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Daily Newsletter, Thursday, 08/08/2002

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The Option Investor Newsletter                Thursday 08-08-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Fed Poised to Disappoint Bulls
Index Trader Wrap: Bull Rock
Market Sentiment: Slow and Steady
Weekly Manager Microscope: Elizabeth R. Bramwell: Bramwell Funds
Index Trader Game Plan: THE SECTOR BEAT - 8/8

Updated On The Site Tonight:
Swing Trader Game Plan: Closed on the Highs

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      08-08-2002           High     Low     Volume Advance/Decline
DJIA     8712.02 +255.90  8717.42  8430.33 1.89 bln   2191/ 987
NASDAQ   1316.52 + 35.60  1316.52  1263.31 1.48 bln   2038/1312
S&P 100   457.16 + 15.70   457.52   440.83   Totals   4229/2299
S&P 500   905.46 + 28.69   905.84   875.17 
RUS 2000  389.84 +  6.37   390.04   381.09 
DJ TRANS 2333.00 + 61.60  2334.81  2255.61   
VIX        39.80 -  3.27    43.85    39.71   
VXN        59.35 -  9.49    71.16    59.26 
Total Vol   3,609M
Total UpVol 2,767M
Total DnVol   797M
52wk Highs   69
52wk Lows   314
TRIN        0.68
PUT/CALL     .75
*************************************************************  

Fed Poised to Disappoint Bulls

The markets are soaring as though Greenspan had been bribed. 
The expectations of a Tuesday rate cut are very high although
the futures are showing less than a 50% chance. Investors are
setting themselves up for a fall but bulls have been turned 
into mad cows by the possibility. This is a picture of irrational 
exuberance at its finest.

Dow chart


 

Chart of Nasdaq Comp


 

The economic reports this morning were mixed. The PPI came in 
lower than expected at -0.2% based largely on the drop in price
for new cars. Despite the drop in the headline numbers the prices
for core goods, a leading indicator for inflation, rose +0.2%
and was the sixth monthly increase. The increases have only been 
minimal. This should not be a reason for the Fed to hold off
but it is also no reason to rush into a cut. 

Jobless claims fell by -15,000 for the week and the four-week
moving average fell to a 17-month low. This shows the job market
might be improving slightly despite the weak economy. This is 
another reason the Fed will not need to rush to cut rates.

Retail Sales grew at a much weaker rate in July, +2.6%, than 
the +5.1% rise in June. Apparel stores -3.4% and department
stores -3.3% contributed to the decline but shoe stores got
hit for a -6.7% loss. Drug stores, discount stores and wholesale
clubs showed increases. Furniture stores reported only moderate
growth despite the hot home sales. Wal-Mart reported lower than
expected sales for last week but raised its earnings guidance. 

Following this train of thought BBY warned today that they would
miss estimates of 30-32 cents with new expectations of 17-21 
cents. They cited flat same-store sales in the past four weeks due
to declines in consumer confidence. The company said there was a
general softening across most of its product categories. Consumers
are beginning to hoard cash as we approach September 11th. Several
retailers have now reported results below plan, weaker same store
sales and decreased customer traffic. Several restaurant chains
also announced lower same-store sales on Thursday. Electronics, 
apparel, furniture and even fast food. There is a message here
but it is not one that will make the Fed cut rates next week.
This is not something another 25-point cut can cure. 

In other news TMPW continued dropping after warning that they
would be posting up to 1,000 of their own employees resumes
as they cut staff drastically. They are not seeing any increase
in jobs and don't expect employers to begin hiring anytime soon. 

Helping power the markets today was news that the IMF had changed
its mind and would loan $30 billion to Brazil and boost a loan
to Uruguay. This took the heat off US banks in the short term 
and made that asset allocation play in Germany on Tuesday very
profitable. It also represented a change in stance for the US 
government. Since the IMF loans are funded by major banks all 
over the world you wonder if Deutsche Bank knew it was in progress
and had something to do with that massive program buy in Germany.
Conspiracy theorists have been heard speculating that Alan
Greenspan blessed it as a way to support the US markets without
having to cut rates. Analysts think major US banks have about 
$30 billion in exposure to Brazil already and had the country
gone under would have had serious implications for the US. 
According to European news sources the Fed made a decision on
July 23-24th that "any and all measures" would be taken to keep 
the US stock markets from melting down before November elections.
(That is exactly when bids began appearing under the market.)
With insolvency rumors swirling around JPM and Citigroup the
Fed decided to do whatever it took to protect the markets. The
IMF move in Brazil is seen as one of those steps. With Brazil's
debt at $500 billion almost every analyst claims there is no
hope to avoid a default and the loan was only a Band-Aid.
What you did not hear in most media was that they would only get
$6 billion this year and the balance was tied to some very
unpopular austerity measures by the new government that have 
never been agreed to in the past. Say "market and political 
Band-Aid" three times fast.   

There is a continued press to expense stock options and hardly
a day goes by without another company going on record that they
will or will not expense them. MSFT, INTC and CSCO have gone on
record against the process. It is no wonder when the results
are analyzed. In a study released today it appears overall tech 
earnings could be reduced by -70% while old line manufacturing
and materials companies would only suffer a -7% decline on 
average. Seventy percent would be a serious hit to tech stock
valuations and you can see why the majors are against it. 

Abbey Joseph Cohen, drawn back into the limelight by a +500
point gain in the last three days, appeared on CNBC to carefully
extol the virtues of the undervalued stock market. In a carefully
scripted "interview" she was allowed to call the bottom for the
umpteenth time. I watch the futures during the interview to see
if the contrarian impact would send them plummeting again. If an
investigative reporter really wanted to do an expose they could 
show the scripted questions given to the interviewers ahead of 
time and show that it is a setup from start to finish. Can you 
tell I don't like her? All we need now is for Ralph Acompora to 
come out of his burrow and call a bottom to guarantee six more 
weeks of drops. 

Did your hear that the WCOM fraud is up to $6 billion now? Those
were some really busy accountants over the last three years and
it appears they left no trick untried. Odds are very good that
Bernie Ebbers is definitely in trouble. You can't be CEO for
three years and not miss $6 billion in revenue and the CFO was
supposed to be a good friend. 

Back to the Fed. The market has all but priced in a 50 point cut
and the chances of even 25 points are less than 50%. The Fed may
have decided to support the markets at all costs but based on
the past weeks move the market is not sick. We are nearly +1200
points off the lows again and selling has nearly evaporated. The
economy, if you believe official numbers, is still growing at
a very slow pace. By throwing a quarter point at the market next
week they risk the "worse than it seems" view and risk more
confidence problems. That is trivial to the real reason they
probably will not cut. I believe they will want to save all 
their remaining cuts for the September 24th meeting. If there
is a terrorist event on the anniversary they will want to move
quickly and strongly to prevent a meltdown. If they spend a cut
here when they don't need it then they could be short later. I 
personally don't think they will let the Fed funds rate go below
1.00% so that only leaves them 75 basis points to move. If they
really wanted to make a statement at some point in the future
a 75 point cut all at once would be that point. A quarter here, 
quarter there will not make any difference at this point in the
economic cycle. Most of the problems we have cannot be corrected
by additional cuts. My opinion is they will continue to say that
there are "risks to the economy" but the "economy is expanding"
and stand aside. Just my opinion.

However this sets investors up for a fall. The fundamentals of
the market have not changed, just the sentiment. With the consumer
beginning to hoard cash the August numbers are going to be grim.
The 4Q will be grim as well because there are no rebate checks
to be spent this season. Comparable numbers will be negative.
August could still be a challenge because of the CEO/CFO
certifications. A "no change" on Tuesday will be seen as "no help"
to the current market and the sentiment is likely to change very
quickly. 

The markets closed at the highs of the day and right at the highs
from last week. This is where they will fail if they are going to 
fail. The positive sentiment is strong but I think it is really
a lack of sellers. The bears are scared of the Fed meeting and
after being cut to ribbons several times recently are content to
wait for the announcement. This means we could see another positive
day on Friday. My ideal setup would be a large drop on profit
taking at the open and then a rally back over current resistance
at OEX 458. The Dow needs to break 8750 but after that we could
be off to the races, at least until Tuesday. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

BULL ROCK
By Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
The bull was rocking today.  Not on the greatest of volume, nor 
for the greatest of reasons, if you could find them.  But a trend 
is a trend.  

Of course, a boost was provided when our GIANT of a neighbor to 
the south, Brazil, got the money it needed from the IMF to stave 
off defaults and the uncertainties of an upcoming Presidential 
election.  

An election in which by the way, the two leftist candidates are 
leading in the polls - the one furthest ahead at this point is a 
bit of a radical.  Probably one who may, through spending 
policies on social services to help the poor - of which there are 
many - may not be the best choice to maintain spending discipline 
so beloved by the IMF.  

Major inflation has been a perennial problem in Brazil and one of 
the major headaches over the years. Somehow the Brazilians get 
through this with good cheer, but the people finally had enough a 
few years ago and elected a President who got on a path of 
cutting spending and increasing tax revenues. Then the country 
seemed to falter in this course. 

Of course, Brazil is tied to economic basket case Argentina - do 
cry for them - Argentina has huge systemic problems, ironic in a 
country so "European" and having been once not only the richest 
country in the region, but one of the richest in the world. 

Then there is the speculation of a Fed rate cut on Tuesday. What 
are traders smoking?  This is sheer speculation, but hey, it’s a 
good a rumor as any and has sex appeal.  

In terms of the Institutional darling, the Dow 30, the average is 
up 668 points in 2 days!  Not bad - don't cry for the blue chips! 
The Nasdaq also rose about 3%. 

The Brazilian news was seized upon as bullish tidings - enough to 
offset poor July same-store sales results from the retailers and 
reports that WorldCom's fraud could top $6 billion. "Funny" isn't 
it how the market ignores "bad news" when it suits it. This may 
be why I am most technical in my approach.  When stocks go up, I 
try not to have a judgment that they shouldn't be - going UP I 
mean. The market is always "right", for that day or week at 
least!  

One thing that you may not think is that big of a deal, but IS 
out there in institutional money manager land is that the S&P 
Investment Policy Committee raised its recommended equity 
exposure to 60% from 55% - it also reduced bond exposure by 5%, 
from 20 to 15%. Standard & Poor indicated their belief that 
earnings are likely to improve in the coming quarters and that 
stocks have a greater upside potential than downside risk.

Last night I talked about the "triangle" patterns that shaped up 
on the S&P and Dow charts and that got me bullish.  Someone wrote 
and said he could not figure out, or find a reference to, what 
"symmetrical" meant in relationship to a triangle - I didn't 
realize that I was speaking "greek", but it simply means the down 
trendline (through the highs) and the up trendline (through) the 
lows, have the same approximate slope.  Neither the upper or 
lower lines are flat for example, with the other opposite line 
going up at a 45-degree angle. 

Oh well, I can SHOW it better than write about it - a picture IS 
worth a 1000 words in technical analysis. 

DJ Industrial Index (1/100 of INDU) - $DJX - Hourly chart: 


 

The measuring implications of the triangle is to take the 
vertical side "AB" and add it to the "breakout point"; i.e., on 
the point where prices pieced the upper trendline, measure up on 
a straight vertical line, a distance equal to "AB". 

Now, the other aspect of trendlines is that, on a correction, 
prices will often come back to the trendline - for example, 
assuming DJX gets up to 88, it would not be surprising for a fall 
back to 85, then another rally from there. 

In more immediate terms, DJX must exceed the prior high at 87.6, 
especially on a closing basis, to suggest that the downtrend has 
reversed.  A pattern of HIGHER (up) swing highs and (down) swing 
lows is what defines an up trend - the reverse being true for a 
downtrend. Quite simple I think - but I said that last night 
about the "triangle" - wrong on that I suppose, right on the 
trend. Well, I can always explain further, but WRONG on the trend 
has depletion dangers for my trading account.  

Those of you who have read my book, may recall that its subtitle 
is "tools and techniques to spot market trends" - always figure 
out the trend (also, possible trend REVERSALS) and then trade! 

S&P 100 Index (OEX) - Daily Bar chart: 


 

ON THE ONE HAND - 
Today's close achieved a bullish breakout above its downtrend 
channel and to above the "pivotal" 21-day average, in terms of 
the daily chart. Also, the daily stochastic model turned back up, 
indicating renewed upside momentum.  

ON THE OTHER HAND - 


    

There is more than one way to measure technical resistance and 
basis the hourly line chart (hourly closes), the OEX closed AT 
resistance.  However, I think that the index can get above this, 
as my guess is that this rally could go another couple of days.  

A further move up tomorrow (Friday) will pull in more short-
covering and some more investment buying on Monday, before the 
"boom" is lowered again past Monday.  Just a hunch, but the 
psychology would "work" that way - confounding the bears - then 
the bulls get their turn. 

Key support is 440 - any dip to and certainly under this level 
suggests the resistance I am pointing to above rules the day.

Also, resistance implied by an "emerging" uptrend channel (not 
shown above, yet), assuming we take out today's highs tomorrow 
(Fri.), intersects in the 480 area and this may be an upside 
objective for OEX  - in case we REALLY panic the shorts - who, 
probably are worried but not panicking. Of course, they are RIGHT 
according the to "known" current market fundamentals - if the 
market was strictly logical I would agree with them! 

Nasdaq 100 Trust Stock (QQQ) hourly chart: 


 


"A DIAMOND IN THE ROUGH" - 

From our Market Monitor today - 
"Possible diamond pattern forming on 60 minute QQQ chart. Do you 
see and how would you interpret at this juncture?" 

RESPONSE: Both "diamond" tops and diamond bottoms tend to act as 
reversals of the prevailing trend. Since the prevailing trend of 
the Q's has been down, I assume that a diamond formation here is 
bullish. This is not a common pattern but it does appear from 
time and basically traces out a "consolidation" patter, before a 
new trend gathers momentum. 

No sooner had I traced out the pattern and posted the chart, but 
the Q's started rallying and broke out to the upside from the 
right hand side of the "diamond".  Well, you golfers will know 
that we're not out of the rough yet!

QQQ still needs to achieve an upside penetration of the upper 
trend channel boundary at 23.6, then exceed its prior swing high 
at 24.7 - if so, it would reverse the patter of ever lower rally 
highs and ever lower downswing lows.  Stay tuned! 

Anticipated support is now at the resistance points overcome 
earlier - at 22.6, then 22.3 - finally at 22.00. 

To get a sustained rally again, we need the individual investor 
lending some bucks to buy more than Microsoft - acting well, 
after a bullish WSJ article today - but, also Cisco, Intel and 
Qualcomm. Oh, and Oracle is doing its part, rebounding to 10, 
from 9 the other day. 

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com    


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

Slow and Steady
By Steve Price

The Dow has had a very quiet three-digit gainer today.  When I 
say quiet, I mean slow and steady, without the big swings.  This 
has had an effect on the market Volatility Index, which has 
settled down a little, finishing the day at 39.80  It probably 
will continue to hover at higher levels, however, as we approach 
Tuesday's FOMC meeting, when the Fed will reveal its decision on 
interest rates.  With daily calls for the rate to drop from 1.75% 
to 1%, what once appeared unlikely before the September 24the 
meeting, now is gaining steam.  While the Fed will not drop rates 
75 basis points in one meeting, this amount is not entirely out 
of the question by the end of the year.  Adjusted for inflation, 
a 1% interest rate will essentially make the "real " interest 
rate zero.   So how does this affect the market?

It allows large companies to institute share buy-back programs 
with borrowed money that is much cheaper than in the past.  These 
share buy-backs boost the price of stocks, as they sometimes run 
into the billions. 

The other big factor is the effect lower rates eventually have on 
mortgages and re-financing.  Although the bond market affects 
mortgage rats more directly, the lower overnight rate eventually 
trickles down.  When people continue to buy homes, and lower 
their current mortgage payments, thus giving them more disposable 
income to spend on other things, this pumps money directly into 
the economy.  Judging by this week's record mortgage application 
numbers, it is apparent that low rates continue to have a 
stimulating effect on this sector. As consumer spending accounts 
for 2/3 of all dollars spent in the U.S., you can see why the 
rate cuts can be such a big deal for the market. 

This morning's economic numbers, showing the core PPI rate down 
0.2% for July, was the first year over year decline in prices 
since 1998.  This factor may figure into the Fed's rate decision.  
If prices are falling, this gives the Fed room to lower rates 
without worrying about inflation.  Productivity numbers tomorrow 
will also be important.  

The IMF announced a $30 billion bailout for Brazil, whose 
struggling economy has weighed heavily on U.S. bank stocks, 
particularly Citigroup (C) and J.P. Morgan, who both have Latin 
American exposure.  This loan led the bank stocks higher today 
and was another factor in today's rally.

It certainly appears that the rally of the last three days will 
continue as hope of a rate cut on Tuesday gains steam. The Dow 
has made up over 600 points in three days, to make up most of the 
previous three day's loss of over 700 points. Each day seems to 
cover another significant retracement bracket of that loss, as 
yesterday ended just below 61.8% and today ended at almost even.  
The Dow closed up 255.87, to close at 8712.02, within 25 points 
of last week's high.

The Nasdaq Composite also showed an impressive gain.  It rallied 
35.62 to close over 1300 at 1316.52.  This is significant, 
considering that just a week ago it looked poised to breakdown 
below support at 1200.  The bounce has been just as impressive as 
that in the Dow, as the index seemed doomed after a slew of 
earnings and revenue warnings from the semiconductor stocks.


There are two factors that could sent the market right back below 
8000 next week, however. The deadline for CEOs to certify their 
companies' accounting numbers is Wednesday.  There is a 
likelihood that any bad news will be released before then, as 
CEOs don't want to be next in line to sit before Congress, facing 
criminal charges, and taking the fifth. 

The other factor is the lack of a rate cut.  With so many hopes 
clinging to this factor, if the Fed fails to act, we could see a 
rush to the exits.  They could relieve some of the panic by 
stating a tightening bias, which would indicate a cut at the 
September 24the meeting, however the disappointment would remain. 


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

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7702
Current     :  8712

Moving Averages:
(Simple)

 10-dma: 8469
 50-dma: 8991
200-dma: 9751



S&P 500 ($SPX)

52-week High: 1226
52-week Low :  797
Current     :  905

Moving Averages:
(Simple)

 10-dma:  879
 50-dma:  950
200-dma: 1078



Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  892
Current     :  947

Moving Averages:
(Simple)

 10-dma:  925
 50-dma: 1029
200-dma: 1358



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


The Retail Index (RLX.X):  The retailers had quite a ride today.  
Best Buy lost over a third of its value as it pre-released 
earnings, which were 40% lower than expected.  Wal-Mart missed 
sales expectations, but guided higher.  Several of the specialty 
retailers also posted such impressive July sales numbers that 
they also raised earnings expectations for the quarter. The index 
started out higher, took a major dip, and then rallied with the 
overall market in the afternoon.  At one point, support of 260 
had been breached, however by the end of the day all appeared 
well.  keep an eye on this index for signs of consumer spending, 
which makes up 2/3 of GDP.

52-week High: 366
52-week Low : 254
Current     : 270

Moving Averages:
(Simple)

 10-dma: 274
 50-dma: 307
200-dma: 331


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

Market Volatility

The VIX fell below 40 for the first time since the middle of the 
day last Thursday.  Three straight days of solid gains in the Dow 
and S&P have reduced the level of fear in the market place. The 
Dow has made up almost all of its 700-point, 3 day loss from 
Thursday through Monday. While a 600-point increase over a three 
day period would normally drive the VIX into the 20s, the recent 
drop, combined with uncertainty over next week's FOMC action on 
interest rates should combine to keep volatility high at least 
until the middle of next week.  The August 14 deadline for 
companies to certify financial results also looms overhead, as 
investors remain cautious over what news may be released before 
then.

CBOE Market Volatility Index (VIX) = 39.80 –3.27
Nasdaq-100 Volatility Index  (VXN) = 59.35 –9.49

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.75        651,791       487,497
Equity Only    0.57        498,636       283,458
OEX            1.40         39,390        55,331
QQQ            0.41         59,282        24,286

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

Bullish Percent Data

           Current   Change   Status
NYSE          31      + 2     Bull Correction
NASDAQ-100    26      + 1     Bull Correction
DOW           33      + 6     Bull Alert
S&P 500       30      + 5     Bull Alert
S&P 100       32      + 6     Bull Alert

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

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

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

 5-Day Arms Index  1.21
10-Day Arms Index  1.20
21-Day Arms Index  1.20
55-Day Arms Index  1.37

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

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

Market Internals

        Advancers     Decliners
NYSE       2144           964
NASDAQ     1961          1279

        New Highs      New Lows
NYSE         26              67
NASDAQ       23              86

        Volume (in millions)
NYSE     1,928
NASDAQ   1,526

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

Commitments Of Traders Report: 07/30/02

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

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

S&P 500

Commercials added significantly to their long positions.  While 
contracts were added on both sides, 25,000 were added to the 
longs, while only 11,000 were added to the short side.  Small 
Traders reduced both positions, however reduced long positions by 
an additional 6,000 contracts.


Commercials   Long      Short      Net     % Of OI 
07/09/02      396,321   456,164   (59,843)   (7.0%)
07/16/02      388,943   464,162   (75,219)   (8.8%)
07/23/02      405,969   471,704   (65,735)   (7.5%)
07/30/02      430,833   482,957   (52,124)   (5.7%)

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

Small Traders Long      Short      Net     % of OI
07/09/02      145,017    71,402    73,615     34.0%
07/16/02      157,370    67,247    90,123     40.1%
07/23/02      166,713    73,778    92,935     38.6%
07/30/02      153,858    67,451    86,407     39.0%

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

Commercials added 4,000 short contracts to their positions, while 
adding only 1,000 long contracts.  Small Traders reduced short 
positions by 2,000 contracts, while adding less than 500 to their 
long contracts, for a 2,000 long contract increase overall.


Commercials   Long      Short      Net     % of OI 
07/09/02       31,227     39,592    (8,725) (12.3%)
07/16/02       33,152     39,866    (6,714) ( 9.2%)
07/23/02       37,204     43,601    (6,397) ( 8.0%)
07/30/02       38,163     47,343    (9,180) (10.7%)

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

Small Traders  Long     Short      Net     % of OI
07/09/02       12,520     8,348     4,175     20.0%
07/16/02       12,816    10,774     2,042      8.7%
07/23/02       12,756    11,152     1,604      6.7%
07/30/02       13,159     9,237     3,922     17.5%

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

DOW JONES INDUSTRIAL

Commercials kept their long positions approximately the same, 
while reducing their short positions by almost 2,000 contracts.  
Small Traders reduced both long and short positions dramatically.  
They reduced their long position by 2400 contracts and short 
position by almost 4,000 contracts.


Commercials   Long      Short      Net     % of OI
07/09/02       20,761    14,122    6,639     19.0%
07/16/02       20,357    14,074    6,283     18.2%
07/23/02       22,369    14,745    7,624     20.5%
07/30/02       22,429    12,811    9,618     27.3%

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

Small Traders  Long      Short     Net     % of OI
07/09/02        6,831     6,623       208     1.50%
07/16/02        8,524    10,133    (1,609)   (8.62%)
07/23/02        9,101    12,604    (3,503)   (16.1%)
07/30/02        6,778     8,999    (2,221)   (14.1%)

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

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


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WEEKLY MANAGER MICROSCOPE
*************************

Elizabeth R. Bramwell: Bramwell Funds

Elizabeth R. Bramwell is president and chief investment officer 
of Bramwell Capital Management, Inc. (BramCap), the company she 
founded in February 1994, which serves as investment adviser to 
the Bramwell Funds.  Her first mutual fund Bramwell Growth Fund 
(BRGRX), launched in August 1994, currently holds Morningstar's 
highest 5-star rating in the large-cap growth category based on 
"high" return and "low" risk relative other large-growth equity 
funds.  

In November 1999, Bramwell introduced a second fund aptly named 
Bramwell Focus Fund (BRFOX).  It's not yet rated by Morningstar 
but is off to a good start, which should not come as a surprise 
considering her fine record managing Bramwell Growth Fund since 
1994, and prior to that, Gabelli Growth Fund (GABGX).  Bramwell 
spent eight years with the Gabelli Funds as a portfolio manager 
and director of research, before leaving to start her own firm.

While at Gabelli Funds, Bramwell as served as president, chief 
investment officer and trustee of Gabelli Growth Fund.  She was 
the fund's original portfolio manager, running it between April 
1987 and February 1994, when she left the firm and was succeeded 
by Mario Gabelli.  Bramwell employs a similar multi-cap, growth 
strategy in Bramwell Growth Fund as she did when running Gabelli 
Growth Fund. 

Previously, Bramwell spent six years as a limited partner with 
Kenneth S. Davidson Partners, two years as a vice president with 
Bankers Trust, and two years as a vice president with William D. 
Witter.  

Additional Background


 
Elizabeth Bramwell is primarily responsible for 
the day-to-day portfolio management of Bramwell 
Funds.  She holds degrees from Bryn Mawr College 
and the Columbia University School of Business.

In addition to holding the Chartered Financial 
Analyst (CFA) designation, Bramwell is also a 
Chartered Financial Planner.  She's a member of 
the Women's Financial Association, and a former 
director of the New York Society of Security 
Analysts.

Bramwell started her career at Morgan Guaranty Trust Company in 
1967 and has over 30 years of experience in securities analysis 
and portfolio management.

According to the Bramwell Funds website (www.bramwellfunds.com), 
the Bramwell Growth Fund was launched in August 1994 to provide 
investment management to individuals seeking to participate in 
the financial markets through a pooled investment vehicle under 
continual supervision by professional management.  BramCap also 
manages monies for private clients and institutional investors.

Investment Overview

Bramwell's focus is on growth equities, which she views as the 
investment vehicle of choice for achieving long-term growth of 
capital (capital appreciation).  In other words, Bramwell says 
that investing in "growth" companies is the best way to create 
shareholder wealth. 

Ms. Bramwell directs BramCap's investment research team.  They 
search for investment opportunities with "identifiable" growth 
characteristics, such as strong sales growth and opportunities 
for improved profitability.  They also look for companies with 
attractive price valuations relative to their growth prospects 
(and the market as a whole).

Bramwell and team believe there's no substitute for fundamental 
investment research in making an informed investment decision.  
Accordingly, they devote a lot of time and effort synthesizing 
and analyzing information on economic conditions, sectors, and 
companies within industry sectors.

When selecting stock investments for the mutual funds, BramCap 
utilizes a blended top-down and bottom-up approach.  Here, her 
investment research team performs company-specific analysis in 
the context a macroeconomic and political framework.  The site 
states that in top-down analysis, the primary focus is on such 
macroeconomic factors as inflation, interest and tax rates and 
political climate.  In bottom-up analysis the focus is on such 
company-specific variables as competitive industry dynamics, 
market leadership, proprietary products/services and management 
expertise, as well as on such financial characteristics as ROE 
(return on equity), debt/equity ratios, and earnings and cash 
flow growth. 

Per the website, stock positions are reduced or liquidated if 
fundamentals deteriorate, valuations become excessive or more 
attractive alternative investments are found.  For interested 
parties, there is a nice schematic on the website showing the 
variables that go into Bramwell's investment decision process 
(located in the About Bramwell section).

In the next section, we see how well Bramwell Growth Fund and 
Bramwell Focus Fund have performed relative to their category 
peers (large-cap growth funds) using Morningstar's data and 
analysis.  We'll also see what other funds trackers such as 
Lipper and Value Line may have to say/add.

Investment Performance

Let's begin with the trailing 1-year period as of August 7.  
Below is a 1-year chart for Bramwell Growth Fund (BRGRX) to 
graphically depict the fund's net asset value (NAV) change.



 


On a total return basis, Bramwell Growth Fund is down 18.2% over 
the last 12 months, ranking it in the top 4% of the large-growth 
category per Morningstar.  According to Morningstar, the average 
large-cap growth fund has lost 31% over the past year.  Bramwell 
has limited downside volatility better than her large-cap growth 
peers through the market downturn.

Bramwell Focus Fund, meanwhile, is down just 14.4% over the past 
year, ranking it in the top 2% of the large-cap growth category.  
For something that is supposed to be more concentrated and hence 
riskier, it limited losses substantially better than the average 
large-cap growth fund.

Bramwell Growth Fund's 3-year annualized loss of 5.3% as of Aug. 
7, 2002 was significantly less than the market as a whole, using 
the S&P 500 index as the proxy, and its large-growth fund peers.  
For comparative purposes, the S&P 500 index declined by 11.2% on 
average a year, while the average large-cap growth fund declined 
by 14.4% on average a year over the trailing 3-year period as of 
August 7, 2002.

The fund's 5-year trailing returns are also top decile, with the 
fund rising at an annual-equivalent rate of 3.7%.  That was 4.0% 
better than the S&P 500 index, and good enough to rank it in the 
top 7% of the Morningstar large-growth category.  The market as 
measured by the S&P 500 index lost an average of 0.3% a year in 
comparison, while the average large-cap growth fund declined by 
2.7% on an annualized basis over the past half decade.

According to Lipper Analytical Services, Bramwell's Growth Fund 
is a Lipper Leader ("1") for strength and consistency of return 
compared to all equity funds it tracks.  Lipper grades the fund 
above average ("2") in terms of its ability to preserve capital 
in down markets relative to all equity mutual funds.  If Lipper 
scored funds for preservation within their category, Bramwell's 
Growth Fund would almost assuredly be a Lipper Leader.  

For the trailing 3-year, 5-year and overall period, Morningstar 
rates Bramwell Growth Fund's return as "high" and risk as "low" 
in relation to all large-cap growth funds.  Since 1997, she has 
lagged the Morningstar large-cap category average only once, in 
1997 when she produced an annual total return of 25.7%, ranking 
the fund in the category's 73rd percentile.  A summary of year-
to-year returns is provided below:

 1997: BRGRX +33.7% (11th percentile)
 1998: BRGRX +34.5% (42nd percentile)
 1999: BRGRX +25.7% (73rd percentile)
 2000: BRGRX - 2.4% (10th percentile)
 2001: BRGRX -16.2% (25th percentile)
 2002: BRGRX -16.9% ( 5th percentile)  

Bramwell Growth Fund's 2002 loss of 16.9% is through August 7, 
2002.  You can see here that Bramwell's succeeded in capturing 
returns in the 1997-1999 bull market and preserving capital in 
the market downturn of 2000-2002.  Her gains were not as great 
perhaps as other large-cap growth funds during the bull market, 
but since 2000, she has done a better job of limiting downside 
volatility versus the market (S&P 500 index) and average large-
cap growth fund.  Hence, the fund's Morningstar 5-star rating.

Summary

Long-term growth investors looking to take a little off their 
swing to keep the ball in the fairway should like the process 
that Elizabeth Bramwell employs on Bramwell Growth Fund.  Her 
multi-cap growth style offers higher long-term potential than 
growth funds that invest solely in the large-cap sector, with 
considerably lower risk than the average fund in the category.

She's a thematic investor that blends top-down with bottom-up 
investment processes to build equity portfolios.  Because she 
looks for stocks that have attractive P/E ratios versus their 
growth rates, and tends to keep the fund's tech weights below 
category norm, Bramwell Growth Fund's volatility has been low 
compared to other large-cap growth funds.

All in all, Bramwell Growth Fund makes for a fine core growth 
holding.  For more information or a fund prospectus, call the 
Bramwell Funds toll-free number (800-272-6227) or visit them 
online at www.bramwellfunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

THE SECTOR BEAT - 8/8
by Leigh Stevens


Brisk buying of bank stocks followed a huge $30 billion bailout 
package for Brazil and put both widely followed bank indexes (BKX 
and BIX) substantial higher on the day. BKX gapped higher, 
reflecting similar moves in Citigroup, JP Morgan Chase, and other 
big money center bank stocks.  

However, lackluster retail sales figures caused the Retail index 
(RLX) to be one of only 3 sectors in the red today.  

The Biotech index (BTK) broke out to the upside and looks like it 
could be starting another up "leg". 

There were also strong rallies in the Cyclicals (CYC), the NYSE 
Financial Index (NF), Defense (DFI) - the 3rd strong rally day, 
Forest Products (FPP), Healthcare (HMO), Health Providers (RXH), 
Pharmaceuticals (DRG), and the Broker-dealers (XBD)

Even Semiconductors (SOX) had a strong day. I had a buy rec out 
on the Chip HOLDR's, but didn't get enough of a price dip to buy 
at my suggested price. 

UP on Thursday -


 


DOWN on Thursday - 


 


SECTOR TRADE RECOMMENDATIONS -

NEW/OPEN TRADE RECOMMENDATIONS -

Buy SMH at 23.75 
(Semiconductor HOLDR stock)
Stop at 22.75

 
TRADE LIQUIDATIONS -

NONE


SECTOR HIGHLIGHT(S) -

Bank Index ($BKX.X)
STOCKS: BAC; BBT; BK; C; CMA; FBF; FITB; GDW; JPM; KEY; KRB; MEL; 
NCC; NTRS; ONE; PNC; SOTR; STI; STT; USB; WB; WFC; WM; ZION


 

One thing you may notice in the Bank Index chart is something 
about "gaps" - an upside gap in this case that formed after the 
initial rebound.  The subsequent correction "filled in" the gap 
by coming back down to where the gap started - and then some.  
But it turned out to be a good buying opportunity.  Not all gaps 
get filled in, but they often do.  

Another upside gap formed today. The strong close - at the high 
of the day - suggests there could be more upside follow through 
tomorrow. 

However, BKX is coming up to resistance implied by its down 
trendline, at 772.  A move above here, especially on a closing 
basis would be bullish - at that point, next technical resistance 
is implied by the index's 50-day moving average in the 790 area. 
Stay tuned!  

The financials are very key sectors in terms of "leading" the 
market higher.  
UPDATE: 8/8


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


***********************
SWING TRADER GAME PLANS
***********************

Closed on the Highs - Jim Brown

Bulls can't complain about the market today. Strong gains on light 
volume and no big triple digit swings to prompt any major profit 
taking in the immediate future. Could it be that the bottom is 
really behind us? That is what every investor in America is hoping 
tonight.

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http://www.OptionInvestor.com/itrader/indexes/swing.asp


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The Option Investor Newsletter                 Thursday 08-08-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: LTR
Dropped Puts: KLAC, DD, NUE, CB, DHR
Daily Results
Call Play Updates: CHIR, IDPH
New Calls Plays: JNJ, AMGN
Put Play Updates: BBBY, QCOM, SNE, HD
New Put Plays: AZO

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

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


CALLS:
*****

LTR $49.22 +2.45 (+3.41) Sometimes its better to be lucky than
smart.  We neglected to point out that LTR had earnings out this
morning before the open, but fortunately the report was embraced
by the bulls.  The company beat estimates by 6 cents and
investors rewarded the stock with a strong gap up.  While some of
those gains faded throughout the day, the continued market
strength enabled LTR to close in the middle of its intraday
range.  Now that earnings are out, the positive catalyst has
passed and it is time to harvest those gains and move on.  


PUTS:
*****

KLAC  $38.10 +1.21 (+1.07 for the week) KLAC has pushed against 
its stop loss of $37.50 repeatedly this week, without the ability 
to finish the day on top.  After three straight triple digit 
gains in the Dow and the Semiconductor Index (SOX.X) going along 
for the ride on hopes of a rate cut on Tuesday, KLAC finally 
managed to hold its gain, in spite of trading as low as $35.30 
intraday.  While the low of the day certainly looks bearish in 
the long term, a continued rally in the overall markets could 
continue through Tuesday and we will close this play on Friday.

---

DD  $42.20 +2.57 (+3.11 for the week) In spite of its technical 
breakdown under $40 last week, DD's membership in the exclusive 
"Dow Club" helped it out quite a bit. Dupont has caught fire with 
the rest of the market. As a Dow stock, this company was carried 
along for the ride, as hopes of a rate cut next Tuesday have 
driven the market.  In addition the Dow got a lift as the IMF 
announced a bailout of Brazil's economy with a $30 billion loan.  
This loan lifted the bank stocks, including Citigroup and J.P. 
Morgan and in turn helped most Dow components as the rising tide 
lifted most boats.  A rate cut on Tuesday could be promising for 
the economy, and a company like DD, with its hands in many 
sectors, could benefit from an overall improvement.  It has 
violated our stop-loss of $41.25 and we are closing this play.

---

NUE $52.40 +3.39 (+1.51 for the week) An upgrade on Wednesday 
gave this stock a boost.  Merrill Lynch raised its rating from 
reduce/sell, to near-term neutral.  Not exactly a ringing 
endorsement, but combined with a 600-point gain in the Dow over 
the last 3 days, it was enough to boost this stock through our 
stop loss of 50.00.  the stock has filled its latest gap and we 
will close this play and keep an eye out for a rollover from $55.

---

CB $62.83 +3.40 (+1.43) That was quick!  We jumped on CB to the
downside on Tuesday, as it looked like the stock was destined to
retest and possibly break its recent lows.  Well, we got one
brief push down to the $58 level yesterday and then the buyers
jumped in with a frenzy.  CB closed down on the day, but the
verdict was in at the open this morning with the market once
again heading off in rally mode.  CB posted a nearly 6% advance
on solid volume.  While there may still be some near-term
weakness, it appears we won't see a significant decline.  So
we're pulling the plug tonight, even though our stop hasn't yet
been violated.  Use any early weakness in the morning to exit
open positions.

---

DHR $60.27 +1.39 (+1.31) As a measure of the bullish enthusiasm
that seems to be taking hold in the broad markets, our Put plays
are dropping (from the playlist) like flies.  DHR is the latest
play to get caught by short covering, which helped to launch the
stock through our $60 stop on Thursday.  Following today's gains,
we could see a bit of a pullback ahead of the weekend, and we'll
want to use that as an opportunity to exit the play at a more
favorable price.


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

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

CALLS              Mon    Tue    Wed    Thu

AMGN     47.91   -0.98   1.31   0.59   2.19  New, Leading Biotech
CHIR     37.21   -0.71   1.57   1.48   1.57  Still Climbing
IDPH     44.85   -1.35   1.28   0.98   2.24  Continuing pattern
JNJ      54.57   -2.40   0.18   1.01   2.06  New, Renewed Strength
LTR      49.22   -0.51   0.89   0.58   2.45  Drop, Profit taking


PUTS               

AZO      66.40   -1.70   1.47  –0.45  -2.10  New, Poor Strength
BBBY     27.73   -0.96   1.26   0.83  -1.30  Tough Environment
CB       62.83   -1.85  -0.04   0.07   3.40  Drop, Stopped out
DD       42.20   -0.99   1.66   1.38   1.06  Drop, Stopped out
DHR      60.27   -3.36   1.77   1.51   1.39  Drop, Stopped out
HD       27.14   -0.95   0.55   0.23  -1.12  Poor Retail #s
KLAC     38.10   -1.98   2.13  –0.29   1.21  Drop, Stopped out
NUE      52.40   -4.05  -1.31   2.57   3.39  Drop, Stopped out
QCOM     25.98   -1.51   1.43  –0.17   0.97  Weak gain on big day
SNE      44.00   -0.70   0.49   1.35   0.15  Tuned Out!


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

CHIR $37.21 +1.57 (+3.59) Biotechnology stocks were in the
driver's seat again on Thursday, with the BTK index continuing
its recent winning ways with more than a 5% gain on the day,
bringing its 3-day total to more than 12%.  Strength in the broad
market on Thursday certainly helped, but the real underlying
cause is the fact that the BTK has been exhibiting the most
consistent strength of any Technology-related sector over the
past two weeks.  After finding support at the $34 yesterday
afternoon, CHIR resumed its bullish trend and posted solid
gains the past 2 days.  This is where the rubber meets the road,
as CHIR is now in the midst of significant price congestion in
the $37-39 area.  For those that missed yesterday's entry, we
want to look towards intraday pullbacks near support (ideally in
the $35-36 area) in order to enter the play.  With intraday
oscillators now overbought, odds favor a near-term pullback, and
as long as our $33 stop is not taken out, that next pullback
should provide an attractive entry into the play.

---

IDPH $44.85 +2.24 (+3.10) It would have been hard to script the
beginning or our IDPH play any better.  The stock had been
exhibiting pretty good strength over the past 2 weeks, along
with the overall Biotechnology sector (BTK.X).  The fledgling
ascending channel provided support near the $41 level on
Wednesday, before the final hour ramp in the broader markets
drove the stock to end the day with a small gain.  But that was
nothing compared to the strength on Thursday that propelled the
stock right up to the top of its recent range (near $45.50)
before pulling back modestly into the close of trading.  This
pullback is entirely reasonable, as the $45 level is the site of
the bearish resistance line on the PnF chart.  This is also the
level from which the stock reversed lower just over a week ago
and the midline of the ascending channel.  Ideally, we'll get
another pullback to support in the $42-43 area to provide for
fresh entries.  Of course, with the strong bullish sentiment
that prevailed on Thursday, we just might get a breakout
tomorrow.  In that case, use a volume backed move through the
$46 level to enter the play, looking to harvest gains as the
stock nears the $49 level, where we'll have more resistance,
backed up by the top of the channel.  Raise stops to $40
tonight, as that is the site of the intraday lows on Monday.


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

JNJ - Johnson & Johnson $54.57 +2.06 (+2.32 for the week)

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

Why We Like It:

If there ever was a company that could say "I told you so," this 
is the one. JNJ took a beating over news last month that it was 
being investigated over problems at a manufacturing plant.  When 
investors came to their senses and realized the news had little 
to do with the bottom line, JNJ staged a tremendous comeback.  
The stock has been a recent participant of both our OI Put Play 
list (before the drop), and the OI Call Play list(during its 
rebound).  We closed the call play for a healthy profit as it 
neared resistance at $50.  Now we're back on board.  This stock  
forged its way through $50 and consolidated around $52.  Today's 
rally pushed it above the consolidation and the stock appears 
free of resistance in that range. 

The stock established a new PnF buy signal with the trade of $54.  
JNJ's bullish vertical count is now $65.  The recent pullback 
from $53 to support at $50 not only showed renewed support over 
$50, but also provided the 3-box reversal necessary to cement the 
vertical count on the PnF chart.  There is bearish resistance at 
$56, so this could be a bump in the road ahead. However, the $50 
support is reassuring, considering the strong move the stock had 
just finished up to $50.  Normally we would not want to chase a 
stock that had experienced a $13 gain in three weeks, but this 
support, consolidation and breakout has provided a good base for 
JNJ's next move.

JNJ has a number of drugs coming up for approval in the next 
couple of months, but its most promising product appears to have 
little chance of rejection.  There are already orders piling in 
for this $25,000.00 wheelchair that climbs stairs, negotiates 
corners with ease, has 4 wheel drive for rough terrain, balances 
on 2 wheels and rises vertically to eye level.  Since it is not a 
drug, there is little chance the FDA will have any problem with 
it.  The company expects these to sell like very expensive 
hotcakes, and revenue may run into the billions.  The fact that 
some of the cost may be deferred by insurance will only help 
sales.  

The $54.75 level provided resistance back in the beginning of 
July, and today's trade of 54.78 broke that mark.  More 
conservative investors may want to wait for a trade over $54.75 
once again before getting long, however we feel entry at this 
point is warranted.

BUY CALL AUG-50*JNJ-HJ OI=14500 at $4.90 SL=2.50
BUY CALL AUG-55 JNJ-HK OI= 9630 at $0.80 SL=0.00
BUY CALL SEP-50 JNJ-IJ OI= 5559 at $5.90 SL=3.00
BUY CALL SEP-55 JNJ-IK OI= 7329 at $2.30 SL=1.20

Average Daily Volume = 10.8 mil


---

AMGN – Amgen, Inc. $47.91 +2.19 (+4.40 this week)

Company Summary:
The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

Why We Like It:
As Biotechnology stocks continue to flex their muscles, you'll
notice their increasing dominance on our Call list.  Starting
with the market bottom 2 weeks ago, this sector (BTK.X) has been
the linchpin that kept the NASDAQ from plunging to fresh lows.
One of the strongest stocks in the sector is heavyweight AMGN.
While fresh lows were the rule on July 24th, AMGN bucked that
trend by refusing to sell off ahead of its earnings report that
evening.  With results handily beating estimates, the next day
saw a dramatic $3.50 gap up, before the bulls proceeded to push
it even higher.  Usually gaps like this get filled, but even on
Monday with pessimism running high in the broad market, AMGN
refused to even get close to the top of its post-earnings gap.
It is interesting that the 10-dma (currently $44.55) served as
support on July 24th and then again on the first three days of
this week.  The launch higher following the company's earnings
report generated a new buy signal on the PnF chart, and the
current vertical count points to an eventual rise to the $71
level.  Well we don't want to get carried away in the near term,
as that would represent a new 52-week high.  But it should be
clear that the current Buy signal is a strong one.  Adding to
the bullish picture on Thursday, AMGN gained nearly 5%, blasting
through resistance near $46.  There is some historical resistance
at the $48 level, so a pullback from this level is to be expected.
If we get it, then we'll want to look to enter the play on a
rebound from support near $46.  If the bulls continue to charge
as we head into the weekend, then we can take momentum-based
entries as AMGN pushes through the $48 level.  Firm resistance
rests at the $53 level (also the site of the 200-dma), followed
by a veritable brick wall between $55-57.  Should we get a move
that high, it would be very prudent to harvest gains on the first
sign of weakness.  Note that we've set our stop at $45, as a drop
below that level would indicate the likelihood of deeper profit
taking ahead.

*** August contracts expire next week ***

BUY CALL AUG-47*AMQ-HW OI=5404 at $1.60 SL=0.75
BUY CALL AUG-50 AMQ-HJ OI=1572 at $0.50 SL=0.25
BUY CALL SEP-47 AMQ-IW OI=2544 at $3.40 SL=1.75
BUY CALL SEP-50 AMQ-IJ OI=2983 at $2.15 SL=1.00

Average Daily Volume = 17.7 mln



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

BBBY $27.73 -1.30 (-0.18) The picture in the Retail sector
(RLX.X) could have been far different on Thursday if not for the
huge downside surprise from electronics retailers BBY and ULTE
announced before the opening bell.  While those 2 stocks took
the brunt of investors' wrath, there just wasn't much joy in any
of the Retail segment.  That's particularly bearish in light of
the broad market posting yet another strong gain.  BBBY gapped
down on the pre-market news and actually traded to a new recent
intraday low at $26.70 before recovering with the rest of the
market throughout the day.  But even with the buoyant effect of
the broad market gains, BBBY still suffered nearly a 4.5% loss.
Resistance is firming up in the $29 area and a failed rally near
this level would make for the next high odds entry point.  More
aggressive traders might target half positions on a reversal from
the $28 level (afternoon resistance), but only if the RLX index
is also showing weakness.  Barring that, we'll need to wait for
a decline under $26 (strong historical support) before entering
the play.  Keep stops set at $29.50.

---

QCOM $25.98 +0.97 (+0.43 for the week) Qualcomm finished up on 
the day, however it still finished under $26.00 On a day when the 
Nasdaq composite was up 35 points and the Dow up 255 points, this 
stock was a slow creeper.  Although the close near the high of 
the day is a bullish indication, the relative strength does not 
look terribly promising.  The long-term trend on this stock 
remains down.  It has produced a series of lower highs and lower 
lows, and remains on a PnF sell signal with a triple bottom 
breakdown despite today's rally.  A trade of  $27 would be needed 
to reverse this signal, and that trade would violate our stop 
loss of $26.50.  This is a strong candidate for a pullback and 
with relatively low option premiums, and therefore a low level of 
time decay, we can afford to give this one some time.  We will, 
of course, respect our stop loss if the stock continues to rally 
on a broad market surge ahead of next Tuesday's Fed meeting.  
While the effect of a rate cut may be good for the overall 
economy, there will be some time lag before a cut takes effect, 
and we are playing this for its short-term bearish outlook.  The 
series of drops followed by small rebounds goes back to December 
of 2001, and it appears to be following the same pattern now.

---

SNE $44.00 +0.15  (+1.29 for the week)  Sony continues to look 
weak.  A round of poor retail numbers today, led by electronics 
retailer Best Buy, weighed on this stock and prevented it from 
participating in the overall market rally.  Best Buy's reduced 
earnings guidance does not bode well for retail electronics 
manufacturers.  Cablevision's recently announced that their 
relationship with Sony, in which Sony provides set-top boxes for 
Cablevision's customers, will be changing.  They will continue to 
distribute Sony's advanced set-top boxes to customers, but will 
begin to work with other set-top box makers as well.  

A look at Sony's chart shows it has been turned away from its 10-
dma of $44.25 the last two days, as the broader markets have 
rallied strongly.  This is not a promising sign for this stock.  
In the event of a market pullback, the crutch will be gone, and 
this issue will most likely resume its fall.  It is currently at 
the top of a descending channel begun at the tart of July and 
looks ready to rollover back to the bottom of the channel below 
$40.  While the stock did finish up on the day, the inability to 
cross a short-term dma on a day when the Dow was up 255 points 
makes this a candidate for a quick pullback.  If the market 
continues to rally into next Tuesday's interest rate 
announcement, the rising tide could lift all boats, so we will be 
watching our stop loss of $44.50 closely. 

---

HD $27.14 -1.12 (-1.29 for the week) After  another triple digit 
gain for the Dow, component Home Depot showed weakness on a day 
when some other retailers had a tough time as well.  There were 
mixed same store sales numbers across the retail sector, 
including Wal-Mart coming in below expectations.  While some of 
the specialty retailers did well, over the sector was down.  The 
Retail Index (RLX.X) opened just about where it closed yesterday 
and it has been down hill since.    

The shrinking economy, along with a drop off in existing home 
sales has continued to hurt this home improvement behemoth.   
Usually on a day when the Dow is up, during a continuing rally,  
stocks in the index are lifted  that might otherwise not be.  In 
this case, Home Depot has fallen over 5%, and is now below its 
July 24th low of 427.25.  It has retested this low three times in 
the last week, and bounced.  Today's drop below this support 
level is important and we could now see resistance to the upside 
from the same level going forward.  

A look at HD's PnF chart shows the trade of  $26 established a 
triple bottom breakdown, which is very bearish, and confirms the 
impact of a break in support on the daily chart.  We will 
continue to hold this short position with a target in the low 
20s.


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

AZO - AutoZone $66.40 -2.10 (-1.56 for the week)

Company Summary:

AutoZone is a Memphis-based auto parts chain that opened its 
first store in Forrest City, AR, on July 4, 1979. A public 
company listed on the New York Stock Exchange (AZO), AutoZone had 
sales of more than $4.5 billion in fiscal 2000. The nearly 3,000 
stores in 42 U.S. states and Mexico are all company-operated - 
there are no franchises. AutoZone, a Fortune 500 company, is 
opening more stores per year than any other retail auto parts 
chain in the nation.

Why We Like It:
AutoZone has been on and off OI's Watch List for some time now.  
it has finally graduated to the official play list with its 
recent poor performance (maybe detention would be a better term 
than graduation).  This stock topped out close to $75 before 
beginning its recent plunge.  The drop was temporarily halted at 
$65, but a failed rebound below $70 looks bearish.  The stock 
benefited from an announced buy back program of $300 million and 
then rode the surging overall market the last week in July.  Then 
the music stopped and AZO was left without a chair.

The stock's recent trade of $65 produced a new sell signal on the 
PnF chart, with nearest support at $60.  A look at this chart 
also reveals it is now free of congestion and the failed rebound 
provides additional room for short entry. AZO is currently 
working on a bearish vertical count of $60, as well, however each 
box below $65 subtracts $2 from this level (i.e. a trade of $64 
lowers the bearish vertical target to $58).  This combination of 
the vertical count and support establishes our initial target for 
the play of $60.  A look back to October of 2001 shows the next 
level of support below $60 to be $55.  Given the stock's recent 
volatility, this possibility seems to be within reason.  We will 
re-evaluate our target if the stock is able to break $60.

The recent speculation over a drop in interest rates and dealer 
incentives also affect AutoZone negatively.  As rates drop and 
automobile manufacturers offer attractive financing, new car 
sales rise, and the need for AutoZone's do it yourself products 
wanes.  The recent announcements by Ford and GM of rising auto 
sales do not bode well for AutoZone.  GM's recent 24% rise in 
U.S. sales, coupled with Ford's 1.5% increase means more 
customers stepping up to in-warranty vehicles, instead of keeping 
old ones alive.

We will use a stop loss of $70 on this play, which would signal a 
break in the trend, and create a PnF buy signal.  We will use the 
current price level as a short entry.


BUY PUT AUG-70*AZO-TN OI=501 at $4.50 SL=2.25
BUY PUT SEP-65 AZO-UM OI=622 at $4.00 SL=2.00

Average Daily Volume = 1.29 mil



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The Option Investor Newsletter                 Thursday 08-08-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three: 

Play of the Day: Call - JNJ
Traders Corner: Oscillators - Part 3: The MACD, Momentum and ROC 
Oscillators  
Options 101: Baby Bull Taunts Big Bear

**********************
PLAY OF THE DAY - CALL
**********************

JNJ - Johnson & Johnson $54.57 +2.06 (+2.32 for the week)

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

Why We Like It:

If there ever was a company that could say "I told you so," this 
is the one. JNJ took a beating over news last month that it was 
being investigated over problems at a manufacturing plant.  When 
investors came to their senses and realized the news had little 
to do with the bottom line, JNJ staged a tremendous comeback.  
The stock has been a recent participant of both our OI Put Play 
list (before the drop), and the OI Call Play list(during its 
rebound).  We closed the call play for a healthy profit as it 
neared resistance at $50.  Now we're back on board.  This stock  
forged its way through $50 and consolidated around $52.  Today's 
rally pushed it above the consolidation and the stock appears 
free of resistance in that range. 

The stock established a new PnF buy signal with the trade of $54.  
JNJ's bullish vertical count is now $65.  The recent pullback 
from $53 to support at $50 not only showed renewed support over 
$50, but provided the 3-box reversal necessary to cement the 
vertical count on the PnF chart.  There is bearish resistance at 
$56, so this could be a bump in the road ahead. However, the $50 
support is reassuring, considering the strong move the stock had 
just finished up to $50.  Normally we would not want to chase a 
stock that had experienced a $13 gain in three weeks, but this 
support, consolidation and breakout has provided a good base for 
JNJ's next move.

JNJ has a number of drugs coming up for approval in the next 
couple of months, but its most promising product appears to have 
little chance of rejection.  There are already orders piling in 
for this $25,000.00 wheelchair that climbs stairs, negotiates 
corners with ease, has 4 wheel drive for rough terrain, balances 
on 2 wheels and rises vertically to eye level.  Since it is not a 
drug, there is little chance the FDA will have any problem with 
it.  The company expects these to sell like very expensive 
hotcakes, and revenue may run into the billions.  The fact that 
some of the cost may be deferred by insurance will only help 
sales.  

The $54.75 level provided resistance back in the beginning of 
July, and today's trade of 54.78 broke that mark.  More 
conservative investors may want to wait for a trade over $54.75 
once again before getting long, however we feel entry at this 
point is warranted.

BUY CALL AUG-50*JNJ-HJ OI=14500 at $4.90 SL=2.50
BUY CALL AUG-55 JNJ-HK OI= 9630 at $0.80 SL=0.00
BUY CALL SEP-50 JNJ-IJ OI= 5559 at $5.90 SL=3.00
BUY CALL SEP-55 JNJ-IK OI= 7329 at $2.30 SL=1.20

Average Daily Volume = 10.8 mil



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**************
TRADERS CORNER
**************

Oscillators - Part 3: The MACD, Momentum and ROC Oscillators  
By Leigh Stevens
lstevens@OptionInvestor.com

This is the last of my articles on "Oscillators" for our Trader's 
Corner and I will focus primarily on the last of the "big 3" of 
this type (along with Stochastics and RSI), the Moving Average 
Convergence Divergence indicator or "MACD"; pronounced: "mack-
dee". However, I will describe the Rate of Change and the similar 
Momentum oscillators to complete this treatment of oscillators.

MOVING AVERAGE CONVERGENCE DIVERGENCE (MACD)
The very well known Moving Average Convergence-Divergence 
indicator, most commonly known as the MACD, is a variation of 
what are generally called price oscillators.  

The MACD indicator is calculated by taking the difference between 
two exponentially smoothed moving averages of closing prices of 
12 and 26-day duration – usually these are the only values ever 
used, although I would just note that Gerald Appel, the market 
technician who formulated the MACD indicator, suggested that a 
slightly different set of values ought to be used as a sell 
"signal".  

In my opinion, only a “purist” who relies heavily on this 
indicator need be concerned about using a variation for this 
purpose – I have not heard or seen antidotal or empirical 
evidence that constructing the slight variation and applying it 
only in declining trends adds enough value to make it worth the 
trouble.  

The MACD line is the difference between the two averages 
described, as the longer average (26) is subtracted from the 
shorter (12). A moving average of 9 periods then is calculated of 
this differential (the result of the subtraction), which is 
called the "signal line", resulting in a faster moving MACD line.  
The exponential smoothing technique weights the most recent 
prices changes more heavily and is therefore quicker to track the 
latest price changes.  

The signal line will be slower because it is a simple moving 
average of the last 9 values of the differential and is not 
weighted.  There is usually a third line plotted, which is a 
"histogram" (these are the vertical bars) used to show the 
difference above and below a midpoint line of the difference 
between the MACD line and the signal line – this line is included 
in the "standard" MACD study to better see the points where there 
is an upside (the bars go above the midpoint) or downside (bars 
are below the center or zero line) crossovers. 

I sometimes dispense with the histogram because it "clutters" up 
the chart when the size of the chart window is small - the zero 
line can be seen anyway.  MACD examples are shown below. 



   

The reason to include the histogram is that those bars may 
present a clearer picture of when the difference of the two 
moving averages is at the widest and narrowest points – however, 
often it is difficult to see these details given how much is 
shown on the MACD indicator, which often occupies a small section 
below a price chart.  

It’s common as you gain experience, to use indicators with minor 
modifications such as I describe, but this is an individual thing 
and relates to how much practice you have or the way in which you 
use the indicator – for example if you use the MACD in order to 
generate a crossover buy or sell "signal" only, then the 
narrowing or widening of the differential is less important.   




    

The use made of MACD is similar to the crossover technique of 
other moving averages – a buy indication or "signal" is generated 
when the MACD line crosses above the slower signal line and a 
sell indication is suggested when the MACD line crosses below the 
signal line.  

Use in this fashion is not unlike the trend following usefulness 
of moving averages – one, or a set of two moving averages – that 
define and track the dominant trend, either up or down.  I 
suggest MACD use on either daily or weekly charts but tend to 
favor its use on longer-term weekly charts as a good measure of 
the momentum of the primary trend.  

Once there is a weekly chart buy or sell "signal" and I am not in 
the market in question yet or want to add to my position, I may 
take the first MACD crossover signal on the daily chart, that is 
in the same direction as the weekly signal.   

The foregoing is a use of the MACD as a trend following indictor, 
but we are focused here on its use as an oscillator and, as such, 
we want to employ it for buying when the market we are following 
is oversold and for a possible long exit or shorting, when the 
MACD suggests an overbought condition.  

The way this is done is to define "overbought" and "oversold" 
zones as above or below the zero line respectively. There are 
times when the two MACD lines are somewhat above the zero line 
and have crossover "signals" – conversely, there are times that 
the MACD lines have crossover sell signals below the zero line.  

However, in general these crossovers not typically the "best" or 
strongest signals as in the chart below.  Some technicians also 
suggest that when both lines cross above or below the zero line, 
this is "confirmation" of the oversold buy or overbought sell 
"signals" described.  



    

 
When the two MACD lines get unusually far above or below the zero 
lines, this relative position and distance from the midpoint or 
zero line can in itself be an indication of an overbought or 
oversold extreme.  

However, again, there is no preset area or position on the right 
hand (MACD "reading") scale that suggests that a market is in a 
definite overbought or oversold zone. The RSI, as you've seen if 
you read part2 of this Trader's Corner series, has a scale that 
only goes to 100, with an overbought zone (by convention) that 
begins at 70 – so, a reading of 90, for example, is very extreme.  

With "unbounded" indicators like the MACD oscillator that range 
up or down, "bounded" only by how far one average moves in 
relation to the other, it’s necessary to look at and rely on past 
high and low readings of the MACD at prior market tops and 
bottoms as a guide to the current situation.  

MOMENTUM AND RATE OF CHANGE (ROC) OSCILLATORS
The momentum oscillator is a type of technical indicator that 
calculates and plots the net change, expressed in points, between 
the close of any two bars.  I’ll note here for all situations 
where I describe indicator, that although I cite the common use 
of the closing price only, this is not the only possibility as 
comparisons for the open, high or low could also be made. 

It is also necessary to set some number of bars or period being 
measured such as intraday, daily or weekly, which is the momentum 
oscillator’s length – for example, the 10-day "momentum" would be 
today’s close minus the close of 10 days ago – see the chart 
below. 



 

A 10-hour or 10-week momentum could also be established provided 
the data is available.  Measuring current prices versus earlier 
prices sheds light on the pace of a trend relative to whether its 
slow or fast – if fast and steep, there is always also the 
possibility of a trend reversal.  Examination of past reversals 
in that market is useful in identifying levels that represent 
overbought and oversold conditions, which is when momentum is 
very strong, either in an up or down direction. 
 
The Rate of Change (ROC) oscillator shows virtually the same kind 
of change as the momentum model, only the scaling is different 
(it’s a fraction) – the ROC indicator takes a current bar’s price 
and divides by the price of X number of day’s ago; e.g., 10.   
The rate of change calculation creates a ratio, rather than a 
price differential.  

An example of the ROC indicator is shown, along with the same 
length momentum oscillator for comparison, below – the same item 
and time frame is also used for both figures.  You’ll note on 
both types of oscillators, a middle line called the "zero" or 
"equilibrium" line.  



 

The concept of a zero or midpoint line indicates that readings 
above the line are a positive number, suggesting a bullish 
advancing rate of change whereas readings below the midpoint line 
imply a bearish or declining momentum.  In an uptrend, the 
current close will generate a reading above or below the zero 
line, which is easily seen, but is not always the case on the 
price chart -- especially in a sideways trend or an area of 
"congestion"; i.e., where there is a cluster of closes around the 
same price.  

When either indicator is above the midpoint line and the line is 
rising at a steep rate, it provides a visual indication of strong 
upward momentum.  When the rise of the line above the horizontal 
midpoint (zero) line shows a more moderate slope, the momentum 
indicated for that item is a more moderate one.  When either of 
these oscillator type indicators have lines that are below the 
center line, the momentum indicated is more or less strong 
depending on the slope of the line.   

Some of the extremes noted on the chart examples above 
corresponded to tops and bottoms and some did not.  The strongest 
trends will usually have the greatest extremes.  As always, 
combining the analysis of a pullback in an oscillator line from 
an up or down extreme, with what is going on with volume, prior 
tops and bottoms, moving averages and trendlines will provide the 
ancillary or related clues about actual reversals in the trend 
versus where the item is just registering an extreme reading.   

Strictly speaking, a momentum or ROC crossover above the line 
(whether it’s referred to as the midpoint, zero or equilibrium 
line) is a bullish, or "buy", indication.  If a price drop pulls 
the indicator line below the midpoint line this is a bearish, or 
"sell", indication.  

Traders will use these "signals" in various ways, and it may be 
simply be to look for selling opportunities only when the line is 
at a high point relative to past weeks and to look for buying 
opportunities when the line is below the midpoint, indicating 
downward momentum and probably also at a low point extreme 
relative to the item’s past history.    

A shorter length selected for an oscillator, will result in a 
more sensitive indicator.  Shorter time frames on daily charts, 
like 5 or 9-day periods, will generate both more fluctuations and 
more indications of overbought or oversold extremes.  

Shorter lengths are of potential use to (who else!) short-term 
traders, but even traders that are geared to profit from smaller 
price swings will find that they can easily get "whipsawed" in 
their trading efforts – an example of being whipsawed is buying 
at what appears to be an oversold reading on the oscillator, only 
to witness a further drop.  


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***********
OPTIONS 101
***********

Baby Bull Taunts Big Bear
Buzz Lynn
buzz@OptionInvestor.com

Bet you thought it would never happen - Fundamentals Guy writes 
something bullish, that is.  Yep!  Don't get me wrong.  I'm still 
building a financial ark.  But there's nothing like a little 
sunshine between fierce storms.  So what's it all about?

For starters, recall the major differences between secular and 
cyclical markets.  If that sounds like a foreign concept, be sure 
to check out Mark Phillips excellent article on the subject from 
July 17th.  Find it here:

http://www.OptionInvestor.com/traderscorner/071702_1.asp

The point in bringing this up is to recognize that cyclical 
markets occur within secular markets.  Clearly the markets have 
been bearish for nearly 2.5 years, the COMPX has lost 74% of its 
value; the S&P 500 has lost 42%; the Dow has lost a "mere" 26%.  
But for overall performance of the broad market, note that the 
Russell 2000 has lost 37% in value to date since its highs.  That 
qualifies as a bear market in my book.  Still, chants of buying 
for the long haul - buy and hold - persist.  After all, it has to 
get better from here (little voice whispers, "Doesn't it?").

Reminds me of the Black Knight in Monty Python's "Holy Grail", who 
lost his arms and legs in a sword fight.  Ever the optimist, the 
Knight proclaims, "It's just a flesh wound.  Let's call it a 
draw."  Investors shrug off the market losses with equal denial.  
Anyway, that's the secular part - Big Bear.

But this week, we've seen the emergence of a baby bull with a 
sharp selloff on Monday followed three days of triple-digit gains, 
which is a tip of the hand to investor euphoria being alive and 
well.  But it does not mean that stocks are fairly priced for 
their current or future returns.  Most readers know where I stand 
on that - I think equities were overpriced, even on Monday, and 
are even more so now following the rally.  Even so, bullish 
rallies that last longer than a day can find a good home within 
the Bear's lair as long as they don't overstay the welcome.  Note, 
however, that this is not the resumption of the bull market of 
yesteryear, though it will trick many into believing so.

In effect, what we can boil it down to is a cyclical bull within a 
secular bear market - a day of sunshine between storms.  Am I 
moping and complaining because the sun is out, which makes me look 
like a darn fool for ark building?  No way.  I'll enjoy the 
sunshine because I can!  In real terms, as a market agnostic, I 
don't pray for 40 days and 40 night of rain to justify my ark-
building.  Nor do I pray for sunshine just to avoid the task of 
building an ark (even if the rest of the world thinks I'm nuts).  
I just read the weather reports and decide how to spend my time.  
To me, this is winter and we've been given a sunny day.  I'll 
behave accordingly.

So where does that lead me?  To the charts of course!  Here's a 
potentially profitable play that I think could be setting up.  The 
play can be made on any of the major indexes, though I'm going to 
favor the S&P or the Dow.  The NASDAQ is still, well, the NASDAQ, 
and does not have the potential, in my opinion, to spring upward 
as convincingly as the other two.  Technology is still out of 
favor despite the recent rally.  

This is what I see as potentially happening that would get me 
bullish for a few moments in time.  But first - let's see - eeny 
meeny miney mo - the Dow chart (INDU) on a weekly daily and 60 min 
time scale:

Dow Industrial chart -INDU (weekly/daily/60):


 

Looking at the current situation, the weekly chart has regained 
some composure.  I particularly like the 5-period stochastic 
bursting out of oversold on a very nice launch trajectory.  Even 
the 10-period has managed to move itself upward, though 
fractionally, out of oversold.  That's pretty positive for the 
cyclical trend.  But new highs?  "To Infinity and Beyond!" to 
quote my cousin, Buzz Lightyear?  Not yet.

But the daily (center) chart is looking good too.  I particularly 
like the higher low on the ascending support line along with the 5 
period stochastic, which is no longer a wishy-washy line.  It is 
moving with definite purpose.  But note the pending resistance 
just above current level.  I don't want to get too cocky and buy 
the breakout.  This is after all, a bear market.  Even if we get 
the breakout, the 50-dma of 8991 could turn the oscillator south 
before it ever hits overbought.  And overbought is where I want to 
see the oscillator move once I get into the bullish play.  

Now look at the 60-min section of the chart (right side) for more 
detail.  We see the same line of resistance just above current 
levels and a very overbought oscillator.  Careful, it can still 
say pegged up there for while as the candles break out, but I 
consider that unlikely.  Why unlikely?  Today's continuation of 
the 9-candle rally has moved far off its ascending low trendline 
and very close to resistance.  Maintaining that rate of incline in 
sustained fashion is next to impossible, much like cheering for 
your favorite sports team for 9 straight hours.  You may want the 
"win", but expressing it with unbridled enthusiasm creates a 
stamina problem.  Just think how 9 hours affects the athletes.  
And in this trading game, we are the athletes!

That's where we are now from what I see on the trading charts.  
Now let's see where we might be headed and how to potentially 
profit from that.

Extrapolated Dow Industrial chart -INDU (weekly/daily/60):


 


Here's what could potentially happen that I'd like to be part of.  
The goal I am aiming for, starting with the daily chart if the 
stars line up, is to have the candles break above resistance at 
roughly 8725-8750 with a move all the way to the 50-dma of 8991.  
It likely will not happen in a straight line.  That is reflected 
in the daily chart.  So long as the red candle on the daily chart 
that expect tomorrow or Monday does not engulf today's green 
candle, I won't worry about that.  It will be within tolerable 
limits.

However, my thinking is that after three days of rally leading 
into tomorrow (Friday), some profits from the 600+ point week are 
likely to come off the table, especially in front of retail sales 
figures to be released 5 hours prior to the commencement of a Fed 
meeting next Tuesday.  So how do we get from here to there?

Look at the 60-min chart.  I personally will not be jumping on the 
bulls' bandwagon first thing tomorrow.  Instead, I'd wait for some 
of that selling to set in such that the 60-min stochastic cycles 
down to oversold and the candles cycle down to the 8500 level, 
give or take 50 points.  If that support line can roughly hold 
above previous lows on the same ascending trend and the stochastic 
cycles to oversold and then reverses back up over the 20% line, 
call it an entry (timed with shorter time frames of course).  That 
would be the second higher low and would confirm a more bullish 
trend that we've not seen since May - a signal that it could 
actually have some legs that might last weeks, even months, but 
not forever.  

Ideally?  It clears the 50-dma on the way back up.  Thus, bull 
confirmed.  Wouldn't that be great?  Given the trend that appears 
to be emerging, I'll be thinking twice before playing puts on the 
way down, though for trading, taking a quick bearish swing might 
be an acceptable risk tomorrow or Monday.  Otherwise, the general 
rule is to not buck the bigger trend, which on the daily chart is 
bullish.  

So baby bull wants to taunt the big bear?  I say watch for claws 
and teeth and enjoy the romp in the pasture!


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