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Daily Newsletter, Thursday, 03/06/2003

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The Option Investor Newsletter                Thursday 03-06-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Tug of War
Futures Markets: A Cherry in My Jello
Index Trader Wrap: (See Note)
Market Sentiment: Waiting & Patience
Weekly Manager Microscope: Andrew Dudley: Fidelity Short-Term Bond
Fund (FSHBX)


Updated on the site tonight:
Swing Trader Game Plan: Stalemate


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-06-2003           High     Low     Volume   Adv/Dcl
DJIA     7674.27 -101.30  7777.42  7659.09 1.53 bln 1201/2006
NASDAQ   1302.92 - 11.50  1312.61  1299.81 1.26 bln 1267/1948
S&P 100   416.49 -  3.81   420.79   415.38   Totals 2468/3954
S&P 500   822.10 -  7.75   829.85   819.85
W5000    7799.65 - 65.60  7865.25  7779.27
RUS 2000  353.84 -  2.70   356.54   353.29
DJ TRANS 2017.07 - 19.90  2036.46  2014.91
VIX        36.34 +  2.11    36.88    35.07
VXN        45.65 +  1.31    45.91    45.01
Total Volume 2,965B
Total UpVol    898B
Total DnVol  1,966M
52wk Highs  165
52wk Lows   356
TRIN       1.17
PUT/CALL   0.93
************************************************************

Tug of War

Investors torn over the potential war scenarios battled
over a very limited point range this afternoon. The lack
of significant movement in the last hour showed that buyers
and sellers had reached an impasse with each controlling
their respective areas but unable to penetrate the small
demilitarized zone between them.

Dow Charts - Daily



Nasdaq Chart - Daily




I have been preaching for weeks about the jobless claims
and they just keep getting worse. Claims came in at 430,000
and grossly over the 405,000 estimate. This was the third
week over 400,000 and it brought the four week moving average
to 409,000 and in very critical territory. Continuing claims
also rose to 3.52 million and their highest level since
November. Layoffs remain at a recessionary level and new
hiring has failed to increase. This is painting a bleak
picture for the economy going forward and sets up a chance
for a substantial miss in the Nonfarm payrolls tomorrow.

On the flip side the Productivity Report showed a strong
gain in productivity in the 4Q with the number revised
upward to +0.8%. Obviously higher productivity means
fewer workers needed to achieve the same output. Higher
productivity is also a result of cutting employees which
leaves fewer workers to accomplish the same tasks. This
is not a good sign for those workers still unemployed
but a minor positive for corporate America.

Factory Orders were also up +2.1% compared to estimates
of +1.5%. This is a confusing number as it is contrary to
most other economic reports and showed a broad increase
across all areas. Non-defense investment rose +1.2% which
is a good indication of corporate spending. The unfilled
orders backlog continues to shrink which means future
headline numbers are not likely to continue to grow.

Chain Store same store sales were announced and other than
standouts WMT, PSUN and GPS the results were ugly. GPS was
up +8% and PSUN +14.8% with WMT increasing +2.6%. KSS dropped
-4.6%, Sears -9.4% after closing 130 stores during the
President's Day blizzard. Pier One fell -5.8%, FD -6.8%,
JCP -2.1%, MAY -7.5%. Overall department same store sales
fell -5.5%. Weather was blamed in most cases but shoppers
have been notably absent since the orange alert was issued.

Other notable events was a drop in TSN, Tyson Foods, to a
13 year low on falling consumer sales causing a glut in
meat products. Their warning of no expected profits for
the current quarter was significantly below the 14 cents
expected. IPG, an advertising holding company, missed
estimates by a mile with a nickel profit compared to
estimates of 18 cents. They lowered their outlook for
the year due to falling ad sales and losses of several
major accounts.

Today was not a day for economic news to move the markets.
The Jobless claims and overseas results had the market
heading south at a high rate of speed at the open but the
rumor mongers jumped in to stop the descent cold. First
there was a rumor that North Korea had agreed to let UN
inspectors back into their nuclear facilities. That was
later denied and attributed to comments from China that
"IF" the US would hold face-to-face talks then NK might
let inspectors back in. Secondly there was a rumor at
10:AM and started to coincide with the release of the
Factory Orders report that Osama had been captured from
info received from Khalid Mohammed. This rumor sent the
Dow back to positive territory before being denied by the
US. It was also announced that Bush had called an unscheduled
press conference at 8:PM and the Osama rumor began again.
Surely Bush was going to announce his capture to the world.
The idea that anybody could keep that type of info secret
for 12 hours is amazing. It would be the biggest news
event since 9/11 and the capture of the most wanted
fugitive in the world would be filling the airwaves.

Once the White House denied Bush would announce his
capture the rumors turned to what he might be going to
say. War, he is going to declare war! Wrong again, but
the rumors were so persuasive the White House had to
issue an update saying that Bush would be saying nothing
new but would touch on terrorism, Khalid Mohammed, Iraq
and then take questions. This format calmed trader's
nerves somewhat since it is not the format for a major
news release.

There was also the persistent rumor that Iraq was
destroying their own oil fields. This was denied several
times by different branches of the government but was
still persisting even after the close.

The effect of all these rumors was paralysis in the
markets. The Dow sank to it's lows for the month at 7659
and only +30 points above its February lows. It hung there
from 12:30 through the close and stayed in a very narrow
range. The Nasdaq positively refused to break 1300 although
it tried several times. With both indexes literally on
the edge of the cliff both held their ground. Bears could
not over power bargain hunting buyers who would not chase
prices but provided plenty of buying power at that last
ditch support. It was a stalemate and if there was a
winner I would give it to the bulls for not caving in to
pressure. Volume was light again as everybody was holding
their cash until the events of tonight and tomorrow played
out.

The first event was a mid-quarter update by Intel. Intel
had been expected to affirm or even raise guidance slightly
after Dan Niles went public with his thoughts last week.
In reality Intel lowered guidance although it was cleverly
worded. They had previously guided to $6.5-$7B in revenue.
They lowered that range to $6.6-$6.8B. Not a big move but
psychological more than material. The big drop came in the
estimated profit margin. It fell from 52% to "less than 50%"
give or take a point or two. This 2-3% drop equates to a
very large number in profits. Something in the $200 million
range. For Intel this is not a big number but it showed
that things were not really improving in the tech sector
despite what people thought. INTC traded down to $16 in
after hours.

All eyes are focused on the press conference at 8:PM tonight.
It is commonly thought that any hope of a multinational
attack has faded completely and the US is prepared to go
it alone and soon. The speech will probably try to sell
the case for attacking Iraq once again but more importantly
they expect Bush to violently attack the UN and nations
that have elected to go against the US position. He will
likely repeat the UN is no longer relevant when two bit
dictators can thumb their nose at them and continue to
defy their authority. He is not going to win any friends
but he will probably put them on notice that business as
usual has ceased. Trade deals, troop basing, loans, aid,
etc are going to dry up quickly for anybody that votes
against the US. Several analysts have predicted a new
"cold war" among allies is beginning. Rumsfield has
already floated the trial balloon about removing our
troops from Germany. Surely it is just a coincidence,
right? (grin)

Tomorrow Hans Blix delivers another update on Iraq to
the UN and he is expected to say cooperation has increased
but only grudgingly. Powell is going to reiterate that
it is a cat and mouse game with Saddam very experienced
at hiding the cheese and years of inspections would not
accomplish anything. Next week the resolution issue is
expected to come to a vote and there are between 6-8
versions being floated. Most analysts feel this is just
a waste of time with only four countries on our side.
Most feel the 72-hour warning will be given on Monday
and possibly a very short deadline for Saddam to leave
or comply of as little as 72 hours after that. The current
target date for war is March 17th. This has been calculated
by numerous planners and analysts based on the logistics
of getting all the troops and equipment to the gulf.
There is sufficient equipment in place already to win
the war but overwhelming force tends to win overwhelmingly.
Another 60-75,000 troops currently in route would fill
that bill.

Economically we have the Nonfarm payrolls at 8:30AM and
the estimate is for an increase of +6,000 jobs. I suspect
the number could be significantly lower. All bets are off
for market direction on Friday due to the Bush press
conference, the Nonfarm payrolls and the Blix report.
The best advice would be to take the day off and play
golf unless you have a very accurate crystal ball.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

A Cherry in My Jello
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET



Contract	Last	Net	High	Low
Dow	7673.99	-101.61	7777.42	7659.09
YM 03H	7673.00	-92	7773	7630
Nas 100	983.96	-6.27	991.69	976.55
NQ 03H	985.50	-7	980.50	977.00
S&P 500	822.10	-7.75	829.56	819.85
ES 03H	822.00	-1.50	830.00	819

Daily Pivots

Five-day chart showing the calculated pivot and support/resistance
values.
o	S2 and R2 are green lines.
o	S1 and R1 are black lines.
o	Pivot is red-dashed line.

Pivot for YM 03H




Pivot for NQ 03H



Pivot for ES 03H



ESO3H March S&P E-Mini

The markets opened with a whimper today, gapping down and exciting
the bears with the hope that perhaps the big break was upon us.
An attempt was immediately made to try and fill the gap, but it
failed and we spent the next 15 minutes moving down and breaking
S1 at 821.83.  While futures traders were anticipating at least a
test, and perhaps a break of yesterday’s lows, we instead bounced
at 819 horizontal support (and S2 from a couple days ago) and
proceeded to head up and fill the gap.   This move up had plenty
of momentum and it looked, for a moment, that we would have yet
another amazing vertical liftoff, but the move ran out of gas at
the first real horizontal resistance: yesterday’s end of day
highs.   A feeble attempt at breaking past 830 was made by the
bulls, but heavy selling lead to a quick downdraft, finding
support at 824.25, where another attempt was made to move up but
that failed as well.    This lead to another strong move down for
a brief time, and then the dreaded jello-beast took over..the ES
made some attempts at rallying and selling, with neither side
getting the upper hand.  The Pivot Chart above shows that once
broken below S1, price could not close much above that level on a
30 minute candle.

There was a slight trend upward, as shown by the rising orange
regression channel below on the 5 minute chart, but it was sloppy,
and it seems that most of the day was spent in hope:  The bulls
hoping that the higher lows meant we had blunted the bearish
leanings, and the bears hoping that the bulls had given up and
that we would sell into the close.  Neither happened.

A note on the charts below:  I use three different regression
channels on my charts:
o	200 period (black lines)
o	78 period (blue lines)
o	50 period (orange lines)
Each outer line (tine) acts as resistance/support, the longer term
channel as stronger support/resistance, and the shorter term lines
progressively weaker.

5 Minute ES



60 Minute ES
Bearish case is still in play.  RSI, MACD, and Stochastic are all
below their respective centerlines.  There is nothing here to show
that the trend is changing.  Regression channels show that we have
plenty of room to move down to the low 800’s, but we have to get
below horizontal support at 820-817 first.  Breaks above
trendlines drawn on MACD and RSI would signal potential reversal,
but waiting for the centerline to be broken to the upside would
most likely be the safest course.




Daily ES





NQO3H March Nasdaq E-mini

In looking at the NQ, I had to double check that I wasn’t looking
at the ES chart by mistakeit was neither much stronger nor much
weaker.  The only clue that it was actually outperforming the ES
can be seen by the pivot chart from above.   NQ never closed below
S1, although it did pierce it on the initial morning move down.
On the reversal move up, it pierced and closed above the Pivot at
987.50, but after falling below the pivot, it never really
threatened it again, trading sideways and often closing nearly
evenly between S1 and Pivot.  So it can be said that the sideways
movement had a slight negative bias, but not enough to matter.
The 60 minute chart below does show that there is a slightly
bullish attitude over the past 200 60-minute bars.
NQ 60 min



NQ Daily
200 period daily shows regression channel is pointed only slightly
down.  Means that over the past 200 days, the net movement of the
NQ has been, well, flat.  With the trendline from the Oct lows
will be coming into play around the 966 area, but this line is
rising each day.





YMO3H March Dow  E-Mini ($5)

The Dow emini also had a similar day to the ES and NQ.  It didn’t
diverge much from the general state of the futures movement,
although to my eyes, it felt weaker, and the moves upward were
quicker to give their gains back.  The pivot chart above shows
that the YM was a little weaker than ES, with fewer attempts at
breaking above S1 at 7693, and much weaker than NQ, trading in the
upper third area between S2 and S1.   Note how the 200 period
regression channel is pointing down on the 60 minute chart with
regards to the NQ channel which is essentially flat.

YM 60 minute



YM Daily
Note how steep the down channels are, and how price has pierced
the lower channel twice on strong momentum selloffs.  There is
also a positive divergence on the MACD that might bear watching.





Vlada Raicevic


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

Same range as yesterday, but Dow loses a level

The major indexes traded in an almost identical range as was
found on Tuesday, with the exception being that the major indexes
closed their lows today.

Yesterday's range in the Dow Industrials (INDU) was 7,775-7,661
and today's range was 7,777-7,659.  This is rather "amazing"
considering the market caps of these 30 stocks to see an
identical range.  Even more "amazing" was how a little thin line
from a retracement bracket that had been anchored at from
Tuesday's and Wednesday's DAILY S2-R2 served support the past two
sessions (shown below).  However, today's lower close has that
retracement level being "erased" and I'm looking for two-day Dow
support to also be erased in tomorrow's session.

Of course, I haven't heard what President Bush is going to say in
tonight's unscheduled televised speech, but news of this speech
seemed to have traders sitting on their hands, with some skittish
bulls moving to the sidelines in today's trade.

When I was updating our pivot analysis matrix for tomorrow, I
thought somebody had beaten me to the punch.  Wednesday's S&P 500
Index (SPX.X) range was 829.85-819.00 and not too different from
today's 829.87-819.00.  To get that kind of match it would take a
computer!  And that's what I think has been taking place the last
two sessions.  With the various "levels" moving lower from the
DAILY pivot matrix analysis, I'm looking for a lower trade again
tomorrow.

While Intel (NASDAQ:INTC) $16.70 -1.64% fell during the regular
session, then narrowed it targets quarterly revenue range to
between $6.6-$6.8 billion from $6.5-$7.0 billion in tonight's
mid-quarter conference call, and saw its shares fall to $16.00 in
extended hours, the "lack" of any type of upside surprise and no
new visibility to have the company making any upward or downward
revisions, did add a slightly negative tone to shares in the
after-hours session.  NASDAQ 100 futures (nd03h) settled at 985
and trade quiet at 981 as tomorrow's session has already begun.

Here's a look at tomorrow's pivot analysis matrix.

Pivot Analysis Matrix




For the second consecutive session, the S&P Banks Index (BIX.X)
268.63 -1.32% holds WEEKLY S1 of 268.34, though it was traded to
the decimal today (computers?).  I Will set an alert there to
alert to weakness, which may spill over toward the major indexes
in tomorrow's session.

If BIX.X makes a move below that level (268), good correlative
support between Dow's DAILY S1 and MONTHLY S1 of 7,692 would be
next alert to weakness.  While March is still young, MONTHLY S1
levels have not been tested at this point, but as we've noted in
recent weeks, it has been the Dow to first test a level of
support and drag the other indexes lower.  In past two sessions,
Dow's been finding support at 7,665 level, which has come from a
retracement level from DAILY retracement (shown in market
monitor, and will show tonight).  However, today's low session
close has that DAILY retracement support lowered to 7,636
tomorrow and we now see a "zone of resistance" from DAILY and
WEEKLY retracement at 7,686-7,963, and turns out that this was a
"zone of resistance" all day today after the Dow reached a
session low.  From support at 7,629, we could build a "zone of
support" further down in Dow at DAILY S2-WEEKLY S2 of 7,578-
7,585.  This might be good MAX WEEKLY decline zone for an end of
week target and good bearish cover zone.

Despite negative after-hours reaction to Intel's mid-quarter
update, I'll still mark a correlative resistance for NDX at 997-
999, which would be just below "psychological" 1,000 level.
Again, President Bush's speech is still ahead, and with some
selling in Treasuries today on what I think was some profit
taking in the bond markets after a nice

Additional correlative resistance found in OEX at 423.

Here's a look at an intra-day chart of the Dow, which shows how a
DAILY pivot analysis retracement has been serving up support at
the 7,665 level.  I showed a very similar chart in Wednesday's
market monitor and actually had the 7,665 being a level of
support as the WEEKLY S1 of 7,734 was being broken to the
downside.

Dow Industrials Chart (12:30 PM EST) - 5-minute interval




I was actually using this Dow chart today when profiling a QQQ
bearish trade for day traders from QQQ $24.46, using a stop at
$24.60 and targeting $24.25 to the downside.  I was trying to
think like a computer and "knew" I needed a Dow break of 7,666 to
have the QQQ following the Dow lower.  It appeared the QQQ was
being traded like a computer as the session high after my bearish
profile was $24.60 (to the penny!) and in tonight's after hours
trade the Q's traded a low of $24.23, I alerted short-term bears
to lock in if still short at $25.27, and the Q's settle at $24.41
(just below WEEKLY S1 of $24.42) as I type.

Now, all I really wanted to show from the above chart is a
reference of how that 80.9% retracement has been coming into
play.

If thinking like a "computer" then this is what tomorrow's Dow
chart would look like, and why I have a directional bias to the
downside tomorrow.

Dow Industrials Chart - 10-minute intervals




I switched the above chart to 10-minute intervals, so that I can
get more historical data on the chart, and to perhaps instill
into traders, especially those that may have shorted/put the Dow
on Monday on the break below the WEEKLY pivot of 7,877 how far
they've come this week.  I've "dashed" the 7,666 level to show
where the DAILY (brown/gold is DAILY retracement) was at, and how
today's lower close in the Dow, has the 80.9% retracement now
lower at 7,636.  It's interesting that we now get a tight little
zone of resistance from 7,680-7,693, which seemed to serve as a
"zone of resistance" all afternoon.  Don't be surprise tomorrow
morning if Dow futures are down 40-points and the Dow opens for
trade at 7,636.  If the trend is lower tomorrow morning, then a
trader that is looking for some downside profits notes 3 levels
from 7,567-7,585 where we might expect some computer buying to be
taking place.  300 Dow points in a week isn't that bad for a
bearish trader to lock in some gains if they're found.

Today's action saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Status remains "bear confirmed"
at 13.3%.

NASDAQ-100 Index Chart - Daily Interval





I listened to tonight's mid-quarter update from Intel, and I
can't say that I heard anything from analyst's questions or
Intel's comments that would have me "rushing" to sell or buy
technology stocks.  This thinking not only applies to bulls, but
bearish traders that may have shorted the QQQ or other technology
stocks ahead of tonight's mid-quarter update.

While the NASDAQ-100 looks "risky" to me from a bullish point of
view as it relates to the Dow Industrials challenging its 02/13
relative lows and the NDX still well above that level, a bearish
trader will most likely have to honor overlapping support at 970
as a bearish trade target right now.  Correlative resistance at
the WEEKLY pivot, which sure seems to mark the apex of our
triangle of upward and downward trend is near-term resistance.

Today's action saw a net gain of 1 stock to a reversing point and
figure buy signal in the NASDAQ-100 Bullish % ($BPNDX).  This has
the bullish % edging back up 1% to 34%.  Still "bear confirmed."

S&P 500 Index Chart - Daily Interval




As I look at the above chart of the SPX, it would be hard for me
to put on a full position trade from a bear's perspective.  If
full position bearish from above 843, I'd be very tempted to
protect some gains in at least 1/2 of that position on a move
much above 825.  I'm just noting now (didn't see it when I was
making correlations in the pivot matrix) that tomorrow's DAILY
pivot is 823.90, which would tie in with the MONTHLY (red
retracement of 61.8%) and the WEEKLY S1 of 823.70.  I would think
this would provide some type of early session resistance.

While I think today's selling in Treasuries was due to some
profit taking and the lowering of interest rates by the ECB
overseas, I'd still error a bit on the side of caution if full
position bearish in SPX options, ESPECIALLY if holding March
expiration.

Today's action saw the broader S&P 500 Bullish % ($BPSPX) slip
lower to 31.6% from 32%, so a net loss of 2 stocks to reversing
lower point and figure selling signals.  This is a new low
reading for this indicator since the December reversal.  Still
"bull correction" here.

S&P-100 Index (OEX.X) - Daily Interval





I went back an looked at prior index declines with overlaid
Bollinger bands, and there have been days where a "spike" lower
did pierce the lower Bollinger band to the downside, but the OEX
indexes would close back near the band.  This makes it look
highly unlikely that we'd see a test of the WEEKLY S2 of 806.3
tomorrow (if we did, I'd definitely lock in some bearish gains).
Resistance begins to look more formidable near-term at the
MONTHLY pivot of 837.3 and WEEKLY pivot of 835.9.

Remember, the WEEKLY pivot matrix will change after tomorrows
close as this week's trade will be completed.  But now I'm
starting to think this.

We can see from tonight's comments and DAILY retracement work in
the Dow, that a LOWER close in the Dow had tomorrow's DAILY
retracement moving lower.  Right?... Right!

As such, I think an index BEAR would want to see the indexes
close BELOW yesterday's (Wednesday's) highs.  Why?  Because this
would at least have the WEEKLY retracement moving lower (like the
Dow's DAILY does).

Index traders holding FULL position BEARISH trader for CURRENT
month expiration may want to think about this.  A protective stop
just above Wednesday's highs might be a smart idea.

Today's action saw a net loss of 1 stock to a reversing point and
figure sell signal in the S&P 100 Bullish % ($BPOEX).  This has
the bullish % falling to 26%, which is a new low reading for this
indicator.

Jeff Bailey


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

Waiting & Patience
OI Staff

Thursday was more a day of rumors than trading.  The major indices
ended the day in the red and not for lack of any negative rumors
floating up and down Wall Street today.  Now that the President has
held his prime time news conference the last few bits and pieces of the
stage are falling into place.  The U.S. will have a vote next week and
the world will see who is willing to take a stand against Saddam and
his own regime of terror and who will not.

How does this apply to the markets?  As you can see in today's trading,
the markets seemed to be placed on hold most of the afternoon as we
waited to hear from Bush.  Intel's mid-quarter update was an idle news
story to pass the time while we waited from word out of the White
House.  Not that it mattered...Intel's report that is.  The
semiconductor giant merely narrowed its revenue guidance from $6.5 to
7.0 billion to $6.6 to $6.8 billion.  Business may not be bad but it's
not good either.  Intel was trading down in after hours markets once
their report was out.  Whether this is enough to pull the $SOX, which
has been consolidation sideways, through the 280 support level is
another matter.  Should the chips cave in, the $NDX is sure to head to
its mid-month lows and the Nasdaq Composite will likely surrender the
1300 level (yet again).

The Volatility Index (VIX) and the Nasdaq Volatility index (VXN) have
been slowly drifting lower, emphasis on slowly.  We're certainly not
seeing any real fear but investors are definitely not complacent given
the significant event risk in our future.

Meanwhile, buyers continue to flock to the golden metal and the April
gold contracts are back above the $355 mark.  Gold could have some
resistance at $360 but should the shooting start, odds are an emotional
spike will send it higher short-term.  Also heading higher are crude
oil prices.  Previously, oil futures hit a high near $40 a few days ago
but have since pulled back into a steady, unwavering march higher.  How
this commodity will react when the U.S. finally gives the word to
invade is a much-debated subject.

It appears the President and his allies are growing impatient and Wall
Street would like to stop waiting.  Next week should be interesting.


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

Market Averages

DJIA ($INDU)

52-week High: 10353
52-week Low :  7197
Current     :  7674

Moving Averages:
(Simple)

 10-dma: 7836
 50-dma: 8194
200-dma: 8550



S&P 500 ($SPX)

52-week High: 1106
52-week Low :  768
Current     :  822

Moving Averages:
(Simple)

 10-dma:  833
 50-dma:  867
200-dma:  905



Nasdaq-100 ($NDX)

52-week High: 1350
52-week Low :  795
Current     :  984

Moving Averages:
(Simple)

 10-dma:  994
 50-dma: 1009
200-dma: 1004



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


Both volatility indices appear to be resting as they know that
once the shooting starts it will be a race higher again.  The question
seems to be how high?  If the U.S. goes it alone the selling pressure
is going to be a lot greater than if they can actually swing the
security council to our side of the fence.

CBOE Market Volatility Index (VIX) = 36.34 +2.11
Nasdaq-100 Volatility Index  (VXN) = 45.65 +1.31

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.94        475,474       445,198
Equity Only    0.86        309,870       267,675
OEX            0.93         19,702        18,390
QQQ            1.26         48,081        60,745


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

Bullish Percent Data

           Current   Change   Status
NYSE          38.1    - 1     Bull Correction
NASDAQ-100    34.0    - 0     Bear Confirmed
Dow Indust.   13.3    - 0     Bear Confirmed
S&P 500       31.6    - 2     Bull Correction
S&P 100       26.0    - 1     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  1.62
10-Day Arms Index  1.39
21-Day Arms Index  1.34
55-Day Arms Index  1.35


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       1033          1796
NASDAQ     1196          1851

        New Highs      New Lows
NYSE        91              180
NASDAQ      56              106

        Volume (in millions)
NYSE       1,497
NASDAQ     1,245


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

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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WEEKLY MANAGER MICROSCOPE
*************************

Andrew Dudley: Fidelity Short-Term Bond Fund (FSHBX)

Income-oriented investors concerned that rates have bottomed and
may tick up in the second half of 2003 may find the conservative
investment strategy that Andrew Dudley follows in the management
of the Fidelity Short-Term Bond Fund to their liking.  Before he
joined Boston-based Fidelity Investments in 1996, Mr. Dudley was
a bond portfolio manager at cross-town rival, Putnam Investments
from 1991 to 1996.  The Yale-grad earned his MBA degree from the
University of Chicago in 1991.

Dudley became the portfolio manager of the $5.4 billion Fidelity
Short-Term Bond Fund in February 1997.  At that time, he assumed
portfolio management responsibility for Fidelity Advisor: Short-
Term Income Fund as well.  In August 2002, Dudley took the reins
of the Fidelity Ultra-Short Bond Fund.  Previous fund management
assignments included the Fidelity Advisor Intermediate Bond Fund,
Fidelity Institutional Short-Intermediate Government Fund and the
Fidelity Intermediate Government Fund.

Like in other areas of Fidelity, the best portfolio managers move
up the ladder into the large asset-base funds.  So, the fact that
Fidelity entrusts the $5.4 billion Short-Term Bond Fund to Dudley
says a great deal about their confidence in him.  The fact he has
been the manager since 1996 indicates he has performed relatively
well compared with other short-term bond funds during his tenure.
As a general rule, Fidelity managers seek to produce returns that
rank in their relative category's top two quartiles.

The no-load Fidelity Short-Term Bond Fund may be bought directly
from Fidelity or through Fidelity's no-load NTF fund network for
personal investors.  The fund is also available through a number
of brokerage fund networks, including Accutrade, Schwab's retail
fund program, T. Rowe Price, TD Waterhouse, and Vanguard.  There
is a minimum initial investment of $2,500 for regular ("taxable")
accounts; $500 for IRA ("tax-deferred") accounts.  Adding to the
fund's appeal is its below-average annual expense ratio of 0.58%.
That compares to 0.85% for the average short-term bond fund, per
Morningstar.

Investment Style/Strategy

In managing the Fidelity Short-Term Bond Fund portfolio, Dudley
pursues a high level of income, consistent with preservation of
capital.  He does that by investing at least 80% of fund assets
in investment-grade debt securities of all types and repurchase
agreements for those securities, while normally maintaining an
average maturity of three years or less.

To reduce portfolio risk, Dudley allocates assets across fixed
income market sectors and maturities, and limits big "duration"
bets relative to the index benchmark.  Rather, Dudley maintains
the fund's duration around that of the Lehman Brothers 1-3 Year
Government/Credit Index.  Accordingly, the fund's "value added"
stems primarily from Fidelity's research, and Dudley's security
selection prowess.  FMR research will analyze a debt security's
structural features, current pricing, trading opportunities and
credit quality in determining which issuers to include in fixed
income portfolios.

According to Morningstar, the Fidelity Short-Term Bond Fund had
an average effective duration of 1.9 years at June 30, 2002 and
an average credit quality of A.  While a "A" average quality is
considered to be investment-grade, it is not "high grade" so to
speak, and reflects the inclusion of both high-grade and medium-
grade issuers.  Indeed, at mid-year 2002, the portfolio had 25%
of assets invested in BBB-rated issuers.  Another 13.2% of fund
assets were invested in non-rated debt securities.  So Dudley's
reach includes all layers of the investment grade market - from
high-grade U.S. government securities to medium-grade corporate
bonds, wherever the best risk-reward opportunities are located.

While Dudley does reach for yield, which can increase portfolio
risk compared to high-grade short-term bond funds, he does keep
the portfolio average duration near that of the LB 1-3 Gov/Corp
index, which usually is shorter than the average short-term U.S.
bond fund.  The result is a portfolio that thrives on its fixed
income research and offers shareholders higher return potential
than similar funds, without making big duration bets and taking
excessive risk relative to its short-term bond fund peer group.

Fund Returns/Ratings

According to Morningstar, Dudley's risk-adjusted returns in the
last five years earn this fund an above-average, 4-star overall
rating within the short-term bond fund group.  Since Dudley has
managed the portfolio for the last six years, you can attribute
the fund's above-average performance and ratings to him as well
as his supporting cast of analysts, traders and other portfolio
managers.

Lipper's rankings support the fund's above average rating, with
the fund ranking 8 out of 123 short-term investment-grade funds
in the past year, and ranking 11 out of 91 funds for trailing 5-
year performance.  The 3-year chart below gives you a graphical
depiction of the fund's net asset value movements over the past
three years.




For the trailing 3-year period as of March 5, 2003, Dudley earned
a 7.5% average annual total return for investors.  That was solid
enough to rank in the 28th percentile of the short-term bond fund
category (near top quartile).  For the trailing 5-year period, he
produced a 6.5% average annual total return, ranking in the first
quartile (24th percentile) of the category.  So, Dudley's returns
have been fairly strong and consistent.

Since 1999, Dudley's annual returns have ranked in the category's
two highest quartiles.  In 1999, Dudley returned 3.3%, ranking in
the top quartile of the short-term bond category.  His returns of
7.9% in 2000 and 7.6% in 2001 ranked in the second quartile those
years.  In 2002, his 6.7% annual return put him back in the first
quartile of the short-term bond fund group.  And, so far in 2003,
the fund is up 1.2%, better than two out of three short-term bond
funds, per Morningstar.

Helping the fund to remain competitive is its low expenses, which
at 0.58% of assets doesn't take too big a bite out of its return.

Conclusion

Dudley has managed this fund since early 1997, delivering strong,
consistent return for investors without incurring excessive risk.
Conservative income investors in search of a top short-term bond
fund have all the makings of one in the Fidelity Short-Term Bond
Fund managed by Andrew Dudley.  For more detail or to download a
fund prospectus, log on to www.fidelity.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Stalemate
Linda Piazza

Imagine CNBC taking a poll.  Will the markets fulfill the targets
of the H&S formations formed from November to late January?  Will
they instead steady at current levels and then move up to
complete the right shoulders of reverse H&S formations?  Imagine
another poll.  Will markets rally once bullets start flying?
Will markets tank once the bullets start flying and market
participants must focus on the problems facing global economies?


To read the rest of the Swing Trader Game Plan Click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp


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The Option Investor Newsletter                 Thursday 03-06-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: SYY
Daily Results
Call Play Updates: AMGN, BDX, DGX, MME, SLAB, ZMH
New Calls Plays: None
Put Play Updates: BBOX, MHK, PII, UTX, VZ, XL
New Put Plays: TIN


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

SYY $24.60 +0.28 (-2.52) Played out to perfection.  As SYY broke
below major support at $27.50, we added it to the put list,
looking for a decline down to the $22 area.  The stock gave us
a perfect entry on Monday with a failed bounce at $27.50 and the
stock has been under heavy selling pressure all week.  This
morning saw a big move down, with a low of $22.90 before SYY
bounced and bounced hard.  Given the strength of the rebound
today, it looks like this one is just about played out and we're
dropping coverage tonight.  Traders still in the play should
look to exit on any weakness tomorrow, or at least lower stops
to $24.75, just above today's intraday high.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     55.40   -0.90   0.27   1.42  0.07  New Relative Highs
BDX      33.80   -0.23  -0.64   0.27  0.10  Up trend intact
DGX      52.36   -0.73  -0.97   0.64  0.17  Intraday Support
MME      37.75   -0.15  -0.10   0.82  1.73  Breakout
SLAB     27.58   -0.85   0.02   0.46  0.72  A Sector Leader
ZMH      44.79   -0.96  -0.05   0.53  0.56  Poised to Move


PUTS

BBOX     38.69   -1.00  -0.11  -0.29 -0.72  Ready to Drop
MHK      45.69   -0.82  -1.18  -0.71 -0.98  Another Relative Low
PII      45.80   -0.69  -1.36   0.33 -0.28  Sideways trading
SYY      24.60   -0.70  -0.50  -1.19  0.28  Drop, Major low!
TIN      39.53   -0.52  -1.43   0.01 -0.81  New, Broke Support
VZ       33.40    0.22  -0.40   0.13 -1.23  Another Breakdown
XL       68.62   -0.80  -0.45   1.23 -0.63  Still Churning


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

AMGN $55.40 +0.07 (+0.76) Those frisky bulls just can't seem to
get enough of our AMGN play, as they drove the stock to a new
intraday high of $55.95 on Thursday before relaxing just a bit
in the final hour of trade.  Despite the weakness in the broad
market and the BTK index, AMGN just keeps powering higher.
Isn't it amazing what positive guidance and a strong bullish
price chart can do?  Throughout this play, we have done well by
targeting pullbacks to support for new entries and despite the
breakout over the past couple days, we're going to stick with
that winning formula.  The optimum entry zone now looks like
$54.00-54.50, as that area defined the congestion/resistance
area before the breakout over $55.  A pullback into that area
ought to provide a solid level for initiating new positions,
while more aggressive traders could even target shoot as low
as the $53.50 level (the site of the 20-dma).  The multi-month
ascending trendline has provided consistent support throughout
the play, so we'll continue to raise our stop to just below
that line.  With the trendline currently right at $53, we'll
raise our stop to $52.90 tonight.

---

BDX $33.80 +0.10 (-0.60 for the week) Unfortunately we have
little new to report on BDX from Tuesday.  No new news and little
change on the price chart.  On the other hand, if you're an
optimist, BDX has been displaying some relative strength and
trading sideways compared to a weak overall market.  The upward
trend remains intact but we would like to see the stock close
above the $34 level again.  Very conservative traders could
tighten their stop to just under the $33.20 area as the stock has
bounced there twice in the last two sessions.  Officially, we'll
leave our stop at 31.98.  Considering the overall market
conditions, we would not recommend new positions unless BDX
begins to show greater strength.

---

DGX $52.36 +0.17 (-0.40) With last week's surge through the $54
level, DGX looked like it was ready to stage a major breakout
over the $55 resistance level.  But it appears that such a
bullish plan was not to be, as the broad market pressured the
stock back to major support just above the $51 level earlier
this week.  That pullback may be just what the Dr. ordered, as
we can see the stock confirming support just above the $51
level, continuing to hold above the 20-dma ($51.66) on a closing
basis.  With the bullish picture being depicted on the PnF
chart, this latest pullback is providing an attractive entry
point, with risk easy to manage using our $50.50 stop.  As long
as the stock continues to find intraday support above the $51
level, this recent pullback looks buyable.  The anemic volume
on this latest pullback helps to confirm that it is a
consolidation before moving higher.  Traders seeking
confirmation before playing will want to see DGX crest the
$52.50 or even $53.50 level before entering the play.

---

MME $37.75 +1.73 (+2.00) What a difference a couple days makes!
When we looked at MME on Tuesday, the stock seemed to be mired
in the $35-36 area, unable to build on the push through our
entry trigger of $35.25.  But things changed for the better
yesterday, as the stock managed to push through the $36 level
on a closing basis.  Although we don't know what the root cause
was (there was no news), MME bulls really put on a burst of
buying on Thursday, propelling the stock as high as $38 on
heavy volume.  The price relaxed a bit into the close, but with
another X being added on the PnF chart, the fears of a bull
trap have been significantly reduced.  Next up on the bulls'
agenda will be a move through the $38 level, which ought to
easily lead to a test of resistance at $40.  But we may need
to see a bit of profit-taking before that move takes place.  A
pullback to confirm the $36 level as new-found support looks
like it would be the next high-odds entry point.  To protect
against a sharp pullback, we're raising our stop to $35, as
MME shouldn't be able to close below that level if today's
rally is for real.

---

SLAB $27.58 +0.72 (+0.46 for the week) All eyes were on Intel
tonight after the bell, well, at least those eyes not waiting and
watching for President Bush's primetime press conference.  Bulls
and Bears had to meet in the middle over Intel as the chip giant
narrowed its range for Q1 revenues.  Previously, the company gave
guidance of $6.5 to $7.0 billion.  Now that range has narrowed to
$6.6 to $6.8 billion.  Business may not be as bad as it could
have been but it's not as good as it could be either.  The stock
(INTC) was trading down after hours due to the news.  What our
readers need to be aware of is how the $SOX reacts to Intel's
news.  If Intel continues to sink tomorrow it could be the
catalyst bears need to break through the support at 280 on the
SOX.  Should the SOX breakdown then we seriously doubt that SLAB,
as strong as it has been, will be able to fight the up hill
battle alone in the face of a sinking sector.  Considering the
environment we are pretty encouraged by SLAB's strength.  The
stock has taken the last two sessions as an opportunity to bounce
higher off its rising trend.  If SLAB traded in a vacuum we'd
consider new longs.  Unfortunately it does not.  Thus, we're
going to make the following strategy changes.  Number one, we're
upping our stop loss to $25.74.  Barring any gap down this should
significantly reduce our exposure.  Number two, we're going to
set an official price target to exit the play for a profit.
Should SLAB trade at or above $29.50 we'll close the play.

---

ZMH $44.79 +0.56 (+0.40 for the week) We hate to sound like a
broken record but it appears to be more of the same for ZMH.
Fortunately, this time more of the same means the up trend
continues to inch higher.  The stock rallied off the bottom of
its intraday trading channel and is now starting at the $45.00
level of resistance once again.  Option traders should take note
that ZMH is not the fastest moving stock out there.  The weekly
chart is showing the stock at the top end of its weekly channel,
which would lead one to believe that upside is limited.
Meanwhile we have sort of a conflicting bullish bias on the daily
chart as shares creep higher.  Considering the market environment
today caution is the watch word.  We love the relative strength
shown by ZMH but any short-term upside target is probably in the
$47.50 range.  Make your trade adjustments appropriately.  Given
the state of world affairs and the market's recent performance we
are going to raise the stop on ZMH to $42.95, which should reduce
our exposure.


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

None


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

BBOX $38.69 -0.72 (-1.97) Despite another big downdraft in the
broad markets on Thursday, traders are still left wondering
whether BBOX is going to break down or if this is just a mild
pullback.  The daily chart looks like it is predicting a
breakdown, but it is interesting how staunchly the bulls are
defending the $38.70 level, which happens to be the top of the
October 17th gap.  We're looking for the stock to fill that gap
and then work its way down to the larger gap in the $33-35
area.  But first the bears are going to need to break the
current support.  As has been the case during the stock's most
recent decline, entries on failed bounces continue to be the
best approach.  With today's close under the $39 level, the
next likely failed rebound to provide entry into the play is
likely to occur in the $39-40 area.  Those traders that really
want to enter on a breakdown will want to target a drop under
$37.75 (the bottom of the gap) for pulling the trigger.  Lower
stops to $41.

---

MHK $45.69 -0.98 (-3.69) It took awhile to get moving in our
direction, but the recent declines in housing numbers has finally
driven our MHK play below important support.  Last week's wedge
broke near the $49 level and since then the stock has been
falling under increasingly heavy selling volume, 60% above the
ADV on Thursday.  As well as the plawy is going though, we don't
want to get complacent.  The stock is coming up on some strong
support in the $43-44 area and it is entirely possible that we'll
get a rebound from that level.  So rather than advocating new
entries at this point, we want to focus on maximizing gains from
the play.  A break under $45 should be used by conservative
traders for harvesting gains on the play, not chasing the stock
lower. For those traders not wanting to cut the play off
prematurely, just trailing stops lower as the stock continues
to work lower.  We're lowering our stop tonight to $48.10, just
above firm resistance from Tuesday.

---

PII $45.80 -0.28 (-2.60) Where's the follow through?  Yesterday's
breakdown below the $46 level at the open certainly looked
encouraging, but it is rather curious that even with another
sharp loss in the broad market on Thursday, PII is stubbornly
hanging onto support above $45.50.  Given this resiliency, bear
need to be on their guard for a possible oversold bounce.  That's
a big part of why we continue to avoid entries on breakdowns,
preferring to wait for the next failed rally to get into the
play.  Also note that there is some strong support at the $45
level (from October 2001).  There is now some strong overhead
resistance at the $47.50-48.00 area (also the site of the 10-dma
at $47.56) and a failed bounce near that level looks like our
best bet for new entries.  On the downside, once below the
$44-45 area, PII ought to seek out support first at $42, then
$40 and finally $37, near the site of the September 2001
closing lows.  Maintain stops at $49.

---

UTX $56.28 -0.50 (-2.30) As selling pressure continues to
dominate in both the Dow Transports ($TRAN) and the Defense
index (DFI.X), shares of UTX just can't seem to catch a break.
Since breaking below the $60 level last week, the stock has
been consistently marching lower along its lower Bollinger band,
with intraday bounce attempts unable to even challenge the 10-dma
(currently $58.37).  UTX fell into its October 17th gap earlier
this week and is getting very close to filling that gap, which
will be complete with a trade below $54.60.  Looking at the PnF
chart, it appears unlikely that level will provide much more than
token support on the way down though.  The bullish support line
has been solidly broken and the bearish price target of $51 ought
to be challenged before any significant buying interest
materializes.  Note that level is just above the October low.
The stock has been stepping its way lower, giving ample
opportunity to enter on each failed bounce.  For new entries,
look for a rollover at intraday resistance, first at $57 and
then at $58.  Leave stops in place at $58.75

---

VZ $33.40 -1.23 (-1.18) What do you know?  Our persistence
finally paid off.  VZ has been flirting with that $34.25 support
level for 2 weeks now, but we saw a crack in that fagade
yesterday, with a slight intraday dip below that level.  The
payoff came today with the stock plunging below that level on
strong relative volume.  After trading down to $33.22, there
was a slight rebound into the close, but nothing of consequence.
Helping to drive VZ lower today was the action in the North
American Telecoms index (XTC.X), which fell to a new recent low
of $397 before barely clawing its way back over the $400 level.
There's significant support waiting below at $33, both on a
historical basis and at the PnF bullish support line.  That
could generate another bounce, but so long as the XTC remains
weak, VZ is likely to continue its trend of lower highs and
lower lows.  Traders that entered the play on one of the failed
bounces of the past couple weeks are in really good shape
tonight and should now be tightening stops in case of a strong
bounce.  We'll continue to use failed rallies as our preferred
entry strategy, now targeting a rollover from the vicinity of
$34.50.  It's time to get a bit more aggressive with stops, so
we're lowering our coverage stop to $35, just above the 2-week
descending trendline.

---

XL $68.62 -0.63 (-2.32 for the week) Shares of XL continue to
churn sideways much like the broader markets.  Also in accordance
with the markets, XL has a bearish bias and the stock has failed
twice now at the $70 level.  Unfortunately for the bears, XL has
also managed to bounce at the $68 level.  Earlier we suggested
that more conservative traders look for a move under the $68 mark
as signs of further weakness.  Another alternative would be to
tighten your stop down to just over $70 to reduce risk but
officially we'll leave our stop $72.06.  Despite being
drastically oversold the stock still looks weak.


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

TIN – Temple-Inland Inc. $39.53 -0.81 (-2.37 last week)

Company Summary:
Temple-Inland is a holding company that conducts all of its
operations through its subsidiaries.  Its principal subsidiaries
include Inland Paperboard and Packaging, Inc., Temple-Inland
Forest Products Corporation, Temple-Inland Financial Services
Inc., Guaranty Bank and Guaranty Residential Lending Inc.  TIN's
business is divided among three groups: the Paper Group, which
manufactures corrugated packaging products, the Building Products
Group, which manufactures a wide range of building products and
manages the company's forest resources of 2.1 million acres of
timberland, and the Financial Services Group, which consists of
savings bank, mortgage banking, real estate and insurance
brokerage activities.

Why We Like It:
If there was any doubt that the recent housing boom may be
running into trouble, last week's sharp drop in New Home Sales
coupled with Alan Greenspan's bearish comments on the industry
earlier this week ought to have even the bullish traders in the
sector sitting up and taking notice.  There's another clue to
the slowdown in the Housing industry and it can be seen at the
commodity level.  Lumber futures have plummeted in recent weeks,
now trading just above their contract lows.  That's a sure sign
that there is less demand from the number one customer -- the
housing industry.  Our new put play on TIN is an attempt to
benefit from this same trend, as the company is heavily involved
in providing lumber-related products to the home-building
industry.  After posting a double top near the $49 level in
December and January, the stock fell back to consolidate just
above the $42 level for much of the month of February.  But
things changed drastically on Wednesday, with the stock plunging
through that support and following it up on Thursday with a drop
under the $40 level.  The catalyst for this drop seems to be
related to the overall decline in Housing stocks, but last
week's announcement of layoffs certainly didn't help.  This move
took out the last historical support since mid-October, except
for a couple of gaps that are just begging to be filled.  The
first is $37-38, and the second is $35.40-36.60.  A quick look
at the PnF chart says there might be some near-term support at
$38 (the site of the bullish support line), but a quick vertical
count shows that the eventual downside target could be much
lower, with a price target of $30.  Overhead resistance now
looks formidable at the $42 level and a failed rally near that
level would be the ideal entry point into the play.  Of course,
that strong of a rally may be too much to hope for, so a failed
bounce near $41 would be a good way to go as well.  Because of
the proximity of the bullish support line at $38, we want to
avoid entering on further weakness, at least for the time being.
In order to give the play room to move, we're initiating
coverage with our stop set at $42.50.

BUY PUT MAR-40*TIN-OH OI= 16 at $1.40 SL=0.75
BUY PUT APR-40 TIN-PH OI=  0 at $2.15 SL=1.00

Average Daily Volume = 2.02 mln



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The Option Investor Newsletter                 Thursday 03-06-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - VZ
Traders Corner: What Do Full Service Brokers and Aliens Have in
Common?
Traders Corner: Trading with Indicators
Options 101: In Defense of Defense


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

Verizon - VZ - close: $33.40 change: -1.23 (-1.18 for the week)

Company Description:
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.

Most Recent Write-up

What do you know?  Our persistence finally paid off.  VZ has been
flirting with that $34.25 support level for 2 weeks now, but we
saw a crack in that fagade yesterday, with a slight intraday dip
below that level.  The payoff came today with the stock plunging
below that level on strong relative volume.  After trading down
to $33.22, there was a slight rebound into the close, but nothing
of consequence.  Helping to drive VZ lower today was the action
in the North American Telecoms index (XTC.X), which fell to a new
recent low of $397 before barely clawing its way back over the
$400 level. There's significant support waiting below at $33,
both on a historical basis and at the PnF bullish support line.
That could generate another bounce, but so long as the XTC
remains weak, VZ is likely to continue its trend of lower highs
and lower lows.  Traders that entered the play on one of the
failed bounces of the past couple weeks are in really good shape
tonight and should now be tightening stops in case of a strong
bounce.  We'll continue to use failed rallies as our preferred
entry strategy, now targeting a rollover from the vicinity of
$34.50.  It's time to get a bit more aggressive with stops, so
we're lowering our coverage stop to $35, just above the 2-week
descending trendline.

BUY PUT MAR-35 VZ-OG OI=11448 at $2.05 SL=1.00
BUY PUT APR-35 VZ-PG OI= 3822 at $3.20 SL=1.50
BUY PUT APR-30 VZ-PF OI= 3787 at $0.95 SL=   0

Average daily volume = 7.12 mln



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

What Do Full Service Brokers and Aliens Have in Common?
By Mike Parnos, Investing With Attitude

Once upon a time, about three years ago, I was living in a much
warmer climate and writing a financial column for the local
newspaper.   As regular readers and CPTI students know, there
isn’t much of a filter between my brain and my mouth – except
when there’s a cheeseburger in there.  So, occasionally someone
is become upset.

In a column I once asked one little question.  With one little
answer I managed to alienate a large segment of the literate
financial community in South Florida.

The Question:
What do quality full service brokers and aliens have in common?
The Answer:
You always hear about them, but no one has ever met one.
______________________________________________________________

I received written threats.  I received verbal threats.  I even
received physical threats in messages on my answering machine.
Neither my answering machine nor I can be intimidated.   (If
Pizza Hut threatened to cut me off, that would be a different
story).  Letters were written to the newspaper I was writing for.
Brokerages even threatened to pull their advertising from the
newspaper unless they shut me up.  Fortunately, my editors had
some brass.  Besides, them shutting me up would have been a lot
like using a plunger on the Gulf of Mexico.

Why do I feel this way about full service brokers (and financial
planners)?  Let me pose this question to the universe of
OptionInvestor readers.  I suspect that, at one time or another,
the vast majority of you have dealt with “full service” (and I
use the term lightly) brokers or advisors.

The question:  Before, or after, you made a stock purchase, has
anyone EVER had a financial advisor or a full service broker ask
you, “Would you like to insure that investment?”  I’ve asked
hundreds of people over the years and I have yet to get a “yes”
answer.

Please tell me if you know of a broker who asks, or even suggests
as much as a stop loss.  If you know of one, I want to talk to
him and shout his praises to world.

When medical students become doctors, they have to take the
Hippocratic Oath, vowing to heal, preserve life, and to live by a
code of ethics.  Financial professionals have no such oath.  They
simply have to pass a Series 7 examination, and perhaps another
test or two (depending on the state in which they intend to
work).  While a poor medical professional can dismember you limb
by limb, a poor financial professional can dismember your
portfolio dollar by dollar.

Would You Buy “Investment” Insurance?
If someone buys 1,000 shares of a $50 stock, they’re risking
$50,000.  Would anyone (in their right mind) drive a new $50,000
car off the lot without insurance?  Would you walk around without
health insurance?  Would you live without homeowners insurance?
Believe me, I cringe a little every time I write a check to an
insurance company, but it’s a no-brainer.  You have to protect
yourself against catastrophic events.  A financial investment in
a stock (or even a mutual fund) is no different.

Why do you suppose brokers and advisors don’t go that extra mile
(or even the first quarter mile)?  They had to study the use of
options to pass their Series 7 test.  Perhaps they have the
brains of a Chia Pet and don’t understand the concept of a
“married” put or a simple “collar.”  I truly hope that’s not the
case, because thousands of unsophisticated investors entrust
their life savings to these people.  It’s a scary thought.

One broker explained to me that he knows the strategy, but
doesn’t bring them up because of the stigma that’s attached to
options.  “After all, don’t people lose all their money trading
options?  That’s what most investors think,” he said.  He
maintained that, if he got a reputation for using options, people
would be reluctant to become clients.

An angry broker asked me, “Do you how long it would take to
explain those strategies to everyone who wanted to buy stock?
Plus, we’d have to get them all approved for option trading.
Besides, our brokerage firm discourages option trading.”

If Only They Would Have . . .
Can you imagine how different things would have worked out had
the employees of Enron, WorldCom, Exodus, etc. known about using
puts?  Don’t you think the administrators of their respective
401K plans know what a put is?  Of course they do.  Did they
bother to, even once, send a note, inside pay envelopes to
suggest the employees consider insuring their investments?  Long-
term puts could have easily been purchased in an outside
brokerage account and thousands of lives would have been
benefited dramatically.

As I hope you know, options were originally created as a hedging
tool – not a speculative tool.

What triggered my spewing of opinion?  I saw an article that
estimated investors lost  $7.6 trillion in the U.S. stock market
since its peak in March, 2002.   It said that investors filed
7,704 arbitration claims against brokers in 2002. – a record
pace.

I’m wondering if full service brokers or financial advisors, who
knowingly do not inform their clients of common sense
alternatives, can be held responsible – or negligent.  I’ve made
this comparison before, but on “Law and Order,” I’ve seen this
same type of negligence called “depraved indifference.”  That
means, they could have helped, but just stood by and allowed a
death to occur.  Is the death of a portfolio any different?

Let’s call Judge Judy.  She’ll know what to do.

Meanwhile, if you want to explore your options, check out NASD
Dispute Resolution, which should be on www.NASD.com website.
Will you be awarded any money?  Of course you will -- the day
after Jimmy Hoffa turns up.
______________________________________________________________

NEW CPTI POSITION
MMM April Iron Condor with a range of $115 - $130.
Sell 10 contracts of the MMM $115 puts (MMMPC) @ $1.80
Buy 10 contracts of the MMM $110 puts (MMMPB) @ $1.20
Sell 10 contracts of the MMM $130 calls (MMMDF) @ $1.65
Buy 10 contracts of the MMM $135 calls (MMMDG) @ $.70

Total credit of $1.55 ($1,550 for a 10 contract position) with
about six weeks left to April expiration.  Although we anticipate
some near-term volatility in the markets, it’s likely the support
and resistance levels will hold.
______________________________________________________________

CPTI Portfolio Update
Position #1 – OEX Bull Put Spread – Trading at $416.49.
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 $69,74.
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
$58.00
It seems that there’s about $8-10 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 $24.49.
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


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

Trading with Indicators
By Larry Wales

What I would like to discuss tonight is a terrific indicator that
I would not trade without.There are many studies to choose from
in any charting software program.We all have our favorites
weather it be MACD,Stochastics,RSI etc..All of them give a trader
a clue as to if the current trend is overbought/oversold and if
the momentum in the current trend has just about run it’s
course.Many trader’s I know do not use any indicators at all.Just
pure price action dictates their next move.

The momentum indicator that I and many trader’s use is The
Commodity Channel Index ,the CCI.The CCI is an indicator that
measures momentum in the market.It was developed by Donald
Lambert to identify cyclical turns in commodities but works great
in trading futures.This momentum oscillator can help identify
price reversals,price extremes,and trend strength.Now we can
focus on the various thresholds that the CCI has.

The CCI has a many settings that can speed up the signals you get
or slow them down.The theresholds that I prefer are the +200,-
200,+100,-100,+33,-33 and the zero line.The settings that I
prefer are 22 bars and 1 for the avg.My main chart for trading
the ES is the 210 tick chart with a 5 min chart set with a 14,1
setting.The 14,1 setting speeds up the signals on the 5 min but
do not like it as well on the 210 tick.Some day’s it can give
great signals but I prefer the 22 bar setting to reduce the
number of whipsaws.Sometimes the 5 min can provide confirmation
for the setups on the 210 tick chart.

To determine the trend on the CCI there are many key points.On
the CCI,the zero line is the dividing point between the uptrend
and the downtrend .When the cci is below the zero line for at
least 5 or more price bars look only for shorts.When the cci is
above the zero line for at least 5 or more price bars look for
longs.The exceptions would be divergences.The cci zero line is
the strongest point of support and resistance.I almost always
take the zero line breaks especially if there is a
divergence.Here is an example of a 210 tick from Tuesday’s
trading.




As you can see the move between 13:00 and 13:15 produced a nice
regular divergence as indicated by the white lines.You could
short on the break of the trendline on price at 829.75 which
coincided with the cci going under the +100 threshold or wait for
the zero line break.If you waited for the zero line break you
would of got in approx 828.75.Many times you can take that trade
on the divergence confirmation and not wait for the zero line
break.It’s all a matter of personal preferance.The cci can dance
above and below the 100 threshold as well dance around the zero
line.But one of the strongest setups using the cci is a
divergence ,either regular or reverse.Once you are in a trade and
the cci get’s below the –100 threshold and possibly to the
extreme - 200 level you can manage your short .The way I do is
take off half of the position on a –100 line break and let the
rest ride until the cci breaks the –33 threshold.From the chart
above you would have been short at the very least at 828.75 and
rode down half the position to your first get out point at 825.75
on the –100 line break and the balance of the position out at
823.75 when it broke through the –33 line.CCI did go green then
for a long signal but by looking at the moving averages plotted
on this chart all of them tell me to look for shorts.There is
another example of the very same situation at the 15:21 bar and
the 15:34 bar.

There are many other aspects and ways of trading the CCI that we
can discuss at another time but when you use the cci in
conjunction with stochastics it makes I think a powerful
setup.There is not a holy grail that is the answer to all our
trading needs but hopefully this little bit of information can
make all of us better traders.I know it has helped me a great
deal as we enter battle every day in the futures world.

Many people have asked me where they can get the CCI. I presently
use E Signal for my data feed and Ensign Software for my charting
platform. I know that Tradestation has the indicator and I
thought Qcharts had it as well. QCharts had a beta test with this
indicator last fall I believe and just assumed it is a part of
their package today. I do not use QCharts so if you have this
program I suggest you call them and ask them when it is going to
be available.

Ensign and ESignal has been a rock solid performer for me for
over a year now. Ensign is constantly updating their software
usually on a weekly basis always adding new studies, and quirks
to the program to make it a premier trading platform.


Good Trading To You All,


***********
OPTIONS 101
***********

In Defense of Defense
Buzz Lynn
buzz@OptionInvestor.com

War is good for defense stocks.  Right?  So why have defense
contractors taken it in the shorts over the last few weeks?

Actually, there is a false premise in thinking that war is good
for defense stocks.  In reality, PRODUCTION and further
ANTICIPATED production is good for defense stocks.  Hold that
thought and we'll get back to it in just a minute after this
important housekeeping message.

Important housekeeping message:  this column today isn't so much
about defense stocks as it is about trading and market psychology.
It just so happens defense stocks fit the bill very nicely in a
contrarian sort of way, which is really what we want to tackle in
these few short minutes.

OK, back to defense stocks. . .General Dynamics (GD) is down
nearly $10 from $64 to $54 since February 20th; Northrop Grumman
(NOC) is down nearly $7 from roughly $91 to $84 since February
20th; Lockheed Martin is down roughly $7.50 from $52 to $44.50
since February 5th; and Raytheon (RTN) is down roughly $4.50 from
$30 to about $25.50 since February 5th.

So what happened given the backdrop that the U.S. is about to
enter what is reputed to be a costly, drawn-out, protracted war -
aka expensive and long?  Shouldn't these be stellar days for
defense companies who supposedly are raking in the cash as juicy
compensation for increased production?  After all, these companies
have bullets and missiles to produce, not to mention the support
services and equipment production - you know, tanks, airplanes,
surveillance equipments, food, plus the men and women who use them
- necessary for their delivery to their ultimate targets.  If this
(almost) war is going to go on for years, shouldn't investors be
bidding up the share prices as just appreciation for rising
revenues and profits?

Sort of.  Let me offer my explanation.  (I can hear the Homer
Simpson-like smacks of the palm against collective foreheads.
DOH!  I know 'cause I did it too once it was explained to me)

Let's start with the general principal that stocks are priced to
reflect an anticipated (but discounted) stream of cash flows.
Professional investors aren't stupid (usually, but there are
exceptions) and they generally buy to hold in anticipation of
revenues growing stronger, others recognizing the value and buying
into the same argument, and then sell when the shares are "priced
to perfection".

While in the really long term, like over a period of years, they
don't always get the "sell" part right - witness March, 2000 to
current day - but they do understand selling into strength after
they have made their money from buying on weakness.  In the case
of defense stocks, smart investors were buying as soon as they
heard George Bush talking about an axis of evil, and it really
became obvious when the U.S. demanded enforcement of existing U.N.
resolutions and pushed that issue hard.  At that time, in the last
half of 2002, there were only scant reports of a weapons shortages
and the need to bolster production.

Aha! moment: investors realized that defense contractors would
soon see an increased revenue stream and probably increased
profits.  They started buying.  Sure enough, in order to build up
munitions in the Middle East, weapons and defense factories had to
go into big time production to amass a buildup (stockpile)
perceived to be required for a successful wartime effort.  And
"produce" is exactly what those companies did.

Now, there has to be some assumption that there is no free lunch.
Accordingly, it is probably reasonable to assume that these
manufacturers did, indeed, make money, and make a bit more.  But
for the most part, and by all accounts, there would be no war
until the time that everything, or almost everything, necessary to
win a war were already manufactured, shipped, and ready for use.
In war, you don't want to be short of critical widgets if they are
necessary for success.  On the front line, nobody wants to hear,
"Sorry soldier, we're a little behind.  Your order for 100 cruise
missiles is backed up.  But we'll have them to you next week once
I confirm with the assembly floor foreman."  That doesn't work.

Thus, I think most of the production has already been done.  When
the battle begins, I would be pretty comfortable with the idea
that there are enough munitions and equipment to finish the job
quickly and effectively.  And perhaps there are a few more as
extras just in case.  So is it realistic to expect production to
remain at 100% like in the preparation for war?  Some may
disagree, but I don't think so.  Generally, no company produces
things without further anticipated demand, an order, and the
promise of payment.  So when the attack bugles and drum corps.
sound, I think it's a safe bet that big munitions production runs
are over.  As an investor, that would be my cue to sell.  The
revenue has stabilized; the big orders and big profits are already
accounted for and booked.

Does this sound like a perfect case of, "buy the rumor, sell the
news"?  It should.  The above helps explain why investors are
leaving defense stocks.  Buyers have jerked back their bids and
sellers have emerged.  This may be a chicken/egg thing, and I'm
not sure which came first, but while the defense selloff is likely
born of the perception of immediate (or darn close) attack, it
also, in a political sense, says that investors do not expect the
war to last long at all.  If they did expect indefinite
continuation, it would be reflected in their willingness to hold
on to defense stocks in anticipation of replacement orders to
those manufacturers.  Again, in the political sense, I'd call that
good news.

But does this signal a great buying opportunity in defense stocks?
To my contrarian way of thinking, I think so.  Maybe not this
moment, but soon if the war looks to end quickly and decisively.

Here's why.  The market is already telling us to perhaps expect a
short, quick war effort.  I'd believe it because the market tends
to price that in and reflect it.  If that is so, it leaves a
defense contractor's customer, aka the U.S. government, free to
focus on the next threat, and start the whole process over again.
Of course, the first thing to happen will be another munitions and
equipment buildup.  That means orders come in and get filled.  The
contractor gets paid, and the cycle repeats.

Let me add one more thing here.  It's always when the last bull
bails out of a position that the bottom is reached.  I don't know
of too many left in the defense sector.  Hence we have what would
otherwise be called a contrarian play.  Any doubters of the notion
that bulls are mostly gone need only look at the Defense Index
chart (INDEX:DFI.X)

Defense Index chart - INDEX:DFI.X (weekly/daily)"




OK, let's be clear.  I am not recommending that everyone buy this
index as soon as they are finished reading the column.  In fact,
I'm not recommending that anyone buy it now or later.  One look at
the increasing negative slope of the 200-dma (magenta) and the 50-
dma (gray) ought to convince anybody this sector is on a downhill
slide.  Bears are at the honey pot and bulls have ground off their
horns on this one.  What a perfect time to be a contrarian!  Look
at the buried-for-dead oscillators on both the 5 and 10 period
stochastics on the weekly and daily charts.  This thing has the
stink of sun-ripened herring!  Yuck!  Who'd want to own it?  Who
wouldn't want to short it?

Remember my example of natives in the jungle all turning
collectively to face the noise from the yet unseen animals that
might eat them?  While they may be collectively facing the danger
associated with the noise, if nobody is paying attention to
anything else, it is really the silent danger behind them, which
they do not see and do not focus upon, that will eat them.  Does
it seem like defense investors are staring collectively at
anything else but the prospect of declining profits and revenues?
Do the shorts see anything else?  Have the longs all run for cover
and sold the news?  The oscillators certainly say so.  Yet it is
that, which they do not see - namely a pending resurrection of
profits in later months if another "axis" country ends up in U.S.
crosshairs, as one surely will - that will surprise them the most.

One more thing before we sign off.  Take a look at this point and
figure chart from Stockcharts:

PnF of $DFI:




Ouch!  I feel the bulls' pain.  But can trees really fall further
once they appear to have hit ground.  Well, yes, to the same
extent that they can grow to the sky in a market bubble.  However,
history suggests that with a long tail down, as $DFI has painted,
it's bearish days are likely limited.  Hence the green (perhaps,
but not guaranteed bullish) Alert sign.

To sum it up, we have a "sell the news" event about to take place.
Perhaps it already has, which we can see in the buried oscillators
and the long tail down on the PnF chart.  Is it time to buy?  Not
in my book, but it's time to watch for signs of bullishness in
hopes of getting the jump on a potentially bullish play - a rare
find in today's market.

Remember, DFI has likely been sold off on a grand scale by
investors based on diminishing expectations.  If most are already
selling their longs or have gone short, there are not many left to
drive the price down further.  While a rebound may or may not be
possible, I think a bottom in defense stocks may be near.  Let's
watch for the next few days or weeks and see what these players do
when war becomes real.

Until next time, make a great weekend for yourselves!

Buzz


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