Option Investor

Daily Newsletter, Wednesday, 07/10/2002

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The Option Investor Newsletter                Wednesday 07-10-2002
Copyright 2002, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
07-10-2002                High      Low      Volume Advance/Dec
DJIA     8813.50 –282.59  9143.23  8811.70 2073 mln    760/2369
NASDAQ   1346.01 – 35.11  1396.95  1345.22 1635 mln   1082/2296
S&P 100   458.69 – 16.55   477.49   458.40   totals   1842/4665
S&P 500   920.47 - 32.36   956.34   920.29
RUS 2000  419.78 -  9.47   430.62   418.97
DJ TRANS 2547.84 – 28.73  2605.38  2545.17
VIX        39.02 +  3.85    39.36    34.73
VIXN       65.22 +  2.07    65.46    62.53
Put/Call Ratio      0.83

Are We There Yet?

Strangely, the market action today reminded me of a scene from a 
classic 80's movie.  No, it wasn't a slasher-horror movie like any 
of the Nightmare(s) on Elmstreet, any of the Halloweens or Jason's 
Friday the 13th rip-a-thons.  Although given the painful declines 
in today's indices I'm sure there are plenty of investors who felt 
like they (or at least their trading accounts) felt like the 
unnamed teenager left alone in the bunk house during a 
thunderstorm.  The scene I remember is from "Back to the Future".  
Christopher Lloyd plays Doc Brown and Michael J. Fox plays Marty 
Mcfly.  After realizing that they know when the clock tower will 
be struck by lightning, Doc Brown, with his mad scientist white 
hair flying, looks at the camera and says "We're sending you back to 
the future!"

Unfortunately for us, the "future" for Wall Street appears to be 
the late 90's.  A huge number of stocks and indices are already 
trading at 1998 to 1999 levels but some market analysts believe we 
could have a few more years to erase.  Many are speculating that 
the greed and excess of the late 90's bubble has to be completely 
wiped out with fear, loathing and apathy to finally reach a 
capitulation event worthy of a bottom.  Let's hope we reach these 
levels soon.  Marty Mcfly may have wanted to get back to 1985 but 
I doubt many investors want to see stocks trading any closer to 
1997 than they already are.

Starting the morning off right, Merrill Lynch hinted at a favorite 
late 90's pastime with a bullish upgrade for an overvalued tech 
stock.  Their pick today was none other than networking behemoth 
Cisco Systems (Nasdaq:CSCO).  MER upgraded the stock from a "buy" 
to a "strong buy" and shares of the tech giant were trading higher 
in pre-market.  The analyst at MER felt that the macro indicators 
are pointing to a recovery for the communications equipment sector 
in the second half of 2002.  CSCO's valuation at 23x 2003's 
earnings estimates for 58 cents made this an opportune entry point 
for bullish investors looking ahead 12 months.  Also joining the 
pre-morning optimism was Morgan Stanley with an upgrade for 
another telecom equipment maker, Brocade Communications 
(Nasdaq:BRCD).  Is this some sort of follow through effect after 
Warren Buffet's move to invest in lagging telecom services 

provider Level 3 (LVLT)?  I doubt it, but the timing is somewhat 
curious.  If there are any left, optimists for the markets can 
applaud the bravery of these analysts but what are they seeing 
that no one else is?  So far the idea of a second half recovery 
has largely been shot down, especially for tech.  If there is a 
recovery waiting for us in Q3 and Q4 of this year it's hiding 
pretty well.  Both stocks managed to close in the green today but 
were significantly off their highs for the session.

Any bullishness these upgrades for two previous tech high-flyers 
failed to show up after the markets opened.  Within about 30 
minutes of the opening bell, news that Qwest Communications 
(NYSE:Q) had confirmed the U.S. Attorney's office was conducting a 
criminal probe, a rumor that was denied last week, acted as a 
starter's gun for what was a truly ugly day on Wall Street.

The Dow Jones Industrial Average fell 282 points or 3.1% to close 
at 8813, only two points from the lows of the day.  This is below 
the recent lows for the last two weeks and confirmation that the 
bearish channel has not been broken.  A retest of the 8500 level 
looks like a good bet and those whispers that the Dow would have 
to retest its September 2001 lows are getting louder.

Chart of the DJIA

The Nasdaq Composite fell 35 points or 2.5% to close at 1346.  The 
bearish channel is still very much in effect for the Naz and this 
is yet another close below the September 01 low of 1387.  History 
fans will note that today's close is actually below the Long-Term 
Capital & Asian Flu inspired October 1998 lows of 1357.  Even more 
depressing is the call by some market watchers that the Nasdaq 
composite may need to retest the 1000 mark.  Lows not seen since 
the summer of 1996.  Coincidentally, the Nasdaq-100 index or NDX 
has already traded below the 1000 mark and closed at 959 today 
with a 3.14% loss.

Chart of the NASDAQ Composite

The worst performing index of the big three today was the S&P 500.  
The index lost 3.39% closing down 32 points to 920.  A lot of 
investors and analysts are asking, "can it go much lower?"  
Hopefully, they're voicing there opinions with a little fear in 
their voice to satisfy the bottom cravers but with constant talk 
of bottom fishing or value buying a bottom may not be too close 
yet (I'll contradict this thought in a moment).  Closing at the 
lows for the day is not a good sign for tomorrow morning's open.  
The SPX is already below its September 2001 lows of 944 and it has 
already surpassed the October 1998 lows of 923.  Care to guess 
where the next significant low is without looking at a weekly 
chart?  That would be the October 1997 low of 855.  A couple of 
weeks ago I remember Jim joking that the S&P 500 would not only be 
the name of the index but the value of the index too.  Suddenly I 
don't find it quite so funny.  Jeff Bailey was speculating that 
the next significant support level for the SPX was the 817 area.  
I've noted that a few other analysts are also eyeing the 800 
level.  If Jeff and the other analysts are right then we can 
anticipate another 10 to 13 percent drop in the markets.

Chart of the SPX

Broken was one word I heard today in reference to the markets, or 
was that investors' spirits?  I'm not sure.  It could have been 
both.  Volume was strong but not capitulation strength.  The NYSE 
ended up with 2.0 billion shares and the Nasdaq turned over 1.6 
billion.  Down volume punished up volume 1,778M to 284M on the 
NYSE and 1,192M to 424M on the Nasdaq.  Declining issues 
outnumbered advancing equities 23 to 7 on the NYSE and 22 to 10 on 
the Naz.  

There was plenty of news today but a lot of it was the 
repercussions of the S&P 500 index reshuffling seven non-U.S. 
based companies out of the index and replacing them with more 
locally owned businesses.  Europe was hit hard by the news and the 
pan-European FTSE Eurotop 100 fell by more than three percent to 
2284.  The London FTSE 100 fell 2.7% and is approaching five year 
lows on its own.  Leading the European rout were (the soon to be 
expelled from the SPX) Unilever (UN) and Royal Dutch (RD) who's 
ADRs fell 6.3% and 9.2% respectively.  The implosion in the drug 
sector continued to hit the Europe continent as well with 
AstraZenca and GlaxoSmithKline both falling more than 5% each.  

Analysts estimate there is between $830 billion to $1 trillion 
indexed to the S&P 500.  The timing for this large reshuffling was 
ripe for rumors.  Furthermore, the last time the SPX swapped seven 
stocks was back in 1983 when S&P added seven baby bells.  One 
analyst also noted that the seven stocks leaving the index have a 
combined market cap of $30 billion more than the seven stocks 
entering the index.  They went on to surmise that index funds 
would have about $3 billion left over to be reinvested in the 
other 493 companies.  Theories began to spring up that the markets 
were being manipulated and the July 19th swap date, which happens 
to be options expiration next Friday, would only increase market 

While I'm not one for conspiracy theories, aside from Dick Clark's 
longevity (I hope I look that good at 73), volatility is something 
that bears addressing - no pun intended.  The volatility index or 
the VIX has been steadily gaining ground the last six weeks.  
Monday's and Tuesday's market declines this week had the VIX 
springing higher from the 30 level, when it had appeared like it 
might make a break lower.  Today's massive decline and three-day 
losing streak for the markets has pushed the VIX up to the 39 
level.  This is great news for those waiting on the sidelines 
hoping for that big capitulation event in the sky.  As a sentiment 
indicator it means fear is increasing.  Looking at a weekly chart 
of the VIX one can see that it is somewhat rare to see the VIX 
traded above 40.  After the 9/11 attacks, the VIX spiked up to 57.  
Back in Oct. 1998 the VIX hit a high of 60.  Now we don't have to 
get that high for a bottom to form but some analysts would love to 
see a close above the 40 level.  Unfortunately, given the extreme 
oversold conditions of the broader markets I'm actually looking 
for a bounce soon.  This would have the VIX trading lower but a 
move over 40 could be in our short-term future and thus if you 
believe in VIX signals then a potential bottoming event may be 
just around the corner.

Now for the really bad news... and it's not some technical 
indicator but the reality of second quarter earnings season is 
here.  Internet giant YHOO may have beat earnings estimates after 
the bell this evening but the markets are expecting results 
similar to what VeriSign (VRSN) told Wall Street today.  The 
company didn't announce.  They are not due to report earnings 
until July 25th but they did warn that Q2 revenues would be lower 
and they would miss estimates.  The negative expectations for 
earnings are running pretty high and the key will be the 
conference calls and any guidance the management can provide going 
forward.  Lack of guidance will be the same as negative guidance 
and investors will continue to seek safety in bonds as we saw 
today.  The big earnings report this week will be General Electric 
(NYSE:GE) before the market on Friday.  However overshadowing GE's 
earnings will be the retail sales report.

The official retail sales report will come out on Friday before 
the bell.  Unfortunately, American Eagle Outfitters (Nasdaq:AEOS) 
may have let the cat out of the bag.  The company announced this 
afternoon that its same-store sales were lower by 3.9% due to 
disappointing June numbers.  AEOS went on to lower their Q2 
guidance and I'm sure downgrades will be sure to follow.  More 
importantly is what could be the start of a trend.  It was 
yesterday that Tiffany & Co (NYSE:TIF) warned that their Q2 
numbers would be lower.  If this trend shows up in the retail 
sales report on Friday it could be "the last straw" or the trigger 
event to spark that big blood-in-the-street capitulation that 
everyone keeps talking about.  Why is this so important?  Because 
the U.S. consumer has been the backbone of the economy for so long 
that if the lone standing pillar begins to crack everyone will be 
running for the exits to avoid the crash.

I know I'm painting a pretty gloomy picture here.  No, I won't 
post a link to any 20th century expressionist painters but you get 
the idea.  Wall Street, CNBC, and probably anyone else you'd like 
to refer to has been talking about and looking for a 
"capitulation" to call an end to the bear market for over 12 
months.  The death of the bear has been called so many times that 
no one's listening.  The only thing we have going for us this time 
is the combination of the spiking VIX, the weakening dollar, and 
the expectation for a terrible earnings season.  A weak retail 
sales report might be the missing ingredient for a bear-killing 
cocktail but the cure may be worse than the disease.  A pull back 
by the U.S. consumer might lead to the double-dip recession 
everyone is so afraid of.  The death of the bear may be near but 
it's going to go down fighting and there may not be anyone left 
standing after it's gone.  

Hmmm... after looking over the last couple of paragraphs let me 
clear up a few things.  I am calling a bottom?  No.  Do I think 
we'll get an extremely painful spike down with a negative retail 
sales report? Yes.  Will it be the capitulation event everyone's 
looking for?  Ask me next week.



by Leigh Stevens

A basic problem, more than mere perception, with stocks is that 
they are still NOT cheap.  For example, one money manager I 
listened to today cited an example - that of Sun Micro (SUNW), 
which is trading at 25 times current earnings. Working from 
projected earnings is quite speculative as no one has an idea of 
how soon business spending it going to pick up. This leaves us 
with the price of stock as a multiple of current or 12-month 
trailing earnings, to base trading/investment decisions on. This 
one fairly typical Nasdaq type example points out that these 
stocks are NOT perceived to be at "bargain-basement" level 

There were a number of basket type sell programs active today 
that seemed to be relating to the drops and adds in the S&P 500 
index.  With so much money in or tied to index funds, the 
aggregate selling is considerable.  Buying of the "new" S&P 
stocks should offset this theoretically, but concentrated selling 
has been driving the S&P lower, than buying has been lifting it 
with the bearish tone from yesterday. 

OEX options volatility levels shot up again today, with the VIX 
index spiking up to near 40 (39.36) today. VIX closed at 39.00, 
which is up a whopping 15% from Tuesday. We have to go back to 
late-March/early-April and to the period from 9/17 to 9/27 in 
2001 to find VIX levels this high (and above).  The fear is 
getting extreme - yet, on the other hand there is still NOT the 
level of bearishness seen at past major lows; for example, at the 
1987 "crash" low. 

Most investors I know figure they just have to "hang on" or hang 
in there, baby!  When they talk about how there is "nothing they 
can do" (re selling their stocks NOW), they have this kind of 
"deer in the headlight" kind of gaze.  At some point at bear 
market lows there is usually more of a "get me out" at whatever 
price, I don't care, I want OUT! 

On the most recent weekly report I saw, some 13 billion dollars 
came out of Mutual funds. This may accelerate  - there is a lot 
of money NOT tied up in 401 and pension accounts that is "free" 
to move or flee as the case may be.  

That said, I am looking for a tradable low tomorrow, as we are 
very near the low end of my hourly chart downtrend channels in 
most of the indices. A move to these areas, coupled with oversold 
hourly stochastic reading, especially at the "21" setting which 
is have, has preceded every good-sized rally of the past 3 

I don't anticipate a break down below the lower channel line past 
on the past months tendencies, but that is why we work with 
stops. And, at the low end of these channels, the risk point is 
"predetermined" so to speak - we set stops just below the 
supposed lower support line.  

And, of course, the better than expected earnings announcement 
from Yahoo may already be "turning" at least the tech segment of 
the market. The morning will tell the story.  Ideally, I would 
like to see one more little shot down in the morning to set up a 
buy point - however, nothing is perfect in the way tops or 
bottoms form, especially in the stock market. 

Also, today saw finally saw my Dow Jones Industrials "minimum" 
8860 downside objective realized - this based on the big Head & 
Shoulder's (H&S) top that started forming in Feb. While this is 
only a minimum objective, there is often a rebound after these 
H&S objectives are realized. The prior low before today was close 
enough so that I discounted the fact that the "exact" downside 
target had not been met - now it has been met, as it usually is 
and this gives me a bit more technical evidence to warrant buying 
the indices in general, either on a further dip or on an upswing 
tomorrow that pierces the well-defined 60 min down trendlines. 

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


Per last night - "464 now looks like it is a target for the next 
push lower." 

More than that even.  However, the 455 area at the low end of the 
hourly channel, looks like a place to take to the long side, with 
an exit/stop point at 449.50 initially.  

Conversely, I would buy a move above the hourly down trendline, 
which intersects around 463 currently - keep in mind that this 
line moves down over the hours of trading tomorrow so trendline 
"breakout" point comes at a lower point if prices continue lower 
well into tomorrow and a rally doesn't start at the opening for 

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


I think we are at or near a buy point in SPX. 916 is support 
implied by the low end of its hourly downtrend channel, where I 
would be a buyer if reached.  My exit point in that event is at 

Conversely, buy a break out above the down trendline as seen on 
the chart above - this upside "breakout" point is at 927-928 
currently, but moves lower with prices if there is morning 

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


I would be a buyer on a reversal to above the hourly down 
trendline. Since DJX is above prior lows and well above the low 
end of the presently constructed lower trendline of the channel, 
a possible buy point for this index is more difficult to predict 
or project - so, will have to see a "turn" to be able to suggest 
a level to buy tomorrow intraday - that is, if price action 
convinces me a reversal is at hand or likely.     


MSFT (Microsoft) broke under 53 area and its 50-day moving 
average. Needs to find support at or above 51 to suggest the 
stock still has some rally potential near-term.  Of course MSFT's 
earnings report is coming also - if the numbers were good stock 
has built a minor "base". A move back above 53 would be bullish.

INTC (Intel) - Bearish action today on a close on its low. A 
further retreat to below 16 creates an even more bearish chart. 

CSCO (Cisco systems) - Stock is "marking time" trading sideways.  
Merrill upgrade seemed to keep stock from falling further.  
Decisive upside penetration of 14.00 and above is needed to get a 
rally going I think. Close below 13 "reinforces" bearish chart 

QCOM (Qualcomm) - Stock in retreat again - needs to stop at 26 to 
suggest much upside potential. Otherwise we're looking at a 
retest of the low in the 24.25 area. 

ORCL (Oracle) pattern is perhaps still in best position to rally 
if retreat stops shortly, at or above 8.8, especially ona closing 

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


QQQ may hold at or above the prior (down) swing low at 23.6.  It 
looks to me like the Q's could get all the way down to the low 
end of its hourly channel in the 22 area. However, I also have 
the thought the 23.00 area may prove to be a place to jump in - 
however, this is also one to watch intraday.  I'd feel "safe" 
buying at 22 or on an upside reversal that pierced the hourly 
down trendline. That is as "safe" as I ever feel buying tech 
stocks in a bear market for a countertrend rebound. Stay tuned!   

Leigh Stevens
Chief Market Strategist 

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Odds and Ends
by Mark Phillips

Over the past week, I've been inundated with emails responding
to last week's article, Options, Priorities and Balance, all
complimentary and to a large degree expanding on the basic theme
I laid out in that article.  I didn't write the article to brag
about my own trading success, as I know as well as anyone that
pride goes before the fall.  My motivation was to remind myself
as much as you that trading is a means to an end, not an end unto

Clearly many of you got that point loud and clear.  If you'll
forgive me a bit of indulgence, I'd like to share a couple samples
from the many emails that came in.  Just to show that I'm an
equal-opportunity kind of guy, this first one is for the ladies.
It applies to both men and women, but I thought it was telling
that the author extended my premise to an area of life I hadn't
considered.  If none of the logic I presented last week got your
attention, her email should.

"I just wanted to say thanks for the great article on "Options,
Priorities and Balance."  My husband has high blood pressure, so
we keep a monitor at home.  On a whim Monday morning as I was
preparing for the market to open, I decided to take my blood
pressure and discovered it was registering in the high-normal
range.  That's unusual for me.  My husband kids me that I'm among
the walking dead, since my normal blood pressure and resting
heart rate are extremely low.  During the market hours that day,
I monitored my blood pressure from time to time and discovered a
high of 161/88 when I was trying to make a decision about a
trade.  After thinking about what was happening with my blood
pressure, the likelihood of volatile trading the rest of the
week, and the need for balance in my life, too, I closed out my
trades on Tuesday and planned for an extended time away from
the markets.  A check of my blood pressure on Wednesday revealed
a calm 106/63 and a resting heart rate of 59.

I love options trading.  It's a great balance for my other working
life: working as an educational writer and young adult novelist.
I'm athletic.  My husband and I will be hitting the dirt trails on
our mountain bikes this weekend, and I'm one of the few women over
50 I see out on those trails.  Actually, I'm one of the few women.
Still, trading too intensely was taking a toll on my health, and
I intend to keep a better balance from now on.  Your article was
an affirmation for me, and maybe for others it was a wake-up call.
We need that kind of education, too."

I found that letter especially interesting, because of the fact
that I had completely neglected to consider the health-related
issues associated with trading.  To succeed in this business, it
is necessary to love what we do, but clearly we need to manage
the stress that comes with the territory.  Afterall, what good
is bountiful riches, if our health suffers in the process?

This next email really rocked me back on my heels and take
notice.  It is a strong reminder to all of us of why we work so
hard to trade successfully.  It isn't about the money.  It is
about the life we want to provide for those that we love.

"I totally agree with you. The patience that my wife has shown
during these rough times are what makes me love her all the more
and want desperately to do right by her. I am one of those
traders who you've mentioned who have neglected his family life
in his attempt to trade his way out of this market. Its easy to
say you love someone when the pieces in life are falling in
together, but when times are hard, it takes a special someone
to stay by you and still believe you.  My wife has said "if I
can't stand by you when you're losing, then I wasn't really
standing by you when I said "I love you" as you were making the
money trading either".  My kids are constantly try to cheer me
up and sadly... avoid me, when they knew that daddy blew it
again. (The problem isn't daddy doesn't know what he is doing
wrong. The problem is that he is just doing the SAME wrong
things). My kids are so mature and thoughtful. It's scary how
much they have grown (16,11,5) and are aware and sympathetic.
I appreciate your article and reminder."

This email alone describes why I put as much effort as I do
into my writing, as I consider it my responsibility to help
those that are struggling with their trading to reach that point
where the markets can be used to generate consistent income.
This reader is fortunate in that he has a strong family support
system and I believe he understands the importance of regularly
investing time in nourishing that system with time spent away
from the markets.

I'll end this discussion with a heartfelt thank you to all who
wrote to me following last week's article.  Your compliments
and gratitude are sincerely appreciated, helping to keep my
batteries recharged as well.  It was truly gratifying to
receive the feedback from so many who clearly understood the
importance of the message I was trying to convey.

A MOCO Update

To say that I was surprised by today's market action would be
an understatement.  While I was on the right side of the decline
due to some trades I entered earlier in the week, I didn't expect
things to fall apart like they did this afternoon.  In fact, just
last night I was talking to my Dad and expressed to him that I
didn't think MOCO was going to materialize on this dip.  I was
expecting a more gradual decline, with the possibility of a
short-term bottom near the 935 level on the S&P500, setting us
up for one more failed rally before the final sharp decline.

Based on the carnage in the broad market today, I'm being forced
to reconsider those comments, especially with the huge move in
the VIX today.  Shooting as high as 39.36 and closing exactly at
39, the VIX is now at levels not seen since late September and
getting very close to my first entry trigger, a move over 40.
Since we are getting close to that first trigger, I thought I
would clarify my entry strategy for anyone that is planning on
going along for the ride with me. Part of my motivation for
clarifying my MOCO strategy tonight is the fact that I received
numerous emails this afternoon, all of which asked the same
basic question, "Is it time for the MOCO trade?"

If you're scratching your head and asking "what the heck is a
MOCO?", you'll want to read my article, Getting Ready To Change
Gears for the background and then Gearing Up For MOCO for the
details of the action plan.

While I covered all the pertinent details of the trade I am
planning on implementing in those articles, there is one key
aspect that I want to make sure is clearly understood.  Just
having the VIX move over 40 is not enough to get me into the
trade.  It needs to be accompanied by at least an attempt by
the broad markets to rebound from their lows.  So if the VIX
goes over 40 in the morning and the markets continue their
downhill slide, I won't be tempted to start entering the MOCO
trade until the slide shows signs of exhaustion.  That could
very well mean that I don't initiate the first part of my
position until the VIX is trading at 42,43 or even higher.

So what will I be looking for to indicate that there might be
a bounce developing?  Standard support levels and price action
are definitely a big part of that analysis, but I have begun
to rely more heavily on the action in the Advance/Decline
volume indicators, (ADVDECV.NY and ADVDECV.NQ in Qcharts).
I've talked about these indicators at great length in the past
and here are the links to those articles:

Interesting Observations
Observations With Greater Clarity

Take a look at these indicators on a 5-minute chart in
conjunction with the price charts of their respective indices,
and I think you'll see the handy correlative nature that has
captured my attention.  To make a long story just a little bit
longer, I'm not going to be interested in buying dips in
conjunction with my MOCO strategy without seeing early signs
of a bounce in the market that are confirmed by corresponding
action from the breadth indicators.

In summary, while I think we are getting close to the first
entry trigger for the MOCO trade, I want to urge patience and
caution.  There is a defined gameplan in place and I for one
will not be second guessing it.  MOCO attempts to capture a
large move off of an important bottom, and it certainly won't
hurt to make the market prove its intention to rally before
placing any capital at risk.

I know this has been a rambling discussion today, revisiting
a couple of past topics, but hopefully you've found the journey
useful.  I think we have sufficiently cleared the deck so we
can delve into fresh topics next week.

Best Trading Wishes!


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by Leigh Stevens

More red columns today as fear and loathing of stocks hit most of 
the sectors today, especially the biotech sector, utilities, 
drugs, defense, chip makers and oils - based on an ample stocks 
figure report. 

DOWN THE MOST on Wednesday - 


UP ON THE DAY ON Wednesday -

SO FEW! - This is it on the widely followed sectors. 


The Airline sector ($XAL.X) may be forming a double bottom - you 
heard it here first!  The Biotech sector Index ($BTK.X) went to a 
new low, stopping us out of the HOLDR's in the process.  Will be 
watching this one, as BTK is again at the low end of its 
downtrend channel. 

The Bank Index ($BKX.X) went to a new closing low under the 
trading range of the past few months.  The Defense sector 
($DFI.X) went into free fall.  I alerted on this when DFI made a 
head and shoulder's top - however my "minimum" downside objective 
based on this pattern is nearly met - at 565 - versus the close 
at 570.4 today. 

The NYSE Financial Index ($NF.X) went into free fall today and 
fell to well under prior multimonth support in the 552-553 area - 
close today was 535.6! The Health stock indexes ($HMO.X & $RXH.X) 
continued to retreat to below recent (prior) lows.  

The Pharmaceutical Index ($DRG.X) had its biggest down day in a 
while as the group continues to suffer related to the bad press 
and problems at Merck, but also just because the earnings trend 
now longer looks so rosy - blame consumers for wanting to buy 
generics and the number of drugs that have lost patent status.  

The Oil Index ($OIX.X) fell all the way back to near its support 
area at the 200-day average at 306.  The Semiconductor Index 
($SOX.X) fell almost back to its recent low, which was also the 
Sept. low, at 344 - however, the sector has not gone into "free 
fall" - stay tuned. 

Lastly, the Utility Index ($UTY.X) dropped to below the level 
representing a 75% retracement of its 2000 run up, which is 
suggesting the UTY is vulnerable to falling back to the starting 
point of last year's strong advance, which is at 239.1 - versus 
the close today at 273.7.  







Long HHH at 21.50  
(Internet HOLDR's)
Stop: 20.00

Long SWH at 27.40 
(Software HOLDR's)
Stop: 26.00

Long SMH at 28.30   
(Semiconductor HOLDR's) 
Stop: 27.00

Stopped out of BBH at 69.00 versus entry at 72.00 
(Biotech HOLDR's Trust stock)

Stopped out of IJS bought today at 84.50 on 82.50 stop 
(S&P 600 Small Cap Value fund iShares) 



Leigh Stevens
Chief Market Strategist

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Contact Support
The Option Investor Newsletter                Wednesday 07-10-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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INTU - call
Adjust from $43 down to $45

AMGN - put
Adjust from $38.25 down to $37

CAM - put
Adjust from $51 down to $50

LLL - put
Adjust from $51.50 down to $49.75

LLY - put
Adjust from $54.50 down to $51.10

LM - put
Adjust from $48.50 down to $44.70

LXK - put
Adjust from $54.50 down to $51.50

MRK - put
Adjust from $49 down to $45.50

RE - put
Adjust from $55 down to $52.00

XL - put
Adjust from $87 down to $82





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traded options,” claims author Larry Spears in his new compact 
guide book:  

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and clicking on the link to the book on its home page.



CAM – Cooper Cameron $48.36 –1.24 (-2.91 this week)

Cooper Cameron Corporation is an international manufacturer of oil
and gas pressure control equipment, including valves, wellheads,
controls, chokes, blowout preventers and assembled systems for oil
and gas drilling, production and transmission used in onshore,
offshore and subsea applications. Cooper Cameron is also a
manufacturer of centrifugal air compressors, integral and
separable gas compressors and turbochargers. The Company's
operations are organized into four separate business segments,
Cameron, Cooper Cameron Valves, Cooper Energy Services and Cooper
Turbocompressor, each of which conducts business as a division of
the Company.

Most Recent Update

CAM reported during today’s session that it had been sued by a
Houston, Texas resident over contaminated ground water.  The
company said that the water was suitable for drinking and
tried to downplay the news.  CAM added that the suit would
have no material impact on its financial condition.  The
market didn’t pay much attention to the news as CAM traded
pretty much in line with the oil service sector index (OSX.X)
during today’s session.  Traders seem to seek refuge in the
OSX.X during today’s session as nearly every other sector of
The market was hammered.  The rally in the OSX.X and CAM
Should not last long, though, as the technicals for both
Remain rather bearish.  CAM is on the brink of a major
Breakdown from its head and shoulders pattern on the daily
Chart which could come at any time.  Look for the stock to
continue rolling over from current levels, and for a break
below the $47 level.  New entries can be taken at current


The OSX rolled back down after its recent relief rally.  The
weakness in its sector pressured CAM closer to a breakdown.
Look for that breakdown in tomorrow’s session on further
weakness in the OSX.  Watch for CAM to breakdown below its
relative low at the $46.85 level, which should pave the way
for a decline to the 200-dma.

BUY PUT JUL-50*CAM-SJ OI=39 at $3.50 SL=0.75
BUY PUT AUG-45 CAM-TI OI=39 at $2.05 SL=1.00

Average Daily Volume = 843 K


The Sell-Off Continues!
By Ray Cummins

Stocks plunged again today despite a Merrill Lynch upgrade of
Cisco Systems (NASDAQ:CSCO) and a reshuffling in the S&P 500
Index, which produced gains in a number of popular companies.

The Dow Jones Industrial Average surrendered 283 points to end
at 8,812 on weakness in its drug and technology components.  A
blue-chip buyers strike left 29 of the 30 components in negative
territory at day's end.  The NASDAQ Composite sagged 35 points
to 1,346 amid a widespread retreat in hi-tech issues.  Computer
hardware, software and semiconductor stocks were among the worst
performers.  The Standard & Poor's 500 Index dropped 32 points
to 920 as drug and biotech shares were pummeled by investors.
Utility and defensive shares, normally safe-haven groups, were
also hit by renewed selling pressure.  Trading volume amounted
to 1.78 billion on the NYSE and to 1.79 billion on the NASDAQ.
Market breadth was markedly negative, with decliners outpacing
advancers by 3 to 1 on the NYSE and by 2 to 1 on the technology
exchange.  Government bonds recouped lost ground as upside in
the stock market faded.  The 10-year Treasury note jumped 28/32
to yield 4.61% while the 30-year government bond added on 1 4/32
to yield 5.33%.


Summary of Current Open Positions

(As of 07-09-02)

Naked Puts

Stock  Strike Strike  Cost Current  Gain  Potential
Symbol  Month  Price Basis  Price  (Loss) Mo. Yield

CCMP     JUL    35   34.25  37.80   $0.75    5.04%
QLGC     JUL    35   33.90  37.51   $1.10    7.38%
EBAY     JUL    50   49.20  57.05   $0.80    5.92%
RYL      JUL    47.5 46.70  48.50   $0.80    5.18%
SNPS     JUL    50   48.85  48.52  ($0.33)   0.00%
EBAY     JUL    50   49.20  57.05   $0.80    7.34%
ERTS     JUL    55   54.40  60.78   $0.60    4.57%
SNPS     JUL    45   44.40  48.52   $0.60    5.85%

The aggressive position in Synopsis (NASDAQ:SNPS); JUL-$50
Put, should have been closed Tuesday when the issue moved
through near-term technical support at $50.

Naked Calls

Stock  Strike Strike Break Current  Gain  Potential
Symbol  Month  Price  Even  Price  (Loss) Mo. Yield

EXPE     JUL    70   70.85  58.06   $0.85   7.65%
LLL      JUL    60   60.40  46.70   $0.40   4.30%

Put-Credit Spreads

Stock                                              Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B   (Loss)  Status

FNF     30.52  28.40  JUL   25  28  0.30   27.20   $0.30   Open?
ERTS    64.10  60.78  JUL   50  55  0.50   54.50   $0.50   Open
NOC    121.80 121.04  JUL  105 110  0.40  109.60   $0.40   Open
CTX     56.56  54.90  JUL   45  50  0.40   49.60   $0.40   Open
ERTS    64.86  60.78  JUL   50  55  0.40   54.60   $0.40   Open
EXPD    31.25  30.91  JUL   28  30  0.37   29.63   $0.37   Open?
KSWS    24.08  25.50  JUL   20  23  0.37   22.13   $0.37   Open
LEN     59.18  60.95  JUL   50  55  0.80   54.20   $0.80   Open
GD     103.06 106.66  JUL   90  95  0.60   94.40   $0.60   Open
INTU    47.15  46.40  JUL   35  40  0.35   39.65   $0.35   Open
LEN     60.38  60.95  JUL   50  55  0.65   54.35   $0.65   Open

Expeditors Intl. (NASDAQ:EXPD) and Fidelity National (NYSE:FNF)
are at "key" moments and their respective positions should be
closed on any further downside movement.  Despite a profitable
condition, UnitedHealth (NYSE:UNH) was our most recent exit as
the issue appears headed for lower prices in the near term.

Call-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/C S/C Credit   C/B  (Loss) Status

BGEN    42.44  36.78  JUL   60  55  0.25   55.25  $0.25  Open
CYMI    40.59  29.94  JUL   55  50  0.60   50.60  $0.60  Open
C       42.34  37.57  JUL   50  48  0.30   47.80  $0.30  Open
EDS     49.28  33.83  JUL   60  55  0.45   55.45  $0.45  Open
VIA     46.59  40.81  JUL   55  50  0.70   50.70  $0.70  Open
BWA     60.15  56.25  JUL   70  65  0.60   65.60  $0.60  Open
CDWC    43.87  45.79  JUL   55  50  0.55   50.55  $0.55  Open
COF     58.73  55.45  JUL   70  65  0.65   65.65  $0.65  Open
KSS     69.82  71.12  JUL   80  75  0.65   75.65  $0.65  Open
LEH     59.66  59.45  JUL   70  65  0.55   65.55  $0.55  Open
MMM    122.42 128.00  JUL  135 130  0.60  130.60  $0.60  Open

Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

CNF    36.55   36.22   SEP40C/32P   0.10   32.40   0.70   Open

Synthetic positions in United Health (NYSE:UNH), General Dynamics
(NYSE:GD) and Lockheed Martin (NYSE:LMT), all provided favorable
profits prior to the recent broad-market slump.  The position in
Dollar Tree (NASDAQ:DLTR) also achieved profitability before the
widespread decline in stock prices.

Debit Straddles:

Stock   Pick   Last    Position   Debit   M/V    G/L   Status

DGX    85.72   75.01  AUG85C/85P  10.60  12.50   1.90  Closed
FLIR   44.75   37.02  JUL45C/45P   7.25   8.00   0.75  Closed

The Quest Diagnostics (NYSE:DGX) straddle achieved profitability
on both sides of the play as the underlying issue traded beyond
the "break-even" points in the bullish and bearish positions.
Flir Systems (NASDAQ:FLIR) was also profitable with the price of
the JUL-$45 Put exceeding the overall cost of the straddle.


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

CHBS - Christopher & Banks  $42.47  *** Retail Sector ***

Christopher & Banks Corporation (NASDAQ:CHBS), formerly Braun's
Fashions Corporation, is a retailer of women's specialty apparel,
which operates through its wholly owned subsidiary, Christopher
& Banks, Inc.  The company operates 310 stores in 29 states under
the names Christopher & Banks, Brauns and C.J. Banks, primarily
in the northern half of the United States.  The company's stores
offer coordinated assortments of exclusively designed sportswear,
sweaters and dresses.

Christopher & Banks said early last week that sales at its stores
open at least a year rose 13% in June, helped by strong sales of
pants and skirts.  Total sales for the four weeks ended June 29
rose 36% to $23.5 million from $17.3 million a year earlier, and
sales were robust in all categories.  The specialty retail sector
generally performs well during the summer months and a cost basis
near $35 (our target position) is not a bad price for this issue.

CHBS - Christopher & Banks  $42.47

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost       Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  JUL 40   URH SH    147      0.65    39.35      14.5%
SELL PUT  AUG 35   URH TG     11      0.70    34.30       5.6% ***
SELL PUT  AUG 40   URH TH     17      1.90    38.10       9.5%

EBAY - eBay Inc.  $58.83  *** New S&P 500 Member! ***

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

Shares of EBAY moved higher today, despite the sell-off in the
broad market, after Standard & Poor's said it will remove the
remaining non-U.S. companies in the S&P 500-stock index at the
close of trading on July 19, and replace them with large, well
established U.S. companies.  The move is intended to make the
index better reflect the large-cap segment of the U.S. equity
market and one of the additions is online auction house Ebay.
The changes will cause mutual fund managers who track the S&P
500-stock index, or use it as a benchmark, to reshuffle their
holdings and that activity should bolster the share value of
EBAY for the next few weeks.

EBAY - eBay Inc.  $58.83

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost       Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  JUL 50   QXB SJ   11,954    0.40    49.60       9.0% ***
SELL PUT  JUL 55   QXB SK   10,367    1.15    53.85      18.6%
SELL PUT  JUL 45   QXB TI    1,120    0.85    44.15       5.5% ***
SELL PUT  JUL 50   QXB TJ    1,755    1.65    48.35       8.3%

LEN - Lennar  $59.89  *** Solid Earnings Outlook! ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes as well as the purchase, development and sale of residential
land directly and through its unconsolidated partnerships.  The
company's financial services operations provide mortgage financing,
title insurance and closing services for both its homebuyers and
others, resell the residential mortgage loans it originates in the
secondary mortgage market and also provide Internet access, cable
television and alarm monitoring services to residents of its many
communities.  The company recently acquired Patriot Homes, a new
homebuilder in the Baltimore marketplace, and expanded into the
Carolinas with the acquisition of Don Galloway Homes as well as
the assets and operations of Sunstar Communities.

The recent rally in Lennar shares began when the company announced
that fiscal second-quarter earnings increased 9.3%, spurred by the
strength of the housing market.  The company posted earnings for
the quarter of $106 million, or $1.51 per share, compared with $97
million, or $1.40 per share, a year ago and the company's revenues
rose 13% to $1.6 billion.  Analysts were expecting earnings near
$1.24, with estimates ranging from $1.10 to $1.30 but the company
easily surpassed those numbers and increased its outlook for 2003.
The CEO noted, "The homebuilding market in America is strong, and
this strength is reflected not only in our numbers but in the
numbers across the homebuilding business."

Traders who agree with a bullish outlook for Lennar's share value
can establish a conservative cost basis in the issue with these

LEN - Lennar  $59.89

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost       Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  JUL 55   LEN SK      549    0.55    54.45       9.5%
SELL PUT  AUG 50   LEN TJ    3,728    0.95    49.05       5.2% ***
SELL PUT  AUG 55   LEN TK    1,085    2.00    53.00       7.8%



FAST - Fastenal  $40.37  *** Construction Supplier! ***

Fastenal Company (NASDAQ:FAST), together with its wholly owned
subsidiaries, sells industrial and construction supplies.  The
company's original product offering was fasteners and other
industrial and construction supplies, many of which are sold
under the Fastenal product name.  This large product line may be
divided into two broad categories: threaded fasteners, such as
bolts, nuts, screws, studs and related washers, and miscellaneous
supplies, such as paints, a variety of pins and machinery keys,
concrete anchors, batteries, sealants, framing systems, wire
rope, stainless strut, private label stud anchors, rivets and
related accessories.  The company has added additional product
lines, including tools, cutting tools, hydraulics and pneumatics,
material handling, janitorial supplies, electrical supplies,
welding supplies, safety supplies, raw materials and retail
packaged products.  Most of the company's customers are in the
construction and manufacturing markets.

Shares of nuts and bolts distributor Fastenal rallied today after
the company said second-quarter earnings rose nearly 15% as sales
growth accelerated, reversing last year's downtrend.  The company
reported that net income increased to $21.8 million, or $0.29 per
share, from $19 million, or $0.25 per share, a year earlier amid
stronger month-to-month sales growth rates.  Fastenal also said
it aims to add market share through store expansion, opening about
140 to 170 new stores in 2002, while boosting sales at stores open
at least five years by promoting newer product lines.

Traders who believe the bullish trend will continue in the coming
month can attempt to profit from that outcome with this position.
Target a credit in the position initially, to allow for a brief
consolidation from today's upside activity.
FAST - Fastenal  $40.37

PLAY (conservative - bullish/synthetic position):

BUY  CALL  AUG-42.50  FQA-HV  OI=1697  A=$0.90
SELL PUT   AUG-37.50  FQA-TU  OI=254   B=$0.65

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,400 per contract.



Stocks in the drug and pharmaceutical sectors were dumped by the
truckload today amid concerns about competition in the generic
drug segment, as well as an apparent slowdown in new approvals
by the U.S. Food and Drug Administration.  Almost every sector
in the group endured selling pressure and the trend is likely to
continue in the near-term.  Traders with a bearish outlook on
the following issues may find the risk-reward outlook in these
"premium selling" plays attractive.

ABC - AmerisourceBergen  $62.96  *** Drug Sector Slump! ***

AmerisourceBergen (NYSE:ABC) is a pharmaceutical services company
dedicated solely to the pharmaceutical supply chain.  The company
markets its pharmaceutical products and services to hospital
systems (hospitals and acute care facilities), alternate care
customers (mail order facilities, physicians' offices, long-term
care institutions and clinics), independent community pharmacies,
and regional drugstore and food merchandising chains.  The firm
also provides outsourced pharmacies to long-term care and worker
compensation programs.  AmerisourceBergen operates in two primary
market segments: Pharmaceutical Distribution and PharMerica.  The
Pharmaceutical Distribution is primarily the company's wholesale
and specialty drug distribution business, and PharMerica is the
company's institutional pharmacy business.  The company's second
quarter earnings are due July 31.

ABC - AmerisourceBergen  $62.96

PLAY (aggressive - sell naked call):

Action     Month &  Option   Open    Closing  Cost       Target
Req'd      Strike   Symbol   Int.    Price    Basis    Mon. Yield

SELL CALL  JUL 70   ABC GN     80     0.25    70.25       4.6% ***
SELL CALL  AUG 70   ABC HN  1,736     1.80    71.80       7.4%
SELL CALL  AUG 75   ABC HO    576     0.85    75.85       5.0% ***

BRL - Barr Laboratories  $53.22  *** Generic Drug Sell-Off! ***

Barr Laboratories (NYSE:BRL) is a pharmaceutical company engaged
in the development, manufacture and marketing of generic and
proprietary prescription pharmaceuticals.  The firm was formed
in October 2001 as the result of a merger between a subsidiary
of Barr Laboratories and Duramed, in which Duramed became a
wholly owned subsidiary of Barr.  Barr sells approximately 85
pharmaceutical products, representing various dosage strengths
and product forms of approximately 35 chemical entities.  Barr's
product line focuses principally on the development and marketing
of generic and proprietary products in the oncology and female
healthcare categories, including hormone replacement and oral
contraceptives.  Duramed develops, manufactures and markets a
line of prescription drug products in tablet, capsule and liquid
forms. Duramed's products include those of its own manufacture
and those it markets under arrangements with other manufacturers.

BRL - Barr Laboratories  $53.22

PLAY (aggressive - sell naked call):

Action     Month &  Option   Open    Closing  Cost       Target
Req'd      Strike   Symbol   Int.    Price    Basis    Mon. Yield

SELL CALL  JUL 60   BRL GL      50     0.20   60.20       4.6% ***
SELL CALL  AUG 60   BRL HL     133     1.80   61.80       9.1%
SELL CALL  AUG 65   BRL HM     105     0.55   65.55       4.0% "TS"

DGX - Quest Diagnostics  $72.00  *** Elevator Going Down! ***

Quest Diagnostics (NYSE:DGX) is a provider of diagnostic testing
and related services for the healthcare industry.  The company
offers a broad range of clinical laboratory testing services used
by physicians in the detection, diagnosis, evaluation, monitoring
and treatment of diseases and other medical conditions.  Quest is
engaged in clinical laboratory testing and esoteric testing,
including molecular diagnostics, as well as anatomic pathology
services and testing for drugs of abuse.  The company also has a
network of principal laboratories located in approximately 30
metropolitan areas throughout the United States, several joint
venture laboratories and approximately 150 smaller rapid-response
laboratories and 1,300 patient service centers.  The company also
operates an esoteric testing laboratory and development facility,
known as Nichols Institute, located in California, as well as one
laboratory facility in Mexico City, Mexico and another near London,

DGX - Quest Diagnostics  $72.00

PLAY (aggressive - sell naked call):

Action     Month &  Option   Open    Closing  Cost       Target
Req'd      Strike   Symbol   Int.    Price    Basis    Mon. Yield

SELL CALL  JUL 80   DGX GP     501     0.30   80.30       4.8% ***
SELL CALL  AUG 80   DGX HP   1,576     2.25   82.25       8.0%
SELL CALL  AUG 85   DGX HQ     793     1.10   86.10       5.4% ***


BEARISH PLAYS - Spreads & Combinations

AGN - Allergan  $58.30  *** Drug Sector Slump - Part II! ***

Allergan (NYSE:AGN) is a technology-driven, global healthcare
company that develops and commercializes specialty pharmaceutical
products for the ophthalmic, neurological, dermatological and
other specialty markets, as well as ophthalmic surgical devices
and contact lens care solutions.  Its worldwide, consolidated
revenues are generated by prescription and also non-prescription
pharmaceutical products in the areas of ophthalmology and skin
care, neurotoxins, intraocular lenses and other ophthalmic
surgical products, and contact lens care products.  The company's
products are sold to drug wholesalers, independent and chain drug
stores, pharmacies, commercial optical chains, opticians, mass
merchandisers, food stores, hospitals, ambulatory surgery centers
and medical practitioners, including neurologists, dermatologists
and plastic surgeons.

This issue was initially slated to appear in a "premium-selling"
position but after further review, it appears the limited-risk
approach would be better suited to the current technical outlook.
Traders who believe the issue is destined for continued downside
movement can profit from future bearish activity in the stock
with this conservative combination play.
AGN - Allergan  $58.30
PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-70  AGN-HN  OI=24   A=$0.25
SELL CALL  AUG-65  AGN-HM  OI=575  B=$0.80

CI - Cigna  $89.83  *** Testing Yearly Lows! ***

CIGNA Corporation (NYSE:CI) and its many subsidiaries are an
investor-owned employee benefits organizations in the United
States.  Its subsidiaries are providers of employee benefits
offered through the workplace, including health care products
and services, group life, accident and disability insurance,
retirement products and services and investment management.
CIGNA's operating divisions include Employee Health Care, Life
and Disability Benefits, Group Insurance, Retirement Benefits
and Investment Services, and International Life, Health and
Employee Benefits.  The company's Other Operations include the
recognition of deferred gains on the sales of individual life
insurance and annuity business and reinsurance business, and
the results of CIGNA's retained reinsurance business, corporate
life insurance business, settlement annuity business, and their
non-insurance operations.

Who would have believed that after such a great start in 2002,
shares of Cigna would be testing the yearly lows in mid July?
Unfortunately, that's the case as the issue has dropped from
recent highs near $110 to a 6-month low near $90 and today's
trading volume suggests there is little chance of a recovery
in the coming months.  Traders who believe the resistance at
the 150-dma (near $90) will limit any bullish activity in the
near-term can profit from that outcome with this position.

CI - Cigna  $89.83

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-105  CI-HA  OI=11  A=$0.30
SELL CALL  AUG-100  CI-HT  OI=45  B=$0.80

COF - Capital One Financial  $51.41  *** Flagging Financials! ***

Capital One Financial (NYSE:COF) is a holding company whose main
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit card lending, but including other consumer lending
activities such as unsecured installment lending and automobile
financing.  The company's principal subsidiary, Capital One Bank,
a limited-purpose, state-chartered credit card bank, offers credit
card products.  Capital One, F.S.B., a federally chartered savings
bank, offers consumer lending and deposit products.  Capital One
Services, Inc., another subsidiary, provides various operating,
administrative and other services to the company and its many

Shares of Capital One Financial slumped today in conjunction with
weakness in the credit card group and a report that "charge-off"
data for the month of June was somewhat softer than expected.  A
surge of selling pressure after the announcement sent the stock
to lows not seen since early March and the issue did not recover,
closing at the day's nadir near $51.  The technical outlook for
COF is less than favorable and without a significant change of
character, the share value of the stock has very little chance of
reaching our sold strike prior to the August options' expiration.

COF - Capital One Financial  $51.41

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-65  COF-HM  OI=878  A=$0.55
SELL CALL  AUG-60  COF-HL  OI=425  B=$1.15

UN - Unilever  $60.97  *** Dropped From The S&P 500! ***

Unilever N.V. (NYSE:UN) is a worldwide supplier of consumer goods
in foods, household care and personal product categories.  Since
January 2001, the Company's operations have been organized into
two global divisions, Foods and Home & Personal Care.  This new
structure allows for improved focus on its division's activities
at both the regional and global levels.  These global divisions'
operations are organized into businesses on a regional basis,
with the exception of DiverseyLever and Prestige within Home &
Personal Care, and the global businesses of Ice Cream and Frozen
Foods and Foodservice within the Foods Division.

Standard & Poor's announced today it was ousting seven long-time,
non-U.S. members of the S&P 500 index so the #1 market benchmark
would better reflect the performance of large-cap companies in
America.  The share values of the outgoing stocks quickly tumbled
on expectations that funds around the world which track the index
will sell the seven stocks, unleashing a huge amount of supply
and depressing prices.  An estimated 7% of the stock index's $9
trillion market capitalization is tied to funds that mimic the
popular, broad-market index and Unilever was one of the largest
"diversified" companies on the S&P 500.  Traders who believe the
stock has little chance of recovering from the sell-off in the
near-term can profit from that outcome with this position.

UN - Unilever  $60.97

PLAY (less conservative - bearish/credit spread):

BUY  CALL  AUG-70  UN-HN  OI=300  A=$0.25
SELL CALL  AUG-65  UN-HM  OI=473  B=$1.00



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