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Daily Newsletter, Monday, 09/30/2002

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The Option Investor Newsletter                   Monday 09-30-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: So Long, September
Index Trader Wrap: Yogi, Smokey and September
Weekly Fund Wrap: Tough Quarter Reaches Close
Traders Corner: Shall We Play A Game?

Updated on the site tonight:
Swing Trader Game Plan: Head Start?

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      09-30-2002           High     Low     Volume Advance/Decline
DJIA     7591.93 -109.52  7698.81  7460.78 2.00 bln   1209/1539
NASDAQ   1172.06 - 27.10  1190.74  1160.07 1.66 bln   1456/1799
S&P 100   407.25 -  5.97   413.22   399.46   Totals   2665/3338
S&P 500   815.28 - 12.09   827.37   800.20
RUS 2000  362.27 +  0.49   363.79   354.30
DJ TRANS 2151.07 - 34.10  2185.12  2102.55
VIX        44.57 +  1.43    47.50    43.19
VXN        58.36 +  0.50    61.41    57.68
Total Vol   3,671M
Total UpVol   958M
Total DnVol 2,638M
52wk Highs   56
52wk Lows   439
TRIN        1.71
PUT/CALL    1.09
*******************************************************************

So Long, September
By John Seckinger
jseckinger@OptionInvestor.com

Good Riddance.  For the month of September, the Dow lost an 
impressive 1,072 points.  Looking at the third quarter as a 
whole, the blue chips finished lower by 1,652 points.  
Coincidence or not, the 3rd quarter of 2001 represented a loss 
of 1655 points.  On a percentage basis, the Dow lost 17.8% in
the 3rd quarter, and, according to the Stock Trader's Almanac, 
only the 30.7 percent drop during 1931 was worse.  For the year, 
the Dow is down 2,430 points, or 24%.  Looking at other markets, 
the Nasdaq lost roughly 11 percent for September and 20 percent 
for the quarter, its fourth-worst third-quarter performance ever.  
The S&P suffered its worst third-quarter results since 1987, 
dropping about 17 percent for the quarter and 11 percent for the 
month.

Looking at September 30th specifically, this last trading day of 
the month and quarter certainly started out on a powerful down 
note.  The blue chips opened down over 100 points during the 
first few minutes of trading, soon after testing the July 24th low 
of 7532 and buyers’ patience.  Speaking of technical levels, the 
late-day rebound did have the Dow test the July 23rd low of 7682 
(7685 high rebound level) before falling into the close.  At 
session’s close, the Dow had fallen by 109 points, or 1.42%, to 
7591. 

The catalysts were numerous.  Traders first focused on foreign 
markets showing sizable losses overnight; France lower by 5.3%, 
Germany off 4.7%, and the UK down 3.75% before the U.S. markets 
had a chance to open.  Bonds were up significantly, and stock 
futures all were showing deep shades of red.  Other negative 
developments included GE cutting estimates, WMT lowering sales 
guidance, an EBAY downgrade, coupled with weak economic reports.  
Sectors coming under pressure on Monday included Retail, 
software, semiconductor, and networking issues.  Indices that 
outperformed were gold, biotech, tobacco, and utility shares.  

Beginning with General Electric (GE), Merrill Lynch cut estimates 
early on Monday to reflect concerns over a deteriorating economy 
and GE’s short cycle business plan.  The earnings cuts by Merrill 
followed similar statements from Lehman and CSFB during Friday’s 
session.  Shares of GE closed higher by 0.18 cents at 24.65, 
rebounding from a low of 23.51 and attempt to test 23.02 low set 
on July 24th.  Under 23.02, and a chartist would have to look back 
to October 1998 to find support.  

Wal-Mart, on the other hand, lowered sales guidance and took the 
entire retail sector down with it.  The company reportedly 
lowered September same-store sales towards the low-end of the 
rand (3-6%), and also stated that FY 2002 earnings will come in 
at 1.76-1.78 versus consensus estimates of 1.79.  Shares of WMT 
fell 3.90% to 49.24, while the S&P Retail Index lost 11.51 
points, or 4.16%, to close at 264.54.    

Taking down technology issues was helped by shares of eBay 
(EBAY), losing 8.15% to 52.81 after being downgraded by RBC 
Capital Markets to “under perform” from “sector perform” and 
having its price target cut to $45 from $70.  Other technology 
shares losing ground included shares of Intel (INTC), falling by 
5% to 13.89 after the company’s CEO said he doesn’t expect a real 
turnaround in computer sales until companies return to 
profitability and start spending money on technology.  Rounding 
out the technology behemoths, MSFT, CSCO, and IBM all went lower 
on Monday as the Nasdaq and QQQ’s lost 2.25 and 2.76%, 
respectively.    

If foreign and domestic equity weakness was not enough, investors 
had to deal with weaker-than-expected economic releases.  
Starting with Personal Income and Spending reports, both fell 
short of the 0.5% expectations economists had hoped for.  
Personal Income rose 0.4%, while Personal Spending increased a 
mere 0.3%.  The retail sales and august employment report 
portended strong consumption figures; however, spending on the 
service level was tame while growth within the auto sector 
remained volatile.  This shortfall should have economists looking 
for slightly less growth out of the 3Q GDP.

The main economic release on Monday came at 10:00 a.m.  Bonds 
were already significantly higher, the Dow was near its intra-day 
low (hindsight of course), and the release of the Chicago 
Purchasing Manager’s Index (PMI) evidently lead to some temporary 
capitulation.  Expectations were for a slight decrease to 53 from 
54.9, month prior.  Therefore, the 6.8-point drop to 48.1 and 
first sub-50 reading since January was clearly unexpected.  
Regional volatility in new orders was the likely culprit, falling 
6.6 points to 49.2.  In May, new orders came in at 65.6.  Note: 
September ISM Index will be released at 10:00 a.m. on Tuesday, 
with expectations for a slight up tick in growth to 51 from 50.5.  

Gathering attention before, during, and after the Chicago’s PMI 
Index was activity in the bond market, especially the two-year 
note.  The cash 2-year note closed at 1.69%, below the Fed Funds 
rate of 1.75%.  This is called a "negative carry," since it will 
cost institutions 1.75% to borrow money that they need to hold 
inventory of 2-year notes.  Historically, the 2-year note has 
fallen under the Federal Funds rate only four times in the last 
13 years.  Following such an occurrence, the Fed usually lowers 
the funds rate within the next few months.  Note:  The next 
meeting is November 6.  

Another barometer for Fed action is the implied yield on the 
federal funds futures contract, currently indicating that there 
is almost a 100-percent chance the Fed will cut rates by 0.25 
percentage points before its next policy meeting.  The December 
Fed Funds futures contract is currently at 98.57, or 1.43% (32 
basis points under the Federal Funds rate).  

Keeping with bond futures theme, it was interesting that the 
December Bond closed only three ticks above its opening level of 
114-05.  The high in the contract was 114-31 (double-top with 
last Wednesday), while the recorded low was 114-07.  At 3 p.m. 
eastern time, the 30-year closed at 114-08.  This could give some 
fixed-income participants reason to take profits and enter 
equities.  

The yield curve, on the other hand, closed very strong, with the 
five-year note up 20.5 ticks and 10-year bond higher by 20.  This 
is a 43 tick steepener and significantly bearish for stocks.  

Looking into the future, portfolio managers on Tuesday will now 
have to decide which stocks need to be sold and which issues they 
“really” want to own.  The window dressing unwinding.  Moreover, 
concerns over which companies might warn and which will have 
their earnings cut for quarters extending throughout 2004 will 
also be in the spotlight.  According to Thomson First Call, the 
third-quarter ratio of negative to positive earnings pre-
announcements fell to 2.2 versus 3.5 this time last year when the 
economy was clearly in a recession.  

Time for some technical analysis.  Beginning with a chart of the 
Dow, the objective this morning most likely was for a test of the 
July 24th low of 7532.  After that, bears most likely looked for 
7401 to be challenged, an area set during September 1998.  
Reasons for not testing the 7401 level included support from the 
regression line (coming in near 7460) and the chance that the RSI 
bullish divergence is a sign of a possible reversal.  Other 
reasons could have been a self-fulfilling double-bottom and/or 
profit taking out of bonds and back into stocks.  

Chart of the Dow Jones Industrial Average, Daily   


 

Turning to the QQQ’s, the much-discussed Head and Shoulders 
formation is still on track to meet its 17.64 objective.  A move 
back above the ascending neck line (now currently near 22.25) 
will most likely nullify the H&S pattern.  It is also interesting 
the that the RSI indicator failed to make a new low as the QQQ’s 
continued its descent: A Bullish Divergence indicator.  Note:  
Some necklines may be drawn different, resulting in an objective 
above or below 17.64.  

Chart of the Nasdaq-100 Index (QQQ), Daily  


 

The fixed-income arena shows extreme price action as well (see below).
Looking at a chart of the 30-year bond, YIELDS have set 
a new record low monthly close and could possibly portend one 
more wave lower before recovery.  Not coincidentally, the RSI is 
diverging as well.  This divergence portends higher yields, which 
should be bullish for stocks.  And, like the Dow, there is a good 
chance YIELDS will find temporary relief once the regression line 
is tested.  

Chart of 30-year Treasury Bond Index, Monthly  


 

To recap, the ISM report on Tuesday will garner much attention, 
as will price action within Treasuries and possible negative 
earnings announcements.  Risk continues to be shifted into the 
bears’ camp, but, as always, this does not mean that the selling
will stop.  As a trader, watch price action very closely and keep 
those stops tight.  Who knows, maybe the Fed will surprise us 
before the week is out.  


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

Yogi, Smokey and September

It was a happy, yet sad day for bears at this year's "three bears 
reunion" as Yogi T. Bear, Smokey T. Bear and September T. Bear 
exchanged pleasantries as they parted ways.  For bearish equity 
traders, it was September T. Bear they hated to see leave most.

Many traders are familiar with Yogi and Smokey, while some 
subscribers were introduced to "September The Bear" back in our 
August 28th intra-day update at 01:00 PM EST and discussions 
regarding how bearish the month of September could be for the 
markets in a mid-term election year.  Of course, we wanted to 
check the bullish percent charts against history to perhaps 
solidify the thought that bearish history might repeat itself, 
and it did in staggering fashion.

This mid-term election saw the Dow Industrials fall a spectacular 
1,071.57 points (-12.3%) in September , which handily 
outperformed (to the downside) the historical 51-year average 
declines for September of -0.6% for this major market average.  

This September's "mid-term election year" could have been worse 
had the Dow Industrials (INDU) 7,591 -1.42% not recovered from 
their session lows of 7,460.78, which was just a smidge above our 
"fitted" 0% retracement level of 7,451.20 and 5-cents shy of our 
Dow Diamonds (AMEX:DIA) $76.00 -1.10% "fitted" retracement level 
of $74.55, with an intra-day low of $74.60, not to mention the 
point and figure chart's bearish vertical count of $74.00 for 
this security.

Dow traders may want to take special note tonight to lower their 
stops in current trades to break-even and profitable levels.  
Take special not here of our "previous" retracement support near 
$74.55 and "current" retracement support near $74.54 with newly 
"fitted" retracement.  

If market technicians were "wondering" why the Dow held tough, 
just above the $74.00 level today, then perhaps other bearish 
market participants were locking in some gains at these levels.

It was in our 09/23/02 Index Trader Wrap 
http://members.OptionInvestor.com/itrader/marketwrap/092302_1.asp
 that we last "rolled down" retracement in the Dow Industrials 
and identified the 7,750 and 7,500 levels as a bear's targets.  
With today's intra-day downside piercing of the 7,451 level we'll 
roll down retracement to further try and identify levels of 
support and resistance that institutional traders may be trading 
and making buy/sell decisions against.  As the downward trend in 
the Dow Industrials forms, I'm also re-drawing my downward 
regression to reflect recent bar chart data accumulated.

Dow Industrials Chart - Daily Interval


 

From prior retracement work and the above recently rolled lower 
retracement bracket, we find two corollary levels of support near 
the 7,450 level in the Dow Industrials.  Bearish traders that 
booked some profits this morning are most likely looking for a 
rally back near/above the 7,800 level as new entry points with 
new downside target of 7,100-7,400.  Bearish traders that are 
"risk averse" and may not have locked in some gains today can 
place a trailing stop above 7,665 as a trailing stop.

One stock a bullish and bearish traders should monitor near-term 
for an upside move and perhaps signal that bulls are moving some 
money back into the Dow Industrials would be shares of Johnson & 
Johnson (NYSE:JNJ) $54.08 -1.85% on a move ABOVE $57.00, stop 
$53.25 and target $65 by year's end.  This consumer products 
maker has been consolidating between $52 and $56 since August and 
would be one of the Dow stocks I'd currently monitor for bullish 
leadership.  With the Dow Industrials Bullish % ($BPINDU) now 
reading just 9.99% bullish (AXP, C, PG being the three stocks 
still showing a buy signal intact) shares of JNJ look to be "best 
poised" of the Dow components to generate a new buy signal.  A 
trade at $57 would be a triple-top buy signal and should the Dow 
Industrials Bullish % ($BPINDU) reverse back up, JNJ could well 
be a good "hedge trade" for a "Dow bear," and a young "Dow bull."

Today's action had both the S&P 500 Index (SPX.X) 815.28 -1.46% 
and S&P 100 Index (OEX.X) 407.25 -1.44% came within "cab fare" of 
a September bear and our 19.1% retracement levels, which 
institutional traders may have been locking in some bearish 
gains.

Several index traders have noted in recent sessions that the 
"Commitment Of Trader's Report" found in the Market Sentiment 
section of the site 
http://members.OptionInvestor.com/marketsentiment/092902_1.asp
 shows that "Commercials" are still rather bullish and their "net 
short" position as of 09/24/02 is very low (17,385).

This may be a very IMPORTANT observation for bearish traders to 
take note of currently.  As one subscriber points out as he 
follows these data closely... 

"Looking back at past history of the S&P 500 commercials, they 
have not been on the wrong side of the market in over ten years!  
The last decline from S&P 500 (SPX.X) 965 down to 817 showed that 
commercials covered no shorts and actually were going long all 
the way down.  They always built their net shorts when a 100 or 
more point decline was coming.  They did it on EVERY decline.  
Until this time.  You see they are at a yearly low for their net 
shorts.  Either they have for the first time been on the wrong 
side of the market or they see a massive rally coming; at least 
100 S&P 500 (SPX) points from the point they were adding long 
(around 920).  So my question is... Is it at all possible that 
the S&P gets to the 1000 level or higher in the next few months?  
Or are they wrong for the first time?"

S&P 500 Index Chart - Daily Chart


 

On the above chart of the SPX, I've tried to "benchmark" the 
dates and "net" short of the commercials.  Index Traders that 
remember our 09/11 market wrap will remember we were rather 
bearish the major indexes.  Not how the "net" short built on the 
rally after the 09/03 sharp drop.  It certainly appears to me 
that commercials have been "wrong" from 09/17 to 09/24 as their 
net short position dropped.  However, it's my guess that the next 
Commitments of Traders Report will show net short position 
building.  If commercials are "right" and not adding any bearish 
positions as a rally to 1,000 is "eminent," then a SPX bear 
holding some puts can follow with stops just above 835 or 860.

From a supply/demand perspective, it is notable that September 
SPX decline of 11% is sharp when compared to the past 51-year 
average of -0.2% for September.  Perhaps the "lack" of net short 
positions by the commercials are partly responsible for the steep 
declines in September and the brief 2-3 day short-covering 
rallies.

S&P 100 Index Chart - Daily Chart


 

Just as the SPX found intra-day support at 19.1% retracement, the 
OEX hit our 19.1% retracement and undercut it by a "penny."  I 
would NOT look to establish any new positions from the bearish 
side right now (SPX/OEX), and would prefer to short/put a rally 
in the SPX above 834 and OEX 418 where a bear can better control 
his/her risk in the trade.

I wouldn't be "surprised" if the SPX/OEX tried to flirt with 
today's lows in the next day or two, then get an "oversold" 
bounce back higher like we witnessed last Wednesday and Thursday.

NASDAQ-100 Index Tracking Stock (AMEX:QQQ) - Daily Interval


 

Both the NASDAQ-100 Index (NDX.X) 832.52 -3.23% and NASDAQ-100 
Index Tracking Stock (AMEX:QQQ) $20.72 -2.7% traded new 52-week 
lows on an intra-day basis and both closed at new 52-week lows.  
I'd expect some volatility in the next couple of days as Dell 
Computer (NASDAQ:DELL) $23.51 -3.25% kicks off a 2-day meeting 
with analysts.  

Earlier this afternoon, Lehman analyst Dan Niles said he expects 
DELL to reaffirm guidance of 5% revenue growth for the quarter 
and EPS of $0.21.  In general, he believes the market will view 
this as a slight positive given the number of pre-announcements 
seen recently.

I personally took some short-term gains off the table in a 
bearish QQQ Oct. $21 put at $1.85 and removed 1/2 bearish 
position in the QQQ's from bearish entry points last week near 
the $22.00 level and 50% retracement level.

Should the Q's rally on any DELL guidance that only speaks of 
company specific "market share gains" and not "new demand from 
customers" then I'd look short the Q's above $21.44.  Other "big 
cap" technology had Cisco Systems (NASDAQ:CSCO) $10.48 -6.68% 
trading and closing at a new 52-week low, while QQQ heavyweight 
Microsoft (NASDAQ:MSFT) $43.69 -3.4% is getting closer to its 52-
week low set on 07/24/02 of $41.41.

While the Q's did edge up throughout the session after their 
first 60-minutes of trading, the recovery back to $21.24 fizzled 
quickly in the last 30-minutes of trading.

I've placed a "protective stop" at the $21.10 level in the QQQ, 
which is just above the 09/23 and 09/24 closes.  For NASDAQ-100 
Index (NDX.X) 832.52 -3.2% traders, a similar stop would be just 
above 845.  Near-term trading targets would be QQQ=$20.20 and 
NDX.X=$801.50.

Jeff Bailey


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

Tough Quarter Reaches Close

The Dow and Nasdaq sank to multi-year lows Monday, September 30, 
following last Friday's blue chip sell-off.  For the week ended 
September 27, the S&P 500 large-cap index slid 2.1%, and is now 
down almost 10% for the month and 16% for the quarter using the 
Vanguard 500 Index Fund as the proxy.  The popular market index 
is down approximately 27% since December 31.




 


As you'll see in a minute, stock mutual funds were flat to lower 
for the week, with growth-oriented funds holding up better as a 
group than equity income funds and value funds.  More earnings 
warnings and job cuts by top American corporations pushed down 
the prices of large-cap, value stocks and mutual funds overall.

International stocks and funds held up better, in dollar terms, 
than similar U.S. stocks and funds.  For the week, the foreign 
developed markets as measured by the MSCI EAFE Index lost 0.2%, 
while the average international stock fund was 0.5% in the red.  
Emerging markets equity funds produced much greater losses for 
the week.  

Bond mutual fund returns were mixed, with investment-grade funds 
generally producing gains while below investment grade funds and 
global/international fixed income were in the red for the weekly 
period.  Money market fund yields remain at historical lows with 
the average taxable money fund yielding just 1.23% today per the 
iMoneyNet.com website (simple 7-day yield as of September 24).

Lipper Equity Fund Indices

According to Lipper's weekly index update, the best and worst 
equity fund indices for the 5-day period through September 27, 
2002 were as follows:

 Top Five Equity Fund Indices:
 +0.0% Mid Cap Growth Funds (YTD -30.9%)
 -0.0% Small Cap Growth Funds (YTD -30.9%)
 -0.5% International Funds (YTD -17.3%)
 -0.6% Multi Cap Growth Funds (YTD -32.7%)
 -1.0% Mid Cap Core Funds (YTD -21.9%)
  
 Bottom Five Equity Fund Indices:
 -6.1% Gold Funds (YTD +42.0%)
 -3.4% Emerging Markets (YTD -11.4%)
 -2.4% Science and Technology Funds (YTD -48.0%)
 -2.0% Equity Income Funds (YTD -21.8%)
 -2.0% Multi Cap Value Funds (YTD -22.9%)

You can see that some fund categories managed to limit weekly 
losses to below one percent.  Compared to other equity groups, 
mid/small cap growth funds performed relatively well, with no 
gain or loss on average for the week.  International funds on 
average lost just 0.5%.

On the flip side, gold funds saw average losses of 6.1% in the 
last five days, cutting their YTD average total return to 42%.  
Science and technology funds fell by 2.4%, extending their YTD 
average loss to 48%.  The fact that pro-growth funds have been 
holding up better than tech sector funds of late suggests that 
their relative technology weightings (versus the market or S&P 
500 index) have diminished.

The 2% weekly loss was typical of funds in the large-cap/value 
sectors, including equity income funds.  Funds that can short 
stocks such as Fidelity Contrafund were able to offset some of 
their weekly losses.  It closed the week just 0.4% in the red.

Lipper Fixed Income Fund Indices

The four best and worst Lipper fixed income fund indices over the 
5-day period ended September 27, 2002 were as follows: 

 Top Five Fixed Income Fund Indices:
 +0.3% Corporate A-Rated Debt Funds (YTD +6.9%)
 +0.2% U.S. Government Funds (YTD +8.9%)
 +0.1% GNMA Funds (YTD +7.1%)
 +0.1% General Municipal Debt Funds (YTD +8.7%)
 +0.0% Short Investment Grade Funds (YTD +3.0%)
 
 Bottom Five Fixed Income Fund Indices:
 -1.1% High Yield Funds (YTD -7.7%)
 -0.3% International Income Funds (YTD +11.1%)
 -0.2% Global Income Funds (YTD +6.7%)
 -0.1% Intermediate Investment Grade Funds (YTD +5.9%)
 -0.0% High Yield Municipal Funds (YTD +5.6%)
 
You can see from the weekly numbers that the bond funds with the 
gains last week were mostly of "investment grade" credit quality, 
while the bond funds that lost ground were primarily of the high 
yield/international variety.  The latter group has the potential 
for greater total returns over time, but in the short run can be 
extremely volatile.  

Largest Mutual Funds

The nation's largest mutual funds based on net assets ended the 
week with the following total returns (losses):
 
 Largest Stock Funds:
 -2.1% Vanguard 500 Index (VFINX) YTD -27.1%
 -1.8% Fidelity Magellan (FMAGX) YTD -27.0% 
 -1.9% Investment Company of America (AIVSX) YTD -19.8%
 -1.8% Washington Mutual Investors (AWSHX) YTD -20.3%
 -0.4% Growth Fund of America (AGTHX) YTD -25.9%
 -0.4% Fidelity Contrafund (FCNTX) YTD -9.9%
 -2.2% Fidelity Growth & Income (FGRIX) YTD -21.6%
 -1.1% EuroPacific Growth (AEPGX) YTD -18.9%
 -1.4% New Perspective (ANWPX) YTD -22.3%
 -2.4% Vanguard Windsor II (VWNFX) YTD -20.8%
 
 Largest Bond Funds:
 -0.2% PIMCo Total Return (PTTRX) YTD +7.3%
 +0.2% Vanguard GNMA (VFIIX) YTD +8.1%
 +0.1% Vanguard Total Bond Market (VBMFX) YTD +6.4%
 -0.4% Bond Fund of America (ABNDX) YTD +1.1%
 +0.1% Vanguard Short-Term Corporate (VFSTX) YTD +3.4%
  
 Largest Balanced Funds:
 -1.3% Income Fund of America (AMECX) YTD -10.1%
 -1.3% Vanguard Wellington (VWELX) YTD -11.8%
 -1.2% Fidelity Puritan (FPURX) YTD -13.1%
 -1.7% American Balanced (ABALX) YTD -12.5%
 -1.2% Fidelity Asset Manager (FASMX) YTD -13.5%

Most of the ten-largest equity funds held their weekly loss to 
below 2%, doing better than the market overall, as measured by 
the S&P 500 index (using Vanguard 500 Index Fund as the proxy).   
Fidelity Growth & Income Fund and Vanguard Windsor II Fund for 
the week fell by 2.2% and 2.4%, respectively, lagging slightly.

The five largest balanced funds lost between 1.2% and 1.7% for 
the week, holding up better than their full-equity fund peers.  
American Balanced Fund's exposure to high yield hurt its total 
return performance last week relative to other domestic hybrid 
funds.  Sibling Bond Fund of America lost 0.4% over the weekly 
period, lagging its bond fund peers.

Money Market Funds

The iMoneyNet.com website indicates the all-taxable money market 
fund average (5-day simple yield) slipped a basis point to 1.23% 
thru September 24, 2002.  The highest current yields among prime 
retail money market funds are PayPal MMF (1.78%), Touchstone MMF 
(1.75%), and Scudder YieldWise Money Fund (1.57%). 

Per iMoneyNet.com, the country's five largest retail money funds 
are showing the following current 7-day simple yields as of last 
week:

 Largest Retail Money Market Funds: 
 1.51% Fidelity Cash Reserves 
 1.14% Schwab Money Market Fund 
 1.51% Vanguard Prime MMF/Retail 
 1.43% Schwab Value Advantage Money Fund 
 1.41% Merrill Lynch CMA Money Fund

You can see that Schwab Money Market Fund's yield is considerably 
lower than the rest, due primarily to its operating expenses.  It 
would appear that Schwab is capable of a higher yield (the Schwab 
Value Advantage Money Fund) with the key difference between these 
sibling funds being their relative expense ratios.

Mutual Fund News

According to the Investment Company Institute, nearly half of the 
households in America (an estimated 52.7 million households) were 
invested in stocks at the start of 2002.  Those numbers are up in 
comparison to three years ago, as American put more and more away 
through their company thrift plans.

Most investors follow a buy-and-hold strategy per the 2002 survey 
conducted by the ICI and Securities Industry Association.  In the 
survey, some 86% of households reported to follow the traditional 
buy/hold strategy to long-term investing, with 95% of respondents 
believed their value generally would recover after a bear market.

Investment Company Institute (ICI), the mutual fund association, 
urged Congress last week to enact bipartisan legislation to help 
workers attain financial security and a sound retirement through 
their employer-sponsored 401(k) plans.  The ICI hopes to improve 
four areas relating to thrift plans: diversification, disclosure, 
education, and advice.  More information is available at the ICI 
website (www.ici.org).

Morningstar announced last week that it's moving from 10 sectors 
to 12 to better define each sector for "cleaner distinctions."  
The funds tracker is introducing three new super sector groups: 
information economy, service economy and manufacturing economy. 
These broad but well-defined economic spheres, they say "add 
rigor to what is loosely referred to as the new versus the old 
economy."  Each sphere is divided into four sectors.  For more 
information, visit the Funds section of the Morningstar website 
(www.morningstar.com).

That's it for this week's Weekly Fund Wrap.  Have a good week.  


Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com


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

Shall We Play A Game?
by Mark Phillips
mphillips@OptionInvestor.com

Does anybody else remember the movie from whence that line came?
I'm sure there are many of you that never saw War Games, and it
really isn't important.  Recall how the War Game computer invited
a VERY young Matthew Broderick to play a game called Global
Thermonuclear War.  Except for the basic premise, we need to
keep in mind that no matter how seriously we take the business
of trading, it sometimes helps to put it into the context of a
game, with all the attendant rules, strategies and experience
that we can bring to bear so that in the end, we win.  I learned
an important lesson about the markets a few years ago, that I want
to share with you here tonight in the form of a quick little game.
The game is called, "Would You Buy This Chart?"

I think you would be hard-pressed to find an honest and successful
trader that wouldn't tell you that the past several months have
provided the toughest trading environment in recent memory.
Rather than bang our heads against the normal Technical Analysis
rules and strategies, or Inter-market Relationships tonight, I
want to see if I can get you to perhaps develop a fresh
perspective via a journey through some charts that have recently
caught my attention.

I've found from time to time, it is a useful exercise to put all
my economic and market biases aside, looking instead for
compelling chart patterns.  The basic tenet of Technical Analysis
is that all fundamental data is already reflected in the price of
a stock, so if we find a chart that looks bullish (or bearish)
that may be a great starting place for a winning trade.  The
other interesting benefit of this exercise is that removing our
biases about a specific stock or sector of the market, can often
lead us to a fresher and more profitable perspective.

First up let's look at a bullish chart, where price action has
been consistently plowing higher.



 

It sure is hard to argue with that kind of bullish performance,
now isn't it?  Following completion of that double-bottom in
early January, the stock took off, and has taken out some
important resistance, breaking out this spring and then again
over the past month, setting new multi-year highs in the process.
I'll give you a hint about the stock's identity, by telling you
that it is listed on the NYSE.

So how about a bearish candidate?  Since our bullish stock was
listed on the NYSE, it should come as no surprise that we're
looking at a four-letter name (i.e. NASDAQ-listed stock) for
our bearish example.



 

You don't have to look very hard in the Technology sector to
find stocks that have been in a persistent downtrend, and the
chart above certainly fits that description.  Continuously
being pressured lower by the descending trendline, we can see how
price action has grudgingly broken below one support level after
another.  And it now looks like another level is about to fall
victim to the bears.

See how we can view a stock chart on its merits alone?  No
technical indicators, and no biases about the stock or the sector,
because we don't have that knowledge.  The first example looks to
be a strong bullish candidate, while the latter is in an
established trend.  But sometimes things are not what they
appear.

Confession Time:

Let this be a lesson to you that you shouldn't play a game in
which you don't fully understand the rules.  Sure I played dirty
pool here, but I did it for a reason.  By omitting certain
information from the charts above and creatively modifying them,
I painted a picture of a bullish NYSE stock and a bearish NASDAQ
stock, the exact opposite of the truth.  Let's take a look at
the same two stocks with the subterfuge removed.

IBM Weekly Chart


 

I haven't changed any of the lines drawn on this chart - it is
exactly the same as the first mystery chart.  Wondering how I
got it to look bullish?  All I did was change the positive
candles from green to red and negative candles from red to green.
Then all I had to do is invert the scale in Qcharts.  Now you
can see the chart for what it truly is; a strong bearish
candidate.  That double top up at $125 ushered in a steep slide
that has sliced off more than 50% of the stock's value in the
past 9 months.  And judging from the pattern and the PnF price
target of $42, there is still a lot of room to fall.

Now here is the reason that I played my little game.  If I told
you that IBM looks good as a bearish play with its breakdown
under the $65 level, you might have looked at how far it has
already fallen and thought that it is pretty much done.  But
by forcing ourselves to look at the chart as a bullish
candidate, suddenly the stock looks more compelling as a trade.
If it was good as a buy in the first chart, then doesn't it
make sense as a sell once we show the stock for what it is?

How about our second mystery chart?  I played the same game
of duplicity, changing colors and scale to reverse the true
picture, making a strong NASDAQ stock look like a weakling.

ERTS Weekly Chart


 

Once we turn the ERTS chart right side up, suddenly we see just
how strongly this stock has performed over the past 2 years.
Strong support at $62 is helping the bulls to work higher, and
just last week we saw ERTS closing at new all-time highs.  Again,
the point I was trying to make is that if we just looked at the
first mystery chart and saw a bearish play, then when we remove
the chart's disguise, doesn't ERTS make a strong bullish play?

I really don't have an axe to grind on either of these stocks,
and I don't have positions in either of them.  They just happened
to provide the picture I wanted for my little game today.
Hopefully twisting your arm to think unconventionally will help
to improve your trading results over the long-term.  The first
time I ever did this was back in early 2000, where I looked at a
NASDAQ chart similarly inverted.  It allowed me to remove my
bullish bias and see what looked like a great buying opportunity
(with my then-bullish bias fully intact).  By turning the tables,
I was able to see that maybe the NASDAQ couldn't grow to the sky
and it allowed the thought into my brain that maybe, just maybe,
a change was in the air.

So how many of you saw through my subterfuge before I revealed
the deception in the bottom of the article?  If you skipped to
the bottom before reading the top (jumping straight to the
answer), then shame on you!  But if you followed the train of
thought and I didn't force you to go through any contortions to
see either of these stocks for what they really are (IBM = Bearish
and ERTS = Bullish), congratulations.  I believe you have the
mental dexterity to survive and thrive in these topsy-turvy
markets.

Have a great week!

Mark


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

Head Start?

September finished with a continuation to the down side. You can 
look at it as just another lousy September day or a head start 
into October. With economic conditions deteriorating and a week 
full of potential economic disasters ahead the possibility of 
falling into Fall is growing.

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


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The Option Investor Newsletter                   Monday 09-30-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:
Stop Loss Updates: CI, FNM, GM, KSS
Dropped Calls: LLL
Dropped Puts: None
Play of the Day: Put - KSS
Sunday’s Leap Section: Here We Go Again

Updated on the site tonight:
Market Watch
Market Posture

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

CI - put
Adjust from $76 down to $74.75

FNM - put
Adjust from $65 down to $63.25

GM - put
Adjust from $43.50 down to $41

KSS - put
Adjust from $67 down to $64


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

LLL $52.70 -2.21 (-2.21) With the broad markets falling sharply
to round out an abysmal quarter on Monday, even the war bid
couldn't prop up shares of LLL, with the Defense Industry index
(DFI.X) shedding more than 2%.  LLL's performance was even worse,
as the stock plunged through our $53.50 stop on its way to a 4%
loss on the day.  Weighing on the sector early in the day was a
downgrade of RTN, and the sector never recovered from that early
blow.  Breaking the $53.50 support level is significant, and with
the trade below $53, the PnF chart has now generated a new Sell
signal.  Any open positions should have been stopped out on the
early plunge.  If still holding positions, look to exit tomorrow
on any rebound from current levels.


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

None


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and clicking on the link to the book on its home page.

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*********************
PLAY OF THE DAY - PUT
*********************

KSS - Kohls Stores $60.81 -3.28 (-3.28 this week)

Company Summary:
Based in Menomonee Falls, Wis., Kohl's is a family-focused,
value-oriented specialty department store offering moderately
priced national brand apparel, shoes, accessories and home
products. The company operates 420 stores in 32 states.

Why we like it:
Kohl's has suffered the same fate as its brethren in the retail
business.  There has been a sales slowdown in the month of
September after Wal-Mart and Federated had previously reported
sales to be on track with guidance.  For the last several months,
retailers have guided downward as each month has worn on, and
this month looks to be more of the same.  The biggest problem
with retail sales still being slow is that the holiday shopping
season is just around the corner.  If the trend toward lower
consumer spending does not turn around, the effects will be felt
much more severely in the next few months.  Most retailers derive
an inordinate portion of their revenue from sales in the last
couple of months of the year.  Therefore, without signs of an
economic turnaround any time soon, it may be a year before they
have a chance to recoup this year's losses.

KSS had flirted with support at $65 since the beginning of
August.  It also had been on a series of higher highs and higher
lows, making shorts a bet against the tide.  That pattern has
reversed itself in what appears to be a double top formation on
the daily chart. The stock recently broke down below its 10, 50,
100 and 200 dmas, after setting the second lower top. The
breakdown below $66 led to a new double bottom point and figure
sell signal and the intraday trade of $64 placed the stock right
on top of its bullish support line.  A trade of $63 would
constitute a break in bullish support and can be used as a
trigger point for more conservative traders.  We like the trade
below $65 as a signal to short the stock, and will initiate the
position here.  Today saw a big drop in the stock, as well as the
Dow, so a "dead cat bounce" is a possibility on Monday. If the
market does bounce, a failed rally below $66, the point of
previous PnF support, may provide an additional entry point as
well. The current bearish vertical count is $52, but that could
wind up even lower, as the current column of "O"s is defining
that count.  Our initial target on the play will be the PnF
support level of $57, however, if consumer spending does not
improve, we may let the position ride if it reaches that level.
Place stops at $67, above today's high.

Why This is our Play of the Day
If you thought Friday's plunge in KSS was exciting, then the
continuation of that trend today was downright breath-taking.
Retail stocks have been weakening on thoughts that the consumer
may be pulling in his horns and with WMT lowering its same-store
sales guidance for September this morning confirms that point of
view.  The Retail index (RLX.X) got hit for a 4% loss on the day,
and KSS exceeded that by losing more than 5% on volume that more
than doubled the daily average.  That wiped out support at the $63
level and bears are now setting their sights on the July lows near
$57.  Should KSS find investors willing to buy near current
levels, then we could get an oversold bounce to set us up for the
next entry.  With the $63 level likely to now be formidable
resistance, any rollover below that level looks good for new
entries.  Should the RLX (along with the rest of the broad market)
continue lower, new momentum entries in KSS can be considered as
the stock falls under $60.  Note that the PnF chart tacked on a
few more O's today, extending the bearish vertical count to $48.
Lower stops to $64, which is just above the top of Monday's gap.

BUY PUT OCT-65 KSS-VM OI=4930 at $5.40 SL=3.50
BUY PUT OCT-60*KSS-VL OI=1852 at $2.60 SL=1.25
BUY PUT NOV-60 KSS-WL OI= 310 at $4.30 SL=2.75

Average Daily Volume = 2.53 mln



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*********************
SUNDAY’S LEAP SECTION
*********************

Here We Go Again
By Mark Phillips
mphillips@OptionInvestor.com

It wasn't that long ago (2 short months) when the broad markets
were tagging multi-year lows that many market pundits (not me)
were telling us would define "The Bottom".  Wrong again!  My
favorite one was Dick Hoey on CNBC stating that we'd be in a new
secular bull market by November 1st.  That means only 5 weeks
from now, the DOW will be up +20% from wherever it bottoms this
time.  I can hardly wait.  GRIN!

Seriously, this market is not healthy and likely headed quite a
bit lower over the next 30 days.  Then we can only hope that we
get some sort of positive sign from Corporate America to help
propel us into the historically bullish November-May timeframe.
Nobody would be happier about that than I, but let's just say
that I remain skeptical.  No matter what metric you use, whether
PnF charts, Bullish Percent, Head & Shoulder Patterns, Trendlines,
Oscillators, etc.  They are all pointing to lower prices ahead.
Rather than try to divine the future (I'm not very good at it),
I'll defer to Jim and Jeff, as I'm sure they will paint a pretty
clear picture of where we're headed over the next few weeks.
Here in the LEAPS column, we're looking for longer-term trends to
capitalize on.  I see pockets of strength and weakness developing,
but as we have learned numerous times in the recent past, picking
the right entry point makes all the difference between a profit
and a loss, or sitting in frustration on the sidelines (as in the
case of our BBH Put play that I'm dropping this weekend).

As I alluded to last weekend, I really gave a variety of new Watch
List plays to consider this weekend, 2 bullish and 1 bearish.
Each of these plays need to do a bit more work to set us up for
solid entries, but hopefully we'll be well positioned for the next
major market move when it comes along.

The broad markets (all of them) seem to be perched on the edge of
a precipice and it will only take a mild breeze to push them over.
Even the VIX started marching steadily higher again on Friday in
concert with the 300 point DOW selloff.  Once the S&P 500 (SPX.X)
closes under $815, look for it to generate another PnF Sell
signal, and that looks to me like the one remaining necessary
ingredient for a quick selloff to the July lows.  But then what?
I've had a descending channel drawn on the SPX for close to a year
now and it stretches all the way back to late 2000.  In July, the
bottom of that channel was at $772.  Remember where the intraday
low on the SPX was?  $775.68.  I'm thinking that if this earnings
season is the disaster that I expect it to be, we could be testing
the bottom of that channel again.  That bottom is currently $730,
but it will fall to $700 by the end of October.  What I find
interesting about these levels is their technical significance.
I have a retracement on the weekly SPX beginning with the
late-1994 low (beginning of the late 90's runaway bull market)
and ending with the high in March of 2000.  The 75% retracement
of that advance is $720.  Another interesting point is that the
$725-730 area was strong support in both late 1996 and early 1997.
I know it isn't a guarantee, but there seems to be a confluence
of factors pointing to this level as being important from a
technical standpoint.  

If we were to get a bounce in the $700-730 range over the next
4-6 weeks, I would expect it to produce a substantial rally,
likely in excess (at least in terms of size) of what we saw in
late July and early August.  Leading the way will be another
parabolic move in the VIX, and I wouldn't be surprised to see it
top 60 on that move.  Of course, this is all conjecture, based
on what might happen.  I'll comment more on this particular
scenario if the markets see fit to smile on my theories, rather
than paint me as a fool.  I know I said I wasn't going to get
into predictions this weekend, so let's put this topic to bed
for now and look at what's going on in LEAPS-land.

Portfolio:

QQQ - The action in the QQQ was uncanny last week, as though
there was some powerful, but hidden force that didn't want to see
a close below $21.  Monday's slide came to a halt at $21.02, and
after an intraday dip below that level, Tuesday's close came right
at $21.03.  With the late-week rebound in the NASDAQ, our QQQ play
is still alive, but just barely.  And with October looming ahead
(and unlikely to be kind to the bulls), it probably isn't going
to take a very big push to have us stopped out of the play next
week.  While I'm leaving the play open this weekend, let me take
this opportunity to encourage you to honor your stop, or if you
are nervous, close out the play on Monday.  My gut feel is that
there will be another opportunity to play bullish on the QQQ in
the fairly near future, but this time I leapt in too early.

SMH - The sector that time forgot, the SOX is relentlessly
grinding its way down towards the $200 level, a destination that
hasn't been visited since October of 1998.  Even after losing
better than half its value since spring and a third of its value
since late August, the SOX still has a lot of potential room to
fall.  Using the picture produced by the PnF chart, the SOX has
a bearish price target of $152, while the SMH has a bearish
target of $14.  Both of those numbers represent another haircut
of about a third from current levels.  Will we get there?  I truly
have no idea, as I really never expected that we'd see the SOX
under $300.  Shows you what I know!  I see no hope for anything
on the horizon for this group, so I want to keep riding the SMH
lower.  But we're sitting on a tidy gain in the play, so I want
to protect that gain as well.  In fact, I want to get downright
aggressive with our stop.  With resistance coming in just above
$21 on several occasions last week, let's lower our stop to
$21.50, which is also just above the top of the 6-week
descending channel.

Watch List:

MO - Oops!  Just when it looked like MO was going to rebound back
through the $43 level last Thursday, the company came out and
warned for both 2002 and 2003.  Yikes!  That doesn't sound good!
Investors agreed, slamming the stock for more than an 11% loss
on Friday.  That brings the stock down to levels not seen since
late 2000 and judging by the picture being drawn on the PnF
chart, there is plenty of room left to fall.  So why am I keeping
the play on our Watch List?  Recall my premise that investors are
going to be looking for reliable cashflow as this bear market
grinds along?  Well, as of Friday's close, the dividend yield on
MO is 6.76%!  Now that's attractive for investors that need the
cashflow, with even the 30-year bond returning a relatively
paltry 4.69%.  As LEAP buyers, we don't get a piece of that
dividend, but we can benefit from those that do once MO stabilizes
and turns northward once again.  Note that as MO continues to
fall, that yield continues to rise, and should the stock reach
its PnF bearish price target of $25, we would be looking at a
10.2% yield.  Now that's going to look downright tasty to a lot
of investors, and that's the primary reason that I don't expect
the $25 area to be reached.  But until we see signs of renewed
bullish interest in the stock, let's just put it on HOLD -- on
the Watch List, but dormant for now.

BA - That test of the July lows is a foregone conclusion now, and
odds are that it won't be a successful test.  That is just the
setup we're likely going to need to give us that attractive entry
into our BA play, that we've seemingly been waiting for forever.
As the Airline sector continues to melt down, that is having a
definite bearish impact on shares of BA, as the stock grinds lower
with the rest of the DOW Transports.  Keep that entry target set
at $32, as I think it's going to be hit in the next few weeks.

Little has changed since last week, except the markets appear
even more intent on testing (and likely taking out) the July
lows.  VIX rising, all Bullish Percent charts favoring the bears,
and price objectives for all the major indices below where we
are right now, all point to October starting out ugly for the
bulls.  Note that our Watch List is still heavily biased to the
Call side.  There are a couple of important points to make here.
This decline is far too long in the tooth right here to be
getting wild with new long-term bearish positions, except in
select sectors (like housing) that have yet to feel a major
correction.  The other point is that most of the bullish entry
targets listed are well below current levels, close to what I
think are going to be favorable entry points after the expected
October decline.

My advice over the near-term is to be very careful, keep position
sizes small and maintain your money management discipline.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
QQQ    09/09/02  '03 $ 24  QAV-AX  $ 2.20  $ 1.20  -45.45%  $21
                 '04 $ 24  KLF-AX  $ 4.10  $ 3.20  -21.95%  $21


Puts:
SMH    09/11/02  '04 $ 20  KBS-MD  $ 3.40  $ 5.00  +47.06%  $21.25
                 '05 $ 20  ZTO-MD  $ 4.70  $ 6.10  +29.79%  $21.25


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BA     06/30/02  $32           JAN-2004 $ 35  LBO-AG
                            CC JAN-2004 $ 30  LBO-AF
                               JAN-2005 $ 40  ZBO-AH
                            CC JAN-2005 $ 30  ZBO-AF
MO     08/25/02  HOLD          JAN-2004 $ 45  LMO-AI
                            CC JAN-2004 $ 40  LMO-AH
                               JAN-2005 $ 50  ZMO-AJ
                            CC JAN-2005 $ 40  ZMO-AH
MSFT   09/29/02  $38-40        JAN-2004 $ 45  LMF-AI
                            CC JAN-2004 $ 40  LMF-AH
                               JAN-2005 $ 50  ZMF-AJ
                            CC JAN-2005 $ 40  ZMF-AH
NEM    09/29/02  $24-25        JAN-2004 $ 30  LIE-AF
                            CC JAN-2004 $ 25  LIE-AE
                               JAN-2005 $ 30  ZIE-AF
                            CC JAN-2005 $ 25  ZIE-AE


PUTS:
LEN    09/29/02  $58-60        JAN-2004 $ 50  KJM-MJ
                               JAN-2005 $ 50  XFF-MJ



New Portfolio Plays

None


New Watchlist Plays

LEN - Lennar Corporation $56.00  **Put Play**

While the Housing Bubble (yes, I believe it is a bubble, although
less so than the NASDAQ was 30 months ago), has yet to pop.  But
there are weak spots starting to show in the bullish facade.
Starting with the sharp increase in both foreclosures and
mortgages that are at least 90 days in arrears, it appears that
there is an ever increasing number of people that can't afford
the home they once thought they could.  This will inevitably
trickle down to the major home-builders as decreasing demand.
That hasn't yet happened, as the buying frenzy continues to be
fueled by the strong demand of low mortgage rates.  Another
interesting observation is the price action in the shares of FNM
and FRE, two companies that are tightly connected to the mortgage
and real-estate markets.  Both stocks have broken down in a big
way recently, indicating to me that there is trouble in paradise.
Of the major home-builders, only LEN and KBH have LEAPS
available, and of the two, LEN is the weaker stock.  It has been
less resilient on the rebounds of late, and a long-term relative
strength chart of the two stocks shows a series of lower highs
(LEN weaker than KBH) since early May.  This is an attempt to
pick a long-term top in the housing market, so it clearly carries
more risk.  But the potential reward is significant as well.  Now
trading just below $60, I'm looking for the stock to drop back
into the $40 area (major support from 2001) over the next several
months, as the overall industry begins to slow.  Note that the
weekly Stochastics are just beginning to tip over from overbought
territory, and the next rollover in the dailies from the
overbought area will likely give us a juicy entry point.  Near
term resistance is found at $58, extending up as high as $63.50.
I want to target a new entry in the $58-60 area, and then set a
liberal stop at $64.

BUY LEAP JAN-2004 $50 KJM-MJ
BUY LEAP JAN-2004 $50 XFF-MJ

MSFT - Microsoft $45.25  **Call Play**

Mr. Softee is back!  Actually not yet, but I don't think the
recovery is too far away.  The stock has been incredibly resilient
on this recent decline off the August highs.  There's no doubt
that we don't have a solid bottom to deal with quite yet.  In
fact, my expectations are that MSFT will at least test its July
lows before the October selling party runs its course.  The PnF
chart is painting a similar picture as well, with its bearish
price target of $38.  The July lows are in the vicinity of $41.
Simply put, I consider MSFT to be one of the best run and most
innovative of those investable stocks on the NASDAQ.  When
evidence of a Tech turnaround begins to appear, MSFT will be
leading that charge.  Due to its solid performance and strong
balance sheet, the stock continues to trade at a premium to the
market and I expect it to continue to do so.  While the $38
target may be achieved, I want to play this one a bit more
aggressively.  So our entry target will be for a rebound from
anywhere in the $38-40 range.  Since this is a more aggressive
bullish play, I also want to give it room to breathe, so the
stop will initially be placed at $35.

BUY LEAP JAN-2004 $45 LMF-AI
BUY LEAP JAN-2004 $40 LMF-AH **Covered Call**
BUY LEAP JAN-2005 $50 ZMF-AJ
BUY LEAP JAN-2005 $40 ZMF-AH **Covered Call**


NEM - Newmont Mining $27.35  **Call Play**

As I mentioned last week, I've been thinking about adding a
gold play onto the LEAPS Watch List.  Since there are only two
gold stocks with LEAPS available (ABX and NEM), our choices are
pretty simple.  Of the two, I like NEM the best, mainly because
the have not been a heavy hedger in the past.  Hedging means that
engaging in forward sales of their product to protect against a
falling gold price.  You can see the evidence of the lack of
forward selling in the stock prices of the two companies.  ABX has
been unable to make any forward progress over the past 2 years as
the price of gold has made a steady recovery, while NEM has
steadily marched up the chart.  Understand that this is a play on
a continued rally in the price of the yellow metal, primarily
motivated by expectations of a continued worldwide economic
deterioration.  As paper currencies continue to languish, gold
has been regaining some of its prior luster.  Up until about 2
years ago, gold had been in a 20-year bear market, but appears to
be entering a longer-term bull market, similar to the position of
our beloved equity markets back in the early 1980s.  NEM's chart
is looking pretty good on its own merits as well.  After breaking
through the $25 resistance level back in late March, the stock has
been consolidating above this level (except for one brief dip in
July), ands looks to me like it is getting ready for the next leg
higher.  Of course with the weekly Stochastics just tipping over
from overbought, I think there is a better entry in the near
future.  Look for the recent weakness to continue down near the
$24-25 area, as a rebound from that area will likely make for a
solid entry.  The long-term ascending trendline currently is just
over $22, and I wouldn't rule out one more dip near that level
before the next leg of the longer-term rally gets started.  Any
rebound above that level can be used for entries as well.  Once
we enter the play, stops will be placed at $22.

BUY LEAP JAN-2004 $30 LIE-AF
BUY LEAP JAN-2004 $25 LIE-AE **Covered Call**
BUY LEAP JAN-2005 $30 ZIE-AF
BUY LEAP JAN-2005 $25 ZIE-AE **Covered Call**


Drops

BBH - $77.59 I give up!  After one failed entry attempt after
another, I think it is time to pull the plug on this play.  What
is most frustrating to me is being right about direction and being
unable to pick a judicious entry point.  An entry up in the low
$90s (our first missed entry) would have us continually lowering
our stop to preserve gains, instead of watching from the
sidelines.  My gut feel this weekend was to once again chase the
BBH lower, and that was my alert that I was treading on dangerous
ground.  The fall is historically the best time of the year for
the Biotechs, and since we have missed most of this downward move
already, I think it is time to retire the BBH from our Watch List
before we get an entry that we really don't want to catch.


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

Good Bye September

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MARKET WATCH
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An Ugly Day to End the Third Quarter

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