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Daily Newsletter, Sunday, 11/10/2002

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The Option Investor Newsletter                   Sunday 11-10-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Cracks in the Foundation
Futures Market: Methodology
Index Trader Wrap: "General-ley" speaking, stocks were lower
Editor’s Plays: Expiration Week
Market Sentiment: Put Away Those Horns
Ask the Analyst: When Signals Conflict
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Big Money Wins Again


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 11-08        WE 11-01        WE 10-25        WE 10-18
DOW     8537.13 + 19.49 8517.64 + 73.65 8443.99 +121.59 +472.11
Nasdaq  1359.29 -  1.41 1360.70 + 29.57 1331.13 + 43.27 + 77.39
S&P-100  457.39 -  0.77  458.16 +  2.51  455.65 +  6.63 + 26.34
S&P-500  894.74 -  6.22  900.96 +  3.31  897.65 + 13.26 + 49.07
W5000   8438.80 - 63.40 8502.20 + 51.56 8450.64 +126.86 +450.75
RUT      378.99 -  4.46  383.45 + 10.81  372.64 +  9.27 + 18.44
TRAN    2346.88 + 31.20 2315.68 +  2.37 2313.31 + 34.22 +124.42
VIX       33.56 -  0.42   33.98 -  2.29   36.27 -  3.55 -  3.62
VXN       52.01 +  2.15   49.86 -  0.53   50.39 -  4.94 -  3.54
TRIN       1.80            0.95            0.89            0.80
Put/Call   1.05            0.71            0.77            0.68
******************************************************************

 
Cracks in the Foundation
by Jim Brown

Thanks to a closing spike the Dow managed to close the day in
negative territory but finish the week in the green. This makes 
the fifth positive week in a row for the Dow. The other indexes
were not so lucky and all broke four week winning streaks and 
appear to be leading indicators that the recent rally may be 
developing cracks in the foundation.

Dow Chart - 90 min


 

Nasdaq Chart - 120 min


 


Friday began strong despite another round of warnings but the 
gains proved impossible to hold. Leading the list was McDonalds
who warned for the seventh time in eight quarters that earnings
were going to miss estimates. They are going to close 175 stores
and layoff 600 full time employees. Blaming slowing sales, cheaper
prices and competition they said October revenue would be below
estimates. Dow Jones reported that customer traffic was actually
up in October but the average check was lower due to the new $1
menu options. The fast food war is heating up and Wendy's just
announced less than expected results on Thursday. The Burger 
King buyout is also suffering from the war. 

Safeway warned that sales for the quarter and full year would
be less than expected because previous growth estimates were 
too high. This is a continuing trend in the food sector and 
other retailers got hit for losses as well. WIN, KR, GAP, 
ABS, SVU and even distributor FLM traded lower. Because some
of the week chain store sales comes from increased competition
from Wal-Mart that stock closed up slightly. WMT has not been
saying bullish things lately and it appears that gaining share
is the only thing keeping them out of trouble. 

The heat in the kitchen is rising in many companies and the
chefs in charge of cooking the books are bailing out in droves.
Beleaguered Tenet Healthcare has been under the gun all week 
for accounting questions and THC announced that the COO and CFO
had resigned. Not a good sign and the stock, which had been
trading at $50 two weeks ago closed at $14.84 on Friday. Other
healthcare companies were also hit by friendly fire and guilt
by association. Video game maker THQI, which has been under
fire for lowering revenue estimates announced their COO had
left the company and they were going to dissolve the position. 
THQI dropped nearly -10% on the news. 

After the bell on Friday Duke Energy announced that it had
received a subpoena as part of a grand jury investigation
into energy trading in California. Expect more on this topic
as investigations progress. Xcel Energy denied an article in
the Wall Street Journal that it had filed for Chapter 11
bankruptcy. Seems like that would be really easy to check
before putting it in print. Xcel claimed they had not filed
and had no intentions to file. They claimed they were working
with creditors to plan a restructuring proposal and it would
take weeks before any decision was known.

Other than the stock news above the markets were quiet on
Friday and the major news was the unanimous vote on the Iraq
resolution by the UN Security Council. This should be more
correctly labeled the "Gotcha" resolution since it puts 
Saddam in a box from which there is no escape. Iraq has 
seven days to "accept" the resolution. Once accepted they 
have 30 days to declare all their weapons of mass destruction 
and set them up for future destruction. Once they are declared 
the inspectors will inspect them and destroy them. The key 
here is the default provision. If Iraq accepts the resolution 
and fails to declare ALL their weapons and the inspectors find 
out they lied then all bets are off. The next communication 
Saddam will receive will be in the form of a cruise missile 
in his office window. Not really but you get the idea. 

For somebody that has spent billions rebuilding his weapons 
supply and hiding them from outside sources he is not going 
to simply say "sure, here is the keys to 33 of my palaces 
and these are the weapons you will find there." We will 
probably get the bluff, reluctant acceptance and then 
incomplete disclosure of the stuff he deems replaceable. He
will hope to run the same shell game he did before where
trucks were driving out the back gate while inspectors
were being questioned at the front gate. The inspectors are
going to play by different rules this time. The resolution
gives them no knock, any one, any time, any place authority
to search and this is something Saddam has violently rejected
for obvious reasons. It appears that by Dec-23rd the inspectors 
will walk up to several "undeclared" weapons sites using 
information from undercover operatives, defectors and
the Iraq opposition and "discover" undeclared weapons. The
U.S. will say I told you so and with prior approval from the
U.N. will proceed to war. The inspectors must report back to
the U.N. by mid February on what they found but nothing 
prevents them from declaring violations at any time. 

This eventuality has been priced into the market for quite
some time and the movement in oil prices today confirmed it.
Oil rose a meager +44 cents after the announcement. The U.S.
has been moving troops and equipment for months and the fact
that we may go to war is now taken for granted. Most analysts
think it will be short and harsh and will be over by April 1st. 
The resolution was credited with causing the Friday sell off
but I personally doubt it was related. If anything it put off
any attack until February or later and improved the chances of
a possible coalition to accomplish the task. If anything it
was another win by the Bush administration in a week already
full of successes. 

More troubling to the markets was extended analysis of the 50
point rate cut. The wording of the announcement along with the
minutes of the September meeting make it clear that the Fed
did not come to this decision over time. Analysts feel it was 
something specific that suddenly turned a split decision over
a 25 point cut at the last meeting into an unanimous decision
for a 50 point cut this week. The overriding question is what?
Yes, economic reports have been turning down but the majority
are still pointing to growth. Jobs are not that weak and 
productivity is high. Is there a banking problem? Is there
another Long Term Capital about to implode somewhere? Is Brazil
going to renounce the IMF and go it alone without strong
economic changes? Analysts fear that the Fed knows something
they are not telling. 

The Fed commissioned an analysis of Japan's death spiral 
recently and it is possible they learned enough from that
analysis that it scared them into action. One of the lessons
from Japan was that a long succession of minor rate cuts only 
when absolutely necessary left them with a flat economy and
no cuts left. The lesson many are suggesting is that when 
faced with a sluggish economy and dwindling ammo you make
the maximum use of that ammo in the shortest period of time. 
The 50 point cut was totally out of character for the current
Fed and Greenspan. Something changed and if the maximum use
theory is to be believed then the Fed thinks there is something
to worry about. Whether it is just the failure of the economy 
to bounce or something else in our future we don't know. The
uncertainty is weighing on the markets. What was the Fed 
afraid of and should we be worried. 

Friday could have been worse. There was a concentrated effort
to keep the Dow over 8517 so that the winning streak could be
kept alive. Big money wanted investors to read "five week
winning streak" in the paper this weekend instead of "markets
fall on Fed concerns." Actually the closing levels on all the 
major indexes should be a warning message to investors. The 
current pivot points for the major indexes were Dow 8600, 
Nasdaq 1380, S&P 905 and OEX 465 as of Friday morning. Moving 
below these numbers signifies a break in the short term trend 
and the possibility of weakness ahead. All the indexes closed 
well below those levels on Friday. 

The selling on Friday was far from convincing and could have
been just post Fed profit taking. The lackluster market action
drew numerous commentators and analysts in front of the TV
cameras to expound on why we are going to Dow 5000 or 10000. 
We are a country with 44 million investors and days like
Friday bring out nearly that many analysts and all with 
differing opinions. Trying to apply too much importance to 
Friday's action will have you chasing ghosts and dreaming in
candlesticks. The only thing we can infer from Thursday and 
Friday is that investor's enthusiasm cooled from the October 
rally intensity and with the Fed meeting and election over 
they took the day off to spend some of their gains. If you
want to really drive yourself crazy just ponder why the bears
were unable to cause a stronger drop with no real opposition.

Next week is going to be a yawner. Monday is Veteran's Day
and the bond markets will be closed. The stock market will
be open but volume should be light. The economic calendar is
blank for the Mon/Tue/Wed but will make up for it on Thursday
and Friday. Thursday we get Jobless Claims, Import/Export
prices, Retail Sales and the Philly Fed Survey. Friday we
have Business Inventories, PPI, Industrial Production, 
Capacity Utilization and Michigan Sentiment. These reports
should not be earth shaking since we already know the recovery
is limping along and almost nothing they can say will make 
the Fed rush to cut rates again. The only surprise in my 
opinion would be for them to be positive and the markets 
might celebrate that. 

Earnings are likely to be the real focus with AMAT on Wednesday
after the bell. They already announced this week that they were
cutting -1750 jobs due to a continued slump in chip sales. Dell
announces on Thursday after the close but is expected to 
announce inline after numerous affirmative comments. A couple 
of other notables are NTAP on Tuesday and INTU at Wednesday.
Earnings are far from over with over 100 companies reporting
this week. We have seen in the past that the later in the cycle
companies report the better the chance of weaker results. 

The forecast for the markets is mixed. It is an options
expiration week and there are likely to be many positions
which need to be squared away. The bullish sentiment
still exists but the reasons for buying now are much less
compelling and mostly seasonal. The end-of-year rally crowd
is expecting a rally and they will likely buy from habit to
reap the seasonal rewards regardless of the outlook. This 
may give us a bullish undercurrent. Funds saw inflows of $3
billion this week, which is a dramatic change in direction
after many weeks of outflows. This could have been related
to the pre-Fed expectations. In the post Fed week ahead there
may be some inflows from investors expecting the 50 point
cut to be a magic wand for the markets. If investor confidence
has been increased by the rate cut then the urge to get in
quick should be seen this week. If we don't see buying begin
by Wednesday then the outlook could be grim. This is a show
me week and everyone sitting on cash with an itchy trigger
finger will be looking for confirmation that the year end
rally has begun. If it does not appear then the excitement
will fade and investors will go back to the couch instead of
the computer.   
 
Enter Very Passively, Exit Very Aggressively!

Jim Brown

"The market is a voting machine, where countless individuals
register choices, which are the product partly of reason and
partly of emotion."  - Graham & Dodd


**************
FUTURES MARKET
**************

Methodology 
By John Seckinger
jseckinger@OptionInvestor.com

As a member of the CBOT, I was on the trading floor when the 
exchange first introduced the Dow Jones futures contract.  It was 
like having the best of both worlds.

Liquidity and leverage.  I had the membership to step into the 
trading pit; however, I first wondered if I needed a different 
mentality when approaching an equity index futures contract 
versus that of a fixed income instrument.  I didn’t.  As I 
learned throughout the years, nothing beats hard work and 
discipline, as well as a solid understanding of technical 
analysis.    

After meticulously studying the Dow Jones contract, it only made 
sense to explore what the Chicago Mercantile Exchange (CME) had 
to offer.  The e-mini S&P 500 (ES) and e-mini Nasdaq-100 (NQ) 
once again afforded a trader an incredible use of leverage, as 
well as usually adhering to the same technical trends that was 
found at the CBOT.  The nice thing about the CME was the increase 
in liquidity, which certainly helps at times when execution is 
critical.  Hmmm. . . when isn’t execution critical? 

Before we review the three contracts, I would like to share with 
you a small part of my trading methodology.  

Top-Down Approach:  This is defined as trading with the ‘big 
picture’ in mind.  Since the index futures contract attempts to 
be one step ahead of the cash market, I like to always be aware 
of what part of the business cycle the U.S. economy is in via 
studying the bond market, currency trends, action by the Fed, 
etc.  This can help a trader on a micro level, because it will 
either strengthen support (if economy is experiencing strength) 
or resistance (if expectations are for a weaker economic 
environment ahead).  

Trading Psychology:  I am a big believer that the market will go 
out of its way to “trap” trader into believing one thing or 
another.  These ‘traps’ are normally accomplished by stops that 
take the market outside important support or resistance levels, 
action by the media, or rumors that viscously circulate on the 
trading floor.  It has always been my methodology to not 
initially chase such price action.  Confirmation is key.  If 
solid support is at 898.50 in the ES02Z contract and the market 
falls underneath this level, 9/10 times the market will come back 
and test this pivotal level.  This has certainly helped my 
confidence as a trader.  

From b to P:  This Traders Corner article I wrote back in August 
really gives a clear insight into how I deal with market dynamics 
via horizontal and vertical patterns.  The article can be found 
here at http://www.OptionInvestor.com/traderscorner/081302_1.asp 

Learning Curve:  My intention is to help all futures traders; 
from brand new futures traders looking to get a feel for the 
contract(s), to highly skilled traders looking for one more 
trading tool that will give him/her an edge.  I have always been 
a believer that, because the markets are so dynamic, constant 
education and ‘open-mindedness’ is critical to succeed in such a 
competitive environment.  If a certain form of RSI, Stochastics, 
ADX, or MACD works better on a 30-minute chart than 60-minute, 
why not learn to adapt?  

Staying with this theme, I will constantly try to update 
subscribers on confirmation of daily market sentiment, or a break 
in sentiment that occurs during a trading period.  This will be 
done via Market Monitor (as well as in this article) and will 
include an illustrative attachment.  

Traders Corner Articles:  Going forward, all of my Traders Corner 
Articles will be focused on the equity index futures market.  For 
a list of my other articles, please visit this page:  
http://www.OptionInvestor.com/indexes/traderscorner.asp 


Friday, November 8th at 4:00 P.M. 

Contract         Net Change     High        Low       Volume    

ES02Z     893.50     –9.00     910.75      890.50     587,172    
YM02Z    8506.00    -68.00     8658.0      8480.0      16,820    
NQ02Z    1009.00    -20.50     1043.50     1005.00    226,204    

ES02Z  =  E-mini SP500 futures    
YM02Z  =  E-mini Dow $5 futures    
NQ02Z  =  E-mini NDX 100 futures     

Note:  The 02Z suffix stands for 2002, December, and will change 
as the exchanges shift the contract month.  The contract months 
are March, June, September, and December.  The volume stats are 
from Q-charts.  

Let us start with a weekly chart of the S&P 500 Index and get a 
longer-term feel first.  As the chart shows, the Dec contract 
tested strong intermediate:  A bearish trend line dating back to 
mid March, the 22 Weekly Moving Average, and a highly watched 
38.2% retracement level.  If the weekly low of 890.50 is 
breached, support on an intermediate level is not felt until 869 
(first blue horizontal line).  The other two support lines are at 
854.50 and 841.  Even though sentiment is currently bearish, we 
will still need confirmation and follow-through activity 
underneath 890.50.  Once under 890.50, the market will be telling 
me to be prepared for another wave lower. 

Chart of the December S&P 500 Index (SP02Z), Weekly 


 

Now that we have a bearish weekly viewpoint in mind, let us turn 
to a daily chart of the E-mini S&P 500 contract.  There should be 
support at both the 22 and 50 DMA’s (886 and 881, respectively), 
and a trader going short at 890 should expect a slight bounce 
near 886.  If the first target it hit (886), make sure to trail 
the stop down to near breakeven just in case there is a better-
than-expected rebound.  If the contract falls to the second 
objective of 881, lower the stop once again to the 22 DMA.  

Chart of ES02Z, Daily


 

Taking things to a more micro level, the consolidation seen 
during trading on Friday afternoon has the appearance of long 
liquidation (a “b” pattern).  The mid-point of the range appears 
to be at 894 and near the 50 PMA; therefore, if the index falls 
below 8909.50, I expect this mid-point not to be tested in the 
near term (hence stop at 895).  

Chart of ES02Z, 5-minute


 

The mini-sized Dow contract seems to have support near 8480, and 
a break underneath this level should send the contract to the 
bottom of the regression line at 8400.  The intermediate range 
target is for a test of 8169.  With the 8169 target in place, I 
would use a stop at 8560.  If 8400 is hit, move trailing stops 
down to 8465 and lock in profits.  

Chart of YM02Z, Daily 


 

For short-term traders looking to capture a quick move to 8400, a 
stop closer to 8550 can be used.  Since the YM02Z contract has 
not closed underneath 8480, there is still the possibility that 
sentiment could turn bullish.  How is this possible?  It is 
possible if the contract rises above both 8550 and 8650 and 
closes above the ascending black regression line.  

Chart of YM02Z, 5-minute 


 

A look at a daily chart of the E-Mini Nasdaq (NQ02Z) contract 
shows the contract on Friday closing the gap left at the 
beginning of the week (Monday) and closing near the 1000 level.  
There is a chance that the contract could test this gap once more 
before falling underneath both the 1000 level and reaching the 
target of 984; therefore, a potential trade would be to short the 
NQ02Z at 1025.    

Chart of NQ02Z, Daily 


 

Looking at a five-minute chart of the NQ02Z contract, regression 
analysis is used for Friday’s consolidation range and we will 
have to watch for either a bid back to the top of the range or a 
break underneath 1005 and then a quick test of 1000.  With that 
said, if the contract does not initially bounce upward, a 
potential trade could be to sell the NA02Z at 998 and use a 1010 
stop.  The objective would still be for a test of 984.  Once 990 
is hit, lower the trailing stop to near breakeven.   

Chart of NQ02Z, 5-minute 


 

Good luck

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com  


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

"General-ley" speaking, stocks were lower

The major indexes traded lower for a second straight session, as 
healthcare sectors were battered lower as nightmares of what 
happened in the energy trading sector with Enron spooked sectors 
bulls into thinking...."here we go again."

Its not that two of the more battered stocks in the group, Tenet 
Healthcare (NYSE:THC) $14.90 -46.69% and Syncor International 
(NASDAQ:SYNC) $18.38 -18.9% have been "swapping" needles, but the 
appearance of potentially mischievous wrongdoings and sudden 
management changes found the Morgan Stanley Health Providers 
Index (RXH.X) 274 -9.75% and HMO Index (HMO.X) 512 -6.84% seeing 
some group think selling.  Today's sector losses had both sectors 
earning top spot in our weekly sector loser list.

For a second week in a row, the NYSE Composite ($NYA.X) 476.66 
-0.77%, Dow Industrials (INDU) 8,537 -0.57%, S&P 500 Index 
(SPX.X) 894 -0.87% and S&P 100 Index (OEX.X) showed little change 
in price action on a week-to-week basis and begins to hint that 
the renewed bullishness in bonds, which saw the 10-year YIELD 
($TNX.X) fall from last Friday's 3.97% yield to 3.852% begin to 
offset last the $2.3 billion cash inflows into U.S. equity funds 
for the week ended November 6.

The "defensive" move toward Treasuries saw the NASDAQ Composite 
Index 1,369 trade down 1.26% on Friday, but finish down just 
fractionally on the week.  The "perceived risk" in technology 
stocks had the NASDAQ-100 Index (NDX.X) 1,008 -1.69% along with 
the smaller-cap Russell-2000 Index (RUT.X) 379 -1% finding some 
selling on Friday, with both posting -1.1% losses for the week.

This weeks big winners?  The Airline Index (XAL.X) fell 3.7% on 
Friday, but posted an 8.5% gain on the week.  Bullishness in Drug 
stocks saw the Drug Index (DRG.X) find a 1% gain on Friday, which 
built to a 5% gain on the week.  Internet stocks as depicted by 
the CBOE Internet Index (INX.X) edged down 0.89% on Friday, but 
bucked was our only "tech-related" sector to post a gain greater 
than 1%, with an impressive 4.7% weekly gain.  Weakness in the 
U.S. Dollar, combined with a rush back toward bonds found bulls 
looking to play a little defense as they bid the Gold/Silver 
Index (XAU.X) 4% higher on the week, despite a -1.13% decline on 
Friday.

While sector gains were somewhat limited to the aforementioned, 
losses were heavier not only in the healthcare group, but housing 
as the Dow Jones Home Construction Index (DJUSHB) 290.49, which 
fell -2.7% on Friday, was pummeled -7.5% lower this week.  This 
action made no sense to an economic bull as lower YIELDS in the 
longer-dated 10-year and 30-year Treasuries should bode well for 
lower mortgage rates.  

Banks, which have historically benefited from an easing Fed 
policy also traded against "economic sensibility" as both the S&P 
Banks Index (BIX.X) and KBW Bank Index (BKX.X) fell -5.9% and 
-4.7% on the week.  However, as noted in Wednesday's 01:00 PM EST 
update, the aggressive cutting of rates by the Fed may be putting 
some near-term pressure on margins in the group.  The 
Semiconductor Index (SOX.X) 299 -0.89%, which battled with the 
psychological 300 level all day on Friday, was this weeks tech-
sector loser with a -4.8% decline.  

Weekly Sector/Index Changes


 

Hmmmm.... there's got to be a better way of doing this, but what 
I've tried to do this week is perhaps connect the dots with our 
weekly Index/Sector tabulations.  It was the weekend update just 
after completion of the 10/25/02 week that I was "still bullish, 
but looking for a pullback in stocks," when for the first time in 
several weeks we saw marginal buying come back into the 10-year 
YIELD.  Well.... the NYSE thru S&P 100 has been "black" or 
unchanged by more/less that 1% on a week-to-week basis since 
then.  What I'm trying to visualize is that indeed we're seeing 
some "stalling out" in the major indexes.

It would make sense perhaps that the more volatile NASDAQ-100 
Index (NDX) is more likely to turn from blue to red and red to 
blue as 1% weekly swings isn't uncommon.  Same may be said for 
the more illiquid smaller caps in the Russell-2000 Index.

Then as we "move south" into the sectors, we can perhaps see the 
larger "island of blue" begin to get broken up a bit and start 
seeing sprinklings of black and red.

If there's is ONE, make it TWO things or trends in the above 
spreadsheet that is concerning to the bullish half of me, it 
would be what is taking place between lower YIELDS and 
Gold/Silver stocks.  In past history, when Gold stocks bid and 
YIELDS are headed lower, it has been under "defensive" market 
conditions.

The SECOND thing that bothers me is the weakness the U.S. Dollar 
has seen in recent weeks.  This weeks action by the FOMC to cut 
rates to 1.25% has interest rates here in the U.S. roughly 2-3% 
LOWER than our friends over in the UK and Europe.  The cut in 
rates also had savings/money market account YIELDING roughly 1.1% 
and if taxes are paid as ordinary income, with inflation running 
at a 1.5% annual rate (based on September CPI of 1.5%) all of a 
sudden, money in the bank at 1.1% has become a losing man's game.

It is perhaps that "realization" which had money heading toward 
the longer-dated maturities and relatively higher YIELDS among 
U.S. investors.  It may also have had money headed back out of 
the U.S. to overseas markets, while some of the money in saving 
accounts simply rotated into stocks that had posted strong gains 
in the prior weeks (excluding the last two weeks).  

I guess what bothers me too much is that when we look at the "so 
far Q4" percentage gains for the major indexes, why has cash been 
so "eager" to snap up 10-year YIELD of 4.134%, 4.095%, 3.977% and 
3.852% in recent weeks?

A bear will answer that question with.... "Just watch why cash 
has been so eager to snap up those YIELDS when you see what 
happens to stocks in the coming weeks.  You see, the Fed shot 
itself in the foot with that 50-basis point rate cut, when it 
tried to turn savers into spenders by making saving's accounts a 
losing man's game."  

Hmmmm.... maybe this "saving" thing is right.  Note the 
"underperformance" of the more regional S&P Banks Index (BIX.X) 
versus the more multi-national KBW Banks Index (BKX.X).  Not only 
on a weekly basis, but "so far Q4" basis too.

Now comes a bull's answer.... "You're right Jeff.  The FOMC move 
this week will inject more liquidity into the economy and equity 
markets than you can begin to imagine.  Look at the brokerage 
sector, up 11.6% for the quarter.  You see?  Investors are taking 
their money out of savings and pumping it into stocks.  You 
always said the MARKET was never wrong and the MARKET looks to be 
making some bullish bets on the brokers and that trading revenues 
are going to be picking up.  When stocks break to new relative 
highs, just watch what those bond bulls do in the 10-year as they 
sit and wait for their 3.85% interest payments to show up as 
stocks surge higher!  And when our fine friends from overseas 
watches what's going on, then watch the dollar rise as they start 
bringing their cash back over here and exchange their euro and 
yen for U.S. assets!"  

Ugh!  Both sides have good arguments don't they?  Confused?  
Don't be.  Simply treat each one as a "bearish scenario" and 
"bearish scenario" and test each of them over time.

For me, right now, I've got to side fractionally with the bearish 
camp.  For WHATEVER reason, the dollar is weak, gold bids, and 
YIELDS are falling.  If nothing else, after a very nice run-up in 
stocks, a bull should at least be looking to protect some gains.

Dow Industrials Chart - Daily Interval


 

It can be informative to "look back" a week at past commentary 
and see if things panned out per observations, scenarios made.  
Last weekend we thought the favorable court ruling would have the 
Dow breaking above 8,550 (ok, I wasn't going out on a limb) and 
have the 8,717 level achievable.  By golly, the Dow closed above 
8,717 for one session and fell right back where we started from.  
Probably could have made it to 9,000 if not for so much cash 
going into Treasuries.  Hmmmm.... what happened to all the money 
coming out of savings accounts to buy stocks?  Maybe its waiting 
at 8,379 or 8,170.  I think we'll find out this week.  One reason 
I "really like" a Dow bullish trade at 8,200 is that I think 
there's probably some shorts between 8,170 and 8,379 that are 
questioning things.  I feel that's a "low risk" entry point.  
Even if things are "terrible" from the Feds point of view that 
warranted a 50-basis point cut this week, then a decline to 8,000 
would get a bounce back into the 8,170-8,379 zone and give a 
skittish bull a chance to exit.

My title "General-ly" speaking was a lame attempt at drawing 
attention to weakness in General Electric (NYSE:GE) $25.10 
-3.86%.  We've talked in past months (since $40) that this 
company has its proverbial finger in just about every piece of 
pie in the U.S. and GLOBAL economy.  Today, GE fell below its 
October relative low of $24.90 with an intra-day trade of $25.63.  
Just as the markets "gapped higher" on October 15th at the open, 
GE did too and today it filled that gap.  If GE continues to 
weaken, be alert for broader market weakness.  GE has been one of 
the weaker Dow stocks with deep ties to the economy.  

Speaking of "Generals," General Motors (NYSE:GM) $34.42 -0.46% 
traded in a very tight range ($35.00-$34.42) on Friday, but 
closed for the second consecutive session below its 21-day SMA 
after closing above this short-term moving average on Tuesday and 
Wednesday.  For years, there's been a market saying that goes... 
"As GM goes, so goes the market."  Unlike many NASDAQ stocks, GM 
does have what I consider to be a "reasonable" upward trend 
associated with its daily chart at $32.81.  I can "eyeball" 
support in GM at $32.81 on a Dow test of 8,200. 

Unfortunately for GE, any upward trend would now have to be 
anchored at the lows and attached to today's low of $24.63.  If 
it's true that weakness leads, the MCD, GE did their part on 
Friday.  If GM gets in the act then that would be a negative.

Conversely, if strength leads, then 3M (NYSE:MMM) $128.29 -0.24%, 
which continues to find resistance at its 52-week highs near $130 
seems to need some type of "cash infusion" to get a break-out 
going and lead the Dow higher.  My other Dow stock that we've 
looked for leadership in is Johnson & Johnson (NYSE:JNJ) 60.27 
+0.63%.  Just like MMM, JNJ is testing relative highs.  The "only 
difference" between MMM and JNJ is their sector associations.  
JNJ is more of a drug stock and MMM a cyclical.  I do hold a 
bullish position in JNJ from $55, but currently have no bullish 
position in MMM.

Friday's action saw no net change in the Dow Industrials Bullish 
% ($BPINDU) and remains "bull confirmed" at 63.33%.  For the 
week, the Dow's bullish % rose 6.66%, so it was a net gain of 2 
stocks to point and figure buy signals.  

Remember, once a stock's point and figure chart generates its 
first p/f buy signal, it can still generate more buy signals, but 
will not contribute further to the bullish % until after it 
generates a "sell signal."  For example, since JNJ first 
generated a "buy signal" at $57 on October 2, which had it 
contributing 3.33% to the bullish %, the next buy signal at $60 
did not contribute further to the Dow's bullish % reading.

I'm going to go in the same "chart order" as we did last Friday.  
This way, those that want to compare week-to-week action can 
perhaps get a feel for how things went rather easily.  I think 
you could open up another browser window, click on last weekends 
update, then come back to your other browser and make some 
comparisons.

NASDAQ-100 Index Chart - Daily Interval


 

The NDX did close below a very aggressive upward trend.  A trend 
that even the most bullish of bulls "knew" couldn't last forever.  
This hints that some pressure that was released from the lows 
when the bullish percent fell to October's low reading of 14% has 
been released and may be time for a rest.  Bears are still very 
cautious and most likely provide support between 953 and 1,000.

I've tried to envision what the lower stochastics oscillator 
might do as it relates to NDX price levels.  I've done the same 
with the MACD.  I can envision the MACD crossing below its red 
Signal on a break and close below the 21-day SMA, then trending 
into the 953 level as MACD approaches zero.  It's at that point 
that any market makers short near 1,050 as they were giving 
liquidity to buyers after MSFT news would then look to firm up 
their bids and provide support.  

At the same time, think of what market makers were doing that may 
have been doing some shorting the week prior at the 1,000 level.  
If you guessed "sitting some bids and covering short inventory 
for break-even," then you and I are on the same page.

Remember, NASDAQ-100 stocks are all listed on the NASDAQ 
exchange.  Therefore, the bulk of orders not matched through an 
ECN pass through a market maker.  Market makers don't try and 
"predict" anything.  All they do is measure ORDER FLOW and trade 
levels.  To perhaps better grasp this concept, it might be fun 
and educational to read an article I wrote in the "Bailey's 
Basics" section titled "Retracement Levels."  

A quick refresher on past bullish % levels shows August's 
relative high bullish % reaching 60%, while current levels are 
higher and have reached 69%.  This tells us that risk levels in 
the NDX are very similar to that found in late August.  However, 
the matching new relative highs in both the chart of the NDX as 
well as the internals as depicted by the bullish %, give hint 
that the recent rise has been fueled by more than just "hot air."

Bears will begin monitoring for resistance at 1,050, but will 
want to see some type of 3-box reversal to 62% before getting 
overly bearish.

Friday's action saw the NASDAQ-100 Bullish % slip by 2% to 67% 
from Wednesday and Thursday's readings of 69%.  Still "bull 
confirmed" and would need a reading of 62% to slip back into a 
"bull correction" status.  

Best bullish entry points come on pullback near 61.8% retracement 
of 61.8%, but only if Treasuries firm up here.  I'm not thinking 
that investors will be as eager to pull money out of their low 
yielding savings accounts if tech stocks start generating 2% 
declines each day, so either need stability in Treasuries or 
selling to provide fuel for aggressive tech stocks.

QQQ/NDX Note:  Microsoft (MSFT) $55.10 -1.62% .... biggest 
weighted stock in NDX and QQQ broke 4-session support and may 
look to fill its gap from $54-$55.25.  If MSFT does fill its gap, 
look for firm support in MSFT near $54 and tie in with QQQ/NDX at 
their 21-day SMA's ($24.37 / 980).  If you've got a retracement 
tool, I've had my retracement brackets set as I think a market 
maker would have.  Top at $73.65 and bottom at $41.50.  This was 
a "fitted" retracement with 19.1% at $47.64, 38.2% at $53.78, 
which resulted in 50% at $57.57 (hmmmm.... that's right were 
stock ran after last Friday's announcement), 61.8% at $61.36 
(market makers upper risk level) and 80.9% at $67.50.

S&P 500 Index Chart - Daily Interval


 

Both the weekly % change and "so far Q4" percentage changes are 
really starting to diverge and we can perhaps see the "lagging" 
of the broader SPX to the narrower OEX.  EVERY index trader (Dow, 
OEX, NDX, QQQ or RUT) will have their eye on the SPX as it 
approaches its 21-day SMA.  If this widely watched index that has 
been finding some technical resistance on the bar chart begins 
slicing below levels of support, then most likely the other 
indexes begin to catch up if bulls begin pulling the plug with 
the thinking that their holding will follow suit.

I just caught a "labeling" mistake from last Friday.  Horizontal 
resistance at the dashed red line should have been labeled 925, 
not 909 (which was the 9/11/02 close instead of high).  A bull's 
target of 950 may still be achievable as their is still some 
upside room in the bullish %, but to get there, a bull sure as 
heck needs to see some selling in treasuries to generate some 
cash and flow toward equities.  

If we know anything about Treasuries, the selling needs to come 
from the riskier end and the 30-year.  If the selling just comes 
from the shorter-dated maturities, but simply rotates to the 
higher YIELDing 30-year, like it may have done today, then that 
does stocks little good if the money coming out of the short-end 
just winds up in the higher YIELDing long-end.

S&P 100 Index Chart - Daily Interval


 

I appologize to those index traders that have sent me e-mail 
regarding OEX bearish entry points, but I personally am NOT 
looking at OEX as a put, when the SPX has been the lagging "like" 
index on the way up, and now seems to lead the way down.  As 
such, it would be the OEX a trader uses to look for "first" 
bullishness should a decline continue to take hold.  The OEX 
"stretched" its wings above its 09/11/02 relative highs this week 
and plants the seed of doubt in an OEX bear's mind on further 
bullishness to 480.  Should SPX cracks below its 21-day and a SPX 
trader puts there, then turn your attention to the stronger OEX 
and monitor its progress in following sessions.  The OEX should 
show first sign of strength.  If not, then most likely more 
"junkier" stocks in the broader S&P 500 lead lower and further 
decline in OEX acts like a sledge hammer, driving SPX lower.

Again... if Treasuries stay where the are, or YIELDS continue 
lower, then the 21-day SMA's are suspect to being broken.  The 
RISKIEST 30-year YIELD closed BELOW its 50-day SMA today.  
However, we remember that on 10/15/02, we wanted to see the INDEX 
breaks ABOVE their 50-day SMA's be CONFIRMED with a YIELD break 
above its 50-day SMA.  That happened and stock benefited 
markedly.  Now we see YIELD leading lower and its my best guess 
that unless something changes soon, equities will follow.

If we think for a moment that the "mutual funders" that dumped 
$2.3 billion into U.S. equity funds in the latest week are going 
to be happy if the SPX starts breaking below 856 and not thinking 
"here we go again," then we may have to re-think things.  Mutual 
fund managers HAVE to invest the money they receive from fund 
holders into the stocks they deem most worthy.  

Remember from Thursday's wrap that Trim Tabs estimated that the 
week prior, roughly $800 million outflows were seen.  That was 
probably during SPX range-bound 878-900.  Then when SPX held 
tough and media started banking on 25-basis point cut and good 
for stocks, $2.3 billion came in, only somebody (the MARKET) 
started buying bonds and perhaps shifting out of stocks to the 
mutual funders.  At least this is how I perceive what has been 
happening.

Mutual funders along with the equity indexes need some cash from 
the bond markets.  Mutual fund investors are more apt to send 
their fund managers some cash, see how things go, before they 
cough up more cash.

Note:  My parent, which I deeply respect and love own some equity 
mutual funds.  The term "mutual funders" is not meant as 
derogatory.

Jeff Bailey


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**************
Editor's Plays
**************

Expiration Week

You would think that expiration week after a Fed meeting 
there would be tons of cheap plays. I spent over two hours 
just researching stocks/options for something I liked. There
were lots of plays but they were either pinned at a strike
price already or right at support/resistance and no real 
chance for a decent lottery play. 

Out of the hundreds of stocks I looked at the options were
either too expensive or too far away to make sense. If I
am not willing to put my money on the line I can't recommend
it to you. There were several chip stock plays that were
possible with the SOX dropping but we already have a SMH
put play in progress. Don't put all your eggs in one basket.

I looked at stocks, holders, I-shares, indexes, etc and only
found two plays that made sense to me in the expiration week
context. 

MLNM Call

The first is MLNM. Something happened to them in the last 
two weeks and they have taken off like a rocket. They have 
strong resistance at 10.50 but that is about $2 away. 

The option I would recommend is the NOV-$7.50 Call for $1.40.
It is already $1.26 in the money leaving only 14 cents of 
time premium. You should get almost 100% of every penny
gain in the stock between now and Friday. The highest open
interest is the $10 strike so that is probably where the
stock will end up to expire the most options worthless.
Ending at $10 would make the $7.50 option $2.50 and nicely
profitable. 

If you wanted to bet on the extreme outside chance that
MLNM would break $10 by as little as 50 cents you could
throw a $10 bill on the $10 option at 10 cents and consider
it a real lottery play. This is not a wise move but when
you consider the risk/reward it might appeal to some of 
the gunslingers out there. 

The play on MLNM would require a positive market and unless
the trend from the last two days changes that is not going
to happen. This sets up an opportunity to profit by buying 
any dip. The $7.50 option will get cheaper on any MLNM dip
with the market and the rebound possibilities are still
there. 



 

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

DJX Put

Where the MLNM play was for a positive market this play
needs a sell off to prosper. 

This is a simple strategy that anyone can follow. With 
the Dow clinging to 8550 and the closest real support
in the 8250-8350 range that gives us the chance for a
$2 DJX move. 

There are two ways to play. In the money and out of the 
money. With only FOUR days until expiration, DJX options
expire on Thursday night, we have to be right about
direction and quick on the trigger. 

Using either option I would only trigger the play on a
Dow drop below 8500. 

I would strongly advise against playing the out of the 
money option. Assuming we get a drop to 8300 the 83.00
option, currently 80 cents would jump to $1.50 in a normal
week. In expiration week it would jump a lot less. 
Remember, remaining time value will decrease -33% per
day this week. (That is a round number and not precise.)
That 80-cent option will only have 1/3 of its value on
Wednesday if it is not in the money. Still a rapid drop
on Monday could hit $1.25 or more before the market 
paused for air and the market makers caught up with 
accurate pricing. Consider the 83/84 options pure lottery
plays.

Using the in the money option I would choose either the
$87 or $88 strike. The estimated ask on Monday would be
$2.40 and $3.25 respectively. That is 40 cents of time
premium on the $87 and 25 cents on the $88 strike. 

A Dow drop to 8300 would raise the $87 strike to at least 
$4.10 and the $88 strike to $5.10. That would be better
than a 50% gain in each. 

The problem with in the money options is that they lose
premium when the market goes against you just as fast as 
they gain premium when it goes in your direction. This 
means you need to keep a tight stop loss once you are in 
the trade. 

With the short fuse you need to set a profit target and
get out quick or set a trailing stop to take you out on
any bounce. 

Using either option I would set a buy stop at 84.90. That 
means if the DJX touches 84.90 you want to "buy open" the
option of your choice. Once in the trade you need to set
a stop loss for "sell close" at not more than 85.50 to 
protect your position. 

I would also immediately set a sell stop at 83.00 to 83.50
to take you out of the trade. Any dip to near the 83.00
level could be sharp and the rebound quick. Don't miss 
your chance. 



 

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


SMH Ladder Recap (see 10/27 Editors Plays for setup)

The QQQ Nov-$26 call traded as high a $1.20 several times on 
Monday and if sold would have recovered $4,800 of your $5,250
investment in the entire trade. This would have left you with 
a cost basis in the SMH puts of $450. The SMH Nov-$22.50 put 
traded as high as 55 cents on Friday ($2750 value). 

With the AMAT earnings report on Wednesday and techs under 
pressure we still have a very good chance of doing well on 
this trade. The SMH closed on Friday at $24.42, down from 
$27.18 on Monday. $24.00 is the last support before $22.50 
and our exit target. If we get a further downdraft on 
Monday/Tuesday I would not wait for the AMAT earnings and 
would exit the play with your profit Wednesday afternoon or 
before to avoid a positive surprise. 

Premium on an out of the money put will decay very fast this 
week. If we do get an accelerated drop you could follow it
down with a trailing stop but it would be a high risk strategy. 
Instead, take a profit when offered and get ready for the
next play.


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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Put Away Those Horns
by Steven Price

Anyone confused?  Has the rally run out of steam? Did rates go 
back up when we weren't looking?  Or have there simply been no 
changes in the business spending environment in the last month?  
Bingo.  While the recent rate cut should eventually have an 
effect on spending, as the cost of financing drops even further, 
it will take at least 6-9 months to work its way through the 
economy.  And if low rates haven't helped to this point, how much 
difference will another 50 basis points make? With Wednesday's 
FOMC meeting behind us, we were left to ponder recent economic 
data, most of which was not very good.  Last Thursday and Friday 
we got a slew of bad news, but the markets rallied, as it was 
taken as a sign that the FOMC would lower rates. The anticipatory 
rally continued through the first part of the week.  However, 
after the FOMC news was out, the rally ended quickly.

There were certainly other forces at work this week.  Cisco 
essentially warned that the next quarter could see a revenue 
decline. While no one wants to hear that from one of the biggest 
techs in the market, it certainly was not a major surprise.  In 
fact, we had been hearing similar things throughout earnings 
season from a majority of chipmakers and software companies.  
Even Microsoft had said that this quarter's earnings were an 
anomaly, and not to expect a repeat.  So the Cisco news shouldn't 
have been a shock to the system and yet it sent the market 
rolling downhill for two days.  What is more likely is that it 
simply came at a time when there was no straw to grasp in front 
of us.  

Today's further drop was also blamed on the prospect of war.  The 
U.N. approved the U.S. resolution on Iraq, which the Iraqi 
ambassador said was crafted in such a way as to prevent 
inspectors from entering the country.  But did anyone really 
believe Saddam Hussein would fully comply with U.S. inspection 
demands?  While going to war may have a negative effect on our 
economy, it has most likely already been priced into the market 
to some extent. Certainly the oil markets don't seem overly 
concerned about the effect.  Now that OPEC has been cheating on 
its quotas the last couple of months and the president of the 
organization all but gave support to the practice for at least 
the next couple of quarters, even the prospect of an invasion saw 
oil futures remain under $26 per barrel.  At the height of 
speculation over what the U.S. would do toward the end of 
September, the futures were trading over $30.  The fact that oil 
supplies appear safe should help the markets, as it will keep the 
cost of transportation and production lower.  So the U.N. 
resolution simply shouldn't have that great of an effect.

McDonald's said this morning that it would not achieve its 2002 
earnings goals and that it was closing 175 restaurants. The 
closures will lead to 400-600 layoffs and reduce 4Q income by 
$350-425 million.  It is also pulling out of three countries and 
giving up ownership in four.  For the year, U.S. sales are down 
1.5%.  More layoffs lead to fewer workers, which leads to a 
smaller lunchtime crowd.  

The chip stocks appear to be rolling over after an incredible run 
that saw the Semiconductor Index gain more than 50% in a month.  
After topping out at 329, it has fallen out of its ascending 
channel and broke down through support at 300 today.  It finished 
the session just under that level, closing at 299.91, after 
dropping to an intraday low of 292. 44. Apparently investors lent 
more credibility to the bad news from NVidia last night, than to 
the good news from Qualcomm. If the index remains under 300, and 
we get some intraday resistance, the sector looks like a short 
again, with plenty of downside room. Keep in mind the last PnF 
breakdown led to a quick upside reversal, so let's be sure we see 
resistance before piling on. 

I keep going back to last week's data.   GDP came in lower than 
estimates.  Personal spending decreased more than expected and 
personal income grew less. This week's data showed that while 
initial jobless claims dropped by 20,000, the four week moving 
average remained above the 400,000 level, which is generally the 
barometer for whether the employment picture is improving. 
Productivity showed improvement, but still came in below 
expectations. 

Why all the negativity?  I think the better question is why all 
the bullishness over the last month.  And as long as were on the 
topic of negativity, it appears that we could be in the process 
of forming a second head and shoulders pattern in the Dow and 
SPX.  Only this time the head at 8800 in the Dow would be lower 
than the one in August at 9077.  The good news is that the Dow 
held support at 8500, and the COMPX held on around 1360 (closing 
at 1359), after filling its gap from Monday.  The bad news is 
that the SPX did not hold support at 900.  We are definitely 
looking at some crucial levels and the coming week should give us 
a feel for whether the rally is simply pulling back for another 
run at Dow 9000, or if it is out of steam and heading back to 
8000.  A close below Dow 8500, along with the SPX under 900 would 
indicate the latter. The fact that the COMPX and SOX are a point 
below support seems pivotal, as well.  Look for support or 
resistance at these levels.  Unfortunately (for bulls), I expect 
to see resistance.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7286
Current     :  8537

Moving Averages:
(Simple)

 10-dma: 8522
 50-dma: 8172
200-dma: 9264



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  775
Current     :  894

Moving Averages:
(Simple)

 10-dma:  899
 50-dma:  867
200-dma:  996



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1008

Moving Averages:
(Simple)

 10-dma: 1013
 50-dma:  920
200-dma: 1150



-----------------------------------------------------------------
The Semiconductor Index (SOX.X):  So much for Qualcomm riding to 
the rescue.  The chip stocks attempted a rebound on Friday, 
trading up to 308 in the SOX, but previous resistance at 310 came 
back into play and the sector instead chose to follow NVDA down 
into the 200s again.  On Thursday we commented in this space that 
the SOX had broken down out of its ascending channel from the 
beginning of October.  Just as it looked like the rally would 
reverse itself, QCOM came out with earnings news that rallied the 
stock over a dollar after hours and it appeared as though the 
scare was only that.  We also said that if it failed to rally the 
troops and the SOX fell below 300, to watch out below. NVidia 
also released its earnings, which were less than stellar, leading 
to a Prudential downgrade.  Guess what?  The index finished the 
day at 299. If we see evidence of resistance under 300, it looks 
as though it will be time to short the sector once again, with a 
target back in the low 200s. 

52-week High: 657
52-week Low : 214
Current     : 299

Moving Averages:
(Simple)

 10-dma: 305
 50-dma: 269
200-dma: 422

Market Volatility

In a somewhat puzzling move, the VIX sank today, even though war 
fears picked up steam and the Dow and SPX fell below recent 
support levels.  Apparently the lure of a steep weekend time 
decay (theta) curve ahead of expiration week was enough to bring 
in the sellers.  That certainly appeared to be the case as the 
index stayed high until the afternoon, when it sold off, in spite 
of a market drop, with a big jolt just before the close, as 
market makers dropped the at the money straddles ahead of next 
week. Of course on Monday, the VIX calculation will leave the 
November options out of the mix, so we may see a big move as 
January comes into play. 


CBOE Market Volatility Index (VIX) = 33.56 –1.72
Nasdaq-100 Volatility Index  (VXN) = 52.01 –1.89

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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.05        514,316       238,482
Equity Only    0.88        403,070       355,869
OEX            1.23         27,051        33,373
QQQ            1.39         44,183        61,514


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

Bullish Percent Data

           Current   Change   Status
NYSE          41      + 0     Bull Confirmed
NASDAQ-100    67      - 2     Bull Confirmed
Dow Indust.   63      + 0     Bull Confirmed
S&P 500       55      - 2     Bull Alert
S&P 100       62      + 0     Bull Confirmed

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

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

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

5-Day Arms Index   1.31
10-Day Arms Index  1.26
21-Day Arms Index  1.05
55-Day Arms Index  1.31


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

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

Market Internals

        Advancers     Decliners
NYSE        977          1709
NASDAQ     1356          1791

        New Highs      New Lows
NYSE         20              42
NASDAQ       44              42

        Volume (in millions)
NYSE     1,711
NASDAQ   1,588


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

Commitments Of Traders Report: 11/05/02

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

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

S&P 500

Commercials added 4,000 contracts to the short side, while 
increasing longs by 1,000.  Small trader added 1,000 to the long 
side, while increasing short positions by only 500 contracts.


Commercials   Long      Short      Net     % Of OI 
10/15/02      429,448   449,138   (19,690)   (2.2%)
10/22/02      432,775   463,827   (31,052)   (3.5%)
10/29/02      437,565   468,557   (30,992)   (3.4%)
11/05/02      438,546   472,384   (33,838)   (3.7%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
10/15/02      134,507    83,714    50,793     23.3%
10/22/02      134,641    72,681    61,960     29.8%
10/29/02      137,740    75,587    62,153     29.1%
11/05/02      138,604    76,032    65,572     30.5%

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

Commercials added 2,000 long contracts while adding 1,000 to the 
short side.  Small traders added 30%, or 3,000 contracts to the 
long side, while increasing shorts by a similar amount.  


Commercials   Long      Short      Net     % of OI 
10/15/02       45,578     51,969    (6,391) ( 6.6%)
10/22/02       48,954     54,088    (5,134) ( 4.9%)
10/29/02       47,837     55,261    (7,324) ( 7.1%)
11/05/02       49,128     56,121    (6,993) ( 6.6%)

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

Small Traders  Long     Short      Net     % of OI
10/15/02       10,185    12,478     2,293    10.1%
10/22/02       10,202     8,892     1,310     6.6%
10/29/02       10,584     9,419     1,165     5.8%
11/05/02       13,355    12,903       452     1.7%

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

DOW JONES INDUSTRIAL

Commercials added to both sides, increasing longs by 700 and 
shorts by 2,300.  Small traders reduced long positions slightly, 
but dropped 2,300 from their short side, for a significant 
reduction in the overall short position. 


Commercials   Long      Short      Net     % of OI
10/15/02       20,914     9,630   11,284      36.9%
10/22/02       22,189    13,448    8,741      24.5%
10/29/02       21,800    13,337    8,463      24.1%
11/05/02       22,533    15,687    6,846      17.9%

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

Small Traders  Long      Short     Net     % of OI
10/15/02        6,040    10,329    (4,289)   (26.2%)
10/22/02        4,445     9,270    (4,825)   (35.1%)
10/29/02        5,602    11,090    (5,488)   (32.9%)
11/05/02        5,089     8,735    (3,646)   (26.4%)

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

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


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***************
ASK THE ANALYST
***************

When Signals Conflict
by Steve Price

Question:

Re: Neurocrine Biosciences, Inc. (NBIX) 

Anyone short this? I am since 48. Opinion? 

Thanks, 
Alexandra
 
Answer:

Biotechs are often hard to judge on their financials, as many 
lose money, since they are in the process of developing drugs and 
funding R&D.  A company like NBIX has a decent cash position, 
with about $275 million with which to fund R&D and a development 
partnership with GlaxoSmithKline. It is working on drugs that 
address cancer, depression, insomnia, diabetes and MS. When it 
comes to companies like this one, I often rely heavily on the 
charts to determine how the market currently values the quality 
and progress of the company's research and financial position.  
From a short standpoint, you are basically picking a top in a 
stock that has been setting a series of higher highs and higher 
lows. The stock has been in an ascending channel since it 
consolidated between $25 and $30 at the beginning of July, and 
has been resilient to market pullbacks as it has climbed 
steadily.

The short position from $48 has been profitable so far, and may 
continue to be so as the stock heads back toward the ascending 
bottom trend line in the current channel.  It has tested this 
trend line six times since June and bounced each time. However, 
the stock has yet to register a point and figure reversal, and 
has a bullish vertical count of $59.  I would expect a reversal 
at some point between the buy signal at $44 and the achievement 
of this target, so we may be seeing that reversal now.  Still, 
this is definitely a short that is swimming against a rising 
tide. 

A look at the PnF also shows that the stock rolled over right at 
the top of a channel on that chart and if we get a reversal at 
$45, the bullish support is down at $40.  We are seeing a 
divergence between the different charting techniques.  My 
strategy if I were holding this short position would be to keep a 
tight stop, in case we are just seeing a dip and not a real 
pullback.  If the stock trades $45, registering a three-box 
reversal on the PnF chart, then I would look for a break in 
support on the daily chart, as well.  If it breaks down out of 
the channel, then my target becomes $40. At that point, I either 
close the position, or do a 180 and play the bounce.

We usually see similarities between the two charts, however, this 
time it gets a little trickier.  My advice when we don't get 
confirmation between the two is to identify the point at which 
they diverge (in this case the support levels) and go with the 
one that more closely represents the movement of the stock at 
that level.  

Right now, we have room to fall on the daily chart to around $43-
$44.  As we move forward in time and that trend line ascends, the 
level is higher.  However, if we test those levels, then we will 
get a good look at a crucial level, as the PnF should reverse at 
the bounce point on the daily.

Daily Chart of NBIX


 

Point and Figure Chart of NBIX


 

Commentary on the Semiconductor Sector

Te Semiconductor Index (SOX.X), which many readers have been 
watching for signs of weakness, appears to have rolled over and 
may be presenting us with some new short opportunities.  The 
index has dropped out of the descending channel which has 
contained it for the last month.  It had tested the bottom trend 
line of that channel repeatedly, bouncing each time.  This time, 
however, it is clearly below that mark and looks to have found 
resistance there to the upside.  The MACD has begun to turn and 
stochastics have given a sell signal after finding support at the 
80 overbought level for the last month.  In addition, the SOX has 
given a point and figure sell signal, with this breakdown 
appearing more convincing than the last.  

Daily Chart of the SOX


 

Point and Figure Chart of the SOX


 


Thanks for all of your suggestions.  For those I didn't address 
in today's column, look for my comments on the Market Monitor.

Please send your questions and suggestions to: 

Contact Support


*************
COMING EVENTS
*************

==========================================
Market Watch for the week of November 11th
==========================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

BCH    Banco de Chile        Mon, Nov 11  During the Market   0.22
FUN    Cedar Fair LP         Mon, Nov 11  After the Bell      1.99
LZB    La-Z-Boy Inc.         Mon, Nov 11  After the Bell      0.47
LEE    Lee Enterprises       Mon, Nov 11  -----N/A-----       0.42
NZT    Tlcom Corp Nw Zelnd   Mon, Nov 11  During the Market    N/A
MAY    May Depart Strs Co    Mon, Nov 11  -----N/A-----       0.10
TSN    Tyson Foods           Mon, Nov 11  Before the Bell     0.26


------------------------- TUESDAY ------------------------------

ANF    Abercrombie & Fitch   Tue, Nov 12  After the Bell      0.43
AXA    AXA                   Tue, Nov 12  -----N/A-----        N/A
BAY    Bayer                 Tue, Nov 12  Before the Bell      N/A
BOX    BOC Group PLC         Tue, Nov 12  -----N/A-----        N/A
CPG    Chelsea Prop Grp,     Tue, Nov 12  After the Bell      0.70
CM     Coles Myer            Tue, Nov 12  After the Bell       N/A
DHI    D.R. Horton           Tue, Nov 12  Before the Bell     0.87
EN     Enel S.p.A.           Tue, Nov 12  -----N/A-----        N/A
FOSL   Fossil, Inc.          Tue, Nov 12  Before the Bell     0.29
JCP    JC Penney             Tue, Nov 12  Before the Bell     0.23
LAMR   LAMAR ADVERTISING CO  Tue, Nov 12  After the Bell     -0.05
MAS    Masco                 Tue, Nov 12  -----N/A-----       0.44
NBG    National Bank Greece  Tue, Nov 12  During the Market    N/A
NTAP   Network Appliance     Tue, Nov 12  After the Bell      0.05
NXL    New Excl Realty Trust Tue, Nov 12  Before the Bell     0.47
NEM    Newmont Mining Corp   Tue, Nov 12  Before the Bell     0.16
PBR    Petrobras             Tue, Nov 12  -----N/A-----       0.63
REP    Repsol YPF            Tue, Nov 12  -----N/A-----       0.34
TRK    Speedway Motorsports  Tue, Nov 12  Before the Bell     0.02
TJX    The TJX Companies     Tue, Nov 12  Before the Bell     0.29
UBS    UBS AG                Tue, Nov 12  Before the Bell      N/A
UBB    Unibanco              Tue, Nov 12  -----N/A-----       0.61
UAXS   Universal Access      Tue, Nov 12  Before the Bell      N/A
VOD    Vodafone Grp Public   Tue, Nov 12  -----N/A-----        N/A
WTW    Weight Watchers Intl  Tue, Nov 12  Before the Bell     0.32
WGR    Western Gas Resources Tue, Nov 12  Before the Bell     0.27


-----------------------  WEDNESDAY -----------------------------

AAA    Altana AG             Wed, Nov 13  -----N/A-----        N/A
ANN    AnnTaylor Stores      Wed, Nov 13  After the Bell      0.50
AMAT   Applied Materials     Wed, Nov 13  After the Bell      0.08
RMK    ARAMARK Corporation   Wed, Nov 13  Before the Bell     0.40
ASN    Archstone-Smith Trust Wed, Nov 13  Before the Bell     0.53
CWP    Cable & Wireless Plc  Wed, Nov 13  -----N/A-----        N/A
CPB    Campbell Soup         Wed, Nov 13  Before the Bell     0.44
RIO    Companhia Val Rio DoceWed, Nov 13  -----N/A-----      -0.68
E      ENI SpA               Wed, Nov 13  During the Market    N/A
FD     Federated Depart Strs Wed, Nov 13  Before the Bell     0.32
FST    Forest Oil Corp       Wed, Nov 13  After the Bell      0.10
GALN   Galen Holdings PLC    Wed, Nov 13  -----N/A-----       0.30
HP     Helmerich & Payne     Wed, Nov 13  -----N/A-----       0.23
INTU   Intuit                Wed, Nov 13  After the Bell     -0.23
JHX    James Hardie Ind      Wed, Nov 13  -----N/A-----        N/A
KUB    Kubota Limited        Wed, Nov 13  -----N/A-----        N/A
MAC    Macerich Co           Wed, Nov 13  Before the Bell     0.78
PCG    Pacific Gas Electric  Wed, Nov 13  -----N/A-----       0.60
PSS    PAYLESS SHOESOURCE    Wed, Nov 13  Before the Bell     1.03
PUB    PUBLICIS Groupe SA    Wed, Nov 13  -----N/A-----        N/A
RANKY  Rank Group Plc.       Wed, Nov 13  -----N/A-----        N/A
IMI    SanPaolo IMI SpA      Wed, Nov 13  -----N/A-----        N/A
SI     Siemens AG            Wed, Nov 13  -----N/A-----        N/A
IPG    The Inter Group Co    Wed, Nov 13  After the Bell      0.08
TIF    Tiffany & Co.         Wed, Nov 13  Before the Bell     0.18
WMT    Wal-Mart Stores Inc.  Wed, Nov 13  Before the Bell     0.40


------------------------- THURSDAY -----------------------------

AZ     ALLIANZ AG            Thu, Nov 14  Before the Bell      N/A
AEOS   Am Eagle Outfit Inc   Thu, Nov 14  Before the Bell     0.31
AOT    Apogent Technologies  Thu, Nov 14  After the Bell      0.35
IRE    Bank of Ireland       Thu, Nov 14  -----N/A-----        N/A
BF     BASF                  Thu, Nov 14  -----N/A-----        N/A
BEAS   BEA Systems           Thu, Nov 14  -----N/A-----       0.06
BNG    Benetton Group        Thu, Nov 14  -----N/A-----        N/A
CMS    CMS Energy Corp.      Thu, Nov 14  Before the Bell     0.30
CSR    Credit Suisse Group   Thu, Nov 14  Before the Bell      N/A
DELL   Dell Computer Cor     Thu, Nov 14  After the Bell      0.21
EON    E.ON AG               Thu, Nov 14  -----N/A-----        N/A
DISH   EchoStar Comm Corp.   Thu, Nov 14  Before the Bell     0.07
GPS    Gap Inc.              Thu, Nov 14  After the Bell      0.06
KNBWY  Kirin Brewery Company Thu, Nov 14  Before the Bell      N/A
KSS    Kohl`s                Thu, Nov 14  After the Bell      0.34
KEP    Korea Electric Power  Thu, Nov 14  -----N/A-----        N/A
L      Liberty Media Group   Thu, Nov 14  -----N/A-----      -0.02
MTA    MATÁV                 Thu, Nov 14  -----N/A-----        N/A
SBUX   Starbucks             Thu, Nov 14  After the Bell      0.15
TGT    Target Corporation    Thu, Nov 14  Before the Bell     0.28
TEF    Tele España S.A.      Thu, Nov 14  Before the Bell      N/A
WMB    Williams Companies    Thu, Nov 14  Before the Bell     0.02

------------------------- FRIDAY -------------------------------

SJM    J. M. Smucker Company Fri, Nov 15  Before the Bell     0.49
KPN    Royal KPN N.V.        Fri, Nov 15  Before the Bell      N/A
SDX    Sodexho Alliance S.A. Fri, Nov 15  -----N/A-----        N/A


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

CPBI    CPB Inc.                  2:1      Nov.  8th   Nov. 12th
SBGA    Summit Bank Corporation   2:1      Nov. 18th   Nov. 19th
COO     Cooper Cos                2:1      Nov. 22nd   Nov. 25th


--------------------------
Economic Reports This Week
--------------------------

The market will continue to react to late third quarter earnings
reports.  This week we'll see sector heavy weights AMAT report
on Wednesday and DELL report on Thursday.  Late in the week look
for retail sales reports and the PPI.

==============================================================
                       -For-           

Monday, 11/11/02
----------------
None

Tuesday, 11/12/02
-----------------
None


Wednesday, 11/13/02
-------------------
None


Thursday, 11/14/02
------------------
Initial Claims (BB)   11/09  Forecast:   400K  Previous:     390K
Export Prices ex-ag.(BB)Oct  Forecast:    N/A  Previous:     0.0%
Import Prices ex-oil(BB)Oct  Forecast:    N/A  Previous:     0.2%
Retail Sales (BB)       Oct  Forecast:  -0.2%  Previous:    -1.2%
Retail Sales ex-auto(BB)Oct  Forecast:   0.2%  Previous:     0.1%


Friday, 11/15/02
----------------
Business Inventories(BB)Sep  Forecast:   0.0%  Previous:    -0.1%
PPI (BB)                Oct  Forecast:   0.3%  Previous:     0.1%
Core PPI (BB)           Oct  Forecast:   0.1%  Previous:     0.1%
Industrial Prduction(DM)Oct  Forecast:  -0.4%  Previous:    -0.1%

Capacity Utilization(DM)Oct  Forecast:  75.7%  Previous:    75.9%
Mich Sentiment-Prel.(DM)Nov  Forecast:   82.0  Previous:     80.6


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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SWING TRADE GAME PLAN
*********************

Big Money Wins Again

Somebody, big money, plunge protection team, mutual funds or Jeff 
Bailey fought a hard battle to close the Dow over 8517 on Friday 
and won. That enabled them to say the Dow had a five-week winning 
streak on all the financial pages this weekend. I wonder how many 
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The Option Investor Newsletter                   Sunday 11-10-2002
Sunday                                                      2 of 5


In Section Two:

Stock Pick: BLUD - Immucor, Inc.
Daily Results
Call Play of the Day: SYK
Put Play of the Day: IBM
Dropped Calls: FCS
Dropped Puts: None

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**********
Stock Pick
**********

BLUD - Immucor, Inc. - $23.65 
Strategy: Long stock with put insurance 

Dominance makes for a profitable opportunity.  At least that is
how things seem to be shaping up in the blood-testing industry.
While there are many labs that still prefer man over machine when
it comes to screening blood used in transfusions, that bias is
changing.  And that's where our new play comes in.  BLUD makes
automated instrument and reagent systems for blood transfusions
and is taking advantage of the wide-open market opportunity
through new products and pure muscle.

While only about 15% of the blood transfusion testing market
uses automated systems, BLUD estimates it has about a 54% market
share.  The rest is held by Johnson & Johnson's Ortho Clinical
Diagnostics division.  Until fairly recently, there was a lot of
competition, keeping prices low.  But with most of the smaller
firms having been acquired or merged, those still in the game
now have the ability to start raising testing prices.  From a low
a few years ago of $0.25 per test, the average cost is now
around $1.25.  And last year, BLUD started signing 3-year
contracts with buying groups that had built-in 
price hikes of as much as 200%.

While the company does make a pretty penny from selling the
testing equipment, the real cash-flow comes from reagents it
sells to work in conjunction with the testing instruments.
Since those chemical agents which are used to test blood for
reactions, can only be used one, BLUD has set itself up with
a recurring revenue stream.

So not only does BLUD hold a dominant position in an industry
that is just starting to grow, but it is building in healthy
price increases to keep that revenue stream growing.  Which it
should continue to do, as customers that purchase the equipment
need to keep coming back to the source for those raw materials
needed to perform the tests.  The final benefit of this play is
that the company's income stream is independent of the economy.
It's pretty easy to see that blood tests don't get cut back
just because the economy slows down.  Let's see, the leader in
a growth industry that is recession resistant -- how does it
get any better than that?

Well, entering the play last September, when the stock was
trading around $2 would have been much better.  Since then, the
bulls have been very serious about accumulating the stock,
driving it north of $23 on Friday.  Despite the fact that we
missed out on the early surge up the charts, this looks like a
trend that is still in its very early stages, as the fundamental
picture should continue to drive increasing profits to the bottom
line.  Consensus estimates call for 2003 earnings to grow 32% in
2003 and an additional 22% in 2004.

BLUD is sitting right at new all-time highs, but with the
positive growth trend, both for the company and the industry,
this looks like a stock that could be much higher a year or two
from now.

Unlike many of our recent plays, we aren't necessarily inclined
to wait for a pullback before entering this play.  The price
action is volatile on a day-by-day basis, but clearly the trend
is up.  While it would be nice to nab an entry when the stock
pulls back to the $22 level, we really don't want to take the
risk that another surge of buying causes the stock to run away
from us.  Buying a protective put allows us to enter near
current levels and not be concerned about a short-term selloff
after we enter the play.

So here's the plan.  If the stock continues upward on Monday,
buy shares at the prevailing price and then purchase a
December-2002 $22.50 insurance put for $1.75 for each 100 shares
you are long.  That caps your downside risk at $22.50 for the
next five weeks, and judging by BLUD's recent price action, the
stock ought to be substantially above that level by year end.
Investors that would prefer to nab a bargain, can look for a
pullback to the $22 or even $20 level before buying shares.  If
you're lucky enough to get the stock on a pullback, then look
to insure your position by purchasing the December-2002 $20 put

Option 1: If BLUD is not above $22.00 by Dec. 2nd, close both
positions and exit the play.

Option 2: If BLUD is below $20.00 on Dec. 2nd then you have the
option of closing the put for a slight profit and lowering your
basis in the long stock play by the amount of the put premium
received or closing both positions and exiting the play. 

Option 3: If BLUD is above $25.00 by Dec. 2nd, then close the put
position for any remaining premium and set a stop loss on the
stock at your entry point plus any short fall on the put premium.

Immucor (BLUD) Weekly Chart


 


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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS              Mon    Tue    Wed   Thu  Week
 
EXPE     72.60    0.77   0.40   1.50  0.78  2.99  entry pullback
FCS      13.30   -0.16  -0.99   0.41 –0.71 –1.20  Drop, SOX 299
FRX     100.15    0.11   0.08  -0.54  0.11 –0.71  support at $100
SYK      65.74    0.44  -1.39   0.84  1.00  0.09  entry level 


PUTS               

ABK      57.53   -0.45  -0.80  -0.21 –1.79 –4.47  New, gap fill 
IBM      77.59    2.10  -0.07   0.74 –1.05 –2.81  New, risk/reward
LEH      54.50    2.29   0.49   0.71 –1.56  0.49  back under $55
LOW      39.47   -1.00   0.70  -0.46 –1.67 –2.73  new resistance
OHP      33.00    0.07  -0.88   0.90 –0.45 –4.25  sector weakness
PHM      43.51    0.06  -0.70   1.15 –2.14 –3.49  New, mortgages
RTH      72.50   -2.20   1.20  -0.15 –0.81 –3.05  sales weak


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

SYK - Stryker - $65.74 -1.49 (+0.29 for the week)

See details in play list




Put Play of the Day:
********************

IBM - International Business Machines $77.59 (-2.81 last week)

See details in play list





**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

FCS $13.30 (+0.00) Turn out the lights, the party's over.  While
FCS managed to once again hold over the $13 support level on
Friday, the Semiconductor index (SOX.X) suffered more collateral
damage, falling back under the critical $300 level.  FCS is still
exhibiting good relative strength, but the overall sector weakness
will more than likely drag this stock lower next week.  We got a
nice little move out of the stock since picking it just below $12,
but it is clearly time to leave this party, so that we don't get
stuck cleaning up.  Take advantage of any bounce on Monday morning
to gain a better exit point from the play.


PUTS
^^^^

IBM


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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


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

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


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The Option Investor Newsletter                   Sunday 11-10-2002
Sunday                                                      3 of 5


In Section Three:

New Calls: None
Current Calls: SYK, EXPE, FRX
New Puts: PHM, ABK, IBM


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stop loss online option orders offers contingent option 
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option executions

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

None


************************Advertisement*************************
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******************
CURRENT CALL PLAYS
******************

SYK - Stryker - $65.74 -1.49 (+0.29 for the week) 

Company Summary:
Stryker Corporation develops, manufactures and markets specialty 
surgical and medical products, including orthopaedic 
reconstructive, trauma, spinal and craniomaxillofacial implants, 
the bone growth factor osteogenic protein-1, powered surgical 
instruments, endoscopic systems, patient care and handling 
equipment for the global market, and provides outpatient physical 
therapy services in the United States. (source: company release)

Why We Like It: 
Stryker pulled back today, after its recent run to all-time 
highs, and found support at the $65 entry level we identified in 
the original write-up.  Most health care related stocks took a 
hit today, as did the broader markets.  However, SYK held up 
above the point and figure breakout level and the ascending trend 
line, beginning in the middle of September. The joint replacement 
business remains strong, and Goldman Sachs even highlighted the 
strength of Stryker's fundamentals when it shifted the stock from 
its recommended list to "market outperformer" status.  Goldman 
said," Importantly, investors should not interpret our rating 
change as a sign that fundamentals are weakening. To the 
contrary, fundamentals remain robust with an orthopedic implant 
environment marked by solid unit gains and price increases."  The 
company posted a 26% increase in its earnings for the first nine 
months of the year and raised fourth quarter guidance recently, 
outstripping analysts predictions by $0.02 per share.  The series 
of higher highs and higher lows remains in tact and today's 
pullback constituted yet another higher low. The point and figure 
bullish vertical count is $93, underscoring our bullish sentiment 
on the stock.  Our initial target remains the $75 range, but with 
an encouraging eventual PnF target, we may simply chase it with a 
tight stop if we achieve our initial goal.  New entries can 
initiate the play on a hold over $65.  We will leave our stop at 
$64, which would be a PnF reversal and a break in the trend of 
higher lows.

***** November contracts expire in one week *******

BUY CALL NOV-65 SYK-KM OI=  558 at $2.00 SL=1.00
BUY CALL NOV-70 SYK-KN OI=   25 at $0.25 SL=0.40
BUY CALL DEC-65*SYK-LM OI=  977 at $4.00 SL=2.00
BUY CALL DEC-70 SYK-LN OI=  298 at $1.35 SL=0.75

Average Daily Volume = 749 k


---

EXPE – Expedia, Inc. $72.60 (+3.45 last week)

Company Summary:
Expedia is a provider of online travel services for leisure and
small business travelers, offering one-stop shopping and
reservation services with real-time access to schedules, pricing
and availability.  The company's global travel marketplace
includes direct-to-consumer Websites offering travel-planning
services at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.nl
and Expedia.it.  In addition, the company provides
travel-planning services through its telephone call centers and
through private label travel Websites through its WWTE business.
WWTE is a division of Travelscape, Inc., one of EXPE's wholly
owned subsidiaries.

Why We Like It:
When we initiated coverage of EXPE on Thursday night, we were
hoping for a pullback to the $73 level to allow us to jump on
board this momentum run up the charts.  Well, Friday delivered
just what we were asking for, and perhaps a bit more.  Broad
market weakness dragged on the stock right from the opening
bell, driving it slightly below our $72 stop before a slight
lift into the afternoon.  The bounce off the lows wasn't so much
that there was significant buying interest.  The selling pressure
just abated.  This can be seen on the intraday chart, where the
early drop came on heavy volume, while the ensuing afternoon lift
took place on drastically reduced volume.  Clearly the bulls
decided to take some profits ahead of the weekend, and we're
going to have to wait for next week to see if we still have an
actionable play.  If the broad markets break under the critical
support that they just barely held onto Friday afternoon, then it
is a pretty safe bet that EXPE will follow suit and drop below
our $72 stop.  But putting those pessimistic thoughts aside,
Friday's weakness could turn out to be providing us with a decent
entry into the play if the bulls come back from the long weekend
reinvigorated.  We don't want to just enter near the $72 level
though.  Wait for renewed buying interest to appear and enter on
a rally back above the $73.50 level (the site of Friday's
afternoon high).  Then look for the rally to continue above
$74.50 on robust volume, confirming that bullish interest in
the stock is still strong.

*** November contracts expire next week ***

BUY CALL NOV-70 UED-KN OI=2041 at $4.30 SL=2.75
BUY CALL NOV-75 UED-KO OI=1589 at $1.50 SL=0.75
BUY CALL DEC-70 UED-LN OI= 869 at $7.20 SL=5.25
BUY CALL DEC-75*UED-LO OI= 153 at $4.40 SL=2.75
BUY CALL DEC-80 UED-LP OI= 317 at $2.55 SL=1.25

Average Daily Volume = 2.22 mln


---

FRX – Forest Laboratories $100.15 (-0.03 last week)

Company Summary:
One of many specialty pharmaceutical companies, Forest
Laboratories develops, manufactures and sells both branded
and generic forms of ethical prescription and non-prescription
drug products.  . Some of the company's more notable products
are Celexa (for depression), Tiazac (for hypertension and
angina), and respiratory products Aerobid, Aerochamber and
Tessalon.  Additionally, the company produces Infasurf, a
lung surfacant for the treatment and prevention of respiratory
distress syndrome in premature infants.  FRX markets its
products directly to physicians using the company's own
specialized sales force.

Why We Like It:
True to form, FRX spent Friday behaving just like it had all
week long, attempting, but failing to hold above the $102 level.
Weakness in the broad market was likely to blame, as there was
really no conviction as evidenced by volume that barely topped
50% of the ADV.  FRX has been burning up the charts since early
September, and this week's consolidation above the $100 level
actually looks healthy.  It is allowing some bulls to harvest
their recent gains, but it is impressive that there has not been
a rush for the exits.  There is intraday support near $100,
followed by more support near $99.  And this is backed up by the
rising 20-dma, which is currently at $98.85.  A continuation of
the distribution from last week should drop FRX into this area,
where there should be willing buyers, looking to enter for
another assault on the highs just above $103.  A rebound from
above the 20-dma should provide an opportunity to open new
positions, but make sure the rebound is accompanied by solid
buying volume.  Keep stops set at $97.50.

*** November contracts expire next week ***

BUY CALL NOV-100 FHA-KT OI=3957 at $2.15 SL=1.00
BUY CALL DEC-100*FRX-LT OI= 164 at $5.30 SL=3.25
BUY CALL DEC-105 FRX-LA OI= 863 at $2.80 SL=1.50

Average Daily Volume = 1.92 mln



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

PHM - Pulte Homes - $43.51 -0.85 (-2.41 for the week) 

Company Summary:
Pulte Homes, Inc., based in Bloomfield Hills, Michigan, has 
operations in 43 markets across the United States. Through its 
Del Webb brand, the Company is also the nation's leading builder 
of active adult communities for people age 55 and older. Over its 
history, the Company has constructed more than 300,000 homes and 
has been named 2002 Builder of the Year. Pulte Mortgage 
Corporation is a nationwide lender committed to meeting the 
financing needs of Pulte Homes' customers by offering a wide 
variety of loan products and superior customer service.(source: 
company release)

Why We Like It:
The homebuilders have had a rough couple of weeks, with the Dow 
Jones U.S. Home Construction Index (DJUSHB) rolling over from its 
fourth consecutive lower rounding top. It broke through its 50-
dma on Thursday's CSFB downgrade, as well as its 300 support 
level.  The slide continued Friday, and the group has now lost 
almost 10% in two days.  The builders were downgraded as a result 
of data suggesting a slowing construction market, and saw analyst 
Ivy Zelman drop her recommendation from "overweight" to "market 
weight."  The firm said it believed issues facing the group will 
limit prospects for outperformance over the next 12 months and 
that the bull case for the sector is getting harder to defend. 
Numerous stocks in the sector saw their ratings slashed to either 
neutral or underperform.  While Pulte was not one of them, we 
believe the factors affecting the industry will affect PHM, as 
well, and the current weakness in the stock provides plenty of 
downside room for a short play. 

The Mortgage Bankers Association of America released its annual 
economic forecast for 2003 on October 23.  The MBA's chief 
economist said “Mortgage rates are poised to increase gradually 
as economic activity picks up next year.  This will slow mortgage 
funding activity over the course of next year...  MBA expects 
this to gradually slow home purchase activity in the second half 
of the year. "  While home purchasing remains strong, weekly 
mortgage applications fell 20% in the week ending October 25. 
Signs that the housing market is beginning to cool are apparent, 
and seasonal forces should contribute to that trend as we head 
into winter.

PHM has followed the DJUSHB closely, also rolling over from 
successively lower rounding tops and has broken through support 
at its 50-dma, which coincided with support on the daily chart at 
$44. The stock gave a new point and figure sell signal with the 
trade of $44 and should quickly test the bullish support line at 
$40.  The MACD oscillator recently rolled over and gave a sell 
signal to confirm what we are seeing on the PnF and daily charts, 
as well. We like entry at the current level, or on a rebound 
below $45. We will target the October lows between $36 and $37 on 
the play.  There is likely to be support at the aforementioned 
bullish support line at $40, but if mortgage applications 
continue to slow, PHM should be able to work its way through that 
level, along with the rest of the sector. Place stops at $47.  

BUY PUT NOV-42.50*LOW-WV OI= 998 at $3.30 SL=1.60
BUY PUT DEC-42.50 LOW-XV OI= 139 at $4.40 SL=2.20

Average Daily Volume = 5.59 MIL


---

ABK – Ambac Financial Group, Inc. $57.53 (-3.44 last week)

Company Summary:
Ambac Financial Group is a holding company that, through its
subsidiaries provides financial guarantee products and other
financial services to clients in both the public and private
sectors around the world.  The company provides financial
guarantees for municipal and structured finance obligations
through its principal operating subsidiary, Ambac Assurance
Corporation.  Through its financial services subsidiaries, the
company provides financial and investment products, including
investment agreements, interest rate swaps, funding conduits,
investment advisory and cash management services to its
financial guarantee clients, which include municipalities and
their authorities, school districts, healthcare organizations
and asset-backed issuers.

Why We Like It:
It's a well-known market reality that any meaningful advance
for equities requires the participation of the Financial stocks.
Well, in the wake of the Fed's surprise 50-basis point interest
rate cut, Financial stocks have not been behaving very well, with
both the Banking index (BKX.X) and the Brokerage index (XBD.X)
closing in the red the past 2 days.  After rocketing off the
early October lows near $50, shares of ABK have been running into
stiff resistance near the $65 level.  The first bout of selling
after failing to penetrate resistance knocked the stock back to
its 200-dma near the $61 level.  It looked like ABK might
actually consolidate before moving higher, but it wasn't to be,
as the bears pressured the stock below first the 20-dma ($61.56)
and then the 200-dma ($60.93).  And then it got ugly.  On
Wednesday, CSFB downgraded the stock to Neutral on a valuation
basis, motivating sellers to shave another 4% off the stock's
price by week's end.  This week's decline put the PnF chart on a
fresh Sell signal, with a current vertical count of $50.  If
achieved, that would be a retracement of all the stock's gains
since the October low.  ABK came to rest right on the 50-dma on
Friday, and that might generate a bit of an oversold bounce next
week.  If so, then we can look for the rebound to fail near the
$60 level, which is just below the 200-dma.  Momentum traders
will want to wait for the stock to fall under $57 (just below
Friday's intraday low) before entering the play.  Initial stops
are set at $61.

*** November contracts expire next week ***

BUY PUT NOV-60 ABK-WL OI=1770 at $3.40 SL=1.75
BUY PUT NOV-55 ABK-WK OI=1418 at $1.10 SL=0.50
BUY PUT DEC-55*ABK-XK OI=   1 at $3.40 SL=1.075

Average Daily Volume = 848 K


---

IBM - International Business Machines $77.59 (-2.81 last week)

Company Summary:
International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a
Software segment, a Global Financing segment and an Enterprise
Investments segment.

Why We Like It:
With the scent of recovery in the air, the bulls propelled the
stock market sharply off its lows of early October, but ran into
formidable resistance in the past week.  The breakout over
resistance on Tuesday was certainly encouraging, but it is
beginning to look like it took every last buyer to get the job
done.  In the past 2 days, the DOW has fallen right back to major
support near 8500, and could be telling us to prepare for a sharp
trip down the charts.  As one of the key DOW stocks, IBM is
telegraphing some troubling signs after last week's failure to
hold above its 200-dma.  Closing just a penny above its August
high on Monday, IBM proceeded to drop gradually and has been
picking up steam over the past 2 days due to a variety of negative
factors.  First up was the "Sell the news" reaction to the 50
basis point interest rate cut, which arrived full force on
Tuesday.  But IBM contributed to the problem, when it announced
plans to issue 19 million shares of its own stock to help fund
the deficit in its pension plan.  That revived talk that IBM has
been meeting its earnings guidance through creative use of share
buybacks and tweaking of its 'anticipated' pension fund returns.
The net result is that the bulls that were clamoring for the stock
a few short days ago are now spitting it back out.  To be sure,
the bullish trend of the past several weeks is still intact, but
it is definitely starting to fray around the edges.  IBM managed
to find support near the $77 level on Friday, and should find
strong arms waiting near $75.  But the $80 level now looks like
formidable resistance and should put a cap on any future rally
attempts unless the DOW is actually able to break out to new
recovery highs.  That means that a failed rally near the
$79.50-80.00 level should make for an ideal entry point into the
play.  A breakdown under $77 can also be used for new entries,
but be aware that the first test of the $75 support level is
likely to produce a bounce.  For that reason, we want to consider
harvesting partial gains the first time that level is tested,
looking to re-enter once that rebound runs out of steam.  Once
below $75, IBM will have gap support near $72, and that's where
the bears will likely really get serious.  Once they break below
the $72 level, they'll be eyeing several open gaps down below
that are begging to be filled, the first of which is waiting
down at $65.  Initial stops are set at $80, as IBM should not be
able to close above that level if our bearish thesis is correct.

*** November contracts expire next week ***

BUY PUT NOV-80 IBM-WP OI=15113 at $3.40 SL=1.75
BUY PUT NOV-75 IBM-WO OI=18712 at $1.05 SL=0.50
BUY PUT DEC-75*IBM-XO OI= 6837 at $3.40 SL=1.75

Average Daily Volume = 10.0 mln



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The Option Investor Newsletter                   Sunday 11-10-2002
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: RTH, LOW LEH, OHP
Leaps: Title Here
Traders Corner: Trading As a Business.  Are You Up To It?
Traders Corner: Title Here
Traders Corner: Title Here


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*****************
CURRENT PUT PLAYS
*****************

RTH - Retail Holding Company Depository Receipts - $74.60 -1.36 
(-3.90 for the week)

Company Summary:
Retail HOLDRS are Depositary Receipts issued by the Retail HOLDRS 
Trust which represent your undivided beneficial ownership in the 
common stock of a group of specified companies that are involved 
in the retailing industry. The Bank of New York is the trustee. 
Retail HOLDRS may be acquired, held or transferred in a round-lot 
amount of 100 Retail HOLDRS or round-lot multiples. Retail HOLDRS 
are separate from the underlying deposited common stocks that are 
represented by the Retail HOLDRS. The Retail HOLDRS Trust is not 
a registered investment company under the Investment Company Act 
of 1940. (source: AMEX)

Why We Like It:
The RTH is a measure of overall sentiment in the sector and it 
sent us a clear message after this week's same store sales 
reports.  While there were some diamonds in the rough, the 
overall sentiment out of the sector was very cautious heading 
toward the holiday shopping season. Many analysts and several of 
the retailers themselves cited declining Consumer Confidence and 
a weak economy, when pressed to predict how the fourth quarter 
would shape up.  Not to be overlooked is this year's shortened 
official holiday shopping season, with Thanksgiving falling later 
than usual. With only 2 official shopping days in November, this 
month's sales numbers are bound to be weak when compared to 
previous Novembers. It will be hard to draw comparisons to last 
year, since it was shortly after 9/11, but some retailers are 
predicting a possible decline from 2001, which would be a sad 
commentary on the state of the economy. With numerous retail 
earnings coming out in the next two weeks, we could see some 
volatility in the RTH, so conservative traders may want to sit 
this one out. However, the RTH refused to participate in the 
recent Dow rally and the risk to the upside seems limited.  It 
found support at $73 over the last week, until today, when the 
broad market pullback helped tag another "O" to the current down 
column on the point and figure chart.  The bullish support line 
is down at $66 and we can see the RTH testing that level by the 
end of earnings season. The MACD oscillator has also recently 
rolled over, confirming the downtrend.  The recent downdraft has 
convinced us to tighten our stop, and we are setting it at $76, 
just above recent resistance.  

***** November contracts expire in one week *******

BUY PUT NOV-75 RTH-WO OI= 2169 at $3.30 SL=1.70
BUY PUT DEC-75*RTH-XO OI=  231 at $4.90 SL=2.50

Average Daily Volume = N/A


---

LOW - Lowe's Companies - $41.73 -1.22 (-2.12 for the week)

Company Summary:
With 2001 sales of $22.1 billion, Lowe's Companies Inc. is a 
Fortune 100 company that serves more than seven million customers 
a week at more than 800 home improvement stores in 43 states. The 
14th largest retailer in the nation, Wilkesboro, N.C.-based 
Lowe's is the second-largest home improvement retailer in the 
world. (source: company release)

Why We Like It:
Lowe's continues its slow grind downward, now below $40 and 
finding resistance there to the upside.  This is a welcome change 
for shorts, who saw the stock bouncing above that level earlier 
in the week. With the new resistance level, the risk reward in 
the play has been reduced from this level and we are comfortable 
lowering the stop loss from $44.00 to $42.00, just above 
Thursday's top. We are now testing new support a dollar lower, 
with today's low at $39.00.  This places the stock just above its 
PnF bullish support line, which sits at $38.  The intraday chart 
shows that the stock attempted a rebound after hitting $39, but 
found resistance at $39.75.  While the stock is moving slowly, it 
has continued its series of lower lows and lower highs on each 
rebound attempt.   It appears the next test below bullish support 
will be $36.50 from early October.  There is a slew of retail 
earnings reports coming out in the next couple of weeks.  This 
past week's sales reports saw mixed results, with even those 
companies beating expectations warning that the next quarter 
could be a challenge. With declining Consumer Confidence, 
increasing layoffs, the four-week average of initial jobless 
claims remaining over 400,000 and a drop in personal spending, we 
expect more cautious statements to accompany upcoming earnings 
releases in the sector.  That should keep us in the current 
downtrend as we head toward LOW's own earnings date of November 
18.  New entries from this level need to be conscious of the 
aforementioned bullish support at $38, but can enter on a failed 
rebound under $40.

***** November contracts expire in one week *******

BUY PUT NOV-42.50*LOW-WV OI= 998 at $3.30 SL=1.60
BUY PUT DEC-42.50 LOW-XV OI= 139 at $4.40 SL=2.20


Average Daily Volume = 5.59 MIL


---

LEH – Lehman Brothers Holdings $54.50 (-0.07 last week)

Company Summary:
Through its subsidiaries, LEH constitutes one of the leading
global investment banks, serving institutional, corporate,
government and high-net-worth individuals clients.  The company
is engaged primarily in providing financial services, including
securities writing and direct placements, corporate finance and
strategic advisory services, private equity investments and
securities sales and trading.  Completing its array of banking,
research and trading capabilities, LEH also engages in the
trading of foreign exchange, derivative products and certain
commodities.

Why We Like It:
Despite getting the interest rate cut they wanted and a more
market-friendly mix in Congress earlier in the week, the bulls
stumbled once again on Friday, with virtually every sector of
the market ending in the red.  The Brokerage sector (XBD.X) slid
a bit closer to the critical $400 support level, ending the week
just above the 20-dma ($404.93).  With daily Stochastics already
in full bearish roll, and MACD now tipping over as well, it
looks like the bears are getting set to flex their muscles again
next week.  After rallying up to its descending trendline near
$57.50 on two separate occasions last week, LEH finally rolled
over as well.  Giving up more than 3% on Friday, the stock filled
its gap from Monday, and closed below the 20-dma ($55.21).  While
there is some mild support near $54.50, with both Stochastics
and MACD rolling over, it looks like the stock is destined to
retest the $52.50 support level, which is also the site of the
50-dma.  Should that support level fail to hold, then it will
likely be a quick trip down to the $50 level, as the stock
endeavors to fill its October 15th gap.  It's not all clear for
the bears yet, but the $56 level is now shaping up as intraday
resistance with more resistance up at $57.  Another failed rally
attempt below $57 would provide a solid entry point, although
more cautious traders may want to wait for the stock to fall
below $54 in conjunction with the XBD index puncturing the $400
level.  For now, keep stops set at $58.

*** November contracts expire next week ***

BUY PUT NOV-55 LEH-WK OI=3035 at $1.70 SL=0.75
BUY PUT DEC-55*LEH-XK OI= 457 at $3.80 SL=2.25
BUY PUT DEC-50 LEH-XJ OI=1708 at $1.90 SL=1.00

Average Daily Volume = 2.80 mln


---

OHP – Oxford Health Plans, Inc. $33.00 (-3.50 last week)

Company Summary:
Oxford Health Plans is a healthcare company providing health
benefit plans primarily in New York, New Jersey and Connecticut.
The company's product line includes its point-of-service plans,
the Freedom Plan and the Liberty Plan, health maintenance
organizations, preferred provider organizations, Medicare+Choice
and third-party administration of employer-funded benefit plans.

Why We Like It:
It may seem strange to keep focusing on the story surrounding
THC, when our play is actually on OHP.  But the THC story has been
the driving force behind weakness in the Health Care stocks over
the past week.  The situation got a bit uglier Thursday night,
when THC announced some changes to its senior management structure
and the stock was summarily cut in half -- again -- on Friday.
This time, the carnage spilled over into the entire sector, with
the HMO index plunging nearly 7%, knocking the stuffing out of the
$520 support level.  That negative sector pressure was good enough
to drive our OHP play solidly below the $34 level and after
putting a quick stop to the midday rebound, the bears closed the
stock at it's lowest point since January 9th.  Judging by the
heavy selling volume (nearly triple the ADV), the selling isn't
anywhere near being over.  The vertical count on the PnF chart
grew to project a downside target now at $18.  There is some mild
support at $32, which then starts to really firm up in the $29-30
area.  But the $35 level (prior support) is now shaping up as
formidable resistance.  Use an oversold bounce to the $35 area as
a solid entry point into the play, ahead of the next leg down.
We'll likely need to see the HMO index lose its next level of
support (near $505) before OHP will break below $32.  So momentum
traders that are looking to enter on a breakdown below that level,
will want to confirm that the HMO index is losing support as well.
Lower stops to $37.

*** November contracts expire next week ***

BUY PUT NOV-35 OHP-WG OI=1253 at $2.60 SL=1.25
BUY PUT DEC-35*OHP-XG OI=1008 at $4.00 SL=2.50
BUY PUT DEC-32 OHP-XG OI=   0 at $2.70 SL=1.25

Average Daily Volume = 1.05 mln



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*****
LEAPS
*****

Stability and Balance
By Mark Phillips
mphillips@OptionInvestor.com

Last week's market action reminded me of the analogy of trying
to balance a group of people in a rowboat.  Just ahead of the
FOMC meeting, the boat seemed to have found an acceptable
balance.  The surprise 50 basis point rate cut however, goaded
those few remaining occupants on the bearish side of the boat to
rush to the other side.  Then everyone was sitting on the bulls'
side of the boat (making it very unstable), when CSCO's CEO,
John Chambers disappointed the market with his very cautious
outlook for the near and intermediate future, citing very
difficult industry trends for the NEXT SEVERAL QUARTERS.  That
created a mad rush to get the boat balanced again, and resultant
rocking back and forth caused the boat to take on some water and
now all the occupants are reconsidering just how seaworthy their
small craft is.  By the way, are those storm clouds on the
horizon?  Can we get the boat back to shore before we hit rough
water, or are we just going to have to swim for it?

Does that mean I'm ready to abandon ship and swim for it?  No,
not yet.  Afterall, the Bullish Percent readings are still in
just about their strongest possible condition.  With the exception
of the S&P 500 (SPX), which is still in Bull Alert, all of the
major indices are currently Bull Confirmed.  We haven't yet seen
any appreciable weakening of the market internals.  But what is
causing me to be much more cautious to the long side is that the
DOW and SPX have essentially gone nowhere in terms of price over
the past 3 weeks, while the Bullish Percent has risen from 50 to
63 and from 44 to 55 respectively.  That internal strengthening
has not resulted in further price gains, which indicates to me
that the recent rally has been little more than short-covering.
The institutions are not participating, and without institutional
sponsorship, this recent rally is likely to go the way of the
past half-dozen or so.  Back to new lows.

In perusing my charts of the major indices this weekend, I noted
something interesting on my SPX chart.  Rather than try to
describe what I see, I thought I'd take advantage of the "picture
is worth 1000 words" maxim, and just show it to you.

S&P 500 (SPX) Daily Chart


 

Whoever said technical analysis doesn't work, never saw a chart
like this.  The descending trendline (red) from last spring,
capped the rally midweek, and with daily Stochastics showing
very clear bearish divergence, I'm expecting further weakness
dead ahead.  While we can look for significant support near the
$875-880 level, I think the more important test will be the
center line (grey) of the broad descending channel.  That line
provided support throughout the latter half of October, and I
expect more than a couple technicians are looking to see how the
SPX behaves next time this support line is encountered.  If it
fails as support, then look out below, as it will bring up the
very real possibility of a retest of the October lows.  For the
record, that center line is currently at $865, but will fall to
$850 by the end of November.

That pretty much sums up my broad market view, and with the
Semiconductors and Biotechs apparently rolling over, there is
little in the way of leadership for the broad markets. 
Financials aren't looking any better with the Banking and
Brokerage indices, BKX and XBD  respectively topping out at or
below their August highs.  If we're looking at a nascent
recovery, I sure can't see from what area of the market it is
likely to come.

The only other pertinent observation I'd like to make is the
action of the VIX.  Isn't it amazing that once again this
indicator is finding a bottom in the low 30s?  What's it going
to take to drop it back into the 20-30 range?  I don't know,
but I am currently leaning towards the possibility that the
"normal" range for the VIX just might be shifting upwards.  We
need a lot more data before we'll know whether that is in fact
the case, but right now I'm expecting to see 50 again (perhaps
more than once) before we see 20.

With the topsy-turvy markets of late, I have to say I'm
downright pleased with the way our Portfolio is performing.  We
may not have a lot of plays there, but everything appears to be
shaping up in our favor.  Care to take a look with me?

Portfolio:

LEN - It may have looked like we were early to the party,
calling a top in the Home Construction sector, but it looks like
the market is coming around to our way of thinking.  The past 2
days saw the $DJUSHB index put in its third consecutive lower
high, and then plunge through both the 50-dma and then 20-dma,
coming to rest on Friday below the $300 level.  LEN was already
looking weak, but the past 2 days confirmed that, as the stock
plunged under its 200-dma and then broke the ascending trendline
connecting the July and October lows.  We aren't out of the woods
quite yet, as the stock is finding support near $51, the site of
its PnF Bullish support line.  Look for a break of this level to
confirm the stock's weakness, and then a trade below $49 to put
the PnF chart on a Sell signal.  Late-comers to the play can use
a near term rebound and subsequent failure in the $54-55 area.
We are lowering our stop this weekend to $56.50, just above the
last swing high.

JNJ - While JNJ hasn't been able to break out just yet, it
certainly has been behaving rather well.  We're starting to see
renewed signs of life in the Pharmaceutical sector (DRG.X) and
last week's break above the $315 level has the DRG in its
strongest position since mid-June.  Higher lows are still the
theme, both for the DRG and JNJ, and the next hurdle for JNJ will
be to post another higher high.  That higher high will come from
a print above $61.50, and a trade at $62 will generate yet
another Buy signal on the PnF chart.  Until we get that breakout,
we're keeping our stop rather wide at $56.  This is the site of
the late-October lows and is just below the still-rising 50-dma
that has provided support on the last two pullbacks.

NEM - This is just about the kind of (in)action I would expect
from this play, and to be honest, I like what I see.  This one
isn't going to take off in the near-term, but as more and more
investors come to the realization that Gold is in a new bull
market, gold shares are going to be in favor.  NEM is clawing
its way back above the $25 level, and with Gold Futures pushing
back over the $320 level, it looks like we are on track.
Subsequent rebounds from the $25 support level can still be used
to enter the play ahead of the expected breakout over the 200-dma.


Watch List:

MO - Call me the eternal optimist, but I still like our prospects
in the MO play, provided we ever get the entry I'm asking for.
For the time being, the $44 level looks like a firm top, so we
don't need to be in any hurry to establish a position up here.
But my premise about investors shifting their focus towards stocks
that pay a fat dividend is likely to start playing out in the
months to come.  With weekly Stochastics nearing overbought and
the hint of bearish Stochastics divergence on the daily, down is
the most probably near-term direction.  I'm more than happy to lie
in wait until the stock comes back down to the $38 level where
we'd like to take an entry.

GM - That was so close!  I almost decided to step into the GM
play last week when the stock rallied almost to the $37 level.
But looking at the weekly Stochastics I decided to wait for a
better opportunity.  Sure that entry would be profitable right
now, but I'm looking for a slightly bigger bounce to give us a
better risk/reward.  GM may be trying to put in a near-term
bottom here, and we don't want to get caught in the crossfire
with a poor entry point.  I'd still prefer to see a bounce up
near the $40 level, which is very strong resistance, before
taking an entry.  But the $37-38 level is certainly viable if
we get a solid rollover in that range.

I'm having a hard time seeing anything bullish in the current
market.  With the exception of possible tax code changes that
are more business-friendly, like the elimination of double
taxation of dividends (wouldn't that be a nice boost for our
MO play, after we enter it?), there are few things the GOP
controlled government can do to stimulate the economy, and the
Fed has already given us all the stimulus we are likely to see.
Economic growth is anemic, at best and the shorts are
essentially done covering.  In fact, they could very well get
active again over the next couple weeks.  Taking note of the
fact that I axed the Watch List plays on both the DJX and QQQ
(not to mention MSFT) this week, should tell you all you need
to know about my market bias.  While it may not yet be time to
get heavily short, it certainly isn't the time to be getting
aggressively long either.

Hold on tight, because volatility doesn't seem to have any
intentions of letting up!

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
JNJ    10/10/02  '04 $ 60  LJN-AL  $ 6.50  $ 7.90  +21.54%  $56
                 '05 $ 60  ZJN-AL  $ 9.10  $11.10  +21.98%  $56
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 4.00  + 2.56%  $22
                 '05 $ 30  ZIE-AF  $ 6.10  $ 6.20  + 1.64%  $22


Puts:
LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $11.00  +27.91%  $56.50
                 '05 $ 50  XFF-MJ  $11.20  $14.60  +30.36%  $56.50
SMH    11/04/02  '04 $ 25  KBS-ME  $ 5.00  $ 6.00  +20.00%  $29.25
                 '05 $ 25  ZTO-ME  $ 6.20  $ 7.30  +15.18%  $29.25


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
MO     08/25/02  $38           JAN-2004 $ 40  LMO-AH
                            CC JAN-2004 $ 35  LMO-AG
                               JAN-2005 $ 40  ZMO-AH
                            CC JAN-2005 $ 30  ZMO-AF


PUTS:
GM     10/27/02  $40-41        JAN-2004 $ 35  LGM-MG
                 $37-38        JAN-2005 $ 30  ZGM-MF
BBH    11/10/02  $88-90        JAN-2004 $ 85  KBB-MQ
                               JAN-2005 $ 80  XBB-MP


New Portfolio Plays

SMH - Semiconductor HOLDR $26.21  **Put Play**

Who says target shooting doesn't work.  The short-covering that
has been propelling the Semiconductor index (SOX.X) sharply
higher over the past 5 weeks seems to have come to an end.  After
shooting up to just above $27 on Monday, the SMH appears to have
topped out, and is back in distribution mode, as the reality of
the industry's fundamentals seems to be taking hold again.  There
has been little of good news in the Chip sector as the SMH has
been rising, and the very cautious comments from CSCO in their
earnings report on Wednesday seemed to confirm that nobody can
really see when things are going to improve.  Recall the recent
news that billings had actually increased in the last reporting
period?  Well, just before that, the Book-to-Bill had fallen off
a cliff, once again.  Connect the dots, and you can see that
billings may have risen, but new bookings (the source of future
billings) is still in decline.  Now that the short covering has
seemingly come to an end, earnings season is over and the Fed
has dropped interest rates (with negligible prospects for another
cut), there appears to be no catalyst to drive this group higher.
Technically, the sector seems to have topped out as will, with
the weekly Stochastics just beginning to roll over and the SOX
closing on Friday back under the critical $300 level.  Another
push up into the $26-27 area can still be used for initiating
positions in the play, so long as we don't get a breakout over
last week's highs.  In order to give the play some room to move
until the downside momentum picks up, we're starting out with a
wide stop at $29.25, just above the August closing highs.

BUY LEAP JAN-2004 $25 KBS-ME $5.00
BUY LEAP JAN-2005 $25 ZTO-ME $6.20


New Watchlist Plays

BBH - Biotechnology HOLDR $85.28  **Put Play**

While the rest of the market has been rising sharply over the
past month, the Biotechnology sector (BTK.X) has been notably
absent on the leader board.  Churning along in a narrow range
between $340-355, the BTK finally broke out last week, pushing
briefly above the $360 level, only to fall back into the trading
range, once again.  That has the looks of an exhaustion top, and
can be seen more clearly on the chart of the BBH.  Briefly
clearing the $90 resistance level, the BBH has now fallen right
back to the $85 support level and with both daily and weekly
Stochastics now tipped over in bearish decline, the prospects
for the bulls do not look good.  Adding to the problems in the
sector is the long-term descending trendline going back to the
March 2000 highs.  This trendline turned back the bulls this past
March and looks like it is setting up for a repeat performance,
as it sits right at $90.50, the site of last week's highs.  If
the BBH fails to take out this resistance level, it will mark the
fourth rejection at the $90 level since June.  Another measure
of the weakness that seems to be appearing in the group is the
fact that Friday's decline had the BBH breaking the ascending
trendline that had been supporting a pattern of higher lows since
late September.  Look for the $84-85 area to provide one last
bounce, which we can use to grab an attractive entry into the
play.  That bounce will likely fail near the $88 level (currently
the site of the broken trendline off the September lows), and a
rollover there will be the "kiss of death" to the recent rally.
Due to the volatile nature of the recent market, we want to give
the play a bit of flexibility, so we are looking to enter the
play on the next rally failure in the $88-90 area.  Note that the
ascending trendline that is currently at $88 will rise to $90 by
next Friday, which explains the $88-90 range specified for new
entries.  We'll initially place our stop at $92.50 (just above
the August highs), as a rally above that level would give a clear
indication that our bearish bias is incorrect.

BUY LEAP JAN-2004 $85 KBB-MQ
BUY LEAP JAN-2005 $80 XBB-MP

Drops

DJX - $85.37 Its' time to pull the plug on our DJX Watch List
play.  While the DOW's Bullish percent has been marching up
towards overbought territory, the actual price of the DJX has
made very little upward progress.  While it still might be able
to challenge the August highs, the risk is now weighted much
more heavily to the downside.  There just isn't enough potential
reward in the play to consider taking new entries, even if we do
get a solid drop and bounce from the $82-83 area.  Depending on
how the action of the next couple weeks plays out, it is
entirely possible that the DJX will be back on the Watch List
very soon, but next time it will be on the Put side.

MSFT - $55.10 Last week's legal ruling looks to have been the
last piece of good news for Mr. Softee.  With the broad market
running out of steam, and the stock unable to hold above the $57
level, it is hard to see much upside left in the play.  Recall
from the most recent earnings announcement, that the boost in
revenue came from a one-time change in the company's accounting
practices.  Investors seem to have figured out that much like the
rest of the market, the upside reward in MSFT is fairly low when
compared to the potential downside.  We have to agree, and will
move to the sidelines on this play.

QQQ - $25.07 Propelled by consistent short-covering in the past
month, the NASDAQ has risen considerably from the October lows,
without giving us the benefit of an acceptable entry point.  With
the NASDAQ-100 Bullish percent rising right to the edge of
overbought territory, there is just too much downside risk to
consider new bullish entries at this time.  Short-covering
appears to have pretty much run its course, but we haven't seen
the necessary institutional buying that is necessary to keep the
index on the rise.  Much like our DJX play, I view the next likely
long-term trade in the QQQ to be to the downside.


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

Trading As a Business.  Are You Up To It?
By Mike Parnos, Investing With Attitude

Buy Low – Sell High.  Sell High – Buy Low.  Couch Potato Trading 
Institute words to live by.  Sounds easy, doesn’t it?  Well, 
there’s a little more to it than that.  Buy what?  Sell when?  
Who’s high? What’s low?

A few years ago, thousands of people left high paying jobs in the 
hopes of making a living by trading in the stock market.  Little 
did they know . . . And that “little” is why they’re now working 
their way back up the corporate ladder one cheeseburger at a 
time.  

Can you make a living in the stock market?  Of course you can, 
but you have to treat it like a business.  Before you can 
properly invest – whether you’re trading options, stocks, 
baseball cards or Barbie Dolls – you need to invest in yourself.  
You need to prepare yourself mentally, physically, and 
financially.  It takes commitment!
 
What Do You Need To Succeed?
1.  EDUCATION:  Jethro Bodine’s dream was to be a brain surgeon 
or a fry cook.  We’ll never know if he succeeded, because the 
show was cancelled. Well, each endeavor takes its own form of 
expertise.  Trading is no different.

Your subscription to OptionInvestor is a giant step towards that 
end.  OI provides a plethora (apologies to Howard Cosell) of 
timely information.  Every time the market fluctuates or 
flatulates, it will be reported.  There’s something for everyone.  
Everything is discussed, from aggressive trading strategies to 
conservative trading strategies to technical analysis to 
fundamental analysis. But, it takes more than just reading the 
information.  You have to lean how to implement it.

2.  INFORMATION:  You need to have access to the Internet for a 
variety of reasons. You need a computer with sufficient speed 
(600 MHz.) and 128 RAM (random access memory).  You can get by 
with a dialup modem, but a cable or ADSL connection is preferred.  
Everything will happen faster – including your “companion 
shopping.”

The Internet is your primary source of information. Without this 
crucial information, you’re flying blind.  It’s not healthy.  
Just ask Ricky Nelson and John Denver.

a)  In addition to OI, ideally you should have streaming stock 
and index quotes available.  Many Internet sites offer 15-minute 
delayed quotes, but that’s not good enough.  The markets move 
much too fast.  Some brokerage firms now offer streaming quotes 
at no charge if you open an account.  

b)  Often, the streaming real time quotes also include daily and 
real time intraday charting.  If not, there are a number of free 
Internet sites that will give you 15-minute delayed daily and 
intraday charts.  They are interactive charts that can, upon 
request, show you different time frames, chart sizes, various 
indicators, moving averages, volumes, etc.  For a small monthly 
fee, you can upgrade to their real-time charts.

There are many quote and charting services available – some for 
under $100 per month.  For the most sophisticated traders, NASDAQ 
Level II quotes and tick-by-tick charting can help with entering 
and exiting trades.  Some brokerages even offer free Level II 
quotes and charting services to very active traders

3.  BROKERAGE ACCOUNT:  You will need to have an online margin 
brokerage account.  Accounts where you have to talk to a human 
(?) to place your order will invariably cost you money.  Why?  
Because by the time you dial the phone, get connected to a broker 
(or customer service representative), explain what you want to 
do, get a quote, have him repeat it back to you, and place the 
order, the underlying could have moved a point in either 
direction. In that extra minute or two, the information you just 
received on the phone may now be obsolete and useless.

Ideally, an on-line account will have software that will show you 
the bid and ask prices of an option on ALL exchanges on which the 
option trades.  As you know, the prices for an option can vary 
from one exchange to another.  By seeing the different exchange, 
it enables you, with a simple mouse-click, to send your order 
directly to the exchange offering the best price – instantly.  If 
you send your limit order at the bid or the ask, it will likely 
be filled in a matter of seconds.  No phones, no fouls. 

When you open your account, you’ll need to get approval to trade 
options.  The levels of approval go from novice to professional.  
The more experience you have, the higher approval level you’ll 
get.  The brokerages do this to cover themselves.  If you lose 
the family jewels trading options, you won’t be able to sue the 
brokerage firm to get them back. 

If you’re relatively new to options, you’ll probably get approval 
to sell covered calls and the straight purchase of puts and 
calls.  If you have more experience, you’ll be able to trade 
spreads.  The highest approval level will allow you to sell 
uncovered options.   

4.  MONEY:   If you’re planning to treat trading, whether it’s 
stocks or options, as a business, your money and your positions 
represent your inventory.  They say, “It takes money to make 
money.”  It wouldn’t be a cliché if it weren’t true. 

How much money is necessary to start your business?  It depends 
on what strategies you want to use.  Do your strategies involve 
stock purchases?  If so, then you’ll need enough to subsidize the 
purchase (or half the purchase on margin) of the stocks.  If 
you’re going to simply buy calls and puts, you need enough to 
cover the purchases of the puts and calls.

For spread trades or trading naked (uncovered) options, the 
brokerage will likely require an account minimum.  When spread 
and uncovered option trading, if you’re going to do it properly, 
you’ll need to have cash or other marginable securities (stocks, 
mutual funds, bonds, CDs, etc.) in your account to enable you to 
make the trades and adjustments in your positions.  Brokerages 
have different policies in determining what securities they 
accept as marginable.

5.  TIME:  You’ve got it or you have to make it.  Now, you just 
have to prioritize it.  If trading is your business, you’ll have 
to do research on what to buy, when to buy it and what’s the 
right price.  That takes time.

6.  EMOTION:  You can’t afford it.  It has no place in the 
business of trading.  Cry at sad movie, not over spilled milk or 
lost money.  If you properly followed your trading rules, a loss 
is just a cost of doing business.  Nothing more.

Keep emotion, along with your ego, on a short leash.   You’ll 
have good streaks and bad, but, if you use common sense, and know 
every aspect of your business, you can do just fine.

7.  DESIRE:  You have to want it badly enough.  It’s amazing, if 
you want something bad enough, the number of sacrifices you’re 
willing to make in order to achieve it.  You’ll be surprised how 
far desire will take you.

Knowledge is Power
If you want to trade for a living, you’ll spend the time to learn 
the strategies.  You’ll find the strategies that are most 
comfortable and learn them inside and out.  You’ll know what to 
do when the strategy works or if it goes against you.  You’ll 
know the adjustments you can make and when to make them.  You’ll 
know how to research and recognize opportunities and what 
strategies to use to take advantage of them.   Those are the 
things we try to teach at OI and the CPTI.  It’s here for the 
learning.

The Secret of Survival
It comes down to survival.  If you want to continue to trade and 
stay in business, you must concentrate on making good trades.  
You have to protect your inventory.  How?  Self-discipline.  It’s 
a rare commodity, indeed. You can’t buy it at Office Depot or 
Victoria’s Secret.  Either you have it, or you don’t.  It’s like 
your money.  Either you’ll have it, or you won’t.
__________________________________________________________

CPTI Portfolio Update (as of Friday’s close)

BBH Iron Condor – Trading at $85.05.  Just dandy!  We want it to 
finish between $80 and $95 at November expiration.

MMM Iron Condor – Trading at $128.20.  Also dandy!  We want it to 
finish between $120 and $130 at November expiration.  We made a 
few adjustments earlier this week, twice buying shares and then 
reselling them when MMM violated $130 resistance and came back 
down.

TTWO Short Strangle – Trading at $27.02.  Couldn’t be better! We 
want it to finish between $25 and $30 at November expiration.

QQQ ITM Strangle – Trading at $25.07.  This week has been 
interesting.  For those who bought the Dec. $23 calls, the QQQs 
made it up to about $26.75 and a few alert traders I know took 
some quick profits.  It’s still early in the trade and the market 
is trying to move up.  The resistance at $26 seems to be 
substantial and holding, but who knows?  Stay tuned . . .
____________________________________________________________

Happy trading!  
Remember the CPTI credo:  May our remote batteries and self-
discipline last forever, but mierde happens.  Be prepared!  In 
trading, as in life, it’s not the cards we’re dealt.  It’s how we 
play them.
 
Your questions and comments are always welcome.  
mparnos@OptionInvestor.com  


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

Reversal patterns: Rectangle Tops and Bottoms 
By Leigh Stevens
lstevens@OptionInvestor.com

If someone calls you a square, you may feel offended, especially 
if you think you are more “with” the fashions and trends of the 
times. If someone describes what a stock or index is doing as 
forming a square, that may be useful information and not 
offensive. 

I wrote previously about markets that turn on a time and either 
rebound sharply or fall sharply, often after “spiking” up or down 
– these are “V” type bottoms or tops (the tops are also called 
“V” tops although they are more like “inverted” V patterns:
http://www.OptionInvestor.com/traderscorner/110702_2.asp

Traders are always looking to get in early into new trends, which 
is why we want to quickly be able to size up a recently formed 
top or bottom pattern.  Look for “spike” up or down moves, then 
sharp moves in the opposite direction (to the prior trend), to 
signal the V-type reversal.  However, there is also a top or 
bottom that forms after prices go sideways for some time and the 
intraday (or hourly, or weekly, etc.) highs or lows start 
occurring repeatedly in the same price area – such that you can 
draw a straight (horizontal) line through the tops or bottoms 
that are the stopping points for up or down swings. Charles Dow 
used the term “lines” or line formation to identify these type 
moves.  

While the line pattern or sideways move is often or most often a 
“continuation” type pattern – meaning, that prices are marking 
time or “consolidating” prior gains or losses before continuing 
on in the same direction.  A big move in the same direction is 
called a “leg”. My article about where sideways type price moves 
precede another move in the same direction is at – 
http://www.OptionInvestor.com/traderscorner/082202_1.asp 

RECTANGLE TOPS AND BOTTOMS - 
A rectangle, what Dow called a “line” formation, is outlined by 
two horizontal lines that connect a series of highs and lows that 
occur at around the same price areas over time, creating a 
sideways trading range that interrupts an advancing or declining 
trend.  The rectangle most often proves to be continuation 
pattern or sideways consolidation prior to the resumption of the 
dominant trend – in some instances, a rectangle acts in lieu of a 
secondary downtrend in a primary up trend (or a secondary uptrend 
in a primary downtrend) – on still fewer occasions, the rectangle 
can also form a top or bottom and becomes the prelude to a trend 
reversal. 

The rebound in GE from the fall period of last year was followed 
by a lengthily apparent “consolidation” into a trading range or 
rectangle pattern.  Normally, we would assume that this was a 
continuation pattern and that the breakout would be to the 
upside, above the highs – WRONG! – it turned out that this was 
the more uncommon rectangle top.  Of course, this pattern can 
also be seen as a triple top in terms of the main clusters of the 
rally peaks.    



 

The key to a rectangle is to trade in the direction of the price 
swing that breaks out above or below the top and bottom of the 
rectangle.  

Dr. Andrew Lo an MIT professor and researcher in the area of 
financial markets, studied whether technical price “patterns” had 
future predictive value and found that rectangle tops and 
rectangle bottoms were 2 (of 5) chart patterns they found 
significantly correlated to the expected outcome – if a rectangle 
forms after an advance, but the breakout is downward and the 
following price trend continues lower, it is considered to be a 
rectangle top; conversely, if a rectangle formed after a decline, 
was preceded by a downtrend and the direction of the breakout is 
up, it is a rectangle bottom.  

Now, while these patterns may be reliable in terms of predicting 
a trend reversal, the pattern is also not that common. So, you 
don’t see a rectangle reversal type formation all that often – 
when it does occur, it is a reliable pattern in terms of the 
suggestion that there will be follow through after the breakout.  

When there is one or two consecutive closes above the upper or 
lower horizontal line, or the “line” is exceeded by more than 5-
7%, any trade made should be in the direction of the breakout, 
with a stop point just below/above the breakout point. 

Some examples reaching back into my chart archive follow -  

In the next chart, a rectangle top is preceded by an uptrend. As 
with trendlines, it can be appropriate to take out one (or more) 
spike high or low in terms of “defining” a rectangle – the key is 
to use the most number of points – 3 in this example of the major 
top formed by Apple (AAPL) Computer, as shown in the chart – 



 

As always with technical chart patterns, the ones that have 
“measuring” implications for a potential next price objective 
(e.g., Head & Shoulder’s, “flag” patterns, etc.) are very useful 
to traders. If you have some idea of a price target then you have 
a trade objective. If you have a trader objective, then it helps 
set a risk or stop-out (exit) point – reward potential should 
always be 2-3 times the amount risked, which keeps you on a solid 
winning trend even if you lose on 1/2 of your trades. 

If the rectangle pattern – after a breakout – suggests that the 
potential move is 15 points, then you can risk 5 points.  A 
“tighter” stop is more feasible after a breakout move anyway, as 
there should not be a return to much under/over the 
support/resistance line if the breakout is genuine or the real 
deal.    

MEASURING IMPLICATIONS – RECTANGLE TOPS and BOTTOMS
After a breakout to the downside from a rectangle top, the 
minimum objective for a low in the further expected decline is 
equal to the height of the formation – that is, the distance 
between the line of the highs and the line of the lows added to 
the bottom of the rectangle at the downside breakout point (see 
chart above). Sometimes, an upper or lower boundary “line” is not 
precisely defined, so an approximation must be used. Generally 
the longer the sideways trend, the bigger will be the resulting 
move.  

A rectangle bottom is preceded by a downtrend as can be seen in 
chart of Philip Morris (MO) below – 



 

The minimum objective for a high in the expected uptrend is equal 
to the height of the formation – that is, the distance between 
the line of the lows and the line of the highs added to the top 
of the rectangle at the upside breakout point.  

As it always true for any minimum price objective rule of thumb, 
they are useful for an initial objective at the time of the 
breakout – after the trend develops, you need to follow the trend 
developments and also use other technical analysis analytical 
tools (e.g., trendlines), in order to see just how the price 
trend will extend in terms of duration and price.  


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The Option Investor Newsletter                   Sunday 11-10-2002
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: More Q&A On Covered-Calls
Naked Puts: Options 101: If You Fail To Plan...
Spreads/Straddles/Combos: Entry Point...Or Time To Sell?

Updated In The Site Tonight:
Market Watch
Market Posture


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*************
COVERED CALLS
*************

Trading Basics: More Q&A On Covered-Calls
By Mark Wnetrzak

One of our readers asked for an explanation of the methods used
in closing or adjusting a covered-call position.

Attn: Covered-calls editor
Subject: Covered-call exits and adjustments

Dear Mark,

As a novice covered-call option investor, I appreciated your
explanation of how to figure the profit/loss on covered-calls in
your section of Sunday, 11/3/02.  In your "Summary of Previous
Candidates" introduction you mentioned that plays can be opened,
closed, or adjusted in a variety of ways.  I am particularly
interested in knowing how a current play can be closed or
adjusted, other than waiting until expiration or you are 
"called" out.

Thanks,

KD

Hello KD,

Although the "in-the-money" covered-call strategy offers a
conservative method to profit from stock ownership, it still
requires a disciplined approach and sound money management
techniques, as there is risk of loss in all trading.  Obviously,
writing a covered-call does hedge against downside movement in
the underlying issue, but the technique is not a remedy for
protracted bearish activity.  ITM covered-calls simply offer a
higher probability of making a consistent (low) return on your
investment.

As for exiting covered-call positions, there are a variety of
stop-loss signals an investor can employ: a strict percentage
of one's overall portfolio; a fixed dollar amount; a technical
violation; etc.  Once you decide to close a covered-call play,
you simply buy back the calls (at the "ask") and then sell the
stock (at the "bid").  A "net-credit" order can also be used in
closing a covered-write to ensure an efficient exit.  In that
case, you would place an order with your broker to "sell" the
stock and "buy to close" the calls for a net credit at a price
reasonably close to parity.

For example, if you purchased XYZ stock at $13.88 and sold the
NOV-$12.50 calls for $2.00, your cost basis or break-even point
would be $11.88 (not including commissions).  A few days later
the stock breaks down technically, and when it hits $11.50 on
a closing basis, you decide to exit the position to preserve
capital.  The next day you repurchase the calls for about $0.45
and sell the stock at $11.45, incurring a loss of $0.88.  The
math looks like this: 11.88 - 11.45 = 0.43 + 0.45 = 0.88 (not
including the cost of commissions).

There are several methods to adjust a covered-write: You might
roll up (a bullish adjustment), roll forward, roll down, or even
use the combination 'ratio-call' method.  Generally, if you are
defensive and trying to lower your cost basis in your covered-
call position, you would roll down and/or forward.  If this is
done before expiration, you would need to buy back your current
(sold) calls.  To roll down, you sell a lower-strike call and to
roll forward you transition to a future expiration period.  An
investor who remains bullish in the long-term will do this to
protect against short-term weakness, but ultimately, he expects
the stock to recover.  Generally, you will have to move forward
several months (or use LEAPS) in order to obtain a credit in the
new position.  Sometimes, the best that can be accomplished is to
"lock-in a loss," which will still be less than the current loss,
providing the stock doesn't move significantly lower.

Referring to the above example: After buying back the NOV-12.50
calls, your new cost basis (11.88 + 0.45) is $12.33.  You check
the news and realize the stock declined because of a short-term
production problem.  You think the stock may drop to around $10,
but ultimately will recover.  You decide to roll down and forward
to the MAR-$10 strike, which is selling for $3.15.  The adjusted
position offers a new cost basis of $9.18 ($12.33 - $3.15), which
provides additional downside protection and offers a reasonable
return on investment at the expense of tying up your capital for
a longer period.

The link below leads to a previous narrative on a the "ratio-call"
method used to adjust a covered call position:
  
http://members.OptionInvestor.com/coveredcalls/050502_1.asp

Again, the ability to manage losses is paramount to a successful
portfolio.  Technical analysis is used my many professionals to
identify areas of support or resistance, which can then assist in
applying exit or adjustment points.  "Secrets for Profiting in
Bull and Bear Markets" by Stan Weinstein, will help you learn how
to evaluate the technical condition of stocks.  The OIN bookstore
also offers several other technical analysis books to choose from.
Larry McMillan's book, "Options as a Strategic Investment" has
some excellent information on Covered-Calls.  The book is also a
great resource for option traders and explains all aspects of the
"covered write" strategy including the strategy of selling calls
on long-term portfolio holdings.

One last comment: It is very important to completely understand
any strategy you intend to use as you are the only person who can
decide what is right for you.

Hope that helps,

Mark W.
mark@OptionInvestor.com



SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

UAL     2.59   3.28   NOV   2.50  0.35  *$  0.26  16.8%
IMCL    8.16   8.97   NOV   7.50  1.25  *$  0.59  12.4%
MANU    3.17   3.71   NOV   2.50  0.85  *$  0.18  11.2%
REGN   15.21  16.61   NOV  15.00  1.25  *$  1.04  10.8%
WWCA    2.71   5.34   NOV   2.50  0.50  *$  0.29   9.5%
PCS     2.82   3.66   NOV   2.50  0.50  *$  0.18   8.4%
CKFR   16.39  15.81   NOV  15.00  1.95  *$  0.56   8.4%
SNDK   14.30  20.36   NOV  12.50  2.75  *$  0.95   7.1%
VOXX    7.40   8.13   NOV   7.50  0.45  *$  0.55   6.9%
SEPR    8.72   8.72   NOV   7.50  1.55  *$  0.33   6.7%
VSAT    8.47   9.81   NOV   7.50  1.40  *$  0.43   6.6%
BCGI   10.30  14.13   NOV  10.00  1.10  *$  0.80   6.3%
TMCS   18.14  23.77   NOV  17.50  1.80  *$  1.16   6.2%
MU     17.30  15.57   NOV  15.00  2.85  *$  0.55   5.5%
MACR    9.15  10.49   NOV   7.50  2.00  *$  0.35   5.3%
GNSS   12.29  14.24   NOV  10.00  2.75  *$  0.46   5.2%
HAL    17.10  16.58   NOV  15.00  2.45  *$  0.35   5.2%
FDRY    6.02   7.00   NOV   5.00  1.35  *$  0.33   5.1%
MEDI   24.95  24.36   NOV  22.50  3.70  *$  1.25   5.1%
MCHP   23.18  26.52   NOV  20.00  4.20  *$  1.02   4.7%
HPQ    16.31  16.68   NOV  15.00  1.60  *$  0.29   4.3%
IVX    12.95  12.50   NOV  12.50  0.80   $  0.35   4.2%
VRST   16.63  17.90   NOV  15.00  1.90  *$  0.27   4.0%
ISSX   19.19  20.00   NOV  17.50  2.00  *$  0.31   3.9%
MDCO   14.63  14.33   NOV  12.50  2.35  *$  0.22   3.9%
BCGI   11.26  14.13   NOV  10.00  1.60  *$  0.34   3.8%
CREE   14.98  18.71   NOV  12.50  2.90  *$  0.42   3.8%
MENT    7.50  11.25   NOV   5.00  2.70  *$  0.20   3.6%
TTN    13.02  12.30   NOV  12.50  0.85   $  0.13   2.3%
CPB    22.59  21.06   NOV  22.50  1.05   $ -0.48   0.0%
NVDA   14.10  11.36   NOV  12.50  2.05   $ -0.69   0.0%

*$ = Stock price is above the sold striking price.

Comments:

The major averages floundered this week after a bit of "sell the
news" washed through the recent bullish euphoria.  Many of the
positions in the covered-call portfolio above are now entering a
consolidation phase and should be monitored closely if they show
excessive signs of weakness.  The gap-up open on Monday offered
little chance to enter the Hewlett-Packard (NYSE:HPQ) or Internet 
Security Sys. (NASDAQ:ISSX) positions but by Tuesday, a favorable
entry point was available.  NVIDIA's (NASDAQ:NVDA) shares dropped
sharply on Friday, a day after the company reported weak quarterly
results and warned of a tough competitive environment that may
hurt future earnings.  Definitely an early exit candidate though
investors with a longer-term outlook may consider rolling down
and forward.  We will simply show the position closed.  Campbell
Soup (NYSE:CPB) is another position we will show closed as it 
continues to weaken and is threatening to move lower.      

Positions Closed: Coventry Health Care (NYSE:CVH)

Disclosure: Short UAL puts (a bullish position).



NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

IDCC   14.74  DEC 12.50   DAQ LV  2.90 2294  11.84   42    4.0% 
IMCL    8.97  DEC  7.50   QCI LU  2.15 264    6.82   42    7.2% 
MDCO   14.33  DEC 10.00   MQL LB  4.90 0      9.43   42    4.4% 
OSUR    7.97  DEC  7.50   QTP LU  1.45 102    6.52   42   10.9% 
SIMG    5.44  DEC  5.00   QSI LA  1.10 101    4.34   42   11.0% 
USG     6.25  DEC  5.00   USG LA  1.60 109    4.65   42    5.5% 
V      13.96  DEC 12.50     V LV  2.35 4825  11.61   42    5.6%

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

SIMG    5.44  DEC  5.00   QSI LA  1.10 101    4.34   42   11.0% 
OSUR    7.97  DEC  7.50   QTP LU  1.45 102    6.52   42   10.9% 
IMCL    8.97  DEC  7.50   QCI LU  2.15 264    6.82   42    7.2% 
V      13.96  DEC 12.50     V LV  2.35 4825  11.61   42    5.6%
USG     6.25  DEC  5.00   USG LA  1.60 109    4.65   42    5.5% 
MDCO   14.33  DEC 10.00   MQL LB  4.90 0      9.43   42    4.4% 
IDCC   14.74  DEC 12.50   DAQ LV  2.90 2294  11.84   42    4.0% 


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
IDCC - InterDigital  $14.74  *** On The Move! ***

InterDigital Communications (NASDAQ:IDCC) specializes in the 
architecture, design and delivery of wireless technology and 
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library
of digital wireless systems experience and know-how, and holds
an extensive worldwide portfolio of patents in the wireless 
systems field.  IDCC markets its technologies and solutions 
primarily to wireless communications equipment producers and
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access 
patents to equipment manufacturers worldwide.  InterDigital
will release its 3rd-quarter financial results before the open
on Tuesday, November 12.  The stock has rallied sharply over
the last 2 months and is threatening to break-out of a 2-year
Stage I base.  Our outlook is bullish due to the technical
strength in the issue and this position offers a relatively
low risk cost basis in the issue.

DEC 12.50 DAQ LV LB=2.90 OI=2294 CB=11.84 DE=42 TY=4.0% 


*****
IMCL - ImClone  $8.97  *** Still In A Trading Range ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company 
whose mission is to advance oncology care by developing a 
portfolio of targeted biologic treatments designed to address
the medical needs of patients with a variety of cancers.  The 
company's lead product candidate, Erbitux (cetuximab), is a 
therapeutic monoclonal antibody that inhibits stimulation of 
epidermal growth factor receptor upon which certain solid 
tumors depend in order to grow. ImClone's next most advanced
product candidate, BEC2, is a cancer vaccine.  In addition to 
the development of its lead product candidates, the company 
conducts research, both independently and in collaboration 
with academic and corporate partners, in a number of areas 
related to its core focus of growth factor blockers, cancer 
vaccines and angiogenesis inhibitors.  IMCL has also developed
diagnostic products and vaccines for certain infectious diseases.
Recently, ImClone announced that they and Bristol-Myers Squibb
(NYSE:BMY) are beginning a new round of clinical tests of Erbitux.
With all the "bad" news surrounding ImClone, traders have been
speculating on an eventual recovery in the stock.  This position
takes advantage of the overpriced options and the short-term
trading range of an issue that shows support at our cost basis.
The company is due to report earnings on Monday according to
CBS MarketWatch.  

DEC 7.50 QCI LU LB=2.15 OI=264 CB=6.82 DE=42 TY=7.2% 


*****
MDCO - The Medicines Company  $14.33  *** Own This One *** 

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of 
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a 
procedural anticoagulant and for use in the treatment of ischemic
heart disease.  The Medicines Company rallied sharply after 
reporting earnings earlier this month and has now broken out of
a year-long base.  Favorable speculation with a cost basis near 
technical support.  

DEC 10.00 MQL LB LB=4.90 OI=0 CB=9.43 DE=42 TY=4.4% 


*****
OSUR - OraSure  $7.97  *** OraQuick HIV Test Approval ***

OraSure Technologies (NASDAQ:OSUR) develops, manufactures and 
markets oral fluid specimen collection devices using proprietary
oral fluid technologies and diagnostic products, including
immunoassays and other in-vitro diagnostic tests and other
medical devices.  These products are sold in the United States
and certain foreign countries to government agencies, clinical
laboratories, physicians' offices, hospitals, commercial and 
industrial entities and various distributors.  OSUR’s products
include an oral fluid collection device, the OraQuick Rapid Test,
the UPT and UPlink detection platforms, the Histofreezer portable
cryosurgical system and Auto-Lyte liquid reagents.  Shares of
OraSure surged this week after a new 20-minute HIV test kit 
received FDA approval.  The OraQuick Rapid HIV-1 antibody test
requires no special equipment, can be stored at room temperature
and may later be approved for use outside the doctor's office.
Yes, we expect the stock to pullback next week, which should 
offer a better cost basis that shown here.  Investors who are
looking for a long-term portfolio holding can use this position
to obtain an entry point with cost basis closer to support.    

DEC 7.50 QTP LU LB=1.45 OI=102 CB=6.52 DE=42 TY=10.9% 


*****
SIMG - Silicon Image  $5.44  *** Change Of Character? *** 

Silicon Image (NASDAQ:SIMG) develops and markets products that
move all forms of digital data in a serial manner at high speeds.
The company offers products in three markets: personal computing,
consumer electronics (CE), and storage.  The PC market consists
of two host platforms, PCs and notebook, and four display devices,
CRTs, flat panel monitors, flat panels and projectors.  The CE
market consists of three host platforms and a video peripheral.
Host platform devices are set-top boxes and DVD and D-VHS players
and the video peripheral is a television.  The storage market 
includes Fibre Channel (Host Bus Adapters (HBA), Switches and RAID
controllers) and Serial ATA (PCs and RAID controllers) products
along with legacy products for the Parallel ATA and SCSI RAID 
markets.  In October, Silicon Image reported 11% sequential growth
with record revenues of $21.4 million.  The recent rally in SIMG
with heavy volume has negated a 5-month downtrend which suggests
a bullish change-of-character.  Investors who agree can use this 
position to obtain a low risk cost basis in the issue.

DEC 5.00 QSI LA LB=1.10 OI=101 CB=4.34 DE=42 TY=11.0% 


*****
USG - USG Corporation  $6.25  *** What’s Up? ***

USG (NYSE:USG) is a manufacturer and distributor of building
materials producing a wide range of products for use in new 
residential, new nonresidential, and repair and remodel
construction, as well as products used in certain industrial
processes.  The company's operations are organized into three
operating segments: North American Gypsum, Worldwide Ceilings 
and Building Products Distribution.  On June 25, 2001, the 
parent company of the USG and 10 of its U.S. subsidiaries 
filed voluntary petitions for reorganization under Chapter 11
in the United States Bankruptcy Court for the District of 
Delaware.  These cases do not include any of the company's 
non-United States subsidiaries.  No comment from USG after the
New York Stock Exchange had asked the company to comment on 
the recent rise in share price.  Has the company finally 
reached a settlement?  The only thing that is for sure is that
the stock has rallied sharply on heavy volume which bodes well
for further upside potential.  This position offers traders a
method to speculate on the near-term performance of the issue
with a cost basis closer to technical support.

DEC 5.00 USG LA LB=1.60 OI=109 CB=4.65 DE=42 TY=5.5% 


*****
V - Vivendi  $13.96  *** Restructuring Continues ***

Vivendi Universal (NYSE:V) is a global media and communications
company engaged in businesses that focus primarily on two core 
areas: Media and Communications; and Environmental Services. The 
Media and Communications business operates a number of integrated
businesses in the music, multimedia and publishing, film and pay 
television, telecommunications and Internet industries.  The 
Environmental Services business includes world-class water, waste
management, transportation and energy services operations.  The
company under new chairman, Jean-Rene Fourtou, is working to chip
away at the $16.9 billion debt racked by former chairman Jean-Marie
Messier, who transformed the former French utilities company into
a vast media and entertainment giant.  Shares of Vivendi dropped
on Monday when news of an investigation by U.S. authorities into 
whether the company deliberately misled investors was announced.
Analysts believe the complaints don’t have anything to do with
current leadership and probably will not have a major effect on
the company.  The shares recovered as investors focused on the
future and the ability of Vivendi to complete its restructuring
and reduce its debt.  We simply favor the 4-month trading range
and this conservative position allows bottom-fishing speculators
to profit from the current lateral trend.  

DEC 12.50 V LV LB=2.35 OI=4825 CB=11.61 DE=42 TY=5.6%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

SWKS    8.14  DEC  7.50   GAK LU  1.40 473    6.74   42    8.2% 
BELM    8.20  DEC  7.50   QBL LU  1.45 59     6.75   42    8.0% 
RFMD    7.95  DEC  7.50   RFZ LU  1.20 2262   6.75   42    8.0% 
SCUR    5.76  DEC  5.00   UQU LA  1.25 155    4.51   42    7.9% 
PAX     2.75  DEC  2.50   PAX LZ  0.45 127    2.30   42    6.3% 
SHRP   22.90  DEC 22.50   SAU LX  2.10 218   20.80   42    5.9% 
SRNA   16.50  DEC 15.00   NHU LC  2.60 22    13.90   42    5.7% 
DOX     8.55  DEC  7.50   DOX LU  1.60 185    6.95   42    5.7% 
ICN    10.78  DEC 10.00   ICN LB  1.50 1609   9.28   42    5.6% 
MROI   11.85  DEC 10.00   UPJ LB  2.50 5      9.35   42    5.0% 
SONE    5.68  DEC  5.00   FBZ LA  1.00 172    4.68   42    5.0% 
SNDK   20.36  DEC 17.50   SWQ LW  3.80 534   16.56   42    4.1%



*****************
NAKED PUT SECTION
*****************

Options 101: If You Fail To Plan...
By Ray Cummins

The options market offers a variety of ways to make money but if
you don't have a trading plan, there is little chance you will be
successful in the long run.

New readers are always asking about guidelines for developing a
trading plan, so I have compiled some basic steps to assist with
this process.

1) Identify portfolio capital and positions limits: Determining
   the maximum capital outlay for the options portion of your
   portfolio is the first step in developing a trading plan as
   this value directly affects many of the components of your
   approach to the derivatives market.  With professional traders,
   no positions are initiated without a complete assessment of the
   capitalization necessary to carry out the entire strategy, even
   in the worst case scenario.  In addition, the potential risk in
   a position should always be established prior to beginning the
   trade, with a fixed limit on losses and a formula for taking
   profits.

2) Assess market conditions and future expectations:  Before any
   trade is initiated, it is important to carefully evaluate the
   current trend and character of the equity markets, including
   sentiment indicators and factors that affect option prices such
   as the recent volatility in share price.  In addition, you must
   be aware of the market fundamentals and any potential events or
   announcements that may affect the overall trends in stocks.
   After you have become more experienced, you will learn that the
   market is cyclical and as conditions change, you must determine
   how the current environment and economic climate impacts your
   strategic outlook and trading style.

3) Research candidates: The first step in this process is to narrow
   the list of potential issues through the use of technical scans
   and presorted lists, based on recent trends or price activity,
   as well as option premiums and other important characteristics
   such as implied volatility.  After you have reduced the group to
   a small collection of outstanding candidates, it is necessary to
   identify the target prices you believe each issue will achieve,
   based on trend-lines, moving averages, and support or resistance
   areas, and make an assessment of the position's potential.  A
   thorough study of the underlying issue's historical data is used
   to provide objective goals for future movement, based on expected
   volatility and technical analysis.  With all of these elements
   properly evaluated and arranged, you can decide which strategy
   offers the best risk-reward outlook based on criteria that are
   compatible with your personal trading style.

4) Review strategies: The wonderful thing about option trading is
   its diversity.  There are an incredible number of strategies
   available, one for every type of market trend, character and
   outlook.  Positions involving combinations of calls and puts,
   with different strike prices and expiration months, along with
   index and futures options offer the astute trader a variety of
   ways to participate in the market.  This assortment provides
   even the most conservative investor the ability to construct
   positions with an acceptable level of risk and reward in almost
   any situation.  Remember, however, the risk in option trading
   can be substantial and as a trader, your primary goal should
   always be to maximize returns and preserve capital.  The easiest
   way to achieve this objective is to become familiar with proven
   strategies and acquire the knowledge to implement and manage
   them correctly.  In all cases, the strategies you use must be
   appropriate to your experience level and trading style.
 
5) Identify entry and exit points:  After you have evaluated the
   characteristics of the market and selected the correct method
   to profit from future trends, the next task is to determine
   specific entry and exit points for the underlying instrument.
   In most cases, technical analysis should be used to ascertain
   this information, and they should be based on the appropriate
   parameters for risk and reward.  However, entry timing can be
   improved by utilizing a number of different indicators and the
   criteria used to identify a trading opportunity is a personal
   choice.  Whatever system you use, it is important that a simple
   mechanism for money management be built into the initial trade,
   in order to eliminate reaction-based decisions during volatile
   situations.
  
6) Initiate position:  After the initial entry points and criteria
   have been identified, it is crucial to execute these trades with
   discipline and consistency.  One of the most difficult tasks for
   a new trader is "pulling the trigger" in a timely manner.  This
   chore becomes easier once you have developed a systematic plan
   for entering and exiting positions.  At the same time, you must
   develop the patience to avoid initiating a trade when conditions
   are less than optimal.  Always remember that you do not have to
   open any position until you are satisfied with the probability
   of a profitable outcome.  You can search through charts for the
   perfect pattern, perform extensive due-diligence, and wait for
   the best combination of technical indicators and favorable
   market conditions.  In short, you can forego any trade until
   the number of reasons to participate becomes overwhelming.

7) Monitor the underlying for changes:  One of the most important
   steps in the trading process is to observe the ongoing changes
   in the instrument or issue as well as its sector/industry group
   and the market as a whole.  When something unexpected occurs, it
   is critical to take decisive action and in all cases, strive to
   make sound judgments and be disciplined in your trading routine.
   Use all possible methods, such as trading stops and pre-planned
   profit targets, to avoid emotional decisions and make changes to
   the original plan only after careful consideration and review of
   the new or unique circumstances that warrant a different approach.

8) Implement exit/adjustment trades:  The most important requirement
   in this category is discipline.  Discipline in option trading is
   the ability to maintain self-control and execute a preset plan.
   Often, the most difficult skill that new traders must learn is the
   ability to overcome human (emotional) impulses.  When money is at
   stake, the influences of greed and fear will attempt to sway your
   judgment, hindering a rational thought process.  If you can not
   overcome these effects, the chances of success are slim.  In fact,
   that is the primary reason it is so important to use strategies
   which promote a mechanical approach to trading.  These types of
   techniques offer little opportunity for indecision and generally
   provide more consistent returns as they are exposed to less risk
   than those with a high level of maintenance.

9) Review actions/inactions, evaluate the outcome and record lessons
   learned:  Most professional traders keep a log of all aspects of
   each individual trade in order to conduct a review of the entire
   decision-making process and compare the outcomes to the initial
   forecasts and expectations.  Some even rank their positions based
   on the quality of the initial technical or fundamental indications
   and the timeliness or efficiency in executing the entry and exit
   trades.  The objective of any study of past performance is to use
   the results to improve one's skills and help develop an expertise
   in a specific technique and indeed, the ability to learn from past
   mistakes is one of the most important attributes of a successful
   trader.

10) Final thoughts:  Be thorough and precise in all your trading
   activities, just like the professional trader who manages a large
   portfolio for wealthy investors.  These experienced participants
   are successful because they understand the necessity of using a
   proven system to limit losses and maximize profits.  In addition,
   they have learned to avoid the emotional, reaction-based trading
   that occurs when there are no predetermined entry and exit points
   in a position.  This knowledge, along with a thorough grasp of the
   strategies being utilized, leads to the development of a number of
   beneficial attributes, all of which combine to produce consistent
   profits for the prudent, methodical market player.

   Good Luck! 

                        *** WARNING!!! ***

Occasionally a company will experience catastrophic news causing
a severe drop in the stock price.  This may cause a devastatingly
large loss which may wipe out all of your smaller gains.  There is
one very important rule: Don't sell naked puts on stocks that you
don't want to own!  It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops.  Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a "buy-to-close" STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS CANDIDATES 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

VXGN   10.40  14.96   NOV   7.50  0.35  *$  0.35  15.6%
AMZN   19.04  19.51   NOV  15.00  0.50  *$  0.50  12.6%
AFCO   13.19  15.00   NOV  10.00  0.25  *$  0.25  12.5%
KOSP   15.25  19.13   NOV  12.50  0.30  *$  0.30  11.9%
AMLN   16.95  18.20   NOV  15.00  0.75  *$  0.75  11.7%
WPI    28.34  28.91   NOV  25.00  0.45  *$  0.45  11.6%
NVLS   33.06  32.04   NOV  27.50  0.40  *$  0.40  10.8%
AMZN   18.46  19.51   NOV  15.00  0.55  *$  0.55  10.7%
CIMA   27.17  25.41   NOV  25.00  0.45  *$  0.45  10.7%
HOLX   11.74  12.41   NOV  10.00  0.50  *$  0.50  10.5%
TMCS   20.33  23.77   NOV  17.50  0.55  *$  0.55  10.2%
JWN    20.98  22.00   NOV  17.50  0.35  *$  0.35   9.6%
BSTE   30.74  31.02   NOV  25.00  0.30  *$  0.30   9.5%
KLAC   37.39  37.05   NOV  30.00  0.30  *$  0.30   8.3%
HLYW   17.20  16.42   NOV  15.00  0.60  *$  0.60   8.2%
GETY   26.41  29.06   NOV  22.50  0.40  *$  0.40   8.2%
NOK    14.44  16.83   NOV  12.50  0.40  *$  0.40   8.2%
QCOM   31.37  34.76   NOV  25.00  0.65  *$  0.65   8.2%
AMLN   15.80  18.20   NOV  12.50  0.40  *$  0.40   8.1%
QCOM   36.20  34.76   NOV  30.00  0.65  *$  0.65   7.9%
KDE    23.77  28.71   NOV  20.00  0.70  *$  0.70   7.9%
COCO   37.75  38.50   NOV  30.00  0.75  *$  0.75   7.9%
TARO   35.39  36.97   NOV  32.50  0.40  *$  0.40   7.4%
DRD    19.70  18.30   NOV  17.50  0.30  *$  0.30   7.3%
PPDI   26.99  29.15   NOV  22.50  0.45  *$  0.45   7.2%
QCOM   36.52  34.76   NOV  30.00  0.40  *$  0.40   6.8%
CAI    41.29  40.66   NOV  37.50  0.40  *$  0.40   6.6%
AFFX   23.99  25.28   NOV  17.50  0.30  *$  0.30   6.4%
VZ     35.19  38.68   NOV  30.00  0.70  *$  0.70   6.3%
BSX    38.40  38.89   NOV  35.00  0.35  *$  0.35   6.2%
GENZ   23.57  28.60   NOV  17.50  0.35  *$  0.35   6.0%
SYMC   39.00  39.61   NOV  30.00  0.45  *$  0.45   5.9%
INVN   35.05  33.07   NOV  25.00  0.40  *$  0.40   5.9%
QLGC   33.15  40.65   NOV  22.50  0.25  *$  0.25   5.3%
TMPW   17.68  12.20   NOV  15.00  0.30   $ -2.50   0.0%

*$ = Stock price is above the sold striking price.

Comments:

The bullish activity came to an end this week and despite the
recent optimism over a potential recovery in the economy, the
outlook for the stock market is even more clouded after the
Fed's decision to lower interest rates by 50 basis points.  A
combination of overbought conditions and worries about the
impending conflict with Iraq caused traders to "sell the news"
and the question now is whether key support levels (near 920
on the SPX and 1345 on the COMPQX) will hold in the coming
sessions.  In our portfolio, TMP Worldwide (NASDAQ:TMPW) was
the big loser this week, falling to the $12 range after the
company reported weak third-quarter earnings and slashed its
fourth-quarter view, due to the sluggish economy.  There was
little opportunity to limit losses in the position but it has
been closed.  Another issue that endured unfavorable news was
Hollywood Entertainment (NASDAQ:HLYW) and although the price
of the stock is above the sold strike at $15, it seems likely
to test support in that range in the coming week.  Issues on
the "early exit" watch-list include: Qualcomm (NASDAQ:QCOM),
Cima Labs (NASDAQ:CIMA) and Duane Read (NYSE:DRD).

Positions Closed: Overture (NASDAQ:OVER)



NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

BSTE   31.02  DEC 22.50   BQS XX  0.75 79    21.75   42    7.8% 
ESIO   21.15  DEC 15.00   EQO XC  0.35 60    14.65   42    5.5% 
KOSP   19.13  DEC 15.00   KQW XC  0.35 30    14.65   42    6.1% 
NPSP   28.24  DEC 20.00   QKK XD  0.50 20    19.50   42    5.9% 
NWRE   17.68  DEC 12.50   QQA XV  0.55 388   11.95   42    9.7% 
PLMD   30.31  DEC 22.50    PM XX  0.60 365   21.90   42    6.5% 
POSS   14.20  DEC 12.50   UPQ XV  0.35 0     12.15   42    5.9% 
RIMM   16.58  DEC 12.50   RUL XV  0.30 1442  12.20   42    6.0%

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NWRE   17.68  DEC 12.50   QQA XV  0.55 388   11.95   42    9.7% 
BSTE   31.02  DEC 22.50   BQS XX  0.75 79    21.75   42    7.8% 
PLMD   30.31  DEC 22.50    PM XX  0.60 365   21.90   42    6.5% 
KOSP   19.13  DEC 15.00   KQW XC  0.35 30    14.65   42    6.1% 
RIMM   16.58  DEC 12.50   RUL XV  0.30 1442  12.20   42    6.0%
NPSP   28.24  DEC 20.00   QKK XD  0.50 20    19.50   42    5.9% 
POSS   14.20  DEC 12.50   UPQ XV  0.35 0     12.15   42    5.9% 
ESIO   21.15  DEC 15.00   EQO XC  0.35 60    14.65   42    5.5% 


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
BSTE - Biosite  $31.02  *** Premium Selling! ***

A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE)
is a unique research-based company dedicated to the discovery and
development of novel protein-based diagnostic tests that improve
a doctor's ability to diagnose debilitating and life-threatening
diseases.  The firm combines integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new diagnostic approaches that
improve health care outcomes.  Biosite's "Triage" rapid diagnostic
tests are used in approximately 50 percent of U.S. hospitals and
in approximately 40 international markets.  In October, Biosite
reported strong growth for the third quarter of 2002 and projected
continuing growth in fiscal year 2003.  The company said that it
expects revenues in 2003 to be 35 to 40 percent higher than in
2002, with the possibility for upside from new products and new
markets that are currently under development.  Traders can profit
from continued lateral activity in the issue with this position.

DEC 22.50 BQS XX LB=0.75 OI=79 CB=21.75 DE=42 TY=7.8% 


*****
ESIO - Electro Scientific Industries  $21.15  *** New Orders! ***

Electro Scientific Industries (NASDAQ:ESIO) makes high-technology
manufacturing equipment for the global electronics market.  The
company is a supplier of advanced laser systems used to improve
the production yield of semiconductor devices; high-speed test
and termination equipment used in the high-volume production of
multi-layer ceramic capacitors as well as other passive electronic
components, and advanced laser systems used to fine tune various
components and circuitry.  In addition, Electro produces a family
of drilling systems for production of high-density interconnect
circuit boards and advanced electronic packaging, as well as
inspection systems and original equipment manufacturer machine
vision products.  Its customers are primarily manufacturers of
semiconductors, passive electronic components and electronic
interconnect devices.  Last week, Electro Scientific Industries
received an order for seven Model 2300 Chip Resistor trimming
systems to be shipped to Beihai Yinhe Hi-Tech Industrial during
ESI's second fiscal quarter.  This announcement followed a $1.25
million order in October for Electronic Component Systems from
Amotech, a manufacturer of varistors used in home appliances,
computers, automobiles, telecommunications and other industrial
equipment.  Traders who like the outlook for the company can
establish a low risk cost basis in the issue with this position.

DEC 15.00 EQO XC LB=0.35 OI=60 CB=14.65 DE=42 TY=5.5% 


*****
KOSP - KOS Pharmaceuticals  $19.13  *** Rally Mode! ***

KOS Pharmaceuticals (NASDAQ:KOS) is a fully integrated specialty
pharmaceutical company engaged in the development of proprietary
prescription products for the treatment of chronic cardiovascular
and respiratory diseases.  The company manufactures its marketed
products, Niaspan and Advicor, and markets such products directly
through its own specialty sales force and through a sales force
provided by a contract sales organization.  Their cardiovascular
products are based on controlled-release, once-a-day, oral dosage
formulations.  The company's respiratory products in development
consist of aerosolized inhalation formulations to be used mainly
with its proprietary inhalation devices.  Shares of KOS rocketed
recently after the firm agreed to license two of its cholesterol
treatments to Germany's Merck KGaA (G.MRK) in a deal worth up to
$61 million, including upfront and milestone payments.  Merck will
pay KOS $15 million up front for exclusive international rights to
Niaspan and Advicor outside North America and Japan, and KOS will
also receive 25% of net sales of the products, which the company
will manufacture and supply to Merck.  KOS Pharmaceuticals also
reported favorable quarterly profits and the technical indications
suggest higher share values in the near future.

DEC 15.00 KQW XC LB=0.35 OI=30 CB=14.65 DE=42 TY=6.1% 


*****
NPSP - NPS Pharmaceuticals  $28.24  *** More Premium Selling! ***

NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company
engaged in discovering, developing and commercializing small 
molecule drugs and recombinant proteins.  The company's product 
candidates are primarily for the treatment of bone and mineral
disorders, gastrointestinal disorders and central nervous system
disorders.  NPS Pharmaceuticals has three product candidates in
active clinical development and several pre-clinical product
candidates.  Two of these product candidates, Preos and AMG 073,
are in Phase III clinical trials.  The company's third product
candidate, ALX-0600, is in a pilot Phase II clinical trial.
NPSP rallied in early July after a favorable Salomon Smith Barney
report noted that the company has been making solid progress in
resolving the manufacturing issues with its lead drug candidate
Preos.  Recently, NPS reported that it has successfully produced
additional supplies of the drug and it now can supply patients in
all of its current clinical trials into the first quarter of 2003.
Traders can speculate on the near-term performance of the issue
with this conservative position.

DEC 20.00 QKK XD LB=0.50 OI=20 CB=19.50 DE=42 TY=5.9% 


*****
NWRE - Neoware Systems  $17.68  *** Rally Resumes! ***

Neoware Systems (NASDAQ:NWRE) provides software and solutions to
enable appliance computing, a web-based computing architecture
targeted at business customers that is designed to be simpler
and easier than traditional personal computer-based computing.
The company's software and management tools power and manage a
new generation of smart computing appliances that utilize the
benefits of open, industry-standard technologies to create new
alternatives to PCs used in business and a variety of proprietary
business devices.  Neoware Systems provides its software on top
of a number of embedded operating systems, including Microsoft's
Windows CE and NT Embedded, as well as an embedded version of the
Linux operating system.  The firm reported sharply higher revenue
and earnings for its fiscal 2003 first quarter and the CEO said,
"We see strong demand for our products, and believe that we are
very well positioned to continue to gain market share and deliver
revenue and profit growth as we capitalize upon the benefits of
our software-powered business model."  That's an optimistic view
for sure but investors appear to agree with that assessment as
the stock has jumped 50% in just two weeks.  Investors looking
for a long-term portfolio holding in the technology segment can
use this position to obtain a low risk entry point in the issue.

DEC 12.50 QQA XV LB=0.55 OI=388 CB=11.95 DE=42 TY=9.7% 


*****
PLMD - PolyMedica   $30.31  *** Speculation Only! ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
medical products and services, conducting business through its
Chronic Care, Professional Products and Consumer Healthcare 
segments.  The company sells diabetes supplies and products,
and provides services to Medicare-eligible seniors suffering 
from diabetes and related chronic diseases through its Chronic
Care segment.  Through its Professional Products segment, it
provides direct-to-consumer prescription respiratory supplies 
and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease.  It also markets, manufactures
and distributes a broad line of prescription urological and 
suppository products.  PolyMedica markets prescription oral
medications not covered by Medicare to its existing customers
through its Professional Products segment.  In October, the
company reported that quarterly net income rose, although legal
costs tied to a federal health care fraud investigation weighed
on results.  PolyMedica has recently been under investigation
by federal agencies for health care fraud, improper revenue
recognition and obstruction of justice however, the Securities
and Exchange Commission recommended no action against the firm
in April after it examined the company's accounts, financial
reports, public disclosures and sales of securities.  This
position offers speculators a favorable risk-reward outlook.

DEC 22.50 PM XX LB=0.60 OI=365 CB=21.90 DE=42 TY=6.5% 


*****
POSS - Possis Medical  $14.20  *** On The Move! ***

Possis Medical (NASDAQ:POSS) manufactures and markets medical
products.  The company was initially engaged in the designing,
manufacturing and sales of industrial equipment, and had a
small division that provided temporary technical personnel.
The firm's involvement with medical products began in 1976 but
in 1990, Possis made the decision to focus solely on medical
products and subsequently divested all non-medical operations.
Shares of Possis posted a healthy gain last week after the firm
said first-quarter earnings would come in "significantly above"
previous projections.  Citing the combined positive impact of
higher-than-projected sales of its blood-clot removal product
and lower spending on research and development, Possis forecast
a pretax profit of 12 to 14 cents a share, well above its prior
prediction of 6 to 8 cents a share.  The company's earnings are
due on 10/12/02 and traders can speculate conservatively on the
report with this position.

DEC 12.50 UPQ XV LB=0.35 OI=0 CB=12.15 DE=42 TY=5.9% 


*****
RIMM - Research In Motion  $16.58  *** New Wireless Deals! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, RIM provides solutions for seamless access to time
sensitive information and communications, including e-mail, phone,
messaging, Internet- and intranet-based applications.  The firm's
technology also enables a broad array of third-party developers
and manufacturers around the world to enhance their products and
services with wireless connectivity.  RIM's portfolio of products
includes RIM Wireless Handhelds, the BlackBerry wireless e-mail
solution, embedded radio-modems and a unique suite of software
development tools.  Shares of Research In Motion last week after
the company announced a software-license agreement with Finnish
cell-phone giant Nokia.  The agreement gives Nokia the right to
use and distribute certain BlackBerry software in conjunction with
Nokia products on a worldwide basis and the announcement was the
second license agreement announced by Research In Motion in two
days.  On Thursday, the company said Palm , the personal digital
assistant maker, had agreed to license certain Research In Motion
keyboard patents.  Traders can attempt to profit from the rally
with less risk using this position.

DEC 12.50 RUL XV LB=0.30 OI=1442 CB=12.20 DE=42 TY=6.0%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CREE   18.71  DEC 15.00   CVO XC  0.60 443   14.40   42    9.9% 
VRST   17.90  DEC 15.00   UVQ XC  0.65 55    14.35   42    9.6% 
CAL     8.43  DEC  5.00   CAL XA  0.25 2857   4.75   42    9.4% 
ICST   22.04  DEC 17.50   IUY XW  0.65 27    16.85   42    9.3% 
PCLE   13.93  DEC 12.50   PUC XV  0.55 20    11.95   42    8.5% 
UNTD   14.25  DEC 12.50   QAB XV  0.50 21    12.00   42    8.1% 
SHRP   22.90  DEC 20.00   SAU XD  0.75 9     19.25   42    7.7% 
NSCN   14.90  DEC 12.50   QKN XV  0.40 16    12.10   42    7.3% 
CIMA   25.41  DEC 22.50   UVK XX  0.80 95    21.70   42    7.2% 
BCGI   14.13  DEC 12.50   QGB XV  0.35 0     12.15   42    5.8% 
FOX    27.00  DEC 25.00   FOX XE  0.75 66    24.25   42    5.7%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Entry Point...Or Time To Sell?
By Ray Cummins

Stocks retreated for a second consecutive session Friday as new
concerns over the potential war with Iraq and a dour outlook for
corporate earnings weighed on investors.

The Dow Jones industrial average closed 49 points lower at 8,537
on weakness in McDonalds (NYSE:MCD), General Electric (NYSE:GE),
and Walt Disney (NYSE:DIS).  The tech-heavy NASDAQ index slipped
17 points to 1,359 as the recent grim forecast from Cisco Systems
continued to negatively affect shares in the technology segment.
The S&P 500-stock index slumped 7 points to 894 as health care,
wholesale drug and grocery shares led the broader market lower.
Losers outpaced winners by roughly 3 to 2 on both the NYSE and
the technology exchange.  Over 1.4 billion shares traded on the
Big Board while 1.6 billion shares were exchanged on the NASDAQ.
Treasury issues extended their recent gains amid the weakness in
equities.  The 10-year note rallied 10/32 to yield 3.84% and the
30-year government bond surged 1 18/32 to yield 4.79%.

*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last  Month L/P S/P Credit   C/B   (G/L)  Status

SLM     96.58 103.35  NOV   80  85  0.50   84.50  $0.50   Open
UNH     93.49  86.83  NOV   80  85  0.60   84.40  $0.60   Open
WTW     45.40  49.15  NOV   35  40  0.50   39.50  $0.50   Open
ABK     63.21  57.53  NOV   55  55  0.60   54.40  $0.60   Open
CHIR    42.51  39.55  NOV   35  37  0.30   37.20  $0.30   Open
CDWC    50.61  51.95  NOV   40  45  0.60   44.40  $0.60   Open
CEPH    50.58  54.55  NOV   40  45  0.50   44.50  $0.50   Open
CTSH    69.54  70.00  NOV   55  60  0.55   59.45  $0.55   Open
BR      42.01  40.72  DEC   35  37  0.30   37.20  $0.30   Open
EBAY    64.79  63.88  DEC   50  55  0.55   54.45  $0.55   Open
IGEN    36.49  38.39  DEC   25  30  0.65   29.35  $0.65   Open
SLM    102.94 103.35  DEC   85  90  0.65   89.35  $0.65   Open

Stocks in the health care segment "took it on the chin" Friday
and the bearish trend in United Health (NYSE:UNH) suggests an
early exit in the position.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last  Month L/C S/C Credit   C/B   (G/L)  Status

FITB    57.47  60.60  NOV   70  65  0.65   65.65  $0.65   Open
LEN     53.67  51.55  NOV   65  60  0.80   60.80  $0.80   Open
LMT     62.45  56.43  NOV   75  70  0.55   70.55  $0.55   Open
MMM    120.60 128.29  NOV  140 135  0.50  135.50  $0.50   Open
AIG     63.71  64.47  NOV   75  70  0.60   70.60  $0.60   Open
GD      76.58  81.60  NOV   90  85  0.55   85.55  $0.55   Open
AGN     55.57  55.25  NOV   65  60  0.50   60.50  $0.50   Open
NE      31.45  33.34  NOV   37  35  0.30   35.30  $0.30   Open
ABC     72.45  67.00  DEC   85  80  0.65   80.65  $0.65   Open
OEX    458.16 457.39  NOV  495 490  0.40  490.40  $0.40   Open
SBGI    10.60  11.15  DEC   15  12  0.70   13.20  $0.70   Open

Fifth Third Bancorp (NYSE:FITB) finally retreated amid the broad
selling pressure and the position should now expire at maximum
profit.


SYNTHETIC (BULLISH)
*******************

Symbol  Pick   Last  Month L/C S/P Credit  M/V    G/L   Status

ERTS   67.73  64.13   NOV  75  60   0.40   0.50   0.90  Closed
SCHL   47.43  43.90   NOV  55  40   0.25   0.60   0.85  Closed
DLTR   25.12  25.54   NOV  30  20   0.00   0.55   0.55   Open?
NXTL    9.69  12.00   JAN  12   7   0.10   2.20   2.30   Open
CAI    39.21  40.66   DEC  45  35   0.10   0.80   0.90   Open
FCS    13.30  13.30   FEB  17  10   0.10   0.00   0.00   Open
LTXX    6.83   7.01   FEB  10   5   0.00   0.00   0.00   Open
MENT   10.35  11.25   JAN  12   7  (0.50)  0.00   0.00  No Play
XMSR    3.43   3.43   APR   5   2   0.00   0.20   0.20   Open
  
Nextel (NASDAQ:NXTL) has been one of the best plays this month,
offering up to $2.30 profit in the speculative position.  Caci
International (NYSE:CAI) has also provided excellent gains and
the bullish play in Dollar Tree Stores (NASDAQ:DLTR) achieved a
small profit.  The recent rallies in Electronic Arts (NYSE:ERTS)
and Scholastic (NASDAQ:SCHL) have ended, thus the positions will
be closed.  Among the new "speculative" issues, Mentor Graphics
(NASDAQ:MENT) did not offer an entry near the target price.


SYNTHETIC (BEARISH)
*******************

No Open Positions


BULL CALL SPREADS
*****************

Symbol  Pick   Last  Month  L/C S/C  Debit  M/V   B/E   Status

CHTT   42.99  41.80   NOV   35  40   4.20   4.60  39.20  Open?
       
Shares of Chattem (NASDAQ:CHTT) fell from grace after the firm's
board approved a two-for-one split of its common stock and said
it was maintained its earnings forecast for the quarter.  Maybe
there is something we don't know?  Also, the bullish position in
Lumenis (NASDAQ:LUME) has been closed.


CALENDAR SPREADS
****************

Symbol  Pick   Last   Long-Opt  Short-Opt  Debit  M/V   Status

LPNT   33.04  30.67   FEB-35C   NOV-35C    1.25   2.30   Open?
CREE   14.98  18.71   JAN-17C   NOV-17C    1.00   1.30   Open
HNT    25.75  24.12   JAN-30C   NOV-30C    0.75   0.60   Open
       
Lifepoint (NASDAQ:LPNT) continued to be very active this week
and since the position has already offered a favorable gain (and
remains profitable) it may be time to close the bullish spread.
Cree (NASDAQ:CREE) has also remained volatile over the past week
but the issue is due for a consolidation.  Traders who have yet
to make an adjustment in the position should get an opportunity
to transition to a diagonal spread (if they are bullish), using
the DEC-$20 options in the short position.  A neutral adjustment
would involve rolling to the DEC-$17.50 options (short) for a
sizable credit.  The speculative spread in Human Genome Sciences
(NASDAQ:HGSI) did not move as expected, although the loss was
minimal, and the bullish portion of the Waters (NYSE:WAT) spread
has been closed to preserve capital.


SHORT-PUT COMBOS
****************

Symbol  Pick   Last  Short-Opt  Long-Opt  Credit  G/L   Status

AES     2.92   1.99   J04-7.5P  J03-2.5P   4.50   0.25   Open
IMCL    7.77   8.97   J04-15P   JO3-5P     8.00   0.75   Open
NVDA   11.10  11.36   J04-20P   J03-7P    10.00   2.00  Closed

Nvidia (NASDAQ:NVDA) was another big winner this month, offering
up to a $2.00 profit after only two weeks in play.  The position
achieved a favorable "early-exit" gain with a closing debit near
$8.00 that nearly yielded our target profit for the play.


CREDIT STRANGLES
****************

Symbol  Pick   Last  Month S/C S/P Credit  C/V    G/L    Status

PPD    21.58  22.89   NOV  25  17   1.25   0.60   0.65    Open


Questions & comments on spreads/combos to Contact Support

*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.

*****
SHRP - Sharper Image  $22.90  *** Earnings Speculation ***

Sharper Image Corporation (NASDAQ:SHRP) is a specialty retailer
of entertaining products that are designed to make life easier
and more enjoyable.  The company offers an assortment of products
in the consumer electronics, recreation, fitness, personal care,
housewares, travel, toy, gift and other categories.  The company's
products are marketed and sold through three major sales channels:
The Sharper Image stores, The Sharper Image catalog and the World
Wide Web, primarily through its sharperimage.com Internet site.
The company also has business-to-business operations consisting
of Sharper Image Corporate Rewards and Incentives and wholesale
operations.  The company's earnings are due 11/21/02.

Strategy Explanation:

A less neutral and more bullish type of calendar or time spread
is initiated when the current value of the underlying issue is
below the strike price of the options.  This type of position is
speculative with low initial cost and large potential profits.
Two favorable outcomes can occur: the underlying stock rallies in
the short-term and the position is closed for a profit as time
value erosion in the short option produces a net gain or; the
underlying stock consolidates, allowing the sold option to expire
and then eventually rallies above the long option's strike price.
It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value.  Ideally, the trader would like to have the stock finish
just below the sold strike when the near-term option expires.  If
the short options are "in-the-money" at expiration, he will have
to buy them back to preserve the long-term position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  FEB-25  SAU-BE  OI=130  A=$2.15
SELL CALL  DEC-25  SAU-LE  OI=420  B=$1.15
INITIAL NET DEBIT TARGET=$0.85-$0.90  TARGET PROFIT=0.50-$0.75



**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

Editor's Note:  Starting next week, the "probability of profit"
based on the 100-day historical volatility will again be listed
for each credit spread candidate.

*****
DE - Deere & Co.  $49.00  *** New Trading Range? ***

Deere & Company (NYSE:DE) and its subsidiaries operate in four
major business segments: the agricultural equipment segment, the
commercial and consumer equipment segment, the construction and
forestry segment and the credit segment.  The agricultural segment
manufactures and distributes a full line of farm equipment.  The
commercial and consumer equipment segment makes and distributes
equipment for commercial and residential uses.  The construction
and forestry segment manufactures and distributes a broad range of
machines used in construction, earthmoving, material handling and
timber harvesting.  The credit segment primarily finances sales
and leases by John Deere dealers of new and used agricultural,
commercial and consumer, and construction and forestry equipment.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-40  DE-XH  OI=2159  A=$0.45
SELL PUT  DEC-45  DE-XI  OI=2478  B=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=16% B/E=$44.35


*****
INTU - Intuit  $52.91  *** Up-trend Intact! ***

Intuit (NYSE:INTU) is a provider of business tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals.  The company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-40  IQU-XH  OI=346  A=$0.40
SELL PUT  DEC-45  IQU-XI  OI=349  B=$0.85
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$44.50


*****
LLY – Eli Lilly  $62.24  *** Optimistic Outlook! ***

Eli Lilly & Company (NYSE:LLY) discovers, develops, manufactures
and sells pharmaceutical products.  The company offers neuroscience
products, endocrine products, anti-infectives, oncology products,
animal health products and cardiovascular agents.  LLY manufactures
and distributes its products through owned or leased facilities in
the U.S., Puerto Rico and 26 other countries.  Eli Lilly directs 
its research efforts primarily toward the search for products to
diagnose, prevent and treat human diseases.  LLY also conducts 
research to find products to treat diseases in animals, and to
increase the efficiency of animal food production.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-50  LLY-XJ  OI=7422   A=$0.50
SELL PUT  DEC-55  LLY-XK  OI=12939  B=$1.00
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$54.45


*****
MCO - Moody's Corporation  $45.12  *** Rolling Over? ***

Moody's Corporation (NYSE:MCO) is a global credit rating, research
and risk analysis firm that publishes credit opinions, research 
and ratings on fixed-income securities, other credit obligations 
and issuers of securities.  Moody's credit ratings and research 
help investors analyze the credit risks associated with fixed-
income securities.  The company publishes rating opinions on a 
broad range of credit obligations, including:  various corporate
and governmental obligations; structured finance securities; and 
commercial paper programs issued in domestic and international 
markets.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-55  MCO-LK  OI=0   A=$0.25
SELL CALL  DEC-50  MCO-LJ  OI=54  B=$0.75
INITIAL NET CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=11% B/E=$50.55


*****
WLP - WellPoint Health  $74.04  *** Sector Slump! ***

WellPoint Health Networks (NYSE:WLP) is a managed healthcare firm.
As a result of the January 2002 completion of its merger with
RightCHOICE Managed Care, the company has over 12 million members.
The company offers a broad spectrum of network-based managed care
plans, including preferred provider organizations (PPOs) and health
maintenance organizations (HMOs), as well as point-of-service (POS)
and other hybrid plans and traditional indemnity plans.  In addition,
the Company offers managed care services, including underwriting,
actuarial services, network access, medical cost management and
claims processing.  The firm also provides an array of specialty and
other products, including pharmacy, dental, workers' compensation
managed care services, utilization management, life insurance,
preventive care, disability insurance, behavioral health, COBRA and
flexible benefits account administration.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-90  WLP-LR  OI=576  A=$0.50
SELL CALL  DEC-85  WLP-LQ  OI=679  B=$1.05
INITIAL NET CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=12% B/E=$85.60


*****
UNH - UnitedHealth Group  $86.83  *** Bearish Sector! ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  The firm's revenues
are derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes the UnitedHealthcare
and Ovations businesses; Specialized Care Services, and Ingenix.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-105  UNH-LA  OI=680   A=$0.35
SELL CALL  DEC-100  UNH-LT  OI=1879  B=$0.85
INITIAL NET CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$100.55


*******************
SYNTHETIC POSITIONS
*******************

These stocks have established trends and favorable option premiums.
Traders with a directional outlook on the underlying issues may
find the risk-reward outlook in these momentum plays attractive.

*****
ABT - Abbott Laboratories  $45.89  *** Drug Sector Rebound! ***

Abbott Laboratories (NYSE:ABT) is principally involved in the
discovery, development, manufacture and sale of healthcare
products and services.  The company's Pharmaceutical Products
segment produces adult and pediatric pharmaceuticals sold
primarily on the prescription or recommendation of physicians,
while the Diagnostic Products segment produces diagnostic
systems and tests for blood banks, hospitals, commercial
laboratories, alternate care testing sites, and consumers.
The Hospital Products segment offers drugs and drug delivery
systems, perioperative and intensive care products, among
others.  Ross Products include adult nutritionals, and the
International Segment includes hospital, pharmaceutical, and
adult and pediatric nutritional products sold and manufactured
outside the United States.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  DEC-50  ABT-LJ  OI=412   A=$0.40
SELL PUT   DEC-40  ABT-XH  OI=1956  B=$0.40
INITIAL NET CREDIT TARGET=$0.10-$0.15  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $1,275 per contract.


*****
BZH - Beazer Homes  $60.60  *** Retreat In Progress! ***

Beazer Homes (NYSE:BZH) designs, builds and sells single family
homes in various locations within the United States: Florida,
Georgia, North Carolina, South Carolina, Tennessee, Arizona,
California, Colorado, Nevada, Texas, Maryland, Pennsylvania,
New Jersey and Virginia.  The company designs its homes to appeal
primarily to entry-level and first time move-up homebuyers.  The
company's objective is to provide its customers with homes that
incorporate quality and value while seeking to maximize its gain
on invested capital.  The company's homebuilding and marketing
activities are conducted under the name of Beazer Homes in each
of its markets except in Colorado (Sanford Homes) and Tennessee
(Phillips Builders).

PLAY (speculative - bearish/synthetic position):

BUY  PUT   DEC-50  BZH-XJ  OI=64   A=$1.65
SELL CALL  DEC-70  BZH-LN  OI=203  B=$1.45
INITIAL NET DEBIT TARGET=$0.00-$0.10  TARGET PROFIT=$0.90-$1.25

Note:  Using options, the position is similar to being short the
stock.  The initial collateral requirement for the sold call is
approximately $1,650 per contract.


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
ERTS - Electronic Arts  $64.13  *** Premium Selling ***

Electronic Arts (NYSE:ERTS) operates in two principal business
segments globally: EA's Core business segment comprises the
creation, marketing and distribution of entertainment software,
while the EA.com business segment is composed of the creation,
marketing and distribution of entertainment software which can
be played or sold online, ongoing management of subscriptions
of online games and Website advertising.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  DEC-70  EZQ-LN  OI=9325  B=$1.35
SELL PUT   DEC-55  EZQ-XK  OI=1214  B=$1.10
INITIAL NET-CREDIT TARGET=$2.45-$2.60 PROFIT(max)=16%
PROBABILITY OF PROFIT (100-day HV)=70%
UPSIDE B/E=$72.45 DOWNSIDE B/E=$52.55


*****


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

Don't Look Down


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

On the Floor


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