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Daily Newsletter, Thursday, 06/20/2002

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The Option Investor Newsletter                Thursday 06-20-2002
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)
************************************************************
      06-20-2002           High     Low     Volume Advance/Decline
DJIA     9431.77 -129.80  9573.89  9425.88 1.33 bln   1324/1639
NASDAQ   1464.75 - 32.10  1503.01  1461.59 1.66 bln   1480/1950
S&P 100   500.02 -  7.62   509.26   499.08   Totals   2704/3589
S&P 500  1006.29 - 13.70  1023.33  1004.59
RUS 2000  460.25 -  2.67   466.61   499.08
DJ TRANS 2747.36 -  7.70  2766.05  2735.44
VIX        32.50 +  2.79    32.50    29.95
VXN        57.93 +  2.69    59.15    55.73
TRIN        2.24
PUT/CALL    1.04
*************************************************************

Just Another Session of Failed Hopes

Buy and hold investors are having to do so while holding their
nose. The markets just keep teasing investors with a couple
days of gains followed by a couple days of even worse selling.
it is simply a volume thing. There is no buying volume to
compete with the sellers. Up volume across all markets on
Thursday was a terrible 585 million shares. Down volume was
a whopping 2.44 billion shares. A better than 4:1 disadvantage!
The internals, with only 880 more declining stocks than advancing,
are not really as bad as the headline numbers imply.









It was a pretty flat news day with no sensational warnings. There
was the normal mix of broker upgrade/downgrades and the economic
reports came in better than expected. So why are we sitting at
new lows again? As I stated in the opening paragraph, there are
just no buyers. Normal technical support calculations are failing
because nobody cares if Nasdaq 1475 is support or resistance. It
appears the constant stream of bad news about stocks and even
worse news about terrorist attacks has turned all buy and hold
investors into sell and hold hoarders. Everyone is in cash and
they appear content to stay there.

The biggest concern for today was not whether Microsoft would
break support at $54 but constant news alerts that the 4th of
July was a likely target for terrorist attacks. Yesterday
the big news was the lost freighter somewhere on the west coast
with 40 Al Queda, guns and explosives aboard. The FBI is said
to be mobilizing massive numbers of personnel to protect holiday
events. Do you want to be long over the 4th?

This constant negativity, coupled with the falling dollar is
slowly draining the equity markets of cash. Strong rumors exist
that foreign investors are looking at the U.S. as a target and
far from invincible in the current war. Add in the lost profits
from the falling dollar and falling markets and suddenly U.S.
investments are not as exciting as they were in the past. The
possibility of another recessionary dip over the summer just
adds to the confusion. World markets are falling on the slowdown
in PC sales and the sour outlook for not only the U.S. but for
Europe. Brazil's debt worries are growing and investors are
fleeing their market as well. The Bovespa dropped -584 points
today or roughly -5%. Each detail in itself is not a crippling
blow but all taken together are weighing on investor confidence.

The fear of the next major earnings warning is keeping investors
from buying the end of day dips. Do you want to invest thousands
of dollars today when IBM or any other bigcap could warn tonight?
Speaking of IBM did you see it was at a new three year low? The
close at $71.58 tonight knocked IBM back in time to October-1998.
The low for 1998 was $47.81. Can't do that again? Don't bet on it.
Three years of support at $80 is just history now. Those readers
that bought puts last week are happy campers today. IBM is just
one reason the Dow cannot get out of its own shadow. There were
just three Dow components positive today. BA, KO, XOM, not what
you would call market leaders!

The cash drain is continuing to hamper fund movements. TrimTabs.com
said today that $1.6 billion flowed out of U.S. equity funds in
the week ended on Wednesday. This was only about a third of the
prior two weeks outflows but still substantial. In reality funds
should be starting their end of quarter window dressing buying
binge. Instead they are dumping losers to dress up their
statements and raise cash for redemptions. The Russell shuffle
is in full swing but you could not tell it by the majority of the
new additions to the index. I will go into the list in detail
in my editors plays on Sunday. There are some stocks moving but
the lack of interest is amazing.

I could cut and paste the following sentence from almost every
market wrap I have done in the last three months. "The markets
closed right on key support levels and .. etc"  While that
statement is true I am beginning to wonder what a support level
really is. Is it OEX 500 because that is where it has stopped
before? Or is it the pre-bubble 1998 low of 431? We keep hearing
about how stocks are grossly over valued with an average PE of
40 and how the pre-bubble PE ratios of 10-20 are where we should
really be trading. Do you think the greater fool theory has finally
run its course and every investor has turned into a Warren
Buffet clone over the last six months? I don't think so but
trying to trade against this current trend is suicide. I have
the scars to prove it!

The bullish sentiment from earlier in the week has completely
evaporated with all the severely negative PC/chip warnings. The
bounce turned into just another bear trap rally and the downtrend
is still in force. However, even in a bear market nothing goes
down in a straight line. The market internals are severely
oversold and we are setting up for another bear trap rally. I
don't know what will spark it other than the oversold conditions
but it IS in our future. The VIX closed well over 30 (32.50) for
the second time in six months. The TRIN is 2.24 and the put/call
ratio is 1.04. All very bullish indications of oversold conditions
and fear in the streets.

Repeat after me now, "the market right on key support levels"
Those levels are OEX 500, SPX 1007 and Nasdaq 1465. The Dow
is our albatross. With no real support in sight we have to
hope that traders key on the Nasdaq's retest of the Sept levels
as their buying signal. (Unfortunately it did not work with
the NDX since it is already below the September lows and dropping
like a rock.)

My advice for traders tonight is take any bounce we may get on
Friday as a gift if you are long and trail your stops up real
tight. If it has legs then follow along for the ride. If it
rolls over again then learn how to spell PUT. If these levels
are broken the next bus stop may not be on the map.

Leigh Stevens will no longer be writing the market wrap on
Thursdays but will be publishing a Traders Corner article on
technical analysis instead. Check it out!

http://www.OptionInvestor.com/indexes/traderscorner.asp

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

RELENTLESS
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK -
Selling was not so huge today, but it WAS relentless - total
volume in the NYSE only came to 1.4 billion shares and in the
Nasdaq it was 1.7 billion which is not big; "big" being over 2
billion.  In the breakdown of volume, whatever level it is, we
have to look at the ratio of up to down volume and today it was
lopsided again.  On the NYSE down volume was almost 3 times up
volume (2.8) and on the Nasdaq it was a whopping 6.5 times that
of up volume!

A number of sell programs were active today. I had a question the
other day that related to the "mystery" of buy and sell programs
- what they are, why they are, etc. Tune in to the end of the
column for a "mini-Trader's Corner" on this answer.

Support and resistance areas often have multiple influences
coming into play; e.g., a support or resistance trendline, a
moving average, return to a prior high or low, etc.

There are number of influences on the OEX hourly chart below that
can demonstrate or highlight past or likely future support or
resistance.  I've added something that Jim (Brown) was noticing
in using 2% moving average envelopes on the HOURLY OEX chart.





There is another element to moving average envelopes - the moving
average length involved. The outer blue "envelope" lines are a
set percent amount above/below a moving average in the center.
This centerline may be "invisible", as in the case of the chart
above. The "length" is 21 here or the simple moving average of
the prior 21 hourly closes.

Often you will set the two envelope lines or "bands" to be
different percent values.  In the case of a bear market trend the
volatility or the typical "extreme" reached by prices on the
downside will tend to be greater than on the maximum advance
above the moving average.

Resistance in the 514-518 area is implied by a the upper line of
the downtrend channel, a prior high and the 2% envelope line.

Support in the 500-495 area is implied by prior (down) swing
lows, at the previously broken down trendline, and by the 3%
envelope line.  I would be a buyer in this zone, especially at
the low end of it, around 495.

I lean to the view that we should see a rally before we would
likely see the prior low (for this move) retested. The September
low for the S&P 100 was 480. The closer we get to this area, the
more we can anticipate that we will see this prior low
challenged. We have already seen a retest of its September low
(at 28) by S&P bellwether stock, GE.

Also, one possible downside objective implied by the Head &
Shoulder's Top pattern seen in the Dow Jones average (DJX is
used) below is 2840, repeated from earlier this week. This Dow
objective would imply that the S&P 100 (OEX) could go lower than
it prior low in the 480 area.  Hey, the valuations are still
thought to be too high.  Only the small cap stocks are thought to
be "fairly" priced - and they held up pretty well today.





(The daily closing price of DJX today, 6/20, was 94.3.)


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

There is a bit more going on the hourly chart in terms of the
"markings" but we'll go through those elements and it will
demonstrate again the "cluster" idea of support and resistance
elements.





As with the S&P 100, the DJX daily stochastic has reversed to the
downside.  The lower DAILY envelope band at 6% is pointing to
91.9 as the point (blue highlighted price below) where the Index
would again be at a likely "oversold" extreme.

Resistance in the 97.3 to 98 area is implied by prior (up) swing
hourly highs (97.3, 97.6, 98), by the upper trendline of the
hourly downtrend channel, and by the upper 2% envelope line;
relative to a 21-hour moving average (not shown). This is the
area to sell, if reached in the near-term - fat chance!

Support in the 93.5 area is implied by a return to the previously
broken hourly down trendline, a cluster of prior lows (dashed
level line) and the lower 2.5% envelope line (at 93.6). Again, I
anticipate a trading rally or oversold rebound, before DJX
possibly heads to a retest of the 92.6 area.  Buy hey I've been
fooled before!  I suggest buying in the 93.5 area if reached
tomorrow to play a potential rebound.

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




Resistance in the 28 - 29 zone has a number of technical
"reference" points: 3 prior swing highs, the current intersection
of the top of the hourly downtrend channel on the hourly chart
and the 21-day moving average on the daily chart and the upper 5%
hourly envelope line.

No question in my mind that this is the area that we would want
to be selling in - wishful thinking tomorrow I think, but a rally
may be coming soon given the oversold extreme we're seeing on the
hourly stochastic.  Not so, yet, on the daily version.

Support in the 26.2 - 26.3 area is implied by the lower envelope
line on both the daily (25.9 - blue highlighted price is partly
covered) and hourly charts (26.3) and especially by the prior low
- if this prior low gives way there could be a short and quick
shot down to the low end of downtrend channel in the 25 area. I
am looking to buy the Q's in this 25-26 price zone.  Stay tuned
for expiration tomorrow!


MINI-TRADER'S CORNER -

QUESTION:
"What are these buy and sell programs, who runs these programs
and what are the benefits to the people who run these
computerized buy and sell programs?"

A buy or sell program is simply the simultaneous purchase or sell
of a diversified mix of stocks that is being "worked" at the same
time or during the same session. Computers are used to keep track
of the stocks, how many to buy/sell, how many remaining, etc.
Sometimes, the orders are "triggered" by computer into the
computerized order systems of the Exchanges - this is the case in
Index arbitrage related buy/sell programs. However, so called
program-trading is usually a means of rebalancing large
institutional portfolios, such as involving pension or mutual
funds.  The fund manager may decide that they want to:

1.) "rebalance" their portfolio, moving from away from or toward
more exposure to certain stock groups or sectors; e.g., into or
out of tech stocks in general; more toward consumer related
stocks, etc.
2.) reduce their equity exposure; reduce equities by 5% of the
total value of the fund.

Now, for these "elephants", a 3% reduction in equities exposure
could be a few hundred thousand shares of 50 different stocks.
When they decide to shift things around like this there may
concern is to wind up at the end of the day getting into or out
of the stocks involved about in line with how the market ends up
at the end of the day.

To best accomplish this usually will involve a specialist type
firm like Cantor Fitzgerald or Jeffries & Co. ; or,  a
specialized group within one of the large institutional broker-
dealers like Morgan Stanley or Goldman, etc. (They do this for a
fee.) The reason this buying/selling is farmed out is because the
best results do not come about by just dumping the shares on the
floor or out on the market in the case of Nasdaq.

Instead literally hundreds of institutional sales people will go
out to their institutional clients that might be interested in
buying a block(s) of certain stocks.  They may negotiate a price,
then "cross" the trade and send to the exchange where it is
reported just like any other trade.  The quoted price then
affects the trading in that stock.

Or, this specialized portfolio trading group, may steadily feed
the stock out to the specialist or market maker involved who will
maintain an active bid or offer on the stock and keep dropping or
gradually raising the bid/offers to move the amount.  "Portfolio
trading" is MOST of what "program trading" is - called by this
term because it is done systematically and is kept track of by a
manager for that portfolio or "program" trade.

The other type of program trading and another origin of buy and
sell programs, is involved in with Index Arbitrage using Index
futures.  Example - the premiums of S&P 500 futures gets below
"fair value" due to a bearish market viewpoint and speculative
activity; e.g., traders sell the futures heavily, which drops the
futures further toward or even below the "cash" index value,
because they think the index is going down.  This can allow INDEX
ARBITRAGE program traders to buy the futures and at the same time
sell a basket of stocks that approximates the 500 stocks in the
S&P - this is a "sell program" and all the stocks are being sold
at ONCE.  The reverse is where the futures premium is well above
"fair value" and it kicks off a buy program in stocks as the
basket (of stocks) is bought at the same time as or just after
the futures are shorted.

So, the purpose of buy and sell programs is to 1.) manage
adjustments to fund portfolios that we may own shares of - by the
way, heavy redemption of fund shares, can kick off some sell
programs the next day -  or 2.) make a profit for the index
arbitrage group involved in futures/stock arbitrage.  It's larger
"purpose" or function is that it keeps futures premiums in line
with the market; i.e., neither too far above or below the "fair
value".

Futures trade above the cash index normally because owning the
stocks pays dividends and to be "fairly" priced, the futures need
to trade at a "premium" to actual ownership of the stocks
involved. This premium "converges" with cash the closer to
expiration and also reduces after a lot of the stocks have
already paid their quarterly dividends.

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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

The Street of Fear
By Eric Utley

I look like a goat after Tuesday's piece.  The one in which I
opined that bears should be careful, and bulls encouraged.  Well,
that was wrong!  But I don't give up on the indicators that have
made me a lot of money in the past just that easily.  Nope.  Not
at all.

Here's the way I look at Thursday's action.  The NDX was
particularly hit hard, but it only lost two stocks from the
bullish percent reading, which by the way is still in bull
alert.  Plus take a look at the moon shot in the NDX Volatility
Index (VXN.X).  It's quickly approaching the 60 level, which it
hasn't traded above since last November.  Sure there's plenty
of upside to it, seeing that it reached over 90 on an intraday
basis the day the market bottomed last fall.  There's the key,
a high fear level coincides with market bottoms.  So I maintain,
that if you're going to be bearish on this market, do so
carefully.  Use upside risk management procedures all the
more diligently.

The CBOE Market Volatility Index (VIX.X) is flashing the same
signs.  It closed above the 30 level for the first time since
last fall, which means options premiums are on the rise and so
is fear.  Yes, it could go a lot higher, but going with the
crowd to the downside is growing increasingly risky, and yet
it is crowded.  Again, if you're going to be bearish, be
careful about it.  Be quick to take a big gain on a wash
out event, because I smell it around the corner.

Finally, the Dow Jones Industrial Average Bullish Percent
($BPINDU) reversed from bear confirmed into bear correction
yesterday.  That came after the index achieved its bearish
price objective of 9300 as Mr. Bailey has pointed out.  That's
another preliminary sign to be cautious on the short side of
this market.  Good luck out there!

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9432

Moving Averages:
(Simple)

 10-dma: 9573
 50-dma: 9956
200-dma: 9839



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1006

Moving Averages:
(Simple)

 10-dma: 1021
 50-dma: 1071
200-dma: 1105



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1062

Moving Averages:
(Simple)

 10-dma: 1116
 50-dma: 1240
200-dma: 1412



Gold and Silver ($XAU)

The XAU fell back into favor Thursday on the heels of the
spooky economic data.  The index earned the day's best
performing sector spot with its 4.60 percent gain.

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

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

Moving Averages:
(Simple)

 10-dma: 76
 50-dma: 78
200-dma: 63


Fiber Optic ($FOP)

Nothing changed from last Tuesday.  Yep, the day's worst
performing sector spot once again went to the FOP.  It
narrowly bested the SOX and BTK to the downside with its
4.89 percent drop.  The other two lost 4.84 percent for the
day.

Leading losers in the FOP included Vitesse (NASDAQ:VTSS),
Applied Micro Circuits (NASDAQ:AMCC), Lucent (NYSE:LU),
and Avanex (NASDAQ:AVNX).

52-week High: 139
52-week Low :  47
Current     :  47

Moving Averages:
(Simple)

 10-dma: 52
 50-dma: 69
200-dma: N/A

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

Market Volatility

Now we're getting serious.  The VIX closed above the 30 level
in today's session, well above the 30 level.  Traders will start
taking notice of this index.  Fear is certainly on the rise.
We're getting closer.

The VXN hit 59 intraday Thursday.  Not too far off from 60.
Here, too, we're getting closer...

CBOE Market Volatility Index (VIX) - 31.94 +2.23
Nasdaq-100 Volatility Index  (VXN) - 57.93 +2.69

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

          Put/Call Ratio  Call Volume   Put Volume
Total          1.04        629,987       655,058
Equity Only    0.83        481,697       399,569
OEX            1.08         44,283        47,621
QQQ            0.88         36,300        31,880

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

Bullish Percent Data

           Current   Change   Status
NYSE          53      + 0     Bull Correction
NASDAQ-100    21      - 2     Bull Alert
DOW           46      - 3     Bear Correction
S&P 500       46      - 1     Bear Confirmed
S&P 100       49      + 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  1.34
10-Day Arms Index  1.31
21-Day Arms Index  1.42
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       1440          1759
NASDAQ     1459          1928

        New Highs      New Lows
NYSE       86             101
NASDAQ     58             184

        Volume (in millions)
NYSE     1,357
NASDAQ   1,709

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

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 - 6/20
by Leigh Stevens


It was a bad day at Sector 'black rock' - the Bank and Brokers
indexes resumed their falling ways, along with the broader NYSE
Financial Index ($NF.X). The Boxmaker (PC makes) index continued
to fall further below its May low, along with the Biotech -- the
Biotech HOLDR's (BBH) may get interesting again soon - and the
Cyclical indices.  Defense sector has been well, "defensive: and
has recovered half of its prior downswing.

The best that can be said about the Telecoms is that the index is
at the low end of its downtrend channel and may get a "dead cat"
bounce ahead - at least downside Momentum (MO) is slowing down.
MO is only accelerating in the beleaguered semiconductor sector.
More on that in the "featured" section further on.

The Health Provider and Health Care ($HMO.X) Indexes are mixed in
their technical picture. The Provider ($RXH.X) index looks
suspiciously like it has formed a double top and the HMO index
has a bearish rising wedge pattern and DECLINING Relative
Strength that makes me want to short the stocks - but I will wait
for a bearish "confirmation" in price terms.

Nothing much to cheer about in the industry sectors, except by
the gold bugs and maybe by the oil patch folks.

There was a sector bucking the down trend - the small cap stocks
as represented by the Amex Composite Index was plus on the day
and the S&P 600 Small Cap Index ($SML.X) was only off less than
1/2 of a percent - the Russell 2000 Index was off 0.57%.  More on
this "size" sector in the "Featured" section.


HIGHER ON THE DAY ON Thursday -





DOWN ON THE DAY on Thursday -





TRADE RECOMMENDATIONS & REVIEW -

NEW TRADE(S) RECOMMENDATION(S) -
Buy IJS at 88.50
(S&P 600 Small Cap Value fund iShares)
Stop at 87.60
AHH - ALMOST! - 6/20 Low was 88.85, closed at 89.33

Also suggested purchase of IWM around 91.00
(Russell 2000 iShares)
6/20 low was 91.32; Close: 91.80

ALTERNATIVE OPTION POSSIBILITIES -
Options on the Russell 2000 Value fund (IWN)
July 140 Call (IWNGH);
Total IWN Open interest running around 1,000

Russell 2000 Growth (IWO) - July 50 Call (IWOGJ)
IWO Open Interest is around 1,000

Russell 2000 Index (IWM) - July 95 Call (IWMGS); Open interest has
been around 4,000


OPEN POSITIONS -
Long IJS at 91.25
(S&P 600 small cap value iShares)
Stop: 87.60


TRADE LIQUIDATIONS -
NONE


SECTOR HIGHLIGHT -

A sector that resists the decline in the broad market is showing
good relative strength and this was apparent with the S&P 600
small cap index today - would note that the possible Head &
Shoulder's (H&S) bottoms are still intact.






One aspect to the Head & Shoulder's pattern is that you expect to
see the levels of the "shoulders - left and right -form at about
the same level which is an aspect that is consistent here.






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

PRIOR COMMENTS: Exceeded a 75% retracement of the Sept. - May
advance which implies that it will retrace 100% of the last
upswing. Looks like a SOX re-test of its Sept. bottom is the
offing.

I assume the 350 area represents major support. 350 was the area
where the Semiconductor Sector Index ($SOX.X) bottomed in late-
Sept./early-Oct.






The SOX can, of course, turn around at any point higher than this
level - it doesn't have to "retest" 350 as support. Retesting
implies going to a prior low (or high) again and "passing" or
"failing" the test by reversing again in this area or not.

Proving that 350 is again a major area of buying interest or
support in the chip stocks means bottoming again in this area,
setting up a double bottom.

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                 Thursday 06-20-2002
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:
*****

VRTX $16.80 -1.29 (-1.03) The Biotech sector was taken out to
the woodshed again on Thursday, with the BTK index losing another
4.8%.  Driving this latest move is last night's earnings warning
from GENZ and it looks like the recent lows are in jeopardy.
VRTX got hit especially hard on Thursday, shedding more than 7%
and closing just fractionally above our stop.  We're taking an
early exit tonight due to our expectation that the renewed
sector weakness will violate that stop and take the stock back
down to retest its recent lows.


PUTS:
*****

PDX $25.63 -0.69 (+2.26) PDX rolled from its 10-dma in today's
session, but not before putting in more upside work following
its failed breakdown attempt last week.  The stock has us
worried that if the market turns around, it could be one of the
first out of the gates to explode higher on short covering.
We're taking the play off the table to hedge against that risk.
Look to exit open plays into weakness early tomorrow.

PMI $39.05 +0.15 (+0.60) PMI negated its inside day set up
during yesterday's session when it traced an outside day.  Go
figure!  The stock held up remarkably well today given the
meltdown in the broader market.  The selling may be done in
this one for the time being, which is why we're dropping
coverage on this put play tonight.  Set a tight stop just
above today's high at the $39.66 level, or look to exit open
put plays tomorrow into intraday weakness.

IWM $91.80 -0.20 (+0.30) So much for the weakness we were looking
at last week.  The IWM has been trading in positive territory the
past two mornings and the closing losses have been pretty tepid
when compared to the broader market.  That's right, relative
strength appears to be building again and that means we want to
take advantage of the currently depressed price to take our leave
of the play.  Use weakness in the morning to gain a more
favorable exit from open positions.


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

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

CALLS              Mon    Tue    Wed    Thu

DGX      91.30    1.62   0.93   1.06  -0.55  Still inching higher
OHP      49.69    0.97   0.65  -0.47  -0.69  Negative sector news
BGEN     40.94    1.59  -1.11  -1.17  -0.79  GENZ warning, entry?
VRTX     16.80    0.71   0.23  -0.23  -1.29  Dropped, lost ground
AET      51.47    0.96   1.03   0.89  -0.29  Holding up very well
DUK      31.00    0.60   1.21  -0.09  -1.83  Entry point at 10-dma
KFT      42.27    0.50   0.39  -1.46  -0.11  New, Russell entrance
ATH      72.54    2.11   0.25  -0.32  -0.89  New, index addition


PUTS

PMI      39.05    0.93  -0.04  -0.44   0.15  Dropped, outside day
MIL      31.10    1.33  -0.39  -0.60  -3.31  Success!  Take gains?
HIG      60.83    2.24  -0.23  -0.13  -0.98  Heading to lows again
ENZN     24.25    1.44  -0.60  -0.78  -1.45  Rollover entry point
IBM      71.58    0.97  -1.20  -2.59  -1.77  Blue all over again!
IWM      93.78    2.13   0.15  -1.89  -0.20  Dropped, holding up
ZLC      39.21    0.87  -0.79  -0.20  -0.18  Feel the breakdown???
PDX      24.98    0.84   0.77   1.34  -0.69  Dropped, nervous
TDS      63.17    2.50  -1.05  -1.45   0.02  Steadily moving down
NVLS     32.96    2.07  -0.85  -3.35  -1.88  New, high price chip
EMMS     24.15    0.71  -0.12  -0.33  -1.80  New, com breakdown


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

AET $51.47 -0.29 (+2.57) AET put in another solid day yesterday
when the stock shot past previous short term resistance to trace
yet another new yearly high just below the $52 level.  It traded
there again today, but was pulled back down to earth on the
broader weakness in stocks and the HMO sector.  The HMOs were hit
by a Supreme Court ruling upheld the rights of patients to seek
an independent review if their HMO refused to pay for a claim.
The news hit the sector pretty hard as the HMO Index (HMO.X)
was off by -1.62 percent for the day.  Obviously AET's fractional
drop revealed that the news didn't have as much of an impact on
the company, and it bodes well for the stock going forward.  In
this market environment, investors are looking for consistency,
and that's exactly what AET delivers.  Use any further pullbacks
to enter new bullish call plays in this stock.  A retreat down
into the $50 support zone, reinforced by the rising 10-dma,
should offer a favorable entry point on weakness.  A breakout
above $52 can be used by momentum traders.

BGEN $40.94 -0.79 (-1.48) Biotechnology bulls have not had a
good time over the past 2 days, and their pain was exacerbated
by GENZ's significant warning last night.  The net result was
that the Biotechnology index (BTK.X) gave up nearly 5% on
Thursday, and therein lies the ray of hope for our BGEN play.
The stock fell less than 2% and fortunately stopped near the $41
support level.  Stronger support resides near $40, but the risk
with buying a bounce near there is that it is also the site of
our stop.  It looks like the BTK index is going to test the lows
from last week.  If those lows hold, we want to use the sector
weakness to allow us to initiate new positions in BGEN on a
bounce from above the $40 level.  If either the $40 level for
BGEN or the lows in the BTK fail to hold, then we'll know that
we're on the wrong side of the trend.  More cautious traders
will want to wait for BGEN to rebound back over $42.50 on strong
volume before playing.

DGX $91.30 -0.55 (+3.06) Relative strength is the name of the
game and up until the final 90 minutes of the day, it looked like
DGX was going to close in positive territory and above the $92
level.  But the bears came out swinging at the end of the day and
sent the bulls back out to pasture.  That knocked the stock back
to just above the $91 support level at the close.  This looks like
the beginning of a setup for a fresh entry on a rebound from the
$90 support level, although we don't want to rule out the
possibility that we could see a dip as low as $89.  Health Care
stocks continue to perform well relative to the broad market, and
that should be amplified if the major indices can stage a rebound
off of their major support levels.  Rather than trying to buy the
dip, momentum traders will want to target a breakout over $92.75
intraday resistance level for initiating new positions.  Keep
stops in place at $88.

DUK $31.00 -1.83 (-0.01) The past two days have not been kind to
Utility stocks, with the Dow Jones Utility index (UTY.X) getting
hit especially hard on Thursday for a nearly 2% loss.  It is
clearly crunch time for the bulls, as the UTY index is now sitting
right on critical support near the $314 level.  If it falls much
below that, we'll have to look to the $310 level for support.
Driven by the negative action in the sector, shares of DUK took
a drubbing as well, giving up more than 5.5% and coming to rest
right on the $31 support level on Thursday.  Either the bulls
will step up to defend the stock near current levels, or it will
be lights out and DUK will stumble its way onto the drop list in
short order.  Use a rebound from the $30-31 area to initiate new
positions, but only if there is solid buying volume and the UTY
index finds its own support.  We are keeping our stop set at $29
tonight.

OHP $49.69 -0.69 (+0.36) Health Care stocks have been stepping
their way higher over recent weeks, posting a fresh series of
higher lows and higher highs, and after tagging a fresh all-time
high on Wednesday, it looks like the next dip is in progress.  A
similar pattern appears on the OHP chart, with the stock topping
out just above $51 on Tuesday and Wednesday before falling back
to support near $49.50.  Note that this is right on the
ascending trendline that has been supporting the stock since the
last week of May.  Either we get another bounce near this level,
or the trend could be coming to an end.  Given the resilience of
both the stock and the HMO sector over the past 2 days, we're
leaning towards another bounce.  Look to initiate new positions
on a rebound from the $49.00-49.50 level, keeping stops in place
at $48.75.  More conservative traders will want to wait for a
rally through the $51.50 level along with the HMO index moving
back through the $660 level before taking a position.


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

ATH – Anthem, Inc. $72.54 -0.89 (+1.15 this week)

Anthem is a health benefits company serving over 7 million
members, primarily in Indiana, Kentucky, Ohio, Connecticut,
New Hampshire, Colorado and Nevada.  The company owns the
exclusive right to market its products and services using the
Blue Cross Blue Shield (BCBS) names in these states under
license agreements with the Blue Cross Blue Shield Association.
ATH's product portfolio includes a diversified mix of managed
care products, including health maintenance organizations
(HMOs), preferred provider organizations (PPOs) and
point-of-service (POS) plans, as well as traditional indemnity
products.  The company's managed care plans and products are
designed to encourage providers and members to select
cost-effective healthcare by utilizing the full range of its
medical management services.

Health Care is becoming a bit of a theme here on the Call list,
but when we find a pocket of relative strength, we like to stick
with it.  As has been stated many times, the Health Care Payor
index (HMO.X) continues marching to new all-time highs.  In fact,
it is up an impressive 46% since the beginning of the year.  ATH
has been in a steady ascent since it began trading in late
October and staged yet another breakout last week, moving as high
as $75.  The recent consolidation is setting the stage for
another rebound and the catalyst for the next leg higher is
approaching at the end of the month.  That's right, ATH is one
of the stocks selected for addition in the annual Russell
Shuffle, where old stocks are removed and new ones are added to
the Russell indices.  The shuffle takes place at the end of the
month, but that doesn't mean that managers will wait until the
end of the month to begin accumulating those stocks that are
being added.  So in addition to the strong bullish trend in ATH,
it has the added catalyst of being under accumulation over the
next couple weeks.  ATH has been riding an aggressive ascending
trendline since late March and that trendline currently rests at
$71, which just happens to be the site of the most recent
breakout.  A pullback to confirm that level as support will set
us up for a solid entry on the rebound.  Should the stock take
off without dipping down as we wish, look to take advantage of
the next breakout, entering on a volume-backed move through the
$75 level.  Initial stops are in place at $69.

BUY CALL JUL-70*ATH-GN OI=4899 at $4.90 SL=3.00
BUY CALL JUL-75 ATH-GO OI= 332 at $2.15 SL=1.00
BUY CALL SEP-75 ATH-IO OI= 115 at $4.50 SL=2.75
BUY CALL SEP-80 ATH-IP OI=2231 at $2.40 SL=1.25

Average Daily Volume = 1.33 mln


KFT – Kraft Foods, Inc. $42.27 -0.11 (-0.68 this week)

Kraft Foods, together with its subsidiaries, is engaged in the
manufacture and sale of branded foods and beverages in the
United States, Canada, Europe, Latin America and Asia Pacific.
The company has operations in 68 countries and sells its
products in more than 145 countries.  Kraft Foods North America
operates in the United States, Canada and Mexico and manages
its operations by product category, while Kraft Foods
International manages its operations by geographic region.

Variations on a theme, we have another stock that appears
poised to benefit from its pending addition during the annual
Russell Shuffle.  Scheduled for completion at the end of June,
there is nothing preventing fund managers from dumping the
deleted stocks and adding the new ones ahead of that magical
date.  Following its spinoff from Philip Morris a year ago,
shares of KFT have been in an impressive upward trend.
Apparently people keep buying food even in a recession!  After
pushing through the formidable $35 resistance level in January,
the stock has been trading in a steady ascending channel and is
showing no signs of slowing down.  While not a fast moving
stock, there is no doubt there is money to be made by playing
the range offered by the channel.  Currently, the lower channel
line is at $41.25, just above major support at $41.  Dips near
this level should make for attractive entry points in
anticipation of a rally up to the upper channel line, currently
at $44.  The way to play this one is buy near the bottom of the
channel and harvest gains near the top of the channel, avoiding
buying breakouts over resistance.  Initial stops are set at
$40.50.

BUY CALL JUL-40 KFT-GH OI=  58 at $2.70 SL=1.25
BUY CALL JUL-42*KFT-GV OI= 474 at $1.05 SL=0.50
BUY CALL SEP-42 KFT-IV OI=1752 at $2.05 SL=1.00
BUY CALL SEP-45 KFT-II OI=9991 at $1.00 SL=0.50

Average Daily Volume = 1.61 mln



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

MIL $31.10 -3.31 (-2.97) Now that's what we call a put play!
MIL traded up to its downward sloping 10-dma during Tuesday's
session from which it promptly rolled over, offering yet
another very favorable entry point into this weak stock tied
to the ever weakening biotech sector.  In yesterday's session,
the stock sort bounced around without real conviction in one
direction or another.  But today's session brought with it
the selling that we had been hoping for.  The stock unwound
to the downside to the tune of nearly 10 percent, opening
on its day high, and closing on its day low.  Volume during
the session exceeded the 30 day average trading volume by
three times.  What's interesting is that the steep sell off
came on no news.  We can only hope that a warning is around
the corner.  If you took new put plays earlier this week,
think about taking partial positions off the table into
further weakness tomorrow.  We'll wait for another relief
rally before pursuing aggressive entries.

HIG $60.83 -0.98 (+0.90) The rebound that began late last week
and lasted through the earlier part of this week had us
testing the merits for this put play which had treated us well
before the relief rally.  As it turned out, the stock rolled
over once again after finding resistance just below its 200-dma
and near the downward sloping 10-dma.  From here, HIG looks
like it will retest its relative lows down below the $58 level
sometime early next week.  Traders looking for momentum based
entry points can use a breakdown below today's intraday low
at the $60.50 level to take new put plays.  If the stock does
rebound, look for additional rollovers just below short term
resistance at the $62 mark.  Confirm volume on a breakdown as
well as market direction.

ZLC $38.83 -0.18 (-0.30) We can just feel a major breakdown
below support coming in the short term in ZLC.  After staging
its feeble rally attempt earlier this week that ended at the
downward sloping 10-dma, the stock has since crept back down
towards its 200-dma which now sits just below the $38 level,
which is also the stock's short term support dating back to
March and again in early April.  If the sellers can muster
enough momentum to break this stock down below the $38 level,
then we should see a rush of weakness to the downside.  The
thing to watch for is future rollovers from short term
resistance during any intraday relief rally attempt.  That
way you can get in ahead of a breakdown, in an anticipatory
fashion.  Of course momentum traders can take new entries on
a breakdown below the $38 level provided that the market
confirms such an entry point and that volume is on the rise.

TDS $63.17 +0.02 (+0.02) TDS fell lower in a deliberate fashion
once more during yesterday's session which brought the stock
below its short term support at the $63 level.  The stock
managed to briefly bounce back above that level during today's
session reaching only as high as the $63.75 level before pulling
back once more.  Given the ugly nature of the market, and that
telecom is about as ugly as it gets, this stock should continue
working lower in a steady fashion as long as the market fails
to put together any rally of substance or quality.  Look for
a breakdown below today's low at the $62.50 level for momentum
based entries into further weakness.  Confirm the action in the
broader telecom sector, and the sentiment in the broader
market.  If the stock does rebound, look for a failed rally up
to the downward sloping 10-dma and a subsequent rollover for
an entry point into strength.

ENZN $24.24 -1.45 (-1.30) The earnings warning from GENZ and
IMCL's receipt of a "Wells Letter" appears to have turned out the
lights for the Biotech sector, as it gave up almost 5% on
Thursday, and taking the prize as the second worst performing
sector.  It turns out that rollover near the $27 level in ENZN
was a near perfect entry point, as the stock got hit for a 5.6%
decline.  The end of day bounce from the $24 level looks like
nothing more than a dead-cat bounce, and we are looking for the
slide to continue into tomorrow.  With the technical damage being
felt throughout the sector, rallies continue to be opportunities
to enter new positions.  Look to initiate new plays on a failed
rally near intraday support at $24.60 or $25.25.  Alternatively,
a drop through the $22.75 level will have the stock trading at
new yearly lows and can be used to initiate new momentum-based
positions.  Lower stops to $26.50.

IBM $71.58 -1.77 (-4.59) Big Blue is turning blue again, forced
to hold its breath as the bears pushed it underwater over the
past 2 days.  That $76 resistance level proved formidable to the
buyers after the Morgan Stanley downgrade, and now we have IBM
trading at levels it hasn't seen since October of 1998.  Suddenly
that bearish price objective isn't looking nearly so ridiculous.
Note that it is the next site of solid support on the weekly
chart, and also the 62% retracement of the stock's rally from the
1993 lows to the 2000 highs.  With the negative pronouncements
out of INTC, AMD and AAPL this week and the downgrade on Tuesday,
it is actually amazing that IBM hasn't fallen further.  But it
seems that the market is beginning to price in the likelihood
that the company will have to warn ahead of earnings.  Look for
failed rallies below the $75 level to provide attractive entry
points and lower stops to $76.  Momentum traders can consider
initiating new positions on a break below Thursday's lows, but
beware of an oversold bounce.


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

EMMS - Emmis Communications $24.15 -1.80 (-1.54 this week)

Emmis Communications Corp. is a diversified media company with
radio broadcasting, television broadcasting and magazine
publishing operations. The Company operates the sixth largest
publicly traded radio portfolio in the United States based on
total listeners. The 20 FM radio stations and three AM radio
stations the Company operates in the United States serve the
nation's three largest radio markets of New York City, Los
Angeles and Chicago, as well as Denver, Phoenix, St. Louis,
Indianapolis and Terre Haute, Indiana. The 15 television
stations the Company operates serve geographically diverse
mid-sized markets in the United States as well as the large
markets of Portland and Orlando and have a variety of television
network affiliations, including five with CBS, five with FOX,
three with NBC, one with ABC and one with WB.

The communications business is crumbling from all corners.
First it was the telecommunications segment that saw trouble.
Start up carriers such as XO Communications and even the once
blue chip names such as AT & T and Qwest Communications have
demonstrated the problems with telecom.  Then came along the
problems in cable with Adelphia communications.  Now even
radio in Clear Channel is falling under heavy investor
scrutiny.  EMMS is a diversified communications concern,
with the exception of telecommunications operations.  But the
negativity surrounding the other segments of its business is
more than enough to drag this stock down further.  EMMS broke
from a short term consolidation just below its 10-dma, now
overhead at the $26.40 level, and appears that it will test
the 200-dma below at the $23.10 level.  The stock acts like
it's under heavy institutional distribution noting the heavy
volume and weakness in price.  Short term traders can look for
a momentum move down to the 200-dma from current levels, with
a bounce most likely coming from the 200-dma.  But it is that
bounce that will provide a most favorable entry point if it
comes.  If the stock continues below its 200-dma, look to add
to put plays as little support exists below current levels
until the $22 area.  From there, it could be a quick, but sharp
trip back down into the high teens.  The stop for this play
is initially in place at the $27 level.

BUY PUT JUL-25*QMJ-SE OI=4 at $1.95 SL=1.00
BUY PUT JUL-22 QMJ-SX OI=0 at $0.95 SL=0.50

Average Daily Volume = 711 K



NVLS - Novellus Systems $32.96 -1.88 (-3.01 this week)

Novellus Systems, Inc. (Novellus) manufactures, markets and
services semiconductor processing equipment. The Company's
products are comprised primarily of advanced systems used to
deposit thin conductive and insulating films on semiconductor
devices, as well as equipment for preparing the device surface
prior to these deposition processes. Novellus is a supplier of
high productivity deposition and surface preparation systems
used in the fabrication of integrated circuits. Chemical Vapor
Deposition systems employ a chemical plasma to deposit all of
the dielectric (insulating) layers and certain of the metal
(conductive) layers on the surface of a semiconductor wafer.
Physical Vapor Deposition systems are used to deposit
conductive metal layers by sputtering metallic atoms from the
surface of a target source via high DC power.

Has the semiconductor business hip bottom?  It's tough to say
yes given the recent guidance from heavyweights Intel
(NASDAQ:INTC) and Advanced Micro Devices (NYSE:AMD).  Both
stocks are key gauges for the chip business, and both are
looking might ugly.  The bulls argue, however, the there are
signs of improvement.  For example, the recent book to bill
ratio reveals that orders are on the rise.  In either case,
it's a problem of valuation with many of the chip stocks,
which is none more apparent than in the semiconductor
capital equipment makers.  With a ridiculous price to
earnings ratio north of 70, NVLS is certainly one of the more
expensive stocks in the semiconductor sector, which puts it
at risk for a lot more downside to get its earnings multiple
back in line with historical norms.  The stock has already
fallen a far distance from its dizzy heights above the $50
earlier this year.  But there's plenty more downside to come
for this expensive chip stock, seeing as support is no where
to be found below current levels.  The stock's sharp rally
last fall left little in the way of help immediately below
current levels, which means the good ship NVLS may be
heading back for a retest of its September lows down around
the $25 level.  Aggressive bearish traders can take new put
entries on a breakdown of today’s low at the $32.50 level
which isn't too far off from where the stock closed the
session.  Other traders might wait for the stock to stage
one of its infamous failed rally attempts to somewhere just
below the downward sloping 10-dma, now overhead at the $37.20
level.  Confirm volume on a breakdown, and make sure to keep
a close eye on the Semiconductor Sector Index (SOX.X) when
timing entries and exits into this play.  Our stop is initially
in place just above the 10-dma at the $38 level.

BUY PUT JUL-35*NLQ-SG OI=4008 at $4.10 SL=2.25
BUY PUT JUL-30 NLQ-SF OI=1321 at $1.70 SL=1.00

Average Daily Volume = 8.70 mln



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The Option Investor Newsletter                 Thursday 06-20-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

TDS - Telephone Data Systems $63.17 +0.02 (+0.02 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.

Most Recent Update

TDS fell lower in a deliberate fashion once more during
yesterday's session which brought the stock below its short
term support at the $63 level.  The stock managed to briefly
bounce back above that level during today's session reaching
only as high as the $63.75 level before pulling back once more.
Given the ugly nature of the market, and that telecom is about
as ugly as it gets, this stock should continue working lower
in a steady fashion as long as the market fails to put together
any rally of substance or quality.  Look for a breakdown below
today's low at the $62.50 level for momentum based entries
into further weakness.  Confirm the action in the broader
telecom sector, and the sentiment in the broader market.  If
the stock does rebound, look for a failed rally up to the
downward sloping 10-dma and a subsequent rollover for an entry
point into strength.

Comments

TDS’ little bounce today offered another entry point into this
put play.  Whatever strength that is tried in the telecom
sector should give to further weakness in short order.  Watch
for a breakdown below today’s low.  That should precipitate
a trade back down to relative lows at the $61.29 level hit
late last week.  A rollover from the 10-dma now at $66 would
offer just as favorable of an entry point.

BUY PUT JUL-65 TDS-SM OI= 73 at $4.80 SL=2.25
BUY PUT JUL-60*TDS-SL OI=101 at $2.60 SL=1.00

Average Daily Volume = 244 K



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

Guess What?
Buzz Lynn
buzz@OptionInvestor.com

No!  I'm not doing another Q-Charts episode today!  Truthfully, 
many readers write to tell me how helpful the series has been for 
which I'm grateful.  After all, our official theme, if not motto, 
at OIN is (veterans repeat): Give a man a fish, feed him for a 
day; teach him how to fish, feed him for a lifetime.  But I've 
reached the point where 98% of the functionality has been 
conveyed.  Chasing down and documenting that remaining 2% is a 
monumental task from which, in my sometimes never to be humble 
opinion, not much additional benefit is derived.

However, there is one housekeeping item related to Q-charts that I 
want to cover before we get on with "the rest of the story" (with 
apologies to Paul Harvey).  Last week, we were stumped trying to 
figure out what the Projection Tool was used for.  While we 
discovered how to set it up, I was dogged in trying to figure out 
its practical use.  So we put it to you, the faithful readers, to 
help with an answer.  I guess almost everyone else had the same 
troubles because we only got ONE reply!  Well, a promise is a 
promise.  And since that's what we got, that's what we'll print.  
Actually, the explanation is pretty good.

Hat's off and a big thanks to Jim K. for astutely pointing out the 
relation to Elliot Wave theory and how this tool might be useful 
for the deep technical trader.  Jim writes, 

"It's really a great tool.  The point is, to project 'parallel' 
moves called ABCD moves (abc in Elliot).  The most common, the one 
seen in all the old literature, is the 'measured' or equal move, a 
so called 1.0 ABCD in today's terms.  Many alternate moves are 
seen, a very common one is the 1.618 move.  This would be a common 
place for a wave 3 to end in Elliot.  I've included some charts to 
show the tool set to look at a 1.0 and 1.618 moves.  The main 
thing you didn't do on your example is to start with point 1 and 2 
using a retracement less than a full 100%. See my charts for 
clarification.  I hope this helps, and keep up the >great< 
columns.

Jim K.

Two of Jim's charts - T and INTC - are shown below:

T Chart:


 

While it is not easily visible in the chart, Jim notes that, "Here 
is a great example of ABCD in AT&T."  Note the nice fit at exactly 
the 100% line.

INTC chart:


 


For INTC, Jim's top note says, "Notice the first retracement is 
well less than 100% i.e. it's not an extension."  The lower note 
says, "What I did here was project the 1.0 move, the measured 
move, of the first down run.  Even though the rally up didn't 
last, I was watching this zone for a reversal."  I have never used 
these before, but it looks worth some experimentation.  It could 
be useful.

Thanks, Jim!

OK, now that I've run through what seems like half an article 
already, let's get to the rest of it.  What could it be?

Hedge Hog or Vermin?  Today, we bring up an observation that there 
seems to be an interesting new critter in the market that makes 
our markets quite jumpy.  Aside from this being triple witching 
expiration week, I first got the idea for this while watching - 
dare I say? - CNBC.  

Art Cashin, floor trader for UBS Paine Webber, and sometimes 
commentator on CNBC after the market closes, is one guy I have 
respect for.  Why?  He doesn't make predictions.  He makes 
observations instead.  He'll never be called to task for a bad 
call because he never makes them in the first place.  

Anyway, I was listening to Art from the floor when he noted that 
Monday's apparent runaway market activity was primarily the result 
of a burgeoning population of two-man mini hedge funds.  I think 
he called them hedgies.  Someone moved the markets' cheese and 
these guys are finding it - probably eating it too, as they 
should.  

The point was that in an absence of volume that is usually 
relegated to institutional trading, the foot prints of hedgies 
could be seen on the tape.  Hmmm. . .this might be worth some 
investigation!  I have no idea yet how this is going to help us 
make money, but here's what I saw.

There would be periods of quiet time - a progressive series of 
short candles on the one minute chart in either direction - that 
were immediately followed by what looked like a buy program or 
sell program.  Those are where institutions hit some technical 
level of trade that cause price thrust or depressions over a 5-10 
minute period.  The candles are very long and the volume often 
spikes, at least when looking at the 1-2 minute charts.  
Sometimes, we can even see institutional volume on the 5 minute 
chart.

But these quiet times were followed by something unusual.  Let's 
take a peek at the 1 minute Dow chart from today.  Pretty hard to 
cram a whole day's worth of 1-minute data on a small chart.  So 
I've cut a chunk from the middle, which we see here.

Dow INDU 1-min chart:


 


Right around 12:00 ET, we see the Philly Fed news release that the 
number was two times the expected - Big News!  That's Huge!  Buy 
everything in sight!  The trigger-happy did just that over the 
next 11 minutes.  But following the same institutional return to 
Earth, it appears the hedgies stepped in.  They are big enough to 
pop the market for a minute or two, but can't sustain it.  Look at 
the jagged up and down, jousting-like action between buyers and 
sellers once it looked like the Dow would bounce at a lower high 
at around 12:20.  Then at about 12:35, we see a big white candle, 
followed by two reds.  Then two big whites followed by three 
bigger reds followed by two big white knockout candles.  From 
there, slow action.

Dow INDU 1-min chart:


 


That is until later in the day.  The above are some fair sized 
games of Tug-O-War completely void of major institutional traders.  
These moves look like that of large daytraders.  Note the two 
white candles at 3:40.  These guys must have been all alone on the 
buy side to cover prior to the close.  No other activity around 
them - very quiet.  On a 2 bln share day, this would have gone un-
noticed.

There we have it.  This serves as a reminder that there is still 
an accomplished army of daytraders out there.  If they've made it 
this far, they've likely learned to survive.  What doesn't kill 
them makes them stronger.  It's a tough market for beginners to 
cut their teeth in this business.  With over $1 bln reported 
making an exit from the equity market last week, it's no wonder 
there are few willing to risk those hard-earned $$$.  But the ones 
who do are moving markets - my proof that the nimble will survive 
as daytrading goes professional and the accomplished take their 
acumen to the next level trading for others in small hedge funds.

Chalk one up for Art for pointing out the existence of the 
hedgies.  Now if we could just figure how to profit from that 
pattern recognition. . .


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

The bears took firm control of the market in the last two 
sessions.  Will they make it a third?


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/062002.asp


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

Several major averages finish just off of support levels.  
Meanwhile, more breakdowns in technology.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/062002.asp


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