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Daily Newsletter, Monday, 01/13/2003

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The Option Investor Newsletter                   Monday 01-13-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Careful What You Wish For
Futures Wrap: Inaugural Success  
Index Trader Wrap: About as flat as a pancake
Weekly Fund Wrap: Second Straight Up-Week
Traders Corner: Another Measure of Market Breadth

Updated on the site tonight:
Swing Trader Game Plan: Warning Signs

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
01-12-2003                  High    Low     Volume Advance/Decl
DJIA     8785.98 +  1.09   8869.29 8746.97   1657 mln  838/801
NASDAQ   1446.04 -  1.68   1467.35 1436.98   1565 mln  618/919
S&P 100   470.83 +  0.42   475.06  468.45   totals    1456/1720
S&P 500   926.26 -  1.31   935.05  922.17
RUS 2000  396.18 -  0.26   399.55  393.48
DJ TRANS 2387.44  - 6.23  2405.74 2377.65
VIX        27.52 +   0.39    27.83   26.31
VIXN       41.74 -   0.54    44.64   41.29
*******************************************************************

Careful What You Wish For
by Steven Price

The last couple of weeks have been a struggle between the bears 
and bulls, without either faction being right for more than a few 
days. That old saying about being careful what you wish for kept 
popping through my mind all day.  The bulls finally got the 
confirmation rally, with point and figure buy signals and 
breakthroughs of recent highs across the board in the major 
indices.   The only problem was that none of those gains lasted 
very long.  

We have been discussing the possibility of a bearish head and 
shoulders formation after the recent rally took us up to about 
the same level (possibly a left shoulder) as the November highs 
in the Dow, SPX and OEX.  The head of the formation would be 
based on the post-Thanksgiving, December 2 high.  However, the 
last time we predicted doom and gloom based on this formation, we 
were dead wrong and what we thought was the head at Dow 8800 
turned out to be what we are now looking at as a possible left 
shoulder.  Does that mean we'll find ourselves using that 9043 
trade in December as our possible left shoulder several months 
from now?  

The head and shoulders pattern we looked at between July and 
September actually turned out to be right on, with a measuring 
objective just below Dow 7200. We had a left shoulder at 8762, 
head at 9077 and right shoulder at 8726.  That objective was 
fulfilled back in October, and became the launch point for the 
rally to the November/December highs.

This pattern has been a little harder to decipher on a short term 
basis.  If a trader steps back and looks at the pattern without 
trying to figure out how to trade it tomorrow, we haven't really 
seen anything to tell us that the pattern has broken down.  But 
that's certainly not the way it looked this morning and the rally 
we saw to start the day cannot be discounted.   We started with a 
rally that for all intents and purposes looked as though the head 
and shoulders pattern was dead.  The right shoulder, which does 
not have to come at the same level as the left shoulder, appeared 
as though it was on its way to a breakout and a re-test of the 
December highs. However, as quickly as it registered the new buy 
signals in the Dow and SPX on the point and figure charts, the 
rally faded. Those buy signals were the second in the current 
rally.  The first signals came at Dow 8500, SPX 905 and OEX 460.  
We then got a pullback into a column of "O" and then a rally to 
this morning's buy signals, just above the previous rally tops at 
Dow 8850, SPX 935 and OEX 472.50.  The OEX buy signal came last 
week, and even though it reached a new high, it was not a new 
signal. It did, however, add another box to the current column of 
"X."

This action brings back shades of November and December, when the 
second buy signals in those rallies were short lived.  In fact, 
the SPX gave what appeared to be a buy signal at 925 on its 
second leg of the October-November rally (topping out on November 
6), hit a high of 925.66, then rolled over and headed to a low of 
872.  The index then rebounded during December and on the second 
leg of its November-December rally, also gave a buy signal at 
940, before topping out at 954 and rolling over to a low of 869.  
We are now on the second leg of a January rally which has given a 
buy signal at 935.  The Oct/Nov buy signal was good for a gain of 
0%, then a loss of 5.7%.  The Nov/Dec buy signal was good for a 
gain of 1.4%, then a loss of 7.5%.   Once again, these results 
are for the second leg of the rally, much as we are seeing now. 

The Dow showed similar action to the SPX.  The second leg of the 
October-November rally produced a buy signal at 8750.  It was 
good for another 50 points before rolling over and hitting a low 
of 8298.  The second leg of the December rally produced a buy 
signal at 8900, which was good for 143 points, before rolling 
over to a low of 8242. The Oct/Nov buy signal was good for a 0.5% 
gain and then a 5% loss.  The Nov/Dec buy signal was good for 
1.6% gain, followed by a 7.3% loss. 

Certainly traders who had simply stayed long from the 
corresponding buy signals I referred to back in November 
(actually the second leg of the rally) would be just about where 
they entered, but would have taken an awful lot of pain in the 
meantime.  Those entering on the second leg of the December rally 
would still be looking to break even.  

Point and Figure Chart of the SPX


 

There are a couple of other complicating factors to playing the 
current rally from the long or short side. First we have the 200 
day moving averages, which are descending from the levels they 
were at on the last rally attempts.  They have now moved below 
the December highs and if we are going to make a run at those 
December resistance levels, we will have an additional obstacle 
this time around.  Back in December the 200-dmas sat in the OEX 
at 493, SPX at 982 and Dow at 9177.  They now sit at OEX 476.72, 
SPX 949.49 and Dow 8927.  If they continue to descend, traders 
can look at the graph below to see approximately where they may 
lead to resistance heading out into time. Another possibility is 
that this morning's rally was a blow-off top before a reversal, 
similar to what we saw on the PnF buy signals in November and 
December.

Chart of the Dow 


 

The sticking point from the short side is simply the fact that we 
are still climbing higher, have not rolled over and even if the 
rally cannot seem to catch any sustained momentum from this 
level, it has not rolled over and shown weakness.  In fact each 
pullback has found buyers, establishing a series of higher highs 
and higher lows.  This morning's sell-off after the big rally 
found a higher level of support than recent pullbacks and the 
rally took us to a mew relative intraday high.  The close below 
8800 in the Dow is significant in that it means we once again 
failed to hold a rally above that resistance mark, lending 
credence to the possibility of a right shoulder. 

One of the catalysts for today's rally was OPEC, which met over 
the weekend to cement an increase in oil production.  The group 
raised its quota by 6.5%, or 1.5 million barrels a day, in an 
attempt to offset shortages and higher prices resulting from the 
Venezuelan strike.  Venezuela has gone from producing about 3 
million barrels per day to about 500,000. The quota increase will 
not take place until February, which means a lag in the 
replenishment of diminishing reserves, but the price of Crude Oil 
Futures still took an immediate drop, falling to just over $31 
per barrel, then bouncing to close near unchanged on the day. 

AOL Time Warner (AOL) also got a boost to start the day, as Steve 
Case stepped down as chairman. AOL founder Case led the 
disastrous merger which brought along with it many additional 
"surprises" about past accounting at AOL and saw shares drop 70% 
since the companies joined. Case said his presence at the annual 
meeting would have been a distraction and made the move that has 
been the subject of speculation for months.  There is now talk 
that the company may spin off the AOL unit.  That would be a 
pretty strong statement that they would like a do-over and an 
admission that one of the business world's biggest mergers was an 
abject failure. 

Dell was downgraded by J.P. Morgan, which cited risks to the PC 
market heading into a traditionally slow season. Morgan said to 
expect more aggressive pricing and lower margins and also 
mentioned the stock's current placement in the upper end of its 
trading range. The stock had once again been approaching 
resistance near $30, which was the high end of its range for the 
year, before the end of last week when rumors began circulating 
that the company would issue a secondary offering.  The stock 
began to sell-off last Thursday after hitting an intraday high of 
$29 and traded as low as $25.43 before rebounding to finish the 
day at $25.98.  DELL also broke decisively below its 200-dma of 
$26.61, which had served as support throughout the December 
market swoon.   The downgrade spilled over to the chip stocks, 
with the Semiconductor Index losing six points and heading back 
down to support above 330.  The SOX closed at 333 and we should 
get a better idea whether the groups will be re-testing 
resistance in the 365 area, or breaking down below 330 and 
testing support at 300, when Intel releases earnings Tuesday 
after the bell. 

The Nasdaq Composite also gave up some ground after moving 
through its 200-dma.  The last couple attempts at that barrier 
have either failed the same day or held only briefly, resulting 
in massive sell-offs after the failure.  So far we've held above 
that level, but bulls beware if we break down below it. 

Chart of the NASDAQ Composite 


 

The market close with the Dow up only a point, OEX up only 0.42 
and the SPX and COMP both in the red, actually looks bearish.  We 
once again got a close beneath 8800 in the Dow after what may 
turn out to be a blow-off reversal top.  That being said, we 
still got those PnF buy signals and no collapse on the intraday 
sell-off. We are seeing some very conflicting signals right now 
and keeping an eye on history is probably the best approach to 
managing risk.  Traders who are looking for an upside breakout 
may be forced to wait for a re-test of the August/December highs, 
while those looking for a breakdown  should look for a re-test of 
last week's lows. 

**********************  
Annual Renewal Special - LAST DAY !!!!!!!!!!!!!!!!!!!! 
**********************  
 
TODAY IS THE LAST DAY left to take advantage of the 
annual renewal special. Multiple bonus options gives 
everyone something to cheer about. We added the FOMC 
meeting dates to the mouse pads this year. There are also 
two videos with Jim, Jeff and Buzz and seven books by 
leading market professionals like John Murphy and Jim 
Rodgers. We even brought back the Trading Strategies CD 
as an option from last year for all the new subscribers 
who have been asking for it. 
 
The deadline for taking advantage of this special is Jan-13th.
 
Click here for the full details:  
 
https://secure.sungrp.com/03renewal/


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

Inaugural Success  
By John Seckinger
jseckinger@OptionInvestor.com

Monday was the first day of live commentary in the Futures 
Monitor, and a gain of +11.50 points in the ES contract is a 
solid beginning.  

Friday, January 10th at 4:15 P.M. 

Contract      Last    Net Change    High        Low       Volume    

Dow Jones    8785.98    +1.09     8869.29     8746.97
YM03H        8784.00   +17.00     8864.00     8729.00     24,558
Nasdaq-100   1083.00    -4.36     1104.32     1075.96     
NQ03H        1086.50    -5.00     1108.50     1077.50    243,443
S&P 500       926.26    -1.31      935.05      922.05
ES03H         926.50     unch      937.00      920.75    690,785

Contract         R2         R1       Pivot       S1         S2    

Dow Jones      8923.07    8854.53   8800.75    8732.21    8678.43
YM03H          8927.00    8856.00   8792.00    8721.00    8657.00
Nasdaq-100     1116.12    1099.56   1087.76    1071.20    1059.40
NQ03H          1121.75    1104.25   1090.83    1073.25    1059.75
S&P 500         940.79     933.53    927.79     920.53     914.79
ES03H           944.25     935.50    928.00     919.16     911.75

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

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

Jim Brown began posting live futures commentary this morning; 
focusing on both scalp and position trading.  We both have a 
similar methodology to the futures markets, and I am a firm 
believer that we both implement a sound system that captures a 
solid risk/return opportunity.  I personally do not consider it 
‘gun slinging’ or ‘gambling,’ regardless of if it seems like a 
lot of scalping.  Capturing inefficiencies in the market place is 
exactly what the professionals try to accomplish.  If the market 
is only offering a few points, fantastic.  A good trader 
recognizes this and takes advantage.  Jim definitely did just 
that on Monday.

Let us recap Jim’s trades:

Long from 932.50, stopped 931.50, –1.00 loss
Short from 929.00, stopped 923.50, +5.50 gain
Long from 922.00, stopped 926.00, +4.00 gain
Short from 928.50, stopped 925.50, +3.00 gain

Total for the day, +11.50

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

The 934.75 area did prove to be solid resistance on Monday, as 
the ES contract only produced a high of 937 following an 
explosive opening in the equity markets.  With the ES contract 
unable to hold gains, technicians cannot rule out the possible 
H&S formation just yet.  Also interesting was how the 80.9% 
retracement of the December decline proved valuable (also seen in 
YM contract).  These retracement levels (right side of chart) are 
good intermediate levels, and can be used on a closing basis as 
well as during the day.  Since the ES contract closed above the 
920.75 area, the objective is still for a move back to 937.  A 
close under the 920 level would then have bulls re-evaluating 
risk.  

Volume was solid once again on Monday, and does reflect a market 
in a distribution setting.  No clear victory between bears and 
bulls, but it does indicate that bulls’ strength is weakening.  
If weakness does take place on Tuesday, look for solid bids near 
the 909-911 area.   

Chart of ES03H, Daily


 

A 60-minute chart of the ES contract shows how the 50 PMA (period 
moving average) provided support during the last few days.  With 
Tuesday’s pivot at 928, and the ES contract closing under this 
level on Monday does paint a slightly bearish scenario.  I do not 
expect the ES contract to close outside the range shown below; 
therefore, aggressive traders can play the range between 919 and 
935 (R1 to S1).  The key is to turn to a five-minute chart and 
wait until the ES contract closes above one of these retracement 
levels.  That should then confirm traders expect a move to the 
next ‘market maker support/resistance.’  

Chart of ES03H, 60-minute


 

Bullish Percent of SPX: 62.33% and in column of O’s (Recent High 
at 66%, Low of current column at 58%).  There is still risk in 
buying the contract, and note that the number has not risen and 
gone into a column of X’s after Thursday’s, Monday’s, or 
Thursday’s rally.  The Bullish Percent Index would have to 
reverse back to 64 to cancel out the recent column of O’s.  

The March E-mini Nasdaq 100 Contract (NQ03H)

The E-mini Nasdaq contract produced a higher high and higher low 
on Monday, but failed to close above 1090 and the 61.8% 
retracement level of the decline in December.  This should have 
bears looking for a move to 1069 and the next level downward.  
Not surprisingly, the pivot for Tuesday comes in at 1090.  Very 
nice, since it should really be a solid gauge of sentiment.  An 
open under 1090 can have bears look for a move to S1 (1073) while 
calculating risk just above the 1090 area.  Note that the ADX 
oscillator is at 18.87 and close to crossing above the 20 level 
from below.  This would mean that bullish momentum is picking up, 
and most likely that the Nasdaq Composite will use the 200 DMA 
(exp) as support instead of resistance.   

Chart of NQ03H, Daily


 

A 60-minute chart of the NQ contract shows (like the ES) how the 
50 PMA acted as support; moreover, the NQ closed below Tuesday’s 
pivot- a slightly bearish sign.  I do not expect the NQ contract 
to make headway above 1109 or below 1059, with more emphasis on 
traders buying dips.  Why?  The bullish percent reversed higher 
on Monday within the NDX contract, and this is an indicator many 
technicians do indeed follow.  Unfortunately, the stochastics 
oscillator is neutral and doesn’t give a good reading.  

Chart of NQ03H, 60-minute


 

Bullish Percent for NDX:  66% and in column of O’s (Recent High 
at 82%, last Significant Low at 14%) There is now a new column of 
X’s on the bullish percent chart.  This gives the index a ‘short-
term’ bullish rating.       

The March Mini-sized Dow Contract (YM03H)

Well, we didn’t get the follow-through to the upside (above 8800 
to 8909) as expected in the Dow Jones Industrial Average.  
Looking at a daily chart of the YM contract, it is interesting 
how the 80.9% retracement of December’s decline proved solid 
resistance during trading on Monday.  The close did keep the 
contract above the 8714 area; therefore, bears may not have 
control just yet.  The 22 DMA (exp) remains above the 50 DMA 
(exp), but rejecting the possible H&S formation certainly did not 
take place as the contract only finished higher by 10 points and 
left a solid “selling tail” above.  With that said, use the 8792 
pivot to gauge short-term sentiment for a possible intermediate 
move.  It might ‘feel’ slightly heavy at current levels (read: 
lot of supply on the market with sell orders); however, the 
contract continues to set higher daily highs and lows and bears 
will have to prove they can make technical damage.  This would 
only come with a close below 8525 (intermediate term traders).  

Chart of YM03H, Daily


 

Looking at a 10-minute chart of the YM contract, I performed a 
retracement analysis between the 8866 and 8714 level (levels 
mentioned above).  Amazingly, half of this area turns out to be 
basically the pivot for Friday (off by 2-points).  Coincidence?  
I don’t think so.  Too many institutional traders use retracement 
analysis.  Shorter-term traders should use the levels below if 
the market(s) enter into a range once more.  

Chart of YM03H, 10-minute


 

Bullish Percent of Dow Jones: 56.67% and in column of X’s.  A 
move to 50% would cancel out the recent bullishness.  The last 
significant high comes in at 72%.  There was no change on Monday.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


**********************  
Annual Renewal Special - LAST DAY !!!!!!!!!!!!!!!!!!!! 
**********************  
 
TODAY IS THE LAST DAY left to take advantage of the 
annual renewal special. Multiple bonus options gives 
everyone something to cheer about. We added the FOMC 
meeting dates to the mouse pads this year. There are also 
two videos with Jim, Jeff and Buzz and seven books by 
leading market professionals like John Murphy and Jim 
Rodgers. We even brought back the Trading Strategies CD 
as an option from last year for all the new subscribers 
who have been asking for it. 
 
The deadline for taking advantage of this special is Jan-13th.
 
Click here for the full details:  
 
https://secure.sungrp.com/03renewal/


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

About as flat as a pancake

I don’t know where the saying “as flat as a pancake” came from, 
but it was often quoted by my mom when I was a young 
whippersnapper.  Mom never watched the stock market much, but if 
she did, I’m sure today she would have said “flat as a pancake” 
if I asked her what the stock market did today.

The major indexes finished little changed with the Dow 
Industrials (INDU) 8,785.98 squeaking out a 1.09-point gain, 
while the more volatile NASDAQ-100 Index (NDX.X) 1,083.00 fell 
4.36 points.

One could say it was a “range bound” session with a serving a 
plain buttermilk pancakes with no chocolate chips for the bulls, 
nor blueBEARies for our furry friends.  The major indexes did 
trade our “resistance 1” levels from daily pivot analysis in the 
early morning session, but then hovered right near their intra-
day pivots the remainder of the day.

We did see some difference in volume as it relates to the volume 
levels at the NYSE and NASDAQ.  In recent sessions, volume has 
been just about equally matched, but today’s volume on the NYSE 
of 1.36 billion was a slight drop-off to the NASDAQ’s 1.59 
billion.  It is my opinion that institutions are more active in 
the NYSE or “listed stocks” and that individual investors tend to 
be more active in the NASDAQ stocks, only because there is 
perception that 4-lettered NASDAQ stocks tend to provide greater 
price action as volatility for intra-day trading.  Thus NASDAQ 
tends to get a little more action from day traders.

While we can’t really say the slight disparity between NASDAQ and 
NYSE is a sign that institutional activity abated from recent 
sessions, we’ll make note of it tonight, only as if to think 
stocks might be in a bit of a range right now.

Broader market breadth was “as flat as a pancake” with advancers 
and decliners basically split at 16:16 at both the NYSE and 
NASDAQ.  Very little sign of any type of bullish divergence or 
bearish divergence here, with breadth really mimicking the 
indexes today.

While the intra-day breadth saw little change, our slower moving 
and more “methodical” bullish % did see some marginal change, but 
it was enough to have the NASDAQ-100 Bullish % ($BPNDX) and S&P 
100 Bullish % ($BPOEX) both getting a net gain of 1 stock (1%) to 
have their bullish % reversing back up into “bull confirmed” 
status.  

It was on Tuesday, December 7 that the narrower Dow Industrials 
Bullish % ($BPINDU) reversed back up into “bull confirmed” 
status, then the next session (12/08) fell 160-points, only to 
rebound strong the following session (12/09) with a 238-point 
rally.  Make note of this action.  While it is not a “predictor” 
of how the markets may trade near-term, traders will keep in mind 
that Intel (INTC) reports earnings tomorrow after the bell.  
Should technology stocks look defensive tomorrow morning (watch 
the stock futures) we could see a somewhat defensive move into 
Intel’s numbers.  If so, the reversal higher in the NDX and OEX 
Bullish % might have an aggressive index bull taking a shot at an 
index call play just before the close.

On Thursday, we noted that the number of stocks hitting new 52-
week highs had broken the 100-level, which was something “new” 
that we hadn’t seen in quite some time.  Today’s 52-week high and 
52-week low readings had the NYSE logging 100 new 52-week highs 
compared to 30 new lows.  This is a bit of a drop-off to 
Thursday’s ending count of (134:11) and may tie in with today’s 
volume observation.  The NASDAQ Composite also came in with 100 
stocks trading new 52-week highs compared to 18 stocks trading 
new 52-week lows.  Thursday’s ending count for the NASDAQ was 
(104:27).

Here are tomorrow’s intra-day support/pivot/resistance levels, 
which shorter-term traders may monitor for intra-day 
support/resistance.

Index         S2      S1       P      R1     R2

Dow Jones    8678    8732    8800    8854   8923

SPX           914     920     927     933    941

OEX           465     468   471.5     474    478

NDX          1059    1071    1088    1100   1116

QQQ         26.30   26.61   27.04   27.35  27.78

In Friday’s intra-day commentary and market monitor, we noted 
that the indexes trade that day’s S1 levels and then managed to 
lift back near their pivots.  Today’s action was just the inverse 
with early bullishness taking to the indexes to their R1’s, and 
gravitating back toward their intra-day pivots.  

Onto the indexes

This morning’s action had the Dow Industrials trading 8,850, and 
that was enough to have the Dow’s $50-box point and figure chart 
giving a “double-top” buy signal.  With our Bollinger bands set 
on the point and figure chart of 21-day SMA, and 2 standard 
deviations, just like the bar charts, we can perhaps see how the 
Dow trading at the upper end of this Bollinger band appears to be 
providing some bullish resistance.  I say “bullish resistance” as 
the daily relative highs do seem to find selling.

Dow Industrials Chart – Daily Interval


 

The only technical resistance I see in play in the Dow 
Industrials at this point is the upper end of the Bollinger Band 
and the past 6 trading sessions has seen it hold as “bullish 
resistance.”  I can’t say that the testing of “bullish 
resistance” is bearish, but does at least have bullish traders 
exercising caution with their trade size.  In other words, I 
wouldn’t be establishing full positions on the bullish side with 
the Dow being in the upper-end of the Bollinger band.  As the 
shorter-term 21-day SMA begins to round higher, we should find 
both the upper and lower Bollinger backs moving upward.

We should also note that Dow component Intel (NASDAQ:INTC) $17.38 
–0.22% reports earnings tomorrow evening after the close of 
trading.  It’s not what Intel says about what just took place in 
the recent quarter that matters as much as what the company says 
about things and how business looks going forward.  We may well 
see somewhat of a flat session tomorrow too as traders, both 
bulls and bears get edgy ahead of the report.

Today’s action saw no net change in the very narrow Dow 
Industrials Bullish % ($BPIND).  Status remains “bull confirmed” 
at 56.67%, since its reversal higher back higher on January 7.  
As a Dow component, Intel (INTC) is one of the Dow components 
currently showing a “sell signal” with its p/f chart and would 
currently take a trade at $23 to give a p/f “buy signal.”  You 
can perhaps imagine that Intel is going to need to give one heck 
of a bullish outlook to get the stock back on a buy signal near-
term, but whether you’re bullish or bearish Intel, you can 
perhaps equated the degree of the surprise (up or down) with the 
Dow Industrials and the major market indexes for that matter.

Today’s action saw the SPX trade a session high of 935.05, which 
was not only 1-point above our intra-day R1 from pivot analysis 
of 934, but 0.05 above the needed 935 level to generate a double-
top buy signal above the recently broken bearish resistance line 
on the point and figure chart.  Still... similar to the Dow 
Industrials, today’s bullishness looked to be kept in check by 
the upper Bollinger band.

S&P 500 Index Chart – Daily Interval


 

For a third-straight session, the S&P 500 (SPX.X) closed roughly 
unchanged near the 927 level (927.57, 927.57 and now 926.26).  
The upper Bollinger band certainly gives the technical impression 
that there is “bullish resistance” keeping any intra-day 
bullishness in check and makes it tough for new bulls to be too 
enthusiastic with their buying.  Still, bulls haven’t “pulled the 
plug” after Friday’s dismal Nonfarm Payrolls number for December.  
On the daily chart, SPX looks to be finding two-day support at 
our 19.1% retracement of 918.82, and while it seems ticky-tack to 
be discussing some of these indexes in decimals, that seems to be 
about how near-term support/resistance levels are being defined.  
Uncertainty ahead of Intel’s numbers will create some uncertainty 
among traders and I’d advise caution regarding traders being “too 
long or too short” ahead of tomorrow’s after-market earnings 
release and conference call that follows.

Today’s action saw the S&P 500 Bullish % ($BPSPX) edge up 0.8%, 
which means there was a net gain of 4 stocks to point and figure 
buy signals.  This has the broader S&P 500 Bullish % still “bear 
alert” at 62.8%, but getting closer to the 64% reading needed to 
achieve a reversal back into “bull confirmed” status.

As mentioned earlier in this evening’s wrap, the S&P 100 Bullish 
% ($BPOEX) did get the needed 1 net gain of reversing point and 
figure buy signals to have this group reversing back up into 
“bull confirmed” status at 60%.  As such, I’m placing an upward 
trend on the bar chart from the closing low of 10/09/02 of 392.69 
and attaching to the relative low of 439.57 found just recently 
on December 31.

S&P 100 Index Chart – Daily Interval


 

While I sure wish I “knew” for sure what Intel (INTC) was going 
to say in tomorrow’s quarterly conference call, I don’t.  When 
looking at the OEX chart, it doesn’t appear the market “knows for 
sure” what Intel is going to say about the future either.  In 
recent weeks, Intel’s CEO said it was too soon to call a bottom 
in the semiconductor sector and the stock got “whacked” lower 
from $22 to a recent low of $15.42 and trades just under its 
trending marginally higher 50-day SMA of $18.17.  Compare that to 
the OEX trading above its 50-day SMA and one might think that 
market participants see Intel as having an “upside surprise” 
tomorrow evening.  If so, then one might also see market 
participants having factored in some less that bullish near-term 
news out of Intel into its stock.  In my opinion, Intel would 
have to drop a “bomb” on the market with some very negative 
comments to have the OEX much below the 21-day SMA of 458.

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


 

I priced the January QQQ $27 calls (QAVAA) $0.50 and puts (QAVMA) 
$0.55 tonight, and at our “volume pivot” of $27, a “straddle” in 
the QQQ $27 might not be a bad play.  The “strategy” for such a 
trade is to implement in at the $27 strike, AHEAD of the Intel 
numbers and conference call.  Then do NOTHING until Wednesday 
morning once the NEWS has been released, and the MARKET acts on 
the news.  The idea behind a QQQ straddle for an index trader is 
that Intel carries the second heaviest weighting in the Q’s and 
any type of upside or downside comments regarding the future will 
drive QQQ action.  The trader behind a straddle needs to see some 
type of QQQ trading $1.00 or more AWAY from the $27.00 pivot and 
a trade at or near $28, should have the call bidding close to 
$1.00, and while the QQQ puts get taken out of the money with a 
trade at $28, its is my GUESS that there might be $0.50 or so 
premium left.  The trader that closed both out at $28.00 if 
traded would make money under this scenario.

Under a “bad news” scenario, it seems that the QQQ can and does 
tend to move lower “quicker” as if gravity pulls and a decline to 
the $26.00 level (50-day SMA) also has the QQQ falling $1.00 from 
$27, but a technical drop to the rounding higher 21-day SMA has 
the QQQ at $25.68.

Tomorrow evening, we will also be able to calculate the intra-day 
pivot and support/resistance levels for the NASDAQ-100 and QQQ to 
perhaps look for support/resistance targets for closing points.  

The idea behind implementing a straddle is to look for a 
potential EVENT that will create near-term volatility AWAY from 
your straddle point.  In the case of the QQQ, this would be the 
$27.00.  Execution of the entry is easy, but it is the discipline 
of closing OUT the straddle at your target or AFTER the news is 
released that will determine the outcome of the trade.

Today action saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain 
of 1 stock to a reversing point and figure buy signal and this 
has the bullish % achieving the needed 1% to reach 66% and 
reverse back into “bull confirmed” status.  Note how “close” this 
is again to the 70% level, which is deemed overbought.  While 
this indicator can always go to 100%, I would put max upside 
right now at QQQ $30.00.

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/#m
**************************************************************


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

Second Straight Up-Week

U.S. stocks shrugged off a grim jobs report to rise for a second 
straight week, led by the technology sector.  For the week ended 
January 10, 2003, the S&P 500 large-cap index gained 2.1%, while 
the extended market, as measured by the Wilshire 4500 index, was 
1.3% higher.




 


Stock mutual funds enjoyed another week of positive returns due 
to the market advance.  Lipper's weekly fund averages show that 
all U.S. equity fund indices were higher on the week, with gold 
and international funds lagging behind.  Tech sector funds rose 
by an average of 5.6 percent last week to lead the way.  Value-
driven funds lagged funds with growth styles, many of which had 
weekly returns of two percent or more.

International funds were flat overall on the week, according to 
Lipper, beating the 0.3% decline by the MSCI EAFE foreign stock 
index.  The Pacific Stock index dropped 1.5 percent on the week 
following word of North Korea's pullout from the global nuclear 
arms control treaty.

The total U.S. investment-grade bond market, as measured by the 
Lehman Brothers Aggregate Bond index, was unchanged, while high 
yield bonds earned strong positive total returns.  According to 
Lipper, high yield funds were 2.1% higher on average last week.  
International bond funds averaged 1.2% for the week, partly due 
to a weaker dollar.

Equity Fund Group

Below are selected Vanguard index funds and Lipper fund indices 
that serve as equity fund benchmarks.  Weekly total returns are 
through Friday, January 10, 2003. 

Selected Vanguard Index Funds:
+1.1% Balanced Index Fund (VBALX) YTD +2.7%
+2.1% 500 Index Fund (VFINX) YTD +5.5%
+1.3% Extended Market Index Fund (VEXMX) YTD +3.3%
+2.0% Total Stock Market Index Fund (VTSMX) YTD +5.0%
-0.3% Developed Markets Index Fund (VDMIX) YTD +2.1%
-0.0% Total International Stock Index Fund (VGTSX) YTD +2.3%

Selected Lipper Equity Fund Indices:
+1.2% Balanced Funds (YTD +3.0%)
+1.5% Equity-Income Funds (YTD +4.4%)
+1.7% Large-Cap Value Funds (YTD +4.8%)
+1.6% Large-Cap Core Funds (YTD +4.6%)
+1.9% Large-Cap Growth Funds (YTD +5.4%)
+5.6% Science & Technology Funds (YTD +10.7%)
+0.1% International Funds (YTD +2.3%)

Lipper's equity fund averages were comparable to their respective 
indices, using Vanguard index funds as the proxies.  The average 
balanced fund generated a 1.2% weekly return, slightly above the 
1.1% return by the Vanguard Balanced Index Fund (comprised of 60% 
Wilshire 5000 and 40% LB Aggregate Bond indices).  Other popular 
equity fund categories such as equity-income funds and large-cap 
funds produced weekly returns of up to 2 percent, slightly below 
the Vanguard 500 Index Fund (S&P 500 index).

Diversified stock fund leaders included Legg Mason Value (+3.2%), 
Fidelity Growth Company (+3.3%) and American Funds New Economy A 
(+3.9%) to name a few.  The star performers for the week, though, 
were tech funds, which rose by 5.6 percent on average during the 
week.  Several funds within the category produced weekly returns 
in excess of 10 percent including those specializing in Internet 
and wireless sectors.  Tech funds are up 10.7 percent on average 
so far in 2003, according to Lipper.

Fixed Income Fund Group

Below are selected Vanguard index funds and Lipper fund indices 
that serve as income fund benchmarks.  Weekly total returns are 
through Friday, January 10, 2003.

Selected Vanguard Index Funds:
+0.0% Short-Term Bond Index Fund (VBISX) YTD -0.5%
-0.3% Intermediate-Term Bond Index Fund (VBIIX) YTD -1.5%
-0.5% Long-Term Bond Index Fund (VBLTX) YTD -2.4%
+0.0% Total Bond Market Index Fund (VBMFX) YTD -0.7%

Selected Lipper Fixed Income Fund Indices:
-0.3% U.S. Government Funds (YTD -1.0%)
+0.2% GNMA Funds (YTD -0.0%)
+0.1% Short Investment-Grade Funds (YTD -0.2%) 
+0.2% Intermediate Investment-Grade Funds (YTD -0.4%)
-0.0% Corporate A-Rated Debt Funds (YTD -0.7%)
+2.1% High-Yield Funds (YTD +2.5%)
+1.2% International Income Funds (YTD +0.4%)

It was an interesting week in the fixed income markets with the 
average high-yield fund surging ahead by 2.1 percent, while the 
average corporate A-rated debt fund was flat for the week.  The 
average short-term and intermediate-term investment-grade funds 
generated slight positive returns overall, beating the Vanguard 
Total Bond Market Fund (LB Aggregate Bond index).  GNMA (Ginnie 
Mae) funds enjoyed small gains also.

A weaker dollar helped the returns posted by international bond 
funds.  For the week, the average international income fund was 
1.2 percent higher, while the average global bond fund returned 
0.8 percent, according to Lipper.      

Money Market Fund Group

According to iMoneyNet.com, the average taxable money market fund 
yield slid three basis points to 0.85% last week, about half what 
it stood at about a year ago.  

PayPal Money Market Fund (402-935-7733) offers the highest yield 
currently among prime retail funds, at 1.46 percent.  That is up 
two basis points for the week.  The Touchstone Money Market Fund 
(800-543-8721) is next with a 1.30% simple yield.  All other MMF 
yields are below the 1.30% level. 

The $50.3 billion Vanguard Prime Money Market Fund (800-662-7447) 
currently has a 7-day yield of 1.26 percent, fourth highest among 
prime retail money market funds, per iMoneyNet.  Low expenses are 
the fund's trademark.

Largest Mutual Funds

Below are investment results through Friday, January 10, 2003 for 
the nation's largest stock and bond funds, using Morningstar data 
for asset ranking purposes.  Funds with minimum initial purchases 
of over $25,000 are excluded.  For load funds with multiple share 
classes, class A share performance is shown.

 Largest Mutual Funds:
 +2.1% Vanguard 500 Index (VFINX) YTD +5.5%
 +0.4% PIMCO Total Return (PTTAX) YTD -0.1%
 +1.9% Fidelity Magellan (FMAGX) YTD +5.0%
 +1.5% Investment Company of America A (AIVSX) YTD +4.0%
 +1.5% Washington Mutual Investors A (AWSHX) YTD +4.9%
 +2.5% Growth Fund of America A (AGTHX) YTD +5.6%
 -0.2% Fidelity Contrafund (FCNTX) YTD +1.8%
 +1.1% Fidelity Growth & Income (FGRIX) YTD +3.8%
 +0.2% Vanguard GNMA (VFIIX) YTD -0.1%
 -0.0% Vanguard Total Bond Market (VBMFX) YTD -0.7%
 +2.0% Vanguard Total Stock Market (VTSMX) YTD +5.0%
 +0.4% EuroPacific Growth A (AEPGX) YTD +2.3%
 +1.3% New Perspective A (ANWPX) YTD +4.0%

Here you can see that only one fund, American Funds Growth Fund 
of America (AIVSX), managed to beat the S&P 500 index using the 
Vanguard 500 Index Fund (VFINX) as the benchmark.  So generally 
speaking, only pro-growth funds and tech-heavy funds did better 
than the market as a whole (S&P 500).  Fidelity Magellan hasn't 
been able to keep pace, nor has its sibling Fidelity Contrafund, 
which finished the week with a negative 0.2 percent return.

PIMCO Total Return A (PTTAX) and Vanguard GNMA (VFIIX), two top 
bond funds, did better than the Vanguard Total Bond Market Fund 
(VBMFX), which was unchanged for the week.  Vanguard High Yield 
Corporate (VWEHX), the largest high-yield bond fund, closed the 
week with a 1.5 percent return, but that was pale compared with 
some high-yield funds.  For instance, Fidelity Capital & Income 
Fund (FAGIX) posted a 4.7 percent return over the 5-day period.

Mutual Fund News

Morningstar reports that Metropolitan West has hired Jeff Koch, 
formerly of the Strong Funds, to co-manage its new Metropolitan 
West High Yield Bond Fund (MWHYX).  According to the report, he 
will work with Mark Unferth, Metropolitan West's credit research 
director to enhance the firm's credit research capabilities.

Koch was dismissed in July 2002 along with Brad Tank, who served 
as Strong's director of fixed income.  Koch led the firm's high-
yield effort, and formerly managed Strong Advantage Fund (STADX), 
Morningstar said.

Waddell & Reed of Overland Park, KS has now reportedly replaced 
the managers of 11 Ivy Funds in the four months since acquiring 
the Ivy Funds.  These funds had been run by MacKenzie Investment 
Management previously, and will now by managed by personnel from 
Waddell & Reed.  If you are an Ivy Fund shareholder, you'll want 
to read the Morningstar article or inquire directly.  PBHG Funds 
and Hartford Investment Management Company are two more families 
making manager changes, according to Morningstar.

In other Morningstar news, J.P. Morgan Investment Management has 
announced plans to open two new funds that will use multi-manager 
strategies: Multi-Manager Small Cap Growth Fund and Multi-Manager 
Small Cap Value Fund.  Meanwhile, Morgan Stanley announced it'll 
launch a new value fund, called Morgan Stanley Fundamental Value. 
James Gilligan, who has managed Van Kampen Equity & Income Fund 
(ACEIX) since January 1990 and Van Kampen Growth & Income (ACGIX) 
since August 1993 will reportedly lead the management team.

That's it for this week's wrap-up.  Have yourself a great week!

Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com


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

Another Measure of Market Breadth
by Mark Phillips
mphillips@OptionInvestor.com

There are any number of ways to measure the breadth of the broad
market, the simplest of which is the number of advancing issues
vs. the number of declining issues.  Another common measure is
the number of new highs vs. the number of new lows.  Each of
these can be monitored, either for an individual exchange (NYSE
or NASDAQ) in Qcharts via the following symbols.

NYSE Advancing Issues - ADVN.NY
NYSE Declining Issues - DECL.NY
NYSE Advancing Issues minus Declining Issues - ADVDEC.NY
NYSE New 52-week Highs - YRHI.NY
NYSE New 52-week Lows - YRLO.NY
NASDAQ Advancing Issues - ADVN.NQ
NASDAQ Declining Issues - DECL.NQ
NASDAQ Advancing Issues minus Declining Issues - ADVDEC.NQ
NASDAQ New 52-week Highs - YRHI.NQ
NASDAQ New 52-week Lows - YRLO.NQ

Some traders prefer to subtract advancing issues from declining
issues to come up with a net positive or negative for the day,
while others have a penchant for creating a ratio, dividing
advancers by decliners.  Some time back, I came to believe that
volume is more important than just looking at the number of
issues advancing vs. declining or hitting new highs vs. new
lows.  Fortunately, this is another breadth metric that Qcharts
provides for us.  We can watch a dynamic chart of advancing
volume, declining volume, or the difference between the two.
The way to think about these metrics is that advancing volume
is the summation (since the open for that day) of all the volume
to the buy side, while declining volume is all the volume for
that day to the downside.  Here are the symbols for those of you
that would like to take a look.

NYSE Advancing Volume - UPVOL.NY
NYSE Declining Volume - DNVOL.NY
NYSE Advancing Volume minus Declining Volume - ADVDECV.NY
NASDAQ Advancing Volume - UPVOL.NQ
NASDAQ Declining Volume - DNVOL.NQ
NASDAQ Advancing Volume minus Declining Volume - ADVDECV.NQ

As Linda Piazza has pointed out recently in the Market Monitor,
taking a ratio of advancing volume to declining volume provides
a more stable measure of market breadth, especially during
periods of light volume.  But I like to use the difference
between the two (ADVDECV.NY and ADVDECV.NQ), primarily because
I don't have to pull out my calculator and Qcharts gives me a
chart that I can look at.

Most of these indicators are really only useful on an intraday
basis, since they all reset to zero at the beginning of the
next trading day, but I've found that the ADVDECV.NY and
ADVDECV.NQ symbols give a solid read on what is happening
internal to the market during the day.  More than once, a quick
glance at the trend of these indicators has kept me on the
right side of the intraday trend, keeping me from doing
something stupid like trying to fade an apparent top, when the
ADVDECV indicators are indicating a heavy bias to the Buy side.
But my intent here isn't to rehash old news.  Last year I wrote
a couple of articles on how I use these indicators.  Those of
you that have been with us for awhile probably remember the
articles.  For you relative newcomers, the articles can be
accessed at the following links.

Interesting Observations
Observations With Greater Clarity

Recognizing that we have a lot of readers that prefer a time
horizon for their trades that looks beyond today's 4pm ET close,
I want to talk about a couple indicators that have recently
caught my attention that appear to have some utility in looking
for an emerging trend in breadth that shows itself BEFORE the
trend in price.  Doesn't that sound like a nifty tool?  And if
you don't see the advantage of what I'm talking about, pull up a
daily chart of ADVDEC.NY or ADVDEC.NQ.  If that doesn't give
you a headache, I don't know what would!  No matter how show
the chart (candle, line or bar), it just seems like a jumbled
mess.  But surely there is a way to look at breadth over a
longer period of time and see the internal strength either
building or waning.

Indeed there are any number of different indicators out there,
apparently due to the fact that I'm not the first one to hanker
for such a measure of where the market thinks it is going.  The
one that seems to pop up the most frequently (at least in my
brief trip through cyberspace) is an animal called the
McClellan Oscillator.  Alas, I haven't been able to find a way
to chart it in Qcharts, but take a look at the charts displayed
at the links below (courtesy of StockCharts.com) and I think
you'll see what I like about it.

NYSE McClellan Oscillator:
http://stockcharts.com/charts/indices/McSumNYSE.html

NASDAQ McClellan Oscillator:
http://stockcharts.com/charts/indices/McSumNASD.html

These charts each have four panes, but it is the top two panes
that I'm concerned with.  The top pane is that of the index
in question, while the second pane from the top displays the
McClellan oscillator.  Looking at the NYSE chart, what jumps
out at me is that the McClellan Oscillator has put in a series
of four declining tops since the August 2002 highs and appears
to be rolling over again, despite the fact that price action
has been hinting that it wants to go higher.  The way I read
this is that the internals of the market do not yet show the
necessary strength to allow a breakout above the recent highs
near DOW 9050.

However, the NYSE Summation Index (shown in the third pane from
the top) does show a series of higher lows and higher highs,
which does indicate building strength.  I wish I could put
these indicators on Qcharts and draw some trendlines, but alas
I cannot.  What catches my attention about the Summation Index
is that while it is showing higher lows and higher highs, it
appears to be losing steam and if I squint just a little, I
think I can see an ascending (bearish) wedge connecting the
highs and the lows.  Provocative, but inconclusive for now.

For those of you that don't mind a bit of brain strain, here
are the links to the educational pages on both the McClellan
Oscillator and McClellan Summation Index calculations from the
StockCharts.com Chart School.  If you've never taken the time,
a bit of browsing in this section of the StockCharts site can
prove to be a valuable resource.

McClellan Oscillator: Link

McClellan Summation Index: Link

There's lots of good information here and it looks like something
we could put to good use, but alas, I can't find a symbol name
anywhere.  I don't care whether I can put it into Qcharts or just
the SharpCharts on the StockCharts.com site, but I haven't been
able to find a way to do it yet.  So let's reverse our roles
today.  I know I have a lot of astute readers out there.  Surely
one (or many of you) have seen or know of the symbol for the
McClellan Oscillator -- I hope!  GRIN

I know many of you will click away when you see I don't have all
the answers on this topic, but understand this sort of question
is at the very core of what allows us to grow as individual
traders.  First ask the impertinent question (How do I measure
market breadth?) and then follow the trail of bread crumbs down
the rabbit hole (how's that for a mixed metaphor?) and see where
it leads.  From my experience, we'll rarely end up where we
originally thought we would, but invariably it turns out to be
an experience worth having.

So for any of you willing to take up the challenge, let's see
what we can learn about the McClellan Oscillator and Summation
Index.  I suspect it will be a rather convoluted process, but
beneficial to all.  As we find out better how to use these
indicators (and hopefully learn the appropriate Qcharts or
StockCharts symbols), I'll pick up this topic where we left off
today.  Over the next few weeks, we just might be able to put
together a new tool for the New Year!

Happy Hunting!


Mark


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

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

Click here for the full details:  

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


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

Warning Signs

Talk about running to stand still. It felt like we were simply 
clearing the decks today and starting all over. What appeared to 
be a strong continuation of the rally of the last couple weeks 
turned out to be a dud, with little changed from Friday's close.

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/#m
**************************************************************


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The Option Investor Newsletter                   Monday 01-13-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates
Dropped Calls: None
Dropped Puts: None
Play of the Day: Put - WLP

Updated on the site tonight:
Market Watch: Still Waiting
Market Posture: Standing Still


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

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

Click here for the full details:  

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


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

WLP - put
Adjust from $73.75 down to $72.50


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

None


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

None


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

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

Click here for the full details:  

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


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

WLP – WellPoint Health Networks $68.60 -0.97 (-0.97 this week)

Company Summary:
WellPoint Health Networks is a managed healthcare company.
Following the completion of its merger with Right CHOICE Managed
care in January of 2002, the company had approximately 12.5
million members at the time.  The company offers a broad spectrum
of network-based managed care plans, including preferred provider
organizations (PPOs) and health maintenance organizations (HMOs),
as well as point-of-service (POS) and other hybrid plans and
traditional indemnity plans.  In addition, WLP offers managed
care services, including underwriting, actuarial services,
network access, medical cost management and claims processing.
The company also provides a broad array of specialty and other
products including pharmacy, dental, workers' compensation
managed care services, life insurance, disability insurance,
COBRA and flexible benefits account administration.

Why We Like It:
Health Care stocks haven't been doing very well, as they are
caught between the negative press of government investigations
into billing practices on one hand and concerns about falling
earnings on the other hand.  Just last week, both LPNT and TRI
(two hospital operation companies) broke down to new 52-week
lows in the wake of downgrades from UBS Warburg and Lehman
Brothers.  While the weakness can't yet be seen in the Health
Care Payors index (HMO.X), shares of WLP are already starting to
weaken following a rebound to and then rejection at the 200-dma
($74.04).  That rejection quickly leg to the stock falling back
under the 50-dma ($71.60), which recently gave a major sell
signal by crossing under the 200-dma for the first time since
August of 2001.  WLP is still hanging onto support near the $69
level, but with selling volume on the rise, it doesn't appear
that support is likely to hold.  A look at the PnF chart shows
precisely why WLP is so weak, as it has generated one Sell signal
after another since late November.  The rally off the October
lows failed to get anywhere near the level ($78) required to
generate a Buy signal and with the stock's trade below $70 it
has generated another 3-box reversal into a column of O's.  The
first line of resistance is now at the convergence of the 50-dma
and 20-dma near $71.50, with even stronger resistance near
$72.00-72.50.  A failed rally near either of these levels should
make for a solid entry into the play, where we can easily manage
risk with a stop at $73.75, just above the recent high.  With
WLP trading near its lower B-Band and just above the bottom of
the late November gap ($67.50) entering on weakness appears to
carry too much risk right now unless accompanied by a sharp
increase in selling volume and the HMO index breaking below $500.

Why This is our Play of the Day

Considering the lack of progress made in the broad markets on
Monday, our WLP play is off to a pretty good start.  A bit of
euphoria at the open had the stock pushing as high as $70 early
in the day before the bears took center stage.  After the first
30 minutes, it was all downhill, with WLP finally closing very
near its low of the day.  Aggressive traders that took advantage
of the early failed rally have got a solid position heading into
tomorrow, while those still waiting will want to see another
failed rally in the $70-71 area (the top end of which is defined
by the declining 10-, 20- and 50-dmas).  Those looking for a
breakdown will need to wait for a break below $68, but as we
mentioned over the weekend, need to be careful with possible
support coming in at the bottom of the late-November gap at
$67.60.  Given today's weakness, we're lowering our stop to
$72.50, just above strong resistance.

BUY PUT FEB-70*WLP-NN OI=1321 at $4.40 SL=2.75
BUY PUT FEB-65 WLP-NM OI= 138 at $2.30 SL=1.25

Average Daily Volume = 2.00 mln



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