Option Investor

Daily Newsletter, Wednesday, 12/04/2002

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The Option Investor Newsletter                Wednesday 12-04-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Lower Lows
Futures Wrap: From 200 to 22
Index Trader : S&P 100 reverses to "Bear Alert"!
MUI CONTENT OF THE DAY: Top Three Fund Families: #3 American Funds
Options 101: Confirmation Is Crucial

Updated on the site tonight:
Swing Trader Game Plan: Volatility 101

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
12-04-2002                High    Low     Volume Advance/Decl
DJIA     8737.85 -  5.08 8811.62  8653.38 1858 mln  619/1193
NASDAQ   1430.35 - 18.61 1444.18  1412.92 1856 mln  272/1566
S&P 100   468.03 -  1.59  472.46  463.86   totals   891/12759
S&P 500   917.58 -  3.17  925.21  909.51
RUS 2000  397.53 -  3.30  400.83  394.22
DJ TRANS 2345.48 +  8.44 2365.91 2318.16
VIX        32.14 +  0.38   33.14   31.23
VIXN       53.55 +  1.56   55.73   52.72
Put/Call Ratio 0.89

Lower Lows
by Steven Price

We tested some crucial levels today and the major indices 
left us questioning whether we had seen a trend reversal. 
We have definitely been seeing lower intraday resistance 
points for the last several days, but the big question 
is when it is time to turn around and go short.  One of 
the indications I like to focus on is whether we continue 
to find buyers at successively higher levels on each 
pullback in a rising market.  A series of higher highs 
and higher lows is certainly bullish and short plays 
aren't profitable for long.   However, when those higher 
lows turn into lower lows, red flags fly and that is 
exactly what we saw today. 

We started out in a downdraft this morning, following 
several announcements after yesterday's close.  Hewlett 
Packard CEO Carly Fiorina said the company was ahead of 
schedule in trimming costs, but that the company could 
not raise guidance due to tepid technology spending and 
an uncertain economy. That weighed on the tech sector 
this morning, with the Nasdaq Composite dropping 36 
points a low of 1412.92 early on, before rallying back 
to a close of 1430.34, down 18.62 on the day.  The low 
of the day was below its last pullback, on November 26, 
and constituted the first lower low since the recent 
rally began during the second week of October. The 
most recent breakout level for the index was 1426, the 
August high, and led a powerful run to the recent high 
of 1521.44.  After today's rebound took us back over 
that level, we are left deciphering the significance 
of a close back above the breakout level.   

Chart of the COMPX

The Semiconductor Index (SOX) also fell steeply, 
following the Hewlett Packard news, along with a Morgan 
Stanley downgrade to the semiconductor capital equipment 
makers, based on their outlook for a muted cyclical 
recovery in 2003. As if that weren't enough for nervous 
stockholders, after the recent rally has faded, Deutsche 
Securities also downgraded the analog chip stocks, saying 
they expect fundamentals to become incrementally weaker. 
Software maker PeopleSoft also said it saw customer 
spending flat next year.  While it is not a chip stock, 
I want to make readers aware that the spending issue is 
still alive and well across the tech sector. The SOX 
pullback was significant in that it also broke the 
trend of higher lows on each pullback during the recent 
rally. It established a lower low for the first time 
since the rally from 214 began in the middle of October 
and is now testing the bottom trend line of its 
ascending channel.   What may also be significant is the 
bounce from a previous resistance point at 329, with an 
intraday low of 330.  The chip stocks have pretty much 
led the tech sector and today was no different.   If we 
get a drop under 329, 310 is most likely the next support 
line, with a trip back into the 200s not far behind. 

Chart of the SOX

In keeping with the same theme, we also saw the Dow, OEX 
and SPX set lower lows this morning, followed by an 
afternoon rebound that took them briefly into positive 
territory, before falling into the close.  The Dow fell out 
of its ascending channel when it traded under 8750 
yesterday, and then broke the trend of higher lows when it 
dropped under 8670 this morning.  The current trend 
reversal, if that's what it is, is fighting a number of 
factors.  First, we have been trending up since the 
second week of October.  Second, the bullish percentages 
are very high, with the Dow and NDX in overbought 
territory, and underscore both the current strong bullish 
sentiment in the market, as well as the risk to getting long 
in such overbought conditions.  That bullish sentiment, 
however, tends to bring in dip buyers, even if the dips grow 
successively lower.   A look at the point and figure chart 
shows that although the Dow set a lower low on the daily chart, 
it bounced just 3 points above the PnF sell signal. Traders 
looking to go short the broader market on a Dow signal may 
want to target that sell signal at 8650, which would confirm 
the lower low on the daily chart. Judging by the 2:1 decline 
to advance ratio, we may see that number soon.

Chart of the Dow

We got a couple of economic reports this morning. Non-farm 
productivity rose at an annual rate of 5.1%, revised higher 
from last month's estimate of 4.0%.  This reflects the 
results of job cuts and was the highest gain since 1973.  
Fed Chairman Alan Greenspan warned last month that the gains 
we are seeing in productivity, resulting from job cuts, is 
not sustainable and will eventually drop off as we either 
stop getting rid of workers, or employees who are picking 
up the slack with longer hours eventually burn out and become 
less productive.  Factory orders actually came in below 
expectations, although they still saw an increase of 1.5%.  
This was the first increase in three months, but September 
orders were revised downward, as were bookings at 
manufacturers for durable goods.  The ISM non-manufacturing 
index also showed a gain, coming in at 57.4, considerably 
above expectations for 54.0. The ISM report resulted in a 
short-lived market rally after it was released mid-morning, 
but the Dow re-tested its lows after that gain. 

As we head further into the official holiday shopping season, 
we got a couple of warnings about sales coming in below 
expectations.  I have said before that one of the big wild 
cards in a continuing rally is holiday sales, which reflect 
consumer spending patterns.  If consumers won't spend at this 
time of year, then any economic recovery could be a ways off.  
Federated, which owns Bloomingdale's and Macy's, said that 
even better than expected Thanksgiving sales did not offset 
weakness from earlier in the month and that it sees November-
December holiday sales at the lower end of its previous 
guidance, which predicted sales flat to down 2.5%.   
That would indicate an even weaker holiday season than last 
year, when we were still recovering from 9/11.   The 
sentiment was reiterated by American Eagle Outfitters, which 
saw its same store sales decline 4.9% in November. Office 
Depot, which relies more on the business sector than 
holiday shoppers, nevertheless also saw 4th quarter sales 
running below expectations. The Retail Index still managed 
to eke out a gain for the day, but the more reports we get 
of this nature, the gloomier my outlook gets. 

United Airlines (UAL) plunged after the bell, falling from 
a closing print of $3.12, to a low of $0.80, before rebounding 
to trade just over $1 per share.  The airline's application for 
a $1.8 billion loan was rejected by the Treasury Department's 
Air Transportation Stabilization Board and UAL will likely file 
for bankruptcy.  The board said the company's business plan 
was not financially sound and based on unreasonable revenue 
projections. The board's statement said, "This plan does not 
support the conclusion that there is a reasonable assurance
of repayment and would pose an unacceptably high risk to 
U.S. taxpayers."    

With non-farm payrolls and unemployment claims out in the 
morning, we should get a good idea whether today's failed 
afternoon rally to 8800 in the Dow was bullish, after 
testing the new low mentioned earlier, or bearish, as we 
have a new ceiling in place. I'd be looking for a break
 back below 8650 as a sign to pile on short.  If we break 
back over 8800, then the next pivotal level will be the August 
high of 9077. The market has been whipsawing us dramatically 
in recent weeks, so be careful to commit only levels of capital 
you are comfortable with, and don't be afraid to close out a 
loser for minimal cost. At some point, we should see a definable 
trend, but for the moment, staying lean seems the most 
prudent idea. 


From 200 to 22 
By John Seckinger

It was only a few days ago when traders were watching the 200 
DMA’s (exp) for guidance.  On Wednesday, it was the 22 DMA that 
garnered a lot of attention from traders.  

Wednesday, December 4th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     918.75     -5.00      925.75      908.75      749,636
YM02Z    8742.00    -23.00     8812.00     8646.00       23,913
NQ02Z    1069.50    -25.00     1094.00     1055.00      339,813

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 Intel came under pressure on 
Wednesday after a WSJ article noted that most of the chip 
industry does not deserve the high valuations given to growth 
stocks.  The WSJ also noted that the White House is close to 
proposing a reduction in taxes that individuals pay on corporate 
dividends.  In other news, Lehman issued positive comments on 
HPQ, while Cisco was selected by SBC to supply equipment for 
SBC’s high-speed network.  This should result in sales of 12k 
routers.  Shares of HPQ closed down 4.47% to 18.37, while CSCO 
fell fractionally to 14.42.

In other news, AOL Time Warner was downgraded by Morgan Stanley 
as shares lost 2.6% to close at 13.84.  On the economic front, 
Q3 productivity was revised higher to 5.1% versus 4.5% consensus, 
while factory services rose 1.5% against estimates for 1.7%.  ISM 
Services rose to 57.4% versus consensus estimates of 54%.  
Towards the end of the session, it seemed as though Microsoft was 
responsible for the late session bidding, rising significantly 
off its lows as the company mentioned it sees modest PC shipment 
growth for fiscal year 2003.  Shares closed at 56.54, having an 
intra-day high of 57.44 and low of 55.82.  

Notes:  On Thursday, look for an announcement from the European 
Central Bank regarding rates, as well as Intel’s mid-quarter 
update, a Merck conference call, and statement from St. Louis Fed 
President Poole (non-voter).  On Friday, National Semi (NSM) is 
to report earnings, and a highly anticipated non-farm report is 
also scheduled.  Estimates for the non-farm report is for a 35k 
increase in jobs versus a 5k contraction the month prior.  The 
unemployment rate is expected to rise to 5.8 percent from 5.7. 

Technical News:  The Sox index lost 5.73% to 335 on Wednesday; 
however, this index closed at the top end of a trading range 
between 330-335 throughout most of the session.  Note: There is a 
trend line from the relative high on August 22nd at 367.90 that 
bisects the high on November 4th of 337.65 and the high on 
November 18th at 331.63.  This line currently comes in at 225, and 
bearish sentiment should pick up once below.  Note:  The 22 DMA 
(exp) comes in at 336.  


The December Mini-sized Dow Contract (YM02Z)

The Dow had an intra-day low of 8653 and did NOT take out the 
8625-8645 level profiled on Tuesday.  This 8645 level did 
correlate to the Dow’s 22 DMA on Tuesday; however, this moving 
average is currently higher at 8647.  I will continue to use a 
move under 8625 as a solid shift in sentiment.  Note:  There was 
solid volume on Wednesday, and the close was almost exactly the 
same as where the blue chips opened (8737 versus 8734, 
respectively).  This is called a “doji” formation (candlestick 
term) and signals indecision.  Also important to note, the 
bullish trend line currently comes in at 8896.  With that said, 
intermediate traders can wait until either a solid move under 
8625 or above 8900 before entering.  

Chart of Dow Jones, Daily 

Looking at a 10-minute chart of the YM02Z, market participants 
used the high on November 20th at 8647 and low on November 21st at 
8673 as a “zone of support” during trading on Wednesday.  
Moreover, the highly watched 8800 level became an important pivot 
as well.  For short-term traders, look for a move back under 8690 
as a catalyst for a quick test of  8650 and the strength of 
longs.  On the other hand, a move back above 8800 should be the 
catalyst for a rise back to 8850 and maybe even 8925, depending 
on the volume.  Note:  The most important level on Wednesday and 
going forward is 8625 and the bullish trend line in the Dow
(should trend from 8893 to 8940 on Thursday).  

Chart of YM02Z, 10-minute 

Support       Resistance          Pivot    
8673			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)

From relative strength to relative weakness.  The NDX lost 19.31 
points, or 1.77%, to 1069 as well as having an intra-day low of 
1055.11.  The “zone of support” from 1080 was easily broken, and 
the close under 1070 now has the index below both horizontal and 
vertical support areas.  The 1058 support level was also broken 
on an intra-day basis.  Looking at a 120-minute chart of the NDX, 
the 1083 area has become resistance and the downward objective 
comes in at 1023.  Look for the 1083-85 area to become an 
important pivot going forward.  If the NDX does manage to get 
back above 1085, there is a good chance 1100 will be on bulls’ 
minds.  A close above 1120 (now 50 points higher) is needed to 
bring sentiment back to more bullish readings.  

Chart of NDX, 120-minute

A five-minute chart of the NQ02Z contract shows prices gapping 
underneath the “zone of support” level and consolidating, before 
rising back through the channel just to test the strength of 
bears at 1083.  It is interesting that the contract never tested 
neither the 200 PMA nor the rising bullish trend line.  On the 
other hand, the NQ contract did close at the top of the channel 
established during most of trading on Wednesday.  With that said, 
least resistance should be lower, but it is perfectly acceptable 
to wait until the daily lows on Wednesday (1055) is taken out.  
If more aggressive, look for weakness under 1064; however, if 
this does happen, a move back above 1073 should be a signal that 
bulls remain in control.  Note:  If watching the 200 PMA, I would 
pull up a 30-minute chart, which shows how this 200 average went 
from a solid support area to resistance all in one session.  This 
200 PMA currently comes in at 1081, reinforcing the pivot near 

Chart of NQ02Z, 5-minute 


Support        Resistance          Pivot 

1058			1080-85		1110
1040			1100			1100
1023			1110			1083
1000			1120

Bold signifies levels within the NDX.  

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

The 910-912 area was tested on Wednesday, but we certainly didn’t 
have the “collapse underneath” needed to get the contract down to 
900.  I would define a ‘collapse’ as price action on heavy 
volume, whereas the aforementioned level becomes strong 
resistance.  The market did find a bid at the 910 level, and 
almost came back to the solid pivot area of 927 (a level that 
should then signal a move back towards 937 and 942).  
Looking at a 120-minute chart of the SPX contract, notice how the 
mid-point of the regression channel acted as resistance while the 
green line managed to control the selling pressure.  One of these 
levels will most likely give in the next two sessions (with news 
from Intel and the non-farm report due out on Friday).  

Chart of S&P 500 Index, 120-minute

The ES02Z contract closed exactly on the 918.75 support level 
profiled on Tuesday, and this seems to define current sentiment; 
neutral.  The outside range continues to be at 907 to 927, with a 
solid break really defining sentiment in the near term.  The 
downside objective is 900, while above 927 should send the index 
towards 940.  Note:  The ES contract does seem to trade a tad 
below support or above resistance; therefore, feel free to 
‘massage’ the level(s) by a few points.  I would look to the Dow 
for confirmation, actually.  It is ok when one looks to buy 
support and sell resistance, but not capturing momentum.  With 
that said, if the market does gap lower, look for bids near 900 
for a move back towards 910.  As far as the 927 level is 
concerned, it is ok to wait until a trade above 930 for 
confirmation.  The extra 3 points should be the appropriate 
‘massage’.  During the next few days, I will use 907.25 for this 
exact reason.

Chart of ES02Z, 30-minute 


Support        Resistance          Pivot    

907.25		927-930		927
900-902		937			918
894			942			907.25

Bold signifies levels within the S&P 500.  

Notes on 22 DMA’s (exp):

Dow low at 8653, 22 DMA at 8648
Nasdaq low at 1412.92, 22 DMA at 1415.49
Sox close at 255.62, 22 DMA at 336
MSFT low at 55.82, 22 DMA at 56.04
S&P 500 Cash low at 909.51, 22 DMA at 912.28
UTY index low at 241.94, 22 DMA at 242.80
TYX.X index low at 49.84, 22 DMA at 49.87
OEX low at 463.86, 22 DMA at 465.41

Good Luck.

Questions are welcomed,

John Seckinger

S&P 100 reverses to "Bear Alert"!

We've got a lot to cover tonight, so I'll be brief with today's 
intra-day market news.

Today's economic news showed some marginal growth at the 
industrial level as orders placed with U.S. plants increased for 
the first time in three months to 1.5%, which was slightly below 
economist's estimates for 1.7% growth.  The more up-to-date look 
at the factory/industrial level was in Monday's ISM Index, which 
showed contraction in manufacturing for a third month.  

Technology sectors declined for a second session, hinting that 
investors may be questioning certain price valuations with little 
growth at the industrials level, making it difficult for 
company's to ramp up IT spending or capital expenditures to 
increase production capacity, which still looks to have plenty of 
capacity that is not being utilized.

Before the bell, the Labor Department reported that revised 
productivity (preliminary Q3 was 4.0%) reached 29 year highs in 
the third quarter at a 5.1% annual rate, as recent job-cuts by 
businesses, combined with implementation of technology purchased 
in 1999 and 2000 are making for a leaner yet more productive 
workforce.  Over the past year, productivity (output per hour 
worked) in the non-farm sector rose at a staggering 5.6% annual 
rate, the highest since the first quarter of 1973.  Most 
economists look for sustainable productivity growth of 2 to 3% in 
the long run.

While the productivity numbers help take inflation out of the 
picture on a near-term basis, especially at the job's level, 
today's gain in the Gold/Silver Index (XAU.X) 68.03 +1.35% along 
with the December Gold futures (gc02z) 322.20 +0.62% may have 
some investors looking for current productivity rates to cool 

This may not be "foolish" thoughts after Hewlett-Packard's 
(NYSE:HPQ) $18.37 -4.47% said corporate spending remains in a 
slow growth phase in a fiercely competitive environment.

The gains in productivity can be viewed positive as it allows 
company's to manufacture goods with less man-hours, while product 
pricing at the consumer level if held steady can allow for 
stability in earnings.  However, only with further productivity 
or renewed demand for products will top and bottom line earnings 
be found.

Another positive from today's economic data was the ISM Services 
Index showing an upside surprise reading of 57.4, compared to 
economist's expectations for a 54.0 reading.  This is a diffusion 
index where levels above 50 are considered expansionary.  Once 
again, the disparity between this services reading above 50.00, 
while Monday's industrials reading below 50.00, being that of a 
consumer still relatively strong and willing to spend.

As time passes, investors will continue to focus on the weekly 
and monthly jobs data and we'll get a look at weekly jobless 
claims tomorrow, as well as November nonfarm payroll and 
unemployment rates on Friday.

While on the surface, today's equity markets declines were 
fractional, but some internal damage was done.

As is usually the case, the more narrow bullish % indicators are 
the first to reverse up or down from more oversold or overbought 

It may seem like I've been "crying wolf" in recent sessions as 
the bullish % charts of the narrower Dow Industrials, S&P 100 and 
NASDAQ-100 have grown above the 70% and more overbought levels.  
However, those observations were made in order to advise bulls 
that risk levels were running high.

Today's action did see some more meaningful internal weakness 
taking place as the S&P 100 saw a net loss of 6 stocks to point 
and figure sell signal.  This has the S&P 100 Bullish % ($BPOEX) 
from www.stockcharts.com reversing the needed 3-boxes to 
establish a "bear alert" condition.  

S&P 100 Bullish % ($BPOEX) - 2% box

Today's net loss of 6 stocks to point and figure sell signals 
tells us that we're starting to see supply begin to overtake 
demand on a more meaningful basis in the OEX and levels of past 
near-term support, where demand was strong enough at a given 
level begins to give way in at least 6 stocks.  This is normal as 
the OEX now begins to digest some of its recent bullish gains and 
profits are taken.  In Tom Dorsey's book "point and figure 
charting" notes are made that defensive action is warranted as 
bullish traders begin hedging bullish positions with protective 
puts.  This becomes VERY important at the institutional level 
where large inventories of stocks are held to meet market 
liquidity needs.

Traders can easily begin making RISK level ties to that found in 
early April of this year in relation to current levels of risk 
and similar "bear alert" signals.  One must NOT assume bullish % 
declines to 50% or below 30%, but risk to those levels must 
immediately be assessed.  For easiest tie, I'd suggest traders 
refer to a point and figure chart of the OEX, by first doing so 
on the traditional $5 box, then unconventional $2.5 box like we 
did last night.

Tonight, I'll show a weekly interval chart of the OEX.  Here I 
will simply take two retracement, just as a trader could have 
done back in April of this year, taking retracement from the 
relative low, to the relative high where the "bear alert" 
condition was created.  Then, the VERY SAME and systematic 
approach can now be taken given today's "bear alert" status in 
the OEX.

S&P 100 Index Chart ($OEX.X) - Weekly Interval

Stepping back and looking at a point and figure chart, or even a 
weekly interval bar chart allows the trader/investor a "big 
picture" look at the OEX and a greater time horizon of 
observations.  It's interesting to say the least that today's OEX 
close (468.03) and "bear alert" reading at 80.9% retracement is 
quite similar to early Aprils close at 80.9% retracement of 
576.97 at 80.9% retracement.  If history were to repeat, then 
MINIMUM downside risk is immediately assessed to 448, (round 
number 450) in the OEX.  That may tie in with the point and 
figure chart of the OEX we looked at last night on the $2.5 box 
scale where the bullish support trend was at $442.50 and where we 
identified "critical support" at 445.  

I like a 1/4 or 1/2 position bearish trade in the OEX here.  A 
1/4 bearish position here, say 1 contract, allows a trader to 
wait one week, perhaps find a rally entry near 480 for an 
additional 1/4 position (then holding 1/2) and sit tight.  Then 
should bullish support (longer-term trend) on point and figure 
chart get broken, begin rounding to full positions as 
profitability is found in early 1/4 positions.

I would suggest options traders that want to implement the 
partial positions strategy, look further out than 1 or 2 month 
expiration.  Give yourself TIME to then leg into positions.

Out the money puts are sometimes preferred by more speculative 
options traders.  That type of trading is understood to be 
"higher risk/ higher reward potential" trading.  As such, even 
smaller positions should be taken with the higher risk/reward 

Now lets take a look at the broader S&P 500 Index (SPX.X) 917.58 
-0.34% with the "bigger picture" of the OEX in our mind's eye 
(both look very technically similar) and the observation of 
potential weakness in the next couple of months.

S&P 500 Index Chart - Daily Intervals

The SPX found support near the rising 21-day SMA and I think 
today's ISM Services report had something to do with that 
technical support.  I would not be "freaking out" if traders 
bought the dip with the mindset of a short-term "pop" back near 
950 on the SCENARIO that tomorrow's weekly jobless claims might 
show continued improvement as has been the trend the last couple 
of weeks.  HOWEVER, if long/bullish, I would look to keep a tight 
stop just under today's low.  The SPX did violate and close BELOW 
a rather aggressive upward trend and hints that some momentum is 
being lost.

While the narrower S&P 100 Bullish % ($BPOEX) did reverse into 
"bear alert" status, we can understand it takes a lot more 
selling to have the broader S&P 500 Bullish % ($BPSPX) doing the 
same.  In up and down moves, we always look for the narrower 
bullish % charts to reverse course FIRST, which is often times an 
EARLY signal of internal weakness.  

Today's action did see a net loss of 1.8%, or 9 stocks to point 
and figure sell signals in the S&P 500 Bullish %.  This has the 
S&P 500 bullish % inching down at 66.6% and it would take a 
reading of 62% to see a reversal lower into "bull correction 
status."  Again.... the "bear alert" status given by the OEX 
bullish % is because it had reached a level of 70% or higher.  So 
far, the SPX bullish % has not reached the 70% level.

Dow Industrials Chart - Daily Interval

The Dow Industrials traded rather strong RELATIVE to the other 
major market indexes and actually pushed to a 69-point gain late 
this afternoon.  It has been my observation over the years that 
when the bullish % charts get more extended, especially in the 
more volatile and "high flying" technology sectors, equity mutual 
fund managers will take profits in their technology stocks and 
according to prospectus, HAVE to stay fully invested (90% or 
more) in equities and then tend to stash those profits in the 
larger cap, and very liquid Dow components.  Even if they "think" 
equities are overbought, they'd rather risk 10% losses in the 
Dow, that potentially risk 20% in the more volatile technology 

Today's action saw no change in the VERY narrow Dow Industrials 
Bullish % ($BPINDU).  Status remains "bull confirmed" at 70%.

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

While the QQQ is an AMEX listed stock, it is representative of 
the largest NASDAQ stocks that MARKET MAKERS trade.  It may not 
be coincidence that the QQQ held $26.18 today as this might be 
considered "market maker" support, but with the OEX bullish % 
reversing and the NASDAQ-100 Bullish % ($BPNDX) starting to show 
some internal sell signals, I'm now looking for resistance to be 
firm near $28 as market makers begin taking on more of a sell 
bias as they look to manage risk in their NASDAQ inventoried 

Today's action saw a net loss of 5 stocks to point and figure 
sell signals as the NASDAQ-100 Bullish % ($BPNDX) slips from 82% 
bullish to 77% bullish.  It would take a reading of 76% for this 
bullish percent to reverse into "bear alert" status.  

Note:  The retracement used in the above QQQ chart was derived in 
part from our "Ask the Analyst" column of 11/24/02 
and could be used in conjunction with this past weekends column.

Jeff Bailey

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Top Three Fund Families: #3 American Funds

Over the next three weeks, we'll profile the three biggest and 
best-managed mutual fund families in the nation, beginning with 
the American Funds Group of Los Angeles, California.  American 
Funds is a family of "load" mutual funds and variable annuities 
that takes a long-term view in their investment approach and is 
dedicated to helping people build long-term investment success.

They are one of the nation's oldest mutual fund families, with 
roots dating back to 1931, and they're the largest mutual fund 
family sold/distributed exclusively by financial advisers.  The 
American Funds Group does this because they believe strongly in 
the value of a financial adviser.  They feel financial advisers 
can be instrumental in helping investors develop and stick to a 
long-term financial plan.  

The third largest U.S. mutual fund family has approximately $325 
billion in investments today and 15 million shareholder accounts, 
per company sources.  One of things that differentiates American 
Funds Group from other fund families is its true "global" focus, 
with over $70 billion in non-U.S. assets managed.  The American 
Funds is part of The Capital Group Companies, one of the world's 
largest asset management organizations.

If you go to the company website (www.americanfunds.com) you can 
learn more about the fund family and its diverse lineup of funds.  
There you'll find a section summarizing what makes them different 
from the competition, paraphrased as follows:

 What Makes The American Funds Different:
 1. Long-term focus (long-term, value-oriented approach)
 2. Global research (unparalleled global research effort)
 3. Unique management (multiple portfolio counselor system)
 4. Experience (experienced investment professionals)
 5. Low expenses (a commitment to low operating expenses)

The American Funds Group and The Capital Group Companies focus on 
one business - managing money.  They seek to make money over time 
with reduced risk relative to similar funds by taking a long-term 
value-oriented investment approach.  Securities are valued versus 
their true worth and the company commits substantial resources to 
its global research effort.  The firm's unique "multiple-manager" 
portfolio management system, now in use for over 40 years, blends 
teamwork with individual accountability.  Only professionals with 
experience and expertise are brought into the system, and once in 
the prestigious organization they tend to become lifers.

Like the Vanguard Funds, the American Funds are committed to low 
operating expenses.  They recognize that ongoing annual expenses 
can have a substantial effect on long-term total return.  Having 
low expenses doesn't guarantee success, but it can contribute to 
relative performance over time, by allowing investors to capture 
more of the fund's gross return.  Studies have shown that mutual 
funds with lower expenses generally outperform those with higher 

Fund Overview

The American Funds Group's 29 mutual funds cover the full range 
of investment objectives: growth funds, growth and income funds, 
equity-income funds, balanced funds, taxable and tax-exempt bond 
funds, and money market funds.  The American Funds have produced 
competitive results in each objective class.  

Investment Company of America A (AIVSX) traces its roots back to 
January 1, 1934 and at $48.5 billion in assets, ranks as the top 
mutual fund in the American Funds lineup based on assets managed.  
The "large-cap value" fund seeks long-term growth of capital and 
income by investing primarily in common stocks of companies that 
are domiciled in the U.S. and included in the S&P 500 index.  It 
favors securities with strong appreciation potential that pay or 
have the potential to pay dividends.  

Washington Mutual Fund A (AWSHX) is the second largest fund with 
assets of $44.5 billion in all share classes.  It was started on 
July 31, 1952 and seeks income and the opportunity for growth of 
capital by investing in common stocks (or equivalent securities) 
that are legal for the investment of trust funds in the District 
of Columbia.  The "large-cap value" fund seeks to be diversified 
and fully invested at all times, and tries to select a portfolio 
that an investor with fiduciary responsibility might select under 
prudent investor rules.

Growth Fund of America A (AGTHX) was launched on January 1, 1959 
and is the American Funds' third largest mutual fund, with $36.8 
billion in total assets.  It pursues capital growth over time by 
investing primarily in common stocks that are "reasonably priced" 
and represent strong long-term investment opportunities.  It may 
invest up to 10% of its assets in securities of issuers domiciled 
outside the United States and Canada, and not included in the S&P 
500 index.  It lands in Morningstar's large-cap growth style box, 
but its price-conscious approach results in less volatility, more 
consistency than the typical large-cap growth product.

The American Funds Group's fourth and firth largest funds are on 
the international equity side, another example of their "global" 
research capability.  The $24.2 billion EuroPacific Growth Fund A 
(AEPGX) was launched on April 16, 1984 and seeks long-term growth 
of capital by normally investing at least 80% of assets in equity 
securities of issuers domiciled in Europe, Australia/New Zealand, 
and the Pacific region.  Its large-cap blend style and developed 
foreign markets focus make it suitable as a core "foreign stock" 
investment.  The $23.3 billion New Perspective Fund A (ANWPX) is 
global focused and includes securities of issuers domiciled here 
and abroad.  The fund's management team looks for global changes 
in international trade patterns, and also economic and political 
relationships, and then isolates companies that may benefit from 
the new opportunities created by such changes.  Like Growth Fund 
of America, New Perspective Fund lands in the Morningstar large- 
growth style box but invests primarily in growth stocks that are 
reasonably priced.

The $21.5 billion Income Fund of America A (AMECX) is an equity 
income product launched on December 31, 1970 that is classified 
by Morningstar as a "domestic hybrid" fund due to its generally 
higher allocations to fixed income and money market instruments.  
It seeks income first, growth second, by allocating fund assets 
among common and preferred stocks, convertible securities, debt 
securities, and cash equivalents.  Income-type investments will 
generally represent at least 60% of fund assets, with up to 20% 
of assets invested in lower quality, higher yielding securities 
for greater potential total return.  The fund's equity style is 
"large-cap value" according to Morningstar, with up to 15% held 
in equity securities domiciled outside the U.S. and not part of 
the S&P 500 index.

Fundamental Investors Fund A (ANCFX), American Balanced Fund A 
(ABALX), Bond Fund of America A (ABNDX), Capital Income Builder 
Fund A (CAIBX) and Capital World Growth & Income Fund A (CWGIX) 
are five more American Funds with assets of $10 billion or more 
today, using Morningstar's most recent figures.  So, altogether 
eleven mutual funds with assets of $10 billion or more invested 
today, exemplifying the firm's long-term investment performance.  
In the next section, we take a closer look at the firm's return 
performance relative to index benchmarks and category peers per 
data from Morningstar.

Fund Performance

Roughly half of 29 mutual funds in the American Funds Group are 
rated 4 stars or better by Morningstar for risk-adjusted return 
performance within their respective category peer groups.  Four 
funds - Growth Fund of America (AGTHX), New Perspective (AEPGX), 
Capital World Growth & Income (CWGIX), and Amcap (AMCPX) - have 
Morningstar's highest 5-star overall rating for relative "risk-
adjusted" performance.  Another 11 American Funds are currently 
rated 4 stars for their above-average risk-adjusted performance 

 Morningstar 5-Star Rated American Funds:
 Amcap (AMCPX), Large Growth
 Capital World Growth & Income (CWGIX), World Stock
 Growth Fund of America (AGTHX), Large-Cap Growth 
 New Perspective (AEPGX), World Stock
 Morningstar 4-Star Rated American Funds:
 American Balanced (ABALX), Domestic Hybrid
 American High Income (AHITX), High Yield Bond
 American Mutual (AMRMX), Large-Cap Value
 Capital Income Builder (CAIBX), International Hybrid
 EuroPacific Growth (AEPGX), Foreign Stock
 Fundamental Investors (ANCFX), Large-Cap Value
 Income Fund of America (AMECX), Domestic Hybrid
 Investment Company of America (AIVSX), Large-Cap Value
 New Economy (ANEFX), Large-Cap Growth
 New World (NEWFX), Emerging Markets
 Washington Mutual (AWSHX), Large-Cap Value

You can see that the American Funds are well represented in the 
large-cap value and large-cap growth style boxes, as well as in 
the various foreign stock fund objectives such as foreign stock, 
world stock and diversified emerging markets.  One international 
hybrid fund and two domestic hybrid funds round out the family's 
top-rated funds.  The above-average and high Morningstar ratings 
reflect the strength and consistency of the American Funds Group.

Below are average annual total returns over the trailing 5-year 
and 10-year periods, along with their respective category ranks, 
per Morningstar: 

 Annualized 5-Year Return (December 3, 2002):
 + 7.0% Amcap (AMCPX), 2nd percentile
 + 6.0% Capital World Growth & Income (CWGIX), 4th percentile
 + 8.6% Growth Fund of America (AGTHX), 2nd percentile
 + 5.6% New Perspective (ANWPX), 7th percentile
 + 6.6% American Balanced (ABALX), 5th percentile
 + 1.7% American High Income (AHITX), 15th percentile
 + 3.7% American Mutual (AMRMX), 9th percentile
 + 5.1% Capital Income Builder (CAIBX), 12th percentile
 + 2.6% EuroPacific Growth (AEPGX), 13th percentile
 + 3.0% Fundamental Investors (ANCFX), 13th percentile
 + 4.2% Income Fund of America (AMECX), 19th percentile
 + 4.5% Investment Company of America (AIVSX), 6th percentile
 + 1.2% New Economy (ANEFX), 17th percentile
 + 3.2% Washington Mutual (AWSHX), 12th percentile

 Annualized 10-Year Return (November 30, 2002):
 +11.7% Amcap (AMCPX), 5th percentile
 +12.9% Growth Fund of America (AGTHX), 2nd percentile
 +11.2% New Perspective (ANWPX), 9th percentile
 +10.6% American Balanced (ABALX), 9th percentile
 + 6.5% American High Income (AHITX), 14th percentile
 +10.5% American Mutual (AMRMX), 28th percentile
 +10.3% Capital Income Builder (CAIBX), 15th percentile
 + 9.1% EuroPacific Growth (AEPGX), 9th percentile
 +11.4% Fundamental Investors (ANCFX), 13th percentile
 + 9.7% Income Fund of America (AMECX), 14th percentile
 +11.2% Investment Company of America (AIVSX), 15th percentile
 + 9.3% New Economy (ANEFX), 25th percentile
 +11.9% Washington Mutual (AWSHX), 9th percentile

You can see that the top-rated American Funds, where the bulk of 
fund family assets are invested, have generally produced returns 
that rank in the top quintile (top 20%) of their respective fund 
category.  In many cases, performance has been in the top decile.  
Their investment success shows in a variety of equity styles and 
strategies, with stable management a key to their fine long-term 
record.  The firm's commitment to low operating expense improves 
their funds' odds of outperforming index benchmarks and category 
peers relative to those with higher annual expenses.


The American Funds Group offers a number of top-rated equity and 
partial equity funds to choose from for your long-term financial 
goals.  Their largest, most successful products have the desired 
characteristics (above average returns, moderate risk, and below 
average annual expenses) relative to similar funds.  In terms of 
their return-risk-expense tradeoff, the American Funds are tough 
to beat, making a compelling case for their U.S. and global fund 

Relative performance hasn't been quite as good in the bond funds, 
but is still respectable.  The downswing in the economy has hurt 
the high-yield bond market, an area that the American Funds tend 
to have greater-than-average exposure to relative to their peers.  
If you view it as a buying opportunity today, the American Funds 
High Income Trust (AHITX) might be worth considering.  It has an 
above-average performance record in the high-yield bond category.

For more information or to download a fund prospectus, log on to 
the American Funds website at www.americanfunds.com. 

Steve Wagner
Editor, Mutual Investor


Confirmation Is Crucial
by Mark Phillips

As options traders, we have a much more daunting task to trade
profitably than do stock or futures traders.  In addition to
being right on direction, we also have to be right on timing.
Not only that, but due to factors such as volatility, time
decay, bid/ask spread and slippage, we need a solid move to
overcome the natural erosion in value of the option we purchase.
Traders that have been involved in this game for a while
understand the truth behind the statistic that 90% of all
options expire worthless.

To profit from the practice of buying options with the goal of
selling them later for a profit, we have to stack as many
factors in our favor as possible.  Another way of thinking of
this is that the deck is naturally stacked against us in this
game.  Our defense against this situation is to only enter
trades where we can see enough factors lined up in our favor
that the odds our good that we can overcome the stacked deck.
That is what technical analysis is all about.

Many new traders think they can find one magic technical
indicator that will provide one winning trade after another.
Sadly, that siren's song has led to more than a handful of
busted accounts.  Lest you think you're alone in that pursuit,
let me assure you that I spent more late nights toiling on that
path than I care to admit.  The effort wasn't in vain, as I
managed to cobble together what I think is a fairly solid
understanding of the world of technical analysis.  In the
process, I even managed to craft a few technical tools of my
own, that have helped me in my quest for profits over the

I wrote about a couple of these indicators earlier this year,
with emphasis on a moving average channel system that I call the
Ribbon System, as well as a technique for trading gaps.  Long
time readers will have a vague recollection of those articles,
while newcomers won't have any idea what I'm talking about.  So
let's start off by refreshing everyone's memory.  Here are the
links to those articles, if you're interested.

New Tools for the New Year
More On The Application of Moving Averages
Another Tool For The Toolbox
Combining Technical Tools Improves Confidence and Results

Alright, that should give us all a common reference point for
our discussion today.  From time to time, I'll get questions
from readers, asking if this stock or that one looks like an
entry (either bullish or bearish) based on one of the technique
I've written about in the past.  Sometimes the answer is yes,
and sometimes the answer is no.  But it always provides me with
food for thought and the opportunity to share any illuminating
thoughts with the rest of you.

Earlier this week I got an email asking if AIG looked like a
short, based on the signal being given by the Ribbon system. 
Let's take a look at the daily chart together, and see what
it tells us.

Daily Chart of AIG -- Moving Average Ribbon Shown

Based on the definition of the Ribbon system, we have a
quantifiable bearish entry signal as of the close on Tuesday.
The daily Stochastics confirms this weakness, as it is rolling
over without getting anywhere near overbought territory on this
latest move.  That seems pretty clear, doesn't it?  But remember
the topic of our conversation here today -- Confirmation.  Let's
take a closer look at that chart and see what other clues it
might provide about the future direction of AIG.

Daily Chart of AIG -- A Closer View

Well now, hold on just a minute.  Suddenly, there seem to be a
lot of obstacles in the way of a profitable trade to the
downside.  First up is the Support near $62, with the 50-dma
resting just below at $61.82.  Then we have support near $61 at
the bottom of that big gap up in the middle of October.  And
finally, the bottom of the gap should provide support near the
$60 level.  Not only is there substantial support just under
the current level, but the weakening volume trend isn't showing
any rush to get out of the stock.  Certainly we might be able
to squeeze out a couple $$ of profit on a successful fill of
that gap, but what's the risk-reward ratio.  By my estimation,
it would be tough to place a meaningful technical stop much
below $66 (using the hourly chart, which isn't shown).  With
the stock trading just below $63, that makes the risk to reward
ratio just about 1:1.  There doesn't seem to be anything here
that is improving our odds of success.  But let's take a look at
one more thing before we call it quits.  I NEVER place a trade
without at least looking at the Point and Figure (PnF) chart to
find out whether it is bullish, bearish or neutral.

Point and Figure chart of AIG

Once again, we can see that it is a stretch to call AIG
currently bearish.  While it has certainly weakened since
late November, the stock would have to trade at $62 or below
to generate a PnF Sell signal, and then there is the rising
Bullish Support line at $61.  Recall that the first test of
bullish support is usually painful for the bears.  That means
that a trade down to just above $61 (the top of the gap) could
very easily produce a reversal.  That would show on the PnF
chart as a one-box violation of the $63 support level and would
be a classic bear trap.  I don't know about you, but I don't
like traps, at least not when they get sprung ON me.

Don't get me wrong.  AIG may turn out to be an attractive short
play in the future, but it isn't one right now.  Before
contemplating a bearish trade, we need to see a couple things
materialize.  First those support levels listed above need to be
taken out and the PnF chart needs to generate a new Sell signal.
But that isn't the point at which we want to implement the trade.
With the broad market Bullish Percent readings so high right
now, bearish trades need to be implemented by selling resistance
on technically weak stocks.  So what we'd like to do is implement
our bearish trade on a subsequent failed rally below the $66
level, AFTER the PnF Sell signal is generated.  Not only does
that give us confirmation of the stock's weakness, but it makes
for a much better risk/reward ratio, as we can set a close stop
at $67.  Note that after generating a Sell signal, the PnF chart
would need to print $67 before going back on a Buy signal.

This column is normally reserved for options trading related
educational material, and if you've been paying attention you've
noticed that we really haven't talked about any options-specific
material today.  Or have we?  As noted at the top of this piece,
stacking the odds in our favor has EVERYTHING to do with
successful options trading.  We didn't highlight anything that
looks like a high-odds trade right now, but I think we may have
done something more important -- we've stayed out of a
questionable trade.  If we can avoid the questionable trades and
only take those where we can stack the odds in our favor, we
should be able to profit over the long term using whatever
options trading strategy (whether long puts or calls, spreads,
straddles, or naked option sales) happens to fit with our own
individual business plans.

Since we've gone through this process tonight and rejected the
idea of a bearish trade, my goal next Monday is to go through a
similar process of confirmation, presenting a trade candidate
that looks good with the odds stacked in our favor.  If you've
got a stock that you think looks good, then send it along for
consideration.  I'll look at all the candidates, along with
those that catch my attention and present the one that looks
the best.

Have a great week!


If you trade options online, then you need an online broker that:
offers true direct access to each option exchange offers stop and
stop loss online option orders offers contingent option orders
based on the price of the option or stock offers online spread
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Volatility 101	
We certainly got a lesson today in volatility. The 
now regular triple digit intraday moves in the Dow 
dictate wider stops, as long as the trend remains 
solid within those limits.

To read the rest of the Swing Trader Game Plan Click here:

_If you haven_t traded options online _ you haven_t really traded
options,_ claims author Larry Spears in his new compact guide

_7 Steps to Success _ Trading Options Online_.

Order today and save 25% (only $15) by clicking on PreferredTrade
and clicking on the link to the book on its home page.



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The Option Investor Newsletter                Wednesday 12-04-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:
Stop Loss Updates: None
Dropped Calls: NVDA
Dropped Puts: None
Play of the Day: Put - DLX
 Bears Stir As Market Retreats

Updated on the site tonight:
Market Watch
Market Posture

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NVDA $13.98 -1.89 (-3.02 for the week) NVidia pulled back with 
the rest of the tech sector today, following Hewlett Packard's 
cautious statements about the tepid IT spending environment.  
While the company may still have a bright future, the fact that 
the Nasdaq Composite (COMP) and Semiconductor Index (SOX) broke 
their trends of higher lows on each pullback has us weary of 
playing a bounce.  NVidia broke through our stop and with three 
straight down sessions, is having trouble finding support.  
Rather than hope for a bounce, we'll close the play and look for 
a more consistent trend to play.


_If you haven_t traded options online _ you haven_t really
traded options,_ claims author Larry Spears in his new compact
guide book:

_7 Steps to Success _ Trading Options Online_.

Order today and save 25% (only $15) by clicking on PreferredTrade
and clicking on the link to the book on its home page.



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)

Most Recent Write-Up:
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 

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.

Why This Is Our Play of the Day:
We identified a couple of entry points in DLX in last night's 
write-up.  With today's rebound running into resistance at $42.50 
we didn't get the preferred risk/reward entry on a bounce under 
$44.00.  However, with the market likely to get a bounce in the 
morning on the employment data, and then roll over after setting 
a lower low across all indices today, we like the possible set-up 
for entry on a rollover under $44 in the morning.  If, instead, 
the stock rolls over and falls below Monday's support at $41, 
then that would also be a sign of weakness and can be used to 
initiate short positions. Trader's should look for signs of 
resistance on the intraday chart and then short a failed bounce, 
with a stop of $44.25. 

BUY PUT DEC-45*DLX-XI OI=  84 at $2.90 SL=1.50
BUY PUT DEC-40 DLX-XH OI= 184 at $0.65 SL=0.00

Average Daily Volume = 344 k

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offers stop and stop loss online option orders
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option or stock
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offers fast option executions

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Downside Looking Tasty

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To subscribe you may go to our website at


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Slumbering Bears Stir As Market Retreats
By Ray Cummins

Stocks slumped again today amid renewed concerns about the U.S.
economy and a brokerage downgrade of some key technology sectors.

The Dow Jones Industrial Average finished 5 points lower at 8,737
on weakness in blue-chip bellwethers Hewlett-Packard (NYSE:HPQ)
and Walt Disney (NYSE:DIS).  The NASDAQ Composite slid 18 points
to 1,430 after Morgan Stanley downgraded its ratings on the chip
and chip-equipment sectors as part of a multi-industry downgrade.
Telecom and software shares were also among the big losers in the
hi-tech segment.  In the broader market groups, almost any issues
related to technology were lower while specialty retail, hospital
and healthcare, and tobacco shares enjoyed limited buying pressure.
Trading volume was 1.51 billion shares on the Big Board and 1.88
billion on the NASDAQ.  Losers edged past winners 16 to 15 on the
NYSE but losing stocks pounded the gaining issues 19 to 13 on the
technology exchange.  In the bond market, Treasurys rose as stocks
fell.  The benchmark 10-year Treasury note added 5/32 at 98 17/32
to yield 4.18% and the 30-year bond also climbed 5/32 at 105 9/32,
yielding 5.02%.




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

Naked Puts

Stock  Strike Strike  Cost Current  Gain  Potential
Symbol  Month  Price Basis  Price  (Loss) Mo. Yield

CCMP     DEC    40   38.80  56.62   $1.20    7.04%
CDWC     DEC    40   39.15  49.88   $0.85    5.10%
FRX      DEC    85   83.05  107.43  $1.95    5.14%
GILD     DEC    32   31.85  36.88   $0.65    4.41%
KLAC     DEC    30   29.25  42.28   $0.75    6.06%
NBIX     DEC    35   34.30  45.27   $0.70    4.64%
AZO      DEC    75   73.05  78.67   $1.95    6.05%
COCO     DEC    30   29.40  36.96   $0.60    5.89%
GILD     DEC    30   29.40  36.88   $0.60    5.36%
IGEN     DEC    30   29.15  36.74   $0.85    8.01%
MSFT     DEC    50   49.00  56.71   $1.00    4.62%
NBIX     DEC    35   33.85  45.27   $1.15    9.08%
SNPS     DEC    35   34.50  50.70   $0.50    4.31%
CYMI     DEC    25   24.70  34.96   $0.30    4.33%
IR       DEC    35   34.50  44.50   $0.50    4.97%
LLTC     DEC    25   24.75  31.86   $0.25    3.84%
MERQ     DEC    25   24.65  31.91   $0.35    5.33%
QCOM     DEC    32   32.10  40.81   $0.40    4.31%
QLGC     DEC    30   29.60  41.79   $0.40    4.67%
SYK      DEC    60   59.15  62.00   $0.85    4.15%
TTWO     DEC    22   22.20  28.52   $0.30    4.91%

Autozone (NYSE:AZO) may become an early-exit candidate
and some of the technology issues are turning south as
well, so keep a close watch on any positions that move
near their respective sold (short) strikes.

Naked Calls

Stock  Strike Strike  Cost   Current  Gain  Potential
Symbol Month  Price   Basis  Price   (Loss) Mon. Yield

ABK      DEC    65    65.90  60.73   $0.90    4.88%
ATK      DEC    65    66.05  57.55   $1.05    5.24%
EXPE     DEC    80    81.05  74.37   $1.05    5.16%

Put-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/P S/P Credit  C/B   (Loss) Status

FCN     41.18  38.71  DEC   30  35  0.55  34.45  $0.55   Open
MSFT    57.03  56.71  DEC   47  50  0.30  49.70  $0.30   Open
SNPS    47.35  50.70  DEC   35  40  0.60  39.40  $0.60   Open
COLM    40.85  44.71  DEC   30  35  0.60  34.40  $0.60   Open
CCMP    53.80  56.62  DEC   40  45  0.50  44.50  $0.50   Open
ROOM    68.94  74.23  DEC   55  60  0.50  59.50  $0.50   Open
WFMI    50.55  52.15  DEC   40  45  0.30  44.70  $0.30   Open
XL      80.15  82.65  DEC   70  75  0.50  74.50  $0.50   Open

Call-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/C S/C Credit  C/B   (Loss) Status

CAH    70.01   62.25  DEC   85  80  0.55  80.55  $0.55   Open
FNM    68.21   64.10  DEC   80  75  0.75  75.75  $0.75   Open
APA    50.00   55.49  DEC   60  55  0.60  55.60  $0.11   Open?
LLL    44.49   44.25  DEC   55  50  0.50  50.50  $0.50   Open
TOT    67.37   66.22  DEC   80  75  0.45  75.45  $0.45   Open
BRL    58.13   66.30  DEC   70  65  0.65  65.65 ($0.65) Closed
CAH    75.70   62.25  DEC   75  70  0.80  70.80  $0.80   Open
NVS    38.40   36.61  DEC   45  40  0.50  40.50  $0.50   Open

Barr Laboratories (NYSE:BRL) has completely reversed its recent
trend and the bearish position has been closed to limit losses.
Apache Oil (NYSE:APA) also changed direction recently and the
issue will likely test the previous trading-range top near $59.

Credit Strangles

Stock   Strike  Strike  Cost   Current  Gain   Potential
Symbol  Month   &Price  Basis  Price   (Loss)  Mon. Yield

KBH      DEC     50C    52.00   41.53   $2.00    7.68%
KBH      DEC     40P    38.75   41.53   $1.25    6.67%
THO      DEC     40C    40.50   37.46   $0.50    4.34% ***
THO      DEC     30P    29.50   37.46   $0.50    4.46%

Conservative traders should have closed the Thor Industries
(NYSE:THO) position when the issue moved up and out of the
recent trading-range top (near $37) on heavy volume.  As well,
conservative traders may consider closing the bullish portion
of the Kb Home (NYSE:KBH) strangle since the issue is moving
towards the sold strike at $40.

Synthetic Positions:

No Open Positions

Questions & comments on spreads/combos to Contact Support


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  The positions with *** will be included
in the weekly summary.  Those with "TS" (Target-Shoot) are below
our minimum monthly return but may offer a favorable entry price
with a limit order, due to the daily volatility of the underlying


BULLISH PLAYS - Premium Selling

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

BSX - Boston Scientific  $43.18  *** Multi-Year High! ***

Boston Scientific (NYSE:BSX) is a global developer, manufacturer
and marketer of less-invasive medical devices.  The firm's unique
products are offered by two major business groups, Cardiovascular
and Endosurgery.  The Cardiovascular segment focuses on products
and technologies for use in the firm's interventional cardiology,
interventional radiology, peripheral vascular and neurovascular
procedures.  The Endosurgery organization focuses on products and
technologies for use in oncology, vascular surgery, endoscopy,
urology and gynecology procedures.
BSX - Boston Scientific  $43.18

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  DEC 40   BSX XH     498     0.45    39.55       5.9% ***
SELL PUT  DEC 42.5 BSX XV     209     1.20    41.30      12.8%

C - Citigroup  $37.85  *** Entry Point? ***

Citigroup (NYSE:C) is a diversified global financial services
holding company whose businesses provide a range of financial
services to consumer and corporate customers.  The company has
over 192 million customer accounts in over 100 countries and
territories.  The company's activities are conducted through
Global Consumer, which delivers a wide array of banking, lending,
insurance and investment services; Global Corporate, which
provides corporations, governments, institutions and investors
with a broad range of financial products and services; Global
Investment Management, which offers a broad range of life
insurance, annuities and asset management products and services;
Private Banking, which consists of customary banking activities,
and Investment Activities, which are the company's venture
capital activities.

C - Citigroup  $37.85

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  DEC 35    C XG    21,288    0.45    34.55       6.8% ***
SELL PUT  DEC 37.5  C XU    13,402    1.15    36.35      13.9%

COF - Capital One  $34.48  *** Premium Selling! ***

Capital One Financial (NYSE:COF) is a holding company whose major
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit cards, but including other consumer lending activities
such as unsecured installment lending and automobile financing.
The company's principal subsidiary, Capital One Bank, a limited
purpose, state-chartered credit card bank, offers credit card
products.  Capital One, F.S.B., a federally chartered bank, offers
consumer lending and deposit products.  Capital One Services, the
other major subsidiary, provides various operating, administrative
and business services to the company and its subsidiaries.

COF - Capital One  $34.48
PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  DEC 27.5 COF XY    2,380    0.30    27.20       7.9% ***
SELL PUT  DEC 30   COF XF   10,063    0.80    29.20      15.0%
SELL PUT  DEC 32.5 COF XZ    1,478    1.40    31.10      20.1%

GM - General Motors  $38.41  *** Bottom Fishing! ***

General Motors (NYSE:GM) is a diversified automotive business
with interests in communications services, locomotives, finance
and insurance.  GM's automotive business designs, manufactures,
and/or markets vehicles primarily in North America under the
Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn and
Hummer nameplates, and outside North America under the Vauxhall,
Opel, Holden, Isuzu, Saab, Buick, Chevrolet, GMC, and Cadillac
nameplates.  GM's communications services relate to its Hughes
Electronics Corporation subsidiary, which includes its digital
entertainment, information and communications services, and
satellite-based private business networks.  GM also is engaged
in the design, manufacturing and marketing of locomotives and
heavy-duty transmissions.  The firm's financing and insurance
operations are conducted through the General Motors Acceptance
Corporation, which provides a broad range of financial services.

GM - General Motors  $38.41

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  DEC 32.5 GM XZ    10,461    0.30    32.20       5.8% ***
SELL PUT  DEC 35   GM XG    11,114    0.65    34.35       9.8%
SELL PUT  DEC 37.5 GM XU     5,382    1.25    36.25      15.1%

PPD - Pre-Paid Legal Services  $28.62  *** 6-Month High! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.

PPD - Pre-Paid Legal Services  $28.62

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  DEC 22.5 PPD XX    2,177    0.25    22.25       8.0% ***
SELL PUT  DEC 25   PPD XE    6,702    0.65    24.35      14.6%


BULLISH PLAYS - Credit Spreads

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

AMGN - Amgen  $46.93  *** Trading Range? ***

Amgen (NASDAQ:AMGN) is a biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.  Amgen manufactures
and sells human therapeutic products including Epogen, Neupogen,
Aranesp, Neulasta and Kineret.  Amgen focuses its research and
development efforts on therapeutics delivered in the form of
proteins, monoclonal antibodies and small molecules in the areas
of nephrology, cancer, inflammation and neurology and metabolism.
The company has research facilities in the United States and has
clinical development staff in the United States, the European
Union, Canada, Australia and Japan.  Amgen has acquired Immunex,
a biopharmaceutical firm dedicated to developing immune system
science to protect human health.  Immunex has developed two
major products, Enbrel and Leukine, and has two other products,
Novantrone and Thioplex, which can be used in treating multiple

AMGN - Amgen  $46.93

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-40.00  AMQ-XH  OI=3755  A=$0.30
SELL PUT  DEC-42.50  AMQ-XV  OI=3043  B=$0.50
POTENTIAL PROFIT(max)=11% B/E=$42.25

NKE - Nike  $46.10  *** Basing Pattern? ***

Nike (NYSE:NKE) principally is engaged in the design, development
and worldwide marketing of footwear, apparel, equipment and other
clothing accessory products.  Nike sells its products to over
17,000 retail accounts in the United States and through a mix of
independent distributors, licensees and subsidiaries in over 140
countries around the world.  Virtually all of Nike's products are
manufactured by independent contractors.  Most of the company's
footwear products are produced outside the United States, while
apparel products are produced in the United States and abroad.

NKE - Nike  $46.10  *** Basing Pattern? ***

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-40.00  NKE-XH  OI=173  A=$0.25
SELL PUT  DEC-42.50  NKE-XV  OI=234  B=$0.45
POTENTIAL PROFIT(max)=11% B/E=$42.25

XAU - PHLX Gold & Silver Sector  $68.03  *** Market Hedge ***

The PHLX Gold & Silver Sector (XAU) is a capitalization-weighted
index composed of the common stocks of 9 companies involved in
the gold and silver mining industry.  The XAU was set to an
initial value of 100 in January 1979; options commenced trading
on December 19, 1983.  For more information on the XAU, go to

XAU - PHLX Gold & Silver Sector  $68.03

PLAY (less conservative - bullish/credit spread):

BUY  PUT  DEC-60.00  XAU-XL  OI=940   A=$0.40
SELL PUT  DEC-65.00  XAU-XM  OI=1731  B=$1.00
POTENTIAL PROFIT(max)=14% B/E=$74.40



Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

NVLS - Novellus Systems  $31.84  *** Sector Slump! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous

NVLS - Novellus Systems  $31.84

PLAY (conservative - sell naked call):

Action     Month &  Option   Open   Closing  Cost       Target
Req'd      Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  DEC 37.5 NLQ LU  2,633    0.30    37.80       7.7% ***
SELL CALL  DEC 35   NLQ LG  5,652    0.75    35.75      13.8%
SELL CALL  DEC 32.5 NLQ LZ  2,141    1.80    34.30      24.7%

QLGC - QLogic  $39.50  *** Profit-Taking In Progress! ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $39.50

PLAY (conservative - sell naked call):

Action     Month &  Option   Open   Closing  Cost       Target
Req'd      Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  DEC 45   QLC LI   7,533   0.50    45.50       8.8% ***
SELL CALL  DEC 42.5 QLC LV   3,483   1.25    43.75      16.9%
SELL CALL  DEC 40   QLC LH   4,905   2.10    42.10      22.9%


BEARISH PLAYS - Credit Spreads

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

ERTS - Electronic Arts  $65.54  *** Trading Range? ***

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

ERTS - Electronic Arts  $65.54

PLAY (less conservative - bearish/credit spread):

BUY  CALL  DEC-75.00  EZQ-LO  OI=4366   A=$0.10
SELL CALL  DEC-70.00  EZQ-LN  OI=11895  B=$0.55
POTENTIAL PROFIT(max)=11% B/E=$70.50

LEN - Lennar  $50.25  *** Trending Lower ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes as well as the purchase, development and sale of residential
land directly and through its unconsolidated partnerships.  The
company's financial services operations provide mortgage financing,
title insurance and closing services for both its homebuyers and
others, resell the residential mortgage loans it originates in the
secondary mortgage market and also provide Internet access, cable
television and alarm monitoring services to residents of its many
communities.  The company recently acquired Patriot Homes, a new
homebuilder in the Baltimore marketplace, and expanded into the
Carolinas with the acquisition of Don Galloway Homes as well as
the assets and operations of Sunstar Communities.

LEN - Lennar  $50.25

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-60.00  LEN-LL  OI=608   A=$0.15
SELL CALL  DEC-55.00  LEN-LK  OI=2261  B=$0.50
POTENTIAL PROFIT(max)=8% B/E=$55.40

MMM - 3M  $128.00  *** An Old Favorite! ***

3M (NYSE:MMM) is a $16 billion diversified technology company
with leading positions in health care, safety, electronics,
telecommunications, industrial, consumer and office, and other
markets.  Headquartered in St. Paul, Minn., the company has
operations in more than 60 countries and serves customers in
nearly 200 countries.  3M businesses share many technologies,
manufacturing operations, brands, marketing channels and other
important resources.  3M, which marks its 100th anniversary this
year, is one of the 30 stocks that make up the Dow Industrial
Average and also is a component of Standard & Poor's 500 Index.

MMM - 3M  $128.00

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-140.00  MMM-LH  OI=6893  A=$0.20
SELL CALL  DEC-135.00  MMM-LG  OI=3661  B=$0.55
POTENTIAL PROFIT(max)=8% B/E=$135.40



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