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Daily Newsletter, Monday, 07/08/2002

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The Option Investor Newsletter                   Monday 07-08-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      07-08-2002          High     Low     Volume Advance/Decline
DJIA     9274.90 -104.60  9410.38  9240.36  1.17bln    1326/1890
NASDAQ   1405.61 - 42.75  1452.56  1401.28  1.70 bln   1276/2146
S&P 100   486.29 -  6.37   495.03   483.91   Totals    2602/4036
S&P 500   976.98 - 12.05   993.56   972.91             
RUS 2000  433.61 -  7.31   441.55   433.36
DJ TRANS 2615.79 - 36.85  2669.04  2614.14
VIX        31.39 +  1.18    32.68    30.79
VXN        58.61 +  2.33    60.13    56.66
TRIN        1.19
PUT/CALL    1.02
*******************************************************************

Greetings and Welcome to "Bash The WorldCom Scoundrels"!
By Buzz Lynn
buzz@OptionInvestor.com

If I'd just awoke from Rip Van Winkle-like slumber, I'd swear from 
today's WCOME testimony in Congress that this must be an election 
year.  Rarely have I seen so many so blustery with so much chest-
thumping, yet saying so little.  The political posturing and 
grandstanding should get a few of these frustrated actors and 
actresses into Julliard without a hitch.  

Lest we think there was something of meaning coming from Kangaroo 
Court today, remember that Congress has no power to put these 
people on trial no matter how egregious or corrupt the acts of the 
accused.  Trial is a function intentionally left to the courts 
precisely to avoid persecution by the government who would 
arbitrarily prosecute without a jury of peers or an appointed 
judge.  To recognize Congress's "right" to meddle in business and 
in the court system's turf is a dangerous precedent that puts a 
lid on freedom and removes another layer of protection from the 
government afforded us by the Constitution of the United States.

I'm not trying to get political here, but rights are being 
trampled in the form of class envy for political gain.  Holding 
Bernie Ebbers in contempt for taking the 5th is ludicrous.  Let 
those accused suffer at the hands of real prosecutors to the 
fullest extent the law permits, including jail time for fraud if 
judged guilty in a court of law, lest citizens of this country 
regret the day they ever gave Congress the right to hold trials 
without due process.  A destructive cancer is spreading and 
gaining legitimacy because otherwise thinking citizens don't 
object to an abuse of power by elected officials.  Next, it won't 
be just corporate brass; it will be you and me.  

Alright Buzzard Breath. . .off the soap box.  So how about those 
markets?  Well, it should come as no surprise that some of 
Friday's gains were given back today.  300+ point days on 
extremely low holiday volume, like Friday, simply can't be 
sustained or carried forward at the next open.  At least that 
would be highly unusual.  Anyway, it was interesting to hear the 
reasoning behind today's selling.  At first, it was suspected 
accounting trouble at MRK's drug benefit unit called Medco.  Come 
to think of it, that notion never left the trading floor.

Horrors!  MRK booked $12 bln in revenue they never received and 
never intended to collect!  Those bothering to read the second 
sentence would have also noted they expensed an equal amount, and 
thus net income was unaffected by the bookkeeping entry.  From my 
own business experience, I would have done exactly the same thing 
lest the IRS come knocking at my door asking why I never booked 
the income.  And explaining to them the offsetting expense would 
have been a greater exercise in audit defense.

In the end, that put MRK down $1.05 to $47.80, about $0.50 above 
last Wednesday's close before Friday's ramp job.  The news had no 
real effect.

What else?  EBAY is buying PYPL. . .no, that couldn't have been 
the reason for the selling.  OK, how about this:  Buffet investing 
$100 mln in LVLT, a battered fiber optic voice and data carrier.  
Along with Legg Mason dropping in $100 mln and Long Leaf Partners 
dropping in $300 mln for a total of $500 mln, it is expected that 
the funds will be used for consolidations born of acquisitions.  
Notes paying interest of 9% cash for 10 years are convertible to 
shares at $3.41.  Based on today's close, Buffet already has a 51% 
profit on paper with a 9% cash flow.  Nice day's work!  But the 
risk is that LVLT won't make it through the shakeout, which 
remains to be seen.  Bet on management to make this work though 
since LVLT's founder sits on the Board of Berkshire Hathaway.  

Hmmm, a 51% return in one day. . .nope, guess that didn't cause 
any selling either.  I go back to last Friday's 325-point gain on 
low volume.  Without conviction backed by volume, those gains 
won't stick.

Charts, please.

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


 

OK, losing 104 points looks bad no matter how we slice it.  
However, that the Dow only gave up on third of Friday's hypoxic 
gain should be considered a gift to the bulls.  The weekly trend 
while turning up stochastically, hasn't had candles to match.  
Note the daily chart too where candles have hit resistance at the 
9400 level.  9500 +/- is the next stop if it can break through.  
While 5-period daily stochastics are pointed in the bullish 
direction, the 10-period may hit some resistance.  The 60-min 
chart, however, found support today around 9250.  Meanwhile the 
60-min stochastics are turning up from oversold.  Still, I can't 
get to comfortable with that since the 10-period stochastics are 
still pointed down.  Support held, but resistance is strong.  No 
clear direction here, but bulls might make some fractional gains 
based on the 60-min chart pattern.

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


 

NASDAQ too is in limbo on the 60-min frame.  Support is holding at 
1400 as the 5-period stochastic is turning up.  But as we have 
seen before, this could remain oversold with an albatross around 
its neck for a while.  Plus the 10-period stochastic is still 
declining.  Not much strength in techs as the daily candles have 
been in rangebound decline for two months.  Daily and weekly 
charts reflect that as support at 1400 barely holds there too.

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


 


Chart pattern looks pretty much the same here too - muddy. Lame, 
and in conflict.  While oversold conditions should have provided a 
bullish springboard for prices, it hasn't happened that way yet.  
If you are a bull, the glimmer of hope lies on the 60-min candle 
potential bullish flag pattern where there might be 10-15 points 
to garner with small amounts of risk capital as the 5-period 
stochastic attempts a climb to overbought.  For itchy trigger 
fingers only.

Meanwhile the VIX hovers and sputters still over 30, which 
reflects a degree of uncertainty and fear on part of investors.  
But jumping the gun on a bullish rocket reversal has only resulted 
in heartache (not to mention wallet-ache) for the anxious who view 
30 as a reversal point to couple with the oversold-and-upturning 
stochastics.  

Quiet reminder: this is still a bear market where it is tough to 
make upside money.  The day will come when that can be done, but 
it will be a minor bullish trend in primary bear market good for 
not much more than a trading opportunity.  For tonight, with no 
clear direction tomorrow, I lean on the side of keeping powder dry 
until points of resistance can be broken and held on the upside.  
Frankly, I would still play bearish on resistance and hesitate to 
play bullish at support.  Wish I could add more to that, but I 
have to call 'em like a see 'em.  And the view is pretty cloudy 
right now despite that there are economic reasons acting as a 
lifeline to bulls.  Must be like a ray of sunshine in south-
central Texas.  Praise the sunshine; carry an umbrella and own a 
boat.

See you at the bell.


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

GIVE BACK TIME
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
On such a low volume day and in a shortened session to boot, 
there was no question of the indices not retracing some of their 
gains - the question was only how much of their Friday gains 
would be "given back".  So far, the retracement has been 
relatively mild and the indexes seem to be finding some support 
in the area of the upside chart gaps in the case of Nasdaq. In 
terms of the S&P and Dow, it is question of how much of the 
Friday opening hour run up is going to be retraced, which so far, 
hasn't been much. Stay tuned however! 

The market possessed a somewhat more bullish, less bearish, tone 
today. Sellers were not pressing the short side today overly 
much, or maybe, it's simply that there was some buying interest 
on dips. How long this will last is an open question.  No doubt 
traders are taking a somewhat "neutral" stance ahead of 
President's Bush speech tomorrow on proposed strengthening of SEC 
and fraud regulations and laws relating to corporate management 
practices.    

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


 

I said last week that I thought 464 may have been the low for a 
while, occurring as it did at support implied by the low end of 
the hourly downtrend channel. Based on the way that the market 
held up today, I consider a retest or move back to the 464-465 
area to have a lesser likelihood of developing than I when I did  
my last daily update.  

OEX can retreat to the 475 area and still have bullish upside 
potential for a second up "leg" that would take it to above the 
top end of its downtrend channel at 495-496.  Conversely, a 
retreat to below 475 suggests that the bearish trend has in no 
way diminished.  Stay tuned!  

No trading suggestions - would like to see the longer hourly 
stochastic get oversold again before attempting any purchases and 
am reluctant to sell/buy puts unless the OEX is back up into 
resistance. Resistance levels are considered to be at the 3 prior 
(up) swing highs (noted in red) at 495, 497, and 500.  

Note the daily stochastic is in an "uptrend" that is making 
successively higher lows, versus price action of lower relative 
lows. This is a bullish price/indicator divergence.   

S&P 500 (SPX) Index - Hourly chart:


 

While there is nothing "infallible" about this of course, the 
above hourly pattern looks like that of a "bull flag" - a 
breakout above the top end of the downward sloping "flag" at 
around 985 currently, would suggest further upside potential to 
around 1018-1020. 

Conversely, a break much below the low end of the flag at 971 
would suggest that SPX will retrace more of the first hourly 
range on Friday (7/5), which extends down to 956. 

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


 

Buy DJX in the 89-89.50 area if possible - sell in the 92.5 area, 
if reached. We have an approximate double bottom low in the DJX - 
the difference between 89.3 and 88.9 is not significant in that 
regard - it’s a double bottom if there are no lower lows.   



Continuing a "bottoms up" approach to QQQ I briefly note here 
what I see on key Nasdaq stocks: 

MSFT (Microsoft) retraced all of its Friday's gains and closed 
under the Friday opening and at its 50-day moving average. This 
action shows a lack of bullish upside follow through. QQQ is not 
going to get a boost from MSFT unless stock rallies now that the 
upside chart gap (from Wed-Fri) has been "filled in" at the low 
of today. Key support is at 52.50. 

INTC (Intel) - same technical/chart picture as presented by MSFT. 
Stock needs to rally from today's low in the $18 area to get 
something going to the upside. 

CSCO (Cisco systems) - relatively more technical strength is 
apparent in its technical action today, as CSCO "resisted" 
filling in its upside chart gap between 13.05 and 13.40. Unless 
the $13 level gives way, the stock looks like it could rally 
further.    

QCOM needs to get above 29.50 to break out to the upside - 
conversely needs to hold 26.60 as support to suggest that QCOM 
was going to rally further from its recent low at 24.2. 

ORCL stays bullish in its pattern or at least suggests the 
possibility that a bottom is in place, if the stock holds 26.50 
on the downside.  

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


 

I am focused on the upside hourly chart "gap" area that I have 
highlighted in the hourly chart above which is from 24.76 to 
25.26. Part of this gap has been "filled in" already, but notice 
that the close was back above this area. It is often true that 
"gap" areas can act as support under the market, resistance when 
above the market.  Time will tell on this.  

Note also that the pullback/decline today, followed the 
previously broken up trendline lower.  This trendline may now be 
acting as "support", which is not uncommon.  I want a bit longer 
as a "wait & see" to determine if there might be a bottom in 
place.  

I would sum up my strategy or market outlook, as having a bullish 
bias as long as 24.75 is not pierced; i.e., there is a move to 
below this level. Stay tuned! Another day should tell the story.    

25.75 - 26.00 looks like key near resistance, then in the 26.60 
area, at the 21-day moving average. The resistance levels can 
also be considered to be at the 3 prior (up) swing highs - noted 
in red. 


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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TRADERS CORNER
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Here We Go Again
by Mark Phillips
mphillips@OptionInvestor.com

I had great plans in store for my Trader's Corner article today,
but then I made the fatal mistake of turning on CNBC and watching
the myopic focus on the Worldcom hearings.  The more I watched,
the more disturbed I became.  I recognized the same feelings that
I experienced during the Enron hearings, but this time it was a
bit different, being colored by the benefit of experience.  Here
at OIN, we talk about the financial markets and the various
factors that influence them and eschew political commentary due
to its normal inflammatory nature.

But today I'm going to skate right up to that edge that divides
the financial and political world that we inhabit because there
are some critical issues that I think need to be understood by us
as traders.  For those of us that have been in this game for
awhile, the political posturing going on in Washington is not
new.  In fact it looks eerily similar to what we witnessed when
Enron melted down last fall.  We get much storm and fury from
our elected representatives, but it amounts to nothing.  They are
not really interested in effecting change so much as protecting
their political behinds in an election year.  Oh the anger and
indignation is real, but it is not anger at the financial
shenanigans that went on at WCOM.  The anger stems from their
inability to squeeze some sort of politically useful kernel of
truth from the corporate executives currently in the hot seat.

I know that's a bold statement, but let's look at some recent
history to see if it holds any water.  We had much sound and fury
from the hearings as Enron melted down, with much focus on those
at the center of the controversy.  Many accusations flew and
nothing was resolved.  Did any of our elected representatives
implement one single change to the political landscape that
enabled the likes of Enron and Anderson to allegedly cook the
books and vaporize billions of dollars of investors' funds?  No,
and to be honest, we should be thankful for that.  It isn't their
place to do so.

We already have plenty of laws against cooking the books, fraud,
and all the sorts of misdeeds that have created the biggest
series of corporate scandals since the S&L crisis.  I think the
important question is not what is Congress going to do about
this problem.  The really important issue is what are the
enforcement agencies going to do about it and how are companies
going to clean up their act.  The only meaningful way that this
type of action is going to be discouraged in the future is by
putting the guilty parties in jail (that is the job of the
Federal Court System) and more closely enforcing responsible
corporate financial reporting, which is the job of the SEC.

All of the posturing by members of Congress needs to be put in
the proper context, that of politicians attempting to spin the
current crisis to their advantage in an election year.  And
therein lies the danger.  What we as investors need to be
concerned about is the very real possibility that Congress will
act rashly to put new rules in place to put a cork in the
draining reservoir of investor confidence.  Enforcement is the
solution, not further regulation.

As we continue to slog through this bear market, there will be
significant changes in the corporate landscape and some of the
obvious areas of potential change are the accounting for stock
options as compensation and the separation of accounting and
auditing functions.  My prediction is that investor confidence
will not begin to improve until we see the guilty parties start
getting sent to jail by our court system and real meaningful
changes occur in the way earnings are accounted for.  Until
investors feel that they can trust the accounting coming out
of corporate America, it is going to be difficult to convince
investors that it is a fair playing field.  I don't think it is
a coincidence that the corporate scandals have been getting a lot
of airtime lately while Trim Tabs is reporting significant
outflows from Mutual Funds.  It's about trust!

So let's look at where we are.  Using P/E ratios as a measure,
stocks are still very expensive with respect to historical norms
at the end of a bear market.  As an aside, there seems to be a
lot of confusion as to the duration of this bear market and why
it is so unwilling to leave.  I've got some thoughts on that,
and I'll share them with you in great detail next week.  Coming
back on course, I expect that valuations are headed significantly
lower before we see meaningful improvement in the equity markets.
What effect will accounting for stock options as an expense have?
Why it will cause P/E ratios to rise (assuming everything else
remained static).  And with the current scrutiny of corporate
balance sheets, I expect companies to err on the side of caution
to avoid even the appearance of impropriety.  For any companies
that have potential gray areas in their current accounting
practices, this will translate into lower earnings, resulting in
higher P/E ratios.  In fact, given the current environment, I
expect many companies to use the current earnings cycle as an
opportunity to clear out any remaining skeletons in their
collective closets, resulting in further reductions in investor
confidence over the near term.

While it sounds bad over the near term, it is a healthy part of
the cleansing process we need to go through.  To be fair, most
companies in my opinion, are honest and above-board in their
financial reporting.  A few bad apples have soured the entire
barrel and the whole mess needs to be cleaned up before we can
all move forward (read: improve investor confidence).  Here is
the important point from where I sit.  The change will not come
from legislation.  It will come from both the corporate level
responding to investors' demands for greater transparency, as
well as the SEC more strictly enforcing the existing rules. 
This will not be a quick fix and there will be more pain felt
before it can get better.

So how do we benefit from this knowledge?  I thought you'd never
ask!  I'm going to borrow a page from our very own Fundamentals
Guy, Buzz Lynn.  If looking for investable stocks, I want to
see earnings reported in terms of GAAP (Generally Accepted
Accounting Principles), not the Pro-forma EBITDA nonsense.  It
is too easy to hide expenses in these EBITDA reports.  Even CNBC
got into the act last week of showing how ridiculous it can get,
coining a new definition of EBITDA -- Earnings Before I Trick
Dumb Auditors.  At a minimum, companies should be providing
GAAP earnings in addition to the Pro-forma number, providing a
clearer picture for us to determine if the company is making
money and if so, how much.  So here's the interesting rub.
According to FASB (Financial Accounting Standards Board), EBITDA
does conform to GAAP, so long as companies don't abuse the
flexibility.  The $64k question is, where is FASB in this whole
debate?  Shouldn't they be stepping forward to clarify the GAAP
rules for Corporate America and providing more clarity for
accountants and auditors to ensure consistency and accuracy
of financial statements?  

While it doesn't appeal to me from an investment standpoint due
to the woes in the Telecom sector, I do like CSCO (the company)
because of the fact that they have been reporting earnings both
ways for some time.  The stock may get dragged down due to market
and industry forces, but I would be very surprised to find out
that John Chambers has allowed anyone to cook his books.  The
kind of corporate integrity demonstrated by CSCO is precisely
what we should be able to expect from any company in which we
are considering an investment.

We should expect more admissions of corporate chicanery and more
hand-wringing and political grandstanding in the months ahead.
But don't let that noise cause you to take your eye off the ball.
There will be numerous investment and trading opportunities
available away from scandal central.  

Here is the other key factor that is getting my attention when
looking for investment-grade stocks.  Does it pay a dividend and
does the dividend appear to be secure?  It is really hard to pay
a dividend every year if you aren't actually making money.  Those
companies with a stable cash flow that enables them to continue
paying and actually increasing their dividends are far less
likely to suffer from an accounting scandal in the future.

It is far from exciting, but look at the chart of Coca Cola
(NYSE:KO) since the middle of March.  While the rest of the
market has swooned, KO has moved up from roughly $48 to today's
closing price near $57.  Another interesting observation is that
major support at $42 has not been broken over the past 2 years,
with each dip near that level providing a solid entry point to
the long side?  Perhaps a part of this relative strength has to
do with the fact that the company has a solid balance sheet and
the financials are not in question.  Just food for thought.

The stock is not cheap with a P/E ratio of 36, but given the fact
that the company pays a regular dividend, the likelihood of monkey
business in the balance sheet seems rather low.  And the last time
I checked, sales of Coke and other products the company provides
are not falling off, even though the economy is weak.  It takes a
bit more work to delve into the financial statements, rather than
just focus on a stock chart, but the effort is well worth it.
The portfolio you save just may be your own

Hopefully I haven't wandered too far afield of our normal topics
here in this column.  It is my hope that my rambling commentary
helps keep us all paying attention to the important factor that
should influence all of our investing decisions, that of buying
an interest in a going concern rather than speculating on a piece
of paper whose value is difficult to quantify.  The political
wrangling that is currently dominating the airwaves will pass and
when it does, we want to be in a position to benefit as strong
companies continue to deliver on their promise of increasing
profits.

Have a great week!

Mark


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

THE SECTOR BEAT - 7/8
by Leigh Stevens

As can be seen below, there was only a substantial rally (e.g., 
more than 3%) in that "opposite" sector - the one that goes up 
the down stairwell - in gold stocks.  Otherwise not much green 
showing on the sector boards.  Some of the very oversold sectors 
like Airlines and the simply oversold like Healthcare rebounded a 
bit - however, anything less than 1 percent is not much to take 
note of and can just be "dead cat" bounces. 

UP ON THE DAY ON Monday -


 

 
DOWN ON THE DAY on Monday - 


 


NOTEWORTHY - 

Airlines ($XAL.X) are setting up a possible double bottom low - 
stay tuned. 

Biotech ($BTK.X) reversed right at a "line" of resistance at its 
prior lows.  

Defense ($DFI.X) looks like it is forming a "bear flag", prior to 
another downswing.  

Healthcare ($HMO.X) is still in a downtrend - think this theme 
has played itself out. 

Gold & silver ($XAU.X) sector index has made a top - don't look 
for "salivation" in this sector - forgetaboutit! 

The Oil Index ($OIX.X) continues to work higher but is now at 
resistance implied by its April-May-June down trendline in the 
324 area - a close above this level is bullish - otherwise, the 
sector is a sell. 

The Software Index ($GSO.X) is above "support" at 105 and below 
resistance at 114-115 - stay tuned for the trend.  

The Semiconductor Index ($SOX.X) needs to get above 404 to get 
something going on the upside - below 362, SOX is back into a 
bearish pattern. 


SECTOR TRADE RECOMMENDATIONS & REVIEW -


NEW TRADE RECOMMENDATION(S) -

NONE


OPEN TRADE REC(S) - 

Buy BBH at 72.00 or less 
(Biotech HOLDR's Trust stock)
Stop at 69.00

Buy IJS at 84.50 or less 
(S&P 600 Small Cap Value fund iShares) 
Stop at 82.50

Buy SMH at 28.30 or less  
(Semiconductor HOLDR's) 
Stop: 27.00

Buy HHH at 21.50 or less 
(Internet HOLDR's)
Stop: 20.00

Buy SWH at 27.40 or less
(Software HOLDR's)
Stop: 26.00


OPEN POSITIONS - 

NONE 

 
TRADE LIQUIDATIONS -
 
NONE 


SECTOR HIGHLIGHT(S) -

Software Index; Goldman Sachs ($GSO.X)
STOCKS: ERTS; INFA; INKT; INTU; ISSX; ITWO; IWOV; JDEC; MANU; 
MENT; MSFT; MUSE; NATI; NOVL; NTIQ; ORCL; PMTC; PRGN; PRSF; PSFT; 
RATL; RETK; REY; RHAT; RNWK; SEBL; SNPS; SY; SYMC; TIBX; VIGN; 
VRTS; WEBM; WIND; YHOO



 

PRIOR COMMENTS: A bullish price/RSI divergence has been one 
technical feature for this sector. A move above the (red dashed) 
"line" of resistance at 114, AND the ability to hold this level 
on subsequent pullbacks is needed to suggest any substantial 
upside potential. Bullish falling "wedge" pattern was also a 
potentially bullish indication for a sector reversal. 

RECENT/TODAY: Still indecisive in its pattern with recent action 
"contained" between support and resistance. Sector needs to 
continue to move sideways to higher to suggest that the sector 
has bottomed.  A move to below 100 suggests that the bearish 
trend remains in full effect.
UPDATE: 7/8



Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                   Monday 07-08-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

None


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

GS – Goldman Sachs Group $73.60 -0.35 (-0.35 this week)

The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high
net-worth individuals. The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments, which includes fixed income, currency
and commodities, equities and principal investments.  GS
recently completed the acquisition of Spear, Leeds & Kellog,
which is engaged in securities clearing, execution and market
making, both floor-based and off-floor.

Most Recent Write-Up

Investors thinking that Friday's sharp rally will spell the end
of the persistent bearish decline in the Brokerage sector (XBD.X)
need only look at the price action in this index over the past
month to cool their heels.  After breaking below the $435 support
level (also the 50% retracement of the fall rally), the XBD has
been tracing a series of lower lows and lower highs for the past
month.  Breaking the 62% retracement at $408 on Tuesday, the XBD
continued down to an intraday low of $392 on Wednesday before the
oversold rebound began.  It is entirely possible that this bounce
could continue back to the $435 area, but short of economic
prosperity breaking out all over, a continuation above that level
seems unlikely.  GS is the brokerage stock we most like to beat up
on, primarily because of its consistent trading pattern over the
past few months; namely DOWN.  Connecting the intraday highs from
late March to present yields a descending trendline that currently
rests at $74, near the close of trading on Friday.  A rollover
near this level could be used for fresh entries, but we'd prefer
to see a rally up to heavy resistance near $76 before taking a
position.  Then GS should fall of its own weight, as the plight
of the market is revealed day by day with the commencement of July
earnings season.  Initial stops are set at $77.  Traders looking
to enter on a breakdown will need to wait for GS to fall through
its recent lows (near $69) on heavy volume before entering a new
position.

Comments

Don't look now, but the Brokerage sector (XBD.X) is looking a bit
green around the gills again.  With nary a bit of follow through
to Friday's rally, the XBD rolled over from resistance near $420
again this morning, and that dragged GS back from its own $74
resistance level.  The stock did move up near the $75 level this
morning, but the boost was short lived, as it fell back to close
just off the lows of the day.  Look to initiate new positions on
subsequent failures at resistance, as we wait for the bears to
reassert control and send GS back down to retest the $70 support
level.  Keep stops in place at $77, just above the major
resistance level at $76.

BUY PUT JUL-75*GS-SO OI=4801 at $2.80 SL=1.50
BUY PUT JUL-70 GS-SN OI=6815 at $0.90 SL=0.50

Average Daily Volume = 3.43 mln



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