Option Investor
Newsletter

Daily Newsletter, Thursday, 01/30/2003

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                 Thursday 01-30-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Old Problems Produce New Lows 
Futures Markets: A deeper shade of Red  
Index Trader Wrap: Not looking good for the bulls
Market Sentiment: What A Relief it Was
Weekly Manager Microscope: Maurice & David Schoenwald: New
Alternatives Fund (NALFX)


Updated on the site tonight:
Swing Trader Game Plan: All in the Timing


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      01-30-2003           High     Low     Volume   Adv/Dcl
DJIA     7945.13 -165.60  8141.09  7938.62 1.78 bln 1064/2162
NASDAQ   1322.36 - 35.70  1360.55  1322.36 1.40 bln 1060/2257
S&P 100   426.71 - 10.83   426.71   426.26   Totals 2124/4419
S&P 500   844.62 - 19.74   865.48   843.74
W5000    8021.22 -173.00  8204.16  8014.72
RUS 2000  367.62 -  7.22   375.80   367.59
DJ TRANS 2128.64 - 34.70  2175.19  2126.40
VIX        36.37 +  1.15    36.55    34.75
VXN        46.22 +  2.58    46.26    43.96
Total Volume 3,401B
Total UpVol    647B
Total DnVol  2,723M
52wk Highs  133
52wk Lows   171
TRIN       1.72
PUT/CALL    .87
************************************************************

Old Problems Produce New Lows

The numbers came in slightly better than expected by most but
the negative sentiment remained. The fourth quarter GDP did not
dip into negative territory but it was still anemic. The Fed
expressed worry about the economy and unemployment continues
to rise. These factors and war worries pushed the Dow to a new
low for the year.

Dow Chart – Daily



Nasdaq Chart – Daily




Economically investors should have been relieved. The GDP came
in at +0.7% for the fourth quarter when many analysts had been
quoting whisper numbers in negative territory. We are far from
out of the woods but that is one more quarter temporarily behind
us with a plus sign in front of it. That is of course it is not
revised downward when the real component numbers become available.
The internals showed slower inventory buildup and weaker exports.
Computer purchases continue to rise slowly along with business
investment. There are two more revisions to this number over
the next two months and there is still danger it could slip
into negative territory.

Jobless Claims rose again to 397,000 and very near the 400K
threshold. This was an increase of +14,000 and +10,000 over
the consensus estimates. Claims over 350,000 a week indicate
a shrinking labor market. Increasing the evidence for a
shrinking workforce was the drop in the Help Wanted Index to
a new cyclical low of 39. It was 47 during the recession just
a year ago. According to Economy.com the index peaked at 93
in the late 90s boom. There has been a -58% drop in job
advertising volume in this down cycle. This compares to a
drop of only -44% and -54% in the prior two economic cycles.
Employers are not hiring and are continuing to trim their
workforce.

The weakness in the job markets pushed the Employment Cost
Index to the slowest growth in five years at +0.7% for the
fourth quarter. With a surplus of unemployed there is no
need to offer premium wages with lots of costly benefits.
The drop would have been much deeper had it not been for
the +6% growth in benefit expenses for existing employees.
The construction industry showed the biggest increases as
they scramble for workers to complete houses before rates
begin rising again. With falling real wages and continued
competition for available jobs the consumer is going to be
hard pressed to hold up the economy with future spending.

For the fifth consecutive month the Chicago Fed National
Activity Index came in below zero. The -0.5 number and the
-0.6 3-month average shows the economy has stalled and there
is no recovery in process. July was the only month in 2002
not negative but the drop in activity has been sharp and
serious since. The normally robust December period was only
fractionally better than November's -0.55. This report
raises the very clear specter of a double dip recession
already in progress.

The minutes for the December FOMC meeting were released and
showed that the Fed heads were encouraged by the lack of a
further drop in the economy and the then current rebound in
the stock market. They felt the market was confirmation that
a recovery was underway despite the lack of economic
confirmation. They were worried about the rising unemployment
and lack of business investment. Their forecast for the near
future showed minimal expectations for growth. They felt the
rising geopolitical tensions as well as persisting concerns
about consumer spending would continue to hold the economy
back. Despite the -50 point cut in November the committee
remained open to the potential need for future cuts. The
number of negative factors "when measured against the stock
market rebound" appeared to be balanced. They kept that public
view at the January meeting despite the loss of the markets
gains. Makes you wonder what was offsetting the risks this
time? With Consumer Confidence at its lowest level since
1993 the Feds may be the only ones seeing balanced risks.

AOL, you've got mail! Hate mail and lots of it. Don't look
now but the monster may also have escaped from the lock box.
With AOL posting a -$99 billion loss for 2002 there are many
stockholders on the warpath. About to lead the attack is
Ted Turner who is stepping down from his post as Vice Chairman
in May. With over 100 million shares of AOL stock Turner is not
going to be a friend to the company. At $12 that 100M shares
is worth a whole lot less than it was at $95 in Dec-2000.
As an unrelated party to AOL, Turner would be free to sell his
shares OR more importantly lead a shareholder revolt to break
up the company with Turner ending up with the prized pieces.
Granted this is a broad leap of faith but Turner is reportedly
extremely hostile about his -$8 billion drop in net worth. I
can see where that could produce a vengeance motive. AOL
stock dropped on the news from $14 to $12. The -$99 billion
loss and negative guidance may have influenced investors as
well. (grin)

The oil strike in Venezuela may be almost over. Reports from
the area claim strikers are going back to work and banks and
retail stores are opening again. Employees need the wages to
live and the riots were losing intensity. Oil production is
back to about 1/3 of prior levels and growing. Fear of the
war is still holding up the prices at $33.85 today but once
the war begins it should fall.

Oil is not the only commodity soaring with Platinum hitting
a 17 year high at $647.80. The comments about hydrogen cars
in the Fate of the Union speech has prompted a run on the
metal and on fuel cell makers. Test vehicles have been the
rage on news shows since Tuesday night.

Too bad computer chips were not mentioned. AMAT announced
tonight that they were laying off an additional 165 workers
in response to the weakest industry conditions on record.
The company is also planning on shutting down temporarily
for a week or two to cut costs during this rough stretch.
This is bound to add to weakness in semiconductors tomorrow
after they had a rough Thursday finishing at 273.62 and a
three month low.

Disney announced earnings that beat the street but said they
were not going to give guidance for the 2Q. They did say they
expected to see +25% growth for all of 2003. ADBE also affirmed
company estimates for the current quarter. There was some
disagreement among analysts that the companies guidance was
less than the consensus but they affirmed a broad range that
did encompass the consensus estimate.

Tomorrow is packed full of economic reports including Chicago
PMI, NAPM-NY, Personal Income/Spending and the University of
Michigan Consumer Sentiment. This is the second reading of
the sentiment and it could have been impacted by the falling
market over the last two weeks. The first take was Jan-17th
and the current market drop began on the 15th. The war of
words over Iraq has heated up since the 17th and tens of
thousands of more troops have been called up. 83.9 is the
consensus forecast for tomorrow. The NAPM-NY dropped from
56.2 to 41.4 in December due mainly to layoffs in the
financial sector. With cuts continuing and waves of lowered
guidance it could be worse tomorrow. This is a regional
report but because it reflects the market conditions I
listed it.

The market is in trouble. After two days of gains it gave them
all back and closed at a new low for the year. With one day
left in January it is not likely we will finish with a gain
for the year. This January barometer will predict another
down year. Whether the year will be down or not the technicals
for the market are terrible. The S&P failed to hold or reach
yesterday's bear trap high of 868 and closed at a new low for
the year. The bullish sentiment on the Nasdaq that helped hold
up the other indexes earlier in the week has also disappeared.
The Nasdaq also closed at a new low for the year. The Dow at
7944 is not far from my initial target of 7700 that I predicted
two months ago.

The date is set, February-14th. That is the new drop-dead date
for Iraq to come clean with inspectors. It is the date that
the inspectors will again report to the UN and it is the date
that is making the rounds as the day before the start of the
war. Over the last two months I have suggested Feb-15th as the
earliest the war could start due to the Muslim holy days. It
is amazing now that the US has suddenly picked that date as
critical. Do they think we are all sheep? I think it will take
another week for them to get all the troops in place but the
window of opportunity is closing and they could go anytime
after the 14th to prevent a continued increase in antiwar
sentiment that could hinder their coalition.

That window of opportunity means we could be looking at three
more weeks like this week. There is going to be another UN
meeting on Wednesday where Powell will spill the beans about
some secret intelligence which is supposed to swing dissenters
back to the US side. That should mean continued weakness in the
short term but that weakness could be simply high volatility.
I have been a bear for the last two months in predicting 7700
but I would be surprised if we went much lower than that. That
is just an opinion and 7700 was my minimum target. The October
lows of 7197 could still be retested if economic news does not
improve quickly. Either way the next three weeks should be
rocky and then we could see a nice bounce once the war begins.
Anticipation of that historical bounce when the shooting starts
should slow any serious declines as traders start bottom fishing
in advance. Still three weeks is a lifetime in the markets
and nothing should be considered certain.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

A deeper shade of Red
By John Seckinger
jseckinger@OptionInvestor.com

All three futures contracts came under pressure once more, and
late-day selling began testing some important areas of support.
Will they hold?  If not, where could these markets end up?

Thursday, January 30th at 4:15 P.M.

Contract       Last    Net Change    High        Low       Volume

Dow Jones     7945.13   -165.58    8141.09     7938.62
YM03H         7900.00   -174.00    8126.00     7864.00     30,195
Nasdaq-100     985.51    -31.05    1022.21      985.16
NQ03H          987.00    -26.50    1027.00      986.00    226,374
S&P 500        844.61    -19.75     865.48      843.74
ES03H          840.00    -20.75     866.75      839.75    749,565

Contract         S2         S1       Pivot        R1         R2

Dow Jones      7805.81    7875.47   8008.28    8077.94    8210.75
YM03H          7701.00    7801.00   7963.00    8063.00    8225.00
Nasdaq-100      960.58     973.05    997.63    1010.10    1034.68
NQ03H           959.00     973.00   1000.00    1014.00    1041.00
S&P 500         829.54     837.08    851.28     858.82     873.02
ES03H           821.75     831.00    849.00     858.00     875.75

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 861.50, exit 860.50, change +1.00
Long 861.50, exit 859.50, change -2.00
Short 857.50, exit 859.25, change -1.75
Short 858.25, exit 860.25, change -2.00
Short 854.75, exit 853.00, change +1.75
Short 851.50, exit 853.25, change -1.75

Total for the day = -4.75
Total for the week = -2.00

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)

The ES contract fell underneath the profiled 842 area late in the
session on Thursday, and this should portend more weakness to
follow.  Moreover, the daily chart below shows a "bearish
engulfing" pattern as well as a close near the low-end of its
Bollinger Bands.  If weakness does take place on Friday, support
is seen below from 827 to 832.  A move underneath 827 should
portend a move to S2, or 821.75.  Note:  The pivot is above at
849, and a bid above this area should take sentiment to more
neutral levels.  Resistance above 849 is seen at 855 and 865.

Chart of ES03H, 720-minute




Looking at a 120-minute chart of the ES contract, Thursday's
settlement is below Friday's pivot and should attract aggressive
shorts as the weekend approaches (as long as this holds true on
the open).  Ideally for bears, the MACD oscillator will cross
lower and get traders following more technical analysis
approaches to look for lower prices as well.  Also on a bearish
trader's side is the SPX, on a P&F chart, reversing back into a
column of "O's" and still far away from oversold readings of 30%
(currently at 47.50).  If the 832 area does in fact hold, or if
the ES contract clear 844.50 and then get above Friday's pivot,
bulls might have a case.

Chart of ES03H, 120-minute chart




Bullish Percent of SPX: 47.50% and down 0.40% percent on
Thursday.  The column of O’s remains at nine (Recent High at 64%,
Low of current column at 48).  There is still a solid chance the
bullish percent will 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.  Looking at P&F analysis, the SPX contract reversed
back into a column of O's today, and more weakness should be seen
underneath the 840 area.

The March E-mini Nasdaq 100 Contract (NQ03H)

Weakness did take place on Thursday after the daily pivot of
1006.25 failed to hold selling pressure, and after-hours selling
has taken the contract back underneath 980 and has started to do
some technical damage.  The 981 to 985 area will continue to be a
strong technical area going forward; therefore, shorts can look
for a move under 981 during the day as an indication of a move
down towards 962.  This 962 level is at the bottom of the daily
Bollinger Bands, near the weekly S2 level, and also half of the
range from the 50% retracement to the 941 area and 61.8% of the
move from October to December.  RSI is approaching oversold
levels, so there could be a bounce soon that shorts will most
likely sell into.  The daily pivot comes in at 1000, which is
very close to half the range from 1024 to 983; therefore, a move
above Friday's pivot should send sentiment to more neutral
levels and might be the catalyst for this possible short-
covering.

Chart of NQ03H, Daily




Looking at a 60-minute chart of the NQ contract, Thursday's close
places the NQ contract under Friday's pivot and should be viewed
as bearish.  It is also interesting that the daily S2 level is
underneath the weekly S2 reading.  Bearish as well.  As the chart
below does not show, weakness in after-hours has sent the NQ
contract underneath the 50% area of 983 and added to the
'redness' of the chart.  Ideally for longs, there is a move from
above the daily pivot back to the 1024 area; however, that seems
rather optimistic.  I could instead envision a move to 1009-1012
instead, which is a compilation of a daily R1 level, weekly
pivot, and retracement from R2 to S2.

Chart of NQ03H, 60-minute




Bullish Percent for NDX:  This indicator fell 1% to 48% on
Thursday, and continues to portend bears will be selling rallies
going forward.  There was an extra "O" added on Thursday, and
this brings the count to nine.  Note:  The NDX will give a sell
signal at 975, according to P&F charts.

The March Mini-sized Dow Contract (YM03H)

The YM contract on Thursday was unable to reach the 8152 area
once again, proceeding to fall underneath its pivot and then to
the 7933 area, or weekly S1.  With the YM contract closing
underneath the 7940-7963 area (support, now resistance), least
resistance continues to be lower.  The daily pivot is at the top
of this range; therefore, a move above here will bring sentiment
to more neutral readings.  The downside objective is tiered:
7800, 7750, and 7700.  I like the 7750 area, and weekly S2.  It
also corresponds with being half of the distance from the daily
S1 to S2 area.  For bulls, if the 7963 level is cleared to the
upside, the objective would only be for a move to the 8025-8028
area.  With risk of a fall then back to 7940, the risk/reward
scenario is not great.  Only a close above 8152 would severely
change the bearish sentiment.

Chart of YM03H, 120-minute




Bullish Percent of Dow Jones:  The bullish percent for the Dow
was unchanged on Thursday 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,
is currently in a row of "X's", and the bearish objective will
now stay at 7000.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/013003_1.asp


------------------------- 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
****************

What A Relief it Was
by Steve Price

That relief rally we got Wednesday didn't last long.  We got what
seems to be a decisive sell-off, confirming that what we saw on
Wednesday was an oversold bounce.  That shouldn't be a surprise
to anyone, since the recent trend has been decidedly down.  We
also began to see some signs that confirm the theory that we've
got additional downside in the near future.

The bond market saw some buying today, indicating a shift from
equities back into bonds.  The recent rebound in the equity
markets has shown the opposite, with bonds falling for the last
few days, however we saw decent bounces in the five, ten and
thirty year treasuries.  Those bounces weren't big, but if we are
going to see another rollover in stocks, this indication is one
of the supporting factors for that scenario.

Gold futures also got a bounce today, as traders moved back into
the defensive product after Wednesday's drop.  The futures still
haven't approached Monday's intraday rally up to 373.7, but they
matched the recent closing high on Tuesday of 370.0 and also beat
close of 369.4.

One of the other factors figuring into today's equity pullback
was the GDP report that showed the economy grew at a meager 0.7%
in the fourth quarter.  While that may not be a big surprise, it
was slightly lower than expectations for growth of 0.9%.  For the
2002 year, the economy grew a total of 2.4%, however, much of
that growth was due to big gains in homebuilding and auto sales.
Both of those factors are due to drop off in 2003, after setting
an unsustainable pace due to record low mortgage rates and 0%
financing deals offered by automakers. Other contributing factors
were an increase in defense spending and government spending,
which contributed 1.3% to the total, as well.  Without those
gains, we would have been in the red and those factors are hardly
representative of underlying economic health.  Business spending
was the biggest drag, falling 5.8% for the biggest decline in 27
years.   Investment in equipment and software dropped 1.8%, while
investment in structures fell a whopping 16.4%.  That 16.4% drop
was the largest since the data stream began in 1929.  The fourth
quarter increase was also a big drop from the third quarter's
rate of 4.0%, indicating a sharp downtrend.

The weak GDP number also underscored the initial claims data that
the government released this morning. For last week, unemployment
claims rose by 14,000 to 397,000.  However, the four-week moving
average declined slightly to 384,000, which would indicate an
improvement in the labor market.  The threshold for the moving
average between a worsening job market and one that is not
worsening is 400,000, although many economists think a number
below 350,000 is needed to suggest improvement.  In any case,
some of the data is skewed by the fact that employment offices
were closed for one day last week for the Martin Luther King, Jr.
holiday.

One of the bigger factors we've been hearing from companies
regarding costs of business in the fourth quarter, and also a
reflection of geo-political concerns, is the cost of fuel.  While
some companies are much more sensitive on these fluctuations
(i.e. airlines, trucking), those fuel costs apply to everything
from transport to fueling manufacturing plants, to heating
factories and offices. They are also passed along to less fuel
dependent customers of the companies that do see the direct
effects.  These costs were also highlighted in yesterday's FOMC
statement, which read, "Oil price premiums and other aspects of
geopolitical risks have reportedly fostered continued restraint
on spending and hiring by businesses."  Crude oil futures once
again rose today to new relative highs, suggesting there will be
little relief until the Iraq situation is resolved on way or
another.

The head and shoulders pattern remains essentially in tact, with
a failed rally below the neckline at Dow 8200, SPX 865 and OEX
438.  The only fly in the ointment is the strong support in the
Nasdaq Composite at 1319. That 1319 support in the COMP held on
the pullback from what would be a left shoulder in November and
has so far held, with a COMP close of 1322 today.  If that level
falls, there is little left to slow the decline.

If we do breakdown below those levels, traders can continue to
lean short, as there are few factors in the market that could
lead to a big rebound.  That doesn't mean we have moved into
lower risk territory, however, as a resolution to the Iraq matter
could still lead to a very big snap back rally. In essence,
traders willing to take on that risk should lean to the short
side, but traders with lower risk portfolios should still be on
the sidelines until we get a war decision behind us.

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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  7945

Moving Averages:
(Simple)

 10-dma: 8268
 50-dma: 8551
200-dma: 8813



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  844

Moving Averages:
(Simple)

 10-dma:  874
 50-dma:  902
200-dma:  935



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  985

Moving Averages:
(Simple)

 10-dma: 1011
 50-dma: 1045
200-dma: 1039



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

The Semiconductor Index (SOX.X):  The SOX gave up its previous
support in a big way today.  After flirting with support at 280,
closing just below before it bounced the last couple of days, it
rolled over, leaving that support level in the rear view mirror.
The SOX appears as though it has formed a classic head and
shoulders pattern and has now decisively broken the neckline.
What's more is that it fell below its November pullback low,
unlike the Nasdaq Composite, which has held that level.  There
was some support at 274.50, as well, but it was minor and the
index has broken below that level as well, although just barely.
There is a definite void in support levels between where we
currently stand and September/October lows in the low 200s (230
and then 211). There is some minor support at 260, but not nearly
as strong as that at 230. The measuring objective of the H&S is
much lower, down around 175, however that would be a very
aggressive target for bears.

52-week High: 657
52-week Low : 214
Current     : 273

Moving Averages:
(Simple)

 21-dma: 308
 50-dma: 320
200-dma: 354


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



The VIX actually failed to react in the same dramatic way it did
on Monday's sell-off.  While we actually traded lower than we did
that day, the VIX barely jumped.  It did add 1.15 on the day,
after bouncing off previous resistance at 35, but the lack of
panic should throw up a red flag to bears.  If the institutions
are either not buying premium - or even selling it on the
bounces, they don't see as much downside in the current move as
would seem to be evident.


CBOE Market Volatility Index (VIX) = 36.23 +1.01
Nasdaq-100 Volatility Index  (VXN) = 46.22 +2.58

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.87        476,129       414,207
Equity Only    0.70        353,102       246,414
OEX            0.84         22,248        18,814
QQQ            1.21         51,440        62,192


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

Bullish Percent Data

           Current   Change   Status
NYSE          45.8    - 1     Bull Correction
NASDAQ-100    48.0    - 2     Bear Confirmed
Dow Indust.   36.7    - 0     Bear Confirmed
S&P 500       47.8    - 2     Bull Correction
S&P 100       45.0    - 1     Bear 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  1.52
10-Day Arms Index  1.54
21-Day Arms Index  1.24
55-Day Arms Index  1.29


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        847          2006
NASDAQ      986          2175

        New Highs      New Lows
NYSE        65               89
NASDAQ      71               84

        Volume (in millions)
NYSE       1,771
NASDAQ     1,412


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

Commitments Of Traders Report: 01/21/02

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 added similar amounts to both sides, ending the
period slightly less short, but not by a significant percentage.
Small traders also added similar amounts to both sides, finishing
the period with an additional 1,000 long contracts overall.

Commercials   Long      Short      Net     % Of OI
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%)
01/21/03      415,028   456,885   (41,857)   (4.8%)

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
12/31/02      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%
01/23/03      148,227    95,356    52,871     21.7%

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 decreased long positions by 1,000 contracts, while
adding almost 5,000 contracts to the short side.  Small traders
added 5,000 contracts to the long side, while reducing shorts by
1,500.


Commercials   Long      Short      Net     % of OI
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%)
01/23/03       37,174     49,789   (12,615) (14.5%)

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
12/31/02       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%
01/23/03       25,852     6,764    19,088    58.5%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials added 1,000 contracts to the long side, while
reducing shorts by 1,400.  Small traders added approximately 600
contracts to both sides, leaving the net virtually unchanged.

Commercials   Long      Short      Net     % of OI
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%
01/23/03       16,901    11,031    5,870      21.0%

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
12/31/02        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%)
01/23/03        5,120     8,282    (3,162)   (23.6%)

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 MANAGER MICROSCOPE
*************************

Maurice & David Schoenwald: New Alternatives Fund (NALFX)

New Alternatives Fund, Inc. (NALFX), managed by Maurice and David
Schoenwald, since its September 1982 inception date, is a mutual
fund that seeks to provide long-term capital growth by investing
in stocks of companies from various industries that are oriented
to a clean environment.  The first environmentally friendly fund
maintains a special interest in Alternative Energy.  Considering
President Bush's $1.2 billion proposal to develop fuel cell and
hydrogen technology for electric vehicles, we thought it would be
appropriate to take a look at this particular fund.

The portfolio managers of the New Alternatives Fund, Maurice and
David Schoenwald, are former local, private practicing attorneys
who took a personal interest in social and environmental matters,
the prospectus reads.   They received financial and consultative
assistance in the founding of the mutual fund from neighbors and
friends.  Since they started the fund on September 3, 1982, they
have continued to seek and receive advice from shareholders.  As
such, the Schoenwalds are both attentive and influenced by their
shareholders' comments.

The New Alternatives Fund, Inc. is located in Melville, New York,
and shows a toll-free number of 800-423-8383.  For more detail or
to D/L the fund prospectus, go to the mutual fund website located
at www.newalternativesfund.com.

Investment Style/Strategy

Like other stock funds, the New Alternatives Fund seeks long-term
capital growth through investment in common stock of companies of
different sizes across a wide range of industries.  However, that
is where the similarities end.  This fund has investment policies
that are materially different from other stock mutual funds.  The
major distinguishing characteristic is that New Alternatives Fund
invests principally in companies, which provide contribution to a
clean and sustainable environment.

The fund also has a special interest in Alternative Energy, which
is described in the prospectus as the production and conservation
of energy by means that reduce pollution and environmental harm,
particularly when compared with conventional coal, oil, or atomic
energy.  The New Alternatives Fund also emphasizes companies with
non-discriminatory practices at all levels of work.

The New Alternatives Fund attempts to invest at least 25 percent
of assets in the securities of companies involved in Alternative
Energy.  Historically there have been a limited number of stocks
in this area to choose from, so the percentage may not always be
achieved, the prospectus reads.  That would likely change if the
U.S. Congress follows through on the President's energy proposal.

The fund prospectus discusses the main risks of investing in the
New Alternatives Fund.  In addition to the common risks of stock
investing, the fund may lag other stock funds if emerging energy
technologies are feasible but not cost effective, if interest in
having a clean environment wanes, or investments in alternative
energy and companies become subject to political priorities and
changing regulation.  Some may argue that's happening right now,
but I would prefer to look at the potential long-term benefit of
the President's alternative energy proposal.

According to Morningstar's report, the New Alternatives Fund has
a small-cap blend style, with 90% of assets invested in the mid-,
small-, and micro-cap sectors.  Small company stocks are usually
more risky (volatile) than large-cap stocks, but offer investors
greater potential return over time.  The Schoenwalds may invest
up to 15% of assets in stocks of foreign companies, but recently
had only a seven percent foreign equity stake.

When suitable stocks cannot be identified, the New Alternatives
Fund may let the fund's cash allocation rise.  According to the
Morningstar report, the fund recently had over 22 percent of its
assets held in cash and equivalents.

Investment Performance




The chart above shows that the New Alternatives Fund's net asset
value (NAV) can experience significant fluctuations, so you must
have high-risk tolerance to invest in this mutual fund.  Because
there have been a limited number of stocks to choose from, total
return performance doesn't compare well to other domestic equity
funds as indicated by the 1-star (lowest) rating per Morningstar.

Relative to its category peer group (i.e. small-cap blend funds),
the New Alternatives Fund has produced below average returns and
high risk overall.  In the last three years, the fund's risk has
been "high" compared to its small-blend category peers according
to Morningstar, and performance has been "hit or miss."  In 2000,
the Schoenwalds banged a home run, returning 51.8% for investors
that year.  But, in 2001 and 2002 they whiffed, losing 12.4% and
29.5%, respectively.  The result, a trailing average annual loss
of 7.8 percent for the trailing 3-year period through January 29,
2003.

It all depends on how you look at it.  While this fund ranked in
the bottom quintile of the Morningstar small-cap blend category,
it has held up better over the past three years than the S&P 500
and Russell 2000 indices.  Over the same trailing 3-year period,
the S&P 500 large-cap index fell by an annual equivalent rate of
13 percent, while the Russell 2000 small-cap index declined 13.2
percent per annum on average.  Still, the fund's long-term total
returns leave something to be desired.  For the trailing 10-year
period through December 31, 2002, the fund has increased by only
3.1 percent a year on average.  That's a high opportunity cost to
pay for environmental responsibility.

Conclusion

Will the New Alternatives Fund ever kick into gear?  That is hard
to say.  It would appear that this fund was maybe 20 years ahead
of its time, with performance suffering because of a lack of good
equity investments to choose from.  Perhaps now would be a better
time to think about "green" investing, but there is really no way
of knowing with certainty today whether environmentally conscious
funds will be able to outpace, or even keep pace with other stock
funds in the future.

President's Bush's proposal may not be approved by Congress, and
traditional sources of energy may continue to dominate the scene.
Whether alternative energy truly takes off remains to be seen and
for that reason, the fund shouldn't represent a significant piece
of an individual's long-term investment plan.  It's probably best
suited to investors who share the same ideals as the Schoenwalds.

For more information, log on to www.newalternativesfund.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
***********************

All in the Timing

Looks like that oversold bounce-relief rally theory was sound.
Today, the selling resumed, although it wasn't a collapse like we
saw on Wednesday morning.


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                  Thursday 01-30-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: APD, CTSH
Daily Results
Call Play Updates: FRX, COF, SYMC
New Calls Plays: None
Put Play Updates: KO, KSS, PNRA, TDS
New Put Plays: CCMP, AT


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

APD $40.51 +0.08 (-0.51 for the week) Under normal circumstances,
we would not be dropping a play that has bounced only slightly
after taking out a significant support level.  APD finally broke
down, trading as low as $39.32 on Wednesday, before bouncing hard
and showing a gain on the day.  It was the second in a row and
Thursday marked its third gain in as many days. More importantly,
APD seems to have once again found support at $40, in spite of a
market that dropped hard today.  We really don't have an answer
for the contrarian nature of the recent behavior here and have
decided to let this one go.   If the stock does break down on
Friday morning below its recent lows, then traders holding puts
can reconsider the drop.  However, as of the time of this
publication, we'd rather not play a stock whose behavior has
bewildered us.

---

CTSH $58.75 +1.75 (+0.91) Somebody forgot to tell our CTSH play
that the market was weak on Thursday, as the stock soared at the
open, briefly trading over the $59 level.  Traders following our
$57.50 stop were likely stopped out of the play shortly after
the open and we're following suit tonight, after the stock
managed to avoid the selling pressure in the rest of the market.
We got a nice ride down after CTSH broke the $60 support level,
but the oversold rebound is underway and it has more strength
than we'd like to see.  Traders still holding open positions will
want to take advantage of any intraday weakness on Friday to exit
the play at more favorable levels.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

COF      31.08   -0.78   1.24   0.38 -0.76 Holding support
FRX      50.94   -0.87   0.37   0.11 –0.47 Filled gap
SYMC     46.38    0.21   1.90   1.07 –0.40 Holding gains


PUTS

APD      40.51   -1.06   0.17   0.05  0.08  Drop, questionable
AT       46.21   -0.21  -0.40   0.10 –1.40  New, 200 dma break
CCMP     44.83   -1.24   1.53   0.57 –2.67  New, Sector weak
CTSH     58.75   -0.02   0.20   0.96  1.75  Drop, stopped
KO       39.20   -0.56  -0.69  -0.55 –1.35  Underperformer
KSS      52.02   -1.00   0.39   0.03 –0.16  Couldn't hold gain
PNRA     29.06   -0.74   0.44   0.71 –2.70  CFO resigns
TDS      41.35   -0.75  -0.08   0.54 –0.99  new closing low


------------------------- 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
********************

FRX  $50.94 -0.47 (-1.07 for the week) On Thursday FRX put a halt
to its recent trend of relative weakness versus the DRG.X
pharmaceutical index.  Shares finished with a loss of less than
one percent, easily outpacing both the Dow Jones and DRG.X.  The
stock traded in positive territory early in the session and moved
well above its 50-dma ($51.46), which had acted as resistance
during the previous two session.  These gains, however, were
erased as the broader market moved lower throughout the day.
Despite the intraday weakness, the daily chart shows that FRX was
able to trace higher highs and higher lows for the second
consecutive session.  The recent reversal in the daily
stochastics (5,3,3) suggests that the stock may have put in a
short-term bottom.  Unfortunately this technical strength might
be rendered moot if the broader market extends today's decline.
If the stock sees further selling on Friday we'll be watching for
the $50.00 to once again act as support.  We would not recommend
taking new entries at this time.

---

COF $31.08 -0.76 (-0.44) Despite a pretty solid rebound in the
broad market on Wednesday, our COF play fell just shy of the
$32.25 level needed to trigger it to active status, with an
intraday high of $32.15.  That lack of strength was also
reflected in the action of the KBW Banking index (BKX.X), as
it was unable to reclaim the $750 level, finding intraday
resistance just below there and then setting up today's more
than 2% slide.  COF pulled back as well on Thursday, coming to
rest near $31 and just above the ascending trendline, now at
$30.50.  Geopolitical concerns are still in the forefront of
traders' minds, and without some upside conviction in the broad
market and Banking sector, COF is likely to break under its
trendline.  We're still keeping our trigger in place, to
prevent entering the play before the market confirms the wisdom
in doing so.  After entry, we'll set initial stops at $29.25.

---

SYMC $46.38 -0.40 (+2.47) Despite the weakness in the broad
market, our SYMC is holding up rather well.  Following the
rebound from the $43.50 level earlier in the week, the stock
extended its gains on Wednesday, reaching an intraday high of
$47.  Unfortunately, the broad market couldn't hold it together
on Thursday, and the stock slid fractionally in the afternoon,
but did manage to stay above the $46 level.  Recall that $46 was
the top of the gap left behind last Friday, and we're looking for
it to provide support for the next leg higher.  Of course, that
is going to be a tough feat to accomplish if the NASDAQ is unable
to find support near its closing lows today.  Traders looking
for new entry points into the play will want to see how the
stock behaves at that $46 level and more importantly near $45.40
(the bottom of last Friday's gap and now the site of the 20-dma).
Another successful rebound from above $45 like we saw on
Wednesday looks favorable for new entries.  We're raising our
stop to $44 tonight, which is just below the ascending trendline
that has been providing support since early October.


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

None


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

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


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

KO $39.20  -1.35 (-3.63 for the week) It seems we write the same
update each day on KO.  The stock under-performed the market,
even on a day when the Dow lost 165 points.  While the Dow
dropped 2%, KO lost 3.3%, falling through the $40 support level
that held it on Wednesday. Ever since breaking to a new six-year
low, it has been a straight shot down for the beverage maker and
so far shows no reason to expect that drop to stop.  Of course,
we'd be short sighted to think there will not be a bounce at some
point. Now that the stock has lost ground nine straight days,
losing 14% since January 16, traders can expect KO to at least
make up some of that ground as investors looking for a deal come
calling.  We are going to tighten up the stop, rather than give
back a gain and set our exit at $41.55.  That would be just above
Wednesday's high and lock in a small gain in case we do get an
oversold bounce.  More conservative traders can use a tighter
stop above today's high of $40.77. However, with the stock
closing on its low of the day, it does not appear that those
bottom feeders have materialized just yet and a failed rally at
$40 may be an entry point for aggressive traders. The stock can
actually rebound all the way up to $43 before reversing the
current PnF sell signal and the most aggressive put holders could
even allow for a failed rally to that level to add to the
position.  However, we are not quite that aggressive and would
rather lock in the move in our favor.

---

KSS $52.02 -0.16 (-1.73) Yesterday's broad market rebound managed
to drag the Retail index (RLX.X) back above the $255 level, but
the lack of follow-through this morning had the sellers back in
force.  The index fell back to the $250 level by the close, and
any hope for a quick rebound was significantly dampened by the
close.  Our KSS play has been following along with the sector,
and after a failed move higher at the open, the stock weakened
right up to the closing bell, ending at a new closing low for
this move.  While the $52.50 lows from early in January have
decisively given way, it is somewhat puzzling that there hasn't
been any follow-through to the downside.  With the stock holding
near recent lows, a breakdown is certainly a possibility, but so
is a short-covering rally in this highly charged geopolitical
environment.  Failed rallies below resistance, such as was the
case this morning are the best approach to gaming new entries,
although more aggressive traders may want to target a breakdown
under $51.50 for a quick run to the $49-50 level.  As KSS
continues to work lower, we'll continue to ratchet our stop
downwards.  Tonight, we're lowering it to $54, just above the
intraday highs, and the site of the 10-dma (currently $54.05,
but dropping below $54 by tomorrow).

---

PNRA $29.06 -2.70 (-2.49) Now that's what we wanted to see.  PNRA
gapped sharply lower this morning following the company's
announcement that the CFO would be leaving the company at the
end of March.  Immediately reversing yesterday's rally, the stock
fell under $30 at the open, attempted a weak rebound, which
failed near $30.40 (the site of Monday's intraday lows) and
then proceeded lower throughout the day.  With the broad market
selloff picking up steam through the afternoon, PNRA proceeded
to violate $29 support, adding another O on the PnF chart and
extending the vertical count to $20.  The next support of
significance is found at $28, but with the heavy selling volume
today, it appears the real target is the PnF bullish support
line at $26.  This is also important support from , and more
conservative traders will want to harvest gains if that level
is reached.  A failed rebound below today's highs can be used
for opening new positions, while more aggressive traders can
consider adding to open positions as PNRA declines under
today's intraday low of $28.75.  We're lowering our stop to
$30.55 tonight, just above the intraday highs.

---

TDS $41.35 -0.99 (-1.40) Despite the weakness in the broad market
on Thursday, shares of TDS held firm for most of the day,
vacillating around the $42 level near where they came to rest
following Wednesday's oversold bounce.  But as the market
continued to weaken, the bears were emboldened, driving the stock
back down below the $41.50 level at the close to post another
multi-year closing low.  Highlighting just how weak TDS is, it
hasn't even been able to challenge its declining 10-dma ($43.54)
all week and appears destined to challenge the $40 level in the
near term.  The pattern of weakness continued in the XTC index
as well, with the index finally closing below its declining
200-dma (currently $434.61).  With nothing but weakness evident
in the both TDS and the XTC index, the stock seems destined for
lower levels, but in this highly charged political environment,
we need to be on the lookout for an oversold bounce.  If such a
bounce occurs and fails below the 10-dma, that will make for
our next high odds entry point.  Entries on breakdowns are less
favorable due to all the historical support in the $38-40 area
from 1997-1998.  Those willing to take the additional risk will
still want to use a drop below $41.25 as their entry trigger.
Lower stops to $43.75, just above the 10-dma and Tuesday's
intraday high.


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

CCMP - Cabot Microelectronics - 44.83 -2.67 (-1.77 for the week)

Company Description:
Cabot Microelectronics, headquartered in Aurora, Illinois, USA,
is the world leader in the development and supply of high-
performance polishing slurries used for chemical mechanical
planarization (CMP), a process that enables the manufacture of
the most advanced integrated circuit (IC) devices and hard disk
drive components. (source: company press release)

Why We Like It:
The entire chip equipment group was dealt a severe blow earlier
this month when Intel announced that capex spending in 2003 would
be much lower than analysts had expected.  The implicit reduction
in demand for companies engaged in the semiconductor
manufacturing process did not sit well with investors.  A sell-
off within the sub-sector immediately took hold, leading to large
losses in stock such as AMAT, KLAC, and NVLS.  CCMP doesn't have
the same high profile on Wall Street, but was nonetheless
subjected to heavy selling pressure.  Shares moved sharply lower
from the $55.00 area before finally bottoming out near $44.75
less than a week later.  Subsequent rally attempts were turned
back at $48.00, which has emerged as reliable short-term
resistance.  While that's enough to frustrate the bulls, today's
action was downright foreboding.

CCMP trended lower for the entire session and plummeted to levels
not seen since October.  These losses stemmed from a steep sell-
off in the semiconductor index, which posted a 5.8% decline.  The
SOX.X has fallen to multi-month lows and does not have any clear
support until the 220-230 region.  Minor support at 245 and 260
might be rendered obsolete if the overall market continues to
decline at a rapid pace.  Point-and-figure enthusiasts will also
be interested to note that the index will give a double-bottom
sell signal if it reaches 272.  This sector weakness does not
bode well for shareholders of CCMP.  Much like the SOX.X, Cabot
is sitting well above its next of solid support.  How far could
the stock fall?  The daily chart shows a fast-move region all the
way down to the October lows at $32.50.  We're going to be a bit
more conservative in targeting a decline to the $35.00 area.
However, we won't hesitate to close the play if shares rebound
from psychological support at $40.00.  Our action point to enter
this hypothetical trade is set at $44.69, two cents under today's
low.  If the play is activated our stop will be set at $48.01,
above the aforementioned short-term resistance.  Traders looking
for less upside risk could use a stop slightly above the 200-dma
at $45.84.

BUY PUT FEB-50*UKR-NJ OI=1400 at $6.00 SL=3.00
BUY PUT MAR-45 UKR-OI OI= 186 at $4.20 SL=2.10

Average Daily Volume = 1.04 mil


---

AT - Alltel Corporation $46.20 -1.40 (-1.46 this week)

Company Summary:
Alltel is a customer-focused technology company that provides
communications and information services.  The company's
communications operations consist of its wireless, wireline and
emerging business segments.  AT also sells telecommunications
products and publishes telephone directories.  The company owns
a majority interest in wireless operations in 69 Metropolitan
Statistical Areas, and a majority interest in 132 Regional
Service Areas.  Long-distance services are provided on both a
facilities-based and resale basis by the company's subsidiaries.

Why We Like It:
In an economic environment that continues to show a lack of
business spending, as well as a consumer sector that is starting
to fray around the edges, investors have reverted to a mode of
selling first and asking questions later.  Even posting solid
earnings isn't enough to avoid the selling frenzy, as we have
seen on numerous occasions over the past couple weeks.  AT is a
perfect example, as the company beat earnings estimates yesterday
morning, which was met by a collective yawn from investors.  On
a day that the broad market managed to stage an impressive
rebound, the stock posted a fractional loss, ending just above
the 200-dma ($47.45).  And it's not as though the stock had a
bullish move heading into earnings, as it was already down from
$56 in early January.  Yesterday the company announced that it
would be selling its finance unit for $1.1 billion in an effort
to focus more directly on expanding its wireless business into
other areas.  One of those expansion areas became clear today,
when the company announced that it will be offering a new prepaid
wireless service, available at Wal-Mart stores nationwide.
Investors were again unimpressed, or perhaps it was just the
broad market weakness.  But whatever the cause, AT had a bad day
on Thursday, crashing through the 200-dma and losing nearly 3%
on volume 50% above the ADV.  The PnF chart was already on a
Sell signal, and today's action just extended the current column
of O's and dropping the bearish price target to $37.  AT isn't
like to move that low without a couple of bumps along the way,
but it does appear that down is the direction of least resistance
for now.  After consolidating on the 200-dma for the first three
days of the week and then breaking below it, that level is likely
to provide solid resistance on any rebound attempt.  A failed
rally in the $47.50-48.00 area should provide for a solid entry
into the play, as would a breakdown under $46.  We do need to be
careful about chasing the stock lower at this point though, with
the PnF bullish support line at $45 and historical support near
$44.  That area is likely to produce at least a temporary bounce,
which will give us that entry when it fails.  Place stops
initially at $48.60, just above this week's intraday highs.

BUY PUT FEB-50*AT-NJ OI=1994 at $4.70 SL=2.75
BUY PUT FEB-45 AT-NI OI=  81 at $1.40 SL=0.75

Average Daily Volume = 1.25 mln



------------------------- 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
The Option Investor Newsletter                  Thursday 01-30-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - CCMP
Traders Corner: Who’s Been Spiking My Diet Pepsi?
Futures Corner: Developing a Bias
Options 101: Real Estate 2003 - Boon or Bubble?

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

CCMP - Cabot Microelectronics - 44.83 -2.67 (-1.77 for the week)

Company Description:
Cabot Microelectronics, headquartered in Aurora, Illinois, USA,
is the world leader in the development and supply of high-
performance polishing slurries used for chemical mechanical
planarization (CMP), a process that enables the manufacture of
the most advanced integrated circuit (IC) devices and hard disk
drive components. (source: company press release)

Why We Like It:
The entire chip equipment group was dealt a severe blow earlier
this month when Intel announced that capex spending in 2003 would
be much lower than analysts had expected.  The implicit reduction
in demand for companies engaged in the semiconductor
manufacturing process did not sit well with investors.  A sell-
off within the sub-sector immediately took hold, leading to large
losses in stock such as AMAT, KLAC, and NVLS.  CCMP doesn't have
the same high profile on Wall Street, but was nonetheless
subjected to heavy selling pressure.  Shares moved sharply lower
from the $55.00 area before finally bottoming out near $44.75
less than a week later.  Subsequent rally attempts were turned
back at $48.00, which has emerged as reliable short-term
resistance.  While that's enough to frustrate the bulls, today's
action was downright foreboding.

CCMP trended lower for the entire session and plummeted to levels
not seen since October.  These losses stemmed from a steep sell-
off in the semiconductor index, which posted a 5.8% decline.  The
SOX.X has fallen to multi-month lows and does not have any clear
support until the 220-230 region.  Minor support at 245 and 260
might be rendered obsolete if the overall market continues to
decline at a rapid pace.  Point-and-figure enthusiasts will also
be interested to note that the index will give a double-bottom
sell signal if it reaches 272.  This sector weakness does not
bode well for shareholders of CCMP.  Much like the SOX.X, Cabot
is sitting well above its next of solid support.  How far could
the stock fall?  The daily chart shows a fast-move region all the
way down to the October lows at $32.50.  We're going to be a bit
more conservative in targeting a decline to the $35.00 area.
However, we won't hesitate to close the play if shares rebound
from psychological support at $40.00.  Our action point to enter
this hypothetical trade is set at $44.69, two cents under today's
low.  If the play is activated our stop will be set at $48.01,
above the aforementioned short-term resistance.  Traders looking
for less upside risk could use a stop slightly above the 200-dma
at $45.84.

BUY PUT FEB-50*UKR-NJ OI=1400 at $6.00 SL=3.00
BUY PUT MAR-45 UKR-OI OI= 186 at $4.20 SL=2.10

Average Daily Volume = 1.04 mil



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

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


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

Who’s Been Spiking My Diet Pepsi?
By Mike Parnos, Investing With Attitude

I think all those years of playing football without a helmet are
coming back to haunt me – or someone is making my pizzas with soy
products.  Well, it’s affecting my trading – or at least my
writing.

Another OOPS!  Sorry about that.  I’ve become a victim -- like a
pod from the “Invasion of the Body Snatchers.”  Except it’s not
my body they’re after (a trophy though it would be).  It’s my
mind.  It’s a conspiracy that’s being organized by alien beings –
or market makers – who are threatened by our trading methods and
strategies.

In the new MMM Iron Condor trade posted last Sunday, it should
have read:
Sell 10 contracts of the MMM Feb. $120 puts (MMMND) @ $1.15
Buy 10 contracts of the MMM Feb. $115 puts (MMMNC)  @ $.60

Sell 10 contracts of the MMM Feb. $130 calls (MMMBF) @ $1.45
Buy 10 contracts of the MMM Feb. $135 calls (MMMBG) @ $.40

As of last Friday, the credit for our bull put spread was $.55
and for the bear call spread was $1.05. Total credit (and
potential profit) for the position was $1.60. Risk was $3.40
($5.00 - $1.60). Total margin requirement was $10,000 ($5,000 for
each credit spread). The maximum profit potential, for a 10-
contract position was $1,600.
_____________________________________________________________

Successful Entries
Both BBH and MMM offered numerous opportunities to enter the
respective condor positions at, or near, the projected credits.
MMM even had numerous opportunities on Monday to get a credit of
$1.70 instead of $1.60.
______________________________________________________________

CPTI PORTFOLIO POSITION UPDATE
Position #1: BBB Iron Condor – Closed Thursday at $88.65.
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The collected premium will come
into your account the very next business day.  The objective is
for the underlying, at expiration, to finish anywhere within the
$85-$95 range.

Position #2: MMM Iron Condor – Closed Thursday at $123.91.
The support at $120 once again seems strong, as does the
resistance at $130. Enough.  That should give MMM enough room (10
points) to bounce around for the next four weeks.

Position #3: SMH Straddle – Closed Thursday at $21.72.
We bought the SMH May $22.50 puts and calls and spent $5,850 on
10 contracts. But, since we’re going to stay in this position
only for the February option cycle (5 weeks), we’ll only be
risking about $.85 ($850).   We’re looking for a big move for the
semiconductors and we don’t care which way.

Position #4: QQQ ITM Strangle – Closed Thursday at $24.54.
This is a long-term position to generate a monthly cash flow.  We
own the January 2005 $21 LEAPS call and the January 2005 $29
LEAPS puts.  We’ve sold the February $29 calls and February $21
puts.
____________________________________________________________

Interesting Alternative Trades
For CPTI Students who missed the above trades and new readers to
this column, here are a few ideas that look enticing.  These are
for traders who are a bit more conservative -- and patient.

XAU Condor – Closed Thursday at $78.28
Sell March XAU $70 put & Buy March XAU $65 put for a credit of
$.95.
Sell March XAU $90 call & Buy March XAU $95 call for a credit of
$.45.
The total credit is $1.40.  To get this credit will require you
placing the orders as “spread” orders – taking advantage of the
fact that XAU trades only on the PHLX (Philadelphia Exchange).
If you come within $.20 of the $1.40, it’s still a good trade
with a huge 20-point range for seven weeks.

MMM Condor – closed Thursday at $123.91
Sell March MMM $115 put & Buy March MMM $110 put for a credit of
$.70.
Sell March MMM $135 call & Buy March MMM $140 call for a credit
of $.50.
The total credit is $1.20.  Since MMM is traded on multiple
exchanges, you may be better off legging into the spread if you
have online directional trading capabilities.  If you come within
$.10 of the $1.20, it’s still a good trade with a huge 20-point
range for seven weeks.

QQQ 2 Month Baby ITM Strangle – closed Thursday at $24.54
Buy March QQQ $26 puts & Buy March QQQ $24 calls for total debit
of $4.20.  There is $2 of intrinsic value and only $2.20 of risk.
We’re looking for a 3-4 point move in the QQQs.  After the move,
we want the successful long option to pay for both options.  Then
we’re left with a “free” long option and waiting for the market
to reverse. (see question below).
______________________________________________________________

ITM Baby Strangle Question
We don’t have our patented ITM two-month Strangle Position in
place this month.  However, many CPTI students, who have done
exceptionally well with the strategy in the past, have
established positions on their own.  Below is a question that all
CPTI students can learn from:

Hi Mike,
I have followed your column for many months and have learned a
lot about different option strategies that I am slowly using in
my portfolio of trades.

Last week I put on a QQQ ITM Strangle because I like that results
from past months even though it was not a featured CPTI play for
the month. QQQ closed at 25.27 on 1/17. On 1/22 I bought 10 March
24 Calls for 2.50 and 10 March 27 Puts for 2.55. Total cost
5,005 with risk of $2,005. I used the March 27 Puts instead of
the March 26 Puts because the time value was less, the delta was
higher and the total risk was less ($2005 vs. $2400).

My questions are:
Even though it has only been a week, I am thinking of selling the
Mar 27 Puts near $3.00 since there has been a retracement of 80%
since the recent high on 1/13 and the daily stochastics are
showing oversold and have turned up and given a possible buy
signal. Does this make sense?

If I sell the put side, should I buy another put in case the
QQQ's continue down and would it be the March $26 or April $26 or
$27? I am not sure if I should be without a put or should I
establish new puts and calls. If I sell the put at $3.00 I make
$.45 on the put but it does not come close to making the calls
free.

I am thinking of almost continuous playing of the QQQ's to create
a stream of income, but don't know about the time frames and
rolling just one side or always buying both.

Response,
By establishing the position with a 3-point spread, it makes the
QQQs have to go that much further (a larger move) to end up with
the opposite long option be “free.”  And then, it's also further
for the QQQs to reverse to give value to the "free" long position
that you have left.

You could sell the March 27 put at $2.80 and buy the Mar. $26 put
at $2.20.  That way you take some money off the table ($.60) and
you've established the 2-point spread for which the strategy was
intended.

If the QQQs reverse and move up a few points, you could then sell
the $24 calls, take some more money off the table, and buy the
$26 calls.  That would mean you have a straddle of the March $26
puts and calls.  You would no longer have any intrinsic value in
the position and it would be all time value – and it would all be
at risk.

If you go without owning a put, you're essentially picking a
direction -- which, as you know, is precarious at best.

For my purposes, this is much too much wheeling and dealing.
We’ve spent months trying to establish strategies that take a
minimum of adjustments.  This kind of trading is contrary to CPTI
objectives.
______________________________________________________________

Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be
prepared! In trading, as in life, it's not the cards we're dealt.
It's how we play them.

Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor


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

Developing a Bias
By John Seckinger
jseckinger@OptionInvestor.com

When trading levels, removing an intermediate-term bias is
sometimes the result.  However, it should not happen, and there
are certainly ways to keep a long-term perspective intact.

With so many uncertainties in the marketplace (Geopolitical,
economic, etc.), the "buy-and-hold" or "sell-and-hold" strategies
is put on the backburner when volatilities runs rampant and
market pundits seem to change their minds on a daily basis.  More
importantly, the equity markets rise and fall dramatically and
seem to be trading outside the basis "noise range".  So, how can
a trader get a bias and know when it makes sense to sell support
and buy resistance?

Using Q-charts, I went as far back as possible and was actually
able to grab a significant low from October 1990.  By anchoring
the retracement at this 294.51 area, it is very interesting how a
50% retracement comes in at 923.69.  More amazing is the fact
that the 61.8% level was recently tested and did seem to be still
psychologically significant (775).  With that said, since the SPX
is UNDER the 50% area, my bias is BEARISH until proved wrong.
Even without using retracement analysis, the recent channel
certainly looks bearish, so I think this is a good start.  Let us
now try to find some more practical levels that will CONFIRM this
bearish bias.

Chart of the SPX, Monthly




The next timeframe is a weekly chart of the SPX, and the contract
is currently just underneath the mid-point of the bearish
regression channel.  The 50% area of the recent move lower is
1160, so risk is still lower; moreover, look how the 19.1%
retracement area of 918.42 matches up well with the just-
mentioned 923.69 level.  Support is seen below at 768.63 to
775.20.  Since this is a large range, a trader can take 50% of
the range (923.69 to 768.63), getting a level of 846.16.  The SPX
closed on Thursday at 844.61.  Therefore, this further confirms
our BEARISH bias and should have a trader ONLY thinking of
selling (remember, this does not include scalpers).  Now let us
take things to one more level and how these "zones" can be
applied.

Chart of SPX, Weekly




Looking at a daily chart below, I have decided to do a
retracement within the two recent 'waves'.  I could have used
only the last one, but I wanted to use both in order to get some
"small zones" that can be especially helpful to traders.  From
the above discussion, we want to see if we can add the 846.16
level to one of these small zones below.  Yes, it can be added
(see "zone" from 839.55 to 848).  Ok, here are the zones to be
written down:  861 to 871; 839 to 848; 804 to 812; 769 to 776.
Remember, a trader is ONLY thinking how to profit on LOWER
PRICES.  Since the close was within one of these ranges, a trader
can do one of two things.  Either (a) sell within the zone and
put a stop ABOVE the top of the band (above 848), or (b) sell as
the LOWER band (Example: 839) is broken and then put a stop ABOVE
the top of the band (above 848).  The objective should be the TOP
of the band below (example would be just above 812).  A trader
could then SELL UNDER 804 and look for a move to the 776 level.
If the market moves higher, say to the zone of 861 to 871, a
trader (who is ONLY BEARISH, since that is our bias) can either
wait until 871 is hit and then SELL UNDER 861, or sell somewhere
from 861 to 871 and then put a stop ABOVE 871.

Chart of SPX, Daily




Now let us compare the above charts to monthly and weekly pivot
analysis, in order to see if something else lines up.

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

Contract        S2         S1        Pivot       R1         R2

SPX           816.35     848.08     901.18     932.91     986.01

Weekly Levels

Contract         S2        S1        Pivot        R1         R2

SPX            829.41    845.40     875.70     891.69     921.99

When comparing the above areas to the charts before, how can that
help an intermediate bearish trader?  The weekly R2 is at 921.99
and close to the 50% monthly retracement area of 923.69.  The
weekly chart showed a resistance "zone" from 918.42 to 923.69,
and this weekly R2 level falls in this area.  The lowest level
achieved from the pivot analysis is 816.35.  This area should be
watched, but doesn't fall in the zone from 804 to 811 as listed
in the daily chart.  Remember, this level will be changed when
January is finished.  Using January levels as if the month was
over (using a close of 849.52 - seen during trading on Thursday),
we would see the following:

Monthly Levels (January's HLC - as of 1 p.m. Thursday)

Contract        S2         S1        Pivot       R1         R2

SPX           785.47     817.49     876.27     908.29     967.07

With the SPX well underneath the potential February 876.27 pivot,
it only adds to our bearishness.  Unfortunately, neither S1 nor
S2 falls inside the daily "zones"; however, we can use February's
potential S1 of 817.49 and January's S2 of 816.35 and call this a
"potential zone."  A more aggressive trader can add this zone to
the ones above; however, it is aggressive and I don't want to
micro-manage this article too much.

Here is the BIG question.  When do we turn Bullish?  Neutral to
slightly bullish will happen if we CLOSE above 923.69.  It did
happen before, and was a trap; however, bulls didn't take much
heat AND got bearish as 923.69 failed to act as support.
Speaking of a Bullish point-of-view, a trader could conceivably
BUY the contract as the TOP of one of the aforementioned zones
and look for a test of the zone above (with a stop below the
bottom of the zone); however, that is trading against least
resistance and is much more short-term in nature.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


***********
OPTIONS 101
***********

Real Estate 2003 - Boon or Bubble?
Buzz Lynn
buzz@OptionInvestor.com

I am all jacked up today because I get to talk about a subject
near and dear to Fundamentals Guy's heart - real estate!
Candidly, I don't know how real estate is going to do this year.
And I'm not even sure that a calendar year is an appropriate
measure of time when talking about real estate due to its general
lack of liquidity (except for REITS, which trade like stocks on an
exchange).  But let me lay out some of the critical factors that
are going to determine the bigger picture for this sector going
forward.

Veteran readers already know this, but for those subscribers
recently joining the OIN community, Fundamentals Guy (me) was a
commercial real estate broker for 17 years in a former life.  As a
commercial broker, life centered on discovering - perhaps
uncovering - the fundamental profit-earning abilities of nearly
any kind of business under the sun.  The reason for the
fundamental research was that in order for a tenant to pay rent,
there had to be profits to pay the rent after the cost of goods
was subtracted from revenues.  Can't make a profit?  Can't pay
rent.  I discovered then that selling custom made sandwiches in
volume was likely a better business proposition, and thus a better
rent risk for the property owner than, say, a Cabbage Patch Doll
adoption agency.  (No joke - somebody actually thought that was a
great idea for a sustainable business.)

Of course, there are not-so-subtle nuances that can get the rent
paid but still not afford the business a profit.  This works
because real estate, at least commercial real estate, is for the
most part required to produce income.  Manufacturers need a place
to build; sales people need a place to office; travel agents
generally need an office in order to serve the public;
neighborhoods need grocery stores (as a matter of extreme
convenience) lest we go hungry.

The point is that in order to operate a business, real estate
rents or mortgage loans need to be paid to keep the doors open.
Uncomfortable as it is, reality dictates that companies are most
likely to lay off staff and default on other obligations before
they default on the leases or loans.  When the going gets tough,
I'd rather be the landlord than the creditor office supply
salesman or vending machine attendee.  The latter are extras.
Real estate is generally not.

From that, we can conclude that real estate loans and lease
payments are more likely to be paid back first, which makes them
more akin in pecking order to bond payments than equity dividends.
Dividends are paid from the profits; rent and mortgage are paid
from revenues - much higher up the food chain in terms of security
of payback.  That’s why dividends from a REIT are so much more
appealing than dividends from widget manufacturers.  Payback is
more certain.  While business struggle harder for profits every
day, I'm not as worried for the landlords as I am for
shareholders.  While corporate defaults may rise in coming months
or years, there is an added measure of insulation to the real
estate investor.

Of course, I've only mentioned commercial property here, which is
a bit more insulated, though not immune, from severe economic
difficulty.

For instance, if deflation turns out, in fact, to be a major
menace - and that is a real and likely possibility (see Options
101, January 16th, 2003

http://members.OptionInvestor.com/options101/opt_011603_1.asp ),

rents could begin to fall too.  That would spell bad news.
However, while I see business struggling for profits, the mistakes
made by builders and developers in the 1980's and early-1990's
seem well remembered by anybody who can spell F-S-L-I-C, or R-T-C.
And thus, despite the seemingly "free money from God" available
for commercial real estate loans, lenders have remained fairly
prudent in their underwriting criteria for commercial property.
To my way of thinking, there is not an overbuilt supply of space,
but rather the likelihood of predictably declining demand.

In short, I do not believe there is a commercial real estate
bubble, thus no ability to "pop".  But that does not mean that the
market can't see some serious setbacks if business remains in
decline, as I expect it will.  However, I would suggest any
decline will not be sudden, unforeseen, unpredictable, or without
plenty of warning.

In any case, "severity" will likely be gradual, measured, and
plainly visible, especially to "incubator space" primarily used by
mom and pop, or otherwise small business.  It's dicey on the
multi-tenant small spaces and less risky on the larger commercial
spaces leased or owned by larger corporate tenants who rely on
Dunn and Bradstreet not to trash their debt ratings.  But that's
the way it's always been.

Residential real estate is a whole 'nother matter.  That's where
the bubble is big and still expanding.  What makes it different?
A not-so-coincidental coziness between publicly-traded national
home builders and Wall street money men that encourage the
speculative building, plus the easy-money credit policies enabled
and encouraged by a Federal Reserve determined to inflate the
economy with home mortgage money intended to be spent by the ever
increasingly debt-ridden U.S. consumer.  Remember the case for
inflation?

http://members.OptionInvestor.com/options101/opt_012303_1.asp

The consumer is the last, great hope to save the U.S. economy from
deflation through spending home equity money as fast as it can be
inflated and borrowed against.  The Fed is enabling Americans to
borrow themselves rich with the hope that they will spend that
equity created from nowhere on trinkets, doo-dads, material
possessions, along with other goods and services in order to keep
the rest of us and our neighbors employed and spending our brains
out.  The downside is that debt has to be paid back, which becomes
increasingly more difficult as jobs are lost to a slowing economy.

I'll say it again, "We cannot borrow ourselves rich".  Just like a
game of musical chairs, one day the music will stop.  It always
does.  The consequence is that as borrowing slows to a trickle,
spending slows to a trickle.  As spending slows to a trickle,
goods and services remain "on the shelf", which reduce sales,
which further reduce profits, which enable a new round of layoffs.
And the process repeats itself.

Unfortunately, Americans have exhibited increasingly worse saving
habits over the last 40 years to the point that the U.S. savings
rate is a mere 2% +/-.  Should deflation take an even bigger grip
on the economy, which would spell bad news, as a greater
percentage of an already deflating take-home pay would be required
to service the constant debt.

Just imagine our income shrinking 3% per year.  Eventually our
income would approach zero.  Meanwhile, say our mortgage debt has
remained flat at $300,000 because we are struggling to make
"interest-only" payments.  Connecting the dots (and taking this to
a literally logical, though improbable conclusion), we are
gradually going to reduce our income to a point where it exactly
equals our interest payments, then decreases more next year.
Voila' - debt we can no longer pay off because our income shrunk.

Dire and wacky?  Consider the following as relayed by The Daily
Reckoning:

"Since the '60s, the consumer has added to his debts...first,
cautiously in the '70s...and then recklessly in the in '90s.
While GDP rose 283% during this period, consumer debt shot up much
faster - by 473%."

Here's more fresh meat from a recent Barron's article.  "If the
U.S. debt bomb ever explodes, the detonator probably will be the
residential mortgage market," asserts Barron's Jonathan R. Laing.
"Home prices have nearly double the impact on consumer spending
than does the 'wealth effect' from rising or falling stock prices.
And home prices have been on a tear, rising nearly 50% nationwide
over the past six years.  Consumers have tapped this surging
equity value through wave after wave of cash-out mortgage
refinancings, transforming homes into ATMs."

"If the housing bubble bursts, instead of gently deflating, the
nation's economy could be in for a major meltdown," Laing
concludes.  "In essence, then, the American home is a bulwark for
the economy.  As long as housing values stay high, the nation is
sheltered from a detonation of the debt bomb."  That is the one
thing the Fed is counting on to happen (with it's breath held and
fingers crossed).

Also note, "Gary Shilling [money manger and well-noted Forbes
Magazine Columnist] calculates that 39% of U.S. homes are owned
free and clear," writes Laing, "and that the remaining homeowners
have debt burdens exceeding 80% of the value of their homes.  In
other words, many Americans have little margin of safety should
home prices level off or should they fall as much as 20%, as they
did in many overheated areas in the late Eighties."

But wait, there's more from Doug Noland, a financial strategist
for the Prudent Bear Fund.  He notes in a Daily Reckoning Column
today of a recent Dallas Morning News headline: "Home Foreclosures
are Casualties of Economy".  Writer Steve Brown comments: "A bleak
economy hit home in North Texas last year, putting thousands in
danger of losing their homes.  The number of homeowners threatened
with foreclosure in Dallas County jumped 32%.  And in Collin
County - which has been ravaged by layoffs in the high-tech and
telecom sectors - home foreclosure postings soared by 73% in
2002...January foreclosure postings for Dallas County were up 43%
from January 2002.  And in Collin County, foreclosure postings for
the month were up a staggering 94%."

My take isn't so much that there is a real estate bubble.  It's
that there's a mortgage bubble, which is still attracting the U.S.
"borrow and spend" consumer.  When will that end?  Hard to say
whether it is 2003 or later.  I just don't know.  But I do know
this.  It WILL end.  It always does.  But by then, maybe we'll
have a new bubble to jump on that will keep us afloat for another
few-year period until it pops too.  We can dream irresponsibly,
can't we?

Just like an aircraft whose engines have slowed the otherwise
capable bird to nearly a stall - with stall warning horns a-
blazing - she'll still fly.  But once stalled, recovery is
difficult at best, and sometimes not possible.  Planes don't
function well without a smooth flow of air over the wings to
produce lift.  Neither do economies without a reliable source of
REAL money and a stone-carved reliable monetary policy.  The
affect is the same.  Walking away unscathed is seldom possible.

Now, lest you think I'm predicting a mighty crash, I'm not.  In
fact, there are some signs that a major mortgage bubble
catastrophe could be largely averted.  The biggest indicator is
that the inflation-adjusted bond market is telling us that
inflation is picking up ever-so-slightly.  The bond market never
lies and can smell inflation light years ahead on the horizon.  In
2002, the TIP rate was telling us that inflation had been reduced
to just 1.47 percent.  But recently, that spread has jumped to
reflect anticipation of 1.83 percent - a slight increase, but the
bond market doesn't lie, and it sees some inflation on the
horizon.

If inflation is to re-assert itself, even ever-so-slightly, it may
have the effect of holding home prices steady if not increasing
slightly rather than declining in popped-bubble style.  That's not
to say that the Fed will win the "Inflate of Die",
inflation/deflation war.  But there are signs that the electronic
printing press so favored by Federal Bankers may be marginally
inflating the U.S. economy out of deflation.

While I do not profess to know what will ultimately come to pass
for the real estate market.  I am well aware that deflation will
hurt the real estate/mortgage spending market badly, and thus the
economy.  So will inflation hurt the economy, but housing may be
spared the deflationary death sentence.

But there is, in my opinion, a safer way to insure our financial
futures and protect ourselves against either inflationary or
deflationary scenarios.  It's an insurance policy, which, in a
bear market is a good thing since nobody makes money consistently
in a bear market.  In most laymen's' instances, bear markets are
not about what you make, but how much you don't lose.  Hmmm - ugly
thought.  Mr. Rogers asks, "Can you say 'gold', boys and girls?
Sure, I knew you could."

We'll visit Mr. Rogers' neighborhood next week!  Until then, make
a great weekend for yourselves!

Buzz


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

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


**********
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