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Daily Newsletter, Monday, 02/03/2003

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The Option Investor Newsletter                   Monday 02-03-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Going Nowhere Fast
Futures Wrap: Green, but not Golden
Index Trader Wrap: Gains hold, despite fade into the close
Weekly Fund Wrap: Rollercoaster
Traders Corner: The Next Rally

Updated on the site tonight:
Swing Trader Game Plan: Same Old, Same Old

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
02-0-2003                   High    Low     Volume Advance/Decl
DJIA     8109.82 +  56.01  8152.08 8053.74   1446 mln  766/662
NASDAQ   1323.79 +  2.88   1335.76 1318.00   1215 mln  652/534
S&P 100   435.70 +  3.13    437.92  432.57   totals   1418/1196
S&P 500   860.32 +  4.62    864.64  855.70
RUS 2000  370.25 -  1.92    373.73  369.86
DJ TRANS 2157.49 -  15.86  2183.22 2150.75
VIX        33.98 -   1.80    35.65   33.85
VIXN       46.04 -   0.77    48.21   45.85
Put/Call Ratio 0.84
*******************************************************************

Going Nowhere Fast
by Steven Price

We saw quite a wild week last week, with big intraday moves over 
the past few sessions, plenty of Iraq posturing and a slew of 
earnings reports. Monday was no exception, with an intraday range 
in the Dow of 100 points. However, in the end, we are just about 
where we started out last week.  In fact, the Dow is off just 22 
points from where it began last week, with the OEX off just 0.44 
and the SPX off only 1.08. For traders who have gotten whiplash 
watching the recent movement, it doesn't really seem worth it, as 
they could have gone on vacation and come back to see little had 
changed.  

We had some economic data to drive the market today, coming in 
the form of positive releases for the ISM manufacturing index and 
Construction Spending.  The Construction Spending number for 
December showed an increase of 1.2% in December, a significant 
increase over expectations for a rise of 0.3%.  That result could 
also lead to an upward revision in GDP for the fourth quarter. 
The November number was also revised higher, showing an increase 
of 0.9%, versus the previous reading of 0.3%. 

The ISM data came in at the high end of expectations, with a 
reading of 53.9%.  Anything over 50 shows an increase in 
manufacturing activity.  There had been some concern that 
December's increase had been an aberration, but the January 
numbers indicate that even if things are not exactly robust in 
the manufacturing sector, they are still improving.

Of course, for all of the economic data we are seeing, the big 
issue still hanging over the markets seems to be Iraq.  We have 
gone into a holding pattern for the last week, following the 
President's State of the Union address last Tuesday.  While we 
are seeing day to day swings, we are not seeing enough conviction 
from either bulls or bears for a true breakout in either 
direction. We got a nice rally to start the year, as investors 
funded their yearly contributions to the retirement plan, 
followed by a big sell-off once earnings reports started rolling 
out.   It wasn't that the reports were bad, as much as it was due 
to the accompanying cautious statements about 2003.  After the 
1300-point swing in the month of January, the market seems a 
little exhausted and simply awaiting the resolution of the Iraq 
situation.  We are trading in a range below the 2002 year-end 
sell-off, indicating the overall trend in the markets is still 
bearish, but the drop has certainly slowed and we are beginning 
to make back some of those losses.  On any given day it can feel 
as though the worst is behind us and we are headed higher. It can 
also feel like the sky is falling, and it is time to get out - 
just throw a dart at any day of the week over the last five or 
six sessions and you're equally likely to feel either way.  In 
reality, a big continued move is unlikely before we know just how 
long a war will last and if we even are going to invade.  

Chart of the Dow


 


While it seems a foregone conclusion that we will invade, the 
notion of Saddam Hussein and his posse heading into exile is 
becoming more frequently discussed and seems like his only way 
out at this point.   Oil futures continue to set higher highs, 
but have seen a steep drop the last couple of days. If traders 
truly felt we were headed into Iraq in the next couple of weeks, 
we probably would not be seeing such a pullback.  The bet seems 
to be that we are in for another round of haggling at the U.N. 
following Powell's presentation on Wednesday.  That view is 
contrary to what we are hearing on television, but I can't think 
of a better barometer of war in the middle-east than the price of 
oil.  Make no mistake, war is still expected, as per barrel 
future prices remain well over $30, but with a drop ahead of the 
U.S. presentation, the market seems to be forecasting a slightly 
longer wait.  The Venezuelan general strike is also a big factor 
in oil prices, so traders need to keep an eye on those 
developments as well, before concluding that movements here are 
only Iraq-related. In fact, Venezuelan President Hugo Chavez 
claims that his country has increased its output to 1.8 million 
barrels per day, which is more than three times what it has been 
in recent months.  The country was pumping more than 3 million 
barrels before the beginning of the general strike, but that 
total dropped to 500,000 at one point, which helped drive up 
prices, along with middle-east tensions. In actuality, positive 
developments on either front can reduce the price of oil, at the 
same time helping the equity market. However, as long as we are 
faced with war, prices should remain elevated, thus keeping a lid 
on a stock market rally, as fuel costs remain high. 

Chart of Oil Futures


 

Ford was the big winner among automakers, as it saw an increase 
in January sales over a year ago.  That was better than GM or 
Daimler-Chrysler could do, as those manufacturers saw declines 
from the torrid pace set last year.  Ford Chairman Bill Ford Jr. 
did caution, however, that some economic trends were worsening, 
such as unemployment and consumer confidence (which hit multi-
year lows last month), and that Iraqi worries are also still 
contributing to a slow down in spending.

Gold futures climbed higher, indicating a defensive play, which 
is also tied to the sinking U.S. Dollar Index.  Gold futures are 
now trading 371.2, staying close to multi-year highs, set in 
January. Those futures are giving us bearish signs, failing to 
confirm what we are seeing in other areas.  The dollar started 
off strong today continuing its rebound from mutli-year lows, but 
finished the day slightly in the red, also indicating a market on 
hold. 

Chart of Gold Futures


 


The bond market also indicates bullishness in equities, as the 
five, ten and thirty year notes all saw selling today.  There 
have been recent instances where both bonds and equities have 
dropped on the same day, but it is rare.  We usually see contrary 
movement, with sinking bonds confirming rising equities and that 
is exactly what we got today. The data for inflows and outflows 
of funds between stocks and bonds shows just the opposite for the 
month of January.  It is estimated that funds investing primarily 
in U.S. equities saw an outflow of over $5 billion in January, 
while bond funds saw an inflow of $3.8 billion over the last two 
weeks.  With bonds rallying as stocks sunk during those last two 
weeks, we may now be seeing a reallocation back in the other 
direction by those institutions that are either taking profits, 
or taking advantage of the stretch in prices. 

One sector that many traders use to confirm broad market 
movements is the Semiconductor group.  These stocks tend to 
reflect overall tech demand and recent action has shown little 
strength.  The Semiconductor Industry Association this morning 
released data that showed the first month over month decline in 
global semiconductor sales in several months.  For the year, the 
industry saw just 1.3% growth, which makes the accompanying 
prediction for growth of 19.8% in 2003 seem a little lofty.  
Traders apparently didn't seem too impressed by the prediction 
either, and the Semiconductor Index remained mostly flat 
following the release.  This sector is getting tougher to predict 
after falling 120 points from its December high of 393.  Last 
week's warning from Applied Materials (AMAT) that its orders 
would drop 35% this quarter sent the SOX down another leg, where 
it bounced strongly from 360, but remains below previously strong 
support at 280.  It's clear from the statements accompanying most 
recent earnings releases that IT spending has not yet turned the 
corner and the SOX seemed to be entering a free-fall area between 
280 and the low 200s.  However, the drop has slowed and we seem 
to be suspended in space.  The fact that it has not rebounded 
with the broader markets the last couple of days can be seen as 
bearish and I would be hesitant to go long the sector.  Still, 
the second leg of the big breakdown has not occurred.

The Market Volatility Index (VIX) also saw a drop today and is 
now below the 35 level that has been pivotal in recent months.  
That 35% resistance level had capped equity market drops and was 
broken on the most recent plunge.  After topping out at 40%, it 
has crept lower, in spite of the recently large intraday moves.  
The move back under 35% indicates we are seeing some of the 
downside fear dissipate as we have settled into a range and 
tested the upside of that range today. As long as we test the 
upside, we can expect to see the VIX continue its descent.  Those 
traders holding straddles are likely suffering these days and 
will continue to do so until we break in one direction or 
another.  Until then, the best strategy will be buying small dips 
and selling small rallies against the positions in order to make 
up for the time decay. 

Chart of the VIX


 


Point and figure charts are beginning to give us some bullish 
signals, with the Dow, OEX, SPX and NDX all reversing back up 
into bullish columns of "X."  However, only the Dow has managed 
to break above its most recent rebound high and the bullish 
percents for all of these remain in reverse mode.  Once again, 
conflicting signals as to where we are headed next.  

Today's bottom line seems to be a tepid attempt at a rebound. We 
are getting bullish signs after a big drop, but we are still 
range bound at sub-breakdown levels and very light volume ahead 
of this week's events.  It is difficult to determine whether we 
are just taking a breath before the next leg down, or building 
support for a rebound from the late-January sell-off.  We are 
likely to remain on hold throughout much of the day Tuesday. We 
will get Cisco's earnings after the bell and then the Powell 
presentation on Wednesday.  Following that presentation, we are 
likely to have a better idea of whether the U.S. has worldwide 
support, or if we will be going it alone.  In either case, once 
the picture becomes clearer, we should break out of the current 
range and get a better signal on where the trend goes from here.


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

Green, but not Golden
By John Seckinger
jseckinger@OptionInvestor.com

All three futures contracts might have finished higher on Monday, 
but it should not be smooth sailing for bulls.  It should take 
only slight weakness to drastically change the trading landscape.  

Monday, February 3rd at 4:15 P.M. 

Contract       Last    Net Change    High        Low       Volume    

Dow Jones     8109.82    +56.01    8152.08     8053.74      
YM03H         8077.00    +30.00    8129.00     8050.00     21,839 
Nasdaq-100     987.07     +4.02     997.56      981.37      
NQ03H          986.00     +1.50     998.50      979.00    206,885
S&P 500        860.32     +4.62     864.64      855.70      
ES03H          858.50     +3.75     864.00      854.00    570,583

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      8006.89    8058.36   8105.22    8156.69    8203.55
YM03H          8006.00    8042.00   8085.00    8121.00    8164.00
Nasdaq-100      972.48     979.78    988.67     995.97    1004.86
NQ03H           968.25     977.25    987.75     996.75    1007.25
S&P 500         851.28     855.80    860.22     864.74     869.16
ES03H           851.00     855.00    859.50     863.00     867.75

Weekly Levels

Contract         S2         S1        Pivot        R1         R2    

YM03H         7719.00    7883.00    8012.00    8176.00    8305.00
NQ03H          930.00     957.25     992.25    1019.25    1054.25
ES03H          821.00     838.00     852.75     869.75     884.50

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

Contract        S2         S1        Pivot       R1         R2    

YM03H         7237.00    7642.00    8253.00    8658.00    9269.00
NQ03H          875.75     930.25    1019.25    1073.75    1162.75
ES03H          775.00     814.75     876.00     915.75     977.00

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.  Recapping his signals:    

Short 859.25, exit 856.25, change +3.00
Total for the session:  +3.00
Total for the week:  +3.00

For information on the Futures Monitor and Jim Brown'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)

Beginning with a more intermediate-term outlook, the ES contract 
failed to test the December 31st low of 686 after managing to 
trade over its daily R1 area of 862.75 (read: failure).  The 50% 
retracement of the move from October to December comes in at 861, 
and a close underneath this area adds to the bearishness.  Also 
bearish is the fact that the SPX contract traded within its 
"resistance zone" of 861 to 870, and then closed below the 861 
area (860.32).  The only positive was that prices stayed 
generally above the 19.1% retracement area of the decline in 
January (855.75).  I definitely expect more weakness underneath 
this area.  The daily S1 is 855.  Note:  The weekly pivot is at 
852.75, and additional weakness should take place if this level 
is cleared to the downside as well.  Also interesting is that R2 
is 867.75 and just under the aforementioned December 31st low.  
Definitely a level to watch.  I will use an intermediate "zone of 
resistance" in the ES from 867.75 to 872.50.  If weakness takes 
the ES contract under the "zone of support" from 837-839, the 
downside objective will be for a move to the 829 area.  

Chart of ES03H, 120-minute


 

Looking at a five-minute chart of the ES contract, a move under 
855 should change the scope the bullish regression channel and give 
bears more confident.  Such weakness should be a catalyst 
for a move to S2 at 851.  A very tight range on Tuesday between 
S2 and R2 (851 to 867.75); therefore, be patient if the market 
starts to go into "range trade" mode.  MACD, on this short-term 
timeframe, appears to be ready to go lower as well.  As a side 
note:  Following the 4:15 close, the ES contract traded exactly 
at 861 and has since pulled back to 858.  It is definitely nice 
to see technical analysis continue to work (grin). 

Chart of ES03H, 5-minute


 

Bullish Percent of SPX: 45.69% and even on the day for Monday.  
The column of O’s remains at 10.  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 X's on Monday, but 
the bearish price objective stays at 750.  A move above 870 would 
give a buy signal.  870 is the top of the "resistance zone" noted 
above.  

The March E-mini Nasdaq 100 Contract (NQ03H)

The same theory stated for Monday's trading applies for Tuesday.  
The NDX is in "sell-signal" mode with bearish objective of 825, 
and the NQ failed to test 1000 but did close above the 983 area 
(50% level).  The overnight weakness also failed to take out the 
978.50 relative low (see chart below).  If the 978.50 to 983 area 
is cleared, the objective will be for a move to the Weekly S1 

level at 957.25.  If bulls can keep prices higher, look for bids 
above the 1000 area towards the 1019 to 1025 area.  Looking at 
the daily chart below, the apex of the long liquidation pattern 
(lowercase "b") comes in just above this 1024.50 area.  

Chart of NQ03H, Daily 


 

Staying with the NQ, a 120-minute chart, aggressive bears on 
Tuesday can look for weakness under 983 - especially since this 
level is below the daily pivot.  As I have done in the past, 
taking a 50% retracement of a retracement area can give a trader 
an idea of support/resistance.  Using that technique below, 
resistance is confirmed at 1000; however, the 962 area is a 
little bit above the weekly S1 reading.  If, on a five-minute 
chart, prices fall under 962 and then CLOSE above during that 
period, shorts can get flat and re-evaluate conditions.  The 
range from S2 to R2 is very tight (1007 to 968.25), and this 
should emphasize the likelihood of bears covering near the 960 
level.  

Chart of NQ03H, 120-minute


 

Bullish Percent for NDX:  This indicator fell 1% to 46% on 
Monday, and continues to portend bears will be selling rallies 
going forward.  There column of "O's" is now at ten.  Note:  
The NDX gave a sell signal, according to P&F charts, as the 975 
area was penetrated.  The bearish objective now stands at 825.  

The March Mini-sized Dow Contract (YM03H)

The YM contract appeared ready to take out the 8143 resistance 
area after the ISM report on Monday; however, the bullish 
sentiment faded and bears were able to cap the short-lived 
enthusiasm.  I am still looking for either a CLOSE under the 
'zone of support' from 7936 to 7946, or above 'zone of 
resistance' from 8143 to 8165 area.  Note:  8176 is the weekly R1 
level, but I would be not be comfortable with this level being 
traded.  If it is traded, I would wait to go short on a move back 
under 8143.  Moreover, a move above 8165 could easily become the 
catalyst for a move to the monthly pivot of 8253.  Yes, not too 
much has changed since Friday.  

As far as the downside is concerned, the daily S2 comes in at 
8006 and above the weekly pivot of 8012.  Therefore, a move under 
8006 should then turn the area from 8006 to 8012 into resistance.  

Chart of YM03H, 90-minute


 

Bullish Percent of Dow Jones:  A P&F chart for the Dow actually 
did a positive breakout on Monday, rising four boxes to 8150 and 
eclipsing the last high of a column of X's.  The bullish price 
objective is now 8600, completely canceling out the recent 7000 
objective.  As far as the bullish percent is concerned, it 
remains at the 'magical' 30.00% level, and the column of O’s now 
stands at 15.  This is significant relative weakness, and note 
that the bullish percent of the NYSE has just turned into a 
column of "O's," and could be a sledgehammer of the Dow.  
Remember, a close underneath 30% should start to shift risk into 
the bears' camp.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

Gains hold, despite fade into the close

The major indexes held on to post gains for the session, as early 
morning gains from stronger than expected economic data on 
construction spending and growth in the industrial sector gave 
investors something other than "war with Iraq" to be focusing on.

President Bush's 5-volume budget proposal may have made for a 
difficult read among the fiscally conservative as stocks gave 
back part of their early session gains into their close after 
President Bush submitted his $2.23 trillion budget plan for 
fiscal 2004, calling on lawmakers in Congress to boost spending 
on defense and overhauling key social programs while enacting 
near $670 billion tax cuts over the next 10-years.  President 
Bush said, "The budget for 2004 meets the challenges posed by 
three national priorities.  Winning the war against terrorism, 
securing the homeland and generating long-term economic growth."

The PHLX Defense Index (DFX.X) 147.38 -0.64% held rather firm 
despite today's weakness in sector components Alliant Techsystems 
(NYSE:ATK) $48.02 -11.66%, Boeing (NYSE:BA) $31.11 -1.51% and 
Lockheed Martin (NYSE:LMT) $49.55 -2.93% after this weekend's 
Space Shuttle Columbia tragedy.  Near-term concern regarding 
NASA's spending was partially offset by the Pentagon's budget 
request totaling $379.9 billion, a 4.2% increase from this year's 
current fiscal year budget, which doesn't include additional 
funds that would be needed in the event of war with Iraq.  The 
$15.3 billion increase in defense spending accounts for half of 
the overall proposed spending increase for the entire federal 
government.

Today's trade saw lighter volume that traders have seen in recent 
weeks with NYSE volume at 1.21 billion shares, while NASDAQ 
volume turned 1.26 billion shares traded.  

Breadth was marginally positive on the NYSE with advancers 
outnumbering decliners by a narrow 17 to 15 margin, while NASDAQ 
breadth was weak with decliners having the upper hand on 
advancing issues by a 17 to 14 margin.

While total breadth was positive at the NYSE and negative at the 
NASDAQ, similar daily results were found in the category of new 
highs versus new lows.  NYSE reported 74 stocks trading a new 52-
week high compared to 39 stocks achieving a new 52-week low, 
while NASDAQ ended the day with 60 stocks recording a new 52-week 
high trade compared to 67 stocks trading a new 52-week low.  

In today's 03:15 EST Intra-day update I made note of today's 
breadth indicators with the thought that market makers on the 
NASDAQ might be a little "bearish" or have a bit of a sell side 
bias toward 4-lettered stocks they make markets in.  While the 
major indexes did trade their daily R1 levels from DAILY pivot 
analysis, the NASDAQ-100 Index (NDX.X) 987.07 +0.4% session high 
was 997.12, just barely above today's R1 of 996.  However, the 
NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $24.49 +0.2% fell 
suspiciously short of its DAILY R1 of $24.81 with a session high 
trade of $24.79 and may indeed hint that this "hedge security of 
choice" among NASDAQ market makers may be seeing some sell-side 
bias as market makers look to hedge some "overly long" 
inventories in stocks they make markets for.

Here's a quick look at our pivot analysis matrix.  Subscribers 
will note that I've added a "Points from Pivot" column to the 
matrix to provide quick reference to where the major indexes 
closed TODAY, relative to their DAILY, WEEKLY or MONTHLY pivots.  
Also note that the WEEKLY levels have been updated to reflect 
last week's high, low and close as have the MONTHLY pivots and 
level to reflect January's high, low and closing values.

Pivot Analysis Matrix


 

Friday's close saw the major indexes all close above today's 
pivots, and today's pivot levels held as support or were not 
tested.  The NASDAQ-100 Index (NDX.X) did test its daily pivot of 
982 and QQQ tested its pivot of $24.41, but neither were able to 
muster a 5-minute close below these levels.  Tomorrow's DAILY 
pivots may come into play early and dictate market action ahead 
of tomorrow's post-market earning's announcement from Cisco 
Systems (NASDAQ:CSCO) $13.48 +0.82%.

Dow Industrials Chart - Daily Interval


 

In "red," I've taken retracement from this month's R2 and S2 
levels, while in "blue" taken retracement from this week's R2 and 
S2.  This type of retracement work gives some levels that look to 
be a range between 8,050 and 8,285 for the Dow Industrials, where 
a continuation "oversold bounce" could well see a test of the 
8,285 level.  The 8,050 level has been a level where the Dow has 
been flip flopping back and for of and settled at/near on 
Friday's close.  Almost as if the Dow is trying to seek out the 
equilibrium of this week's pivot.

Tomorrow will be interesting and here's what I'd look for as it 
relates to the Dow, as well as other indexes.  I'm not sure if 
market makers in the NASDAQ tipped their hands today when the QQQ 
couldn't trade their daily R1's, while the major indexes did, but 
any weakness early tomorrow back below the 8,042 WEEKLY pivot 
level (say 8,032 to be safe) would be a negative in my book and 
have the Dow vulnerable to this WEEK's S2 of 7,801.  The Dow does 
have the look of near-term bullishness and today's trade at 8,150 
did generate a "double-top" buy signal on the Dow's p/f chart and 
may have some rally potential back near the 8,285 level of 
correlative resistance from the above retracement.  

I went back and looked at some of last week's Index Trader Wraps 
and make note that we were looking for resistance in the Dow near 
8,300 as Stochastics (5,3,3) recovered from "oversold" levels 
back near 50.

Today's action saw no net change in the Dow Industrials Bullish % 
($BPINDU) and current reading remains "bear confirmed" at 30%.  
On Friday, the Dow Bullish % saw a net loss of 2 stocks to 
reversing point and figure sell signals as it fell from 
Thursday's reading of 36.67% to Friday's 30.0%.

In Friday night's Market Monitor, I posted the updated pivot 
analysis matrix, and also took the opportunity to post similar 
retracement work performed above in the Dow, with the S&P 100 
Index (OEX.X).  Friday night, I thought the OEX looked a "little 
neutral" near-term as this silly index closed right on this 
WEEK's pivot of 432.50, but shouldn't have traded much more than 
436 today, otherwise, it had rally potential to 442-444.  Here's 
what I'm looking at and if the OEX were to make another move 
higher tomorrow and take out today's high of 438 (tomorrow's 
DAILY R1) then I think the OEX can make it into the 442-444 zone 
before a resumption of downward trend resumes.

S&P 100 Index Chart - Daily interval


 

The OEX traded 437 three separate times today and just couldn't 
manage a break-through much above that level with a high of 
437.92.  Tomorrow's early session will have me monitoring the OEX 
at its daily R1 of 438, which marks today's highs, should the OEX 
fail a rally at that level, then back below its DAILY pivot of 
435, I'd look short/put on the break lower.  

Today's action saw no net change in the S&P 100 Bullish % 
($BPOEX).  Status remains "bear confirmed" at 43%.  Friday's 
action did see the OEX Bullish % fall from 45% to 43%.

Keep an eye on the U.S. Dollar Index (dx00y) 99.83 -0.08% as I 
think an index BEAR wants to see weakness in the U.S. Dollar.  On 
an OEX break back below the DAILY pivot of 435, the correlative 
level of 432.50 becomes a bear's first "hurdle" of support he/she 
would want to see broken to the downside.  I would not be an 
"eager" short/put in the OEX on a break lower of 435 on any type 
of dollar strength.

For those than can also monitor treasuries, I'd think an index 
bear would also want to see buying in Treasuries.  Treasuries saw 
more selling in the shorter-dated maturities today, with 
fractional buying in the longer-dated 30-year Treasury.  This 
action hints of some "YIELD bulls" looking to still park some 
cash in the higher YIELDing 30-year and may hint that investors 
are willing to assume "greater risk" in the 30-year Treasury for 
the higher YIELD, while trying to avoid some type of "risk" in 
equities.

In summary, a weak dollar, buying in bonds, has not been kind to 
equities and may be some markets away from the stock indexes to 
be monitoring.  If we see a weak dollar, strength in bonds and 
start seeing some index levels violated to the downside, then a 
bear takes some action.  The OPPOSITE could also be true for the 
Indexes to recover back to "zones" of resistance identified above 
in the Dow and OEX.

S&P 500 Index Chart - Daily Interval


 

Similar to the OEX, the SPX finished Friday's session smack dab 
on this week's pivot level of 654.51 and made for somewhat of a 
"neutral bias" into today's session.  Better-than-expected 
economic data kept the SPX above this weeks pivot, and if not for 
some "bad news" and weakness in the HMO Index (HMO.X) 508 -3.14% 
and Morgan Stanley Healthcare Index (RXH.X) 270 -1.06, which 
generally depicts broader healthcare, the SPX and OEX would most 
likely have been today's index winners in percentage terms.  

Today's action saw no net change in the broader S&P 500 Bullish % 
($BPSPX).  Status remains "bull correction" at 46%.

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


 

Friday's "warning" on weaker than expected quarterly booking 
looks to have taken some of the "leadership" of relative strength 
out of the NASDAQ-100 and technology stocks.  With "fears of war" 
weighing on investor psychology, some technology bulls may be 
parked on the sidelines for the awhile.  Tomorrow night's 
earnings from Cisco (CSCO) will be closely monitored to see if 
this technology bellwether in the networking sector can buck the 
trend of "lackluster near-term growth prospects" that Intel 
(INTC) and Applied Materials (AMAT) have been mentioning.  

I'm looking for further QQQ weakness below $24.30, but wouldn't 
mind finishing tomorrow's trade ahead of CSCO's numbers with 1/2 
bearish position.  Then, should CSCO give modest upside surprise, 
will have some powder dry for potential bearish entry in the 
$25.31-$25.52 zone, with firm resistance near $26.00.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) see a net 
loss of 1 stock to a reversing point and figure sell signal.  
This has the NASDAQ-100 Bullish % still "bear confirmed," but 
slipping to 46%.  On Friday, the NASDAQ-100 Bullish % slipped an 
equal 1% from Thursday's 48%.

Jeff Bailey


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

Rollercoaster

An up-down week on Wall Street produced further losses for stock 
mutual funds with the technology, international and gold sectors 
leading the decline.  The threat of war with Iraq, concern over 
North Korea, and a listless economy continue to affect consumer 
and investor confidence.  President Bush recognized the need to 
revive the economy, asking Congress to approve tax cuts but that 
wasn’t enough to spur the market.




 


For the week ended Friday, January 31, 2003, the S&P 500 index of 
U.S. stocks lost 0.6 percent while the MSCI EAFE index of foreign 
stocks tumbled 2.3 percent in dollar terms.  Domestic and foreign 
stock funds followed suit, with the average large-cap core equity 
fund down 0.6 percent and the average international fund down 2.1 
percent over the 5-day period.  Most U.S. diversified stock funds 
lost less than one percent for the week, according to Lipper.  So 
perhaps not as bad as the week before when stock funds lost 2%-3% 
of their net asset value.

The credit markets were lackluster too with the total bond market 
index (LB Aggregate) slipping 0.1 percent last week.  The average 
intermediate-term bond fund had the same small weekly loss, using 
Lipper's number.  Weekly losses were greater among domestic high-
yield funds and international bond funds.  The U.S. Fed last week 
voted to leave the key Fed Funds rate at 1.25 percent, its lowest 
level in a generation.

Money market fund yields remain low with the average prime retail 
fund yielding just 0.8 percent today, per iMoneyNet.com (formerly 
known as IBC/Donoghue).  Though yields are historically low, this 
fund group has achieved its main objectives of preserving capital 
and providing liquidity.

U.S. Equity Fund Group

 Week   YTD
-0.6%  -2.6%  Vanguard 500 Index Fund (VFINX) 
-0.3%  -2.9%  Vanguard MidCap Index Fund (VIMSX)
-0.7%  -2.7%  Vanguard SmallCap Index Fund (NAESX)
-0.6%  -2.5%  Vanguard Total Stock Market Index Fund (VTSMX)
-0.6%  -2.6%  Lipper Large-Cap Core Equity Fund Average 
-0.3%  -2.0%  Lipper Mid-Cap Core Equity Fund Average 
-0.8%  -2.9%  Lipper Small-Cap Core Equity Fund Average
-0.7%  -1.7%  Lipper Multi-Cap Core Equity Fund Average
-2.2%  -0.6%  Lipper Science & Technology Fund Average

Diversified U.S. stock funds reported weekly losses of under one 
percent, comparable to index benchmarks.  Some equity funds with 
heavy technology exposure lost more than two percent on the week 
including the $16 billion Fidelity Growth Company Fund, down 2.2 
percent.  Weekly declines for many funds would have been greater 
if the market didn't come back in Friday's session.  Science and 
technology funds continued to struggle, declining by 2.2 percent 
on average.  All of the Lipper U.S. equity fund averages are now 
in the red on a 2003 YTD basis.

There were some pockets of strength, however.  Some funds within 
the healthcare, energy and real estate sectors produced positive 
total returns.  Putnam Health Sciences Fund, for example, was up 
1.3 percent for the week, while Vanguard Energy Fund generated a 
weekly return of 1.7 percent for investors.  Vanguard REIT Index 
Fund, meanwhile, finished the week up 1.8 percent, indicative of 
gains in that sector.

International Equity Fund Group

 Week   YTD
-2.3%  -4.2%  Vanguard Developed Markets Index Fund (VDMIX)
-1.2%  +0.1%  Vanguard Emerging Markets Index Fund (VEIEX)
-2.1%  -3.8%  Vanguard Total International Stock Index (VGTSX)
-2.1%  -3.7%  Lipper International Fund Average
-0.6%  -0.6%  Lipper Emerging Markets Fund Average
-4.4%  +0.1%  Lipper Gold Fund Average

The Pacific stock index tumbled 5.5 percent last week, resulting 
in a 2.3 percent drop in the MSCI EAFE index.  International and 
world stock funds with significant exposure to Japan and Pacific 
region were the hardest hit.  For example, the Longleaf Partners 
International Fund (with 35 percent of assets in Japan as of the 
end of September) lost 4.1 percent over the 5-day period.

Gold mutual funds declined by 4.4 percent on average, per Lipper, 
and are now flat on YTD 2003 basis thru Friday, January 31, 2003.  
The Vanguard Precious Metals Fund limited its weekly loss versus 
other gold/precious metals funds and holds on to a 3.3% YTD gain.

U.S. Fixed Income Fund Group

 Week   YTD
-0.1%  +0.0%  Vanguard Short-Term Bond Index Fund (VBISX)
-0.4%  -0.4%  Vanguard Intermediate-Term Bond Index Fund (VBIIX)
-0.2%  -0.2%  Vanguard Long-Term Bond Index Fund (VBLTX)
-0.1%  +0.0%  Vanguard Total Bond Market Index Fund (VBMFX) 
-0.0%  +0.2%  Lipper Short Investment-Grade Fund Average
-0.1%  +0.3%  Lipper Intermediate Investment-Grade Fund Average
-0.1%  +0.2%  Lipper Corporate A-Rated Debt Fund Average
-0.3%  +2.2%  Lipper High Current Yield Fund Average
-0.1%  -0.1%  Lipper U.S. Government Fund Average


As you can see, bond funds lost value last week, but their losses 
were small, under a half percent.  A few intermediate, investment 
grade funds, such as the One Group Bond Fund were a little harder 
hit.  It produced a negative weekly return of 0.8 percent.  A few 
bond funds eked out narrow gains.  For instance, the $2.8 billion 
Fidelity Capital & Income Fund generated a weekly total return of 
0.1 percent, compared with a 0.3-percent loss by the average high 
yield fund.  

International Fixed Income Fund Group

 Week   YTD
-0.7%  +1.3%  Lipper Global Income Fund Average
-0.9%  +2.0%  Lipper International Income Fund Average


Global and international fixed income funds sustained losses too, 
with a few funds down more than one percent for the 5-day period 
including the $975 million T. Rowe Price International Bond Fund.  
The international bond fund bellwether lost 1.2 percent over the 
5-day period to lead the group lower.  

Balanced Fund Group

 Week   YTD
-0.4%  -1.5%  Vanguard Balanced Index Fund (VBALX)
-0.4%  -1.5%  Lipper Balanced Fund Average

Balanced funds minimized weekly losses relative to pure equity 
funds, giving up just 0.4 percent on average for the week, per 
Lipper.  Two of the nation's oldest and largest balanced funds, 
Vanguard Wellington and Fidelity Puritan, lost just 0.2 percent 
and 0.3 percent, respectively, last week.  

Money Market Fund Group

Yield
1.17%  Vanguard Prime Money Market Fund (VMMXX)
0.81%  iMoneyNet.com All Taxable Money Market Fund Average

Low-cost leader Vanguard Prime Money Market Fund currently has a 
7-day simple yield of 1.17 percent, 38 basis points greater than 
the iMoneyNet.com all taxable MMF average.  

According to iMoneyNet.com, the highest current yield belongs to 
the PayPal Money Market Fund (402-935-7733).  It sports a simple 
7-day yield of 1.37 percent, down 3 basis points versus the week 
before.  The Touchstone Money Market Fund (800-543-8721) is next 
with a 1.23% yield.

Mutual Fund News

The Investment Company Institute reported last week that mutual 
fund industry assets totaled $6.391 trillion as of December 31, 
2002, a $583.7 billion decline from the $6.975 trillion mark at 
December 31, 2001.  Below is a summary of the main asset groups 
per ICI's latest survey of mutual fund assets (www.ici.org).


 Stock Funds (Stock & Hybrid Funds):
 $2.995 Trillion December 31, 2002
 $3.765 Trillion December 31, 2001
 $0.770 Trillion Net Decrease in 2002 (-20.5%)

 Bond Funds (Taxable & Municipal Funds):
 $1.125 Trillion December 31, 2002
 $0.925 Trillion December 31, 2001
 $0.200 Trillion Net Increase in 2002 (+21.6%)

 Money Market Funds (Taxable & Municipal Funds):
 $2.272 Trillion December 31, 2002
 $2.285 Trillion December 31, 2001
 $0.013 Trillion Net Decrease in 2002 (-0.1%)

 All Mutual Funds:
 $6.391 Trillion December 31, 2002
 $6.975 Trillion December 31, 2001
 $0.584 Trillion Net Decrease in 2002 (-8.4%)


You can see that total mutual fund assets dropped approximately 
$584 billion, or 8.4 percent, in 2002, with a $200 billion rise 
in bond fund assets partially offsetting the $770 billion stock 
fund asset decrease.  Money market fund assets were up and down 
throughout 2002, finishing the year little changed from December 
31, 2001.

In spite of historically low yields, the money market fund group 
remains the second largest mutual fund class - representing more 
than a third of total industry assets at December 31, 2002 using 
ICI's figures.  So, principal preservation and capital liquidity 
continue to be popular mutual fund objectives.

AP Online reported last week that the SEC is mulling more mutual 
fund reforms aimed at tightening internal controls within mutual 
fund companies.  These proposals reportedly would open to public 
review the notion of creating a "self-policing organization" for 
the mutual fund industry.  The additional reforms came less than 
a week after the SEC voted (over industry objections) to require 
mutual funds to disclose their proxy-voting results to investors.

Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com


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

The Next Rally
by Mark Phillips
mphillips@OptionInvestor.com

Readers that are used to my weekly dose of bearish commentary
are right now asking themselves, "What did he say?"  In fact it
was just last week that I made the case for lower levels ahead
in the broad market due to the confluence of negative factors,
from the economy, to the coming war, to bullish percent readings,
PnF Sell signals and other technical indicators.  So what the
heck am I talking about?

Don't worry, I'm not talking about my expectations for an abrupt
reversal in the market and challenging the recent highs before we
know if Punxatawny Phil was right about his indication of another
6 weeks of winter.  Trading is 90% preparation and 10% execution.
So while we're enjoying the fruits of our past analysis as we
ride the market lower, now seems as good a time as any to start
locating targets to play on the upside when the appropriate
factors are satisfied for the next tradable bottom in the market.
That way the action plan is in place and we won't have to
frantically scramble for long play candidates when the market
eventually turns, as we know it eventually will.

So where do we go to find those candidates?  There are as many
answers to that question as there are traders.  Some traders just
trade the indices, and that certainly simplifies the process for
them.  But what about those of us that like to play individual
equities, either with options or by buying the actual shares?  In
case you didn't know it, OI has put together a list that
certainly deserves consideration, at least as a starting point.
Last September, when the market was still falling into the abyss,
Jim Brown wisely suggested that we start identifying stocks that
should do well in a strong market rebound.  Over a period of a
couple months, we built a list of a couple dozen stocks that
appeared to fit that bill, and were reasonably inexpensive for
those that are working with a smaller account.

In the ensuing market rally off the October lows, some soared,
while others just yawned and played dead.  In fact, a couple of
them went the other way.  As any experienced trader knows, you
can't be right all the time.  But there are a few of them that
delivered some handsome returns during the October-December
timeframe.  Not only that, but a small handful have retained the
lion's share of those gains, even during the recent market swoon.
I know what you're thinking.  "All right Mark, big deal.  What
has that got to do with the NEXT rally?"  To which I respond,
"Everything!"

Would you say it might stand to reason that a stock that
outperformed the market during the latest rally and then held
onto the bulk of those gains might be exhibiting some relative
strength?  Bingo!  Sitting at the top of that list is CTXS, which
we originally listed at $7.20, and is currently sitting almost
100% higher at $14.11.  Other notable winners on the list are
PSFT, GNSS and NXTL, which are all boasting 50% or better gains
from when we first listed them.

Another stock on the list that I would consider taking another
run at is NVDA, as it skyrocketed with the rest of the market
before getting pounded lower with the rest of the Semiconductor
sector in recent weeks.  But I think the potential exists for the
stock to give us another impressive run.  So much so, that I
listed it as a new LEAPS Call play last weekend.  If you missed
my comments over the weekend and have an interest, take a look
at the LEAPS column for an idea of what I'm thinking.  While I'm
on the topic of the LEAPS column, I'll plug another pick we added
last weekend, QCOM.  One of the darlings of the tech boom of
1999-2000, QCOM is starting to look healthy again, both on a
technical and fundamental basis.

So how do we put any of these ideas to work?  Alas, it's actually
going to take a bit of work on your part.  Hey, I can't give it
all away!  My goal is to teach you how to fish, not just feed you.
But I think walking you through my thought process on just one of
these stocks will give you an idea of the type of research that
you can apply to each of these potential candidates over the next
few weeks so that you can put that plan of action together in
advance of the next tradable bottom.  

Let's take the first stock I listed, CTXS and look at it in
greater detail, ok?  I haven't shown it here, but the stock has
been amazingly resilient over the past month, holding very near
its recent highs.  To really see the stock's strength, I prefer
to look at a relative strength chart, comparing CTXS to the
NASDAQ Composite (COMPX).

RS Chart of CTXS vs. NASDAQ Composite


 

Not only did the stock outperform the COMPX throughout the
October-November timeframe, but has continued to do so, even
with the broad market giving a series of bearish signals.  In
fact, over the past week, the RS chart has broken out to the
upside, moving to its highest level in over a year!  With
strength like that, there has to be an underlying cause, don't
you think?  The company's last earnings report does offer a
clue, as they blew away estimates on both earnings and revenues.
But that really isn't enough to explain it.  We've seen numerous
other companies outperform with respect to earnings lately and
most have been rewarded by a vicious round of selling.  Why
isn't that the case with CTXS?  Well, when I want that sort of
answer, I always turn to the PnF chart, and there we get a
really big clue.

The launch out of the base down in the $5-7 range created a huge
column of X, that gives us the current vertical count of $35.
Wow!  Ok, I realize that could be negated by a trade at $12, so
I decided to take a look at the bigger picture.  Rather than
use the standard $0.50 box size, I backed up to the $1 box size
and did a vertical count off of that column of X.  That Buy
signal was generated when CTXS traded above $14, and the current
vertical count comes out very to the standard one, with a target
of $33.  Hmmm, maybe there is still some significant demand in
the stock.  That fact is certainly borne out by the tremendous
ramp up in On Balance Volume from October thru December, and
that indicator isn't showing much weakness at all right now.

So what we have is strong financial performance, outperformance
relative to the broad market and a supply/demand chart that is
showing a significant bias towards demand.  Oh, and by the way,
using the $1 box size, it would take a break below $4 (which I
consider very unlikely) to negate that bullish price target of
$33.  Using the standard $0.50 box size, it would require a
trade at $12 to generate a PnF Sell signal and negate the $35
bullish price target.  Take a look at a daily chart of CTXS over
the past 2 months and you can see how that $12 level has been
repeatedly defended, especially throughout the month of
December.

Since we're looking for a play that we think has the potential
to significantly outperform the rest of the market, let's look
at the weekly chart and see if we can determine areas of
congestion that are likely to present resistance.

Weekly Chart of CTXS


 

Clearly, CTXS is now finding resistance near $15 and for good
reason.  But based on its relative strength, I expect that to be
broken when the broad market finds its legs again.  Next up is
the $18-20 range, followed by $25, then $30, and finally with
major resistance at $35.  Isn't it interesting how that level
lines up with the target generated from the PnF chart?

To be sure, there are no guarantees.  Any number of negative
developments could occur to negate the bullish potential that
I see in this stock right now.  And don't make the mistake of
thinking that it won't be affected in the near-term by a
continued decline in the broad market.  A drop back near $12
is probably a given before the broad market bottoms and the
bullish percent charts start to show improvement rather than
the recent deterioration.

Remember my column a few weeks ago where I postulated that
technology stocks were those most likely to outperform in the
year ahead.  Have you noticed that the bullish percent for the
COMPX is still Bull Confirmed?  Not only that, but the COMPX
has not given a PnF Sell signal either, whereas all the other
major indices have.  Coincidence?  I think not!  So what we've
managed to identify is a strong stock in a relatively strong
sector of the market that looks like it has the potential to
continue to outperform the next time the bulls come out to
play with conviction.

Some of the other stocks listed in the Stock Play section of
the website may offer equally strong possibilities on the next
major rally.  Now dust off your mice and get to work, finding
those strong candidates.  You've got some time to find them and
then we can continue the waiting game together.  How do you
like that, I wrote a bullish column today!  GRIN

By the way, in case you've never looked at the list of Stock
plays on the OI site, it's reasonably easy to find.  Just look
for the "Stocks" link under the "Strategies" header on the Home
page.  All of the individual writeups are there for us to
review, giving us a solid place to start in our research.
This list has another benefit as well.  We can find those stocks
that DID NOT perform in the October-December rally, and avoid
those stocks on the next rally.  They've made it clear to us
that relatively speaking, they are weak and therefore don't
deserve our bullish consideration.

Good  Luck!


Mark


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

Same Old, Same Old

We got more of the same today, with a range bound market taking a 
break ahead of further developments on the global front.


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The Option Investor Newsletter                   Monday 02-03-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

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

Updated on the site tonight:
Market Posture: Gearing Up
Market Watch: Ready, Aim...


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

SYMC - call
Adjust from $44 up to $45


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

None


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

None


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

CCMP - Cabot Microelectronics $42.90 -1.00 (-1.00 this week)

Company Summary:
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 difficulties facing the chip equipment sector were
underscored on Friday morning when Applied Materials warned that
it expects to see a 35% reduction in first-quarter orders.
Previous guidance was for a decline of only 20%.  The company
cited "ongoing economic weakness and geopolitical uncertainties
(and) deferred capital expenditures" as the reasons for the
slippage in expectations.  Just about any business can blame poor
sales and orders on the poor economy and Iraq-related war
concerns.  The poor capex spending also comes as no surprise.  As
we said last night, Intel had already made it clear that
companies such as AMAT would be receiving less of their money for
equipment upgrades.  Investors were nonetheless disappointed with
this morning's news.  The SOX.X  gapped lower and quickly reached
a relative low of 261.  CCMP joined the sector in the downward
gap and opened below our entry trigger at $44.69.  This play was
activated at the initial trade of $43.70.  Short-covering then
took the stock into positive territory before the bears
reasserted themselves.  CCMP finished with a 2.0% loss, easily
underperforming the SOX.X.  That relative weakness is
understandable when you consider that the stock is trading well
above its next clear level of support on the daily chart.  Now
that the $45.00 support region has given way we think chances are
good that shares could soon test psychological support at $40.00.
However, because our entry point is lower than we'd anticipated,
we need to make an according adjustment to our stop-loss.  Our
stop is now set at $46.93, two cents above the rising 100-dma.
More conservative traders could use a stop slightly above the
200-dma at $45.75.  New entries can be targeted on a move under
today's low of $43.30 or on another failed rally at $45.00.

Why This is our Play of the Day

Despite a moderate lift in the broad market on Monday, the
Semiconductor sector (SOX.X) continued to be under pressure
following the grim news from AMAT Friday morning.  While the
slight loss of ground by the SOX (-0.43%) was nothing for the
bears to crow about, there was some notable technical damage
inflicted in individual chip stocks.  Our CCMP play was one of
the standout losers, as it shed more than 2%, breaking below
Friday's lows in the process.  This solidifies resistance at the
top of Friday's gap ($44.83), which was just above the stock's
intraday high of $44.70.  Just above there, we still have the
converged 10-dma ($45.86) and 200-dma ($45.65), which reinforces
that resistance.  The best case for new entries will come on
subsequent failed rallies, either at the top of that gap or near
those moving averages.  Those traders who prefer to enter on
weakness can target a breakdown under $42.75, but need to keep
in mind the possibility of an oversold bounce near the $40
level.  

BUY PUT FEB-45*UKR-NI OI=1516 at $3.50 SL=1.75
BUY PUT MAR-45 UKR-OI OI= 207 at $5.10 SL=3.00

Average Daily Volume = 1.04 mil



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

Gearing Up

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_020303.asp



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

Ready, Aim...

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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.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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