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Daily Newsletter, Tuesday, 06/11/2002

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The Option Investor Newsletter                 Tuesday 06-11-2002
Copyright 2001, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      06-11-2002           High     Low     Volume Advance/Decline
DJIA     9517.26 –128.10  9758.80  9508.69 1.37 bln   1086/1896
NASDAQ   1497.18 – 33.50  1547.50  1496.66 1.67 bln   1290/2229
S&P 100   500.70 -  8.33   514.22   500.31   Totals   2376/4125
S&P 500  1013.60 – 17.14  1039.04  1012.94             
RUS 2000  462.78 -  6.51   471.96   462.46
DJ TRANS 2706.57 – 14.60  2750.33  2703.80
VIX        27.46 +  1.31    27.46    25.07
VXN        53.12 +  0.55    53.13    51.56
TRIN        1.62
PUT/CALL    1.02
************************************************************

Pick Your Own Support Level

Regardless of where it is you will have as good a chance of being
correct than any of the talking heads on stock TV. The numbers I
have been hearing recently are about as random as throwing darts. 
The commentary of the day was speculation on the "bottom". When 
will it form, how will you recognize it, where will it be. Depending
on who you listened to the Dow bottom was anywhere from 9600, 9500, 
9000 and even as low as 8000. It appears bottom theories are like 
mouths, everybody has one. However very few will profit from their
theory.



 



 



 

The morning started off bullish with futures spiking on the news 
that India and Pakistan could be making up. The opening spike took 
the Dow up to a triple digit gain and a brush with 9750 again. Bears
took the gift and promptly shredded it. The more the day progressed
the worse the sentiment became. AMAT, speaking at a Bear Stearns 
tech conference tried to appear optimistic while being cautious at
the same time. They said it could be a stage one bottom, which could
lead to more IT spending later. "Later" was the key word. They also said 
there was still a surplus of capacity on many common chips. Intel 
reportedly said they were not seeing any IT recovery yet but I could
find no hard evidence of that statement. 

Techs were already in trouble since CSFB cut their global growth 
estimates for PC equipment to zero from 5% overnight. Even the PC
price war is not bringing buyers off the sidelines for corporate
gear. Dell maintains they will profit from the increased competition
because of their low cost structure. They still dropped on the day.

After the bell SEBL said the 2Q was shaping up to be as difficult 
or even more so than the 1Q. This is bad since they were already 
on record as saying the 1Q was the most difficult since they had
been in business. Makes you almost want to run out and buy software
stocks! (grin) This is just another blow to techs and the concept 
of a stealth rally building in chips. 

The biotech sector took it on the chin again as more revelations 
about IDPH were rumored and ABT warned they would miss earnings 
and take a $140 million charge. Lower sales of its anti-obesity 
drug and devaluation of the Argentine peso were given as reasons.
MRK added to the drug/biotech slide amid news that it 
would not refile an application for its arthritis drug Arcoxia. 
New worries over Celebrex and Vioxx safety and generic competition
also tanked the sector. 

In a word the markets today were bearish. The opening bounce on
the relaxed war worries rolled over exactly at resistance (9750)
and traders stepped back to avoid being hit by the falling knife.
The selling was orderly on light to moderate volume but it was
steady all afternoon. Everyone seems convinced that lower lows 
are ahead and they are resigned to wait. Market internals started
off great with advancers beating decliners 3:2 but the deck was 
stacked against a continued rally. With warning season underway and
no economic news on the calendar traders were left to focus on 
negative stock news or no news at all. With the post 9/11 rebound
the best of all possible scenarios was priced into the market. 
When this scenario failed to come to pass every bit of bad news 
just kicks the market farther back into time and price. Insider 
trading is accelerating and stocks making new lows are growing.

Sounds like a bounce around here somewhere. When things look so
negative that pundits are forecasting a 50% haircut from here then
the bottom should be in sight. This is what is bringing the bottom
forecasters out in force. This is why dip buying is actually being
revived to some extent. I would be the first to tell you, I don't
think we are there yet. I think the market forces in motion won't
rest until the September lows have been retested. This does not 
mean there is not a bounce in our immediate future. Go back to the
spring example. The farther you push down a spring the harder 
it is to push. In just the last two weeks you have three excellent
examples of the "rebounding spring" and each led to lower lows. 

The internals this morning were pretty good but the fear factor
was absent. The VIX dropped back to a neutral 25 at the open and 
the TRIN was an unbelievable .31 at the open.  By days end the TRIN 
was back up to a moderately bullish 1.78 and the VIX had spiked back 
up to 27.46. The best indicator of all was the put/call ratio which
closed at 1.02 on Tuesday. This is very bullish and a very accurate
indicator when it is extreme. This means fear came into the market
and investors bought puts at the close. 

All of this boring statistical mumbo jumbo is relative tonight because
the indexes all stopped at meaningful support levels. (depending on
who you listen to) Now, the stage is set. Indicators approaching 
extremes and indexes stopped on support. Is this a recipe for a 
rally? Don't hold your breath. Go back and look at the three rallies
over the last two weeks. Same conditions, same result. Hopeful bulls
bought stocks and averaged down, again, and worried shorts covered "in 
anticipation of a higher entry point." This is why I could see another
bounce at the open on Wednesday. However, how many times can this 
scenario play out before the shorts just decide not to cover, since
there is always a lower low. The bulls will eventually decide than 
they just don't want any more SUNW, LU, GLW, etc, even at these
"attractive" levels. (sarcasm) 

As an investor what are YOU going to do? Buy the dip in anticipation
of a lower high or short the bounce in anticipation of a lower low?
Let me restate that. Since most investors don't short stocks (buy puts)
but understand that many others do, what would you do as a long player
only? Buy the dip anyway? You could if you are a day trader and 
expected to just scalp a couple points and quit. If you are not a day
trader you would probably see the handwriting on the wall and stay 
on the sidelines. That is my point. The odds of the majority of long
investors simply staying on the sidelines is extremely high. Until
the possibility of a real rally based on real earnings emerges we
are doomed to continue the current cycle. Bullish traders can continue
to ignore the facts and throw money at the market or they can wait
for a real entry point later. Dow 9600, Nasdaq 1500, OEX 500, SPX 1000
may be support levels, real or imagined, but there is nearly a 100%
chance that the bottom lies below those numbers. Traders, choose
sides before 9:30 tomorrow morning or just turn on your TV and watch
the game. The choice is yours.

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

WILD FIRE
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
Just like the fires raging out of control in Colorado, the bear 
is on the rampage and can't seem to be put back in his cave.  The 
tech conference today in New York was bad news for tech as the 
earnings story emerging from it seemed to be that the first 
quarter had more sales than the current one. This market is being 
driven by the expectations that earnings will not recover anytime 
soon and those holding stocks in the meanwhile are going to be 
holding the bag. 

The general technical market indicators I have relied on in the 
past, given the "oversold" extremes in advance-decline figures, 
the contraction of volume, the extremes in bearish sentiment, 
along with the oversold oscillator readings (long-term RSI, 
Stochastic, MACD, etc.), would normally suggest, for example, 
that the Friday lows would have marked a bottom.  WRONG! So, I 
have to question what makes this market different from the 
"norm". 

The answer is fairly simple and relates to a basic principle of 
market analysis noted by Charles Dow over 100 years ago.  That 
markets tend to act like a pendulum and go from "extreme" to 
extreme in terms of under and over-valuation.  There is a related 
corollary - when the last extreme was well beyond past historical 
tendencies in terms of valuations (especially, in terms of price 
earnings multiples and wild expectation on futures earnings 
growth) the next extreme tends to reflect a similar degree of 
extreme.  

The problem here is technology stocks as a group - we haven't 
seen an extreme contraction of P/E ratios the equal of the 
extreme expansion on Nasdaq at +5000.  We can call this the tech 
bubble hangover or residue.  Valuations got SO high, that 
although Nasdaq stock prices are off 50% from the last multiyear 
run up (semi-log scale), in terms of earnings tech stock prices 
are still quite high relative to current and trailing earnings. 

While the NYSE market stocks may otherwise be in a position to 
rally, tech is going to drag them down as it is still the 800 
pound gorilla of the market - you need only look at which market 
has far and away the higher average daily/weekly volume. 

Going back to the safety issue, given the still uncertain outlook 
and the terrorism "wild card", investors know that we have less 
certainties than usual in such an uncertain "new" world where 
there are people who want to wage war on civilians and killing 
themselves in the process. We never quite had the like before.  
Investors KNOW that the 9/11 destruction and its aftermath took 
10's of billions out of the economy.  

I think the arrest of the suspected terrorist plotting to blow up 
a bomb with radioactive materials has brought the new global 
uncertainty back to the forefront of investor's minds.  That and 
the ongoing drama of Palestinians blowing themselves up in Israel 
along with Israeli civilians makes the same point.  We live in 
such an era of uncertainty, how can we count on projections that 
still places such a relative premium on FUTURE market earnings.  

I had the realization today, that in words of the immortal Yogi 
Berra, or whomever it was, "it ain't over until its OVER". It 
going to be very hard to judge where this market will ultimately 
bottom unless we have some clear cut "benchmark" like a 
successful re-test of the September low - either intraday, 
closing or both.  We have S&P bellwether GE already there - it 
has already touched its Sept. low. It rebounded a bit, but today 
looked like it is headed right back to that level.  

We have the situation of Intel in seeming free fall because of a 
less than robust earnings picture due to European growth being 
less than the U.S.  At this point, especially given the nearer 
and nearer approach to the September lows in key market sectors 
like Semiconductors (SOX) and in that SPX is getting nearer also, 
I think we have to start to assume that the levels of the 
September lows could be a downside objective - the only benchmark 
in terms of a prior bottom - hard to believe we would see the 
Sept. lows again absent the terror event that put us there, but 
FEAR is the bear market handmaiden. And, the VIX "fear" index is 
back above 27. Maybe we will see extremes above 30 or 35, before 
this market bottoms.  

Fear rules, just as excessive optimism did in the last extreme 
market, the mega-bull one. Give me the "normal" bull and bear 
markets back! - the ones easier to "time".  Actually, this one is 
easy too - short/buy puts on every good-sized rally and reverse 
only when a prior major high is exceeded to the upside.             
 

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


 


My suggestion has been to buy Index calls if OEX got back to the  
504-505 area or to 500.  The bear market genie has answered my 
wish - now to decide if I want this wish. If prices stabilize 
around the prior low, yes. But, judging by the relative position 
of the longer hourly stochastic, OEX may get driven to the low 
end of its downtrend channel again.  As a move to LOWER trendline 
has been the more reliable pattern - more reliable than a move 
even to touch its upper trendline - I have to guess OEX could see 
new lows down in the 493 area, at the low end of the channel.  

On the daily chart, I have expanded the envelopes (by 0.5%) to 
5.5% to reflect the greater volatility.  No doubt we are at an 
extreme, but the buyers have not mounted the cavalry charge yet 
and come to the rescue. Of course, if 500 shapes up again as 
another low, traders would have a likely opportunity here, but 
we'll have to see first how tomorrow shapes up.

The S&P 500 pattern is nearly identical to the 100 - only the 
levels are different. A retest of the prior low in the 1012 area 
was nearly at hand with the 1013 close.  The low end of its 
hourly downtrend channel comes in at 998.  No doubt the 1000 
level is a very key psychological level, so I anticipate that 
since SPX is this close, the 1000 area will be tested.  Even 100 
levels are potent areas to look for potential support or 
resistance - the even 1000 levels much more so.    

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


 

The index with the greatest likelihood of a near-term successful 
test of its prior low at 94.7 is DJX.  Below this, implied 
support at the low end of the downtrend channel is in the 93.5 
area.  I'd cover shorts and take a walk on the long side if this 
area is seen.  Risk to 93 - relative to a half point risk, reward 
(upside) potential is probably 1.5 (a rebound back to 95). 

I correctly identified resistance as coming in at 97.5, but it 
remains to be seen whether support develops in the 95 area. 

No change in the pattern of lower rally highs and lower downswing 
lows, so continue to assume a bear trend and that selling rallies 
is less risk and bother than the very good and nimble timing 
needed to find the short-term bottoms.  

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


 

I am no longer holding a holding a long QQQ position, as I was 
out on the suggested stop at 27.5. I thought about removing the 
stop myself, but went and laid down until the feeling passed :-

As said last night, the 29 area has been tough resistance and the 
hourly downtrend channel upper line - at or near it - has been an 
"easy" way to gauge when to play the sell side. I figured not to 
time the market this closely and eventually we would get a more 
sustained oversold rebound - WRONG - so far!  

Intel weakness and that fact that any emerging rallies in MSFT, 
ORCL, CISCO and QCOM have not had follow through, is telling us 
that there just is no leadership in big cap tech that is going to 
lift the Q's 

I doubt that much of a rally will set up until Thursday, as it 
will take another day of weakness to get the longer (21) hourly 
oscillator back to a fully oversold area. Since QQQ has already 
exceeded its prior low, it will likely sink further as the bulls 
panic further.  On balance, bearish positions look still 
favorable for the near-term.  

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

What Was That?
By Eric Utley

I had a pretty good idea what was going on late last week.  But
today's action was beyond my grasp.  My only stab at a guess is
that a triple witch is on the horizon, next week to be exact.
There may have been some strange goings on in the options and
futures market that spurred today's massive reversal.  But I can't
say for sure.

Needless to write, the bullish percent measures got lopped for
a few more percent today.  The Nasdaq-100 Bullish Percent
($BPNDX) specifically was whacked a little more into oversold
territory.  Given its reading at 19 percent, I think shorting
tech stocks is a dangerous bet.  But tell that to the AMEX
Biotechnology Index ($BTK.X) that lost another 8 percent today.
There are about a dozen stocks that overlap between the BTK
and NDX, and those dozen were very easy money to the short
side today.  In other words, the long side is just as dangerous
as the short side in the Nasdaq-100.  The bullish trades I
tried from late last week resulted in fractional gains and
losses so far this week.  Far from inspiring.

As I was cruising the sector scorecard this evening to find
the day's worst and best performing sectors, I noticed a lot
of sectors stopped right on key support levels.  It's almost
as if the sellers, whoever they were today, knew beforehand
exactly where they were taking the sectors down to.  Many
stopped right on double bottoms, or near last fall's lows.
I think that sets up for the possibility of a major break
below relative lows in the market, but that remains to be
seen.  Obviously the rebound in the gold stocks, which had
been heavily sold going into today's session, doesn't bode
well for stocks in conjunction with the buying that we saw
taking place in the bond market.  The benchmark 10-year
yield ($TNX.X) closed back below the 5.000% yield level for the
day, but just above its 200-dma.  A major breakout in the
bond (a breakdown in yield) is shaping up, which may help to
confirm any further downside in stocks.

Amazingly, the Arms Index short term measures predicted
another short term rally late last week when the 5 and 10
day measures went into extreme oversold readings.  But
just as recent rallies following the extreme readings
fizzled, this latest round lasted only through this morning
from last Friday's attempt off of the relative lows.  The
extreme levels of the short term ARMS numbers was worked
off in the last two days, setting up more downside.

I think we're in for a big move in the next two or three
days, either a reversal from today's sell-off or a major
breakdown.  Investor sentiment will most likely be the
determining factor for short term direction of the markets.
Psychology is worsening by the day, and it will only take
another major negative development to spark a full on fear
induced sell-off.  We'll see if hope remains, or if fear
overcomes during this week.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9517

Moving Averages:
(Simple)

 10-dma:  9733
 50-dma: 10052
200-dma:  9864



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1014

Moving Averages:
(Simple)

 10-dma: 1043
 50-dma: 1086
200-dma: 1110



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1101

Moving Averages:
(Simple)

 10-dma: 1172
 50-dma: 1278
200-dma: 1427



Gold and Silver ($XAU)

The XAU was the day's best performing sector with its 3.51 percent
gain.  The index edged out the HMOs to earn the day's top spot.
The XAU appeared to rebound from a short term oversold condition,
as well as a flight to defensive issues on the rollover in the
broader market.

Leaders to the upside included Harmony Gold (NASDAQ:HGMCY),
Gold Fields (NYSE:GFI), Agnico Eagle Mines (NYSE:AEM), Meridian
Gold (NYSE:MDG), and Anglogold (NYSE:AU).

52-week High: 89
52-week Low : 49
Current     : 78

Moving Averages:
(Simple)

 10-dma: 82
 50-dma: 77
200-dma: 63


Biotech ($BTK)

The BTK was hammered again today.  Rumors circulated that Amgen
(NASDAQ:AMGN) would warn after the bell.  And IDEC
Pharmaceuticals (NASDAQ:IDPH) issued negative news.  The index
lost 8 percent for the day, easily earning the worst performing
sector spot.

Sector leaders to the downside included IDEC, Affymetrix
(NASDAQ:AFFX), Protein Design Labs (NASDAQ:PDLI), Millennium
(NADAQ:MLNM), and MedImmune (NASDAQ:MEDI).

52-week High: 637
52-week Low : 335
Current     : 337

Moving Averages:
(Simple)

 10-dma: 381
 50-dma: 427
200-dma: 502

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

Market Volatility

The VIX pulled back all the way to the 25 level this morning
following its trade just shy of 30 last week.  The index fell
quite a bit more than its brother the VXN.

There's certainly more fear in tech land.  The VXN refused to
go down in the last two days.  We'll see if it cracks 53.50
tomorrow.

CBOE Market Volatility Index (VIX) - 27.31 +1.16
Nasdaq-100 Volatility Index  (VXN) - 53.10 +0.53

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

          Put/Call Ratio  Call Volume   Put Volume
Total          1.02        409,992       419,937
Equity Only    0.83        328,180       272,069
OEX            1.05         24,936        26,276
QQQ            1.30         15,750        20,496

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

Bullish Percent Data

           Current   Change   Status
NYSE          55      + 0     Bull Correction
NASDAQ-100    19      - 1     Bull Correction
DOW           47      + 0     Bear Confirmed
S&P 500       49      - 1     Bear Confirmed
S&P 100       48      - 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  1.44
10-Day Arms Index  1.57
21-Day Arms Index  1.29
55-Day Arms Index  1.37

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       1182          2026
NASDAQ     1267          2205

        New Highs      New Lows
NYSE       88             87
NASDAQ     57            201

        Volume (in millions)
NYSE     1,397
NASDAQ   1,696

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

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

THE SECTOR BEAT - 6/11
by Leigh Stevens

Most every sector was back under pressure today, especially 
Biotech under a barrage of bad news - it was off a whooping 8%.  
Drug stocks were being dumped, as were semiconductors and oils.  
The oil price decline briefly helped the Dow Transportation 
average and it looked like it would achieve a bullish technical 
breakout but failed to - see the Sector Highlight section below 
for more on this.  

The stand out gainer and breakout to the upside (with a close 
above a prior major top) occurred in the HMO sector - the very 
sector that, due to apparent topping action in its key stocks, I 
suggested taking profits recently in calls held in PHSY, WLP HUM. 
Oh well, HUM and PHSY are not out of the woods.  HUM took a big 
jump however.  It looks like fund managers, hard up for stocks 
they can buy, are buying the laggards in the group.  The stocks 
themselves, on balance, still look toppy to me.  

The former, on-fire, small and mid cap sectors were not immune to 
the selling today - I suggested purchase of the iShares in the 
S&P 600 small cap value and growth segments recently.  Keep stops 
in place there.   

Sectors that looked like they could start to rally, like the 
broker group and software looked suspect with today's selling 
action as to whether they could provide any sector leadership.  
On balance, it seems there is no place to "hide" on the call side 
and only those holding puts are seeing any greening of their 
accounts. 

HIGHER ON THE DAY ON Tuesday - 

Not much "green" on the board today - Health and Gold!  Hey, not 
bad if you have both your health AND gold to spend on the good 
life!



 


DOWN ON THE DAY on Tuesday - 


 


SECTOR HIGHLIGHT -

Transportation Average; Dow Jones ($TRAN)
Airborne Inc. (ABF); Alexander & Balwin (ALEX); AMR Corp (AMR); 
Burlington Northern (BNI); CNE Transportation (CNF); CSX Corp 
(CSX); Delta (DAL); FedEx Corp. (FDX); GATX Corp (GMT); J.B.Hunt 
Transport Services (JBHT); Norfolk Southern (NSC); Northwest 
Airlines (NWAC); Roadway Express (ROAD); Ryder System (R); 
Southwest Airlines (LUV); UAL Corp. (UAL); Union Pacific (UNP); 
US Airways (U); USFreightways Corp. (USFC); Yellow Corp. (YELL)
75.00 is the next key support and represents a 50% retracement.  
The decisive downside penetration of the March-May up trendline, 
was the telling reversal event. 



 

The DJ Transportation average has been rebounding off the key 
200-day moving average and is therefore performing better than 
the Dow Industrials.  But its failed the "test" of also getting 
above its 50-day average - this was also the area of its down 
trendline.  These stocks probably have buying interest due to 
being perceived as "low risk" and an oil price decline play, 
which improves their bottom line.  They are probably going to 
need more than this to get them up.   

Charles Dow's theory on the market said that if goods are being 
transported, it results in a pick up of the revenues & earnings 
of the transportation companies - the resulting rebound in these 
companies' stock prices is sometimes the first tip off that 
manufacturing is picking up. 
LAST UPDATE: 6/11

IShares purchase recommendation on SMALL CAP SECTOR (6/9)- 
IJS, the iShares of the S&P 600 Value segment, opened at 90.90 -  
will assume a fill at 90.90; the Growth iShares (IJT) of the S&P 
600 small cap opened at 74.85 - will assume fill at open; the 
iShares of the Russell 2000 (IWM) opened at 93.80 and someone 
wanting to have full participation in the small to mid cap 
sector, would have these iShares at that price if they bought the 
opening. 
 
Stops are suggested at: IJS - 87.30; IJT - 72.00; IWM - 89.70

SECTOR REVIEW - ** MORE REVIEWS ON WEDNESDAY ** 

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!

Another bullish aspect 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 key support and represents a 50% retracement.  
The decisive downside penetration of the March-May up trendline, 
was the telling reversal event. 

The broken trendline, now intersecting in the 81 area now looks 
to be key resistance. XAU needs to climb back above the trendline 
to suggest that its bullish trend is back on track. Currently am 
inclined to sell key stocks in the Index on a rebound to this 
area.
LAST UPDATE: 6/10

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 the recent top is key resistance.  HMO has been in strong 
uptrend for months, but appears to running into some selling in 
the group as the momentum has slowed. Moreover, the sector could 
be setting up a double top here, as suggested both on a 
price/pattern basis and by the bearish Price/RSI divergence, as 
RSI is not within a country mile of "confirming" a new high in 
the Index. 

Analysis of key stocks in the group also strongly 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: 6/10

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)

6/10 UPDATE: The iShares of the Russell 2000 (IWM) opened at 
93.80 and someone wanting to have full participation in the small 
to mid cap sector, purchase IWM at that price if they bought the 
opening per my 6/9 suggestion.  Stop: 89.70


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 is 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)

Airborne Inc. (ABF); Alexander & Balwin (ALEX); AMR Corp (AMR); 
Burlington Northern (BNI); CNE Transportation (CNF); CSX Corp 
(CSX); Delta (DAL); FedEx Corp. (FDX); GATX Corp (GMT); J.B.Hunt 
Transport Services (JBHT); Norfolk Southern (NSC); Northwest 
Airlines (NWAC); Roadway Express (ROAD); Ryder System (R); 
Southwest Airlines (LUV); UAL Corp. (UAL); Union Pacific (UNP); 
US Airways (U); USFreightways Corp. (USFC); Yellow Corp. (YELL) 

** CHART IN HIGHLIGH SECTION ** 

The DJ Transportation average has been rebounding off the key 
200-day moving average and is therefore performing better than 
the Dow Industrials.  But its failed the "test" of also getting 
above its 50-day average - this was also the area of its down 
trendline.  These stocks probably have buying interest due to 
being perceived as "low risk" and an oil price decline play, 
which improves their bottom line.  They are probably going to 
need more than this to get them up.   

Charles Dow's theory on the market said that if goods are being 
transported, it results in a pick up of the revenues & earnings 
of the transportation companies - the resulting rebound in these 
companies' stock prices is sometimes the first tip off that 
manufacturing is picking up. 
LAST UPDATE: 6/11


Utility Sector Index ($UTY.X)

Wireless Telecom Sector Index  ($YLS.X)


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


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                  Tuesday 06-11-2002
Copyright 2001, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

PSFT $20.67 -0.26 (-0.27) After failing to stage a significant
rally with the rest of the NASDAQ, PSFT has actually been holding
up fairly well.  That isn't the reason we're pulling the plug.
The concern here is the fact that the Software index (GSO.X) is
back testing its September lows and if today's action is any
indication, the $115 level is likely to fail as support this
time around.  So we're dropping PSFT ahead of that expected
event.  If the stock had shown more strength (i.e. breaking out
over $22 resistance) then we might be inclined to give it another
day, but with Tuesday's drop back to $20 support, it looks like
rangebound action is the best we can hope for.

INTU $43.59 -0.44 (-0.44) INTU is failing to move higher with
the weakness in the technology sector.  The stock could break
in either direction in the coming sessions, but we fear that
the move is going to be to the downside.  Without help from
the Nasdaq, INTU is going to have a difficult time holding
on to support.  Look for a bounce early tomorrow to exit
ahead of a possible breakdown.


PUTS:
*****

COHU $18.75 -1.15 (-1.77) Congratulations put players!  COHU
gave us a great opportunity to book gains in today's session
as the stock fell towards the $18 support level from Jan.
Look to book gains on any further weakness early in tomorrow's
session for an end to a solid play!


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

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

CALLS              Mon    Tue

DGX      91.39    0.96  -0.50  Showing strength, higher daily highs
INTU     43.59    0.00  -0.44  Dropped, in danger of rolling over
BRCD     20.18    0.56   0.13  Leading technology rally attempt
AZO      82.27   -0.43  -0.25  Retail holding its ground well
PSFT     20.67   -0.01  -0.26  Dropped, software breaking down
WLP      83.75   -0.11   5.80  Tuesday's biggest point gainer!!!
OHP      50.18    0.45   0.68  Another new yearly high for OHP!!!


PUTS               

GS       72.10    0.79  -2.64  Took out lows, ready to rollover
COHU     18.75   -0.62  -1.15  Dropped, time to book gains!!!
WHR      67.08   -0.22  -1.45  Finally broke down below 200-dma
DUK      29.12   -0.91   0.03  Another inside day opportunity!!!
IDPH     32.03    0.13  -6.34  Bad news equals very big profits
PMI      78.96   -0.80  -3.04  Excellent rollover from the 10-dma
ICOS     18.35   -0.11  -1.14  Biotech behaving beautifully bad
MMC      94.81    0.86  -2.39  Watch the support at the $95 level
MIL      35.43   -0.37  -1.42  Breakdown into new declining trend
OMC      77.56    4.32   0.55  Short covering rebound to resistance
HIG      60.80    0.00  -2.20  New, insurers facing many pressures
SPW     120.00   -6.86  -3.40  New, conglomerates under scrutiny
ENZN     23.24    0.82  -1.86  New, ready to break to the $20 mark


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

WLP $83.75 +5.80 (+5.69) How about that!  WLP raised its 2002
earnings guidance this morning for the second time in two
months.  The company said strong health insurance growth in
key geographic markets continued to fuel strong financial
performance.  The news caused the stock to breakout above its
yearly high, carrying the entire Health Maintenance
Organization Index ($HMO.X) to a new high as well above the
650 level.  Short term traders can look to book gains on
further strength in tomorrow's session, possibly up to the
$85 level if the strong buying continues.  Those who want to
give the play room to work higher can set a stop below
today's low at $81.25.  The stock's gap higher this morning
could have been a breakaway gap that leads to a new rising
trend.  Keep that in mind when setting a stop.

AZO $82.27 -0.25 (-0.68) Despite the bulls' best attempts to push
through the $84 resistance level over the past 2 days, they just
didn't have enough resolve to get the job done in the face of the
broad market weakness.  With that being said, it has been
encouraging to see how well AZO has held up, limiting its loss
on Tuesday to a mere $0.25.  This looks like the setup for
another entry point, before AZO heads higher.  But we'll likely
need to see the broad markets regain their footing before AZO can
make a sustained push higher.  So use the current weakness to
initiate new positions near the $81 (the site of the 3-week
ascending trendline) or even $80 support levels.  Until the bulls
can manage a close over the $84 level, be very careful about
trying to buy breakouts over resistance.  Keep stops in place at
$79.50.

BRCD $20.18 +0.13 (+0.69) Last Friday's fledgling rally in the
Technology sector has stumbled badly, with the NASDAQ Composite
closing below 1500 for the first time since early October.  The
good news is that the COMPX is now back at major support, while
the bad news is that if that support is broken, things could get
ugly in a hurry.  So the fact that we're looking bullish on BRCD
may seem unwise.  There's no question that this is an aggressive
play, but one look at the daily price chart shows the reason for
our enthusiasm.  While the stock gave up most of its intraday
gains on Tuesday, it is encouraging to see it up above the $20
level, which is starting to look like mild support.  One issue
of concern however is the fact that selling volume increased over
the final two hours of the day, leading BRCD to close at its low
of the day.  Use a rebound from the $19.50-20.00 area to initiate
new positions.  If the market can reverse its slide and stage a
meaningful rebound, look for that change of sentiment to help
propel BRCD through its 10-week descending trendline near $22.
That could provide the catalyst for some short-covering, which
would enable us to consider momentum-based entries on the
breakout.  For now, keep stops set at $18.

DGX $91.39 -0.50 (+0.46) It is hard to miss the fact that Health
Care stocks are on a tear again, with the Health Care Payor index
(HMO.X) breaking out to a new all-time highs.  For its part, DGX
made a valiant attempt at a breakout of its own, trading through
the $94 level early in the day before the broad market rally fell
apart.  While it is discouraging that DGX couldn't hold onto its
gains, we're not that surprised to see a bit of profit taking
given the solid gains that have accrued over the past week.  DGX
managed to hold its ground fairly well, giving up only 50-cents
on the day.  With intraday oscillators nearing oversold, we want
to look for a fresh entry point on a rebound from the $89-90
level.  Momentum traders will need to sit on their hands until
DGX can blast through the $96 level and into new high territory.
If you're looking to buy that breakout, make sure the price move
is accompanied by strong volume.  We're raising our stop to $88.

OHP $50.18 +0.68 (+1.13) The bulls have been flocking to OHP
again over the past week, as the Health Care Payor index (HMO.X)
has once again been gaining strength.  In fact, the HMO index
broke out to new all-time highs on Tuesday and the early strength
helped OHP to vault to its own all time highs in the opening hour
of trade.  But the broad market weakness dragged the stock back
to earth throughout the day, with the stock going out on its lows.
The big driver in the HMO index was WLP with their increased
guidance for 2002 leading to a gap-up move for most stocks in the
sector.  Looking at an intraday chart for OHP, we can see that
there is cause for concern even with the fractional gain for the
day.  The closing price was below the open, meaning that the
stock has now fallen into the gap created at the open.  Once into
this gap, stock's will normally fill the gap, so our next possible
location for a bounce will be at the $49.50 level.  Below that we
need to look at the $48 support level as a high-odds entry point.
Given the skittish nature of the overall market, we need to be
very careful buying breakouts due to their inclination to fail.
Raise stops to $46.50.


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

None


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

GS $72.10 -2.64 (-1.85) Is that another breakdown?  It sure looks
like it.  With the Broker/Dealer index getting hit hard (for a
2.9% loss), GS finally broke under the $74 level again, this time
with gusto.  The selling didn't end until the stock was resting
right on major support at $72, but judging by the condition of
the XBD index (below the $430 support level), we haven't seen the
bottom yet.  Look for an oversold bounce off of the $72 support
level tomorrow to provide the next entry point, as the bounce
runs out of steam and rolls over again.  Likely levels for that
rollover are at $73.50 and then $74.50.  Of course, if the $72
level fails to hold, we can consider new entries on a breakdown
below that level, but only if the XBD index is continuing
southward towards its next level of support near $408.  Lower
stops to $75.

IDPH $32.03 -6.34 (-6.21) The Biotechs took a beating again on
Tuesday, with shares of IDPH leading the slide.  Prompting the
selloff was news that the company is experiencing a delay in
Medicare reimbursement delays.  That led Salomon Smith Barney to
lower their earnings estimates for the company for both 2002 and
2003 and the price action from their was not pretty (unless you
were already in puts!).  After a big gap down, the stock
continued sliding, ending near the low of the day near $32.
Losing 16.5% in one day is bad enough, but when it happens on
volume that more than quadruples the ADV, it is not a good sign.
And did you notice the action in the Biotechnology index?  After
plunging through the $375 support level last week, it is clear
that there is little to prop it up from here.  Use any sort of
oversold rebound in shares of IDPH to initiate new positions,
ideally in the area of $33-34.  We are lowering our stop to just
above the bottom of this morning's gap lower, at $35.  Be very
careful about entering on continued weakness, as we could be
close to a bounce.  If entering on a breakdown under the $31.50,
make sure that the selling volume is still strong and the BTK
index is continuing to hit new yearly lows.  

OMC $77.56 +0.55 (+4.87) When we initiated coverage of OMC last
weekend, we were looking for an oversold rebound to provide entry
and we got it in a big way.  Following the resignation of the
audit committee chairman yesterday, Morgan Stanley upgraded the
stock and that set off the short-covering surge that led the
stock as high as $79.75 before backing off into the close.  The
bulls took another run at $80 resistance this morning, but with
the broad markets weakening, OMC followed suit, falling back to
close at the low of the day.  As good as that looks for our put
play, we're a bit concerned with the stock's relative strength
over the past 2 days.  Perhaps all the news has been factored
into the price and we're in a bottoming process.  Time will tell,
but until the bulls can prove their strength by managing to close
above the $79 level (the site of our stop), we'll continue to
target new entries on failed rallies near that level.
Alternatively, a breakdown below the $76.50 level (intraday
support over the past 2 days) can be used for initiating new
positions.  A close above our stop will show the bulls are
gaining strength and will spell the end for the play.

DUK $29.12 +0.03 (-0.88) DUK did us another huge favor during
today's session when it traced yet another inside day.  Its
range from low to high was within yesterday's trading range,
which means that the stock could either breakout to the upside
and reverse the recent trend in place, or breakdown and continue
along its downward trend.  Short term traders have another
favorable entry opportunity if the stock breaks down to the
downside and takes out its low hit during Monday's session at
the $28.50 level.  Look for such a decline on heavier volume
as an entry point into weakness.  Confirm sentiment in the
broader energy sector before initiating new plays.  Traders with
open positions might consider lowering stops to Monday's high
at the $29.45 level.

ICOS $18.35 -1.14 (-1.25) The woes in the AMEX Biotechnology
Sector Index ($BTK.X) continued into today's session, which
helped to drag ICOS back down from its rollover from the $20
level during yesterday's session.  The stock's feeble rally
attempt that began late last week never got any legs to run
higher in yesterday's session, and failed with the close back
below the $20 level.  The follow through to the downside in
today's session should result in another breakdown below
short term support in the coming sessions, especially if the
heavy selling persists in the $BTK.X.  Watch for a breakdown
below last Friday's low at the $17.80 level, and confirm
further weakness in the $BTK.X.

MIL $35.43 -1.42 (-1.79) USB Piper Jaffray initiated coverage on
MIL this morning with a market outperform rating.  But it didn't
matter as the stock broke down in a very big way on heavy
volume on further weakness in the biotech industry.  The stock
flirted with a breakdown in yesterday's session, but averted the
move lower for one more today.  But this morning, we saw the
flood gates open with a rush of declining volume that continued
into the close of trading.  There's not much support below
current levels until the $30 mark, which may be tested sometime
this week if the rate of selling that we saw take place during
today's session continues into the rest of the week.  A new
downward trend is possible given the breakdown.  As for new
entry points, traders can look for momentum entries on a break
below the $35 level if the biotech sector continues to weaken.
Otherwise use rollovers from below the $37 level to take new
entries this week.

MMC $94.81 -2.39 (-1.53) MMC is on the brink of the major
breakdown that we are looking for.  The stock bounced back
during yesterday's session on relatively lighter volume.  Its
failed rally attempt reached as high as the $98.40 level,
just short of the downward sloping 10-dma.  The stock then
rolled over into the close of trading yesterday and continued
that roll into today's trading when volume picked up to the
downside.  The stock closed just below the $95 level, which
served as support during the stock's sell off earlier this
year.  A breakdown below that level should open up another
big move lower as investors scramble for the exits.  Watch for
a decline below the $94.40 level and for declining volume to
return on a move below that level.  Confirm direction in the
broader market before entering into a breakdown.

PMI $78.96 -3.04 (-3.84) What an entry point!  PMI staged a
mini rally attempt during yesterday's session.  The stock
tried to move higher during the early part of the session, but
its rally attempt failed just below the 10-dma, offering a
great entry point into new put plays.  From the rollover,
PMI held steady on the $83 level coming into today's session,
but that changed in the morning when the stock started
heading lower at an increasing pace.  The selling didn't stop
until the closing bell when PMI closed just off of its daily
low, but well below the $80 level.  The $79 level that the
stock fractionally closed below could act as short term
support over the next day or two, but should give way to
further selling this week in the broader markets.  Look to take
new entries into a breakdown below the $79 level.  If the
stock stages another one or two day relief rally, look for a
rollover from the $81 level.

WHR $67.08 -1.45 (-1.67) The inside day breakdown that we
detected last week finally was realized in today's session,
but not before WHR tested our patience.  The stock traded in
a very tight range during yesterday's session right around
its 200-dma.  In today's session, the stock reached up in the
early market action to touch its 10-dma near the $69.50
level, and from there it was all downhill for the stock.  WHR
broke down below its short term support to close the day
near its low.  From today's close, we can look for a decline
down to the $65 level in the coming days.  If the stock does
stage a short term relief rally, look for another rollover
from the 200-dma now just below the $69 level.


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

HIG - Hartford $60.80 -2.20 (-2.20 this week)

Hartford Financial Services Group, Inc. (the Hartford) is a
diversified insurance and financial services company. The
Hartford is a provider of investment products, individual life,
group life and group disability insurance products, as well as
property and casualty insurance products in the United States.
It writes insurance and reinsurance in the United States and
internationally, and is organized into two major operations:
Life and Property & Casualty. Within these operations, the
Company conducts business principally in 10 operating segments.

Major insurers are coming under pressure from several
directions.  For starters, the growing cloud over the equity
markets is increasing pessimism in the insurance industry.
Returns on stock investments are obviously falling off the
cliff.  Plus the growing uncertainty over the economy are
adding to those fears.  Then there are increased claims coming
from everything from asbestos to the wild fires raging in the
west.  Even one of CNBC's commentators commented on the
growing fears of increased claims here in Colorado because of
the spreading fires.  All of these pressures are leading to
big breakdowns and rollovers in the insurance sector, none
of which was more obvious today than HIG's big break below
its 200-dma.  The stock fell from its recent consolidation
just above that level, now at the $62.80 mark, on an increase
in declining volume.  The stock closed on its low for the
day, indicating that the selling pressure wasn't done going
into the final bell.  Bearish traders can look for a new
downward trend to develop in HIG this week with follow
through below today's closing low.  New entries can be
taken on a break below the $60.80 level with confirmation in
the broader markets.  We will also target shoot entry
points from rollovers below the now overhead 200-dma.  Our
stop is initially in place at the $64 level.

***June contracts expire next week***

BUY PUT JUN-60 HIG-RL OI=98 at $0.90 SL=0.25
BUY PUT JUL-60*HIG-SL OI=13 at $1.90 SL=1.00

Average Daily Volume = 891 K


SPW - SPX Corp. $120.00 -3.40 (-10.26 this week)

SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology and
service solutions. SPX offers networking and switching products,
fire detection and building life-safety products, television
and radio broadcast antennas and towers, life science products
and services, transformers, compaction equipment, high-integrity
castings, dock products and systems, cooling towers, air
filtration products, valves, back-flow protection and fluid
handling devices, and metering and mixing solutions. The
Company's products and services also include specialty service
tools, diagnostic systems, service equipment and technical
information services.

Major conglomerates are coming under heavy investor scrutiny
following the debacle at Tyco.  As a result of the increase
pessimism, the major conglomerates are breaking down in a big
way.  SPW is one such stock that is falling from grace.  Its
weakness is not only a product of increased pessimism over
conglomerates.  SPW is also suffering from the growing belief
that the U.S. economy is going to take another dip into a
recession, and because of SPW's economic sensitivity, the stock
is coming under heavy selling pressure.  Add to the macro
factors a potential change to management.  SPW's CEO has been
talked about as one of the replacements for Tyco's CEO, which
has some SPW investors even more nervous.  The combination of
events and building negative sentiment pressured SPW down to
the $120 level in today's session, and well below the 200-dma
for the first time since February.  The close back below the
200-dma could signal a new downward trend in the stock,
noting the increase selling volume during today's breakdown.
Bearish traders can look for further weakness in tomorrow's
session as an entry point into new put plays.  Watch for SPW
to breakdown below the $120 level in tomorrow's session on
further weakness in the Dow and S&P.  If the market does
bounce back, watch for SPW to rollover from its 200-dma now
at the $123 level.  Our stop is initially in place at the
$127 level.

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

BUY PUT JUN-125 SPW-RE OI=320 at $7.50 SL=5.25
BUY PUT JUL-120 SPW-SD OI=  1 at $7.80 SL=5.50

Average Daily Volume = 395 K


ENZN – Enzon, Inc. $23.24 -1.86 (-1.04 last week)

Enzon is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary
platform technologies: polyethylene glycol (PEG) and
single-chain antibodies.  The company applies PEG technology
to improve the delivery, safety and efficacy of proteins and
small molecules with known therapeutic efficacy.  ENZN applies
its single-chain antibody technology to discover and produce
antibody-like molecules that offer many of the therapeutic
benefits of monoclonal antibodies while addressing some of
their limitations.

If it is true that there is no rest for the wicked, then the
Biotechnology sector (BTK.X) has been VERY wicked.  After
breaking down under multi-year support near $375, the sellers
have been abusing the BTK index, particularly over the past 2
days.  Tuesday's action amounted to an 8% pummeling and with
the BTK closing at the low of the day and the NASDAQ approaching
the September lows, it looks like there is more pain in store for
the bulls.  That brings us to our new play, ENZN.  We've been
monitoring the stock for awhile now, looking for a bounce to
allow us into the play, but it just hasn't come.  First support
at $28 gave way, then $25 and with the sharp decline on Tuesday,
it looks like the $23 level is next.  The breakdown from the
bearish triangle on the PnF chart in late May put the stock back
on a strong sell signal and the late April/early May selloff
gives a vertical count of only $7.  Looks like there's plenty of
room to fall, doesn't it?  Add in the fact that the stock just
broke down out of a year-long descending wedge, and the bearish
picture is looking even stronger.  With resistance at $25 and
then $26, any oversold rebound is likely to get stopped by the
sellers in short order.  We want to initiate new positions on a
failed rally below $26 or on a breakdown under the $23 support
level (so long as it comes on strong volume).  Watch the action
in the BTK, as it is likely to impact the trading in ENZN.  Our
stop is initially set at $27 so that we can ride out any
short-covering rally over the next couple days.

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

BUY PUT JUN-25 QYZ-RE OI=164 at $2.60 SL=1.25
BUY PUT JUL-25 QYZ-SE OI=291 at $3.70 SL=2.25
BUY PUT JUL-22*QYZ-SX OI=  5 at $2.30 SL=1.25

Average Daily Volume = 1.40 mln



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The Option Investor Newsletter                  Tuesday 06-11-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

DUK - Duke Energy $29.12 +0.03 (-0.88 this 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.

Most Recent Update

DUK did us another huge favor during today's session when it
traced yet another inside day.  Its range from low to high was
within yesterday's trading range, which means that the stock
could either breakout to the upside and reverse the recent trend
in place, or breakdown and continue along its downward trend.
Short term traders have another favorable entry opportunity if
the stock breaks down to the downside and takes out its low hit
during Monday's session at the $28.50 level.  Look for such a
decline on heavier volume as an entry point into weakness.
Confirm sentiment in the broader energy sector before initiating
new plays.  Traders with open positions might consider lowering
stops to Monday's high at the $29.45 level.

Comments

DUK traced another inside day set-up during today's session,
similar to the one we saw unfold last week for a successful
trade.  We're hoping that history repeats itself this week.
Look for a breakdown below Monday's low at the $28.50 level for
an entry point into new put plays.  Those with open positions
can set a short term stop at Monday's high at the $29.45 level
to protect profits from a possible short covering rally.

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

BUY PUT JUN-32 DUK-RZ OI=7921 at $3.60 SL=2.50
BUY PUT JUL-30*DUK-SF OI=6612 at $2.65 SL=1.50

Average Daily Volume = 4.16 mln



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

Only one play was triggered in the last two days.  But others are 
coiling very close to action points.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/061102.asp


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

Many markets and sectors closed on support.  A big rebound or major 
washout sell off could be on the horizon.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/061102.asp


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**********

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