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Daily Newsletter, Sunday, 03/02/2003

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The Option Investor Newsletter                   Sunday 03-02-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Holding Pattern
Futures Market: Time for March Madness
Index Trader Wrap: GROWING PAINS
Editor’s Plays: Got Chips?  
Market Sentiment: Last Gasp?
Ask the Analyst: Looking for triangles and stiff competition
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Not Impressed


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-28        WE 02-21        WE 02-14        WE 02-07
DOW     7891.08 -127.03 8018.11 +109.31 7908.80 + 44.57 -189.58
Nasdaq  1337.54 - 11.48 1349.02 + 38.85 1310.17 + 27.70 - 38.44
S&P-100  425.36 -  4.51  429.87 +  7.30  422.57 +  3.78 - 13.78
S&P-500  841.15 -  7.02  848.17 + 13.28  834.89 +  5.20 - 26.01
W5000   7972.62 - 63.35 8035.97 +139.03 7896.94 + 23.52 -251.65
RUT      360.52 -  3.84  364.36 +  5.86  358.50 -  0.28 - 13.39
TRAN    2049.05 - 47.36 2096.41 -  6.19 2102.60 - 37.37 - 33.38
VIX       34.15 +  0.01   34.14 -  2.96   37.10 -  1.35 +  3.02
VXN       45.65 -  0.45   46.10 -  2.28   48.38 -  2.59 +  1.45
TRIN       0.84            0.97            0.58            1.57
Put/Call   0.59            0.85            0.97            0.94
******************************************************************


 
Holding Pattern
by Jim Brown

Great economic news failed to rally the markets on Friday as
everyone holds their breath for the next chapter in the made
for TV mini series "Iraqnaphobia". Everyone is in a holding 
pattern waiting for the climax. Joe Millionaire and The 
Bachlorette may have garnered 65 million viewers in their
final episodes but Iraqnaphobia has a worldwide audience in
the billions. In the greatest puppet show on earth the UN
security council is playing out their roles while their 
strings are being pulled from thousands of miles away. 

Dow Chart - Daily


 
Nasdaq Chart - Daily


 


The economic story took a turn for the better Friday with
the Q4 GDP revision coming in at +1.4% and significantly 
better than the +0.7% previously announced. This means the
fourth quarter was better than expected and could have
given us a stronger start on 2003. This took some of the
pressure off the estimates for Q1 and suggests the Fed may
be right about staying out of a recessionary second dip. 
The majority of the gains came from consumer spending 
and shows that despite the lackluster holiday sales the
consumer was still alive and well. 

Also adding to positive investor sentiment was the Chicago
PMI which came in at 54.9 compared to estimates of 52.9.
Production and new orders expanded slightly, very slightly
but they are starting an upward trend by building on last
months gains. Employment was still in negative territory
but marginally better than January. Profits were down due
to increased marketing expenses and strong competition
for available demand. Still it was a positive report. 

Consumer Sentiment fell again in February to 79.9 but
it was better than expected. This is the lowest level 
since 1993. This nine-year low was based on higher gas
prices, unemployment and market concerns. The nine-year
low in the sentiment was still not as bad as the 64 in
the confidence number earlier in the week. The markets
traded up on the better than expected bad news. Hey, 
we will take what we can get!

We may wish we had some extra goodwill stored up on 
Monday when we get the ISM report along with the Personal
Income/Spending report. The New York version of the ISM
was released on Friday and it took a serious hit from 
January levels. After showing signs of a recovery in
January the numbers dropped to just barely above the
Jan-2002 levels when the city was still digging out from
the 9/11 attack. The -3.1% drop in the index was led
by current conditions which fell from 51.9 to 34.5 and
non-manufacturing conditions which fell from 51.5 to
33.0. Finished goods fell to 37 from 50. This is not 
a positive sign and could be a leading indicator for 
the national ISM on Monday. The ISM will be followed 
on Wednesday by the Beige Book, Thursday the Factory 
Orders and Productivity and on Friday by the Nonfarm 
Payrolls. 

ICI made it official this week. Equity mutual funds
saw outflows of $466 million in January. This was the
first time since 1990 that January had a negative cash
flow. January is a strong retirement contribution month
and normally sees inflows in the $7-$10 billion range. 
Several other fund flow companies had speculated on 
this over the last few weeks but ICI is the recognized
authority. With brokers like Charles Schwab, Ameritrade,
Goldman Sachs and Merrill Lynch laying off brokers in
waves it does not take a call to Miss Cleo to know that
trading volume has shrunk to very low levels. Many 
investors have simply given up on the market. This 
disgust also shows in the lack of conviction we have
been seeing. Many will not be back when the market
recovers because they have used the money for other
investments like real estate.

The oil saga continues but the prices have started 
declining as reality begins to sink into traders. With
Venezuela coming back online and Saudi Arabia agreeing 
to make up any post war shortfall the traders have 
lost the incentive to run up the prices. Shorts are
loading up again after bailing out at rape and pillage
prices this week. Once the capitulation at $39.99 a
barrel was over the reality begin to appear. Consumers
will not be seeing any real price relief for about a
month as that high priced oil works its way through 
the system. 

France was one of the biggest exporters of Iraq oil
and part of their motivation, although they would
never admit it, was the potential loss of oil and
trade from Iraq. Russia, who announced on Friday
that they WOULD veto any resolution that would lead
to war is also a heavy trade partner with Saddam. There
was a big photo session just last week with a bunch of
Russian dignitaries hand shaking and backslapping with
Saddam and his gang. It is nice to claim humanitarian
reasons for antiwar vetoes but under the surface you
are liable to find ulterior motives. 

The semiconductor index set a new six-week high on
Friday after Dan Niles made some positive comments
about Intel. Niles said he expected Intel to affirm
the LOWER end of their guidance at their mid quarter
update on March 6th. He said he expects them to raise
low end guidance from $6.5B to $6.7B while leaving the 
high end of the range at $7B. Intel jumped on the news
despite his warning that revenue for the next quarter
could see a -3% drop due to worse than expected
seasonal factors from the soft economy. Niles based 
his positive comments on the widening spread between
Intel and AMD in chip performance. He felt that the
leading edge chips were so far in advance of AMD that
Intel would not need to lower prices to compete and
could gain higher margins on the newer products. He
also mentioned the broadening Intel product line. 
This how the next bull market starts. One little 
comment at a time followed by new products, upgraded
guidance and even an increase in profits. I can't
wait. 

The Dow posted its third losing month in a row and
appears to have a total lack of direction. The index
is stuck in a very narrow trading range growing narrower
by the day. The 7900 level appears to be a very powerful
price magnet and neither bulls or bears can move it 
off that number for more than brief periods. This is
a true stalemate. 

The Nasdaq has fared better with the semi stocks helping
to hold it up as well as a variety of misc techs. MSFT
is not one of them. MSFT is closing in on $23 again 
after their 2:1 split two weeks ago. Still the Nasdaq
managed to tack on another +13 points on Friday and
has been in a steady uptrend for a week. 1350 to 1360
will still be a problem and with the Intel update on
Thursday it is not likely to move significantly over
those levels soon. The bargain hunters are out but they
are being very picky. Some of the Nasdaq gains on Friday
were due to short covering as nobody wanted to be long
over the weekend if a random war broke out somewhere. 

I reported on Thursday that 57% of the S&P had warned 
about their 1Q outlook. There is a strong contingent 
of analysts that believe this is a severe overstatement
out of performance fear. If company officers warn of
possible shortfalls that never come to pass there is
no harm done and no legal liability. With the economy
cooling even further while everyone waits for the war
to start, companies cannot predict any guidance due to
limited visibility. To protect against disaster they
are lowering guidance or canceling guidance completely. 
It does not mean the economy died. It only means they
do not want to be optimistic in a cloudy environment. 

This sets us up for some positive surprises eventually 
if the war is over quickly and business returns to 
normal. Of course the question remains "what is normal"? 
With the current mixed economic reports and 57% of 
companies warning, what will happen after the war. If 
we had a seven day war followed by a seven day rally 
then what? If we have a post war rally from 7900 to 
8900 by the end of March then there is a substantial 
risk for negative earnings surprises. Earnings would 
not yet have the benefit of any post war improvement 
AND we would be entering into the worst six months 
of the year on a historical basis. Positive surprises
could only come after the economy had some time to 
take action after the war. I have not changed my 
outlook for a post war rally. I am only cautioning 
against any irrational exuberance in the weeks 
following that rally. 

If you still doubt there will be a war you would be
surprised to hear that up to 20 B2 stealth bombers
left Missouri on Friday for the gulf. These are the 
state of the art radar evading, very expensive aircraft.
Each can carry 20 2,000-pound satellite guided bombs
while entering and exiting undetected. It is interesting
to note that they are going to be based somewhere near
the gulf. In past conflicts they flew from Missouri to
Kosovo and Afghanistan dropped their bombs and returned 
to Missouri without landing. That is one long ride.
The Pentagon has already deployed the F117 fighter
bombers and the B1 stealth bombers to the region over
the last two weeks. One B2 can carry more precision
guided ordnance than an entire squadron of F117s.

The carrier Nimitz and its battle group was ordered to
the gulf today and will be leaving on Monday. The full
complement of ships, planes, missiles and bombers 
ordered deployed on Friday cost well over $100 billion.
Doesn't sound like President Bush is concerned about
the UN resolution and it does not look like he plans
on backing down.

Saddam is scheduled to "BEGIN" destroying missiles and
components "IN PRINCIPLE" on Saturday under UN supervision.
There are already cracks in the plans and I would not be
surprised to hear that there is some delay over the
weekend. Saturday was the deadline to have DESTROYED, 
past tense, the missiles. If Saddam delays then the US
will be quick to point out that fact to all concerned. 
I would expect a highly visible destruction of several
missiles with TV cameras rolling so Saddam can get
maximum effect for the dollars lost. Getting past that
initial group once the cameras stop rolling could be
where the fun starts. In the end does it really matter?
Not hardly. The US is coming and everything we are 
seeing now is just the pre-show. 

Speaking of shows, we all participate in the biggest 
reality show of all every day. The "Who Wants to be a
Millionaire" investment challenge. Lately it could have
doubled as segments for "Fear Factor" with the extreme
danger and high volatility. Those celebrity investors 
who have not used their "Get me Out of Here" card will 
end up as true "Survivors" when the series ends. 
However, I doubt there will be much of a market for 
reruns. Playboy asked the girls of Starbucks "Are You 
Hot" and announced they were going to do a series on 
the coffee kittens. Obviously this is a "Bare Market" 
in which many traders will be glad to invest.

Enter Passively, Exit aggressively!

Jim Brown


**************  
Readers Write
**************   

Jim, Last week I wrote you concerning the effect of news 
on the market and whether it really has an effect at all. 
I purposed that the market has an agenda and will go about
it regardless, and I also maintained that there is a bullish
bias that is treating support and resistance differently 
than our friend (?) the bear used to. I think the market 
action this week bolstered my position, and while we didn’t
set the world on fire by blazing into the stratosphere, we 
certainly did maintain the up bias as the market whipsawed 
it’s way north with higher lows and higher highs.
 
I wanted to direct you attention to the Volatility Index. 
It’s something I think we should pay close attention to as
I believe that it too is trying to tell us something. What
it is, is open for interpretation but think about this. 
Everybody is talking about once the war gets started the
unknown will become the known and the market will take 
itself off “hold” and get back to business. Many are saying
that everybody is waiting for the shooting to start so we 
can get back to buying stocks again. 
 
Remember when everyone was saying as soon as Y2K is over, 
when we’re sure there won’t be any computer glitches to 
make our money evaporate, we’ll put our money in the market
again? Remember all the predictions of a falling market 
prior to Y2K as money found a safe harbor until the bugs
were all worked out? Remember while everybody was saying
they were waiting to invest, the phenomenal rally that 
started in October of 1999 and the Dow gaining almost 
3,000 points and peaking out on January 14th? The rally 
lasted just long enough to allow everyone who wasn’t in 
the market, to get in after January 1st, and the bears 
to start picking their pockets for the next three years. 
 
As we know, the market will do the exact opposite of what 
everybody predicts it will do. The fact that there is so 
much talk of the market rallying when the shooting starts,
is starting to scare me. The market is rallying, believe 
it or not, right now. Oil has hit a high of $39 a barrel 
and the market refuses to go down. The economy is in tough
shape, you certainly know as you write about it everyday, 
and that kind of price for oil is going to make it even 
tougher. 
 
Just to be the contrarian, which works more often than not, 
what happens if the market is rallying now and the Volatility
Index (VIX) is telling us what is going to happen in the near
future. The VIX has formed a perfect wedge. It’s getting 
tighter and tighter and acting just like any stock would 
in the same situation. It has banged perfectly against the 
top three times and perfectly against the bottom three times. 
It wants out, but which way does it want out? If its the 
bottom then happy days are here again, but out the top and 
look out below. 
 
I wrote you one time and apprised you of the fact that the 
60 area has not always been our high for the VIX. In October
of 1987 at the height of the crash, it hit a high of 172. 
Panic was rampant and the market was out of control. It 
was right after the crash that here in Florida an investor 
walked into his brokerage and killed his broker and his 
pregnant assistant and then killed himself. Not a pleasant
subject but it happened and it highlights the number of the 
VIX and the fear that was present. 
 
Since then the VIX has hit a high of 60.63 in October of ’98,
57.31 in September of 2001 and 56.74 in July of 2002. Draw 
a line from the top of those three points and you’ll find 
the market has set up a resistance level that connects those
points absolutely perfectly. Anytime the market sets up a 
resistance level it is just waiting for it to be broken. 
These levels were not by coincidence.  Couple that with the 
fact that the VIX is building a perfect wedge and knocking 
on the walls trying to get out, and maybe that upper 
resistance level is giving us a clue as to which way the 
VIX may be headed.
 
With that in mind, ask yourself two questions:
 
The market is doing everything it can right now to hold 
itself up. Why? Maybe its because those who know its going 
down would certainly want to take it up as high as they can
to maximize any new short positions. We saw that with Nasdaq 
5000 and I guarantee there are still investors holding those 
positions. 
 
And while many have called various bottoms in the last three 
years “capitulation events”, have we ever really had a true 
“billion share” capitulation event since the bear market 
started? The answer is a resounding “NO”. In fact if you 
have to guess if it was a capitulation event, that is your 
first clue it’s not. A true capitulation event ended with 
three dead in a broker’s office. Not that it would happen 
again but it highlights the fact that when it does, we won’t
be guessing if it was one or not.
 
I know I wrote and said the market won’t go down because of 
the bullish undertones and we’ve seen the bottom, and while 
I believe the first part of that statement, I’m not sure 
after seeing the VIX that I believe the last. Look at a 
weekly bar chart of the Dow with the eyes that it might 
just be building itself up for a really big crash and you 
can start to see it.  The market is a strange animal and 
I’ve found that it doesn’t work on a day to day or even 
week to week basis. It choreographs and preplans years worth 
of movement. I advise anybody to get some very long term 
charts going all the way back to the 1920’s and notice how
several years in a row all fit together like a well designed
puzzle. The problem we have is we never see the next piece 
until its already in place and most of us look way to 
closely to ever see the big picture. 
 
I’m sending you a picture of the wedge I’m describing along 
with the line of resistance in a daily bar chart. I just 
wanted to give you something to think about as we all talk
about getting back into the market once the shooting starts
and the uncertainty is over. That may well be but true 
investing involves navigating the uncertainty and it’s 
evident that not all players, the “true” players, have 
left the market in spite of the threat of war. And once
the uncertainty was over concerning Y2K, the certainty 
only lasted for fourteen days and the market has been 
anything but certain since. I’m always anxious to hear 
your comments.
 
Thanks for your time,
 
Rick Utt




*******  
Wow, I think Rick is on a roll here. Let's look at it a
different way. I am not sure I believe your argument based 
on the VIX. We have done quite a few articles on the VIX 
lately (Traders Corner) and while I do believe the Dow could 
drop back to just over 6000 to hit the 10 year uptrend line 
in the Dow I don't specifically believe it will be VIX related. 
The VIX reacts to market factors. The market does not react 
to the VIX. It is a derivative of option premiums only which
reflects the fear in the market place as measured by high
premiums. If you put a teapot on the stove to boil it will
eventually whistle when it boils. The whistle is the result 
of the boiling not the reason it is boiling. The VIX is the
result of something not the cause of something. The VIX spikes 
due to external factors like wars, terrorist attacks, currency
devaluations, hedge fund failures, etc. When the market is 
simply going down calmly it stays in a range and loses some 
of its relevance. See the bear market period in the chart 
below. 
 
I think after the war we will get the rally for 7-10 maybe 
14 days but not over 9000. I think this IS the setup for the 
next fall. The market ALWAYS over reacts to cyclic conditions. 
It over reacts going up and over reacts coming down. If you 
take a ten year chart of the Dow and draw some trend lines 
on it there is a clear stair step down at present and the 
next step is 6200+/-.
 
With 57% of the S&P already warning about Q1 earnings there 
is not going to be much hope for the April earnings season. 
April is also the start of the worst six months of the year 
on a historical basis. Get the war over in the next three 
weeks, run the stocks up into the second week of April, crash 
on earnings and then a slow bleed until October. By then the 
recovery, if any, will be in progress and we could see a 4Q 
rally. If no recovery then we are doomed to a sideways market
for another year. 
 
Did you notice that Mar/Apr and Sept/Oct have the highest
incidence of VIX highs than any other months? This would
lend credence to your theory of an impending drop but we
really do not know what caused each of these spikes. We did 
not just wake up one morning and decide to crash. There was
normally an external event to cause the spike. Notice on
the chart below the VIX only touched 40 twice in the three
year bear market that lost 50% of its value. The spike to 
55 was the result of the attack and not market related. 



  

I would be more inclined to agree with your theory from looking
at this chart. The Dow has completely rolled over and has
failed at 9000 twice. I believe any post war rally will not
break 9000 and once lousy April earnings are announced we will 
see 7500 again. This will be the make or break period. Everyone
believes that markets always come back to their long term
trend. That trend from the 1987 crash low is just over 6000
now. This does not mean we are going to 6000 next month. It 
could mean that we will hit that line sometime in the future
as it rises and we descend. Either way it is not a pleasant 
thought. 

Rick I enjoy the discussion and you obviously have spent a
lot of time looking at the overall picture. We both know
that everyone has an opinion and that is what makes the 
markets. I think it is healthy to post different opinions 
as it causes our readers to think and form their own opinion. 
Right now half of everyone reading this thinks we are going
back to 10,000 by year end and the other half is thinking
when pigs fly. 

I would like to open this up to everyone else. What do you
think? Email me or Rick at my address and I will forward
it to him for a reply. Why should we have all the fun?

Jim


**************
FUTURES MARKET
**************

Time for March Madness 
By John Seckinger
jseckinger@OptionInvestor.com   

Both the ES and YM contracts have almost identical weekly and 
monthly pivots.  This should give futures traders a great
risk/reward opportunity during the first week in March. 

Friday, February 28th at 4:15 P.M. 

Contract       Last    Net Change    High        Low       Volume    

Dow Jones     7891.08     +6.09    7965.80     7855.44      
YM03H         7920.00    +28.00    7962.00     7847.00     34,560 
Nasdaq-100    1009.74    +14.94    1013.34      994.79      
NQ03H         1010.50    +14.00    1014.50      991.50    213,733
S&P 500        841.15     +3.87     847.00      837.28    
ES03H          841.00     +2.75     847.00      833.75    570,256

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      7793.75    7842.42   7904.11    7952.78    8014.47
YM03H          7795.00    7857.00   7909.00    7972.00    8025.00
Nasdaq-100      987.41     998.58   1005.96    1017.13    1024.51
NQ03H           982.50     996.50   1005.50    1019.50    1028.50
S&P 500         832.09     836.62    841.81     846.34     851.53
ES03H           827.25     834.25    840.50     847.50     853.75

Weekly Levels

Contract         S2         S1        Pivot        R1         R2    

YM03H         7554.00    7737.00    7889.00    8072.00    8224.00
NQ03H          947.25     978.75    1000.25    1031.75    1053.25
ES03H          803.00     822.00     836.25     855.25     869.50

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

Contract        S2         S1        Pivot       R1         R2    

YM03H         7374.00    7647.00    7890.00    8163.00    8406.00
NQ03H          906.75     958.75     990.25    1042.25    1073.75
ES03H          778.00     809.50     836.75     868.25     895.50

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: 

Long 841.50, exit 845.50, change +4.00
Short 844.25, exit 845.50, change -1.25
Long 844, exit 843.50, change -0.50
Short 838.75, exit 840.75, change -2.00
Long 840.50, exit 839.25, change -1.50

Total for the day: -1.25
Total for the week: -3.25
Total since inception: +55.75

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) 

A new week and a new month for ES traders.  For those following 
pivot analysis, it means new weekly and monthly pivots, 
retracements, as well as support and resistance levels.  It is my 
belief that computer programs are currently changing their models 
to use these new levels.  The question is, "Do any of these 
levels stick out?"  Interestingly enough, both the monthly and 
weekly pivot are between 836.25 and 836.75.  With the ES closing 
at 841, longs are given a great risk/reward, while shorts can 
either wait until these levels are broken, or sell at resistance 
above and use these pivots as a downside objective. 

Looking at the chart below, the ES contract could simply be in a 
wedge pattern with a possible apex (mid-point) between the weekly 
pivot (836.25) to either 838.25 (mid-point of Bollinger Band) or 
839.50 (popular daily retracement level).  Another variable to 
consider is the ADX Directional Movement Index continuing to roll 
from above 40 to under 40, indicating that the market has lost 
its momentum and traders should look for a range bound market.  
Nevertheless, until the 836.25 area is taken out, least 
resistance does appear to be higher.   

Chart of ES03H, Daily


 

Looking at a 120-minute chart of the ES contract, with the weekly 
and monthly pivot below, look for a move to 861.25.  Some 
resistance should be found at the 850 area as well.  If prices 
fall underneath this 836.25 to 836.75 area, there is a good 
chance traders will begin thinking about a retest of the "support 
zone" from 803 to 805.  The daily S2 level comes in at 827.25.   

Chart of ES03H, 120-minute


 

Taking things to a five-minute chart, the ES is above Monday's 
pivot of 840.50 and the mid-point of a recent bullish regression 
channel.  It also came to the top of a possible short-term 
bearish trend line.  The nice thing is that a test of the weekly 
and monthly pivot will put prices underneath the entire 
regression line; clearly shifting sentiment.  I would use the 
daily R1 and S1 levels during the day on Monday, but keep the 
'bigger picture' in mind.  

Chart of ES03H, 5-minute


 

Bullish Percent of SPX: This indicator rose 0.20% to 33.80 on 
Friday, and remains just underneath a number of prior column of 
O's that stopped at the 36% level.  Nevertheless, this indicator 
remains in "Bull Correction", column of O's 15 deep, and a 
reversal into a Column of X's will not be seen until a print of 
40%.  Note:  The last column of "O's" ended at 20 percent.  With 
that said, this indicator is intermediate term bearish for the 
SPX.  Looking at P&F chart of the SPX, the contact did add one 
"X" as 845 was hit; however, resistance is still at 850 and then 
between the 860-865 area.  

The March E-mini Nasdaq 100 Contract (NQ03H) 

A daily chart of the NQ contract also has bullish implications, 
as Friday's settlement closed above the mid-point of the bullish 
regression channel, the 1003 area, and all highlighted moving 
averages.  I would look for a test of the 1024.50 area, but it is 
a new week and month; therefore, we will have some new pivotal 
areas to deal with.  Note:  Both the MACD and Stochastics also 
are in a bullish trend as well.  

Chart of NQ03H, Daily


 

Taking things to a 120-minute chart, the NQ is above both its 
weekly and monthly pivot (1000 and 990, respectively), as well as 
closing above a "support zone" from 1010 to 1012.75.  This has 
bullish implications as well.  If the 1024.50 is cleared, there 
remains resistance above at 1032.75 and then the 1042 area.  
Shorts could look for weakness under the monthly pivot, expecting 
softness down to the monthly pivotal level and possibly weekly S1 
of 978.75.  

Chart of NQ03H, 120-minute


 
 
Bullish Percent for NDX:  The bullish percent for the NDX 
was unchanged at 35% on Friday, and will stay in "Bear 
Confirmed" status.  It will take 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, will have to get a 
1025 print in order to produce a new column of X's, or a 925 
print to add to the recent column of O's.  Resistance is seen at 
1025, with support at 1000 and 925.  

The March Mini-sized Dow Contract (YM03H) 

The YM contract, like the ES, has its weekly and monthly pivot 
almost exactly at the same level (7889 and 7890, respectively).  
Also like the ES, the YM is above this level (most likely its 
apex in the current wedge pattern) and portends a rise during 
trading on Monday.  The objective above would place the index at 
the 8072 level, and then above from 8208 to 8225.  These are 
intermediate objectives, and could be hit within the next few 
trading sessions (before Friday).  If prices do fall back 
underneath the weekly and monthly pivotal levels, look for a move 
to 7809 in the near term.  The daily S2 on Monday is at 7995; 
therefore, this level is definitely in reach. 

Chart of YM03H, 120-minute


 

Bullish Percent of Dow Jones: Using P&F analysis, the Dow did 
add to its new column of X's on Friday, as 7950 was taken out.  
However, there is a pattern of lower highs and higher lows; 
therefore, the blue chips could be coiling with a possible apex 
of 7850.  The bearish objective for the blue chips remains at 
7100, while a buy signal will be given at 8200.  Resistance is 
seen at 8150, with support still not seen until 7600.  As far as 
the bullish percent is concerned, this indicator was unchanged at 
13.33% but continues to show oversold conditions.  Of course, it 
will take a move to 20% in order to get the index 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
********************

GROWING PAINS
By Leigh Stevens
lstevens@OptionInvestor.com 

Economic growth slowed in the forth quarter, but not by as much 
as the practitioners of the dismal science (economics) thought a 
month ago. As estimated and reported by the Commerce Department 
on Friday and adjusted for inflation, the nation's GNP rose at a 
1.4% annual rate in the last three months of 2002. This compares 
to the 4% growth of Q3 of last year but is above the advance 
estimates for Q4 of a 0.7% growth rate. Hey, it's still above 1% 
its still a gain! 

Consumer spending was the surprise, rising 1.5% instead of the 1% 
originally estimated. Much of the spending gain was in energy - 
no kidding, as we paid more at the gas pumps! As was the case 
with the first GDP estimate in January, a combination of consumer 
spending, more government spending, continued investment in homes 
and some business equipment and software spending was what got us 
the GDP growth.

THE MARKET BOTTOM LINE – 
Upside follow through I anticipated early last week didn't happen 
but the market was again rebounding by week's end which continues 
to suggest a bottom forming at long-term up trendlines. More back 
and forth seesaw action is anticipated within that process. Chart 
patterns suggest buying puts on further rallies as the next best 
trade in the SPX and OEX, while waiting to see how far current 
upside momentum might carry the Nasdaq Composite and 100 before 
another downswing there.  

FRIDAY AND LAST WEEK'S TRADING ACTIVITY –
The numbers all came in essentially better than forecast. This 
being the end of the week and with a lot of traders net short, it 
led to some short-covering type buying.

Nevertheless the Dow was down on the week by 127 points to 7891, 
off 1.6% from its prior weekly close at 8,018.  The blue chip 
average is now down over 5% year to date. For the week, the S&P 
500 (SPX) was off 8 points, losing just shy of 1% from its 848 
close of the week before. (SPX has lost a little over 4% year to 
date.) The index did hold on to a gain of 3.5 points on Friday, 
ending at 840. 

The Nasdaq Composite (COMPX) held onto a Friday gain of 13 
points, to close at 1,337. (Trader talk has focused on its 
repeated ability to hold 1300.) The COMP ended 11 points lower or 
just under 1% from its prior week 1,348 close. The Composite is 
trading about unchanged from the start of the year. 

Tech stock firmness and gains were sparked by a rally in Intel 
(INTC) and the chip stocks - INTC rallied to above $17 after 
Lehman Brothers raised its estimate for the semiconductor's Q1 
earnings from 12 to 13 cents. This based on the expectation of an 
ability to hold to modest increases in pricing and by gaining 
market share. Intel was up nearly 3 and a half percent, while the 
Philadelphia Semiconductor Index (SOX) gained 2.8% on Friday. By 
the way, Intel's mid-quarter update is on March 6.

Hewlett Packard (HPQ) rallied some 2% (to 15.85) as it recovered 
from a sell off on its quarterly results from earlier last week.

Economic data released from the revised February U of M Consumer 
Sentiment survey and the February Chicago PMI gave an early boost 
to stocks on Friday.  The Chicago Purchasing Managers Index fell 
in February, but the indicator of manufacturing activity remains 
above the 50 mark that suggests business expansion.

The revised February Consumer Sentiment for last month was 
reported at 79.9, slightly higher than the previously reported 
79.2.  This figure (79.9) was below January's 82.4, but was a 
more modest decline when compared to the Conference
Board Index's sharp decline from 78.8 in January to 64.0 in 
February.  

The smaller decline in the U of M Sentiment resulted in a less 
bearish view of what the consumer will do in the weeks ahead.  
Certainly, a sharp retrenchment in spending could derail the 
fragile and scant growth in the U.S. economy.  The bulls were 
hoping that the Conference Board number was not as telling as the 
Michigan survey.

Continuing the pattern of only limited bullish conviction and the 
great nervousness of traders, the Friday gains lasted as long as 
the next piece of bearish news.  A negative omen on terrorism was 
the report that a gunman fired on the U.S. Consulate in Karachi, 
Pakistan, killing two police and injuring at least five other. 
The man was arrested and identified as a native of Afghanistan.  
This shooting attack was the first that targeted American 
officials in many months. 

Karachi has been a militant hotbed of Muslim fundamental 
extremists. Pakistani public opinion is quite negative on a 
possible U.S. invasion of Iraq, a fellow Islamic country. 
Moreover, this key ally in the war on terrorism has nuclear 
weapons and only a moderate military leader perhaps stands 
between those weapons and radical elements - who might want to 
use nukes as the ultimate terror weapon.

IRAQ and the UN - 
Chief UN weapons inspector Hans Blix indicated on Friday that if 
Iraq carries out its pledge to begin destroying its Al Samoud2 
missiles on Saturday -- as demanded by the UN it would be "a very 
significant piece of real disarmament." Mr. Blix indicated to 
reporters that if Iraq goes forward with the promised 
destruction, its cooperation on a major disarmament issue would 
be reflected in his next report to the council. He will appear 
before the Security Council next week to discuss the findings in 
his 17-page report on the past three months of inspections.

Administration officials reiterated the president's dismissal of 
the importance to an Iraqi promise to destroy missiles banned by 
the United Nations. Not so in Russia - The Russian Foreign 
Minister said Moscow was prepared, if necessary, to cast a veto 
in the U.N. Security Council, which is discussing a U.S./U.K. 
resolution seen as "authorizing" war with Iraq.

Any moves in the direction of keeping the inspection process 
going and stopping the second resolution is being viewed 
bullishly by the market or at least keeps the sellers at bay for 
now.  

OTHER MARKETS – 
The 10-year Treasury note rose about 3/8 a point, with its yield 
falling to 3.69%. Oil prices, a focal point of political and 
economic uncertainties (along with bonds), traded down about 25 
cents to $36.95 a barrel on the New York Merc. However, natural 
gas futures jumped as much as 14 percent and heating oil hit an 
all-time high on reports of more cold winter weather in the U.S. 
Button up your overcoats!

The dollar traded down a fraction of a percent against the Euro 
to 1.0784, but was up 0.3% against the Japanese yen at 118.14.
Nearby gold futures were off about a buck on the week to $350.50 
per ounce - its price is not collapsing but its strong upward 
price momentum is stalled. 
 
MY INDEX OUTLOOKS – 
Look to buy puts in the indexes if they continue to work higher - 
in terms of the bellwether S&P 500 (SPX), particularly back into 
the 850-855 resistance zone. Conversely, adopt bearish trading 
strategies on an hourly close under 840 - given the upward 
sloping pattern (probably bear flag or bearish wedge) on the 
hourly chart below, I think a break at this juncture would signal 
another downswing. [While I don't anticipate this, a close over 
855 would yield somewhat higher objectives, possibly to 865-868.]  
 
S&P 500 Index (SPX) – Hourly chart:

Technically, the break out above the minor consolidation of last 
week (the “bull flag”) was suggested that the OEX may be about 
mid point in a move.  This kind of “measured move” objective 
suggests upside potential to the 880 area.  Get itchy to buy puts 
in the 880-890 price zone.  



 

I wrote about the price/RSI divergence (RSI registered a lower 
peak at the double top) in my Trader's Corner "Putting it all 
together" column last week at - 
http://www.OptionInvestor.com/traderscorner/tc_022703_2.asp 
It's worth noting also that you'll find in this article an 
alphabetical listing of all my prior Trader's Corner columns. 

The above noted price/RSI "divergence" was a good tip off for a 
quick trade to the downside, proving the old trader's adage that 
"they slide faster than they glide". I didn't make the most of 
what was showing up on the hourly chart in that regard, but some 
quick-witted OIN viewers did. Now, the upward sloping price 
pattern noted suggests another downswing ahead in the SPX.   

 

S&P 100 Index (OEX) – Daily and Hourly charts: 
 
The OEX level to watch in the short-term is 432 – a push through 
this area, particularly on a closing basis is suggesting that OEX 
will advance to 450. 420 is key near support.  



 

Unless there is a close over resistance at 432, I assess the most 
recent rally as a prelude to another downswing. If 432 was 
exceed, buy puts at 440.  I anticipate another move to the 410 
area and semi expect another test of major support around 400.  
The pattern I outline on the hourly chart is like a ledge that 
the index builds before falling off it.    

And, the "confirming" indicator is my Equities Call to put ratio 
of daily trading volume on CBOE equities options. This indicator 
reached an "overbought" or a minor extreme in bullish "sentiment" 
on Thursday.  The record of this indicator, when added to a 
confirming chart picture is quite good.   

For those who may be unused to seeing a CALL to put ratio like 
mine, an explanation is at – 
http://www.OptionInvestor.com/traderscorner/tc_011903_2.asp


Dow Industrial Index (DJX) – Hourly chart: 

The striking feature of the Dow charts is (especially apparent on 
the hourly chart) the symmetrical triangle outlined by a series 
of lower (up) swing highs and higher (down) swing lows.  The 
triangle is one of the most common patterns showing a 
consolidation in the trend.  



 

As the dominant trend before the formation of the triangle on the 
Dow hourly chart above was down, it's a better than even chance 
that the next move is down again if 78.25 is pierced.  If so, the 
next levels to watch are the prior lows at 77.25; then, 76.25. 
Some further upside can't be ruled out if the breakout is to the 
upside, above 79.5. In that event resistance is implied by the 
prior hourly peaks at 80.4, then 80.75.   


NASDAQ 100 Index (NDX) Daily chart – 

The chart still looks mildly bullish, with the rebound from the 
area of its 21-day moving average last week.  However, resistance 
at 1020 still has to be overcome - if it was, I would like to buy 
puts on a further rebound that carried NDX back into its gap area 
around 1050.  



 


Buying and selling has been fairly well matched as shown by the 
10-day Nasdaq TRIN or the Arms Index, which is still more or less 
at a neutral reading.  

QQQ Daily and Hourly chart:

The chart of QQQ, on both a daily and hourly close basis, key 
resistance is suggested around 25.50 - if there is move above 
this level, the gap area on QQQI is even tougher resistance in my 
estimation.  I suggest shorting of the stock in the 25.50 area 
and again especially on a move into the 25.9-26.3 gap area. 

At the end of the week before last, there was a "classic" bearish 
divergence that was the tip off to the weakness seen at the 
beginning of last week.  It's a classic in terms of a new high in 
price with a clear cut lower low on the Relative Strength Index 
(RSI) - signaling a move to a new high on LESS relative strength.  

Near support looks to be 24.25; then, at 23.30-23.50.     


 

It's worth repeating - 
Notice how OBV turned up a few days ahead of the price rebound in 
the Q's. A valuable tip off to near-term reversals is when the On 
Balance Volume (OBV) indicator turns up before the market does, 
putting you on alert to a trend change that is coming. (Shows 
stock is under "accumulation".) Before that, the OBV turned down 
a couple days ahead of the 27.5 top back in January. (Indicated 
the stock was starting to be "distributed".)  

More on the On-Balance-Volume (OBV) indicator is found at –
http://www.OptionInvestor.com/traderscorner/112102_2.asp 


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**************
Editor's Plays
**************

Got Chips?  

I put my money where my mouth is this week and took 
advantage of the dip back to the Dow 7700s to enter
positions of an expanded PowerBall play in an account
for my kids. More on that later. 

While I was doing some research on cheap stocks with
January options I ran across a chip stock that is
looking very strong. This stock is often over looked
and tends to drop through the cracks of many investor
screens. After trading as low as $3.60 and down from 
its 2000 high of $58 it appears to be back on the 
comeback trail. 

Cypress Semiconductor is the industry leader in USB
embedded host controllers. Basically they make it 
possible for devices to talk to other devices without
a host computer in the middle. Cell phones, PDAs, 
printers, cameras and music players can all talk
without a PC. They also make devices that work in
set top boxes, DVD players, print servers, etc. With
the trend to inter connectivity they have the market
cornered. Want to connect your digital camera to a
printer without having to deal with a PC? They can
do it. http://biz.yahoo.com/bw/030224/245273_1.html

The Cypress CFO is going to speak at the Morgan Stanley
Technology Conference next week on March 5th. I expect
him to attract attention with several new products 
including a 2.5 gigabit network connectivity product. 
This could give the stock a boost and pickup some
more institutional investors. The 4Q of 2002 was a
bad quarter for them due to a product shift in their
cell phone customer base but they still managed a
41% gross margin on sales. Not bad!

When I bought CY options this week I bought the Jan-$7.50
calls for $1.25 but I noticed they are "ask" $1.45 this
weekend. Still a bargain in my opinion. The range over
the last 12 months has been from $25 to $3.60. I would 
be perfectly happy with a bounce back to $15 for a 500%
return.

I realize not everyone wants to buy 10-month calls. The
April-$5.00 is $1.70 and the June $7.50 is only 75 cents. 
This is a cheap stock but the chart looks like it has a
lot of potential to me. Pick the option of your choice
and hope for chip demand to multiply. 

CY Chart - 90 min


 
CY chart - Daily


 


********************************   

Personal Powerball

When the market dropped back under 7800 this last week
I decided to make a long-term bet that we would be
higher in Jan-2004 than we are today. Personally I think
that is a safe bet even if we go lower between now and
then. I took $10,000 and put it in an account for my four
kids. I presented them with the PowerBall concept and a
list of stocks that would fit the concept using the 
existing Editors Play from January as a base. I suggested
they do some research and come up with the best way to
maximize the $10K in a diversified manner. After several
tries they ended up with the list below. We bought ten
contracts of each, 20 of SUNW and spent $10,350. The 
concept was diversification, minimum expense, cheap 
options and the potential for several home runs. 

This is not an investment portfolio. It is a lottery ticket
with far better chances than any ticket you pick up at
the gas station. I need 10 to finish $1 in the money to
break even or five $2 ITM or one $10 ITM. Out of the 14
stocks I actually expect at least 10 to finish ITM and 
at least four ITM by $5 or more. I am not suggesting 
that everyone rush out and duplicate our gamble. More
than anything I am doing this to try and teach some
options lessons and get my 20 something's interested
in the market. We are going to sell everything in 
Jan-2004 and then they get to split it four ways. It
is a late Christmas present for 2003 that they get to 
watch grow/shrink all year. Hopefully next year they
can take their winnings and do it again on their own. 
I will print the results about once a month in this
column so you can laugh, cry, say I told you so or
cuss with them. If you can't have fun in life what 
is the point?

Column "C" is what we paid for the options. 
This is the price for one contract of everything. 


 


    
********************************   

Play updates:

HLTH - WebMD Call - Feb-21st ($9.78 when recommended)

This one traded all over the map this week but ended up 
right back at $9.60 and only -18 cents from the pick 
price from last Sunday. We are using the July-$10.00
call, HUT-GB. I highlighted the very strong $10 resistance
as well as the high short ratio. We need to get over 
$10 to make those shorts cover. Plenty of time. 

Microsoft Call - Feb-16th (MSFT $24.15 when recommended)

Microsoft is slowly sliding into oblivion and should test 
its pre-split level of $23 sometime next week. This is 
called the post split depression and I erred in thinking
that the lack of a presplit rally and the fact that it
was MSFT at $23 would prevent it. Obviously I was wrong. 
We still have months on this play and at Friday's close 
of $23.72 it is only down slightly from when it was 
recommended. I am still a believer. Keep the faith! 


EMC Call from Feb-2nd  ($7.70 when recommended)

EMC finally succumbed to the market pressure and some 
comments that IT spending was going to be less than
expected. We are playing the Jan-$10 call and 10 months
to go. I am not worried about the drop to $7.37

NEM Put from Jan-26th ($30.15 when recommended)

Newmont traded back down to $26.67 on Thursday and 
managed only a weak rebound. Even with the war only
a week or two away gold cannot rally. Once the $26.50
level breaks we could see a significant drop. Looking 
good!

BZH May $50 Put - From Feb-9th ($55 when recommended)

Thank you New Home Sales. The report that new home sales
dropped -15.1% in January knocked the bloom off the BZH
rose. It was pressing resistance at $60 as a safe haven
in times of confusion and the home sales report turned
it back south again. The long-term trend is still in
place and I am still confident. I would only close the
play on a bounce over the trend line to something in the
$60.50-$61.00 range. 

Powerball - From 12/29/02

There was no material change in the Powerball Lottery
play this week. Several of the stocks are showing signs 
of life and any further Nasdaq gains could put us back
to breakeven quickly. Remember this is a 12-month play
and we are only eight weeks into it. 

It would cost you about $760 to buy one contract of each 
today. Any one contract could repay that $760 by 12/31/03 
leaving the rest as profit. It is a high risk "LOTTERY" 
play but then $760 is not much risk. 

It would have taken $1,255 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 12/31/03


 


********************    

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Last Gasp?
by Steven Price

Did we finally see the last push higher before another rollover?  
It is certainly tough to tell, but we did get a snapshot of how 
the markets would react to better than expected economic data and 
so far that reaction looks bearish.  We got a couple of economic 
reports that came in slightly higher than expected with the 
release of this morning's GDP, Consumer Sentiment and Chicago PMI 
reports. 

The GDP report showed a 1.4% increase in final quarter of 2002.  
That was a significant drop from the third quarter rate of 4%, 
but still came in higher than expectations.  The consensus was 
for growth of 1.1%.  For the year, the economy grew at a 2.4% 
clip, while inflation remained under control.  One of the big 
factors in the increase was the higher than expected growth in 
consumer spending, which jumped 1.5% instead of the expected 
1.0%.   While the numbers were encouraging, the rate of growth 
still shows a fourth quarter slowdown and indicates a still very 
slow growing economy.  Considering we are coming out of a 
recession, it may be a start, but it does not exactly elicit the 
feeling that everything will be just fine. Still, in the 
framework of recently disappointing data, it was an encouraging 
upside surprise.  Much of the impetus for the increase was a 
result of aggressive monetary policy on the part of the fed, 
which kept interest rates low and spurred investment in new and 
existing homes; investments in residences grew 9.4%.  Given the 
recent reduction in new home sales, which fell 15% in January, 
some of that spending increase is unlikely to last. The durable 
goods aspect of the report was actually quite disappointing, 
showing an 8.5% drop. Much of that drop was led by a 40% decline 
in auto sales, which finally dropped off from the third quarter's 
torrid pace. A significant portion of the increase was also due 
to government spending.  Government spending increased 4.9%, much 
of it due to an 11.2% increase in federal spending.  That was 
divided evenly between defense spending (11.4%) and non-defense 
spending (10.8%). The trade gap, which reached record proportions 
for December and January, took 1.4% from the reading, the largest 
drag in four years. All in all the report was better than 
expected, but a closer look still shows an economy in an uphill 
battle. 

The University of Michigan Consumer Sentiment was also better 
than expected, but still reflected a downward trend. The 
preliminary reading announced a couple of weeks ago was 79.2.  
The consensus was for a further drop to 79.0, but it came in at 
79.9. More than 40% of those polled said the economy was poor and 
inflation expectations showed a slight rise, as well.  This 
surprise was a welcome one after the Conference Board's Consumer 
Confidence report dropped 15 points in the last reading.  The 
Sentiment reading was still a decline from January's 82.4 
reading, registering a nine-year low, but it was nonetheless an 
upside surprise.  There had been whispers that it might come in 
far below expectations, following the Confidence surprise and the 
market breathed a sigh of relief when that did not happen. 

The Chicago Purchasing Manager's Index (PMI) also came in above 
expectations. It measures manufacturing activity in the region 
and generally gives us a hint of what the more comprehensive ISM 
report will show on March 3.  Expectations were for a reading of 
52.5, and the actual number came in at 54.9.  That is still down 
from the last reading at 56, which was an upside surprise, but 
any reading over 50 still indicates expansion. 

All of these reports coming in above expectations gave the 
markets a boost to start the day, with the Dow trading up over 80 
points early on.  It put the average back in the upper 7900s and 
once again approached 8000.  However, it struggled to hold gains 
and eventually the dominoes started falling.  The first signal 
was a steep drop in treasury yields, indicating a shift into 
buying bonds - generally a negative sign for stocks.  Soon after, 
stocks followed suit and the morning gains were erased in a 
methodical sell-off.  By mid afternoon, the Dow had ticked into 
the red and the U.S. dollar had done so as well.  However, the 
big, bottom out sell-off never took place and we finally found 
some buyers around Dow 7850.   The bulls defended that line 
strongly enough to bring the broader indices into the green by 
the end of the day, but we were left with an overall bearish feel 
as five and ten-year yields ended on their lows of the day and 
the Dow managed only a six point gain, well off its highs and 
back below 7900.  

That doesn't mean we won't get another bounce on Monday, 
particularly if Iraq begins to destroy its Al Samoud missiles as 
planned on Saturday.  Chief U.N. weapons inspector Hans Blix 
referred to this act as "a very significant piece of real 
disarmament."  Iraq called the order to destroy the missiles 
unjust and abusive, however it wants to avoid giving the U.S. the 
excuse it is looking for to launch an invasion.   The White House 
is downplaying the gesture, with spokesman Ari Fleischer saying, 
"if someone takes one bullet out of the chamber of a gun while 
they have six other bullets in the gun, they haven't disarmed."

For those readers following the point and figure charts, the 
recent Dow rebound to 7950 tacked on another box to its current 
column of "X." That box, if we don't cross 8000, completes the 
latest column in a bearish flag pattern and matches a descending 
trend line on that chart begun the last time it traded up to 
8150.  If we roll over from here, it would be the second higher 
low and a move down to 7750 would indicate a bearish breakdown of 
that pattern.  A move back over 8200 would signal a big change in 
sentiment.  However, even if it makes it that high, the 8300 
level had provided strong closing support during the end of 2002 
and could serve as resistance for bulls on the way back up. 

It appears that this morning's spike higher was just another 
lower high and a great opportunity for bears to enter short 
positions. However, as I have said on a regular basis over the 
past couple of months, anything can happen in the current geo-
political environment.  Blix is scheduled to submit a progress 
report to the U.N. on Saturday and if that report recommends 
ongoing inspections and suggests progress is being made, we may 
yet get another rally.  It is difficult to predict too far into 
the future, but if today's reaction to "good news" was any 
indication, rallies are still shorting opportunities.  however, 
if the specter of war is ever removed, traders may want to step 
out of the way and let the mother of all shorting opportunities 
run its course. 


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  7891

Moving Averages:
(Simple)

 10-dma: 7923
 50-dma: 8251
200-dma: 8601



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  841

Moving Averages:
(Simple)

 10-dma:  839
 50-dma:  872
200-dma:  910



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1010

Moving Averages:
(Simple)

 10-dma:  999
 50-dma: 1011
200-dma: 1010



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

The Semiconductor Index (SOX.X):  The chip stocks got a boost 
this morning from Lehman analyst Dan Niles, who raised his first 
quarter estimates for Intel.  Niles raised his revenue target 
from $6.5-$7.0 billion to $6.7-$7.0 billion, citing overseas 
strength, market share gains and lower than expected gross margin 
decline. He also raised earnings estimates for the first quarter 
and full year 2003 and 2004.  Intel jumped 3.3% and carried the 
SOX along with it.  The SOX jumped 8 points to 297.63, a new 
relative high.  It is now flirting with an important level of 
resistance at 300. It also spurred the tech sector, leading to an 
advance in the Nasdaq Composite of 13.58.  If the SOX can manage 
to break back over 300, bears that saw the initial broad market 
equity rally fail today should beware of further possible 
strength.


52-week High: 657
52-week Low : 214
Current     : 297

Moving Averages:
(Simple)

 21-dma: 278
 50-dma: 294
200-dma: 329



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

Market Volatility

The VIX traded all the way down to 33.39 intraday, which was new 
relative intraday low.  IT broke the 35% support line that held 
it through much of Thursday's action and ended the day just over 
34%.  That 34% level has been tested on two prior occasions since 
the mid-January swoon began in the broader markets and a close 
below 34 could signal a further rally in equities.  The next 
significant support level here is 26%, which would give the 
equities plenty of room to rally and might correlate to a Dow in 
the upper 8000s.  That may be getting ahead of ourselves, since 
there is an awful lot of overhead resistance for equities to 
fight through, but it is something to watch out for if the VIX 
continues to sink.  



CBOE Market Volatility Index (VIX) = 34.15 -1.03
Nasdaq-100 Volatility Index  (VXN) = 45.66 -0.50

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.59        532,838       312,768
Equity Only    0.50        413,453       208,120
OEX            1.11         16,542        18,419
QQQ            0.65         39,742        25,867


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

Bullish Percent Data

           Current   Change   Status
NYSE          39.6    - 0     Bull Correction
NASDAQ-100    34.0    - 0     Bear Confirmed
Dow Indust.   13.3    - 0     Bear Confirmed
S&P 500       33.8    - 0     Bull Correction
S&P 100       28.0    - 0     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  1.16
10-Day Arms Index  1.08
21-Day Arms Index  1.29
55-Day Arms Index  1.30


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       1631          1174
NASDAQ     1583          1545

        New Highs      New Lows
NYSE        81               63
NASDAQ      63               70

        Volume (in millions)
NYSE       1,552
NASDAQ     1,303


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

Commitments Of Traders Report: 02/25/02

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 made few changes to either side of the equation, 
resulting in a net change of 200 short contracts.  Small traders 
added 2300 contracts to the long side.

Commercials   Long      Short      Net     % Of OI 
02/04/03      414,543   465,678   (51,135)   (5.8%)
02/11/03      412,333   472,156   (59,823)   (6.8%)
02/18/03      423,871   481,871   (58,000)   (6.4%)
02/25/03      424,276   482,476   (58,200)   (6.4%)

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
02/04/03      151,174    93,439    57,735     23.5%
02/11/03      161,126    95,618    65,508     25.5%
02/18/03      155,475    91,102    64,373     26.1%
02/25/03      157,790    91,083    66,707     26.8%

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 added slightly to the long side and added 1,200 short 
contracts.  Small traders left the long side alone and reduced
 shorts by 2,000 contracts.


Commercials   Long      Short      Net     % of OI 
02/04/03       40,934     50,992   (10,058) (10.9%)
02/11/03       39,412     53,818   (14,406) (15.5%)
02/18/03       38,486     50,501   (12,015) (13.5%)
02/25/03       38,787     51,745   (12,958) (14.3%)

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
02/04/03       25,573     8,648    16,925    49.5%
02/11/03       29,667     8,915    20,752    53.8%
02/18/03       25,482     9,425    16,057    46.0%
02/25/03       25,378     7,431    17,947    54.7%

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 the long side by 1,000 contracts and left 
shorts relatively unchanged.  Small Traders reduced the long side 
by 700 contracts and left the short side alone. 

Commercials   Long      Short      Net     % of OI
02/04/03       17,596    11,232    6,364      22.1%
02/11/03       19,826    11,800    8,026      25.4%
02/18/03       18,812    11,939    6,873      22.4%
02/25/03       19,985    11,866    8,119      25.5%

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
02/04/03        4,583     9,424    (4,841)   (34.6%)
02/11/03        5,390     9,300    (3,910)   (26.6%)
02/18/03        5,561     8,973    (3,412)   (23.5%)
02/25/03        4,872     8,723    (3,851)   (28.3%

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

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


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***************
ASK THE ANALYST
***************

Looking for triangles and stiff competition

Hi Jeff,
It's been awhile since we've talked about triangles on the P&F 
charts.  I think you had said we need to see 5 columns to form a 
triangle and then a break from it is playable. If SPX hits 825, 
thus creating a new column of O's, would this complete the 
triangle and then we wait for the break? Thanks for your help.

The above question from a subscriber gave me flashbacks to the 
2001 OptionInvestor.com spring seminar, where an attendee pulled 
me aside after I had given a presentation on point and figure 
chart patterns.  That trader had brought his laptop computer with 
him, and the night after my presentation and he had been hard at 
work in his hotel room the previous night looking for chart 
patterns based on Professor Davis' probabilities study.

I can't remember for certain, but I think during the 
presentation, we had looked at a point and figure chart of the 
S&P 500, but the discussion was how to tie in the bullish % with 
the actual S&P 500 chart itself, to understand MARKET risk as it 
related to the bullish % ($BPSPX), and how that risk would 
systematically be removed by "smart money" when levels became too 
"overbought," based on events or scenarios that would eventually 
unfold weeks or months later.  Then when the "known" events were 
revealed, risk had been reduced (market indexes had fallen along 
with the bullish %), how "smart money" would begin turning more 
bullish, only to then be looking forward to a bullish scenario 

The attendee had noted the "triangle" in the S&P 500 at that 
time.  Long story short, I think it was a couple of days into the 
seminar when the attendee approached me again, wearing a rather 
large smile on his face as he had played a call option trade when 
the SPX triggered the "bullish triangle" pattern and shot higher 
as the powder keg was lit.

Now.... in our Index Trader Wraps at OptionInvestor.com, I've 
been showing the $5-box scale of the SPX and placing little 
"dots" on the chart, which does show a "triangle-like" pattern 
forming.  Maybe the above subscriber is having "flashbacks" to 
the spring of 2001?

Here's what was taking place in April of 2001 on the S&P 500 
chart.  At that time, the S&P 500 was trading near 1,130, which 
at that higher level of price had the conventional box scale 
being 10-points to reflect the higher values of trade.

S&P 500 Index Chart (Spring 2001) - 10-point box


 

Funny... I get another "flashback" as we've just completed the 
month of February, and getting ready for March.  Two years ago, I 
was probably working on my spring seminar presentation.  Well, 
I've marked the "triangle" formation on the SPX chart above, and 
has you can see, that was definitely a "triangle" pattern a 
trader would have been well served to have been monitoring. 

I've also marked various bullish % readings at the beginning of 
each month, which provides some "education" as to how the bullish 
% either confirmed or gave "heads up" to potential strengthening 
or weakening from the internals, which often times leads to price 
action.  It's interesting to say the least that in April of 2001, 
when the triangle was forming, the SPX Bullish % ($BPSPX) had 
reversed up to "bear correction" status as some internal 
strengthening was taking place.  When the SPX traded 1,155, the 
double-top buy signal was generated, and thee "bullish triangle" 
formation was triggered.

Now.... Professor Davis' study was limited to stock chart 
patterns, but the "bullish triangle" is a POWERFUL bullish 
pattern and under bullish phase of bullish % readings, is 
profitable 71.4% of the time, for an average gain of 30.9% in 5.4 
months.  From 1,155, at the extreme high of 1,310, the SPX had 
"only" managed to gain 13%.  Remember, there are 500 stocks in 
this index and would take one heck of a lot of bullishness to see 
a 30.9% gain in 5.4 months.

Try doing this.  Without moving your eyes, look at the above 
chart and simply nod your head and follow the green (up) and red 
(down) arrows.  Then pretend you're watching a tennis match from 
one end of a tennis court and player #1 (bullish player) looks a 
little "fresher" (bullish % reverses up) and hits a shot from the 
baseline (1,100 to 1,180 : +7.27%).  The tennis ball travels the 
length of the court, when player #2 (bear) returns the ball 
(1,170 to 1,100 : -6.36%).  Player #1 returns the ball back again 
(1,110 to 1,150 : +3.6%).  What!  1,150?  Player #2 is 
approaching the net and looking to shorten the court and apply 
pressure, and in a quickening pace of action returns the ball 
(1,140-1,120 : -1.75%).  What!  1,120?  Now player #1 is also 
approaching the net, and makes for an even shorter court.  
Pressure builds as both players have come to the net.  The crowd 
(market participants) is at the edge of their seats.  Something 
has to give as the crowd eagerly waits to see who's going to get 
the winning shot.  Player #1 looks "fresher" (bullish % was 
reversing up), returns the ball and this time, as the ball 
travels to 1,155 the crowd JUMPS to its feet in a roar of 
applause as a passing shot is found and a winning point by player 
#1 (bull) is achieved.

Whew!  That was exhaustive, but did you feel the "pressure" 
building?  If trading the markets were ONLY as simple as calling 
a game of tennis.  For us stock/index/commodity traders, a 
"triangle pattern" that begins to form is very much like a game 
of tennis, where bulls and bears approach the net and tension in 
the crowd (supply/demand) begins to build.  The "one thing" that 
is a bit different is that in a tennis match, players aren't 
being bombarded with objects from the stands that they have to 
dodge during the game.  In fact, if during a tennis match, if 
somebody in the crowd takes a picture with the camera's flash 
turned on, the tennis player that sees it will often times "shout 
down" that individual in the crowd as the spectator has just 
severely broken the tennis players concentration.  Traders like 
you and I are constantly faced with "distractions" in the form of 
news events.

What kind of "news" had driven the markets lower from February to 
April in 2001?  I can't remember, but I'm sure it was important.  
What kind of "news" had driven the markets higher from April to 
mid-May?  I can't remember, but I'm sure it was important too.

So who's the "fresher" player right now?  Or who looks to have 
the upper hand.  In my opinion, simply "playing" a triangle 
pattern without having some type of "understanding" of who (bull 
or bear) might be in a more favorable position for a winning shot 
can be dangerous, if not costly.  

So, before we take a look at the "triangle" that may be forming 
in the SPX, or any stock, lets try and see if we can see who 
might be in a position to win the point, should we indeed look to 
trade a triangle pattern.

Lets take a quick look at the S&P 500 Bullish % ($BPSPX), tie it 
in with the time period above (April 2001) when a triangle 
formation had formed in the SPX.  

S&P 500 Bullish % ($BPSPX) - 2% box scale


 

If ONLY looking at the S&P 500 Bullish % to see who is in control 
of this tennis match, it would be my opinion, based on 
observation, that BEARS are still in control.  However, as the 
bullish % has fallen from 68% to 33%, I'm also thinking that the 
bearish player might start getting a little "tired" in the not 
too distance future as he's been "rushing the net" and scoring a 
lot of points since early December (just after the red C).  I 
think BEARS might have one last passing shot left in them.  If 
this would be a correct assessment right now, then I would look 
for the bullish % to continue to decline as depicted by the "red 
?" on the chart.  Still, at the lower levels of bullish %, the 
observation of a triangle forming in the SPX is a very GOOD 
observation that TENSION may be building and BEARISH traders as 
well as BULLISH traders are on the alert!

Now... I've said before that a trader/investor should NOT just 
look at the S&P 500 Bullish % ($BPSPX) as it contains 500 stocks 
and is very broad, and can take "time" to reverse it bullish or 
bearish direction.  

The case for a BULLISH move higher is the current OVERSOLD 
condition found in the S&P 100 Bullish % ($BPOEX), which is "bear 
confirmed," but at 28%, and now below the "oversold" level of 
28%.  It is this lower level of bullish percent, in the NARROWER 
S&P 100 Bullish %, that also has a trader on the alert for 
renewed strengthening from the internals.  Here's the S&P 100 
Bullish % ($BPOEX) chart from the spring of 2001.  Would it have 
helped a trader/investor see that the BULLISH tennis player was 
looking "fresh?"  I think so.

S&P 100 Bullish % ($BPOEX) 


 

The narrower S&P 100 Bullish % ($BPOEX) looks "strikingly 
familiar" today, and at very SIMILAR levels of risk as that found 
in late March 2001, just prior to reversing up to "bull alert" 
status.  This bullish %, while still weak and not yet showing a 
sign of internal strengthening also hints that BEARS would 
probably be looking for one last leg lower at this point, as the 
bulk of downside risk for bulls has been removed.

S&P 500 Index (SPX.X) - 5-point box


 

The subscriber's question regarding the potential formation of a 
triangle forming in the SPX can bee seen by the "blue" and "red" 
dots placed on the point and figure chart in 45-degree or 135-
degree angles (depending on your view of things).  

The subscriber's question was posed on Thursday, before the 
recent "X" was traded on Friday at 845, but he would have been 
correct in further sign of triangle formation taking place at 
825.  Now however, for a triangle pattern to have potential, we'd
look for a pullback to 830 and would NOT want to see a trade at 
850.

Even for a bullish trade in the SPX, especially for a STRADDLE or 
STRANGLE trader, the trader would PREFER the triangle formation 
to set up.  Why?  You want PRESSURE or TENSION to build.  It's 
much more fun to watch or be a part of a HIGHLY COMPETITIVE event 
that a one-sided affair.

To think that BEARS are in COMPLETE control of things would be a 
mistake after the recent double-top buy signal at 845, but so 
far, we have seen little CONFIRMATION of internal strengthening 
from the bullish %.

I keep daily track of the various bullish % indicators and while 
we've seen some stability and firming in the bullish % since 
February 13th (when the SPX traded 810), we've yet to see much of 
a net gain of reversing point and figure buy signals from the 500 
stocks in this index.  After February 13th's trading session, the 
S&P 500 Bullish % was at 35.6% and currently reads 33.8%, with 
some improvement being seen from the February 25th relative low 
reading of 33.0%.

The "triangle" pattern is definitely a pattern of "uncertainty," 
until some type of RESOLUTION to that pattern is found.

In a previous Ask the Analyst column 
http://www.OptionInvestor.com/ask/ask_020203_1.asp, a subscriber 
asked if there was ever a time to just get out of the market.  My 
answer was "NO," and that options allowed traders/investors to 
always be in the market, but by using the options strategy of 
"straddles" and "strangles" to establish a NEUTRAL positions 
(uncertainty=neutral), but allow for potential profit once 
resolution was found.  

What if.... back in April 2001, a trader had established a SPX 
straddle at SPX 1,150 with 2 or 3-month expiration.  Could the 
trader have made some money on that type of NEUTRAL trade?  

How's the QQQ June "straddle" or "strangle" doing?

NASDAQ-100 Index Tracking Stock - Option Montage


 

Since our February 2nd Ask the Analyst column and thoughts on how 
a trader/investor could always stay in the MARKET with a 
"neutral" trade, the more volatile QQQ has gained $0.73, or 
2.98%.  The slight rise in price in the QQQ and decline in the 
VXN.X from 46.81 to 45.66 has the put side of a QQQ $25 straddle 
showing a loss, while the call side shows fractional gain.  
Initial 1 contract in each call/put of $505.00 (excluding 
commission) is currently "worth" $430 at the bid.

If there's a "triangle" is going to form in the SPX, I do think 
it should be resolved before June.  

Is there any other "indicator" that you think might help in 
determining which way things are going to break?  What about the 
bond market?  What was it doing in February, March, April and May 
of last year?

10-year YIELD Chart (spring 2001) - 0.50-box


 

One of the MAIN reasons I'm still rather bearish the indexes is 
based on the continued BUYING in Treasuries.  Here's what the 10-
year YIELD was doing in 2001.  In our Index Trader Wrap from 
Thursday night at OptionInvestor.com, we made note that the 10-
year YIELD gave a spread-triple bottom sell signal and fell one 
more box on Friday.  That action on Friday was still a rather 
"defensive" posture from the bond market. 

If the 10-year YIELD "jumps higher" and gives us an alert to 
strength like it did on March 30, about one-week ahead of the SPX 
triggering a Bullish Triangle, we should all know what to do.  

Jeff Bailey


*************
COMING EVENTS
*************

==========================================
Market Watch for the week of March 3rd
==========================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

CDX    Catellus Devel Corp   Mon, Mar 03  Before the Bell     0.40
CPG    Chelsea Property Grp  Mon, Mar 03  After the Bell      0.82
HRC    Healthsouth           Mon, Mar 03  -----N/A-----       0.11
HBC    HSBC Holdings plc     Mon, Mar 03  Before the Bell      N/A
PSO    Pearson plc           Mon, Mar 03  -----N/A-----        N/A
KPN    Royal Kpn N.V.        Mon, Mar 03  -----N/A-----        N/A


------------------------- TUESDAY ------------------------------

AZO    AutoZone Inc.         Tue, Mar 04  Before the Bell     0.78
BNS    Bank of Nova Scotia   Tue, Mar 04  -----N/A-----        N/A
BVF    Biovail Corporation   Tue, Mar 04  Before the Bell     0.56
CHS    Chico's FAS           Tue, Mar 04  Before the Bell     0.16
CZN    Citizens Comm         Tue, Mar 04  Before the Bell     0.01
CRHCY  CRH PLC               Tue, Mar 04  -----N/A-----        N/A
DISH   EchoStar Comm Corp.   Tue, Mar 04  -----N/A-----      -1.03
HSIC   Henry Schein          Tue, Mar 04  Before the Bell     0.65
JWa    John Wiley & Sons     Tue, Mar 04  -----N/A-----       0.40
RA     Reckson Ass Realty Co Tue, Mar 04  After the Bell      0.59


-----------------------  WEDNESDAY -----------------------------

COST   Costco Wholesale Corp Wed, Mar 05  Before the Bell     0.43
FTE    France Telecom        Wed, Mar 05  -----N/A-----        N/A
GLH    Gallaher Group PLC    Wed, Mar 05  -----N/A-----       1.62
GENZ   Genzyme               Wed, Mar 05  -----N/A-----       0.35
MIK    Michaels Stores       Wed, Mar 05  -----N/A-----       1.01
NMGa   Neiman Marcus Group   Wed, Mar 05  After the Bell      0.67
PETM   PetsMart              Wed, Mar 05  Before the Bell     0.27
AHO    Royal Ahold N.V.      Wed, Mar 05  Before the Bell      N/A
SKS    Saks Incorporated     Wed, Mar 05  Before the Bell     0.50
SPLS   Staples, Inc.         Wed, Mar 05  Before the Bell     0.33
TLM    Talisman Energy       Wed, Mar 05  After the Bell      1.00
TOY    Toys R Us             Wed, Mar 05  Before the Bell     1.27


------------------------- THURSDAY -----------------------------

AEG    AEGON N.V.            Thu, Mar 06  -----N/A-----       0.27
MBG    Mandalay Resort Group Thu, Mar 06  -----N/A-----       0.13
MDZ    MDS Inc.              Thu, Mar 06  Before the Bell      N/A
NSM    National Semicon      Thu, Mar 06  During the Market  -0.03
NXL    Nw Pln Excl Rlty Trst Thu, Mar 06  -----N/A-----       0.47
PT     Portugal Telecom SGPS Thu, Mar 06  -----N/A-----        N/A
REXMY  REXAM PLC             Thu, Mar 06  -----N/A-----       1.52
SZE    Suez SA               Thu, Mar 06  -----N/A-----        N/A


------------------------- FRIDAY -------------------------------

IPR    International Power   Fri, Mar 07  Before the Bell      N/A


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

EXAC    Exactech                  2:1      Mar. 03rd   Mar. 04th
EXPE    Expedia                   2:1      Mar. 10th   Mar. 11th
ROL     Rollins, Inc              3:2      Mar. 10th   Mar. 11th
FFLC    FFLC Bancorp, Inc.        3:2      Mar. 14th   Mar. 17th
LNBB    LNB Bancorp, Inc.         3:2      Mar. 14th   Mar. 17th


--------------------------
Economic Reports This Week
--------------------------

Monday begins the last four weeks of the first quarter for 2003.
Odds are consumers aren't going to be picking up their spending
habits any time soon but Wall Street will be looking at the
Auto Sales #s, Personal Income & Spending, Construction spending
and the ISM (services) index on Monday/Tuesday.  

==============================================================
                       -For-           

Monday, 03/03/02
----------------
Auto Sales (NA)         Feb  Forecast:   5.8M  Previous:     5.9M
Truck Sales (NA)        Feb  Forecast:   7.0M  Previous:     6.9M
Personal Income (BB)    Jan  Forecast:   0.4%  Previous:     0.4%
Personal Spending (BB)  Jan  Forecast:   0.2%  Previous:     0.9%
ISM Index (DM)          Feb  Forecast:   52.0  Previous:     53.9
Construction Spnding(DM)Jan  Forecast:   0.4%  Previous:     1.2%


Tuesday, 03/04/02
-----------------
None


Wednesday, 03/05/02
-------------------
ISM Services (DM)       Feb  Forecast:   53.0  Previous:     54.5
Fed's Beige Book  (DM)


Thursday, 03/06/02
------------------
Initial Claims (BB)   03/01  Forecast:    N/A  Previous:     417K
Productivity-Rev. (BB)   Q4  Forecast:   0.1%  Previous:    -0.2%
Factory Orders (DM)     Jan  Forecast:   0.4%  Previous:     0.4%


Friday, 03/07/02
----------------
Nonfarm payrolls (BB)   Feb  Forecast:    20K  Previous:     143K
Unemployment Rate (BB)  Feb  Forecast:   5.8%  Previous:     5.7%
Hourly Earnings (BB)    Feb  Forecast:   0.3%  Previous:     0.0%
Average Workweek (BB)   Feb  Forecast:   34.2  Previous:     34.2
Consumer Credit (DM)    Jan  Forecast: -$1.5B  Previous:   -$4.0B


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 03-02-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: HD
Put Play of the Day: SYY
Dropped Calls: None
Dropped Puts: CB


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     54.64   -1.16   0.71  -0.17  0.81  0.33  Trend in tact
BDX      34.40   -0.75   0.39  -0.13  0.76  0.45  New support
DGX      52.76   -0.55   1.50   0.02 -0.45  0.26  Pullback
HD       23.45   -0.68   0.44   0.13  0.11  0.59  New, Reversal 
MME      35.75   -0.97   1.21  -0.38  0.05  0.75  Relative high
SLAB     27.12    0.12  -0.13  -0.71  0.37  0.62  Closing high
TECD     22.59   -0.66   0.30   0.06  0.22  0.27  New highs
ZMH      44.39   -0.29   1.23  -0.27  0.16  0.43  Pause at $45


PUTS

ATK      48.30   -1.96   1.34   0.25  0.01 -0.34  Holding $47.50
BBOX     40.66   -0.84  -0.25  -0.73  0.47 -0.78  Entry point?
CB       47.82    0.04  -0.96  -1.51  1.72 -0.35  Drop, Overstay
SYY      27.12   -0.60   0.64  -0.27 -0.10 -1.06  New, New lows
UTX      58.58   -1.96  -0.09  -1.76  0.70 -3.02  Sell signal
VZ       34.58   -0.20   0.14  -0.42 -0.13 -1.07  C'mon $34


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

HD - Home Depot - $23.45 +0.34 (+1.04 for the week)

See details in play list




Put Play of the Day:
********************

SYY – Sysco Corporation $27.12 (-1.05 last week)

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

None


PUTS
^^^^

CB $47.82 (-0.45) After persistently grinding lower throughout
the past couple weeks, it is time to bid farewell to our CB play.
Following Wednesday's selloff to new lows, the stock rebounded
sharply on Thursday and then extended that rally on Friday,
trading as high as $48.35, violating both the 10-dma and our
$48.10 stop.  While the stock did pull back below the 10-dma at
the end of the day, there just wasn't enough weakness to convince
us to keep the play active.  For those still holding open plays,
we'd suggest using any weakness early next week as an opportunity
to exit, and then look for fresh trade candidates.


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 03-02-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: HD
Current Calls: AMGN, DGX, MME, SLAB, TECD, ZMH, BDX
New Puts: SYY


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

HD - Home Depot - $23.45 +0.34 (+1.04 for the week) 

Company Summary:
Founded in 1978, The Home Depot is the world's largest home 
improvement specialty retailer and the second largest retailer in 
the United States, with fiscal 2002 sales of $58.2 billion. The 
company employs approximately 300,000 associates and has 1544 
stores in 50 states, Puerto Rico, seven Canadian provinces, and 
Mexico. (source: company release)

Why We Like It: 
Home Depot has certainly had a year to forget.  Lower revenues 
and sales have mirrored that of much of the retail sector.  It's 
only saving grace was a strong housing market that led many 
homeowners to refinance and put money back into improving their 
homes. About the best thing going for Home Depot is that things 
weren't as bad as they appeared.  After seeing the stock decline 
from a high of $52.60 to a low of $20.10, the stock finally found 
some support following a better than expected earnings report. HD 
released earnings on February 25, posting a profit of $0.30 per 
share.  That beat Wall Street estimates by $0.03 and was enough 
to turn the sinking tide back up as the stock bounced off 
newfound support at $20.  More importantly, the store has seen a 
big turnaround from a weak December to a stronger January. In 
December, comparable store sales fell in 10 out of 11 product 
categories, reflecting a terrible holiday season for most 
retailers.  However, January was a stark contrast, with 7 out of 
11 categories showing growth. CFO Carol Tome claimed that 
December was an anomaly and noted a 3.6% increase in customer 
transactions for the quarter on a 13-week basis. Whether an 
anomaly or not, the trend appears to have turned at least for the 
time being.  The results have led to a steady uptrend in the 
price of HD, which has been working on filling a gap down from 
January 3, following a profit warning. The company is still 
growing earnings at a respectable 20% clip, but prior to the 
holiday season, even more was expected out of it.  

The stock has put together a consistent trend since the middle of 
February, establishing higher highs and higher lows for two 
straight weeks.  While it is not exactly exploding higher, it is 
showing a consistent uptrend, in spite of the schizophrenic moves 
we are seeing in the broader markets and more specifically in the 
Retail Index (RLX.X).  The RLX has traded much like the Dow, with 
each day bringing a new adventure.  Retail bulls can be 
encouraged, however, by the fact that it has held recent gains 
after bouncing off a new 52-week low on February 13. HD had seen 
consecutive triple bottom breakdowns on the point and figure 
charts, but appears on the verge of reversing the most recent 
sell signal.  While a buy signal is still a ways off (up at $28), 
a trade of $24 will put the stock back into a bullish column of 
"X" and can be used by more conservative traders as an entry 
trigger. Even if the stock eventually fails at that recent $27.50 
resistance, it should still be good for a gain of over 10%.  
While $27.50 will be an initial target, we like the fact that the 
recent rally has taken HD through both its 21-dma and 50-dma.  
The 200-dma sits all the way up at $29.26 and we will use that 
average as out eventual target on the play. Our initial stop will 
be placed at $21.45, just below the 21-dma and 50-dma, allowing 
for a bounce off $21.50. 

BUY CALL MAR-20 HD-CD OI= 5100 at $3.60 SL=1.80
BUY CALL MAR-22.50*HD-CX OI= 46113 at $1.30 SL=0.65
BUY CALL APR-22.50 HD-DX OI= 6975 at $1.75 SL=0.90
BUY CALL APR-25 HD-DE OI= 6176 at $0.50 SL=0.25

Average Daily Volume = 14.0 mil



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******************
CURRENT CALL PLAYS
******************

AMGN – Amgen, Inc. $54.64 (+0.04 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.

Why We Like It:
Talk about dependability!  Every time AMGN approaches its
ascending trendline, the bulls defend that support line with a
vengeance and the resulting bounce invariably takes the stock
up to test its recent highs.  Last week was no exception, with
an early dip to support on Tuesday that met with vigorous buying
after the company reaffirmed its revenue growth (30-32%) and EPS
growth (25-27%) forecast through 2005 at its investor's
conference.  Trading a low of the day just above $52, that news
was the catalyst to drive the stock steadily higher throughout
the week, ending with a new 10-month closing high of $54.64 on
Friday.  The trend remains very much intact and barring some
unforeseen event over the weekend, AMGN looks ready to break
through the $55 level next week.  The ascending trendline that
began last September has now risen to $52.50 and should continue
to support the stock on successive pullbacks.  While aggressive
traders may feel compelled to chase the stock higher on a
breakout over $55, their enthusiasm should be tempered by the
strong resistance that is looming just overhead near $56 and
continuing up through the $60 level.  Additionally, AMGN has not
shown a recent pattern of being able to sustain a breakout,
instead pulling back after each higher high to consolidate and
confirm higher support.  So the best approach for entering the
play remains to take advantage of rebounds from the ascending
support line.  This weekend, we're leaving our stop in place at
$52.25, but will consider raising it once AMGN is able to close
over the $55 level.

BUY CALL MAR-50 AMQ-CJ OI= 7028 at $5.10 SL=3.00
BUY CALL MAR-55*YAA-CK OI=33568 at $1.50 SL=0.75
BUY CALL APR-55 YAA-DK OI=34852 at $2.75 SL=1.50

Average Daily Volume = 12.0 mln


---

DGX – Quest Diagnostics $52.76 (-0.05 last week)

Company Summary:
Quest Diagnostics was the result of a 1996 Corning spinoff,
and currently holds the title of the world's #1 clinical
laboratory.  DGX performs more than 100 million routine tests
annually, including cholesterol, HIV, pregnancy, alcohol, and
pap smear tests.  Operating laboratories throughout the US and
in Brazil, Mexico, and the UK, DGX also performs esoteric
testing (complex, low-volume tests) and clinical trials.  The
company serves doctors, hospitals, HMOs, and other labs as well
as corporations, government agencies, and prisons.

Why We Like It:
Following its addition to the Call list on Tuesday, DGX made a
convincing bullish move early on Wednesday, moving to within a
few cents of the $55 resistance level and creating a new PnF Buy
signal with the trade over $54.  But after that, things didn't
go so well.  Since the opening bullish surge on Wednesday, the
stock has been drifting back towards support in the $52.00-52.50
area.  As the stock continued to drift lower, bulls were nowhere
to be found, but there wasn't any rush to the exits either, with
volume for the day coming in at only two-thirds of the ADV.
While the daily chart certainly doesn't look encouraging, with
the daily Stochastics starting to tip bearish, we're taking our
cue from the new Buy signal on the PnF chart.  That picture tells
us that the bulls are in charge here, they just didn't have the
conviction to keep pushing the stock higher ahead of a weekend
with unknown geopolitical risks.  Use the current weakness to
establish new positions for the next push up towards resistance,
with a bounce likely from above the $52 level.  If that fails
to materialize, we'll be left focusing on the $51 level as
possible support.  But entries taken on a dip that low will
inherently carry greater risk due to the proximity of our stop
at $50.50.  Buy the rebound from support, not just a drop to a
level where support should exist.

BUY CALL MAR-50 DGX-CJ OI= 652 at $4.00 SL=2.50
BUY CALL MAR-55*DGX-CK OI=2039 at $1.10 SL=0.50
BUY CALL APR-50 DGX-DJ OI= 146 at $4.90 SL=3.00
BUY CALL APR-55 DGX-DK OI= 842 at $2.10 SL=1.00

Average Daily Volume = 1.33 mln


---

MME – Mid Atlantic Medical Services $35.75 (+0.95 last week)

Company Summary:
Mid Atlantic Medical Services is a holding company for
subsidiaries active in managed healthcare and other life and
health insurance related activities.  MME and its subsidiaries
offer a broad range of managed healthcare coverage and related
ancillary insurance and other products and deliver these
services through health maintenance organizations, a preferred
provider organization, and a life and health insurance company.
MME owns a home healthcare company, a pharmaceutical services
company and a hospice company.  The company also owns a
collections company and maintains a partnership interest in an
outpatient surgery center.

Why We Like It:
It seems like it took forever to do it, but on Friday our MME
play finally pushed through the $35.25 level, triggering the
play to active status.  It didn't take long for the initial
upward surge to fade, but confirming the breakout, the bulls
defended the $35 support level and then pushed the stock up to
close at $35.75, the high of the day.  With light volume in the
broad market, it has been difficult to gauge MME's action lately,
as volume has been exceedingly light.  But On Balance Volume has
been in a consistent uptrend and the increase in volume on Friday
(while still below the ADV) indicates that the breakout has some
conviction behind it.  The $34 level provided solid support
earlier in the week and with the stock now solidly above the
200-dma ($34.44), we should see that level continue to provide
support on any pullbacks from here.  Those that decided not to
enter on Friday's breakout move now can either wait for a
pullback and rebound from the $34.50-35.00 area or dip their
toes into the water on a continuation of Friday's bullish move
above the $36 level.  Now that we've gotten a solid breakout
above resistance, it seems safe to raise our stop, which now
moves to $33.50, just below last week's intraday lows.

BUY CALL MAR-35*MME-CG OI=343 at $1.85 SL=1.00
BUY CALL APR-35 MME-DG OI=  2 at $2.80 SL=1.50
BUY CALL APR-40 MME-DH OI= 53 at $0.85 SL=0.40

Average Daily Volume = 445 K


---

SLAB - Silicon Laboratories - $26.58 -0.07 (+1.98 for the week) 

Company Description:
Silicon Laboratories Inc. designs, manufactures, and markets 
proprietary high-performance mixed-signal integrated circuits 
(ICs) for a broad range of communications markets. Silicon 
Laboratories is an ISO9001-certified manufacturer and has applied 
for more than 161 patents on its mixed-signal technology. 
(source: company press release)

Why We Like It:
Friday's session displayed the kind of move we've been waiting to 
see by SLAB.  Our chip stock pick outperformed the sector, which 
did pretty well for itself, especially on a Friday with plenty of 
event risk in our future.  What helped propel the $SOX up over 2% 
and ever so much closer to the 300 resistance level (and what the 
bulls hope will be the imminent breakout) was word from the 
infamous chip analyst, Dan Niles.  Dan covers Intel, the largest 
chip maker in the world.  Where Intel goes usually leads the chip 
sector.  Fortunately for the bulls, Dan had somewhat positive 
things to say about INTC.  Dan believes that INTC will actually 
raise their Q1 revenue guidance based on higher average selling 
prices (ASP) and market share gains.  However, he actually gave 
himself a backdoor with possible concerns over Intel's Q2 due to 
potential European sluggishness and Asian holidays affecting 
demand in Japan and China.  Thanks for talking out both sides of 
your mouth, Dan!  Bulls took what they could get and ran with it, 
right into a brick wall with the 300 level of resistance for the 
SOX.  SLAB took the lead and added 3.6% and managing a close over 
$27.  The stock looks strong and we're still gunning for a 
continued channel riding higher to the $29-30 level.  Watch that 
SOX for a breakout or failed rally.  On a move above 300 in the 
SOX, we may be raising our eventual target.  However, if we 
approach that target and the SOX fails at 300, then we may simply 
take our chips off the table.

BUY CALL MAR-20 QFJ-CD OI= 99 at $7.30 SL=3.70
BUY CALL MAR-25*QFJ-CE OI= 982 at $2.95 SL=1.50
BUY CALL APR-22.50 QFJ-DX OI= 280 at $5.70 SL=2.90
BUY CALL APR-25 QFJ-DE OI= 1385 at $4.00 SL=2.00

Average Daily Volume = 1.22 mil


---

TECD – Tech Data Corporation $22.32 (+0.81 for the week)

Company Summary:
Tech Data Corporation is a provider and distributor of
information technology products, logistics management and other
value-added services.  The company distributes microcomputer
hardware and software products to value-added resellers, direct
marketers, retailers corporate resellers and Internet resellers.
TECD and its subsidiaries distribute to more than 80 countries
and serve over 100,000 resellers in the United States, Canada,
the Caribbean, Latin America, Europe and the Middle East.  The
company's broad assortment of vendors and products meets the
customers' need for a cost-effective link to those products
through a single source.

Why We Like It:
Earlier this week, TECD pulled back to consolidate some of its 
rapid gains from the relative low of $19.07.  Buyers moved in at 
the Tuesday lows near $21.00 and pushed the stock up to short-
term resistance at $22.00.  Yesterday's late-session breakout 
above that level had us looking for a test of the short-term high 
at $22.33, and the bulls did not disappoint.  TECD zoomed higher 
on Friday morning before topping out at a new relative high of 
$22.78.  Shares spent the second half of the session trading in a 
tight range near $22.50.  Tech Data finished with a gain of 2.3%, 
easily outpacing the NASDAQ.  Pulling back to the daily chart to 
get a look at the bigger picture, we see that TECD has broken 
above its 21-dma ($22.44) as it continues to fill in the February 
7th gap.  With both the MACD and daily stochastics (5,3,3) 
looking bullish, the stock looks poised to continue its uptrend 
and move closer to our profit-target at $23.99.  Traders looking 
for new entries can watch for a pullback and successful test of 
the $22.00 level, which should now provide support.  Our stop 
loss for this play is now located one cent under Tuesday's low at 
$20.94.


BUY CALL MAR-20 TDQ-CD OI=888 at $3.10 SL=1.55
BUY CALL MAR-22 TDQ-CX OI= 15 at $1.35 SL=0.75
BUY CALL JUN-20 TDQ-FD OI=  3 at $4.60 SL=2.30
BUY CALL JUN-22 TDQ-FX OI=  3 at $3.10 SL=1.55

Average Daily Volume = 1.09 mln


---

ZMH - Zimmer Holdings - $43.96 +0.95 (+2.16 for the week)

Company Summary:
Zimmer, based in Warsaw, Indiana, is a global leader in the 
design, development, manufacture and marketing of reconstructive 
orthopaedic implants and fracture management products. 
Orthopaedic reconstruction implants restore joint function lost 
due to disease or trauma in joints such as knees, hips, shoulders 
and elbows. Fracture management products are devices used 
primarily to reattach or stabilize damaged bone and tissue to 
support the body's natural healing process. Zimmer also 
manufactures and markets other products related to orthopaedic 
and general surgery. For the year 2001, Zimmer recorded worldwide 
revenues of approximately $1.2 billion. Zimmer was founded in 
1927 and has more than 3,600 employees worldwide. (source: 
company release)

Why We Like It:
ZMH has gone into a holding pattern since blasting through 
resistance at $43 and rallying all the way up to a new relative 
high at $45.55.  It has pulled back over $1 since the new high, 
but is still holding onto most of its recent gains. Its new MINI 
- incision knee replacement procedure has been well received, as 
it not only involves less damage to surrounding tissue, but also 
reduces the length of hospital stays following the procedure. 
There has been no material change to the point and figure chart, 
which gave its last buy signal at $43. New entries can be 
targeted on continued support above $44, which is the last 
resistance level the stock encountered and now appears to be 
acting as support.  If that level is broken, then watch for 
support at the buy signal level of $43.

BUY CALL MAR-40 ZMH-CH OI=991 at $4.80 SL=2.40
BUY CALL MAR-45 ZMH-CI OI=1562 at $1.15 SL=0.55
BUY CALL APR-40 ZMH-DH OI= N/A at $5.20 SL=2.60
BUY CALL APR-45*ZMH-DI OI=84 at $1.60 SL=0.80

Average Daily Volume = 1.08 mln


---

BDX - Becton Dickinson - $34.18 +0.76 (+0.10 for the week)

Company Summary: 
Becton Dickinson is a medical technology company that serves 
healthcare institutions, life science researchers, clinical 
laboratories, industry and the general public. BD manufactures 
and sells a broad range of medical supplies, devices, laboratory 
equipment and diagnostic products. For the fiscal year ended 
September 30, 2002, BD reported total revenues of $4.033 billion. 
(source: company release)

Why We Like It: 
BDX continued to build on recent gains today, finishing up 
slightly on the day.  More importantly, however, is that after 
flirting with resistance at $34 over the past several days, BDX 
finally seems to have found support at that level.  The stock 
traded as high as $34.50 intraday and then pulled back with the 
rest of the broader markets in the afternoon.  The difference for 
BDX is that it bounced off $34, before moving higher into the 
close.   While there was no company specific news, the recent 
analysis (Feb. 26) from large-cap fund manager William Batcheller 
of Armada equity group cites several catalysts for BDX's bullish 
potential.  Those include valuations, earnings potential and new 
products. "The company's valuations are attractive at 15 times 
earnings, earnings estimates are going up and the catalyst is a 
new blood glucose monitor it is co-marketing with Medtronic." 
Recall form our last write-up that the PnF bearish resistance 
line sits at $35 and those momentum traders not yet in the play 
may want to wait for a breakthrough of that line before entering. 
With only a mild gain, we will leave our stop in place at $31.98, 
but more conservative traders may want to tighten things up to 
just below recent closing support, possibly at $32.98, now that 
we have seen evidence of newfound support at $34.

BUY CALL MAR-30*BDX-CF OI=268 at $4.60 SL=2.30
BUY CALL MAR-35 BDX-CG OI=268 at $0.60 SL=0.00
BUY CALL APR-30*BDX-DF OI=N/A at $4.60 SL=2.30
BUY CALL APR-35 BDX-DG OI=N/Z at $1.00 SL=0.00

Average Daily Volume = 1.16 mil



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

SYY – Sysco Corporation $27.12 (-1.05 last week)

Company Summary:
Sysco Corporation is a North American distributor of food and
food-related products to the foodservice or
food-prepared-away-from-home industry.  The company provides
its products and services to approximately 415,000 customers,
including restaurants, healthcare and educational facilities,
lodging establishments and other foodservice customers.  SYY
has aggregated its operating companies into five segments, of
which only Broadline and SYGMA are reportable segments.  The
company's other three segments include specialty produce,
meat and lodging industry segments.

Why We Like It:
Based on the last set of earnings results out of the casual
dining sector, it seems clear that consumers are in fact being
more discriminating about how often they are willing to spend
their hard-earned money on eating out.  Rather than try to target
the next restaurant stock likely to break down, why not go right
to the supply chain?  If business is weak in the sector, then
there ought to be clear weakness in the stocks of companies that
supply the restaurants and other eating establishments.  A quick
look at the chart of SYY indicates we just might be onto
something good.  Since August, the stock has built a broad
topping formation, that can be roughly described as a Head &
Shoulders top, with 2 right shoulders and 2 left shoulders.  The
base of that formation (major support) rested at the $27.50-28.00
level and over the last week, this support level has been giving
way on strongly increasing volume.  That volume hit nearly 2.5
times the ADV on Friday, as the stock finally broke below that
supportive neckline.  Just taking the measurement from the
neckline to the top of the head at $33, gives us a downside
measuring objective of $22, which is very close to the extreme
lows seen last July and in September of 2001.  The traditional
PnF chart doesn't yet show a Sell signal, but drilling down to
the $0.50 box size, shows that SYY is on a Sell signal, and the
bearish price objective is $21.50, for a very nice correlation.
With On Balance Volume plunging to its lowest level in over a
year, SYY is clearly under distribution and momentum entries may
be the best way to go, with entries taken on a drop under $26.75
(just below Friday's low).  Traders willing to wait for a
potential bounce before entry will want to watch for a failed
rebound attempt in the $28.00-28.25 area.  That looks like firm
resistance, with the added reinforcement of the 200-dma at
$28.74.  Place stops initially at $29.

BUY PUT MAR-27*SYY-OY OI=2498 at $1.15 SL=0.50
BUY PUT APR-27 SYY-PY OI= 350 at $1.65 SL=0.75

Average Daily Volume = 1.83 mln



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The Option Investor Newsletter                   Sunday 03-02-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: ATK, BBOX, MHK, VZ, UTX
Leaps: The Dangers of Bias
Traders Corner: Preparing For War – Keep A Gas Mask And A 
Straddle Handy


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*****************
CURRENT PUT PLAYS
*****************

ATK – Alliant Techsystems, Inc. $48.30 (-0.59 last week)

Company Summary:
Alliant Techsystems is a supplier of aerospace and defense
products to the U.S. government, America's allies and major
prime contractors.  The company also supplies ammunition to
federal and local law enforcement agencies and commercial
markets.  ATK designs, develops and produces solid rocket
propulsion systems for a variety of U.S. government and
commercial applications.  ATK is the sole supplier of the
reusable solid rocket motors used on NASA's Civil Manned Space
Launch Vehicles.  The company also designs, develops and
manufactures small-, medium- and large-caliber conventional
munitions for the U.S and allied governments as well as for
commercial applications.

Why We Like It:
Regardless of the gyrations in the broad market the Defense
index (DFI.X) just continues its relentless southward trek,
ending the week at a new all-time low, now below $439.  The
logic behind this move seems to be that any war in Iraq will be
short-lived and is unlikely to have any meaningful impact to the
bottom lines of any of the major Defense contractors.  In
Thursday's update, we expressed concern with our ATK play and
its refusal to go along with the sector to the downside.  Well,
that rally attempt that failed below $50 on Thursday, continued
back down towards strong support on Friday, but once again the
bulls defended the $47.50 level.  The relative strength chart of
ATK vs. the DFI index is still in its month-long ascending
channel, so bears still need to be careful with this play.  That
means we don't want to chase the stock lower until ATK can break
convincingly (read:volume) below $47.50.  Until that breakdown
occurs, the best case for new entries is to fade the rally
attempts like we saw on Thursday.  Momentum traders will need
to wait for the breakdown, confirmed by new lows in the DFI
index before playing.  We're lowering our stop this weekend to
$50.50, just above Thursday's intraday high.

BUY PUT MAR-50*ATK-OJ OI=163 at $2.90 SL=1.50
BUY PUT APR-50 ATK-PJ OI=  1 at $3.80 SL=2.25

Average Daily Volume = 622 K


---

BBOX – Black Box Corporation $40.66 (-0.70 last week)

Company Summary:
As a technical services company, Black Box Corp. designs, builds
and maintains network infrastructure systems.  The Black Box
team serves more than 150,000 clients in 132 countries,
providing technical services on the phone, on site and online.
Through its catalogs and Website, the company offers more than
90,000 infrastructure and networking products, and designs and
builds more than 650,000 custom products each year.

Why We Like It:
With the persistent bid in the Technology arena on Friday,
helped in part by Dan Niles raising his estimates on INTC, it
is no great surprise that BBOX managed a decent rebound going
into the weekend.  When we initiate coverage of the play on
Thursday, we were hoping for a bit of a rebound to give us a
better entry, and it looks like that is just what we got.
Gaining just under 2% on the day, BBOX found intraday resistance
just under $41 and that resistance will only intensify as the
stock nears the 200-dma (currently $41.45).  The PnF chart
paints a very clear picture, with the recent selloff from above
$50 to below $40 generating a strong Sell signal and a current
bearish price target of $26.  We're not expecting to achieve
that target in the near term, but once below $38, it looks
entirely possible for the stock to fill its gap in the $33-35
area.  The best case scenario for new entries appears to be a
rollover below the 200-dma, which would be confirmed by the
stock falling back under the $39 level.  Traders looking for a
momentum entry will need to wait for a decline under $38.50, or
possibly the bottom of the 10/17 gap at $37.65 before playing.
We're keeping our stop set at $41.75 for now.

BUY PUT MAR-40*QBX-OH OI=249 at $1.55 SL=0.75
BUY PUT APR-40 QBX-PH OI= 20 at $2.50 SL=1.25

Average Daily Volume = 302 K


---

MHK – Mohawk Industries, Inc. $49.38 (+0.55 last week)

Company Summary:
Mohawk Industries and its subsidiaries, are producers of
floorcovering products for residential and commercial
applications in the United States.  The company is the second
largest carpet and rug manufacturer, and a manufacturer,
marketer and distributor of ceramic tile and natural stone.
Through its carpet and rug business, MHK designs, manufactures
and markets carpet and rugs in a broad range of colors,
textures and patterns and is a producer of woven and tufted
broadloom carpet and rugs, principally for residential
applications.

Why We Like It:
Despite all the volatile gyrations, Friday's session was
essentially a throwaway, at least in terms of our MHK play.
You see, the stock's range has been narrowing over the past
couple weeks, confined by the rising 2-week trendline (now at
$48.90) and the descending 2-month trendline (now at $49.50).
That's a very tight range, and the stock is bound to have a
decisive move out of the pattern soon, perhaps as early as
Monday.  The bulls attempted to break out to the upside early
on Friday, but eventually failed in that attempt, with the
stock dropping just under that upper trendline, ending with a
6 cent gain on the day.  One other technical point is the
declining 20-dma ($50.07) which capped the rally attempt a
couple weeks ago and successfully did so again on Friday.
We've been suggesting new entries into the play on rollovers
below the $50 level and continue to do so.  Those with a more
conservative nature though, will want to wait for a break below
the bottom of that wedge and then a drop under $48 support
before entering.  Maintain stops at $51.10 until we get the
break from that wedge pattern.

BUY PUT MAR-50*MHK-OJ OI=52 at $2.10 SL=1.00
BUY PUT ARP-50 MHK-PJ OI= 3 at $3.20 SL=1.50

Average Daily Volume = 474 K


---

VZ – Verizon Communications $34.58 (-1.06 last week)

Company Summary:
Formed by the merger of Bell Atlantic and GTE, VZ is one of the
world's leading providers of communications services.  As the
largest provider of wireline and wireless communications in the
United States, VZ has 95 million access lines and 26 million
wireless customers.  Outside the United States, Verizon
affiliates serve 6 million wireless customers and operate 4
million access lines in 40 countries throughout the Americas,
Europe, Asia and the Pacific.

Why We Like It:
While the broad market continues to bounce between recent support
and resistance, our VZ play is getting ever closer to the
breakdown we've been anticipating for the past week.  The initial
rebound following the big selloff on February 20th took the stock
up to just above $36 and since then the bears have turned back
each successive rally attempt at slightly lower highs.  The
$35.75 level is looking like an increasingly strong ceiling, and
with another test at $34.25 (the low on 2/20) on Friday, the
expected breakdown seems to be just around the corner.  Selling
volume has been on the rise over the past few days, and if VZ
does trade below Friday's low, we're looking for selling volume
to pick up speed.  Patient traders that have been taking
advantage of the failed intraday rallies over the past week are
sitting in a good position, and they can use the still-declining
10-dma (now at $35.77) to gauge the strength of any rebound
attempt.  Another failed rebound below the 10-dma can still be
used for entering new bearish positions ahead of the expected
breakdown.  If our bearish bias is correct, that level should
hold against any weak rebound attempt.  VZ's persistent weakness
over the past couple days is also encouraging in light of the
action in the North American Telecoms index (XTC.X), which is
holding most of its recent gains from the rebound from below
the $405 level.  The best case for new momentum entries will be
VZ breaking below $34.25 (let's use $34.10 to be safe), in
conjunction with the XTC rolling over again and breaking back
under the $412 level.  The one cautionary note is that $34 is
the PnF bullish support line, so we need to beware of the
potential for a bounce attempt from anywhere in the $33-34
area.  Maintain stops at $36.25.

BUY PUT MAR-35*VZ-OG OI=11630 at $1.60 SL=0.75
BUY PUT MAR-32 VZ-OZ OI= 4009 at $0.75 SL=0.40

Average Daily Volume = 7.23 mln


---

UTX - United Technologies - $59.55 -0.09 (-1.97 for the week)

Company Summary:
United Technologies Corp., based in Hartford, Connecticut, 
provides a broad range of high-technology products and support 
services to the building systems and aerospace industries. 
(source: company release)

Why We Like It:
Traders looking at the end result of UTX's trading day might 
conclude that not much happened.  That would be short sighted, 
however, as the intraday chart tells a much different story.  UTX 
followed an early pattern similar to that of the Dow.  After 
positive economic reports this morning, UTX rallied, reaching a 
high of $59.45, a notch above yesterday's resistance at $59.00.  
That rally looked great on paper, but it was short-lived.  In 
fact, UTX was one of the harder hit stocks in the afternoon fade, 
falling swiftly back down to a re-test of support at $58.00.  The 
stock gave up $1.50 in just a couple of hours, but once again 
bounced just below $58.  That level is proving strong, with 
recent daily lows of $57.85, $57.80 and today's low of $57.95.  
While the stock is looking anything but bullish, we would now 
recommend new entries only on a move below $57.50. While the PnF 
chart registered a new sell signal on the trade of $58, we'd like 
to be sure we don't get caught in a bear trap. The stock still 
has plenty of downside if it can give up that support level and 
if the Dow continues its late day fade on Monday, then there is a 
good chance UTX will test its next support level at $56.  With 
the breakdown of bullish support on the PnF and the new sell 
signal, we are still targeting a bigger move, down to the next 
level of support below $56, which comes in the $50 area. 

BUY PUT MAR-60*UTX-OL OI=1943 at $2.70 SL=1.15
BUY PUT APR-60 UTX-PL OI= 65  at $3.80 SL=1.90

Average Daily Volume = 2.15 mil



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*****
LEAPS
*****

The Dangers of Bias
By Mark Phillips
mphillips@OptionInvestor.com

You know, there just isn't a lot to be said about the current
market action that I haven't already said a dozen times in the
past few weeks.  Rather than focusing on the economy or corporate
earnings, the market has increasingly become fixated on what is
going to happen in Iraq.  Will they disarm or won't they?  Will
the U.S. attack regardless of what transpires at the U.N.  When
will hostilities commence?  How long will it last?  How much will
it cost?  How will it affect the markets?  And on and on...

I have my own opinions and biases but I don't see them as being
germane to my approach to the markets.  I don't have the
slightest desire to attempt trading this rangebound slop.
Bullish Percents are still depressed and showing little sign of
life.  Most weekly Stochastic oscillators are now emerging from
oversold, but there isn't really corresponding price action to
give me confidence that it is anything more than a relaxation
of the oversold condition.  Now if we were to get any sort of
resolution to the Iraq situation, that could change in a hurry,
and my bet would be to the upside.  But the timing is a complete
mystery.

One of my biggest concerns about the likelihood of a sustained
bullish move is the action in the VIX of late.  It seems to be
indicating a distinct lack of concern by market participants,
ending at 34.15 on Friday.  Rather than bore you with a rehash
of my recent commentary on the topic, I'll refer you to my
Options 101 article from last Wednesday.  Here's the link.

Best of Intentions

It is my intention every week to share something that will help
to make us all better and more informed traders.  From that
basis, we should all be more profitable traders as well.  So I
thought we should revisit a past play from the LEAPS Watch List
that (thankfully) we never entered.  With the understanding that
we were likely going to war with Iraq, I had a bullish bias on
the Defense sector and had expectations for a solid rally in
the group leading up to the beginning of hostilities.  My chosen
target for a bullish play was GD, which had consolidated for
several months in an ever-narrowing wedge after plunging
earthward from above the $100 level.  The important point though,
is that I was looking for a bullish play.  Take a look at the
chart below.

General Dynamics (GD) Weekly chart


 

I was looking for a bullish breakout of that wedge pattern, and
it never came.  When price began to edge below the lower edge
of that wedge, I abandoned the play and dropped it from the
Watch List.  Bad Move!!  Dropping it from consideration wasn't
an error, but ignoring the BEARISH possibilities was a huge
oversight.  I even speculated in the LEAPS column on the
possibility that rather than a bottoming formation, the
consolidation could be a bear flag continuation pattern.  If
so, a breakdown out of that consolidation pattern should have
been good for a move in size roughly equal to the move that
preceded the consolidation.  That initial downward move covered
about $30, from $110 to $80.  So a bearish break from that wedge
should have GD vulnerable to the vicinity of $50, right?  Let's
take a look.

General Dynamics (GD) Daily chart


 

Well now, would you look at that.  The wedge broke to the
downside and with a vengeance too.  There's certainly no question
in my mind that long-term puts opened in the $75-80 area would
have performed quite nicely over the past few months.  Why
didn't we play it here in the LEAPS column?  Because I refused
to see both the bullish and bearish possibilities.  I saw that
the bullish scenario that I had envisioned did not appear to be
setting up the way I wanted and dropped the play.  But my BIAS
got in the way of my seeing the real potential, which was to
the downside.

There were definitely some hints that the downside was going to
win, but I ignored them.  The Weekly Stochastics were tipping
bearish before the break and we had already gotten a minor Sell
signal on the PnF chart too.  Blinded by bias is a very dangerous
way to trade.

Take an experienced trader and I'm sure he/she can give you a
hundred stories just like this one.  My intent isn't to elicit
sympathy or pine about what might have been.  There are always
new trading opportunities waiting just around the next bend.  My
hope is that by walking through this example, you can see that
we must always endeavor to leave our bias aside when making
trading decisions, focusing only on the facts.  The second point
I hope is painfully clear is that no matter how experienced a
trader is, they can always miss the proper play because of
focusing so hard on seeing what they WANT TO SEE.  That's what
happened in this case.

All righty then!  Enough history, let's go take a look at the
here and now.  As you're about to find out, there was a lot
that happened last week!

Portfolio:

QCOM - The past two weeks have certainly not been very productive
for our QCOM play, as the stock continues to gyrate between
support ($33) and resistance ($36), much like the rest of the
market.  It seems as though nothing of substance (at least to
the upside) will occur until the geopolitical situation becomes
less murky.  That said, I think we have a favorable entry into
the play and now it is just a matter of waiting.  The 200-dma
appears to be providing solid support and we have our stop in
place down at $30.  Successive dips and rebounds from above the
200-dma can still be used as solid entries into the play, while
we wait and watch for a break from the current range.

DJX - We got our entry early in the week, although I sure would
have preferred that the DJX would have closed nearer to the $78
level on Tuesday (our day of entry) than where it did.
Nonetheless, price action met our entry criterion and we're in.
See below for details.

MSFT - Pretty much the way we scripted it last week, MSFT fell
to within a few pennies of the ascending trendline on Thursday,
and with the slight rebound over $23.50 at the close we had the
entry we were looking for.  Now that the play is live, we watch
and wait, trusting that the analysis we did ahead of time pays
off over next several weeks.

ADBE - Trying to watch too many things last week, I didn't
notice that ADBE actually dipped into our targeted entry zone
on Thursday and then rebounded a bit on Friday.  That rebound
came right on the ascending trendline from the August lows, and
just above strong support near $26.50.  So while I neglected to
point it out in the Market Monitor, we'll take an entry into
the play as of the close on Friday.  More details below.


Watch List:

BEAS - Disappointment over earnings from the prior week coupled
by more weakness in the broad market helped to finally break
our BEAS play below that stubborn support at $10.  In fact, the
stock made it pretty close to the upper edge of our targeted
entry zone, but not quite.  The current rangebound nature of
the broad market is serving to pull many stocks down to major
support and I still think BEAS is going to deliver a better
entry point.  My other reason for not being in a hurry is that
the PnF chart is still looking quite bearish.  I won't be
surprised to see the bullish support line down at $8 tested in
the weeks ahead, but I don't expect much more downside than
that with the weekly Stochastics now getting very close to
oversold.  I know it sounds like a broken record, but patience
is the key.

NVDA - Well that was certainly an interesting week!  On
Tuesday, Bear Stearns was out with a report citing an
aggressive increase in NVDA's wafer orders at Taiwan
Semiconductor (TSM).  Shortly thereafter, Wedbush Morgan cut
their rating on the stock from Buy to Hold.  Then on Friday,
Friedman, Billings, Ramsey trimmed their estimates on the stock
based on their view that the design loss to ATYT at one of
NVDA's prime customers (Micro-Star) is a sign of more to come.
Of course, they only lowered their price target to $11, which
is right where we're looking to get into the play.  As you know,
I view the ratings game as little more than a sideshow, with
the charts giving us the clearest road map of what to expect.
Friday's price action filled one of the gaps from the first
part of February and now our attention turns to the second one,
the top  of which is at $10.95.  Weekly Stochastics are extended
here, and I'm more than happy to wait for NVDA to come to us.
Leave the entry target zone at $10-11.

AA - Did I miss the boat on a solid entry last Tuesday?  AA
dipped as low as $19.60 before short covering lifted the stock
well above the $20 level at the close.  As noted in the Market
Monitor, I want to be stingy on this play.  we're trying to
pick it up on the cheap in anticipation of a solid upward move
wants the broad market shakes off its current malaise.  The
better our entry point, the lower our risk in the play.  So I
really wanted to see what would happen closer to the bottom of
our entry zone and opted to let it go last week.  I still think
that's the preferred way to go, so I'm leaving the entry target
unchanged.  For those of you that may have entered on the
rebound following Tuesday's dip, there's nothing wrong with
that entry at all.  I'm just trying to err on the side of
caution in what has become a wild and wooly market.  Stops
should be set at $17.50 for those already in the play.

I could have just copied my final statements from last week and
they would have fit just fine.  To recap, we're unlikely to see
any strong movements in the market until there is some sort of
resolution to the international situation.  In the meantime, our
best approach is to initiate bullish positions when the stocks
come into our sights.  But you can bet, I won't be playing the
chase game over the near term.  Watch that VIX!  I think it may
have some surprises in store for us before too terribly long!
And at the risk of sounding like a broken record, please keep
those position sizes small, as risk is high for both the bulls
and the bears.

Have a great weekend!


Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
QCOM   02/14/03  '04 $ 40  LLU-AH  $ 4.60  $ 4.30  - 6.52%  $30
                 '05 $ 40  ZLU-AH  $ 7.90  $ 7.60  - 3.80%  $30
DJX    02/25/03  '03 $ 80  DJX-LB  $ 6.40  $ 6.70  + 4.69%  $74.50
                 '04 $ 80  YDJ-LB  $ 9.30  $ 9.70  + 4.30%  $74.50
MSFT   02/27/03  '04 $ 25  LMF-AE  $ 3.20  $ 3.20  + 0.00%  $21
                 '05 $ 25  ZMF-AE  $ 5.10  $ 5.10  + 0.00%  $21
ADBE   02/28/03  '04 $ 30  LAE-AF  $ 4.70  $ 4.70  + 0.00%  $24
                 '05 $ 30  ZAE-AF  $ 7.50  $ 7.50  + 0.00%  $24


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BEAS   12/22/02  $8.50-9.00    JAN-2004 $ 12  LZP-AV
                            CC JAN-2004 $ 10  LZP-AB
                               JAN-2005 $ 12  ZWP-AV
                            CC JAN-2005 $ 10  ZWP-AB
NVDA   02/02/03  $10-11        JAN-2004 $ 12  KMF-AV
                            CC JAN-2004 $ 10  KMF-AU
                               JAN-2005 $ 12  XMF-AV
                            CC JAN-2005 $ 10  XMF-AU
AA     02/23/03  $19-20        JAN-2004 $ 22  KJP-AX
                            CC JAN-2004 $ 20  KJP-AD
                               JAN-2005 $ 25  XAP-AE
                            CC JAN-2005 $ 20  XAP-AD
EMC    03/02/03  $6.50-7.00    JAN-2004 $  7  LUE-AU
                            CC JAN-2004 $  5  LUE-AA
                               JAN-2005 $  7  ZUE-AU
                            CC JAN-2005 $  5  ZUE-AA


PUTS:
None


New Portfolio Plays

DJX - Dow Jones Industrials $79.09  **Call Play**

Simply amazing!  When I added DJX back onto the Call side of
the Watch List 2 weeks ago, the closing price was $79.09.  We
were looking for an entry into the play on a rebound from the
$77.50 level and got that handed to us on a silver platter on
Tuesday.  After an early drop to just above $77, the DJX traded
sideways through the middle of the day and I commented in the
Market Monitor that a close over $78 would be the confirmation
we needed to enter the play.  Sure enough, we got a nice upward
move at the close, much more than I had expected.  Not only did
the DJX close above $78, it actually pushed through the $79 level
by the close!  Specifically, DJX closed at $79.09 -- what are the
odds?  I had hoped to log an entry closer to the $78 level, but
hopefully those of you that followed my comments in the Market
Monitor were able to grab that entry before the end of the day.
As is our policy in tracking Portfolio plays, our entries and
exits are always taken at the close.  So where are we now?  After
that bounce on Tuesday, the DJX has continued to bounce around
in its current range as the countdown to war continues.  Weekly
Stochastics have now firmly turned up, and it appears there is a
persistent bid in the market in anticipation of a quick
resolution to any war in Iraq.  While everything looks good right
now, I can't begin to guess if this was a good entry or not.
Geo-political news has been trumping technicals for weeks now.
We've done the best we can to pick a good entry and now it is up
to the market to confirm the wisdom of our decision.  I would
still use successive rebounds from the $76-77 area as new entry
points into the play, as that seems to have as much likelihood
as a pre-war breakout over that first major level of resistance
at $81.50.  Until the DJX is able to break from its current
range, we'll work with a rather wide stop at $74.50.

BUY LEAP DEC-2003 $80 DJX-LB $6.40
BUY LEAP DEC-2004 $80 YDJ-LB $9.30

MSFT - Microsoft Corp. $23.58  **Call Play**

Now that's a lot closer to the type of entry I was looking for!
After realizing that the critical support level for MSFT was
likely to be along the ascending trendline from the July and
October lows, I raised the entry target on the play to the
$23.00-23.50 level.  By late last week, that trendline had risen
to the $23.25 level and coincided nicely with the stock dipping
as low as $23.30.  I noted in the Market Monitor that if the
stock could rebound back over the $23.50 level by the close,
we'd list it as an entry point and Voila!  We got that entry by
only 8 cents.  Pretty close to ideal if you ask me.  Now all we
have to do is wait for the market to shake off its pre-war funk
and get moving higher and MSFT ought to go along for the ride.
I'm not harboring any ideas of a huge PC replacement cycle
looming on the horizon, but once past the war-uncertainty I do
expect businesses to loosen their purse strings enough to give
MSFT that boost we're waiting for.  But just to be clear, this
is a bottom fishing expedition, as there isn't so much a sign
of strength on the charts, as there is a lack of weakness.
Additionally price is at a level where it is very easy to
manage risk, and it looks like a decent rebound from these
levels could easily take us up to challenge the $29 resistance
again.

BUY LEAP JAN-2004 $25 LMF-AE $3.20
BUY LEAP JAN-2005 $25 ZMF-AE $5.10

ADBE - Adobe Systems, Inc. $27.50  **Call Play**

Despite some weakness early in the week, the Software index
(GSO.X) held above the important $102 support level throughout
the week.  Pressured by that weakness in its sector, ADBE fell
right to its ascending trendline (just below $27) and rebounded
into the close on Friday.  I didn't even notice until writing
the column this weekend that ADBE had fallen into our target
entry zone, and when I saw that the rebound from the trendline
also coincided with a rebound from the 50-dma ($26.88), I had
no choice but to list it as a new Portfolio play.  This play is
very simple.  ADBE has been showing good relative strength
compared to the GSO index, which has in turn show good strength
relative to the broader NASDAQ Composite.  Not only that, but
ADBE is showing some encouraging signs with weekly Stochastics
just recently completing a short-cycle bullish reversal and On
Balance Volume looking pretty strong on the daily chart.  Throw
in a bullish looking PnF chart with a current bullish price
target of $50, and ADBE definitely has the potential to lead
to the upside once the market breaks out of its current range.
Our entry was logged as of the close on Friday, and successive
rebounds from the vicinity of the 50-dma look good for new
entries next week.  To leave room for more wild gyrations
driven by the geopolitical situation, we're initially placing
our stop at $24, which is just below support that has held up
well for the past four months.

BUY LEAP JAN-2004 $30 LAE-AF $4.70
BUY LEAP JAN-2005 $30 ZAE-AF $7.50


New Watchlist Plays

EMC - EMC Corporation $7.39  **Call Play**

Despite its recent failure at resistance, EMC is a technology
stock that I think has some real possibilities over the next
year.  It isn't going to move fast, but based on the price
action over the past year and the steady, albeit pedestrian,
improvement in earnings, I think we've seen the bottom for this
stock.  You've probably noticed that Jim has recently added the
stock to his Powerball Lottery list and we recently had it listed
on the regular Call list.  I'm in no hurry to take a position in
the stock, as I think we'll likely see another dip below $7
before the next upward push gets underway.  Major support exists
near the $6 level and there is significant resistance (both
historical and from the year-long descending trendline near
$8.50.  Our goal is going to be to enter the play as close to
support as possible and hold through the gyrations until the
bulls can effect a breakout over resistance.  The PnF chart still
looks bullish and has a price target of $15.50.  Interestingly,
the bearish resistance line currently resides at $15, so that
will be our target on the upside.  It would take a trade of
$5.50 to negate that price target, so we're going to look for a
favorable entry in the $6.50-7.00 area, setting stops at $5.50.
The reason I'm not in a hurry to enter the play is that weekly
Stochastics are just starting to tip bearish and I expect we'll
see some near-term weakness to allow us to enter at a better
risk/reward price point.  You'll notice that this is a recent
theme in the LEAPS column, as we are trying to take entries
into bullish plays near major support, which will allow us to
benefit from a longer-term move than has been possible in the
volatile gyrations that have been so common over the past
several months.

BUY LEAP JAN-2004 $7 LUE-AU
BUY LEAP JAN-2004 $5 LUE-AA **Covered Call**
BUY LEAP JAN-2005 $7 ZUE-AU
BUY LEAP JAN-2006 $5 ZUE-AA **Covered Call**


Drops

None


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

Preparing For War – Keep A Gas Mask And A Straddle Handy
By Mike Parnos, Investing With Attitude

The world, and the financial markets, are waiting on pins and 
needles.  Well, maybe not are on pins and needles.  CPTI students 
are waiting on their sofas and La-Z-Boys.  It won’t be long 
before the kielbasa hits the fan.  We want to have the bread and 
mustard ready.

With a large market move pending as we wait for war or for 
terrorists to do their thing, let’s look at a way we can position 
ourselves to take advantage of the inevitable reaction.  Can we 
trust the markets to react?  About as much as we can trust Winona 
Ryder in a department store.
______________________________________________________________

The CPTI Straddle
Though this is familiar territory for many CPTI students, let’s 
review a sample of our low risk straddle strategy using the QQQs. 
(This is a hypothetical position in response to reader requests.  
It is not an official CPTI Portfolio position).
 
With the QQQs trading at $25.16 we’ll:
1. Buy the September QQQ $25 calls for $3.00
2. Buy the September QQQ $25 puts for $2.70
Total out-of-pocket: $5.70

What Is Our Risk?
These puts and calls have a seven-month life.  As you know, 
options are wasting assets.  Their erosion of time premium takes 
place on a curve.  Only a small amount of erosion takes place 
during the early part of the option.  Most of the value is lost 
rapidly during the option’s last month.

Since we’re only going to be in our CPTI straddle for 30 days (or 
less), we’re only risking about 15% of the total cost ($5.70) of 
the straddle, or about $.85.

How Do We Make Money?
In a straddle we’re long both the put and the call.  When a 
straddle is placed ATM (at-the-money), the deltas of both the 
puts and the calls are about 50%.  When the QQQs go up $1, the 
September $25 call will go up $.50.  As the QQQs continue to move 
up further, the delta increases as well.  However, the delta of 
the QQQ $25 decreases more slowly than the delta of the QQQ $25 
call goes up.  For example:  If the QQQs move to $27, the $25 
call might now have a delta of about 65% while the $25 put may 
have a delta of 42%.

Also in our favor would be volatility.  When a large move is 
made, volatility is increased.  When volatility increases, so 
does time premium – on both the puts and the calls.  So, when the 
move happens, the value of the options could increase – which 
will help offset some of the value that has eroded away while 
waiting for the move. 

We’re not dealing with huge dollars here.  But, then again, we’re 
not risking much either.  As you can see, it would require a 
substantial move to be very profitable.  But a $.50 profit on an 
$.85 risk is a huge percentage.

Ways Of Exiting The Straddle
There are a few different ways to exit the straddle.
1.  Let’s assume that we get a large move in one direction or the 
other.  When you hit your profit target, you can liquidate both 
the puts and calls and take your profits.  It’s pretty cut and 
dried.

2.  Once again, for example, let’s assume we get a large move up.  
The $25 call is now worth $5.70 and the $25 put is worth $.75 
with two weeks left until our 30-day exit limit.  You can sell 
the $25 call for $5.70 – that pays for the entire trade.  

Instead of selling the $25 put and taking a $.75 profit, you 
could hold the $25 put in anticipation of a reverse in the QQQs.  
It’s a free trade, but keep in mind that you are risking your 
profits (and picking a direction), which is something we’re 
reluctant to do.  If profits aren’t taken, they tend to disappear 
faster than a pint of Haagen Daze from my freezer.

3.  If we don’t get a major move within our 30-day time limit, we 
unwind the position and take our loss – hopefully near the 
projected $.85.  That’s where our self-discipline comes into 
play.  It’s risk management.  It’s money management.  And it 
keeps us in the game.

If the scenario changes (a peaceful settlement, etc), reducing 
the likelihood of a large move, there is no need to wait the full 
30 days (though you can).  If the reason for the trade is no 
longer viable, take your risk off the table.  If it’s not on the 
table, it won’t get eaten.

Some other indexes/stocks may provide more lucrative returns.  
However, they might require tying up more funds and putting more 
time value at risk.  

CPTI Straddle Checklist
I have created a checklist (a MS Word document) for the CPTI 
Straddle that will enable you to fill in the blanks and better 
evaluate a potential trade.

For those of you who haven’t already received a checklist, I 
invite you to email your request to me and I’ll email you the 
document.  Make copies.  It can only help.
_____________________________________________________________

New Position Preview:
I’m thinking seriously of adding a new position to the CPTI 
Portfolio.  It’s not official, but I’m leaning toward an April 
Iron Condor on our old friend BBH -- with a range of $80-$95.  
I’ll let you know in Thursday night’s column.  If you have any 
thoughts or alternative ideas for new trades, send them along.  
Let’s discuss them. 
_____________________________________________________________

CPTI Portfolio Update
Position #1 – OEX Bull Put Spread – Trading at $425.36.
Believing the market is not likely to go down to retest its July 
and October lows near 400, we sold 10 contracts of the OEX March 
400 puts and bought 10 contracts of the OEX March 390 puts for a 
credit of $1,400.

If war breaks out, it might be a quickie.  The market may spike 
up.  How high?  Who knows?  That’s why we didn’t put a bear call 
spread on top to create an Iron Condor.  We may put on the bear 
call spread at a later date.
______________________________________________________________

Position #2 – XAU Iron Condor – Trading at $71.99.
An Iron Condor is a credit position consisting of both a bull put 
spread and a bear call spread. The collected premium will come 
into your account the very next business day.  The objective is 
for the underlying, at expiration, to finish anywhere within the 
spread. 

So we created an Iron Condor with a 15-point range $65 to $80 for 
March.  We were able to place spread orders and increase our 
credit by $.30 to a total of $1,400 for our 10-contract position.
_________________________________________________________________ 

Position #3 -- OIH -- Diagonal Calendar Spread – Trading at 
$57.75
It seems that there’s about $8-9 of uncertainty built into the 
price of a barrel of oil.  When, and if, the war is resolved, the 
price of oil should work its way down, along with the price of 
oil stocks.

We bought 10 contracts of the July OIH $55 puts and sold 10 
contracts of the March OIH $50 put at a debit of $3.85.  We have 
five months to sell short-term puts and reduce our cost basis 
while we’re waiting for oil to fall.
______________________________________________________________  

Position #4 -- QQQ ITM Strangle – Currently trading at $26.16.
This is a long-term position we created two months ago to 
generate a monthly cash flow.  We own the January 2005 $21 LEAPS 
call and the January 2005 $29 LEAPS puts.  We sold 10 contracts 
of the QQQ April $28 calls and 10 contracts of the QQQ April $22 
puts for a credit of $950.  We moved our short sells in by one 
point because a lot of premium has disappeared from the QQQs in 
the last two months.  Never fear, it will be back.
______________________________________________________________

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


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The Option Investor Newsletter                   Sunday 03-02-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: You Can Be Successful In The Stock Market!
Naked Puts: More Q&A With The Editor
Spreads/Straddles/Combos: Stocks Drift Higher As Bears Digest Recent 
Gains

Updated In The Site Tonight:
Market Watch: Bullish Candidates
Market Posture: Out of Gas or Finding Support?


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call 1-888-889-9178 or click for more information.

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*************
COVERED CALLS
*************

Trading Basics: You Can Be Successful In The Stock Market!
By Mark Wnetrzak

The dilemma facing many investors is simple: they want to own
good stocks but yet they are afraid to buy amid bearish market
conditions.

History suggests that most market participants who use proven
investing strategies will easily average 15-20% profit on an
annual basis.  Over the long-term, a 10-12% annual return is
more typical for broad-market stocks, but the results can be
improved with careful selection criteria.  The key to success
is to become proficient with the various types of analysis and
use the one that best suits your skill level, risk tolerance
and portfolio outlook.

When professional traders discuss common traits, you will often
hear how important it is to understand the elements of technical
analysis and basic market timing.  At the same time, many older
investors are more comfortable with fundamental analysis.  That
is the process where one attempts to forecast the future profits
of a company by analyzing their market share, revenue and sales,
pricing structure, and other components regarding the operation
of the company's business.  Technical analysis, which is loosely
defined as the study of historical prices and chart trends, has
nothing at all to do with the daily operations of the company.
Instead, technical analysis of past price patterns is used to
help predict the future direction and magnitude of a company’s
share value.  Although each style is frequently viewed as less
than adequate by the opposing group, there is an inherent value
in both methods and either approach can yield favorable results.

Technical analysis is generally the more common technique among
option traders and it is better suited to markets with extreme
volatility and unusual conditions, since it offers superior
methods for timing position entries and exits.  Unfortunately,
new investors are so overwhelmed by the incredible number of
chart patterns and indicators, they overlook the most common
rule for achieving consistent profits; buy low and sell high!
At the same time, fundamental analysis can provide an accurate
picture of the long-range outlook, but it is miserably late in
predicting the near-term movement of stock prices.  However,
analyzing the value of a company can help to forecast potential
profits (or losses) and in the end, earnings usually determine
share value.  Quarterly reports will also affect the short-term
outlook for a stock and the most significant changes occur when
a company reports earnings that are different from the analysts’
consensus estimates.  As we have seen in recent weeks, even a
"met expectations" report will inevitably cause a stock's value
to fall as soon as the information becomes public.  When this
happens, brokerages are often quick to change their opinions on
the company, downgrading the issue and causing further damage to
the stock price.  This is one of the occasions when fundamental
analysis can be helpful in a short-term trading scenario.

While technical and fundamental analyses are important, it is
also imperative to approach any investment activities with the
right attitude and expectations, as well as a working knowledge
of the stock market and a basic understanding of the techniques
that are most successful in the long run.  Here are some common
guidelines that will help avoid the pitfalls of stock ownership.


Before opening any position:

Check the overall market indicators for direction.  Analyze the
sector and industry group in which your issue resides.  Study the
performance of similar issues and make sure it coincides with
your outlook.  Choose only those stocks with the most favorable
technical formations.  Once you have a candidate in mind, do your
homework!  Know the company and the calendar; any upcoming events,
earnings dates, and scheduled announcements.
 

Before entering an order:

Double-check the chart!  Make sure you are absolutely ready to
own the issue at the target price.  Don't buy a stock that's in a
downtrend (Stage IV) and never open a position right after good 
news, especially if the chart shows a significant advance prior to
the announcement.  Never buy a stock just because it appears cheap 
after a big sell-off.  Always use simple, proven techniques and
develop target prices for potential plays.  Take the human factor
out of trading by using "limit" and "good-until-cancelled" orders.
When news or events change the character of the play, make the
necessary adjustments to avoid losses or lock-in gains.


After you have established a position:

The #1 rule: Know your exit point and use a mental or mechanical
stop.  Stay informed by monitoring all the news and announcements
affecting your issue.  Never hold on to a stock in an established
downtrend, no matter how fundamentally sound the company appears
to be. ("Hope" can be an expensive emotion!)


Closing the position:

Determining when to exit a play is a matter of personal preference
and you are the only one who can decide how you will trade.  The
best advice is, be consistent!  If you find that you're frequently
buying and selling in similar situations, something is wrong with 
your system.  There are a number of proven techniques for managing
portfolio positions and maximizing gains while limiting losses is
an important aspect of successful investing.  The most difficult
lesson is learning to close losing positions.  It can be painful
but the simple fact is: There is no reason to hang on to a losing
position when there are so many other profitable positions that
deserve your time and money.  Accept your losses, learn from your
mistakes and evaluate each one critically, then move on.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

ADLR    13.07   12.69  MAR 12.50  1.80    1.23*  11.9%
CBST     7.57    8.22  MAR  7.50  0.75    0.68*  10.8%
EMIS     5.48    5.62  MAR  5.00  0.90    0.42*   8.0%
IMCL    13.72   13.33  MAR 12.50  2.00    0.78*   7.2%
EMIS     5.66    5.62  MAR  5.00  1.10    0.44*   7.0%
JDSU     2.68    2.87  MAR  2.50  0.40    0.22*   7.0%
SEPR    11.17   12.36  MAR 10.00  1.90    0.73*   6.8%
RSAS     5.90    7.08  MAR  5.00  1.25    0.35*   6.5%
ASKJ     5.86    6.89  MAR  5.00  1.25    0.39*   6.1%
MCDT     8.42    8.30  MAR  7.50  1.30    0.38*   5.8%
OVTI    16.83   19.00  MAR 15.00  2.55    0.72*   5.5%
GLW      5.18    4.92  MAR  5.00  0.55    0.29    5.4%
RMBS    14.76   15.18  MAR 12.50  2.85    0.59*   5.4%
ARRS     5.14    4.80  MAR  5.00  0.60    0.26    5.0%
NFLX    14.24   17.11  MAR 12.50  2.30    0.56*   4.1%
MSTR    21.28   19.30  MAR 20.00  2.60    0.62    3.6%
ALA      7.58    7.09  MAR  7.50  0.65    0.16    2.0%
DNDN     5.50    4.10  MAR  5.00  0.85   -0.55    0.0%
CRY      8.25    6.25  MAR  7.50  1.25   -0.75    0.0%

*   Stock price is above the sold striking price.

Comments:

Two weeks later and nothing has changed!  Can I go back to
Hawaii now?  Many of the March positions appear to be holding
up fairly well as the Iraqi situation slowly, very slowly, 
unfolds.  A couple stocks appear to be faltering and could
be early exit candidates:  Microstrategy (NASDAQ:MSTR) has
failed to move above the early FEB high; Alacatel (NYSE:ALA)
is testing its 50- and 150-dmas; Dendreon (NASDAQ:DNDN) had a
bad reaction to its merger agreement with Corvas (NASDAQ:CVAS);
and Cryolife (NYSE:CRY) continues to seesaw back and forth as
it now must address FDA concerns surrounding SynerGraft.  

 
NEW CANDIDATES
*********

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

HHL    12.57  MAR 12.50   HHL CV  0.75 188   11.82   21   8.3% 
IMCL   13.33  MAR 12.50   QCI CV  1.50 1671  11.83   21   8.2% 
TIVO    5.60  MAR  5.00   TUK CA  0.85 106    4.75   21   7.6% 
FEIC   15.70  MAR 15.00   FQE CC  1.40 36    14.30   21   7.1% 
MRVL   20.60  MAR 20.00   UVM CD  1.35 9799  19.25   21   5.6% 
OVTI   19.00  MAR 17.50   UCM CW  2.15 755   16.85   21   5.6% 
SBL    10.58  MAR 10.00   SBL CB  0.85 1553   9.73   21   4.0%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
HHL - Hurricane Hydrocarbons  $12.57 *** The Hedge! ***

Hurricane Hydrocarbons (NYSE:HHL) is an international energy firm
engaged in the exploration, development, production, acquisition,
refining and marketing of oil and refined products in the Republic
of Kazakhstan.  As of January 1, 2002, the company's proved plus
probable reserve base had been assessed at 512 million barrels.
Hurricane's dominant position in exploration and production (E&P)
operations is evident through its participation in 87% of the E&P
licenses in the 80,310 kilometers of Turgai Basin.  The basin is
located in South Central Kazakhstan, approximately 1,300 km west
of Almaty.  The company has interests in 10 fields, five that are
producing (Kumkol South, South Kumkol, Kumkol North, Qyzylkiya and
Akshabulak), three that are under development (Aryskum, Maybulak
and East Kumkol) and two that are in the appraisal stage (Nurali
and Aksai).  Shares of Hurricane Hydrocarbons continue to climb
higher ahead of the company's quarterly earnings, due on 3/5/03.
Investors can use this position hedge against the broader market
as the threat of war grows and the price of oil climbs.

MAR 12.50 CALL HHL-CV LB=0.75 OI=188 CB=11.82 DE=21 TY=8.3% 


*****
IMCL - ImClone  $13.33   *** Rally Mode! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers.  The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow.  In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors.  IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.  IMCL's shares rallied last week amid optimism that new
data about the company's experimental cancer drug Erbitux will be
released shortly and prove positive.  ImClone's European partner,
Merck KGaA has been conducting its own trials of the drug and now
expects to file for European marketing approval of Erbitux in the
first half of this year, probably in advance of the annual meeting
of the American Society of Clinical Oncology in May, where it will
present its data.  U.S. regulators have said they will consider
reviewing the drug based on the results of Merck's upcoming report.

MAR 12.50 CALL QCI-CV LB=1.50 OI=1671 CB=11.83 DE=21 TY=8.2% 


*****
TIVO - TiVo  $5.60  *** Forget Your VCR! ***

TiVo (NASDAQ:TIVO) is engaged in the personal television industry.
The company has created a personal television service that allows
viewers to watch what they want when they want.  The TiVo Service
is a subscription-based service enabled by a personal video recorder
designed and developed by the company.  The TiVo Service provides
viewers with greater control, easier navigation and a wider range
of viewing options when watching television than what was formerly
available.  It also creates a new platform that enables television 
programmers, advertisers and network operators to deliver television
programming, advertising and in-home commerce.  TiVo has been in a
trading range around $5 for a couple years and this position offers
investors a conservative entry point from which to speculate on 
the company's future.  Try target shooting a lower "net-debit" to 
lower the cost basis and raise the potential return.  TiVo, whose
president recently resigned, will report earnings on March 6.

MAR 5.00 CALL TUK-CA LB=0.85 OI=106 CB=4.75 DE=21 TY=7.6% 


*****
FEIC - FEI Company  $15.70  *** Bottom-Fishing! ***

FEI Company (NASDAQ:FEIC) is a supplier of equipment and solutions
to the high-growth segments of the semiconductor, data storage and
industry and institute markets.  The company's solutions are based
on a combination of patented and proprietary technologies that
produce highly focused electron and ion beams.  These solutions
enable FEI's customers to view and analyze structures in three
dimensions and to measure, analyze, diagnose and modify sub-micron
and atomic structures below the surface in semiconductor wafers and
devices, data storage components and biological and industrial
materials.  This enables the firm's customers to develop products
faster, control manufacturing processes better and improve their
production yields.  FEI's Structural Process Management Solutions
include focused ion beam equipment, scanning electron microscopes,
transmission electron microscopes and also DualBeam systems, which
combine the various microscopes on a single platform.  In January,
FEI and Veeco Instruments (NASDAQ:VECO) terminated their $1 billion
merger due to difficult market and economic conditions and traders
reacted favorably to the news.  The technical outlook for the issue
suggests excellent upside potential and reasonable support near the
cost basis in this conservative position.

MAR 15.00 CALL FQE-CC LB=1.40 OI=36 CB=14.30 DE=21 TY=7.1% 


*****
MRVL - Marvell Technology  $20.60  *** Post-Earnings Rally!  ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and 
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.  This week, Marvell posted
a sharply narrower 4th-quarter net loss and said revenue jumped
82%.  Investors were pleased and the stock rallied strongly on
Friday.  This position offers a low risk entry point for those
investors who wouldn't mind having Marvell Technology in their
long-term stock portfolio.

MAR 20.00 CALL UVM-CD LB=1.35 OI=9799 CB=19.25 DE=21 TY=5.6% 


*****
OVTI - OmniVision  $19.00  *** New 2-year High! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OmniVision Technologies exceeded consensus
earnings estimates of $0.10 per share and revenue projections of
$22.2 million, aided by exceptionally strong demand from makers
of digital still cameras and cameras for cell phones.  The stock
has jumped to a new 2-year high on heavy volume which suggests,
market permitting, higher future prices.  Investors can use this
position to speculate conservatively on the company's future.

MAR 17.50 CALL UCM-CW LB=2.15 OI=755 CB=16.85 DE=21 TY=5.6%
 

*****
SBL - Symbol  $10.58  *** Forging A Base ***

Symbol Technologies (NYSE:SBL) is a global provider of wireless
networking and information systems that allow users of its products
to access, capture and transmit information over LANs, WANs and the
Internet.  Symbol offers in-house technology for the design and 
manufacture of products in its three core technologies: bar code
reading devices, mobile computing devices and network systems.
The company is engaged in two reportable business segments: the
design, manufacture and marketing of scanner integrated mobile
and wireless information management systems, and the servicing of,
customer support for and professional services related to these
systems.  Investors were pleased with Symbol's higher quarterly
profit when the company reported earnings on February 13.  We 
simply favor the basing formation which offers a relatively low
risk entry point in the issue.

MAR 10.00 CALL SBL-CB LB=0.85 OI=1553 CB=9.73 DE=21 TY=4.0%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ENTU    2.76  MAR  2.50   EXH CZ  0.50 19     2.26   21  15.4% 
BONZ    7.62  MAR  7.50   QBN CU  0.50 25     7.12   21   7.7% 
CMVT   10.20  MAR 10.00   CQV CB  0.70 3764   9.50   21   7.6% 
VECO   15.27  MAR 15.00   QVC CC  1.00 328   14.27   21   7.4% 
CVC    17.79  MAR 17.50   CVC CW  1.05 10601 16.74   21   6.6% 
ERES   21.04  MAR 20.00   UDB CD  1.85 27    19.19   21   6.1% 
SCSS   10.45  MAR 10.00   QSL CB  0.85 191    9.60   21   6.0% 
CGNX   22.70  MAR 22.50   QCG CX  1.05 33    21.65   21   5.7% 
ISIL   15.65  MAR 15.00   UFH CC  1.20 817   14.45   21   5.5% 
COF    30.97  MAR 30.00   COF CF  2.05 11019 28.92   21   5.4% 
OMG     8.46  MAR  7.50   OMG CU  1.20 2781   7.26   21   4.8% 
CBST    8.22  MAR  7.50   UTU CU  0.95 254    7.27   21   4.6% 
DIGE   16.59  MAR 15.00   QDG CC  2.00 695   14.59   21   4.1%


*****************
NAKED PUT SECTION
*****************

Options 101: More Q&A With The Editor
By Ray Cummins

Last week’s article concerning risk-reward with uncovered
options generated some excellent E-mails from our readers.


Attn: Naked-Puts Editor
Subject: An Opinion On Risk-Reward

Hi Ray:
 
Your strategy, if I understand you correctly, is [to achieve]
small, consistent gains on selling naked puts while trying to
avoid a major loss.
 
I have thought of your strategy often in the last several days.
You may wish to go to alfatrading.com and click on track-record.
This service has an outstanding record of selling naked options
on commodities.  They have multiplied their investment almost
five times in a little over a year.  Their track-record was so
compelling that I was prepared to close my eyes and take their
trades.  However, they recently suffered a major loss on one
trade (natural gas $12,500) of twenty five percent of their
account.  That is too much risk for me.
 
Thanks for the great columns.

JS


Hello JS,

Indeed, the strategy of writing deep-out-of-the-money options is
based on a high probability of achieving a small profit.  With
that approach, there will always be a few large losers, thus one
requirement for success is to prevent them from being "catastrophic"
to your portfolio.  The best way to accomplish that task is through
diversity, both in the number of contracts per position and in the
underlying industries/sectors selected for each position.  Another
key to consistent profits with "premium selling" strategies is to
understand the statistical nature of the strategy, which suggests
that careful play selection and diligent position management can
produce (over time) a reasonable return on investment.  However,
this technique is not for everyone and most professional traders
admit that it is one of the most difficult strategies to master
(due to human emotions) in the options market.

Fortunately, there are plenty of other ways to trade and I hope you
find one that works for your specific style and risk-reward outlook.

I wish you much success!

Ray



Attn: Naked-Puts Editor
Subject: Finding The Right Strategy

Ray,

Your article of last week was very informative and you talked
about many of the things I already know about selling naked puts.
My problem is not with that strategy but in deciding what type
of trading to do in the current market, since it is not really
conducive to writing puts -- you will probably own the stock.

I have actually bought a few puts in recent weeks past but a
bit late as the premiums were high and the downside moves were
not as great as we had in early 2002 -- when I should have been
buying puts instead of selling them.

What are your thoughts on how to determine the best techniques
for trading options in the conditions we have right now?

EL


Hello EL,

The primary consideration for most option traders is risk versus
reward.  In the derivatives market, buyers of options have limited
risk and unlimited reward while sellers of options have limited
reward and unlimited risk.  With this single perspective in mind,
it's obvious why the majority of retail traders simply "buy"
options.  At the same time, most investors would never consider a
position with unlimited risk and yet few understand that almost
any trade that isn't fully hedged entails enormous speculation.
A violent adverse move that doesn't allow for timely adjustments
can quickly reduce any position to a fraction of its initial value.
With this fact in mind, it's easy to understand why buying options
is also one of the most difficult strategies to master when the
market trend is not clearly defined.  It also makes you wonder why
traders would take an outright long or short option position under
anything but the most optimal circumstances.  The only possible
explanation is they believe the probability of complete and total
(catastrophic) loss is very small and the potential for profit is
worth the risk.

The average investor will normally do well with a position that
has limited risk and the potential for large profits because one
successful trade can easily offset a series of limited losses.
An aggressive trader who is willing to take larger risks for the
opportunity of making greater profits will probably buy index or
equity options.  The conservative investor, on the other hand,
should probably not be an outright buyer of options.  For him or
her, a spread or LEAPS position with moderate profit potential
and reduced risk would be more appealing.  The wealthy investor
might be attracted to methods that offer the opportunity to earn
regular income against portfolio collateral.  Writing uncovered
(out-of-the-money) options may solve his needs.  Some investors
want very low maintenance plays with a chance to make reasonable
profits without risking excessive amounts of money.  Conservative
combination positions on stock indexes would probably appeal to
this group.

The most important concept successful option traders understand is
that the risk-reward characteristics of a position are not the only
considerations.  Equally important is the probability of profit or
loss.  When one evaluates a prospective position, the likelihood of
each possible outcome must be factored into the assessment.  After
this evaluation has been made, another question must be resolved:
Is the reward, even a limited one, sufficient to offset the risk?
If the answer is not a resounding "affirmative," then it is probably
best to repeat the process until a satisfactory candidate emerges.

Good Luck!
                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

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.

Stock   Price   Last    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

MSTR    20.83   19.30  MAR 17.50  0.80    0.80*  12.0%   4.2%
CGNX    22.62   22.70  MAR 17.50  0.55    0.55*   9.4%   2.8%
MSTR    20.69   19.30  MAR 17.50  0.75    0.75*   9.3%   3.2%
SRNA    15.07   15.00  MAR 12.50  0.30    0.30*   8.7%   2.7%
RMBS    13.69   15.18  MAR 10.00  0.30    0.30*   8.6%   2.7%
OVTI    16.55   19.00  MAR 12.50  0.35    0.35*   8.3%   2.5%
XLNX    23.04   22.90  MAR 20.00  0.50    0.50*   8.1%   2.8%
MDCO    16.92   18.94  MAR 15.00  0.60    0.60*   8.0%   3.0%
LRCX    12.56   13.33  MAR 10.00  0.25    0.25*   7.9%   2.2%
ANSS    22.20   23.76  MAR 20.00  0.80    0.80*   7.7%   3.0%
IRF     20.39   22.35  MAR 17.50  0.50    0.50*   7.5%   2.6%
MACR    15.22   15.84  MAR 12.50  0.25    0.25*   7.5%   2.2%
OVTI    16.83   19.00  MAR 12.50  0.25    0.25*   7.5%   2.2%
DIGE    15.54   16.59  MAR 12.50  0.30    0.30*   7.5%   2.1%
CGNX    21.84   22.70  MAR 20.00  0.75    0.75*   7.1%   2.8%
ERES    22.46   21.04  MAR 17.50  0.30    0.30*   6.8%   1.9%
HHL     11.56   12.57  MAR 10.00  0.20    0.20*   6.7%   2.2%
CKFR    20.66   20.98  MAR 17.50  0.30    0.30*   6.0%   1.9%
OTEX    27.14   28.14  MAR 25.00  0.75    0.75*   5.7%   2.2%
ADBE    27.43   27.50  MAR 22.50  0.40    0.40*   5.4%   1.6%
APPX    23.75   18.30  MAR 20.00  0.55   -1.15    0.0%   0.0% **

*  Stock price is above the sold striking price.
** Summary data does not reflect a timely exit trade.

Comments:

The stock market posted its third consecutive bearish month as
concerns about the impending war with Iraq overwhelmed positive
economic data.  The big surprise in our portfolio was the slump
in American Pharmaceutical Partners (NASDAQ:APPX), which dropped
like a rock after announcing quarterly earnings of $0.38 per
share, $0.04 above analysts' estimates and more than 200% above
last year's results.  APPX shares tumbled despite the bullish
fundamental news and the cause was attributed to the abundance
of short sellers.  Conservative traders should have closed the
position early in the week, when the issue plunged 10% on heavy
volume.  Those who stayed for the "dead-cat bounce" have yet to
be rewarded.  Traders are advised to be extra vigilant in their
portfolio management during the coming weeks as the conflict
with Iraq becomes a reality.

Previously Closed Positions: Possis Medical (NASDAQ:POSS)


WARNING: THE RISK IN SELLING NAKED 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.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


NEW CANDIDATES
*****

Sequenced by Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

RMBS  15.18  MAR 12.50 BNQ OV 0.25 2863  12.25  21   9.9%   3.0%
IART  19.39  MAR 17.50 UJI OW 0.35 111   17.15  21   8.2%   3.0%
XLNX  22.90  MAR 20.00 XLQ OD 0.35 5852  19.65  21   7.7%   2.6%
MDCO  18.94  MAR 17.50 MQL OW 0.30 80    17.20  21   6.8%   2.5%
SLAB  27.12  MAR 22.50 QFJ OX 0.30 287   22.20  21   6.7%   2.0%
AVCT  27.82  MAR 25.00 QVX OE 0.35 111   24.65  21   5.9%   2.1%
EPIQ  19.10  MAR 17.50 FQU OW 0.25 10    17.25  21   5.8%   2.1%
FAF   23.10  MAR 22.50 FAF OX 0.30 104   22.20  21   4.9%   2.0%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MY-Maximum Yield (monthly basis - using
margin), SY-Simple Yield (monthly basis - without margin).

*****
RMBS - Rambus  $15.18  *** Recovery Underway! ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.
RMBS shares soared in January after a favorable ruling in a patent
case.  A federal appeals court ruled that Rambus had not committed
fraud in a dispute involving memory maker Infineon, reversing the
ruling of a lower court, and the court also revived Rambus' patent
infringement claim against Infineon.  The current trend is bullish
and investors who think the upside activity will continue can
speculate on that outcome with this position.

MAR 12.50 PUT BNQ-OV LB=0.25 OI=2863 CB=12.25 DE=21 TY=9.9% SY=3.0%


*****
IART - Integra LifeSciences  $19.39  *** Favorable Earnings! ***

Integra LifeSciences (NASDAQ:IART) is a global, diversified medical
device company that develops, manufactures and markets implants and
biomaterials for use in neurosurgery, orthopedics and soft tissue
repair.  The firm's business is divided into two divisions, Integra
NeuroSciences and Integra LifeSciences.  Integra's NeuroSciences
division is a provider of implants, devices and systems used in
neurosurgery, neurotrauma and related critical care, and is also a
distributor of disposables and supplies used in the diagnosis and
monitoring of neurological disorders.  Integra LifeSciences makes
and manufactures a variety of medical products and devices based on
the company's proprietary tissue regeneration technology, which are
used to treat soft tissue and orthopedic conditions.  Last week,
Integra reported record revenues and net income for the fourth
quarter and full year 2002.  The fundamental outlook is favorable
and investors who wouldn't mind owning the issue near a cost basis
of $17 should consider this position.

MAR 17.50 PUT UJI-OW LB=0.35 OI=111 CB=17.15 DE=21 TY=8.2% SY=3.0%


*****
XLNX - Xilinx  $22.90  *** Semiconductor Sector ***

Xilinx (NASDAQ:XLNX) is the world's leading supplier of complete
programmable logic solutions.  Xilinx develops, manufactures, and
markets a broad line of advanced integrated circuits, software
design tools and intellectual property.  Their customers use the
automated tools and intellectual property, which are predefined
system-level functions delivered as software cores, from Xilinx
and its partners to program the chips to perform custom logic
operations.  The downtrodden semiconductor sector has recovered
in recent sessions and one of the best looking chart patterns in
the group is XLNX.  The stock has a stable near-term trading range
and excellent upside potential.  Traders who agree with a bullish
outlook for the issue can speculate on the company's future share
value with this position.

MAR 20.00 PUT XLQ-OD LB=0.35 OI=5852 CB=19.65 DE=21 TY=7.7% SY=2.6%


*****
MDCO - The Medicines Company  $18.94  *** New High! ***

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of 
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a 
procedural anticoagulant and for use in the treatment of ischemic
heart disease.  The Medicines Company shares rallied again last
week despite a lack of catalysts in public news.  The stock is
trading at a 52-week high and investors who believe the rally
will continue can profit from that outcome with this position.

MAR 17.50 PUT MQL-OW LB=0.30 OI=80 CB=17.20 DE=21 TY=6.8% SY=2.5%


*****
SLAB - Silicon Laboratories  $27.12  *** Chip Sector Rally! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits for
the wireless, wireline and optical communications industries.  The
company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers utilize standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.  Shares of SLAB rallied Friday in
conjunction with the bullish activity in the chip sector and the
strong upside move suggests the recent up-trend may continue.  The
cost basis in this position provides a good speculation opportunity
for traders who like the outlook for the chip sector.

MAR 22.50 PUT QFJ-OX LB=0.30 OI=287 CB=22.20 DE=21 TY=6.7% SY=2.0%


*****
AVCT - Avocent  $27.82  *** Up-Trend Intact! ***

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 switching
and connectivity solutions provide information technology managers
with access and control of multiple servers and network data centers
from any location.  In late January, Avocent reported higher sales,
operating income and net income for the fourth quarter and the firm
achieved sequential and year over year sales growth in both their
domestic and international markets.  Avocent also has a favorable
fundamental base with $216 million in cash and investments and no
long-term debt.  Investors who like the outlook for the company can
use this position to speculate on its future share value.

MAR 25.00 PUT QVX-OE LB=0.35 OI=111 CB=24.65 DE=21 TY=5.9% SY=2.1%


*****
EPIQ - EPIQ Systems  $19.10  *** Bullish Outlook! ***

EPIQ Systems (NASDAQ:EPIQ) develops, markets and licenses software
solutions for workflow management as well as data communications
infrastructure for the bankruptcy trustee market and the financial
services market.  The firm's specialized products streamline the
customers' internal business operations and external communications
and enable them to minimize operating costs through automation.  In
addition to its software products, the firm provides a high level
of coordinated support, including network integration and industry
specific value-added services.  EPIQ Systems recently posted record
results for the fourth quarter and full year, with revenue growth
of 28% versus prior year.  Net income increased 78% for the quarter
and 54% for the year.  Investors who agree with a bullish outlook
for the company can speculate on its future share value with this
position.

MAR 17.50 PUT FQU-OW LB=0.25 OI=10 CB=17.25 DE=21 TY=5.8% SY=2.1%


*****
FAF - First American Corporation  $23.10  *** Own This One! ***

The First American Corporation (NYSE:FAF) is a diversified provider
of business information that supplies businesses and consumers with
the information resources that affect the major economic events of
people's lives, such as getting a job, renting an apartment, buying
a car, house, boat or airplane, securing a mortgage, opening or
buying a business, and planning for retirement.  The First American
Family of Companies operate within seven primary business segments:
Title Insurance and Services, Specialty Insurance, Trust and Other
Services, Mortgage, Property, Credit and Screening Information.
The company has approximately 1,300 offices throughout the United
States and abroad.  First American Corporation appears to be in the
next stage of a long-term up-trend and investors can establish a
conservative cost basis in the issue with position.

MAR 22.50 PUT FAF-OX LB=0.30 OI=104 CB=22.20 DE=21 TY=4.9% SY=2.0%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days  Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp. Yield  Yield

ICST  23.86  MAR 22.50 IUY OX 0.70 98    21.80  21  11.4%   4.7%
NOVN  10.86  MAR 10.00 NPQ OB 0.25 178    9.75  21   9.7%   3.7%
CMCSA 29.22  MAR 27.50 CCQ OY 0.60 2274  26.90  21   8.2%   3.2%
DISH  26.33  MAR 22.50 UAB OX 0.40 5678  22.10  21   8.2%   2.6%
KLAC  35.75  MAR 32.50 KCQ OZ 0.60 4448  31.90  21   7.5%   2.7%
FIC   48.84  MAR 45.00 FIC OI 0.75 76    44.25  21   6.6%   2.5%
UOPX  37.38  MAR 35.00 UBY OG 0.60 155   34.40  21   6.6%   2.5%
UNT   21.06  MAR 20.00 UNT OD 0.35 51    19.65  21   6.6%   2.6%
SBUX  23.45  MAR 22.50 SQX OX 0.40 3939  22.10  21   6.6%   2.6%
BVF   37.20  MAR 35.00 BVF OG 0.60 383   34.40  21   6.5%   2.5%
USAI  24.53  MAR 22.50 QTH OX 0.35 559   22.15  21   6.2%   2.3%
LLTC  30.67  MAR 27.50 LLQ OY 0.40 1103  27.10  21   6.1%   2.1%
VIP   37.36  MAR 35.00 VIP OG 0.55 10    34.45  21   6.1%   2.3%
NSCN  19.53  MAR 17.50 QKN OW 0.25 254   17.25  21   6.0%   2.1%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Stocks Drift Higher As Bears Digest Recent Gains
By Ray Cummins

The major equity markets finished the week on a bullish note as
selling pressure gave way to bargain hunting amid a lull in the
stand-off with Iraq and the release of favorable economic data.

The Dow Jones Industrial Average closed up 6 points at 7,891 on
strength in Walt Disney (NYSE:DIS), Intel (NASAQ:INTC), McDonalds
(NYSE:MCD), and Hewlett-Packard (NYSE:HPQ).  The NASDAQ added 13
points to end at 1,337 amid a surge in semiconductor and computer
hardware shares.  For the week, the broader market enjoyed gains
in specialty retail, energy and mining, tobacco and broadcasting
stocks.  The S&P 500 finished February at 840 on Friday, down 4%
for the year.  Trading volume was moderate at roughly 1.3 billion
shares on both the NYSE and the NASDAQ.  Advancing issues outpaced
decliners 3 to 2 on the Big Board while breadth on the technology
exchange was almost neutral with a small bias to gaining stocks.
In the U.S. Treasury market, the benchmark 10-year note rose 13/32
to 101-16/32, pushing its yield down to 3.69%.  The 30-year bond
climbed 26/32 to 110-28/32, while its yield fell to 4.67%.

*****************
PORTFOLIO SUMMARY
*****************

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.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last  Month  LP  SP Credit   CB    G/L   Status

SYMC    46.09  40.47  MAR   35  40  0.50  39.50  $0.50   Open?
COP     48.72  50.70  MAR   43  45  0.25  44.75  $0.25   Open
NKE     45.14  46.37  MAR   40  43  0.20  42.30  $0.20   Open
CAM     53.03  52.00  MAR   45  50  0.65  49.35  $0.65   Open
SII     35.34  34.86  MAR   30  33  0.25  32.25  $0.25   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss
 
Symantec (NASDAQ:SYMC) was a big mover Friday, sliding over 10%
after the computer security and services provider said earnings
for the first half of fiscal 2004 would be below expectations,
even though it confirmed its full-year outlook.  Conservative
traders should consider closing the play on any further downside
movement.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last  Month  LC  SC Credit   CB     G/L   Status

HRB    35.80   40.57  MAR   45  40  0.50   40.50 ($0.07) Closed
BUD    47.70   46.50  MAR   55  50  0.45   50.45  $0.45   Open
MDT    44.15   44.70  MAR   50  48  0.25   47.75  $0.25   Open
PEP    39.86   38.32  MAR   45  43  0.25   42.75  $0.25   Open
BSC    59.90   62.64  MAR   70  65  0.50   65.50  $0.50   Open?
BSC    61.69   62.64  MAR   70  65  0.55   65.55  $0.55   Open?
NEM    27.51   27.33  MAR   33  30  0.25   30.25  $0.25   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

The previous bearish trend in H&R Block (HRB) ended Tuesday after
the company reported record profits on strength in its mortgage
origination segment.  Profits quadrupled while sales surged 31%,
and the firm raised its earnings forecast for the fiscal year.
Our position was closed Thursday when the issue climbed through a
recent resistance area (near $38.50) on increasing volume.  Bear
Stearns (NYSE:BSC) is on the "watch-list" as the issue will likely
test its current trading-range top (near $65) in the coming week.


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

AMGN    52.09  54.64  MAR   45  47   2.20   47.20  0.30   Open
EXPE    66.57  69.79  MAR   55  60   4.35   59.35  0.65   Open
NBR     40.13  39.65  MAR   35  37   2.20   37.20  0.30   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


SYNTHETIC (BULLISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

WPI     29.22  30.93   MAY     35    22    (0.10)   0.65    Open
UPL     10.11   9.15   MAR     10    10     0.10    0.00    Open?
AFFX    27.14  26.39   MAR     30    25     0.15    0.00    Open

Watson Pharmaceuticals (NYSE:WPI) was a big mover this week after
the company said it had won U.S. FDA approval for Oxytrol, a patch
to treat urinary incontinence.  Our bullish synthetic position has
reached favorable exit points twice since the play was initiated in
January.


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short    Current   Max     Play
Symbol  Price  Price   Option    Option    Debit   Value   Status

AXP	  33.70  33.58   APR-30P   FEB-30P   0.75    1.20     Open?
CI	  43.02  42.97   APR-45C   MAR-45C   0.85    1.00     Open
BMET	  28.52  30.23   JUL-30C   MAR-30C   1.50    1.50     Open
WFT     40.55  40.04   MAY-45C   MAR-45C   1.25    1.40     Open
OTEX    29.29  28.14   MAY-25C   MAR-30C   4.50    4.20     Open

The bearish position in American Express (NYSE:AXP) has yielded
favorable short-term profits and Biomet (NASDAQ:BMET) has moved
to within $0.20 of the maximum profit point.


DEBIT STRADDLES
***************
 
Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

ROOM	  40.14  44.97   MAR    40    40    6.50    7.00     Open?

The Hotels.com (NASDAQ:ROOM) straddle has provided a small profit
but Friday's activity suggests additional upside potential in the
near-term.  Conservative traders should consider closing the
bullish (MAR-$40 CALL) position on further downside movement.


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 investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
CMCSA - Comcast Corporation  $29.22  *** Bullish Sector! ***

Comcast Corporation (NASDAQ:SMCSA) is a cable operator involved in
three principal lines of business: cable, through the development,
management and operation of broadband communications networks;
commerce, through QVC, its electronic retailing subsidiary; and
content, through its consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports
Southeast, E! Entertainment Television, The Golf Channel, Outdoor
Life Network, G4 Media, and through other programming investments.
The company has deployed digital cable applications and high-speed
Internet service to most of its cable communications systems.  In
November 2002, AT&T spun-off AT&T Broadband, which provided cable
television, high-speed Internet services and telephone services.
Immediately following the spin-off, AT&T Broadband combined with
Comcast Corporation.

Technical Outlook: Sharp bullish activity late in the week in
conjunction with earnings report and sector rally; multi-month
high; support near recent trading-range top at $27.

Potential Catalysts: Recently reported a narrower fourth-quarter
loss and issued a strong 2003 forecast on good subscriber numbers
and a smaller capital spending budget than previously forecast.

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-25.00  CCQ-OE  OI=6758  A=$0.30
SELL PUT  MAR-27.50  CCQ-OY  OI=2274  B=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$27.20


*****
FIC - Fair, Isaac and Company  $48.84  *** Up-Trend Resumes! ***

Fair, Isaac and Company (NYSE:FIC) is a provider of creative
analytics that unlock value for people, businesses and industries.
The company's predictive modeling, decision analysis, intelligence
management and decision engine systems power more than 14 billion
decisions a year.  The company helps thousands of firms in over 60
countries acquire customers more efficiently, increase customer
value, reduce risk and credit losses, lower operating expenses
and enter new markets more profitably.  Major banks and credit
card issuers rely on the Company's analytic solutions, as do many
insurers, retailers, telecommunications providers and various
customer-oriented companies.  Fair, Isaac helps companies solve
business problems related to customer acquisition, customer
management and business process management.

Technical Outlook: Shares drifting higher after consolidation
from "all-time" high in January; resistance at current levels;
near-team buying support at $46.

Potential Catalysts: Recently listed with a 5-STAR buy rating in
S&P's Stock Appreciation Ranking System for Internet software
and services stocks; reported 73% year-over-year revenue growth
in January.
 
PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-40.00  FIC-OH  OI=116  A=$0.30
SELL PUT  MAR-45.00  FIC-OI  OI=76   B=$0.75
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$44.55


*****
PG - Proctor & Gamble  $81.86  *** P&G Buying Wella? ***

The Procter & Gamble Company (NYSE:PG) manufactures and markets
more than 250 products to more than five billion consumers in
130 countries throughout the world.  The company categorizes its
business operations as follows: Baby, Feminine and Family Care,
Fabric and Home Care, Beauty Care, Health Care, and Food and
Beverage.  

Technical Outlook: Near-term bearish in a multi-month downtrend;
minimal support near the current price; resistance near $84-$86;
news-driven play with potential for volatility.

Potential Catalysts: P&G shares have slumped on speculation the
firm will purchase German hair-care company Wella.  Boerse Online
magazine reported that negotiations with P&G were well advanced
and investors are unhappy about the 80 euros per share offer.

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-90.00  PG-CR  OI=5788   A=$0.10
SELL CALL  MAR-85.00  PG-CQ  OI=13445  B=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$85.45


*****
TRMS - Trimeris  $40.02  *** Next Leg Down? ***

Trimeris (NASDAQ:TRMS) is engaged in the discovery and development
of fusion inhibitors, a new class of antiviral drug treatments.
Fusion inhibitors impair viral fusion, a complex process by which
viruses attach to and penetrate host cells.  If a virus cannot
enter a host cell, the virus cannot replicate.  By inhibiting the
fusion process of particular types of viruses, the company's drug
candidates under development offer a novel mechanism of action
with the potential to treat a variety of medically important viral
diseases.  Trimeris is a development stage company.  The firm has
invested a significant portion of its time and financial resources
in the development of T-20, its lead drug candidate.

Technical Outlook: Short-term bearish in a lateral consolidation
after recent gains on positive drug developments in Europe; some
support near current price; volatility expected along with FDA
approval in mid-March.

Potential Catalysts: Shares have slumped over concerns that the
company's new AIDS drug may be too expensive, possibly twice as
much as many currently available treatments; also concerns over
production limitations in the near-term.

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-50.00  RQM-CJ  OI=512  A=$0.15
SELL CALL  MAR-45.00  RQM-CI  OI=808  B=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$45.45


***************************
CALENDAR & DIAGONAL SPREADS
***************************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The calendar spreads in this section are speculative with low
initial costs and large potential profits.  A diagonal spread
is also a "time-selling" strategy but with a strong directional
bias.  Our conservative approach to this technique is based on
the purchase of "in-the-money" options and position adjustments
can boost the potential profit when the underlying issue moves
as expected.

*****
CMVT - Comverse Technology  $10.20  *** Reader's Request! ***

Comverse Technology (NASDAQ:CMVT) designs, develops, manufactures,
markets and supports computer and telecommunications systems and
software for multimedia communications and information processing
applications.  The company's subsidiaries are Comverse, Verint
Systems and Ulticom.  The company's products are used in a broad
range of applications by wireless and wireline telecommunications
network operators and service providers, call centers, and other
public and commercial organizations worldwide.  A large portion
of the firm's research and development, manufacturing and other
operations are located in Israel.
  
Technical Outlook: Near-term "bullish" trend after late-2002 rally
and consolidation; key test of buying support near current price
(150-dma); upside potential limited by "double-top" at $12.

Potential Catalysts: Positive sector/industry bias due to several
optimistic economic reports; analysts say the telecom downturn
has stabilized; CMVT's quarterly earnings due in mid-March.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  APR-7.50   CVQ-DU  OI=398   A=$2.95
SELL CALL  MAR-10.00  CVQ-CB  OI=3764  B=$0.70
INITIAL NET-DEBIT TARGET=$2.20-$2.25
INITIAL TARGET PROFIT=11% B/E=$9.75


*****
ICST - Integrated Circuit Systems  $23.86  *** Hot Sector! ***

Integrated Circuit (NASDAQ:ICST) is engaged in the business of
designing and marketing custom application specific integrated
circuits (ASICs) for various industrial customers.  The company's
business is divided into 2 categories: Core and Non-Core Segments.
The Core segment supplies a broad line of timing products for use
in PC motherboard and peripheral applications.  The Non-Core 
segment sells mixed-signal (analog and digital) ICs customized to
the specific requirements of a broad range of customers and 
applications.

Technical Outlook: Recent bullish activity on increasing volume;
support near interim trading-range top at $22.50; rally should
retest long-term resistance at $26 after necessary consolidation.

Potential Catalysts: Semiconductor shares have outperformed the
the broader market in recent sessions; traders say share values
are priced for some upside at current levels.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  APR-22.50  IUY-DX  OI=50   A=$2.85
SELL CALL  MAR-25.00  IUY-CE  OI=165  B=$0.70
INITIAL NET-DEBIT TARGET=$2.10-$2.15
INITIAL TARGET PROFIT=16% B/E=$24.65


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
UOPX - University of Phoenix Online  $37.38  *** Rally Mode! ***

University of Phoenix Online (NASDAQ:UOPX) is a provider of unique,
accessible, and accredited educational programs for working adults.
The firm began operations in 1989 by modifying courses developed by
University of Phoenix's physical campuses for delivery via modem to
students worldwide.  University of Phoenix Online now offers 11
accredited degree programs in business, education, information
technology and nursing.  Students can participate in their online
classes anytime via the Internet by using basic technology such as
a Pentium-class personal computer, a 28.8K modem and an Internet
service provider, thereby enhancing the accessibility of and the
potential market for its programs.

Technical Outlook: Short-term "bullish" trend with robust buying
pressure; resistance near $39; previous trading-range top provides
support at $36.

Potential Catalysts: Recently listed by Zacks.com with a "strong
buy" rating; expected to post favorable earnings in late March.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  MAR-40.00  UBY-CH  OI=90   A=$0.80
SELL PUT   MAR-35.00  UBY-OG  OI=155  B=$0.60
INITIAL NET-DEBIT TARGET=$0.00-$0.10
INITIAL TARGET PROFIT=$0.45-$0.75

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $1,325 per contract.  However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($35).


*****


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**************************************************************


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

Bullish Candidates


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_030203.asp


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

Out of Gas or Finding Support?


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_030203.asp


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