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Daily Newsletter, Tuesday, 11/19/2002

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The Option Investor Newsletter                 Tuesday 11-19-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: All Hope, No Action
Futures Markets: No Man’s Land
Index Trader Wrap: (See Note)
Market Sentiment: Patience, Patience
Weekly Manager Microscope:


Updated on the site tonight:
Swing Trader Game Plan: Another Step Closer


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-19-2002           High     Low     Volume Advance/Decline
DJIA     8477.73 - 11.65  8546.84  8405.12 1.61 bln   1406/1777
NASDAQ   1374.35 - 19.30  1394.93  1367.76 1.57 bln   1413/1398
S&P 100   457.69 -  1.30   462.34   455.14   Totals   2819/3175
S&P 500   896.79 -  3.61   905.32   893.09
RUS 2000  379.57 -  3.01   383.27   379.16
DJ TRANS 2269.82 - 20.82  2294.14  2266.23
VIX        31.36 +  0.25    32.70    30.73
VXN        45.52 -  2.57    50.28    45.18
TRIN        1.20
PUT/CALL    0.81
************************************************************

All Hope, No Action

The morning market action was worse than watching paint dry. They
recovered from the initial drop in very small increments and had
to fight for every point. The 12:30 rebound buoyed hopes while
Greenspan spoke but once the speech was over sellers ruled the
day.

Dow Chart – Daily




Nasdaq Chart – Daily





A warning by Dow component Home Depot set the tone for the day
as retailers continue to complain that the consumer is not coming
to their rescue. HD said sales were down -2% and could be down
another -3% to -5% in the fourth quarter. They missed earnings
by a penny and dropped -3.55 on the news.

BJ's Wholesale also warned that year end sales were less than
expected and was downgraded by one analyst to a "sell". The
company said it was going to try and prop up sales revenue by
offering more big ticket items like 42-inch plasma monitors.
Obviously if consumers can't afford the smaller conventional
TVs they will rush out and get a loan to spend thousands on
a flat screen. Did I miss something in supply and demand class?
The company said it was targeting $1.90 per share for 2004 and
analysts were expecting $2.21. Basically they just warned for
all of next year in advance to get it out of the way. AG Edwards
cut them to a sell from hold. BJ dropped -3.75 on the news.
WMT who competes with BJ's with its SAMS Wholesale unit has
already said sales would be flat in the fourth quarter. There
have been numerous analysts saying that this will be the most
heavily discounted selling season in over a decade just to
attempt to get rid of excess holiday inventory.

Dow component Deere offset some of the HD loss after hitting
raised estimates by cutting costs and introducing new products.
They affirmed 2003 earnings estimates and gained +1.84 on
the news.

Amazon bragged about being the retailer for the Segway Personal
Transporter but Bear Stearns downgraded them based on valuation
and lack of a pressing argument to achieve higher sales. They
said the retailer has already entered all the markets it could
without significant additional expense and achieving additional
market share would be difficult.

Amazon was not the only tech stock downgraded on valuation
with Microsoft in the same category. Raymond James downgraded
MSFT based on a lack of economic recovery. They said the
software companies revenue going forward would be directly
impacted by a lack of recovery and no IT spending. While there
will be an eventual PC replacement cycle nobody sees it coming
anytime soon according to Raymond James analyst Rich Scocozza.

EMC echoed those views when it's CEO said in Tokyo today that
he saw no signs of a pickup in corporate IT spending and was
wary of predictions of a rebound in 2003. EMC is the worlds
largest data storage company. The Unisys CEO said the same
think in a speech on Tuesday. He said that global spending
will not improve until profits improve and free cash flow
becomes available. It appears everyone is waiting on the
recovery to appear but it will not appear until everyone
starts spending again.

Greenspan echoed the same sentiments in his speech this
afternoon. He said "nobody was currently spending anything"
but then quickly corrected himself to say "very few" instead.
He dwelled on very slow and unsteady current growth but went
out of his way to say that the Fed was not running out of
stimulus ammo. In an effort to calm fears about a Japanese
style Fed with no bullets left he emphasized that they could
set/support interest rates on all maturities of treasuries
to infuse liquidity into the system. The markets rose as the
text of his speech was made available but fell after question
and answer session where comments were unscripted.

After the bell there were more earnings warnings from retailers
and more rumors regarding a coming profit warning from GE. On
Thursday GE is expected to warn and announce a restructuring
with a $2 billion charge to earnings. Rumors are for a -15 to
-20 cent drop in estimates. The stock has sold off significantly
over the last several weeks as these rumors have grown. Some
traders think a moderate warning could actually produce a bounce
since there is so much bad news already in the stock. Others
think the reinsurance, airline, capital equipment and financing
divisions could be in serious trouble and this could be the
final straw for the markets. Either way the bad news will be
out on Thursday.

The markets struggled to trade higher today and did so on
sentiment alone as there was no really positive news to power
stocks. The economic news was weak with Chain Store Sales down
-1.2% but we already knew there was trouble in the mall from
various warnings from retailers. The excuse of the day was a
late month Thanksgiving weekend which would cut several days
off the holiday season. There are only two post Thanksgiving
shopping days this November and there were nine last year. The
Bank of Tokyo estimated 2% of sales would be transferred from
November to December due to the short calendar. It appears
the strong two weeks of fall sales in early November did not
continue as analysts had hoped.

CPI showed that inflation was trending upward only slightly
with energy, medical and housing prices the main reason for
the increase. At the 2.2% annual rate inflation is not a
factor for the Fed and should not be a concern for traders.
Those rising home prices and the NAHB Housing Index today
showed that builders are still optimistic about the future.
The present conditions index is at the highest point in two
years. The 50 point rate cut has builders drooling at the
thought of another 90 days of bargain rates to fuel their
sales. Despite the enthusiasm it does appear that luxury
homes are slowing drastically while average houses are still
in demand. DHI said they had $2.8 billion in delivery backlog
on signed contracts. Their biggest problem was finding lots
to expand with. Even without any further gains in housing
2002 will go out as the strongest year in the last two decades.
Wednesday will have further info on this sector with the MBA
Mortgage Application Survey and New Residential Construction.

Tomorrow could be another struggle. We are slowly putting in
a series of lower highs and the Dow is steadily completing a
head and shoulders pattern with potentially disastrous results.
This week is typically bullish for the markets with the S&P
posting gains for nine consecutive years. Considering the last
two days it will be starting from a deficit if it is going to
stretch this streak to ten. The Nasdaq was the weakest index
for two consecutive days and closed today at a four day low
after failing at a quadruple top on Monday. The Nasdaq has
risk to 1320 and with continuing comments about no IT recovery
in sight it could reach it.

The Dow dipped to 8400 at the open and rebounded to resistance
at 8550 before slipping back to 8450 just before the close.
This is decent support but fear of GE and economic risks could
continue to weigh on the Dow to near 8300. That would also
complete the right shoulder and set up a potential disaster.
However, not all H&S patterns collapse and some rebound upon
completion. Regardless of the eventual outcome the immediate
outlook is not bright. There is significant overhead resistance
and every bounce is met with selling. Unless conditions change
the risks remain weighted to the downside with no positive stock
news to energize investors. The longest bear market in history
1039 days during the great depression. Today was the 1040th day
for the current bear market. Because of the +18% Dow gain off
the October lows some say this bear market was over then but
without some confirmation soon this could eventually go down
as the longest in history.

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

No Man’s Land
By John Seckinger
jseckinger@OptionInvestor.com

The ES, NQ, and YM contract have all failed to breakout to the
upside; however, there has not been any real technical damage to
the downside either.

Tuesday, November 19th at 4:15 P.M.

Contract          Net Change     High        Low        Volume

ES02Z     898.00     -1.75      905.75      892.50      553,268
YM02Z    8476.00     -4.00     8541.00     8398.00       19,727
NQ02Z    1033.50    -15.50     1048.00     1019.00      314,317

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.

Fundamental News: Bear Stearns downgraded Amazon.com, while
Raymond James downgraded Microsoft.  Other negatives included
Home Depot’s poor outlook, which was responsible for taking
shares lower by 12.41% to 25.05.  In other news, Goldman Sachs
lowered its rating on drug wholesaler stocks; however, Goldman
then defended the sector as companies within that sector came
under pressure.  On the economic front, the CPI numbers (core and
non-core) came in as expected (+0.2 and +0.3%, respectively),
while the trade deficit numbers came in a bit wider than
expectations (38 versus 37.3 billion).  Both reports seemed to be
ignored by market participants.

Technical News:  The dollar (DX00Y) traded in a relatively large
range on Tuesday (104.71 to 105.88), encompassing the range of
the prior four sessions.  Closing at 105.62 and currently at its
highest level since November 5th, this index should be closely
watched going forward.  A bid in the dollar could squash
speculation of deflation, and at the same time get foreigners
involved in the US equity market.  Another interesting chart
pattern comes from the ZB02F (Dec 30-year) contract, closing
higher by 0’22 ticks at 112’07 and setting its third day of
higher highs and higher lows.  However, prices have still managed
to set relatively lower highs and higher lows when looking at the
last few weeks.  The current range for the contract (based on
trend lines from longer-term relative highs and lows) appears to
be from 110’05 (upward sloping line) to 113’00 (downward
sloping).  A close outside of this recent wedge should portend a
significant move in stocks.

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

Intermediate Indecisiveness

Looking at a 120-minute chart of the Dow, the mid point within
the Bollinger Bands coincides almost exactly with the Dow’s
settlement on Tuesday.  Moreover, the blue chips are still within
a wedge pattern (green lines) and nearing its apex at 8531.  A
close below 8405 or above 8668 should turn sentiment to bearish
or bullish readings, respectively.  As always, watch for traps.
If the Dow closes above 8668, it should not then reverse and
close underneath (read: trapping longs).  Currently, it feels as
though we are in a range-bound market; however, a break through
one of these two levels could signal otherwise.  Resistance
before reaching 8668 is seen at 8547 and 8600 (bearish green
trend line).  Until the Dow makes a strong move in either
direction, it makes sense to look towards selling resistance and
buying support.  As far as our 8000 long-term objective is
concerned, it remains intact.

Chart of Dow Jones, 120-minute




Turning to a 15-minute chart of the YM02Z contract, stochastics
also indicate a possibly oversold market.  As with the Dow, the
YM is currently on its Bollinger Band mid point and nestled
between the 8500 pivot and support at the rising trend line
(red).  Because stochastics have worked recently and been useful
for selling resistance and buying support levels, look to Go
SHORT YM02Z contract at 8550 with a target at 8475 and stop at
8580.  Moreover, if the market begins to fall, Go LONG at 8434
(first blue horizontal line) with a target at 8500 and stop at
8400.  Light volume would work well for these positions.

Chart of YM02Z, 15-minute




The E-mini Nasdaq 100 also has been recently range bound; failing
to test its mid point Bollinger Band on Tuesday (currently at
1048) and bouncing from 1023.  The intermediate blue trend line
remains intact as well, coming in at 1000.  With that said, look
to Go LONG NQ02Z contract at 1000 with a target of 1017 and stop
at 994.  If the market gaps underneath 1000, look to Go LONG at
984 with 1000 as a target and 972 as a stop level.

Chart of NQ02Z, 60 minute




A 5-minute chart of the NQ02Z reflects a market that is actually
overbought, via stochastics and descending trend line (red).  The
1017 objective (paragraph above) was based upon this falling red
line (see chart below); therefore, adjust exits accordingly if a
lot of TIME passes and the red line falls underneath 1017.  As
the chart also shows, there is an area between 1029 and 1023 that
would seem to put the market in a very neutral environment.  If
prices fail to fall to 1000 but remain around the 1025 level,
wait for a move before acting.  A bounce from these levels could
send the index towards 1050 and 1058, but continue to expect
resistance there.  The index could move from 1050 to 1058, or
1060 to 1073; however, there is certainly a lot more risk buying
a breakout in this environment.  The market will now have to
prove to me that it makes sense to buy resistance and sell
support.

Chart of NQ02Z, 5-minute




A 120-minute chart of the December S&P 500 contract has two
intermediate trend lines hitting prices at almost exactly the
898 close.  The MACD is trending lower, but the contract is in
the middle of the Bollinger Bands (yes, the pattern continues).
There appears to be more risk to the downside, but it is
important to wait for the market to confirm such thoughts.  A
close above 905.50 would be bullish for the contract, but I would
instead prefer to see a close above 910.50 before looking towards
927 and getting bullish.  Note:  Green line is actually 896.50.

Chart of December S&P 500, 120-minute




Taking things to a more practical level, stochastics on a 5-
minute chart shows overbought conditions and the likelihood of a
pullback to the 890.25 level.  A possible trade could be to Go
SHORT ES02Z at 894.75 with a target of 890.25; however, the stop
should be placed near 899 and it would make for a bad risk/reward
scenario.  Therefore, How about going LONG at 890.25 with a
target of 900 and stop at 885.25.  Only problem with this is that
885.75 is the close on November 13th and still needs to be hit if
the recent daily gap is to be closed.  This is exactly why I
called this wrap “No Man’s Land.”  I would look for strong bids
at 885.75, and a potential trade would be to go long there with a
target of 895 and stop at 880.75.  On the upside, look to Go
SHORT at 909 with a target of 900 and stop at 914, above good
resistance during November 18th.

Chart of ES02Z, 5-minute




Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/111902_1.asp


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


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

Patience, Patience
by Steven Price

On a day when the Dow lost fewer than 12 points, there was an
awful lot of red on my screen.  Of course the Nasdaq lost 19
points, contributing to the crimson tide, but as I see it, the
most ominous signs came from outside the tech sector.   Home
Depot reported earnings that matched expectations, but said same
store sales were down 2%, which was a stark contrast to its
previous forecast of 2-4% growth.  The company also said it is
"cautious on the economy into next year."   This would seem
consistent with The National Association of Home Builders
Remodeling Market Index, which was released today, and fell three
points to 49.8. Anything below 50 means remodelers view the
market as unfavorable and suggests to me that the recent wave of
home refinancing may be slowing down, in spite of rates being
lowered again earlier this month. One of the biggest sources of
consumer spending has been dollars taken from home sales and
refinancing.  Alan Greenspan's testimony of November 13 stated,
"(R)oughly half of equity extractions are allocated to the
combination of personal consumption expenditures and outlays on
home modernization." If we see a slowdown in that area, then I'm
not sure where else we'll get dollars to support current spending
levels.

While Home Depot is not the traditional retailer that relies on
the holiday shopping season for an enormous chunk of its
business, we continue to get warnings from retailers that do rely
heavily on the season. Wal-Mart and Federated both made cautious
statements on Monday about November same store sales being lower
than expected and today that sentiment was echoed by BJ's
Wholesale Club, which said November sales were below plan and
made cautious comments about 2003.  A.G. Edwards analyst Robert
Buchanan lowered the stock to a sell, saying the company had
already thrown in the towel for next year. The Bank of Tokyo's
weekly chain store sales report also showed a 1.2% decline last
week. As we head into the holiday season, which is already six
official shopping days shorter than last year (due to a later
Thanksgiving), a reluctance to spend could foreshadow another
weak year for consumer spending.

Economic data released this morning showed a 0.3% rise in the
Consumer Price Index for October, fueled mostly by a 1.9% rise in
energy prices. The core rate jumped 0.2%, which was in line with
expectations.  Prices are up 2% over the last year. The trade
deficit also narrowed slightly, dropping $300 million to $38
billion. The small increase in CPI keeps the Fed in the clear,
after lowering the overnight rate by 50 basis points on November
6.  A jump in CPI would indicate inflationary pressure, which is
combated by raising rates.  The slight rise was nothing severe
and indicates inflation is not currently an issue.

The head and shoulders pattern in the Dow and SPX, talked about
several times in this space, appears to be taking shape, with the
recent high of Dow 8636 and SPX 915 looking like the possible top
of a right shoulder. The fact that the Dow is now back under 8500
and the SPX is below support at 900 have me leaning to the
bearish side of the market, after donning bulls horns briefly
last week.  I'm not particularly concerned about what "should" be
happening and I am more than happy to change hats as often as the
market dictates.  Traders need to remember that there should be
no loyalty to a direction.  We simply jump on for the ride, no
matter how short or long it may be.  Long-term opinions are for
the 401k, not for short-term opportunities.

While I am leaning bearish, we must realize that the Nasdaq
Composite is still in a pattern of higher lows for the moment.
It has not been able to set a higher high above the August top of
1426, but the last two pullbacks stopped at 1279 and 1319.  The
current pullback to 1374 keeps that trend alive, so look for a
break below 1319 as the more decisive breakdown.

Part of the reason the Nasdaq has been slightly schizophrenic and
difficult to protect is the fact that the chip sector is bouncing
around without a defined trend.  It pulled back today, dropping
7.40 to 312, but bounced off 310, which had been previous
resistance back in September.  The group has mirrored the higher
low - lower high pattern of the COMP and right now is not giving
us much to work with. The news out of the sector has certainly
been negative, but it was negative for the last two months,
during a 50% gain, as well.

Traders can lean short here, but the trend is not terribly
strong.  A breakdown of the H&S neckline in the Dow between 8350-
8400 would show a stronger downtrend, but until we get that I
would be playing with smaller positions than usual. The same goes
for the Nasdaq.  Sometimes it's frustrating to sit on the
sidelines, but we must remember two rules: 1) There will always
be opportunities that present themselves and if you must force
it, play small; and 2) Always make sure you can come back and
play tomorrow.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8474

Moving Averages:
(Simple)

 10-dma: 8512
 50-dma: 8172
200-dma: 9218



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  896

Moving Averages:
(Simple)

 10-dma:  897
 50-dma:  867
200-dma:  989



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1025

Moving Averages:
(Simple)

 10-dma: 1027
 50-dma:  935
200-dma: 1133



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

The Retail Index (RLX.X):  We are starting to see the cracks in
the dike after last week's bullish earnings releases.  Wal-Mart
started the week by warning that November sales were coming in
under target.  That was followed by similar warnings from
Federated and BJ's Wholesale club, which went so far as to give
cautious statements for all of 2003.  Even Home Depot got into
the act, by giving notice that same store sales for the month
were not only not showing the previously forecast 2% growth, but
would be down 2-4%.  The RLX has sold off the last two days, and
may test the recent low of 273 before the week is over.

52-week High: n/a (recalculated in June)
52-week Low : 253
Current     : 319

Moving Averages:
(Simple)

 10-dma: 282
 50-dma: 283
200-dma: 317
-----------------------------------------------------------------


Market Volatility

The VIX barely broke through its 200-dma at 31.25, before
bouncing off 30.  It is hovering over that level for the moment,
and has not closed under 30 since June 28. If the current
sideways movement in the market continues we may actually see the
20s in the near future.  However, the head and shoulders pattern
that appears to be forming in the Dow and SPX is likely raising a
few eyebrows and until we get a decisive move up, we may see the
VIX also holding this level.   In the case of an H&S breakdown,
look for the VIX to trade 35-40.


CBOE Market Volatility Index (VIX) = 31.36 +0.25
Nasdaq-100 Volatility Index  (VXN) = 45.52 –2.57

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        461,795       371,788
Equity Only    0.72        377,520       273,281
OEX            1.04         10,790        11,258
QQQ            1.07         44,696        48,007


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

Bullish Percent Data

           Current   Change   Status
NYSE          42      + 2     Bull Confirmed
NASDAQ-100    69      + 1     Bull Confirmed
Dow Indust.   67      + 0     Bull Confirmed
S&P 500       56      + 0     Bull Alert
S&P 100       64      - 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   0.85
10-Day Arms Index  1.26
21-Day Arms Index  1.15
55-Day Arms Index  1.20


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       1174          1554
NASDAQ     1316          1820

        New Highs      New Lows
NYSE         21              34
NASDAQ       50              50

        Volume (in millions)
NYSE     1,619
NASDAQ   1,615


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

Commitments Of Traders Report: 11/12/02

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 increased short positions by 4,000 contracts, while
slightly reducing the long side.  Small traders increased long
positions by 3,000 contracts, while reducing the short side by
6,000.

Commercials   Long      Short      Net     % Of OI
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%)
11/12/02      437,683   476,540   (38,857)   (4.3%)

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
10/22/02      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%
11/12/02      141,389    70,624    70,765     33.4%

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 reduced the long side by 3,500 contracts while
leaving the short side virtually unchanged.  Small traders, on
the other hand, reduced short positions by 4,000 contracts and
longs by just 700.


Commercials   Long      Short      Net     % of OI
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%)
11/12/02       45,647     55,892   (10,245) (10.1%)

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
10/22/02       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%
11/12/02       12,698     8,801     3,897    18.1%

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 left positions relatively unchanged, with a slight
reduction in both longs and shorts.  Small traders increased the
long side slightly and left shorts around the same level.

Commercials   Long      Short      Net     % of OI
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%
11/12/02       22,283    14,953    7,330      19.6%

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
10/22/02        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%)
11/12/02        5,736     8,513    (2,777)   (19.5)

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 MANAGER MICROSCOPE
*************************

Life Sciences Funds

This week, we take a look at stock funds specializing in the life
sciences sector and related industries including pharmaceuticals,
biotechnology, medical products/supplies and healthcare services.
These specialized healthcare funds seek long-term capital growth
by investing principally in companies engaged in the business of
providing products and services that help promote personal health
and wellness.

Life sciences funds are suitable for risk-tolerant investors that
seek long-term growth of capital, and are interested in the long-
term potential of the life sciences sector but don't want to pick
their own common stocks.  By risk tolerant, we mean investors who
can tolerate high share price fluctuations, and are interested in
an aggressive, concentrated sector fund.  Accordingly, they serve
an "explore" role in one's long-term portfolio.

The pickings for life sciences funds are slim, so we kept it very
simple by reviewing all five fund candidates that we were able to
identify.  In the next section, we show you how we identified and
evaluated them based on various selection criteria.

Search Process

We began our search this week by using various mutual fund lookup
tools online (Bloomberg, Morningstar and MSN Money) to search for
funds with the words "life sciences" in the fund name.  That gave
us four potential fund options for personal investors as follows:

 American Century Life Sciences (ALSIX)
 Exeter Life Sciences A (EXLSX)
 Gartmore Global Life Sciences A (GLSAX)
 Janus Global Life Sciences (JAGLX)

Note that Janus Global Life Sciences (JAGLX) Fund remains closed
to new investors at this time.  At $1.4 billion in assets, don't
look for the group's largest mutual fund to reopen any time soon,
but you never know.

We next identified related funds, using Bloomberg's fund reports.
That effort yielded the following additional fund names:

 Vanguard Healthcare (VGHCX)
 ICON Healthcare (ICHCX)
 Fidelity Select: Medical Delivery (FSHCX)
 Fidelity Select: Medical Equipment/Systems (FSMEX)

Long-term investors seeking exposure to the broad health care
sector (rather than just the life sciences industry) will find
the Vanguard Healthcare Fund and ICON Healthcare Fund to their
liking.  Those that want to target medical delivery and medical
equipment and systems industries specifically have two Fidelity
Select portfolios worth considering.

We next took the four life sciences funds, including the closed
Janus Global Life Sciences Fund, and the four related funds and
put them into Morningstar's Fund Compare tool, available online
at www.morningstar.com.  That allowed us to compare the results
based on their portfolio characteristics and management, return
and risk data, and other factors such as cost and expense ratio.

Gartmore Global Life Sciences Fund is relatively new, and isn't
in Morningstar's system yet.  The $159 million American Century
Life Sciences Fund (ALSIX) and $119 million Exeter Life Sciences
Fund (EXLSX) are in Morningstar's system, but are not rated yet.
The only "life sciences" fund with a rating is Janus Global Life
Sciences Fund (JAGLX) which is currently closed to new investors
and sports only a Morningstar 2-star overall rating.

Among the four related funds, three of them currently are 5-star
rated by Morningstar for risk-adjusted performance in comparison
to their healthcare sector fund peers.  The fourth fund holds an
average 3-star overall rating.  In the next section, we tell you
which "life sciences" fund we like the best, and which "related"
fund we favor.

Exeter Life Sciences A (EXLSX)

Exeter Life Sciences Series Fund is an open-end fund that seeks
long-term growth by investing primarily in stocks of companies
involved in life sciences and related industries.  Examples of
the areas that management focuses on are drugs/pharmaceuticals,
bio-technology, medical products and supplies, and health care
services.

A recent Reuters article from September 2002 indicates that the
fund's portfolio includes a number of major pharmaceuticals and
companies that make life sciences research equipment, otherwise
known as "life sciences tools."  One example is Millipore Corp.
(NYSE: MIL), which represented 4.7% of net assets at October 31,
2002.  Boston Scientific (NYSE: BSX) is the portfolio's largest
holding, representing 9.0% of fund assets at the end of October.
Boston Scientific is one of several companies vying for the top
spot in the "stent" market (tiny stents are inserted in clogged
arteries), a huge and growing billion-dollar market.

Exeter Life Sciences Fund is a concentrated portfolio, with 57%
of net assets in the fund's top 10 holdings (31 total holdings),
per Morningstar's report.  Morningstar's style analysis puts it
in the mid-cap growth style box though that reflects the fund's
average market capitalization of $5.6 billion.  Fund assets are
spread across all market capitalizations, so the term "all-cap"
or "multi-cap" growth would also apply.

In 2000, the fund's first full year of operation, it earned an
87.3% total return for investors, ranking in the top 7% of its
Morningstar category (specialty-health funds).  The Exeter team
managed portfolio earned an 11.7% total return in 2001, ranking
it in the top 1% of the specialty-health category.  So far this
year, the Exeter life sciences fund has declined 14.2% on a YTD
basis thru November 18, 2002, ranking in the category's top 11%,
so it's done a good job this year of limiting losses versus its
health sector fund peers.

Exeter Life Sciences Fund's ability to capture return and limit
depreciation has resulted in one of the best 3-year records now.
As of November 18, 2002, the fund had a 3-year annualized total
return of 21.6%, ranking in the top 1% of the health fund group,
per Morningstar.  That compares with an annualized loss of 13.0%
by the broad S&P 500 index for the same period.

Unfortunately, the Exeter Life Sciences Funds doesn't have wide
brokerage availability.  Morningstar's latest report lists only
one program, Invesmart iDirect under the brokerage availability
section.  Minimum initial investment in the fund is $2,000, and
$0 for an initial IRA investment.  The Exeter Fund's 800 number
is 800-466-3863.  You may be able to purchase the Life Sciences
mutual fund product directly.

Considering that biotech and drugs have imploded, this fund has
done a superior job in its short history compared with category
peers of capturing return and limiting the portfolio's downside
risk.

ICON Healthcare (ICHCX)

Investors that don't want to limit their healthcare exposure to
the "life sciences" or "medical equipment/systems" areas of the
healthcare market may like the more diversified ICON Healthcare
Fund (ICHCX).  It seeks long-term growth of capital by normally
investing at least 65% of net assets in securities of companies
primarily engaged in the healthcare industry.  Industry baskets
include such areas as biotechnology, health care distributors &
services, health care equipment, health care facilities; health
care supplies, managed health care, and pharmaceuticals (drugs).

Meridian Investment Management has served as the fund's adviser
since its February 21, 1997 inception, using a "team management"
approach that aims to capture changing themes by rotating among
industry subsectors as they move from undervalued to overvalued
status.  ICON Healthcare Fund is not bound to any one style box,
and will hold a stock while it may migrate in size from small to
large market capitalization (and in style from value to growth).
Morningstar puts it in the mid-cap growth style box as a whole.

Per the ICON Funds' website (www.iconfunds.com), the Healthcare
portfolio's top 10 holdings comprised a third of fund assets as
of September 30, 2002.  The fund's largest holding was Abbott
Labs (NYSE: ABT), which derives about 40% of its revenues from
pharmaceuticals.




ICON Healthcare Fund, like the Exeter Life Sciences Series funds,
has done a good job of capturing returns and minimizing downside
risk relative to other specialty-healthcare funds.  In the first
three years (1996, 1997 and 1998), the fund returned 15.3%, 3.8%
and 43.0%, respectively, competitive but not superior versus its
category peers.  In 2001 and 2002, the ICON Healthcare portfolio
has exhibited very little downside volatility, falling just 3.2%
in 2001 and giving up just 5.7% since December 31, 2001, ranking
it in the top 1% of the healthcare fund category per Morningstar.

Over the last three years, ICON Healthcare Fund has generated an
average annual return of 12.9% through November 18, 2002, to put
it in the category's top decile (6th percentile) for performance.
The fund's trailing 5-year average total return of 9.6% was 9.1%
better a year on average than the broad S&P 500 index and strong
enough to place in the category's top quintile (18th percentile).

So, while the fund lagged slightly through the 1996-1998 upswing,
it handled the ensuing market correction much better than similar
funds, resulting in a Morningstar 5-star (highest) overall rating
for relative risk-adjusted return performance.

At 1.45%, the fund's expense ratio is below average in comparison
to the 1.78% category average, per Morningstar.  While that's not
cheap, ICON Healthcare Fund has a low minimum initial purchase of
$1,000 for regular and IRA accounts and is available on a no-load
NTF basis through several fund networks, including Charles Schwab
OneSource, adding to its appeal.  Long-term, risk-tolerant mutual
fund investors seeking healthcare exposure have a suitable option
here.

For more information or a fund prospectus, call 1-800-764-0442 or
logon to the ICON Funds at www.iconfunds.com.

Conclusion

Vanguard Healthcare Fund (VGHCX) is also Morningstar 5-star rated
and also offers exposure to the broad healthcare sector.  It also
would be an appropriate option for long-term investors who prefer
a more broadly diversified portfolio of health-related companies.

The other life sciences funds identified this week are either not
open to new investors or too young or tiny to be in Morningstar's
database, or to be rated.  Exeter Life Sciences Series funds have
limited network availability but may be purchasable directly from
the Exeter Fund Inc (800-466-3863).  Call to find out more if you
are interested.

We showed you ICON Healthcare Fund also as an alternative to life
sciences funds.  It may be a suitable choice if you don't want to
limit your health care investments to stocks of companies engaged
principally in life sciences areas and desire broader health care
sector exposure.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Another Step Closer

The day did not go well for the bulls. The Dow nearly completed a
round trip by dropping to 8400 at the open, rebounding to 8550 and
sinking back to 8442 just before the close. The day posted another
lower high and closed at a four day low. This is not encouraging
for the November bulls.


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


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The Option Investor Newsletter                  Tuesday 11-19-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: BBOX, FFIV
Dropped Puts: ABC
Daily Results
Call Play Updates: CEPH, GNSS, HOV, AIG, FRX
New Calls Plays: IMCL
Put Play Updates: GE, IDPH, PG,
New Put Plays: TRMS


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

BBOX $45.22 -0.68 (-1.60 for the week) Black Box appeared on the
verge of an upside breakout when we added it over the weekend,
but 1it has pulled back sharply the last couple of days, and
rather than looking as though it might bounce on a pullback to
$45, it appears as though sellers were still pounding the stock
into the close.  We highlighted two possible entry points for
conservative traders, which would have been a breakout over $48,
giving a new PnF buy signal, or a pullback to support at $45.
While we certainly didn't get the first, the action in the Nasdaq
and the end of day sell-off in BBOX makes the second alternative
appear less likely, as well. Rather than hope for an entry point,
we'll close the play and look for better momentum elsewhere.

---

FFIV $12.23 -0.43 (-0.90) After rallying more than 100% off the
October lows, FFIV was overdue for a bit of profit-taking, and it
seems that our addition of the stock to our call list was just
the catalyst to get that process moving.  While this could be
just normal profit taking, with the weakness in the broader
Technology market, we're concerned that the recent bullish trend
has effectively come to an end.  Simply put, the risk to reward
in the trade is looking less favorable with the 200-dma at
$13.60 providing a firm ceiling on the last two rally attempts.
If currently in the play, use another intraday rally near
resistance to exit those positions.


PUTS:
*****

ABC $59.00 -4.40 (-6.01) Did you follow our instructions?  Over
the weekend, we recommended using a decline into the $57-58 area
to harvest gains on open positions.  This morning's Goldman
Sachs downgrade had shares of ABC gapping down to the $56 level,
which was an even better result than we had hoped.  The stock
rebounded off that level pretty quickly and then spent the bulk
of the session consolidating in the $58-59 area.  At current
levels, the play no longer makes sense on a risk/reward basis.
If still holding open positions, either set a tight stop at
$59.50 or harvest your gains on any weakness near the $58 level.


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

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

AIG     66.57    -1.40   0.07  Relative Strength
BBOX    45.22    -1.16  -0.68  Drop, no entry
CEPH    55.07     0.71  -1.39  Holding $55
FFIV    12.23    -0.59  -0.43  Drop, no follow through
FRX    103.82    -1.56  -0.38  Support at $103.50
GNSS    16.34     0.01  -1.26  No PnF reversal
HOV     31.70    -1.35  -0.95  Entry point
IMCL    12.59    -0.77   1.15  New, Higher consolidation


PUTS

ABC     59.00    -1.85  -4.40  Drop, Profits
GE      23.90    -0.42   0.30  lower low
IDPH    38.25    -1.31  -1.09  Weak under $39
PG      87.10    -1.15   0.95  Only Dow on sell signal
TRMS    47.71    -1.97  -0.62  New, Changing lanes


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

CEPH $55.07 -1.39 (-0.64 for the week)  Cephalon has been pretty
volatile lately, after its recent run from $40 up to $58.67.  The
stock pulled back after a downgrade a couple of days ago.
However, that downgrade was somewhat tenuous, based on the sector
having performed well and advice to take profits, as well as
future unsuccessful challenges from generic drug makers to CEPH's
anti-fatigue drug Provigil.  While Provigil has been approved
only for narcolepsy to this point, sales have doubled in the last
year and it has been discussed for use with sleep apnea and
Parkinson's disease, for which the company will be submitting FDA
applications. The company has shown a lot of strength lately,
based on across the board product sales, and recently raised its
earnings guidance after large sales increases. The stock blew
through its 200-dma just over $51, after consolidating on a
pullback to $50.  That consolidation pattern appears to be
repeating itself at $55, where the most recent pullback has found
support. While traders long at $55.50 could have turned a nice
profit on the move just after we picked it, we are sticking with
the stock on the pullback.  Not many stocks go straight up
without some intermediate consolidation and as long as the
consolidation takes place at successively higher levels, then the
bullish trend is still in tact.  As long as CEPH continues to
find buyers at $55, we'll hang on for another run at $60. New
entries can look for continued intraday support at $55, keeping
in mind a failure at that level and then resistance below it is a
bearish sign.  We'll leave the current stop at $53.00.

---

GNSS $16.34 -1.26 (-0.83 for the week) Genesis' recent breakout
was a bullish catapult on the point and figure chart, which is a
triple top followed by a double top.  It's a very bullish
formation and is supported by the company's presence in a market
that is growing by leaps and bounds.  The flat panel monitor
business is expected to ship 6.3 million units in 2002, but as
many as 97 million in 2005. The projector market, used by
consumers and businesses, is projected to grow from just under
700,000 in 2001 to at least 12 million by 2005. Today the company
announced that its FLI2310 digital video format converter was
chosen by Sharp for its new series of LCD televisions, another
growing market. The most recent buy signal came at $16.00.
Today's pullback, following an RBC downgrade that said it had
reached its price target, found support just above that breakout
level.  The stock broke through its 200-dma on Monday, trading as
high as $18.95, which indicates $19 will be the next hurdle for
Genesis.  After setting its third higher high, today's
retracement and bounce above $16 is the stock's third higher low.
New entries can look for a move back over the 200-dma of $17.00,
and also today's high of $17.10, as an entry point.   We will
leave our stop at $13 for the time being, allowing for any
continued pullback to still maintain the pattern of higher lows.
If we do get a continued pullback, then we will watch for signs
of intraday support before recommending new entries.

---

HOV  $31.70 -0.95 (-2.30 for the week) Hovanian got a bullish
point and figure reversal with its trade of $34 on Friday, after
which it pulled back on Monday and Tuesday.  The pullback stopped
short of $31.00, which would have reversed the signal back down
again and also remained above its ascending 200-dma.  That 200-
dma has proven highly resilient; giving the stock a boost the
last four times it has been approached. We recommended entry on
either the $34 buy signal, which we got, or a pullback above
support at $31 in the original play write-up.  While we aren't
thrilled with the pullback from $34, the current level still
looks like an entry point, with even better risk reward.  The
housing market has been somewhat erratic lately, but its gains
still remain strong.  There is a large backlog of homes still
waiting to be built in 2003 and mortgage rates are once again
reaching new lows.  The tremendous increases seen in September
and October orders bode well for the company's full year
earnings, although we are bound to see some seasonal slowdown, as
evidenced by last weeks 4.3% drop in mortgage applications
(following a 13.3% jump the previous week).  We will leave our
stop at $30, as that would be the first 200-dma break of the
year.

---

AIG $66.57 +0.07 (-1.32) With a lack of positive catalyst the
broad market has been under pressure this week and we've seen
some mild profit taking in the Insurance sector (IUX.X) through
Tuesday's close.  It was interesting however, to note that the
IUX finished Tuesday's session with a slight gain.  The mild
gyrations in the sector this week have gradually dropped AIG
down near the $66 level, where buyers stepped in to provide
support at the end of the day.  Volume has been light so far
this week as the stock has pulled back, and the key will be how
AIG behaves in the $65-66 area.  This was the formidable
resistance that AIG cleared late last week and if that breakout
was for real, then we ought to see that former resistance level
act as support.  An intraday dip in this area that is followed
by solid buying can be used to initiate new positions.  More
aggressive traders can even consider entering a bounce from the
vicinity of $64 (which should be stronger support), but keep in
mind that a close under our $63.50 stop would be a bad sign and
have us dropping the play in short order.  Trader's looking to
chase AIG higher will need to wait for a push through the $68
level, confirmed by the IUX rallying through the $275 resistance
level.

---

FRX $103.82 -0.38 (-1.93) Consolidation and mild profit-taking
have been the name of the game this week both in the broad
markets and our FRX play.  After settling at new all-time highs
on both Thursday and Friday last week, a bit of profit taking
is a welcome development, as it appears to be setting us up for
the next solid entry point.  After breaking above $100 last
month, FRX consolidated for an extended period before staging
the breakout move we saw last week.  Traders that took advantage
of the intraday dips near the $100 level were rewarded with a
nice move to above $106 last week.  We're looking for a repeat
performance from the stock, just at a higher level.  That means
we aren't interested in chasing the stock higher, but want to
look to initiate new positions on a pullback and rebound from
support.  The key support level now is $103.50, which was the
resistance that held FRX back until last week's breakout.  While
aggressive traders can look for entries on intraday dips as low
as $102.50 (just above the 10-dma), they need to be careful about
trying to catch a falling knife.  If FRX breaks $102, we'll drop
the play as it will likely indicate the stock is falling back
into its $99-102 consolidation range.


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

IMCL – Imclone Systems $12.60 +1.16 (+0.83 this week)

Company Summary:
Engaged in the research and development of novel cancer
treatments, IMCL focuses on growth factor inhibitors,
therapeutic cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain tumors depend.  Phase I/II
clinical trials have been promising.  The lead candidate for
angiogenesis inhibition, IMC-1C11 is an antibody that binds
selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor (VEGF) receptor, thus
inhibiting angiogenesis.

Why We Like It:
Beginning with the Enron fiasco, shady corporate dealings have
been at the forefront of investors' collective consciousness for
much of this year.  While the subsequent investigations have
brought enough dirty laundry into the light of day to result in
numerous bankruptcies, not all of the corporate malfeasance
poster children have gone away quietly.  IMCL looked like it
could do no wrong this time last year as it was trading near the
$70 level.  Rejection of the company's testing of its promising
anti-cancer drug Erbitux along with alleged cover-ups of the
holes in that testing led the stock to plunge more than 93% from
its December 2001 highs.  IMCL has been basing in the $6-10 range
for much of the past 5 months, but saw a dramatic surge in buying
volume propel it out of that range last week.  While an argument
can be made that a cessation of the daily news flow about
corporate shenanigans by the company's former CEO could be
allowing the stock to lift, given the heavy volume that
accompanied last week's rebound, there has to be something more
to the story.  Sure enough, there is.  Apparently there is a rumor
that has been making the rounds that Bristol-Myers is considering
purchasing the 80% of the company that it doesn't already own at a
price of $19 a share.  Whether there is any truth to the rumor or
not, the fact that buying interest was strong again on Tuesday
indicates there could very well be further upside. The PnF chart
certainly bears that out, as the Buy signal generated last week
with the breakout over $10 gives a bullish price target of $30.50.
That's way beyond what looks reasonable over the near term, but
that doesn't change the fact that we have a strong Buy signal to
work with.  Once above the $15 resistance level, the bulls will
be setting their sights on the $19-20 level, and that is the
level we will target for this play.  The profit taking yesterday
shows that the stock has decent intraday support near $11.50, so
another bounce there can be used for new entries.  The 200-dma at
$12.56 is keeping a lid on the advance right now, but momentum
traders can look to enter the play on a push through that level
that continues through $13.50 (intraday resistance last Thursday
and then again today).  This is a high risk play due to the
recent volatility, but with our stop placed at $10, the risk to
reward ratio looks favorable.

BUY CALL DEC-10 QCI-LB OI=2499 at $3.40 SL=1.75
BUY CALL DEC-12*QCI-LV OI=1501 at $1.85 SL=1.00
BUY CALL DEC-15 QCI-LC OI=1219 at $1.00 SL=0.50
BUY CALL JAN-12 QCI-AV OI= 827 at $2.65 SL=1.25
BUY CALL JAN-15 QCI-AC OI=1631 at $1.75 SL=0.75

Average Daily Volume = 1.95 mln



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

GE $23.90 +0.30 (+0.04) Even as the broad market was rallying
earlier this month, GE was a notable laggard, continuing to drift
lower.  Recently adding pressure to the stock was the JP Morgan
downgrade last Friday, followed by concerns that the company may
announce a large $1-2 billion restructuring charge (which would
adversely affect earnings) at its analyst meeting on Thursday.
Concerns about the latter issue were enough to pressure the stock
down to $23.20 this morning, but the bulls managed to push it
back up to post a fractional gain for the day.  Note that
Tuesday's close just below $24 has the stock beginning to find
resistance (rather than the support of last week) at the top of
the October 11th gap.  This indicates that GE is destined to fill
that gap down to the $22.60 level and possibly challenge the
October lows near $21.50.  Resistance near $25 is getting
stronger by the day and failed rallies below this level still
look good for new entries.  Given the proximity of significant
support, we don't advocate chasing the stock lower at this time.
Lower stops to $25, as a rally through this level would break
the pattern of lower highs.

---

IDPH $38.25 -1.09 (-2.11) With the Biotechnology sector (BTK.X)
unable to get through the $90 resistance level last week, the
price weakness in shares of IDPH got our attention when they fell
to the $40 level late last week.  That decline solidified the PnF
Sell signal, and this week's decline has extended the bearish
price target down to $28.  We were looking for a drop under $40
to confirm our bearish view on the stock, and the stock
cooperatively delivered just that yesterday.  While IDPH
rebounded mildly from its low yesterday, the bears were back in
control today after another failure to get back over the $40
level.  Tuesday's early rally attempt gave way shortly after the
open, with a steady decline into the close.  Subsequent failed
rallies below $40 can still be used for initiating new positions,
while momentum traders will want to enter on a drop below the
$37.50 level (just below Tuesday's intraday low.  Watch for the
possibility of an oversold rebound from the $35.50-36.00 level
(the site of the October lows).  Use such a rebound to harvest
gains on open positions and look to re-enter at a higher level
when that rebound runs into wiling sellers below the $40 level.
Lower stops to $42.

---

PG $87.10 +0.95 (-0.18) Rangebound has been the name of the game
for shares of PG over the past couple weeks, as buyers and sellers
jockey for position between resistance at $89 and support at $85.
We've been looking for a breakdown under support to get the next
leg of the decline moving.  But contrary to the action in the
broad market, PG actually lifted yesterday afternoon and this
morning, rising to just below the $88 level before rolling lower
again.  That rollover could be just what we're looking for in the
way of a bearish entry, although there is one note of concern
being telegraphed by the intraday charts.  While last week saw
PG finding resistance at $87, that level represented support for
the stock, once this morning and then again this afternoon.
Conservative traders will want to wait for a breakdown under
$86.75, confirmed by continued broad market weakness before
opening new positions.  In order to really get this play moving
in our favor, we really need to see a volume-backed breakdown
under its recent lows at $84.75, which can be used to initiate
new momentum-based positions.  Keep stops in place at $89.


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

TRMS - Trimeris - $47.71 -0.62 (-2.13 for the week)

Company Summary:
Trimeris, Inc. is a biopharmaceutical company engaged in the
discovery and development of novel therapeutic agents for the
treatment of viral disease. The core technology platform of
fusion inhibition is based on blocking viral entry into host
cells. Trimeris has two anti-HIV drug candidates in clinical
development. FUZEON, currently in Phase III clinical trials, is
the most advanced compound in development. A New Drug Application
(NDA) and Marketing Authorization Application (MAA) have been
submitted for FUZEON with the US FDA and EU EMEA, respectively.
Trimeris' second fusion inhibitor product candidate, T-1249, has
received fast track status from the FDA and is in Phase I/II
clinical testing. Trimeris is developing FUZEON and T-1249 in
collaboration with F. Hoffmann-La Roche.

Why We Like It:
Look familiar?  Proving there is no loyalty when it comes to
playing the market, we are going to trade what we see and flip
sides on this previous OI call play.  We have been singing the
praises of this company in the call section recently.  We played
it long for a nice gain heading into earnings and closed it a
couple of days ahead, in keeping with our policy of not playing
earnings. Good thing.  We have not changed our outlook as far as
demand for the company's new HIV product Fuzeon.  It is the first
in a new class of AIDS drugs that concentrates on preventing the
virus from entering cells and it is widely assumed the company's
FDA approval will come in March, at the end of the priority
review period the company was granted. Demand for the product is
expected to be high, as patient groups and activists have been
talking up Fuzeon's effectiveness for patients who have developed
resistance to other HIV therapies, which is a major problem for
many patients.  The drug also has limited side effects, another
big problem with current therapies.  So what's the problem?
Well, on the earnings conference call, the company made comments
that indicated the supply process may not be as reliable as
analysts have assumed in the past.  The drug is produced through
a complex manufacturing process and Deutsche Banc analyst Dennis
harp wrote," Based on comments made by company management, we
believe that initial yields from the validation batches are lower
than target levels... Thus, at the time of launch, Trimeris and
Roche may have less capacity than our original estimate of 3
metric tons of Fuzeon per year, or 40,000 patients." DB cut its
sales estimates for 2003 from $210 million to $106 million and
2004 estimates from $508 million to $431 million. So the problem
isn't that the company doesn't have a great product, it's just
that they may not be able to produce enough of it for sale to
meet previous earnings estimates. Other analysts disputed that
this was the meaning of the comments, so we may have a case of
dueling analysts.

Whoever is right, apparently investors are scared and getting out
quickly.  The stock has been selling off, breaking down below
previous resistance levels that have not acted as support for
long, and now looks to be free falling.  Each rebound attempt has
been met with more selling and the last drop below $50 could see
the stock back in the low forties. The point and figure chart is
on the verge of a new sell signal at $47, with the next support
level down at the bullish support line of $43.  The successive
lower highs and lower lows on the sell-off indicate that
investors still holding stock are using the bounces to dump the
holding at higher levels. The stock broke it's 50-dma of $48.16
today and intraday rebound attempts failed that level. The 200-
dma is below at $45 and is likely to provide some support on the
drop.  However, once through that level, the aforementioned
bullish support line is the next hurdle, and then a possible re-
test of the September low at $40. We like entries on the PnF sell
signal at $47, or on a failed rebound underneath $50.  After such
a dramatic drop, some type of "dead cat bounce" can be expected
along the way, like the one that failed over $50.  In this case,
a failed bounce under $50 would show that the level that once
acted as temporary support, is now acting as resistance and would
be a good risk/reward entry with a stop at $51.

BUY PUT DEC-45 RQM-XI OI=  85 at $2.20 SL=1.10
BUY PUT DEC-50 RQM-XJ OI= 319 at $4.60 SL=2.30

Average Daily Volume = 521 k



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The Option Investor Newsletter                  Tuesday 11-19-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL, IMCL
Futures Corner: SSF, NQLX, and LIFFE

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

IMCL – Imclone Systems $12.60 +1.16 (+0.83 this week)

Company Summary:
Engaged in the research and development of novel cancer
treatments, IMCL focuses on growth factor inhibitors,
therapeutic cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain tumors depend.  Phase I/II
clinical trials have been promising.  The lead candidate for
angiogenesis inhibition, IMC-1C11 is an antibody that binds
selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor (VEGF) receptor, thus
inhibiting angiogenesis.

Why We Like It:
Beginning with the Enron fiasco, shady corporate dealings have
been at the forefront of investors' collective consciousness for
much of this year.  While the subsequent investigations have
brought enough dirty laundry into the light of day to result in
numerous bankruptcies, not all of the corporate malfeasance
poster children have gone away quietly.  IMCL looked like it
could do no wrong this time last year as it was trading near the
$70 level.  Rejection of the company's testing of its promising
anti-cancer drug Erbitux along with alleged cover-ups of the
holes in that testing led the stock to plunge more than 93% from
its December 2001 highs.  IMCL has been basing in the $6-10 range
for much of the past 5 months, but saw a dramatic surge in buying
volume propel it out of that range last week.  While an argument
can be made that a cessation of the daily news flow about
corporate shenanigans by the company's former CEO could be
allowing the stock to lift, given the heavy volume that
accompanied last week's rebound, there has to be something more
to the story.  Sure enough, there is.  Apparently there is a rumor
that has been making the rounds that Bristol-Myers is considering
purchasing the 80% of the company that it doesn't already own at a
price of $19 a share.  Whether there is any truth to the rumor or
not, the fact that buying interest was strong again on Tuesday
indicates there could very well be further upside. The PnF chart
certainly bears that out, as the Buy signal generated last week
with the breakout over $10 gives a bullish price target of $30.50.
That's way beyond what looks reasonable over the near term, but
that doesn't change the fact that we have a strong Buy signal to
work with.  Once above the $15 resistance level, the bulls will
be setting their sights on the $19-20 level, and that is the
level we will target for this play.  The profit taking yesterday
shows that the stock has decent intraday support near $11.50, so
another bounce there can be used for new entries.  The 200-dma at
$12.56 is keeping a lid on the advance right now, but momentum
traders can look to enter the play on a push through that level
that continues through $13.50 (intraday resistance last Thursday
and then again today).  This is a high risk play due to the
recent volatility, but with our stop placed at $10, the risk to
reward ratio looks favorable.

BUY CALL DEC-10 QCI-LB OI=2499 at $3.40 SL=1.75
BUY CALL DEC-12*QCI-LV OI=1501 at $1.85 SL=1.00
BUY CALL DEC-15 QCI-LC OI=1219 at $1.00 SL=0.50
BUY CALL JAN-12 QCI-AV OI= 827 at $2.65 SL=1.25
BUY CALL JAN-15 QCI-AC OI=1631 at $1.75 SL=0.75

Average Daily Volume = 1.95 mln



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

SSF, NQLX, and LIFFE
By John Seckinger
jseckinger@OptionInvestor.com

All three of these acronyms either define, or are related to,
Single Stock Futures.

Before we get into Single Stock Futures (SSF), let us go over
some basic facts.  Roughly 25 percent of the weekly volume on the
New York Stock Exchange is generated by program trading related
to the index futures and option contracts.  Moreover, the futures
industry has seen 800% growth in electronically traded contracts
over the last five years, according to the National Futures
Association (NFA) annual review.  Moreover, there are roughly 27
million stock accounts, 5 million option accounts, and 750,000
futures accounts.

Let’s do a real quick review of a SSF.  A SSF contract is simply
a standardized agreement between two parties to buy or sell 100
shares of a particular stock in the future at a price determined
today.  Futures contracts are bought and sold on federally
regulated exchanges, and for SSFs, regulation is by both the
Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Additionally, SSF is a commodity that delivers shares in the
underlying company, ridding some traders fear that a railcar full
of corn will be suddenly delivered to one’s door.  Traders can
also redeliver shares after selling a futures contract short and
offering up the shares at expiration.  It is also important to
realize that shares will be able to be exchanged in “Exchange For
Physical” (EFP) transactions, giving futures traders another
manner of fungibility for the SSF contracts.

A major difference between trading shares and SSF is the lack of
an up-tick rule on SSF.  A trader does not need an up-tick to
sell a futures contract short, whether on shares or any other
product.  A trader can merely sell at the best available bid.
Another key related component of this is that the SSF trader does
not need to borrow shares to sell short.  The short SSF trader
has agreed to produce the necessary shares at delivery, assuming
the trader does not cover the short and thus offset the
obligation before then.  Thus, the complicated borrowed share
record keeping requirements for brokerage firms are eliminated
when a trader chooses to short a SSF rather than the actual
shares.  The number of potential shorts is not limited to the
financial dynamics or physical limitations of borrowing shares,
but rather just by any potential regulatory position limits.

Remember, SSF’s do not expose traders to the same volatility and
time decay risks as options.  However, SSF expire at the same
time as options and offer the options trader the perfect hedging
instrument.

The NQLX, or Nasdaq-LIFFE exchange, offers an advanced version of
electronic trading.  LIFFE stands for International Financial
Futures and Options Exchange.  This exchange’s “first in first
out” matching algorithm allows traders to be a part of trades
large and small based on time and price priority.  There are no
designated market makers with information, speed or priority
advantages.  Every participating trader is effectively a market
maker.

On NQLX, SSF contracts are available with expirations for the
first five calendar quarters (expiring in March, June, September
and December) and in the first two non-quarter calendar months.
For example, on July 1st, SSFs would be offered that expire in
July, August, September, and December of the current year, and in
March, June and September of the next year. By taking a position
in a SSF, you can lock in a price today at which you'll buy and
sell stocks as much as 15 months from now.

Getting to some specifics, the minimum price fluctuation, or
"tick" size, of NQLX SSFs is one cent per share, or $1 per
contract.  For calculating P/L:  [Price Sold - Price Paid] x 100
shares x Number of Contracts = Profit or Loss.  Moreover, the
mechanisms for accounting for gains and losses and for assuring
that the parties involved pay for those losses, are different in
futures trading than in stock trading.

In futures trading, whether you take a long or a short position,
you’ll be asked to post some funds with your broker. This,
however, is not for the purpose of paying for or receiving
payment for the stock; if you have a long position, you haven’t
bought anything yet, and if you have a short position, you
haven’t sold anything yet. You will be asked to post a sum of
money known as "initial margin"-- a good faith deposit that
provides assurance that you can meet your obligations if your
futures position moves against you.  The minimum initial margin
level is set by government regulations, but your brokerage firm
may ask for more than the minimum if its own risk analysis
requires it, or to provide more cushion before a margin call is
triggered.  Exchanges can and do raise and lower margin levels in
response to market conditions.

A simple example:

Long at $50 and closing out at $55:

Initial Margin at $50: [20% x $50] x 100 shares x 5 contracts
= $5,000

A lot of traders wonder if SSF is a good way to hedge a position.
One question comes to mind:  If you want to lock in gains, or
fear the company may come under pressure in the intermediate
term, then hedging most likely makes sense.

Another use of SSF’s can be lowering the Dow 30 to Dow 29.  By
selling a SSF on a stock in an index to which you don’t want to
have exposure, a trader can effectively change the make up of a
particular index.  The reverse holds water as well.  Buying a
single stock future on a stock in an index can be used to add
additional exposure to that stock.

A few notes:  Both NQLX and OneChicago have mentioned that they
will be including more SSF’s contracts this week.  There will
also be futures on the popular Diamond (DIA) contract (beginning
on Friday, November 22nd), as well as about 20 more other stocks
this Friday as well.  Furthermore, it is reported that there will
be a 1,000 share QQQ contract.

The new contracts include: Amgen Inc. (AMGN), AOL Time Warner Inc.
(AOL), Applied Materials Inc. (AMAT), Cephalon Inc. (CEPH),
ChevronTexaco Corp. (CVX), Cisco Systems Inc. (CSCO), Dupont (DD),
eBay Inc. (EBAY), Ford Motor Co. (F), General Motors Corp. (GM),
Halliburton Co. (HAL), Honeywell International Inc. (HON),
IBM (IBM), Intel Corp. (INTC), Maxim Integrated Products Inc. (MXIM),
McDonald’s Corp. (MCD), Micron Technology Inc. (MU), QLogic Corp.
(QLGC), SanDisk Corp. (SNDK), Starbucks Corp. (SBUX), Tyco
International Ltd. (TYC) and Wal-Mart Stores Inc. (WMT).

By going to www.onechicago.com, a trader can also find a list of
narrow-based indices (example: Banks, ticker XBNK2C, consist of
BAC, ONE, JPM, WB, and WFC).  A complete listing of all stocks
are found here:

http://www.onechicago.com/030000_products/oc_030101.html.

Remember to visit later this week to see the new additions.
The caveat(s)?  Well, lets go over what shares of Microsoft
(MSFT1C) did on Monday (remember, multiply by 100 to get shares
of common stock).  Open Interest of 835 and volume of 312.
Oracle (ORCL1C) has an open interest of 43 (as of Monday), and
only 13 contracts traded during the first day of the week.  It
should not be long volume picks up and the contacts becomes even
more liquid.

Let us break down the Microsoft Contract a little more:  The
December 02 and January 03 contract split the aforementioned
volume of 312 (143 and 164, respectively).  The range in Dec was
56.39 to 56.97, while the Jan range was from 56.52 to 56.95.
Open Interest in Dec is 409, while the OI in Jan is at 422.  I
think it will just be a matter of time before this contract takes
off.

The SSF’s market has only been open since November 8th, and traded
3,000 contracts (300,000 shares of common stock) on its first
day.  Not bad, and it should definitely only get better.

Now that the basics are out of the way, it will not be long
before we look at practical trading examples while using SSF’s.

Good luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com



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