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Daily Newsletter, Sunday, 03/09/2003

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The Option Investor Newsletter                   Sunday 03-09-2003
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: Trading on Rumors (Debt Trap Article Below Wrap)
Futures Market: It's Pivotal, Again.  
Index Trader Wrap: WHAT IF?
Editor’s Plays: Ladder Time!
Market Sentiment: What Day Is This?
Ask the Analyst: The best book on trading stocks and options
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Focusing on the Charts


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 03-07        WE 02-28        WE 02-21        WE 02-14 
DOW     7740.03 -151.05 7891.08 -127.03 8018.11 +109.31 + 44.57 
Nasdaq  1305.29 - 32.25 1337.54 - 11.48 1349.02 + 38.85 + 27.70 
S&P-100  420.12 -  5.24  425.36 -  4.51  429.87 +  7.30 +  3.78 
S&P-500  828.89 - 12.26  841.15 -  7.02  848.17 + 13.28 +  5.20 
W5000   7857.32 -115.30 7972.62 - 63.35 8035.97 +139.03 + 23.52 
RUT      354.18 -  6.34  360.52 -  3.84  364.36 +  5.86 -  0.28 
TRAN    2042.48 -  6.57 2049.05 - 47.36 2096.41 -  6.19 - 37.37 
VIX       35.65 +  1.50   34.15 +  0.01   34.14 -  2.96 -  1.35 
VXN       46.39 +  0.74   45.65 -  0.45   46.10 -  2.28 -  2.59 
TRIN       1.29            0.84            0.97            0.58 
Put/Call   0.75            0.59            0.85            0.97
******************************************************************


 
Trading on Rumors
by Jim Brown

If you are an intraday trader that swing trades on rumors then
Friday was your perfect trading environment. Rumors, denial of
rumors, more rumors and more denials had bulls and bears chasing
their tails around the charts. The 180-point swing from lows not
seen since October and complete with a double bounce kept traders
guessing right up until the close. It was not a day for the
indecisive. 

Nasdaq Chart - 60 min


 
SPX Chart - 30 min


 
Dow Chart - 30 min


 

I mentioned Thursday night that the very high Jobless Claims was
painting a bleak picture for the Nonfarm payrolls on Friday. How
bleak was a surprise to everyone. The economy lost -308,000 jobs
in February compared to estimates for a gain of +10,000. To say
it was a disaster would be a gross understatement. Unemployment
rose to 5.8% and there were job losses across all sectors. Even
the retail sector lost -92,000 jobs when they were expected to
show gains from seasonal factors. Manufacturing lost -48,000
jobs with construction losing -48,000 as well. The services
component lost -86,000 jobs and the biggest drop since the 1974
recession. Restaurants lost -85,000 jobs as fewer people ate
out due to less spending cash, terror alerts and weather. Analysts
tried to blame the drop in jobs on the 150,000 reservists called
up during February but they were obviously grabbing at straws. 
The survey week was in mid February and had little or no impact
from the call up. Plus, vacant jobs from reserves going to active
duty would have been filled by temp help. The jobs were not
eliminated. Companies adding employees to payrolls fell to 41.1%
from 49.6% in January. The percentage of workers unemployed for
more than six months increased to 22% and only 1% below the high
for the last economic downturn. Considering the pace of layoffs
currently this number should be easily broken over the next
couple months. This entire report was VERY bearish and indicates
an economy rushing headlong into a second recessionary dip. 

The Economy.com Business Confidence Survey for the week shows a
very dismal picture of fading business sentiment. The index came 
in at 75.9 for the week and has fallen -25% since the beginning
of the year. Confidence is fading and demand is slipping. 



 


The clearest sign of cash strapped consumers was the increase
in Consumer Credit by +$13.2 billion in January. The estimate
was for a drop of -$0.5 billion. This was nearly a +10% gain
for the month. Does this show that the refinancing bubble has
burst and paying off bills by taking equity out of your house
has run its course? According to the recent mortgage applications
it appears this trend is winding down. Greenspan warned about
this earlier in the week. The next casualty will be the home
builder market as unemployment builds and confidence continues
to fall. See some additional comments about debt at the end of
this article. 

The fallout from the war worries and the Jobs report was 
severe. We started out with a negative tone after the Nikkei
closed at a 20 year low at 8144 and a loss of -225. The stage
was set for a rocky open and the Jobs report just increased
the volatility. After an opening drop of -111 points bonds
soared and the yield on the 5yr note dropped to a 48 year
low of 2.5%. The dollar dropped to a four year low of $1.10
against the Euro and is destabilizing markets around the
globe. While everyone is pointing to the war as the reason
for weakness the economy is already self destructing on its 
own. Earnings are quickly turning to losses and the outlook for
this quarter is dismal at best. 55% of the S&P have already
warned for this quarter with only 18% raising guidance. That
is a 3:1 ratio of warnings to positive guidance. This is not
good!

Intel joined the party on Thursday when they warned that margins
and revenue would be lower than previously expected. JPM warned
that they were cutting their 1Q GDP estimates to 1.5% from 2.5%
which is about time considering the dismal outlook. Earnings
estimates for the year have plummeted from the +15% to +18% 
range to +7% to +8% and are still dropping. When investors 
wake up and smell the economy and I guarantee you won't find
many willing buyers. There is still a strong bid under the
market and I think they have no clue what they are bidding 
on. The general consensus is that there will be a market 
rally once the shooting starts just like 1991 but there is 
no fundamental justification at this point. 

According to President Bush the bets have been made and it 
is time for all the nations in the Security Council to show
their cards. For President Bush this is a life and death
gamble. He has played every chip in his pile and tried to 
bluff, out bid or face down the dissenting nations. It is
like the final poker hand of the night when caution goes to
the wind everybody ups the bids to their maximum pain 
threshold. For Bush it is political life and death. If all
goes well and the invading troops find scores of weapons
not declared and peace comes to Iraq then it will be an 
automatic reelection and voters will applaud his stand on
principle. If things go bad and scores of Americans come
home in body bags and Iraq ends up being a house to house
fight then he could be impeached for pressing the issue
against world opinion. For the US it is a gamble have to 
take after coming so far. If we back down now we will not 
be taken seriously in the future and every two bit dictator 
will take his shot at 15 min of fame beginning with North 
Korea. However we got to this point, and I am sure that will 
be debated for years to come, it is a point of no return. 
Short of a Saddam retirement in the next ten days the die 
is cast. 

Britain submitted an amendment to the current resolution
calling for a deadline of March 17th for total disarmament
and active cooperation as the only criteria to avoid war. 
This resolution is not likely to pass but as Bush said, 
we want everyone to stand up and be counted in the court
of world opinion and let the chips fall where they may. 
Germany, France and Russia have all vowed to veto it and
by doing so will send ripples worldwide for years to come. 
Either way the clock for starting the war is winding down. 

The economic conditions being blamed on the war took a
substantial turn for the worse with the Jobs report. The
Fed often keys on the Jobs report for immediate changes
in Fed policy. This is sure to be the topic of conversation
when the Fed meets on March 18th. The Fed funds futures
are now showing a 100% chance of a Fed funds rate of 1%
by July. This is a drop of -25 basis points under the 
current 1.25% level. If the current rate was higher the
Fed has a history of cutting rates on the Monday following
a disastrous Jobs report but at 1.25% another quarter 
point cut would not really send a material signal. Still
Monday will be a walking on eggshells day as older traders
will be expecting the unexpected. 

We also have the potential for some asset allocation events
next week. With bond yields so low there is little benefit
to buying bonds now and many portfolios could be reallocated
to a heavier weighting in stocks. There might not be a rush
to do this because of the potential for a further drop in
the stock market. The potential for a retest of the October
lows over the next five days is very good. Touching those 
lows at 7200 could however trigger these asset allocation
events. 

Leaning on the Dow on Monday will be Altria (MO) when an
Illinois judge with rule on a $7 billion verdict against
the company. There are also punitive damages for 30 years
of refunds for smokers who bought Marlboro and Cambridge
Light brands. This award could run into the tens of billions
of dollars and MO would have to put up billions, as much
as the total value of the judgment just to appeal. Based
on comments during the case MO is not expected to win. 
This could weigh heavily on the stock and on the Dow. 

Technically the markets are in serious danger. The Dow closed
at 7740 and the high of the day but right under very strong 
resistance. There is a solid down trend in place and very
little to cause any bullish sentiment to appear. The morning
crash to 7562 cleared buy stops for the next 175 points and
weakened any potential support for the next dip. The real
resistance is on the S&P at 830, which is only slightly
above the 829 close. The 830 level has not been broken for
the last three days despite repeated tests. The Nasdaq is
clinging by the slimmest of margins to the 1305 level and
is clearly showing a new down trend in place. 

The end of day short covering rally was based solely on the
potential for the capture of Osama Bin Laden this weekend. 
With the new information gained in the capture of Khalid
Mohammed, almost everyone believes the authorities are hot
on his trail. There were numerous rumors that they expected
to close the noose this weekend. Other analysts scoff at this
and claim they always have a backup plan and once Mohammed
was captured everyone related to the group bolted to their
next safe house leaving no tracks. Still traders were not
ready to take that chance by holding shorts over the weekend. 
The recent pattern is clear. The last two Mondays have been
big down days as traders who closed shorts on Friday reopened
them on Monday when no news appeared over the weekend. This
Monday should be no different especially after the disaster
in the Jobs report. Most mutual funds and institutional traders
are not reaction traders. When bad news appears they analyze
how the market reacts for the balance of the day and then 
decide a course of action for the next trading day. With the
potential for a double dip recession stronger than ever the
odds for a retest of the October lows or lower are better 
than ever, we could see a concentrated move out of stocks 
on Monday. This is pure speculation on my part and based 
on no earth moving news events over the weekend but I think
this is as close to the perfect storm as we are going to 
get. When the only potential for positive market news is 
the capture of a crippled terrorist there is not much reason
to be long the market. Check your parachute you may need it
next week. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


*********
Debt Trap
*********

There is a rising concern that we are entering into a period
of economic peril brought about by debt deflation. The rise
in consumer credit is but one symptom of the problem. Many
analysts already believe we are suffering from this problem
and the lack of demand and lack of earnings is the result. 

Debt deflation occurs when debt levels are unmanageable. 
Money that would ordinarily be spent on capital investment
or returned to the shareholders as profit is instead spent
on debt. 1990s Japan suffered debt deflation first and the
price deflation followed. The US in the 1930s suffered the
same scenario. 

Currently we have the highest levels of debt relative to 
GPD since 1933. Bankruptcy and foreclosures are at 30 year
highs. Declining equity as Greenspan pointed out shows that
consumers are spending it faster than it is appreciating. 
It is another bubble waiting to burst. Once housing prices
stop rising and providing chance after chance to re-mortgage
for more than before the ability to solve problems by borrowing
more money will cease. Once property values begin to decline
many over leveraged homeowners will be stuck owing more money
on their property than it is worth. Another cycle of foreclosures
and bankruptcy will begin. The current ratio of debt to GDP
is now about 160%. 

There are only two ways to handle the problem. We must generate 
more income or acquire more wealth through some other means. 
With unemployment at 5.8% and rising rapidly it is unlikely
we are going to solve the problem through income. The high
unemployment depresses salary levels and lowers income through
competition in the hiring process. We have lost -2.2 million
jobs since December-2000 and have the weakest wage increases 
since 1993. 

The market has ceased to be a producer of wealth and is actually
draining wealth from the economy through margin calls, shrinkage
of buying power and losses due to over trading while trying to 
make back previous account balances. Retirees are being forced
back into the work place due to losses in retirement income. 
This further depresses the workforce by adding extra workers
willing to work for minimum wages due to age. 

The outlook is grim because the prospects for a quick recovery
are slim. Manufacturing capacity is operating at 73% and falling
but corporations have 57 cents of debt per dollar of corporate 
net worth. Corporations are paying out $1.65 in dividends for
every dollar of corporate profits. In essence they are going 
into debt to finance dividend payments to preserve the precious
unbroken dividend string. 

The expansion in the late 1990s was an investment led expansion
as companies replaced nearly every piece of computer hardware
to avoid Y2K and to capitalize from the Internet revolution. 
This was the first expansion of this type since the 1920s and
that was the only once since the Civil War. Both were 
reconstruction efforts where we renovated the country using
cheap unemployment labor and massive government projects. All 
three periods had great excesses, corruption and bad investments. 
The global fiber optic build out is an example. Suddenly 
companies were spending billions of dollars to lay fiber 
virtually everywhere in anticipation of an exploding Internet. 
Some networks built for over $100 billion have been sold for 
less then $1 billion. The Internet excesses and expectations 
produced massive amounts of public and private debt and 
eventually all that debt must be handled either through 
repayment, bankruptcy or write offs. Writing off the debt 
passes the cost to the shareholders in the form of devalued 
stock. Debt is debt and somebody has to pay the piper. 

The government has tried to attack the problem by shifting into
heavy stimulus mode. We have gone from a 2.2% of GDP surplus
to a -1.8% of GDP deficit in three years. That is a 4.0% shift
in position. State governments also shifted nearly 1% making 
the total stimulus shifting a whopping 5%. That well is now
dry. There is nothing left that the government can do without
going bankrupt itself. The administration is pressing tax cuts
and additional spending but soon, very soon, somebody will have
to pay for all the stimulus. The government only gives back 
the money we give it and a reduction in governmental income
means a reduction in spending eventually or the government
will end up with the same debt problem itself. The state and 
local governments are raising fees to compensate for revenue 
loss and cutting services. The cycle is self-defeating and 
will produce a prolonged period of economic stress and prevent
a quick rebound. If government spending was the answer then
Japan would have been the strongest nation in the world long
ago as it tried to buy its way out of its economic spiral. 

I wrote this article not to scare anyone or be a preacher of
doom and gloom. I am simply struck by the massive disconnect
between the economic reality and the stock market. Everyone
believes the new bull market will begin once the war starts. 
Unfortunately the basis for any bull market is earnings growth
and that growth cannot occur without an increase in demand. 
Demand cannot increase with companies paying on debt instead
of building their business. Granted this is not every business
and there will be superstars in any environment. The Fed is
trying to short circuit this problem in the only way it knows
how. That is making capital even more available by lowering 
rates and printing money at a blistering pace. Unfortunately
that just produces more debt and adds to the current burden.
The long-term impact is clear. Markets tend to take long 
periods to digest excesses and we have a monster binge to 
pay for before we can move on. Don't look for Dow 12,000 
anytime soon. 


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

It's Pivotal, Again.  
By John Seckinger
jseckinger@OptionInvestor.com   

Weekly and monthly pivots should be critical once again this week 
for all three futures contracts.  Throwing in bullish percent 
analysis will further allow traders to understand risk.  Is a 
full short position now too much? 

Friday, March 7th at 4:15 P.M. 

Contract       Last    Net Change    High        Low       Volume    

Dow Jones     7740.03    +66.04    7743.82     7562.65      
YM03H         7735.00    +60.00    7755.00     7556.00     33,261 
Nasdaq-100     986.82     +2.86     992.11      964.25      
NQ03H          986.50     +2.00     993.00      964.50    292,790
S&P 500        828.89     +6.79     829.55      811.23    
ES03H          828.50     +6.75     829.75      809.00    863,148

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      7501.00    7620.52   7682.17    7801.69    7863.34
YM03H          7483.00    7609.00   7682.00    7808.00    7881.00
Nasdaq-100      953.20     970.01    981.06     997.87    1008.92
NQ03H           952.75     969.75    981.25     998.25    1009.75
S&P 500         804.90     816.89    823.22     835.21     841.54
ES03H           801.75     815.00    822.50     835.75     843.25

Weekly Levels

Contract         S2         S1        Pivot        R1         R2    

YM03H         7333.00    7534.00    7757.00    7958.00    8181.00
NQ03H          932.25     959.25     991.75    1018.75    1051.25
ES03H          786.25     807.25     830.25     851.25     874.25

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 810.00, exit 816.50, change +6.50
Long 826.25, exit 828.50, change +2.25
Short 826.25, exit 822.75, change +3.50
Long 824.50, exit 823.00, change -1.50

Total for the day: +10.75
Total for the week: +13.50
Total since inception: +69.25

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) 

Starting with a daily chart of the ES contract, notice how the 
weekly pivot is just above Friday's settlement.  Were traders 
calculating next week's levels during trading on Friday?  This is 
a good possibility.  If this weekly pivot is taken out, look for 
a move back towards the monthly pivot at 836.75.  Resistance 
should extend up to 841, as the chart below shows.  If bears are 
able to keep prices under pressure, support should come in from 
820 to 823.  This is above even the daily S1 for Monday.  As long 
as prices fail to close above the 831 area, the intermediate 
bearish objective is much lower from 801 to 805.  More 
conservative traders can use a support range from 800 to 810.  
With this said, it is really neutral at current levels.  Slight 
bearish at best.  There is a catch.  The bullish percent 
indicator for the SPX is at 30.80% and just above the extremely 
important 30% level.  30% means oversold conditions.  Therefore, 
shorts should now be thinking about a quarter to a half position, 
with tight stops in place.  It does not, however, mean to take a 
full long position.  We would need a close above both 831 in the 
ES AND a reversal back to a column of X's in the bullish percent.  

Chart of ES03H, Daily


 

Taking things to a 120-minute perspective, notice how the weekly 
pivot is close to the 19.1% retracement level of the move from 
January 13th to February 13th.  This should increase this area's 
significance going forward.  The reason why the 801 to 805 
support zone was increased to 810 was because of both the weekly 
and monthly S1 levels (see chart below).  

Chart of ES03H, 120-minute 


 

Bullish Percent of SPX: This indicator fell 0.80 to 30.80 on 
Tuesday, edging that much closer to the 'magical' 30% level.  
This indicator remains in "Bull Correction", and a reversal into 
a Column of X's will still not be seen until a print of 40%.  
Note:  The last column of "O's" ended at 20 percent; however, 
reaching 30% does force shorts to watch stops more closely.  
There are still intermediate-term bearish implications for the 
SPX, but under 30% traders can consider using less than a full 
position.  Looking at P&F chart of the SPX, the contact added to 
its column of O's (seven total) as 815 was tested.  Going 
forward, support is not seen until the 805-801 area.  Resistance 
is still seen at 835, and then above at 850.   

The March E-mini Nasdaq 100 Contract (NQ03H) 

The NQ contract has remained between the 1024.50 and 941.50 area 
for a significant amount of time, and currently is just above the 
983 level.  As the chart below shows, a simple long-term 
retracement analysis from the October low to December high 
produced such important levels.  Since the NQ is above the 50% 
area, bulls appear to have the slight advantage.  However, we 
should dig deeper (see second chart).  

Chart of NQ03H, 120-minute


 

Adding in both weekly and monthly retracement analysis, we can 
now get a better feel for sentiment.  Resistance is just above 
from 990 to 992, and a move under 983 should have bears getting 
aggressive.  If 992 is cleared, look for a move towards the 1006 
to 1010 area.  Of course, there might still be psychological 
resistance near 1000.   If 983 is taken out, the downside 
objective would be to both the weekly and monthly S1 level.  

Chart of NQ03H, 120-minute


 

Bullish Percent for NDX:  The bullish percent for the NDX 
was fell 1% to 34 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 
1000, with support seen below at 925.  

The March Mini-sized Dow Contract (YM03H) 

The YM contract has the most confusing of the three charts, but 
risk for shorts should be back to the 7768 area.  Support is seen 
below at 7650 and near the monthly S1 area.  If 7768 is cleared, 
look for a move back to the monthly pivot area.  Underneath 
monthly S1, support is not seen until the weekly and monthly S2 
areas.  

Chart of YM03H, 120-minute


 

Taking a look at the chart used earlier this week, it is 
impressive that the profiled support levels worked fairly well in 
determining risk and objectives for both bullish and bearish 
traders.  The profiled resistance is the aforementioned 7768 
area, and will continue to hold importance.  Note:  Bullish 
percent in the Dow is still at oversold conditions, but has yet 
signaled a "Bull Alert" to traders.  Nevertheless, short traders 
should only be looking at quarter to a half positions in the near 
term.  

Chart of YM03H, 120-minute


 

Bullish Percent of Dow Jones: Using P&F analysis, the Dow added 
to its recent column of O's on Friday.  This bearish column now 
stands at seven as the 7600 level was touched.  As noted a few 
weeks ago, it was likely that the old low of 7650 would be taken 
out.  With this being the case, and the bullish percent very low, 
shorts should begin to evaluate risk going forward.  The bearish 
objective for the blue chips remains at 7100, while a buy 
signal will be given at 8200.  Support is not seen until the 
7600 area.  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
********************

WHAT IF?
By Leigh Stevens
lstevens@OptionInvestor.com 

What if the market, contrary to "consensus" expectations (my own 
included) right now, doesn't get much of a sustained lift once 
the uncertainties related to an Iraqi invasion are known? The war 
may be much more messy than the best-case military outlook being 
presented publicly with the financial burden mostly ours now.  

We will still come back to the reality of the same sluggish 
economy and the fact that stocks aren't cheap, with the S&P 
trading at 18 times trailing 12-month earnings and maybe 15 times 
expected earnings for the year ahead. The sage from Omaha, Warren 
Buffet, suggested the same last week and was buying more junk 
bonds. I note below that we are near important long-term up 
trendlines, so the coming month (or two) is crucial.  Meanwhile, 
periodic trading opportunities continue in this seesaw market. 

THE BOTTOM LINE – 
As I suggested prior to last week's trading, the trade to do was 
to buy puts as the charts predicted the downswing.  The indices 
did rebound from the area of prior lows on continued (relatively) 
low volume.  Now? - it looks like prices are about where they 
will stay until the aforementioned (Iraq conflict) outcome. A 
relatively narrow trading range looks to be ahead. On balance, I 
would rather buy puts on rallies into resistance than buy calls 
at recent support. 

FRIDAY'S TRADING ACTIVITY –
Stocks ended higher Friday after the U.S. called for deadline on 
weapons inspections in Iraq and unconfirmed reports that two of 
Osama bin Laden's sons were arrested. The arrest rumor and the 
Iraq deadline, which could take away some uncertainty from the 
market, offset the bearish effect of a big drop in non-farm 
payrolls and a diminished revenue outlook from big chip maker 
Intel (INTL).  

The Dow Jones Average gained 66 to 7740, while the Nasdaq 
Composite Index gained only 2.40, closing at 1305.29, held down 
by the Intel news. 

In a news conference late Thursday, President Bush said that the 
United States would not be deterred from attacking Iraq even 
without UN backing. The President made clear that he wouldn't 
tolerate much of a delay in the inspections process, and U.S. and 
U.K. officials said that they were speaking about days, not 
weeks.  

To the extent that the rally was related to a March 17th 
deadline, this could resolve the uncertainty as to what happens 
next.  After an attack of course the market would be very prone 
to trading up and down on war news and whether the war is going 
quickly or gets bogged down with a lot of casualties. 

Discouraging economic news hit the market when the Labor Dept. 
said the U.S. unemployment rate, which had fallen to 5.7% in 
January, was measured at 5.8% in February. The key non-farm 
payroll figure for the month fell by 308,000, more than wiping 
out the gain of 185,000 recorded in January. The market is most 
focused on the creation of NEW jobs and this was a dismal 
reading. The expectations were actually for a slight increase in 
the payroll numbers. 

However, traders found a way to take this news bullishly to the 
extent that the report convinced many that the Federal Reserve 
will once again be forced to lower interest rates - hopefully we 
don't wind up like Japan, where it seems like you pay the banks 
for the privilege of them holding your money.  

Shortly after the jobs data was released, fed-funds futures 
called for about a 92% chance that the Fed will cut rates again, 
compared to a 72% chance of a cut priced in on Thursday. The talk 
was that the Fed would lower rates by a quarter percent at a 
March 18 meeting and by the same amount in May.  

I mentioned Intel - the company said that its chip business is 
doing better than expected earlier, but warned that its profit 
margins could be hurt by lower flash-memory sales.  The company 
also lowered its Q1 revenue outlook to between $6.6 billion and 
$6.8 billion, which is the lower end of the $6.5 billion to $7.0 
billion target set in January. The stock gave back about 4% on 
the news - technically, the stock gapped lower on above average 
volume, falling below its 50-day moving average.  

OTHER MARKETS – 
Crude oil (April contract) rose 10 cents to $37.10 a barrel on the 
New York Merc. Gold for April delivery traded as low as $352.80, but 
ended at $353.60 an ounce, down $3.30 for the day, but finishing 
about $3 higher on the week. 

The dollar slipped - the euro climbed against the dollar to 
$1.1006 from $1.0974. We have not seen 1.10 on the euro in some 
time, but money is flowing into the Euro as the U.S. appears 
poised to go against other key western countries on Iraq.  

LONG-TERM CHART VIEWS -
It's good to review the long-term monthly chart picture from time 
to time.  I expected that the indexes would come back down and 
retest the long-term up trendlines; on the semi-log charts where 
equal percentage are of equal length. This is almost always the 
pattern on major bottoms - if this is one - and major tops.  On 
the indices, they rarely spike up to a top or spike down to a 
bottom and then reverse.  Especially, in the case of the bubble 
we saw ending 3 years ago. These things cause distortions and 
extremes in the market that take a long time to work out. Witness 
the still relatively high P/E ratios. 



 

Time will tell on these trendlines relative to the S&P 500 (SPX) 
monthly chart above. Not too many more weeks is needed to tell 
the story on this.  Either the low-800 area holds as SPX major 
support or not. The scale is the semi-logarithmic or "semi-log" 
scale for short, which is the effective way to measure a really 
big price move like this. The "internal" trendline is one that is 
drawn through the greatest number of lows, whereas a conventional 
trendline is (more or less) drawn touching only the extremes - 
connecting 2-3 extreme lows in this case.  

And the Nasdaq (Composite - COMPX) is not all that different in 
terms of recent months' lows defining a possible long-term up 
trendline - 



 


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Hourly chart:

Sure enough, the rally to resistance produced a slam-dunk down 
the prior low which acted as support - I don't "count" the one 
spike to below support in the sense that this was probably the 
result of "running" stops and some panic type selling.  Looks 
like the 820 area is the low end of a trading range for now, with 
837-840 the high end.  More major support can be expected on dips 
to below 810.  It would take a weekly close UNDER 800 to turn the 
charts really bearish and suggest that a new down "leg" was 
beginning.  



 

Buy puts on move up to the 840 area - if 840 is pierced, 
especially on a closing basis, then a move could be anticipated 
back up to what looks like the high end of the trading range, 
around 850, where I would repurchase puts.    

S&P 100 Index (OEX) – Daily and Hourly charts: 
 
420 is near resistance and there is some upside momentum, but 
whether there is any follow through depends on the how the 
perceived closeness to war on Monday.  With overbought readings 
on the stochastic models, 420 may be the cap or top of any 
further rally attempt near-term.  

430-432 looks like the high end of the S&P 100 (OEX) trading 
range, with an outside chance that this could extend up to 440.  
I suggest buying puts in these resistance areas. Only an hourly 
close or two above 832 would suggest potential to 840.



 

On the downside, support is most evident at 415, then around 410, 
with more major support at 400-405 of course. I would take a very 
short-term trade on the call side if 405 was seen and both 
stochastic models were again fully oversold - in that case my 
stop out point would be on a close below 400 and my trade 
objective would be (again) 420.  

Dow Industrial Index (DJX) – Hourly chart: 

76.5, on an hourly closing basis, again proved to be support, but 
its unclear for how long. 78.50 looks like the most significant 
technical resistance, then around 78.25 where the down trendline 
intersects.  A close over 79.5 is needed to suggest that the Dow 
could get back to the 8000-8050 area again.  

The 78.50 area is my choice as an attractive area to buy puts, 
with an objective to 76.5.    



 

I made a note last week of the triangle on the Dow hourly chart 
and to expect follow through on a move to below or above those 
converging lines.  We got the down move when the breakout was to 
the downside. Based on the measuring implications of this 
(triangle) pattern, there could be more downside potential than 
has been realized already, to 75.5 approximately.  


NASDAQ 100 Index (NDX) Daily chart – 

To become is a bit of a broken record is to say that the Nas 100 
technical pattern still looks mildly bullish, as noted on the 
chart below, based on its ability to keep popping back above its 
21-day moving average.  

Repeating from last week however, I suggest put purchases if the 
NDX got back up into the chart gap area around 1050.  The Index 
would have to clear near resistance at 1020 first.  If it doesn't 
this looks like the area for a bearish play on NDX. 

Right now I don't see what news could take the Index through 
1020, but the big tech stocks are getting a play here as some 
business and consumer spending is going into replacing aging 
software and hardware.  Hey, I succumbed to it last week, 
replacing my 3-year old PC with a new zippy-fast one - the prices 
are cheap! 



 


Repeating also from the week before, buying and selling has been 
fairly well matched without heavy volume on either side, which 
can be seen by the 10-day Nasdaq TRIN, which is in neutral 
territory.  Lots of traders standing aside for anything more than 
a 1 or 2-day trade.   

QQQ Daily and Hourly chart:

Not a lot to say here - for new positions short the Q's at 25-
25.30 if reached.  Looks like the trading range near-term may be 
23.5 on the downside, 25.50 on the upside.  In this kind of 
market its best to wait for a move up the high or low end of the 
trading range to do anything, as trading in the middle of the 
range is tough.  



 


Momentum is DOWN based on the daily stochastic model and the 
volume indicators are waffling back and forth on low volume, 
which is typical of a market that is waiting for outside events 
after which traders might come in with more conviction. 

I might take a trade on the long side of QQQ and buy the stock 
around 23.50 again.  In which case my objective would be for a 
move back up to 25-25.50 area again.  A close under 23.00 would 
suggest exiting however.  Support implied by the low end of the 
daily chart doesn't come in until 21.50. And, major support is 
not implied before 20, at least based on October bottom - 



 


A FINAL NOTE: Complete explanations/examples on such things as:
- Price Scales
- Triangles 
- Wedge patterns 
- My Call-to-Put ratio as overbought/oversold indicator
- TRIN
- etc. 
can be found in a list of my past Trader's Corner articles at: 
http://www.OptionInvestor.com/traderscorner/tc_022703_2.asp 

This "Putting it all Together" column has an A-Z listing of these 
and other topics involving technical analysis. 


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

Ladder Time!  

I had several readers email me this week asking if it was 
time to climb the ladder again. After looking at the option
prices for April I decided it was definitely time. 

The way this works is that we buy index call options at 
different times as the index touches certain points. In 
this case we will be buying DJX calls as the Dow tries to
retest its October lows. The trump card here is the war. 
With everyone expecting a rally once the shooting starts
and with the ten day deadline proposed on Friday we have
a pretty good chance of knowing when the rebound will occur. 

The ideal scenario would be for the Dow to retest 7200
this week and then rally back to 8150-8300 or higher the
week after the war starts. 

The risk is no war or a delayed start or even a lack of
a bounce. With the economics so bad it would not surprise
me to see a small bounce and a sell the news event. But
that is not the plan we are outlining here. 

The plan:

Place GTC buy orders at market based on the index price
not the anticipated option price. 

Buy  5 Apr-$78 Calls DJX-DZ at DJX 76.00 (est price $1.75)
Buy  5 Apr-$78 Calls DJX-DZ at DJX 75.00 (est price $1.50)
Buy 10 Apr-$78 Calls DJX-DZ at DJX 74.00 (est price $1.25)
Buy 10 Apr-$78 Calls DJX-DZ at DJX 73.00 (est price $1.00)
Buy 20 Apr-$78 Calls DJX-DZ at DJX 72.00 (est price $0.75)

Total estimated outlay at 72.00 = $5,375

The risk here is a total failure of the Dow below 7000 or
a failure to rally when the shooting starts. It is also
possible the war could be delayed again and time will decay
against us. 

The partial solution to this problem is to buy insurance.
I would suggest buying 20 contracts of the April-$70 put
AT THE OPEN on Monday. They are showing an ask of $1.00
and you might be able to get them a little cheaper then. 
This adds $2,000 to the total cost but provides you 
insurance against a total loss. The value of the puts
at Dow 7200 are estimated to be $2.50 each or $5,000. 

If the Dow hits 7200 and bounces as everyone believes it
should then you sell the puts immediately on the bounce to
defray your cost in the total position. Assuming you get
$2.00 your cost is reduced by $2000 and the market is
going in your favor. 

If the Dow hits 7200 and keeps going down then sell them at
7000. The estimated price would be $4.00 and you would get
$8000 back which would cover your entire investment. You now
have 50 contracts of the Apr-78.00 call for free. Any rebound
and you can get out with a profit. 

THERE IS RISK IN THIS PLAY

As always there is risk. If the Dow fails to fall, falls 
and stops at 7200-7300 without a rebound or any of several
scenarios you can lose money.

The concept is predicated on a REBOUND from 7200 or somewhere
above that level when the war starts. Nobody can predict
exactly where is will stop or we would just buy 50 contracts
at that level and be done. 

We have had some very successful laddered entry plays in
this section and a couple that broke even or had a minor 
loss. We have never had a major failure but buyer beware.

If the Dow does rebound to 8000 by April 1st the anticipated
value of the calls will be $4.00 each. Since we do not know
how many contracts we got filled it is impossible to know
what the potential profit will be. We can estimate based on
all 50 contracts being filled at the $5,375 estimate above
and 50 contracts at $4.00 ($20,000) but there is no way in
heck the outcome will be exact. This does not consider any
cost/reward from insurance puts. 



  


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

Play updates:

Beginning next week I am only going to list the current
recommendations with a link to the initial write up and
not go into detail unless the play changed substantially. 

CY - Cypress Semi Call - 3/2/03 ($6.41 when recommended)

Yes, it went down. The market went down, the SOX went down
and Intel warned. CY closed -35 cents below last Friday's
close. I had several emails with the "what should I do"
question. I have no complaints with CY. How could I? They
raised estimates on Tuesday and said they were continuing
to cut costs as business increased. Even a helium balloon
loses altitude in a down elevator. This is a long term 
play and I suggested the Jan-$7.50 call. -35 cents in a
down market is not going to shake me out. 

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

HLTH traded up to slightly over the price when recommended
despite the down market. At $9.80 I have no complaints here. 

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

Microsoft appears to have bottomed and actually closed
up on Friday. The dive to the $23 level at the open
took out the sellers and triggered buy stops on the
retest. 

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

EMC also appears to have bottomed and closed at $7.39
only -31 cents below the recommended price despite the 
down market. 

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

Outstanding! NEM traded down to close at 25.96 on Friday
and the March $27.50 put doubled in value to $2.20 from
the $1.10 when recommended. The trend is still with us 
and with gold prices falling we are in great shape. 

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

BZH tanked on the Lenar sales warning and fell to $53
and managed only a weak recovery to close at $54 on
Friday. This play is right on track after a close call
with the down trend line at $59. This is a long term 
play but things are working out great. Both options 
are profitable and the trend is our friend here. The
only cloud on the horizon is the interest rates. If
the Fed does cut rates again it could spark one more
buying frenzy but I think the spark has left the sector. 
 

Powerball - From 12/29/02

There was no material change in the Powerball Lottery
play again this week. RFMD is the biggest loser and GLW
is showing a gain despite the down market. Remember this 
is a 12-month play and we are only nine weeks into it. 

It would cost you about $700 to buy one contract of each 
today. Any one contract could repay that $700 by 12/31/03 
leaving the rest as profit. It is a high risk "LOTTERY" 
play but then $700 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
****************

What Day Is This?
OI Staff

Did we say Thursday was a day for rumors?  Little did we know that 
Friday's rumor mill would be doing double-duty.  Rumors that Osama
had been captured were denied and replaced by rumors that his sons
had been captured, which were also later denied.  On top of it all
the world was reacting to President Bush's speech Thursday night
and the back room dealing at the UN was reaching a frenetic pace.

It would appear that the bounce today doesn't have much support behind
it.  Once Monday rolls around Wall Street will likely focus on the
crushing jobs report that came out Friday morning.  Add to the 
recipe a war with Iraq that is bound to start in ten days time and
there is little reason to buy stocks.  

The volatility indices aren't offering us much clues right now and 
they shouldn't considering how the markets continue to trade sideways.
The new COT report is out as well.  Overall there was little change
as futures traders appear to be standing firm or standing on the 
sidelines as we wait for some direction.

Oil continues its march higher and we wouldn't be surprised to see 
it hitting $40 a barrel (again) by the end of the week.

Market sentiment would probably best be considered wary and weary.
The markets are weary of the sideways chop but there's no reason to
buy and all signs are pointing to a double-dip recession at the moment.
Plus, the markets are wary as the tension between the US and what 
feels like the rest of the world is also rising.  

It is bad enough that we have to play world policeman but there 
appears to be no one else willing to stand in the gap.  Meanwhile
take a moment to pray for those men and women in uniform protecting
our freedoms.


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

Market Averages

DJIA ($INDU)

52-week High: 10353
52-week Low :  7197
Current     :  7740

Moving Averages:
(Simple)

 10-dma: 7808
 50-dma: 8179
200-dma: 8539



S&P 500 ($SPX)

52-week High: 1106
52-week Low :  768
Current     :  829

Moving Averages:
(Simple)

 10-dma:  831
 50-dma:  866
200-dma:  904



Nasdaq-100 ($NDX)

52-week High: 1350
52-week Low :  795
Current     :  987

Moving Averages:
(Simple)

 10-dma:  991
 50-dma: 1008
200-dma: 1003



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

VOLATILITY INDICES
Considering the volatility in the markets on Friday one might have
expected a bit more of a reaction in the fear indices (VIX & VXN).  
Investors got no such luck.  Yes, they both spiked higher at the 
open, but as the market rallied the volatility failed.  Considering
what's in front of us next week we'll be looking for these two
indicators to head higher.

CBOE Market Volatility Index (VIX) = 35.65 -0.69
Nasdaq-100 Volatility Index  (VXN) = 46.39 +0.74

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.75        554,276       415,828
Equity Only    0.64        395,183       252,983
OEX            0.99         26,684        26,448
QQQ            1.09         42,085        45,922


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

Bullish Percent Data

           Current   Change   Status
NYSE          37.7    - 1     Bull Correction
NASDAQ-100    33.0    - 1     Bear Confirmed
Dow Indust.   13.3    - 0     Bear Confirmed
S&P 500       30.8    - 1     Bull Correction
S&P 100       26.0    - 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  1.59
10-Day Arms Index  1.38
21-Day Arms Index  1.29
55-Day Arms Index  1.36


Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when they do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE       1561          1261
NASDAQ     1433          1614

        New Highs      New Lows
NYSE        90           143
NASDAQ      58           107

        Volume (in millions)
NYSE       1,595
NASDAQ     1,401


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

Commitments Of Traders Report: 03/04/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

We hear about trading volumes falling but now we're seeing it
in the institutional futures positions as well.  Commercial 
traders remain net short, expecting the market to go down.  
Small traders are still net long and actually increased the
number of contracts on both sides of the fence.

Commercials   Long      Short      Net     % Of OI 
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%)
03/04/03      426,053   472,492   (46,439)   (5.2%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
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%
03/04/03      164,759    98,636    66,123     25.1%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

The professional traders in the NDX futures are just trading
water.  There is little difference from the week before.  
Meanwhile the individual trader has bumped up the number
of short contracts but remains net long.

Commercials   Long      Short      Net     % of OI 
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%)
03/04/03       39,934     52,978   (13,044) (14.0%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
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%
03/04/03       24,240     8,038    16,202    50.2%

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

Looks like interest has been picking up for the DJ futures.
Commercials upped both the long and short sides of the contracts
but remain net long (expecting the Industrials to go up).
The small trader slid a bit more to the bullish camp but
remains net short overall.

Commercials   Long      Short      Net     % of OI
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%
03/04/03       21,326    12,724    8,602      25.3%

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
02/11/03        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%)
03/04/03        5,233     8,075    (2,842)   (21.4%)

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

The best book on trading stocks and options

I'm just learning how to trade options and would like to know 
your thoughts on any good books to read on the subject.

I've given this great thought, and the book I'm going to 
recommend cost's just a little over $3,000.00.

After you understand the ULTIMATE basics of price fluctuation and 
understand what truly drives stock and index prices, then I've 
got a very good technique for learning how to trade, where the 
price of this education is LIMITED and need not be as expensive 
as it may have been for some of your friends, when they "learned 
how to trade."

The second-best book I've ever read on trading is Tom Dorsey's 
"Point and Figure Charting," which give the trader/investor the 
ULTIMATE understanding that all that really matters when 
considering price fluctuation is supply and demand and how to 
understand and measure MARKET/SECTOR/STOCK risk/reward.

I'm not here to sell books, but OI does offer the book in our 
bookstore.

The BEST BOOK on learning to trade stocks/options is the one that 
I've been writing over the years.  It's not on paper so to speak.  
You can read different chapters in the Bailey's Basics and here 
in the Ask the Analyst section of the site.  However, the best 
book you will ever read on trading is the book that YOU write, or 
at least learn on your own.  You know the saying, "you'll never 
learn unless you try."  This is so true.

For many, "learning" to trade with your own money can be scary.  
I'm not knocking a college education, or spending money on books, 
seminars, etc. as I've learned a great deal when I went to 
college, but no matter how "book smart" we become, it does little 
good unless we learn on our own when applying all that we've 
learned.

I dare say, that I've learned some things over the years from 
books, college education and seminars, that when I've tried to 
practice them, just haven't worked out like they were supposed to 
from the teachings.  Guess what?  I don't use those "teachings" 
anymore.

I spent a full semester in college going through income 
statements and balance sheets to try and determine a company's 
value.  What I learned in life, is that the value I might apply 
to that company may not necessarily be in agreement with what the 
MARKET places on the company.  My value might be too high, or it 
might be too low.  What I did learn is that while I might be able 
to look at a company's fundamentals and even project how they 
will look in the future, it was much easier to test that analysis 
against a stocks price over time, and see if the MARKET thought I 
was too bullish, too bearish, or was in agreement.

Then I began to learn that it doesn't matter what I think about a 
stock's fundamentals or valuation.  All that matters is what the 
MARKET thinks.  And what the market thinks will show up in a 
supply/demand chart, or other types of charts.

So lets suppose you've read Tom Dorsey's book on point and figure 
charting, and begin to believe that even though company ABCDE has 
a price/earnings ration of 10, and has been growing the bottom 
line at 20% the last two years, its the excess of supply 
(selling) that has the stock down 30% in the last four weeks that 
begins to hint that something is wrong with the stock.

This is a lesson I learned years ago, and it wasn't from a book.  
It was from personal experience, and being long a stock with 
"excellent" fundamentals, quality management and superior product 
that traded at an extreme discount to the broader S&P 500.

For many traders, learning how to trade isn't necessarily a 
profitable experience when you first start.  Yuck!  That's a 
scary thought isn't it.  But that shouldn't be a deterrent or an 
excuse to not begin trading.

When first stating out, "paper trading" is a good way to begin 
learning.  You know, the imaginary type of trade where you write 
down on a piece of paper how many shares of stock you bought at 
the price the stock was trading.  Then, if the stock hits your 
target or stop loss, you'd record the winning/losing transaction 
and move on to the next trade.

However, the one thing paper trading doesn't allow the trader to 
experience is the human emotions that only come from having REAL 
capital at risk.  Paper trading does not, in my opinion, expose 
the trader to emotion as you know that you really don't have any 
capital at risk, and when there's no emotions coming into play, 
you can easily stop out a paper trade for a loss, don't feel all 
that bad, and can simply move onto the next trade, try and apply 
what you just learned to the next trade and try an not make the 
same mistake again.

For traders learning to trade options, here's a technique that I 
think will help a trader LEARN on their own how to trade options.

Find a stock that you like or at least believe has a viable 
longer-term future that trades between $20 and $25.  Open a 
trading account with $3,000.00, then buy 100 shares of the stock.  
This would have your cash outlay being between $2,000 and $2,500.  
I paid for my own college tuition and can't remember now what the 
cost of tuition was for a semester, but I think it was more than 
$3,000.00.

From this point on (date of purchase) you will never sell this 
stock.  The only way you can keep from losing the $2K to $2.5K is 
by constantly trying to protect your positions with a PUT option, 
when it appears the stock is vulnerable to price depreciation.  
You will NEVER buy a call option, as the underlying 100 shares 
always has you long the stock.

The reason a trader might want to "learn" to trade by buying a 
stock and not shorting it, and using call options to protect the 
short positions, is that with a short position in an underlying 
stock, your risk can be UNLIMITED, especially when/if you didn't 
have a call position established.

By being long the stock, you the trader understand the most you 
can lose in this trade is between $2K and $2.5K or the $3,000.00 
you started your account out with.

Believe me.  I know a few "investors" that used to be traders 
that learned they didn't have the discipline or the knowledge of 
how to trade stocks or options and it cost them MUCH MORE than 
$3,000.00 to find this out.

If you think about it, lets say you lose on all of your put 
option trades when attempting to "hedge" the $2,500.00 long 
position in your account.  How could a trader lose the remaining 
$500.00 in his/her account on put options?

There are two ways and here is where your first lesson would be 
learned.

You were buying OUT THE MONEY put options and while your 
underlying stock position may have declined (or stayed 
unchanged), it didn't decline enough to have the option gaining 
in value by the options expiration.  Lesson learned:  Buying out 
the money options is a lower probability of success trade, 
especially if near-month expiration is used.

The second way you might lose the remaining $500.00 of the 
account, is that the underlying stock you chose, was simply a 
strong stock where demand was always sufficient enough to keep 
the price rising.  A good stock picker (stock you bought for 
$2,500 and now worth $30.00 or $3,000) may learn ($500.00 loss in 
put options) that they've got some further learning on how to 
properly select options.  But hey!  If I could have only learned 
to trade options for $500.00 with REAL money, I could have saved 
myself from stress when first starting out.

Another lesson you will learn is that it is BEST to BUY TIME in a 
put option.  Traders that buy too little time find that their 
options trading becomes DICTATED to by expiration, in that they 
are making decisions as it relates to expiration, on not based on 
the underlying stock's price action.  There's nothing worse that 
holding a put option on a stock that looks to be on the brink of 
a potential major decline, only to have to close that put option 
out because the risk of a slight rebound in the stock's price 
ahead of expiration could have current profits in the option 
being eroded rather quickly.

When you buy time on an option, it allows the trader to make a 
decision on closing out the option ONLY as it relates to the 
stock itself.  If the stock looks to have stabilized at a price 
you had hedged it to, then the option can be close out, but the 
decision was based on the stock's price and not the options 
expirations.

At the end of 6-months, you're going to have an idea if you've 
"passed the course" or not.  If at the end of 6-months, the 
bottom line of your $3,000.00 account is anywhere close to break-
even, and the stock you bought at $25.00 is $25.00 or lower, then 
you've got a passing grade and have probably LEARNED how to trade 
options profitably.  If your account value is ABOVE $3,000.00, 
the you've graduated at the top of the class!  However, if you're 
account is down more than $500.00 at the end of 6-months, then 
keep educating yourself and keep learning!  Don't give up!  NEVER 
give up!  But make the decision yourself if its worth adding 
another $500.00 to the account to keep learning.

Here's a novel idea for even more experienced options traders.  
When you look at a stock's chart and begin to contemplate a call 
or put option on a stock, try putting yourself in the shoes of a 
trader that owns 100 shares of that stock (for put option buyer) 
or is short 100 shares of stock (for call option buyers, either 
at the level it is trading at right now, or a level just before 
the put option SHOULD have been bought to have provided the 
ULTIMATE protection from the hedge.

Let's face it, if a stock looks like its already made a 
substantial move from an IDEAL action point, then this 
observation could influence just how much money you expose to the 
trade at a given point.

If you look at a chart and think.... "Ugh!  This stock has fallen 
too far in recent sessions to really have me looking to hedge it 
at this point," then it may just be that you should either wait 
for the stock to rally back to the "hedge level", initiate just a 
partial position in an IN THE MONEY put option (that you could 
add further to should the stock recover from an oversold level), 
or just move on to another opportunity.

I'm a strong believer in also knowing or understanding how to 
trade STOCKS from the short or bearish side.  A good way to LEARN 
how to trade a stock from the short side is to use a CALL option 
as insurance while you're learning to trade a stock short.  
Remember, OPTIONS were "invented" as a tool to HEDGE risk.  They 
were not "invented" as a tool for SPECULATION!

I strongly believe in education through books, subscriptions and 
seminars as there is going to be something that "hits home" with 
your belief system and can be successfully incorporated into your 
trading discipline, but the BEST BOOK you'll ever read on 
stock/options trading is the one YOU end up writing yourself.  
And to write this book, you're going to need to RISK real 
capital.

Hopefully the technique of buying 100 shares of a stock that is 
priced between $20 and $25, and using a put options contract to 
hedge that positions when deemed necessary will be of use.  

As outlined above, the MOST you could lose is a little over 
$3,000.00, but it the BEST book you'll ever read and learn from 
on how to trade options.  Again, I'm not here to sell books, but 
here's a link to our bookstore where you can find Tom Dorsey's 
Point and Figure Charting book.  
http://www.OptionInvestor.com/bookstore/index.asp

Jeff Bailey


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

==========================================
Market Watch for the week of March 10th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

BMY    Bristol-Myers Squibb  Mon, Mar 10  Before the Bell     0.27
DT     Deutsche Telekom      Mon, Mar 10  Before the Bell      N/A
SASOY  Sasol Ltd ADR         Mon, Mar 10  -----N/A-----       0.78


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

DLM    Del Monte Foods       Tue, Mar 11  Before the Bell     0.32
HNZ    H.J. Heinz Company    Tue, Mar 11  Before the Bell     0.52
KR     The Kroger Co.        Tue, Mar 11  Before the Bell     0.49


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

CMVT   Comverse Technology   Wed, Mar 12  After the Bell     -0.11
Z      Foot Locker, Inc.     Wed, Mar 12  Before the Bell     0.34
FCEa   Forest City Enter Inc Wed, Mar 12  -----N/A-----        N/A
MIK    Michaels Stores       Wed, Mar 12  After the Bell      1.01
TLB    Talbots               Wed, Mar 12  -----N/A-----       0.47


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

BGP    Borders Group Inc.    Thu, Mar 13  After the Bell      1.38
CLE    Claire's Stores       Thu, Mar 13  During the Market   0.81
DEG    Delhaize Group        Thu, Mar 13  -----N/A-----        N/A
PSA    Public Storage        Thu, Mar 13  -----N/A-----       0.70
TKC    Trkcl Iltsm Hzmtlri   Thu, Mar 13  -----N/A-----        N/A
HLTH   WebMD                 Thu, Mar 13  After the Bell      0.09


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

BAY    Bayer                 Fri, Mar 14  Before the Bell      N/A
KBH    KB Home               Fri, Mar 14  Before the Bell     1.16


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

Symbol  Company Name              Ratio    Payable     Executable

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
BRL     Barr Labs                 3:2      Mar. 17th   Mar. 18th
NARA    Nara Bancorp              2:1      Mar. 17th   Mar. 18th
XTO     XTO Energy                4:3      Mar. 18th   Mar. 19th


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

This week is back loaded with plenty of economic data as the
Retail Sales, Import/Export, PPI, Industrial production reports
and more all come out Thursday & Friday.  Unfortunately, this
will all pale beneath the media blitz covering the final ten
days before the U.S. goes to war with Iraq.

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

Monday, 03/10/02
----------------
None


Tuesday, 03/11/02
-----------------
Wholesale Invntories(DM)Jan  Forecast:   0.3%  Previous:     0.8%


Wednesday, 03/12/02
-------------------
Trade Balance (BB)      Jan  Forecast:-$44.5B  Previous:  -$44.2B


Thursday, 03/13/02
------------------
Initial Claims (BB)   03/08  Forecast:    N/A  Previous:     430K
Retail Sales (BB)       Feb  Forecast:  -0.2%  Previous:    -0.9%
Retail Sales ex-auto(BB)Feb  Forecast:   0.0%  Previous:     1.3%
Export Prices ex-ag.(BB)Feb  Forecast:    N/A  Previous:     0.4%
Import Prices ex-oil(BB)Feb  Forecast:    N/A  Previous:     0.2%


Friday, 03/14/02
----------------
PPI (BB)                Feb  Forecast:   0.7%  Previous:     1.6%
Core PPI (BB)           Feb  Forecast:   0.1%  Previous:     0.9%
Business Inventories(BB)Jan  Forecast:   0.2%  Previous:     0.6%
Current Account (BB)     Q4  Forecast:-$136.5B Previous: -$127.0B
Industrial Prduction(DM)Feb  Forecast:   0.2%  Previous:     0.7%
Capacity Utilization(DM)Feb  Forecast:  75.7%  Previous:    75.7%
Mich Sentiment-Prel.(DM)Mar  Forecast:    N/A  Previous:     79.9


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


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*********************
SWING TRADE GAME PLAN
*********************

Focusing on the Charts

Bush addressed the nation.  Blix reported to the U.N. 
Security Council.  The U.S., U.K., and Spain proposed 
a March 17 deadline for Iraqi compliance.  Opposition 
to the U.S. position hardened.  The entire world knows 
what will happen after that deadline, and the 
discovery of U.S. Marines cutting electric fences in 
the demilitarized zone between Kuwait and Iraq only 
confirms that prediction.  These developments mean 
some of the market uncertainty lies behind us now, and 
the markets will focus on the war's probable impact on 
the U.S. economy.  


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


FREE TRIAL READERS
******************

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would welcome you as a permanent subscriber.

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

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


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 03-09-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: ZMH
Put Play of the Day: XL
Dropped Calls: None
Dropped Puts: None


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

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

CALLS              Mon    Tue    Wed   Thu  Week
 
AMGN     55.70   -0.90   0.27   1.42  0.07  0.95  Holding Highs
BDX      33.96   -0.23  -0.64   0.27  0.10 -0.39  Looking for $34
DGX      52.45   -0.73  -0.97   0.64  0.17 -0.80  Support Holding
EXPE     70.39   -0.68  -0.82   0.87  0.83  0.41  New, Stock Split
MME      37.35   -0.15  -0.10   0.82  1.73  1.70  Big Week
SLAB     27.54   -0.85   0.02   0.46  0.72 -0.85  Great Strength
ZMH      45.21   -0.96  -0.05   0.53  0.56  0.57  Closing High!
 
 
PUTS
 
BBOX     39.58   -1.00  -0.11  -0.29 -0.72 -1.32  Still Under $40
MHK      46.27   -0.82  -1.18  -0.71 -0.98 -3.11  Big Week
PII      46.73   -0.69  -1.36   0.33 -0.28 -1.67  Trend Remains
TIN      39.74   -0.52  -1.43   0.01 -0.81 -0.52  Under $40
UTX      57.12   -0.79  -0.57   0.13 -0.70 -1.47  Bouncing
VZ       34.06    0.22  -0.40   0.13 -1.23 -0.53  Trend Intact
XL       69.00   -0.80  -0.45   1.23 -0.63 -0.75  Tense Week?


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

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

ZMH - Zimmer Holdings - $45.21 +0.42 (+0.82 for the week)

See details in play list




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

XL - XL Capital - $69.00 +0.38 (-1.94 for the 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
^^^^

None


***********
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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 03-09-2003
Sunday                                                      3 of 5

In Section Three:

New Calls: EXPE
Current Calls: AMGN, BDX, DGX, MME, SLAB, ZMH
New Puts: None


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

EXPE – Expedia, Inc. $70.39 (+0.60 last week)

Company Summary:
Expedia is a provider of online travel services for leisure and
small business travelers, offering one-stop shopping and
reservation services with real-time access to schedules, pricing
and availability.  The company's global travel marketplace
includes direct-to-consumer Websites offering travel-planning
services at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.nl
and Expedia.it.  In addition, the company provides
travel-planning services through its telephone call centers and
through private label travel Websites through its WWTE business.
WWTE is a division of Travelscape, Inc., one of EXPE's wholly
owned subsidiaries.

Why We Like It:
Travel-related stocks got pummeled throughout the months of
December and January as economic uncertainty had bulls in this
sector moving to the sidlelines ahead of earnings.  But the
earnings weren't as bad as expected and we've seen a fair amount
of improvement in these stocks in recent weeks.  Announcing
earnings that handily beat analyst forecasts on February 5th,
shares of EXPE initially sold off, trapping the bears below $60
and then promptly shooting skyward.  After one more dip in the
middle of February, EXPE has really been on a tear.  First
clearing the 200-dma, the next surge took the stock through the
50-dma (currently $64.98) and then through the $68 level this
past week.  What initially looked like short-covering, now
appears to be genuine buying in anticipation of the stock's
upcoming split.  That's right, EXPE is due to split 2-for-1 on
Monday, and that is likely part of the catalyst for the bullish
action in the stock.  What happens after the split is where the
rubber meets the road.  We don't want to enter before the split,
and that means waiting until it is trading split adjusted on
Tuesday.  Over the past several days, EXPE has been finding
support just above the $68 ($34 post-split) level, and we need
that level to continue supporting the stock after the split.  The
10-dma (currently $68.30) should reinforce that support level.
Look for a dip and bounce from that level on Tuesday to provide
the best entries.  Should buyers continue to bid the stock after
the split, momentum traders can consider new entries on a
breakout over $71 ($35.50 post-split), so long as buying volume
remains strong.  Place stops initially at $67.50 ($33.75
post-split).  Note that the push through the $70 level over the
past two days has taken the stock through the PnF chart's bearish
resistance line and the current column of X indicates substantial
upside still to come.  Our target for the play will be $77.50,
where the stock found resistance in late November.  We've listed
pre-split option strikes for the play this weekend and will
update them with post-split strikes on Tuesday.

*** March contracts expire in two weeks ***

BUY CALL MAR-70 UED-CN OI=4629 at $2.75 SL=1.25
BUY CALL APR-70*UED-DN OI=3047 at $5.00 SL=3.00
BUY CALL APR-75 UED-DO OI=2036 at $2.60 SL=1.25

Average Daily Volume = 2.05 mln



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and clicking on the link to the book on its home page.

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


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

AMGN – Amgen, Inc. $55.70 (+1.06 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:
Consistency is the key, and our AMGN play certainly has it. 
Support at the ascending trendline has been as consistent as the
rising sun for months now, and most recently afforded an
attractive entry into the play on February 25th when the company
reaffirmed its growth rate in terms of both revenue and earnings
out until 2005.  That gave the stock a strong rebound from the
$52 level and since then AMGN has been banging on resistance,
first at the $54 level, then $55 and now $56.  This play has been
a slow mover, but steady as they come.  Trying to chase price
action higher is a losing proposition, as each move to new highs
is invariably followed by a retracement back to confirm support
at a higher level.  After breaking through the $55 resistance
earlier this week, the stock has been testing that level as
support and it looks like it is going to hold.  While we may see
a brief dip back to the $54 area, it is likely to be bought with
enthusiasm, making such a dip a gift of an entry point at this
stage of the play.  The stock appears intent on continuing its
upward move, with $60 an obvious upside target for the bulls.
Buying volume is strong and this is borne out by the strong
bullish trend in the On Balance Volume indicator.  Buy the dips
to support and maintain stops just below trendline support
($53.10).  Our stop rises to $53 this weekend.

*** March contracts expire in two weeks ***

BUY CALL MAR-55 YAA-CK OI=33633 at $1.90 SL=0.75
BUY CALL APR-55*YAA-DK OI=34707 at $2.95 SL=1.50
BUY CALL APR-60 YAA-DL OI=31603 at $0.90 SL=0.50
BUY CALL JUL-60 YAA-GL OI=32874 at $2.75 SL=1.25

Average Daily Volume = 11.8 mln


---

BDX - Becton Dickinson - $33.96 +0.16 (-0.44 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:
Position trading can be a game of patience and that is exactly 
what bullish traders in BDX need right this moment.  Considering 
the world events these days patience can be tough to come by if 
you're long stock.  We remain encouraged by the relative strength 
displayed in the daily chart of BDX and if the market cooperates 
at all on Monday we should see shares break through the $34 level 
again.  Unfortunately, the position on the point-and-figure chart 
is still challenging and shares have yet to break through the 
overhead resistance near $35.00.  As we mentioned in the Thursday 
update, conservative traders can reduce their risk by placing a 
stop near $33.20, which has been recent support.  Officially, the 
OI play stop loss remains at $31.98.  Enter cautiously as the 
markets seem headed for another troubling week.

** Only Two Weeks Left for March Options **

BUY CALL MAR-30*BDX-CF OI= 101 at $4.00 SL=2.00
BUY CALL MAR-35 BDX-CG OI=1268 at $0.35 SL=0.00
BUY CALL APR-30 BDX-DF OI=   0 at $4.20 SL=2.00
BUY CALL APR-35*BDX-DG OI=  57 at $0.75 SL=0.00

Average Daily Volume = 1.16 mil


---

DGX – Quest Diagnostics $52.45 (-0.31 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:
Right on the edge, shares of DGX just can't seem to gain any
traction.  But at the same time, the stock also seems to be
finding support just above the $51 level.  It is interesting that
each of the past 3 days has seen the bears press the stock under
the 20-dma ($51.67) and each time the bulls have been able to
battle back above that moving average.  In fact, the closing
highs have been moving fractionally higher.  The real problem
is the volume, as the term anemic would be an understatement.
Friday's lackluster showing was barely half the ADV, so clearly
we are going to need to get some more volume in play if the
stock is going to have any hope of getting over that $55 level.
But with support so consistent just above $51, it certainly
makes it easy to grab an attractive entry into the play each
time the stock rebounds from that level.  Recalling the picture
on the PnF chart, we got a new Buy signal with the trade above
$54, but then the latest pullback took over.  Traders not willing
to buy the dip near support will need to see upside conviction
with a move through 10-dma ($52.64) and then $53 before playing.
We're raising our stop to $51.25, just below the recent intraday
lows.

*** March contracts expire in two weeks ***

BUY CALL MAR-50 DGX-CJ OI= 664 at $3.40 SL=1.75
BUY CALL MAR-55 DGX-CK OI=2142 at $0.70 SL=0.25
BUY CALL APR-50*DGX-DJ OI= 152 at $4.40 SL=2.75
BUY CALL APR-55 DGX-DK OI= 979 at $1.70 SL=0.75

Average Daily Volume = 1.28 mln


---

MME – Mid Atlantic Medical Services $37.35 (+1.60 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:
Whatever the cause of MME's strong upward move on Thursday, it
doesn't seem to be news related, as there still isn't anything
of substance on the news wires.  And it doesn't seem to be
related to either the economy or the geopolitical situation, as
there wasn't much movement in the stock on Friday despite the
wild gyrations in the broad market brought on by the jobs data
and developments on the international scene.  MME traded in a
very narrow range on Friday, completing a nice little inside day
at the upper end of Thursday's large-range candle.  That gives
us a couple of ways to play the action next week.  A breakout
over $38 can be used by momentum traders as an entry, as it
would represent a bullish resolution to the inside day.  More
conservative traders are still looking to enter the play on
another pullback to support, which resides down in the
$35.50-36.00 area.  A more aggressive approach to buying the dip
would be to enter on a rebound from the $37 level, which
provided support on two separate occasions on Friday.  Maintain
stops at $35 until we see how next week gets started.

*** March contracts expire in two weeks ***

BUY CALL MAR-35 MME-CG OI=339 at $3.10 SL=1.50
BUY CALL APR-35*MME-DG OI= 20 at $3.90 SL=2.50
BUY CALL APR-40 MME-DH OI=150 at $1.25 SL=0.60

Average Daily Volume = 428 K


---

SLAB - Silicon Laboratories - $27.54 -0.04 (+0.42 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:
Sometimes it's all about relative strength.  Bulls are probably 
looking for anything they can park their money in these days and 
SLAB has certainly been holding up its part of the bargain.  
Intel's news really hit the stock (INTC) hard and shares lost 4% 
by the close.  More importantly, the semiconductor sector gapped 
lower, much like the rest of the markets today.  The dip below 
280 was probably a tense once for both bulls and bears a like.  
When the markets began to rebound, so did the $SOX.  Meanwhile, 
shares of SLAB remained very strong.  Both the morning dip and 
the afternoon dip in SLAB saw good rebounds.  The upward trend 
remains and shares look ready for a breakout above $28.00.  We 
still caution any traders strongly about going long stocks in 
this market.  Many analysts believe that next week could be very 
tough (translate: down) as we wait for the shooting to start.  
However, if you're going to buy a stock, how about one that's out 
performing its peers and the market (like SLAB).  Remember, if 
SLAB hits $29.50 or higher we're closing the play.

** Only Two Weeks Left for March Options **

BUY CALL MAR-25 QFJ-CE OI=1005 at $3.10 SL=1.50
BUY CALL MAR-30 QFJ-CF OI= 658 at $0.45 SL=   0
BUY CALL APR-25*QFJ-DE OI=1439 at $4.10 SL=2.00
BUY CALL APR-30 QFJ-DF OI=2550 at $1.25 SL=   0

Average Daily Volume = 1.22 mil


---

ZMH - Zimmer Holdings - $45.21 +0.42 (+0.82 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:
Fresh news on ZMH remains hard to come by.  Thankfully, that has 
not stopped shares from climbing higher despite all the market 
volatility and apparent weakness.  This could be another case of 
bulls looking for a place to put their money and keying in on 
ZMH's impressive relative strength.  The stock is really out 
performing.  Despite the great performance we remain cautious and 
traders should pay extra attention to their stops and be sure to 
have an exit plan in mind.  As previously noted, looking at ZMH's 
weekly chart is showing the stock very close to its upward 
trendline (of resistance).  You can see the same trendline on the 
stock's point-and-figure chart, which happens to be showing a 
bullish double-top breakout.  Don't misunderstand us.  ZMH has 
been performing well and Friday's close over $45 is very 
encouraging.  We still feel the upside target should be in the 
$47.50 range as shares don't move that fast.  Another word of 
caution for the bulls is the volume on ZMH.  Volume has been 
dropping since the breakout above resistance near $42.50.  This 
is not normally a good sign but we also have to consider that 
volume has been dropping in the markets overall during the same 
time frame.  Thursday's update offered a new stop loss for ZMH at 
$42.95.  We're going to leave it there for now.  

BUY CALL APR-40 ZMH-DH OI=  6 at $5.80 SL=2.60
BUY CALL APR-45*ZMH-DI OI=808 at $1.95 SL=0.80

Average Daily Volume = 1.08 mln



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

None


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The Option Investor Newsletter                   Sunday 03-09-2003
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: BBOX, MHK, PII, TIN, UTX, VZ, XL
Leaps: War, War and More War
Traders Corner: Position Adjustments For The (Semi-Rational) Trader
Traders Corner: For the Bears
Traders Corner: Daisy Two-Breath
Futures Corner: Execution


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

BBOX – Black Box Corporation $39.58 (-1.08 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:
Friday's trading session was volatile to say the least and our
BBOX play went along with that trend.  After falling below recent
support, the bulls stepped in to support the stock at the $38
level (at the bottom of the 10/17 gap), and then propelled the
price sharply higher throughout the morning until reaching the
$40 level.  That level proved too strong of resistance and BBOX
pulled back slightly into the close.  So the question we have to
answer this weekend is whether Friday's action provided an entry
point, or whether it was a reversal session.  It is too hard to
call tonight, as volume wasn't sufficiently strong to call it a
real reversal, but it was strong in terms of price, with the
day's candle completely engulfing Thursday's candle.  Daily
Stochastics are just starting to attempt a bullish reversal, so
we need to exercise caution.  Should the bulls be unable to crest
the $40 level (reinforced by the 10-dma at $39.82), then a
continued rollover can be used for new entries.  However a
continued upward move and close above $40 would be confirmation
that Friday's session marked an important reversal.  More
conservative traders will want to wait for a drop back under
$39.25 (afternoon support on Friday) before initiating new
positions.  Our official stop remains at $41.

*** March contracts expire in two weeks ***

BUY PUT MAR-40*QBX-OH OI=264 at $1.65 SL=0.75
BUY PUT APR-40 QBX-PH OI= 35 at $2.55 SL=1.25

Average Daily Volume = 286 K


---

MHK – Mohawk Industries, Inc. $49.38 (-3.11 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:
Short-covering was the name of the game on Friday, which was
actually quite surprising, given the depth and breadth of the
job losses reported before the opening bell.  But geopolitical
concerns once again took center stage, giving the victory to
the bulls.  After dropping at the open with the rest of the
market, our MHK play found solid support just above the $45
level before rebounding throughout the rest of the morning.
The bulls clearly lacked conviction though, with the $46.70 level
(prior support) acting as resistance into the close.  We
expected support to materialize in the $44-45 area, and had
suggested harvesting gains on a drop into that area.  Under
normal market conditions, we might have even dropped MHK from
the playlist this weekend, but as we all know, this market is
anything but normal.  The dominant issue still at play for MHK
is the developing weakness in the Housing sector, and it will
take more than a one-day short-covering bounce to dissuade us
from the fundamentals driving this play.  The Home Construction
index ($DJUSHB) faces stiff resistance at the $300-307 area, and
unless it can move above that zone, MHK should remain mired in
its downward trend.  The descending trendline from the beginning
of the year is now at $48, and MHK will face stiff resistance
there.  The best case for new entries will be on a failed rally
below that level, although we'd prefer a rollover below $47.
Given the rebound from the $45 level on Friday, we're still
advising not to enter on breakdowns, but to use dips to that
support level to harvest gains in the play.  Maintain stops at
$48.

*** March contracts expire in two weeks ***

BUY PUT MAR-50*MHK-OJ OI= 47 at $4.20 SL=2.50
BUY PUT MAR-45 MHK-OI OI= 86 at $1.05 SL=0.50
BUY PUT APR-45 MHK-PI OI=565 at $2.15 SL=1.00

Average Daily Volume = 476 K


---

PII - Polaris Industries, Inc. $46.73 (-1.67 this week)

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

Why We Like It:
Broad market action was still dominated by geopolitical events
on Friday, as evidenced by the sharp rebound form the morning
lows.  Our PII play went along with the crowd, dipping to new
lows near $45 at the open and then getting hit with a sharp
round of buying that took the stock right up to the descending
trendline (just over $47) that began in early January.  There
wasn't enough buying interest to hold over that trendline and
the stock then weakened slightly into the close, ending the
day just below $47.  This is an important level, as it provided
support both on 2/13 and 2/25, so we have old support now
behaving as new resistance.  Provided the bulls can't extend
Friday's gains early next week, a rollover from this trendline
will give eager bears their next likely entry into the play.
We've been avoiding entries on breakdowns below recent support
and the sharp bounce on Friday reinforces our resolve about
that strategy.  Should the bulls be able to continue Friday's
bounce on Monday though, it is likely we will have to concede
that the 2-month downtrend has run its course.  Traders looking
for a new entry into the play can either use a rollover near
$47 next week, or for those with a more aggressive approach a
bounce and failure below $47.75.  We're maintaining our stop
at $48.

*** March contracts expire in two weeks ***

BUY PUT MAR-45 PII-OI OI=106 at $1.15 SL=0.50
BUY PUT APR-45*PII-PI OI=149 at $2.65 SL=1.25

Average Daily Volume = 460 K


---

TIN – Temple-Inland Inc. $39.74 (-2.16 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:
It is uncanny how the PnF bullish support line consistently
provides support on the first test.  It is that reality that
kept us from recommending new entries into our TIN play on a
breakdown below Thursday's low.  That breakdown occurred first
thing on Friday morning, with the broad market heading sharply
lower in response to the dismal employment numbers.  TIN plunged
to $38.65 before climbing right to $40, dipping back to just
above $39 and then moving back towards the highs at the close.
Despite that relatively bullish action, it does nothing to change
the trend, which is clearly down.  Short-covering ahead of the
weekend seemed to be the dominant theme, and the bounce in TIN
just sets us up for a potential entry early next week.  While
the best case for a new entry point would be a rollover from just
above $41 (the site of the 8-week descending trendline and broken
support, not to mention the 10-dma at $41.17), we may have to
settle for a rollover in the vicinity of $40.00-40.50, where the
stock found support on the way down on Wednesday.  While this
play does have the technicals in its favor, traders need to be
aware of the attendant risks that go with a stock that has thinly
traded options.  That factor will mean the bid/ask spread is
wider and purchases will have to be done at the ask, while sales
will likely have to be done at the bid.  But that should become
an insignificant factor, if the play performs to our
expectations, as we're looking for a decline to at least $37
(filling the first gap) and eventually to $35.50 (filling the
second gap).  In order to give the play time to perform, we're
recommending using the April or even May option, rather than
March, which only has two weeks to expiration.

*** March contracts expire in two weeks ***

BUY PUT MAR-40 TIN-OH OI= 16 at $1.25 SL=0.60
BUY PUT APR-40*TIN-PH OI=  0 at $2.05 SL=1.00
BUY PUT MAY-40 TIN-QH OI= 86 at $2.50 SL=1.25

Average Daily Volume = 364 K


---

UTX - United Technologies $57.12 (-1.46 last 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:
The question we've been asking over the past several days was
"how long will UTX fall before giving us a bounce we can use for
new entries?"  We got our answer on Friday, as an early drop was
met with fierce short-covering, making for a very wild session.
The initial drop was motivated by the pathetic employment report,
which quickly drove the broad market lower.  UTX fell to just
above $55 at the open and then quickly soared higher as the
shorts covered.  Within the first 90 minutes, the stock was back
up at the $56.50 resistance level and after a bit of indecision,
it pushed higher, ending the day just above $57 and very near
the high of the day.  Volume was heavy on Friday too, but we're
not quite ready to cut bait and run on this one, as the downward
trend is still very much intact.  The 10-dma (currently $57.93)
provided strong resistance as UTX rolled over from the $62 level
last month and given the fact that it lines up nicely with
strong historical resistance (broken support) at $58, that's
where we want to focus our efforts for initiating new positions.
Recall that the PnF chart is still very bearish, with the
bullish support line soundly broken and the vertical count
forecasting a decline down to the $51 level.  That's just above
the October lows and an ideal level to harvest gains if we get
there.  As news driven as this market is, it still makes more
sense to enter on failed rallies than breakdowns (as seen on
Friday), so we're going to stick with that strategy.  Keep
stops set at $58.75.

BUY PUT MAR-60 UTX-OL OI=1976 at $3.60 SL=1.75
BUY PUT APR-60 UTX-PL OI= 201 at $4.70 SL=2.75
BUY PUT APR-55*UTX-PK OI= 361 at $2.20 SL=1.00

Average Daily Volume = 2.13 mln


---

VZ – Verizon Communications $34.06 (-0.52 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:
How can you tell you've just watched a short-covering rebound?
When a group of stocks that have been weak lately all see a
strong rebound just after tracing a new low.  That's exactly
what happened to our VZ play on Friday.  Dropping sharply with
the rest of the market and the North American Telecoms index
(XTC.X), VZ hit a morning low of $32.90 before rebounding
sharply, right back to the $34 level at the close.  The thing
that is encouraging is that there wasn't enough buying interest
to push the stock back over the $34.25 level, which after
providing such consistent support for 2 weeks should now
present formidable resistance.  Remember the descending
trendline that has been defining the series of lower highs for
the past couple weeks?  Well, it has now fallen to $34.70 and
if this trend is to continue, the bulls should not be able to
effect a rally through that trendline.  For that reason, we can
now get even more aggressive with our stop, lowering it to
$34.75 this weekend.  Traders looking for a new entry into the
play will want to focus on a rollover from the $34.25-34.50 area
as the best approach.  Despite the rebound on Friday, VZ looks
weak and so does the XTC index.  VZ isn't going to move quickly,
but it still looks vulnerable to the $29-30 level, which ought
to provide a great exit point at strong support.  In order to
get there though, the XTC is going to need to remain weak, with
the next level of support $380-390 falling to the bears.
Traders can use the action in this index to confirm
strength/weakness in VZ.  

*** March contracts expire in two weeks ***

BUY PUT MAR-35 VZ-OG OI=11506 at $1.65 SL=0.75
BUY PUT APR-35*VZ-PZ OI= 3737 at $2.80 SL=1.50
BUY PUT APR-32 VZ-PZ OI= 4336 at $1.50 SL=0.75

Average Daily Volume = 7.12 mln


---

XL - XL Capital - $69.00 +0.38 (-1.94 for the week)

Company Summary:
XL Capital Ltd, through its operating subsidiaries, is a leading
provider of insurance and reinsurance coverages and financial
products to industrial, commercial, and professional service
firms, insurance companies, and other enterprises on a worldwide
basis. As of December 31, 2002, XL Capital Ltd had consolidated
assets of approximately $35.6 billion and consolidated
shareholders' equity of approximately $6.6 billion. (source:
company release)

Why We Like It:
The next few weeks could be intense ones for insurance companies.  
Many have dramatically increased rates and reserves over the last 
18 months in preparation for any future homeland terrorist 
incident.  As the deadline between the U.S. and Iraq approaches 
(March 17) the expectation for a terrorist attack will probably 
rise (both before and after the deadline.  As reported in the 
news, the high-profile capture of one of Al-Queda's leading 
organizers could either put Al-Queda into hiding or accelerate 
any plans they have.  Looking at the Insurance sector index 
($IUX.X) one can see that the IUX tested support at 220 on 
Friday.  This is the third time 220 has held as support since 
last July.  While technical bulls may see this as a low-risk 
entry (using a very tight stop) we have looked at some of the 
bigger insurance stocks in the group and many appear ready to 
drop with several under key support levels.  The exception in the 
property and casualty group is Progressive Corp (PGR) and shares 
of PGR have turned vertical.  We all know that can't hold up 
forever.  Unfortunately, we could not uncover what is driving the 
price higher for PGR.  If you have an insight into the stock's 
sudden rise, let us know (comments@OptionInvestor.com).  
Meanwhile, shares of XL don't look much different from Thursday's 
update.  The stock dipped lower on Friday morning with the 
markets and rebounded with the markets.  Bears can happily say 
that the rebound was rather muted and the stock remains under 
resistance at $70.  The point-and-figure chart also looks bearish 
with a double-bottom breakdown and no real support until $60.  We 
will leave our stop at $72.06 for the moment.

** Only Two Weeks Left for March Options **

BUY PUT MAR-70 XL-ON OI=314 at $2.90 SL=1.45
BUY PUT APR-70*XL-PN OI= 95 at $4.10 SL=2.00
BUY PUT APR-65 XL-PM OI=551 at $2.20 SL=1.00

Average Daily Volume = 734 K



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*****
LEAPS
*****

War, War and More War
By Mark Phillips
mphillips@OptionInvestor.com

Doesn't anyone care about the economy anymore?  That certainly
seemed to be the case on Friday, as the early plunge due to the
abysmal (actually, I think that's an understatement) employment
report was over almost as quickly as it began.  Shorts began
covering almost immediately ahead of the Hans Blix testimony in
front of the U.N. as attention reverted almost immediately back
to the geopolitical stage.  Aside from the employment report an
hour before the open, I really didn't hear anything else
throughout the day that could be termed "economic news".  It
was all geopolitical, from the back and forth rhetoric at the
U.N. to the on again, off again rumors of the capture of one or
more of Bin Laden's sons.

I hate to be the bearer of bad news, but don't expect any of this
to change until Bombs Over Baghdad: The Sequel opens at a theatre
near you.  There's no way President Bush is going to back down
now (save for Saddam meeting with an unfortunate accident), and
we ARE going to war.  Most likely within the next 2 weeks.  The
market knows this and appears to have found a point of
equilibrium, where major participants are content to wait until
the show starts.  Please don't misunderstand my comments.  I view
war as a very serious event and one only to be undertaken when
all other diplomatic means have been exhausted.  I believe the
administrations in the U.S. and U.K. (along with others) have
come to the conclusion that we're there.  

Why do I start off with the geopolitical situation?  Because it
defines where the market is and what it is likely to do over the
near term.  the market has found a point of equilibrium, while it
awaits some sort of confirmation that the war will go either
better or worse than is generally expected.  Once that unknown
becomes known, then the press and traders can get back to the
business of valuing stocks based on expectations about business
growth (or lack thereof) and the overall economy.  Trust me,
we'll get there.  And quite possibly by the end of the month.
Just in time for earnings season again!

Capitulation Time

Not the market, but me.  I've got to tip my hat to Linda Piazza,
as she's finally convinced me of the validity of technical
analysis on the VIX.  It works.  That doesn't mean I have the
slightest idea where it is headed over the next 6 weeks (although
I expect much higher and then lower), I can no longer avoid the
conclusion that the technical analysis metrics we've been talking
about are quite valid.  Take a look below.

Daily Chart of the VIX


 

That descending trendline from the July highs is still defining
a ceiling for the VIX and if you draw the trendline on the tops
of the candle bodies, rather than the wicks (as I've shown),
you'll see that Friday's action represented another rejection
at that trendline.  Look at the moving averages too.  The 200-dma
has now risen over 35, and I think it is significant the
regularity with which either the 200-dma or the 50-dma is
providing support for the VIX.  With the Stochastics and MACD
both looking early bullish, we could be in for some real
excitement next week.  We'll know for sure with either a VIX
close below the 50-dma or a close above the descending trendline.

I still view the current action as showing extreme complacency,
despite a VIX of 35.  Take another look at the OEX and you'll
see what I mean.  This week saw the VIX go out just over 35,
with the OEX barely able to hold onto the 420 level.  What we
continue to see is a pattern of the VIX moving ever lower, while
at the same time, the market is moving lower.  This is a clear
divergence from past behavior as I pointed out in my February
26th Options 101 article, Best of Intentions.  Investors are
showing their expectation that the beginning of the war will be
the time to buy as the market will rally just like it did in
1991.  Let's just say I'm not convinced.  My money is on another
sharp increase in the VIX, through the trendline, and through
the 40 level, although I could be wrong.

So if that's my expectation, then why is everything in both the
Portfolio and Watch List bullish?  Great question!  Because by
way of the bullish percent charts and the current oversold
condition throughout the market, the odds don't favor long-term
bearish positions right now.  Bears are carrying the lion's share
of the risk in this market, and what we're trying to do here is
pick attractive entry points into bullish plays that should hold
up well on that expected decline and then outperform to the
upside.  

Of course, it never hurts to hedge your bets, and that's what
we're doing by bringing NEM back onto the Watch List this
weekend.  I'm looking for a sharp decline in the stock (and the
price of gold) in the next few weeks and that will be when we
want to strike.

I'm sure you've noticed that I really haven't said anything
about technical levels in the market, or the specifics of the
Bullish percent or where support/resistance lie.  The reason why
is that it really hasn't changed that much in the past 3 weeks,
as we remain mired in the range, and I see no benefit to telling
you in excruciating detail that which you already know.  So
we'll keep it brief this weekend and go right to the plays.

Portfolio:

QCOM - "I think I can, I think I can" say the bulls as they
struggle and strain to push QCOM higher.  For all the grunting
and straining over the past few weeks, they certainly haven't
accomplished much, now have they.  For myself, I'm actually
pretty pleased with the stock's relative performance, as it has
held in the $33-35 area while the rest of the market has been
deteriorating.  It looks to me like we got a pretty solid entry
and now we just wait for a bullish move that lasts more than a
day to propel the stock through the $36 resistance level.  Dips
and rebounds from above the 200-dma still look attractive for
those of you still looking for an entry into the play.  So long
as we remain mired in this range, I'll keep a wide stop set at
$30.

DJX - This is just what I was worried about when I succumbed to
taking an entry on the DJX play a couple weeks ago.  This
volatile news-driven market environment is certainly not
conducive to measured and well-considered entry plans.  My
intent had been to log an entry from a rebound near $77.50, but
that bounce took the DJX over the $79 level by the close,
leaving the Portfolio with a less than desirable entry to be
sure.  But that's water under the bridge, and I trust many of
you got into the play closer to the $78 level, as mentioned in
the Market Monitor.  Coming back to my original target of $77.50,
did you notice that we're right back there again this weekend,
with the DJX going out at $77.40?  For traders not yet in the
play, I would look for dips into the $75-76 area as a solid entry
point.  Just keep in mind that with war looming in the next
couple weeks, conservative traders will be best served by waiting
on the sidelines until seeing how the market reacts to
international developments.

MSFT - Much ado about nothing!  We took our entry into the MSFT
play last weekend, and in the past week the stock has been down
to test the $23 level and it right back where it was when we
initiated the position.  The stock "feels" like it is trying to
put in a bottom, but like the rest of the market, the key remains
with the geopolitical situation.  Rebounds from the $23 level
continue to look good for new entries, but I just can't shake
the feeling that there is one more strong downdraft in store
before MSFT really bottoms.  For that reason, I'm keeping a
rather wide stop at $21.

ADBE - While I clearly jumped into the ADBE play just a tad
early, I do like the way the stock rebounded from the 200-dma
late last week.  That $25.00-25.50 level has been solid support
for several months now and should continue in that role until
the stock can really gain some traction to the upside.  The
first obstacle will be getting back over $28 and then the very
strong $29 resistance level.  We may seem some more weakness
in the stock ahead of the war effort in Iraq, but unless our $24
stop is violated, I view those dips as buying opportunities.

Watch List:

BEAS - There's not question BEAS' dip down to $9.15 last week
looked tempting for an entry point, but I'm trying to be more
patient.  Too many times in recent weeks, I've taken an entry
into one of our Watch List plays prematurely, only to see a
better entry opportunity arise soon thereafter.  With the trend
in BEAS still down and the uncertain market environment, I want
to see the stock actually fall into our $8.50-9.00 target zone
before pulling the trigger.  The 200-dma is sitting right in the
middle of that zone, and I'm betting it is going to be tested
before a sustained rally arrives.  Even after that entry, I
wouldn't be surprised to see a dip as low as the $8 level (the
site of the PnF bullish support line) before BEAS really turns
around.  Patience is the key.

NVDA - In the area of resilience, our NVDA play has been truly
amazing, as it continues to find support at the $12 level.  Is
our target zone of $10-11 too aggressive?  While I'm not
entirely sure, I don't think so.  In the wake of the company's
stellar earnings report, investors just seem unwilling to let
the stock fall very far before snapping up the perceived bargain.
The problem with buying at this level is the fact that the
weekly Stochastics are now topping out in overbought territory
and with price unable to advance, it looks like they will soon
begin their trek back down towards oversold.  That certainly
isn't the setup I want for aggressively trying to go long.  Call
me a skeptic, but I think we're best served by waiting for the
market to deliver the entry point we've requested.  A bounce
from the $10-11 area is what we want, and I for one am prepared
to wait for it.

AA - Last weekend I raised the question of whether I had perhaps
missed a good entry into our AA play.  Based on the price action
of the week just concluded, I would have to say "No".  In fact,
with the sharp slide on Thursday, and a pretty meager rebound on
Friday, I'm certainly in no hurry to open a position.  I think
the thing that may be bothering me the most is the position of
the weekly Stochastics, which are just starting to tip bearish
midway up towards overbought.  That's a warning of potential
weakness that I don't want to ignore.  With the February lows
now broken, a retest of the October lows seems certain, so that's
what we're going to look for.  Lower the entry target to
$18.00-18.50.  If we do get an entry into the play, we'll have
a tight stop at $17.50, as a trade at that level would be a new
PnF Sell signal and would negate the current bullish vertical
count.

EMC - Can you say boring?  While I expected EMC to be a slow
mover, I was a bit surprised to see the quiet trade last week.
Alright, to be fair, for a $7 stock, that $0.60 range throughout
the week wasn't too bad, as it equates to an 8.5% range.  I
guess I'm just irritated that the wild gyrations in the stock
couldn't get it closer to our entry zone.  While EMC did trade
an intraweek low of $7.03, I'm holding out for a dip down closer
to $6.50 before getting my feet wet.  Up until late February, EMC
had been holding above an ascending trendline that began with
the February lows.  The break below that line and the fact that
EMC couldn't get back through it last week hints that there is
some more weakness in store.  A trade down to the $6.40 level
(followed by a rebound, of course) would fill the stock's last
remaining gap and pave the way for the next bullish move.  So
let's keep our target where it is and hope for one more surge
down over the next couple of weeks.

My opening comments really say it all.  This market is all about
the coming war with Iraq and little else.  That means a 5-10%
ramp up OR down can occur just as easily, based entirely on the
latest piece of breaking news.  That is not an environment for
long-term investors to be aggressively establishing new
positions.  That's a sure-fire way to lose money, in my opinion.
It may not be exciting or what we want to do, but this is an
excellent time to be sitting still and tracking our quarry, but
not letting our presence be known.  Like many others before me
have said with great regularity, "Cash Is King!"

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  $ 4.40  - 4.35%  $30
                 '05 $ 40  ZLU-AH  $ 7.90  $ 7.60  - 3.80%  $30
DJX    02/25/03  '03 $ 80  DJX-LB  $ 6.40  $ 5.60  -12.50%  $74.50
                 '04 $ 80  YDJ-LB  $ 9.30  $ 8.40  - 9.68%  $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  $ 4.40  - 6.38%  $24
                 '05 $ 30  ZAE-AF  $ 7.50  $ 7.30  - 2.67%  $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
NEM    03/09/03  $23.50-24.00  JAN-2004 $ 25  LIE-AE
                            CC JAN-2004 $ 20  LIE-AD
                               JAN-2005 $ 25  ZIE-AE
                            CC JAN-2005 $ 20  ZIE-AD


PUTS:
None


New Portfolio Plays

None

New Watchlist Plays

NEM - Newmont Mining Corp. $25.96  **Call Play**

Ever the contrarian, I'm looking to take advantage of the
reactive plunge in the price of gold and by association, the
price of gold stocks once the shooting starts in Iraq.  You
see, analysts and the media have conditioned the public to
believe that the primary cause of the rise in the price of gold
over the past several months is due to the heightened
geopolitical uncertainty.  While I don't doubt that this factor
has played a part, I don't for a minute delude myself into
thinking that Iraq and North Korea are the central cause.  The
bull market in gold began before Iraq started heating up and
even before 9/11 as market forces recognized that gold was
undervalued and most everything else in the market was
overvalued.  The price of gold began posting higher highs and
higher lows in the middle of 2001 and hasn't deviated from that
trend yet.  The real cause of the strength in gold is derived
from the fact that gold is real money, as apposed to the
multitude of fiat currencies, none of which are based on
anything other than the say so of their respective central
banks.  And with debt concerns, looming recessions and trade
imbalance concerns, there are very few currencies (none that I
know of) that are looking strong relative to the price of gold.
Central to this theme is the action of the US Dollar index
(DX00Y), which tracks the value of the dollar against a
trade-weighted basket of international currencies, hit a new
3-year low last week and looks like it is headed lower.  That
can only be good for the price of gold.  Alright, enough
background.  What do I like about NEM?  In the world of mining
stocks, NEM is the blue chip company, with mining interests
throughout the world.  The stock is well into a solid long-term
bullish trend and is one of the few mining stocks that has LEAPS
available.  We played this one successfully not too long ago,
although I think I was a bit tardy in pulling the plug.  The
long-term ascending trendline for the stock currently rests just
below $24, and I expect to see a sharp pullback in both the
price of gold and NEM in the wake of positive developments soon
after the shooting in Iraq starts.  The reason for this sharp
selloff is the reaction of the uninformed "sheeple" that will
sell based on the belief that the price of gold (and gold shares)
is linked to the geopolitical situation.  We know better, and
we'll be in a position to take advantage of their ignorance.
Make no mistake, there is a significant amount of risk in trying
to game the bottom in an emotional selloff, but I'm looking for
the smart money to step forward and support the price of gold and
NEM at major support levels.  For gold, that is in the $325-330
area, with support reinforced by the 200-dma at $329.76 (basis
the April futures contract, GC03J).  For NEM, the support we want
to target is the ascending trendline at $23.75, so our entry
target will be $23.50-24.00.  That drop to support over the next
couple weeks should coincide nicely with the weekly Stochastics
bottoming in oversold (they're almost there now).  Keep in mind,
this isn't a play that we want to enter until AFTER the beginning
of hostilities in Iraq.

BUY LEAP JAN-2004 $25 LIE-AE
BUY LEAP JAN-2004 $20 LIE-AD **Covered Call**
BUY LEAP JAN-2005 $25 ZIE-AE
BUY LEAP JAN-2006 $20 ZIE-AD **Covered Call**


Drops

None


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

Position Adjustments For The (Semi-Rational) Trader
By Mike Parnos, Investing With Attitude

Normally, when position adjustments become necessary for CPTI 
students, it’s the result of a leg cramp, answering nature’s 
call, or the timer going off on the microwave.

On occasion, when our trades are being naughty, they will require 
a little position adjustment as well.  That’s OK because we have 
a plan.  Sitting Bull had a plan.  General Custer did not.  He 
might have made it into the history books (see “stupid”), but he 
never made it out of the Little Big Horn.

Two weeks ago, in the CPTI Portfolio, we put on an Iron Condor 
for the March expiration cycle using XAU (Gold/Silver Index).   
We established a range of  $65 to $80.   It seemed like a good 
idea at the time.  There was some support around $69-70 and some 
pretty good resistance to the upside near $80.

An Iron Condor is a credit position consisting of both a bull put 
spread and a bear call spread placed around a projected trading 
range.  The collected premium comes into your account the very 
next business day.  The objective is for the underlying, at 
expiration, to finish anywhere within the range. 

Gold’s Recent Downtrend
Since the end of January, gold has been steadily trending down.  
It recently broke through some support at $70 and traded as low 
as $67.33 Friday -- finishing at $67.44.  There are two weeks 
remaining until expiration.  We have a $2.44 cushion and little, 
if any, support.  If you feel comfortable holding onto the 
position, go for it.  I’m going to err on the side of caution and 
recommend you close the put side of the XAU Iron Condor.  We 
closed ours just prior to market close on Friday.  Why? 
Personally, I simply don’t like the chart.  

Today, the put side could be closed for a debit of $1.00.  
Originally, we took in $1,400 when we established the position.  
Looking at the big picture, we actually realized a profit of $400 
and are no longer exposed on the downside.  Think about it – 
$400 profit for two weeks isn’t bad at all.

By closing the put side of the trade we have also freed up $5,000 
in maintenance that can be used elsewhere in our account.  Plus, 
let’s not forget that our $80/85 bear call spread is still 
intact.  As of the end of trading on Friday, you could unwind 
that spread for about $.10-.15.  There’s no big rush, though.  
Over the weekend, two more days of premium value will erode from 
the calls.  You may soon be able to buy back the $80 put for a 
nickel, thereby freeing up $5,000 more in maintenance for other 
use.

Note:  I just refreshed the XAU option chain and they readjusted 
the prices back to their traditionally wide bid/ask spreads.  On 
the surface, it seems that, if you go by the posted numbers, it 
would cost you $1.35 to close the put portion of the Iron Condor.  
Keep in mind that XAU is only traded on the PHLX and that, during 
the trading day, bid/ask spreads fluctuate dramatically.  If you 
place the order as a spread order, there’s a good chance you’ll 
be able to shave money off the spreads and hopefully come 
reasonably close to the $1.00 it cost us on Friday.

Another Exit Option
Earlier this week, on Monday, the day XAU first broke below $70 
and bounced back up a bit, a CPTI student chose to play the 
downside instead of hoping for support to hold.  He bought back 
the XAU $65 put for $1.35.  That removed any downside exposure or 
obligation to perform.  He still owned the $60 put and now he’s 
rooting for gold to go down to $50.  As XAU declines in value, 
his $60 put will increase in value.  

By purchasing back the XAU $65 put for $1.35, (remember, we 
originally took in $1.40), he now has a free downside play.  He 
has nothing to lose.  This type of adjustment certainly isn’t 
classic CPTI “hands off” trading.  I just wanted to show you how, 
if you’re aware, there are many kinds of methods of position 
adjustments.  As the big picture changes, so may you re-evaluate 
and adjust your positions.

When General Custer was killed, why did they strip him and lay 
him face down?
So Sitting Bull would have a place to park his bike.
______________________________________________________________

CPTI PORTFOLIO UPDATE:
Position #1 – OEX Bull Put Spread – Trading at $420.12.
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. Now the projection is that the war 
won’t happen for two weeks.  It would be nice if G.W. would be 
considerate enough to wait until after option expiration.
____________________________________________________________

Position #2 – XAU Iron Condor – Trading at $67.44.
(See Main Article Above)
______________________________________________________________  

Position #3 -- OIH -- Diagonal Calendar Spread – Trading at 
$57.22
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 $24.54.
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.
______________________________________________________________

Position #5 – MMM Iron Condor – Currently trading at $124.50.
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. 

We created an Iron Condor with a 15-point range $115 to $130 for 
April.  We were able to take in a credit of $1,550 for our 10-
contract position.

If you entered the trade on Friday, you could have taken in as 
much as $1.65 at various times during the trading day.
______________________________________________________________

Heard On The Street:  
"The Lord gave us two ends - one to sit on and the other to think 
with... Success depends on which one you use the most...”

"Don't get excited about a tax cut. It's like a mugger giving you 
back fare for a taxi."
______________________________________________________________

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

For the Bears
Jonathan Levinson

The past month has been particularly nerve-wracking for position 
and swing bears, forthe simple reason that the "waterfall" decline 
that most have been expecting has refused to make an appearance.  
The most rapid and violent moves have been to the upside, 
vaporizing hours and days of decline within minutes.  As we’ve 
seen in the Market Monitor, these rallies look like flagpoles on 
the intraday charts, with a few long vertical candles as price 
rockets north (the pole), followed by a narrow, horizontal trading 
range at the top (the flag).  Nothing feels natural about these 
moves when they occur, except the losses for those who do not use 
pre-programmed stops.  I have been receiving emails from 
subscribers who are frustrated, dismayed, and defiantly holding 
their bearish positions, waiting for a plunge.  I agree, and wish 
to consolidate some of the things I’ve been seeing to assist our 
resident bears in organizing their thoughts and maybe even getting 
some sleep for a change.

I will mention news-related and non-technical only in passing, not 
because I don’t believe them significant, but because they’re 
difficult to trade and time with options.  See my article on 
Technical and Fundamental Analysis at 
http://www.OptionInvestor.com/traderscorner/tc_121502_2.asp for my 
thoughts on news and externalities- briefly, fundamental analysis 
is relevant to the broad or secular trend, within which technical 
analysis rules the day.  That said, we are witnessing the early 
stages of the Kondratieff Winter, in which debt becomes The issue.  
Consumer debt is at all time highs, and the fed funds rate is at 
multidecade lows.  The issue is worldwide- here’s a recent 
statement relevant to Japan:


TOKYO — Financial Services Minister Heizo Takenaka said 
Friday Japan is in danger of falling into the pits of "loan 
shark hell" in which it is forced to borrow only to pay more 
debts.  "If we have to borrow to pay interest on government 
bonds, the debt outstanding will grow infinitely and go out 
of control," Takenaka, who is also economic and fiscal 
policy minister, told the House of Councillors Budget 
Committee. 


Unemployment and deflation are issues that are becoming less 
shocking to "Joe  Sixpack", those around us and with whom we deal 
every day.  Yesterday’s nemployment report was certainly negative, 
but more disconcerting is the degree to which individuals are 
becoming aware of these issues.  Most people I know are tighter 
with their money now than they were last year, and most are 
complaining that their businesses, from retail to professional, 
are slower.  Most value their money and their jobs more than they 
did a year ago, and much more than they did two years ago.  The 
government statistics purport to tell the story to the decimal, 
but they somehow miss the basic fact that people are growing 
increasingly concerned about their money and their jobs, and are 
increasingly willing to admit it.  This tells a deflationary 
story, another hallmark of the Kondratieff Winter.  As debt is 
cleansed, money and the ability to earn it become increasingly 
critical throughout the economy.

These issues, being seen on a worldwide basis, won’t go away with 
the capture of 2 of Bin Laden’s children, the capture of Osama 
himself, or the successful invasion of Iraq.  There has been a lot 
of noise about a "war rally", and many bulls have been positioning 
themselves for it.  War is not bullish, except for arms 
manufacturers.  The very fact that "everyone", or at least the 
mainstream financial media, expects a "war rally" implies that 
it’s already happened.  If market participants are unanimous on 
anything, the opposite is almost guaranteed to occur.  In this 
case, those who expect a war rally have been positioning for it 
during the past weeks, as on many occasions war has seemed 
imminent, and at all times nearly unavoidable.  Who will be left 
to buy into the anticipated rally?

On to the charts:




Despite the relentless flagpole rallies that have miraculously 
saved the COMPX from a waterfall decline, the perspective of even 
the daily chart shows a pattern of lower highs.  I’d say lower 
lows, but Friday’s intraday reversal, if the COMPX never looks 
back from here, would be a higher low.  The oscillators, however, 
are currently kissing, the MacD from below the 0 line, and a cross 
from here would be very bearish.  My own "oscillator" of the 5 and 
13 day SMAs gave a sell signal on March 1st and haven’t shown any 
sign of reversal.  Simply "eyeballing" the daily chart, I see a 
topping formation more than a bottoming formation in the post Feb-
18th prints.

A quick look at the weekly candles shows no further signs of a 
bottom on the oscillators or moving averages I follow-  more of a 
top, than of a bottom:



 

The bullish percent chart, the BPCOMPQ, tells the same story, and 
I see no buy signal since it issued its sell off the January 
highs:






The put to call ratio is in a rising range, and while the absolute 
weekly readings are less instructive, the direction of the trend 
confirms a gradually increasing level of bearish speculation in 
the market. This week’s close is nearer to the bottom of the 
range, heading back up, and the oscillators are in a bottoming 
zone.  In other words, bullish speculation appears to be in the 
process of maxxing out during the past two weeks, which is bearish 
for the COMPX.



 

Lastly, the COMPX volatility index, the VIX for the Nasdaq or VXN, 
which rises as implied volatility for the top traded Nasdaq stock 
options increases.  We see that the VXN has been declining in a 
descending wedge, well off its highs above 70.  A break above VXN 
48 on a closing basis will bring significantly higher VXN 
readings, projecting to 70+, which would imply a revisit to the 
2002 COMPX lows:



 

Here’s a closeup on the daily candles, showing that the VXN 
appears to want to go higher rather than lower, and appears to be 
in the process of putting in a higher low both in its absolute 
level, as well as on both the stochastic and MacD oscillators:





There are endless charts examine, but as we know, technical 
analysis doesn’t tell the future.  Instead, it gives us an 
accurate snapshot of the present and the past.  More important is 
what our fellow traders are thinking, how they are positioning 
themselves, and where their exposure lies.  The Commitment of 
Traders reports show that small traders are at a 3 year high to 
the long side (net long 16,202 contracts), while large traders and 
commercial hedgers are near their 3 year highs to the short side 
(net short 16,202).  Perhaps this will be the rare occasion on 
which small traders beat out the big money, but I know which side 
of the trade I prefer.  The degree to which small traders are 
longer than larger traders and commercial hedgers exceeds that of 
any other period since January 2000.  There are currently 3 long 
contracts to each short contract amongst small traders.

While my primary reasons for being bearish on equities are 
fundamental and not technical, the technicals support my trading 
bias.  I am not a "permabear", in that I will trade and invest to 
the long side of equities when they appear to be a good bet.  
Currently they do not, and neither does the global economy.  
Commodities and, yes, gold is included, look like good buys for 
all but the shortest term.  In the short term, central bank 
dumping and leasing of gold makes directional leveraged trades 
tricky, but in the longer term, the global economy and the US 
campaign of currency inflation continue to make gold and other 
commodities look good to me.

What I’m trying to say is that we can have the best reasons for 
being bearish, and currently I’m feeling quite comfortable in my 
long put positions, but we have to trade what we see in the short 
term.  If we get a no-holds barred Osama/Rumsfeld love-in Iraq-is-
disarmed flagpole rally, it is my sincere hope that you will have 
covered on the first break of upside resistance, wherever that may 
be at that given time.  My conclusions based on the above analysis 
are my own, and don't need to be correct in the short term or at 
all.  Set and respect your stops, take your profits when you have 
them, and don’t give them back.


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

Daisy Two-Breath 
By Vlada Raicevic

This week, trading boards all over the internet were chock full 
of traders whining, and it all revolved around the same concept:  
“how the heck are we supposed to make any money in this kind of 
market”.  Mind you,  I was one of them, with much wailing and 
gnashing of virtual teeth.   However, while many of my long term 
puts mostly just sat there, looking wistful, I had little to 
complain about.  The reason is that this kind of market is good 
for the way I trade: through a variety of indicators on several 
different time frames.   If I were trading using 
support/resistance lines, I would have been chopped up like cheap 
lunchmeat, since price often flopped back and forth across these 
areas with nary a blink or stutter.  Trading off indicators has 
it’s downside, with strong, high-momentum moves being the worst 
as they tend to goose these indicators into rollovers which are 
nothing more than false signals destined to take my money.  It 
took me a long time to learn how to read through these high 
momentum overshoots.

Let me clarify something here:  I’m a charting nut.  I love to 
look through them, tweaking the settings, trying to puzzle out 
what they’re attempting to tell me.   I will also step on the 
confessional and say that I was one of those annoying kids in 
school who actually liked to do the math problems handed out as 
homework because they were, in essence, puzzles.

So, of all the things I like to look at on charts, I ‘ve been 
trying to puzzle out what specific topic I want to discuss.   
Well, it’s Friday, and I’m a little dizzy from all the whipsawing 
this week, so I thought the best topic would be this:  how charts 
talk to me.

>>>>>

 My parents had a friend, we’ll call her Daisy.  She had that 
rare ability, shared only by a few Australian aborigines and 
Tibetan monks....to speak while both inhaling and exhaling.  
Blessed with this gift, she strode through life intent on sharing 
it as much as possible with everyone she knew:   She never 
stopped talking.  I was young at the time, and I often stood 
there gaping at the waterfall of words pouring forth.  After a 
time,  the sound became a soothing hum, like the wind  blowing 
past your car as you speed down the highway.  

Daisy was very much like a technical chart.  All this 
information, pouring forth from the screen, poking your eyeballs, 
demanding you make some sense of it all.  If you stare too long, 
it turns into a low level buzz, hypnotizing you into a stupor.  
Approach charting as you would a conversation with someone who is 
very talkative:  filter out the noise and concentrate on the 
message.

Trading the ES   3-07-2003

When trading, I constantly switch the time frames on my charts.  
Watching the SPX on a 60 minute chart gives me certain 
information that a 5 minute chart does not.   But the 60 minute 
chart won’t show me all the small gaps on a 5 minute SPX chart 
(which by the way, are often filled on an intraday level).  

After the Spike

A big, news driven spike.  Looking at the 5 minute chart, I see 
price moving from very oversold - well below the outer tines of 
all regression channels, to over bought.....outside of the upper 
tines.  Dare I short?  All my indicators have rolled upward into 
bullish positions.  I check the 45 minute chart, and see that 
price has spanned a beautiful stick from the low, where two lower 
regression channels came together to support price, to the high 
end of the red channel, with heavier resistance at 830, the 
middle of the long term channel.  I short at 828, with a stop 
over 830.  My intent is to just scalp a few points riding the 
tails of profit takers and early shorts.   A huge candle like 
this usually has profit takers at/near resistance.



 
I switch to a three minute bar and wait for an exit signal.  Pure 
luck here, as price really starts dropping.  Look at the next 
chart, selling seems severe, but the 5,5,2 stochastic is actually 
a fairly gentle slope, unlike most for this fast indicator.  RSI, 
another fast indicator, broke the uptrend line.  RSI trendlines 
will often break before price channels, and are a good heads up 
for weakening of trends.  MACD crosses over as well, but again 
the slope is gentle on the rollover.  Approaching two regression 
channel centerlines...should be decent support.



 
Price initially bounces off the yellow uptrend line, but then 
breaks through it in a high momentum stick (long and closing near 
the low).   Next stick however, stops the decline and bouncs off 
the centerline of the orange regression channel.  RSI breaks 
centerline, a secondary confirming bearish move, but, I’m wary of 
the flat slower stochastic....it’s undecided and going sideways.



 
Still looks bearish, but I look over to the the 60 minute chart, 
and I see it’s saying, and I see MACD has crossed over bullish, 
and RSI has broken above the downtrend line.  Looks like market 
sentiment may be changing.



  

A few more bars on the 3 minute and I’m out of the short at 820.  
A bullish 60 minute chart and indicators rolling back up are 
enough for me to take profits and wait for another signal.



 

I go short again at 827.75.  Look at the 5 minute chart below:  
move up stalled at upper tine of channel, MACD crossed broke 
below trendline and crossed over, RSI broke trendline, and 
Stochastics stayed flat while price moved up, a bearish 
divergence.  



 

Out of short at 823.50.   I end up leaving a lot on the table, 
though, as price continues down after I cover.  MACD had gotten 
pretty oversold, but if you look at stochastic lines, they 
continue to pull apart further from each other, showing that 
momentum to the selloff has not yet slowed down, nothing shows 
that it was time to cover.  A week of market whipsaws has me very 
jittery indeed.  The following chart shows all the reasons to 
stay in the trade, even though I did not.



 

Here is one reason I covered, 15 minute chart shows price 
bouncing off three different levels of regression support.  MACD 
and RSI though, are both very bearish still.



 

Now that I’ve put all that together, it seems to me that both the 
huge gapdown and mind-numbing rise really played havoc on 
indicators as they struggled to keep up with the violent price 
swings.   I leave you with an annotated chart of two nice setups.



 


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

Execution
By John Seckinger
jseckinger@OptionInvestor.com 

One of the hardest things to do as a trader is simply pulling the 
trigger on a buy or sell order.  There are a few simple rules 
that can help master this important piece of the trading puzzle.

830.25, bid; 830.50, offer; 830.25, trade, 830.50, trade; 830.50, 
bid, 830.75 offer.  Did you buy the ES at 830.50?  Hours of 
preparation the night before, and all indicators told you that a 
move above 830.25 is a breakout.  When it comes time to buy, do 
you?  Let us assume that you do, and, since managing a winning 
trade is relatively easy, let us assume the market fails.  Your 
stop?  828.00.  Not in the system, but only in your head.  So, 
what happens?  828.00, bid; 828.25 offer; 828.00 trades, 828.00 
trades, 827.75 offer, 827.50 offer, 827.25 offer.  Did you get 
out?  Probably not.

There are a few different approaches to executing trades.  One is 
the "range rejection method".  This is when a "support zone" 
(found in the futures wrap) simply fails to hold the selling 
pressure; thus "rejecting" the possibility of the market bouncing 
back into the recent range.  Example:  A "support zone" is found 
in the ES from 820 to 823.  Before the market opens, a trader can 
put in an order to sell the ES at the 819.50 level (under the 
"support zone" and the IDEAL entry).  This will either represent 
a new short, or be a stop if a trader decides to buy near the 823 
level and the top of this defined zone.  If it is a new sell 
order, a stop should be placed just above 823.  

Of course, this method can be used on the upside as well.  If 
resistance is seen from 839.50 to 840.75, a trader can use this 
"zone" to define entry and exit levels.  Look to buy at the 
841.25 area (the IDEAL level) and on a breakout; either being a 
new long or a stop based on a short placed either just below or 
inside this range.  

If a resistance zone is from 839.50 to 840.75 AND either a pivot, 
R1, or R2 is near or inside this area, I would use the calculated 
level based on pivot analysis.  Ideally, it is R2 and falls 
INSIDE this area.  If R2 is not inside this range, then we will 
have do some more analysis.  If any of the pivot analysis levels 
is more than a point below the 839.50 area, I would use the 
"zone" instead.  With that said, it then comes down to what 
level should a trader use; 839.00, 839.25, 839.50, 839.75, 
840.00, 840.25, 840.50, or 840.75?  I think it makes sense to use 
a stop around 2.50-points in the ES contract; therefore, it 
really doesn't matter if we use 839.00 or higher.  Note:  It is 
very hard to recommend using a stop more than 5-points.  With 
that said, a trader could look to sell slightly lower than 839.  
I would not, however, use the 2.50-point cushion and place the 
STOP much above 841.25.  Why?  If the top of the range is 
cleared, there is a good chance that stops are being filled and a 
new wave will likely commence (read: resistance becoming 
support).  Panic will most likely set in, and there is a good 
chance that a trader will get a bad fill to the upside.

Let us assume that the "resistance zone" is five-points wide; say 
from 835 to 840.  Now it becomes more challenging.  Because this 
is a wide zone, a trader could assume that resistance is weaker.  
It really does depend how many resistance lines are within this 
zone.  For this situation, I would ask myself a variety of 
questions.  If the ES is currently at 834, where is MACD and 
stochastics on a five-minute chart?  Does the ES contract have 
any daily, weekly, or monthly pivots, R1 or R2s in this range?  
Is the ES currently in an "open drive" pattern; therefore, there 
is a good chance a trader will be able to sell the ES closer to 
840.  Has levels from 835 to 840 been important pivot, R1, or R2 
levels for PAST weeks or months?  If yes, where?  

Another variable I really like to talk about is the bullish 
percent indicator.  If the ES contract is falling towards a 
support zone, and it looks like the bullish percent is falling 
from levels above 70%, odds are that selling the contract will 
work better than buying.  Therefore, a trader can actually sell 
the contract before the bottom of the support zone is cleared.  
This is not recommended now because the bullish percent for the 
SPX is currently just above the 30% level and nearing oversold 
conditions.  Speaking of current conditions, bulls could wait 
until the SPX reverses back into a column of X's and then might 
have a case to buy the contract on pullbacks BEFORE the top of a 
support zone is reached.  If a trader is buying the ES contract 
before the top of a support zone is reached, I would recommend 
only a quarter position.  Why?  Number one, it does go against my 
normal methodology of executing orders; moreover, a trader does 
not have confirmation that it makes sense to buy the contract.  
Of course, only buy if the bottom of the support zone is less 
than 5-points from the executable level.

There is no question that execution is extremely critical.  
Institutional traders love to play games with retail traders, 
mostly by taking out a defined low or high by 0.25 before 
bringing the contract back into the daily range.  Another 
practice by traders is to paint an extremely bullish wedge and 
then make it seem like there is a breakout to the upside.  Retail 
traders jump on board, and then the failure commences.  Example:  
Institutional traders know that the apex of a wedge is at 840.  
They actually buy the contract up to 842 and give the impression 
of a breakout.  Then the see volume jump up, giving them the 
necessary liquidity to SELL both the position they just bought 
and new shorts.  They then take the contract back under the pivot 
and now force the retail bulls to exit.  This is a very effective 
strategy.  There are a few things to keep in the back of your 
mind, just in case either an apex or a 'one-tick new high/low' 
falls inside either a support or resistance level.

Getting to the mental part of executing trades; Never second-
guess your execution.  The trade is on, so just manage it 
properly.  In fact, most of the time a BAD fill works out better 
for a trader.  Example:  Buy at market when ES is offered at 
830.25, and you get filled at 830.50.  Secondly, do NOT worry 
about buying low and selling high.  If you have 1,000 support 
levels at 836 and the market trades at 836; buy.  Sure, support 
can turn into resistance; however, if the bullish percent 
indicator tells you that the market is oversold, do not start 
second-guessing your homework.  

What if the trade is a losing trade?  Well, we do know that not 
all business ventures are winners, so chalk it up to experience.  
If these trades continue to be losers, then you will need to go 
back and re-define how you calculate your support levels.  There 
could be a fundamental problem.  As of right now, believe in 
yourself and simply trade levels.  My personal opinion on market 
conditions now can be found in my futures wrap article.  Bullish 
percent is still in intermediate bearish mode; therefore, I am 
not very quick to buy either the pivot or S1.  S2 is a different 
story, since bullish percent is near 30% for the ES and things 
are relatively oversold.  With that said, I would not hesitate to 
buy a pullback that includes testing a "support zone" and daily 
S2.  What if it is a losing trade?  I will come back to fight 
another day, even more hungrier.  

Ask Away,

John Seckinger


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The Option Investor Newsletter                   Sunday 03-09-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Another Use For Covered-Calls
Naked Puts: Success With Naked Puts
Spreads/Straddles/Combos: Lots Of Activity But No Conviction!

Updated In The Site Tonight:
Market Watch: New Bull and New Bear
Market Posture: New Breaks and Bounces


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offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or 
stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and more;  
call 1-888-889-9178 or click for more information.

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

Trading Basics: Another Use For Covered-Calls
By Mark Wnetrzak

Editor's Note: As I struggle to recover from my harrowing trip
to a beach in Hawaii (no computer, sun, water, sun, Mai Tai's,
sun...rough!), an offer from the Naked-Puts editor to provide
a narrative for this week was something I just couldn't pass up.

Most people believe that investing in the stock market is one
of the best ways to increase personal wealth over the long run.

Unfortunately, the potential downside risk of owning stock keeps
many people from investing in the market, even where long-term
growth such as planning for retirement is the objective.  While
there are few investments that offer the potential for favorable
returns without the possibility of loss, investment bankers have
come up with some unconventional solutions for anxious investors
who are afraid to venture into stocks after the recent declines.
This burgeoning class of hybrid securities includes issues with
names such as TIERS, SUNS and MITTS and the proponents of these
"protected growth" instruments promise stock-like gains with the
security of bonds and in many cases, a money-back guarantee.  In
short, these financial instruments allow you to profit from the
growth of the stock market while insuring that your principal is
preserved in the event of a severe, prolonged downtrend in the
economy.  The downside, much like the covered-call strategy that
many of these vehicles use, is the substantially limited gains
that will occur, even if the stock market soars to new highs.

In the past, there were two primary categories of "guaranteed"
investments: Index Annuities, which are offered by insurance
companies, and Index CDs, which are offered by institutions such
as Banker's Trust.  More recently, larger brokerages such as
Merrill Lynch have offered investments known as Protected Growth
Trusts.  Indeed, Merrill is a pioneer in this category and they
offer a number of unique products that combine participation in
the appreciation potential of stocks and other opportunities,
with protection of principal.  Protected growth generally means
the assets are financial instruments with the features of both
stocks and bonds.  The benefits of these complex issues include
diversification, reduced minimum investment and liquidity.  The
most common products provide for a market-based return linked to
a range of potential growth opportunities such as major indexes,
individual stocks or other popular financial indicators.  In most
cases, the issues are tied to index funds that are (initially)
offered at $10 a share and usually mature in seven years or less.
If you retain the issue to maturity, you profit from the growth
of the index.  In the event of substantial price declines, the
instruments guarantee repayment of principal at maturity.

The "bear market" that began a few years ago has generated yet
another wave of innovative structured products including an array
of diverse funds that are both exchange-traded and equity-based.
Many of these new issues combine equities with covered options
written against some or all of the securities held by the fund.
Those of you who are long-term investors know that the purchase
of equities by a fund can provide tax-advantaged dividend income
while the sale of options can yield capital gains and, at the
same time, reduce the volatility of the underlying stocks.  There
are also a number of tailored products, based either on a single
equity, a basket of stocks, an index, commodity or debt issuance,
that are designed to meet specific risk-reward characteristics.
The purpose of these unique instruments is simple: to allow the
pursuit of growth with less risk.  The low initial cost of these
assets provide investors an affordable means of participating in
the long-term performance of a number of financial instruments
and industry groups.  The diversification possibilities available
through these investments is often greater, and at a lower price
than that which could be achieved by purchasing individual issues.
The majority of these instruments are "listed" on the major stock
exchanges.  This feature allows you to trade the assets publicly,
as well as monitor their progress through daily price quotations
on the Internet or in the financial pages of major newspapers.

There are many advantages to investing with structured products
such as Protected Growth trusts, but they are complicated assets
requiring careful examination and specific strategies to maximize
potential profits.  One of the most critical factors associated
with many of the newer instruments is the “annual adjustment
factor.”  Typically, a structured product allows an investor to
capture the percent increase of an index over the offering price,
any time up to the maturity date of the issue.  If there is no
increase, the principal investment is returned.  However, in the
case of recent products, an annual adjustment factor is used to
reduce the index value before the final cash settlement amount is
determined.  The adjustment factor will vary but even when the
amount is only 2% or 3%, the reduction in overall return can be
substantial.  

When aversion to risk stands in the way of achieving long-term
personal goals, alternate solutions must be explored to remedy
the situation.  If your financial outlook dictates the need for
capital growth, but you are concerned about the volatility or
potential downside associated with stocks, you might consider
including structured products as part of your portfolio.  This
type of investing allows you to participate in numerous growth
opportunities that may otherwise be too extreme for your risk
tolerance.  Regardless of your personal financial outlook, a
sound investing strategy includes diversification and low-risk
capital appreciation, and these relatively unknown issues can be
an excellent and profitable way to achieve that objective.

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.

Note:  Margin not used in calculations.

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

IMCL    13.33   15.70  MAR 12.50  1.50    0.67*   8.2%
MSTR    21.28   22.60  MAR 20.00  2.60    1.32*   7.7%
IMCL    13.72   15.70  MAR 12.50  2.00    0.78*   7.2%
FEIC    15.70   15.00  MAR 15.00  1.40    0.70    7.1%
JDSU     2.68    2.85  MAR  2.50  0.40    0.22*   7.0%
GLW      5.18    5.79  MAR  5.00  0.55    0.37*   6.9%
SEPR    11.17   11.90  MAR 10.00  1.90    0.73*   6.8%
RSAS     5.90    7.00  MAR  5.00  1.25    0.35*   6.5%
ASKJ     5.86    5.97  MAR  5.00  1.25    0.39*   6.1%
CBST     7.57    7.19  MAR  7.50  0.75    0.37    5.9%
MCDT     8.42    8.80  MAR  7.50  1.30    0.38*   5.8%
OVTI    19.00   18.04  MAR 17.50  2.15    0.65*   5.6%
OVTI    16.83   18.04  MAR 15.00  2.55    0.72*   5.5%
ADLR    13.07   11.83  MAR 12.50  1.80    0.56    5.4%
RMBS    14.76   13.44  MAR 12.50  2.85    0.59*   5.4%
ARRS     5.14    4.78  MAR  5.00  0.60    0.24    4.6%
NFLX    14.24   16.09  MAR 12.50  2.30    0.56*   4.1%
SBL     10.58   10.55  MAR 10.00  0.85    0.27*   4.0%
MRVL    20.60   19.37  MAR 20.00  1.35    0.12    0.9%
ALA      7.58    6.96  MAR  7.50  0.65    0.03    0.4%
HHL     12.57   11.35  MAR 12.50  0.75   -0.47    0.0%
EMIS     5.66    2.47  MAR  5.00  1.10   -2.09    0.0%**
EMIS     5.48    2.47  MAR  5.00  0.90   -2.11    0.0%**

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

Comments:

The major averages continue to go nowhere real fast as they
bounce around in a geopolitical trading range.  One of our
listed candidates for this week, Tivo (NASDAQ:TIVO) was 
unattainable with the bullish gap-open on Monday - and after
Friday, maybe that was a good thing.  Microstrategy (NASDAQ:
MSTR) now appears out of danger as it has rallied above the
early FEB high on increasing volume.  Alacatel (NYSE:ALA)
however, still remains in a tenuous position - time to go?
We show two positions closed, DNDN and CRY, though investors
with a long-term outlook could consider rolling them forward
and/or down as noted below.  Emisphere Technologies (NASDAQ:
EMIS) was an unavoidable casualty as its CEO failed to win
a development deal with two large pharmaceutical firms.  The
action on Tuesday (in hindsight) looks like "someone" knew what
was coming on Wednesday.  The position will be shown closed.
Some other stocks on a technical early-exit watch list are:
Ask Jeeves (AKSJ), Cubist Pharmaceuticals (NASDAQ:CBST), Adolor
(NASDAQ:ADLR), Rambus (NASDAQ:RMBS), Arris Group (NASDAQ:ARRS),
and Hurricane Hydrocarbons (NYSE:HHL).  Of course, if the 
present trend continues, nothing will happen until something
really happens - then we all can go back to concentrating on
the economy, no wait a minute... 

Positions Closed: Dendreon (NASDAQ:DNDN) - the AUG-$5 call offers
a new cost basis around $4.25); Cryolife (NYSE:CRY) - the OCT-$5
call offers a break-even roll-down.


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

MANU    2.56  APR  2.50   ZUQ DZ  0.35 755    2.21   42   9.5% 
CD     12.51  MAR 12.50    CD CV  0.40 12029 12.11   14   7.0% 
CMCSA  28.14  MAR 27.50   CCQ CY  1.40 3120  26.74   14   6.2% 
ANPI   40.20  MAR 40.00   AUJ CH  1.20 1455  39.00   14   5.6% 
MVL    12.70  MAR 12.50   MVL CV  0.50 892   12.20   14   5.3% 
OAKT    3.23  APR  2.50   KAU DZ  0.90 211    2.33   42   5.3% 
DISH   28.75  MAR 27.50   UAB CY  1.75 3571  27.00   14   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).

*****
MANU - Manugistics  $2.56  *** Bottom Fishing: Part I ***

Manugistics Group (NASDAQ:MANU) is a global provider of enterprise
profit optimization solutions.  The company provides solutions for
supply chain management, supplier relationship management, pricing
and revenue optimization and service and parts management.  The
Manugistics NetWORKS family of products is designed to coordinate,
optimize, measure and analyze across each of the key business 
processes: design, source, buy, make, store, move, price, market,
sell and service.  The company also provides strategic consulting,
implementation and customer support services.  Manugistics has been
forging a Stage I base for about 9 months and appears to have a
fairly strong support area around $2.  The current technical outlook
is recovering and our position offers excellent reward potential at
the risk of owning MANU near technical support.

APR 2.50 ZUQ DZ LB=0.35 OI=755 CB=2.21 DE=42 TY=9.5% 


*****
CD - Cendant  $12.51  *** Bottom Fishing: Part II ***

Cendant (NYSE:CD) is a provider of travel and real estate services
as well as a wide range of consumer and business services.  The 
Real Estate Services segment franchises the real estate brokerage
businesses of the Century 21, Coldwell Banker, Coldwell Banker
Commercial and ERA brands.  The Hospitality segment operates the
Days Inn, Ramada, Super 8 Motel, Howard Johnson, Wingate Inn, 
Knights Inn, Travelodge, Villager Lodge, Village Premier, Hearthside
by Villager and AmeriHost Inn.  The Vehicle Services segment operates
and franchises Avis, the Company's car rental business.  The Travel
Distribution segment provides global distribution and computer 
reservation services to airlines, hotels, car rental companies and
other travel suppliers.  The Financial Services segment provides
enhancement packages to financial institutions.  Cendant is trading
near a historical support area (since 1998) and this position offers
speculators excellent short-term reward potential at the risk of
owning an industry-leading issue at a favorable cost basis.

MAR 12.50 CD CV LB=0.40 OI=12029 CB=12.11 DE=14 TY=7.0% 


*****
CMCSA - Comcast  $28.14  *** Own This One! ***

Comcast (NASDAQ:CMCSA) 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 the majority of its cable communications systems.
Comcast recently announced that the they see a strong financial 
performance in the year 2003 as it believes its growth rate will 
now be well above a previously stated 20%.  We favor the strong 
support area around $26 and this short-term positions offer a
favorable entry point for investors who retain a bullish long-term
outlook in the company.   

MAR 27.50 CCQ CY LB=1.40 OI=3120 CB=26.74 DE=14 TY=6.2% 


*****
ANPI - Angiotech  $40.20  *** Stock-Split Rally? ***

Angiotech Pharmaceuticals (NASDAQ:ANPI) is engaged in the fusion
of medical device technologies and pharmaceutical therapies.  The
company's first product was a drug-coated stent.  Angiotech's goal
is to develop other products to enhance the performance of medical
devices and biomaterials through the use of pharmatherapeutics.  In 
September 2002, the company and Cohesion Technologies, Inc. agreed 
to a merger in which Cohesion will merge with a wholly owned
subsidiary of Angiotech, with Cohesion continuing as a wholly owned
subsidiary of the company.  The transaction is set to close during
or before the first quarter of the fiscal year that will end on 
September 30, 2003.  Angiotech rallied at the end of February after
announcing a strategic alliance with Baxter and a submission by
its partner Boston Scientific, of the first module of Boston's PMA
application for its TAXUS(TM) paclitaxel-eluting coronary stent
system.  We simply like the bullish move above its 150-dma and the
heavy volume on Friday, which suggests further upside potential.
Share holders recently approved a 2-for-1 stock split that should
be effective March 17.

MAR 40.00 AUJ CH LB=1.20 OI=1455 CB=39.00 DE=14 TY=5.6% 


*****
MVL - Marvel  $12.70  *** Earnings Feed Rally Fire ***

Marvel Enterprises (NYSE:MVL) incorporated in 1993, is a character-
based entertainment company with a proprietary library of over
4,700 characters.  The company operates in the licensing, comic
book publishing and toy businesses in both domestic and world
markets.  The company's library of characters includes Spider-Man,
X-Men, Captain America, Fantastic Four and The Incredible Hulk.
The company's characters have been developed through a long history
of comic book plots and storylines, which give each of them their
own personality, context and depth.  On Monday, Marvel pleased 
investors with a 74% increase in revenues even though the company
posted a loss due to charges.   The company, whose comic strip
"DareDevil" was made into a movie and is currently in studios,
also raised its earnings and revenue targets for the 1st-quarter
and the full year.  Shares of Marvel continue to surge higher and
investors can use this short-term position to speculate on the 
future movement of the issue in a conservative manner.

MAR 12.50 MVL CV LB=0.50 OI=892 CB=12.20 DE=14 TY=5.3% 


*****
OAKT - Oak Technology  $3.23  *** Bottom Fishing: Part III ***

Oak Technology (NASDAQ:OAKT) designs, develops and markets high-
performance integrated semiconductors, software and platform 
solutions to OEMs worldwide that serve the optical storage and
digital imaging equipment markets.  Its digital imaging products
consist of semiconductor hardware and software that enables 
users to print, scan, process and transmit documents to computer
peripherals that perform printing functions.  Its Optical Storage
products consist primarily of ICs and supporting software and
firmware, all designed to store and distribute digital content,
thereby enabling its customers to deliver systems to the end user
for the home and enterprise.  The Imaging Group is comprised of 
the combination of its Xionics Document Technologies, Inc. and 
Pixel Magic subsidiaries, serving the digital imaging equipment
market.  Oak Tech has been forming a Stage I base since the drop
in June 2002 and appears to have formed a trading range around
$3.  This position offers a reasonable way to establish a low
risk cost basis in the issue.

APR 2.50 KAU DZ LB=0.90 OI=211 CB=2.33 DE=42 TY=5.3% 


*****
DISH - EchoStar Communications  $28.75  *** Rally Mode! ***

EchoStar Communications (NASDAQ:DISH) operates through two major
business units, the DISH Network and EchoStar Technologies.  The
DISH Network offers a direct broadcast satellite subscription TV
service in the United States with almost 7 million DISH Network
subscribers.  EchoStar Technologies Corporation is engaged in the
design, development, distribution and sale of DBS set-top boxes,
antennae and other digital equipment for the DISH Network and the
design, development and distribution of similar equipment for a
range of international satellite service providers.  EchoStar
recently reported earnings which included a fairly large loss due
to the cancelled Hughes Electronics (NYSE:GMH) buy-out.  However,
investors appeared pleased with a 15% increase in revenues and
400,000 new subscribers which was well above estimates and bodes
well for the future.  We simply favor the bullish technical
indications and our position offers a method to participate in
the future movement of the issue with relatively low risk.

MAR 27.50 UAB CY LB=1.75 OI=3571 CB=27.00 DE=14 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

FTUS    2.73  MAR  2.50   FEQ CZ  0.35 2      2.38   14  11.0% 
OVTI   18.04  MAR 17.50   UCM CW  1.20 737   16.84   14   8.5% 
RSH    20.11  MAR 20.00   RSH CD  0.75 198   19.36   14   7.2% 
CGNX   22.72  MAR 22.50   QCG CX  0.90 53    21.82   14   6.8% 
ENTU    2.97  APR  2.50   EXH DZ  0.65 577    2.32   42   5.6% 
NOVN   12.80  MAR 12.50   NPQ CV  0.60 123   12.20   14   5.3% 
ADIC    7.81  APR  7.50   QXG DU  0.75 100    7.06   42   4.5% 
FAF    22.50  MAR 22.50   FAF CX  0.40 5     22.10   14   3.9% 
SBL    10.55  APR 10.00   SBL DB  1.05 2376   9.50   42   3.8% 
SLAB   27.54  APR 25.00   QFJ DE  3.70 1439  23.84   42   3.5% 


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

Options 101: Success With Naked Puts
By Ray Cummins

This week's narrative concerns positions adjustment strategies
and techniques for limiting losses with uncovered options.

Attn: Naked-Puts Editor
Subject: Limiting Risk With Naked Puts

Ray,

I think your column is tops and one of the reasons I subscribed
to the service.  I've been trading naked puts for 6 or so months
and find closing a losing position prior to expiration to be
problematic.  I tried a contingency order based on a stock price
the amount in the money as the premium I had received, and got
socked with a triple the premium loss due to increased volatility
as the losing stock dropped and residual time value (I suppose),
about a week prior to expiration.  I also tried buying the loser
back and rolling out and down for several months but essentially
got nowhere as the loser stagnated.  Also sometimes the put will
go into the money for a short time and then rally back, so it
seems difficult to buy back immediately upon the stock's becoming
a small amount in-the-money.  If you have any suggestions, I'd
appreciate them as selling puts is challenging and appears to be
rewarding from my rookie perspective.  If I'm just bellyaching and
my questions are just "part of it" I can accept that too, if it
comes from a pro like yourself.

Thanks for your time.

RC


Hello RC,

First, I would never consider a request for strategy suggestions
as "bellyaching," however I do know (from personal experience)
that losses in the stock market can make a person feel "sick to
their the stomach."

As far as closing a losing position prior to expiration, that is
definitely the key to success with high probability/low profit
strategies such as writing out-of-the-money "naked" puts.  There
are no big winners to offset the big losers, so there simply can
not be any big losers.  Obviously, a gapping issue may wipe-out
a portion of previous gains and there is nothing you can do about
it but at the same time, you must manage the remaining positions
effectively or there will be no portfolio profits to offset the
(rare) catastrophic losers.

The techniques you mentioned are all viable methods for limiting
losses with short (uncovered) option positions, provided they are
implemented correctly, in a timely manner.  An option writer has
many different alternatives when the underlying issue moves beyond
the sold strike however in most cases, the appropriate action must
be taken prior to that event, when the stock undergoes a technical
change in character, such as breaking-out of a trading range or
closing below a moving average.  Most methods for taking profits
and preventing losses, as well as making position adjustments or
rolling down and out to new options, fit into two categories: a
pre-arranged target profit or loss limit; or a technical exit based
on the chart indications of the issue.  The first technique, using
a mechanical or mental closing STOP to terminate a play or initiate
a roll-out trade, is simple as long as you adhere to the initially
established limits.  The alternate method, a technicals-based exit,
is more difficult.  However, there are many different indicators
that can help establish an acceptable exit point; moving averages,
trend-lines, previous highs/lows, oscillators, etc., and with this
type of loss-limiting system, you simply exit the position after a
violation of a pre-determined level.  In addition, the closing or
adjustment transaction should be based on the existing market and
sector conditions as well as the current outlook for the underlying
issue and the ratio of potential gain to additional risk.

Writing "naked" options is one of my favorite strategies and there
are a few ways to limit potential losses or even capitalize on a
reversal (or transition) to a bearish trend with uncovered puts.
The three most common methods to exit or cover a losing position
include: a "buy-to-close" stop order, based on either the option
or stock price; a "roll-out" to a longer-term option, possibly to
a lower strike price as well; and "shorting" the underlying issue
to cover the sold option.  The first method is relatively simple,
however it requires knowledge of option pricing and an effective
floor-broker or trading platform to limit slippage.  The second
technique is popular among long-term investors who sell options
only on stocks they wouldn't mind owning (a cardinal rule!), but
the strategy requires the commitment of collateral for extended
periods and the downside risk may increase if the primary market
trend changes for the worse (consider the 2000-2003 timeframe).
The last method: covering (by shorting the stock) the sold option
as the underlying issues moves below the short strike, is probably
the most popular technique among experienced traders.  In fact,
it may be the best method for bailing out on an issue in which
the trend or technical character has changed significantly due
to unexpected news or events.  To initiate this strategy, place
place an order to short the underlying stock, in an equivalent
number of shares, any time the issue trades (preferably closes)
below technical support or a well-established trend-line, support
area, or moving average on substantial volume.  Of course, there
are more precise signals available but this technique is based on
the assumption that once a reversal has occurred, the stock will
continue to move in that direction until a new catalyst emerges.
"Shorting to cover" can be a difficult technique to perform when
emotion enters the formula but the strategy works well after you
become experienced at it.  The key to success is initiating the
trade at known support levels or after obvious reversal signals,
otherwise you are simply speculating about the stock's next move.

The outstanding principle that many traders fail to adhere to is
the need to outline a basic exit strategy, before initiating any
position, to eliminate emotional decisions.  This plan should be
simple enough to implement while monitoring a portfolio of plays
in a volatile market.  In addition, these exit-adjustment rules
should apply across a wide range of situations and be designed to
compensate for one's weaknesses and inadequacies.  To be effective
in the long run, they must be designed to help maintain discipline
on a general basis and at the same time, offer a timely memory aid
for difficult situations.  Utilizing this type of system addresses
a number of problems, but the biggest obstacle it removes is the
need for "judgment under fire."  In short, a sound exit strategy
will help you avoid exposing your portfolio to excessive losses
and that's important because the science of successful trading is
far less dependent on making profits, but rather on avoiding undue
outflows.

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   22.60  MAR 17.50  0.80    0.80*  12.0%   4.2%
RMBS    15.18   13.44  MAR 12.50  0.25    0.25*   9.9%   3.0%
CGNX    22.62   22.72  MAR 17.50  0.55    0.55*   9.4%   2.8%
MSTR    20.69   22.60  MAR 17.50  0.75    0.75*   9.3%   3.2%
SRNA    15.07   14.59  MAR 12.50  0.30    0.30*   8.7%   2.7%
RMBS    13.69   13.44  MAR 10.00  0.30    0.30*   8.6%   2.7%
OVTI    16.55   18.04  MAR 12.50  0.35    0.35*   8.3%   2.5%
IART    19.39   19.90  MAR 17.50  0.35    0.35*   8.2%   3.0%
XLNX    23.04   22.73  MAR 20.00  0.50    0.50*   8.1%   2.8%
MDCO    16.92   18.51  MAR 15.00  0.60    0.60*   8.0%   3.0%
LRCX    12.56   12.08  MAR 10.00  0.25    0.25*   7.9%   2.2%
ANSS    22.20   23.32  MAR 20.00  0.80    0.80*   7.7%   3.0%
XLNX    22.90   22.73  MAR 20.00  0.35    0.35*   7.7%   2.6%
IRF     20.39   20.41  MAR 17.50  0.50    0.50*   7.5%   2.6%
MACR    15.22   14.79  MAR 12.50  0.25    0.25*   7.5%   2.2%
OVTI    16.83   18.04  MAR 12.50  0.25    0.25*   7.5%   2.2%
DIGE    15.54   16.79  MAR 12.50  0.30    0.30*   7.5%   2.1%
CGNX    21.84   22.72  MAR 20.00  0.75    0.75*   7.1%   2.8%
ERES    22.46   23.41  MAR 17.50  0.30    0.30*   6.8%   1.9%
MDCO    18.94   18.51  MAR 17.50  0.30    0.30*   6.7%   2.5%
HHL     11.56   11.35  MAR 10.00  0.20    0.20*   6.7%   2.2%
SLAB    27.12   27.54  MAR 22.50  0.30    0.30*   6.7%   2.0%
CKFR    20.66   20.00  MAR 17.50  0.30    0.30*   6.0%   1.9%
AVCT    27.82   27.25  MAR 25.00  0.35    0.35*   5.9%   2.1%
EPIQ    19.10   18.35  MAR 17.50  0.25    0.25*   5.8%   2.1%
OTEX    27.14   26.71  MAR 25.00  0.75    0.75*   5.7%   2.2%
ADBE    27.43   27.02  MAR 22.50  0.40    0.40*   5.4%   1.6%
FAF     23.10   22.50  MAR 22.50  0.30    0.30    4.9%   2.0%

*  Stock price is above the sold striking price.

Comments:

As if the flagging U.S. economy wasn't enough to be concerned
about, investors were forced to assimilate a number of reports
Friday including dour data from the Labor Department, weapons
inspector's statements from Iraq, and a rumor that Bin Laden's
eldest son was captured.  President Bush also commented on the
current state of affairs in a speech to America Thursday night
and analysts say there is now a strong possibility of a change
in interest rates at the next FOMC meeting, due to a possible
"double-dip" recession.  Fortunately, most of the positions in
the naked-puts portfolio are weathering the storm fairly well.
Among the stocks on the "early exit" watch-list are; Open Text
(NASDAQ:OTEX), Rambus (NASDAQ:RMBS), Epiq Systems (NASDAQ:EPIQ),
and First American (NYSE:FAF).

Previously Closed Positions: Possis Medical (NASDAQ:POSS) and
American Pharmaceutical Partners (NASDAQ:APPX).


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

IMCL  15.70  APR 12.50 QCI PV 0.50 120   12.00  42   9.9%   3.0%
MSTR  22.60  MAR 20.00 EOU OD 0.30 81    19.70  14   9.7%   3.3%
MOGN  10.96  APR 10.00 QOG PB 0.50 89     9.50  42   9.2%   3.8%
CELG  24.00  MAR 22.50 LQH OX 0.35 938   22.15  14   9.0%   3.4%
AFFX  26.92  MAR 25.00 FIQ OE 0.35 2692  24.65  14   8.3%   3.1%
GILD  36.80  MAR 35.00 GDQ OG 0.45 219   34.55  14   7.3%   2.8%
MEDI  30.68  APR 27.50 MEQ PY 0.65 238   26.85  42   4.8%   1.8%


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).

*****
IMCL - ImClone  $15.70  *** Entry Point? ***

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 in early March amid optimism that
new data about the firm's experimental cancer drug Erbitux will be
released shortly and prove positive.  The rally continued Thursday
after the biotech firm said it received a $60 million cash payment
from Bristol-Myers Squibb under the companies' amended March 2002
agreement to develop Erbitux.  Investors who wouldn't mind owning
IMCL at a cost basis near $12 should consider this position.

APR 12.50 PUT QCI-PV LB=0.50 OI=120 CB=12.00 DE=42 TY=9.9% SY=3.0%


*****
MSTR - MicroStrategy  $22.60  *** New 10-Month High! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.  Shares of MSTR soared
in January after the business software maker reported better than
expected profit and rising software sales.  A number of analysts
also raised their 2003 outlooks for the company and Friday's close
at a 10-month high suggests further upside potential.

MAR 20.00 PUT EOU-OD LB=0.30 OI=81 CB=19.70 DE=14 TY=9.7% SY=3.3%


*****
MOGN - MGI Pharma  $10.96  *** Rally Mode! ***

MGI Pharma (NASDAQ:MOGN) is an oncology-focused pharmaceutical firm
that buys, develops and commercializes proprietary pharmaceutical
products that meet patient needs.  MGI's current product candidates
are at various stages of development with an emphasis on advanced
stages of development, and are intended to have diverse roles in
treating cancer patients.  Of the company's product candidates, two
are in Phase III, one in Phase II and two in preclinical development
programs.  Of these programs, one is with a supportive care product
candidate, two are with cytotoxic product candidates, and two are
with cytostatic product candidates.  Not much news on this issue in
recent weeks but the price chart speaks volumes.  Investors who are
willing to perform some "due diligence" may favor a cost basis near
$9.50 in this speculative drug stock.

APR 10.00 PUT QOG-PB LB=0.50 OI=89 CB=9.50 DE=42 TY=9.2% SY=3.8%


*****
CELG - Celgene  $24.00  *** Bullish Outlook! ***

Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical
company.  The company is primarily engaged in the discovery,
development and commercialization of small molecule drugs that
are designed to treat cancer and immunological diseases through
gene and protein regulation. Small molecule drugs are man-made,
chemically synthesized drugs that, because of their relatively
small size, can typically be administered orally.  The firm's
drugs are designed to modulate multiple disease-related genes,
including cytokines (which are proteins) such as Tumor Necrosis
Factor alpha, or TNF(alpha), growth factor genes such as those
that control angiogenesis, blood vessel formation and apoptosis
genes.  Because the company's drugs can be administered orally,
they have the potential to advance the standard of care beyond
current injectible protein drugs that inhibit TNF (alpha) and
other disease-causing cytokines.  Celgene said on Friday that
it expects to meet or exceed 2003 financial targets first made
in January, as its cancer drug Thalomid should push the company
to profitability in 2003.  Celgene also said it has discovered
a new class of anti-cancer compounds and is in the early stages
of developing them in the lab.  Investors who agree with the
firm's bullish outlook can establish a reasonable cost basis in
the issue with this position.

MAR 22.50 PUT LQH-OX LB=0.35 OI=938 CB=22.15 DE=14 TY=9.0% SY=3.4%


*****
AFFX - Affymetrix  $26.92  *** Genomic Research Giant! ***

Affymetrix (NASDAQ:AFFX) is a pioneer in creating breakthrough
tools that are driving the genomic revolution.  By applying the
principles of semiconductor technology to the life sciences,
Affymetrix develops and commercializes systems that enable
scientists to improve the quality of life.  The firm's customers
include pharmaceutical, biotechnology, agrochemical, diagnostics
and consumer products companies as well as academic, government
and other non-profit research institutes.  Affymetrix offers an
expanding portfolio of integrated products and services, as well
as its integrated GeneChip platform, to address growing markets
focused on understanding the relationship between genes and
human health.  AFFX recently announced it is offering three new
GeneChip brand CustomExpress array formats, giving researchers
the flexibility to create affordable, customized arrays offering
the same quality and reliability that have made Affymetrix the
platform of choice for gene expression research.  The news was
apparently well received and the issue vaulted higher on Friday.
Investors who want to own a popular issue in the genomic group
should consider this position.

MAR 25.00 PUT FIQ-OE LB=0.35 OI=2692 CB=24.65 DE=14 TY=8.3% SY=3.1%


*****
GILD - Gilead Sciences  $36.80  *** Upgrade = Rally! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.  J.P. Morgan
raised its 2003 and 2004 earnings estimates for Gilead on Friday,
saying it expects sales of the company's HIV drug, Viread, to be
higher than expected.  J.P. Morgan analyst David Molowa also said
that sales of other Gilead drugs could beat expectations, and that
the firm will likely reduce its expenses, research and development
costs and taxes.  The news generated a sharp rally and traders who
believe the upside activity will continue can speculate on that
outcome with this position.

MAR 35.00 PUT GDQ-OG LB=0.45 OI=219 CB=34.55 DE=14 TY=7.3% SY=2.8%


*****
MEDI - MedImmune  $30.68  *** Drug Stock Speculation! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with 5 products
on the market and a diverse product pipeline.  MedImmune is focused
on using advances in immunology and other biological sciences to
develop new products that address significantly unmet medical needs
in areas of infectious disease and immune regulation.  The company
also focuses on oncology through its wholly owned subsidiary, 
MedImmune Oncology, Inc.  In addition, the company owns Aviron, a
biotech company.  In January 2002, MedImmune acquired Aviron, a
firm focused on the prevention of disease through vaccine technology.
Medimmune shares have been in "recovery mode" since late last year,
when the biotech firm's partner Wyeth announced it intended to focus
on new flu immunization technologies.  Wyeth is working with MEDI to
win approval for the nasal spray flu vaccine FluMist.  There is also
speculation that the firm could be a take-over candidate, especially
if its lead drug, Actimmune, becomes the first and only effective
treatment for patients with idiopathic pulmonary fibrosis, a fatal
disorder marked by scarring of the lungs.  Despite the recent market
slump, the issue is testing 9-month highs and the bullish trend will
likely continue in the near-term.

APR 27.50 PUT MEQ-PY LB=0.65 OI=238 CB=26.85 DE=42 TY=4.8% SY=1.8%


*****


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

ERES  23.41  MAR 22.50 UDB OX 0.55 48    21.95  14  13.3%   5.4%
HAS   12.52  MAR 12.50 HAS OV 0.30 2205  12.20  14  12.3%   5.3%
MCDT   8.80  APR  7.50 DXZ PU 0.35 172    7.15  42   9.9%   3.5%
MDCO  18.51  MAR 17.50 MQL OW 0.30 80    17.20  14   9.7%   3.8%
NSCN  19.18  APR 17.50 QKN PW 0.75 68    16.75  42   8.1%   3.2%
NVDA  12.49  APR 10.00 UVA PB 0.30 675    9.70  42   7.7%   2.2%
TRMS  43.10  MAR 35.00 RQM OG 0.30 1718  34.70  14   6.9%   1.9%
ENDP  10.50  APR 10.00 IUK PB 0.30 20     9.70  42   5.4%   2.2%


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


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

Lots Of Activity But No Conviction!
By Ray Cummins

The major equity averages drifted in and out of positive territory
Friday as investors were barraged with news of terrorist captures,
war deadlines, weak economic data, and gloomy earnings forecasts.

The Dow Jones Industrial Average rose 66 points to close at 7,740
on a late-session rally led by Caterpillar (NYSE:CAT) and Johnson
& Johnson (NYSE:JNJ).  The NASDAQ composite eased 2 points higher
to 1,305 despite downward pressure from Intel (NASDAQ:INTC), which
was also the biggest decliner among the Dow's 30 components.  In
the broader market groups, financials, healthcare and industrial
shares enjoyed limited bullish activity while oil and gold stocks
generally moved lower.  The S&P 500-stock index climbed 6 points
to 828.  Trading volume was moderate on the NYSE, with about 1.37
billion shares changing hands.  Advancers outnumbered decliners
by a ratio of 9 to 7.  On the NASDAQ, where overall volume ended
above 1.4 billion, decliners outnumbered advancers 8 to 7.  Trim
Tabs estimated that U.S. equity funds had outflows of almost $4
billion over the past week ending March 5, compared with outflows
of roughly $6 billion during the prior week.  Equity funds that
invest primarily in U.S. stocks had outflows of $1.8 billion, far
less than outflows of $5.6 billion the prior week.

*****************
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  43.54  MAR   35  40  0.50  39.50  $0.50   Open
COP     48.72  51.60  MAR   42  45  0.25  44.75  $0.25   Open
NKE     45.14  49.10  MAR   40  42  0.20  42.30  $0.20   Open
CAM     53.03  51.82  MAR   45  50  0.65  49.35  $0.65   Open
SII     35.34  34.20  MAR   30  32  0.25  32.25  $0.25   Open
CMCSA   29.22  28.14  MAR   25  27  0.30  27.20  $0.30   Open
FIC     48.84  46.83  MAR   40  45  0.50  44.50  $0.50   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Oil stocks Cooper Cameron (NYSE:COO) and Smith International
(NYSE:SII) are on the watch-list, as are the new positions in
Comcast (NASDAQ:CMCSA) and Fair & Isaac (NYSE:FIC).


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

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

BSC    59.90   61.57  MAR   70  65  0.50   65.50  $0.50   Open
BUD    47.70   46.93  MAR   55  50  0.45   50.45  $0.45   Open
MDT    44.15   44.10  MAR   50  47  0.25   47.75  $0.25   Open
PEP    39.86   38.50  MAR   45  42  0.25   42.75  $0.25   Open
BSC    61.69   61.57  MAR   70  65  0.55   65.55  $0.55   Open
NEM    27.51   25.96  MAR   32  30  0.25   30.25  $0.25   Open
PG     81.86   80.96  MAR   90  85  0.45   85.45  $0.45   Open
TRMS   40.02   43.10  MAR   50  45  0.50   45.50  $0.50   Open

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

The position in H&R Block (NYSE:HRB), although positive, has been
previously closed to limit losses.  Bear Stearns (NYSE:BSC) is on
the "watch-list" as the issue may test its current trading-range
top (near $65) in the coming week.  A similar situation exists in
Trimeris (NASDAQ:TRMS).


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

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

AMGN    52.09  55.70  MAR   45  47   2.20   47.20  0.30   Open
EXPE    66.57  70.39  MAR   55  60   4.35   59.35  0.65   Open
NBR     40.13  40.86  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  28.69   MAY     35    22    (0.10)   0.65    Open?
UPL     10.11   8.89   MAR     10    10     0.10    0.00   Closed
AFFX    27.14  26.92   MAR     30    25     0.15    0.00    Open
UOPX    37.38  38.19   MAR     40    35    (0.10)   0.10    Open
                            
Watson Pharmaceuticals (NYSE:WPI) was a big mover earlier in the
month after the won U.S. FDA approval for Oxytrol, a patch to treat
urinary incontinence.  Our bullish synthetic position has reached
favorable exit points twice since it was initiated in January.  The
position in Ultra Petroleum (NYSE:UPL) has slumped in conjunction
with the oil service sector and the play will be closed to limit
losses.


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

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

AXP     33.70  33.07   APR-30P   FEB-30P   0.75    1.20     Open?
CI      43.02  42.05   APR-45C   MAR-45C   0.85    1.00     Open
BMET    28.52  29.85   JUL-30C   MAR-30C   1.50    1.50     Open
WFT     40.55  39.39   MAY-45C   MAR-45C   1.25    1.40     Open
OTEX    29.29  26.71   MAY-25C   MAR-30C   4.50    4.20     Open
CMVT    10.20   9.63   APR-7.5C  MAR-10C   2.20    2.00     Open
ICST    23.86  23.19   APR-22C   MAR-25C   2.10    1.90     Open

The bearish position in American Express (NYSE:AXP) has yielded
favorable short-term profits and Biomet (NASDAQ:BMET) remains
within $0.20 of the maximum profit point.  Open Text (NASDAQ:OTEX)
is the only major disappointment, however the issue has support
near the current price and market permitting, will likely rebound
in the coming sessions.


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

ROOM    40.14  47.30   MAR    40    40    6.50    7.90     Open?

The Hotels.com (NASDAQ:ROOM) straddle has reached the target exit
profit, however Friday's close at a near-term high suggests some
additional upside potential in the next few sessions.

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.

*****
AMGN - Amgen  $55.70  *** New 10-Month High! ***

Amgen (NASDAQ:AMGN) is a biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.  Amgen manufactures
and sells human therapeutic products including Epogen, Neupogen,
Aranesp, Neulasta and Kineret.  Amgen focuses its research and
development efforts on therapeutics delivered in the form of
proteins, monoclonal antibodies and small molecules in the areas
of nephrology, cancer, inflammation and neurology and metabolism.
The company has research facilities in the United States and has
clinical development staff in the United States, the European
Union, Canada, Australia and Japan.  Amgen has acquired Immunex,
a biopharmaceutical firm dedicated to developing immune system
science to protect human health.  Immunex has developed two
major products, Enbrel and Leukine, and has two other products,
Novantrone and Thioplex, which can be used in treating multiple
indications.  

AMGN - Amgen  $55.70

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-47.50  AMQ-PW  OI=3415   A=$0.50
SELL PUT  APR-50.00  AMQ-PJ  OI=15576  B=$0.75
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$49.75


*****
EXPE - Expedia  $70.39  *** 2-For-1 Split Coming! ***

Expedia (NASDAQ:EXPE) is a provider of travel-planning services.
The company's travel marketplace includes direct-to-consumer
Websites offering travel-planning services located at Expedia.com,
Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it.
Expedia also provides travel-planning services through Voyages
sncf.com, as part of a joint venture with the state-owned railway
group in France.  In addition, the company offers travel-planning
services through its telephone call centers and through private
label travel Websites through its WWTE business.  WWTE is now a
division of Travelscape, one of Expedia's primary subsidiaries.
In February 2002, a controlling stake in the Expedia was acquired
by USA Networks.

EXPE - Expedia  $70.39
 
PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-55.00  UED-PK  OI=2556  A=$0.80
SELL PUT  APR-60.00  UED-PL  OI=6124  B=$1.35
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$59.45


*****
XAU - PHLX Gold & Silver Index  $67.44  *** Market Bulls Only! ***

The PHLX Gold&Silver Sector (XAU) is a capitalization-weighted
index composed of the common stocks of 9 companies involved in the
gold and silver mining industry.  XAU was set to an initial value
of 100 in January 1979; options commenced trading on December 19,
1983.  For a list of individual stocks in the XAU, click here:

http://www.phlx.com/products/xaucomp.htm

XAU - PHLX Gold & Silver Index  $67.44

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-80.00  XAU-DP  OI=1713  A=$0.95
SELL CALL  APR-75.00  XAU-DO  OI=1064  B=$1.40
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$75.50


*****
CHIR - Chiron Corporation  $35.80  *** Trading Range? ***

Chiron Corporation (NASDAQ:CHIR) is a global pharmaceutical firm
that is focused on developing products for cancer and infectious
disease.  Chiron continues to build upon its cancer franchise,
which has three dimensions, including immune system modulators,
monoclonal antibodies and novel anti-cancer agents.  In the area
of infectious diseases, the company has a range of products.  The
company commercializes its products through three business units,
which include biopharmaceuticals, vaccines and blood testing.
Chiron Biopharmaceuticals discovers, develops, manufactures and
markets a range of therapeutic products.  Chiron Vaccines offers
more than 30 vaccines for adults and children.  Chiron Blood
Testing provides products used by the blood banking industry.

CHIR - Chiron Corporation  $35.80

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-42.50  CIQ-DV  OI=1012  A=$0.20
SELL CALL  APR-40.00  CIQ-DH  OI=1083  B=$0.45
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$40.25


*****
IP - International Paper  $34.30  *** Next Leg Down? ***

International Paper Company (NYSE:IP) is a global forest products,
paper and packaging company that is complemented by an extensive
distribution system, with markets and manufacturing operations in
the United States, Canada, Europe, Pacific Rim and South America.
The company's businesses are separated into six segments: Printing
Papers; Industrial and Consumer Packaging; Distribution; Forest
Products; Carter Holt Harvey; and Other Businesses.  In the United
States, the firm operates over 30 pulp, paper and packaging mills,
90 converting and packaging plants, 35 wood products facilities,
seven specialty panels and laminated products plants, and eight
specialty chemicals plants.  Production facilities in Europe, Asia,
South America and Canada include pulp, paper and packaging mills,
converting and packaging plants, wood products facilities, a number
of specialty panels and laminated products plants, as well as some
specialty chemicals plants.

IP - International Paper  $34.30

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-40.00  IP-DH  OI=6807  A=$0.15
SELL CALL  APR-37.50  IP-DU  OI=6581  B=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.75


*****
TOT - TOTAL Fina Elf  $65.30  *** Oil Sector Slump! ***

TOTAL Fina Elf (NYSE:TOT) operates with its subsidiaries and
affiliates as an integrated oil and gas company, with operations
in more than 120 countries.  The firm's worldwide operations are
conducted through three business segments: Upstream, Downstream
and Chemicals.  The Upstream segment includes TOT's exploration,
development and production activities, as well as their coal and
gas and power operations.  The Downstream segment sells most of
the crude oil produced by the company, purchases most of the oil
required to supply its refineries, operates the refineries and
markets petroleum products worldwide through both retail and non
retail activities, and conducts TOT's bulk trading.  The Chemicals
segment includes Petrochemicals and plastics, which are linked to
the company's refining activities, Intermediates and performance
polymers, as well as Specialties, which include rubber processing,
resins, paints, adhesives and electroplating.

TOT - TOTAL Fina Elf  $65.30

PLAY (less conservative - bearish/credit spread):

BUY  CALL  APR-75.00  TOT-DO  OI=0   A=$0.50
SELL CALL  APR-70.00  TOT-DN  OI=53  B=$1.25
INITIAL NET-CREDIT TARGET=$0.75-$0.85
POTENTIAL PROFIT(max)=16% B/E=$70.75


*************
DEBIT SPREADS
*************

These candidates offer a risk/reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
FDX - FedEx Corporation  $50.84  *** Earnings Play! ***

FedEx Corporation (NYSE:FDX) is a provider of transportation,
e-commerce and supply chain management services.  The services
offered by the company include worldwide express delivery, ground
small-package delivery, less-than-truckload (LTL) freight delivery,
global logistics, supply chain management and customs brokerage,
as well as trade facilitation and electronic commerce solutions.
FedEx offers integrated business solutions through a network of
subsidiaries operating independently, including FedEx Express, an
express transportation company; FedEx Ground, a provider of small
package ground delivery services, and FedEx Freight, a provider of
regional LTL freight services.  Other operating companies include
FedEx Custom Critical, a critical-shipment carrier; FedEx Trade
Networks, a global trade services company, and FedEx Services, a
provider of sales, marketing, supply chain management services and
information technology support for the company's global brands.
The company's quarterly earnings are due 3/19/03.

FDX - FedEx Corporation  $50.84

PLAY (conservative - bearish/debit spread):

BUY  PUT  APR-60.00  FDX-PL  OI=745   A=$9.40
SELL PUT  APR-55.00  FDX-PK  OI=4724  B=$4.90
INITIAL NET-DEBIT TARGET=$4.45-$4.50
POTENTIAL PROFIT(max)=11% B/E=$55.50


*****
STN - Station Casinos  $19.40  *** Reader's Request! ***

Station Casinos (NYSE:STN) is the leading provider of gaming and
entertainment to the residents of Las Vegas, Nevada.  Station's
properties are regional entertainment destinations and include
various amenities, including numerous restaurants, entertainment
venues, movie theaters, bowling, and convention/banquet space, as
well as traditional casino gaming offerings such as video poker,
slot machines, table games, bingo and race and sports wagering.
Station owns and operates Palace Station Hotel & Casino, Boulder
Station Hotel & Casino, Santa Fe Station Hotel & Casino and Wild
Wild West Gambling Hall & Hotel, Texas Station Gambling Hall &
Hotel and Fiesta Rancho Casino Hotel in Las Vegas, Nevada, and
Sunset Station Hotel & Casino and Fiesta Henderson Casino Hotel
in Henderson, Nevada.  Station also owns a 50% interest in both
Barley's Casino & Brewing Company and Green Valley Ranch Station
Casino in Henderson, Nevada.

STN - Station Casinos  $19.40

PLAY (aggressive - bullish/debit spread):

BUY  CALL  APR-17.50  STN-DW  OI=80   A=$2.45
SELL CALL  APR-20.00  STN-DD  OI=259  B=$0.70
INITIAL NET-DEBIT TARGET=$1.65-$1.70
POTENTIAL PROFIT(max)=45% B/E=$19.20


*****


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


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

New Bull and New Bear


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_030903.asp


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

New Breaks and Bounces


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_030903.asp


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

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