Option Investor
Newsletter

Daily Newsletter, Thursday, 03/13/2003

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Thursday 03-13-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Unbelievable
Futures Markets: Bear Fears
Index Trader Wrap: (See Note)
Market Sentiment: Persian Engulfed
Weekly Manager Microscope: Phillip Toews: Toews S&P 500 Hedged 
Index Fund (TOSIX)

Updated on the site tonight:
Swing Trader Game Plan: Picking The Top... Again and Again


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      03-13-2003           High     Low     Volume   Adv/Dcl
DJIA     7821.68 +269.60  7824.34  7555.29 2.10 bln 2331/ 949
NASDAQ   1340.78 + 61.50  1340.78  1290.59 1.79 bln 2314/ 938
S&P 100   422.99 + 14.07   423.10   408.92   Totals 4645/1887
S&P 500   831.90 + 27.71   832.02   804.19 
W5000    7886.48 +255.40  7887.38  7631.08
RUS 2000  355.44 +  9.50   355.46   345.94 
DJ TRANS 2014.34 + 63.70  2014.76  1951.47   
VIX        35.93 -  3.06    38.23    35.80   
VXN        44.98 -  2.52    47.64    44.31 
Total Volume 4,181B
Total UpVol    555B
Total DnVol  3,573M
52wk Highs  110
52wk Lows   256
TRIN       0.64
PUT/CALL   0.75
************************************************************

Unbelievable

The bulls came stampeding back to the markets today for no
particular reason and ignored more bad economic news. Was it
the Elizabeth Smart news? Was it the rumor of mass defections
of Iraqi generals? Did Osama's great great uncle get arrested
for jaywalking somewhere? Nobody knows but the bulls were not
taking prisoners and the breadth of the rally was amazing. 

Dow Chart - daily


 
Nasdaq Chart - Daily


 


The market was definitely not moving up on economic news. 
The Jobless Claims fell -15,000 from last weeks upwardly
revised number of 435,000. Unfortunately that meant we
still had 420,000 new claims and the four-week moving 
average rose to 420,000. This was the highest level since
December. This escalating trend shows the economy to be
picking up speed as it declines. 

The Retail Sales fell -1.6% in February and well below the
consensus estimates for zero growth. The consumer is not
rushing out to hold up the economy and the siege mentality
is settling in. Reasons given were blizzards, high gas 
prices, unemployment, terror alerts and war fears. Import
and Export prices both rose primarily due to high oil
prices. Friday is chock full of economic reports with 
Business Inventories, Industrial Production, PPI and 
Michigan Consumer Sentiment. Plenty of reason for the
market to be confused again but I am not sure it is 
going to matter. 

The Fed meets on Tuesday and there is a 29% chance of a
-25 point rate cut as predicted by the Fed Funds Futures. 
Not a big chance but the various economic indicators could
be weighing more on the Fed than on consumers. There are
some thoughts that if the Fed cut rates they would take
a bigger cut of 50 points to send a stronger message. A
minimal 25 point cut would have no impact and they have
only a few bullets left in their gun. Time to react quickly
and use that megaphone. This could be what is powering 
part of the bounce due to retail traders hoping to get
a 1990s style market bounce from a rate cut surprise. 
Don't hold your breath. Odds are much better that they 
will change the bias to easing and plan on a rate cut at
the May 6th meeting. Fed funds futures predict an 82%
chance of a cut at that meeting. 

Earnings warning season arrives with a flourish next week 
but there were several high profile warnings today. TYC 
warned that it was slashing profit forecasts for 2003 and
had fired a division president for accounting irregularities. 
The current chairman, Edward Breen, vowed to clean up the
"crap" and that heads would roll if any more problems were
found inside the company. Schwab warned that current
outlooks were too aggressive in light of trading volume
that was continuing to fall. They declined to issue an
outlook claiming no visibility. They said trades entered
had dropped -20% in February to 101,000 a day and so far
in March that number had dropped another -5%. International
Paper said demand was weak and getting weaker as the quarter
progressed. MYG said yesterday that demand began falling
off in February and had been decreasing rapidly since. This
appears to be the common thread, sharp drops in demand 
across industries in February with increasing weakness 
into March. Not a good sign. 

The main reason given for the gains today was the removal of 
the war premium from the market. With President Bush turning
into a kindler and gentler war planner and the starting date
pushed off until at least April 1st it appeared the pressure
was off. The resolution, no resolution, heck we may not even
take a vote stance seems to have finally hit home that we
are only doing the diplomatic dance to help Tony Blair and
pass time while we get all our troops repositioned. Thank you
Turkey. In reality the strongest rumor given for the rebound
was a report overnight that the CIA had already negotiated
surrender deals with many Iraqi generals. True or not this
potential for a parade into Baghdad instead of house to house
fighting had traders celebrating. I can imagine what is going
through Saddam's mind today. If his troops are already bailing
out without a shot being fired he must feel the walls closing 
in quickly. Evidently the CIA has been sending emails, calling
them on their cell phones and dropping leaflets with phone
numbers and how to escape being obliterated. If these efforts
are working then Bush can take all the time he wants and end
up a hero with minimal military effort. 

On Wednesday 15% of the S&P set a new 52-week low. Volume 
was down 2:1 despite the end of day bounce. This was almost
bullish compared to the 18:1 down volume on Monday. Today
the volume was over 7:1 to the upside with over four billion
shares traded. This was the most volume in a single day since
Nov-22nd. The Day started out with a gap open and sold off
to just above 7600 before charging off to a break over 7800. 
It was not a raging bull but more of a determined walk by
the entire herd. There were numerous strong resistance points
broken at 7600, 7650, 7740, 7785 and even 7800. Make no
mistake this was a powerful move. Not powerful enough to 
propel the new highs over the new lows which came in at 
110 highs to 256 lows, but strong enough to get the bears
attention. Unfortunately most of them were in denial all
day and I have to count myself as one of them. 

Despite my exhortation on Tuesday night that there would
probably be a strong rebound soon and our challenge was 
not to be caught off guard, I was caught off guard. The 
+100 point gap open on negative economic news and Iraqi
surrender rumors had me believing another roll over was 
in the cards. We did for about an hour but wise bears 
used that drop to exit shorts. Notice I said wise bears. 
The rest of us tried to short obvious resistance levels 
on the way up and helped to feed the rally with our short 
covering. As one trader put it, "I would do much better 
if I checked my brain at the door and traded only with 
my eyes." Ah yes, a wise man. 

Of course the $64 question is what will happen tomorrow. 
I got more email than "Dear Abby" after the close today
with unsolicited reasons that the market would go up/down
tomorrow. Some of them were very creative, others very
technical, many very emotional and none of them guaranteed.
The next material resistance is Dow 7900-7925 but then
material resistance only served to slow the index today. 
There are significant indications that the large drops 
over the last month may have created serious deficiencies 
in market makers option accounts and along with institutional
traders they are trying to square these positions by running
the markets up. While I think there may be big holes in
accounts I doubt this scenario. It may have an impact but
you don't get four billion shares from a few market makers. 
I think there are many more factors at work here. Steve
Price pointed out that the Wednesday dip hit his targets
for the H&S patterns from the last month. Somebody else
pointed out that the oversold conditions created earlier
this week were just too severe to be ignored prior to a
Fed meeting once the war was postponed for three more
weeks. As I pointed out Tuesday night there was likely
to be some strong asset allocation moves soon. I think
it was the combination of all these factors that stimulated
the initial move and short covering did the rest. 

Take a close look at the Nasdaq chart above and I am sure
you will see that very strong resistance at 1350. This
is going to be a challenge to the bulls after a +61 point
gain on Thursday. 

I don't think those factors are done. Our gains today 
should stimulate the Europe/Asian markets to gains and
we should see a positive open tomorrow. The futures are
up tonight and there was no negative news after the close. 
The UN vote/no vote has been put off until Monday and 
the war until April. However, there are still shorts in
the market. After being hammered today and seeing the
result of the Osama rumors this week they will NOT want
to be short over the weekend. This should provide lift
to the markets on Friday. 

Late news at 7:15 tonight. Dow Jones is reporting that 
Iraq has moved artillery capable of firing chemical or
biological warheads to several locations just north of
the Kuwait border. US officials said the artillery 
posed a direct threat to the US troops in the Kuwait 
staging areas. US officials also said Iraq was 
positioning surface to surface missiles in far western
Iraq in an apparent attempt to use chemical or biological
weapons against Israel. NBC reported that the US military
was prepared to launch preemptive attacks against the 
new artillery and missile sites "before the Iraqis have
a chance to use them." Futures took a dive on the news. 
Never a dull life as an investor! This just shows how
tentative Friday's rally could be. All bets for Friday
are officially off. Trade what you see.
 
Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Bear Fears
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET


Contract  Last       Net       High     Low

Dow      7821.75   +269.68    7824.34   7555.29
YM 03M   7796      +264       7807      7521
Nas 100  1029.81   + 59.27    1029.84   981.58
NQ 03M   1033.00   + 57       1034.50   973.50
S&P 500   831.90   + 27.71     832.02   806.48
ES 03M    832.25   + 27.75     832.50   803.00


Daily Pivots

Contract     S2      S1       Pivot     R1        R2
YM 03H     7445     7656      7732     7942      8017
NQ 03H     957.63   1002.75   1018.63  1063.75   1079.63
ES 03H     795.44    817.38     825     846.88    854.44


An eye-popping reversal day.  For the bulls there was the hope 
that we reversed from a higher low, not even bothering to test 
the October lows.  For the bears, this same thought causes sweaty 
palms and nightmares of the run which started last October from 
those same lows.

There was little to cheer the markets today, with poor Retail 
Sales numbers and U.S. Jobless Claims at a high for the year.  
Yet the markets made an astounding move upward, with only a small 
pullback early in the morning after the first 15 minutes, then 
turned up and never looked back.  At times it felt like there was 
panic buying, but it’s difficult to tell whether this was from 
people wishing to go long, or from shorts covering in panic.  One 
thing is for certain, a high TRIN, followed by a 90% upside day, 
is reason enough to put the fear into bulls.  On the other hand, 
if everybody piles on at the beginning of the move, who will be 
left to push the market up further?  So many questions.

Let’s take a look at what today did to the daily charts. On the 
YM, we see the falling wedge has broken to the upside, after 
having OBV form a bullish divergence.  Today’s move caused D+ to 
move above it’s downtrending slope, but D- hardly fell, showing 
that a lack of sellers was overwhelmed by the number of buyers.  
However, the amount of buying didn’t seem to be very high as the 
OBV did not show much of a gain.  On the second chart you can see 
how RSI broke above its downtrend line, but CCI, Stochastic and 
MACD did not, although they are threatening to do so with another 
positive close.

Chart of YM:


 

Chart of YM #2:


 
The ES is similar, except that price did not break above the 
downtrend line.  OBV however, is more bullish, and rise quite a 
bit to test it’s downtrend line.  On the second chart, MACD has 
turned up but not above the downtrend line.  RSI moved above 
previous two highs and above the centerline, and CCI has moved 
above it’s downtrend line and the centerline, both bullish 
occurrences.  (Note: the charts did not draw the appropriate long 
candle, but I assure you, it was very much like the one on the YM 
above).

Chart of ES:


 

Chart of ES #2:


 

The NQ’s were extremely strong, outperforming both the ES and YM, 
however, they did not break above their downtrend line on price, 
OBV shows nothing special, but we did get a bullish cross on the 
ADX.  RSI had a bullish crossover, stochastic has just crossed 
over, and MACD is still below the centerline and its trendline.  
CCI spiked and is already getting fairly high.  

Chart of NQ:


  

Chart of NQ #2:


 

So, what do these charts tell us?  Yes the move was powerful, and 
in one day it turned a lot of indicators into bullish territory, 
although not all the indicators are in synch.  This leaves us 
wanting verification.  While we gapped above resistance, then 
pushed through more resistance, the fact remains that the buying 
needs to continue unabated to push through additional levels of 
resistance, or the move will stall and pull back.  We are on the 
brink of either a breakout, or the end of another hyperactive, 
overactive bear rally.  

One more chart, this time of the Weekly ES, and it is echoed by 
both YM and NQ:  if we do not breakdown tomorrow and move much 
below today’s close, we are setting up a potential hammer 
reversal after setting new lows.  MACD is at trendline support, 
and Stochastic is turning up off its lows.  It is worth noting.

Chart of Weekly ES:


 


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_031303_1.asp


------------------------------------------------------------
WINNER of Forbes Best of the Web Award 
 • optionsXpress voted Favorite Options Site by Forbes  
 • Easy screens for spreads, collars, or covered calls
 • Free streaming quotes 
 • Real-time option chains, charts + calculators
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics21
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

Persian Engulfed
by Steven Price

Just how oversold were the markets when we fulfilled our head and 
shoulders objectives?  Just how much bounce will we get if Iraq 
continues to throw bones to the U.N.? How bullish is a candle 
that engulfs a week's worth of losses? We got a look at the 
answers to those questions today when the both the broad markets 
and techs bounced strongly, continuing the mid-day reversal that 
began Wednesday.  The Dow reached as high as 7824 intraday 
(settling near its high), while the Nasdaq Composite took off 
through the 1300 mark that head been previous support and so far 
did not act as resistance and didn't stop until it approached a 
test of the next resistance at 1350.  It closed at 1340 with an 
amazing 60-point gain for the day. 

The gains came in spite of economic data released this morning 
that came in worse than expectations and signaled more trouble 
ahead for the economy.  The initial jobless claims data for last 
week showed a drop of 15,000 to 420,000, which sounds positive on 
the surface. However, it was still higher than the expected 
418,000 and the second highest level of the year.  The four-week 
moving average, which most economists use to gauge the health of 
the job market, rose by almost 10,000 to 419,750.  Any number 
above 400,000 indicates a worsening labor market and the rise 
this week and since January shows a disturbing trend.  That four-
week average is up 35,000 in the last five weeks and is at its 
highest level of the year. 

The jobless data would also seem to confirm the retail sales 
decline we saw today. Retail sales were expected to drop 0.5%, 
but instead more than tripled that expectation with a drop of 
1.6%.  The drop was the biggest since November 2001 and signals 
further reluctance to spend in the face job losses and war fears.  
Some of that loss is made up by the upward revision in January's 
number from a loss of 0.9% to a gain of 0.3%. Still, the trend 
does not look promising and most likely will not change as long 
as the unemployment picture remains negative. The retail sector, 
however, still participated strongly in the rally, along with the 
broader markets, jumping 4.7% and just breaking through 
resistance at 260, with a close of 260.74.   Whether the data 
wasn't as bad as bears were hoping for - leading to a round of 
short covering, or the group just participated in a huge broad 
market rally, it managed to engulf the trading range of the last 
six weeks with a giant bullish candle in spite of the poor 
numbers.

One of the catalysts behind the rally was yet another delay on a 
U.N. vote authorizing the use of military force in Iraq.  The 
U.S. had set a deadline for a vote this week, but now appears to 
be waffling as it lacks the vote to pass its latest resolution. 
White house spokesman Ari Fleischer said, "It may conclude 
tomorrow. It may continue into next week."   The fact that 
Britain has now offered another set of steps, six in all, that 
Iraq could take to avert war, suggests that one of the U.S.'s 
strongest allies is also beginning to look for other solutions to 
war. British Prime Minister Tony Blair is feeling a tremendous 
amount of heat in his own country over his previously undaunted 
support of the U.S. and the latest suggestion implies even he is 
now fearful for his political future. With China, France, Germany 
and Russia all seemingly entrenched against action, the 
possibility that there is no invasion for some time, or at all, 
seems to be increasing. The U.S. seems set on gaining enough 
votes to pass a measure and may re-think its strategy if it 
cannot.  While the number of U.S. troops in the region suggest 
that we are going in regardless of how the U.N. plays out, the 
markets seem to be pricing in a longer delay at least.  If that 
delay takes us much further, the weather may be prohibitive for a 
ground attack in chemical suits and theoretically the current 
situation could drag on until later in the year when the weather 
in Iraq relents. So far President Bush has shown no signs of 
retreating so the scenario still favors a U.S. attack, but there 
is no doubt that the market is having doubts. 

Maybe all of this talk of how the market will react to war is 
pointless.  After all, as I pointed out in Wednesday's wrap, just 
looking at the charts could have told us where we were headed, as 
we fulfilled the head and shoulders objectives in the Dow, OEX 
and SPX on Wednesday before a big bounce.  That action is similar 
to what we saw in October when the Dow fulfilled its own H&S, 
although the others did not.  With oversold bullish percents 
across the board and the fulfillment of the pattern after a drop 
of 1400 Dow points, maybe it is simply time for a big oversold 
bounce. The specter of war has been with us for almost a year, so 
trying to figure out how we will react to that threat on an 
almost daily basis is awfully difficult. The broader picture can 
be seen in the charts and today they suggested a reversal off the 
head and shoulders bottom. 

We may also be seeing a major asset allocation triggered by those 
H&S completions from bonds back into stocks.  The five and ten 
year notes were hammered today, confirming the move back into 
equities. We tend to see these shifts at market tops and bottoms 
and certainly Wednesday and today's shift seemed to indicate 
institutions were reallocating after the extended equity drop. In 
fact, the jump in the ten-year yield engulfed the slide of the 
last eight sessions, keeping with our theme.

However, we have heavy resistance at Dow 8000, and any rally will 
still have to compete with weak economic data, high fuel costs 
and an uncertain global picture. I think back to last fall, when 
we also had oversold bullish percents, poor economic data and 
disappointing earnings.  That oversold bounce lasted a while and 
we could be seeing a repeat here. So far each bounce has 
eventually failed and deciding when a rally is for real is the 
trick.  We got a confluence of factors, with the H&S objectives 
and the U.N. vote being pushed back, all coming from oversold 
conditions. These all led to the reversal of the last two days 
from Wednesday's lows. I'd likely start buying into the 
possibility if we trade back over 8000 and certainly over 8160.  
The Nasdaq Composite has resistance at 1350, but broke through 
the resistance at 1300 and 1320 today.  Bears should also be 
looking at that 1350 level as a possible white flag scenario. 
Until we cross those barriers I'm thinking oversold bounce. 
However, it felt that way in October and December as well, and 
those bounces lasted a while.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  7821

Moving Averages:
(Simple)

 10-dma: 7708
 50-dma: 8118
200-dma: 8488



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  831

Moving Averages:
(Simple)

 10-dma:  822
 50-dma:  860
200-dma:  898



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1031

Moving Averages:
(Simple)

 10-dma:  987
 50-dma: 1006
200-dma:  997



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

The Semiconductor Index (SOX):  The semiconductor stocks finally 
exploded higher today, as the SOX outperformed even the big gain 
in the Nasdaq with an 8% gain.  The resistance at 300 held for 
the first couple of hours as the market held steady, but once it 
took out that level, it put on another ten points and 
outperformed almost every sector index. It ran so far it topped 
out at the next resistance level of 310, but did so on the rise 
at the end of the day.  310 acted as resistance in December and 
the next horizontal level above that is 330.  However, the 
descending 200-dma now sits at 318.  It has not broken that 200-
dma since falling through on May 21, 2002. The closest it came 
was on December 2, when the 200-dma sat all the way up at 407 and 
the index traded 393. If it does break through that 200-dma at 
318, expect a run to 330.

52-week High: 393
52-week Low : 214
Current:      310

Moving Averages:
(Simple)

 21-dma: 286
 50-dma: 292
 200-dma: 318


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


The VIX continued its drop since signaling a market bounce at 40% 
on Wednesday morning. The massive rally in the OEX of 23 points, 
along with 400 in the Dow and 43 in the SPX drove the VIX all the 
way down to 35.93.  You know what that means  - possible pullback 
coming as the VIX reaches the 34-35% range. The VIX hasn't closed 
below 34% since the end of January, and has signaled an equity 
reversal down each time it has reached that level, although it 
did drop to 32.98 intraday on the failed March 3 run at Dow 8000. 
Bulls should look to tighten stops as we approach 34% if the 
rally continues.


CBOE Market Volatility Index (VIX) = 35.93 -3.06
Nasdaq-100 Volatility Index  (VXN) = 44.98 -2.52

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.75        802,734       603,981
Equity Only    0.61        607,265       373,093
OEX            1.18         42,031        49,431
QQQ            1.07        107,371       114,835


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

Bullish Percent Data

           Current   Change   Status
NYSE          35.4    - 1     Bull Correction
NASDAQ-100    33.0    + 2     Bear Confirmed
Dow Indust.   10.0    - 0     Bear Confirmed
S&P 500       28.4    - 0     Bull Correction
S&P 100       23.0    - 0     Bear Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.96
10-Day Arms Index  1.79
21-Day Arms Index  1.47
55-Day Arms Index  1.41


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       2212           675
NASDAQ     2212           852

        New Highs      New Lows
NYSE        54              111
NASDAQ      57               81

        Volume (in millions)
NYSE       2,067
NASDAQ     1,778


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

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


------------------------------------------------------------
VOTED one of "Best Online Brokers" (4 stars)--Barron's
 • optionsXpress's "order-entry screens...go far beyond...
   other online broker sites"--Barron's
 • 8 different online tools for options pricing, strategy, and charting
 • Access to options specialists via email, phone or live chat online
 • Real-Time Buying Power, Account Balances or Cancels
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics22
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

Phillip Toews: Toews S&P 500 Hedged Index Fund (TOSIX)

This fund is less than two years old, but should appeal to risk-
adverse investors seeking long-term growth through investment in 
U.S. stocks (S&P 500 index) and wanting to hedge out the negative 
performance of the index.  President, CEO, and portfolio manager, 
Phillip Toews, founded Toews Corporation in 1995.  His main goal, 
to lower the risk of stock market and mutual fund investing.  In 
pursuit of that objective, Toews uses a proprietary quantitative 
system to detect market declines and invoke hedges against stock 
losses.

Toews launched the S&P 500 Hedged Index Fund (TOSIX) on July 31, 
2001 with the goal of achieving reasonable rates of return while 
reducing the risk of equity investments.  Toews' fund tracks the 
performance of the S&P 500 index of large-cap U.S. companies and 
has hedges in place in order to lower the risk of loss in market 
declines.  Since the fund was born into a declining stock market, 
its hedging strategy has thus far paid off for shareholders.  It 
remains to be seen how well the strategy will work in up markets, 
or over the long haul relative to similar U.S. equity funds.

The Toews S&P 500 Hedged Index Fund has a $10,000 minimum initial 
investment for regular accounts ($2,000 for IRA's).  According to 
Morningstar, the fund's expense ratio is 1.50%, which seems a tad 
high for the strategy.  The expense ratio should come down as the 
fund's net assets grow.  Right now, the fund has only $48 million 
in assets per Morningstar.  For more information on Toews Corp or 
the Toews S&P 500 Hedged Index Fund, go to the www.toewsfunds.com 
website.  You can download a prospectus and find more information 
there.      

Investment Style/Strategy

According to the fund prospectus, Toews S&P 500 Hedged Index Fund 
typically invests at least 80% of net assets in equity securities 
that make up the S&P 500 Index and derivatives that seek to track 
the performance of the S&P 500 index (futures and options).  This 
index-based strategy is combined with the tactical ("short-term") 
use of hedging techniques to seek returns which provide "S&P 500" 
exposure, while also seeking to provide protection from downturns 
in the index.  

Toews is not obligated to invoke hedges at all times, and may opt 
to use them less or not at all during periods of sustained growth 
in the market.  So, the fund acts like an S&P 500-index fund when 
the market advances for a sustained period of time and then kicks 
into protection mode in market downturns, using derivatives in an 
effort to protect against losses.  There is no assurance that the 
fund's performance will equal or exceed that of the S&P 500 index 
over time.  

In managing the S&P 500 Hedged Index Fund, Toews uses a black box 
(computer-based model) to trigger defensive investments or hedges 
in the fund.  Toews' risk management system looks at negative and 
positive trends in the market, and then measures those indicators 
against current conditions to get an idea of the direction of the 
market.  The fund relies on this proprietary, quantitative system 
to determine the timing and duration of hedging activities.  Thus 
far, the hedging strategy has helped to reduce losses relative to 
the general U.S. equity fund universe.

In the next section, we see how well Toews' fund has performed in 
relation to similar funds since starting operations in July 2001.

Fund Performance

In its brief history (under two years), the Toews S&P 500 Hedged 
Index Fund's best quarter of performance was +0.0% in the second 
quarter 2002.  Its worst quarter of performance thus far was the 
fourth quarter 2002, when the fund lost 5.6% of its value as the 
stock market and funds rebounded to end the year.  That gives an 
idea of what this fund might do in upturns if Toews' has "hedges" 
in place at the time.  So, time will tell how much enhanced value 
Toews' tactical use of derivatives has added.  

For the period from July 31, 2001 inception through December 31, 
2002, the fund produced a negative average annual return of 7.2% 
before taxes.  That compared to an annualized loss of 18.9% from 
the S&P 500 index, so Toews has been able to mitigate the fund's 
losses relative to the market (S&P 500 index) by a large margin 
using hedging techniques.  However, if you're interested in this 
fund for its longer-term appreciation potential, you may like to 
inquire about the strategy's institutional performance record as 
that dates back to 1995, and should give a better picture of the 
fund's ability to equal or exceed the rate of return produced by 
the U.S. stock market (S&P 500 index) over time.

Since December 31, the fund is down just 0.9% compared to a loss 
of 8.3% for the S&P 500 index.  So, Toews is clearly still using 
derivatives to hedge against market losses.  His performance for 
the 2003 YTD period through March 12, 2003 ranks the fund in the 
2nd percentile of the Morningstar large-blend category.  That is 
also where the fund's ranked for its trailing 1-year performance, 
2nd percentile. 

Conclusion

So far, the fund's 1.50% expense ratio hasn't hurt its relative 
performance, but it could hold it back a little bit in a market 
advance relative to lower operating expense funds.  If the fund 
has hedges in place when the market advances, as it did through 
the fourth quarter 2002, it could lag the market and funds that 
don't normally hedge against losses.

Still, if your objective is to minimize the risk of significant 
loss, while achieving a reasonable rate of return above that of 
inflation, then the Toews S&P 500 Hedged Index Fund may be just 
what the doctored ordered for this protracted bear market.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


------------------------------------------------------------
We got trailing stops!
 • Trade online with trailing stops at optionsXpress, at no extra cost 
 • Trailing stops based on the option price or the stock price
 • Also place Contingent, Stop Loss, and "One Cancels Other" orders
 • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics23
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

Picking The Top... Again and Again

Ever feel like saying "what are you people thinking?" Well today 
was one of those days.


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


FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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


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

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

Contact Support
The Option Investor Newsletter                 Thursday 03-13-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

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


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

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


CALLS:
*****

None


PUTS:
*****

PII $47.48 +1.76 (+0.75) The oversold rebound that began midday
on Wednesday, really got a boost this morning, propelling PII to
gap up to its 10-dma at $46.36.  After a bit of morning
consolidation, the stock plowed higher in the final 2 hours of
trade as shorts scrambled to cover.  That afternoon melt-up
propelled the stock through our stop ($46.75) and the close at
the high of the day breaks the downtrend that has been in force
since early January.  Obviously, PII is a drop tonight.  Traders
still holding open positions should use any early weakness on
Friday to close those positions.

---

VZ $34.75 +1.28 (+0.69) We got a nice little run from our VZ play
over the past few weeks, as the stock bled down from the $36
level to just above $32 on Tuesday.  Then something changed.  The
bears weren't able to break below that level on Wednesday and
with the afternoon short-covering in the broad market, the stock
rose into the close, but remained pinned under the key $34 level.
The bulls came out feeling frisky this morning though, and
despite some midday weakness, managed to push VZ through our
$34.25 stop at the close.  Any open positions should now be
closed, as the downtrend has clearly come to an end for now.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     56.98   -0.06  -0.10   0.07  1.84  New highs
ERTS     56.74   -0.45  -0.42   0.71  2.99  New, Fast Move Area
MME      37.02   -0.73  -0.73   0.22  1.00  Bounce from $36
SLAB     28.50   -0.25  -0.82  -0.13  2.51  Approaching target
ZMH      44.65   -0.74  -0.64   0.65  0.65  Holding gains


PUTS

BAC      67.60   -1.41  -1.21   0.39  1.76  Financials bounce
LLY      55.24   -0.84  -2.30   0.33  1.20  Inside day
PII      47.48   -1.20  -0.63   1.22  1.76  Drop, stopped
TIN      39.05   -0.70  -0.88  -0.01  1.64  Still under $40
UTX      57.36   -0.28  -1.74  -0.76  3.21  Led Dow 
VZ       34.75   -1.32  -0.34   0.89  1.28  Drop, No breakdown
XL       67.79   -2.13  -1.71  -0.60  3.22  Sector rally


------------------------------------------------------------
Quit paying fees for limit orders or minimum equity
  • No hidden fees for limit orders or balances 
  • $1.50 /contract (10+ contracts) or $14.95 minimum.
  • Zero minimum deposit required to open an account
  • Free streaming quotes
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics24
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

AMGN $57.00 +1.84 (+1.30) Consistent as the rising sun, AMGN
blasted off with the rest of the market today, closing right at
another new high of $57.  While things certainly looked a bit
dicey yesterday morning with the broad market weakness, we
thought the dip in AMGN down to the $54 support level looked
like a decent entry point into the play, as noted in the Market
Monitor.  Sure enough, that dip was eagerly bought by the bulls,
as the stock rebounded strongly into the close, ending near
unchanged.  But the real excitement came on Thursday, with the
market's gapping higher and propelling AMGN by the middle of the
day.  With the rampant short-covering throughout the market, our
play just continued rising right up to the close.  Remember our
approach on this play has been to not try to chase the breakouts,
waiting for the pullbacks to support instead.  Well, that plan
seems to be working, so we're going to stick with it.  Support
seems to be rock solid near yesterday's lows, so we're raising
our stop to $54 tonight.  Traders still looking for an entry
into the play will want to focus on a rebound from the area of
this morning's gap up ($55.20-55.50) as the likely support area.
Our upside target remains $60, so conservative traders will want
to consider harvesting gains as we approach that level.

---

MME $37.02 +1.00 (-0.33) In typical bullish fashion, our MME play
seems to have finished digesting that strong rally of a week ago.
After dipping to test the $35.70 support level one more time this
morning, the bulls finally got serious, propelling MME steadily
higher to close right at the high of the day.  We were looking
for a rebound from above the $35.25 level for aggressive entries,
confirmed with a rally back through the $36.25 level for more
conservative traders.  Well, we got both, and have the additional
reassurance of the stock pushing back through the $37 level at
the close.  Of course, the real test will be to see if the bulls
can crack the $38 level, which provided firm resistance least
week.  Late-comers can consider another dip into the $35.75-36.00
area as a solid entry into the play, while aggressive momentum
junkies will want to wait for MME to crest the $38 level before
adding new positions for a quick run to the next level of
resistance at $40.  Following yesterday's rebound, it seems
safe to raise our stop fractionally to $35.50, just above
yesterday's intraday low.

---

SLAB $28.50 +2.51 (+0.96 for the week) We were rewarded for our 
patience on this play, as we hung on during the recent 
consolidation between $26 and $28.  The chip stocks all jumped 
today as the Semiconductor Index (SOX) rallied an amazing 8%, 
outperforming even the big gains in the broader markets. SLAB 
held closing support on Wednesday at its 21-dma and has now 
bounced from that level as it did in early February.  The stock 
is approaching our target area between $29 and $30 and traders 
can think about taking profits on another move higher Friday. 
There is some heavy resistance in that area dating all the way 
back to April 2002 and the SOX is now facing its 200-dma 8 points 
above today's close. if the SOX breaks that level it will likely 
test 330 (currently 310) and the most aggressive traders can hold 
SLAB for a possible run to that level.  However, even if the SOX 
does run higher, remember that SLAB topped out at $30.40 in 
December, even when the SOX traded as high as 393. Profit takers 
around $29-30 will have history on their side, and OI will likely 
close the play if we find end of day resistance there.   With our 
target so close, we do not recommend new entries at this time. 

---

ZMH $44.65 +0.65 (-0.56 for the week) ZMH jumped nicely off its 
21-dma the past two days, but has been essentially range bound 
for the past couple of weeks.  It failed to follow through after 
reaching all-time highs, but has not collapsed either, instead 
entering a period of consolidation. While it did not post a big 
gain along with the broad market rally today, it also is not one 
of those beaten down stocks with room to bounce. It has 
maintained most of its recent gains and outperformed the markets 
impressively over the past few months. While we are showing only 
a small gain since adding it to the list, it continues to turn 
out strong products, with a new knee replacement procedure and a 
new hip revision liner. We have tightened up the stop to $42.95 
and as long as the stock holds gains above that level, we see no 
change in the current trend. With the stock having topped out at 
$45.55 and unable to get back above that level so far, traders 
may want to wait for a move back above those recent highs for 
entry.   The alternative is to go long on another bounce from the 
21-dma, now sitting at $43.68.


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

ERTS – Electronic Arts $56.74 +2.99 (+2.59 this week)

Company Summary:
ERTS creates, markets and distributes interactive entertainment
software for a variety of hardware platforms, including Sony's
PlayStation 2, the PC, Nintendo GameCube and the recently
launched Xbox.  The company's EA.com business segment is engaged
in the creation, marketing and distribution of entertainment
software which can be played or sold online, as well as the
ongoing management of subscriptions of online games and Website
advertising.

Why We Like It:
At the forefront of home entertainment, video games have pushed
into most demographic areas of the populace in recent years.
Companies making the hardware and software to power this new
consumer addiction have been the beneficiaries of this trend over
the past few years.  Until recently that is.  ERTS had a stellar
run from the middle of 2000 through the end of last year, nearly
tripling in price before the bottom fell out in December.  It
seemed the whole analyst community came out bashing the video
gaming stocks on fears of slowing growth.  ERTS tumbled a low as
$47.50, before finding some semblance of support and over the
past few weeks, the stock has actually been showing some
strength.  Perhaps the sellers have exhausted themselves, or
maybe the stock is technically ready for a rebound.  Whatever
the cause, the consolidation pattern below the $55 resistance
level broke with a vengeance on Thursday, with buyers piling
back into the stock, driving it to a 5.5% gain on the day.
Confirming the significance of this price action, the PnF chart
generated a new spread triple-top Buy signal, with a bullish
price target of $73.  We're not going to get that ambitious
with the play in the near term though, as there is liable to
be some strong resistance near $60, the site of both the 200-dma
and the bearish resistance line on the PnF chart.  Our ideal
entry into the play will be on a retracement of some of
Thursday's outsized gains, preferably with a dip and bounce
in the vicinity of the $54.00-54.50 area.  ERTS may get a boost
on Friday morning, following better than expected earnings
results tonight from Electronics Boutique (ELBO), a video game
retailer.  While aggressive momentum traders could chase the
stock higher on a continued breakout, that strategy doesn't
seem favorable on a risk/reward basis until after a dip to
confirm support.  We want to give the play some wiggle room
over the near term, so we're initially setting our stop at $53,
below both the 10-dma and the closing lows from earlier in the
week.

*** March contracts expire next week ***

BUY CALL MAR-55 EZQ-CK OI=10381 at $2.35 SL=1.25
BUY CALL APR-55*EZQ-DK OI= 2362 at $3.70 SL=2.25
BUY CALL APR-60 EZQ-DL OI= 1211 at $1.20 SL=0.50
BUY CALL JUN-60 EZQ-FL OI= 6291 at $3.00 SL=1.50

Average Daily Volume = 4.52 mln



------------------------------------------------------------
 optionsXpress has "...a lot of bang for the buck."--Barron's 
 
 • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees  
 • Easy screens for spreads, collars, or covered calls!
 • Contingent, Stop Loss, Trailing stop, or OCO  
 • 8 different online tools for options pricing, strategy, and charting
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics25
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

BAC  $67.60 +1.76 (-1.39 for the week)  A nice start to this put 
play quickly reversed direction as it followed the big bounce in 
the broader markets. Shortly after the Dow, OEX and SPX all 
completed head and shoulders patterns on Wednesday, we saw a 
reversal that took the Dow up 400 points and gathered the 
financials in the rising tide. BAC gained $1.46 to finish at 
$67.60, just $0.40 shy of a point and figure reversal. It is also 
still below the converging 21-dma and 200-dma at $68.26 and 
$68.29, respectively. The most aggressive traders can view this 
level below those moving averages and a PnF reversal as an entry 
point; however, with the big reversal in the broader markets we 
would not recommend new entries for anyone other than those most 
aggressive bears. We are lowering our stop to just above those 
averages, because any continued bullishness in the broader 
markets is likely to take the financials with it.  Our new stop 
will be set at $68.55.

---

LLY $55.24 +1.20 (-1.74) While it was a bit disheartening to see
LLY close back over the $55 level on Thursday, frustrated bears
can take some comfort in noting that the stock had to be dragged,
kicking and screaming, over that level.  The stock was not what
one would term a willing participant in today's euphoric rally,
not really able to hold in positive territory until after 1pm ET.
But the short-covering did finally take hold, lifting the stock
very near that major resistance (that used to be support) in the
$55.25-56.00 area.  Now that such a strong support level has
failed, it should act as resistance on this rebound, providing
for a solid entry into the play.  Just keep in mind the larger
picture, which has the broad market strongly rebounding on
Thursday, and that rising tide just might lift all boats.
That's part of our reasoning for not chasing LLY lower on a
breakdown, waiting instead for the next failed rally.  In
addition to historical resistance, the upside will be further
hampered by the 10-dma at $55.83 and the 20-dma at $56.37.
Maintain stops at $57.10.

---

TIN $39.05 +1.64 (-0.69) When a market gets as oversold as ours
has been lately, it is only a matter of time until a powerful
short-covering rally arrives.  That was the story on Thursday,
with the broad markets posting healthy gains.  After trading
new intraday lows on Wednesday, TIN gapped up this morning and
quickly moved back over the $38 level.  Showing the strength of
the short-covering, the stock then found support near the top
of that gap and then powered higher throughout the afternoon,
closing at the high of the day, just over $39.  That takes our
play right back into the gap left behind on Monday, and we need
to be careful here.  A rollover from below the $40 level looks
like the best shot at new entries, but we're going to keep this
one on a tight leash, with our stop remaining at $40.25.  Not
only would a close over that level constitute a breakout over
the last Friday's intraday highs, but it would also break the
2-month descending trendline.  A continuation of today's
short-covering rally will likely bring our TIN play to an end,
but we're going to give it one more day to show us its colors.

---

UTX $57.36 +3.21 (+0.24 for the week) Wow!  This Dow component 
was the second biggest gainer in today's broad market rally that 
saw the Dow make up the losses of the past six sessions. UTX made 
up the losses of the last three and erased a significant portion 
of the more than $5 gain we were showing at the close of business 
Wednesday.  Of course after the recent bearishness in the stock, 
it also had quite a bit of ground to make up. Amazingly, UTX 
still showed red on Wednesday's in spite of the day's big 
turnaround, but eventually was caught up with today's bounce.  By 
the end of the day, it managed to creep just above the high of 
the last bounce on March 7, but fell short of our stop loss at 
$58.00.  While this stock has been trending lower with the 
defense and airline stocks, both beleaguered sectors, even the 
DFI and XAL got bounces today.  If the broad market reversal 
continues tomorrow, UTX is a candidate to continue higher with it 
and current put holders may want to close out for what still 
amounts to a profit of more than $2.  We don't recommend new 
entries at this time.  If the market does roll back over, we may 
yet approach our target near $50, especially given the relative 
weakness in the DFI and XAL, but after the action of the last two 
days, a further Dow run would not surprise us. 

---

XL $67.79 +3.22 (-1.21 for the week) XL Capital was one of the 
bigger gainers on a day when there quite a few of them.  The 
insurance sector has been beaten up badly in recent sessions and 
as of Wednesday's close we were up about $4 on this play.  Those 
traders who entered on the failed rebound at $70 suggested in our 
original write-up had an even bigger score. That is until today.  
Starting Wednesday afternoon, the Dow began what ended up being a 
400-point turnaround from its lows of the day and took many 
oversold sectors along with it.  One of those was the insurance 
sector, represented by the S&P Insurance Index (IUX).  After 
trending down since the middle of January, along with the broader 
markets, the IUX erased the losses of the past two days with a 
gain of more than 5% today.  That index  has found resistance at 
its 21-dma throughout the latter part of February and the 
beginning of March.  Not surprisingly, it failed to reach that 
level once again today. The current reading is 221 and the 21-dma 
sits at 224.96.  XL posted a similar 5% gain and ended the day 
not far below our entry point. XL has seen resistance at its 
declining 21-dma as well, which now sits at $69.83. We will leave 
our stop above that level and allow for another failure there if 
the market rolls over from the current bounce.  The magnitude of 
that bounce is certainly a big red flag for bears, as it erased 
the losses of the past six days and any shorts who wanted to exit 
put plays after an engulfing candle that large in the Dow won't 
get too strong of an argument from us. However, if the bounce 
does fail, we expect this sector to give back much of today's 
gains. We don't recommend new entries at this time, until we see 
new signs of weakness, but the most aggressive bears may see 
another entry point if the stock runs out of steam at that 
descending 21-dma.


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

None


------------------------------------------------------------
WINNER of Forbes Best of the Web Award 
 • optionsXpress voted Favorite Options Site by Forbes  
 • Easy screens for spreads, collars, or covered calls
 • Free streaming quotes 
 • Real-time option chains, charts + calculators
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics21
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

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


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

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

Contact Support
The Option Investor Newsletter                 Thursday 03-13-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three: 

Play of the Day: CALL - ERTS
Traders Corner: Yes, Mulder & Scully, Aliens Do Exist
Traders Corner: Putting It All Together_2
Options 101: Is the War Over?

**********************
PLAY OF THE DAY - CALL
**********************

ERTS – Electronic Arts $56.74 +2.99 (+2.59 this week)

Company Summary:
ERTS creates, markets and distributes interactive entertainment
software for a variety of hardware platforms, including Sony's
PlayStation 2, the PC, Nintendo GameCube and the recently
launched Xbox.  The company's EA.com business segment is engaged
in the creation, marketing and distribution of entertainment
software which can be played or sold online, as well as the
ongoing management of subscriptions of online games and Website
advertising.

Why We Like It:
At the forefront of home entertainment, video games have pushed
into most demographic areas of the populace in recent years.
Companies making the hardware and software to power this new
consumer addiction have been the beneficiaries of this trend over
the past few years.  Until recently that is.  ERTS had a stellar
run from the middle of 2000 through the end of last year, nearly
tripling in price before the bottom fell out in December.  It
seemed the whole analyst community came out bashing the video
gaming stocks on fears of slowing growth.  ERTS tumbled a low as
$47.50, before finding some semblance of support and over the
past few weeks, the stock has actually been showing some
strength.  Perhaps the sellers have exhausted themselves, or
maybe the stock is technically ready for a rebound.  Whatever
the cause, the consolidation pattern below the $55 resistance
level broke with a vengeance on Thursday, with buyers piling
back into the stock, driving it to a 5.5% gain on the day.
Confirming the significance of this price action, the PnF chart
generated a new spread triple-top Buy signal, with a bullish
price target of $73.  We're not going to get that ambitious
with the play in the near term though, as there is liable to
be some strong resistance near $60, the site of both the 200-dma
and the bearish resistance line on the PnF chart.  Our ideal
entry into the play will be on a retracement of some of
Thursday's outsized gains, preferably with a dip and bounce
in the vicinity of the $54.00-54.50 area.  ERTS may get a boost
on Friday morning, following better than expected earnings
results tonight from Electronics Boutique (ELBO), a video game
retailer.  While aggressive momentum traders could chase the
stock higher on a continued breakout, that strategy doesn't
seem favorable on a risk/reward basis until after a dip to
confirm support.  We want to give the play some wiggle room
over the near term, so we're initially setting our stop at $53,
below both the 10-dma and the closing lows from earlier in the
week.

*** March contracts expire next week ***

BUY CALL MAR-55 EZQ-CK OI=10381 at $2.35 SL=1.25
BUY CALL APR-55*EZQ-DK OI= 2362 at $3.70 SL=2.25
BUY CALL APR-60 EZQ-DL OI= 1211 at $1.20 SL=0.50
BUY CALL JUN-60 EZQ-FL OI= 6291 at $3.00 SL=1.50

Average Daily Volume = 4.52 mln



------------------------------------------------------------
VOTED one of "Best Online Brokers" (4 stars)--Barron's
 • optionsXpress's "order-entry screens...go far beyond...
   other online broker sites"--Barron's
 • 8 different online tools for options pricing, strategy, and charting
 • Access to options specialists via email, phone or live chat online
 • Real-Time Buying Power, Account Balances or Cancels
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics22
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

Yes, Mulder & Scully, Aliens Do Exist
By Mike Parnos, Investing With Attitude

Attention!  There has been a sighting.  We now know E.T. is, 
indeed, not alone.  Allow me to introduce E.R. -- a practicing 
financial advisor (and a CPTI student) living in Melbourne, FL.  
Hopefully, when he phones home, he will communicate CPTI trading 
philosophies back to his mother planet. and spread the word.   

Last Thursday I suggested that quality brokers and financial 
advisors are like aliens.  You hear about them, but nobody’s ever 
really seen one.  In OI’s version of the “X-files,” I was pleased 
to hear from a financial advisor who apparently cares – enough to 
take the time to properly advise his clients of common sense 
alternatives.  I’d like to share it with you.
_____________________________________________________________

ER: Mike, hats off to you and your column!  The CPTI is a great 
addition to OI.

MP: This guy’s off to a good start!
 
ER: I imagine you received some feedback from your article 
comparing aliens to full-service advisors?  

MP: That’s an understatement!  Investors are upset.  They’ve been 
treated like a herd of sheep on Fire Island, but it’s partially 
their own fault.   

ER: (On a tangent, I think it's your ability to successfully 
weave humorous anecdotes into your commentary that makes your 
column so refreshing and appealing)  After getting a good laugh 
and sharing it with a few in the office, I wish to comment on the 
article.

MP:  You know I just had to include this.  I really like this 
guy.  That’s not you, Mom, is it?

ER: I'm a financial advisor with a small regional brokerage 
firm.  I help advise on roughly $100 million in client assets, 
and we have been able to introduce the benefits of options to 
certain clients.  I can certainly substantiate the "stigma" that 
is associated with options.  

When I introduce options, I sometimes receive a response such as, 
"Aren't those risky?" or "I don't want to lose all my 
money!"  Explaining the appropriate strategies is often an uphill 
battle.  
 
MP:  When you get clients that have had a bad experience with 
another advisor, you better be prepared with a crystal ball and a 
super-duper-pooper-scooper.  They’re going to expect you to not 
only clean up their mess, but to turn it into gold.

ER: Relative to the market on the whole--and the $7.6 trillion 
that has vanished in the last three years--it wasn't 
all necessarily because of an advisor's lack of advising. Often 
clients themselves are the challenge.   

MP:  But they sure didn’t help matters. 

ER:  For example, when Tyco started to break down below $42 and 
what I felt was support in early 2002, I advised several clients, 
who didn't want to sell the stock outright, to purchase puts.  
Some clients owned the stock for years and had gains to 
protect (remember gains?).  Others owned it closer to $50 and 
were looking to hold for the long term.  Puts to hedge 
appeared not only suitable, but logical, in those scenarios.  I 
utilized the homeowner's insurance example, car insurance, etc.  
Of those that would not sell outright, I was only able to hedge 
perhaps 20% with puts.  The others decided to ride out the storm 
and, as you know, it hasn't been pretty.  Those that bought the 
$40 puts (even with higher premiums due to the volatility) as 
insurance were grateful and able to squeak out relatively 
unscathed.  Others were not as fortunate. 

MP: Bravo!  I applaud you.  There are always many who will not 
follow common sense advice – investing or otherwise.  You can 
lead a horse to water, but you can’t make him drink (or think, 
either).  

ER: Though rudimentary for us who understand options (and the 
deeper root concept of risk vs. reward), the general public 
cannot always compare $50,000 automobiles to $50,000 worth of 
stock, even after much explanation.  Stocks are intangibles, they 
counter; a car, that's different!  

MP: Let’s not have unrealistic expectations.  Most retail 
investors are missing a lot of dots from their dominoes.  They 
make a purchase, say a prayer, then bury their heads in the sand 
where they can’t see, they can’t hear, and important body parts 
remain exposed.  That and $5.00 will buy you a Starbucks 
cappuccino that will go through you in less than an hour.

ER: Many Enron, WorldCom and Insert-Name.com investors see the 
answer now, of course.  The feverish mentality at the time was 
naturally that any dips were to be met with added investment, not 
caution or skepticism, since the "long term" investor is always 
rewarded! 

MP: I’ll give you 5-to-1 odds that these same people STILL do not 
insure whatever investments they have left.  They’ll have to work 
till they’re 70 and break into a daily chorus of that number one 
bestseller, “Why me?” 
 
ER: You raised valid points in your column.  As in every 
industry, there are some real losers in the financial industry 
who have no business doing what they're doing.  Others truly 
dedicate themselves to their job and do their best at it even 
under adverse conditions.  

MP:  The same common sense investing principles apply to good and 
bad market conditions.  You don’t just buy health insurance 
during the summer months, do you?  

I will continue to do my best in explaining options, and their 
practical uses, all the while attempting to create positive (and 
hopefully profitable) experiences for my clients and me.  I trust 
you will continue in similar fashion--doing your best for those 
that count on you.  Best regards, Ed Retter. (800-838-4488)

MP:  I’m always here spreading the knowledge – sometimes I use a 
knife and sometimes I use a shovel – but you know it will be 
spread. 

So, Mulder & Scully, aliens DO exist.   When E.R. phones home, 
hopefully he will encourage other aliens on the mother planet to 
use our CPTI trading philosophies.  Because here on earth, one 
alien is not enough.  We need a full-fledged invasion.  When it 
comes to financial advisors and brokers, we need a close 
encounter of the “caring” kind.
____________________________________________________________

Things Are Looking Up
We expect to see strength in the market very soon. Listen for the 
announcing that informed sources report the captured Osama Bin 
Laden’s camel.  The CIA is preparing to interrogate him at length 
– then, at width.   They’ll probably just insert a LoJack where 
the sun don’t shine and monitor his movements - and follow him 
until he leads us to Osama.

Who says G.W. doesn’t have a plan?  It’s just on a need-to-know 
basis.
___________________________________________________________

CPTI Portfolio Update
Position #1 – OEX Bull Put Spread – Trading at $422.99.
Believing the market is not likely to go down to retest its July 
and October lows near 400, we sold 10 contracts of the OEX March 
400 puts and bought 10 contracts of the OEX March 390 puts for a 
credit of $1,400.

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

Position #2 – XAU Iron Condor – Trading at $64.05.
We created an Iron Condor with a 15-point range $65 to $80 for 
March.  We were able to place spread orders and take in $1,400 
for our 10-contract position.  The objective is for the 
underlying, at expiration, to finish anywhere within the spread. 

Looking at the steady descent of XAU (the chart sucked), last 
Friday XAU broke down through support and we elected to close the 
position at a cost of $1.00.  We still managed at small $400 
profit.  XAU traded as low as $62.15 a few days ago.
_________________________________________________________________

Position #3 -- OIH -- Diagonal Calendar Spread – Trading at 
$53.86
It seems that there’s about $8-10 of uncertainty built into the 
price of a barrel of oil.  When, and if, the war is resolved, the 
price of oil should work its way down, along with the price of 
oil stocks.

We bought 10 contracts of the July OIH $55 puts and sold 10 
contracts of the March OIH $50 put at a debit of $3.85.  With 
March expiration approaching, and OIH moving down nicely, we’ll 
have some decisions to make about adjusting our calendar spread.
______________________________________________________________  

Sunday Preview
We’ll devote Sunday’s column to examining, in detail, the thought 
process that goes into making the adjustment decisions on OIH.
______________________________________________________________  

Position #4 -- QQQ ITM Strangle – Currently trading at $25.62.
This is a long-term position we created four months ago.  We own 
the January 2005 $21 LEAPS calls and the January 2005 $29 LEAPS 
puts.  We sold 10 contracts of the QQQ April $28 the QQQ April 
$22.  We moved our short sells in by one point because a lot of 
premium has disappeared from the QQQs in the last two months.  
______________________________________________________________

Position #5 – MMM Iron Condor – Currently trading at $125.43.
We created an Iron Condor with a 15-point range $115 to $130 for 
April.  We were able to take in $1,550 for our 10-contract 
position.  The objective is for the underlying, at expiration, to 
finish anywhere within the spread. 
______________________________________________________________

Happy trading! Remember the CPTI credo: May our remote batteries 
and self-discipline last forever, but mierde happens. Be 
prepared! In trading, as in life, it's not the cards we're dealt. 
It's how we play them.
 
Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor


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

Putting It All Together_2
By Leigh Stevens
lstevens@OptionInvestor.com 

All the patterns and indicators that I have described in my prior 
Trader's Corner articles, so seemingly EASY to apply (in terms of 
outcome) to real-life trading situations, are somehow on 
graduation from Technical Analysis 101 school, quite hard to 
follow in the heat of deciding a trade. Best I can I want to take 
you along on the unfolding of a technical "view" at any given time 
of the market trend. 

The technical "checklist" we'll work with here can be called up by 
clicking the LINK below. "Putting It All Together, Part 1, 
includes the A-Z list of all my prior Trader's Corner articles (a 
Technical Analysis "book") and is found at - 
http://www.OptionInvestor.com/traderscorner/tc_022703_2.asp 

I will work with my library of past trade "setups". Building a 
technical "view", that approaches the success of highly successful 
index and stock traders, comes from knowing how to read the 
combination of patterns and indicators as well as applying skill, 
experience and intuition.  Skill and experience take time to 
develop. 

Flexibility in thinking about what is going on in the market is 
the other strong common trait of great or superior traders that I 
have known - this trait CAN be possessed by someone with only 
limited trading time under their belt, for sometimes quite 
considerable success. 

The chart below is a (weekly) chart of Intel (INTC) - what stock 
this is in terms of the particular historical example, is not all 
that important and was just the particular example picked. The 
thought process to trace a trend successfully is what is important 
and provides a reoccurring theme.



 

The chart for this period, by itself, suggests that the stock is 
in a basic trading range from $16.5-17 to 23-25 and this is the 
dominant technical information we have for this chart. Of course, 
all you can know is for the period that you are looking at.

Each chart that follows builds a more comprehensive forecast 
picture by looking at the other technical factors on my mental 
"checklist" and which is described in Part_1 (click on LINK to 
this article--2nd paragraph above) of this series on coming out a 
winner in the real world of competing for profits in the markets. 

When looking at a timescale (hourly, daily, weekly, etc.) you can 
either zoom OUT or zoom IN so to speak.  That is, you can go out 
(in time) and look at a longer timeframe OR you can come "in" to 
smaller time increments; for example, on a daily chart, next look 
at Intraday charts like hourly, 30M, 15M etc.  

I usually want to start with the bigger time picture then go to 
say the hourly chart.  If I am looking a 12-15 month price picture 
like the first chart, I want to look at a period of time that is 
much more than that such as (in this example) a 5-10 year chart 
picture timeframe - 



   

The first chart viewed in isolation for the 12-15 month prior 
period could possibly be seen as tracing out a top formation or 
the reverse - the glass could be half empty or half full. 

However the longer period now being seen in the chart above now 
looks more like a first big price move that is followed by trading 
in a relatively narrow price range. Also, that price range is one 
that is near the top end of where prices got to on the first 
rally. This pattern suggests that there could be a big break out 
move coming that would be a second (up) "leg". 

Other bullish checklist items: volume for Intel tended to contract 
on declines and expand or surge on rallies.  The RSI indicates 
upward momentum after that indicator had first reached an oversold 
reading.  

The Nasdaq Composite in the chart below is added next as a 
secondary help in trying to figure where the stock is going next - 
this is part of the checklist: compare the STOCK to the dominant 
index that it is part of, the Nasdaq in this example.  

ALSO - what sub or sector index that the stock might be part of, 
in this case the Philadelphia Semiconductor Index (SOX). (Intel 
dominates that index of course, but this would not usually be the 
case for sector indexes.)   



  

Looking at the Nasdaq as a whole during that same period shown for 
INTC (chart before the one immediately above), we have a third and 
"confirming" low point established for an up trendline.  

Also, the weekly chart of the Semiconductor Index (SOX) appears to 
be breaking out to the upside from a bullish falling "wedge". This 
is not something you see on the chart of the individual stock 
itself. 

LOOKING AT MORE ELEMENTS AND PATTERNS - 


   

Retracements - something we always should be looking at also. The 
stock here did not retrace more than a "minimal" 38% of the '96 -
'97 advance and held this area on a second occasion, which was 
bullish.  38, 50 and 62% represent the typical "fibonacci" 
retracement levels.  

There was also an upside breakout above a down trendline – with a 
minor subsequent pullback to this line, which then "became" ( 
acted as) support - where buyers surfaced again.  This pattern 
could be said to "confirm" a breakout.  



 

And, what else? -- weekly closes in the chart above traced out a 
descending triangle, with a subsequent breakout to the upside.  
Per the analysis now of ALL the charts and based on our checklist 
items, we can make a guess at a next move for the stock as a buy - 
BUT not only a buy but the stock appears to have been a major buy 
on its last dip to the $17-18 area and then again on the breakout 
above $22.

OH, AND ANOTHER THING ......
The 3 "component" rallies to a typical bull trend are shown above 
as the price advances ending at "1", the next labeled as ending at 
"3" and finally, the one that tops out at the point marked "5"

The chart here labels a 5-part wave pattern of 3 component up 
swings or impulse waves, interspaced by 2 corrective price 
movements (sideways to lower price swings) or corrective waves in 
"Elliott wave" terms - locate these article in my Trader's Corner 
A-Z list on "Wave" patterns by going back to the LINK above. 

The first move up or the period encompassing a good part of the 
1999 period had the necessary 3 parts labeled a-b-c (down-up-
down). There is nothing obvious about wave 5 that tells us when it 
will end.  However, the "final" up move (wave 5 in a bull trend) 
is most often accompanied by bearish DIVERGENCES – in this case it 
was apparent from the RSI action also shown. 

Prices worked to higher highs accompanied by lower relative lows 
in the RSI, making for a classic price/RSI divergence.

BUILDING A TECHNICAL PERSPECTIVE - 
We went from a sort of "ho-hum" picture presented by the first 
chart, to one where we might end up taking double the number of 
options that we normally do and are going out to the far-month 
months while the premiums are not yet inflated given a sizable 
time to expiration in the option.   

For a longer-term trade, buying the stock and the deferred calls 
worked out well in the following 12 months, as the stock more than 
tripled from the $22 area when prices achieved a bullish upside 
breakout. 

Of course, every good fairy tale has its ending and the trend in 
the stock changed radically later on as quite evident in the next 
chart below - 



  

The above chart shows what TECHNICALLY would have been the tip off 
for a major shorting opportunity and/or some long-term put 
insurance - especially if you just couldn't possibly part with the 
stock after it tripled in value already!

Specifically the trend reversal tip off was the break of key 
moving averages, the downside penetration of the prior low and the 
price/volume divergence that showed up in the On Balance Volume 
(OBV) Indicator - prices were going up but the stock was under 
"distribution" or sustained selling indicated by the fact that the 
OBV was trending down not up. 

Believe it! - stocks usually get overvalued at some point and 
undervalued at others.  This can be on a weekly, daily OR hourly 
chart not just on the longer period used in the above example. 
Anyone following my daily Index Trader weekly column will see my 
frequent switching (and analysis) between the daily and hourly 
chart views. One timeframe is compared to the other to see if the 
technical picture "confirms" the other or suggests something else 
ahead.  

Looking at stocks on a longer-term basis, equities are probably 
somewhat undervalued again. The question is does anyone care or is 
poised to take advantage of this? - not so much in a bear market 
they don't!! 


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

Is the War Over?
Buzz Lynn
buzz@OptionInvestor.com

Wait, last I checked, it hadn't even started yet!  What on Earth 
might cause me to think the War (that hadn't yet been declared) 
was over?  Why, the drastic fall today in the price of gold, of 
course.

"Great, Buzz.  Connect the dots for us, won't you please?"  With 
pleasure!  Two weeks ago, Fundamentals Guy was on a rant about the 
shallow sound bites (often espoused by media celebrities parading 
as experts) on why the price of gold was moving up.  Their five-
second explanation usually contained a variant on the War with 
Iraq theme - "Investors bid up the price of gold today on stepped-
up war jitters. . .", or "Gold gave up ground today as tensions 
eased in the Middle East. . ." or some other such nonsense.

As F.G. noted two weeks ago:

"Gold is also presumed to be rising and falling on investors' 
moods regarding an Iraqi war and the War on Terror.  When 
uncertainty is thought to eventually lead to conflict, common 
wisdom is that 'fraidy cats and the delusionally paranoid will buy 
gold, and that that must be the reason we've seen the price rise 
in recent months.  Similarly, common wisdom also states that when 
war jitters ease, the paranoid leave their mountain huts and 
revert back to a diet of speculative stocks and 110% equity 
financing to assimilate with society.  Gold is for kooks."

So has that relationship changed?  Perhaps the ups and downs of 
War prospects really don't matter much in the price of gold after 
all?  Well, based on today's news of Britain and the U.S.'s 
frustration with France, China, and Russia's potential veto of any 
newly proposed resolution giving Iraq their 15th "one last chance" 
to disarm, which gives the 90-nation coalition in support of the 
U.S the impetus to do something or get off the pot (do something 
being the likely outcome), and that gold dropped overnight like 
it's dense cousin, the proverbial lead balloon, to $332 while 
still managing a close at just over $334, that relationship seems 
pretty rickety.  Clearly increased war tension has little or no 
bearing on the price of gold.  Were it true, the price of gold 
should rise when the TV cameras pan to see Blaire, Bush and Saddam 
Hussein in a loving group hug, an equally preposterous 
Hallucination in my opinion.

In short, the gold price/war relationship doesn't seem to exist.

So what happened that would cause gold to hit the skids so hard 
overnight?

Back up two paragraphs.  What if the preposterous were to happen 
in secret?  What if the U.S. was actually negotiating a "secret 
surrender" of some sort with Iraq?  Crazy, I know, but play along 
for a moment.  That would put a truce to a war that never 
officially started, and the world would breath a lot easier as 
tensions melted.  Gold would sell off.  

Simultaneously, that would cause the Dollar to gain strength 
against other currencies, as the U.S., Britain, and 88 other 
countries would not have a big a borrowing requirement to finance 
said war, and thus, would decrease the size of previously assumed 
deficits.  With that in mind, the U.S. stock market becomes 
instantly attractive once again, as bonds sell off.  Wow!  And 
look what happened today!  Are the markets telling us that Iraq is 
about to surrender?  

Don't bet on it.  However, the rumor of such was actually top-of-
mind scuttlebutt in overseas currency markets last night, which 
was presumed to have Dollar-denominated shorts covering their 
positions, and thus, driving up the Dollar against the Euro and 
the Yen.  A surge in the Dollar was very likely the culprit for 
the decline in gold. . .all likely sparked by a "surrender" rumor.

Short-covering born of the surrender rumor may very well explain 
the reason too that we saw amazing gains backed with significant 
volume in today's U.S. equity market, although the equity move had 
some technical chart backing too.  I can only call today's equity 
action as significant short covering.  Will it continue tomorrow?  
I can't say.  But I believe it will trip bulls back in only to 
embarrass them again in the near future.

Maybe I'll be the one embarrassed.  Like I said, I am no guru and 
I am often led to incorrect conclusions.

Be that as it may, rumors can get legs of their own, and right or 
wrong, can cause some pretty wacky price action in defiance of 
rational minds.  As Keynes (I think it was Keynes) said, "Markets 
can remain irrational longer than we can remain solvent."  

The point is that I personally believe the "surrender" is not real 
and that optimism is misplaced.  I also think that we came much 
closer to a buying opportunity in the price of gold.  F. G. wants 
to stress though that that is only with regard to price.  An 
immediate rebound from this level will likely take some 
consolidation to allow the 50-dma ($356) to play a bit of catch-up 
with the 200-dma ($330).  There is still a pretty big disparity 
that I think needs closing before we see another set of 
significant gains.  How long that is, I can't say.  After all, I'm 
not a guru!  Aside from some quick price prints into the negative 
side of $330, I would expect $330 - the 200-dma - to hold as 
support.

But to identify the misplaced optimism noted immediately above, we 
need only turn to today's economic news in the U.S.  Prior to 8:30 
ET this morning, markets were expecting a 0.5% DECLINE in retail 
sales.  The actual reported figure was a DECLINE of 1.6%, more 
than three times the expected decline.  I am convinced that the 
U.S. consumer is in the process of shutting his/her wallet.  The 
declines were broad-based in cars, furniture, building products, 
appliances, clothing, entertainment, and surprisingly, groceries.  
What, we've all stopped grocery shopping and gone on a collective 
weight loss diet?  

Financially speaking, that isn't so far from the truth, as initial 
jobless claims also came in at hefty 420,000 claims, well above 
the gray line of indifference unofficially set at 400,000 claims.  
There are now 420,000 new savers and belt-tighteners thanks to the 
proliferation of pink slips.  Still, we all have to eat and it is 
unusual to see groceries taking a hit in sales.

Personally, I think it's important to take these figures with a 
grain of salt.  At best, the figures represent a best guess that 
the Bureau of Labor and Statistics puts forth.  At worst, and by 
their own admission, sometimes they just make them up if they 
don't know, which goes a long way toward explaining why it's so 
easy to revise the January retail numbers from the original LOSS 
of 0.9% to a revised GAIN of 0.3%.  Still, it makes me wonder how 
these current or revised lackluster numbers could be greeted with 
such enthusiasm today.

But back to gold. . .what does F.G. make of today's selloff?  In 
two words, "Buying Opportunity".  Maybe not exactly today or 
tomorrow for the traders among us.  But if we are in the gold 
ownership business as an insurance policy, aka long-term hold, it 
looks pretty attractive here.  Remember, gold is in a bull market 
until proven otherwise.  And even despite a steep drop today, the 
charts tell a coming bullish story.  Take a look.

Gold - April Contract chart - GC03J (weekly/daily):


 


First off, "coming bullish" does not equal "buy it now" if we try 
to time the purchase in any way, shape or form.  While I 
personally think the price is right, I also think timing is a 
little early for a trade.  Those wanting an insurance policy 
though may consider it anytime.

But here is what the charts are saying.  Starting with weekly 
candle support at roughly $330-$332, note that dovetails nicely 
with support of the 200-dma - also $330 - on the daily chart.  I 
would consider $330 significant support based on those two 
indicators.

But the reason I would not, as a trader, be tempted in to buy it 
here is two-fold.

First, the stochastics on both the weekly and daily charts are 
still falling - in both the 5 and 10 period lookbacks - and there 
hasn't been a reversal yet.  Oversold, yes, but still room to 
fall.

Second, there is a large disparity that is just now beginning to 
close with relation to the 200-dma and the 50-dma.  This will 
likely take some time.  As this gap begins to close, I believe the 
entry opportunity becomes better.  Hovering around the 200-dma for 
a week or more until that gap closes seems appropriate, but again 
the market can do anything.  So make your buying decision 
carefully.

Remember that the 200-dma at $330, while not perfect, should 
provide heavy price gravity on a technical basis to that level.

Let me add one more fundamental thing here before signing off.  
Does everyone recall the Fed Governor, Bernanke speech, where he 
revealed the Fed's intent to use it's secret weapon - the printing 
press, capable of creating Dollars out of thin air - in order to 
prevent deflation from getting a grip on the economy?  Today's 
economic reports on retail sales and joblessness should put 
another two sturdy nails into the coffin of the U.S. consumer.  I 
look to those as evidence that deflation is taking hold.  As the 
Fed attempts to print its way back to prosperity - with likely 
limited results - and Dollars become worth substantially less, 
gold will eventually shine.

Conclusion: The fundamental case for gold still stands.  The 
technical picture shows us nearing a buying opportunity for the 
market timer.  The price drop to $334 on a rumor just made it more 
attractive.

One more thing. . .for those desiring to by CEF (AMEX:CEF), the 
closet thing to gold certificates, and the closest way to getting 
real metal into our IRAs, I'm waiting for CEF to deflate out some 
of its premium to net asset value - strictly my opinion.  There 
are those around here, namely Mark Phillips and Jonathan Levinson, 
who make a good case for ignoring the premium and buying CEF 
anyway on the premise that it's always traded at a premium (at 
least it has done so for the last five years), and will likely 
continue to do so as long as gold is in a bull market.  Personal 
preference here - take your pick and use your own judgment as to 
how you play it.

Until next time, make a great week for yourselves!

Buzz


------------------------------------------------------------
We got trailing stops!
 • Trade online with trailing stops at optionsXpress, at no extra cost 
 • Trailing stops based on the option price or the stock price
 • Also place Contingent, Stop Loss, and "One Cancels Other" orders
 • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
 
Go to http://www.optionsxpress.com/marketing.asp?source=oetics23
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
------------------------------------------------------------


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

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


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

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

Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives