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Daily Newsletter, Tuesday, 12/03/2002

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The Option Investor Newsletter                 Tuesday 12-03-2002
Copyright 2002, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Let The Warnings Begin
Futures Markets: Clear and Present Danger
Index Trader Wrap: Loaded for bear
Market Sentiment: Time to Reconsider
Weekly Fund Screen: Multi-Asset Global Funds


Updated on the site tonight:
Swing Trader Game Plan: Trend Reversal


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      12-03-2002           High     Low     Volume   Adv/Dcl
DJIA     8742.93 -119.60  8861.13  8721.88 1.79 bln 1234/1978
NASDAQ   1448.96 - 35.80  1474.69  1445.23 1.61 bln 1094/2300
S&P 100   469.62 -  7.57   477.19   468.57   Totals 2328/4278
S&P 500   920.75 - 13.78   934.53   918.73             
RUS 2000  400.83 -  7.71   408.54   400.83
DJ TRANS 2337.04 - 44.40  2381.82  2334.27
VIX        31.76 +  1.70    32.32    30.88
VXN        51.99 +  1.82    52.69    51.62
Total Vol   3,612M
Total UpVol   677M
Total DnVol 2,905M
52wk Highs   126
52wk Lows     73
TRIN        1.96 
PUT/CALL    0.89
************************************************************

Let The Warnings Begin

It is that time of the month, again. The first three weeks of 
last month of each quarter is chock full of earnings warnings,
analyst meetings, mid-quarter updates and news events worded
to cause investor guidance to drop. The is commonly know as
the smoke and mirrors period. There is the official announcement,
the official spin about the announcement and the analyst
interpretation of the announcement. An example would be an
analyst comment that HPQ was doing well because their printer
business was healthy and they saved $2.4 billion from the merger. 

Dow Chart – Daily


 

Nasdaq Chart – Daily


 

On the surface that HPQ comment sound great. The company is a
year ahead of schedule to trim $3 billion in costs by merging
CPQ/HWP into one company. HPQ has already cut -$2.4 billion
in expenses or the translated version, "they merged two 
companies together and then cut half the employees." To say 
HPQ is doing great because the printer business is up +15% 
is also an error. The other five divisions lost ground. The 
leading losers were storage -13%, hardware -20%, Personal 
Computers -18%. Carly was positive in her spin but the 
company said technology spending was still tepid and they 
could not raise guidance due to the current uncertain 
economy. Translation, "the earnings gains have come from 
slashing employees and writing off merger assets and are 
not repeatable." 

Just before the bell UAL announced that they were cutting more
pilots in two more waves of cuts in Jan/Feb. There is just no
pickup in airline traffic and the warning to American airports
that Al Queda may have smuggled shoulder fired antiaircraft
missiles into the U.S. will make even more travelers reconsider
their trips. 

Based on auto sales for the month they are not buying new cars
for those trips either. Sales were up slightly from the terrible
October levels but were significantly below levels from last
November. This should not surprise anyone since November-2001
was a banner month with new incentives prompting many to go into
debt for a new car since they were going to be spending more
time closer to home. The greatly increased incentives this year
barely increased November sales over the October drought period. 
This was likely a dead cat bounce as dealers reacting to the
serious October drop pulled out all the stops to lure buyers
back into the showrooms. The buy one get one free program by
Ford did little to help with sales falling -20% in November. 
Ford said it would cut production by 25,000 units. The technical
drop in November sales was the topic of many news stories today
but the main point should have been "actual sales" did not drop
from the October levels. If they can hold the current 16 million
pace it will prevent a further decline in the sector. 

Retail Sales rose for the second consecutive week but only 
enough to erase the -1.2% dip from the week of Nov-16th. 
While the sales were up they were only up +0.3% and this 
was supposed to be a huge shopping week. Reports generally 
indicated a strong Friday but weaker Saturday. This is not 
an exciting prospect for the seasonal trend. If shoppers 
have only four weeks instead of the normal five to complete 
the task then sales should have escalated more than +0.3%. 

In the local parking lot indicator update, I visited a new 
one million square foot shopping mall here in Denver on Monday. 
At 6:PM there were less than 30 people in a food court that 
holds over 500. Most stores had less than 10 customers, many 
zero customers. I counted customers as we walked through 
Neiman Marcus. There were 12 in the entire store. The only 
stores with traffic were the toy stores and Target. I went 
into a video game store to look for a title on my list and 
I was the only customer in the store for the entire 10 min 
I was there. They claim there are 3500 employees in the mall 
and I would have bet that was twice the number of shoppers. 

I dropped by Best Buy to get a DVD player and had five 
employees ask if they could help me before I made it 150 ft 
into the store and one was the manager. When I went to check 
out there were three registers open and no customers at two 
of them. However, as I drove by Wal-Mart two blocks away the 
parking lot was packed. It appears to me that sales are only 
good at the super discount general merchandise stores like 
WMT and TGT and bearish for everyone else. This may only mean 
that Denver is a depressed economic center and not a national 
trend. It does make me more wary about reading between the 
lines on future retail news. 

I have had several emails tell me to stick to stock reporting 
and spare them the personal retail stories. If you feel that 
way I am sorry. I think as investors we should keep our eyes 
open to everything we can observe in the world around us. We 
should not depend on CNBC to deliver our economic outlook in 
a tidy package. I personally would rather have an opinion 
about what the next retail sales report might say BEFORE it 
is released. I want to know as far in advance as possible if 
we are going to fall back into another recession. I do not 
want to be led down the path with the rest of the sheep only 
to find out the yellow brick road led into a slaughter house. 
If my economic expectations are low then an upward revision 
is a pleasant surprise. 

The Challenger Layoff report showed that mass layoffs had
dropped slightly from the October high of 176,000 to 157,000.
This was still the second highest month in the last ten and
well above the average of 93,580. More than one third of the
cuts were in the high tech industries with the computer
sector leading the report with -25,000 layoffs. These job
cuts are helping companies cut costs and post higher profits
but are doing nothing to help consumers weather the storm. 
With higher productivity allowing companies to do more with
fewer workers it means the eventual rebound may not produce
more jobs. Technology improvements are increasing output but
fewer consumers will have paychecks to spend. Since Congress
failed to extend unemployment benefits for a second time there
are more people dropping off the continuing jobless claims
each month even though more people are unemployed. This makes
the headline numbers even more deceiving. Friday we will get
the nonfarm payroll report for November and there is a good
chance that we will see a negative jobs number. This is not 
a sign of a recovery. 

Nokia dampened hopes for a rebound in the cell phone market
saying global phone sales could rise only +10% in 2003 and 
equipment for cellular communications would drop by -10% on
fears of an uncertain market, war and the global economy. 
Nokia makes 40% of all cell phones and their forecast carries
weight in the sector. This outlook was opposite the bullish
forecast by Merrill on Monday, which estimated 474 million
units compared to only 440 million by Nokia. TXN also said
business in the mobile digital signal processors was on track
to exceed expectations for the quarter while the analog 
competitors were seeing slowing of their business. This 
shows that only high end phones are in demand while the 
cheaper mass market models are slowing. 

AOL shocked the markets this morning with estimates of revenue
for 2003 well below their prior forecast. They put forth a
get tough strategy going forward and began promoting their
"AOL for life" campaign. Hopefully that does not refer to the
time it takes to get connected and download email. They said
they were going to concentrate on making a profit on their 
dialup customers, which translates to higher prices in my view. 
They are going to try and convert 10% of their 30 million
customers to broadband at $15 a month for service plus the
cost of the broadband. They are not expecting any sales growth
in 2003 and sees earnings in the low end of the prior range. 
AOL dropped nearly -15% on the news to $14. 

Cisco began it's analyst meeting by saying it had no plans
to discuss guidance. Chambers said it was not company policy 
to discuss guidance unless it had changed materially. The
analysts in attendance griped visibly that the speech by
Chambers was the same speech he gave at the USB conference 
last month. The general opinion was that nothing positive
had changed or Cisco would have tried to spin it to their
benefit. Without any new information they theorized that the
outlook was negative and the low end of estimates currently
apply. CSCO fell to $14.40 on the news and traders were
expecting further profit taking on the two month rally from 
the $8 October low. 

We have had comments from HPQ, AOL and CSCO, all of which 
left us with a sour taste in our mouth and red candles on 
the charts. The next challenge is Intel, which holds it's 
update on Thursday. INTC fell to support just above $20.00
on worries that the Thursday meeting could show a lack of
pickup in the PC sector. With HPQ showing strong drops in
sales of computers and retailers for big ticket items not
reporting any gains the outlook is grim. There is a very 
large replacement cycle looming in our future with software
on 180 million computers going off maintenance by June 2003. 
That is when Windows-98, the Y2K upgrade product, will no
longer be supported. This is not a big problem because 98
is very stable (all things considered) and companies with
thousands of Win98 computers should have tripped over any
problems long ago. The bigger problem is the upgrade path. 

A new computer will be much faster but the software will be
more expensive due to the new MSFT license program. Companies
will hold off changing until the last minute due to cost 
and complexity and some analysts think they may try to 
generation skip the Windows-XP release and jump to the 
successor. If so then the brunt of the next upgrade cycle 
could be 2004 instead of 2003. The squeeze point is 
processor speed. Faster servers are being held back by 
slower workstations and companies may be forced to upgrade 
due to data constraints. There are as many opinions as 
there are analysts and all eyes will be on Intel on Thursday. 

The markets cratered on the AOL warning this morning and 
never recovered. The futures after the HPQ announcement
and Disney earnings warning after the close are hovering
at -4.00 for the S&P and -7.50 for the Nasdaq. This is not
painting a bullish picture for Wednesday. There is another
flurry of economic reports on Wednesday. Factory Orders, 
ISM non-mfg, Mortgage Applications and Productivity. Not
much in that list to hope for. Support for the Dow is now
8670 and 1440 for the Nasdaq. Both of these levels do not
leave us much room to breathe before dropping into critical
territory. The challenge is also strong overhead resistance 
which begins around 8800 on the Dow and 1460 on the Nasdaq. 
As you can see this is not a very big range and it will 
require much more effort to go up than drift down. Volume 
is the weapon of the bulls and it was absent today and 
will likely be absent until we hear from Intel. 

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor


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

Clear and Present Danger
By John Seckinger
jseckinger@OptionInvestor.com

There is a weekly bearish divergence within the Dow and S&P 500 
that looks like it might hold.  This type of pattern was seen 
back in March and May, but there does appear to be just one more 
level that needs to be taken out.    

Monday, December 2nd at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     923.75    -11.25      939.50      917.75      625,581
YM02Z    8736.00   -111.00     8894.00     8718.00       20,631
NQ02Z    1095.00    -32.50     1110.00     1084.00      266,434

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:  Shares of AOL Time Warner (AOL) fell over 14% 
on Tuesday after providing a disappointing guidance for 2003.  
The company reported seeing a 15-25% EBITDA decline for its 
online unit.  In other company-specific news, shares of Nokia 
(NOK) lost almost 5% of its value in heavy trade (35.7 million) 
after its handset guidance was low relative to a forecast from 
Merrill of 474 million units.  Moreover, the company reported 
seeing its infrastructure market down 10% from 2002.  Looking 
elsewhere, Merck (MRK) reaffirmed its 2003 profit guidance and 
rebounded from a low of 55.16 to close at 58.82 and near its high 
of 59.17.  Shares still finished lower by 1.88% on the day.  In 
economic news, November truck sales came below expectations (7.1 
versus estimates for 7.5 million).  Auto sales for November met 
estimates at 5.7 million.  

Technical News:  The Semiconductor Sector (Sox) opened on its 
highs (375) and closed on its lows of 355.63 and well below a 
38.2% retracement area calculated from the highs in early March 
to the lows in October.  This level comes in at 376.  The 
downward objective appears to be for a move to 336, which 
correlates to the 22 Weekly Moving Average.  The 200 DMA is 
higher at 380.  It looks like the range is set.  It was 
interesting how both the UTY and XOI index found bids on Tuesday, 
rising 1.18 and 2.25%, respectively.  Both indices are not at 
either a relative low or high, but there has been price 
compression and the recent move will have to be watched.  Note:  
A rise in the UTY and XOI could control downward pressure on 
stocks, and could possibly be a leading indicator based on an 
unknown variable (news not widely known to market participants).  

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

The December Mini-sized Dow Contract (YM02Z)

A few bearish developments took place on Tuesday.  First, the 
highly watched bullish trend line finally gave way and the Dow 
proceeded to close below this trend line for the first time.  
Secondly, the RSI weekly bearish divergence has a better 
possibility of reaching fruition.  Another nice thing for bears 
is risk to the upside is also well defined.  The 200 DMA at 8943 
correlates to the 50% retracement from March to October (8935).  
The trend line in the Dow comes in currently at 8850 (same as YM 
contract), and a close back above this level should give the 
first sign of concern if short.  

Going forward with the bearish sentiment, remember the much 
talked about H&S formation?  The right shoulder was at the 8625-
8645 area, and the significant rise above this level made it 
clear that shorts were covering and some longs entered.  With 
that said, this level obviously becomes pivotal on a horizontal 
basis going forward.  If the Dow falls under this area, there is 
a chance longs will liquidate and shorts will regain their 
confidence and try once again.  This level also correlates with 
the 22 DMA, currently at 8639.  Below 8625, I am sure the 8035 
level will be brought up once again.  If the Dow reverses and 
takes out this week’s high, longs will most likely hold all the 
cards once again.  

Chart of Dow Jones, Daily 


 

Looking at a daily chart of the YM02Z contract, the 8785 level 
that held in the past failed to do so during trading on Tuesday.  
With the YM, the 8658 area correlates with the Dow at 8640 and 
should hold the same significance.  As far as looking at the YM 
from a bullish point of view, a move above 8785 could be the 
catalyst for one more test of 8800 (pivotal on Tuesday).  Once 
above 8800, short-term sentiment might turn neutral (depending on 
if this is a gap higher opening or move after an economic 
release, with the latter being more bullish).   Only a close 
above the trend line (will be near 9000 by Tuesday’s close) 
should turn sentiment back to bullish readings.  

Chart of YM02Z, Daily  


 

YM02Z

Support               Resistance                Pivot    
		
	8658				8800				8800
	8645-25			8875				8625
	8500				8900
8425				9077

Bold signifies levels within the Dow Jones.  

The December E-mini Nasdaq 100 Contract (NQ02Z)

If there is one contract that makes a bear wait, it is the NQ02Z.  
As noted yesterday, the 1080 level should have solid intermediate 
implications.  With Tuesday’s low at 1084, there are certainly 
some large traders waiting for a move under the 1070-1080 level 
before beginning or adding to a significant short position.  I 
don’t blame them.  For shorter-term traders, it was bearish how 
the NDX had a high of 1110 (previous solid support) and then only 
rallied back to 1101 late in the session before failing once 
more. A close above 1110 could have short-term traders covering 
shorts and would turn sentiment to more bullish readings 
(currently neutral).  Note:  A point and figure chart shows a 
sell signal at 1080 with an objective of 1050 (10-point scale).  

Chart of NDX, 120-minute


 

A 3-minute chart of the NQ02Z does show relative strength within 
the MACD, and the late-day selling pressure failed to make a new 
low.  Nevertheless, support has turned into resistance (1100 and 
1110), and both shorts and longs understand how these levels 
could tip the scale either back into the long’s camp or signaling 
the start of a new wave lower.  The intermediate objective is for 
a test of 1000, but there will be support at 1058 and 1023 along 
the way.  

Chart of NQ02Z, 3-minute 


 


NQ02Z

Support              Resistance                 Pivot 

1079				1100				1110
1069				1110				1100
1058				1120				1070
1023				1134

Bold signifies levels within the NDX.  

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

The S&P 500 Index has a similar pattern to the Dow on a daily 
chart, and, like all three contracts, there is some support below 
that might need to be broken first.  The level in the SPX appears 
to be at 910, and a collapse underneath should send the contract 
quickly to the 902-900 area.  If the market does find a bid, look 
for 927 to act pivotal.  Once above 927, we can revisit a test of 
solid resistance between 937 and 942.  I can see this contract 
trying to make a new high and then rolling over; however, we have 
to go with current price action, which seems to portend a test of 
910.  

Chart of S&P 500 Index, Daily


 

A 30-minute chart of the ES02Z contract shows a similar picture.  
I was surprised that the market didn’t sell off more once below 
918.75; nevertheless, remaining under 927 gives shorts some 
ammunition.  When looking for a confirmation of sentiment, I do 
recommend pulling up a 200 Period Moving Average (PMA) on a one-, 
five-, 30-, 60-, and daily chart (depending on if a trader is a 
day trader, swing trader, or investor, respectively).  Note:  A 
point and figure chart does give a sell signal at 910 and has an 
objective of 900 (five-point scale). 

Chart of ES02Z, 30-minute 


 

ES02Z

Support              Resistance                 Pivot    

918.75			927				927
910				935				918
9000-902			942				910
894				950				900

Bold signifies levels within the S&P 500.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

Loaded for bear

Reeling a bit from yesterday's weaker than expected ISM Index 
which saw the equity market give back handsome gains and today's 
less than robust news from Internet/Media conglomerate AOL Time 
Warner (NYSE:AOL) $14.21 -14.2% and wireless handset maker Nokia 
(NYSE:NOK) $19.22 -4.61%, bulls had a tough time fending off the 
bears and markets sunk for a second straight session.

With little economic news to grab hold of, North American auto 
sales for November had General Motors (NYSE:GM) $37.90 -5.13%, 
Ford Motor (NYSE:F) $9.96 -13% and Daimler/Chrysler (NYSE:DCX) 
$33.75 in reverse as today's trading depicted year-over-year 
declines in sales.

On a relative basis, number three automaker Daimler/Chrysler 
(DCX) reported lesser declines, saying that November's unit 
volumes fell 12% on a year-over-year comparison, which was better 
than the -17.4% decline analysts had forecast.

The world's largest maker of autos and Dow component General 
Motors (GM) said that November's 18%, compared to analyst's 
estimates for a 13% decline wouldn't sway the company from 
booting its Q4 outlook and plans to boost production by 5,000.

Analysts warn investors to not worry too much about November's 
data as the November 2002 to November 2001 comparisons make for a 
tough comparison as 0% financing was introduced late last year to 
spur sales and many consumers did take advantage of those deals, 
making for some very strong comparables this month.

While GM and Ford were optimistic about the market outlook and 
continuing demand for autos and trucks, Ford plans to produce one 
million vehicles in North America in the first quarter of 2003, 
which is 60,000 units more than it will produce in the fourth 
quarter of 2002, but lower than the 1,052 million vehicles 
produced in the first quarter of 2002 when the company was trying 
to rebuild its inventories.

On a marginally positive note, research firm Challenger, Gray & 
Christmas said layoffs were still high, but fell 11% in November 
to 157,508 from October's 176,010 announced layoffs.  Still, 
November's announced layoffs are nearly double the 80,966 
recorded in August.

Suffice it to say, today's news events held little positive and 
sector action was negative.  Technology leadership groups from 
recent weeks found the CBOE Internet Index (INX.X) 106.71 -7.4% 
lower on AOL's "no growth" news, while Nokia's comments about 10% 
handset growth, which was far below Merrill Lynch's forecast from 
yesterday had the Wireless Telecom (YLS.X) 60.77 -4.7% and Fiber 
Optic (FOP.X) 56.38 -7.37% giving back recent week's gains.

Treasuries saw morning gains evaporate despite Merrill Lynch's 
morning comments that it was cutting stock holdings in favor of 
bonds, citing corporate earnings uncertainty and potential war 
risks.  The 10-year Note December futures (ty02z) 112'100 -0.08% 
fell fractionally, with the benchmark bond's YIELD ($TNX.X) 
edging up at 4.233%.  Treasury traders cited this afternoon's 
selling in Treasuries due to traders looking ahead to Friday's 
jobs report for further confirmation that some of the improved 
news on the economy has perhaps carried through to the monthly 
employment statistics.

Dow Industrials ($INDU) - $50 box


 

While the pullback from yesterday morning's trade at 9,000 is 
suspicious when measured against the more overbought levels of 
bullish % at 73.33%, the 250-point pullback is considered normal, 
but gives trader/investors a good perception of risk at the 
higher levels of bullish %.  I'm not an economist, but I'm 
thinking tomorrow's ISM Services number will either be "in line" 
or slightly above expectations (consensus is 54.0).  I think the 
Dow has one "last" little run in it on a good ISM Services number 
for a rally back to the 9,000-9,050 level.  Many comments I've 
read from economists note that yesterday's ISM Index is somewhat 
of a "lagging" economic indicator, while the ISM Services tends 
to be more of a "leading" indicator.  Recent "sell signals" on 
the Dow's point and figure chart have been reversed higher as the 
bullish % was building.  However, at the recently "overbought" 
levels above 70%, risk runs high for bulls and makes bullish 
trades on pullbacks the better risk/reward trade.  I currently 
like the Dow bullish on a pullback near 8,500, stop 8,400 and 
target of 9,000.  Not looking bearish at this point until I see 
some type of internal weakening/reversals in the bullish % 
charts.

Today's action saw no net change in the very narrow Dow 
Industrials Bullish % ($BPINDU).  Current reading is "bull 
confirmed" at 70%, meaning 21 of the 30 components still have a 
point and figure "buy signal" associated with their charts.

S&P 500 Index Chart - $5 box scale


 

Subscribers have asked in the past, "why the point and figure 
charts only use 45-degree angled trends?"  I can't say for 
certain, but the 45-degree trend is somewhat of a constant trend 
whereby the trader/investor can make note deviation from or 
toward trends.  In the above chart, we are seeing more of a drift 
toward the support trend than we are the upper bullish resistance 
trend.  This makes perfect sense as it relates to the higher 
levels of bullish % in the broader S&P 500.

It's kind of like a progressive weight-training machine isn't it?  
When the bullish % was low, there was very little "weight" to 
push higher as both bulls and bears were buying stocks at the 
lower risk levels as depicted by the bullish %.  That made it 
relatively "easy" for the SPX to test its "bullish resistance" 
trend.  But as risk "increases" for the bulls as the bullish % 
moves higher, that's an obvious sign of strength, but its also a 
higher level of "risk" that bulls need to deal with and they 
become more conservative or at least less aggressive with their 
buying.  

Right now, I think a bull has to think of himself or herself as a 
power lifter.  Lay down on that bench press machine, lift that 
heavy set of weights off the rack, take a deep breath and be 
willing to let that weight drop to your chest, then look for 
strength to have the weight rebounding.  With the higher bullish 
% serving as weight, I'm not strong enough to rip off 10 
repetitions of heavy weight.  If I'm a bull that's used to trying 
to buy index break-outs to the upside at SPX 950 with a more 
overbought level of bullish %, then I would think a pullback to 
900 was accounted for.  Conversely, bears that are 
shorting/putting "tops" with a short-term trade in mind 
understand that the still strong bullish % will most likely find 
rebounds once the weightlifter's bar hits his chest and presses 
higher.

With the SPX chart and trends as examples, I still have to say 
the bull has some strength left, but the muscles do appear to be 
tiring a bit.

Today's action saw no net change in the S&P 500 Bullish % 
($BPSPX) and status remains "bull confirmed" at 68.4% bullish, 
meaning that 342 of the 500 stocks currently show a buy signal 
associated with their point and figure charts.

S&P 100 Index Chart - Nontraditional $2.5 box


 

As we've seen in the Dow, SPX and even the OEX on $2.5 box scale, 
the first "sell signal" generated after a new relative high has 
been reversed back up and a new high established.  As such, I'm 
labeling 465 as "tentative support" and would consider this a 
support level ahead of tomorrow's ISM Services number's, 
scheduled for release at 10:00 AM, along with Factory Orders.  

Today's action saw a net loss of 1 stock to a point and figure 
sell signals.  This has the S&P 100 Bullish % ($BPOEX) slipping 1 
notch to 75%, but still reads, "bull confirmed."  It would take a 
reversal to 70% to have this index turning back to "bear alert" 
status.

One thing I couldn't "reason" was today's bullishness in the 
Gold/Silver Index (XAU.X) 67.12 +5.7% as my quick scans of the 
news wires turned up nothing.  The only thing I see on the 
horizon that might have had buyers in the group is tomorrow 
mornings final Productivity numbers for Q3, with economists 
looking for a 4.5% gain.  The only reason I can thing gold stocks 
bid is that there was/is some "knowledge" of a weaker 
productivity number.

Hmmmmm..... this may want to be watched.  This could also 
partially explain why Treasuries found selling in the latter half 
of their trading session.  Often times, when the broader equity 
market is under selling pressure, we will see gold stocks find 
some buyers, but Treasuries usually see buying.  Today action, 
while marginal DIVERGENCE had gold stocks finding buyers and 
Treasuries finding some selling while equities declined has a 
trader's attention.

It could be that the equity markets were just a little too 
overbought and sellers were determined to sell.  A stronger than 
expected ISM Services or Factory orders number could be construed 
as bullish and actually hint of inflation.  This may make sense 
to today's gold/Treasury action right?  Under an inflationary 
scenario, gold could be perceived as a hedge, Treasuries would 
sell off as the market perceives a tightening Fed policy, and 
stocks could benefit under the premise of a growing economy.

A bearish point of view for equities might have a selling in 
Treasuries coupled with buying in gold stocks, and selling in 
broader equities being sign of "stagflation," where slowing 
economic growth is accompanied by a general rise in prices.  I 
will make note here that I've only seen/heard of three companies 
in recent weeks make public the raising of prices.  UPS 
(NYSE:UPS) $63.80 -0.26% raised rates for 2003 on November 8th, 
then FedEx (NYSE:FDX) $52.53 -0.66% followed on 11/21/02 with 
rate increases, while Airborne Freight (NYSE:ABF) $14.27 -4.54% 
said yesterday that it will begin phasing in rate increases, 
effective January 6, 2003.  This news and trend is very 
sector/business specific and not necessarily a sign of 
"stagflation."

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Intervals


 

The QQQ suffered a bit of a setback when some of the recently 
high flying Internet (INX.X) 106.71 -7%, Wireless (YLS.X) 60.77 
-4.7% and telecom related Fiber Optic (FOP.X) 56.38 -7% saw some 
profits removed after AOL and Nokia didn't necessarily confirm 
some of the bullish calls from analysts in recent days.

Despite some of that sector weakness, the QQQ still held above 
trend and the horizontal $26.75 level which served as a 
resistance levels for months.  With plenty of shorts below $25 
still looking for some weakness to cover into, I'm not expecting 
the Q's to drop right down to $25 or the trending HIGHER 50-day 
SMA of $24.21, but if it did, that would be a trading target for 
bears on a break below $26.75.  Until the bullish % shows some 
type of reversal lower, I want to limit bearish exposure to 1/4 
or 1/2 positions.

Action points as it would relate to the NASDAQ-100 (NDX.X) 
1,088.80 -2.82% itself, would be put a break below 1,075, stop 
1,160 with 50-day SMA target of 985 (50-day SMA currently at 
973).  Again, this would be "early" as it relates to the still 
trending higher 21-day SMA of 1,064.

Plan #2 would be to trade bullish a positive market response to 
the ISM Services and Factory Orders numbers, stop snug below QQQ 
$26.75.  Currently, I don't like a bullish trade in the NDX 
calls.

Jeff Bailey


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

Time to Reconsider
by Steven Price

We finally got a pattern that could give the bears some fuel 
heading into tomorrow's trading session.  Since November12, the 
Dow took off in an ascending channel that has given it a boost on 
each pullback.  However, today's close under 8750 appears to be a 
breakdown underneath that channel, although just barely, with a 
close of 8742.  What was possibly just as important was the 
resistance below the 8000 we saw this afternoon, with a high of 
8799.  If we are seeing resistance at that level, following 
rejection just over 9000, then we may have our first lower high 
and a possible trend reversal.  The next step for the bears is a 
trade under 8670, which would also be a lower low and possibly 
the start of a new descending channel. 

It was news from several sources that sent the market tumbling 
this morning.  AOL said that 2003 revenues will be essentially 
flat, as growth in worldwide subscription revenue will be offset 
by declines in advertising and commerce revenues of 40% to 50%. 
Merrill Lynch added that they were shifting assets back out of 
stocks and into bonds and cash, citing concerns about corporate 
earnings and war.  The Wall Street Journal reported that home 
prices rose at a significantly slower pace in the third quarter 
and that the market may be cooling.  Considering how steep the 
recent rally has been, and the looming resistance of the August 
high and 200-dma for the Dow, it only took one domino to set the 
wheels in motion and we got a few of them.

I don't want to get ahead of myself here, and it is true that my 
inner bear has been wondering all along just how the current 
rally can be sustained without some evidence of an across the 
board increase in business spending.  We have gotten some 
evidence of increases here and there and I have mentioned in 
previous articles that a turnaround will come gradually, with 
good mews mixed in with the bad.   Any trader can find a trend to 
support the view they want to see, if they look hard enough.  
However, the proof is in the bottom line and if we begin to see 
lower highs and lower lows, then the bottom line should favor the 
shorts. 

The Semiconductor Sector Index (SOX.X) has been leading the tech 
indices around recently and if today's action is an indication of 
things to come, then we should be seeing more red in the near 
future.  The SOX gave up 5% today, which took the index back 
below the August highs, and also below the last pullback, 
establishing a lower low after a blow-off top that failed 
resistance at 400. The SOX finished the day down -19.62 at 
355.62.  That actually came in spite of some good news from the 
tech sector overnight, with increased guidance from Citrix (CTXS) 
and comments from Siebel Systems (SEBL) that the IT market is 
firming and demand looked better in the fourth quarter than the 
third. After the bell, it was reported that the CEO of Hewlett 
Packard said in an analyst meeting that IT spending remains 
tepid, contradicting those statements by SEBL and CTXS, but the 
sell-off came before the HP statement, so apparently investors 
have already decided that the chip stocks are overbought. That's 
not a stretch, considering they saw almost an 80% gain in seven 
weeks.

Disney didn't do the market any favors after the bell when it 
announced it had overstated its 2002 profits by $74 million, due 
to overestimating the box office revenue from "Treasure Planet."  
The movie took in about half of what Disney movies usually gross 
in the first weekend and resulted in the company lowering its 
first quarter earnings estimate by a penny per share.  Some 
"Treasure." 

I'll be looking for those lower lows tomorrow as a signal to go 
short the broader markets.  If we get a bounce instead, then 
traders need to realize there is a short ceiling above at Dow 
9077, as well as the 200-dmas in the Dow, COMPX and NDX. We'll be 
getting a look at the ISM index, Factory Orders and Productivity 
tomorrow, so we could see a bounce in the morning.  However, if 
the Dow fails again at 8800, I'll be looking to enter short on 
the failure.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8742

Moving Averages:
(Simple)

 10-dma: 8770
 50-dma: 8280
200-dma: 9172



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  920

Moving Averages:
(Simple)

 10-dma:  925
 50-dma:  877
200-dma:  981



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1088

Moving Averages:
(Simple)

 10-dma: 1099
 50-dma:  973
200-dma: 1118



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


The Semiconductor Index (SOX.X): It is beginning to appear as 
though the run for the chip stocks has come to a halt.  After 
finding rejection at 400, where the index failed in June and 
July, it has retreated below the August highs, as well.  After 
losing 5% today, the SOX set its first lower low, since the 
incredible run from a low of 209 on October 8.  It saw an 80% 
gain in seven weeks, but has now given up 38 points since 
Monday's high of 393.80.  After such an amazing run, some 
pullback can be expected, but the lower low may signal a trend 
reversal.  If you are still long stocks in the sector, you may 
want to start collecting some protective puts. 

52-week High: 657
52-week Low : 275
Current     : 355

Moving Averages:
(Simple)

 10-dma: 359
 50-dma: 290
200-dma: 406

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

Market Volatility Index (VIX):  You mean there's still a 
downside?  Interesting that the VIX actually headed higher last 
week on a market increase, just before this week's drop. It 
usually takes some institutional trading to move the VIX against 
the grain. Do you suppose Merrill Lynch may have been buying a 
few puts ahead of this morning's announcement that they were 
shifting assets from stocks back into bonds and cash?  Do you 
suppose other firms are planning the same strategy after the 
recent rally?  I don't mean to sound like a conspiracy theorist 
(well maybe just a little), but I find it interesting that the 
VIX just wouldn't go down last week as the market rallied. 


CBOE Market Volatility Index (VIX) = 31.85 +1.80
Nasdaq-100 Volatility Index  (VXN) = 51.99 +1.83

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.89        482,329       428,133
Equity Only    0.83        388,073       320,816
OEX            0.89         17,973        15,980
QQQ            2.80         35,052        98,256


-----------------------------------------------------------------
$bpnya
Bullish Percent Data

           Current   Change   Status
NYSE          51      + 2     Bull Confirmed
NASDAQ-100    82      + 1     Bull Confirmed
Dow Indust.   70      - 3     Bull Confirmed
S&P 500       68      + 1     Bull Confirmed
S&P 100       75      + 2     Bull Confirmed

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

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

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

5-Day Arms Index   1.40
10-Day Arms Index  1.15
21-Day Arms Index  1.16
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       1007          1788
NASDAQ     1013          2194

        New Highs      New Lows
NYSE         35              62
NASDAQ       27              26

        Volume (in millions)
NYSE       1784
NASDAQ     1616


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

Commitments Of Traders Report: 11/26/02

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

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

S&P 500

Commercials added 8,000 contracts to the short side, while adding 
fewer than 1,000 to the long side.  Small traders added almost 
9,000 long contracts, while increasing short positions by only 
4,000.

Commercials   Long      Short      Net     % Of OI 
11/05/02      438,546   472,384   (33,838)   (3.7%)
11/12/02      437,683   476,540   (38,857)   (4.3%)
11/19/02      446,668   480,270   (33,602)   (3.6%)
11/26/02      447,024   488,250   (41,226)   (4.4%)

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
11/05/02      138,604    76,032    65,572     30.5%
11/12/02      141,389    70,624    70,765     33.4%
11/19/02      143,070    77,332    65,738     29.8%
11/26/02      155,975    81,962    74,013     31.1%

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

Commercials added 1,000 long contracts and left shorts relatively 
unchanged.  Small traders added 1,300 long contracts and 1,800 
shorts. 


Commercials   Long      Short      Net     % of OI 
11/05/02       49,128     56,121    (6,993) ( 6.6%)
11/12/02       45,647     55,892   (10,245) (10.1%)
11/19/02       42,074     52,302   (10,228) (10.7%)
11/26/02       43,231     52,425   ( 9,194) ( 9.6%)

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

Small Traders  Long     Short      Net     % of OI
11/05/02       13,355    12,903       452     1.7%
11/12/02       12,698     8,801     3,897    18.1%
11/19/02       16,292    10,540     5,752    21.4%
11/26/02       17,574    12,329     5,245    17.5%

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 reduced long positions by 3,000 contracts, while 
reducing shorts by only 700.  Small traders increased both 
positions by approximately 2,000 contracts. 

Commercials   Long      Short      Net     % of OI
11/05/02       22,533    15,687    6,846      17.9%
11/12/02       22,283    14,953    7,330      19.6%
11/19/02       23,535    15,741    7,794      19.8%
11/26/02       20,499    15,015    5,484      15.4%

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
11/05/02        5,089     8,735    (3,646)   (26.4%)
11/12/02        5,736     8,513    (2,777)   (19.5%)
11/19/02        4,428     8,203    (3,775)   (29.9%)
11/26/02        6,544    10,350    (3,806)   (22.5%)

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 FUND SCREE
*****************

Multi-Asset Global Funds

We like these international hybrid funds because they showcase a 
firm's global investment management capabilities and may provide 
some international diversification benefit.  These funds achieve 
long-term growth of capital by investing in a wide range of asset 
classes from both U.S. and international markets.

Because they invest in a wide range of asset classes from around 
the world, multi-asset global funds offer comprehensive exposure 
to the global markets.  Such funds use top-down and/or bottom-up 
methodologies to analyze asset classes, countries and individual 
securities, in order to allocate assets to countries, currencies 
and securities worldwide.

Some funds invest in smaller capitalization stocks that may have 
greater total return potential but are generally associated with 
greater price volatility and downside risk.  Foreign investments 
may contain additional risks such as changing political climates, 
foreign market instability and currency fluctuations.  The risks 
of international investing are magnified in developing (emerging) 
markets. 

Our goal this week is to screen for two or three best-fit matches 
based on our specific selection criteria.  In the section, we go 
through our screening and evaluation process.

Screen Process

We began our screen process this week by using the advanced fund 
screener provided by Fidelity Investments (www.fidelity.com) and 
requesting all "multi-asset global" objective funds with overall 
star ratings of 3 stars or better from Morningstar that are open 
to new investors.  Our initial screen produced 13 results, which 
are presented below for your convenience.

 Initial Screen Results:
 Calamos Global Growth & Income A (CVLOX)
 Comstock Partners Capital Value C (CPCCX)
 Comstock Partners Strategy C (CPFCX)
 Fidelity Global Balanced (FGBLX)
 First Eagle SoGen Global I (SGIIX)
 Lindner Market Neutral Inv (LDNBX)
 Loomis Sayles Worldwide I (QDACQ)
 MFS Global Total Return C (MFWCX)
 Oppenheimer Multiple Strategies C (OASCX)
 Payden & Rygel Global Balanced R (PYGBX)
 Phoenix-Oakhurst Managed Assets C (PZMCX)
 RS Contrarian Fund (RSCOX)
 UBS Global Balanced Y (BPGLX)

We next refined the search to include only funds with Morningstar 
ratings of 4 stars or better.  Three multi-asset global funds are 
rated 4 stars or better by Morningstar for relative risk-adjusted 
performance including Calamos Global Growth & Income, First Eagle 
SoGen Global, and Payden & Rygel Global Balanced.  Only one has a 
Morningstar highest rating of 5 stars, First Eagle SoGen Global I 
class.  

Since the screen results reflect the institutional share class of 
the First Eagle SoGen Global Fund, we will use the fund's class A 
shares (SGENX) open to retail investors for comparison/evaluation 
purposes.  It carries the same Morningstar 5-star rating as its I 
class sibling.  The results also included the institutional class 
shares of Loomis-Sayles Worldwide Fund, but it is ruled out since 
the fund is not presently open to the retail marketplace.

We next loaded the 12 remaining fund results, including the class 
A shares of the First Eagle SoGen Global Fund, into Lipper's fund 
database and into Morningstar's to see how the two major trackers 
grade the funds for return, risk, cost and other factors relative 
to similar funds.  Payden & Rygel Global Balanced Fund was not in 
Lipper's system, but does show up in Morningstar's database under 
the "F000DY" ticker symbol, allowing for fund comparisons.  PYGBX 
is the symbol listed in Fidelity's fund screen results.

We observe in Lipper's system that Calamos Growth & Income Fund A 
(CVLOX), now known as Calamos Global Convertibles Fund, is one of 
three funds on our results list receiving Lipper's highest grades 
(1's) for both Total Return and Consistent Return relative to its 
peer group.  The other Lipper Leaders for Total Return as well as 
Consistent Return were First Eagle SoGen Global A (SGENX) and UBS 
Global Allocation Y (BPGLX).  The First Eagle SoGen and UBS funds 
are also Lipper Leaders (1's) for Preservation, two of five funds 
on our short list to receive that distinction.

Morningstar's Fund Compare results show that the First Eagle fund 
and the UBS fund are good at controlling fund volatility as well.  
According to Morningstar, the First Eagle SoGen fund has a 3-year 
average standard deviation of 11.2% and the UBS Global Allocation 
fund has an average standard deviation of 10.3%, below average in 
relation to the 14.9% category average.  Also exhibiting low risk 
compared to peers is the Payden & Rygel Global Balanced Fund with 
an average standard deviation of 10.1% for the last 36 months per 
Morningstar.

On a risk-adjusted performance basis, Morningstar gives the First 
Eagle SoGen Global Fund A (SGENX) its highest "5-star" rating for 
relative returns, as adjusted for risks, costs, etc.  The Calamos 
Global Convertibles Fund A (CVLOX) and Payden & Rygel Global Fund 
R (PYGBX) have overall ratings of 4 stars (above average).    

For more risk-averse investors, the Lipper and Morningstar return 
grades and ratings can be used with preservation and "volatility" 
statistics to make appropriate selections that balance risk and 
return.  In the following section, we take a closer look at the 
three multi-asset global funds we favor based on their relative 
return as adjusted for risk and expense.  While we like Calamos 
Global Convertibles Fund, it is perhaps better classified along 
with other convertible funds, where Morningstar categorizes the 
fund.  The three funds we'll be profiling are all international 
hybrid funds in Morningstar's system, with "multi-asset global" 
objectives in Fidelity's system. 

First Eagle SoGen Global A (SGENX)
Payden & Rygel Global Balanced R (PYGBX)
UBS Global Allocation Y (BPGLX)

First Eagle SoGen Global Fund seeks long-term capital growth by 
investing primarily in foreign and domestic common stocks, plus 
securities convertible into common stock.  It may also purchase 
fixed-income instruments of any credit quality if they have the 
potential for capital appreciation.  Veteran co-managers, Jean-
Marie Eveillard and Charles de Vaulx have more than 38 years of 
combined investment experience in the SoGen Global Fund product.  
Their value-oriented style has helped to minimize risk over the 
years relative to other international hybrid funds.

Compared to the $2.1 billion First Eagle SoGen Global Fund, the 
$8 million Payden & Rygel Global Balanced Fund is tiny, but the 
fund has quietly gone about its business, delivering returns in 
the last five years that rank in the top 30% of the Morningstar 
international hybrid category.  The fund allocates assets among 
stocks, bonds, and money-market instruments in proportions that 
reflect the firm's economic and market outlook.  While it tends 
to invest at least 65% of the equity portion in issuers located 
in three or more foreign countries, domestic securities may too 
be included.

UBS Global Allocation Fund Y (BPGLX) has $175 million in assets 
per Morningstar and at one time was known as the Brinson Global 
Balanced Fund.  It seeks capital appreciation as well as income 
by investing primarily in equity and fixed income securities of 
issuers located within and outside the United States.  At least 
25% of total assets must be invested in fixed income securities 
for income and stability.  Investments in equity securities may 
include common stock and preferred stock.  UBS' deep-value bias 
has produced a below-average risk level over time when compared 
to other international hybrid funds, but recently this fund has 
landed in Morningstar's large-cap growth style box.

As of September 30, 2002, the First Eagle SoGen Global Fund had 
67.6% of assets invested in stocks.  UBS Global Allocation Fund 
was close behind with 66.6% of assets in stocks.  Payden & Rygel 
Global Balanced had just 14.7% of assets invested in U.S. stocks 
and 21.8% of assets invested in foreign stocks, per Morningstar.  

The First Eagle SoGen portfolio has a mid-cap blend style, while 
the Payden & Rygel portfolio has large-cap blend characteristics.  
UBS' fund recently landed in Morningstar's large-cap growth style 
box, a departure from its deep-value discipline past.

www.mutualinvestor.com/charts/dec02/index.asp?image=miwfs120302_01


 


In terms of longer-term investment results, it is hard to dispute 
what First Eagle SoGen Global Fund has accomplished, returning an 
average of 11.3% a year over the last 10 years (using the class A 
shares) and ranking in the top 1% within the international hybrid 
fund category.  The fund's 11.3% average annual return topped the 
benchmark MSCI EAFE index by 6.9% a year and Dow Jones 60% Global 
index by 3.5% a year.  Its Morningstar 5-star rating reflects the 
fund's superior return-to-risk tradeoff over time.

www.mutualinvestor.com/charts/dec02/index.asp?image=miwfs120302_02


 


UBS Global Allocation Fund's 10-year average total return of 7.5% 
topped the MSCI EAFE index, but slightly lagged the Dow Jones 60% 
Global index, ranking in the 71st percentile within the category.  
Relative performance over the past three years has improved, with 
the fund's trailing 3-year average return of 3.1% positive enough 
to rank in the top 8% of the international hybrid category, using 
Morningstar's numbers through December 2, 2002.  While the fund's 
relative risk has risen from below average to average in the last 
three years, its returns have improved enough to receive a 4-star 
overall rating for the trailing 3-year period. 

The tiny Payden & Rygel Global Balanced Fund sports a trailing 5-
year average total return of 3.5% through December 2, 2002, 5.8% 
better than the benchmark MSCI EAFE ND index and consistent with 
the Dow Jones 60% Global index per Morningstar.  Its 5-year fund 
performance was strong enough to rank in the category's best 30%.  
In contrast to the UBS fund, the Payden & Rygel fund has reduced 
its relative risk from average to below average in the last three 
years, a reflection of its higher global fixed income allocation.

Conclusion

The First Eagle SoGen Global Fund, Payden & Rygel Global Balanced 
Fund and UBS Global Allocation Fund are three multi-asset global 
options worth considering for the international portion of one's 
long-term investment plan.  Payden & Rygel's performance has been 
competitive, though it's hard to argue with the stable management 
and superior record of the First Eagle SoGen Global Fund.  If you 
seek a fund that favors undervalued foreign and domestic equities 
with smaller market capitalizations, the First Eagle fund makes a 
compelling case.

For more fund information or to download a fund prospectus, visit 
the respective fund family's website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Trend Reversal

After getting whiplash watching the Dow, I decided to concentrate 
on a more significant level, rather than try to split hairs 
throughout the day. While traders looking for a trade may have 
been frustrated by the lack of an entry point, this simply is not 
the type of market that presents clear opportunities.


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 12-03-2002
Copyright 2002, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: MSFT
Dropped Puts: SLM
Daily Results
Call Play Updates: ICOS, NVDA, QCOM
New Calls Plays: GENZ
Put Play Updates: BDK, HSIC, MEDI, APOL
New Put Plays: DLX


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

MSFT $56.71 -0.98 (-0.97 for the week)  Microsoft sold off on a 
day when the entire tech sector took a tumble.  While the stock 
stayed above support at $55, it seems to have lost the momentum 
it established with the move over $57.  It also traded below 
support at $56.78, hitting an intraday low of $56.41, and 
finishing at $56.71. The drop came in spite of good news from 
SEBL and CTXS, so there seems to be a shift in sentiment.  As the 
biggest tech, with some recent gains, we don't want to chance the 
shorts picking on MSFT. While it doesn't necessarily look like 
it's heading into the tank, we wouldn't enter it long here 
anymore, so were going to close it and look for better 
opportunities.   


PUTS:
*****

SLM $101.41 +1.44 (+3.68 for the week) Sallie Mae got an awfully 
big bounce on a day when the market went into the tank.  While it 
may have been a bounce from the recent sell-off, or traders 
simply discounting the possibility of Congress actually passing a 
law to make the first year of college free, the stock has moved 
back into its gap from November 22.  Rather than give it a chance 
to fill that gap up to the $104 area, we'll close it now and move 
on. Trader's who want to keep it on the radar can look for 
additional shorting opportunities up around $106-$107 if it makes 
it that high.


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

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



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

ICOS $31.96 -0.58 (+0.13) While clearly not screaming up the
charts like it has in recent weeks, shares of ICOS are still
exhibiting some impressive relative strength.  Despite the
weakness in the Biotechs today, ICOS only shed a measly 58
cents as it continues to consolidate its recent gains.  Perhaps
helping to prop the stock up today were comments from Bayer and
GlaxoSmithKline that point to the likelihood that their
anti-impotence drug is on track for European acceptance within
the next few months.  ICOS could be riding along on their
coattails, as the firm is set to introduce its own anti-impotence
drug  next year.  The stock's intraday highs are still moving up
and the next pivotal move could be a breakout over Monday's
intraday high of $32.72.  Look for a trade above $33 on strong
volume (ideally with the BTK index supporting such a move) to
initiate new bullish positions.  Recall that we don't really have
any significant resistance until roughly $39, giving the play
plenty of room to run.  Should we get another pullback first, a
successful rebound from the $31 or even $30 levels could make
for a solid entry.  Keep stops set at $28.50 until we get a
close over the $33 level, at which point we can raise the stop
to $29.50.

---

NVDA $15.88 -1.12 (-1.25) So far, this week has not been kind to
the Semiconductor stocks, with the SOX index shedding more than
9.5% from yesterday's opening high.  Despite the rather sharp
pullback, the pattern of higher lows is still very much intact
and the $330-335 area should prove to be strong support if the
current pullback extends that far.  NVDA got hammered lower with
the rest of the Chip sector today, but really hasn't suffered
any significant technical damage.  This looks like orderly profit
taking ahead of the next push up the chart.  Strong support ought
to be waiting near the $15 level and a rebound from that level
should make for a good long entry point.  Look for confirmation
of that bounce from the action in the SOX.  NVDA rebounding from
the $15 level should coincide with the SOX rebounding from the
support level mentioned above and likely lead to a retest of the
recent highs above $18.  Traders looking to enter on strength
will want to see a volume-backed move through the $17 level (the
top of today's gap down) in concert with the SOX rallying back
through the $375 level.  Keep stops set at $14.50.

---

QCOM $40.81 -1.88 (-0.41) The big story in the Wireless Telecom
sector (YLS.X) this morning was the updated guidance from NOK.
Although the firm reiterated its guidance for handset unit growth
for 2003, it came in below Merrill's increased forecast and the
sellers took control of the sector for the day.  By the closing
bell, the YLS index had shed 4.7%.  Looking at the daily chart,
this pullback is well within the ascending channel that has been
in force since early October.  QCOM held up reasonably well, given
the negative reception of NOK's news.  Although the stock gave up
4.4% on the day, it held solidly above the $40 support level and
really didn't slip any lower after the initial drop this morning.
New entries look good on a rebound from the $40 area, which
should coincide with the YLS index rebounding from the bottom of
its channel near $59.  Wait for QCOM to take out $43 on the next
rebound, with the YLS pushing back through above the midline of
its channel ($62.25) before considering momentum-based entries.
Keep stops set at $39.


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

GENZ – Genzyme General $36.20 +0.96 (+3.40 this week)

Company Summary:
Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

Why We Like It:
With the profit-taking occurring across the broader market, it
is tough finding stocks that are breaking out to new highs.  If
you can find such a creature, you know you've found a pocket of
relative strength.  While it hasn't gotten hit by the sellers to
the same degree as other sectors of the market, the Biotechnology
index (BTK.X) certainly isn't a pillar of bullish strength.
After breaking out a couple weeks ago, the BTK is back at the
$365 level, testing prior resistance to determine if it has
become support.  Against that backdrop, the recent breakout move
in shares of GENZ has been truly impressive.  Ignoring the
action of last Friday's holiday-shortened session, GENZ has put
together three strongly positive days, vaulting from the $30
level (right at the 200-dma) to today's close above the $36 level
for a strong 20% gain on heavy volume.  The $64,000 question is
whether the current move is sustainable.  Judging by the long
column of X's on the PnF chart, which solidly broke through the
bearish resistance line this week, we're inclined to say that it
is.  One catalyst for the stock's outperformance this week is
the CSFB upgrade to Outperform yesterday, which included a $40
price target.  That level certainly looks reasonable to us, as
$39-40 is the site of significant resistance (prior support
before the breakdown earlier this year).  Using that level as
our eventual target for the play, the best risk/reward will
clearly come from entering on a dip and bounce from support.
Our first target would be near the $35 level, where the stock
consolidated yesterday.  But we don't want to rule out the
possibility of a deeper dip to $34 (just above the top of
yesterday's gap), which would provide an even better entry
point.  Due to the strong move already seen in the stock in
the past several days, we don't favor chasing the stock higher
from here, especially with such strong resistance near $39-40.
We're looking for a favorable entry into a momentum run that is
already well underway.  As such, we're setting our stop at
$33.50, as a close below that level would call into question
the strength of the recent breakout move.

BUY CALL DEC-35*GZQ-LG OI= 801 at $2.20 SL=1.00
BUY CALL DEC-37 GZQ-LO OI= 104 at $1.00 SL=0.50
BUY CALL JAN-35 GZQ-AG OI=4500 at $4.10 SL=2.50
BUY CALL JAN-37 GZQ-AO OI=1297 at $2.75 SL=1.25
BUY CALL JAN-40 GZQ-AH OI=1204 at $1.75 SL=0.75

Average Daily Volume = 3.69 mln



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

BDK $40.72 -1.09 (-2.25) Tuesday was another clear victory for
the bears in the broad market, and that applies equally well to
our BDK play, which has slipped lower by more than 5% so far this
week.  After puncturing the $42 support level on Monday, the
stock saw some pretty heavy selling volume (40% above the ADV)
on Tuesday and the stock is fast approaching the $40 support
level.  While testing this level could result in a mild oversold
rebound, the level that actually looks more interesting is $39.
That is close to the closing lows from October, and an important
level of support in July as well.  A drop into the $38-39 area
will provide a solid opportunity to lock in gains from higher
levels.  Traders still looking for an entry into the play need
to wait for the next rebound to gauge the possibilities.  A
rollover near the $42 level looks good, although a pop and
subsequent failure near $43.50 looks even better.  Keep stops
set at $44.50.

---

HSIC $40.43 -0.98 (-2.13) Following the broad market yesterday,
shares of HSIC made one last attempt to scale the formidable
$43 resistance level, before succumbing to the weakness that
enveloped the rest of the market.  While the stock managed to
hold above its recent lows at the close, that support level
fell to the bears' assault on Tuesday, with the stock closing
fractionally below the $40.50 level.  Despite the stock's
weakness over the past 2 days, the declining volume pattern
hints that perhaps this last leg down may culminate soon.  The
July lows near $39 are beckoning to be tested, and it is
entirely possible we'll see a decent oversold bounce from that
area, possibly as early as tomorrow.  For that reason, we're
suggesting that this would be a good point to lock in profits
on trades opened near the $43 level.  We'll have to see whether
that bounce has any life to it before determining whether to
target new entries on a subsequent rollover or if it makes sense
to exit the play.  Right now, another failed rally near the $43
level looks good for new entries, but only if the stock is
unable to close above our stop, which we are lowering to $43.50.

---

MEDI $25.45 -0.53 (-0.93 for the week) Medimmune continued its 
recent sell-off with the break under $26 becoming more decisive 
and showing some resistance there to the upside.  The next 
challenge for MEDI will be the 50-dma at $24.77, with support 
below at $23. Coverage on the stock was initiated with a sell 
rating today by Investec, which gave a target of $19. The firm 
cited decelerating growth of Synagis, the primary factor in 
MEDI's earnings, in 2003-2005.  It also said Ethyol sales should 
see only modest growth in 2003 and the current pipeline is a ways 
off from providing replacement income. Today's drop stopped 0.30 
of a point and figure reversal into a column of "O," which will 
come at $25. MEDI's recent rebound attempts have each been turned 
back by the descending bearish resistance line, now at $29.  Our 
initial recommendation was for entry on a failed rebound 
underneath that level, or a breakdown under $26.  With the 
breakdown occurring first and the market looking like it may be 
ready for an extended pullback, new entries can wait for the PnF 
reversal on a trade of $25.  If we do get a rebound back over 
$27, then it would be prudent to let it run its course and play a 
rollover in the $28-29 range.  

---

APOL $40.50 -0.80 (-0.75 for the week) The bulls were unable to 
give APOL a boost for the failed rebound entry we were originally 
looking for.  However, we did get a continued breakdown and a 
look at previous support just below $40.  The stock bounced at 
$39.73 on Nov 13, and again at $39.80 this afternoon.  The trade 
down below $40 managed to put another "O" into the bearish PnF 
column the stock is currently in. We'd like to see some 
resistance below $40 for a momentum entry, with an intraday low 
beneath $39.50 to make sure the buyers targeting $40 have left 
the building. We like the bearish vertical count of $32 for a 
high reward/low risk play if we can get that resistance at $40. 
Traders should look for another breakdown and failed rally 
underneath that level, before entering.  If the stock falls below 
$39.50 and keeps going, then we will target a move underneath the 
200-dma of $38.27 for new entries.  It appears that the recent 
lower high in the stock has signaled a shift from educational 
stocks to other areas, however, given today's action we may be 
seeing a shift away from stocks altogether.  Merrill Lynch 
announced this morning that it was reallocating from stocks into 
bonds and cash after the recent run, and we may see some downside 
momentum if other firms do the same.


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

DLX  - Deluxe Corp. - $41.40 -1.44 (-2.00 for the week)

Company Description:
Deluxe Corporation's business units provide personal and business 
checks, business forms, labels, self-inking stamps, fraud 
prevention services and customer retention programs to banks, 
credit unions, financial services companies, consumers and small 
businesses. The Deluxe group of businesses reaches clients and 
customers through a number of distribution channels: the 
Internet, direct mail, the telephone and a nationwide sales 
force. (source: company press release)

Why We Like It:
While Deluxe isn't exactly a household name, the company's 
products (ranging from stamps to personal checks) have probably 
played a role in your everyday life.  Their stock also boasts the 
largest market capitalization in the office supplies sector, 
ahead of both USTR, and MCL.  What drew our attention to DLX was 
the way shares have broken down to multi-month lows.  
Fundamentally, we can't find a whole lot to explain this 
weakness.  The stock has been trending lower since mid-October, 
despite a lack of noteworthy news developments.  The latest 
quarterly report actually included an EPS result that was 9 cents 
better than consensus estimates.  Not bad, but Wall Street didn't 
seen to be very impressed - DLX has given back more than 10% 
since the earnings announcement on October 17th.  Meanwhile, the 
Dow Jones has clawed its way to a gain of 5.6% over the same time 
period.  

That pattern of relative weakness was on display during today's 
session, as DLX underperformed the broader market and fell below 
support at $42.00.  Shares also closed below the 50% retracement 
level from July lows to October highs.  This breakdown was 
accompanied by the largest volume in over a month.  With the PnF 
chart showing a spread-triple sell signal and the daily 
stochastics (5,3,3) heading lower, it looks like the stock could 
continue to retrace its rapid late-summer gains and reach the 
August lows near $37.00.  Given enough time (and some cooperation 
from the broader market), a retest of the July lows ($33-$34) 
wouldn't be out of the question.  Possible support lies in the 
$39.50-$40.00 region.  Traders can consider two possible entries 
for this play.  Momentum traders can look for a trade beneath 
today's low of $41.29 for entry. If we get a bounce, then a more 
attractive risk/reward scenario comes on a failed rebound under 
$44.00.  We'll set the stop at $44.25, above recent resistance 
and the 200-dma of $44.08.

BUY PUT DEC-45*DLX-XI OI=  84 at $3.80 SL=1.90
BUY PUT DEC-40 DLX-XH OI= 184 at $0.85 SL=0.00

Average Daily Volume = 344 k



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The Option Investor Newsletter                  Tuesday 12-03-2002
Copyright 2002, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three: 

Play of the Day: PUT - DLX
Futures Corner: If... Then


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

DLX  - Deluxe Corp. - $41.40 -1.44 (-2.00 for the week)

Company Description:
Deluxe Corporation's business units provide personal and business 
checks, business forms, labels, self-inking stamps, fraud 
prevention services and customer retention programs to banks, 
credit unions, financial services companies, consumers and small 
businesses. The Deluxe group of businesses reaches clients and 
customers through a number of distribution channels: the 
Internet, direct mail, the telephone and a nationwide sales 
force. (source: company press release)

Why We Like It:
While Deluxe isn't exactly a household name, the company's 
products (ranging from stamps to personal checks) have probably 
played a role in your everyday life.  Their stock also boasts the 
largest market capitalization in the office supplies sector, 
ahead of both USTR, and MCL.  What drew our attention to DLX was 
the way shares have broken down to multi-month lows.  
Fundamentally, we can't find a whole lot to explain this 
weakness.  The stock has been trending lower since mid-October, 
despite a lack of noteworthy news developments.  The latest 
quarterly report actually included an EPS result that was 9 cents 
better than consensus estimates.  Not bad, but Wall Street didn't 
seen to be very impressed - DLX has given back more than 10% 
since the earnings announcement on October 17th.  Meanwhile, the 
Dow Jones has clawed its way to a gain of 5.6% over the same time 
period.  

That pattern of relative weakness was on display during today's 
session, as DLX underperformed the broader market and fell below 
support at $42.00.  Shares also closed below the 50% retracement 
level from July lows to October highs.  This breakdown was 
accompanied by the largest volume in over a month.  With the PnF 
chart showing a spread-triple sell signal and the daily 
stochastics (5,3,3) heading lower, it looks like the stock could 
continue to retrace its rapid late-summer gains and reach the 
August lows near $37.00.  Given enough time (and some cooperation 
from the broader market), a retest of the July lows ($33-$34) 
wouldn't be out of the question.  Possible support lies in the 
$39.50-$40.00 region.  Traders can consider two possible entries 
for this play.  Momentum traders can look for a trade beneath 
today's low of $41.29 for entry. If we get a bounce, then a more 
attractive risk/reward scenario comes on a failed rebound under 
$44.00.  We'll set the stop at $44.25, above recent resistance 
and the 200-dma of $44.08.

BUY PUT DEC-45*DLX-XI OI=  84 at $3.80 SL=1.90
BUY PUT DEC-40 DLX-XH OI= 184 at $0.85 SL=0.00

Average Daily Volume = 344 k



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

If . . . Then 
By John Seckinger
jseckinger@OptionInvestor.com

When putting on a trade, there are usually four different 
scenarios that have to be considered.  

The trading session in question is Tuesday, December 3rd.  The 
contract: YM.  Going into the session, if you read my futures 
wrap it became clear that I was fixated on a bullish daily trend 
line in the Dow (used for YM trading) that began back in October.  
To me, either breaking or maintaining this upward sloping line 
could help define sentiment going forward.  With that said, I 
pulled up a micro chart of the Dow and YM02Z and waited for the 
market to open.  

So here comes the If/Then statements (remember, there are 
questions can be used to enter most, if not all, trades):

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

With the market quickly trading underneath this trend line 
(see charts below), I will now look to short the YM 
contract with a stop nicely above the rising trend line 
(most likely at 8850 and just above Monday’s close).

If the YM does trap longs, and by definition proceeds to rise back 
above this trend line and stop me out at 8850, I have to look to go 
long with a stop back underneath the trend line.

If the Dow remains comfortably below, I will look to add to positions 
as probabilities increase that bearish sentiment will pick up during 
overnight activity.  

The YM opened underneath the trend line.  If it did not, I would ask 
this question:  If the trend line holds, look to go long with a stop 
back underneath this trend line.  

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

After reading these questions, it might become clear how trading 
involves more than a simple buy and sell signal.  One of the biggest 
fears of trading is being caught in a trap (read: selling the bottom or 
buying the top).  That is a risk of trading, and nowhere does it say 
that “if you sell the bottom you can never trade again.”  That 
statement only comes into play with poor account management or an 
opinion that goes opposite of price action.  

As a trader, sometimes it is hurtful to wait for too much confirmation.  
If the trend line comes in at 8800 and the market trades 8775, does it 
make sense to wait for a move to 8700 to confirm the move?  I don’t 
think so.  Moreover, as a swing trader, when trading breakdowns 
(breakouts) it is usually a good idea to keep the position overnight 
and make the market prove to you that it was a trap.  Otherwise, there 
will be countless “if only” statements instead.  

Getting to today’s action, execution could have taken place either 
during the opening (my choice) or when the 8785 level failed (not bad 
either). The 8785 area was taken out early, and the market kept testing 
this trend line until it finally gave way.  As noted earlier, a stop 
ideally would be placed at 8850.  This is a good distance from the 
trend line at 9:30 a.m.; however, I think it is warranted since this 
bullish trend line has been so psychologically significant over the 
last month or more.  

Chart of YM02Z, Daily 


 

The caveat is that the blue trend line is upward sloping and it 
certainly doesn’t make sense to have a stop go to 9,200 if the market 
just sits here day after day.  For the first day, it does make sense; 
especially if it lowers your risk (8850).  When to lower the stop from 
8850 to the blue trend line?  For me, a good rule of thumb is with 
about 45 minutes until the end of the session (a few minutes after the 
bond market closes to get rid of the added volatility).  If the market 
is above the trend line and below 8850 at that time, maybe cut the 
position down to a quarter position or take it off entirely.  I 
personally would sell the entire position.  Looking at today’s price 
action, with 45 minutes to go the trend line was close to 8845 anyhow.  

Chart of YM02Z, 5-minute


  

Ok, now let us do some hypothetical situations.  If the YM trades 8658, 
we will have to same questions.  If the market goes underneath, I would 
add to the position and then lower a stop now to be just above 
Tuesday’s low.  If the market bounces at 8658, I would move the stop to 
just above 8785 (maybe even 8805) and make sure the market is not just 
doing a short covering bounce.  Above 8785 would make me think 
sentiment has turned.  Where would the stop be heading into Wednesday?  
8805, since that is above the 8800 pivot and the 8801 high in the Dow 
during the last few hours of trading.  

The caveat with a falling market?  Getting a bullish bias and going 
Long, right?.  The aforementioned bullish trend line will start to go 
out of sight, and buying a bounce off support might only be viewed as a 
short-term trade (day trading via “open to close” strategy or “got a 
minute” patterns).  Before I answer this differently, here is a look at 
my support/resistance/pivot levels for the YM (from Futures Wrap).

YM02Z

      Support               Resistance                Pivot    
		
	8658				8800				8800
	8645-25			8875				8625
	8500				8900
8425				9077

The way to take the caveat out of the picture is to simply trade 
levels.  This can be done if a trader is flat and the market is near a 
support level, say 8500.  At 8500, ask the same four questions again 
and then proceed to put on a trade.  Yes, this really is how Market 
Makers think; however, they do things on such a micro level and in 
size.

I will say this over and over, “emotional trading is the most costly of 
all.”  How do emotions get in the way?  Let us stick with the 8500 
level.  The market opens at 8550 and trades down to 8490 and pauses.  
Should we go short?  Of course, we are trading levels and the level did 
not hold.  The “emotional” side could start saying, “let the market bid 
back to 8500 and then we can get a better execution.”  The story 
usually goes on with the market going to 8425, a short position is THEN 
taken, and then the market bids back to 8500 and a loss is realized.  

Which brings me to another question.  What rule do we have to classify 
a bounce?  Volume?  Nah, I have found that doesn’t work as well as I 
would like for swing trading.  I recommend using a trigger roughly 10-
points underneath, period.  And this is only for horizontal lines of 
support/resistance.  Trend lines can be used at their exact level.  For 
a stop if going short at 8490, use a daily chart for levels.  

With the break of the bullish trend line, I used a good stop because 
this line, to me, holds solid importance.  With 8490, I have a feeling 
there is support at 8415-8425; therefore, I would look to place a stop 
of roughly 25 points and re-evaluate if 8425 is hit.  

You might be asking yourself, “Can I use this method of trading every 
day?”  If a market maker and looking for cents out of a stock, sure; 
however, this style will most likely only come up a few times a month 
or less.  Am I crazy to sell a market that is up significantly from 
October?  Just as crazy as I was to profile a weekly bullish divergence 
in the RSI during October.  Will this trade work extremely well?  Odds 
are barely in the bears favor now, but I think now is a good time to 
start small and hopefully end and win big.  If I am proven wrong 
miserably, don’t worry, I will have exited and will certainly look to 
capture a move upwards.  No emotions, just trading levels and clear 
technical trends.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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