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Daily Newsletter, Tuesday, 12/31/2002

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The Option Investor Newsletter                 Tuesday 12-31-2002
Copyright 2002, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Finally Its Over
Futures Markets: One Day at a Time
Index Trader Wrap: Turn the page
Weekly Fund Screen: Fund Standouts Under $50 Million


Updated on the site tonight:
Swing Trader Game Plan: Change of Heart


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      12-31-2002   Change   %Chg     High     Low     Range
DJIA     8341.63 -1,679.97 -16.76% 10,673.10 7,197.49  3,475
NASDAQ   1335.52 -  614.88 -31.52%  2,074.32 1,108.49    965
S&P 100   444.75 -  139.53 -23.88%    600.80   384.96    216
S&P 500   879.82 -  268.26 -23.36%  1,176.97   768.83    408
RUS 2000  383.10 -  105.40 -21.57%    523.79   324.90     71
DJ TRANS 2309.96 -  330.03 -12.50%  3,050.40 2,008.31  1,042
VIX        32.03 +    8.74 +37.52%     56.74    18.87     38
************************************************************

Finally Its Over

After 12 months of progressively lower peaks and valleys the 
major indexes all finished lower for the year, significantly
lower. The much awaited second half recovery fizzled and now
all eyes are focused on the second half of 2003 instead. The
normal holiday rebound died early with the December highs 
coming on the first day of the month. Instead of seeing visions
of sugar plums the last month has turned into a holiday version
of nightmare on Wall Street. Somebody please pinch me, I want 
to wake up.

Dow Chart - Daily for Year


 

Nasdaq Chart - Daily for Year


 

Tuesday began badly with the Consumer Confidence posting an 
80.3 for December and well below the consensus estimate of 
85.9. The biggest culprit was a serious decline in the current
conditions components but future expectations also declined. 
There were some minor improvements like a small uptick in the
number of consumers planning on buying a new car in the next
six months. This is likely impacted by the expiration of the
luxury tax today. Purchasers of luxury cars will now save
thousands of dollars on any future purchase over today's 
price. However, confidence is falling most strongly in the
higher income groups aged 35 to 54. This is a reflection of
concern about impact on retirement portfolios by the falling
equity markets. This is not the low for this cycle but it is
very close to the 79.6 low in October. A further drop in the
stock market over the next several weeks could send the
confidence even lower.

Consumers returned to the malls in force with those return
items and a pile of gift certificates. Those post holiday
shoppers managed to swell the Chain Store sales numbers by
+2.1% last week. This was the best weekly gain since May-4th.
Before everyone runs out to buy retail stocks be aware this 
is simply a result of shoppers spending the cash and gift
certificates they received on strongly discounted post
holiday sales. This spurt of buying will not go far towards
increasing profits of the retailers although it will help 
in reducing excess inventory.

Tech stocks failed to find the green today after the November
semiconductor billings rose only slightly by +1.4% on Monday.
The Americas remained the weakest global region and with Asia
Pacific the strongest. Global sales have continued to grow
very slowly but still are not showing any signs of a real
recovery. Chip sales are still over one third below their
2000 levels. Many of the chips being produced and sold are
being sold below cost to maintain cash flow and keep production
lines open. With no recovery soon there will be an increased
number of plant closings and failure or acquisition of smaller
companies. 

Bernie Ebbers, Ken Lay, Martha Stewart and Jack Grubman are
just a few of the names most would rather forget from 2002. 
We would also like to forget some of the numbers from the 
markets as well. If you noted the numbers at the top of this
article you will see they are for the year and not for the day.
The Dow traded in a 3475-point range from its 10,673 high to
the low of the year at 7197 in October. It eventually settled
with a -17% loss for the year. The Nasdaq performed even worse
with a 965 point range (50%) and a -31% drop for the year.

The individual index numbers are bad but considering the last
three years top loser honors goes to the Nasdaq. Losing -39%
in 2000, -21% in 2001 and -31% in 2002 the Nasdaq has now lost
-73% from its 2000 high. It appears more but each number above
is a percentage drop from the prior year not from the high. 
The Nasdaq hit new six year lows in October. The S&P closed 
-43% from its 2000 high and for the first time ever all 
sectors in the S&P closed down for the year. The Dow posted
the worst December since 1931 and the first three year loss
since the great depression. 

It would appear on the surface that the worst is over. Surely
the markets cannot make it four in a row? At least that is
what almost every major analyst is predicting. Of the 67 
advisors Business Week surveyed this week only two were not
expecting the markets not to finish higher. I sure wish I
knew how many of those analysts were expecting 2002 to finish
higher one year ago. Obviously you could line up 1000 analysts
with a 99% consensus and still not have them match reality
for 2003. We simply do not know what 2003 is going to bring. 

For 2002 all hopes were pinned to a tech/economic revival 
in the second half of the year because "it had to happen"
based on prior business cycles. Obviously it didn't and
doesn't have to happen for 2003. I personally think there
is a complete computer replacement wave in our future but
the longer it takes to appear the less impact it will have. 
If the economy was to boom in 2003 then pent up buying 
demand would surge in a short period of time and help feed
the fire. It would be like throwing an entire arm full of
dry branches on a small fire at once. You would get an 
explosion of crackling fire with sparks shooting off in 
all directions. This is what happened in 1999 with the Y2K
replacement cycle. There was a specific date by which 
everything had to occur. 

If the economy continues to drag or even slip back into
a recession in the first half of 2003 then the replacement
cycle will not be everyone moving at once but 100 computers
here, 100 computers there on an as needed basis. This is
the equivalent of breaking up that arm load of dry branches
into matchstick size pieces and feeding them into the fire
one stick at a time. The result is a steady fire but no 
big blaze and not much heat. 

The problems we are facing in 2003 are many and varied. 
Most likely we are 30 days from attacking Iraq. This will
not be dropping megatons of bombs on troops hiding in the
desert but building to building street fighting. The 
government is making plans on a short engagement according
to the recent news reports but they are planning on using
250,000 troops. We are not going to move 250,000 troops
across Iraq and into Baghdad and out again in a couple 
months. There is always the possibility that Saddam will
suffer an early demise and the war will end quickly. We
should not count on it. 

Then there is the problem with North Korea. While they are
grabbing headlines there is little chance of an actual 
invasion or attack other than a possible surgical strike
against their reactor complex. (my opinion) They are trying
to trade their nuclear project for even more ransom than
they got from Clinton in 1994. 

Either way I think those two events and the next two weeks
of earnings warnings should keep a lid on the markets in
January and early February. By then we will have a better
handle on a potential double dip in the economy. With 
most major indicators showing only a minimal growth in the
4Q (normally strong) there is always a possibility the 1Q
could slip back into the negative column again. This would
depress the markets and cause another round of plant closings
and layoffs. This is the biggest problem as I see it but
the Fed is aggressively pumping money into the system to
keep it afloat. It is a race to see if they can pump enough
to keep it alive before dies from exhaustion. Lately it 
appears they are trying to inflate a balloon with a hole 
in it. The harder they blow the faster it leaks. 

So, my prognosis for the year is weakness in January for
various reasons. The economy and the outcome of the war
will decide our fate for February-March and earnings in
April will decide if the summer doldrums come early. 
Everyone will hold their breath toward the end of the
2Q with eyes focused on signs of the expected second half
tech rebound. If we see the signs appearing then we could
be off to the races. If we don't see the signs then the
markets could set up for a potential fourth year down. 
Nobody wants to face that reality but it does exist. 

There is a growing body of investors that believes the 
Kondratieff Winter cycle will continue until all the debt 
has been flushed out of the system. With $35 trillion in 
debt choking the economy this is too much overhead for 
companies and consumers to bear. Major bankruptcies are 
starting to reduce the corporate side with WCOM, ENE, 
CNC, KM, UAL, etc leading the way. Consumers are fighting 
the battle as well with home foreclosures at a 30 year high 
and auto repossessions up +30% this year alone. Unemployment
is expected by some to rise to 7% and this will put even 
more pressure on the consumer sector.  

Whatever your view of 2003 it should be easy enough to see
that the crystal ball is very cloudy. Everybody is counting
on a very back end loaded forecast and as we saw in 2002
it was so heavily loaded that we blew out the tires. The 
same conditions are setting up for 2003. Despite market
direction in 2003 there will be stocks going up and stocks 
going down. Our job is to find the best opportunities to 
apply the right amount of capital at the right time to 
capitalize on those opportunities. We look forward to the 
coming year and see it as one of tremendous potential 
regardless of the direction. I thank our readers for their 
support in 2002 and look forward to becoming an even more 
valuable part of your investment arsenal in 2003. In addition 
to the current options strategies we will be adding E-Mini 
futures trading to the monitor on January 13th. Hope to see 
you there. A very happy and prosperous New Year to everyone! 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor

For more information on the Kondratieff Winter:

(http://www.financialsense.com/transcriptions/Gordon.htm)


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


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

One Day at a Time 
By John Seckinger
jseckinger@OptionInvestor.com

Year 2003 should be as exiting as the year that has just passed, 
and there are a few patterns that look to continue from this year 
to the next. 

Tuesday, December 31st at 3:15 P.M. 

Contract     Last    Net Change     High        Low        Volume    

Dow Jones.. 8341.63     +8.78      8361.31     8242.91
YM03H       8320.00    +13.00      8344        8221        13,005

Nasdaq-100   984.36     -5.53       994.22     977.59      
NQ03H        987.00     -6.00       996.50     979.00     119,390

S&P 500      879.82     +0.43      881.93       869.45
ES03H        879.00     +1.50      881.00       868.00    301,103

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:  The Dow experienced double-digit declines for 2002, and 
the last trading day finished in the red as well.  Talk of 
quarter-end rebalancing took the focus away from geopolitical 
events, and only the 10 a.m. Consumer Confidence report really 
attracted solid volume.  This report came in at 81.3 and lower 
than November’s release of 84.9 and consensus estimates of 86.0.  

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

The March Mini-sized Dow Contract (YM03H)

The YM contract did show a lower daily low and lower daily high 
on Tuesday, but managed to close right on the mid-part of the 
Bollinger Bands.  Trading in-between the 38.2 and 50% retracement 
area, least resistance still should be lower.  When judging 
whether the market is range bound or in a trending phase, I like 
to use the Average Directional Movement Index (ADX) oscillator.  
It measures the degree of trend or direction in the market. A 
rising ADX line suggests the presence of a strong trend. A 
falling ADX line suggests the presence of a trading market and 
the absence of a trend.  A rising ADX line favors moving 
averages; a falling ADX favors oscillators.  The key levels are 
40 and 20.  If the ADX on a daily moves from below 20 to close 
above 20, expect downward momentum to continue. 

Chart of Mini-sized Dow Contract, Daily


 

A 10-minute chart of the YM contract shows prices closing above 
the 50% retracement area and near Thursday’s 61.8% level based on 
the difference between Support 2 (8172) and Resistance 2 (8418).  
The market appears to be consolidating before its next wave, and 
more bearishness should start with a move under 8295 and 
Thursday’s pivot.  

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    

8246.00               8369.00                   8295.00
8172.00               8418.00

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

The March E-mini Nasdaq 100 Contract (NQ03H)

The NQ continues to trade relatively weak, closing underneath the 
mid-point of its regression channel and showing the ADX reading 
at 25.03 on a 120-minute chart.  The daily reading is currently 
at 19.50 and close to rising above the 20 level.  Going forward, 
watch for the mid-point of the channel to act as resistance.  If 
broken, the 22 PMA at 1004 should be able to handle the short 
covering.  If S1 is taken out, I expect more selling down to 970.  
Remember to watch for S1 (978.50) to be broken and then to act as 
resistance.  It is just under Tuesday’s low, so a trap has to be 
considered.  

Chart of NQ03H, Daily


 

A 10-minute chart of the NQ contact shows a wedge pattern and a 
close under Monday’s pivot at 987.  Ideally for shorts, this 
pivot lines up with the mid-point of Regression channel and 
strengthens a short position.  

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 

978.50               996.00                     987.50
970.00               1005.00

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

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

Tuesday’s relative low might now be a part of a bullish channel.  
At least bulls hope it is.  Since the ES contract closed between 
the 38.2 and 50% retracement level, I still expect some more 
weakness to materialize.  A move above 883 and R1 (884) should 
give bulls some confidence for a possible move back up towards 
the 50 DMA, exp.  Note:  If 883 is hit before 861, there is a 
chance that buying will materialize.  Why?  It would be 
considered a failed attempt to trade between the common 
retracement areas.  Recently, it has worked better for shorts 
(example: hits 38.2% and then fails to rise back to 19.1%).  

Chart of ES03H, Daily


 

A 10-minute chart shows prices at the top end of a recent 
consolidation area, but a move above the first area of resistance 
should then allow the 881 area (70.7%) to become support.  Note:  
The ES contract is looking to open above its 50% pivot area and 
trade relatively stronger than the NQ contract.  Something to 
think about if contemplating a spread trade.  

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    

871.00               884.00                     876.00
863.00               889.00

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
********************

Turn the page

It was the best of years, and it may have been the worst of years 
for traders and investors.  As the markets ended the year in what 
was a relatively unchanged session, many investors and traders 
alike will wipe the slate clean and look forward to a new year 
and new opportunities in search of profits for their accounts.

Who could have possibly forecasted some of the events that took 
place in 2002, that at times dictated market action on both a 
short-term and longer-term basis?  After a horrific 2001 for many 
technology investors, 2002 wasn't any kinder on an annual basis.  
But that doesn't mean technology bulls didn't have opportunity to 
see gains.

Take this year's worst performing sector in the sectors we follow 
on a daily and weekly basis.  While many health professionals say 
that a diet high in fiber is good, a bull's diet that lacked 
fiber, specifically something in the Fiber Optic Index (FOP.X), 
which lost 60.5% in the past twelve month may think otherwise.  
But, as I mentioned, there were opportunities for bulls in 2002 
and their will undoubtedly be opportunities in 2003 as the very 
same Fiber Optic Index (FOP.X) surged 64% in the fourth quarter 
to take top spot among sector gainers in the final three months 
of the year.  Ahhhh, it's good to be a trader isn't it?

The biggest loss in any one quarter?  That would have been in the 
third quarter of this year as the Airline Index (XAL.X) was 
grounded for a quarterly decline of 54% as U.S. Airways filed for 
Chapter 11 bankruptcy.  A recent Chapter 11 bankruptcy filing by 
United Airlines (NYSE:UAL) $1.43 still found the sector holding a 
20.6% gain for the quarter, but rivaling the Fiber Optic Index 
for low billing with an annual decline of 56%.

Gold bugs got some revenge this year as their favored sector had 
the Gold/Silver Index (XAU.X) gaining 42% for the year.  Was it 
good to be an "investor" in gold stocks.  Hardly.  The bulk of 
this year's sector gains came in the first quarter with a stellar 
31% gain and a more modest 10% gain in the fourth quarter.  While 
the quarter data doesn't show it, the XAU actually "round-
tripped" and I mean TRIPPED from June to August as the sector 
plummeted from 87 to 56, a 55% decline.  Then, as if the great 
California gold rush had been renewed, the sector surged from 56 
to 75 by mid-September, a 33.9% gain.  Invest in gold?  No 
thanks, but it's a good sector to trade.

Our only other sector that showed a positive gain for the year 
was the Morgan Stanley Healthcare Index (HMO.X), which I 
affectionately call the HMO Index.  This year's 15% gain was 
built early in the first half of the year with nearly matching 
16.1% and 17.4% gains in the first two quarter.  However, 
bullishness faded in the third-quarter with a decline of 10.5% 
and a recent fourth quarter decline of 5.8%.

After the September 11th, 2001 terrorist attack, it was 
forecasted that "defense" stocks were a group that would benefit 
from increased U.S. government spending.  I've added the PHLX 
Defense Index (DFX.X) to my weekly spreadsheet and while the 
sector got off to a "hot start" in the first quarter with  17.1% 
gain, third-quarter declines of 14.5% and fourth-quarter declines 
of 5.8% left the sector down fractionally, or 2.4% for the year.  
Some thoughts here are that while defense spending increased, 
weakness from the commercial airline industry most likely offset 
results.

Treasury bonds had another banner year.  While we track the 
benchmark bond 10-year YIELD ($TNX.X) its annual YIELD decline 
from 5.032% to 3.810% offered the risk averse investor a nice 
YIELD return when compared to the broader equity index declines 
and gave the Treasury bond investor a some capital gain action 
too.

While Treasuries are perhaps deemed more "risky" than cash 
itself, the individual that stuffed the mattress with dollar 
bills finds that their dollar declined roughly 12.8% against a 
basket of 7 major foreign currencies.

While this "end of year" index wrap seems to be hindsight 
analysis, it should not be considered as such as I've always felt 
that something can be learned from history.  The point I hope 
every subscriber will take from tonight's "broader" index wrap is 
that there will be UPS and there will be DOWNS.  Sectors will 
enjoy favor until risk becomes too high, and the very same 
sectors will seemingly lose favor as risk is reduced and cash 
flows elsewhere.  

Stocks, sector and indexes will NOT go up day after day, and they 
will NOT go down day after day.

For the first time in my investment career (roughly 10-years) I 
actually heard several mutual fund managers become TRADERS of 
equities in their portfolios, only because the surrounding market 
environment and global economic conditions DICTATED such activity.  

Gone for now were the days of "buy and hold" and let a trend 
carry you toward infinity.  Even the more bearish hedge funds 
have learned this to be true as quarterly rebounds of 20% plus 
have not been all that uncommon and meaningful downside gains 
have been erased in a rather short amount of time.

Annual and quarterly Index/Sector Recap


 

A lot of selling took place this past year in equities as the 
major indexes finished in the red.  While the NASDAQ-100 Index 
(NDX.X) received a "face lift" late in the year, with another 
brand of collagen that didn't include too many technology stocks.  
One reason perhaps is that there aren't too many "large cap" 
technology stocks left in the NASDAQ.

The "old" blue chips in the Dow Industrials (INDU) take this 
year's "top spot" as 2002's major index winner.  While a 16.8% 
decline will trim the horns off of any bull's head, a 37.6% 
decline for the NASDAQ-100 left many technology bulls becoming 
steers for another year.

It's at least interesting that the CBOE Oil Index (OIX.X) showed 
a 13.9% decline this past year, despite turmoil in the Middle 
East.  Compare that 13.9 decline to the current $30.59 closing 
trade for the March 2003 Light, Sweet Crude Oil futures (cl03h), 
which on December 31st of 2001 closed at $21.80.  That's a 40% 
gain in the commodity, versus a 13.9% decline in many oil 
producers.  Yes, some of the OIX components drill for and produce 
natural gas, but even there we see the March 2003 Natural Gas 
futures (ng03h) closing today's trade at $4.69/mcf verses a $3.18 
close a year ago.  One would think something has to give here and 
it sure doesn't seem as if equity bulls feel that oil/natural gas 
prices for the commodities will hold these levels for an extended 
period of time.  If they do, the energy stocks look "cheap" on a 
comparison basis.

And while there's some MEANINGFUL DIVERGENCE between energy 
commodities and the stocks themselves, this year we find relative 
"unity" between the gold commodity futures and gold stocks 
themselves.  For comparison purposes, the February 2003 gold 
futures contract (gc03g) closed at $282.50 this time last year, 
and finished today's session at $348.20, marking an annual gain 
of 23.2% for this contract.  While gold stocks look "pricey" 
relative to the futures contract gains, there is at least some 
unity in price direction.  It is notable that during the past 
year, we did see 10% stock sector declines with 5% declines in 
the commodity, hinting that its not just "technology" stock 
traders that will "overbuy" or "oversell" a sector based on 
perception.

Have the markets found a bottom and will this year be different?

This is the question on most investor's minds, but of little 
concern to traders.  To tell you the truth, I currently have no 
idea.

Does that answer disappoint you?  Is it now impossible to make 
money without having the crystal ball to reveal the answer?

I'm sure there are those bears that quickly grinned and answered 
with a resounding no.  At the same time, there are those bulls 
that think "maybe the bottom was found."  

When the markets rebounded from their recent lows in October, I 
so wanted to tell a subscriber, "yes Margaret, the markets have 
found their bottom and it is OK to buy a call option."  

A bottom can only be "called" when a rebound fades, the old lows 
is not violated on the pullback, and a new relative high is then 
established.

As I look at the major markets, give or take a couple of points, 
the declines in October, found the major indexes (EXCEPT FOR THE 
S&P 100) violating their previous lows.  Therefore, if there's a 
bottom to be imagined, it would be in the S&P 100 Index (OEX.X) 
at this point.  However, I would have liked to have seen the 
recent December 2nd high of 487.94, which violated the August 
22nd relative high of 487.42, been a little more convincing than 
the 0.52-point violation that day.

To find a bottom this year, I would want to see at least one of 
two things, and the bullish % charts will play a KEY role if a 
bottom is to be called, but this well need to be followed as time 
passes.

However.  Since it is the S&P 100 Index (OEX.X) 444.75 (unch) 
that serves as the best index, which may have seen its bottom on 
July 24th at 384.96, and successfully held as support on a retest 
of 387.80 on October 10th, it would most likely be this index 
that I would look to that a new longer-term bull market could be 
found.  However, there's work to be done and time that needs to 
pass before the "answer" is found.

S&P 100 Index Chart - $5 box


 

It would be the OEX where I would first be thinking that the 
technical from past several months might hint that a bottom was 
found as the October low did NOT violate the July lows.  I also 
like the technical correlation that the $5 box had back in 
October where the OEX traded 390 and achieved its bearish 
vertical count.

On a more near-term basis, bulls look to have the risk.  This was 
alerted to earlier this month, when the OEX bullish % reversed 
into "bear alert" status.  Today's trade at 440, which had the 
OEX trading a session low of 439.57 (wait a minute, a relative 
high in December that was 0.52 above the July high?) was 0.43 
points below the 440 level.

On a near-term basis, we might look for a 3-box reversal high to 
455 on this box size, to then have the current bearish vertical 
count column formed.  Understand this type of "envisioning" and 
plan for it if you're a short-term put holder right now.

Do you see the similarity in "pattern" as it relates to late 
August, early-September (red 9), where the OEX showed 
distribution, then a 4-box reversal up (kind of like a short-term 
oversold bounce) and then continuation lower?

Of all the index charts I see, the OEX is perhaps "set up best" 
to alert short-term bears that a slight rebound may be at hand, 
but that any rebound most likely has downside risk back near the 
420 level at a minimum.  I say this only because the OEX bullish 
% ($BPOEX) from www.stockcharts.com is still relatively "high" at 
55% considering its early December peak of 76%.

For a true bottom to be found in 2003, a longer-term bull would 
like to see an OEX pullback that DOES NOT TRADE 380, gets that 
bullish % back below the "oversold" 30% level and then finds the 
bullish % begin to reverse back higher.  Then, the OEX index 
itself to reverse back higher and TAKE OUT the 490 level.

Then Margaret, 2003 will be a very good year for the bulls and 
bottom can be called.

Happy New Year!

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 SCREEN
******************

Fund Standouts Under $50 Million

These small mutual funds, each with under $50 million in assets, 
outperformed their fund peers by a large margin during the year.  
While none of them are likely to receive Morningstar manager of 
the year honors in 2002, each fund deserves recognition for its 
strong relative performance this year.  Our top performers were 
selected using the mutual fund screener available online in the 
Business section of the New York Times website (www.nytimes.com).

The New York Times mutual fund finder divides the fund universe 
excluding money market funds into nine fund types: seven stock 
fund types and two bond fund types.  The seven stock fund types 
include growth, value, core, mixed, global, sector, and S&P 500 
funds.  Bond funds are divided into fixed income and government 
debt funds.  The NYTimes.com's fund finder allows you to screen 
funds based on fund type, time period and net assets.  Our 2002 
small-fund standouts include only funds with asset bases of $50 
million or less, and were sorted on their 2002 YTD performance.

Growth Funds Under $50 Million

FBR Small Cap Value Fund A (FBRVX)
YTD 2002 Return: +1.2%
Peer Group Average: -29.6%
Web Site: www.fbrfunds.com

FBR Small Cap Value Fund seeks long-term capital appreciation by 
investing primarily in the stocks of companies with small market 
capitalizations.  Manager Charles Akre Jr. (since fund inception, 
December 31, 1996) invests in securities that are undervalued by 
the market or may not yet reflect the prospects for accelerating 
earnings and cash flow growth.  Because Akre holds on to winners, 
the fund's style has gravitated from blend to "growth" in recent 
years, but security selection is still largely value disciplined.

In 2001, Akre put up a 31.4% total return for investors and then 
backed that up with a positive 1.2% total return in 2002 through 
December 27.  That compares with a negative 29.6% return for the 
peer group average (growth funds).  Equally as impressive as the 
fund's strong performance has been its relatively low risk level.  
At 1.63, the fund's alpha score is double the peer group average, 
indicating strong relative value added.  

Value Funds Under $50 Million

Forester Value Fund (FVALX)
YTD 2002 Return: +5.8%
Peer Group Average: -18.7%
Web Site: Not Found

Forester Value Fund seeks long-term growth by investing at least 
65% of net assets in common stocks of companies with market caps 
of $1.5 billion or more.  In selecting stocks, manager Thomas H. 
Forester (since 1999) uses a value approach that is styled after 
value guru, Sir John Templeton (Templeton Funds).  That means he 
buys undervalued stocks, and if there are none, he moves to cash.  
Overall, the fund maintains a large-cap value bias, though it is 
classified as a "multi-cap value" fund in Lipper's system.  

Forester's risk-adverse style has produced a 5.8% return in 2002, 
for an "A" Lipper YTD ranking.  That compares with an 18.7% loss 
for the peer group average (value funds).  For the 3-years ended 
December 27, 2002, the fund had an average annual return of 4.9%, 
14.0% better than the S&P 500 large-cap index and 7.8% more than 
the peer group average.  It is hard to believe the fund has only 
$1 million in assets considering Forester's superior performance 
since 1999 fund inception.                       

Core Funds Under $50 Million

The Arbitrage Fund (ARBFX)
YTD 2002 Return: +9.2%
Peer Group Average: -18.6%
Web Site: www.thearbfund.com

This $31 million mid-cap core fund seeks long-term capital growth 
by investing primarily in equity securities of companies involved 
in mergers, takeovers, tender offers, leveraged buyouts, spinoffs 
and liquidations, and other corporate reorganizations.  While the 
fund engages in merger and acquisition risk arbitrage, portfolio 
manager John Orrico utilizes hedging strategies designed to limit 
market exposure and volatility.  His goal is to provide investors 
with consistent "positive" total returns that are not necessarily 
correlated to the general equity markets.

Orrico's arbitrage fund is up 9.2% in 2002, compared with a 18.6% 
decline by the peer group average (core funds).  Since the fund's 
inception in 2000, Orrico has produced a 7 percent annual average 
return for investors, fulfilling the fund's positive total return 
objective with lower risk than similar funds.  Hedging strategies 
(short selling and purchase and sale of options) have contributed 
to the positive results in 2002.
 
Mixed Funds Under $50 Million

Gabelli Comstock Strategy Fund A (CPFAX)
YTD 2002 Return: +14.8%
Peer Group Average: +6.0%
Web Site: www.comstockfunds.com

The Comstock Strategy Fund, now part of the Gabelli fund family, 
is a flexible-income objective fund that seeks to maximize total 
return over the long term by investing at least 65% of assets in 
debt securities.  Charles L. Minter, one of the firm's founders, 
has been involved in the fund's management since 1988 inception.  
Approximately 60% of assets were in cash as of November 30, 2002, 
reflecting the firm's bearish posture.  They believe we are in a 
potentially devastating deflationary bear market.

Gabelli Comstock Strategy Fund A sports a 14.8% YTD total return 
through December 27, outperforming the peer group average (mixed 
funds) by 8.8 percent.  Over the past three years, this fund has 
produced an average annual total return of 8.5% for shareholders, 
a 2.9% average annual return advantage to the peer group average.  
Contrarian investors looking for a hedge fund in disguise should 
like this offering, along with the aforementioned Arbitrage Fund.  

Global Funds Under $50 Million

Monterey OCM Gold Fund (MNTGX)
YTD 2002 Return: +97.1%
Peer Group Average: +65.5%
Web Site: Not Found

This $35 million gold-oriented fund seeks long-term appreciation 
by investing primarily in equity securities of domestic and non-
South African companies involved in gold/precious metals-related 
activities.  Greg Orrell (Orrell Capital Management) has managed 
the portfolio since 1988 fund inception.  He is an expert in the 
field of precious metals.

Orrell's 2002 return of 97.1% is number one among all funds with 
assets under $50 million.  Thanks to this stellar year, the fund 
now sports an average annual total return of 26.4% over the past 
three years and 13.1% over the trailing 5-year period.  Compared 
to his gold-oriented peers, returns have been above average over 
the last three years, with a below average relative risk profile.  
At 2.60%, the fund's expense ratio is above average versus peers.

Sector Funds Under $50 Million

Prudent Bear Fund (PBRCX)
YTD 2002 Return: +63.2%
Peer Group Average: +6.9%
Web Site: www.prudentbear.com


The Prudent Bear Fund, managed by David Tice (Tice & Associates) 
since 1995 fund inception, seeks to provide capital appreciation 
by investing primarily in common stocks, engaging in short sales 
and other hedging activities using stock index futures contracts 
and options on stock index future contracts, stock indexes, etc. 
The NYTimes.com mutual fund finder reflects the fund's C shares, 
which have only $5.2 million in assets, but the fund's combined 
assets (all share classes) now total $515 million, according to 
Morningstar's latest report.

The investment approach Tice employs is designed to benefit from 
a declining stock market as the fund has more "short" than "long" 
positions.  The fund is structured this way because Tice believes 
there is significant risk that a secular bear market is underway.  
Short sales and futures and options activities have contributed 
to the fund's 63.2% total return in 2002.  Over the last 3 years, 
the fund has produced an average annual return of 31.0% compared 
with just 9.1% for the peer group average (sector funds).  Bears 
have a compelling option here.  

S&P 500 Funds Under $50 Million

Smith Barney S&P 500 Index Fund B (SBSDX)
YTD 2002 Return:
Peer Group Average:
Web Site: www.salomonsmithbarney.com

Sandip A. Bhagat of Travelers Investment Management has managed 
this S&P 500 index objective fund since its 1988 inception date, 
generating similar total returns to the S&P 500 large-cap index.

On a YTD basis through December 27, 2002, the fund is down 22.7%, 
compared with a 23.0% decline by the peer group average (S&P 500 
funds).  Not much more to say here since the fund manager uses a 
"passive" equity management approach.      

Fixed Income Funds Under $50 Million

American Century International Bond Fund Adv (AIBDX)
YTD 2002 Return: +22.3%
Peer Group Average: +15.6%
Web Site: www.americancentury.com

This team-managed international fixed income fund pursues a high 
level of income and total return over time by investing in high-
quality international government securities and corporate bonds.  
Holdings consist mainly of European and Japanese government debt 
securities with high return potential.  Total return performance 
is subject to additional risks such as currency movements, which 
affect performance positively or negatively.

American Century's taxable bond team led by David Gibbon has put 
up a 22.3% total return in 2002, compared to a 15.6% return this 
year for the peer group average (fixed income funds).  The slide 
by the dollar versus Euro and Yen in 2002 has made a significant 
contribution to performance in 2002, making global/international 
bond funds the top performers this year in the fixed income peer 
group, according to Lipper, with one exception (go to next fund). 

Government Debt Funds Under $50 Million

American Century Target 2030 Fund (ACTAX)
YTD 2002 Return: +23.8%
Peer Group Average: 
Web Site: www.americancentury.com

This relatively new fund from American Century seeks to maximize 
total return by investing in zero-coupon debt securities.  Since 
its target maturity is 2030, the taxable bond team led by Jeremy 
Fletcher invests primarily in longer duration zero-coupon issues 
with high total return potential.  Because of the nature of zero 
coupon securities, this fund can exhibit greater volatility than 
other bond fund types.

The Target 2030 Fund has produced a 23.8% total return this year, 
more than twice the 10.0% total return for the peer group average 
(government debt funds).  It may be suitable for long-term income 
investors who want to realize an investment goal in the year 2030 
and can tolerate high share price fluctuations.  When bond prices 
rise, zero-coupon funds are among the best performers.  When bond 
prices fall on rising interest rates, however, these funds tumble 
hard.  

Conclusion

This week, we've shown you nine mutual funds with assets of below 
$50 million that have outperformed their fund type peers by large 
margins in 2002, using the NYTimes.com mutual fund finder.  These 
unsung heroes may be small in asset terms, but their performances 
this year were certainly big compared to similar funds.  For more 
information, visit the respective fund family websites.  

What will 2003 bring?  It's hard to say since most experts didn't 
see a third year of big stock losses and big bond gains for 2002.  
If you believe we are in for more of the same in 2003, you should 
find several of the funds discussed herein to be of interest.  If 
you believe the bear market will end and stocks will rise in 2003 
then you might want to expand your search to include growth funds 
and other investments that can participate in the equity advance.

Wishing everyone a healthy, happy, safe, and prosperous New Year. 

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
***********************

Change of Heart

I said in the last Swing Wrap that if we got evidence of the 
chances of a seasonal rally fading, I would switch sides and start 
looking for short opportunities. That's what happened today and 
the plan has clearly changed.


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


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The Option Investor Newsletter                  Tuesday 12-31-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: RKY
Futures Corner: Inside the mind of a Market Maker
Spreads, Combinations & Premium-Selling Plays: An Uninspiring Way 
To End A Disappointing Year


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

RKY $61.25 +0.25 (+1.21) After numerous attempts to break down,
RKY looks like it is going to hold above that $60 support level.
We've been waiting for that breakdown for over 2 weeks now, and
decided enough is enough.  While not a bastion of strength, the
stock's refusal to break down, even with the broad market looking
weak indicates that this isn't the best place to look for a
bearish trade.  We're dropping coverage tonight so that we can
make room on the playlist for better candidates after the New
Year.  Traders still holding open positions can use any intraday
weakness towards the end of the week to exit the play.


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


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

Inside the mind of a Market Maker
By John Seckinger
jseckinger@OptionInvestor.com 

First a pivot is established, and then a few support and 
resistance levels are calculated.  However, to take things to 
another level, retracement analysis is needed as well as 
interpreting an oscillator.  

Leonardo de Pisa, 12th century monk better known to his friends as 
Fibonacci, is responsible for discovering a mathematics sequence 
that appears throughout nature (Fibonacci Retracement Analysis).  
Beginning with a simple 1 + 1, the sum of the last two number sets 
that precede it creates another Fibonacci value: 1+1=2, 1+2=3, 
2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, 21+34=55, etc.  

It is interesting how major ratios drawn from these numbers 
describe a predictable interaction between trend and countertrend 
movement in equity markets.  The most popular ones to remember are 
38.2%, 50% and 61.8%. Note:  Fibonacci numbers are closely related 
to Elliott Wave theory. 

Trade decisions using Fibonacci retracement must include 
entry/exit analysis (risk versus reward) with respect to key pivot 
point and a recognized resistance and support level (R2 and S2, 
respectively).  Focus on getting into a market at major ratios 
while standing aside as price hovers between key zones.  
Intermediate traders can use this thinking; however, for short-
term futures traders, I will attempt to take things to another 
level.  Retracement within Retracement.  

Getting started, let us use the NQ03H contract and look at a 
weekly chart.  For this experiment, I chose the range during the 
week of December 8th.  The high was 1078, the low 1009.50, and the 
close was 1010.50.  Using pivot analysis, we get:

Resistance 2:  1101.25
Resistance 1:  1055.84

Pivot at 1032.75

Support 1:  987.25
Support 2:  964.25

Chart of E-mini Nasdaq 100, Weekly 


 

Taking the difference between R2 and S2 (1101.25 to 964.25), use 
retracement analysis for dissecting a daily chart.  Remember to 
use the 19.1% area, which is half of 38.2%.  Not shown is the 
Directional Movement Oscillator (ADX), which helps determine 
whether a market is in a trending or a trading phase.  It measures 
the degree of trend or direction in the market.  A rising ADX line 
suggests the presence of a strong trend.  A falling ADX line 
suggests the presence of a trading market and the absence of a 
trend.  A rising ADX line favors moving averages; a falling ADX 
favors oscillators. 

The ADX on a daily (shown in Futures Wrap) is at 19.51 and turning 
higher from under the 20 level.  As a rule of thumb, a move from 
under 20 to above 20 signals that a market is in a trending phase.  
Note:  This does not mean bearish or bullish, just that the market 
will trend.  With prices currently falling, my bet is that a move 
above 20 will be bearish.  If from above 40 to then under 40, it 
is a sign that a trend is weakening.  

IF the ADX does move above 20, then use the retracement levels 
more as resistance areas as anything else.  Example, look to sell 
against R1, R2 or pivot; moreover, look to expect S1 to fail and 
become resistance.  This mentality should give traders a definite 
edge.  

Chart of E-Mini Nasdaq, Daily


 

Taking things to a more micro level, I used Friday, December 
13th’s levels (high at 1045, low at 1009.50, and close of 1010.50) 
and then calculated R2 (1057) and S2 (986.25).  With these levels, 
I pulled up a 5-minute chart for Monday, December 16th’s session.  
Notice how the pivot (50% area) was broken and then never re-
tested after turning bullish.  This is, by definition, a good 
pivot and confirms our calculations from Friday’s levels as being 
solid.  Moreover, once above 61.8% (which becomes the goal once 
50% is cleared), this area became solid support as well.  Why?  
Market makers are watching these areas.  

Few rules:  Once a percent retracement area is taken out, expect a 
move to the next Fibonacci level.  If the market fails to get 
there and thencomes back and trades under the most recent 
retracement; expect a failure.  Example:  Pivot cleared, and then 
prices get to 1028 and not the 1030 61.8% level.  Prices then fall 
back to the 50% level and trades slightly underneath.  I would 
then look to exit half of long position, or look to sell an 
attempted rally in the future to another retracement area.  

Chart of E-Mini Nasdaq, 5-minute


 

The goal is to get into the minds of the market makers.  Trust me, 
they get their numbers and then find risk/reward opportunities 
between the pivot and a couple of resistance/support levels.  If 
the range is extreme on one particular day, look to use the 
following day’s retracement levels for a number of days down the 
road (at least until they fail to work).  

The most important levels, in my mind, are:  both support and 
resistance levels and pivot, 19.1%, then 61.8%, and then 84.1%.  
Certain contracts will trade differently to different percent 
retracement levels, since different market makers will think 
differently.  Moreover, use the word market maker synonymously 
with proprietary institutional traders.  They have many risk 
formulas they deal with, and I am certain many use retracement 
analysis as a popular tool in order to take the emotion out of 
trading and simply trade 
levels.   

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


*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

An Uninspiring Way To End A Disappointing Year
By Ray Cummins

Stocks ended mixed today with blue-chip shares among the few
winners as disillusioned investors bid a cheerless "good-bye"
to 2002.

The Dow Jones Industrial Average rose a meager 8 points to end
at 8,341, amid a rally in manufacturing conglomerate Honeywell
International (NYSE:HON).  Other aerospace and defense stocks
moved higher in anticipation of a possible war with Iraq, but
the limited bullish activity failed to inspire any meaningful
buying pressure.  The technology-laden NASDAQ Composite Index
slid 4 points to 1,335 as gains in printed circuit makers and
wholesale computer companies failed to offset losses in other
hi-tech groups.  The broader Standard & Poor's 500 Index ended
almost unchanged at 879 with airline and gold issues climbing
higher while tobacco, oil & gas refining, and education stocks
slid lower.  Trading volume as very light at only 1.07 billion
shares on the New York Stock Exchange and 1.16 billion shares
on the NASDAQ.  Advancers outnumbered declining stocks on both
the Big Board and the technology exchange with ratios of 2 to 1
and 5 to 3, respectively.  The yield on the 10-year bond ended
at 3.81%.

Overall, the S&P 500 closed the year with a loss of 23% while
the NASDAQ ended down about 32%.  The blue-chip Dow finished
slightly better, down only 17% for the year despite having its
worst decline since 1977.  The big question now is: "Can it get
much worse?"  The unequivocal answer is: "Yes!"

***************

SUMMARY OF CURRENT POSITIONS - AS OF 12/31/02

***************

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


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with new option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
  
 
Naked Puts

Stock  Strike Strike  Cost Current  Gain     Max   Simple
Symbol  Month  Price Basis  Price  (Loss)   Yield  Yield

AMGN     JAN    40   39.20  48.34   $0.80   5.29%  2.04%
MERQ     JAN    22   22.05  29.65   $0.45   5.53%  2.04%
NBIX     JAN    40   38.75  45.66   $1.25   7.51%  3.23%
OMC      JAN    60   58.65  64.60   $1.35   5.44%  2.30%
PPD      JAN    22   21.55  26.20   $0.95  11.59%  4.41%
QCOM     JAN    32   31.85  36.39   $0.65   5.67%  2.04%
SYMC     JAN    35   34.30  40.51   $0.70   5.66%  2.04%
AMGN     JAN    47   46.60  48.34   $0.90   5.27%  1.93%
BSX      JAN    40   39.10  42.52   $0.90   6.10%  2.30%
IGEN     JAN    35   33.90  42.85   $1.05  10.01%  3.10%
OVER     JAN    22   22.20  27.31   $0.30   4.83%  1.35%
PLMD     JAN    25   24.50  30.84   $0.50   7.09%  2.04%

Among the January positions, Amgen (NASDAQ:AMGN) traders
with a short option at $47.50 should consider closing the
play if the issue moves below technical support at $47.

    
Naked Calls

Stock  Strike Strike  Cost   Current  Gain    Max   Simple
Symbol Month  Price   Basis  Price   (Loss)  Yield  Yield

CCMP     JAN    60   61.35   47.20   $1.35   8.36%  2.20%
EXPE     JAN    80   81.35   66.93   $1.35   5.48%  1.66%
LLTC     JAN    32   32.90   25.72   $0.40   7.00%  1.22%
NVLS     JAN    35   35.30   28.08   $0.30   5.12%  0.85%


Put-Credit Spreads

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

EK      38.22  35.04  JAN   30  35  0.55  34.45  $0.55   Open
MRX     48.86  49.67  JAN   40  45  0.40  44.60  $0.40   Open
BSTE    35.01  34.02  JAN   25  30  0.60  29.40  $0.60   Open
SYK     65.88  67.12  JAN   55  60  0.40  59.60  $0.40   Open

Eastman Kodak (NYSE:EK) is a potential early-exit candidate.

 
Call-Credit Spreads

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

ERTS    60.68  49.77  JAN   75  70  0.50  70.50  $0.50   Open
ITMN    29.29  25.51  JAN   40  35  0.50  35.50  $0.50   Open
CCMP    48.75  47.20  JAN   65  60  0.40  60.40  $0.40   Open
LOW     38.20  37.50  JAN   45  42  0.25  42.75  $0.25   Open
MXIM    34.18  33.04  JAN   45  40  0.50  40.50  $0.50   Open


Credit Strangles

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

No Open Positions


Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

EASI   37.25   36.66   JAN40C/35P   0.10   34.90   0.40  Closed

Engineered Support Systems (NASDAQ:EASI) provided a small profit
just after the play was opened but the position should have been
closed when the issue fell below the sold strike at $35.


Questions & comments on spreads/combos to Contact Support
***************

NEW POSITIONS

There will be no "New Plays" today, due to tomorrow's trading
holiday, however a new group of spread and combination candidates
will be published in the weekend edition of the Option Investor
Newsletter.

Happy New Year!

***************


**************************************************************
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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