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Daily Newsletter, Tuesday, 02/04/2003

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The Option Investor Newsletter                 Tuesday 02-04-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Worst Ever
Futures Markets: After-Hour Madness
Index Trader Wrap: A funny thing happened when the bond market
closed
Market Sentiment: Moonwalking
Weekly Fund Screen: SRI Mutual Funds


Updated on the site tonight:
Swing Trader Game Plan: Change of Heart


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      02-04-2003           High     Low     Volume Advance/Decline
DJIA     8013.01 - 96.80  8104.61  7935.12 1.68 bln   1338/1880
NASDAQ   1306.15 - 17.60  1310.48  1292.20 1.34 bln   1257/2005
S&P 100   428.84 -  6.86   435.70   436.14   Totals   2595/3885
S&P 500   848.20 - 12.12   860.32   840.19
W5000    8049.55 -105.30  8154.81  7980.27
RUS 2000  368.72 -  1.53   370.25   364.99
DJ TRANS 2145.38 - 12.10  2160.41  2131.29
VIX        36.70 +  2.72    38.08    36.22
VXN        48.31 +  2.27    48.90    47.55
Total Volume 3,213M
Total UpVol    783M
Total DnVol  2,368M
52wk Highs  168
52wk Lows   232
TRIN       2.16
PUT/CALL    .84
************************************************************

Worst Ever

That was the comment by John Chambers about the current
technology environment. The AIG CEO made similar comments
about the current state of the liability insurance business
when warning this morning about a -$1.8 billion charge.
Does this sound like an economic recovery?

Dow Chart – Daily




Dow Chart - 45 min




Nasdaq Chart – Daily





We began the day with the Factory Orders report, which posted
a +0.4% gain on the headline number, which was above the +0.3%
consensus. Unfortunately if you take out defense and aircraft
the number actually dropped to -0.33%. The Computer and
Electronics orders component rose +3.2%. Order backlog fell
again suggesting more layoffs ahead. It was obviously a
mixed report and despite the rise in the headline number
it did not encourage investors.

According to the Challenger Layoff Report the number of
layoffs increased +42% from 92,917 in December to 132,222
in January. This was above the 2002 monthly average of
119,200. According to John Challenger there is no evidence
that the pace of layoffs has slowed. This is a leading
indicator for the Nonfarm Payrolls on Friday and a telling
clue to the strength of the fragile recovery. We saw last
week that the Help Wanted Index had fallen to a very low
level. Fewer jobs and higher layoffs are not indicating
an end to the soft patch.

Chain Store Sales came in at -0.9% and reversed the gains
for the prior two weeks. Some feel the slow sales are a
result of lower inventories going into the holiday season
leaving lower levels of clearance items to dump in January.
Stores would rather not have any sales than have to sell
excess holiday inventory for a loss. With confidence/sentiment
slipping toward the lows and rising unemployment the odds
of a pickup in buying are slim.

Impacting the market more than the economic reports was
a warning from AIG that they were going to take a $1.8
billion charge to cover spiraling claims. They claimed
premium rates have been driven down by fierce competition
to levels that did not cover damage awards in today's
litigious environment. This knocked -3.63 off the price
of AIG and the comment about lower premiums due to fierce
competition rippled through the sector and drove prices
lower.

Another example of tough times was the decision by the
Goodyear board to eliminate their 12-cent dividend to
save cash. They decided to take the action in light of
disappointing results and challenging conditions. GT
notified employees in January it may cut -15% of its
US workforce. Are they telling us the auto companies
are ordering less tires in expectation of slower sales?

After the bell Cisco reported earnings that beat the
street on the surface at 14 cents a share compared to
estimates of 13 cents. That was the good news but that
news was tainted. Those results were also based on Cisco's
buyback of $1.5 billion in stock in the quarter. That is
100 million shares. Other factors included a revenue
number that was on the bottom edge of the consensus.
Cisco said that sales could fall -2% to -3% in the
current quarter due to the "most challenging environment
the information technology industry had ever faced."
Not very bullish words from the master of spin himself.
He was very positive about Cisco and the potential for
profits WHEN the spending in the IT sector returned. I
believe him because their gross margins rose to a
whopping record 70.4%. While this is great one analyst
said he would be more comfortable with 50% so they would
have some growth room. Performing at such high profit
rates means they could explode on volume in my personal
opinion. Still CSCO fell in after hours on the outlook
statements.

While Cisco may be performing well despite the tough
environment and falling sales there are probably few
other tech companies who are doing that good. The news
of the 70% margin for Cisco is great for Cisco but other
companies are fighting to make a profit much less prosper.
Cisco may have a decent day on Wednesday but other techs
may not do as well based on the tough environment talk.

In geopolitical news North Korea took exception to the
US statement that they were going to move ships and
planes into the region to combat a potential future
threat. Iraq claimed again they had no weapons despite
another minor find by the inspectors. Regardless of the
claims and posturing we will see the evidence the US is
willing to release tomorrow when Powell goes before the
UN. The coalition is actually growing with a few more
countries leaning in the US direction due to strong
lobbying by the top players. I have no clue as to the
market direction after this speech. If he proves his
case and gets more UN support that would be a good thing
for the war but a negative for the market? If he does
not prove anything and the world realizes the US is
going to act by itself wouldn't that be bad for the
market? Who knows what is priced in at this point.

The markets need help from somewhere. The Dow tested
7950 once again and held but struggled getting back
over 8000. The Nasdaq finally gave up the 1320 level
and the 1300 level for most of the day but clawed its
way back to 1305 on short covering in front of Cisco's
earnings. The rising oil, gold and falling dollars is
extracting money from the markets in a torrent. Comments
like AIG, GT, CSCO today along with the Challenger Layoff
report are not building any confidence in a recovery. The
Nonfarm payrolls are due out Friday and most bets are for
a negative number again. This will be the third consecutive
month and fourth out of five months if it happens.

I think the bottom line is still a negative outlook
despite all attempts to spin it to the contrary. There
are pockets of strength like we saw last Friday but the
potential war is keeping those areas from expanding. The
markets are showing a strong desire to hold at this level
but the overall trend is still down. Tomorrow should be
one more step toward clearing the war uncertainty and the
results of "seeing clearer" could be good or bad. These
next 2-3 weeks are going to be tough unless the US says
"ok, we are giving up and going home." Anything else will
continue to be a drag of some sort.

In the S&P Emini futures there was an unusual event this
afternoon. They were trading for 847.25 when Cisco earnings
were announced. The intraday high was 848.00. When CSCO
announced they beat the street they spiked to 948.00. No,
that is not a misprint. Somebody entered a trade to buy
several hundred contracts but added an extra zero. In
literally a couple of heartbeats the price jumped +100
points. Traders were dumbstruck. I had about a dozen charts
of the ES03H contract open on my desktop for different
intervals and the price literally rolled off the top of
the screen within a couple seconds as buy stops were
triggered for level after level. Globex eventually busted
all the trades above 860 once the error was reported
but there were some really unhappy traders for about 20
min. Several really happy ones as well who had shorts
parked well above the current ranges. When I first saw
the spike I thought Cisco had blown away estimates but
could not imagine a win that could produce that type of
spike. Immediately I thought Saddam had been eliminated
or Osama had been found. That would be the type of reaction
I would expect. Just not in 5-10 seconds. Just proves you
always need stop losses regardless of how far away you are
from the current price. Have you hugged your stops today?

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

After-Hour Madness
By John Seckinger
jseckinger@OptionInvestor.com

Following Cisco's earnings report, futures went straight up
and then straight down.  When sanity finally set in, sentiment
remains at roughly the level as when the week started.  This
should all change very soon.

Tuesday, February 4th at 4:15 P.M.

Contract       Last    Net Change    High        Low       Volume

Dow Jones     8013.29    -96.53    8104.61     7934.77
YM03H         8020.00    -57.00    8082.00     7905.00     26,434
Nasdaq-100     971.73    -15.34     974.68      960.01
NQ03H          975.00    -11.00     978.50      959.50    218,273
S&P 500        848.20    -12.12     860.32      840.19
ES03H          849.25     -9.25     860.00      838.25    744,236

Contract         S2         S1       Pivot        R1         R2

Dow Jones      7847.72    7930.51   8017.56    8100.35    8187.40
YM03H          7825.00    7923.00   8002.00    8100.00    8179.00
Nasdaq-100      954.14     962.94    968.81     977.61     983.48
NQ03H           952.00     963.50    971.00     982.50     990.00
S&P 500         829.44     838.82    849.57     859.00     869.70
ES03H*          827.50     838.25    849.25     860.00     871.00

*Note:  The ES03H daily levels will be based on a high of 860.  I
went through time and sales and saw a ton of trades 'crossed out'
above that area.  If the 948 level was used (high on cme website),
the pivot would be at 878.  I find it impossible to believe it
traded anywhere near there.

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 842.00, exit 842.50, change -0.50
Long 842.50, exit 840.75, change -1.75
Long 843.00, exit 843.50, change +0.50
Short 840.00, exit 841.50, change -1.50
Short 846.50, exit 843.75, change +2.75

Total for the session: -0.50
Total for the week: +2.50

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)

An interesting day to say the least.  The ES contract gapped lower
and traded down to the “support zone” highlighted on Monday
from 837 to 839.25.  The 839.25 area was breached, but not 837.
Shorts covered, the memorial service took place for the heroic
astronauts, and attempted weakness late in the session was matched
by shorts squaring ahead of Cisco’s report.  That report sent the
ES contract threw the roof, and later imploded as revenues were
dissected and guidance given.  Shares of Cisco fell from 13.20 to
12.30 before recovering to the 13.12 area.  The high was 13.38,
but the ES contract first appeared to trade significantly higher.
In after-hours, the ES contract is at 849.25.

After Cisco, how does this affect our intermediate-term outlook?
It doesn’t.  Prices never hit the December 31st low of 686, and
I believe the after-hours high to be underneath the 50% daily
retracement area as well (861.25).  However, bears failed to get
a close under 839 and is now just barely under the half-way mark
from the 50% area to the 61.8% retracement level of the move from
October to December.  The intermediate "zone of resistance" in the
ES from 867.75 to 872.50 remains intact. Also, 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.  S2 comes
in at 827.50.  S1 is in the support zone at 838.50.  R2 is in the
zone of resistance.’

Chart of ES03H, Daily



Looking at a 60-minute chart of the ES contract, the daily pivot
comes in at 849.25 and can be used as a barometer for aggressive
traders.  Under 849.25, look for a move to 844.  Above the pivot,
odds are that the ES contract trades towards 855.75.  Prices really
are more neutral here than anything else; however, the move should
start from near Wednesday’s pivot and take out one of the daily
retracement areas without looking back.

Chart of ES03H, 60-minute



Bullish Percent of SPX: 44.60% and lower by 1.09% on Tuesday. 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 0's on Tuesday, and there is now a
triple-bottom at 845.  The low was 840.19 on Tuesday,and a print
of 840 would have given a strong sell signal.  The bearish price
objective remains at 750. A move above 870 would give a buy signal.

The March E-mini Nasdaq 100 Contract (NQ03H)

With the 978.50 to 983 area finally taken out, bearish traders
should look for a move to the Weekly S1 level at 957.25. Only a
daily close above 983 will shift sentiment, but that is still a
solid risk/reward trade.  Aggressive longs could take positions
above 983 and use a stop back at 978 or slightly underneath.  The
objective would be for a move to 1000 and then to the 1019-25 area.
Conservative traders can look for a move to 962 and half of the
daily retracement levels (see chart).  More aggressive bears can
actually add to positions if the weekly S1 area is cleared, and
then look for a move to 941.50.  Note:  Daily S2 is at 952, so
some of these levels could be in play on Wednesday.  The daily
R1 area is at 982.50, and just under the aforementioned 983 level.
This adds to its significance.

Chart of NQ03H, Daily


Looking at a 90-minute chart of the NQ contract, notice how both
R2 and S2 really doesn’t line up well with the aforementioned levels.
However, both R1 and S1 lines up very well.  With that said, look
to put more emphasis the first support and resistance areas.

Chart of NQ03H, 90-minute



Bullish Percent for NDX: This indicator fell 2% to 44% on Tuesday,
and continues to portend bears will be selling rallies going forward.
The column of "O's" is now at eleven.  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 took out the lower retracement area of 7948 on
Tuesday; however, prices recovered once again and closed back into
the range of 7948 to 8152 area.  Looking at the chart below, the
futures contract remains inside the bearish regression channel,
but direction is not as clear as I would like.  Least resistance,
on an intermediate-term level, is still bearish.  Note:  I will be
using the range from 8152 to 8176 as the “key resistance” area
(8176 being the weekly R1 area).  The monthly pivot is at 8253.

Chart of YM03H, 90-minute


Bullish Percent of Dow Jones: A P&F chart for the Dow fell back into
a column of "O's" on Tuesday, and now is showing a triple-bottom at
the 7950 area.  There is still a bullish price objective of 8600,
but that will change once again if 7950 is taken out. As far
as the bullish percent is concerned, it fell 3.33% to 26.67, and
the column of O's now stands at 16.  This is significant relative
weakness, but the bullish percent of the NYSE has just turned
into a column of "O's".  Remember, a close underneath 30% should
start to shift risk into the bears' camp.

Good Luck.
Questions are welcomed,
John Seckinger


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

A funny thing happened when the bond market closed

Today's session started out with a "defensive" tone as Treasuries
found buying on U.S. dollar weakness.  Meanwhile, gold futures
bid to contract highs as stocks readied to open lower.

As the session progressed and economic data looked to be somewhat
ignored, the major indexes found some footing at their WEEKLY S1
levels support and started to mount a rather impressive recovery.

With just about an hour left in today's equity trading close,
stocks had turned lower as bond bulls looked to finish out their
session with a strong round of buying and drove yields back to a
session lower.  For equities, it looked like a route was on for
the bears into the close.  Then, suddenly, but with plenty of
notice, the bond market closed for trading at 03:00 PM EST (the
bond markets always close at 03:00 PM EST on full session days),
and the equity indexes made one last push into the close.

Get a bond and equity trader in the same room and you'll get
different stories from each as to who the better, or should I say
"smarter" trader is.  A bond trader will tell you that she's got
to be smarter as the bond market is twice the size of the equity
market and with interest rates and Treasury bond YIELDS at
historically low levels, a bond trader has to be very smart when
monitoring risk.  An equity trader will argue that bonds are a
simple instrument to trade as yield is "certain" when the trade
is initiated, while equities hold not only greater potential
reward, but greater risk with various dynamics or scenarios
constantly shifting the hunger or complete distaste for the
pieces of paper worth 1-cent par value.

Here's a quick look at how the 10-year YIELD ($TNX.X) traded
today.  Just remember, a bond's YIELD falls as that bond's price
rises.  Underneath the 10-year YIELD chart, I've place the S&P
100 Index (OEX.X).  Both chart's time interval is 5-minutes.  My
general preface with the 10-year YIELD is that as YIELD moves
lower (from buying in the bond) it depicts a market that is more
"defensive" and seeking out the safety of bonds.  The different
retracement levels on the OEX chart are the same levels we looked
at in last night's Index Trader Wrap.

10-year YIELD / S&P 100 Comparison - 5-minute intervals




In last night's wrap, we thought a weaker dollar and buying in
bonds (a lower YIELD as a result) might be a signal for weakness
in stocks, and that was what looks to have unfolded today.  I do
believe, but will never know for sure, if the bond market had
remained open longer, that the 10-year YIELD might well have
broken its days low and carried the OEX along for the ride, with
a close at its session low.  However, when the bond market
closed, the OEX turned higher about 10-minute later and closed
right at our 38.2% retracement from WEEKLY pivot analysis.

As it relates to technical analysis, one thing I think traders
need to be cognizant of is today's "gap" lower in the 10-year
YIELD (I haven't shown extended hours of trade) that may "need"
to be technically filled back to the upside.  If so, this little
area that is void of trading, if filled back higher, could see an
"in unison" move back up to the WEEKLY 61.8% retracement level
near OEX 436.  In times of "uncertainty" like I think the market
is in right now, Treasury YIELDS can be a good security to
monitor to get a feel for the MARKET's perception of risk as it
relates to stocks and bonds.

My thoughts as it relates to the above chart comparison between
the OEX and 10-year YIELD is this.  As long as the 10-year YIELD
remains below the 3.988% level (this is pretty close to past
commentary regarding stocks being at risk to lower prices should
10-year YIELD fall back below 4.0% or 40.00) I'm view the
MARKET's psychology as more defensive, and therefore would be
more bearish toward the OEX below 436.

I have no clue what Secretary of State Colin Powell is going to
say tomorrow, but will be keeping an eye on bond YIELDS to try
and get a reading on how the MARKET is perceiving risk.

With the U.S. Dollar seeing selling again today, this to me is
somewhat of a "lack of confidence" vote from foreign investors in
the greenback.  Is it the President's Budget that will see rising
deficits, or is it a U.S.-lead "war with Iraq" that is causing
the dollar weakness?

This is a question I can't answer.  If it was a "lack of
confidence" type of trade, then I would have thought Treasuries
would see selling in combination with the selling in the dollar.
But this hasn't been happening.  I think the weakness in the
dollar has quite a bit to do with "Iraq war" concerns, and why we
are seeing money go into bonds, and the money going into bonds
for the most part is from U.S. citizens, pulling money out of
stocks.  After all, you and I don't necessarily sell our dollars
to go into bonds, but foreign investors will sell their U.S.
dollars to take their money back home.

The S&P 100 Bullish % ($BPOEX) saw a net loss of 2 stocks to
reversing p/f sell signals.  This has the S&P 100 Bullish %
falling to 41% and still "bear confirmed" status.

S&P 500 Index Chart - Daily Interval




The SPX has "whipped" back below this week's pivot of 854.50 and
correlative 854.66 level from monthly 38.2% retracement level.
The inability of the SPX to close above 861.24 now has that level
looking like a firm selling point yesterday, with additional
selling today.  As such, I'd look for FIRM resistance to be
building at SPX 854 and WEEKLY "max target" of 826 to be in play
by Friday as lower Bollinger Band gives some further downside
room after last week's test of the lower range.  Stochastics on
the daily chart are trending higher and this is thought of as
"bullish divergence" (when an oscillator moves the opposite of
price) and can signal a quick and sudden rebound for price.
However, as we noted last week, we thought we might be on the
lookout for stochastics to approach the mid-portion of their
overbought/oversold zone like they did in mid-December when the
SPX looked to stabilize around the 900 level, before the SPX
declined further to 872-877 area and then rebounded STRONG to
935.  As such, similar technicals unfolding would most likely
have bears rather eager to lock in gains on an SPX decline into
the 837-826 zone, with MAX decline of 826 this week being the
most I would look for.

SPX bears would want to continue to monitor bonds and the dollar
and look for bond price strength (lower YIELD) and dollar
weakness to have stocks vulnerable.

Today's action saw a net loss of 5 stocks to reversing p/f sell
signals in the SPX and has the S&P 500 Bullish % ($BPSPX) falling
to 45% bullish and still "bull correction" status.

Dow Industrials Chart - $50-box size




The Dow Industrials (INDU) 8,013 -1.19% traded a session low of
7,934.77 today and didn't quite test its WEEKLY S2 level of
support.  The Dow has also been finding buyers above the 7,900
level the past 5-sessions and shows a triple-bottom at 7,950.
Bears look for a break of 7,900 to lead to WEEKLY S2 of 7,801,
which would be just above the lower Bollinger band of 7,750.  I'd
use the recent double-top buy signal at 8,150 as an alert to
strength, but would look for WEEKLY R2 of 8,283 to serve
resistance along with the moving lower "Avg," which is the 21-day
SMA and middle-portion of the Bollinger Band.

Today's action saw a net loss of 1 stock to a reversing p/f sell
signal in the Dow, which has the Dow Inustrials Bullish %
($BPINDU) falling to "longer-term oversold" levels of 26.67%.
Again, levels above 70% are deemed "overbought" while levels
below 30% are deemed "oversold."  The more narrow Dow Bullish %
has had a tendency to fall to levels of 20%-3.33%, but a lot of
risk has been removed since late November's 72% reading (red B on
a p/f chart is early November, while red C is early December).

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals




Tonight I'm taking one of our "highlighted yellow" bars of
resistance from last night's wrap of $26.00 and moving it lower
to mark resistance in the QQQ from $24.49-$25.52.  In after-hours
trading, Cisco Systems' (NASDAQ:CSCO) $13.20 -2.07% earnings
provided some rather volatile swings as the company exceeded
bottom line estimates by 2-cents, but revenues were slightly
below expectations.  CEO Tom Chambers was quoted as saying, "most
challenging environment the information technology industry has
ever faced."

With the NASDAQ-100 Bullish % ($BPNDX) seeing 2 more stocks
generate reversing point and figure sell signals and bullish %
still "bear confirmed" at 44%, I view formidable resistance in
the Q's between $25.31 and $25.52, with near-term resistance at
$24.50.  Weekly "MAX target" for bears would be the strong
correlation of support from the pivot matrix at/near $23.20.

Here are tomorrow's daily pivot analysis updated levels.

Pivot Matrix




A "daily" level to monitor for support tomorrow is the OEX daily
S1 of 424 and correlative weekly S1 of 425.  Today's low in the
OEX was 424.44, but in its "darkest minutes" found buyers near
this level.  Other DAILY S1s and WEEKLY S1s are also quite
correlative with each other and bears will most likely need
dollar weakness and buying in Treasuries to see these levels
broken to have a shot at the WEEKLY S2s.

With all of the bullish % indicators showing a growing number of
stocks giving reversing p/f sell signals, the market internals
continue to depict weakness.  The very broad NASDAQ Composite
Bullish % ($BPCOMPQ) saw a net loss of 0.46% today and has the
bullish % edging lower at 42.16%.  It would still take a reading
of 42% to have this bullish % reversing back lower into "bull
correction" status and following last Thursday's reversal lower
of the NYSE Bullish % ($BPNYA).  These two very broad bullish %
indicators are often the very last to turn up or down in a
"cycle" and when they get in unison, act like a "sledge hammer"
or large weight in a downward move.

Jeff Bailey


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

Moonwalking
by Steve Price

Was that a reversal of sentiment we saw today, or simply more
range bound trading? So far we have yet to break the range that
we have been in for the last week, and until the Iraq situation
comes more closely into focus, it is likely to continue.  Of
course with Cisco earnings out tonight, we may get a push in one
direction or the other, but the news is still currently dominated
by Iraq.

Today's sell-off was enough to turn the point and figure charts
in the major indices back into bearish columns of "O" and has us
flirting with triple-bottom breakdowns in the Dow and SPX.  The
OEX is looking at a double-bottom signal just below today's
range, or for non-traditional PnF chartists a descending triple-
bottom. While the equity percentages for those patterns cannot be
translated directly to indices, those breakdowns will still look
awfully bearish if they occur.  However, they have not yet
occurred and until we get them, it is hard to conclude we are
anything but range bound.  The SPX breakdown would occur at 840
and the index actually rebounded at 840.19, indicating there are
possibly institutions playing the bounce from those levels.

The morning sell-off followed news from insurance giant AIG that
it would take a$1.8 billion charge in the fourth quarter to
increase reserves for workers' compensation claims. The company
said judgments and settlements reached record high levels of
frequency and severity in 2002 and increased across several
areas.  AIG also is increasing reserves to cover directors' and
officers' liability and health care liability, as well.  That
sent AIG down 6.5% with a loss of $3.63 and sent other financials
reeling.  Once the financials gave in, the rest of the market
followed.   It is curious that workers' comp claims reached their
highest levels, considering unemployment reach higher levels in
2002, and thus there were fewer workers.  However, maybe this is
further argument for the President's tort reform agenda.
Certainly, with doctors going on strike in New Jersey due to high
medical malpractice costs resulting from large jury awards, there
are a number of reasons supporting that theory.  Workers'
Compensation is generally handled in an administrative court,
rather than the traditional courtroom, but it is becoming obvious
that claims of all types, and the awards that follow, are
increasing.

One of the other catalysts for this morning's slide was a warning
from French telecom giant Alcatel.  The equipment maker forecast
a drop of 25%-30% in first-quarter sales, following a similar
warning from Ericsson on Monday.  Sales declines were expected,
but not to this degree.

Gold futures continued their defensive climb ahead of Colin
Powell's speech to the U.N. They raced to multi-year highs,
jumping as high as 382, following a close of 370.8 on Monday.
That defensive indication was confirmed by moves in oil and
bonds.  Oil futures got a big bounce after falling on Monday
following an increase in Venezuelan output.  That pricing
pressure didn't last long as war fears took over once again,
driving prices back over $33 per barrel for March futures.

The Semiconductor Index (SOX) went into a holding pattern ahead
of Cisco's earnings release.  While Cisco doesn't make chips, the
forecast from the company should affect most techs tomorrow and
traders seemed weary of taking positions ahead of those earnings.
Those earnings beat estimates by two cents, but were accompanied
by lower than expected sales and cautious comments.  Cisco's CEO
called it "the most challenging environment the information
technology industry has ever faced."  In spite of the earnings
beat, the stock sold off slightly after-hours.  After a close of
$13.20, it was trading $13.12 as of this writing.  It did trade
as low as $12.63 following its announcement.

We did rebound strongly from the day's lows, just above the
breakdown levels.  The Dow finished the day with a loss of 96.53,
giving back part of the gains of the past two days, but still
nothing decisive.  Traders following the retracement from the
August highs to the October lows in the Dow, SPX and OEX will
note that we have been stuck between the 50% retracement to the
upside and the 38.2% retracement to the downside on a closing
basis.  Look for a closing print outside of those brackets for an
indication the trend will continue in one direction or another.
There is still quite a bit of overhead resistance to get through
if we do break to the upside, but that will be the first step.
If we break to the downside, there is little to prevent us from
heading toward first the July lows, and then possibly those set
in October.

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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8013

Moving Averages:
(Simple)

 10-dma: 8113
 50-dma: 8523
200-dma: 8781



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  848

Moving Averages:
(Simple)

 10-dma:  860
 50-dma:  899
200-dma:  931



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  971

Moving Averages:
(Simple)

 10-dma:  996
 50-dma: 1041
200-dma: 1033



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


The Semiconductor Index (SOX.X):  The SOX has gone into a
consolidation mode, barely moving since the AMAT warning last
week sent it to a bounce off the 260 support level. It has
hovered around 270 the last few days, but now registering lower
closes for four straight days. The trend remains down, but it the
sector has actually out performed the rest of the techs.  The
COMP and NDX have broken down to new lows, with the COMP taking
out support at 1300 intraday.  We'll be watching the reaction in
the tech sector to the Cisco news (highlighted above) after the
bell.  If the SOX does break down below 260 on a sell-off, it
finds the next level of support at in the 235-245 range.

52-week High: 657
52-week Low : 214
Current     : 269

Moving Averages:
(Simple)

 21-dma: 303
 50-dma: 316
200-dma: 349

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

Market Volatility

The VIX rebounded back over the 35% level that has been so
pivotal in recent months. The break below that level on Monday
indicated fear had been draining out of the market as we tested
resistance toward the upper end of this week's range.  Today's
test of the lower end of that range woke up traders to the
downside possibilities and sent the VIX as high as 38.08
intraday.  If we do continue lower in the equities, the next
level of resistance in the VIX is 40 (actually 40.89 intraday).
A decisive move over 40 would indicate a bigger breakdown in the
wings.

CBOE Market Volatility Index (VIX) = 36.70 +2.72
Nasdaq-100 Volatility Index  (VXN) = 48.31 +2.27

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.84        522,531       439,393
Equity Only    0.78        356,403       277,660
OEX            1.37         22,092        30,331
QQQ            0.79         59,494        47,278


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

Bullish Percent Data

           Current   Change   Status
NYSE          45.2    - 0     Bull Correction
NASDAQ-100    44.0    - 3     Bear Confirmed
Dow Indust.   26.7    - 3     Bear Confirmed
S&P 500       45.0    - 1     Bull Correction
S&P 100       41.0    - 2     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  1.42
10-Day Arms Index  1.39
21-Day Arms Index  1.31
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       1133          1715
NASDAQ     1175          1920

        New Highs      New Lows
NYSE        71               61
NASDAQ      61               79

        Volume (in millions)
NYSE       1,668
NASDAQ     1,349


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

Commitments Of Traders Report: 01/28/02

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 increased long and short positions, ending up with a
net short increase of 4,500 contracts.  Small traders took the
opposite approach, reducing both positions, but ending up with a
net increase of 4,300 long contracts.

Commercials   Long      Short      Net     % Of OI
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%)
01/28/03      422,232   468,586   (46,354)   (5.2%)

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
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%
01/28/03      142,734    85,567    57,167     25.0%

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 left positions virtually unchanged, with a net
reduction of 1,300 short contracts.  Small traders Small traders
 left the long side unchanged, while reducing shorts by 800
 contracts.


Commercials   Long      Short      Net     % of OI
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%)
01/28/03       37,955     49,321   (11,366) (13.0%)

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
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%
01/28/03       25,814     7,576    18,238    54.6%

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 reduced the overall long position by 1,400 contracts,
while small traders reduced the net short by 200 contracts.

Commercials   Long      Short      Net     % of OI
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%
01/28/03       16,013    11,574    4,439      16.1%

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
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%)
01/28/03        4,838     7,836    (2,998)   (23.7%)

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

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


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

SRI Mutual Funds

This week, we screen a universe of socially responsible investing
("SRI") mutual funds to see which ones have performed the best in
relation to similar funds.  We get our list of SRI funds from the
Social Investment Forum site (www.socialinvest.org), the national
trade association for the social investment industry.  Their list
includes all Social Investment Forum mutual fund members that are
at least three years old, and includes only the A shares of funds
with multiple share classes.  Money market funds aren't included.

Why should you consider investing in a socially responsible fund?
According to the Social Investment Forum, there are a few reasons
to consider SRI mutual funds today.  First, the percentage of all
socially and environmentally responsible mutual funds earning the
two highest marks from either or both Lipper and Morningstar rose
slightly in 2002.  Of the 51 mutual funds on the SRI list, nearly
two out of three (65 percent) hold one of the two highest ratings
for performance from Lipper and/or Morningstar.  Of the 18 mutual
funds on the list with at least $100 million in assets, 13 out of
18 (72 percent) received top performance ratings from one or both
of the fund trackers through 2002.

The Social Investment Forum also states that assets of SRI mutual
funds actually grew on a net basis in calendar 2002 compared with
net cash outflows by other equity mutuals.  According to Lipper,
SRI mutual funds experienced net inflows of $1.5 billion in 2002,
while diversified stock funds posted net outflows of nearly $10.5
billion.  Some believe the corporate scandals of 2002 had much to
do with the net inflows into SRI mutual funds with more investors
becoming concerned about the companies in which they invest.  So,
investors sharing those concerns may wish to consider SRI mutuals
for a portion of their long-term financial plan.

Screening Process

For our purposes this week, we're going to focus on the SRI funds
tracked by the Forum that are currently 4-star or 5-star rated by
Morningstar for risk-adjusted performance in relation to category
peers.  According to the Forum website (www.socialinvest.org), 43
percent of the SRI funds they track have 4 or 5 stars compared to
32.5 percent for the general mutual fund universe.  We counted 22
SRI funds with Morningstar 4-star or 5-star overall risk-adjusted
performance ratings, as follows:

 SRI Mutual Funds With Morningstar 4-Star Ratings:
 American Trust Allegiance (ATAFX)
 Aquinas Growth (AQEGX)
 Ariel Appreciation A (CAAPX)
 Bridgeway Ultra Large 35 Index (BRLIX)
 Calvert New Vision Small Cap A (CNVAX)
 Calvert Social Investment Enhanced Equity A (CMIFX)
 Calvert Social Investment Equity A (CSIEX)
 Citizens Small Cap Core Growth (CSCSX)
 Neuberger & Berman Socially Responsible Inv (NBSRX)
 Parnassus Fund (PARNX)
 Parnassus Income CA Tax-Free (PRCLX)
 Pax World Balanced (PAXWX)
 Pax World High Yield (PAXHX)
 Portfolio 21 (PORTX)
 Walden Social Balanced (WSBFX)

 SRI Mutual Funds With Morningstar 5-Star Ratings:
 Ariel Fund (ARGFX)
 Bridgeway Aggressive Growth (BRAGX)
 Bridgeway Ultra Small Company (BRUSX)
 Bridgeway Ultra Small Company Tax Advantage (BRSIX)
 Parnassus Equity Income (PRBLX)
 Walden Social Equity (WSEFX)
 Women’s Equity Fund (FEMMX)

These 22 top-rated SRI mutual funds include all the fund families
you would expect to see in the SRI investment world including Pax
World, Ariel, Calvert, and Parnassus, to name a few.  So, in that
regard, the 22 funds make an excellent pool of SRI investments to
consider.  Some of these funds have been discussed before on this
website over the last couple years.

We then compared the 22 funds on return, risk, and expense, using
Morningstar's Fund Compare tool (www.morningstar.com), and scored
the SRI funds based on risk factors such as beta, alpha, standard
deviation and Sharpe ratio, as well as their expense ratios.  Our
customized scoring criteria looked something like this:

 Morningstar Score Tool Criteria:
 Low Standard Deviation
 Low Beta
 High Sharpe Ratio
 High Alpha
 High Yield
 Long Manager Tenure
 Low Turnover
 Low Expense Ratio

In other words, we said score these 22 SRI mutual funds using our
customized criteria.  Based on our customized criteria and giving
equal importance to each criterion the Ariel Fund (ARGFX) had the
highest score, a 36.  Six SRI funds had scores of 30 or better as
follows:

 SRI Funds With Highest Customized Scores:
 36 Ariel Fund (ARGFX)
 34 Parnassus Income CA Tax-Free (PRCLX)
 33 Bridgeway Ultra Small Company (BRUSX)
 32 Pax World High Yield (PAXHX)
 31 Parnassus Equity Income (PRBLX)
 30 Pax World Balanced (PAXWX)

Five SRI funds scored less than 20 points - Bridgeway Aggressive
Growth, Calvert Social Investment Enhanced Equity, Citizens Small
Cap Core Growth, American Trust Allegiance and Portfolio 21.  The
Portfolio 21 Fund scored only 8 points.

We played around with the criteria importance dials, raising the
importance of having high alpha, high Sharpe ratio, long manager
tenure, low expense ratio, and high yield.  The Ariel Fund had a
high score of 58 points now.  Bridgeway Ultra Small Company Fund
and Parnassus Income CA Tax-Free tied for second with a 55 score.
Parnassus Equity Income (52) and Pax World High Yield (50) funds
were the other two SRI funds to score 50 or more.

We returned to the Fund Compare tool to check out costs/expenses,
and to make sure that none of the SRI funds are currently closed
to new investors.  Two Bridgeway funds, Aggressive Growth (BRAGX)
and Ultra Small Company (BRUSX) are not open to new investors at
this time, so scratch them off the list.  We also eliminated the
Walden Social Balanced Fund (WSBFX) and the Walden Social Equity
Fund (WSEFX) since they require $100,000 to open an account, too
high for the average individual investor.

Favorite Funds

Of the 18 SRI mutual funds left on our list, the one we like the
most for long-term investors is the Parnassus Equity Income Fund
(PRBLX) managed by Todd Ahlsten since May 1, 2002.  Ahlsten seeks
to achieve the fund's income and growth objective by investing at
least 75 percent of assets in dividend-paying stocks, emphasizing
those that pay an equal or better dividend than the average stock
in the S&P 500 index.  Its social criteria does not allow Ahlsten
to invest in companies that produce alcohol, tobacco, weapons, or
nuclear energy.

Relative to the large-cap value category, Parnassus Equity Income
Fund has produced high returns for investors with a below average
level of risk, receiving a highest 5-star rating from Morningstar
for risk-adjusted performance.  This fund also currently receives
Lipper's highest grade ("1") for both total return and consistent
return performance.  The fund's below average risk level shows up
also in its Lipper preservation score.  Here again, Lipper awards
the fund its highest mark of 1 for capital preservation.  So, the
Parnassus equity income fund has excelled at producing consistent
strong returns in good times and preserving capital in bad times.

Below is a performance summary as of Monday, February 3, 2003 for
the Parnassus Equity Income fund, using Morningstar's numbers and
category rankings.

 YTD 2003 Return:
 - 0.7% Parnassus Equity Income (PRBLX) 5th Percentile
 - 2.2% Average Large-Cap Value Fund
 - 2.2% S&P 500 Large-Cap Index

 1-Year Return:
 - 5.4% Parnassus Equity Income (PRBLX) 1st Percentile
 -19.3% Average Large-Cap Value Fund
 -22.1% S&P 500 Large-Cap Index

 3-Year Annualized Return:
 + 2.9% Parnassus Equity Income (PRBLX) 4th Percentile
 - 5.4% Average Large-Cap Value Fund
 -14.3% S&P 500 Large-Cap Index

 5-Year Annualized Return:
 + 9.0% Parnassus Equity Income (PRBLX) 1st Percentile
 - 1.3% Average Large-Cap Value Fund
 - 1.8% S&P 500 Large-Cap Index

While the fund's long-term track record is not fully attributable
to the current manager, Todd Ahlsten, he has done a good job with
the fund since taking the reins, minimizing stock losses relative
to similar funds.  The Parnassus Equity Income Fund, accordingly,
maintains its superior long-term performance record.  You can see
that trailing 5-year numbers are still quite strong, producing an
average annual rate of return of 9 percent for investors when the
average large-blend fund lost 1.3 percent and the market (S&P 500
index) declined by an average rate of 1.8 percent a year.

Since arriving, Ahlsten has the fund in familiar turf - the top 5
percent of the Morningstar large-cap value category.  So although
there has been a manager change here within the last year, mutual
fund investors have reason to remain optimistic about this fund's
long-term prospects.  Note, however, that Ahlsten takes a broader
approach to stock investing and has more of multi-cap blend style
(versus its historical style average, large-cap blend).  That may
increase the fund's volatility compared to historical levels, but
it may also increase the fund's long-term total return potential.

Other funds we like include the Ariel Appreciation Fund A (CAAPX)
and the Ariel Fund A (ARGFX).  Both funds are run by John Rogers,
Jr. using a disciplined approach, which blends "value and growth"
into one portfolio.  Ariel Appreciation Fund invests primarily in
mid-cap and small-cap stocks, while the Ariel Fund invests mostly
in the small- and micro-cap sectors.  Rogers recently assumed the
day-to-day portfolio management reins for Ariel Appreciation Fund
and has managed the flagship Ariel Fund for over 16 years.  Ariel
Funds seek environmentally responsible companies and exclude from
investment those issuers primarily involved in the manufacture of
weapons systems, nuclear energy, or tobacco.

According to Morningstar, Ariel Appreciation Fund is 4-star rated
and Ariel Fund is 5-star rated for risk-adjusted returns relative
to category peers.  In relation to other mid-cap blend funds, the
Ariel Appreciation Fund has generated above average returns, with
below average risk, over time.  In the last three years, the fund
has produced high return with average relative risk, receiving an
overall 3-year rating of 5 stars.  Ariel Fund has generated above
average returns over time, with below average risk in relation to
other small-cap blend funds.  In the last three years, the Ariel
Fund has produced high returns, with below average risk relative
to other small-cap blend funds.

Conclusion

Both the Parnassus Equity Income Fund and the two Ariel products
have "blend" styles now, according to Morningstar, which we find
to be attractive because they combine value and growth qualities.
That will help to smooth out returns over time by not tilting to
one style or the another - since value and growth can outperform
at different times in the market cycle.

I also like what the current manager has done with the Parnassus
equity income portfolio, diversifying assets not just by "style"
but also by "capital sector," combining stocks of giant-, large-
and mid-size companies and giving the fund more of a "multi-cap"
style overall.  Just as value and growth outperform at different
times, the large-cap and small-cap sectors outperform at various
times too.

John W. Rogers has built a fine track record in 16 years running
the Ariel Fund.  Long-term investors looking for exposure to the
small-cap and micro-cap sectors have an excellent choice here in
the Ariel Fund.  For more information, visit the respective fund
family websites.  Parnassus Investments is at www.parnassus.com.
The Ariel Funds' website is located at www.arielmutualfunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Change of Heart

Was that a change of heart we saw today? Possibly so, but we still
Remain range bound and unable to either breakdown, or breakout of
the consolidation we've seen for the past week.


To read the rest of the Swing Trader Game Plan Click here:
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The Option Investor Newsletter                  Tuesday 02-04-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: FRX
Dropped Puts: KO
Daily Results
Call Play Updates: EBAY, SYMC
New Calls Plays: None
Put Play Updates: CCMP, AT, CEPH, PNRA
New Put Plays: IDPH, PII


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

FRX $ 49.95 -1.07  (-1.80 for the week) Weakness in the major
indexes sent FRX immediately lower on Tuesday morning.  The
violation of support at $50.00 did not sit well with investors.
FRX moved sharply lower before buyers finally moved in near the
100-dma ($48.90) shortly after 12:00 EST.  Shares trended higher
for the remainder of the session, ultimately finishing with a
loss of 2.0%.  That's a decent intraday rebound, but the bulls
will have a tough time holding on to those gains if the broader
market continues to sell off.  Traders who are still long may
want to think about heading for the exits if FRX fills in this
morning's gap and rolls over from $51.00.  The fundamental
strength that was outlined in the original play write-up is still
a significant factor, so we'd consider giving FRX another shot if
it bounces from the next level of support at $46.00.


PUTS:
*****

KO $40.33 +0.18  (-0.13 for the week)  KO broke down, as we
expected, once it took out recent lows below $43.  It even under-
performed the Dow, sinking to new relative lows as the average
was bouncing last week.  However, after dropping as low as
$39.20, the stock bounced back above $40 and has rested there in
spite of yet another big losing day in the broader markets.
While we would certainly not be looking at a long position here,
the drop appears to have exhausted itself and we would not
recommend new entries at this time.  The bounce has actually been
very minor and the trend remains down.  However, rather than
watch the stock sit at $40, while premiums decay, we will take a
gain and drop the play.  Traders holding puts can decide for
themselves whether to give the stock more time, watching for a
move below $39 to signal a new round of selling.


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

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

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

CALLS              Mon    Tue    Wed   Thu  Week

EBAY     73.10   -1.25  -0.94  Alternate entry
FRX      49.95   -0.73  -1.07  Drop, Below $50
SYMC     46.91   -0.68  -0.40  Holding strong


PUTS

AT       45.96    0.00  -1.04  Finally below $46
CCMP     43.17   -1.27   0.04  Small bounce
CEPH     30.71    0.33  -1.70  Testing $46
IDPH     40.33   -0.40   0.18  New, triple bottom
KO       46.12    1.04  -1.07  Drop, profits
PII      49.51   -0.79  -1.20  New, broke $50
PNRA     28.91    0.08  -0.77  Failed bounce


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

EBAY $ 73.10 -0.94   EBAY is going to have a tough time moving
towards its relative highs if the NASDAQ continues to drift
lower.  The stock pulled back over the past two sessions and
retraced last week's gains.  Shares never approached our entry
trigger at $75.51.  A move back to this level will probably be
hard to come by if the broader market extends its losses.
However, an additional pullback might also present a buying
opportunity.  We'd specifically be interested in capturing a
rebound from the 50-dma near $71.00.  This moving average helped
EBAY find a bottom in late-December.  For the time being we're
keeping our upside action point at $75.51.  If shares move above
this level we'll go long with a stop at $72.59.  We're also going
to set an alternate entry strategy in an attempt to take
advantage of a rebound from the 50-dma.  If EBAY bounces from the
50-dma (currently $70.94), our secondary trigger will be placed
at $71.26.  If shares bounce from the 50-dma and move above
$71.25, we'll activate the long play with a stop at $69.94.  Our
objective for this secondary strategy will be to ride EBAY back
to the $75-$76 area.

---

SYMC $46.91 -0.40 (+0.23) There's no way to paint Tuesday's
session as bullish, unless you were playing the impressive
strength in our SYMC play.  The stock has been building a
pattern lately of dropping at the open with the rest of the
market and then recovering that loss just as quickly.  That
was certainly the case today, as selling drove it down to just
above $46, where it rebounded strongly, quickly moving back over
$47 again.  Unfortunately, there wasn't any supporting strength
in the broad market and the stock then spent the rest of the
session drifting along just below that level, while finding
support at $46.75.  You've got to be nimble to catch these
early bounces, as the bulk of the move is often over in the
first 30 minutes.  Nevertheless, the trend of higher lows
continues, and buying the dips is still working.  Target further
bounces from above the $46 level for new entries, as we continue
to wait for a push through the January high of $48.30.  But based
on the lack of upside follow-through on each bounce, we don't
want to try buying the breakouts.  Stops remain at $45.


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

None


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

CCMP   $43.17  +0.04 (-0.73 for the week) These days positive
news in the semiconductor sector is about as rare as an American
flag in Iraq.  News that AMD would delay the release of its next
line of processors gave the bears additional ammunition on
Monday.  Today's action saw the SOX.X (semiconductor index) trade
in a relatively tight range ahead of the CSCO earnings report.
CCMP wavered on either side of break-even before finishing with a
fractional gain.  Technically, we're encouraged by the fact that
shares hit a relative low and also traced another lower high on
the daily chart.  Tech bulls who were hoping for salvation from
CSCO were disappointed by the company's announcement.  Shares of
the networking giant were trading slightly lower in after-hours
action.  The lack of a positive reaction to their earnings might
provide added pressure to the overall tech sector on Wednesday.
Our stop for CCMP loss remains above the 100-dma at $46.93.
Traders looking to lower their upside exposure might want to use
a stop just above the 200-dma at $45.57.  New entries could be
targeted on a move under today's low ($42.57), but remember that
the stock might find some buyers at the $40.00 level.

---

AT $45.96 -1.04 (-0.91) Failed bounces are the rule so far this
week, as Monday's afternoon rally failed miserably this morning,
sending the broad market back to test the recent lows.  AT
managed to just barely kiss the 200-dma ($47.29) yesterday and
aggressive traders that opened bearish positions on the marginal
failure at that level were rewarded today as the stock gapped
down and broke the $46 support level.  It should come as no
surprise that there wasn't much downside follow-through after
$46 was broken, as we've got the PnF bullish support line
resting there at $45, 50-cents below the intraday low.  But
there's no question the stock is technically weak, now solidly
below that 200-dma.  Additional rally failures near the 200-dma
can be used to open new positions, although we also need to
monitor the Northern Telecom index (XTC.X), which is stubbornly
holding above its own 200-dma at $432.  Traders looking to enter
on additional weakness need to be careful due to that bullish
support line, and if trading a breakdown under today's intraday
low will want to see the XTC index close below its 200-dma.
Lower stops to $47.75, which is just above the recent intraday
highs and the declining 10-dma.

---

CEPH $46.12 -1.07 (-0.41) The one constant in this market is
volatility and CEPH has given us a good dose of it over the past
couple days.  Charging up the charts at the open yesterday, the
stock tapped the $48 level before rolling over slightly in the
afternoon.  But traders that took advantage of the fading bounce
to enter the play got a nice surprise this morning when the whole
Biotechnology sector headed south.  A big part of Tuesday's
weakness can be attributed to the warning from GENZ this morning
before the open.  While the opening weakness quickly drove shares
of CEPH down below $46, there just wasn't any continuation to the
move and the stock then spent the rest of the day bouncing around
that price level, coming to rest just above it.  But the big
picture is that we've got another lower high and lower low to
deal with as the stock works its way down to the $44 bullish
support line.  Another failed rebound below the $48 level can be
used to initiate new positions, but momentum traders will want to
be careful about chasing the stock lower, due to that bullish
support line and historical support near $45.  Keep stops set
at $49.10.

---

PNRA $28.91 -0.78 (-0.51) Traders had to be quick on the trigger
to get a decent entry into our PNRA play yesterday.  The opening
spike was reversed almost immediately just below $30.50, and then
the stock traded flat for the rest of the session.  Tuesday's
trading saw the stock continue down after rolling over near
$29.50 and then heading steadily down to close just below $29.
While the range was rather limited, we did get some constructive
technical action, as PNRA closed at a new low, fractionally
breaking last Thursday's closing low of $29.06.  PNRA's chart
looks awfully weak right here, but we don't really want to chase
it lower due to the significant support at $28.  Instead, traders
looking to enter the play will want to watch for another failed
rally below our $30.55 stop as their cue.  If holding positions
entered prior to the breakdown under $30, look to harvest partial
gains on a drop to the $28 level.  We're still looking for the
stock to fall to the $26 level, the site of the PnF bullish
support line and strong historical support.


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

IDPH - IDEC Pharma. - $30.71 -1.70 (-1.37 FOR THE WEEK)

Company Description:
IDEC Pharmaceuticals Corporation is a leader in the discovery,
development, and commercialization of targeted immunotherapies
for the treatment of cancer and autoimmune diseases. IDEC
discovered and developed the first monoclonal antibody product
(Rituxan.) and the first radioimmunotherapy product (Zevalin.)
approved in the United States for the treatment of cancer. IDEC
is a San Diego based, integrated biopharmaceutical company with
multiple products in clinical stage development and strategic
alliances in a variety of research platforms. (source: company
press release)

Why We Like It:
IDEC Pharmaceuticals announced earnings last Thursday that were
in-line with consensus expectations.  Owing mostly to strong
sales of its cancer drug Rituxan (which is co-marketed with
Genentech), the company reported a large increase in fourth-
quarter profits.  This came as no surprise, because IDEC had pre-
announced two weeks earlier that it would beat earnings by four
cents.  The stock got a quick pop in reaction to that news but
has since trended lower with the BTK.X biotech index.  That
sector weakness continues to plague IPDH.  On Tuesday the BTK.X
underperformed the NASDAQ and moved to new multi-month lows.
Shares of IDEC fared even worse, selling off by 5.2% on
relatively strong volume.  This took the stock out of a narrow
range (most readily visible on a 30-minute chart) that dictated
trading for more than a week.  Bringing up a point-and-figure
chart, we can see that today's decline also produced a triple-
bottom sell signal.  The current bearish vertical count is
$24.00.  The weekly chart shows no clear support until the $20.00
area.  While longer-term traders might want to target a move to
that level, we'll be aiming for a decline to the $24-$25 region.
However, in order to avoid the possibility of a p-n-f bear trap
(and also to ensure that a breakdown has occurred), we won't
enter this play until IDPH falls below $30.00.  If we're
triggered our stop-loss will be placed at $33.25, just above the
relative highs.  This sets up a risk/reward ratio of roughly 1:2.
More aggressive traders can enter the play here, on the triple
bottom signal, but we'll wait it out in the current environment.
More conservative traders could use a stop slightly above
Tuesday's intraday resistance at $31.30.

BUY PUT FEB-35*IDK-NG OI=1874 at $4.70 SL=2.35
BUY PUT MAR-35*IDK-OG OI=157  at $5.20 SL=2.60

Average Daily Volume = 4.10 mln


---

PII - Polaris Industries, Inc. $49.51 -1.20 (-2.05 this week)

Company Summary:
Polaris Industries designs, engineers and manufactures all
terrain vehicles (ATVs), snowmobiles, motorcycles and personal
watercraft(PWC).  The company markets them together with
related replacement parts, garments and accessories through
dealers and distributors, principally located in the United
States, Canada and Europe.  ATVs are four-wheeled vehicles with
balloon style tires designed for off-road use and traversing
rough terrain, swamps and marshland.  Snowmobiles have been
manufactured under the Polaris name since 1954.

Why We Like It:
There's been a lot of speculation about whether the American
consumer is tightening up on their spending.  A good measure of
whether that is in fact happening is to look at the businesses
that make the toys consumers like to have.  If the consumer is
pulling in their horns, the first place they're going to stop
spending is on the discretionary entertainment items.  PII site
squarely in this area of the market, making the "big boy" toys
like snowmobiles, ATVs, motorcycles and personal watercraft.
While the company's recent earnings report did come in better
than expected, a quick look at the stock chart shows that
investors are clearly voting with their wallets, and they aren't
expecting any good news on the horizon.  After topping out at
the 200-dma near $66 last fall, it has been a steady slide
downhill, with numerous broken support levels left behind.
Most recently, the $54 support level gave way, and after a
failure to get back over that level, the decline continued.  The
carnage has continued over the past week and PII broke down on
Tuesday, violating the $50 support level for the first time in
over a year.  Chasing the stock lower does not look like a
winning strategy right here, as there is strong historical
support in the $48-49 area.  PII is another play where we need
to wait for a failed bounce to provide a solid entry.  Note the
way the stock has been trading recently.  Each breakdown is
followed by a rebound attempt that fails below the most recently
broken support.  Right now, the important
support-turned-resistance level appears to be $51.50 and a
rollover from there will provide a solid entry opportunity.
Look for additional resistance to be provided by the declining
10-dma ($52.05), which has been providing consistent resistance
since early January.  Place stops initially at $53.

BUY PUT FEB-50 PII-NJ OI=182 at $2.25 SL=1.00
BUY PUT MAR-50*PII-NI OJ= 34 at $3.60 SL=1.75

Average Daily Volume = 402 K



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The Option Investor Newsletter                  Tuesday 02-04-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - IDPH
Futures Corner: Hard Work


**********************
PLAY OF THE DAY - CALL
**********************

IDPH - IDEC Pharma. - $30.71 -1.70 (-1.37 FOR THE WEEK)

Company Description:
IDEC Pharmaceuticals Corporation is a leader in the discovery,
development, and commercialization of targeted immunotherapies
for the treatment of cancer and autoimmune diseases. IDEC
discovered and developed the first monoclonal antibody product
(Rituxan.) and the first radioimmunotherapy product (Zevalin.)
approved in the United States for the treatment of cancer. IDEC
is a San Diego based, integrated biopharmaceutical company with
multiple products in clinical stage development and strategic
alliances in a variety of research platforms. (source: company
press release)

Why We Like It:
IDEC Pharmaceuticals announced earnings last Thursday that were
in-line with consensus expectations.  Owing mostly to strong
sales of its cancer drug Rituxan (which is co-marketed with
Genentech), the company reported a large increase in fourth-
quarter profits.  This came as no surprise, because IDEC had pre-
announced two weeks earlier that it would beat earnings by four
cents.  The stock got a quick pop in reaction to that news but
has since trended lower with the BTK.X biotech index.  That
sector weakness continues to plague IPDH.  On Tuesday the BTK.X
underperformed the NASDAQ and moved to new multi-month lows.
Shares of IDEC fared even worse, selling off by 5.2% on
relatively strong volume.  This took the stock out of a narrow
range (most readily visible on a 30-minute chart) that dictated
trading for more than a week.  Bringing up a point-and-figure
chart, we can see that today's decline also produced a triple-
bottom sell signal.  The current bearish vertical count is
$24.00.  The weekly chart shows no clear support until the $20.00
area.  While longer-term traders might want to target a move to
that level, we'll be aiming for a decline to the $24-$25 region.
However, in order to avoid the possibility of a p-n-f bear trap
(and also to ensure that a breakdown has occurred), we won't
enter this play until IDPH falls below $30.00.  If we're
triggered our stop-loss will be placed at $33.25, just above the
relative highs.  This sets up a risk/reward ratio of roughly 1:2.
More aggressive traders can enter the play here, on the triple
bottom signal, but we'll wait it out in the current environment.
More conservative traders could use a stop slightly above
Tuesday's intraday resistance at $31.30.

BUY PUT FEB-35*IDK-NG OI=1874 at $4.70 SL=2.35
BUY PUT MAR-35*IDK-OG OI=157  at $5.20 SL=2.60

Average Daily Volume = 4.10 mln



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

Hard Work
By John Seckinger
jseckinger@OptionInvestor.com

Trading futures requires split-second decision making, continuous
study of technical analysis, and an understanding of human
behavior.  The nice thing is, these are all transferable assets
that can be used in other aspects of trading.

My father, who just turned 80 yesterday and continues to teach at
the University of Pittsburgh, used to tell me years ago, "John,
certain people love the stock market because it is a chance to
make money without working."  I call this hope, with a spice of
greed.  In the options and futures market, hard work is
synonymous with being successful.  This is the one job that you
can work all the time, and, if you don't continue to learn, will
exit with a negative cash flow.  However, if you are successful,
you can consider yourself an accomplished professional at
something very few people succeed at.

Gone are the days of buying anything and then wondering if it
will go higher by (a) 20%, or (b) 100%+.  I remember when I
started buying 25,000 shares of penny stocks, hopeful that
this sector of the market would benefit as most technology
companies began to pause (July, 2000).  Fortunately, I didn't
lose any money doing this, and I was thankful that I learned to
watch these penny stocks on a minutely basis to try to see if the
psychology had shifted towards other assets.  Why is this brought
up?  Leverage, and attention to detail.  For a beginning futures
trader, nothing is more harmful to an account than being
complacent and not willing to put in over 10-hour days following
the markets and every minute of trading.  As a trader becomes
more seasoned, experience will let a futures trader 'relax' and
passively watch certain areas of price action; knowing that it
either makes sense not to chase a certain move, or cognizant of
the fact that the contract is trading within a tight, highly-
watched area and is not giving a clear signal.

99% of all the trading books I read (I believe the list is at 40)
will not adequately prepare someone for futures trading.  Why?
Almost all do not cover the psychological aspect of trading, and
there is not a book that can replicate what it actually feels
like to have on a "real" position.  There is normally a learning
period where traders will give money to the markets as certain
lessons unavoidably take place.  One is selling underneath a
solid range, only for it to be a trap.  The other is buying a
'great' traditional technical breakout move, only for it to be a
trap as well.  Do not worry about these trades, we all do them,
and the real lesson is to learn from them and prepare for the
situation the next time it arises (maybe trade only one contract,
or wait to see if it is a trap and then trade opposite of initial
thought).

Can a trader really take a 10 to 25,000 account and be able to
earn a living?  Possibly, but it a very difficult task.  If a
trader comes up with a strategy before the session opens and
fails to execute properly, chances are one's account will
contract rather than expand.  I am in the camp that technical
analysis supercedes about 95% of all market activity, obviously
unable to account for shocks.  However, I am able to account for
risk via stops if such a shock takes place.  Slippage might
happen regardless, but the pain should not be as great and
precautions were accounted for.  If extremely worried about
shocks, a trader could put on a spread (either calendar or
intermarket).

Here comes the hard work, "Every Night, I encourage all futures
traders to calculate S2, S1, pivot, R1, R2, as well as all
practical daily retracement levels."  If your charts do not look
similar to mine posted every night in the Futures Wrap section,
please send me an email.  Being off by less than 0.50 is fine,
but having significant differences due to one's uncomfortable
ness of performing these tasks is entirely different.  The word
"uncomfortable" is properly used here, since it is not
comfortable to go outside one's trading rhythm.  Buying puts, for
example, is not comfortable for people who likes to see companies
do well.  Additionally, playing golf (or hockey) has a variety of
uncomfortable movements that eventually become natural to
athletes who continue to practice after months or years of
teaching.  Why do they do this?  Because there is a good
probability that 'practicing the proper technique' will help in
one's success.  The same thing applies to trading.  We know it
doesn’t guarantee anything, but it is a methodology that is used
by all professionals.  If a trader is uncomfortable buying and
selling in a matter of minutes, it might be time to re-think
one's goals.  Staying up to 10 p.m. looking at charts after an
unprofitable session is not fun, but work.  Hard work.

Tuesday was a good example of watching LEVELS only, and just
trading these levels and not worried about economic events.  I
couldn't believe anyone cared about Factory Orders, especially
since it was a December number and the durable goods report
should have taken most of the guessing away from this report.
This is something that will also be learned form practice.
Heading into the session, here is the chart from the Futures
Wrap.

Chart of ES03H, 120-minute


The bias was bearish, and this was a little based on the article
I wrote last Thursday in the Investors Education section on the
SPX.  The article can be accessed here:

www.OptionInvestor.com/futurescorner/fc_013003_1.asp

Notice in the chart that there was a "support zone" from 837 to
The key is for a trader to easily be able to get these levels as
well.  Simply do a retracement on a daily chart, and then go to a
120-minute chart and perform a retracement of January's decline.
Use the following retracement areas:  0%, 19.1, 38.2, 50.0, 61.8,
80.9, and 100%.

As the ES contract gapped lower on Tuesday and underneath BOTH
855 and daily S2 at 851, clearly shorts are going to try to go
for the jugular.  Looking for a move immediately to the support
zone makes complete sense.  All a trader had to do is execute
immediately.  Hard to do, but important.  It is 'uncomfortable'
to have a position on as volatility appears to be at high levels
and the session just started.  Would you rather wait for the
market to get really quiet and never move before putting on a
trade? (grin).  As I have stated in the past, covering is just as
hard.  I like to use an area just ABOVE the top of the support
zone, say between 839.50 and even 840.  The initial drop only got
down to 840.25, so it gets hard to wait and see if this support
zone will ever be tested.  The stop would be placed at 852 and
just above S2, and the entry would be near 848 and the low of the
first five-minutes.

What if 840 was NEVER reached and this support zone failed, with
the ES coming back to 852 and stopping a trader out? Yes, it can,
and will happen on more than one occasion.  If the support zone
is never reached, I think using a 22 EMA on a five-minute
chart can be a great way to identify where to place a trailing
stop (see chart below).

Remember, if the bottom of the support zone is cleared, it is
time to look for weakness once again and place a stop above the
TOP of the zone (short at 836.25 and then stop at 840).  This is
a wide range for scalpers, so please use what stop level works as
it relates to financial management.  The reward is for a move to
829, so a risk of 3.75-points is not too great.

Use of regression channels (see chart below):  Using Tuesday as
an example, whenever there is a series of lower highs, I like to
get a regression channel during the session as a confirmation
that a shift in sentiment or further breakdown might take place.
Looking at the chart below, I actually anchored the regression
channel at the top of the first five-minutes, but the channel
just "fit" below this area as I dragged the mouse to the right.
It wasn't even until 10:50 when I thought of a regression
channel.  Then, a while later, when the 22 EMA was tested, I had
a feeling prices would most likely consolidate.  Well, they
actually rallied a bit.  It was then at 13:10 when I put in a
bullish regression channel and anchored it from the lows.

Disclaimer:  Sure, a bull could go long at the top of the support
zone and put a stop under 837; however, since the ES was UNDER
S2, I really only thought from a bearish point-of-view.  With
that said, it made sense to wait until the bullish regression
channel was broken to the downside.  After the ES contract did
fall, notice how the 22 EMA acted as a short-term pivot.  Most
likely a bear looking for a move down to 837 had to cover as the
22 EMA was hit from the downside.  If a bear didn’t pull the
trigger there, the lack of quick execution certainly became
costly.  Note:  Since S2 was taken out, a trader should have been
using fitted retracements.  If they did, they would see support
at 841.75 and 843.75.  The ES fell to 841.25, rallied to 843.75,
paused, and then shot higher.  As more homework, please try to
replicate the chart below and put in the 5-minute fitted
retracement based off the first five-minute period.  Note to
advanced traders, please stick with what works if comfortable.
This article was more intended for traders looking for a system
to use.

Chart of ES03H, 5-minute





Please, work hard and good luck,

John Seckinger


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