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Daily Newsletter, Monday, 03/10/2003

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The Option Investor Newsletter                   Monday 03-10-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: A Line In the Sand
Futures Wrap: Never Looked Back
Index Trader Wrap: Banks crack wall of support and leave indexes 
vulnerable
Weekly Fund Wrap: Slip Sliding Away
Traders Corner: Transport Trouble - Really!

Updated on the site tonight:
Swing Trader Game Plan: What's Next?

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
03-10-2003                  High    Low     Volume       Adv/Dec
DJIA     7568.18 - 171.85  7739.47 7559.64    1202 mln   814/2448
NASDAQ   1278.37 -  26.92  1299.55 1277.18    1088 mln   910/2295
S&P 100   409.64 -  10.48  420.12  409.24      totals   1724/4743
S&P 500   807.48 -  21.41  828.89  806.57
RUS 2000  348.01 -   6.17  354.18  347.93
DJ TRANS 1982.56 -  59.92 2041.32 1977.28
VIX        37.85 +   2.20   38.16   37.11
VIXN       47.00 +   0.61   47.60   46.75
Put/Call Ratio 0.87
*******************************************************************

A Line In the Sand
by Kent Barton

"May you live in interesting times."
- Purported ancient Chinese curse

After months of diplomatic maneuvering, U.N. weapons inspections, 
and an extended military buildup in the Middle East, everything 
is finally coming to a head.  

The Bush administration is growing increasingly impatient and 
wants to kick off the war before a blistering Iraqi summer 
begins.  France, Germany, and Russia want to give the inspectors 
more time.  Something's gotta give.  With its proposed March 17th 
deadline for Iraq to comply with disarmament demands, the U.S. 
and Britain have effectively started the final countdown to war.  
Both France and Russia have made it clear that they'll veto the 
British resolution, which could be presented for U.N. approval as 
early as Wednesday.  But whether or not the resolution passes is 
largely irrelevant in terms of President Bush's ultimate 
objective.  What the White House has done is put the world on 
notice that the U.S. is unwilling to wait any longer.  Barring 
any unforeseen diplomatic developments, one week from tomorrow 
will mark the beginning of open season on Saddam Hussein.

Friday's rumors that two of Osama Bin Laden's sons had been 
captured gave the shorts a perfect excuse to cover ahead of the 
weekend.  This created an artificial bounce that disappeared on 
Monday after it became apparent that the rumors were false.  The 
general market consensus seems to favor multilateral military 
action.  Now that it's becoming increasingly clear that the U.S. 
will be acting unilaterally (i.e. without the auspices of the 
United Nations), the bulls will find it very difficult to buck 
the recent trend of lower highs in the Dow Jones.

Daily chart - Dow Jones:


 


10-minute chart - Dow Jones:


 

Foreign investment is also fleeing U.S markets, as evidenced by 
Monday's new multi-year low in the U.S. Dollar (DX00Y).  This has 
severely negative implications for large importers such as Sony 
(SNE) and DaimlerChrysler (DCX), whose profit margins shrink as 
the Yen and Euro strengthen.  Interventions from the Bank of 
Japan to prop up the Dollar have thus far had a minimal impact.  
Incidentally, DCX and SNE are both trading at long-term lows, and 
the Japanese Nikkei 225 just broke the 8,000 level for the first 
time in 20 years.

In a fresh reminder that accounting issues are still lurking in 
the shadows, Bristol Myers restated its 1999-2001 sales and 
profit results on Monday.  The company said it overstated sales 
by $2.5 billion, thanks to a policy that encouraged drug 
wholesalers to buy more drugs than they could sell.  Bristol's 
"mea culpa" pressured the stock in early trading, but shares 
managed to outperform the broader market with a loss of only 
1.2%.  Investors seemed to be soothed by BMY's reiteration of 
full-year 2003 EPS expectations in the $1.60-$1.65 range.

Government-funded mortgage lender Fannie Mae (FNM) was whacked 
for a 6.8% loss after St. Louis Federal Reserve president William 
Poole suggested that poor debt management had put the company in 
a position where it could be a risk to the economy.  With Alan 
Greenspan recently making bearish comments regarding the housing 
market, investors didn't have to think twice about selling.  FNM 
tagged a 52-week low on extremely high volume of 26 million 
shares.  Fannie's brother Freddie Mac (FRE) moved sharply lower 
in sympathy.

Receiving the dubious distinction of being today's worst sector 
performer was the airline index, which gave back most of Friday's 
short-covering gains.  The XAL.X was pressured by reports that 
AMR (parent company of American airlines) has quietly starting 
talking to banking firms about bankruptcy loans.  Shares of AMR 
dropped 14% on the news.  The rest of the airline group (and the 
transportation sector in general) continues to be plagued by the 
rising price of oil.  Crude futures (cl02j) are holding above 
$37.00/barrel and aren't likely to roll over while the geo-
political climate continues to heat up.  Oil traders will be 
focusing on tomorrow's OPEC meeting, where the cartel will 
discuss how to handle the current situation.

In one of the handful of positive news stories today, Qualcomm 
raised estimates for its second-quarter chip shipments from 27 
million to 28 million.  QCOM has staked a lot on its critical 
third-generation (G3) CDMA technology, and thus far the network 
deployment seems to be going smoothly.  Evidence of strong demand 
within the industry was also reflected in a consultants report 
that showed handset sales in the fourth quarter were better-than-
expected.  But with the NASDAQ bleeding steadily lower throughout 
the session, those two news stories weren't enough to prevent 
QCOM and NOK from finishing solidly in negative territory.  

Daily chart - NASDAQ:


 

As you can see from the above chart, there's a whole lot of 
downside potential for the NASDAQ if it breaks under the relative 
lows.  Big-cap techs INTC, MSFT, and IBM (Big Blue is traded on 
the NYSE) are all are looking quite weak.  The semiconductor 
index (SOX.X) and software index (GSO.X) are trading at or below 
short-term support, and have ample room to move to the downside.

Most traders are familiar with that tried-and-true axiom; "It's 
always darkest before dawn."  Things are looking pretty dark at 
the moment.  Every Dow component and major sector index finished 
in the red today, and down volume destroyed up volume on the NYSE 
by a 17:1 ratio (the NASDAQ was more tame at 3:1).  The 
combination of last week's abysmal economic data and the pending 
war with Iraq has created what appears to be an ideal environment 
for the bears.  From a contrarian standpoint, extreme negativity 
is an indication that a market bottom might be forthcoming.  But 
two critical elements are lacking from the current decline: 
volume and fear.  As has been the case recently, today's volume 
was very light at only 1.2 billion shares on the NYSE.  This 
buyers strike is likely to continue ahead of the March 17th 
deadline.  Meanwhile, growing anxiety has pushed the volatility 
index (VIX.X) up to the long-term descending trendline that we've 
been watching in recent weeks.  

Daily chart - VIX.X: 


 

Until we start seeing some powerful upward movement in the VIX.X 
and a couple down days with very strong volume, it'll be very 
tough to call a market bottom.  Investors will become 
increasingly skittish as war approaches, possibly leading to a 
breakdown in the key equity indices.  Potential buyers are simply 
unwilling to take sizable long positions in this uncertain 
climate.  At the moment there are simply too many unanswered 
questions.

For instance, how long will it take for the U.S to unseat the 
Iraqi regime and win the war?  The Pentagon has hinted at a 
furious bombing campaign in the first few days, using laser-
guided munitions and other airborne weapons.  Ground troops would 
move into Baghdad after the Iraqi military has been shocked by 
the initial hostilities.  This weekend there were reports that a 
dozen Iraqi troops had surrendered to British forces.  Watching a 
British live-fire exercise, the malnourished and poorly-equipped 
Iraqis thought the war had already started.  When they tried to 
surrender, the soldiers were told to wait until the war had 
actually started!  The troops' loyalty (or lack thereof) doesn't 
bode well for Saddam.  Early success in the military campaign 
might lead to a repeat of 1991, when the market rallied shortly 
after the war began.  Chances of a swift victory would be 
bolstered if Turkey gave the U.S. permission to place ground 
forces in the country.  Although the Turkish Parliament has 
already voted against allowing ground forces, this weekend's 
election of a new Prime Minister might enable the troop 
deployment to be brought up for another vote.  The U.S. would 
benefit greatly from being able to attack Iraq from its Northern 
border.  

Nobody knows how this will all play out.  But given the technical 
weakness in the major indexes and Wall Street's opposition to 
unilateral action by the U.S., it's hard to envision how the 
market could muster anything more than a short-lived relief rally 
in the near future.  The coming week should prove to be quite 
interesting indeed.  Intraday index traders can continue to trade 
the downtrend, using failed rallies from descending resistance as 
potential entry points while also paying close attention to those 
underlying support levels on the Dow and NASDAQ.  Conservative 
traders will probably want to remain on the sidelines and wait to 
see how the ongoing Iraq drama plays out before making any 
commitments.


************
FUTURES WRAP
************

Never Looked Back
Jonathan Levinson

Daily levels and pivots:

Contract       Last    Net Change    High        Low    
Dow Jones     7568.18    -171.85   7739.47     7559.64
YM03H         7561.00    -174.0    7729.00     7550.00
Nasdaq-100     964.29     -22.53    982.87      962.48
ND03H          965.00	   -21.00    987.00      962.00
S&P 500        807.48     -21.41    828.89      806.58
ES03H          807.50     -21.00    828.25      805.50

Contract         S2         S1       Pivot        R1         R2   
Dow Jones      7442.60    7505.39   7622.43    7685.22    7802.26  
YM03H          7434.33    7497.66   7613.33    7676.66    7792.33  
Nasdaq-100      949.49     956.89    969.88     977.28     990.27 
ND03H           946.33     955.66    971.33     980.66     996.33 
S&P 500         792.01     799.75    814.32     822.06     836.63 
ES03H           791.00     799.25    813.75     822.00     836.50 


The markets tried to hold it together last night but the GE news 
of massive pension fund losses took the wind out of their sails 
early this morning.  The bell rang and they collapsed out of the 
gate, never looking back but taking some pauses on the way down at 
clear support levels.  Volume on the indices was very light, and 
there were some massive TRIN readings, with prints as high as 5.91 
that I saw, while the COMPX TRIN stayed just above neutral 
throughout the day.  Whether this action in the Arms Indicator is 
telegraphing a gap up open or the beginning of a waterfall 
decline, time will have to tell.

The YM Contract set a new low for the year as appears from the 60 
minute candles and closed just a few points north of it.  As we 
can see from the 10(5) stochastics, the 60 minute oscillator is in 
oversold territory but is not yet signaling a turn.

YM03H 60 Minute Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_01.gif




First daily resistance is just above at 7676 after the pivot of 
7622.  

As we can see from the 10 day stochastic below, there is no sign 
of a turn on that oscillator, still in a full bear roll.  While R1 
looks like a light volume area, R2 at 7792 is much heavier and, 
barring any spectacular news events,  should stop any upside 
bounce attempt.


YM03H Daily Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_02.gif




The ND contract had a much more tentative decline as appears from 
the 60 minute chart, touching a new low for the year but printing 
spinning top candles, which show indecision both to the upside and 
downside.  That said, daily R1 resistance of 980 looks quite 
heavy, and should stop any attempt to reach R2 of 996. We'll have 
to see how the price behaves at the 969 pivot.

While we had a stochastic bullish cross formed on the last spike 
off the lows, the daily oscillator depicted on the daily candle 
chart looks pretty unequivocal to me, and barring an extreme 
upside surprise off the open tomorrow, should contain any bounce 
attempt to within the parameters of the R1 and R2 resistance 
lines. 

ND03H 60 Minute Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_03.gif




The chart pattern we see on the 60 minute candles, given some 
perspective on the daily chart, is sloppy and difficult to 
identify.  If the move off the February lows was impulsive, then 
the slow decline from the top would look like a very messy bull 
flag.  However, it's been getting awfully long in the tooth for a 
merely corrective flag, and as discussed in my weekend article, a 
number of indicators, such as the VXN, BPNDX, Put to call ratio, 
and, most of all, the commitment of traders report for the NDX, 
show little sign of a significant bottom here.  I see the February 
bounce as corrective within the long downtrend, almost a very 
sloppy, sloping head and shoulders with the head formed in 
January.


ND03H Daily Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_04.gif




The ES contract came very close to setting a new low for the year 
intraday, and I witnessed a dispute about it online this afternoon 
between two veteran traders, but my own chart doesn't look like 
it.  In any event, the oscillators are again telling the same 
story, with the 60 minute 10(5) stochastic showing signs of a 
bounce getting ready to form, but the daily fully in gear to the 
downside.

The pivot at 813 will be a telling, light volume level, while R1 
at 822, the bottom of the interminable range we saw last week, 
should be much heavier.  A violation of that level back into the 
range will bring in upper resistance prior to the 836 R2 level.  
I'd be surprised to see price exceed 831, but we'll have to see.  
Looking at the price action over the past month, the 822 level 
shows a very significant overhang, and the extreme readings seen 
on the TRIN today demonstrated an urge to sell that was absent 
from the NDX,


ES03H 60 Minute Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_05.gif




My comments about the chart pattern on the NDX are better 
exemplified by the daily chart of the ES contract, where it looks 
like a large top has been forming.  The February rally was a 
corrective move, and it looks to me as if the October lows will be 
the next issue for the markets to address.   Was today a point of 
recognition as bulls sprang for the exits?  Or will we see an 
oversold bounce?  The TRIN readings today are the big question on 
my mind.   Either way, we'll keep our stops in place and watch the 
support and resistance levels.  The charts will tell us what to 
do.


ES03H Daily Candles
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-10/oifw20030310_06.gif




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

Banks crack wall of support and leave indexes vulnerable

In Friday evening's market monitor, we noted a "wall of support" 
in our pivot analysis matrix between the WEEKLY and MONTHLY S1 
levels of support.  Today, one of our key sector indexes that 
we've been monitoring in the S&P Bank Index (BIX.X) 262.30 -3.25% 
cracked its correlative support level at WEEKLY/MONTHLY S1 
correlations, and now has me thinking that the major indexes 
become vulnerable to cracking their correlative support levels 
too.

In essence, if the "wall of support" were a dam, then the 
cracking of the BIX's correlative support level hints that 
selling pressure from bulls has a relatively strong sector 
showing weakness, which may have bulls opening the flood gates as 
St. Louis Fed Presiden't Poole's comments regarding Freddie Mac 
(NYSE:FRE) $50.80 -5.9% and Fannie Mae (NYSE:FNM) $58.93 -6.87% 
sent a tidal wave of concern through the financial sectors and 
major market indexes.

Later in the afternoon, Fannie Mae's Senior Vice President Chuck 
Greener said that there was "nothing new" in Poole's personal 
opinions expressed today regarding Government Sponsored 
Enterprises (GSEs) like Fannie Mae.  Mr. Greener said that Mr. 
Poole made almost identical comments last August.  
"Unfortunately, his comments ignore key characteristics of Fannie 
Mae's regulatory structure, capital requirements, and business 
approach that respond directly to the concerns he raises," said 
Greener.

Here's a look at the updated Pivot Matrix were we have new levels 
for the WEEKLY pivot and levels of support and resistance.

Pivot Analysis Matrix -


 

Today's break below the 265 level of correlative support in the 
BIX.X (highlighted in pink at WEEKLY and MONTHLY S1s) and close 
below that level show a recently strong sector in our pivot 
matrix beginning to crack.  The BIX.X was a sector that index 
BEARS wanted to see weakness in to provide a catalyst for further 
downside in the major index.

With the S&P 500 Index (SPX.X) 807.48 -2.58% closing below its 
WEEKLY/MONTHLY S1 levels of correlative support from the pivot 
analysis matrix and the S&P 100 Index (OEX.X) 409.64 -2.49% 
closing right at its correlative support levels, it would be my 
analysis that the major indexes are now vulnerable to their 
WEEKLY S2 levels of support should today's LOWS be violated early 
tomorrow morning.

S&P Bank Index (BIX.X) - Daily Interval


 

The BIX.X had been holding tough and above its 50% conventional 
retracement of 266.78 on a closing basis, and even our WEEKLY S1 
of 265.23 appeared to have some technical significance on a 
historical basis.  However, today's break below the 265.23 level 
is renewed sign of weakness.  According to Dorsey/Wright and 
Associates, their Banking Bullish % (BPBANK) is currently "bear 
confirmed" at 56% after having been "bear correction" to 62% in 
January.  There's still some risk that can be reduced in the 
group to October's low reading of 42%.

In today's 01:00 PM EST Update 
http://members.OptionInvestor.com/intraday/inupd_3102003_761.asp
I showed a chart of the S&P 500 Index (SPX.X) 807.48 -2.58% with 
WEEKLY and MONTHLY retracement overlays.  A quick look at the SPX 
with CONVENTIONAL retracement also shows a current "zone of 
support" in play at current levels, and it would be my thinking 
here that BEARS want to see a continuation move lower in the 
BIX.X to get the SPX breaking these zones of support.  BEARISH 
SPX traders holding FULL positions will once again be willing (in 
my opinion) to lock in gains on any sign of strength from current 
levels and look for rallies to continue to work a bearish trade.

S&P 500 Index (SPX.X) - Daily Interval


 

There are quite a few "levels" of support from tomorrow's DAILY 
S1 of 799.7 to the WEEKLY S1 of 809.30, which makes it difficult 
for an existing bear to press the issue right now.  Last week, we 
did NOT see the SPX test its WEEKLY S2 level, while prior weeks, 
a test of the WEEKLY S2 was a good level for bears to lock in 
some gains.  For bearish traders holding FULL positions, I'd 
continue to always be assessing risk reward on a WEEKLY basis to 
the main Pivot and WEEKLY S1 and S2 levels.  As such, risk/reward 
in the SPX is deemed 50/50 from a swing-trader's perspective.

Today's action saw the S&P 500 Bullish % ($BPSPX) slip lower by 
0.8% (net loss of 4 stocks to reversing point and figure sell 
signals) to 30.0%, which is now considered "oversold" on a 
longer-term basis (levels at or below 30% are deemed oversold on 
bullish %).  Still no sign of internal strengthening here and 
nearing October's low readings of 20% on the bullish % chart.

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


 

Similar to the SPX, the OEX has multiple levels of support in 
play near-term from its pivot matrix.  How fitting was today's 
close so near the OEX's WEEKLY and MONTHLY S1s of 409.8 and 
409.5.  A "zone of support" from 407.5-409.8 appears again this 
week, and this "zone" has some historical correlation to the 
spike lower on February 13th.  We made special notes of this zone 
in our February 12th Index Trader Wrap 
http://members.OptionInvestor.com/itrader/marketwrap/iw_021203_1.asp
 and FULL position bears back then would have been well served to 
lock in some gains near these levels.  Tomorrow, I'd watch the 
BIX.X and the OEX like a hawk and if FULL position short, would 
NOT want to give back more than 5-points from today's close.  On 
weakness in the banks tomorrow, I'd lower a STOP profit in an OEX 
trade on a break below 407 to just above the WKLY S1 of 409.8, 
say 412 or so.

Today's action saw the S&P 100 Bullish % ($BPOEX) fall 2%, or see 
a net loss of 2 stocks to reversing point and figure sell signals 
to 24%.  If benchmarked to the February 13th OEX relative low, 
the OEX bullish % reading tonight continues to show BEARISH 
divergence as the 02/13/03 bullish % reading was 29%.  This type 
of BEARISH divergence tells us that the "strength" in the OEX at 
this point is coming from a very few select stocks and at this 
point is not indicative of a broader index rally, which a bull 
would want to see in order to be getting aggressive from the buy 
side.

Dow Industrials Chart - Daily Interval


 

If I'm looking for a bottom to develop in the major indexes, the 
there's no better place in my opinion (from a technical 
perspective) that the Dow Industrials (INDU).  Last week I 
profiled a 1/4 BULLISH position in the September $80 calls and I 
wanted to review a couple of things tonight, with both the WEEKLY 
and MONTHLY retracement levels overlaid.

The "reason" I think the Dow might be the first to show any sign 
of bottoming at this point is from past comments regarding a 
POTENTIAL reverse head and shoulder pattern that we've discussed 
in the past.  I've also mentioned that in October, the Dow 
DIAMONDs (AMEX:DIA) $75.78 -2.28% undercuts its then bearish 
vertical count of $74, by $1.00 when it traded $73.00.  The 
current bearish vertical count on the DIA is $75.00, which may 
give some near-term "credence" to a potential trade at 7,500 in 
the Dow Industrials, which would still have a reverse 
head/shoulder pattern in play.

While I'm still "bearish" the major indexes on a near-tem basis, 
its the technicals in the Dow, which can warrant monitoring from 
the bullish side.  I'm a bit surprised that the Dow wasn't the 
"first" to trade its WEEKLY S1 today.  

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

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval


 

The QQQ/NDX continue to trade "strong" relative to their pivot 
analysis matrix, but based on Bollinger band and conventional 
retracement, continue to be the "risk/reward" trade for bearish 
index option traders in my mind.

Again, I would not OVER LEVERAGE in any trades at this time, but 
with partial positions, I do feel that the QQQ offers the "best" 
percentage downside of the indexes.  The market has been selling 
the Dow, SPX and OEX and these three indexes are getting closer 
and closer to their lows.  If I'm going to risk $500.00 in a 
bearish Index trade at this point, it might as well be in an 
index that can offer some percentage move to the downside.  Look 
for a near-term cover point in a bearish trade to the 
conventional retracement's 61.8% level of $23.20 and WEEKLY S2 of 
$23.14.

Today's action saw a net loss of 1 stock to a reversing point and 
figure sell signal in the NASDAQ-100 bullish % ($BPNDX).  Still 
"bear confirmed" at 32%, which is a matching low for this bullish 
% during the decline, with that found on February 12th and 13th, 
when the intra-day lows for the QQQ/NDX were $23.22/938.52 
respectively.

Jeff Bailey


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****************
WEEKLY FUND WRAP
****************

Slip Sliding Away

Just like the old Paul Simon song, the nearer the stock market's 
destination, the more it keeps slip sliding away.  The threat of 
war with Iraq and a slowing U.S. economy prompted further losses 
on Wall Street, with the S&P 500 index posting a 1.5% decline in 
last five days.  Meanwhile, European stocks were 3.3% in the red 
while Pacific stocks lost 1.6% in dollar terms.  So, stocks were 
generally lower worldwide last week, with mutual funds following 
suit.  



 

Most diversified U.S. equity funds lost around 1.6%, with losses 
increasing as you moved lower in market capitalization.  For the 
week, the average large-cap core equity fund lost 1.3% according 
to Lipper, while the average mid-cap core fund declined 1.8% and 
the average small-cap core fund tumbled 2.2%.  Tech funds closed 
the week down 2.2% on average, per Lipper.  International equity 
funds lost more than their U.S. equity fund peers, dropping 2.9% 
in value last week according to Lipper.  Gold funds continued to 
drop in value, declining 4.5% for the week ended March 7, 2003.     

With the U.S. economy slowing, many investors sought the income 
and relative stability of bonds.  For the week, the bond market 
as measured by the LB Aggregate Bond index returned 0.3%, while 
the intermediate-term index registered a 0.5% net weekly return.  

Most general U.S. bond funds produced weekly total returns near 
the 0.3% LB Aggregate index benchmark.  High-yield funds gained 
around 0.6% per Lipper, twice that of investment-grade funds in 
spite of weak U.S. equity market conditions.  Meanwhile, global 
and international income funds returned 1.3% and 2.0% last week 
on average, respectively.  International income funds have gone 
up 5.3% since December 31, the highest performing fund category 
of 2003. 

U.S. Equity Fund Group

 Week   YTD
-1.4%  -5.5%  Vanguard 500 Index Fund (VFINX) 
-1.9%  -7.1%  Vanguard MidCap Index Fund (VIMSX)
-1.8%  -7.3%  Vanguard SmallCap Index Fund (NAESX)
-1.5%  -5.6%  Vanguard Total Stock Market Index Fund (VTSMX)
-1.3%  -5.1%  Lipper Large-Cap Core Equity Fund Average 
-1.8%  -5.8%  Lipper Mid-Cap Core Equity Fund Average 
-2.2%  -8.0%  Lipper Small-Cap Core Equity Fund Average
-1.6%  -4.9%  Lipper Multi-Cap Core Equity Fund Average
-2.2%  -2.4%  Lipper Science & Technology Fund Average


The $4.4 billion Sequoia Fund (SEQUX) was one of the rare equity 
funds bucking the negative trend last week.  The large-cap value 
fund rose 1.2% for the week.  The $9.2 billion Janus Twenty Fund 
(JAVLX) closed the week with a scant 0.04% return, outpacing its 
large-cap growth fund peers, which were down 1.2% on average for 
the week, according to Lipper.  Laggards included Fidelity Fifty 
Fund (FFTYX) down 3.6% and the $5 billion Longleaf Partners Fund 
(LLPFX).  The popular mid-cap value fund also lost 3.6% over the 
past five days.  Legg Mason's funds got roughed up a bit as well, 
as did the Federated Kaufmann Fund (KAUFX), which sank 4.0% over 
the 5-day period.  

Sector funds specializing in technology, electronics and telecom 
stocks were hard hit.  The $2.8 billion T. Rowe Price Science & 
Technology Fund (PRSCX), the sector bellwether, dropped 2.3% for 
the week, while Fidelity Select Electronics (FSELX) lost 3.7% of 
its value.  Fidelity Select Telecommunications Fund (FSTCX) fell 
by 2.5%, so tough sledding in those sectors last week. 

International Equity Fund Group

 Week   YTD
-3.0%  -9.1%  Vanguard Developed Markets Index Fund (VDMIX)
-2.4%  -6.0%  Vanguard Emerging Markets Index Fund (VEIEX)
-2.8%  -8.7%  Vanguard Total International Stock Index (VGTSX)
-2.9%  -9.3%  Lipper International Fund Average
-2.5%  -5.4%  Lipper Emerging Markets Fund Average
-4.5%  -9.4%  Lipper Gold Fund Average

 
As you can see, the equity averages don't get any better in the 
international equity fund group, with the MSCI EAFE index bogey 
sliding 3% last week in dollar-equivalent terms and the average 
international equity fund losing 2.9% in value, per Lipper.  It 
was Europe that took the developed markets index down, with the 
Europe index component 3.3% in the red.  The Asia-Pacific stock 
index lost 1.6% in dollar terms - similar to U.S. equity losses.

The $22.6 billion American Funds EuroPacific Growth Fund (AEPGX) 
lost 2.7% for the week, while its global stock fund sibling, the 
$22.2 billion American Funds New Perspective Fund (ANWPX) closed 
the week 3.0% lower.  First Eagle Overseas (SGOVX) minimized its 
weekly loss relative to other international funds.  It lost just 
0.5% for the week.   

U.S. Fixed Income Fund Group

 Week   YTD
+0.2%  +1.2%  Vanguard Short-Term Bond Index Fund (VBISX)
+0.5%  +2.5%  Vanguard Intermediate-Term Bond Index Fund (VBIIX)
+0.4%  +3.3%  Vanguard Long-Term Bond Index Fund (VBLTX)
+0.3%  +1.7%  Vanguard Total Bond Market Index Fund (VBMFX) 
+0.2%  +1.0%  Lipper Short Investment-Grade Fund Average
+0.3%  +2.1%  Lipper Intermediate Investment-Grade Fund Average
+0.3%  +2.0%  Lipper Corporate A-Rated Debt Fund Average
+0.6%  +4.2%  Lipper High-Yield Fund Average
+0.3%  +1.4%  Lipper U.S. Government Fund Average


Look at high-yield funds, up 0.6% on average for the week and up 
4.2% since December 31, according to Lipper, the best performing 
U.S. fixed income category this year.  The $3.9 billion American 
Funds High Income Trust (AHITX) produced a weekly return of 1.0% 
to lead the group higher.  Fidelity Capital & Income Fund gained 
nearly 0.9%, while PIMCO's high yield fund returned 0.8% for the 
week.  

Investment-grade bond funds returned about 0.3% per Lipper, with 
some funds doing a little better than that depending on how much 
high-yield exposure they had.  With international bond prices up 
along with high-yield bond prices, multi-sector bond funds ended 
the week with strong gains as well.  For instance, Loomis Sayles 
Bond Fund, Class I (LSBDX) generated a 0.95% return for the week.    

International Fixed Income Fund Group

Week   YTD
+1.3%  +4.2%  Lipper Global Income Fund Average
+2.0%  +5.3%  Lipper International Income Fund Average


While international equity funds did worse than U.S. stock funds 
last week, international income funds did better than comparable 
U.S. bond funds, with the average international bond fund higher 
by 2.0% per Lipper.  SEI's institutional bond fund returned 2.4% 
for the week to lead the group, followed by a 2.1% return on the 
$1.0 billion T. Rowe Price International Bond Fund (RPIBX).  The 
average international fixed income fund is now up 5.3% on a 2003 
YTD basis through March 7.

Balanced Fund Group

 Week   YTD
-0.7%  -2.6%  Vanguard Balanced Index Fund (VBALX)
-0.9%  -3.1%  Lipper Balanced Fund Average


Mixed-equity funds minimized their losses relative to all-equity 
funds, with most funds down less than 1.0% for the weekly period.  
Since December 31, balanced funds have lost 3.1% on average, two 
full percentage points better than the average large-core equity 
fund per Lipper.  

A few mixed-equity funds managed to produce positive returns for 
the week, such as the Northeast Investors Trust (NTHEX), up 0.4%.  
It rose along with the high-yield bond sector, its main focus of 
investment.  The Vanguard Wellesley Income Fund (VWINX) finished 
the week unchanged, buoyed by its larger fixed income allocation.  
It remains a solid choice for investors seeking more income than 
equity exposure in a balanced portfolio.

Money Market Fund Group

Yield
1.09%  Vanguard Prime Money Market Fund (VMMXX)
0.78%  iMoneyNet.com All Taxable Money Market Fund Average


The average taxable MMF yield rose one basis point, to 0.78% last 
week, according to iMoneyNet.com's weekly survey.  The "low-cost" 
leader in the prime retail MMF group, Vanguard Prime Money Market 
Fund, held at 1.09%, setting the bar for the rest of the funds in 
the group.   

The top yielding prime-retail money fund remains the PayPal Money 
Market Fund (402-935-7733), at 1.33%, down one basis point versus 
the prior week.  Just a handful of prime retail funds today sport 
a current 7-day simple yield of more than one percent.  With such 
low yields today, having low expense adds value.  

Mutual Fund News

Morningstar.com reports that the Van Wagoner Funds is liquidating 
three of its five U.S. equity funds.  The funds involved are Post 
Venture Fund (VWPVX), Mid Cap Growth Fund (VWMDX), and Technology 
Fund (VWTKX).  These funds were high flyers in the late 90's.  In 
1999, for example, Van Wagoner Post Venture Fund had a staggering 
237% total return, lending truth to the idea that the higher they 
fly, the harder they fall.

In another story, the AIM Funds have made more management changes 
effective March 1, 2003.  The funds involved include the Emerging 
Growth Fund (EMEAX), Large Cap Basic Value Fund (LCBAX), and both 
the Global Growth (AGGAX) and Global Income (AGAIX) funds.  There 
are several more changes to be made effective May 1, so if you're 
an AIM shareholder, you may want to read the Morningstar story or 
talk to your financial representative about these changes.

Evergreen Funds is merging funds too including two funds with net 
assets of over $500 million, Morningstar reports.  The Evergreen 
Small-Cap Value Fund (ESQAX) is combining into the Special Value 
Fund (ESPAX), while Evergreen Value Fund (EGVAX) is merging into 
the Equity Income Fund (ETRAX).  Just more signs of the times in 
the mutual fund industry as it faces it first deep consolidation.  

For more information, see Morningstar's weekly Fund Times report.

Steve Wagner
Editor, Mutual Investor 
steve@mutualinvestor.com


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

Transport Trouble - Really!
by Mark Phillips
mphillips@OptionInvestor.com

For followers of Dow Theory, Monday's trading session went a long
ways toward confirming that we are still very much in a bear
market.  I don't claim to be an expert on Dow Theory, but I do
tend to keep an eye on what I view as one of the essential
tenets of the theory.  Namely, that a breakdown/breakout in the
Dow Jones Industrials ($INDU) needs to be followed (or preceded)
by corresponding breakdowns/breakouts in the other two dominant
sectors of the market, the Dow Transports ($TRAN) and Dow
Utilities ($DJU).

I first introduced the idea (at least in this venue) of following
Dow Theory back in October of 2002, shortly after the DOW traded
to a new bear market low of 7286, noting that the TRAN had
confirmed that breakdown with a new bear market low of 2013.
Not only that, but the DJU gave another point of confirmation,
with a new bear market low of 167.  We had the full confirmation
with all three of the indices that are central to Dow Theory
breaking to new bear market lows, confirming the ferocity of
the nearly 3-year old bear market.  Rather than rehash that
conversation here, I'll just provide the link to that article,
for any who need to catch up.

Dow Theory Confirmation
http://www.OptionInvestor.com/traderscorner/tc_102102_1.asp

Did that seem familiar to you too?  GRIN  That is actually the
first two paragraphs of my 2/24/03 article, where I pointed to
the likelihood of an imminent breakdown in the $TRAN, as the
first leg of a confirmation (vis a vis Dow Theory) that we are
still very much in a bear market.  We got that breakdown the
very next day, with the Trucking stocks leading the $TRAN
lower, continuing to be pressured by the Bear Stearns sector
downgrade.  But then a funny thing happened as the plunge to
new intraday lows was reversed by a powerful afternoon
short-covering rally that popped the $TRAN above the closing
lows from both last October and September of 2001.  Remember
that in Dow Theory, it is the closing level that is considered
significant, not intraday levels.  So eager bears were left
waiting for the other shoe to fall.

That shoe fell to the floor with a thud today, as the $TRAN
plunged to a new bear market low of 1982, closing right on the
low.  That move increases the likelihood that the $INDU will
also take out its October lows, and we went a long ways towards
accomplishing that today, with the DOW off by more than 170
points to close below 7600 for the first time since October
11th.

I know this rambling discussing is rather difficult to grasp
without pictures, especially when we're trying to forecast
future price action in one index, based on the action in another.
But I think I can illustrate the point using the February lows
as our "pivot point" for the discussion.  Let's start by looking
at a stacked chart of the $INDU and $TRAN going back to the
October lows, as that will give us the larger picture view.

Daily Chart of the $INDU and $TRAN


 

In this larger picture view, I want to draw your attention to
the way the October lows were broken in the $TRAN in late
February.  After a brief oversold bounce, the sector came
tumbling down below those October lows today.  Take notice of
the $INDU (top chart), which is still well above the October
lows.  One of two things is likely to occur at this point.
Either the $INDU continues down and violates its October
closing lows with a close under 7286 or it doesn't.  Alright
wise guy, what do we conclude from each of those two possible
outcomes?  A break below the October lows will confirm the
bearish condition in the markets as defined by Dow Theory and
our attention will then turn to the action in the Dow Utilities
($DJU), looking for full confirmation with that index breaking
its October lows.

But there's no guarantee here.  We could see the $INDU refuse
to break its October low and that would be a powerful
NON-confirmation that could be interpreted in a bullish manner.
Now let's take a closer look at the daily charts of the two
indices and see how the dynamic of the breakdown in the INDU
might unfold relative to the breakdown in the $TRAN.

Daily Chart of the $INDU and $TRAN


 

Both the $TRAN and $INDU hit important lows on February 13th,
from which they both bounced.  But the rebound in the $TRAN was
far less robust, failing within a week.  The $TRAN had broken
to its lowest level since the October low.  Would the $INDU
follow it lower?  It took a lot longer (more than 2 weeks),
but eventually the $INDU followed the $TRAN below the 2/13 low
on March 4th.  Now with the $TRAN breaking a more significant
low (the October low), we can extrapolate out the recent
behavior and project a breakdown in the $INDU below its October
lows, possibly within as little as 2 weeks.

I think what is instructive about this picture is that it shows,
using the February 13th lows as a discussion point, how the two
indices can move relative to one another in a confirmation of
Dow Theory.  The breaks in the two indices to new lows does not
need to happen at the same time and it doesn't matter which
index breaks first.  It is only important that the indices
either confirm each other's breakdowns (bearish confirmation)
or fail to confirm (bullish non-confirmation).

I know I've harped on this topic quite a lot lately, but
hopefully it gives those of you unfamiliar with Dow Theory an
understanding not only of how it is used in practice, but also
provides evidence that this 100 year-old approach to market
analysis still holds a great deal of validity today.

Questions are always welcome!

Mark


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

What's Next?
Linda Piazza

Today, U.S. traders woke to the news that the Nikkei had made new 
20-year lows in overnight trading, closing at 8042.26 after 
having dipped briefly below 8000.  European markets seemed poised 
to plunge, too, with the FTSE 100, CAC 40, and DAX already below 
multi-year closing or intraday lows.  Futures indicated that our 
markets would open down, too.  Still, with several layers of 
support beneath Friday's closing levels, trading the downside 
might prove treacherous, too.

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Contact Support
The Option Investor Newsletter                   Monday 03-10-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: MHK, PII, TIN, UTX, VZ
Dropped Calls: DGX
Dropped Puts: None
Play of the Day: Put - TIN

Updated on the site tonight:
Market Posture: Nary a Bull In Sight
Market Watch: Something For Everyone


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*****************
STOP-LOSS UPDATES
*****************

MHK - put
Adjust from $48.10 down to $47.90

PII - put
Adjust from $49 down to $47.25

TIN - put
Adjust from $42.50 down to $41.00

UTX - put
Adjust from $58.75 down to $58.00

VZ - put
Adjust from $34.75 down to $34.50


*************
DROPPED CALLS
*************

DGX $50.81 -1.64 (-1.64) Clearly, our DGX play has been a
disappointment, with the stock continuing to deteriorate after
generating a new Buy signal on the PnF chart, which turned out
to be a bull trap.  We certainly gave the play plenty of time,
and were starting to think the bulls might prevail after the
last three days of last week when the stock persistently held
above the $51.25 level.  But that encouraging trend gave way
this afternoon, with the stock first violating our $51.25 stop
and then closing below $51 for the first time in nearly 3 weeks.
There's just no way to justify holding this one, and we're
dropping it for its poor performance today.


************
DROPPED PUTS
************

None


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

TIN – Temple-Inland Inc. $38.30 -1.44 (-1.44 this 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.

Why This is our Play of the Day

There seemed to be no area of the market that was immune from
the bears' onslaught on Monday, as all of the illicit gains from
Friday were taken back by the close.  But while many areas of the
market took until the close to give back those gains, our TIN
play got the job done early.  After dropping below $38.60 in the
first hour (fractionally below Friday's intraday low), the stock
just continued to bleed throughout the rest of the day, coming
to rest on the low of the day on volume more than 50% above the
ADV.  The key to the play now is that TIN came to rest just
above $38.10, the top of the 10/15 gap.  A drop into that gap
tomorrow should provide a solid entry and a quick drop to fill
that gap on the way to our eventual goal of filling the lower
gap near $35.40.  With sentiment so negative at the end of the
day on Monday, a reflexive bounce in the morning wouldn't be
unexpected.  As long as that bounce fails below the $40 level,
the ensuing rollover is likely to be the best entry opportunity
we see all week.  Lower stops to $41 tonight, as this is just
above the 2-month descending trendline.

*** March contracts expire in less than two weeks ***

BUY PUT MAR-40 TIN-OH OI= 16 at $2.05 SL=1.00
BUY PUT APR-40*TIN-PH OI= 20 at $2.75 SL=1.40
BUY PUT MAY-40 TIN-QH OI= 86 at $3.30 SL=1.75

Average Daily Volume = 370 K



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options,” claims author Larry Spears in his new compact guide book:  

“7 Steps to Success – Trading Options Online”.  

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

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

Nary a Bull In Sight


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_031003.asp



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

Something For Everyone


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_031003.asp


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