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Daily Newsletter, Monday, 11/25/2002

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The Option Investor Newsletter                   Monday 11-25-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.
http://www.OptionInvestor.com/htmlemail/y25d_1.asp

In Section One:

Wrap: Holiday Cheer
Futures Wrap: Solidifying Sentiment
Index Trader Wrap: Market's trade like a giblet gravy
Weekly Fund Wrap: Tech-Led Advance Continues
Traders Corner: Searching For Direction?

Updated on the site tonight:
Swing Trader Game Plan: Higher Highs

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
11-25-2002                High    Low     Volume Advance/Decl
DJIA     8849.40 +  44.56 8868.87 8756.02  1930 mln  1205/714
NASDAQ   1481.90 +  13.16 1486.94 1461.13  1906 mln  1378/424
S&P 100   476.95 +   1.92  478.88  471.87   totals   2583/1138
S&P 500   932.87 +   2.32  937.15  923.31
RUS 2000  404.85 +   4.85  404.85  399.24
DJ TRANS 2326.94 +  12.96 2336.99  2300.11
VIX        26.95 +   0.22   28.26   26.82
VIXN       45.68 -   0.81   47.98   44.95
Put/Call Ratio 0.59
*******************************************************************

Holiday Cheer
by Steven Price

It certainly feels like a holiday week. We saw quite a bit of 
sideways movement today, with no real trend development. However, 
we did see some developments that leave me still feeling bullish 
in the short term.   Any rally will have its pullbacks and the 
measure of whether that rally can sustain itself is a series of 
higher highs and higher lows.  The broader market indices saw a 
minor pullback, which stopped considerably higher than the 
previous one.  After the big bounce on Wednesday and Thursday 
last week, some consolidation can be expected.  The key is where 
that consolidation occurs.  One surprise today was that there was 
actually a decent amount of volume, which should trail off over 
the next couple of days.  The NYSE traded 1.5 billion shares and 
the Nasdaq traded 1.9 billion.   As traders got their positions 
set for the holiday week, we got a clue as to just what to expect 
for the short term.  Rather than take profits ahead of the 
slowdown, the picture looked bullish, staying over 8800 in the 
Dow and 1460 in the Nasdaq. The internals showed a 55/40% advance 
decline ration in the NYSE and a 60/40% advance decline in the 
Nasdaq. The Russell 2000 also closed on its high of the day, 
indicating broad market buying. This could be a result of 
bullishness ahead of Tuesday and Wednesday's economic data, as 
well.

First let's take a look at the Dow.  The industrials established 
a new recent intraday high of 8830.89 on Friday.  Today's 
pullback stopped at 8756.02, establishing the third higher low in 
the recent rally. This week is historically bullish, so I'll lean 
in that direction, as long as the market supports that lean.  So 
far it hasn't done anything to change my mind.  

Chart of the Dow



One of the things we need to be aware of, however, is that the 
tech indices are approaching some significant resistance, 
following the recent run.  The market usually moves as a whole, 
and the Dow will not be achieving new highs without some 
articipation from the techs. I don't mean to sound bearish on the 
tech sector.  If these stocks were able to shrug off the earnings 
warnings, lousy IT spending environment and poor turnaround 
visibility, then there are plenty of institutions that think they 
were undervalued to begin with.  Last week's guidance increase 
from Taiwan Semiconductor only served to keep the sector fire 
lit. The Nasdaq Composite (COMPX) is quickly approaching the 200-
dma of 1500, which will also be round number resistance. We are 
likely to find sellers there and it will be a real test of buying 
conviction to break through.  We have to remember that we have 
just seen a 33% increase in value of the COMP since October 9, so 
just how much fuel is left in the tank remains to be seen.  Have 
we finally reached values where these techs aren't considered 
undervalued?  Have the shorts covered from the breakout above the 
August high of 1426?  We may find out by the end of the week.  

Chart of the Nasdaq Composite



One of the sectors that seem immune to downgrades recently has 
been the chip stocks.  The Semiconductor Index (SOX) continues to 
achieve new relative highs, with hardly a pullback.  Intel was 
downgraded this morning, but had little affect on the chip 
sector.    There was also a report that the company will be 
raising flash memory prices 20-40%, beginning in 2003. This 
reflects a positive outlook on the memory sector and may lead 
other suppliers to hike prices, as well.   Investors saw the 
possible price hike as a bigger factor, and the SOX once again 
reached new relative highs.  The current point and figure bullish 
vertical count is 412 for the index and coincides closely with 
the 200-dma of 410.93.  While some pullback can be expected 
between now and then, the group has shown no signs of slowing 
down and 400 may not be that far off. 

Chart of the SOX


Last week's data gave the housing market a scare when it was 
reported that there was an 11% drop in new home construction for 
the month of October.   However, those fears were somewhat dashed 
today, as existing home sales showed a 6.1% increase, to an 
annual rate of 5.77 million units.  This was the third highest 
sales rate ever and lent credibility to the most recent week's 
21% increase in mortgage applications. It was also above 
expectations of a rate around 5.42 million. The median home price 
is up 9% in the past year, which is the fastest one-year 
appreciation since 1987.  With mortgage rates still at all-time 
lows, it appears the housing market is not yet seeing a bubble 
effect, and that is good news for disposable income heading into 
the holiday season.  While it is widely expected that retailers 
will suffer from less than ideal numbers this holiday season, 
decent home sales usually means a high number of refinances, as 
well.  Taking this a step further, Alan Greenspan said recently 
that, "roughly half of equity extractions are allocated to the 
combination of personal consumption expenditures and outlays on 
home modernization."  Personal consumption expenditures mean 
bigger gifts and better retail sales come Christmastime, so keep 
your fingers crossed.

The Market Volatility Index (VIX) continues to remain at 
relatively low levels, indicating a lack of downside fear to the 
market.  At worst, the low VIX would indicate consolidation at 
the current levels and at best a continuing rally.  It bounced 
slightly today, tacking on 0.22 by the end of the day, but 
remains under 27.  The slight bounce was most likely the result 
of an oversold condition after Friday's end of the day selling by 
weekend premium pirates.  Those sellers look to collect time 
decay not only over the weekend, but heading into slow holiday 
trading.  That led to a sell-off into Friday's close and market 
makers pulling down the bids to avoid getting longer over the 
weekend (thus a lower VIX reading based on the reduced average 
bid/ask of OEX options).   Once the markets re-open on Monday, 
traders have the opportunity to make the premium work in their 
favor once again and are willing to take the bids back up a 
little. Still, readers need to be aware of the time decay factor 
heading into Thanksgiving.  Wednesday afternoon before the 
holiday, most trading floors are vacant, leading to little market 
movement.  With the market closed on Thursday and a half day 
Friday, followed by the weekend, long option holders are looking 
at 4-5 days of time decay, affecting December options more than 
any others. Those long option holders with profits in out of the 
money December options may want to think about taking some 
profits early in the day on Wednesday, before the traders start 
to head home and those left in the pits bring down the bids again 
ahead of the decay span.

The next couple of days bring the release of a good deal of 
economic data. So we may get some movement before Wednesday 
afternoon. Tuesday brings the release of new home sales and 
initial jobless claims. On Wednesday we get personal income and 
spending, Chicago PMI, durable goods orders and the University of 
Michigan revised Consumer Sentiment.  The spending and sentiment 
numbers should have a pronounced effect, as they will be another 
indication of just how willing consumers will be to open their 
wallets as we head into the holiday shopping season. Today's 
Investor Optimism Index rose slightly from record lows in 
October, so we'll see if that trend will continue.  This month's 
spending and confidence trends are particularly important, since 
it will come out just before the shopping season officially 
begins following Thanksgiving.  The initial jobless claims will 
come in comparison to those in a four day week, when government 
offices were closed for Veteran's Day.  Therefore, we should see 
an increase, but the rolling 4-week average will be the key. 


The trend of bad loans seems to be continuing in the banking 
sector, and is something to keep an eye on.  After a number of 
banks cited under performing loans as a possible weight on future 
earnings several weeks ago, the sector took a dive.  The recent 
rally has overcome those concerns, but comments from Bank of 
America this morning highlighted a pattern that has the potential 
to re-open the Pandora's Box.  BAC cited a pattern of lending 
money to executives whose companies and personal fortunes have 
declined in value.  Private Banking, or loans to high net worth 
customers, is a significant function in most large banks that we 
haven't heard much about.  Most of the warnings have come in 
regard to business lending, so we could be seeing the beginning 
of a new wave of concerns, albeit less expensive than the 
business loan problems. 

For the time being, the broader market trend remains up.  
However, as we close in on resistance in the Nasdaq, make sure to 
tighten up those stops and not let recent profits slip away.   It 
has been quite a month and those P&L statements should look 
pretty good for the first time in a while. 

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

Solidifying Sentiment 
By John Seckinger
jseckinger@OptionInvestor.com

Bears quickly took the Dow below 8800 and towards 8750 during 
trading on Monday; nevertheless, it was not long before bullish 
traders stepped in and closed the index higher.  

Monday, November 25th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     929.50     +0.75      937.25      922.50      505,244
YM02Z    8829.00    +33.00     8870.00     8820.00       15,046
NQ02Z    1126.00     +9.50     1135.50     1109.00      245,014

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:  The only economic report traders had to digest 
on Monday was the October Existing Home Sales release, which came 
in at 5.77M and was better than the 5.35M consensus estimate.  
Other news included a report that dockworkers and West Coast dock 
employers reached a tentative agreement on a six year contract.  
Looking elsewhere, there was a positive article in Barron's on 
tech bellwether Cisco Systems (CSCO, unchanged at 14.89); 
additionally, shares of Intel (INTC) rose 2% to 20.47 despite a 
downgrade from Bernstein.  Last but not least, the CEO of 
National Semiconductor (NSM up 4.35% to 19.64) predicted a turn 
in the chip industry would happen before the end of June...

Technical News:  The Semiconductor Index (Sox) rose 3.21% to 374, 
testing its 38.2% retracement – calculated from the 641 high on 
March 8th to the 209 low established on October 8th.  The intra-day 
high was 376.90, and the 38.2% area comes in at 376.11.  
Moreover, the Sox’s 200 DMA is seen higher at 381.  Other technical
news includes the US Dollar rising to 106.54 and 
exactly on its 50 DMA.  Note:  The 50 DMA has not been tested 
since October 27th.  Not surprisingly, the XAU index came under 
pressure (down 1.46% to 63.72), but remains above an intermediate 
bullish trend line at 61.41.  

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

The December Mini-sized Dow Contract (YM02Z)

A daily chart of the Dow shows prices being stuck between a 
number of solid psychological levels.  Underneath Monday’s close 
of 8849 is the 8750-8800 range, while above rests the 200 DMA 
(8950) and the relative high at 9077.  Least resistance still 
appears higher, but a move under 8750 could send the index back 
towards the bullish trend line (blue line) - currently at 8638.  
If the Dow does close under 8575, it will then be important to 
gauge the index relative to its 22 and 50 DMA’s.  

With Monday’s price action inside the range over the last two 
trading sessions, market participants appeared to be passive.  
However, volume was moderate on Monday in the futures pits, and 
this activity seems to be indicating another strong wave in the 
near term.  The intermediate objective for bulls most likely is 
at 9000 and then 9077, while bears will try to get a close back 
underneath 8575.  With the dip being bought on Monday, there 
still is the impression that intra-day dips will be bought later 
this week as well.  

Chart of Dow Jones, Daily 



At first glance, it might appear that Monday’s trading in the YM 
was all noise; however, it should be noted that bulls were not 
afraid to buy the contract underneath 8800.  With YM02Z closing 
at 8847, traders will be looking for a break above 8875 or under 
8750 before putting new cash to work.  If 8750 is penetrated, 
watch the 200 PMA (currently at 8723) for confirmation.  
Moreover, if 8875 is cleared, prices should not come back into 
the range (read: fall under 8875) by session’s end.  Above 8875 
should be a catalyst for a move to 8900 and quite possibly 8935, 
depending on volume.  

Chart of YM02Z, 10-minute 



YM02Z

Support               Resistance                Pivot    
	
8800				8900				8875
8750				8935				8800
8725				8951				8638
8685				9000				8575
9018
9077

Bold signifies levels within the Dow Jones.  

The December E-mini Nasdaq 100 Contract (NQ02Z)

The NQ02Z contract also appears to be range bound with a bullish 
slant on sentiment.  The daily low in the NQ02Z was 1109, showing 
its relative strength when compared to the YM contract.  Note: 
1100 should be analogous to the Dow testing 8800.  Going forward, 
weakness should be met with tiered support down to 1073-72, while 
bidding in the contract (above 1140) could propel the index to 
first 1154 and then 1163.  Note:  The wedge breakout, profiled on 
Sunday and in earlier editions, still maintains an objective of 
1172.  It is important to note that the contract traded outside 
its regression channel both to the upside (bull trap) and 
downside (bear trap).  With that said, traders looking to play a 
breakout will have to use tight stops.  Unless we get a CLOSE 
above or below significant resistance/support levels, expect the 
mentality of buying dips and selling rallies to continue.  

Chart of NQ02Z, 15-minute 



NQ02Z

Support              Resistance                 Pivot    
	
1110				1131				1100
1000				1154				1088
1072				1163				1073
	1020				1172				1053
	1000

Bold signifies levels within the NDX.  

The December E-mini S&P 500 Contract (ES02Z)

Prior resistance areas, as well as a 38.2% retracement level from 
March to October, controlled the selling pressure during early 
morning trade on Monday.  However, the bearish trend line that 
began in March has not yet been cleared on a closing basis.  
Therefore, sentiment remains more neutral for the ES contract 
than the other two, especially since the contract continues to 
show a bearish divergence in the RSI oscillator.  Price action 
certainly supercedes an oscillator reading; however, it would be 
nice for bulls if the ES could clear 936 on the close with an RSI 
reading above 63.17.  The bullish objective once above 936 seems 
to be in the 956-965 range.  If prices close underneath 923, 
support is lower at 910.   

Chart of S&P 500 Index, Daily 



A micro look at the ES02Z contract shows both price compression 
MACD bouncing off zero and supporting higher prices.  With the 
upward sloping trend line coming in at 923, it should not be long 
until it intersects with the support zone of 925 to 926.50.  If 
that happens (read: ES continues to settle above this area for 
next few days), this level’s significance will be greatly 
increased.  On the upside, the descending red line comes in just 
under 936.  Note:  The relative high a few days back was 937.50.  

Going forward, the longer prices remain above 926.50, the greater 
bullish sentiment increases.  Bullish traders will become less 
afraid when buying the contract, while bears will most likely 
fear an upside breakout and head to the sidelines until a move 
materializes.  If prices were roughly 25 points lower, Monday’s 
price action would be a non-event and worthy of little dialogue.  
However, these levels are significant and need to be watched very 
carefully.    

Chart of ES02Z, 30-minute 



ES02Z

Support              Resistance                 Pivot    
									
926-27			936				923.50
910				937.50			926.50
902				956				936
					965
					971

Bold signifies levels within the S&P 500.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 





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

Market's trade like a giblet gravy

Mmmmmm.... I can almost smell and taste the beginnings of 
Grandma's giblet gravy with the Thanksgiving holiday so near.  

Today's market action also has the look and "smell" of 
bullishness toward week's end as traders began to stir in some 
turkey scraps and browned bits with a wooden spoon, until the 
gravy begins to thicken and starts to bubble.  

"The key to a good giblet gravy is to pour off all the turkey fat 
from the pan and return just 1/4 cup back to the pan and turkey 
scraps," would be Grandma's instruction.  "Once you've done that 
and the gravy thickens, stir in those chopped giblets and liver, 
give it a little salt and pepper and it's ready to go," she will 
add.

Now there are other things like flour, water and some turkey 
stock that need to be added for a great tasting giblet gravy, but 
like I said, today's action looked very much like a giblet gravy.  
If so, then bulls should find a tasty meal toward the end of the 
week.

One of the better performing equity sectors over the past twelve 
months, and still is when benchmarked to other sectors and the 
S&P 500, has been the HMO stocks.  But, like a "good gravy" there 
was some further fat in the form of longer-term profits being 
removed from the sector as the HMO Index (HMO.X) 463 -8% fell 
sharply after SG Cowen downgraded select names on thoughts that 
higher pricing benefits, which the group had been benefiting 
from, were going to taper off if not at least flatten out near-
term.  While this wasn't "new news" compared to other firm's 
comments in recent weeks, when several "turkey's" start squawking 
in the farm yard this time of year and sharp price declines that 
resemble the sound of an axe falling against the butcher block, 
investors tend to run in order to save their necks and ask 
questions later.

While "fat" was being removed from the HMO's the Treasury bond 
market served like the left-rear burner of a stove where a good 
giblet gravy is prepared and provided a modestly bullish if not 
warming temperature to today's modestly higher equity action as 
YIELDS edged up on price declines.  With the 10-year YIELD 
($TNX.X) creeping higher to close with a 4.184% YIELD, that 
seemed to provide just enough heat to keep even the most grizzled 
of bears from keeping a lid on the noontime negativity that 
looked to be developing.

If memory serves me correct, Grandma always prepared here giblet 
gravy without a lid as it helped the gravy to thicken and perhaps 
give her house that warm aroma that a good meal was soon to be 
had.

Sector such as the CBOE Internet Index (INX.X) 106 +7%, Fiber 
Optic (FOP.X) +7.4%, Networking (NWX.X) +5.63% and North American 
Telecom (IXTCX), which like many of the "innards" you'll find 
stuffed inside that Thanksgiving turkey you buy at the store, 
which may immediately go in the trash can when the turkey is 
thawed and ready to be stuck in the oven, look to be "giblets" as 
they continue to make bullish daily moves.  Much like the "key" 
ingredient to Grandma's gravy, these once discarded and written 
off groups appear to serve as revitalized leadership groups, 
which break to new weekly or monthly highs and provide enough 
bullishness to have the major averages posting gains.  

In essence, there's nothing like good giblet gravy smothered on 
the meat, potatoes and stuffing we know as the major market 
indexes to keep bulls at the dinner table and bidding the major 
indexes higher.

Dow Industrials Chart - Daily Interval



The Dow Industrials traded either side of Friday's close for the 
bulk of the session, but a late afternoon rally had the Dow 
posting an intraday high and a close just off those highs.  Look 
for senior traders to clean up some of their still open 
institutional orders into Wednesday.  According to the Stock 
Trader's Almanac, market history from 1952-2000 has the Dow 
Industrials trading positive 29 of 49 years (59% of time) on the 
Tuesday before Thanksgiving, with bullishness building to 37 of 
49 years (75%) on Wednesdays and improving further to 38 of 49 
(77.5%) on the Friday after the Thanksgiving holiday.

Attributing to this phenomenon is the "holiday spirit,"  but as 
an analyst once told me, the "senior" traders like to get all 
their institutional client trades taken care of by Wednesday 
noon, so they can take early leave at lunchtime on Wednesday, 
skip the 1/2-day trading on Friday and get a nice 4.5 day 
vacation from the deal.  This has the "junior" traders running 
things and most likely filling smaller account orders, with the 
"holiday" tone mostly bullish.

I didn't take the time to go back and look at last year's Tuesday 
close, but was interested in Wednesday to Friday close as I used 
to trade not only my own account but some more active client 
accounts bullish from about mid-session on Wednesday to Friday 
close.  Last year, the Dow gained 125 points on Friday, the SPX 
gained 13 points and the NASDAQ-100 gained 25 points.  These were 
gains of just less than 1.7%, but lends to historical 
bullishness.  While history is no guarantee of the future, it can 
be helpful, especially if a trader finds a pullback entry point 
just prior to a historically bullish period.

Today's action saw no net change in the Dow Industrials Bullish % 
($BPINDU) and current reading stands at "bull confirmed" with 70% 
of the 30 components showing a point and figure buy signal on 
their charts.  General Motors (NYSE:GM) $38.70 +2.98%, which was 
the most recent Dow component to generate a reversing "buy 
signal" and contribute to the bullish % vied with SBC 
Communications (NYSE:SBC) $28.40 +3.08% as today's Dow gainers.  
Both stocks have been longer-term Dow laggards and hints that the 
"giblets" are finding some buying from bottom feeders.  This can 
prolong a rally when bulls get a little braver and start nipping 
away at some bottoms in other stocks.

S&P 500 Index Chart - Daily Interval



Weakness in the HMO.X -8% components along with Healthcare 
Providers (RXH.X) -3.42% had technology gains enough to see the 
SPX finish in positive territory.  Financials found banking 
sectors relatively unchanged as was the case for brokerage 
stocks.  With the SPX finding support and slight bid from the 
relative highs of 926, I think the SPX has a chance at bidding to 
950-965 by week's end.

Tomorrow's preliminary Q3 GDP economic report will be closely 
watched and give investors a preliminary reading of how the 
economy for the recently completed 3rd quarter (July-September).  
The GDP numbers will be released at 08:30 AM EST and Economist's 
are looking for the economy to have grown at a 3.2% annual rate 
in the 3rd quarter.  This number can be revised up or down once 
all the data is finalized.  Then, later at 10:00 AM EST, November 
consumer confidence numbers will be released.  Here, economist's 
are looking for a reading of 83.0 for November, compared to 
October's 79.4 reading.

Today's action saw no net change in the S&P 500 Bullish % 
($BPSPX) and remains at Friday's 65% and "bull confirmed" 
reading.  While the HMO stocks got hammered today, many names in 
that group were already showing point and figure sell signals 
associated with their charts.

Once again we make the observation that on a more bullish trading 
session, it's the SPX +0.24% that lags the narrower and longer-
term technically stronger OEX +0.4% gains during a bullish 
session.

S&P 100 Index Chart - Daily Interval



Even on an intra-day type basis, today's low of 471.87 didn't 
find the OEX testing its November 6th relative high close of 
471.06, while the SPX's daily low did ever so slightly undercut 
that index's 11/06/02 close of 923.76.  That's not really 
technically significant other than on a relative strength basis 
when comparing an OEX vs. SPX trade.  OEX should find bulls 
feeling comfortable (not complacent) above the 460-465 range and 
near-term bullish target of the August 22nd relative high of 487.  
With the NASDAQ-100 Index closing above its trending lower 200-
day SMA, further bullishness in the NDX could also find the OEX 
testing its 200-day SMA near 490 in coming sessions.

Today's action saw no net change in the S&P 100 Bullish % 
($BPOEX) and status remains "bull confirmed" at 70%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval



In this weekend's "Ask the Analyst" column, we reviewed a trade 
for a subscriber in a QQQ short straddle (trader sold a naked $25 
put and naked $25 call for Jan. 05 expiration) when QQQ was 
trading near $25.00.  We did some work on that trade which based 
on premium received defined a "range" of $30 to $20 that the 
trader needed the QQQ to stay within over the next 2.2 years.

In that "Ask the Analyst" column we noted that this range ($20-
$30) might be similar to a retracement range whereby the trader 
having implemented a QQQ short straddle needs the QQQ to stay.

While that type of trade is "neutral" within the range, its 
similar perhaps to how a NASDAQ market maker that makes markets 
in NASDAQ-100 stocks views the Q's.  

A stronger than expected GDP number tomorrow most likely finds 
market makers assessing further upside risk and they may rush to 
the QQQ near-term with a bullish trade in the Q's as upside to 
$30 is assessed.  However, the "overbought" bullish % in the 
NASDAQ-100 Index ($BPNDX) now at 79% matches last December's 
highs!  While the NASDAQ-100 internals are very strong with 79 of 
the 100 stocks showing a buy signal on their point and figure 
charts, this index can quantifiably be characterized as being 
"just as risky as it was in December of last year."  

The only way Jeff Bailey is trading the QQQ long with full 
position at this point is to try and benefit from the late 
November and "holiday bliss" that tends to be found around 
Thanksgiving and targeting $30.00, which might equate to 
technical levels found in the Internet Index (INX.X) and Wireless 
Index (YLX.X) as it relates to their 200-day SMA's.

A weaker than expected GDP number may find a bull entering a 
short-term bullish trade near $26.00 and a target back to $28, 
but I'm not targeting much more than $30 with the bullish % so 
high.  

I'd encourage QQQ traders (bull and bears) to jump over to 
www.stockcharts.com, then go to a point and figure chart of the 
NASDAQ-100 Bullish % ($BPNDX).  Once the point and figure chart 
is displayed, scroll down to the various buttons below the chart, 
click the "text" link.  Once the chart is "refreshed in text 
mode" then go back to the top of the chart and click the "full 
chart" button.  This allows you to look at some longer-term 
historical highs and lows for the bullish %.  If you can convince 
yourself that it's been a great time to be "full position" long 
other than a short-term trade with bullish % readings at these 
levels, then go for it, but use the rounding higher 50-day SMA in 
the QQQ ($23.63) and NDX.X (950.00) as downside risk levels.  For 
NDX.X trader's I'd equate QQQ=$30 with NDX.X of 1,200.

I'm not saying the QQQ nor the NDX.X can't trade 1,200, but I AM 
saying that BULLS now carry the bulk of the risk with the bullish 
% this high.

Jeff Bailey


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

Tech-Led Advance Continues

Optimism about the strengthening economy led U.S. stocks higher 
for the week ended Friday, November 22, 2002, with the Wilshire 
5000 total market index producing a 2.4% total return.  The S&P 
500 large-cap index notched a 5-day total return of 2.3%, while 
the S&P Midcap 400 index finished the week 2.7% higher.  But it 
was the small-cap sector that produced the highest 5-day return, 
up 3.6% on average using Vanguard index funds as proxies for the 
different market capitalization sectors.

 


Four Lipper equity fund categories reported average 5-day total 
returns of more than 3 percent in the mid/small-cap areas, with 
tech funds up 6 percent on average for the week, using Lipper's 
equity fund indices.  Gold funds were the only U.S. equity fund 
category in the red last week.  They closed the week 5.2% lower.

The total international stock market increased in value by 2.3%, 
using Vanguard's index fund as the proxy, following U.S. stocks 
higher.  The MSCI EAFE developed markets index finished the week 
2.4% higher, with Europe up 2.8%.  Developing (emerging) markets 
lagged the developed markets of Europe, Australia, Japan and Far 
East.




Lipper's report indicates the average international stock fund 
returned 2.3% last week, matching the total return produced by 
the Vanguard Total International Stock Index Fund.  Some funds 
generated weekly total returns of more than 3 percent.    

Vanguard Total Bond Market Index Fund, which tracks the return 
performance of the Lehman Brothers Aggregate Bond index, ended 
the week with a negative 0.3% weekly total return, following a 
0.5% decline the week before last.  The short-term bond sector 
curbed its weekly decline to 0.2%, while the intermediate-term 
sector was 0.6% lower for the week using Vanguard's bond index 
funds as the proxies for the different maturity sectors.




Lipper's fixed income indices reflect the recent shift from high 
quality to high yield, with the average high yield fund notching 
a weekly total return of 2.1%, while the average U.S. government 
bond fund had a negative return of 0.45% over the last five days.  
Investment-grade bonds funds produced 5-day losses of up to 0.5%, 
depending on their credit quality and maturity sector.

The average taxable money market fund now yields just 1.00%, per 
the latest iMoneyNet.com report.  The average simple 7-day yield 
has fallen about 25 basis points (0.25%) since the Fed cut short-
term rates by 50 basis points earlier a couple weeks ago, so the 
taxable fund average yield could fall some more before steadying.  
The key Fed funds rate closed the week at 1.31%, per Bloomberg's 
Key Rates report.


Lipper Mutual Fund Indices


Below are selected Lipper fund indices for the week ended Friday, 
November 22, 2002, reflecting the positive market conditions last 
week for equities.  All of the Lipper equity fund indices were in 
the black last week with the exception of gold funds, which ended 
the week 5.2% lower on average.  


 Selected Lipper Equity Fund Indices:
 +1.5% Balanced Fund (YTD -8.7%)
 +2.6% Equity Income Fund (YTD -14.0%)
 +2.8% Large-Cap Value Fund (YTD -16.5%)
 +1.6% Large-Cap Core Fund (YTD -17.2%)
 +1.2% Large-Cap Growth Fund (YTD -22.8%)
 +6.0% Science & Technology Fund (YTD -33.8%)
 +2.3% International Equity Fund (YTD -11.6%)

 Selected Lipper Fixed Income Fund Indices:
 -0.5% U.S. Government Fund (YTD +7.9%)
 -0.1% GNMA Fund (YTD +7.2%)
 -0.1% Short-Term Investment-Grade Fund (YTD +3.2%)
 -0.0% Intermediate-Term Investment-Grade Fund (YTD +6.2%)
 -0.2% Corporate A-Rated Debt Fund (YTD +6.3%)
 +2.1% High Current Yield Fund (YTD -3.9%)
 -0.8% International Income Fund (YTD +12.5%) 


Value-driven funds generally performed better than growth-style 
funds in the large-cap and mid-cap sectors, while growth-driven 
funds were the better performers in the small-cap sector, using 
Lipper's fund averages.  Mid-cap value, multi-cap value, small-
cap core and small-cap growth funds produced average returns in 
the 3.2%-3.3% range for the week.  Some tech-heavy equity funds 
had weekly gains of over 4 percent.  The $14.6 billion Fidelity 
Growth Fund, for example, notched a 4.6% total return last week.

Science and technology funds were the week's top performers, up 
nearly 6 percent on average.  Some tech funds finished the week 
with double-digit percentage returns.  For instance, Fidelity's 
Select Electronics Fund had a weekly return of 12.4%, while the 
Firsthand Technology Value Fund produced an 11.7% weekly return 
for shareholders.  The utility sector was also strong last week, 
as evidenced by 4.3% return reported by Fidelity Utilities Fund.

High current yields funds produced equity-style returns, up 2.1% 
on average per Lipper.  Fidelity banged a couple home runs, with 
its Capital & Income Fund product returning 3.3% and its Advisor 
High Income Advantage Trust producing a 4.4% weekly total return.  
The only high-yield fund in the red last week was the $2 billion 
Northeast Investors Fund, declining 1.3% over the weekly period.

Investment-grade bond fund indices closed the week with negative 
returns of up to 0.5 percent, using Lipper's weekly fund report.  
Diversified bond funds with above-average exposure to high-yield 
securities outperformed bond funds emphasizing high-grade credit 
quality issues.  The $12.2 billion Bond Fund of America from the 
American Funds Group generated a weekly total return of 0.7% for 
shareholders, for example.     


Largest Mutual Funds


Below are the weekly and YTD total returns thru Friday, November 
22, 2002, for fifteen of the largest mutual funds in the country.  


 Largest Vanguard Funds:
 +1.8% Wellington (VWELX) YTD -6.0% 
 +2.3% 500 Index (VFINX) YTD -17.8% 
 +0.9% Wellesley Income (VWINX) YTD +3.2%  
 +2.3% Windsor II (VWNFX) YTD -14.4% 
 +0.3% Health Care (VGHCX) YTD -8.8%   

 Largest Fidelity Funds:
 +1.7% Magellan (FMAGX) YTD -19.0%
 -0.6% Contrafund (FCNTX) YTD -8.9%
 +0.7% Growth & Income (FGRIX) YTD -15.5%
 +1.8% Puritan (FPURX) YTD -6.7%
 +2.8% Equity Income (FEQIX) YTD -14.1%
 
 Largest American Funds:
 +2.3% Investment Company of America (AIVSX) YTD -12.2%
 +2.8% Washington Mutual Investors (AWSHX) YTD -12.5%
 +2.5% Growth Fund of America (AGTHX) YTD -16.5%
 +2.0% EuroPacific Growth (AEPGX) YTD -12.2%
 +2.5% New Perspective (ANWPX) YTD -13.0%


As you can see, the American Funds Group's five largest products 
produced weekly gains that exceeded those earned by Fidelity and 
Vanguard's largest funds.  Fidelity Contrafund slid 0.6% for the 
week, lagging its U.S. equity fund peers by a significant margin.  
Vanguard Health Care Fund's 0.3% weekly return reflects the mixed 
conditions in the health sector, with some healthcare funds down.

PIMCo Total Return, now the largest mutual fund in America, ended 
the week unchanged, using the fund's institutional class (PTTRX).  
Compared to the 0.6% negative weekly total return produced by the 
intermediate-term bond index, PIMCO Total Return Fund did a great 
job last week of preserving capital, better than its intermediate 
investment-grade bond fund peers.  

  
Money Market Funds


IMoneyNet.com, the leading provider of money fund data, shows the 
average 7-day simple yield at 1.01% as of November 19, 2002, down 
four basis points from the week before.  PayPal Money Market Fund 
remains the top yielding "prime retail" fund, with a 7-day simple 
yield of 1.63%, down 0.07% from the week before.  In second place 
now is Bunker Hill Money Market Fund (1.54%), with Touchstone MMF 
(1.48%) slipping to third place.

The $57.4 billion Fidelity Cash Reserves sports a 7-day yield of 
1.36%.  The $50.2 billion Vanguard Prime Money Market Fund has a 
current simple yield of 1.41%, slightly higher than its Fidelity 
rival.


Mutual Fund News


New bull market or bear market rally?  Bloomberg.com ran a story 
over the weekend saying the surge in U.S. stocks over the past 7 
weeks may have run its course in the view of some money managers.  

Since the October low, U.S. equities, as measured by the S&P 500 
index, have risen about 20 percent but some aren't convinced the 
recent rally reflects a new bull market.  Jon Goebel, manager of 
the $300 million SouthTrust Value Fund, for instance, feels this 
is a rally in a bear market, with the indices already reflecting 
growth in corporate profits.  In his view, there won't be enough 
"earnings oomph" for stocks to extend gains.

David Tice, manager of the $430 million Prudent Bear Fund, which 
is up about 50 percent in 2002, said he expects stocks to resume 
their decline according to the Bloomberg story.  He believes the 
market will "take out the lows," as stocks fail to sustain their 
gains.  Tice also shares the view that the economy and corporate 
profits aren't growing fast enough to support further gains.  He 
typically bets on declining shares, so his comments are expected.

The Bloomberg article indicates that analysts project profits at 
S&P 500 companies to increase by 16% this quarter, using Thomson 
First Call numbers.  After a fall of 17.3% in 2001, earnings are 
expected to grow 1.8% this year and 14.3% next year.  While such 
bears still exist, some money managers feel the worst has passed.

Michael Kenneally, chairman and chief investment officer at Banc 
of America Capital Management, which manages $230 billion in net 
assets, has the sense that most of the damage has been done.  He 
reportedly is forecasting equity market returns of 7% to 9% next 
year.  According to Bloomberg's news story, Kenneally recommends 
buying companies that pay dividends, such as GE that boosted its 
dividend payout last week.

In perhaps the biggest mutual fund story of the week, Montgomery 
Funds will cease to exist reports Morningstar.  Montgomery Asset 
Management of San Francisco, California has reportedly agreed to 
sell most of institutional and retail mutual funds to Wells Fargo 
WFC, for an undisclosed sum.  Montgomery is seeking another buyer 
for its remaining "global" accounts.

Per the Morningstar story, Wells Fargo will take control of $4.9 
billion in Montgomery fund assets out of a total of $5.7 billion, 
and will place its name on the funds.  Existing management teams 
will reportedly be kept, with about a fourth of the 135 employees 
immediately transferring to Wells Fargo.

Montgomery's German parent, Commerzbank A.G., is going through a 
corporate restructuring, prompting Montgomery's sale of assets.  
This is one of the reasons why many advisors like fund companies 
that are independent.  A number of larger banks have entered the 
mutual fund market through acquisition in recent years.  Not all 
of them have been successful marriages for one reason or another.

See Morningstar's Fund Times report for more fund closings - too 
many to mention here.   



Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com




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

Searching For Direction?
by Mark Phillips
mphillips@OptionInvestor.com

Aren't we all?  As highlighted in my article last week, I still
retained my gruff, bearish exterior.  But that didn't stop me
from taking notice of some impressive strength in various areas
of the market.  Last week's article focused on seeing these
bullish nuggets despite the potential for market-wide weakness.
Clearly that weakness never came to pass, as the broad market
broke decisively through significant resistance last Thursday
and is persistently grinding higher from there.  Traders holding
a mindset similar to my own would have had a hard time going
wrong by focusing on the upside on the list of stocks we talked
about last week.  To review, I liked the price action on AIG,
EBAY, YHOO, AMZN, QCOM, MHK, MSFT, CCMP, MXIM, GNSS,BRCM, CREE
and SNDK.  With the exception of AIG, all of those stocks pushed
measurably higher over the past 5 days, and there were some
solid gains to be had.  My only regret is that I didn't capture
more of them!

Alright, that's water under the bridge, and what we want to know
now is what to expect next.  Right now, my perception is that
sentiment is trumping both fundamentals and technicals, and that
sentiment is undoubtedly bullish.  We've seen a really muddled
intraday picture lately in terms of technicals, but one thing
has been holding true; Dips Are Buyable.  Bulls want to know how
much longer this pattern might continue, and the bears want to
know when it might be time to lean on the downside again.

While I don't often trade it, I do find myself frequently
watching the S&P 100 (OEX.X).  There are several reasons for my
focus, but here are the top two:

1. Since the OEX is made up of the larger cap stocks that
populate the S&P 500, this is where I look first for
institutional action.  Institutions need the ability to get in
and out of sizable positions in short order, and big cap stocks
provide this flexibility.  So if I see the OEX moving strongly
(especially on heavy volume days), I take that as an indication
of institutions voting with their very fat wallets.

2. Relative strength.  Period. End of story.  The OEX did NOT
violate its July lows (even on an intraday basis) in October
and promptly rebounded.  Show me another broad index that can
make that claim.

There's another feature of the OEX that I particularly like, and
that is its direct correlation to the VIX.  Recall that the VIX
is calculated to provide the level of volatility of a
hypothetical ATM OEX option with 30 days until expiration.
Long-time readers know that I like to focus on the action of
the VIX and its inter-relationship with the VIX in trying to
divine market direction.

So while I may not use the OEX as a trading vehicle, I have been
using it as an analysis tool, due to its recent pattern of
relative strength, its inherent responsiveness to institutional
activity and the fact that it can be directly correlated to the
VIX.  In last Sunday's LEAPS commentary, I posted a chart of the
OEX, where I highlighted several hurdles the index will have to
scale in order to continue its bullish trend.  Let's take a
quick look at that chart.



My apologies for the very messy chart, but there is just a lot
of important information there.  Look at the confluence of
resistance measures that are just about to come into play.
The descending trendline from the September 2000 highs at $485,
the 50% retracement of the March-July decline at $489, major
resistance at $490 (late June/early July, as well as the closing
lows from September 2001), and then the 200-dma at $495.  Given
the right conditions, I'd say this market would continue to
churn through resistance.  But this isn't a normal situation.
The market has used up a tremendous amount of strength just
getting to this point, and that is reflected in the Bullish
Percent readings and the overbought oscillators.  

Oh really?  Well, then I think we ought to look at the Bullish
Percent (BP) and see what it has to offer.  Looked at in standard
Point & Figure format, we can see the OEX BP stands at 70%, which
puts it back in overbought territory.  But don't confuse that
with weakness, as the OEX BP is in Bull Confirmed mode, its
strongest bullish condition.  It is also worth noting that the
BP went through its bearish resistance line for the first time
since last Spring.

Looking at the long-term (weekly) chart of the OEX, I can see
that the Stochastics is buried in overbought territory, but it
is worth noting that it hasn't yet given a convincing turn
downwards.  The less-jumpy MACD is still showing a very clear
bullish trend, and those two indicators taken together would
have me shying away from any attempts to game the downside in
this strong index.  But more importantly, it tells me the
overall market is strong, despite being more overbought or
overextended than it has been for several months.  Taking the
really long-term view, pull up a monthly chart on the OEX and
you can see that Stochastics is just starting to gain some
upside traction.  If this bullish move in the market is for
real, then there is lots of room to run.

I think there is some important information to be gleaned from
the weekly chart of the VIX as well.



Not only has the VIX clearly fallen back into its historically
'normal' range, but it is also solidly below the 200-dma (red
line) for the first time since early June.  Note that with the
exception of early 2001, every time the VIX has fallen below
its 200-dma from an extreme above 30, it has continued its
downward trek until reaching the bottom of its normal range
near 20.  That provides just one more measure that indicates
this rally likely still has some life left in it.

That isn't to say that there won't be some dips along the way.
In fact, I think we are getting close to the next buyable dip
in the near future.  The operative word here is 'buyable', as
the dominant secondary trend right now is up.  I'll be looking
for that dip to present itself following a failed attempt to
break out over the $485-495 resistance zone detailed in the OEX
chart above.  I expect that next dip will likely find firm
support in the $455-460 area (or possibly a bit higher), at
which point I'll be looking to enter new bullish positions.  As
to what targets I like, I'll be starting with some of those
candidates listed above, provided they maintain their pattern
of strong relative performance.

As I mentioned over the weekend, my bias has changed to
cautiously bullish.  While my fundamental outlook remains
unchanged (bearish), I recognize that it can be dangerous and
usually very difficult to profitably trade from a fundamental
basis.  Using the OEX as the measure of the market, there is
some stubborn resistance waiting for us just overhead, but
based on the action of the VIX and the strength of the Bullish
Percent and oscillator readings, I expect that we will continue
upwards into the end of the year.  What happens then is anyone's
guess, but my crystal ball says it is entirely possible that the
cranky old bear will come out of hibernation before Punxatawny
Phil makes his appearance in February.

Remember, having a bias is not a bad thing, in and of itself.
But trading your bias in defiance of what the market provides
is just plain foolishness.  The market is always right, and
hoping for a trade to go your way because "it just has to" is
a waypoint to financial loss.  In the trading world, 'hope' is
a four-letter word.  Trade your bias when the market tells you
that you're right.  Just don't let it get in the way of making
intelligent trading decisions.

Have a great week!

Mark


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

Higher Highs

Today saw mostly sideways movement in the broader indices.
Our Swing Tradeplan started out looking to go long the QQQ as 
it broke through its 200-dma of $28.04. However, as it approached
that level, a struggle became apparentand I raised the entry point 
for a more decisive break.


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The Option Investor Newsletter                   Wednesday 11-25-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: 
Dropped Calls: GNSS, ICOS, HSIC
Dropped Puts: 
Play of the Day: Call - ADBE

Updated on the site tonight:
Market Watch
Market Posture

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***********************************************************
Stop-Loss Adjustments
***********************************************************

GNSS - call
Adjust from $14 up to $19

ICOS - call
Adjust from $26.50 up to $28.50

HSIC - put
Adjust from $46.50 down to $45

***********************************************************
DROPS
***********************************************************

calls
^^^^^

none


puts
^^^^

none


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**********************
PLAY OF THE DAY - Call
**********************

ADBE – Adobe Systems $30.28 +0.47 (+0.47 this week)

Company Summary:
A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Why We Like It:
Seeing a bit of profit taking on Friday was about what was
expected, except the fact that it was so mild.  After its
breakout through both the $29 level and the 200-dma on Thursday,
ADBE gapped lower on Friday, beginning the day just below $29.
The initial volatility sent the stock back to $30 and then the
stock spent the day drifting between those two levels.  However,
it was encouraging to see the bulls prevail at the end of the
day, closing the session out above the 200-dma.  As a measure
of the strength in the Software sector, note that the GSO index
ended the day with a fractional loss, but up nearly 7% for the
week.  Adding to the bullish picture was MSFT, as that huge
Software stock solidified its breakout by holding above the $58
level.  Against this backdrop, ADBE's pattern of higher highs and
higher lows off of the October bottom looks particularly
encouraging.  Clearing the 200-dma and then holding that level
on Friday just adds to our conviction.  Another potential bullish
catalyst is that ADBE reports earnings in mid-December and that
expectations of improved results should keep the stock in its
steady ascending pattern.  Solid support near $28.50 (also the
site of the 2-week ascending trendline) should provide a solid
level to initiate new positions.  Traders looking to enter on
further strength will want to wait for ADBE to push through the
$30.50 level (just above Thursday's intraday high), along with
renewed buying in the Software sector.  Our stop remains at $27.

Why This is our Play of the Day

As the broad markets continue to digest and solidify their recent
gains, there are some important signs of internal strengthening
to be found.  In the spotlight on Monday, was the Software index
(GSO.X) as it ever so slightly crept over its 200-dma (currently
$117.37).  That's a strong bullish sign, and the fact that our
ADBE play is solidifying its own advance over the 200-dma (now
at $29.50) adds to the bullishness in the sector.  While one
could argue that ADBE has been unable to push through its highs
of last Thursday, what is perhaps more important is the bullish
wedge that is building on the intraday charts over the past
several days.  With consistent resistance at the $30.50 level,
and significant move through that level ought to stimulate more
buying and quickly have the stock pushing up to test its next
resistance in the $32-33 area.  Intraday dips into the
$29.00-29.50 area should make for solid entries into the play,
while momentum traders can target a breakout over $30.50.  For
now, keep stops set at $27.

BUY CALL DEC-25 AEQ-LE OI= 947 at $6.00 SL=4.00
BUY CALL DEC-30*AEQ-LF OI=1961 at $2.35 SL=1.25
BUY CALL JAN-30 AEQ-AF OI=2654 at $3.30 SL=1.75
BUY CALL JAN-35 AEQ-AG OI=1708 at $1.35 SL=0.75

Average Daily Volume = 3.63 mln





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

Supportive

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_112502.asp


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

Looking Up

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_112502.asp


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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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