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Daily Newsletter, Tuesday, 06/18/2002

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The Option Investor Newsletter                 Tuesday 06-18-2002
Copyright 2001, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      06-18-2002           High     Low     Volume Advance/Decline
DJIA     9706.12 + 18.70  9721.75  9636.96 1.13 bln   1486/1500
NASDAQ   1542.96 - 10.30  1567.99  1542.77 1.51 bln   1567/1919
S&P 100   516.73 +  0.55   518.41   513.00   Totals   3053/3419
S&P 500  1037.14 +  0.97  1040.83  1030.92             
RUS 2000  460.71 -  1.03   474.64   469.49
DJ TRANS 2733.68 +  3.80  2743.86  2720.35
VIX        27.33 -  0.27    28.57    26.93
VXN        54.55 -  0.43    55.39    53.93
TRIN        0.95
PUT/CALL    0.96
*************************************************************  

Positive, Negative, Negative, Negative, Negative..

That was the news flow after the market closed on Tuesday. 
After an amazing day of holding on to gains from Friday's 
bounce the markets appear ready to take a hit at the open 
on Wednesday. For weeks it seems we have been closing right
on support and hoping for good news to keep us from falling
over the edge. Tonight the markets (Dow/S&P) closed just
under resistance and appeared poised to rocket over those
levels if good news from Oracle scared the bears. How quickly
things change.



 



 

Positive: After the bell Oracle announced earnings that beat 
the street on revenue that hit estimates. The crowd went wild 
and shorts, always expecting the worst, raced to cover in 
after hours. The stock traded as high as 10.31 from a 
$8.98 close. The news seemed great on the surface with new 
license revenue at $1.15 billion compared with estimates of 
only $1 billion. The initial guidance was weak with statements
like "no improvement in business in sight" and "the summer is
usually weak." Still the "Oracle prospered with higher margins
in the worst IT recession in years" comments filled shorts
with terror. They should not have been so quick on the trigger.

Negative: During the conference call the news was not so exciting. 
The company stressed the "tough conditions" and low visibility
going forward. The stock tanked and was trading back down in
the $9.00 range as trading drew to a close. That stinky smell
is back and those cautious comments could weigh on ORCL as the
summer progresses. They said they were experiencing more
competition from IBM and MSFT and sales over the next quarter
could be down as much as -15% to -25%. They said they did not
see any improvement in the IT sector for "at least" six months.
Still pumped?

Negative: Chipmaker AMD warned after the close that they would 
miss revenue estimates by -25% to $620-$700 million and down
sharply from $820-$900 million. They said they would suffer a
substantial loss in the 2Q as a result. The reason given was 
a broad weakness in the personal computer market in both the U.S.
and Europe. In April AMD had forecasted a return to profit in 
the 2Q. The stock fell to $8.95 from a $10.35 close.

Negative: Personal Computer maker Apple Computer warned that 
earnings would fall below estimates of $.13 cents at $.08 to 
$.10 cents. Revenues would be about -$200 million lighter than
expected. The reason, slow sales, very weak consumer sales and
lack of a seasonal uptick in May/June. Normally they experience
a strong bounce in May/June as college graduates buy new 
computers as they launch into their careers. Apple said this
did not happen this year. They stressed the very weak consumer
sales. AAPL lost nearly -$3 in after hours to $17.35.

Negative: Intel announced they were closing down their web 
hosting service and would take a $100 million charge. They 
said the demise of the dot.com boom had made the web hosting
business not part of their long term plan. They were shedding
non-core assets to concentrate on their main chip business. 
This is not a big deal in business terms for Intel and could
actually be seen as a positive. But......... Intel did make a point
of saying that the $100 million charge was not accounted in
the guidance they issued last week. Think about this for a
minute. Do you think they just came up with this idea overnight?
I doubt it. So what was the purpose of waiting a week and 
trying to slip it in unnoticed? Simple. They can lump up the
charges and calmly restate earnings downward again without
saying they are "restating earnings." Intel does nothing 
without thinking through all the ramifications. INTC was
trading down -$1 in after hours but the "charge" issue has
not hit the airwaves yet. It has been totally ignored in light 
of the AAPL/AMD news. It would not be considered "operating"
earnings but would offer an opportunity to hide other "kitchen
sinks" in the numbers. 

Negative: CIEN warned after the close that sales would be "down
meaningfully" from the last quarter even if the revenue from
ONI systems was included. The merger is set to close this week
and even with the addition of the ONI revenue they are going
to fall seriously short. Estimates had been for $100 million
in revenue and CIEN now says it will be substantially less than
their $87 million in the first quarter. They said final sales
would depend on how many existing orders were cancelled or
delayed. (Sounds promising) Last quarter CIEN lost -$622 
million and with substantially reduced sales this quarter is
not looking good. They claim their core business could remain
weak for years to come. That is exciting thought for investors! 
CIEN was trading near $4 in after hours.

Positive: Also released after the close but ignored by the
mainstream press was the Book-to-Bill number for May. The
number increased slightly to 1.26 from a revised 1.22 in 
April. This is the highest level in almost two years. Shipments
rose in May for the second month in a row. It is still down
-41% from a year ago but growing. Orders rose for the sixth
month in a row. This should be extremely positive going
forward  

All this negative news came at the end of a really positive 
day. The economic reports were very good with the CPI flat
and showing no inflation and Housing Starts rising +11.6%, 
the highest rate in six years. There was another downgrade
on IBM which had no real impact and the market appeared to 
be shaking off bad news like water off a duck. That duck
however could be invited to dinner tomorrow as the main
course. The bombing in Israel, killing 19 and injuring 50,
is drawing the wrath of the Israeli army as I write this.
There are likely to be numerous news stories in the morning
about the retaliation. Many of the traders in New York are
Jewish with ties back to Israel. This always drags on the market.
Also the Brazil wild card is heating up again. The debt is
on the verge of default again and this impacts not only South
American countries but overseas countries as well. Japan's
economy could take another swoon if Brazil troubles continue.
Brazil's debt is 55% of its GDP.

Wednesday could be exciting. There are no material economic
reports so stocks will be left to trade on their own merits.
Now that is a scary thought! The bullishness from the last
three days will be tested and a lot of conclusions about the
market health will be drawn. S&P Futures are down and this
negativity could change by morning but I would be very surprised.
The profits from the last three days are at risk and suddenly
traders are not so sure that the "bottom" is behind us. With
warning season in full swing we never know who will be next.
IBM, Dell, HPQ or any number of others could do the deed at
any moment. Traders were buying the last three days to avoid
missing the bounce, not because they loved the stocks. We will 
see tomorrow just exactly how confident they are about those 
purchases. Remember, volume equals validity. Without volume 
there is no conviction. 

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

VOL DEMINISHES
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
VOLatility and market VOLume that is - the CBOE Volatility Index 
for the OEX tapered off today (27.33, -0.98%), along with the 
NYSE and Nasdaq total trading volume numbers, down for two days 
running. Bearish traders were not selling into rallies for a 
chance - they are sullen and subdued, but unconvinced. 

Traders have not gone wild either - my favorite "sentiment" 
indicator, the ratio of CBOE total equities call volume in 
relation to total daily put volume jumped on Monday, to a ratio 
of 1.7 but this is no where near an extreme.  In fact, this is 
one of the dynamics of the rally - not a lot of conviction but 
not a tremendous amount of disbelief either.  

Traders have been anticipating an oversold rebound - after all, 
the media talking heads have been telling us to expect some kind 
of summer rally for awhile now. 
 
I think the bears are unconvinced and I can't fault their market 
analysis.  One technical analysis of the Dow chart at bottom, in 
response to a subscriber question, suggests that we may have 
another down "leg" ahead, perhaps after a re-test of DJIA 
resistance in the 10,000 area. 

And, after all, only the Nasdaq has re-tested its lows of last 
Sept. Most of the oversold sectors, especially tech and biotech 
are rebounding, but only from the very LOW end of their downtrend 
channels as I have been showing in the Sector Trader wrap up. 
Once they get into mid-channel or up to the top end of these 
daily chart channels - I suspect it may be bombs away again. We 
would all love to love the tech darlins again, but we have been 
spurned so many times that the flame of that romance is only 
embers and ashes.  

I can't see where the leadership for a sustained market 
turnaround is going to come from just yet - it does not look like 
t will be the financials, tech or manufacturing in general. The 
consumer defensive/consumer durables will not provide enough 
horsepower to pull the whole market higher - nor will the 
Healthcare/Health Provider sectors, which may have or be in the 
process of, topping out for now. 

The small caps are back in gear I think, after correcting between 
38 and 50% of the Sept.-April rally, in terms of the S&P 600 
small cap ($SML.X) and the Russell 2000 ($RUT.X) index - however, 
this group is mostly going to pull THEMSELVES up.  

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


 

Near resistance in the S&P 500 (SPX) is at 1039-1040, then at 
1050.  I would turn seller in this area, if reached. 1050 is sort 
or "triple threat" resistance - as implied by a prior hourly (up) 
swing high, the top of its broad hourly downtrend channel, and 
the level of the "pivotal" 21-day moving average.  Consequently, 
a close above 1050 would be quite bullish, but not something I 
think likely, at least near-term.  I could see SPX winding up at 
1050 on expiration Friday, then correcting to lower levels next 
week.  

Support is anticipated in the 1025-1023 area, then at 1015. 
Purchases are suggested in the 1015-1012 area.  

The "emerging" hourly uptrend channel (blue dashed lines) is 
still within the context of a broad hourly downtrend channel. A 
bullish breakout would only be "confirmed" by an hourly, then a 
daily, close above 1050 in my estimation. 

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


 

I suggest selling in the 520-522 area, with an exit point at 527 
initially. A close above 522, at the 21-day moving average, would 
suggest caution on the short side - although one close over the 
"pivotal" trading average does not "prove" a further up move 
until/unless this level holds up on the following day also. 

Support begins at 515-514, then extends down to the 510-509 area.  
A would not anticipate a close under 500 - if it happens, a 
bearish technical outlook is confirmed again.    

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


 

I favor selling the DJX in the 97.6 - 98.00 area, on up to 98.50, 
resistance implied by the 21-day moving average. There is a 
resistance trendline on the daily chart that comes in a bit 
higher, around 99.5-99.6 that is significant also.   

Support is anticipated at 96, then in the 95-94.5 area, based on 
a cluster of prior hourly lows and the intersection of a 
previously broken hourly down trendline - one that may now act as 
support. A close below 94,5 turns the chart picture bearish 
again. 

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


 

Resistance was apparent this afternoon in the 28.8-29 area.  
Above this area, next resistance is 29.5-29.6, based on the 
hourly up trendline and the level of the 21-day moving average 
and I favor selling in this area. Some corrective action seems 
likely tomorrow (Wed.) Support is at 28-28.2, then at 27.5, where 
a buying opportunity may set up.  

Beside strictly price levels, I would like to see at what level 
the hourly stochastic is at a more neutral, if not oversold, 
level. A sideways to lower trend into Thursday would likely 
accomplish this. If the market goes up fast, with few corrections 
along the way, then the rally is surely unsustainable - except 
this week, there is the influences of index options and futures 
expiration, which is a "wild card" influence. 

MINI-TRADER'S CORNER -

Subscriber QUESTION: "On a daily chart I see a head & shoulders
 on the DJ-30. How far can it go up to not break the right 
shoulder? If it is a true H & S, what would be the down side, 
around 8750? " 

RESPONSE: Possible Head & Shoulder's (H&S) Top pattern in the Dow 
Jones Industrial Average (DJIA) -- Basis the Dow Index (DJX) 
calculation would be: Top of the middle top or "Head" = 106.60; 
To Neckline = 96.4 (trendline between bottom of two "shoulders"); 
Difference = 10.2 

Subtracting 10.2 from point on DJX neckline break at 99.1 = 88.90 
or DJIA 8,890, as a possible "minimum" downside objective implied 
by the H&S top pattern. 



 

DJX could rebound "to" neckline, at 99.7 (Dow 9,970) currently 
and it would just be a "return" to the neckline resistance, which 
is not uncommon - if any such rally turned lower from there, 
downside target (at 88.9 or DJIA 8,890) implied by H&S top 
pattern would remain intact. 

Encyclopedia of Chart Patterns study (Tom Bulkowski) found that 
average decline predicted by an H&S top is 15% from the point 
where the neckline was broken. Decline so far from the 
"neckline", which has been to 92.6 (9,260), is 6.5% so far. 

This analysis would suggest that there is substantial downside 
potential yet in the market. I will be curious as to what happens 
if there is this return to the Dow neckline - of course, the 
neckline rises over time - soon it will be at DJX 100, or Dow 
10,000 - sound like a familiar level? 

I did an explanation of the Head & Shoulder's pattern and how to 
compute "implied" objectives based on this pattern on my Trader's 
Corner article last week at http://www.OptionInvestor.com/traderscorner/061602_1.asp 

THIS PATTERN IS NOTICED BY TECHNICAL TYPE TRADERS BECAUSE ITS 
FAIRLY RELIABLE IN ITS OUTCOME - ONE FURTHER EXAMPLE: 



 

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Tech Bears Be Careful: Bull Alert
By Eric Utley

The Nasdaq-100 Bullish Percent ($BPNDX) reversed into bull alert
Tuesday.  The reversal came from the 16 percent level.  To put
the recent level of the $BPNDX into perspective, it was through
Friday's session the most oversold since September.

Just where the NDX and its components go from here is unknown.
But what we do know is that short term risk in the NDX has shifted
to the upside, the bears know that and so do the bulls.  The
bears are going to be much more conservative about putting on new
short positions with the $BPNDX in bull alert at the 23 percent
level.  There's room for 77 percent of the NDX stocks to turn
bullish, while only 23 percent more to zero on the downside.
With the upside risk now nearly three times that of the downside,
obviously bears are going to be more inclined to run for cover
than press to the downside.  After all, they have some mighty
fine profits captured during the last month.

The bulls in technology will start getting a bit more aggressive
to the long side, using the stronger names in the NDX, the ones
already on buy signals, emerging from short-term bases.  The
charts to use as references for what the bulls might be looking
for are Microsoft (NASDAQ:MSFT) and eBay (NASDAQ:EBAY).  Both
stocks are trading relatively well versus the NDX, and both are
on buy signals.

So let's keep this short and simple, if you're bullish, the better
bets are in NDX names.  If you're bearish, there's better downside
risk, read that as potential, in the NYSE and S&P (ex-tech)
names given the higher readings of the bullish percent data.  

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9706

Moving Averages:
(Simple)

 10-dma:  9616
 50-dma:  9987
200-dma:  9847



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1037

Moving Averages:
(Simple)

 10-dma: 1026
 50-dma: 1075
200-dma: 1106



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1138

Moving Averages:
(Simple)

 10-dma: 1136
 50-dma: 1251
200-dma: 1417



Gold and Silver ($XAU)

The XAU was back at it again Tuedsay, charging higher.  The
index earned the day's best performing sector spot once again.
It finished 3.72 percent higher for the day.

The usual suspects were on the leader board Tuesday, including
Harmony Gold (NASDAQ:HGMCY), Gold Fields (NYSE:GFI), Anglogold
(NYSE:AU), and Agnico Eagle Mines (NYSE:AEM).

52-week High: 89
52-week Low : 49
Current     : 76

Moving Averages:
(Simple)

 10-dma: 78
 50-dma: 78
200-dma: 63


Fiber Optic ($FOP)

The FOP was knocked down again Tuesday.  The index shed 3.16
percent, earning the day's worst performing sector spot.

Leading losers included Tellabs (NASDAQ:TLAB), who lost its
CEO to Qwest Communications (NYSE:Q), another component of the
FOP.  Others included ONI Systems (NASDAQ:ONIS), which is
being acquired by CIENA (NASDAQ:CIEN), Applied Micro Circuits
(NASDAQ:AMCC), and CIENA.

52-week High: 139
52-week Low :  49
Current     :  52

Moving Averages:
(Simple)

 10-dma: 54
 50-dma: 70
200-dma: N/A

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

Market Volatility

The VIX was lower by a fractional amount Tuesday.  It appears
to be resting near its 10-dma, just above the 200-dma.

I didn't like the lower VXN in light of the 10 point drop in
the Nasdaq.  I wish it were a little higher, but it's not.

CBOE Market Volatility Index (VIX) - 27.49 -0.11
Nasdaq-100 Volatility Index  (VXN) - 54.65 -0.33

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.96        442,008       424,082
Equity Only    0.77        350,441       268,994
OEX            1.06         26,647        28,358
QQQ            0.79         31,945        25,190

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

Bullish Percent Data

           Current   Change   Status
NYSE          53      + 0     Bull Correction
NASDAQ-100    23      + 4     Bull Alert
DOW           43      + 0     Bear Confirmed
S&P 500       46      + 1     Bear Confirmed
S&P 100       47      + 0     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  1.03
10-Day Arms Index  1.23
21-Day Arms Index  1.33
55-Day Arms Index  1.36

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE       1667          17411554
NASDAQ     1565          1879

        New Highs      New Lows
NYSE       97             38
NASDAQ     68             82

        Volume (in millions)
NYSE     1,178
NASDAQ   1,588

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

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

THE SECTOR BEAT - 6/18
by Leigh Stevens

It was a quiet day in both the market and the market sectors too 
for the most part. There were no significant changes in the 
technical picture for any of the industry groups or sectors. 

The gold stocks rebounded a bit, but not to an extent that 
changed the bearish chart picture on the XAU index. Healthcare, 
while higher, appears to be "churning" and possibly building at 
least a temporary top.  It's not an exciting day, when some of 
the best upside momentum continues to be shown by the Utility 
sector, having a strong 3-day rebound from the low end of its 
multimonth trading range.  

Airlines had a "dead cat" bounce, but nothing that turns around 
its bearish chart picture. The banks and broker stocks within the 
financial index are holding their gains which "supports" the 
overall market - which gave back little ground today after a 
strong 2-day advance - that's a first for awhile.    

HIGHER ON THE DAY ON Tuesday - 


 


DOWN ON THE DAY on Tuesday - 


 

The weak get weaker, as the networking, fiber optic ($FOP.X), 
wireless and semiconductors came under renewed selling pressure. 
The SOX weakness today suggests to me that the Nasdaq may give 
some ground tomorrow. 

SECTOR HIGHLIGHT -
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

The biotech HOLDR's reversed at resistance implied by the prior 
swing low and may continue correcting here - I am canceling the 
buy recommendation I had on the Biotech trust stock, as the buy 
in point is too low to realistically buy a small correction - 
and, if there is a big correction, I would want to evaluate the 
price action further before suggesting anything.  



 


SMALL CAP - 
I still like the small cap sectors.  Have noted in my Index 
Trader wrap up, the Russell 2000 iShares chart as an example of 
how a "Head & Shoulder's" downside objective was fulfilled at the 
recent low. 



  


TRADE RECOMMENDATIONS & REVIEW - 

NEW TRADE(S) RECOMMENDATION(S) - 
NONE
 
TRADE LIQUIDATIONS -
NONE 

OPEN POSITIONS - 
NONE  

INDIVIDUAL SECTOR REVIEW - continued tomorrow - see prior day for 
the last updates and charts


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                  Tuesday 06-18-2002
Copyright 2001, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

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

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


CALLS:
*****

AZO $80.83 -0.77 (+0.24) The good news is that AZO has been
holding up rather well over the past two weeks.  The bad news is
that it isn't going anywhere.  After the stock's breakout above
$78, it appears to be moving into a consolidation phase, defined
by support near $79 and resistance near $83.  It is hard to
define the catalyst that will break the stock out of this funk,
so we are going to pull the plug tonight.  There are better
opportunities out there and that is where we want to focus our
attention.


PUTS:
*****

WHR $69.35 +0.96 (+2.95) The rebound in WHR late last week from
the $65 level appears to have some legs to it.  The stock
penetrated to the upside above short term congestion above the
$70 resistance level during today's session on a slight up
tick in trading volume.  We want to be cautious with the
oversold nature of the stock going forward, and are choosing
to drop coverage on the play tonight.  Look for a pullback to
exit positions into early tomorrow, or set a stop at today's
intraday high of $70.50.

LLL $58.72 +3.62 (+6.67) There's nothing so frustrating as
picking a new put near the bottom.  After adding LLL to the put
list, we got a nice drop down to the $52 level and the stock even
closed at its low of the day on Friday, diverging nicely with the
broad market rebound.  But this week has seen strong buying on the
heels of the company's antitrust clearance for its acquisition of
PerkinElmer's Detection Systems business.  Tuesday's strong rally
pushed LLL solidly through our $57 stop, forcing us to drop the
play.  All positions should now be closed, but for any laggards,
look to exit on any intraday weakness tomorrow.

RYL $52.50 +0.65 (+3.40) RYL's rebound off the lows on Friday
was starting to look a little long in the tooth yesterday
afternoon and we were looking for a fresh bearish entry.  But
that was before the very strong Housing numbers were released
this morning.  That shot the stock up to the $54 level before
profit taking appeared.  What was disappointing was the fact that
the stock found support in the afternoon above yesterday's highs
near $52.  Right now, it looks like the risks are weighted to the
upside, so we're going to drop the play tonight to get out of the
way of a risk picture that has now shifted against us.  Look for
any opening weakness to provide a more favorable exit point for
open plays.


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

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

CALLS              Mon    Tue

DGX      90.79    1.62   0.93  Rebounded from higher relative low
AZO      80.83    1.01  -0.77  Dropped, head and shoulders top???
OHP      50.95    0.97   0.65  Steady trend, super strong stock!!
BGEN     42.90    1.59  -1.11  Biotech back in favor, empty gap
VRTX     18.77    0.71   0.23  Gaining upside momentum to $20
AET      50.87    0.96   1.03  New, consolidation leads to break
DUK      32.92    0.60   1.21  New, revival of sentiment and bulls


PUTS               

WHR      69.35    1.99   0.96  Dropped, showing signs of strength
PMI      39.34    0.93  -0.04  Inside day set up, entry point!!!
MIL      35.01    1.33  -0.39  Lifted by short covering in biotech
HIG      61.94    2.24  -0.23  Failed to follow through at 200-dma
ENZN     26.38    1.44  -0.60  Stalling near short term resistance
IBM      75.94    0.97  -1.20  On the verge of another breakdown??
RYL      52.50    1.75   0.65  Dropped, extremely strong housing #
IWM      93.78    2.13   0.15  Entry near short term resistance
LLL      52.05    3.05   3.62  Dropped, strong rebound in defense  
ZLC      39.21    0.87  -0.79  Lagging strength in retail sector
PDX      24.98    0.84   0.77  Short covering helped higher, entry
TDS      64.60    2.50  -1.05  New, entry point into telecom put


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

BGEN $42.90 -1.11 (+0.48) After the strong rebound off the lows,
Biotechnology stocks took a much-needed breather on Tuesday,
resulting in a roughly 1.2% loss for the BTK index.  In light of
the strong rebound off the lows near $328, a  5-point loss fits
nicely within the concept of normal profit taking.  That appears
to be the case with BGEN as well, with the stock giving back most
of yesterday's gains to end just below $43.  That allowed the
intraday oscillators to fall back near oversold and that could be
setting us up for another attractive entry point tomorrow.  BGEN
has solid support now at the $42 level and a dip and bounce near
there would make for an attractive entry, so long as the BTK is
able to continue its recovery.  Traders looking for confirmation
before playing will want to wait for the stock to rally through
the $44.25 level before taking a position.  Keep in mind that our
first upside target is the top of the early-June gap at $47.75.
Keep stops set at $40.

DGX $90.79 +0.93 (+2.55) Health Care stocks have been in the
spotlight again this week and DGX investors have taken advantage
of the bullish action to drive the stock back above the $90
level.  Granted, the dip on Friday provided an extraordinarily
good entry point for those that were ready and willing to take
it.  For those that missed that entry, the question is whether to
buy the current strength or wait for another pullback.  With solid
buying volume and consistent strength in price over the past two
days, any dip into the $89-90 support level should make for a
solid entry point on the subsequent rebound.  Alternatively,
momentum traders can target new entries on a push through the $92
level, while keeping in mind that there is some solid resistance
overhead in the $94 area.  Keep stops set at $88.

OHP $50.95 +0.65 (+1.62) While the broad markets vacillated in a
narrow range on Tuesday, the Health Care Payor's index (HMO.X)
snuck its way to a new all-time high, propelling shares of OHP up
to a new all-time closing high, just a nickel below $51.  With
daily Stochastics just completing a bullish reversal without even
dipping into oversold, it looks like the stock is prepared to
continue ticking off new highs.  In fact, with the positive
developments in the industry and the HMO index solidly in rally
mode, we would even look favorably on new positions taken on a
push through Tuesday's intraday high of $51.24.  Alternatively,
look for an intraday dip to support in the $49.50-50.00 range to
provide a new entry point.  Note that the 3-week ascending
trendline is now just above $49.  Raise stops to $48.75.

VRTX $18.77 +0.23 (+0.94) After the rebound off the lows on
Friday, the Biotechnology sector (BTK.X) was due for a pause to
catch its breath and that's what we saw on Tuesday, with the BTK
falling back approximately 1.2%.  Showing that it is gaining
strength relative to the BTK, shares of VRTX actually posted a
fractional gain.  The performance was looking even better midday,
as the bulls attempted to challenge the $20 resistance level.
But with the lack of strength in the broader sector, they just
couldn't get the job done and gave back the intraday gains at the
close.  Action points are easy to define here, with a breakout
over the $20 level being the trigger for momentum traders and an
intraday dip and bounce near the $18.50 intraday support level.
An even better entry could materialize with a larger dip near the
$17.50-18.00 support zone, but we would want to see strong buying
volume come in to support the stock before taking a position.
Raise stops to $16.50.


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

AET - Aetna $50.87 +1.03 (+1.97 this week)

Aetna Inc., incorporated in December 1982, is a health benefits
company whose business operations are conducted in the Health
Care, Group Insurance and Large Case Pensions segments. On
December 13, 2000, the Company was spun off, with the remaining
entity merged into a subsidiary of ING Groep N.V. The Health
Care segment consists of health and dental benefit products
including health maintenance organization, point-of-service,
preferred provider organization and indemnity products, and
group insurance products including life, disability and long
term care insurance products. The Group Life Insurance segment
consists principally of renewable term coverage, the amounts
of which may be fixed or linked to individual employee wage
levels. Large Case Pensions manages a variety of retirement
products, including pension and annuity products, offered to
qualified defined benefit and contribution plans.

The health care providers can't be stopped.  A quick glance
over the new highs list every day reveals health care related
stocks hitting new yearly highs.  The trend shows little if
any signs of slowing down, which has us returning to Aetna,
a provider of health benefits.  The company is hitting on all
cylinders with estimates being raised week after week.  Not
only is the general operating environment most bullish for
AET, but the company is taking continued strides to cut costs
in an attempt to further boost profitability.  This one two
combination is causing for a major rally in the stock, which
appears poised on the edge of another major breakout after
today's move higher on active trading volume.  The stock has
spent the last eight weeks consolidating its earlier run
between the $45 and $50 level.  That consolidation appears to
be ready to be broken given today's advance up to the $50.88
level.  The stock hit a high in late April at the $51 level,
and a breakout above that level would confirm today's attempt
and possibly lead to further upside in this strong stock.
Look for momentum entry points on a breakout above the $51
level in the coming session.  Confirm any breakout attempt
with strong intraday advancing volume.  If the stock pulls
back one last time before breaking out, then look for a
bounce from the rounding 10-dma below at the $49 level.  Our
stop is initially in place at the $48.75 level.

BUY CALL JUL-45 AET-GI OI=1600 at $6.60 SL=4.75
BUY CALL JUL-50*AET-GJ OI= 717 at $2.90 SL=1.50
BUY CALL OCT-50 AET-JJ OI=2353 at $5.10 SL=3.00
BUY CALL OCT-55 AET-JK OI=1396 at $2.90 SL=1.75

Average Daily Volume = 1.16 mln


DUK – Duke Energy Corporation $32.92 +1.21 (+1.91 this week)

Duke Energy offers physical delivery and management of both
electricity and natural gas throughout the United States and
abroad.  The company is a leading domestic gatherer and processor
of natural gas and develops, constructs an operates energy
facilities worldwide.  DUK offers these and other services
through seven business segments: Franchised Electric, Natural
Gas Transmission, Field Services, North American Wholesale
Energy (NAWE), International Energy, Other Energy Services and
Duke Ventures.

The past several weeks have been a rough road for Utility stocks
with several energy concerns like DYN, WMB, MIR and ILA getting
hit by severe selling pressure due to credit concerns.  Now that
that concern appears to be waning, the weight of these troubled
companies appears to be lifting from more stable energy concerns
and the bullish effect can be seen in the recent rise in the Dow
Utilities index (UTY.X)  The UTY has been recovering for the last
couple weeks after bouncing from major support near $305.  The
rally has really extended nicely in the past couple days, with
the UTY index clearing near-term resistance at $321 on Tuesday.
Turning to stronger stocks in this sector, we came across the
chart of DUK, which has likewise been rebounding over the past
week.  The stock has come a long ways since finding support near
$28.50 last week, so a bit of profit-taking would not be out of
the question, before the stock continues its recovery.
Particularly encouraging is the fact that DUK closed fractionally
above its 7-week descending trendline (currently $32.50) on
Tuesday.  This is right at resistance left behind from the
mid-May drop, so it is natural to expect a mild pullback in the
near future.  Look to initiate new positions on a drop to and
bounce from the $30-31 support area.  A successful retest of
that support level will set the stage for the stock to rally to
the $35-36 area over the near-term.  Initial stops are set at $29.

BUY CALL JUL-32*DUK-GZ OI=3577 at $1.90 SL=1.00
BUY CALL JUL-35 DUK-GG OI=5893 at $0.70 SL=0.25
BUY CALL OCT-32 DUK-JZ OI=1579 at $3.20 SL=1.50
BUY CALL OCT-35 DUK-JG OI=2628 at $1.90 SL=1.00

Average Daily Volume = 4.46 mln



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

PMI $39.34 -0.04 (+0.89) PMI, like most stocks in the last
two days, rallied on short covering following last Friday's
big reversal from the gap lower move.  The stock traced an
inside day set up today on its lightest volume day in over
two weeks, which means that the pause or consolidation should
lead to either a breakout in the direction of the current
trend or a reversal from that trend.  For traders with open
put plays on this stock, that means sliding stops down to
yesterday's high at the $39.65 level.  If the stock is
going to move higher over the short term, we should know as
much rather quickly by a break above yesterday's high.
Conversely, if the stock's trend continues lower over the
coming days, then we'll see a breakdown below the inside day
set up today with a move below yesterday's low at the $38.58
level.  The inside day sets up a favorable entry situation
for breakdown traders, who simply need to watch for a decline
below the $38.58 level in tomorrow's session on an increase
in volume and confirmation in the broader market.

MIL $35.01 -0.39 (+1.37) The rebound in the biotechnology sector
over the last two days allowed for MIL to finally rally after its
month long declining trend.  But the stock's rally came on
relatively lighter volume, and it stopped today overhead at the
10-dma at the $36 level.  The stock's inability to trade through
that technical level has us thinking that the recent strength was
nothing more than short covering, and has set up another favorable
entry point into put plays on further weakness in the biotech
sector.  Look for future rollovers from the 10-dma, which closed at
the $35.85 today.  Confirm relatively weaker volume on any
rally attempt up to the 10-dma, and confirm weakness in the biotech
index before entering new positions.  If you're looking for more
confirmation in new positions, watch for MIL to take out Monday's
low at the $34.17 level.

HIG $61.94 -0.23 (+2.01) HIG staged a monster rally in the last
two days following its major reversal from last Friday's session
from the $58 level.  The rally in the stock came on strength in
the broader financial sector which saw banks, brokers, and
insurers all turn higher.  Although HIG did stage a big rebound
in the last two days, the stock had grown extremely oversold over
the short term.  It was due for a relief rally, and that's
exactly what happened in the last two days.  The stock failed
just below its 200-dma in today's session, which is the level to
monitor for new entry points in the coming sessions.  Further
rollovers from the resistance just above current levels between
the $62.69 level, which is the 200-dma, to the $64 level can be
taken as new entry points into a rally attempt on relatively
lighter volume.  A breakdown below today's low at the $61.45
level could offer momentum players a chance to take new entry
points into put plays.  Confirm direction in the broader market
before entering bearish plays.

ZLC $39.21 -0.79 (+0.08) The broader retail sector has been
edging higher in the last two days on the strength in the
broader market as measured by the Dow and S&P 500.  The
sector strength carried ZLC higher through yesterday's session
when the stock stopped its rally attempt right at the $40
level.  Volume was relatively lighter during yesterday's move
up to the $40 level as was the case in the broader market.  In
today's trading, the stock traded briefly above its 10-dma in
the early part of the day, but promptly rolled over from that
level as the day wore on.  ZLC displayed some definite signs
of relative weakness versus both its sector and the broader
market during today's session, which is a good thing going
forward for this put play.  Additional rollovers from the 10-dma
can be taken as entry points into new put plays provided that the
market isn't charging higher.  Remember that we're looking for
this stock to eventually breakdown below the $38 level, so entries
taken near the 10-dma on rollovers offer good downside in this
play.

PDX $24.98 +0.77 (+1.61) PDX spent the last two days trending
higher on what appeared to be short covering, such as the case
in the broader market.  The stock moved higher today on less
than its average trading daily volume, which revealed that the
buyers weren't too interested in taking this stock higher.
Instead, it appears to have been a case of short term selling
exhaustion for the reason that the stock was able to climb
higher after its sell off late last week.  Most relief rallies
eventually fail, and we don't think PDX's recent rebound is
going to be the exception.  The stock is going to start facing
short term resistance at the $26 level where traders can start
looking for a rollover entry point into new put plays.  If
the stock continues higher from there, we'll look for intraday
rollovers from the $27 to $28 level if further short covering
carries the stock that far.  To the downside, momentum traders
can sit on the sidelines until the stock takes out the short
term support below current levels at the $23 level.  Look for
a breakdown below the $22.50 level.

ENZN $26.38 -0.60 (+0.84) We've been sitting on the edge of our
seats over the past couple days as the short-covering rally in
the Biotechnology sector (BTK.X) propelled ENZN right up to major
resistance at the $27 level.  Yesterday, the stock closed 2-cents
below that critical level (the site of our stop) and after one
last bullish attempt this morning, the stock drifted lower into
the closing bell, ending just above the lows of the day.  It is
interesting to note that the 20-dma ($26.89) is providing
resistance again, just as it did in late May.  So is this an
entry point?  Simply put, it likely depends on the action in the
BTK, as further sector weakness will hit the weaker Biotech
stocks like ENZN the hardest.  Repeated rejections at the $27
resistance level can be used for initiating new positions,
although the safer play will likely be to wait for the stock to
fall back below intraday support at $26.  We're keeping our stop
at $27 as a close above that level will break the bearish trend
and have us prudently moving to the sidelines.

IBM $75.94 -1.20 (-0.23) Yesterday's rally drove IBM as high as
$77.75 before the bears started leaning on the stock again and
that rollover below the $78 resistance level looked like a pretty
good entry point.  Apparently we weren't the only ones, as Morgan
Stanley was out before the open, cutting estimates based on their
view that hardware purchases remain a low priority for IT
spending.  It is interesting that the firm made no mention of
what we think is the main catalyst here, which is the expectation
that IBM is going to have to warn based on a falloff in its
Services revenue.  Whatever the catalyst, the stock is still
trading heavy, and that could be seen on Tuesday, as the opening
drop took it down to $75.50.  There were several attempts to take
out this support level throughout the day, but the bulls
prevailed, helped in part by the resilience of the broad market.
A breakdown below the $75.50 level can be used for fresh entries,
although a rollover up near yesterday's intraday highs would be
even better.  In the wake of today's downgrade-related drop,
we're lowering our stop to $79.  

IWM $93.89 +0.26 (+2.39) So, is it a bounce or a recovery?
Inquiring minds want to know!  It was a safe bet that the Russell
2000 would get a decent bounce from the level of the February
lows, especially with the broad market staging an oversold bounce.
That was the reason we initiated the play with such a wide stop,
so that we could take advantage of the rollover after the bounce
had run its course.  Sure enough, the IWM began to weaken after
the opening pop on Tuesday, rolling over right at the $94.50
level, which had served as resistance since early June.  That
rollover turned out to be a solid entry as the IWM declined
throughout the morning.  Despite the afternoon bounce, weakness
reappeared near the close and could be hinting at another down
leg tomorrow.  Another pop up to resistance can be used for new
entries, although a drop under the $93 intraday support level
would be more encouraging from a bearish perspective.  Judging by
the picture on the PnF chart, supply is definitely in control
here and the real test of the bull-bear debate will likely center
around the $91 support level.  Should IWM fall through that level
again, we will be able to start looking for the current bearish
target ($76) to be achieved.  Keep stops set at $95.


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

TDS - Telephone Data Systems $64.60 -1.05 (+1.45 this week)

Telephone and Data Systems, Inc. (TDS) is a diversified
telecommunications service company with wireless telephone and
wireline telephone operations. TDS conducts substantially all
of its wireless operations through United States Cellular
Corporation (U.S. Cellular) and substantially all of its
wireline telephone operations through its wholly owned
subsidiary, TDS Telecommunications Corporation. TDS, U.S.
Cellular and TDS Telecom hold various investments in publicly
traded companies, the majority of which were the result of
sales or trades of non-strategic assets. Minority positions are
held in Deutsche Telekom AG, Vodafone plc, Rural Cellular
Corporation and VeriSign, Inc.

Even the seemingly strong telecommunications companies are being
dragged through the mire that has become their industry.  Many
analysts are predicting further bankruptcies in the telecom
business following the most recent declaration by XO
Communications.  And despite the recent perceived good news such
as the appointment of a new CEO at Qwest Communications (NYSE:Q),
the fundamentals of the business just aren't getting any better.
UBS Warburg noted that much on Thursday when the brokerage firm
lowered its price target on TDS citing the negative sentiment by
the market on the telecommunications group.  Negative sentiment
is an understatement for TDS' trend that has been in place
since early April when the stock was trading above the $90 level.
Almost -$30 later, the trend appears no where near its end as
the selling volume continues to increase on the way down.  The
last two days of a bounce did nothing more than to work off the
stock's short term oversold nature, and in doing so setting up
another entry point into put plays.  As long as the stock
remains below its 10-dma, now at the $67.42 level, the longer
term descending trend will remain in place and we will like put
entries at or around current levels.  Traders looking for a
little higher of entry points can look for a rollover from
the $67 level.  Momentum traders can look for a breakdown below
yesterday's intraday low at the $63 level.  Our stop is initially
in place at the $69 level.

BUY PUT JUL-65 TDS-SM OI=78 at $3.70 SL=2.25
BUY PUT JUL-60*TDS-SL OI=50 at $2.00 SL=1.00

Average Daily Volume = 244 K



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**********

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 06-18-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.



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

PMI - PMI Group $39.34 –0.04 (+0.89 this 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.

Most Recent Update

PMI, like most stocks in the last two days, rallied on short
covering following last Friday's big reversal from the gap
lower move.  The stock traced an inside day set up today on
its lightest volume day in over two weeks, which means that the
pause or consolidation should lead to either a breakout in the
direction of the current trend or a reversal from that trend.
For traders with open put plays on this stock, that means
sliding stops down to yesterday's high at the $39.65 level.
If the stock is going to move higher over the short term, we
should know as much rather quickly by a break above yesterday's
high. Conversely, if the stock's trend continues lower over the
coming days, then we'll see a breakdown below the inside day
set up today with a move below yesterday's low at the $38.58
level.  The inside day sets up a favorable entry situation
for breakdown traders, who simply need to watch for a decline
below the $38.58 level in tomorrow's session on an increase
in volume and confirmation in the broader market.

Comments

PMI set up the classic inside day pattern during today’s
session.  The stock traded within yesterday’s high and low
range, which now become the action points for this play.
Those with open positions should consider lowering stops to
the $39.65 level.  Those looking for new entry points need
simply watch for a breakdown below Monday’s, which was the
$38.58 level, and confirm such a move with weakness in the
broader market and an increase in volume.

***June contracts expire next week***

BUY PUT JUN-40 PMI-RP OI=128 at $0.50 SL=0.00
BUY PUT JUL-40*PMI-SP OI= 15 at $1.30 SL=0.75

Average Daily Volume = 325 K



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

More bullish plays are being triggered from the Watch List.  Is 
that a sign of things to come for the market?


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/061802.asp


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

The NDX and OEX barely missed resistance today.  The INDU and SPX 
broke above their respective resistance levels.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/061802.asp


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DISCLAIMER
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