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Daily Newsletter, Sunday, 01/19/2003

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The Option Investor Newsletter                   Sunday 01-19-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Is That It?
Futures Market: Levels Lining Up
Index Trader Wrap: IT'S THE EARNINGS STUPID
Editor’s Plays: The End of Innocence  
Market Sentiment: Slip Sliding
Ask the Analyst: Pivot Analysis to define levels and range
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Out Like a Bear


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 01-17        WE 01-10        WE 01-03        WE 12-27
DOW     8586.74 -198.21 8784.95 +183.26 8601.69 +297.91 -208.22
Nasdaq  1376.20 - 71.55 1447.75 + 60.67 1387.08 + 38.62 - 14.59
S&P-100  457.36 - 13.05  470.41 + 11.21  459.20 + 16.14 - 12.40
S&P-500  901.78 - 25.79  927.57 +165.21  908.59 + 33.17 - 20.34
W5000   8530.33 -228.10 8758.43 +165.21 8593.22 +287.59 -169.60
RUT      388.10 -  8.34  396.44 +  6.13  390.31 +  6.15 -  2.72
TRAN    2344.53 - 49.14 2393.67 + 28.73 2364.94 + 73.28 - 32.56
VIX       28.68 +  1.55   27.13 -  0.85   27.98 -  6.17 +  2.68
VXN       42.84 +  0.56   42.28 -  3.43   45.71 -  1.00 -  1.80
TRIN       1.60            0.80            1.32            3.60
Put/Call   0.83            0.75            0.76            0.94
******************************************************************


 
Is That It?
by Jim Brown

The Dow lost -111, the S&P -13, is that all we get from a 
seriously negative flurry of earnings? No, the real damage
came in the Nasdaq which dropped -47 points on Friday with
Microsoft leading the drop at -$4.00. I guess investors were
not that excited about the dividend.

Dow Chart – Daily


 

Nasdaq Chart – Daily


 


Let's get the economic news out of the way first. Industrial
production surprised analysts with a drop of -0.2% compared
to estimates for a gain of +0.3%. Nearly all the major
segments experienced a decline. Makes you wonder what the
next ISM report will show. Possibly a major correction to
the last blowout number. With Capacity Utilization at 75.4%
and the lowest since last March, the inflation pressures
remain zero because pricing power is zero. The only positive
factor, or so the analysts tell us, is that inventory levels
are so low that any increase in demand will cause a strong
jump in manufacturing. The key word in that sentence is 
demand. 

The Michigan Consumer Sentiment came in at 83.7 compared to
consensus estimates of 87. The index is getting very close 
to the October low of 80.6 despite the holidays and the Bush
tax cut package. Unemployment is still rising and consumer
debt is increasing. As more troops saddle up to leave for
Iraq everyone in their extended family begins to worry that
the war could be messy, lengthy and dangerous to their loved
ones. The stock market rally has failed to produce any
follow though in January and that was before the negative
earnings guidance on Thursday. 

Home Sales may have peaked according to the NAHB Index. It
is much too early to tell but the index dropped from its 
high of 65 in December to 64 in January. Not a screaming 
decline but with everyone predicting the eventual demise
it could be the beginning of the end. With the recent
economic reports I don't think there is any chance of a
rate hike soon which means a booming spring if everything
remains the same. Once those rates start up it could be
a long dry spell for builders. 

Scratch the second half recovery. That was the tone of 
many analysts on Friday. They are quickly abandoning the
hope of a recovery in the second half of 2003 and it is
only January. There were several interviews on Friday
about the "lack of any significant global IT spending"
comment from Microsoft. Suddenly those bears who had 
been reconsidering their position only a week ago have
suddenly become diehards again. When a dozen of the 
largest companies in the US lower guidance for the year
due to a lack of visibility it makes for a lot of headline
grabbing. Remember also that the early reporters typically
have the best results and that paints a dreary picture for
our future. 

The Semiconductor sector was probably one of the hardest 
hit this week. With Intel's warning on Tuesday and several 
other unfriendly reports during the week the SOX dropped
over -14% from the opening high of 348 last Monday to
297 at Friday's close. PMCS added to the gloom by saying
they would be cutting -16% of their workforce. You could
be tempted to buy chip stocks at this level because it
is strong support. However, investors would be hard 
pressed to provide a reason to own them other than really 
long term given the recovery now moving to 2004. 

GE added to the negative sentiment with a -$1.5 billion
loss at a reinsurance unit and warned that profits could
fall as much as -10% in the current quarter. The company
has been hit in insurance, power generation, jet engines,
airline maintenance and problems with its pension fund. 
GE said power systems could see its net income drop by
-50% in the 1Q. The CEO said the pension fund was dwindling
and could fall from its $14 billion surplus in 2001 to
as little as $2 billion in 2003. Historically pension
income has been a plus to the GE bottom line with +$1.4B
in 2001 but in 2003 it will be a -$300 million drain 
instead. GE announced earnings of 31 cents, which were
inline with reduced estimates. They are a long way from
broke with net income for the year at $15.1 billion. They
are just suffering from the same problems that are killing
the smaller companies. 

EBAY soared +3.60 and touched $75 intraday. CEO Meg
Witman said they would consider offering a dividend once
the tax plan was approved. She did not mention a stock
split but they split at $75 in both 1999 and 2000. Does
lightning strike three times in the same spot? Stay tuned. 

The number one home improvement supply company, Home Depot,
warned that same store sales could fall as much as -10%
this quarter alone. They lowered their outlook for the 
year and said they were going to spend $4 billion to 
renovate old stores and enhance service levels. HD said
long term sales were now expected to grow only +10%
compared to prior estimates of +15% to +18%. The stock
has fallen to $22 from $52 in 2002 and actually closed
up +26 cents on Friday. 

Microsoft took a lot of heat for its dividend program. 
For a company with nearly $50 billion in cash the 0.28%
dividend was considered chump change. The average dividend
from S&P companies in 2002 was 1.80% or six times the 
MSFT dividend. Considering the -4.00 drop in the stock 
it is going to take a long time to recover the money. 
With the cash on hand MSFT could pay the dividend for
51 years. Hopefully it won't take that long to breakeven.

The Fed heads are worried. At least that is the message
I am seeing. SF Fed President Robert Parry said on Friday
that there "are good reasons to feel a good deal of
uncertainty about the road ahead." He said the war in
Iraq, terrorists, lingering concerns over corporate
governance and the fragile state of the economy were 
all causes for concern. Parry is a voting member of 
the FOMC. The next two day meeting is a little over a 
week away on Jan-28th/29th. No, they will not raise rates
and an unexpected rate cut could send the market reeling
on fears of the unknown. 

Next week could be rocky for the major indexes. We came 
to a screeching halt at 900 on the S&P and 8560 on the
Dow with the Nasdaq leading the drop. The bulls are
kicking and screaming as they slide down that slope of
hope and the odds are good we could see a rebound on
Tuesday. Monday is a market holiday. I think a three
day weekend prompted many traders to go flat or limit
positions but they will come back into the market rested
and eager on Tuesday. I see resistance at 8600 and again 
at 8650 and 8700. Going uphill is going to be rough. The 
only major support is at 8560 then it could be free fall 
to 8400 where the 100 DMA could slow the descent to real 
support at 8350.  

The Nasdaq is grossly oversold with its -47 point drop
but it may not be done. 1361 is the next support but that 
support may be weaker now than before. The 100 DMA at
1332 is the most likely resting place. Chips are on support
at 297 on the SOX and MSFT could rest just over $50. The 
tech majors have already announced and what they said will 
now weigh on those others to come. 

Colin Powell made a strong statement on Friday. He said
that by the end of the month Iraq will be proven beyond
a doubt to be in violation of the UN resolution. He said
it forcefully and without wavering. There is a good 
possibility that somebody knows something and they are
waiting until just before the Jan-27th UN meeting to "find"
it. This would prevent days of posturing and excuses by
Iraq and a "major" find the day before would color the
opinions of the security council. The war could then begin
around Feb-14th after the Muslim pilgrims return home. The
deadline is fast approaching, Saddam is more defiant than 
ever and troop movements are escalating. All the players
are taking their places and the curtain is about to go up
on the show.

The market may rally once the shooting starts but with 
world opinion strongly against the war it is more likely
to go down before the deadline. The UN deadline is Jan-27th
and the President's State of Union speech is Jan-28th. The
Muslim holy days are over Feb-12th and all troops and 
equipment will be in theater by Feb-14th. The key point
for me is the Jan-27th and Jan-28th events. I suspect 
the speech will tell us we are going to start the war. 
The markets will expect this also and that weight should
push them down in advance. Just my opinion but I think 
roadmap is clear. I see no reason to buy stocks now and
I expect institutions are thinking the same thing. What
if? What if Saddam really has a couple of nasty weapons
and he manages to launch a preemptive strike somewhere?
What if Osama is ready to launch a round of attacks on 
us when we attack Iraq. He already warned about it. "What
if" is a game the market plays well. Are you ready to play?

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"An optimist sees an opportunity in every calamity, a
pessimist sees a calamity in every opportunity." 
Winston Churchill


**************
FUTURES MARKET
**************

Levels Lining Up
By John Seckinger
jseckinger@OptionInvestor.com

With Friday's decline, all three futures contracts managed to 
test important retracement areas below.  Heading into another 
busy earnings week, lining up short-term and intermediate levels 
should help traders going forward.  

Friday, January 17th at 4:15 P.M. 

Contract      Last    Net Change    High        Low       Volume    

Dow Jones    8586.40  -111.47     8695.82     8559.11      
YM03H        8583.00  -117.00     8669.00     8538.00     17,088
Nasdaq-100   1017.58   -43.88     1041.43     1017.53      
NQ03H        1020.00   -44.50     1077.50     1018.00    207,668
S&P 500       901.78   -12.82      914.60      899.02      
ES03H         903.00   -13.50      923.50      897.75    487,942

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      8477.07    8531.74   8613.78    8668.45    8750.49
YM03H          8467.00    8524.00   8597.00    8655.00    8728.00
Nasdaq-100     1001.61    1009.59   1025.51    1033.49    1049.41
NQ03H           979.00     999.50   1038.50    1059.00    1098.00
S&P 500         889.55     895.66    905.13     911.24     920.71
ES03H           882.25     892.50    908.08     918.50     933.75

Weekly Levels

Contract         S2         S1        Pivot        R1         R2    

YM03H         8336.00    8459.00    8662.00    8785.00    8988.00
NQ03H          958.25     989.25    1048.75    1079.50    1139.25
ES03H          873.25     888.25     912.50     927.50     951.75

Monthly Levels (December's High, Low, and Close)

Contract        S2         S1        Pivot       R1         R2    

YM03H         7726.00    8028.00    8524.00    8826.00    9322.00
NQ03H          861.75     924.25    1041.75    1104.25    1221.75
ES03H          814.75     846.75     900.25     932.50     985.75

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.  

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

Before we begin, I thought it was a very successful first week of 
posting within the Futures Monitor.  Jim Brown had a total for 
the week of +19.25 ES03H points (Each 1 point move = $50).  On 
Friday, Jim's signals resulted in the following:

Short 904.50, exit 906.25, loss -1.75
Short 908.00, exit 902.50, gain +5.50
Long 898.50, exit 899.50, gain +1.00
Total for the day = +4.75

For more information on Jim's posts for Friday, please go to the 
following link and download the current market monitor.  If you 
already have the most recent version, simply go to the Futures 
Monitor Post on the upper left hand portion of the applet.  

http://www.OptionInvestor.com/itrader/marketbuzz/download.asp

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

The E-mini contract on Friday easily fell under the December 50% 
area of 910.75, dropping to the 38.2% level (next objective at 
900.66) before closing at 903 and barely above the 50 DMA (exp, 
green line).  The daily pivot is above at 908, while a weekly 
pivot (based on this week's range) comes in at 912.50.  With that 
said, if we do get a bid on Monday, I would expect the range from 
908 to 912.50 to hold a certain amount of significance (read: act 
a zone of resistance until a five minute-minute close is above 
912.50).  Remember, a five-minute close above 908 could easily 
mean a move to the top of that range; therefore, traders have to 
be watching for confirmation of both failure or rejection and 
move higher.  

As far as the downside is concerned, a move back under 900 could 
be the catalyst for a test of S1 at 892.50 and possibly S2 at 
882.25.  With the 19.1% at 884, I will use the 882 to 884 area as 
an intermediate objective.  S1 at 892.50 should be a solid area 
for shorter-term traders.  

Chart of ES03H, Daily 


 

A 60-minute chart of the ES contract is profiled because of the 
range between R2 and S2.  MACD is certainly in a downtrend, but 
notice how Friday's close has the index above the 38.2% area.  
This could portend a slight bounce on the open.  The pivot of 
course comes in at 908.  For more aggressive traders looking for 
a tighter range, I definitely recommend using the "fitted 
retracement" theory.  An article on this subject can be found at 
the following link:

http://www.OptionInvestor.com/futurescorner/fc_010703_1.asp

I like to use this when there is a good chance R2 or S2 is taken 
out; however, it works well to give intra-day traders a nice 
edge.  The other way to use fitted retracements is to take the 
range at 16:45 p.m. (make sure "all sessions" is clicked in Q-
charts), since that can be construed as the true opening level.   
There is a chart with this method showed within the NQ charts.

Chart of ES Contract, 60-minute


 

Bullish Percent of SPX: 61.40% and still in column of O’s (Recent 
High at 66%, Low of current column at 58%).  On Friday, the 
Bullish Percent only fell a surprising 0.52 percent.  On a normal 
P&F chart of the SPX, there was a negative breakout today that 
gives a bearish price objective of 860.  Support is seen in the 
SPX at 890 based on P&F analysis.  

The March E-mini Nasdaq 100 Contract (NQ03H)

As noted in Thursday night's wrap, the NQ contract seemed to have 
bears more confident relative to the other futures' contracts.  
The over 4% loss on Friday sent the NQ contract underneath the 
38.2% retracement area of 1047 and towards the 1013 area and the 
19.1% level.  It should not be a coincidence that the pivot on 
Monday comes in very close to 1047.  If weakness takes the 
contract underneath 1013, the first objective can be S1 at 999, 
while a more intermediate objective should be down near the range 
from 979 to 983.  

Chart of NQ03H, 30-Minute


 

Here is a bonus chart below.  I did the "fitted retracement" 
analysis based on the five-minute chart from 16:45, and it is 
interesting how the levels line up with the normal retracements 
from S2 to R2.  A coincidence?  Not likely.  This technique can 
be done before the next day's opening in order to line up levels 
and see if there will be either buy or sell programs in order for 
cash to catch up.  

Chart of NQ03H, 5-minute


 

A chart of the NQ contract below shows the range between S2 and 
R2 for Tuesday.  It is also interesting how the mid-point of a 
Bollinger Band comes in at 1038.  The 22 PMA is there as well.  
Certainly an area the bears will try to defend if the market 
finds a bid.  I would not be surprised to see either a bounce get 
sold or immediate weakness bringing the contract just underneath 
the 1000 area.  With the contract well under weekly and monthly 
pivots, least resistance should still be lower as of Friday's 
close.  

Chart of NQ03H contract, 30-minute


 

Bullish Percent for NDX:  Fell by two percent to 63% and still 
in a column of X's (Recent High at 82%, last Significant Low at 
14%).  A sell signal would be given if 58% is reached.  Until 
that happens, a P&F chart shows risk down to 950 and resistance 
at current levels.  

The March Mini-sized Dow Contract (YM03H)

Early weakness weighed on the YM contract, and the 8620 objective 
(next retracement as 8714 was taken out, see chart below) was 
reached rather easily.  Even the next retracement down at 8525 
was almost hit, as the YM had an intra-day low of 8538.  The 
close was above its 50 EMA (not 200, as listed); therefore, 
traders heading into Tuesday may not be as bearish as one would 
think.  With the contract in-between 8620 and 8525, a neutral 
sentiment level appears to make sense.  However, the contract did 
close under Tuesday's pivot and under 8620.  These mixed signals 
should make the opening that much more important.

Chart of YM03H, Daily Chart


 

A 30-minute chart of the YM contract shows the aggressive 
downward channel during today's trading, and the CBOT settled the 
contract at 8583 and above the 61.8% retracement area of 8566.  
This could mean we will see a bounce on Tuesday, taking the 
contract over 8600 and into resistance near 8620.  That is 
certainly one possible scenario after the extended weekend.
MACD appears oversold, and it appears as though this oscillator 
might cross higher from a pretty low level.  Something to 
definitely keep your eye on.    

Chart of YM03H, 30-minute


 

Bullish Percent of Dow Jones: 60.00% and in column of X’s.  A 
move to 50% would cancel out the recent bullishness.  The last 
significant high comes in at 72%.  On Friday, despite the 
decline, the Bullish Percent remained unchanged.  On a normal P&F 
chart of the Dow, a sell signal would be given at 8550.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

IT'S THE EARNINGS STUPID
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE:  
Or I could say it's the stupid earnings that drive the market and 
the PERCEPTION of earnings POTENTIAL in case someone remembers 
the Internet (stock market) bubble.  And with negative reports 
from tech giant MSFT and sluggish Industrial production data 
(again) being reported last week, the prospect for more of a 
rebound in earnings than is already "priced" into the market is 
looking dim - so, look for stock prices to head lower again. 

Technically, the stronger S&P Index, the S&P 100 (OEX) made a 
bearish retreat from resistance implied by its 200-day moving 
average on Thursday and then proceeded to "gap" lower on bearish 
news on Friday, falling substantially below its 50-day moving 
average.  The (Nasdaq) Composite, which was actually trading 
above its 200-day average had an even more miserable failure.  
Momentum is down and I anticipate further downward price action 
in the holiday shortened week ahead after resuming Tuesday.   

FRIDAY TRADING ACTIVITY –
Before I recount the end of the week, let me say a bit more about 
earnings - my favorite print media, the (Wall Street) Journal, 
reported on Friday that while the market, in terms of the Dow 
Industrials is up some 18% from its low point, the issue of 
earnings quality is still with us and could weigh on the ability 
to advance further - while the market can bottom on hope and 
prayer it takes "good" earnings in this post-Enron environment to 
keep whooping and driving em.  

The use of so-called "pro-forma" earnings and the other types of 
reports that are less than the accounting standards board demands 
continue to be used by many in corporate America. So, besides the 
Iraq war possibility and its uncertain aftermath, there are more 
things that must be done to really restore market the sound 
underpinnings of investor confidence.  

On Friday, the FASB - sorry, the Federal Financial Standards 
Board - unveiled details of new rules that will restrict off-the-
book partnerships, such as Enron used to bury costs and inflate 
earnings.  Moreover, the SEC said it will require companies to 
make public filings of their earnings announcements within a day 
or tow of the release, giving analyst types much quicker access 
to the details - and, the devil IS in the details, not the 
company PR spin. 

However, some in Wall Street think that reporting to the public 
should be by general accounting principles - period! For example, 
so far in Q4, about 40% of companies releasing earnings have 
reported in a way that can exclude one-time or recurring charges.  
The example the Journal cited was the giant to my north (now that 
I look out on the Pacific) - Microsoft earned 47 cents according 
to accounting standards - but by excluding investment losses, 
court settlement costs and counting a gain from a favorable tax 
ruling - on a "pro forma" basis the company could maintain that 
they earned 53 cents a share.  

A big difference when companies live and die by a few pennies on 
their earnings.  Oh well, Microsoft (and IBM) got creamed anyway.  
So, companies are still trying to "play" with their numbers in 
various ways and the problems of trust are NOT behind us yet - 
probably more regulations are going to be needed, OR a wave of 
sudden "got religion" conversions which somehow I am not banking 
on.   

Back to Friday - Dow components Microsoft (MSFT) and IBM 
accounted for a big part of the 111 point drop in the 
Industrials. Tech stocks got hit pretty hard in general as the 
COMPX was the biggest loser, down 3.3% versus the Dow decline 
which amounted to a more modest 1.3% - the S&P 500 (SPX) was down 
a similar amount.  MSFT was down 7% and it weighs heavily in the 
capitalization weighted Nasdaq. Microsoft was downgraded by one 
major firm, ditto IBM, as MSFT "cautioned" on PC demand ahead.  

And, disappointment on the most recent Microsoft earnings and its 
caution on what they can expect to achieve ahead, dampened the 
hoped for 2-for-1 stock split and - believe it not - their plans 
to begin paying a dividend.  It seems that stockholders are 
starting to feel that the company should pay out some of their 
huge hoard of cash. 

As noted by my favorite online financial news source, CBS 
Marketwatch, IBM earnings fell for the - count em - 6th. straight 
quarter. Did I mention that "it's the earnings stupid"? - not to 
be insulting, but I belong to the Stock Market valuations for 
Dummies school and have to keep this saying written down and pull 
it out constantly.

And least we forget Iraq - can we ever forget Saddam and Iraq - 
the "smoking gun" specter was raised by the report that UN 
weapons inspectors found 11 artillery shells capable of carrying 
chemical weapons - oh, they were empty.  Except that they looked 
new, we could hope that they were souvenirs of the last war.

GE met its earnings target and Home Depot (HD) rose after it 
reaffirmed its expectations for strong sales growth ahead but I 
was in one of their monster stores recently and found the 
employees hopeless to answer questions, so go figure - still, I 
was there in spite of the help for the selection and prices.  
EBay (EBAY) jumped after they beat expectations.  

Lastly, U.S. Industrial Production was reported down 0.2% versus 
expectations to be up a fraction of percent in December and this 
the forth reported decline in 5 months. Auto production was the 
culprit, but of course autos are coming off incentive programs 
that could not last forever and which would cause saturation in 
demand at some point. 

Capacity Utilization was down and the lowest since last March.  
Lack of investment in the tools and equipment to increase 
capacity is what is holding the economy back - hence President 
Bush is recommending a new tax break for business capital 
investments.  

And, least we not forget the consumer, whose spending is keeping 
us afloat, the U of M said its first read on its consumer 
sentiment index fell to 83.7% in January from 86.7 in December - 
they cited Consumers as growing more negative about job growth 
and the ability of the economy to get going. No kidding. 

OTHER MARKETS - 
Gold continued to rise as nearby futures rose a couple of more 
bucks per ounce (to 356.80), following the same upward track as 
oil which is being pushed by the continued shut down in 
Venezuelan production.  Gold now has realized my "minimum" upside 
targets, which is not to say that it can't go still higher, 
especially if bullion continues to remain above the 350 midpoint 
between 300 and $400 an ounce.  Can $400 be a target?  Stay 
tuned! 

COMING UP (NEXT WEEK) –
Lots and lots of earnings reports as we are in full swing of 
earnings reporting season.  Key stocks include JNJ, Citigroup, 
Ford, Motorola, EK, JP Morgan Chase, Tyco, Merrill Lynch, Texas 
Instruments, McDonalds, Caterpillar, Telephone (AT&T), Lilly, JDS 
Uniphase, Nokia, Corning, BellSouth, Lockheed and many others. On 
balance earnings have been in line with consensus expectations 
with 9% or so growth in Q4.  But, expectations are that this will 
not last.    

MY INDEX OUTLOOKS – 
As I said before, if gold continued to climb above $350 an ounce, 
it would hard to maintain a similar bullish view on financial 
assets like stocks in the first months of the New Year.  And 
here's the bullish looking chart of the nearby weekly futures 
contract - 



 

A consolidation (the "triangle") will often occur about midpoint 
in a move which would suggest that gold would go to 380.00.  And, 
if it gets up to 380, then it seems possible that the yellow 
metal could touch 400 at some point. The "X" was a "minimum" 
upside objective calculated from the triangle. If curious on this 
type pattern and its measuring implication you can find more at - 
http://www.OptionInvestor.com/traderscorner/082202_1.asp

Anyway, this chart above is not filling me with the same 
confidence in the stock indices, which have failed to yet exceed 
their prior highs (of last August).  The indices therefore 
remains stuck in either a sideways consolidation at best or in a 
downtrend still at worst - technically, a downtrend is assumed to 
remain in force until/unless a prior significant rally peak is 
exceeded. 

S&P 500 Index (SPX) – Daily chart:

I previously figured that the market in terms of the S&P 500 
(SPX) would be locked in trading range and that the high end of 
it was near. But, that SPX might get up to 950 - WRONG! - it only 
managed a peak at 935, shy of the prior top and well under the 
extreme implied by the 6% "envelope" line, a line that is floats 
at this percentage above its latest 21-day moving average. (I 
think the envelope range is narrowing in and will lower it to 
5%.) 



 

In the trading envelope way of looking at the back and forth 
swings of the Indexes - the 21 day moving average is my standard 
midpoint benchmark on daily charts. Above the 21-day average I 
look for more upside until "confirming" signs of a reversal or 
until the upper envelope line is reached AND there is a 
confirming reversal - below the same average, look for more 
downside which is the case now. 

Injecting a note about my call to put ratio for CBOE equities 
options trading during the period shown, this way of keeping the 
figures is not the standard PUT to call readings and I explain 
why, and more about it, in my latest Trader's Corner article. 
Please go there for more on this indicator. The way it is 
constructed, it's not unlike a stochastic, as the recent rally 
got to an "overbought" reading on the lower chart - unlike the 
stochastic this indicator provides value as it tends to peak 1 to 
5 days ahead of the market top and give some forewarnings.  

Similar to how 950/960 at the prior upswing high was a key focus 
on the SPX chart, the previous low around 870 is a possible 
downside objective now. And, if this prior bottom was penetrated, 
the lower envelope line at least gives an idea of a point where 
it could get to if there was sustained bearishness now - with 
earnings expected to decline in the first quarter or two and with 
Iraq, the fundamentals would support more than a shallow further 
drop.  So, 870 is the area to watch but it may be less than rock 
solid support.  Keep selling rallies and see where it goes - the 
chart is bearish again for sure.         

Near potential support at 900-905 has been exceeded - look for 
this area to now provide resistance.

S&P 100 Index (OEX) – Daily and Hourly charts: 

I said last week that "key resistance comes into play at 477, at 
the 200-day average" - the weekly high was 475. The 200-day 
moving average notched down a bit by midweek - hey, not for 
nothing it's called a "MOVING" average.  

The idea here was that with an overbought reading registering on 
the 14-day stochastic, it was going to take a substantial amount 
of buying to lift the S&P 100 (OEX) ABOVE its 200-day average as 
institutional money managers will pay attention to and sell into, 
the 200-day benchmark.  

There are not many technical indicators that are on the tip of 
their tongues at lunch but this is one that is widely followed by 
the institutional set - a self-fulfilling prophecy?  I doubt it, 
but on the other hand I don't really care, as long as it "works" 
and it does.  



 

I also discussed the fact that hourly and daily oscillators had 
DIVERGED from price action and were not “confirming” the latest 
highs. This tends to be a good technical sell “signal” and I 
suggested a strategy of exiting calls and buying puts on a scale 
up basis around the moving average, which worked pretty well. 

Divergences of this type, where prices go up to higher highs but 
oscillators like the stochastic model (and RSI) make LOWER highs, 
is one of my favorite trade entry "signals - in fact, I would 
hold that you can make more by trade entry ONLY on such divergent 
sell (and buy) indications than by attempting to trade the 
stochastic up and down as "automatic" buy or sell signals when 
they cross.  For those wanting more info on divergences, see - 
http://www.OptionInvestor.com/traderscorner/101302_2.asp

Looking ahead, a further decline is likely and my first objective 
is to 452-455, but a longer range target is to around 440 as this 
as been the area of prior lows.  I favor selling rallies (buy 
puts) on any rebound up to resistance implied by the bearish 
downside gap at 462-464.    

NASDAQ COMPOSITE (COMPX) Daily chart – 

The COMPX got above resistance implied by IT'S200-day moving 
average, but the Index didn't stay there long and reversed well 
under the 1500 area which was well under tougher technical 
resistance around 1500.  Now, we're looking at 1400-1420 as key 
resistance and an area likely to cap any rally attempts, being as 
this zone is the gap area where there was "unfulfilled" selling 
from Thursday-Friday as least during the regular trading hours. 

1320-1300 is my downside objective in the Composite.


 


QQQ Hourly and Daily charts:

I was looking to sell rallies/buy puts above 27, although I 
thought QQQ might reach 27.50 or a bit higher judging by the 
upside momentum we were seeing in the Nasdaq/tech area.  
However, keeping me bearish was the lack of volume expansion on 
the rallies and very definitely the pronounced price/oscillator 
(in this case, the Relative Strength Index or RSI) DIVERGENCE 
which was very apparent on the hourly line (close-only) chart on 
the right hand side below -  



 

Where we did see volume expand was on the move on the downside 
which is again suggesting that the dominant trend is still DOWN.  

Look for potential support in the 23.25 to 24.00 area and I would 
take some profits on stock held short, in this area if reached.  

Conversely, I suggest shorting rallies to the 26-26.25 area in 
the Q's and wait for the stock to get fully oversold again before 
thinking about exiting or taking profits on short stock or long 
puts.      


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**************
Editor's Plays
**************

The End of Innocence  

Finding something I would put my money on this weekend was
really tough. With my market bias down I find it hard to 
even consider a call play. I already have DJX puts on the
play list from two weeks ago. I looked at a bunch of tech 
stocks for put plays but many of them had already dropped
too far or were right on strong support. Look at FISV, MXIM,
LLTC, KLAC, APOL. All are right on the 100 DMA, which has
provided support in the past. 

That would seem to indicate a chance for a tech bounce but
I am not convinced. So I passed for a better odds play. 
Everyone saw EBAY beat earnings and raise guidance and
shorts ran for cover. EBAY added +$3.60 to close at $75. 
I wanted to short it really bad but with a potential split
announcement any day that could be sudden death. Thinking
along those lines brought me back to YHOO. They beat estimates
by 33% and they raised guidance with expectations that they
would post more revenue this year than during the Internet
bubble. No gap up there. They gapped down and are still
falling. Expectations were so high that everyone thought 
they would beat. Who else in the Internet sector has high
expectations and a strong chance of failure. You guessed it.

Amazon has earnings next Thursday, the 23rd. The expectations
are so high that AMZN only dropped -40 cents on Friday with
all the tech stocks down huge. Those diehard bulls are 
expecting a blowout with all the new products and partnerships. 
The trouble with Amazon is that they are still trying to 
build the brand. They spend every dime on advertising,
low prices and free shipping to attract new customers. We
all know how competitive Internet pricing is for everyone. 
With almost every search engine offering price comparisons
from dozens of stores on exactly the same product I have
rarely found AMZN competitive. They appear to be trying to 
capitalize on their easy of shopping. I agree they are easy
to buy from. I bought four things with one click in the last
week. But I doubt they made more than $1 profit on any of
them. They are cheap enough to lose money but not cheap 
enough to get all the business.

I bought $35,000 of books for the end of year special and 
Amazon could not even get close on price. Price competition
is not their strong point. Convenience is and that convenience 
is costly. Yes, their prices are a couple dollars higher but
with multiple warehouses, thousands of people and free
shipping are they really making any money? Even if they make
any money this quarter will it be enough to satisfy the 
ever demanding investors. Yahoo beat substantially and they
trashed the stock. AMZN can beat substantially and get trashed
as well. Amazon can no longer run on expectation like the
Internet non-earnings of the past. They have to start 
producing or end up in the penny stock category. Jeff Bezos
can only get so far in the market on a bubbling good attitude
and investors are going to start trading in the stock for
something with real growth prospects. How much more can
Amazon grow? A gazillion dollars in volume does not pay
any bills unless there is profit in the bank. Their PE
is infinite because they have never made any money. They
lost -2.18 in 1999, -4.02 in 2000, -1.55 in 2001 and they
are projected to lose -0.40 in 2002 on $3.5 billion in
revenue. With 381 million shares and a market cap of $8
billion they would have to net $152 million in the 4Q to
break even for the year. They only netted $3.8 million in 
the 4Q of 2001 and it was the only quarter they have ever
made a profit and it was only one cent. The more I 
researched this play the more I liked the potential. 

Obviously this is a very speculative play. The concept is
a put ahead of earnings and the expectation is that they
disappoint. I guarantee they are not going to announce a
dividend or a stock split and short of a windfall profit
the natives are going to be thinking bonfire. 

AMZN closed Friday at $21.46. That makes the Feb-$22.50 put
$2.25 and the Feb-$20 put $1.10. The 100 DMA is at $19.49
and while that stopped the drop back in December I don't 
think it will cause more than a pause this time around. 
Next support is about $18.50 and then $15.50 if they really
stink up the place. 

Picking a price target helps decide what option you want 
to play. Assuming they drop to $18.50 and hold then the
$20 put would be $1.50 plus a little time premium for the
market makers. The $22.50 put would be worth $4.00 plus
the juice. For my money I would go with the $22.50 put for
$2.25 as the better deal. We are not talking about puts 
on QCOM at $600, just a $2 option. Spend the extra money. 
Any further drop would translate dollar for dollar on 
either option. 

I am not going to put a trigger on this play. I expect
the Nasdaq to bounce slightly at the open on Tuesday so 
you should be able to get either put cheaper if it does. 
I would not sell them immediately after earnings unless
AMZN gets crushed. Give it some time for the war talk
to increase and a few more tech earnings to deflate the
market sentiment. Who knows $15 may not be out of range. 
No guarantees of course!

There is always the possibility that AMZN will gap up after
earnings on some positive spin by Bezos as he is sure to 
get some face time on CNBC. Keep the faith and if earnings
doesn't get them the war and tech slide should. 



 


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

Play updates:

EXTR Call from Jan-12th. 

EXTR spiked up on Monday to 5.43, just below the 5.50 trigger
for entry into the play. With the Intel news on Tuesday the
tech sector has been going down hill since. This play was
never triggered and has been cancelled. 

DJX Puts from Jan-5th. 

Remarkable turn around. The Dow toyed with 8800 several times
since this play was initiated but remember it was a long term
play 45-60 days and it has only been two weeks. Momentum and
sentiment seems to be finally on our side. The target for this
play is 8350 with a potential for an even deeper drop. Feb $85
and Mar $85 puts were profiled. I still favor the Mar-$85.  


Powerball - From 12/29/02

The Powerball lottery play took a serious hit last week and
dropped in value from a value of $1405 on Jan-12th to only
$955 at the close this Friday. Since this is a 12 month play
I am not concerned but considering these are all tech stocks
I am sure we are going to see more red before we see green 
again.

It would have taken $1,135 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 2/31/03


 

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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Slip Sliding
by Steven Price

The rollover continued today, as expected.   The after hours 
pounding in IBM and Microsoft resumed in mass when the market 
opened, driving both stocks lower throughout the day and into the 
close. IBM lost -$4.75 and fell through its 200 exp, 50 and 21 
day moving averages to close at $81.30.  Microsoft lost -$3.89 to 
fall through its 200, 100, 50 and 21 day moving averages and 
finished the day at $51.46.  Those stocks led all major indices 
lower.  Dow lost -113 points and fell below support at the 50-dma 
(8607).  The COMP lost -47.56 to fall through the 21, 50 and 200 
dmas, as well as support at 1400, finishing at 1376.  The SPX 
lost -12.82, dropping through its 50 and 21 dmas to finish just 
above support at 900, with a close of 901.78.  It was just a few 
days ago we were looking at a possible breakout to new highs 
after these indices ran to their 200-dmas on the upside.  After 
gaining 6-7% in the Dow, SPX and OEX, and 9-11% in the COMP and 
NDX over the first two weeks of the year, we have not only paid 
the piper, but overpaid the piper and gone into debt.  

Why the sudden reversal of fortune?  Part of the reason is the 
worse than expected comments about prospects for 2003.  Combine 
that guidance with an unsustainable rally on no real fundamental 
basis, other than the President's plan to make dividends tax-
free, and the recipe for a sell-off seemed complete. However, 
trading on expectations doesn't usually lead to profits if those 
expectations never come true.  It appears, however, that 
expectations for a rollover are finally fulfilling themselves. Of 
course, if the President's plan does make it through Congress in 
tact, dividend-paying stocks will automatically provide higher 
returns than they do now, all other things being equal.  Of 
course, all other things will not be equal if the current 
business environment does not improve.  If one trend has been 
reliable over the past couple of years, it is the trend of 
predicting a recovery 6 months to a year out.  Even Apple CEO 
Steve Jobs said recently that he continues to hear that 
prediction every six months or so, and has seen no real sign of 
it yet.  Now that Microsoft lowered guidance for the full year 
2003, we are looking at least a year ahead, if not more. 

The bearish head and shoulders pattern that would include a left 
shoulder at the November 6 Dow high of 8800; the head at the 
December 2 high of 9043; and the right shoulder recently formed 
over the last couple weeks between Dow 8800 and 8869; continues 
to get signals each day that it is still very much alive.  The 
point and figure charts registered sell signals today in the SPX 
at 905 and OEX at 457.50, with the Dow coming only a few points 
shy of its own sell signal at 8550.   This mirrors the point and 
figure pattern we saw on the possible left shoulder, where the 
second leg up of the rally gave a buy signal and then almost 
immediately rolled over to new relative lows. We just got buy 
signals in the Dow at 8850, SPX at 935 and OEX at 472.50 on the 
second leg of the rally, before rolling over into sell signals 
now present in two of the three. Of course those rallies in 
November eventually bounced and achieved a new relative high a 
month later, but not before turning bulls into grumpy old bears 
with an immediate loss of 4.5% in the Dow and 5.2% in the SPX.  
If the head and shoulders pattern does complete itself with a 
neckline break at the Dow 8200-8250 range, the measuring 
objective is down around 7500, over 1000 downside points from 
here. 

Given the string of cautious statements accompanying most recent 
earnings releases in both the tech and non-tech sectors, it is 
hard to imagine an event that will turn the tide back in a 
positive direction.  However, we are now into the meat of 
earnings season and sentiment can shift quickly. Dow theorists 
will point to the need to confirm downtrends with the Dow 
Transports, as well, and so far the Transports are holding above 
the 50-dma of 2337, with a close at 2344.  While the theory has 
its merits, it seems outdated to focus on the transports in a 
clearly technology driven market.  Still, conservative traders 
can look for a breakdown in the TRAN below that 50-dma and the 
point and figure sell signal in the Dow at 8550 to confirm the 
sell-off.  The TRAN still remains in a point and figure column of 
"X" and would require a trade of 2,250 to reverse into a column 
of "O."  The sell signal would not come until 2,200 and by then 
the Dow could be testing support in the 8400 range. 

A failed rebound below Dow 8700/SPX 910 may provide an excellent 
short entry point after today's big sell-off, now that we have 
gotten the sell-signals in the OEX and SPX and the cue from the 
biggest tech players that earnings season will most likely bring 
further disappointments.  While it is possible that we don't get 
any bounce, it seems likely after such big gaps down in IBM and 
Microsoft.  If we don't get a bounce, then that confirming sell 
signal in the Dow may be the next signal for short entries.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8586

Moving Averages:
(Simple)

 10-dma: 8731
 50-dma: 8606
200-dma: 8896



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma:  921
 50-dma:  908
200-dma:  945



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1017

Moving Averages:
(Simple)

 10-dma: 1067
 50-dma: 1049
200-dma: 1054



-----------------------------------------------------------------
The Semiconductor Index (SOX.X):
  
The chip stocks took a tumble today, following cautious 
statements from IBM and Microsoft about the coming quarter and 
coming year. While neither of these techs make up the index, they 
set the tone for the computer industry and when combined with a 
big earnings miss from AMD, sent the COMP down almost 50 points 
and the SOX down to a failed support test at 300.  The 300 level, 
as noted in this space last night, has tended to stick like glue 
for long periods.  Today's action found support just above that 
level for much of the morning, before breaking down and finding 
resistance there on a failed afternoon rally attempt. If the SOX 
is unable to break back above that level on a Monday morning 
bounce, look for the next support level in the 283-289 range.  If 
we break below 280, then it may be a steep drop down into the low 
200s. Given the slew of earnings releases still ahead, a break of 
280 seems entirely possible in the next couple of weeks if we 
don't get any better news from the tech sector than IBM, AMD and 
Microsoft had Thursday night.

52-week High: 657
52-week Low : 214
Current     : 336

Moving Averages:
(Simple)

 21-dma: 312
 50-dma: 323
200-dma: 365

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

Market Volatility

The VIX once again bounced from the 26% support level, which has 
been reliable as far as picking recent market tops from the 
contrarian side. If we are going to break down below that level, 
we will need a broad market rally that at least erases the losses 
of the last several days.  If we continue to sell off, the VIX is 
likely to move back toward the recent resistance range around 35-
36.  That range has been reliable as far as indicating recent 
market bottoms around Dow 8200-8300.  


CBOE Market Volatility Index (VIX) = 28.68 +1.01
Nasdaq-100 Volatility Index  (VXN) = 42.84 –1.96

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.82        891,456       733,634
Equity Only    0.74        751,226       555,660
OEX            1.12         41,590        46,635
QQQ            1.80         36,665        66,047


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

Bullish Percent Data

           Current   Change   Status
NYSE          52.7    + 0     Bull Confirmed
NASDAQ-100    63.0    - 2     Bull Confirmed
Dow Indust.   60.0    + 0     Bull Confirmed
S&P 500       61.4    - 2     Bull Correction
S&P 100       61.0    + 0     Bull Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.32
10-Day Arms Index  1.11
21-Day Arms Index  1.33
55-Day Arms Index  1.25


Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when they do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE        899          1971
NASDAQ     1021          2075

        New Highs      New Lows
NYSE        133              25
NASDAQ       96              38

        Volume (in millions)
NYSE       1,639
NASDAQ     1,607


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

Commitments Of Traders Report: 01/14/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials left positions mostly unchanged with a small 
reduction to the short side.  Small traders reduced the long side 
by 1,000 contracts, while adding 9,000 contracts to the short 
side.

Commercials   Long      Short      Net     % Of OI 
12/23/02      408,592   467,259   (58,667)   (6.7%)
12/31/02      410,968   462,782   (51,814)   (5.9%)
01/07/03      411,542   455,538   (43,996)   (5.1%)
01/14/03      411,052   453,164   (42,112)   (4.9%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
12/23/02      138,756    58,236    80,520     40.9%
12/31/02      139,383    75,640    63,743     30.0%
01/07/03      143,169    83,895    59,274     26.1%
01/14/03      144,182    92,358    51,824     21.9%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials added slightly to the long side, while reducing short 
positions by 3,000 contracts.  Small traders added 1,000 to the
 long side and left shorts virtually unchanged.


Commercials   Long      Short      Net     % of OI 
12/23/02       32,067     44,451   (12,384) (16.2%)
12/31/02       31,399     44,387   (12,988) (17.1%)
01/07/03       37,966     48,156   (10,190) (11.8%)
01/14/03       38,057     45,060   ( 7,003) ( 8.4%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
12/23/02       17,009     5,865    11,144    49.0%
12/31/02       19,841     5,009    14,832    60.1%
01/07/03       19,708     8,453    11,255    40.1%
01/14/03       20,757     8,320    12,437    42.8%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  14,832  - 12/31/02

DOW JONES INDUSTRIAL

Commercials added slightly to both sides, with a net 500 contract 
ncrease on the long side. Small traders reduced long and short 
positions slightly.

Commercials   Long      Short      Net     % of OI
12/23/02       14,991    11,103    3,888      14.9%
12/31/02       15,940    11,253    4,687      17.2%
01/07/03       16,210    11,333    4,877      17.7%
01/14/03       17,804    12,427    5,377      17.8%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
12/23/02        4,584     6,296    (1,712)   (15.7%)
12/31/02        4,997     6,553    (1,556)   (13.5%)
01/07/03        4,963     8,334    (3,371)   (25.4%)
01/14/03        4,552     7,697    (3,145)   (25.7%)

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

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


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***************
ASK THE ANALYST
***************

Pivot Analysis to define levels and range

Where can I find and article about these pivots and levels you 
keep talking about in the market monitor and intra-day updates?  
Is there an article I can read on this topic?  It looks to have 
merit, but I can't understand why.

Yes, here is a re-print of fellow OptionInvestor.com analyst John 
Seckinger's original article on pivots, how they are "derived" or 
calculated.  While John's article used the futures charts and 
previous day's high, low and closing values, this tool is useful 
not only for equity indexes, but individual equities themselves.

Using Pivots Effectively
By John Seckinger

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

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

The calculation is as follows:

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

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

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

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

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

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

Let us use the ES03H contract as an example:

High:   908.00
Low:    895.25
Close:  901.00

Pivot becomes 901.41

First Resistance:  907.57

First Support:  894.82

Second Resistance:  914.16

Second Support Level:  888.66

Chart of ES03H, 10-minute


 

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

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

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

It is important to realize that pivot analysis should be 
used with other technical indicators, since those other 
indicators will provide a higher confirmation of the 
level(s) listed.  

Example:  The ES trades 907.57 and oscillators, trend 
lines, etc. are all pointing bullish; therefore, look to 
buy above that level with 914.16 as the upside target 
instead of looking to sell the resistance area short.  

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

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

Chart of NQ02Z, Daily 


 

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

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

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

Good Trading!

Questions are welcomed!

John Seckinger
jseckinger@OptionInvestor.com 

Wow John, that was great.  

Now.... I can't remember how John and I started up a discussion 
about these pivots and support/resistance levels, but somehow it 
came from a conversation we were having about point and figure 
charts.  I think I said something about "pivot" or mentioned some 
"level" and John started rambling about how that certain level 
was a pivot or intra-day support/resistance level and that's why 
the index did what it did that day.  He started talking about 
some mathematical formula and from where it was derived.  

I don't know why I asked from where it was derived.  If the 
darned thing seemed to have merit, then it should work.  I didn't 
care if he picked it up out of a trashcan or if Charles Dow 
handed it down to him.  I just wanted to see if it worked.

So, for those that may have ever met John personally, like 
myself, then you know that you have to question anything that 
John says (big grin).  

I'm kidding of course.  But, like I've said before, I'm one of 
these "prove it to me" guys and I like to back-test EVERYTHING.  
Being able to back test the point and figure charts as well as 
Professor Davis' study is what interested and convinced me that 
supply/demand analysis need to be one of the tools in my 
investment and trading tool box.  Like point and figure charts, 
the pivots/support/resistance levels don't ALWAYS hold as a "key" 
level, but like a p/f chart, when the stock/index does something 
it shouldn't have done, then you know something may be wrong and 
you're ALERT to something potentially being WRONG.

As I started looking and John's pivot analysis stuff, I started 
thinking.  This is nothing more that some type of "fancy" 
retracement stuff.  It gives me a "pivot" which is similar to a 
50% retracement level, which is nothing more than the middle of a 
range.  Shoot, you can see that from the above mathematics of 
pivot calculation.  Then, the S2, S1, and R1 and R2 are nothing 
more than mathematically derived levels around the pivot, with S2 
and R2 attempting to define an outer range for a day's trade.

I love retracement brackets.  Please don't ask me anything about 
where retracement brackets came from, how they're derived, or 
anything.  All I know is that they seem to show "levels" that 
traders somewhere in this world seem to trade from time to time.

So, I got to thinking.  Wow, these levels that John's pivot 
analysis seems to lay out each day, did seem to have one of the 
levels coming into play on that particular day.  I can't remember 
what day we were talking about these levels, but I do remember 
looking at a chart of the S&P 500 Index using the above 
calculations to derive the daily pivot and S2, S1, R1 and R2, and 
sure enough, the SPX traded right to on of the levels, hovered 
there for an extended period of time, but when that level was 
broken, then a rather quick move higher was found as if there was 
some type of consolidation at a level where buyers and seller all 
had stock to buy and stock to sell, then when the buyers won out 
they seemed even more hungry for stocks and drove the SPX higher.

But that wasn't enough.  Are these pivots really like 
retracement?

Have you ever been trading a stock or index based on retracement 
and at certain level of retracement, the stock sure trades well 
around one of the level, but then at other times, the stock 
trades right "through" a level as if it were not even there, and 
then suddenly shows some type of consolidation in-between one of 
your levels of retracement?

I asked myself.  Why did the stock/index do that?  Who in their 
right mind picked that level, when that level didn't line up with 
retracement or anything historically significant?  Why oh why oh 
why did it do that?

I think that sometimes, the answer to that question has been 
pivot analysis.

So.... I began testing the pivot analysis using some historical 
daily data.  That's easy enough to do.  Take yesterday's high, 
low close, plug it into the formula, then make an observation of 
those levels and see if the stock, or index did anything "funny" 
at any of those levels.

"Aha!" I said.... this one didn't work at all that day.  Or "this 
did me no good this day as the stock/index traded between these 
levels all day."

And that's when it hit me.  So why did the stock trade the way it 
did that day?

Laughing... I think I ask myself more questions in a day than 
subscribers do.  But that's me.  I always try to figure out why 
something does what it does.  When I think I've uncovered a 
pattern, then by golly I've got to trade it.

But then I thought about other subscribers that aren't interested 
in daily fluctuations and levels.  Is this tool only good on a 
day to day basis?

Not at all.  While the daily support, pivot and resistance levels 
can be used to determine or identify potential entry and exit 
points for a trade, why can't we "step back" and look at the 
results of the weekly data?

Why not take last week's trading range (high, low, close) and 
establish some type of "range" and levels within that range.  
After all, this pivot stuff is nothing more than a mathematical 
formula, that seemed to have significance on a daily basis.  What 
if it does on a weekly basis too?

And why shouldn't it?  How do you think Merrill Lynch controls 
its inventory of stocks and manages inventory risk on a day-to-
day or week-to-week basis?  I don't think that Merrill has a 
trader for EVERY stock in the market.  Do you?

No!  A great deal of equity trades are handled by computers was 
my thought.  And guess what?  Computers are great with math 
aren't they?

Do you see where I'm going here, and why I think this pivot 
analysis stuff seems to depict levels of trade on a daily and 
sometimes weekly and even monthly basis?

Imagine for a second, that you need some efficient way to control 
your stock inventory of 6,000 stocks that are listed on the 
NASDAQ and NYSE.  At the end of each day, you know to the share 
how much inventory you have.  At the end of each day, you also 
know to a share how much IBM you may have sold and what the 
average selling price was.  You also know how much inventory you 
may have bought of IBM that day and at what the average price 
paid was.  Based on IBM's close, you know to the penny how 
profitable or unprofitable that position is.

Then, guess what happens that night if you find out that you 
either have too much profit, or too great a loss in that 
positions?  For Merrill Lynch or any other brokerage house that 
holds inventories in stocks, then risk management becomes key.

The next day, if Merrill Lynch is "too unprofitable" in a stock, 
then the only way to reduce risk in the position is to either 
sell some of the losing position and reduce risk, or short to the 
market in another account that same position as a hedge.

How can Merrill Lynch do this?  What about Lehman Brothers, 
Goldman Sachs, Fidelity and others?  Program it into a computer 
and at certain levels, have the computer sell/buy a certain 
number of shares if one of your programmed LEVELS is traded.  The 
computer will look at inventory, know to the dollar at any second 
during the day what the inventory value is, and then sell or buy 
as much stock as it can at a particular level, but only to a 
point where it will then stop selling and wait for another level 
in the program to be reached.

As we've discussed in the past, a market maker, institutional 
trade and now a computer, always knows what his/her or its order 
flow is like.  Any institutional trader KNOWS to the dollar how 
much stock he/she is long or short at the end of each day and has 
a feel based on observation of buying/selling order flow from 
customers.  If the trader is "too profitable" in a stock and 
begins to observe that buyers or seller are beginning to "dry up" 
at his "too profitable" level, then its time to start taking some 
profits right?

The same is true for Merrill, Goldman and Solomon.  Each night, 
the computer spits out net inventory and a profit/loss statement.  
The next day the computer is programmed to manage the inventory 
in those positions deemed "getting too risky" and that's it.  No 
emotion, just run the program as described based on the math.

It's the "math" in John's pivot analysis that makes it so "ideal" 
for institutional stock inventory management and why I think that 
the levels from John's pivot analysis seem to come into play on a 
daily, weekly and perhaps monthly basis.

How can these levels come into play on a weekly and monthly basis 
if the programs are being run each day?

Now put yourself in the shoes of a mutual fund manager that is 
running a $6 billion equity fund.  You're "order flow" is the 
number of deposits or redemptions from your shareholders.  Your 
inventory is your "top picks" that should benefit from whatever 
fundamental analysis or scenarios you feel should play out to the 
benefit of the stocks you hold.  Sure, you're going to have some 
dogs in the portfolio and when they're identified, then your 
either going to the head trader and have him or her sell the 
position (not all at once, as the order needs to be worked and 
sold at the best price available over time).  You can't just call 
up and say sell 2 million shares at market.  You do that and the 
bid will drop quickly as other traders perceive something is 
wrong and will only take stock at a lower price.  Either that, or 
they'll sense some "desperation" on your part and "know" they can 
get you to sell them the bulk of it at a lower price.  

Or, you being the fund manager can simply have your trader set up 
a computerized program that has you out of the position over the 
next couple of weeks say between $25 and $28.

It may be difficult for you to swallow my thinking here, but this 
goes on for thousands of stocks each day.  For every buyer 
there's a seller and the opposite is true.  Each wants the "best 
price" and much of the day-to-day transactions are left to the 
computers.

So can this pivot analysis stuff be useful to you?

Now that you know the formula for the pivot stuff, you at least 
know how the levels are now calculated.  Now you're a little more 
"comfortable" with how the support and resistance levels are 
calculated as well as the pivot.

You may now also get greater benefit out of John's future's wraps 
and perhaps my index wraps each night (Monday-Thursday) where 
I've started showing a "matrix," which is nothing more than a 
spreadsheet I've put together, using the formulas above, to give 
us some levels to look at on a daily, weekly and monthly basis.

While we are just really starting to use the weekly and monthly 
observations, it is my "thought" that we as traders and investors 
might look for levels that may correlate with each other from the 
matrix, that might come into play each trading day.

Today is Friday, January 17, 2003 and I've plugged in today's 
high, low and close for Friday's trading, which has John's pivot 
formulas generating S2, S1, Pivot, R1 and R2 levels for Tuesday 
(the markets are closed on Monday for Martin Luther King Jr. 
Day).  

The weekly section has also been updated with this week's high, 
low and close.

The monthly section has not been updated since December 31.  Why?  
At this point, the monthly data is somewhat of an "all 
encompassing benchmark" that we might envision the various 
indexes trading within.  There is not stated rule that the 
indexes cant trade outside of their S2 and R2, but perhaps serves 
as some type of monthly range the markets might trade within and 
perhaps "gravitate" toward some of the levels, especially if 
there is some type of commonality found with the weekly and daily 
levels.

Here's what I'm talking about, and how I think a trader or 
investor might view things in the coming week.

I'm going to make some statements here and see if you can figure 
out why I say this based on the "pivot matrix" below.

Statement #1:  Next week, I will want to look for the possibility 
that the Dow Industrials will trade between the 8,475 and 8,670 
range.  I think the S&P 100 Index will trade between 450 and 463.  
I think the S&P 500 will trade between 890 and 912.

Pivot Analysis Matrix


 

I made the above statement based off of the above pivot analysis 
matrix and simply made some observations of correlative levels 
found in the "daily" and "weekly" pivot levels.  I "know" we have 
a subscriber or two that are color blind, but I note correlative 
support levels in the Dow Indu, OEX and SPX at Tuesday's 
(01/21/03) S2, with the weekly S1s.  Making note to potential 
"key" levels of support at INDU=8,475 and OEX=450 and SPX=890.

On the resistance side of things, I note correlative points at 
Dow Indu, OEX and SPX, with their daily R1s, and their weekly 
PIVOTS.  Making note to potential "key" levels of resistance at 
INDU=8,670, OEX=463 and SPX=912.

Let's look at the S&P 500 Index (SPX.X) 901.78 and use the weekly 
S2 and R2 levels to define a "range" with our retracement 
bracket.  What we find may be interesting.

S&P 500 Index Chart - Daily Interval


 

The SPX certainly looks to be sliding lower with MACD oscillator 
rolling over and stochastics approaching oversold.  With 
correlative levels of 890 and 889 found in the daily and weekly 
charts, if find interesting correlation with those matrix levels 
with the technical level found in the SPX chart itself.  

Since the "pivot" by mathematical approach DEFINES the mid-point 
of the weekly range, then the 50% retracement bracket, with upper 
and lower levels of retracement set at the lower and upper S2 and 
R2 reflects the weekly pivot itself.  However, it is the 
correlative R1 of 911 from the DAILY pivot analysis that 
correlates with the weekly "pivot" that gives the SPX some 
potential resistance at 911 to 912.

How would I look to trade this?  The matrix by itself does not 
lend itself to "predicting" directional movement.  But if we 
think like a computer and trade the levels then the following 
approach could be taken.

Bearish thought for Tuesday.

IF SPX breaks below DAILY S1 of 896, then short and target 890, 
stop just above 61.8% retracement of 903.48 or DAILY pivot of 
905.

If SPX rebounds on Tuesday in "relief rally", then look for 
bearish entry near 911 or 912, stop 915.50 and target 890.

Bullish thought for Tuesday.

If SPX breaks below DAILY S1 of 896, begin looking for SPX to 
firm near 890 and go long a rebound attempt at 892, stop 887 and 
target 910.  Expect some resistance at daily and weekly S1s, 
DAILY pivot and look to exit either just below weekly Pivot, or 
any correlative resistance found in coming sessions between daily 
and weekly pivot matrix correlations.

The reason a "swing trader" must look for daily and weekly 
correlations is that each day, as the SPX trades a different 
high/low/close, the daily S2, S1, PIVOT, R1 and R2 will change.

Conclusion

I did some back testing and some paper trading with the pivot 
analysis and have "developed" some trading techniques using 
retracement like that above from the daily S2 and R2 levels and 
have found some "uncanny" correlations as to how the indexes and 
even stocks have seemed to trade the levels of the pivot analysis 
and levels of retracement.

Maybe there will be some questions generated from this article 
that we can use for a topic next week?

Have a great 3-day weekend.  Remember, the markets are closed for 
trading on Monday.  It will be very interesting to see how things 
shake out in next weeks trade.

Jeff Bailey


*************
COMING EVENTS
*************

==========================================
Market Watch for the week of January 20th
==========================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

BXS    BancorpSouth, Inc.    Mon, Jan 20  After the Bell      0.38
CX     CEMEX S.A.            Mon, Jan 20  -----N/A-----       0.47
FAST   Fastenal              Mon, Jan 20  Before the Bell     0.21
FISV   Fiserv                Mon, Jan 20  After the Bell      0.35
HE     Hawaiian Electric     Mon, Jan 20  -----N/A-----       0.77


------------------------- TUESDAY ------------------------------

MMM    3M Company            Tue, Jan 21  07:30 am ET         1.28
ADTN   ADTRAN, Inc.          Tue, Jan 21  Before the Bell     0.29
ACS    Affiliated Comp Serv  Tue, Jan 21  Before the Bell     0.53
AMTD   Ameritrade Holding Co Tue, Jan 21  Before the Bell     0.04
ARM    ArvinMeritor, Inc.    Tue, Jan 21  Before the Bell     0.46
AVB    Avalonbay Communities Tue, Jan 21  After the Bell      0.85
BPC    Banco Com Portugues   Tue, Jan 21  After the Bell       N/A
BJS    BJ SVCS CO            Tue, Jan 21  09:15 am ET         0.22
BXP    Boston Properties     Tue, Jan 21  After the Bell      1.07
BNI    Burl No Santa Fe Corp Tue, Jan 21  Before the Bell     0.52
CDN    Cadence Design Sys    Tue, Jan 21  After the Bell      0.04
CNI    Canadian Natl Railway Tue, Jan 21  After the Bell      0.84
CKFR   CheckFree             Tue, Jan 21  After the Bell      0.17
C      Citigroup Inc.        Tue, Jan 21  -----N/A-----       0.46
CYT    Cytec Industries Inc. Tue, Jan 21  After the Bell      0.35
DV     DeVry                 Tue, Jan 21  -----N/A-----       0.20
ETN    Eaton                 Tue, Jan 21  -----N/A-----       0.92
F      Ford Motor Company    Tue, Jan 21  Before the Bell     0.06
FULT   Fulton Financial      Tue, Jan 21  After the Bell      0.34
GP     Georgia-Pacific       Tue, Jan 21  Before the Bell     0.22
GPT    GreenPoint Financial  Tue, Jan 21  Before the Bell     1.44
HDI    Harley-Davidson       Tue, Jan 21  Before the Bell     0.46
HCP    Health Care Property  Tue, Jan 21  Before the Bell     0.89
HMA    Hlth Mana Ass Inc.    Tue, Jan 21  Before the Bell     0.24
HUBb   Hubbell Incorporated  Tue, Jan 21  11:00 am ET         0.46
HU     Hudson United Bancorp Tue, Jan 21  Before the Bell     0.61
ICBC   Independence Com Bank Tue, Jan 21  4:00 pm ET          0.58
JNJ    Johnson & Johnson     Tue, Jan 21  Before the Bell     0.47
KRI    Knight Ridder         Tue, Jan 21  05:30 am ET         1.14
LEE    Lee Enterprises, Inc  Tue, Jan 21  -----N/A-----       0.50
LOGI   Logitech Intl         Tue, Jan 21  11:30 am ET         0.71
MXO    Maxtor                Tue, Jan 21  After the Bell      0.12
MCK    McKesson Corporation  Tue, Jan 21  After the Bell      0.46
MEL    Mellon Financial Corp Tue, Jan 21  -----N/A-----       0.42
MOT    Motorola Inc.         Tue, Jan 21  After the Bell      0.10
PRK    Park National         Tue, Jan 21  -----N/A-----       1.60
PPP    Pogo Producing        Tue, Jan 21  12:00 pm ET         0.59
PCO    Premcor Inc.          Tue, Jan 21  -----N/A-----       0.39
RYN    Rayonier Inc.         Tue, Jan 21  After the Bell      0.34
RGIS   Regis Corporation     Tue, Jan 21  Before the Bell     0.46
RFMD   RF Micro Devices, Inc Tue, Jan 21  -----N/A-----       0.05
ROK    Rockwell Automation   Tue, Jan 21  -----N/A-----       0.20
SANM   Sanmina-SCI Corp.     Tue, Jan 21  After the Bell      0.01
SOV    Sovereign Bancorp     Tue, Jan 21  After the Bell      0.33
SU     Suncor Energy         Tue, Jan 21  -----N/A-----       0.28
TKR    The Timken Company    Tue, Jan 21  Before the Bell     0.18
TMA    Thornburg Mortgage,   Tue, Jan 21  After the Bell       N/A
TDW    Tidewater             Tue, Jan 21  Before the Bell     0.42
TRMK   Trustmark Corporation Tue, Jan 21  -----N/A-----       0.50
USB    U.S. Bancorp          Tue, Jan 21  -----N/A-----       0.48
UIS    Unisys                Tue, Jan 21  After the Bell      0.27
UBSI   United Bankshares     Tue, Jan 21  Before the Bell     0.53
WM     Washington Mutual     Tue, Jan 21  After the Bell      1.03
WFC    Wells Fargo           Tue, Jan 21  Before the Bell     0.86
WABC   Westamerica Bancorp   Tue, Jan 21  08:00 am ET         0.67
XLNX   Xilinx, Inc.          Tue, Jan 21  After the Bell      0.12

-----------------------  WEDNESDAY -----------------------------

ATVI   Activision            Wed, Jan 22  -----N/A-----       0.61
ACXM   Acxiom                Wed, Jan 22  After the Bell      0.19
APD    Air Products & Chem   Wed, Jan 22  Before the Bell     0.59
ALTR   Altera Corporation    Wed, Jan 22  4:15 pm ET          0.06
DOX    Amdocs Limited        Wed, Jan 22  After the Bell      0.18
AMR    AMR Corporation       Wed, Jan 22  -----N/A-----      -3.84
BAX    BAXTER INTL INC       Wed, Jan 22  Before the Bell     0.60
BSG    BISYS GROUP INC       Wed, Jan 22  After the Bell      0.24
BCC    Boise Cascade         Wed, Jan 22  Before the Bell     0.09
BOKF   BOK Financial         Wed, Jan 22  -----N/A-----       0.59
EAT    Brinker International Wed, Jan 22  Before the Bell     0.43
BRO    Brown & Brown         Wed, Jan 22  After the Bell      0.29
CFFN   Capitol Federal Finl  Wed, Jan 22  Before the Bell     0.35
CDWC   CDW Computer Centers  Wed, Jan 22  After the Bell      0.51
CTX    Centex Corporation    Wed, Jan 22  Before the Bell     2.14
CHKP   Chk Point Sftwre Tech Wed, Jan 22  After the Bell      0.24
CTXS   Citrix Systems        Wed, Jan 22  After the Bell      0.15
COH    Coach, Inc.           Wed, Jan 22  Before the Bell     0.65
CA     Computer Ass Intl     Wed, Jan 22  After the Bell      0.04
CPWR   Compuware Corporation Wed, Jan 22  -----N/A-----       0.07
CVG    Convergys Corporation Wed, Jan 22  -----N/A-----       0.32
ET     E*TRADE Group, Inc.   Wed, Jan 22  Before the Bell     0.14
EK     Eastman Kodak Company Wed, Jan 22  Before the Bell     0.68
FIC    Fair, Isaac Com Inc.  Wed, Jan 22  After the Bell      0.36
FII    Federated Investors B Wed, Jan 22  After the Bell      0.43
FMBI   First Midwest Bancorp Wed, Jan 22  Before the Bell     0.47
FO     Fortune Brands        Wed, Jan 22  Before the Bell     0.91
FBN    Furniture Brands      Wed, Jan 22  After the Bell      0.52
GD     General Dynamics      Wed, Jan 22  Before the Bell     1.45
HP     Helmerich & Payne,    Wed, Jan 22  -----N/A-----       0.07
ICST   Integrted Circuit Sys Wed, Jan 22  Before the Bell     0.23
IGT    Intl Gaming Tech      Wed, Jan 22  -----N/A-----       0.92
ITT    ITT Industries        Wed, Jan 22  Before the Bell     0.97
JPM    J P MORGAN CHASE & CO Wed, Jan 22  Before the Bell    -0.06
JEF    Jefferies Group       Wed, Jan 22  -----N/A-----       0.52
LRCX   Lam Research          Wed, Jan 22  After the Bell      0.00
LSI    LSI Logic             Wed, Jan 22  After the Bell      0.01
LU     Lucent Tech Inc.      Wed, Jan 22  Before the Bell    -0.21
MYG    Maytag                Wed, Jan 22  After the Bell      0.62
MERQ   Mercury Interactive   Wed, Jan 22  After the Bell      0.24
NSCN   NetScreen Tech        Wed, Jan 22  After the Bell      0.07
NYB    New York Comm Banc    Wed, Jan 22  07:30 am ET         0.57
NTRS   Northern Trust        Wed, Jan 22  -----N/A-----       0.47
PSFT   PeopleSoft            Wed, Jan 22  After the Bell      0.14
PLCM   Polycom Incorporated  Wed, Jan 22  After the Bell      0.07
PGN    Progress Energy       Wed, Jan 22  Before the Bell     0.69
QCOM   QUALCOMM Inc.         Wed, Jan 22  After the Bell      0.37
RSLN   Roslyn Bancorp, Inc.  Wed, Jan 22  -----N/A-----       0.46
SNDK   SanDisk Corp.         Wed, Jan 22  After the Bell      0.19
SIB    SI Bank & Trust       Wed, Jan 22  After the Bell      0.58
SEBL   Siebel Systems        Wed, Jan 22  After the Bell      0.04
SLAB   Silicon Labs Inc.     Wed, Jan 22  After the Bell      0.18
SKM    SK Telecom            Wed, Jan 22  -----N/A-----        N/A
SWKS   Skyworks              Wed, Jan 22  After the Bell     -0.02
SNA    Snap-on Incorporated  Wed, Jan 22  Before the Bell     0.50
LUV    Southwest Airlines    Wed, Jan 22  Before the Bell     0.03
STK    Storage Technology    Wed, Jan 22  After the Bell      0.41
STU    Student Loan          Wed, Jan 22  -----N/A-----        N/A
TE     TECO Energy Inc.      Wed, Jan 22  -----N/A-----       0.41
TLAB   Tellabs               Wed, Jan 22  -----N/A-----      -0.03
TXN    Texas Instruments     Wed, Jan 22  4:30 pm ET          0.03
JNC    The John Nuveen Comp  Wed, Jan 22  Before the Bell     0.34
PGR    The Progressive Group Wed, Jan 22  -----N/A-----       0.83
REY    The Reynolds Reynolds Wed, Jan 22  08:00 am ET         0.40
TYC    Tyco International    Wed, Jan 22  Before the Bell     0.34
UNP    Union Pacific         Wed, Jan 22  -----N/A-----       1.08
WBS    Webster Financial     Wed, Jan 22  Before the Bell     0.84
WY     Weyerhaeuser Co.      Wed, Jan 22  Before the Bell     0.26


------------------------- THURSDAY -----------------------------

AGRa   Agere Systems         Thu, Jan 23  Before the Bell    -0.08
ATG    AGL Resources         Thu, Jan 23  -----N/A-----       0.47
ACV    Alberto-Culver Co.    Thu, Jan 23  10:30 am ET         0.56
ALEX   Alexander & Baldwin   Thu, Jan 23  After the Bell       N/A
ATK    ALLIANT TECHSYSTEMS   Thu, Jan 23  Before the Bell     0.84
AMZN   Amazon.com, Inc.      Thu, Jan 23  After the Bell      0.14
ABK    AMBAC FINL GROUP INC  Thu, Jan 23  Before the Bell     1.22
AXL    Am Axle Manu Holdings Thu, Jan 23  -----N/A-----       0.85
AMGN   Amgen                 Thu, Jan 23  -----N/A-----       0.35
AOT    Apogent Technologies  Thu, Jan 23  After the Bell      0.29
ABI    Applied Biosystems    Thu, Jan 23  Before the Bell     0.23
AMCC   Applied Micro Circ Co Thu, Jan 23  After the Bell     -0.05
ASH    Ashland               Thu, Jan 23  Before the Bell     0.44
AF     Astoria Financial Co  Thu, Jan 23  After the Bell      0.72
T      AT&T                  Thu, Jan 23  Before the Bell     0.70
ATML   Atmel Corporation     Thu, Jan 23  After the Bell     -0.06
ALV    Autoliv               Thu, Jan 23  -----N/A-----       0.45
AVT    Avnet                 Thu, Jan 23  After the Bell      0.04
AVX    AVX Corporation.      Thu, Jan 23  Before the Bell     0.00
BDX    BD                    Thu, Jan 23  Before the Bell     0.39
BLS    BellSouth Corporation Thu, Jan 23  Before the Bell     0.51
BMS    Bemis Company, Inc.   Thu, Jan 23  Before the Bell     0.80
BMC    BMC Software          Thu, Jan 23  Before the Bell     0.08
BRCM   Broadcom              Thu, Jan 23  After the Bell     -0.03
BR     Burlington Resources  Thu, Jan 23  Before the Bell     0.60
CBT    Cabot                 Thu, Jan 23  After the Bell      0.48
CCMP   Cabot Microelec       Thu, Jan 23  Before the Bell     0.42
CAI    CACI International    Thu, Jan 23  Before the Bell     0.34
CAH    Cardinal Health, Inc. Thu, Jan 23  Before the Bell     0.77
CAT    Caterpillar Inc.      Thu, Jan 23  Before the Bell     0.67
CEN    Ceridian              Thu, Jan 23  -----N/A-----       0.25
CERN   Cerner Corporation    Thu, Jan 23  After the Bell      0.42
CPS    ChoicePoint, Inc.     Thu, Jan 23  Before the Bell     0.35
CIN    Cinergy Corp.         Thu, Jan 23  Before the Bell     0.64
CIT    CIT Group             Thu, Jan 23  Before the Bell     0.67
CBE    Cooper Industries     Thu, Jan 23  Before the Bell     0.62
GLW    Corning               Thu, Jan 23  After the Bell     -0.09
CVD    Covance               Thu, Jan 23  After the Bell      0.26
CR     Crane                 Thu, Jan 23  After the Bell      0.33
XRAY   DENTSPLY Intl Inc.    Thu, Jan 23  After the Bell      0.52
DLTR   Dollar Tree Stores    Thu, Jan 23  After the Bell      0.77
D      Dominion Resources    Thu, Jan 23  Before the Bell     1.15
DJ     Dow Jones & Company   Thu, Jan 23  -----N/A-----       0.24
LLY    Eli Lilly             Thu, Jan 23  Before the Bell     0.68
EMC    EMC Corporation       Thu, Jan 23  Before the Bell     0.01
ELX    Emulex                Thu, Jan 23  -----N/A-----       0.19
EEP    Enbridge Energy Part  Thu, Jan 23  After the Bell      0.54
EFX    Equifax Inc.          Thu, Jan 23  Before the Bell     0.38
FDC    First Data            Thu, Jan 23  Before the Bell     0.48
FLEX   Flextronics           Thu, Jan 23  After the Bell      0.11
GDW    Golden West Financial Thu, Jan 23  -----N/A-----       1.57
HYSL   Hyperion              Thu, Jan 23  After the Bell      0.18
IEX    Idex                  Thu, Jan 23  Before the Bell     0.40
IKN    Ikon Office Solutions Thu, Jan 23  Before the Bell     0.21
IMO    Imperial Oil Limited  Thu, Jan 23  -----N/A-----        N/A
IR     Ingersoll-Rand Co.    Thu, Jan 23  Before the Bell     0.93
ISCA   Intl Speedway         Thu, Jan 23  -----N/A-----       0.69
IRF    Intl Rectifier        Thu, Jan 23  -----N/A-----       0.13
ISSX   Inter Sec Systems     Thu, Jan 23  After the Bell      0.15
ITG    Investment Tech Grp   Thu, Jan 23  Before the Bell     0.34
IFIN   Investors Finl Serv   Thu, Jan 23  -----N/A-----       0.26
ESI    ITT Educational Serv  Thu, Jan 23  Before the Bell     0.36
JEC    Jacobs Enginering Grp Thu, Jan 23  Before the Bell     0.51
JDSU   JDS Uniphase Corp     Thu, Jan 23  After the Bell     -0.05
KLAC   KLA-Tencor            Thu, Jan 23  After the Bell      0.14
LR     Lafarge               Thu, Jan 23  Before the Bell      N/A
LSCC   Lattice Semiconductor Thu, Jan 23  After the Bell      0.06
LXK    Lexmark Intl, Inc.    Thu, Jan 23  -----N/A-----       0.85
MRO    Marathon Oil Corp     Thu, Jan 23  Before the Bell     0.62
KRB    MBNA                  Thu, Jan 23  -----N/A-----       0.46
MCD    McDonalds Corporation Thu, Jan 23  -----N/A-----       0.25
MCHP   Microchip Technology  Thu, Jan 23  After the Bell      0.17
MCHP   Microchip Technology  Thu, Jan 23  After the Bell      0.17
NATI   National Instruments  Thu, Jan 23  -----N/A-----       0.19
NCR    NCR Corporation       Thu, Jan 23  -----N/A-----       0.71
NET    Network Associates    Thu, Jan 23  Before the Bell     0.24
NOK    Nokia                 Thu, Jan 23  -----N/A-----       0.23
NT     Nortel Networks       Thu, Jan 23  -----N/A-----      -0.06
NVS    Novartis Corporation  Thu, Jan 23  Before the Bell     0.45
NST    NSTAR                 Thu, Jan 23  -----N/A-----       0.69
ONB    Old National Bancorp  Thu, Jan 23  Before the Bell     0.42
ORI    Old Republic Intl     Thu, Jan 23  -----N/A-----       0.82
OSK    Oshkosh Truck         Thu, Jan 23  Before the Bell     0.48
PKG    Packaging Corp of Am  Thu, Jan 23  Before the Bell     0.13
PTV    Pactiv                Thu, Jan 23  Before the Bell     0.35
PCL    Plum Creek Timber     Thu, Jan 23  After the Bell      0.27
PMCS   PMC-Sierra, Inc.      Thu, Jan 23  After the Bell     -0.07
DGX    Quest Diagnostics     Thu, Jan 23  After the Bell      0.78
RDA    READERS DIGEST ASSN   Thu, Jan 23  Before the Bell     0.97
RESP   Respironics, Inc.     Thu, Jan 23  Before the Bell     0.40
RHI    Robert Half Intl      Thu, Jan 23  -----N/A-----      -0.01
SLE    Sara Lee              Thu, Jan 23  -----N/A-----       0.42
SGP    Schering-Plough       Thu, Jan 23  Before the Bell     0.41
SI     Siemens AG            Thu, Jan 23  -----N/A-----        N/A
SBUX   Starbucks             Thu, Jan 23  After the Bell      0.18
STE    Steris                Thu, Jan 23  -----N/A-----       0.28
SUN    Sunoco                Thu, Jan 23  -----N/A-----       0.80
TXT    Textron Inc.          Thu, Jan 23  Before the Bell     1.01
SSP    The E.W. Scripps Co   Thu, Jan 23  -----N/A-----       0.86
SMG    The Scotts Company    Thu, Jan 23  Before the Bell    -1.53
UNH    UnitedHealth Group    Thu, Jan 23  Before the Bell     1.16
UTSI   UTStarcom             Thu, Jan 23  After the Bell      0.31
VAR    Varian Medical Sys    Thu, Jan 23  After the Bell      0.24
VSEA   Varian Semi Eq Ass    Thu, Jan 23  After the Bell      0.00
VRSN   VeriSign, Inc.        Thu, Jan 23  After the Bell      0.14
VVI    VIAD CORP             Thu, Jan 23  -----N/A-----       0.25
WDC    Western Digital Corp. Thu, Jan 23  After the Bell      0.13
ZION   Zions Bancorp         Thu, Jan 23  After the Bell      0.94


------------------------- FRIDAY -------------------------------

ALE    Allete                Fri, Jan 24  Before the Bell     0.31
AEP    American Elec Power   Fri, Jan 24  -----N/A-----       0.57
ABC    AmeriSourceBergen     Fri, Jan 24  Before the Bell     0.82
ADM    Archer Daniels Mdlnd  Fri, Jan 24  Before the Bell     0.18
CEY    Certegy               Fri, Jan 24  Before the Bell     0.44
CFC    Countrywide Finl Corp Fri, Jan 24  Before the Bell     1.91
FPL    FPL Group             Fri, Jan 24  07:45 am ET         0.70
LMT    Lockheed Martin       Fri, Jan 24  Before the Bell     0.80
PGL    Peoples Energy Corp.  Fri, Jan 24  Before the Bell     0.87
RTN    Raytheon              Fri, Jan 24  -----N/A-----       0.65
SWK    The Stanley Works     Fri, Jan 24  Before the Bell     0.56
WPO    The Wash Post Company Fri, Jan 24  -----N/A-----       7.47
UST    UST Inc.              Fri, Jan 24  Before the Bell     0.77


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

PVBT    PrivateBancorp            3:2      Jan. 17th   Jan. 20th
CWTR    Coldwater Creek           3:2      Jan. 30th   Jan. 31st

--------------------------
Economic Reports This Week
--------------------------

Welcome to another week of Q4 earnings reports!  If the tensions
in Iraq don't steal the spotlight again then major earnings from
the likes of MMM and Citigroup will be headlining the week.  
Inside we have a big list of the major companies announcing.

==============================================================
                       -For-           

Monday, 01/20/02
----------------
None


Tuesday, 01/21/02
-----------------
Housing Starts (BB)     Dec  Forecast: 1.693M  Previous:   1.697M
Building Permits (BB)   Dec  Forecast: 1.700M  Previous:   1.738M


Wednesday, 01/22/02
-------------------
Treasury Budget (DM)    Dec  Forecast:  $9.0B  Previous:   $26.6B


Thursday, 01/23/02
------------------
Initial Claims (BB)   01/18  Forecast:    N/A  Previous:     360K
Leading Indicators(DM)  Dec  Forecast:   0.0%  Previous:     0.7%


Friday, 01/24/02
----------------
None


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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*********************
SWING TRADE GAME PLAN
*********************

Out Like a Bear

The week certainly ended with a different feeling than it started. 
Just a few days ago, we seemed to be building a nice series of 
higher highs and higher lows and those bears pointing to a 
possible head and shoulders pattern had gone into hibernation.


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Contact Support
The Option Investor Newsletter                   Sunday 01-19-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: OCR
Put Play of the Day: ERTS
Dropped Calls: CMCSK
Dropped Puts: WLP


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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS              Mon    Tue    Wed   Thu  Week

CI       46.23    0.29   1.14  -0.26  0.77  1.91  Good strength
CTAS     43.26   -0.45   0.21  -1.20 –0.51 –3.54  Triple bottom
CMCSK    26.02    0.02   0.80  -0.24 –0.31 –0.46  Drop, rolled
OCR      26.30    0.06   0.76  -0.76  0.85  1.30  New, new high
RJR      46.93    0.24   0.83  -0.14  1.15  2.73  Steady climb


PUTS

ASD      67.02   -0.15   0.03  -0.25  0.66 –1.53  $68 failure
CTSH     60.14   -0.51  -0.44   0.01 –0.05 –2.32  New, On verge
ERTS     47.98   -2.28  -0.09   0.41 –1.01 –4.25  New, try again
KSS      56.60   -0.59   0.05   0.65 –0.79 –1.59  New, stalled
WLP      69.80   -0.96  -1.00  -0.14 –0.61 –0.96  Drop, sector


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

OCR – Omnicare, Inc. $26.30 (+1.70 last week)

See details in play list




Put Play of the Day:
********************

ERTS - Electronic Arts - $47.95 -1.78 (-3.93 for the week)

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

CMCSK $26.02 (-0.39) CMCSK had a great run in the first two weeks
of the year, and we were looking to benefit from the next leg of
the rally.  Since we didn't want to get caught buying the top of
the rally, we waited for the pullback and bounce from support.
While the pullback occurred, there just hasn't even been a hint
of a bounce over the past 2 days, and there should have been
something with the stock closing right on solid support at $26.
The fact that there wasn't a bounce today at that level hints
that there isn't going to be one.  With daily Stochastics rolling
over and the 10-dma being violated at the close, we're going to
pull the plug on CMCSK early.  The momentum appears to have been
drained away, and we want to drop the play before the bears
really get angry.


PUTS
^^^^

WLP $69.80 (+0.23) After grinding lower for the past couple
weeks, WLP did a sharp about face on Friday, gaining back all
the ground it had lost during the first four days of the week,
closing just below its high of the day.  The entire HMO index
was up sharply as well, with a 2% gain.  That's not huge, but
in light of the across-the-board losses in the broad market,
it's pretty impressive.  Impressive enough that we don't want
to stick around and found out if our $70.25 stop is going to
be violated on Tuesday.  The magnitude of today's move, combined
with above-average volume indicates that Friday was a trend
reversal session.  Use any weakness next week to exit open
positions, but if it doesn't materialize, honor your stops.


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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**********

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The Option Investor Newsletter                   Sunday 01-19-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: OCR
Current Calls: CI, RJR
New Puts: ERTS, CTSH, KSS


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

OCR – Omnicare, Inc. $26.30 (+1.70 last week)

Company Summary:
Omnicare, Inc. is a provider of pharmacy services to long-term
care institutions, such as skilled nursing facilities, assisted
living facilities and other institutional health care facilities.
The company also provides comprehensive clinical research for
the pharmaceutical and biotechnology industries.  OCR operates
in five business segments: Pharmacy Services, Consultant
Pharmacist Services, Pharmaceutical Case Management Services,
Ancillary Services and Contract Research Organization Services.

Why We Like It:
The fabric of our society is changing, as the demographics are
shifting more heavily in favor of the elderly.  Fortunately there
are plenty of facilities and services to help us care for our
families in their golden years, and there are ways to benefit
from the trend as well.  OCR services the whole long-term care
industry, and judging by its price action, business must be
growing.  In contrast to the broad market weakness throughout
December, shares of OCR just consolidated near their 200-dma
before launching higher at the beginning of the year.  Since
then, the stock has blasted through its $25 resistance level
and with last week's push through $26, the bulls are now setting
their sights on resistance in the $28.00-28.50 area.  If OCR can
clear that level, it will be trading at levels not seen since
early 1999.  The PnF chart is certainly in favor of such a goal,
as the current Buy signal is pointing to an upside target of
$42, and the push through $26 succeeded in breaking through the
bearish resistance line.  As good as that sounds, we do need to
be careful as the stock looks ripe for the next near-term
pullback.  If the recent stair-step action continues, then OCR
ought to pull back into the $25.00-25.25 area, where it ought to
bounce and make an assault on new recent highs.  But if this
trend is going to continue, then  the $25 level needs to hold
as support.  A close below there would not be a good development
for the bulls, so despite being tight, that's where we're placing
our stop.  Looking at the intraday chart, we can see possible
support at $26, getting stronger by $25.50 and looking very
solid at $25, also the site of the ascending trendline from the
beginning of December.  Target entries on the bounce, but wait
for the bounce.

BUY CALL FEB-25*OCR-BE OI=2913 at $2.00 SL=1.00
BUY CALL FEB-27 OCR-BY OI=  55 at $0.75 SL=0.25
BUY CALL MAR-25 OCR-CE OI= 304 at $2.55 SL=1.25
BUY CALL MAR-27 OCR-CY OI=  22 at $1.15 SL=0.50

Average Daily Volume = 413 K



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******************
CURRENT CALL PLAYS
******************

CI - Cigna Corp. - 44.31 +0.71 (+2.93 for the week)

Company Description:
With businesses in Asia Pacific, Latin America and Europe, CIGNA 
International, the global division of CIGNA Corporation, provides 
health care, medical care management services and defined 
contribution pension products to the workplace and consumer 
markets, and life, accident and health insurance to individuals. 
It is also a leading supplier of specialized health care and 
insurance benefits to expatriate employees of multinational 
companies on international assignments. (source: company press 
release)

Why We Like It:
Shares of CI came within four cents of setting a new relative 
high on Friday.  That fact alone is pretty impressive, given the 
overall market's nosedive.  Shares traded in a narrow 96-cent 
rage before finishing with a fractional loss, outpacing both the 
Dow Jones and the IUX.X insurance index.  CI still looks poised 
to fill in a larger chunk of its October 25th gap, but the bulls 
may have a tough time gaining traction if the market sees more 
weakness next week.  On the other hand, a reversal in the major 
indices would provide the perfect climate for a rally to the 
$50.00 area.  Traders looking to enter new long positions can 
continue to watch for a move above $46.69 or a pullback to 
$45.00.  We'd be looking for the latter level to provide support 
if shares head lower on Tuesday.

BUY CALL FEB-40*CI-BH OI= 191 at $7.00 SL=3.50
BUY CALL FEB-45 CI-BI OI= 490 at $3.20 SL=1.60
BUY CALL APR-40 CI-DH OI= 588 at $7.80 SL=3.90
BUY CALL APR-45 CI-DI OI= 1494 at $4.40 SL=2.20

Average Daily Volume = 523 k


---

RJR - RJ Reynolds $46.93 +0.69 (+3.59 for the week)

Company Description:
R.J. Reynolds Tobacco Company is the second-largest tobacco 
company in the United States, manufacturing about one of every 
four cigarettes sold in the United States. Reynolds Tobacco's 
product line includes four of the nation's 10 best-selling 
cigarette brands: Camel, Winston, Salem and Doral. (source: 
company press release)

Why We Like It:
The tobacco group is typically thought of as one of the 
"defensive" sectors that sees buying during times of weakness in 
the overall market.  This makes sense from a fundamental 
perspective.  After all, cigarettes are a relatively recession-
proof product.  The high dividends offered by tobacco companies 
also help to attract buyers when the market is in turmoil.  
Today's action was a textbook case of defensive rotation.  RJR, 
apparently oblivious to the sinking Dow Jones, ticked higher 
throughout the session before finishing near the highs of the 
day.  The 30-minute chart shows a bullish trend of steady gains 
that began on the third trading day of the year.  RJR has been 
able to move higher regardless of what the market is doing.  
Based on this pattern of strength, it looks like shares will be 
able to continue higher next week - even if the Dow manages to 
retrace its latest decline and money moves back out of more 
defensive sectors.  On the other hand, it wouldn't be surprising 
to see some profit-taking in RJR to consolidate some of the 
recent gains.  If a pullback does take place we'll be looking for 
support at $45.00.  A rebound from this level would provide a 
potential entry point for traders thinking about taking new long 
positions.  But wait...Doesn't RJR announce earnings next 
Thursday?  According to our usually-reliable source for earnings, 
the company has moved its release date to January 28th.  However, 
we weren't able to confirm this information at the RJR investor 
relations department or through a secondary news source.  So 
while it appears the company won't be announcing until the 28th, 
we won't assume that's the case until we get some solid 
confirmation.  We'll update this situation on Tuesday.

BUY CALL FEB-42.50*RJR-BV OI= 867 at $5.30 SL=2.65
BUY CALL FEB-45    RJR-BI OI= 1229 at $3.40 SL=1.25
BUY CALL MAY-42.50 RJR-EV OI= 185 at $6.30 SL=3.15
BUY CALL MAY-45    RJR-EI OI= 776 at $4.70 SL=2.35

Average Daily Volume = 876 k



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

ERTS - Electronic Arts - $47.95 -1.78 (-3.93 for the week) 

Company Description:
Electronic Arts, headquartered in Redwood City, California, is 
the world's leading interactive entertainment software company. 
Founded in 1982, Electronic Arts posted revenues of more than 
$1.7 billion for fiscal 2002. The company develops, publishes and 
distributes software worldwide for video game systems, personal 
computers and the Internet. (source: company press release)

Why We Like It: 
Okay...Let's try this again.  Ten days ago we added ERTS to our 
bearish play list.  Speculation that the company's critical "Sims 
Online" game was seeing weak initial sales had sent the stock to 
52-week lows.  However, shares quickly rebounded after Electronic 
Arts' CEO said that the program had sold 90,000 copies within the 
first three weeks of its release.  ERTS then gravitated to the 
$50.00 area before Steve Ballmer & Co. dropped a bombshell on the 
NASDAQ.  Microsoft's earnings report was responsible for a lot of 
the tech weakness on Friday.  The company said that in addition 
to a "tepid" IT spending environment, demand for personal 
computers continues to be poor.  But it was additional comments 
regarding the X-Box videogame console that really spooked 
shareholders of ERTS.  Electronic Arts, you'll recall, is a 
leading software producer for the system.  MSFT's CFO said that a 
softer-than-expected videogame market would result in less 
revenue from the X-box.  As a matter of fact, this challenging 
environment was cited as one of the primary reasons for 
Microsoft's subdued third-quarter outlook. It doesn't take a 
brain surgeon to link poor X-box results to a weaker bottom line 
for Electronic Arts.  Both stocks responded in predictable 
fashion on Friday morning.

ERTS gapped lower and finished the day with a 3.5% loss.  This 
decline did a significant amount of damage to the technical 
picture.  In addition to breaking down to new multi-month lows, 
the stock also violated its 200-week moving average for the first 
time since 1997.  This moving average has acted as support on 
various pullbacks in 1998 and 2000.  With shares now trading 
below the 200-wma ($48.21), there is no historical support until 
the 2001 lows at $41.00.  We're going to be somewhat aggressive 
with this play and target a move to psychological support at 
$40.00.  Due to the large amount of selling that's taken place 
over the past week, we've also classified ERTS as a high-
risk/high-reward play.  The rolling MACD and technical breakdown 
suggest that the selling will continue.  However, we need to be 
aware of the possibility that short-covering could send the stock 
back towards the $50.00 area.  Conservative traders may want to 
wait for a failed rally at this level to enter short positions.  
Our stop-loss is set at $52.00, just above the descending 21-dma.  
On another earnings-related note, Electronic Arts is expected to 
announce their quarterly results on January 29th.  We'll let you 
know as soon as this date is confirmed.  

BUY PUT FEB-50*EZQ-NJ OI= 1474 at $4.30 SL=2.15
BUY PUT MAR-50 EZQ-OJ OI= 2202 at $5.50 SL=2.75

Average Daily Volume = 5.75 mil


---

CTSH – Cognizant Technology Solutions $60.14 (-2.32 last week)

Company Summary:
Cognizant Technology Solutions Corporation delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  Among CTSH's prominent clients are ACNielsen
Corporation, ADP, Inc., Brinker Int'l, Computer Sciences, The
Dun & Bradstreet Corporation, First Data Corporation and
Nielsen Media Research.

Why We Like It:
Remember when buying the good news and selling the bad news
actually made sense?  Lately it seems all logic has been thrown
out the window, but therein lies the opportunity for profit.
After reaffirming its Q4 earnings estimates and raising guidance
for 2003 on January 6th, CTSH was taken out behind the woodshed
and severely beaten.  The initial drop seemed to run out of
steam near the $62 level and it actually looked like the bulls
might be interested in propping the stock up.  But they couldn't
do it and now the stock looks ripe for another big breakdown.
After stubbornly holding near the $61.50 level for most of this
week, cracks in support began to appear Friday and the stock
fell all the way to $60.  The constant stream of bad news from
major Technology companies was just too much for any weak-handed
bulls and it looks like they are in the process of giving up.
While that isn't much of an additional drop, this level is major
support and if it gives way, things could get ugly in a hurry.
The current column of O's on the PnF chart is giving a tentative
vertical count of $43, and that's a long way below current
levels.  Not only that, but Friday's trade at $60, violated the
bullish support line.  We could get a bounce from this level,
but it's looking rather unlikely.  But just in case, we're
going to require a trade of $59.75 to trigger the play to active
status.  Once below the trigger, new entries can be taken on
the breakdown, or more cautious traders may want to wait for a
rebound attempt that fails in the $60-61 area.  We're initiating
the play with a fairly tight stop at $62.50, as a trade above
that level would take out some significant resistance that has
been building for the past couple weeks.

BUY PUT FEB-60*UPU-NL OI=976 at $4.30 SL=2.75
BUY PUT FEB-55 UPU-NK OI=156 at $2.50 SL=1.25

Average Daily Volume = 585 K


---

KSS - Kohl's Corporation $56.60 (-1.58 last week)

Company Summary:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.  

Why We Like It:
No matter how many different ways you look at all the variables,
the Retailers are in trouble.  Even in the best part of the year
for the industry (Q4), consumers just weren't buying, as
evidenced by the lackluster Retail Sales numbers from the month
of December.  Looking at last week's Retail report, December
came in flat (no growth) in the best season of the year.  Is
there any question that the next earnings cycle isn't going to
be pretty?  Apparently investors are starting to get that
picture, as the Retail index (RLX.X) started rolling over early
in the week and at $266, it doesn't have far to go before taking
out the $260 level, the site of the December lows.  Despite the
hope for good news, it is worth noting that there really wasn't
much bullish action in this sector following the rebound from
the December lows.  One of the weaker stocks in the group is KSS,
which bounced up to $58.50 and dropped just as quickly, and then
rebounded again to the same level.  Then in the last week, the
stock has been rolling over again and this time looks like it
could break down hard.  Remember the PnF Sell signal that KSS
gave back in early December?  The vertical count from that drop
points to a price target of $46, which has yet to be achieved.
It is notable that none of the rally attempts since that Sell
signal have been able to create a reversing Buy signal.  Every
rally attempt this year has been knocked back before reaching
the $59 level, which is what would be necessary to generate a
PnF Buy signal.  KSS is clearly weak and even looks weak relative
to the RLX.  Another rally failure below the $59 level can be
used as a prime entry point, while more cautious investors will
want to wait for a break below $56 (which would constitute a
breakdown under both the 10-dma and the 20-dma) before entering
on weakness.  While there is some mild support near $54, the
next significant test of support will come near $52.50, the site
of the early January lows.  Initial stops are set at $59.

BUY PUT FEB-60*KSS-NL OI=1078 at $5.00 SL=3.00
BUY PUT FEB-55 KSS-NK OI=1951 at $2.20 SL=1.00

Average Daily Volume = 3.66 mln



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The Option Investor Newsletter                   Sunday 01-19-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: CTAS, ASD
Leaps: Crash and Burn
Traders Corner: No Surprise - The CPTI Casino Wins Again!
Traders Corner: Volume extremes warn of reversals


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*****************
CURRENT PUT PLAYS
*****************

CTAS - Cintas Corp. $44.74 -0.51 (-2.03 for the week)

Company Description:
Cintas Corporation, with revenues of $2.27 billion, headquartered 
in Cincinnati, Ohio, is the leader in the corporate identity 
uniform industry providing uniforms to a wide variety of 
industries nationwide. The Company also provides a wide range of 
outsourcing services including entrance mats, sanitation 
supplies, cleanroom services and first aid and safety products 
and services. (source: company website)

Why We Like It:
It's nice to see some follow through by the bears heading into 
the weekend.  With the broader indices in pull back mode, shares 
of CTAS accelerated lower losing 3.4% compared to the 3.3% and 
4.1% drops in the Nasdaq composite and the Nasdaq 100 index 
(NDX), respectively.  What is encouraging for traders holding 
bearish positions in CTAS is the new triple-bottom breakdown on 
its PnF chart.  We're going to lower our stop to $45.51, which is 
above overhead resistance at $45.  Our target remains near the 
$40 mark but keep an eye on the $41 level, which has acted as 
support in the past.  New positions should only be added to 
carefully as the stock appears ready to accelerate to the 
downside.  Meanwhile a failed rally at $44.50 might be an 
opportunity to go short again.

BUY PUT FEB-50*NQQ-NJ OI= 583 at $5.90 SL=3.00
BUY PUT FEB-45 NQQ-NI OI= 552 at $2.20 SL=1.10

Average Daily Volume = 1.3 mil


---

ASD - American Standard Companies $67.02 (-1.52 last week)

Company Summary:
American Standard Companies is a global, diversified manufacturer
of high-quality, brand name products in three major product
groups: air conditioning systems and services, bathroom and
kitchen fixtures and fittings and vehicle control systems for
heavy and medium-sized trucks, buses, trailers, luxury cars and
sport utility vehicles.  The company's brand names include
Trane and American Standard for air conditioning systems,
American Standard, Ideal Standard, Porcher, Jado, Armitage,
Shanks, Dolomite, Meloh, Venlo and Borma for plumbing products
and Wabco for vehicle control systems.

Why We Like It:
It seems like it took forever to happen, but on Friday ASD
finally traded below the $67 level.  The bulls managed to prop
the stock up at the close, ending just a couple pennies above
that level, but the damage was done.  The stock broke its bullish
support line at $67, making a move down to the $64 bearish price
target look that much more realistic.  The stock has been
continually pressured by its declining 10-dma since the first
of the year, and Thursday was no exception, with the rally
attempt falling just short of that average and then rolling
sharply lower with the rest of the market on Friday.  Throughout
this move, the high-odds entry points have come on the rally
failures, and that is likely to continue to be the case.
Breaking below $67 just brings more support between $66.50-65.50
into play and with Stochastics now buried in oversold, a
short-covering rebound could materialize at any time.  There
hasn't been one of those with any staying power for the past few
weeks, and until there is, we want to continue to enter new
positions on the rollover.  Resistance levels that are likely to
be the site of a rollover are $68.50, then $69 and finally just
below $70.  While the trade is definitely going our way, we don't
want to get too stingy, so we're leaving our stop at $71, so that
we have some room to maneuver into new positions ahead of the
company's earnings report, currently scheduled for January 30,
before the opening bell.

BUY PUT FEB-70*ASD-NN OI=380 at $4.40 SL=2.75
BUY PUT FEB-65 ASD-NM OI=299 at $2.20 SL=1.00

Average Daily Volume = 450 K



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*****
LEAPS
*****

Crash and Burn
By Mark Phillips
mphillips@OptionInvestor.com

One week into the January earnings cycle, and big Technology has
failed to impress investors.  I won't dissect the details here,
but based on the reports from IBM, INTC, MSFT and a slew of
others, there is no business spending recovery just over the
horizon.  The best case (hoped for) is that a second half '03
recovery appears, but even that is going to be anemic.  The net
result is that investors' hopes for a continuation of the
January rally crashed and burned, with the 8800 level in the DOW
(and 935 for the SPX) holding as resistance.  The disappointing
earnings report from MSFT and lack of encouraging words from IBM
sealed the market's fate Thursday night, leading to Friday's
selloff.

While the action in the broad markets on Friday doesn't really
qualify as a 'crash and burn' event, it certainly is discouraging
for the bulls.  The DOW and S&Ps were all turned back below their
200-dma's last week, and I must say I'm not encouraged by what I
see on the charts, as all three of those indices breached their
50-dmas at the close.  To make matters worse, those 50-dmas are
all turning downwards for the first time since late October.
This bull run is losing steam.  I think Jim said it very well
last week when he stated, "With every earnings report, bulls will
lose another reason to buy.  The short-term reasons to buy will
diminish even more with every 'no recovery yet' guidance
statement.  That's certainly what we got last week, with not one
of the big guns that reported earnings having anything positive
to say about the future.  I think that is the biggest cause for
the weakness seen throughout the latter half of last week.

A quick look at the Bullish Percent charts really provides no
guidance, as the bullish reversals are still intact, but failing
to gain any additional ground.  The DOW is Bull Confirmed at 60%,
the SPX is Bull Correction at 60%, the OEX is Bull Confirmed at
61%, and the NASDAQ-100 is Bull Confirmed at 63%.  Using that
measure of market internals, I'd say the verdict isn't quite in
on whether those December highs will be broken.  I think it is
very unlikely that it will happen, but we can't rule it out just
yet.  I recently wrote that I didn't place much stock in the
current H&S tops being formed in the major indices because of
the lack of symmetry.  Well, with last week's reversal from the
8850 area in the DOW, I could be dead wrong.  And we really won't
know for sure unless we test the 8250 support level again.  If
it breaks, it will confirm those H&S tops and we can focus on a
DOW target in the 7500 area.

Now that could get really interesting as a rebound from DOW 7500
could possibly set us up for a H&S bottom, with the neckline near
the 9050 level.  If that neckline were subsequently broken to the
upside, the calculation would project an upside potential of the
DOW to 10,600!!  When was the last time you heard such bullish
thoughts from me?  It's not even close to likely right now, but
since we're focused on the long-term here, I thought I'd mention
the possibility, and we can all watch for it together in the
months ahead.

I found the action in the VIX rather interesting this week as
well, with it gradually creeping higher into the end of the
week, ending at 28.74, which is very close to where it ended
on January 2nd.  Likewise, the OEX rolled over this week,
working its way back to just below where it ended on January
2nd.  Take a look at the chart below, and I think you'll see
why this action caught my attention.

Volatility Index (VIX) vs. S&P 100 Index (OEX) - Daily


 

Over the past 2 weeks, the market has rallied and then retreated,
giving back all of its gains since the close on January 2nd,
while at the same time, the VIX has dropped to test the November
lows and is now sitting very near the level where it came to
rest at the end of the first trading day of the year.  Another
way of looking at it is that the market hasn't accomplished
anything since the first day of the year, and the VIX is
reflecting almost exactly the same level of fear now as it was
then.  See the intraday high in the VIX on Friday -- 29.50,
which is right at the top of the normal historical range.  The
next couple weeks are going to be really interesting, as we see
whether the VIX holds back in its lower recent range, or the
broad market breaks down (meaning that the VIX will be headed
higher again).

Remember the historical pattern that we can rely on in the first
part of the year.  If the market takes out its December lows
anytime in the first quarter, that is a bearish omen for the
remainder of the year.  That December low (intraday) on the DOW
was 8242.  If that level is violated before the end of March,
then look out below.  With earnings getting off to a rather
disappointing start, negative economic news seeming to poke out
around every corner and war with Iraq moving closer to a
certainty, I think the likelihood of that low being breached
is good and growing with each passing day.

"Crash and Burn" applies to our LEAPS Portfolio as well this
week, with both of our remaining Put plays (GM and BBH) biting
the dust.  No question, I was surprised to see both of them get
stopped out, but that's what stops are for.  Last week, I had
two possible ideas for new Watch List plays -- a call on QLGC
and a put on IBM.  I chose poorly, as the post-earnings selloff
in shares of QLGC was disastrous, while IBM almost perfectly
met the entry criteria I was looking for and the play would
have performed very well in the wake of its earnings report.

I was also frustrated with the fact that I didn't do a better
job of keeping on top of the developments related to our Watch
List plays this week, as we should have taken entries in both
GS and the DJX Put plays, but I neglected to point these
developments out in the Market Monitor during the week. 
Normally, I'd still log them as new Portfolio plays this
weekend, but since I only had the higher entry targets listed
last week (which weren't triggered), I feel it would be
intellectually dishonest to enter them as new Portfolio plays
this weekend.  My apologies for this, as I think the Market
Monitor is a great medium for me to keep you updated on any
meaningful play developments during the week.  I'm still
getting used to providing meaningful updates in this forum,
and I'll endeavor to do a better job of staying on top of it
in the future.

Since I've already started to hint at developments in the
playlist, let's now go through it in detail, and see what
sense we can make of the week's developments.

Portfolio:

NEM - Not only did Gold hold up well last week, but it blasted
to a new multi-year high of $358.90 (basis the GC03G contract)
on Thursday.  Despite the strength in the price of the yellow
metal, gold stocks experienced a round of profit-taking, with
the XAU index actually dipping to as low as $72.81 on
Wednesday.  The 50-dma did in fact cross up through the 200-dma
last week, and I expect the 50-dma (now at $71.83) to provide
support going forward.  Things got a little goosey for our NEM
play on Wednesday, with an intraday dip under the 200-dma, but
so far, support at $27 is holding firm, with the intraday low
of $26.89 coming in just above the still-rising 50-dma
(currently $26.74).  We're sticking firm to our $27 stop on the
play, but if we are stopped out, I'll put NEM right back onto
the Watch List, with an entry target near $25.  I believe gold
and gold stocks are in the early stages of a bull market, which
will continue to be fed by economic and currency weakness, and
I intend to benefit from that trend.

MO - It may not have been a stellar bullish week for MO, but it
is notable, that the stock didn't really lose ground with the
rest of the market.  If anything, the stock looked rather
healthy, inching up to just below $42 and importantly now
moving above the descending trendline (now $40.90) that had kept
the stock under pressure over the past several months.  If the
President's dividend-tax plan is approved by Congress (as I
expect it will be), it will be just one more factor adding
upside pressure to the stock.  We still need a decisive
breakout over $42 before raising the stop on the play, so it
remains at $37.

DELL - I hate it when that happens!  No sooner do we get what
I thought was a good entry near the 200-dma, the bottom falls
out, identifying my entry as a poor entry point.  Clearly,
from the action in DELL last week, which I believe is largely
due to the disappointing results from INTC and MSFT, DELL
shattered its 200-dma and then proceeded to break below that
ascending trendline, closing below $25 for the first time
since early October.  The 'no-recovery' comments are weighing
heavily on the stock, and I am concerned about this play.
I'll stick with the $23 stop, as that is what is required to
turn the PnF chart bearish.  Traders that are not in the play
will want to wait to see where support materializes, keeping
in mind that at these lower levels, the risk/reward ratio
becomes more favorable.  The problem is that the bullish
triangle right now looks like it has failed to the downside.
A rebound from above the level of the October lows can still
be used for new entries, but I consider that to be more
aggressive now.  No matter what, keep a hard stop set at $23.

Watch List:

DJX - It was clearly a disjointed week in the market, with the
DOW making a couple of convincing attempts at testing its
200-dma near $89, but eventually falling short.  I didn't
recognize the rally attempt on Tuesday for what it was, and
didn't comment on it in the Market Monitor.  And then I
failed to highlight the continued weakness on Thursday.
Friday was another issue, with Technology issues taking center
stage in my day.  If you took a put entry on Tuesday or
Wednesday, then good for you.  In hindsight, I think that is
a great entry into the play, and I would initially place stops
at $89, just above last week's highs.  With support still
lurking in the $83-84 area, Friday's close at $85.87 is too
low to enter the play, so let's wait for the next failed
rally.  Remember that the weekly Stochastics are still pointed
up, so we still might get another rally attempt and failure
near last week's highs.  This week, I've modified the entry
target again -- most likely, we get a rollover in the $87-88
area and I would target new positions there.  Just in case
the unexpected occurs though, I'm going to keep the secondary
target of $90 in place, as it will be an even better entry,
if reached.

BEAS - We wanted a decent pullback in shares of BEAS before
taking a position, but the carnage on Friday was a bit more
than I had bargained for.  The stock didn't respond well at
all to the earnings and forward-looking statements from
Technology bellwethers MSFT and IBM, losing more than 9% on
Friday, and breaking the ascending trendline from the October
lows.  Even the PnF chart gives cause for concern, with its
High Pole Warning, hinting that perhaps there is more weakness
to come.  I see bearish Stochastics divergence on the weekly
Stochastics and the stock has now wiped out all the gains since
mid-November!  This is no place to take a long-term bullish
entry into BEAS, and now we have to wait and see whether the
stock finds support above the 50-dma (currently $11), although
I expect it will fail.  More realistically, we need to look at
stronger support near the early December lows.  While I'm not
placing the play on HOLD this weekend, I am significantly
lowering my desired entry target to $9.50-10.00.  That is just
above the level required to give a PnF Sell signal and the
risk/reward becomes much more favorable there.  If we do get
a bounce from that level, we'll take the entry and place a
very tight stop at $9.00.

GS - Our GS play is another victim of a convincing failed
rally (convincing enough for me to raise the entry target
last weekend), that resulted in another missed entry
opportunity.  With the rally through the $75 level, I figured
we'd get some more upside action last week, with an eventual
failure near $79.  Wrong!  One more intraday push above $75
on Monday and it was all downhill from there, with the
Wednesday drop under $74 providing a good entry point, that
I neglected to catch.  But don't worry, as I think we'll get
another shot at it before the bottom falls out.  Look for a
failed rally in the $74-75 area to provide entry.  If you
took the initiative last week and entered when the stock began
to roll over, then congratulate yourself on a job well done.
Based on the recent action, I think a test of the $79-80
resistance level is unlikely, but I want to be prepared.
Therefore, I'm leaving both triggers in place this weekend.

QLGC - That didn't last long!  I was looking for an attractive
bullish entry into this play on a post-earnings dip into the
$39-40 area, but not a full-fledged selloff.  Despite the solid
earnings report, investors sold the news with a vengeance,
slicing nearly $6 from the share price by Friday's close (basis
the pre-earnings close on Wednesday).  I came very close to
just pulling the plug on the play this weekend, but I'm going
to leave it open, just in case the bulls come back next week.
But I don't want to consider new position until we see the
stock begin to base above the $35 level.  If that level fails,
we'll have a big PnF Sell signal to contend with and I'll drop
the play in a heartbeat.  For now, QLGC is on HOLD.

In the past 2 weeks, we've had three dropped plays, all for a
slight loss.  While I find this frustrating, I have a hard time
finding fault with the plays.  What I do take away from them is
that it is a reminder of how difficult it is to try to capture
a significant longer-term move in an essentially rangebound
market.  Each of the plays in question (LEN, BBH and GM) were
entered at solid points of resistance and the plays each went
on to be profitable before reversing and stopping us out.  The
stops were all placed just above firm resistance, and eventually
taken out.  Unfortunately, none of those plays moved far enough
in our favor to allow us to tighten stops sufficiently to keep
those profits without guaranteeing that we get stopped out and
miss out on the trend move that I was anticipating.  I'm still
struggling with how to better play some of these moves to our
advantage -- do we just harvest the small gains while we have
them?  That seems to defeat the purpose of buying all the time
value we get with LEAPS.  But holding on for the trend move
hasn't been working either.  I think there will be a couple of
big trend moves this year (both down and up) as I've detailed
in some recent articles.  I'll continue to try to position for
those big moves before they happen.  In the meantime, we need
to keep position sizes small, and stops must be rigidly adhered
to.  Capital preservation is key while we await the big moves
that LEAPS are designed to allow us to capture.

Enjoy the extended weekend, and we'll hit the ground running
on Tuesday.

Mark

LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 4.20  + 7.69%  $27
                 '05 $ 30  ZIE-AF  $ 6.10  $ 6.50  + 6.56%  $27
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 5.30  +35.90%  $37
                 '05 $ 40  ZMO-AH  $ 4.80  $ 6.70  +39.58%  $37
DELL   12/19/02  '04 $ 30  LDE-AF  $ 3.70  $ 2.55  -31.08%  $23
                 '05 $ 30  ZDE-AF  $ 6.10  $ 4.70  -22.95%  $23

Puts:
None



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BEAS   12/22/02  $9.50-10.00   JAN-2004 $ 12  LZP-AV
                            CC JAN-2004 $ 10  LZP-AB
                               JAN-2005 $ 12  ZWP-AV
                            CC JAN-2005 $ 10  ZWP-AB
QLGC   01/12/03  HOLD          JAN-2004 $ 50  KGM-AJ
                            CC JAN-2004 $ 40  KGM-AH
                               JAN-2005 $ 50  ZBG-AJ
                            CC JAN-2005 $ 40  ZBG-AH



PUTS:
DJX    12/08/02  $87-88, 90    DEC-2003 $ 84  DJX-XF
                               DEC-2004 $ 84  YDJ-XF
GS     12/22/02  $74-75, 79    JAN-2004 $ 70  KGS-MN
                               JAN-2005 $ 70  ZSD-MN
IBM    01/19/03  $85-86, 89    JAN-2004 $ 80  LIB-MP
                               JAN-2005 $ 80  ZIB-MP



New Portfolio Plays

None

New Watchlist Plays

IBM - International Business Machines $81.30  **Put Play**

While we definitely should have had this play in place last week,
I think there is still some solid downside potential in store
for the stock.  IBM had solid earnings, but it was in the
guidance that I think the real meat lies.  The company sees no
hope for strong growth in 2003, and that admission led to a
selling frenzy on Friday, with the stock losing more than 5.5%.
The technical reason this play made so much sense a week ago was
that it was nearing major resistance at $90 and a rally failure
there would have provided an excellent risk/reward ratio.
Clearly we don't want to jump headlong into new positions, with
the huge gap down after earnings, and weekly Stochastics still
on the rise.  But the next rally failure could turn out to be
just what Dr. Bear ordered.  Allow some time for the weekly
Stochastics to roll over, in conjunction with a gap fill and
rollover near the $85-86 area, and we could be looking at a nice
steady decline to fill some of those gaps left behind in the
middle of October.  The PnF chart is still on a Buy signal on
the standard price scale, but drilling down to the 0.5 box size,
we can see a big Sell signal from Friday's drop, which allows
us to calculate a downside target of $74.  But if that price
level is achieved, it will create something interesting on the
much longer-term chart (2.0 box size), a Sell signal that will
give us a bearish price target of $58.  I know I'm playing some
games here with scale to make this play fit my fundamental bias
for IBM (which is down) before the technicals bear it out, but
work with me.  Isn't it interesting that $58 is the bottom of
the first gap up in early October?  The other interesting thing
about the longer-term PnF chart is the bearish resistance line
at $92.  That certainly looks like a good level to place a stop
if we do get into the play.  IBM could certainly continue to
fall next week, after Friday's penetration of the 50-dma.  But
I think the bulls are going to take another run at resistance,
and that is where we'll want to take our entry.  If IBM just
continues to fall, we'll let it go, because it is too difficult
to quantify risk vs. reward at these lower levels.

BUY LEAP JAN-2004 $80 LIB-MP
BUY LEAP JAN-2005 $80 ZIB-MP

Drops

BBH - $93.05 The action in our BBH play over the past 3 weeks
is a perfect example of the perils involved in trying to
anticipate a trend breakout from rangebound trading pattern.  We
got a good entry near the top of the recent range and everything
was looking good in late December, with the BBH threatening to
break down below the bottom of its range since mid-October.  But
after recovering to hold the ascending trendline once more, the
sector rocketed higher last Friday and continued that move this
past week, running right through our $92 stop on Thursday.  Even
if I hadn't tightened the stop down from the $93 level, we still
would have gotten kicked out by a nickel.  Positive earnings
from DNA and positive comments about GENZ and IDPH were just too
much for the bears and they let the bulls have their way on
Thursday's euphoric pop.  Despite the pullback on Friday, this
looks like a real bullish breakout, with the new Buy signal on
the PnF chart.  If still holding a bearish position, take
advantage of any near-term weakness to exit the play at a more
favorable level.

GD - $74.15 GD has been drifting along in that neutral wedge
for the past several months, and I actually thought an upside
breakout was on the horizon.  But I started to lose my
conviction several weeks ago due to concerning developments on
the PnF chart, putting the play on HOLD, pending better price
action.  We got another hint of the stock's weakness on the
latest rally attempt, with the stock's inability to trade the
$82 level, which was PnF resistance.  Friday's selloff in the
stock appears to have sealed GD's fate with a big PnF Sell
signal, and there is no longer any point in continuing to
monitor the stock for an upside reversal.

GM - $40.50 Expectations for strong earnings propped up shares
of GM ahead of the report on Thursday, and stopped us out of
the play Tuesday afternoon when the stock closed over the $40
level.  Sure enough, the company beat earnings estimates and
then issued an upside pre-announcement of $1.50 EPS vs. the
consensus of $1.14 for the March quarter.  That's a big
revision, and given the lack of a price gain through the
remainder of the week, I think the good news was largely
factored into the stock already.  Of course, that doesn't help
us, with our play already stopped out.  Traders still holding
open Put positions will need to decide whether to cut the play
loose or hold for another drop.  If holding those positions
entered near current levels, using a stop at $42 would make
sense.  Note that $42 is just above the intraday highs posted
in December.  I still think it made sense to lower the stop on
this play to $40 following the early December drop from that
level, but in hindsight, I'd sure like to have a do-over,
keeping the stop for the play set at $42.  For now, I'll
continue to watch the stock, waiting for the weekly Stochs
to reach overbought before playing the downside again.


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

No Surprise - The CPTI Casino Wins Again!
By Mike Parnos, Investing With Attitude

There are no sure things.  However, selling premium is the next 
best thing.  Let the speculators speculate.  Let the expectors 
expectorate. We’ll just continue to salivate.  Cold hard cash is 
a turn on.  People who say that money can’t buy love, don’t have 
any – or enough.

Four weeks ago we initiated three new positions in the CPTI 
Portfolio.  Two of the three positions were scheduled to expire 
at January expiration while the third is a February QQQ play we 
established in December.   January expiration has come and gone.  
Our record is still intact.  Perfectly Profitable!!  How 
profitable?  Read on.

The Breakdown
1.  BBH Iron Condor – Closed at $91.40.  
We wanted BBH to finish between $80 and $95 at January 
expiration.  Our risk was $3,500.  We took in a credit of $1,500 
on our ten-contract position.  

2. XAU Calendar Spread  – Currently trading at $75.43.
We bought the June $80 call for $7.20 and sold the January $80 
call for $2.20.  Our debit (or cost basis) was $5.00.  We wanted 
XAU (Gold & Silver Index) to move up slowly and finish as close 
as possible to $80.  This is a longer-term was cash flow 
generating strategy in which we sell against the June $80 call as 
many times as we can.  It’s a neutral to bullish strategy.  

About a week ago, XAU moved up, and broke through our $80 level a 
little faster than we wanted.  When it was trading at $80.77 on 
Friday, the June $80 call was selling for $9.60 and we could buy 
back the January $80 call for $3.30.  That’s a difference of 
$6.30.  Our cost was only $5.00.  That’s a profit of $1.30 on a 
$5.00 risk.  We stated that, if XAU trades back up to that level, 
we would close the spread and take our profits.  That Monday, XAU 
ran up over $81 and we closed our calendar spread for a profit of 
$1,300.  We bought back the January $80 call for $3.60 and sold 
our June $80 call for $9.90.

Shortly thereafter, XAU pulled back below $80, remained there and 
closed Friday at $75.43.  CPTI traders had a number of 
opportunities to close out their position at a very nice profit.  
Since the January $80 calls expired worthless, those who did not 
close out their position, can now sell a February $80 call for 
$2.35 if they choose – further reducing their cost basis to 
$3.65.  Or, they can simply sell their June $80 call for $6.50.  
(See new positions).

3.  QQQ ITM Strangle  – Currently trading at $25.31.
This is another long-term position to generate a monthly cash 
flow.  We own the January 2005 $21 LEAPS call and the January 
2005 $29 LEAPS puts.  We’ve sold the February $29 calls and 
February $21 puts.  Now, it’s just a matter of being patient and 
collecting a chunk of money every few months.

When we put on the position, we took in a total of $.95 premium 
on our original risk of $7.20.  Our risk is now only $6.25.  For 
bookkeeping purposes, we’re going to include the $950 with our 
January profits.  Why?  To make me look like I know what I’m 
doing.  Don’t worry, this isn’t Worldcom or Enron. I won’t add it 
again at February expiration.

BTW, did you know that the word “bookkeeping” or “bookkeeper” is 
the only word in the English language that has three consecutive 
sets of double letters?  Do you care?  This piece of trivia will 
come in handy someday.

It’s Adding Up Nicely
The total amount of premium we collected, and kept, from the 
three positions was $3,750 (less commissions) – and we gained 
five pounds to boot!  Now we can afford to join Weight Watchers – 
but only if they deliver.  Dominos delivers, Weight Watchers 
doesn’t.  This is not a tough decision for a CPTI student.  The 
only choice left is – pepperoni, Italian sausage or green 
peppers.
_______________________________________________________________

So What Have You Done For Me Lately?
January is behind us and another 3,750 dead presidents have 
joined 9,160 of their friends.  Now there are 12,910 GWs, BFs, 
and an occasional AH holding up the Oreos in your cookie jar.  As 
the kitty increases, you just have to make sure everyone keeps 
their hands off of your cookies.

CPTI students, who followed the plan, made another chunk of 
cookie dough.  They’re never satisfied – and shouldn’t be.   Keep 
in mind, though, that the rainy days will come, so keep the 
umbrella handy. 

Like last month, we’ll start with a $50,000 trading account.  We 
will continue to go on the assumption (or hope) that you have 
other marginable securities in your account that will enable you 
to make necessary adjustments on our newly established positions.   
February is a five-week option cycle.  Since we’re facing a 
three-day weekend, the prices you get may vary slightly from 
those described below due to additional time erosion.
_____________________________________________________________

Position #1: Iron Condor – Once More, With Feeling!
An Iron Condor is a credit position consisting of both a bull put 
spread and a bear call spread. The objective is that the 
underlying, at expiration, finish anywhere within the spread. 

Since it worked so well the last three months, we’ll use BBH 
(Biotech Index) again. Friday it closed at $91.40.  The support 
at $80 once again seems strong. Enough. Because BBH got a bit 
frisky this week, we’ll up our resistance level to $100.  That 
should give BBH enough room (20 points) to bounce around for the 
next five weeks. So we will: 
Sell 15 contracts of the BBH Feb. $80 puts (BBHNP) @ $.85
Buy 15 contracts of the BBH Feb. $75 puts (BBHNO)  @ $.40
 
Sell 15 contracts of the BBH Feb. $100 calls (BBHBT) @ $.80
Buy 15 contracts of the BBH Feb. $105 calls (BBHBA) @ $.35
 
The credit for our bull put spread is $.45 and for the bear call 
spread is $.45. Total credit (and potential profit) for the 
position is $.90. Risk is $4.10 ($5.00 - $.90). Total margin 
requirement is $10,000 ($5,000 for each credit spread). The 
position is safer than last month’s because the maximum profit 
range is 20 points compared to last month’s 15-point range.  
______________________________________________________________

Position #2:  XAU Calendar Spread – It felt so good, so we’ll do 
it again!
A Calendar Spread, using calls, is a neutral to bullish strategy.  
In this instance, however, a calendar spread on the Gold/Silver 
index is actually a neutral to bearish market strategy because 
Gold usually trades opposite the market.  XAU is trading at 
$75.43.  Though it traded above $80 briefly this month, 
resistance at $80 held as XAU bounced back down.  The reason we 
entered the trade last month is still valid.  As the market 
continues to falter, it’s likely that the XAU will move up 
slowly.  As XAU increases in value, we will sell calls each month 
to reduce our cost basis and put bucks in our pocket.  We will:

Buy 10 contracts of XAU June $80 call (XAUFP) @ $7.20
Sell 10 contracts of XAU February $80 call (XAUBP) @ $2.35

The out-of-pocket cost for this trade is $4.85 ($7.20 - $2.35).  
There are four more option cycles before June.  If we get about 
$2.20 each month for the next four months, we’ll have taken in 
$8.80.  Plus, there will likely still be some value in the June 
call.  Will this position last through June?  Probably not.  Just 
look at last month’s XAU play.  This will take a little time to 
develop.  There are various adjustments that can be made along 
the way.  There is no maintenance requirement for this calendar 
spread because it is a long position.
_______________________________________________________________

Position #3:  SMH Straddle – Going Up, Going Down, Just Get 
Going!
We’re getting bits and pieces of evidence that our economy, is 
not improving as fast as some hoped.  More earning announcements 
will come with not-so-positive guidance – especially in the tech 
sector.  What sector gets hit hardest and quickest?  The 
semiconductors.  SMH is the semiconductor holders index traded as 
a stock.  

CPTI students know I hate to pick a direction – so I won’t!  SMH 
is approaching a support level at about $22.50.  Either it’s 
going to continue down, break support and go on to test its 
October lows, or, it will bounce up.  Personally, I’m voting for 
the October lows, but I could care less about the direction.  
We’re going to:

Buy 10 contracts of SMH August $22.50 calls (SMHEX) @ $3.10
Buy 10 contracts of SMH August $22.50 puts (SMHQX) @ $2.75

Based on our CPTI straddle rules, we have spent $5,850. But, 
since we’re going to stay in this position only for the February 
option cycle (5 weeks), we’ll only be risking about $.85 ($850) 
which is appx. 15% of the current value – the estimated premium 
erosion of SMH if the holder doesn’t make a big move.  SMH has 
the potential of moving up into the high $20s and down to about 
$17.50.  Since we’re only risking $.85, a $.50 return would be a 
nice return on risk.  We’ll see how it goes and sleep real well – 
knowing our risk is defined and that we have all the discipline 
in the world!  Just keep me away from the corner 7-11.
______________________________________________________________
Happy trading! Remember the CPTI credo: May our remote batteries 
and self-discipline last forever, but mierde happens. Be 
prepared! In trading, as in life, it's not the cards we're dealt. 
It's how we play them.
 
Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor


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

Volume extremes warn of reversals
By Leigh Stevens
lstevens@OptionInvestor.com

I've spoken before about extremes in buying or selling, in stocks 
or in options, as suggesting that the market may be getting 
overdone on the upside or downside which also suggests a possible 
upcoming reversal. A common way to look for such an extreme is by 
using the Arms Index (TRIN), which measures overall daily buying 
versus selling volume for either the NYSE or the Nasdaq.  

Another measure of market "sentiment" is to look at the daily 
volume of option put volume relative to call volume - a 
"standard" measure is the so called put/call readings.  This is a 
ratio of total put volume to call volume, such as on the CBOE 
(Chicago Board Options Exchange) alone or all options exchanges 
together. Put volume that day for both (individual) equities AND 
index options is compared and is usually a fractional number - 
for example, .75, indicating that put volume was 75% of call 
volume.  If the put/call reading was 1.00, put volume equaled 
call volume that day which is uncommon. 

Total daily put volume is divided by total daily call 
volume.  You can see this ratio daily on the CBOE web site 
(www.cboe.com) or, if you have a charting program like 
QCharts, their symbol to graph this daily number is 
"QC:PUTCALL".  

WHY USE THE OPTION RATIOS? 
It has been noticed that when put volume gets quite high, 
such as being equal to call volume, traders are getting 
pretty bearish and the market may be at or approaching an 
"oversold" extreme in terms of trader "sentiment".  
Obviously how bullish or bearish option traders are is best 
shown by where they are actually putting their money - more 
into calls or an increasing amount into puts.  Of course, 
selling calls should not be considered a bullish play just 
as selling puts can be a mildly bullish play.  Nevertheless, 
as we know, most option speculators are betting on market 
direction, so call volume goes up on rally phases and put 
volume increases substantially in declining markets. 

Charles Dow, more than 100 years ago, was an early observer 
that at significant market tops most everyone is bullish and 
caught up in a bullish outlook and at market lows most 
traders are shorting stocks, if they are in the market at 
all. 

Here begins the idea that if there is especially heavy 
buying or heavy selling, the market could be nearing a trend 
reversal - that the contrary was about to happen when trader 
"sentiment" was heavily leaning one way or the other. The 
concept of "contrary opinion" is that extremes in 
bullishness are bearish and bearish extremes in trading are 
bullish. Sounds like Alice in Wonderland! Welcome to the 
market and the Street of Dreams.  

PUT/CALL RATIO - THE CONVENTIONAL WAY
When put/call ratios have gotten down to the .40 to .45 
area, this is seen to mark a bullish extreme and caution is 
indicated as to the FURTHER prospects for much more of a 
rise.  When put/call ratios have gone to or above about .90, 
this is considered to be a sign that there is "too much" put 
buying or bearishness and this may signal an upcoming 
(upside) reversal.  Often a moving average is used to smooth 
out temporary extremes as we want to see where the broader 
trend is.  

The trickiest thing is that this option indicator tends to 
be early in pegging an actual reversal. In fact, buy or sell 
"signals" are regularly 1 to 5-6 trading days ahead of an 
actual market reversal.  This suggests, at a minimum, that 
you need to be carefully watching other things in the market 
that also weigh in the side of suggesting a significant top 
or bottom. 

The other thing that can make the put/call standard way of 
measuring market extremes less than useful is the effect of 
index calls and index puts in the total option volume 
figures.  There is a lot of hedging of portfolios that goes 
on by large institutional funds and this can be related more 
to "insurance" than simply how individual traders see the 
market.  

I have found it useful to keep up my own numbers and ONLY 
measure total equities option volume numbers.  I've found 
that this way I tend to get a more pure measure of bullish 
or bearish sentiment, and also produce an indicator that 
"reads" the same way that other overbought/oversold 
indicators (like stochastics) do - that is, a LOW number is 
suggesting a possible "oversold" market and a high reading 
is indicating an "overbought" market.  

So, if you notice the ORDER of the words - I use a CALL/put 
indicator and one that takes out Index option volume - and 
not the standard PUT/call ratio that divides the other way 
round and also includes the Index options.  Keeping and 
plotting an indicator like I've described can be done in 
Excel. Or, can be done in trading software like TradeStation 
that allows the user to build "custom" indicators.  

I've talked enough about the concept - my indicator (as of 
the close on Friday, 1/17/03) is shown below and is compared 
to the S&P 500 (SPX) price chart.    



  

If you look over the chart, you'll notice that readings at or 
above (>) 2 tended to occur a day or a few days - for some reason 
it's often either 1 day ahead or about a week (5-trading 
days) ahead - before tops or downside reversals.  That is, CBOE 
equities call volume was running 2 times that of put volume and 
would be equivalent to a put/call reading of 1, if index option 
volume was excluded - otherwise its a bit like comparing apples 
to oranges.  

It can be helpful to look at a 5-day moving average of the call 
to put equities option ratio - for example, there was a useful 
hint using this average for the late-December SPX low, within a 
few days prior to the upside reversal.  The 1-day reading of "1" 
was too far, at 10-days, BEFORE the actual bottom to be of much 
practical help in trading.  However, on balance, upcoming bottoms 
tend to be "signaled" within a day or few days, of when my 
call/put indicator gets to 1 or less (<) than 1.  

When the extremes are seen in the option indicators, whether you 
are used to seeing them as the (total) PUT/call reading or in the 
way that I'm showing them above (Call volume relative to puts), 
it is like saying "get ready" - the "go" is when you ALSO then 
see other technical indications like breakouts above/below 
trendlines, stochastic crossovers from extremes, etc.  

And of course, the "other" confirming indications (for a 
reversal) might be fundamental news events such as relating to 
earnings surprises, political situations, economic reports, etc. 

TRIN EXTREMES AS A WARNING OF REVERSALS - 
I started off this Trader's Corner by suggesting that the Arms 
Index or TRIN was another useful way to measure extremes in 
bullish or bearish trading activity.  A full description of the 
Arms Index invented by Dick Arms (known better as "TRIN", short 
for TRading INdex) is in a previous Trader's Corner at - 
http://www.OptionInvestor.com/traderscorner/062002_2.asp 

As an Indicator the TRIN tends to be showing a selling extreme 
when its 10-day moving average gets to 1.50 or above.  Buying 
tends to be overdone when the 10-day TRIN gets to .80 or less.  
Buy "signals" at 1.50 or above also tend to be more reliable than 
sell signals suggested by low extremes (buying predominates).    



 
      
The thing with TRIN extremes, especially brought on by prolonged 
selling in a bear market (or buying extremes in a bull market) is 
that it can be some time before an actual upside reversal worth 
trading is seen. In September and October, 10-day TRIN readings 
above 1.5 were seen 3 times before a sustained upside reversal 
occurred.  When such extremes occur twice within a short time of 
each other, the second tends to be the one that precedes an 
upside reversal within a few days. 

With TRIN 10-day readings at or below .80, the lead time to a top 
can be either an interim top or a "final" top within a few days - 
however, this "lead" time can also stretch out to more than 5 
trading sessions.  Again, the 2nd extreme reading is more likely 
to occur ahead of a top that is the peak for some time to come. 

The thing with technical indicators is always to watch the few 
good ones, plus trendlines and price action (e.g., key reversals) 
and put together a "story" from what several are telling you - in 
this way, it's not that different than piecing together the 
various news events affecting an individual stock or the market 
as a whole to tell you where the trend is going.    


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The Option Investor Newsletter                   Sunday 01-19-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: Our Approach To Covered-Calls
Naked Puts: More Q&A With The Editor
Spreads/Straddles/Combos: Rally Fades As Dismal Outlook Resurfaces!

Updated In The Site Tonight:
Market Watch: Something For Everyone
Market Posture: Sell-Off Continues


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*************
COVERED CALLS
*************

Trading Basics: Our Approach To Covered-Calls
By Mark Wnetrzak

One of our new readers asked a common question about the plays
offered in this section.

Attn: Covered-Calls Editor
Subject:  Picking stocks for covered-calls

Hello,

I just started the trial subscription and I was impressed by
your candidates for selling covered-calls.  The thing I liked
most was the technical conditions of your stocks and the use
of "in the money" options to help increase the chance of a
successful play.  My question is, what are you looking for in
a company's fundamentals with this strategy and how do you pick
the best stocks for covered calls?

KJ

Regarding your questions about our covered-call candidates:

In this section, we use a two-pronged approach to generate a wide
variety of candidates to supplement your search for profitable
trading positions: technical scans and option scans.  I personally
scan through hundreds of charts each week looking for technically
strong stocks with favorable option premiums.  I then sort through
several over-priced option lists, looking for stocks with favorable
technical indications.  The method I use to select the published
plays is based on a conservative approach using the "total return"
concept that Lawrence McMillan adeptly describes in his original
book, "Options: As a Strategic Investment."  By using in-the-money
calls, an investor can view the covered write as a single entity,
thus he is not interested so much in stock ownership or bullish
movement, but rather in obtaining a consistent (monthly) return on
investment.  Based on this approach, my target return is generally
in the range of 3%-6% per month (6%-12% on margin), and in all but
a few cases, the stock is called-away or sold outright after one
strike period.  Of course, it is still good advice not to purchase
an issue you wouldn't mind owning in the long-term, as that outcome
is always a possibility with the covered-write position.  I favor a
short-term approach that isn't predicated on forecasting a stock's
(or the market's) directional movement.  Still, whether the covered
write strategy is applied short-term or longer term, it requires a
neutral to slightly bullish outlook on the underlying equity and
the overall market.   Obviously, the sale of covered-calls can help
hedge against downside movement, but the strategy is not a remedy
for protracted bearish activity.  Traders who utilize this method
of option trading simply prefer the higher probability of making a
consistent (low) return with their stock portfolios.

Some investors prefer to strive for higher potential returns with
an aggressive outlook, writing "out-of-the-money" calls on stocks
in their portfolios.  These (OTM) positions offer greater rewards,
however they also provide less downside protection.  The maximum
potential profit of an OTM position, while greater than that of an
"in-the-money" (ITM) position, will always require an increase in
price by the underlying stock.  Thus, by utilizing an OTM option,
the success of the overall position depends more on the movement
of the stock price and less on the benefits of writing the call.
Since the premium generated from the sale of the call is smaller,
the overall position will be more susceptible to loss if the stock
price declines.  In contrast, ITM positions are more conservative,
offering less risk but also smaller reward potential.  Though the
strategy is less aggressive, there is risk of loss in all trading.

My primary goal in this section is to provide positions that make
acceptable returns while still receiving an above-average amount of
downside protection.  If you decide to use OTM calls, concentrate
on the "return not called."  This is the return on investment that
one would achieve even if the stock price were unchanged when the
sold option expires.  You can compare potential plays more fairly
using this approach since no assumption is made about the price
movement in the underlying issue.  The approach you take depends on
your personal preference and risk-reward tolerance.  Some investors
split the difference, preferring to write a combination of both OTM
and ITM calls to balance the outlook between upside potential and
downside risk.  As far as company research, the publishing deadline
prevents me from doing little more than a cursory scan of the latest
news and events.  The listed positions are based almost entirely on
technical analysis and little weight is given to the valuation or
the long-term outlook for an issue.  As with all recommendations, it
remains your responsibility to perform due diligence and thoroughly
research any stock you are considering for a covered-call position.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

XMSR     3.00    4.05  JAN  2.50  0.80    0.30*  14.8%
RAD      2.46    2.97  JAN  2.50  0.15    0.19*  11.9%
AES      3.25    4.04  JAN  2.50  1.05    0.30*  11.9%
FEIC    15.88   16.24  JAN 15.00  1.75    0.87*   8.9%
LVLT     5.13    5.20  JAN  5.00  0.50    0.37*   8.7%
DNDN     5.43    5.30  JAN  5.00  0.70    0.27*   8.3%
BSTE    35.82   38.85  JAN 35.00  2.10    1.28*   8.2%
ELN      2.90    3.45  JAN  2.50  0.65    0.25*   8.0%
MMR      5.20    7.92  JAN  5.00  0.60    0.40*   7.6%
TKLC    10.33   11.29  JAN 10.00  0.80    0.47*   7.1%
AGIL     8.10    7.45  JAN  7.50  1.00    0.35    7.1%
CAL      8.32    8.73  JAN  7.50  1.05    0.23*   6.9%
LWSN     5.26    6.22  JAN  5.00  0.55    0.29*   6.7%
MATK    24.20   25.13  JAN 22.50  2.30    0.60*   6.0%
ADVS    13.51   14.10  JAN 12.50  1.50    0.49*   5.9%
SEPR     9.48   12.99  JAN  7.50  2.35    0.37*   5.6%
BEAS    12.15   11.51  JAN 10.00  2.60    0.45*   5.1%
EP       7.74    9.96  JAN  7.50  0.40    0.16*   4.7%
IMCL    13.50   10.92  JAN 10.00  4.10    0.60*   4.6%
ASML     9.20    8.27  JAN  7.50  1.85    0.15*   4.4%
ALXN    15.30   14.20  JAN 12.50  3.40    0.60*   4.4%
DCTM    16.97   17.63  JAN 15.00  2.25    0.28*   4.1%
AVID    22.03   21.58  JAN 20.00  2.75    0.72*   4.1%
VISG     5.72    4.70  JAN  5.00  1.05    0.03    0.5%
MOGN     8.30    7.03  JAN  7.50  1.15   -0.12    0.0%
IDNX     5.40    4.48  JAN  5.00  0.70   -0.22    0.0%

GSPN     5.62    5.16  FEB  5.00  1.00    0.38*   6.0%
ALA      5.76    6.54  FEB  5.00  1.10    0.34*   5.3%
WEBM    10.89   10.31  FEB 10.00  1.55    0.66*   5.1%
ALO     16.00   16.63  FEB 15.00  1.95    0.95*   4.9%
JDEC    13.86   12.50  FEB 12.50  2.05    0.69    4.2%
MEDC     9.31    9.26  FEB  7.50  2.20    0.39*   4.0%
ASYT    10.71    8.95  FEB 10.00  1.45   -0.31    0.0%

* = Stock price is above the sold striking price.

Comments:

Well, that was a rather horrid way to finish an options-expiration
week!  Mr. Softee tried to pull a rabbit out of the hat but could
only manage a skunk.  Yuck!  Yet, the model covered-call portfolio
did manage to weather the storm without too much damage.  Both 
MGI Pharmaceuticals (NASDAQ:MOGN) and Identix (NASDAQ:IDNX) could
have been exited or adjusted this week for little or no pain.  A
few of our closed positions actually ended in positive territory.
The Murphy's Law award goes to Biomarin Pharma (NASDAQ:BMRN) which
rocketed higher on favorable news; (sigh) the price of discipline.
The new tech-wreck is threatening a few of our February positions.
Last Monday, I mentioned on the Market Monitor that the worrisome 
action in Asyst Technologies (NASDAQ:ASYT) -- the stock dropped
fairly hard after gapping higher at the open -- precluded opening
any bullish or even neutral plays.  The ticker will be removed from
the summary next week.  On the early exit watch list for next week:
Globespan-Virata (NASDAQ:GSPN), Webmethods (NASDAQ:WEBM), and J.D.
Edwards (NASDAQ:JDEC).  As for entering new positions; sometimes
the best thing to do is absolutely nothing!

Positions Closed:

BioMarin Pharmaceuticals (NASDAQ:BMRN), VISX (NYSE:EYE), Zix Corp.
(NASDAQ:ZIX), and Massey Energy (NYSE:MEE).    




NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ALKS    8.07  FEB  7.50   QAL BU  1.00 1079   7.07   35    5.3%
EMIS    5.44  FEB  5.00   MTQ BA  0.75 65     4.69   35    5.7%
LMNX    5.16  FEB  5.00   UEN BA  0.60 6      4.56   35    8.4%
MEDC    9.26  FEB  7.50   MQH BU  2.15 145    7.11   35    4.8%
MMR     7.92  FEB  7.50   MMR BU  1.00 70     6.92   35    7.3%
ORB     5.02  FEB  5.00   ORB BA  0.35 147    4.67   35    6.1%
REGN   21.27  FEB 20.00   RQP BD  2.30 757   18.97   35    4.7%

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

LMNX    5.16  FEB  5.00   UEN BA  0.60 6      4.56   35    8.4%
MMR     7.92  FEB  7.50   MMR BU  1.00 70     6.92   35    7.3%
ORB     5.02  FEB  5.00   ORB BA  0.35 147    4.67   35    6.1%
EMIS    5.44  FEB  5.00   MTQ BA  0.75 65     4.69   35    5.7%
ALKS    8.07  FEB  7.50   QAL BU  1.00 1079   7.07   35    5.3%
MEDC    9.26  FEB  7.50   MQH BU  2.15 145    7.11   35    4.8%
REGN   21.27  FEB 20.00   RQP BD  2.30 757   18.97   35    4.7%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
ALKS - Alkermes   $8.07   *** Forging A Base ***

Alkermes (NASDAQ:ALKS) is a pharmaceutical company developing 
products based on applying its sophisticated drug delivery 
technologies to enhance therapeutic outcomes.  The company's 
areas of focus include controlled, extended-release of injectable
drugs using its ProLease and Medisorb delivery systems, and the
development of inhaled pharmaceuticals based on its proprietary 
Advanced Inhalation Research pulmonary delivery system.  Alkermes
partners its proprietary technology systems and drug delivery 
expertise with many other pharmaceutical companies, and it also
develops novel, proprietary drug candidates for its own account.
The company has a pipeline of products in various stages of 
development.  Alkermes recently received about $24 million from
Johnson & Johnson's Janssen Pharmaceutica as a prepayment of the
first two years of the minimum revenue guaranteed under an 
agreement between the parties over the manufacture of Risperdal
Consta.  We simply favor the technical support near the cost
basis in this position and investors who are interested in a 
long-term portfolio position in the drug sector should consider 
this issue.

FEB 7.50 QAL BU LB=1.00 OI=1079 CB=7.07 DE=35 TY=5.3%


*****
EMIS - Emisphere   $5.44  *** What's Up Doc? ***

Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical company
engaged in solving one of the most challenging technical hurdles in
the pharmaceutical industry: the oral delivery of medicines, which,
for a variety of reasons, cannot be offered to patients directly in
an oral form.  EMIS has pioneered the oral delivery of otherwise 
injectable drugs, including proteins, peptides, polysaccharides and
other compounds not currently deliverable by oral means.  These 
drugs present challenges for oral delivery because they are often
large molecules, which are inactivated in the gastrointestinal 
tract, have limited ability to cross cell membranes and generally
cannot be delivered orally.  Did the company say something at the
21st Annual J.P. Morgan H&Q Healthcare Conference on January 6th?
Somebody wants this stock (there is no news to explain Friday's
explosion) and as I always say, the "tape doesn't lie" (sorry Mr. 
Weinstein).  Traders can speculate on the near-term performance of
the issue with this conservative position.  Try target-shooting a
lower net-debit as any pullback should offer a better cost basis
and a higher potential yield.

FEB 5.00 MTQ BA LB=0.75 OI=65 CB=4.69 DE=35 TY=5.7%


*****
LMNX - Luminex  $5.16  *** On The Rebound? ***

Luminex (NASDAQ:LMNX) manufactures and markets products that have
a proprietary technology which advances and simplifies biological
testing for the life sciences industry.  Their xMAP technology is
used within the various segments of the life sciences industry
in the fields of drug discovery, clinical diagnostics, genetic 
analysis and biomedical research.  Earlier this week, Abbott Labs
(NYSE:ABT) and Luminex announced the execution of two agreements 
that grant Abbott license, supply and distribution rights to LMNX's
proprietary biological testing technologies.  Was that the reason
for Wednesday's rally on strong volume?  Our outlook is bullish
due to the recent technical strength which suggests a change-of-
character, and this position offers a low risk cost basis in the 
rebounding issue.

FEB 5.00 UEN BA LB=0.60 OI=6 CB=4.56 DE=35 TY=8.4%


*****
MEDC - Med-Design  $9.26  *** Royalty Suit Resolved ***

Med-Design (NASDAQ:MEDC) is engaged principally in the design,
development, licensing & manufacture of safety medical devices 
intended to reduce the incidence of accidental needlesticks.
Each safety medical device the company designs and develops
incorporates a proprietary needle retraction technology.  The
company's technology enables healthcare professionals to retract
a needle into the body of the medical device for safe disposal
without any substantial change in operating technique.  MEDC's 
products generally can be categorized into the following four
groups: hypodermic syringes; fluid collection devices; venous
and arterial access devices; and specialty safety devices for
other needle based applications.  Becton, Dickinson and Company,
a major medical technology company, is the principal licensee
of Med-Design's products.  Med-Design has rallied strongly after
the company said it had settled its royalty dispute with Becton
Dickinson.  We simply favor the bullish "break-out" on high
volume and this position offers traders a great way to speculate
on the future movement of the issue with relatively low risk.

FEB 7.50 MQH BU LB=2.15 OI=145 CB=7.11 DE=35 TY=4.8%


*****
MMR - McMoRan  $7.92  *** Well Discovery = Rally Mode ***

McMoRan Exploration (NYSE:MMR) is engaged in the exploration,
development and production of oil and gas offshore in the Gulf
of Mexico and onshore in the Gulf Coast region.  The company
has rights to explore on over 400,000 gross acres, which is
one of the largest exploration acreages held by any independent
company in the Gulf of Mexico.  In November, shares of McMoRan
rallied sharply after it said it found hydrocarbons at an 
exploratory well in the Gulf of Mexico.  We simply favor the
bullish break-out on increasing volume and the current bullish
momentum in the Oil and Gas industry.  This position offers
excellent reward potential at the risk of owning MMR stock.

FEB 7.50 MMR BU LB=1.00 OI=70 CB=6.92 DE=35 TY=7.3%


*****
ORB - Orbital  $5.02  *** Next Leg Up? ***

Orbital Sciences (NYSE:ORB) is a space technology company that
designs, manufactures, operates and markets a broad range of 
space-related systems for commercial, civil government and 
military customers.  The company's primary products and services
are grouped into three segments: launch vehicles and advanced
programs, including ground- and air-launched rockets that deliver
satellites into orbit, and suborbital launch vehicles and missile
defense boosters that are used as interceptor and target vehicles
for missile defense systems; spacecraft and related space systems,
including low-orbit, geosynchronous-orbit and planetary spacecraft
for communications, remote sensing and scientific missions, and 
space-related technical services; and electronic systems consisting
of satellite-based transportation management systems for public
transit agencies and private vehicle fleet operators.  Orbital 
recently announced that it has received approximately $50 million
in incremental modifications to its current contract from Boeing
(NYSE:BA) reference their missile defense system.  We like the
bullish move above the recent consolidation area around $4.50 
and this position offers a method to participate in the future
movement of the issue with relatively low risk.

FEB 5.00 ORB BA LB=0.35 OI=147 CB=4.67 DE=35 TY=6.1%


*****
REGN - Regeneron   $21.27   *** Bracing For A Rally ***

Regeneron Pharmaceuticals (NASDAQ:REGN) is a biopharmaceutical
company that discovers, develops and intends to commercialize
therapeutic drugs for the treatment of serious medical conditions.
The company's product pipeline includes product candidates for the
treatment of obesity, rheumatoid arthritis and other inflammatory 
conditions, cancer and related disorders, allergies, asthma and 
other diseases and disorders.  Regeneron recently announced that
federal regulators have granted fast-track status to part of the
development program for its obesity drug Axokine.  We favor the
bullish technical pattern that suggests further upside potential:
a confirmed long-term double-bottom formation (JUL and SEP lows) 
with a test of the neckline (support) at the end of December.    
With the favorable technical outlook for Regeneron, investors can
use this conservative position as an excellent way to participate
in the future movement of the issue with relatively low risk.

FEB 20.00 RQP BD LB=2.30 OI=757 CB=18.97 DE=35 TY=4.7%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

DNDN    5.30  FEB  5.00   UKO BA  0.80 132    4.50   35    9.7%
TVX    15.08  FEB 15.00   TVX BC  1.45 80    13.63   35    8.7%
RRI     5.40  FEB  5.00   RRI BA  0.80 10078  4.60   35    7.6%
ADCT    2.82  FEB  2.50   TLQ BZ  0.50 1238   2.32   35    6.7%
CVTX   20.70  FEB 20.00   UXC BD  2.10 789   18.60   35    6.5%
ADRX   15.82  FEB 15.00   QAX BC  1.85 8244  13.97   35    6.4%
GNTA    8.27  FEB  7.50   GJU BU  1.25 992    7.02   35    5.9%
DIGE   10.78  FEB 10.00   QDG BB  1.40 35     9.38   35    5.7%
FTS     8.50  FEB  7.50   FTS BU  1.40 60     7.10   35    4.9%
NWAC    8.30  FEB  7.50   NAQ BU  1.20 267    7.10   35    4.9%
GENZ   35.41  FEB 35.00   GZQ BG  2.15 8442  33.26   35    4.5%
APPX   20.94  FEB 20.00   AQO BD  1.90 173   19.04   35    4.4%
PKTR    8.56  FEB  7.50   XOU BU  1.40 89     7.16   35    4.1%
CVC    19.36  FEB 17.50   CVC BW  2.65 1603  16.71   35    4.1%



*****************
NAKED PUT SECTION
*****************

Options 101: More Q&A With The Editor
By Ray Cummins

One of our readers wants some suggestions for real "nuts and bolts"
information on selling covered-calls a naked puts.

Attn: Contact Support
Subject: Need info on strategies

Ray,

Would you be able to recommend a resource (book, video-seminar,
on-line materials etc.) to learn in detail writing covered calls
and selling naked puts.  I am not interested in general principles
but real nuts and bolts info on setting up a trading plan using
options.  Most specifically using covered calls and naked puts as
the basis for the plan.  There is minimal info out there on naked
puts.  Such as repair strategies, risk management etc.  I have 50K
in un-margined trading capital and I am looking to turn a 3-4%
return per month on that capital.  I would appreciate if you could
point me in the right direction.

Thank You,

BG


Hello BG,

The problems you have encountered while researching these trading
strategies are common among our readers and the truth is, there
are very few books that detail a comprehensive approach to using
covered-calls or naked-puts as primary techniques in an investment
portfolio.  Of the publications I have reviewed personally, only a
few come to mind as potential candidates for further study.  These
include:

Options as a Strategic Investment, 4th edition, by Larry McMillan.

This is the bible of options trading, used by professional as well
as retail participants, and it is the benchmark by which all other
books on this subject are compared.  The chapter on covered-writes
provides a complete explanation of the "Total Return Concept,"
which is the foundation of our approach to the covered-write
strategy here at the OIN.


Stocks for Options Trading: Low-Risk, Low-Stress Strategies for
Selling Stock Options -- Profitably, by Harvey Friedentag

This book explains how to develop a successful investment plan by
creating and utilizing covered-calls in a conservative stock-option
portfolio.  It is likely the only (recent) book completely devoted
to the strategy of writing calls against long-term portfolio issues.


LEAPS Strategies with Jon Najarian, by Jon Najarian

Not one you would expect in this group, but Dr. J's book is an
excellent source of information on the advantages of buying LEAPS
as a substitute for stock ownership with the idea of writing
"covered" calls for consistent, low risk profits in a conservative
stock-option portfolio.


Option Volatility and Pricing: Advanced Trading Strategies and 
Techniques, by Sheldon Natenberg.

This is a must-read for serious option traders as it covers the
concept of volatility and pricing theory in great detail.  It is
the other "bible" of professional traders and I have personally
seen it at many of the trading desks on the CBOE floor.  However,
if you want to learn about many of the same concepts in a more
user-friendly format, consider the next book.


The Option Trader's Guide to Probability, Volatility, and Timing,
by Jay Kaeppel.

Another great book by one of the foremost volatility specialists,
covering risk-reward analysis, exit-adjustment methods, and the
most common mistakes made by inexperienced option traders.  The
book is an excellent resource for "premium sellers" as it explains
the fundamentals of a statistical approach to option trading and
provides some guidance on when to implement those strategies.


Trading for a Living: Psychology, Trading Tactics, Money Management,
by Dr. Alexander Elder

One of the most popular and well-known books about trading, it
covers three major areas that are key to success; psychology,
trading tactics and money management.  This material is essential
to developing discipline when participating in the stock market
and learning how to avoid the pitfalls of emotional trading.


Since there is obviously a dearth of written material on the
subject of covered-calls and naked-puts, my suggestion is to
simply read the newsletter each week, including the back-issues
on the website and especially our past commentaries on these
strategies.  Read any other worthy trading publications and learn
all you can about option pricing and the effects of volatility on
common trading techniques.  As far as "premium selling" strategies,
I have written a number of narratives on the methods used with both
puts and calls and those are posted in the website archives.  Of
course, there are also a plethora of great articles by other OIN
researchers, covering just about every imaginable option trading
strategy that is commonly used by retail traders.  We are often
asked about the timing and techniques for closing a trade, but
unfortunately, there is no way to produce a list of specific
guidelines or a step-by-step approach to exiting positions.  The
methods we use are similar to those discussed by Jim and the other
traders in the daily articles and each is based on simple, proven
money-management techniques; the most important of which is "keep
the losses small."

I hope that helps with your search for information on these
strategies and I wish you much success as an options trader.

Good Luck!

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

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.

Stock   Price   Last    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

Stock   Price   Last    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

VXGN    18.99   19.52  JAN 15.00  0.35    0.35*  18.3%   5.2%
YHOO    18.10   18.37  JAN 15.00  0.25    0.25*  12.4%   3.7%
MATK    25.55   25.13  JAN 22.50  0.60    0.60*  11.2%   4.0%
CTAC    27.34   23.95  JAN 22.50  0.30    0.30*  10.2%   2.9%
MATK    24.94   25.13  JAN 20.00  0.50    0.50*   9.8%   2.8%
BSTE    34.48   38.85  JAN 30.00  0.60    0.60*   8.8%   3.0%
AVID    22.80   21.58  JAN 20.00  0.40    0.40*   8.6%   3.0%
ACAS    22.69   23.45  JAN 20.00  0.40    0.40*   8.5%   3.0%
GG      12.62   12.57  JAN 11.25  0.40    0.40*   8.5%   3.2%
ESPD    16.90   17.75  JAN 15.00  0.30    0.30*   8.4%   3.0%
XLNX    22.94   22.59  JAN 20.00  0.25    0.25*   8.4%   2.8%
DISH    23.90   25.77  JAN 22.50  0.30    0.30*   7.7%   2.9%
GFI     14.68   13.55  JAN 12.50  0.35    0.35*   7.5%   2.5%
RGLD    26.08   24.99  JAN 22.50  0.35    0.35*   7.0%   2.3%
PLMD    32.77   27.50  JAN 25.00  0.45    0.45*   7.0%   2.0%
BVF     29.00   31.10  JAN 25.00  0.25    0.25*   6.9%   2.2%
LEA     37.09   38.20  JAN 35.00  0.40    0.40*   6.6%   2.5%
COF     31.54   33.25  JAN 20.00  0.40    0.40*   6.5%   2.2%
IMPH    19.48   21.53  JAN 17.50  0.35    0.35*   6.2%   2.2%
WERN    22.21   20.35  JAN 20.00  0.40    0.40*   6.1%   2.2%
DISH    22.20   25.77  JAN 20.00  0.40    0.40*   6.1%   2.2%
MATK    23.37   25.13  JAN 17.50  0.35    0.35*   6.1%   1.8%
BSTE    31.41   38.85  JAN 22.50  0.45    0.45*   5.8%   1.8%
OVER    28.99   25.77  JAN 22.50  0.40    0.40*   5.6%   1.6%
AU      33.99   34.69  JAN 30.00  0.65    0.65*   5.5%   1.9%
IGEN    43.56   43.77  JAN 35.00  0.35    0.35*   5.5%   1.5%
IGEN    41.10   43.77  JAN 30.00  0.55    0.55*   5.5%   1.6%
GRMN    28.95   30.26  JAN 25.00  0.40    0.40*   5.4%   1.8%
GRMN    29.78   30.26  JAN 25.00  0.25    0.25*   4.9%   1.5%
OVTI    17.35   14.50  JAN 15.00  0.35   -0.15    0.0%   0.0%

QSFT    12.57   10.57  FEB 10.00  0.30    0.30*   7.7%   2.2%
FEIC    18.94   16.24  FEB 15.00  0.45    0.45*   7.7%   2.2%
SEPR    13.20   12.99  FEB 10.00  0.30    0.30*   7.4%   2.2%
VECO    15.39   14.82  FEB 12.50  0.35    0.35*   7.0%   2.1%
CVC     19.44   19.36  FEB 15.00  0.40    0.40*   6.8%   2.0%
XLNX    25.75   22.59  FEB 20.00  0.50    0.50*   6.4%   1.9%
COF     39.00   33.25  FEB 30.00  0.65    0.65*   5.6%   1.6%
NET     20.18   18.90  FEB 15.00  0.30    0.30*   5.0%   1.5%

* = Stock price is above the sold striking price.

Comments:

The bears took control of the market with a vengeance this week
and if Friday's activity is any indication of the future trend,
the recent sharp declines may be just the beginning of a full
scale retreat.  With that outlook in mind, traders are cautioned
to keep a close watch on bullish portfolio issues and adjust or
exit any positions with unfavorable technical indications.  The
first candidate on the list is Quest Software (NASDAQ:QSFT) and
prudent money management suggests a timely exit of the position.
Other stocks on our watch-list include: Capital One Financial
(NYSE:COF), FEI Company (NASDAQ:FEIC), Xylinx (NASDAQ:XLNX) and
Network Associates (NYSE:NET).

Positions Closed: 

Quest Software (NASDAQ:QSFT)


WARNING: THE RISK IN SELLING NAKED PUTS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading STOPS on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" STOP at a price that is no more than twice the
original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


NEW CANDIDATES
*****

Sequenced by Company
*****
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

ANF   27.11  FEB 22.50 ANF NX 0.40 301   22.10  35    5.2%   1.6%
CURE  17.49  FEB 15.00 QCW NC 0.40 10    14.60  35    7.1%   2.4%
FTE   24.40  FEB 20.00 FTE ND 0.45 15    19.55  35    6.7%   2.0%
GTRC  19.63  FEB 17.50 UGR NW 0.45 110   17.05  35    6.3%   2.3%
IMPH  21.53  FEB 20.00 QPH ND 0.75 85    19.25  35    8.3%   3.4%
SEPR  12.99  FEB 10.00 ERQ NB 0.35 605    9.65  35   10.3%   3.2%
TVX   15.08  FEB 12.50 TVX NV 0.40 143   12.10  35    9.0%   2.9%

Sequenced by Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

SEPR  12.99  FEB 10.00 ERQ NB 0.35 605    9.65  35   10.3%   3.2%
TVX   15.08  FEB 12.50 TVX NV 0.40 143   12.10  35    9.0%   2.9%
IMPH  21.53  FEB 20.00 QPH ND 0.75 85    19.25  35    8.3%   3.4%
CURE  17.49  FEB 15.00 QCW NC 0.40 10    14.60  35    7.1%   2.4%
FTE   24.40  FEB 20.00 FTE ND 0.45 15    19.55  35    6.7%   2.0%
GTRC  19.63  FEB 17.50 UGR NW 0.45 110   17.05  35    6.3%   2.3%
ANF   27.11  FEB 22.50 ANF NX 0.40 301   22.10  35    5.2%   1.6%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MY-Maximum Yield (monthly basis - using
margin), SY-Simple Yield (monthly basis - without margin).

*****
ANF - Abercrombie & Fitch  $27.11  *** Multiple Upgrades! ***
 
Abercrombie & Fitch Company (NYSE:ANF), through its subsidiaries as
a specialty retailer that operates stores selling casual apparel,
personal care and other accessories for men, women and kids under
the Abercrombie & Fitch, abercrombie and Hollister Co. brands.  As
of February 2, 2002, the company operated 491 stores in the United
States.  A&F's stores and point-of-sale marketing are designed to
convey the principal elements and personality of each brand.  The
store design, furniture, fixtures and music are carefully planned
and coordinated to create a shopping experience that is consistent
with the A&F lifestyle.  Last week, Credit Suisse First Boston said
that Richard Baum had upgraded Abercrombie & Fitch to "outperform"
from "neutral," citing, among other factors, evidence that sales at
the core are stabilizing with continued strong margins.  Investors
were elated with the news and the buying pressure pushed the stock
to 80-month highs near $27.  Traders who believe the recent rally
will continue can speculate on that outcome with this position.

FEB 22.50 ANF NX LB=0.40 OI=301 CB=22.10 DE=35 MY=5.2% SY=1.6%


*****
CURE - Curative Health Services  $17.49  *** Solid Outlook! ***

Curative Health Services (NASDAQ:CURE) is engaged in businesses
that serve patients who are experiencing serious or chronic medical
conditions.  The company operates two business units: Specialty
Pharmacy Services and Specialty Healthcare Services. The Specialty
Pharmacy Services business unit provides services to help patients
manage the healthcare process and offers related pharmacy products
to patients for chronic and critical disease states.  Through the
unit, the company purchases various biopharmaceutical products from
manufacturers and contracts with insurance companies, government
agencies and other payors to provide distribution, education and
other services in connection with these products.  The Specialty
Healthcare Services business unit is a disease management company
engaged in chronic wound care management.  The unit manages, on
behalf of hospital clients, a nationwide network of Wound Centers
that provide a comprehensive range of services for treatment of
chronic wounds.  Early in the week, CURE reiterated its previously
stated guidance for 2003 of revenues of approximately $219-$230
million and earnings per share in the range of $1.47-$1.53.  The
current trend is bullish and investors can profit from continued
upside activity with this position.

FEB 15.00 QCW NC LB=0.40 OI=10 CB=14.60 DE=35 MY=7.1% SY=2.4%


*****
FTE - France Telecom  $24.40  *** European Telecom Growth! ***

France Telecom is a French telecommunications operator with over
100 million customers worldwide.  France Telecom provides retail
consumers, businesses and telecommunications carriers with a range
of telecommunications services, including local, long distance and
international telephony, as well as data, wireless communications,
multimedia, Internet, cable television, broadcast and value-added
services.  France Telecom is also a major participant in developing
satellite and undersea cable systems and it has its own Telecom 1
and Telecom 2 satellites.  A number of favorable news items have
contributed to the bullish activity in the French telecom market
and FTE is one of the beneficiaries of the current trend.  Traders
who believe the upside bias will continue in the near-term can
speculate on that outcome with this position.

FEB 20.00 FTE ND LB=0.45 OI=15 CB=19.55 DE=35 MY=6.7% SY=2.0%


*****
GTRC - Guitar Center  $19.63  *** Retail Of A Different Note! ***

Guitar Center (NASDAQ:GTRC) is a musical instruments retailer that
operates Guitar Center and American Music stores.  Guitar Center
stores are organized into five departments, each focusing on one
product category.  The American Music stores sell band as well as
orchestral instruments and related accessories, primarily to the
school band market.  In addition to its musical products, Guitar
Center offers, through its retail and direct response operations,
technical product information, confirmation of needs by a live
person and after-sale support from a musician-based staff.  The
company's Musician's Friend unit is an integrated e-commerce and
catalog business that offers an assortment of products and online
promotions throughout the year.  Guitar Center shares rallied in
early January after the company said it expects a higher fourth
quarter profit amid a sales surge that took 2002 revenues through
the $1 billion barrier.  Analyst William Armstrong, of C.L. King &
Associates, raised his earnings estimates for the company for both
2002 and 2003 as a result of GTRC's better-than-expected sales.
Investors can establish a low risk cost basis in a unique retail
issue with this position.

FEB 17.50 UGR NW LB=0.45 OI=110 CB=17.05 DE=35 MY=6.3% SY=2.3%


*****
IMPH - Impath  $21.53  *** Own This One! ***

Impath (NASDAQ:IMPH) is a cancer information company that focuses
clinical applications of advanced technologies in community-based
hospital environments to enable doctors to make better treatment
decisions for their cancer patients.  The company harnesses the
information it generates from performing analyses on thousands of
cancer specimens to broaden the applications of this biological
information.  The company has also completed multiple strategic
acquisitions including technologies for; software; complementary
cancer information such as treatment and outcomes data; a range of
pharmacoeconomic analytical capabilities; a tissue and serology
archive of well-characterized, fully documented cancer specimens
linked to longitudinal information on donors of those specimens,
and a network of clinical trial sites around the United States
that provides protocol design and review, patient recruitment,
data collection and analytical services.  Impath emerged as a
bullish candidate in one of our "technicals only" chart scans and
investors who want to own a unique issue in the Health Services
sector should consider this position.

FEB 20.00 QPH ND LB=0.75 OI=85 CB=19.25 DE=35 MY=8.3% SY=3.4%


*****
SEPR - Sepracor  $12.99  *** Drug Sector Speculation ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.  Beyond
the multitude of lawsuits, the most recent news for SEPR occurred
in mid-December when the company announced it is on track to seek
government marketing approval for its new insomnia drug.  Estorra,
a unique compound used to treat transient and chronic insomnia, has
successfully completed clinical Phase III studies and the company
expects to submit it to the FDA in mid-February for review before
seeking final marketing approval.  Traders who agree with a bullish
near-term outlook for the issue should consider this position.

FEB 10.00 ERQ NB LB=0.35 OI=605 CB=9.65 DE=35 MY=10.3% SY=3.2%


*****
TVX - TVX Gold  $15.08  *** Broad-Market Hedge ***

TVX Gold (NYSE:TVX) is an international gold mining company with
interests in five precious metal-producing mines located in North
and South America, through the TVX Newmont Americas joint venture,
and 100% of the Stratoni base metal mine in Greece.  The North and
South American precious metals operations are managed within the
Company's majority-owned TVX Newmont Americas business partnership,
whereas the Stratoni silver-lead-zinc operation is held within its
wholly owned subsidiary, TVX Hellas S.A. The five long-life, mature,
precious metals mines in the Americas have been consistent producers.
In 2001, exploration replaced 100% of reserves mined and in 2002,
the firm explored opportunities to increase its production in these
regions and to become a significant multi-tier gold producer.  TVX
is our choice for a market "hedge" and traders who believe equity
values will continue to slump in the coming weeks can benefit from
a resultant rise in gold stocks with this position.

FEB 12.50 TVX NV LB=0.40 OI=143 CB=12.10 DE=35 MY=9.0% SY=2.9%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

EMBT   8.21  FEB  7.50 MBQ NU 0.35 0      7.15  35   10.4%   4.3%
ALN   13.26  FEB 12.50 ALN NV 0.60 71    11.90  35   10.1%   4.4%
CREE  18.66  FEB 15.00 CVO NC 0.50 325   14.50  35   10.1%   3.0%
WGRD   8.04  FEB  7.50 RUH NU 0.35 129    7.15  35   10.1%   4.3%
ICST  21.10  FEB 17.50 IUY NW 0.60 9     16.90  35    9.6%   3.1%
CVTX  20.70  FEB 17.50 UXC NT 0.60 105   16.90  35    9.2%   3.1%
REGN  21.27  FEB 17.50 RQP NW 0.50 119   17.00  35    8.3%   2.6%
BSTE  38.85  FEB 35.00 BQS NG 1.05 247   33.95  35    7.2%   2.7%
SLAB  22.80  FEB 17.50 QFJ NW 0.40 216   17.10  35    7.0%   2.0%
ELK   17.80  FEB 17.50 ELK NW 0.55 10    16.95  35    6.5%   2.8%
ESPD  17.75  FEB 15.00 ENU NC 0.35 113   14.65  35    6.5%   2.1%
MATK  25.13  FEB 20.00 KQT ND 0.40 20    19.60  35    6.4%   1.8%
ADRX  15.82  FEB 12.50 QAX NV 0.25 298   12.25  35    6.4%   1.8%
CELG  24.41  FEB 22.50 LQH NX 0.60 148   21.90  35    6.2%   2.4%
HNT   26.81  FEB 25.00 HNT NE 0.55 7     24.45  35    5.1%   2.0%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Rally Fades As Dismal Outlook Resurfaces!
By Ray Cummins

The Bears regained control of the stock market Friday as buyers
evaporated after a glut of negative reports ended hopes of a
quick recovery for the U.S. economy.

Technology stocks sank on disappointing outlooks from Microsoft
(NASDAQ:MSFT) and International Business Machines (NYSE:IBM)
while a sluggish forecast from blue-chip giant General Electric
(NYSE:GE) weighed heavily on industrial issues.  The Dow Jones
Average fell 111 points to 8,586 and the NASDAQ Composite Index
closed down 47 points at 1,376, its biggest one-day loss since
last December.  The broader Standard & Poor's 500 Index slid 12
points to 901 amid selling pressure in almost every major market
group.  Declining stocks outpaced advancers more than 2 to 1 on
both the New York Stock Exchange and on the NASDAQ.  Over 1.35
billion shares changed hands on the Big Board and more than 1.6
billion shares were traded on the technology exchange.  In the
bond market, the benchmark 10-year note jumped 16/32, yielding
4.02% while the 30-year bond gained 26/32 for a yield of 4.92%.

*****************
PORTFOLIO SUMMARY
*****************

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.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last  Month  LP  SP Credit   CB    G/L   Status

APC     49.59  45.96  JAN   40  45  0.55  44.45  $0.55  Closed
VLO     36.39  37.10  JAN   30  33  0.30  32.20  $0.30  Closed
ASA     39.30  40.03  JAN   33  35  0.35  34.65  $0.35  Closed
FNM     66.61  69.69  JAN   55  60  0.40  59.60  $0.40  Closed
NBR     37.75  34.25  JAN   30  33  0.30  32.20  $0.30  Closed
DHR     65.10  63.88  JAN   55  60  0.40  59.60  $0.40  Closed
IGEN    41.96  43.77  JAN   30  35  0.55  34.45  $0.55  Closed
RD      43.21  43.89  JAN   38  40  0.15  39.85  $0.15  Closed
LMT     57.70  52.50  JAN   50  55  0.50  54.50 ($1.25) Closed *
STJ     39.17  41.02  JAN   35  38  0.25  37.25  $0.25  Closed
FRX     53.04  52.19  JAN   48  50  0.23  49.77  $0.23  Closed
MYL     36.74  39.44  FEB   30  35  0.65  34.35  $0.65   Open
XAU     79.51  75.43  FEB   65  70  0.75  69.25  $0.75   Open
BHE     35.30  32.52  FEB   25  30  0.45  29.55  $0.45   Open
CHIR    40.18  39.63  FEB   35  38  0.40  37.10  $0.40   Open
INTU    50.40  48.29  FEB   40  45  0.60  44.40  $0.60   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss
 
Lockheed Martin (NYSE:LMT) was closed Wednesday for a small loss
when the stock ended the session below the sold (put) strike at
$55.  Intuit (NASDAQ:INTU) and Benchmark Electronics (NYSE:BHE)
are on the "early exit" watch-list.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last  Month  LC  SC Credit   CB     G/L   Status

JCI     81.79  80.95  JAN   90  85  0.20   85.20  $0.20  Closed
LEH     56.72  57.37  JAN   65  60  0.25   60.25  $0.25  Closed
GS      73.10  72.58  JAN   85  80  0.60   80.60  $0.60  Closed
LXK     61.93  60.56  JAN   75  70  0.55   70.55  $0.55  Closed
MMM    121.77 126.32  JAN  135 130  0.70  130.70  $0.70  Closed
GD      78.87  74.15  JAN   90  85  0.40   85.40  $0.40  Closed
CDWC    44.06  45.56  JAN   55  50  0.45   50.45  $0.45  Closed
CEPH    49.02  52.05  JAN   60  55  0.40   55.40  $0.40  Closed
GILD    34.57  36.35  JAN   40  38  0.25   37.75  $0.25  Closed
UBS     47.56  49.55  JAN   53  50  0.35   50.35  $0.35  Closed
ABK     57.56  56.50  FEB   70  65  0.55   65.55  $0.55   Open
KBH     44.01  46.10  FEB   55  50  0.55   50.55  $0.55   Open
BZH     61.98  61.60  FEB   75  70  0.50   70.50  $0.50   Open
ITW     65.70  64.12  FEB   75  70  0.60   70.60  $0.60   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss


PUT DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status
      
WMT     50.54  49.97  JAN   60  55   4.45   54.45  0.55  Closed

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

GDW     72.33  75.56  JAN   65  70   4.25   69.25  0.75  Closed
OCR     25.03  26.30  FEB   25  27   1.00   26.00  0.30   Open
UOPX    38.08  37.45  FEB   30  35   4.40   34.40  0.60   Open
EBAY    73.36  74.85  FEB   60  65   4.45   64.45  0.55   Open
SYMC    46.12  45.05  FEB   35  40   4.50   39.50  0.50   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


SYNTHETIC (BULLISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

SCIO    32.84  36.10   JAN     40    25     0.00    0.25   Closed
PXD     26.11  25.44   MAR     30    23     0.10    0.20   Closed
VAR     50.38  49.74   FEB     55    45     0.10    0.00    Open?
WPI     29.22  28.83   MAY     35    22    (0.10)   0.50    Open
ANF	  26.39  27.11   FEB     30    22     0.05    0.10    Open

The best performer this week was Watson Pharmaceuticals (NYSE:WPI),
which rose over $4 on heavy trading volume.  The bullish synthetic
position offered conservative traders a favorable near-term profit.
Varian Medical Systems (NYSE:VAR) and Scios (NASDAQ:SCIO) climbed
higher after our initial selections, however the rallies were too
late to yield favorable profits in our bullish synthetic positions.
Pioneer National Resources has retreated to a recent trading range
near $24-$25 and since it is unlikely the stock will rally in the
near future, the position has been closed.


SYNTHETIC (BEARISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial   Max    Play
Symbol  Price  Price  Month   Put   Call    Credit  Value  Status

IMN     35.00  37.99   APR     30    40      0.15    0.00  Closed
AMZN    18.86  21.40   FEB     15    22      0.10    0.00   Open?

The recent sharp rally stalled the bearish trends in Amazon.com
(NASDAQ:AMZN) and it may be prudent to close the position on any
further upside activity.


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short    Current   Max     Play
Symbol  Price  Price   Option    Option    Debit   Value   Status

HNT     25.75  26.81   JAN-30C   DEC-30C   0.60    0.60    Closed
GISX    20.21  18.70   FEB-22C   DEC-22C   0.95    0.75    Closed
COF     29.65  33.25   FEB-25P   JAN-25P   1.00    0.90    Closed
HSY     67.76  68.33   FEB-65C   JAN-70C   3.25    3.75     Open?
RTN     30.47  31.10   FEB-30C   JAN-32C   1.65    2.20     Open?
AMAT    15.70  13.53   J04-17C   J03-17C   2.40    2.00     Open?

The volatility play in Capital One (NYSE:COF) did not benefit from
the recent bullish activity and the position was closed for a small
loss.  The new diagonal spread in Raytheon (NYSE:RTN) has already
yielded a small profit and the Hershey (NYSE:HSY) spread finished
the expiration period with a respectable gain.  The bullish spread
in Williams Sonoma (NYSE:WSM) was closed early, after the December
option expired, for a favorable profit.  The LEAPS/covered-calls
play in Applied Materials (NASDAQ:AMAT) will be closed swiftly if
the issue moves below technical support near $13.


SHORT-PUT COMBOS
****************

Stock   Pick   Last    Short      Long    Initial   Max     Play
Symbol  Price  Price   Option    Option   Credit   Profit  Status

AES     2.92    4.04  J04-7.5P  J03-2.5P   4.50     0.40    Open
EDS    19.64   18.82  J04-25P   M03-17P    6.50     0.25    Open?

The rally in Electronic Data Systems (NYSE:EDS) appears to be over
in the near-term and conservative traders should consider closing
the position to limit losses.  ImClone (NASDAQ:IMCL), which was
previously closed, offered a gain of up to $2.25 in the bullish
play.


CREDIT STRANGLES
****************
 
No Positions


DEBIT STRADDLES
***************
 
Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

GENZ    34.43  35.41   JAN    35    35    6.15    6.50    Closed
L        9.95  10.19   JAN    10    10    1.35    1.55    Closed
VRTS    19.81  17.47   JAN    20    20    1.25    1.75    Closed

This week's big winner was the short-term straddle in Veritas
Software (NASDAQ:VRTS), offering traders up to a $2.75 profit on
$1.25 invested.  The speculative position in Liberty Media (NYSE:L)
generated a small gain as the issue slumped to a low near $8.50.
Genzyme (NASDAQ:GENZ) achieved profitability as the issue fell to
the "break-even" point in the bearish portion of the play.  Traders
who sold the JAN-$35 puts during the slump had "risk free" calls
for the rally that began after Monday's FDA meeting.
							
Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
AET - Aetna  $43.86  *** Hot Sector! ***

Aetna (NYSE:AET) is a health benefits company whose main business
operations are conducted in the Health Care, Group Insurance and
Large Case Pensions segments.  The Health Care segment consists
of health and dental benefit products such as health maintenance
organization, point-of-service, preferred provider organization
and indemnity products, and group insurance products including
life, disability and long-term care insurance products.  Aetna's
Group Life Insurance segment consists principally of renewable
term coverage, the amounts of which may be fixed or linked to
individual employee wage levels.  Large Case Pensions manages a
variety of retirement products, including pension and annuity
products, offered to qualified defined benefit and contribution
plans.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-35.00  AET-NG  OI=204  A=$0.30
SELL PUT  FEB-40.00  AET-NH  OI=532  B=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$39.50
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=77%


*****
HCA - HCA Inc.  $43.75  *** On The Rebound! ***

HCA (NYSE:HCA) is a healthcare services company that operates
approximately 200 hospitals comprised of general, acute care
hospitals, psychiatric hospitals and hospitals included in joint
ventures.  In addition, the company operates approximately 80
freestanding surgery centers.  The firm's facilities are located
in 23 states, England and Switzerland.  HCA's general, acute care
hospitals provide a full range of services to accommodate such
medical specialties as internal medicine, surgery, cardiology,
oncology, neurosurgery, orthopedics and obstetrics, as well as
diagnostic and emergency services.  Outpatient and most ancillary
healthcare services are provided by HCA's general, acute care
hospitals and through the firm's freestanding outpatient surgery
and diagnostic centers, and rehabilitation facilities.  HCA's
psychiatric hospitals provide a full range of mental healthcare
services through inpatient, partial hospitalization as well as
outpatient settings.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-37.50  HCA-NU  OI=577  A=$0.35
SELL PUT  FEB-40.00  HCA-NH  OI=583  B=$0.55
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$39.75
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=77%


*****
BGEN - Biogen  $37.93  *** Amgen's Enbrel Upstages Amevive ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and marketing
drugs for human healthcare.  The firm derives revenues from sales
of its AVONEX (Interferon beta-1a) product for the treatment of
relapsing forms of multiple sclerosis (MS) and from royalties on
worldwide sales by its licensees of a number of products covered
under patents it controls.  In addition, Biogen has a significant
number of ongoing research programs and a pipeline of development
stage products, including AMEVIVE (alefacept), which is being
considered for approval by the United States FDA and regulatory
authorities in the European Union and Canada for the treatment of
moderate to severe psoriasis.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-45.00  BGQ-BI  OI=1321  A=$0.25
SELL CALL  FEB-42.50  BGQ-BV  OI=1256  B=$0.45
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$42.75
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=77%


*****
PIXR - Pixar  $53.76  *** Profit-Taking Underway! ***

Pixar (NASDAQ:PIXR) is a digital animation studio with the creative,
technical and production capabilities to create a new generation of
animated feature films and related products.  The firm's objective
is to create, develop and produce computer-animated feature films
with a three-dimensional appearance.  Since its inception, Pixar
has created and produced four full-length animated feature films,
Toy Story, A Bug's Life, Toy Story 2 and Monsters, Inc., which were
marketed and distributed by The Walt Disney Company.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-65.00  PQJ-BM  OI=12   A=$0.30
SELL CALL  FEB-60.00  PQJ-BL  OI=108  B=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$60.50
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=86%


*****
RE - Everest Re Group  $51.70  *** Sell-Off In Progress! ***

Everest Re Group (NYSE:RE), through its subsidiaries, principally
provides reinsurance and insurance in the United States, Bermuda
and international markets.  The company underwrites reinsurance
both through brokers and directly with ceding companies.  Everest
underwrites insurance mainly through general agency relationships.
Everest Reinsurance company specializes in property and casualty
reinsurance and insurance.  Everest Reinsurance (Bermuda), Ltd.,
established in 2000, principally writes property and casualty
reinsurance and also offers reinsurance and insurance with respect
to life and annuity classes of business.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-60.00  RE-BL  OI=90   A=$0.20
SELL CALL  FEB-55.00  RE-BK  OI=123  B=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$55.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=75%


*****
ROAD - Roadway  $36.43  *** Trading Range? ***

Roadway Corporation (NASDAQ:ROAD) is a holding company with two
primary operating entities, Roadway Express, and Roadway Next
Day Corporation.  REX is the primary operating subsidiary of the
Company.  REX and its primary subsidiaries provide long-haul,
less-than-truckload freight services on city-to-city routes in
North America, and on international routes to and from North
America.  Roadway Next Day Corporation, formerly known as Arnold
Industries, was acquired in 2001, and provides regional next-day
LTL and truckload freight services in North America in two major
business segments.  At the beginning of 2002, REX owned a total
of 8,555 tractors and 25,175 trailers.  The company also operated
2,130 tractors and 9,349 trailers under long-term leases.  The
average age of the intercity fleet was six years.  New Penn and
ATS together operate 2,100 tractors and 5,800 trailers.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-45.00  EJQ-BI  OI=56  A=$0.20
SELL CALL  FEB-40.00  EJQ-BH  OI=74  B=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$40.55
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=72%


*************
DEBIT SPREADS
*************

These candidates offer a risk/reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
PHSY - PacifiCare Health Systems  $29.19  *** Bullish Outlook! ***

PacifiCare Health Systems (NASDAQ:PHSY) offers managed care and
other health insurance products to employer groups and Medicare
beneficiaries in eight Western states and Guam.  The company's
commercial and Medicare programs are designed to deliver quality
healthcare and customer service to the company's members in a
cost-effective manner.  Programs include health maintenance
organizations, preferred provider organizations and Medicare
supplement products.  PHSY also offers a variety of specialty
products and services that employers can purchase to supplement
the firm's basic commercial plans, or as stand-alone products.
These specialty products include pharmacy benefit management,
behavioral health services, life insurance, indemnity health
insurance and dental and vision benefit plans.  The company's
earnings are due 2/12/03.

PLAY (moderately aggressive - bullish/debit spread):

BUY  CALL  FEB-25.00  HYQ-BE  OI=131  A=$4.90
SELL CALL  FEB-27.50  HYQ-BY  OI=41   B=$2.90
INITIAL NET-DEBIT TARGET=$1.95-$2.00
POTENTIAL PROFIT(max)=25% B/E=$27.00
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=68%


*****
APPX - American Pharmaceuticals $20.94 ** Favorable FDA Decisions **

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
pharmaceutical company that develops, manufactures and markets
injectable pharmaceutical products.  The company produces over
100 generic injectable pharmaceutical products in more than 300
dosages and formulations.  Its primary focus is in the oncology,
anti-infective and critical care markets.  The firm manufactures
products in all three of the three basic forms in which injectable
products are sold: liquid, powder and lyophilized (freeze-dried).

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  APR-20.00  AQO-DD  OI=125  A=$3.10
SELL CALL  FEB-22.50  AQO-BX  OI=0    B=$0.80
INITIAL NET-DEBIT TARGET=$2.15-$2.20
INITIAL TARGET PROFIT=14% B/E=$22.20
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=42%


*****
SNPS - Synopsys  $40.00  *** Technicals Only! ***

Synopsys (NASDAQ:SNPS) is a global supplier of electronic design
automation (EDA) software to the electronics industry.  The firm's
products are used by designers of integrated circuits, including
system-on-a-chip ICs, and the electronic products (such as PCs,
cellular phones and Internet routers) that use integrated circuits
to automate significant portions of their chip design process.  Ics
are distinguished by the speed at which they run, their area, the
amount of power they consume and the cost of production.  The firm's
products offer its customers the opportunity to design ICs that are
optimized for speed, area, power consumption and production cost,
while reducing overall design time.  Synopsys provides consulting
services to assist customers with their IC designs, as well as
training and support services.

PLAY (conservative - bearish/debit spread):

BUY  PUT  FEB-50.00  YPQ-NJ  OI=30   A=$10.20
SELL PUT  FEB-45.00  YPQ-NI  OI=236  B=$5.50
INITIAL NET-DEBIT TARGET=$4.50-$4.60
POTENTIAL PROFIT(max)=8% B/E=$45.40
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=75%


*******************
SYNTHETIC POSITIONS
*******************

These stocks have established trends and favorable option premiums.
Traders with a directional outlook on the underlying issues may
find the risk-reward outlook in these momentum plays attractive.

*****
UPL - Ultra Petroleum  $10.11  *** Reader's Request! ***

Ultra Petroleum (NYSE:UPL) is an independent oil and gas company
engaged in the development, production, operation, exploration and
acquisition of oil and gas properties.  The company's operations
are focused mainly in the Green River Basin of southwest Wyoming,
and Bohai Bay, offshore China.  Ultra holds interests in 265,400
(gross) acres in Wyoming, covering approximately 410 square miles.
With the acquisition of Pendaries Petroleum in 2001, the company
became active in oil and gas exploration and development in Bohai
Bay.  In addition, the company owns and operates minor operations
in Pennsylvania and Texas.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  MAR-10.00  UPL-CB  OI=314  A=$0.95
SELL PUT   MAR-10.00  UPL-OB  OI=10   B=$0.65
INITIAL NET DEBIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.45-$0.75

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold put is approximately $475 per contract.  However, do not open
this position if you can not afford to purchase the stock at the
sold strike price!


*****


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

Something For Everyone


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_011903.asp


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

Sell-Off Continues


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_011903.asp


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DISCLAIMER
**********

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