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Daily Newsletter, Monday, 12/16/2002

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The Option Investor Newsletter                   Monday 12-16-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Ho Ho Ho
Futures Wrap: Rally to Resistance
Index Trader Wrap: Light volume again, but this time it was green
Weekly Fund Wrap: December Slump Continues


Updated on the site tonight:
Swing Trader Game Plan: Holiday Rally

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
12-16-2002                  High    Low     Volume Advance/Decl
DJIA     8627.40 + 193.69 8627.54 8434.74    1497 mln  1223/254
NASDAQ   1400.33 +  37.91  1400.49 1365.66   1375 mln  1018/342
S&P 100   463.26 +  11.45  463.27  451.81    totals    2241/606
S&P 500   910.40 +  20.92  910.42  889.48
RUS 2000  394.90 +   6.92  394.90  387.98
DJ TRANS 2359.00 +  40.53 2359.65 2318.04
VIX        29.98 -   2.14   32.73   29.83
VIXN       49.84 -   1.08   52.15   48.81
Put/Call Ratio 0.98
*******************************************************************

Ho Ho Ho
by Steven Price

Did Santa Claus come early?  It certainly appeared that way, as 
we got a broad market rally heading into the year-end stretch.  
We have seen a historical up trend in the final weeks of trading 
in recent years. However, after Friday afternoon's sell-off, 
traders were left doubting whether we would see a repeat, of if 
the economy had been crippled to the point of no return. 

We got an intraday bounce off of the 50 day moving averages in 
the SPX, Dow and OEX on Friday, which would be a logical point 
for an end of year rally to begin.  That being said, those 
rallies looked weak, as they rolled over and headed south into 
the close.  However, with today's action, the market appears as 
though it may be ready for that end of year rally, as it 
coincides with a bounce point that came after an extended sell-
off.  Certainly if we had continued to drop through those 50-dmas 
today, there was additional support not far below, at the late-
October, early November lows. However, if we can break above last 
week's highs, we may not get another look at those levels before 
January.   Last week's highs coincide closely with point and 
figure reversal levels in the Dow and OEX, while the S&P 500 
reversed itself today. The PnF reversal level in the OEX of 464 
is just above the December 11 high of 463.87.  The Dow PnF 
reversal level of 8600 was hit today and comes close to the 
December 11 high of 8625.  The SPX reversed at 905 today, but 
still has that December 11 resistance of 910 to deal with. The 
high that day was 909.94.    If we can break through those 
levels, we may see another test of Dow 8800, which coincidentally 
would appear as a possible right shoulder in a new bearish head 
and shoulders formation.  The last time that pattern appeared to 
be forming, we instead got a failed right shoulder and big rally 
up to 9043 in the Dow.  So this time around I'll wait for another 
shoulder and a neckline break before declaring that the sky has 
fallen. The skinny on today's action is that we certainly ended 
toward the high end of the recent range, but have yet to break 
resistance and the pattern of lower highs. 

Chart of the Dow


Chart of the SPX


Point and Figure chart of the Dow 


Point and Figure chart of the SPX


A look at the tech indices' point and figure charts, however, 
paints a different picture.  Those indices are actually still in 
a bullish column of "X" and bounced above their downward reversal 
levels.  The NDX would have reversed down on a trade of 1000, yet 
reached a low of 1005 before reversing up today. The Nasdaq 
Composite would have reversed into a bearish column with a trade 
of 1350, but bounced from 1362.   

Chart of the NDX


Chart of the COMPX


The chip stocks, which tend to lead those tech indices, have been 
range bound for the last several days, with the Semiconductor 
index (SOX) finding a top at 330 and a bottom at 307.  Today's 
bounce also put it in the top end of that range, but never really 
tested resistance. 

There wasn't any official economic data, but we did get some 
industry signals from which to draw inferences about the economy. 
First was news from Wal-Mart that sales last week were once again 
at the low end of its expectations. This has been a trend ever 
since the one-day revenue record set the day after Thanksgiving.  
That was most likely a result of the late Thanksgiving holiday 
and has been shown to be an aberration ever since. Federated 
declined to give sales results for last week, suggesting it was 
too early to make a prediction with a high percentage of sales 
still to come before Christmas. J.C. Penney (JCP) actually posted 
decent numbers, continuing its recent turnaround.  However, JCP's 
same store sales are still only predicted in the low single 
digits and it is forecasting a 20% decline in catalog sales. 
Although I've mentioned this before, I think it is worth 
mentioning again - the late Thanksgiving pushes a higher 
percentage of sales toward the last two weeks before Christmas, 
when aggressive discounting digs into profits.  My weekend trip 
to the largest mall in the Denver area revealed extreme 
markdowns, which are likely to eat into the retailers' bottom 
lines.  If the same store sales numbers are already poor, then 
I'd be looking for puts in the sector at the tail end of the year 
if we get a rally.   The earnings numbers should be disappointing 
when they are released around February and I'd probably look for 
puts out to March, IF we get the end of year run.  

That doesn't mean I'd be shorting every stock in the sector, as 
the home-furnishing retailers still look strong.  Last week's 
retail sales data showed that while mall-type stores saw sharp 
sales declines, furniture and hardware stores saw significant 
increases.  This is consistent with housing data that shows that 
while the housing market may be slowing, it still remains strong. 
Today's release of the Homebuilders index of housing activity 
came in at 65, which is the highest level since November 2000. 
That tells us to concentrate short activity on stocks that are 
not tied to this still strong area of the economy.  One other 
factor to consider is the credit portfolio of many large 
department stores.  Sears (S) took a beating earlier this year 
when it revealed huge losses in its credit card division, due to 
under-performing accounts.  We got another red flag over the 
weekend regarding similar problems for Target (TGT).  Barron's 
reported this weekend that the company is seeing rising defaults 
at its credit card operation.  Right now TGT earns a 4% return on 
its credit card portfolio, which is higher than most credit card 
companies. Those card companies see a return of around 1.5% and 
if TGT's portfolio was reduced to similar returns, it could shave 
as much as $0.15 per share from its earnings for 2003.   During 
the fall, we saw the credit problem taking a bite out of both 
small and large banks, as companies that didn't make it through 
tough economic times defaulted on business loans.  Last week, we 
got some comments regarding high net worth individuals suffering 
the same fate.  With the Sears problem highlighted previously, 
this may be an issue that continues to poke its head out of the 
sand as unemployment continues at high levels and individuals 
that hold store credit cards get further behind on payments. Many 
stores have pushed these cards hard, offering credit to lower 
income individuals in an effort to boost sales. The higher 
interest rates looked like a great risk/reward scenario, but 
appear to have caught up to the issuers, since high interest is 
only profitable when cardholders actually make payments.   The 
Retail Index (RLX.X) actually finished up on the day, benefiting 
from the rising tide and suggesting the results weren't quite as 
bad as expected.  Still, I'll be watching that rising tide for 
short opportunities in the sector. 

The Market Volatility Index (VIX) certainly indicated that option 
traders are growing more bullish in the near term.  As we embark 
on expiration week, the VIX calculation discounts December 
options and shifts the calculation to January and February.  
Those January and February options lost some relative value 
today, as the VIX broke down below 30 for the first time since 
December 2.  While some analysts use this reading as a contra-
indicator, the 2.14 -point drop reflects a drop in the level of 
downside fear currently in the market.  As technical resistance 
levels are taken out and we head into a traditionally bullish 
time of the year, we can expect this number to continue to drop 
if today's rally holds.  One other factor to keep in mind is that 
a lack of trading will also lower the number, and today's light 
volume (1.2 billion shares NYSE/1.4 billion Nasdaq) could also be 
a contributor. 

Now that we've seen some bullish signals on the point and figure 
and daily charts, it looks like the near term trend is up.  
Tomorrow's economic data, which includes CPI, housing starts, 
industrial production and capacity utilization, could throw a 
wrench in that prediction, since we had no data today to support 
the rally.   However, from a technical standpoint, we have 
certainly cleared out some barriers to the formation of that 
right shoulder I referred to above. Traders can feel bullish for 
the time being, but that time being may still be pretty short. 

**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/#m

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


Rally to Resistance 
By John Seckinger
jseckinger@OptionInvestor.com

The ES contract seemed responsible for pulling both the NQ and 
YM higher during trading on Monday.  As all three futures 
contracts rest on resistance profiled weeks ago, do bulls 
currently have an edge?

Monday, December 16th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES03H     909.50    +23.50      911.25      884.00      471,033
YM03H    8617.00   +217.00     8625.00     8383.00       14,397
NQ03H    1043.50    +33.00     1047.50     1006.00      200,340

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 bullishness within equities started 
overnight as European analysts began favoring the U.S.  Lehman 
Brothers increased its U.S. exposure to 50% from 39% and 
decreased its European (ex-UK) holdings from 35% to 24%.  As
a possible precursor to Thursday’s Philadelphia Fed Index, the 
New York Empire State Index rose to 10.6% in December and above 
estimates of 6.0.  Speaking of economic reports, CPI, Housing 
Starts, and Industrial Production (with capacity utilization) are 
all on the docket for Tuesday morning at 9:45 a.m.  In company 
specific news, Target (TGT) opened at 29.98 but closed up 2.68% 
at 31.80 following a report that defaults are rising within 
Target credit cards.  It could cut EPS by 0.15.  Additionally, 
Lehman initiates coverage on Activision (ATVI, +0.20 to 15.65) 
and THQ Inc. (THQI, +1.67% at 14.58) with underweight ratings due 
to a likely cyclical decline in 2003.  

Technical News:  As equities rose on Monday, cash certainly 
seemed to leave the fixed income arena.  The 30-year bond (ZB03H) 
settled ’29 ticks lower to 109’04 and underneath its 22 and 50 
DMA’s (109’16 and 109’10, respectively).  The downside objective 
is at 108’00, while a close back above the aforementioned 
averages should put sentiment to more neutral levels.  Note:  
From the 106’13 low on December 2nd to the 111’05 high on December 
13th, the 50% retracement is just underneath Monday’s settlement 
at 108’24.  This area should represent some support.  Looking 
elsewhere, the Sox, dollar, and XAU index all rose.  The Sox 
index climbed 5.29% to close at 325.64 and post its highest close 
since December 6th.  Slight resistance should be seen at 330, with 
more above at 340.  The dollar closed at 104.06, but will need to 
stay above 104.25 to generate much interest.  The XAU gained 
1.42% to 78.21, and a move over 80 should propel the index 
towards 85 and solid resistance.  Note:  The XAU usually trades 
inversely with bonds.  Also, the Sox can certainly have a large 
impact on the ES, YM, and NQ contracts; therefore, it is a good 
index to follow.  

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

The December Mini-sized Dow Contract (YM03H)

Should we be surprised that the Dow once again closed on a 
highly-watched support or resistance level?  Of course not.  That 
is why it was important to recognize the “open drive” pattern 
only five minutes into trading on Monday (market opens higher, 
uses high of first five minutes as pivot, and then rallies to 
close on or near session high).  To see this article in its 
entirely, click below:

http://www.OptionInvestor.com/traderscorner/tc_100802_2.asp

If currently flat, a move above Monday’s close should portend a 
move towards the 8700-8730 area.  Expect resistance there, while
intermediate term selling is above at 8800-8825.  With the RSI 
oscillator back above 50, a lot of shorts most likely covered as 
Monday’s rally continued to power higher.  If, on the other hand, 
the rising trend line (blue) is taken out to the downside, these 
shorts will most likely get right back in.  In fact, if the Dow 
doesn’t open at 8627 or higher, shorts might initiate positions 
and then use the 8627 level as a place to put a stop.  

Chart of Dow Jones, Daily



Well, we did have our near-term bounce in the YM; furthermore, 
the levels generated via pivot analysis for Monday worked pretty 
well.  As I usually note, the Dow should move the YM03H contract; 
however, it is very interesting how the YM is on a weekly 38.2% 
retracement level and just below its 22 Weekly Moving Average.  
With that said, look for a volatile move in the near term and 
then expect prices to gravitate back to current levels.  A range 
trade?  Exactly.  Ideally for bulls, the market powers higher 
towards 8700 and 8773, and then comes back and uses these levels 
as support.  

Chart of YM03H, Weekly




		YM03H

Support		Resistance		Pivot    

8458.50		8700.50		8541.75
8299.75	8783.73	


Bold signifies levels based on Pivot Analysis.

The December E-mini Nasdaq 100 Contract (NQ03H)

A 120-minute bearish trend line was broken on Monday, as bulls 
powered the contract through 1035 and towards the 1050 area once 
again.  The 1050 area lines up well with the 50 PMA at 1048.87; 
however, pivot analysis places resistance a little higher at 
1058.50.  It is nice to see the pivot of 1032.25 fall right on 
the top of the drawn bearish trend line (red) and the 22 PMA, and 
selling at these levels should pressure the index towards the 
1017-1019 area.  If the Nasdaq-100 contract manages to rally 
towards the second area of resistance at 1073.75, sellers should 
not be afraid to initiate positions.  This area should hold and 
encourage longs to take profits back down to the 50 PMA.  A close 
underneath the mentioned pivot (1032.25) could become a catalyst 
for shorts taking positions home with them.  Especially since 
price action will most likely be moved by the mornings economic 
releases (read: confirmation).  

Chart of NDX, 120 Minute



			NQ03H

Support		Resistance		Pivot 

1017.00		1058.50		1032.25
990.75		1073.75

Bold signifies levels based on Pivot Analysis (Globex included).  

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

This SPX contract gave the impression that a rally could take 
place on Monday, and was clearly responsible for a lot of my 
bullishness mentioned in the market monitor.  Now what?  Right at 
resistance between 910 and 915, the stochastic oscillator does 
show the possibility that the rally will continue from oversold 
levels (especially if we are in a range); however, note that 
current stochastic levels are lower that when the SPX traded 872.  
By definition, a bearish divergence.  The key word here is “range 
trade,” since a close above 915 within the SPX could easily have 
traders looking at the MACD instead of stochastics; expecting 
momentum to continue to the upside in the near term.  

Chart of S&P 500 Index, Daily



The ES contract for March failed to hit the 38.2% retracement on 
Monday, as well as closing under 910 and right on an important 
Level (possible top of wedge).  It should be no coincidence that 
pivot analysis has projected resistance basically at the 50 and 
61.8 percent retracement levels.  The pivot area of 901.50 also 
looks good.  The continuing problem remains:  Stochastics could 
signal a down move in the contract.  Remember, traders will most 
likely be forced to cover no matter what the reading states; 
however, the oscillator is brought up because a move back under 
the 901.50 pivot should give shorts some confidence via 
stochastics.  Traders will most likely not be afraid of selling 
the market at the resistance areas as well.  If long, watch the 
pivot carefully for a possible exit area, and then use the 
resistance levels mentioned for a possible exit (maybe to scale 
the position down).  If short, a higher opening (above 911.60) is 
ok as long as the contract falls back under 911.60 within the 
first 30 minutes of trading and signals a trap.  

Chart of ES03H, 30-minute



ES03H

Support		Resistance	Pivot    

891.75		919.00		901.50
874.0	928.50


Bold signifies levels based on Pivot Analysis (Globex included).  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com




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

Light volume again, but this time it was green

It was another light volume trading session, but unlike last 
week's lighter volume trading days, it was the bulls that found 
gains by session's end with the Semiconductor Index (SOX.X) 325 
+5.29% and Home Construction Index (DJUSHB) 309 +5.07% leading a 
broad-based bullish move to the upside.

Market gains were helped along by an encouraging regional 
manufacturing report on the New York area, in which the index 
rose to 10.6 in December versus a consensus estimate of 6.0.  
This may have helped bolster some bullishness into this 
Thursday's broader Philadelphia Fed Index, which has some overlap 
with the narrower New York manufacturing report.  Economists look 
for the December Philly Fed reading to come in at 5.3, down from 
November 6.1 reading.

Homebuilders as depicted by the Dow Jones Home Construction Index 
(DJUSHB) 309.50 +5.07% and the PHLX Housing Index ($HGX.X) 227.95 
+4.54% jumped higher after the National Association of 
Homebuilders (NAHB) said its December housing market index rose 
to 65 from 64 in November, which is the highest reading since 
November 2000, when it also reached the 65 level.  The index had 
been steady or trending higher since reaching 55 in August.

While the NAHB isn't as quoted as the housing starts or building 
permits released each month (both scheduled for release on 
Tuesday), today's NAHB number had NAHB Chief Economist David 
Seiders saying, "New home sales for 2002 are turning out to be 
even higher than expected, despite the sluggish economic recovery 
and the threat of war with Iraq."  Seiders added, "the NAHB is 
now forecasting a record 969,000 new-home sales for the year as a 
whole, up 6.7% from 2001.  From the December 31st close, the Dow 
Jones Home Construction Index ($DJUSHB) is down 2.3.

Gold and Oil both moved higher on the commodities front in 
today's session with gold futures reaching a 3-year high at $338 
per ounce.  That helped turn an earlier loss in the Gold/Silver 
Index (XAU.X) 78.21 +1.42% to a gain by session's end.  

January Light, Sweet Crude (cl03f) surged 5.7%, or $1.64 to 
$30.08, which is a two-month high as opponents of Venezuelan 
President Hugo Chaves took a general strike into its 15th day, 
helping fuel rising concerns that global supplies may become 
limited.  Opposition leaders to Chaves say they won't end daily 
protests, which have nearly crippled the Venezuelan oil industry.  
Industry analysts estimate that the strike has disrupted 
Venezuelan supplies anywhere from 70% to a complete halt in 
recent days.  This, combined with recent American Petroleum 
Institute data showing U.S. crude supplies down 274,000 barrels 
at 287.1 million barrels for the week ended December 6th.

Oil Service HOLDRs (AMEX:OIH) - $1 box



Both the Oil Service Index (OSX.X) 92.90 +3.06% and the Oil 
Service HOLDRs (AMEX:OIH) $61.27 saw a nice reversal higher after 
Friday's pullback test of their flattened-out 200-day SMA.  The 
$62 level looks to be a longer-term pivot and a break higher at 
that level should further upside bullishness.  Recent weeks have 
found pullbacks to the shorter-terms 21-day SMA serving like a 
springboard for higher price, which would be equivalent to the 
$58 level on the above chart (Avg).  

Major Indexes

Dow Industrials (INDU) 8,627 +2.29% :  Today's action saw the 
Dow's point and figure chart reverse higher by 3-boxes and now 
has critical near-term support at the 8,400, which is provided by 
the bullish support trend.  The reversal higher stems a 550-point 
decline from the early December high of 9,000.  Currently, a 50% 
retracement of the recent decline would be have a rally objective 
near 8,700-8,750 and with the narrow-based Dow Industrials 
Bullish % ($BPINDU) "bear alert" at 60%, I'm looking for 
resistance to be firm in the 8,700-8,750 range.

Dow Industrials Chart - Daily Interval



Twenty-eight of the thirty Dow components posted gains today and 
it was the stodgier names like SBC Communications (NYSE:SBC) 
$27.13 +5.35% leading gains after UBS Warburg thought SBC's 
chances were improving for entrance into California's long-
distance market.  

S&P 500 Index (SPX.X) 910 +2.35%:  Today's action saw the S&P 
500's point and figure chart ($5-box scale) reverse 4-boxes 
higher after violating its bullish support trend by 1-box to 890 
on Friday.  This now has the SPX in the early stages of a 
potential longer-term downward trend, with bearish resistance 
trend now at 945.  A 50% retracement of the recent 60-point 
decline would be the 920 level.  Today's close comes right at the 
910 level where the SPX triggered a double-bottom sell signal.

S&P 500 Index Chart - Daily Interval



While the SPX did break below its 50-day SMA on a intra-day basis 
Friday, bulls managed to achieve a close above that level and 
this morning's higher open built into the close.  From this 
weekend's "Ask the Analyst" column, I did set a premium alerts 
for program trading today and at approximately 10:30 AM, while I 
was typing today's 11:00 intra-day update did get a "buy program" 
alert just prior to the SPX trading 900.  That pushed the SPX 
above the 900 level and the rally built from there.  I'm looking 
for some formidable resistance to be found in the SPX near 925.

Today's action saw the S&P 500 slip lower to 62.4% and ever close 
to the 62% level which would be a reversal into "bull correction" 
status.  This is a slight amount of bearish divergence and any 
type of quick reversal lower from the short-term 21-day SMA and 
break back below Friday's low of 888.48 is viewed as further 
negative.  Still, the broader S&P 500 Bullish % ($BPSPX) from 
stockcharts.com is "bull confirmed" and may have short-term bears 
covering positions on a moments notice on any sign of strength.  
One of the difficulties of trading in a relatively low volume 
market environment is the volatility it can present when 
sentiment takes a quick swing in any direction.

The financial sectors were strong today and an SPX bear does not 
like this type of action as broader-market bulls will look for 
leadership from the financials.  Both of the banking indexes (BIX 
and BKX) were able to close above their shorter-term 21-day 
SMA's, while the lagging brokers (XBD.X) and insurance (IUX.X) 
trade below.

S&P 100 Index (OEX) - $2.50 box scale



In Thursday's wrap we looked at the SPX p/f chart and here's an 
updated chart of the OEX.  Friday's trade at 452.50 starts to 
look like another "trap" and a trade at 465 may see some OEX 
bears get a little nervous and bring in some short-covering.  
However, while I wouldn't be complacent if holding a full 
position short, past buy signals have seen new highs when the 
bullish % was still building higher.  Currently, we've seen 
internal weakening take place as the market removes risk from 
past bullish % reaching 76% and the bullish % continues to 
decline at 63%.  A 50% retracement of the long column of O from 
485-455 would be near 472.50.  This is a level where I feel a 
"normal" rebound could take place.

There's a lot of economic data due out this week and it may well 
be that bears just didn't perceive enough near-term downside risk 
at the base of our upward channel to press the issue.  Any type 
of quick reversal back lower below 450 would be viewed as a 
negative.  The conventional $5 box has major support still 
existing at 440.

Today's action saw a net loss of 1 stock to a point and figure 
sell signal and has the S&P 100 Bullish % ($BPOEX) slipping 1% to 
63%.  Still "bear alert" and some bearish divergence to today's 
gains in the OEX itself.

NASDQAQ-100 Trust (QQQ) - Daily Interval



I watched the QQQ trade into its 04:15 close on Friday and at 
04:00 PM with the QQQ trading $25.03 thought bears that wanted to 
finish the weekend flat might look to close out a short-term 
bearish trade in the Q's at $25.01.  That's a level or a "value" 
that market makers will often print to settle up some open orders 
or mark a close to bill their customers, or peg the house 
inventory to.

I went back to review later notes on the QQQ where I tried to 
warn QQQ bears that a trade this morning above the $25.01 level 
after hours had the QQQ below $25, could signal a short-term trap 
and that an open above $25.00 would have market makers trying to 
take the QQQ back higher.  However, those comments were deleted.

Suffice to say, I think market makers are now going to try and 
print a QQQ at $26.18, get a feel for some order flow, but look 
to get short between $26.18 and $27, with downside target support 
of $23.82.  With QQQ volume still rather light and broader-market 
volume light, I suspect order flow will be light on any rally 
much above $26.18 and would look to leverage the $27 in a bearish 
trade.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) stay 
unchanged at 66%, but Friday's action and decline from 70% to 66% 
now has this index in "bear alert" status.

In this weekend's wrap, Leigh Stevens discussed the additions and 
subtractions to the QQQ and NASDAQ-100 Index (NDX.X) 1042.44 
+3.63%.  However, in Friday's wrap, Leigh reported that the 
rebalancing of the NASDAQ-100 was done on Friday.  This is 
incorrect and rebalancing will not take place until this Friday, 
November 20th AFTER the close and begin trading with the new 
additions until Monday morning, December 23, 2002.

Jeff Bailey

**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/


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

December Slump Continues

United Airlines' bankruptcy filing cast a shadow over the market 
last week, extending the December slump.  War and terror jitters 
also hurt equities and the dollar.  During the week, the S&P 500 
large-cap index had a negative 2.5% total return, using Vanguard 
500 Index fund as the proxy.  Vanguard's mid-cap index fund lost 
2.0% for the week, while its small-cap index fund sibling closed 
the week 2.1% lower.  So, a loss of 2 percent or more in general 
for U.S. stocks.   
 



Science & technology funds were the week's worst performing U.S. 
equity fund group, according to Lipper.  They averaged a loss of 
4.5% for the week.  Diversified stock funds with growth-oriented 
styles and greater-than-average technology exposures were harder 
hit than other stock fund types.  Many pro-growth funds declined 
by more than 3 percent last week, while most value funds limited 
weekly losses to 2 percent.  The average large-cap core fund was 
2.3% lower, per Lipper, slightly better than the 2.5% decline by 
the S&P 500.  

The average international stock fund lost 1.5% last week, Lipper 
reports, compared with the 1.9% weekly decrease by the MSCI EAFE 
index of foreign developed markets (using Vanguard's index fund).  
Foreign/global stock funds with greater-than-average exposure to 
emerging markets held up better than those without.  The average 
emerging markets fund lost just 0.3% during the week, per Lipper.

Gold funds enjoyed another sharp increase, with the average gold 
fund up nearly 8 percent.  The usual "global uncertainties" over 
economic growth, earnings, war and terrorism have contributed to 
the gold market's recent surge.  A weaker dollar plays a role as 
well.

The average intermediate-term, investment-grade bond fund gained 
0.3% last week, matching the total U.S. bond market index return 
using Vanguard's index fund as the proxy.  Most bond fund groups 
finished the week with market like returns, but the best returns 
were turned in by global/international fixed income funds, which 
have benefitted from the dollar's current malaise.  According to 
Lipper, the average global and international income funds gained 
0.9% and 1.7%, respectively, over the 5-day period.

Below is a performance summary through Friday, December 13, 2002 
for selected Vanguard index funds.  They give a sense of how the 
various markets performed last week in mutual fund (total return) 
terms.  Vanguard's balanced index fund is 60% Wilshire 5000 total 
market index and 40% Lehman Brothers Aggregate Bond index.

 Vanguard Equity Index Funds:
 -1.3% Balanced Index (VBALX) YTD -9.5%
 -2.5% 500 Index (VFINX) YTD -21.4%
 -2.0% MidCap Index (VIMSX) YTD -14.3%
 -2.1% SmallCap Index (NAESX) YTD -19.1%  
 -1.9% Developed Markets Index (VDMIX) YTD -17.0%
 
 Vanguard Fixed Income Index Funds:
 +0.2% Short-Term Bond Index (VBISX) YTD +5.1%
 +0.4% Intermediate-Term Bond Index (VBIIX) YTD +8.6%
 +0.6% Long-Term Bond Index (VBLTX) YTD +11.7%
 +0.3% Total Bond Market Index (VBMFX) YTD +7.0%
 
In the next section, we see how the different mutual fund groups 
performed last week using Lipper's index update as of Friday the 
13th.  


Lipper Fund Indices


Lipper's equity fund indices last week resemble the numbers from 
the week before, with science and technology funds posting sharp 
declines to lead the market lower, while gold funds rose sharply 
in contrast.  The Lipper bond fund indices were all higher again, 
led by global/international bond funds.  Among U.S. fixed income 
funds, returns improved as you went longer in effective maturity 
(duration).   

Below are selected Lipper equity and income fund indices for the 
week ended Friday, December 13, 2002 reflecting some of the more 
popular categories today based on fund assets.  You can see that 
they typically reflect their relative market's performance.  For 
example, the average balanced fund lost 1.4% last week according 
to Lipper, compared to a 1.3% negative total return for Vanguard 
Balanced Index Fund.  

 Selected Lipper Equity Fund Indices:
 -1.4% Balanced (YTD -10.7%)
 -1.6% Equity Income (YTD -16.2%)
 -2.1% Large-Cap Value (YTD -19.3%)
 -2.3% Large-Cap Core (YTD -20.5%)
 -3.0% Large-Cap Growth (YTD -26.9%)
 -4.5% Science & Technology (YTD -39.7%)
 -1.5% International (YTD -14.5%)

 Selected Lipper Income Fund Indices:
 +0.3% U.S. Government (YTD +8.8%)
 +0.1% GNMA (YTD +7.9%)
 +0.2% Short Investment-Grade (YTD +3.8%)
 +0.3% Intermediate Investment-Grade (YTD +7.0%)
 +0.3% Corporate A-Rated Debt (YTD +7.2%)
 +0.1% High-Yield (YTD -3.1%)
 +1.7% International Income (YTD +15.2%) 

Partial equity (balanced) funds cut losses in half compared with 
many full equity funds, demonstrating the benefit of asset class 
diversification in down markets.  The average balanced fund lost 
just 1.3 percent during the week, per Lipper, with equity losses 
partially offset by the total return (yield and price) earned by 
its bond and cash holdings.

International fixed income funds, as you can see, generated high 
total return for investors, averaging 1.7% for the weekly period.  
T. Rowe Price International Bond Fund (RPIBX) ended the week 2.2% 
higher to lead the group.  The average international bond fund is 
up 15% in 2002, while the average international stock fund is off 
nearly 15 percent, using Lipper's numbers.  International "stock" 
fund losses would likely have been worse this year if it were not 
for a weaker dollar.


Largest Mutual Funds


Below is a performance summary through Friday, December 13, 2002 
using Morningstar data for the country's largest mutual funds in 
four broad categories: domestic stock, international stock, bond 
and domestic hybrid.  The Morningstar domestic hybrid fund group 
includes traditional balanced funds like Vanguard Wellington and 
asset allocation funds like Fidelity Asset Manager.

 Largest Domestic Stock Funds:
 -2.5% Vanguard 500 Index (VFINX) YTD -21.4%
 -2.6% Fidelity Magellan (FMAGX) YTD -22.5%
 -1.7% Investment Company of America A (AIVSX) YTD -14.4%
 -1.6% Washington Mutual Investors A (AWSHX) YTD -14.9%
 -3.1% Growth Fund of America A (AGTHX) YTD -20.9%

 Largest International Stock Funds:
 -1.3% EuroPacific Growth A (AEPGX) YTD -14.0%
 -1.7% New Perspective A (ANWPX) YTD -15.9%
 -2.2% Janus Worldwide (JAWWX) YTD -25.6%
 -2.2% Templeton Growth A (TEPLX) YTD -9.4%
 -0.0% Capital Income Builder A (CAIBX) YTD -0.9%
 
 Largest Taxable Bond Funds:
 +0.5% PIMCO Total Return I (PTTRX) YTD +9.0%
 +0.2% Vanguard GNMA (VFIIX) YTD +9.0%
 +0.3% Vanguard Total Bond Market Index (VBMFX) YTD +6.9%
 +0.4% Bond Fund of America A (ABNDX) YTD +4.5%
 +0.2% Vanguard Short-Term Corporate (VFSTX) YTD +4.4%

 Largest Domestic Hybrid Funds:
 -1.1% Vanguard Wellington (VWELX) YTD -7.3%
 -0.4% Income Fund of America (AMECX) YTD -5.4%
 -1.1% Fidelity Puritan (FPURX) YTD -8.2%
 -1.2% American Balanced A (ABALX) YTD -6.5%
 -1.1% Fidelity Asset Manager (FASMX) YTD -7.6%

You can see the conservative value-oriented approach used by the 
American Funds Group helped to preserve capital better last week 
than other stock funds, holding weekly losses to below 2 percent.  
Their international hybrid fund, the Capital Income Builder Fund 
(CAIBX) broke even on the week while its domestic hybrid sibling 
Income Fund of America (AMECX) lost just 0.4% over the five days.

PIMCO's Total Return Fund, the largest bond fund in America, had 
a 0.45% weekly total return, once again outperforming both index 
and fund benchmarks.  Only the Vanguard GNMA Fund has managed to 
keep pace with PIMCO's 9 percent YTD total return.  The American 
Funds Bond Fund of America (ABNDX) finished the week 0.4% higher.

Kudos to Franklin Utilities A (FKUTX) for finishing the week 3.2% 
higher.  While the utility fund group was up overall, other funds 
were below 2% for the week.  Fidelity struck gold with its sector 
offering Fidelity Select Gold (FSGAX), which gained 9.0% over the 
5-day period through December 13, 2002.


Money Market Funds


The average 7-day simple yield for all taxable money market funds 
slid 4 basis points to 0.91% as of Tuesday, December 10, 2002 per 
iMoneyNet.com's latest money fund report.  The average "tax-free" 
money market fund has just a 0.62% yield.  Do not be surprised if 
the all taxable MMF average falls to 0.75% by the year's end.

The PayPal Money Market Fund holds on to the top retail fund spot 
with its current 7-day simple yield of 1.53%, down from 1.58% the 
week before.  McMorgan Principal Preservation Fund is next with a 
1.43% current yield, followed by Bunker Hill Money Market Fund at 
1.36 percent, per iMoneyNet.com.

Two money market fund giants, Fidelity Cash Reserves and Vanguard 
Prime Money Market, have current 7-day simple yields of 1.26% and 
1.31%, respectively, per iMoneyNet.com.  Fidelity's current yield 
actually rose by 2 basis points (0.02%) during the week using the 
iMoneyNet.com weekly survey.


Mutual Fund News


Reuters reported last week that the SEC is eyeing new rules aimed 
at helping mutual fund investors by forcing mutual fund companies 
to provide more frequent and detailed information about portfolio 
holdings and expenses.  Fees today are disclosed on a "percentage 
of assets" basis; regulators want disclosure of fees on an actual 
dollar basis so investors can see exactly how much money has been 
taken out for expenses.  

The Investment Company Institute (ICI) is opposed to the new fund 
disclosures, Reuters said.  They feel the new disclosures will be 
expensive, and may allow fund companies to more easily copy rival 
portfolios.  The ICI may have some valid points, but according to 
the Reuters article, the "SEC appears to be moving ahead anyway."  
The SEC is expected to release the proposals for at least 30 days 
of public comments before they become final, the article stated.

Morningstar.com reports that the Berger Funds of Kansas City, MO 
will merge nine growth, international and balanced funds (valued 
at $1.2 billion in assets) into similar fund offerings at former 
sibling fund company, Janus.  See Morningstar's article for more 
information on the Berger funds involved.  Berger has also opted 
to retain its investment subadviser (Bank of Ireland) for Berger 
International Core Fund (BBICX), and liquidate its other foreign 
stock fund, Berger International Equity (BINTX).  

Berger's three value-oriented funds will retain their investment 
sub-advisers, but will change names to "Janus."  The Morningstar 
story also said that Janus will buy 30% of Chicago-based Perkins, 
Wolf, McDonnell and Co., which manages Berger's small and mid-cap 
value funds.

Morningstar went on to say that Janus plans to reopen four funds 
to new investors: Janus (JANSX), Janus Worldwide (JAWWX), Janus 
Global Technology (JAGTX) and Janus Global Life Sciences (JAGLX).  
They will also merge two funds with similar funds that have more 
assets.  Janus Fund II (JTWOX) will fold into the flagship Janus 
Fund, while Janus Special Situations (JASSX) will merge into the 
Janus Strategic Value Fund (JSVAX).  These changes will occur on 
February, 28, 2003.

Montgomery Asset Management and First American are among the fund 
families in other Morningstar news.  They're also liquidating and  
and selling funds.  For more detail, see Morningstar's Fund Times 
weekly report available online (www.morningstar.com).



Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com






**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

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

Holiday Rally

We saw quite a reversal of fortune today, as 
the Dow rallied almost 200points, the SPX tacked 
on more that 20 points, the OEX added 11.45 and 
the COMP recouped 37.91. The Dow and SPX both 
took out last week's resistance levels, 
disrupting the trend of lower highs on the 
daily charts and also registering point and figure 
reversals from bearish columns of "O" into bullish 
columns of "X."

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


**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

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The Option Investor Newsletter                   Monday 12-16-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: none
Dropped Calls: none
Dropped Puts: none
Play of the Day: Call – MERQ 

Updated on the site tonight:
Market Watch
Market Posture

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

MERQ - Mercury Interactive - $31.73 +1.42 (+1.42 for the week)

Company Summary:
Mercury Interactive, the global leader in business technology 
optimization (BTO), delivers Optane(TM), a suite of integrated 
products for enterprise testing, production tuning and 
performance management, that enables customers to optimize 
business processes and maximize business results. Customers 
worldwide -- including 75% of the Fortune 500 -- use Mercury 
Interactive solutions across their application and technology 
infrastructures to continuously measure, maximize and manage 
performance at every level of the business process and each stage 
of the application lifecycle to improve quality, reduce costs, 
and align IT with business goals.

Most Recent Write Up:
Ouch!  The entire market suddenly turned defensive on Friday as 
traders chose not to hold some positions over the weekend due to 
the higher geo-political risk.  What does that mean in English?  
It means Wall Street is ready and willing to take some money off 
the table, we mean a whole lot of it, should the war in Iraq 
start soon or the North Koreans continue to thumb their noses at 
the U.S. over their nuclear plans.  The NASDAQ fell, as did the 
GSO software index.  The later was probably due to the big drop 
in MSFT, the biggest software component of the group, which will 
lead the group and thus affect shares of MERQ.  Shares of MSFT 
fell sharply and closed below both its 50-dma and the 200-dma.  
Why the drop?  We don't know.  We doubt it was the new Windows 
vulnerability warning that came out late Thursday night.  More 
likely it could be the rumors that MSFT is interested and a 
potential buyer for Borland Software and Rational (RATL) 
software.  Yup, the same RATL that IBM just agreed to buy a few 
days ago.  What are the odds of IBM and MSFT getting in a bidding 
war?  Does MSFT see IBM's move as serious competition?  We can't 
answer these questions today but the drag on the sector was felt 
in MERQ with a 3.7% drop.  Our play managed to maintain support 
at the $30 level but we would be hesitant to jump into new 
positions right now.  Let's wait and see what happens over the 
weekend and how Wall Street opens on Monday.  If shares begin to 
bounce, then evaluate a new position.  A move above $32.00 would 
evidence a strong recovery and new entries can target that level 
to initiate the play. 


Why This Is Our Play of the Day:
MERQ has rebounded strongly from Friday's drop, finding support 
at $30 and now heading back toward its recent high. The support 
at $30 avoided a PnF reversal down and a move back above $32 
looks like a new entry point.  The Software Index (GSO.X) also 
had a banner day, erasing all of Friday's loss, and traders 
can look to that index for confirmation on entry.  The GSO's 
recent high was 107.75 and a move above that level, coupled with 
MERQ over $32, would add to bullish sentiment.

*** December contracts expire Friday***

BUY CALL JAN-30*RQB-AF OI=2441 at $3.80 SL=1.90
BUY CALL JAN-35 RQB-AG OI=4169 at $1.50 SL=0.75
BUY CALL APR-25 RQB-DE OI= 255 at $9.60 SL=4.80
BUY CALL APR-30 RQB-DF OI=1846 at $6.50 SL=3.25

Average Daily Volume = 3.96 mil



**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/#m



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

Following the Script

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_121602.asp


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

What a Bounce

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_121602.asp


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
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**********
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**********

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