Option Investor

Daily Newsletter, Wednesday, 06/12/2002

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The Option Investor Newsletter                Wednesday 06-12-2002
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
       06-12-2002        High      Low     Volume Advance/Decline
DJIA     9617.71 +100.45  9624.77  9449.98 3324 mln   1615/1590
NASDAQ   1519.12 + 21.94  1519.16  1474.56 2055 mln   1559/1922
S&P 100   507.02 +  6.32   507.98   496.57   totals   3174/3512
S&P 500  1020.26 +  6.66  1021.85  1002.58
RUS 2000  462.99 +  0.21   464.03   457.41
DJ TRANS 2706.72 +  0.15  2710.12  2671.58
VIX        27.01 -  0.71    29.34    26.98
VIXN       52.86 -  1.41    54.92    52.86
Put/Call Ratio      0.99

Bump, Set, Spike!

Given that it's summer time, odds are growing that you'll see 
sun-loving volleyball players setting up nets across this 
nation's city parks and beaches.  Competitive players tend to 
play doubles or two-man teams but sometimes when it's crowded 
you'll see five-man teams.  Today looked a lot like a volleyball 
game.  On one side of the net we have companies with plenty of 
negative news playing hard to score the next point for the bears.  
Today's roster of players for the bears were SEBL, OMC, IMCL, 
JNPR and SWY.  On the sunny side of the net, playing for the 
bulls, are PG, MYG, MOT, AMD and MSFT.

Now for those of you who aren't volleyball aficionados I promise 
I won't carry this example too far.  Yet given the volatility we 
saw in today's markets it isn't hard to imagine the bears and 
bulls volleying the major indices back and forth for dominance.  
Now let's set the stage.  

The game has been going in favor of the bears since mid-May.  The 
COMPX and SPX are near the bottom of their downward regression 
channels and the $INDU is hovering just below the January 02 
lows.  It looks like game point in favor of the bears (game point 
is where the winning team only needs to score one more point to 
end the game and claim victory) as a serious breakdown from here 
could facilitate a major drop.  The last several weeks have seen 
the bears score a few points before the bulls can get a side out 
(a "side out" means they have taken control of the ball from the 
bears).  We've seen this as the indices pause at significant 
support levels.  The bulls mount an offensive to put some points 
on the board but after a couple of volleys they side out (lose 
control).  We've witnessed this as every relief bounce has met 
with a sell-the-rally attack, especially near previous support 
that has now become resistance.  

We pick up the game after yesterday's close.  Bears have the 
ball.  Siebel Systems (Nasdaq:SEBL) is serving and plans to score 
an ace with the news that its Q2 is looking as difficult or worse 
than Q1.  This is bad news as their Q1 numbers were dreadful.  
Individual bears score on Wednesday as SEBL gaps down and closes 
with a 14% loss on the session.  This puts others in the group 
under pressure and PeopleSoft (PSFT) and BEA Systems (BEAS) are 
both down more than 5% on the day.  The serve is looking strong 
and the bears believe they have another winner to drag the 
markets lower.

Fortunately for the bulls, Maytag (NYSE:MYG) had come out last 
night and issued upside guidance for its not-yet-over 2Q but said 
earnings will probably come in 10 cents above estimates.  The 
company also raised their 2002 year-end guidance from the 
Street's estimates of $2.82 to $3.10.  MYG's good news bumps the 
ball back over the net.

Suddenly, jumping high into the air is Omnicom Group (NYSE:OMC).  
Shares suffered last week as the stock sunk on rumors of a 
negative Wall Street Journal (WSJ) article would be appearing 
soon.  OMC tried to defend itself on Friday by reaffirming 
guidance and Merrill Lynch upgraded the stock to a near-term 
strong buy.  With that kind of support, shares of OMC rallied 
Monday-Tuesday this week but this only provided up ticks for 
those willing to short the bounce.  The WSJ article did appear 
today and raised concerns about the media company's tactics about 
accounting and acquisitions.  Shares gap down this morning by 
more than $6 to $71.00 and proceed to trade to a low of $51.51 
just after 11:00 a.m.  The MYG's ball is blocked sharply by OMC 
and appears to be headed to the floor.  Bears are looking at a 
victory as the $INDU touches the 9450 level by noon.

I'd like to say that Procter & Gamble saves the day with a 
massive dig (that's volleyball slang for saving the ball from 
touching the floor and preventing the opposing team from scoring) 
by issuing its positive earnings-guidance press release midday 
but the news actually came out this morning.  It may not amount 
to much (if you were long OMC) but Merrill also upgraded PG to a 
"strong buy" as well.  While I could continue with the volleyball 
analogy, you get the idea that investors were buffeted with 
barrage of good news/bad news throughout the day, which produced 
more than one triple-digit swing in the $INDU.

Some of the bearish highlights were a downgrade of JNPR by Morgan 
Stanley to an "underweight", which sounds a lot like "sell".  The 
analysts comments mentioned "negative newsflow" and valuation 
concerns.  Not to mention that Juniper recently told reporters 
that it saw no signs of recovery in the telecom industry.  Big 
surprise there, thank you, Juniper.  Also painting Wall Street 
red was Safeway.  The large grocery chain dropped more than 12% 
after stating that Q2 and full year earnings would miss estimates 
due to slowdown and tougher competition.  In a related note, an 
active ratings department from Merrill issued a downgrade on 
fellow grocer Albertsons (NYSE:ABS) and stated that current 
valuations look too high and Merrill lowered their earnings 
guidance on the company.  

ImClone Systems (IMCL) continued to keep the biotech group in the 
spotlight after Tuesday's beating.  The focus today was on the 
company's ex-CEO, Samuel Waskal, who was arrested on charges of 
insider-trading.  Despite the news, the stock ended the day with 
a +3.7% gain.  This news also hit shares of Martha Stewart Living 
(NYSE:MSO) for a 12% drop as it was widely known that Martha and 
Sam were friends.  According to some reports Martha was actually 
a former girlfriend of Sam's.  The circumstantial evidence that 
hit Martha's stock so hard was news that she sold 3900 shares of 
IMCL prior to the FDA rejection of IMCL's cancer drug.  She 
claims the stock had merely traded below her pain threshold of 

While the arrest put yet another bruise on the investor 
confidence issue in the markets and the trustworthiness of 
corporate executives all of it was overcome by a positive 
turnaround in the chip sector.  Believe it or not, after all the 
doom and gloom lately, Motorola jumped almost 9% after stating 
that the company would likely meet or beat its Q2 revenue 
forecasts.  This sparked a small fire under the SOX index, which 
ended the day up 3.5%.  Other standouts included AMD, which 
received an upgrade from Prudential on valuation concerns and 
shares of Intel rallied 6.7% after bouncing off the $20 level.  
Positive comments from Bear Stearns, which just held a technology 
conference yesterday gave investors hope that the chip sector 
should be very close to a bottom.

This appeared to catch shorts off guard and volume surged higher 
as many sought to cover positions.  The NYSE traded 1.7B and the 
Nasdaq traded more than 2B shares.  The QQQs traded over 150M 
alone and Jeff Bailey had speculated earlier on a reversal in the 
Q's if volume reached these levels.

The real side-out for the bulls occurred when rumors that 
Microsoft (MSFT) would pre-announce a positive quarter began to 
circulate across the trading floors.  This really had the bears 
running for cover in the last hour and shares of MSFT rallied 
almost $3 or 5.6% by the close.  As a major component in both the 
Nasdaq, the NDX (Nasdaq-100), the Dow Jones Industrials and the 
S&P 500 it was the positive catalyst that helped refuel the 
midday reversal and give it some momentum.

Chart of MSFT


As of yesterday, I remained pretty bearish.  This late day 
reversal on strong volume smells like a real opportunity for a 
rally.  However, I don't think it can last more than two or three 
days before encountering some serious pressure.  The trend is 
still down.  We're still approaching the earnings-warning season 
and nothing truly fundamental has changed to make investors want 
to buy stocks.  The Fed Beige Book report this morning was 
positive but the headline came across as uneven growth across the 
country and sectors.  According to the report, retail sales 
appeared flat from the previous year, commercial real estate was 
weak while the housing sector chugged ahead at a "robust" pace.  
Banking was not seeing any improvement in loan activity and 
automakers reported strong numbers.  Semiconductor orders were 
looking better but no surprise was that telecom remained weak.  
This didn't tell us or the markets anything we didn't already 
know.  Inflation concerns appear to remain in check and no one 
expects the FOMC to raise interest rates until the September 24th 

Without a doubt, big money has been defensive and the yield on 
the 10-year Treasury has sunk to early March lows and its 200-

Chart of the $TNX.X


However, if the bulls can keep the rally alive then traders might 
have an opportunity to trade the move up to the top of the recent 
regression channels in some of the major indices.  The on going 
challenge is that the markets need a change in sentiment for 
investors, not traders, and the investing public is still looking 
at a long, hot summer vacation to forget about the painful school 
year they just experienced.

Chart of the Dow Jones


Chart of the Nasdaq


Chart of the S&P 500


Maybe when we retest those September lows that everyone keeps 
pointing to then we can begin to think about a sizeable rally 
attempt.  Several indices like the $GSO.X, $NWX.X, $MSH.X, IXTCX, 
$XTC.X, $DRG.X, $BTK.X are all at or below their September lows 
already and a sharp move up could spark a strong round of short-
covering.  While this might bode well for any hope of a near-term 
relief rally in the major indices bullish traders who haven't 
learned to imitate the bears will need to be extremely careful as 
we look for the COMPX and SPX to eventually touch 1400 and 950 
respectively. Keep your eyes on the Russell 2000.  It bounced off 
its February 2002 support levels intraday today. If it breaks 
down any further then it will weigh heavily on the entire market.

Thursday and Friday will also bring additional economic reports 
for investors to watch or ignore.  Thursday will deliver the PPI  
and Retails sales numbers while Friday offers business 
inventories, industrial production, capacity utilization and the 
Michigan Sentiment report.

Trade carefully and keep those stops fresh!



by Leigh Stevens

It's always darkest before the dawn and things look the most 
hopeless for stocks before traders and investors "capitulate" or 
give up in stocks. As I noted last night, fear gets pretty 
extreme at a final low, or even just an intermediate bottom in a 
bear market. There were some indications of a capitulation bottom 
or other signs of a possible upside reversal today and recently 
that I'll review. 



The Nasdaq 100, the most volatile and beaten up segment of the 
market has reached the level of its September low and may have 
made a bottom - there will be further points relating to Head & 
Shoulder bottoms that have formed on the various hourly index 
charts. On the daily chart of QQQ, I would just note that we may 
have successfully "tested" this bottom today based on intraday 
action AND -

The very high volume in QQQ was telling at more than 150 million 
shares.  Capitulation is rightly associated with high volume as 
the "last" of many remaining bulls give up and sell.  It's the 
"cry uncle" point.  AND -

Quite typical of the big Nasdaq top were the number of technical 
divergences that showed up, as volume and other indicators like 
relative strength (RSI) did not "confirm" new highs. Conversely, 
as highlighted on the chart above, the continued downtrend was 
accompanied by an RSI that has not fallen to anywhere near its 
prior low. RSI will typically ALSO fall to a new relative low - 
if this is not the case it can be quite indicative of an upside 

Such divergences are one of my favorite signs of an upcoming 
reversal - the thing with divergences however is that they can 
"warn" for some time BEFORE the (reversal) effect or "result" is 
seen.  I think the result is near or at hand.  


Traders decide finally that short/bearish plays can't lose and 
get very convinced that there is very little risk in being short 
stocks and in puts. This is a contrary indicator of course and 
can't be used in isolation - but, as "confirming" indicator, such 
bearish extremes are almost always seen at important lows.  Just 
as extreme bullishness is always apparent at key market tops.  


My most trusted means to measure extremes in sentiment is by 
taking the daily CBOE Equities call to put volume ratio and 
graphing it.  I take out the Index options, which are often used 
more purely as a portfolio hedge - this can distort the study of 
options used as more of a "pure" speculative play.  Today's 
reading was the most bullish I've seen since February and 
"matches" the capitulation type high volume seen in the potential 
double bottom low in QQQ.  


As is often discussed, the CBOE Volatility Index for the OEX, the 
"VIX" ($VIX.X) is a good indicator of nervousness or fear as 
typical at market bottoms is a high level of price volatility. We 
have seen high VIX levels lately and the pattern is very similar 
to February.  VIX can get still higher of course. 

However, I look for relative patterns in market conditions that 
are similar to the present.  This consideration would suggest 
that the September pattern and VIX extremes is not an apt analogy 
to our present market circumstances.  No one has attacked us.  
They might, but terrorist networks have shown a definite liking 
for attacks when our guard and vigilance is DOWN, not up.   

I would also note that such a review is not complete without a 
review of the major sectors or industry groups - a number of key 
market sectors should at least suggest that an interim low has 
been reached and that these groups are enough to pull the market 

I count a number that have demonstrated to me this kind of action 
- they include: the Brokerage stocks (XBD), Boxmakers (PC 
makers), the Computer Technology Index (($XCI.X), Bank Index, 
BioTech, the NYSE Financial Index ($NF.X), the High Tech Index 
($MSH.X), Drug stocks, the (Dow) Transportation stocks, the 
Semiconductors (SOX), and the Software sector ($GSO.X).  You'll 
note that there are a number of tech sectors - even an 
intermediate bottom can't be predicted unless these groups can at 
least have a good-sized oversold rebound.

You would also tend to see at a decent bottom, sectors that were 
bucking the downtrend, either start to correct, continue to show 
weakness or exhibit signs of a top - this would be characteristic 
of a rotational correction and the shifts in leadership that tend 
to be seen with a broader market rally.  On this theme, the 
Defense sector, Gold stocks (XAU), what can be called the natural 
resource stocks - oil/oil services/natural gas, and utilities 
continue to exhibit bearish action. Potentially, I see topping 
action in the Healthcare ($HMO.X) and the Health Providers Index 
(RXH) also.  I would anticipate Healthcare stocks to correct 
while some of the oversold groups rebound.  

More on specifics in my Sector Trader wrap ups today and 

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


I suggested yesterday the key importance of the 1000 area, which 
I anticipated would be "tested" - SPX may have passed the test 
with today's intraday low at 1002, very near the bottom of the 
hourly downtrend channel. Look for resistance in the 1047-1050 
area and a likely short-term selling opportunity but SPX may move 
higher than this into the June 21 expiration I suspect. 

While it is not visable due to the scale, the 14-day stochastic 
is indicator is in an initial bullish position, with the "faster" 
line having crossed over the slower "smoothed" line. This is the 
case for all the indices with this indicator today.   

The 3 blue circles on the hourly chart represent a probable Head 
& Shoulders (H&S) bottom pattern.  The "neckline" (blue dashed 
line) intersects at 1030 currently.  A move above 1030 suggest a 
"minimum" upside objective to around 1057 at some point (1039 - 
1012 added to the "breakout" point or the neckline penetration, 
which equals 1057), or to higher than the 1048 resistance implied 
by the upper boundary of the downtrend channel.  

If wrong in this assessment or if the H&S pattern "fails" in its 
predictive implications, expect to see prices sink again to the 
1000 area.  

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

My suggestion has been to buy Index calls if OEX got back to the  
low-500 area, although I also indicated that I would like to see 
signs of support developing in this area to have the conviction 
to go in.  

Given the likelihood that the longer of the two hourly stochastic 
models (Length: 21) was suggesting that there would be further 
weakness ahead, I thought it likely that the OEX would get driven 
to the low end of the hourly downtrend channel again which was 
exactly what happened today. 

An important note on these S&P moves to new lows, besides the 
healthy rally that followed support developing at the low end of 
the hourly channel is the pattern of a "bear trap" reversal here. 
A so-called bear trap is a move to new low for a move, followed 
by an upside reversal that follows shortly thereafter, such as 
within the same trading session.  This action is a "trap" for the 
bears so to speak, hence the name.  

The other thing to note is the same Head & Shoulders bottom 
pattern as seen with the SPX hourly chart.  Upside penetration of 
the dashed (neckline) at 508-509, suggests a further "minimum" 
upside objective to the 523 area.  Near term, resistance is 
apparent at 414, then 518.  Downside support is at 500 in my 
estimation, then in the 495 area.  

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


As said last night and my "crystal ball" happened to be working: 
"The index with the greatest likelihood of a near-term successful 
test of its prior low at 94.7 is DJX."  We see in fact the double 
bottom low that set up today. 96 is near upside resistance, then 
97.6-98. The 95 area is anticipated support. 

I think the Dow Transportation ($TRAN) average, which is acting 
like it is putting in a bottom, is supportive for the Dow 
30/Industrials.  I'll include an update of this chart in my 
Sector wrap.  

Various measures of upside potential for DJX suggests the 
potential for DJX to get back up to the 99 to 100 area again to 
retest resistance at Dow 10,000.  

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


The bullish breakout in Microsoft (MSFT) was the bullish catalyst 
for the QQQ rebound and its "bear trap" reversal.  I see 
potential in MSFT to the 59-60 area from today's close at 55.5; 
also, key Nas 100 stock Qualcomm (QCOM) is acting well and I see 
some good rebound potential for it also. The technical outlook 
for these two stocks, plus potential I see for a recovery rally 
in Intel (INTC) suggests that QQQ can break out above the high 
end of it's hourly downtrend channel, intersecting in the 28.8-29 
area currently. 

29.7-30 is probably significant enough as resistance, that it 
would deflect rallies to this area. Immediate overhead resistance 
is at 28. Support is apparent now in the 27 area. Only a daily 
close below this level would set up a different, bearish, outlook 
for the Q's.   

The same pattern of the 3-pronged low (blue circles) of a Head & 
Shoulder's hourly bottom - although the steep "slant" to the 
pattern does not suggest a "minimum" upside objective to more 
than to about 30 - supports the ideas that QQQ may have put in a 
more significant double bottom (as with the Nasdaq 100 index, 
NDX) relative to the daily low from September; at the dashed 
level line on the daily chart. 

Leigh Stevens
Chief Market Strategist 

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Is It A Bottom Yet?
By Mark Phillips

Parents of small children will recognize the slight variation of
the popular question "Are we there yet?"  If you listen to CNBC,
this seems to be the most popular question asked of anyone who
can fog a mirror.  When will we know it’s a bottom?  I'm as eager
as the next guy (or gal) to know the answer to that question, but
I'm not so na´ve as to believe that anyone (regardless of past
track record) can tell me where the bottom lies.  That question is
only answerable in hindsight, but there are some important clues
that we can observe to determine when we are likely getting close
to that elusive bottom.  Keep in mind that I'm not talking about
THE BOTTOM here.  Rather, I am referring to the next tradable
bottom that leads to the next bear market rally.

Each of us have different broad market indicators that we monitor
to give us a feel for the health of the overall market and the
likelihood that this bounce has the potential to turn into a
rally.  Of course, the starting point for assessing solid
reaction points begins with monitoring price action, with an eye
towards support/resistance levels and the price action relative
to important moving averages, Fibonacci retracement levels and
Bollinger bands/Envelopes.  

Some traders then focus on the Put/Call ratio and the TRIN for
picking market bottoms, while others tend to watch the
Advance/Decline ratio and the ratio of New Highs vs. New Lows.
All of these are valid and important measures for attempting to
assess the odds of the markets stopping their slide and staging
a significant rally.  The one additional part of the puzzle that
I think deserves consideration is the volatility measures that
best quantify fear in the marketplace.

We're talking about the VIX (for the S&P 100 or OEX) and the VXN
(for the NASDAQ-100).  As markets decline, the VIX and VXN rise
due to the increasing fear by market participants unsure of where
the decline will end.  These volatility indicators do not measure
the ratio of puts and calls, but instead measure the implied
volatility of options on the particular index to which it is
related.  Due to questions in the past, I went into great detail
on how the VIX is calculated in an article late last year.  For
those of you that missed it and have an interest in the
underlying formulation, here is the link.

VIX Details for the Masochist

While we can't necessarily use the action of the VIX to predict
a market bottom (due to the fact that it is actually a lagging or
at best, coincident indicator), we can use its action relative to
its historical range to assess fear in the market and thus the
likelihood of a sustained market rebound.  Simply put, when the
VIX makes a run to (or above) the upper end of its historical
range AND THEN REVERSES, it usually presages a significant market

New readers may be wondering why we want to see a high level of
fear before feeling the markets are ready to rally.  The reason
is that the bulls need a wall of worry to scale to sustain a
rally.  Worried investors will stay on the sidelines as the rally
gets started.  Then, as the rally makes upward progress, these
investors come off the sidelines, providing the buying necessary
to push the market a little higher, which in turn provides the
motivation for more buyers to appear.  This is precisely the
reason why it is functionally impractical for a meaningful rally
to begin when the VIX is trading near the lower end of its
historical range.  When the VIX is low, it reflects investor
complacency, or put another way, the expectation that the markets
will rise.  If the bulk of investors believe that the markets
will rise, then it goes without saying that they are probably
already invested.  The problem that creates is that there is not
the bulk of cash on the sidelines to propel the markets higher.

In the past, I've looked at the historical pattern of the VIX
relative to the OEX, and I think I've made a strong case that the
VIX deserves our attention near expected market bottoms.  For any
of you that are still unconvinced, I offer the chart below, which
shows the action of the OEX as it relates to the VIX over the past

Weekly Charts of S&P 100 (OEX) vs. VIX


Now let's look at the same set of charts on a daily timeframe
so that we can see how the current action is shaping up.

Daily Charts of S&P 100 (OEX) vs. VIX


Judging from the way the VIX has moved up to the top of its
historical range twice in the past week as the OEX has come down
to test major support, not far above the September lows, I think
the rebound that began this afternoon has a fighting chance of
sticking.  As I mentioned above the VIX is not very useful in a
predictive manner, but when this sentiment indicator is signifying
a heightened level of uncertainty, while at the same time the
markets are testing major lows, we know to start at least start
contemplating the possibility of a trading bottom being put in
over the near term.  While I would prefer to see a VIX in the
40-60 range like we saw last September, I don't think we are
going to get a big, flashing neon sign like that this time

I haven't gone into any detail on any of the other indicators
mentioned at the top of this article, but many of them have been
pointing to the likelihood that we could find a tradable bottom
soon.  Given that the OEX is trading near its September lows, and
really seems determined to hold the $500 support level, for the
first time in weeks, I am considering trading this market from
the long side for more than a day-trade.  

But here is the one thing that causes me concern.  Looking at
the intraday pattern of the VIX it has been most eager to fall
back from the 30 level over the past week.  In other words, the
fear disappears exceedingly quickly.  In my opinion, that is not
the sort of thing that will make for a long-lived bottom.  Note
that the intraday high on the VIX last Friday was 29.94, but the
closing value was significantly lower at 26.65.  We saw a similar
pattern today, with an intraday high of 29.34 before the VIX
collapsed back down to 26.98.  Both of those days saw the OEX
stage late-day rebounds off the lows to end near their highs of
the days.  That is positive.  But the pullback in the VIX on
both occasions was larger than should be expected for such a
modest recovery in price.

What I'll personally be looking for in the days ahead is a retest
of the $500 level on the OEX accompanied by another VIX move up
near the 30 level that does not collapse on the slightest hint of
a rebound.  Should that occur, I will consider it a solid entry
for the hoped-for summer rally.  My intent here is not to provide
you with a trade recommendation; the guys in the Market Monitor
do a better job of that than I can.  But hopefully my musings
here today give you another perspective on what to look for as we
pursue that elusive market bottom.

Have a great week!


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by Leigh Stevens

Per my Index Trader wrap up, examination of the a number of our 
key market sectors supports a view that the overall market has 
reached a potential intermediate low and turning point - this is 
"supported" by a technical review of the industry groups, where 
many sectors appear to have made at least interim bottoms.   

I count a number that have demonstrated to me this kind of action 
- they include: the Brokerage stocks (XBD), Boxmakers (PC 
makers), Bank Index, BioTech, the Computer Technology Index 
($XCI.X), Cyclicals, the NYSE Financial Index ($NF.X), the High 
Tech Index ($MSH.X), Drug stocks, the (Dow) Transportation 
stocks, the Semiconductors (SOX), and the Software sector 
($GSO.X).  I think we have to assume that even an intermediate 
market bottom can't develop unless significant participation 
occurs with several of the important tech sectors/groups.

You would also tend to see at a decent bottom, sectors that were 
bucking the downtrend, either start to correct, continue to show 
weakness or exhibit signs of a top - this would be characteristic 
of a rotational correction and the shifts in leadership that tend 
to be seen with a broader market rally.  

On this theme, the Defense sector, Gold stocks (XAU), what can be 
called the natural resource stocks - oil/oil services/natural 
gas, and utilities continue to exhibit bearish action. 
Potentially, I see topping action in the Healthcare ($HMO.X) and 
the Health Providers Index (RXH) also.  I would anticipate 
Healthcare stocks to correct while some of the oversold groups 

I will insert updates of these charts - below - and include the 
related commentary tomorrow.    


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 


DOWN ON THE DAY on Wednesday - 



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 
Stops are suggested at: IJS - 87.30; IJT - 72.00; IWM - 89.70


Airline Index ($XAL.X)

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.  

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. 

Bank Index ($BKX.X)

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. 

Biotechnology Index ($BTK.X)


At the low end of its downtrend channel and the RSI has not 
"confirmed" the lower low.  Rally potential from the low end of 
the channel.

Broker Dealer Index ($XBD.X)


Bullish Price/RSI divergence and possible exhaustion gap at low 
end of downtrend channel.  Potential for an oversold rebound.

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


Possible double bottom and bullish RSI reading, above its prior 

Computer Boxmaker Index ($BMX.X) 


Likely "bear trap" reversal and potential double bottom low.  

Cyclical Index; Morgan Stanley; ($CYC.X)


Gap may be "exhaustion" type signaling a bottom at low end 
trading range - also, bear trap reversal is suggested. 

Defense Index; Amex ($DFI.X)


Looks lower still - "bear flag" pattern circled.
Continue to have objective to lower levels, perhaps back to 600 

Disk Drive Index ($DDX.X)

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.


Fiber Optics Index ($FOP.X)

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.  

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


Downside objective to 570 area has been met. Rebound after 
completion of 75% retracement is bullish for some further upside. 
Possible "exhaustion" gap, signaling a bottom.  

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.

Gold & Silver Sector Index ($XAU.X)

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 

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

Looks toppy - updated chart tomorrow.

Healthcare Index; Morgan Stanley ($HMO.X)


Potential for a top ahead as suggested by bearish Price/RSI 

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)


Completed 75% retracement - coupled with today's rebound from 
this area and low end of current downtrend channel (not shown), 
SOX could rally further. 

Software Index; Goldman Sachs ($GSO.X)


Bullish Price/RSI divergence and possible exhaustion gap signals 
some further upside.  Bullish falling "wedge" pattern is bullish 
as well. 

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) 

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. 

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

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The Option Investor Newsletter                Wednesday 06-12-2002
Copyright 2001, All rights reserved.                        2 of 2
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WLP - call
Adjust from $74.50 up to $81.25

OHP - call
Adjust from $46.50 up to $47

HIG - put
Adjust from $64 down to $63.50

MMC - put
Adjust from $101 down to $96.50

PMI - put
Adjust from $86 down to $83

WHR - put
Adjust from $73 down to $70.50




OMC $62.28 -15.28 (-10.41) When it was all said and done, OMC
lost -$15 today after a Wall Street Journal article put into
question the company's accounting practices and an off balance
sheet entity.  The stock fell as low as $51 before rebounding
after the company's Board issued a reassuring statement.  We
got more than we were looking for with this play, so we're
happy to drop it tonight and book the big profits from today's
drop!  Congratulations to those who took the play earlier this
week.  If you didn't book gains today, look to do so tomorrow

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SPW - SPX Corp. $123.20 +3.20 (-7.06 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.

Most Recent Update

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.


SPW rebounded on relatively light volume during today's session
along with the broader market.  But not before tracing a new
relative low in the morning.  The stock is still very weak and
could rollover from its 200-dma on another rollover in the
broader market tomorrow.  Look for a rollover from current
levels early tomorrow morning.  Confirm direction in the
broader market.

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

BUY PUT JUN-125 SPW-RE OI=320 at $5.20 SL=3.25
BUY PUT JUL-120*SPW-SD OI= 15 at $6.30 SL=4.50

Average Daily Volume = 395 K


Fasten Your Seatbelt!
By Ray Cummins

Today's roller-coaster ride was full of surprises as the major
equity averages soared to recent heights and plummeted to new
lows before ending the session in positive territory.

The Dow Jones Industrial Average rallied 100 points to 9,617,
boosted by upside activity in Intel (NASDAQ:INTC), Microsoft
(NASDAQ:MSFT), Proctor & Gamble (NYSE:PG), General Electric
(NYSE:GE) and Wal-Mart (NYSE:WMT).  Cautious remarks from Siebel
Systems (NASDAQ:SEBL) and Juniper Networks (NASDAQ:JNPR) kept
the heat on technology stocks through most of the day but the
NASDAQ Composite managed to close with a gain of 21 points at
1,519 on strength in semiconductor and computer hardware issues.
The broader-market Standard & Poor's 500-stock index edged 6
points higher to 1,020 amid bargain-hunting in wide range of
industry groups.  Trading volume was moderate at 1.74 billion
on the NYSE and at 2.04 billion on the NASDAQ.  Despite today's
gains in the major equity indexes, market breadth was mixed with
winners roughly matching losers on the Big Board and decliners
outpacing advancers 19 to 15 on the technology exchange.  The
10-year government bond added 3/32 to yield 4.96% while the
30-year treasury rose 5/32 to yield 5.54%.

Summary of Current Open Positions
(As of 06-11-02)

Naked Puts

Stock  Strike Strike  Cost Current  Gain  Potential
Symbol  Month  Price Basis  Price  (Loss) Mo. Yield

EMLX     JUL    22.5 21.75  29.75   $0.75    7.50%
CCMP     JUL    35   34.25  41.90   $0.75    5.04%
QLGC     JUL    35   33.90  43.61   $1.10    7.38%
NVDA     JUL    25   24.15  30.60   $0.85    7.97%

Naked Calls

Stock  Strike Strike Break Current  Gain  Potential
Symbol  Month  Price  Even  Price  (Loss) Mo. Yield

CYMI     JUN    55   55.60  37.13   $0.60   5.98%
PHTN     JUN    50   50.40  35.16   $0.40   5.20%

Put-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B  (Loss) Status

UNH     88.39  97.15  JUN   75  80  0.45  79.55  $0.45   Open
INTU    42.92  43.59  JUN   35  40  0.55  39.45  $0.55   Open
SRCL    35.04  35.55  JUN   30  33  0.30  32.20  $0.30   Open
FNF     30.52  28.86  JUL   25  28  0.30  27.20  $0.30   Open
ERTS    64.10  62.68  JUL   50  55  0.50  54.50  $0.50   Open
ATH     72.00  73.25  JUL   60  65  0.70  64.30  $0.70   Open

Call-Debit Spreads

Stock                                          Gain
Symbol  Pick  Last Month L/C S/C  Debit  C/B  (Loss) Status

NUE    68.85 65.55  JUL  60C 65C  4.15  64.15  0.00   Open

Nucor slumped early this week and if the decline carries the
issue below the current support area near $64-$65, an exit
should be considered.

Call-Credit Spreads

Stock                                          Gain
Symbol  Pick  Last Month L/C S/C Credit  C/B  (Loss) Status

BHI    35.96 33.48  JUN   43  40  0.35  40.35  $0.35  Open
BGEN   42.44 39.79  JUL   60  55  0.25  55.25  $0.25  Open
ROOM   55.30 45.42  JUN   70  65  0.55  65.55  $0.55  Open
ADBE   35.85 37.07  JUN   45  40  0.55  40.55  $0.55  Open
CYMI   40.59 37.13  JUL   55  50  0.60  50.60  $0.60  Open
C      42.34 40.71  JUL   50  48  0.30  47.80  $0.30  Open

Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

ABT    46.90   45.42   JUN42P/50C   0.20   50.20   4.10   Open
DLTR   39.19   39.36   AUG45C/35P   0.25   34.80   0.35   Open
UNH    91.77   97.15   JU100C/80P   0.10   79.90   2.00   Open

The bearish position in Abbott Labs (NYSE:ABT) provided an
incredible gain of over $4.00 as the stock plummeted to a
long-term low near $38.  Unitedhealth Group (NYSE:UNH) also
achieved a favorable "early-exit" credit of $2.00 in only
one week, and traders should consider locking-in profits in
the bullish position.

Credit Strangles:

Stock  Pick     Last    Position   Credit   G/L   Yield  Status

ERTS   63.21   62.68   JUN70C/55P   1.25    1.25   8.9%   Open

Debit Straddles:

Stock   Pick   Last    Position   Debit   M/V    G/L   Status

DGX    85.72   91.39  AUG85C/85P  10.60  12.50   1.90   Open
FLIR   44.75   42.80  JUL45C/45P   7.25   7.00  (0.25)  Open

The Quest Diagnostics (NYSE:DGX) straddle achieved a favorable
"early-exit" profit this week and also hit the upside break-even
point with the bullish portion of the play paying for the entire

New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (I monitor the positions marked with ***).


Bullish Plays - Credit Spreads

Healthcare and Defense issues have been among the few favorable
groups during the recent market slump and the majority of stocks
in those sectors moved higher in today's session.  Based on the
current technical outlook, both segments are poised to continue
their upside movement in the coming weeks and traders who agree
with that viewpoint can profit from future bullish activity with
these positions.

AET - Aetna  $49.76  *** Multi-Year High! ***

Aetna (NYSE:AET) is a health benefits company whose main business
operations are conducted in the Health Care, Group Insurance and
Large Case Pensions segments.  The Health Care segment consists
of health and dental benefit products such as health maintenance
organization, point-of-service, preferred provider organization
and indemnity products, and group insurance products including
life, disability and long-term care insurance products.  Aetna's
Group Life Insurance segment consists principally of renewable
term coverage, the amounts of which may be fixed or linked to
individual employee wage levels.  Large Case Pensions manages a
variety of retirement products, including pension and annuity
products, offered to qualified defined benefit and contribution

AET - Aetna  $49.76

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-40  AET-SH  OI=1046  A=$0.25
SELL PUT  JUL-45  AET-SI  OI=495   B=$0.70

CI - Cigna Corporation  $104.46  *** An Old Favorite! ***

Cigna Corporation (NYSE:CI) and its subsidiaries are investor-
owned employee benefits organizations in the United States.  Its
subsidiaries are major providers of employee benefits offered
through the workplace, including health care products and other
services, life, accident and disability insurance, retirement
products and services and investment management.  CIGNA's main
perating divisions include Employee Health Care, Disability and
Life Benefits, CIGNA Group Insurance, Employee Retirement, and
Investment Services, and International Life, Health and Employee
Benefits.  The company's Other Operations include the recognition
of deferred gains on the sales of individual life insurance and
annuity business and reinsurance business, and the results of
CIGNA's retained reinsurance business, corporate life insurance
business, settlement annuity business, and other non-insurance

CI - Cigna Corporation  $104.46

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-90  CI-SR  OI=268  A=$0.40
SELL PUT  JUL-95  CI-SS  OI=346  B=$0.85

HCA - HCA Inc.  $50.30  *** Positive Outlook = New High! ***

HCA (NYSE:HCA) is a healthcare services company that operates
almost 200 hospitals which are comprised of general, acute care
and psychiatric hospitals as well as some joint ventures.  In
addition, the company operates approximately 80 freestanding
surgery centers.  The company's facilities are located in 23
states, England and Switzerland.  HCA's general, acute care
hospitals provide a range of services to accommodate such
medical specialties as internal medicine, general surgery,
cardiology, oncology, neurosurgery, orthopedics and obstetrics,
as well as diagnostic and emergency services.  Outpatient and
ancillary healthcare services are provided by HCA's general,
acute care hospitals and through the company's freestanding
outpatient surgery and diagnostic centers, and rehabilitation
facilities.  HCA's psychiatric hospitals provide a full range
of mental healthcare services through inpatient, partial
hospitalization and outpatient settings.

HCA - HCA Inc.  $50.30

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-45.00  HCA-SI  OI=313  A=$0.30
SELL PUT  JUL-47.50  HCA-SW  OI=116  B=$0.60

NOC - Northrop Grumman  $121.80  *** Low Risk = Low Reward! ***

Northrop Grumman (NYSE:NOC) is a worldwide defense company that
provides unique, technologically advanced products, services and
solutions in defense and commercial electronics, information
technology, systems integration, and nuclear and non-nuclear
shipbuilding and systems.  Northrop Grumman has operations in 44
states and 25 countries, serving U.S. and international military,
government and commercial customers.  Northrop Grumman is divided
into six major business sectors: Electronic Systems, Information
Technology, Integrated Systems, Ship Systems, Newport News and
Component Technologies.

NOC - Northrop Grumman  $121.80

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-105  NOC-SA  OI=122  A=$0.50
SELL PUT  JUL-110  NOC-SB  OI=174  B=$0.85

THC - Tenet Health Care  $76.10  *** Upbeat Outlook! **

THC is a healthcare services company that owns or operates general
hospitals and related healthcare facilities serving urban and rural
communities in 17 states.  Through its many subsidiaries, Tenet
Healthcare corporation owns and operates 116 acute care hospitals
with 28,786 beds and numerous related health care services.  Its
hospitals and subsidiaries employ approximately 113,750 people and
Tenet's name reflects its core business philosophy: the importance
of shared values among partners -- including employees, physicians,
insurers and communities -- in providing a full spectrum of health
care.  A 3-for-2 split of its common stock will be distributed on
June 28 to shareholders of record on June 12.  Tenet's quarterly
earnings are due on July 11.

THC - Tenet Health Care  $76.10

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-65  THC-SM  OI=18   A=$0.25
SELL PUT  JUL-70  THC-SN  OI=286  B=$0.65


BULLISH PLAYS - Synthetic Positions

Defense issues have performed very well in recent sessions, due
to ongoing tensions in the Middle East and the threat of more
terrorism in the United States.  Traders who think the potential
for future conflicts will lead to further share-price advances
in the defense group can attempt to profit from that outcome
with these speculative positions.

GD - General Dynamics  $103.35  *** New High! ***

General Dynamics (NYSE:GD) operates businesses that produce
information and communications technology, land and amphibious
combat systems, and also engage in naval, as well as commercial
shipbuilding, and business aviation.  These are high technology
firms that use design, manufacturing and program management
expertise together with advanced technology and the integration
of complex systems as part of their everyday operations.  The
company operates in four primary business groups: Information
Systems and Technology, Combat Systems, Marine Systems, and
Aerospace.  The company also owns other commercial operations.

GD - General Dynamics  $103.35

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-110  GD-GB  OI=54  A=$0.90
SELL PUT   JUL-95   GD-SS  OI=33  B=$0.75

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $3,300 per contract.

LMT - Lockheed Martin  $65.51  *** Hot Sector! ***

Lockheed Martin (NYSE:LMT) is a customer-focused, worldwide
enterprise principally engaged in the research, development,
manufacture and integration of advanced technology systems,
products and services for government and commercial customers.
The corporation's core business areas are systems integration,
aeronautics, space and technology services.  Lockheed's Systems
Integration segment engages in the development, integration and
production of electronic systems for undersea, shipboard, land
and airborne applications.  Space Systems is engaged in the
design, development, engineering and production of commercial
and military space systems.  Aeronautics designs, researches
and develops, produces, and supports combat and air mobility
aircraft, surveillance and command, reconnaissance, platform
systems integration and advanced development programs.  The
Technology Services division provides information management,
engineering, scientific and logistic services.

LMT - Lockheed Martin  $65.51

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-70.00  LMT-GN  OI=25   A=$0.75
SELL PUT   JUL-60.00  LMT-SL  OI=356  B=$0.45

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $2,125 per contract.


Neutral Plays - Straddles & Strangles

Here are some good candidates for premium-selling plays, based
on each issue's technical background and current outlook.  Both
stocks have a relatively stable trading range and no (expected)
upcoming news or events that will substantially affect their
fundamental or technical character prior to the July options'
expiration.  From a charting viewpoint, their near-term price
patterns are well established and the technical indications
suggest the current trend will continue.  However, news and
market sentiment will have an effect on these issues, so review
each play thoroughly and make your own decision about its outcome.

ACS - Affiliated Computer Services  $54.45  *** Trading Range? ***
ACS (NYSE:ACS) is a Fortune 1000 company with more than 38,000
people in 35 countries providing unique business process and
information technology outsourcing solutions to world-class
commercial and government clients.  From a single financial
industry client, ACS expanded into the energy, financial,
government, healthcare, retail, and transportation industries
and for the past five years, the company has achieved record
growth with revenues climbing 30% on an annual basis.

ACS - Affiliated Computer Services  $54.45

PLAY (conservative - neutral/credit strangle):

SELL CALL  JUL-60.00  ACS-GL  OI=8266  B=$0.55
SELL PUT   JUL-47.50  ACS-SW  OI=1858  B=$0.65
UPSIDE B/E=$61.25 DOWNSIDE B/E=$46.25

LXK - Lexmark Intl.  $59.89  *** Lateral Consolidation! ***

Lexmark International (NYSE:LXK) is a developer, manufacturer
and supplier of printing solutions, including laser and inkjet
printers, multifunction products and associated supplies and
services for offices and homes.  The company also markets dot
matrix printers for printing single and multi-part forms for
business users and develops, manufactures and markets a broad
line of other office imaging products.

LXK - Lexmark Intl.  $59.89

PLAY (aggressive - neutral/credit strangle):

SELL CALL  JUL-65.00  LXK-GM  OI=1693  B=$1.35
SELL PUT   JUL-55.00  LXK-SK  OI=1573  B=$1.60
UPSIDE B/E=$68.00 DOWNSIDE B/E=$52.00


BEARISH PLAYS - Naked Calls & Combinations

Based on analysis of historical option pricing and the underlying
stock's technical background, these issues meet our fundamental
criteria for profitable "bear-call" credit spreads.  Each issue
has robust option premiums, a well defined resistance area and a
high probability of remaining below the sold strike prices.  As
with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

EDS - Electronic Data Systems  $49.28  *** Rolling Over? ***

Electronic Data Systems (NYSE:EDS) is a professional services
firm which offers services within the categories of systems and
technology services, business process management, management
consulting and electronic business.  EDS helps clients manage
the business and technology complexities of today's digital
economy.  They support more than 3.3 million desktops worldwide,
enough for every person in the United Arab Emirates.  They also
manage over 50,000 servers and provide Web hosting for over 900
clients worldwide.  EDS brings together the best technologies
and processes to help their clients achieve all the critical
business imperatives that growing companies must address to be
successful in the digital economy.

EDS - Electronic Data Systems  $49.28

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-60  EDS-GL  OI=558   A=$0.15
SELL CALL  JUL-55  EDS-GK  OI=7518  B=$0.70

VIA - Viacom  $46.59  *** A Big Down Day! ***

Viacom (NYSE:VIA) is a leading global media company, with
preeminent positions in broadcast and cable television, radio,
outdoor advertising, and online.  With programming that appeals
to audiences in every demographic category across virtually all
media, the company is a leader in the creation, promotion, and
distribution of entertainment, news, sports, and music.  Viacom's
well-known brands include CBS, MTV, Nickelodeon, BET, Paramount
Pictures, Viacom Outdoor, Infinity, UPN, VH1, TNN: The National
Network, CMT: Country Music Television, Showtime, Blockbuster,
and Simon & Schuster.

VIA - Viacom  $46.59

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JUL-55  VIA-GK  OI=373  A=$0.25
SELL CALL  JUL-50  VIA-GJ  OI=109  B=$1.00





Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

CHBS   42.81  JUL 40P  1.60   JUL 35P  0.70   0.95     23%
KFT    43.80  JUL 42P  0.70   JUL 40P  0.30   0.45     21%
MIK    43.10  JUL 40P  0.85   JUL 35P  0.20   0.70     16%
INTU   44.30  JUL 40P  0.95   JUL 35P  0.35   0.65     15%
AZO    82.04  JUL 75P  1.05   JUL 70P  0.55   0.55     12%
UNH    97.04  JUL 90P  1.20   JUL 85P  0.70   0.55     12%
UNP    63.52  JUL 60P  0.60   JUL 55P  0.25   0.40      8%


Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

ANPI   39.02  JUL 45C  1.00   JUL 50C  0.40   0.65     15%
RJR    67.58  JUL 70C  0.75   JUL 75C  0.20   0.60     14%
DIAN   58.84  JUL 65C  1.05   JUL 70C  0.50   0.60     14%
GS     72.50  JUL 80C  0.85   JUL 85C  0.30   0.60     14%
MMC    93.67  JUL 100C 0.90   JUL 105C 0.35   0.60     14%
HON    36.85  JUL 40C  0.50   JUL 42C  0.25   0.30     14%
AMGN   38.17  JUL 45C  0.55   JUL 47C  0.30   0.30     14%
IBB    48.20  JUL 55C  0.85   JUL 60C  0.35   0.55     12%
BAX    46.60  JUL 50C  0.65   JUL 55C  0.15   0.55     12%



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