%
SLAB   24.35  JUN 22.50   QFJ FX  2.40 26    21.95   14    5.4%
SCH    12.50  JUL 12.50   SCN GV  0.70 736   11.80   42    4.3%



*****************
NAKED PUT SECTION
*****************

Technical Analysis 101: Q&A With The Naked-Puts Editor
By Ray Cummins

This week's question concerns the use of technical indicators to
determine the turning point in the market or a specific issue.


Subject: Technical Signals for Reversals
Attn: and Ray Cummins and Mark Wnetrzak
 
Dear Ray,

I know you and Mark focus on technical analysis in your sections
so I am sending this question to both of you.
 
One of the expressions I have heard often over the past few days
is "the market is oversold"...but, based on what I see in the
overall trend, there is no good reason to be buying stocks other
than they "appear" to be cheap. Just what is it that makes the
market or a particular stock "oversold" and what chart indicators
should I use to identify this condition for myself?  Also, how do
I know when the stock is really beginning to reverse direction,
as opposed to simply making a whip-saw in reaction to a let up in
the selling pressure?

Thanks,

TY           



Concerning technical indicators used to identify reversals:

With regard to the broad market definition, the condition of being
"overbought" or "oversold" is generally based on the number of
stocks advancing or declining.  When an excessive number of issues
have advanced, the stock market is said to be "overbought."  If
an excessive number of issues have declined, it is said to be
"oversold."  If the overall market is in an overbought condition,
that's usually a sign that euphoria has overwhelmed investors and
it's time to stop buying, or at least start taking profits.  When
the major indices appear to have declined to a relatively low point
in the cycle and the market technicals suggest it is oversold, you
may want to start buying again, as the risk will generally be lower
in bullish positions.

Indicators that identify market extremes are universally popular
as technical trading tools.  The most important concept investors
should understand is that overbought and oversold indicators can
only provide a method of determining when a market is approaching
historical excesses.  They do not suggest that the market is at a
turning point merely because it has moved beyond a specific level.
In addition, simply establishing these arbitrary ranges can often
create a major problem for traders.  The key to success with this
type of analysis is that the condition of overbought or oversold
must only be indicated when the instrument reaches an excessive
state; one which occurs rarely over time.  After all, any trader
who applies relatively lax boundaries when searching for such an
extreme condition will seldom be able to correctly identify the
few occasions when the gauges are truly extended beyond the norm.

The first step is to use a reliable indicator that works well with
this type of technical analysis.  One of the most common tools for
viewing overbought and oversold is the Relative Strength Indicator
or RSI.  This measure of price momentum was developed by J. Welles
Wilder in 1978 and is commonly included in the "oscillators" group
because it varies between fixed upper and lower boundaries.  The
RSI is based on the fact that a stock, when advancing, will tend
to close nearer to the high of the day than the low, and of course
the reverse is true for declining issues.  The indicator compares
the price performance of a stock to that of itself, rather than to
a stock market index or another stock, and it must not be confused
with other relative strength gauges.  In this case, the oscillator
is indexed from 0 to 100 and it is most useful in a well-defined
trading channel as trending prices tend to distort overbought and
oversold signals.  Using the basic values, a "buy" signal occurs
when the oscillator is at 20 or less (the stock is oversold) and
"sell" signals are issued when the RSI value is 80 or greater (the
stock is overbought).

Another overbought/oversold indicator is the stochastic oscillator.
The stochastic oscillator compares the current stock price to its
price range over a specifically identified period of time.  This
technique is based on the idea that in an upward trending market,
stocks tend to close near their highs and in a downward trending
market, stocks tend to close near their lows.  That would indicate
that as an upward trend erodes, stocks close further away from the
highs and vice versa.  The stochastic indicator attempts to show
when prices start to group around their lows in an bullish market,
and just the opposite in a down-trending market.  The theory is
that these are the conditions which indicate a trend reversal is
about to occur.

The stochastic indicator is plotted as two lines on a chart with
values ranging from 0 to 100.  They are the %D line and %K line,
and the %D line is considered the more significant of the two.
Readings above the 80 line are strong and indicate that the price
is probably closing near its high and likewise, readings below 20
indicate that price is closing near its low.  Ordinarily, the %K
line will reverse direction before the %D line but, when the %D
line changes direction prior to the %K line, a slow and steady
reversal in the stock price is usually indicated.  A very powerful
move is indicated when the plot approaches 0 and 100.  When the
stochastic nears these extremes following a pullback in price, a
good entry point is generally indicated.  Many times, when the %K
or %D lines begin to flatten out, this is an indication that the
trend will reverse during the next trading range.

One of the simplest applications of stochastics is to identify
the divergence between price and momentum.  That situation occurs
when the stock price is making higher highs but the stochastic
oscillator is making lower lows (or the opposite).  Remember, the
purpose of an oscillator is to alert traders to a potential failed
rally or the possible conclusion of a sell-off.  If the stochastic
indicator fails to confirm a stock's new high, traders should wait
for %K to cross below %D and to drop below 70 before considering
an exit.  When the stochastic indicator fails to achieve a new low
along with the share value, investors should wait for %K to cross
above %D and to climb above 30 before entering a new position.  In
any case, a bullish or bearish stochastic divergence should always
be validated by the market's price action.  When used correctly,
the stochastic oscillator can often demonstrate a change in price
before the reversal actually occurs, and that can be very helpful
in determining the appropriate time to enter or exit a position.

Technical analysis can play a vital role in identifying stocks
that are in the process of becoming winners and those that may
quickly turn into losers.  Establishing the correct parameters in
which the terms "overbought" and "oversold" apply only to truly
exceptional conditions is an important requirement in the study
of historical pricing.  Many otherwise intelligent traders regard
this type of indication as a clear-cut signal when the market is
beyond the relatively arbitrary boundaries of the oscillator.  In
reality, this measure of momentum is simply showing whether the
price line is speeding up or slowing down and when an extreme is
achieved, the condition cannot be expected to exist for extended
periods.  The result is generally a consolidation, followed by a
renewed trend or a reversal and because it's almost impossible to
determine which will occur, additional indicators are used to help
predict the likely outcome.

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS CANDIDATES 
*****

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

WFR     8.30   7.40   JUN   7.50  0.60   $  0.50  11.6%
AMZN   19.47  18.58   JUN  17.50  0.65  *$  0.65  11.3%
OSTE    8.30   7.50   JUN   7.50  0.20   $  0.20  10.7%
NTIQ   23.12  23.49   JUN  20.00  0.45  *$  0.45   9.9%
ENDP   11.56  10.44   JUN  10.00  0.55  *$  0.55   9.5%
AMZN   19.16  18.58   JUN  15.00  0.40  *$  0.40   8.2%
ADRX   45.22  38.54   JUN  35.00  0.70  *$  0.70   8.1%
JBL    22.96  21.21   JUN  20.00  0.35  *$  0.35   7.7%
RMCI   27.46  25.50   JUN  22.50  0.70  *$  0.70   7.5%
CKFR   23.89  20.49   JUN  20.00  0.65  *$  0.65   7.4%
GG      9.36  11.75   JUN   8.75  0.35  *$  0.35   7.3% 2-1 split
BJS    37.52  35.45   JUN  35.00  0.65  *$  0.65   7.2%
RMCI   31.23  25.50   JUN  25.00  0.55  *$  0.55   7.0%
PHSY   30.06  26.51   JUN  25.00  0.60  *$  0.60   6.9%
EMLX   30.11  29.91   JUN  22.50  0.30  *$  0.30   6.9%
NOVN   24.37  25.99   JUN  22.50  0.50  *$  0.50   6.7%
SIE    19.88  19.16   JUN  17.50  0.65  *$  0.65   6.5%
PHSY   25.87  26.51   JUN  20.00  0.50  *$  0.50   6.4%
TTWO   25.60  22.04   JUN  20.00  0.40  *$  0.40   6.3%
TTWO   25.50  22.04   JUN  20.00  0.30  *$  0.30   6.3%
NOVN   26.61  25.99   JUN  25.00  0.40  *$  0.40   6.1%
MACR   22.00  19.77   JUN  17.50  0.25  *$  0.25   6.1%
AMZN   16.94  18.58   JUN  12.50  0.30  *$  0.30   5.9%
TDY    21.24  19.89   JUN  20.00  0.50   $  0.39   5.7%
TDY    19.17  19.89   JUN  17.50  0.60  *$  0.60   5.6%
WIN    19.20  18.69   JUN  17.50  0.30  *$  0.30   5.4%
MACR   23.89  19.77   JUN  20.00  0.60   $  0.37   5.1%
VVTV   21.74  20.10   JUN  20.00  0.25  *$  0.25   5.0%
RDC    26.12  23.59   JUN  22.50  0.50  *$  0.50   4.9%
FLM    25.35  22.14   JUN  22.50  0.80   $  0.44   3.9%
TTWO   25.67  22.04   JUN  22.50  0.40   $ -0.06   0.0%
IDXX   31.10  29.10   JUN  30.00  0.55   $ -0.35   0.0%
DCN    22.67  18.15   JUN  20.00  0.45   $ -1.40   0.0%

*$ = Stock price is above the sold striking price.

Comments:

The extreme downward moves this week came as a big surprise to
most investors and although they offered some excellent entry
points for long-term positions, the activity did little to help
the existing plays in the portfolio.  Positions that were not
closed on Monday endured additional selling pressure near the
end of the week and despite Friday's late recovery, the results
were less than outstanding.  Dana Corporation (NYSE:DCN) moved
to the "losers" list Tuesday amid concerns that a fall in auto
sales could presage waning demand for auto parts in the months
ahead.  Alternative fuel company Headwaters (NASDAQ:HDQR) also
slumped, however there was no news to explain the sell-off and
the company said it knew of no reason for the recent steep drop
in its share value.  Take-Two Interactive Software (NASDAQ:TTWO)
took it on the chin Friday, after the company gave guidance for
the current quarter that was below what it said were "too-high"
earnings estimates.  On Thursday, Take-Two reported earnings for
its fiscal second quarter that were in line with expectations,
but investors were obviously more concerned about the outlook
for the future.  There were a number of other portfolio plays
that became "early-exit" candidates during the past week and not
surprisingly, our current watch-list encompasses almost all the
issues in the summary.  Rather than listing them individually,
we will simply suggest that if you are still in any questionable
positions, you may want to adjust your stops as necessary, to
lock-in gains or prevent large losses.

Positions Closed:

Endocare (NASDAQ:ENDO), Plexus (NASDAQ:PLXS), and Headwaters
(NASDAQ:HDWR).


NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

EBAY   56.67  JUN 50.00   QXB RJ  0.45 5200  49.55   14    5.9%
EMLX   29.91  JUN 25.00   UMQ RE  0.40 2264  24.60   14   11.7%
INTU   44.03  JUN 40.00   IQU RH  0.35 1888  39.65   14    5.5%
JBHT   26.95  JUN 25.00   JHQ RE  0.30 550   24.70   14    7.1%
PSFT   20.94  JUN 17.50   PQO RW  0.30 4930  17.20   14   12.4%
QCOM   30.87  JUN 25.00   AAW RE  0.25 7927  24.75   14    8.1%
SRCL   35.00  JUN 32.50   URL RZ  0.30 296   32.20   14    5.5%

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

PSFT   20.94  JUN 17.50   PQO RW  0.30 4930  17.20   14   12.4%
EMLX   29.91  JUN 25.00   UMQ RE  0.40 2264  24.60   14   11.7%
QCOM   30.87  JUN 25.00   AAW RE  0.25 7927  24.75   14    8.1%
JBHT   26.95  JUN 25.00   JHQ RE  0.30 550   24.70   14    7.1%
EBAY   56.67  JUN 50.00   QXB RJ  0.45 5200  49.55   14    5.9%
INTU   44.03  JUN 40.00   IQU RH  0.35 1888  39.65   14    5.5%
SRCL   35.00  JUN 32.50   URL RZ  0.30 296   32.20   14    5.5%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
EBAY - eBay  $56.67  *** Entry Point! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and unique
items.  The eBay trading platform is a fully automated, topically
arranged service that supports an auction format in which sellers
list items for sale and buyers bid on items of interest, and a
fixed-price format in which sellers and buyers trade items at a
fixed price established by sellers.  Through its wholly owned and
partially owned subsidiaries and affiliates, the company operates
online trading platforms directed towards the United States,
Australia, Austria, Belgium, Canada, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Singapore, South
Korea, Spain, Sweden, Switzerland and the United Kingdom.  With
the recent market decline, previously expensive stocks such as
EBAY are almost affordable and traders can establish a discounted
cost basis in the issue with this position.

JUN 50.00 QXB RJ LB=0.45 OI=5200 CB=49.55 DE=14 TY=5.9%


*****
EMLX - Emulex  $29.91  *** Own This One! ***

Emulex (NASDAQ:EMLX) is a designer, developer and supplier of a
broad line of storage networking host bus adapters, application
specific computer chips and other software products that provide
connectivity solutions for storage area networks (SANs), network
attached storage and redundant array of independent disks storage.
The company's products are based on internally developed ASIC,
firmware and software technology, and offer support for a variety
of SAN protocols, configurations, system interfaces and operating
systems.  The company's architecture offers customers a stable
applications program interface that has been preserved across
multiple generations of adapters, and to which many OEMs have
customized software for mission-critical server and storage system
applications.  Despite the recent performance of technology issues,
Emulex is a leader in the networking group and traders who wouldn't
mind owning the stock can speculate conservatively on its share
value in the near-term.

JUN 25.00 UMQ RE LB=0.40 OI=2264 CB=24.60 DE=14 TY=11.7%


*****
INTU - Intuit  $44.03 *** Trading Range! ***

Intuit (NASDAQ:INTU) is a provider of various small-business, tax
preparation and personal finance software products and Web-based
services that simplify complex financial tasks for consumers and
accounting professionals.  The company's principal products and
services include Quicken, QuickBooks, Quicken TurboTax, ProSeries,
Lacerte and Quicken Loans.  Intuit offers products and services in
five principal business divisions, which include Small Business,
Tax, Personal Finance, Quicken Loans and Global Business.  Intuit
is one of the few technology stocks that has thrived in the recent
hi-tech slump and the current trading range near $44 appears to
offer ample support for this conservative bullish position.

JUN 40.00 IQU RH LB=0.35 OI=1888 CB=39.65 DE=14 TY=5.5%


*****
JBHT - J.B. Hunt  $26.95  *** Transport Sector! ***

J.B. Hunt Transport Services (NASDAQ:JBHT) along with its wholly
owned subsidiaries, is a diversified transportation services
company.  Through its subsidiaries and associated companies, JBHT
provides a wide range of logistics and transportation services to
a diverse group of customers.  These customers request targeted
transportation services or they outsource their transportation
function to JBHT, or one of its associated companies.  J.B. Hunt
also directly transports full-load "containerizable" freight in
the continental United States and portions of Canada and Mexico.
J.B. Hunt Transport Services recently completed the sale of 5.1
million shares of common stock at $26 per share and the offering
should stabilize the issue near that price for the next few weeks.
Standard & Poor's also affirmed its ratings on the company, saying
the equity offering and debt reduction will modestly improve Hunt's
capital structure.  Traders who want to own a solid company in the
transport sector should consider this position.

JUN 25.00 JHQ RE LB=0.30 OI=550 CB=24.70 DE=14 TY=7.1%


*****
PSFT - PeopleSoft  $20.94  *** Bottom-Fishing! ***

PeopleSoft (NASDAQ:PSFT designs, develops, markets and supports a
family of enterprise application software products for use in large
and medium-sized organizations.  The company provides enterprise
application software for customer relationship management, human
resources management, financial management and also supply chain
management, along with a range of industry-specific products.  In
addition to enterprise application software, PeopleSoft offers a
variety of services to its customers, including implementation
assistance, project planning, online analytic processing, software
product enhancements, consulting, maintenance, customer education,
product support and training.  Application software companies have
been among the worst performers in the technology segment over the
past few weeks but it appears the selling pressure is finally on
the decline.  Traders who like the recovery potential for the group
can speculate on that outcome with this conservative position.

JUN 17.50 PQO RW LB=0.30 OI=4930 CB=17.20 DE=14 TY=12.4%


*****
QCOM - Quallcomm  $30.87  *** Favorable Speculation! ***

Quallcomm (NASDAQ:QCOM) is a worldwide developer and supplier of
code division multiple access (CDMA)-based integrated circuits and
system software for wireless voice and data communications, and
global positioning system products.  The company offers complete
system solutions, including software and integrated circuits for
wireless handsets and infrastructure equipment.  This complete
system-solution approach provides customers with advanced wireless
technology, enhanced component integration and interoperability, as
well as reduced time to market.  Quallcomm also provides integrated
circuits and system software to wireless handset and infrastructure
manufacturers.  Last week's sell-off in the wireless group produced
some big downward moves in a number of popular companies but QCOM
avoided the brunt of the bearish activity.  At the same time, the
issue's near-term option premiums have increased slightly and the
rise in implied volatility has provided a favorable speculation
opportunity for technology investors.

JUN 25.00 AAW RE LB=0.25 OI=7927 CB=24.75 DE=14 TY=8.1%


*****
SRCL - Stericycle  $35.00  *** Broad-Market Hedge! ***

Stericycle (NASDAQ:SRCL) is a regulated medical waste management
company in North America, serving almost 300,000 customers in the
United States, Canada, Puerto Rico and Mexico.  The company's many
services and operations include the collection, transportation,
treatment, disposal and recycling of waste, together with related
training and education programs, consulting services and product
sales.  The company has a fully integrated, national medical waste
management network.  Stericycle's network includes 36 treatment and
collection centers and 94 additional transfer and collection sites.
The company uses this network to provide medical waste collection,
transportation and treatment and related consulting, training and
education services and products.  Stericycle's unique treatment
technologies include its proprietary electro-thermal-deactivation
system, as well as traditional methods, such as autoclaving and
incineration.  Stericycle is an old favorite among investors who
are interested in hedging against bearish activity in the broader
markets and this position offers reasonable reward at the risk of
owning the issue near a recent technical support area.

JUN 32.50 URL RZ LB=0.30 OI=296 CB=32.20 DE=14 TY=5.5%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

HUM    15.39  JUN 15.00   HUM RC  0.30 373   14.70   14   10.7%
PETM   17.92  JUN 17.50   QPT RW  0.35 52    17.15   14   10.7%
SPOT   25.30  JUN 25.00   OQO RE  0.45 51    24.55   14    9.5%
CIMA   27.72  JUN 25.00   UVK RE  0.35 238   24.65   14    8.7%
HPLA   13.95  JUL 10.00   QHP SB  0.30 0      9.70   42    7.0%
ACDO   51.19  JUN 45.00   DZU RI  0.40 47    44.60   14    5.9%



SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

It Could Have Been Worse!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, June 7

Stocks recovered from a sharp sell-off in early trading to finish
today's session only moderately lower as investors continued to
look for some indication that the market is nearing a bottom.

The Dow Jones Industrial Average closed 34 points lower at 9,589
after plummeting 152 points on news that chip-sector bellwether
Intel (NASDAQ:INTC) lowered its second-quarter revenue target due
to sagging European demand.  Shares of Intel dropped 20% by the
end of the day and among other blue-chip components, AT&T (NYSE:T),
American Express (NYSE:AXP), Citigroup (NYSE:C), International
Business Machines (NYSE:IBM) and Eastman Kodak (NYSE:EK) saw the
heaviest losses.  The anxiety among investors quickly spread to
the broader groups with technology stocks taking the brunt of the 
renewed selling pressure.  The NASDAQ Composite ended 19 points
lower at 1,535 on weakness in semiconductor and hardware shares.
The broader marker S&P 500-stock index closed almost unchanged as
financial, oil service, drug and chemical issues rebounded while
gold, airline and biotechnology stocks continued to sag.  Trading
volume came in at 1.80 billion on the NYSE and at 2.11 billion on
the NASDAQ.  Market breadth was slightly negative on the Big Board
while decliners matched advancers on the technology exchange.  On
the fund flow front, Trim Tabs estimated that all equity funds had
outflows of $6.8 billion in the week ending June 5, compared with
outflows of $700 million in the prior week.  Funds that invest
primarily in U.S. stocks had outflows of $5.8 billion compared to
outflows of $1.1 billion in the prior week.  The bond market was
no safe haven as treasuries followed stocks lower during the day.
The 10-year note shed 20/32 to yield 5.06% while the 30-year bond
dropped 23/32 to yield 5.66%.


Last week's new plays (positions/opening prices/strategy):
	
Aflac    (NYSE:AFL)  AUG35C/AUG30P  $0.25  credit  synthetic
Impax    (NSDQ:IPXL) AUG10C/AUG7P   $0.15  credit  synthetic
Kraft    (NYSE:KFT)  SEP45C/SEP40P  $0.20  credit  synthetic
Cigna    (NYSE:CI)   JUN95P/JU100P  $0.55  credit  bull-put
Smith    (NYSE:SII)  JUN85C/JUN80C  $0.30  credit  bear-call
Cephalon (NSDQ:CEPH) JUL65C/JUL40P  $2.25  credit  strangle
Mini NDX (CBOE:MNX)  JUL120C/J120P $14.00  debit   straddle

The recent bearish market activity boosted the premiums in our
new synthetic positions and also provided a favorable opening
credit in the Cigna spread.  Unfortunately, the same downward
trend prevented an entry at the target price in the Smith Intl.
"bear-call" spread.  The neutral-outlook position in Cephalon
was available at the suggested premium and the Mini-NDX straddle
approached a near break-even exit in the bearish portion of the
position during Friday's volatile session.

					
Portfolio Activity:

Monday's precipitous plunge in share values was a shocking and
unwelcome event for most investors and the bearish activity was
also a catalyst for closing trades in many of our bullish plays.
Stocks in the oil service group were among the worst performers
and the downward trend in these issues prompted early-exits in
credit spreads on Nabors Industries (NYSE:NBR) and Schlumberger
(NYSE:SLB).  The Reader's Request synthetic positions in the oil
drillers segment also came under pressure and should be closely
monitored for further downside movement.  Not surprisingly, the
broad market slump weighed heavily on the S&P 100-stock index
(CBOE:OEX) thus forcing an exit in the bearish portion of our
credit-spread strangle.  Of course, the sharp decline in stock
prices was a boon to the Nvidia (NASDAQ:NVDA) debit straddle and
the activity also favored "bear-call" credit spreads in Mercury
Interactive (NASDAQ:MERQ), XL Capital (NYSE:XL) and Weatherford
(NYSE:WFT), as well as adjusted positions in Qlogic (NASDAQ:QLGC)
and Clear Channel Comm. (NYSE:CCU).  One play that has performed
better than expected, considering the recent volatility, is the
credit strangle in Adobe Systems (NASDAQ:ADBE).  The position is
comfortably inside the profit envelope with the issue near $35
and should expire at maximum gain ($1.25) in two weeks.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                 - READER'S WRITE E-MAIL REPLIES -
******************************************************************

Subject: Position adjustments with credit spreads
To: Contact Support

Hi Ray,

I have a question about adjusting a credit spread by rolling it
down, away from the sold strike, and forward to the next month.

There have been several times I wanted to use this strategy but
I found there were no lower strike prices available for the
underlying.  This would make sense in a lot of cases since in
selling a credit spread -- you would often choose a sold strike
which the underlying has not gone through in quite a while due
to support.

In this situation, could it make sense to allow the underlying
to go further through the sold strike until a lower strike opens
up or would it be better to just close the trade and reopen a
new trade when and if the lower strike does become available?

This seems tricky, but I think the question seems to become how
the next month's new spread will react compared to this month's
current spread if the underlying continues lower.

Thank you,

DF


Hello DF,

In my experience, I have found it is rarely (if ever) favorable to
allow a position to continue to move against you once it has hit
the predetermined (generally above or very near the sold strike in
put-credit spread) exit point.  In the situation you described, the
short option would increase in value at a much higher rate than the
long option, thus adding to your losses and creating a larger debit
from which you must recover in any potential adjustment strategy.
I believe it would be better to simply close the trade and move on
to another play, where your capital can be more effectively applied
to earn a profit.  Your suggestion to "reopen a new trade, when and
if the lower strike does become available" sounds like an attempt
to repair every position that goes awry but I should caution you, a
successful (break-even) result is not always possible and can often
lead to greater losses.  With regard to spreads that have no lower
strike prices for adjustment, you should be aware of that condition
prior to entering the trade and decide if favorable alternatives
are available.  As you know, one popular method is to simply "short"
the stock as it crosses the sold strike price or moves through an
area of recent support (trend-line/moving average).  Another common
technique is to roll into a bearish strategy, or try to roll out of
the spread for a profit or at least a break-even exit.  Each method
can provide viable adjustments, depending on the technical outlook
for the underlying issue.  The key to success in either strategy
is to initiate the trade at known support levels, or after obvious
reversal signals, otherwise you are simply speculating about the
stock's next move.

As you know, the great thing about trading spreads is: once you
understand them, you can turn many losing plays into winning ones
with the effective use of STOPS and by rolling out-of/in-to new
positions when the stock moves against you.  When you do lose, at
least you have reduced your losses by leveraging against another
position.  Of course, in all cases where an attempt to recover a
losing position is initiated, you must be prepared for additional
draw-downs and have thorough knowledge of the repair strategy.

Hope That Helps!

Ray


Subject: Request for Combos section
To: Contact Support

Hello Ray,

I am a relatively new subscriber to the newsletter and although
I have done fairly well trading stocks, I have yet to make the
jump into options.  I've been following your sections over the
past few weeks and finally decided to take the limited risk
approach with an "out-of-the-money" credit spread.  Since this
will be my first effort with this method, could you please offer
some conservative positions using this strategy in your next
newsletter?

Thanks for a great product!

RB


Hello RB,

Your wish is my command!

Good Luck!

Ray

******************************************************************
                       - CREDIT SPREADS -

These plays are based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit in these positions may also be higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues so review each play individually and make
your own decision about the future outcome of the position.

******************************************************************
ABK - Ambac Financial  $68.44  *** New High! ***

Ambac Financial (NYSE:ABK) is a holding company that, through its
many subsidiaries provides financial guarantee products and other
financial services to clients in the public and private sectors
around the world.  The company provides financial guarantees for
municipal and structured finance obligations through its primary
operating subsidiary, Ambac Assurance Corporation.  Through its
financial services subsidiaries, the company provides financial
and investment products including investment agreements, interest
rate swaps, funding conduits, investment advisory and financial
management services, principally to its guarantee clients, which
include municipalities and their authorities, school districts,
healthcare organizations and asset-backed issuers.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-60  ABK-SL  OI=0  A=$0.30
SELL PUT  JUL-65  ABK-SM  OI=0  B=$0.85
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


******************************************************************
AZO - Autozone  $82.95  *** In The Zone! ***

AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories, primarily focusing on do-it-yourself customers.
The company operates over 3,000 auto parts stores in the United
States and currently 21 in Mexico.  Each auto parts store carries
an extensive product line for cars, vans and light-duty trucks,
including new and re-manufactured automotive parts, maintenance
items and accessories.  The company also has a commercial sale
program in the United States that provides commercial credit and
prompt delivery of parts and other products to local garages,
dealers and service stations.  AutoZone does not sell tires or
perform automotive repair or installation but the company does
market automotive diagnostic and repair information software
through its ALLDATA subsidiary, as well as diagnostic and repair
information through alldatadiy.com.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-70  AZO-SN  OI=212  A=$0.45
SELL PUT  JUL-75  AZO-SO  OI=997  B=$0.95
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


******************************************************************
ERTS - Electronic Arts  $63.25  *** Ultra-Gamer! ***

Electronic Arts (NYSE:ERTS) operates in two principal business
segments globally: EA's Core business segment comprises the
creation, marketing and distribution of entertainment software,
while the EA.com business segment is composed of the creation,
marketing and distribution of entertainment software which can
be played or sold online, ongoing management of subscriptions
of online games and Website advertising.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-50  EZQ-SJ  OI=36   A=$0.60
SELL PUT  JUL-55  EZQ-SK  OI=327  B=$1.05
INITIAL NET CREDIT TARGET=$0.50-$0.55  PROFIT(max)=11%


******************************************************************
HON - Honeywell  $36.71  *** Range-bound? ***

Honeywell International (NYSE:HON) is a diversified technology
and manufacturing company, serving customers worldwide with its
aerospace products and services, unique control technologies for
buildings, homes and industry, automotive products, power systems,
specialty chemicals, fibers, plastics and electronic and advanced
materials.  The company's operations are conducted by strategic
business units, which have been aggregated under four segments:
Aerospace Solutions, Automation & Control, Performance Materials
and Power & Transportation Products.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-42.50  HON-GV  OI=846   A=$0.30
SELL CALL  JUL-40.00  HON-GH  OI=365   B=$0.60
INITIAL NET CREDIT TARGET=$0.35-$0.40  PROFIT(max)=15%


******************************************************************
MMM - 3M Company  $124.44  *** Premium Selling! ***

3M Company (NYSE:MMM), formerly known as Minnesota Mining and
Manufacturing Company, is an integrated enterprise characterized
by substantial inter-company cooperation in research, development,
manufacturing and marketing of products.  3M's primary business
has developed from its research and technology in coating and
bonding for coated abrasives, the company's original product.
Coating and bonding is the process of applying one material to
another, such as abrasive granules to paper or cloth (coated
abrasives), adhesives to a backing (pressure-sensitive tapes),
ceramic coating to granular mineral (roofing granules), glass
beads to plastic backing (reflective sheeting), and low-tack
adhesives to paper (repositionable notes).  The company conducts
its business through six operating segments: Industrial Markets;
Transportation, Graphics and Safety Markets; Health Care Markets;
Consumer and Office Markets; Electro and Communications Markets;
and Specialty Material Markets.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-140  MMM-GH  OI=766   A=$0.30
SELL CALL  JUL-135  MMM-GG  OI=1846  B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


******************************************************************
OHP - Oxford Health Plans  $49.05  *** Hot Sector! ***

Oxford Health Plans (NYSE:OHP) is a healthcare company providing
health benefit plans in New York, New Jersey and Connecticut.
The company's product line includes its point-of-service plans,
the Freedom Plan, the Liberty Plan, a range of health maintenance
organizations, preferred provider organizations, Medicare+Choice
plans and third-party administration of employer-funded benefit
plans.  The company offers its various products through its HMO
subsidiaries, Oxford Health Plans (NY), Inc. (Oxford NY), Oxford
Health Plans (NJ), Inc. (Oxford NJ) and Oxford Health Plans (CT),
Inc. (Oxford CT) and through Oxford Health Insurance, Inc. (OHI),
Oxford's health insurance subsidiary.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-42.50  OHP-SV  OI=0    A=$0.40
SELL PUT  JUL-45.00  OHP-SI  OI=115  B=$0.65
INITIAL NET CREDIT TARGET=$0.30-$0.40  PROFIT(max)=14%


******************************************************************
OMC - Omnicom Group  $72.69  *** Accounting Issues? ***

Omnicom Group (NYSE:OMC) is a unique marketing and corporate
communications company.  Omnicom has grown its holdings to over
1,500 subsidiary agencies operating in more than 100 countries.
The company's wholly and partially owned businesses provide
communications services to clients on a global, pan-regional and
national basis.  The company's agencies provide a wide range of
marketing and corporate communications services, advertising,
brand consultancy, crisis communications, custom publishing,
database management, digital and interactive marketing, direct
marketing, directory and business-to-business advertising,
employee communications and environmental design.  Omnicom also
provides field marketing, healthcare communications, marketing
research, media planning and buying, multi-cultural marketing,
non-profit marketing, promotional marketing, public affairs and
relations, recruitment communications, specialty communications
and sports and event marketing.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-85  OMC-GQ  OI=3921  A=$0.35
SELL CALL  JUL-80  OMC-GP  OI=2119  B=$0.90
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


******************************************************************
ONE - Bank One  $39.91  *** Trading In A Range? ***

Bank One Corporation (NYSE:ONE) is a multi-bank holding company
that provides domestic retail banking, finance and credit card
services, worldwide commercial banking services, and trust and
investment management services.  Bank One operates offices in
Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Texas,
Louisiana, Michigan, Ohio, Oklahoma, Utah, West Virginia, and
Wisconsin, and in certain international markets.  Bank One also
engages in other businesses related to banking and finance,
including credit card and merchant processing, consumer and
education finance, real estate-secured lending and servicing,
insurance, venture capital, investment and merchant banking,
trust, brokerage, investment management, leasing, community
development and data processing.  These activities are conducted
through bank subsidiaries and non-bank subsidiaries.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-45.00  ONE-GI  OI=153   A=$0.15
SELL CALL  JUL-42.50  ONE-GV  OI=1377  B=$0.40
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14%


******************************************************************
UNH - UnitedHealth Group  $94.39  *** Low Risk - Low Reward! ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  The company's revenues
are derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes UnitedHealthcare
and Ovations; Specialized Care Services, and Ingenix.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-80  UHB-SP  OI=86   A=$0.40
SELL PUT  JUL-85  UHB-SQ  OI=286  B=$0.75
INITIAL NET CREDIT TARGET=$0.40-$0.50  PROFIT(max)=8%


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


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


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

Bearish watch list candidates have provided solid intraday trades 
recently.  We’re taking a look at two more bearish possibles this 
weekend.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/060902.asp


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

Two major support levels were lost in the market averages Friday.  
Sector movement was found more support levels broken.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/060902_1.asp


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

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