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Daily Newsletter, Monday, 06/19/2006

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Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Stocks slide on China's rate move, weak U.S. housing data

The major indices were showed mixed results in early morning trade as investor's mulled Friday's announcement out of China's central bank that it was raising the deposit reserve requirements for commercial banks by a half-point to 8%. Global strategists saw the move not only as an attempt to cool down surging loan growth on mainland China, but additional action by the country's government to let the yuan appreciate against the U.S. Dollar.

After some sign of Asian equity market stability late last week, Hong Kong's Hang Seng Index ($HSI.X) shed 73.79 points, or -0.47% on Monday to close at 15,768.

After writing last Monday's Market Wrap, the $HSI plunged as low as 15,250 on its point and figure chart (see Monday's Wrap), and Tuesday's trade out of Asia will should be monitored closely.

China's central bank move pressured commodities on a broader measure with the CRB Index ($cr00y) 333.57 -1.66% still hovering just above its starting to round flat 200-day SMA (332.75).

July Crude Oil futures (cl06n) settled down $0.90, or -1.29% at $68.98, but continues to hold critical support above $68.00. A trade at $68.00 would have this contract breaking below its point and figure chart's bullish support trend, and triggering a spread triple bottom sell signal. The current bearish vertical count for this contract is $65.50, which would currently be negated with a trade at $72.00.

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Japan's Nikkei-225 ($NIKK) trades down 19 points at 14,860 as we await the 01:00 AM EDT Bank of Japan meeting minutes, which could give traders insight into any interest rate decisions and monetary policy shifts.

Adding to this morning's mixed session was the U.S. saying North Korea has finished loading fuel into a long-range ballistic missile, which the U.S. says is sign that the reclusive communist state will soon test a weapon that could reach the U.S.

Stocks were mixed until the 01:00 mark, but buyers pulled their bids when the National Association of Home Builder's (NAHB) said its index for sales of new single-family homes fell to 42 in June from May's 46 reading. The NAHB said it was the lowest reading since April 1995.

When the Housing Market Index is over 50, it means the number of builders who see "good" sales outnumber the number who see "poor" sales. The index, which is adjusted for seasonal variations, was based on a survey of 455 home builders, who answer several questions about sales prospects now an in the near-term.

The June decline in builder confidence again was broad-based and apparent in every region, the association said. Regional indexes were down seven points to 40 in the Northeast, down four points to 25 in the Midwest, down two points to 49 in the South and down one point to 60 in the West.

Further data on the housing market will be released tomorrow morning at 08:30 AM EDT. May housing starts are forecasted at an annual rate of 1.90M, up from April's 1.85M. Building permits are forecasted to have fallen to an annual rate of 1.95M from April's 1.97M.

Market internals were weak throughout the session. I do note that the NASDAQ's 10-day NH/NL ratio, an intermediate-term indicator of bullish/bearish leadership signals further bearish leadership at tonight's close having broken below May's relative low reading of 24%. I also highlight today's 144 new lows at the NASDAQ and I'll be monitoring this closely in coming sessions. On Tuesday, June 13 the NASDAQ recorded 291 new lows and should that number be exceeded to the downside, traders/investors might begin to think that last week's "bounce" was largely short-covering into weakness.

With bullish leadership very anemic (see NH/NL readings) most traders/investors should be cognizant of further softening among market internals.

U.S. Market Watch - 06/20/06 Close

Miners, energy and homebuilders paced Monday's declines, while lower energy prices had the Airline Index (XAL.X) atop today's list of sector winners in my U.S. Market Watch.

Small caps as depicted by the Russell-2000 Index ($RUT.X) 680.76 -1.77% were notably weak as institutional rebalancing takes hold. The iShares Russell 2000 (AMEX:IWM) $67.50 -1.96% traded just over 71.7 million shares, which is heavy considering 3-month average daily volume comes in at 52.3 million shares per day.

What would Monday be without a merger?

Today's top M&A news had shares of Siemens AG (NYSE:SI) $83.90 +5.13% trading up $4.10, but well off their April highs of $99.50 after Nokia (NYSE:NOK) $20.09 +0.60% said it will merge its infrastructure unit with the telecom infrastructure operations of Germany's Siemens. If the deal is consummated, it would create the world's third-largest telecom infrastructure company with assets valued at roughly $30 billion.

Canadian-based telecom equipment maker Nortel (NT) $2.04 -10.13% fell sharply on heavy volume of 57.2 million shares and closed at levels not seen since early 2003. Investors grow increasingly wary of the stock after chief rival Lucent (NYSE:LU) $2.38 -2.45% and French telecom equipment maker Alcatel (NYSE:ALA) $12.24 -0.40% announced their intentions to merge.

The Semiconductor Index (SOX.X) 449.18 -0.95% traded down after last week's test of a still falling 21-day SMA (457.74) despite an upgrade of Intel (NASDAQ:INTC) $18.24 -0.32% by UBS to "buy" from "neutral". The firm upped their price target on the company to $23, from $21, saying the upgrade was due to improved longer-term gross margins and near-term operating margin leverage that should make the company more competitive.

Intel's rival Advanced Micro Devices (NYSE:AMD) $24.95 -2.69% fell 69 cents.

Earnings announcements had home-electronics retailer Circuit City (NYSE:CC) $28.63 -2.88% reversing earlier gains and session high of $30.80 after the company posted Q1 net income of $6.4 million, or $0.04 per share, as revenues increased 17% year-over-year to $2.62 billion. Consensus was for EPS of $0.01 on revenue of $2.47 billion. The company said same store sales jumped 15%.

S&P 500 Index ($SPX) - 10-point box

Supply remains in control of the broader S&P 500 Index ($SPX) where a lower low found buyers to 1,250, with today's close 4-points above last Monday's.

A trade at 1,210 could bring a notably decline to current downside risk assessment of 1,170 as Dorsey/Wright & Associates' S&P 500 Bullish % (BPSPX) hovers at critical support with tonight's closing reading of 47.79%. In essence, if we were to take all 500 point and figure charts of those stocks comprising the S&P 500, 238 of the components would still have a "buy signal" intact, while 262 would now show a "sell signal" associated with the supply/demand chart.

S&P 500 Bullish (BPSPX) - 2% box size

Dorsey/Wright and Associates' S&P 500 Bullish % (BPSPX) holds above 46%, but traders/investors can begin to see how tentative the recent lows for the S&P 500 Index (SPX.X) 1,240.14 -0.91% are.

In August of 2004 (after blue 8) and then again in late October 2005 (after blue A) this indicator of internal strength/weakness reversed course back higher from readings above 46.00 (48 on the above chart). A reading of 46% would be DIVERGENCE to recent history and could see sharp price declines as internals deteriorate further.

Additional internal charts I might suggest trader's review are Stockcharts.com's (wwww.stockcharts.com) NASDAQ Summation Index ($NASI) 10-point box size which shows advance/decline ratio falling below its late May's low reading of -560 to -770 at tonight's close. The NYSE Summation Index ($NYSI) has also broken below its late-May advance/decline ratio of -310 to -440 at tonight's close.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None JNPR

New Long Plays

None today.
 

New Short Plays

Juniper Networks - JNPR - close: 15.89 chg: -0.86 stop: 17.05

Company Description:
Juniper Networks is the leader in enabling secure and assured communications over a single IP network. The company's purpose-built, high performance IP platforms enable customers to support many different services and applications at scale. (source: company press release or website)

Why We Like It:
The action in JNPR on Monday looks pretty bearish. The stock has produced a failed rally under its 40-dma near $17.00. Volume was slightly above average on the sell-off. Meanwhile the MACD indicator is nearing a new sell signal and the shorter-term oscillators are looking more bearish. Driving JNPR to a 5% loss was a 1.9% decline in networking stocks, a downgrade for JNPR this morning, and some negative comments about how the NOK/SI joint-venture may hurt JNPR. We are suggesting shorts with JNPR under $16.00. Our target is the $14.10-14.00 range. We do not want to hold over the mid July earnings report. The P&F chart looks very bearish with an $8.50 target.

Picked on June 19 at $15.89
Change since picked: + 0.00
Earnings Date 07/19/06 (unconfirmed)
Average Daily Volume: 13.8 million
 

In Play Updates and Reviews

Long Play Updates

Asta Funding - ASFI - close: 34.09 change: -1.07 stop: 33.95

ASFI failed to see any follow through on Friday's bounce and breakout over the $35.00 level. It's a good thing we used a trigger. We're still on the sidelines with a suggested entry point at $36.01. If ASFI trades under its simple 200-dma readers might want to consider bearish plays.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 165 thousand

---

A.S.V.Inc. - ASVI - close: 20.26 change: -0.94 stop: 19.45

Ouch! Small caps were one of the worst performing sectors today. Shares of ASVI where hit pretty hard with a failed rally at $21.84 and a sell-off back toward the $20.00 level. The stock lost 4.4%. We actually suggested that readers look for a dip toward the $20.50-20.00 region as a preferred entry point and we got it but right now we'd look for signs of a bounce first (maybe over $20.50) before considering new long plays. We do not want to hold over the company's earnings report in late July.

Picked on June 18 at $21.20
Change since picked: - 0.94
Earnings Date 07/27/06 (unconfirmed)
Average Daily Volume: 463 thousand

---

Archstone - ASN - close: 49.77 chg: -0.15 stop: 48.74

ASN consolidated sideways in a narrow range. We do not see any changes from our weekend update. We would wait for a move past the $50.25 level before initiating new long positions. Our target is the $53.85-54.00.

Picked on June 05 at $50.21
Change since picked: - 0.44
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 989 thousand

---

Syneron Med. - ELOS - close: 20.98 change: -0.07 stop: 19.99

We do not see any changes from our weekend new play description for ELOS. We want to catch any upward breakout but we want some confirmation so we're suggesting a trigger to go long the stock at $21.51. If triggered our target will be the $23.85-24.00 level. We may have to adjust this target to account for the descending 50-dma, which may act as resistance.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/03/06 (unconfirmed)
Average Daily Volume: 615 thousand

---

Energy Transfer - ETP - close: 43.90 chg: -0.35 stop: 41.99

Hmm... we're starting to have second thoughts about going long ETP. The oil sector and oil services sector were hammered again today. The OIX index lost 3% and the OSX index lost 3.9%. Shares of ETP are still out performing their peers but even the strongest stock will struggle to make headway with the sector sinking. We'd watch for a bounce from the $43.00 region as a potential entry point but initiating new plays very cautiously.

Picked on June 18 at $44.25
Change since picked: - 0.35
Earnings Date 07/10/06 (unconfirmed)
Average Daily Volume: 149 thousand

---

Potlatch - PCH - close: 37.97 chg: -0.67 stop: 36.99

PCH pulled back on below average volume today. We're seriously thinking about exiting early with this play. More conservative traders may want to exit now. We're going to hold on and see if we can exit closer to the $39.00 level. The stock is bouncing between $39.00 and $37.15. The bad news is that shares look headed toward $37.15 right now.

Picked on June 04 at $39.39
Change since picked: - 1.42
Earnings Date 07/17/06 (unconfirmed)
Average Daily Volume: 362 thousand

---

Ryanair - RYAAY - close: 52.21 change: -0.06 stop: 49.95

RYAAY didn't make much progress today. We're not suggesting new long positions at this time given the headwind in the markets right now. Our goal is the $53.90-54.00 range, where we expect RYAAY to have resistance at its trendline of lower highs.

Picked on June 08 at $51.34
Change since picked: + 0.87
Earnings Date 07/31/06 (unconfirmed)
Average Daily Volume: 304 thousand

---

Starbucks - SBUX - close: 35.96 chg: -0.65 stop: 34.98

Thank goodness that we're using a trigger with this SBUX play. As of right now the stock appears to have produced a three-day bearish reversal pattern under resistance at the 50-dma (and the $37.00 level). If we were long SBUX right now we'd probably exit early. Shares look headed for the $35.00 level. Currently our strategy calls for a trigger to go long at $37.05. If triggered we'll target a rally into the $39.95-40.00 range.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/02/06 (unconfirmed)
Average Daily Volume: 6.0 million

---

Verizon Comm. - VZ - close: 32.17 change: -0.37 stop: 31.24

Our new bullish play in VZ is not off to the strongest start. Shares have produced a failed rally under their 100-dma (near $33.00). Today's decline has erased Friday's gain. VZ looks headed for the $32.00-31.75 region. We would wait and watch for a bounce before considering new bullish positions.

Picked on June 18 at $32.54
Change since picked: - 0.37
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume: 9.8 million

---

Watson Wyatt - WW - close: 34.40 chg: +0.17 stop: 33.80

The tug-of-war between the bulls and bears in WW continues. Monday's session failed to see any follow through on Friday's big volume pull back. So far WW is holding on to its trendline of support. We'd wait for a move over its 10-dma (34.88) or the $35.00 level before considering new bullish positions. If WW trades under $33.75 nimble traders might want to switch directions and short the stock! WW is sporting a bearish double-top pattern. A 38.2% Fibonacci retracement of its October-June rally would be about $32.00.

Picked on June 15 at $34.71
Change since picked: - 0.31
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 183 thousand
 

Short Play Updates

Avid Tech. - AVID - close: 35.04 change: -0.56 stop: 39.01

AVID sank to a new 2 1/2-year low today but shares are still clinging to the $35.00 level. More conservative traders may want to lock in some gains right here. We're not suggesting new short plays at this time. Our target is the $32.50 mark.

Picked on June 11 at $37.35
Change since picked: - 2.31
Earnings Date 08/03/06 (unconfirmed)
Average Daily Volume: 763 thousand

---

Cntrl Vermont Pub.Srv - CV - cls: 16.62 change: -0.40 stop: 18.01

CV continued lower on Monday losing 2.35%. We expected more volume today since CV is being removed from the Russell indices. At this time we don't see any big changes from our weekend new play description. Our target is the $15.50 level.

Picked on June 18 at $17.02
Change since picked: - 0.40
Earnings Date 08/07/06 (unconfirmed)
Average Daily Volume: 46 thousand

---

The Geo Group Inc. - GGI - cls: 34.27 chg: +0.86 stop: 35.65

Be careful here. GGI offered some upside earnings guidance today and investors responded by pushing the stock up 2.5% and above its 10-dma. Short-term technicals are looking bullish. If you do not want to risk a rally to $35.00 or its 50-dma near $35.50 then we suggest you seriously consider exiting right here. We are not suggesting new bearish positions.

Picked on June 11 at $34.14
Change since picked: + 0.13
Earnings Date 05/04/06 (confirmed)
Average Daily Volume: 135 thousand

---

4 Kids Enter. - KDE - close: 15.66 change: -0.26 stop: 16.05

Shares of KDE continued to sell-off and the stock broke down under significant support at the $15.50 level. Our trigger to short the stock was at $15.45 so the play is now open. Our target is the $12.60-12.50 range.

Picked on June 19 at $15.45
Change since picked: - 0.15
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 113 thousand

---

Medtronic - MDT - close: 49.75 change: -0.50 stop: 51.01

MDT is moving our direction. The stock lost 0.99% and broke down under the $50.00 level and its 50-dma at $49.80. The MACD's sell signal looks stronger. Aggressive traders might want to open new short positions here. We're suggesting a trigger to open plays at $49.49. We do expect a bounce near support at $48.00 but our target is going to be the $45.50-45.00 range. We do not want to hold over the August earnings report.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/22/06 (unconfirmed)
Average Daily Volume: 10.8 million

---

Middlesex Water - MSEX - close: 16.97 change: -0.25 stop: 17.75

MSEX is also moving our direction. The stock tried to rebound this morning but it failed at its descending 10-dma. The stock closed at a new low under the $17.00 level. The move today has produced a bearish engulfing candlestick pattern. Aggressive traders may want to open positions now. We're suggesting a trigger at $16.90 to open bearish plays. The weekly chart shows a big bearish head-and-shoulders pattern that points to an $11.00 target. We're going to target a decline into the $15.15-15.00 range. The P&F chart is bearish with a bearish triangle breakdown sell signal pointing to a $12.00 target.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/08/06 (confirmed)
Average Daily Volume: 28 thousand

---

NitroMed - NTMD - close: 4.69 change: -0.38 stop: 5.71

Monday proved to be a rough day for NTMD. The stock lost almost 7.5% and closed under its simple 10-dma. The MACD on the daily chart is nearing a new sell signal. Our target is the $3.70-3.60 range. More aggressive traders may want to aim lower.

Picked on June 18 at $ 5.07
Change since picked: - 0.38
Earnings Date 07/31/06 (unconfirmed)
Average Daily Volume: 710 thousand

---

Blue Nile - NILE - close: 29.16 chg: -0.44 stop: 31.55

NILE has produced a failed rally under the $30.00 level today. This looks like a new entry point for shorts. More conservative traders may want to tighten their stop loss. The P&F chart is bearish and points to a $15.00 target. Readers should remember that NILE has a high amount of short interest and that raises the risk of a short squeeze. Our target is the $25.50-25.00 range.

Picked on June 08 at $29.45
Change since picked: - 0.29
Earnings Date 08/01/06 (unconfirmed)
Average Daily Volume: 212 thousand

---

Redback Networks - RBAK - cls: 19.67 chg: -0.72 stop: 21.01

Our bearish play in RBAK is now open. The stock continued to roll over and shares broke down under the $20.00 level and hit our trigger to short it at $19.75. Our target is the $16.50 level. The P&F chart is bearish and points to a $12.00 target. We do not want to hold over the mid July earnings report.

Picked on June 19 at $19.75
Change since picked: - 0.08
Earnings Date 07/19/06 (unconfirmed)
Average Daily Volume: 1.8 million

---

Sun Hydraulics - SNHY - cls: 17.71 chg: -0.39 stop: 18.51

SNHY closed under the $18.00 level with a 2.1% loss. Aggressive traders may want to open short positions here. Our trigger to short SNHY is at $17.45. Our target is the $15.10-15.00 range. The P&F chart looks pretty bearish with a $7.00 target.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 89 thousand

---

Tellabs - TLAB - close: 14.05 change: -0.27 stop: 15.01

The bounce in TLAB is failing. There were even some comments today that TLAB might be a takeout target but that failed to generate any buying interest. Our target is the $12.50 mark just above the simple 200-dma. We do not want to hold over the company's July earnings report.

Picked on June 18 at $14.32
Change since picked: - 0.27
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume: 5.9 million
 

Closed Long Plays

None
 

Closed Short Plays

None
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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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Play Updates

In Play Updates and Reviews

Long Play Updates

Asta Funding - ASFI - close: 34.09 change: -1.07 stop: 33.95

ASFI failed to see any follow through on Friday's bounce and breakout over the $35.00 level. It's a good thing we used a trigger. We're still on the sidelines with a suggested entry point at $36.01. If ASFI trades under its simple 200-dma readers might want to consider bearish plays.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 165 thousand

---

A.S.V.Inc. - ASVI - close: 20.26 change: -0.94 stop: 19.45

Ouch! Small caps were one of the worst performing sectors today. Shares of ASVI where hit pretty hard with a failed rally at $21.84 and a sell-off back toward the $20.00 level. The stock lost 4.4%. We actually suggested that readers look for a dip toward the $20.50-20.00 region as a preferred entry point and we got it but right now we'd look for signs of a bounce first (maybe over $20.50) before considering new long plays. We do not want to hold over the company's earnings report in late July.

Picked on June 18 at $21.20
Change since picked: - 0.94
Earnings Date 07/27/06 (unconfirmed)
Average Daily Volume: 463 thousand

---

Archstone - ASN - close: 49.77 chg: -0.15 stop: 48.74

ASN consolidated sideways in a narrow range. We do not see any changes from our weekend update. We would wait for a move past the $50.25 level before initiating new long positions. Our target is the $53.85-54.00.

Picked on June 05 at $50.21
Change since picked: - 0.44
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 989 thousand

---

Syneron Med. - ELOS - close: 20.98 change: -0.07 stop: 19.99

We do not see any changes from our weekend new play description for ELOS. We want to catch any upward breakout but we want some confirmation so we're suggesting a trigger to go long the stock at $21.51. If triggered our target will be the $23.85-24.00 level. We may have to adjust this target to account for the descending 50-dma, which may act as resistance.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/03/06 (unconfirmed)
Average Daily Volume: 615 thousand

---

Energy Transfer - ETP - close: 43.90 chg: -0.35 stop: 41.99

Hmm... we're starting to have second thoughts about going long ETP. The oil sector and oil services sector were hammered again today. The OIX index lost 3% and the OSX index lost 3.9%. Shares of ETP are still out performing their peers but even the strongest stock will struggle to make headway with the sector sinking. We'd watch for a bounce from the $43.00 region as a potential entry point but initiating new plays very cautiously.

Picked on June 18 at $44.25
Change since picked: - 0.35
Earnings Date 07/10/06 (unconfirmed)
Average Daily Volume: 149 thousand

---

Potlatch - PCH - close: 37.97 chg: -0.67 stop: 36.99

PCH pulled back on below average volume today. We're seriously thinking about exiting early with this play. More conservative traders may want to exit now. We're going to hold on and see if we can exit closer to the $39.00 level. The stock is bouncing between $39.00 and $37.15. The bad news is that shares look headed toward $37.15 right now.

Picked on June 04 at $39.39
Change since picked: - 1.42
Earnings Date 07/17/06 (unconfirmed)
Average Daily Volume: 362 thousand

---

Ryanair - RYAAY - close: 52.21 change: -0.06 stop: 49.95

RYAAY didn't make much progress today. We're not suggesting new long positions at this time given the headwind in the markets right now. Our goal is the $53.90-54.00 range, where we expect RYAAY to have resistance at its trendline of lower highs.

Picked on June 08 at $51.34
Change since picked: + 0.87
Earnings Date 07/31/06 (unconfirmed)
Average Daily Volume: 304 thousand

---

Starbucks - SBUX - close: 35.96 chg: -0.65 stop: 34.98

Thank goodness that we're using a trigger with this SBUX play. As of right now the stock appears to have produced a three-day bearish reversal pattern under resistance at the 50-dma (and the $37.00 level). If we were long SBUX right now we'd probably exit early. Shares look headed for the $35.00 level. Currently our strategy calls for a trigger to go long at $37.05. If triggered we'll target a rally into the $39.95-40.00 range.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/02/06 (unconfirmed)
Average Daily Volume: 6.0 million

---

Verizon Comm. - VZ - close: 32.17 change: -0.37 stop: 31.24

Our new bullish play in VZ is not off to the strongest start. Shares have produced a failed rally under their 100-dma (near $33.00). Today's decline has erased Friday's gain. VZ looks headed for the $32.00-31.75 region. We would wait and watch for a bounce before considering new bullish positions.

Picked on June 18 at $32.54
Change since picked: - 0.37
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume: 9.8 million

---

Watson Wyatt - WW - close: 34.40 chg: +0.17 stop: 33.80

The tug-of-war between the bulls and bears in WW continues. Monday's session failed to see any follow through on Friday's big volume pull back. So far WW is holding on to its trendline of support. We'd wait for a move over its 10-dma (34.88) or the $35.00 level before considering new bullish positions. If WW trades under $33.75 nimble traders might want to switch directions and short the stock! WW is sporting a bearish double-top pattern. A 38.2% Fibonacci retracement of its October-June rally would be about $32.00.

Picked on June 15 at $34.71
Change since picked: - 0.31
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 183 thousand
 

Short Play Updates

Avid Tech. - AVID - close: 35.04 change: -0.56 stop: 39.01

AVID sank to a new 2 1/2-year low today but shares are still clinging to the $35.00 level. More conservative traders may want to lock in some gains right here. We're not suggesting new short plays at this time. Our target is the $32.50 mark.

Picked on June 11 at $37.35
Change since picked: - 2.31
Earnings Date 08/03/06 (unconfirmed)
Average Daily Volume: 763 thousand

---

Cntrl Vermont Pub.Srv - CV - cls: 16.62 change: -0.40 stop: 18.01

CV continued lower on Monday losing 2.35%. We expected more volume today since CV is being removed from the Russell indices. At this time we don't see any big changes from our weekend new play description. Our target is the $15.50 level.

Picked on June 18 at $17.02
Change since picked: - 0.40
Earnings Date 08/07/06 (unconfirmed)
Average Daily Volume: 46 thousand

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The Geo Group Inc. - GGI - cls: 34.27 chg: +0.86 stop: 35.65

Be careful here. GGI offered some upside earnings guidance today and investors responded by pushing the stock up 2.5% and above its 10-dma. Short-term technicals are looking bullish. If you do not want to risk a rally to $35.00 or its 50-dma near $35.50 then we suggest you seriously consider exiting right here. We are not suggesting new bearish positions.

Picked on June 11 at $34.14
Change since picked: + 0.13
Earnings Date 05/04/06 (confirmed)
Average Daily Volume: 135 thousand

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4 Kids Enter. - KDE - close: 15.66 change: -0.26 stop: 16.05

Shares of KDE continued to sell-off and the stock broke down under significant support at the $15.50 level. Our trigger to short the stock was at $15.45 so the play is now open. Our target is the $12.60-12.50 range.

Picked on June 19 at $15.45
Change since picked: - 0.15
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 113 thousand

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Medtronic - MDT - close: 49.75 change: -0.50 stop: 51.01

MDT is moving our direction. The stock lost 0.99% and broke down under the $50.00 level and its 50-dma at $49.80. The MACD's sell signal looks stronger. Aggressive traders might want to open new short positions here. We're suggesting a trigger to open plays at $49.49. We do expect a bounce near support at $48.00 but our target is going to be the $45.50-45.00 range. We do not want to hold over the August earnings report.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/22/06 (unconfirmed)
Average Daily Volume: 10.8 million

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Middlesex Water - MSEX - close: 16.97 change: -0.25 stop: 17.75

MSEX is also moving our direction. The stock tried to rebound this morning but it failed at its descending 10-dma. The stock closed at a new low under the $17.00 level. The move today has produced a bearish engulfing candlestick pattern. Aggressive traders may want to open positions now. We're suggesting a trigger at $16.90 to open bearish plays. The weekly chart shows a big bearish head-and-shoulders pattern that points to an $11.00 target. We're going to target a decline into the $15.15-15.00 range. The P&F chart is bearish with a bearish triangle breakdown sell signal pointing to a $12.00 target.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/08/06 (confirmed)
Average Daily Volume: 28 thousand

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NitroMed - NTMD - close: 4.69 change: -0.38 stop: 5.71

Monday proved to be a rough day for NTMD. The stock lost almost 7.5% and closed under its simple 10-dma. The MACD on the daily chart is nearing a new sell signal. Our target is the $3.70-3.60 range. More aggressive traders may want to aim lower.

Picked on June 18 at $ 5.07
Change since picked: - 0.38
Earnings Date 07/31/06 (unconfirmed)
Average Daily Volume: 710 thousand

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Blue Nile - NILE - close: 29.16 chg: -0.44 stop: 31.55

NILE has produced a failed rally under the $30.00 level today. This looks like a new entry point for shorts. More conservative traders may want to tighten their stop loss. The P&F chart is bearish and points to a $15.00 target. Readers should remember that NILE has a high amount of short interest and that raises the risk of a short squeeze. Our target is the $25.50-25.00 range.

Picked on June 08 at $29.45
Change since picked: - 0.29
Earnings Date 08/01/06 (unconfirmed)
Average Daily Volume: 212 thousand

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Redback Networks - RBAK - cls: 19.67 chg: -0.72 stop: 21.01

Our bearish play in RBAK is now open. The stock continued to roll over and shares broke down under the $20.00 level and hit our trigger to short it at $19.75. Our target is the $16.50 level. The P&F chart is bearish and points to a $12.00 target. We do not want to hold over the mid July earnings report.

Picked on June 19 at $19.75
Change since picked: - 0.08
Earnings Date 07/19/06 (unconfirmed)
Average Daily Volume: 1.8 million

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Sun Hydraulics - SNHY - cls: 17.71 chg: -0.39 stop: 18.51

SNHY closed under the $18.00 level with a 2.1% loss. Aggressive traders may want to open short positions here. Our trigger to short SNHY is at $17.45. Our target is the $15.10-15.00 range. The P&F chart looks pretty bearish with a $7.00 target.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 89 thousand

---

Tellabs - TLAB - close: 14.05 change: -0.27 stop: 15.01

The bounce in TLAB is failing. There were even some comments today that TLAB might be a takeout target but that failed to generate any buying interest. Our target is the $12.50 mark just above the simple 200-dma. We do not want to hold over the company's July earnings report.

Picked on June 18 at $14.32
Change since picked: - 0.27
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume: 5.9 million
 

Closed Long Plays

None
 

Closed Short Plays

None
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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