The Option Investor Newsletter Wednesday 02-19-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Anyone's Guess Futures Wrap: Contained in a Range Index Trader Wrap: (See Note) Weekly Fund Family Profile: Mosaic Funds Options 101: Perspective Updated on the site tonight: Swing Trader Game Plan: Empty Tank Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 02-19-2003 High Low Volume Advance/Decl DJIA 8000.60 - 40.55 8043.11 7935.27 1268 mln 382/864 NASDAQ 1334.32 - 12.22 1344.59 1322.12 1164 mln 359/790 S&P 100 428.80 - 2.68 431.48 425.13 totals 741/1654 S&P 500 845.13 - 6.04 851.17 838.79 RUS 2000 360.28 - 4.25 364.53 358.92 DJ TRANS 2105.39 - 35.26 2142.23 2097.15 VIX 35.22 - 0.34 36.40 35.07 VIXN 47.63 - 0.77 49.24 47.56 Put/Call Ratio 0.81 ******************************************************************* Anyone's Guess by Steven Price Time for some consolidation. After three days of impressive gains, the bulls finally took some profits off the table. This pullback came in spite of some generally positive news, but at this point, just how much financial news is affecting the markets, versus geo-political concerns, is anyone's guess. The big economic item on this morning's agenda was the housing data. Housing starts rose a mild 0.2%, but this was an upside surprise after the consensus favored a drop after December's strongest reading in 15 years. On the flip side, housing permits fell 5.6%, which was a larger than expected drop. It is clear, though, that low interest rates continue to spur a strong housing market. While it seems that prices have begun to level off in many areas of the country, there is a backlog that has been built up over the past year that may continue to support the housing starts number for several months. Housing stocks such as Hovanian have cited that backlog as evidence of strength. Of course, if permits continue to fall, then the backlog will eventually dry up and the starts number won't look as good. Speaking of interest rates, many Fed watchers will note the FOMC's reluctance to lower rates any further than they sit at this time. Specifically, Alan Greenspan's recent testimony before Congress indicated that we really won't know just how the current policy will affect the economy until the Iraq conflict is behind us. While it seems the Fed is a little uncomfortable with rates this low and would like to raise them, there are a number of concerns that are now actually beginning to favor another possible rate cut. First and foremost is the economy. Whether we'll have to wait until the war is behind us or not, things do not seem to be improving, with almost weekly layoff announcements. Even Greenspan has admitted that spending is pretty much on hold until the situation is resolved and if the Iraq situation continues to drag on, lowering once again may be the logical short-term step. The Fed Funds Futures have ticked to 98.78 (100-98.78 = 1.22 vs. current rate of 1.25), indicating a very little chance of the Fed lowering rates at its next meeting. The June Fed Funds Futures show a slightly higher chance, currently trading 98.85 (100-98.85 = 1.15). While neither of these are showing much conviction, the point is that they are still trading in favor of a cut, as opposed to a rise. The problem with lowering rates further is the fact that we continue to dig deeper into debt with each lowering, making it difficult to then raise rates when the economy does begin to get better. Total household debt is at record levels, both when compared to disposable income and in absolute terms. Right now those debt levels are not preventing consumers from spending - the one factor that seems to be propping up the economy, because the debt is serviceable at lower interest rates. Corporations are also carrying record levels of debt and its current interest payments are at all-time highs. If rates were to go up, an already weak business spending environment may get even worse. As of now, even the spending that is occurring is coming under continuously greater scrutiny due to credit concerns. Financials also took a hit today. It seems the deteriorating credit issue just won't go away. J.P. Morgan started the concerns over bad telecom debt last year and those concerns have bled to almost every business sector. Today we got another downgrade based on credit concerns. MBNA said its net credit losses at Jan. 31 were 5.49% of loan receivables. Wachovia, J.P. Morgan, Goldman Sachs and Salomon cut estimates for MBNA, citing a significant deterioration in credit quality during January. It said the deterioration was concentrated in the consumer lending portfolio, so apparently businesses are not the only ones unable to pay their debts. We got some news on the international front, but it didn't seem to have much of an impact. Turkey is still negotiating with the U.S. to allow troops to be based in the country for a possible move into Iraq. The U.S. has offered about $6 billion in grants and $20 billion in loan guarantees. Turkey has countered that it would suffer greater losses from tourism, higher oil costs and soaring interest rates on foreign debt. Turkey is asking for more money, saying, "If our support has value for the United States, then the United States needs to keep in mind our sensitivities." The U.S. would like to station 40,000 troops there for an invasion from the North that the U.S. says would shorten the war. Somehow it seems to me that if it has come down to a matter of dollars, an agreement will be reached at some point. After all, Turkey's concerns about higher oil costs and soaring interest on debt will affect them whether they allow the troops or not and an extra $26 billion for their permission will be difficult to turn away. The population of the country is already opposed to allowing troops, but apparently that hasn't stopped the government from putting a price on its participation. After today's sell-off, we are left to determine whether we have seen a trend reversal and the drop offered an opportunity to buy a pullback, or if we saw the end of a short-covering rally and its time to jump in short and target new relative lows. It is not an easy question to answer since it seems hard to explain the rallies of the last few days to begin with. The fact that we were in oversold conditions according to bullish percents and also approaching July lows, certainly could have led to shorts doing some profit taking. The rallies of the past couple of days have also come on relatively light volume, which is a red flag for bulls. Daily Chart of the Dow A look at the point ad figure charts also shows that although we got a big bounce, making up much of the sell-off of the previous several days, we ended quite a ways from buy signals in the major indices. Combined with bullish percents that still remain in a sinking column of "O," these indications are that we are still headed lower and simply saw either a short-covering rally or an oversold bounce (or more likely a combination of the two). The fact that today's afternoon bounce found sellers at 8000 may be indicating that the bulls are running out of steam after the nig run. Of course, the fact that the Dow managed to close just over the mark, at 8000.60 could also indicate the bulls were able to muster enough strength to break that level after a bigger sell- off. If nothing else is clear, we seem to have a line drawn in the sand that we can focus on tomorrow. Certainly in the current geo-political environment, technical indicators cannot account for news risk, as they are numbers based only. However, they do measure the result of whatever action stems from that news risk and still provide a valuable tool to assess direction as well it is possible to assess under current conditions. Of course, we can technically analyze until our heads cave in and if Saddam Hussein flees into exile, we will most likely see a huge rally, at least temporarily. Point and Figure Chart of the Dow Bullish Percent of the Dow The semiconductor stocks got a pat on the back, in spite of last night's disappointing book-to-bill number. Yesterday's info showed a drop of 10% in orders and 9% in shipments. The drop in the BTB number to 0.92 was below analyst expectations between 0.93 and 0.98. However, Morgan Stanley raised its rating on the entire sector, saying that the risk/reward parameters have become more attractive over the past few months and that the miss was a non- event. It expects the chip stocks to out perform the market over the next 12-16 months. Outperforming the market is a curious proposition, since following the upgrade, many of these stocks proceeded to wet the bed. Interestingly enough, this seemed to be the first group to find support last week, basically flat lining around 260, before heading higher. While the Dow and Nasdaq both sunk throughout much of last week, the SOX began to build a base and even creep higher. Was this really the first indication that we should have been looking for a turnaround? The index has shown a good correlation to the broader markets, as it reflects IT spending by both consumers and businesses and this time it does seem we should have paid attention when it began to bounce. Morgan also gave individual upgrades to Intel, Texas Instruments and Xilinx. Keeping with the same theory of this index giving us reliable signals, this morning, traders seemed to focus more on news from Micron that it was cutting 10% of its workforce and began taking some recent profits out of the chips. The SOX ended the day at 288.99, after pulling back 2.64 points. The wireless sector also suffered the upgrade curse today. Credit Suisse First Boston raised their rating on the wireless equipment sector. The firm said trading opportunities exist over the next 3-6 months and that valuations now look attractive. It cited Nokia and Qualcomm as having the most upside. The upgrade was followed with a Nokia downgrade by Wachovia, based on the firm's Global Handset Sentiment Index, which indicated that demand for replacement handsets over the next quarter could be weaker than expected. On top of the dueling analysts, Nortel said that a price war in the wireless equipment sector could cause the entire market to drop 10% in 2003, which is worse than the predicted single-digit losses. Let's see, I don't recall my college economics classes teaching that lower demand and lower prices equal a stock buying opportunity. Another indicator that has gotten some attention here at OI recently is the Market Volatility Index (VIX). Market Monitor subscribers will note the discussions from Mark, Linda and myself with regard to support and resistance levels that have given us advance clues and continue to do so. The VIX reflects option premium levels in the OEX and generally moves higher as the market sinks and lower as it rises. As it reaches resistance, it often indicates the end of a drop and possibility of a bounce and as it hits support it often portends a pullback after a rally. The 40% resistance level has served us well recently. It has predicted intraday bounces and the reluctance to break above that resistance level eventually foreshadowed a more decisive turnaround in the equities. The 35% level had served as resistance as the Dow dropped from January highs down to support in the 8200-8300 range. After the Dow broke that support, the VIX also broke resistance, and moved into the 35-40 range. The rebound of the past few days had driven the VIX back down from 40 at the recent equity lows, to support (previous resistance) at 35. When we hit that support, lo and behold, we got an equity pullback. While this indicator is not exact, it has been giving as reliable signals on a short-term basis. Chart of the VIX Today's trading still amounted to another low volume day. While the range seems large with a high in the Dow of 8043 and a low of 7935, only one stock managed more than a dollar's worth of movement. The moves we are seeing are almost always pegged to geo- political tensions. It's either renewed war fears or a possible delay due to some new factor. This afternoon we got conflicting reports about a second Iraqi resolution, with the White house saying it could come in the next week or two, contrary to reports that the soonest would be in March after the next Blix report. It is next to impossible to guess what will develop next. Let's do our best to trade what we see, but be ready to protect ourselves with tight stops ahead of whatever tomorrow's developments may bring. Right now, we are still seeing internal bearishness on the PnF charts, in spite of the rally on Friday and Monday. However, it was a big reversal, so we need to be cautious. I'd like to simply say "short any rally," and that is what I am personally looking to do. However, I am keeping it small, with mostly 1/2 positions, as the White House has yet to fill me in on the "real" schedule. ************ FUTURES WRAP ************ Contained in a Range By John Seckinger jseckinger@OptionInvestor.com All three futures contracts remain wedged between a few notable retracement areas; however, current support was viewed as resistance just a few sessions ago. If prices do continue to rise, the operative word might in fact be "wedge". Wednesday, February 19th at 4:15 P.M. Contract Last Net Change High Low Volume Dow Jones 8000.60 -40.55 8043.11 7935.27 YM03H 8013.00 -34.00 8037.00 7929.00 23,983 Nasdaq-100 1005.88 -9.03 1014.64 994.25 NQ03H 1009.50 -9.00 1022.00 994.50 225,388 S&P 500 845.13 -6.04 851.17 838.79 ES03H 846.75 -4.75 852.00 837.75 504,379 Contract S2 S1 Pivot R1 R2 Dow Jones 7885.15 7942.87 7992.99 8050.71 8100.83 YM03H 7885.00 7949.00 7993.00 8057.00 8101.00 Nasdaq-100 984.72 995.30 1004.83 1015.41 1024.94 NQ03H 981.25 995.25 1008.75 1022.75 1036.25 S&P 500 832.65 838.89 845.03 851.27 857.41 ES03H 831.25 839.00 845.50 853.25 859.75 Weekly Levels Contract S2 S1 Pivot R1 R2 YM03H 7486.00 7706.00 7836.00 8056.00 8186.00 NQ03H 919.25 952.25 971.25 1004.25 1023.25 ES03H 790.75 814.00 828.25 851.50 865.75 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 847.75, exit 845.50, change +2.25 Short 843.00, exit 840.50, change +2.50 Long 840.00/840.50, exit 841, change +0.75 Total for the day: +5.50 Total for the week: +4.00 For information on the Futures Monitor and Jim Brown's posts, please go to the following link and download the current market monitor. If you already have the most recent version, simply go to the Futures Monitor Post on the upper left hand portion of the applet. http://www.OptionInvestor.com/itrader/marketbuzz/download.asp The March E-mini S&P 500 Contract (ES03H) The ES contract once again failed to rise above the "Zone of Resistance" area from 850 to 854, but bids certainly entered as 839.50 and the 61.8% retracement area was tested during the session (Retracement from October to December move). So, who wins? I will give the slight advantage to bulls; moreover, as the chart below notes, there is still the chance that we are in a large wedge formation and will test the 861.25 level in the near term (the "area" is actually from 861-866). A daily close under 839 should have bulls worried, and this should be the catalyst for a quick move to 830. Also on Wednesday, traders did see a bounce off the 845 area before 839.50 was tested. It is then no coincidence that this area (845.50) will be the pivot for Thursday. Also note that the ES contract is still in a fairly aggressive bullish regression channel, but this channel will definitely be broken if 839 is tested again. Chart of ES03H, 120-minute Looking at a 30-minute chart of the ES contract, it is definitely nice to see daily levels lining up with more intermediate areas. Thursday's R1, pivot, and S1 all line up well with retracement areas based off weekly levels. Yes, holding a futures contract for a week is an intermediate position (grin). If the ES settled below 839.50, I could see more of a reason to sell rallies going forward; however, this was a rejection on an intra-day basis and was actually a slight victory to bulls. Also note that I am putting more emphasis in the weekly pivot below as support than the daily S2 reading (828.25 versus 831.25, respectively). Chart of ES03H, 30-minute Bullish Percent of SPX: This indicator rose 0.40% to 35.00% on Wednesday, and will remain in "Bull Correction" status with a column of O's unchanged at 14. The last column of "O's" ended at 20 percent. This indicator will have to move up to 42% to form a column of X's and have bears less aggressive. Therefore, short- and long-term sentiment remains with bearish traders. Looking at P&F chart of the SPX, resistance remains at the 860-865 level, while support is seen near 835. On a bar chart of the SPX, going forward I believe a daily close underneath 839 would be viewed as bearish. A close above 848 now will most likely be viewed as slightly bullish. The March E-mini Nasdaq 100 Contract (NQ03H) The NQ contract rose above the weekly pivot of 1019.25 on Wednesday, but was no match to the strong resistance zone from 1019.50 to 1025. If 1025 is taken out, look for a move to 1043. The daily R2 level comes in at 1036.25. Bearish traders did get their roll from the 1020 area down to 1003, but 983 didn't come close to being tested. The example I gave for Wednesday ("Move to 1023 and then NQ falls under 1019.50, signaling weakness") worked well, and can actually still be used for Thursday as well. Remember, if 1025 is taken out, a trader can actually go long with a stop just below the weekly pivot. Looking at the chart below, note that the NQ contract bounced off its 22 EMA and closed above its 50 EMA - a slightly bullish sign. The top of the daily Bollinger Band is in the resistance zone, and should increase its significance. Chart of NQ03H, Daily Taking things to a 60-minute chart, things get a little bit harder to read. Aggressive traders can look for bids at the 995.25 level, but stops would have to be tight. I definitely would rather look to sell resistance and buy support. At least until the market proves that we are in another range than from 1025 to 983. Sentiment is neutral at current levels. Chart of NQ03H, 60-minute Bullish Percent for NDX: The bullish percent for the NDX rose one-percent to 35 on Wednesday, but will still remain in "Bear Confirmed" status. This index needs a print of 40% to reverse back into a column of X's. The last column of O's ended at a reading of 14%. The NDX, according to P&F charts, still has a bearish objective of 775, and still did not manage to get a 1025 print to warrant a column of X's. Intermediate support is seen at 875, with a pivot at 1000. The March Mini-sized Dow Contract (YM03H) The YM contract didn't test the 8052 area on Wednesday, but its significant should remain strong going forward. Note: Daily R1 comes in at 8057. Above this level, the main area of resistance is still seen from 8142 to 8186. With the daily pivot just below at 7993 and in the middle of the range from 7935 to 8052, it is hard to gauge sentiment. Neutral at best. If selling pressure does take over, I expect a bounce from the zone of 7918 to 7935. A daily close above 8052 or below 7919 should have momentum continuing on Friday. It is definitely hard to be neutral here, so aggressive traders could look to go long with a stop just under the daily pivot. Chart of YM03H, 90-minute Bullish Percent of Dow Jones: Using P&F analysis, only a 7950 print will warrant a column of O's and get bulls worried about the current "low pole" formation. The bearish objective for the blue chips remains at 7100. Note: A move above 8200 would give a 'buy signal'. Resistance is seen at 8150, with support still not seen until the 7550 area. Based on these quadruple patterns, it actually is common for the market to reverse back and test the recent lows (7650 area). As far as the bullish percent is concerned, this indicator rose 3.33% to 16.67% and will need to reach 20% to get into "Bull Alert" status. The column of O's remains at twenty-three. Note: The last column of O's ended at 10%. 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_021903_1.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** WEEKLY FUND FAMILY PROFILE ************************** Mosaic Funds This week's Fund Family Profile takes a look at Wisconsin-based Madison Investment Advisors and the Mosaic Funds, a fund family of pure no-load funds offering various equity, fixed income and money market strategies for investors. Portfolio management is provided by Madison Investment Advisors, a 100% employee-owned investment management firm founded in 1974 that now has over $7 billion in net assets under management, including their Madison Scottsdale and Madison Mosaic subsidiaries. For their services, Madison Investment Advisors receives a fee from each Mosaic fund (included in expense ratio). Like many investment firms, Madison Investment Advisors ("MIA") built its reputation managing institutional client assets. So, the lion's share of the $7 billion in managed assets is on the institutional side. MIA lists as its core expertise 1) active bond management, 2) active (risk-managed) equity management and 3) tailored balanced portfolios. As a result of their success and growth, the firm now has a staff of 50 people, including 20 investment professionals. Log on to www.madisonadv.com for more information on Madison Investment Advisors, Inc. Jay Sekelsky, Chris Berberet, and Frank Burgess are key members of the Mosaic Funds portfolio management firm. Jay Sekelsky is one of the firm's principals and senior portfolio managers. He has managed the top-rated Mosaic Investors Fund (MINVX) for the last 13 years (since 1990) along with the equity portion of the Mosaic Balanced Fund (BHBFX). In 1996, he added Mosaic Mid-Cap Fund (GTSGX) to his portfolio management duties. He's the lead equity manager today for Madison's equity portfolios. A second principal and senior portfolio manager, Chris Berberet oversees Madison's fixed income strategies, and runs several Mosaic bond fund portfolios. He also manages the fixed income stake of the Mosaic Balanced Fund. Frank Burgess is founder, president and chief investment officer of Madison Investment Advisors, and has managed Mosaic Foresight Fund (GEWWX) for the last six years. According to his biography, he is a noted speaker on investment strategies and market trends. For more information on the portfolio management team, go to the Mosaic Funds website located at www.mosaicfunds.com. The Mosaic Funds are 100% no-load, meaning they charge no front- or back-end load fees. Excluding the Mosaic Institutional Bond Fund, the Mosaic mutual funds require a minimum initial purchase of $1,000. Annual expense ratios are "average to below average" overall, ranging from a low of 0.99% on Mosaic Investors Fund to a high of only 1.25% on Mosaic Foresight Fund. From a cost and expense perspective, most Mosaic fund products are attractively priced in the retail marketplace. Some or all of the funds are offered on a no-load, no-transaction fee basis through Schwab's OneSource and other leading NTF platforms, increasing the appeal of the Mosaic Funds. Fund Overview The Mosaic Funds currently provide four stock funds, three bond funds, four municipal bond funds, and two money market funds to personal investors. Our focus will be on the four equity funds and three taxable bond funds, which may be suitable investments for regular and tax-deferred accounts. Depending of your "tax" bracket, you may find that one of the Mosaic tax-free municipal funds is a more suitable match for you, but we'll leave that to you to explore. Mosaic takes a long-term perspective in managing its four stock funds, believing that time has a way of smoothing out the bumps in the road and offering a different viewpoint. So, you should share this long-term view with Mosaic if you are thinking about investing in one of the equity fund products. All of the stock funds combine value and growth characteristics, which also help to smooth returns over time since value and growth do better at different times. All four equity funds fall into Morningstar's "blend" style box and vary in average market capitalization, as follows: Mosaic Equity Funds: Average Market Cap Mosaic Investors (MINVX) $27.9 Billion Mosaic Balanced (BHBFX) $27.2 Billion Mosaic Foresight (GEWWX) $17.7 Billion Mosaic Mid-Cap (GTSGX) $3.3 Billion If you think in terms of five capital sectors (giant, large, mid, small and micro), the Mosaic Investors and Mosaic Balanced funds invest their assets primarily in the three largest capital tiers, giant-cap, large-cap and mid-cap, and favor those companies with attractive equity prices and favorable growth prospects. Mosaic Foresight Fund moves down a little bit in overall market cap but still invests primarily in the top three capital tiers. Mid-Cap Fund, as its name implies, concentrates assets in mid-cap stocks, but maintains some exposure to large-cap and small-cap stocks as well. Equity analysis focuses on a bottom-up approach, and identifying the "best of the best." Although the Mosaic equity funds may be a little more concentrated than some diversified equity products, risk management is a primary focus. Mosaic Investors and Mosaic Balanced have both produced below average risk relative to their category peer groups, according to Morningstar, increasing their appeal. Many times, funds that have good cost and risk controls have solid long-term performance results. As you'll see shortly, such is the case with these two Mosaic equity funds. Mosaic's three taxable bond funds are conservatively managed and invest principally in higher-rated, investment grade obligations with short-term and intermediate-term maturities. Here the firm takes a core investment approach, like they do on with the stock funds, seeking strong, consistent returns over time with limited (controlled) volatility. In the case of fixed income management, they actively manage duration to control portfolio risk and they avoid big credit quality bets. Only Mosaic Intermediate Income Fund (GITMX) may invest in lower-quality, higher yielding bonds, and that exposure is limited to 35% of assets. Below is a summary of the two Mosaic taxable bond funds that are available to retail investors. Mosaic Bond Funds: Investment Category Mosaic Government (GIGVX) Intermediate-Term Government Mosaic Intermediate Income (GITMX) Intermediate-Term Bond Essentially, one fund focuses its investments in U.S. government securities to ensure highest credit quality, while a second fund invests in high-quality government and corporate debt securities, with some high-yield exposure for greater total return potential. In both bond funds, Mosaic utilizes various screens and economic indicators to track the bond market and interest rate trends, to capture the best value. Investment-grade bond funds that invest a portion of assets in high-yield securities offer greater total return potential over time but can subject the portfolio to more volatility in the short term. Like the Mosaic stock funds, risk management is a primary focus. However, the more active a bond fund manager is with regards to portfolio duration or credit quality structure, the greater the fund's share price fluctuations may be. Accordingly, it might be helpful to have a long-term perspective when considering one of the Mosaic bond funds since they do actively manage duration and take some credit risk in the intermediate-term bond product. Like value and growth stocks, investment-grade bonds and higher yielding, speculative-grade bonds outperform at different times. Fund Performance and Ratings Madison Investment Advisors' flagship Mosaic Investors Fund has the family's only Morningstar highest 5-star rating relative to category peers. When compared with other large-cap blend funds, Mosaic Investors Fund produced above average returns with below average risk overall. Mosaic Balanced Fund has a 4-star rating signifying above-average, risk-adjusted returns versus category peers (i.e. domestic hybrid funds). Jay Sekelsky deserves much of the credit for the success of the two products as their lead equity manager. Although the Mosaic Investors Fund (MINVX) has been subject to significant share price fluctuations over the past three years (see chart above), it has actually done a very good job versus its large-cap blend category peers of preserving capital. For the trailing 3-year period through February 18, 2003, the fund lost just 1.2% on an annualized basis, compared with an annual equivalent loss of about 13% for the market as measured by the S&P 500 index. The average large-blend fund lost 12.7% a year over the same time period. Through January 31, 2003, Mosaic Investors Fund had a trailing 10-year average annual return of 9.3%, according to Morningstar, beating the S&P 500 index by 0.3% a year on average during that period. That was good enough to rank in the top 14% within the Morningstar large-cap blend category. Note the fund's trailing 3-year and 5-year average total returns as of February 18, 2003 rank in the large-blend category's top decile. Mosaic Balanced Fund's trailing 3-year performance ranks in the top 12% of the Morningstar domestic hybrid fund category, while its trailing 5-year and 10-year returns are top quartile within the category. This fund would likely have a 5-star rating from Morningstar if the fund's fixed income portion had better risk- adjusted return performance. Christopher Berberet, who manages the fixed income stake, has a 2-star and a 3-star rating on the two Mosaic bond funds that he manages. Still, the fund's long- term performance record is strong. Over the trailing 10-year period through January 31, 2003, the Mosaic Balanced Fund produced an annualized return of 8.4% for shareholders, lagging the market (S&P 500) by only 0.6% a year. That performance was good enough to rank it the category's top quartile. For comparison purposes, the average US hybrid fund returned 6.7% a year on average over the same period while the average US large-cap blend fund had a 7.5% average return, per Morningstar. So, the Mosaic Balanced Fund outpaced pure stock funds over the past decade through the various markets ups and downs, and came close to outperforming the S&P 500 index bogey. Conclusion The other Mosaic offering that looks attractive is the Mid-Cap Fund (GTSGX), which provides more significant exposure to mid- sized companies and offers greater total return potential than its Mosaic Balanced or Mosaic Investors fund siblings - albeit with greater potential risk. In terms of risk, conservative equity investors may prefer the Mosaic Balanced Fund. General equity investors seeking growth primarily may find the Mosaic Investors Fund to be appropriate for their investment goal. Those looking for higher potential return and willing to accept higher potential risk may wish to consider the Mosaic Mid-Cap Blend Fund. All three stock funds benefit from experienced management, a risk-controlled process and below average expenses. Relative return performance is less robust on the fixed income side where many bond portfolios have been tripped up by credit downgrades and corporate bankruptcies. When it doesn't pay to assume credit risk, funds like Mosaic Intermediate Income Fund can lag similar funds due to their lower-quality debt exposure. Here, your better bet may be the Mosaic Government Fund (GIGVX), which invests in high-grade government obligations. Sometimes, reaching for extra yield just isn't worth it. For more information on the Mosaic Funds or to download a fund prospectus, log on to the www.mosaicfunds.com website. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org *********** OPTIONS 101 *********** Perspective by Mark Phillips mphillips@OptionInvestor.com Sometimes in the day to day news, price fluctuations and minutia of trading, it is easy to lose sight of the big picture. For every voice calling the market "a bargain" with "compelling values", there is a competing voice telling us all the risks that currently exist, followed by a prediction of DOW 5000 or lower. What's an investor to do? Trust their own eyes! I've already gone on record at the beginning of the year, stating my belief that while 2003 is going to be a rocky year, the broad market will finish up with a gain, avoiding the dreaded 4th consecutive down year. But it isn't going to be a pretty process getting there. If you missed my bold prognostication, feel free to experience my thoughts vicariously at the following link. 'Tis The Season As traders, the eventual destination is far less interesting, when compared to understanding the path we are likely to take in reaching that destination. As the LEAPS editor, my primary focus is on the weekly and daily charts, as that is where I attempt to identify the trend that is likely to persist over a period of weeks and possibly as long as 3-4 months. A quick look at the weekly and daily chart picture right now tells us that the broad market is attempting to recover from the very oversold conditions produced by the past 2 months of rather persistent selling. While Bullish Percent charts are either in or very near oversold territory, we know that bears are now carrying the bulk of the risk over the near term. But that doesn't mean that bulls are safe to plunge in with the expectation that last week's lows were the bottom of the most recent broad market slide. For this sort of discussion, I find charts do a much better job of depicting what I'm talking about than my words do, so I'm going to rely heavily on them today. I'm only going to use one indicator, Stochastics for our discussion today. That doesn't mean I don't use others as well, but I think they will be most useful for our purposes here today. Most of the time, I tend to rely on the (10,5,3) settings, as it achieves a good balance between filtering out the noise, while at the same time giving me good responsiveness to trend changes. To keep our discussion simple, let's just focus on the S&P 500 (SPX.X). Daily/Weekly Charts of the S&P 500 As you can see in the charts above, the weekly timeframe gives the appearance of a bottom being formed in the SPX, and the daily view is giving an early hint of a recovery. We know that the catalyst for the rebound from last week's lows is a combination of a relaxation of war fears, along with the necessity to work off what had become a severe oversold condition. That oversold condition has been significantly relieved over the past few days, but with the bullish percent of the SPX still up at 34%, it is clear that there is still some significant downside risk at play. There is nothing to suggest that the dominant downtrend has changed, at least on the weekly chart, and the bulls will need to be extremely cautious until that major resistance just over 860 can be broken with conviction. That seems an unlikely development without more clarity on the geopolitical front. Should the market get a favorable resolution to what has become the dominant topic of discussion of late (Iraq), then we really could get another decent rally. What it will likely take to give us an early indication that the next rally is underway will be for the daily Stochastics to fall back into oversold and turn up without price breaking below the lows of last week. But more importantly, at the same time, we'll need the weekly Stochastics to confirm the potential for a significant bullish move with an emergence out of oversold territory. But that just determines what I call the intermediate direction for this market. My intent here is to focus on the bigger picture -- the dominant trend that I think will remain in force for some time to come. In order to view that trend, we really need to zoom all the way out to a monthly chart. Monthly Chart of the S&P 500 What we have here is a descending channel that has encapsulated price action in the SPX for the past 3 years, and that trend is not looking like it is about to change anytime soon. The only possible constructive sign is the possible bottom forming in the monthly Stochastics oscillator. The last time the picture looked like this was in the fall of 2001, as the market began to recover after the 9/11 tragedy. And we did get a decent rally from that point, which brought the Stochastics up to the 50% level, but that's it. Price action stalled right at the upper channel line and then rolled over with force throughout last year. If price action breaks below the center-line of the channel (near 800), then we are faced with the very real risk of visiting the bottom of that channel again. Such a breakdown will more than likely have the monthly Stochastics falling into oversold and setting up a strong rebound, once they emerge back above the oversold region. Believe it or not, I don't see that as the most likely outcome this time around. I think we'll actually rebound and challenge that upper channel line. But I think that test will fail with Stochastics rolling near (or below) the 50% level again. It's the culmination of that downdraft towards the end of the year that I think has the potential to provide a really powerful end of year rally. As you can see, it will have to be a powerful rally to provide a positive close to the year, as it will have to break above the top of that descending channel to get the job done. We started the year with the SPX trading near the 880 level and by the end of 2003, the top of the channel will have fallen to about 750. Either the SPX breaks out of the channel to the upside or we're going to have an uglier 2003 than even I want to contemplate. My intent here today isn't to predict where we're going, or paint a dire picture of a possible worst-case scenario. Rather, as the title "Perspective" indicates, I wanted to provide a reminder (to myself as much as you) that we must keep in mind the BIG picture if we are to stay on the right side of the dominant trend. If you want to really have some fun, look through some of your favorite long-term stock holdings in this manner. We are all accustomed to looking at the daily and weekly charts, but I think we all too often neglect to view the really long-term picture. I think you'll find it interesting how some of those stocks that look good on the shorter-term charts lose a lot of their lustre (in a bear market) when viewed on the monthly charts. Find a stock that looks good on all three time frames, and odds are you've got a real winner for the long-term. Questions are always welcome! Mark ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *********************** SWING TRADER GAME PLANS *********************** Empty Tank Was that confirmation that the rally ran out of gas? It certainly seemed so for most of the day. We slowly stair stepped down on yet another low volume day. After breaking down below Dow 8000, we drifted lower with a series of lower lows and lower highs. However, in the last hour of trading, the market caught fire making up much of the previous triple digit loss. The most noticeable factor in the rally however, was where it ran out of steam. To read the rest of the Swing Trader Game Plan Click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Wednesday 02-19-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: None Play of the Day: Call - AMGN Spreads, Combinations & Premium-Selling Plays: A Brief "Bear-Market" Bounce? Updated on the site tonight: Market Posture: Pivotal Levels Market Watch: Bucking the Trend ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** AMGN – Amgen, Inc. $52.60 (+0.51 last week) Company Summary: The biggest of the Biotech big guns, AMGN makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, as well as neuroendocrine and neurodegenerative diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. Its Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of new drugs in various stages of development as well as research and marketing alliances with Hoffman-La-Roche and Johnson & Johnson. Most Recent Write-Up: Continuing its rebound from the ascending trendline (now at $51.65) that began with the September lows, AMGN dragged the Biotechnology index (BTK.X) higher throughout the day on Tuesday. If this is a reversal for the BTK, it looks like AMGN is going to lead the way, and the critical test will be at the $54 resistance level, which turned back the bulls last week. The BTK did manage to close just above the 10-dma for the first time in over a month and that is definitely a positive sign. But there is still some stiff resistance to contend with in the $327-330 area before we'll know if it is truly a trend change in progress. AMGN is looking much stronger than the BTK, after the gains of the past two days, and the bulls are likely to challenge that $54 level tomorrow, market permitting. Traders that took advantage of last week's weakness to enter the play are looking good tonight, while those still waiting on the sidelines can either enter on a pullback near the $52.50 support level or on a breakout over $54. If entering on a breakout, look for confirmation from the BTK in the form of a push through the $330 level. Stops should now be raised to $51, just below last week's low. Why This Is Our Play of the Day: It seems like forever that we've been waiting for AMGN to finally break through the $54 barrier and give us a new buy signal. The fact that it did so on a day when the broader markets reversed recent gains and headed lower is even more impressive. We noted the resistance in the BTK in the 327-330 range, and that is precisely where it failed today, at a high of 329.58, before falling back to a close of 324.36. Granted, the move in the index does not confirm the move higher in AMGN and conservative traders may want to hang out on the sidelines until it does. On the other hand, AMGN continues its strong uptrend and with the new buy signal only underscores the bullishness of the stock, which has a firm rising support trend line since the beginning of November. Because it was unable to hold the move above $54 on a closing basis and the broader markets may still prove an anchor to any bullish plays, we would suggest new entries on a move over $54.25, so as not to swim against the tide if that tide becomes too strong. While we are still listing a February call for those already in the play, we would recommend a move out to March or April for new entries. *** February contracts expire this week *** BUY CALL FEB-50 AMQ-BJ OI=11310 at $4.10 SL=2.05 BUY CALL MAR-50*AMQ-CJ OI= 3657 at $5.00 SL=2.50 BUY CALL MAR-55 YAA-CK OI=22967 at $1.75 SL=0.90 BUY CALL APR-55 YAA-DK OI=30363 at $2.70 SL=1.35 Average Daily Volume = 12.6 mln ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* A Brief "Bear-Market" Bounce? By Ray Cummins The major equity averages retreated Wednesday after two straight sessions of bullish activity as doubts emerged about the recent buying binge in stocks. The Dow Jones Industrial Average slid 40 points to 8,000 amid weakness in Alcoa (NYSE:AA), General Motors (NYSE:GM), Hewlett Packard (NYSE:HPQ), International Paper (NYSE:IP), Microsoft (NASDAQ:MSFT), SBC Communications (NYSE:SBC), and Walt Disney (NYSE:DIS). The NASDAQ Composite fared slightly worse, down 12 points to 1,334 after an early rally in semiconductor shares failed to inspire technology investors. The broader S&P 500 index lost 6 points to 845 with the worst selling pressure in steel and mining, radio broadcasting, automotive parts retail, and water utility stocks. Gold was resilient after almost a week of declines. Breadth was negative with losers outpacing gainers roughly 3 to 2 on both exchanges. Trading volume was relatively light with 1.07 billion on shares changing hands on the New York Stock Exchange and 1.16 billion shares in play on the NASDAQ. In the bond market, prices edged higher as stocks slumped. The 10-year note was up 17/32 to yield 3.88% while the yield on the 30-year treasury ended at 4.81%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 2/18/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with new option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield ASA FEB 35 34.45 37.50 $0.55 4.44% 1.60% COF FEB 25 24.35 32.10 $0.65 7.31% 2.67% IGEN FEB 35 34.05 37.91 $0.95 8.27% 2.79% INVN FEB 22 22.05 23.30 $0.45 6.32% 2.04% PHM FEB 45 44.05 52.94 $0.95 5.39% 2.16% AMGN FEB 48 46.30 53.62 $1.20 5.40% 2.59% CEPH FEB 45 44.15 51.73 $0.85 5.04% 1.93% AMGN FEB 48 46.90 53.62 $0.60 3.66% 1.28% AU FEB 30 29.55 32.80 $0.45 4.94% 1.52% CEPH FEB 45 44.25 51.73 $0.75 5.18% 1.69% SYMC FEB 40 39.45 46.37 $0.55 4.22% 1.39% COP FEB 45 44.45 49.27 $0.55 4.35% 1.24% CYMI FEB 30 29.20 33.16 $0.80 9.95% 2.74% DISH FEB 22 22.20 26.33 $0.30 5.19% 1.35% FTE FEB 22 22.20 25.65 $0.30 5.86% 1.35% MERQ FEB 30 29.75 35.45 $0.30 5.03% 1.01% MUR FEB 37 37.10 42.87 $0.40 4.12% 1.08% QCOM FEB 35 34.40 35.39 $0.60 6.20% 1.74% AVCT FEB 25 24.75 27.45 $0.25 5.40% 1.01% FTE FEB 22 22.20 25.65 $0.30 7.60% 1.35% MERQ FEB 30 29.70 35.45 $0.30 6.16% 1.01% PTEN FEB 30 29.65 33.25 $0.35 6.04% 1.18% ANF MAR 25 24.40 27.82 $0.60 5.97% 2.46% CLX MAR 40 39.00 42.24 $1.00 5.01% 2.56% IGEN FEB 35 34.70 37.91 $0.35 9.70% 1.01% OTEX MAR 25 24.50 28.29 $0.50 4.97% 2.04% SYMC MAR 40 39.15 46.37 $0.85 5.10% 2.17% VIP MAR 30 29.40 33.71 $0.60 4.74% 2.04% As noted in last week's summary, losing positions in Accredo Health (NASDAQ:ACDO) and Biosite (NASDAQ:BSTE), as well as the (profitable) position in Genzyme General (NASDAQ:GENZ), have been previously closed. Cymer (NASDAQ:CYMI) and Capital One (NYSE:COF) remain on the "early exit" watch-list. Naked Calls Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield EXPE FEB 75 76.25 63.43 $1.25 6.84% 1.64% MBG FEB 30 30.65 25.69 $0.65 6.68% 2.12% QCOM FEB 42 43.05 35.39 $0.55 5.07% 1.28% CCMP FEB 60 61.15 45.64 $1.15 6.10% 1.88% KLAC FEB 45 45.80 35.11 $0.80 6.83% 1.75% LLTC FEB 32 33.25 29.86 $0.75 6.68% 2.26% QLGC FEB 47 48.40 35.77 $0.90 6.19% 1.86% CDWC FEB 50 50.55 44.88 $0.55 4.59% 1.09% NVLS FEB 37 37.85 30.38 $0.35 5.41% 0.92% EXPE FEB 70 70.45 63.43 $0.45 3.20% 0.64% ZBRA FEB 60 60.75 59.99 $0.75 5.77% 1.23% CTSH FEB 70 70.65 68.00 $0.65 7.91% 0.92% KLAC FEB 37 37.75 35.11 $0.25 5.49% 0.66% NVLS FEB 32 32.75 30.38 $0.25 5.96% 0.76% BGEN FEB 40 40.30 38.88 $0.30 7.70% 0.74% ESRX MAR 55 55.70 50.26 $0.70 5.07% 1.26% GM MAR 37 38.10 34.46 $0.60 4.60% 1.57% VIA MAR 40 40.95 38.67 $0.95 6.44% 2.32% As noted last week, the more aggressive position ($65 call) in Cognizant Technologies (NASDAQ:CTSH) was closed to limit losses. Put-Credit Spreads Stock Gain Symbol Pick Last Month L/P S/P Credit C/B (Loss) Status FRX 53.03 49.00 FEB 45 47 0.00 47.50 $0.00 Open SLM 106.71 107.00 FEB 90 95 0.50 94.50 $0.50 Open AGN 60.51 60.89 FEB 50 55 0.50 54.50 $0.50 Open BRL 77.63 76.08 FEB 65 70 0.40 69.60 $0.40 Open FIC 44.63 47.55 FEB 35 40 0.45 39.55 $0.45 Open AET 44.21 42.10 FEB 35 40 0.50 39.50 $0.50 Open BR 42.71 44.65 FEB 38 40 0.25 39.75 $0.25 Open MMM 127.50 126.61 FEB 115 120 0.55 119.45 $0.55 Open BLL 52.73 53.65 FEB 45 50 0.40 49.60 $0.40 Open EBAY 74.93 76.49 FEB 65 70 0.55 69.45 $0.55 Open BHE 34.68 35.48 MAR 25 30 0.60 29.40 $0.60 Open GYI 30.85 29.00 FEB 25 30 0.60 29.40 ($0.40) Closed MUR 42.63 42.87 FEB 37 40 0.25 39.75 $0.25 Open PRX 33.67 34.80 MAR 25 30 0.40 29.60 $0.40 Open SLM 105.54 107.00 MAR 90 95 0.45 94.55 $0.45 Open As previously noted, P.F.Chang's (NASDAQ:PFCB) close below the sold strike at $35 signaled our exit in the losing position. Getty Images (NASDAQ:GYI) also became a candidate for early exit on the close below $29.50. Call-Credit Spreads Stock Gain Symbol Pick Last Month L/C S/C Credit C/B (Loss) Status HET 37.47 32.35 FEB 42 40 0.40 40.40 $0.40 Open PHA 42.00 40.35 FEB 50 45 0.60 45.60 $0.60 Open ZBRA 57.32 59.99 FEB 70 65 0.50 65.50 $0.50 Open ATK 59.65 50.17 FEB 70 65 0.50 65.50 $0.50 Open GS 73.51 68.00 FEB 85 80 0.40 80.40 $0.40 Open PDX 34.40 27.63 FEB 45 40 0.65 40.65 $0.65 Open ABK 55.74 50.19 FEB 65 60 0.50 60.50 $0.50 Open FITB 56.49 53.72 FEB 65 60 0.50 60.50 $0.50 Open GM 37.28 34.46 FEB 42 40 0.25 40.25 $0.25 Open WB 35.72 35.65 FEB 40 37 0.25 37.75 $0.25 Open XL 75.92 72.09 FEB 85 80 0.50 80.50 $0.50 Open FNM 64.10 65.10 MAR 75 70 0.55 70.55 $0.55 Open ONE 35.65 36.79 FEB 40 37 0.20 37.70 $0.20 Open TOT 67.33 66.65 FEB 75 70 0.25 70.25 $0.25 Open CCU 36.70 37.82 MAR 45 40 0.75 40.75 $0.75 Open FDX 50.87 52.16 MAR 60 55 0.55 55.55 $0.55 Open UTX 60.50 61.89 MAR 70 65 0.60 65.60 $0.60 Open Although currently profitable, Harmon Electronics (NYSE:HAR) was closed when the issue moved above the sold strike at $60. Total Fina (NYSE:TOT) gapped lower after it was selected, thus a credit near the target was not available. Calendar Spreads (Reader's Request) Stock Pick Last Long Short Current Max Play Symbol Price Price Option Option Debit Value Status APA 60.74 63.09 APR-65C FEB-65C 1.35 2.00 Open STJ 43.69 45.00 APR-45C FEB-45C 1.20 1.60 Open Apache Oil (NYSE:APA) and St. Jude Medical (NYSE:STJ) have both offered favorable "early-exit" profits. Credit Strangles No Open Positions Synthetic Positions: No Open Positions Questions & comments on spreads/combos to Contact Support *************** NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. *************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** ANF - Abercrombie & Fitch $29.57 *** Bullish Retailer! *** Abercrombie & Fitch Company (NYSE:ANF), through its subsidiaries as specialty retailers, operates stores selling casual apparel, personal care and other accessories for men, women and kids under the Abercrombie & Fitch, abercrombie and Hollister Co. brands. As of February 2, 2002, the company operated 491 stores in the United States. A&F's stores and point-of-sale marketing are designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are carefully planned and coordinated to create a shopping experience that is consistent with the A&F lifestyle. ANF - Abercrombie & Fitch $29.57 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 25 ANF OE 535 0.35 24.65 4.7% 1.4% * SELL PUT MAR 27.5 ANF OY 478 0.90 26.60 8.6% 3.4% SELL PUT MAR 30 ANF OF 73 1.95 28.05 13.9% 7.0% ************** AVCT - Avocent $26.95 *** Solid Quarterly Earnings! *** Avocent Corporation (NASDAQ:AVCT), together with its wholly owned subsidiaries, designs, manufactures and sells analog and digital KVM (keyboard, video and mouse) switching systems, as well as serial connectivity devices, extension and remote access products and also display products for the computer industry. The firm's unique switching and connectivity solutions provide information technology managers with access and control of multiple servers and network data centers from any location. AVCT - Avocent $26.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 22.5 QVX OX 50 0.30 22.20 4.6% 1.4% * SELL PUT MAR 25 QVX OE 61 0.80 24.20 8.4% 3.3% ************** DISH - EchoStar $26.48 *** Testing Recent Highs! *** EchoStar Communications (NASDAQ:DISH) operates through two major business units, the DISH Network and EchoStar Technologies. The DISH Network offers a direct broadcast satellite subscription TV service in the United States with almost 7 million DISH Network subscribers. EchoStar Technologies Corporation is engaged in the design, development, distribution and sale of DBS set-top boxes, antennae and other digital equipment for the DISH Network and the design, development and distribution of similar equipment for a range of international satellite service providers. DISH - EchoStar $26.48 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 22.5 UAB OX 5,513 0.50 22.00 7.1% 2.3% * SELL PUT MAR 25 UAB OE 1,935 1.00 24.00 10.0% 4.2% ************** IGEN - IGEN International $39.44 *** On The Rebound! *** IGEN International develops and markets products that incorporate its proprietary electrochemiluminescence (ORIGEN) technology, which permits the detection and measurement of various biological substances. ORIGEN provides a combination of speed, sensitivity, flexibility and throughput in a single technology platform. The product is incorporated into instrument systems and other related consumable reagents, and IGEN also offers assay development and services used to perform analytical testing. Products based on ORIGEN technology address the Life Sciences, Clinical Testing and Industrial Testing worldwide markets. IGEN - IGEN International $39.44 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 30 GQ OF 1,074 0.50 29.50 6.0% 1.7% * SELL PUT MAR 35 GQ OG 1,747 1.50 33.50 11.8% 4.5% SELL PUT MAR 40 GQ OH 1,271 3.50 36.50 17.9% 9.6% ************** PTEN - Patterson-UTI Energy $32.94 *** Oil Service Sector *** Patterson-UTI Energy (NASDAQ:PTEN) is an operator of land-based drilling rigs in North America. Formed in 1978 and reincorporated in 1993, the company focuses its contract drilling operations in Texas, New Mexico, Oklahoma, Louisiana, Mississippi, Utah and Western Canada (Alberta, British Columbia and Saskatchewan). Patterson-UTI's operates in three industry segments: contract drilling, which the company markets to major and independent oil and natural gas producers and operators; drilling and completion fluids services, which provides drilling fluids, completion fluids and related services to oil and natural gas producers, and pressure pumping services, which provides pressure-pumping services in the Appalachian Basin. PTEN - Patterson-UTI Energy $32.94 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 27.5 NZQ OY 33 0.25 27.25 3.2% 0.9% TS SELL PUT MAR 30 NZQ OF 586 0.55 29.45 5.2% 1.9% * SELL PUT MAR 32.5 NZQ OZ 216 1.40 31.10 10.0% 4.5% ************** RYL - The Ryland Group $42.40 *** CFSB Upgrade! *** The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance company. The company has built more than 190,000 homes during its 34-year history. Ryland homes are available in more than 260 new communities in 21 markets across the United States. In addition, the Ryland Mortgage company has provided mortgage financing and related services for more than 165,000 homebuyers. The company's operations span all the significant aspects of the home-buying process, from design, construction and sale to mortgage financing, title insurance, settlement, escrow and homeowners insurance. RYL - The Ryland Group $42.40 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAR 37.5 RYL OU 59 0.50 37.00 4.0% 1.4% * SELL PUT MAR 40 RYL OH 135 0.95 39.05 6.2% 2.4% SELL PUT MAR 42.5 RYL OV 55 1.90 40.60 10.2% 4.7% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** BRL - Barr Laboratories $77.21 *** 3-for-2 Split Announced! *** Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical company primarily engaged in the development, manufacture and marketing of generic and proprietary prescription pharmaceuticals. The company manufactures and distributes more than 100 different dosage forms and strengths of pharmaceutical products in core therapeutic categories, including oncology, female healthcare (including hormone replacement and oral contraceptives), cardiovascular, anti infective and psychotherapeutics. In addition, the company has a proprietary, novel vaginal ring drug delivery system it is using to develop products intended to address a variety of female health issues and unmet medical needs. The company is planning a 3-for-2 stock split on 3/17/03. BRL - Barr Laboratories $77.21 PLAY (very conservative - bullish/credit spread): BUY PUT MAR-65.00 BRL-OM OI=253 A=$0.45 SELL PUT MAR-70.00 BRL-ON OI=248 B=$0.90 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$69.50 ************** CAT - Caterpillar $45.95 *** UBS Upgrade = Rally! *** Caterpillar (NYSE:CAT) manufactures and markets construction, mining, agricultural and forest machinery; engines for on-highway use and locomotives, as well as for electrical power generation systems and other applications, and provides financing for the purchase and lease of its equipment. The company operates three principal lines of business: machinery, engines and financial products. The company designs, manufactures, markets, finances and provides support for its Caterpillar, Cat, Solar, Perkins, FG Wilson, MaK, and Olympian brands. CAT - Caterpillar $45.95 PLAY (conservative - bullish/credit spread): BUY PUT MAR-40.00 CAT-OH OI=744 A=$0.30 SELL PUT MAR-42.50 CAT-OV OI=1064 B=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$42.25 ************** EBAY - eBay Inc. $76.99 *** New "All-Time" High! *** eBay (NASDAQ:EBAY) is a Web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay Inc. $76.99 PLAY (less conservative - bullish/credit spread): BUY PUT MAR-65.00 QXB-OM OI=4312 A=$0.40 SELL PUT MAR-70.00 QXB-ON OI=11160 B=$0.90 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=12% B/E=$69.45 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** CCMP - Cabot Microelectronics $42.77 *** Big Down Day! *** Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to planarize or flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. Planarization is a polishing process that levels, smoothes, and removes the excess material from the surfaces of these layers. CMP slurries are liquid formulations that facilitate and enhance this polishing process and generally contain engineered abrasives and proprietary chemicals. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. CCMP - Cabot Microelectronics $42.77 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAR 50 UKR CJ 591 0.55 50.55 5.5% 1.1% * SELL CALL MAR 45 UKR CI 389 1.90 46.90 11.6% 4.1% ************** KLAC - KLA Tencor $34.65 *** Pure Premium Selling! *** KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. The company's large portfolio of products, software, analysis, services and expertise is designed to help integrated circuit manufacturers manage yield throughout the entire wafer fabrication process, from research and development to final mass production yield analysis. The company offers a broad spectrum of products and services that are used by every major semiconductor manufacturer in the world. These customers turn to the company for in-line wafer defect monitoring; reticle and photomask defect inspection; CD SEM metrology; wafer overlay; film and surface measurement; and overall yield and fab-wide data analysis. KLAC - KLA Tencor $34.65 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAR 40 KCQ CH 5,985 0.50 40.50 5.6% 1.2% * SELL CALL MAR 37.5 KCQ CU 4,048 1.00 38.50 8.4% 2.6% SELL CALL MAR 35 KCQ CG 6,409 2.00 37.00 13.1% 5.4% ************** NVLS - Novellus Systems $29.36 *** Chip Orders Down 10% *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $29.36 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAR 35 NLQ CG 2,950 0.35 35.35 5.5% 1.0% * SELL CALL MAR 32.5 NLQ CZ 2,681 0.85 33.35 9.1% 2.5% SELL CALL MAR 30 NLQ CF 4,867 1.80 31.80 14.1% 5.7% ************** QCOM - Qualcomm $35.54 *** Wireless Inventory Glut! *** Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division multiple access (CDMA)-based integrated circuits and system software for wireless voice and data communications and global positioning system (GPS) products. Qualcomm offers complete system solutions, including software and integrated circuits for wireless handsets and infrastructure equipment. This complete system solution approach provides customers with advanced wireless technology and enhanced component integration and interoperability, as well as reduced time to market. QCOM - Qualcomm $35.54 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAR 40 AAW CH 7,502 0.45 40.45 4.6% 1.1% * SELL CALL MAR 37.5 AAW CU 9,277 1.15 38.65 8.9% 3.0% SELL CALL MAR 35 AAW CG 3,671 2.30 37.30 13.9% 6.2% ************** VZ - Verizon $36.60 *** FCC Ruling Will Affect Baby Bells *** Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States, with 135.1 million access line equivalents and 30.3 million Verizon Wireless customers. Verizon is also the largest directory publisher in the world. With more than $67 billion in annual revenues and approximately 241,000 employees, Verizon's global presence extends to more than 40 countries in the Americas, Europe, Asia and the Pacific. VZ - Verizon $36.60 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAR 40 VZ CH 7,055 0.55 40.55 4.7% 1.4% * SELL CALL MAR 37.5 VZ CU 3,986 1.50 39.00 10.0% 3.8% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. *************** BGEN - Biogen $38.16 *** Recovery Rally Fades *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human healthcare. The firm derives revenues from sales of its AVONEX (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis (MS) and from royalties on worldwide sales by its licensees of a number of products covered under patents it controls. In addition, Biogen has a significant number of ongoing research programs and a pipeline of development stage products, including AMEVIVE (alefacept), which is being considered for approval by the United States FDA and regulatory authorities in the European Union and Canada for the treatment of moderate to severe psoriasis. BGEN - Biogen $38.16 PLAY (conservative - bearish/credit spread): BUY CALL MAR-45.00 BGQ-CI OI=307 A=$0.20 SELL CALL MAR-42.50 BGQ-CV OI=622 B=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$42.75 ************** RD - Royal Dutch Petroleum $39.56 *** New Trading Range? *** Royal Dutch Petroleum (NYSE:RD) is a holding company that owns, directly or indirectly, investments in the companies constituting the Royal Dutch/Shell Group of Companies (the Group). The Group includes a range of other businesses such as Shell Hydrogen, Shell Internet Works and Shell Capital. The Company has a 60% interest in the Group. The Operating Companies of the Group are engaged in various activities related to oil and natural gas, chemicals, power generation, renewable resources and other businesses in over 135 countries. The companies of the Royal Dutch/Shell Group are engaged in the business of exploration and production, gas and power, oil products and chemicals and renewables, as well as other related activities. RD - Royal Dutch Petroleum $39.56 PLAY (conservative - bearish/credit spread): BUY CALL MAR-45.00 RD-CI OI=1570 A=$0.15 SELL CALL MAR-42.50 RD-CV OI=5852 B=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$42.75 ************** SEE DISCLAIMER - SECTION 1 ************** ************** MARKET POSTURE ************** Pivotal Levels To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_021903.asp ************ MARKET WATCH ************ Bucking the Trend To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/wl_021903.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. 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