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Daily Newsletter, Tuesday, 11/12/2002

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The Option Investor Newsletter                 Tuesday 11-12-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Mistaken Guidance
Futures Markets: The Test
Index Trader Wrap: Tech holds gains despite late fade by Dow
Market Sentiment: Out of Breath
Weekly Fund Screen: Large Multinational Funds


Updated on the site tonight:
Swing Trader Game Plan: Back From The Dead


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-12-2002           High     Low     Volume Advance/Decline
DJIA     8386.00 + 27.10  8504.67  8356.73 1.63 bln   1919/1272
NASDAQ   1349.56 + 30.40  1367.97  1328.08 1.52 bln   2136/1245
S&P 100   450.50 +  2.87   456.82   447.63   Totals   4055/2517 
S&P 500   882.95 +  6.76   894.30   876.19 
RUS 2000  374.69 +  5.55   377.61   369.14 
DJ TRANS 2280.69 +  9.63  2299.57  2270.07   
VIX        35.39 -  0.72    35.71    33.63   
VXN        55.25 -  0.46    56.63    53.02
Total Vol   3,353M
Total UpVol 2,625M
Total DnVol   693M
52wk Highs    74 
52wk Lows    108
TRIN        0.79
PUT/CALL    0.85
************************************************************

Mistaken Guidance

Flash! Cisco CEO John Chambers says order backlog is comfortably
above $1.4 billion! Quick buy tech stocks was the impression 
many investors got. The Nasdaq rallied to 1367 and only four
Nasdaq 100 stocks were negative for the day. BUT, and you 
knew there was a but, Salomon Smith Barney says that was a
misrepresentation.

Dow Chart - Daily




Nasdaq Chart – Daily




About 2:30PM SSB came out with their "where's the beef" comment
and the market burned off nearly all its gains and only short
covering and bargain hunting at the close kept the Dow from
going negative. SSB said people were taking Chamber's comments
out of context about the "improved" backlog. According to SSB
the backlog number is useless as quarters are always back-end
loaded and the backlog numbers were in the $2 billion range in
the past. SSB said the Sept and Oct order patterns were actually
below Cisco's targets. Chambers was speaking at the UBS Warburg
Global Teleconference in New York and he declined any financial
guidance other than to say that customers are remaining cautious. 
Certainly not anything was said to justify a +50 point gain in
the Nasdaq intraday. 

Yesterday Oracle continued to say that visibility remained
poor and they did not see the beginnings of a recovery until
the first half of 2003. That implies a minimum gain in the first
quarter. ORCL recovered what it lost yesterday on the Cisco
comments today. 

Need proof things are not improving in consumer confidence? 
Charles Schwab announced today the 4Q job cuts would hit 1,900.
They had previously said they would be forced to cut up to -10%
of their work force if things did not improve. 

Phillip Morris went up in smoke today and lost nearly -$6
after saying it could no longer affirm guidance for the current
quarter. This is a major hit for a Dow stock and considering
only eight Dow stocks were negative, MO lost more than the other
seven combined. 

There were so many conflicting stories in the market today it
was ridiculous. Retail sales for JCP were up and WMT said it
was back on track to hit same store estimates. Analysts however
said it appeared to be due to a sharp burst of winter clothes
buying due to a week of early winter weather. They feel this 
buying will fade and could have actually subtracted from the
holiday sales due to limited consumer budgets. 

Probably the biggest boost to the market today was a flood of
Fed heads out pounding the table on the economy. Reports put
six of the inner circle out on the social circuit today but
only four made official speeches. Ferguson spoke at two different
events in Pennsylvania, Olson in Ohio, Bies in Washington and
Greenspan in Mexico City. While the general made veiled comments
about Brazil his speech was more of a global history lesson. 
The troops however were upholding the party line of a very 
accommodative Fed, which had injected massive amounts of
stimulus into the economy, and that stimulus was working. They
stressed the fact that it is growing steadily and next year
the results would be seen. If you remember the past month
when Fed speak was zero you can see the major shift in policy
and a strong attempt to "talk up" the markets. This brings up
the question again of what do they know that we don't? Why the
sudden full court press when they were dormant for the prior
month. Tomorrow Greenspan will get the hot seat again as he
addresses the Joint Economic Committee and you can bet he will
try to spin the party line in his favor. The Richmond and 
Kansas City Fed district both released positive reports 
showing slight growth in their areas. 

The Fed head will have his work cut out for him after the 
Business Roundtable Survey was released today. 60% of the
top 150 CEOs surveyed expected more layoffs in 2003. Only
19% expected capital spending to increase in 2003. 65% of
the CEOs expect GDP growth less than 2%. 28% expect flat to
lower sales. These 150 CEOs represent a workforce of over
10 million and $3.7 trillion in revenues. These are the 
business men who know what is happening in the real world. 
Using a general average it would appear that two thirds of 
the CEOs were looking for a continued weakness of some sort
in their business in 2003. 

The news that the IRAQ parliament had unanimously voted to 
reject the UN resolution fell on deaf ears since their vote
does not count. In a dictatorship like Iraq only one vote
counts and that is Saddam. A vote to accept the resolution
from a parliament member would have been a vote for personal
suicide. Saddam has until Friday to accept/reject the resolution
and it should be a given that he will accept in an effort to
buy time. IRAQ was caught trying to buy one million anti-nerve
gas injections on the open market today. Since it was of a 
specific type of nerve gas that he is not supposed to posses  
it is obvious that he has it and is planning on using it or
they were simply trying to scare the US into thinking they
would. 

The biggest killer on the markets today was the release of a
new Osama Bin Laden tape on Arab TV. Unfortunately the tape
has been verified by multiple sources as being genuine and
recent. Osama spoke about the Russian theater attack and the
attack in Bali and warned the US about attacking Iraq. It 
called on believers to continue the war. Just like Jason of
multiple horror movie fame, Osama came back from the dead and
cancelled everything the US government thought about his demise. 
No longer is he a dead leader with a scattered and decimated
gang. He is alive, well and organizing attacks. Do you think 
he just did not want Saddam getting all the attention? (grin)

Wednesday we have an IBM analyst meeting, which could create
significant market movement and the AMAT earnings after the 
close. Add in the Greenspan comments and Osama tape ramifications
and the day could be exciting. It is going to be a tug of war
between Greenspan and everybody else. We know Greenspan is going
to be putting a positive spin on our economic future while the
talking heads on the news channels will be cautioning against
a much higher risk of terrorist strikes ahead. There is already
speculation that the tape was timed to trigger sleeper cells
into specific and immediate action. The Dow is poised on the 
top of strong support between 8200-8350 and it is going to 
take some specific and credible problems to break through 
that support. The bulls are expecting an end of year rally 
and Greenspan is going to try and give it to them. 
  
Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


***************
FUTURES MARKETS
***************

The Test 
By John Seckinger
jseckinger@OptionInvestor.com

Last week’s low in the Dow was 8498, and the YM02Z traded as high 
as 8496 on Tuesday before falling back under 8400.  A test of 
bearish conviction, and the bears won.   

Tuesday, November 12th at 4:00 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     882.25     +4.50      894.50      878.75      594,554
YM02Z    8400.00    +45.00     8496.00     8347.00       19,935
NQ02Z    1004.00    +23.50     1023.00      975.00      231,003

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.  

Making Headlines:  Federal Reserve Vice Chairman Ferguson had 
upbeat comments about the economic outlook; however, Phillip 
Morris (MO) poured cold water on the markets after noting that it 
is “not is the position to confirm its previous projection of 8 
to 10% growth” for next year.  Other news consisted of Cisco’s 
CEO Chambers speaking of a rebound in order backlog, as well as 
positive news regarding Oracle (CFO expects rebound) and Dell 
(positive comments from JP Morgan).  

Wednesday’s Potential Catalyst(s):  Earnings from Wal-Mart (WMT), 
as well as a potential move in the bond market.  The December 30-
year (ZB02Z) fell five ticks to 112’26, but far above support at 
113.  Resistance to the upside is at 113’29; therefore, traders 
should look for a significant move in this contract during 
trading on Wednesday (especially with economic reports on 
Thursday).  Other catalysts include the XAU Index, which fell 
under its 22, 50, and 200 DMA’s on Tuesday before closing above 
all three at 67.61.  Expect volatility in that index as well.  
Support is at 66, while resistance is at 68 and 69.  

Wednesday’s Economic and Earnings Calendar:  Earnings include 
Wal-Mart (WMT), CPB, FD, TOO, PSS, and TIF before the open.  
After the close, earnings involve ANN, INTU, Kohl’s (KSS), and 
PKS.  There are no economic reports scheduled.  

=================================================================

Longer Term View

The intermediate objective to the downside remains at 8187 and 
then 8000 for the Dow, which should correlate to 8169 and just 
under 8000 for the YM02Z contract.  Tuesday’s test of 8496 and 
reversal lower should give bears even more ammunition going 
forward.  Note:  Long-term sentiment readings will turn neutral 
if the YM02Z contract closes above the 22 Weekly Moving Average, 
which is currently at 8574.    

Chart of ES02Z, Weekly 



The major downward regression line should hold precedence over 
the most recent up trending channel.  Even looking at the smaller 
channel alone, prices are now under the mid-point and should head 
towards the lower part of the channel (currently at 8280).  With 
the 22 WMA right on the mid-point, intermediate and long-term 
bears are most likely placing stops above this area.  With that 
said, a potential long-term trade would be to SHORT YM02Z near 
current prices and look to work with a trailing stop once the 
8169 level is reached.  The main objective, based on a long-term 
pattern of long liquidation, is right at 8000.  Stops could be 
put at either 8500 or 8575, depending on risk tolerance.  Note:  
Each point in $5 per contract.  

Turning to a daily chart of the YM02Z, 8400 seems to have been 
pivotal during the last few days, and should continue to be 
pivotal going forward.  With that said, a potential trade would 
be to go SHORT YM02Z contract at 8335 with a target of 8280.  
Once hit, move trailing stop down from 8375 to 8305.  If the 
market gaps higher, look to go SHORT YM02Z contract at 8450 with 
an objective of 8400.  Stop at 8500 (could go to 8510 to get away 
from the round number).  If market gaps lower, look to Go SHORT 
YM02Z contract at 8280 with a target of 8167.  Stop at 8305.  

Chart of YM02Z, Daily



Turning to the E-mini SP500 futures contract (ES02Z), a 120-
minute chart shows prices beginning a downward trend and failing 
to get above Friday’s consolidation area (red lines).  Least 
resistance is still lower, and the 38.2% retracement level at 
865.67 should be an objective for intermediate traders.  Note:  
The MACD ‘looks’ like it might want to cross higher and get back 
above zero.  Since it didn’t happen yet, why change bearish 
sentiment.  Bears confirmed their strength today, and that has to 
take precedent.  

For those of you who acted on Monday night’s potential trade 
(SELL ES02Z at 890 with target of 881 and stop of 895), nice job.  

Chart of ES02Z, 120-minute



Looking at a 5-minute chart of the ES02Z contract, there are a 
number of trend lines that could possibly stall bearish sentiment 
during trading on Wednesday.  Nevertheless, using the 875.75 
support area (found on 30-minute chart) should be a solid 
barometer going forward.  If this level fails to hold, expect a 
move to 865.67.  On the other hand, a move above 887 could spark 
a short-term rally back to 895 and test the strength of bearish 
traders once more.  Note:  There is possible support at the 
descending blue trend line, currently at 870.  

Chart of ES02Z, 5-minute



Turning to the Nasdaq-100 futures, a 60-minute chart shows prices 
outperforming most other indices and coming back into the 
regression channel.  However, resistance was seen at 1000, 1007, 
and most importantly 1020.  Nevertheless, going forward, prices 
will have to fall back outside this regression channel before 
shorts will most likely take on new positions.  With that said, 
look to Go SHORT the NQ02Z contract at 997.50 with a target of 
985.  Stop at 1010.  If 985 is hit, move trailing stop down to 
997.50 and re-evaluate market conditions.  

Chart of NQ02Z, 60-minute




A 5-minute chart of the NQ02Z contract shows how regression 
channels can be valuable in the future, even if prices have long 
exited the particular channel.  If Tuesday’s high correlates with 
the regression channel from Friday, then Monday’s regression 
might foreshadow an area where shorts will cover if prices do in 
fact weaken.  The 985 target is conservative and safe, as this 
level has proven psychologically important during the last few 
days.  The intermediate target is for a test of the 38.2% 
retracement level.  It seems like there may be a trade from 1010 
to 1020, but there is currently a little too much risk.  If the 
market does find strength, this might be a possible intra-day 
scenario (read: depends on market internals, since trade would go 
against sentiment).  

Chart of NQ02Z, 5-minute 




Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

Tech holds gains despite late fade by Dow

Technology stocks were bolstered by comments out of networking 
giant Cisco System's (NASDAQ:CSCO) $12.87 +5.83% CEO John 
Chambers that the company's backlog remained above September's 
$1.4 billion level.

Cisco edged off its session high of $13.24 when Salomon Smith 
Barney said that investors were misinterpreting Chamber's 
comments about the improved outlook for CSCO's backlog.  The firm 
said the backlog number was useless as orders are always back-end 
loaded, and during the quarter the September-October order 
patterns were actually below target.  However, the Networking 
Index (NWX.X) 122 +4.68%, Wireless Telecom (YLS.X) 49.63% and 
Fiber Optic (FOP.X) 39.69 +8.5% held the bulk of their session 
gains.

Misinterpreted or not, the broader NASDAQ Composite (COMPX) 1,349 
+2.3%, which traded above yesterday's highs at one point during 
the session at 1,367 held a close above its rising 21-day SMA of 
1,327 after closing right on this shorter-term moving average.  

Tech gains were also bolstered with reassuring comments from the 
likes of Oracle (NASDAQ:ORCL) $9.50 +4.97% and Motorola 
(NYSE:MOT) $8.75 +4.41% providing fodder to technology bulls 
along with remarks from a handful of Fed officials expressing 
optimism on the economy's prospects.  Fed Chief Alan Greenspan 
will speak on the U.S. economy before the Joint Economic 
Committee on tomorrow. 

Not holding the bulk of today's gains was the Dow Industrials 
(INDU) 8,386 +0.32%, which managed to finish with a 26 point gain 
after an earlier session rise of 145 points with a move above the 
8,500 level at 8,504.

While the Dow was pulled lower into the close with weakness in 
tobacco products maker Philip Morris (NYSE:MO) $37.03 -13.84%, 
telecom services provider SBC Communications (NYSE:SBC) $25.01 
-4.5% and conglomerate General Electric (NYSE:GE) $23.85 -1.48%, 
the broader S&P 500 (SPX.X) 882.95 +0.77%, which finished up 6.7 
points, traded back into the close from its session highs of 894 
on word that new tapes proving Osama Bin Laden had surfaced.

If all the above wasn't enough to have a "market sentiment" 
investor feeling his oats, then worries about a potential war 
with Iraq will remain at the fore as the Iraq's parliament 
unanimously recommended rejection of a U.N. resolution on weapons 
inspections Tuesday.  Iraqi President Saddam Hussein will have 
the final say, with Friday set as the deadline to respond to the 
resolution.

Dow Industrials Chart - Daily Interval




Hewlett Packard (HPQ), which was pummeled -10.9% lower yesterday 
was today's Dow strength, while it was Philip Morris' (MO) turn 
to get whacked lower on cautious earnings guidance.  Today's 
second consecutive close below the Dow's 21-day SMA and MACD 
crossover below Signal is defensive and begin to look similar to 
late August when the Dow was trading near 8,717 and closed below 
its 21-day SMA for two consecutive sessions when MACD crossed 
below signal as Stochastics turned "oversold."  Bears may well be 
looking short the Dow and attempting to leverage off 8,550, 
however, I think the Dow finds near-term support and gets a 
bounce back near 8,550 on a test of 8,170.

General Electric (NYSE:GE) $23.85 -1.48% continues to trade heavy 
and now suffers a four-session decline from $26.60 ahead of its 
November 21st meeting with analysts.  A meeting in which Lehman 
Brothers believes may signal a transition where GE will announce 
it is selling off parts of its businesses, with the emergence of 
a new GE circa 2004.

Stocks I've classified as "leaders" in the Dow have MMM and JNJ 
holding up well, but unable to break to new relative highs and 
hints to me that bulls lack confidence to push stocks that have 
treated them right over the past 4 months much higher. 

S&P 500 Index Chart - Daily Interval




I would have thought the SPX would have gotten more of an intra-
day bounce with technology stocks getting a pop out of Cisco's 
backlog comments, but the SPX wasn't able to muster a move back 
above 900.  With MACD crossing below signal and staying their 
today, a bears looks to play downward trend and leverage off 
resistance from 914-925 in a 1/2 position (if bullish % turns 
lower 3-boxes, then look full).  

Remember, Thursday is option expiration and 900 could be a "peg 
level" into Thursday's close.  November heavy open interest is 
Nov. 700 puts (not even close) Nov. 900 calls and Nov. 800 puts.  
Little info here other than the 900 calls being a peg level.  
December interest is 900 and 875 on both the call and put side.

Today's action saw a slight net decline in the S&P 500 Bullish % 
($BPSPX), with a net of 3 stocks generating point and figure sell 
signals.  SPX is still "bull confirmed" at 53.80% and would take 
a reading of 50% to reversed back lower to "bear confirmed" 
status.  A reading of 60% would have the SPX bullish % reaching 
"bull confirmed" and most likely would tie in with a trade above 
925.

S&P 100 Index Chart - Daily Interval




There are fewer NASDAQ listed stocks in both the SPX and OEX and 
this may explain partially why both the SPX and OEX and even the 
Dow Industrials were not able to trade above yesterday's highs.  
Market makers are a tricky bunch and stocks tend to whip around a 
little more with market maker influence.  Listed stocks on the 
NYSE have buyers and sellers coming together through a specialist 
where supply/demand better monitored and makes for a smoother 
tape.  While NYSE volume picked up by sessions end to 1.3 billion 
shares (we were below 1 billion at 01:00) the volume came on the 
downside.  This hints ever so slightly that institutions were 
sitting on their hands for the bulk of the session, but may have 
been squaring things up a bit ahead of Mr. Greenspan's speech 
tomorrow.

Note:  I don't think institutions really care if Osama Bin Laden 
is dead or alive.  I do think they care if we go to war with Iraq 
as that might impact mutual fund outflows and they care about Mr. 
Greenspan's views on the economy and reasoning for Fed policy.

According to www.stockcharts.com, the S&P 100 Bullish % ($BPOEX) 
saw a net loss of 1 stock to a point and figure sell signal 
today, which had the bullish % slipping to 61%.  This is just 2% 
off last week's higher reading of 62%.

NASDAQ-100 Index Chart - Daily Interval




The NASDAQ-100 (NDX.X) settled out on our 80.9% retracement 
level.  This would be a level where I would think market makers 
would begin trying to get their inventories more "neutral" to 
"bearish" based on cash that has been rotating to Treasuries in 
recent weeks.  If you've traded the NDX and QQQ long enough, you 
know its an index that thrives on momentum (up and down).  With 
the NASDAQ-100 Bullish % ($BPNDX) so near the more "overbought" 
70% level, subscribers that have been with us since early October 
have seen the NDX run from base retracement to current top and 
same goes for the bullish % from 14% to 69%.

Today's action saw a net loss of 1 stock to a point and figure 
sell signal as the bullish % slipped to 66%, but still reads, 
"bull confirmed."  It would take a reading of 62% bullish to have 
the bullish % reversing back lower.  We can see some of momentum 
off the bottom starting to wane a bit, while the internals remain 
rather strong, but stall a bit as the weaker and most likely 
stocks under $5 just haven't been able to make a meaningful 
enough move to make a big difference.

Don't get me wrong... that 97% gain in Ciena (NASDAQ:CIEN) $3.70 
+5.7% from $2.41 to $4.75 was a nice little move, but not nice 
enough at this point to get the stock's chart back on a point and 
figure buy signal and negate the bearish vertical count of $0.50 
that was generated back in January at $13.50.

Jeff Bailey




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

Out of Breath
By Steven Price

The bulls tried their best to support a rising Dow, but in the 
end it was just too heavy. The Dow has shown extreme volatility 
in the current range.  The last time we were between 8200 and 
8550, we tested the bounds of the range almost daily and today 
was no different.  A slow growing rally lifted the blue chips 
throughout most of the day, however 8500 proved too tough and 
each time the average crossed that mark, the bears came out to 
play.   The Dow eventually finished the day up 27.05, to close at 
8386.00, however, it felt more like a down day after giving up 
118 points from its high of the day.

Philip Morris' (MO) comments that it could not confirm its 
previous 2003 growth target of 8-10% got the ball rolling 
downhill in the Dow and the rest of the group quickly followed.  
The company cited soft tobacco industry volume, blaming 
counterfeit and lower priced imported brands.  MO finished the 
day down $5.95, and was joined by RJ Reynolds (RJR), which gave 
up $4.87 and U.S. Tobacco (UST), which lost $2.43.  

The retail sector started the day on a high note, after J.C. 
Penney (JCP) beat estimates and raised guidance.  However, as the 
day wore on, so did the euphoria, and the rally in the sector 
faded by the close.   Those investors who dumped the stocks got 
out ahead of an after the bell warning from Nordstrom (JWN), 
which lowered its third quarter guidance, blaming record-keeping 
changes associated with the company's transition to a new 
inventory management system and increased selling and 
distribution center expenses.   Regardless of the spin, a warning 
from a major retailer heading into the holiday shopping season is 
certainly not good news. We will get earnings from Wal-Mart and 
Federated in the morning, and the sector should live or die, at 
least for the day, based on those numbers and the accompanying 
statements.  Wal-Mart has already dialed down its monthly sales 
expectations, so it will be interesting to watch whether we get a 
rally if they manage to still match estimates.  My guess is that 
they will match, but caution that consumer spending trends may 
dampen the holiday season. 

The chip stocks managed a healthy bounce today, ahead of Applied 
Material's (AMAT) earnings on Wednesday. The sector has sold off 
after its dramatic October run, and today's bounce still found 
resistance around 300, trading to a high of 302, before falling 
back to close at 294.43.  It is hard to imagine AMAT saying 
anything positive, after announcing last week that it would lay 
off 11% of its workforce.

Speaking of layoffs, Eastman Kodak said it would stop making 
disposable cameras in the U.S., and transfer some of its 
operations in New York and Mexico, as part of its plan to cut 
1,700 jobs. The moves will help the company's cost cutting 
efforts, which also involve transferring some production of 
professional film to Europe. 

In spite of the failed rally in the Dow, the Nasdaq held onto a 
30.37-point gain, after trading up over 48 points intraday.  Part 
of the sell-off was due to Salomon Smith Barney's statements late 
in the day that investors may be misinterpreting Cisco CEO John 
Chambers' comments about the improved outlook for the company's 
backlog.  SSB said that the backlog number is useless and that 
September and October order patterns were actually below target.   

The end of day sell-off would indicate a negative opening 
tomorrow.  However, if Wal-Mart pulls an earnings surprise and 
indicates consumer spending patterns are improving, then all bets 
are off. It seems unlikely, but with a Dow that hasn't moved less 
than 100 points intraday since September 20, no 
support/resistance levels seem safe. Right now we are back in 
range between 8200 and 8550, so look for a break across those 
lines as an indication of directional change. Support above 1360 
in the COMP would certainly look bullish as well, with a drop 
under 1300 an indication that we are looking at the 50-dma of 
1266 next. 




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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7286
Current     :  8386

Moving Averages:
(Simple)

 10-dma: 8523
 50-dma: 8168
200-dma: 9251

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  775
Current     :  882

Moving Averages:
(Simple)

 10-dma:  898
 50-dma:  866
200-dma:  994

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1001

Moving Averages:
(Simple)

 10-dma: 1016
 50-dma:  923
200-dma: 1145

-----------------------------------------------------------------
The Semiconductor Index (SOX.X):  The chip stocks got a bounce 
today, after the recent sell-off.  However, the rally ended at 
302 and fell back to close at 294, indicating we may once again 
be seeing resistance at the 300 level.  Those bears looking to 
short need to be aware of the AMAT earnings release after the 
bell on Wednesday.  After the company announced layoffs last 
week, it is unlikely we will get good news, but anything better 
than expected may give the sector another boost.  The point and 
figure shows a three box reversal up on the latest rebound, and 
even though 300 appears as a failure on the daily chart, it 
registered another "X" in the column today. We won't see another 
buy signal until 332, but anything over the breakdown level of 
308 should throw up a red flag for shorts. 

52-week High: 657
52-week Low : 214
Current     : 294

Moving Averages:
(Simple)

 10-dma: 306
 50-dma: 269
200-dma: 420



Market Volatility

The VIX has made its way back over 35 and is holding there for 
the time being.  While the reading is toward the bottom of the 
recent range, it is on the high end, historically speaking, and 
will most likely remain high until we begin to see a less 
schizophrenic market, or consistently improving internals. An OEX 
put/call ratio over 1.00, which is currently 1.20, virtually 
guarantees a VIX in at least the mid-30s.

CBOE Market Volatility Index (VIX) = 35.17 –0.94
Nasdaq-100 Volatility Index  (VXN) = 55.25 –0.46

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

          Put/Call Ratio  Call Volume   Put Volume


Total          0.85        544,184       464,772
Equity Only    0.72        395,693       284,899
OEX            1.20         33,903        40,989
QQQ            0.43         51,320        22,282


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

Bullish Percent Data


           Current   Change   Status
NYSE          40      - 1     Bull Confirmed
NASDAQ-100    66      - 1     Bull Confirmed
Dow Indust.   63      + 0     Bull Confirmed
S&P 500       53      - 2     Bull Alert
S&P 100       61      - 1     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   1.68
10-Day Arms Index  1.32
21-Day Arms Index  1.15
55-Day Arms Index  1.30


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

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

Market Internals


        Advancers     Decliners
NYSE       1710          1021
NASDAQ     2037          1167

        New Highs      New Lows
NYSE         18              60
NASDAQ       39              58

        Volume (in millions)
NYSE     1,620
NASDAQ   1,546


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

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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WEEKLY FUND SCREEN
******************

Large Multinational Funds

This week, we want to show you a couple of equity funds investing 
primarily in large multinationals and, accordingly, offering fund 
shareholders exposure to the international savvy of multinational 
company management.  One reason to consider such a strategy today 
is the concept that typically in a weak economy and market, it is 
the strongest players that have the resources to weather the down 
times, gain market share, and position themselves for the upturn.

Further, many large multinational companies with long histories 
are led by seasoned management teams that have experience in all 
types of markets and use that vast knowledge to quickly adapt to 
changing conditions, faster than the competition at least.  

Because many large multinationals derive a significant portion of 
their revenue from international operations, funds that emphasize 
them provide some international exposure.  If you invest in these 
funds, you don't need to invest separately in a foreign or global 
stock fund to achieve international exposure.  

The multinational company funds we are looking for only invest in 
companies that are undervalued or trade at reasonable valuations.  
With their global exposure and valuation discipline, these equity 
funds can serve a "core" role in one's long-term financial plan.


Search Process


The way I got to these two funds didn't involve much screening at 
all.  I used Morningstar's Fund Selector tool available online to 
narrow the field of large-cap value funds based upon our specific 
criterion.  Our initial screen went like this:

 Morningstar Category = Large Value
 Manager Tenure > or = 5 Years
 Minimum Initial Purchase < or = $3,000
 Expense Ratio < or = 2.00%
 Star Rating > or = 4 Stars (5-Highest)
 Average Market Cap > or = $10 Billion

That simple screen yielded 51 results.  I next scored the results 
using Morningstar's Fund Score tool, giving low weight to average 
P/E and high weight to average earnings growth rate, to highlight 
those with "aggressive value" characteristics.  Low expense ratio 
was also given high weight.

The highest scoring funds were Parnassus Equity Income (PRBLX) 
and American Funds: Investment Company of America (AIVSX).  It 
was the second fund that got me thinking about multinationals, 
since Morningstar's report stated the $51 billion large-value 
fund bellwether invests in "sprawling" portfolio of about 200 
multinationals.  It sets the standard by which other funds of 
this style/strategy are measured.

After reviewing Morningstar's report on Investment Company of 
America, I looked up Papp America-Abroad Fund (PAAFX), another 
fund investing in large, established multinationals.  The fund 
has a "fewer, bigger, stronger" mentality that has resulted in 
its recent classification as a large cap growth fund (truly, a 
mega-cap growth fund) so Papp America-Abroad may be too pricey 
and mega-cap concentrated for our taste this week.

I next searched the Web for "funds investing in multinationals" 
and came across a couple Business Week articles on the subject, 
as well as one USNews.com article that talked about U.S. Global 
Leaders Growth Fund (USGLX) and Fidelity Export & Multinational 
Fund (FEXPX).  The former fund was acquired by the John Hancock 
Funds in May 2002, and is now known as John Hancock U.S. Global 
Leaders Growth Fund.  Fund subadviser, Yeager, Wood & Marshall, 
manages the portfolio using a GARP (growth at reasonable prices) 
approach.  While it's a little pricey, it still fits within the 
desired style/strategy. 

Fidelity Export & Multinational Fund (FEXPX) is classified as a 
large-cap blend fund by Morningstar and fits the type of fund we 
are looking for.  However, the fund recently underwent a manager 
change in February 2002, so you may want to give the new manager 
Timothy Cohen some time before investing there.  Fidelity does a 
great job of bringing people up the ranks, so I wouldn't bail on 
this fund if you are an existing shareholder.

In the next couple sections, we talk a little bit more about the 
American Funds: Investment Company of America and John Hancock's 
U.S. Global Investors Fund.


American Funds: Investment Company of America (AIVSX)


This Lipper Leader for Total Return, Preservation and Expense is 
the nation's biggest large-cap value fund, with over $51 billion 
in total assets today.  Morningstar calls it the "quintessential 
core" holding, and for good reason.  The fund divides its assets 
among 10 managers who favor established companies that provide a 
steady stream of cash through dividends.  Indeed the fund's 2.2% 
yield is substantially higher than similar equity fund products.

The American Funds multiple-manager approach permits each member 
of the portfolio management team to have a conviction in his/her 
own picks, while the portfolio overall stays broadly diversified 
across sectors and individual securities.  At September 30, 2002, 
the fund's two largest holdings were Philip Morris and Eli Lilly 
at just 3.6% and 2.2%, respectively, of net assets.  This almost 
hybrid fund had just 72.2% of assets invested in stocks, per the 
latest Morningstar report, with 11.1% in cash and 15.8% in bonds.  
That more conservative mix has helped the fund weather the storm 
better than the market as a whole.

   




Since December 31, Investment Company of America has decreased in 
value by 16.2%, shaving 6.5% off the loss produced by the S&P 500 
index and strong enough on a relative basis to rank in the top 12 
percent of the large-cap value category using Morningstar's data.

The fund has a fine long-term performance record.  For the 5-year 
period ended November 11, 2002, the fund's Class A shares (AIVSX) 
produced an average annual return of 4.4%, beating the S&P 500 by 
an average of 4.1% a year and ranking in the top 6% of the large-
value category per Morningstar.  The fund's 10-year average total 
return of 10.9% through October 31, 2002 was 1.0% better than the 
S&P 500 large-cap index and strong enough to land the fund in the 
category's 15th percentile.

While Lipper awards Investment Company of America its highest "1" 
rating for Preservation, Morningstar rates the fund risk level as 
below average relative to its large-cap value peers, giving it an 
overall star rating of 4 stars.  Funds with 4-stars have produced 
above-average returns relative to their category peers on a risk-
adjusted basis.

With an average P/E of 25.4 (same as S&P 500) and average 3-year 
earnings growth rate of 10.3 (higher than S&P 500), this product 
has just enough kick to continue producing top-notch results for 
investors over time.  For more information or a fund prospectus, 
go to the American Funds website at www.americanfunds.com.


John Hancock U.S. Global Leaders Growth Fund (USGLX)


The John Hancock U.S. Global Leaders Growth Fund, with more than 
$286 million in net assets, is a non-diversified fund that seeks 
long-term capital growth by investing in stocks of "sustainable 
growth" companies that have a global reach.  This multinational 
company product calls itself "The Nest Egg Fund" to signify its 
role as a sound "core" investment in a long-term financial plan.

George Yeager of Yeager, Wood & Marshall has managed the Global 
Leaders Growth Fund since its 1995 inception.  George Fraise, a 
portfolio manager with the firm, has served as co-manager since 
April 2000.  These two aren't afraid to concentrate assets in a 
limited number of holdings.  According to Morningstar, the fund 
had just 21 holdings as of September 30.  Nine stocks represent 
more than 5% of assets, including such names as Wal-Mart Stores, 
Johnson & Johnson, Home Depot, American Insurance Group ("AIG"), 
and State Street, to name a few.

The fund's average P/E of 27.1 and average earnings growth rate 
of 9.7% are slightly above that of the S&P 500 index, according 
to Morningstar, giving it a GARP style tilt.  If the Investment 
Company of America is an aggressive value fund, then the Global 
Leaders Growth Fund is a conservative growth fund, pricier than 
the average large-cap blend fund but only slightly.  The result 
is one of the lower risk profiles in the large-growth category.

Class A shares (USGLX) of the fund sport Morningstar's highest 
overall rating of 5 stars.  The fund hasn't been around for as 
long as Investment Company of America has, but in its 5+ years, 
U.S. Global Leaders Growth Fund has produced high total returns 
for shareholders with low risk relative to its large-cap growth 
peers.  Standard deviation, a measure of return volatility, was 
low (15.1%) over the last three years, per Morningstar, in line 
with more conservative funds, such as the Investment Company of 
America (13.8%).  

U.S. Global Leaders Growth Fund lagged in 1999, but since 2000, 
the fund has generated results ranking in the category's top 3%.  
For the 5-year period through November 11, 2002, the fund earned 
an average annual total return of 5.3%, 5.0% better than the S&P 
500 index, 8.1% above the Russell 1000 Growth index, and ranking 
in the top 4% of the large-cap growth category, per Morningstar.

Lipper assigns this fund its highest rating in three categories: 
Total Return, Preservation and Tax-Efficiency.  The fund's total 
returns may not be as consistent as Investment Company of America 
has been, nor are its expenses as low, but it still makes a solid 
case for a "core" equity investment.  For complete information or 
prospectus, logon to the John Hancock website at www.jhfunds.com.


Conclusion


Our search process this week revealed two funds that invest in 
large, multinational companies and are suitable for the "core" 
portion of a long-term equity portfolio.  One fund, Investment 
Company of America (AIVSX), has an "aggressive value" style of 
management and is broadly diversified among sectors and issues.  

The other fund, John Hancock U.S. Global Leaders Fund (USGLX), 
has a "conservative growth" style and invests in fewer, bigger 
and stronger growth companies.  Both funds have produced solid 
risk-adjusted returns for investors over time compared with the 
S&P 500 index benchmark and their respective category peers.



Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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


Back From The Dead
 
It appears that Osama and the Fed have both reappeared 
from obscurity and are likely to impact our markets 
on Wednesday. Greenspan will appear before the Joint 
Economic Committee to discuss our economic futures. 
Officials wish Osama would appear in person instead 
of by audiotape to discuss his future. Either way 
they will both impact our markets in opposite 
directions tomorrow.

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The Option Investor Newsletter                  Tuesday 11-12-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: SYK
Dropped Puts: OHP, PHM
Daily Results
Call Play Updates: FRX
New Calls Plays: CEPH
Put Play Updates ABK, IBM, LEH, RTH, LOW
New Put Plays: GE, PG, MBI


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


calls
^^^^^

SYK $64.58 -0.12 (-1.16 for the week) Stryker reached all time 
highs on November 7, and we added the play at that time.  The 
company's future growth projections and business model appears 
solid and we liked the breakout to a new high.  At the time we 
wrote the play we recommended waiting for a pullback to $65 
support for long entry, with conservative traders waiting for 
support over $64, which would be a PnF three box reversal into a 
column of "O".  We never got the support over $65 that we were 
looking for and the stock reversed into that column of "O" this 
morning with a trade of $64.00. While it recovered to close at 
$64.58 by the end of the day, we simply haven't gotten the action 
we've been looking for and we will close the play, rather than 
wait any longer. The stock has not yet broken its ascending trend 
of higher lows, so we will keep in on our radar for a possible 
future long play.



puts
^^^^

OHP $34.00 +1.14 (+1.00) As though we had scripted it, OHP broke
down below the $35 level late last week and everything was
looking good as selling pressure dominated the Health Care
sector.  Then, even with the broad market off sharply on Monday,
OHP held its ground and proceeded to trade up throughout the day
on Tuesday.  While this could just be consolidation before the
next leg lower, it has the feel of a recovery in process.  Rather
than risk our small gains, we're going to drop the play tonight
to make room for more promising plays.


PHM $43.33 -0.18 (-0.18 for the week) Pulte appeared on the verge 
of a breakdown, along with the rest of the homebuilders several 
days ago, when it broke down below its 50-dma of $44.66.  Since 
then it has simply gone sideways, as the sell-off in the sector 
appears exhausted for the moment.  This mornings earnings report 
from fellow builder D.R. Horton (DHI) was impressive, but what 
made us re-consider the play was DHI's record backlog of $2.8 
billion (12,697 homes) waiting to be built in 2003. We are not 
going to fight that tide without a further drop in mortgage 
applications, which bounced slightly in the last report.  We will 
close the play and wait for further evidence of weakness, rather 
than hold puts in a sideways moving stock, with evidence of 
decent business prospects for the sector into next year.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

FRX     101.12   +0.05   +0.92  Holding over $100
SYK      64.58   -1.04   -0.12  Drop, PnF reversal down
CEPH     55.50   +1.65   -0.70  New, Business growing


PUTS               

ABK     57.51     +0.09   -0.11 Under 50-dma    
IBM     79.15     -0.28   +1.86 Entry point under $80
LEH     54.46     -0.20   +0.16 Failed rally
LOW     39.55     -0.75   +0.83 Failed $40 
OHP     34.00     -0.14   +1.14 Drop, sector bounce
PHM     43.33     -0.00   -0.18 Drop, no breakdown
RTH     72.00     -1.35   +0.85 Sector weakness
MBI     41.49     -0.33   -0.88 New, breaking down


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

FRX $101.12 +0.92 (+0.97) Stretching its string of consolidation
days to 7, FRX held firm again on Tuesday, refusing to fall out of
bed with the rest of the broad market this afternoon.  While the
bulls couldn't push the stock above resistance, they certainly
weren't willing to give up any ground either, and that is a sign
of relative strength.  Over the past week, the daily Stochastics
have drifted down to just above oversold territory, while price
has remained firm above the $100 level.  Taken together, the
technicals on FRX look like a stock that is gathering its strength
for the next push up the chart.  Except for a couple of brief
intraday forays, FRX hasn't been below $100 since the 1st of
November, so intraday dips to this level are providing solid
entries into the play.  Traders that want to see a bit of
conviction before playing will want to wait for the stock to
rally back above the $102 level, (intraday resistance over the
past 3 days) before taking a position.  We need a breakout over
$103.50 before FRX will be in new high territory again, allowing
for momentum-based entries.  Until we get the next breakout, keep
stops set at $97.50.


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

CEPH - Cephalon - $55.50 -0.70 (+0.95 for the week) 

Company Summary:

Founded in 1987, Cephalon, Inc. is an international 
biopharmaceutical company dedicated to the discovery, development 
and marketing of innovative products to treat sleep and 
neurological disorders, cancer and pain. Cephalon currently 
employs approximately 1,200 people in the United States and 
Europe. U.S. sites include the company's headquarters in West 
Chester, Pennsylvania, and offices and manufacturing facilities 
in Salt Lake City, Utah. Cephalon's major European offices are 
located in Guildford, England, and at Laboratoire L. Lafon in 
Maisons-Alfort, France. The company currently markets three 
proprietary products in the United States: PROVIGIL® (modafinil) 
Tablets [C-IV], GABITRIL® (tiagabine hydrochloride) and ACTIQ® 
(oral transmucosal fentanyl citrate) [C-II] and more than 20 
products internationally.

Why We Like It:
CEPH has been one of the big biotech winners lately, in spite of 
the sector index moving mostly sideways and the Dow and Nasdaq 
pulling back.  The company released earnings on November 6, which 
showed a drop in profits, due to increased costs and flat sales 
of Privigil, its medication used to fight sleepiness.  However, 
the company raised its forecasts, based on an increase in overall 
product sales from $74 million in the year ago period, to $122.4 
million this year - a stunning 65% revenue increase for the 
quarter. CEPH raised guidance for the full year, from the 
previous forecast of $1.08-$1.10 per share, to about $1.20 per 
share.   It also raised sales guidance by about $30 million. CEO 
Frank Baldino said, "The results and the strong underlying demand 
we are experiencing for all of our products have allowed us to 
increase guidance for 2002."  The results were followed by an 
upgrade from Adams Harkness, which raised its rating from "Buy" 
to "Strong Buy."

The stock soared following the earnings news and has put on about 
10% in the last week.  It blew through its 200-dma of $51.98 on 
November 7 and has climbed steadily since. CEPH broke through its 
bearish resistance line back at $43 on the point and figure chart 
and the bullish vertical count is now an astonishing $106. The 
breakout came on a triple top breakout, another bullish 
indication.  While we certainly don't expect a run to $100 on the 
current move, it does underscore our bullishness in the stock.   
After the recent gains, we would look for an ideal entry on a 
pullback above the 200-dma, around $52.  However, given the 
recent series of higher highs and higher lows, we may not get a 
pullback to that extent.  More likely is a pullback to recent 
support of $53.50 after the big gain on Nov. 7.   Momentum 
traders can look for a break above $56, which would take out 
resistance from the last two days.  Expect resistance on the play 
around $60 and then again at $65.   Set stops at $51, below the 
200-dma, as a break below that level would indicate an 
overabundance of sellers taking advantage of the recent run. 


BUY CALL DEC-50 CQE-LJ OI=  213 at $7.40 SL=3.70
BUY CALL DEC-55*CQE-LK OI= 1894 at $3.80 SL=1.90
BUY CALL JAN-50 CQE-AJ OI= 2002 at $8.60 SL=4.30
BUY CALL JAN-55*CQE-AK OI= 3763 at $3.80 SL=1.90

Average Daily Volume = 2.11  mil



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

ABK $57.51 -0.11 (-0.02) Following the big slide of the past 2
weeks, we were expecting a bit of an oversold bounce from ABK
this week, but if that's all the bulls can muster, than the
outlook is not good. The Financial stocks managed a decent
rebound on Tuesday, with the Banking index (BKX.X) gaining 1.5%
and the Insurance index (IUX.X) rising by a more sedate 0.5%.
Poor ABK couldn't find any appreciable buying interest and after
a slight lift early in the day, fell back to close fractionally
in the red.  That is just what we want to see, as the stock
demonstrates its weakness relative to its peers.  The
consolidation of the past 2 days is likely due to the support
being provided by the 50-dma ($57.50), but it is worth noting
that the stock slid below that level at the close on Tuesday.
While intraday resistance came into play today just above the $58
level, we'd really like to see a failed rally up near $59 ($60
would be even better) to give us a better entry.  If ABK just
breaks down from here, look to enter the play on a drop below
$57, just below its most recent intraday support.  Keep stops
set at $61 for now.

IBM $79.15 +1.86 (+1.56) After a slow slide down the charts for
the past week, shares of IBM found new life on Tuesday.  Charging
higher right from the open, the stock gave us the textbook entry
we were looking for in the late afternoon, as price reversed from
just below the $80 resistance level.  Broad market pressure was a
big cause for the late afternoon selloff, but the stock's reversal
right at major resistance was just what we wanted to see.
Certainly, it would have been preferable to see the reversal come
with enough selling pressure to close the stock in the red, but
we'll take what we can get.  Additional failed rallies below $80
still look good for new entries, but what we really want to see
now is a breakdown below the 20-dma ($76.63), which provided
support for today's bounce.  Momentum traders will need to see
IBM fall under the $75.50 level before initiating new positions.
While we like the action in IBM, we're keeping the play on a short
leash with our stop set at $80, just in case the market tells us
we're wrong.

LEH $54.46 +0.16 (-0.04) It has been a long time coming, but LEH
is finally starting to show the weakness we were expecting.  After
a convincing test of the $58 resistance level last week, the stock
promptly fell back to the $54 support level and then put in a mild
rebound on Monday.  With the broad market in a positive mood this
morning, the Brokerage sector (XBD.X) went along for the ride,
dragging LEH as high as its 20-dma ($55.48) before the afternoon
selloff commenced.  LEH sold off much harder than the XBD index,
so by the end of the day, the XBD was up 2.3%, while LEH barely
managed to stay in the green with a 16 cent gain.  The $56 level
is shaping up as solid intraday resistance, with even stronger
resistance up at $57.  Another failed rally in the $56-57 area is
likely the best we can hope for in the way of new entries.
Traders looking to enter on weakness will really need to see the
$52 level give way.  That level provided support in mid-October,
as well as the first of November.  Until the bears achieve a
breakdown under this level, the best entries will come from
fading the failed rallies.  Keep stops set at $58.

RTH $72.00 +0.85 (-0.50 for the week) The retailers got a boost 
this morning after J.C. Penney raised its outlook.  However, 
after the RTH reached a high of $73.40, it fell all the way back 
to $72.00 by the close.  Even its high of the day  failed at the 
recent descending trend line of the last few days. The stock has 
previously found support at $73, but the failure on the bounce 
above that level showed a lack of conviction on the part of 
buyers.  The sell off into the close may have been concern over 
upcoming earnings announcements from Wal-Mart (WMT) and Federated 
(FD) on Wednesday. The bounce, after RTH's recent drop, fell 
short of a point and figure reversal, and the stock remains in a 
column of "O" with bullish support down below at $66.  Tomorrow's 
earnings releases will compete for screen time with this 
evening's warning from upscale retailer Nordstrom (JWN).  The 
company reduced its third quarter estimates from 0.16-0.20, to 
0.13-0.14.  The stock was trading down $3.50 after hours.  
Abercrombie & Fitch also released earnings after hours.  The 
company beat estimates by 0.02, but made cautious statements 
about the uncertain outlook for consumer spending and the stock 
fell slightly following the announcement.   While conservative 
traders may want to wait until after this week's retail earnings 
releases to get in on this play, we like today's failed rally for 
entry, given the weak bounce on good news from JCP. The news 
still seems cautious for the group and with 6 fewer official 
holiday shopping days, due to a later Thanksgiving, and a weak 
economy, this year's sales totals should continue to disappoint. 

LOW  $39.55 +0.83(+0.08 for the week) Lowe's has been in a 
convincing downtrend since failing at $45 near the end of 
October. News from the retailers continues to be mixed, with J.C. 
Penney beating earnings this morning, while Nordstrom warned 
after the close that it would miss estimates.  Even the companies 
that have posted decent numbers have expressed concern over the 
consumer spending environment and the shortened holiday shopping 
season this year.  Goldman Sachs recently downgraded the hard 
line retailers, such as LOW and Home Depot, due to limited 
opportunities for organic growth. Lowe's may also suffer from a 
shift to gift spending as we head into December, and although it 
certainly offers some gift-type items, the majority of its 
business relies on home improvement, which is likely be completed 
by the holidays for those still spending in the area. The stock 
attempted a bounce with the rest of the retailers early today, 
following JCP's earnings announcement.  However, the rally was 
short lived and LOW managed a bounce of only 0.83 by the end of 
the day, after losing almost $6 in the last couple of weeks. The 
stock traded as high as $40.50 intraday, but was unable to hold 
over $40, finishing at $39.55.  We like the short position and 
would expect some bounce after dropping 3 straight days and 7 out 
of the last 10. New entries may want to sit this one out, as the 
company releases earnings on November 18 and we will close the 
play ahead of that date.

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

GE - General Electric $23.85 -0.36 (-1.25 this week)

Company Summary:
As one of the largest and most diversified industrial companies
in the world, GE's products include major appliances, lighting
products, industrial automation equipment, medical diagnostic
equipment, electrical distribution and control equipment and
power generation and delivery products.  Additionally, GE
provides commercial and military aircraft jet engines,
locomotives and nuclear power support services.  Through the
National Broadcasting Company (NBC), GE delivers network
television services, operates television stations and provides
cable, Internet and multimedia programming and distribution
services.

Why We Like It:
Tuesday was starting to look like a solid victory for the bulls,
until the final hour selloff that brought everything back near
the flatline by the closing bell.  While there were some solid
gainers in the DOW, there were a couple of notable laggards, that
never really found their sea legs.  With its hand in virtually
every area of the 'economic pie', GE is a great proxy for the
health of the economy, and that makes the stock's recent weakness
rather disturbing.  Management changes have not been well-received
by the market of late, and today's announcement of 3 new officers
at GE seemed to be the catalyst for more selling in the
beleaguered stock.  These management changes are part of the
company's recently-announced reorganization of its financial
services arm, and hint that there may be further changes in
store.  Back in August, the stock caught our attention when it
was unable to scale the $33 resistance level.  That failure at
resistance eventually led to a breakdown to new 52-week lows last
month.  We're seeing a similar pattern unfold in the stock right
now, albeit at a lower level.  GE rose to the $27 level rather
quickly following the initial spurt off its early October lows.
But we've now seen the stock fail on several occasions to hold
that level (much less advance above it), and this week it broke
below $25, which had been providing support over the past few
weeks.  With the breakdown under $25, GE is now sitting right at
the top of the gap left behind on October 11th.  A breakdown into
that gap will bring the October lows into play and that breakdown
(below today's low of $23.75) can be used for initiating new
momentum entries.  Should the top of that gap provide a short-term
bounce, we can use the eventual failure of that bounce (ideally at
$25, but possibly as high as $26) to enter the play.  Initial
stops are set at $27, which has proven to be formidable
resistance.

BUY PUT DEC-25 GE-XE OI=21216 at $2.15 SL=1.00
BUY PUT DEC-22*GE-XX OI=18451 at $1.05 SL=0.50

Average Daily Volume = 28.5 mln


PG – Procter & Gamble $85.41 –0.84 (-2.28 this week)

Company Summary:
Providing a broad range of consumable products, PG manufactures
cleaning, paper goods, beauty care, food and health care items
that we have likely all been using our entire lives.  From
toothpaste to facial tissue, laundry detergent to water filters,
and cosmetics to coffee, it is difficult to make a trip to the
grocery store without buying a handful of PG products.  The
company has been reorganized around global business units rather
than geographic regions and about half of sales come from
outside the US.

Why We Like It:
Consumer staple stocks have been notably absent from the leader
board on the rally off the October lows, which many have viewed
as a sign that economic growth is likely to be spotty at best.
The group was already trading poorly on Tuesday before the
negative comments made by Philip Morris, which tanked the Tobacco
group right into the closing bell.  KO has been consistently
heading lower for the past 3 weeks, adding to the negative
sentiment for Consumer stocks.  The picture is perhaps most clear
in the daily chart of our new put play, PG.  Since bottoming near
$74 in late July, the stock topped out twice at $93 and then
posted a lower high at $92.50 in mid-October.  That latest peak
seems to have really brought out the bears, as PG fell to $85,
rebounded to the $89 level and then rolled over after finding
firm resistance at the 20-dma (currently $88.71).  So far this
week, we've seen the stock give up significant ground, with
Tuesday's session leaving price just above $85 and at its lowest
closing level since late July.  There's no hope for the bulls on
the PnF chart either, as its late-October breakdown generated a
Sell signal that is still in effect.  The vertical count is
currently projecting a bearish price target of $77.  A failed
rally in the $86.50-87.00 can be used for new entries, and a pop
to $88 would make that entry even better.  Should the stock
continue its breakdown-in-progress, we can consider new entries
on a trade below $84.50 (just below the October 28 intraday low).
Initial stops will be set at $89, which is just above both the
20-dma and the site of the past 2 failed rally attempts.

BUY PUT DEC-85*PG-XQ OI=3547 at $3.60 SL=1.75
BUY PUT DEC-80 PG-XP OI=3512 at $2.10 SL=1.00

Average Daily Volume = 4.15 mln


MBI - MBIA Inc. - $41.49 -0.88 (-1.31 for the week)

Company Summary:

MBIA Inc., through its subsidiaries, is the world's preeminent 
financial guarantor and a leading provider of specialized 
financial services. MBIA provides innovative and cost-effective 
products and services that meet the credit enhancement, financial 
and investment needs of its public and private sector clients, 
domestically and internationally. MBIA Inc.'s principal operating 
subsidiary, MBIA Insurance Corporation, has a financial strength 
rating of Triple-A from Moody's Investors Service, Standard & 
Poor's Ratings Services, Fitch Ratings, and Rating and Investment 
Information, Inc

Why We Like It:

MBIA recently released decent earnings but issued cautious 
statements about its future.  It was able to raise premiums 
enough to offset lower investment earnings, but warned that, "The 
combination of economic slowdown and capital markets volatility 
continues to make short-term insurance volume forecasts 
difficult."  The company has expanded its business from insuring 
municipal bonds to the higher risk area of insuring finance deals 
involving corporate debt. In the current business environment, 
financing corporate debt can lead to huge losses, as has been 
shown by a number of large and regional banks, which have taken 
large losses from loans to troubled industries.  The stock has 
been struggling recently, since topping out just over $45 on 
November 4. It has rolled over, following its descending 50-dma 
lower, and now appears to have given in below recent lows with 
today's drop under $41.50.  The stock closed on its low of the 
day, indicating that there were still sellers unable to get out 
of long positions. Possible exposure to student loan defaults 
involving Student Finance Corp., whose bonds are insured by MBIA, 
may have been behind the sell-off. 

Each time the stock has bounced since July, it has reached a 
lower high on the point and figure chart.  It has recently rolled 
over from the high of $45 on that chart, as well, and has 
established a three-box reversal into a column of "O."  The next 
level of PnF support is down at $35 and that will be our target.   
The bearish vertical count is all the way down at $24, but that 
is unlikely on this move, without a reversal back up at some 
point.   The stock has opened just under the 50-dma, currently 
$42.44, the last two days and another open just below that level 
may give us additional profit potential for the short play.  
Momentum traders can look for another PnF box at $41.00, however, 
we will enter at the current level. Place stops at $45, which 
would indicate renewed strength and an ability to finally get 
through resistance. 

BUY PUT DEC-45 MBI-XI OI=  415 at $5.40 SL=2.70
BUY PUT DEC-40 MBI-XH OI=  774 at $2.85 SL=1.50


Average Daily Volume = 1.06 MIL



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The Option Investor Newsletter                  Tuesday 11-12-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three:

Play of the Day: PUT - PG
Futures Corner: Back to the Future

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

PG – Procter & Gamble $85.41 –0.84 (-2.28 this week)

Company Summary:
Providing a broad range of consumable products, PG manufactures
cleaning, paper goods, beauty care, food and health care items
that we have likely all been using our entire lives.  From
toothpaste to facial tissue, laundry detergent to water filters,
and cosmetics to coffee, it is difficult to make a trip to the
grocery store without buying a handful of PG products.  The
company has been reorganized around global business units rather
than geographic regions and about half of sales come from
outside the US.

Why We Like It:
Consumer staple stocks have been notably absent from the leader
board on the rally off the October lows, which many have viewed
as a sign that economic growth is likely to be spotty at best.
The group was already trading poorly on Tuesday before the
negative comments made by Philip Morris, which tanked the Tobacco
group right into the closing bell.  KO has been consistently
heading lower for the past 3 weeks, adding to the negative
sentiment for Consumer stocks.  The picture is perhaps most clear
in the daily chart of our new put play, PG.  Since bottoming near
$74 in late July, the stock topped out twice at $93 and then
posted a lower high at $92.50 in mid-October.  That latest peak
seems to have really brought out the bears, as PG fell to $85,
rebounded to the $89 level and then rolled over after finding
firm resistance at the 20-dma (currently $88.71).  So far this
week, we've seen the stock give up significant ground, with
Tuesday's session leaving price just above $85 and at its lowest
closing level since late July.  There's no hope for the bulls on
the PnF chart either, as its late-October breakdown generated a
Sell signal that is still in effect.  The vertical count is
currently projecting a bearish price target of $77.  A failed
rally in the $86.50-87.00 can be used for new entries, and a pop
to $88 would make that entry even better.  Should the stock
continue its breakdown-in-progress, we can consider new entries
on a trade below $84.50 (just below the October 28 intraday low).
Initial stops will be set at $89, which is just above both the
20-dma and the site of the past 2 failed rally attempts.

BUY PUT DEC-85*PG-XQ OI=3547 at $3.60 SL=1.75
BUY PUT DEC-80 PG-XP OI=3512 at $2.10 SL=1.00

Average Daily Volume = 4.15 mln




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**************
FUTURES CORNER
**************

Back to the Future 
By John Seckinger
jseckinger@OptionInvestor.com  

The appealing nature of equity index futures is obvious; a 
leveraged instrument with sufficient liquidity.  However, what 
should a trader know before jumping into the world of futures?

Before we begin, let us cover the basics.  

The E-mini S&P 500 Contract  

Ticker Symbol:  ES.  We are currently in December (Z), and the 
year is 2002.  Therefore, the appropriate ticker for the 
front month contract would be ES02Z.  

Contract Size: $50 times E-mini S&P 500 futures price 

Minimum Price Fluctuation (Tick): .25 index points = $12.50 per 
contract (Futures calendar spreads: .10 index points = $5 per 
contract) 

Contract Months: Mar, Jun, Sep, Dec 

Regular Trading Hours (Central Time): 5:30 p.m. on Sunday to 3:15 
p.m. Friday 

Last Trading Day: Trading can occur up to 8:30 a.m. (Chicago 
Time) on the third Friday of the contract month 

Final Settlement Date: The third Friday of the contract month.

Initial Margin:  $3,563

Maintenance Margin:  $2,850

Volume:  Over 17 million in the month of October

Open Interest:  397,909

Commitment of Traders (as of 11/05):  

Non-Commercial:  
Long: 95,808
Short: 77,612

Commercial: 
Long: 232,821
Short: 283,767

Time for a Quiz.  Look at the first chart and speculate if prices 
will rise, fall, or remain near current levels.  

Chart of ES02Z, 5-minute



Before I give you the answer, I need to preface with a few 
things:  It is my opinion that emotions within the futures pit 
runs a little stronger than seen in the NYSE.  Therefore, expect 
price action to go extend the ‘envelope’ even more than when 
stops are triggered while trading equities.  

Another thing important to remember as far as entry and exit 
fills:  Slippage will happen, and all traders deal with it.  At 
the Chicago Board of Trade (CBOT), the letter “F” (meaning ‘fast 
market’) would flash on the screen and let everyone know that 
fills are not guaranteed (read: even limit orders can be missed).  
Example:  I call the floor and say “Sell one ES02Z contract at 
the market.”  Before I can say ‘market,’ a company such as MSFT 
unexpectedly warns.  The Dow immediately tanks.  

Regardless of who is standing in that pit, no one will buy the ES 
just to make me happy.  All hands drop in the pit, and the only 
noise going on is sellers trying to execute orders.  With all 
sellers and relatively no buyers (none in the pit, maybe some 
online), the market is basically non-tradable.  Of course, I 
frantically wonder if I am filled, and, as is usually the case, a 
few big buyers step in, make a relative low, and all sellers 
(including myself) gets filled much lower than expected.  

Ok, time to look at the answer.  Did you pass?

Chart of ES02Z, 5-minute



Let us cover the other two futures contracts and go over some 
basics.  

The E-mini NDX 100 Contract  

Ticker Symbol:  NQ

Contract Size: $20 times E-mini Nasdaq-100 futures price

Minimum Price Fluctuation (Tick): .50 index points = $10 per 
contract (Futures calendar spreads: .25 index points = $5 per 
contract)

Contract Months: Mar, Jun, Sep, Dec 

Regular Trading Hours (Central Time): 5:30 p.m. on Sunday to 3:15 
p.m. Friday 

Last Trading Day: Trading can occur up to 8:30 a.m. (Chicago 
Time) on the third Friday of the contract month 

Final Settlement Date: The third Friday of the contract month 

Initial Margin:  $2,250

Maintenance Margin:  $1,800

Volume:  Over 6 million contracts for October

Open Interest:  150,283

Commitment of Traders (as of 11/05):  

Non-Commercial:  
Long: 38,326
Short: 55,365

Commercial: 
Long: 80,053
Short: 84,709

=================================================================

The CBOT mini-sized Dow Futures $5 multiplier Futures

Ticker Symbol:  YM

Contract Size: Five ($5.00) times the Dow Jones Industrial 
AverageSM Index

Minimum Price Fluctuation (Tick): Minimum price fluctuation is 
one point ($5.00 per contract)

Contract Months: March, June, September, and December. Four 
months listed at all times.

For reference, here is a list of the months and letters:

Jan = F    Feb = G    Mar = H    Apr = J     May = K     Jun = M 

Jul = N    Aug = Q    Sep = U    Oct = V     Nov = X     Dec = Z

Regular Trading Hours (Central Time): Electronic Trading – 8:15 
p.m. to 4:00 p.m., Chicago time, Sunday – Friday.  

Last Trading Day: Trading in expiring contracts closes at 3:15 
p.m. Chicago time on the last trading day.

Final Settlement Date: The third Friday of the contract month 

Initial Margin:  $2,700

Maintenance Margin:  $2,000

Volume:  Roughly 18,000 contracts per session

Open Interest:  15,978

Commitment of Traders (as of 11/05):  

Non-Commercial:  
Long: 4,875
Short: 3,868

Commercial: 
Long: 7,838
Short: 8,552

Both respective exchanges offer free charts and information on 
their respective products.  www.cbot.com for the YM contract, and 
www.cme.com for both the ES and NQ.  I currently use Q-charts.

=================================================================

Dealing with leverage for a moment and using the YM Dow $5 as 
example; If the Dow is at 8500, the contract value is $42,500 (5 
x 8500). That is, using $2700 to buy 1 YM Dow future contract, 
you are controlling an asset worth $42,500 or approx. 16 to one 
leverage.  Not bad.  

So, how will you know if you are ready to trade?  The key is to 
learn as much as you can before making a commitment.  One 
investment concept that is difficult to teach beginners is that a 
trader can sell a futures contract without previously owning it. 
In this case, the trader will buy it back at a later date, 
hopefully at a lower and hence, profitable price. 

Should a trader paper trade first?  Maybe for a few days, but I 
would recommend only looking at a five-minute chart and giving 
yourself a worse fill than you expect.  Make it hard on yourself, 
and try not to trade right before an economic report, since you 
might not get filled in the real world.  

As far as technical analysis is concerned, it is my opinion that 
Regression Analysis with futures works very well from a five-
minute to a weekly chart.  As far as patterns are concerned, 
traders do tend to defend breakout areas more in futures markets.  
Example:  ES02Z consolidates from 860 to 870 and then opens at 
871 and climbs to 880.  When the market comes back to test the 
870 level, relatively high volume enters and that market will do 
all it can to keep that level intact.  Why?  Even institutional 
traders can’t afford for this level to give if long, since the 
leverage is great and most likely stops are right below this 
breakout level.  

A few notes on “Futures Premium,” which is simply the difference 
between the Cash and Futures prices.  Example: SPX Cash is 900, 
SP Futures are 901, the Premium is + 1.00.   There are Program 
Buy and Sell orders that are frequently pegged to the SP 500 
premium as it relates to the perceived notion of the Cash market 
currently being overbought or oversold.  On average, the SP 
Premium is +1.50 to - 1.50; the NDX Premium (difference of NDX 
Cash to NDX Futures) is usually 3-6 points; the Dow Premium is 
usually +/- 5 to 20 points.  With that said, I will try to use 
the spread between cash and futures for execution purposes; 
however, only extreme moves will be followed.  Micro-managing a 
trade due to a miniscule arbitrage situation is too similar to 
scalping and is not representative of my trading style.  

The governing body of futures trading is the Commodity Futures 
Trading Commission, or CFTC.  Their site, found at www.cftc.gov, 
should answer technical questions that relate to customer 
protection, laws and regulations, and market oversight.  

There are a few articles I did in the last few months that should 
relate nicely to the futures market: 

Learning Curve
http://www.OptionInvestor.com/traderscorner/091502_3.asp

It’s all in your head
http://www.OptionInvestor.com/traderscorner/090502_1.asp

Failure to Fortune
http://www.OptionInvestor.com/traderscorner/082002_1.asp

Exponential Improvements
http://www.OptionInvestor.com/traderscorner/091902_3.asp

Open to Close
http://www.OptionInvestor.com/traderscorner/100802_2.asp

Most importantly, tell me what your expectations are regarding 
this futures section?  What would you like to learn?  What kind 
of trader do you want to become?  Going forward, I plan on 
turning my attention to outlining proper trade set-ups and where 
exit and entry levels should be set.  Moreover, how to find the 
right regression line during market hours and remembering that 
patience is the key.  Leave the emotions at the door.  

Ask away,

John Seckinger
jseckinger@OptionInvestor.com 



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