The Option Investor Newsletter Wednesday 01-29-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Hard to Predict Futures Wrap: Forecasting the Future Index Trader Wrap: There's something about those WEEKLY S1's Weekly Fund Family Profile: California Investment Trust Fund Group Options 101: Volatility Overload? Updated on the site tonight: Swing Trader Game Plan: Relief Rally Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 01-29-2003 High Low Volume Advance/Decl DJIA 8110.71 + 21.87 8158.02 7945.00 1855 mln 1081/727 NASDAQ 1358.06 + 15.88 1363.31 1320.35 1466 mln 961/459 S&P 100 437.54 + 2.89 440.16 427.95 totals 2042/1286 S&P 500 864.36 + 5.82 868.72 845.94 RUS 2000 374.84 + 1.67 375.27 367.16 DJ TRANS 2163.38 - 2.06 2177.24 2121.67 VIX 35.22 - 0.30 38.28 35.20 VIXN 43.64 - 3.09 47.19 43.39 Put/Call Ratio 0.81 ******************************************************************* Hard to Predict by Steven Price Rather than predicting the next move in an extremely jittery environment, it is probably best to simply highlight just how reactive the current market is to a number of issues. It is getting tough to predict market direction in the current environment. With so many earnings reports and political events playing tug of war, hindsight is playing a bigger role in evaluating moves than foresight. For instance, I talked about the possibility that yesterday afternoon's rally being just short covering ahead of the President's speech. When we opened down sharply, that's what it appeared to be. We really got no new news from the President, other than a new deadline of February 5 when Colin Powell will present evidence to the UN, yet we opened with a triple-digit Dow drop today. It seemed to tell us that outside of the news event, the market sentiment remained down. An earnings miss and profit warning from Kraft didn't do much to change that impression. However, what we saw later in the day indicated that Iraq is still the heaviest weight on the markets. In fact, shortly after the Iraq announcement mid-day that it would pro-actively cooperate with inspectors, we got a big rally, erasing all of the day's losses. So maybe the cost of war is being factored in by enough investors that we need to very careful trying to short such a jittery market. It also raises the possibility that investors are simply waiting to hear that war is behind us before getting back in from the long side. A look at the charts still shows a market that is heading south and there has been little on the economic front to cause a bounce. Today's rally stalled at Dow 8158 and that still qualifies as a failed rally below the head and shoulders breakdown level at 8200. Of course, Iraq is just one of many news concerns and earnings reports this week and even though the indication is that market sentiment remains down, we really didn't get much of a sell-off below the point we were at prior to the speech, so it is not as though investors are running for the hills. To the contrary, we are bouncing repeatedly in a support area that indicates the big move down following the rally during the first couple weeks of January has exhausted itself and we are seeing a hard fought battle between bears and bottom feeders. Those traders/investors who felt they had missed the December bottom when the market rallied to start the year apparently still believe they are getting a deal at current prices. I'm not sure if they are right, but so far we haven't seen anything to make us think there is another big rally in the immediate future. It seems the best news for investors, which was the President's non-taxation of dividends idea, is behind us. As are the beginning of the year retirement account contributions. The earnings reports we are getting are positive for the most part for the fourth quarter. However, the guidance going forward has been shaky and that's really what we are concerned with - future action. Or at least how the market will react to how it perceives the future. An intraday chart of the Dow shows just how volatile and reactive the market is in the current high-charged environment. We took out both Monday's low, and then made it all up and took out Tuesday's high. While it seems we are headed lower based on the technical damage we've seen to the previously strong support levels, trying to day trade the current market for more than a few points has rarely been harder to do. Intraday Chart of the Dow Daily Chart of the Dow The techs have also continued to show resilience after the big drop of the last two weeks. The last three days have seen the Nasdaq Composite repeatedly test support in the 1320 range. That level served as support on the rollover from the November 6 high of 1419, just prior to rally up to 1521. That November 6 high coincides with the highs in the Dow, SPX and OEX that I have pointed out in previous columns as a possible left shoulder in a head and shoulders pattern. The fact that the pullback support level in the COMP has held is significant for one big reason - it diverges from what we have seen in the other indices. The Dow, OEX and SPX have all broken through those previous pullback support levels to the downside. The COMP and NDX have both held above those levels. In fact, in many instances, the techs have led the market over the last several years and the fact that they are holding that support should throw up a red flag for the doomsayers (myself included) that predicted another swoon following the support break in the broader indices. Chart of the COMP The Semiconductor Index (SOX) also broke out from its range of the past few days, bouncing off support that it appeared on the verge of breaking. The 280 support level was broken on a closing basis, but just barely, on Monday. The chip stocks have since found buyers, forming a small saucer bottom and look intent on testing prior resistance at 300. Part of the reason behind the move was an upgrade to chipmaker Applied Materials (AMAT) +3.3%, which was upped from neutral to buy at UBS Warburg. Chip equipment maker Cymer (+4.8%) also released earnings after the bell on Tuesday. The company posted a narrower than expected loss and raised revenue guidance going forward. The SOX finished the day up at 290, but it will take a decisive move back above 300 to signal a trend reversal. Chart of the SOX The FOMC concluded its two-day meeting today, with no change in interest rates, as expected. It also left its bias unchanged, saying that risks are balanced between inflation and economic weakness. The FOMC statement said that, "Oil price premiums and other aspects of geopolitical risks have reportedly fostered continued restraint on spending and hiring by businesses." It also said that it expects the economic climate to improve as those risks are lifted. Basically the Fed is stepping out of the way with interest rates at a 40-year low and allowing the Iraq situation to work itself out. The Market Volatility Index (VIX), which has mirrored the range bound activity of the broader markets, but broken out as they broke down, is also on the verge of pulling back below the previous resistance line. That line could now serve as support, reflecting continuing fears for more downside. If we are truly ready for a bounce, it is likely we will see the VIX move back below 35%, as the fear abates. So far, however, we are holding above that level, even on Tuesday's bounce and Wednesday's intraday recovery from the big drop. The VIX is based on the premium levels in OEX options. Because the OEX is heavily traded, it generally takes quite a bit of order flow to move the VIX and reflects the activity of large institutions. If the VIX reflects more fear than the big boys feel there needs to be, then we see the VIX drop, even if the market does not move significantly higher that day. It almost always drops on big moves to the upside as institutions reduce the cost of long positions by selling out of the money premiums. However, if it drops to the point where it looks cheap, compared to current market risk levels, then we also see support. By holding above the 35 level, which at one point institutions were willing to sell, it tells us that the big players still have downside concerns. Today's close at 35.22 is still above that mark, although just barely. Chart of the VIX Deciphering what we saw today was no easier than it was yesterday, or the day before. We know that Iraqi developments will continue to lead to big market swings. Between now and February 5, when Colin Powell makes his UN presentation, we may see some digesting, without any real developments. Of course, that's what we thought today until mid-day, as well. After the bell, AOL-Time Warner missed forecasts and announced the biggest corporate loss ever, at $45.5 billion, as it wrote down the value of America On-Line. It also announced the departure of Ted Turner. If today was simply a relief rally following the tension of the State of the Union address and FOMC meeting, we may get yet another rollover tomorrow. However, shorts who decide to act on that rollover below the aforementioned H&S breakdown level (which I still believe is the favorable play) need to keep in mind both the possibility of unpredictable action from world events and the fact that the COMP and NDX are still holding there November support levels. To the upside, playing long will have plenty of resistance between Dow 8200 and 8400 to get through, so traders may want to play on partial positions over 8200 until that congestion is cleared on a rally. If one thing is certain, it is that we are still in one of the toughest trading environments in quite some time. ************ FUTURES WRAP ************ Forecasting the Future By John Seckinger jseckinger@OptionInvestor.com All three futures contracts are closer to being unchanged on the week than one might think; nevertheless, there are some clues on direction going forward. Wednesday, January 29th at 4:15 P.M. Contract Last Net Change High Low Volume Dow Jones 8110.71 +21.87 8158.02 7945.00 YM03H 8080.00 +35.00 8140.00 7880.00 30,611 Nasdaq-100 1016.56 +15.15 1022.98 980.92 NQ03H 1013.50 +15.00 1025.00 980.00 319,688 S&P 500 864.36 +5.82 868.72 845.86 ES03H 860.75 +6.25 867.75 836.00 837,227 Contract S2 S1 Pivot R1 R2 Dow Jones 7858.23 7984.48 8071.25 8197.50 8284.27 YM03H 7773.00 7927.00 8033.00 8187.00 8293.00 Nasdaq-100 964.76 990.66 1006.82 1032.72 1048.88 NQ03H 961.25 987.25 1006.25 1032.25 1051.25 S&P 500 836.79 850.58 859.65 873.44 882.51 ES03H 823.00 842.00 854.75 873.75 886.50 Weekly Levels Contract S2 S1 Pivot R1 R2 YM03H 7748.00 7933.00 8271.00 8456.00 8794.00 NQ03H 962.75 981.25 1011.25 1029.75 1059.75 ES03H 825.25 842.75 875.00 892.50 924.75 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, let us take a look at Jim Brown's day in the Futures Monitor. Signal recaps for the day: Short 846.00, exit 848.00, change -2.00 Short 852.50, exit 846.50, change +6.00 Short 850.50, exit 852.75, change -2.25 Short 851.50, exit 852.00, change -0.50 Short 856.50, exit 856.50, change +0.00 Short 859.00, exit 858.00, change +1.00 Short 859.00, exit 860.50, change -1.50 Total for the day = +0.75 Total for the week = +2.75 For more information on Jim's posts, 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) Describing Wednesday's session as volatile is an understatement. Tuesday's mentioned levels (839, range from 842.75 to 846.75, and 865) were all tested, but under extreme conditions. I think the first two levels should keep their significance going forward, but I am moving the 842.75 level down to 842. This range from 842.00 to 846.75 is a compilation of the monthly, weekly, and daily S1 level (now at 842.00). As the weekly chart below illustrates, the ES contract found support at its 61.8% level (839), and then proceeded to settle at the next retracement area higher at 861.25. Not only is the weekly pattern showing a candlestick "doji" formation (read: indecision), but settling also on the 50% retracement area should add to such indecision. The 50 Weekly EMA is higher at 866, and the 38.2% retracement area is above at 883 - which comes in play in the next chart. Chart of ES03H, Weekly Looking at a 120-minute chart of the ES contract, Wednesday's settlement is above Thursday's pivot; however, there is still that sense of a neutral close. Going forward, I will look for resistance between 874 and 878, as well as from 886 to 889. On the downside, support is felt at 842 to 846.75, and then at the 839 area. As far as the zone from 859 to 862 (note: it incorporates the Monthly 50% retracement area shown in the chart above), I would watch to see if 862 becomes support or 859 turns into resistance. Then traders will have something to use during a session. Chart of ES03H, 120-minute chart Bullish Percent of SPX: 47.90% and down one percent on Wednesday. The column of O’s is now nine (Recent High at 64%, Low of current column at 48). This extra "O" should portend a move to the 40% level. Note: In order to really look for a bottom, I would like to see a move under 30%, followed by a row of "X's" that takes the indicator back above this 30 area. The bearish price objective in the SPX, based on P&F analysis, is 750; however, the SPX is currently in a column of X's with resistance above from 880 to 885. The March E-mini Nasdaq 100 Contract (NQ03H) The daily retracement levels from 983 (50%) to 1024.50 (38.3%) in the NQ contract worked rather well during the volatility seen on Wednesday. The 980 area was not broken, so looking for a move down to the 200 EMA (currently at 960) will have to wait. As the daily chart below shows, the next area of solid resistance is seen from 1030 to 1034. It doesn't correspond with a daily retracement area, so its significance will not be as great as the area used for Wednesday. If the 1034 area cannot contain buyers, the next area of resistance is above at 1040 to 1043. Support is a little harder to dissect, but I do expect weakness if the daily pivot of 1006.25 is taken out. Chart of NQ03H, Daily Looking at a 30-minute chart of the NQ contract, the bearish regression channel was broken to the upside; however, I do see similarities with the price action back at the 1035 area (read: failure). Weakness back under the pivot will put the NQ back in this channel, and should get shorts looking for a move to S1 at 987.25. I would be surprised if either R2 or S2 is hit on Thursday, and I would play these areas responsively (buy low and sell high). Note the Bearish Divergence within the MACD oscillator. Chart of NQ03H, 30-minute Bullish Percent for NDX: This indicator fell 1% to 49% on Wednesday, and this indicator continues to portend bears will be selling rallies going forward. Note: The NDX will give a sell signal at 975, according to P&F charts. The March Mini-sized Dow Contract (YM03H) The daily retracement area from 8152 to 7948 almost encompassed Wednesday's range, and it is interesting that 8152 was NOT tested. I am leaning towards lower prices, but I would wait until the pivot at 8033 is taken out first. Support is still seen near 7950, but how many times will this area be tested before it fails? Resistance looks good just under 8200, but I don't have nearly the same conviction as with resistance from 8270 to the 8094 area. Ideally, 8152 keeps a lid on enthusiasm; however, this level just seems too close to Wednesday's settlement. Note: The weekly pivot comes in at 8271. On a daily chart (not shown), I will not call today's move a "hammer" pattern (portending a bottom) because the 'real body' is not that close to the top end of the daily range. This is my interpretation. Chart of YM03H, 120-minute Bullish Percent of Dow Jones: The bullish percent for the Dow was unchanged on Wednesday at 36.67%, and the column of O’s is still 11 deep. The Bullish Percent indicator still has intermediate bearish implications. It does indicate that bears will look to sell rallies and be aggressive on weakness as well. Remember, a close underneath 30% should start to shift risk into the bears' camp. Stay tuned. Note: The DJIA, on a P&F chart, added one more "O" on Wednesday and the contract now has a bearish price objective of 7000. Good Luck. Questions are welcomed, John Seckinger jseckinger@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** There's something about those WEEKLY S1's What looked to be "the darkest hour" for the major indexes in this morning's trade, when the indexes were trading their session lows, had bulls pulling a white rabbit from their hat in the form of a recovery for a third-straight session at their weekly S1 levels of support. True! The Dow Industrials (INDU), which turned a 143-point loss into a 21-point gain by session's end did trade 10-points below its weekly S1 level of support for less than 5-minutes, but the 5-minute bar chart interval never closed below that weekly support level and a rally took hold. For most of us, looking at 5-minute charts is like splitting hairs, but for bulls that pulled the proverbial white rabbit from the black top hat, they'd say "splitting hares." This sounds totally "ridiculous," as an observation of importance, and I might not argue too long on such a point, but this type of action certainly hints that there is indeed "some type" of buying, most likely computerized, at the various weekly S1 levels of support in the indexes. As these weekly S1 levels of support hold for a third consecutive session, then we as traders begin to observe some type of support that may be important, not only from an intra-day standpoint, but for the remainder of the week. I will say this. It has been an observation of mine in recent weeks (especially in the market monitor, which caters more toward short-term traders), that even on a short-term basis, stocks as well as index futures and the indexes themselves have "slopped" on one side or the other of a support or resistance level for minutes at a time, but failure to close above a level of resistance or below a level of support on the 5-minute interval chart has seemed to be hint of some type of computerized institutional trading taking place at the level, where the level from pivot analysis triggers the computer program. Other than the weekly S1 levels coming into play today to support any theory of why the indexes reversed their losses, I can come up with only two other observations during that time. You can be the judge as to their impact on how the major indexes traded. Not long after the Dow Industrials traded their low of the session (10:50 AM EST), Dow component Philip Morris, I mean Altria Group (NYSE:MO) $37.03 -3.51% reversed from its session low of $35.70 at approximately 11:00 PM EST when it reported Q4 quarterly pro forma earnings (excluding charges) of $0.93 per share, which was a penny better than consensus estimates. The company then gave forward guidance for its fiscal 2003 of $2.60- $2.70, which was a range below consensus of $2.71 per share. In my opinion, neither earnings or forward guidance could have triggered a recovery in the indexes from their lows. The other potential "reason" mentioned in today's intra-day commentary was Iraq's response to President Bush's State of the Union address. Iraq said the U.N. inspections have turned up no proof that it has any weapons of mass destruction and that the Bush administration's beliefs that weapons of mass destruction are held by Iraq, are misguided. Here are tomorrow's daily pivot analysis numbers, along with the weekly and monthly pivot analysis levels. Only the daily levels have been changed to reflect today's high, low and close. I've highlighted the WEEKLY S1 levels in blue to reflect current support levels that appear to be in play the last 5-sessions. Pivot Analysis Matrix A quick review of tonight's pivot matrix shows little correlation points between the daily, weekly and monthly pivot analysis levels. The "closest" points of correlation are perhaps found between tomorrow's R1 in the OEX at 443 and the OEX's WEEKLY pivot of 444. Traders can review today's lows in the indexes and make observations as to how close the DAILY lows came to this WEEK's S1 support levels. Only the NASDAQ-100 Index (NDX.X) 1,016 and NASDAQ-100 Tracking Stock (AMEX:QQQ) $25.10 were able to hold a session close above their weekly pivots. This may be an important observation for shorter-term traders to monitor tomorrow. The NASDAQ-100 has been a technically stronger in recent weeks that the other major indexes, and ability to be the "first" to close back above their weekly pivots is a sign of near-term renewed leadership. I would be watching the NDX and QQQ closely tomorrow for strength/weakness above/below the weekly pivots. For strength, I'd be looking for NDX/QQQ leadership to be followed by some type of "confirmation" move higher in the other indexes, with the Dow Industrials most likely bringing up the rear. NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval There are some "levels" that show up a little better in the QQQ 60-minute chart than we can perhaps see from the daily interval chart. Subscribers have also asked to see a QQQ chart with the weekly pivot analysis retracement similar to what we looked at in the other major indexes last night. As I type (07:41 PM EST), the QQQ's are rather quiet and trading right at the $25.14 level. Using the WEEKLY retracement, it would be my view that a bear in the QQQ looks for WEEKLY R1 of $25.56 to hold resistance, and that level does indeed have some correlation with the 60-minute chart last week. The ability for the QQQ to trade and close above the $25.10 pivot adds a little bullishness to the Q's and I'd monitor the $25.10 level as near-term support and potential bids being found on weakness at $24.81. I shorted some technology stocks on this morning's first couple of hours rally with "mixed" results, and at day's end surmise that I should have stayed on the sidelines with bearish trades today. In last night's wrap I highlighted the $26.18 level on the daily interval bar chart as "major resistance," and with the QQQ having traded today's DIALY R2 of $25.38, then I make note of tomorrow's DAILY R2 of $26.09 being close to my deemed "major resistance" level in the Q's. Today's action saw a net loss of 1 stock to a reversing point and figure sell signal as the NASDAQ-100 Bullish % ($BPNDX) fell 1% to 49% and remains in "bear confirmed" status. S&P 500 Index Chart - Daily Interval The SPX added 5-points after the FOMC decision on interest rates and that additional 5-point gain was enough to have the SPX showing gains for two consecutive sessions! That's the first back-to-back session gains for January. Positive economic news and a break above today's high would most likely fuel a short- covering type rally back into the 875.50-886.50 zone, and with the beating bulls have taken in recent weeks, bears won't mind a rally entry point back into that range. A close above 879.92 on Friday's close would give some 2003 hope to the bulls as the "January Barometer" has been accurate 92.3%, with only one error in odd-number years since 1937. According to the Stock Trader's Almanac, since 1950 January has predicted the annual course of the stock market with amazing precision, registering only four major errors. The "January Barometer was devised by Yale Hirsch in 1972 and is based on whether the S&P 500 is up or down in January. Of the four major errors, two (1966 and 1968) were affected by the Vietnam war. In 1966, the SPX gained 0.5% in January, but fell 13.1% over the course of the year. In 1968, the SPX lost 4.4%, but gained 7.7% by that year's end. Today's action saw the S&P 500 Bullish % ($BPSPX) see a net loss of 1%, or 5 stocks to reversing point and figure sell signals. This has the bullish % falling to 48.2% and still "bull correction" status. S&P 100 Index Chart - Daily Interval Earlier in tonight's wrap, I quickly mentioned some correlative levels of resistance between the WEEKLY pivot levels and tomorrow's daily pivot levels in the 443-444 area. This would tie in with the 50% retracement level from above. The above retracement is from the WEEKLY pivot analysis, so the correlation for tomorrow's resistance would be from daily R1. To get there, I would think the pre-market economic data had better show some type of bullish surprises. The most closely watched number tomorrow will most likely be the advanced GDP for Q4, with weekly jobless claims for the latest week coming in second. Today's action saw no net change in the S&P 100 Bullish % ($BPOEX) and the bullish % reading here remains "bear confirmed" at 46%. Dow Industrials Chart - Daily Interval Just as the other indexes find support at their WEEKLY R1's and 80.9% retracement levels from weekly retracement, so did the Dow. However, we do see how the Dow wasn't quite able to trade its 61.8% retracement level like the other indexes. The recent "pattern" of relative strength has been NDX, then SPX and OEX, with the Dow leading declines. The various Dow components have seen some rather sharp declines after earnings and exacerbated the Dow's declines. In my view, these 30 components are also the stocks I feel should show first benefit to an economic recovery. This isn't happening at all and has any bullish trades being short-term oriented and currently looking for rally points to trade bearish. On weakness, the Dow should be the first to break recent 3-day support, and bullishness above 8,168 has me viewing the gains as short-covering related, or the MARKET trying make bets on future economic growth. With the recent breakdown below 8,300, I'm not currently thinking the MARKET is trying to make any bets on future economic growth. Today's action saw now net change in the very narrow Dow Industrials Bullish % ($BPINDU). Status remains "bear confirmed" at 36.67%, and would take a reversal up in the bullish % to 44% achieve "bear correction" status. Jeff Bailey ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** WEEKLY FUND FAMILY PROFILE ************************** California Investment Trust Fund Group The California Investment Trust Fund Group based in San Francisco is the subject this week of our Weekly Fund Family Profile. They currently offer a dozen no-load, low-cost mutual funds, including 7 stock funds, 4 bond funds, and 2 money market funds designed to meet a broad range of investment needs. Several of the company's stock funds are passively managed or indexed, providing investors a low-cost means to invest in certain areas of the equity market. The California Investment Trust website (www.caltrust.com) states that the company has been managing mutual funds since 1985. Fund objectives and styles are different from fund to fund and are run accordingly. The funds are actively managed are designed to stay true to their objective and style. For example, they say that if you believe a value-driven approach is the way to go that you can rely on their value product, Equity Income Fund, being consistent with its value discipline. Cal Trust's funds are offered on a no-load, no-transaction basis through leading mutual fund networks including Fidelity, Charles Schwab, Goldman Sachs, and TD Waterhouse. Their funds require a minimum initial investment of $5,000 or $10,000 depending on what fund you're talking about, but the minimum initial investment is just $500 for IRA accounts. For more information, call Cal Trust at 800-225-8778. Fund Overview The portfolio manager for the California Investment Trust mutual funds is CCM Partners. According to the most recent prospectus, CCM Partners manages $625 million in mutual fund assets, and has been managing mutual funds since 1985. They are responsible for running the portfolios and handling the administrative duties of the Cal Trust funds. CCM Partners receives a management fee for its services from each fund. Except for the money market funds, California Investment Trust's mutual funds are generally managed with a longer-term viewpoint, rather than with a short-term view. Their equity funds, most of which are indexed have low annual turnover ratios as well as low annual expense ratios, adding to their general appeal. Below is a summary of the California Investment Trust Group mutual funds by investment class. Stock Funds: S&P 500 Index Fund (SPFIX) S&P MidCap Index Fund (SPMIX) S&P SmallCap Index Fund (SMCIX) Nasdaq 100 Index Fund (NASDX) Equity Income Fund (EQTIX) European Growth & Income Fund (EUGIX) Bond Funds: U.S. Government Securities Fund (CAUSX) Short-Term U.S. Government Securities Fund (STUSX) California Tax-Free Income Fund (CFNTX) California Insured Intermediate Fund (CATFX) Money Market Funds: The United States Treasury Trust California Tax-Free Money Market Fund The S&P 500 Index, S&P MidCap Index and S&P SmallCap Index funds invest in different capital sectors of the market and offer wide industry sector exposure. Since there's no overlap, these index funds represent different diversification opportunities for fund investors. The Nasdaq 100 Index Fund invests in the largest 100 stocks traded on the Nasdaq Stock Exchange. Tech stocks make up most of the growth-oriented index, though the portfolio can/does invest in other sectors. The expense ratios for the index funds are relatively low, especially the S&P 500 Index Fund, which has just a 0.20% expense ratio. If you'd rather go the value route, then you may wish to consider the Equity Income Fund, which takes a more conservative approach. It seeks to provide income and capital appreciation over the long run by investing in the stocks of mid- and large-sized companies that have a dividend yield, which is at least 50% higher than the S&P 500 index. The European Growth & Income Fund invests in the stocks of large-size European companies in pursuit of its growth and income objective. Its holdings are generally different from any of the U.S. stock funds, providing investors with additional diversification opportunities. Two taxable bond funds and two tax-exempt bond funds make up the California Investment Trust bond fund menu. The U.S. Government Securities Fund seeks high current income by investing primarily in intermediate- and long-term U.S. Government Securities. This includes Treasury bonds/notes as well as GNMAs. Longer maturity bond funds offer greater yield and return potential, but tend to be associated with greater risk. The Short-Term U.S. Government Securities Fund is similarly run, except that it invests for the most part in bonds with shorter maturities (to curb volatility). The U.S. Treasury Trust is a taxable money market fund that seeks to provide current income and to maintain a stable $1.00 NAV fund price. Money market funds are designed to protect investors from market volatility and credit risk, but offer the lowest potential return. At current rates, most money market funds, including the U.S. Treasury Trust, are yielding less than one percent. Fund Ratings and Performance Of the 10 stock and bond funds in Morningstar's system, three of them are not yet rated for return and risk. They are the Nasdaq 100 Index Fund, European Growth and Income Fund, and Short-Term U.S. Government Fund. The other seven funds from Cal Trust are 3-star or 4-star rated by Morningstar, so at least average risk- adjusted return performance in comparison to similar fund types. Below is a summary of Morningstar's overall ratings for each Cal Trust fund using data from the Morningstar.com website. Ratings are as of December 31, 2002. Stock Fund Ratings: S&P 500 Index Fund (SPFIX) 4 Stars (Average Risk) S&P MidCap Index Fund (SPMIX) 4 Stars (Average Risk) S&P SmallCap Index Fund (SMCIX) 3 Stars (Average Risk) Nasdaq 100 Index Fund (NASDX) Not Rated Equity Income Fund (EQTIX) 3 Stars (Below Average Risk) European Growth & Income Fund (EUGIX) Not Rated Bond Fund Ratings: U.S. Government Securities Fund (CAUSX) 3 Stars (High Risk) Short-Term U.S. Government Securities Fund (STUSX) Not Rated California Tax-Free Income Fund (CFNTX) 3 Stars (Above Avg Risk) California Insured Interm. Fund (CATFX) 3 Stars (Above Avg Risk) Like the Vanguard index funds, the Cal Trust S&P index funds are market-like in both risk and return. The Equity Income Fund has below average risk relative to its category peer group. True to its mandate, it represents a more conservative equity investment. The high risk rating on the U.S. Government Securities Fund is a result of its long-term nature. As we stated earlier, long-term bond funds generally provide a higher yield and more return over time than short-term bond funds, but risk is typically higher as well. Similar government funds have intermediate-term durations. Next, we look at fund performance. Below is a summary of 5-year average annual total returns for the California Investment Trust mutual funds per Morningstar data as of Friday, January 24, 2002. Stock Fund Returns (5-Year Annualized): -1.1% S&P 500 Index Fund (SPFIX) 33rd Percentile +6.7% S&P MidCap Index Fund (SPMIX) 15th Percentile +1.4% S&P SmallCap Index Fund (SMCIX) 47th Percentile N/a Nasdaq 100 Index Fund (NASDX) N/a -1.4% Equity Income Fund (EQTIX) 58th Percentile N/a European Growth & Income Fund (EUGIX) N/a Bond Fund Returns (5-Year Annualized): +6.4% U.S. Government Securities Fund (CAUSX) 55th Percentile N/a Short-Term U.S. Government Securities Fund (STUSX) N/a +4.9% California Tax-Free Income Fund (CFNTX) 33rd Percentile +5.1% California Insured Interm. Fund (CATFX) 53rd Percentile Performance-wise, the Cal Trust funds have done what they have set out to do, providing at least competitive returns compared with similar funds and providing returns commensurate with the various markets in which they invest. Not all of the category rankings are great as in the case of the S&P MidCap Index Fund, but investors had the opportunity to invest a portion of stock assets in the mid-cap or small-cap fund, which gained in value over the past five years while the S&P 500 Index Fund declined. So, it's more important to get your asset allocation right than it is to pick a fund within an investment class. Average total returns can work if you get the asset allocation decision right. Bond fund returns are decent, but on a risk-adjusted basis they are less compelling. If your objective is income, you may find better choices out there. If you use these funds as part of an balanced investment program, then you're probably alright since their inclusion will reduce overall portfolio risk, compared to an all-equity portfolio. I'd be inclined to go with the Short- Term U.S. Government Fund, since it has lower volatility versus its long-term sibling. Conclusion There are some decent mutual fund choices for investors at the California Investment Trust. No load fees, low turnover rates, and low expense ratios permit the mutual funds to put up decent numbers over time relative to comparable funds. Having choices among the index funds offers investors different opportunities for diversification. Consider the S&P 500 Index Fund to be a core option and the S&P MidCap Index Fund and the S&P SmallCap Index Fund to be "explore" options. Bottom-fishers with high-risk tolerance may wish to look at the Nasdaq 100 Index Fund now, but buyer-beware. Tech stocks equal more than half of the index holdings, so this is a large-growth fund with heavy tech exposure. It will incur greater risk than the market as measured by the S&P 500 index. Steve Wagner Editor, Mutual Investor email@example.com *********** OPTIONS 101 *********** Volatility Overload? by Mark Phillips mphillips@OptionInvestor.com The topic of volatility has gotten a lot of press time lately, and small wonder with the VIX topping the 40 level (at least on an intraday basis) earlier this week. Volatility certainly wasn't lacking today, with the broad market moving sharply lower at the open and then staging an impressive afternoon rally. The S&P 500 swung from a low near 845 to a high of 868, before settling near with a respectable (if small) gain on the day. The VIX has had its share of volatility in the past few days as well, and I thought tonight would be a good time to discuss these movements and what possible implications they could hold for the near-term future of our beloved markets. Before we get into the meat of the discussion, let me point out that I never use the VIX as a primary indicator of market direction. The main reason for this is that the VIX is derived from action in the options market, which is a derivative market of actual price action in the stock market. Therefore, trying to divine future market direction based on the action of the VIX is really the study of a secondary indicator. The real action is what is occurring in the price action of the broad market averages, and measuring that will provide a more direct measure of what to expect. Having said that, I often find that studying the action of the VIX provides a great confirming indicator of what I see in the broad market. So let's start with the backdrop that the major indices still look exceedingly weak, even after today's rebound. PnF Sell signals abound, Bullish Percent charts are all tilted significantly in favor of the bears, significant support levels (at least in the DOW and S&Ps) have been violated, along with H&S breakdowns that have been highlighted by others for weeks now. Add in the prospects of war, and an economy that looks sick, at best, and it is hard to make a convincing case for a rally that has much future, at least in the near term. But I don't want to get diverted to any of those issues this afternoon. I want to talk about the VIX, show some of the different ways of viewing this indicator and how it might be used to confirm the bearish picture for equities. In his 3:15pm intraday update on Monday, Kent Barton pointed out a long-term trend of lower highs in the VIX since the July highs near 57. That chart really got my attention, as it looked like something important. That descending trendline worked out to just over 41 (as shown below) and it is really interesting that this trendline acted as firm resistance this week. Weekly Chart of CBOE Volatility Index (VIX.X) In last Sunday's LEAPS column, I discussed my belief that the range for the VIX really IS rising, due to the persistent rise in the 200-dma, which I have approximated in the chart above with a 50-week moving average. This average is now at its highest level ever. That tells me that the historical range between 20-30 no longer holds the significance that it once did. I even stated my belief that a VIX reading in the teens is probably something we won't see for a period of years. Coming back to the VIX reversal at that descending trendline, I actually was surprised to see that reversal. Whenever the market surprises me, I like to find out why. Or in other words, what is it that I missed? When looking for the big picture, I frequently turn to the PnF charts, as they show me the dominant supply/demand dynamic at work. This even works for the VIX, and look what I found! Point & Figure Chart of the VIX On the PnF chart, the bearish resistance line was at 40. Do you think it is just a coincidence that the VIX was unable to print 41? Neither do I. By the way, the intraday high for the VIX was 40.89 on Monday, just 0.11 shy of the 41 level, but shy just the same. Those familiar with PnF charts know that the first test of bearish resistance usually results in a reversal, just as the first test of bullish support results in a reversal. That held true with the VIX this week and I am now looking for support to hold in the 33-35 area. As you can see, 35 is significant support for the VIX both on the PnF chart and on the standard candle chart, as this area acted as resistance throughout December. Defining the lower edge of this support zone is the 200-dma, which now sits at 33.23. One thing on the PnF chart that tells me up is the dominant direction for the VIX is that we now have a strong Buy signal. Performing a vertical count gives a target of 67. Wow! That seems extreme, doesn't it? But just a few months back, I never would have believed the VIX could remain above 30 for a period of 4 months, either. Things change. As I said above, I don't use the VIX as a primary trend indicator. I use it for confirmation. But in the context of a market that clearly seems to be heading south, the VIX certainly appears to be providing that confirmation. Let's look at one more chart to round out our discussion. Weekly Chart of CBOE Volatility Index (VIX.X) Here I've shown the same weekly VIX chart, but with a few more pieces of information. With the normal range of 20-30 shown in blue, it becomes easier to visualize how far the VIX has deviated from its normal pattern. That double-bottom near 26 perhaps defines a new floor for the VIX, and certainly did so earlier this month. I normally don't pay much attention to oscillators on the VIX, as I've found the gyrations rather difficult to interpret. But one aspect of the Stochastics as applied to the VIX that I have found useful is that of divergence. It doesn't occur very often, but when it does, it seems to be pretty consistent about forecasting major moves. So it is perhaps useful to note the higher lows in Stochastics, as compared to the equal lows for the VIX -- bullish divergence, and that is bearish for equities, once again confirming my broad market view. Certainly, the picture afforded us by the VIX right now is subject to change, but it does provide a good confirmation of the bearish picture currently being displayed in the equity market. Hopefully this little discussion helps you to see how I use the VIX to keep on the right side of the dominant trend. In my view, the big picture being displayed both in the broad market indices and the VIX is telling me that the market is heading significantly lower and the VIX significantly higher before a new tradable bottom will be in place. Questions are always welcome. Mark ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *********************** SWING TRADER GAME PLANS *********************** Relief Rally That rally we saw to close the day on Tuesday, ahead of the President's State of the Union address, looked an awful lot like a short covering rally considering the sell-off we got this morning. To read the rest of the Swing Trader Game Plan Click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* 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 Wednesday 01-29-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: None Play of the Day: Put - KO Big Cap Covered Calls & Naked Puts: Updated on the site tonight: Market Posture: Slight Shift Market Watch: Balancing Act ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************* PLAY OF THE DAY - PUT ********************* KO - Coca-Cola $42.82 -1.08 (-2.26 for the week) Company Description: The Coca-Cola Company is the world's largest beverage company and is the leading producer and marketer of soft drinks. Along with Coca-Cola, recognized as the world's best-known brand, The Coca- Cola Company markets four of the world's top five soft drink brands, including diet Coke, Fanta and Sprite. Through the world's largest distribution system, consumers in nearly 200 countries enjoy The Coca-Cola Company's products at a rate of more than 1 billion servings each day. (source: company release) Most Recent Write-Up: Talk about lack of relative strength! KO now has not only given us our PnF breakdown, as well as a trigger down at $41.90, but it added to its six-year low in spite of the Dow gaining 100 points on today's broad market rebound. Part of that was due to Pepsi's earnings release, which beat expectations due to increased prices, in spite of U.S. volume coming in on the low side. Traders focused on the light volume and 2003 forecast from PEP, selling the stock off early, before it bounced to a mild gain with the broader markets. KO was not so lucky, however, falling $0.69 by the end of the day, and closing near its low, after setting an intraday low at $41.00. That low can be seen two ways. Bulls may view it as support at the round number, while bears can point to the bearish "O" on the PnF column. That "O" added to the sell signal at $41 and dropped the stock below its $42 "O" on the PnF back in April 2001. That $42 "O" was actually on a dividend - adjusted basis, but it nevertheless shows up as the last support level of the last couple of years. Now we have moved below it on both the bar and PnF charts. Just to be safe, new entries can target a momentum move below $41.00 for entry to make sure it does not continue to act as support. We are lowering our stop loss on the play to $44.25, just above the 21- dma. More aggressive traders can leave the stop above the 50- dma of $44.89, while more conservative traders can lower stops to $43.10, just above Monday's high. Why This Is Our Play of the Day: KO just can't seem to get up. In spite of an impressive two days of action in the Dow, first with a big rally Tuesday and then a big recovery Wednesday, Dow component KO just keeps dropping. It set a six year low on Monday as it fell through support at $43 and has now added several "O"s to its current bearish column on the PnF chart. This morning it traded down below $40 before following the Dow's furious rebound higher. However, in spite of that big bounce, KO still was one of the handful of losers by the end of the day. We like the entry point in KO from two angles, depending on just how much life today's market bounce has left. First, if the Dow continues to rollover, we like a momentum entry on a move below today's low of $39.81. A failed rebound below $40 once that level is broken can be used for confirmation of the breakdown. The other alternative would be on a failed bounce beneath $43 if the Dow continues higher. It hasn't helped KO thus far, but if we do finally get a powerful broad market rally, then a failure below the original $43 breakdown level could provide a good risk/reward ratio. BUY PUT FEB-45 KO-NI OI= 7451 at $4.80 SL=2.40 BUY PUT MAR-45 KO-OI OI= 3775 at $5.30 SL=2.65 Average Daily Volume = 5.0 mil ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* "Recovery In Progress" Or "Short-Lived Rebound?" By Ray Cummins Stocks edged higher Wednesday, despite the Fed's cautious comments about the economy and continued shortfalls in quarterly earnings. The Dow Jones Industrials added 21 points to 8,110 on strength in Exxon-Mobil (NYSE:XOM), Merck (NASDAQ:MRK) and International Paper (NYSE:IP). Blue-chip gains were hampered by losses in food stocks including Altria Group (NYSE:MO), McDonald's (NYSE:MCD) and Coca Cola (NYSE:KO). Chip giant Intel (NASDAQ:INTC) and software king Microsoft (NASDAQ:MSFT) helped the NASDAQ finish in the black, up over 15 points to 1,358. Telecom and networking shares also saw limited buying pressure. The broader market S&P 500-stock index enjoyed gains in oil and gas issues as crude prices rallied amid renewed concerns over a possible disruption of world oil supplies. Drug stocks were also higher while shares of gold and silver issues consolidated from recent upside activity. Volume was average with 1.57 billion shares trading on the NYSE while 1.5 billion shares changed hands on the NASDAQ. Winners outpaced losers 3 to 2 on the NYSE but the trend was reversed on the technology exchange, where declines were slightly ahead of advances. Treasuries were higher, receiving a modest safe-haven bid as the Fed stood pat on interest rates. The benchmark 10-year note rose 6/32 at 107 28/32 to yield 3.96%. The 30-year bond rose 6/32 at 107 28/32 to yield 4.86%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 1/28/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of actual traders, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The play commentary (when provided) is simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with new option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield ASA FEB 35 34.45 40.57 $0.55 4.44% 1.60% COF FEB 25 24.35 31.66 $0.65 7.31% 2.67% IGEN FEB 35 34.05 40.04 $0.95 8.27% 2.79% INVN FEB 22 22.05 25.42 $0.45 6.32% 2.04% PHM FEB 45 44.05 50.62 $0.95 5.39% 2.16% ACDO FEB 33 31.45 36.15 $1.05 7.73% 3.34% AMGN FEB 48 46.30 51.59 $1.20 5.40% 2.59% BSTE FEB 35 33.85 34.89 $1.04 6.79% 3.40% CEPH FEB 45 44.15 49.23 $0.85 5.04% 1.93% GENZ FEB 30 29.40 32.97 $0.60 5.18% 2.04% ACDO FEB 35 34.50 36.15 $0.50 4.18% 1.45% AMGN FEB 47 46.90 51.59 $0.60 3.66% 1.28% AU FEB 30 29.55 36.90 $0.45 4.94% 1.52% CEPH FEB 45 44.25 49.23 $0.75 5.18% 1.69% SYMC FEB 40 39.45 46.10 $0.55 4.22% 1.39% Accredo Health (NASDAQ:ACDO), Biosite (NASDAQ:BSTE) and Genzyme General (NASDAQ:GENZ) are the primary issues on the "early exit" watch-list. Naked Calls Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield EXPE FEB 75 76.25 64.08 $1.25 6.84% 1.64% MBG FEB 30 30.65 26.07 $0.65 6.68% 2.12% QCOM FEB 43 43.05 37.09 $0.55 5.07% 1.28% CCMP FEB 60 61.15 46.97 $1.15 6.10% 1.88% KLAC FEB 45 45.80 34.67 $0.80 6.83% 1.75% LLTC FEB 33 33.25 26.60 $0.75 6.68% 2.26% QLGC FEB 48 48.40 35.95 $0.90 6.19% 1.86% CDWC FEB 50 50.55 46.72 $0.55 4.59% 1.09% CTSH FEB 65 65.75 56.50 $0.75 4.41% 1.14% NVLS FEB 38 37.85 29.53 $0.35 5.41% 0.92% Put-Credit Spreads Stock Gain Symbol Pick Last Month L/P S/P Credit C/B (Loss) Status FRX 53.03 51.40 FEB 45 48 0.00 47.50 $0.00 No Play PFCB 37.96 34.50 FEB 30 35 0.50 34.50 $0.00 Open SLM 106.71 105.60 FEB 90 95 0.50 94.50 $0.50 Open AGN 60.51 61.88 FEB 50 55 0.50 54.50 $0.50 Open BRL 77.63 78.74 FEB 65 70 0.40 69.60 $0.40 Open FIC 44.63 48.40 FEB 35 40 0.45 39.55 $0.45 Open AET 44.21 42.85 FEB 35 40 0.50 39.50 $0.50 Open BR 42.71 42.70 FEB 38 40 0.25 39.75 $0.25 Open MMM 127.50 125.83 FEB 115 120 0.55 119.45 $0.55 Open As noted last week, P.F.Chang's (NASDAQ:PFCB) close below the sold strike at $35 signaled our exit in the position. Call-Credit Spreads Stock Gain Symbol Pick Last Month L/C S/C Credit C/B (Loss) Status HET 37.47 36.00 FEB 43 40 0.40 40.40 $0.40 Open PHA 42.00 41.00 FEB 50 45 0.60 45.60 $0.60 Open ZBRA 57.32 54.99 FEB 70 65 0.50 65.50 $0.50 Open ATK 59.65 55.14 FEB 70 65 0.50 65.50 $0.50 Open GS 73.51 69.05 FEB 85 80 0.40 80.40 $0.40 Open PDX 34.40 36.45 FEB 45 40 0.65 40.65 $0.65 Open ABK 55.74 53.21 FEB 65 60 0.50 60.50 $0.50 Open FITB 56.49 55.28 FEB 65 60 0.50 60.50 $0.50 Open HAR 55.62 58.65 FEB 65 60 0.60 60.60 $0.60 Open Harmon Electronics (NYSE:HAR) is the only position of concern in the category of bearish credit spreads and the stock price is currently below the sold (call) strike. Credit Strangles No Open Positions Synthetic Positions: No Open Positions 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 new 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. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. *************** BULLISH PLAYS - Premium Selling All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. *************** COP - ConocoPhillips $48.01 *** On The Rebound! ** ConocoPhillips (NYSE:COP), formerly Phillips Petroleum Company, is an international, integrated energy company with operations in 49 countries. The firm has four core activities worldwide: petroleum exploration and production, petroleum refining, marketing, supply and transportation; natural gas gathering, processing and sales, including a 30.3% interest in Duke Energy Field Services, and a chemicals and plastics production and distribution business through a 50% interest in Chevron Phillips Chemical Company. The company was founded in August 2002, following the merger of Conoco and Phillips Petroleum. COP - ConocoPhillips $48.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 45 COP NI 702 0.50 44.50 4.0% 1.1% * SELL PUT FEB 47.5 COP NW 650 1.30 46.20 8.6% 2.8% ************** CYMI - Cymer $33.61 *** Semiconductor Sector Rally! *** Cymer (NASDAQ:CYMI is a supplier of excimer laser illumination sources, the essential light source for deep ultraviolet (DUV) photolithography systems used in the building of semiconductors. DUV lithography is a key enabling technology, which has allowed the semiconductor industry to meet the exacting specifications and manufacturing requirements for volume production of today's most advanced semiconductor chips. Cymer's lasers are used in step-and-repeat and step-and-scan photolithography systems for the manufacture of semiconductors with critical feature sizes below 0.35 microns. Cymer believes its excimer lasers constitute a substantial majority of all excimer lasers incorporated in DUV photolithography tools. Cymer's various products consist of photolithography light sources, replacement parts and service. CYMI - Cymer $33.61 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 25 CQG NE 2,150 0.20 24.80 3.8% 0.8% TS SELL PUT FEB 30 CQG NF 1,230 0.80 29.20 9.9% 2.7% * SELL PUT FEB 35 CQG NG 997 2.70 32.30 20.4% 8.4% ************** DISH - EchoStar Communications $25.27 *** Uptrend Intact! *** EchoStar Communications (NASDAQ:DISH) operates through two major business units, the DISH Network and EchoStar Technologies. The DISH Network offers a direct broadcast satellite subscription TV service in the United States with almost 7 million DISH Network subscribers. EchoStar Technologies Corporation is engaged in the design, development, distribution and sale of DBS set-top boxes, antennae and other digital equipment for the DISH Network and the design, development and distribution of similar equipment for a range of international satellite service providers. DISH - EchoStar Communications $25.27 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 22.5 UAB NX 1,643 0.30 22.20 5.2% 1.4% * SELL PUT FEB 25 UAB NE 2,375 0.95 24.05 11.6% 4.0% ************** FTE - France Telecom $26.72 *** 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. FTE - France Telecom $26.72 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 22.5 FTE NX 35 0.30 22.20 5.9% 1.4% * SELL PUT FEB 25 FTE NE 5 0.85 24.15 12.2% 3.5% ************** MERQ - Mercury Interactive $37.25 *** Bullish Outlook! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2000 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $37.25 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 30 RQB NF 948 0.25 29.75 4.2% 0.8% * SELL PUT FEB 35 RQB NG 5,858 1.05 33.95 10.2% 3.1% ************** MUR - Murphy Oil $41.75 *** Solid Earnings! *** Murphy Oil Corporation (NYSE:MUR) is a worldwide oil and gas exploration and production company with refining and marketing operations in the United States and the United Kingdom. The firm's operations are classified into two business activities: Exploration and Production; and Refining and Marketing. Murphy's principal exploration and production activities are conducted in the United States, Ecuador and Malaysia by wholly owned Murphy Exploration & Production Company and its subsidiaries; in western Canada and offshore eastern Canada by wholly owned Murphy Oil and its subsidiaries; and in the U.K. North Sea and Atlantic Margin by wholly owned Murphy Petroleum Limited. Murphy Oil USA, Inc., a wholly owned subsidiary, owns and operates two refineries in the United States. MOUSA markets refined products through a network of retail gasoline stations and branded and unbranded wholesale customers in a 23-state area of the southern and Midwestern United States. MUR - Murphy Oil $41.75 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 37.5 MUR NU 90 0.40 37.10 4.1% 1.1% * SELL PUT FEB 40 MUR NH 221 0.75 39.25 6.3% 1.9% ************** QCOM - Qualcomm $38.01 *** Successful Test Of Support? *** Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division multiple access (CDMA)-based integrated circuits and system software for wireless voice and data communications and global positioning system (GPS) products. The company offers complete system solutions, including software and integrated circuits for wireless handsets and infrastructure equipment. This complete system solution approach provides customers with advanced wireless technology, enhanced component integration and interoperability, as well as reduced time to market. QCOM - Qualcomm $38.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 35 AAW NG 17,322 0.60 34.40 6.2% 1.7% * SELL PUT FEB 37.5 AAW NU 7,774 1.40 36.10 11.5% 3.9% ************** BULLISH PLAYS - Credit Spreads These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** BLL - Ball Corporation $52.73 *** Favorable Earnings! *** Ball Corporation (NYSE:BLL) is a manufacturer of metal and plastic packaging, primarily for beverages and foods, and a supplier of aerospace and other technologies and services to commercial and governmental customers. Ball's business is the manufacture and sale of rigid packaging products, primarily for beverages and foods. Polyethylene terephthalate packaging is Ball's newest product line. Their aerospace and technologies segment includes civil space systems, defense operations and commercial space operations. The defense operations business unit includes defense systems, systems engineering services and advanced antenna and video systems, as well as electro-optics and cryogenic systems and components. Civil space systems, defense operations and commercial space operations include hardware, software and services to domestic and international customers, with emphases on space science, environmental and Earth sciences, defense and intelligence, manned missions and space exploration. BLL - Ball Corporation $52.73 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-45.00 BLL-NI OI=365 A=$0.25 SELL PUT FEB-50.00 BLL-NJ OI=798 B=$0.70 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$49.55 ************** EBAY - eBay Inc. $74.93 *** Everything For Sale Here! *** eBay (NASDAQ:EBAY) is a Web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay Inc. $74.93 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-65.00 QXB-NM OI=8330 A=$0.45 SELL PUT FEB-70.00 QXB-NN OI=7346 B=$1.00 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=11% B/E=$69.45 ************** BULLISH PLAYS - Calendar Spreads A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in today's section are based on a reader's request for some "speculative" calendar spreads on bullish issues. ************** APA - Apache Oil $60.74 *** Reader's Request! *** Apache Corporation (NYSE:APA) is an energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. The company has interests in seven countries including the United States, Canada, Egypt, Australia, China, Poland and Argentina. As of January 1, 2002, Apache had estimated reserves of 599 million barrels of crude oil, condensate and NGLs (natural gas liquids) and four Tcf (trillion cubic feet) of natural gas. Combined, these total estimated proved reserves are equivalent to 1.3 billion barrels of oil or 7.6 Tcf of gas. Worldwide, in 2001, the company participated in drilling 939 new wells, with 828 (88%) completed as producers. Canada was Apache's most active region, with 447 gross new wells at a success rate of 93%. Apache also performed over 1,350 major work-overs and re-completions in North America during the year. APA - Apache Oil $60.74 PLAY (speculative - bullish/calendar spread): BUY CALL APR-65.00 APA-DM OI=2451 A=$1.85 SELL CALL FEB-65.00 APA-BM OI=1787 B=$0.45 INITIAL NET DEBIT TARGET=$1.25-$1.35 TARGET PROFIT=$0.60-$0.75 ************** STJ - St. Jude Medical $43.69 *** Reader's Request! *** St. Jude Medical (NYSE:STJ) is engaged primarily in the development, manufacturing and distribution of cardiovascular medical devices for the global cardiac rhythm management (CRM), cardiology and vascular access (C/VA) and cardiac surgery (CS) markets. The firm's primary products in each of these markets are bradycardia pacemaker systems, tachycardia implantable cardioverter defibrillator (ICD) systems and electrophysiology (EP) catheters in CRM; vascular closure devices, catheters, guidewires and introducers in C/VA, and mechanical and tissue heart valves, valve repair products and suture-free devices to facilitate coronary artery bypass graft anastomoses in CS. St. Jude markets its products primarily in the United States, Western Europe and Japan. The Company also sells its products in Eastern Europe, Africa, the Middle East, Canada, Latin America and the Asia Pacific region through employee-based sales organizations and independent distributors. STJ - St. Jude Medical $43.69 PLAY (speculative - bullish/calendar spread): BUY CALL APR-45.00 STJ-DI OI=1722 A=$2.10 SELL CALL FEB-45.00 STJ-BI OI=722 B=$0.75 INITIAL NET DEBIT TARGET=$1.20-$1.30 TARGET PROFIT=$0.50-$0.70 ************** BEARISH PLAYS - Naked Calls Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. *************** EXPE - Expedia $62.94 *** Travel Industry Slump! *** Expedia (NASDAQ:EXPE) is a provider of travel-planning services. The company's travel marketplace includes direct-to-consumer Websites offering travel-planning services located at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it. Expedia also provides travel-planning services through Voyages sncf.com, as part of a joint venture with the state-owned railway group in France. In addition, the company offers travel-planning services through its telephone call centers and through private label travel Websites through its WWTE business. WWTE is now a division of Travelscape, one of Expedia's primary subsidiaries. In February 2002, a controlling stake in the Expedia was acquired by USA Networks. EXPE - Expedia $62.94 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 70 UED BN 2,915 0.65 70.65 4.6% 0.9% * SELL CALL FEB 65 UED BM 3,049 2.15 67.15 11.3% 3.2% ************** ZBRA - Zebra Technologies $54.59 *** Pure Premium Selling! *** Zebra Technologies Corporation (NASDAQ:ZBRA) and its wholly owned subsidiaries design, manufacture and support a broad range of direct thermal and thermal transfer bar code label and receipt printers, plastic card printers, related accessories and support software. The company's main products consist of a broad line of computerized printers for the production of bar code labels, receipts and tags, and plastic cards, specialty bar code labeling materials, ink ribbons for bar code and card printers, and bar code label design software. ZBRA - Zebra Technologies $54.59 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 60 ZBQ BL 503 0.75 60.75 5.8% 1.2% * SELL CALL FEB 55 ZBQ BK 504 2.65 57.65 14.6% 4.6% ************** BEARISH PLAYS - Credit Spreads All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. *************** GM - General Motors $37.28 *** "Double-Top" At $40? *** General Motors (NYSE:GM) is a diversified automotive business with interests in communications services, locomotives, finance and insurance. GM's automotive business designs, manufactures, and/or markets vehicles primarily in North America under the Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn and Hummer nameplates, and outside North America under the Vauxhall, Opel, Holden, Isuzu, Saab, Buick, Chevrolet, GMC, and Cadillac nameplates. GM's communications services relate to its Hughes Electronics Corporation subsidiary, which includes its digital entertainment, information and communications services, and satellite-based private business networks. GM also is engaged in the design, manufacturing and marketing of locomotives and heavy-duty transmissions. The firm's financing and insurance operations are conducted through the General Motors Acceptance Corporation, which provides a broad range of financial services. GM - General Motors $37.28 PLAY (conservative - bearish/credit spread): BUY CALL FEB-42.50 GM-BV OI=5523 A=$0.15 SELL CALL FEB-40.00 GM-BH OI=12554 B=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$40.25 ************** WB - Wachovia Corporation $35.72 *** Trading Range? *** Wachovia Corporation (NYSE:WB) is a provider of commercial and retail banking and trust services through full-service banking offices in Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North and South Carolina, Pennsylvania, Virginia and Washington, D.C. Through its subsidiary, the firm operates retail banking and trust services through full-service banking offices in Florida, Georgia, North and South Carolina, and Virginia. The company also provides various other financial services, including mortgage banking, credit card, investment banking, investment advisory, home equity lending, asset-based lending, leasing, insurance, and brokerage services through other subsidiaries. WB - Wachovia Corporation $35.72 PLAY (conservative - bearish/credit spread): BUY CALL FEB-40.00 WB-BH OI=4351 A=$0.10 SELL CALL FEB-37.50 WB-BU OI=4536 B=$0.30 INITIAL NET-CREDIT TARGET=$0.20-$0.30 POTENTIAL PROFIT(max)=8% B/E=$37.70 ************** XL - XL Capital $75.92 *** Next Leg Down? *** XL Capital (NYSE:XL), formerly EXEL Merger Company, is a provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. The company provides property and casualty insurance on a global basis and generally writes specialty coverages for commercial customers. Specific lines of business written are third-party general liability insurance, environmental liability insurance, directors/officers liability insurance, professional liability insurance, aviation and satellite insurance, employment practices liability insurance, surety, marine insurance, property insurance and other insurance covers, including program business as well as political risk insurance. Premiums written vary by jurisdiction principally due to local market conditions and legal requirements. XL - XL Capital $75.92 PLAY (conservative - bearish/credit spread): BUY CALL FEB-85.00 XL-BQ OI=232 A=$0.25 SELL CALL FEB 80.00 XL-BP OI=64 B=$0.70 INITIAL NET-CREDIT TARGET=$0.45-$0.60 POTENTIAL PROFIT(max)=9% B/E=$80.45 ************** SEE DISCLAIMER *************** ************** MARKET POSTURE ************** Slight Shift To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_012903.asp ************ MARKET WATCH ************ Balancing Act To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/wl_012903.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
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 "firstname.lastname@example.org"
Option Investor Inc