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Daily Newsletter, Monday, 10/07/2002

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The Option Investor Newsletter                   Monday 10-07-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: The Floor Drops Out
Futures Wrap: Key Supports Lost Everywhere
Index Trader Wrap: 
Weekly Fund Wrap: Dog Days of Fall
Futures Traders Corner: Index Futures Primer

Updated on the site tonight:
Swing Trader Game Plan: Like a first date, with your first true love.

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
10-07-2002                High    Low     Volume Advance/Decl
DJIA     7422.84 - 105.56 7637.91 7404.94  1787 mln   303/1460
NASDAQ   1119.40 -  20.50 1145.79 1113.36  1406 mln   385/1008
S&P 100   396.15 -   7.07  408.26  394.80   totals    688/2468
S&P 500   785.28 -  15.30  808.21  782.96
RUS 2000  338.29 -   9.69  347.98  337.57
DJ TRANS 2058.57 -  79.11 2139.48  2050.92
VIX        49.18 +   2.90   49.71  46.28
VIXN       62.32 +   2.04   62.48  59.69
Put/Call Ratio 1.04
*******************************************************************

The Floor Drops Out
by Steven Price

I have always tried to trade what I see, rather than what I feel.  
I kept seeing repeated support at the 7500 level in the Dow, the 
800 level in the S&P 500 (SPX.X) and the 400 level in the S&P 100 
(OEX.X).  However, the market has "felt" bearish.  Now that we 
have broken these levels and closed below them, what seemed an 
appropriate level for a bounce has wilted. There are still some 
intraday lows below us in the SPX and OEX, that could provide 
some support, but that is looking less likely now that we have 
closed below the aforementioned levels. In the Dow, we are below 
July levels and must look back to 1998 for support at the 7400 
level and then the 7000 level back in 1997. The breakdown below 
these levels is significant, but what could be even more 
significant is whether we now find resistance here.  Look for 
intraday resistance for evidence of another leg down.

Chart of The SPX (S&P 500) and OEX (S&P 100)


 

Chart of the Dow


 

The S&P Banks Index (BIX.X) once again sought out new lows today. 
The Kbw Bank Index (BKX.X) has not yet crossed its July low, but 
is heading in that direction. We have now reached a crucial level 
in support for the group that can be seen in the weekly chart 
below.  If support at this level of 235 in the BIX is broken, 
expect another quick drop to around 210.  The Wall Street Journal 
reported that J.P. Morgan  (JPM) is getting ready to cut more 
jobs.  Last month, JPM announced that its earnings would be 
significantly lower than expectations, partially as a result of 
trading losses and bad loans to the telecom sector.  Now the 
speculation is that it will be cutting jobs from the mergers and 
acquisitions, private banking and underwriting departments, and 
is mulling about 4,000 job cuts. The company releases earnings on 
October 16, which would be the most likely time for the official 
announcement. Similar reports have circulated about Merrill 
Lynch, which has already cut about 15,000 jobs this year, and 
Credit Suisse First Boston and Goldman Sachs.  Investment banking 
activity has shrunk considerably, with very few mergers and IPOs 
taking a chance in the current market environment. In the late 
nineties, these banks expanded rapidly in those departments to 
keep up with demand at that time and are now severely 
overstaffed. What is equally as troubling is the pattern that 
followed JPM's announcement about non-performing debt.  Last 
week, Comerica (CMA), Bank of New York (BK), and Northern Trust 
(NTRS) also issued warnings related to bad loans.  It will very 
difficult to get a significant rebound in the broader markets if 
the banks are just now starting to release details of how the 
recent economic downturn has caught up to their bottom line.  
While BK identified the telecoms as a source of bad loans, as 
well, Comerica cited loans to the retail, automotive and 
manufacturing sector.  Comerica and Northern Trust, which are 
regional banks, showed us that it is not just the big banks 
having problems.  Goldman Sachs downgraded several specialty 
finance stocks, due to a lower intermediate term outlook on 
credit, housing and growth.  Those stocks include Americredit 
(ACF), which concentrates on auto financing, Capital One (COF), 
which focuses on credit card lending and Household International 
(HI), which has both consumer and credit card divisions.

Daily Chart of the S&P Bank Index


 

Weekly Chart of the S&P Bank Index


 


The retail sector seems to be picking up steam to the downside as 
we approach the holiday season.  Holiday sales account for a 
large percentage of the year's profits for most retailers and the 
summer and fall sales warnings are bringing ominous projections 
for the winter.  Over the summer, retailing giants such as Wal-
Mart (WMT) and Federated (FD), which owns Bloomingdale's and 
Macy's, repeatedly missed same-store sales numbers.  We either 
got sales at the low end of projections, or complete misses as 
the summer turned to fall.   The slowdown was repeatedly blamed 
on warm weather keeping shoppers outside, rather than in stores, 
and the lack of need for cool weather clothing.  The slowdown was 
followed by warnings last week from Aeropostale (ARO), citing a 
lack of customers in shopping malls, and Wet Seal (WTSLA), both 
teen-oriented clothing stores.  Today, Sears (S) warned that 
problems with its credit division would lower third quarter and 
full year results.  They tried to spin this by saying that 
strength on the retail side helped offset issues at its financial 
services division, however, if customers can't pay for the goods 
they purchased, I'm not sure how strong that retail side can 
really be. In light of other retailer's warnings, it is also hard 
to imagine how only Sears is doing well.  Investors didn't buy 
that line, either, as they sold off retail stocks across the 
board. As we head toward the holidays, the West Coast dock 
lockout is starting to have a more pronounced effect, as well. 
While the White House has decided to get involved in the dispute, 
there are a couple of issues that are hurting retailers.  First, 
simply the lack of goods that can be put on shelves leads to 
lower sales.  But there is also the issue of higher alternative 
transportation costs, as full overseas charter flight fees have 
increased by $100,000.00 per trip in some cases. Current higher 
fuel costs don't help the cost of air transport, either. In 
addition to those costs, there will now be a delay in getting 
these ships back overseas to pick up more goods to be delivered 
closer to the holiday season, which will extend the effect for 
several months after any settlement. The Retail Index (RLX.X) has 
now broken below its July closing low and shows little sign of 
slowing down.  There will likely be a boost to the sector when 
the lockout is settled, but the damage has been done.

The lockdown is also leading to layoffs for workers used to ship 
and stock goods, and hitting U.S. agriculture, which relies on 
the ports to export food products. 

Another sector that has led the current slide is the 
semiconductor group, which reflects overall tech demand.  It 
seems almost redundant to talk about more downgrades to this 
group, but that is what happened again today, as Prudential cut 
estimates on several chip stocks. Prudential downgraded its 
Communications Semiconductor rating to Market Underperform from 
Market Outperform. Individual stocks that saw cuts were Broadcom 
(BRCM), Cypress Semiconductor (CY), LSI Logic (LSI), Emcore 
(EMKR) and Microtune (TUNE). The Semiconductor Sector Index 
(SOX.X) sought out yet another 4-year low and looks like it is 
headed to 200 before finding any real level of technical support. 
In fact, Merrill Lynch was left holding the bag and may become an 
involuntary owner of up to 18% Chartered Semiconductor 
Manufacturing (CHRT), as it was the lead underwriter of a $633 
million rights issue that was vastly under subscribed. The 
software industry got a mixed message, as well.  While Oracle 
(ORCL) said it expects a recovery in 2003, it also said that it 
did not expect things to get better in the short-term.  This 
sounds like pretty much the same rhetoric we have been hearing 
since the market started dropping in 2000.

Chart of the SOX


 

American Airlines' parent AMR Corp (AMR) said it will take a $990 
million charge to write down the carrier's entire goodwill 
balance.  This basically measures the amount AMR overpaid in the 
acquisitions of AirCal, Reno Air, AMR Eagle and TWA.

On the positive side, Cambridge Consumer Credit reported that 
Americans are spending less on their credit cards.  The index, 
which dropped 3 points in September to 53, surveys consumers to 
find out if they have increased or paid off debt in the last 
month, what they plan on doing with their debt in the next month, 
and in the next six months.  The reality gap, which measures the 
difference between what consumers said they would pay off and 
what they actually did, dropped 3 points as well.  A Federal 
Reserve report also indicated a slowdown in consumer credit.

The Market Volatility Index (VIX) is once again approaching the 
50 level, closing today at 49.18.  The last 3 times we have hit 
50 in the VIX, market rallies have followed.  While these rallies 
followed volatility spikes, it is certainly worth noting that a 
VIX over 50 has been the precursor to temporary bottoms. Of 
course, it has usually stretched a bit over the 50 level before 
that rally has taken place. See the charts below for a comparison 
of the VIX and the Dow.

Charts of the Market Volatility Index (VIX.X) and the Dow


 



 

All signs are certainly bearish and I would be extremely careful 
with long positions.  Now that we have broken the July lows and 
support levels, it seems that we will most likely re-test 7000 in 
the Dow. The previous downside-measuring objective discussed in 
this column based on the head and shoulders break was right 
around 7100, and I would look for a slowdown at that level.  That 
would probably put the VIX in the high 50s again as well, the 
point at which the market previously bounced.  With President 
Bush's speech about Iraq tonight, we should get a good look at 
just how the markets will react to his plan.  If the war rhetoric 
heats up, we will most likely head down in the morning.  I'm 
pretty sure he will make some positive remarks about the economy 
and defend the impact a war would have on us.  However, if form 
holds, tough talk from the President should send us down 
tomorrow.


************
FUTURES WRAP
************

Key Supports Lost Everywhere

Broken Record: 
Several key indices and many stocks make another new multi-year 
today (again).  In a sentence, Markets closed Under some rather 
key support numbers today.

Morning’s rally was completely wiped out by the close.  Dow cash 
lost 7500 support to close at 7422 -105.  Dow lowest close in 4 
years.  SPX cash lost 800 support to close at 785 -15.  OEX lost 
400 support to close at 396 -7.  QQQs traded under 20.0 support
SOX Semi index lost 225 support to trade under 220 near end of 
day.  NDX traded at new multi-year lows of 800.  VIX fear-gauge 
at 49.  MSFT somehow managed to close green today (grin) and
CSCO traded under $9.00. This was the third day in a row that the 
Dow was –200 points off its intraday Highs.  As odd as it may 
sound, the selling all afternoon was rather orderly without the 
feel of any mass panic.

RECAP of last 24 hours:

Sunday night:  Japan's Nikkei quickly falls 300 points from its 
Fri close at 9000, and spends the day going sideways at approx 
8700. Sunday 3:00 AM - Europe gaps down, drifts higher, but 
closes Red.

Monday:
Pre-market:	Sears (S) warns and will result in the RLX retail 
index making new lows right above the psych support of 250.
ORCL had bearish comments re Europe software spending.
CSCO's CEO made bearish comments.

Dock Strike On Friday, there was a rumor of the West Coast dock 
strike ending this weekend. By this morning, it became obvious 
that indeed was not the case (bearish news).

As written in Sunday's wrap, the Fri Futures 4pm to 415pm close 
rally felt more like last minute shorts covering vs. real buying. 
This proved to be correct when ES (Emini SP futures) were down by 
10 points at 9:30 AM today, 

9:30 AM 
Prices: ES (Emini SP futures): 796, YM (Dow futures) 7485, NQ 
(Ndx) 816

This Monday's gap down was Bought – perhaps with the memory of 
last Monday and Tuesday rally of Dow +300. News of President Bush 
considering taking action in the West Coast dock strike added 
fuel to the short-covering rally.

9:40 AM:  Rally over: ES 806, YM 7570, Dow cash 7600, NQ 825
While only lasting 10 minutes, ES rallied 10pts and YM (Dow) 
futures +100 points in those brief 10 minutes. This also was 
upside gap fill to Friday's 4:15 PM futures close to the tick 
(806). Dow Cash 7600 proved to be large resistance and the entire 
market started to roll-over as the morning's news was digested.

11:15 AM:  ES 792, Dow cash 7470, NQ 808, ES 793 was Friday's low 
and proved to be support as shorts 'tried' but failed to take ES 
under the next lower support at 790. As mentioned in the Market 
Monitor, this area was a 'high risk long entry' or a good place 
to cover the short from Dow 7600.

12:30 PM:  ES 809, Dow Cash 7635, NQ 830, MSFT 45.00 (DAY HIGHS)
A nice 90 minute rally followed the 11:15 AM lows. Based on no 
news, simply that ES double bottom at Friday's lows of 793 (and 
failure to go under 790 ES) proved to be an area where shorts 
covered.

ES 809 had been mentioned as the next higher pivot if/when 805 
was taken out, and that area did indeed provide a good long exit 
/ open short level.

At this point, Dow cash is +100 for the day.
Ever notice how some days, when the 'lunch' buyers are done 
buying, the high for the day is set about 12:30 PM?

12:30 PM -3:50 PM
Not much to say except the only thing the market did the next 3.5 
hours was Sell Stock as every uptick was sold into. ES 790 had 
been acting as a downward magnet all afternoon, with the next 
lower support of 783-85. No news or rumor drove this selling – it 
just happened. There were three attempts about 1:PM for ES to 
breakout higher over that Key 800 level, but each failed and at 
3:PM, when ES lost the 792-3 support is was clinging to (matching 
Dow cash 7500), the selling increased.

3:00 PM
Upon reflection, perhaps a strong reason for the 3:00 PM selling 
was the August Consumer Credit report which came out a bit after 
3:PM. Expected was $11 Billion and it came in at $4.2 Billion. 
This report seldom moves the market, but it's not usually off by 
$ 7 Billion (grin). This report would be reviewed on bearish as 
consumers "charged less on their credit cards or Loans". As we 
all know, business spending is non-existent; and this credit 
report confirms what so many Retailers have been saying on 
consumer spending (that it is down). August is back-to-school 
purchasing time and usually a strong month for consumer spending. 

3:50 PM
ES 782, YM (Dow futures) 7385, Dow cash 7403, NQ 801 (Day Lows)

From 3:50 PM to their 4:15 PM close, Futures had a nice late end 
of day short-covering mini-rally (a mirror copy time-of-day as 
Friday's late end of day short-covering ).  Not driven by any 
market news, just apparently short-covering.

4:15 PM Futures Close Prices:
ES  (SP Futures)   788   (6pts higher than 350pm)
YM  (Dow)         7440   (55 pts higher than 350pm)
NQ  (NDX)          814   (13 points higher than 350pm)


Thoughts for Tuesday:
How much of the 3pm selling was tied to the bearish Consumer 
Credit data?

How much was out of concern for what President Bush says tonight 
aobut Iraq?

How much was technical sell programs when ES (SP500) Futures lost 
800 support?

There are no market moving earnings on Tuesday, nor are there any 
type of economic reports.

ES (SP Futures) / SPX Cash 775 level
I cannot answer the above questions, but I do know everyone is 
watching the ES / SPX support of 775 (the July lows). 
Is it possible the markets have a relief rally on Tuesday 
depending upon what President Bush says? Charts were 'broken' 
once the ES 800/Dow 7500 support was lost; however they are also 
very oversold.

NQ (NDX futures) right now (Mon 7pm) after-hours are 815, which 
is the 50% retracement level of today’s Low/High 800/830.
ES (SP Futures) retracement of Mon's Low/High 782/809 is 795.50
DOW seems to have the largest hole to dig out of it with their 
larger exposure to the weak financials and retail sector. 
Dow Cash 50% retracement of Mon’s Low/High 7400/7635 = 7517
Current trend remains 'Down'

I cannot provide any market reason for having a Green Tuesday, 
and the only buying continues to appear to only be Shorts 
covering on Profit Taking. With that said, it wouldn't take very 
much for an October 8th Reversal. That date has on other years 
proved to be a reversal date. 
As I type this at 7:30 PM, ES and NQ futures have leaked a little 
higher than their 4:15 PM close after re-opening for the 
overnight Globex session at 4:45 PM with ES at 792, NQ 817.  Dow 
Futures have not yet re-opened. 
Tough to call for Tuesday: On the bullish side, there’s the 
possibility of a large short-covering rally existing; so be sure 
to monitor existing Shorts. On the bearish side, major chart 
damage was done today on losing Key Supports of ES (SP Futures) 
800 and Dow 7500. 

I’d like to see what the President has to say at 8:00 PM tonight 
before forming more concrete thoughts on Tuesday.

Alan Hewko


********************
INDEX TRADER SUMMARY
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****************
WEEKLY FUND WRAP
****************

Dog Days of Fall

More profit warnings sank U.S. stocks for the sixth consecutive 
week with the S&P 500 index down 3.2% and some pro-growth stock 
funds losing more than 5% for the week.  All of Lipper's equity 
fund indices lost ground, led lower by tech sector funds, which 
tumbled 6.6% on average for the weekly period through October 4.  




 


Developed foreign markets followed the U.S. lower with the MSCI 
EAFE index down 3.6% in dollar-adjusted terms last week and the 
average international stock fund reporting an average 3.1% loss 
per Lipper.  European stocks finished the week 3.0% lower while 
Pacific stocks were 4.4% in the red for weekly period.  The Yen 
weakened against the Euro and the U.S. dollar.

The Lehman Aggregate Bond Market index ended the week down 0.1% 
while the average intermediate-term bond fund was 0.2% lower on 
the week.  Credit jitters plagued the mid-grade and low-quality 
bond sectors with the average high yield fund dropping 1.3% for 
the week per Lipper.  A few bond fund indices such as GNMA bond 
funds and international income funds generated positive results.

The average taxable money market fund has a current 7-day simple 
yield of just 1.25% per iMoneyNet.com, roughly a half percentage 
point below the Fed Funds rate, a key overnight lending rate for 
banks and financial institutions.  

Lipper Equity Fund Indices

The Lipper equity fund indices last week reflect the weak market 
environment for stocks amid concerns over corporate profits (and 
accountability), higher oil prices and violence/terrorism in the 
Middle East.  The top five and bottom five Lipper equity indices 
for the weekly period through Friday, October 4 are shown below.

 Top Five Lipper Equity Fund Indices:
 -0.3% Emerging Markets Funds (YTD -11.6%)
 -1.1% Gold Funds (YTD +40.5%)
 -2.3% Balanced Funds (YTD -16.6%)
 -3.1% International Funds (YTD -19.9%)
 -3.1% Large Cap Core Funds (YTD -27.4%)
  
 Bottom Five Lipper Equity Fund Indices:
 -6.6% Technology Funds (YTD -51.4%)
 -5.3% Mid Cap Growth Funds (YTD -34.6%)
 -4.8% Small Cap Growth Funds (YTD -34.3%)
 -4.8% Mid Cap Core Funds (YTD -25.5%)
 -4.5% Mid Cap Value Funds (YTD -22.9%)

You can see that U.S. large cap core funds lost 3.1% on average 
last week, matching the decline of the S&P 500 index.  With the 
technology sector getting pummeled again, growth-oriented funds 
produced some of the week's biggest declines.  Amid diversified 
stock funds, mid cap growth funds were the biggest losers, down 
5.3% on average for the weekly period.

International stock fund losses were similar to those generated 
by domestic large cap funds, except for emerging markets equity 
funds which minimized their losses for the week.  Gold/precious 
metals funds lost 1.1% on average, but the group's largest fund, 
Vanguard Precious Metals (VGPMX), posted a 1.1% gain during the 
5-day period.  Fidelity Select Gold (FSAGX), the group's second 
largest fund, took the category down, losing 2.7% for the week.

Partial equity (balanced) funds minimized their losses relative 
to full equity funds, closing the week down 2.3% on average per 
Lipper.  Some balanced funds lost over 3% on the week depending 
on how the fund's fixed income assets were invested.  As you'll 
see below, not all bond categories reported gains for the week.

Lipper Fixed Income Fund Indices

Lipper's weekly fixed income fund indices were mixed with global 
and international fixed income funds posting positive returns on 
average while comparable U.S. funds were generally flat to lower 
for the week.  A weaker dollar (versus Euro) contributed to non-
U.S. bond fund gains.  

 Top Five Fixed Income Fund Indices:
 +0.3% International Income Funds (YTD +11.4%
 +0.2% Global Income Funds (YTD +6.9%)
 +0.1% GNMA Funds (YTD +7.2%)
 +0.0% General Municipal Debt Funds (YTD +8.8%)
 +0.0% Short Investment Grade Funds (YTD +3.1%)
 
 Bottom Five Fixed Income Fund Indices:
 -1.3% High Yield Funds (YTD -8.8%)
 -0.4% Corporate A-Rated Debt Funds (YTD +6.5%)
 -0.2% Intermediate Investment Grade Funds (YTD +5.7%)
 -0.0% High Yield Municipal Funds (YTD +5.5%)
 -0.0% U.S. Government Funds (YTD +8.9%)

Safer categories such as short-term bond funds, GNMA funds and 
U.S. government bond funds were able to stave off losses while 
the riskier high yield fund group took another beating, losing 
1.3% on average last week.  Loan defaults are on the rise, not 
good news for corporate mid-grade or speculative grade ("junk") 
bond markets.  

Where there were positive weekly returns for general U.S. bond 
funds, those gains were de minimus.  PIMCO Total Return (PTTRX), 
the Fidelity Magellan of the fixed income fund world, ended the 
week with a positive total return of 0.1% versus a negative 0.1% 
return for the total bond market as measured by the Lehman Bros. 
Aggregate Bond Index (using Vanguard's index fund as the proxy).

As a result, some balanced funds lost as much as general equity 
funds did last week, with their bond portion providing no asset 
diversification benefit.  The American Funds, Hartford Advisers, 
Dodge and Cox, and Fidelity were among those fund families with 
balanced fund losses equal to the market (S&P 500 index) on the 
week.     

Largest Mutual Funds

Below are the weekly total returns for the largest mutual funds 
in America.  You can see a number of stock fund bellwethers had 
weekly declines of 3.0% to 4.0%, with Fidelity's Contrafund and 
Growth & Income funds doing a good job of minimizing losses for 
the week relative to similar funds as did a few of the American 
Funds' offerings (e.g. EuroPacific Growth Fund).  
 
 Largest Stock Funds:
 -3.2% Vanguard 500 Index (VFINX) YTD -29.5%
 -3.2% Fidelity Magellan (FMAGX) YTD -29.3% 
 -2.8% Investment Company of America (AIVSX) YTD -22.1%
 -3.7% Washington Mutual Investors (AWSHX) YTD -23.2%
 -3.6% Growth Fund of America (AGTHX) YTD -28.6%
 -2.3% Fidelity Contrafund (FCNTX) YTD -12.0%
 -1.4% Fidelity Growth & Income (FGRIX) YTD -22.8%
 -1.7% EuroPacific Growth (AEPGX) YTD -20.3%
 -2.9% New Perspective (ANWPX) YTD -29.5%
 -3.4% Vanguard Windsor II (VWNFX) YTD -23.5%
 
 Largest Bond Funds:
 +0.1% PIMCo Total Return (PTTRX) YTD +7.4%
 +0.1% Vanguard GNMA (VFIIX) YTD +8.2%
 -0.1% Vanguard Total Bond Market (VBMFX) YTD +6.3%
 -0.5% Bond Fund of America (ABNDX) YTD +0.6%
 -0.1% Vanguard Short-Term Corporate (VFSTX) YTD +3.5%
  
 Largest Balanced Funds:
 -2.3% Vanguard Wellington (VWELX) YTD -13.8%
 -1.9% Income Fund of America (AMECX) YTD -11.8%
 -2.3% Fidelity Puritan (FPURX) YTD -15.1%
 -3.0% American Balanced (ABALX) YTD -15.1%
 -2.1% Fidelity Asset Manager (FASMX) YTD -15.2%

Other than American Balanced Fund (ABALX), the other "balanced" 
fund bellwethers were in line or better than the balanced fund 
category, which was down 2.3% on average for the week.  You can 
see the largest balanced funds have limited their YTD losses to 
15 percent, half that of the largest stock funds in the country, 
Vanguard 500 Index Fund and Fidelity Magellan Fund.  So they've 
done their job this year.

Money Market Funds

IMoneyNet's all-taxable money market fund average stood at 1.25% 
as of October 1, 2002, up two basis points or 0.02% on the week.  
The highest retail money fund yields belong to PayPal MMF (1.80%) 
and Touchstone MMF (1.76%).  INVESCO Treasurers MM Reserves Fund 
is third with a current 7-day simple yield of 1.63%. 

Fidelity Cash Reserves Fund and Vanguard Prime Money Market Fund, 
two of the largest and best-run money market funds in the nation, 
have 7-day simple yields of 1.52% and 1.51%, respectively, today.     

Mutual Fund News

About the only way to beat the stock market these days is to bet 
against it or on higher market volatility.  The ICON Funds based 
in Greenwood Village, Colorado thinks so recently launching four 
new funds to appeal to investors in this difficult market.  Last 
week, the Rocky Mountain News reported that Craig Callahan, ICON 
Funds chief investment officer foresees another decade of higher 
market volatility and lower market returns, following the 90's 
bull market.

According to the article, the new ICON Covered Call Fund buys 
stocks and then sells "call" options against the stocks for a 
fee, representing option income.  The $1.2 billion Gateway Fund 
(GATEX), which started in 1977, follows a similar strategy and 
offers you a sense of what you might expect in terms of reward 
and risk compared to traditional stock funds that don't manage 
portfolio risk through futures or options.  

In addition to taking long positions in stocks, ICON Long/Short 
Fund will also take short positions in equities it believes may 
fall in price.  These funds typically buy the stocks its system 
or process ranks the highest and also sells the stocks that are 
lowest-rated, hoping to capture gains both ways.  The other two 
new ICON funds include a bond fund and an "equity-income" fund, 
which will invest in convertible bonds and preferred securities.

Annual expenses will range from 1.3% to 2.3% of assets, per the 
Rocky Mountain News article.  Check back to our site Wednesday, 
when we'll do a fund family profile of the ICON Funds, a small 
fund company that has doubled its net assets over the past year 
in this volatile market, to nearly $1 billion today.

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

Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com


***********************
FURTURES TRADERS CORNER
***********************

Index Futures Primer
By Alan Hewko

I’ve tried to read as many of your emails as I could and shall do 
my best to answer the more basic questions regarding Index 
Futures.  

Trading Index Futures is different in many ways than trading 
Equity Options.  This article will relate to three Futures 
contracts: S&P500, Dow, and NDX (Nasdaq- 100 index). 

Why are Futures (especially the SP500 futures) so important?

With one trade, a Large-money fund perhaps with dozens or 
hundreds of stock positions can hedge them. With one trade, one 
can go long or short the entire SP500 family of stocks. With one 
trade, you can buy or short all 30 Dow stocks via a Dow Futures 
contract. If there’s good news in the semi stocks and some 
biotech stocks, and you feel a tech rally is coming; simply go 
long a NDX contract without needing to think which one stock 
option to buy. This is why, when there is an important market 
news event, SP Futures are the very first to react to it. They 
are very liquid volume wise, and offer an impressive degree of 
leverage. The entire financial world does watch, react to, and 
make trades based upon what happens to the SP500 futures.

Equity Options can do some things much better than Futures: 
manage risk exposure (A Long Put can only lose the value for what 
you paid for it), can hedge exposure to one specific stock or 
sector, are useful when you wish to make an educated guess on a 
stock’s earnings tonight, options can sell Time-decay or Premium, 
interesting complex option positions such as Butterfly, Iron 
Condor etc can be establish based on the wide support and 
resistance levels of a stock or sector. 

However, some of the advantages with Futures are:

Immediate fills, much like trading MSFT via the ISLD 
exchange (no more hitting the ASE Option Exchange and not 
getting filled on your 20 lot because they just filled a 3 
lot)

* Narrow spreads unlike an Option Contract


* No more "playing games" with an Option Market Maker trying to get 
your fill inside the wide bid-ask spread.

* Futures can be shorted on a down-tick, unlike Stocks.


* Futures have no Premium decay based partly on the VIX.

* Futures have no Time-value decay.


* Unlike Options, there is no computing which is the best strike price 
to buy.

* Futures trade 22 1/2 hours a day


* Futures trade Sunday nights for those occasions there is important 
weekend news.

Futures provide very large leverage for your cash on the table.


* Futures trade during after-hours to allow a trade based on market 
moving news, Warns, Earnings, overseas markets, etc long after Options 
are closed.

* Futures can be used very well to hedge an existing Index Option or 
stock option position. (I’ll discuss hedging options with futures later 
in this article)


* Futures are much easier to "scalp" for quick trades vs. Option scalps. 

There are both "full-size" versions of these futures contracts 
traded via open outcry in the Chicago futures’ pits, as well as 
electronic E-mini versions. This article will focus on the 
electronic E-minis as that is what the vast majority of retail-
size traders use.

E-mini Contract Explanation Table

Contract       |  Ticker | Value of a     | Spread from 
  Name         |  Symbol | 1 point move   | Bid to Ask
_____________________________________________________________

E-mini SP500   |  ES02Z  | $50.00 per     | $12.50, 
                           each SPX point | 818.25 x 818.50

E-mini NDX 100 |  NQ02Z  | $20.00 per     | $10.00, 
                           each NDX point | 835.5 x 836.0

E-mini Dow     |  YM02Z  | $5.00 per      | approx $20, 
 $5 contract               each Dow point | 7705 x 7709


For the balance of this article, I will use the ticker symbols ES 
for Emini SP500, NQ for Emini Nasdaq 100 (NDX), and YM for the 
Dow $5 contract. Note: NDX futures are not on the Compx, but 
rather the NDX 100.

Futures Expiration: 	
Options have 12 contracts for each year, one for every month. 
Futures have only 4 contracts for the entire year. March, June, 
September and December. As of Oct 2002, December is the current 
month. Option contracts expire the 3rd Friday of each month. 
Futures contracts expire the 3rd Friday in March, June, September 
and December; and those occurrences are commonly called "Triple 
Witching". In reality, the vast majority of Futures traders 
"roll-over" the Thursday before that 3rd Friday and begin trading 
the next contract. Example: Friday Dec 20th is the 3rd Friday in 
December; however, 99% of Futures Traders will begin trading the 
March 2003 contract the end of day Thursday Dec 12th. Even though 
DEC is the current contract, one could buy or sell a Mar 2003 
SP500 contract right now; however, there would be almost no 
volume on them.

Futures Tickers:	ES02Z is the current ticker for Emini SP500. ES 
stands for Emini SP500, the numbers 02 is the year (2002); and Z 
stands for DEC month. Different quote providers may use something 
different: ES2Z, /ESZ2, etc.

Full-size contracts: Emini SP500 and Emini NDX are 1/5 the size 
of a full-size pit traded contract. I do not wish to confuse you, 
but the full-size contracts obviously have different tickers 
often using the letters SP to stand for full-size SP500 contract, 
and the letter ND for the full-size NDX futures. SP02Z being the 
ticker for the FULL-size SP500 Dec contract as example. 

Look back above at the Emini Contract Explanation Table and real-
world examples may be easier to understand.

ES example (Emini SP500)

Contract       |  Ticker | Value of a     | Spread from 
  Name         |  Symbol | 1 point move   | Bid to Ask
_____________________________________________________________

E-mini SP500   |  ES02Z  | $50.00 per     | $12.50, 
                           each SPX point | 818.25 x 818.50

It’s 11:00 AM, you are flat and market bullish. 

The ES (Emini SP500) is 818.25 x 818.50; Bid Size: 289, Ask Size 
274. 

You buy one (1) ES Long at 818.50. 

It’s now 90 minutes later at 12:30 PM and you were right being 
bullish. 

ES is now 826.50 x 826.75. 

You sell your long ES contract at 826.50 for a gain of 8.00 ES 
points (826.5 – 818.5 = 8).

You have a gain of 8 ES points x $50 per ES point = $ 400.00
ES moves in .25 movements (or $12.50) : 818.00, 818.25, 818.50, 
818.75, 819


NQ example (Emini NDX)

Contract       |  Ticker | Value of a     | Spread from 
  Name         |  Symbol | 1 point move   | Bid to Ask
_____________________________________________________________

E-mini NDX 100 |  NQ02Z  | $20.00 per     | $10.00, 
                           each NDX point | 835.5 x 836.0

NQ is 835.0 x 835.50. 

You are bearish and you short 1 contract at 835.0 (no need to 
wait for downtick).

One hour later, you were correct being bearish: NQ is 820.50 x 
821.00.
 
You cover your short by buying 1 NQ contract at 821.0.

Your gain is 14 NQ points (835-821=14).

14 NQ points x $20 for each NQ point = $280.00 

NQ moves in .50 increments: 821.0, 821.50, 822.0, 822.50.


YM Example (Emini Dow $ 5 contract / 1 Dow point = $ 5.00

Contract       |  Ticker | Value of a     | Spread from 
  Name         |  Symbol | 1 point move   | Bid to Ask
_____________________________________________________________

E-mini Dow     |  YM02Z  | $5.00 per      | approx $20, 
 $5 contract               each Dow point | 7705 x 7709



E-mini DOW $5   YM02Z  $5.00 per each DOW point) the spread 
approx $20, 7705 x 7709.  Dow Cash is 7450.

YM (Dow $5 Futures) is 7430 x 7434.

Note: The last several weeks, Dow Futures has usually been 10-20 
points lower than Dow Cash, which is of course bearish, but so 
has the market been.

You are bullish the Dow at this level, and decide to buy 2 
contracts, not 1.

Long 2 YM at 7434.

Dow cash is now 7430, YM dow futures are 7414 x 7420.

You realize you may be wrong and are going to stop-loss out 
taking your Loss.

Sell 2 YM at 7414.

You lost 20 YM points (7434 – 7414).

2 contracts x –20 YM points (a loss) x $ 5 per Dow point = 
 - $200 (loss of $200).

YM moves in 1.00 increments: 7421, 7422, 7423, 7424


NOTE: the YM Dow $5 by far has much lower volume than ES or NQ; 
which is why the YM spreads are wider. However, if you happen to 
catch a great YM Dow trade on one of those days it moves 200 
points, that wider spread isn’t that big a deal as 200 Dow points 
would equal $1000 (200pts x $5).

NOTE: There is also a DOW $2 contract, ticker YJ, but it's being 
phased out shortly and has very low volume. That’s all I plan to 
say about that contract.

NDX Futures 	
Not to point out the obvious, but this is the NDX 100, Nasdaq 100 
and NOT the COMPX.  The NDX is a Weighted index and MSFT 
currently represents about 14% of the NDX.

Futures Exchanges:
ES and NQ trade on the CME exchange in Chicago, their website is 
www.cme.com

YM (Dow Futures) trade on the CBOT exchange in Chicago, their 
website is www.cbot.com

Both websites above have very useful information.

Quality of Fills 	
Getting a fill on Eminis is truly as easy and fast as getting 
filled on MSFT stock via the ISLD exchange. Also, 99.99% of the 
time, a Market order is perfectly safe to use. Unlike stocks and 
options, which have several exchanges in which you can fill your 
order, Futures only have ONE exchange and the CME does not have 
any type of Market Makers. There are no playing games with stock 
or option market makers, no trying to see which stock or option 
exchange has the best price.

Futures Premium 	
When a Futures trader uses the term "premium" they refer to the 
difference between the Cash and Futures prices. Example: SPX Cash 
is 801.25, SP Futures are 802.50, the Premium is + 1.25. Program 
Buy and Sell orders are frequently pegged to the SP 500 premium 
as it relates to the perceived notion of the Cash market 
currently being overbought or oversold. On average, the SP 
Premium is +1.50 to – 1.50; the NDX Premium (difference of NDX 
Cash to NDX Futures) is usually 3-6 points; the Dow Premium is 
usually +/- 5 to 20 points. The last several weeks the Dow 
Premium has averaged – 5 to -20 most days, foretelling the 
bearish market tone. 

Futures Margins
Futures are traded on margin.  Your margin requirements determine 
how much money must be put down to buy or sell a 1 lot Emini 
contract. Unlike equity option margin (which is 100% Cash) for a 
Long Call or Long Put; Futures Margin will vary from one Futures 
broker to the next. Almost all futures brokers use the rule of 
needing 1/2 the margin for Daytrading a futures contract vs. 
carrying that position overnight. The highest margin needed per 
each ES (Emini SP500) is approx. $3,563.00 to take a position 
home overnight, and $1,781.00 (1/2 of $3563) to daytrade each 
contract. For the NQ (Emini NDX), $2250 for overnight, and $1125 
to daytrade. For the YM (Dow $5), each contract has a margin 
requirement of $2700 per contract, and $1350 to daytrade. There 
are several futures brokers who have much lower margin 
requirements, especially for daytrading them (as they can control 
their risk exposure during the day).

No SEC $25,000 daytrade rules
Unlike stock and options which have a firm set of rules for 
accounts under $25,000; futures carry no such rules at all. You 
could have a $5,000 futures account and daytrade a futures 
contract with 20 roundtrip turns a day, or 30, or 100 or has many 
times as you wished to.

Can I trade Futures with my existing stock or options broker?
Usually the answer is no. Futures clear through Futures clearing 
firms, usually out of Chicago and not stock or option clearing 
firms. There are a few brokers who offer Futures in addition to 
their existing stock and/or options business.

Futures Brokers Account Minimums
Obviously they vary from broker to broker, most are in the range 
of $3000 to $5000 to open an account.

Futures Leverage
Using the YM Dow $5 as example, with the Dow at 7500, the 
contract value is $37,500 (5 x 7500). That is, using $1350 to buy 
1 YM Dow future contract, you are controlling an asset worth 
$37.500 or approx. 28 to 1 leverage.

Futures Commissions
They will vary from broker to broker, but an average commission 
(including all fees) is from $8 to $10 per RoundTrip PER 
CONTRACT. If you are paying $9 per RoundTrip, and you Buy 3 ES 
Emini SPs contracts and then Sell 3 ES contracts, you would be 
charged $27 in commissions (3 contracts x $9 per roundturn). You 
sometimes may see a broker advertise that $9 roundturn as '$4.50 
per side'; which means $4.50 each time you Buy OR Sell a 
contract.

Futures Trading Times of Day
When do the ES (Emini SP) and NQ (Emini NDX) Trade? (times EST)

Sunday Night: They open at 6:30 PM and are open all night 
straight thru into Monday.
Mon to Fri: It’s easy to say when they DO NOT Trade, repeat, they 
do NOT trade each weekday (Mon – Fri) between 4:15 PM to 4:45 PM.
 
The close on a Friday at 4:15 PM and do not reopen until Sunday 
6:30 PM.

Weeknight of Mon, Tue, Wed, Thur : they close from 11:00 PM to 
Midnight.

YM (Dow $5) Trading hours:

Sunday 9:00 PM open straight through into Monday.
The YM Dow contract CLOSES Monday through Friday at 5:00 PM.
It reopens Monday through Thursday at 9:00 PM.
In other words, it trades from Sunday 9:PM all week long, except 
for being closed 4 hours on Mon, Tue, Wed, Thur 5:01 PM to 9:PM.

A note regarding Volume in the overnight futures sessions. 

Futures do have decent volume each day 4-6 PM, the volume dries 
up until Japan opens a bit later, then they become very low 
volume again until Europe opens at 3:AM. Volume then picks up 
again at about 7-8:AM. Don’t misunderstand me on the ES contract 
- you can hit the bid or ask all night long at the usual 0.25 
spread, the volume is simply incredibly low.

Future’s trading terms

MOO	Market on Open	
Definition: execute my buy or sell order, at market price, right 
at the market Opening.

MOC    Market at Close
Definition: execute my buy or sell order, at market price, 
immediately at the Market’s Close.

MIT     Market if Touched
Explanation: I’m long ES at 843 and bullish, I know 852 is a 
well-known level of resistance and wish to exit my trade there. I 
could enter "sell to close at limit 852" but it’s possible that 
852 might trade a few contracts but without mine being filled. An 
order of "sell at MIT 852" means that at the very print of 852, I 
would sell (at bid) at Market price; which most likely would be 
851.75 Candidly, MIT orders are not used very often; as you could 
just have easily put a limit order of 851.75 in the first place.

OCO     One Cancels the Other
Explanation: I’m long ES from 810, it’s 2:PM and ES is 823. An 
order of "Sell ES at limit 828 OCO stop-at 818" means to either 
sell at 828 * OR * sell at 818 on a trailing stop – if either 
condition is met, the other is immediately cancelled. Some 
brokers will allow an order like this to be a GTC (good till 
cancelled); meaning it will still work in the overnights or 
tomorrow; other brokers only allow orders like this to work as a 
DAY order (meaning only good for today’s session).

STOPS 
Almost all electronic futures brokers allow usage of STOPS. 

RTH     Regular Trade Hours
Weekdays 9:30 AM to 4:15 PM EST

Globex
Or the 'overnight' futures markets; 4:45 PM EST to the following 
morning.

Using Futures as a hedge tool for an option (or stock) position

Keeping this quite simple: 
ES (emini SPX futures) are 830, OEX cash is 420. 

You are bearish and buy 10 OEX 420 puts (14.30 x 15.10); putting 
$15,100 on the table. 

It’s now end of day, ES (SP futures) are 810, OEX cash 410, your 
puts are (17.70 x 16.30) and you decide to take them home, 
knowing there’s an important 830am economic number and you expect 
a bad number. 

Europe is weak, sending ES futures to 803 by 8:AM, down 7 from 
the close. 

This was your desired target for your OEX puts, and if you were 
able to – you would take profit on them; but cannot do so as the 
option market isn’t open for another 90 minutes. 

Surprise! The 8:30 AM Economic data is very bullish, and ES 
futures take off, and are 815 by 9:00 AM. 

It feels like a short-covering morning and by 9:29 AM, ES futures 
are 820, 10 points higher than the close

9:32 AM : your OEX 420 puts are now 16.10 x 16.90

You are torn whether to take $1 profit when there was almost $4 
profit at the close last night..............you wait and ponder 5 min, 
and by the time you finally exit those puts, they are for only a 
30-cent gain as the bid/ask spread just went to a buck.

Same scenario: except this time, near 8:30 AM, when ES futures 
are trading at 803; which was your original target, you HEDGE 
those puts by going LONG ES futures the appropriate number of 
contracts. Quite simply, you don’t care WHAT happens for you have 
locked in your profit:

If the 8:30 AM numbers are bullish – simply stay long the ES 
futures until you can sell the OEX puts at their open

If the 8:30 AM numbers are bearish – exit the ES futures (perhaps 
with a 1-point loss), but it doesn’t matter as ES futures are 
falling, so will OEX


OEX options (and stock options) carry spreads of anywhere from 
30-cents to $1.00

During the trading day, when the market indices hit certain key 
pivot numbers, and quite frankly, no one knows what is going to 
happen, simply that 'this number' is a key pivot number, or key 
support or resistance number – it’s foolish almost to exit a 
winning OEX (or stock option) until you confirm the market 
direction and pay that 30-cent to $1 spread (and then paying it 
again if you wish to get back in the same option position you 
just exited)

Example: 

Dow last week: at 7700.
 
My sense was this may be a top here, but it’s possible Dow just 
might go back up to 7900; even though I think it’s heading to 
7500.

At that Dow 7700 level, you buy OEX puts (10.00 x 10.60).

Hour later, Dow is down just a bit to 7650, and your puts really 
haven’t moved.

You are no longer as sure as you were an hour ago, but rather 
than taking the 60-cent loss on exiting those puts, simply go 
Long Dow futures (or ES futures) until the picture becomes more 
clear...

Sure enough, 30 minutes later, market starts to fall; and you 
exit the Long Dow (or ES) futures BUT not at a total loss per se, 
for you are holding OEX puts that are increasing in value during 
that drop. On the other hand – if you had been wrong, and the 
market did indeed go up through Dow 7700 and you could just feel 
a rally building; there’s no blind-rush panic to exit the OEX 
puts because you are HEDGED by the Long Dow (or ES) futures: this 
affords you the time to make a non-panic driven decision. Perhaps 
you now feel the Dow will hit the 7850 number and rollover as 
it’s almost 3:00 PM, and you decide to hold onto the OEX puts, 
and at Dow 7850, take profit on your DOW futures position; and 
still hold the OEX puts (or perhaps even add to them). The 
possibilities are endless.

The important point of Hedging with Futures is INSTANT repeat 
INSTANT fills with extremely narrow spreads. Every Option trader 
has had an option position become instant death and you simply 
cannot exit it as the option market makers run away, or call 
"fast markets". That simply does not happen with Futures in the 
same fashion.

Another occasion is Earnings:

You are bearish on MSFT, and before they report earnings tonight, 
you buy 20 MSFT puts controlling 2000 shares of MSFT via those 
puts.
It’s 4:08 PM, option market is closed (actually, equity options 
stop trading at 4:02 PM ET while some index options trade until 
4:15 PM ET); and to everyone’s surprise, MSFT beats earnings and 
raises guidance (LOL, work with me here, this is just an example 
and not real life [grin]). When you realize you were 100% wrong, 
you could Hedge those puts by buying 2000 shares of MSFT, but 
that uses a great deal of capital, especially as you would need 
to take them home to hedge your losing puts which you cannot exit 
until the following morning. But instead – buy NQ futures (NDX) 
when you saw the MSFT earnings and news. It would probably use up 
60-80% less of your capital than buying 2000 shares of stock.


Futures spread of bid to ask vs. Options spread of bid to ask
Average option spread bid to ask is $0.50 to $1.00 on OEX, DJX 
options
Average option spread bid to ask on stocks, $.10 to .50
Spread on ES futures from bid to ask is $12.50
Spread on NQ futures from bid to ask is $10.00
Spread on YM Dow futures from bid to ask is approx $20

NQ (NDX futures) vs. QQQ options
Once upon a time, QQQs would move 3-5 points a day (or more). 
Now, a one-day move of 30-50 cents (or less) is average. NDX will 
still move 5-20 points intraday. Also, NDX futures trade when 
Options do not. On the other hand, with the current situation of 
QQQ at 20.00, and if you think that is bottom, there is far less 
Risk to go Long Nov 21 Calls (as example) than buying large 
blocks of NQ futures; for if 20 doesn’t hold – who knows how low 
it could go.

Futures data from your quote provider
Most data providers will charge $10 per month for the CME Emini 
Quotes; most data providers will charge $50-60 a month for the 
Entire CME feed, which includes many other futures you could care 
less about. The $10/month CME feed includes the Emini SP and NDX 
contracts, and more than likely, that is all you will need. CBOT 
continues to offer the data-feed for the YM (Dow $5) at no cost; 
but not all data providers will offer the YM feed without you 
asking for it. Some stock brokers will offer the CME feed for 
free after so many trades per month. Many of the Futures brokers 
trade platforms include free streaming quotes; along with a Depth 
of the Market (similar to Level 2 for a stock).

Futures "Scalping" 
Most often, with a Futures trade, gains of 3-5 ES points, 5-10 NQ 
points, YM (Dow) 35-50 points is a good goal on a 1-3 hour trade. 
However, there are many times during a trading day when a very 
quick 1 point ES "scalp" trade is possible. Example: assume your 
futures broker has a daytrade margin of $1,000 for an ES 
contract. As ES 800 as been such a large recent pivot point, by 
example, assume you are flat, and ES is rising from 795 and is 
currently 800, you wish to take 1 contract "scalp short" at 800, 
and park a bid at 799 and get filled within 1-3 minutes. Profit 
is 1 ES point, or $50 Gross Profit. Less $9 round-turn commission 
equals net profit of $41 or a 4% return in a few minutes. 


This article was by no means an attempt to be anything more than 
covering the very basic of Index Futures. Many emails were 
received asking for comments on Futures trade pivots, support and 
resistance areas, etc. That will have to wait for another 
article. Along with a brief discussion on SSF (Single Stock 
Futures) which are due to be released soon, supposedly Oct 25 
2002.

Please send questions and comments regarding this article to 
futures@OptionInvestor.com


Alan Hewko


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

Like a first date, with your first true love.

I couldn't help but have some flashbacks to my first date with 
the girl I now believe I should have married.  Actually, we'd 
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Heck, I've profiled a lot of trades over the years, but today was 
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The Option Investor Newsletter                   Monday 10-07-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: FLIR, GM, PHM
Dropped Calls: None
Dropped Puts: None
Play of the Day: Put - WHR

Updated on the site tonight:
Market Watch
Market Posture

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

FLIR - put
Adjust from $35.25 down to $30.50

GM - put
Adjust from $39.50 down to $37.50

PHM - put
Adjust from $46.50 down to $44.50


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

None


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

None


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

WHR - Whirlpool - $3.72 -1.09 (-2.14 for the week)

Company Summary:
Whirlpool Corporation is the world's leading manufacturer and 
marketer of major home appliances. Headquartered in Benton 
Harbor, Michigan, the company manufactures in 13 countries and 
markets products under 11 major brand names in more than 170 
countries. (source: company release)

Most Recent Write-up: 
Whirlpool gave in with the broader markets today, losing $1.09 on 
the day.  In spite of the unemployment rate showing improvement, 
the non-farm payroll number was actually lower, indicating that 
the employment picture, although better than originally expected 
in August, is still deteriorating.  This does not bode well for 
large consumer purchases, such as stoves and refrigerators.  
Investors agreed, sending Whirlpool down through two significant 
levels on the point and figure chart.  The break through $44 
created a new sell signal, and the trade of $43 added another "O" 
to the breakdown.  The stock did bounce from its low of $42.64, 
but this does not appear to be a significant technical level, 
with the next obvious support at $40. After three straight days 
of significant losses for the company, as well as a technical 
breakdown, some bounce can be expected.  The key is how high the 
bounce might be for possible new entries.  I would look for a 
failure below $45 as a signal that new resistance is in place.  
One other concern is the Dow holding its 7500 level once again.  
If this support level remains in place, we may see a slowing of 
the recent downtrend, and be forced to reconsider shorts.  New 
entries should look for failure below $45 if we get a broad 
market bounce on Monday.  If the Dow continues its downward 
momentum, then look for a break below $42.50 to initiate short 
positions.  Lower stops to $46.50, just above Thursday's high.

Why This Is Our Play of the Day:
Now that Whirlpool has broken down through previous support, 
there appears to be little to stop its fall between now and 
October 16, when it releases earnings.  While it looks a little 
extended, it closed near its lows of the day, indicating there is 
not much interest on the bullish side. A look at the intraday 
chart shows that the stock made an effort to rebound back above 
$42.50, but was turned back solidly at that level.  The fact that 
it was then unable to hold $42.00 is an additional sign of 
weakness.  The stock found buyers at $41.50 today, which gives us 
two good action points.  The mid-dollar support level usually 
does not hold up, so look for either a break below $41.50, or a 
failed rebound at $42.50, to initiate new short positions.  If 
the stock is able to break back above the $42.50 level, then we 
will wait for a failure at $44, which was the PnF breakdown 
point.

BUY PUT OCT-45 WHR-VI OI=250 at $4.00 SL=2.00
BUY PUT NOV-45*WHR-WI OI=256 at $5.20 SL=2.60

Average Daily Volume = 703 K



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Major Break in Support

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Support Vanishing Quickly

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