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Daily Newsletter, Tuesday, 07/23/2002

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The Option Investor Newsletter                 Tuesday 07-23-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      07-23-2002           High     Low     Volume Advance/Decline
DJIA     7702.34 - 82.20  7894.41  7682.89 2.85 bln    562/2699
NASDAQ   1229.05 - 53.60  1295.59  1228.88 1.83 bln    818/2783
S&P 100   396.75 - 11.13   411.94   395.63   Totals   1380/5482
S&P 500   797.70 - 22.15   827.69   796.13 
RUS 2000  363.99 - 15.66   380.94   362.99 
DJ TRANS 2160.35 - 81.20  2261.72  2150.04   
VIX        50.48 +  2.25    52.48    47.22   
VXN        66.39 +  3.81    67.29    62.63
Total UpVol   731.1M
Total DnVol 4,220.1M
52wk Highs   37
52wk Lows   1359
TRIN        0.80
PUT/CALL     .85
*************************************************************  

Oversold?

Do fish swim? Of course we are oversold and have been for what 
seems like weeks. Oversold is a relative term and nothing ever 
prevents us from becoming more oversold as this week has already
proved. Corporate accounting games came home to roost today on two 
of the country's biggest banks and Microsoft has lost nearly -20%
of its value in only four days for no apparent reason. It appears
pessimism is alive and well in the market.

Chart of the Dow


 
Chart of the Nasdaq


 

Starting the day off was news that Citigroup and JP Morgan had 
entered into an elaborate bookkeeping scam to loan money to 
Enron while keeping the debt off their books. According to 
Citigroup officials there was nothing wrong with the arrangement
but they could not explain why they created offshore shells to 
hide the transactions. Obviously this is not going to go away
even if the congressional committees cannot find something to 
hang on them. There are shareholders holding $50 billion in Enron
stock that are looking for some deep pockets to sue. Guess who 
just stepped into the line of fire? I can imagine the securities
fraud lawyers lining up already. C lost -5.04 and JPM lost -4.44.
C traded over 121 million shares with 44 million on JPM. The 
biggest worry around is who else have they done these deals with
and how clean are their own books?



 

The first August 14th earnings surprise appeared today. Tyco, 
which is not even required to certify their reports, said today
they would NOT certify them until after they finished an internal
probe. They are not required to certify because they are not an
official U.S. corporation. They maintain a shell office offshore
to avoid taxation. They did say earlier that they would voluntarily
certify but have now delayed that event. Wonder what they found 
in their "internal" investigation that changed their mind? TYC
dropped another -10% to $10.70. This will be the first of many.

Tripping the Nasdaq this morning was the news from NVLS that 3Q
order decline would weaken earnings going forward. The company
voiced caution that customers have turned timid as the markets
crashed and the IT spending slump continues. The company said
the weak market was limiting access to capital for many companies
and requiring cutbacks in capital spending. Because of the current
stock price the company is expected to eat $880 million in 
convertibles issued last year. The holders are expected to turn
the bonds back in and not exercise their options. Bad news!

It was announced that LNCR would replace WCOM in the Nasdaq 100.
LNCR spiked +1.50 on the news and traded over 16 million shares. 

After the close today MRK announced they were planning on buying 
back up to $10 billion of their stock. This would be about 10%
of their current market cap if they followed through with the
planned buy. This is in addition to the $2.2 billion still 
outstanding from their last $10 billion buyback in Feb-2000.
They also declared a dividend of $.36 cents. This should help 
the Dow tomorrow as the "buyback" crowd moves into the stock.

Microsoft has fallen into a black hole after their earnings. 
This amazes me when you consider the two other big techs who
announced the same week. IBM has more problems than MRK has pills
and they are still trading above pre-earnings support. Down but
above support. INTC missed estimates and has lost a total of
-$2.00 since the announcement. Microsoft, with $58 billion in
cash in the bank, said the market continued to be challenging 
and lowered revenue estimates by a miniscule amount. They have
lost -$10 in the last four days and are trading at a 52-week low.
They traded 75 million shares on Tuesday as traders raced to 
exit before an analyst meeting on Thursday. I give up! If somebody
knows anything please let us know! The consensus around here is
margin selling and fund liquidations. You can raise a lot more 
money selling a $50 stock compared to $12 for Cisco for instance.



 

The mystery of the huge volume at the close was solved. Traders
were going crazy trying to find out what was happening to MSFT
as it traded over 55 million shares in the 20 min after the close.
Other stocks were also going crazy including NTAP, MXIM and NXTL.
It appears the Nasdaq was testing a new trading platform and it
dumped the entire days trading volume back into the network at
the close. They have been working furiously to correct the data.

Amazon announced earnings after the close and fell -$1 in after
hours. The online retailer beat the street with a smaller loss
then expected and raised its guidance for the next quarter. It 
also took the unexpected action of saying it would expense its
options by 2003. This could cause a substantial change in its
earnings going forward but would put them on the bleeding edge
of Internet companies in the accounting war. Revenues rose +21%
to $806 million for the quarter. This also beat street estimates.

The accounting picture is going to get a little cloudier going
forward after First Call and Merrill Lynch said they would start
tracking only GAAP earnings for companies they follow. The company
can report any pro forma results they want but will be required to
post GAAP earnings as well. Look out below! This will start to
level the playing field and many "pro forma or EBITDA" companies
will suddenly look much worse when their GAAP earnings are used
as the yardstick. This is just another blow to stock prices in 
the short term but a very positive move for investors in the future.
Those companies that report other than GAAP are going to be under
serious pressure to clean up their act immediately or be regulated
to the penny stock market.

The oversold conditions are the worst I have seen in recent memory.
For instance the S&P has now posted six days without a single stock 
making a new 52-week high. On Tuesday 151 S&P stocks (30%) posted new
52-week lows. Down volume beat up volume on the S&P 5:1. Across all
markets the decliners beat advancers 6101 to 1539. New 52-week lows
were 1360 which exceeded all but four days in Sept of 2001. The VIX 
"closed" over 50 for the first time in the last five years. It has
traded over 50 during three events. One in Oct-1997, the Sept/Oct 
crash of 1998 and the week after the Sept-2001 attack. Make no
mistake this is a high probability event. Normally a print over 50
occurs during high stress events and the index will gap significantly
higher at the open only to fall back below 50 before the close. 
Extreme numbers are generated during market free fall events but 
pressure equalizes before the close. 

While the VIX closing over 50 is a momentous occasion there is no
confirmation from the TRIN or the put/call ratio. The TRIN at .80
and the put/call at .85 are not indicating an immediate relief rally.
There is still the possibility of a significant decline in our future.
Many traders and technical analysts were rushing to predict a bottom
before the week is out after the huge oversold readings were posted 
today. Under normal conditions I would strongly agree. But how do 
you factor in the Citigroup/JPM problems or the August 14th
certification event? How about the change in earnings reporting 
methods and the expensing of stock options? How do you price the
news that analysts are now starting to predict that the recovery
may not even occur in 2003? We already know 2002 is in the dumpster
but now 2003 is being called into question. 

I don't want to sound like a clanging symbol and constantly bombard
you with worries about the future. However that is what the market
is reacting to and it is ugly. The Dow has lost over -1600 points
since the July-8th highs and that is not normal in any context. We
need to be aware that any bounce is likely just that, a bounce. It is
not a new bull market or the MOCO everyone is waiting for. There are
still too many unknowns in our future. Art Cashin said today he 
expected a tradable bounce this week. When pressed he said +800-1800
points were possible. Now, I would love to see that and I have the
highest respect for Art. However I think his 42 years of trading on
the NYSE has biased his outlook slightly. He is still thinking in
terms of normal. Granted he has seen some terrible times but this
crash is eroding because of things not normally factored into the
markets. Fraud, terrorism, accounting scams on a monumental scale,
the two largest bankruptcies in U.S. history and the biggest market
drop since the 1987 crash following the biggest bubble in history.
This is not your fathers market as they say!

The Dow tried valiantly to hold the line and rally today but was 
sunk by huge losses in three stocks. Without those three it would 
have been up strongly. The Nasdaq was tanked by the semiconductors,
which broke to a new low at the close, and by something unknown in
Microsoft. These events have pushed us even deeper into oversold
territory than anyone would have thought possible. This is setting
us up for a bounce, possibly tomorrow. There are no economic reports
tomorrow but Thursday is loaded and Friday we get consumer sentiment
again. Anybody want to bet on a lower number? This means we can
date any bounce but we definitely do not want to marry it. Trading 
these markets are not for the timid but if you tune into the 
Market Monitor during the trading day we will attempt to take the
mystery out of it. Leigh, Steve, John, Jeff, Jonathan and I provide
indepth analysis and trades as the day progresses. Mikey likes it and
you will too!

http://www.OptionInvestor.com/itrader/marketbuzz/

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

WORRY? 
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
A Bear Market "capitualization" to use this term about final 
stages of a bear market - as Charles Dow would explain it - 
involves "public investors" finally recognize two things 
typically that WORRY them to distraction: 
1. the values of their stocks are eroding more and more 
alarmingly.
2. What is driving such "irrational" behavior, or that is how it 
becomes to thought of, are forces beyond their control or 
understanding. 

The forgoing #2 has most to do with the mistaken impression that 
the market is a "rational" thing and valuations are set 
"rationally" - true, for the broad "middle" of a bull market or 
in a bear market decline typically - but then there are the 
extremes from which the next cycle springs. 

The 2000 big blow off top in the Nasdaq, and to a lesser extent 
in the S&P, traced out an "arc" like form as the rate of price 
increase led to steeper and steeper gains - hence the term "blow 
off", as in blow sharply higher like a geyser - and, like "Old 
Faithful", every few years a bear market comes along - most are 
of relatively short duration (e.g., 18 months), but if a "mega" 
bull market preceded it, you can roughly double the duration of 
the bear market that is to follow it, both in times of time and 
in terms of price. 

A favorite pastime these days, which has "spread" to the media 
talking heads, such as that increasingly lively and "irreverent" 
(to Wall Street types) crew on CNBC - is to talk about 1.) 
capitulation; 2.) the volatility of the market; and, 3.) other 
strategies besides long stock to profit in a bear market; I 
actually heard talk of "you could SHORT", as if saying you 
(investors out there) could do something OTHER than be the "lamb" 
led to slaughter by our mind set of "buy stock, put it away", 
"buy stock, put it away", a little "mandra" we were taught by our 
parents and grandparents perhaps. 

Volatility, as measured by VIX, the CBOE Volatility index, 
(symbol $VIX.X) continued to climb today, reaching a high in the 
52.5 area - this versus the Sept. Intraday high 9/21, of 57.3 - 
however, VIX closed that day at 48.3. Highest prior close was 49. 
So today was far and away the new CLOSING high of VIX - at 50.48 
relative to the panic low of post 9/11. Now, a pervasive anxiety 
has replaced the cold stab of fear back in the fall.  In some 
ways this seems worse - not really, but it’s a loss of American 
Innocence in some ways. We no longer feel secure like we used to 
within our own borders. 

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


 
 
I have no thought of playing "catch a falling knife" and 
suggesting areas that are downside targets that might also be a 
buy tomorrow.  In point terms this present type of almost you 
could "panic" selling - although not-quite; 1987 "crash" was 
panic selling BIG TIME - but we have shades of this going on now 
as investors have been doing some major "cashing out" of the 
market - we've talked about the large mutual fund outflow - and 
rising we might add! 

We can slide more - if prices continue to fall at the same rate 
they are past 3 trading sessions, the next target on OEX is 370.

The only strong fundamental factor that I can see turning the 
professional trading interests to more bullish near-term is the 
sharp rebound in the dollar and the extreme weakness in the 
metals markets today. 

But, basically buyers are on strike - when they will take their 
hands out of their pockets and reach for their wallets is a 
guess.  Right now they are pretty disinterested in stocks, except 
to save what they already have.   


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


 

Making a similar assumption with the "500, as with the OEX "100", 
and if SPX "slide down" its lower hourly trendline you can see on 
the chart above, it would reach 752 by the close on Friday - this 
demonstrates the steep "rate of change" that the index is in. 

Resistance is at the prior highs in the 813-815 area; then more 
significant resistance around 840.

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


  

3 consecutive days of more than 2 billion shares in the NYSE - a 
record - almost Nasdaq level volume. Of that follow the 
predominate volume is SELL volume - that is, stock sold on 
downticks.  This is the just get me out BEFORE it falls further. 
So, there is the air of "panic" around the edges. So, it likely 
that some thing will change at some point that is final washout.  

This turn of events is often associated with chart patterns with 
the outlines of the daily highs/lows/closes going from a line 
slanting down at a milder incline to a shape more like an "arc" 
as the market swivels "down" - the final stage is falling in a 
straight line - yes, almost a straight line down.  If you look at 
some of the Nasdaq leaders at the big 2000 top, some of the 
charts had near vertical straight-up moves, BEFORE they came 
falling down. 

So, we find ourselves increasingly in the "falling down" 
waterfall stage of a vertical drop - the Dow weekly chart above 
will give the flavor of this.      

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


 

QQQ is further and further away from its Sept low - I'm FALLING, 
I'm FALLING!  Its overall technical pictures, and now graphically 
illustrated by the lower hourly downtrend channel line and where 
it intersects down in the 20 area - a downside target to this 
area comes into view, particularly given the sell pressure in the 
semiconductor stocks again, which drove SOC under its prior Sept. 
low on the close.  Certainly a target like this is consistent 
with my "water" falling over the waterfall analogy as prices 
accelerate to the downside. 

The most significant influence in the Q's today was that of 
Microsoft, which broke decisively below its prior line of support 
at 49.00.  It was straight down after that, to a low of 42.97! 
The close was right on the low - this type close suggests further 
weakness may likely follow tomorrow. I get a new downside target 
on MSFT now to around 40.      

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

No Faith
by Steven Price

Market anchors Citigroup and J.P. Morgan sank to new depths 
today, dragging down the market as investors continued their 
exit.  The good news?  Well, the Dow closed at only a double-
digit loss, after having been down over 100 points intraday once 
again.  Investors continued to show a lack of faith as they 
dumped these giants like non-recyclable garbage.

J.P. Morgan  $20.08 (-4.44) lost over 18 percent of its value 
today as concerns over its Enron involvement mounted.  The same 
went for Citigroup $27.00 (-5.04), which shed more than 15% of 
its value.  These two companies have lost over $58 billion in 
market capitalization over the last two days. They dragged down 
the entire sector, with the Bank Index ($BKX.X) losing 7 percent 
of its value.  In addition to these majors taking a hit, 
Microsoft lost another $3.30 to extend its recent lows, closing 
at $43.01, and taking the NDX to new lows along with it.  
Microsoft added another $38 billion to its lost market cap since 
last Friday. 

Consumer spending accounts for approximately two thirds of 
economic activity in the United States.  Retail data can reflect 
just how severely the market is affecting investors' spending 
habits, and is one measure of the country's financial well-being. 
Today's U.S. chain store sales number was an improvement over 
last session, gaining 0.4 percent for the week ending July 20, as 
opposed to a 0.3 percent drop the week before. One sector that 
showed some resilience, as a result, was retail.  The beleaguered 
retailers showed some strength, with WalMart refusing to go 
silently into the night.  After achieving its bearish vertical 
count of $46, it looked headed to new lows.  It crossed its 
September low of $44.00, trading $43.99 yesterday, only to come 
back slightly today, closing up $0.50 to $45.10. The world's 
largest retailer has been a barometer for the sector, and this 
resilience could be a positive going forward. This was only the 
second session in the last 12 that the retail index squeezed out 
a gain, and in this case it was less than one percent.  While 
this does not mean the economy has turned the corner, it may be 
evidence that some sectors have reached oversold levels from 
which a rebound is coming.

GM and Ford announced their new pricing packages for 2003.  While 
they didn't come out and state they were raising, prices, the 
intent was clear.  They released a mixed bag of price increases 
and decreases, but changed option packages so that many options 
that were included in previous sticker prices will no longer be.  
Thus, increasing prices. 

The dollar rebounded strongly in what appears to be a round of 
short covering.  The 1.5 percent increase in the dollar against 
the euro, and 0.8 percent increase against the yen, sent gold 
dropping.  Because gold is priced in dollars, an increase in the 
dollar makes it more expensive to buy.  

Another big loser was AT&T, who posted a $12.7 billion Q2 loss.  
Most of this however, was a result of writing down the value of 
AT&T Broadband, which is slated to merge with Comcast (CMCSK) 
later this year.  AT&T said its basic cable service lost more 
subscribers than expected in the second quarter.  

So what's the big picture?  Well the markets did make an effort 
to get positive.  If not for J.P. Morgan, Citigroup and 
Microsoft, it would have been a close call.  HOWEVER, (big 
however), the Nasdaq 100 is now at its lowest point since the 
index was started.  That's a pretty big break in support!  This 
indicator, whose bullish percent had been rising before the end 
of last week is now heading south.  It has led the market in the 
past, but now appears to be playing catch up to the other major 
indices.  The S&P 500 has now fallen below the 800 mark to close 
at 797.70, just three trading sessions after it closed below 900 
for the first time in years.  It has reached its lowest levels 
since 1997. Seems pretty bleak.  However, after a 1700 point drop 
in the Dow (from July 5th's close), there is likely to be some 
type of bounce.  Whether that bounce holds is certainly of long-
term concern.  But the short-term trader must be aware of the 
possibility of a significant bounce.  If the Dow retraces only 
half its recent losses, that is still almost a 900-point gain.  
While all signs are still negative, respect your trigger points 
and keep tight stops.  We study and attempt to ride trends, not 
fight them. 


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

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7682
Current     :  7702

Moving Averages:
(Simple)

 10-dma: 8387
 50-dma: 9409
200-dma: 9801



S&P 500 ($SPX)

52-week High: 1226
52-week Low :  796
Current     :  797

Moving Averages:
(Simple)

 10-dma:  884
 50-dma: 1001
200-dma: 1091



Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  896
Current     :  896

Moving Averages:
(Simple)

 10-dma:  981
 50-dma: 1113
200-dma: 1382



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


Semiconductor Index ($SOX.X)

The semiconductor index has finally broken its support at 350.  
As the semiconductors have been downgraded, the SOX has fallen 
for six straight sessions.  Microsoft's recent fall has been 
ominous for the entire tech sector.  Now that support has been 
broken, the SOX next level of support could be well below 300.

52-week High: dna
52-week Low : dna
Current     : 339.41

Moving Averages:
(Simple)

 10-dma: 369
 50-dma: 430
200-dma: 509


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

Market Volatility

We've been commenting on two facets of the recent rise in the VIX 
($VIX.X).  One, the rising volatility index usually foreshadows a 
market rally, as it peaks at market bottoms.  Two, It still may 
have further to go before we see that rally.  In the past, each 
time the VIX has crossed 40, it has also approached 50. This has 
happened previously in 2001, 1998 and 1997.  Now we're there, 
although last fall it reached a high of 57, so we may not be done 
yet.  

CBOE Market Volatility Index (VIX) = 50.48 +2.25
Nasdaq-100 Volatility Index  (VXN) = 66.39 +3.81

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.85        851,681       724,114
Equity Only    0.62        671,872       419,719
OEX            0.80         40,723        32,433
QQQ            0.41         66,765        27,633

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

Bullish Percent Data

           Current   Change   Status
NYSE          27      - 6     Bull Correction
NASDAQ-100    28      - 3     Bull Correction
DOW           7       - 3     Bear Confirmed
S&P 500       14      - 3     Bear Confirmed
S&P 100       11      - 1     Bear Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.50
10-Day Arms Index  1.31
21-Day Arms Index  1.39
55-Day Arms Index  1.38

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

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

Market Internals

        Advancers     Decliners
NYSE        560          2634
NASDAQ      780          2693

        New Highs      New Lows
NYSE        20            677
NASDAQ      48            430

        Volume (in millions)
NYSE     2,857
NASDAQ   2,078

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

Commitments Of Traders Report: 07/16/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials increased their short positions by 25% as the markets 
fell in the last period, while the small traders added almost 
17,000 contracts to their long position.


Commercials   Long      Short      Net     % Of OI 
06/18/02      437,530   487,956   (50,426)   (5.4%)
06/25/02      378,214   438,775   (60,561)   (7.4%)
07/09/02      396,321   456,164   (59,843)   (7.0%)
07/16/02      388,943   464,162   (75,219)   (8.8%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
06/18/02      181,178    88,517    92,661     34.3%
06/25/02      134,380    62,792    71,588     36.3%
07/09/02      145,017    71,402    73,615     34.0%
07/16/02      157,370    67,247    90,123     40.1%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials reduced their short positions by over 20% as the NDX 
held its own against the other market indices.  Small traders 
reduced their overall long position by adding 2,000 short 
contracts.


Commercials   Long      Short      Net     % of OI 
06/18/02       54,816     49,169     5,647    5.4%
06/25/02       27,238     35,926    (8,688) (13.8%)
07/09/02       31,227     39,592    (8,725) (12.3%)
07/16/02       33,152     39,866    (6,714) ( 9.2%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
06/18/02       20,883    29,153    (8,270)   (16.5%)
06/25/02       14,749     7,570     7,179     32.2%
07/09/02       12,520     8,348     4,175     20.0%
07/16/02       12,816    10,774     2,042      8.7%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:   8,460  -  3/13/02

DOW JONES INDUSTRIAL

Commercials remained virtually unchanged, while the small traders 
shifted from a small long position to a decidedly short position. 



Commercials   Long      Short      Net     % of OI
06/18/02       25,995    19,115    6,880     15.1%
06/25/02       18,016    13,255    4,761     15.2%
07/09/02       20,761    14,122    6,639     19.0%
07/16/02       20,357    14,074    6,283     18.2%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
06/18/02        5,379    11,813    (6,434)   (37.2%)
06/25/02        6,414     6,597       183     1.40% 
07/09/02        6,831     6,623       208     1.50%
07/16/02        8,524    10,133    (1,609)   (8.62%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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

THE SECTOR BEAT - 7/23
by Leigh Stevens


The biggest "news" I thought relating to market sectors today, 
was the retreat in the Semiconductor sector Index (SOX), to a new 
closing low at 341.1 - while SOX is still within the area of 
recent lows  - well, if Semiconductors continue to sink tomorrow, 
there is only "air" under the index in a next potential "leg" 
down. I'm somewhat serious about the "air" comment - potential 
investors are going to be less likely to support the stock if 
they have no easy prior reference to go back to - like with the 
Sept. lows in the 344-345 area. 

Of course, adding "weight" to 340-345 as major support was that 
this area was also a key support that established itself in early 
1999 - before the SOX Index soared to its 2000 peak above 1300! - 
what a run!  The chip makers were the star angels of the tech 
firmament. Or, the high priesthood of stocks, depending on deep 
was your tech "new economy" faith. 

Hard to believe that we might now sort of be forced to look next 
at the 1998 lows around 200.  Not that SOX is going there, it's 
just that the next "frame of reference" of a big prior low is so 
FAR under current levels. It gives potential "vertigo" to buyers 
who might have been "supporting" the semi's recently and there 
has been some decent buying interest in chip stocks.  

The possibility of retreating another 1/3 may be a more tangible 
fear now that investors and traders remember how the former Dow 
September at 8062 seemed so FAR AWAY back when the Dow average 
was trading over 10,000. Hey, that was back just 10 weeks ago - 
10,000 seemed to be steady as a rock support; today the Dow Jones 
Industrial Average wound up at 7702. How times have changed!    

One of the CNBC interviewees said something today about how 
"they're" (ever wonder who "they" are) - they're even selling the 
"pretty" stocks, which I thought interesting. Well, they sold the 
"pretty" sector today. A clean and pristine product, 
semiconductor wafer chips, produced in clean and pristine plants, 
it seems the epitome of high-tech.  However, there has to be new 
PC type product purchases to keep the chip makers earnings up - 
or, as case may be to "justify" their still hefty PE ratios 
relative to the overall market.

And, it seemed, free fall in Microsoft, the monster of Seattle, 
rattled everyone's cages in tech land - hey, if the biggest 
software maker's earnings prognosis is not good enough for the 
market, it can't be that great for the maker of that other 
essential hardware ingredient in the PC/high tech world.  

UP on Tuesday - 

Of the sectors I follow, there were just two that made it into 
the green column: the Health Provider Index ($HMO.X) and the S&P 
Retail Index ($RLX.X) by fractions of a percent.  

DOWN on Tuesday - 


 

To all the Gold & Silver sector bulls - there were many - tough 
to pin your hopes on the pretty yellow metal!  Hey, "you who are 
away from home, must have a code that you can live by....." - opps, 
sorry, went to see a Crosby, Stills, Nash & (rocking) Neil Young 
concert recently, and I can't get some of those tunes out of my 
brain.  

Well, there is a way that we look at charts, which is EMOTIONALLY 
(I speak from experience!) and which somehow makes the chart 
"pretty" to look at through those rose-colored glasses. Pullbacks 
ooks like temporary setbacks. Technically, I looked at the XAU 
chart and saw a TOP forming - that's all. BUT - 

I have LITTLE emotional investment to precious metals - hey, I 
lived through the Silver/GOLD hyper-inflation '70's market. Once 
you see bullion crash from 600 per ounce to less than 200, in the 
"blink of an eye" almost - it imparted lesson that "beauty" is in 
the "eyes of the beholder" but is far from "objective". And, the 
'70s was a time when inflation was eroding the value of financial 
assets BIG TIME and there was a underlying fundamental to holding 
so called "hard assets" - it was also the time of the LAST 
housing bubble, it that's what we have currently in the 
overheated personal real estate market. 

The other factor, more fundamentally grounded, is the inevitable 
disillusion with the market that sets in by the end of every 
SEVERE bear market - the bearish tide does not favor any sector 
at the end - look at Home Builders and they have had a strong 
strong earning trend. But any sector valuation gets way too rich 
if it's rising, rising, rising, while the market is falling, 
falling, falling.       
  
SECTOR TRADE RECOMMENDATIONS & REVIEW -

NEW/OPEN TRADE RECOMMENDATIONS -

NONE


OPEN POSITIONS - 

NONE

 
TRADE LIQUIDATIONS -

NONE


SECTOR HIGHLIGHT -

Gold & Silver Sector Index ($XAU.X)
STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL


 

Last night, I said that "I expected 'some' downside follow 
through today to at or below 65." - well, maybe WELL below 65 in 
XAU. The sector index has fulfilled all my near to intermediate-
term objectives.  That doesn't mean that that automatically means 
that I want to BUY it now.  For assessing now long-term 
objectives, we need to step back to long-term charts.



 

I guess the above chart could be seen as "half-full" or half 
empty.  The Bulls will see it one way, the bears another.  As 
long as there are not too many bears and I hear the talking heads 
tomorrow on how this is "only a temporary setback", I'll walk the 
line with the bears. 
UPDATE: 7/23


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                  Tuesday 07-23-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


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

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


CALLS:
*****

JNPR $7.46 -0.67 (-1.44) Juniper fell below our stop of $8.00 Its 
previous support at the 50-dma of $8.09 failed and the stock has 
drifted back below $8.00.  In spite of its attempts to rally it 
has closed near its lows of the day.  Negative earnings news from 
the likes of Lucent (NYSE:LU) did little to help the sector and 
it's hard to be bullish with the Nasdaq dropping 4%.  We feel it 
is time to close this play if you haven't done so when it closed 
below its stop loss on Monday.

PMCS $9.11 -1.06 (-1.35) PMCS has fallen below the $10 support 
level, which now appears to be resistance on the upside. Although 
the stock had held up well during the recent slide, we feel the 
combination of resistance and time decay of the recommended calls 
justifies exiting this play ahead of our stop loss.  The recent 
tech downgrades and Semiconductor Index breaking support have 
weighed heavily on the sector. Those traders still long the stock 
(or calls) could hope for a rebound off today's market lows, but 
hoping a stock higher usually results in more losses.  Discipline 
is the key here, still a market rebound tomorrow might be a 
chance to exit bullish positions.


PUTS:
*****

BLL $33.38 -0.70 (-2.22) Shares of BLL gave us a quick, sharp
drop after the break of the $37.50 level last week, and by the
closing bell today, the stock had fallen right to major support
in the $32.50-33.00 area.  Despite the fact that there could be
more downside in store, we have to stick with our discipline and
drop BLL tonight.  The company is set to release its earnings
report in the morning and as mentioned over the weekend, we wanted
to be out of all open positions ahead of the announcement.
Therefore, all positions in the play should now be closed.


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

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

CALLS              Mon    Tue

JNJ      44.08    0.68   1.55   Healing quickly; needed a band-aid
JNPR      7.46   -0.77  -0.67   Closed play; stopped out
PMCS      9.11   -0.29  -1.06   Closed play; tough new ceiling

PUTS               

BBBY     28.91   -0.35   0.04   "Beyond" the $30 support level
BLL      33.38   -1.52  -0.70   Drop, earnings tomorrow
CTX      45.51   -2.81   2.57   broken support, long way to fall
EBAY     53.16   -3.64  -2.89   bidders are vanishing
GDW      58.15   -0.31  -1.93   rounding down, following financials
LEH      50.61   -1.97  -1.89   fund outflow, bad for biz
LOW      34.22   -1.11  -0.70   hammered and nailed down
UPS      60.30   -3.89  -2.81   special delivery to $60 
BJ       31.88   -0.90  -0.97   sector taking a breather
GS       67.73   -2.34  -4.27   New, following the bad boys
OMC      46.72   -2.25  -1.26   New, back down the hill 
AZO      61.73   -1.68  -1.09   New, below zone of comfort
MHK      43.50   -0.32  -1.48   New, no homes, no floors


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

JNJ $44.08 (+2.23 for the week) Johnson and Johnson has rebounded 
from oversold levels at the end of last week.  News of the 
Federal probe into manufacturing irregularities, in the Puerto 
Rican plant that produced Eprex, has moved to the background, and 
investors are propping the stock back up.  The news about Eprex 
causing a blood disorder was old news that was brought to the 
forefront when the Feds announced the probe.  JNJ held up well in 
spite of Bristol Myers taking a hit after releasing earnings and 
showing 2nd quarter profit had taken a dive due to competition 
with generic drugs.  Originally picked at $41.85, OI will be 
looking to close this play between $46 and $47.  


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

None


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

BBBY $28.91 +0.04 (-0.34) Considering that the broad market was
another volatile mess of red, it is pretty amazing that BBBY has
held up as well as it has over the past two days.  While the
stock's decline has been kept to less than $0.50, the intraday
rallies have been soundly rebuffed near the $30 level.  That just
happens to be the site of the gap lower last week.  Failed
rallies continue to provide the best entry opportunities.  Look
for a failed rally either at $30.25 or near $31 to initiate new
positions.  Alternatively, if BBBY finally breaks the $28.50
support level, momentum-based entries make sense, but only if the
Retail index (RLX.X) breaks below its September lows near the
$251 level.  We are keeping our stop set at $32.50 until that
support level gives way.

---

CTX $45.51 +2.57 (-0.24) Finding a spot of strength in the market
on Tuesday was a tough endeavor, but if you looked at the Home
Construction sector ($DJUSHB), then you were in the right place.
With widespread selling throughout the broader market, the DJUSHB
actually managed a nice rebound off of the $280 level.  Despite
all the denigrating comments about the sector being in a bubble,
the individual companies continue to impress the street with
stellar earnings.  Shares of CTX went along with the sector,
gaining nearly 6%.  Showing how fierce the selling has been
lately, that rebound failed to get the stock even up to the site
of yesterday's opening price at $45.90.  Yesterday we lowered our
stop to $47, so you can see that CTX is now on a short leash.
Another failed rally attempt below our stop can be used for
initiating new positions, but a close above it will indicate that
it is clearly time to harvest gains and move to the sidelines.
Confirm weakness in the stock by looking for the $DJUSHB to move
back into sell mode before opening new positions.  A drop into
the $40-42 area should be used for harvesting profits.

---

GDW $58.15 -1.93 (-2.32) Where's it going to end?  The Banking
stocks have been literally taken apart again this week, this time
on accusations that some of the big money center banks were
intimately involved in some of the shady financial transactions
at Enron and other energy and bandwidth trading companies.  To
put it into perspective the Banking index (BKX.X) shed a whopping
7% on Tuesday, capping off a 4-day, 16% slide.  Despite the fact
that they aren't even involved in this story, the sector selling
pressure has whacked the savings banks as well.  Shares of GDW
have lost $10 in the past 11 days, so they are definitely primed
for a bounce.  But with investors giving up the $60 support level
without so much as a whimper, it is looking like the $54 level
might just be the next stopping point.  Look to initiate new
positions on a failed rally near the $60 level, or possibly as
high as $61, the site of our new stop.  If the $54-55 level is
achieved over the next couple days, use that weakness to lock in
your gains.

---

LEH $50.61 -1.89 (-3.86) If the Brokerage Sector (XBD.X) looked
sickly last week, then it looks absolutely terminal this week.
In just the first 2 days of the week, the index has shed more
than 8% and it appears to be making a beeline for the September
closing lows near $335.  If that fails, we'll be looking
last-ditch support near the $317-318 area.  The weakness that
we are seeing in LEH is likely due in large part to the sector
weakness, as its decline continues to mirror that of the XBD.
LEH shed 3.6% today and that followed yesterday's 3.6% decline.
It is interesting to note that the stock rebounded from the top
of the September 24th gap to close right on the 75% retracement
($50.68) of the fall rally.  With the extent of the oversold
condition present in the broader market, we don't want to take
a chance of giving back our gains due to a short-covering rally,
so we are tightening up our stop.  The intraday highs on Tuesday
were near $52, so move stops down to $52.25.  A failed rally
attempt near $52 can still be used for new entries, but keep the
play on a short leash.  With the bearish price target of $47
looming large in the windscreen, additional weakness should be
used to harvest profits as price approaches that target.

---

UPS $60.30 -2.81 (-6.70) The artificial bump that several stocks
got upon their addition into the S&P 500 last Friday has now been
erased by the insistent broad market selling.  Shares of UPS rose
as high as $66.50 on Monday, and since then the stock has seen a
10% decline.  Traders that followed our recommendations for entry
into the play are sitting on nice gains tonight and we don't want
to risk giving those gains back if the bulls mysteriously find
their way back into the marketplace.  Note that UPS has managed to
hold above critical support at $59.75.  While a breakdown below
this level can be used for new aggressive entries, we don't want
to take a chance on this being the bottom and giving back our
gains on a strong short-covering rally.  So we're lowering our
stop to $62 tonight.  While another rollover near the $62 level
can be used to initiate new positions, such an entry should only
be taken if the broad market is continuing to weaken.  We are also
recommending to take profits on any open positions if UPS falls
to the $58 support level.  

---

EBAY $53.16 -2.89 (-6.29 for the week)  EBAY had its chair kicked 
out from under it after fund managers completed their required 
purchases to add the stock to their portfolios prior to last 
Friday's close.  The stock was added to the S&P 500, and then 
promptly went into free fall mode without this crutch holding it 
up.  Future growth has been cited as a problem, as has its high 
P/E ratio, which stands at 109.05 (down from 117).  PayPal, which 
EBay is acquiring, released earnings that were still not enough 
to prevent EBay's trip back to reality. This put play was 
originally picked at $59.45 and we will be closing the play if 
the stock trades $50.  We are lowering our stop loss to $56.00, 
which will still lock in a nice profit if reached.

---

LOW $34.22 -0.70 (-1.81 for the week) Lowe's has been dying a 
slow death, along with the rest of the retail sector. The Retail 
Index has been free falling, breaking previous support levels at 
a blurry clip, stopping only today to take a breath.  The entire 
sector has followed the same path, with heavyweight WalMart 
showing pause today from its downward slide.  This, however, was 
not enough to prevent Lowe's from continuing its own rapid 
descent.  Originally picked at $37.60 OI sees some support around 
$32.50 and again at $30.50, which is currently our target on this 
stock.  Lowe's point and figure chart currently shows a 
descending triple bottom breakdown, established at $40, which is 
a very bearish sign for the stock.


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

AZO – AutoZone, Inc. $61.73 -1.09 (-3.15 this week)

AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its
more than 2900 stores in 42 states and Mexico carries an
extensive product line for cars, vans and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items and accessories.  Approximately half of its
domestic stores also have a commercial sales program, which
provides commercial credit and prompt delivery of parts and
other products to local repair garages, dealers and service
stations.

It is clear that selling is reaching a fever pitch when the
good stocks are being pitched aside with the bad, as investors
just want out of the market.  One of the stellar stocks of the
past 18 months is AZO, which up until a month ago was still in
the vicinity of its all-time highs.  But with the sharp decrease
in Consumer Confidence hitting the Retail sector especially hard,
the stock has given up more than 25% in the past month.  This is
in spite of the fact that the company has continued to impress
the street with strong earnings reports.  This is a classic
case of throwing the baby out with the bathwater, but we're
willing to ride it down the drain, just the same.  Coming to rest
on Tuesday right on the edge of a cliff, AZO closed barely above
the level of the extreme intraday lows from the past 7 months.
If that level ($61.25) breaks, then it will likely trigger a wave
of selling that could take the stock significantly lower.  In
contrast to many of our put plays, we don't want to fade a rally
on this AZO play.  The only trigger that makes sense is a break
of the $61.25 support level.  Initiate new positions on a
volume-backed drop through this level and then set stops at the
$64 level, the site of significant overhead resistance.

BUY PUT AUG-65*AZO-TM OI=323 at $5.60 SL=3.50
BUY PUT AUG-60 AZO-TL OI=265 at $3.00 SL=1.50

Average Daily Volume = 1.18 mln


---

GS - Goldman Sachs $67.73 -4.27 (-9.27 for the week)

Company Summary:
Goldman Sachs is a leading global investment banking, securities 
and investment management 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. Founded in 1869, it is one of the 
oldest and largest investment banking firms. The firm is 
headquartered in New York and maintains offices in London, 
Frankfurt, Tokyo, Hong Kong and other major financial centers 
around the world. (Source: company press release)

Why we like it:
Goldman Sachs enjoyed quite a run-up last week, in anticipation 
of being added to the S&P 500 at the close of business Friday.  
My how the mighty have fallen.  This week has not been good to 
stocks involved in brokerage and investment banking.  The news 
that J.P. Morgan and Citigroup were engaged in transactions with 
Enron that may have helped the former Energy giant hide its 
mounting debt has taken a hammer to the entire sector.  Investor 
trust is in short supply and these financial stocks are severely 
lacking in that department.  News of record outflows from mutual 
funds each week has only added to this sector's problems.  As if 
sitting in front of congress defending questionable financing 
arrangements isn't enough to turn bulls away. As money continues 
to stream out of the market, Goldman and others should continue 
to see their commissions and fees shrink.

OI has been watching the point and figure chart on this one for a 
while.  We suggested some put spreads on the Market Monitor this 
morning as soon as the stock traded $69.  This constituted a 
triple bottom breakdown on the PnF.  GS had tested this level on 
six previous occasions and rebounded.  Not this time.   GS is 
currently working on a bearish vertical count to $58, but this 
will be added to negatively for each point the stock drops.  
There is some support on GS's chart in the mid-$63 range, and 
again around $60, which will be our price target.  We will set 
our stop loss at $70, just above the PnF trigger point.

BUY PUT AUG-70*GS-TN OI=6755 at $5.20 SL=3.00
BUY PUT SEP-70 GS-UN OI=1349 at $6.50 SL=3.75

Average Daily Volume = 4.87 mln


---

OMC - Omnicom Group Inc $46.72 -1.26 (-3.27 for the week)

Company Description:
Omnicom is a leading global marketing and corporate communications 
company. Omnicom's branded networks and numerous specialty firms 
provide advertising, strategic media planning and buying, direct 
and promotional marketing, public relations and other specialty 
communications services to over 5,000 clients in more than 100 
countries. (Source: company press release)

Play Description:
Omnicom has enjoyed quite a ride recently.  The stock traded over 
$90, before nose diving as low as $36.50, after the ever-popular 
"accounting issues" tag was placed on the company this spring.  
After releasing a 48 page document on the company's website, 
addressing these issues, the stock took off.  We picked it as a 
call around $49 and it made it as high as $54.20 before rolling 
over.  OMC is now continuing a downtrend begun just after the 
stock topped out and was unable to hold its highs.  Renewed 
worries about corporate misgivings have most likely crept back 
into investors minds since the recent disclosures of shady 
dealings between Citigroup, J.P. Morgan, and Enron.  However, note 
that the stock was unable to reach its upside target even prior to 
these disclosures.

On its way up, OMC set a new buy signal on the point and figure 
chart.  That signal at $54 was quickly negated with a new sell 
signal on a trade of $48.00, which OMC triggered on Monday. The 
stock appears to have been overbought in a fit of "irrational 
exhuberance," by investors hoping to see it return to its high 
flying days. The bears stepped in and put a stop to that with more 
zealous offers than the bulls had room for.  OMC is currently 
working on a bearish vertical count of $39.  Trades at $46 and 
below will add to the bearish count until we see a rebound.   A 
short-term rebound looks most likely around the $40 level, from 
which OMC bounced before embarking on its ill-fated journey 
upward. This will be our target level. Any additional news seeping 
out about corporate bookkeeping shenanigans could have the bears 
revisiting OMC's problems and pushing the stock lower.

OI will set our stop loss at $50, in order to keep this flyer in 
our range of play.

BUY PUT AUG-50 OMC-TJ OI=1302 at $5.70 SL=2.50
BUY PUT SEP-45*OMC-UI OI= 455 at $5.30 SL=2.75 

Average Daily Volume = 3.92 mln


---

MHK - Mohawk Industries Inc. $43.50 -1.48 (-2.40 for the week)

Company Summary:
Mohawk is a leading supplier of flooring for both residential and 
commercial applications and a producer of woven and tufted 
broadloom carpet, rugs, ceramic tile, laminate, wood and an array 
of home product including pillows, throws, bedspreads and other 
textiles. The Company designs, manufactures and markets premier 
brand names, which include "Mohawk," "Mohawk ColorCenter," 
"Floorscapes," "Aladdin," "Bigelow," "Custom Weave," "Durkan," 
"Galaxy," "Helios," "Horizon," "Mohawk Commercial," "World," and 
"Wunda Weve," "Goodwin Weavers," "Karastan," "Mohawk Home," 
"Newmark" Dal-Tile, and American Olean

Why we like it:
Mohawk took quite a fall last week after warning that 3rd and 4th 
quarter earnings would be well below previous estimates.  The 
stock gapped and closed down $7.70 on July 16th.  It made a weak 
effort to close the gap, but was unsuccessful.  They had 
previously said they expected earnings growth in the 10-15 
percent range, and then guided lower to 2-5 percent.   That may 
be optimistic given that the company said that the uncertainty of 
economic conditions has never been greater.  Makers of furniture, 
home fixtures and appliances have all been hard hit as consumer 
demand and confidence has waned.

MHK fell sharply below its 200-dma, and after its failed attempt 
to rally, appears ready to break below its open on the gap day.  
On that day it opened at $43.50 and in the next three days 
managed a dead-cat bounce back to the $50 resistance level.  
Those gains have all been given back the next support level is 
the psychological round number of $40. However, we expect this to 
break and see MHK trade toward its next nearest support below 
that level, which appears between $37 and $38.  This is our 
initial target on this play.  Below that level, it could be a 
quick drop to support at $30.

As the homebuilders have taken a beating due concerns over a 
potential housing bubble, this maker of home products will surely 
see demand for its products continue to fall as consumer 
sentiment decreases.  A downgrade by Raymond James the day 
following its earnings release did nothing to help investor 
confidence in this issue.  OI will use a trigger point below 
$42.75 as an entry point, just below its intraday low on its gap 
down.  Until MHK trades under $42.75, we'll stand on the 
sidelines.  Once triggered, we will place our stop loss at $46.65 
above Monday's high.

BUY PUT AUG-45*MHK-TI OI= 107 at $3.60 SL=1.80
BUY PUT SEP-45 MHK_UI OI= n/a at $4.90 SL=2.50, wait for volume 

Average Daily Volume = 848K



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The Option Investor Newsletter                  Tuesday 07-23-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.



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

OMC - Omnicom Group Inc $46.72 -1.26 (-3.27 for the week)

Company Description:
Omnicom is a leading global marketing and corporate 
communications company. Omnicom's branded networks and numerous 
specialty firms provide advertising, strategic media planning and 
buying, direct and promotional marketing, public relations and 
other specialty communications services to over 5,000 clients in 
more than 100 countries. (Source: company press release)

Play Description:
Omnicom has enjoyed quite a ride recently.  The stock traded over 
$90, before nose diving as low as $36.50, after the ever-popular 
"accounting issues" tag was placed on the company this spring.  
After releasing a 48 page document on the company's website, 
addressing these issues, the stock took off.  We picked it as a 
call around $49 and it made it as high as $54.20 before rolling 
over.  OMC is now continuing a downtrend begun just after the 
stock topped out and was unable to hold its highs.  Renewed 
worries about corporate misgivings have most likely crept back 
into investors minds since the recent disclosures of shady 
dealings between Citigroup, J.P. Morgan, and Enron.  However, 
note that the stock was unable to reach its upside target even 
prior to these disclosures.

On its way up, OMC set a new buy signal on the point and figure 
chart.  That signal at $54 was quickly negated with a new sell 
signal on a trade of $48.00, which OMC triggered on Monday. The 
stock appears to have been overbought in a fit of "irrational 
exhuberance," by investors hoping to see it return to its high 
flying days. The bears stepped in and put a stop to that with 
more zealous offers than the bulls had room for.  OMC is 
currently working on a bearish vertical count of $39.  Trades at 
$46 and below will add to the bearish count until we see a 
rebound.   A short-term rebound looks most likely around the $40 
level, from which OMC bounced before embarking on its ill-fated 
journey upward. This will be our target level. Any additional 
news seeping out about corporate bookkeeping shenanigans could 
have the bears revisiting OMC's problems and pushing the stock 
lower.

OI will set our stop loss at $50, in order to keep this flyer in 
our range of play.

BUY PUT AUG-50 OMC-TJ OI=1302 at $5.70 SL=2.50
BUY PUT SEP-45*OMC-UI OI= 455 at $5.30 SL=2.75 

Average Daily Volume = 3.92 mln



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