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Daily Newsletter, Monday, 12/30/2002

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The Option Investor Newsletter                   Monday 12-30-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Token Gesture
Futures Wrap:
Index Trader Wrap:
Weekly Fund Wrap: Bond Funds & Gold Funds Extend Gains

Updated on the site tonight:
Swing Trader Game Plan: Baby Steps

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
12-30-2002                High    Low     Volume Advance/Decl
DJIA     8332.85 + 29.07 8364.74  8252.21  1702 mln   1155/538
NASDAQ   1339.54 -  8.77 1353.38  1329.64  1089 mln   1377/251
S&P 100   444.77 +  1.73  446.53  440.55   totals     2532/789
S&P 500   879.39 +  3.99  882.10  870.23
RUS 2000  382.23 -  1.93  384.39  379.67
DJ TRANS 2302.83 + 11.17 2308.68  2267.91
VIX        32.56 -  1.59   34.49  32.45
VIXN       46.49 -  0.22   48.45  46.45
Put/Call Ratio .72
*******************************************************************

Token Gesture
by Steven Price

That big seasonal rally we have been waiting for remains on hold.
We tested new relative lows once again this morning and it
appears as though we will finish the year on yet another down
note.  We may have to adjust our thinking about a so-called Santa
Claus rally, which showed gains from November/December lows to
December/January highs, after breaking a 34-year streak, dating
back to 1968.   While we could certainly still see that streak
end in tact if we get the rally on the other side of New Year's
Eve, the series of lower lows heading into the end of December
makes it looks less likely with each passing day.   The Dow did
add 29 points after rallying more than 100 points intraday, but
the rally faded into the close and appears at this point to be
just another lower high.

The Dow sank into an area where it found strong support at the
end of October and beginning of November.  However, it remains in
a descending channel, with all but one recent high coming at a
lower level. That high came the day after Christmas and the
intraday 116-point gain faded quickly into the red by the close.
Even if we do get a rally over the next couple of days, it will
take a move back over 8650 to convince me that the rally has real
legs under it. Of course, if the recent action continues, that
analysis may not come for a while.

Chart of the Dow




The morning started out with what seemed to be positive news for
the tech sector. The Semiconductor Industry Association released
data showing that shipments rose 1.4% in the month of November
and sales were up 19.6% year over year.  Also on a year over year
basis, the three-month rolling average was up 25%, which was
slightly lower than the 26% improvement in October.  The downside
to the report, which was basically in line with expectations, is
that the 1% decrease from third to fourth quarter is well below
the 1998-2001 average sequential growth rate of  +4%.  J.P.
Morgan, in one of the more in-depth analyst statements of the
year (GRIN) said this was due to lack of end demand.  Wasn't it
just a few weeks ago that we heard several equipment makers
talking about the upturn in PC demand heading into the holiday
season?  Guess they overestimated. Wireless chips once again led
the pack, as demand for next generation cell phones seems to be
the only sustainable area of chip demand.  The data was taken
negatively with a sell-off in the chip sector, as the
Semiconductor Index (SOX) continued its month long slide, giving
up 2.21%.  The SOX has given up over 100 points from its high of
393 on December 2 and is getting close to its last pullback
level, just above 280. The afternoon bounce we got in the Dow and
SPX was encouraging for a January rally, but without this
sector's participation, it is unlikely that any rally will be
long-lived.

Chart of the SOX




It appears that all of the doom and gloom predictions for the
retailers came to pass, as we got more warnings this morning.
Wal-Mart re-iterated last week's comments that it would see a
total of 2-3% same-store sales growth for the 5-week holiday
season ending January 3.  That number includes a decline in same
store sales at its Sam's Club warehouse chain.  This number is
approximately one half of its traditional growth target of 4-6%
and a reduction of the previously announced target of 3-5%.  The
fact that it comes during the holiday season looks very bearish
for consumer spending, as the trend of lowering expectations
shows no sign of slowing.  If Wal-Mart is lowering growth into
the holidays, then what can we expect when the bargain hunting is
out of the way in the next couple of months?  We got even worse
news from Federated, which owns Macy's and Bloomingdale's.
Federated had refused to give guidance last week, citing a high
percentage of sales in the last week of shopping before Christmas
and the inability to predict how those sales would add up. I
questioned that reasoning last week and it appears the retailer
was just delaying the bad news.  Federated had been predicting
sales as coming in flat to down 2.5% for the holiday season, but
lowered those expectations this morning to a decline of 4.5%.
Bear Stearns also had some negative news about sales at Target,
saying that December same-store sales are well below plan and
could be flat to down in the low single digits. Bear says there
could be a 5-10% downside risk for Target's earnings estimates of
76 cents per share. December sales are on pace to increase by 1
percent, which would be the weakest year-over-year growth since
September 2001, according to the National Retail Sales Estimate.
If sales are down from a year ago, when consumers were still
recovering from the 9/11 attacks, then it's obvious we have a
long way to go before the country crawls out of the current
economic hole.   Investors may have been expecting even worse
numbers after wandering through half-empty malls for a majority
of the shopping season, as the initial dip this morning in the
Retail Index (RLX.X) eventually turned into a gain, finishing up
2.3% on the day.  The index had been beaten down the last week
and sat on the verge of breaking down below support at 260 before
today's rally took it back to 267.35. I would still hesitate to
buy stocks in this sector.  While the news could have possibly
been worse, the trend suggests it may still fulfill expectations
in the near future.  Merrill Lynch analyst Daniel Barry said, "We
believe most broadline retailers missed their Christmas sales
plans and we expect sales and profit warnings over the coming
weeks."

Chart of the Retail Index (RLX.X)




Existing home sales also took a hit with a drop of 3.5% in
November, which was far below expectations of a slight gain.
They were still up 5.9% from November 2001, but not what
homeowners were anxious to hear.  It also suggests that the
torrid pace of home buying spurred by low interest rates may be
cooling as we head into the winter months.  Some of this may be
seasonal, but the report was nevertheless worse than expected and
took its toll on the home building sector, with the Dow Jones
Home Construction Index (DJUSHB) falling 1.2%.

The Market Volatility Index (VIX) sunk on the afternoon rally,
but remained above 30.  I traded under 30 during the late
November rally and a move back under that level might indicate
that traders believe a rally is for real.  It would probably take
a Dow rally above 8600 to push it back below 30, which would also
break the trend of lower highs. If we get a move back into those
areas, then maybe Santa was just a little late and we'll still
get that unlikely rally.

Other indicators that have been somewhat reliable in their
relation to the Dow are oil, gold, the dollar and bond futures,
each with an inverse relationship to the equity markets.  Oil
futures and gold each finished down on the day, confirming the
move in equities. The dollar, on the other hand, sunk to new 52-
week lows, and bonds continued their move higher through
resistance. That move in the bond market would seem to cast a
long shadow on today's rally, as we didn't get the flow of assets
from stocks into treasuries that we normally see on sustained
rallies in the equity markets.

Chart of the 10-Year Treasury





After today's bounce, traders need to be careful of jumping in
long and picking a bottom.  The failure by the bond market to
confirm this afternoon's bounce in equities, when taken along
with the sinking dollar, throws up a red flag.  We also need to
be aware of the fact that although the traditional "Santa Claus"
rally has been remarkably consistent, all trends eventually come
to an end and the series of lower lows and lower highs indicates
that this may be the time for this one to end. We have fallen
through several levels in the major indices where a bounce could
be expected.  Although the Dow has remained above its support
level between 8200 and 8300, another trip below those levels may
not end until we re-test the July lows around 7500. If this rally
fails anywhere below 8550, traders can look to jump on short and
ride the market down to another lower low.


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

Rolling out of Technology

By John Seckinger
jseckinger@OptionInvestor.com

The NQ03H contract traded one point underneath its pivot on
Monday before reversing, as technology stocks lost their luster
and risk owning the NQ contract became too great.

Monday, December 30th at 3:15 P.M.

Contract     Last    Net Change     High        Low        Volume

Dow Jones.. 8332.85    +29.07      8364.74     8252.51
YM03H       8306.00    +36.00      8349        8235        16,129

Nasdaq-100   989.89     -7.96      1003.31     980.74
NQ03H        993.00     -8.50      1007.00     982.50     120,816

S&P 500      879.39     +3.99      882.10       870.23
ES03H        877.75     +6.00      881.50       869.00    256,017

ES03H  = E-mini SP500 futures
YM03H  = E-mini Dow $5 futures
NQ03H  = E-mini NDX 100 futures

Note:  The 03H suffix stands for 2003, March, 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.

Notes:  Support, Resistance, and Pivotal level for Dow, SPX, and
NDX will be posted in the Market Monitor every morning at
approximately 9:30 a.m.

Notes:  Crude Oil rose to a 2-year high while the Dollar fell to
new lows against both the Euro and Yen.  Bonds continued to rise
as tensions in Venezuela (President Chavez threatening strikers),
North Korea, and Iraq remained high.  In other news, both the
Chicago PMI and Existing Home Sales came in below expectations.
Existing Home Sales fell 3.5% to 5.56M vs 5.70M consensus, while
Chicago PMI came in at 51.3% vs 53.0% consensus.  Looking
elsewhere, the Sox fell under solid support at 295 and the OEX
was unable to close above 445.  Additionally, Bear Stearns noted
that while holiday 2002 retail sales were disappointing, it was
not a disaster.  The company said that weak top line sales means
expense leverage could be difficult to achieve, and said that
there is 5-10% downside risk to their current Q4 EPS estimates
for broad lines and dept store retailers.  In company specific
news, IBM won a $5 billion contract with JPM, beating out EDS.
Share of IBM fell 1.43% to 76.25.

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

The March Mini-sized Dow Contract (YM03H)

Starting with a daily chart of the YM contract, there were some
buyers under the relative low of 8282; however, the contract
still posted a lower low and lower high when all things were said
and done.  Moreover, the mid-point of the regression channel
acted as solid resistance when bulls attempted a rally late in
the session.  Resistance is felt above at the 38.2% retracement
area (8357); therefore, I would look for a move above 8368 if
thinking of initiating a long position.  On the other hand, if
8282 is taken out, I will expect Monday’s low of 8235 to be
breached.  Support should come in at 8244 and 8182.  Note:  Least
Resistance is still lower for the contract.

Chart of Mini-sized Dow Contract, Daily




A 10-minute chart of the YM contract shows a new methodology in
place.  The goal is to get into the minds of market makers during
Tuesday’s session.  I am using the Resistance 2 and Support 2
levels, and then doing a retracement analysis between them.  I
recommend using these levels for stop purposes as well as for
execution.

Chart of YM03H, 10-minute




Bullish Percent of Dow Jones:  50% (Recent High at 72%, last
Significant Low at 10%).  The recent column of O’s is now at 11
and should continue to fall (read: expect more weakness in
stocks).  In “Bear Alert” Status.

YM03H

Support               Resistance                Pivot

8244.34               8358.25                   8296.75
8182.67               8410.75

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

The March E-mini Nasdaq 100 Contract (NQ03H)

Technology stocks came under pressure on Monday as the NQ index
traded one point from Monday’s 1008 pivot before reversing.  Very
nice.  Bids did come in as the 50% retracement level acted as
market maker support,’ and a lower daily low and lower high
portends the possibility of another test of 983 in the near term.
However, will 1024 be tested first?  Tuesday’s pivot comes in at
994.25, and shorts should get a tad nervous if this area becomes
support on Tuesday.  1024 would be the objective.  MACD, on a
daily basis, is still falling; therefore, look to see if the 22
DMA comes closer to crossing under the 50 DMA and getting things
more bearish.  Support is seen at 981.25 and 969.75 (a stronger
level).

Chart of NQ03H, Daily




A 10-minute chart of the NQ03H contract shows an aggressive
bearish trend lower, and the rising channel recently formed still
didn’t make it back to 1000 and test the will of shorts.  Going
forward, watch the 994 level for guidance and look to see if
stops are triggered once above 1005.  The objective above 1005
comes in at 1018 and should line up with the falling red bearish
trend line (taken from daily chart).  As with the YM contract,
use the retracement levels for execution and stop areas during
trading on Tuesday.  Main upside objective on Tuesday is 1024.

Chart of NQ03H, 10-minute




Bullish Percent for NDX:  60% (Recent High at 82%, last
Significant Low at 14%)  There is definitely more risk to the
downside.  The recent column of O’s stands at 11.


NQ03H

Support              Resistance                 Pivot

981.25               1005.75                    994.25
969.75               1018.67

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

993.00     -8.50      1007.00     982.50

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

A look at the ES03H contract (120-minute chart) shows the recent
regression line and Bollinger Band proving worthy during the last
few trading sessions.  Expect this trend to continue.  Moreover,
the mid-point of the Bollinger Band comes in at 888.25 and
matches up well with Resistance 2.  With the pivot just below at
876, look to see if prices gravitate around the mid-point of
regression channel and try to shake shorts.  If the lower part of
Bollinger Band fails, expect support at 863.58.

Chart of ES03H, 120 minute




A 10-minute chart of the ES contract shows prices attempting a
rally and getting above some resistance levels built up over the
near term.  The levels in question seem to line up nicely with
the 50% retracement level and 876 area.  Will these areas become
support?  If not, shorts should get aggressive; especially with
MACD looking to cross lower.  If bids do materialize, the first
level of resistance is seen at 883 and matches up well with the
19.1% retracement level.  I do expect this area, if broken, to
turn into support.

Chart of ES03H, 10-minute





Bullish Percent of SPX:  58% (Recent High at 66%, Last
Significant Low at 20%).  Certainly more risk to the downside.
The recent column of O’s is only four long.  In “Bull Correction”
Status.

ES03H

Support              Resistance                 Pivot

870.66               883.16                     876.00
863.58               888.58

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

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.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:

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


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/123002_1.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/
**************************************************************


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

Bond Funds & Gold Funds Extend Gains

Bond mutual funds enjoyed solid gains again last week, continuing
the trend of 2002, while stock mutual funds languished along with
the global stock markets.  Foreign stock funds had smaller weekly
losses than U.S. stock funds, while foreign bond funds had bigger
gains than their U.S. bond peers as the U.S. dollar continued its
slide versus major foreign currencies.  The average gold fund was
up 5.4% for the week, according to Lipper, the only Lipper equity
category in positive turf.  Large-cap funds lost over two percent
on average for the week to lead the equity group lower.  Vanguard
500 Index Fund, which tracks the return of the S&P 500 index (see
chart below), was down 2.2% for the week.





Meanwhile, bond market returns improved as you moved further out
along the yield curve, with the long-term bond index up 1.3% for
the week, using Vanguard's LT Bond index fund as the proxy.  The
intermediate-term bond index rose by 0.9% last week, while short-
term bonds increased by around 0.5 percent, using the respective
Vanguard bond index funds as the benchmarks.  The Vanguard Total
Bond Market Fund (Lehman Brothers Aggregate Bond Index) finished
the week 0.5% higher, about where most U.S. bond funds ended the
week.  According to Lipper, the average intermediate investment-
grade bond fund produced a 0.5% total return for the week, while
the average corporate A-rated debt fund was 0.6% higher.  Global
and international bond fund returns rose one percent or more for
the week, as major foreign currencies increased in value against
the dollar.

Equity Fund Group

Below is a summary of selected Lipper stock fund indices for the
week ended Friday, December 27, 2002.  For comparative purposes,
the S&P 500 large-cap index had a negative weekly return of 2.2%,
using Vanguard 500 Index Fund as the benchmark.

 Selected Lipper Equity Fund Averages:
 -1.0% Balanced (YTD -11.1%)
 -2.0% Equity Income (YTD -17.0%)
 -2.3% Large-Cap Value (YTD -20.3%)
 -2.1% Large-Cap Core (YTD -21.7%)
 -2.2% Large-Cap Growth (YTD -28.3%)
 -1.3% Science & Technology (YTD -40.8%)
 -0.7% International (YTD -15.1%)

You can see that balanced funds lost less than half of what most
large-cap funds did last week, offering some cushion against the
U.S. market decline.  Domestic stock fund losses were widespread
with both value and growth funds sharing in the losses.  Smaller
capitalization funds held up better last week than large company
stock funds, losing less than one percent.  International equity
funds also minimized losses relative to domestic large-cap funds,
down 0.7% on average for the week, per Lipper.

Fixed Income Fund Group

Below are selected Lipper fixed income fund indices for the week
through Friday, December 27, 2002.  For comparison purposes, the
Lehman Brothers Aggregate Bond Index closed the week 0.5% higher,
using Vanguard Total Bond Market Fund (VBMFX) as the benchmark.

 Selected Lipper Income Fund Indices:
 +0.6% U.S. Government (YTD +10.0%)
 +0.2% GNMA (YTD +8.5%)
 +0.3% Short Investment-Grade (YTD +4.3%)
 +0.5% Intermediate Investment-Grade (YTD +8.2%)
 +0.6% Corporate A-Rated Debt (YTD +8.5%)
 +0.1% High-Yield (YTD -2.5%)
 +1.1% International Income (YTD +17.1%)

You can see that it was another week of strong relative returns
for bond mutual funds with U.S. government/corporate bond funds
sporting weekly total returns in the 0.5%-0.6% range, according
to Lipper.  Even high-yield funds eked out a narrow 0.1% return
over the week.  An ailing dollar continues to stoke the returns
reported by global/international income funds, with the average
international bond fund up 1.1% for the week (and 17.1% for the
year) per Lipper.

Money Market Fund Group

According to iMoneyNet.com, the average taxable money market fund
is yielding just 0.89% as of Tuesday, December 24, 2002, with the
top-yielding "retail" funds in the 1.30%-1.40% neighborhood.  The
PayPal Money Market Fund remains on top with a 1.44% 7-day simple
yield, followed by the Bunker Hill Money Market Fund and McMorgan
Principal Preservation Fund, both at 1.36%, using iMoneyNet.com's
numbers.

Fidelity Cash Reserves Fund, the largest retail money market fund
with $56.8 billion in assets, has a current 7-day simple yield of
1.19%, per iMoneyNet.com.  The $50.0 billion Vanguard Prime Money
Market Fund has a 1.26% current yield.  Though current yields are
at historic lows, money market funds remain a popular alternative
for risk-wary investors, with more than $2.3 trillion invested in
them today.

Largest Mutual Funds

Below is a performance summary through Friday, December 27, 2002
for the nation's largest stock and bond mutual funds, using data
from Morningstar for asset ranking purposes.  Funds with minimum
initial investments of more than $25,000 have been excluded from
this list.  For funds with multiple share classes, class A share
performance is shown.

 Largest Mutual Funds:
 -2.2% Vanguard 500 Index (VFINX) YTD -22.6%
 +0.5% PIMCO Total Return (PTTAX) YTD +9.7%
 -2.5% Fidelity Magellan (FMAGX) YTD -24.1%
 -1.4% Investment Company of America A (AIVSX) YTD -14.9%
 -1.9% Washington Mutual Investors A (AWSHX) YTD -15.6%
 -1.8% Growth Fund of America A (AGTHX) YTD -22.4%
 -0.6% Fidelity Contrafund (FCNTX) YTD -10.2%
 -1.7% Fidelity Growth & Income (FGRIX) YTD -18.5%
 +0.3% Vanguard GNMA (VFIIX) YTD +9.7%
 +0.6% Vanguard Total Bond Market (VBMFX) YTD +8.2%
 -2.0% Vanguard Total Stock Market (VTSMX) YTD -21.3%
 -1.2% EuroPacific Growth A (AEPGX) YTD -14.6%
 -1.2% New Perspective A (ANWPX) YTD -16.8%

Here, you can see the negative results produced by the nation's
top equity funds compared with the positive returns produced by
the largest income funds.  Vanguard 500 Index Fund and Fidelity
Magellan, two large-cap funds, exceeded the decline produced by
Vanguard Total Stock Market Fund (VTSMX) which tracks the broad
Wilshire 5000 index.  Vanguard Total Bond Market Fund ended the
week 0.6% higher, setting the bar in the fixed income fund group.

The American Funds' EuroPacific Growth and New Perspective funds
both decreased in value by 1.2% last week as a declining dollar
helped to minimize international equity fund losses relative to
comparable U.S. stock funds.  For comparison purposes, the MSCI
EAFE index of developed foreign markets was 0.9% lower over the
past week.

Mutual Fund News

Morningstar reports that Smith Barney Fund Management LLC plans
to launch a new fund that will be sub-advised by seasoned value
investor Robert Olstein.  Olstein has managed Olstein Financial
Alert Fund (OFALX) since 1995 producing high returns with above
average risk relative to other mid-cap blend funds for a 5-star
(highest) overall rating from Morningstar.  Olstein focuses his
research on "undervalued" stocks of companies with conservative
accounting principles and practices.  He was the subject of our
Manager Microscope weekly series on Thursday, December 12, 2002.
According to Morningstar, despite the recent volatility, he has
rewarded investors over time, producing 5-year returns that are
better than 96% of his mid-cap blend peers.

In other Morningstar news Stephen Yacktman will join his father
Donald Yacktman as co-manager of the flagship Yacktman Fund and
Yacktman Focused Fund.  Son, Stephen Yacktman has been employed
by Yacktman Asset Management since 1993, and was promoted to VP
in 1996.  Father, Donald Yacktman gained notoriety from 1983 to
1992, when he managed the Selected American Shares Fund and was
selected Morningstar domestic stock fund manager of the year in
1991.  Yacktman started his own firm, but lagged his stock fund
peers during the tech-led bull market of the 1990s.  Similar to
the recession of 1990-1991, Yacktman's fund has done well again
since 2000.  His 16% average annual return over the past 3-year
period ranks in the top 1 percent of the mid-cap value category
per Morningstar.  Yacktman (YACKX) has a 9.3% YTD total return.

Neuberger Berman has decided to replace Basu Mullick, portfolio
manager for the Guardian Fund (NGUAX), with Arthur Moretti, who
co-managed Neuberger Berman's Socially Responsible Fund (NBSRX).
According to Morningstar, Mullick's return performance over the
trailing 3-year, 5-year, and 10-year periods ranked in the last
decile of the large-cap value category, prompting the switch.

See the Morningstar Fund Times section (www.morningstar.com) for
more information on these and other mutual fund developments.

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:

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


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

Baby Steps

Well we got the bounce I was looking for, but not before setting a
new lower low and not as high as I would have liked. However, I
keep repeating the "baby steps" mantra.

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/
**************************************************************


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The Option Investor Newsletter                   Monday 12-30-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: ACS
Dropped Calls: None
Dropped Puts: ROOM
Play of the Day: Call – ACS
Traders Corner: Make The Right Comparison

Updated on the site tonight:
Market Watch
Market Posture

**************************************************************
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/
**************************************************************


*****************
STOP-LOSS UPDATES
*****************

ACS - call
Adjust from $48 up to $50


*************
DROPPED CALLS
*************

None

************
DROPPED PUTS
************

ROOM $55.18 +2.01 (+2.01) We speculated late last week that ROOM
might find support for a decent bounce near the 200-dma, and
encouraged traders to tighten stops or take profits near that
level.  That turned out to be prescient advice, as the stock
traded as low as $53.05 on Friday (with the 200-dma then at
$52.98), before today's rather strong rebound from that level.
Despite the anemic volume still seen throughout the market, ROOM
traded close to its ADV, as it marched to a nearly 4% gain on
Monday.  It was interesting how the stock found resistance right
at our $55 stop until the broad market staged a rally attempt
in the final hour.  That was enough to propel ROOM through our
stop and bring the play to an end.  Despite the selloff in the
final minutes, ROOM remained above our stop, making the decision
to stick with the plan and exit the play a prudent one.


**************************************************************
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/
**************************************************************


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

ACS – Affiliated Computer Services $51.73 +0.73 (+0.73 this week)

Company Summary:
ACS is a global Fortune 1000 company that delivers comprehensive
business process outsourcing and information technology
outsourcing solutions, as well as system integration services,
to both commercial and federal government clients.

Why We Like It:
Based on the price action earlier in the week, it looked like
our ACS play was going to charge higher right into the end of the
year.  But a dose of reality hit Thursday morning, and the
euphoria that drove ACS up to the $54 level quickly faded,
making way for some orderly profit taking into the end of the
week.  A large part of the stock's weakness over the past two
days is likely due to the broad market weakness and a lack of
volume to continue the upward trend.  There is some mild support
near $51.50 and then again near $50.75, before ACS drops into
the strong support offered at the $49.50-50.00 area.  The early
part of next week is likely to still be dominated by light volume,
so we'll want to take advantage of that light volume to initiate
new bullish positions on a rebound from support.  The PnF chart
has given us a strong Buy signal with a price target up in the
stratosphere ($76), so it definitely appears that the bulls are
still very much in charge.  Dips should provide solid entry
points, so long as the broad market doesn't completely break
down.  Keep stops set at $48.

Why This is our Play of the Day
While the broad market has continued to deteriorate, ACS has
refused to go along for the ride.  Sure there has been some
weakness following last week's failed rally at the $54 level,
but the selling seems to be confined to profit taking.  Monday's
session saw the stock trading down to just above the $51 support
level before rebounding and closing near the high of the day.
Since gapping above the $50 level just over a week ago, ACS has
yet to challenge that level again, and if the broad market does
manage to rally from support, we ought to see ACS charging
higher yet again.  Below Monday's intraday low ($51.25), the
stock should find additional support at the 10-dma ($50.92) and
the 20-dma ($50.09), along with the top of the recent gap at
$50.50.  A rebound from this area of clustered support looks
good for traders contemplating new entries, while those with a
more cautious approach will want to target a breakout over $54.
While we haven't gotten the breakout yet, it seems prudent to
raise our stop to $50, as a close below that level will likely
indicate an end (or at least a significant pause) in the recent
rally.

BUY CALL JAN-50*ACS-AJ OI=2555 at $3.60 SL=1.75
BUY CALL JAN-55 ACS-AK OI=1970 at $0.90 SL=0.40
BUY CALL FEB-50 ACS-BJ OI=  25 at $5.10 SL=3.00
BUY CALL FEB-55 ACS-BK OI=  33 at $2.40 SL=1.25

Average Daily Volume = 1.68 mln



**************************************************************
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/
**************************************************************


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

Make The Right Comparison
by Mark Phillips
mphillips@OptionInvestor.com

As the end of 2002 has approached, I'll be the first to admit
my frustration with the difficulty in trading the past few weeks
due to the continually shrinking volume.  This is a pattern that
we've observed for years, with some notable exceptions.  There
have been times where the end of the year has provided some
solid trading opportunities (like the end of 1998 and the end of
1999).  But for the most part, traders seem to be well served by
taking a forced vacation from trading in the final 2 weeks of
the year.

A big part of this pattern is because of the fact that volume
dries up due to all of the other traders (mainly institutional)
that take advantage of this time of the year to spend a bit of
time away from the markets.  Additionally, there are few
catalysts to drive the market one way or the other until
earnings warnings begin to appear in earnest in early January.
I personally only like to trade when I can stack the odds
decisively in my favor, so it should come as no surprise to
hear that I've been exceedingly Inactive over the past couple
weeks, at least where my personal trading is concerned.  I for
one will be quite pleased to bid farewell to 2002 and ring in
the New Year, anticipating more predictable patterns in the
broad markets (as well as individual stocks) when the big boys
return and hopefully bring with them more normal volume patterns.

Much has been made in the press over the past several weeks
about the fabled Santa Claus rally, and with the broad market
weakness over the past few weeks and tomorrow being the last
trading day of 2002, it seems a pretty safe bet that the jolly
old fat man failed to appear this year.  Or did he?

A couple weeks ago, I ran across a story pointing out the
historical consistency of the Santa Claus rally.  The reason I
want to talk about it today is because of what I believe is a
very flawed premise, not only in that story, but in a lot of
prognostications that are based on historical or seasonal
patterns.  Keep in mind that historical patterns work until
they cease to do so.  I know, real profound.  But that's what
we need to keep in mind when using historical patterns in
trading decisions -- there is no guarantee that this time the
pattern will fail to repeat.

Almost all of the historical comparisons I've heard in recent
months fail to make the right comparison, in my opinion.  The
reason I think they are flawed is that they are using the wrong
time period for a valid comparison.  It reminds me of something
my high school math teacher shared with me.  There are three
types of liars in the world: Liars, Damned Liars and
Statisticians.  Over the years, the truth of that statement has
become more and more profound to me, as I have learned that you
can take a bunch of numbers and statistics and patterns and make
it say anything you want to.  That doesn't mean you've stumbled
onto any great truth, just that you've managed to create a
supporting argument (supposedly based on solid facts) that
corroborates the statement you'd like to make.

Alright, let's get specific.  How many times through the course
of this past year did you hear about how unlikely it would be
for the markets to have a 3rd consecutive down year due to the
fact that it hadn't happened once in the post-war (WWII) period?
Guess what?  Barring a miracle of Biblical proportions tomorrow,
2002 is going to be that 3rd down year.

Based on that unlikely occurrence, the bullish prognosticators
are already out in force putting out their predictions for how
the market will perform in 2003.  With very few exceptions, the
expected gains look an awful lot like those that were expected
for 2002, just one short year ago.  Here are a couple of examples
that caught my attention out of the year-end Investor's
Intelligence report.  Goldman Sachs' Abbey Joseph Cohen sees a
27% rise in the DOW, putting it at 10,800 at the end of 2003.
Ed Yardeni is just slightly less optimistic, pegging the DOW at
year end at 10,500.  In my opinion, these bullish strategists
are still allowing their view of the market to be colored by
the unlikely (their opinion) prospect of a fourth consecutive
down year.  The flaw, as I see it, is in refusing (or failing)
to see that you can't responsibly compare the current market
situation to any point in the post-WWII era.

Do you know the last time the market (DOW) posted 3 consecutive
losing years?  1930, 1931 and 1932.  Care to hazard a guess as
to when/if there has even been a string of four losing years?
If you guessed 1929-1932, then you're right on track.  Whether
we want to admit it or not, the situation that our precious
markets find themselves in as we bring this year to its
conclusion is more like the early 1930s than any period after
1945.

Let me be clear here.  I actually think we'll close out 2003 in
the green, but I think there are likely to be new lows put in
before we can achieve that feat.  And I don't expect the gains
to be that impressive.  I'll even go out on a limb here and say
that for 2003, the DOW will come to rest somewhere between
8500-9000.  But my point isn't to put out my own prediction
and try to show that I'm 'smarter' than any of the notable Wall
Street strategists.  My point is that I think they are wrong
because they are comparing the current market to the wrong
historical model.

That brings me back to the article I stumbled across related to
the Santa Claus rally.  It looked at the DOW starting after WWII
and looked at the low in November or December and compared it
to the high of December or January.  Without exception, the DOW
has posted a gain between those two points every year since 1945,
with the average gain in excess of 9%.  Wow!  That's impressive,
don't you think?  Using that information to make trading
decisions in the future though is based on the expectation that
the pattern will continue.  This year looks like it is the
pattern breaker, don't you think?

That's where we come to the 'devil is in the details' part of
the analysis.  For this year, the DOW low (Nov-Dec) was posted
on 11/13 at 8298 -- at least until the last two day's price
action.  So far, the high for December has been 9043, posted on
December 2nd.  The difference between those two levels is 745
points or 8.98%.  That's awfully close to 9%, don't you think.
But with the recent decline below 8298, I think the calculation
needs to be restarted if we're looking for a successful repeat
of the pattern.  If we assume Monday's low of 8252 is the 'new'
low for the year, then the historical pattern would indicate a
roughly 9% rise between now and the high posted in January.
That should put the DOW just shy of the 9000 level.  I don't
know about you, but based on the recent action in the market
and the deteriorating signals from the economy, I don't see
that as a likely occurrence.

My personal bias is that the past few days have been the
aberration to the pattern and we got the "historically
dictated" 9% rise from 11/13 to 12/02.  In other words, Santa
Claus came and went while most of us were still recovering from
our turkey-induced stupor in late November.  You see the problem
with using historical patterns to justify a market view?  You
really can get them to say anything you want them to...just
like the statisticians.

I do pay attention to historical patterns, but I actually give
them very little credence in my day-to-day trading decisions,
because I have a very skeptical mind.  The skepticism isn't
about whether the facts are correct -- they usually are.  But
whether the comparison being made is valid or even applicable
to the current market, is the really important question we need
to ask.  In that regard, my personal bias is that we're in a
similar situation to the early 1930s, and I think any
historical pattern that is touted as important, had better be
compared to what happened in that timeframe as well.

Best Wishes for a Happy and Prosperous New Year!


Mark


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

Step Down

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_123002.asp



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

Weak Bounce

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_123002.asp


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