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Daily Newsletter, Friday, 09/14/2001

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PremierInvestor.net Newsletter                 Friday 09-14-2001
                                                  Section 1 of 3
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In This Section
   Market Wrap:      Market Meltdown or Explosion?
   Market Sentiment: Economic Update
   Sector Impact:    Spotlight on the Gold/Silver sector
   Special Report:   A Survival Guide For Monday
   Special Report:   Questions on Hedging a Position

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U.S. Market Numbers
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MARKET WRAP  (view in courier font for table alignment)
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       WE 9-14           WE 9-7          WE 8-31          WE 8-24
DOW     9605.51 -   .34  9605.85 -343.90  9949.75 -473.42  +182.39
Nasdaq  1695.37 +  7.67  1687.70 -117.73  1805.43 -111.37  + 49.79
S&P-100  558.58 +  4.69   553.89 - 23.51   577.40 - 29.31  + 12.84
S&P-500 1092.54 +  6.76  1085.78 - 47.80  1133.58 - 51.35  + 22.96
W5000  10104.44 + 37.95 10066.49 -448.60 10515.09 -433.32  +188.32
RUT      440.73 -  4.46   445.19 - 23.37   468.56 - 12.25  +  5.16
TRAN    2676.49 - 36.65  2713.14 -100.27  2813.41 - 40.98  + 29.74
VIX       34.60 +   .24    34.36 +  6.51    27.85 +  5.56  -  4.45
VXN       63.84 -  1.61    65.45 + 12.59    52.86 +  5.16  -  4.32
TRIN       3.28             1.25              .71              .70
TICK       +100             -113              -74              351
Put/Call   1.01              .84              .82              .56
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WE = Week Ended
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===========
Market Wrap
===========

Market Meltdown or Explosion?
by Jim Brown

The damage has been done to lives and buildings. The damage to
the stock market has yet to be seen. When the NYSE opens for
trading on Monday it will not be without problems. Still the
almost superhuman effort to reroute communications, occupy
temporary office space, install and configure new computers,
servers, routers, etc, will be tested under fire at 9:30 
Monday morning. There is likely to be outages, bad ticks 
and massive failures as record volume hits the boards.
Still America will be back in business but it will not be
business as usual.

CHART of the DJIA (daily)




 

CHART of the NASDAQ Composite (daily)



 

There is a huge difference of opinion as to what will happen
on Monday morning. There is a group of analysts that think
the markets could easily drop 8-10% at the open, rebound 
slightly and then fall off the cliff to extreme levels. The
bullish camp think that Americans have put on their red, white
and blue trading caps and will rush in to buy America on sale
on Monday and create a very strong patriotic rally. Reality
will likely be something in the middle of both those extremes.

The Fed is building a fortress around the U.S. stock market
and the American financial system. They have injected almost
$215 billion of liquidity into the system in the last three 
days. $90 billion of that was funding for foreign banks to
prevent a cash drain as funds are shipped around the world
when the markets open for business. The Fed Funds Futures 
are showing almost an 85% chance for a 100 point rate cut 
in the next 30 days. The educated bettors are expecting a
50 point cut before the market opens on Monday with another
cut at the October 2nd meeting if the markets are still in
the tank. 

The Fed action, if it comes, will provide a boost to the 
market, temporarily. Because it has been telegraphed all
week much of the impact has already been dulled. Heaven 
help us if they do not cut or only cut a quarter. 

The biggest problems will come from the change in the world
as we know it. Airlines for example are literally on the verge
of bankruptcy from the already 50% drop in revenue over the
next 90 days. Reservations are being cancelled daily, and 
new restrictions on travel are being added as well. The
CEO of Continental said on CNBC that most airlines would
not survive the next 90 days without intervention. The
government is trying to rush through a $2.5 billion grant
to keep them liquid over the next two weeks and then a $12.5
billion loan guarantee to prevent them from bankrupting over
the next 90 days. Air travel as we know it has changed. The
airline sector as we know it will likely change over the next
90 days as well. Expect smaller carriers with lower reserves
to experience problems and become prey for the giants. 

The -50% drop in airline bookings will also impact hotels,
restaurants, retail and the service industry. Consumers were
already losing confidence in the economy as evidenced by the
huge drop in the sentiment numbers on Thursday. The University
of Michigan sentiment dropped to 83.6 from 91.5 in August and
was far below the 90.8 analysts expected. This is what the Fed
has feared for some time. Fueling this drop was the spike in
jobless claims to 431,000. With a head start down the recession
hill any pull back by consumers because of the fear of terrorism
could grease the skids not only in the U.S. but globally as well.
The state department has issued a strong caution for overseas
travel and the bombs have not even started falling. Without 
the U.S. tourist as well as tourists in general there will be
serious problems with the global picture.

Local economists are painting a gloomy picture. First Union
said on Friday that the drop in retail, restaurants, hotels
and travel would be enough to push the U.S. economy into a
full blown recession. The economist for Bank One was also
negative about the possibility of avoiding a global recession.
In reality market fundamentals have worsened. Before the
attack the fundamentals were terrible and the markets were
tanking as companies warned on a daily basis. Now that the
fundamentals for a major portion of our economy have literally
been cut in half how can the markets react positively?

General Electric was the first major company to warn based
on the attack. They said losses in their reinsurance company
for claims on the WTC would knock four cents off their earnings
for this quarter. AIG also said they would lose -$500 million
for their part in the claims. These are only the first of
many warnings but these warnings may be seen as one time
charges instead of normal operating and therefore ignored.
It still sets a tone for the markets that is negative. Ford
said disturbance in supply lines would cause it to make fewer
vehicles and they would miss earnings estimates. Multiply this
by hundreds of companies and you can see what lies ahead.

Contrary to all the negative issues I mentioned above there
are also many positive benefits to the economy. The amount of
replacement hardware for the ground zero businesses will be
substantial but it will still only be a blip on the screen
long term. What will help is the change in business climate
nationwide. Many corporations will see the devastation and
complete destruction and start thinking about what would 
happen if that happened to their building due to terrorism,
fire, flood, hurricane, tornado, earthquake, etc. It makes
you feel very vulnerable. There will be a rise in orders
as thousands of companies beef up their disaster recovery plans.
The security sector will undergo a complete makeover and
literally hundreds of thousands of people could find employment
there over the next year. As the counter attack progresses
it will heighten awareness and increase the security level
for all America. 

This wave of capital spending will take some time to be
seen in sales and profits but it will happen. It will not
happen in time to help the markets next week. What will help
us next week is the relaxation of the buyback rules by the
SEC. They normally prevent companies from buying back their 
stock in volume on the open market. This prevents companies
from manipulating their stock price. With the relaxed rules
companies have more freedom to buy larger amounts. Cisco has
already announced a $3 billion buyback to begin next week.
AIG, even after announcing a $500 million loss, has approved
a 40 million share buyback. This will put a floor under their
shares. CSCO at $14.47 could put out a blanket order for millions
of shares at $13. This would allow some market movement but
limit the downside. AIG at $74 could put in a limit buy at
$69.75 and basically support the stock in a very bad sector
while giving themselves a little breathing room.

Monday is likely to be historic in more ways than one. Many
analysts think we could easily see the biggest volume day
ever. Some have said we could actually see four billion
shares on the NYSE. While I doubt the four million mark 
it will be very heavy. The best guess for direction is a
strong dip at the open followed by a patriotic rebound but
ending negative for the day. The war between the bears and 
the bulls could be waged for most of the week. There is likely
to be a struggle to rally which will end with the realization
of the recessionary facts. Sentiment has taken a serious hit
on top of the drop from the prior week. Earnings will continue
to fall through the fourth quarter and any bounce from a new
wave of capital spending will not be seen until next year.

The Dow is going to face a challenge from Boeing, GE, GM, JPM,
AXP, C, WMT and DIS. Boeing is rumored to be at risk to drop
-15% to -20%. JPM, C and AXP could easily drop -10% to -15%.
The Dow, which closed at 9605 last Monday, could easily hit
9300 or even 9000 on panic selling. The European/Asian markets
have fallen close to -10% on the news and could fall more in
advance of our market open on Monday. A 5% drop on the Dow would
put it at 9124. A 10% drop would see 8644. The markets were
already severely oversold from the prior week and even a 5% drop
from here may be too much of a temptation for investors to resist.

That is of course if there are any investors willing to buy the
dip in front of a huge unknown. With comments in the media today
that Bin Laden has over 10,000 trained soldiers at his disposal
across several countries, the battle is shaping up to be long
and arduous. Up to 50,000 reservists have been approved to be
called into active duty. This is bound to weigh on investors
and consumers. The threats of revenge are already being made
by the Taliban and they have the resources to carry it out.

This will not be a couple cruise missiles launched in the night.
This is going to be a sustained conflict with a good possibility
of a ground war. Russia spent years and lost thousands of soldiers
in Afghanistan. It is a very rough terrain and not conducive to
a quick conclusion. Benjamin Netanyahu called the attack the 
"wake up call from hell." The threat has always been there but 
their technical ability to act on it was lacking. He said they 
are capable of changing the direction of history if they are not 
stopped soon. This type of information is being absorbed by 
investors and it will weigh heavy on the markets. 

I would love to tell you that the market will do thus and so on
Monday and have you plan your trades accordingly. Unfortunately
there is no human being with the ability to predict what will
happen. We have spent the entire week producing special reports
and analyzing the possibilities. We have received some great
emails from our readers about these efforts. The sector analysis,
trading tips and sentiment pieces were our efforts to equip you
to make the right decisions on Monday. 

We have had some very successful put plays recently. Many of them
could have been very successful on Monday as well. Because we
do not want to look like opportunists trying to profit on 
the tragedy we are dropping all of them this weekend. BA, PGR,
TSG, JPM, AIG, ACF and MER. How you continue to play these is
of course up to you. We have been asked by many to suggest some
plays that we thought would benefit from the money shuffle that
will occur. We tried to find a couple politically correct companies
that were not directly impacted but would benefit from a longer
term outlook. We chose ATK, Alliant Tech Systems and NBR, Nabors
Industries an oil driller that focuses on the lower 48 states.
We also suggested a couple plays on the QQQ and DJX to benefit
from any major dip and rebound. We will resume a regular play
pick schedule on Tuesday after the smoke clears.

If you are not in the markets currently I would be very careful
attempting to trade them on Monday. Those readers who are long
options and have seen time value evaporate over the last week
would do well to monitor those positions closely. The Options
Clearing Corp will not change the expiration date. Remember,
for every holder of a long option who is wishing for another
week of time to hopefully recover value, there is another
writer of that option that wants it to expire worthless. Do 
not expect relief in that direction.

I apologize! Apparently many readers took my comments from Thursday
night incorrectly and not in the spirit given. I apologize for
the misunderstanding. I fully support Bush and realize that plans
for any military operation must be fully developed before being
put into operation. That was never in question. The point I was
trying to make was the tone of the delivery of every speech by
Bush was so soft and lacking in emotion that I feared the leaders
of the rogue nations would read it as weakness. I wanted to see
him speak more forcefully and with passion. I never suggested he
simply start flinging bombs with reckless abandon. The various
speeches on Friday were delivered with much more confidence and
determination. It was encouraging. I seldom use this venue to 
make political statements and I apologize for any misunderstanding.

Check out the great strategy sections and special reports in
this weekends edition of the newsletter. New articles as well
as the articles from earlier in the week are being repeated and 
summarized for your trading education. Profit from it!

Definitely, enter passively, exit aggressively!

Jim Brown
Contributing Editor


================
Market Sentiment
================

Economic Update
by Jeffrey Canavan

Now more than ever there is going to be a focus on the U.S. 
economy.  It pales in comparison to the emotional pain and 
suffering we are all experiencing, but eventually we will rebound 
fiscally.  An economic recovery, or economic counter-strike as 
some are calling it, may be delayed for a quarter or two, but I 
fell completely confident in the strength of American consumers 
and corporations to hold up during this trying time.   

The importance of economic and corporate data that has been 
released this week may be miniscule, but it will give us a 
yardstick to measure our country's financial performance going 
forward.  

The most encouraging news came from Cisco.  Its board has 
approved a $3 billion stock buyback program to be implemented 
over the next two years to bolster investor confidence. According 
to CFO Larry Carter, "We think this is the right thing to do now 
for our shareholders."

Pfizer also stated that it would continue its stock buyback 
program, and reaffirmed guidance for 2001 and 2002 earnings.  
"Pfizer, like America remains strong, and we continue to be 
confident in our future as a company and in the strength of the 
nation's economy and institutions," said CEO Hank McKinnell.

The SEC is expected to temporarily ease restrictions on companies 
buying back more than a specific amount of their own shares to 
help inject money into the market.

Oracle's thoughts were focused on their eight missing coworkers, 
not on company earnings, but the company posted a 2% increase in 
net income.  Any conference calls and future guidance have been 
postponed until trading resumes.

Airlines have eased back into operation, with 20% to 50% of daily 
flights operating.  The airline industry has reportedly lost $40 
to $60 million dollars per day during the travel stoppage.  A 
measure currently in front of the House of Representatives would 
provide $15 billion in relief to the struggling airline industry.  
$2.5 billion of that would go to cover losses, and the remaining 
$12.5 billion would extend credit or guarantee loans.

Not all news from corporate America is positive.  Ford announced 
that they would cut production by 110,000 to 120,000 units, and 
third-quarter earnings would come up short of expectations.

General Electric reported that they would cut their third quarter 
earnings by 4 cents per share due to $600 million in expected 
claims for its Employers Reinsurance unit.

Semiconductor testing equipment maker Teradyne has eliminated 
1,000 jobs, or 11% of its workforce, and warned that financial 
results would come in at the low end of expectations.

One of the most closely watched economic indicators going forward 
will be consumer confidence.  Before the affects of Tuesday's 
attacks were realized, consumer confidence dropped 7.9 points to 
83.6.  While these events could break consumer confidence, a 
Gallop Poll revealed that 6 out of 10 respondents do not plan to 
make any changes in their personal lives or activities to avoid 
being a victim.  Count me in.

Demand for homes and refinancing activity remains strong, but 
have come off their highest levels of the year.  The Mortgage 
Bankers Association's index of mortgage applications fell 2.6% 
for the week ending September 7th, but that is still 18% above 
levels from four weeks ago.  There are no significant signs of 
the housing market slowing.

Industrial production continues to decline.  After a slight 
improvement last month, industrial production fell 0.8% in 
August.  Production has now fallen for eleven straight months.  
Announcements like Ford's may see this trend continue for a few 
months until rebuilding gets underway.

The employment situation also continues to weaken.  Initial 
jobless claims jumped 21,000 to 431,000, and continuous claims 
rose to 3,345,000.  Disruptions to air travel and the normal flow 
of the economy could lead to further worsening in the employment 
situation in the short-term.

The Economic Cycle Research Institute's Weekly Leading Index fell 
to 118.9 from 119.7 for the week ending September 7th.  The 
decline in stock prices, one of the components of WLI, was the 
leading contributor to the decline, but labor data also added 
weakness.   The indicator had been pointing to short-term 
weakness, but a slowly recovering economy.  That recovery will 
most likely be postponed.  The components of WLI include money 
supply, industrial markets price index, mortgage applications, 
bond quality spreads, stock prices, bond yields, and initial 
jobless claims.

The above data will do little sway investors on Monday, but once 
Wall Street gets back to normal, or at least as normal as humanly 
possible, we will once again have to turn attention back to the 
economic and corporate outlook.  In the meantime traders and 
investors will most likely break one the cardinal rules - trading 
on emotion.


==============
SPECIAL REPORT
==============

Sector Impact - Spotlight on the Gold/Silver sector
by Jeff Bailey

I will ask every subscriber to do this NOW!  Before you read any 
further, what do you think gold stocks did after Iraq invaded 
Kuwait?  After you finish reading this article, you will 
understand why it is so important Monday morning not to rush to 
judgment regarding any type of investment decision!

In times of uncertainty, many market participants become 
interested in gold stocks.  Over the past couple of months we've 
talked about the Philadelphia Gold/Silver Index ($XAU.X) and what 
it may have been trying to tell us about the economy, inflation 
or possible stagflation.  The index by itself doesn't "tell us 
anything" with monitoring the bond market and certain sectors 
that are more economically sensitive.

A quick review must be made here.  First, understand that the 
XAU.X is a basket of stocks.  One's first impression if they're 
looking for some type of defensive play here is this.... If the 
markets were halted, is this investment going to provide me the 
hedge that I was looking for?  Sounds silly to even think that 
doesn't it?  

I remember all too well when I was sitting in my World Finance 
class in college that Professor Olinyk (I'm sure I'm butchering 
the spelling of his last name) asked the class if a gold stock 
was truly a hedge against currency crisis.  The discussion began, 
but the prevailing answer seemed to be that the true hedge was 
gold bullion, not the stock.  The reason for that answer was that 
if stocks exchanges were to halt trading under an extreme global 
crisis, then perhaps gold bullion would be a truer hedge.  I 
think I asked the question.... "how many 7-elevens will let me 
shave off a sliver of gold to pay for my candy bar and soft 
drink?"  I think I know why I didn't get an "A" in global 
finance.

With that said, Gold stocks will undoubtedly be pushed into the 
spotlight in coming weeks.  As I did last night with Oil stocks, 
we should take a look back in history at the Persian Gulf War and 
that time frame as it may give us the needed historical pricing 
to see how things trade for this sector in coming weeks and 
months.

Historians will remember that there were tensions rising before 
the United States and its allies pushed back the assault on 
Kuwait from Iraq.  It was on August 2, 1990 when Iraq invaded 
Kuwait, but it was not until January 16th of 1991 that operation 
"Desert-Storm" began.  This may be an interesting time line to 
study.  So far, the United States has not declared war on anyone.

As I mentioned in yesterday's commentary.  Current market 
conditions are vastly different, but perhaps the global impact is 
seen as similar and some of these similarities may present 
themselves near-term.  One might argue that the world's 
confidence has been shaken under current conditions, compared to 
those events dating back to the Persian Gulf War.

Gold/Silver Index (XAU.X) - before and after Persian Gulf War




Now, how did you answer the question in the opening paragraph of 
this article?  Surprised?  I sure as heck am.  I would have 
answered it as "significantly outperformed the market."  From the 
looks of it, a "speculator" that dumped their entire account into 
gold stocks when Iraq invaded Kuwait may not have like the 
result.  As the time line unfolds, tensions were unfolding and 
things were "getting worse" in the Middle East.  There was great 
uncertainty.

Note the date 01/12/01 on the above chart when Congress voted to 
allow US troops to be used in the Middle East.  At the time of 
this writing, Congress has yet to approve any use of US troops in 
a war effort.  There may never be a "war effort," but it does 
give hint of how much time has yet to pass since terrorist 
attacks on the WTC and the Pentagon.

As you can see from the above chart, there were certain jumps and 
declines in the Gold/Silver Index (XAU.X) as it pertains to 
certain events that unfolded during the Persian Gulf War.  While 
past performance is no guarantee of future results, the above 
chart truly drives home the fact that every trader and investor 
must monitor an investment not based on BELIEF, but on how the 
instrument performs.

I've mentioned that saying before and I'll do it again.... 
"forget what you believe, trade what you observe."

The commodity itself

Now it's time to put some statement to the test that I wrote in 
the fourth paragraph as it relates to Professor Olinyk's question 
of "commodity or stock?"  Jeff Canavan has gathered the following 
information during the same time frame on the commodity itself 
based on Comex Gold Futures.

Comex Gold Futures

7/01/90  $361.96/oz.
9/28/90  $408.17/oz.
2/01/91  $379.20/oz.

3-month gain  $46.21  12.77%
6-month gain  $17.24   4.76%

The q-charts symbol for this commodity is (gc01v), which is the 
October futures symbol.  Some subscribers may want to monitor 
this to get a feel for the MARKET's perception to various 
currency risks.  

The best bet for investors looking for some sort of guidance 
regarding the future of the markets is to try and sit tight
the first couple of days of trading.  This will allow some
trends to develop where we can better interpret what the
market is saying.  The first priority for many investors will
be to protect/hedge their current investments in their accounts.

I've said before, that it is very difficult to simply watch one 
index by itself and make any type of analysis based on how that 
index trades.  For the Gold/Silver Index and gold stocks, this is 
very true.



==============
Special Report
==============

A Survival Guide For Monday 
by Jon Farnlof

Portfolios have already been hammered by the bear market and 
now...this.  With good reason, many frightened investors are 
wondering whether to swallow losses by dumping long positions on 
Monday.  They are concerned that short sellers and computerized 
program traders will push the markets into panic selling and a 
precipitant decline.  However, before leaping, it may pay to 
understand the rules, conditions and historical precedents under 
which the equity markets will be operating when they reopen on 
Monday.  It may also be useful to consider what trading strategies 
are available to you.  Here is a summary of some items to consider: 

What To Do - Personal Strategy
As far as existing long positions, if you think you are in a sector 
vulnerable to a significant drop, your options may be limited if 
you are on margin as opposed to owners of cash accounts.  Once an 
investor gets a margin call, he/she will need to transfer new funds 
to cover the call or they may have no choice but to liquidate 
until they are in compliance with their broker's margin
requirements.  It may be a good idea to check with your broker a 
head of time to know exactly where you stand before being forced 
to make a snap decision.  Owners of cash only accounts are more 
fortunate, they have four options: ride it out, hedge, set stops or 
sell outright.  Riding it out requires nothing more then patience 
and a tolerance for pain.  However, the others require a level of 
skill and forethought. 

For those of you who are fairly new or inexperienced to the 
gyrations of Wall Street, it is important that you have an 
understanding of the use of stop loss and stop limit orders in 
volatile markets.  This may also be a good time to become 
knowledgeable about some of the hedging strategies used by the 
pros.  Hedging a position reduces risk by enabling an investor to 
in effect buy a form of insurance to offset declines in long 
positions.  Our master market strategist Jeff Bailey covered both 
these topics this week.  Following are links to those articles:

A Traders Personal Defense: Definition of various stop orders
http://www.PremierInvestor.net/education/traderscorner/091101_3.asp

Hedging a position
http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp

There was a swarm of reader emails following Jeff's original 
hedging article.  You can read his responses elsewhere in this 
newsletter.

As far as selling outright is concerned, traders need to be aware 
that there is no way to predict at what price market orders placed 
prior to the market open will be filled.  Market makers will gauge order 
flow to determine the opening prices of shares.  After that, 
your market order would be fed into a crush of orders and where it 
comes out nobody knows.  It might be safer to stick with limit 
orders.  Many investors will wait for 15 minutes to an hour after 
the opening bell to give the markets a chance to settle before making 
their sells.

Historical Behavior Of Markets Following Crisis Events
Unfortunately, this is not the first national tragedy that the 
markets have had to endure.  Fortunately, if history repeats 
itself, after a sharp decline on Monday the markets will rebound 
within a short period of time.  The day after the assassination of 
President Kennedy the Dow Industrials dropped 2.9-percent, but was 
up 12-percent after two months.  The closest recent event in terms 
of affecting the price of oil and creating waves of travel 
cancellations was the Desert Storm war in the Persian Gulf.  The 
DOW lost 4.3-percent in the weeks leading into the war, but 
regained 20-percent in the next two months.  This pattern repeated 
itself following the terrorist attack on Pan Am #103, the 1993 
bombing of the World Trade Center and the destruction of the Murrah 
Federal Building in Oklahoma City.  In fact, according to 
markethistory.com, in the three weeks following 25 occurrences of 
US military action since 1941, the Dow Jones Industrial Average has 
risen by an average of 3-percent in 84-percent of those 
occurrences.  

Bullish Factors 
This crisis has exacted a terrible human cost, but it has not dealt 
a crippling blow to the US economy.  After an initial negative 
reaction, the factors that influenced the market before the tragedy 
will likely reassert themselves as the primary arbiter of market 
strength or weakness.  And even though we were knee deep in a 
deflating economy, signs were in existence that a bottom was in 
sight.

Of great significance for Monday's trading, the SEC has suspended 
the rules that require companies to file before repurchasing its 
own stock. This means that attempts to short stock could be 
countered by companies buying their own stock to support their 
price.  Woe to the company CEO whose shareholders discover he or 
she did not take advantage of this relaxation to do his or her 
patriotic and practical duty.

A difficult factor to gauge will be old-fashioned patriotism.  This 
pain has had a profound affect on even the most cold-blooded money 
managers.  Many of the largest players have come forward to say 
they will restrain their short ways and not take advantage of the 
crisis.  Will they?  Or, if the markets begin to implode, will 
their fiduciary responsibilities overcome their patriotic 
intentions.  

In a bittersweet fashion, some of the expected declines may be 
mitigated by gains in the defense and security sectors.

Bearish Factors
These have been well covered elsewhere, but suffice to say the 
insurance and travel industries, in particular airlines, hotels and 
aircraft manufacture have and will suffer substantial financial 
losses as a consequence of last Tuesday.  

Trading Curbs and Circuit Breakers
(Thank you to Buzz Lynn of our www.Indexskybox.com sister site for 
this information)

For starters, it is important to realize that roughly 30% of all 
NYSE stocks traded each week on the NYSE, give or take a few 
percent, are traded by computer programs responding to volume and 
prices triggered by previous trades. Such is true when an index 
trades outside of fair value of its underlying securities. There is 
then an automatic computer-driven execution of trades by any number of 
financial institutions to arbitrage minute spreads between 
underlying stock values and the indexes they make up in a never-
ending constant hedge.

If an index exceeds fair value of its underlying stocks, stocks are 
purchased while the index is sold in order to re-create balance. 
Similarly, if fair value of an index becomes to cheap in relation 
to its underlying stocks, computers trigger the purchase of the 
index and sell the stocks in an arbitrage or hedged action until 
both arrive back at parity. 

However, in times of unbridled conviction or uncertainty, euphoria 
or fear, and extreme liquidity or panic, the system can go haywire 
as triggered orders heavily favored in one direction act in domino-
like affect triggering yet more orders. Usually, the domino action 
takes place to the downside, but not always. It is for this reason 
that we humans need to have a method of pulling the plug on 
snowballing markets in either direction. That is where curbs come 
in. Curbs are designed to restore human thought to the selling or 
buying process, which theoretically allows cooler heads to prevail 
over meltdown (or melt up) market conditions. 

Here is how it works. No need to reinvent the wheel here. I have 
cut and pasted the exact language taken from the H. L. Camp & 
Company website and provided a link below. 

"A collar on program trading firms instituted by the NYSE is most 
commonly referred to on CNBC as "Curbs In". The Exchange applies 
program trading curbs whenever the Dow Jones Industrial Average 
moves 200 points higher, or 200 points lower than the previous 
day's closing price. The NYSE restriction on program trades stays 
in place until the Dow Jones returns to within 100 points of the 
previous day's closing price; or, until the end of the trading day 
at 3:00 CT. The restrictions will be re-imposed each time the Dow 
Jones advances or declines 200 points. NYSE Trading Curbs apply 
only to our firm's (and other program trading firm's) computer 
assisted program trades. 

The NYSE defines a Program Trade as: 
1. A basket of 15 or more stocks from the S&P's 500 Index. 
2. A basket of stocks from the S&P's 500 Index valued at $1 million 
or more.
 
Once the NYSE program trading collar is in place, Program Selling 
can be executed only on an up-tick. That means that the last trade 
was executed at a higher price than the trade before it. Program 
Buying can be executed only on a down-tick. That means that the 
last trade was executed at a lower price than the trade before it.

Program Trading "Circuit Breakers" 

If the Dow Jones Industrial Average falls 10%, trading is halted on 
the New York Stock Exchange for 60 minutes. If the Dow Jones 
rallies 10%, there is no restriction. Why? Because program buying 
and the accompany rally is always perceived as "good". If the Dow 
Jones Industrial Average falls 20%, trading is halted on the New 
York Stock Exchange for two hours. There is no trading halt if it 
rallies 20%, as that would be perceived as "very very good". 

If the Dow Jones Industrial Average falls 30%, trading is halted on 
the New York Stock Exchange for the day. There is no trading halt 
if it rallies 30%, as that would be perceived as "the best thing 
that ever happened in the history of the world". 

According to the NYSE the current 10, 20 and 30 percent decline 
levels, respectively, in the DJIA will be as follows: A 1,000 point 
drop in the DJIA will halt trading for one hour if the decline 
occurs before 2 p.m.; for 30 minutes if before 2:30 p.m.; and have 
no effect between 2:30 p.m. and 4 p.m. A 2,000 point drop will halt 
trading for two hours if the decline occurs before 1 p.m.; for one 
hour if before 2 p.m.; and for the remainder of the day if between 
2 p.m. and 4 p.m. A 3,000 point drop will halt trading for the 
remainder of the day regardless of when the decline occurs. 

Point levels are set quarterly by using the DJIA average closing 
values of the previous month, rounded to the nearest 50 points. The 
percentage levels are adjusted quarterly on Jan. 1, April 1, July 1 
and Oct. 1."

For more information from HL Camp & Co. visit:
http://www.programtrading.com/curbs.htm 


Add It Up
These are by no means the only factors that will be making a taffy- 
pull out of trading sessions over the next few days.  Futures 
traders are a real wild card.  They have been sitting on short and 
long positions since last Tuesday growing increasingly anxious with 
every halted trading day.  As they maneuver to extract themselves 
from positions, the market could react with a number of artificial 
bullish and bearish moves.  No one of them indicative of a true 
market trend, but just the result of a technical move by a big 
money player looking to square a position.  Given this level of 
volatility, for all but the most nimble and aggressive traders the 
best advice may be to trade lightly and not attempt to dance with 
the elephants.

For more information that could aid you on Monday
we encourage all of our readers to check out previous
special reports on the site.  You'll find additional
links for them in a separate section of this email newsletter.


==============
Special Report
==============

Questions on Hedging a Position
by Jeff Bailey

Questions from readers

I have been inundated with subscriber e-mail regarding different 
questions and comments.  The most reoccurring question is that of 
hedging as I had written an article on one way a trader might 
want to look to hedge.

To quickly revisit the Hedging a Position article, click here:
(for PI)
http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp

________________


Q:  Isn't it to late to think about hedging?

A:  I don't know.  No one knows for sure.  Every investor must 
begin (if they haven't already) and search for that answer deep 
within them.  Here's the process I go through.  I go through this 
process BEFORE I ever buy/call a stock or short/put a stock.  I 
ask myself.  At what point are you going to sell for a profit?  
At what point are you going to sell for a loss?

Now that the markets are halted, it is very much a possibility 
that a stock gaps below my previous stopping point.  This is not 
a time that I throw my trading strategy and discipline out the 
window, but I MUST reassess the situation and have a contingency 
plan in place.  This is where account management comes into play.  

How am I positioned?  If I've been playing the market from both 
sides (bullish and bearish) then I will have some stocks that I'm 
short/put showing gains should the markets open lower.  I may 
have some bullish positions turn against me.  The IMPORTANT thing 
as it relates to investing is how your account performs over 
time.

I would argue that the markets in the U.S. were not in the best 
of shape before the recent tragedy.  Many of our subscribers that 
have been reading my intra-day market commentary were well aware 
of that.  

The ultimate question as it relates to investing/trading is "how 
is my account positioned?"  Then.... at what point do I need to 
begin taking preventive action?  A trader that is on margin in 
his/her account needs to take utmost care.

Note:  Nobody predicted or could have predicted recent events.  I 
do feel a trader that is long a stock takes a "neutral" position 
once a hedge is established.  A hedge is not necessarily 
established to totally eliminate losses!  A hedge is designed to 
help lessen the blow should a decline take place or continue.

________________


Q:  Jeff.... shouldn't a trader actually buy two put options on a 
stock with a high delta to hedge his/her position?

A:  Perhaps.  The example I have was for shares of United 
Airlines (NYSE:UAL) and it has historically had less volatility 
associated with it.  There will be different types of volatility 
associated with different stocks that traders may be looking to 
hedge.  Traders have until Monday to do their research and put 
together their action plans to determine what (if any) hedge 
strategy is appropriate for their accounts.

________________


Q:  If the market starts out free falling, how do you actually go 
about buying the put option before it is too late, that is, 
before the stock has fallen considerably?  I am not sure how to 
make whatever put order necessary to execute.  

A:  Since the markets are closed, we have not been able to buy a 
put option on any stocks traded here in the U.S. on our 
exchanges.  I would argue that many institutions have created 
their hedges in foreign markets.  For example... British 
Petroleum (NYSE:BP) trades here in the U.S. and well as in 
London.  I'm willing to bet that much of the volatility we've 
seen in overseas markets has been a result of various hedge 
strategies taking place against those stocks to help hedge 
positions here in the United States.

Depending on the investment that a trader holds, they should
immediately establish a trading plan under three levels of what
we will call conditions.  

Best case, the stock opens at or near
where it closed on Monday.  This would allow the trader to 
consider multiple hedging strategies if you predict weakness in
the equity such as selling a covered call or buying a protective 
put (take into account, even if you are fortunate enough to have 
the stock open near where it closed on Monday option premiums are 
likely to be slightly inflated due to expected market volatility 
...more specifically with the VIX being high, call premiums are 
going to be light.  

Bad case, stock gaps to a level where the trader on MARGIN now 
becomes at risk for a margin call.  A trader that is on margin is 
currently in a tough position and they need to know at what level 
they may be subjected to a margin call.  If you have not hedged a 
position prior to a margin call an can not meet your margin 
requirements the stock will be sold for you by your broker.  

Worst case, the trader is trading on margin and was already near 
margin call levels before Tuesday's events (this is assuming the 
investment is in a sector that will experience selling pressure).  
Any time a trader is met with a margin call it is a sign that 
some type of preventative action needs to be taken.  Those unable 
to meet a margin call should currently be ranking their 
investments from weakest to strongest.  Then the trader can 
decide on buy/sell decisions of these investments.  This is what 
I would consider to be a "too late" scenario.

The other way to view the reader's question is what happens if 
their stock ABCD that was trading at $30 on Monday gaps down to 
$25 on September 17th?  That's a hefty loss and some investors 
may feel that it may be too late to purchase a "protective" put, 
especially now that put premiums have likely gone up.  
Unfortunately, investors need to consider what their total risk 
is in the stock investment.  That $25 stock could go to zero.  It 
is unlikely but consider this...prior to Tuesday's events, who 
could have imagined that a year ago, JDSU, which was trading near 
$120, would now be less than $7.  Was it too late to hedge JDSU 
at $100, at $50...?  Each individual trader has had to answer 
questions like these relating to JDSU and ABCD.  It all depends 
on the trader/investor's risk tolerance.

________________


Q:  Do you put an order into buy put at market instead of a limit 
price?

A:  This is a very difficult question.  I prefer to place a LIMIT 
order.  For example... let's say that the ABCD December $20 put 
option begins trading at $4 and I want to buy that put to create 
a hedge against my stock.  A "MARKET order" could get filled 
anywhere in a fast market.  I could conceivably get filled at $5 
or $6.  A MARKET order is an order to buy at the market and in a 
fast market that price can be wide ranging.  What I will do with 
a limit order is this..... I will plan for the worst.  Even 
though the offer is $4, I understand I may be in a "fast market" 
and place a LIMIT order for $4.50.  This is an amount GREATER 
than the stated market price.  I could get filled anywhere from 
$4 to $4.50, but no more.  If a trader is able to watch the 
ticker in real time, they can better control and get a feel for 
how trading is taking place.  If the premiums of a put option are 
considered by the investor as "too rich", then one could turn 
to a deep in the money call option (say the ABCD Jan $5 or Jan 
$10) and sell that call.  The other alternative is to either hang 
in there or sell the stock.  Only you the investor can know 
what is best for you.  Selling call options on stock you own is 
considered a covered call but there is always a risk you can be 
called out of your position.  You need to weigh the potential 
losses versus any capital gains you might have in the position if 
you did not plan to be called out (that is a buyer of a call 
option exercises their right to buy your stock you sold the 
options on).  This would only be expected to happen if the stock
price was above the strike price of the option you sold at or 
near the options expiration.  However, investors should take 
note, most equity options are American-style which means you can 
be called out at any time before expiration but this is uncommon.  
Thus selling a deep in-the-money call has its own set of risks.  
Do you expect the stock to recover before the option expires?  If 
you do choose to sell deep ITM calls then most of the premium you 
receive will be based on intrinsic value which should help offset 
losses in the stock price - the whole reason we're looking into 
this strategy to begin with.  Selling out of the money calls 
would be "safer" but the premium you receive is likely to be a 
lot less, especially on a stock that is dropping.  As you can 
see, there are several options that a trader has, but you'd 
better start planning now, not when the markets open for trading.

________________

Q:  In recent example of United Airlines (NYSE:UAL), shouldn't we 
also ask ourselves, "How long will the stock trade below our 
theoretic purchase price of $35?  What about selling call 
premiums?

A:  The subscriber has a point here, but selling an at the money 
or out of the money call option would not be considered a "true 
hedge."  Even in my above example, selling a deep "in the money 
call option" is only a hedge until the strike price of that 
option is achieved (if achieved at all).  Nonetheless, if a 
trader feels that a stock will not significantly violate a 
particular strike price, then the writing of a covered call may 
be a way to partially hedge a decline, but the trader must be 
willing to deliver the stock should he/she be exercised.

________________


These are just a few of the questions from readers that I am 
finding.  The bulk of questions are regarding my recent hedge 
article.  Hopefully some of the above answers are addressing 
these types of questions properly.

Also... I want to take a moment to thank those subscribers that 
have taken time to write such wonderful and uplifting comments in 
recent days.  It is often said that the Premier Investor Network 
think of its employees and subscribers as "family."  Recent e-
mails from our subscribers also give strong statement to the FACT 
that America is a family and will recover from recent events 
stronger and more united than before.


Portions of reader e-mail.  Comments and perseverance.



   ..... I am proud to be an American; I am proud of our 
   President; I am proud of our financial system.  You have 
   stated how many of us feel at these difficult times. 
   (Subscriber, individual)



   ..... Our only wish is that for all New York exchanges (NYSE, 
   NASDAQ, AMEX) stay closed until after the weekend.  Americans 
   need time to absorb this before making rash stock decisions. 
   Nobody will benefit from panic decisions in the next few days. 
   The exchanges can help provide assurance to the US public - 
   and not give a moral victory to "the enemy" - by not 
   demonstrating a pricing rout. (Subscriber, individual)



  ..... Thanks for the uplifting editorial (Special Update) 
  Wednesday.  I just got around to reading it and found it 
  extremely uplifting and showing a considerable amount of 
  restraint and good taste.  To avoid profiting from tragedy at a 
  time when it is very tempting to make a buck any way possible 
  is an admirable quality.  I believe your editorial should be 
  forwarded to the SEC, NASD, Department of the Treasury, Federal 
  Reserve System, and many of the other major regulatory offices.  
  This morning on CNBC Squawk Box I heard Vince Farrell echo 
  similar sentiments about not taking profits from a tragedy. 
  (Subscriber, individual)



  ..... Agree.  Please pray for God's help at this time. For 
  passing on if you wish.  A fund has been established to aid 
  the families of the firefighters who were killed. To donate, 
  send checks or money orders payable to the fund to:

     New York Firefighters 9-11 Disaster Relief Fund
     c/o Firehouse.com
     9658 Baltimore Ave - Suite 350
     College Park, MD 20740
     Please, do not send cash.

  The United Way of New York and The New York Community Trust 
  have established a fund to help the victims of Tuesday's 
  attacks and their families. Anyone wishing to contribute may 
  call (212) 251-4035. You can donate securely online to the 
  United Way: https://www.uwnyc.com/epledge/sept11.cfm
  (Subscriber, individual)



  I have been an avid reader of your work for many years now and 
  do enjoy your writings.  While today's article on hedging, puts 
  and calls may be a valid "everyday trading" strategy, I would 
  like to point out that, as we all know, these are not normal 
  times. In view of the great tragedy that has swept the 
  financial community, your readers, their families, and their 
  loved ones: I would like you to ask your reader's, and all     
  Americans the following: Let us not give into the aims of 
  terrorists when markets reopen soon, let us not be fooled into 
  panic selling! I am sure these terrorists would like for 
  nothing more than to see us falling all over ourselves in an 
  endless financial panic driving our markets and our economy 
  into an emotionally, and evilly inspired meltdown.  Let us 
  stand together as investors from across America and around the 
  world who will not be frightened by evil doers into panic 
  selling, rather let us show our faith in America and BUY 
  America shares tomorrow in our great economy. Let us put our  
  wallets where our hearts are and thwart these terrorist's 
  goals. Clearly some may have to sell for financial reasons, but 
  let those of us who feed from the speculative trough take a 
  break from our speculative natures and resist the temptation to 
  sell short or engage in any unnecessary panic selling. Let us 
  show the world we still believe in America and will not let 
  these cowardly acts terrorize us into acting without reason. If 
  we do this and rally our markets, we will not only have no 
  reason to hedge, but we may help our nation avert a more 
  serious financial crisis. 
  (Subscriber, Member New York Stock Exchange)


Personally, I think we have a great group of subscribers!

Jeff



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in making an informed decision regarding trading in stocks. It
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PremierInvestor.net Newsletter          Weekend Edition 09-14-2001
                                                    section 2 of 3
Copyright  2001, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================
To view this email newsletter in HTML format with imbedded
charts and graphs, click here:
http://www.PremierInvestor.net/htmlemail/6078_2.asp
=================================================================

In This Section:

  Links to selected articles from last week that contain important 
  information to help you cope with the uncertainty of this week: 

--SPECIAL REPORTS-- September 11th, 2001

   A Trader's Personal Defense: Definition of various stop orders

   Is My Brokerage Account Insured?

   Historical Market Reaction to Terrorist Attacks 

   United We Stand

--SPECIAL REPORTS-- September 12th, 2001

   Brokers Ready To Roll

   Options Issues - Lost Time!


--SPECIAL REPORTS-- September 13th, 2001

   Hedging a position 

   Sector Impact - Playing Defense

   Sector Impact - Insurance Exposure

   Sector Impact - Airlines and Aircraft Manufacturers

   Sector Impact - Spotlight on Oil


--PLAY UPDATES for Monday, September 17th--

   Split Trader
     New Plays: none
     Play Updates: Amerada Hess - AHC
     Closed Plays: none

   Net Bulls
     New Plays: none
     Long-Term Tech Play: none 
     Bullish Play Updates: AMGN, RFMD 
     Bearish Play Updates: MEDI, MMM, PSFT
     Closed Bullish Plays: none
     Closed Bearish Plays: none

   Stock Bottom / Active Trader
     New Plays: none
     Bullish Play Updates: CLX, MO, PEP
     Bearish Play Updates: ACF, FITB, TCB
     Closed Bullish Plays: none
     Closed Bearish Play:  none

=================================================================

During these turbulent times, the Premier Investor Network has
strived to bring you pertinent, timely, and thoughtful articles
that today's investor would want to read.  Whether it be gauging
the impact of Tuesday's events on specific sectors to how-to
articles on hedging a position to thought provoking commentaries
on the state of the markets and country, our team wants you to
know how important you are.  


=================================================================
SPECIAL REPORTS - September 11th, 2001
=================================================================

A Trader's Personal Defense: Definition of various stop orders

A detailed explanation of how traders can and should use a stop 
loss order versus a stop limit order. In volatile times you need 
to know the difference.

http://www.PremierInvestor.net/education/traderscorner/091101_3.asp

---

Is My Brokerage Account Insured?

Many investors may be wondering if and how their brokerage 
accounts are insured. Investors are never insured against stock 
price fluctuation, but their accounts are insured against a firm's 
inability to continue business.

http://www.PremierInvestor.net/education/traderscorner/091101_1.asp

---

Historical Market Reaction to Terrorist Attacks 

In the days and months following large-scale terrorist or military 
action, the U.S. financial markets have proven to be resilient.

http://www.PremierInvestor.net/education/traderscorner/091101_4.asp

---

United We Stand

Central banks across the globe reassured the financial community 
Tuesday that the system would not be allowed to fail in the wake 
of the Attack on America. The U.S Federal Reserve said that it was 
open and providing ample liquidity to the financial system.

http://www.PremierInvestor.net/education/traderscorner/091101_2.asp

=================================================================
SPECIAL REPORTS - September 12th, 2001
=================================================================

Brokers Ready To Roll

Brokers say they will be ready when the markets reopen, but how 
will they handle orders pending when the markets closed?

http://www.PremierInvestor.net/education/traderscorner/091201_2.asp

---

Options Issues - Lost Time!

The markets' closures over the past two days have brought up 
several important questions. Specifically, what's going to happen 
with open options positions? 

http://www.PremierInvestor.net/education/traderscorner/091201_1.asp

=================================================================
SPECIAL REPORTS - September 13th, 2001
=================================================================

Hedging a position 

Hedging a stock may not be appropriate for every trader, but it 
does give the trader an opportunity to buy some "insurance" for a 
stated period of time and better assess his or her investment.

http://www.PremierInvestor.net/markets/intradayupdates/091301_4.asp

---

Sector Impact - Playing Defense

With the bipartisan support coming from government leaders for a 
further increase in defense spending, we thought it would be 
beneficial to profile several companies in the defense industry 
ahead of any continued build out.

http://www.PremierInvestor.net/education/traderscorner/091301_1.asp

---

Sector Impact - Insurance Exposure

Damages from this week's attacks on the World Trade Center and 
Pentagon are expected to reach billions of dollars.  How will
this tragedy affect the insurance sector?

http://www.PremierInvestor.net/education/traderscorner/091301_2.asp

---

Sector Impact - Airlines and Aircraft Manufacturers

Already battered by slumping business demand because of a weak 
global economy, the financial aftershocks of Tuesday's events are 
going through the aviation industry like a typhoon.

http://www.PremierInvestor.net/education/traderscorner/091301_3.asp

---

Sector Impact - Spotlight on Oil

The reason this group of stocks has been pushed back into the 
spotlight is that there is some speculation that supply to the 
United States could be disrupted should U.S. and Middle East 
tensions escalate.

http://www.PremierInvestor.net/education/traderscorner/091301_4.asp




=================================================================

Below are updates on current play list selections that were
chosen before the attack on New York and DC.  

=================================================================
Split Trader (ST) section
=================================================================

===============
ST Play Updates
===============

  -----------------------
  SPLIT CANDIDATE Updates
  -----------------------

Amerada Hess - AHC - close @ Sept 10th: 76.92    stop: 75.80 

Thursday, September 13th offered a few news articles that could
bode omen or boon for the company.  On the positive side, AHC 
received permission from the North Atlantic Faroe Islands 
Petroleum Ministry to drill an exploration well in its offshore
waters (- Reuters).  Obviously, investors hope this will lead
to a new round of producing wells but we may not see results 
for a few months.  On the negative side, AHC announced that its
President and COO, Sam Laidlaw, who had been with the company
for 20 years, would be leaving AHC to pursue new opportunities
in the U.K.  Typically, investors get uncomfortable when there
is an unexpected departure by top management and it is certainly
hard to tell if this will have any affect on the stock price.
It may be a non-event as current Chairman and CEO, John Hess,
will be covering Laidlaw's duties.  We continue to think that
the oil sector may see buying pressure for the short-term as
America and the globe continue to digest the implications of
Tuesday's events.  If shares of AHC can clear resistance between
$79 and $80 then the stock could appreciate to $85 even $90
given enough time with potential levels of resistance at 
intervals of $2.50 (82.50, 85.00, 87.50, 90.00).

- edited reprint from Tuesday 9/11/01 -
In the shadow of such a tragedy that occurred in New York
and DC on Tuesday the oil sector might be an unexpected 
beneficiary of buying interest.  As is common when thoughts 
of war invade the public and more importantly the market's
collective mind there is normally a surge in oil prices and
this tends to be reflected in higher share prices for oil
stocks.  Now, if you read the commentary this evening you 
should know that there is a large expectation of a sizeable 
downdraft in the markets on Monday.  AHC may or may not 
participate in such a sell-off which is to be determined by 
investors' desire to own oil stocks.  Strangely enough AHC is 
headquartered in NYC but we don't think the disaster will affect 
their operations.  We are going to leave our stop at 75.80 which 
may be too close and could leave us vulnerable a dip when the 
markets open.  

Picked on August 15th @ $ 78.90
Gain since picked:      -  1.98
Earnings Date:             N/A  (not confirmed)





=================================================================
Net Bulls (NB) section
=================================================================

===============
NB Play Updates
===============

  -----------------------
  NB Bullish Play Updates
  -----------------------

Amgen Inc - AMGN - close @ Sept. 10th: 64.13  stop: 62.00

Our caution remains high as the European markets fell on Friday.
Technology stocks like AMGN could see selling pressure.  We 
have edited our update from Tuesday but still expect to be
stopped out on Monday morning.

- edited update from Tuesday, Sept. 11th - 
The Biotech sector continued to hold on to support at the 500
level on Monday, Sept. 10th and shares of AMGN gapped lower but 
managed a strong rebound to lose back above $64.  As we have 
mentioned in the market commentary, when the markets open next
we could see a powerful dip as evidenced by the large sell-offs 
in the overseas stock exchanges.  It is highly likely that
AMGN could gap lower than our stop loss at $62.00, which would
immediately close the play at the opening price.  We urge our
readers to read the article this evening on stop losses versus
stop limit orders.  

Picked on September 6th @ $65.66
Gain since picked:        - 1.53
Earnings Date:             10/25 (not confirmed)




---

RF Micro Devices - RFMD - close @ Sept. 10th: 22.73  stop: 19.50

There has been little to go on with the U.S. market's closure this
last week but talk and news articles from overseas point to a 
lowered demand for chips as many expect a slowdown for the 4Q.
The $20 level might hold as support but if investors start 
selling, there is stronger support near the $19 level which would 
close our play.  RFMD is still up from its April lows under $10 
and any panic might provoke investors to take those gains off the
table.

- edited update from Tuesday, Sept. 11th - 
Similar to the biotech sector, the semiconductor sector is also
holding on to support near the 500 level.  At least it was on 
Monday, Sept. 10th.  Shares of RFMD closed just above its 200-dma 
by the end of Monday's trading.  Where it opens on Sept. 17th is 
truly anyone's guess.  We are going to leave our stop loss order 
at 19.50 but urge all of our readers to look over the market 
commentary as well as the special reports on stop loss orders 
versus stop limit orders.

Picked on September 7th @ $22.31
Gain since picked:        + 0.42
Earnings Date:             10/25 (not confirmed)





  -----------------------
  NB Bearish Play Updates
  -----------------------

MedImmune - MEDI - close @ Sept. 10th: 37.85 stop: 39.44 

Looking overseas to the foreign markets could predict lower
prices for many biotech shares here in the states.  No one
can predict how the balance of bearish and bullish forces
will shape Monday's markets but there could be a stronger
move to transfer investments to "safer" industries.  

- edited update from Tuesday, Sept. 11th - 
Shares of MEDI continue to slip as the biotech sector hangs
precariously at support near 500.  MEDI collapsed under support
of $40 last week and Monday, Sept. 10th's close under $38 does 
not bode well for the open.  If a sell-off ensues MEDI is
likely to find a bottom near $34 or potentially $32.50.  We
encourage everyone tonight's market commentary as well as 
the trading article on stop losses versus stop limits.

Picked on August 28th @ $40.46
Gain since picked:      + 2.61
Earnings Date:           10/24 (not confirmed)




---

3M - MMM - close @ Sept. 10th: 102.20 stop: 104.25 

Shares of MMM will probably follow any lead set by the DJIA
that it is a part of.  If the patriotic spirit can overpower
investors' fears then the stock could see a short-term rebound.
If the market's trend lower...then it is very likely that MMM
will see its April low near $97 and possibly revisit last fall's
support levels near $95.  

- edited update from Tuesday, Sept. 11th - 
MMM may not feel the affects of Tuesday's upgrade by US Warburg
to "strong buy" for an indefinite period of time.  As part of
the DJIA the stock is likely to feel a lot of selling pressure
as investors unload positions once exchanges open again on 
Sept. 17th.  We encourage everyone to read tonight's commentary
as well as the article detailing market history surrounding
tragic events for a better understanding of what we might
expect.  

Picked on August 29th @ $106.75
Gain since picked:      +  4.55
Earnings Date:              N/A  




---

PeopleSoft - PSFT - close @ Sept. 10th: 29.14 stop: 30.25 

Obviously any significant downdraft will be a boon for short
traders but many may choose to cover in the face of such support
by the U.S. gov't, corporate America and the individual investor.
ORCL's better than expected earnings announcement this last
week could be a spark that fuels a turnaround in the software
sector.  It may be heresy to say it but a rally could be short 
lived and any future announcements by big cap companies approving 
large stock buyback programs could stall and temporarily reverse 
the bearish trend in the software sector.  Those with profitable 
positions should re-evaluate when they plan to cover their short 
position and all of us should make sure we are happy with the 
position of our stops.  Despite the tragedy we see no fundamental
shift in the condition software's future earnings at this time.

- edited update from Tuesday, Sept. 11th - 
On Monday, Sept. 10th, Salomon Smith Barney cut its targets on 
selected software companies with PSFT being one of them.  Despite 
the bad news shares of the beleaguered software maker managed to
close in positive territory but remained under resistance of
$30.  As we now look forward into the unknown of a market that
has been shaken to its core by Tuesday's events one can only
wonder where trading will take us when they reopen.  

Picked on August 31st @ $ 34.48
Gain since picked:      +  5.34
Earnings Date:              N/A  






=================================================================
Stock Bottom / Active Trader (AT) section
=================================================================

===============
AT Play Updates
===============

  --------------------
  Bullish Play Updates
  --------------------

Clorox Co. - CLX - close @ Sept. 10th: 39.28 stop: 37.00

Financial news has been quiet with the nation focused on New
York and DC.  We were actually surprised to find a couple of
articles that echoed our comments from Tuesday.  Investors 
are likely to move to consumer staple stocks with steady
revenues during uncertain times.  How long a move like this
can last is unsure but CLX already had a bullish trend before
the tragedy albeit a slow one.

- edited update from Tuesday, Sept. 11th - 
To many investors Clorox can be seen a somewhat of a safe haven
stock.  When times get tough sales of soap are not likely to 
dwindle.  Unfortunately, there is no way of knowing if this
age old pattern of buying "safe" stocks will even matter when
the markets open again.  We are choosing to leave our stop loss 
for the newsletter at $37.00 but encourage all of our readers to 
look over our special report on trading and the use of stop losses 
versus stop limit orders.

Picked on September 5th @ $38.42
Gain since picked:        + 0.86
Earnings Date:              N/A  (not confirmed)




---

Philip Morris Co. - MO - close @ Sept. 10th: 48.15 stop: 45.00

It is unclear how MO will be perceived on Monday morning's market
open.  Will investors move into it as a "consumer staple" with
steady revenues?  Or will they see the newer, tighter advertising
bans on the global market place as a sign of things to come for
MO's popular product?  The stock has been pretty resilient over
the years despite all the negative publicity by anti-smoking
groups and lawsuits galore.  We can only stand by our current
stops and see where the market leads us.

- edited update from Tuesday, Sept. 11th - 
New trading support at $47 may have held on Friday but it is
our hope that any sell-off in MO might be stopped at the 200-dma
which is currently trading at 46.15.  Unfortunately there is
little to guide us in determining if MO will be able to withstand
the selling pressure that is likely to occur on Monday, Sept. 17th
We encourage our readers to check out the market commentary as well 
as the special report on stop losses versus stop limit orders for 
Tuesday evening.  We will leave the stop loss order for the 
newsletter at 45.00.

Picked on August 30th @ $47.94
Gain since picked:      + 0.21
Earnings Date:           10/17 (not confirmed)




---

Pepsi Co - PEP - close @ Sept. 10th: 46.90  stop: 46.50

Similar to the CLX update above, there is likely to be a move
into consumer staple stocks like PEP as investors look for
"safe" havens to wait out any storm in the markets.  PEP had
already seen a positive trend develop for most of August 
but we need to see the stock close above $48 to convince us
to really go long.  We continue to suggest patience.

- edited update from Tuesday, Sept. 11th - 
Trading sideways for more than two weeks now, shares of PEP
almost stopped us out on Monday but bounced 5 cents from our
stop loss at 46.50.  It remains difficult to predict how 
investors will react when markets open up again on Monday
and how they will perceive PEP.  Will this be a "safe" stock
to own or will all stock be sold with an unbiased fear before
stability returns to the markets.  Considering that we only 
have 42 cents worth of wiggle room before the share price 
hits our stop loss it's likely that any opening gap down 
could take us out.  Keep PEP on your watch list and see if
buyers can push it above the $48 level of resistance.

Picked on August 10th @ $45.66
Gain since picked:      + 1.24
Earnings Date:            7/19 (not confirmed)






  --------------------
  Bearish Play Updates
  --------------------

AmeriCredit - ACF - close @ Sept. 10th: 39.79 stop: 44.00

There is nothing new to report for ACF.  Looking to the 
overseas markets the major indices saw selling pressure on
Friday and the financial services sector could see weakness
in the U.S. despite the patriotic push to prop up the
markets.  We would caution short traders to re-evaluate 
where your both your profit and loss thresholds should be
and urge you to stick by your decisions now before the
markets reopen.  

- edited update from Tuesday, Sept. 11th - 
Already in a terrible downtrend, shares of ACF could feel even
more pressure as an offshoot of our financial system.  With
the stock under the 200-dma just overhead acting as resistance
we could see investors push shares to $37.50 or even $35.00
before finding enough support.  We encourage our readers to
check out the market commentary and the other special reports
provided on the website.

Picked on September 7th @ $40.00
Gain since picked:        + 0.21
Earnings Date:              N/A  (not confirmed)




---

Fifth Third Bancorp - FITB - close @ Sept. 10th: 54.56 stop: 55.80

For many, the attack on the WTC towers wasn't just an attack on
America but an attack on our economy, our freedoms and our
way of life.  It was also an attack on our financial 
infrastructure.  The Federal Reserve is doing its part to make 
sure there is liquidity in the markets and in the banking system 
to keep the markets secure.  It is unclear how investors and fund 
managers will decide to interpret these moves going forward for a 
sector (and a stock like FITB) that was already in a steep 
decline.  We have a tight stop on this trade (less than $1) but 
expect market weakness to push shares through support near $54.  
Short traders should re-evaluate when and where they plan to cover
should a large dip or a rally occurs.

- edited update from Tuesday, Sept. 11th - 
Already under pressure the banking sector is likely to feel more
weakness after the tragedy that occurred in New York.  Seeing that
FITB was already putting in lower highs and fighting for support
at $54.00 we wouldn't be surprised to see the stock trade to $50
(or worse) during what is expected to be a very volatile market.

Picked on August 28th @ $59.30
Gain since picked:      + 4.74
Earnings Date:           10/15 (not confirmed)




---

TCF Financial - TCB - close @ Sept. 10th: 42.50  stop: 43.25

Suffering a similar fate to FITB above, TCB is currently trading
above support.  Whether shares will open near last Monday's
close is another story and not something we're willing to guess
at.  We would not encourage any new short positions at this time
as volatility in the market place could be extreme.  Since the
newsletter is already profitable in TCB before the Tuesday
attacks we would encourage short-traders to re-evaluate when
and where they feel they should cover their short position in
the event of both a large sell-off or a rally on Monday.  We
will keep a tight stop at 43.25.

- edited update from Tuesday, Sept. 11th - 
Another regional bank that had already been in a steep decline,
TCB could easily suffer more selling pressure as investors try
and digest the impact of the WTC collapse will have on the 
banking industry.  The 200-dma at 41.65 will be acting support
for TCB and once below it we are likely to see shares fall to
$40 and possibly $38 where there is stronger support.

Picked on August 24th @ $47.60
Gain since picked:      + 5.10
Earnings Date:            N/A (not confirmed)







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=================================================================
DISCLAIMER
=================================================================

This newsletter is a publication dedicated to the education
of stock traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of PremierInvestor.net may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. PremierInvestor.net
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.

Please read our disclaimer at:
http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html

*****************************************************************
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Do not duplicate or redistribute in any form.


PremierInvestor.net Newsletter         Weekend Edition 09-17-2001
                                                   Section 3 of 3
Copyright  2001, All rights reserved.
Redistribution in any form is strictly prohibited.

The entire newsletter is best viewed in COURIER 10 for alignment
=================================================================
To view this email newsletter in HTML format with imbedded
charts and graphs, click here:
http://www.PremierInvestor.net/htmlemail/6078_3.asp
=================================================================

In section three:

Expected/Likely Split Announcements For The Coming Week - None
New Split Candidates: None
Market Watch for Week of September 17th
   - Major Earnings
   - Stock Splits
   - Economic Reports

=================================================================

==================================================
Market Watch for the week of Sept 17th
==================================================

Major Earnings This Week

Symbol  Company              Date         Comment         EPS Est

GIS     General Mills        Mon, Sep 17  Before the Bell    0.59
MTN     Vail Resorts         Mon, Sep 17  Before the Bell   -0.50
CPRT    Copart               Mon, Sep 17  After the Close    0.21
ESIO    Electro Scientific   Mon, Sep 17  After the Close   -0.09
SLR     Solectron            Mon, Sep 17  After the Close    0.06

BBY     Best Buy             Tue, Sep 18  Before the Bell    0.37
ABG     Groupe AB SA         Tue, Sep 18  Before the Bell     n/a
PRGS    Progress Software    Tue, Sep 18  Before the Bell    0.13
RHAT    Red Hat              Tue, Sep 18  After the Close    0.00
IPR     International Power  Tue, Sep 18  ----- n/a -----     n/a

CTAS    Cintas               Wed, Sep 19  Before the Bell    0.33
CC      Circuit City Stores  Wed, Sep 19  Before the Bell    0.02
CLC     CLARCOR              Wed, Sep 19  Before the Bell    0.40
FDS     FactSet Data Systems Wed, Sep 19  Before the Bell    0.25
KR      Kroger               Wed, Sep 19  Before the Bell    0.32
MKC     McCormick & Co       Wed, Sep 19  Before the Bell    0.49
PIR     Pier 1 Imports       Wed, Sep 19  Before the Bell    0.14
COMS    3Com                 Wed, Sep 19  After the Close   -0.35
NDC     NDCHealth            Wed, Sep 19  After the Close    0.31
ADBE    Adobe Systems        Wed, Sep 19  ----- n/a -----    0.28
BEAV    BE Aerospace         Wed, Sep 19  ----- n/a -----    0.27
IBC     Interstate Bakeries  Wed, Sep 19  ----- n/a -----    0.43
LEN     Lennar               Wed, Sep 19  ----- n/a -----    1.33
MDZ     MDS                  Wed, Sep 19  ----- n/a -----     n/a
WOR     Worthington Ind.     Wed, Sep 19  ----- n/a -----    0.17

AM      American Greetings   Thu, Sep 20  Before the Bell   -0.48
BMET    Biomet               Thu, Sep 20  Before the Bell    0.21
CYCL    Centennial Comm.     Thu, Sep 20  Before the Bell     n/a
CHBS    Christopher & Banks  Thu, Sep 20  Before the Bell    0.31
GTK     Gtech Holdings       Thu, Sep 20  Before the Bell    0.53
KBH     KB Home              Thu, Sep 20  Before the Bell    1.42
SCS     Steelcase            Thu, Sep 20  Before the Bell    0.06
GPN     Global Pmts          Thu, Sep 20  After the Close    0.32
NKE     Nike                 Thu, Sep 20  After the Close    0.71
PALM    Palm                 Thu, Sep 20  After the Close   -0.08
RSTN    Riverstone Networks  Thu, Sep 20  After the Close   -0.02
SCHL    Scholastic           Thu, Sep 20  After the Close   -0.92
TIBX    TIBCO Software       Thu, Sep 20  After the Close    0.04
LBRT    Liberate Tech        Thu, Sep 20  4:00 pm ET        -0.12
COGN    Cognos               Thu, Sep 20  4:05 pm ET         0.05
CAG     ConAgra              Thu, Sep 20  8:00 am ET         0.28
FDX     FedEx Corp           Thu, Sep 20  8:00 am ET         0.31
DRI     Darden Restaurants   Thu, Sep 20  ----- n/a -----    0.50
ESF     Espirito Santo Fin.  Thu, Sep 20  ----- n/a -----     n/a
JBL     Jabil Circuit        Thu, Sep 20  ----- n/a -----    0.14
MWD     Morgan Stanley Dean  Thu, Sep 20  ----- n/a -----    0.65
PAYX    Paychex              Thu, Sep 20  ----- n/a -----    0.19
SVU     Supervalu            Thu, Sep 20  ----- n/a -----    0.36

MERX    Merix                Fri, Sep 21  ----- n/a -----    0.04

==================================================================

Upcoming Stock Splits This Week...           

Symbol  Company Name          Splits  Payable    Executable
 
NICK    Nicholas Financial    2:1     09/10       09/11
HRLY    Herley Industries     3:2     09/10       09/11
NVDA    NVidia Corp           2:1     09/11       09/12
SFD     Smithfield Foods      2:1     09/14       09/17
CHZ     Chittenden Corp       5:4     09/14       09/17
SBIB    Sterling Bancshares   3:2     09/18       09/19 
NYCB    N.Y. Community Banc   3:2     09/20       09/21
MOGa    Moog Inc.             3:2     09/21       09/24  

=================================================================
Economic Reports for the week of September 17, 2001

The government and most statistical organizations are planning to
release economic reports as planned, however, any impact of this 
data will recede to the ongoing implications of Tuesday's attack.
The following events could change or be cancelled without notice.

 
Monday
======
Business Inventories   Jul  Forecast:  -0.4%   Previous:  -0.4%
Trade Balance          Jul  Forecast:-$29.8B   Previous:-$29.4B


Tuesday
=======
CPI                    Aug  Forecast:   0.2%   Previous:  -0.3%
Core CPI               Aug  Forecast:   0.2%   Previous:   0.2%


Wednesday
=========
Fed Beige Book  2:00 PM ET  Forecast:    N/A   Previous:    N/A
NAHB Housing Market    Sep  Forecast:    N/A   Previous:     62
Oil/Gas Inventories   9/14  Forecast:    N/A   Previous:303.3MB
International Trade    Jul  Forecast:-$29.9B   Previous:-$29.4B
MBA Mortgage App      9/14  Forecast:    N/A   Previous:  601.8


Thursday
========
Initial Claims        9/15  Forecast:    N/A   Previous:   431K
Housing Starts         Aug  Forecast: 1.635M   Previous: 1.672M
Building Permits       Aug  Forecast:    N/A   Previous: 1.558M
Philadelphia Fed       Sep  Forecast:  -14.1   Previous:  -23.5


Friday
======
Treasury Budget        Aug  Forecast:-$44.7B   Previous:-$10.4B
ECRI Wkly Lding Indx  9/14  Forecast:    N/A   Previous:    N/A


Week of September 24
====================
Sep 24 Leading Indicators
Sep 25 Consumer Confidence
Sep 25 Existing Home Sales
Sep 27 Initial Claims
Sep 27 Durable Orders
Sep 27 Help-Wanted Index
Sep 27 New Home Sales
Sep 28 Chain Deflator-Final
Sep 28 GDP-Final
Sep 28 Mich Sentiment-Rev
Sep 28 Chicago PMI


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This newsletter is a publication dedicated to the education
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only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock but an information resource to aid the investor
in making an informed decision regarding trading in stocks. It
is possible at this or some subsequent date, the editors and
staff of PremierInvestor.net may own, buy or sell securities
presented. All investors should consult a qualified professional
before trading in any security. The information provided has
been obtained from sources deemed reliable but is not
guaranteed as to accuracy or completeness. PremierInvestor.net
staff makes every effort to provide timely information to its
subscribers but cannot guarantee specific delivery times due to
factors beyond our control.

Please read our disclaimer at:
http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html

*****************************************************************
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Do not duplicate or redistribute in any form.



DISCLAIMER

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

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