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Daily Newsletter, Thursday, 12/12/2002

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


In Section One:

Wrap: New Streak?
Futures Markets: Price Compression
Index Trader Wrap: Seeing double
Market Sentiment: Just Say No
Weekly Manager Microscope: Bob Olstein: Olstein Financial Alert
Fund


Updated on the site tonight:
Swing Trader Game Plan: Conflicting Signals


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-12-2002           High     Low     Volume Advance/Decline
DJIA     8538.61 - 50.50  8615.13  8510.84 1.53 bln   1646/1569
NASDAQ   1399.55 +  3.00  1411.69  1388.51 1.39 bln   1633/1702
S&P 100   458.54 -  2.15   462.32   456.10   Totals   3279/3271
S&P 500   901.58 -  3.38   908.37   897.00
RUS 2000  395.36 +  1.48   396.37   393.37
DJ TRANS 2336.46 - 11.60  2349.56  2325.46
VIX        30.81 -  0.59    31.86    30.38
VXN        51.05 -  0.57    52.41    50.51
Total Vol   3,108M
Total UpVol 1,681M
Total DnVol 1,376M
52wk Highs   109
52wk Lows    124
TRIN        1.18
PUT/CALL    0.77
************************************************************

New Streak?

Today was the third day in a new losing streak that most
investors are ignoring. The losing streak I am referring to
is not the jobless claims or retail sales but the new 52 week
highs and lows. A new trend is emerging and traders should be
aware of it.

Dow Chart – Daily




Nasdaq Chart – Daily




Just when economists would have you believe that new jobs are
being created and the record unemployment number from last week
was an error the jobless claims deflated their argument. The
new claims for the week soared to 441,000 and a level not seen
since April. Analysts who ignored the holiday impact last week
when bragging about the artificially low numbers were quick to
claim holiday impact for this week to diminish the reaction to
this very bad report. The headline number for the week was
+63,000 over the consensus estimate of 378,000 claims. Claims
for the prior week were also revised upward slightly. Considering
the pace of layoffs rose sharply in Oct/Nov this is not a welcome
sign. A new wave of layoffs in the airline sector due to the
UAL bankruptcy could add to the current tide. New hiring is
not increasing and the risk of a jobless recovery, if any, is
increasing.

Another misleading number came from the November Retail Sales
report. The headline number came in at +0.4% and surprised
nearly everyone who has been following the weak same store
sales reports. The November number was held up almost entirely
by sales at Furniture and Home Furnishing Stores, Appliances
and Building Materials. Furniture stores showed a spike in sales
of +2.3% in one month after averaging only +0.17% over the last
seven months. Why? With the boom in housing now a year old why
would one month suddenly spike +1000% from the prior months
+0.2% number? Is this another instance of a number that will
be revised downward next month? Nobody knows today but the
fact remains that mall stores are in trouble. The numbers for
department stores dropped -1.4% and clothing stores -1.3%.
General Merchandise stores only gained +0.3%, which was a -75%
drop from October. With retail stores already complaining
about holiday sales the outlook for the December numbers is
not good.

Also weighing on the markets today was the FOMC minutes from
the November meeting. The Fed saw dissipating stimulus as a
problem which means the impact of the first series of rate
cuts was slowing and the vaccinations did not work. The Fed
decided that another larger injection was required to slap
the economy out of its doldrums. They decided that risk of
inflation from such a move was minimal considering the lack
of movement in the economy to date. The biggest argument was
the change in the bias back to neutral. Several members
opposed the move back to neutral based on the severity of the
current problem. They were swayed to go along with the decision
by discussions of market reaction to a 50 point rate cut and
leaving the bias to further reductions. There was a fear the
markets would self destruct due to the Fed's negative outlook.
No kidding! Now that the truth is out there for all to see the
markets did not self destruct but they are far from happy
about the Fed's concerned outlook. The concern is that the
soft spot in the economy does not become a black hole.

Also putting the brakes on the holiday sentiment were several
geopolitical concerns. One news report claimed that Al-Queda
had acquired VX nerve gas from Iraq over the last couple months
and the weapons had disappeared into the terrorist network.
Iraq of course denied it since a non-denial would mean they
actually had the weapon(s) to begin with. North Korea said
they were restarting their plutonium based nuclear power
program, which the U.S. had claimed was a thinly disguised
effort to build a nuclear weapon. This was a nose thumbing
at the U.S. for being unable to keep the Scud missiles that
were stopped on the way to Yemen. It was also open defiance
to the Bush policy statement yesterday that the U.S. could
and would respond with nuclear weapons if any nation used
a weapon of mass destruction against us. It appears North
Korea is calling our bluff while knowing we cannot attack
them. While this war of words continues on the global school
yard the markets are beginning to show signs of concern.
Reports also surfaced that IRAN could be close to developing
nuclear weapons after news reports that two different nuclear
plants for weapons production were under construction.

The assets in all money market mutual funds rose by +$10.36
billion in the week ended Dec-11th. However, retail MM funds
fell -$3.64 billion. The overall gains were due to institutions
stashing cash to the tune of +$14.55 billion last week. While
retail investors were taking money out for the holidays or to
put into the markets, corporations were adding to cash reserves
instead of stocks. Since the market dropped during that week
it appears corporations were selling stocks just when a
typically bullish period was about to begin. Makes you wonder
if Santa Clause is really coming to town.

CIEN provided hope for tech investors today and was probably
the main reason the Nasdaq finished in positive territory.
CIEN raised its guidance for the first quarter and predicted
a lower than expected loss. After taking huge write offs for
restructuring over the last two years any positive outlook
is an improvement. CIEN gapped up to $6.20 on the news for
a gain of +20%.

Unfortunately it did not help the Semiconductor sector. Despite
the positive TSM news about better than expected sales from
the largest foundry in the world and affirmed guidance from
several major chip companies the sector remains flat. The
comments from Intel CEO Andy Grove continue to weigh on the
sector. He said on Tuesday that it might be too early to
forecast a rebound in the sector despite recent industry
reports indicating an upturn may be on the horizon. He said
Intel had not seen any material increase in overall chip sales
and for the sector to pull out of the doldrums companies would
need to cut back on capacity on a global scale. Don't hold
your breath.

The new streak I mentioned earlier was the new lows beating
the highs for the third straight day 124 to 109. While this
is not a break away rout it is a troubling indicator. The
Dow remains trapped in the 8500-8600 range and it appears the
ceiling is dropping faster than support is getting higher. In
this typically bullish period the most bullish indicator from
Thursday was the gain in the Russell-2000 to 395 but it was
a weak gain and stopped just below strong resistance at 400.
There is simply no conviction for a further rally and the
lack of volume, only 3.1 billion total, makes it tough for
bulls to force any gains.

Several of the big caps in the Dow are looking particularly
weak including MMM, IBM, JNJ, IP and WMT. This should be the
best quarter of the year for Wal-Mart as the biggest discount
retailer yet investors are fleeing the stock. IBM said they
were busy and were not asking employees to take extra time
off like other tech companies but the stock has dropped
nearly $10 in two weeks. MMM closed within cents of breaking
its 100 and 200 DMA.

While I am not trying to paint a bearish picture there is
cause for concern. I had originally expected this week to be
up slightly with a dip before Christmas week to prime the
typical holiday rally. If this was the bullish week I hate
to see what next week could bring. Actually, I think we are
safe from any major market drop with very strong support
just below us from 8350-8500. It appears we are going to
drift just above that support until something happens to
energize the buyers. War talk on multiple fronts, live
fire exercises only ten miles from Iraq and the word nuclear
being used more in one day than in the past six months is
enough to make even the most aggressive investor a conservative.
The +$14 billion of institutional money moving into money
market funds instead of stocks is confirmation of that idea.
With the big caps resting on critical support there is
potential for strong holiday gains but there is also the
potential for those gains to evaporate just as quickly.
As investors maybe we should be investing in the malls
instead of the markets next week.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Price Compression
By John Seckinger
jseckinger@OptionInvestor.com

On Thursday, all three futures contacts once again traded within
a very definable range.  With the appearance of a number of
wedges taking form, things should start to heat up.

Thursday, December 12th at 4:15 P.M.

Contract          Net Change     High        Low        Volume

ES03H     901.00     -0.25      908.00      895.25      458,484
YM03H    8556.00    -28.00     8602.00     8494.00       13,427
NQ03H    1043.00     +4.50     1055.50     1032.00      188,210

ES03H  =  E-mini SP500 futures
YM03H  =  E-mini Dow $5 futures
NQ03H  =  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.

The December Contract is set to expire on December 20th.  Volume
has picked up dramatically in the 03H contracts, and all
contracts will now be quoted in March.

Fundamental News:  The headline economic event took place one
hour before the NYSE opened, as Retail Sales reportedly rose 0.4%
and was in line with consensus estimates.  The ex-auto figure
rose a stronger than expected 0.5% (0.2% consensus).  Also
reported was the Jobless Claims report, rising 83K to 441K and
significantly above the 378K consensus.  In company specific
news, Ciena (CIEN) reported better-than-expected Q4 results and
raised revenue guidance for Q1.  Additionally, Amgen's (AMGN)
raised 2002 outlook and offered better-than-expected 2003
outlook.  Shares of CIEN rose 19.69% to 6.2, while AMGN climbed
higher by 6.72% to 50.45.  In other news, the new head of the
FDA, Dr. Mark McClellan, discussed plans to accelerate the
approval of brand name and generic drugs, as well as medical
devices.

Technical News:  The XAU index did print 72 (P&F buy signal) on
Thursday, and the Index ended up higher by 6.81% at 75.39.
Moreover, the dollar continued to fall, losing 0.81 points to
104.54 and pressuring stocks in the process.  Amazingly, the Sox
closed exactly on the daily bearish trend line for the third
session in a row.  Moreover, the Sox used the 22 DMA as
resistance (330 versus intra-day high of 330) and 50 DMA as
support (317 versus 318, respectively).  Also, the trend line in
the 10-year yield (tnx.x) proved formidable on Thursday.  Going
forward,  Thursday’s low of 3.97% should hold if equity bulls are
going to keep prices from drastically falling.

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

The December Mini-sized Dow Contract (YM03H)

Unfortunately, volatility didn’t exactly heat up following the
Retail Sales report.  Nevertheless, patience is an important part
of trading and I learned that today.  A daily chart of the Dow
shows a lower high and higher low; by definition, price
compression.  It was interesting how the 22 DMA (exp) acted as
resistance while the 50 DMA provided support for the blue chips.
It is still nice to hope for an explosive move outside this
range; however, until that happens, expect support from the 8480
area and resistance near 8625.  Aggressive traders can use the
wedge (light green) as entry levels, and look to capture a move
towards one of the aforementioned levels.  A solid move above
8625 should place the Dow near 8725.  Support below 8480 is near
8400.

Chart of Dow Jones, Daily




Switching to March changes the scope slightly, as traders can now
expect resistance near 8662.  Notice how the contract almost
performed an exact double top at 9025, high set on August 21st.
With this contract also finding support and resistance at its
moving averages, seeing a clear direction remains difficult.  The
contract appears to be forming a long liquidation pattern (“b”)
beginning at the high near 9025; however, these patterns do not
always continue lower.  It appears as though the apex (pivot) is
at 8550, and traders can look for a move to begin there.  Common
in the “b” pattern is a take out of a relative low/high, and then
for prices to reverse lower.  Both of these relative levels
should be the high and low of trading on Wednesday (8609 and
8472).  Therefore, extend these levels out slightly (10-points or
so) for confirmation purposes.

Chart of YM03H, Daily




YM03H

Support         Resistance         Pivot

8450			8625			8550
8400			8662
8350			8700-25
8225			8825-8850			

The December E-mini Nasdaq 100 Contract (NQ03H)

The high in the NDX index was 1.55 points above the 1050
resistance level.  I wondered in the monitor if it was indeed a
trap?  It was.  These traps happen so often when trading.  At
current levels, we are once again in a very efficient area.  Look
for stops to be placed above the 22 PMA (1046), and a break below
the ascending trend line (blue) should attract many more shorts
to the marketplace.  Volume has been light as of late, so look
for confirmation.  If the downward trend is broken, support is
seen at the 200 PMA (1019).  Interesting how it lines up with the
other relative low.  If the market remains quiet, think first
about playing the range (buying support, selling resistance) and,
if the contract does fall below support, there is a good chance
it will come back to see if it will act as resistance (read:
giving traders better odds for a profitable trade).

Chart of NDX, 30-minute




The NQ03H contract formed a “b” liquidation pattern within a
five-minute chart on Thursday, rallying back up to the 50%
retracement on relatively light volume.  Notice how the spike in
volume under 1035 foreshadowed buying at the same level later in
the session.  When trading is slow, look for everything to
enhance profitable probabilities.  Going forward, a move above
the 1045 area should be a catalyst for more buying (1050, and
then no real resistance until 1070), while a break of the trend
lines shown below should have more longs liquidating.  Note:
There should be some support at 1032.

Chart of NQ03H, 5-minute




NQ03H

Support        Resistance           Pivot

1025			1045			1035
1000			1050	
973			1070	
		1085


Bold signifies levels within the NDX.

The December E-mini S&P 500 Contract (ES03H)

Price compression at its finest.  The 22 PMA on a 60-minute chart
was too much for buyers during trading on Thursday, and the
contract settled once again in “no man’s” land.  No problem;
trading levels should still work.  The descending trend line
(red) comes in at 907, and should offer resistance, while a move
above could take the index to 915 on an intra-day basis.  If the
blue trend line gives first, look for a move towards 890.

Chart of S&P 500 Index, 120-minute




In the futures corner article published tonight, I am touching on
pivot analysis and used the ES03H contract as an example.  If
this works (or if readers express a solid interest in this
calculation), I will use this calculation for all three contracts
(note:  I probably will, since they do line up well versus my
calculations).

This are the calculations used:

Pivot point (P) = (H + L + C) / 3

First resistance level (R1) = (2 * P) – L

First support level (S1) = (2 * P) – H

Second resistance level (R2) = P + (R1 - S1)

Second support level (S2) = P - (R1 - S1)

Note: H, L, C are the previous day's high, low and close,
respectively:

Using ES03H as an example:

High:   908.00
Low:    895.25
Close:  901.00

Pivot becomes 901.41

First Resistance:  907.57

First Support:  894.82

Second Resistance:  914.16

Second Support Level:  888.66

Note how the pivot lines up with the 50% retracement, and the
second resistance is almost at the top of the resistance channel.
910 was the high just a few days earlier, so keeping the bottom
green line still seems to make sense (versus only highlighting
915).  The 907 level is seen in the SPX contract, so that matches
up well also.  Please let me know what you think.

Chart of ES03H, 10-minute




ES03H

Support          Resistance        	 Pivot

894.82		907.57		901.41
888			910-915
869			922			
927

Bold signifies levels within the S&P 500.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


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

Seeing double

I had to check some of today's market stats twice, make that
three times, to make sure I wasn't seeing double.  While the
major market indexes showed little change for the third straight
session, today's volume and breadth indicators look almost
identical to yesterdays.

A plethora of economic data that came out before the opening bell
had a hard time budging stock futures, and when the cash markets
opened for trading, a seesaw session took place that found the
major indexes trading either side of unchanged for the better
part of the day.  There were little "surprises" in the economic
data release.

While the weekly jobless claims number came in at +441K and well
above consensus for a rise of just 378K, investors seemed to
shrug off the data, which isn't too different than last week's
number that came in below consensus.  The Labor Department has
been saying that the weekly claims numbers this time of year, due
to the holiday season can provide some wild swing, and the past
two week's data has certainly shown that.

Retail sales were slightly better than expected, and while the
Retail HOLDRS (AMEX:RTH) $73.30 +0.2% traded a slightly wider
range than yesterday, the 65-cent daily range shows that even a
sector which has important economic news being released has
market participants sitting on their hands and lacking any type
of conviction on a bullish or bearish type of bias.

The only "excitement" found was a 6.8% jump in the Gold/Silver
Index (XAU.X) and a rather sharp decline in the U.S. Dollar Index
(dx00y) $104.51 -0.79%.  Investors are left to think that some
extensive short-covering in gold stocks, combined with
geopolitical worries in regards to an eventual U.S.-lead attack
on Iraq, and worrisome developments in North Korea with the
reactivation of a nuclear power plant that U.S. officials suspect
was being used to develop weapons, had gold and the U.S. Dollar
heading in separate direction.

It's my feeling that the DIVERGENCE in the gold/dollar action is
not that different than the stretching of a rubber band, which
may currently have stocks and even Treasuries being squeezed in-
between.  Should the rubber band get stretch enough, it will
eventually "snap" and some type of resolution to the recent 3-day
consolidation that the equity indexes are under will be found.

Today's "rate of change" in the dollar/gold action was rather
sharp and abrupt, and should have index traders on the alert.
I've never been one for trading "gut feels," but right now,
that's what I feel any technician would be trading on as it
relates to last night's charts and scenario based on trend.  My
"swing vote" for bearishness would come from the higher levels
found in the bullish % charts which have found the narrower based
and faster-more-volatile Dow, OEX and NDX bullish % charts
showing some internal weakening.

Today market volumes were nearly identical to that found
yesterday.  The NYSE traded just over 1.23 billion share
(yesterday 1.25 billion) while the NASDAQ traded a smidge over
1.41 billion (yesterday 1.4 billion).  Breadth on the NYSE was
slightly bullish at 17 to 15 (yesterday 17:14) while NASDAQ
breadth was even at 16 to 16 (yesterday 16:16).  The number of
stocks trading new 52-week highs versus 52-week lows had the NYSE
at 40:28 (yesterday 40:22) and the NASDAQ ever so slightly
negative with 39 stocks trading a new high versus 40 stocks
trading new lows (yesterday 36:37).

If the market internals compare similar to Wednesday's, then
traders may squint eyes at tonight's charts, as they too look
very similar and little changed to yesterday.

Dow Industrials Chart - Daily Interval




The Dow Industrials finished the session lower and traded inside
of yesterday's range.  I've placed a horizontal near-term support
(dashed pink) on the Dow's daily interval chart and it would
really take a break of the 8,468 level to signify a break of
upward trend we placed on the chart last night.  Stock traders
might take note of Intl. Paper's (NYSE:IP) $34.76 -3.71% decline.
I think much of today's declines were due to the continued rise
in natural gas prices.  Paper mills use a lot of natural gas to
heat vats in the conversion of wood pulp into paper and the rise
in price of natural gas may put added pressure on paper
manufacturers margins.  Drug components MRK and JNJ traded weak
in sympathy with Bristol Myers Squibb (NYSE:BMY) $25.35 -6.62% on
concern over accounting methods.  Components GM and HD both
benefited marginally from today's retail sales and ex-autos
information.  The ex-autos declined, but were inline with
expectations.

Today's action saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Status remains "bear alert" at
63.33% bullish.

S&P 500 Index Chart - $5 box




It can be helpful for an index trader to actually "hand chart" a
point and figure chart each night.  This will give the trader a
"feel" for the market.  The supply/demand chartist would observe
the SPX chart and first question he/she was ask is... "Since the
SPX chart is currently in a column of O, did it trade 890?"
Answer:  No.  Today's low was 897.  Then, since no chart entry
was made a second question is asked.  "Did the SPX trade 910,
which would be a 3-box reversal?"  Answer:  No.  Today's high was
908.37.

The "feel" I get from the SPX chart is that it has had a nice
distribution lower and the three days of no chartable entries
feels like the MARKET just isn't ready to make a further decision
on things.  Based simply on risk/reward, bulls are present and
looking to use the upward trend their advantage with a tight stop
at 890 and looking for a rebound back into overhead supply near
925 or back near the upper Bollinger range.  (note:  the 925
level was taken from our bar chart and 9/11/02 high near 925).

Bears may be hesitant to press the SPX at this point as past
"sell signals" have been reversed to higher highs.  However as
noted in the past, those sell signals came at lower levels of
bullish %.  This gives feel that bears are more interested in
entry points near 925, when they could then look for a bearish
trade opportunity to the downside.  A rally back near 925 could
then be measured against the bullish % readings.  If the bullish
% was not showing any new buy signals, that could give the feel
of a "dead cat bounce" with little internal strength taking
place.  A bear would then look to short/put with a goal of
breaking the bullish support trend and triggering a spread-
triple-bottom sell signal at 890.

Try hand charting the index you trade on a p/f chart.  All you
need is a piece of graph paper and a pencil.  It takes about 10-
seconds to chart a day's activity.

Speaking of "double vision" and similar breadth as to yesterday.
The S&P 500 Bullish % ($BPSPX) as a net gain of 1 stock to a
point and figure "buy signal" today, which once again has the
bullish % inching up .2% to 64.4%.  Still "bull confirmed" and
would take a reversal reading of 62% to see a "bull correction"
status.  The highest bullish % reading during the recent bull run
has been 68.4%, which was reached on Monday/Tuesday of last week.
Lowest reading recently has been 64.00% on Tuesday, 12/10/02.

S&P 100 Index Chart - Daily Interval




I can't argue with a trader that thinks there might be some
support in the OEX at 447.50 should the OEX violate trend on a
near-term basis.  The subscriber/trader likes to use the 2.5 box
scale of the OEX on the point and figure chart and makes good
correlation between the bullish support trend on the p/f chart
and correlation to past support at the 447.50 level.

Today's action saw the narrower S&P 100 Bullish % ($BPOEX) remain
unchanged at 64% for the third straight session.  Current status
is "bear alert."

NASDAQ-100 Trust (QQQ) - 60-minute chart




A close-up view of the QQQ on 60-minute interval shows that our
"cheater" trend attached to Monday's low does look to be finding
buyers on the intra-day pullbacks.  At the same time, this
morning's rally high of $26.17 was a penny shy of where we felt
market makers might have a sell bias.  The 3-day wedge may be
building pressure and a move above $26.18 could find a decent
little rally back to our volume pivot of $27.  Conversely, a
break of today's low most likely has the Q's falling to market
maker support of $25.  Should that happen, then $26.18 begins to
become greater resistance in coming sessions and the next
downside level of risk is $23.82.

Today's action saw no net change in the NASDAQ-100 Bullish %
($BPNDX).  Still "bear alert" at 70%.

Jeff Bailey


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

Just Say No
by Steven Price

We haven't seen this much slow drifting since the continents
divided.  Or that's how it seemed today.  We played up to
yesterday's highs and yesterday's lows, but got no real breakout
in either direction.  We've tested support and resistance,
following this morning's economic data and each move had analysts
citing a different facet of the numbers.

In reality, it seems that the low volumes heading into the
holiday season simply are not producing enough momentum in either
direction to get rolling.  This morning's retail data showed
retail sales up 0.4% in November, which was higher than
expectations of a 0.2% gain.  However, the increases came mostly
from stores selling hardware and furniture, underscoring the
effect that continuing low interest rates are having on home
purchasing and remodeling. The other side of the coin was the
decline in sales at traditional mall-type stores.  I've been
beating the drum about the lack of spending heading into the
holiday season.  It appears as though I was only partially right.
Consumers are still spending in a few places, just not in the
stores that sell non-home related merchandise.  I expect those
numbers to continue to reflect ugliness as we finish out the
holiday shopping season. I also think the same store sales
numbers will not reflect the aggressive price markdowns in the
next couple of weeks and when earnings time rolls around for many
retailers, we'll get a better picture of just how little shoppers
spent on gifts.

The other significant economic data out this morning were the
initial and continuing jobless claims numbers. Because of the
season, the weekly numbers are difficult to dissect, but weekly
jobless claims were up 83,000 to 441,00.  This was the first
increase in a month and raised the four-week moving average by
10,000 claims.  It still remained under the 400,000 mark that
economists consider an important gauge for an improving or
declining picture.  However, the number of continuing claims,
which increased in the last data release, did drop significantly.
That indicates one of two things. Either unemployed workers are
dropping off the list as their benefits run out, or they are
starting to find jobs. I'm leaning toward the first possibility,
since I haven't heard about anyone hiring with any regularity
recently and that is definitely a negative for the economy.
However, this season does bring quite a bit of volatility in
these numbers, so I'm not betting the farm on them, just paying
close attention.

Oil prices are headed higher, following an OPEC meeting today, at
which the group raised its production quotas.  While this may
seem contrary to basic economics, the move was actually aimed at
curtailing the current cheating on the old quota.  The quota of
21.7 million barrels per day has been largely ignored, as the
group has been producing an average of over 24 million barrels.
Today's meeting, which set a new quota of 23 million barrels, was
aimed at raising the quota, and agreeing to reign in the recent
overproduction, in effect lowering total supply.

The markets finished mostly in the red for the day, but right in
the middle of recent trading ranges. The Dow finished down 51.22,
but successfully tested support around 8500.  The SPX finished
down 3.43, but held up over 900.  The Nasdaq Composite finished
up on the day, but failed to hold over 1400, with a close of
1399.29.  Confused on direction?  I hope so, since we are simply
bouncing around without a significant trend right now.  As
volumes get lighter toward the holidays, we can expect more of
this.  However, if we do get some moves through resistance or
support, sometimes light volume leads to a vacuum effect with a
big move, since there are fewer buyers and sellers to get in the
way.

We saw a number of conflicting signals from different markets, as
well.  We usually see an uptick in the bond market as cash shifts
from equities into treasuries in bearish markets.  However, today
saw selling in both the equities and the five and ten year notes.
The dollar dropped, as well, another bearish signal.  However, as
I mentioned earlier, support is not only holding, but we are
getting slightly higher bottoms on a daily basis. We are simply
not seeing multiple market confirmation of a trend right now, and
although I am getting a bearish "feel," I don't have the numbers
to back it up. Until that time, I'll play small and take profits
quickly when they are present.  Many analysts try to force things
when trading is slow, searching for indications, rather than
identifying that signals are unclear.  There is nothing wrong
with knowing when to take a step back and right now appears to be
one of those times.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8538

Moving Averages:
(Simple)

 10-dma: 8668
 50-dma: 8394
200-dma: 9122



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  901

Moving Averages:
(Simple)

 10-dma:  913
 50-dma:  887
200-dma:  974



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1039

Moving Averages:
(Simple)

 10-dma: 1063
 50-dma:  999
200-dma: 1106



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


The Retail Index (RLX.X): The RLX saw some action today, as
retail sales for the month of November were released this
morning. The data showed a 0.4% gain, which was better than
expectations, leading to an initial surge in the sector. However,
once the data was digested, it became apparent that the increase
was more related to the housing boom, than a rush of shoppers
hitting stores ahead of Christmas. There were increases in
furniture and hardware, typically related to home improvements
and new home purchases, while there was a drop-off in mall and
department store sales.  This mirrors what we've been hearing
from stores such as Wal-Mart and Federated, which is that holiday
sales have been soft. By the end of the day, the index has traded
in a 5 point range, finishing almost unchanged at -0.29.

52-week High: n/a
52-week Low : 244
Current     : 279

Moving Averages:
(Simple)

 10-dma: 285
 50-dma: 282
 200-dma: 312

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



The VIX certainly reflected the aimless drifting we saw in the
broader markets today.  We bounced between previous resistance
and support levels, in a tight range, taking the VIX down
slightly. It remained over 30, however, as the Dow, OEX and SPX
all finished down on the day. The VXN also finished down slightly
as the Nasdaq posted a small gain.


CBOE Market Volatility Index (VIX) = 30.81 –0.59
Nasdaq-100 Volatility Index  (VXN) = 51.05 –0.57

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.77        486,222       373,419
Equity Only    0.69        374,096       258,028
OEX            0.77         19,870        15,239
QQQ            0.56         56,329        31,597


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

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 1     Bull Confirmed
NASDAQ-100    70      + 0     Bull Correction
Dow Indust.   63      + 0     Bear Alert
S&P 500       64      + 0     Bull Confirmed
S&P 100       64      - 1     Bear Alert

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   1.26
10-Day Arms Index  1.40
21-Day Arms Index  1.15
55-Day Arms Index  1.17


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       1512          1316
NASDAQ     1562          1601

        New Highs      New Lows
NYSE         43              29
NASDAQ       50              34

        Volume (in millions)
NYSE       1518
NASDAQ     1383


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

Commitments Of Traders Report: 12/03/02

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 reduced long positions by about 3,000 contracts, while
reducing shorts by only 800. Small traders increased long
positions by 6,000 contracts and shorts by 600.

Commercials   Long      Short      Net     % Of OI
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%)
12/03/02      444,345   487,411   (43,066)   (4.6%)

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
11/12/02      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%
12/03/02      162,192    82,584    79,608     32.5%

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

NASDAQ-100

Commercials left positions mostly unchanged with a small
percentage increase to the long side and a small decrease to the
short position. Small traders reduced long positions by 4,000
contracts, while reducing shorts by 2,500.


Commercials   Long      Short      Net     % of OI
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%)
12/03/02       43,709     51,977   ( 8,268) ( 8.6%)

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
11/12/02       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%
12/03/02       13,749     9,869     3,880    16.4%

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 maintained the status quo, while small traders showed
small reductions to long and short positions.

Commercials   Long      Short      Net     % of OI
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%
12/03/02       20,176    15,427    4,749      13.3%

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
11/12/02        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%)
12/03/02        5,885     9,781    (3,896)   (24.9%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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WEEKLY MANAGER MICROSCOPE
*************************

Bob Olstein: Olstein Financial Alert Fund

Bob Olstein is chairman and chief investment officer of Olstein &
Associates L.P. of Purchase, New York, which serves as investment
adviser to Olstein Financial Alert Fund C (OFALX), a $1.3 billion
mid-cap fund that has produced high returns relative to its peers
since its September 1995 inception.  Mr. Olstein, a veteran stock
picker, is primarily responsible for the day-to-day management of
the fund's portfolio of securities.

Olstein's bio states that he has been engaged in various aspects
of securities research and portfolio management for institutional
and retail clients since 1968, and is considered to be an expert
in corporate financial disclosures and reporting practices.  His
early work included the co-founding of an earnings quality report
service that pioneered the concept of using inferential financial
screening techniques to analyze company balance sheets and income
statements.  His service alerted institutional portfolio managers
to positive or negative factors, which can affect a corporation's
future earnings power and the value of its company stock.

Prior to founding Olstein & Associates LP in 1995, Mr.
Olstein managed portfolios for individuals, companies,
and employee benefit plans at Salomon Smith Barney and
its predecessor companies between 1981 and 1995.  When
with Salomon Smith Barney, Olstein was a senior VP and
portfolio manager.

The Olstein Funds website (www.olsteinfunds.com) lists six of Mr.
Olstein's credits.  First, he is a senior member of the New York
Society of Securities Analysts and second, he is a fellow of the
Financial Analysts Federation.  Third, he is a past recipient of
the Graham & Dodd and Gerald M. Loeb research awards.  He's also
a frequent testifier before the U.S. Senate Banking Committee on
bank accounting practices, a fourth credit.  Fifth and sixth, he
is a frequent participant on various business-related television
and radio programs, and he's frequently quoted and featured in a
variety of business publications.

Olstein's Financial Alert Fund is available in two share classes.
The original Class C shares (OFALX) have been around since 1995,
and are available either directly or through financial advisors.
In 1999, Olstein launched a new Adviser Class share that is sold
exclusively through fee-based financial advisors as well as some
401k plans.  The Adviser Class shares are not available for sale
directly to the public.  Class C shares have deferred loads, and
12b-1 fees; Advisor shares have lower 12b-1 fees.

Investment Style/Strategy

Bob Olstein seeks the Financial Alert Fund's long-term capital
growth objective by investing primarily in stocks of companies
that his team believes to be undervalued.  His "value-oriented"
approach is suited to investors who have the patience to follow
such a strategy; those with a longer-term investment outlook of
3-5 years or more.  Olstein believes value investing requires a
disciplined, patient approach because anticipated equity values
often take time to emerge, he contends.

Olstein may also invest assets in convertible securities, rights
and warrants, preferred stocks, high-quality debt securities and
American depositary receipts (ADRs).

One of the things that Olstein & Associates prides themselves on
is looking behind the numbers.  Olstein believes that the fund's
objectives are best achieved by minimizing investment errors, as
opposed to selecting companies with the highest growth potential
without regard to downside risk.  He and his research staff look
behind the numbers of a company's financial statements to assess
its financial strength versus its potential downside risk.  This
risk-adverse philosophy is called "defense first."

In security selection, Olstein focuses on companies that produce
more cash flow than necessary to sustain the business operations,
avoid aggressive accounting practices, demonstrate balance sheet
fundamentals consistent with the fund's "defense first" approach,
and whose stock is selling at a discount to its "private market"
value.

The Olstein website cites the firm's belief that value can occur
anywhere.  Accordingly, Olstein invests in equities of companies
without regard to whether they are conventionally categorized as
small, mid or large cap or whether they're characterized such as
growth, value, cyclical or any other category.  Nor does Olstein
focus on characteristics such as the number of years in business,
sensitivity to economic cycles, industry categorization or stock
price volatility, the website states.

Unlike most active managers, Olstein eschews management meetings,
preferring instead to dissect company financial statements in an
effort to assess company strengths and weaknesses, or to uncover
"accounting irregularities" which could indicate further trouble.

In an October 2001 interview with Morningstar, Olstein said that
in his 33 years he has never had a management team tell him what
their problems are, and that if they didn't solve them, he would
lose money on their stock.  He would rather focus his efforts on
scrutinizing financial reports to see whether management attacks
their problems (and discusses them) and whether they discuss any
inconsistencies, irregularities, or projections.  Everything one
needs to know about management, Olstein contends is available in
a detailed inspection of financial statements.  He opts to spend
his time reading what management does and not what they say they.

Mr. Olstein believes that in the investment business, the good
performers are the ones who make the fewest errors or mistakes,
not the people who hit the most home runs and strike out a lot.
Like a tight football game, he believes the equity manager that
makes the fewest mistakes wins.

The result is a fairly diversified portfolio of about 100 value
stocks across all capital sectors.  As of September 30, Olstein
Financial Alert Fund had 96.4% of its assets invested in stocks,
with about 18% of stock assets in large-cap names and the other
82% of stock assets invested in the extended market (mid, small
and micro cap sectors).  The fund's average market cap value of
$2.1 billion and its average forward P/E of 14.7 land it in the
Morningstar mid-cap blend style box currently.  However, in the
past, the fund had more of a mid-cap value bias so that's where
Morningstar categorized the Olstein fund prior to November 2002.

The fund is now evaluated against other mid-cap blend funds for
Morningstar star rating purposes.  In the next section, we look
at Olstein's performance relative to similar funds, as adjusted
for risks and costs.

Investment Performance

Olstein's performance over the past five years has been stellar.
His trailing 5-year average total return as of December 11, 2002
of 11.6% beat the S&P 500 large-cap index by an average of 11.2%
a year and the S&P Midcap 400 index by an average of 4.1% a year.

In doing so, Olstein produced investment results that ranked the
Financial Alert Fund in the top 4% of the mid-cap blend category,
per Morningstar.  His 11.6% annual-equivalent rate of return for
the trailing 5-year period compares to just 3.4% for the average
mid-cap value fund and only 3.1% for the average mid-blend fund.

The fund's outstanding long-term record is the result of several
strong performance years.  Between 1996 and 2001, Olstein closed
each calendar year with a "double-digit" percentage gain.  Below
is a performance summary for the fund, using Morningstar data as
of December 11, 2002.

 Year-To-Year Investment Returns (OFALX):
 1996: +24.4% (29th percentile)
 1997: +34.8% (21st percentile)
 1998: +15.0% (29th percentile)
 1999: +34.9% (14th percentile)
 2000: +12.9% (44th percentile)
 2001: +17.3% (6th percentile)
 2002: -16.8% (64th percentile)

You can see that with the exception of this year, performance has
consistently fallen in the top half of the category, with Olstein
delivering double-digit total returns six consecutive years until
2002.  This year, it looks like Olstein will experience his first
annual decline, with the fund down 16.8% on a YTD basis.  Olstein
continues to sport one of the best long-term records, beating 96%
of all mid-cap blend funds over the same 5-year period.





The chart above depicts the fund's net asset value movements in
the last three years.  Morningstar grades the fund risk as high
relative to other mid-cap blend funds over the past three years,
giving it a 4-star overall rating based on above-average return
and high risk relative to its category (mid-cap blend funds).

Over the past five years and overall, Morningstar rates the fund
risk level as above average (not high) and fund return as "high"
relative to other mid-blend funds, giving it its highest overall
rating of 5 stars for risk-adjusted performance.  Olstein is one
of the few portfolio managers to overcome the fund's higher risk
and cost structure to earn a Morningstar 4-star rating for risk-
adjusted (cost-adjusted) performance relative to category peers.

Morningstar's modern portfolio theory statistics for the Olstein
Financial Alert Fund suggest that Olstein has rewarded investors
for the risk incurred by the fund.  As of November 30, 2002, the
fund had a beta of 1.17 relative to the S&P 500 index (1.00) and
a high alpha score of 24.4.  Compared to its best-fit index, the
S&P Midcap 400 index, this fund had a 1.11 beta, and a 4.2 alpha
based on trailing 3-year numbers.  Olstein's risk level is above
that of the large- and mid-cap markets, but his long-term return
performance has also exceeded index benchmarks and category peer
groups by wide margins.

Conclusion

Although Olstein's performance is more average in 2002, there's
nothing average about his long-term record.  Morningstar states
that he has "amassed a terrific long-term record here by moving
into unpopular names and sectors and then sticking around for a
recovery."  This contrarian philosophy along with the manager's
goal of limiting mistakes has generated strong returns for risk-
tolerant investors willing to stay the course.

Long-term investors seeking a stock manager who scrutinizes the
financial statements and disclosures of companies to find value
opportunities across all capital sectors have a top choice here.
For more information or a fund prospectus, logon to the Olstein
Funds website at www.olsteinfunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Conflicting Signals

We got a number of conflicting signals today that left me on the
sidelines, rather than trying to pick my way through murky waters.
The economic data released this morning also gave conflicting
signals about the economy within the reports themselves.


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

In Section Two:

Dropped Calls: None
Dropped Puts: CDWC
Daily Results
Call Play Updates: CPS, CTXS, OMC, MERQ
New Calls Plays: IDPH
Put Play Updates: AIG, DLX
New Put Plays: MMM


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

None


PUTS:
*****

CDWC $46.77 -0.84 (-0.96) Just when it looked like CDWC was
finally going to fall apart yesterday with a negative reaction
to the company's reduced revenue guidance, buyers appeared out
of nowhere.  By the end of the day, the stock had rallied more
than $3 from its intraday low.  That buying continued this
morning, with the stock challenging the 10-dma above $48 before
falling back from there.  Normally, we'd look at today's failure
at the 10-dma as a solid bearish entry point, but volume tells
a different story.  Wednesday's rally came on huge volume (more
than triple the ADV), while today's decline came on below
average volume.  This hints that yesterday's low was likely an
important bottom, drastically reducing the likelihood of
significant price weakness over the near-term.  Let's use the
current price weakness to exit any open positions and look to
deploy our cash into more favorable plays.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

CPS      39.95    0.46   1.22   0.76 –0.09  Holding level
CTXS     12.45   -0.26  -0.13  -0.12  0.05  Bounce from support
IDPH     34.84    0.77  -0.43   0.05  0.63  New, Into gap
MERQ     31.50   -0.80   0.99   1.37  0.32  Rebound continues
OMC      68.65   -2.34   1.88   1.13  0.42  Testing 200-dma

PUTS

AIG      60.09   -0.68   1.18   0.87 –1.57  Rolled from 50-dma
CDWC     46.77   -1.83   1.30   0.57 –0.84  Drop, Strong bounce
DLX      41.99   -1.26  -0.22  -0.37  0.13  Failed bounce entry
MMM     123.65   -2.06   0.75  -0.39 –1.06  New, Look under $123


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

CPS $39.95 -0.09 (+2.12) Mirroring the action in the broad market
on Thursday, CPS spent the day trading in a very narrow range.
In contrast to the broad market though, the stock is consolidating
its recent price rise, while the overall market is consolidating
last week's sharp decline.  The rally in CPS earlier this week was
particularly important, as it pushed the stock through resistance
that had been holding it back since early October. In the process
of trading through the $39 level, the stock generated a fresh PnF
Buy signal and pushed right through the bearish resistance line.
Wednesday's price action saw the stock claw its way above the $40
level, where it spent today's session consolidating.  While we
are looking for the stock to continue its northward trek towards
major resistance in the $44-45 area, it is likely that we'll see
a short-term pullback to support before the bulls manage a
successful breakout over the 200-dma, currently at $41.12.  A
pullback to the $38-39 level will give us a chance to see how well
this former resistance level performs as new support.  A
successful rebound from that level would make for a solid entry
point ahead of a serious assault on the 200-dma.  Because of the
proximity of the 200-dma (which coincides with the 62% retracement
of the stock's sharp slide from June-October, momentum traders
need to be very careful about chasing a breakout move above
current levels, only playing such a move if it is accompanied by
strong volume.  We're keeping our stop set at $37.

---

CTXS $12.45 +0.05 (-0.55) Vigilant and quick traders got an ideal
entry point into our CTXS play yesterday morning, when the stock
dipped to and then rebounded from just below the $12 level in the
first hour of trade.  Despite the gyrations in the overall market
this week, the stock has been holding its ground pretty well,
with the $12.50 level acting as a price magnet, while the stock
digests the gains accrued over the past month.  While the
oscillators have eased out of overbought territory, price action
has remained rather flat, which is bullish.  Adding to the
positive tone is the fact that the consolidation over the past
week has come on declining volume.  While price has been drifting
sideways, the bottom of the ascending channel has been rising to
meet it, and we'll soon know whether there is another upward leg
in store for the stock.  A rebound from current levels can be
used for initiating new positions, so long as our $11.50 stop
(just below the rising 20-dma) is not violated.  More cautious
traders will want to see a volume-backed rebound push through
the $12.90 level before entering the play.

---

OMC $68.65 +0.42 (+0.75) After Tuesday's rebound from the $65
level, the next important price development we were looking for
from our OMC play was for another test of the 200-dma and we got
that at the open this morning.  OMC gapped up and quickly fell
back, failing on its second test of that important level in as
many weeks.  But the pullback was fairly mild, with the intraday
lows coming just above the 10-dma ($67.54).  Positive comments
from YHOO about expectations of growth in the advertising market
late in the afternoon lit a fire under OMC, with a quick $1 rise
into the close.  That rise came on increasing volume, leading to
the possibility of a continuation of that rebound tomorrow
morning.  OMC looks like it wants to break out over the 200-dma,
and momentum traders can use a breakout over that level for
initiating new positions.  Those wanting a bit more confirmation
before committing to new positions will want to see the stock
push through last week's intraday high of $70.50.  Alternatively,
another intraday dip into the $65-66 area can be used as a lower
risk entry.  Keep stops set at $64.

---

MERQ $31.50 +0.32 (+1.48 for the week) Shares of MERQ traded
strong on Wednesday morning after Siebel Systems (SEBL) tapped
Mercury to provide testing services.  The stock reached our entry
trigger ($30.27) shortly after the opening bell, gravitated
towards the $31.00 area, and closed near the best levels of the
session.  Today's action saw some morning profit-taking before
buyers stepped in near the bottom of the December 6th gap.  The
stock climbed higher in afternoon trading and closed with a 1.0%
gain.  Not too shabby, considering the NASDAQ's flat performance.
P-n-f chartists will note that the intraday high of $32.00
created a three-box reversal.  Traders looking to open new long
positions can watch for a move above this level.  We're keeping
our stop set at $28.48, while those with a more conservative
strategy could use a stop slightly below $30.00.  In related
sector news tonight, ADBE reported Q4 results that were 2 cents
better than expectations.  This should help to give the software
group a bullish spin on Friday morning.


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

IDPH - IDEC Pharmaceuticals - $34.84 +0.63 (+1.23 for the week)

Company Summary:
IDEC Pharmaceuticals Corporation is a leader in the discovery,
development, and commercialization of targeted immunotherapies
for the treatment of cancer and autoimmune diseases. IDEC
discovered and developed the first monoclonal antibody product
(Rituxan.) and the first radioimmunotherapy product (Zevalin.)
approved in the United States for the treatment of cancer. IDEC
is a San Diego based, integrated biopharmaceutical company with
multiple products in clinical stage development and strategic
alliances in a variety of research platforms. (source: company
press release)

Why We Like It:
In the ever-changing and speculative world of biotechnology,
investors find a good deal of comfort in companies that are
actually producing drugs with promising results.  Such is the
case with IDEC Pharmaceuticals.  The company announced on Monday
that an investigational study of its Rituxan drug had "indicated
a 55% reduced risk of disease progression in patients with
indolent non-Hodgkin's lymphoma."  Although Rituxan has already
received FDA approval, cancer study groups are carrying out
larger studies to evaluate the effectiveness of using the drug
for extended treatment.  Further positive news came on Tuesday,
when the company said that a clinical trial of IDEC-114 (a Phase
I/II drug) was successful in treating follicular non-Hodgkin's
lymphoma.  IDEC-114 has got a long way to go before it's
marketable in the U.S., but these results are certainly a good
start.

Buoyed by the recent developments, IDPH has started to move into
its November 26th gap, which resulted from a Merrill Lynch
downgrade.  Once this gap is filled, the daily chart doesn't show
any significant overhead resistance until the $40.00 area.  The
rising stochastics (5,3,3) and fresh bullish MACD crossover
suggest that IDPH will be able to extend this week's breakout
above short-term resistance at $34.00.  Additionally,
shareholders can be encouraged by the recent three-box reversal
on the p-n-f chart.  In terms of sector strength, we like how the
BTK.X biotech index has bounced from its converging 50-day and
100-day moving averages near 350.  The BTK.X showed good relative
strength on Thursday with a 1.5% gain.  Shares of IDEC outpaced
the index by tacking on 1.8%.  We will enter at the current
level, buoyed by recent support between $31 and $34.  This would
offer the highest risk reward ratio.  More conservative traders,
can wait until the stock fills its gap with a trade of $36 to
initiate.   The descending 50-dma at $39.66 might throw a wrench
in our plans, so we'll re-evaluate our exit strategy if/when the
stock approaches that moving average.  We will place our stop at
$32, below its recent pullback, as a trade at that level would
indicate that it has failed in its rebound attempt.

***** December contracts expire in 1 week  *******

BUY CALL JAN-30*IDK-AF OI=  213 at $6.60 SL=3.30
BUY CALL JAN-35 IDK-AG OI= 1516 at $3.30 SL=1.65
BUY CALL APR-30 IDK-DF OI=   63 at $8.80 SL=4.40
BUY CALL APR-35 IDK-DG OI= 1250 at $5.80 SL=2.90

Average Daily Volume = 5.16 mil



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

AIG $60.09 -1.53 (-0.40 for the week) The oversold bounce in AIG
that materialized earlier this week had absolutely no staying
power.  The bears piled on board once the stock reached its 50-
dma ($62.51) on Wednesday afternoon.  Shares trended lower during
today's session and underperformed the broader market with a 2.4%
loss.  Shares also showed relative weakness versus the IUX.X
insurance index, which drifted lower by 1.4%.  AIG can't seem to
attract much buying attention after rolling over from moving
average resistance.  A close below support at $60.00 was averted
by the narrowest of margins today.  With the p-n-f chart still
looking weak and the MACD drifting lower, we think odds are good
that AIG will soon be trading at fresh lows.  New entries can be
targeted on a move under the relative low of $59.42.  Another
failed rally at the 50-dma might also yield an entry point.  For
the time being we're keeping our stop at $65.51.

---

DLX $41.99 +0.13  (-1.82 for the week) It's not pretty, but DLX
has slowly been moving in a southbound direction ever since it
topped out under the 200-dma last Friday.  The stock has posted
lower highs and lower lows over the past four sessions.  Shares
showed some relative strength today with a fractional gain but
weren't able to close above intraday resistance at $42.00.
Interestingly, these gains came on the weakest volume since the
abbreviated post-Thanksgiving session.  This maintains the
pattern of lighter volume on up days.  Further technical
encouragement can be gleaned from the falling daily stochastics
(5,3,3) and negative MACD histogram.  DLX looks like it could
reach new multi-month lows within the next few sessions if the
current downtrend remains intact.  Traders looking to open new
positions can continue to watch for a breakdown below $41.00.


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

MMM – 3M Company $123.65 -1.06 (-2.45 this week)

Company Summary:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety
of industrial, consumer, and medical products.  Reflective
sheeting on highway signs, respirators, spill-control sorbents,
and Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Why We Like It:
There hasn't been a lot of good news in the market recently, and
this is reflected in the fact that the broad market has pulled
back considerably since Thanksgiving.  Even some of the stocks
that have held up fairly well are starting to fray around the
edges.  MMM is a perfect example, as the stock has once again
failed to break out over the $130-131 zone, a level of resistance
that has kept the bulls in check on numerous rally attempts since
May.  Throughout the month of November, the stock made numerous
attempts to break through this level, all to no avail.  Over the
past couple weeks, MMM seems to be weakening significantly,
falling back under all of its shorter-term moving averages, and
the past few days have seen the stock threatening to break under
its 200-dma (currently $123.46).  With broad market internals
continuing to weaken and MMM threatening to break below this
important moving average, now looks like a good time to start
lining up for a bearish play.  Over the past several weeks, MMM
had built up some significant support, first at $125 and then
$126-127.  Since both of those levels have now been violated,
they ought to provide solid resistance on any weak broad market
rebound.  Note how the stock has consistently found resistance
this week, just below the $126 level.  Another failed rally
attempt near that level can be used to enter the play, although
more conservative traders will really want to wait for a
definitive breakdown first.  Such a breakdown will occur when MMM
breaks under the 200-dma and then continues south below the $123
level.  We're initially placing our stop at $127, as a close back
over that level would indicate a reduced likelihood of a
breakdown.

*** December contracts expire next week ***

BUY PUT DEC-125 MMM-XE OI=4546 at $2.80 SL=1.50
BUY PUT JAN-125*MMM-ME OI=3810 at $5.20 SL=3.25
BUY PUT JAN-120 MMM-MD OI=5603 at $3.20 SL=1.75

Average Daily Volume = 2.73 mln



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**********

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

In Section Three:

Play of the Day: PUT - MMM
Traders Corner: When Does A Condor Deserve To Be Strangled?
Traders Corner: Wave patterns to trends  using Elliott Wave
analysis; part 2
Futures Corner: Using Pivots Effectively
Options 101: Gold Revisited (Again)


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

MMM - 3M Company $123.65 -1.06 (-2.45 this week)

Company Summary:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety
of industrial, consumer, and medical products.  Reflective
sheeting on highway signs, respirators, spill-control sorbents,
and Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Why We Like It:
There hasn't been a lot of good news in the market recently, and
this is reflected in the fact that the broad market has pulled
back considerably since Thanksgiving.  Even some of the stocks
that have held up fairly well are starting to fray around the
edges.  MMM is a perfect example, as the stock has once again
failed to break out over the $130-131 zone, a level of resistance
that has kept the bulls in check on numerous rally attempts since
May.  Throughout the month of November, the stock made numerous
attempts to break through this level, all to no avail.  Over the
past couple weeks, MMM seems to be weakening significantly,
falling back under all of its shorter-term moving averages, and
the past few days have seen the stock threatening to break under
its 200-dma (currently $123.46).  With broad market internals
continuing to weaken and MMM threatening to break below this
important moving average, now looks like a good time to start
lining up for a bearish play.  Over the past several weeks, MMM
had built up some significant support, first at $125 and then
$126-127.  Since both of those levels have now been violated,
they ought to provide solid resistance on any weak broad market
rebound.  Note how the stock has consistently found resistance
this week, just below the $126 level.  Another failed rally
attempt near that level can be used to enter the play, although
more conservative traders will really want to wait for a
definitive breakdown first.  Such a breakdown will occur when MMM
breaks under the 200-dma and then continues south below the $123
level.  We're initially placing our stop at $127, as a close back
over that level would indicate a reduced likelihood of a
breakdown.

*** December contracts expire next week ***

BUY PUT DEC-125 MMM-XE OI=4546 at $2.80 SL=1.50
BUY PUT JAN-125*MMM-ME OI=3810 at $5.20 SL=3.25
BUY PUT JAN-120 MMM-MD OI=5603 at $3.20 SL=1.75

Average Daily Volume = 2.73 mln



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

When Does A Condor Deserve To Be Strangled?
By Mike Parnos, Investing With Attitude

The Iron Condor is a hit -- again.  Why?  Because CPTI students
have better things to do with their time than to be plastered to
their computers and play with their mouse all day.  They’d rather
be plastered to their TV, their spouse, their girlfriend, or all
three – which is entirely understandable and conjures up an
interesting image.

Questions have been raised and suggestions made by CPTI students
regarding the Iron Condor.  First, it’s against the laws of
nature to try to do that to a condor and condors cannot live
“where the sun don’t shine.” Secondly, yes, you can use your
profits for that, but first you’ll have to prove you’re not a
cop.  In the words of the season, “Ho, Ho, Ho.”

Here are some of the other questions.

Hi Mike,
I like the Iron Condor and am trying to decide when to choose it
versus a Strangle.  Is it just when you may be willing to do a
Strangle, but want less risk?  The percentage return is better on
the Strangle, but it has greater risk.

In the example, you are looking for a volatile stock to
benefit from the premium and sell an Iron Condor.  Instead,
when would you sell a QLGC Strangle with a $30 to $50 range
for a profit of $2.05?

To benefit from selling options, it seems that the greater the
volatility the higher the potential for the best return on
investment.  What is the ideal situation for the Iron Condor
versus the Strangle?  Is it only a risk consideration or is there
more to it? Thank you.

Response:
I use the Iron Condor primarily because of the risk element.
You're protected against catastrophic loss.  I also prefer to use
indexes for that same reason.  Indexes are much less vulnerable
to dramatic swings due to their diversification.

I'm also assuming you're referring to a “short” strangle.  Most
OI readers do not have the trading approval level to do uncovered
options.  Spreads they can do.  Naked they usually can't.  But,
as you know, I did include a short strangle in the CPTI portfolio
(TTWO) that has worked out very well.

There is a happy medium between the Iron Condor and the Short
Strangle -- for those with the appropriate trading approval
level.  For example (and this is only for demonstration
purposes):

If you thought MSFT was going to remain between $50 and $60
through January expiration, you could:
A. The typical Iron Condor -- the "safest" of the plays
Sell the Jan. $60 call @ $.75
Buy the Jan. $65 call @ $.25
Sell the Jan. $50 put @ $1.25
Buy the Jan. $45 put @ $.50
You would have taken in a total credit of $1.25 and you are
protected against catastrophic events by having a defined risk.

B.  The Short Strangle -- the "riskiest" of the plays
Sell the Jan. $60 call @ $.75
Sell the Jan $50 put @ $1.25
You will have taken in a total credit of $2.00 -- BUT, you have
two NAKED (completely in the buff) options.  The risk is
virtually unlimited and you are vulnerable to gap ups or downs
and market direction changes.

C.  The A-typical Iron Condor -- the "compromise" between the
Iron Condor and the Short Strangle.
Sell the Jan. $60 call @ $.75
Buy the Jan. $70 call @ $.10
Sell the Jan. $50 put @ $1.25
Buy the Jan. $40 put @ $.20
You would have taken in a total credit of $1.70 and you are
somewhat less protected against catastrophic events though you
still have a defined risk.  The wings of the condor that were
purchased for protection are an additional $5.00 away from the
short put and call strikes.  Technically, these are spreads and
will allow a trader, who does not have "uncovered" trading
approval, to take in more premium, but assuming greater risk.

Also, the "compromise" play would require twice the maintenance
by your brokerage firm because the $5.00 exposure has now become
a $10.00 exposure on both the put and call sides.

The Ideal Iron Condor vs. Short Strangle
The ideal situation for an Iron Condor is entering a position
when the underlying has an uncharacteristically inflated
volatility and you can have a very large range with a respectable
amount of premium.

Keep in mind that we’re trying to create strategies and
positions for OI readers that would require a minimal amount of
attention.  I suspect most OI readers actually have to work for a
living to support their (after work) couch potato lifestyles.
The money they make trading is additional gravy for those
delicious Banquet TV dinners.

If traders can't keep a close eye on the market, it limits the
strategies they can use.  That's one of the big problems.
Traders, who are not able to monitor their trades, miss entry
points, exit points and adjustment opportunities.

In an ideal world all condors would expire worthless and I could
eat Cheese Doodles, pizza and apple pie, and have only 3% body
fat.    The mirror never lies – but I know that damn scale has an
agenda of its own.
____________________________________________________________

Mike:
I'm doing some research on option pricing and delta's for the
purpose of covering positions.  Here's an example:  Stock XYZ
trades at $27.50; sell $25 put.

Let's say the stock starts to drop.  If the stock goes below $25,
why not buy an ITM put (a month or two out) to cover my sold put
rather than shorting the stock?

From my "research" it looks like the delta for the sold put would
be about the same as the delta for the bought put.  It seems like
this way would use less capital than the purchase/short of stock
outright.  Am I missing something?

Answer:
Great suggestion!  The only difference is that options usually
have a wider bid/ask spread than stocks. When you buy (or short)
a stock, you're participating penny for penny in the stock
movement.  Unless (according to your example) you buy a put
that's very deep in the money and has an almost 100% delta, you
might be sacrificing money using an option.

Plus, if you need to hold onto the option (if the stock continues
to move against you), you will be losing some time value as well.
But, I do like it as a choice for those who do not have a large
reserve fund for buying and selling the stock when it bounces
around a short strike.

Thanks!  Keep the ideas coming!
_____________________________________________________________

Hello Mike:
I have a question related to credit spreads. Lets assume that we
sold a spread and then stock moves against us and violates strike
that we sold. In that case you recommend to buy (or sell
depending on spread we sold) underlying stock and therefore
create a hedge. Then if stock moves back through the strike we
sold we should close stock position.

What if stock jumps around this strike many times during the day?
It is impossible to buy/sell every time it goes through. I guess
there should be some leeway, so you buy/sell with some offset
from the strike.

Answer:
Before establishing the position, ask yourself, where is the
resistance level on this stock?  Has the stock broken through
resistance?  It's recommended that, ideally, when you put on the
position, you sell a strike price just above resistance or just
below support.  That way, if the support (or resistance) level is
violated, and it continues to your short strike price, that the
stock has indeed "broken out" and will continue in that direction
– thereby requiring only a few purchases and selling of stock.
____________________________________________________________

CPTI PORTFOLIO UPDATE – As Of Thursday’s Close

BBH Iron Condor – Currently trading at $89.56
We want BBH to finish the December option cycle anywhere between
$80 and $95.  Big up day today. We’re still looking good – still
in mid-range.

TTWO Short Strangle – Currently trading at $25.65.
We want TTWO to finish the December option cycle anywhere between
$22.50 and $35.00. TTWO has pulled back with the market, but
there’s still enough breathing room not to be concerned..

IMCL Covered Call – Currently trading at $12.30.
We want IMCL to finish the December option cycle over $10 so it
will be called away.  IMCL has pulled back from the $15 level,
but we still have a nice cushion with a little over a week to go.

QQQ ITM Strangle – Currently trading at $25.85.  Before rallying
later in the day Friday, the QQQs dipped to $25.74.  For the
traders who were still holding their long $26 or $25 put, it was
a good profit-taking opportunity.  I suspect that most CPTI
students are already out of the position.

Last week, the QQQs finally made its predicted 3-point move – and
then some – it turned out to be a $4.25 upward move.  CPTI
students, sold their long calls, covered the cost of the
strangle, and have profited (or are now profiting) from the long
puts as the market has reversed direction.
____________________________________________________________

Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be
prepared! In trading, as in life, it's not the cards we're dealt.
It's how we play them.

Your questions and comments are always welcome.
mparnos@OptionInvestor.com


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

Wave patterns to trends – using “Elliott Wave” analysis; part 2
By Leigh Stevens
lstevens@OptionInvestor.com

This Trader’s Corner is a bit different in the sense that part 1
from last week is a fairly important read prior to this one, as
it gives some foundations for understanding movements of a trend
in terms of “wave” structure – Elliott wave that is; after R.N.
Elliott, who devised the wave theory. (Like Dow theory, Elliott’
work was a theoretical construct about how the market works – AND
difficult to “prove” also – so, these remain theories.) Part 1 is
at –
http://www.OptionInvestor.com/traderscorner/tc_120502_2.asp

To recap a bit – A bull market or a basic up trend breaks down
into 3 advancing “impulse” waves, with 2 intervening counter-
trend corrections or downswings and that these all together make
up a 5-wave structure. The END of a wave is where we put the
number or letter. A “typical” look to this is as seen below –





A related rule of waves and wave structure is the “rule of
alternation”, which suggests that the strength of a move or the
(price) distance carried will alternate; e.g., a stronger longer
move will follow a relatively lesser advance and vice versa.
And, if the first correction is relatively shallow, the next one
will be deeper.

Bear markets or declining trends usually subdivide into the 3-
part “a-b-c” structure, which is illustrated in the chart below.
In order so that you do not think that the wave structure to
trends only applies to longer-term chart, the S&P 100 (OEX) Index
chart here is of the hourly closes for a 6-week period and is a
“typical” a-b-c or down-up-down declining trend –





The foregoing is Elliott wave in a very small nutshell – I don’t
claim to be someone who knows all there is to know about wave
patterns but I do see valuable trading clues in knowing  for
example (from experience) that the 2nd upswing is quite often
longer and stronger than the 1st.

As well, knowing that an overall decline takes the form typically
of a down-up-down pattern and that the second decline or wave “c”
is the move that is usually most prolonged and steep – an example
of this being (in my estimation) the bear market decline of March
to October of this year (2002), the severity of which had the
“feeling” and look of a “c” wave decline.

FURTHER BREAKDOWN OF WAVE PATTERNS -
There is a further subdivision of the larger wave structure and
its value is in helping you figure out when a particular move may
in a FINAL stage of completion.

Applying a different kind of alternating rule, impulse waves or
up moves in bull market trends (waves 1, 3, and 5) in the same
direction of the trend or up in this case, break down into a
smaller wave-5 structure. The counter-trend waves 2 and 4 which
are counter to the trend or are down moves in this case, break
down into a further a-b-c (down-up-down) pattern or structure.

Conversely, an a-b-c bearish downtrend has 2 moves in the
direction of the trend which is down (“a” & “c”) and 1 counter-
trend wave “b”.  The moves in the SAME direction as the down
trend (a & c) break down into a “smaller” 1-5 structure, whereas
the counter-trend upswing “b” breaks down into a smaller a-b-c
pattern.

Here, some sample charts will help you to visualize this – as
well, its helpful to memorize this simple rule:
Moves in the SAME direction as the overall trend (up OR down)
break down into further or “smaller” 5-part patterns
AND ......
Moves AGAINST the trend (up OR down) that is ongoing break down
into a smaller a-b-c structure.

An advancing trend that has 3 impulse waves up (1,3,5) and 2
counter-trend downswings making a 5-wave structure, also breaks
down into smaller 1 to 5 and a-b-c patterns per the example shown
in the chart below -





Moves in the same direction as the up trend above break down into
smaller 5-wave patterns, whereas the counter-trend downswings 2 &
4 break down into smaller a-b-c patterns; or, down-up-down price
swings.

A declining or bear market trend or an a-b-c (down-up-down)
breaks down further into smaller 5-wave component moves for the
“a” and “c” moves that are in the direction of the down trend;
the “b” wave rebound that is counter to the trend, is broken down
further into an a-b-c correction, only in this case the direction
of the price swings are UP-down-UP as shown by going back to the
OEX hourly chart:





An example chart from my book - below - shows both bull and bear
markets for bellwether IBM and breaks down the 5-wave Bull and
the A-B-C major Bear market (capital letters are used for a major
trend) in some detail –





To show how this kind of analysis can be used in trading – and,
we should imagine we can imagine we are seeing this unfolding
wave structure on an hourly or daily chart – it can be
ascertained above that wave 3 (the 2nd big advance) is in a
completion phase when the “smaller” 5th wave (wave 5 of a
“smaller degree”) is underway. This knowledge of how wave
structure works typically tells us to get READY to trade out of
calls and go into Puts, especially when there are some
“confirmations” such as from other technical indicators or
patterns (e.g., a trendline break) that the trend has reversed.

Examples or how I have labeled where one wave begins and ends,
etc., are for demonstration purposes and in an attempt to provide
the basic concepts of how a trend is viewed in terms of its
(Elliott) wave structure.

I use ideas gleaned from the wave principle in patterns where the
wave structure appears pretty clear cut – the success of
successfully identifying a “classic” wave structure to me is in
whether it provided early recognition of a trend that led to a
profitable investment or trade.

My last Trader’s Corner article (part 3) next week, on using the
Wave principle to help pick apart trends, will conclude with how
wave theory differs in defining long-term trends, how to use wave
analysis along with OTHER technical analysis tools and also
describes wave characteristics.

In the meantime, surfs up and the waves are out there!


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

Using Pivots Effectively
By John Seckinger
jseckinger@OptionInvestor.com

Using pivots effectively can increase a trader’s confidence when
entering or exiting a position, and such a simple formula can at
times be one of the most powerful tools.

When describing a pivot, I like to use the word “equilibrium,”
since it is this level that will act as a focal point for market
makers, institutions, and retail traders.  When a specific
contract trades away from the recognized pivot, traders will
already be aware of important support and resistance areas
calculated from using the calculated pivotal level.

The calculation is as follows:

Pivot point (P) = (H + L + C) / 3

First resistance level (R1) = (2 * P) – L

First support level (S1) = (2 * P) – H

Second resistance level (R2) = P + (R1 - S1)

Second support level (S2) = P - (R1 - S1)

Note: H, L, C are the previous day's high, low and close,
respectively:

Let us use the ES03H contract as an example:

High:   908.00
Low:    895.25
Close:  901.00

Pivot becomes 901.41

First Resistance:  907.57

First Support:  894.82

Second Resistance:  914.16

Second Support Level:  888.66

Chart of ES03H, 10-minute




Note how the pivot at 901.41 lines up with the 50% retracement at
901.65, as well as the second resistance area just under the 915
area?  Coincidence?  Not likely.  Note:  910 was the high just a
few days earlier, so keeping the bottom green line intact still
seems to make sense (versus only highlighting 915).  Moreover,
the 907 level is seen in the SPX contract (50 PMA), so that
matches up well also.

In theory, trading throughout a session should remain between the
first support and resistance levels due to market maker activity.
If either of these first levels penetrated, then it is time to
look for off-floor traders coming into the market and taking the
contract towards the second levels of support and resistance.  Of
course, once a support or resistance area is broken, look for
support to become resistance and vice versa.  Intermediate and
long-term traders should then become involved if the second
support or resistance level is cleared.

When is there a caveat that changes the scope of the pivot?  When
there is a gap the following morning; since a move outside the
projected pivot will usually hurt the market makers ability to
move the market effectively around the aforementioned pivot.

It is important to realize that pivot analysis should be used
with other technical indicators, since those other indicators
will provide a higher confirmation of the level(s) listed.
Example:  The ES trades 907.57 and oscillators, trend lines, etc.
are all pointing bullish; therefore, look to buy above that level
with 914.16 as the upside target instead of looking to sell the
resistance area short.

If used blindly, the chances of being caught in a trap greatly
increases.  Why?  I am sure that I am not the only person looking
at these exact levels, and traders like nothing more than getting
another trader into the market just above a support or resistance
level, only to reverse price action and try to force that same
trader to take an immediate loss.  If using other analysis,
confidence grows and traps occur less frequently.

Let us do one more example, and this time we will back test the
pivot theory.  Note:  I really am randomly picking a day.

Chart of NQ02Z, Daily




The 1078 noted resistance area really turned out to be important
(top of a wedge pattern), while 1013.50 came extremely close
from being the low on December 9th and 10th (1014 and 1014.50,
respectively).  The 975 level does hold a solid intermediate
level of importance, but 1104.50 never really materialized into
much.  I would still stay this pivot analysis worked out rather
well.

Of course, traders can use pivot analysis on any timeframe that
has a low, high, and close.  Obviously, all of them do.  However,
be careful about the shorter moving averages.  Remember, from S1
to R1, this is an area that should be controlled by market
makers.  With that said, I am not sure if they look at 17 minute
chart patterns when trying to figure out levels to reduce or
increase inventory.  I recommend starting with a daily chart and
then playing with a 120 and 60-minute chart.  If another
timeframe works and you are profitable trading it, perfect.

Why do traders like pivots?  It is a “matter-of-fact” number and
emotions are stripped away.  It is almost like putting together a
trading plan via some simple math.  That is what worries me.  I
have absolutely no problem using the levels for small positions
(or even exiting large positions); however, it is too costly to
simply rely on these numbers to be the holy grail.  Trading is
too much of an art for that to happen.  I do, however, think
these support and resistance areas from pivotal analysis makes
for an excellent tool to trading.  If I have resistance at 906.50
and pivot analysis has 907.25, I can see (as long as other
indicators match up) putting on a quarter position at each.  If
the pivot analysis works better on a consistent basis, confidence
grows and position sizes increase.  I have used pivot analysis
when trading in the past, and on a scale of 1-10 I give it a 7.5.
Solid, but not great.  I will start incorporating the numbers
into the futures wrap and we can together see how it works.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


***********
OPTIONS 101
***********

Gold Revisited (Again)
Buzz Lynn
buzz@OptionInvestor.com

A funny thing happened on the way to the FOREX.  If you are
wondering what the FOREX is, it's the foreign currency exchange.
That's where Yen and Euros get traded for Dollars, and to a lesser
extent, India Rupia get traded for Dutch Guilders.  OK, here's the
funny part.  There is not a single currency traded today that is
even remotely tied to the price of gold, as currencies once were.
So what?

The big deal is that consumers - bless their open wallets - are
spending their brains out.  But they are not doing it with hard-
earned money.  They've taken the easy way out and borrowed
themselves into prosperity!  Or at least they feel that way.  $0
down, 0% interest, and 0 payments for one year is almost like
getting a new car for free.  Except that eventually, we have to
pay for it.  For much of America, the $400 payment foregone now
will be an incredible burden in 2004.

So why is this possible?  The simple answer is that the Fed has
been waging a fierce battle against deflation by inflating US
currency supplies.  It's all been in an effort to keep borrowers
from defaulting, as their assets deflate in value.  Thank God for
the Real Estate Bubble that has allowed the average citizen to
refinance and suck some cash out of his/her property - cash spent
on a vacation or other consumable, but not invested.  Here's a
concept:  How about we refinance at a lower rate and merely pay
off the loan faster instead of splurging?

Bringing this full circle, the only reason that consumers have $$$
to spend is because they borrow from the future.  That pot from
which borrowed money originates is the U.S. Federal Reserve,
which, thanks to the obsolescence of the printing press, can now
electronically "print" money in the form of new credit.

If you are now thinking back to basic economics where you learned
about supply and demand, by now you've recognized that a flood of
Dollars into the economy is a recipe for inflation.  And thus we
have an epic battle on our hands of the Fed's "Inflate or Die"
mantra vs. world deflation born of overcapacity, especially in
China.  I don't know how this will turn out in the near term.  But
I do know that eventually, when a central bank floods money into
the system, inflation results.  It's only a matter of time.

Now that we know that, is there anything we can do to protect
ourselves?  Yes.  Consider gold.  Gold is the only "real" currency
to withstand the test of centuries and even millenniums.

But please do not misinterpret my motives here.  This does not
mean that Fundamentals Guy has become a gold bug nor am I
recommending you dump everything else and sleep with your newly
purchased metal under your mattress.

Here, I'm keeping completely in the tradition of Fundamental's Guy
building his financial ark.  Minus the Gopher wood used by Noah to
build his ark (Nobody really knows what gopher wood is anyway),
gold is a part of my financial ark.  Right now, I actually own the
shiny yellow metal in coin form as somewhat of an insurance policy
in case the world, shall we say, becomes a bit more chaotic.

While I don't envision waking up tomorrow to find my Federal
Reserve notes have no value, history shows that fiat (aka fake)
money will always be replaced by real money, and that's gold.  I
can spend it if grocery shopping requires literal wheelbarrows of
cash like in early 20th century Germany.  Talk about value erosion
of the currency!  Plus, if it gets to that point, I won't have to
worry about my paper depreciating.  My gold still buys the same
goods, if not more.

So anyway, what has tripped my trigger to revisit gold again as a
diversified investment/insurance policy/ark material?  Well, it's
tradable.  It's investable.  And I believe gold is at the cusp of
confirming its entry into a long-term secular bull market.  While
the major indexes have lost something from 15%-25% in value this
year, gold is up about 10%.  Don't buy it now, but look at the
charts - first, the point and figure chart for the gold futures
composite.  It's a conglomerate of the gold futures prices back to
1990 that separates futures contracts expiration away from the
contract price.  All that’s left is price.

PnF Composite Gold chart ($GOLD):




What's great about this chart is that it's from December 11th,
yesterday, which alone, was enough to get the breakout.  Today,
the price was even higher at a close of $332.  While we don't see
it on this point and figure chart, $330 resistance that we would
see on a candle chart was broken, and the futures volume of
February, 2003 contract (GC03G) was huge - not just traders
rolling out of December '02 contracts, but real buying interest.
Interest, as defined by volume was clearly there.  Check it out on
the following chart.

February Gold chart - GC03G (weekly/daily):





OK, that looks good breaking out over $330 on the weekly and the
daily charts.  The daily is about a one-in-a-thousand chart that
shows its 200-dma on a steady incline too.  MACD, which I don't
usually watch, is turning up as well.  In my opinion, the bull is
confirmed for the yellow metal, though it's been an erratic
ascent.

Now get this.  DON'T buy it now just because you read about it
here.  For while the chart action has been nice, after a big run-
up, it always pulls back.  If you want some gold, PnF pullbacks to
$316 would be buyable in my opinion.  Nearest price target is
$344, with every expectation, given the confirmed bull market in
gold that gold will eventually exceed that level.  For quicker
trades, $325-$326 is another point of support.

Unfortunately, I got a late start.  Meanwhile I had every
intention of drilling down into a potential play.  So it will just
have to wait until next week.

Again, all we saw yesterday and today was a confirmation of a
bullish gold market.  The good news is that we don't need to chase
it.  The train is not leaving the station without us.  Recent
action has merely given us a basis to make a bullish entry on any
pullback.  We will see a pullback.

For those who want to venture forth in a research exercise, take a
look at Newmont mining (NYSE:NEM) and the XAU (INDEX:XAU.X).  You
will see the bullish action there too.  But I can't emphasize
enough the need to be patient and wait for this one to come to us.
No chasing!  Got gold questions?  Send them in!  I may not be able
to get to all of them.  But I'll do my best to address those most
focused on education and financial character.

Until next time, make a great weekend for yourselves!


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