Option Investor
Newsletter

Daily Newsletter, Tuesday, 09/10/2002

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                 Tuesday 09-10-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: What's Up?
Index Trader Wrap: "Code Orange" left bears with acidic aftertaste
Market Sentiment: The Bigger They Are...
Weekly Fund Screen: Sour on Japan?  Try a Pacific Ex. Japan Fund
Index Trader Game Plans: (see note)

Updated on the site tonight:
Swing Trader Game Plan: Chickened Out


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      09-10-2002           High     Low     Volume Advance/Decline
DJIA     8602.61 + 83.20  8602.61  8502.32 1.37 bln   1780/1365
NASDAQ   1320.10 + 15.50  1322.43  1299.53 1.41 bln   1774/1560
S&P 100   455.89 +  4.62   455.90   450.62   Totals   3554/2925
S&P 500   909.58 +  6.62   909.89   900.50 
RUS 2000  394.16 +  1.69   394.58   389.53 
DJ TRANS 2287.60 + 24.20  2294.67  2259.42   
VIX        36.96 -  1.44    38.40    36.78   
VXN        53.07 -  2.40    56.57    53.03
Total Vol   2,949M
Total UpVol 1,783M
Total DnVol   980M
52wk Highs   142
52wk Lows    195
TRIN        0.96
PUT/CALL    0.65
*************************************************************  

What's Up?

The short answer is the market! On the day before a possible 
flood of anniversary attacks by terrorists or copy cats trying
to capitalize on the event, the buyers appeared. A high profile
announcement by the government that the terrorist risk was at
the highest level since 9/11/01 simply produced a dip back to 
intraday support and then another rally to the highs of the day.
What is up with this?

Dow Chart


 

Nasdaq Chart


 

The day started out more like Christmas Eve than Halloween.
Expectations for a post 9/11 rally were shown in the positive
markets and even the few goblins that showed up intraday could
not scare away the bulls. The "fix" was in and it appeared 
nobody wanted to let the markets drop. If you doubt the conspiracy
theory and the plunge protection team intervention stories then
why did the S&P futures close the regular session exactly at 
911 after a strong futures led buy program in the last 15 minutes? 
Just a coincidence, right?

Intel shook off the cautious comments by its president yesterday
and closed up +.39 cents for the day. Intel pledged to increase
the speed of its chips and include hyper threading in the majority
of its chips next year. That feature allows the processor to run
about 25% faster than chips without it. They demonstrated a
Pentium4 running at 4.7GHZ or almost double the speed of current 
P4 chips. They demonstrated a new Itanium chip with 500 million
transistors and said a one billion transistor chip is already 
under development. The biggest news was its wireless connectivity
announcements which allows laptops to connect to the Internet
wirelessly. They claim they are capturing market share and will
increase margins with the integrated chips. 

Not to be outdone HPQ announced a new chip architecture that would
enable 1000 transistors to fit on the end of a human hair. This
ability could lead to memory chips that are 1/10th the size or
offer 10 times as much capacity. AMD announced its Fin Field 
Effect that could lead to a billion transistor chip the same 
size as the current 100 million transistor chip. 

All these chip advances produced bullishness in the chip sector.
The SOX came off the bottom and back to resistance at 300. This
was aided by news that NVDA had increased its order for wafers,
which led investors to guess that business was improving. News
out of Taiwan was that mother board production climbed +9% in
August. Bulls were absolutely giddy about all this positive news.
The current business model appears to be if you build a fast
enough chip they will buy. 

This of course requires that buyers have money. It was announced
today that 640,000 homes were in foreclosure during the Apr/May/Jun
period. This was the highest rate in the 30 years of tracking by
the Mortgage Bankers Association. The low down, interest only and
high equity loans have suckered consumers into payments they 
cannot handle in a weak economy and weak unemployment. Previous
surveys had not predicted this problem and it calls into question
the current real estate bubble. With unemployment expected to go
over 6% soon this problem will grow. Consumers with high debt
have been lured to roll this debt into home equity loans and
off their credit cards. Once rolled the cards are free to be used
again and once maxed out the cycle is complete. More debt, no way
out and a loose job market prevents them from moving up to a 
higher paying position. The survey also showed an increase to nearly
5% of all home owners those who were behind in their payments
30 days or more. Since homeowners with foreclosures on their credit
are no longer home buyers but lifetime renters it means an entire
sector of the population can no longer buy a home regardless of 
how cheap the interest will be.   

Tomorrow will not depend on stock news. It will be directly related
to world and national events OR the lack of them. Regardless of
what brought us to the closing level of 911 on the futures or 
faster chips and bursting housing bubbles, with no terrorist event
the buyers will return. If we do have an event somewhere else on
the globe the market will probably open down and then rally if
nothing happens here. If we have an event here it will depend on
the magnitude of the event as to the market reaction. Obviously
they are not going to be able to pull off another event of WTC
proportions without a nuclear weapon. As I have said earlier I
doubt there will be a large scale attack tomorrow. There may be
some small events around the world but nothing big in the US. 
Terrorists are cowards. They want to strike when nobody expects
them. They do not want to face an armed security force that will
shoot first and ask questions later. In a surprising move the
defense department has now ordered that the antiaircraft defense
systems deployed around Washington yesterday as only an "exercise"
now be loaded with live rockets. (Did anybody really believe it
was an exercise?)

The problem is not tomorrow. The problem is next Monday. If we do 
rally on Wednesday it could carry over for a couple days. Monday
will be the pivot point. That is where the fundamentals will start
being important again. Mutual funds will know by Monday if deposits
are going to return. Traders on the fence will have used the weekend
to analyze the weeks events and decide if the bull market has returned
or if it was just temporary. This is where the markets must stand 
on their own shaky legs and take on all comers. This is where normal
markets return. Unfortunately normal markets go down in Sept and 
October. Normal markets are plagued with earnings warnings by 
the dozens in September and missed estimates in October. Normal
markets are not supported by the Fed. Geenspan speaks on Thursday
and is expected to say that the economy does not need another rate
cut and will eventually get there on its own. He is on record
recently for missing the boat on slowing the last bubble. He does
not want a new bubble and is quite content to see the economy 
struggle for a couple more years as long as growth is still present. 
Bush speaks at the United Nations and is expected to tell them to
get in line or get out of the way as he attacks Iraq on his own. 
This is not a speech that will be taken lightly around the world
or at home. Yes, normal markets are just a few hours away. Are we
ready?


Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor

Please be advised that during tomorrow's Memorial Service for September 
11th, the following exchanges will experience changes to their opening 
schedules: Please note the differences. 

NASDAQ

In memoriam and remembrance of the events of September 11, 2001, NASDAQ 
will delay its Market Open on September 11, 2002, until 11 a.m. Eastern 
Time 

NYSE/AMEX

On Sept. 11, the New York Stock Exchange will open for trading 30 
minutes after the conclusion of the memorial service being held at the 
World Trade Center site, but not before 11 a.m. Should the event last 
longer than its anticipated 10:29 a.m. conclusion, the NYSE will delay 
its opening beyond 11 a.m. The Exchange will announce the exact timing 
of the opening bell following the conclusion of the memorial service. 



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

"Code Orange" left bears with acidic aftertaste

After a modestly higher open for the major indexes, stocks slowly 
built gains in the early morning hours, but then dipped red on 
"rumor" that the U.S. government would hold a press conference 
later in the day and raise the Homeland Security Advisory System 
alert to "Orange" from "Yellow" based on intelligence received 
over the past 24-hours.

Sure enough, stock dipped into the red just after the Homeland 
Security Advisory System was raised to "Orange" signaling a 
"higher" probability alert to potential near-term terrorist 
activities, from the previous "elevated/yellow" alert status.

But the dip lower was marginal and looked to have equity bears 
finding a rather acidic taste in their mouths after the 
anticipated "bad news" left stocks rather firm.  Bears that had 
seen a Dow Industrials (INDU) 8,602 +0.97% decline from the 9,000 
in the past two-weeks to a recent low of 8,262 didn't seem to 
want to sit on their hands and see further gains erode and looked 
to cover positions into the close.

With retracement set from this spring's relative high close of 
10,635 to the recent July 23 relative low close of 7,702, I think 
shorter-term bears continued to close out some positions and 
further assessed some upside risk to the 8,800 level.

Dow Industrials Chart - Daily Interval


 

It's always difficult for any trader/investor to try and predict 
what the impact of "emotion" will have on a MARKET as humans have 
emotion and it does impact how stock's trade.  Bar chart 
technicals have both the 50-day MA (intermediated term) and 
21-day MA (shorter-term) in play.  With stochastics yet to reach 
more overbought levels, bears most likely didn't want to risk the 
8,822 level of retracement into tomorrow when "American pride" 
most likely presents itself one year after the September 11 
terrorist attacks.

If I check my own emotions (not that I'm the MARKET, but can help 
to try and understand what other MARKET participants may be 
feeling), I'd have to say that American pride and determination 
to conquer terrorism will most likely have investors trying to 
"prove" that what took place 1-year ago tomorrow, may have 
changed the world we live in, but will be hard pressed to send 
Americans into the dark ages that the terrorists of September 11, 
2001 thought their actions might have.

While we see some "technical" support at the 8,262 level from 
retracement on the bar chart, we also see how that level came 
into play from the point and figure chart last week at the same 
level.  In the point and figure chartist world, there's an old 
saying that the first test of bullish support trend can be 
painful for a bear, we note the Dow Industrials did test its 
bullish support trend last week.

Dow Industrials Chart - $1 box


 

Market technicians, use the different tools in their tool box to 
identify potential levels of support and resistance.  The point 
and figure chart also showed an important level of support at the 
8,250 level, which correlates with our bar chart retracement of 
8,262.  We also get some good correlation with resistance on the 
p/f chart at 8,800, which correlate with retracement at 8,822.  
For now, traders are trading a range between 8,250 and 8,800 and 
risk/reward for new positions in the Dow Industrials rather 
unfavorable.  Currently I'd be looking to short a rally near 
8,750 (say $87.50 in the Dow Diamonds (AMEX:DIA) $86.49) with 
about a $1.00 stop loss.

In this morning's 11:00 AM intraday update 
http://members.OptionInvestor.com/intraday/091002_2.asp , I thought the S&P 
500 Index (SPX.X) 909.58 +0.73% might close at a recognizable 911 
level.  While that wasn't really a "stretch to the imagination, 
today's close was back above the still trending lower 50-day 
moving average of 906 could have the 940 level in play.  Short-
term, traders will monitor the SPX at its 21-day simple MA of 919 
for further bullishness, which would be above the 912 level I 
felt could further spur some bullishness.  HOWEVER.... with the 
S&P 500 Bullish % ($BPSPX) back in "bear confirmed" status and 
more stocks generating point and figure sell signals, bullish SPX 
or SPDRS (AMEX:SPY) $91.70 +1.14% aren't swinging for the fences 
and should only be looking to trade a one-to-two day rally into 
Thursday's close.

S&P 500 Index Chart - Daily Interval


 

With retracement anchored similarly to the spring highs and 
July's recent relative low close, we find very similar technical 
support having come into play in the SPX last week.  Today's 
close back above the 50-day moving average will test a short-term 
bear's resolve.  Two levels of short-term resistance to monitor 
are the 912 level and the 21-day simple moving average at 919.  A 
break above these two levels most likely has bears closing some 
positions out as risk becomes 940 into Thursday's close.  Then 
I'd look for resistance to firm on such a rally at that level 
into the weekend considering today's "Orange" alert level to 
potential terrorist attacks.  Not that we'd expect a terrorist 
event over the weekend, just that many traders don't like to put 
on large bullish positions into a weekend with concerns toward a 
potential terrorist attack.

Conventional point and figure chart scale for the S&P 500 Index 
(SPX.X) is $10 box scale.  This would have current support at 
$840 and resistance at 960.  In recent weeks, I did introduce 
more "noise" with a $5-box scale, which showed a similar triple-
bottom sell signal at 930 that correlated with the Dow 
Industrials triple-bottom sell signal at 8,750.  As such, on the 
$5 box scale traders will be monitoring the SPX for resistance at 
930-935 (correlate with Dow Industrials at 8,750-8,800) and SPX 
support at 870-875 (correlate with Dow support at 8,250).

Once again, I'd alert traders that the S&P 500 Bullish % ($BPSPX) 
and S&P 100 Bullish % ($BPOEX) from www.stockcharts.com have 
reversed back into "bear confirmed" status and this follows our 
more volatile and quicker changing "bull correction" alert for 
weakness in the NASDAQ-100 Bullish % ($BPNDX) from August 29th.  

The bullish % charts don't necessarily tell us about near-term 
market direction, but are very good for assessing risk in each 
MARKET and signaling more intermediate to longer-lasting degrees 
of bullishness and bearishness.  The recent declines in the 
bullish % of these two measures (SPX and NDX) tell us that more 
stocks are beginning to give sell signals on their point and 
figure charts and have bulls taking a more cautious stance toward 
the NASDAQ-100 (NDX.X) 947.72 +1.66%, S&P 100 Index (OEX.X) 
455.89 +1.02% and S&P 500 Index (SPX.X) 909.58% as the internals 
show weakness.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval


 

In late March and then again in early April, a converging 21-day 
and 50-day simple MA near the upper-end of downward would have 
resulted in a some nice bearish swing trades.  With stochastics 
nearing the "overbought" level, bearish traders may look for a 
rather low risk and potentially high reward trade in the QQQ 
above the $24.50 level, stop $25.25 and target a retest of the 
lows near $21.30.  Technicals become rather tough when using the 
point and figure charts on this one, because a simple 3-box 
reversal relates to a $3 move, which is more that 10%.

However, almost like "clockwork" the narrow (just 100 stocks) and 
more volatile (lots of technology stocks) NASDAQ-100 Bullish % 
($BPNDX) from www.stockscharts.com was the first to reverse back 
into a more cautious and defensive posture on August 29th, and 
the S&P 100 Bullish % ($BPOEX) which is also narrow (100 stocks), 
but not nearly as technology laden followed with a reversal lower 
in its bullish % chart as did the broader S&P 500 Bullish % 
($BPSPX). 

While some subscribers don't understand these key indicators of 
market risk and how they can help us understand the internal 
strengthening/weakening of the MARKET internals, current analysis 
is that a more bearish posture is being taken by the MARKET as 
more stocks are starting to give point and figure sell signals.  
As such, short-covering rallies are common and can be traded to 
the upside, but on a very short-term type of basis as the more 
intermediate-term picture has internal damage taking place.

Jeff Bailey


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

The Bigger They Are...
by Steven Price

The day many investors have been waiting on pins and needles for 
is finally here.  In spite of predictions of a massive sell-off, 
the Dow, Nasdaq Composite and NDX all rallied heartily today.  
The government raised our security status to high-alert, citing 
credible and specific threats to U.S. overseas installations, and 
the bulls only took a temporary break.  

The rally was pretty much industry wide, with even the 
beleaguered Semiconductor Index (SOX.X) making a run through 300 
resistance intraday.  It settled back below that level, but  a 
3.6% gain, after setting 52-week lows just a few days ago, 
indicates that buyers are creeping back in market wide.  The fact 
that we have had more tech warnings and lowering of estimates for 
both 2002 and 2003 and yet the tech indices are all higher, 
demonstrates that there are an awful lot of investors out there 
with 401(k) dollars waiting to re-invest.  

The Dow found support at the 50% retracement of its gains from 
July 24 through August 22, before the recent sell-off.  It has 
not only rebounded from that level after testing it on 5 
successive sessions, but the rally of the last two days  leading 
up to today's close of 8602.61, also surpassed the 38.2% 
retracement level and the index looks headed toward the 50-dma of 
8624.20.  The Nasdaq Composite, which finished the day up 15.49 
to close at 1320.09, is headed toward its 50-dma of 1330.85.  The 
NDX is also headed toward this level, with a close of 947.72, 
just 15 points away from its 50-dma.  The last time all three 
crossed this level at the same time was on August 19.  It 
appeared as though the foundation for a rally had been laid, much 
the way the same action had led us out of the autumn 1998 lows.  
The Dow traded over 9000, the Nasdaq made it over 1400 and it 
appeared as though the recovery was underway.  Of course, it 
didn't last.  With the 9/11 anniversary behind us, maybe this 
time a crossing of the 50-dmas by all three can bring us a little 
further.

Remember however, that we still need some good news from the 
techs for a real rally to take place.  The bullish percentages of 
the NDX and Nasdaq Composite remain in the 30s and have come off 
their highs significantly.  I am looking for a turnaround in 
these percentages before a rally can maintain itself.  That 
doesn't mean we won't have a big run after 9/11 passes and 
investors start pumping money back into the market, but for a 
sustained rally we will need to see an increase in IT spending to 
lift the techs.  Until that happens, we could be in for some 
extremely volatile trading.  The Market Volatility Index (VIX.X) 
has fallen to 36.96, but even though this is much lower than the 
readings in the high 50's we saw in July, it is still on the high 
side and predicting some movement in the near future. Although 
when compared to past Septembers, I get the feeling it is not 
high enough, especially given the competing forces playing tug of 
war right now. When I think about the rally that looks as though 
it is about to take place, I can't help but remember the saying, 
"The bigger they are, the harder they fall."


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

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7702
Current     :  8602

Moving Averages:
(Simple)

 10-dma: 8541
 50-dma: 8624
200-dma: 9658



S&P 500 ($SPX)

52-week High: 1226
52-week Low :  797
Current     :  909

Moving Averages:
(Simple)

 10-dma:  904
 50-dma:  906
200-dma: 1057



Nasdaq-100 ($NDX)

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

Moving Averages:
(Simple)

 10-dma:  932
 50-dma:  962
200-dma: 1300



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

The Semiconductor Index (SOX.X): The SOX rallied through 
resistance at 300 today, but couldn't hold up along with the rest 
of the market, settling back at 298 by the end of the day.   
Ongoing tech warnings and a lowering of expectations by 
forecasting firm IDC from 4.7% to 1.1% for 2002 in the sector 
didn't help.  I expect the SOX to make it back into the low 300s 
tomorrow on a broad market rally and to possibly test resistance 
at 310 as well.  However, until the IT spending environment 
improves, it is hard to believe we will not re-test last 
Thursday's 52-week low of 275 at least one more time.

52-week High: 657
52-week Low : 275
Current     : 288

Moving Averages:
(Simple)

 10-dma: 295
 50-dma: 334
200-dma: 482


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

Market Volatility

The VIX is on the high side.  However, given the action of recent 
Septembers, combined with the threat of war, a rally that looks 
like it is about to take place, and the ongoing earnings warnings 
in the tech sector, I keep wondering if it is high enough to 
account for the possibility of extreme movement in the near 
future. Don't be too anxious to sell those straddles if 
volatility starts coming in after tomorrow, if there are no 
attacks.  There are still many competing factors, which will take 
some time to shake out.  Expect the VIX to drop tomorrow on a 
market rally, but don't get too confident.

CBOE Market Volatility Index (VIX) = 36.96 –1.44
Nasdaq-100 Volatility Index  (VXN) = 53.07 –2.40

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.68        502,264       339,165
Equity Only    0.57        338,636       193,184
OEX            1.26         17,243        21,791
QQQ            2.56         60,804        15,570

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

Bullish Percent Data

           Current   Change   Status
NYSE          43      + 0     Bull Confirmed
NASDAQ-100    36      + 0     Bull Correction
DOW           50      + 0     Bull Correction
S&P 500       51      + 0     Bear Confirmed
S&P 100       46      + 1     Bear Confirmed

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  0.94
10-Day Arms Index  1.45
21-Day Arms Index  1.31
55-Day Arms Index  1.30

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 they do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE       1508          1200
NASDAQ     1691          1493

        New Highs      New Lows
NYSE         31              25
NASDAQ       18              66

        Volume (in millions)
NYSE     1,363
NASDAQ   1,433


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

Commitments Of Traders Report: 09/03/02

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 6,000 contracts to the long side, while 
reducing shorts by only 500, in what appears to be a stockpiling 
in anticipation of extreme movement next week. Small traders 
increased both long contracts and short, adding 5,000 to the long 
side and 8,000 to the short side.


Commercials   Long      Short      Net     % Of OI 
08/13/02      427,618   475,536   (47,918)   (5.3%)
08/20/02      422,100   469,556   (47,456)   (5.3%)
08/27/02      425,982   469,087   (43,105)   (4.8%)
09/03/02      431,755   468,529   (36,774)   (4.1%)

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
08/13/02      155,040    66,546    88,494     39.9%
08/20/02      156,974    69,071    87,903     38.9%
08/27/02      153,152    72,408    80,744     35.8%
09/03/02      158,262    80,130    78,132     32.8%

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 2600 short contracts and only 1400 longs, while 
small traders got longer, adding 1,000 longs and reducing short 
positions by 300.


Commercials   Long      Short      Net     % of OI 
08/13/02       42,303     50,354    (8,051) ( 8.7%)
08/20/02       41,876     49,461    (7,585) ( 8.3%)
08/27/02       45,354     50,634    (5,280) ( 5.5%)
09/03/02       46,712     53,287    (6,575) ( 6.6%)

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
08/13/02       12,797     8,933     3,864    17.8%
08/20/02       11,321     7,980     3,341    17.3%
08/27/02       10,156     8,040     2,116    11.6%
09/03/02       11,150     7,720     3,430    18.2%

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 reduced short positions slightly, reducing risk 
heading into next week, while small traders reduced both sides by 
about 500 contracts. 


Commercials   Long      Short      Net     % of OI
08/13/02       22,837    13,833    9,004      24.6%
08/20/02       21,160    15,349    5,811      15.9%
08/27/02       21,023    14,328    6,695      18.9%
09/03/02       21,161    13,792    7,369      21.1%

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
08/13/02        5,050     8,349    (3,299)   (24.6%)
08/20/02        6,216     8,163    (1,947)   (13.5%)
08/27/02        6,825     8,438    (1,613)   (10.6%)
09/03/02        6,395     7,966    (1,571)   (10.9%)

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

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


************************Advertisement*************************
”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

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

******************
Weekly Funs Screen
******************

Sour on Japan?  Try a Pacific Ex. Japan Fund

Last week, the Nikkei hit a 19-year low, so if you want to be in 
the Pacific region while at the same time limiting your exposure 
to Japan, consider investing in what's called a Pacific stock ex. 
Japan fund.  These specialized funds seek long-term appreciation 
by generally investing at least 75% of stock holdings in Pacific 
countries, with less than 10% of stocks invested in Japan.  That 
is Morningstar's criteria for classification in the category.

Accordingly, we're also going to be using Morningstar's screener 
online to isolate the top performing funds in the category based 
on relative returns as adjusted for risks and costs and expenses.  
Since Morningstar's ratings are based on performance compared to 
category peers, we will also consider Lipper's consistent return 
and preservation grades, which are relative to all international 
stock funds. 

The first fund of its kind, Newport Tiger Fund (CNTTX), now part 
of the Liberty fund family, originated in May 1989, and invests 
primarily in equity securities issued in the ten Tigers of Asia: 
Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, 
Indonesia, China, Philippines, and India.  At its peak in 1994, 
the fund had over $450 million in net assets, but recently the 
fund's assets were valued at just $26 million.

Wright Investors' Service introduced the EquityFund - Hong Kong 
Fund (WEHKX) in June 1990.  It invests primarily in equities of 
companies domiciled in Hong Kong, one of the ten Asian "tigers."

T. Rowe Price launched their New Asia Fund (PRASX) in September 
1990, and has net assets today of $676 million.  In 1993 and in 
1996, the fund had over $2.1 billion in assets under management.  
It invests at least 65% of assets in the common stocks of large- 
and small-cap companies in Asia and the Pacific Basin (excluding 
Japan).  It invests in at least five countries, with emphasis on 
equities issued in China, Hong Kong, Indonesia, India, Malaysia, 
Philippines, Singapore, South Korea, Taiwan, and Thailand.

The subcategory's second largest fund today, Fidelity Southeast 
Asia (FSEAX) with $282 million in assets, started operations in 
April 1993.  So this is not one of the bigger fund groups based 
on assets managed today, something to keep in mind as you think 
through whether an investment in a Pacific ex. Japan fund may be 
appropriate for you.

Screen Process

The first thing we did was run an all-inclusive screen to show us 
all funds in the category, regardless of their Morningstar rating 
so we could isolate the category leaders based on assets managed.  

Note that only seven funds in the Pacific ex. Japan category have 
net assets today of more than $100 million today per Morningstar, 
as follows:

 Largest Pacific Ex. Japan Funds:
 T. Rowe Price New Asia (PRASX)
 Fidelity Southeast Asia (FSEAX)
 Matthews Korea (MAKOX)
 Matthews Asian Growth & Income (MACSX)
 Liberty Newport Tiger (CNTAX, CNTBX, CNTZX)
 Fidelity China Region (FHKCX)
 Matthews Asian Pacific Tiger (MAPTX)

Next, we sorted the category by Morningstar Rating (with 5 stars 
highest) and found that four funds, including the Matthews Asian 
Growth & Income Fund, was among the highest rated funds based on 
relative risk-adjusted performance.  Its sibling, Matthews China 
Fund (MCHFX) is also 5-star rated by Morningstar.  The other two 
5-star funds are Commonwealth Australia/New Zealand Fund (CNZLX) 
and Phoenix-Aberdeen New Asia Fund (PAFAX, PAFBX).

Seven additional funds sport an above average rating of 4 stars 
from Morningstar: Dreyfus Premier Greater China (Multiple Class) 
Fidelity China Region (FHKCX), Fidelity Southeast Asia (FSEAX), 
Matthews Pacific Tiger (MAPTX), Pacific Capital New Asia (PNAAX, 
PNASX), T. Rowe Price New Asia (PRASX), and TCW Galileo Asia 
Pacific (TGAPX).  The 4-star funds from T. Rowe Price, Fidelity 
and Liberty Newport are also among the category's largest funds.

To have a closer look at risk, we next sorted the funds by their 
Morningstar Risk Rating (from low to high).  Here, we found that 
only three funds have "low" risk ratings: Commonwealth Australia 
New Zealand (CNZLX), Matthews Asian Growth & Income (MACSX), and 
the two class shares of Phoenix-Aberdeen New Asia Fund.  It's no 
surprise then that each fund is Morningstar 5-star rated overall 
based on relative performance, as adjusted for risk.  

Several fund groups including AIM, DFA, Fidelity, Goldman Sachs, 
Ivy, Scudder and T. Rowe Price had at least one offering with a 
"below average" risk rating per Morningstar. 

We turned our attention next to Lipper's ratings for return and 
preservation.  Lipper rates funds versus their broad peer group, 
so the comparison group is all international stock funds rather 
than Pacific ex. Japan funds only.  We first screened for funds 
with 1-highest Lipper grades for consistent return, identifying 
six funds that are Lipper Leaders (1's) for consistent, strong 
return performance relative to the broad peer group as follows:

 Lipper Leaders for Consistent Return:
 Matthews Asian Growth & Income (MACSX)
 Phoenix-Aberdeen New Asia (PAFAX, PAFBX)
 Commonwealth Australia/New Zealand (CNZLX)
 Fidelity Southeast Asia (FSEAX)
 Investec Asia Focus (IASMX)
 Matthews Asian Pacific Tiger (MAPTX)

Two of the Lipper Leaders for consistent return are also Lipper 
Leaders for preservation: Matthews Asian Growth & Income (MACSX) 
and Phoenix-Aberdeen New Asia (PAFAX).  Commonwealth Australia 
New Zealand Fund (CNZLX) and the Class B shares of the Phoenix-
Aberdeen New Asia Fund (PAFBX) have Lipper preservation ratings 
of 2's, signifying above average skill in preserving capital in 
relation to all international stock funds.

Lastly, we looked to see which funds were graded 2's per Lipper 
for consistent return.  The "above average" performers included 
among others Goldman Sachs Asia Growth (GSABX), Liberty Newport 
Tiger (Multiple Class), and T. Rowe Price New Asia Fund (PRASX).

To summarize the major findings so far, we have identified which 
funds in the category have been the most successful based on net 
assets under management today.  We then identified four funds in 
the category that are Morningstar 5-star rated for risk-adjusted 
relative performance, and noted that each one was also graded as 
having "low" risk relative to category peers.  Lipper's analysis 
identified six Lipper Leaders for consistent return performance, 
of which two funds were also top-rated for their preservation of 
capital ability (in relation to all international equity funds).

In the next section, we tell you which Pacific stock (ex. Japan) 
funds we like the most based on their independent ratings, funds 
management and other factors, such as costs and expenses.

Our Favorite Funds

We think your best bets now in this category are Matthews Asian 
Growth & Income Fund (MACSX) and Phoenix-Aberdeen New Asia Fund 
(PAFAX).  Both funds are top rated relative to their broad fund 
group and their category peers, and have manager tenures of six 
years or more (the all funds average is 4.1 years, according to 
Morningstar).

Matthews Asian Growth & Income Fund (MACSX) seeks appreciation 
and current income by investing at least 65% of fund assets in 
"convertible securities" issued in at least three Pacific Rim 
markets.  The remainder of assets may be invested in securities 
of any type, including preferred shares, issued in any country. 

To select convertibles, the fund assesses capital appreciation 
potential, price to the underlying stock's price, yield relative 
to other fixed-income options, interest or dividend income of 
convertible and underlying stock, call and put features, and 
creditworthiness.  The fund may invest without limit in lower-
quality debt securities.



 


Morningstar says "conservative investors looking to invest in 
emerging Asia won't do better than this fund," and we concur.  
Its focus on convertibles and preferred shares (that are less 
volatile than the region's common stocks) has resulted in the 
lowest risk score in the category.  According to Morningstar, 
Matthews Asian Growth & Income Fund's trailing 3-year standard 
deviation of 12.5% is approximately half the category average.

While maintaining its low risk profile, the fund has produced 
consistent, strong returns relative to both its category peers 
and all international stock funds.  The fund's trailing 3-year 
average total return of 12.7% as of Sep. 9, 2002 beat the MSCI 
EAFE index by 25.1% per year on average, ranking it in the top 
percentile of the Pacific stock ex. Japan stock category.  The 
fund's trailing 5-year annualized return of 7.5% beat the MSCI 
EAFE index benchmark by 11.7% per year on average for a top 1% 
category ranking.

Matthews Asian Growth & Income Fund is managed by CEO and head 
investment officer, G. Paul Matthews.  He has managed the fund 
since inception in September 1994 so all of the fund's history 
and performance may be attributed to him and his support staff.  
The fund's expense ratio of 1.95% is a little high, but all in 
all, Matthews have delivered strong performance net of expense.

The other fund we like in the Pacific stock ex. Japan group is 
Phoenix-Aberdeen New Asia Fund Class A (PAFAX).  It seeks long-
term capital appreciation by normally investing at least 65% of 
assets in equities issued from countries in Asia, but excluding 
Japan.  Investments may include common stocks, convertibles and 
preferred stocks.  According to Morningstar, 83% of assets were 
invested in stocks as of July 31, 2002, with a "mid-cap blend" 
style overall.   

The fund typically invests in three (or more) of the following 
countries: China, Hong Kong, India, Indonesia, South Korea, 
Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, 
and Thailand.  It may also invest from time to time in nations 
such as Australia and New Zealand.  The Class A shares have a 
front-end load of 5.75%.

Phoenix-Aberdeen's low average standard deviation (18.5%) the 
last three years is indicative of its low risk profile versus 
other Pacific ex. Japan funds (as well as broad peer group of 
international stock funds).  While maintaining its lower risk 
profile, the fund has delivered strong performance versus its 
category peers.

According to Morningstar, the fund's 3-year average return of 
1.0% was 13.4% better than the MSCI EAFE index for a category 
ranking of 11% (near top decile).  The fund's trailing 5-year 
average return of negative 0.6% was 3.6% better than the MSCI 
EAFE index and strong enough on a relative basis to rank it in 
the category's top 4% for performance.

Hugh Young, a managing director and portfolio manager for the 
Phoenix-Aberdeen Asia Series, has run the portfolio since its 
inception in September 1996, so the fund's performance may be 
attributed to him and his support staff.  Conservative equity 
investors looking for a little exposure to Asian stocks (sans 
Japan) have an appropriate choice here.

Conclusion

With the Japanese stock market hitting a 19-year low last week, 
it's understandable to be leery about the country's prospects.  
However, if you like the long-term growth opportunities of the 
other markets of the Asia/Pacific region, then you may want to 
consider some of the better rated funds identified herein.  If 
you want to limit your risk within the category, we've pointed 
out two funds we like on a risk-adjusted performance basis and 
have excelled at delivering consistent, strong performance and 
preserving capital.

For more information on the Matthews Asian Growth & Income Fund, 
log on to www.matthewsfunds.com and for more information on the 
Phoenix-Aberdeen New Asia Fund, log on to www.phoenixfunds.com.


Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


***********************
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 Eleventh.


************************Advertisement*************************
If you trade options online, then you need an online broker 
that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the 
option or stock
offers online spread order entry for net debit or credit
offers fast option executions

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

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


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

Chickened Out

I blew it. The plan was to remain long all day and go into any
post 9/11 open with profit points under our belt. Instead I read 
more into the heightened warning and falling market than I should 
have and closed the LONG signal. Was it the right decision or the 
wrong one?

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


**********
DISCLAIMER
**********

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 09-10-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: BYD, SYK
Dropped Puts: WY
Daily Results
Call Play Updates: MSFT, TRMS, LLL, OMC
New Calls Plays: DJX, QQQ, SPW, CVG, IDPH
Put Play Updates: AA, EXC
New Put Plays: AGN, TXU

****************
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:
*****

BYD $17.64 +0.13 (-0.07) The buying enthusiasm that fueled BYD's
rise through the $17 resistance level seems to have run its
course.  Over the past 3 days, the stock has been stuck in a
rather narrow range and appears to be in danger of rolling over.
Since tomorrow is likely to be rangebound, at least in the early
going, we want to take this opportunity to close this play before
it goes against us.

---

SYK $58.20 -0.41 (+0.50) SYK's successful breakout over the $57
level should have generated more follow-through to the upside
today, especially with the broad market rallying to close at its
high of the day.  Instead, SYK fell early in the day and strength
in the broad market appears to be the only thing that kept the
stock from violating near-term support.  With oscillators looking
toppy, we want to close the play tonight while it is still in the
black.  Use any follow through of this afternoon's rebound to exit
open positions at a more favorable level.


PUTS:
*****

WY $51.54 -0.23 (+0.54) Failed breakouts and breakdowns have been
the rule, rather than the exception lately.  WY provides a perfect
example, as the stock broke down below the $51 level, only to find
support at $50 and begin its recovery.  There is still the
possibility of further weakness, but the fact that there were
willing buyers despite the apparent breakdown hints at an
underlying bid in the stock.  With daily oscillators turning
bullish, risk has shifted to the upside.  Rather than wait for our
stop to take us out of the play, we're going to close it out
tonight ahead of a possible relief rally later this week.


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

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

CALLS              Mon    Tue    Wed   Thu   Week

BYD      17.64   -0.21   0.13  Drop, going sideways
CVG      19.11    0.56   0.65  New, heading over $20
DJX      N/A  New, market play as buyers come back
IDPH     43.33    1.57   1.32  New, rounding from support
LLL      54.95    1.99   0.11  Higher ground every day
MSFT     49.79   -1.44   1.09  leading overall tech rally
OMC      62.94    2.04   1.20  5 straight green candles
QQQ      23.65    0.41   0.57  New, tech rally
SPW      58.25    0.56   2.92  New, 2 for 1 equals momentum
SYK      58.25    0.96  -0.36  Drop, underperforming
TRMS     47.01   -1.05   0.17  big meeting coming up


PUTS               

AA       23.76    0.71   0.46  failed rally 
AGN      55.16   -0.61  -1.28  New, wrinkles are back
EXC      44.76    0.58  -0.22  ready to break
TXU      44.70    0.09  -1.19  New, break from consolidation
WY       51.54    0.76  -0.23  Drop, hanging in there


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

MSFT $49.79 +1.09 (+1.97 for the week) Microsoft has remained 
above the fray of the IT spending slowdown.  In spite of a weak 
PC market and predictions of it getting weaker, MSFT continues to 
show impressive sales of its software products.  Last week CDW 
raised its earnings guidance, citing strong sales of Microsoft 
products.  While other companies have cut capital spending, MSFT 
has increased its R&D budget by 20% to $5.2 billion and hired an 
additional 5,000 employees to prepare for a series of new 
software launches.  They are planning a new OS, code named 
"Longhorn," which will better blend OS, applications and web 
services.  Although some critics have doubted sales potential of 
new operating systems upgrades, Microsoft need only point out the 
46 million copies of XP that have been sold through OEMs and 
retail outlets since it was released in October 2001.  Sales of 
XP have outpaced all other operating systems that Microsoft has 
released, including Windows 98, which sold 28 million copies in 
the first 9 months after its release. The PC slowdown will 
certainly affect Microsoft to some degree, but if users who don't 
want to pony up for a new PC can simply upgrade the OS, Microsoft 
will come out of the slowdown just fine, providing an alternative 
to users.    A look at the daily chart shows MSFT clearing out 
the 50-dma of $49.34, and closing on its high of the day, another 
bullish sign.  The next level of resistance is $53.45, and the 
stock has bounced from the point and figure bullish support line 
on six straight occasions.  The next bullish support level is $47 
and our new stop loss of $46.00 will signal a break in this 
strong support level.   The current bullish vertical count on the 
stock is $72.  While this would be a long-term target, it is 
still very bullish.  Our initial target on the play remains 
$53.50, however given the strong bullish case for the stock, we 
may simply raise our stops if we approach that level, rather than 
sell.

---

TRMS $47.01 +0.17 (+1.71 for the week) Trimeris found legs on its 
recent pullback to $43, holding above its 200-dma of $42.67 and 
flirting with the 50-dma of $44.47 for several days before 
rallying back toward $50.  The stock has shown good relative 
strength when compared to the Biotech Index (BTK.X), which has 
found resistance at its 50-dma.  This is most likely because 
TRMS's new class of drug, T-20, has not only been scheduled for 
release in early 2003, but demand is far outstripping supply.  
This new class of HIV drug, called fusion inhibitors, has shown 
great promise, and T-20 will be the first to hit the market.  In 
addition to the studies already released, Trimeris will be 
presenting at the end of September at ICAAC (Interscience 
Conference on Antimicrobial Agents and Chemotherapy) in San 
Diego, which is the world's premier conference on infectious 
diseases.  At this meeting they plan on presenting two positive 
studies. The first one will show the tolerability of T-20 during 
therapy in the phase II trials.  The second study, which is a 
collaboration between Trimeris, Roche, Stanford University, 
University of North Carolina, Duke University, Cornell Medical 
Center, and the University of Alabama, will be a complete 
analysis of the anti-retroviral activity of Trimeris's T-1249, a 
fast tracked drug still in the pipeline, which may hold even more 
promise than T-20.  These results should help the stock's current 
run, possibly through previous resistance at $50.  We will hold 
our long position on Trimeris, raising our stop loss from $42.50 
to $44.00, just below the 50-dma.  

---

LLL $54.94 +0.13 (+2.10) As the 9/11 anniversary and President
Bush's speech to the UN loom large in our immediate future,
Defense stocks have continued to trade well.  While the DFI index
was unable to gain significant ground on Tuesday, this is likely
due to a lack of conviction ahead of a couple of important
events.  Note that the index managed a technical breakout over
the $574 level on Monday and appears ready to push up towards
the next major obstacle near $595-600.  Giving a hint of the
bullishness in the sector is LLL, which rallied through $55 and
briefly pushed through the $56 level on Tuesday before settling
back near the $55 level at the close.  This looks like simple
consolidation ahead of the next bullish move.  There are a couple
of levels to look at for new entries on a pullback.  First is
intraday support near $54.60 and then down near $52.50-53.00,
which is supported by the 200-dma at $52.54.  Catching an entry
on a dip is preferable, but should a momentum move develop, new
entries can be considered on a push through Tuesday's high
($56.05) on strong volume and sector participation.  Note that
our stop is now set at $51.

---

OMC $62.94 +1.20 (+2.94) Company-specific and economic
developments are currently taking a back-seat to concerns about
the 9/11 anniversary and the potential for war with Iraq.  Despite
these fears, there appears to still be a bullish bid in the broad
markets, as denoted by the DOW's 83 point advance on Tuesday.  OMC
took advantage of the bullish tone and continued its 5-day
advance, ending with another 2% gain.  This bullish action has
driven the stock right into the heart of the $61-65 congestion
zone, as buyers are trying to jockey into position ahead of an
expected post-9/11 rally.  Prior resistance at $61 and then $60
are now likely to act as support on a pullback.  Traders still
looking to enter the play can use a dip and rebound in this area
for initiating new positions, while momentum traders will want to
be very careful until OMC can clear the $65 level and preferably
the mid-August intraday highs near $66.  Raise stops to $59.


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

DJX - Dow Jones Industrial Average - 86.03 +0.84 (+1.76 for the 
week)

Company Summary:  The DJX is derived from the Dow Jones 
Industrial Average.  This index of 30 stocks represents different 
areas of the economy and has been in use since 1896, when it was 
started with 12 stocks. It increased to its current level of 30 
stocks in 1928. The DJX trades on a multiple of 1/100 of the Dow.

Why We Like It:
The Dow has shown amazing resiliency recently, in the face of 
anxiety over the 9/11 anniversary.  After the September 3 sell-
off the group found its legs as investors began to sneak back 
into the market last Wednesday, a week ahead of the anniversary.  
While many analysts expected a pre-9/11 sell-off, that just 
hasn't been the case.  Even sectors such as Insurance (IUX.X) and 
Airlines (XAL.X), which were pummeled after last year's attack, 
have avoided a big drop ahead of tomorrow's 1-year mark.  Looking 
at a retracement bracket of the 1500-point rally between July 24 
and August 22, the Dow found support on 5 straight trading 
sessions last week at the 50% retracement level. This support 
provided the foundation for the rally of the last two days.  With 
many investors on the sidelines, waiting for the anniversary to 
pass before getting back into the market, the fact that the Dow 
has rallied with the current players is impressive.  In spite of 
the U.S. government raising its security alert level, identifying 
intelligence that pointed to specific plans to attack U.S. 
installations, buyers didn't flee.  Instead, after the initial 
announcement that we were raising the level of alert to high-risk 
caused a market pullback, the Dow once again rallied to finish 
the day on its high, indicating buyer's are shrugging off the 
possibility of attacks to get back in ahead of a possible rally, 
and were still looking to by more as the market closed.  This 
date has been looming for quite a while, giving investors every 
reason to stay away.  Now that it is upon us, we are looking for 
a rally, as long as nothing happens attack-wise that would 
seriously interfere with an economic recovery.  Those would-be 
buyers who have stayed away until now, should begin to come back 
at an increasing pace and we would look for them to boost the Dow 
back toward 9000, making up the losses of the last three weeks.  
Our initial target on the play will be $90, with a stop loss of 
84.00.

BUY CALL SEP-85*DJX-IG OI=  6447 at $2.50 SL=1.25
BUY CALL SEP-87 DJX-II OI= 17925 at $1.35 SL=0.75
BUY CALL OCT-85 DJX-JG OI=  1077 at $4.30 SL=2.20
BUY CALL OCT-87 DJX-JI OI=   285 at $3.10 SL=1.50

Average Daily Volume = n/a


---

QQQ	- NASDAQ 100 Tracking Stock - $23.65 +0.57 (+0.80 for the 
week)

Company Summary:
The QQQ is the Nasdaq 100 tracking stock.  The Nasdaq 100 
represents 100 of the leading companies trading on the Nasdaq 
stock exchange.

Why We Like it:
The tech sector has rebounded strongly after the sell-off between 
8/23 and 9/5.  Buyers have begun to creep back into the market 
ahead of 9/11 and with so many investors still on the sidelines 
ahead of that date, we should continue to see an influx of buying 
by tomorrow afternoon, if there are no anniversary attacks.  The 
tech sector that has been beat up the worst is the 
semiconductors.  Even this group rebounded strongly today, taking 
out resistance at 300 to trade as high as 304.09. The sector 
gained over 3% on the day, in a reversal of fortune after last 
week's Intel news pushed it to new 52-week lows. The Nasdaq-100 
(NDX.X), which the QQQs track, found support on September 5 at 
900, trading as low as 900.90, before rebounding to make up 47 
points in only three trading sessions, correlating to the recent 
rise in the Qs.  In fact, 76% of the stocks in the NDX showed 
gains today, led by stalwarts Microsoft, Yahoo and Applied 
Materials.  A look across some of the technology indices shows 
the Software Index (GSO.X) and Internet Index (INX.X) crossing 
their 50-dmas, while the Disk Drive Index (DDX.X) and Computer 
Technology Index (XCI.X) are flirting with theirs, as well.  The 
QQQs will most likely see this level (23.95) crossed on Wednesday 
or Thursday as the post-9/11 rally ensues. A look at the 
oscillators show the NDX oversold, with both stochastic and MACD 
indicators turning up and giving new buy signals.  The real 
story, however, is the overall market rally that is expected with 
the passing of the 9/11 anniversary.  For investors who would 
rather buy the market wave, than try to pick an individual tech 
stock, this is the play for them.  We will use an initial target 
of $26, where the Qs last traded on August 22, before the recent 
decline.  Place stop losses at $22.25.

BUY CALL SEP-22*QAV-IU OI=  56481 at $1.90 SL=1.00
BUY CALL SEP-25 QAV-IY OI= 155758 at $0.25 SL=0.00
BUY CALL OCT-22 QAV-JU OI=  10712 at $2.55 SL=1.25
BUY CALL OCT-25 QAV-IU OI=  35511 at $0.95 SL=0.00

Average Daily Volume =  n/a


---

SPW - SPX Corporation - $112.92  +2.92 (+3.47 for the week)

Company Summary: 
SPX Corporation is a global provider of technical products and 
systems, industrial products and services, flow technology and 
service solutions.

Why We Like It:
Two for one stock splits are usually kind to strong issues, as it 
signals strength that draws investors to the possibility of 
getting more shares of a stock that is on the rise.  While the 
math turns out to be a wash, there are not many stocks in the 
current market conditions that are priced high enough for a split 
which would still leave the stock at a high enough price for some 
real post-split movement.  SPW is the exception.  On August 28, 
the Board of Directors approved a split that will be distributed 
to shareholders of record on October 1, 2002.  The split will 
take place on October 24 and begin trading October 25.  In 
addition to the split, the Board also approved a $250 million 
stock re-purchase program, showing its faith in the current stock 
price.

SPX has put in place its third series of higher highs and higher 
lows since July 24, a very bullish sign.  The ascending channel 
provided support on all three occasions, the last time being 
accompanied by the 50-dma of 103.20.  On September 4, the bottom 
trendline of this channel coincided with the 50-dma to give the 
stock a renewed boost to its current level of $112.92.  The stock 
rode the 50-dma, holding above it for three days on its most 
recent pullback.  As stocks rarely go straight up, traders look 
for the pattern of higher highs and higher lows as the next best 
thing.  This pattern in SPX has been accompanied by recent buy 
signals in both Stochastic and MACD oscillators.  The stock's 
most recent previous high, of $112.75 on August 23, was surpassed 
today, as SPX traded as high as $113.50.   A look at the point 
and figure chart shows that the stock experienced a 4-box 
reversal after reaching the August high, found support, and then 
reversed up once more.  It is now on the verge of a fresh PnF buy 
signal at $114.  The current bullish vertical count is $134 and 
the fact that we are initiating entry after the stock found 
support on a reversal from its recent run is that much more 
bullish.  Traders who would have initiated a 1/2 position on the 
previous PnF breakout would be filling in the full position with 
a trade at $114.  Our initial target on the play will be the next 
level of resistance at $120, but above that level, $128 looks 
like a possibility.  Place stops at 107.50, just below Monday's 
low. 

BUY CALL SEP-110 SPW-IB OI= 158 at $5.20 SL=2.60
BUY CALL SEP-115 SPW-IC OI= 212 at $2.45 SL=1.20
BUY CALL OCT-110*SPW-JB OI=   6 at $9.20 SL=5.00
BUY CALL OCT-115 SPW-IB OI=   8 at $6.60 SL=3.30

Average Daily Volume = 632 K


---

CVG - Convergys Corporation $19.11 +0.65 (+1.17 this week)

Company Summary:
Convergys Corporation is engaged in the provision of outsourced,
integrated billing and customer care software and services.  The
company focuses on developing long-term strategic relationships
with clients in customer-intensive industries, including
telecommunications, cable, broadband, direct satellite
broadcasting, Internet services, technology and financial
services.  CVG serves its clients through its two operating
segments: the Information Management Group (IMG), which provides
outsourced billing and information services and software, and
the Customer Management Group (CMG), which  provides outsourced
marketing and customer support services and outsourced employee
care services.

Why We Like It:
Despite the persistent weakness in the Telecom and Media sectors
of the market, there is one undeniable fact.  Consumers are still
using these services and the bills still need to be sent and
accounts still need to be serviced.  CVG gets that job done and
judging by the recent series of contracts the company has either
signed or extended, they must be doing the job right.  Most
recently, Time Warner Cable expanded its billing services contract
with CVG on Monday.  Apparently investors liked the sound of
things as they have been bidding the stock sharply higher over the
past 2 days, and CVG is close to completing the handle portion of
a healthy 10-week Cup & Handle formation.  The bottom of the cup
formed near the $13 level, with the lip of the cup now resting at
$19 (where the rally off the July lows took a pause).  That led to
a 2-week consolidation pattern that has been capped off by the
rally of the past 2 days.  A successful completion of the pattern
will occur with CVG continuing its rally and moving through the
$19.25 level.  A quick look at the PnF chart also shows the bulls
in control, with the current vertical count pointing to the $30.50
level as the eventual destination.  And a print of $19.50 will
generate a fresh double-top Buy signal, giving the bulls even more
confidence.  This is one of those pending breakouts, where buying
the breakout has greater odds of success.  Momentum traders will
want to see CVG trade through the $19.50 level on solid volume
before taking a position.  With the current uncertainty in the
markets, dip buyers might get one more dip before the breakout
attempt.  Look to enter the play on a rebound from the
$18.00-18.50 area.  Place stops initially at $17, just below last
week's consolidation lows.

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

BUY CALL SEP-17 CVG-IW OI=  76 at $1.85 SL=1.00
BUY CALL SEP-20 CVG-ID OI= 150 at $0.45 SL=0.25
BUY CALL OCT-17 CVG-JW OI=9123 at $2.30 SL=1.50
BUY CALL OCT-20*CVG-JD OI= 214 at $0.95 SL=0.50
BUY CALL OCT-22 CVG-JX OI= 141 at $0.35 SL=0.00

Average Daily Volume = 1.42 mln


---

IDPH – IDEC Pharmaceuticals $43.33 +1.32 (+2.62 this week)

Company Summary:
IDEC Pharmaceuticals is a biopharmaceutical company engaged
primarily in the research, development and commercialization
of targeted therapies for the treatment of cancer, autoimmune
and inflammatory diseases.  IDPH's first commercial product,
Rituxan, and its most advanced product candidate, Zevalin
(formerly Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas.  The company is also developing
products for the treatment of various autoimmune diseases such
as psoriasis, rheumatoid arthritis and lupus.

Why We Like It:
As the broad market bottomed in late July, the Biotechnology
sector (BTK.X) led the charge up the charts.  In fact, the BTK
index actually bottomed in early July, ahead of the rest of the
market.  Since then, the index gave back nearly two-thirds of its
rally, finding support at the 62% retracement level, and despite
a series of negative pieces of news, appears to be getting
started on its next rally attempt.  While the recovery in the BTK
index has been rather tepid so far, shares of IDPH have been
moving strongly so far this week.  After getting back above the
50-dma ($40.52) late last week, the stock has been moving well,
ignoring the intraday weakness in the overall sector, and today
tacked on more than 3% in the process of moving back through the
20-dma at $42.79.  While there is significant resistance waiting
just overhead in the $44-45 area, once clear of that obstacle
(especially if the BTK index gets moving), IDPH could find itself
challenging the August highs near $47.50 in short order.  Should
tomorrow pass without incident, the broad markets are likely to
experience a powerful relief rally, and as one of the remaining
momentum favorites, the BTK should lead that charge.  With IDPH
now above some important resistance levels (namely $41 and $42),
these levels should now act as support on intraday pullbacks
before that rally gets going.  Look to initiate new positions on
a rebound from support, but wait for confirmation of continued
buying interest in the BTK sector.  Momentum traders will want to
wait for IDPH to push through the $45 resistance level before
opening new positions.  We are initiating the play with our stop
set at $40.50, just above the 50-dma.

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

BUY CALL SEP-40 IDK-II OI= 2034 at $4.50 SL=2.75
BUY CALL SEP-45 IDK-IJ OI= 2460 at $1.30 SL=0.75
BUY CALL OCT-45*IDK-JI OI=13159 at $3.00 SL=1.50
BUY CALL OCT-50 IDK-JJ OI= 4477 at $1.35 SL=0.75

Average Daily Volume = 5.43 mln



************************Advertisement*************************
”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

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


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

AA  $23.76 +0.46 (+1.17 for the week) Alcoa has rebounded with 
the rest of the market, but has fallen short of its high of 
September 3, $24.50, which is also our stop loss. The problems AA 
has experienced have not changed.  There is still an oversupply 
of product sitting in storage, pricing pressure from Chinese 
producers adding supply to an already saturated market, and 
aluminum prices, which have dropped 15% in the last year, show no 
signs of recovery. Now Icelandic producers Nordural, Isal and 
Atlantsal all plan on expanding smelting capacity, which will 
increase supply, competition and pricing pressure.  Alcoa was 
also trying to win approval for a plant in Iceland, due to low 
hydropower costs, but talks are ongoing. The fact that China has 
switched from importer to exporter has also reduced the customer 
base for the U.S.  In fact, steelmaker Corus Group Plc announced 
plans to spin off its aluminum plants, but has found no clear 
takers yet. Today's rally in AA found plenty of supply at $24.  A 
look at the 5-minute chart shows the stock was turned away from 
that level this morning and additional attempts at a rally were 
subdued.  This failure at $24 looks like evidence of an 
opportunity for new short entries.  A look at the point and 
figure chart shows no real change, as the stock would have to 
trade $25 to reverse its current signal, a level that would take 
us out of the play. We remain bearish on the stock, although 
traders should view a trade of $25 on a Dow 9/11 rally as a sign 
of a sympathy bounce, which cold sweep AA along as it is a Dow 
component and thus subject to being carried along with the rising 
tide.  Look for continued failure below $24.50 to initiate new 
positions and leave stop losses at that level.

---

EXC $44.76 -0.22 (+0.36) Despite the resiliency in the broad
market, Utility stocks continue to be under significant selling
pressure.  Rather than finding support near the $270 level on
Tuesday, the Utility sector index (UTY.X) broke down and this is
a good confirming indicator for our EXC play.  Recall that the
stock broke down a couple weeks ago and has spent the past week
mired in a fairly narrow range between $43.50-46.00.  Each
attempted rally is being turned back near the $45.50 level and
with the bearish action in the UTY index, it appears the next
breakdown is close at hand.  Use failed rallies near the $45.50
level to initiate new positions with an eye towards a breakdown
out of the recent trading range.  Traders looking for confirmation
before playing, will want to target new entries on a breakdown
under $43.25, confirmed by the UTY index breaking under the $260
support level.  Keep stops in place at $46.25.


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

AGN – Allergan, Inc. $55.16 -1.28 (-1.93 this week)

Company Summary:
Allergan is a technology-driven, global healthcare company that
develops and commercializes specialty pharmaceutical products
for the ophthalmic neurological, dermatological and other
specialty markets, as well as ophthalmic surgical devices and
contact lens care solutions.  Its revenues are principally
generated by prescription and non-prescription pharmaceutical
products in the areas of ophthalmology and skin care,
neurotoxins, intra-ocular lenses and contact lens care products.
The company's are sold to drug wholesalers, independent and
chain drug stores, pharmacies, commercial optical chains,
commercial optical chains, food stores, hospitals and
individual medical practitioners.

Why We Like It:
The longer a trend remains in force, the stronger that trend
becomes.  As each rally attempt fails at a lower level, it leaves
behind a larger number of investors that are still hoping to get
out close to break-even.  Shares of AGN have been pinned under a
descending trendline since late November, and even the rally off
the July lows didn't have enough power to break above that
trendline.  That rally failed right at the trendline near $63 and
the past 2 weeks have seen the stock continuing to slide lower.
In the process, it has broken back under all of its shorter term
moving averages and is now resting precariously on the $55 support
level.  And judging by the heavy selling volume over the past 2
days, that support level could give way at any time.  Last week's
decline under $56 put the PnF chart back on a Sell signal and the
current vertical count points to an eventual price target of $46.
Note that the bullish support line currently rests at $54, and
that could be the catalyst for a brief rebound.  When that rebound
fails it will be our high-odds opportunity to target new
positions.  Look for any rally attempt to fail near the $56 level,
which is shaping up as resistance.  An even better entry may be
possible up near the $57 level, but we won't want to press it
any further than that.  Should the bears continue to press AGN
lower from current levels, momentum trades can be taken on a
decline under Tuesday's afternoon low of $54.70.  A rally through
the $57.50 level will give us a clear indication that we're on
the wrong side of the trade, so our stop is set at $57.50.  

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

BUY PUT SEP-55 AGN-UK OI= 786 at $1.55 SL=0.75
BUY PUT OCT-55*AGN-VK OI=1315 at $2.95 SL=1.50
BUY PUT OCT-50 AGN-VJ OI= 340 at $1.35 SL=0.75

Average Daily Volume = 1.10 mln


---

TXU – TXU Corporation $44.70 -1.19 (-1.22 this week)

Company Summary:
TXU Corporation is a global energy services company that engages
in electricity generation, wholesale energy trading, retail
energy marketing, energy delivery, other energy-related services
and, through a joint venture, telecommunications services.  TXU
owns over 22,600 megawatts of power generation and sells 335
terawatt hours of electricity and 2.8 trillion cubic feet of
natural gas annually.  The company delivers or sells energy to
approximately 11 million residential, commercial and industrial
customers primarily in the United States, Europe and Australia.

Why We Like It:
Despite the broad market strength so far this week, the Utilities
just can't seem to get in on the act, and the Utilities index
(UTY.X) fell under the important $270 support level on Tuesday.
The Utilities got absolutely pummeled after the UTY index fell
under the $300 support level in July and after failing to even
retest that level late last month, the sellers appear to be back
in control.  TXU posted an impressive rally off the July lows,
rising from $34 all the way back up to $50 (right at the bearish
resistance line on the PnF chart) before the buyers lost their
conviction.  The stock quickly fell back under the 200-dma and
then built a temporary floor near $45.50-46.00 late last week.
That floor gave way on Tuesday, as the stock fell through support,
and then the 50-dma ($44.78) on solid volume.  The 38%
retracement of the rally off the July lows is at $43.69, and that
is the next level where the bulls might attempt to get a rally
going.  If they fail, TXU will likely fall to the 50% retracement
($41.77) in short order.  Right now, the best scenario for the
play would be a broad market rebound that lifts TXU back near the
$46 level before the sellers lean on the stock again.  Look to
initiate new positions either on a failed rally near $46, or on
a breakdown under the $43.50 level.  We are initiating the play
with our stop set at $47.  If playing a breakdown move, be sure
to confirm weakness in the UTY index before initiating your
position.

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

BUY PUT SEP-45 TXU-UI OI= 120 at $1.20 SL=0.50
BUY PUT OCT-45*TXU-VI OI=1358 at $2.45 SL=1.25
BUY PUT OCT-40 TXU-VH OI=1322 at $0.85 SL=0.40

Average Daily Volume = 1.76 mln



************************Advertisement*************************
If you trade options online, then you need an online broker 
that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the 
option or stock
offers online spread order entry for net debit or credit
offers fast option executions

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

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


**********
DISCLAIMER
**********

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 09-10-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three: 

Play of the Day: Call - DJX
Traders Corner: Candles Burning Bright

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

DJX - Dow Jones Industrial Average - 86.03 +0.84 (+1.76 for the 
week)

Company Summary:  The DJX is derived from the Dow Jones 
Industrial Average.  This index of 30 stocks represents different 
areas of the economy and has been in use since 1896, when it was 
started with 12 stocks. It increased to its current level of 30 
stocks in 1928. The DJX trades on a multiple of 1/100 of the Dow.

Why We Like It:
The Dow has shown amazing resiliency recently, in the face of 
anxiety over the 9/11 anniversary.  After the September 3 sell-
off the group found its legs as investors began to sneak back 
into the market last Wednesday, a week ahead of the anniversary.  
While many analysts expected a pre-9/11 sell-off, that just 
hasn't been the case.  Even sectors such as Insurance (IUX.X) and 
Airlines (XAL.X), which were pummeled after last year's attack, 
have avoided a big drop ahead of tomorrow's 1-year mark.  Looking 
at a retracement bracket of the 1500-point rally between July 24 
and August 22, the Dow found support on 5 straight trading 
sessions last week at the 50% retracement level. This support 
provided the foundation for the rally of the last two days.  With 
many investors on the sidelines, waiting for the anniversary to 
pass before getting back into the market, the fact that the Dow 
has rallied with the current players is impressive.  In spite of 
the U.S. government raising its security alert level, identifying 
intelligence that pointed to specific plans to attack U.S. 
installations, buyers didn't flee.  Instead, after the initial 
announcement that we were raising the level of alert to high-risk 
caused a market pullback, the Dow once again rallied to finish 
the day on its high, indicating buyer's are shrugging off the 
possibility of attacks to get back in ahead of a possible rally, 
and were still looking to by more as the market closed.  This 
date has been looming for quite a while, giving investors every 
reason to stay away.  Now that it is upon us, we are looking for 
a rally, as long as nothing happens attack-wise that would 
seriously interfere with an economic recovery.  Those would-be 
buyers who have stayed away until now, should begin to come back 
at an increasing pace and we would look for them to boost the Dow 
back toward 9000, making up the losses of the last three weeks.  
Our initial target on the play will be $90, with a stop loss of 
84.00.

BUY CALL SEP-85*DJX-IG OI=  6447 at $2.50 SL=1.25
BUY CALL SEP-87 DJX-II OI= 17925 at $1.35 SL=0.75
BUY CALL OCT-85 DJX-JG OI=  1077 at $4.30 SL=2.20
BUY CALL OCT-87 DJX-JI OI=   285 at $3.10 SL=1.50

Average Daily Volume = n/a



************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

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


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

Candles Burning Bright 
By John Seckinger
jseckinger@OptionInvestor.com 

Using Candlestick analysis on indices ranging from the Dollar 
to the Dow has resulted in encouraging news for bullish traders.

As I have stated many times, it is my opinion that traders can 
gather important clues about equities by looking at asset 
allocation stemming from other indices.  The indices I will cover 
here include Bonds, Dollar, Oil, Utilities, and the Dow.  I have 
altered the pattern slightly, giving emphasis on short-term 
movement within the bond market and how prices can be inversely 
related to the Dow.  Yes, in the intermediate and long-term time 
frame, I do believe bond prices and equity prices trend in the 
same direction.  However, the bond market has recently become 
overextended to the upside and traders taking profits should 
allow for bond prices to fall while equities become the 
beneficiary.  

A few Traders Corner articles back, I made it clear that I felt 
the Dow led all other indices.  That correlation isn’t as strong 
now as it once was; nevertheless, looking at a chart of the Dow 
shows a “piercing pattern” back on July 24th – much earlier than 
the other indices.  Of course, I still needed confirmation from 
the other indices before turning significantly bullish.  Back on 
July 24th, there was still the weak dollar to be concerned about, 
a ton of buying within the five-year note, a long bearish trend 
in all indices, and yields falling to record levels.  This 
article may have not made a ton of sense then.

As noted in the chart, the piercing pattern followed the normal 
sequence of a piercing pattern; opening underneath the previous 
day’s close and selling off significant before recovering.  The 
recovery, by definition, has to end at least in the mid-point of 
the previous day’s real body.  Obviously, the Dow did much more 
than that.  

Chart of Dow Jones Industrial Average Index, Daily 


 

Ok, we have now established a reversal signal in the Dow.  How is 
this practical?  To me, it indicates that the trend has changed 
and investors can buy dips going forward.  A change in 
psychology.  Therefore, when the Dow recently fell towards 8215 
it gave the look of a double-bottom and signaled a possible 
buying signal.  A place for a stop would then be under 8202, 
the high of the piercing pattern formation.  

I gave the Dollar the second highest weighting; therefore, it 
makes sense to cover it now.  The candlestick pattern seen here 
is the “inverted hammer.”  This bullish reversal pattern is 
similar to the Dow in that it was an overachiever.  By 
definition, following an inverted hammer the next day should 
provide a gap higher for confirmation.  The Dollar significantly 
gapped higher and has not looked back.  In fact, at this posting, 
the Dollar has closed above the 50 DMA for only the third time 
since April.  

Chart of the US Dollar Index, Daily


 

Usually ahead of all indices, the Treasury Bond market has 
recently been lagging behind both the Dow and Dollar.  I believe 
this correlation is starting to change, and the powerful bond 
pits are setting their sights on the top of the podium once 
again.  

Looking at a chart of the 30-year cash bond (note:  Quoted in 
YIEDLS, so a “bad looking” chart means lower YIELDS and higher 
prices), the Treasury Index has not seen a “doji” reversal 
pattern between May 14th and September 5th.  This “doji” can be 
within or outside of the previous candlestick.  With yields at 
4.861 percent, both the 22 DMA and significant resistance can be 
seen at much higher YIELDS (read: lower prices).  Therefore, bond 
prices should move inversely with stocks in the near-term.  
Lower prices, higher yields, higher equity prices.  

Chart of 30-year Treasury Bond Index, Daily 


 

Time to turn to the Oil Index (XOI.X) and see if there is a 
candlestick formation that supports our premise of higher equity 
prices.  The Oil Index, in my opinion, has traded instep with 
equities in the past and should continue to do so in the near 
term.  Therefore, a bullish pattern in Oil should be bullish 
for blue chip holders.  The Oil Index can at times led the Dow
Jones; therefore, a reversal in this index should be given
weight and watched very closely.  

The “hammer” formation seen in the XOI index is most likely 
nothing new to readers; nevertheless, it can be an important 
reversal pattern after an established trend.  Apparently, it does 
not matter if the trend lasted a few days or a few years; as long 
as there is a trend in place.  Looking at the Oil Index, there 
was six days of selling and a loss of close to 10 percent over 
that time period (intra-day high to intra-day low); thereby 
giving the impression a down trend is in place.  With the hammer 
formation, by definition its shadow has to be at least twice its 
real body with a higher close adding slightly to the bullishness.  
The shadow, in this example, is 14x its real body.  

Chart of the Oil Index, Daily


 

Last, but not necessarily least, is the Utility Sector Index.  
Why last if such a powerful leading indicator for the Dow?  That 
has to do with their candlestick formation.  It isn’t as clear as 
the above examples; therefore, to the end of the article it goes.  
There is a pair of hammer patterns with “scouting parties” 
testing the conviction of bearish traders, but weakness on 
Tuesday took the index towards 263.  It is ok to have the second 
hammer low underneath the first hammer low, but the market will
need to hold 258 in order to keep the reversal pattern in tact. 

Chart of the Utility Sector Index, Daily 


 

Let’s recap:  All Intermarket Relationships appear to have shown 
a strong reversal candlestick formation.  When does this 
relationship become nullified?  Most likely weakness in the Dow 
under 8200.  If 400 points is too much, I would give the Dow a 
“neutral” rating at 8385.  A decline under the 22 DMA in the 
Dollar should weaken that indices relationship, while a move in 
yields under 4.70 percent would strain the relationship between 
bonds and stocks.  Turning to Oil, weakness in the XOI under 460 
should be reason enough to look at its relationship to the Dow in 
a different light.  Utilities have their proverbial line in the 
sand at 258.  However, as things stand now, all signs point 
towards a continued uptrend in the Dow.  


************************Advertisement*************************
”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.

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


**********
DISCLAIMER
**********

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

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

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives