The Option Investor Newsletter Thursday 02-13-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: A Miracle Recovery Futures Markets: Bears get their Objective Index Trader Wrap: (See Note) Market Sentiment: What the Blix Was That? Weekly Manager Microscope: Vita Nelson: MP63 Fund (DRIPX) Updated on the site tonight: Swing Trader Game Plan: Was That a Repeat? Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 02-13-2003 High Low Volume Adv/Dcl DJIA 7749.87 - 8.30 7781.89 7628.99 1.76 bln 1309/1925 NASDAQ 1277.44 - 1.50 1281.32 1261.79 1.31 bln 1325/1951 S&P 100 414.04 + 0.43 416.13 407.79 Totals 2634/3876 S&P 500 817.37 - 1.31 821.25 806.29 W5000 7752.06 - 20.30 7780.44 7657.63 RUS 2000 354.77 - 0.61 355.40 351.78 DJ TRANS 2073.48 - 27.20 2106.08 2054.59 VIX 38.45 - 0.65 40.68 37.73 VXN 50.97 + 3.54 52.23 49.94 Total Volume 3,287B Total UpVol 1,197B Total DnVol 1,936M 52wk Highs 91 52wk Lows 457 TRIN 1.34 PUT/CALL 1.18 ************************************************************ A Miracle Recovery What may have seemed a miracle to some was actually a freak combination of circumstances. The Dow pulled back from a -130 drop to 7628 on a combination of rumors, reporting errors and a repeat of old news. The sparks from the news found explosive tender from extreme oversold conditions. Dow Chart - 240 min Nasdaq Chart - 120 min The most watched economic report for today, Jobless Claims, showed a slight decrease for the current week to 377,000 but last week was revised up to 395,000. The four-week moving average which is supposed to smooth these bumps rose to 389,000. The continuing claims fell to 3.31 million. This is due to the expiration of benefits for people out of work for an extended period. Over one million people have dropped off the roles because their benefits have expired. The Retail Sales report for all of January posted a -0.9% drop and much deeper than expected. The culprit was the bottom falling out of auto sales. The Auto component fell -7.5% as incentives and low interest are no longer attracting buyers. Without autos consumer sales actually rose +1.1% and was very bullish. Traders saw the numbers and ran for cover regardless of the bullish internals. If the period covered was last week I would say it was duct tape, plastic, batteries and bottled water but instead it was January. With all the stocking up on food supplies and hardware for a potential terrorist attack the odds are good the next weekly numbers will be much higher than expected. Most attribute the surge in January buying by consumers to a record number of gift cards sold in December. Consumers normally spend more than the amount of the gift card once in the store and that could account for the bounce. Friday we will get the Michigan Consumer Sentiment again and estimates are for 82.4. Business Inventories are expected to be flat at +0.2% and Industrial Production up slightly at +0.3%. These are not the biggest problems for Friday. The showdown at the UN corral is going to be on the top of the list of potential market movers. It appears the UN inspectors will bring a mixed message to the UN with the IAEA head saying that inspections should continue for months and there is no reason to rush into war. Hans Blix is reportedly going to say that IRAQ cooperation has improved very slightly but not enough to justify a continued effort. The Blix scavenger hunt turned up some missile that had greater the range than allowed by the UN mandate but I think everyone is splitting hairs over it. The difference between 150 and 180 kilometers is not material since the main reason for the rule was to prevent him from hitting major cities of his neighbors. Kuwait is the only country at risk from the current missile and it would be at risk from a 150K model as well. Later today it was reported that the "unconditional" approval to allow U2 spy planes to fly over Iraq was not unconditional after all and Blix is going to tell the UN that Iraq has backed out of the agreement. After the bell today Dell Computer announced record earnings and did not lower guidance as many had expected. Dell is firing on all cylinders and is stealing market share from everybody. Corporate sales up +20%, consumer sales up +38% and overseas server sales up +47%. They said earnings would be flat for the 1Q but for Dell that represents a victory in the beleaguered PC sector. While everyone else is losing ground Dell is seizing it. The only problem with the report was the analysis that Dell still sees no expansion in capital spending and its record profits came from stringent cost controls and taking market share from others. Dell was up in after hours but Nasdaq futures were down on the lack of overall improvement in the tech sector. I have not seen a Gateway commercial in weeks and I saw three within two hours of the Dell announcement. Clever marketing on the part of Gateway but it remains to be seen if it will help. INTU also announced strong earnings on better than expected sales of its tax software and lower than expected acquisition expenses. They beat the street by +4 cents and raised estimates going forward. Unfortunately this is a company specific event as well and does not reflect on the software sector as a whole. AMZN finally broke support at $21 and dropped -5% on problems in Internet retailing. The current move underway to collect sales taxes on all Internet sales will remove one more reason for shopping at Amazon. States are mobilizing to force everyone to collect based on a simplified taxing plan and all the big retailers are falling in line. They are agreeing to begin collecting sales tax in the future in return for forgiveness of taxes not collected in the past. States are using the club of retroactive liability to enforce future collection. AMZN had almost $4 billion in sales in 2002, $12 billion over the last five years. Depending on the average tax rate across the states they could have as much as a $1 billion tax liability. The future is clear. Agree to collect and remit taxes peacefully or go to court and end up paying $1 billion plus court costs and penalties and still end up having to collect taxes in the future. Not much of a decision process in my opinion. Now, add an average of 7% to every product sold and suddenly AMZN has a much harder path to continued profitability. Many of the other major retailers have already agreed to the tentative plan and the Internet coalition has already begun to fracture. Okay, so what happened this afternoon? We were slowly bleeding points and about to break 7600 when an explosion occurred. Not a bomb but the force of impact was the same. The Dow gained +152 points in about 55 minutes. It appears there was a freak combination of unrelated events that shocked shorts into frantic covering. First Medicare chief Thomas Scully told a congressional panel that JNJ's Cypher stent is likely to win FDA approval within the month. Dow component JNJ suddenly spiked almost +3 points in just minutes even though the potential approval had been widely reported over the last 30 days. Secondly and about the same time, reporters misread a press release by UPS about electing HD CFO Carol Tome to the UPS Board. The release said UPS was raising its dividend to 21 cents from 19 cents. Instead it was reported that HD was increasing its dividend to 21 cents a quarter. Dow component HD's stock at $20 rocketed on the news. The report was later retracted. Third there was a rumor that a very high up Iraqi military officer with complete knowledge of where the weapons were hidden, had defected and the UN was racing to get him out of the area. Also, bogus but it had about the same impact as a Saddam retirement announcement. Shorts caught off guard by the sudden spike were scrambling to cover without knowing why. The initial thought process is "no news, must be a buy program, it will pass." When it does not pass they end up behind the curve and chasing prices upward. Look at an intraday chart and you will see the perfect picture of a short squeeze. Futures have sold off after the close now that these news items have filtered out to the public. After the bell it was announced that the FBI was aware of as many as 300 Al Qeada operatives/sympathizers currently in the US and they had specific and credible evidence that 12 of these were planning the current attacks. The FBI is supposed to be pulling out all the stops to find these people before they can pull off the attack but despite eyewitness reports they have been unable to do so. There is evidently strong evidence that they have multiple targets and they are dispersed across the country. The report said new operatives had been infiltrated into the country for this operation. While I believe some of this is true I have to believe that this could be a strong over reaction by the press to limited "hearsay" information. You would think if the FBI had names they would be broadcasting these names and any pictures every 15 min. Tomorrow is likely to resemble a fast game of pin the tale on the donkey. Up, down or sideways and probably all in a hurry once the 10:AM update is over. It is the smoking gun question all over again. Traders will probably end up feeling like they have been blindfolded and spun in a circle. Trying to predict the market reaction to the UN inspector update is tougher than nailing Jell-O to the ceiling. We tried to come up with a scenario given the information at hand and then extrapolate it onto the market. It is impossible. The US is going to war whether they have a new resolution or a UN mandate or even a coalition of the willing. I think that means it wants a very negative report by inspectors and that is not what is reported to be coming. A soft report that leaves the door open to a couple more months of inspections will force a confrontation between the US, the UN and several past allies. It will mean more uncertainty for the markets and more anti American feelings worldwide. That means more money withdrawn from the market and more pressure on the dollar. It MAY also mean a delay in the start of the war and a delay in getting over this market hump. We reached my two month target of 7700 on the Dow and the next material support is the 78% retracement level at 7592. We came within 36 points of hitting that level today. The Nasdaq bounced off support at 1266 but after cracking the 1295-1300 level it is in trouble. I don't think the UN meeting on Friday is the end of this process and that leaves more uncertainty ahead. Keep those fears under control. You have a 1 in 500 chance of dying by cancer and a 1 in 56 million chance of dying in a biological attack. I am more afraid of another short squeeze while I am in the bathroom and not at my PC than I am being killed by a terrorist. Of course while I am writing this two police helicopters have been circling over the mall in the next block for about the last 45 min. Must be jaywalkers. (grin) My problem is this. Will traders remain short over the 3-day weekend in anticipation of an event or will they cover for safety. Will longs go flat for safety or take out insurance in the form of puts or short futures? The weekend has risk for both sides. Longs fear an attack. Shorts fear no attack and a limit up gap open on Tuesday. Personally I think the longs have the most to fear. A devastating attack could knock hundreds of points off the indexes at the open. No attack would be bullish but the overall conditions of war, terrorists and earnings still remain. We could get a small bounce but should not get a monster. That analysis is worthless if a presidential vacancy in Iraq appears. Using this analysis I would assume longs, if there are any left, would exit before lunch tomorrow depending on the UN report and reaction. Exiting would produce selling. Buying insurance by shorting futures would produce selling. Buying insurance with puts would raise the VIX and Put/Call Ratio and show additional fear and promote selling. Traders expecting the worst over the weekend would short or buy puts and that should produce selling. The wild card is no attack by noon, a report that puts the war off 3-4 months and longs would buy the dip. How you approach this is up to you. I am going into the weekend flat and face Tuesday with no bias. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** Bears get their Objective By John Seckinger jseckinger@OptionInvestor.com The ES traded 805, NQ 938, and the YM contract hit the 7654 level. For the ES and NQ, these were intermediate term objectives. Will bears now take a day off? Thursday, February 12th at 4:15 P.M. Contract Last Net Change High Low Volume Dow Jones 7749.87 -8.30 7781.89 7628.99 YM03H 7760.00 +25.00 7781.00 7617.00 31,448 Nasdaq-100 951.90 -4.87 959.73 938.52 NQ03H 961.50 +3.00 964.50 938.50 261,274 S&P 500 817.37 -1.31 821.25 806.29 ES03H 819.00 +2.25 822.50 805.25 738,058 Contract S2 S1 Pivot R1 R2 Dow Jones 7567.35 7658.61 7720.25 7811.51 7873.15 YM03H 7555.00 7658.00 7719.00 7822.00 7883.00 Nasdaq-100 928.84 940.37 950.05 961.58 971.26 NQ03H* 928.75 945.25 954.75 971.25 980.75 S&P 500 800.01 808.69 814.97 823.65 829.93 ES03H 798.25 808.75 815.50 826.00 832.75 *The listed high of 983.50 has not been corrected, and the highest price I found traded was 964.50. Weekly Levels Contract S2 S1 Pivot R1 R2 YM03H 7608.00 7730.00 7932.00 8054.00 8256.00 NQ03H 921.50 940.50 970.50 989.50 1019.50 ES03H 801.25 815.75 840.00 854.50 878.75 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 817.75/818.00, exit 810.25, change +7.50 Short 807.75, exit 808.75, change -1.00 Short 810.50/811.00, exit 812.25, change -1.50 Short 814.25/814.50, exit 816.00, change -1.50 Total for the day: +3.50 Total for the week: +14.67 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) Technicians using daily retracement levels from the move beginning in October and ending in December should be excited to see the ES contract bounce almost exactly at the 80.4% level of 805.16 (round up to get 805.25, since ES only trades in quarters), and then failing just under the half-way mark back to the 61.8% retracement of 839.50 (half-way comes in at 822.25). There still remains a likelihood that we will see a short- covering rally once above 822.25, possibly to 826 and the daily R1 level. Since the ES contract is in-between the 805 to 822.25 level, bears do have a good risk/reward situation here. Also interesting was the fact that prices were rejected as they fell to the bottom part of the drawn regression channel (read: area to cover). This channel comes in on Friday very close to the daily S1 level of 808.75. Chart of ES03H, Daily A 5-minute chart of the ES contract shows prices breaking out of the recent bearish regression channel and trading in a new channel that is trending higher. It is very interesting that Friday's pivot of 815.50 lines up very well with both the ES's weekly and monthly S1. Therefore, I would expect selling pressure to intensify if 815 (actually 814.75) is taken out. I would then expect a move first to the daily S1 area and then back to 805. With the SPX contract bouncing from its "support zone" of 804 to 812 and closing above 812, there is a good chance we do initially see higher prices. Chart of ES03H, 5-minute Bullish Percent of SPX: This indicator now stands at 35.80, after falling 4% on Thursday and adding to the most recent column of O's (now at 14). I still expect a move in the bullish percent to the 30% level. This indicator is currently in "Bull Correction" status. The last column of "O's" ended at 20. Looking at P&F analysis, the SPX added to the recent column of O's on Thursday, but the bearish price objective remains at 750. If the SPX index comes back and tests the quadruple bottom at 845, a buy signal will be given. The support seen from 805 to 810 was in fact tested on Thursday, and the SPX closed above 810 at 817.37. Therefore, we might see a move to 825 and put in a new column of X's. The March E-mini Nasdaq 100 Contract (NQ03H) The NQ contract fell to both its daily retracement area at 941 (based on October to December move), as well as trading near 938 and the Head & Shoulders objective that was profiled on Wednesday in the 15-minute chart. Heading into Friday, I still think there will be a short-covering move if 965 is cleared (used 962 in the chart, so look for a small resistance zone from 962 to 965). The objective, unfortunately for bulls, is only for a move back to the weekly pivot of 970.50. With that said, I would tighten stops if 970.50 is hit, and then look for a move to the area of 980 to 983. This could happen if we get a sizable short-covering rally heading into the weekend. Not shown, the MACD oscillator is still in bearish mode, so the majority of bulls remain on the sidelines. If the daily pivot of 954.75 is taken out, I would once again look for a move down towards 941. A close under 941 would be bearish, while a close above 983 would be bullish. A close in-between these levels would be an indicator to be flat. Chart of NQ03H, 120-minute Bullish Percent for NDX: This indicator fell four percent on Thursday to 34, and added to the column of "O's" (now at 16). . This indicator is still in "Bear Confirmed Status". The last column of O's ended at a reading of 14%. Remember, once under 30%, risk should start to shift towards bearish positions. The NDX, according to P&F charts, still shows resistance at 1000 and support below at 925. The bearish objective has been adjusted lower on Thursday to 775, since another "O" has been added. The March Mini-sized Dow Contract (YM03H) The YM contract has not traded nearly as predictable as the Dow, since the weekly S2 of the Dow was only 2-points from today's low. That was my daily objective, noted in the Market Monitor. Unfortunately, the YM didn't come as close to its weekly S2 and was slightly harder to read. I have drawn in a new bearish regression channel in the 60-minute chart below, and this might help with predicting direction going forward. Like the other contracts, if the daily pivot is cleared, I expect more selling and a move to its daily S1 at 7658. Odds do favor a rally on Friday, but Thursday's high of 7781 should be cleared first. This will take out the mid-part of the regression channel. 7822, or daily R1, would be the first objective; however, if this level is breached, we might be in the midst of a sizable short-covering rally that would take the YM contract back to the weekly pivot of 7932. The bullish percent in the Dow is still falling, but traders hand-charting this index could get very aggressive with longs if we do see a "Bull Alert" indicator in the bullish percent during trading. Chart of YM03H, 60-minute Bullish Percent of Dow Jones: A P&F chart of the Dow added an impressive three "O's" on Thursday, lowering the bearish price objective to 7100. As noted earlier, the quadruple bottom remains higher at 7950, and should be defended by bearish traders protecting profits. Support is still seen at 7600. As far as the bullish percent is concerned, it fell 3.33% to 13.33%. The column of O's is now at twenty-three. Note: The last column of O's ended at 10%. Moreover, the next column of X's will put this indicator in "Bull Alert" status. It is impressive that the bullish percent has not shown a reversal of "X's" since January, while the SPX bullish percent hasn't seen a move higher since November. Good Luck. Questions are welcomed, John Seckinger ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff’s Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_021303_1.asp ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ **************** MARKET SENTIMENT **************** What the Blix Was That? by Steven Price The slide continued today, as it appears war fears only escalated ahead of Hans Blix weapons report on Friday. At least for 75% of the trading session. With almost no bounce after the sell-off of the last couple days, the major indices headed on another leg down for most of the day, taking out support levels once again and trading down to fresh four-month lows. Several non-equity markets also confirmed bearishness for stocks, with the bond market seeing buying and the market Volatility Index (VIX) trading again back over 40%. Oil crept higher and gold got a bounce. It does seem that we are oversold and while I've been looking for a big bounce at some point, so far that bounce has not materialized. However, we did get a powerful afternoon rally that smacks of short covering ahead of the Hans Blix report to the U.N. on Friday morning. That has been the pattern in the past, as we got similar big rallies ahead of the last Blix report on January 27 (in the a.m.) and the Colin Powell presentation on February 5. The rally turned the Dow around 160 points from its high to its low, before settling in with a loss of 8 points. We have now sold off over 1100 Dow points since the New Year rally that took us all the way up to 8869 and it seems ages ago that we were looking at bullish signals in most major indices. At that time we were looking at the 200-day moving averages, both simple and exponential and using those pivotal levels to decide whether we were looking at a rally that had legs. The President's plan to eliminate taxes on corporate dividends seemed to give us reason to believe we may have seen a change in fundamentals that supported a continued rally. Since then, that sentiment dissipated into an extreme bearish sentiment, following a host of earnings reports. It wasn't that companies were missing earnings forecasts; in fact many actually beat those fourth quarter estimates. It has been the repeated downward guidance for the upcoming year that seems to have triggered concerns. Of course, that seems to be just a small piece of the puzzle, as geo-political concerns regarding an Iraqi invasion, nuclear weapons in North Korea, and new terrorist threats from Osama Bin Laden have dominated the news landscape. Interestingly enough, we have seen several short-covering rallies ahead of and during international developments, such as Hans Blix last report on Iraqi weapons inspections and Colin Powell's presentation to the U.N. Like this afternoon, those rallies seemed like powerful reversals, but were short-lived. They have led to many shorts (myself included) getting out of positions, either by planned stop orders or by emotion that would have been very profitable if they had just hung on. Does this mean we should be hanging on through each event, or allowing stops to lock in profits, then getting back in on the bounces? It is a question with different answers depending on risk profiles. Each trade we make, as option traders, involves transaction costs, as well as losing out on the bid-ask spread when we are forced to buy and sell those options with market makers. In reality, if the trade moves far enough in our favor, the bid-ask will be minimal in comparison to our profit. However, in the current environment, when we are seeing so much schizophrenic action, traders should take some time to add up all of those costs and determine just how much getting in and out is costing them in what seems like a clearly downtrending. Certainly, it helps a trader sleep better at night not to get whipped around and take the intermediate pain, but in the end, an account may look much better if the position had simply been left on, or at least allowed for a wider stop, until the trend reversed. That is not to say there isn't plenty of value in sleeping better at night. The chances of a bounce are growing with each tick lower toward our July levels. The July intraday lows in the Dow, SPX, OEX and COMP are 7532, 775, 387 and 1192. The closing lows were 7702, 797, 396 and 1229, each taking place the day before we bounced on July 24 after setting new relative lows in the morning. Today, the Dow crossed that closing low, heading down to within 100 points of the July 24 intraday low, before bouncing today. The SPX came within 9 points of the July closing low and the OEX within 11 points of the July closing low. The COMP traded as low as 1261. Does all of this mean that we've hit the bottom? Anyone who saw the market drop in October knows there is still some downside potential. The Dow dropped as far as 7197 before bouncing on October 10. The OEX, however, did not hit the July intraday lows before bouncing, although in October closed slightly below the closing low. The SPX broke below the July lows on a closing and intraday basis, but not by a lot. The COMP made it all the way down to 1108. If we get our third lower low on this sell-off, then shorts will feel their oats in the near future. However, we are definitely entering territory where the drop is becoming extended and reaching one of two important support levels. In both July and October, it also felt like we were on a non-stop train into a long dark tunnel, but the light appeared brightly and surprisingly and painfully for the bears. It feels equally as negative right now, but the difference is that we have an unknown factor in war fears. Theory holds that we will bounce when the missiles start flying and what should be a short war gets underway. Many companies have blamed geo-political uncertainty for a lack of business spending and Alan Greenspan has said we'll have a better idea of what our economy truly looks like when we get that uncertainty behind us. The only problem is, what if it looks pretty much the same? In that event, Dow 7000 will look a lot closer. For now the trend remains down, but most continued rallies have begun with a big intraday bounce, as we got today. While I'm still leaning heavily in the direction of calling it short-covering ahead of the Blix report, history does tend to repeat to some extent and traders need to keep that in mind if we start to post some gains. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10673 52-week Low : 7197 Current : 7749 Moving Averages: (Simple) 10-dma: 7921 50-dma: 8385 200-dma: 8704 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 768 Current : 817 Moving Averages: (Simple) 10-dma: 837 50-dma: 885 200-dma: 921 Nasdaq-100 ($NDX) 52-week High: 1734 52-week Low : 795 Current : 951 Moving Averages: (Simple) 10-dma: 968 50-dma: 1020 200-dma: 1021 ----------------------------------------------------------------- The Semiconductor Index (SOX.X): The SOX has managed to hang in above support at 260. News from Intel that it was coming out with a new chip, called the Manitoba, that could combine the work of three chips and make up for the head start TXN and QCOM had in the wireless sector, got mixed results. INTC finished higher, while TXN finished down slightly on the day. QCOM got hammered, losing $2.65 and breaking recent support at $36 to close at $33.91. The SOX finished slightly higher and after hours results from Dell should set the tome tomorrow. Dell matched estimates and guided in line for the first quarter. The stock finished up over $1 in intraday trading, so signs are that traders were looking for a muted forecast and were pleasantly surprised. 52-week High: 641 52-week Low : 209 Current: 264 Moving Averages: (Simple) 21-dma: 281 50-dma: 302 200-dma: 339 ----------------------------------------------------------------- The VIX has recently been an awfully good indicator, forecasting temporary market bounces each time it trades in the 40% range. It repeated that pattern today, trading up to 40.68 and remaining just above 40 for most of the day, but going no higher. That was one of the likely signs that the equities were in for yet another intraday bounce and once again the Dow followed through on that signal. We bounced 160 Dow points at one point and finished the day just barely in the red after seeing an early triple-digit loss. Each bounce has eventually headed lower, but the signals have been reliable on an intraday basis. CBOE Market Volatility Index (VIX) = 38.45 -0.65 Nasdaq-100 Volatility Index (VXN) = 50.97 +3.54 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.18 549,337 648,332 Equity Only 1.05 350,336 369,269 OEX 1.09 40,817 44,565 QQQ 2.77 45,082 125,091 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 40.6 - 2 Bull Correction NASDAQ-100 32.0 - 5 Bear Confirmed Dow Indust. 13.0 - 7 Bear Confirmed S&P 500 35.6 - 6 Bull Correction S&P 100 29.0 - 8 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 1.37 10-Day Arms Index 1.42 21-Day Arms Index 1.49 55-Day Arms Index 1.36 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 1241 1605 NASDAQ 1287 1843 New Highs New Lows NYSE 46 182 NASDAQ 49 146 Volume (in millions) NYSE 1,725 NASDAQ 1,301 ----------------------------------------------------------------- Commitments Of Traders Report: 02/04/02 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 reduced long positions by 8,000 contracts and shorts by 3,000, for a net increase of 5,000 shorts. Small traders increased long and short positions by about 8,000 contracts, keeping the net relatively unchanged. Commercials Long Short Net % Of OI 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%) 02/04/03 414,543 465,678 (51,135) (5.8%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 16,472) - 10/01/02 Small Traders Long Short Net % of OI 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% 02/04/03 151,174 93,439 57,735 23.5% 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 increased long positions by approximately 2,000 contracts and shorts by 1,600. Small traders increased short positions by 1,000 contracts, leaving the long side close to unchanged. Commercials Long Short Net % of OI 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%) 02/04/03 40,934 50,992 (10,058) (10.9%) 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 01/14/03 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% 02/04/03 25,573 8,648 16,925 49.5) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials increased long positions by 1,500 contracts, while reducing shorts slightly. Small traders increased shorts by 1,600, while seeing a slight reduction to the long side. Commercials Long Short Net % of OI 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% 02/04/03 17,596 11,232 6,364 22.1% 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 01/14/03 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%) 02/04/03 4,583 9,424 (4,841) (34.6%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************************* WEEKLY MANAGER MICROSCOPE ************************* Vita Nelson: MP63 Fund (DRIPX) Vita Nelson is editor of a DRIP newsletter called The Moneypaper and is portfolio manager of the MP63 Fund (DRIPX), a mutual fund seeking long-term growth by investing in a diversified portfolio of common stocks of companies comprising the Moneypaper 63 Stock Index. The MP63 Fund is based on the Index of DRIP stocks that Vita Nelson launched in 1994, and consists primarily of larger, established companies with an emphasis on quality and diversity. Cable TV viewers know Vita for her commercials on DRIP (direct investment plan) investing. Her website is www.moneypaper.com. By investing in equity securities in the MP63 index, the fund's portfolio is diversified across many industries and consists of primarily large-size companies offering direct investment plans. The Moneypaper website indicates that each company is allocated an equal amount of the total assets to be invested. While this fund's large-cap blend style isn't unique, the MP63 Fund is the only fund that I'm aware of specializing in the common stock of DRIP companies; hence, the ticker symbol "DRIPX." Moneypaper Advisor, the firm's investment arm, has served as the fund advisor for the MP63 Fund since its March 1, 1999 inception. Vita Nelson started the fund and serves as its portfolio manager. She isn't of the stature of a Gus Sauter (Vanguard 500 Index) or Bob Stansky (Fidelity Magellan) but she has guided the MP63 Fund to a Morningstar highest 5-star rating in the fund's short life. Five-star ratings are reserved for funds that rank in the top 10 percent within a category based on risk-adjusted returns for the trailing 3-year (or longer) period. The MP63 Fund has no initial or deferred load charges, and costs only $1,000 to open an account ($0 for IRA accounts). Investors incur a 2.0% redemption fee on shares sold within a certain time period. The fund has an expense ratio of 1.25%, nearly the same as the Morningstar large-cap blend average (1.26%). For further information on costs and expenses or to download a prospectus go to the www.moneypaper.com website. Investment Style/Strategy The philosophy behind DRIPs is that they provide direct investors the opportunity to avoid brokerage fees and commissions. There's roughly 1,300 companies to choose from that do not charge service fees for investing or reinvesting dividends - providing investors diversification across sectors and individual securities. Direct investors can therefore avoid transaction charges by investing in DRIPs. The MP63 Fund is suited to investors who like the notion of DRIP investing, but want to leave the security selection to a professional money manager. The Moneypaper.com website shows the MP63 Fund's top 10 holdings as of January 14, 2003. At that time, Paychex (4.9%), Medtronix (4.4%), Harley-Davidson (4.0%), and AFLAC (3.6%) were the fund's four largest holdings. No other stock holdings represented more than 3 percent of assets. Morningstar's most recent fund report indicates the MP63 Fund actually had 64 stock holdings at year's end, with 31.1% of assets invested in the fund's top 10 holdings. As of December 31, 2002, Vita Nelson's MP63 Fund possessed a $14 billion average market capitalization, according to Morningstar, with 25.1% of assets in ultra-cap stocks, 41.8% in the large-cap sector, and 32.5% in mid-cap stocks. I like that capital-sector mix since it's large-cap based yet provides significant exposure to mega-cap stocks and mid-cap stocks, which offer greater long- term growth potential. A look at the fund's investment style history shows that it has maintained a consistent "blend" style that emphasizes dividends. Per Morningstar's report, the MP63 Fund had an average yield of 2.2% recently, compared to around 1.7% for the S&P 500 index of U.S. large-cap stocks. Average price valuations are similar to the S&P 500 and average large-cap fund, representing a blend of value and growth characteristics. The fund's inclusion of mega- cap, large-cap and mid-cap stocks, its blend style and emphasis on dividends makes it well suited to serve a core role in one's long-term financial plan. Vita Nelson's conservative equity management style has produced below average risk relative to the average large-cap blend fund, per Morningstar. At 15%, the fund's average standard deviation over the last 3 years has been lower than the average large-cap blend fund (17%) and lower than the average domestic stock fund (20%). So, Nelson has done a nice job here of minimizing share price fluctuations relative to other large-cap equity managers. Fund Performance The MP63 Fund hasn't done relatively well so far in 2003 versus the large-cap blend universe, but other than that, the fund has preformed admirably on a relative basis. Some of the top stock holdings have been hit this year, causing the value of the MP63 Fund to decline by 7.7% on a YTD 2003 basis through February 12. That compares with a 6.8% YTD decline for the S&P 500 benchmark. Below is a performance history and total return information per the Morningstar.com website for the MP63 Fund as of February 12, 2003. Year-To-Year Returns (DRIPX): 2000: + 5.8% (11th Percentile) 2001: - 1.1% (4th Percentile) 2002: -15.0% (5th Percentile) 2003 (YTD): -7.7% (92 Percentile) 1-Year Total Return (February 12, 2003): -20.2% MP63 Fund (DRIPX) 13th Percentile + 4.6% MP63 Fund Vs. S&P 500 Index + 4.0% MP63 Fund Vs. Russell 1000 Index 3-Year Annualized Return (February 12, 2003): - 3.8% MP63 Fund (DRIPX) 4th Percentile +11.2% MP63 Fund Vs. S&P 500 Index + 9.6% MP63 Fund Vs. Russell 1000 Index The annualized performance results over the past three years show that Vita Nelson has done a superior job of preserving capital in relation to the broad market indices and her large-blend category peers. The MP63 Fund's average annual loss of 3.8% over the past three years is pale in comparison with the 15% annualized loss by the popular 500 index. Even though the fund has slipped up a bit in 2003, its trailing 3-year performance has been "upper echelon" within the large-blend category (4th percentile) per Morningstar. Morningstar's highest 5-star rating is based on "high" return and "below average" risk relative to other large-cap blend funds. At 1.25%, the MP63 Fund's expense ratio is average versus peers, but perhaps a little greater than it needs to be considering the fund invests mostly in large company stocks that tend to be liquid and widely traded. Hopefully the fund's expense ratio will come down as assets grow. Right now, the MP63 Fund has just $18 million in total net assets. Conclusion The MP63 Fund managed by Vita Nelson, editor of the Moneypaper newsletter, offers investors a unique opportunity to invest in the stocks of companies with DRIP plans. Nelson's emphasis on quality and diversity of portfolio holdings have helped to cut losses relative to other large-cap blend funds through the U.S. market downturn. Long-term investors seeking a large-cap core equity fund have a fine choice here, although the fund's total return history is predominantly "down-market." Time will tell how well the MP63 Fund can/will perform in up markets. For more information on Vita Nelson, the Moneypaper newsletter, DRIP investing, or the MP63 Fund, go to the www.moneypaper.com website. Steve Wagner Editor, Mutual Investor email@example.com ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *********************** SWING TRADER GAME PLANS *********************** Was That a Repeat? What the heck was that ?!? No doubt that's the question most traders are asking after the big rally to end the day. The rally followed continued selling that trashed the major indices throughout most of the day. To read the rest of the Swing Trader Game Plan Click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Thursday 02-13-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: TSCO Daily Results Call Play Updates: AMGN, TRMS New Calls Plays: None Put Play Updates: AT, AZO, CB, CCMP, GWW, PII New Put Plays: WHR **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** TSCO +1.16 (-0.93 for the week) This morning's release of the latest Retail Sales data gave sector bulls something to cheer about. Ex-auto sales showed a 1.3% increase, 0.8% better than expectations. The December numbers were also revised higher. This data indicates that consumer spending is on the rise. However, any hopes for a morning rally in the retail index were quickly dashed by the overarching bearishness in the broader market. The RLX.X proceeded to tag a 52-week low of 243.82 before retracing some of its losses in late-afternoon trading. Investors might be expecting a downtick in retail sales (with the notable exception of the duct tape business) as war with Iraq becomes increasingly likely. In any case, this sector weakness provided the ideal climate for a continued decline in TSCO. The day started off on a promising note as shares approached yesterday's low ($30.44) and psychological support at $30.00. However, the bears decided to throw in the towel after the stock failed to set a new low. Shares then experienced a powerful rebound, in spite of the broader market weakness. There was no news to explain this rally. Looking at the daily chart, we see a possible double-bottom formation created by the Wednesday and Thursday lows. This is an indication that TSCO may have put in a short-term bottom. Furthermore, it looks like the stock could add to its gains if the major indexes continue higher tomorrow. With this in mind, we've taken the conservative approach of bailing out of this play at current levels. We'd rather close our hypothetical trade for a small gain rather than set a tight stop that could be quickly violated on Friday. Traders who are willing to give TSCO more breathing room could use a stop slightly above either $33.00 or $33.50. We'll keep an eye on TSCO, watching for a failed rally near the 200-dma ($34.91). A rollover from this moving average might yield another action point. *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue Wed Thu Week AMGN 51.78 0.85 0.47 -0.83 -0.67 uptrend in tact TRMS 40.41 -0.28 0.78 -1.46 -0.79 bounce from $40 PUTS AT 43.09 -0.35 -0.28 -0.80 -0.51 Lower low AZO 63.80 -1.11 1.31 0.43 -0.43 Rolling over CB 48.56 0.80 -1.25 -0.43 0.14 AIG news CCMP 41.93 0.28 -0.78 0.77 -0.17 SOX holding GWW 44.70 -0.10 1.22 -0.81 0.03 mild bounce PII 48.17 0.95 -0.03 -1.77 0.36 below $50 TSCO 32.49 -1.26 -0.16 -0.57 1.16 Drop, bounce WHR 49.33 0.53 -0.45 -0.04 -0.63 New, weakness ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** PLAY UPDATES - CALLS ******************** AMGN $51.78 -0.54 (-0.31) It looked like another normal day in the markets on Thursday, as things started out weak and ground lower from there. AMGN continued its retreat from the $54 resistance level, falling to just above the $51 level by the end of the first hour, and then began a slow consolidation around the $51.50 level. The early going looked rather ominous for shares of AMGN, but after failing to break down throughout the afternoon a funny thing happened. About 90 minutes before the close, a strong buy program hit the markets and AMGN pushed briefly above the $52 level before weakening at the close, coming to rest right on the ascending trendline that has been supporting the stock since late September. The rebound off the lows looks encouraging, but we sure would have liked to see the stock avoid that final drop. Aggressive traders could certainly have entered the play on the rebound from the $51 level, but those entries are certainly on the high risk end of the spectrum. Should the bears come out swinging again on Friday, AMGN's last line of defense is the 50-dma ($50.60). A breakdown under that level on a closing basis will almost certainly prompt us to drop the play, with our stop resting at $50.50. More conservative traders will need to wait for a renewed rally through the $52.75 level before entering the play. --- TRMS $40.41 -0.79 (-1.22) TRMS completed its 5-day round trip back to the $40 level on Thursday, before finally catching a bid just above that level near the middle of the day. The short-covering spurt in the broader market helped to push TRMS back over the $41 level, but there just weren't enough buyers to keep it up there through the closing bell. Part of the weight on shares of TRMS could be related to the weakness in shares of GILD. Recall that one of our principal catalysts for our TRMS play is that the company is likely to gain FDA approval within the next month for its HIV drug Fuzeon. TRMS may have gotten caught in a bit of guilt-by-association selling, as GILD got caught in a pretty steep selloff on Thursday, possibly due to comments from a Boston HIV conference pointing to possible kidney damage from GILD's HIV drug Viread. Whether related to that news or not, TRMS is now back at strong support at $40 and this could make for a solid entry point. Risk is easy to manage at these levels, with our stop set tight at the $39.50 level. Traders looking for some bullish confirmation before entering will want to see TRMS rally through the 10-dma ($41.30) first. ************** NEW CALL PLAYS ************** None ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************* PLAY UPDATES - PUTS ******************* AT $43.09 -0.51 (-1.41) Consistency is a wonderful thing and AT has been delivering it in spades for over 2 weeks now, as it continues to pound out lower highs and lower lows. The gap up on Wednesday provided the latest entry point for hungry bears. UBS upgraded the stock from Neutral to Buy before the open, producing a gap up to the $44.50 level (solid resistance) before the rollover commenced. The clue that this was a solid entry came from watching the action in the North American Telecom index (XTC.X), which just continued to distance itself (on the downside) from its 200-dma. That slide continued right through this afternoon, when AT finally broke below the $43 level. If not for a bit of late-day short-covering, the stock would have finished right at its lows. As long as the pattern of lower highs and lower lows continues, each successive failed rally should continue to provide attractive entry points until price reaches firm support near $40. Yesterday's failed rally gives us the ability to once again tighten our stop, this time lowering it to $44.60. --- AZO $63.80 -0.43 (-0.35) While the past couple days have seen a fair amount of volatility in our AZO play, there's no denying the fact that the downward trend remains intact. After a failed rally just below the $65 level and the descending trendline (now at $64.70) on Wednesday, we got a break to the downside this morning with the stock briefly dropping below the $63 level again. Just as it looked like that support would give way again, a bout of short-covering hit the broad market, lifting the stock back up to test the $64 level from below. Lots of back and forth action when we drill down to the subatomic charts, but trend of lower highs remains in force. Entering new positions on rally failures below that descending trendline (which lines up nicely with the 21-day ema), continues to be a winning strategy, as we wait for the stock to fall through the $63 support level again and finally fill its gap down to $61.20. Stops should continue to be trailed just above the descending trendline, and tonight ours moves down to $65. --- CB $48.56 +0.14 (-0.88) Intraday traders got plenty of excitement from our CB play on Thursday, even if it was confined to the sub-atomic scale. Positive earnings results from Insurance giant AIG was enough to deliver a small upward gap to the $49.50 level, before the anchor known as the broad markets dragged CB back down to just below the $48 level by midday. While that was certainly a welcome sight, when the bears couldn't break the broad market any further down the charts, the shorts covered and took our CB along with them. By the closing bell, the stock had managed to eke out a tiny 14-cent gain, and we're left to wonder what's next. Was it a bottom or just an oversold bounce? Since CB is still on the Put list, you can correctly surmise that we think the downward trend is very much intact. Today's action is a perfect example of why we aren't interested in chasing CB lower on breakdowns. With both the stock and the broad market so deeply oversold, short-covering rebounds are likely to become more frequent. So the preferred strategy is still to short the failed rallies as long as the trend remains down. One solid measure of the trend is provided by the descending trendline connecting the two most recent failed rally attempts (1/23 and 2/3), which yields a trendline that currently rests at $51.50. A failed rally below that level (ideally in the $50-51 area, possibly near the 10-dma at $50.65) would make for a solid entry for the next leg down. Keep stops set at $51.75. --- PII $49.17 +0.36 (+0.40) To think we almost pulled the plug on our PII play on Tuesday. Fortunately, the stock collapsed at the end of the day and that was enough to tell us that the bears were still in charge. Over the past couple days the sellers have really pressed their advantage, driving the stock to a new 52-week low of $47.11. But then came the oversold bounce, helped along by an end-of-day short-covering rally. While PII did manage to get back over the $48 level by the close, it didn't get anywhere near breaking the persistent downtrend. The stock was turned back at the descending trendline (currently right at $50), and as long as price remains below that line, the stock should continue lower. While the rollover just below $51 on Tuesday looked like a high-risk entry, those who took advantage of it are in good shape tonight, especially with PII finding resistance at the end of the day near $48.50, a level that had previously acted as support. Another rollover below $50 (possibly near the 10-dma, which has now fallen to $49.52) can still be used for new entries, and we'll continue to avoid entering on breakdowns, as each new low is shortly followed by an oversold bounce. Lower stops to $50.10. --- GWW $ 44.70 +0.03 (-0.20 for the week) Tuesday's brokerage- induced rally wasn't enough to take GWW above its descending regression channel. With the broader market heading lower on Wednesday, the bulls never really had a chance to extend those gains. Today's trading saw GWW continue to trade in tandem with the Dow Jones. That was good news for the bears during most of the session. The stock hit a morning low of $44.00 and repeatedly found resistance at the 50-period moving average on the 5-minute chart. Shares finally found a bid during the final 90 minutes of trading, thanks to a powerful end-of-day rally in the Dow. Although GWW finished in positive territory, those intraday gains will probably be evaporated if the market reacts negatively to Friday morning's developments at the U.N. With Grainger showing no ability to move out of its descending channel, the bears still appear to have the upper hand. Risk- averse traders may want to use a break-even stop at $45.59, just above the top of the channel. For the time being we'll maintain our stop-loss at $47.56. This will give us the added protection of the descending 21-dma at $47.01. New entries could be evaluated on a move under the relative low of $43.76. --- CCMP $ 41.93 -0.17 (-1.21 for the week) Intel surprised Wall Street today with its announcement of a new wireless internet chip that is designed to compete with industry leaders QCOM and TXN. INTC traded higher on this news, while the latter two stocks headed lower on fears of increased competition. The semiconductor index took the news in stride, drifting lower in an orderly fashion before moving quickly higher with the broader market towards the end of the day. The daily chart reveals a lot of indecision in the SOX.X - It's spent most of the past six sessions trading in the 260-270 range. CCMP has experienced similar consolidation above $41.00. Interestingly, this somewhat directionless trading has also been characterized by a series of lower highs. That's a positive sign for the bears. On Friday we'll be looking for shares to break through yesterday's low of $41.31 and move towards psychological support at $40.00. While a move to new lows might present a shorting opportunity, traders may first want to strongly consider waiting for the SOX.X to provide sector confirmation by breaking below its own relative low of 258.56. Also note that our stop has been moved down to $44.06, slightly above break-even. ************* NEW PUT PLAYS ************* Whirlpool Corp. - WHR - $49.33 -0.63 (-1.26 for the week) Company Description: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. Headquartered in Benton Harbor, Michigan, the company manufactures in 13 countries and markets products under 11 major brand names in more than 170 countries. (source: company press release) Why We Like It: What a difference an hour makes! On Thursday afternoon there were a plethora of attractive short candidates - stocks across a wide variety of sectors falling to new relative lows, with no clear underlying support. But by the closing bell, the sudden equity rally had created green candles (and possible reversal signals) on many of those charts. Such was not the case with WHR. The stock hit a fresh multi-month low today after the bears clawed through $50.00. This level, which acted as support over the past two weeks, was bolstered by the 100-dma. The technical breakdown did not sit well with shareholders. WHR moved steadily lower throughout the session and set a low of $48.68. The subsequent late-day rebound was not convincing, as shares only recouped a small portion of the intraday losses. If the fresh double-bottom p-n-f sell signal, rising volume, and downtrending daily stochastics (5,3,3) are any indication, WHR could soon be trading below the point-and-figure chart's bullish support trend at $47.00. The daily chart shows no significant support until $45.00. Our profit-target for this play will be set just above that level at $45.06. We've set an entry trigger at $48.67 in order to confirm downside momentum. This is particularly important, given the large amount of uncertainty surrounding tomorrow's presentation by U.N. Weapons Inspector Hans Blix. What does Hans have to do with washing machines and refrigerators? Absolutely nothing. But what he says tomorrow morning could have a major impact on the major indexes. For all its technical weakness, WHR could easily bounce back if the broader market zooms higher on eased concerns of an imminent war with Iraq. But if this doesn't occur, the bulls will have a very tough time extending the late-afternoon gains. Our expectation is that Whirlpool could move sharply lower once it falls to new relative lows. Former support at $50.00 should now act as resistance. If the play is triggered, our stop will be set at $50.56. Long-term traders could give WHR additional room to move with a stop above the 50-dma ($52.60), using the October lows near $40.00 as a downside target. BUY PUT MAR-50*WHR-OJ OI=282 at $3.00 SL=1.50 BUY PUT MAR-45 WHR-OI OI=1368 at $1.10 SL=0.55 Average Daily Volume = 488 k ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Thursday 02-13-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: PUT - WHR Traders Corner: Hey, Big Spenders – A Nickel For Your Peace Of Mind Futures Corner: Before my first trade Options 101: Gold Vehicles (Not the Chariot Type) ********************* PLAY OF THE DAY - PUT ********************* Whirlpool Corp. - WHR - $49.33 -0.63 (-1.26 for the week) Company Description: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. Headquartered in Benton Harbor, Michigan, the company manufactures in 13 countries and markets products under 11 major brand names in more than 170 countries. (source: company press release) Why We Like It: What a difference an hour makes! On Thursday afternoon there were a plethora of attractive short candidates - stocks across a wide variety of sectors falling to new relative lows, with no clear underlying support. But by the closing bell, the sudden equity rally had created green candles (and possible reversal signals) on many of those charts. Such was not the case with WHR. The stock hit a fresh multi-month low today after the bears clawed through $50.00. This level, which acted as support over the past two weeks, was bolstered by the 100-dma. The technical breakdown did not sit well with shareholders. WHR moved steadily lower throughout the session and set a low of $48.68. The subsequent late-day rebound was not convincing, as shares only recouped a small portion of the intraday losses. If the fresh double-bottom p-n-f sell signal, rising volume, and downtrending daily stochastics (5,3,3) are any indication, WHR could soon be trading below the point-and-figure chart's bullish support trend at $47.00. The daily chart shows no significant support until $45.00. Our profit-target for this play will be set just above that level at $45.06. We've set an entry trigger at $48.67 in order to confirm downside momentum. This is particularly important, given the large amount of uncertainty surrounding tomorrow's presentation by U.N. Weapons Inspector Hans Blix. What does Hans have to do with washing machines and refrigerators? Absolutely nothing. But what he says tomorrow morning could have a major impact on the major indexes. For all its technical weakness, WHR could easily bounce back if the broader market zooms higher on eased concerns of an imminent war with Iraq. But if this doesn't occur, the bulls will have a very tough time extending the late-afternoon gains. Our expectation is that Whirlpool could move sharply lower once it falls to new relative lows. Former support at $50.00 should now act as resistance. If the play is triggered, our stop will be set at $50.56. Long-term traders could give WHR additional room to move with a stop above the 50-dma ($52.60), using the October lows near $40.00 as a downside target. BUY PUT MAR-50*WHR-OJ OI=282 at $3.00 SL=1.50 BUY PUT MAR-45 WHR-OI OI=1368 at $1.10 SL=0.55 Average Daily Volume = 488 k ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** TRADERS CORNER ************** Hey, Big Spenders – A Nickel For Your Peace Of Mind By Mike Parnos, Investing With Attitude What’s this world coming to? I’m on my way out to buy a gas mask and bottled water? No, I’m not concerned about the war. I had beans and barbeque for lunch. While a large portion of the American public would like to turn Iraq into a giant litter box, I suspect calmer heads will prevail. (my two cats really had their hopes up). Besides, I doubt Iraqi sand has the all-important clumping feature – which would make the job of US troops cleaning the litter box after the fact a real mess. There’s also been a huge run on duct tape – the babysitter’s best friend. With a threat of chemical and/or biological warfare, people are stockpiling duct tape to seal their homes. Soon duct tape will be available in designer colors. The important question is: If there’s a war or terrorist attack, will Dominos still deliver? _____________________________________________________________ Are We Lucky or Are We Good? At the CPTI we’re right more often than we’re wrong. Are we lucky? Hell No! We’re GOOD! We structure our trades using options – those marvelous tools that enable us to be creative, to be safe, to be conservative and to create a potentially profitable scenarios for any market environment. Not only are we right most of the time, but, as we learn more, we can discover how to take advantage of stock movement during the life of the trade. Let’s Get Mental For this example, we’ll use a trade a few Couch Potato Trading Institute (CPTI) students put on in mid January. It was an Iron Condor using our old friend -- BBH (Amex Biotech Holders). With BBH trading at about $86 at the time, they bought 10 contracts of BBH February $70 puts and sold 10 contracts of BBH February $75 puts for a credit of $.65. Then they sold 10 contracts of BBH February $95 calls and bought 10 contracts of the BBH February $100 calls for a credit of $75. The total credit was $1.40 or $1,400 for the 10-contract position. The reason they like this position is the 20-point range. They recognize that BBH has the potential to make good-sized moves in either direction. As per plan, BBH has stayed within a rather narrow range, and the short options were eroding -- just like in the playbook. With almost two weeks remaining before option expiration, BBH was still comfortably in the mid $80s. Would all the options in the Iron Condor expire worthless? Probably, yes. Is it possible that, in two weeks, the market could explode in one direction or the other? Of course it’s possible. They took a look at the BBH option chain and noticed that BBH fluctuates a few dollars during the trading day. On Tuesday, BBH popped up over $90 for a while. They bought back their short $75 puts for a nickel. Then, later in the day, BBH came down and, on Tuesday morning, they were able to buy back their short $95 calls for another nickel. What’s left? Once the CPTI students bought back the short options, what remained in their accounts? 10 BBH February $70 puts and 10 BBH February $100 calls. They have no value at the moment, but that could change. If we go to war, there will be a market reaction – how severe, or in what direction, remains to be seen. Let’s speculate. If BBH reacted with a spike down to $65 in the next week, how would that affect the long $70 put? It would have a minimum value of $5. Wouldn’t that be nice? Even if BBH only tanked to $72, the volatility would go through the roof and the $70 put could be worth $1.00. That wouldn’t be hard to take either. What Does This Accomplish? 1. When you sell a short option (put or call), you’re taking on an obligation to perform. When you buy back that short option, you are no longer obligated. 2. You have locked in almost all your profits. You originally took in $1,400 and it cost you only $100 to insure your safety. What a deal!! 3. You have put yourself in a position to profit tremendously if there was a dramatic market move in the final two weeks before expiration. There are other ways to take advantage of stock movement within a range that we’ll explore in a future column. Just being aware of what you can do will open up trading opportunities for you to make the most of your position. CPTI Rules!! Now, since we’re not at war tonight, let’s order a Dominos with everything and have the delivery boy pick up a couple of rolls of duct tape. The pizza is for me. The duct tape is to make sure I’m not interrupted during tonight’s game. _____________________________________________________________ CPTI PORTFOLIO POSITION UPDATE Position #1: BBB Iron Condor – Closed Thursday at $85.70. An Iron Condor is a credit position consisting of both a bull put spread and a bear call spread. The objective is for the BBH to finish anywhere within the $85-$95 range. BBH has traded down and will hopefully continue to bounce off support. Position #2: MMM Iron Condor – Closed Thursday at $122.41. The support at $120 once again seems strong, as does the resistance at $130. Enough. That should give MMM enough room (10 points) to bounce around for the next four weeks. Position #3: SMH Straddle – Closed Thursday at $20.85. We bought the SMH May $22.50 puts and calls and spent $5,850 on 10 contracts. But, since we’re going to stay in this position only for the February option cycle (5 weeks), we’ll only be risking about $.85 ($850). We’re looking for a big move for the semiconductors and we don’t care which way. The market has been trading in a range and some volatility has come out of the premiums. We have only five trading days left. Position #4: QQQ ITM Strangle – Closed Thursday at $23.94. This is a long-term position to generate a monthly cash flow. We own the January 2005 $21 LEAPS call and the January 2005 $29 LEAPS puts. We’ve sold the February $29 calls and February $21 puts. In this position, we’re glad the QQQs have stayed in a range. It will make life easier when the short options expire and we prepare to sell a new set of short options. Position #5A: XAU Condor – Closed Thursday at $74.52. This is a longer term trade expiring in March. There is a $20- point range and we took in a credit of $1.40. We want XAU to finish anywhere between $70 and $90. Patience, patience and patience. XAU has been moving lower, but today’s bounce is encouraging. Time is working in our favor. Position #6A: MMM Condor – closed Thursday at $122.41. This is a longer term more conservative trade expiring in March. There is a $20-point range and we took in a credit of $1.20. We want MMM to finish anywhere between $115 and $135. Position $7A: QQQ 2-Month Baby ITM Strangle – closed Thursday at $23.94. Bought March QQQ $26 puts & Buy March QQQ $24 calls for total debit of $4.20. There is $2 of intrinsic value and only $2.20 of risk. We’re looking for a 3-4 point move in the QQQs. After the move, we want the successful long option to pay for both options. Then we’re left with a “free” long option and waiting for the market to reverse. As time goes by . . . we’re ready for action. ______________________________________________________________ Happy trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Instructor ************** FUTURES CORNER ************** Before my first trade By John Seckinger jseckinger@OptionInvestor.com If you haven't yet dived into the world of futures trading, there are a few things worth learning about both this type of trading and the E-mini S&P 500 contract. Years ago, when I first found out that an initial margin of between 3 and 4 thousand dollars could allow me to take a position in a futures contract; my heart beat a little faster. I started trading bond futures in the early 90's, and every tick would immediately either increase or contract my trading account by 31.25 per tick (1/32nd), times the number of contracts. The 30-year, at the time, had the liquidity and leverage unlike any futures contract at either the grain or financial exchange at the Chicago Board of Trade. If you are interested in equities, trading the S&P 500 futures index is the '30-year' of the stock market. The S&P 500 Index represents roughly 70% of total domestic U.S. equity market capitalization. Standard and Poor's identifies important industry sectors within the U.S. equity market, approximates their relative importance in terms of market capitalization, and then allocates a representative sample of stocks within each sector of the S&P 500. The Index is capitalization weighted (shares outstanding times stock price); each company's influence on Index performance is directly proportional to its market value. The daily IS exclusive of dividend income, i.e., they reflect only price action of the underlying component stocks. In conclusion, this is broad market exposure. As far as the E-mini S&P 500 Index is concerned, it is one-fifth the size and cost of the standard S&P 500 futures contract, and is the most liquid stock index futures contract in the world. The capital required to trade such a contract is relatively small; only 3,563 dollars needed in initial margin. Because of this fact, many traders of the S&P 500 prefer the liquidity and ease of electronic execution of the E-mini. Therefore, broad market exposure at a relatively low cost. The E-mini S&P 500 contract was introduced Chicago Mercantile Exchange (CME) in 1997, trading in increments of 0.25 points, with each tick equaling $12.50. Commissions are roughly $8 to $15 for round turns (entry and exit), but don't hold me to that figure. The CME had to standardize the contract, as well as making these futures a legally binding agreements to buy or sell the cash value of the S&P 500 Index at a specific future date. The contracts are valued at $50 x the futures price. For example, if the Mini S&P 500 futures price is at 900.00, the value of the contract is $45,000 ($50 x 900.00). As an important note: All positions are marked-to-the-market daily. With that said, a trader can take profits from a position out of his/her account WITHOUT liquidating the position. Very nice feature. These ES contracts are cash settled, just like the Standard S&P 500; so there is no delivery of the individual stocks following expiration - which takes place quarterly (March, June, September, and December). Remember, Mini S&P 500 daily settlements and quarterly expirations will use the exact same price as the S&P 500. Also a nice feature of futures trading is that there is no up tick rule to go short, it is 100% electronic - no trading pits and brokers, a short-term tax advantage, and can be a perfect hedge for one's portfolio. Why sell 10,000 shares of MSFT if you don't want to alter your stock portfolio that much. Just use the ES contract. The correlation will not be perfect, but it is definitely a viable solution in the near term. Ok, let us conclude that a trader only wants to "speculate" in trading the ES contract. Is it right for them? It really does make a ton of sense to consider your financial experience (very key), trading goals, and financial resources (since trading the ES contract should only be used with RISK CAPITAL). As about everyone will tell you, trading futures can result in losses that may substantially exceed an investor's original deposit. That is why stops in the futures market is so critical. Moreover, risking retirement savings, medical and other emergency funds, and normal day-to-day funds should not be used to trade futures. Additionally, if you are a trader that doesn't like the volatility of the markets, futures are probably not right for you. I can't tell you what your comfort level is, but trading futures really is a different animal than say buying/selling stocks (at least most of the time). The margins that I talked about (3,563) is only a "good faith and credit deposits", and there is a chance that a trader might have to make additional margin deposits. Note: Sellers have the same margin requirement as buyers. The absolute minimum margin requirement is set by law at 20% of a contract's value, calculated daily, and exchanges and brokerage firms can definitely increase this percentage. The 3,563 number was gathered by the exchange, and could easily have moved since. What if you don't meet a margin call? Usually the broker will liquidate a customer's open futures position, and is not required to consult with a customer prior to liquidation open positions. Please do not think that buying a futures contract is like owning a share of stock. Regulatory agencies (NFA, CFTC) even use the phrases "pay attention" financial instruments, since futures contracts are relatively short-term trading vehicles that need to be monitored in case a margin call is issued. I have gotten a number of emails wanting to explain the basics of futures trading and the ES contract (since that is the contract in the Futures Monitor). If you are new to futures and just finished this article, it is then important to begin paper trading the ES contract (see http://www.OptionInvestor.com/futurescorner/fc_011403_1.asp). I also recommend looking at the pivot analysis formula, as well as starting to get comfortable with MACD and regression channels on a five-minute chart. Then look at retracements from S2 to R2 on a daily, weekly, and monthly timeframe. After that is done, start to look for weakness or strength in the NQ and YM versus the ES, since that can help with execution. Moreover, become comfortable going to www.stockcharts.com and pulling up a bullish percent chart of the SPX and how that will gauge risk for the market ($BPSPX). To top it off, learn when NOT to trade. This is an entirely new article, altogether. Going forward, every Tuesday I plan on doing an article from a Trader's point-of-view. I did, however, want to take a step back tonight before things start to heat up. On Thursday, the one thing I learned was that WEEKLY retracements work fantastic, and that selling underneath the bottom of the low via "fitted retracements" really increases risk. Ok, the rambling will stop here (grin). Ask away, John Seckinger *********** OPTIONS 101 *********** Gold Vehicles (Not the Chariot Type) Buzz Lynn buzz@OptionInvestor.com As promised last week, if enough faithful readers sent in e-mails requesting such, we'd do an article on the different vehicles available for precious metals trading and investing. Enough readers responded - more than I'd imagined, actually - so we're going to spend some time today on gold vehicles, none of which are available at any of the Big 3 automakers' showrooms! Before we get started, I encourage those just joining us for the first time on the subject to go back to last week's article on the case for gold. http://members.OptionInvestor.com/options101/opt_020603_1.asp I'd also encourage everyone, even the trading pros, to read Jonathan Levinson's excellent article from last night. http://www.OptionInvestor.com/traderscorner/tc_021203_1.asp It dovetails very nicely with what we'll jump into right now. Where Jonathan Levinson does a great job with the principles for choosing certain vehicles, we'll focus on the vehicles, themselves. For starters, HUI.X, commonly known as the un-hedged gold index, is not tradable to the best of my knowledge. No options are available, nor is there any volume of shares to indicate an exchange traded fund (EFT). However, we can use HUI as a barometer or marker with some correlation to the price of gold. The following companies in the index are considered un-hedged, though "un-hedged" is a bit of a misnomer given that up to one and a half years of forward sales (hedging or shorting) is still permissible under the definition: CDE - Coeur D'Alene Mines FCX - Freeport McMoran Copper Gold GLG - Glamis Gold GG - Goldcorp HGMCY - Harmony Gold HL - Hecla Mining MDG - Meridian Gold NEM - Newmont Mining The next index is probably the most commonly known - XAU.X, referred to as the Gold and Silver Index, and is also not tradable. However, options are tradable on this index on the Philadelphia exchange. Just because HUI is referred to as the "un-hedged" index does not necessarily mean that XAU represents only "hedged" companies. In fact there are a bunch that overlap. The following are the stocks that make up the XAU: AEM - Agnico Eagle Mines AU - Anglogold SIL - Apex Silver Mines ABX - Barrick Gold FCX - Freeport McMoran Copper Gold GG - Goldcorp HGMCY - Harmony Gold MDG - Meridian Gold NEM - Newmont Mining PDG - Placer Dome If our plan is to trade options in the gold market, XAU is pretty much the only vehicle providing any connection with the price of gold. If that's too lightweight, we can always play with the big boys in the futures market. The contracts expire in different months of the year and in future years too. The current month contract is GC03g (GC for Gold Contract; 03 for 2003; g for February). However, volume has dropped to a trickle on these in favor of most front month trades done under the symbol GC03j (again, GC for Gold Contract; 03 for 2003; j for April). GC03m is the June contract. Each contract controls 100 troy ounces of gold. Thus at current levels, one contract will set us back roughly $35,750 at today's closing price of $357.50 per ounce. The good news is that futures provide us tremendous leverage. As Jonathan correctly pointed out yesterday, although the initial margin requirement was just increased to $2025 per contract from the previous $1500 per contract, it's still a bargain. Of course, that works in reverse too in that a move to $337.25 per ounce of the metal wipes out the $2025 we plunked down and begins costing us dearly if the price declines further. In the realm of trading, only the latter two are suitable trading vehicles. These are not the instruments of those who want protection from either financial meltdown, or merely financial erosion. They are strictly trading vehicles in my opinion, and not designed for a long-term investor. Whether we use them or not depends on our time horizon and our reasons for involving ourselves in gold plays. Trader's horizon, good. Investor's horizon, bad. Traders can also avail themselves of gold and/or silver stocks, most of which are optionable. However, we're beginning to cross over into investor territory here too. As investors, we'll be interested in instruments that never expire (though they can go bankrupt or otherwise be wiped out), and that includes stocks of individual mining companies, some of which even pay dividends(!), meager as they are. I don't have a favorite mining or exploration stock, except maybe Newmont (NEM), which I'll get to in a minute. I'm not really fond of them for a number of reasons, the biggest of which is that they are still stocks! So what's the problem with that? Keep in mind the reason that I am personally invested in gold - an insurance policy that never expires against financial catastrophe. Now if there is a financial catastrophe, metal stocks are going to suffer too for the same primary reason as any other stock. While metal stocks may be slightly insulated by virtue of their inventory or reserves of metal, as a reader astutely commented, their profits are still derived in fiat currency. For that reason, I'm on the fence about purchasing individual mining companies. If things ever get that tough internationally, I'm not going to be able to spend a stock certificate as a last resort, even if it is a mining company. Maybe there won't even be a liquid exchange in which to sell it. The secondary reasons are that shares are overpriced as a multiple of earnings. Or worse, they have no earnings even after the sharp rise in the price of gold. Criminy, what's it take to make a profit if it can't be done at $350 per ounce? Another piece of treachery in the individual companies is that they can't just start producing at the tip of a hat. There is some ramp-up time. For you real estate developers, if you thought building a shopping center, warehouse, or office building was a tough sell to the local zoning board, try developing a gold mine! It's no surprise that 10 years is a reasonable development time, at least in the U.S., and that foreign countries might be a bit more lenient in the development process. Therein lies another risk in mining in foreign countries. What is it? In a word, nationalization - confiscation, re-possession, co- opting, pilfering - call it what you want, but it's stealing. So you have event risk in any given mine. Those are all reason why I tend to shy away from the shares under my "ark-building" program. None of this matters to the trader though. As traders, we only care about action. Investments are the furthest thing from our minds. For that reason, I keep my eyes on a bunch of individual mining stock symbols. By no means am I recommending any of them. You've already observed some of them above, but I've listed them here in alphabetical order: ABX, AEM, ASA, ASL, AU, BGO, CBJ, CDE, DROOY, ECO, GFI, GG, GLG, GSS, HL, HMY, KGC, MDG, NEM, PDG, RGLD, SIL, and SSRI. Some of these are priced under $5 and have the possibility of running up 10-fold or more. I just don't know which ones, and I'm not gambler enough to buy 10 at random with a throwing of the proverbial dart, and hope I've nailed a home run. I'm just not well-versed enough in the industry to know the winners from the losers. Yes, there will definitely be both! I mentioned NEM a minute ago for good reason. It is, I believe the closest thing to investment grade in terms of safety for a couple of reasons. First, it's the biggest capitalized mining stock out there, and it pays a dividend. To boot, it has operations in more countries than any other mining company I can think of. Thus it is not as vulnerable to event risk in any one location as those with less far-flung operations. Second, if run of the mill mutual funds are eventually to gain some exposure to gold, and they can pick only one stock, I think they are going to first buy NEM for the reasons I noted above. That doesn't make it a buy, but it's the highest on my radar screen. So I keep an eye on it. Now if none of this sounds like fun investigating 20+/- individual stocks, most not based here in the U.S., we are birds of a feather. For that reason, I'm inclined to give my money to a metals mutual fund manager and let him/her do the picking for me. There are many funds out there to pick, as well. By no means is this a complete list; there are many more. But here are a few I swerved into over the last year. GOLDX - Gabelli Gold MNTGX - Monterrey Gold RYPMX - Rydex Precious Metals SGGDX - First Eagle Gold TGLDX - Tocqueville Gold Fund USAGX - USAA Precious Metals EKWAX - Evergreen Precious Metals INIVX - Van Eck Intl. SCGDX - Scudder Gold Disclosure: I own some Tocqueville shares. Dang! Just when I was getting to the good stuff, I hit the wall of time and space - not quite the Twilight Zone, but deadline and allotted space dictate here. Next time, we'll tackle the purchase of coins, bullion, and the closest thing to gold certificates we'll ever see, CEF shares, which can be owned in your IRA! Until next time, make a great weekend for yourselves! 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