Option Investor

Daily Newsletter, Monday, 06/24/2002

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The Option Investor Newsletter                   Monday 06-24-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

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MARKET WRAP  (view in courier font for table alignment)
      06-24-2002          High     Low     Volume Advance/Decline
DJIA     9281.92 + 28.03  9369.95  9083.56  1.57 bln   1341/1898
NASDAQ   1460.34 + 19.38  1476.56  1414.69  2.04 bln   1624/1953
S&P 100   493.04 +  3.62   497.97   480.25   Totals    1965/3851
S&P 500   992.72 +  3.58  1002.11   970.85             
RUS 2000  459.09 -  1.98   462.59   452.79
DJ TRANS 2739.57 - 16.07  2754.81  2710.51
VIX        29.87 -  1.41    32.88    29.27
VXN        58.65 -  0.65    60.32     56.24
TRIN        0.83
PUT/CALL    0.79

Cornbread and Beans Again
By Buzz Lynn

Maybe time to get ready for steak and potato chips?  No I don't 
really care that MSFT announced their earnings date of July 18th.  
The thinking there is that by making the actual date so close to 
today's announcement that there isn't any bad news to warn about, 
and thus, the earnings are going to be OK.  MSFT didn't guide up 
either, but you can't keep a good bull down.

Nor do I care (at least for trading purposes) that George Bush 
presented his plan to establish a Palestinian State over the next 
three years.  Some would suggest that's the reason for the rally 
today.  Fact is that the markets had already moved up a great 
margin off their lows prior to Bush's first utterance.

Those are not good reason for steak and chips.  Nope, what I'm 
gauging is sentiment based on what charts tell me.  Today, we saw 
a near re-test (970) of September's S&P 500 closing low of 966.  
Similarly, the NASDAQ tested the September 27th low of 1418 by 
posting a low today of 1414.  The Dow has so far, fared better 
than both.

Furthermore, the recovery off today's low was met with stronger 
than usual volume of 1.57 bln shares on the NYSE and over 2 bln on 
the NASDAQ.  While this was going on, the negative volume that had 
swamped positive volume early today had reversed to slightly in 
favor of positive volume by today's market highs.  That was really 
solid action.  But in the final hour, the positive volume fell 
apart and the negative volume again held the advantage by the 

Another piece of the puzzle is that the VIX fell back (only 
slightly) under 30, thus demonstrating investors'/traders' 
sloughing off a bit of fear.

But in the end, no steak and chips - at least not yet.  We'll be 
watching for the daily and 60-min stochastics to hit oversold 
again and for the VIX to pop back over 30, heck maybe 40, 
meanwhile, again, testing support.  Bulls shouldn't rejoice yet.  
I equate this to coming 500 miles a cross the desert with 
dwindling water and knowing water is "only" 40 miles away.  When 
searching for the bull, as in searching for the water, we may know 
where it is, but we're not there yet.  And when we do finally get 
there, it will amount to a bullish correction, but still within a 
primary bear market - just like a pond, but still in the middle of 
the desert with many mile until completion of the ultimate 
crossing.  Until earnings justify prices, this market will 
continue to slide for - dare I say it - years.  

The speculative excesses will take that long to correct; the 
Dollar will have to rise again against other currencies and 
Americans will have to pay off some major debt to begin saving 

Did we begin that process with today's rally off the lows?  No 
way.  It's no secret that Fundamentals Guy is building an Ark, not 
just predicting the weather.  To that end, I've been reading up on 
big picture items - huge debt, inflationist monetary policy, no 
personal savings, sinking Dollar - these items make the American 
stock markets pale in comparison.  What follows are some 
interesting snippets from stuff I've uncovered.

From Bill Gross of Pimco Bonds:  "After all, think of the obvious 
– how does a government ease its way out of a debt crisis?  By 
eroding the real value of debt with a bit of unanticipated 
inflation; by cheapening its currency; by bolstering nominal 
corporate profits; by levering up the public sector (federal 
deficits) and in so doing delivering the relative debt of the 
private sector.  Bingo."

More:  "It (U.S. economy) has morphed through the years from an 
economy primarily based on production, to one substantially 
reliant on growth via debt and new derivative life forms.  We now 
live in an age of paper, and this paper maché facade is not a 
permanent, nor lasting one."  

My take:  This jibes with John Rutledge's positing a few months 
back, which I relayed in a Trader's Corner, that we are 
experiencing a massive asset redistribution from paper (stocks, 
bonds, derivatives) to tangible (gold, real estate, lumber, oil).  

Here's yet another black eye for Merrill Lynch, not that they need 
one while one of their high profile brokers figures large in the 
Martha Stewart insider-trading hullabaloo.  From a Reuter's 
article, "Fifty-one percent of 280 fund managers who oversee $711 
billion in assets said in a Merrill Lynch survey that U.S. 
earnings are the worst in the world when it comes to 
predictability, volatility and transparency.  Not seeing any 
improvement any time soon, the managers say the U.S. stock market 
is the one place where they most want to be underweight."  

My take:  Any Buy rating issued by a Merrill analyst, especially 
on CNBC, ought to be met with a cold, skeptical shoulder.  More to 
the point, nearly half of those surveyed by Merrill (49%) still 
think this is a market in which to remain invested.  Well, perhaps 
51% of CNBC guests (at least the ones that manage funds) will now 
recommend their clients underweight the U.S market?  Don't bet on 
it.  There are still 49% that need converting.  Only then will it 
be safe to don pointy horns again.

Oh, this just in. . .Trim tabs is reporting a net outflow of $15 
bln (with a "b") from mutual funds over the last four weeks.  
Janus alone had redemptions of $1.3 bln.  Investors are clearly 
voting with their feet and leaving the building. . . just like 

OK, let's look at the charts quickly.  I'm not going to spend much 
time here tonight since, were I not to show charts, I could merely 
say that the dailies still need to reach stochastically oversold 
before I become convinced of a real trading rally.  To boot, the 
60-min charts are rolling over already from today's overbought 
rally.  For those that appreciate a visual though, here are all 
three major markets.

Dow Industrials chart - INDU (weekly/daily/60):


I'd expect 9100 to be tested again, or even 9000.  Today does not 
constitute a much hoped for V-bottom reversal.  And even if it 
did, this is still a bear market.

NASDAQ Composite - COMPX (weekly/daily/60):


No trend reversal in sight.  But long-term support held today.  
Still 60-min chart rolling over and daily not yet to oversold.  
Let's see if 1414 holds or if it heads to 1387, the absolute 
September low.

S&P 500 - SPX (weekly/daily/60):


Same story here.  Daily stochastic falling, but not there yet; 60-
min rolling over.  Support at 970, then 966.

However, in the background are two statistics that are likely to 
go unmentioned.  First the Russell 2000, the broadest market 
indicator actually fell today compared to other indexes.  Still, 
it remains far off its September low of 373.  Even more to the 
point, while the Dow rose today, the Transportation index went 
negative.  The latter is a bad sign for those strict Dow theorist 
who look for the transports to confirm the Dow's move to confirm a 
bull market.

For tomorrow, hard to say exactly what this market will do.  
However, with sentiment still negative as measured by daily and 
60-min stochastics, coupled with a VIX at 29.97, I think there 
will be further tests of support to come this week.  And with 
every test, hopeful bulls will jump the gun to buy the very bottom 
to which the bears will respond by shorting the rally.  If that 
sounds like a week of solid volatility with big potential for 
swings, you're right!  Just what a trader wants!  But for the buy 
and hold crowd, the day to buy is not yet here.  But when it 
comes, there may be even a few weeks to perhaps months of profit 
potential as the weekly stochastic emerges to begin another up-
cycle from oversold.  Again, it won't be permanent, but merely a 
bully rally within a primary bear market.

Trade 'em but don't fall in love.

See you at the bell!


by Leigh Stevens


Today, everyone seemed to be wondering the same thing - where the 
heck is the bottom?  Mostly now what I notice is the complacency 
in the view that there will be some big capitulation - is this 
like a "bell ringing" - that will identify THE bottom.  Well, I 
have some historical perspective on this - it ain't always so!  
There is not always a big volume event.  

Finding a bottom by looking at just the indexes can be so 
difficult as to be impossible.  We have the OEX in an apparent 
successful test of its Sept. low today.  That looked like a 
bottom.  SPX is well above its prior low, but it reversed from 
the area of the envelope band I consider important, plus it 
reached the low end of its hourly downtrend channel - "could" be 
a bottom.  The Dow is well above its Sept. low, so who knows?  

The Nasdaq Composite and the QQQ Nas 100 tracking stock rallied 
from the low ends of their hourly downtrend channels.  The 
Composite didn't quite reach its Sept. bottom - the Nas 100/QQQ 
did and have been trading under these prior lows, but each has 
rebounded back to or above their prior recent lows of 6/14. 

What's a boy to do to know!?  Well, we probably won't know for 
sure on this bottom question for a while yet - but, because not 
many expect today to have established even an interim low, it 
probably IS.   

I went back to the same key Nasdaq/Dow stocks that have been 
struggling to find bottom that might be able to tell us if the 
Nasdaq 100/S&P 100 indexes, which have reached (or exceeded 
slightly) their Sept. low points, are telling us that we may have 
at least hit the low end of the range for awhile.  I'm going to 
leave aside the fact that I have a top pattern on the Dow that 
suggests it may be headed lower still.  

I'll just share with you what I'm watching in key stocks, that 
may tell us what is what with the indexes.  If these stocks find 
bottom, then some cautious bullishness ought to creep into our 
trading play book.  



What I've noticed with bellwether Cisco is the possibility that 
the stock is forming a Head & Shoulder's bottom.  You'll see this 
in other charts also.  The key will be that CSCO doesn't sink 
much lower than today and starts to go sideways to higher - this 
would finish the "right shoulder". 

Intel - 


A key to the chip stocks and the semiconductors tend to be the 
most telling bellwether sector for Nasdaq.  The "SOX" Semi index 
is featured in my Sector Trader wrap - the interesting thing with 
SOX is that it is well above its Sept. low - not so with Intel. 
The dashed level line touches the INTC Sept. low.  Note that INTC 
has rebounded above it and the low end of its downtrend channel.  
A double bottom low - time will tell - stay tuned!

Microsoft - 


Possible Head and Shoulder's bottom has already formed with the 
neckline resistance at the red down arrow.  MSFT has been the 
leader of the Nasdaq pack and has better earnings coming with its 
price increases coming for large corporate customers - they (the 
customers) are fighting this, but I'm not sure that they have any 
real choice but to go along with them. 

Oracle -


Interesting for this same potential Head & Shoulder's bottom 
formation.  We need to see some further action in the stock, but 
ORCL is looking promising for in terms of a putting in a low 
around recent levels. 


Possible double bottom low in Qualcomm here - time will tell on 

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


Key support becomes the prior hourly low in the 488 area.  Look 
for a pullback tomorrow. Watch for a successful "retest" of this 
level or just for OEX to stay above it.  480, at today's low is 
the next potential support. 

S&P 100 (OEX) near resistance is at 499-500, then 503-504. A 
daily close over 500 would be bullish.  

In the S&P 500 (SPX - not shown), key support is 982; then, at 
today's low at 971. Near SPX resistance is 1000, then 1005. A 
close over 1000 would be bullish. 

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


The action of the Dow 30/Industrials is the least convincing to 
me relating to whether today might have marked a tradable bottom.  
It won't be that difficult to get a bit better view of this soon 
however.  92.6 is key support, at the prior low.  Below this of 
course is today's bottom at 90.8 in DJX.  
Near resistance is at 94, then in the area defined by two prior 
lows, at 94.5-94.7. Until we get back above here, not much is 
going on. However, ability to hold above today's low this week, 
is potential basing action. Again, more (trading) action is 
required to fill in the blanks. 

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


Key near support is 26.2, at the prior low.  Today's low at 25.2 
looms large as a potential bottom.  Expect some period of 
weakness tomorrow, but I think the 25-26 will develop as support, 
given what we're seeing in the key 5 Nasdaq stocks highlighted 

QQQ resistance is implied by zone formed by prior lows at 26.8-
27.5.  27.00 is of "pivotal" significance in terms of QQQ getting 
above it and staying above it.  The getting is easier than the 
"staying".  Conversely, if 27 is a ceiling on rallies and the 
closing levels and acts as resistance, look for more 
sideways/lower action.

Key resistance in the Nasdaq Composite looks like 1490, then 
1509-1510. Key support is 1445, at the prior low, then today's 
bottom at 1114, which was also at the low end of COMP's downtrend 

NOTE: The "centered" moving average on the hourly charts that is 
not shown, unlike like on the daily chart - the average on which 
the moving average "envelopes" are based - is 21, meaning, on the 
hourly chart, that the lower band is a line that "floats" at 5% 
below the 21-hour moving average based on the average of the 
close of the last 21-hours.  Don't worry, help is on the way, I 
going to write my THIS week's TRADER'S CORNER (Thursday) article 
on the "ins and outs" of moving average envelopes.  

Leigh Stevens
Chief Market Strategist 

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Getting Ready to Change Gears
by Mark Phillips

Has anyone else noticed the almost habitual serious and somber
mood on CNBC lately?  No matter the day, it seems the regulars
can't help imploring every guest that will give them the time
of day, "Will the selling ever stop?".  To me this is a VERY
positive sign as even the varsity cheerleaders are getting

My good friend and colleague, Buzz Lynn postulated several months
back about the emergence of what came to be termed MOPO (Mother
Of all Put Opportunities).  Well, needless to say it appeared
right where it should according to all the technical indicators
in late March.  Daily and Weekly Stochastics were topped out and
rolling down from overbought territory and there was nothing for
the bulls to latch onto in order to pull the markets higher.  At
the time, the financial media was trumpeting the economic and
market recovery that was surely underway, with many of these
pollyannas proclaiming the birth of a new bull market.  Yeah
right!  I've got some trained, flying pigs in my back yard too.

But seriously, how did I know they were wrong?  My favorite
market timing indicator, of course.  That's right, I'm going to
bore you with another article on the topic of the VIX.  My
reasoning is that if you understand nothing other than the
behavior of the VIX relative to the broad market and daily/weekly
Stochastics oscillators, I believe you can make an obscene amount
of money without being glued to the computer, day-trading every
little blip in the market.  To be sure, the trading opportunities
don't come along very often, but when they do, informed and
disciplined traders know to make hay while the sun shines.

Look at the weekly chart of the S&P 500 (SPX.X) vs. the Volatility
Index (VIX.X).  Can you see the pattern that tends to repeat?
Selling climaxes in the SPX are accompanied by parabolic rises
in the VIX.  Conversely, every time the VIX dips down into the
18-20 area, we can see that it corresponds to a market that lacks
the impetus to rally any further.

Weekly Chart of S&P 500 vs. the VIX


My favorite part about this relationship is that it holds true in
both bull and bear markets.  Regardless of whether we are in a
bull or bear market, the VIX tends to move to one extreme or the
other in conjunction with the broad market reaching a near-term
top (or bottom) a couple times a year.  Selling or buying that
climax move and holding the position for several weeks or even a
few months rarely fails to deliver handsome returns.  In fact,
can you find a single instance over the past 5 years of a
substantial market rally that WAS NOT preceded by a high (greater
than 30) VIX reading?  Better yet, is there a single time where a
VIX above 40 DID NOT presage a strong rally?

That's my point.  The VIX has been rising again and should it
have a blowoff run above 40, I will be aggressively targeting
September OTM calls.  My wife called it the Mother of All Call
Opportunities (MOCO).  Alright, it isn't really the Mother, but
maybe a favorite Aunt.  MOCO would be targeting THE BOTTOM and I
don't believe anyone will be able to call that one until well
after the fact.  Let's just say that it is a strong call-buying
opportunity and leave it at that.  As an aside, if you take the
time to peruse some charts on your own after my bold statements,
take a look at the weekly chart of the SPX.  How many of the
VIX-induced rallies over the past 5 years commenced from a point
of oversold on the weekly Stochastics?  How many sharp declines
began when the VIX fell below 20 with the weekly Stochastics
topped out in overbought?  Are you starting to connect the dots.

A great investor (although the name escapes me) that the time
to buy is when there is blood in the streets and nobody wants to
own stocks.  Doesn't that sound like a sentiment that is being
trumpeted louder and louder on Wall Street right now?  This is
contrarian investing at its finest and we've got front-row seats
for the show.  

At this stage of the game, a repeat of the climax in selling that
we saw last September is far from a lead-pipe lock, but all the
signs are lining up saying that we could absolutely get a repeat
in the VIX department at the same time that the SPX retests its
lows.  Weekly Stochastics are already there, awaiting that final
surge of selling that will drive the VIX higher and price lower
for that next substantial bottom that will lead the next real
rally.  Now we just monitor the situation, but we definitely don't
want to jump the gun.  I won't even be interested in nibbling on
this trade setup until the VIX tops 35.  But I expect to see the
north side of 40 before really beginning to implement my position.

The higher the VIX goes, the better the risk/reward ratio becomes
for this bullish trade, as more downside risk is removed from the
market.  But the potential return also increases as the VIX rises
because the snap-back rally will be that much stronger.  Think of
the VIX in this case as a rubber band.  At 30, it is stretched and
will snap back if released, but not necessarily in a strong
fashion -- there just isn't a lot of stored energy.  But pull it
back to 40 and when released, there is a much larger amount of
energy released.  Between 55-60, the rubber band is stretched
almost to its breaking point and when released, the resulting
action is explosive.

It all goes back to human psychology.  Remember that the VIX is a
measure of investors' collective fear about the market.  We, as
humans are incapable of extreme levels of any emotion for an
extended period of time and that is reflected in the behavior of
the VIX.  Notice that the VIX can move up into the 30-35 area and
drift there for a period of months. But how long can it remain
above the 40 level?  Not long at all.  And let it shoot above 50
and it is a sure bet that it will be coming down swiftly.

Continuing with the physics analogy to the VIX, when the VIX is
very low and the markets are approaching a top, it is like a ball
thrown up in the air.  Whether a 6 year-old or Nolan Ryan threw
the ball, only determines how high it goes before running out of
momentum.  In market language, the height the ball is thrown is
equivalent to how explosive and strong the prior rally was.  But
they all run out of steam, as gravity always pulls balls back to
earth.  The next question that must be addressed is how long it
will take for the ball to come back to earth.  That answer
depends on what celestial body we are on at the time that we
throw the ball.  Let's say that a neutral or rangebound market
would be the equivalent of throwing the ball up on the planet
Earth.  Then a bull market would equate to throwing the ball up
on the moon, while a bear market is the equivalent of being on
the planet Jupiter.

Gravity is extremely light on the Moon, so there is a much smaller
pull on the ball, arresting its upward motion and redirecting it
back to the surface.  Similarly, we've noted in the bull market of
the late 1990's that the VIX can remain near the lower end of its
range for weeks or months at a time before the market finally
sells off.  But with the heavy gravity found on the planet Jupiter
(and in the current bear market), when the ball runs out of upward
momentum, it is pulled back to the surface quite quickly.

Hopefully my little detour into the world of physics wasn't too
tedious for anyone, but I think it does a very good job of
conveying exactly what is happening with the interaction of the
VIX and the broad market.  Coming back on track, we've been
talking about my expectation that there is another spectacular
spike in the VIX looming in our very near future, and following
that event, I expect the broad markets to stage an impressive
multi-week rally throughout the remainder of the summer.  Is
this THE BOTTOM?  No Way!!  But a very tradable one, nonetheless.

As I see it, there is only one pitfall to the scenario that I
have laid out here, and that is that the markets continue to
drift lower without a sharp upward move in the VIX.  Without
pulling the rubber band very tight, there is not enough stored
energy to release and launch the markets higher.  Simply put,
without a VIX in excess of at least 35 (preferably 40-45) there
is no trade here.  Period!

Now that I've laid out the rationale behind the trading strategy
that I'm looking to employ over the next few weeks, I'll leave
you to peruse my logic and resulting conclusions.  Can you find
a hole in the theory?  Something that I've overlooked?  Fire away
and show me the error of my ways, and I'll bet we can all benefit
from the educational process.  Barring the discovery of a major
pitfall that I have neglected to consider, on Wednesday in my
Options 101 article, I'll lay out the details of precisely how I
plan to trade this event with my account, provided that fate is
kind enough to stretch the rubber band to its limits before
letting go.

See you on Wednesday!


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by Leigh Stevens

You heard it here first folks - the Healthcare sector was forming 
a top and would reverse (down).  Only I told you BEFORE it 
happened and the media talking heads are telling you today about 
the turnaround AFTER the cat is out of the bag so to speak.  

Weakness hit Airlines again on earnings downgrades. Telecoms, 
Internet and Defense took their lumps today too. The Dow Jones 
Transportation average recent rally has been fading a bit lately, 
but the Dow Transports did eke out a close above its 50-day 
moving average. 

Semiconductors had its dead cat bounce today; Biotech rallied, 
continuing a rebound from the low end of its downtrend channel. 
Gold ($XAU.X) was about the only sector rallying before the 
market turned around, but lost much of its intraday advance by 
the close  - I think the rebound in gold is a good shoring/but 
put opportunity.     

I will FEATURE Defense, Gold stocks, Healthcare, and the 
Semiconductors as sectors of potential trading interest. 


DOWN ON THE DAY on Monday - 



Standard & Poor Corp. rolled out its newly rebalanced SmallCap 
600 Index on Friday. The S&P determines growth and value stocks 
for the SmallCap 600 by taking the top half of the index's market 
cap and labeling it "growth", based on price-to-book ratios, and 
assigning the bottom half into the "value" category.

Some of Friday's volatility may have been caused by the buying 
and selling related to money managers rebalancing portfolios to 
more accurately reflect the revamped S&P 600 SmallCap Index's new 
value and "growth categorizations.

The brave new world of the S&P 600 Small Cap has stocks like 
Alpha Industries and Bio-Technology Genetics now in the value 
index's makeup. Stocks that now fall into the growth group 
include Cullen Frost Bankers and La-Z-Boy furniture. Hey, it's a 
growth business - selling recliners to American coach potatoes!  

Such shifts go against conventional thinking that value stocks 
are more "old economy" versus newer businesses involving tech and 
biotech. S&P's criteria for categorizing a stock as being either 
growth or value is based on only one variable: price to book 
(value). The measure considers the level a stock is selling at in 
relation to its per-share book value, which is the net value 
given to assets carried on a company's balance sheet.

Standard & Poor's acknowledges that the current approach may be 
too "narrow", as investors don't generally buy stocks on "price 
to book" as a guide to how the stock will do.

Around the corner - an even more complex refiguring: The Russell 
2000's new lineup of small-cap stocks, broken into growth and 
value sectors, is rolled out this Friday. Russell is a bit 
broader in its criteria, using price to book, PLUS growth rates. 

The new Russell 2000 mix shows stocks like Arica and Bio-
Technology Genetics being categorized as "Value" and Allegiant 
Bancorp and Bob Evans Farms taking on "Growth" status. Love those 



Buy IJS at 88.50 - FILLED - Close: 89.19 
(S&P 600 Small Cap Value fund iShares) 
Stop at 87.60

Buy IWM at 91.00 - FILLED - Close: 91.31
(Russell 2000 iShares) 
Stop: 89.50

Buy BBH at 79.10 - NOT Filled - Low: 80.00; Close: 83.45
(Biotech HOLDR's Trust stock)
Stop at 76.00

Long IJS at 91.25
Long IJS at 88.50
Average price: 89.87
(S&P 600 small cap value iShares) 
Stop: 87.60

Long IWM at 91.00
(Russell 2000 iShares)
Stop: 89.50



Defense Index; Amex ($DFI.X)

SOME PRIOR COMMENTS: Close above 655 and the 50-day moving 
average is a bullish plus, but the 660-661 level is the key 
"line" of technical resistance - a close above here, AND the 
ability to stay above it on subsequent pullbacks, is needed to 
suggest that the bullish trend might be back on track. However, 
there would still be the double top at 680 to overcome for DFI. 
More action is needed to say that this sector is not still 
building a top.


TODAY: A "key" reversal at the "line" of resistance at 660-661 
area and after completion of a 62% retracement (660) of the 
recent downswing.  The Index fell below its 50-day moving average 
and I think will it will be heading still lower - my target has 
been to the 600 area.   
UPDATE: 6/24 

Gold & Silver Sector Index ($XAU.X)

SOME PRIOR COMMENTS: 75.00 was key support and a 50% retracement. 
The decisive downside penetration of the March-May up trendline 
was the telling reversal event. XAU needs to climb back above 77 
on closing basis to suggest that bullish trend might be back on 
track. Retreat to below 75 would continue bearish pattern. 


TODAY: Reversal from today's highs back to XAU's 50-day moving 
average, suggests that recent rally is a retracement rally only 
and the stocks in this group are going to work lower.  This 
sector is a short/buy put candidate, especially if XAU gets back 
up the 83-85 price zone. I doubt that it is going to get that 
high.  Gold bugs, bam humbug! - I never saw this sector as 
offering more than an upside trading opportunity, followed by a 
shorting opportunity.   
UPDATE: 6/24

Healthcare Index; Morgan Stanley ($HMO.X)

SOME PRIOR COMMENTS: Potential for a top, even with move to 
new high above 645 - possible downside reversal is suggested 
by the bearish price/RSI divergence. A close below the prior 
top at 645 provides initial evidence for a downside reversal, 
but "confirmation" would be on a close under 630 at the up 
trendline. Bearish on chart (besides already noted higher 
highs on decline relative strength) was rising bearish "wedge" 
pattern. Move below 630 support and a close below the 50-day 
moving average would "confirm" a bearish reversal.  


TODAY: There was the decisive downside penetration of the up 
trendline that I was anticipating.  The sector closed at its 
50-day moving average.  After a bit of a recovery rebound, I 
think the HMO index will work lower, to between 587 and 564 or 
between the 38 and 50% retracement points. 
UPDATE: 6/24

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

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

SOME PRIOR COMMENTS: Key resistance at the former high. Looks 
like a potential double top has formed. Key support is in the 
343 area - a close below this level, suggest a trend reversal, 
with potential back to 325. 


TODAY: Sharp break, increasing the downside momentum.  Close at 
support at 343.6, which is a pivotal area.  A close below today's 
puts the index under the prior lows and builds a more bearish 
chart picture. 
UPDATE: 6/24

Semiconductor Sector Index ($SOX.X)

SOME PRIOR COMMENTS: Looks like a SOX re-test of its Sept. 
bottom is next. 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. 


TODAY: Nothing has developed yet that suggests a turnaround.  
A retreat to around 350 would suggest that the SOX was at 
support implied by the low end of the downtrend channel. Or, 
to 344 the (intraday) low back in Sept. A close above 400, or 
better, 404-405, would suggest that a turnaround in the SOX 
could be underway. There is not always a re-test of the prior 
lows. Time will tell - stay tuned! 

Leigh Stevens
Chief Market Strategist

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The Option Investor Newsletter                   Monday 06-24-2002
Copyright 2001, All rights reserved.                        2 of 2
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IBM - put
Adjust from $74.25 down to $73.50

ENZN - put
Adjust from $26.50 down to $25.50

TDS - put
Adjust from $68 down to $66.50


AET $48.45 -1.93 (-1.93) Last week's Supreme Court ruling
continued to weigh heavily on HMO stocks on Monday, with the
HMO index falling more than 3.2%, easily taking the unenviable
award as the worst performing sector for the day.  Following its
recent push to fresh multi-year highs, AET pulled back sharply,
ending with nearly a 4% loss on the day.  That easily pushed the
stock below our $49 stop and the initial bounce off of $48 lacked
the punch necessary to get the bulls' interest.  As the market
weakened again toward the end of the day, AET once again fell
below our stop and judging by the late-day weakness, it is time
to take leave of the stock.  Exit remaining open positions on
any rebound in the morning.

OHP $46.18 -2.93 (-2.93) Despite its recent relative strength,
OHP broke down in a big way on Monday, pressured by heavy selling
in the HMO sector.  The principal cause for the weakness appears
to be lingering concerns about last week's Supreme Court decision,
as the entire Health Care Payor index (HMO.X) fell 3.27%.  For
its part, OHP shed nearly 5% on very heavy volume, rapidly
abandoning its position of relative strength.  Turn the lights
out, this bullish party is over.  With our violated stop at
$48.75, OHP is clearly a drop tonight.



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IBM - International Bus. Machines $69.70 +0.95 (+0.95 this week)

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

Most Recent Write-Up

Investors have got to be wondering where support is for IBM.
After piercing the $75 level a couple weeks ago, it seemed a
foregone conclusion that the stock was heading lower...much
lower.  Sure enough, once the broad market bounce failed in the
middle of the week, shares of Big Blue have seen heavy selling
pressure, culminating with Friday's plunge under the $70 level.
So how far can she go?  Looking at the weekly chart shows the
first meaningful support at $67, with major support coming in at
$60.  In addition to that being strong support from 1998, it is
also the 62% retracement of the stock's rally from the 1993 lows
to the 2000 highs.  As if that weren't enough, the current sell
signal on the PnF chart is pointing to an eventual price target
of $61.  That makes a potent case for continuing to sell all
rallies in the stock and that's just what we intend to do.  While
highly unlikely, we'd we thrilled to get a rally up to the $74
resistance level for new entries.  But short of a broad market
rebound, that isn't likely to happen over the near term.  So
we'll have to set our sights a bit lower, looking for a failed
rally first at $71 and then at $72.50.  Of course if the selling
continues, new positions can be considered on a break below the
$68 level.  Just keep a sharp lookout for a short-covering rally
off the $67 level.  Lower stops to $74.25.


Still waiting for a warning.  The downgrades of Big Blue are
still flying and the negative pressure that they have created
over the past couple weeks will likely mute the effect of the
warning, if it appears.  IBM tagged an intraday low of $67.25
before rebounding to close just below the formidable $70
resistance level.  Consider us unconvinced either in the broad
market rebound or that of IBM.  There is a lot of technical
damage to be undone, and rather than looking at this as a
motivation to close the play, we're once again thanking the
short-covering for giving us an attractive entry point.  Look
to initiate new positions on another rollover near $71.50-72.00
and lower stops to $73.50.

BUY PUT JUL-70*IBM-SN OI=32437 at $4.10 SL=2.50
BUY PUT JUL-65 IBM-SM OI=14233 at $2.10 SL=1.00

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

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