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Daily Newsletter, Monday, 09/09/2002

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The Option Investor Newsletter                   Monday 09-09-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Where is Everybody?
Index Trader Wrap: Real Buying?
Weekly Fund Wrap: Equity Fund Indices Lower
Traders Corner: It's Not Too Late
Index Trader Game Plans: (See Note)

Updated Tonight on the site:
Swing Trade Gameplan: Warning To The Bears


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
09-09-2002                High    Low     Volume Advance/Decl
DJIA     8519.38 + 92.18 8558.01  8315.47 1568 mln  1556/1194
NASDAQ   1304.60 +  9.30 1310.33  1270.73 1478 mln  1562/1618
S&P 100   447.98 +  7.95  471.15  459.99   totals   3118/2812
S&P 500   902.96 +  9.04  907.34  882.92
RUS 2000  392.47 +  0.90  393.55  385.59
DJ TRANS 2263.42 +  6.35 2276.64  2209.60
VIX        38.40 -  1.64   38.49  37.53
VIXN       55.47 -  1.07   55.49  55.05
Put/Call Ratio 0.84
*******************************************************************

Where is Everybody?
by Steven Price

This morning started out looking as if a pre - 9/11 sell-off was 
underway.  With the anniversary looming on Wednesday, it appeared 
investors were heading for the sidelines.  Then a funny thing 
happened on the way to 7500.  The buyers came back in.  Sort of.  
Volume has been very light, with only 1.3 billion shares traded 
on the NYSE and only 1.2 billion shares on the Nasdaq.  

Although the Nasdaq Composite (COMPX.X) finished the day up 9.30, 
to close at 1304.60, declining volume was actually slightly 
higher than advancing volume. On the NYSE, advancing volume was 
higher, but only by a 1.3:1 ratio.  This is not the stuff of a 
convincing rally.


While it is hard to gauge long-term direction on such a light 
trading day, what is apparent is that investors are simply 
staying away.  Ahead of 9/11, there is so much uncertainty about 
what to expect that many traders are simply doing nothing. No 
panic selling and no jumping on the bandwagon and getting long 
ahead of a post 9/11 rally.  One interesting technical 
development, however, is the point of today's bounce.  The market 
has sold off consistently since its August 22 high, following a 
rally of over 1,500 Dow points since bottoming at 7532.66 on the 
morning of July 24.  The Dow has now tested the 50% retracement 
level of that gain on 5 straight trading sessions.  Although it 
managed to close below this level on one occasion, it has 
provided remarkable support in light of negative news coming out 
regarding the tech sector almost every day. Given this morning's 
111.73 point drop, the 203.91 point swing to the upside looks 
pretty bullish, in spite of the low volume.  However, if 
investors were making a conscious effort to get long ahead of the 
anniversary, we most likely would have seen a much bigger 
upswing, and would not have been 111 points in the red to start 
the day.

Chart of The Dow Retracement
 

This stream of recent negative news is reflected in the 
Semiconductor Index (SOX.X).  A look at the chart shows that 
after setting a new 52-week low last week, it hasn't been able to 
follow the rally in the rest of the Nasdaq.  It appeared oversold 
last week. Shorts had pounded the sector ahead of Intel's mid-
quarter meeting on Thursday, expecting the company to lower 
earnings and revenue guidance.  They got the lower revenue 
guidance, but not nearly as bad as expected.   The sector looked 
ready for a rebound, but was stopped dead in its tracks just over 
290.  Today was more of the same. The group was once again 
stopped short, only this time at a lower level than it was on 
Friday. A look at Friday's 5-minute chart shows resistance just 
below 293. Today, 291 provided the ceiling.  It will be hard to 
maintain a Nasdaq rally without participation from the 
semiconductor related stocks. The successively lower levels of 
resistance, although minor, still show a bearish trend.

Charts of the Semiconductor Index for Friday 9/06 and Monday 9/09

Friday's Chart



Monday's Chart





This morning, Cymer (CYMI), which makes light sources used in 
chip manufacturing, said its 3rd quarter would be in line with 
expectations, but that the 4th quarter would come in below the 
3rd.  Cymer cited slowing semiconductor demand and reduced 
industry capital spending, as reasons it believes revenue will 
decline.  It also expects its book-to-bill ration to be less than 
one.  The book-to-bill represents how many orders a company has, 
compared to how many orders it has shipped. A ratio of less than 
one usually indicates weak demand.

Forecasting group IDC also lowered expectations for PC market 
growth in 2002 and 2003.  It lowered estimates for 2002 from its 
July forecast of 4.7% to 1.1%, and for 2003 to 8.4% from 11.1%.  
It cited a lack of spending by medium and large sized businesses 
and a slowdown of second quarter momentum, which it said has all 
but disappeared, as businesses postpone PC investments and 
consumer spending has slowed.


Wholesale inventories rose 0.6%, ahead of the expectations of a 
0.2% rise.  This indicates demand may be improving.  The increase 
matched July's number and registered the first back-to-back 
monthly increase since November and December of 2000. Durable 
goods inventories saw a 0.1% decrease, while non-durables, such 
as groceries, farm products and apparel, saw a 0.9% increase. 
This is just one more indication that the Federal Reserve will 
likely leave rates unchanged at its next meeting on September 24.   
More clues about what the FOMC is planning will come on Thursday, 
as Fed Chairman Alan Greenspan testifies before the House Budget 
Committee.

Thursday also marks President Bush's speech to the U.N., during 
which he will address the situation in Iraq.  Comments by Vice 
President Dick Cheney and Secretary of State Colin Powell over 
the weekend indicated that Bush would be pushing for action 
sooner rather than later.  The V.P. indicated that the U.S. has 
evidence that Saddam Hussein is working on a nuclear weapons 
program. According to Cheney, "We have to be concerned now about 
the possibility that we're vulnerable to an attack the likes of 
which we did not experience prior to last September 11, with a 
far more deadly weapon. We have to worry about the possible 
marriage, if you will, of a rogue state like Saddam Hussein's 
Iraq with a terrorist organization like al Qaeda."

Oil traders have been paying attention, as oil has held over 
$29/barrel.  The October Crude Oil futures have been flirting 
with $29 since the middle of August, and are now approaching $30.  
As the rhetoric has heated up so have the bids. If President 
Bush, in his speech to the United nations, advocates heading into 
Iraq without first considering the possibility of sending weapons 
inspectors back into the country, Crude Oil futures will most 
likely head into the 30s.

Chart of Crude Oil




J.P. Morgan (JPM) received a couple of downgrades this morning, 
initially dragging down both the Bank Sector Index (BKX.X) and 
the Securities Broker/Dealer Index (XBD.X).  By the end of the 
day, however, both groups had recovered, shaking off JPM's 0.32 
point decline to finish up 8.00 (79.15) and 9.64 (401.28) on the 
day, respectively.  The downgrade from Merrill Lynch cited the 
possibility that JPM will have to cut its dividend due to tough 
conditions in the capital markets.  This sentiment was derived 
from a recent speech by JPM Chief Executive Bill Harrison.  
Harrison said that corporate credit problems have lowered the 
outlook for second-half credit costs and that the third quarter 
looks poor as well.  Prudential also downgraded the bank, adding 
that with almost all capital markets categories showing a decline 
this year, the firm no longer seems as committed to maintaining 
its dividend.

Ford came out with some good news this afternoon.  Analysts had 
been predicting a 3rd quarter loss for the automaker. However CEO 
Bill Ford said, "We beat analyst estimates in the first and 
second quarter and we will do it again in the third...On an 
operating basis, we expect to report a small profit."  Financing 
incentives have kept consumers buying automobiles and Ford said 
that this reversal demonstrates the company's success in 
capitalizing on increased industry volume.

AOL Time-Warner, on the other hand, said things were not so rosy.  
The company expects 2002 cash flow to come in at the low end of 
the previously forecast 5%-9% range.  It said that the AOL unit's 
revenue would come in below expectations due to a slump in 
advertising revenue.  This also does not bode well for other 
internet hosts, such as Yahoo.

The real estate market has been on fire since interest rates hit 
a 40-year low last year.  Apparently, many homeowners who jumped 
on board and took advantage of those low rates, extending 
themselves to buy bigger and more expensive homes, are now having 
trouble paying their mortgages.  Foreclosures reached a record 
high of 1.23% for the second quarter, up from 1.10% in the first 
quarter.  That eclipsed the previous record of 1.14%, set in the 
first quarter of 1999.  With layoffs increasing, according to 
last week's jobs data, we could be seeing the first cracks in the 
housing market, as foreclosed properties come onto the market in 
record numbers. This is a negative sign for the economy overall. 
While the competition for foreclosed properties is also stiff, 
the indication is that many of those people holding up the 
housing market with new purchases and re-finances, have become 
financially strapped to the point of having no other option than 
to allow their mortgages to be foreclosed on.

In addition to consumers having trouble with mortgage payments, 
they are apparently struggling with other debt as well.  Consumer 
debt grew by a greater than expected $10.8 billion in July. This 
amounts to a 7.5% annual increase, ahead of July's 6%.  Revolving 
debt, such as credit cards, increased 10.8 percent, while non-
revolving debt, such as automobile loans, increased 5.3%.  Much 
of this was due to some of the lowest auto loan rates ever.  The 
Cambridge Credit Index, however, showed that in spite of good 
intentions, consumers are not paying off their debt nearly as 
well as planned. The index showed a surge in the "Reality Gap," 
which measures how much debt consumers pay off, versus what they 
say they are planning on paying off.   The Reality Gap jumped 6 
points to 16 percentage points, almost back to its record level 
of 17 points in July.  The Gap decreases as Americans pay down 
debt.

In addition, more than 2/3 of Americans with student loans said 
that their payments are a big enough burden to keep them from 
making large purchases, such as homes and cars.

In contrast to last month's lowering of retail sales 
expectations, Wal-Mart (WMT) came out this morning and announced 
that its September sales appear back on track. The retail giant 
predicted the same 4%-6% growth it did last month, when it first 
warned that sales would be at the low end of predictions and then 
missed the target altogether when same store sales showed only a 
3.8% increase.  Other retailers also posted disappointing August 
sales figures, suggesting poor back-to-school sales and a 
slowdown in consumer spending.  One of those was Federated (FD), 
which operates Macy's and Bloomingdale's. Federated also affirmed 
their September sales targets today.  This will be Federated's 
first positive increase since November of last year.  They saw a 
5.8% decline in August.  This indicates that consumers may be 
spending again, or at least spending more than they did last 
month.

With so much conflicting data, and so many investors on the 
sidelines ahead of Wednesday's 9/11 anniversary and Thursday's 
speeches from Greenspan and the President, it will be hard to 
commit in one direction or another.  The evidence, however, is 
thus far bullish.  The Dow finding support at the same 
retracement line on five straight days is significant, even if 
there is light volume.  Today's rebound was very strong and the 
talk of taking positions ahead of 9/11 is mostly in regard to 
going long.  There are undoubtedly investors on the sidelines 
waiting to put their money back into the market after the 
anniversary passes - also a long indication.  If it weren't for 
such a lousy business spending environment dragging down the 
semiconductors, I would be leaning long and letting it ride.  
However, the reality of the situation is that the techs are still 
suffering and a long-term recovery will depend on an increase in 
business and consumer spending. That doesn't mean the short-term 
picture won't be up as investors build confidence with the 
passing of 9/11.  Look for a rally after that date, but keep an 
eye on the previously outlined 50% Dow retracement level for a 
break in support.  If we get below that level by a significant 
amount, get out of the way.  After all, the Dow recently broke 
its trend of higher highs and higher lows, and the long-term 
trend will still need some positive news to maintain a positive 
slope.  


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

Real Buying?
By John Seckinger
jseckinger@OptionInvestor.com 

Shorts defending positions will most likely describe Monday’s 
session as pure short covering.  But was it more than that?

How can traders really know what is going on in the marketplace?  
Watching asset allocation, for one.  It isn’t a pure science; 
nevertheless, historical relationships between indices are 
watched by many traders and these patterns can greatly enhance 
one’s trading success.  Ok, forget the theory, let’s use this 
practically:

Chart of Dow Jones Industrial Average Index, 5-minute



As the chart reads, this was a day of many psychological battles.  
First, longs seemed urgent to sell at any cost as lower highs and 
lower lows became commonplace.  Then came a short rally, followed 
by weakness that failed to immediately test the intra-day low.  
This was a yellow flag for bears.  At this time, it seemed as the 
Dow was leading all other indices and controlled the Intermarket 
movement.  

In fact, even following the short covering rally to 8425, blue-
chips seemed to be in control of market sentiment.  Once prices 
reached the unchanged level from a solid sell-off, one of two 
things usually takes place:  (1) The unchanged level becomes a 
pivot (meaning that prices will extend higher and not go back 
into the red), or (2) Prices will gravitate back into the red 
and the market will trade responsive (range bound and really 
directionless).  In fact, the latter price movement is actually 
more common.  

Therefore, once it became slightly obvious that 8425 would become 
a pivot, Intermarket relationships are used for “support” and to 
let traders know it is ok to buy on any dips (unless the dip went 
under 8425).  The first help for bullish traders was selling 
pressure in the five-year bond and the yield curve “flattening”.  
All this means is that yields on five-year notes and 10-year 
notes are getting closer.  This was done today with five-year 
note yields rising faster than 10-year notes; thus closing the 
gap between the two.  Currently, five-year notes yield 3.12 
percent, while ten-year yields are at 4.07.  The difference is 
95 basis points.  In today’s environment, this price action is 
bullish towards stocks.

Once the Dow reached 8480, I think this was the last stand for 
short traders.  Assets were rolling out of bonds, into the 
dollar, into commodities (trade inversely to bonds), and into 
more riskier assets; stocks.  

Chart of Dow Jones Industrial Average Index, Daily



If you read my last Index Traders Wrap (Sunday), this chart is 
slightly different.  Do you see it?  Of course, the double-bottom 
was confirmed, the trend line is now given more weight, the 
“pivot” line is drawn, and an aggressive bearish trend line is 
taken out.  I have not drawn resistance above; however, the 22 
and 50 DMA’s should be worthy adversaries.  If the pivot line is 
penetrated, I expect prices to roll back towards the diagonal 
blue line.  

Ok, looking forward, what do we need to see in order for more 
real buying to take place in the blue-chips?  It is my opinion 
that, in the near term, Dow prices can only go higher if 30-year 
Treasury bonds go lower in price and higher in yield.  Yes, I 
have argued that bond prices and stock prices go hand-in-hand; 
however, this is a short-term asset allocation and not over the 
long run.  Moreover, bonds can really increase in yields without 
doing any significant technical progress.  

Looking at the chart below, yields on the long bond first needs 
to penetrate the resistance (red line) at 4.927% with authority 
before working its way up towards the 38.2 percent retracement 
level.  By then, the downward sloping trend line (red line) will 
most likely come into play.  At that point we can talk about long 
term ideals.  

Chart of 30-year Treasury Bond Index, Daily 



Side Notes mentioned in the Market Monitor:

With October Crude Oil lower by 10 cents to 29.51 and failing to 
hold levels above $30 (intra-day high of 30.20), analysts now 
believe that the "war premium" reflecting uncertainty over Iraq 
has added between $4 and $6 a barrel.  It is my opinion that 
lower oil prices would not be good for equity markets.  When the 
Dow closed, Crude Oil did recover and was currently higher by 
0.14.  

The next two paragraphs might help explain the bid in the Dollar.  

Federal Reserve Bank of Chicago President Michael Moskow said 
the U.S. recovery from last year's recession remains on track, 
although the path of growth is uneven.  These comments were 
similar to earlier comments by Boston Fed President Cathy 
Minehan.  "Most significantly, the long-term prospects for 
heightened productivity growth appear bright, thanks to more 
flexible labor markets and improvements in technology and the 
skills of workers," Moskow said.  Non-farm productivity, year-
over-year, is at 12-year highs while Unit Labor Costs are at 
12-year lows; therefore, productivity growth plus trend labor 
force growth (equaling potential GDP growth) could equate 
to an impressive four percent GDP growth.  Downside? Near term 
labor demand worsens with stronger growth in productivity.

Japanese analysts believe the country will post a -1.0% percent 
growth reading for calendar year 2002 GDP.  There are rumors the 
country is scrambling to figure out an anti-deflation package. 

Rating the Intermarket Indices

Dollar:  Slightly Bullish, closed above 22 DMA; bullish for 
stocks

Bonds (short-term inverse relationship with Dow):  Slightly 
Bearish, bullish for stocks 

Yield Curve:  Flattening, slightly bullish for stocks

Commodities (inverse to Dollar):  Bullish, bearish for dollar

Gold:  Bullish, bearish for dollar and stocks

Utility Index:  Bearish, bearish for stocks 

Oil Index:  Bearish, bearish for stocks


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****************
WEEKLY FUND WRAP
****************


Equity Fund Indices Lower 



Lipper's equity fund indices fell for a second straight week as 
investor jitters about the economy, lower earnings expectations 
and fears of war against Iraq hurt global equity markets.  U.S. 
stocks as measured by the S&P 500 index lost 2.4% for the week, 
while non-U.S. stocks as measured by the MSCI EAFE index closed 
the week with a 2.6% decline in dollar terms.  Europe lost 2.4%, 
matching the U.S. market decline (S&P 500 index), while Pacific 
stocks sank 3.4% on the week as the Japanese Nikkei index hit a 
19-year low.




Lipper bond fund indices, meanwhile, notched gains of up to one 
percent for the week.  Rising unemployment news hurt stocks but 
contributed to gains in the bond market.  The total bond market 
as measured by the Lehman Brothers Aggregate Bond Index rose by 
0.2% for the week.  Weekly returns improved as you moved out on 
the yield curve, with longer duration funds outperforming funds 
with shorter average durations.  

The average money market fund had a simple 7-day yield of 1.27% 
last week, according to money funds tracker iMoneyNet.com, up 3 
basis points (0.03%) from a week ago.  The Fed funds rate ended 
the week at the 1.75% level, where it has been for the last six 
months.


Lipper Fund Indices


According to Lipper's weekly index update, the best and worst 
equity fund indices for the five days as of September 6, 2002 
were as follows:

 Top Five Equity Fund Indices:
 +3.2% Gold Funds (YTD +47.3%)
 -0.1% Small Cap Core Funds (YTD -18.0%)
 -0.9% Mid Cap Core Funds (YTD -16.5%)
 -0.9% Mid Cap Value Funds (YTD -13.1%)
 -1.3% Balanced Funds (YTD -11.1%)
  
 Bottom Five Equity Fund Indices:
 -2.7% International Funds (YTD -11.9%)
 -2.7% Emerging Markets Funds (YTD -5.4%)
 -2.5% Large Cap Value Funds (YTD -18.5%)
 -2.3% Equity Income Funds (YTD -15.6%)
 -2.1% Large Cap Core Funds (YTD -20.0%)

Combine economic jitters, a weakening dollar and talk of "war" 
with Iraq and you have the makings of conditions ripe for gold 
funds, with the average gold fund posting a 5-day gain of 3.2%.  
However, all other equity fund indices were in the red for the 
weekly period per Lipper.  Normally the more resilient capital 
sector during market downturns, large-cap funds were among the 
week's laggards.  Small company stock funds, on the other hand, 
preserved capital better than their large-cap fund counterparts 
while most mid-cap funds lost less than one percent on the week.

Fund laggards on the week included the $1.9 billion Legg Mason 
Opportunity Fund (LMOPX) down 4.1%, the $1.8 billion White Oak 
Growth Stock Fund (WOGSX) down 3.9%, and Fidelity Independence 
Fund (FDFFX) off 3.8% for the week.  The $3.1 billion Fidelity 
Overseas Fund (FOSFX) closed the week 3.8% lower as well.  The 
Japanese stock market as measured by the Nikkei index hit a 19-
year low during the week.

All Lipper bond fund indices reported average gains over the 
weekly period, as follows: 

 Top Five Fixed Income Fund Indices:
 +1.0% General Muni Debt Funds (YTD +7.7%)
 +0.9% International Income Funds (YTD +12.3%)
 +0.7% High Yield Municipal Funds (YTD +5.3%)
 +0.6% Global Income Funds (YTD +7.0%)
 +0.4% U.S. Government Funds (YTD +7.8%)

 Bottom Five Fixed Income Fund Indices:
 +0.1% High Current Yield Funds (YTD -6.7%)
 +0.1% GNMA Funds (YTD +6.5%)
 +0.2% Short Investment-Grade Funds (YTD +2.7%)
 +0.2% Intermediate Investment-Grade Funds (YTD +5.1%)
 +0.2% Short Municipal Funds (YTD +3.2%)

A number of national tax-free bond funds notched gains of over 
one percent for the week, led by a 1.4% weekly return from the 
Eaton Vance National Municipals Fund (EVHMX).  The Lipper bond 
fund indices show that high yield muni funds also did well, up 
0.7% on average for the 5-day period.

A weakening U.S. dollar boosted the reported returns of global 
and international income funds versus similar U.S. bond funds.  

Funds investing primarily in U.S. government securities closed 
the week up 0.4% on average to lead the U.S. fixed income fund 
group.  Short- and intermediate-term bond funds picked up 0.2% 
for the week, on par with the Lehman Aggregate's 0.2% increase.


Largest Mutual Funds


Weekly and YTD total returns (as of September 6, 2002) for the 
nation's largest stock, bond and balanced mutual funds were as 
follows:
 
 Largest Stock Funds:
 -2.4% Vanguard 500 Index (VFINX) YTD -21.3%
 -2.5% Fidelity Magellan (FMAGX) YTD -22.4% 
 -1.7% Investment Company of America (AIVSX) YTD -13.8%
 -2.3% Washington Mutual Investors (AWSHX) YTD -13.3%
 -1.0% Growth Fund of America (AGTHX) YTD -22.5%
 -0.6% Fidelity Contrafund (FCNTX) YTD -7.5%
 -2.1% Fidelity Growth & Income (FGRIX) YTD -16.2%
 -1.9% EuroPacific Growth (AEPGX) YTD -14.0%
 -2.1% New Perspective (ANWPX) YTD -17.1%
 -2.4% Vanguard Windsor II (VWNFX) YTD -13.6%
 
 Largest Bond Funds:
 +0.2% PIMCo Total Return (PTTRX) YTD +6.5%
 +0.1% Vanguard GNMA (VFIIX) YTD +7.1%
 +0.2% Vanguard Total Bond Market (VBMFX) YTD +5.4%
 -0.1% Bond Fund of America (ABNDX) YTD +1.0%
 +0.1% Vanguard Short-Term Corporate (VFSTX) YTD +2.8%
 +0.1% Franklin U.S. Government (FKUSX) YTD +6.2%
 
 Largest Balanced Funds:
 -1.4% Income Fund of America (AMECX) YTD -6.1%
 -2.1% Vanguard Wellington (VWELX) YTD -8.0%
 -1.5% Fidelity Puritan (FPURX) YTD -8.9%
 -1.4% American Balanced (ABALX) YTD -7.1%
 -1.4% Fidelity Asset Manager (FASMX) YTD -10.0%

With the "extended market" of mid/small-cap stocks holding up 
better than large-caps last week, multi-cap funds fared better 
than large-cap only funds.  For instance, the American Funds: 
Growth Fund of America (a multi-cap growth fund) fell by only 
1.0% last week, half the loss of the average large-growth fund 
last week, per Lipper.  Fidelity Contrafund continues to do a 
nice job of holding losses through the recent market downturn.

The largest bond mutual funds produced modest total returns of 
0.1%-0.2% for the 5-day period, except for the American Funds: 
Income Fund of America, which slipped 0.1% on the week.  Mixed 
equity funds in most cases limited weekly losses to below 2.0%.  
With large-cap value stocks performing poorly on the week, the 
Vanguard Wellington Fund lost 2.1%, lagging its balanced peers.   


Money Market Funds


iMoneyNet.com, a leading provider of money market mutual fund 
data, indicates the average taxable money fund has a current 
5-day simple yield of 1.27%, up three basis points this week.  

The best current yields among "prime retail" money funds were 
PayPal MMF at 1.82%, Touchstone MMF at 1.74%, and the INVESCO 
Treasurer's MM Reserves Fund at 1.64%.

According to iMoneyNet.com, the nation's five largest retail 
money funds sport the following current 7-day simple yields:

 Largest Retail Money Market Funds: 
 1.51% Fidelity Cash Reserves 
 1.16% Schwab Money Market Fund 
 1.52% Vanguard Prime MMF/Retail 
 1.46% Schwab Value Advantage Money Fund 
 1.44% Merrill Lynch CMA Money Fund

The key Fed funds rate remains pegged at 1.75%.  That is down 
from 3.75% a year ago, but unchanged over the past six months.


Mutual Fund News


The lead story last week in mutual fund news was Janus Capital 
Corporation's announced takeover of corporate parent, Stilwell 
Financial.  According to Morningstar, Stilwell has agreed to 
rename itself after its subsidiary Janus, to appoint a Janus 
insider chief executive and vice chairman, and to move the asset 
management company's headquarters to Janus' Denver-based home.

Mark Whiston, an 11-year Janus veteran who currently is president 
of the company's retail and institutional services, will run the 
reorganized company, reported Morningstar.  Stilwell's chief exec 
Landon Rowland will serve as non-executive chairman until Jan. 1, 
2004.  Morningstar's report says the new Janus will shut Stilwell 
Financial's Kansas City headquarters down and operate all of 
Stilwell's asset-management subsidiaries, including the Berger 
Funds.

As part of the merger and reorganization, Janus plans to take 
control of the Berger Funds and may rename them to reflect the 
Janus brand name.  Morningstar says Janus will also use Berger 
asset management subsidiaries Enhanced Investment Technologies 
and Bay Isle Financial to introduce new fund products.

In another Morningstar report, Merrill Lynch Global Allocation 
(MALOX) has lost portfolio co-manager Bryan Ison due to health 
reasons.  Ison was a vice president and portfolio manager with 
Merrill Lynch Asset Management and served as co-manager of the 
fund from its 1989 inception until his recent resignation from 
the firm.  Dennis Stattman (also since 1989) takes sole control 
of the fund.

That's it for this week's edition of the Mutual Fund Wrap.

Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com



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

It's Not Too Late
by Mark Phillips
mphillips@OptionInvestor.com

Our weekly discussions in this space take many forms.  Sometimes
I find myself sharing the newest technical tool that has grabbed
my attention, while at other times, I share important reader
questions along with my answers.  But the central theme is that
I try to help educate you (as well as myself) so that we can all
become better traders through the course of time.  Tonight our
discussion is going to take a different direction, as I want to
highlight a discussion we've had in the recent past and remind
you of the strategy's utility and importance.

We all utilize insurance in our lives because of the way in which
it helps to maintain continuity.  Like you, I have an insurance
policy on my house to protect against the (hopefully) unlikely
occurrence of the roof caving in, a fire, or a drunk driver
crashing through the living room.  Likewise, I have a life
insurance policy to protect my family just in case I fail in my
goal to live to the ripe old age of 94.  Health insurance serves
the same purpose in the event of an unexpected and severe
ailment.  Doesn't it therefore make sense to have an insurance
policy for the value of the equity holdings in our individual
portfolios?

I recently wrote about the strategy of The Collar as a low-cost
(or even no-cost) method of insuring long positions against a
precipitous drop in value.  If you missed that article, let me
encourage you to take the time to read it at Preventing Whiplash.
The portfolio you save just might be your own.

Buying protective puts on a stock you own is the simplest form
of insurance in the equity market.  The downside of buying puts
is that they cost money.  Utilizing the Collar strategy allows
us to acquire the protective put without the net outflow of cash
that is normally associated with the purchase of a put.

Much hay has been made by the media in recent weeks about the
possibility of an anniversary attack on or near September 11th.
Along with a continuous stream of benign to negative economic
and corporate news, concerns about a possible attack are probably
at least partly to blame for the recent weakness in the broad
markets.  I personally fall into the camp that believes there
will not be a terrorist attack on or around the anniversary of
last September's tragedy.  I think it is too obvious and there
are too many very bright and capable people working night and
day to see that it doesn't happen.  

But despite the best efforts of that same group of very dedicated
people, I believe at some point in the future there will be
another tragedy, quite possibly on the same scale.  I sincerely
hope that I am wrong, but you and I both know that hope is the
principal ingredient in many destroyed portfolios.  As I
mentioned above, I view my stock portfolio as just one aspect of
my life that needs to be insured.  And I have yet to find a
better insurance policy for stocks than The Collar strategy.

That isn't to say that I have a collar on every single stock
position every day.  That isn't necessary in my opinion.  But I
do make sure that each of my stock holdings are properly insured
when market risk rises above my comfort level.  Here are the
kinds of risks that I am currently using collars to prevent
against: War with Iraq, the historical pattern of stock market
weakness in September/October, the possibility of another
terrorist attack, continued correction of the equity bubble that
still has not been fully worked off, and of course the approach
of earnings warning season - any of which could lead us to
another visit to the July lows.

I don't implement the collar immediately after buying a stock.
That is too restrictive to the potential for profit.  But when I
have significant gains in an equity position that I don't want to
give back to Mr. Market, I find the collar to be a useful tool to
protect my holdings, giving me the peace of mind and freedom to
focus on my shorter-term option trading on a daily basis.

If this is your first exposure to the Collar strategy, stay
focused on the important point.  When implementing this strategy,
you are insuring the value of your stock holdings using a very
cheap insurance premium.  It has to be renewed every so often
(whenever that protective put expires), but should be sufficient
to get you through those rough patches.

By the way, if you're looking to extend the concept of a
protective put to your most expensive possession (your house),
you'll want to be sure and tune into Buzz Lynn's column on
Thursday.  In speaking with him last week, he told me about a
new product on the market, which is designed to allow us to buy
a protective put on the value of our homes.  Sound interesting?
Tune in Thursday to learn more!

Have a great week!

Mark



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

Due to Leigh Stevens being out of town, the Index Trader Game
Plan, otherwise known as the Sector Beat, will not be updated for
the remainder of this week.  Jeff Bailey will be updating the
Sector Beat regularly starting September 10th.


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

Warning To The Bears

The intraday recovery and rally to break and hold above 
8500 should be a warning to the bears  that the pre-9/11 
buying has begun. Resistance has become support (8500, 
1300, 902, 451) and this should worry anybody still short 
tonight. 

To read the rest of the Swing Trader Game Plan Click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp


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*******************
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*******************

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would welcome you as a permanent subscriber.

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price is 99.95 which is $20 off the monthly rate.


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The Option Investor Newsletter                   Monday 09-09-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:
Stop Loss Updates LLL, OMC, SYK
Dropped Calls: None
Dropped Puts: AIG, IBM
Play of the Day: Call - LLL

Updated on the site tonight:
Market Watch
Market Posture

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*****************
STOP-LOSS UPDATES
*****************

LLL - call
Adjust from $49 up to $51

OMC - call
Adjust from $56 up to $57.50

SYK - call
Adjust from $54.50 up to $55


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

AIG $61.05 +1.60 (+1.60) Investors seem to be voting against the
likelihood of an anniversary attack.  Note that the large insurers
were hit particularly hard in the wake of 9/11, and with the
anniversary of last year's attacks only 2 days away, stock's in
this sector really caught a bid on Monday.  The broad market rally
lifted AIG by more than 2.5% to close just above our $61 stop.
Rather than buck the bullish fervor, we'll take our medicine and
move to the sidelines.  Use a continuation of the late-day dip to
exit open positions at a more favorable level.

IBM $74.50 +1.30 (+1.30) It took awhile, but Technology stocks
finally got in on the bullish act during the lunchtime 'lull' on
Monday.  That rally ground its way up the charts, and by the
closing bell the NASDAQ-100 had reversed its early slide to close
with a 1% gain.  That technology bid even found its way to some
of the Technology stocks listed on the NYSE, and IBM reversed
from its low below $72 to close at $74.50.  Not only was this a
strong bullish reversal, but IBM closed above our $74 stop.  That
brings this successful put play to an end, as the bulls appear
to be venturing forth ahead of the 9/11 anniversary.


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traded options,_ claims author Larry Spears in his new compact
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and clicking on the link to the book on its home page.

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**************************************************************


**********************
PLAY OF THE DAY - Call
**********************

LLL - L-3 Communications Holdings $54.84 +2.00 (+2.00 this week)

Company Summary:
As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.


Why we like it:
With the war drums beating louder than ever, the prospects of a
renewed war with Iraq are moving out of the 'if' category to the
'when' department.  While war normally causes an initial
depression in the equity markets due to increased uncertainty,
Defense and Security stocks are one area that benefits from that
military action.  Apparently investors are starting to factor
that war premium back into stocks in the sector, as the Defense
index (DFI.X) appears to be moving out of its month-long
consolidation.  It is important to note that the DFI index broke
above its 50-dma ($561) on Friday, for the first time since late
June.  Resistance is looming just overhead at $574 (also the site
of the 38% retracement of the decline from the May highs), but a
breakout above that level will likely open the door for a rally
up to the next level of resistance near $595-600.  Note that the
50% retracement is also at $595.  That brings us to our new play
on LLL, which appears to be leading the way higher for the DFI
index.  LLL broke out above its own 50-dma 3 weeks ago (a sign
of relative strength) and has been consolidating between $48-52
since then.  But Friday's bullish move in the DFI index was
enough to push LLL through the top of its recent range, as well
as the 200-dma ($52.42).  With uncertainty ahead of the 9/11
anniversary, it is likely that today's breakout will be tested
next week with a drop back to support near the $50-51 area, but
that dip should be supported by the rising 20-dma ($49.53).  We
want to take advantage of a dip and bounce near that level to
initiate new positions.  Given the likelihood of a brief pullback
and resistance just overhead at $54-55, we don't want to get
aggressive with entries on breakouts right here.  Either wait for
the pullback and bounce, or a decisive breakout over the $55 level
accompanied by the DFI index pushing through the $574 level.  Our
stop is initially set at $49.

Why This is our Play of the Day

The bears took one more shot at driving the markets lower on
Monday, but without the conviction of volume, they didn't
accomplish much more than provide a better entry point for eager
bulls.  That's exactly how things lined up for our LLL play, as
the stock dipped near the $52.50 level at the open before
beginning a solid rally off the lows.  That rally had essentially
run its course by the time the rest of the market started
recovering.  As we pointed out over the weekend, the $55 level is
strong resistance, so it is impressive that the stock managed to
hold near its high of the day throughout the afternoon.  The
multiple tests of this resistance level during the day are helping
to weaken that resistance and a breakout could be just around the
corner.  Expect investors to still be nervous ahead of the 9/11
anniversary and a renewed dip down near the $53 can be used to
initiate new positions.  Alternatively, a breakout over $55 will
provide the opportunity to initiate new momentum-based positions,
so long as volume remains robust.  Raise stops to $51, just below
the site of the recent breakout.

*** September contracts expire in less than 2 weeks ***

BUY CALL SEP-50 LLL-IJ OI=1887 at $5.30 SL=3.25
BUY CALL SEP-55 LLL-IK OI=1615 at $1.45 SL=0.75
BUY CALL OCT-52 LLL-JX OI= 878 at $4.80 SL=3.00
BUY CALL OCT-55*LLL-JK OI=1822 at $3.30 SL=1.75
BUY CALL OCT-57 LLL-JY OI= 923 at $2.00 SL=1.00

Average Daily Volume = 2.00 mln



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that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the
option or stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and
more; call 1-888-889-9178 or click for more information.

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


**************
MARKET POSTURE
**************

Are You Ready?

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/090902.asp


************
MARKET WATCH
************

On the Verge of a Breakdown

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/090902.asp


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
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**********

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