Option Investor
Newsletter

Daily Newsletter, Tuesday, 01/21/2003

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                 Tuesday 01-21-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Running Out of Time
Futures Markets: The Red Storm Continues
Index Trader Wrap: Looking for a "drop" then a "pop"
Market Sentiment: Insatiable
Weekly Manager Microscope: Top YTD 2003 Performers


Updated on the site tonight:
Swing Trader Game Plan: Something Stinks


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      01-21-2003           High     Low     Volume Advance/Decline
DJIA     8442.90 -143.80  8623.49  8438.18 1.59 bln   1007/2266
NASDAQ   1364.25 - 11.90  1380.43  1364.25 1.32 bln   1262/2073
S&P 100   450.35 -  7.01   459.68   450.30   Totals   2269/4339
S&P 500   887.62 - 14.16   906.00   887.62 
W5000    8400.48 -129.80  8565.12  8400.45
RUS 2000  383.17 -  4.93   389.04   383.08 
DJ TRANS 2281.23 - 63.30  2351.83  2279.42   
VIX        30.53 +  1.85    31.18    29.22   
VXN        43.24 +  0.40    44.78    42.17 
Total Volume 3,083M
Total UpVol    738M
Total DnVol  2,278M
52wk Highs  234
52wk Lows    93
TRIN       2.33
PUT/CALL    .53
************************************************************

Running Out of Time

That was the term President Bush used when discussing Saddam in
a press conference today but it applies to the markets as well. 
Earnings are flying at a furious pace but guidance is not. The
guidance given is not encouraging and "no guidance" comments due
to lack of visibility are just as bad. With the majority of major
earnings releases already history the market is running out of 
time to find a reason to buy. 

Dow Chart


 
Nasdaq Chart


 

The morning started off so well with Housing Starts soaring to
a 16 year high of 1.835 million units. Builders must not believe
there is any bubble and they are rushing to complete homes in
the spring to capitalize on the current low interest rates. Once
those rates start back up it may be a different story. The number
one reason for buying a new home now is because interest rates
are so cheap according to surveys. Other factors remain very
weak as most needs based buying has already been done. 

Major earnings announcements out this morning included MMM which
beat estimates but disappointed investors with guidance that was
good but not exciting. They estimated sales would only grow +3%
to +7% for the year. That may be good for this economy but not
good enough for investors expecting +10% or better gains. The 
stock gapped open to $127.25 but sold off to $125.50 at the 
close.

Citigroup earned less than expected but still managed to take 
home +$15.28 billion in 2002. They took charges for loan write
offs due to high profile bankruptcies like Enron but still 
managed to do well. They also forecast double-digit growth for
2003. Sounds like good news but C finished lower on the day. 

JNJ also beat estimates by a penny but the stock closed down
for the day on fears of competition from BSX. This should not
be a factor despite BSX grabbing $1.4 billion of the JNJ stent
market. The new JNJ stent is expected to reap $3.4 billion in
2003. BSX guided higher at the open and gapped up to $50 but
sold off to $44 by the close with a -1.71 loss. They announced
they had been given EU approval for their Taxus stent. Sell 
the news became the direction as this had been expected for a
week. 

Ford reported a smaller 4Q loss and predicted a first quarter
profit of 20 cents a share. Ford expects to earn 70 cents for 
all of 2003 but analysts claim the prediction is based on an
"overly rosy" projection of the economy. Ford finished flat
for the day. 

Charles Schwab missed estimates by a penny on revenues that
fell -5.9% and produced the second consecutive quarterly loss. 
Schwab revenue from customer trades fell -14% with average
daily trades dropping to 126,700 in Dec 2002 from 159,900 in
Dec 2001. Schwab has been raising fees and adding additional
charges to previously free services to try and pull out of 
the dive. The company has cut 10,000 of 26,700 employees in
the last year. 

HDI hit a slick spot when it affirmed guidance today. Analysts
had expected them to raise guidance instead. The stock lost
nearly -$4 on the news. Could this be a sign of consumer
weakness ahead? Very high dollar motorcycles have been
available on back order for years and a termination of that
trend could be a problem. This was the first time in 16
quarters that HDI did not raise guidance. 

After the bell today Motorola beat estimates by three cents
and said sales of its mobile phones were stronger than expected
and margins were also better. Will wonders never cease? Handset
shipments were up +27% over the Dec-2001 quarter. MOT was up 
+35 cents in after hours. 

Other stocks making news in after hours were RFMD who beat
estimates but guided down . CDN also lowered guidance for the
first quarter. SANM guided inline to slightly lower. However
there were many more companies that beat, affirmed or upgraded 
guidance tonight. UIS, CFO, VISG, PCLE, PSEM, JDAS, HTCH, OPWV,
SGI, OAKT, AV, LM, MXO, CKFR, ELON, MCK, MVSN, PXLW. It would
almost seem that the tech sector had miraculously revived and
the MOT earnings are going to be the rally cry. 

Also after the bell tonight the December Semiconductor Book-to-
Bill report came in much stronger than expected at .98. This
was up from .80 last month. While it is too early to see this
as a revival of the semiconductor sector it is encouraging. 
The orders are about flat with shipments and that could be
seen as a stabilization of the sector. Tech bulls are sure to
grab on to this like a lifeboat from the Titanic and proclaim
salvation from the rooftops. Then again maybe not. The BTB
report does not come out until 6:PM ET and many times it is
completely overlooked by the major news outlets and therefore
by traders as well. 

It would not take much bullish tech sentiment to rescue the 
Nasdaq. The index put in a remarkable display of strength
and traded in positive territory most of the day. This was
no small feat with the Dow doing the Titanic imitation and
slipping beneath the 8600 and then 8500 waves.  

Reviving the Nasdaq would take traders willing to commit 
money in the face of a four day Dow sell off. Lipper reported
today that $10 billion in cash was withdrawn from stock funds
in 2002 and the first year with a net withdrawal since 1988. 
They also reported that $130 billion was deposited into bond
funds for the same period. That was also a record. This was
repeated numerous times during he day along with the threats
about Iraq and the result was all 30 Dow stocks finishing in
the red. 

The continued bad news from Venezuela is also depressing the 
markets. American companies are closing locations and shutting 
doors to protect employees from the increasing rioting. Today 
Bush sent two more aircraft carrier battle groups and 100,000 
more troops to the gulf. With the Monday deadline at the UN 
there is a very good possibility the rhetoric is going to 
increase. 

We are setting up for a sentiment tug of war between tech 
bulls acting on perceived good news tonight and economic bears
acting on oil, war and economic fears. The Dow at 8443 is about
100 points away from strong support at 8350. The Nasdaq at
1364 is only a few ticks away from support at 1361. Stronger
support is about -30 points below that. While I do not think
the economy has changed much in the last week the selling has
been too much too fast and I expect a rebound before eventually
breaking that 8350/1331 support. I expect any bounce to fail in
the 8600/1400 range as the UN deadline gets closer. Traders
should realize that the next week could be very volatile and
they should only be in the market if they are willing to take
the risk. After the 28th the war direction/timing should be 
known and the market should be done with earnings. Will a new
trend begin then? Nobody knows but there will be much less
uncertainty in the market place. Until then be cautious traders
and be prepared for big swings in prices. The 2.33 TRIN at
the close plus the MOT news should be good for a few points
at the open but don't expect them to last forever. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

The Red Storm Continues
By John Seckinger
jseckinger@OptionInvestor.com

All three futures contracts continue to sink in a sea of red; 
however, there are some important areas of support underneath 
that institutional traders are most likely waiting for.  

Tuesday, January 21st at 4:15 P.M. 

Contract      Last    Net Change    High        Low       Volume    

Dow Jones    8442.90  -143.50     8623.49     8438.18      
YM03H        8432.00  -151.00     8610.00     8413.00     26,077 
Nasdaq-100   1008.93    -8.65     1028.32     1008.93      
NQ03H        1009.00   -11.00     1029.50     1008.00    249,753
S&P 500       887.62   -14.16      906.00      887.62      
ES03H         888.50   -14.50      907.25      886.00    548,159

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      8316.21    8379.55   8501.52    8564.86    8686.83
YM03H          8288.00    8360.00   8485.00    8557.00    8682.00
Nasdaq-100      996.00    1002.46   1015.39    1021.85    1034.78
NQ03H           994.00    1001.50   1015.50    1023.00    1037.00
S&P 500         875.37     881.50    893.75     899.88     912.13
ES03H           872.75     880.50    894.00     901.75     915.25

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.  

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

Jim Brown had another fantastic day in the Futures Monitor.  Let 
us recap his signals:    

Short 899.25, exit 894.75, gain +5.00
Short 896.50, exit 893.00, gain +3.50
Short 897.00, exit 894.00, gain +3.00
Short 890.75, exit 888.00, gain +2.75

Total for the day = + 14.25 points (Every point equals $50)

For more information on Jim's posts for Tuesday, 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)

Using the levels outlined above, let us look for some 
correlations within the ES contract.  Support 2 (S2) for 
Wednesday comes in at 872.75, while S2 for the WEEK is at 873.25.  
Therefore, this area should have strong psychological meaning 
going forward.  Note:  The last relative low was set on December 
31st at 868.  I would actually put more weight around the 873 
area, but it will depend on how the market is trading at any 
particular time.  On the way down to the 873 area, support should 
also be seen at 880.50.  

As far as resistance is concerned, note that the ES contract 
closed almost exactly on S1 for the WEEK (888.25).  If the weekly 
S1 area is material support and the ES contract rises from 
current areas, resistance is seen at the 61.8% retracement area 
taken from the rise seen at the beginning of 2003 (894.25).  Note 
that the 894.25 level is almost exactly the daily pivot for 
Wednesday.  Coincidence?  I think not.  If the pivot does give 
way to bulls, more resistance should be felt near 900 (900 is the 
monthly pivot, while 901.75 is R1 for Wednesday.  Moreover, the 
902.50 area is 50% of the move higher in January).  

As always, more aggressive traders can use the retracement levels 
between S2 and R2. 

Chart of ES03H, Daily 


 

Going to a 15-minute chart of the ES contract, notice that the 
index did close under the pivot for Wednesday.  This means that 
bears should be somewhat comfortable heading into the night 
session.  As far as the regression channel is concerned (shown 
below and pretty aggressive), it should continue to work until 
proved otherwise.  For those looking at P&F charts, there is a 
bullish trend line that comes in at current levels; however, this 
trend is VERY SHORT in nature.  Staying with the P&F chart, there 
is now Nine O's in a row without a column of X's.  This gives a 
bearish price objective of 840.  The last time this pattern 
existed, there was a column of 10 O's before the contract found a 
bid.  The "10th O" would come in at 885.  Just remember, least 
resistance in P&F is still lower; however, we should begin to 
watch this more carefully.  More important for intermediate 
traders.  

Chart of ES Contract, 15-minute


 

Bullish Percent of SPX: 60.40% and still in column of O’s (Recent 
High at 66%, Low of current column at 58%).  On Tuesday, the 
Bullish Percent fell one percent.  

The March E-mini Nasdaq 100 Contract (NQ03H)

Well, we did experience weakness on Tuesday in the NQ contract; 
however, this futures contract never fell under the 1000 level as 
the blue chips came under pressure.  Looking at a daily chart, 
notice how the 38.2% retracement of the move from October to 
December comes in at 1024.50.  This level should be protected by 
bearish traders, especially since it matches up with R1 for 
Wednesday.  The intermediate objective remains lower at 983, but 
look for support around the 989.25 to 994 range.    

Chart of NQ03H, Daily


 

A five-minute chart of the NQ contract shows the retracement area 
between S2 and R2 for Wednesday, and a strong move lower on the 
open could test both the 1002 area and the descending trend line 
(blue).  I like how the pivot is at 1015.50, since I can 
visualize bears getting squeezed once above.  Possibly it will 
act as the catalyst for a move to 1024.50 or perhaps the 1029 
area (seen below via red horizontal line).  

Chart of NQ03H, 5-minute


 

Bullish Percent for NDX:  Fell by two percent again on Tuesday to 
61% 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)

The mini-sized Dow contract (YM03H) fell rather aggressively on 
Tuesday, and the next intermediate support area remains below 
from 8362 to 8373 (see chart below).  The pivot for Wednesday is 
higher at 8484, but more important resistance lies above from 
8600 to 8620.  Least resistance has to be lower during the time 
of this writing, especially with the last period hitting 
resistance at the 8437 area (resistance for Wednesday).  The 
Bullish Percent for the Dow did not change on Tuesday; however, a 
P&F figure pattern of the Dow went into a negative pattern as 
8550 has hit in the blue chips.  The Bearish objective for the 
Dow, via P&F analysis, is 8000 exactly.  

Chart of YM03H, 90-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
********************

Looking for a "drop" then a "pop"

Despite some modest upside earnings reports before the opening 
bell from Dow components 3M Company (NYSE:MMM) 125.64 -0.53%, 
Citigroup (NYSE:C) $36.14 -1.79% and Johnson & Johnson (NYSE:JNJ) 
$53.99 -1.46%, along with stronger than expected December housing 
starts numbers and building permits, traders returned from a 
3-day weekend to sell the Dow Industrials (INDU) 8,442.90 -1.67%, 
S&P 500 Index (SPX.X) 887.62 -1.57% and S&P 100 Index (OEX.X) 
450.35 -1.53% right down to their daily S2 support levels from 
our pivot analysis.  

A quick pulse of the Dow Jones Home Construction Index (DJUSHB) 
326.63 -0.7%, which can be heavily influenced by the monthly 
housing starts and building permits was unable to break above its 
longer-term 200-day SMA of 331.20, which has been serving as 
resistance in recent weeks.  This may bee a good sector away from 
technology sectors for traders to monitor for any type of 
prolonged strength above a longer-term moving average.  In recent 
weeks, the group has found components handily beating estimates, 
but the broader negativity from the major indexes has kept things 
in check.

As it relates to daily pivot analysis, the more tech-heavy 
NASDAQ-100 Index (NDX.X) 1,008.93 -0.85% and NASDAQ-100 Index 
Tracking Stock (AMEX:QQQ) 25.03 -1.10% held up rather well until 
their close, and settled just below their daily S1 levels of 
support.

Trade volume at both the NYSE and NASDAQ were slightly below last 
week's average volume levels with the NYSE turning 1.31 billion 
shares, while NASDAQ volume of 1.37 billion shares was light 
compared to last week's lowest volume session of 1.57 billion 
shares.

Decliners easily outnumbered advancers by a 2:1 margin at the 
NYSE, but traders still managed to get 100 stocks on the big 
board to trade a new 52-week high compared to just 32 stocks 
hitting fresh 52-week lows.  This indicator for the NYSE has the 
look of "anchoring" near the 100 new highs level, while slight 
growth in new lows has the "rubber band" slowly stretching to the 
downside.  This type of breadth shows some remaining type of 
leadership trying to take hold, while weaker stocks that may have 
seen some early January benefit from lack of tax-loss selling 
begin resuming longer-term trend from last year.

NASDAQ breadth was not as negative as NYSE, but decliners still 
outnumbered by a 5 to 3 margin with 89 stocks trading a new 52-
week high compared to a growing 43 stocks hitting new lows.  A 
quick comparison to last week had the NASDAQ's best 52-week high 
total coming on Monday (100 stocks achieving a new 52-week high), 
while Friday's new lows total of 31 grew to the downside today.

Here's a quick look at tomorrow's daily pivot analysis and 
levels.  Again, the daily section has been adjusted for today's 
high, low and closes, while the weekly levels are based off of 
last week's high, low and close and the monthly are left at 
December's high, low and close.

In this weekend's "Ask the Analyst" column, I noted some 
correlation at various levels in the Dow, SPX and OEX.  After 
today's calculations for the daily, we once again see correlative 
resistance at SPX 912 and OEX 463 on daily and weekly basis, but 
correlative support after today's action only shows up at SPX 875 
and OEX 444.

Pivot Analysis Matrix


 

Correlations that hold over to tomorrow between the weekly and 
daily levels are now only found between the SPX and OEX.  Levels 
of resistance are the same as found in this weekend's "Ask the 
Analyst" column at SPX =912 and OEX = 463 and these are levels of 
resistance that I'm beginning to feel become more formidable this 
week.

My observation of tomorrow potentially seeing a "drop, then a 
pop" is that today's close below SPX 890, which was today's S2 
level carries some bearishness into tomorrow's trade, but the 
major indexes are looking short-term oversold and a decline in 
the first half of trading to SPX 875 and OEX 444 should see some 
type of short covering take place, with bearish traders looking 
to sell a rally back near this week's Pivot levels.

I'm also keeping a close eye on the bullish % charts and readings 
there.  The narrow and more volatile NASDAQ-100 Bullish % 
($BPNDX) saw a net loss of 2 stocks to reversing point and figure 
sell signals as the bullish % declines to 61% and now just 1% 
away from reversing back lower into "bull correction" status.

The also narrow S&P 100 Bullish % ($BPOEX) saw now net change 
today and remains "bull confirmed" at 61% and at this point, not 
close to the 54% reversal reading to turn back lower to "bull 
correction" status.  

S&P 500 Index Chart - Daily Interval


 

The SPX closed below bar chart support trend of 890 and what was 
today's S2 support from pivot analysis (note anchor point of 
trend was from low, NOT closing low).  This sets the stage for a 
test of weekly S2 and tomorrow's S2 of pivot analysis support of 
875-876.  One technical note and word of near-term caution for 
bears is that the $5-box scale of the SPX p/f chart has bullish 
support trend at 885.  While this bullish support trend is 
"young," understand that it is nearby.  Bearish traders should be 
able to protect current gains with a stop above the 889.75 from 
the above retracement, or tomorrow's daily pivot of 894.  Those 
able to watch things on an hourly basis should be able to use 
some of the retracement techniques we've been using in the market 
monitor to fine tune things during market hours.

Today's action saw a net loss of 4 stocks to reversing point and 
figure sell signals and has the S&P 500 Bullish % ($BPSPX) 
slipping to 61.12% bullish and still "bear alert" status.  It 
would currently take a reading of 64% to reverse higher into 
"bull confirmed" status, which I would associate with the SPX 
above 935.  The recent high reading for the SPX bullish % was 68% 
in early December.  January's high bullish % reading has been 
62.8%, from last Monday.

S&P 100 Index Chart - Daily Interval


 

In past commentary, we've discussed "conservative" trend, whereby 
the technician anchors trend at a relative high or low CLOSE and 
not the extreme intra-day low or high (for downward trend) that 
was traded.  In the SPX chart, I anchored at the extreme low, but 
in the above OEX chart I anchored at the closing low, and 
attached to the recent relative low.  This gives a bearish trader 
the observation that current upward trend on the bar chart has 
not been violated and perhaps keeps a bearish trader from getting 
overly aggressive to the downside.  This may not be a bad idea 
with the S&P 100 Bullish % ($BPOEX) unchanged for a third 
straight session.  

The downward action in the OEX chart itself with little change in 
the bullish % for a third straight session tells us that damage 
or weakness is being seen in some of the HEAVIER WEIGHTED 
components, but not necessarily to the internals themselves where 
reversing p/f chart sell signals would be generated.

Dow Industrials Chart - Daily Interval


 

I view today's close below "conservative" trend and the 
correlative levels of support from this weekends "pivot analysis 
matrix" of 8,477 and 8,474 from daily and weekly support levels 
as a negative.  Tomorrow's daily S1 of 8,532 should serve 
resistance, with daily pivot of 8,614 along with both the 21-day 
and 50-day SMA's being formidable resistance.  As "crazy" at is 
seems that the Dow can trade the range of the Bollinger bands, 
that sure seems to be the range found in the past month and I'd 
be looking for support in the Dow from lower Bollinger of 8,232 
and weekly S2 of 8,361.

NASDAQ-100 Index Chart - Daily Interval


 

The NASDAQ-100 Index Tracking stock (QQQ) trades just above our 
fitted retracement's 50% level of $25.00.  Tonight's after-hours 
trade below that level and rather quick recovery back to $25.08 
is suspicious.  I "hate" trading the QQQ in after-hours and is a 
good time to get sucked into trades that aren't really there.  
I've noted in the above chart how our "fitted" retracement level 
of $23.82 lines up with the weekly S2 pivot analysis of $23.82 
and may well be a weekly bearish target.  If the QQQ breaks below 
this evening's after-hours low of $24.97, I like the QQQ as a 
bearish trade tomorrow with a target of $23.86.  Note today's low 
of $25.02, just 2-cents above the $25.00 level of retracement.  
We've discussed this type of "garbage trade" in the past where a 
market maker will bid/off the QQQ just above or below these 
retracement levels.

We will note that the NASDAQ-100 Bullish % ($BPNDX) is just 1 net 
loss of a point/figure sell signal to reversing back into "bull 
correction" status and I would correlate that with a break below 
$25.  Should we see further deterioration in the bullish % to a 
"bear confirmed" status at 58%, then I think the QQQ has downside 
to $23.82 and $21.91 if the Bullish % were to reach levels below 
30%.

Jeff Bailey


------------------------- Advertisement ------------------------- 

WINNER of Forbes Best of the Web Award 
 • optionsXpress voted Favorite Options Site by Forbes  
 • Easy screens for spreads, collars, or covered calls
 • Free streaming quotes 
 • Real-time option chains, charts + calculators

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest21

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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

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

Insatiable
by Steven Price

That sentiment change I talked about last week has so far 
continued through earnings season.  Positive results have been 
met with selling, as investors take a "that's all" approach.  It 
is no coincidence that we reached a top around Dow 8800, which 
was strong resistance over the last several months.  We did tick 
over that level on a closing basis for a day, but it appears that 
it was nothing but an ideal shorting opportunity. 

We got upside earnings surprises from three Dow components this 
morning: Citigroup, 3M and Johnson and Johnson, as well as Ford, 
which is not a Dow component, but is still one of the NYSE's 
largest stocks.  None of the results were enough to boost the 
markets.  We did get a brief run in the morning, but that run 
eventually sold off to levels not seen since the beginning of the 
January rally.  

On top of the positive earnings results, we also got housing data 
that indicated the housing market remains strong. New home 
construction continued its upward trend, reaching a 16-year high 
in December.  Building permits for single-family homes also set a 
record. New starts rose 5% to an annual rate of 1.8 million, 
while single family starts rose a similar amount to 1.47 million, 
the most in 24 years. The numbers certainly sound impressive, 
however, the Dow Jones Home Construction Index (DJUSHB) showed a 
very lukewarm reaction, losing 2.31 points on the day.  That 
reaction would seem to mirror the results of an informal survey I 
took among our readers.  After seeing home prices drop in what is 
considered one of the hotter markets in the Denver area, I asked 
readers to email in their observations of what they saw around 
them.  While there were several readers that reported strong 
sales and firm prices, the overwhelming majority reported homes 
that took longer to sale and a lack of appreciation in value over 
the last several months.  The responses came from just about 
every part of the country, including Northeast, West Coast, 
Midwest, Southwest, Southeast and South.  The strongest sales 
were in central California and New York, while everyone else 
expressed concerns.  

The point and figure charts are confirming what we are seeing 
across the daily charts.  We got PnF sell signals last week in 
the SPX (905) and OEX (457.50), which were confirmed with a sell 
signal in the Dow (8550) today. Bears should beware, however, of 
adding to short positions at this level.  In fact, the Dow and 
SPX have fallen so far (currently 8442 and 887.62) that they are 
now sitting right on bullish support lines, which sit at Dow 8400 
and SPX 885. If we are going to get an oversold bounce, these are 
the levels it is likely to come from.  

The one sector that did not participate in today's sell-off was 
the tech sector.  The Nasdaq Composite and NDX both spent much of 
the day in the green after Friday's big drop.  However, after an 
intraday rebound of 10 points in the COMP, the techs eventually 
rolled over into the red, registering a loss of 12 points in the 
COMP and 8.65 in the NDX.  While it was not a big percentage loss 
and much less than the Dow, the fact that the bounce could not 
hold after a drop of almost 50 points on Friday spells more 
bearishness in the near future.  Even IBM could not hold a bounce 
after losing almost $5 on Friday and ended in the red by $0.76. 
While IBM is not a Nasdaq stock, it does reflect general 
sentiment for the tech sector and right now that sentiment is 
anything but positive. 

The Market Volatility Index (VIX) seems to have been a reliable 
indicator, recently bottoming out at 26. A drop in the VIX 
usually results from a rally in the equities and vice-versa. That 
26 level is the same support reached in late November, just 
before the December swoon, indicating the end of that rally.  The 
drop to 26 seemed to indicate the rally rubber band had stretched 
to its full length again last week and has now begun to pull back 
decisively.  The recent resistance comes at 35 and with a current 
reading of 30.53, and the VIX on the way up, the indication is 
that the sell-off has some room to run. The 30 level had provided 
support on recent drops, but downside fear took over and there 
were no apparent premium sellers there today to replace support 
with resistance.  The true test now that we broke back above 30 
is to look for support there if we get a market bounce tomorrow. 


With the broad market indices sitting at bullish support, 
following a drop of 400 Dow points and 44 SPX points, traders can 
look for some type of bounce.  However, given the recent market 
reaction to positive news, the most prudent action may be 
shorting the bounce if it runs out of steam around previous 
resistance levels.  Look for resistance in the SPX at 
900/905/910, in the Dow at 8550/8600/8700, and in the COMP at 
1400/1426.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8443

Moving Averages:
(Simple)

 10-dma: 8731
 50-dma: 8598
200-dma: 8696



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  887

Moving Averages:
(Simple)

 10-dma:  916
 50-dma:  906
200-dma:  943



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1008

Moving Averages:
(Simple)

 10-dma: 1061
 50-dma: 1047
200-dma: 1052



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

The Dow Jones Home Construction Index (DJUSHB The home-builders 
got some good news this morning, with housing starts setting 
multi-year highs.  Single-family home permits reached their 
highest levels in more than twenty years.  However, with the 
economy still weak, investors are growing weary of these stocks 
and a market that seems to be looking a little "toppy."  After an 
impressive gain over the last few weeks, as well as a breakout 
over resistance at 330 on Thursday, the news was not enough to 
prevent losses in the sector. Certainly, part of the problem was 
a sinking broader market that brought down all boats, but the 
DJUSHB is approaching additional significant resistance at 340 
and traders should be careful about getting too excited over the 
results.

52-week High: 397
52-week Low : 260
Current     : 328

Moving Averages:
(Simple)

 21-dma: 318
 50-dma: 308
200-dma: 331

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


Market Volatility

The VIX bounce from support at 26 was one of the more reliable 
indicators that the market was ready to rollover.  With a move 
over resistance at 30, and the next level of resistance at 35, we 
could still have another leg down in the equities if history 
repeats itself. Traders looking for an edge in predicting the VIX 
can look at the exp. 100-dma, which has capped the last 5 VIX 
rallies and sits at 32.83.  I suggested long straddles a week ago 
for traders looking to get in at the VIX support level, with the 
market up against resistance at 8800.  Those straddles should 
have performed nicely by now, with a 400-point Dow sell-off and 
the VIX back over 30.  Traders who are long both calls and puts 
from that suggestion may want to think about either selling the 
position, or buying long shares of the underlying product (DIA or 
SPY) on a 1 for 1 basis against the long puts, in order to lock 
in some profits ahead of a market bounce.


CBOE Market Volatility Index (VIX) = 30.53 +1.85
Nasdaq-100 Volatility Index  (VXN) = 43.24 +0.40

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.53        707,333       375,386
Equity Only    0.43        610,583       261,619
OEX            0.71         17,188        12,180
QQQ            1.18         22,178        26,183


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

Bullish Percent Data

           Current   Change   Status
NYSE          52.2    + 0     Bull Confirmed
NASDAQ-100    61.0    - 2     Bull Confirmed
Dow Indust.   60.0    + 0     Bull Confirmed
S&P 500       61.1    + 0     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  1.65
10-Day Arms Index  1.30
21-Day Arms Index  1.36
55-Day Arms Index  1.28


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        835          2057
NASDAQ     1163          2008

        New Highs      New Lows
NYSE         85              36
NASDAQ       74              35

        Volume (in millions)
NYSE       1,564
NASDAQ     1,343


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

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

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


------------------------- Advertisement ------------------------- 

VOTED one of "Best Online Brokers" (4 stars)--Barron's
 • optionsXpress's "order-entry screens...go far beyond...
    other online broker sites"--Barron's
 • 8 different online tools for options pricing, strategy, and charting
 • Access to options specialists via email, phone or live chat online
 • Real-Time Buying Power, Account Balances or Cancels

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest22

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


******************
WEEKLY FUND SCREEN
******************

Top YTD 2003 Performers

About a dozen mutual funds are up 10 percent or more in 2003, but 
are any of them worth considering for investment?  This week, our 
report will go in search of the answer, using online screen tools 
from Morningstar, Lipper and other mutual fund trackers.  A look 
at these top dozen YTD performers offers some interesting mutual 
funds to consider, mostly tech-related.  We'll compare the funds 
based on return, risk and cost, as well as other factors, to see 
which ones we'd pick if we had to choose from among them.

We began our search process by screening all mutual funds for YTD 
2003 performance, and then ranking them.  Twelve funds have year-
to-date total returns of 10 percent or higher through January 17, 
2003, as follows:

 +42.9% American Heritage Fund (AHERX)
 +18.1% Bhirud Funds: Apex Mid Cap Growth Fund (BMCGX)
 +12.7% New York Equity Fund (NYSAX)
 +11.9% Van Wagoner Post-Venture Fund (VWPVX)
 +11.8% Van Wagoner Emerging Growth Fund (VWEGX)
 +11.6% Van Wagoner Technology Fund (VWTKX)
 +11.2% ProFunds Internet UltraSector Fund (INPIX)
 +10.7% ProFunds Wireless Communications UltraSector Fund (WCPIX) 
 +10.3% Fifth Third Technology Fund A Class (FTTAX)
 +10.1% GenomicsFund (GENEX)
 +10.1% RS Information Age Fund (RSIFX)
 +10.0% Jacob Internet Fund (JAMFX)

As you can see, most of them are technology-related mutual funds, 
or emerging growth-oriented funds, which often invest heavily in 
technology.  In spite of last week's slide, technology funds are 
up 3.8 percent on average in 2003, according to Lipper, the best 
performing fund category since December 31.  That compares to an 
increase of 2.5 percent for the broad S&P 500 index.  So, the 12 
funds on our list have all outperformed the broad market as well 
as other mutual funds by a wide margin thus far in 2003.

In the following sections we'll compare these funds on the basis 
of return, risk, portfolio characteristics, and cost and expense, 
using Morningstar's Fund Compare tool (www.morningstar.com).
 
Performance View

From the numbers above you can see that American Heritage Fund's 
42.9 percent return this year is by far the highest return among 
mutual funds.  But, before you get too excited, realize that the 
fund has nearly all its eggs in one basket - that being, Senetek 
ADR (SNTK) which recently comprised nearly 89 percent of assets.  
Shares of the U.K. healthcare company are up 18.2 percent so far 
this year; hence, the fund's fine YTD performance.  However, the 
fund's long-term record is poor on both an absolute and relative 
basis.  As a result, fund has only about a million dollars today 
in net assets, and a whopping 12.61% expense ratio along with it.

Jacob Internet Fund has had an interesting ride since it started 
operations on December 13, 1999.  The fund came on board just in 
time to lose 79 percent in 2000 and 56 percent in 2001, but last 
year limited its annual loss to just 13 percent, and now in 2003 
is up 10 percent.  According to Morningstar's report, Ryan Jacob 
has become a "bottom-fisher" for stocks, but he still churns the 
portfolio.  At 1081 percent, the fund's turnover is high, adding 
to fund expense.  The fund's 4.60% current expense ratio is more 
than twice the tech-fund category average.

Fifth Third Technology Fund has done a decent job of controlling 
its losses over the past year relative to other technology funds, 
and is up 10.3 percent since December 31.  Nearly all assets are 
invested in hardware or software stocks per Morningstar's latest 
report, for a mid-cap growth style overall.  Note, however, that 
this fund does not sport a 3-year or 5-year record, so it's hard 
to know how it may perform over the long term.  So far, the fund 
has done relatively well versus peers in an otherwise tough time.

The other fund worth mentioning in terms of performance is the RS 
Information Age Fund, which got a new management team in 2001 and 
has performed relatively well since that time compared with other 
tech sector funds.  The fund is up 28 percent over the past three 
months, including a 10.1 percent YTD return.  The fund's trailing 
5-year return of 0.5 percent through January 17, 2003 ranks it in 
the top 29 percent of the tech fund group, per Morningstar.  Some 
of that is attributable to the new management team.

Risk View

Of the eight funds on the list with Morningstar risk ratings, one 
has average risk, two have above average risk, and five have high 
risk ratings compared to their respective peer groups.  The other 
four funds are not yet rated by Morningstar.

Of the rated funds, RS Information Age Fund has exhibited average 
risk compared with other technology sector funds.  Jacob Internet 
Fund has had above average risk compared to its tech sector peers 
while New York Equity Fund has had above average risk relative to 
its mid-cap growth peers.  The five funds with high relative risk 
include American Heritage Fund, Apex Mid Cap Growth Fund, and the 
three Van Wagoner funds.

All three Van Wagoner funds are similarly managed; hence the risk 
levels are comparably high.  The average standard deviations over 
the past three years for all three Van Wagoner funds are above 50 
percent, ranking them among the most volatile funds in the equity 
fund class.  That more than twice the 20 percent average standard 
deviation for all mutual funds in Morningstar's system.  

American Heritage Fund, up nearly 43 percent in 2003, has an eye-
popping 87.8 percent standard deviation over the past three years 
using Morningstar numbers.  The 3-year chart below shows how weak 
the fund's performance has been and looks more like a penny stock 
than a stock mutual fund.




 



The least volatile funds on our list over the past three years 
have been the New York Equity Fund and RS Information Age Fund, 
with standard deviations of 36.8% and 37.5%, respectively, per 
Morningstar.  So, if you're looking not to take excessive risk, 
then you may want to focus on these two offerings.

Portfolio View

In terms of portfolio characteristics, two funds with a current 
blend style are New York Equity Fund and ProFunds Ultra Wireless 
Fund.  I tend to favor funds with core styles because they blend 
value and growth characteristics, helping to smooth returns over 
time (since "value" and "growth" outperform at different times).

New York Equity Fund has a $4 billion average market cap, which 
lands it in the mid-cap sector per Morningstar.  This portfolio 
mingles mega-cap stocks with micro-cap names so it goes wherever 
it can to find growth stocks at attractive prices.  Although the 
fund currently lands in Morningstar's mid-blend style box, it is 
rated against mid-cap growth funds, its average style during the 
last three years.  

ProFunds Ultra Wireless Fund has a $15 billion median market cap 
and currently lands in the Morningstar large-cap blend style box.  
This communications sector fund is highly concentrated, however, 
investing in just 11 telecom stocks.  Top fund holdings include 
Alltel (27.2% of assets), AT&T Wireless (18.9% of assets), and 
Nextel Communications (13.7% of assets).             

All of the funds have a yield of 0.00% according to Morningstar.  
In other words, income isn't a consideration in stock selection. 

Nuts & Bolts View

Except for the two ProFunds funds, all of the funds on our list 
are managed by individual portfolio managers.  Heiko Thieme has 
run American Heritage Fund for 13 years while Suresh Bhirud has 
run the Apex Mid Cap Growth Fund for 10 years now.  Garrett Von 
Wagon has managed Van Wagoner Emerging Growth Fund for the past 
seven years; Gregg Kidd has six years with New York Equity Fund.  
The rest of the managers have tenures of three years or less per 
Morningstar.

Three funds on the list - Apex Mid Cap Growth Fund, Fifth Third 
Technology Fund and New York Equity Fund - have front-end sales 
loads of between 4.50 percent and 5.75 percent.  The others are 
no-load.  Fund expense ratios range from a low of 1.67% for the 
RS Information Age Fund to a ultra high 12.61% for the American 
Heritage Fund.  

Five funds have what we would say are reasonable expense ratios 
of below 2.00% of assets.  They include the GenomicsFund, the RS 
Information Age Fund, and the three Van Wagoner funds.  

Conclusion

If we had to pick a couple funds from this group, it would have 
to be the New York Equity Fund managed by Gregg Kidd and the RS 
Information Age Fund, which has done better since getting a new 
management team in mid-2001.  If you're looking for exposure to 
hardware and software stocks, Kidd has nearly all of the fund's 
assets invested in the two industry sectors.  The new Robertson 
Stephens (RS) team favors smaller-cap names, and keeps the fund 
more diversified across issues, according to Morningstar's fund 
report.

Both funds have maintained reasonable risk levels when compared 
to similar funds, and have the lowest standard deviations among 
the funds on our list.  If avoiding excessive risk is important 
to you, then these funds may be better suited but remember that 
they are still much more volatile than the average stock mutual 
fund.  Accordingly, these funds are for risk-tolerant investors 
only who seek the greater return potential that generally comes 
with assuming greater risk.

Taking risk does not guarantee high return.  Riskier strategies 
usually deliver on the risk (volatility), but don't necessarily 
deliver on the "higher return" part, so buyer beware, as always.  

For more information on the New York Equity Fund, go to the New 
York Opportunity Funds website at www.nysfunds.com.  Additional 
information on the RS Information Age Fund is located at the RS 
Investments website at www.rsfunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


------------------------- Advertisement ------------------------- 

We got trailing stops!
 • Trade online with trailing stops at optionsXpress, at no extra cost 
 • Trailing stops based on the option price or the stock price
 • Also place Contingent, Stop Loss, and "One Cancels Other" orders
 • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest23

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


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

Something Stinks

Once again, we got decent news about the fourth quarter that 
investors turned their noses up at, wondering instead what's to 
come in 2003. Actually, held their noses is a more accurate 
depiction, as the sell-off continued en masse today in the broader 
market indices.


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


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

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 01-21-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Daily Results
Call Play Updates: CI, RJR, OCR
New Calls Plays: None
Put Play Updates: ERTS, CTAS, ASD, CTSH, KSS
New Put Plays: GS


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

None


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

Please view this in COURIER 10 font for alignment
*************************************************

CALLS              Mon    Tue    Wed   Thu  Week

CI       45.17    0.00  -1.06 Support over $45
OCR      25.96    0.00  -0.34 Minor Pullback
RJR      46.55    0.00  -0.38 Holding the breakout


PUTS

ASD      66.22    0.00  -0.80 Still breaking down
CTSH     59.17    0.00  -0.97 Trigger point
ERTS     49.67    0.00   1.72 $50 failure entry point
GS       71.00    0.00  -1.58 New, Try it again
KSS      54.30    0.00  -2.30 Big start
CTAS     42.63    0.00  -0.63 Approaching target


------------------------- Advertisement ------------------------- 

Quit paying fees for limit orders or minimum equity
  • No hidden fees for limit orders or balances 
  • $1.50 /contract (10+ contracts) or $14.95 minimum.
  • Zero minimum deposit required to open an account
  • Free streaming quotes

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest24

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


********************
PLAY UPDATES - CALLS
********************

CI  - 45.17: -1.06 (-1.06 for the week) Shareholders of CI came 
back from the extended weekend in a decidedly bearish mood.  The 
stock moved sharply lower during the first 90 minutes of trading 
and quickly tested short-term support near $42.30.  There was no 
company-specific news to explain the early weakness.  CI firmed 
up after the initial decline and headed higher during the middle 
of the session, despite a steady drift lower in the Dow Jones.  
Unfortunately the sinking broader market eventually eroded away 
at the mid-day gains, ultimately dragging the stock to a 2.2% 
loss.  Pulling back to a daily chart, $45.00 continues to be the 
key level to watch.  We'll be looking for this area, which 
previously acted as resistance, to now provide support.  We think 
CI will be well-positioned to reach new relative highs as long as 
it remains above $45.00.  At this time conservative traders may 
want to place their stops slightly below last week's low of 
$44.13.  We are raising our stop to $42.40, just below the last 
resistance breakout prior to $45.   Speculative traders could 
consider entering long positions on a rally from current levels.

---

RJR - 46.55: -0.38 (-0.38 for the week) First things first...On 
Friday we mentioned that RJR appeared to have moved their 
earnings to January 28th.  This information was confirmed today - 
RJ Reynolds will announce their quarterly results before the 
market opens next Tuesday.  We believe this is good news for our 
long play.  RJR has been marching steadily higher, and with 
another week before earnings we may have a better shot at 
achieving our upside objective of $49.94.  Shares traced a higher 
high for the seventh consecutive session on Tuesday morning 
before moving lower with the overall market in late-afternoon 
trading.  Bulls can be encouraged by the fact that RJR 
outperformed both the Dow Jones and its arch-enemy MO, which 
finished with a more substantial 1.4% loss.  Shares closed above 
very short-term support at $46.15, well within range of new 
multi-month highs.  Of course after several days of gains it also 
wouldn't be surprising to see more profit-takers come out of the 
woodwork.  If this is the case, short-term traders can continue 
to watch for a pullback to the $45.00 area to provide an entry 
point.

---

OCR $25.96 -0.34 (-0.34) After pushing to new multi-month highs
last week, OCR was due for a bit of profit taking, and given the
broad market weakness on Tuesday, the stock held up fairly well,
ending just fractionally below the $26 level.  The 10-dma
($25.31) has been providing support throughout the rise since
late December, and should continue to do so if this rally is to
continue.  The only fly in the ointment is the fact that
Tuesday's mild price decline was accompanied by heavy volume
(triple the ADV), which is on par with the strong buying that
propelled the stock up to new recent highs last week.  That
10-dma lines up nicely with intraday support at $25.30, backed
up by stronger support at $25 (also the site of the rising
month-long trendline.  Look for a rebound from that area to
provide the next solid entry point into the play, but make sure
to keep an eye on the volume pattern.  If this is just a normal
pullback before another push higher, then volume should taper
off as we approach support, followed by expanding volume on the
rebound.  A failure of volume to confirm any rebound will be an
early warning that the heavy volume last Thursday and then again
today represents an end to the bullish move.  More conservative
traders may want to wait for a volume-backed move through $26.75
(just above last week's intraday highs) before playing.  Keep
stops tight at $25.


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

None


------------------------- Advertisement ------------------------- 

 optionsXpress has "...a lot of bang for the buck."--Barron's 

 • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees  
 • Easy screens for spreads, collars, or covered calls!
 • Contingent, Stop Loss, Trailing stop, or OCO  
 • 8 different online tools for options pricing, strategy, and charting

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest25

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


*******************
PLAY UPDATES - PUTS
*******************

ERTS 49.67 +1.72 (+1.72 for the week) Just as ERTS looked ready 
to sink to fresh 52-week lows, a pair of positive brokerage 
comments gave the bulls a lifeline this morning.  Shares were 
buoyed by an upgrade from Piper Jaffray (who cited a 7% increase 
in December videogame sales) and a note out of Lehman Brothers 
that suggested ERTS is undervalued at current levels.  
Interesting timing, isn't it?  A slightly cynical trader might 
think that the firms are looking to protect long positions 
following Friday's breakdown below critical long-term support at 
the 200-week moving average.  While we don't believe their 
actions were driven by anything but pure fundamental analysis, 
the comments were enough to put the bears on the defensive for 
the entire session.  Shares gapped higher and ERTS cleared 
psychological resistance at $50.00, but wasn't able to hold above 
that level while the broader market slid steadily lower.  The 
multi-week downtrend is still intact and the $50.00 area should 
continue to challenge the bulls.  However, we may alter our 
strategy if ERTS rallies a little higher and rolls over from the 
21-dma at $51.00.  Shares have not closed above this moving 
average since early-December.  We identified a failed rally at 
$50 as a possible entry point for conservative traders and a move 
back below today's low of $48.50 would be evidence of that 
rollover. 

---

CTAS - 42.63 -0.63 (-0.63 for the week)  There was zero news to 
report on for CTAS over the long weekend and today.  Given the 
broader market's weak performance, shares of CTAS were left to 
fend for themselves and the prevailing trend took over.  The 
stock has reached an area of potential congestion and we would 
not be surprised to see a short-term oversold bounce at the $42 
mark.  An entry point at this time could be somewhat tricky to 
execute.  A failed rally at the $44-$45 level would be the most 
enticing but we don't believe the stock will have enough strength 
to get there on its own.  Shares of CTAS have bounced just this 
side of the $40 mark several times since July, and traders can 
consider taking profits as we approach that level.  We are 
setting our stop at $45.25, just above Friday's high.

---

ASD $66.22 -0.80 (-0.80) A bit at a time, ASD is gradually
moving lower towards strong support at $66.  Each failed rally
attempt is leaving behind a string of lower highs and lower lows,
as the stock rides the declining lower Bollinger band down the
chart.  Just as it has several times in the past couple weeks,
ASD attempted a weak bounce at the open, which ultimately failed
as the sellers piled on throughout the afternoon, breaking
decisively below $67 around 2pm ET and then drilling down to
close at the lows of the day.  Oscillators such as Stochastics
and MACD are showing a complete lack of strength and now internal
weakness is also showing in the On Balance Volume, which is now
pushing to its lowest levels since the middle of November.  All
of the moving averages are now going to act as overhead
resistance, with the closest, the 10-dma ($68.24) the only one
likely to come into play over the near term.  A failed rally
attempt below that moving average (which hasn't been touched
since January 3rd) will present the next attractive entry point
into the play.  With ASD now resting on $66 support, we could
get the oversold bounce that sets up that failed rally any day
now.  Traders looking to enter on further weakness will want to
wait for a break below $65.50, the top of the October 15th gap,
before playing.  Lower stops to $68.50, just above the 10-dma.

---

CTSH $59.12 -1.02 (-1.02) Along with the rest of the market,
CTSH tried to stage a rebound from $60 support this morning.
But the rebound attempt didn't last long.  By the end of the
first hour of the day, support had given way and the trade below
$59.75 triggered the play to active status.  That breakdown was
the best entry point of the day, as the stock quickly dropped
below the $59 level and then spent the remainder of the day
trading in a tight range on both sides of that price level.
More importantly, the trade at $59 broke the bullish support
line on the PnF chart, removing that potential support from the
equation and allowing bears to focus on the HUGE Sell signal on
the PnF chart, which is giving us a bearish price target of $41.
We shouldn't expect that level to be hit this week though, as
CTSH is likely to find support either at the 200-dma ($57.90) or
the ascending support line ($56).  Traders looking for an entry
into the play will want to watch for the rollover after that
bounce, which ought to come below the $60 resistance (prior
support) level.  For now, we're keeping our stop set at $62.50,
just above what should now be major resistance.

---

KSS $54.30 -2.30 (-2.30) As the broad markets give back their
early January gains, the Retail sector (RLX.X) is looking
particularly weak.  After rolling over near $275, well below the
50-dma, the RLX slid lower on Tuesday to the tune of -2.48%,
closing below the important $260 support level for the first time
since October 10th.  Clearly, investors are waking up to the fact
that the holiday selling season wasn't nearly as robust as many
had hoped.  While sector weakness was certainly part of the
equation on Tuesday, shares of KSS were sliding sharply lower
before the RLX got moving in reverse.  That much is clear from
the intraday chart, which shows that the bulk of the stock's 4%
loss took place in the first 2 hours of the day.  The weak midday
bounce just provided another opportunity to enter new bearish
positions as KSS rolled just below $55.50, never quite making it
back to the $56 breakdown level.  That $56 level should now
present solid resistance to any rebound attempts, especially
with the RLX now under the $260 level.  Another failed rally
near $56 with the RLX unable to regain the $267 level (the site
of the 20-dma) will be the next high-odds entry.  Should a
rebound fail to materialize, momentum players can target a
breakdown under the December lows ($52.50) for initiating new
positions.  Following Tuesday's big slide, it seems safe to lower
our stop to the $57 level, as failed support should now act
as resistance.


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

GS – Goldman Sachs Group $71 -1.58 (-1.58 this week)

Company Summary:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high
net-worth individuals. The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments, which includes fixed income, currency
and commodities, equities and principal investments.  GS
recently completed the acquisition of Spear, Leeds & Kellog,
which is engaged in securities clearing, execution and market
making, both floor-based and off-floor.

Why We Like It:
The first day of the holiday-shortened trading week didn't get
off to a very good start for the bulls, and the bearish tone was
helped along by less-than-stellar results from Citigroup before
the opening bell.  While the company reported earnings a penny
ahead of consensus estimates, it was the forward guidance that
gave the bulls indigestion and the whole Brokerage group, as
measured by the XBD index fell throughout the day in response.
The index got slammed for a 3.82% loss, crashing through the
200-dma ($419.17) and came to rest right at pivotal support in
the $410-412 area.  We've played GS several times over the past
few months without success, but this time things look different.
Earnings (whether positive or negative) aren't having the
positive effect bulls would like to see.  Combine that with broad
market weakness and technical weakness in the sector (not to
mention the looming threat of class action lawsuits), and the XBD
index seems destined for a big breakdown.  GS most recently
rolled over from just above $75 and since then has violated its
200-dma ($74.10), 50-dma ($73.80), 10-dma ($73.21) and then
today the 20-dma ($71.54), all of which will present solid
resistance on any rebound attempt.  With daily Stochastics still
in free fall, MACD rolling and back in negative territory and
the big SELL signal on the PnF chart still in effect, GS appears
to have a confluence of bearish factors lining up in its favor.
The big drop in December from the $80 level to $67 generated
that PnF Sell signal, along with a bearish price target of $53.
Obviously, an entry on this morning's rollover near $73 would
have made for a great entry into the play, but with the market
near-term oversold, we just might get another shot at that entry
level over the next day or two.  On a failed rally, we want to
target a rollover in the $73-74 area for new entries.  We're
initiating coverage with our stop at $75, although more
conservative traders may want to consider a tighter stop, say
just above $74.  Those looking to enter on a breakdown will want
to wait for a break under the $70 level in conjunction with the
XBD index breaking its December lows near $408.

BUY PUT FEB-75*GS-NO OI=2912 at $4.50 SL=2.75
BUY PUT FEB-70 GS-NN OI= 663 at $2.05 SL=1.00

Average Daily Volume = 3.82 mln



------------------------- Advertisement ------------------------- 

WINNER of Forbes Best of the Web Award 
 • optionsXpress voted Favorite Options Site by Forbes  
 • Easy screens for spreads, collars, or covered calls
 • Free streaming quotes 
 • Real-time option chains, charts + calculators

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest21

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                  Tuesday 01-21-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three: 

Play of the Day: PUT - GS
Futures Corner: Stacked Retracements


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

GS – Goldman Sachs Group $71 -1.58 (-1.58 this week)

Company Summary:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high
net-worth individuals. The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments, which includes fixed income, currency
and commodities, equities and principal investments.  GS
recently completed the acquisition of Spear, Leeds & Kellog,
which is engaged in securities clearing, execution and market
making, both floor-based and off-floor.

Why We Like It:
The first day of the holiday-shortened trading week didn't get
off to a very good start for the bulls, and the bearish tone was
helped along by less-than-stellar results from Citigroup before
the opening bell.  While the company reported earnings a penny
ahead of consensus estimates, it was the forward guidance that
gave the bulls indigestion and the whole Brokerage group, as
measured by the XBD index fell throughout the day in response.
The index got slammed for a 3.82% loss, crashing through the
200-dma ($419.17) and came to rest right at pivotal support in
the $410-412 area.  We've played GS several times over the past
few months without success, but this time things look different.
Earnings (whether positive or negative) aren't having the
positive effect bulls would like to see.  Combine that with broad
market weakness and technical weakness in the sector (not to
mention the looming threat of class action lawsuits), and the XBD
index seems destined for a big breakdown.  GS most recently
rolled over from just above $75 and since then has violated its
200-dma ($74.10), 50-dma ($73.80), 10-dma ($73.21) and then
today the 20-dma ($71.54), all of which will present solid
resistance on any rebound attempt.  With daily Stochastics still
in free fall, MACD rolling and back in negative territory and
the big SELL signal on the PnF chart still in effect, GS appears
to have a confluence of bearish factors lining up in its favor.
The big drop in December from the $80 level to $67 generated
that PnF Sell signal, along with a bearish price target of $53.
Obviously, an entry on this morning's rollover near $73 would
have made for a great entry into the play, but with the market
near-term oversold, we just might get another shot at that entry
level over the next day or two.  On a failed rally, we want to
target a rollover in the $73-74 area for new entries.  We're
initiating coverage with our stop at $75, although more
conservative traders may want to consider a tighter stop, say
just above $74.  Those looking to enter on a breakdown will want
to wait for a break under the $70 level in conjunction with the
XBD index breaking its December lows near $408.

BUY PUT FEB-75*GS-NO OI=2912 at $4.50 SL=2.75
BUY PUT FEB-70 GS-NN OI= 663 at $2.05 SL=1.00

Average Daily Volume = 3.82 mln



------------------------- Advertisement ------------------------- 

VOTED one of "Best Online Brokers" (4 stars)--Barron's
 • optionsXpress's "order-entry screens...go far beyond...
    other online broker sites"--Barron's
 • 8 different online tools for options pricing, strategy, and charting
 • Access to options specialists via email, phone or live chat online
 • Real-Time Buying Power, Account Balances or Cancels

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest22

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


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

Stacked Retracements
By John Seckinger

It is always nice to have an edge heading into a trading session.  One 
way to do this is via Stacked Retracements and using the "real" opening 
of the futures session.

Before we get to Stacked Retracements, let us quickly go over some 
basics on this relatively new methodology.  First we get Support 2, 
Support 1, Pivot, Resistance 1, and Resistance 2.  Then we do a 
retracement from R2 to S2.  Then, if prices go outside of R2 or S2, we 
use fitted retracements anchored off the first five minutes of trading.  
Aggressive traders can use the fitted retracements even if S2 or R2 is 
not hit; however, try to only use levels that match up well with other 
recognized areas.  All of these topics are covered within the Futures 
Corner Section:

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

Ok, that was quick.  Now let us get to Stacked Retracements.  As you 
already know, after Jeff embraced my pivot analysis studies, Mr. Bailey 
has been helping me define certain parameters.  It was Mr. Bailey that 
really introduced the concept of "Stacked Retracement"  

Looking at the chart below, notice how the day ends at 16:15 (last 
five-minute bar is 16:10 to 16:15), and futures trading does not begin 
again until 16:45.  It is this re-opening when traders can start to 
judge risk for the following session.  In order to begin the Stacked 
Retracements, look at the first 5-minute period below.  Higher, right?  
Since it is higher, anchor (read: 0%) the retracement from the bottom 
of the period, placing the 19.1% area at the top of the first five 
minutes.  As always, use 0%, 19.1%, 38.2%, 50%, 61.8%, 80.9%, and 100% 
as retracement levels.  

Chart of ES03H, 5-minute


 

As the name Stacked Retracement implies, we will then "stack" one 
retracement below the other - overlapping the 0% and 100% area (see 
below).  This is accomplished by right clicking of the first 
retracement area and hitting "Clone Line."  Then, drag the cloned 
retracement underneath, getting as close to the 926.50 area as 
possible.  

Chart of ES03H contract, 5-minute


 

Now that we have a range, how can a trader use this for practical 
purposes?  The range from 61.8% to 61.8% can be the "normal standard 
deviation" during overnight trading.  Then, by 9:30 a.m. the next 
morning, a trader can gauge sentiment and see if institutional traders 
will try to either continue to bid or pressure the contract.  Looking 
at the chart below, the ES contract never traded outside of this range; 
therefore, the opening is more neutral than anything else.  From 9:30 
a.m. on, the market sold off and then actually found a bottom at the 0% 
area near 916.  This was not the plan; however, it at least gives more 
credibility to these levels.  If it DOES open above or below the 61.8% 
area, then there is a good chance of either sell or buy programs on the 
open.  

When the market opens higher, the 61.8% to 61.8% range seems to be out 
of balance to the bearish side (the distance from 0 to 61.8% to the 
upside is greater than from 0 to 61.8% to the downside); however, this 
isn't totally the case.  The higher opening increases the range to hit 
the downside objective, and seems to balance out the apparent skew 
ness.  

Chart of ES03H, 5-minute


 

For another test, I went back and found a 16:45 bar that was red 
instead of green.  I had no idea what happened the next day, and simply 
tested this theory.  As the chart below shows, a stacked retracement is 
formed, and a trader can then wait until right before the 9:30 opening.  

Chart of ES03H contract, 5-minute


 

In this particular night session, the ES03H contract fell under both 
the 61.8% area and the lowest level given (could be either 0 or 100%, 
depending on how the chart is constructed).  It did seem that the 61.8% 
area acted pivotal overnight, but our biased is based on the CLOSE of 
the night session.  It would have to be directionally bearish, since it 
closed UNDERNEATH the 61.8% area.  With that said, I would look at S1 
and S2 for that session.  S1 was at 918.25, and basically the close of 
the night session.  With that said, I would look for a move to S2 
(912.50).  A stop can be placed five points above the entry (918.50) to 
923.50.  The pivot is at 924.25, so a trader could look to get an entry 
near 920 (ideal) and encompass the pivot.  

What happened?  The ES03H contract fell to 913.50, bid to 920.50, and 
then rolled to 907.25 in an aggressive bearish channel.  Therefore, I 
would say this "Stacked Retracement" theory passed the test.  I have 
back-tested this theory for a significant amount of time; however, it 
is new; therefore, please be patient.  I think it can definitely help 
traders wondering about how to trade the first explosive hour of 
trading.  I do believe that we are on the cutting edge here, and 
experienced traders should use this Stacked Retracement theory as one 
more tool.  

Chart of ES03H Contract, 5-minute


 

Ask away,

John Seckinger


------------------------- Advertisement ------------------------- 

We got trailing stops!
 • Trade online with trailing stops at optionsXpress, at no extra cost 
 • Trailing stops based on the option price or the stock price
 • Also place Contingent, Stop Loss, and "One Cancels Other" orders
 • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!

Go to http://www.optionsxpress.com/marketing.asp?source=oinvest23

Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm

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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives