Option Investor

Daily Newsletter, Sunday, 08/18/2002

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The Option Investor Newsletter                   Sunday 08-18-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Bullish Sentiment Fading?
Index Trader Wrap: Tech Revives
Editor’s Plays: Momentum Plays Return
Market Sentiment: Convinced Yet?
Coming Events: Earnings, Splits, Economic Events

Updated on the site Tonight:
Swing Trade Game Plan: Rally Fading?

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 8-16          WE 8-09          WE 8-02          WE 7-26
DOW     8778.06 + 32.61  8745.45 +432.32  8313.13 + 48.74  +245.13
Nasdaq  1361.01 + 54.89  1306.12 + 58.20  1247.92 - 14.20  - 57.03
S&P-100  468.44 +  9.62   458.82 + 24.77   434.05 +  7.12  +  3.83
S&P-500  928.77 + 20.13   908.64 + 44.40   864.24 + 11.40  +  5.09
W5000   8770.28 +198.41  8571.87 +385.31  8186.56 + 94.93  +  8.63
RUT      395.97 +  7.52   388.45 + 12.00   376.45 -  5.81  -  3.94
TRAN    2339.40 +  7.52  2351.65 +149.62  2202.03 - 52.76  - 77.39
VIX       32.82 -  6.54    39.36 -  6.03    45.39 +  4.95  -  3.01
VXN       50.65 -  8.05    58.70 -  6.74    65.44 -  3.58  +  7.85
TRIN       1.52             0.90             1.47             1.21
Put/Call   0.51             0.69             0.93             0.70

Bullish Sentiment Fading?  
by Jim Brown

The bullish spike on Wednesday energized traders but they were
unable to follow through on the sentiment as the week drew to a 
close. The Dow did end the day still above 8750 support but even 
farther below its next resistance at 8850. It appears the 10-week
moving average at 8800 may be keeping a lid on it as well. The 
Nasdaq did manage to finish on a positive note as techs got a 
boost from the positive Dell earnings. Still all is not well in
the broader markets. 

Chart of the Dow


Chart of the Nasdaq


The day started off bad with economic reports giving mixed messages.
Housing starts slowed for the second consecutive month as the stock
market drop continued to weigh on buyers as well as builders. This
is not really a negative as it represents a stabilization of the
booming market and a return to more sustainable levels. The pace
of new building is continuing at a strong pace and is driven by 
the very low mortgage rates.

The Consumer Price Index came in slightly lower than expected at
+0.1% with drops in apparel prices offsetting higher prices in
medical, communication and education costs. This continues to 
show that inflation on a yearly basis is a very mild 1.5% rate.
No Fed worries here! With a slowing demand picture prices should
continue to fall and provide no inflation barrier to future rate

The University of Michigan Consumer Sentiment report showed that
the drop in sentiment had slowed significantly over the last two 
weeks. The number fell to 87.9 from 88.1, hardly a perceptible drop.
This was influenced in part by the market bounce over the last two
weeks and would indicate a wait and see attitude. It is still at
the lowest level since November. The key here is not if sentiment
has stopped falling but will consumers continue buying or are they
running out of money. 

One of the keys for me to the question about consumers and their
sentiment is the mutual fund outflows. TrimTabs.com reported that
investors withdrew $3.5 billion from stock funds in the prior week,
the week of the initial bounce, and those withdrawals accelerated
this week to $5.4 billion. If consumers were feeling that the 
crash was over then why were they taking even more money out this
week? If they are using this money to fund their purchases then
the well will eventually run dry. Also, once spent for clothes, 
food, housing, education, toys, etc, it is not available in the
future for investing in stocks again. That money is lost to the
market and while it is powering the economy in the short term is
also a limited resource. Just my opinion.

There is also a growing fear that the market drop along with the
numerous bankruptcies has sunk public pension funds to the point 
of failure. According to one report on Friday 51% of public pension
funds are now under funded and have insufficient assets to satisfy
future cash flows as retirement ranks swell. Estimates are that 
this will grow to 75% by next year. This is a huge problem and
not one that will be cured easily. It will take a return to bubble
highs to provide the needed liquidity again and we know that is
not going to happen anytime soon. We are looking at a growing
crisis that is still unknown to most consumers. 

There was good news this week and that was the lack of a major
certification event. It was a classic good news, bad news joke. 
The good news was there was no bad news. The bad news was there
was no positive reaction to the good news. Confused? Traders have
been worried for two months that the end of the stock world as
we know it would come to pass on August 14th. The date came and
went and the markets failed to melt. In fact they failed to do 
anything on Thursday and Friday but move sideways. You would have
thought the lack of disaster would have energized investors to 
go shopping for bargains. Instead total market volume has been
half of the 5-6 billion share days from the last two weeks of 
July. With only 3.2 billion on Friday the numbers of 52 week 
lows still beat new 52 week highs 3:1. The NYSE is running 2:1
lows to highs but the Nasdaq, despite a good week, is running 
4:1 lows to highs. The rally we have been seeing has not been
as broad as everyone thought. 

I have two observations today. The first was a perception gained
during the pick meeting on Friday afternoon. We had a very hard
time finding put plays. We looked a several hundred more charts
than usual and very few looked like put candidates in the normal
view. This would normally mean that there were hundreds of great
call candidates. This also was not true. The problem is resistance.
Almost every chart we looked at, somewhere close to 1000, was at
resistance. Every one looked ready to breakout OR breakdown
but there was no visible directional indication. Normally you have
a nice pattern of higher lows edging ever higher and culminating
in an eventual breakout. What we were seeing was a sprint to 
resistance and then a flat line on Thursday/Friday. There simply
appeared to be no buying OR selling interest. This could have 
been simply an expiration week syndrome but is very reminiscent 
of failed rallies in the past.

In March the Dow sprinted to resistance of 10350 in a week after
posting an apparent double bottom at 9800. In May the Dow spent 
12 days at resistance of 10600 after sprinting from an apparent 
double bottom at 9600. In both of those instances resistance 
held and a severe drop followed. After twelve trading days in 
August we are still within 50 points of the July 31st close. 
The +1200 point V bottom rebound in July came to a screeching 
halt exactly at the same resistance we are facing today. 
Obviously a break over it would be highly positive but we are 
in historically the worst quarter of the year for stock 
performance. Add to this the weakening economy and hibernating 
consumer and expectations for the market to buck the trend, 
even after 28 months of a bear market, are slim. October is 
known as the bear market killer as it has the reputation for 
seeing the end of more bear markets than any other month. 
Unfortunately that is still two months away.

The second observation today is the speed at which the build up
for an Iraq war is occurring. There were several news articles
today referring to huge troop movements to the middle east and
a reader in Qatar confirmed that the military buildup over the
last couple of months has been tremendous. The climate in Iraq
would make a ground assault very tough until January at the 
earliest but there was a wave of rumors again on Friday that
Saddam already has as many as 40 nuclear bombs of which 30 are
in the dirty bomb class but 10 are true warheads. The problem
it appears was a reported military meeting last week where he
discussed striking a pre-emptive attack on Israel, Jordan and
possibly some US port cities with these bombs. He knows he cannot
win a war and has decided to cause as much damage as possible 
before that final cruise missile lands in his lap. Another reader
in Germany said they were just called up and have spent a week
doing fly-in casualty drills with their unit running 24 hrs a 
day. They have been told they were shipping out on Saturday to
an undisclosed location, they are guessing Turkey. The rumor again
is that Saddam is planning a huge pre-emptive strike. They said
military equipment was pouring through Germany at a frantic pace 
with 2hr touch and go refueling on the ground.   

Sentiment is running very strong against an attack both in Europe 
and the middle east. If Bush were to get real proof of the nuclear
rumors above he would no doubt decide to strike on his own and 
risk getting into a serious oil fight with OPEC. Don't think 
they would not use that as a weapon against us and anyone else
who joins the party. Also, Russia announced signing a $40 billion
deal with Iraq today. They are one of the largest suppliers of
military equipment to Iraq. Obviously they will not be on our
side in any conflict. The challenge I see in all of this is back
to the problem of consumer sentiment. Consumers are not stupid. 
As events ratchet up as we get closer to the event they will 
withdraw even further and hoard gas and money again. As countries
start choosing sides hedge funds and institutions will start
shorting heavily again. This is just an opinion but with only
four months before the invasion window opens there is going to
be a lot of maneuvering as the buildup races to its climax. 

There seems to be a unanimous agreement that the bottom is behind
us. That scares me. If the bottom is really behind us then why
are investors continuing to pull money out? Obviously the glib
answer is they are always wrong on both extremes, selling at the
bottom and buying at the top. Do you think maybe the market is
not going up because quite a few traders still think there is
another period of weakness ahead? I do. They can be just as 
wrong as anyone else but they just might have the right idea.
I look at the chart of the Dow and I want to believe it is going
to breakout any day. My wanting it will not make it happen. I
keep seeing the conflicting internals and lack of movement and 
wonder if we are not setting ourselves up for another fall.

The Dell earnings were decent and energized the tech sector
again even though it is really a company specific story and not
an industry win. Dell is gaining market share and reducing costs
while running on only four days of inventory. Nobody else has 
the same business model yet Dell can only manage +5% revenue 
growth for next quarter. The majority of that growth is expected
to be from gaining market share not an improving business climate. 
Still the Nasdaq gained +16 points and actually closed six points 
over resistance. Obviously six points can evaporate in an instant 
if sentiment changes. 

All of the broader indexes are showing a possible breakout or down. 
The Wilshire-5000 closed -65 points off its high, which is also
its strong resistance, at 8825. The bullish view is that it is
poised to breakout. The bearish view is that resistance has held
and it is poised to fall and retest the lows. My view is that 
there is a floor under the market. It may not be ready to breakout
yet but as long as there is a floor under the market the pullbacks
will be buying opportunities. The key here is "as long as there 
is a floor" and that floor can disappear at any moment. Currently 
that floor is around 8475 on the Dow and rising. This means we
have about -300 points of risk before we know if the floor has 

The Fed confused traders this week by saying the odds of a weaker
economy were better than a stronger economy. Stocks dropped on
the news but rallied back on media assurances that with a bias
to easing the Fed could cut rates at any time. You know my thoughts
on that so I won't bore you again on that topic. The S&P, OEX and
Dow have posted four weeks of gains, a feat not seen in a year
on the S&P. Since we know nothing goes up in a straight line the
possibility of a negative week is strong. With stocks struggling
to make new relative highs the bond market was beaten like a 
rented mule as Art Cashin would say. However, Art confessed to 
being puzzled by the lack of gains in the market compared to the
amount of selling in the bonds. He said the Dow move should have
been +800 to +1000 points based on his experience. He said they
raised the cash but did not spend it. This poses an interesting
question, what are they waiting for? Could it be they just felt
that bonds had gone up as high as they could go and just wanted
to take profits? I think the answer is yes. With yields at 40 yr
lows the time to sell was right. However, it just may not be the
right time to buy stocks and that is why they are sitting on the

Another factor could be that buying distressed corporate bonds 
today makes far better sense than buying stock or government
paper. Corporate bonds have literally fallen through the floor.
Worries over corporate governance and the certification factor
drove corporate bonds to new lows as investors were afraid they
would be caught holding the next WCOM on August 14th. Once that
initial deadline had passed without a disaster the coast was
clear to take profits on government bonds and move those funds
into corporate paper. Warren Buffet led the way last week when 
he went public with several high dollar investments in beaten 
down companies. If this is the case then the billions of dollars
that came out of the bond market is not waiting on the sidelines
for the stock market. Did you just have an Ah-ha moment? Did 
you just realize why the markets were running on only half the 
volume this week? 

Yes, there is a floor under the market. It is low volume 
bargain hunting by pension funds, retail investors and probably 
some nibbling by mutuals as well. These bids can disappear in 
an instant if the sentiment direction changes. The bottom line, 
buy a breakout over Dow 8850 and buy any bounce from a dip 
to the 8500 range but don't buy in the middle. If 8500 fails 
then it is an entirely new ballgame. Use those same levels as 
stop losses on any long positions you may enter. Consider the 
risks outlined above because you can bet the big money is 
thinking about it. There are also strong rumors the Fed juiced 
the market on Wednesday to avoid a total meltdown if there was 
a rash of certification failures. If they did then the buying 
was artificial and was successful because of the very thin market.
Now that that hurdle has passed we are on our own again. That
is a scary thought with September and October still ahead of 

In the Guess the Dow contest we had a tie this week. The Dow 
closed at 8778.06 and two readers guessed an identical 8777.77. 
We decided instead of awarding the 2-monitor card to the earliest 
entry we would give each a one monitor card. (grin) Just kidding. 
We are going to give each of them the dual monitor card. 
Congratulations guys!

bbgold2001@h...... 8777.77 entered at 9:57:16 pm on 8/11.
scott.deb@gt.... 8777.77 entered at 11:52:55 pm on 8/11.

Send me an email with your addresses and we will get those in the mail to you. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor Was this commentary helpful to you? comments@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** Tech Revives By Leigh Stevens TRADING ACTIVITY AND OUTLOOK - By week's end the Nasdaq was leading the overall market as the beaten down semiconductor sector, mostly I think on the influence of Dell's better than expected results - more PC sales, more chip orders - rallied strongly. The Nasdaq was up for the week a little over 4%, it's best gain since the current rebound began. Before getting too imbalanced by the overbought readings registering on the hourly and daily stochastics, it's good to keep things in perspective by taking an occasional look at the longer-term weekly chart. Basis the weekly chart and the longer-term stochastic model, the Nasdaq Composite ($COMPX) is still gaining some upside traction - just breaking out above its long-term down trendline and the 13- week stochastic (measuring a forth of year - a quarter) has just achieved a bullish upside crossover buy signal. And to keep perspective - if the COMPX retraced only a "minimum" 38% retracement of the decline from the January high (at 2100), the composite would rebound to 1550. However, even if this is the beginning of a real turnaround in the bear market, there could be a lengthy process in doing it and a period of sideways price action between say 1200 and the 1500-1550 area. The next bottom may not be the "V" type low that we've typically seen in QQQ. The path of least resistance now seems to be on the upside. The midweek certification deadline seemed to represent a psychological boost, especially to institutional money managers. Besides the semiconductor group, bargain hunting type buying on Friday developed in the very beaten down Airline stocks, Wireless telecom sector and Fiber optics. High tech in general advanced, including the Internet group, Software and Defense. The big focus seems to have shifted from can you trust corporate American to can you trust the economy and will there be a double dip slowdown or recession for using the "R" word - the R word is not one to pass the lips of the administration which only sees "evil" in Iraq and terrorists - oh, did I leave out Iran and Korea? Having lived in Iran once upon a time, I would say that these are people we could work with, but that's another story. DIFFERENT PATTERNS - The chart patterns and their technical implications from last week are quite different for the shorter-term hourly chart versus the longer-term daily chart in the S&P 500 index, the lead and key index in this current market rally. A SHORT-TERM PERSPECTIVE S&P 500 Index (SPX) - Hourly chart: A possible Head & Shoulder's (H&S) bottom pattern can be seen on the 60min. SPX chart - Left Shoulder (LS) at 914 high 8/9; (reverse) Head is 876 low and Right Shoulder (RS) at 993 hourly high 8/15 - neckline connects LS (914) and RS (933) and intersects at 944. A breakout of the neckline would then suggest an upside objective to the 993 area, and such a move would also then be nearing the top end of the broad hourly uptrend channel seen above - so, a move above 944 (or wherever the trendline is over time) is a technical upside breakout suggesting that a further spurt higher was ahead. The "neckline" is the key resistance - there is no "confirmed" breakout unless there is an upside penetration of the neckline. AND A LARGER PERSPECTIVE S&P 500 Index (SPX) - Daily chart: Someone pointed out to me today the possible bearish rising wedge on the daily chart as the S&P 500 traces out higher highs and higher lows off its bottom but in narrowing price swings. The rising or ascending wedge is typically a reversal type formation and is "usually" seen at a possible top - in a market that has been rising for some time - and not in a situation like this one where the trend that precedes this pattern has been a steep downtrend for months. However, a wedge is a wedge and SPX has traced out a bearish type rising wedge - the key will be if there is a break of that lower trendline, intersecting at 900 currently. Also, the top trendline would suggest that SPX could get up to about 955, before hitting resistance implied by upper trendline. Also, I would note that the 50-day moving average, at 932 currently, is potential near resistance to pay attention to. On balance, the chart patterns are mixed - resistance levels to be overcome at 932, 944, then 955. A close above 955 suggests that were upside potential to the 990 area - the 990-1000 zone is the most bullish target for the current move. Conversely, support levels are 912-914, then 900 - this level is pivotal to keep the trend on a bullish track - a close below 900 suggests a possible retest of support in the 975 area. I would key off the SPX to judge this market, as buying interest and participation has broadened out - I am gauging the market currently more off this index than OEX or DJX. S&P 100 Index (OEX) - Daily/Hourly charts: The sideways consolidation above the prior highs - between 472 and 464 as seen on the hourly chart, is bullish. Support is 464, then the "line" of prior highs at 458-462. A decisive downside penetration of 458 is bearish and suggests that a deeper correction - actually a more "typical" correction - was underway. I haven't given up on the upside potential implied by the bull "flag" pattern and breakout on the daily chart. But to be a valid suggestion of another up leg, holding 460 is key. In terms of longer range support - at 440, OEX is well above it. As long as 440 is held, substantial further substantial upside potential is still quite possible, but the flag formation would register as a pattern "failure". As I noted before: a bull flag pattern is somewhat more likely to "fall apart" in an index than they are in an individual stock - an index being infinitely more "complex" than a single stock. Not that these patterns do not work out - but usually, on tip off for the power move is that the market keeps going after prices break out above the top of the back and forth price swings that "formed" the flag. DJ Industrial Index (1/100 of INDU) - $DJX - Daily/Hourly charts: No change in my view to maintain a bullish trading stance, as long as long at DJX can stay above 87.6-87.9 on a closing basis both in terms of the hourly and daily closes. Support under this area is 85, then in the 84-83.7 area. The Dow is just barely managing to consolidate above its prior highs - its pattern is less bullish in this regard then the broader market S&P. However, assuming it can hold support, I still see upside potential to the 90 to 92 area - this is the "most bullish case" scenario. I would be a seller in the 91-92 price zone, on a scale up basis. The ascending flat-topped triangle I've outlined on the daily chart is normally a bullish pattern once there is breakout above the top line. The pattern is NOT a wedge as the top line would slope UP. There seems to be a lot of confusion between triangles and wedges, as they both have a triangular shape. But the wedge is just what the name tends to imply - it is more long and narrow as is typical of "compression" from a narrowing between successive highs and lows - this is tighter "balance" between buyers and sellers and this situation never lasts that long - so the wedge is a reversal pattern and the triangle is most often a consolidation. Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: The Nasdaq Composite is leading the way higher and is showing better relative strength than the Nasdaq 100. The Composite's close last week at 1361 put it closer to its Sept. low, at 1387 - a 2% further gain will allow a retest. QQQ, at its weekly close at 24.7, relative to its September bottom at 27.0 is 8.5% shy of this milestone level. If we go back up to the Composite weekly chart, there is considerable upside potential suggested - maybe the Nas 100 can get pulled higher by the broader Nasdaq market. Perhaps even to 27. Judging QQQ just based on its own, has nearly fulfilled my upside objective at least near-term; i.e., to 25-25.25. I've kept the same hourly uptrend channel line, as there has been no decisive upside penetration of it. I still lean to shorting the Q's in the 25-25.25 area with a stop at 25.7 or perhaps to just over 26. I'd try again in the 27 area if reached. Key support is in the 24 area - at the prior 23.7-23.9 highs. A move below this area suggests exiting long positions. The next support is implied by the prior low in the 22.5 area. I'd be a buyer down in this area on successful retest of the previous bottom. Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** Editor's Plays ************** Momentum Plays Return Sticking with individual stocks again this week. The rebounding market is providing us with some ideal long term candidates with cheap options. These are not trading plays and may lose value before accelerating again but I feel they are good candidates for appreciation. ************************** Foundry Networks This company is holding its own in the networking sector and is growing market share and profits. A research report on Friday showed FDRY to be the global leader in market share for three different switching sectors. Most notably in the 10 Gbps Ethernet switches. FDRY blew by analyst's estimates of a penny a share profit for the 2Q by posting four cents. The company said it gained 380 new customers, had its strongest backlog ever and $298 million in cash. Foundry may never regain its $150 share price during the bubble but it should see $20 on any real economic recovery. There are three ways to play this. Foundry does not have leaps and March calls are the longest available. Using the March $10 call for $2.00 a return to even $15 would easily double your option price. A return to resistance at $20 would be a home run. More aggressive investors might want to use the Dec $7.50 call for $2.65. It is already $1.65 in the money and after another $1 rise in the stock should gain one dollar for every dollar FDRY rises. The best thing about playing deep in the money options is the potential to profit on very minor moves and retain capital on insignificant moves. Should the stock only gain +.85 cents between now and December the option would retain 95% of its value where the $10 option would expire worthless. You could also sell the March $15 put naked for $6.10 and profit dollar for dollar on any move up from here. The risk of course is a drop in the stock with out a stop loss and being put the stock for $15. Your maximum risk would be $9.00 since you would receive $6.00 in premium. You could buy the Dec $7.50 put as insurance for $.90 making your maximum risk $1.50 plus the 90 cent premium. The Sept 7.50 is only 40 cents. *************************** Check Point Software This company is the world leader in Internet firewall software applications. They just announced a joint marketing venture with IBM and TECD and business is booming. The trend is strong with resistance at $20 and $22.50. CHKP should be hitting those levels just as the 4Q begins and with luck could fill the gap beck to $27.50 by year end. Three ways to play. I like the deep ITM Jan-$15 call at $5.40. I know this is a lot of money for most option traders but it is already $3.00 in the money. This means you are actually paying only $2.40 for an at the money option. If CHKP stops at $20.00 you would lose practically nothing. If it continues to 22.50 and stops then you make $2.00 or so. If it does breakout as I expect then your option at $27.50 is worth over $12.50. The second solution is to buy the stock and sell the Jan-$22.50 covered call for $1.75. If you are called that represents a 34.7% return. The last option is to sell the Jan-$30 naked put for $12.00. Any move over $18.00 is profitable but your risk is being put the stock at any time. That is not a bad deal if the stock has risen over $18 as it just forces you to take a profit. ******************** NetScreen I found this while researching CHKP. This company is exploding and everybody has good things to say about it. It just IPOed last December and fell from $30 to $11.57 before catching fire. The company said they had more orders than they could fill in a recent interview. When was the last time you heard that? This is purely a momentum play and the stock definitely has it. I like the March $10 call for $5.10, expensive but already $3.08 ITM. Any move over $15 is profitable. If you want less out of pocket cash then the March $12.50 and $15 calls are very close in price at $3.70 & $2.80 each. The 90 cent difference for $2.50 in strike price makes the $12.50 a better deal in my opinion. You can always sell the Dec $17.50 put for $5.30 and let the premium decay work for you instead of the call seller. The risk is you can own the stock with a basis of $12.20 which is less than it is selling for today. The March $15 put at $4.20 gives you a basis of $10.80 if put. ************************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown Was this article helpful to you? comments@OptionInvestor.com **************** MARKET SENTIMENT **************** Convinced Yet? by Steven Price The Markets have held onto the recent rebound in an impressive fashion this week. Today the Dow gave back 40.08 points, to finish at 8778.06. However, the index continues its pattern of higher highs and higher lows. Although a look at the chart shows a triangle pattern, with a flat top and rising bottom, the successive tops formed over the last month have each been slightly higher than the previous one. 8850 appears to be the next significant level in the Dow, as it ventured over this mark only briefly, before being turned back on Thursday. The bullish percentage reading has reached 50%, which shows that half of the stocks in the index are now giving buy signals. This level provided support as the average sold off from overbought levels at the beginning of the year, and a break above it, showing a majority of stocks with buy signals, would look very bullish in the short term. A look at the bullish percentage in the Nasdaq 100 shows an increase to 46%, just below the bearish resistance line at 48%. A break through this line (on a 2% box scale) would also put the NDX at 50%. Interestingly, the 50% mark provided support for this index, as well, during the first part of the year. Moving onto the SPX, which encompasses all 500 stocks, we have a similar percentage of 48% - just one box away from half of these stocks giving buy signals as well. Lagging these percentages, however, is the Nasdaq Composite, encompassing a wider range of stocks, which is still showing a reading of 26%. Today's finish of 31.92% is just 0.08% short of establishing a 3-box reversal up to 32%. The argument here, however, is that the bullish percent gives each stock an equal weight. The percentage of Nasdaq Composite stocks trading in single digits remains high, and market cap on these stocks is very low. Therefore, the Nasdaq 100, which encompasses the more significant tech stocks, should be given greater weight. This alignment of bullish percent, between what I consider to be the most important broad market indices, continues to give bullish "vibes." The lack of IT spending, and slow growth in the economy, however, may still pull the market down. The question is whether stocks have been annihilated to the point where they are actually valued appropriately Consumer sentiment numbers this morning seemed to indicate that consumers are no longer throwing in the towel. The number was down slightly, from 88.1 in July to a preliminary reading of 87.9 in August. However after falling 8 points in the last 2 months, this could be viewed as stabilizing. Of course stabilization at low levels doesn't seem overly encouraging. One number, in particular, shows that the honeymoon may be over for the Bush administration. The public rallied around the President after the 9/11 attacks. However, patriotism appears to have given way to skepticism, as confidence in the administration's economic policies fell to the lowest level since Bush took office. Only 23% of consumers rated the administration's policies as good, while 22% rated them as poor. In the end, consumer spending still makes up 2/3 of GDP, and any long-term recovery will have to begin at this level. There are certainly more reasons to have faith in the continuing rise of the markets, given the rising bullish percentages; however, we will have to get through the 9/11 anniversary first, when it is likely investors will be dumping long positions, just in case. We can expect to see a continued tug-of -war between the bears and bulls, as the pressure builds around current levels. The breakout, however, should be explosive, as we have now tested the current level on three separate occasions. Remember, the longer a pattern forms, the more significant the breakout. This skeptic is being dragged kicking and screaming toward the middle, but hasn't yet put on his horns. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10679 52-week Low : 7702 Current : 8778 Moving Averages: (Simple) 10-dma: 8574 50-dma: 8863 200-dma: 9732 S&P 500 ($SPX) 52-week High: 1226 52-week Low : 797 Current : 928 Moving Averages: (Simple) 10-dma: 895 50-dma: 934 200-dma: 1073 + Nasdaq-100 ($NDX) 52-week High: 1782 52-week Low : 892 Current : 996 Moving Averages: (Simple) 10-dma: 935 50-dma: 1001 200-dma: 1344 ----------------------------------------------------------------- The Semiconductor Index (SOX.X): The Semiconductors have staged an incredible rally, rebounding 23% in 2 weeks. This would be equivalent to a rebound of almost 2,000 points in the Dow over the past 2 weeks. They sector has outperformed the S&P 500 by 16% and the Dow by 14% over the same period. This could be a result of the sector being incredibly oversold, or we may have seen a round of short covering. The fundamentals have not changed. IT spending has not improved, and Dell's estimates for next year's growth were not overwhelming. Look for a pullback to a more reasonable valuation in the sector, as most earnings releases are behind us and it should be a while before we receive any significant bullish news. 52-week High: 657 52-week Low : 282 Current : 348 Moving Averages: (Simple) 10-dma: 313 50-dma: 365 200-dma: 498 ----------------------------------------------------------------- Market Volatility When I see the VIX in the low 30s, I can't help but feel we are being lulled into a false sense of security. The Dow and S&P 500 seem to have stabilized over the last few days, but the flat line, after such wild volatility, only seems like a tightly fought battle between the bulls and bears. Look for a breakout from the Dow's current consolidation, and a volatility spike some time between now and September 11. CBOE Market Volatility Index (VIX) = 32.82 –0.25 Nasdaq-100 Volatility Index (VXN) = 50.65 –0.59 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.51 1,010,924 511,884 Equity Only 0.38 854,477 326,846 OEX 0.86 51,161 44,056 QQQ 0.30 113,534 33,885 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 38 + 2 Bull Confirmed NASDAQ-100 46 + 7 Bull Confirmed DOW 50 + 7 Bull Confirmed S&P 500 48 + 4 Bull Alert S&P 100 51 + 5 Bull Alert 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 1.27 10-Day Arms Index 1.17 21-Day Arms Index 1.22 55-Day Arms Index 1.35 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 1547 1168 NASDAQ 1825 1376 New Highs New Lows NYSE 11 32 NASDAQ 26 75 Volume (in millions) NYSE 1,499 NASDAQ 1,486 ----------------------------------------------------------------- Commitments Of Traders Report: 08/13/02 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 have reduced positions on both sides of the coin, resulting in a net change of 700 short contracts. Small Traders have reduced long positions by 3700 more contracts than shorts. Commercials Long Short Net % Of OI 07/23/02 405,969 471,704 (65,735) (7.5%) 07/30/02 430,833 482,957 (52,124) (5.7%) 08/06/02 431,590 478,879 (47,289) (5.2%) 08/13/02 427,618 475,536 (47,918) (5.3%) 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 07/23/02 166,713 73,778 92,935 38.6% 07/30/02 153,858 67,451 86,407 39.0% 08/06/02 159,561 67,434 92,127 40.5% 08/13/02 155,040 66,546 88,494 39.9% 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 have added to long positions by 1300 contracts, while short contracts increased slightly. Small traders also added to long contracts, increasing positions by 1200 contracts, while leaving shorts virtually unchanged. Commercials Long Short Net % of OI 07/23/02 37,204 43,601 (6,397) ( 8.0%) 07/30/02 38,163 47,343 (9,180) (10.7%) 08/06/02 41,014 50,025 (9,011) ( 9.9%) 08/13/02 42,303 50,354 (8,051) ( 8.7%) 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 07/23/02 12,756 11,152 1,604 6.7% 07/30/02 13,159 9,237 3,922 17.5% 08/06/02 11,547 8,782 2,765 13.6% 08/13/02 12,797 8,933 3,864 17.8% 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 have maintained the status quo, subtracting 600 contracts from the long side and 400 from their shorts. Small traders got decidedly shorter, dumping almost 3,000 long contracts and only 900 shorts. Commercials Long Short Net % of OI 07/23/02 22,369 14,745 7,624 20.5% 07/30/02 22,429 12,811 9,618 27.3% 08/06/02 23,491 14,290 9,201 24.4% 08/13/02 22,837 13,833 9,004 24.6% 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 07/23/02 9,101 12,604 (3,503) (16.1%) 07/30/02 6,778 8,999 (2,221) (14.1%) 08/06/02 7,981 9,258 (1,277) ( 7.4%) 08/13/02 5,050 8,349 (3,299) (24.6%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* COMING EVENTS ************* ================================================== Market Watch for the week of August 19th ================================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- A Agilent Technologies Mon, Aug 19 After the Bell -0.15 CIG Com Enr Mns Gerais Mon, Aug 19 -----N/A----- -0.24 GME Gamestop Corp. Mon, Aug 19 After the Bell 0.07 HAR Harman Intl Ind Mon, Aug 19 -----N/A----- 0.70 LOW Lowe`s Companies Mon, Aug 19 Before the Bell 0.54 TOY Toys R Us Mon, Aug 19 -----N/A----- -0.11 ------------------------- TUESDAY ------------------------------ HD Home Depot Tue, Aug 20 Before the Bell 0.47 MDT Medtronic Tue, Aug 20 After the Bell 0.32 PETC Petco Animals Tue, Aug 20 After the Bell 0.15 ROST Ross Stores Tue, Aug 20 Before the Bell 0.62 RY Royal Bank of Canada Tue, Aug 20 -----N/A----- N/A KPN Royal KPN N.V. Tue, Aug 20 Before the Bell N/A SKS Saks Tue, Aug 20 After the Bell -0.18 SPLS Staples Tue, Aug 20 Before the Bell 0.12 ----------------------- WEDNESDAY ----------------------------- BLI Big Lots, Inc. Wed, Aug 21 -----N/A----- 0.01 BCM Canadian Impl Bank Com Wed, Aug 21 -----N/A----- N/A CSB CIBA SPCLTY CHEMICALS Wed, Aug 21 Before the Bell N/A DT Deutsche Telekom Wed, Aug 21 -----N/A----- N/A EV Eaton Vance Wed, Aug 21 Before the Bell 0.44 JDEC J.D. Edwards Wed, Aug 21 After the Bell 0.06 SNPS Synopsys Wed, Aug 21 After the Bell 0.50 TLB Talbots Wed, Aug 21 Before the Bell 0.32 ------------------------- THURSDAY ----------------------------- ADCT ADC Thu, Aug 22 After the Bell -0.06 BKS Barnes&Noble Thu, Aug 22 Before the Bell 0.10 BGP Borders Group Thu, Aug 22 After the Bell 0.03 CIEN CIENA Thu, Aug 22 Before the Bell -0.19 Z Foot Locker, Inc. Thu, Aug 22 -----N/A----- 0.22 ING ING Groupe NV Thu, Aug 22 Before the Bell N/A LTD Limited Brands Thu, Aug 22 Before the Bell 0.12 MRVL Marvell Tech Grp LTD Thu, Aug 22 After the Bell 0.09 PDCO Patterson Dental Thu, Aug 22 Before the Bell 0.36 SFD Smithfield Foods Thu, Aug 22 -----N/A----- 0.15 SCM Swisscom AG Thu, Aug 22 Before the Bell N/A TECD Tech Data Thu, Aug 22 -----N/A----- 0.56 TD Toronto Dominion Bank Thu, Aug 22 -----N/A----- N/A WSM Williams-Sonoma Thu, Aug 22 Before the Bell 0.08 ------------------------- FRIDAY ------------------------------- CEP Centerpulse AG Fri, Aug 23 -----N/A----- N/A ZNH China Sthrn Airlines Fri, Aug 23 -----N/A----- N/A LANC Lancaster Fri, Aug 23 Before the Bell 0.56 PNY Piedmont Natural Gas Fri, Aug 23 -----N/A----- -0.30 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable SSD Simpson Manufacturing 2:1 08/16 08/19 MYE Myers Industries 5:4 08/29 08/30 -------------------------- Economic Reports This Week -------------------------- In the week ahead, this market guide could help investors traverse the wild jungle of securities trading! ============================================================== -For- Monday, 08/19/02 ---------------- Leading Indicator (DM) Jul Forecast: -0.5% Previous: 0.0% Tuesday, 08/20/02 ----------------- Trade Balance (BB) Jun Forecast:-$37.5B Previous: -$37.6B Treasury Budget (AB Jul Forecast:-$29.0B Previous: $2.8B Wednesday, 08/21/02 ------------------- None Thursday, 08/22/02 ------------------ Initial Claims (BB) 08/17 Forecast: N/A Previous: 388K Friday, 08/23/02 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** SWING TRADER GAMEPLANS ********************** Rally Fading? The markets reacted true to form on expiration Friday and wandered aimlessly to close mixed. After 12 days of trading in August we are still within 50 points of the July close. The markets may appear bullish but they are not making any real progress. This should be a very critical week for the bulls. FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support

The Option Investor Newsletter                   Sunday 08-18-2002
Sunday                                                      2 of 5

In Section Two:

Index Trader GamePlans: THE SECTOR BEAT - 8/18
Daily Results
Call Play of the Day: ATK
Put Play of the Day: BCC
Dropped Calls: None
Dropped Puts: HD, AIG, NKE, PHTN

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by Leigh Stevens

In the tech sector, the Philly Semiconductor Index ($SOX) rallied 
nearly 6 and 1/2 percent, led higher by strong gains in Texas 
Instruments and equipment makers like Applied Materials and 
Novellus Systems. More on the SOX in the "Highlights" section 

Analog Devices also ran up following its profit report while Dell 
(DELL) was good performer on the PC Boxmaker (BMX) sector - 
strength in Dell was quite supportive for the chip makers, as the 
more PC's shipped, the more semiconductor chips go out the 
factory door inside them.

At week's end, there was some upside seen in the Internet (INX), 
Wireless Telecom (YLS), & Airlines sectors, which were very 
oversold groups, especially the later two. The wireless group is 
following the North American Telecom index (XTC), which had a 
good recovery bounce last week. The Broker index (XBD) managed 
another gain on Friday and had a very strong week, outperforming 
even the Bank sector (BKX).  

Friday also saw further corrective action in Forest & Paper 
Products (FPP), Gold & Silver (XAU), Oil Services (OSX), Retail 
(RLX) and Utilities (UTY), all groups that have been trying to 
regain some of their prior luster of the first half of the year, 
but which seem now to be out of favor compared to the more beaten 
down sectors, especially tech. The High Tech Index (MSH) rallied 
to close above recent resistance.

The small to mid caps are doing better of late and the Russell 
2000 Index (RUT) has rallied to above its recent highs.  Big cap 
stocks in general are outperforming the RUT, but this is only 
reversing the situation of the first half of the year.  

BEST PERFORMING SECTOR for the current quarter - what's your 
guess?  Check the bottom for the answer.  

UP on Friday -


DOWN on Friday - 




Buy SMH at 27.90 buy stop
(Semiconductor HOLDR)
If bought, set sell stop at 26.50

RATIONALE: The Semiconductor index is acting like it will 
continue to rally and to break out further to the upside. The 
HOLDR's have already formed two bullish flags and the latest one 
suggests that the stock could move higher again in the near term.  

My suggestion is to buy on a move above the top end of its flag 
consolidation at 27.90 stop. I am assuming that if it breaks out 
of the flag pattern, it will also clear resistance in the 28 area 
and will spurt further.  My initial upside target is to 30. 

Alternatively, if a substantial correction developed, one taking 
SMH back down to support in the 25.5 - 26.00 area, I would buy 
that kind of dip also. So, buy on further strength only, or buy 
on weakness. I anticipate further strength, but hey I've been 
wrong before.   





Semiconductor Sector Index ($SOX.X)


The Semiconductor Index (SOX) has now cleared resistance implied 
by its post 9/11 low and looks like it will be able to also 
further pierce near resistance implied by the its prior lows at 
the same dashed green line.  My initial target for SOX is to the 
412-415 area (dashed RED line), at its previous (up) swing high 
prior to the most recent peak in the 350 area. 

I have a recommendation to buy the HOLDR's - see the 
recommendation section above.  

** Best performing sector for the current quarter is Biotech 
(BTK), up over 8%. **

Leigh Stevens
Chief Market Strategist


For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu   Week

ADBE     20.14    0.54  -0.16   1.57  0.67   2.58  Back over $20
ATK      67.37    0.69  -2.18   2.38 –1.07   0.58  New, Strength
EDS      38.92   -0.20   0.27   1.40  1.00   3.42  New, Defiant
IBM      79.35    0.72   0.35   2.97  1.58   8.30  Cut loose
JNJ      55.32    0.68  -1.21   2.01  0.47   1.42  rising support
NOC     117.15   -2.21  -2.55   3.71  0.14   0.83  big bounce 
TEVA     68.38    1.47   0.64  -0.14  0.35   1.95  wound up


AIG      62.31   -0.49  -3.20   1.79  1.15   0.60  Drop, bounce
HD       26.49   -0.32  -0.21   1.38  0.65  -1.00  Drop, too slow
NKE      43.00   -0.63   0.23   1.15  1.05   0.65  Drop, recovery
PHTN     18.85   -1.83  -1.02   0.91  0.84   1.00  Drop, stopped
BAX      34.00   -0.40  -0.91  -1.20  0.05  -3.80  Still ill
BCC      26.47   -0.21  -0.63   0.01 –0.27  -2.11  New, breakdown
ESRX     42.69    1.58  -4.61   0.69 –0.07  -3.51  New, weakness
GS       79.53    0.06  -0.44   3.71  0.55   4.78  New, pullback

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Call Play of the Day:

ATK - Alliant Techsystems Inc - $67.37 +1.54 (+1.40 for the week)

See details in play list

Put Play of the Day:

BCC - Boise Cascade Corporation - $26.47 -1.26 (-2.11 for the 

See details in play list


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.




HD - $28.10 -0.83 (-0.19 for the week)  Home Depot participated 
weakly in this week's retail rally.  Even Bill Gates' purchase of 
a million shares could not boost the stock through resistance at 
$30.  The stock fell back today, after the retail shopping spree 
ended, however, it appears range bound and we don't want to watch 
our options decay any further while waiting for its breakdown.  
We will close the play at the approximate point where we entered 
it ($28.03).  Use any weakness on Monday to take profits, as we 
will move on to greener (or more red in the case of puts) 


AIG $65.00 (-1.95) After the stellar ramp off the lows on
Wednesday, shares of AIG have just continued to work higher,
contrary to our original assessment when we initiated the play.
Insurance stocks, as a group are trading much better than they
were just a few short days ago, and the fact that AIG failed to
experience any significant weakness heading into the weekend is
likely pointing to further upside ahead.  Rather than wait for
our $65.50 stop to be taken out next week, we're dropping the
play this weekend.  There may be a bearish play here in the
future, but for now we want to get out of the way of the
charging bull.


NKE $44.05 (+0.13) It looks like the sharp selloff and rebound
in shares of NKE on Thursday marked a bottom for the stock, owing
to the extremely heavy volume (4 times the ADV).  After trading
as low as $40.50, the stock came roaring back to close just below
our stop.  Although NKE pulled back on Friday, we look at this as
more of a consolidation, rather than the beginning of a fresh
decline.  Let's take advantage of the near term weakness to exit
any remaining positions ahead of the fresh set of Retail earnings
reports due out next week.


PHTN $22.70 (+0.26) With bad news failing to have any effect on
Chip stocks, the bulls have been getting bolder this past week.
All told, the SOX index is up a whopping 16% in just the past 3
sessions.  Despite being in an unloved area of the industry,
shares of PHTN have gone along for the ride, actually rising
through our $22 stop on more short-covering this morning.
Despite the fact that there is significant resistance just
overhead, the bulls have the ball and we're going to step off
the field.  Use profit taking on Monday to close out any
remaining open positions.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.

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Contact Support
The Option Investor Newsletter                   Sunday 08-18-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: ATK, EDS
Current Calls: JNJ, NOC, IBM, ADBE, TEVA
New Puts: BCC, ESRX, GS

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option executions

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ATK - Alliant Techsystems Inc - $67.37 +1.54 (+1.40 for the week)

Company Summary:
ATK is a $2 billion aerospace and defense company with leading 
positions in propulsion, composite structures, munitions, and 
precision capabilities. The company, which is headquartered in 
Edina, Minn., employs approximately 11,300 people and has three 
business groups: Aerospace, Precision Systems, and Ammunition.

Why We Like It:
Alliant has shown great relative strength this week. While the 
defense and aerospace sectors saw the bottom fall out on Tuesday, 
before staging a comeback the last two days, ATK barely blinked 
an eye.  The stock dropped only $1.68, before resuming its upward 
march. The stock has remained in its upward channel since the 
middle of July and the past week's consolidation marched sideways 
right to the bottom of the ascending channel, which gave it the 
nudge upward it needed to continue the recent rise.  the stock is 
still in the lower half of its channel and has rounded upward, 
giving it room to run.  Today's high of $68.59 also took out any 
resistance from the intraday high of $67.73 on August 8.  

A look at the point and figure chart shows today's trade of $68 
establishing a new buy signal on a double top breakout.  The 
current bullish vertical count on ATK is $80.  While this may 
seem to be an aggressive target, the ascending channel on both 
the PnF and daily charts both aim toward this level.  

Alliant, which makes ammunition and parts for rocket propulsion 
systems, released earnings on July 8, which were boosted by 
acquisitions and sales related to the war in Afghanistan.  A U.S. 
invasion of Iraq, or even the preparation for one, could continue 
to boost this stock's prospects.  President Bush made statements 
today re-iterating the dangers of leaving Saddam Hussein in 
control, which should keep the defense stocks on a roll.  

On Tuesday, Moody's confirmed their ratings on ATK, citing the 
company's improved leverage, in line with Moody's expectations, 
continued strong financial performance and cash flow generation, 
as well as the favorable industry environment.  We consider the 
current price level as an attractive long entry point, given 
ATK's formation of a solid support base over the last week.  We 
will place our stop loss at $63.50, Tuesday's low of the day and 
the bottom of the week's trading range.  

BUY CALL SEP-65 ATK-IM OI=  74 at $5.10 SL=2.60
BUY CALL SEP-70 ATK-IN OI= 108 at $2.55 SL=1.25
BUY CALL NOV-65*ATK-KM OI=  66 at $7.30 SL=4.00
BUY CALL NOV-70 ATK-KN OI=  71 at $4.80 SL=2.50

Average Daily Volume = 478.2 K


EDS – Electronic Data Systems Corp. $38.92 (+2.62 last week)

Company Summary:
Electronic Data Systems is a professional services firm, which
provides services within the categories of systems and
technology services, business process management, management
consulting and electronic business.  The company's end-to-end
portfolio of services integrates its five lines of business;
Information Solutions, Business Process Management, E Solutions,
A.T. Kearney and Product Lifecycle Management Solutions.  EDS'
eight Global Industry Groups; Communications, Energy, Financial,
Government, Healthcare, Manufacturing, Retail and Transportation,
work with each of the company's lines of business and client
executive teams.

Why We Like It:
Concerns about accounting improprieties was one of the dominant
factors leading to the market's precipitous decline in July, but
now that the August 14th deadline for CEO certification has
passed, the investing public seems to have breathed a collective
sigh of relief.  EDS was sold off with the rest of the
multi-national conglomerates in that purging process.  Further
weighing on the stock were concerns of its exposure to the
bankruptcies of Worldcom and more recently US Air.  The
interesting thing is that after the company reported earnings on
July 24th, the stock bottomed and additional negative news events
have been unable to knock the legs out from under the bulls.  The
broad market buying frenzy that began Wednesday afternoon
propelled EDS through the $37 level, and that put the PnF chart
on a triple-top Buy signal, and the tentative price target is
$54.  Isn't it interesting that $54 is also the site of the
bearish resistance line?  We don't plan on riding the stock that
high, but it certainly looks like it is setting up for a run at
the $45 level, the next significant resistance level.  Also
notable is that EDS pushed through and closed above its 50-dma
($38.12) on Friday.  With the stock already deep in overbought
territory (as measured by the daily Stochastics) we would prefer
to enter on a pullback to the site of its recent breakout ($37).
But if the bulls are serious and insist on pushing higher from
here, we can take momentum-based entries on a push through the
$39.50 level (just above Friday's intraday high), so long as the
broad market continues its advance.  Initial stops are set at

BUY CALL SEP-37 EDS-IU OI=1223 at $3.30 SL=1.75
BUY CALL SEP-40*EDS-IH OI=1387 at $1.85 SL=1.00
BUY CALL SEP-42 EDS-IV OI=1257 at $0.90 SL=0.50
BUY CALL DEC-40 EDS-LH OI= 573 at $4.00 SL=2.50
BUY CALL DEC-42 EDS-LV OI= 351 at $2.85 SL=1.00

Average Daily Volume = 4.92 mln

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JNJ - Johnson & Johnson $55.32 -0.44 (+0.81 for the week)

Company Summary:
Johnson & Johnson, with approximately 106,100 employees, is the 
world's most comprehensive and broadly based manufacturer of 
health care products, as well as a provider of related services, 
for the consumer, pharmaceutical and medical devices and 
diagnostics markets. Johnson & Johnson has 197 operating 
companies in 54 countries around the world, selling products in 
more than 175 countries.

Why We Like It:
Johnson and Johnson has had quite a week.  It took out resistance 
at $55, $55.30 and $56.  The stock reached a high of $56.49 on 
Thursday, continuing the pattern of higher highs and higher lows.  
The stock pulled back today to close at $55.32, but seems to have 
found a higher support level once again.  The stock has 
established support at successive levels of $50, $52, $53.40, and 
now $55.  We are raising our stop loss to $53.40, the previous 
support level.  The company just announced job cuts at its 
Sherman, Texas plant, shipping some of the jobs overseas, in an 
effort to lower costs.  They may close the plant entirely. The 
company appears to be doing fine, and this attention to the 
bottom line is encouraging.  Apparently, Bill Gates took notice 
of JNJ's strength, as well, since he has added 600,000 shares to 
his portfolio, which already contained 1,090,000 shares.  He may 
also be subscribing to OI, as far as we know.  JNJ now sits 
directly on top of its bearish resistance PnF line, and this may 
be one reason it has been turned back from $57.  $57 would amount 
to a break in bearish resistance and could foreshadow another big 
run.  We will maintain our long position in this stalwart, with 
$60 as our initial target.

BUY CALL SEP-50*JNJ-IJ OI= 7969 at $6.40 SL=3.50
BUY CALL SEP-55 JNJ-IK OI=12301 at $2.40 SL=1.20
BUY CALL OCT-50 JNJ-JJ OI=16845 at $7.00 SL=4.00
BUY CALL OCT-55 JNJ-JK OI=10207 at $3.30 SL=1.80

Average Daily Volume = 10.7 mil


NOC - Northrop Grummon  $117.15 +1.64 (+0.58 for the week)

Company Summary:
Northrop Grumman Corporation is an $18 billion, global defense 
company with its worldwide headquarters in Los Angeles. Northrop 
Grumman provides technologically advanced, innovative products, 
services and solutions in defense and commercial electronics, 
systems integration, information technology and nuclear and non-
nuclear shipbuilding and systems. With nearly 100,000 employees 
and operations in 44 states and 25 countries, Northrop Grumman 
serves U.S. and international military, government and commercial 
customers. (source: company release)

Why we like it:
NOC has rebounded nicely from its 200-dma of $109.52, trading as 
low as $109.60, before taking off to today's close of $117.15.  
When we initiated this play, we looked for a pullback above the 
200-dma for an attractive entry point.  While we were targeting 
$112-$113, the support at the 200-dma is that much more 
encouraging, as this level held on an ugly day for the aerospace 
sector.  A stock priced over $100 is subject to large dollar 
moves, and NOC has not disappointed in that regard.  NOC has 
continued to respect its rising channel, begun on July 22.  The 
low of $109.60 also coincided with the bottom of this channel, 
which only added an ingredient of support to the 200-dma.  A trip 
back down to the bottom of the channel would now coincide with 
the 10-dma of 112.61, from which we would expect another bounce 
if there were a pullback.  Therefore, we are raising our stop 
loss to $112.50.  Defense stocks have enjoyed a run lately as 
talk of war with Iraq continues to heat up.  We would expect NOC 
to continue its rise, as this possibility remains viable.  
President Bush today reiterated concerns about Saddam Hussein, 
and after all, what would a Bush presidency be without an Iraqi 
war.  We maintain our short-term target of $130 on NOC, although 
the bullish vertical count is a more aggressive $150.  

BUY CALL SEP-110 NOC-IB OI=1410 at $9.70 SL=5.00
BUY CALL SEP-115 NOC-IC OI=1667 at $5.90 SL=3.00
BUY CALL NOV-115*NOC-KC OI=1559 at $9.50 SL=5.00
BUY CALL NOV-120 NOC-KD OI=3519 at $4.20 SL=2.10

Average Daily Volume = 1.78 mil


IBM - International Business Machines $79.35 +2.85 (+7.52 for the 

Company Summary:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses to innovate. IBM is 
a leading provider of e-business solutions and is dedicated to 
helping customers, IBM Business Partners, and developers leverage 
the potential of the Internet and network computing across a wide 
range of businesses and industries. The company offers a host of 
cross-industry and industry specific solutions designed to meet 
the needs of growing companies. (source: company press release)

Why We Like It:
IBM has behaved as planned, after breaking through its long-term 
rectangle pattern between $66 and $74.  This seven-week 
consolidation has been a textbook study in the theory that the 
longer the pattern formation, the more significant is its 
breakout.  After drifting slowly between resistance and support, 
IBM has broken out with a vengeance, tacking on $7.45 in three 
days.  We believe it has more room to run, and the minimum 
measuring objective of $82, based on this rectangle, seems to be 
just that - a minimum. This is our original target on the play, 
however the PnF bullish objective of $85 falls at just about the 
midpoint between the breakout level of $74 and the 200-dma of 
$95.41, and this should serve as an additional target for 
aggressive traders.  We will raise our stop loss to $74, as this 
previous level of long-term resistance should now serve as 
support on a pullback. The spread triple top breakout on the PnF 
is very bullish, as any possibility of a bull trap has been left 
in the dust with the break of bearish resistance, resulting from 
the trade of $76.  The meteoric rise in the stock the last few 
days is most likely unsustainable at the current pace.  However, 
look for new entries on a pullback and bounce from $75, the point 
of the original PnF breakout.

BUY CALL SEP-75*IBM-IO OI= 15582 at $6.40 SL=3.20
BUY CALL SEP-80 IBM-IP OI= 10567 at $3.10 SL=1.60
BUY CALL OCT-75 IBM-J0 OI= 15643 at $7.70 SL=4.00
BUY CALL OCT-80 IBM-JP OI= 24193 at $4.50 SL=2.50

Average Daily Volume = 8.95 mil


ADBE – Adobe Systems $20.14 (+2.43 last week)

Company Summary:
A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all

Why We Like It:
In typical expiration Friday fashion, the broad markets went
out close to where they started, with the notable exception of
the NASDAQ, which posted another healthy gain.  Leading the 
charge again were the Semiconductors, with the SOX tacking on 
more than 6% on the day.  But the Software index (GSO.X) had its 
own healthy move, with a gain of 2%.  That bullish action was 
enough to get our ADBE play started off right.  After dipping as 
low as $19.42 in the early going, the stock rebounded steadily 
throughout the day, ending above the $20 level for the first time 
in over 2 weeks.  While this looks bullish on the surface, there 
is bound to be some profit taking soon, likely motivated by the 
stock encountering its 20-dma ($20.68) just overhead.  We want to 
take advantage of that weakness, using the dip to initiate new
positions on a rebound from the vicinity of $19.00-19.50.  Of
course, ADBE could continue running upward without a pause, but
we don't want to initiate new positions on a breakout unless it
clears the $21 level on strong volume.  Keep in mind that ADBE
will begin to encounter significant resistance in the $23-24 
area, so we'll want to harvest at least partial gains if that 
level is reached.  Keep stops in place at $18.

BUY CALL SEP-17 AEQ-IW OI=348 at $3.60 SL=1.75
BUY CALL SEP-20*AEQ-ID OI=635 at $2.05 SL=1.00
BUY CALL SEP-22 AEQ-IX OI=211 at $1.00 SL=0.50
BUY CALL OCT-20 AEQ-JD OI=263 at $2.85 SL=1.50
BUY CALL OCT-22 AEQ-JX OI=268 at $1.65 SL=0.75

Average Daily Volume = 5.01 mln


TEVA – Teva Pharmaceutical Inds. $68.38 (+0.79 last week)

Company Summary:
Producing drugs in all major therapeutic categories, TEVA is a
fully integrated global pharmaceutical company.  In the area of
proprietary drugs, TEVA has focused on products for the central
nervous system disorders, primarily the development of Copaxone,
a treatment for relapsing-remitting multiple sclerosis.  Through
its U.S.-based subsidiary, the company manufactures 137 generic
products in 210 generic forms, which are distributed and sold in
the United States.  TEVA also manufactures over 270 generic
products, which are sold primarily in the Netherlands, the
United Kingdom and Hungary.

Why We Like It:
Despite their lack of upward progress in the past few days, we
still like the Biotechnology sector (BTK.X) due to the way it
keeps riding higher in its ascending channel.  The $385 level has
been providing resistance over the past several days, but if the
BTK can get through this level next week, it stands a good chance
at making a run at its upper channel line, currently near $400.
TEVA grabbed our attention when we noticed that it was still
working higher and looks ready to attempt a breakout over the $69
level, which has been providing resistance over the past week.
While the stock has actually traded fractionally above this level
on an intraday basis, that resistance is still intact, but
weakening.  The intraday lows have been working their way higher
over the past 2 weeks, and the ascending trendline connecting
those lows is now resting near $68.  Something will have to give
soon, with a breakout to the upside being the higher odds
resolution.  We can consider using intraday dips near the $68
level to initiate new positions ahead of the expected breakout.
For those looking to enter on the breakout, wait for TEVA to
clear the $69.50 level before playing.  In entering on momentum,
make sure the BTK index is confirming the bullish action,
preferably by moving through the $390 level.

BUY CALL SEP-70*TVQ-IN OI=2809 at $2.40 SL=1.25
BUY CALL SEP-75 TVQ-IO OI= 181 at $0.65 SL=0.25
BUY CALL DEC-70 TVQ-LN OI=1094 at $4.70 SL=2.75
BUY CALL DEC-75 TVQ-LO OI= 879 at $2.65 SL=1.25

Average Daily Volume = 983 K


BCC - Boise Cascade Corporation - $26.47 -1.26 (-2.11 for the 

Company Summary:
Boise, through our three major businesses, Boise Office 
Solutions, Boise Building Solutions, and Boise Paper Solutions, 
helps our customers manage productive offices and construct well-
built homes -- two of the most important activities in our 
society. Boise's 24,000 employees help people work more 
efficiently, build more effectively, and create new ways to meet 
business challenges. Boise also provides constructive solutions 
for environmental conservation by managing natural resources for 
the benefit of future generations. (source: company release)

Why We Like It:
Boise Cascade has certainly had a rough week.  While the rest of 
the market fought off disappointment from the Fed to close above 
its recent highs, the "paperboys" took one on the chin.  Boise 
experienced a double top formation, with the second peak lower 
than the first, accompanied by lower volume.  The company 
recently released earnings, which saw the second quarter swing 
from a year ago profit to a loss in 2002. Today saw fellow paper 
producer Bowater downgraded by Deutsche Securities.  A look at 
the Forest and Paper product index shows a similar double top 
pattern with a rollover testing support at 300.  The index traded 
down to 296.11, before rebounding to close at 302.34

A look at BCC's chart shows a picture even more dismal.  The 
stock took out its 52-week low of $26.27 intraday, trading as low 
as $25.87 before rebounding to close at $26.47.  This rebound did 
not save it, however, from point and figure condemnation.  The 
trade of $26 established a new sell signal on a double bottom 
breakdown.  The current bearish vertical count for the stock is 
$16. Today's drop was accompanied by heavy volume, which makes 
the picture even more bearish. Today's decrease in housing starts 
will not help BCC's Building Solutions department, either.

BCC recently stated that its 2002 pension expenses were $23 
million, but that they would be increasing in 2003 to between $60 
million and $70 million, if weak equity market performance 
continues and inflation remains low.  The relative weakness of 
the sector, BCC's increasing expenses, and the technical 
breakdown accompanied by increasing volume on sell-offs has 
placed BCC on our "short" list.  We consider the current price 
level as an attractive entry point, however conservative traders 
may want to wait for a failed rebound below today's high of 
$27.50.  We will place our stop loss at $28.50, above Thursday's 
high of the day.

BUY PUT SEP-25 BCC-UE OI=63 at $1.05 SL=0.00
BUY PUT SEP-30*BCC-UF OI=10 at $4.00 SL=2.00

Average Daily Volume = 536.5 K


ESRX – Express Scripts $42.69 (-3.91 last week)

Company Summary:
Express Scripts provides health care management and
administration services on behalf of clients that include
health maintenance organizations, health insurers,
third-party administrators, employers and union-sponsored
benefit plans.  The company's fully integrated pharmacy
benefit management services include network claims processing,
mail pharmacy services, benefit design consultation, drug
utilization review, formulary management, disease management,
medical information management services and informed decision
counseling services through its Express Health Line division.

Why We Like It:
In light of the bullish action in the broad markets over the
past few days, the poor action in shares of the PBMs (Pharmacy
Benefit Managers) is notable for its divergence.  Weakness in
the face of a broad market rally hints that if the broad market
falters, the weaklings are likely to be the first ones to tumble.
Shares of ESRX had a tremendous run right up until early May,
when news broke of a Federal investigation.  Since then, the
stock has experienced violent bouts of selling, punctuated by
brief attempts to consolidate, before being hammered lower once
again.  Over the past month, ESRX has been violently whipsawed
around the $45 level, but it looks like it is ready to break
down yet again.  While the stock had been attempting to recover
again early last week, another sharp decline hit the stock
following news that the Department of Health had subpoenaed the
company regarding information on Pfizer's Lipitor.  That sent
the PnF chart back into a sell signal, with a bearish price
target of $31.  Note how even with the broad market advancing
over the past few days, ESRX topped out near the $44 level and
then once again drifted lower on Friday.  Another failed rally
near the $44 level would make for an attractive entry into the
play.  Due to the manner in which ESRX has been snapping back
on declines to the $40 level, we want to avoid momentum entries
until the stock moves below this level.  We are initially
placing our stop at $45.

BUY PUT SEP-45*XTQ-UI OI=537 at $5.10 SL=3.00
BUY PUT SEP-40 XTQ-UH OI=130 at $2.90 SL=1.50

Average Daily Volume = 2.08 mln


GS – Goldman Sachs Group $79.53 (+4.08 last week)

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

Why We Like It:
The recovery in Brokerage stocks is due as much to a relaxation
of investigations into questionable analyst research as to the
broad market recovery that emerged last week.  After posting a
double-bottom near the $340, the Brokerage index (XBD.X) has
rebounded all the way to the $410 level.  While the recovery is
encouraging, a 20% move seems to be a bit much, especially with
the fundamentals of the industry unchanged and legal problems
likely to continue.  GS has had one of the most impressive runs
off its lows of any of the Brokerage, reaching the $80 level over
the past 2 days.  But therein lies the problem, as the $80 level
happens to be the site of the stock's long-term descending
trendline (beginning in January), and the site of the 50%
retracement level of the rally off last September's lows.  With
daily Stochastics now deep in overbought territory, it looks like
the stock is due for a pullback and we want to take advantage of
that expected run to the downside.  We want to wait for the
current rise in the stock to run its course before initiating new
positions, but a reversal from current levels seems likely and
would make for an attractive entry point.  Adding credence to our
bearish near-term thesis is the fact that the declining 200-dma 
is just overhead at $82.41 and should add to the downward 
pressure on the stock.  And should the group's legal problems 
resurface next week, that will be the likely catalyst to knock GS 
back from current levels.  Trader's looking for some confirmation 
before playing will want to wait for GS to fall back under the 
$78 level, which acted as intraday support on Friday.  Initial 
stops are set at $82.50, just above the 200-dma.  We do need to 
be mindful that the PnF chart is back on a Buy signal here, so 
the downside will likely be limited to the $75 level over the 
near term.

BUY PUT SEP-80 GS-UP OI= 459 at $3.70 SL=2.00
BUY PUT SEP-75*GS-UO OI=6802 at $1.95 SL=1.00

Average Daily Volume = 5.61 mln

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The Option Investor Newsletter                   Sunday 08-18-2002
Sunday                                                      4 of 5

In Section Four:
Current Put Plays: BAX
Leaps: WOW!  What A Wonderful Week!
Traders Corner: A Mutual Fund Manager: Who Carries A Lot Of Weight

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BAX – Baxter International $34.00 (-3.89 last week)

Company Summary:
Baxter engages in the worldwide development, manufacture and
distribution of a diversified line of products, systems and
services used primarily in the healthcare field.  BAX's products
are used by hospitals, clinical and medical research laboratories,
blood and blood dialysis centers, rehabilitation centers, nursing
homes, doctor's offices and by patients at home, under physician
supervision.  The company manufactures products in over 28
countries and sells them in over 100 countries.

Why We Like It:
Isn't it nice when a trade moves in your direction right away?
When we initiated coverage of BAX on Thursday, we were looking
for a decline under the $35 level to give us a momentum-based
entry, as well as confirm our convictions.  Well, that's exactly
what happened on Friday.  Unfortunately, most of the move was
expended with the opening gap, with BAX then proceeding to trade
in a narrow 50-cent range for the remainder of the day.  Although
it didn't show any appreciable weakness last week, neither was
the Pharmaceutical index (DRG.X) able to advance, as it continued
to bang up against firm resistance in the $305-308 area.  If the
broad market loses its momentum, the DRG index will likely lose
its battle and fall back, dragging BAX down with it.  It is
interesting to note that in a rather light volume day, selling
volume in BAX ran 50% above the ADV, indicating that there eager
sellers in the stock.  Resistance at the $35.00-35.50 level
should provide for solid entries into BAX on any failed rally
attempt next week.  Otherwise, we'll want to enter on continued
weakness, with a decline under the $33.90 level, the site of the
stock's intraday low on Friday.  Keep stops set at $37.50.

BUY PUT SEP-35*BAX-UG OI=943 at $2.90 SL=1.50
BUY PUT SEP-30 BAX-UF OI=280 at $1.00 SL=0.50

Average Daily Volume = 4.07 mln

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WOW!  What A Wonderful Week!
By Mark Phillips

After drifting lower for the first 2 days last week and dropping
again on Wednesday morning, I was starting to get a bit nervous
about whether this emerging bullish trend was going to continue.
By midday on Wednesday, the S&P 500 (SPX.X) was resting at 876,
right on the ascending trendline connecting the lows from July
24th and August 6th.  Then out of the blue, we got that huge
rally into the close and the bulls managed to hang onto those
gains and eke out a bit more by the end of the week.  While it
appears the bulk of the recovery was due to a massive allocation
shift out of bonds and into equities, it was rather interesting
to see such a strong move in the absence of any change in either
the economic or fundamental landscape.

Maybe there really is something to following the action in the
debt markets.  As has been pointed out by others on this site,
the shift to buying equities coincided nicely with both the
10-year and 30-year Bonds achieving their bearish price
objectives on the PnF charts.  It looks like old "Beetle" Bailey
has been pointing us in the right direction all along, with his
continual focus and education on the Bond market.

Despite the dramatic improvements in the major indices by the end
of the week, I remain cautious in my outlook.  The VIX imploded
again last week and now is back down below 33.  At the same time
the DOW, SPX and NASDAQ have all achieved minor breakouts to new
highs for this leg of the recovery.  But a breakout is a breakout
and I'm happy with what we've seen so far.  The thing that is
causing me a bit of consternation is the bearish ascending wedge
that has been traced out on both the DOW and SPX in recent weeks.
These patterns are normally resolved in favor of the bears, but I
should note that that outcome usually comes following a prolonged
uptrend.  That isn't the situation we are faced with, following
the brutal May-July decline, but it is still a concern.  If you
want further details on this bearish wedge pattern, make sure to
check out Leigh's Index Trader Wrap this weekend.  He was talking
about the pattern in the Market Monitor on Friday, and I'll lay
odds that he'll discuss it in detail this weekend.

I think it is interesting that this wedge pattern is showing up
in several individual equity charts as well, not the least of
which is our Portfolio Play on MSFT.  Since I've drifted into
talking about our playlist, let's go through the whole list and
discuss what I think are the important developments.


DJX - Despite a lack of a rate cut from the FOMC on Tuesday, the
bulls managed to pull it out again, rallying the DOW right from
the site of the ascending trendline ($83.50) and by the end of
the week managed to marginally clear the formidable $87.50
resistance level.  By all accounts, this play is looking just
fine, if not for the annoyance of that pesky bearish wedge.  The
DOW needs to clear the 8900 level on a closing basis to break
decisively out of this pattern.  On the other hand, a DOW close
under 8400 would resolve the pattern in favor of the bears.
Worst case, Wednesday's lows should hold if this recovery is
going to keep working higher.  So I'm raising the stop on our
play to $83.50.  One note about the strikes listed in the
Portfolio last week.  I neglected to type correctly.  Remember
that the DJX trades on a different calendar than most equities.
So the LEAPS we are using to track this play are the DEC-02 and
DEC-03 options.  The symbols are correct, but not the years
listed.  I have made the appropriate corrections this week.

GE - It is interesting that this play is presenting a different
picture than the DOW.  Rather that rising to new highs, GE is
running into a veritable brick wall of resistance at the $32.50
level, which just happens to be the 50% retracement of the
decline between March and July.  A breakout above this level
should clear the stock to push up towards the 62% retracement
level and the 200-dma, which seem to be converging near the $35
level. On the downside, we have a clear pattern of higher lows,
which should not be broken if GE is going to continue its ascent.
Therefore, we can raise our stop to $29.75, just below last
week's lows.  I realize this is fairly tight, but we don't want
to get caught giving back our gains if the rally falls apart.

INTC - Given the strong rebound in the Semiconductor sector
(SOX.X), I am disappointed that INTC couldn't stage more of a
rebound last week.  It is still trapped under the $19 level and
really needs to clear $20 in order to convince me that there is
a real recovery underway.  Note that last week's rebound came to
a screeching halt right at the 50-dma, and we need to see a
decisive upward move in the stock if we're going to keep it in
the Portfolio.  Despite my caution, I do notice the series of
higher lows over the past 2 weeks and that is encouraging, but
only if it continues.  If last week's low is violated, then we
want to exit the play.  Accordingly, we're raising our stop to

MSFT - A picture is worth a thousand words, so I thought we'd
take a look at that bearish ascending wedge in MSFT.  


I like that the stock came up to the $50 level on Friday, but
looking at the chart above, you can see that we need a solid
breakout through the $51 level.  Just to add more weight on the
bulls' backs, I note that $51 is the site of the descending
trendline begun back in January.  I will be surprised if MSFT
can get through this level on the first try, so I expect one
more pullback first.  That pullback needs to stop before taking
out last week's lows, keeping the trend of higher lows intact.
We're raising our stop to $47, just in case.  Traders looking to
enter the play can consider entering on a successful defense
(rebound from) that support level.

QQQ - The NASDAQ had one of its best week's in recent memory,
helped in large part by a dramatic rebound in the Semiconductor
index (SOX.X), which managed to rebound through the $343-345
level, the site of its big breakdown in late July.  While still
below its September low, the QQQ closed at $24.70, making last
week's close the first one above the descending trendline that
began back in March of 2000.  With the weekly Stochastics
emerging from oversold in bullish fashion and the marked
improvements in the internals of the market (as denoted by the
Bullish Percent figures), this play could be on its way to a
stellar performance.  But we need to keep our enthusiasm in
check, at least until the QQQ can clear heavy overhead congestion
in the $26-27 area.  Until that milestone is achieved, we need to
watch for continuation of the nascent pattern of higher lows.
Last week's low near $22.50 will be our line in the sand, and we
are raising our stop to that level this weekend.  A pullback and
rebound from the $23 level can be used for new entries into the

WMT - Like the Energizer Bunny, WMT is the retailer that just
keeps going and going.  The company didn't disappoint with its
earnings report last Monday and when the broad market decided to
rally, WMT was there, leading the charge.  The breakout through
the $50 level on Wednesday was powerful and very encouraging, as
it lifted the stock right up to major resistance at $55.  Isn't
it interesting that the stock came to rest right on the 50%
retracement of the decline off the March highs?  We've got some
solid gains accrued in this play, and I certainly don't want to
give too much back.  At the risk of missing out on further
upside, I want to ratchet our stop up nice and tight.  I'm not
willing to let WMT fall below the $52.50 level before harvesting
those gains, so that is the new site of our stop.  If stopped
out, we can consider re-entering the play if it holds above the
$50 level.

Watch List:

BA - The dual bankruptcy announcements from US Air (definite)
and UAL (possible) last week dealt a vicious blow to BA.  I'm
sure glad we haven't had our entry target triggered yet!  With
last week's decline, the stock fell to $34, only $2 away from
its bearish price objective on the PnF chart.  That's what I get
for trying to bet against supply and demand.  I am lowering the
entry target $32 this weekend and that's where it will stay until
that bearish target is achieved.  If BA gets up and runs away
from us, then so be it.  But with the continued concerns about
Airline insolvency, I think the odds favor an entry at that level
in the very near future.  Another interesting observation that I
think relates to our BA play is the fact that the DOW Transports
($TRAN) have not confirmed the strength in the overall DOW,
tracing out a series of lower highs over the past 3 weeks.  If
BA is going to have any bullish potential, I believe the TRAN
needs to maintain its series of higher lows and then take out
the July 30th high of 2417.

As you can see by my comments above and the performance of our
Portfolio in the past couple weeks, I am turning cautiously
optimistic.  In many respects, this market has the feel of one
that wants to work higher, but one that will be unable to do so
in a straight line.  There are a lot of concerns out there about
the economy, war with Iraq and of course the proverbial question
if this was a really solid, tradable bottom.  Those concerns
create the "wall of worry" that the markets need to scale over
the intermediate term.

My opinion is that we will attack Iraq, whether it is the right
thing to do or not.  The economy is still very sick, but the
crisis of confidence regarding Corporate America seems to be
slackening, giving investors the conviction they need to
gradually re-enter the stock market.  I do not for a minute
think this is the end of the bear market, but we are getting a
much-needed reprieve, as the next cyclical bull market seems
to be venturing forth, even if it is still on wobbly legs.

Buy the dips with caution and whatever you do, don't forget
those stops!

Have a great week!


LEAPS Portfolio

Current Open Plays


INTC   07/26/02  '03 $ 20  NQ -AD  $ 2.00  $ 2.35  +17.50%  $16.50
                 '04 $ 20  LNL-AD  $ 4.10  $ 4.40  + 7.31%  $16.50
DJX.X  08/06/02  '02 $ 86  DJX-LH  $ 4.80  $ 6.30  +31.25%  $83.50
                 '03 $ 88  ZDJ-LJ  $ 7.50  $ 9.70  +33.33%  $83.50
GE     08/06/02  '03 $ 30  GE -AF  $ 3.50  $ 3.90  +29.33%  $29.75
                 '04 $ 30  LGR-AF  $ 4.80  $ 6.10  +35.42%  $29.75
MSFT   08/06/02  '03 $ 45  MQF-AI  $ 7.60  $ 9.00  +27.08%  $47
                 '04 $ 50  LMF-AJ  $10.10  $11.60  +14.85%  $47
                 '05 $ 50  ZMF-AJ  $13.70  $15.40  +12.41%  $47
QQQ    08/06/02  '03 $ 25  OZC-AY  $ 1.70  $ 2.65  +55.88%  $22.50
                 '04 $ 25  KLF-AY  $ 3.40  $ 4.60  +35.29%  $22.50
WMT    08/06/02  '03 $ 50  WMT-AJ  $ 3.80  $ 7.00  +84.21%  $52.50
                 '04 $ 50  LWT-AI  $ 7.30  $10.80  +47.95%  $52.50


LEAPS Watchlist

Current Possibles


BA     06/30/02  $32           JAN-2004 $ 45  LBO-AI
                            CC JAN-2004 $ 40  LBO-AH
                               JAN-2005 $ 50  ZBO-AJ
                            CC JAN-2005 $ 40  ZBO-AH
SMH    08/18/02  $24-25        JAN-2004 $ 30  KBS-AF
                            CC JAN-2004 $ 25  KBS-AE
                               JAN-2005 $ 30  ZTO-AF
                            CC JAN-2005 $ 25  ZTO-AE

BBH    08/30/02  $100-102      JAN-2004 $ 95  EVK-MS
                               JAN-2005 $ 90  EIL-MR
                 $88-90        JAN-2004 $ 80  EVK-MP
                               JAN-2005 $ 80  EIL-MP

New Portfolio Plays


New Watchlist Plays

BBH - Biotech HOLDR $88.34  **Put Play**

Let's try this again!  Have you noticed the way the Biotechnology
sector (BTK.X) has been boldly striding forward for the past
month.  This isn't so much due to any new and startling
developments in the industry, as it is to the fact that it had
been so brutally sold down the river following its break of the
$450 support level.  While we missed playing that decline, I think
we're going to get another chance.  The BBH HOLDR has been trading
in an ascending channel for the past month, tracking the BTK index
rather nicely.  And I don't expect to see it diverge from this
pattern in the near term.  Projecting that pattern out in the
future, has it reaching the $100 level near the end of the month.
That level is significant, as it correlates nicely with the
highs achieved following the BTK's breakdown under the $450 level,
as well as the lows from last September.  It is interesting to
note that the bullish price target on the PnF chart is currently
$101, so that correlates nicely with my expectation of a rollover
near that level.  I don't think the bulls will be able to power
through that level and expect the bears will be waiting to pounce.
I doubt we're going to have an actionable trade over the next
week or so, but when the BBH nears that $100 level, we'll have a
nice little bearish setup on our hands.  As I see it, there will
be a couple of ways to play, when we get closer to that level.
Fading a rally to the $100-102 level will provide the initial
entry target, and I like this approach the best due to the
ability to set a fairly tight stop at $104, the site of the 62%
retracement of the March-July decline.  Alternatively, we can
target a breakdown out of the ascending channel, but I would only
take this approach after seeing the BBH trade above the $97 level,
the site of the 50% retracement.  Observant readers will note
that the BBH has come to a halt over the past week or so near the
$90 level.  This should come as no surprise, with that being the
site of the 38% retracement level, as well as support/resistance
from the May/June timeframe.  I expect this level to be bested
by the bulls over the near term, with that $100 level being the
real formidable obstacle to contend with.  So I'm listing two
potential price targets; $100-102 on a continued rally, or a
breakdown out of the channel (probably near current levels)
after failing to clear the 50% retracement.


SMH - Semiconductor HOLDR $27.36  **Call Play**

In recent months, I've developed an affinity for trading the
sector HOLDRs due to their ability to help shield us from single
company blowups.  It's still a factor to be sure, but 30% gap
moves against us certainly aren't a concern.  I really liked the
improvement we saw last week in the Semiconductor sector (SOX.X),
and wanted to add a fresh Chip play to the Watch List this
weekend.  The problem is that so many of them had blowout
short-covering rallies in the past few days and are far too
extended for my tastes.  But the more sedate movement in the SMH
HOLDR is more to my liking.  Make no mistake, it can really get
moving, but not as violently as some of the individual stocks in
the sector.  I expect some of the froth that went into individual
Chip stocks to be retracted over the next week or so, and that
ought to bring the SMH right back into the $24-25 support area.
Note that last week, the SMH broke out over its 3-month descending
trendline, which currently rests at $25.  The shorter-term
ascending trendline that connects the lows over the past 2 weeks
currently rests at $24.  My expectation is that we'll see some
back-and-filling, with the SMH coming back to test these two
trendlines as support, just about the time they converge near the
$24.50 level next week.  We'll target new entries on that pullback
and subsequent rebound, so long as the $23.50 level (last week's
low) isn't violated.  I want to point out that we don't need to be
in a hurry on this one, (Read: don't chase it higher) as the PnF
chart won't go on a fresh Buy signal until it prints $29 -- I
doubt that will happen without a pullback to support first.

BUY LEAP JAN-2004 $25 KBS-AE **Covered Call**
BUY LEAP JAN-2005 $25 ZTO-AE **Covered Call**




A Mutual Fund Manager
Who Carries A Lot Of Weight

By Mike Parnos, Investing With An Edge

What is a mutual fund?

It’s the ultimate answer for Couch Potato Trading Institute 
(CPTI) students who can’t tear themselves away from the TV long 
enough to learn a strategy, read a chart and make their own 
trading decisions.

We don’t accept the excuse that CPTI students don’t have time to 
watch their investments.  Every hour-long TV show has at least 16 
commercial minutes -- except on TNT where there are 44 commercial 
minutes and only 16 minutes of show.   

In its simplest terms, a mutual fund is a collection of many 
stocks selected and managed by someone who makes a lot more money 
than we do.  He gets paid whether the fund goes up or down – nice 
work if you can get it.  The theory behind mutual funds is that, 
if you own a variety of stocks and one happens to fall 
dramatically, it will have a lesser effect on the value of the 
fund as a whole.  There is safety in numbers. If the fund manager 
guesses right, and that same stock goes up 50%, the fund value 
will not go up a lot.  Getting a big mutual fund to move 
significantly is like trying bail out the Titanic with a 
soup spoon.

The most sensible way of investing in mutual funds is to select a 
“no load” fund.  This means that there is no commission involved.  
No load funds perform as well as “load” funds, so why pay a 
commission?  Some people do pay loads – and these same people 
also buy swampland in Florida, bridges in Brooklyn and timeshares 
in Borneo.  Why?  Good question. It ranks right up there among 
the unexplained mysteries of the world, like the meaning of life 
and how a toaster works.

For slightly more active CPTI traders, there are funds (or 
“baskets” of stocks) that devote themselves to specific sectors 
of the market.  They’re ideal for many of the strategies we 
discuss here at OI every week.  They go by different names – 
Exchange Traded Funds (ETFs), Holders, iShares, etc.  Each trades 
as a stock, but gives you the diversification benefits of a 
mutual fund.  For example:  Biotech = BBH, Software = SWH, 
Internet = IYV, Utilities = XLU, Telcom = TTH, Consumer Services 
= XLV, Energy = IXC, Retail = RTH, and many more.

Among the most popular are the QQQs and DJXs -- which track the 
movement of the NASDAQ and the Dow Jones Industrial Index 
respectively.  One reason for their popularity is that their 
options trade with strike prices in $1 and $2 increments, which 
allows for creativity and flexibility in putting on trades.  
They’re also very liquid which means that spreads are smaller and 
emergency exits are simpler.

There are dozens of other funds that trade as stocks and also 
trade options.  Learn more about these funds at: 
http://quotesnasdaq.com/aspETFsSECTOR.asp.   You’ll get a 
breakdown of their symbols, what stocks make up each of these 
funds, etc.

CPTI traders can no longer have the excuse that they lost money 
on an individual stock because some CEO ran off with the CFO and 
the COO (hmmmm?) with last year’s profits to some tropical island 
where there are scantily clad women, palm trees, umbrella drinks, 
but no US extradition agreement.

The High Caloric Value Fund

At the CPTI we have our own “mutual fund scan” to find stock 
funds that have a history of success and the likelihood that the 
success will be duplicated on a consistent basis.  In short, the 
fund has to make sense.

The fund manager has to be shrewd and calculating and know that a 
large cap is more than a sombrero and a small cap isn’t only what 
the Yankees wear.

I recently interviewed the famous fund manager Melvin "AYCE" 
Buffet (pronounced Buff-ay) -- distant cousin of market guru 
Warren "Buy and Hold" Buffet (they’ve been pronouncing Warren’s 
name wrong all these years).  “AYCE” is an acronym for All-You-
Can-Eat. Though their approaches differ slightly, market wisdom 
apparently runs in the family and comes in all shapes and sizes.  

Melvin manages the very successful High Caloric Value Fund that 
has handily beaten the S&P 500 Index for the last ten years.

AYCE is a rotund fellow who obviously hasn’t missed any meals.  
He acknowledges his situation, “Who am I kidding?” he said.  “My 
ice cream bowl comes with a lifeguard.”

Why has the High Caloric Value Fund been so successful?  "The 
economy is near recession levels and many people have cut back on 
the frills," says Buffet, "but they always have to eat -- and 
they do -- to excess.  So we put our money where their mouth is."

"The American public is grossly overweight.  We're the fattest 
country in the world," explained AYCE Buffet.   "We live in a 
society where Haagen Daaz, not self-discipline, is king – where 
Alfredo is in bed with Fettuccini and it’s not an Italian opera."

“One of our largest holdings is Krispy Kreme Donuts,” said AYCE. 
“We don’t hold them for long.  They’re usually gone before lunch, 
he continued. “We also believe in diversification.  “We get some 
plain, glazed, chocolate, frosted, crème filled, etc.” 

The High Caloric Value Fund also invests in Dr. Atkins, Weight 
Watchers, Jenny Craig, hypnotists and all the other diet gurus.  
Why?  “Because in addition to the lack of self- discipline, we 
can count on the advertising community to keep putting slender 
models on the magazine covers and TV ads,” explained Buffet.  

“When the American public looks in the mirror, they want to see 
Cindy Crawford and Mel Gibson, but, instead, they see Mama Cass 
and John Candy.   Physical appearance has a lot to do with their 
self-image.  They become desperate and buy everything from diet 
pills to workout tapes – from Tae Bo to Richard Simmons.” 

“We own a percentage of Hair Club for Men & Women, and Friar 
Tucks cosmetic surgery clinics.  People will spend $10,000 for 
liposuction to suck out $2,000 worth of Twinkies,” continued 
Buffet.   “We’ve actually had a position in cosmetology surgical 
chains back when Julia Roberts and Melanie Griffith had normal 

“Our proprietary research indicates that certain cereal brands 
often come back up sooner than expected,” said AYCE.  “Did you 
know that Alphabits have replaced books in grades 1-4 in schools 
in the deep south?”  

“Many fund managers now use Lucky Charms for stock selection.  
CEOs are using Raisin Bran to maintain their regularity and the 
Fruit Loops defense for their court appearances while Arthur 
Anderson employees obviously like their wheat shredded.”

"We’re very happy with our portfolio," he continued. "Do you 
realize how many people don't know the name of their state 
Senators?  Those same people know every word of the Oscar Meyer 
Weiner song." 

There are very few things in life you can count on.  Death, taxes 
and the fact that “nobody doesn't like Sara Lee.”  Melvin “AYCE” 
Buffet will make cousin Warren proud and his fund will continue 
to flourish as people continue to celebrate their place on the 
food chain as human garbage disposals.  With the High Caloric 
Value Fund it’s a gain-gain situation.  

Just a little food for thought.  Gotta’ go.  Dominos is at the 

Comments and questions are always welcome:  

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The Option Investor Newsletter                   Sunday 08-18-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Stock Buying Basics: A Simple Selection Process
Naked Puts: Put-Selling Strategies: Surviving The Aftermath - Part II
Spreads/Straddles/Combos: The Technology Rally Continues!

Updated In The Site Tonight:
Market Watch: Looking for Evidence of Newfound Support
Market Posture: (False?)  Sense of Security

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Stock Buying Basics: A Simple Selection Process
By Mark Wnetrzak

One of our new readers asked for some information on how we pick
stocks for this section.  One of the most important factors in
stock selection is the technical health of the underlying issue.

To determine the future trend (or character) for any financial
issue, you must be able to identify the most common historical
patterns and understand the implications of technical indicators.
There are a number of advantages to this type of approach but most
importantly, it eliminates the need to understand the infinite
components of fundamental valuation that market analysts find so
intriguing.  In addition, trading strategies based on historical
price analysis provide precise entry and exit signals, a benefit
to investors who participate in short-term strategies.  Technical
analysis makes three basic assumptions.  First, simple market data
such as price and volume can indicate the true value of a specific
security or financial instrument.  Second, prices historically
exhibit trends or patterns and third, history eventually repeats
itself.  These assumptions can be combined with the study of price
and volume to provide traders the basic information they need to
initiate profitable trading strategies.  The technical indicators
that identify buy or sell signals are contained in various chart
formations and patterns and since the goal of any trader is to
profit from their predictions, most experts suggest that the best
place to begin is with a thorough evaluation of the issue's price
history or trend.

From a technical viewpoint, the ideal time to buy is when a stock
is moving out of a defined base into a dynamic stage II pattern.
The breakout above the top of the resistance area (and/or a long-
term moving average) should occur on impressive volume.  In stage
II, the 30-week MA generally starts turning up shortly after the
breakout.  The initial rally is usually followed by at least one
pullback.  That decline brings the stock price back to area near
the breakout point, offering another opportunity to purchase the
issue.  The less the stock retreats into the underlying support
area, the more strength inherent in the move.  The potency of the
pattern really becomes evident when each successive peak eclipses
the previous one, and the corrections are progressively higher.
As long as all of these gyrations continue to occur above the
short-term (18-30 day) moving average, the bullish trend remains
intact and long positions should be maintained until the target
exit point is achieved.  After the trend is well established and
favorable profits are guaranteed, the primary objective is to
manage the position for maximum return while avoiding potential

Despite the similarities in the initial evaluation process, the
strategy we utilize in choosing positions for the Covered-Calls
section is much different that an investor would use to select
stocks for short-term trading.  One who is purchasing stocks for
upside potential should first assemble a collection of bullish
candidates and then identify the best entry opportunity for each
issue through chart reading and other types of timing analysis.
As previously noted, learning when to buy and sell requires a
thorough understanding of technical indicators and market trends.
It is also very important to use consistent, well-known trading
techniques to make the most of favorable opportunities, whether
they are in stocks or options, or other financial instruments.

Trade Wisely!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

FDRY    7.50   9.14   AUG   7.50  0.45  *$  0.45  13.9%
GCOR   10.16  10.75   AUG  10.00  0.70  *$  0.54  12.4%
ENDP    8.58   8.67   AUG   7.50  1.45  *$  0.37  11.3%
LVLT    5.75   5.48   AUG   5.00  1.20  *$  0.45  10.7%
ISRG    7.52   7.94   AUG   7.50  0.35  *$  0.33  10.0%
EXTR   10.67   9.95   AUG  10.00  1.70   $  0.98   9.5%
ICOS   19.01  27.50   AUG  17.50  2.55  *$  1.04   9.2%
AMLN   10.00  12.65   AUG  10.00  0.90  *$  0.90   8.6%
ULGX    5.32   4.80   AUG   5.00  0.70   $  0.18   8.5%
CREE   13.98  16.20   AUG  12.50  2.30  *$  0.82   7.6%
WEBX   13.88  13.42   AUG  12.50  2.20  *$  0.82   7.6%
NPSP   17.11  24.49   AUG  12.50  5.60  *$  0.99   7.5%
SNDK   14.40  14.45   AUG  12.50  2.85  *$  0.95   7.1%
TRLY    6.31   5.45   AUG   5.00  1.60  *$  0.29   6.7%
SBL     8.58   9.09   AUG   7.50  1.50  *$  0.42   6.4%
OTEX   20.41  23.66   AUG  17.50  3.40  *$  0.49   6.3%
FTI    17.40  19.83   AUG  15.00  3.00  *$  0.60   6.0%
HYSL   17.85  23.60   AUG  17.50  1.05  *$  0.70   6.0%
ALXN   13.73  12.51   AUG  12.50  1.55  *$  0.32   5.7%
BRCD   18.50  15.81   AUG  15.00  4.40  *$  0.90   5.5%
BRCM   20.39  19.16   AUG  17.50  3.90  *$  1.01   5.3%
NPSP   20.89  24.49   AUG  17.50  4.00  *$  0.61   5.2%
HGSI   14.98  17.59   AUG  12.50  2.90  *$  0.42   5.0%
IMDC   16.00  21.58   AUG  12.50  3.90  *$  0.40   4.8%
IVGN   30.88  36.37   AUG  25.00  6.90  *$  1.02   4.6%
IVGN   32.68  36.37   AUG  27.50  6.00  *$  0.82   4.5%

ALKS    7.70   9.21   SEP   7.50  1.25  *$  1.05  11.8%
NXTL    5.49   6.70   SEP   5.00  1.10  *$  0.61  10.1%
MDR     6.00   5.99   SEP   5.00  1.50  *$  0.50   8.0%
MYGN   24.96  24.69   SEP  22.50  4.10  *$  1.64   5.7%
MLNM   14.16  14.35   SEP  12.50  2.45  *$  0.79   4.9%
AFFX   18.51  18.73   SEP  15.00  4.40  *$  0.89   4.6%
MRCY   24.79  25.64   SEP  22.50  3.60  *$  1.31   4.5%

*$ = Stock price is above the sold striking price.


The surprising strength in the major averages sure helped some
of the weaker stocks in the covered-call portfolio.  All of 
the stocks on the early exit watch-list held their ground
(support) this week and half the positions that were closed
early would have been profitable at expiration (Murphy's Law!).
Will the Bulls return next week?  As always, time will tell...

Positions Previously Closed:  Zixit (NASDAQ:ZIXI), Sprint PCS 
(NYSE:PCS), Juniper Networks (NASDAQ:JNPR) and Digital River 


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CREE   16.20  SEP 15.00   CVO IC  2.25 4568  13.95   35    6.5% 
FFIV   14.04  SEP 12.50   FLK IV  2.55 164   11.49   35    7.6% 
ICST   20.74  SEP 17.50   IUY IW  4.20 28    16.54   35    5.0% 
IDTI   15.20  SEP 12.50   ITQ IT  3.30 439   11.90   35    4.4% 
ISIS   11.25  SEP 10.00   QIS IB  2.05 231    9.20   35    7.6% 
SMTC   22.14  SEP 17.50   QTU IQ  5.50 28    16.64   35    4.5% 
XOMA    5.66  SEP  5.00   MBU IA  0.95 898    4.71   35    5.4%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

FFIV   14.04  SEP 12.50   FLK IV  2.55 164   11.49   35    7.6% 
ISIS   11.25  SEP 10.00   QIS IB  2.05 231    9.20   35    7.6% 
CREE   16.20  SEP 15.00   CVO IC  2.25 4568  13.95   35    6.5% 
XOMA    5.66  SEP  5.00   MBU IA  0.95 898    4.71   35    5.4%
ICST   20.74  SEP 17.50   IUY IW  4.20 28    16.54   35    5.0% 
SMTC   22.14  SEP 17.50   QTU IQ  5.50 28    16.64   35    4.5% 
IDTI   15.20  SEP 12.50   ITQ IT  3.30 439   11.90   35    4.4% 

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

CREE - Cree  $16.20  *** Next Leg Up? ***

Cree (NASDAQ:CREE) develops and produces compound semiconductor
materials and electronic devices made from commercialize silicon
carbide (SiC) and gallium nitride (GaN).  The company operates
its business in two segments: the Cree segment, which consists of
its SiC based products; and the UltraRF segment, which consists
of radio frequency (RF) transistors and amplifiers on a silicon
platform.  The company's customers include Siemens AG, Sumitomo 
Corporation and Spectrian.  In July, Cree reported a quarterly 
loss versus a year-earlier profit, but the company said revenue
rose from the prior quarter and it raised guidance on strong 
demand.  Investors appear to agree with the bullish assessment
as the stock has rallied above the July high.  Technically, the
issue appears to have successfully completing a basing phase and
this position offers a great way to speculate on the future
movement of the issue in a conservative manner.

SEP 15.00 CVO IC LB=2.25 OI=4568 CB=13.95 DE=35 TY=6.5% 

FFIV - F5 Networks  $14.04  *** Stepping Up! ***

F5 (NASDAQ:FFIV) provides integrated products and services to
manage, control and optimize Internet traffic and content. The
company's five core products, the BIG-IP IP Application Switch
& Controller, 3-DNS Controller, GLOBAL-SITE Controller, EDGE-FX
Cache and the SEE-IT Network Manager, help manage traffic and 
content to servers and network devices in a way that maximizes 
availability and throughput.  The company recently announced 
complete support for Oracle9i Application Server and Oracle9i 
Database on Linux.  This support gives customers running the 
Oracle9i technology and F5's BIG-IP® product the assurance of
optimal performance and availability, powerful scalability, 
application security, and increased operational efficiencies 
for a higher return on their Oracle investment.  No real news
to explain Friday’s strong move up on heavy volume.  Options
expiration or a short-squeeze?  We simply favor the technical
support near the cost basis and traders can speculate on the
performance of the issue with this conservative position.

SEP 12.50 FLK IV LB=2.55 OI=164 CB=11.49 DE=35 TY=7.6% 

ICST - Integrated Circuit Systems  $20.74  *** Trading Range ***

Integrated Circuit (NASDAQ:ICST) is engaged in the business of
designing and marketing custom application specific integrated
circuits (ASICs) for various industrial customers.  The company's
business is divided into 2 categories: Core and Non-Core Segments.
The Core segment supplies a broad line of timing products for use
in PC motherboard and peripheral applications.  The Non-Core 
segment sells mixed-signal (analog and digital) ICs customized to
the specific requirements of a broad range of customers and 
applications.  The semiconductor companies have been under-
performing the broader market for quite some time but in recent
sessions, the group is starting to show some life.  Integrated 
Circuit has excellent buying support near our cost basis and the
favorable call-option premiums will allow traders to speculate,
in a conservative manner, on the future movement of the company's
share value.

SEP 17.50 IUY IW LB=4.20 OI=28 CB=16.54 DE=35 TY=5.0% 

IDTI - Integrated Device Technlogy  $15.20  *** Rebounding! ***

Integrated (NASDAQ:IDTI) designs, develops, manufactures and 
markets a broad range of high-performance semiconductor products.
Applications for its products include data networking and telecom
equipment, such as routers, hubs, switches, cellular base stations
and other devices; storage area networks (SANs); other networked
peripherals and servers, and personal computers.  The company 
markets its products on a worldwide basis primarily to OEMs 
through a variety of channels, including a direct sales force,
distributors, contract equipment manufacturers and independent 
sales representatives.  There's little news to explain the recent
bullish activity in IDT but on Friday, the issue moved above the
current trading range amid continued buying pressure and robust
volume.  The stock appears poised to move higher in the coming
sessions and traders who believe the issue is destined for a
future rally can profit from upside movement with this position.

SEP 12.50 ITQ IT LB=3.30 OI=439 CB=11.90 DE=35 TY=4.4% 

ISIS - Isis Pharmaceuticals  $11.25  *** On The Move! ***

Isis Pharmaceuticals (NASDAQ:ISIS) is a biopharmaceutical company
focused on delivering RNA-based drug discovery technologies to 
identify and commercialize novel drugs to treat important diseases.
RNA (ribonucleic acid) is a molecule that provides to a cell the
information that it needs to produce proteins, including those 
proteins that are involved in disease.  With its antisense 
technology, ISIS creates inhibitors designed to bind with high
specificity to their RNA target and modulate protein production.
With its Ibis technology, the company uses its discoveries in RNA
to design small-molecule therapeutics that bind to RNA.  ISIS also
uses its antisense technology in collaborations with pharmaceutical
companies to identify and prioritize attractive gene targets for 
their drug discovery programs.  Isis rallied after reporting a 
smaller net loss at the end of June as licensing revenue offset 
higher drug development expenses.  More recently, Isis rallied 
after the company said it had received a payment from partner 
Amgen for making progress in an effort to develop new medications.
We like the technical support near the cost basis and investors
who are interested in a long-term portfolio position in the issue
should consider this play.

SEP 10.00 QIS IB LB=2.05 OI=231 CB=9.20 DE=35 TY=7.6% 

SMTC - Semtech  $22.14  *** Bottom-Fishing ***

Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal
semiconductors.  Semtech designs, produces and markets a broad 
range of products that are sold principally to customers in the
computer, communications and industrial markets.  The company's
products are designed into a wide variety of end applications, 
including notebook and desktop computers, computer gaming 
systems, personal digital assistants, cellular phones, wireline 
networks, wireless base stations and test systems.  Semtech’s
end customers are primarily OEMs and their suppliers, including
Acer, Agilent, Cisco, Compaq, Dell, First International, IBM, 
Intel, Microstar, Motorola, Samsung and Sony.  There's not much
news on Semtech to explain Friday's continued rally but the 
technical indications suggest the issue has successfully 
completed a recent consolidation (at long-term support) and is
poised for future gains.  We simply favor the bullish technical 
indications and our conservative position offers a method to 
participate in the future movement of the issue with relatively
low risk.

SEP 17.50 QTU IQ LB=5.50 OI=28 CB=16.64 DE=35 TY=4.5% 

XOMA - XOMA  $5.66  *** Stage I Breakout ***

XOMA (NASDAQ:XOMA) is a biopharmaceutical company that develops
and manufactures recombinant antibodies and other protein products
to treat cancer, immunological and inflammatory disorders, and
infectious diseases.  The company's products under development
include Xanelim, NEUPREX, ING-1, ONYX-015, CAB2 and MLN01, and 
BPI-derived anti-angiogenic compounds.  XOMA has a number of 
proprietary technologies relating to recombinant antibodies,
including bacterial cell expression systems for the production
of recombinant antibodies, the Human Engineering method, and the
targeted gelonin fusion technology.  Though XOMA posted a wider
than expected loss, the company reiterated its full-year guidance
and said that it has sufficient cash resources through at least 
the middle of 2004.  Investors appear pleased with the report as
well as the recent positive treatment data for Raptiva™, which
appears to be on track for filing later this year.  We simply 
favor the bullish breakout above a recent technical base, which
suggests the stock is destined to move higher.

SEP 5.00 MBU IA LB=0.95 OI=898 CB=4.71 DE=35 TY=5.4%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

EXTR    9.95  SEP 10.00   EXJ IB  1.10 2373   8.85   35   10.8% 
TKLC   10.25  SEP 10.00    KQ IB  1.10 27     9.15   35    8.1% 
IMCL    9.24  SEP  7.50   QCI IU  2.25 1174   6.99   35    6.3% 
ASYT   11.74  SEP 10.00   QQY IB  2.40 32     9.34   35    6.1% 
ORCL   10.39  SEP 10.00   ORQ IB  1.00 63507  9.39   35    5.6% 
CKFR   11.85  SEP 10.00   FCQ IB  2.45 267    9.40   35    5.5% 
GMH    10.60  SEP 10.00   GGW IB  1.20 2611   9.40   35    5.5% 
NWRE   14.00  SEP 12.50   QQA IV  2.25 7     11.75   35    5.5% 
IDCC    8.50  SEP  7.50   DAQ IU  1.40 479    7.10   35    4.9% 
ESIO   20.40  SEP 17.50   EQO IW  3.80 0     16.60   35    4.7% 
PPD    22.23  SEP 17.50   PPD IW  5.60 585   16.63   35    4.5%


Put-Selling Strategies: Surviving The Aftermath - Part II
By Ray Cummins

This week, we continue our recent discussion about the most common
methods used to recover from bearish activity in the stock market.

Attn: OIN - Trading 101 Editor
Subject: Recovery Strategies


I've been trading options for about a year and although I have
been successful on a few occasions, my account balance has
suffered the consequences of a far too optimistic outlook.  My
main strategy of late has been selling puts and now I own some
stocks at prices much higher than their current values.  If I
am going to be in this for the long haul, is there a preferred
way to recover the losses in these issues?  Should I be buying
more of the stocks I own (averaging) and if so, should I sell
calls against them.  Also, I read about using a combination of
stocks and sold options with a debit spread.  Is this a viable
strategy?  Any help to repair my ailing portfolio would be much



Regarding Recovery Strategies (Part II):

Another recovery technique used with long-term portfolio issues
that have declined during a bearish market is the "ratio-call"
combination.  Here are some excerpts from a previous article
(with new data) on the subject of this unique recovery strategy:

When the share value of a portfolio issue falls, the investor can
react in a number of ways.  The easiest approach is to simply take
no action and hope the stock eventually recovers.  Some investors
choose to "average down," which involves adding more shares to
one's current position at a lower price.  While this a good way to
lower the overall cost basis in the issue, it also significantly
increases the amount of money at risk in the position.  Possibly a
better method, and one that option traders favor in this situation,
involves using a bull-call spread to lower the break-even basis of
the overall position while increasing its profit potential.  In the
book "Options For The Stock Investor", the author refers to this
strategy as a "covered-call plus a call-debit spread," where the
premium from the sold options are used to offset the cost of the
long calls.  Regardless of how the strategy is labeled, it can be
a favorable technique for recovering lost share value in long-term
portfolio holdings.

An example:

At some date in the recent past, an investor buys 1000 shares of
PMC Sierra at $12.00 and sells (10) AUG-$12.50 calls for a premium
of $1.50.  His basis is $10.50.  At the end of the strike period,
the stock has fallen to $8.00, a realized loss of $2.50.  Now the
trader still likes the long-term outlook for the issue but is also
concerned about further downside risk and the need to recover lost
profit potential.  The trader could attempt to improve his overall
risk/reward outlook in the position by purchasing (10) NOV-$7.50
calls and selling (20) NOV-$10 calls.  The new position would be a
combination of the covered-call and the bull-call spread.  The new
components are; LONG 1000 shares PMCS and LONG (10) NOV-$7.50 calls
but also SHORT (20) NOV-$10 calls.  Notice there are no "naked" or
uncovered calls and after some simple analysis of each individual
component, you will find that using the debit spread in combination
with the covered-write offers a viable remedy for restoring lost
profit potential at a reasonable level of risk.

An explanation of the strategy:

Since the cost of ten (10) NOV-$7.50 calls (Ask = 2.10) and the
credit from twenty (20) NOV-$10.00 calls (Bid = 1.00) are roughly
equal, no extra expenses (other than commissions) are required
for the play.  However, if there was additional money invested
towards the new position, it would simply lower the "break-even"
(below the current basis) by that amount.  If PMCS finishes the
November expiration period below $7.50, all of the calls will
expire worthless.  The investor will be no worse off because his
cost basis is increased only by the additional money spent for the
spread.  In most cases, the amount should be a small percentage
of the stock price (2-5%) or, as in this example, almost nothing.
If PMCS finishes above $10 at expiration, the strategy will yield
maximum profit, easily 2-3 times more than a simple covered call,
but it must be structured so as to produce "break-even or better"
results when compared to the original position.

The primary advantage to this technique becomes apparent as you
compare the outcomes when the stock price finishes within the
strike prices.  The profit threshold for the new position occurs
at a much lower (stock) price and increases exponentially as the
value of the underlying issue rises.  In addition, the downside
break-even is reduced by roughly the same amount that is invested
for the bull-call spread, thus providing favorable risk/reward for
any capital spent in the recovery effort.  Of course, all of the
possible results for any particular position can be analyzed by
simply comparing both plays at the various prices, so it is very
important to do the math (and make sure your calculations are
correct!) before you initiate the strategy.

No one likes to be in a losing position, but the key to success
is how we react to this type of situation and in many cases, the
ratio-call repair technique offers an excellent method to recover
lost share value in long-term portfolio holdings.

Good Luck! 

                        *** WARNING!!! ***

Occasionally a company will experience catastrophic news causing
a severe drop in the stock price.  This may cause a devastatingly
large loss which may wipe out all of your smaller gains.  There is
one very important rule: Don't sell naked puts on stocks that you
don't want to own!  It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops.  Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a "buy-to-close" STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

NXTL    6.64   6.70   AUG   5.00  0.25  *$  0.25  17.2%
ICOS   23.73  27.50   AUG  20.00  0.45  *$  0.45  15.7%
SNDK   15.08  14.45   AUG  12.50  0.55  *$  0.55  14.9%
DCTM   14.86  15.03   AUG  12.50  0.40  *$  0.40  14.6%
PDLI   13.02  12.83   AUG  10.00  0.25  *$  0.25  12.7%
MCDTA   9.70  10.22   AUG   7.50  0.25  *$  0.25  12.4%
ISSX   15.45  16.52   AUG  12.50  0.30  *$  0.30  12.3%
DCTM   12.90  15.03   AUG  10.00  0.30  *$  0.30  11.3%
BCGI    8.90   8.06   AUG   7.50  0.25  *$  0.25  11.3%
CHKP   15.69  18.00   AUG  12.50  0.25  *$  0.25  10.7%
TRMS   46.62  48.27   AUG  40.00  0.60  *$  0.60  10.3%
BRCM   19.86  19.16   AUG  15.00  0.40  *$  0.40   9.9%
FCN    40.00  41.38   AUG  35.00  0.80  *$  0.80   9.8%
LNCR   31.50  33.38   AUG  30.00  0.50  *$  0.50   9.4%
VMSI   22.35  20.85   AUG  20.00  0.25  *$  0.25   7.9%
MU     23.39  20.85   AUG  17.50  0.45  *$  0.45   7.6%
OSIP   26.79  32.79   AUG  22.50  0.35  *$  0.35   7.5%
PDLI   10.95  12.83   AUG   7.50  0.20  *$  0.20   7.3%
SYY    27.20  28.92   AUG  25.00  0.30  *$  0.30   7.3%
RIMM   13.82  10.48   AUG  10.00  0.25  *$  0.25   7.2%
DT     12.00  10.88   AUG  10.00  0.25  *$  0.25   7.1%
IVGN   35.13  36.37   AUG  30.00  0.30  *$  0.30   7.1%
NBIX   36.24  39.94   AUG  30.00  0.25  *$  0.25   6.4%
QCOM   28.11  29.09   AUG  20.00  0.40  *$  0.40   5.8%
QLGC   40.69  36.46   AUG  25.00  0.45  *$  0.45   5.7%
AMGN   43.51  47.53   AUG  37.50  0.30  *$  0.30   5.6%

FDRY    8.99   9.14   SEP   7.50  0.35  *$  0.35  10.3%
AMLN   13.00  12.65   SEP  10.00  0.40  *$  0.40   9.7%
INVN   28.36  30.15   SEP  22.50  0.85  *$  0.85   9.4%
ICOS   27.49  27.50   SEP  20.00  0.75  *$  0.75   8.7%
CVTX   26.01  27.14   SEP  20.00  0.70  *$  0.70   8.6%
ENZN   24.13  23.17   SEP  17.50  0.60  *$  0.60   8.0%
OSIP   32.58  32.79   SEP  22.50  0.70  *$  0.70   7.0%
NPSP   23.06  24.49   SEP  15.00  0.45  *$  0.45   6.4%
HGSI   17.87  17.59   SEP  12.50  0.30  *$  0.30   5.6%

*$ = Stock price is above the sold striking price.


This week's broad recovery in equity values helped the majority
of positions in our portfolio achieve a profitable outcome.  At
expiration, only three plays were negative and those losses were
minimal.  Another result of the bullish activity; there are no
stocks on the watch-list this week.

Positions Previously Closed (but positive):  Applied Materials 
(NASDAQ:AMAT), Cisco Systems (NASDAQ:CSCO), Motorola (NYSE:MOT),
and Royal Gold (NASDAQ:RGLD).  The negative plays for the month
included: Sangstat (NASDAQ:SANG), Polymedica (NASDAQ:PLMD), and
Atmi Inc. (NASDAQ:ATMI).


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CLS    23.80  SEP 17.50   CLS UW  0.30 499   17.20   35    5.2% 
HGSI   17.59  SEP 12.50   HQI UV  0.25 105   12.25   35    5.8% 
JDEC   13.05  SEP 10.00   QJD UB  0.45 99     9.55   35   12.8% 
LNCR   33.38  SEP 30.00   LQN UF  0.80 201   29.20   35    6.5% 
NWRE   14.00  SEP 10.00   QQA UB  0.40 0      9.60   35   10.9% 
OSIP   32.79  SEP 22.50   GHU UX  0.60 1543  21.90   35    7.3% 
PPD    22.23  SEP 12.50   PPD UV  0.35 1417  12.15   35    6.3% 
SIE    22.88  SEP 17.50   SIE UW  0.40 17    17.10   35    7.0% 
TTWO   23.40  SEP 17.50   TUO UW  0.40 813   17.10   35    6.8%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

JDEC   13.05  SEP 10.00   QJD UB  0.45 99     9.55   35   12.8% 
NWRE   14.00  SEP 10.00   QQA UB  0.40 0      9.60   35   10.9% 
OSIP   32.79  SEP 22.50   GHU UX  0.60 1543  21.90   35    7.3% 
SIE    22.88  SEP 17.50   SIE UW  0.40 17    17.10   35    7.0% 
TTWO   23.40  SEP 17.50   TUO UW  0.40 813   17.10   35    6.8%
LNCR   33.38  SEP 30.00   LQN UF  0.80 201   29.20   35    6.5% 
PPD    22.23  SEP 12.50   PPD UV  0.35 1417  12.15   35    6.3% 
HGSI   17.59  SEP 12.50   HQI UV  0.25 105   12.25   35    5.8% 
CLS    23.80  SEP 17.50   CLS UW  0.30 499   17.20   35    5.2% 

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

CLS - Celestica  $23.80  *** Sector Upgrade! ***

Celestica (NYSE:CLS) is a provider of electronics manufacturing
services (EMS) to original equipment manufacturers (OEMs) in the
information technology and communications industries worldwide.
Celestica is an operator of a highly sophisticated manufacturing
network that provides a broad range of services.  The company
provides competitive advantage to its customers by improving
time-to-market, scalability and manufacturing efficiency.  The
firm's products and services include the high-volume manufacture
of complex printed circuit assemblies (PCAs) and the full system
assembly of final products.  In addition, the firm is a provider
of design, repair and engineering services, as well as supply
chain management and power products.  Celestica also offers a
range of manufacturing services, such as prototyping, product
assembly and test, system assembly, product assurance, failure
analysis, packaging and global distribution, after-sales support
and quality management.  In early August, Merrill Lynch raised
its ratings on six contract electronics manufacturers, saying
the stocks had significant upside at current trading levels.  CLS
was one of those issues, and the brokerage labeled it a "strong
buy."  Traders who agree with that bullish outlook can speculate
conservatively on the future movement of the issue with this play.

SEP 17.50 CLS UW LB=0.30 OI=499 CB=17.20 DE=35 TY=5.2% 

HGSI - Human Genome Sciences  $17.59  *** New Drug Speculation ***

Human Genome Sciences (NASDAQ:HGSI) is a biopharmaceutical and
genomics company focused on therapeutic product development and
functional analysis of genes using its proprietary technology 
platform.  HGSI discovers, develops and intends to commercialize
novel compounds for treating and diagnosing human disease based 
on the identification and study of genes.  HGSI reported earnings
in July, which reflected the loss of expired relationships (for
exclusive access to its genetic database) with several big drug
companies.  HGSI is now free to pursue more lucrative deals as
well as further develop its own product pipeline.  Human Genome
has recently received a milestone payment from GlaxoSmithKline
(NYSE:GSK) and they also granted Schering-Plough (NYSE:SGP) the
exclusive rights to develop and commercialize human antibodies.
We favor the recent technical trend and this position offers an
easy way to speculate on the future movement of the issue in a
conservative manner.

SEP 12.50 HQI UV LB=0.25 OI=105 CB=12.25 DE=35 TY=5.8% 

JDEC - J.D. Edwards  $13.05  *** Earnings Rally? ***

J.D. Edwards (NASDAQ:JDEC) is a provider of agile, collaborative 
solutions for the connected economy.  The firm delivers a range
of integrated, collaborative software for supply chain management
(planning and execution) procurement and customer relationship
management, in addition to workforce management and functional
support.  Customers can choose to operate its software on a wide
variety of computing environments, and the firm supports several
different databases.  J.D. Edwards distributes, implements and
supports its software worldwide through 55 offices and more than
350 third-party business partners.  J.D. Edwards has rallied off
the July low in anticipation of the company's upcoming earnings
report.  With several new contracts and partnerships, as well as
new products, investors believe the report will be favorable.
This position offers a conservative method to profit from the
current bullish momentum in the issue.

SEP 10.00 QJD UB LB=0.45 OI=99 CB=9.55 DE=35 TY=12.8% 

LNCR - Lincare Holdings  $33.38  *** New High! ***

Lincare Holdings (NASDAQ:LNCR) is a provider of oxygen and other
respiratory therapy services to patients in the home.  Lincare
also provides a variety of home infusion therapies in certain
geographic markets.  The company's customers typically suffer
from chronic obstructive pulmonary disease, such as emphysema,
chronic bronchitis or asthma, and require supplemental oxygen or
respiratory therapy services in order to alleviate the symptoms
and discomfort of respiratory dysfunction.  Lincare currently
serves over 320,000 customers in 44 states through 564 operating
centers.  Lincare Holdings recently joined the NASDAQ 100 Index
and the company is very popular among analysts who follow the
specialized health services industry.  Consistent growth as well
as solid finances are often listed as factors that should boost
Lincare's share value (the company has achieved long-term growth
of more than 20% per year) and their stock price will benefit as
baby boomers head into their golden years needing home health
care.  Investors who favor health services stocks can establish
a conservative entry point in the issue with this position.

SEP 30.00 LQN UF LB=0.80 OI=201 CB=29.20 DE=35 TY=6.5% 

NWRE - Neoware Systems  $14.00  *** Earnings Due! ***

Neoware Systems (NSDQ:NWRE) provides software and solutions to
enable appliance computing, a web-based computing architecture
targeted at business customers that is designed to be simpler
and easier than traditional personal computer-based computing.
The company's software and management tools power and manage a
new generation of smart computing appliances that utilize the
benefits of open, industry-standard technologies to create new
alternatives to PCs used in business and a variety of proprietary
business devices.  Neoware Systems provides its software on top
of a number of embedded operating systems, including Microsoft's
Windows CE and NT Embedded, as well as an embedded version of the
Linux operating system.  Neoware has been in "rally mode" since
last November with the issue moving from $2 to $14 in only 10
months.  Investors can establish a low risk cost basis in the
issue with this position.  Earnings are due in late August.

SEP 10.00 QQA UB LB=0.40 OI=0 CB=9.60 DE=35 TY=10.9% 

OSIP - OSI Pharmaceuticals  $32.79  *** Rally In Progress! ***

OSI Pharmaceuticals (NASDAQ:OSIP) is a biopharmaceutical company
focused on the discovery, development and commercialization of
products for the treatment of cancer.  The company has built a
pipeline of programs and drug candidates addressing major, unmet
needs in cancer and selected opportunities arising from OSI's
new drug discovery research programs that represent commercial
opportunities outside of cancer.  The company has three primary
candidates in clinical trials and seven projects with candidates
in late stage pre-clinical development.  OSI's most advanced drug
candidate is Tarceva, which has demonstrated various indications
of anti-cancer activity.  The company expects to focus its future
efforts primarily in the areas of diabetes.  The recent rally to
a 3-month high suggests that buyers are supporting the issue at
current levels and our position allows for a profitable outcome
even with a reasonable consolidation.

SEP 22.50 GHU UX LB=0.60 OI=1543 CB=21.90 DE=35 TY=7.3% 

PPD - Pre-Paid Legal Services  $22.23  *** Premium Selling! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Lots of speculation on Pre-Paid since the company announced that,
for corporate governance purposes, four directors were leaving
the board.  There is also news concerning the lead institutional
plaintiff in the federal securities class action lawsuit filed
against Pre-Paid, who is withdrawing from any further involvement
with the litigation.  Traders can speculate on the outcome of the
recent events with this position.

SEP 12.50 PPD UV LB=0.35 OI=1417 CB=12.15 DE=35 TY=6.3% 

SIE - Sierra Health Services  $22.88  *** Own This One! ***

Sierra Health Services (NYSE:SIE) is a health care organization
that provides and administers the delivery of comprehensive health
care and workers' compensation programs with an emphasis on quality
care and cost management.  The company's primary types of health
care coverage are HMO plans, HMO Point of Service (POS) plans, and
indemnity plans, which include a preferred provider organization
option.  The POS products allow members to choose one of the many
coverage options when medical services are required instead of one
plan for the entire year.  Shares of Sierra Health Services have
climbed steadily since late April when the company posted first
quarter results that were well ahead of Wall Street's expectations.
The health care services provider has bullish guidance for the rest
of the year and investors can establish a conservative cost basis
in a popular issue in a strong industry group with this position.

SEP 17.50 SIE UW LB=0.40 OI=17 CB=17.10 DE=35 TY=7.0% 

TTWO - Take-Two Int. Software  $23.40  *** Gaming Season! ***

Take-Two Interactive Software (NASDAQ:TTWO) is an integrated
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the personal
computer, PlayStation, PlayStation2, Nintendo Game Boy Color,
Nintendo GameCube, Nintendo Game Boy Advance and the Xbox.  The
company publishes and develops products through various wholly
owned subsidiaries including Rockstar Games, Rockstar Studios,
Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star
and under the Take-Two brand name.  The company maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.
U.S. Bancorp Piper Jaffray Senior Cable, Media and Entertainment
Analyst Anthony Gikas believes now is the time to own video game
software names, given the historical seasonality of the sector,
and he recently upgraded Take-Two Interactive to a "strong buy"
with a target price of $27.  Traders who believe that is an
accurate assessment of the company's outlook can profit from
future upside activity in the issue with this position.

SEP 17.50 TUO UW LB=0.40 OI=813 CB=17.10 DE=35 TY=6.8%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

IMDC   21.58  SEP 17.50   UZI UW  0.70 23    16.80   35   11.6% 
BRCM   19.16  SEP 15.00   RCQ UC  0.55 2448  14.45   35   10.9% 
FCN    41.38  SEP 35.00   FCN UG  1.00 332   34.00   35    7.8% 
ICOS   27.50  SEP 20.00   IIQ UD  0.50 170   19.50   35    7.2% 
CCMP   47.11  SEP 35.00   UKR UG  0.85 893   34.15   35    7.2% 
CYMI   27.75  SEP 20.00   CQG UD  0.50 165   19.50   35    7.2% 
MRCY   25.64  SEP 20.00   QYR UD  0.40 16    19.60   35    6.3% 
APOL   42.17  SEP 35.00   OAQ UG  0.75 733   34.25   35    6.2%



The Technology Rally Continues!
By Ray Cummins

                         - MARKET RECAP -
August 16, 2002
Stocks closed mixed Friday with technology issues rising amid an
optimistic earnings report from Dell Computer (NASDAQ:DELL) while
industrial shares consolidated after recent gains.

The Dow Jones industrial average ended down 40 points at 8,778 as
losses in Alcoa (NYSE:AA), International Paper (NYSE:IP), General
Electric (NYSE:GE), Citigroup (NYSE:C), and Home Depot (NYSE:HD)
offset gains in SBC Communications (NYSE:SBC), Disney (NYSE:DIS),
International Business Machines (NYSE:IBM), Coca-Cola (NYSE:KO),
and Intel (NASDAQ:INTC).  The NASDAQ Composite rose 16 points to
1,361 on strength in computer hardware issues.  The broader S&P
500-stock index was basically unchanged with advances in airline,
brokerage and defense shares and declines in paper, gold, retail,
utility, oil service and biotech issues.  Volume came in at 1.26
billion on the NYSE and at 1.50 billion on the NASDAQ.  Breadth
was positive, with winners pacing losers 18 to 14 on the NYSE and
19 to 14 on the technology exchange.  The 10-year Treasury note
tumbled 1 5/32 to yield 4.32% while the 30-year government bond
plunged 1 21/32 to yield 5.09%.  With regard to fund flows, Trim
Tabs estimated that all equity funds had outflows of $5.4 billion
over the week ending 8/14 compared with outflows of $3.5 billion
in the prior week.  Equity funds that purchase U.S. stocks saw
outflows of $4.2 billion vs. outflows of $2.3 billion during the
prior week.

Last week's new plays (positions/opening prices/strategy):
Cabot Micro  (NSDQ:CCMP)  SEP25P/SEP30P  $0.40  credit  bull-put
Elect. Arts  (NSDQ:ERTS)  SEP75C/SEP70C  $0.60  credit  bear-call
Nike         (NYSE:NKE)   SEP55C/SEP50C  $0.60  credit  bear-call

The large selection of straddles published last Sunday was a very
active group and the big winners were Analog Devices (NYSE:ADI)
and Serena Software (NASDAQ:SRNA).  Plays that offered profitable
opportunities included Network Appliance (NASDAQ:NTAP), American
Eagle Outfitter (NASDAQ:AEOS), and Urban Outfitters (NASDAQ:URBN).
The losing positions included Applied Materials (NASDAQ:AMAT),
Nvidia (NASDAQ:NVDA), and Brocade Communications (NASDAQ:BRCD).
Among the new credit-spread candidates, Cabot Micro (NASDAQ:CCMP)
did not offer the target premium on a simultaneous order basis.
However, the credit for the position was acceptable, considering
the low downside risk.
Portfolio Activity:

The final week of the August expiration period was exciting for
bullish option traders as stocks enjoyed large gains in almost
every sector.  The upside activity also boosted the success of
the Spreads-Combos portfolio and the majority of plays finished
profitable.  Among the credit-spread candidates, the winners
were: Aetna (NYSE:AET), Amphenol (NYSE:APH), Aventis (NYSE:AVE),
Cognizant Technologies (NASDAQ:CTSH), Deutsche Bank (NYS:DB),
eBay (NASDAQ:EBAY), Idec Pharma (NASDAQ:IDPH), International
Business Machines (NYSE:IBM), Pulte Homes (NYSE:PHM), Royal
Dutch Oil (NYSE:RD), Synopsis (NASDAQ:SNPS), and United Parcel
Service (NYSE:UPS).  Losing positions included: Beazer Homes
(NYSE:BZH), Apache Oil (NYSE:APA), Economico Fomento (NYSE:FMX),
and International Gaming Technology (NYSE:IGT).  The bearish
spread in 3M Corporation (NYSE:MMM) was adjusted up and forward
earlier in the month to prevent losses.  In the calendar spreads
group, Pharmacia (NYSE:PHA) was the top performer but positions
in Amylin (NASDAQ:AMLN), Kellogg (NYSE:K) and Dupont (NYSE:DD)
also enjoyed favorable activity.  The Reader's Request plays in
SPX Corp. (NYSE:SPW) and Maxim Integrated Products (NASDAQ:MXIM)
suffered during the recovery rally and the broad-market hedge in
Goldcorp (NYSE:GG) fell victim to renewed buying pressure in the
popular equity groups.  The most active issue in the time-selling
category was Nextel (NASDAQ:NXTL) and the speculative spread was
trading near maximum profit on Wednesday, before the stock went
into "rally" mode.  The bullish momentum left few alternatives
for traders remaining in the long-term position, but we chose to
roll up and forward to a diagonal spread (JAN-5C/NOV-7.5C) for a
minimal debit.  The break-even point in the new position is near
$6 and maximum profit occurs above $7.50.  The synthetic plays
section experienced favorable results with candidates such as
Protein Design Labs (NASDAQ:PDLI), KLA-Tencor (NASDAQ:KLAC) and
Alliant Techsystems (NYSE:ATK).  The upside movement in Mylan
Labs (NYSE:MYL) also produced an excellent "early-exit" profit,
but the play will remain open as the options do not expire until
September.  The straddle in Sei Investments (NYSE:SEI) achieved
the target exit price in July and credit strangles in Stericycle
(NASDAQ:SRCL) and Symantec (NASDAQ:SYMC) ended comfortably inside
the maximum profit range.  The Centex (NYSE:CTX) position, which
was closed early to limit losses, rebounded to a positive outcome
but the Murphy Oil (NYSE:MUR) play, which was profitable through
Friday morning, fell into the red during the afternoon rally.

Questions & comments on spreads/combos to Contact Support
                      - SPECULATION PLAYS -

One of our readers commented on the recent bullish activity in
computer software companies and asked if we could offer some
speculative positions on issues in that group.  Here are three
candidates for long-term upside activity, based on the current
technical indications and fundamental outlook.  All of these
plays offer favorable risk/reward potential but they should also
be evaluated for portfolio suitability and reviewed with regard
to your strategic approach and trading style.
CHKP - Check Point Software  $18.00  *** Reader's Request! ***

Check Point Software Technologies (NASDAQ:CHKP) develops, markets
and supports Internet security solutions for enterprise networks
and service providers such as Telcos, Internet service providers,
application service providers and managed service providers that
include virtual private networks (VPNs), firewalls, intranet and
extranet security.  The company delivers solutions that enable
safe and secure, reliable, and manageable business-to-business
communications over Internet protocol (IP) networks, including
the Internet, intranets and extranets.  Check Point's product
offerings also include traffic control/quality of service and IP
address management.  The company's products are fully integrated
as a part of its secure virtual network architecture, and provide
centralized management, distributed deployment and comprehensive
policy administration.

In mid-July, Check Point Software posted a second-quarter profit
that met its forecast and said tight cost controls would enable
it to meet analysts' earnings estimates for the rest of the year.
The firm also said it gained market share in the security software
segment and closed some long-delayed deals, boosting investor
optimism over the company's future earnings.  Bob Lam, an analyst
with Bear Sterns in New York, noted that Check Point was seeing
strong revenue growth from the U.S government, saying that sales
should pick up in the September quarter as government departments
flush out their spending budgets to coincide with their fiscal
year end.

Check Point's recent technical indications also support a bullish
outlook and traders can speculate on the future activity of the
issue with this position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  OCT-22.50  KEQ-JX  OI=2292  A=$0.80
SELL PUT   OCT-15.00  KEQ-VC  OI=2817  B=$0.85

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $500 per contract.

PSFT - PeopleSoft  $18.70  *** Bottom Fishing! ***

PeopleSoft (NASDAQ:PSFT) designs, develops, markets and supports
a family of enterprise application software products for use
throughout large and medium-sized organizations.  The company
provides a range of enterprise application software for customer
relationship management, human resources management, financial
management and supply chain management, along with a variety of
industry-specific products.  In addition to its many enterprise
application software products, PeopleSoft offers a variety of
services to its customers, including implementation assistance,
project planning, online analytic processing deployment, software
product enhancements, consulting, maintenance, customer education,
product support and training.

There's little recent news on PeopleSoft, other than the CEO's
certification of the company's financial statements however, the
near-term technical indications suggest the issue has completed
a recent consolidation and is poised for future share-value gains.
In addition, the fundamental outlook for the company is excellent
and the technology group is performing very well; both factors
that lead us to a bullish outlook for the issue.  The strategy
we are going to recommend for the stock utilizes Jim Brown's (OIN
Founder/Chief Editor) popular technique of writing "in-the-money"
Puts to profit from upward movement in the underlying issue.  A
near-term Put is also purchased to limit downside risk in the
position, if the recovery does not begin in the next few months.

More information on this unique strategy can be found at:


PLAY (speculative - bullish/short-put combination):

SELL PUT  JAN04-20.00  LLP-MD  OI=1182   B=$6.90
BUY  PUT  JAN03-15.00  PQO-MC  OI=1022   A=$2.20

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.

ORCL - Oracle Software  $10.39  *** Second Time Around! ***

Oracle (NASDAQ:ORCL) is a supplier of software for information
management.  The company develops, manufactures, markets and
distributes computer software that helps corporations manage and
grow their businesses.  The company's software products can be
categorized into two broad areas: systems software and business
applications software.  Systems software is a complete Internet
platform for developing and deploying applications on the online
and on corporate intranets.  Systems software products include
database management software, application server software and
development tools that allow users to create, retrieve and modify
the various types of data stored in a computer system.  Business
applications software, which can be accessed with a standard Web
browser on any client computer, automates the performance of
business processes for customer relationship management, supply
chain management, financial management, project management and
human resource management.

We offered a position similar to this one in June and since
the outlook for the company remains favorable, we are going to
recommend the issues again.  From a fundamentals-based viewpoint,
Oracle is certainly one of the more established stocks in the
software segment and it was very successful in the late 90's,
as evidenced by 5 stock splits and a share value of $40 before
the recent massive sell-off erased the market capitalization of
almost every technology issue.  Now the issue is in a recovery
mode and analysts say that sales of the company's products are
improving and they expect ORCL's share value to move higher in
the coming months.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JAN-15.00  ORQ-AC  OI=31958  A=$0.45
SELL PUT   JAN-7.50   ORQ-MU  OI=8277   B=$0.50

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $250 per contract.

                       - CREDIT SPREADS -

The August expiration period has come to an end and traders will
be looking for new "premium-selling" plays for the coming month.
This selection of candidates for our most-requested strategy is
based on the underlying issue's recent technical history or trend.
The probability of profit from these positions may also be higher
than other plays in the same strategy, due to small disparities
in option pricing.  Current news and market sentiment will have
an effect on these issues, so review each play individually and
make your own decision about the future outcome of the position.

CAH - Cardinal Health  $65.10  *** On The Rebound! ***

Cardinal Health (NYSE:CAH) is a major provider of products and
services to healthcare providers and manufacturers, helping them
improve the efficiency and quality of their healthcare services
and products.  Cardinal Health has four main reporting segments:
Pharmaceutical Distribution/Provider Services, Medical-Surgical
Products and Services, Pharmaceutical Technologies and Services,
and Automation and Information Services.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-55  CAH-UK  OI=1086  A=$0.50
SELL PUT  SEP-60  CAH-UL  OI=797   B=$0.95

FCN - FTI Consulting  $41.38  *** Rally Underway! ***

FTI Consulting (NYSE:FCN) is a multi-disciplined consulting firm
with practices in the areas of financial restructuring, litigation
consulting and engineering and scientific investigation.  FTI
serves businesses, lenders, investors, insurers and their legal
counsel in adverse circumstances, such as class action lawsuits,
financial restructurings and bankruptcy proceedings and accident
investigations.  The company has organized its business into three
major divisions.  The Financial Consulting division offers expert
testimony, cost benefit analysis, damage assessment, competition
analysis and business valuations.  The Applied Sciences division
offers forensic engineering and scientific investigation services.
The Litigation Consulting division advises clients in all phases
of litigation, including discovery, jury selection, preparation
for trial and the actual trial services.
PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-30  FCN-UF  OI=112  A=$0.60
SELL PUT  SEP-35  FCN-UG  OI=332  B=$1.00

IBM - International Business Machines  $79.35  ** Go Big Blue! **

International Business Machines Corporation (NYSE:IBM) makes and
sells computer services, hardware and software.  The company also
provides financing services in support of its computer business.
The company's major operations comprise a Global Services segment;
three hardware product segments (Enterprise Systems, Personal and
Printing Systems, and Technology); a Software segment; a Global
Financing segment; and an Enterprise Investments segment.  IBM
offers its products through its global sales and distribution
organizations.  The company operates in more than 150 countries
worldwide and derives more than half of its revenues from sales
outside the United States.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  SEP-70  IBM-UN  OI=13841  A=$0.80
SELL PUT  SEP-75  IBM-UO  OI=3359   B=$1.70

LXK - Lexmark International  $52.10  *** Bottom Fishing! ***

Lexmark International (NYSE:LXK) is a developer, manufacturer and
supplier of common printing solutions, including laser and inkjet
printers, multifunction products and various associated supplies
and services for offices and homes.  The company also sells dot
matrix printers for printing single and multi-part forms for
business users and the company develops, manufactures and markets
a broad line of office imaging products.  Lexmark International
is the surviving entity of a merger between itself and its former
parent holding company, Lexmark International Group.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-40  LXK-UU  OI=103  A=$0.40
SELL PUT  SEP-45  LXK-UI  OI=169  B=$0.85

ESRX - Express Scripts  $42.49  *** Testing Yearly Lows! ***

Express Scripts (NASDAQ:ESRX) is a pharmacy benefit management
company in North America.  The company is independent from any
pharmaceutical manufacturer ownership, which allows it to make
unbiased formulary recommendations to its clients, balancing
both clinical efficacy and cost.  The company provides a full
range of pharmacy benefit management services, including retail
drug card programs, mail pharmacy services, drug formulary
management programs and other clinical management programs for
approximately 19,000 client groups that include HMOs, health
insurers, third-party administrators, employers, sponsored
benefit plans and government health programs.  As of January 1,
2002, some of the company's largest clients included AARP,
Aetna U.S. Healthcare and Blue Cross of Massachusetts.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-55  XTQ-IK  OI=1208  A=$0.45
SELL CALL  SEP-50  XTQ-IJ  OI=277   B=$1.00

SSP - E. W. Scripps  $74.73  *** Trading Range? ***

The E. W. Scripps Company (NYSE:SSP) operates in three business
segments: newspapers, cable television networks (referred to as
Scripps Networks) and broadcast television.  Newspapers include
21 daily newspapers in the United States.  The Scripps Networks
includes four national television networks that are distributed
by cable and satellite television systems, including Home and
Garden Television, Food Network and Do It Yourself and the firm's
12% interest in FOX SportsSouth, a regional television network.
The company launched Fine Living, its fourth national network,
in March 2002.  Broadcast Television includes a number of TV
stations, nine of which are affiliated with national television

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-85  SSP-IQ  OI=14   A=$0.35
SELL CALL  SEP-80  SSP-IP  OI=361  B=$0.85


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