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Daily Newsletter, Sunday, 06/16/2002

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The Option Investor Newsletter                   Sunday 06-16-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 6-14          WE 6-07          WE 5-31          WE 5-24
DOW     9474.21 -115.46  9589.67 -335.58  9925.25 -179.01  -248.82
Nasdaq  1504.74 - 30.74  1535.48 - 80.25  1615.73 - 45.76  - 79.90
S&P-100  501.76 -  5.56   507.32 - 21.88   529.20 - 10.72  - 13.38
S&P-500 1007.27 - 20.26  1027.53 - 39.61  1067.14 - 16.68  - 22.77
W5000   9549.72 -202.97  9752.69 -353.80 10106.49 -144.15  -223.54
RUT      459.07 - 11.44   470.51 - 16.96   487.47 -  6.17  - 15.30
TRAN    2673.14 - 13.52  2686.66 - 62.60  2749.26 +  5.59  - 54.69
VIX       29.93 +  3.28    26.65 +  3.75    22.90 +  1.64  +   .88
VXN       55.67 +  3.43    52.24 +  6.29    45.95 +  3.09  -   .08
TRIN       1.34             1.30             1.11             1.59
Put/Call   1.15              .79              .73              .82
******************************************************************

 
Sentiment Implodes, Nobody Seems To Care?  
by Jim Brown

Friday morning was almost an exact copy of last week. Intel did
not warn again although others did. There were no bombs in Israel
but Karachi Pakistan instead. What did happen other than earnings
warnings was a drop in Industrial production to nearly flat and 
a collapse in Consumer Sentiment to 90.8 from 96. The feared "VV"
recession or the second dip appears to be coming to pass.



 



 

The Industrial Production fell to only a +0.2% growth rate in May.
This was continuing the fall from the high of +0.6% in Jan, a drop
to 0.4 in Feb/Mar and 0.3 in April. If this drop continues we will 
be back to negative growth by July/August. After eighteen months 
of contraction the inventory rebuild cycle bumped the economy back 
into growth mode in January. It has slipped every month since. 
This is not the news investors wanted to hear with the market 
nearing September lows. 

The Consumer Sentiment drop was even more drastic. Sentiment fell
to 90.8 for the first half of June and wiped out all the gains 
from the last three months. This was a six-point drop. The current
conditions component fell from 103.5 to 97.9 and the expectations
component fell to 86.2 from 92.7. This was the lowest reading since
December and shows that the recovery is slowly slipping away. Reasons
for the drops include a lack of recovery in the job market and weak
business confidence after the high profile corporate problems of late.
Also impacting the numbers were the fears of a nuclear war in India
and Pakistan and the "dirty bomb" scare. The stock market decline
also sours consumer moods. A rising stock market is a visible 
"wellness indicator" for the public. 

What these two reports emphasize in addition to others this week is
that the Fed is not going to raise rates anytime soon. The fed funds
futures are pointing to a 2.25% interest rate in December. It has
almost completely ruled out any summer or fall rate hikes. This is
good for the home builders as it extends the low mortgage rates through
the typical summer home buying season. It also means businesses will 
have nearly six more months of ramp time. It is like pitting under 
a yellow flag during a car race. The longer the yellow is out the
more cars can pit for quick repairs. The longer the Fed is dormant 
the longer the stealth economy can continue to heal and gain speed. 

Microsoft resumed its rise upward on Friday after dropping back to 
$53 at the open. The stock closed with a +$1.03 gain at $55.27 as
the rumor about better than expected results resurfaced. It seems
that MSFT has been managing earnings for so long that it has built 
up a stash of off book profits that it is now going to be forced to 
claim. The SEC has been looking at companies that manage earnings
and is forcing them to clean up their act. The rumor is that MSFT
will flush those profits out of the books this quarter. Microsoft 
just settled a two year SEC investigation last week where they 
alledgely hid up to $900 million in past profits to use later. This
is prompting the rumor that a "repentant" Microsoft might beat the
estimates using real accounting. In other MSFT news oral arguments 
will be made on Wednesday by the states disputing the proposed
settlement. 

In the software sector all eyes will be on Oracle when they release
earnings next Tuesday. Larry Ellison has already said they would 
meet or beat the $.12 cents analysts expect but he did not say how. 
Analysts will be looking at revenue numbers for real guidance instead
of profits derived from cost cutting, restructuring or tax savings. 
Many analysts expected Oracle to miss estimates and were shocked last
week when Ellison implied they would hit estimates. Since it is common
knowledge that Oracle has been having trouble signing those big deals
for hundreds of thousands of dollars they are wondering where the 
earnings will come from. They will be waiting impatiently Tuesday 
night chanting "show me the money." Other earnings this week will
highlight brokers and retailers.

Genesis Microchip got taken to the cleaners after their warning on 
Thursday. The stock lost -25% of its value and closed at $9.05. The
selling did not rub off on the rest of the chip stocks with the SOX
losing only -.81 for the day. The bad news was taken as company 
specific even though it was due to a boycott in corporate spending.

Investors appear to be in denial. With the Industrial Production and
Consumer Sentiment numbers both pointing to another recessionary drop
they bought the market dip on Friday. Earnings warnings are flying
but they bought the dip anyway. A common sign of a bottom is when
bad news is no longer able to push the market down. Could we be nearing
that point? Some say yes. Others say short covering by mini-hedge
funds were responsible for the Friday bounce. I don't put much faith
in the mini-hedge fund scenario. The volume just does not support it.
The combined market volume was only 3.4 billion shares on Friday with
down volume beating up volume 6:5. Considering the severity of the 
morning drop that was a pretty good ratio but not serious short 
covering. 

I think the more plausible answer is simply investors can count and
read charts and they see what they "think" will be a bottom just a
few trading days away. (S&P September lows of 944 intraday, 965 close)
If your investment time horizon is years then buying the dips this 
close to a perceived bottom is a good tactic whether you are an 
individual or a mutual fund. I think this is why the dip bottoms 
are quickly bought but not with enough volume to produce those 
rocket rebounds we have seen in the past. They are simply setting
out there with limit orders under the market and they are not chasing
stocks once they rise above those limits. They are being very patient
as we get closer to the September lows. They are letting the market
come to them. I think the real buying in volume will come once those
lows have been hit and they have held! There are analysts out there
calling for 600 on the S&P and 7000-8000 on the Dow. Even with a
double dip recession I can't imagine those numbers in our current
high tech world. Considering the Dow is now trading at Jan-1999 levels
a lot of pain has already been factored in. The Nasdaq has time 
traveled back to July-1997 levels. Very few investors can vision
a significant drop from here. Of course you would have had a hard
time finding a group of investors who thought today's numbers were
possible two years ago. 

The bottom line here is I don't think we are done but we are getting 
very close to at least a temporary bottom. Temporary? Yes, it is
entirely possible the first test will produce a bounce that fails 
and we will have to retest again just to convince those hardcore
bears that it is time to hibernate. That second test could include
a monster capitulation day. Market makers are getting hammered daily.
With no buyers they are forced to continually dump stock only to 
turn around and get hit with another load on their screens. If the 
first bounce does not hold they may just step back and let the prices
fall until volume buyers appear. Until that day they will always be
looking over their shoulder wondering when the next flood of sell
orders will appear. All the retail stop orders will be cleared and
they will start with a clean slate. 

Monday morning could be exciting as we enter an expiration week
with loaded internals. The VIX closed right at 30 which is historically
very bullish. It spiked to just over 33 intraday, a level it has not
seen since Nov-2nd-2001. The TRIN was not as positive at the close 
at 1.34 but it also spiked to 4.68 intraday. A high not seen since 
September. The put/call ratio closed at 1.15, which is extremely 
bullish. From my Friday night viewpoint it looks like the open on 
Monday could be bullish. Expiration weeks recently have seen the
market rise the prior week to be flat to down during expiration week
itself. Nobody knows what this week will bring but you can bet that 
it will not be boring. With the wide intraday ranges coming back into
the markets it is just one more piece of evidence that the bottom 
may be near. Could it be next week?  

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

EQUAL TURNS
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
Friday's have established a new pattern of the bears getting 
their whack at the market, followed by the bulls taking their 
turn. It's become a very equal opportunity market!  Wonder what 
NEXT Friday will bring, a "triple witching" day with stock, index 
options and index futures all expiring. Can't wait.  

The week being over, thank goodness - this tug of war is tiring 
me out - I thought I would take a look at the longer-term weekly 
charts.  And, while I still have your attention, I wrote a 
Trader's Corner piece on that fascinating topic of Heads & 
Shoulders - the "Head and Shoulders" (H&S) chart pattern that is, 
which was a tip off on the May S&P top and downside reversal; 
and, by this past Thursday looked like the bottom variety H&S had  
"set up" - WRONG! 

However, the H&S pattern "failure" and reversal at its "neckline" 
was an immediate clue to get bearish on Thursday and get short 
for Friday. SEE TRADER'S CORNER for that. No fooling, this stuff 
really works - the names are bit strange, but so is option 
trading. 

Anyway, the Thursday rally failure led to one roller coaster 
straight-line decline on Friday. A touch to the lower hourly 
channel line then "showed" the level where S&P would bottom next. 
It looked like the market was going to go all the way to China, 
but a redrawn channel showed where to cover (shorts); and, go 
long if you were especially brave and cool under fire.  

Weekly S&P charts - S&P 500 (SPX) and 100 (OEX): 


 

There is not a lot to demonstrate in these besides the 
unrelenting downtrend.  Kind of makes you think there never is 
going to be a recovery, doesn't it?  No wonder (Consumer) 
confidence is DOWN in the latest survey.  The narrower big cap 
market index OEX has now gotten to within 8 points of its 
September low when the world was burning, or so it seemed. 

The market is getting "oversold", but definitely can get lower, 
if you look at where the Stochastic and RSI indicators read at 
the September bottom. The broad market as reflected in the SPX 
has a ways to got to reach its prior low and managed a weekly 
close ABOVE the key 1000 level. The equivalent watershed level in 
OEX is 500 and the index recovered this by its Friday close.  

Speaking of the Head and Shoulder's pattern, the weekly SPX chart 
is looking less and less like the bottom form of the H&S, as the 
supposed "right shoulder" gets lower than the left hand low - the 
one prior to the September bottom. The index would have to start 
to move back up from last week's low - that, and/or trending 
sideways for another 1-3 weeks would be dandy in terms of it.  Of 
course re-successfully "re-testing" the SPX prior low at 945 
would set up a potent double bottom - assuming there was no 
decisive downside penetration of THAT level.

Weekly Nasdaq charts - Nasdaq Composite (COMP) & Nas 100 (NDX):   


   

The only other noteworthy thing to say about the Nasdaq, is that 
the narrower Nasdaq 100 (NDX) has now achieved a "potential" 
double bottom. Stay tuned on that!! NDX sure hasn't been able to 
poke its head above that very steep down trendline.  

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


 

Well, this time the suggestion that 497-500 was the area to buy 
OEX calls again was a bit high. However, the "outer" or lower 
channel line intersecting at 488 WAS the right place to lay in 
wait and let em come to you. The return rally was not as 
spectacular as the drop -- they "slide" faster than they "glide" 
- but it sure covered a lot of lost ground. However, at the 
Friday close, OEX was nearing the hourly down trendline, drawn 
through the recent tops - intersecting at 505 currently.  If this 
doesn't stop a further rally, then 509 or 514 WILL. 

Note the tendency for all recent rallies to fall apart once they 
register "overbought" on the very short-term hourly stochastic 
model (length, 5). Well, it's gotten up there again! Given the 
approach to resistance again, I would trade from the short/put 
side at expected resistance in the 505-509 zone. And, again at 
514 if reached. 488-490 if seen again, looks like a place to take 
profits, and play the long/call side again.  

The only other thing to note is the lower envelope line on the 
daily chart - yes, it's not indicating a place where this market 
is bottom but it sure signals an area where further declines are 
resisted. The lower "band" signals the "breaking" function that 
tends to occur when this index gets that far under its 21-day 
moving average.       

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

By expanding the percent envelope to the level where DJX topped 
at the last big rally (early-March) at 6%, the lower percentage 
envelope is in the area of recent intraday lows again. 


As with the OEX, the daily stochastic is again showing upward 
momentum based on an upside crossover, from an oversold (low) 
reading.  As the stochastic uses the lowest day of the period of 
time being examined (the "length" setting; i.e., 14) it for sure 
is going to do this based on the Friday rebound. We have to 
discount this indicator as a basis for assuming that there will 
necessarily be a sustained rally in such a bearish climate - 
however, at the same time, the "oversold" condition is associated 
with the type of sharp rally tendencies that we have seen twice 
now in two weeks.  



 

Resistance comes in to play first at the hourly down trendline at 
95-95.1; then, in the 96-96.2 area - I favor selling in this area 
if reached. First support is expected to come in around 93.5; 
then possibly at the Friday low at 92.6 and then in the 92 area, 
at the low end of the downtrend channel. I favor only buying a 
substantial drop. A bullish shift occurs if the pattern of 
successively lower highs is broken by an hourly close over 96.2.  

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

The dashed level line on the daily QQQ chart intersects its 
September intraday low.  On this basis we have to assume the 
possibility of a bottom, given the move to a new low and the 
close well above it -- a classic "bear trap" reversal. Time will 
tell and probably not much time at that! 



 

Resistance, basis the hourly chart, is not much further overhead 
from the Friday close, at 28=28.2. The longer stochastic model is 
in the zone where the Q's have been topping recently.  Only an 
hourly close above 28.2 would start to shift the pattern of lower 
(up) swing highs.  28.8-29 is the next level of resistance if 
there was a minor breakout move higher. 

Support is anticipated first at 27, then at 26-26.2.    

Sell rallies to the 28-28.2 with a tight stop, at 28.5. Re-short 
if there is a move up to 28.8-29. Buy dips to 26, if reached.  

MINI "TRADERS CORNER" - Response to a Subscriber Question:
"Leigh, I noticed that the deviations on your envelope lines 
were different for each index, any reason, and why do you use 
envelope rather than Bollinger Bands? Also, is there a good 
setting for regression lines, at present mine are set 2, -2. 
Sometimes I switch to 2.5, -2.5, you apparently draw your own. 
Do you change the settings for different chart times? " 

RESPONSE: I set the index envelope lines according to their 
individual volatility over time -- volatility is not exactly the 
right term, but as you know the Nasdaq 100 has bigger trading 
swings than the Dow for example. The lines are set, relative to 
a simple 21-day moving average, at the percentage value where 
the particular index tends to make significant bottoms and tops. 
For the S&P 500, in recent months, this has been averaging 4.5-
5%. 

When the SPX gets this far above or below its 21-day moving 
average by this amount, it is a measure that the index is 
"overbought" or "oversold". As with "oscillators" like 
stochastics and RSI such readings, the bands suggest (at a 
minimum) that the probability of an upcoming trend reversal has 
increased substantially. There may not be a reversal, but the 
upward or downward momentum will tend to slow. 

I don’t tend to use Bollinger Bands because, for the indexes, I 
want a "constant" line (percent value), not a line that fluctuates 
above and above an average based on current (daily/weekly) 
volatility. This allows certain discoveries. If the SPX peaked at 
5% above the 21-day avg., I look for a low of a similar magnitude 
the market tends to range from similar "extreme" to similar 
extreme, like a pendulum. 

If the market starts peaking or bottoming at a level that is a 
bit further out from the average, I may expand the percent 
setting by a half or full percent. Generally, I don't adjust the 
lines all that often. I am simply looking for an area, where the 
odds of a substantial further move above/below the envelope is 
substantially less than a countertrend move. 

I don't use regression lines - I "hand" draw through my best 
judgment on the key highs and lows. Sometimes, for example, I cut 
through (bisect) an extreme high or low (i.e., an "internal" 
trendline - one drawn through the most number of points) - a 
regression line may also have this result if a price spike is 
well above/below the trend progression. The point is, is that I 
don't construct trendlines mechanically. In fact, my life as an 
analyst trading adviser would be a lot "easier" if I didn't 
spend as much time as I do, re-drawing trendlines as the 
patterns shift. But this is the edge I may have over someone 
else and is probably mostly a result of experience, although I 
try to teach best practices in this area in my book. 

Lastly, on changing envelope settings for different time frames 
- I only use "simple" moving average envelopes on the indexes 
and on a daily chart basis. It’s the only time frame and 
instrument that seems to make envelopes really useful - and, 
they seem to exhibit consistent behavior - on the dailies 
(charts) and on the indices. Oh, their very good on the long 
bond chart. If you trade bond futures they're very useful. 
 
Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Expiration Week

This week is shaping up to be a killer expiration week. We 
could have serious swings in both directions. The task is to 
stocks that are either directional or stuck near a strike price.
With only a week to go on June options a $2-$3 move in some
stocks can produce a 100% return.

Everyone should also realize that using current month options
in expiration week is the purest form of gambling. You pay your
money and take your chances. It is best to make these lottery
plays with a limited number of contracts to avoid disaster. In
every expiration week there are some plays that expire worthless
and others that can be big winners. The trick is to not risk 
so much that a couple losses can wipe out all your gains.

If biotechs have finally found a bottom then several stocks
could move quickly on short covering. However, if Friday was
a head fake then these options will expire worthless.

BGEN $42.42 Jun-$45 call BGQ-FI $.40
AMGN $40.18 Jun-$42 call AMQ-FV $.60
DNA  $32.53 Jun-$35 call DNA-FG $.40
CVTX $19.13 Jun-$20 call UXC-FD $.80
IMNX $21.72 Jun-$22 call IUU-FX $.50 ** favorite
GENZ $26.75 Jun-$25 put GZQ-RE $.65
MDT  $42.91 Jun-$40 put MDT-RH $.30

Semiconductors have not rallied yet despite the positive news
from several companies last week. Yet the GNSS news did not 
crash the sector either. Could be a strong move if we get the
right trigger.

ESST $17.03 Jun-$17 call SEQ-FW $.80
AMCC $ 5.67 Jun-$5  call AEX-FA $.80 (.67 ITM) ** favorite
KLIC $12.43 Jun-$12 call KQS-FV $.65
TSM  $14.70 Jun-$15 call TSM-FC $.45 ** good
RFMD $ 9.02 Jun-$10 put  RFZ-RP $1.35 (.98 ITM) Going to $5?

Misc 

HLIT $4.98 Jun-$5 put LOQ-RA $.40
HPQ $17.35 Jun-$17 put HHY-RW $.55 (earnings warning?)
MCAF $14.91 Jun $15 call CFU-FC $.90
ORCL $ 8.57 Jun-$10 put ORQ-RB $1.55 (1.42 ITM)
ORCL $ 8.57 Jun-$7.5 put ORQ-RU $.15 (lower guidance?)
SEBL $14.86 Jun-$15 put SGQ-RC $.95 (toughest qtr in history?)
SEBL $14.86 Jun-$12 put SGQ-RV $.15 (extreme lottery!)
T    $10.18 Jun-$10 put T-RB $.45 (july-$10 $.85)


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

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

Good Luck

Jim Brown    


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

Are We There Yet?
By Eric Utley

If Friday didn't have the making for a capitulation event, I don't
know what will.  The bomb, the wireless downgrade, and the
consumer sentiment reading I thought was the trifecta of
capitulation.  But it wasn't.  The volume certainly wasn't there,
although the advance/decline line was pretty ugly in the early
going, and the new high/new low list was there too.  But I just
didn't see the panic selling that is indicative of a trading
rally to follow.

Fear was certainly on the rise.  The CBOE Market Volatility Index
(VIX.X) got above that 30 level that Mark Phillips was looking
for.  In fact the VIX reached as high as 33 on an intraday
basis, but it again gave back ground into the close on the
rebound in stocks.  Still, there was definitely a heightened
sense of fear, and tonight's put/call ratio reflects that much.
The Nasdaq 100 Market Volatility Index (VXN.X) was also on the
rise, but didn't give the parabolic moon shot that I was looking
for.  We were close, but didn't quite reach it.

Going into Friday's session, the AMEX Biotechnology Sector
Index (BTK.X) was one of the most beaten up sectors of the
market.  Yet in Friday's session, the BTK earned the day's
best performing sector spot, which I think was a function of
shorts finally taking profits in the group.  The BTK's rebound
may portend further short covering to enter other sectors of
the technology segment of the market in the week or two ahead.

What Friday's initial move lower did accomplish was a further
drop in bullish percent measures across the board.  The NYSE
Bullish Percent ($BPNYA), the broadest of them all, shed another
2 percent on its way to 52.  It's certainly in a bullish
position, but it's still above the 50 midway point, meaning that
there's more downside than upside.  The Nasdaq-100 Bullish
Percent ($BPNDX), the most volatile of the group, was off by
another 3 stocks to the 16 percent level.  Clearly the tech
sector is by far the most oversold of the group, which means
that it could run the most in any upcoming rally from short
covering.  The Dow and S&P measures are also getting down there.

The COT data delivered a few surprises this weekend and I think
we got some good correlation between the bullish percent data
in the NASDAQ and the goings on in the futures market.  Nasdaq
commercial interests reached their most BULLISH reading in over
a year this past week, while the small traders reached their
most BEARISH reading in over a year.  The divergence into
extremes is usually what takes place around key turning points
in the particular market.  This development in light of the
bullish percent data gives the upside good probability in the
coming weeks for Nasdaq-100 stocks.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9474

Moving Averages:
(Simple)

 10-dma:  9617
 50-dma: 10009
200-dma:  9853



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1007

Moving Averages:
(Simple)

 10-dma: 1029
 50-dma: 1079
200-dma: 1108



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1110

Moving Averages:
(Simple)

 10-dma: 1141
 50-dma: 1261
200-dma: 1421



Biotech ($BTK)

What a reversal of fortune!  The BTK returned with bullish flare
Friday to earn the day's best performing sector spot.  The index
finished 4.20 percent higher.

Leaders to the upside included ImClone (NASDAQ:IMCL), Biogen
(NASDAQ:BGEN), Enzon (NASDAQ:ENZN), Amgen (NASDAQ:AMGN), and
IDEC Pharmaceuticals (NASDAQ:IDPH).

52-week High: 637
52-week Low : 327
Current     : 355

Moving Averages:
(Simple)

 10-dma: 361
 50-dma: 418
200-dma: 500


Airline ($XAL)

Despite the troubles with telecom, the airlines were worse off
Friday.  The XAL earned the worst performing sector spot for the
day with its 4.73 percent decline.

Leaders to the downside included Northwest Airlines (NASDAQ:NWAC),
Continental (NYSE:CAL), America West (NYSE:AWA), Southwest
(NYSE:LUV), and AMR (NYSE:AMR).

52-week High: 146
52-week Low :  59
Current     :  72

Moving Averages:
(Simple)

 10-dma: 76
 50-dma: 88
200-dma: 89

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

Market Volatility

The VIX spiked above 30 Friday, but fell back below that level
on the rebound in stocks.  Big surprise!

The VXN did the same.  It reached as high as 57.58 during the
day, keeping its trend of higher highs intact.

CBOE Market Volatility Index (VIX) - 29.77 +1.04
Nasdaq-100 Volatility Index  (VXN) - 55.67 +1.37

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

          Put/Call Ratio  Call Volume   Put Volume
Total          1.15        533,781       613,504
Equity Only    0.88        416,452       366,885
OEX            1.62         33,003        53,487
QQQ            0.40         57,295        22,650

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

Bullish Percent Data

           Current   Change   Status
NYSE          52      - 2     Bull Correction
NASDAQ-100    16      - 3     Bull Correction
DOW           43      - 3     Bear Confirmed
S&P 500       44      - 3     Bear Confirmed
S&P 100       46      - 2     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  1.31
10-Day Arms Index  1.52
21-Day Arms Index  1.35
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       1456          1741
NASDAQ     1711          1706

        New Highs      New Lows
NYSE       39             25
NASDAQ    177            242

        Volume (in millions)
NYSE     1,537
NASDAQ   1,826

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

Commitments Of Traders Report: 06/11/02

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

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

S&P 500

S&P commercials continued to position less bearish in the last
week by adding more longs than shorts.  Small traders went in the
opposite direction by reducing their net bullish position by about
4,000 contracts.

Commercials   Long      Short      Net     % Of OI 
05/28/02      362,607   442,845   (80,238)   (9.9%)
06/04/02      369,298   440,027   (70,729)   (8.6%)
06/11/02      388,751   457,018   (68,267)   (8.1%)

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

Small Traders Long      Short      Net     % of OI
05/28/02      172,313     57,803  114,510     49.8%
06/04/02      167,713     58,885  108,828     48.0%
06/11/02      174,357     69,464  104,893     43.0%

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 reached a second consecutive yearly high
in bullishness!!!  Small traders reached their most
bearish position in over a year!!!

Commercials   Long      Short      Net     % of OI 
05/28/02       49,669     44,900     4,769    5.0%
06/04/02       47,875     39,100     8,775    9.3%
06/11/02       45,946     36,878     9,068   10.9%

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   9,068  - 06/11/01

Small Traders  Long     Short      Net     % of OI
05/28/02       12,562    16,969    (4,407)    14.9%
06/04/02       12,162    21,420    (9,258)    27.2% 
06/11/02       14,561    25,330   (10,769)    27.0%

Most bearish reading of the year: (10,769) - 06/11/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Dow commercials continued to ease out of their net bullish
position last week.  The group added a few more shorts, and
dropped a few longs.  Small traders were flat for the week.

Commercials   Long      Short      Net     % of OI
05/28/02       20,289    15,513    4,776     13.3%
06/04/02       20,564    16,169    4,395     11.0% 
06/11/02       20,369    17,172    3,197     8.5%

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
05/28/02        5,709     9,180    (3,471)   (23.3%)
06/04/02        7,114     9,639    (2,525)   (14.7%) 
06/11/02        7,500     9,925    (2,425)   (13.9%)

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

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


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

Poppa Plays
By Eric Utley

Dads are as cool as it gets.  At least mine is.  In celebration of
Father's Day, I'm going to review three stocks that are near and
dear to the old man.  Happy Father's Day to all the great dads
out there!  You, too, grandpa!

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

Please send your questions and suggestions to:

Contact Support 

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

Polaris Industries (NYSE:PII)

At last count, there were five Polaris machines in the
household, and a whole lot of clothing and accessories.
Of the five machines, three are super fast snowmobiles.
Dad rides the Rocky Mountain King 800 model, with two
inch paddles of course.

Polaris makes all terrain vehicles, snowmobiles, motorcycles
and personal watercraft.  Its entrance into the motorcycle
market put the company in direct competition with Harley
Davidson (NYSE:HDI).

PII has done incredibly well for the last two years.  Its
rally really began in early 2000, along with most consumer
sensitive stocks.  Which brings up a good point.  PII is a
company that is almost entirely levered to the spending of
the consumer.  Its products are discretionary, so if the
consumer stops spending, PII could be in trouble.

But the market doesn't think so, at least not recently.  The
stock is coming off of an all-time high up around $75, from
which it's only off by about eight points.  

Technically, the stock is trading near a triple bottom at the
$67 level.  That level is pretty close to the ascending trend
line that has been in place since last fall.  I think if PII
breaks down below its short term support, then it could be in
for lower prices.  But I wouldn't be bearish on the stock
even if it did breakdown until we start seeing more signs that
the market is giving up on the consumer.  PII has been such
a strong stock for over two years, so a little pullback over
this summer wouldn't be such a bad thing.

PII – Daily


 

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

Ford Motor (NYSE:F)

Mine is a Ford family.  That includes two big trucks, a Land
Rover, and from what mom has said, a Jaguar is in the future
plans.  But I don't know if dad will go for that.  He's kind
of conservative.

Anyway, Land Rover and Jaguar, as well as Aston Martin and Volvo,
among others, are brands under the Ford umbrella.  

The auto industry is doing very well as evidenced by the run
in General Motors (NYSE:GM), and stocks like Autozone (NYSE:AZO)
and Group 1 Automotive (NYSE:GPI).  There's been some give back
in the sector over the last month, but all in all, the auto
sector has done very well this year based on the strength of the
U.S. consumer.

Of the auto makers, General Motors is clearly doing much better
than Ford.  Ford is a turnaround story, noting how the company
brought back its own blood into the management position and the
weak performance of the stock.  Over the last six months, however,
F has made some technical improvements.

The stock has built a base between the $14 and $18 levels, and
is just coming off a new relative high.  It's still on a buy
signal, but the bigger thing to focus on is that F is still well
below its bearish resistance line, meaning that the longer
term picture is still a bearish one.  The stock is trading around
a five year low, which isn't the most bullish of situations.

F - Below Bearish Resistance


 


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

Gart Sports (NASDAQ:GRTS)

Gart's is a Denver based sporting goods retailer.  Unless you
live in the west, you've probably never heard of the company.
It's similar to the Galayan's in other parts of the country.
Gart's sells most all things outdoors.  And dad loves the great
outdoors.

Since dad is a consumer, like most dads, it shouldn't come as
a surprise that the three stocks are dependent on the spending
of the consumer.  Gart's, being a retailer, is obviously not
an exception.  And like PII, GRTS has been in a bull run for
the last two years like most retailers.  But it's given a little
back over the last month.  

But again like PII, I think it's too early to get bearish on
these types of stocks because at this point in the trend, the
recent pullback can be viewed as nothing more than a routine
profit taking move into what may possibly turn into an
extended period of consolidation.  Technically, GRTS has its
bullish support line coming into play near the $30 level,
which is also where the stock has some historical congestion
from late April.  That level may serve as support going
forward.  If not, then GRTS may fall back down to the $25 area.

GRTS – Daily


 

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

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


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

==================================================
Market Watch for the week of June 17th
==================================================

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

Symbol  Company               Date           Comment      EPS Est

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

None

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

BBY    Best Buy               Tue, Jun 18  -----N/A-----     0.21
CC     Circuit City Stores    Tue, Jun 18  -----N/A-----     0.07
SJM    J. M. Smucker Company  Tue, Jun 18  -----N/A-----     0.37
JBL    Jabil Circuit          Tue, Jun 18  -----N/A-----     0.11
LEH    Lehman Brothers        Tue, Jun 18  Before the Bell   1.05
ORCL   Oracle                 Tue, Jun 18  After the Bell    0.12
PIR    Pier 1 Imports         Tue, Jun 18  Before the Bell   0.23

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

ATYT   ATI Technologies       Wed, Jun 19  -----N/A-----     0.08
BSC    Bear Stearns           Wed, Jun 19  -----N/A-----     1.20
GTK    Gtech Holdings         Wed, Jun 19  Before the Bell   0.43
GUC    Gucci Group NV         Wed, Jun 19  -----N/A-----     0.41
LEN    Lennar                 Wed, Jun 19  Before the Bell   1.24
MKC    McCormick & Co         Wed, Jun 19  Before the Bell   0.22
MWD    Morgn Stanley Dn Wttr  Wed, Jun 19  Before the Bell   0.72
RGC    Regal Ent Grp          Wed, Jun 19  Before the Bell   0.27
SCS    Steelcase              Wed, Jun 19  After the Bell   -0.08
WOR    Worthington Industries Wed, Jun 19  -----N/A-----     0.21

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

BBBY   Bed Bath&Beyond        Thu, Jun 20  -----N/A-----     0.13
CCL    Carnival               Thu, Jun 20  Before the Bell   0.30
COGN   Cognos                 Thu, Jun 20  After the Bell    0.09
DRI    Darden Restaurants     Thu, Jun 20  After the Bell    0.39
GS     Goldman Sachs          Thu, Jun 20  Before the Bell   0.99
SLR    Solectron              Thu, Jun 20  After the Bell   -0.05
TEK    Tektronix              Thu, Jun 20  After the Bell    0.12
TIBX   TIBCO Software         Thu, Jun 20  After the Bell    0.00

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

None

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

Symbol  Company Name              Ratio    Payable     Executable

WTRS    Waters Instruments        3:2      06/14       06/17
OZRK    Bank of the Ozarks, Inc.  2:1      06/14       06/17
MI      Marshall & Ilsley         2:1      06/14       06/17
ALFA    Alfa Corp                 2:1      06/14       06/17
SGA     Saga Communications       5:4      06/15       06/17
HCBK    Hudson City Bancorp       2:1      06/17       06/18
WL      Wilmington Trust          2:1      06/17       06/18
YUM     Tricon Global Restaurants 2:1      06/17       06/18
PMI     PMI Group, Inc.           2:1      06/17       06/18
MHO     Schottenstein Homes       2:1      06/18       06/19
KSWS    K-Swiss Inc.              2:1      06/21       06/24
JNC     John Nuveen Co            2:1      06/21       06/24
PNRA    Panera Bread              2:1      06/24       06/25
PENN    Penn National Gaming, Inc.2:1      06/24       06/25
THC     Tenet Healthcare Corp.    3:2      06/27       06/28
GMRK    GulfMark Offshore, Inc.   2:1      06/27       06/28
TRBS    Texas Regional Bancshares 3:2      06/27       06/28
STJ     St. Jude Medical, Inc.    2:1      06/28       07/01
JILL    J. Jill Group             3:2      06/28       07/01
MMC     Marsh McLennan Companies  2:1      06/28       07/01
CMC     Commercial Metals         2:1      06/28       07/01
FPU     Florida Public Utilities  4:3      06/28       07/01

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

Earnings from the big brokerages--the Bear, Morgy, and Goldy--hit 
the market mid-week, while tech investors will fasten their seat 
belts--and wear their crash helmets?--for Tuesday evening's earning 
report from Oracle.  This week's major economic reports include 
Tuesday's CPI and Housing Starts. Then there's Thursday's Leading 
Economic Indicators and the Philly Fed report.  Other than that it 
will be a very quiet week!

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

Monday, 06/17/02
----------------
None

Tuesday, 06/18/02
-----------------
CPI (BB)                May  Forecast:   0.1%  Previous:    0.5%
Core CPI (BB)           May  Forecast:   0.2%  Previous:    0.3%
Housing Starts (BB)     May  Forecast: 1.600M  Previous:  1.555M
Building Permits (BB)   May  Forecast: 1.620M  Previous:  1.634M

Wednesday, 06/19/02
-------------------

None

Thursday, 06/20/02
------------------
Initial Claims (BB)    06/15  Forecast:   385K  Previous:    390K
Current Account (BB)      Q1  Forecast:-$107.5B Previous: -$98.8B
Trade Balance (BB)       Apr  Forecast:-$32.1B  Previous: -$31.6B
Leading Indicators (DM)  May  Forecast:   0.2%  Previous:   -0.4%
Philadelphia Fed (DM)    Jun  Forecast:   10.6  Previous:     9.1
Treasury Budget (DM)     May  Forecast:-$60.0B  Previous: -$27.9B

Friday, 06/21/02
----------------

None

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

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The Option Investor Newsletter                   Sunday 06-16-2002
Sunday                                                      2 of 5


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

THE SECTOR BEAT - 6/16
by Leigh Stevens

What a day on Friday and the week - not only for the market, but 
a lot was going on in the sectors too.

Airlines took another hit. The small cap Amex Composite and the 
Russell 2000 rebounded from support areas - these groups have 
retraced around 50% of their strong rallies from the Sept. 
bottom, which is some contrast to the main indices and big cap 
stocks many of which are at or near their prior bottoms.   
Biotech bounced from the low end of a long-standing downtrend 
channel and may finally be ready for an oversold bounce - time 
will tell if its more than a feeble "dead cat" one. The Broker-
dealer index may have hit at least a temporary bottom. 

The Cyclical index rebounded strongly after approaching its 200-
day MA but is under strong resistance yet. The Defense stocks are 
retreating again from its bear flag formation as predicted. The 
Forest & Paper Products group is holding important prior lows. 
The High Tech index is trying to bounce from the low end of its 
downtrend channel - stay tuned on tech. Healthcare (HMO) may have 
topped out - stay tuned on this one. The Health Provider sector 
is continuing to correct but bounced from its 50-day MA. 

Gold and Silver sector index (XAU) is bounding from its 50% 
retracement line, but may have lower to go. Oil Services (OIH) is 
holding prior lows from April - may be a buy again. And, the Oil 
Sector (OIX) rebounded from important chart and 200-day MA 
support levels. The Software Index (GSO) is hanging in around its 
May lows - Microsoft is still making money and so are some others 
- hardware may be in a funk but replacement/upgraded software is 
to PCs like razors are to their holders. 

Telecoms (XTC) look like they will never find support - but may 
have found a "resting" place around recent lows at the low end of 
its downtrend channel. The chipmakers or Semiconductors (SOX) 
index is resisting more than a 75% retracement of its Sept - 
March uptrend - contrasted to the Nas 100 (NDX) hitting its Sept. 
bottom already. And, the Transports - the Dow Transportation 
Average - continues to look like it is bottoming - enough 
strength in trucking, air transport and in rails to offset the 5 
airlines in this 20 stock index. 


HIGHER ON THE DAY ON Friday - 


 

DOWN ON THE DAY on Friday - 


 

SECTOR HIGHLIGHT -

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

PRIOR COMMENTS - 
Saw potential of top and downside reversal as suggested by the 
bearish price/RSI divergence. A close below 620 should provide 
initial evidence for a downside reversal, but "confirmation" 
would be on a close under 620.



  

Reversal could be in progress based on recent price action and 
possible double top. However, break of trendline is the 
"confirming" event.  More time is needed to assess this one. HMO 
needs to regain prior high to suggest that at least interim top 
is not forming.  
 
TRADE RECOMMENDATIONS & REVIEW - 

NEW TRADES - 

Buy BBH, Biotech HOLDR's at 80.50 or less; Stop: 76.70
Recent Close: 82.96 - 6/14
Objective: 93 or higher 
TRADE TYPE: High Risk 
RATIONALE: Biotech has retreated to low end of downtrend channel 
and is oversold; play is for a bounce, back up to resistance in 
mid channel 


 

TRADE LIQUIDATIONS - 

STOPPED OUT ON LONG SMALL CAP iSHARES - 
Exited IJS iShares, S&P 600 Value, long at 90.9 - sold at 87.00 
on 87.3 stop
OR - alternatively, one of either: 
IJT iShares, S&P 600 Growth long at 74.85 - sold at 71.60 on 
72.00 stop
IWM iShares, Russell 2000 Index, long at 93.80 - at 89.60 on 
89.70 stop
TRADE NOTE: Caught in extreme volatility of Friday and stopped 
out on opening. All closed well above opening levels which 
exceeded support levels slightly, then rebounded. Those still 
long, use suggested stops on close-only basis; i.e., exit only on 
closes below stop points. Will consider reentry if the group 
exhibits bottoming action ahead.  



   

OPEN POSITIONS - NONE  

SECTOR REVIEW - 

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

PRIOR COMMENTS: Close under 76.00 suggests possibility 
that XAL could move to next potential support around 70. 

The weak get weaker! Airlines fell sharply when XAL fell under 
prior "line" of support at 75.3 and closed near its low at 72, at 
next support; if 72 is pierced, next lower support looks like 65-
66 area. Resistance is at 74-75. Sector remains under pressure - 
flying is a drag these days and summer driving is in vogue. 
Business travelers haven't come back in force either.  
LAST UPDATE: 6/16

Amex Composite Index ($XAX.X)

863 is major support, but XAX bounced from line of support in 897 
area. 
LAST UPDATE: 6/16

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

PRIOR COMMENTS: Significant double top in place in 916-918 area; 
well under its 200-day moving average; downside target to 830 was 
exceeded; possible that BKX could retest Feb. lows in 780 area. 

Strong recent rebound, after index exceeded a 75% retracement of 
Sept - March rally.  Bullish action if sector can close back 
above 845. 
LAST UPDATE: 6/16

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

At the low end of its downtrend channel around 340, but action is 
weak.  Only bullish technical is RSI divergence, as it has not 
"confirmed" the recent low - this is only "potential" - sector 
continues very weak.  Needs close back above 375 to reverse. 
LAST UPDATE: 6/13 

Broker Dealer Index ($XBD.X)

If 62% retracement (of Sept.-Feb. rally) can't "hold" in 412 
area, next target is 380. Bullish Price/RSI divergence, but this 
is unrealized potential at this point. XBD needs to get back 
above 436 to reverse. Hard to imaging much of a rebound in the 
S&P without some rebound in the brokers. 
LAST UPDATE: 6/13

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

Possible double bottom in 580 area - if this level is taken out, 
then next potential support looks to be at the Sept. lows in the 
541 area. 
LAST UPDATE: 6/13 

Computer Boxmaker Index ($BMX.X) 
STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS  

Possible double low is setting up in the 83 area. If this gives 
way, BMX may be headed to 74-75 area, where sector bottomed in 
Sept.
LAST UPDATE: 6/13

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 

New closing low in 551 area, suggest the cyclical index could be 
headed to a convergence with its 200-day moving average in the 
534 area. Needs to stay above 550-551 on closing basis to suggest 
that we're merely back at low end of a trading range. 
LAST UPDATE: 6/13

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

Looks lower still - "bear flag" pattern looks to be forming, 
which suggests that there will be another downswing ahead.
Continue to have objective to lower levels, perhaps back to 600 
area. Close above 655 is needed to reverse downtrend.  
LAST UPDATE: 6/13

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. 

Financial Index as acceleration downside momentum and appears 
heading toward the 552 area, where NF bottomed in Feb. Close 
above 580 is needed to reverse the (down) trend. 
LAST UPDATE: 6/13

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)

This sector represents the hospitals, urgent care facilities and 
the like - the health care providers that bill for health 
services. 

RXH has been "hugging" the 50-day moving average, which has been 
acting as a sort of curved trendline.  Sector looks like upside 
momentum has slowed considerably and does not appear to have 
enough strength to pierce its April peaks in the 368 area.  If 
they can't take them higher, the tendency has been to take stock 
groups lower at some point.  Loss of momentum tends to reach a 
point where prices start to fall due to too few buyers left to 
keep the stocks going up.  If so, fund managers like to book some 
profits and rotate into the next promising sector.  

Key support is in the 343 area - a close below this level, 
suggest a trend reversal, with potential back to 325. 
LAST UPDATE: 6/13

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

PRIOR COMMENTS - 
Saw potential of top and downside reversal as suggested by the 
bearish price/RSI divergence. A close below 620 should provide 
initial evidence for a downside reversal, but "confirmation" 
would be on a close under 620.

** SEE CHART ABOVE IN SECTOR HIGHLIGHT SECTION ** 

Reversal could be in progress based on recent price action and 
possible double top. However, break of trendline is the 
"confirming" event.  More time is needed to assess this one. HMO 
needs to regain prior high to suggest that at least interim top 
is not forming.  
LAST UPDATE: 6/16

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) - 
STOCKS: AHP; AMGN; AZN; BMY; FRX; GSK; IVX; JNJ; KG; LLY; MRK; 
PFE; PHA; SGP

Retail Index; S&P - CBOE ($RLX.X)
STOCKS: ABS; AZO; BBBY; BBY; BLI; CC; COST; CVS; DDS; DG; FD; 
GPS; HD; JCP; JWN; KM; KR; KSS; LOW; LTD; MAY; ODP; RSH; S; SHW; 
SPLS; SWY; TGT; TIF; TJX; TOY; WAG; WIN; WMT


Russell 2000 Index ($RUT.X)
The Russell 2000 has had one close under the Feb. double bottom 
low in the 456 area. A rebound is needed to above this level to 
suggest that the RUT was going to stop its correction here. 
Below, 456, a next downside target is projected at 449-450; then, 
around 432. The RUT iShares (IWM) are, so far, holding above its 
prior (Feb.) low at 90. A key juncture. 


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

Completed 75% retracement - SOX needs to hold 425-426 to suggest 
that it could rebound further, say back up the 470 area at least.  
A close under 425-426 suggests potential for a retest of the 
Sept. bottom around 350. 
LAST UPDATE: 6/13

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

Bullish Price/RSI divergence and possible exhaustion gap signals 
some further upside.  Bullish falling "wedge" pattern is bullish 
as well. A move above 120 would be an initial indication that GSO 
could reverse its downtrend for a time. Software sector index has 
fallen from the 200 area in Feb. to 114 recently. A close below 
1113 would suggest that further weakness was possible as it would 
exceed both the early-May bottom and the September lows.  
LAST UPDATE: 6/13 

TelecomS Index; No. American ($XTC.X)
STOCKS: AT; BLS; FON; LU; LVLT; MCIT; NT; NXTL; Q; SBC; T; TMX; 
VZ; WCOM

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. 
LAST UPDATE: 6/11


Utility Sector Index ($UTY.X)

A trading range market like this is what momentum or 
"overbought/oversold" oscillators are very effective for, as when 
prices retreat back to such a well-defined "line" of support AND 
the Stochastic, RSI or MACD indicators are registering oversold, 
it usually represents a good trading opportunity.  Once again, 
the UTY sector index rebounded from the low end of its range in 
the 304-305 area.  328-330 is resistance, then 335.  

Wireless Telecom Sector Index  ($YLS.X)


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


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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

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

CALLS              Mon    Tue    Wed    Thu   Week

DGX      88.24    0.96  -0.50  -2.17  -0.95  -2.69  Good support
BRCD     19.77    0.56   0.13  -0.89   0.13   0.22  Dropped
AZO      80.59   -0.43  -0.25  -0.23  -1.04  -2.36  Rally ready
WLP      80.95   -0.11   5.80   0.80  -2.15   2.89  Dropped
OHP      49.33    0.45   0.68   0.06  -0.54   0.28  10-dma entry
BGEN     42.42   -0.74  -1.63  -0.60   0.25   0.26  New, support
VRTX     17.83    0.26  -1.58   0.12   0.39   0.41  New, rebound


PUTS               

GS       72.85    0.79  -2.64   0.40  -1.20  -1.10  Dropped
WHR      66.40   -0.22  -1.45   1.78  -1.53  -2.35  $65 bounce
PMI      76.90   -0.80  -3.04  -0.53  -2.41  -5.90  Touched $75
MMC      92.55    0.86  -2.39  -1.14  -1.62  -3.79  Resistance
MIL      34.07   -0.37  -1.42  -1.43  -0.06  -3.15  At entry
HIG      59.93    0.00  -2.20   0.50  -1.70  -3.07  Short cover
SPW     121.21   -6.86  -3.40   3.20  -2.52  -9.05  Broken low
ENZN     25.54    0.82  -1.86   1.01  -0.39   1.26  Pulled back
IBM      76.20   -1.50  -1.31  -0.86   0.95  -2.10  Entry point
RYL      49.10   -2.41   1.03   0.16  -3.22  -4.52  Below $50
IWM      91.50   -0.10  -1.50   0.30  -1.30  -2.10  New lower low
LLL      52.05    1.19  -1.00  -1.14  -2.90  -6.50  Exit at 50???
CB       70.30    0.02  -2.30  -0.30  -2.00  -3.63  Rollover next
ZLC      39.13   -0.43  -0.55   0.08  -1.08  -1.85  10-dma entry
PDX      23.37  -11.91   0.55  -0.77  -1.16 –14.74  New, trend


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

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

BGEN – Biogen, Inc. $42.42 (+0.26 last week)

See details in play list




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

PDX – Pediatrix $23.37 (-14.74 last week)

See details in play list





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

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


CALLS
^^^^^

WLP $80.95 (+2.89) WLP fell further into its gap during
today’s session.  The stock should’ve held up better given
the weakness in the broader market.  We’re afraid that it
could pullback further down to its gap from Tuesday and erase
the gains that we captured.  The stock could rebound if it
fills its gap, but we don’t want to take the risk of letting
our profits slip away.  Look for a bounce to exit into.

BRCD $19.77 (+0.28) After what turned out to be an exceptionally
volatile week in the broad markets, BRCD closed with a fractional
gain.  Despite its resilience in the face of several negative
factors, we are having a hard time justifying keeping the play
active.  BRCD just hasn't been able to advance and with the
broad markets still looking rather weak, the prudent choice is to
pull the plug this weekend.  The tight range the stock has been
trading in works against option buyers as the passage of time
decays the option premium.  We're removing BRCD from the play
list this weekend to make room for better candidates.


PUTS
^^^^

GS $72.85 (-1.10) It's been a wild and wooly path for our GS
play, but it has been a solid winning play nonetheless.  When
we initiated coverage, our target was a drop to the $70 level,
which GS visited twice last week.  With the second bounce off
that level on Friday and the strong rebound in the Brokerage
sector, it's time to harvest our gains and move on.  Use any
weakness early next week to close out open plays.


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

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

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

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

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

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

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


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

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


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The Option Investor Newsletter                   Sunday 06-16-2002
Sunday                                                      3 of 5


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

BGEN – Biogen, Inc. $42.42 (+0.26 last week)

Biogen is a biopharmaceutical company primarily engaged in the
business of developing, manufacturing and marketing drugs for
human healthcare.  BGEN currently derives revenues from sales
of its Avonex product for the treatment of relapsing forms of
multiple sclerosis and from royalties on worldwide sales by
the company's licensees of a number of other patented products.
Other products include certain forms of alpha interferon,
hepatitis B vaccines and hepatitis B diagnostic test kits.  In
order to maintain its leadership role in the industry, BGEN
continues to have an active research and development program.

The recent plunge in the Biotech sector (BTK.X) has gotten a lot
of play in the media in recent weeks and judging by the strong
rebound off the lows on Friday, it may be the bulls' turn in the
spotlight.  While there is no doubt that the sector is very weak,
it is quite possibly due for a sustained oversold rebound in the
near-term.  Aside from the current circus surrounding the alleged
misdeeds at IMCL, few firms in the sector have received more
attention lately than BGEN.  After shooting higher on May 24th
on the heels of its Amevive approval from the FDA advisory
committee, that move was reversed on June 7th on the company's
downward revision of Avonex Sales.  Then Thursday night, the
company received a 'Complete Response' letter from the FDA on
Amevive, which included a request for further clarification of
data previously submitted.  The initial response was negative
driving the stock down to the $37 in the after-hours session
before further analysis revealed that the request was not a
negative.  BGEN shot higher at the open on Friday, gaining nearly
$3 to end at the high of the day on volume that nearly doubled
the ADV.  Can you say volatility?  So can we, and given the
strong performance on Friday, BGEN looks like it could lead the
BTK index on a decent rally next week.  The stock came to rest
right at recent resistance near $42.50, and a breakout above $43
could lead to filling the gap up to the $47.50 level.  An
intraday dip near the $40 level would make for an even better
entry, provided it is followed by solid buying volume.  We are
initiating coverage with our stop set at $38.50, the site of
last week's intraday lows.

*** June contracts expire this week ***

BUY CALL JUN-40 BGQ-FH OI=9572 at $3.00 SL=1.50
BUY CALL JUL-40 BGQ-GH OI=2075 at $4.50 SL=2.75
BUY CALL JUL-45*BGQ-GI OI=6236 at $1.65 SL=0.75
BUY CALL OCT-45 BGQ-JI OI=2814 at $4.00 SL=2.50

Average Daily Volume = 4.64 mln


VRTX – Vertex Pharmaceuticals $17.83 (+0.41 last week)

Seeking to discover, develop and commercialize novel
small-molecule drugs that address significant markets with
major unmet medical needs, VRTX is a relatively small, but
potent biotechnology company.  Targeting the treatment of
viral diseases, cancer, auto-immune and inflammatory diseases
and neurological disorders, the company's drug design platform
integrates advanced biology, chemistry, biophysics and
information technology to make the drug discovery process
more efficient and productive.

BGEN definitely lit the fire for a recovery in the Biotech
sector (BTK.X) on Friday following clarification of the
'Complete Approval' letter from the FDA regarding its Amevive
drug.  That helped the BTK to recover from its multi-year lows
near $328 and by the time the dust had cleared at the closing
bell, it was the best performing sector with 4.2% gain.  This
area of the market has been heavily sold over the past several
weeks and appears overdue for an oversold rally.  Away from BGEN,
there are other stocks in the sector that are looking ready for
a meaningful rally as well.  Foremost among them is VRTX, which
has now successfully tested the September lows near $15.50.
After hitting that level again last Wednesday, the stock began to
see some buying interest, which really picked up speed on Friday
on the back of the BGEN-motivated sector strength.  Even the
early morning weakness on Friday was unable to drive VRTX back
under the $16 level, before the bulls showed up with cash in hand
to drive the stock higher for a better than 7% gain on the day.
Undoubtedly, a portion of the buying was from shorts covering,
and there should be more of that action as the stock clears the
$18 level and then $19.  Due to the significant overhead
resistance, the best entries will present themselves on intraday
dips to support, first at $17 and then down near $16.  When
buying the dips, we need to watch for buying in the BTK to
confirm any bullish action in VRTX.  We can set a tight stop at
$15.40, just below its multi-year lows.

*** June contracts expire this week ***

BUY CALL JUN-17 VQR-FW OI=140 at $0.95 SL=0.50
BUY CALL JUL-17 VQR-GW OI=220 at $1.70 SL=0.75
BUY CALL JUL-20*VQR-GD OI=608 at $0.75 SL=0.25
BUY CALL AUG-20 VQR-JD OI=  5 at $2.05 SL=1.00

Average Daily Volume = 987 K



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

AZO – AutoZone, Inc. $80.59 (-2.36 last week)

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

Was that the entry point we've been patiently waiting for?
Significant negative developments for the broad market drove
all the major indices below major support levels last week, but
they clawed their way back at the close on Friday.  AZO took a
plunge down to the $79 level but then rebounded to close back
over the $80 level.  The big question is whether this is the
beginning of a decent rally or if it is just a short-lived
oversold bounce.  The sharp dip in Consumer Confidence numbers
Friday morning could be an important warning sign for our AZO
play, because if consumers are tucking their wallets away, that
resultant lack of spending will be felt even by strong stocks
like AZO.  Despite this bearish influence, AZO continues to
behave well relative to the broader markets and until the stock
gives up this position of relative strength, we continue to like
the stock on intraday dips.  Repeated rebounds from the $80 level
can still be used for entering new positions, although more
conservative traders will want to wait for a move through the
$81 intraday resistance before playing.  We are leaving our stop
at $79.50 and a close below that level will move AZO to the drop
list.  Keep a sharp eye on the intraday volume and look for
strong buying volume before playing.

*** June contracts expire this week ***

BUY CALL JUN-80 AZO-FP OI=3064 at $1.85 SL=1.00
BUY CALL JUL-80*AZO-GP OI= 698 at $3.90 SL=2.50
BUY CALL JUL-85 AZO-GQ OI= 854 at $1.70 SL=0.75
BUY CALL SEP-85 AZO-IQ OI= 480 at $4.80 SL=3.00

Average Daily Volume = 1.03 mln


DGX – Quest Diagnostics $88.24 (-2.69 last week)

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

Friday appears to have been a defining moment for our DGX play,
with the opening lows falling right to the ascending trendline
near $85.50 before staging an impressive rebound to close the
day essentially unchanged.  That leaves the stock just
fractionally above our $88 stop and the big question is whether
this was a high odds entry point or a warning of more weakness to
come.  Given the quick bounce off the trendline, we're leaning
towards this being an entry point, but we will likely need to see
some follow through early next week to convince existing longs to
stay long.  Intraday dips as low as $87.50 can be used to
establish new positions, but keep in mind that our stop remains
at $88.  A close below that level will spell an end to our play,
so the more conservative approach will be to wait for a move back
through the $90 resistance level.  While the HMO index closed
negative on Friday, its rebound off the lows can be viewed as a
successful test of the $625 support level.  Look for the HMO
index to hold this support level and stronger buying volume to
propel DGX higher as confirmation that the bulls have regained
the upper hand.

*** June contracts expire this week ***

BUY CALL JUN-85 DGX-FQ OI=2300 at $3.90 SL=2.50
BUY CALL JUN-90 DGX-FR OI= 618 at $0.75 SL=0.25
BUY CALL JUL-90*DGX-GR OI=1380 at $3.00 SL=1.50
BUY CALL JUL-95 DGX-GS OI= 365 at $1.20 SL=0.50

Average Daily Volume = 936 K


OHP – Oxford Health Plans, Inc. $49.33 (+0.28 last week)

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

Given the wild swings in the broad market last week, the action
in our OHP play was downright encouraging.  Friday was a perfect
example of the stock's relative strength, as it only dipped to
the 10-dma ($48.84) before rebounding for most of the day.
Unfortunately, the stock wasn't able to hold altitude and fell
back to close in the lower half of its intraday range.  The
action in the Health Care Payor index (HMO.X) is instructive here
as well, dropping to the $625 support level before rebounding for
much of the day.  Just like OHP, the HMO index fell back in the
final 90 minutes of trading, making it hard to call victory for
either the bulls or the bears.  We're looking for the bulls to
continue defending both OHP and the HMO index near support next
week, so we want to continue pursuing entries on intraday dips.
The ideal opportunity would come with another dip near the 10-dma
on OHP with the HMO index confirming its own support near $625.
Of course, more conservative players will want to wait for a
rally through the $51 level before taking a position.  We are
keeping our stop set at $47.

*** June contracts expire this week ***

BUY CALL JUN-47 OHP-FT OI=1820 at $2.30 SL=1.25
BUY CALL JUN-50 OHP-FJ OI=1293 at $0.65 SL=0.25
BUY CALL JUL-47 OHP-GT OI= 509 at $3.20 SL=1.50
BUY CALL JUL-50*OHP-GJ OI= 450 at $1.70 SL=0.75
BUY CALL AUG-50 OHP-HJ OI=2082.at $2.50 SL=1.25

Average Daily Volume = 783 K



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

PDX – Pediatrix $23.37 (-14.74 last week)

Pediatrix Medical Group, Inc. is a provider of physician services
at hospital-based neonatal intensive care units (NICUs). NICUs
are staffed by neonatologists, who are pediatricians with
additional training to care for newborn infants with low birth
weight and other medical complications. In addition, the Company
is a provider of perinatal physician services. Perinatologists
are obstetricians with additional training to care for women with
high risk and/or complicated pregnancies and their fetuses.

One scandal after another is rocking the market.  And it
seems no industry is immune.  Last week PDX took a tumble after
the Federal Trade Commission requested information about the
company’s acquisition of its chief rival Magella.  The
acquisition was a much hyped and highly touted event for PDX
which saw its stock sore into the close of the merger, which
brought together the two largest managers of neonatologists
and perinatologists.  Though the details of the FTC’s probe
were not released, investors decided to shoot first and ask
questions later.  The stock tumbled on the announcement and
continued to slide as the week wore on without so much as a
sign of relief on the horizon.  The downward momentum appears to
be picking up steam as the stock didn’t even try to rebound
during today’s session like the broader market did.  With
volume continuing to come in at well above the average daily
trading and the stock continuing to decline, momentum players
can look to enter new put plays early next week on a breakdown
below the $23 level.  Just make sure to confirm heavy intraday
trading activity on such a breakdown.  Below the $23, the stock
doesn’t have much in the way of support until the $20 mark.
And below there, it’s empty to around the $15 level.  Our stop
Is in place at the $27.50 level.

BUY PUT JUL-30 PDX-SF OI=19 at $7.40 SL=4.75
BUY PUT JUL-25*PDX-SE OI=54 at $3.50 SL=1.75

Average Daily Volume = 383 K



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The Option Investor Newsletter                   Sunday 06-16-2002
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*****************
CURRENT PUT PLAYS
*****************

ENZN – Enzon, Inc. $25.54 (+1.26 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.

So ENZN had a solid 7% gain on Friday to close just below major
resistance.  The important question for the bulls to answer is
whether they feel lucky.  Few sectors in the market have been
beaten up as badly as the Biotechs in recent weeks, and there
is still plenty of air underneath the Biotechnology index (BTK.X)
before it reaches meaningful support ($290) and the bounce that
began on Friday could very well be little more than an oversold
rebound before the bears re-emerge from their caves.  As evidence
that the rebound in ENZN was little more than short-covering, it
is interesting to note that the rally stopped cold just below the
$27 level before dropping sharply at the end of the day.  While
that reversal right at resistance looked like a solid entry point
into the play, we'll need to see how things shake out next week
before we'll know for sure.  Additional failed rallies below
resistance can be used for new entries, while a drop back under
the $24.75 intraday support level could also be used to initiate
new plays.  ENZN's recent lows at $23 are really the line in the
sand and we'll need to see that level broken before we'll know for
sure that the bears are still in control.  Monitor the action in
the BTK for signs of additional weakness before playing and keep
stops set at $27.

*** June contracts expire this week ***

BUY PUT JUN-25 QYZ-RE OI=171 at $1.05 SL=0.50
BUY PUT JUL-25*QYZ-SE OI=273 at $2.40 SL=1.25
BUY PUT JUL-22 QYZ-SX OI=376 at $1.25 SL=0.50

Average Daily Volume = 1.42 mln


IBM - International Bus. Machines $76.17 (-2.13 last week)

International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

The action in the broad markets on Friday provided a stark
reminder of how fragile current investor sentiment is.  The
negative international news and sharp drop in Consumer Sentiment
sent the broad markets plunging to new lows for this cycle before
solid buying (short-covering) sent the indices back near the
unchanged level at the close.  IBM fell right to its lows from
earlier in the week ($73.25) before recovering steadily
throughout the day to post a fractional gain.  While a fractional
gain may not sound great, it is important to note that the stock
was the second best gainer on the DOW, second only to MSFT.
Recall that a primary catalyst for this play is our expectation
that the company will have to warn ahead of earnings due to a big
shortfall in service orders.  Strong rumors have been circulating
that the company has on the order of $4 billion in service orders
to companies that have recently filed for bankruptcy.  If these
rumors turn out to be true, IBM will be quickly hitting new
multi-year lows.  The PnF chart is pointing to the likelihood of
more price weakness, as IBM is currently on a sell signal with a
price objective of $61.  With the broad markets currently so near
the September lows, it seems reasonable to expect that they will
test those levels before any serious rally erupts and we're
looking for IBM to be one of the leaders to the downside.  Use
intraday rallies near the $78-79 resistance zone to initiate new
positions, or else wait for a drop below the $73 level.  If
entering on a drop to new lows, make sure the selling volume is
heavy.  While waiting for resolution of the current bull-bear
tug-of-war, we are keeping a fairly wide stop at $80.

*** June contracts expire this week ***

BUY PUT JUN-75 IBM-RO OI=19232 at $1.45 SL=0.75
BUY PUT JUL-75*IBM-SO OI=29685 at $3.50 SL=1.75
BUY PUT JUL-70 IBM-SN OI=17038 at $1.85 SL=1.00

Average Daily Volume = 8.52 mln


IWM – Russell 2000 iShares $91.50 (-2.10 last week)

The iShares Russell 2000 Index Fund seeks investment results that
correspond to the performance of publicly traded U.S. small-cap
stocks, as represented by the Russell 2000 index.  The index
represents the 2000 smallest companies in the Russell 3000 index.

As we mentioned on Thursday, we're looking for the upcoming
re-shuffling of the components of the Russell 2000 to have a
bearish impact on the index leading up to the end of the month.
Despite the relative outperformance of small-cap stocks since
the September lows, the Russell 2000 has been experiencing
significant weakness since tagging a fresh 18-month high in
mid-April.  The decline over the past month had dropped the IWM
right to the level of its February lows as of Thursday.  The
early drop on Friday morning created a fresh PnF triple-bottom
sell signal and the bearish price objective has now been extended
down to $76.  Additionally, the drop below $90 violated the
bullish support line for the first time since the September lows.
With that being said, the rebound off the lows on Friday had the
looks of a bear-trap, so we need to be careful.  In addition to
the bearish developments on the PnF chart, IWM is now solidly
below its 200-dma ($93.74) and has been finding resistance below
the 10-dma ($92.98) for the past month.  The action in the broad
market will be critical to our play.  So long as the bears remain
in control, we can look for the IWM to continue its decline.  Look
to enter new positions as the current rebound runs out of steam,
ideally below the 10-dma, but possibly as high as $94.  Our stop
remains at $95.

*** June contracts expire this week ***

BUY PUT JUN-95 IWM-RS OI= 482 at $4.10 SL=2.50
BUY PUT JUN-90 IWM-RR OI=  73 at $1.00 SL=0.50
BUY PUT JUL-95*IWM-SS OI=2500 at $5.10 SL=3.50

Average Daily Volume = 1.16 mln


LLL - L-3 Communications Holdings $52.05 (-6.50 last week)

As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

With Defense stocks apparently falling from the lofty position
that they have held since the September lows, it is no surprise
that the bears are starting to lean on this sector.  Judging by
the recent action in the Defense Industry index (DFI.X), the
glory days are over for awhile.  Since hitting its all time highs
near $680 in early May the DFI index has been in a steady
downtrend.  Even the bounce off of strong support near $625
couldn't get the bulls' interest and it looks like the index is
about to roll over once again.  Should the $625 support level give
way, it could be a quick trip to the $600 level.  And that may not
be the bottom.  LLL was one of the best-performing stocks in the
sector after the September lows, rising more than 100%.  But it
is acting very poorly (unless you are a bear!) and on Friday broke
major support in the $54-55 area.  It isn't often that you get
such a perfect entry point, but LLL gave us just what we were
looking for on Friday.  After the small gap lower with the rest of
the broad market, LLL rallied right to the top of that gap (just
below $55) before rolling over in the afternoon on heavy volume.
After trying to defend the $53 level as support, the bulls gave up
at the end of the day, allowing the bears to shave another $1 off
the stock's price by the closing bell.  The break below $55
created a triple-bottom sell on the PnF chart and LLL is now
resting right on its ascending support line at $52.  The bearish
price target from the PnF chart is $43, which corresponds nicely
with major support in the $44-45 area.  Before reaching that point
however, the bears will have to deal with the 200-dma at $50.40 (a
very likely bounce point) and further support at $48 (the site of
the October highs).  While a drop below Friday's lows can be used
for initiating new positions, we would prefer to enter on the next
failed rally, either at $53 or up at $55.  A really vigorous
rebound could even get LLL up to the $56-57 area, but it is very
likely the bears would lean heavily on the stock should that come
to pass.  We are lowering our stop to $57 this weekend.

*** June contracts expire this week ***

BUY PUT JUN-52 LLL-RX OI= 552 at $2.25 SL=1.00
BUY PUT JUL-52 LLL-SX OI= 598 at $4.20 SL=2.50
BUY PUT JUL-50*LLL-SJ OI=2857 at $3.10 SL=1.50

Average Daily Volume = 985 K


RYL – The Ryland Group $49.10 (-4.52 last week)

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

Like the rest of the market on Friday, the Housing sector got
hit hard at the open, but then rebounded sharply as investors
stepped forward to gobble up the perceived bargains.  After
dipping to the $340 level, the DJ US Home Construction index
($DJUSHB) rebounded to actually close in positive territory.
Despite that impressive recovery, the index is still resting
below significant resistance at the $360 level.  The drop in bond
rates gave a bit of a bid to the homebuilders, possibly on the
thought that mortgage rates might dip a bit further.  If that
seems like a bit of a stretch to you, we quite agree.  The
housing sector had quite a run coming out of the September lows
and with consumer confidence contracting significantly in the
latest reporting period, it is time to pay the piper.  Due to its
recent loss of relative strength, RYL got our attention last week
when it fell under major support at $50.  Typical of the action
one would expect after such a significant breakdown, the stock
attempted to rally with the rebound in the broad markets on
Friday, but failed miserably at $50.50, which is likely to
provide significant resistance going forward.  That isn't to say
that RYL can't move a bit higher on an oversold rebound next week,
but we would look at any move into the $51-52 area as an
attractive entry point.  Due to the oversold nature of the broad
markets and the possibility of a decent rebound next week, we
want to give RYL some room to move, so we are keeping our stop
fairly liberal at $54.  Of course, a drop under Friday's lows
($47.50) would likely usher in a fresh wave of selling and could
also be used for new entries with a drop to the next level of
support at $43 as our initial target.

*** June contracts expire this week ***

BUY PUT JUN-50 RYL-RJ OI=1325 at $1.70 SL=1.00
BUY PUT JUL-50*RYL-SJ OI= 986 at $3.40 SL=1.75
BUY PUT JUL-47 RYL-SW OI= 417 at $2.30 SL=1.25

Average Daily Volume = 700 K


WHR - Whirlpool $66.40 (-2.35 last week)

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

The Commerce Department’s report of a 0.9 percent drop in
Retail sales during the month of May to $297 billion sent a
chill through the spine of investors who are counting on the
consumer to carry the U.S. economy to the promised land.  The
news sparked a sell off during Thursday’s session after the
report was released.  Then more bad news was delivered early
Friday morning by the University of Michigan, whose consumer
sentiment index took an unexpected plunge lower during the
early part of this month.  Clearly the writing is on the wall
that the consumer is at least losing strength, if not starting
to reign in their spending habits.  That spells trouble for a
lot of stocks in this market that have held up well so far
this year thanks to the consumer.  But as we’ve seen in many
charts over the last month, many of these consumer related
stocks are starting to lose significant ground.  Obviously
WHR falls into this camp, and the stock’s failure to rebound
last Friday along with the broader market indicates that even
more weakness is likely ahead in the coming weeks.  The stock
is now firmly below its 200-dma and should start trending lower
on further weakness in the broader market.  The one potential
short term support level was seen last Friday at the $65 level
where the stock has some historical trading during the steep
sell off in February.  The bulls are likely to try to defend
that level, but should give in once they see the stock rollover
once again next week.  Look for intraday rallies up to the
congestion zone between the $67 and $69 levels for a rollover
entry point.  Or use a breakdown below $65 to enter new put
plays.

***June contracts expire next week***

BUY PUT JUN-70 WHR-RN OI=601 at $3.90 SL=2.75
BUY PUT JUL-65 WHR-SN OI= 33 at $2.40 SL=1.25

Average Daily Volume = 555 K


PMI - PMI Group $76.90 (-5.90 last week)

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

Last Friday’s daily trading volume was the lightest in four
days.  It’s no surprise that the stock finished higher on
relatively lighter volume.  The two combined together revealed
that Friday’s rebound was no more than short covering in our
view.  The stock was due for a bounce, and the reversal in the
broader market was simply the catalyst to ignite such a bounce
in PMI.  But if the stock’s trend is of any indication of
future direction, any relief rally should be short lived
looking out over the next two weeks.  That means we can start
looking for failures at resistance and subsequent rollover
entry points to gain new put plays in this stock which looks
to be headed lower into the summer months.  But as traders we
need to find favorable execution into new put plays.  The
stock has traced four consecutive daily relatively lower highs.
That pattern could be broken next week if the $78.62 high from
Thursday’s trading is exceeded.  That should bring on further
short covering into the stock and even more if the broader
market continues to rebound from its oversold condition as
well.  Be patient, and pick a good spot for a rollover.  That
could be as high as the $80 level up around the 10-dma.  Of
course a reversal lower in the market could lead to a breakdown
below the short-term support level that was established during
Friday’s session low at the $75 level.  A break below there
could lead to the next momentum move lower.

***June contracts expire next week***

BUY PUT JUN-80 PMI-RP OI=128 at $3.70 SL=1.50
BUY PUT JUL-80*PMI-SP OI= 15 at $4.90 SL=3.00

Average Daily Volume = 325 K


MMC - March Mclennan $92.55 (-3.79 last week)

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

We witnessed about a $8 swing in MMC from its rollover from the
10-dma earlier in the week to the low hit early Friday morning
at the $90.25 level.  We hope that you took advantage of that
move lower in the early going to book some very tidy short term
profits in the stock.  Looking forward, there’s room to the
upside for the stock to rebound given its oversold nature that
has developed over the last three weeks.  The stock was oversold
going into Friday’s session, so a little relief rally over the
next two or three days wouldn’t be such a bad thing for put
players looking to gain new entry points.  But it could be a bad
thing for players with open positions.  Just make sure to have
a good solid stop in place going into next weeks trading in order
to hard earned profits from last week.  As for new entry points,
a trade up through the current over head congestion zone between
the $93 and $95 levels should be enough upside to remove the
stock’s oversold nature over the coming two or three days.
We’ll look for another failure from the 10-dma above that
congestion zone, which closed Friday at the $96.10 level.  Given
the trade down to the $90 shorter term target, the level could
act as support over the next two weeks.  But an eventual break
below that level should lead MMC back down to the $80 given
enough time.

***June contracts expire next week***

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

Average Daily Volume = 906 K


MIL - Millipore $34.07 (-3.15 last week)

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

As we’ve been writing since the inception of this play, MIL likes
to track the action in the Biotechnology Sector Index (BTK.X).
The BTK rebounded during last Friday’s action to the tune of more
than 4 percent for the day.  The sector was one of the best
performing during the day which saw the market finish right around
the flat line.  But despite the strong rebound in the broader
biotech sector, MIL only managed to tack on a fractional gain.
Before the stock rebounded, it fell below its short-term support
with a low down around the $32.79 level.  The stock’s tracing of
a new relative low in conjunction with its inability to gain much
more upside than its fractional rebound Friday both point to
further downside in the coming week, especially if the broader
market continues to languish.  As traders we do have to be
careful of a short covering rally that could spread into MIL if
the BTK continues to gain traction.  If the stock does pop, we’ll
use any such rally as an opportunity to entry new put plays near
resistance.  A nice rollover from the 10-dma at the $36.55 level
offer such a favorable entry point.  Conversely, if the stock
continues immediately lower, as we suspect it could, then traders
can look for a breakdown below Friday’s intraday low at the $32.79
level.  Such a breakdown should be confirmed with increased
intrady trading activity as well as weakness in the broader
market and in the BTK.

BUY PUT JUL-35*MIL-SG OI=31 at $2.20 SL=1.00
BUY PUT JUL-30 MIL-SF OI=60 at $0.45 SL=0.00

Average Daily Volume = 401 K


HIG - Hartford $59.93 (-3.07 last 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.

The breakdown that we detected below the 200-dma last week
led to a massive move lower in a short period of time in HIG.
The stock opened up Friday’s session at the $57.80 level, well
below all of its short term support that had been traced prior
to the day’s trading.  The open below the $58 level could have
offered put players a very quick and sweet exit from plays for
a quick swing trade profit.  The stock’s rebound into the close
of trading actually wasn’t all that discouraging.  The trend is
still clearly intact and we’ll remain bearish on this play as
long as the trend holds.  But given the rebound, we’re now
once again looking for entry points into new put plays at or
close to overhead resistance levels.  The first spot to look for
such an entry is at the $61 level where HIG formed some short
term congestion during Wednesday and Thursday’s action.  If
the stock does get above that short term congestion level, then
there’s more resistance overhead at the $63 level.  A rollover
from that level is another possibility for an entry point into
new put plays.  Whether or not the stock reaches that high is
going to be dependent on the action in the broader market, which
is why it’s very important to monitor the action in the Dow
and the S&P 500 going into next week’s trading.  Strength in
these two major market averages will most likely translate into
further upside for HIG.  But a return of the sellers into the
market will cause HIG to rollover as well.

***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. $121.21 (-9.05 last 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.

It was a wild and volatile day for SPW Friday, which saw the
stock trade back and forth.  The stock opened just slightly
lower around the $121 mark and proceeded to enter a free fall
in the first 30 minutes of trading.  The market sell off
following the release of the University of Michigan consumer
sentiment index pressured SPW to as low as the $114.25 level
before the stock rebounded.  Breakdown entry points taken in
the early hours of the day’s session could have offered a nice
quick day trade in this high dollar stock.  But the rebound
following the intraday low carried the stock all the way back
into positive territory, where SPW closed back above the $121
level.  The stock actually reached as high as the $122.50
level during its rebound, but pulled back below that level
which was just shy of the 200-dma overhead now at the $123.34
level.  The 200-dma should be the critical level going forward
in this play.  As long as it holds as resistance, SPW is going
to have a hard time making any upside progress other than the
occasional intraday rally attempt.  Using those rally attempts
as entry points into new put plays just below the 200-dma should
allow for a successful trade next week.  Tight stops just above
the 200-dma can be used to manage upside risk in any plays
taken below the moving average.  As for the downside, we’ll
reference today’s support at $114.25 as a target.

***June contracts expire next week***

BUY PUT JUN-125 SPW-RE OI=320 at $6.70 SL=5.25
BUY PUT JUL-120 SPW-SD OI=112 at $7.50 SL=5.50

Average Daily Volume = 395 K


CB - Chubb $70.30 (-3.63 last week)

Chubb Corporation is a holding company with subsidiaries
principally engaged in the property and casualty insurance
business. The Company's property and casualty insurance
subsidiaries provide insurance coverages principally in the
United States, Canada, Europe, Australia and parts of Latin
America and the Far East. Chubb also operates Chubb Financial
Solutions, which is engaged in developing and providing risk
financing services through the capital and insurance markets,
and a Real Estate Group, composed of Bellemead Development
Corporation and its subsidiaries, which are involved in
commercial development activities, primarily in New Jersey,
and residential development activities, primarily in central
Florida.

The bad news for the major insurers just keeps getting worse
and worse.  If it’s not the threat of further terrorist
attacks, it’s the wild fires in the west.  Now, the latest doom
and gloom talk to surface around the insurers involves the
shenanigans played by corporate leaders.  Lawsuits against
corporate leaders have doubled in the last year and settlements
have reached over $100 million.  Shareholders from all walks of
life are seeking retribution in the form of the legal system,
and many of them are getting it.  The insures who issue what are
known as director and officers insurance are now at risk for
the increasingly large amounts of settlements issued to the
shareholders of companies that have been accused of wrong doing.
Unfortunately for CB, it is one of the bigger insures of
corporate officers.  Whether or not this growing fear pushes the
stock down further over the short term remains to be seen.  But
one thing is for sure, the insurers are facing problems from
every direction.  As for Friday’s action, the stock gapped
sharply lower on the news of the bombing and traded as low as the
$68 level before rebounding along with the broader market into
the close of trading.  The stock is setting up for another
prime entry point into puts near its 200-dma.  Look for a
rollover from that level, which is now at the $71.50 mark, and
confirm weakness in the broader market.

***June contracts expire next week***

BUY PUT JUN-70 CB-RN OI= 282 at $1.40 SL=1.00
BUY PUT JUL-70*CB-SN OI=2664 at $2.80 SL=1.50

Average Daily Volume = 960 K


ZLC - Zale $39.13 (-1.85 last week)

Zale Corporation, and with its wholly owned subsidiaries, is a
specialty retailer of fine jewelry. As of July 31, 2001, the
Company operated 2,344 specialty retail jewelry stores and
kiosks located primarily in shopping malls throughout the
United States, Canada and Puerto Rico. The Company principally
operates under six brand names including Zales Jewelers, Zales
the Diamond Store Outlet, Gordon's Jewelers, Bailey Banks &
Biddle Fine Jewelers, Peoples Jewelers and Piercing Pagoda.
Zales Jewelers provides jewelry to a broad range of customers.

The University of Michigan reported this morning that the
consumer sentiment index fell to 90.8 during the early part of
June from the 96.9 reading registered in the month of May.  The
reading was the lowest seen since the month of February.  The
report sent chills through the retail sector and built upon the
growing fears that the consumer is growing more and more
pessimistic about the state of the market and the economy.  The
growing belief could eventually lead to a slowdown in
consumer spending, which is the last thing that the market,
economy, and high end retailers need right now.  For its part,
ZLC traded right down to the $38 support level that we had
mentioned in the initial write up of this put play.  The stock
rebounded from that level on its first test, and was helped
higher by the rebound in the broader market and retail sector.
What we’re expecting now is one or two more days of a relief
rally in ZLC followed by a rollover from resistance starting
with the $40 level overhead.  The stock’s 10-dma now at the
$40.26 level should provide further proof of resistance at the
$40 level early next week should ZLC make it back up that far.
Look for a rollover to transpire around that level and confirm
direction in the retail sector.  If you’re a breakdown trader,
wait for the stock to break below the $38 support level on
heavy volume.

***June contracts expire next week***

BUY PUT JUN-40 ZLC-RH OI=0 at $1.30 SL=0.75
BUY PUT JUL-40*ZLC-SH OI=3 at $1.95 SL=1.00

Average Daily Volume = 253 K



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*****
LEAPS
*****

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

Anybody notice that this week's tagline is unchanged from last
week?  The date (and prices) have changed, but the theme remains
the same.  There just hasn't been enough fear engendered in this
market to call it a solid bottom.  Oh sure, Friday's rebound off
the lows was encouraging, but from where I sit, the rebound was
primarily shorts covering when the bottom failed to fall out of
the market.  With fund outflows over the past two weeks showing
clearly that there are a lot of investors that just want out of
equities, it is no wonder that the broad indices keep lowing
ground.

While it was encouraging to see the VIX poke well above the 30
level on Friday (actually hitting a high of 33.13), we once again
saw the pattern of falling back sharply with the oversold
rebound.  Fear just isn't sticking around long.  On the other
side of the coin, the VIX has steadily moved higher on a closing
basis over the past 3 weeks, reflecting that investor fear IS on
the rise.  I just don't think we have reached that point of
capitulation yet.  While the NASDAQ has reached (and exceeded)
the level of its September lows, the DOW and S&Ps are not there
yet.  An argument could be made that the DOW could avoid that
fate, but as close as the S&Ps have come to their lows, I expect
that they will drop down for a real test those lows.

So while I don't think we have quite reached the end of the
current decline, this is precisely when LEAPS investors start
looking for attractive entry points.  With the VIX rising near
the top of its historical range and the broad markets trading
near major lows, it is a fairly safe bet that we are near an
important, tradable bottom.  You can see the beginnings of life
starting to emerge in our MSFT and PG plays, as they are both
bucking the broad market trend.  Each of these stocks have the
potential to help lead the next solid bear-market rally.

Let's see what else is shaking with our list of plays.

Portfolio:

MSFT - You want relative strength?  MSFT has it.  Rumors that the
company would preannounce to the upside gave the stock a boost
earlier in the week and we saw some impressive buying interest on
Friday, with Mr. Softee one of the first Technology issues to edge
into positive territory.  We're still caught in limbo though, as
what we really need to see is MSFT clear its descending trendline
(currently $55.50) and the May highs at $56.44 before we'll
believe the bulls are serious.  Once MSFT clears this resistance
level then we'll raise our stop to preserve those gains.

XOM - Boring!  XOM has gone absolutely nowhere since we initiated
our position.  That's a good news, bad news story.  The good news
is that the stock hasn't tanked (actually had a nice rebound on
Friday off its intraday lows) despite the broad market weakness.
The bad news is that XOM hasn't seen any significant buying
interest as we head into the summer months.  I think we can place
a portion of the blame on the price of Crude Oil, which continues
to languish between $24-27.  We're going to continue to keep this
one on a short leash for now with stops set at $38.50.

PG - A little bit of good news early in the week gave our play a
nice pop, with PG bucking the broad market trend and actually
tagging the $93 level on Wednesday.  Unfortunately, the increased
profit growth estimates from the company and the subsequent
upgrade from Merrill Lynch ran out of steam fairly quickly in a
weak broad market environment.  Still, PG finished the week with
a solid gain and managed to find some solid buying support on
Friday near the $90 level.  With the movement of the ascending
channel, we are raising our stop to $88 this weekend.


Watch List:

WMT - Despite its continued strong same-store sales, the price
action of WMT doesn't inspire confidence, at least not yet.  The
Consumer Confidence numbers from Friday as well as the recent
Retail Sales report is likely to keep this area of the market
under pressure over the near term.  But we don't want to miss the
bottom now that we've gotten a nice pullback.  Note that the price
pattern on the daily chart is hinting at a Head and Shoulders
bottom, and the next cycle of the daily Stochastics (currently
pulling back from overbought) should give us the answer.  We're
raising our entry target this weekend to $53-54, as a successful
completion of the H&S pattern should give us a solid bounce from
that level.  

BRCM - The further the SOX drops, the better I like the BRCM
play.  it looks very close to putting in a solid bottom and
should perform nicely once the SOX puts in its own bottom.
Friday's weakness dropped the stock below the $19 level briefly,
bringing it close to our entry target at $18.  But I think we'll
get at least one more dip near that level before the bulls show
any serious interest.  Patience is the key here as we don't even
want to think about buying a bounce that can't clear the $20
level on solid volume.

BBY - I love it when a plan comes together.  That's right, BBY
came right down to our entry target and then reversed higher,
making it into the Portfolio this week.  See below for details.

QQQ - That was exciting wasn't it?  At the low of the day on
Friday, the QQQ was trading just above the $26 level.  Eager
bulls might have been tempted to nibble on new positions at that
level, but I'm still deferring to the PnF chart, which tells me
we ought to see the $25 level before a solid bottom will be in
place.  The afternoon rebound leaves me unconvinced, despite the
fact that the NASDAQ managed to recover into positive territory.
Patience is the key.

BBH - Despite the overdone coverage of the IMCL hearings in the
news, BGEN looks like it might be trying to breathe new life
into the Biotechs.  That's just what we're looking for, as a
decent rebound in the sector will set us up to enter new
positions when the rally runs out of steam.  While aggressive
traders might try to enter the play on a rollover from the $90
level, we're going to hold out for higher price levels before
taking a position.  Given the carnage that has been done over
recent weeks, there is a lot of overhead resistance now.  We've
lowered our target to $96-98, as that level will likely see a
wealth of investors eager to get out at par.

So where do we go from here?  Expect volatility to still figure
prominently in next week's trading action.  The bears will
continue to go on the offensive until they see the bulls show
some sort of conviction.  That means sharp drops, followed by
bouts of short-covering will continue to dominate until there is
some positive news to rouse (not arouse, as that would be
frightening!) the bulls.  We are starting down the barrel of
earnings warning season and that is likely to give the bears
more ammunition in the near-term.  But the actual results that
come out of the July earnings season (especially the forward
guidance) may be enough to fuel the next rally.  Hey, I can
hope, can't I?

Have a great week!

Mark



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
MSFT   05/13/02  '03 $ 55  MSQ-AK  $ 5.90  $ 7.60  +28.81%  $48
                 '04 $ 55  LMF-AK  $10.20  $12.70  +24.51%  $48
XOM    05/22/02  '03 $ 40  XOM-AH  $ 3.00  $ 2.75  - 8.33%  $38.50
                 '04 $ 40  LXO-AH  $ 5.10  $ 4.70  - 9.80%  $38.50
PG     05/30/02  '03 $ 95  PG -AS  $ 3.70  $ 5.30  +43.24%  $86
                 '04 $ 95  KBJ-AS  $ 9.00  $11.50  +27.77%  $86
BBY    06/14/02  '03 $ 45  VBY-AI  $ 4.80  $ 4.80    0.00%  $37
                 '04 $ 45  LBS-AI  $ 9.20  $ 9.20    0.00%  $37


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  $18-20        JAN-2003 $ 25  OGJ-AE
                            CC JAN-2003 $ 20  ORD-AD
                               JAN-2004 $ 25  LGJ-AE
                            CC JAN-2004 $ 20  LGJ-AD
WMT    03/31/02  $50-51        JAN-2003 $ 55  VWT-AK
                            CC JAN-2003 $ 50  VWT-AJ
                               JAN-2004 $ 55  LWT-AK
                            CC JAN-2004 $ 50  LWT-AJ
QQQ    06/09/02  $25           JAN-2003 $ 28  OZC-AB
                            CC JAN-2003 $ 25  OZC-AY
                               JAN-2004 $ 28  LRI-AY
                            CC JAN-2004 $ 25  LRI-AJ
INTC   06/16/02  $25           JAN-2003 $ 22  NQ -AX
                            CC JAN-2003 $ 20  NQ -AD
                               JAN-2004 $ 22  LNL-AE
                            CC JAN-2004 $ 20  LNL-AD


PUTS:
BBH    06/09/02   $96-98       JAN-2003 $90  GBZ-MR
                               JAN-2004 $90  KOV-MR
                               JAN-2005 $90  XBB-MR


New Portfolio Plays

BBY - Best Buy $41.57 ** Call Play **

Is anyone else thinking that was just a little too perfect?  To
be honest, I actually had some doubts as to whether BBY was going
to come all the way back to the $40 level, but the dismal Consumer
Confidence numbers on Friday did the trick, driving the stock down
to the $39.50 level our entry target before beginning its long
recovery on Friday.  Despite the fact that BBY managed to stage
such an impressive recovery, it still closed a dime under
Thursday's close, so it isn't out of the woods yet.  I would be
surprised if BBY doesn't drop back to retest the $39-40 level
over the next week or so.  That should provide a second chance for
any late-comers to enter the play.  Recall that BBY was one of the
stronger Retailers coming out of the September lows and we are
looking for it to continue to show its relative strength again
once it becomes clear that the consumer is not going into
hibernation.  As a quick aside, something that seems to have been
overlooked in the Consumer Confidence numbers on Friday is that
stock market performance factors into the numbers.  With the poor
market performance over the past month, it was a foregone
conclusion that the report was not going to be pretty last week.
The knee-jerk negative reaction by investors just gives us that
entry point we were shooting for.  The first major obstacle for
BBY to clear is the $46 level on its way to re-challenging major
resistance near $50.  Until that first hurdle is cleared, we'll
place our stop at $37.

BUY LEAP JAN-2003 $45 VBY-AI $4.80
BUY LEAP JAN-2004 $45 LBS-AI $9.20


New Watchlist Plays

INTC - Intel Corp. $21.28  **Put Play**

Widely recognized as the king of chip companies and best known
for its cutting-edge Pentium line of Processors, INTC has been
busy diversifying its business into the Communications arena and
along with other select niche markets.  But at its core, the
company is tied to the growth of the PC industry.  Much has been
made of the fact that the PC industry is stable and unlikely to
see a sharp upturn any time soon, but I think the pessimism may
be getting a bit out of hand.  The last major PC upgrade cycle
was 3 years ago and as a point of reference, I just recently
replaced my 1999-vintage computer with a new Pentium-4 running
Windows XP.  The reason was that my old machine just couldn't cut
the mustard anymore, between frequent system crashes, sluggish
response and the constant balancing act of deciding which
applications to close, so that I could open a new application.
Very unproductive.  I have to believe that corporate America is
facing the same problem, but on a much larger scale.  The spending
party to upgrade existing computers hasn't started yet, and may
not for several more months.  But when it does, INTC is going to
be the company to deliver the goods, as it continues to distance
itself from competitor Advanced Micro Devices in the performance
of its top-end processors.  INTC has been severely abused over
the past several weeks (along with the rest of the Semiconductor
sector), falling back to within a dollar of its September lows
last week.  To be fair, a large part of the INTC's recent pain has
been self-inflicted after the company warned for the 2Q.  The good
news is that it looks like the bulls are stepping up to defend the
stock near major support.  With the weekly Stochastics still
diving back to earth, I expect to see a bit more weakness before
we know for certain that a bottom is in place.  The September lows
near $19 will be an obvious level of support, although I wouldn't
be surprised to see that level briefly broken, possibly with a
trade as low as $18.  We'll look to initiate new positions on
these dips as price rebounds.  After entry, we'll set a fairly
liberal stop at $16, just below major support which held
throughout the 1997-1998 time period.

BUY LEAP JAN-2003 $22 NQ -AX
BUY LEAP JAN-2003 $20 NQ -AD  For Covered Call
BUY LEAP JAN-2004 $25 LNL-AE
BUY LEAP JAN-2004 $20 LNL-AD  For Covered Call

Drops

MDT - MDT just couldn't buck the broad market trend this week,
with the bulk of the heavy selling coming on Friday.  Of course,
the fact that the company lost its patent dispute with Boston
Scientific on Tuesday and then had its price target cut by UBS
on Wedensday.  The selling pressure was too much for the bulls
to stand on Friday, as MDT dropped back through the $44 level.
Needless to say, MDT is a drop this weekend.  Recall our policy
of setting our stop on the option price after it exceeded a gain
of 40%.  So we'll book this one as a par result, taking our exit
from the play as the listed options fell through our entry price
on Wednesday.


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

The "Head and Shoulders" Chart Pattern 
By Leigh Stevens
lstevens@OptionInvestor.com

The Head and Shoulders pattern is not seen a lot, but neither is 
it uncommon - its seen enough and is distinctive enough so that 
you begin to notice it.  The Head & Shoulders (H&S) is a price 
formation that is of the category called "reversal" patterns in 
technical analysis, as these signal a trend reversal most often.  
In that sense they are very valuable for the trader as they have 
a high reliability for signaling a top or bottom ahead of the 
occurrence, giving you time to prepare for it with a trading 
strategy.  This pattern can develop over days or weeks in 
individual stocks or in the stock indexes, in any time frame; 
e.g., hourly, daily, weekly.  

The head and shoulders top formation is composed of 3 tops prior 
to a downside trend reversal -- the middle peak (the Head) stands 
above the first and last tops (the Left and Right “Shoulders”), 
both of which form in approximately the same price area.  The 
head and shoulders bottom formation or inverse head and shoulders 
is a mirror image of the head and shoulders top. It is also 
similar to a triple bottom in that there are 3 lows.  However, 
the second or middle low (the head) is below the price level of 
the first and last lows – these lows form in approximately the 
same price area and are also described as the left and right 
“shoulders”. 

In the H&S bottom pattern, it is if the outline of the head and 
shoulders was that of an upside down person.  Drawing a line 
through the points formed opposite the rounding left and right 
“shoulders” is considered to be the “neckline” as in the examples 
in the figures cited below.  

Head and shoulders patterns, as is true of other top and bottom 
patterns such as double and triple tops or bottoms, are more 
likely to occur after a trend has been underway for some time.  
An H&S top or bottom can be found visually by using either a bar 
(or candlestick) or line chart. 

THE HEAD & SHOULDER'S TOP - DAILY LINE (CLOSE-ONLY) CHART - GM


 

HEAD AND SHOULDER'S BOTTOM - DAILY CHART - AMAT 
The measuring "formula is the same, only the measurement is to 
the upside. 



 


Sometimes, after piercing the neckline the stock or index will 
come back to the neckline, before reversing. Just as with any 
trendline, such a return to a neckline is not uncommon. 

In the same way that a prior support level or area in an 
advancing trend, once broken, can “become” resistance on a 
subsequent rebound, this too can occur in the case of the 
previously broken neckline. This particular example was of the 
S&P 500 Index (SPX), but when it was at a much higher level. I 
will use show some very recent examples of the H&S pattern in 
recent S&P 100 (OEX) trading. 

RETURN TO THE NECKLINE - DAILY CHART - SPX 


 
 
In a Head and Shoulder's Bottom, take the price that represents 
the bottom point of the (upside down) head (the lowest low) and 
measure the price on a vertical line where it intersects the 
neckline - this results in a value. Add this value to the point 
where prices achieve an upside penetration of the neckline after 
the formation of the third cluster of lows which represents the 
right shoulder.  This then provides a minimum objective on the 
upside.

Sometimes we may see prices rally back above or below the 
neckline and made a secondary top/bottom above or below the right 
shoulder – this does not invalidate the formation because a 
complex head and shoulders will sometimes have 2 left “shoulders”
 that form in the same area and/or two right shoulders in the 
same area on the right side – this was the case in the figure 
below.

COMPLEX HEAD & SHOULDERS PATTERN - DAILY CHART - QCOM 


 


The important thing to look for is symmetry – left shoulders that 
form in the same approximate area - the same with right 
shoulders.  Relative to this, the head is a single top that is 
above the left and right outline of the shoulders – no formation 
with TWO heads is valid.  Nor should the Head be enormous, 
relative to two tiny shoulders, as such a pattern will not result 
in a minimum objective above/below the neckline that is valid. 

WEEKLY CHART - S&P 500 (SPX)


   


There is a technical analyst with a market advisory service who 
was suggesting that the above chart of the weekly S&P 500 is a 
huge Head & Shoulder's pattern. And, that if the neckline at 941 
is broken, a potential downside price target measurement could 
take the S&P ultimately to the mid-300 area.  

The pattern on the SPX weekly chart above has some left/right 
symmetry (it may be a rounding top, which is another pattern), 
but is not the right proportions for an H&S top. It is like 
putting an elephant's head on a human body! 

Moreover, Head & Shoulder's patterns are not considered to be 
ones that form over years.  I consider this (pattern) 
interpretation to be not only wrong, but making grand predictions 
for an ultimate bottom this low, (assuming a break of the 
"neckline") based on a "normal" Head & Shoulders measurement, is 
grandstanding! 

MEASURING IMPLICATIONS - 
The measuring convention for a head and shoulders objective 
should not be taken as an absolute.  This measuring rule implies 
a "minimum" objective only and once a trend develops the 
overriding principle is to stay with the trend as long as it 
continues.  However, a significant value is provided by this 
measuring technique in that an initial price objective can be 
established.  This helps determine where to set a protective stop 
so that a potential loss is a fraction of the “reward”, or 
minimum profit, potential; e.g., 1/3.  

The second point regarding price objectives is that the actual 
upside or downside potential of these top or bottom formations 
may not be as much as is measured by use of the technique 
described.  Thomas Bulkowski in his “Encyclopedia of Chart 
Patterns” found that the most likely rise for head and shoulder 
bottoms, once the neckline was penetrated, was between 20 and 
30%.  

For the head and shoulders top, the most likely decline for the 
cases studied, was just over 20%.  This information leads to a 
suggestion that when a head and shoulders pattern develops as 
expected and if the resulting gain exceeds 20%, it may be 
appropriate to protect any such gain with a liquidating stop that 
attempts to “lock in”  of the gain (a 15% profit), in the event 
of a reversal.

HIGH PREDICIBILITY - 
Another aspect to the head and shoulders pattern is that it has 
been found to have one of the more predictable outcomes as 
patterns go.  For example, Bulkowski found that 93% of the head 
and shoulders top formations he studied broke out to the downside 
(penetrated the neckline) once they had formed.  This suggests as 
a trading strategy, that when the formation of the right shoulder 
is apparent, going long in the case of the H&S bottom and short 
in an instance of the H&S top pattern – and to not necessarily 
wait for a penetration of the neckline.  

The liquidating exit (stop) point then is right where it most 
opportune to have it – where the liquidating price represents a 
small risk – because the obvious place to set a stop is just 
beyond the top of the head and that point that would not be far 
away from an entry point if the buy or sell was initiated after 
the right shoulder formed.  

If the top of the head is exceeded, once the right shoulder is 
formed, this constitutes a pattern failure.  If the pattern 
“fails” it’s not a good strategy to remain in an investment or 
trade that was entered into based on the expectations of a trend 
reversal implied by an initially valid head and shoulders 
formation.   

RECENT H&S HOURLY CHART EXAMPLES, RECENTLY PROFITABLE - 

The pattern below formed on an hourly basis in the S&P 100 
($OEX.X) Index in May 2002.  


 

At this point you may have rightly wondered if the OEX would 
return all the back to its low around 520.



 

How about 520 and quite a bit more!

Recently on the same hourly chart, after a prolonged decline, I 
thought we were seeing a Head & Shoulder's BOTTOM forming. The 
downtrend has been going on for some time, the market was quite 
oversold and it was reasonable to expect that an upside reversal 
(and a bottom) could be setting up as seen in the chart below - 



 

WRONG!! -- PATTERN "FAILURE" -  
THERE IS A GOOD REASON WHY A PENETRATION OF A SUPPOSED NECKLINE 
SHOULD BE USED AS "CONFIRMATION" OF A HEAD & SHOULDER PATTERN! 



 

THE "DEFLECTION" (REVERSAL LOWER) AT THE NECKLINE SUGGESTED TO 
COVER LONG/CALL POSITIONS IF HELD BASED ON AN EARLY BUY BASED ON  AN "ASSUMED" H&S BOTTOM.  

RESULTS - 


 

Note how construction of a line parallel to the upper (down) 
trendline, through the lowest low (only 1 point), resulted in 
"finding" the big reaction low of Friday, June 14 (2002). 

H&S TOPS/BOTTOMS RELATED TO THE "REAL WORLD" OF MARKETS -  
There is the question of WHY price patterns or chart formations 
have predictive outcomes.  It is always for the reason that the 
patterns describe a set of circumstances that relate to a cycle 
of attitudes and behavior on the part of market participants – 
such aspects of market behavior repeat again and again.  

In the case of a head and shoulders top, we can take a 
hypothetical example for XYZ stock.  There is always a group of 
investors that comprise the most knowledgeable group that follows 
and invests in this company – I’ll call this group part of the 
“smart money” crowd.  The stock has generally been in an up trend 
but the value of the stock is getting a bit rich relative to 
earnings.  

However, fundamentals regarding the company still are positive 
overall and the smart money people decide to do some buying, 
perhaps after a period where the stock price has leveled off or 
declined a bit.  This buying and perhaps some favorable news 
regarding the XYZ company, causes the stock to advance. Some 
other followers of the stock notice the increased activity and 
advancing prices and also become buyers.  

As the stock rises there is a point where the smart money 
believes the stock to be overvalued and decides to take profits.  
This selling causes the stock to retreat some from the highs and 
makes the first peak comprising the left shoulder.  

Other followers of XYZ stock are interested in buying declines or 
in period of weakness and the stock begins to rise again. The 
smart money is a still a seller on strength or into any new high 
ground, as volume increases.  The stock indeed gets higher than 
it did on the last rally but the aforementioned selling “caps” 
the price and a second higher peak forms.  The continued selling 
eventually drives the stock down again.  

Believing that the price is again relatively cheap the "less than 
smart money" crowd drives the stock up a third time, forming the 
right shoulder.  This time however, the stock has gone up on less 
volume with fewer willing buyers and some still determined 
sellers who come in at the prior peak (the left shoulder) made 
before the most recent top (the head).  A next downswing takes 
prices back to the prior support.  

If this level gives way, more holders of the stock decide to cash 
in.  There is a snowball effect as prices adjust downward by an 
amount equal to the prior rise – this happens to be equal to the 
distance from the low point after the first rally (the neckline) 
to the top of the biggest advance (the head).  Now, some facet of 
the company’s business that is creating a drag on company profits  
-- what caused the smart money to sell rallies -- may become more 
widely known and the stock remains under pressure.   


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The Option Investor Newsletter                   Sunday 06-16-2002
Sunday                                                      5 of 5


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

Covered-Calls: A Conservative Approach
By Mark Wnetrzak

With the Covered-Calls editor away on a much-needed Father's Day
vacation, it's a great time to review the fundamentals of one of
the most popular stock-option strategies for new investors.

Investors usually write covered-calls to generate monthly income,
collecting the premium for the sale of an option against a stock
position in his or her portfolio.  This conservative strategy can
be used effectively on all type of stocks as long as the outlook
(fundamental or technical) for the issue is favorable.  One of the
advantages to this approach is that it allows new investors to
learn successful trend-trading techniques with a small margin of
safety while managing the combined position for upside profit and
downside risk.  This underlying basis for this strategy is a high
probability of limited profit.  The primary advantage to a novice
trader is the technique is easy to use and the resultant position
is more conservative than outright stock ownership.  In writing an
option on the stock, the investor has insured the issue against a
future drop in value.  Of course, the downside risk in ownership
is not eliminated, only reduced.  In addition, the actual cost of
opportunity loss or potential upside movement can be substantial.
There are other, more subtle benefits and disadvantages but these
are the most common reasons that investors choose (or avoid) this
strategy.

Each week we receive a number of questions regarding the various
approaches to the investment strategy of selling covered-calls.
In our personal portfolios, we utilize the "in-the-money" covered
write as a primary technique for consistent profits.  This method
is easy to master and works in harmony with a low maintenance, low
risk investing style.  The theory behind this approach is to be
"aggressively conservative."  This tactic is in contrast to the a
popular "conservatively aggressive" outlook used by many traders,
where the underlying position is bullish, (based on OTM calls) and
requires an upward movement from the stock for profit.  In general
we are traditional, long-term investors with contempt for excessive
risk and the potential for large losses.  Studies suggest (and our
results confirm) that the average investor will make substantially
greater returns through the consistent profits from "in-the-money"
covered writing than he/she would using the high risk, high reward
approach of more aggressive positions.

You may think that this technique is far too conservative to yield
favorable returns, however the "magic" ingredient of the strategy
is the power of compound interest.  Covered-call writing allows
investors to potentially compound their returns on stock ownership
each month of the year.  Unfortunately, while most investors begin
writing covered calls with the goal of compounding their money on
a monthly basis, many lose focus of the fundamental outlook of the
technique (consistent, low risk profits) and begin to concentrate
on higher, single transaction returns.  This is a common mistake
and it can substantially increase risk and the probability of loss.
The market historically offers a 2-4% monthly (annualized) return
for this strategy but with diligent research and analysis, and
proper money management, the margin of profit can be increased.
In our personal portfolios, we attempt to establish positions
that offer on average, a 4-6% (8-12% on margin) monthly return on
investment.  Even with this meager profit, the long-term portfolio
growth is excellent, due to the unique mathematics of compounding.
Earning 3% per month in a personal portfolio, without compounding
or margin trading, equates to a 36% yearly return.  We have yet to
find a bank or CD that matches that rate.  Obviously, most retail
option traders regard a 3% monthly return as far too low.  In fact,
why would anyone want such a paltry reward when the market offers
such great potential for wealth.  There is answer is quite simple:
RISK.  Any strategy that yields 10% will be riskier (on a purely
theoretical basis) than one offering a 3% return.  The old adage,
"the greater the risk, the greater the reward" is quite accurate.
Regardless, some of you will learn the hard way, just as we did.
After getting hammered on the majority of aggressive positions, we
made the transition to ITM covered-writes with lower returns.  Now
our portfolio value grows (most of the time) on a consistent basis.

The goal of the covered-call writer is to have a good selection of
favorable positions with adequate downside protection.  With this
approach, an investor reduces risk by entering several stock and
option plays with a predetermined conservative profit target for
each one.  We strive for a 5-8% monthly return in the newsletter
but again with a lower profit target, the higher the probability
of a favorable outcome and the lower the risk.  To further reduce
the potential for catastrophic loss, a trader should diversify his
market exposure through a wide variety of covered-call positions.
The stocks you purchase should generally represent companies of
different types in a variety of favorable industries.  Most novice
investors ignore this principle and consequently, their portfolio
losses are substantial when a heavily weighted sector falls "out
of favor."  Many experts suggest you should limit each investment
to no more than 10% of your overall portfolio value.  This is very
important to the success of the covered call strategy as you don't
want one issue to have a significant impact on your overall gains
or losses.  The fact is, no one really knows what a specific stock
is going to do in the future.  History suggests that even the most
prolific traders are correct in only slightly more than one-half
of their directional forecasts and that statistic reinforces our
basis for choosing to hedge poor selections with "in-the-money"
covered writes.

Before you open any position, it is important to understand the
strategy that you are using and identify the specific goals for
that particular trade.  You can't make good decisions without
knowing the mechanics of a specific technique.  In addition, don't
use complex or advanced methods simply because they are intriguing.
The best strategy is usually the simplest one that accomplishes
your goals.  Prior to executing a transaction, you should know
exactly what the break-even (cost basis) point is, and be prepared
to take action if the underlying issue reaches that price range.
Once you have a candidate in mind, do your homework!  Study the
company and the calendar; upcoming events, earnings dates and any
other scheduled reports.  When you have a superior knowledge of a
stock and its industry, you are way ahead of the investor that
trades simply on intuition or outside advice.

Portfolio management is critical to the success of any portfolio.
After you take a position in a particular issue, stay informed by
monitoring all the news and announcements affecting that issue.
Observe the daily progress of the your stocks and realize that you
have the ability and control to adjust or close the position at any
time.  Obviously you do not need to check the prices on an hourly
basis, but we do recommend that you review each session's closing
quotes.  News and public opinion can have a significant impact on
a stock's price and unfortunately, it is impossible to research
"future" events before you buy an issue.  The key is to be fully
prepared for any outcome because the most difficult lesson comes
when you close a losing trade.  Indeed, it is very hard to learn
to exit unsuccessful plays in a timely manner but the simple fact
is, there is no reason to hang on to a losing position when there
are so many other profitable plays that deserve your time and
money.  Accept your losses, learn from your mistakes (evaluate
each one critically) and move on!  With any strategy losses are
inevitable and instead of being surprised, you must anticipate
them.  History has proven that a percentage of the covered write
positions selected will be unprofitable thus, when the situation
arises, it is not regarded as a failure but rather an integral
part of the trading system.  Your personal portfolio should be
evaluated based on the sum of its positions, rather than each
transaction.  In this manner, success is gauged by growth in
portfolio value and the losses become less significant.  That is
one of the principal reasons for entering several positions; it
becomes much easier to identify and act on a potentially negative
play when it doesn't have a substantial effect on your overall
success.

The concepts of most exit and adjustment strategies are relatively
simple but there is no way to develop a specific guide for proper
position management.  With stock and option combinations, the key
is to evaluate the risk-reward outlook of each possible scenario
and construct a position that fits your trading plan and technical
outlook for the underlying issue.  Success with this strategy lies
in one objective; a consistent flow of monthly income with limited
portfolio risk.  The focus of play selection and management should
be to continually generate an acceptable level of option premium
while protecting against the potential for downside losses.  Any
positions that become unfavorable due to changes in the fundamental
or technical characteristics of the underlying issue should be
removed from the portfolio before they can generate significant
deficits.  Catastrophic failures are not unavoidable but they can
be sufficiently managed to reduce the effects of the shortfall.
Obviously, each situation will require a different solution but in
general, a trader should try to limit individual position losses
to 20%.  Unfortunately, there are some occasions when issues fail
without warning, leaving no opportunity for exit or adjustment.
Unexpected events simply occur; earnings warnings, shareholder
lawsuits, negative news in the industry or sector and changes in
public sentiment.  All of these activities can affect the success
of an individual position but with a diversified portfolio, the
long-term effects are minimal.

Our approach to "in-the-money" covered calls is designed to lock
in profits whenever possible and reduce the inevitable losses to
a minimum.  A rise in share value is the ultimate goal of stock
ownership and with this strategy, a significant short-term move
can provide additional opportunities for profit.  When the share
value rises substantially after the initial position has been
established, you have several choices.  You can do nothing, get
"called-out" and accept the original return that was established
when the play was opened.  If the option is priced near parity,
you can close the play early or, you may also choose to adjust
the position to match the new outlook for the underlying issue,
"rolling" the call up and forward to a higher strike price.  When
you roll up (repurchase the current sold call and sell a higher
strike call), the profit potential of the position is increased.
Unfortunately, the downside break-even point is also increased by
the amount of debit required to complete the transaction.  That
is the main reason most traders transition to a future expiration
date; it reduces the debit required for the new position.

While it is not always compatible with our weekly candidates,
there are a number of benefits and advantages to long-term stock
ownership.  If that is your intention, additional measures are
necessary when utilizing "in the money" covered-writes.  As
expiration nears and the time-value premium disappears from the
written option, you should consider rolling forward to reduce the
likelihood of early assignment.  The overall profit potential of
the position will be increased and the risk versus reward outlook
for the combination can be adjusted, consistent with your forecast
for the movement of the underlying issue.  With deep "in-the-money"
calls, most of the time premium vanishes long before expiration.
However, as long as time value remains in the call option, there
is little risk of early assignment.  When the option price (bid)
falls to parity or a discount, there is a considerable probability
of exercise by arbitrageurs; specialists and floor traders who do
not pay commissions for trading.  When this situation occurs, you
should endeavor to roll-forward or adjust the position in some
manner that prevents a monetary loss through unexpected assignment
of the short option.

HAPPY FATHERS DAY!!!

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

The Covered-Calls editor is away on a much-needed Father's Day
vacation so today's list will be limited to "supplemental" plays.
The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

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

VISG   5.15  JUL   5.00   TUM GA  0.70 605   4.45    35   10.7%
CLHB  10.89  JUL   7.50   QPB GU  4.20 150   6.69    35   10.5%
ZIXI   5.20  JUL   5.00   HQU GA  0.65 738   4.55    35    8.6%
MCDT   8.38  JUL   7.50   DXZ GU  1.50 4050  6.88    35    7.8%
ENDP  10.89  JUL  10.00   IUK GB  1.70 10    9.19    35    7.7%
CRXA   5.70  JUL   5.00   CVQ GA  1.00 30    4.70    35    5.5%
OPWV   5.61  JUL   5.00   UGE GA  0.90 1878  4.71    35    5.4%
WEBX  14.05  JUL  12.50   UWB GV  2.25 3    11.80    35    5.2%
PHSY  26.92  JUL  25.00   HYQ GE  3.30 3    23.62    35    5.1%
CANI  11.07  JUL  10.00   CDU GB  1.60 73    9.47    35    4.9%
RHAT   5.44  JUL   5.00   RCV GA  0.70 163   4.74    35    4.8%
ORCL   8.57  JUL   7.50   ORQ GU  1.45 7879  7.12    35    4.6%
ADIC   8.20  JUL   7.50   QXG GU  1.05 35    7.15    35    4.3%


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

Option Trading Basics: Market-Makers and Floor Brokers - Part II
By Ray Cummins

Our recent discussion about the techniques used by floor brokers
and market-makers generated some questions from the readers, so
today we are going to examine those strategies in greater depth.

In the U.S. equity markets, specialists are required to make a
market in a stock when public orders to buy or sell the issue
are absent.  They will buy and sell from their own inventory to
keep a position liquid.  They also maintain the public book of
orders (conditional orders to buy and sell at specific prices).
When options began trading in 1973, the Chicago Board Options
Exchange (CBOE) introduced a similar method of trading for stock
and index derivatives: the market-maker and board-broker system.

Market-makers are floor traders who either are exchange members
or rent their seats from exchange members.  Their goal is to
trade for profit without risk due to unfavorable price movement
in the underlying issue.  At the CBOE, for example, there are
several market-makers for each optionable stock.  They provide
bids and offers in the absence of public orders.  These traders
do not participate in any retail trading; they buy and sell for
their own accounts only.  A separate specialist, the board broker,
maintains the book of "limit" orders.  The board broker cannot do
any trading, but he manages the book so other floor traders can
see how many orders to buy and sell are near the current market
(the highest bid and lowest offer).  The CBOE system is efficient
because several market-makers compete to create the market in a
single security and the "open book" method of public orders also
provides an orderly trading forum for everyone involved.

While the Pacific Options Exchange (PCX) and the CBOE utilize a
competitive market-maker system, the American Exchange (AMEX) and
the Philadelphia (PHLX) Exchange are "specialist" markets.  These
specialists are intended to have an exclusive franchise in the
maintenance of a market, subject to the specialists' capital
and inventory.  In addition, the AMEX uses specialists for option
trading, but it also has floor traders who function similarly to
market-makers.  Most of the regional option exchanges use various
combinations of the two systems and in many cases, there are also
traders referred to as "locals" that are funded by individuals or
institutions.  They buy and sell options for private accounts and
are not allowed to execute orders on behalf of public customers.
Since there must always be a buyer for each option sold (option
purchases and sales must match at the end of each day), these
locals help maintain liquidity and fair prices for retail traders.
Option markets that use competitive systems are consensual, where
the liquidity and capital is spread around to those in the crowd.
The PCX and the CBOE place certain market-makers (The Lead Market
Maker at PCX and the Designated Primary Market Makers at CBOE) in
a quasi-specialist role.  In exchange for assuming more marketing
and customer service responsibilities, these market-makers enjoy
a guaranteed order flow participation.  The result is increased
accountability with greatly enhanced customer convenience and the
traditional benefits of the competitive system are maintained.


Floor-Trading Strategies

Last month, we learned that most strategies employed by floor
brokers to profit from trading in options are based on pricing
theory and statistical probability.  The concept of put-call
parity helps the specialist identify mis-priced relationships
between call options, put options, and the stock.  If the call
is overpriced relative to the put, the put is purchased and a
synthetic put, made up of a short call and long stock, is sold.
This technique is called a conversion.  If the call option is
under-priced relative to the put, then the call is bought and a
short synthetic call, made up of a short put and short stock, is
sold.  The opposite of a conversion and is often called a reverse
conversion or reversal.  Specialists also favor box spreads; two
call options with different strike prices and two put options with
strike prices equivalent to the calls.  Once again, box spreads
are only initiated when the options are mis-priced on a relative
basis.

The most profitable transactions for specialists are generally
deep-in-the-money calls and puts, since these options often have
large bid/ask spreads (generally due to a combination of higher
option prices and a lack of liquidity).  An example of this type
of trade is as follows: If an individual places an order to sell a
deep-in-the-money call, then the floor broker uses a reversal, or
reverse conversion with a short synthetic call (short stock and
short put) to offset the purchased call.  If the bid-ask spread is
$1 and the specialist pays the retail trader bid price only, the
position should yield a profit.  Recall that the basis for this
transaction is the market-maker can buy the call at a discount and,
at the same time, sell the synthetic call at fair value to generate
a risk-free position.  Obviously, this assumes the put option is
fairly priced and the stock can be shorted (sold) for the current
bid.  Any delay in the execution of the remaining components will
put the trade at risk.  If the share price changes or the up-tick
rule (in most cases, stocks can be shorted only on an upward move)
prevents the specialist from shorting the stock in a timely manner,
the profit will quickly disappear.  There are no up-front funds
needed for this method, but because of the difficulty in shorting
stock, specialists generally do not receive all of the profit from
the initial transaction.  However, specialists do have a method of
offsetting any potential losses.  In the case of a reversal, the
funds received from the sale of the stock are placed in a risk-free,
short-term investment.  Thus interest rates, the difference between
the market prices and the fair value of the options, and the amount
of funds received in the short sale all have some effect on the
eventual profitability of the position.

Fortunately, all option trades do not result in a conversion or
reversal.  Since the majority of retail traders buy options, and
since a large portion of purchased derivatives are redeemed at a
lower value (or expire worthless), market-makers will often take a
short position in these options.  Then they simply wait until the
option falls in value, to purchase an offsetting position.  In the
case of a short call option, they may eventually construct a long
synthetic call (a much easier transaction - no shorting of stock)
to offset the sold position.  Regardless of the situation or type
of arbitrage, their fundamental goal is to profit from disparities
in option pricing and by trading inside the bid/ask spread.

Good Luck!


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



EDITOR'S NOTE
*********

The Covered-Calls editor (who is also the data processing "guru"
for this section) is away on a much-needed Father's Day vacation,
so today's Naked-Puts section will consist of new candidates and
supplemental plays only.


NEW CANDIDATES
*********

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

ATTC   31.25  JUL 30.00   MFU SF  0.80  2801 29.20   35    5.8%
CANI   11.07  JUL 10.00   CDU SB  0.50  5     9.50   35   11.3%
FBR    10.65  JUL 10.00   FBR SB  0.35  0     9.65   35    7.7%
SCIO   28.94  JUL 25.00   UIO SE  0.55  53   24.45   35    5.8%
SIE    19.20  JUL 17.50   SIE SW  0.65  0    16.85   35    8.5%
SKX    22.10  JUL 17.50   PUC SB  0.30  93   17.20   35    5.5%
SWFT   21.50  JUL 20.00   SDU SD  0.55  355  19.45   35    6.2%
TALX   18.42  JUL 15.00   TUB SC  0.30  10   14.70   35    6.1%
YCC    26.74  JUL 25.00   YCC SE  0.55  23   24.45   35    5.0%


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

CANI   11.07  JUL 10.00   CDU SB  0.50  5     9.50   35   11.3%
SIE    19.20  JUL 17.50   SIE SW  0.65  0    16.85   35    8.5%
FBR    10.65  JUL 10.00   FBR SB  0.35  0     9.65   35    7.7%
SWFT   21.50  JUL 20.00   SDU SD  0.55  355  19.45   35    6.2%
TALX   18.42  JUL 15.00   TUB SC  0.30  10   14.70   35    6.1%
ATTC   31.25  JUL 30.00   MFU SF  0.80  2801 29.20   35    5.8%
SCIO   28.94  JUL 25.00   UIO SE  0.55  53   24.45   35    5.8%
SKX    22.10  JUL 17.50   PUC SB  0.30  93   17.20   35    5.5%
YCC    26.74  JUL 25.00   YCC SE  0.55  23   24.45   35    5.0%


Company Descriptions

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

*****
ATTC - AT&T Canada  $31.25  *** AT&T Buy-out! ***

AT&T Canada (NASDAQ:ATTC) is Canada's largest broadband business
services provider and the leader in competitive local exchange
and Internet and E-Business Solutions services.  With over 18,500
route kilometers of local and long haul broadband fiber-optic
network, world class data, Internet, Web hosting and e-business
enabling capabilities, ATTC provides a full range of integrated
communications products and services to help Canadian businesses
communicate locally, nationally and globally. AT&T Canada offers
customers across Canada a full suite of local and long distance
voice, data and Internet services with sales and service offices
from coast-to-coast.  ATTC competes with incumbent provincial
telecom companies and alternative long distance providers.  AT&T
(NYSE:T) is preparing a $2.25 billion stock offering next week to
buy out the public stake in AT&T Canada and if the acquisition is
completed, the stock price of ATTC should remain comfortably near
the current price range.  Traders can speculate on the outcome of
the transaction with this position.

JUL 30.00  MFU SF  LB=0.80  OI=2801  CB=29.20  DE=35  TY=5.8%


*****
CANI - Carreker  $11.07  *** Testing 52-Week Highs! ***

Carreker (NASDAQ:CANI) is a provider of integrated consulting and
software solutions that enable banks to identify and implement
e-finance solutions, increase their revenues, reduce their costs
and enhance their delivery of customer services.  The company's
offerings fall into four groups: Revenue Enhancement, which enable
banks to improve workflows, internal operational processes and 
customer pricing structures; PaymentSolutions, which address the
needs of a critical function of banks, the processing of payments
made by one party to another; Enterprise Solutions, which provides
conversion, consolidation and integration consulting services and
products on a bank-wide basis; and CashSolutions, which optimizes
the inventory management of a bank's cash on hand.  CANI rallied
in early June after reporting revenues for the 1st quarter of $37
million, a 33% increase from a year ago, along with an 87% rise in
operating income.  The bullish "break-out" on heavy volume is very
favorable and this position offers conservative traders a great
entry point in the issue.

JUL 10.00  CDU SB  LB=0.50  OI=5  CB=9.50  DE=35  TY=11.3%


*****
FBR - Friedman, Billings, Ramsey  $10.65  *** Two-Year High! ***

Friedman, Billings, Ramsey Group (NYSE:FBR) is a financial holding
company for businesses that provide various products and services.
The company serves the investment banking and brokerage industry
primarily through Friedman, Billings, Ramsey & Co., its principal
registered broker-dealer subsidiary, and, in the United Kingdom,
through Friedman, Billings, Ramsey International, its European
subsidiary.  Online brokerage and securities distribution services
are conducted through FBR Investment Services, a registered broker
subsidiary.  The company serves the specialized asset management
sector through four registered investment adviser subsidiaries,
and FBR National Bank & Trust provides transfer agency, custody,
shareholder services and mutual fund accounting for mutual funds.
Shares of FBR are trading at a new 2-year high and investors who
want to own the stock can establish a discounted position in the
issue with this position.

JUL 10.00  FBR SB  LB=0.35  OI=0  CB=9.65  DE=35  TY=7.7%


*****
SCIO - Scios  $28.94  *** On The Rebound! ***

Scios (NASDAQ:SCIO) is a biopharmaceutical company developing
novel treatments for cardiovascular and inflammatory diseases.
The company's disease-based technology platform integrates new
protein biology with computational and medicinal chemistry to
identify novel targets and rationally design molecule compounds
for large markets with unmet medical needs.  Scios is focused on
the development of three primary product candidates: Natrecor,
for the treatment of acute congestive heart failure, SCIO-469,
an oral small-molecule inhibitor of p38 kinase for the treatment
of rheumatoid arthritis, and small molecule inhibitors of the
receptor for TGF-beta, a cytokine that has been implicated in
diseases characterized by chronic scar formation, or fibrosis.
Shares of Scios rallied Friday on speculation the company will
will raise the 2002 annual sales projections at its quarterly
announcement in July and the move above a recent trading range
bottom (and the 30-dma) suggests further bullish activity is
forthcoming.

JUL 25.00  UIO SE  LB=0.55  OI=53  CB=24.45  DE=35  TY=5.8%


*****
SIE - Sierra Health Services  $19.20  *** Hot Sector! ***

Sierra Health Services (NYSE:SIE) is a health care organization
that provides and administers the delivery of comprehensive health
care and workers' compensation programs with an emphasis on quality
care and cost management.  The company's primary types of health
care coverage are HMO plans, HMO Point of Service (POS) plans, and
indemnity plans, which include a preferred provider organization
option.  The POS products allow members to choose one of the many
coverage options when medical services are required instead of one
plan for the entire year.  Shares of Sierra Health Services rallied
in late April after the company posted first-quarter results that
were well ahead of Wall Street's expectations and the stock recenty
traded at a new, all-time high.  The health care services provider
has raised its guidance for the rest of the year and investors can
establish a conservative cost basis in a popular issue in a "hot"
sector with this position.

JUL 17.50  SIE SW  LB=0.65  OI=0  CB=16.85  DE=35  TY=8.5%


*****
SKX - Schechers  $22.10  *** First Licensing Partnership ***

Skechers U.S.A. (NYSE:SKX) designs and markets a collection of
contemporary footwear for men, women and children under the
Skechers brand.  The company's shoes are sold through a range of
department stores and specialty stores, a network of retail stores
and the Skechers e-commerce Website.  The company's product line
consists of over 1,500 active styles that are organized in distinct
collections; Skechers USA, Skechers Sport, Skechers Collection,
Skechers Kids, Somethin' Else from Skechers, Skechers by Michelle
and 4 Wheelers by Skechers.  The company also offers sandalized
footwear, which features open-toe and open-side constructions
consistent with its offerings in the Skechers USA, Skechers Sport
and Skechers Collection categories of footwear.  Skechers recently
announced that Renfro Corporation has been named the licensee for
SKECHERS hosiery for adults.  Renfro will create quality socks
using SKECHERS' logos and the new products will soon be available
in leading department stores, specialty stores and sporting goods
retailers.  Investors appear pleased with the news and traders who
wouldn't mind owning the stock at a cost basis near $17 should
consider this position.

JUL 17.50  PUC SB  LB=0.30  OI=93  CB=17.20  DE=35  TY=5.5%


*****
SWFT - Swift Transportation  $21.50  *** Transport Sector ***

Swift Transportation (NASDAQ:SWFT) is a truckload carrier in North
America.  The company operates primarily throughout the continental
United States, combining regional operations with transcontinental
van operations.  The company transports retail and department store
merchandise, manufactured goods, paper products, non-perishable
food, beverages and beverage containers and building materials for
such companies as Kmart, Target, Costco, Sears and Wal-Mart.  The
company owns M.S. Carriers, a truckload carrier that operates in
the continental United States and the Canadian provinces of Quebec
and Ontario, and Mexico.  M.S. Carriers also transports truckload
shipments of general commodities, such as packages, retail goods,
non-perishable food, paper and paper products, household appliances,
furniture and packaged petroleum products.  Its customers include
Sears, Federal Express, Family Dollar and Home Depot.  Investors
who want to diversify their stock portfolios with a solid company
in the transport sector should consider this position.

JUL 20.00  SDU SD  LB=0.55  OI=355  CB=19.45  DE=35  TY=6.2%


*****
TALX - TALX Corporation  $18.42  *** On The Rebound! ***

TALX Corporation (NASDAQ:TALX) is a provider of automated work and
income verification services and a provider of outsourced employee
self-service applications.  The company use interactive Internet
and interactive voice response software and other technologies to
enable mortgage lenders, pre-employment screeners, employees and
authorized users to obtain employee human resources and payroll
information, and to allow other employees to review and modify
information in human resources, benefits and payroll management
information systems without requiring employer assistance.  Their
services and products fall within three general categories: The
Work Number services; human resources and benefits application
services; and customer premises systems, including maintenance and
support.  TALX was recently added to the S&P Small-Cap 600 Index
but that doesn't explain the near-term rebound in its share value.
The basing pattern near $15 and the recent buying pressure make
this a favorable position for speculative traders.
 
JUL 15.00  TUB SC  LB=0.30  OI=10  CB=14.70  DE=35  TY=6.1%


*****
YCC - Yankee Candle Company  $26.74  *** Big Mover! ***

The Yankee Candle Company (NYSE:YCC) is a designer, manufacturer
and branded marketer of scented candles for the giftware industry.
The company sells a variety of products as affordable luxuries and
consumable gifts.  Yankee Candle's candle products are available
in approximately 170 fragrances, and include a wide variety of jar
candles, Samplers votive candles, Tarts Wax Potpouri, pillars and
other candle products, all marketed under the Yankee Candle brand.
The company also sells a range of coordinated candle accessories
and branded fragranced non-candle products, including Yankee Candle
Car Jars air fresheners, Yankee Candle Bath personal care products
and Yankee Candle sachets.  The company sells its candles through
an extensive and growing wholesale network of stores.  Shares of
Yankee Candle hit a 2-year high on Friday, after the leading U.S.
specialty candle maker doubled its quarterly earnings forecast on
"red-hot" wholesale sales.  Investors who believe the rally will
continue can profit from that outcome with this position.

JUL 25.00  YCC SE  LB=0.55  OI=23  CB=24.45  DE=35  TY=5.0%


*****

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

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

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

CTLM   8.31  JUL   7.50   UUM SU  0.45  262   7.05   35   13.2%
PSUN  21.53  JUL  20.00   PVQ SD  0.65  10   19.35   35    7.3%
MOVI  20.22  JUL  17.50   QLV SW  0.45  30   17.05   35    6.7%
KROL  23.95  JUL  22.50   KRQ SX  0.65  8    21.85   35    6.4%
PCLE  11.45  JUL  10.00   PUC SB  0.25  15    9.75   35    6.4%
CHTT  33.60  JUL  30.00   HQT SF  0.75  40   29.25   35    6.2%
CCE   22.95  JUL  22.50   CCE SX  0.60  5    21.90   35    5.6%
FDP   26.00  JUL  25.00   FDP SE  0.45  0    24.55   35    4.0%
JBHT  28.76  JUL  25.00   JHQ SE  0.35  0    24.65   35    3.8%


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


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

Was That A Capitulation?
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, June 14

Stocks rebounded today after precipitous early losses stemming
from renewed concerns over terrorism and a decline in consumer
confidence.

The Dow Jones Industrial Average ended with a deficit of only 28
points at 9,474, after being down 242 points during the morning
session.  The worst performances were seen in Alcoa (NYSE:AA),
AT&T (NYSE:T), Home Depot (NYSE:HD), McDonald's (NYSE:MCD), and
DuPont (NYSE:DD).  Merck (NYSE:MRK), Microsoft (NASDAQ:MSFT),
J.P. Morgan (NYSE:JPM), Wal-Mart (NYSE:WMT), and International
Business Machines (NYSE:IBM) opposed the bearish trend, allowing
the blue-chip average to recover the brunt of its early losses.
The NASDAQ Composite was even more surprising, closing with a 7
point gain at 1,504 after sliding as much as 51 points in early
trading.  Telecom issues were punished after Sprint (NYSE:FON)
said full-year revenues would decline further than previously
expected.  A negative forecast from Adobe Systems (NYSE-ADBE)
affected software stocks but hardware shares returned to the
plus column after a series of recent declines.  In the broad
market, buying pressure in the biotechnology sector emerged to
limit the downdraft near midday and oil service, financial and
gold stocks also moved higher.  Trading volume was average with
1.54 billion shares traded on the NYSE and 1.82 billion shares
exchanged on the NASDAQ.  Market breadth was mixed, with losers
pacing winners 17 to 14 on the Big Board while winners roughly
matched losers on the technology exchange.  In the bond market,
yields on a 10-year note fell to their lowest level in months.
The 10-year Treasury note jumped 25/32 to yield 4.80% while the
30-year government bond soared 1 1/8 to yield 5.41%.


Last week's new plays (positions/opening prices/strategy):
	
Ambak      (NYSE:ABK)  JUL60P/JUL65P  $0.60   credit   bull-put
Autozone   (NYSE:AZO)  JUL70P/JUL75P  $0.55   credit   bull-put
Elec. Arts (NSDQ:ERTS) JUL50P/JUL55P  $0.50   credit   bull-put
Oxford     (NYSE:OHP)  JUL42P/JUL45P  $0.30   credit   bull-put
Un. Health (NYSE:UNH)  JUL80P/JUL85P  $0.40   credit   bull-put
Honeywell  (NYSE:HON)  JUL42C/JUL40C  $0.35   credit   bear-call
3M Co.     (NYSE:MMM)  JUL140C/J135C  $0.50   credit   bear-call
Omnicom    (NYSE:OMC)  JUL85C/JUL80C  $0.65   credit   bear-call
Bank One   (NYSE:ONE)  JUL45C/JUL42C  $0.30   credit   bear-call

The volatile market movement continued this week and the activity
provide some excellent entry opportunities in our new "Reader's
Request" positions.  Although most of the issues were relatively
stable, considering the large swings in equity values, Omnicom
surprised everyone when it plunged almost 30% during Wednesday's
session.  The company has been under pressure since it announced
in May that Robert Callander, a long-standing board member and
chairman of Omnicom's audit committee, quit in protest against
the company's accounting policies.  The news eventually led to
more questions about Omnicom's unique accounting methods and an
off-balance-sheet partnership formed to house several struggling
online properties.  As expected, investors chose to forego the
answers and simply dump the stock to avoid additional losses,
thus creating a precipitous drop in OMC's share price.  While we
are thankful the issue moved in the forecast direction, there is
no joy in watching a company's stock lose so much of its value
amid sheer speculation about accounting procedures.


Portfolio Activity:

Friday's volatile activity was not completely unexpected but the
severity of the sell-off had floor traders jumping during the
first hour of the session.  One of the reasons for the slide was
a pre-market announcement from Adobe Systems (NASDAQ:ADBE), in
which the company said third-quarter revenue would fall short of
Wall Street forecasts.  Adobe also lowered its full-year revenue
guidance to a range of $1.2 billion to $1.25 billion from $1.3
billion previously and several analysts cut their ratings on the
company, based on the downwardly revised outlook.  Our position
in the issue has a neutral outlook, however any further bearish
movement in the stock will jeopardize the sold (short) put so we
are going to monitor ADBE's activity very closely in the coming
sessions.  Cigna (NYSE:CI) is another issue that endured a large
decline during the day and speculation among analysts is that
investors are becoming very concerned about recent class-action
lawsuits filed against the company.  Some of more severe claims
include allegations of "deceptive practices" and "violations of
public policy."  Whether or not these charges prove accurate
remains to be seen but the damaging effect on its stock price
is obvious and today's plunge through the bottom of the current
trading range suggests further downside activity is forthcoming.
Traders holding bullish positions in the issue should consider
potential exit or adjustment strategies in the coming sessions.
Among the other stocks in the credit spreads portfolio, Sony
(NYSE:SNE) has also broken through a recent support area near
$54 and if you didn't close the bullish play during last week's
slump, you should certainly act before the stock drops further.
One last concern is Affiliated Computer Systems (NYSE:ACS) and
if the issue closes below the current trading-range bottom near
$50, some type of exit (or offsetting) transaction should be
initiated.

Of course, all of the bearish positions: Mercury Interactive
(NASDAQ:MERQ), XL Capital (NYSE:XL) and Weatherford (NYSE:WFT)
are performing well and the adjusted positions in Clear Channel
Communications (NYSE:CCU) and Qlogic (NASDAQ:QLGC) should expire
profitably this month.  Bullish spreads in defensive issues such
as Raytheon (NYSE:RTN) and the Gold Index (CBOE:XAU) are also in
good shape with only one week until expiration.  Another play in
that (defensive) category is the speculative synthetic position
in Kraft Foods (NYSE:KFT) and last week, the issue hit a recent
high near $44.  The rally provided a favorable early-exit profit
of up to $0.80 after only two weeks in play.  In the straddles
section, the neutral-outlook position on the technology sector;
the Mini-NDX (CBOE:MNX), surpassed our expectations as the issue
traded near $105 during Friday's sell-off.  The speculative play
offered an outstanding short-term profit, as well as reaching the
downside break-even point in the bearish portion of the straddle,
far in advance of its expiration in July.  Another position that
fared very well this month was the "Reader's Request" straddle
in Nvidia (NASDAQ:NVDA), which offered a gain of over 100% for
conservative volatility traders.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
GG - Goldcorp  $10.41  *** Time-Selling Play! ***

Goldcorp (NYSE:GG) is a North American-based gold producer with
a high grade mine in Red Lake, Northwestern Ontario, Canada and
its Wharf Mine in the historic Lead Mining area in the Black
Hills of South Dakota, United States.  In addition, the company
owns an industrial minerals operation in Saskatchewan, Canada.
Goldcorp's new Red Lake Mine, located in northwestern Ontario,
began commercial production last year and the mine's high grade
reserves are estimated to be in excess of three million ounces.
Located deep in the Black Hills of South Dakota, the Wharf Mine
produces approximately 100,000 ounces of gold annually and has
produced over 1.2 million ounces since 1983.  Located in the
region of southwestern Saskatchewan, Saskatchewan Minerals is
a North American producer of high-quality sodium sulfate.

Here's a speculative, low cost time-selling play for traders who
think the recent rally in Gold will continue through the summer
months.  The stock is in a relatively stable up-trend and the
first level of resistance is slightly below the sold (short)
strike at $12.  In addition, the volatility in gold prices has
generated some extreme movement in the issue, thus inflating its
near-term option premiums.


Strategy Description:

The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the longer-term option.  In this case, the underlying issue is
some distance below the strike price of the options, providing
a speculative position with low initial cost and large potential
profits.  Two favorable outcomes can occur: the stock rallies in
the short-term and the position is closed for a profit as time
value erosion in the short options produces a net gain or; the
underlying stock consolidates, allowing the sold options to
expire and then eventually rallies above the long options'
strike price, thus producing a positive return.  The cost basis
of the long options can be reduced through the sale of additional
calls prior to their expiration in October.

It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value.  Ideally, the spreader would like to have the stock finish
just below the sold strike when the near-term option expires.  If
the short options are in-the-money at expiration, he will have
to buy them back to preserve the long-term position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  OCT-12.50  GG-JV  OI=910   A=$1.05
SELL CALL  JUL-12.50  GG-GV  OI=4628  B=$0.30
INITIAL NET DEBIT TARGET=$0.65-$0.70  TARGET PROFIT=50-75%


******************************************************************
EBAY - eBay Inc.  $59.04  *** New Homes For Sale On Ebay? ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

While reviewing the recent news articles on eBay, I was surprised
to learn that you can bid for and buy a "home-under-construction"
on the auction site.  KB Home, one of the nation's largest housing
contractors, is teaming up with eBay to auction 55 homes online.
KB Home is auctioning homes in California, Arizona and Texas with
opening bids ranging from $121,000 to $900,000, as part of a new
effort to become a bigger presence online, which is where many of
its homebuyers research homes.  The auction, which marks eBay's
first entry into the new home market, will include some other
popular homebuilders such as Hammonds Homes and Beazer Homes USA,
and the demand for this type of marketing is expected to increase
in the coming years.  eBay is always exploring new ways to boost
the number of auctions, which directly enhances their revenues,
and it appears they have picked a clear winner this time around.

Traders who think EBAY's share value will benefit from the new
products being sold at the world's largest online auction site
should consider this conservative position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-45  QXB-SI  OI=4374  A=$0.60
SELL PUT  JUL-50  QXB-SJ  OI=8369  B=$1.15
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


******************************************************************
CCU - Clear Channel  $44.32  *** Back For More! ***

Clear Channel Communications (NYSE:CCU) is a diversified media
company with three major business segments: radio broadcasting,
outdoor advertising and live entertainment.  The company owns
and programs, or sells airtime for over 1,000 domestic radio
stations and a national radio network.  In addition, the company
has equity interests in various domestic and international radio
broadcasting companies.  The company also is engaged in outdoor
advertising and is a promoter, producer and venue operator for
live entertainment events with over 100 venues domestically and
31 venues internationally.  The company also owns or programs 19
television stations, owns a media representation firm and also
represents professional athletes.

Clear Channel Communications was the target of a bearish play in
early May and although the issue gave us some trouble initially,
the rally failed just short of a solid resistance area (and our
sold strike) at $55.  The issue eventually slumped to a previous
trading range near $48, however recent allegations of antitrust
violations have pushed the stock to yearly lows on heavy volume
and the technical indications show no signs of a recovery in the
near-term.  Traders who believe the current bearish activity will
continue for the next few weeks can profit from that outcome with
this position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-55  CCU-GK  OI=4343  A=$0.40
SELL CALL  JUL-50  CCU-GJ  OI=4674  B=$1.20
INITIAL NET CREDIT TARGET=$0.80-$0.90  PROFIT(max)=18%


******************************************************************
GM - General Motors  $55.45  *** Reader's Request! ***

General Motors (NYSE:GM) is a diversified automotive business
with interests in communications services, locomotives, finance
and insurance.  GM's automotive business designs, manufactures,
and/or markets vehicles primarily in North America under the
Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn
and Hummer nameplates, and outside North America under the Opel,
Vauxhall, Holden, Isuzu, Saab, Buick, Chevrolet, GMC and Cadillac
nameplates.  GM's communications services relate to its Hughes
Electronics subsidiary, which includes digital entertainment,
information and communications services, and satellite-based
private business networks.  GM also is engaged in the design,
manufacturing and marketing of locomotives and transmissions.
GM's financing and insurance operations are conducted primarily
through General Motors Acceptance Corporation, which provides a
broad range of financial services.  The company's quarterly
earnings are due on July 16.

One of our readers submitted this issue for a bearish spread and
indeed, GM appears to be in the early stages of a major retreat.
The initial selling pressure (as the chart turned downward) was
supported by heavy volume and there is no clear support level to
stem the slide until it reaches the $50 range.  In addition, the
potential for a successful (technical) recovery is significantly
affected by the resistance at the sold strike price; a perfect
condition for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-65  GM-GM  OI=4485   A=$0.15
SELL CALL  JUL-60  GM-GL  OI=17701  B=$0.70
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


******************************************************************
                      - Speculation Plays -

These positions are based on recent increased activity in the
stock and/or its underlying options.  Both of these plays offer
favorable risk-reward potential but they should be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.
  
******************************************************************
ORCL - Oracle Software  $8.57  *** Bottom Fishing! ***

Oracle (NASDAQ:ORCL) is a supplier of software for information
management.  The company develops, manufactures, markets and
distributes computer software that helps corporations manage and
grow their businesses.  The company's software products can be
categorized into two broad areas: systems software and business
applications software.  Systems software is a complete Internet
platform for developing and deploying applications on the online
and on corporate intranets.  Systems software products include
database management software, application server software and
development tools that allow users to create, retrieve and modify
the various types of data stored in a computer system.  Business
applications software, which can be accessed with a standard Web
browser on any client computer, automates the performance of
business processes for customer relationship management, supply
chain management, financial management, project management and
human resource management.  The company's earnings are due on
June 18.

Oracle is certainly one of the more established stocks in the
software segment and it was very successful in the late 90's,
as evidenced by 5 stock splits and a share value of $40 before
the recent massive sell-off erased the market capitalization of
almost every technology issue.  Now the issue languishes in the
$8 range but analysts say the slump in sales of the company's
products is stabilizing and they expect ORCL's share value to
begin a long-term recovery in the coming months.

These positions utilize Jim Brown's (OIN Founder/Chief Editor)
popular technique of writing "in-the-money" Puts to profit from
future upward movement in the underlying issue.  A near-term Put
is also purchased to limit downside risk in the position if the
recovery does not begin in the next few months.

More information on this unique strategy can be found at:

http://members.OptionInvestor.com/editorplays/042201_1.asp

PLAY (speculative - bullish/short-put combination):

SELL PUT  JAN03-15.00  VOC-MC  OI=9492   B=$6.60
BUY  PUT  SEP02-7.50   ORQ-UU  OI=10375  A=$0.80
INITIAL NET CREDIT TARGET=$6.00-$6.10 TARGET PROFIT=$2.75-???

-or-

PLAY (more conservative - bullish/short-put combination):

SELL PUT  JAN03-10.00  VOC-MB  OI=8251   B=$2.60
BUY  PUT  SEP02-7.50   ORQ-UU  OI=10375  A=$0.80
INITIAL NET CREDIT TARGET=$2.00-$2.10 TARGET PROFIT=$1.25-$1.50

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.


******************************************************************
PRX - Pharmaceutical Resources  $29.00  *** Speculation Only! ***

Pharmaceutical Resources (NYSE:PRX) is a holding company that,
through its subsidiaries, is in the business of developing,
manufacturing and distributing a broad line of generic drugs in
the United States.  PRX operates primarily through its wholly
owned subsidiary, Par Pharmaceutical, a maker and distributor
of generic drugs.  The company's product line consists of many
prescription and, to a lesser extent, over-the-counter generic
drugs representing various dosage strengths.  In addition to
manufacturing its own products, the company has a number of
strategic alliances with several pharmaceutical and chemical
companies providing it with products for sale through various
distribution, development or licensing agreements.  The company
markets its products primarily to wholesalers, retail drug store
chains, drug distributors and re-packagers.

Shares of Pharmaceutical Resources have been "on the move" in
recent sessions after the company said it expects second-quarter
earnings to significantly surpass consensus estimates, boosted
by strong sales.  The company's revenues are benefiting from
momentum in their base business, higher than anticipated sales
of Megestrol oral suspension, robust sales of Fluoxetine and the
launch of Flecainide Acetate.  An analyst at U.S. Bancorp Piper
Jaffray says that pharmaceutical companies are one of the fastest
growing sectors in healthcare, due to increasing utilization by
an aging patient population and the sector is viewed as a "strong
bet for investors searching for earnings growth and visibility,
without significant macroeconomic risk."

Traders who agree with a bullish outlook for companies in the
Specialty Pharmaceuticals Group can speculate on the performance
of one of its most popular stocks with this position.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  AUG-35  PRX-HG  OI=219  A=$0.45
SELL PUT   AUG-25  PRX-TE  OI=121  B=$0.60
INITIAL NET CREDIT TARGET=$0.25-$0.35  TARGET PROFIT=$0.75-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $825 per contract.


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
SEIC - SEI Corporation  $29.77  *** Probability Play! ***

SEI Corporation's (NASDAQ:SEIC) principal subsidiaries are SEI
Investments Distribution Company, SEI Investments Management
Corporation and SEI Trust Company.  SIDCO is a broker-dealer
registered with the Securities and Exchange Commission.  SIMC is
an investment advisor.  SEI Trust is a trust entity chartered in
the Commonwealth of Pennsylvania.  SIDCO and SIMC also provide a
range of administration and distribution services to proprietary
mutual funds established by banks and financial institutions and
intermediaries.  The client serves as the investment advisor for
the proprietary funds, and the funds are sold to customers of the
client.  SEIC is organized around its four main business lines,
which are Technology Services, Asset Management, Mutual Fund
Services and Investments in New Businesses.

The number of issues with statistically inexpensive options has
fallen in recent weeks but there are still some good candidates
in the strategy and this stock meets our basic criteria for a
favorable straddle: cheap option premiums, a history of adequate
price movement and the potential for volatility in the stock or
its industry.  Selecting straddles with this process provides the
best combination of low risk and potentially high reward but, as
with any position, you must review the play thoroughly and make
your own decision about its future outcome.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  SEP-30  QEI-IF  OI=120  A=$2.40
BUY  PUT   SEP-30  QEI-UF  OI=21   A=$2.60
INITIAL NET DEBIT TARGET=$4.75-$4.85  TARGET PROFIT=40-70%


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


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Order today and save 25% (only $15) by clicking on PreferredTrade 
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**************************************************************


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

Will last week’s volatility dry up next week?  We’ll find out with 
several plays ready to be triggered.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/061602.asp


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

Market averages finished above support last Friday.  But not 
before breaking down below those levels.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/061602.asp


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

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


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

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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