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Daily Newsletter, Tuesday, 03/11/2003

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The Option Investor Newsletter                 Tuesday 03-11-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Volume Returns
Readers Write: Anatomy of a crash: Equities vs. Gravity
Futures Markets: Not Like it Seems
Index Trader Wrap: (See Note)
Market Sentiment: Fulfillment
Weekly Fund Screen: Schwab Select List: International Stock Funds


Updated on the site tonight:
Swing Trader Game Plan: Are We There Yet?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-11-2003           High     Low     Volume Advance/Decline
DJIA     7524.06 - 44.10  7642.41  7520.63 1.69 bln   1317/1881
NASDAQ   1271.47 -  6.90  1288.99  1269.90 1.24 bln   1453/1773
S&P 100   406.74 -  2.90   413.63   406.70   Totals   2770/3655
S&P 500   800.73 -  6.75   814.25   800.30
W5000    7610.47 - 61.80  7730.09  7605.42
RUS 2000  347.03 -  0.98   350.77   346.44
DJ TRANS 1942.19 - 40.40  1986.34  1941.50
VIX        38.08 +  0.23    38.39    36.87
VXN        47.43 +  0.40    47.98    46.83
Total Volume 3,117M
Total UpVol    903M
Total DnVol  2,092M
52wk Highs  149
52wk Lows   511
TRIN       1.77
PUT/CALL    .81
************************************************************

Volume Returns

Unfortunately it was down volume. Tuesday was not nearly as
bad as Monday but still the down volume beat up volume better
than 2:1. There was no panic selling. Traders could have best
described it as frustration selling. Frustration that the war
just keeps getting farther away and economy just keeps getting
worse.

Dow Chart - Daily
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_01.gif



Nasdaq Chart - Daily
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_02.gif




Yesterday was the third anniversary of the Nasdaq high of
5132 three years ago and today the Dow, Nasdaq, S&P, OEX,
TRAN and RUT all closed at lows for this year. There was
no panic selling but the consensus of opinion was "I am
an investor, get me out of here". When it appeared the war
was going to begin around the 17th investors had arranged
their positions to take advantage of any post war rally.
They were gulping down antacids as the market continued
to drift lower but confident it would all be over soon.
Today the shift in the potential starting date to April
prompted those same investors started calling it quits.
There maximum pain threshold had been reached and they do
not want to try and hold on for 3-4 more weeks. Support
for the US position continues to erode despite further
evidence of lies and weapons from Iraq.

Helping investors decide stocks were not appealing in a
falling economy was the Wholesale Inventory report. Sales
rebounded slightly but inventories fell -0.2% and pushed
the inventory to sales ratio back to record lows. Nobody
is buying anything on speculation and businesses are
keeping expensive inventory to a minimum. Even worse
was the report from the Richmond Fed showing the top-line
shipments index falling from 18 to zero and new orders
falling from 26 to -16. The backlog of orders fell from
46 to 26. This is not a positive report in any fashion.
Cost pressures, energy prices, excess capacity and lack
of demand is still creating the perfect storm for
manufacturers. Chain store sales posted their strongest
gain in six weeks but it was still less than 1% and
disappointing to analysts. Sales are expected to be flat
for all of March compared to only a +0.8% gain for all
of February. Consumers are obviously not supporting the
economy at retail stores. At least we can count on auto
and home sales. Oops! Sorry, those are down too!

The Transportation index sank to a new seven year low at
1941. This is due to constant pressure from oil prices
and lack of demand for air travel. Shippers are also
suffering from lack of traffic and higher costs. UAL
requested another six months to complete their
reorganization plan and rumors are rampant that they
could change it from Chapter 11 to Chapter 7 which is
liquidation not reorganization. AMR is looking for post
bankruptcy financing and their days until a filing are
numbered. Boeing announced that airplane shipments in
February dropped -33% and Gulfstream dropped its
delivery targets by -9%. Boeing said this will be the
slowest year since 1996. Only four Boeing jets were
delivered to US carriers. The Air Transport Association
said economic fallout from a war could be so severe that
"There is serious risk of chaotic industry bankruptcies
and liquidations and forced nationalization of airlines
was a real possibility."

The US markets are not the only markets suffering from
war fears and a weakening global economy. The Nikkei
fell to another 20-year low at 7862. The FTSE and the
German Dax hit a 7-year low. These are just a few. The
world markets are bleeding cash and that means the US
markets are at risk. If you are a large foreign investor
with cash in multiple markets you have a major cash
management problem. If your home market is hitting
multi year lows then you may need cash to support
those positions or add to them if you expect a rebound
soon. With the US dollar dropping you are at double risk
with your US investments. Market risk and currency risk.
It does not take a rocket scientist to realize that
drawing cash out of US stocks makes sense. This foreign
cash drain is just one leak in our financial dike.

The current market technicals in the US stink. That is
as blunt as I can make it. With everything but the Nasdaq
setting lows for the year and the $TRAN confirming the
Dow drop there is little doubt that we could see the
October lows soon. Unfortunately there is growing
belief that those lows will not hold. If you are an
institutional investor realizing that the war could
still be a month away and earnings warning season begins
in earnest next week and 54% of the S&P has ALREADY warned
for the 1Q then suddenly cash as an investment vehicle
looks great.

The realization is dawning on many investors that it
is the economy, not the war that is dragging the market
down. Any still hoping for a war rally are becoming
increasingly frustrated by the delays and the start
date receding in the distance. If it is the war then
we have another month to wait. If it is the economy
then we are already in deeper trouble than most thought.
Every major sector is full of warnings. Today we got
ANN, MYG, NOK, BBOX, LECO, TSG, X, FLSH and Volkswagen
among others. The warning from NOK was the 5th quarter
in a row and cell phones are one of the growth sectors.
NOK said volume was up but revenue was down due to
strong price cutting to move units. If you don't give
them away nobody wants them.

Adding to the gloom and doom is the worry in the insurance
sector after Warren Buffett warned that a major reinsurer
had stopped paying claims that totaled in the billions
of dollars. The entire insurance sector is suffering
from the potential for hundreds of millions of dollars
in write offs if the company fails. AIG and CB have
been hit especially hard but the entire sector is weak.
Buffett did not identify the company in question.

Tbills hit a low not seen since 1958 and bond yields
continued lower as cash continues to flow into safe
investments despite the low returns. The financial
markets are still reeling from multiple warnings of
a potential financial meltdown from a bursting housing
bubble. After Poole attacked FNM/FRE yesterday there
were several follow on comments about the extremely
high risk due to inflated housing values from the
current bubble. Both stocks rallied after FNM CEO
Franklin Raines rebutted Poole's comments but they
rolled over again Tuesday afternoon. There were
multiple downgrades to the entities based on a
perceived tightening of control by the administration
or a potential ending of their GSE status.

The volume has picked up substantially but cannot be
considered panic sales yet. On Monday we saw a 90%
downside day where down volume was 18 times up volume.
According to market historians this is a real sign
of a market bottom in progress. Unfortunately for the
last 70 years it has taken an average of six 90% down
days to produce a bottom. This usually occurs over
a 30-60 day period. One down and five to go if we
are in an average bear market.

Barton Biggs called the bottom again while saying that
fear, pain, despair and capitulation are all present
but that the US markets were only "fairly" valued. He
feels that massive short covering by hedge funds and
market entry by mutual funds could appear at any time
if they feel the bottom is near. Barton has been
saying that this "bottom building process", which is
analyst speak for I am hedging my bets and we could
still see lower lows, has been underway since late
January.

Dow Chart - Weekly
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_03.gif



There are as many guesses for the bottom as there are
investors and I am not going to pick a number. Everyone
thinks Dow 7200 is the magic number because it is the
October low and every other "support level" since then
has failed. For those counting there has been seven
"lower lows" since 1999 for the Dow. October lows have
been Oct-99 9976, Oct-00 9656, Sep-01 8062, Oct-02 7197.
We will call the Sept-2001 low an October low since we
were headed there already before the attack. Why is the
Oct-2002 low of 7197 any more of a milestone than any
of the other seven lows in this bear market? The only
reason is that optimism runs rampant in the bulls. The
economy is as bad or worse today than it was at any
time over the last three years. I would agree that the
7200 level would and will be key, especially if the
economy was showing signs of a recovery. What little
signs we saw in Jan/Feb have almost completely
evaporated and current analysts have to look at economic
reports with a microscope to find any positives.

We also have the war and the potential impact on the
economy. There is a serious risk of escalated terrorist
attacks once the war starts and the risk that tens of
thousands of troops come home with chemical/biological
injuries or come home in body bags. We have the risk of
negative American sentiment if we go to war alone and
in defiance of the UN. Unfortunately that appears to be
the current outlook. Late news tonight is that President
Bush is preparing a final demand to Saddam to disarm
within seven to ten days or be attacked and that demand
will be delivered on prime time TV on Thursday night.
In effect a declaration of war because we know Saddam
is not going to disarm. This is to be given after a
vote scheduled on Thursday at the UN. Ironically this
may provide some hope to the bulls due to the shorter
time frame but that hope is misplaced for longer term
investors due to the topics discussed above. There are
rumors now that the 42,000 British troops already in
Kuwait will not now fight. The 60,000 American troops
called up last week and currently in route to Kuwait
are a replacement for the British troops. This shows
that it is going to be an American show and even our
staunchest allies are in trouble.

After all the negative points above there is a possibility
for a market rebound due to purely technical conditions.
Stocks have fallen far and bonds are at their highs.
This means most fund portfolios with weighted ratios
are now out of balance. Eventually they will have to
adjust those asset allocations from bonds to stocks
while knowing that there is still a rocky road ahead.
Philosophically selling bonds at five year highs and buying
stocks at five year lows does not take a lot of technical
justification. The problem as you can obviously see is
timing. If the market is still perceived to be going
lower and bonds are continuing to inch slightly higher
then they can wait to pull the trigger until the last
possible minute. That minute would be Dow 7200 to some
but probably the start of the war to others. Either way,
regardless of whether 7200 is the bottom the odds are
good we will see some asset allocation when we hit that
level.

It all boils down to long-term risk versus short
term risk. It is my opinion that this will power any
rebound over the next couple weeks and NOT a belief
that stocks are suddenly a good value. Our challenge
is to not be caught off guard when this process starts.
Typically a sharp dip at the end of several days of
drops is the key trigger for the event. Nobody wants
to wait until the last minute and nobody wants to be
last to board the train. Unfortunately while everybody
is looking for the signal it still catches many by
surprise as it occurs when the gloom and doom is the
strongest. Last October we saw a +1350 point jump in
eight days while most traders were still waiting for
the next dip. Since very tense and irritable fund
managers tend to jump the gun to avoid being late we
need to be continually alert to every bounce. It should
not be hard to spot. It will be the one with real
volume.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


************
READES WRITE
************

Anatomy of a crash: Equities vs. Gravity

The first thing that will make you wrong on the stock market is
to make a prediction in which you're sure you're right. This is
why we attempt to present both sides of the situation and when we
really feel strongly about something, we usually end with the
caveat, "of course we could be wrong as well".

Those who are more acclimated to the market understand examining
both sides of the issue as opposed to those who are newer to the
game and want some definite answers. Sooner or later, all who are
involved, no matter which stance they take, bull or bear, come to
one conclusive agreement: There are no definite answers in the
stock market.

With that in mind, recently we talked of capitulation and a
radical, out of control decline that could possibly occur, which
gave those who are long in the market considerably less than a
confident feeling about the positions they are currently holding.
Let me reassure you that while a crash may very well happen, it
won't happen without it telegraphing that its on its way. Crashes
just don't happen overnight. At least they haven't yet. (There we
go again)

Dow Jones Industrials weekly bar chart
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_04.gif



From 1982 to 1987 the Dow had risen 255%. As you can see, prior
to 1982 it never really rose that far so it didn't really have
far to fall. Since it was basically crawling along a floor, no
matter how high it got, gravity could only bring it back to earth
and no further. The chart ends with the peak of its ascent before
the 1987 crash.
Dow Jones Industrials weekly bar chart
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_05.gif



The Dow hit it's peak during the week of August 28th, 1987. It
pulled back and started it's next ascent during the week of
September 25th. It rose the next week and then the following week
it abruptly fell back to the low it created during the pullback
for a rise higher. The next week when it broke below it's most
recent low was the time to get out. It was signaling a failed
rally.

Dow Jones Industrials daily bar chart
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_06.gif



We move to a daily chart for a closer look. Once the Dow broke
below the most recent low it tried to rally the following day,
but when it appeared the reversal was in process it was time for
longs to vacate their positions. There was plenty of warning and
a person who could read the market would have vacated Monday,
when it violated the previous low. Tuesday was a great exit as it
rallied above Monday, yet it was also a fake out as to what was
on the way. Wednesday was confirmation, Thursday picked up
momentum and Friday was the gap lower. The following Monday and
Tuesday ("Black Tuesday") were true capitulation days. Monday
shook out the weak players and Tuesday brought in the strong ones
that took advantage of lows never to be seen again. Notice the
sharp spike in volume as one day shakes them out and the even
higher volume that follows as the next day brings them in. It
settles back over the next several weeks but by the time the new
year rolled around it was off to the races. The Dow regained all
its lost ground and hit a new high in less than two years.

Dow Jones Industrials daily bar chart
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_07.gif



As you can see, equities had risen so fast there was no
foundation so they just fell over. It was like walking up one
side of a ladder with the other side missing. Once we built the
other side of the ladder we used it to scale to new heights. In
the battle of equities vs. gravity, gravity sooner or later
prevails and the higher they go, the further they fall.

So in answer to the question of being caught unaware during a
market crash, it's highly unlikely. The market had risen 255% in
less than five years, which was strike one. The failed rally was
strike two and the accelerating rate southward was strike three.
It's amazing how once the weak players had struck out, a whole
new team of players stepped up to bat. They most likely were the
same players that stepped aside when the Dow had risen over 200%,
knowing that kind of increase cannot be maintained.

Where does this leave us in the scheme of the current market and
what can we expect in the battle of equities vs. gravity? Let's
take a look at the Nasdaq.

Dow Jones Industrials 1929 bear market vs. Nasdaq Composite 2000
bear market
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_08.gif



http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oimw20030311_09.gif



We've tried to line up the time frames between the bear market of
the 1929 Dow and the bear market of the 2000 Nasdaq. The only
difference we can see between the two is the Dow appears to go
below the prices prior to it's ascent where the Nasdaq has not,
at least yet. Its an unfair comparison however as our data only
goes back to 1920 so we can't really assess the foundation prior
to its rise. If the current bear market mirrors the 1929 bear
market, where are we now in the process of recovery? Does the
blue circle in the lower chart mimic the first blue circle or the
second blue circle in the upper chart? The similarities and
timing, if timing is equal, seem to be favoring the circle at the
end of the bear market. It appears as gravity has taken its toll,
the momentum to the down side has run its course and while we
could still see lower prices it appears as it may be starting to
work its way up.

The hard part about dealing with the market is trying to fill in
the blanks and obviously there are a lot of blanks to be filled.
But if we apply clues from historical events that mirror current
events it may give us an edge towards predicting the future. The
fact is, our economy is not recovering as many would like,
unemployment is on the increase, bankruptcy and foreclosures are
at 30 year highs, debt is climbing and there is talk of debt
deflation. Debt deflation occurs when debt levels are
unmanageable. Money that could be spent on investment in business
is spent on debt instead.

Japan in the 1990's suffered debt deflation first, price
deflation followed and the Nikkei just closed at a 20 year low.
It's interesting that the United States went through the same
scenario in the 1930s and currently we have the highest levels of
debt relative to GPD since 1933. But look at what happened to the
Dow in 1933. Regardless of our immediate circumstances at the
time which included a dismal economy and an 89% drop in the stock
market which took a tremendous toll psychologically as well as
economically, one can assume employment didn't bounce right back
and there wasn't a lot of real good feelings about a recovery.
Kind of like the feeling there is today.

The Nasdaq has lost 78% of its value as opposed to 89% in the
crash of 1929. Are we doomed for another 11%? Time frame wise we
are at about the same place the Dow was when the recovery
started. Again, mixed signals, so which do we pick? We have a
volatility index that could go either way so that is mixed as
well. The one thing that we do have going for us is that it
appears gravity has used up almost all its effect. We have
definitely built the other side of that ladder. Whether
construction has been completed remains to be seen.

If we should have a downside of another 10 to 15 percent, the
long term investor is probably looking at that as "Big deal,
that's very little downside risk to almost certain tremendous
long term potential, so why not jump in now because no one ever
times the market perfectly." With that type of attitude maybe
they are timing the market perfectly and the rest of us who are
waiting for the perfect timing will be the ones to realize that
no one ever times the market perfectly and we were the ones who
missed it.

As always this is just food for thought, but the market is not
falling and every time we think it should it keeps finding an
underlying bid. Maybe its because while we're thinking the food
is pretty bitter a lot of others are taking some fairly big
bites.

Rick Utt


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

Not Like it Seems
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_01.gif



Daily Pivots
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_02.gif



The markets opened mixed, but mostly flat, appropriate gaps were
filled, and a bullish bias quickly showed up.  For a moment it
looked like the Wholesale Inventory report would let the steam
out of the market with numbers falling below forecasts, but
inside the report it showed Durable Goods gains when compared to
previous months data.   A second push up gathered some momentum,
with ES and YM coming up to yesterdays highs, and with NQ
exceeding those highs.  This pattern followed throughout the day
with NQ’s generally outperforming the SPX and Dow based futures,
which both made new yearly lows.  NQ did not come close to
exceeding the Feb 13 lows, although they too closed near the lows
of the day.

While there is no question that the markets are leaning bearish,
we are getting somewhat oversold and nearing some strong support.
The 60 minute chart of the YM shows some bullish divergences
showing up in the midst of all the selling as we approach these
support areas:

Chart of the YM 03H contract:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_01.jpg



Those divergences that show on the YM are not evident on the ES,
although ES is closer to 60 minute support due to the heavier
overall selling these past couple of weeks.

Chart of the ES 03H contract:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_02.jpg


On the 60 minute NQ chart, there is also no positive divergence,
nor any hint of turning up from the current selling.  For all
three of the NQ, ES, YM, it looks like we will need a minimum of
2 hours of reversal in order to turn the current indicators off
their bearish stances.

Chart of the NQ 03H contract:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_03.jpg


Looking at the 270-minute charts, I can see that, although
indicators are nearing some fairly oversold areas, there are no
extremes, echoing that there really has not been any panic
selling.    The 270 minute charts follow.

The 270-minute chart of the S&P Futures (ES03H):
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_04.jpg



The 270-minute chart of the NASDAQ Futures (NQ03H):
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_05.jpg



The 270-minute chart of the Dow Futures (YM03H):
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-11/oifw20030311_06.jpg




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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_031103_1.asp


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

Fulfillment
by Steven Price

The bulls huffed and puffed and snorted a little, following more
news on the geo-political front that seemed to favor yet another
delay in a U.S. invasion of Iraq. Pakistan's decision to abstain
from the U.N. vote and the apparent softening of the U.S. March
17 deadline led to a morning rally right up to intraday
resistance from Monday just below Dow 7650. From there it was the
bears' turn, as they stepped in and slammed the market for 100
points in the opposite direction.

Just when it looked like we were going to take out last July's
low of 7532 and head toward a re-test of the October lows around
7200, the bulls stepped back in to defend that July level.  For
those following the pivot analysis we've been using in our swing
trade and index trade models, the support at the daily and weekly
S1s also coincided with that July low.  The weekly S1 of 7541 was
the closest support level to the morning bounce off 7540.73 and
suggests a confluence of support factors. Of course the afternoon
rollover below those levels is important as well.  The weekly S2
sits at 7342. Another of those factors is the head and shoulders
pattern that we have seen form across the broader market indices.
The Dow in particular is what I am looking at today, as it was
the index that behaved most closely according to script over the
summer and fall of 2002.  Between July and September, the Dow
formed a bearish head and shoulders pattern that carried with it
a downside objective just below 7200 (7180-7190).  When it broke
its neckline around 8250 in September, it was pretty much a
straight shot down to a low of 7197 on October 10.  Once that
level was achieved, the next move we saw was a powerful rally all
the way up to 9000.  It did pause along the way, finding
resistance at 8800, but by the end of the rally, we had seen a
gain of 1800 points.

That resistance at 8800 was important in that it was the
beginning of another head and shoulders pattern.  The pause at
8800 and then pullback to 8300 formed a new left shoulder, with a
subsequent head at 9043.  After yet another pullback to 8300, the
right shoulder was formed on the subsequent rally to 8869.  I can
label this a definitive head and shoulders pattern because we
then rolled over and broke a neckline at 8200. I've posted this
chart in the Swing Trade Wrap for those readers who would like to
see it. The key to any useful H&S pattern is targeting the move
that results from the neckline break. In this case, the objective
of the pattern was right around Dow 7500.  Our closing low of
7524 was awfully close to achieving this objective and the bounce
from this level, as well as the above referenced S1s ought to be
a sign that the bulls are putting up a fight in this region.

Also note the point and figure bearish vertical count on the Dow
of 7100 is down near the October low.  The objective in the OEX
is 390.  The Dow Diamonds, however, have a bearish count of 75
and that would correlate to a Dow trade of 7500, as well.

Back in October, it seemed the sky was falling and there was no
real reason to go long.  However, we rallied 26% in the Dow and
those traders looking to pick a rally top to short along the way
took an awful lot of pain. At that time, we also saw similarly
extended bullish percents, which had fallen dramatically from
August highs. Those bullish percents in the Dow, OEX and SPX are
not yet as low as they were in October, however, they are getting
close and all have entered oversold territory.  The October drop
also did not see bullish percents as low as they were in July,
although the markets actually dropped further.  What's more, the
October-November rally came during an earnings period in which we
got repeated warnings from the tech sector and companies that
consistently missed forecasts.

I am not trying to say that any trader should be going long at
these levels. However, those traders who can't see any reason not
to go short need to be aware of the technical factors that could
pose some barriers as the prospect of war grows closer.  How does
the war figure into all of this?  It is really anyone's guess.
Many traders are expecting a big rally once the bullets start
flying, much like we saw in 1991. However, at that time, the
speed of victory was not necessarily known.  This time we are
expecting a short war and yet the market is still dropping.  We
may continue that drop right through the H&S objective and with
no obvious reasons to buy the current levels, bears may yet get a
test of the October lows.  However, the snap back rallies have
had legs and those traders still getting in short (or maintaining
short positions) should be giving extra thought to their risk
profiles and where they want to place their stops.

We did not get a big turnaround rally off the H&S objective test,
like we did in October, but we have not quite achieved that
objective, either.  Back in October, the SPX and OEX did not
achieve their objectives, even though the Dow did. We are in a
similar position now, with the Dow very close, but the OEX
objective sitting just below 400 and the SPX sitting around 790.
That's not to say they aren't close, just not as close as the
Dow.  Traders will want to put these levels on their radars and
tighten their stops as we get close.  Some bounce can be
expected, so a small one will not necessarily signal a major
reversal.  However, if that bounce starts to get some legs and we
see an upturn in the bullish percents, it may be time to readjust
our thinking, just as we should have in October. It is hard to
make a case against shorts, with the weakness of today's bounce,
in relation to the recent slide.  However, I felt that way in
July and October, as well. The trend is still down, I am just
raising the risk alert for bears from yellow to orange.

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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  7524

Moving Averages:
(Simple)

 10-dma: 7741
 50-dma: 8144
200-dma: 8512



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  800

Moving Averages:
(Simple)

 10-dma:  825
 50-dma:  862
200-dma:  901



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  959

Moving Averages:
(Simple)

 10-dma:  984
 50-dma: 1006
200-dma: 1000



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


S&P Banks Index (BIX): The BIX and BKX have been in free fall
mode, taking both regional and international banks down with
them.  The indices have both broken down below February lows and
could see as much as a 10% decline from these levels before
testing support at the October lows. It will be hard to get any
type of market bounce without the financials participation and
right now those financials show little signs of a bounce for some
time. Watch this sector closely, as heavyweights BAC, C, JPM, and
CMA have all dropped hard and are approaching vacuums of support.
The broker dealers, represented by the XBD, are also falling
fast, with GS, MWD, LEH, MER and BSC all heading lower.  Shorts
looking to get involved here can put any of these on their radar
and see a similar chart, but some are more broken down than
others.  Look for those that have already given up February lows
as the best short candidates.

52-week High: 331
52-week Low : 236
Current:      258

Moving Averages:
(Simple)

 21-dma: 271
 50-dma: 278
 200-dma:287

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


The VIX rose only slightly today, and is slowing its ascent as we
near 40%.  That key level has signaled short-term bounces, with
highs between 40 and 41, but never a close above 40%. At least
not since October, when we were rebounding from multi-year lows
in the Dow/SPX/OEX. If we do manage a close above 41%, it may
signal further weakness, as institutions will not have taken
advantage of those elevated levels to sell premium and collect
time decay.

CBOE Market Volatility Index (VIX) = 38.08 +0.23
Nasdaq-100 Volatility Index  (VXN) = 47.53 +0.50

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        444,918       360,712
Equity Only    0.66        294,904       193,392
OEX            1.00         25,615        25,680
QQQ            1.45         18,759        27,233


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

Bullish Percent Data

           Current   Change   Status
NYSE          36.6    - 1     Bull Correction
NASDAQ-100    31.0    - 2     Bear Confirmed
Dow Indust.   10.0    - 3     Bear Confirmed
S&P 500       28.8    - 2     Bull Correction
S&P 100       23.0    - 3     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  2.07
10-Day Arms Index  1.86
21-Day Arms Index  1.52
55-Day Arms Index  1.43


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       1115          1720
NASDAQ     1391          1679

        New Highs      New Lows
NYSE        62              215
NASDAQ      36              101

        Volume (in millions)
NYSE       1,657
NASDAQ     1,212


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

Commitments Of Traders Report: 03/04/03

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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******************
WEEKLY FUND SCREEN
******************

Schwab Select List: International Stock Funds

Week three of our Schwab Select List fund review takes us to the
world of international stock funds, which seek long-term growth
by investing in securities markets throughout the world so that
if one market is in a slump, profit can still be made in others.
There's no guarantee that international stock funds will provide
any significant diversification benefit against downside risk in
the U.S. stock market, but such funds do offer the "opportunity"
to make money when U.S. stocks falter and to surpass U.S. market
returns in a rising global market.

In addition to being on top of trends in the world markets, fund
managers in the international group must also be alert to trends
in foreign currencies since local-currency returns are converted
into dollar-equivalent terms for NAV calculation purposes.  Some
managers partially hedge their currency exposures (using futures
and options) to protect their portfolio against material adverse
swings in currency rates.  The more a manager hedges a portfolio
back to the dollar, the less potential diversification it offers
against downside U.S. risk since its fortunes become more linked
to the U.S. economy and market through changes in the dollar.

As a general rule, we like managers that selectively hedge their
currency exposures to protect the portfolio or to add value, but
my experience has shown me that manager decisions are not always
right here.  Thus, we prefer managers that do not generally make
big currency bets and achieve growth through strong research and
security selection.  We also prefer managers that don't make big
regional or country bets in relation to their respective foreign
stock index benchmarks.  In most cases, that means the MSCI EAFE
index of developed foreign markets, which represents the markets
of Europe, Australia/New Zealand, and Far East (including Japan).

International equity funds generally play a "supporting" role in
an investor's long-term financial plan.  Investors often make an
initial investment in a large-cap U.S. stock fund (week 1 of our
Select List review) then add a mid-cap or small-cap fund (week 2)
to increase total return potential and attain broader U.S. stock
exposure.  Investors may also decide to add a foreign stock fund
to diversify their U.S. equity exposure and to tap the potential
of the world's developed and developing markets.  It's common to
see the following recommended asset mix to achieve optimal risk-
reward for the equity portion of one's long-term financial plan:

 Percentage of Money Invested (Example):
 60% Large-Cap U.S. Stock
 20% Mid/Small-Cap U.S. Stock
 20% International Stock

You may decide on a different equity allocation but that stock
allocation is a fairly common one followed.  If you decide the
60%/20%/20% allocation is right for you, then you will need to
create your own custom index benchmark, such as the following:

 Custom Index Benchmark (Example):
 60% Large-Cap U.S. Stock (S&P 500 Index)
 20% Mid/Small-Cap U.S. Stock (Wilshire 4500 Index)
 20% International Stock (MSCI EAFE Index)

Now you may be wondering, where do I get the index information?
That's simple, use Vanguard index funds.  For example, you can
use the Vanguard 500 Index Fund for the S&P 500 Index, and the
Vanguard Extended Market Index Fund for the Wilshire 4500 index.
For the MSCI EAFE index, you can use Vanguard Developed Markets
Index Fund.  So it's easier than you may think to track the U.S.
and international markets.

Screening/Evaluation Process

As in the past two weeks, we began our screening and evaluation
process using Schwab's Select List as our starting point.  Then,
we entered the fund symbols into Morningstar's Fund Compare tool
online at www.morningstar.com in order to evaluate these Select
List funds based on return, risk and expense, and other factors,
such as investment style and manager tenure.  There were twelve
international stock funds on the Schwab Select List, identified
below for your convenience.

 Schwab Select List: International Stock Funds
 Julius Baer International Equity A (BJBIX)
 William Blair International Growth N (WBIGX)
 Artisan International (ARTIX)
 Masters' Select International (MSILX)
 Oakmark International I (OAKIX)
 Atlas Global Growth A (AGRAX)
 Schwab International MarketMasters (SWOIX)
 UMB Scout Worldwide (UMBWX)
 Dreyfus International Stock Index (DIISX)
 American Century Global Growth Inv (TWGGX)
 Longleaf Partners International (LLINX)
 Oakmark Global I (OAKGX)

The Morningstar Fund Compare tool is a valuable asset because it
allows you to quickly evaluate funds against one another, to see
which have the best returns, highest ratings, and lowest expense
ratios, etc.  We inputted these 12 fund symbols into the Compare
Tool and looked at the Snapshot View, the default screen you see,
which shows the fund's Morningstar Category and Star Rating, and
its Expense Ratio.

Three of the funds on the list, American Century Global Growth A,
Atlas Global Growth A and Oakmark Global I are world stock funds,
which invest in securities markets throughout the world including
the United States.  The other nine funds are foreign stock funds,
which generally exclude investments in U.S. stocks.  World stock
funds offer less potential diversification benefit against stock
declines in the States, since a significant portion of assets is
U.S. holdings.  But, they are a little safer than foreign equity
funds since they generally stick a little closer to home and cut
down some of the additional risks that are associated with stock
investments abroad (political risk, currency risk, among others).

We eliminated two funds based on their 3-star Morningstar rating,
which meant "average" risk-adjusted returns relative to category
peers.  They were American Century Global Growth and the Dreyfus
International Stock Index Fund.  While large-cap U.S. funds have
a hard time beating the S&P 500 index, international stock funds
have a little easier time topping the broad indices because they
can manage currencies and other risks and exploit inefficiencies
in world markets (where they exist).

Four funds currently have Morningstar's "highest" 5-star overall
rating, leaving six funds with "above-average" or 4-star ratings.
Below is a summary of the 10 remaining funds with their category
ratings based on risk-adjusted return performance over different
time periods, giving greater importance to long-term performance.

 Morningstar Overall Ratings:
 5 Stars  Julius Baer International Equity A (BJBIX)
 5 Stars  William Blair International Growth N (WBIGX)
 4 Stars  Artisan International (ARTIX)
 4 Stars  Masters' Select International (MSILX)
 4 Stars  Oakmark International I (OAKIX)
 4 Stars  Atlas Global Growth A (AGRAX)
 4 Stars  Schwab International MarketMasters (SWOIX)
 4 Stars  UMB Scout Worldwide (UMBWX)
 5 Stars  Longleaf Partners International (LLINX)
 5 Stars  Oakmark Global I (OAKGX)

So, overall, a pretty good starting place in your search for an
international stock fund.  Schwab's International MarketMasters
Fund (SWOIX) has a 0.50% expense ratio, the lowest of the group.
Longleaf Partners International Fund (LLINX), on the other hand,
has the highest expense ratio of 1.82%.  Above-average expenses
hasn't slowed the Longleaf Partners' fund down, however, as its
5-star Morningstar rating indicates.  International stock funds
can cost more to operate annually than similar U.S. stock funds,
but if returns compensate you for the risk and cost of the fund,
then all is good.  Morningstar's ratings take both into account.

The Snapshot View also gave YTD 2003 return performance, and we
looked to see which were holding up better.  Four funds were in
fact doing a better job of limiting YTD losses than their peers:
Julius Baer International (-8.3%), William Blair International
(-7.4%), UMB Scout Worldwide (-6.8%), and the American Century
Global Growth Fund (-7.9%), which we excluded earlier, but want
to reconsider now based on capital preservation.  Those numbers
compare to a 10.2% YTD loss by the average international equity
fund and a 9.3% YTD decline by the average world stock fund per
Morningstar.  Those four offerings have also been less volatile
than similar funds over the past three years, using Morningstar
standard deviation values.  The two Oakmark funds, on the other
hand, had the highest standard deviations among the funds (high
relative risk).

Next, we looked at the Performance View to see which funds have
shown consistent, strong returns compared to their peers.  Here,
we found that the UMB Scout Worldwide (UMBWX), Oakmark Global I
(OAKGX) and Oakmark International I (OAKIX) had perhaps the most
consistent and strongest returns over the last three years.  The
trailing 3-year returns for the Longleaf Partners' International
Fund (LLINX) have also been strong, but maybe not as consistent.

Looking at trailing 5-year returns, we see that six of the funds
on the list produced average annual total returns that ranked in
their relative category's top decile (10%).  Two more funds were
ranked in the second decile within their category, while 3 funds
hadn't been around the full five years and had no 5-year rating.
Only one fund, Dreyfus International Stock Index Fund, ranked in
the lower half of their category, and we had already excluded it.

Below is a summary of the eight funds with trailing 5-year annual
return information through March 10, 2003 using Morningstar data.

 Trailing 5-Year Annualized Returns & Rankings:
 +5.4%  Julius Baer Int'l Equity A (BJBIX) 2nd Percentile
 +4.1%  William Blair Int'l Growth N (WBIGX) 3rd Percentile
 +1.7%  Artisan International (ARTIX) 5th Percentile
 +0.1%  Masters' Select International (MSILX) 8th Percentile
 -0.3%  Oakmark International I (OAKIX) 9th Percentile
 +1.3%  Atlas Global Growth A (AGRAX) 7th Percentile
 -0.8%  Schwab Int'l MarketMasters (SWOIX) 11th Percentile
 -2.0%  UMB Scout Worldwide (UMBWX) 16th Percentile

The Longleaf Partners International (LLINX) and Oakmark Global I
(OAKGX) funds, which are both Morningstar 5-star rated, are less
than five years old.  The two standouts over the past five years
have been Julius Baer International Equity A (BJBIX) and William
Blair International Growth N  (WBIGX).  Both funds have produced
decent positive returns on an annualized return basis during the
past five years compared with an annualized loss of 6.1% for the
Morningstar foreign stock fund average.  The average world stock
fund lost an average of 5.3% a year over the same period, so all
of the above funds have performed relatively well for the recent
5-year period.

Next, we went to the Nuts & Bolts View and looked at each fund's
minimum initial investment, expense ratio, and management tenure
to see if any funds were cost prohibitive; and while we like the
Longleaf Partners International Fund, it requires a $10k minimum
initial investment for both regular accounts and IRAs.  It comes
with an above average expense ratio of 1.80% also, so it may not
be for everyone.  Six of the funds on the list had managers that
have served seven years or more as the fund's portfolio manager,
as follows:

 Longest Manager Tenures:
 10 Years  David Herro, Oakmark International (OAKIX)
 10 Years  James Moffett, UMB Scout Worldwide (UMBWX)
  8 Years  Richard Pell, Julius Baer International (BJBIX)
  7 Years  Mark Yockey, Artisan International (ARTIX)
  7 Years  William Wilby, Atlas Global Growth A (AGRAX)
  7 Years  W. George Greig, William Blair Int'l (WBIGX)

Lastly, in the Portfolio View, we looked to see where these fund
managers had the fund's money invested as of their latest report.
Interestingly, most of the funds on the list now shown a "growth"
style bias, although some of them have value disciplines when it
comes to making investment purchases for the fund.  Sometimes, a
successful fund moves from Morningstar's value style box into the
growth style box as the stocks reach and exceed their fair market
or appraisal value.  Some of the funds have lower turnover ratios
than others.

In the conclusion, we tell you which funds we favor the most now.

Conclusion

There are several funds on this list that we like, but if we had
to choose a couple funds for a long-term financial plan, we like
the jobs that David Herro (Oakmark International Fund) and James
Moffett (UMB Scout Worldwide Fund) have done for the past decade.

David Herro's performance in the last 12 months may have slipped,
but his long-term record remains strong.  For the 10-year period
as of February 28, 2003, Herro produced an average annual return
of 7.3%, 4.3% more each year on average than the MSCI EAFE index
benchmark and ranking in the top decile of Morningstar's foreign
stock category.  Herro buys stocks that are cheap and overlooked
by the market, and then waits until the stock reaches its market
or appraised value.  The low relative prices of underlying stock
holdings help to reduce risk though the fund's buy-hold approach
can sometimes result in a bumpy ride.  The $1.7 billion fund has
been co-managed by Michael Welsh, since November 1995.  For more
information, go to the www.oakmarkfunds.com website.

Moffett, UMB Scout Worldwide Fund will reach the 10-year mark in
September 2003.  From inception through December 31, 2002, Scout
Worldwide Fund (now part of the UMB fund family) has produced an
average annual total return of around 7 percent for shareholders.
Moffett's favors established companies either located outside of
the U.S. or whose primary business is carried on outside the U.S.
Accordingly, it would be a good diversifier for a portfolio that
consisted mainly of U.S. stocks and funds.  For more information,
go to www.umbscoutfunds.com website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Are We There Yet?

We have reached a point where the rubber meets the road once again
in the broader markets and we should know soon whether the bears
are running into a yield sign or a red light.


To read the rest of the Swing Trader Game Plan Click here:
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The Option Investor Newsletter                  Tuesday 03-11-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

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


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

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


CALLS:
*****

BDX $32.28 -0.55 (-1.68 for the week) BDX has begun to rollover
form its breakout high two weeks ago and has now set a lower low
on Monday and Tuesday's broad market sell-off. Unfortunately the
stock has not been strong enough to hold up in the face of the
sinking tide, falling below its 21-dma, which now sits at $33.10.
The 50-dma at $31.98 was our original stop on the play and
traders who would like to give it a little more time to bounce in
the case of a broader market rally may want to leave the stop at
that level.  We are going to let this one go, as the trend we
were trying to capture has fallen prey to overall weakness across
the board.

---

EXPE $33.78 -0.55 (-1.42) Chalk this one up to a poor choice.
We were looking for EXPE to hold support and then rebound
following the split.  We got the pullback over the past couple
days, but not even the slightest hint of a rebound, as the stock
went out right on our $37.50 stop on Tuesday.  In retrospect,
it looks like the strength seen in recent days was in large part
due to anticipation of the split, and now the impetus to drive
the stock higher is gone.  Since we wanted to wait for a
post-split rebound from support to initiate new positions, there
wasn't an opportunity to enter the play, and we're going to
drop it tonight in favor of better candidates.


PUTS:
*****

BBOX $39.14 +0.38 (-0.44) Those stubborn bulls, they just won't
let BBOX fall.  It was looking like we might finally get a
breakdown yesterday, with the stock once again testing the
$38.50 level.  But there just wasn't any downside conviction
on Tuesday, with BBOX tracing its second consecutive inside
day.  Whether the current pattern of consolidation breaks to
the upside or downside, one thing seems clear.  The downward
momentum has halted at an important level of support.  Rather
than risk a strong move against us, we're going to close the
play tonight for a marginal gain.  Use any weakness tomorrow
morning to exit open positions.

---

MHK $44.93 +0.08 (-1.34) MHK has actually been pretty good to
us over the past couple weeks, rolling over right at resistance,
and then breaking lower from that neutral wedge a week ago.
Since then, the stock ground lower all the way to our $44-45
target zone, where it spent most of the day on Tuesday.  While
it is certainly possible to see lower levels ahead, it seems
prudent to close the play tonight for a healthy gain.  Traders
still holding open positions should either close out on any
weakness tomorrow, or lower stops to no higher than $46.05,
just above yesterday's opening high.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     55.00   -0.06  -0.10  Holding gains
BDX      32.28   -1.07  -0.55  Drop, market weakness
EXPE     33.78   -0.20  -0.55  Drop, Never entered
MME      35.89   -0.73  -0.73  back to support
SLAB     26.18   -0.25  -0.82  Outperforming SOX
ZMH      43.77   -0.74  -0.64  Channel bottom


PUTS

BAC      65.63   -1.41  -1.21  New, new low
BBOX     39.14   -0.54   0.38  Drop, sideways
LLY      53.70   -0.84  -2.30  New, no support
MHK      44.93   -1.15   0.08  Drop, Profits
PII      44.37   -1.20  -0.63  slow but sure
TIN      37.42   -0.70  -0.88  nice start
UTX      54.23   -0.28  -1.74  Exposure everywhere
VZ       32.41   -1.32  -0.34  lower low
XL       65.17   -2.13  -1.71  sinking fast


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

AMGN $55.00 -0.10 (-0.70) While we wouldn't exactly call AMGN's
behavior this week bullish, as the stock pulls back from last
week's test of the $56 resistance level, compared to the rest
of the market, this Biotechnology giant is still looking awfully
good.  We knew there was going to be a fair amount of overhead
congestion to work through in this play, and that was the primary
reason behind our avoiding entries on breakouts.  Instead, we've
been looking to open new positions on successful rebounds from
support, most notably the rising trendline that has now moved up
to $53.30.  While a dip back to around the $53.50 level would
certainly be a gift of an entry point, the way the stock has
held up in the face of the weakness both in the broad market and
in the BTK index, it seems unlikely that we'll be so fortunate.
So for traders still looking for an entry into the play, the most
likely area to consider new positions would be on a dip and
rebound from the vicinity of the $54 level, which is prior
resistance, as well as the site of the 20-dma.  Raise stops to
$53.25.

---

MME $35.89 -0.73 (-1.46) Last Thursday's euphoric ramp job in
shares of MME is still unexplained, and Friday's consolidation
session actually looked fairly encouraging.  But this week isn't
off to such a great start, having given back all of last
Thursday's gains and slipping back under the $36 level this
afternoon.  While that doesn't look good, the uptrend in the
stock hasn't been broken yet, and we're sticking with it,
keeping our stop in place at $35.  A rebound from above that
level can still be used for entries into the play, as such a
bounce would confirm the prior resistance level as new-found
support.  However, we don't want to try catching a falling knife,
if the bounce doesn't materialize.  A rebound from above $35.25,
(our original trigger for the play) can be used for aggressive
entries, while more conservative traders will want to wait for
that rebound to clear $36.25, getting above this afternoon's
resistance.

---

SLAB - $ 26.18 -0.82 (-1.36 for the week) Signs of weakness.
SLAB had been one of the few chip stocks really standing out from
the crowd by bucking the prevailing trend in both the broader
markets and in the chip sector itself.  It looks like SLAB's
armor is finally starting to crack and shares dropped to the $26
level before bouncing off its lows toward the session close.
Intel, the sector leader by market cap, is rolling over and
appears headed for a retest of its support at $15.00.  Meanwhile,
the SOX has closed once again below the 280 mark, which has been
very clear short-term support.  Should the index follow through
on this breakdown tomorrow, then the tech group will likely
follow suit and SLAB will probably close under the $26 mark.  If
the SOX does fall, we would look for its next support level to be
the 260 level.  Shares of SLAB should have support at $25.00 and
again at $24.00 but we have a stop loss at $25.74 - our breakeven
point.  We would not recommend new plays at this time given the
current market environment and SLAB's new display of weakness.

---

ZMH $43.77 -0.64 (-1.44 for the week) Zimmer has been fighting a
sinking tide the past couple of days, pulling back after finally
cracking the $45 barrier on a closing basis.  It dropped $0.64
today, but remains solidly within its ascending channel and may
simply be providing us with a better entry point.  Buying a
breakout to new highs in a bearish market is always a risky
proposition and getting in on a pullback to a higher low is
usually the most profitable strategy. Today's pullback to  $43.77
found support at the bottom of a rising regression channel begun
in late January and looks to be that higher low.  The company
began selling its Trilogy Acetabular System Constrained Liner
system in the U.S. today.  The product recently received FDA
approval and the product, which helps prevent dislocation in
replaced hips, allows physicians to simply add it to an existing
structure in a revision surgery.  According to Zimmerman Chairman
Ray Elliott, "The revision hip market is one of the fastest
growing segments in orthopaedics, with procedure growth of nearly
15%, and this addition gives us a comprehensive offering for
acetabular revision." Aggressive traders can play the bounce from
the bottom of the channel, while more conservative traders may
want to wait for a move above today's high of $44.72 for proof of
a bounce.


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

None


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

PII $44.37 -0.63 (-2.36) There wasn't much for the bulls to
rejoice about on Tuesday, as the broad markets failed in their
attempt to retake even a portion of Monday's losses.  Every
sector of the market ended in the red, so it should come as no
surprise that our PII play broke down to close at yet another
52-week low.  With the benefit of hindsight, it is now clear
that last Friday's short-covering bounce was a gift of an entry
into the play, as PII once again stalled at the 10-dma (now at
$46.62) and rolled sharply lower.  As late as 2 hours before
the close on Tuesday, it looked like the bulls might toe the
line and hold PII above the $45 level, but then a fresh wave
of selling came in.  That final push lower took PII through
that support and completely filled the October 10th, 2001 gap
and it now looks like the stock will fulfill our downside
target of $42.50, the next level of historical support.  This
close to our target, we aren't recommending new positions unless
we get a failed rebound below the $46 level.  This play is now
primarily about managing open positions, by continuing to move
that stop lower.  We're lowering our stop to $46.75, just above
the top of Monday's gap and the 10-dma.  Should we get a quick
downdraft to the $42.50-43.00 area, that would be a prime
opportunity to close open positions and harvest those gains.

---

TIN $37.42 -0.88 (-2.32) After nearly 3 weeks of consolidating
between $41.50-42.50, shares of TIN started to break down last
week and if anything, that breakdown is now really starting to
pick up speed.  After we began coverage of the play, TIN gave
us a rebound back to the $40 level last Friday, making for an
ideal entry into the play, before the sharp losses seen so far
this week.  This morning, TIN broke into the gap left behind
on October 15th, and by the end of the day, that gap was nearly
filled.  The bottom of that gap is at $36.89, so we need to be
on the lookout for a bounce, once that gap is filled.  But
with the heavy volume seen over the past couple days, it looks
like our lower target of $35.40 (filling in the October 11th
gap) is quite achievable.  Any sort of oversold rebound that
stalls in the $39.00-39.50 area looks good for new entries.
We're lowering our stop tonight to $40.25, just above Friday's
intraday high.


---

UTX $54.23 -1.74 (-2.89 for the week) UTX has not been able to
catch a break.  The defense sector has continued to head lower,
in spite of the prospect of war with Iraq drawing ever closer.
It's not just UTX that hasn't been able to sustain any type of
rebound.  Most defense contractors have taken it on the chin,
with the Defense Index (DFI) heading to new all-time lows almost
every day. While the DFI did finally see a bit of a bounce today,
UTX caught an arrow from yet another area of exposure, the
commercial airline sector.  Delta Airlines announced late Monday
that it expects negative cash flow for the current quarter, which
was a surprise after the airline had said it previously expected
slightly positive cash flow.  The airline blamed soft traffic and
bookings on the geo-political situation and said, "Current
geopolitical uncertainties have weakened the already depressed
revenue environment more than initially expected."  Continued
softness in the airline industry is anything but bullish for
aircraft engine demand, which directly affects UTX. That appears
to be the catalyst for today's drop, in spite of the Dow heading
higher for at least parts of the day.  UTX never participated in
the rally and when the Dow finally gave up its gains, UTX (a Dow
component) simply extended losses, finally taking out its next
support of $55. While there is some pullback support at $54 from
October, the next significant level appears to be just below $50.
We'll continue to target $50 on the play and aggressive traders
can play the break below $55.

--

VZ $32.41 -0.34 (-1.65) It certainly hasn't been a good start
to the week for Telecom stocks, but that's good news for us and
our VZ play.  The North American Telecoms index (XTC.X)
decisively broke below the $400 level yesterday and extended
that slide today.  VZ followed suit, breaking the $33 support
level on Monday and extending its slide today, almost touching
the $32 level before a bit of short-covering at the close.
Clearly, the bearish trend is still intact, as the stock
continues to be pressured by the broader market, continuing its
pattern of lower highs and lower lows.  While we're certainly
getting closer to our target of $29-30, risk of a real
short-covering bounce is increasing as well.  There's certainly
nothing wrong with conservative traders harvesting gains near
current levels, but we'll just continue ratcheting our stops
lower.  The 10-dma has now fallen to $34.09, and the descending
trendline is now at $34.37, just above the pivotal broken
support at $34.25.  A failed rebound below the $34.25 level can
be used for aggressive entries, but we're focusing more on
managing open positions, rather than advocating new entries.
Lower stops to $34.25 tonight, and consider using a drop to
anywhere below $31 as an opportunity to harvest gains on the
play.

---

XL $65.17 -1.71 (XL -3.83 for the week) Capital has continued the
slide since we picked it at $68.50.  We got the failed rally at
$70 for entries and it has been an ugly couple of days after some
sideways movement. While there has not been company specific news
behind the recent drop, the insurance industry as a whole has
been getting hit hard.  The S&P Insurance Index (IUX), which had
been slowly sliding lower since bouncing off of the 220 level in
early February, gave up that support in grand fashion on Friday
with a 10 point drop.  The IUX extended those losses today and
headed down to yet another 52-week low after giving up 2.2% and
taking XL along for the ride.  Other major insurers that are also
seeing new relative lows are AIG and CB, with AET getting in on
the slide as well.  Traders looking for more shorts in the sector
may want to stick these stocks on the radar as well. A look at
the PnF chart shows the last sell signal in XL coming at $69 and
the nearest support at $57.  That support is now history and the
next level that looks apparent is all the way down at $59, which
correlates to the July 2002 lows.   Momentum traders can look for
entry on a break below $65. With a close of $65.17, we may get a
bounce off $65 and the best entries may come on a failed bounce
below today's intraday resistance at $66.75.


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

BAC - Bank of America - $65.63 -1.21 (-3.38 for the week)

Company Summary:

One of the world's leading financial services companies, Bank of
America is committed to making banking work for customers and
clients like it never has before. Through innovative technologies
and the ingenuity of its people, Bank of America provides
individuals, small businesses and commercial, corporate and
institutional clients across the United States and around the
world new and better ways to manage their financial lives. The
company enables customers to do their banking and investing
whenever, wherever and however they choose through the nation's
largest financial services network, including approximately 4,400
domestic offices and 13,000 ATMs, as well as 30 international
offices serving clients in more than 150 countries, and an
Internet Web site that provides online banking access to 4
million active users, more than any other bank. (source: company
website)

Why We Like It:
The financial sector has been leading the broader markets lower,
with BAC as one of the bigger torchbearers in recent sessions.
The stock actually held up pretty well over the past couple of
months, stuck in a range between $66.50 and $70 for most of the
first quarter.  It's most recent bounce came last Friday, when it
eeked out a gain just above its converging 21-dma and 200-dma,
but was unable to crack the 50-dma.  That rally was short lived,
with those converging averages providing a ceiling on Monday.
The rollover continued today, as BAC lost $1.21 and traded down
to its lowest level since last October, finally falling through
the support that has held it since November.   The breakdown
mirrored many other stocks in the sector, with the sector indices
also setting new relative lows.   The S&P Banks Index (BIX.X) not
only dropped off a cliff on Monday, dropping below multi-month
support at 265-270, but also filled a gap from October 15.
Instead of filling the gap and then bouncing, however, the index
continued the slide, with another breakdown below 260 and appears
headed to a test of support 20 points lower. The Kbw Money Center
Bank Index (BKX.X) also sank to multi-month lows and has bout 65
points before it finds support down at 610 (closed at 675.79). As
a member of both indices, BAC has little to hang its hat on.
BAC's corresponding support to those indices - the October lows -
is just below $55, which provides for a good risk/reward ratio
with a stop just above the 200-dma, which currently sits at
$68.64.

The point and figure chart for BAC is now showing a spread triple
bottom breakdown.  It is a reflection of long-term support at $57
that finally has given way. The pattern, according to a study by
professor Earl Davis of Purdue University, is good for an average
gain of 24.9% over a period of 4.6 months and is profitable 86.5%
of the time.  While these numbers are an average and not stock
specific, they do portend an ugly future for stocks reflecting
the pattern. Our time frame is certainly less than 4 months, so
this data is aimed at longer-term traders, but it underscores the
bearishness we are seeing on the daily charts.  The current
bearish vertical count for the stock is $61, which coincides with
the bullish support line sitting at the same level.  We would
expect some support there as those relying on the PnF try to play
a bounce. Our ultimate target will still remain at $60, as there
is no visible horizontal support on the daily chart until then.
While the overall market, and the financial indices are looking
very bearish, traders will note the oversold conditions of the
bullish percents and should manage their risk accordingly. We
like momentum entries on a break below $65, however, if we do get
a failed bounce in the broader markets, a failed rally in BAC
below the 200-dma may provide a more favorable risk reward, since
our stop will be located just above that level. The 200-dma
currently sits at $68.64 and we will set the stop at $69.25.

BUY PUT APR-65* BAC-PM OI=6509 at $2.70 SL=1.35
BUY PUT APR-70 BAC-PN OI=723 at $5.60 SL=2.80

Average Daily Volume = 4.8 MIL


---

LLY - Eli Lilly $53.70 +2.30 (-3.28 this week)

Company Summary:
LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

Why We Like It:
Can Prozac fix this stock's problems?  The depression that has
engulfed most of the market, as well as the Pharmaceutical index
(DRG.X) seems incurable, short of a quick resolution to the Iraq
situation.  After falling out of bed in mid-January, LLY has
been consistently working its way lower, taking out all of its
moving averages in the process.  Throughout September and October
of last year, the $55 level provided consistent support for the
stock, so it is really no great surprise to see that its descent
slowed to a crawl over the past couple weeks, resulting in an
apparent stabilization.  That came to an end this morning, when
a story came out in the Financial Times that a patent protecting
Zyprexa, a schizophrenia treatment that is LLY's biggest selling
drug, is under greater than expected risk from a court challenge
by a generic competitor.  That was all the ammunition the bear
needed and they solid the stock down through the $55 level,
hitting an intraday low of $53.50 on heavy volume.  LLY rebounded
off the initial low, but by the closing bell, that rebound had
almost completely faded, and the stock appears destined to visit
significantly lower levels before finding strong support.  With
the violation of the $55 level, the next tangible level of
support is $52, but $49-50 looks like a more reasonable level for
strong support to materialize.  After acting as strong support
for so long, the $55 level should now be formidable resistance
on any rebound attempt and a failed rally near that level would
make for an ideal entry into the play.  Aggressive traders can
certainly consider entries on a breakdown below $53.50, keeping
in mind the possibility of an oversold rebound from the $52 area.
Our stop is initially set at $57.10, just above the closing highs
of the past 2 weeks.

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

BUY PUT MAR-55 LLY-OK OI=1794 at $2.10 SL=1.00
BUY PUT APR-55*LLY-PK OI=3082 at $3.30 SL=1.75
BUY PUT APR-50 LLY-PJ OI=1916 at $1.30 SL=0.75

Average Daily Volume = 2.73 mln



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

Please read our disclaimer at:
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The Option Investor Newsletter                  Tuesday 03-11-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Put - LLY

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

LLY - Eli Lilly $53.70 +2.30 (-3.28 this week)

Company Summary:
LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

Why We Like It:
Can Prozac fix this stock's problems?  The depression that has
engulfed most of the market, as well as the Pharmaceutical index
(DRG.X) seems incurable, short of a quick resolution to the Iraq
situation.  After falling out of bed in mid-January, LLY has
been consistently working its way lower, taking out all of its
moving averages in the process.  Throughout September and October
of last year, the $55 level provided consistent support for the
stock, so it is really no great surprise to see that its descent
slowed to a crawl over the past couple weeks, resulting in an
apparent stabilization.  That came to an end this morning, when
a story came out in the Financial Times that a patent protecting
Zyprexa, a schizophrenia treatment that is LLY's biggest selling
drug, is under greater than expected risk from a court challenge
by a generic competitor.  That was all the ammunition the bear
needed and they solid the stock down through the $55 level,
hitting an intraday low of $53.50 on heavy volume.  LLY rebounded
off the initial low, but by the closing bell, that rebound had
almost completely faded, and the stock appears destined to visit
significantly lower levels before finding strong support.  With
the violation of the $55 level, the next tangible level of
support is $52, but $49-50 looks like a more reasonable level for
strong support to materialize.  After acting as strong support
for so long, the $55 level should now be formidable resistance
on any rebound attempt and a failed rally near that level would
make for an ideal entry into the play.  Aggressive traders can
certainly consider entries on a breakdown below $53.50, keeping
in mind the possibility of an oversold rebound from the $52 area.
Our stop is initially set at $57.10, just above the closing highs
of the past 2 weeks.

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

BUY PUT MAR-55 LLY-OK OI=1794 at $2.10 SL=1.00
BUY PUT APR-55*LLY-PK OI=3082 at $3.30 SL=1.75
BUY PUT APR-50 LLY-PJ OI=1916 at $1.30 SL=0.75

Average Daily Volume = 2.73 mln


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

“7 Steps to Success – Trading Options Online”.

Order today and save 25% (only $15) by clicking on PreferredTrade
and clicking on the link to the book on its home page.

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


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

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


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