Option Investor

Daily Newsletter, Sunday, 03/16/2003

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The Option Investor Newsletter                   Sunday 03-16-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Stalemate
Futures Market: Stay Tuned
Index Trader Wrap: Trading in a Broad Range Market
Editor’s Plays: Failure At Resistance
Market Sentiment: My, Aren't We Sensitive These Days?
Ask the Analyst: Market, sector, stock, with bullish percent
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Bulls Cling to Gains

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 3-14         WE 03-07        WE 02-28        WE 02-21
DOW     7859.71 +119.68 7740.03 -151.05 7891.08 -127.03 +109.31
Nasdaq  1340.33 + 35.04 1305.29 - 32.25 1337.54 - 11.48 + 38.85
S&P-100  424.07 +  3.95  420.12 -  5.24  425.36 -  4.51 +  7.30
S&P-500  833.27 +  4.38  828.89 - 12.26  841.15 -  7.02 + 13.28
W5000   7896.49 + 39.17 7857.32 -115.30 7972.62 - 63.35 +139.03
RUT      354.39 +   .21  354.18 -  6.34  360.52 -  3.84 +  5.86
TRAN    2027.09 - 15.39 2042.48 -  6.57 2049.05 - 47.36 -  6.19
VIX       36.33 +  0.68   35.65 +  1.50   34.15 +  0.01 -  2.96
VXN       45.80 -  0.59   46.39 +  0.74   45.65 -  0.45 -  2.28
TRIN       1.11            1.29            0.84            0.97
Put/Call   0.70            0.75            0.59            0.85

by Jim Brown

The markets, UN and economy all ended with a stalemate on
Friday. The UN is equally divided and hopelessly deadlocked
on any new resolution and France called a late meeting of the
five permanent members of the Security Council on Friday. They
are trying to float a resolution banning the war but obviously
the US would take pleasure in a veto of that measure. The
economy showed mixed economics on Friday with minor gains
but Consumer Sentiment fell to a decade low and stalemated
that news. The markets rallied on top of the big Thursday
gains but the sellers were waiting at key resistance points
to provide a solid stop to the +500 point move. Stalemate all

Dow Chart - Daily

Nasdaq Chart - Daily

Wilshire 5000 - Daily

There was a flurry of economic reports on Friday with mixed
results. The PPI rose +1.0% but the gains were mostly due to
inflation from high oil prices. After stripping out energy
prices the core rate actually dropped -0.5%. This is good
news for the Fed and the consumer that overall inflation is
still under control. However, core crude goods are up +14.5%
compared to last year. Sounds like a contradiction of terms
but most of the difference is in the oil prices.

Industrial Production rose only +0.1% and the lack of growth
was attributed to lack of demand. With falling output it is
very hard to increase production. The fact that any increase
was seen should be encouraging. This little to no growth is
preferable to negative growth.

Business Inventories rose +0.2% but this was near the consensus
of +0.1% and was a non-event. Sales rose slightly to push the
inventory-to-sales ratio to 1.36 and off record lows. Once
demand does pick up the ramp into production to replenish
inventories will be strong. The only question is when?

The most important report on Friday was the Michigan Consumer
Sentiment which came in at 75.0 and a drop from 79.9 in
February. This was the lowest level since October 1992.
There is no good news in this release. Energy prices, war,
terror alerts, the stock market and unemployment were given
as reasons for the severe drop in sentiment. This drop is
shown in falling retail sales, auto sales and cooling home
sales despite record low mortgage rates. Pent up demand is
almost nonexistent and even a resolution of the war may not
increase spending. The expectations component fell to 67.2
and a nine year low. The sentiment is worse now than at
any time after the 9/11 attack. This report continues to
add to the prospect that a post war rally may be short and
small with attention returning to economic fundamentals
that are weakening on a daily basis.

As a result of the sagging sales and lack of demand GM and
Ford announced manufacturing cuts to avoid stacking up
unwanted inventory. Ford is cutting 2Q production -17% and
GM -10%. Since automakers book profits when the cars roll
off the assembly lines and not when they are sold the
prospects for hitting earnings targets are slim. With a
massive pension problem twice the size of the company GM
does not have room to slow down.

Schwab joined the list of companies, which have stopped
contributing to employee's 401Ks. They used to match 2:1
up to $5,000 a year and dollar for dollar over that. The
company dropped the benefit to try and cut costs instead
of cutting more employees. Ameritrade said today that
February trading volume dropped -25% and warned that
conditions could get worse. Between the two companies
they have over 10 million accounts and both are in serious
trouble. Some analysts are warning that there could be a
roll up in the online broker community that would leave
only a couple of survivors. The massive trade volumes
that built these companies during the Internet bubble
have dropped nearly 80% over the last three years. If
we are doomed to another 2-3 years of a protracted bottom
there is not sufficient investor interest in trading to
feed all the Internet brokers. Many analysts think the
majority of traders have gone bust or used the funds for
other purposes after losing ground for three years and
there will not be a material return of these investors
even if the market rebounded.

The biggest benefit from a quick war to the economy should
be the drop in oil prices. On Friday the prospect of the
end of the diplomatic dance at the UN brought a drop in
oil to an intraday low of $34. This is a far cry from the
$39.99 it reached a few weeks back. The high gas/energy
prices are a serious drain on not only consumer sentiment
but on everything we touch. Costs and prices are rising
daily as the previous high oil works its way through the
product life cycle. Knocking oil back down to $25 a bbl
would relieve hundreds of billions in excess costs out
of the economy over the next twelve months. In four of
the last five recessions high oil prices were a major
component. If oil does not drop soon it may be five of
the last six.

The cycle is complete again. In 2.5 days we have gone from
very oversold with a TRIN over 6.0 to overbought and a dead
stop at very strong resistance. Dow 7900/Nasdaq 1350
slammed shut like a vault door on Friday to put an end to
hopes for a pre-war, pre-Fed rally. The prospects for a
rate cut were dismissed almost unanimously as too little
too late and insignificant compared to the world events
currently shaping our markets. Disappointed investors
took profits when the Dow was up +110 points today, a
+515 point gain since the Wednesday low. There was little
or no short covering going into the close as most had
already been blown out during the rebound. The Nasdaq
top at 1350 had been very strong resistance for several
weeks and we could only manage +3 points over that level
at the height of optimism Friday. The Nasdaq finished
slightly negative.

The bullish case for Monday is a market view that the lack
of a material sell off after the Dow +515 point gain is
a positive sign of bullish sentiment that should produce
a follow on rally on Monday with no adverse news events
over the weekend. Personally I am surprised there was no
material sell off but I think that it is due more to the
potential for a positive surprise over the weekend versus
a negative surprise. Short of a terrorist attack or a
shooting down of a spy plane by North Korea there is not
much else that can happen. Any Osama event or Saddam
retirement, forced or otherwise, would be a major positive
and could produce a strong gap open. For a bull to pin
their hopes on a break of 7900/1350 resistance on a
potential positive surprise could be foolish.

The bearish case for Monday would be a reentry of the
shorts into the market. Those that closed positions for
a profit on Wed/Thr probably used good judgment on Friday
and stayed on the sidelines due to event risk over the
weekend. The risk to a short from an Osama/Saddam event
would be much higher than other negative events for a
long. The normal pattern for the last several weeks was
short covering on Friday and new shorting on Monday. That
pattern was thrown off by the severe drop and sharp
rebound this week. Monday is a new week and there should
be plenty of negative news over the weekend. President
Bush is meeting with Spain and Britain in the Azores
over the weekend and the bet is that he will discuss
the chances for a successful vote on Monday and without
a majority will pull the resolution, tell them to get
out of the way and go on TV Monday night with a declaration
of war. This unilateral decision regardless of Britain
and Spain along for the ride will not set well with the
Europe/Asian markets and they should know the outcome
on Sunday night. That means we could drop hard on Monday
if the timetable for war is accelerated from April 1st.
Remember the market discounts future events and once
the outcome of the Azores summit is known on Sunday
night it will be discounting quickly.

UN inspectors began leaving Iraq on Friday, which should
be a clue as to the coming timetable. France and Germany
warned all citizens to leave Iraq immediately. France
called an emergency meeting of the five permanent members
of the Security Council for Friday night at the French
Embassy to try and block the war. According to multiple
sources the battle readiness orders went out today to the
troops to begin actual staging for the attack.

I think the outlook is clear. The clock is about the
strike midnight on the UN diplomatic dance and all the
fence sitters lobbying for concessions and payoffs in
exchange for their vote will be left on the sidelines
when the show starts. Hopefully they will be left on the
sidelines when the contracts for reconstructing Iraq
begin also. The show is about to start and the
UN's role as the center stage in this drama will end.
All of this grandstanding will be over and the fear of
the unknown before it starts will impact the markets.

Iraq has moved artillery and rockets capable of shooting
chemical and biological shells into the massed soldiers
in Kuwait and are setting up their weapons. Obviously
they will be the first Iraqi positions sacrificed by
Saddam but the fear is that they will take a preemptive
strike at us once the US issues the 48hr warning. All of
these things are very negative to a fragile market.

I know as investors we have been preparing for this for
weeks, seemingly months, but the time has finally come.
With the temperature rising in Iraq and every day waiting
is another day Saddam has to prepare the odds are the
April 1st date proposed this week may be too late.
B1 stealth bombers flew combat missions over Iraq for
the first time on Friday and dropped significantly larger
loads of bombs on targets than ever before in the pre-war.
If Saddam decides the noose is closing he may try to shoot
back at the Kuwait staging areas and that could be any day.
If he knows we are coming and he is going to lose anyway
then he has nothing to lose by starting the war. The fact
that we could be a war on Tuesday will not be lost on the
market on Monday. Of course as we have seen on a daily
basis lately the situation can and does change daily.
As investors we need to be aware of the options and be
prepared for either market direction.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


Stay Tuned
Friday, March 14, 2003
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

Contract	Last	Net	High	Low

Dow	7859.71	+37.96	7931.63	7799.48
YM 03M	7859	+57	7909	7773
Nas 100	1030.39	+0.60	1042.56	1020.17
NQ 03M	1037.50	+4.50	1047.00	1023.00
S&P 500	833.26	+1.36	841.39	828.26
ES 03M	834.25	+2.00	842.25	826.75

Daily Pivots

Contract	S2	S1	Pivot	R1	R2
YM 03H	7712	7786	7847	7922	7984
NQ 03H	1011.50	1024.00	1035.50	1048.00	1059.50
ES 03H	818.81	826.38	834.31	841.88	849.81

Yesterday the market used up a lot of jet fuel to get where it
was.  Today?  Well, we gapped up, tried to breakout above
resistance, then sold off for half an hour.  At first support the
selling stopped, and we launched upwards and broke the early
morning highs in half the time it took to selloff, pulled back
again at resistance, made a higher low, and launched again to new
highs, breaking above resistance, but it could not hold the
breakout and we sold off again to break below the morning lows.
With neither sellers nor buyers being able to take the upper hand,
we spent the rest of the day in a range, attempting to both break
up and to break down, and not being able to either.  The afternoon
did have a bullish slant to it, with a couple higher lows and
higher highs, but they really didn’t amount to anything by day’s

Did we close flat?  Rather than numbers, look at the percentages:
NQ up 0.4%, YM up 0.7% and ES up 0.2%.

Since the day closed basically flat, you can see on the following
daily charts that many questions still remain unanswered, with
mixed signals not giving any clear vision.

ES daily shows a doji at resistance (bearish), ADX on the verge of
crossing (bullish), OBV below it’s trendline, and MACD and
Stochastic as turning up but not breaking above any areas that
would indicate a real turn of trend.  Price did gap and close
above its downtrend line (bullish), but some would argue that
gapping above resistance areas is cheating, and makes the breakout
a little more suspect.

A note about those bullish divergences on the chart:  they were
present on Macd, Stochastic, RSI, and OBV.  When they all line up
with a divergence it is well worth paying attention to; and in
fact, they did foretell the reversal that we’ve just seen.

On the daily NQ chart, there is a significantly higher level of
bullishness.  Macd and Stochastic have moved above their
centerlines, ADX has a strong crossover, and RSI is above a
downtrending line.  The only thing not confirming here is the OBV,
which still remains relatively low.  Price is also just above the
upper tine of the regression channel, a resistance area.

YM has a bit of a divergence in all this bullishness.  Price has
been very enthusiastic, more so than for ES, but the indicators
are not responding with the same enthusiasm.  Compare the
positions of Macd, Stochastic and ADX to that of the ES.

So the daily charts have made an attempt at an upside reversal, NQ
doing the best job of it so far, ES really trying, and YM looking
like a little more weakness will create a bearish divergence.

Since the daily charts leave us wondering, I went and looked at
the 60 minute, the 120 minute and the 270 minute charts.
Unfortunately, they don’t really tell me anything other than that
we’ve broken downtrend lines because of a huge move up, and that
today’s price action just reset some of the overbought aspects of
the futures markets.  To really be able to get information from
charts, we need them to act with a little bit more sanity.  To go
straight up with hardly any pullbacks doesn’t help much, and
leaves us waiting for some kind of confirmation:  break above
resistance or pullback below support.  We did not get either

Here is a  270 minute, all sessions chart of the ES.  You can see
how in this chart, the Stochastic, MACD and RSI have moved into
and are still in the overbought area.  It may be overbought, but
it hasn’t rolled over.  With nothing clear, all the charts can
tell us is, stay tuned.


Trading in a Broad Range Market
By Leigh Stevens

The further retreat last week to areas at or near prior lows
again supports the idea of the indices as being in a broad
trading range, which is good for trading. There appears to be a
definite perceived "value" area for stocks, especially by
institutions, best seen in the S&P 100 (OEX) when this index has
gotten into the 400 area.  Since the market is now well off its
recent lows, the next best new trade is to buy puts in the
identified (below) index resistance areas, especially given the
short-term overbought condition.

Even with the confrontation over Iraq getting very close to
resolution one way or another, traders Friday were reluctant to
place bets on what will happen next after the sharp rise Thursday
and after a gain of 100 points early Friday.  Hey, comes the
weekend, take profits if you got em!

This was the first week in a while when the major indices were
actually up from the prior weekly close.  The Dow was up 1.5% and
the Nasdaq gained 2.7%.

The market seemed to feel that Friday was a significant plus, in
that the strong gains from Thursday were sustained - on Thursday
the Dow rallied some 3% and the Composite more. Traders reacted
bullishly to an update from President Bush early on Friday that
related to the Mid East peace process. Instead of talking about a
"roadmap for peace" between the Israelis and Palestinians, market
participants had thought he would say something about Iraq.
Stocks were trading lower before the speech, but rose steadily
during the course of it.

Traders saw his more general statement as an attempt to diffuse
some tension in the Arab world and gave some lift to the outlook
for a post-Iraq conflict. The market's latest thing is looking at
the outcome as one that would probably come out all right.

The White House also said the president will use a Sunday summit
meeting with the leaders of the United Kingdom and Spain to try
to forge a compromise resolution on Iraq that can be accepted by
a majority on the United Nations Security Council.

That development was one factor prompting as much as a $2 a
barrel drop in U.S. crude oil prices, though they climbed back as
the day went along. Fears about tight supplies were eased when
Saudi Arabia indicated that it is sending more than a dozen oil
tankers to the U.S. to increase low crude oil inventories.
Traders and investors largely did NOT focus on some positive
economic news, with the country nearly paralyzed by the
uncertainty over war and its uncertain outcome.

Just after the Friday open, stocks dipped with the University of
Michigan's preliminary survey of consumer sentiment for March. It
registered at 75, below the 78 that economists had expected. The
consumer sentiment index stood at 79.9 in February.

Producer prices rose by 1% in February, after jumping 1.6% in
January, as reported by the Labor Department.  Consensus
estimates were for a rise of 6 tenths (0.6%) of a percent.
Core producer prices - which exclude food and energy costs - fell
by 0.5%, after rising 0.9% in January, versus expectations for
core prices to remain unchanged. The drop in core prices amid the
continued overall gain is showing how much energy prices are
impacting producers.

Business inventories rose by 0.2% in January, after rising a
revised 0.7% in December, the Commerce Department reported. The
result was below estimates of a 0.3% increase.

U.S. industrial output increased 0.1% in February. Gains at mines
and utilities offset losses in motor-vehicle production,
according to the Federal Reserve - this versus expectations for a
0.1% decline. Capacity use held steady in February at 75.6%,
stronger than the 75.4% economists had predicted.

The U.S. current-account deficit widened to a record in Q4. The
deficit came in at $136.9 billion, up from $127 billion in the
third quarter, but was not a surprise.

Gold continued to retreat from the $350 area, falling to around
$337 in terms of the nearby COMEX gold futures. Gold has tended
to move inversely to the financial assets and is now under my
"danger" zone (for stocks).

The 10-year Treasury note was up nearly 13/32. The yield (moves
inversely to price), fell to 3.704%. The 30-year bond gained
19/32 to yield 4.715%.

The dollar was down some against the Yen at 118.26, versus 118.65
the day before but up slightly versus the Euro, which finished at
$1.0742 down from $1.0781 late-Thursday in New York trade.


Dow Industrial Index (DJX) – Hourly chart:

Re the triangle on the Dow hourly chart: "expect follow through
on a move to below or above those converging lines." (We got the
decline when the breakout was to the downside.) "Based on the
measuring implications of the triangle pattern, downside
potential is to 75.5 approximately."


When I re-did an exact measurement, the implied downside
objective (by the vertical length of the triangle came out pretty
exactly where the Dow made its low.

What now? The prior high at 80.7 in the Dow Index (Dow 8070) will
be tough to surmount without a correction first given the
overbought condition registering in the hourly stochastic models.
Buy puts on rallies to or above 81.0 if reached but stop out on
an hourly close over 82.0.

More on the "measuring" implications of triangles at -

S&P 500 Index (SPX) – Hourly chart:

As I said previously the S&P 500 (SPX) would have had to have had
a WEEKLY close under 800 to suggest that the S&P was going to
have another down "leg" rather than what turned out to be the
expected retreat to the low end of its (trading) range. The dip
under 810 turned out to be a significant support area and a
profitable trade in SPX calls.  Hard to do - buy, that is - when
the market appears to be falling apart and with a lot of bearish
news around.  You got to buy em when no one else appears to want
them sometimes.

I suggested to buy puts in the 840 area - 841 was reached - and I
would stay with that trade, risking to 845.  If 845 is reached, I
would rather hope to buy (puts) again on any rally to the 850
area.  A close over 850, or (better) TWO consecutive closes over
850, would suggest that upside potential might be to 870.  Maybe
wishful thinking! - to get that kind of rally for a next put

S&P 100 Index (OEX) – Daily and Hourly charts:

The OEX rallied to within a couple of points of its 430-432
resistance area.  I suggest buying puts IF the OEX stalls on a
rally to the prior 432 highs, risking to 435.  Would like even
better to buy puts in the 440 area, if reached.

I discussed in my last weekly wrap up the likelihood of major
support (buying interest) coming in at 400-405 of course and
suggested a short-term trade on the call side if 405 was seen and
both stochastic models were again fully oversold - my
stop out point was a below 400 and my trade objective was 420,
which was seen of course.  Take the money and RUN, especially when
it's a quick unexpected profit!

410 looks to be support now and I would consider buying (calls)
on dips to and under this area, but not below 408.

NASDAQ 100 Index (NDX) Daily chart –

From last week however - suggested put purchases if the NDX got
back up into the chart gap area - the closer to 1050 the better.
The index did get slightly into the gap by its move to 1042,
which happened in short order once the index cleared resistance
at 1020. If long puts above 1040, I would risk to 1046 only.

The gap area extends up to 1059. The closer that NDX gets to this
area, the better the downside potential in my view.  If in this
trade and if you want to give it plenty of leeway, exit on a
close above this same gap area or on a close above 1059.

990, at the 21-day moving average now looks to be near support.
950 is major support. The Nasdaq TRIN showed heavy buying on
Thursday, but this trend would have to continue for the 10-day
Arms Index (TRIN) to fall to an "oversold" reading closer to the
lower dashed (red) line.

QQQ Daily and Hourly charts:

I last suggested shoring above 25 - if in that trade I would set
a stop order above 26.00. If the Q's rally to above 26, they
could get up to what I see as tougher resistance around 27.00, an
area I suggest shorting.

QQQ definitely broke out above its downtrend channel as you can
see above.  Near support is probably back at this (upper) channel
line at 24.8 currently.

I suggested a possible long side trade if 23.50 was seen and
risking to just under 23.00 - the low for the move was 23.54 -
hope you were willing to buy in that AREA rather than the exact
price! My objective was for a move back up to 25-25.50, which was
easily reached and then some.

With war maybe coming up this week, trade carefully, if at all.
Might be a good time to trade very lightly if at all!

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Editor's Plays

Failure At Resistance

The play of the week is only a week long play, more if you
want but a week should work. As I mentioned in my market
wrap this Sunday the Nasdaq came to a dead stop at strong
resistance at 1350. The same resistance level on the NDX
is 1040 and it came to a dead stop at that level as well.

The NDX is the base for the QQQ at and trades in a 40:1
ratio to the QQQ. The QQQ closed at 25.73 on Friday. The
potential for the market to return to last weeks lows
within the next five days is very good. With the
unofficial start date of the war now March 24th and
the possibility of a declaration of war by President
Bush on prime time TV Monday night, the markets are poised
to move and the odds are good it will not be up. With the
Compx/NDX snuggled up against resistance that dates back to
January 17th it would take a very bullish event to power
the indexes over this level.

Since options on the QQQ are very cheap I am suggesting
buying a March $26 put QAV-OZ at the open on Monday. It
closed at an ask of $.75 cents on Friday but with two
more days of premium decay over the weekend it is possible
you could buy it in the 50-60 cent range. This would be
especially true if we get even a minor bit of green at
the open on Monday. Ideally we would get a bounce back
to resistance at 1350/1040 and another failure and that
could allow us the potential for a 35-45 cent entry.

I am projecting initial support for the NDX at 982, which
equates to $24.55 on the QQQ. A $26 put would be worth
$1.50 or more at that level. Obviously an entry at 35-60
cents and an exit at $1.50 would provide a +100% gain.

The obvious risk points here are a failure to drop or a
failure to drop by Friday. The first risk is the risk
anyone takes with any speculative investment.

The second risk is one of timing and you could eliminate
this risk to some extent by moving to an April put option.
Unfortunately the April option is $1.45 and a drop in
the QQQ to $24.55 would only produce a corresponding gain
in the April premium of 50 cents more or less. This return
would be more in the 30% range and the risk is tripled if
the QQQ surprised us with a move up.

This is an expiration week lottery play and best done
with the March option.

Go long the March $26 put at the open on Monday on a
bounce if possible but definitely Monday before the
QQQ breaks $25.50 to the downside IF possible.

Be prepared to sell the option at a 100% gain or trail
a stop loss to avoid any bounce. I would not try to
stretch the play past $24 as this should be secondary


Just because the options are cheap does not mean you
should buy a bunch. It is a speculative gamble and
should only be done with money you are prepared to lose.


Play updates:

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

DJX - Laddered Calls - $78.59
Mar-9th ($77.40 when recommended)

We were only triggered on two of the laddered calls. We hit
76.00 and 75.00 and missed 74.00 by 19 cents. The prices on
the calls when hit were $2.15 for the $76.00 entry and $1.75
on the $75.00 entry. They closed the week at $3.40 so you
could close the play now for a nice profit of $1.45 per
contract or $2900 according to the game plan. You could close
them on Monday morning if the market appears headed down
and then reenter the play from scratch when the same entry
points were hit again. For record keeping purposes that is
the way I am going to account for it. We are well above
the initial entry points and I am considering the play


CY - Cypress Semi Call - $6.63
3/2/03 ($6.41 when recommended)

Cypress rallied to near $7 on Friday and closed at $6.63
despite the Nasdaq weakness. $6.75 was the resistance when
it was first recommended and that resistance appears ready
to break. Looks good for the long term and weakness next
week may be your last chance to get in below this price.


HLTH - WebMD Call - $8.49
Feb-21st ($9.78 when recommended)

WebMD received a negative rating from First Albany after
the HLTH earnings. The company said they were skeptical
for the long term growth prospects and did not understand
the business model. The stop dropped to 8.45 on the news
from a near breakout open at $9.88.  This may keep a lid
on the stock for sometime and I am going to drop this play
today. I was already troubled by its inability to break
$10 over the last month despite the bad market. It broke
support and I suggest putting the money to work elsewhere.


Microsoft Call - Feb-16th $24.84
(MSFT $24.15 when recommended)

Microsoft has roared back to life and rebounded from a $22.55
low on Wednesday to close at $24.84 on Friday on strong volume.
I was never worried about this one and you should not either.


EMC Call from Feb-2nd  $7.32
($7.70 when recommended)

EMC also rebounded from a $6.54 low this week and back into
respectability but right back at the same $7.50 resistance
we have seen for the last few weeks. This is a long term
play and we should not be concerned about these fluctuations
based on market instability.


NEM Put from Jan-26th $25.09
($30.15 when recommended)

Again, NEM is trading exactly as we expected falling to
a low of $24 on Thursday before rebounding slightly on
war talk on Friday. The March $27.50 put profiled at
$1.10 in January traded as high as $3.20 this week. I
would close that option next week on any drop in NEM.
The June $27.50 put profiled at $2.25 traded as high as
$4.20 but once the first week of the war is over and
positive news about victory emerges NEM could drop as
low as $22. I would sell the June put with a NEM trade
at $22.00.


BZH May $50 Put - From Feb-9th $55.84
($55 when recommended)

We have gone from feast to famine to feast on BZH. The
positive earnings from another home builder in the sector
lifted BZH from $52.50 back into the downtrend channel
but not above support. It just means we need to wait
for the news to burn off again. This was a May option
play and we have plenty of time. Daily headlines continue
to predict a cooling in the home builder sector and
inventory levels are rising.


Powerball - From 12/29/02

The PowerBall Lottery play jumped +$115 in value this week
despite the Nasdaq weakness on Friday. Corning remains the
only winner so far but these are January-2004 leaps and
we have plenty of time. The initial concept in December
was to capitalize on any 2003 recovery by investing minute
amounts of money in beaten down tech companies and expecting
many of them to rise substantially while others failed for
a few cents. No change here but I am cussing RFMD.

It would cost you about $815 to buy one contract of each
today. Any one contract could repay that $815 by 12/31/03
leaving the rest as profit. It is a high risk "LOTTERY"
play but then $815 is not much risk.

It would have taken $1,255 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03



Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown


My, Aren't We Sensitive These Days?
by Steven Price

We got yet another snapshot of current market sensitivity to geo-
political concerns with the early trading action on Friday. We
started the day with a number of economic reports that took the
shine off some big overnight gains in the futures, but still led
us higher to begin the day. That economic data was simply window
dressing ahead of a press conference from President Bush that was
scheduled for 10 a.m.  Of course that press conference also
coincided with another piece of economic data, complicating
matters for traders looking for the development of a trend.

That piece of data, the preliminary University of Michigan
Consumer Sentiment reading for March, came in at its lowest level
in more than ten years, falling to 75.0 from a reading of 79.9 in
February. That was worse than expectations for a drop to 76.7 and
started the markets rolling downhill. The Dow reversed all the
way to a test of 7800, trading as low as 7799 just before the
president started talking.  I'll get back to the contents of the
index in a moment.

Then came the press conference.  Guess what?  No talk about Iraq,
just about a new "roadmap for peace" in the Middle East,
concerning Israel and the creation of a Palestinian state.  After
the conference, the markets cruised higher, building on the huge
reversal from Wednesday's lows and making a run back over Dow
7900 to a high of 7931.  It was a reversal of 130 points on NO
NEWS!  That shows us just how much negativity is built on a
possible U.S. invasion, or at least an invasion without the
support of the U.N.  Just the fact that the President took a
break from talking about Saddam was seen as bullish by traders
expecting an announcement of impending action.

Back to Consumer Sentiment.  The internals of the report showed a
drop in the current conditions index from 95.4 to 87.1 and a drop
in the expectations index from 69.9 to 67.2.  For anyone
wondering just how much war fears are contributing to the poor
retail sales data we received on Wednesday, a third of consumers
mentioned the war and possibility of domestic terrorism as a
major factor in their caution on the economy. The head of the U
of M's consumer research program said, "Even after a quick and
decisive victory, consumer spending will remain subdued through
the balance of 2003."  Fewer consumers also expect to buy durable
goods (high ticket items) in the next six months than at any time
in the past ten years.  While we have had a nice rally in the
past couple of days, it doesn't appear that we should see an
increase in spending from the consumer side at least until the
international situation is resolved and maybe not even afterward
for quite some time. It seems unlikely that the prospect of war
is preventing the average shopper from buying furniture or
appliances and an increase in consumer spending will likely hinge
on businesses' decisions to start spending and hiring once again.

The producer price index rose once again in February, mostly due
to higher fuel prices. The core rate, which excludes food and
energy, actually fell 0.5%. War fears figure into this number
directly, as oil continued to climb throughout last month.  We
have seen some relief in those prices over the past couple of
days, which is reflected in the April crude oil futures.  The
difficulty the U.S. is having building a coalition has pushed the
beginning of a possible invasion back, which has had a calming
effect on the price of futures.  Saudi Arabia has also committed
to higher output in case of war and the Bush administration has
indicated it might release oil from the national reserves. All of
this has dropped the April contract from a high of $40.00per
barrel on February 27, to a current reading just over $35.
Following this morning's Bush speech, it dipped as low as $33.80.
The drop in prices should help producer prices in March, unless
we launch an invasion, at which point we can expect an initial
spike, likely above the recent high at $40.

The big rally that followed the Bush speech eventually found
sellers and reversed the gain back into the red after the initial
euphoria wore off.  Considering Bush is meeting with leaders from
Spain and Britain over the weekend, it is likely they are
outlining a plan to go into Iraq without U.N. support.  When
combined with the disappointing Sentiment data, the bulls that
had pushed the market higher over the past couple of days
eventually took some profits.

The other factor that played a role in the rally of the past
couple days was a massive asset allocation from bonds back into
stocks and that allocation appears to have run its course for the
time being.  Even during the post-speech rally, bond yields
lagged the market, with the 5-yr and 10-yr yield turning green
briefly only at the top of the rally as the Dow traded over 7900,
before sinking back into the red once again (indicating buyers
switching back into bonds, driving yields lower).  By the end of
the day, the five, ten and thirty year yields were all negative,
showing a shift back into treasuries after a sell-off in those
instruments coincided with the move back into stocks over the
past couple of days. That inflow of cash back into the bond
market came in spite of small gains in the broader indices and a
flat day for the Nasdaq. The move is a bearish signal for
equities, but following a much larger move in the opposite
direction since Wednesday morning, it is hard to tell if things
were just settling down ahead of the weekend with positions being
taken in, or if it was truly a signal that the equity rally had
run out of steam and we are ready to reverse back down.  With the
weekend summit, it is likely that much of the afternoon churning
in both markets came from traders tightening up positions ahead
of whatever announcements come after the meeting.

The Dow, OEX and SPX all posted small gains and the Nasdaq was
pretty much flat by the end of the day.  However, the most
significant technical level that was tested was Nasdaq 1350.
The Nasdaq rallied to 1353 numerous times throughout the end of
February and beginning of March without breaking thorough,
eventually falling to a new relative low last week of 1253.
Today's high was 1352.84, indicating we are still seeing sellers
at that level.  Traders can watch that index for signs of true
bullishness and shorts from these levels may want to leave stops
around 1360, as it would indicate a significant breakthrough and
a possible run at 1400. In the Dow, although we stalled at 7900,
the more significant resistance levels lie at 8000, 8050 and
8160.  If those are broken, look out above.  If we begin to fail
at those levels, they may be good short entries for traders
looking to pick a top, particularly if they coincide with 1350
resistance in the COMP.


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  7860

Moving Averages:

 10-dma: 7706
 50-dma: 8115
200-dma: 8488

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  833

Moving Averages:

 10-dma:  822
 50-dma:  859
200-dma:  897

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1030

Moving Averages:

 10-dma:  989
 50-dma: 1007
200-dma:  996


The Semiconductor Index (SOX):  The chip stocks finally pulled
back today, with the SOX losing 1.7% on the day.  While it
underperformed the Nasdaq, remember it gained 8% on Thursday and
broke into new territory above 300. The closing high at 310 on
Thursday was a significant resistance level from late December
and today's closing pullback indicated that although we traded as
high as 313.56, a close above 310 is still going to be tough.
Even tougher yet might be the descending 200-dma, which now sits
at 317.74 and has not been crossed since May 2002.  If we do
manage to break that 200-dma, look for a run to 330 as the next
test of resistance.  While we did see a pullback, remember the
chip stocks have been strong and have given back very little of
their gains and are at their highest levels since mid-January.
We have actually closed our SLAB call play for a profit, as it
has run into resistance and will likely wait for a test of the
200-dma before going long in the sector with so many of the
stocks near resistance.

52-week High: 393
52-week Low : 214
Current:      305

Moving Averages:

 21-dma: 288
 50-dma: 292
 200-dma: 317


That 34-35% support level held firm in the VIX on Friday.  In
fact, even on the morning rally of 130 Dow points, the VIX
dropped less than 0.60 and bounced off the 200-dma of 35.40,
which also now crowds the support area that has signaled
pullbacks in the equity market on each test since the end of
January.  That low of 35.27 coincided with today's top and
traders watching the VIX test 35% could have used it as an
indicator to short the rally for at least a brief drop. If we do
get a continuation rally which drops the VIX below 34% on a
closing basis, look for the next support in the 29-30% range to
signal another equity pullback.  Beyond that is the recent
extreme of 26% from the Nov-Dec and mid-Jan equity highs.  If we
manage to reach that level, bulls should be tightening stops
dramatically because the music is likely to end there.

CBOE Market Volatility Index (VIX) = 36.33 +0.40
Nasdaq-100 Volatility Index  (VXN) = 45.80 +0.82


          Put/Call Ratio  Call Volume   Put Volume

Total          0.70        651,503       456,495
Equity Only    0.58        478,164       276,805
OEX            1.07         30,260        32,286
QQQ            0.87         89,349        77,518


Bullish Percent Data

           Current   Change   Status
NYSE          35.6    - 0     Bull Correction
NASDAQ-100    34.0    + 1     Bear Confirmed
Dow Indust.   10.0    - 0     Bear Confirmed
S&P 500       28.6    - 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  2.01
10-Day Arms Index  1.82
21-Day Arms Index  1.43
55-Day Arms Index  1.38

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


Market Internals

        Advancers     Decliners
NYSE       1585           1249
NASDAQ     1454           1569

        New Highs      New Lows
NYSE        62               66
NASDAQ      48               64

        Volume (in millions)
NYSE       1,817
NASDAQ     1,585


Commitments Of Traders Report: 03/11/02

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

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

S&P 500

Commercials added to both sides of the equation, with an
additional 14,000 long contracts and 13,000 shorts.  Small
traders mirrored that activity, adding 5,000 longs and 4,000

Commercials   Long      Short      Net     % Of OI
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%)
03/11/03      440,688   485,938   (45,250)   (4.9%)

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
02/18/03      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%
03/11/03      169,450   102,631    66,819     24.6%

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


Commercials added almost equally to both sides with 3,700 long
contracts and 3,000 shorts. The slightly higher addition to the
long side was similar to the activity in the S&P.  Small traders
got longer as well, with 3,000 additional long contracts and
1,600 additional shorts.

Commercials   Long      Short      Net     % of OI
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%)
03/11/03       43,641     56,020   (12,379) (12.4%)

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
02/18/03       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%
03/11/03       27,196     9,674    17,522    47.5%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02


Commercials broke ranks in the Dow, adding 1,600 short contracts
and only 400 longs.  Small traders added 300 long contracts and
reduced shorts by about the same amount.

Commercials   Long      Short      Net     % of OI
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%
03/11/03       21,726    14,370    7,356      20.4%

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
02/18/03        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%)
03/11/03        5,549     7,727    (2,178)   (16.4%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01


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Market, sector, stock, with bullish percent distribution

Jeff:  Thanks to OI and your commentary regarding the bullish
percent indicators, I've grown more interested in how this
indicator of measuring supply and demand.  It has really helped
me understand market risk and its ability to alert me to pending
weakness and strength in the markets.  My question that you might
cover in a future Ask the Analyst column is where I can find some
good sector data that uses this same type of technique.  Can you
direct me and perhaps other traders to a source and give us some
idea of how to look for sector moves?

I'm glad you are using the major index bullish % data, and right
now is perhaps an excellent, if not timely point to discuss not
only the various "market" bullish % indicators that we discuss on
a daily basis like the S&P 500 Bullish % ($BPSPX), but also the
various sector bullish %, that we will quote from time to time
and the "six cycles" that a market or sector can be trading in.

I subscribe to Dorsey/Wright and Associates point and figure
charting, for the sole purpose of their sector bullish % data.  I
also subscribe to Stockcharts.com, but they don't quite have the
extensive and broad sector coverage that I like to have at my

If any other traders know of, or have found a good source of
sector bullish % data, I'd love to know about it and check it

Now, http://www.dorseywright.com has various "service levels" for
subscribers.  When I was investment advising with a client base,
I used Dorsey's "professional" version, which had a very clear
way of UNDERSTANDING how the various sectors were performing
internally, which then gave me a much better understanding of the
broader MARKET.  Their "professional model" had a tool that
allowed me to quickly look at the various sector bullish % in a
visual presentation.  However, just as I've said that hand
charting a couple of your favorite stocks on a piece of graph
paper gives you a better feel for the stock you're trading, I
also like to "hand graph" Dorsey's bullish % data for the various

In my commentary, subscribers have thought that I've lost my mind
when I talk about how the MARKET tends to move like an inchworm,
or even a snake.  Where at certain times (several weeks or
months) there are sectors that tend to be at the "head" or "tail"
of a move.

My first comments regarding how I felt the markets moved like an
inchworm was in a May 23, 2002 intra-day update  when I was
focusing in on the Semiconductor Index (SOX.X), Biotechnology
Index (BTK.X) and Software Index (GSO.X) as key sectors to
monitor for a move in the QQQ.  I drew a goofy chart of what was
supposed to be an "inchworm" and how the markets tend to move up
or down in similar manor.

Here's my "inchworm" chart from that update and the point I was
trying to make as what to look for, if the QQQ was going to be
able to make a bullish move higher.

How and inchworm moves like a market chart.

Now, as it relates to the past couple of years, this chart should
have had the "head" of the inchworm pointed 180-degrees opposite,
but we've still seen rallies from a low, where the inchworm's
head has lead to the upside.  In my mind, the "head" of a market
usually has a sector or two, leading the advance.  For sector
index traders and ESPECIALLY stock trader's, being in the HEAD of
the move upward is where a bull wants to be, and where a bear
does NOT want to be, especially if the inchworm is "coiling" and
getting ready for a move higher.

It has been said that 70-80% of a stock's price action is
attributed to both the market and sector conditions, and this is
were the bullish % can really help a trader benefit from up and
down moves.

A trader that decides to begin using sector analysis in both
their stock specific and market index analysis for understanding
"risk" and building strength and weakness, one way to view the
relationship of how sectors will move is view the sector bullish
% in graph form, where a horizontal scale is derived.

What you will usually find, is something that looks like a "bell
curve" or a normal distribution.  Now... take the above chart of
our inchworm, an rotate it (in your mind) 45-degrees.  Look at
the "pink" inchworm in the middle.  Doesn't it look like a bell

I went through all of Dorsey/Wright's sector bullish % data and
did this.  I looked for the month of December, 2002, and plotted
each of their sector bullish % on a piece of graph paper (a
Microsoft Excel spreadsheet).  I then "color coded" each of the
sectors as to their 6-phases of condition that a sector or market
may experience at any cycle of distributions or accumulation.

The "six conditions" or "cycles" are Bull Alert, Bull Confirmed,
Bull Correction, Bear Alert, Bear Confirmed, Bear Correction.  I
wrote more complete article on this in a "Bailey's Basics"
article titled, "Understanding risk is key."  PremierInvestor.com
subscribers can review this article from this link below.
while OptionInvestor.com subscribers can view it by
clicking this

Here's a look at a "sector bell curve" from December 2002.

December 2002 Sector Bell Curve Graph

There was a lot of "green" on the screen in December in the
various sector and major market bullish % indicators.  Do you see
the "bell curve" type of distribution?  The major market bullish
% that we follow from www.stockcharts.com showed the very narrow
(only 30 stocks) Dow Industrials Bullish % ($BPINDU) having just
reversed from above 70% lower into "bear alert" status.  The also
narrow (just 100 stocks) S&P-100 Bullish % ($BPOEX) and NASDAQ-
100 Bullish % ($BPOEX) were at "overbought" levels above 70%.
The broader S&P-500 Bullish % ($BPSPX) (500 stocks) was nearing
the 70% level and still "bull confirmed, while both the very
broad (3,000 stocks each) NASDAQ Composite Bullish % ($BPCOMPQ)
and NYSE Composite Bullish % ($BPNYA) were "bull confirmed" and
reflected a more "normal distribution" of bullishness.

The remaining "symbols" are those given by Dorsey/Wright and
Associates.  They give a free 3-week trial to those interested at
www.dorseywright.com .

Traders that like to trade gold stocks are interested in the
BPPREC (precious metals).

Technology stock traders follow the Semiconductor (BPSEMI),
Software (BPSOFT), Electronics (BPELEC), Computers (BPCOMP),
Internet (BPINET), Telecom (BPTELE) and Biotechnology (BPBIOM).

Those that like to trade the financials will follow Insurance
(BPINSU), Broker/Dealer (BPWALL), Credit/Lenders (BPFINA),
Saving/Loan (BPSAVI) and Banks (BPBANK).

Deeper cyclical sectors that may be deemed more economically
sensitive would be Steel (BPSTEE), Airline/Aerospace (BPAERO),
Textiles (BPTEXT), Transports (BPTRAN), Non-ferrous Metals
(BPMETA), Machinery (BPMACH), Forest/Paper (BPFORE), Building
Products (BPBUIL) and Chemical (BPCHEM).

Healthcare traders like the Healthcare (BPHEAL) and perhaps
Pharmaceuticals (BPDRUG).

Energy traders will monitor the Oil (BPOIL), Oil Service (BPOILS)
and even the Gas Utilities (BPGUTI).  It's interesting at times
to see great divergence between the Gas Utilities and Electric
Utilities (BPEUTI).  If your a "dividend investor" and attracted
to the higher dividends, then it can be helpful to ascertain what
sector might be the "strongest/weakest," but also the "riskiest."

Somewhat "discretionary" income sectors would be Restaurants
(BPREST), Leisure (BPLEIS), Retail (BPRETA) as well as Gaming
(BPGAME) and perhaps Autos (BPAUTO).

No money to throw around, but have just enough for the basic
necessities of life?  How about Waste (BPWAST), Household
Products (BPHOUS)

Concerned about terrorism, or security?  Perhaps Protection
Device makers (BPPROT) is a sector worth following to determine
strength weakness.

A trader that follows and begins to understand all the rotation
and movement that can take place among the SECTORS, begins to see
how these sectors are almost like... well.... kind of like blood
pumping through the inchworm.  Do inchworms have blood?  Maybe
plasma.  Anyway.... compare the above chart, with what we're
looking at today.  Then, think about what "sector" a certain
stock you hold long/short or put/call has done in the past 3
months, and try to make the "tie" with the sector bullish percent

Here's what the current sector and major market bullish % "bell
curve" looks like.  Note the "change" in their classified "market

Current Sector Bell Curve Graph

While I'll talk about how sectors tend to have the markets moving
like an inchworm or a snake, we can see how the inchworm has been
moving "left" or "lower" since early December.

Sometimes, a decline from a very high level of bullishness, seems
to have some type of "gravity" exacerbating a move lower as risk
removed from an "overbought" condition is like dropping a piano
from the 20th floor balcony.  That's what has happened to the Dow
Industrials Bullish % ($BPINDU) and Wall Street ($BPWALL).
Sometimes, a "bottom feeder" will think a "sure bet" is to buy an
"oversold" sector on thoughts that it will certainly rebound.
That would have been a terrible mistake in December if looking at
Latin America (BPLATI), which was a weak sector in December, and
has gotten even weaker.  I now a good time to be full position
short/put the Dow Industrials, or a "Broker/Dealer" stock?
Probably not when benchmarking back to December when they were
both rather high on the bullish % scale and "bear alert."

One sector that might be worth following from the "bearish" side
right now, is savings and loan (BPSAVI) group.  Traders that are
learning the bullish %, don't think they can ever go to 100%
bullish, but this group reached 94% bullish in May of 2002 and is
currently showing some internal strength, but in a "bear
correction" status.  A name familiar to many is Washington Mutual
(NYSE:WM) $33.53, which is perhaps the sector "bellwether."

One sector that has really had a bull's attention and perhaps
finding his/her money has been the Internets.  While the bulk of
sectors have been shifting to the left, the Internets have been
holding steady.  What are some "top of mind" names in this group
that you might consider "sector bellwethers?"  How about
Amazon.com (NASDAQ:AMZN) retail/Internet, eBay (NASDAQ:EBAY)
retail/Internet, Yahoo! Inc. (NASDAQ:YHOO) Internet, AOL Time
Warner (NYSE:AOL) media/Internet (see also BPMEDI).

In our Index Trader Wraps, I've added the S&P Banks Index (BIX.X)
to our pivot analysis matrix, and have classified this sector as
a "key sector" for S&P 500 (SPX.X) and S&P 100 (OEX.X) traders to
be monitoring and understanding.  Do you see perhaps why I've
classified it as a "strong sector" that is starting to show some
very negative weakness, and should that weakness continue, could
drive the SPX and OEX lower?  True, it is just one sector, but it
may be the "head of the inchworm" that is turning back to see
what's pulling at everything else.  This can act like a "sledge
hammer" that pounds a nail and drives it lower.  You can see
where the S&P 100 Bullish % ($BPOEX) and S&P 500 Bullish %
($BPSPX) are at in relation to the banks.

Two stocks I've mentioned in the Drugs sector (BPDRUG) has been
"bearish" McKesson (NYSE:MCK) from $25 on a "bearish triangle"
pattern, and "bullish" Forest Labs (NYSE:FRX) based on strong
relative strength.  I've also mentioned both stocks as a "pairs
trade" where a trader shorts/put MCK and buy long/call FRX.  Just
recently, March 13th to be exact, the Drug Sector Bullish %
(BPDRUG) from Dorsey/Wright just turned "bear confirmed."  This
can become a negative for FRX, as the sector continues to
deteriorate, and if its true that 80% of a stocks price action is
sector related, then a FRX bull doesn't necessarily like the
sector action that is developing.  However, the bearish trader in
MCK likes the action as it gives some "confirmation" from the
sector that there may be continued weakness in MCK.

I could go on and on about stocks and how important sector
analysis is.  Traders that will "think back" to good trades in
individual stocks and perhaps look at the sector bullish % charts
from Dorsey/Wright and Associates, will probably discover some
amazing things.

What you will often find, is that your best bullish trades came
from a stock that was showing good relative strength versus the
market, or the sector that it was associated with, when the
sector bullish % reversed up from a low level (near 30%) of
bullish%.  Your good bullish trades were found in strong stocks,
but the gains were perhaps limited as the position was entered at
a higher level of bullish%, when sector and stock risk were
getting ready to be removed in the weeks ahead.  Your worst
bullish trades may have been found at a very high level of
bullish %, or was entered during a more bearish cycle when the
bulk of stocks in the sector were generating sell signals.

Bears will most likely find that their best bearish trades came
from a stock that was exhibiting signs of weakness, just when, or
before the sector bullish % reversed from a high level of
bullishness into a "bear alert" or "bear confirmed" status.  Good
trades were found as sector bullishness continued to deteriorate
in a "bear confirmed" status, but was closer to the 30% level of
bullishness.  The terrible bearish traders were either found when
the sector bullish % was at or below the 30% level, or the
bearish position was on a stock that was in a strong sector that
was gaining bullishness and moving against other sector action.

So.... this is one way, which I think a trader/investor can
really get some excellent observations from sector bullish % data
and make visual observations of what sectors are on the move,
what direction they're headed toward, and what level of risk on
the scale of 0-100 is in the trade.

Jeff Bailey


Market Watch for the week of March 17th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

DG     Dollar General Corp.  Mon, Mar 17  Before the Bell     0.31
TECD   Tech Data Corporation Mon, Mar 17  After the bell      0.55
SVM    The ServiceMaster Co  Mon, Mar 17  -----N/A-----       0.09

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

BTH    Blyth Inc.            Tue, Mar 18  Before the Bell     0.57
CLL    Celltech Group PLC    Tue, Mar 18  -----N/A-----        N/A
KKD    Krispy Kreme Doughnut Tue, Mar 18  Before the Bell     0.18
ORCL   Oracle                Tue, Mar 18  After the bell      0.10
WSM    Williams-Sonoma       Tue, Mar 18  During the Market   0.66
WOS    Wolseley              Tue, Mar 18  -----N/A-----        N/A

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

CMVT   Comverse Technology   Wed, Mar 12  After the Bell     -0.11
COMS   3Com                  Wed, Mar 19  After the bell     -0.06
ABS    Albertson's           Wed, Mar 19  -----N/A-----       0.52
AAA    Altana AG             Wed, Mar 19  Before the Bell      N/A
BSC    Bear Stearns          Wed, Mar 19  Before the Bell     1.35
BMET   Biomet, Inc.          Wed, Mar 19  Before the Bell     0.28
FDO    Family Dollar         Wed, Mar 19  Before the Bell     0.42
FDX    FedEx                 Wed, Mar 19  Before the Bell     0.50
GIS    General Mills, Inc.   Wed, Mar 19  Before the Bell     0.66
MLHR   Herman Miller         Wed, Mar 19  After the bell      0.04
JBL    Jabil                 Wed, Mar 19  After the bell      0.16
LEN    Lennar Corporation    Wed, Mar 19  Before the Bell     1.41
NKE    Nike                  Wed, Mar 19  -----N/A-----       0.46
ROST   Ross Stores, Inc.     Wed, Mar 19  Before the Bell     0.74
WOR    Worthington Ind       Wed, Mar 19  -----N/A-----       0.21

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

AZ     Allianz AG            Thu, Mar 20  -----N/A-----        N/A
BKS    Barnes&Noble          Thu, Mar 20  Before the Bell     1.47
CTAS   Cintas Corporation    Thu, Mar 20  Before the Bell     0.34
GS     Goldman Sachs         Thu, Mar 20  Before the Bell     0.96
LEH    Lehman Brothers       Thu, Mar 20  Before the Bell     0.99
MU     Micron Technology     Thu, Mar 20  After the bell     -0.44
MWD    Morgan Stanley        Thu, Mar 20  Before the Bell     0.62
PAYX   Paychex               Thu, Mar 20  After the bell      0.19
PCW    PCCW LTD              Thu, Mar 20  -----N/A-----        N/A
SLR    Solectron             Thu, Mar 20  After the bell     -0.01
TEK    Tektronix Inc.        Thu, Mar 20  After the bell      0.08

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

ATYT  ATI Technologies       Fri, Mar 21  -----N/A-----       0.02
CCL  Carnival Corporation    Fri, Mar 21  Before the Bell     0.18
CEP  Centerpulse AG          Fri, Mar 21  Before the Bell      N/A
DRI  Darden Restaurants      Fri, Mar 21  -----N/A-----       0.35

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

FFLC    FFLC Bancorp, Inc.        3:2      Mar. 14th   Mar. 17th
LNBB    LNB Bancorp, Inc.         3:2      Mar. 14th   Mar. 17th
BRL     Barr Labs                 3:2      Mar. 17th   Mar. 18th
NARA    Nara Bancorp              2:1      Mar. 17th   Mar. 18th
XTO     XTO Energy                4:3      Mar. 18th   Mar. 19th
ANPI    Angiotech Pharm           2:1      Mar. 21st   Mar. 13th
PSS     Payless Shoe              3:1      Mar. 28th   Mar. 28th

Economic Reports This Week

The timetable for war is growing short and Wall Street isn't
sure how to handle it anymore.  Market watchers will be waiting
to hear from the FOMC on a possible rate cut and Friday brings
the CPI report.  Don't look now but earnings warnings season
is almost here!


Monday, 03/17/02

Tuesday, 03/18/02
Housing Starts (BB)     Feb  Forecast: 1.755M  Previous:   1.580M
Building Permits (BB)   Feb  Forecast: 1.745M  Previous:   1.779M
FOMC Meeting (DM)

Wednesday, 03/19/02

Thursday, 03/20/02
Initial Claims (BB)   03/15  Forecast:    N/A  Previous:     420K
Leading Indicators (DM) Feb  Forecast:  -0.4%  Previous:    -0.1%
Philadelphia Fed (DM)   Mar  Forecast:    4.0  Previous:      2.3
FOMC Minutes (DM)
Treasury Budget (DM)    Feb  Forecast:-$80.0B  Previous:  -$76.1B

Friday, 03/21/02
CPI (BB)                Feb  Forecast:   0.5%  Previous:     0.3%
Core CPI (BB)           Feb  Forecast:   0.2%  Previous:     0.1%

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

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Bulls Cling to Gains

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like Yao Ming trying to climb into a Volkswagen beetle.

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The Option Investor Newsletter                   Sunday 03-16-2003
Sunday                                                      2 of 5

In Section Two:

Daily Results
Call Play of the Day: BVF
Put Play of the Day: CEPH
Dropped Calls: SLAB
Dropped Puts: UTX

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For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     57.64   -0.06  -0.10   0.07  1.84  2.48  Still going
BVF      39.06   -0.85  -1.34  -0.21  0.70  0.26  New, Over $40
ERTS     56.48   -0.45  -0.42   0.71  2.99  2.60  Minor setback
MME      36.00   -0.73  -0.73   0.22  1.00 -1.35  At support
SLAB     29.02   -0.25  -0.82  -0.13  2.51  1.39  Drop,take gains
STN      19.86   -0.45   0.25  -0.13  0.31  0.46  New, Over $20
ZMH      46.69   -0.74  -0.64   0.65  0.65  1.54  Raised Guidance


BAC      67.31   -1.41  -1.21   0.39  1.76 -0.94  Entry Point
CEPH     44.10   -1.06  -1.58   0.40  1.29 -1.68  New, Failed
LLY      53.98   -0.84  -2.30   0.33  1.20 -3.00  Real weakness
TIN      39.57   -0.70  -0.88  -0.01  1.64  0.57  Stopped at $40
UTX      58.87   -0.28  -1.74  -0.76  3.21  2.62  Drop,Dow bounce
XL       68.50   -2.13  -1.71  -0.60  3.22 -0.51  Failed rebound

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Call Play of the Day:

BVF – Biovail Corporation $39.06 (+0.11 last week)

See details in play list

Put Play of the Day:

CEPH - Cephalon, Inc. $44.10 (-1.67 last week)

See details in play list


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


SLAB $29.02 +0.52 (+1.48 for the week)  SLAB has been leading the
SOX higher for the past few days and out performing the index for
the past few months.  We added this play at $25.62 with a target
between $29 and $30.  Friday morning the stock topped out at
$29.43, reaching that target.  We are closing the successful play
with a gain for readers as the stock is now into that heavy
resistance level that has kept a lid on it since May 2002.  SLAB
did top out at $30.40 on December 2 as the SOX hit 393.  The SOX
is down almost 90 points from that level, but SLAB has bounced
back up within a dollar of the top on that day.  If the SOX does
break out over its 200-dma at 317, there may be some further
upside to SLAB, especially if it can make a move above $30.50.
Traders who want to try to add to gains can certainly hold on for
a run at that level, but they may want to tighten their stops to
lock in some of their current profits.


UTX  $58.87 +1.51 (+1.75 for the week)  How long does it take to
erase a $6 gains?  Apparently about two and a half days. We were
up $6 on this play at Wednesday's lows, but a furious broad
market rally took this Dow component with it. We tightened our
stop to lock in at least a small gain on the put play in case the
rally continued Friday and that is exactly what happened.  UTX,
which was one of the weakest stocks in the recent market slide,
also had the most ground to make up.  IT violated our new stop at
$58.00, which was $1.55 below our entry, on its way to a close of
$58.87. The stock also closed above its 21-dma, which it had
failed on the last significant bounce attempt in February.  We
are going to let this one go, but aggressive bears looking for a
broad market rollover may want to use a more lenient stop just
above $60.  Certainly if the Dow runs out of steam and reverses
itself, UTX is likely to follow, but we set stops for a reason
and we are now of this play.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.

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Contact Support
The Option Investor Newsletter                   Sunday 03-16-2003
Sunday                                                      3 of 5

In Section Three:

New Calls: BVF, STN
Current Calls: AMGN, ERTS, MME, ZMH
New Puts: CEPH

If you trade options online, then you need an online broker that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
offers online spread order entry for net debit or credit
offers fast option executions

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BVF – Biovail Corporation $39.06 (+0.11 last week)

Company Summary:
Biovail Corporation is a full-service pharmaceutical company that
applies its proprietary drug delivery technologies in developing
"oral controlled-release" products throughout North America.  The
company applies its proprietary drug delivery technologies to
successful drug compounds that are free of patent protection to
develop both branded and generic oral controlled-release
products.  BVF has applied its technologies to develop 18
products to date and currently has 16 others under development.

Why We Like It:
Trigger on move over $40.05
It is becoming increasingly clear that we can't call an entire
sector strong or weak, as there are exceptions to every rule we
might like to make.  On one hand, we are playing the bearish
trend in shares of LLY, while here today we have a fresh bullish
candidate, also from the Drug sector.  After bottoming in July,
BVF has been working its way higher in a broad ascending channel
for months now.  The latest victory for the bulls was breaking
above the $35 level, which marked a top back in early December,
before the stock fell to support at the bottom of the channel.
While BVF is now near the top of that channel right now, things
look a bit different, with the 200-dma turning up, the 50-dma
above the 200-dma and BVF above both.  We're looking for a
breakout over the $40 level to really get some legs and run, but
we've got to get over that level first.  So we're setting a
trigger of $40.10 for the play and will only consider new
entries after that trigger is hit.  Aggressive traders can enter
on the initial move above that level, while more conservative
typed will want to wait for a subsequent pullback to the $39
level before entering on a rebound.  Note that the PnF chart's
bullish price target is $49, which coincides with significant
overhead resistance.  That will be our eventual target for
harvesting gains, but would be entirely happy with a short
term move into the April 29th gap between $43.50-46.45, as the
top of that gap will probably offer some stiff resistance as
well.  After being triggered, our initial stop will be set at
$36, just below last week's lows and the 20-dma ($36.06).

*** March contracts expire next week ***

BUY CALL MAR-40 BVF-CH OI=3381 at $0.70 SL=0.25
BUY CALL APR-40*BVF-DH OI=3077 at $1.60 SL=0.75
BUY CALL APR-45 BVF-DI OI= 390 at $0.30 SL=0.00
BUY CALL JUL-40 BVF-DH OI=1628 at $3.50 SL=1.75
BUY CALL JUL-45 BVF-DH OI= 504 at $1.50 SL=0.75

Average Daily Volume = 1.14 mln


STN - Station Casinos- $19.86 +0.38 (+0.46 for the week)

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

Why We Like It:
This gaming stock has been flying under the radar, with a lower
profile than other casino stocks such as Mandalay Bay Group and
MGM.  However, that doesn't mean that analysts haven't been
paying attention. The company has numerous smaller casinos spread
throughout the southwest and is about to add another - the
Thunder Valley Casino in Placer County, California.  STN won
approval in December for the project from the National Indian
Gaming Commission.  Thunder Valley and it is scheduled to open
this summer. The company was upgraded buy Prudential on March 7
from "hold" to "BUY" based on the prospects for Thunder Valley.

The Stock continues to test the $20 level on rallies, as it has
done for almost three years now, since early 2000.  Each test has
eventually failed, with a high water mark for the stock of $20.00
in June 2000.  We are back to that level once again, as we get
closer to the opening of Thunder Valley.  With so much resistance
at $20, we think a breakthrough of that level could take us quite
a bit higher on a percentage basis, with a possible gain of up to
25%.  With a point and figure target of $30, we will settle for
half that gain as our target on a move above $20, using a trigger
of $20.26.  The stock gave its last buy signal at $19.50, but
with so many failures at $20, we'd like to see a decisive break
above that level before initiating the long play.  Set stops below
the 50-dma at $17.74 if triggered.

*****March Options Expire Next Week************

BUY CALL APR-17.50  STN-DW OI=105 at $2.85 SL=1.45
BUY CALL APR-20     STN-DD OI=302 at $1.15 SL=0.60
BUY CALL JUL-17.50  STN-GW OI=926 at $3.70 SL=1.85
BUY CALL JUL-20     STN-GD OI=326 at $2.10 SL=1.05

Average Daily Volume = 381 K

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

“7 Steps to Success – Trading Options Online”.

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



AMGN – Amgen, Inc. $57.64 (+1.94 last week)

Company Summary:
The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

Why We Like It:
After gradually inching higher for weeks now, our AMGN play
looks like it is finally picking up some steam to the upside.
First the stock inched through the $54 level, and then $55,
but each fractional breakout resulted in a retracement back
to the supportive trendline that began last September.  But
this latest move higher seems a bit different.  The past two
days have seen strong buying propel the stock to successively
higher closing levels and AMGN is now well into that $56-60
resistance zone we've been focusing on here since the beginning.
Buying volume is continuing to increase and the real story is
told by the On Balance Volume, which is now nearing a 2-year
high.  Notice that a lack of strength in the broad market, or
even the Biotechnology index (BTK.X) isn't able to have a
negative impact on AMGN.  If things continue this way, the play
seems sure to test our primary target of $60 in the near future.
But therein lies the problem, as $60 is also the site of the
nearly 3-year descending trendline, which is likely to be
formidable resistance.  For that reason, we're advocating taking
gains and exiting the play on a push up into the $59-60 area.
That doesn't mean we can't still consider new entries, but
should only do so on a dip and bounce from support in the
$55.00-55.75 area.  This weekend, we're raising our stop to
$54.25, the site of intraday support last Wednesday.

*** March contracts expire next week ***

BUY CALL MAR-55 YAA-CK OI=33937 at $3.00 SL=1.50
BUY CALL APR-55*YAA-DK OI=38035 at $4.00 SL=2.50
BUY CALL APR-60 YAA-DL OI=34406 at $1.30 SL=0.75
BUY CALL JUL-60 YAA-GL OI=40579 at $3.50 SL=1.75

Average Daily Volume = 11.3 mln


ERTS – Electronic Arts $56.48 (+2.33 last 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

Why We Like It:
Given the magnitude of ERTS' short-covering ramp on Thursday, the
slight give back on Friday is actually encouraging.  It seemed
very unlikely that any continued breakout from Thursday's high
would have much staying power without at least a minor pullback,
and price action seems to be proving that opinion to be true.
Unfortunately, with the huge vertical move on Thursday, trying
to gauge support where the stock might find support is rather
difficult.  The $55 level could provide psychological support,
but the $54.00-54.50 level seems more logical, based on
historical support/resistance and the site of the 10-dma
(currently $53.89).  That level was prior resistance before
last week's breakout, and Thursday's gap ($53.76-54.44) should
provide concrete support if the bulls really are back in town.
While a breakout over the $58 level could turn out to be the
beginning of a runaway move, we're placing the likelihood of
such a development as very low.  But the dips to support, not
the breakout over resistance.  Keep stops in place at $53, the
site of last week's intraday support, as well as the 20-dma,
currently at $53.03.

*** March contracts expire next week ***

BUY CALL MAR-55 EZQ-CK OI=11293 at $2.10 SL=1.00
BUY CALL APR-55*EZQ-DK OI= 2866 at $3.50 SL=1.75
BUY CALL APR-60 EZQ-DL OI= 1213 at $1.15 SL=0.50
BUY CALL JUN-60 EZQ-FL OI= 6346 at $3.00 SL=1.50

Average Daily Volume = 4.51 mln


MME – Mid Atlantic Medical Services $36.00 (-1.35 last week)

Company Summary:
Mid Atlantic Medical Services is a holding company for
subsidiaries active in managed healthcare and other life and
health insurance related activities.  MME and its subsidiaries
offer a broad range of managed healthcare coverage and related
ancillary insurance and other products and deliver these
services through health maintenance organizations, a preferred
provider organization, and a life and health insurance company.
MME owns a home healthcare company, a pharmaceutical services
company and a hospice company.  The company also owns a
collections company and maintains a partnership interest in an
outpatient surgery center.

Why We Like It:
After the fireworks that brought the prior week to a close, last
week's action wasn't nearly as gratifying for the MME bulls.
The mid-week bounce from just below $36 certainly looked
encouraging and Thursday's bounce back over $37 had us
entertaining thoughts of a breakout over the $38 level.  Alas,
it wasn't to be, as MME reversed course again on Friday, opening
at the high and closing at the low, on relatively strong volume.
This is not an encouraging sign and it could mean that this stock
has run its course until going through another period of
consolidation.  Certainly a rebound from the site of last week's
lows can be used for new entries, but watch out for a
continuation of Friday's slide.  We don't want to be trying to
catch a falling knife here, so wait for the bounce.  Our stop
is currently at $35.50, as a close below that level will break
an important level of newfound support and have us exiting the

*** March contracts expire next week ***

BUY CALL MAR-35 MME-CG OI=1645 at $1.30 SL=0.75
BUY CALL APR-35*MME-DG OI=  20 at $2.65 SL=1.25
BUY CALL APR-40 MME-DH OI= 155 at $0.60 SL=0.25
BUY CALL JUN-40 MME-FH OI= 136 at $1.70 SL=0.75

Average Daily Volume = 428 K


ZMH - Zimmer Holdings - $46.69 +2.04 (+1.48 for the week)

Company Summary:
Zimmer, based in Warsaw, Indiana, is a global leader in the
design, development, manufacture and marketing of reconstructive
orthopaedic implants and fracture management products.
Orthopaedic reconstruction implants restore joint function lost
due to disease or trauma in joints such as knees, hips, shoulders
and elbows. Fracture management products are devices used
primarily to reattach or stabilize damaged bone and tissue to
support the body's natural healing process. Zimmer also
manufactures and markets other products related to orthopaedic
and general surgery. For the year 2001, Zimmer recorded worldwide
revenues of approximately $1.2 billion. Zimmer was founded in
1927 and has more than 3,600 employees worldwide. (source:
company release)

Why We Like It:
This call play has been sitting on our list since February 22.
While it slowly built consolidation near its all-time highs, it
struggled to hold over the $45 level. The solid business plan and
new products were enough to maintain its gains, but we weren't
getting the follow through we were looking for.  Until Friday.
ZMH came out Friday and announced it would significantly beat its
previous revenue and earnings estimates, projecting revenue $15-
$20 million greater than the high end of its previously indicated
range.  The new estimates indicate sales growth of 20% over Q1
2002 and EPS growth of 30% over the same quarter.  ZMH Chairman
Ray Elliott attributed the increases to, "America's growth in
reconstructive products that again exceeds 20% in constant
currency (and) our tremendous gains in Europe are continuing,
with revenue growth currently running at 50% greater than the
market, and Asia Pacific revenue growth running at double-digit
rates."  The news was enough to push ZMH all the way up to $47.95
in early trading before profit takers took a little more than a
dollar off the top. By the end of the ZMH had gained $2.04 to
finish at $46.69 and took out that resistance just over $45
decisively. The best entries in this play may come on a pullback
to the $45.50 area that served as previous resistance, as long as
it now holds as support or possibly at the bottom of Friday
morning's gap open at $46. $48 was obvious resistance on Friday
and will be the next challenge for call holders. The stock is
already on a PnF buy signal, established back at $43 and has a
bullish vertical count of $65.  While we aren't targeting such a
big move on the current play, $50 now seems achievable.  If the
stock continues to find resistance at $48, traders may want to
take some chips off the table on another failed test of that
level, locking in a gain of more than $4 on at least part of the

*****March Options Expire Next Week************

BUY CALL MAR-40 ZMH-CH OI=991 at $7.00 SL=3.50
BUY CALL MAR-45 ZMH-CI OI=1562 at $2.10 SL=0.00
BUY CALL APR-45 ZMH-DI OI=877 at $2.90 SL=1.45
BUY CALL JUN-45 ZMH-FI OI=473 at $3.80 SL=1.90

Average Daily Volume = 1.08 mln


CEPH - Cephalon, Inc. $44.10 (-1.67 last week)

Company Summary:
Cephalon, Inc. is an international biopharmaceutical company
dedicated to the discovery, development and marketing of
products to treat sleep disorders, neurological disorders,
cancer and pain.  In addition to conducting an active research
and development program, the company markets three products in
the United States and a number of products in various countries
throughout Europe.  CEPH's United States products comprise
Provigil for the treatment of excessive daytime sleepiness
associated with narcolepsy, Actiq for cancer pain management
and Gabitril for the treatment of partial seizures associated
with epilepsy.

Why We Like It:
There may be Biotech stocks that are acting will in this market
(like our current AMGN Call play), but for the most part, the
trend for many of these stocks continues to be down.  After the
impressive short-covering move on Thursday, the Biotechnology
index (BTK.X) drifted back a bit, as expected.  Despite making
up all of the ground lost over the past month, there's not much
to inspire confidence with the 50-dma, 200-dma and long-term
descending trendline all bearish down from above.  CEPH has been
looking unhealthy since late November, posting one lower high and
lower low after another.  Breaking down under the $48 level in
late February put the PnF chart back on a Sell signal, and the
break below the bullish support line just reinforced the bearish
thesis.  The current vertical count projects down to $33, but
with all the congestion in the $39-40 level, that seems like too
bearish a target for us to work with.  But with strong resistance
now in the $46-47 area, it looks like there is still room to
benefit from a downside move.  While CEPH did manage to
participate in the short-covering party on Thursday, Friday's
session saw all of those gains wiped out and it looks like the
stock could just break lower from here.  Aggressive traders can
certainly consider entries on a break below $43.50, which would
have CEPH falling under the bottom of Thursday's gap, but need
to be cognizant of support which starts to build near $42,
becoming fairly strong by the time the $40 level is reached.
For that reason, we favor entering on a failed bounce to
resistance, preferably in the $45.50-46.00 area, which very
effectively capped last Thursday's rally attempt.  Initial stops
are set at $47.10, just above the resistance found in early

*** March contracts expire next week ***

BUY PUT MAR-45 CQE-OI OI=1972 at $1.75 SL=0.60
BUY PUT APR-45*CQE-PI OI=2377 at $3.10 SL=1.50
BUY PUT APR-40 CQE-PH OI= 374 at $1.35 SL=0.75

Average Daily Volume = 1.80 mln

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The Option Investor Newsletter                   Sunday 03-16-2003
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: BAC, LLY, TIN, XL
Leaps: (See Note)
Traders Corner: Are You A Quart Low? Top It Off With Profits
Traders Corner: Introduction to Elliott Wave Analysis
Futures Corner: Moving Average Bands

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BAC - Bank of America - $67.31 -0.29(-1.68 for the week)

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

Why We Like It:
After the big bounce following the broader markets, BAC finally
tested its converging 50 and 200 day moving averages.  In our
last write-up, we recommended new entries for only the most
aggressive bears who could target an entry point on a failure at
those levels and a the failure to reverse on the PnF chart. That
is about what we got on Friday, with an early trading boost
eventually failing just over $68, but the PnF chart did reverse
higher.  However, that reversal came to yet another lower high on
that chart, forming a neatly descending down trend line. Until
that trend is broken, we see no reason to conclude there has been
a trend reversal.   However, given the big reversal in the
broader markets over the past couple of days, we would term this
a higher risk play, as any continuation to the recent rally is
likely to involve financials.  Once again, aggressive bears can
view the current level and any close below the converging 200 and
50-dmas as a short entry, but momentum traders may want to wait
for another trip below Thursday's low of $66.05.

*****March Options Expire Next Week************

BUY PUT APR-65* BAC-PM OI=6509 at $1.80 SL=0.90
BUY PUT APR-70 BAC-PN OI=723 at $4.10 SL=2.05

Average Daily Volume = 4.8 MIL


LLY - Eli Lilly $53.98 (-3.00 last week)

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

Why We Like It:
After the big breakdown in shares of LLY last week, the stock
looked like a high-odds short that ought to continue down to at
least the $50 level.  The key to the play was in picking a decent
entry point, right?  the $55 level had been providing support for
so long, it seemed highly unlikely that LLY would just continue
lower without first bouncing up to find resistance at that level.
Sure enough, Thursday's rebound to the $55.24 level was just the
ticket, and in case you missed that entry Thursday afternoon,
the market gave you another shot on Friday morning before heading
back south.  The impetus for the selloff was a Financial Times
article on Tuesday about the patent protecting Zyprexa, a
schizophrenia treatment that is LLY's biggest selling drug,
which is expected to be under greater risk from a court challenge
by a generic competitor.  Regardless of the root cause, LLY is
now looking weak and we're happy to go along for the ride, even
without our Prozac.  Successive failed rallies below the $56
level should make for excellent bearish entry point, while
momentum traders can consider using a break below the $53.25
level to enter the fray.  we're lowering our stop this weekend
to $56.50, which is just above the declining 20-dma, currently
at $56.36.

*** March contracts expire next week ***

BUY PUT MAR-55 LLY-OK OI=1998 at $1.65 SL=0.75
BUY PUT APR-55*LLY-PK OI=3373 at $3.10 SL=1.50
BUY PUT APR-50 LLY-PJ OI=2054 at $1.15 SL=0.50

Average Daily Volume = 2.80 mln


TIN – Temple-Inland Inc. $39.57 (-0.17 last week)

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

Why We Like It:
After selling off with the rest of the market into the middle
of last week, our TIN play finally found enough support to put
together a decent bounce from support near $37.  The bounce was
strong enough that by midday on Friday, the stock was challenging
both the 2-month descending trendline and our stop at $40.25.
The over-riding question at this point in the play is whether
this bounce has run its course and is now rolling over from
resistance, OR if Friday's pullback was just a pause in a
recovery off the bottom.  While only time will give us the
actual answer to that conundrum, the descending trendline gives
us a good way to measure the odds.  Another rally failure at
the trendline can still be used for aggressive entries into the
play, but keep in mind that those entries will be on a short
leash, with our stop set at $40.25.  If TIN does roll back over
from here, more conservative traders can look for an entry on
a decline back under the $39 level.  Of course, with a close
over our stop, we won't waste any time dropping the play.

*** March contracts expire next week ***

BUY PUT MAR-40 TIN-OH OI= 65 at $1.05 SL=0.50
BUY PUT APR-40*TIN-PH OI=  0 at $1.85 SL=1.00
BUY PUT MAY-40 TIN-QH OI= 78 at $2.40 SL=1.25

Average Daily Volume = 371 K


XL - XL Capital - $68.50 (-0.50 for the week)

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

Why We Like It:
Back where we started.  Exactly where we started. Now if we can
only get the same action once again that at one point gave us a
nearly $4 gain on this play before last week's big Dow reversal.
Actually we do find ourselves with one added ingredient we didn't
have when we added this short play at $68.50 on March 4 - a
combined failed rebound at the 21-dma and $70 level.  We did get
a failed bounce to $70 as one of our suggested entries, but now
that the 21-dma has followed the stock down, Friday's bounce
failed at that level and gave us yet another level of resistance
above to rely on as an indicator of any true change in sentiment
here. As with most other financials, this stock has an awfully
big reversal candle on Thursday that mirrors the Dow, but it has
continued to fail at $70 and as long as that level holds, it
remains in bearish territory. XL's last PnF sell signal came at
$69 and it has been unable to manage a close above that level
since.  We have lowered the stop to $70.06, since a break above
that level would also involve the 21-dma.  We like short entries
below that resistance, but if the market once again heads higher
on Monday, wait for a test of those levels before initiating

*****March Options Expire Next Week************

BUY PUT MAR-70*XL-ON OI=293 at $2.65 SL=1.30
BUY PUT APR-70 XL-PN OI=90 at $4.00 SL=2.00

Average Daily Volume = 734 K

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Due to weather conditions the Leaps section will not be updated until
Monday, March 17th.  We apologize for any inconvenience this may cause


Are You A Quart Low? Top It Off With Profits
By Mike Parnos, Investing With Attitude

Often in life we’re faced with making important decisions –
especially if you’re a trader.  We have to prepare.  You can’t do
heavy lifting with light-weight equipment, so we have some work
to do.

Very few trading decisions are black and white.  There’s always
going to be a gray area.   What do you need to deal with gray
areas?  Gray matter.

Welcome to the CPTI “Gray Matter Store” -- where brain cells are
on sale for a dime a dozen; where black and white brain cells
live together in harmony and give birth to little gray cells that
are welcome in both the left and right brain.

Hmmm. This is pretty good stuff.  Maybe I should go into
politics.  I don’t need a platform, though. I’ve got a couch.
Hey, if G.W. can get a 60% approval rating, it’s probably the
retail traders that are doing the rating – and we know they’re
wrong most of the time.  At least I help people make money.  Oh
well, back to business.

I get many letters asking “How do you know when to roll out a
position?” or “How do you know when to close a position?”  Well,
in our Couch Potato Trading Institute portfolio, we’re going to
be faced with making such a decision on how to deal with our OIH
Calendar Spread.

The Position – At The Beginning
Our Thinking:  Three weeks ago we established a calendar spread
on the OIH (Oil Holders Trust – trading above $57.00).  It seems
that there’s about $8-10 of uncertainty built into the price of a
barrel of oil.  When, and if, the war is resolved, the price of
oil should work its way down, along with the price of oil stocks.

We bought 10 contracts of the July OIH $55 puts for $4.30 and
sold 10 contracts of the March OIH $50 puts for $.45, resulting
in a debit of $3.85.  If necessary, we had five months to sell
short-term puts and reduce our cost basis while we’re waiting for
oil to fall.

The Position – As It Stands
So far, so good.  OIH closed Friday at $53.62.  It’s been working
its way down and the first bomb has yet to hit the sandbox!  We
have one week left to March expiration.  The July $55 put is
bidding $5.20 and the March $50 put is asking $.35.

Here are some facts to consider:
1.  Our cost basis is $3.85
2.  The delta of the July $55 put is 47.
3.  The delta of the March $50 put is 5.
4.  Next Friday, the time value of the March $50 put will be

Should we close the position now?
It may be premature.  If we closed the position now, at current
prices, our profit would be $1.00. $5.20 (July $55 put) - $.35
(March $50 put) = $4.85 - $3.85 (cost basis) = $1.00.

If we wait until expiration, we’ll make an additional $.35 in
time value.  Even if OIH doesn’t move, the July $55 put may only
go down a dime in that week that’s left.  Plus, if OIH continues
down, we’ll make an additional $.47 for every dollar it declines
and the delta of the July $55 put will be increasing all the way

What do I do if OIH falls below $50 prior to expiration?
We will keep an eye on the deltas.  As it stands now, we have a
very comfortable 47 to 5 advantage in our deltas.  As long as the
delta of the July $55 put is higher than that of the March $50
put, we’re still making money.  When we no longer have that
advantage, we will close the position (at a huge profit).

When should we consider rolling out instead of closing the
A lot depends on where OIH trades this week.  If OIH is over $55
in the middle of the week, the March $50 put could probably be
bought back for a nickel.  Then, it would be worth while to buy
it back and roll out to the April $50 put to further reduce our
cost basis while we wait for oil to fall.

As you better know by now, during the last week of an option’s
life, time premium erodes very rapidly on its way down to zero.

If you can buy it back for a nickel during the week, it’s
probably worth doing.  Why?  Because if you waited for the March
$50 to expire and then sold the April $50 put on Monday after
expiration, the April $50 put would likely lose more than a
nickel of value.

If OIH is at $51 at expiration, should we roll out?  If so, to
what strike price?
If OIH is at $51, the March $50 will expire worthless.  We’ll
have a big profit on the July $55 put.  Ask yourself these
questions.  Does it make sense to risk that profit?  Is the story
behind the spread still valid?  What other choices do I have?

At the CPTI we hate to risk profits.  For that reason alone we
would close the position and take our profit.  Now that the
profits are safely in our pocket, let’s look at our choices.  If
the story is still valid, we could establish another calendar
spread – perhaps buying the October $50 puts and selling the
April $45 puts.  What we look for is a) the delta advantage, and
b) plenty of time to be right – without having to risk too much
on the adventure.  If the story has changed, or even weakened,
it’s time to hitch your wagon to another star.

Also remember that a calendar spread is a directional play – not
necessarily our first choice.  However, the risk is defined and,
even if you’re wrong initially, there’s a chance that normal
market fluctuations may still enable you to be profitable.  It’s
OK for your portfolio’s desert, but not for the main course.

CPTI Portfolio Update
Position #1 – OEX Bull Put Spread – Trading at $424.07.
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.  The OEX tested the 400
level, but bounced up nicely.  With a week to go, we’re looking

Position #2 – XAU Iron Condor – Trading at $65.63.
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.

We closed this position early because XAU broke down through
support. We still managed at small $400 profit.  For traders who
didn’t close the position, XAU has peeked back up above the sold
strike.  (The chart still sucks). There’s still a week to go.  It
could be a very l-o-n-g week.

Position #3 - OIH Diagonal Calendar Spread – Trading at $53.62.
(See discussion in main text of today’s column).

Position #4 - QQQ ITM Strangle – Currently trading at $25.72.
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 $125.55.
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


Introduction to Elliott Wave Analysis
By Steve Gould

Over the past 15 years that I have been studying the market, I
have looked for that elusive indicator that would tell me where
the market is going to move next.  I have studied every book I
could get my hands on.  I have researched every technical
indicator I could find.  I talked to every guru that I met and I
came to this startling revelation.  There is no magic indicator.

Yet every discovery is another step in the journey.  In my
unending search for a crystal ball, I have come across one system
that is amazingly accurate in its predictions.  No, it is not
100% precise but it has yielded some astonishingly consistent
results.  It is a system and as such, it is a conglomeration of
tools and indicators used to analyze the market. There is nothing
secretive about these common tools and indicators.  In fact, some
of them have been around for hundreds of years. It is the
integration that makes this such a powerful system. It does take
some skill to utilize it effectively, but the more I study it,
the more I am amazed at just how prophetic it is.

The system that I have found so predictably accurate is Elliott
Wave analysis.

I first heard of Elliott Waves many years ago but was hesitant to
study it. Everything I read about Elliott Waves was prefaced with
how complicated it was.  In a way, I was a bit fearful of the
technique.  It always seemed so esoteric.

Then one day someone demonstrated to me exactly how Elliott Waves
worked.  It was relatively straight forward.  What I subsequently
uncovered about Elliott Waves was that it is about 60% clear and
easy to use. The remaining 40% is difficult to identify.  So if I
can not identify a recognizable Elliott Wave pattern easily, I
simply go on to another chart where the pattern is more obvious.
What I learned was that if I just mastered that 60%, I could do
quite well.

My plan here is to write articles about different facets of
Elliott Waves.  I want to start out by just describing the basics
and showing some real life examples.

As the market progresses, it will unfold in waves.  All a wave is
is a specific series of up and down movements in a particular
direction.  Bull waves traverse up, bear waves traverse down.
Each basic wave is segmented into five parts.  For a bull wave,
three segments move up and two segments move down.  The net
movement is up.  The opposite is true for bear waves.  The basic
pattern looks like this:

Note that waves 1, 3 and 5 move up. These are called motive
waves.  Waves 2 and 4 move counter trend and are called
corrective waves.

A complete cycle is made up of 8 waves: a five wave motive wave
and a 3 wave corrective wave.  The complete cycle looks something
like this.

Each 8 wave cycle can be subdivided.  Waves 1, 3 and 5 will
subdivide into another 5 wave basic pattern.  Waves 2 and 4 will
divide into another 3 wave corrective pattern.  Because waves 1,
3 and 5 subdivide into a basic 5 wave pattern, their behavior is
rather predictable.  Waves A, B and C will also subdivide, but
the permutations are numerous.  These corrective patterns are
where the complexities of Elliott Wave theory rears its ugly

After a little training on how to label Elliott Waves a casual
observer can look at a historical chart and correctly label a
basic and corrective wave.  The real trick, however, is to look
at a chart and predict which wave will unfold next.  To
complicate matters even more, many times, a wave will relabel as
market conditions change the presentation.  The astute reader is
no doubt asking the question, then what good is it if I can only
tell what happened in the past and not forecast the future

Well, every endeavor has its sweet spot and Elliott Waves are no
exception.  If you can know with relative assurance where you are
in the wave count, then you can accurately predict where the
market will go in the coming days.

Elliott Waves set up two types of trades that have a high
percentage of wins.  They are creatively known as Type I and Type
II trades.

Type I trades occur right after the 4 wave is complete.  Once
that happens, we know that wave 5 will follow. 5 waves will
generally reach as high (for bull markets) as the previous 3 wave
(a double top) or it will thrust higher.

Type II trades occur after the 5 wave completes.  Generally, the
A-B-C correction, or at times a new basic 5 wave in the opposite
direction, will retrace to at least the level of last 4 wave.  We
would place the trade with that price as the target.

Below is a chart of the Dow over the last 12 months.  By taking a
bird's eye view, it is real easy to see that the Dow has been
behaving in a classic Elliott Wave pattern.

Note the textbook 5 wave basic motive and the 3 wave correction
from 3/19/2002 through 12/1/2002. You can easily see that within
each 1, 3, 5, A and C wave is another 5 wave basic pattern.
Within each 2, 4 and B wave is another 3 wave corrective pattern.

A Type I trade occurred in late August at around the 8750 level.
We could have easily ridden that down to 7500 (a $10 move in the
DJX) and if really nimble all the way down to the 7250 level.

A Type II trade occurred in middle October around the 7750 level.
Note how the A-B-C correction retraced almost exactly to the top
of the last major 4 wave (late August at around 9100).

Finally, take a look at what happened at the beginning of
December. The Dow has started another 5 wave pattern down.  For
those of you who are hoping for the Dow to recover soon, the
reality of the markets is such that we will soon experience a
corrective 4 wave (up) and then the Dow will plunge lower as it
completes the 5 wave pattern.  Forget the bull market pundits.
Forget the talking heads.  The market is headed lower.  You can
bank on it.  So there is my crystal ball prediction for today.


Moving Average Bands
By Vlada Raicevic

When discussing technical charting, there are any number of basic
vindicators that people can use.  Common ones like Macd or
Stochastic are readily available and often discussed.  If there
are 300 of these types of indicators, then I’ve tried 298 of
them.  This past week I’ve posted some sixty charts on how I use
trendlines and centerlines as signals on these indicators.  So,
let’s discuss something a little bit different.  The price chart,
and how it can be used in tandem with those common indicators.

Watching the little candlesticks bounce all day long can be fun,
and while drawing trendlines along the tops and bottoms of the
candles can be illuminating, we really need a little bit more
information to put the price action into perspective.  The most
common of the price chart tools are bollinger bands and moving
averages.    Ask nine hundred traders how they use moving
averages, and you are bound to get eight hundred different
answers.  So let’s take a look at one of these eight hundred and
discuss the use of High/Low bands.

A moving average is built using the closing price of the last n’
periods, where n’ is the length of the moving average.  High/Low
bands are created by putting two moving averages onto the chart,
with one moving average built from the period highs, and the
other moving average built from the period lows.

If one uses different moving average (MA) lengths, for example, a
13 period MA built off the period highs, and another MA of length
7 built off the period lows, then you will get price moving back
and forth across these MA’s as well as the MA’s themselves
crossing.  If you use the same length, say a 13 period MA for
both, then the moving averages will never cross, and you create
bands’ for the price to move against.

The first chart shows an ES 5 minute chart with the black line as
the 13 period MA built from highs and the red line as the 13
period MA built from the lows.   For trading, one would go short
if a candle closes below the red band (low), and would go long if
it closes above the black band (high).  The blue arrows show
trade entries, and the red arrows show where the outer band acts
as support/resistance areas.

How valid is this method?  Well, it’s as valid as any other.
There is not one single trading method that is without its
weaknesses.  Since the market changes constantly, there will
always be some particular price action that will give you false
signals.  Always.  Let me repeat that: always.

In the chart above, and the one that follows, you can see that in
stronger trends, this method can deliver some very good results.

These charts look great, don’t they?  Ah, the pleasures of
thinking you’ve found something marvelous for trading.  Let’s
dampen that joy a bit with the following chart.

As you can see, this trading method, like so many others,
stumbles badly in a choppy, sideways market.  Price wiggles back
and forth across those bands giving false signal after false
signal.  Also, note the blue box, it shows another weakness of
these bands:  they are based on moving averages, and moving
averages are a lagging indicator. The longer the moving average
length, the longer it takes for that moving average to react to
severe price swings like gaps.

One way to get more information while staying with the theme of
bands and moving averages, is to add bollinger bands on top of
the 13ema high/low bands.  Add a bollinger band of length 21 with
standard deviation of 2 to the chart.

You can see some patterns emerge.  The centerline of the
Bollinger band is the dashed blue line.  The red arrows show
where the upper and lower 13 ema bands cross the center bollinger
line, showing strong momentum in a particular move.   The green
arrow shows price closing above the 13ema high, a long signal,
but a false one.  Note how all the lines, including the
bollingers are flat, and neutral toward each other.  Seeing this,
you may wait for a second bar to close above the 13ema high to
verify the move.  Keep in mind that your entry crieria can be as
conservative as your personality requires.  You can come up with
a series of steps or criteria that MUST be present in order for
you to take a trade.

For example, to go long,
1.	Two candles must close above the 13ema high.
2.	The 13ema low must be converging with the center bollinger line
	(or have crossed it).
3.	The upper bollinger band must be pointing up for 3 consecutive

We are not, however, forced to trade only off these bands.  As
the beginning paragraph stated, we are looking for something to
compliment other information that we are getting from indicators
like Macd and Stochastic.

The vertical purple lines show where trade signals occur.  A Macd
long signal is given by trendline break, but not verified until
the price moves above 13ema high, which also coincides with ADX
bullish crossover.  Later, price closes below the 13ema low just
as ADX turns bearish, RSI crosses the centerline, and MACD and
Stochastic both near a cross of the centerline.  The more
indicators that line up within 2 bars of each other, the stronger
the signal.

For these high/low bands, I have tried everything from 9ema to
55ema, on timeframes from 1 minute to 270 minute charts.  There
is plenty of choice for all trading styles.  Spend some time
playing with settings and looking for patterns that compliment
your style of trading.

Vlada Raicevic

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offers true direct access to each option exchange
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call 1-888-889-9178 or click for more information.



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The Option Investor Newsletter                   Sunday 03-16-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Defining The Primary Trend
Naked Puts: Identifying Common Chart Patterns
Spreads/Straddles/Combos: Stocks Consolidate Amid Renewed Anxiety
Among Investors

Updated In The Site Tonight:
Market Watch: Will It Hold?
Market Posture: Hanging on to Gains

If you trade options online, then you need an online broker that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
offers online spread order entry for net debit or credit
offers fast option executions

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



Trading Basics: Defining The Primary Trend
By Mark Wnetrzak

With the recent volatility in the market, now is a great time to
review one of the fundamental areas of charting: Primary Trends.

To be successful in the stock market, it is important to know how
to evaluate historic trends.  In any exchange system based on
supply and demand, there are three primary stages or phases of
movement.  These three phases consist of a basing or range-bound
condition, an upward slope or growth stage and finally, a segment
where buying interest becomes exhausted.  Some experts refer to
these conditions as the accumulation, markup and distribution

The first step in any type of analysis is to look beyond the daily
gyrations to identify the overall trend.  The changes in the rate
of upward and forward movement can be moderated with the smoothing
effect of a moving average.  In simple terms, a moving average is
used to identify the mean price of a security at a specific point
in time.  With this type of analysis tool, a shorter time span
produces a more sensitive indication while a longer time span
reflects a smoother history.  There are many ways to determine the
primary trend but few technical analysis tools are as versatile as
moving average.  The moving average also offers an objective method
for defining support and resistance, and it can help isolate cycles
and identify overbought or oversold conditions.  Traders often use
moving averages to render buy and sell signals based on multiple
histories plotted on one chart.  The crossing of moving average
lines, a major topic in the study of stochastics, is a very popular
method of recognizing trend reversals.

Unfortunately, for a trader to depend solely on a moving average
is comparable to using the hour hand of a watch to check the time
of day.  It provides a good approximation of the time but offers
little guidance for specific appointments.  In financial markets,
a moving average will help identify whether the primary trend is
up or down but it does little to help you with timing entry and
exit points with regard to a particular issue.  To be profitable
on a consistent basis, you need to know where the instrument is
in its current cycle.  Is it in the accumulation phase, markup
phase or distribution phase?  The movement of a specific issue is
generally determined by the intensity with which the shares are
bought or sold.  A commons method of measuring this effect in a
prolonged trend is to use a moving average on transaction or
trading volume.

Trading volume, or the number of shares traded, is an important
indicator in interpreting market direction and stock price.  The
change in stock price is the result of supply and demand; those
who want to buy versus those who want to sell.  The key point is
that a rise or fall in price on a small volume of shares traded
is far less important than a move supported by heavy volume.  If
there is heavy trading on an upward movement, buyers control the
market, and their enthusiasm for the stock often pushes it far
beyond a reasonable value.  Experienced traders know that rising
volume generally accompanies any substantial change in a stock's
price and that is an important characteristic to be aware of when
when reviewing market trends.

When combined with a moving average of trading volume, a simple
moving average can help confirm that the market is transitioning
into a condition of accumulation or in the case of a failed rally,
a new distribution stage.  Of course, there are often chaotic and
choppy transition phases between each cycle or trend and those
can be very difficult to evaluate.  The type of indicators that
work best during transition periods include the Moving Average
Convergence-Divergence system (MACD), or exponential (weighted)
averages that are designed to be more sensitive to quick changes
in market direction.

Investors who develop a background in various technical analysis
tools can use intricate moving average combinations to formulate
different timing methods for entering and exiting the market.  One
popular entry technique is based on signals from a short-term MACD
and confirmation from the moving average of the volume indicator.
A number of exit strategies use the convergence between the price
action and the volume average or diversions among different moving
averages.  Blending diverse combinations of indicators is one way
to discover the best system for your style of trading and for new
investors, this can create a unique set of tools and intuitive
techniques to help you profit in the market on a regular basis.

Trade Wisely!


The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Note:  Margin not used in calculations.

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

ADLR    13.07   12.25  MAR 12.50  1.80    0.98    9.4%
IMCL    13.33   14.99  MAR 12.50  1.50    0.67*   8.2%
MSTR    21.28   24.22  MAR 20.00  2.60    1.32*   7.7%
IMCL    13.72   14.99  MAR 12.50  2.00    0.78*   7.2%
FEIC    15.70   15.45  MAR 15.00  1.40    0.70*   7.1%
JDSU     2.68    2.92  MAR  2.50  0.40    0.22*   7.0%
GLW      5.18    5.89  MAR  5.00  0.55    0.37*   6.9%
SEPR    11.17   12.99  MAR 10.00  1.90    0.73*   6.8%
CD      12.51   12.49  MAR 12.50  0.40    0.38    6.8%
RSAS     5.90    7.00  MAR  5.00  1.25    0.35*   6.5%
CMCSA   28.14   28.51  MAR 27.50  1.40    0.76*   6.2%
ASKJ     5.86    6.87  MAR  5.00  1.25    0.39*   6.1%
MCDT     8.42    8.43  MAR  7.50  1.30    0.38*   5.8%
OVTI    19.00   21.18  MAR 17.50  2.15    0.65*   5.6%
ANPI    20.10   21.12  MAR 20.00  0.60    0.50*   5.6% **
OVTI    16.83   21.18  MAR 15.00  2.55    0.72*   5.5%
RMBS    14.76   13.00  MAR 12.50  2.85    0.59*   5.4%
MVL     12.70   12.97  MAR 12.50  0.50    0.30*   5.3%
NFLX    14.24   16.55  MAR 12.50  2.30    0.56*   4.1%
DISH    28.75   29.20  MAR 27.50  1.75    0.50*   4.0%
CBST     7.57    6.95  MAR  7.50  0.75    0.13    2.1%
SBL     10.58    9.30  MAR 10.00  0.85   -0.43    0.0%
MRVL    20.60   18.78  MAR 20.00  1.35   -0.47    0.0%

OAKT     3.23    3.65  APR  2.50  0.90    0.17*   5.3%
MANU     2.56    2.30  APR  2.50  0.35    0.09    2.9%

*   Stock price is above the sold striking price.
**  Adjusted for a 2-1 split.


A "Bear-Market" rally or "The Bottom?" Inquiring minds want to
know!  Next week should offer a few clues but my vote leans to
the former.  In any case, a dose of bullishness is a nice remedy
for the ailing averages.  Considering the worrisome environment,
the model covered-call portfolio has held up rather well, though
some additional positions have been closed in the name of money
management.  Next week, we will show Symbol Technologies (NYSE:
SBL) closed as the near-term outlook became quite bleak when the
probability of a Federal civil suit increased.  The "early exit"
watch-list for this week consists of: Cubist Pharma (NASDAQ:CBST),
Adolor (NASDAQ:ADLR), Rambus (NASDAQ:RMBS), Marvell Technology
(NASDAQ:MRVL), and one April position; Manugistics (NASDAQ:MANU),
which didn't benefit from the rally at all.  Will we really find
the bottom with so many people searching for it?  Perhaps, only
in hindsight...

Positions Closed: Dendreon (NASDAQ:DNDN), Cryolife (NYSE:CRY),
Emisphere Technologies (NASDAQ:EMIS), Alacatel (NYSE:ALA), Arris
Group (NASDAQ:ARRS), and Hurricane Hydrocarbons (NYSE:HHL).


Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

EP      5.20  APR  5.00    EP DA  0.70 18455  4.50   35   9.7%
SONE    5.20  APR  5.00   FBZ DA  0.55 459    4.65   35   6.5%
CPN     2.93  APR  2.50   CPN DZ  0.60 10174  2.33   35   6.3%
VECO   15.91  APR 15.00   QVC DC  1.70 824   14.21   35   4.8%
PEGS   10.90  APR 10.00   PUG DB  1.40 310    9.50   35   4.6%
SNDK   19.11  APR 17.50   SWQ DW  2.40 2072  16.71   35   4.1%
ALTR   13.84  APR 12.50   KKT DV  1.80 1432  12.04   35   3.3%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

EP - El Paso  $5.20  *** Bottom-Fishing: Natural Gas ***

El Paso Corporation (NYSE:EP) is a North American provider of
natural gas services.  El Paso has core businesses in natural
gas production, gathering and processing, and transmission, as
well as liquefied natural gas transport and receiving, petroleum
logistics, power generation and merchant energy services.  The
company, which is rich in assets and fully integrated across the
natural gas value chain, is committed to developing new supplies
and unique technologies to deliver energy to communities around
the world.  On Thursday, El Paso said it closed on a $1.2 billion
2-year loan and the sale of its Mid-Continent natural gas and oil
reserves to Chesapeake Energy Corp. (NYSE:CHK).  The stock rose
sharply Friday after a Credit Lyonnais Securities analyst raised
his  rating on EP's shares to "buy" from "hold."  Speculators
who wouldn't mine owning El Paso can profit from any near-term
bullish activity in the issue with this conservative position.

APR 5.00 EP DA LB=0.70 OI=18455 CB=4.50 OI=35 TY=9.7%

SONE - S1  $5.20  *** Trading Range ***

S1 Corp. (NASDAQ:SONE) is a global provider of infrastructure
solutions.  The company operates and manages 2 business segments:
a financial institutions segment and a contact center automation
segment.  The former focuses on selling the company's enterprise
software solutions to financial Institutions.  The latter focuses
on selling the company's contact center automation products to a
variety of industries.  S1 also provides services to assist its
customers in the planning, implementation and customization of
their applications, as well as ongoing maintenance and support
and, if desired, application hosting services.  S1 said earlier
this week that the company is experiencing rapid adoption of
its interactive web-site solution with more than 300 successful
implementations across the U.S.  Favorable speculation on a
stock that has been forging a Stage I base with a support area
at the cost basis of this position.

APR 5.00 FBZ DA LB=0.55 OI=459 CB=4.65 OI=35 TY=6.5%

CPN - Calpine $2.93 *** Bottom-Fishing: Natural Gas Part II ***

Calpine (NYSE:CPN) is an independent power company engaged in
the development, acquisition, ownership and operation of power
generation facilities and the sale of electricity, predominantly
in the United States, but also in Canada and the United Kingdom.
The company also is a producer of renewable geothermal energy,
and it owns 1.0 trillion cubic feet equivalent of proven natural
gas reserves in Canada and the United States.  At the end of 2002,
the company will own interests in more than 80 power plants having
a net peaking capacity of over 19,000 megawatts, enough to power
nearly 19 million households.  Calpine also has a number of gas-
fired projects under construction and in advanced development.
On Wednesday, Calpine said that the SEC concluded its review into
the company's accounting for two power-sales contracts, determining
no financial statement adjustments will be required.  Still, CPN
still plans to restate financial results for the last three years
to reclassify two power sale-leaseback contracts (not part of the
SEC probe) as financing transactions.  While the current technical
outlook is recovering, this position offers excellent reward
potential at the risk of owning this industry-leading issue at a
favorable cost basis.  Try target shooting a lower "net-debit" to
further reduce the cost basis and raise the potential yield in the

APR 2.50 CPN DZ LB=0.60 OI=10174 CB=2.33 OI=35 TY=6.3%

VECO - Veeco  $15.91  *** Stage I Speculation ***

Veeco Instruments (NASDAQ:VECO) designs, manufactures, markets
and services equipment primarily used by manufacturers in the
data storage, telecommunications/wireless, semiconductor and
research industries.  Veeco offers two principal product lines:
process equipment and metrology.  The company produces and sells
several types of process equipment used in the manufacture of
optical components, such as filters and lasers, data storage
components, such as thin film magnetic heads and specialty
semiconductors, such as GaAs (gallium arsenide) devices and
magnetic random access memory.  Veeco's metrology product line
includes atomic force/scanning probe microscopes, optical
metrology tools, magnetic force systems and stylus profilers.
Veeco said on Wednesday it expects to return to profitability
in 2003 after a net loss of $123.73 million in 2002.  China
will be Veeco's fastest-growing region according to the company's
CEO.  The stock has been forming a base since July and appears
to be bracing for a move higher.  We simply favor the bullish
technical indications and this position offers a method to
participate in the future movement of the issue with relatively
low risk.

APR 15.00 QVC DC LB=1.70 OI=824 CB=14.21 OI=35 TY=4.8%

PEGS - Pegasus  $10.90  *** At Historical Support ***

Pegasus Solutions (NASDAQ:PEGS) is a provider of hotel room
reservation services, reservation technology systems and hotel
representation services for the global hotel industry.  The
company's customers include a significant number of world-wide
travel agencies, more than 46,000 hotels around the world and
more than 1,000 travel-related Websites.  On April 3, 2000,
Pegasus completed the acquisition of REZ, Inc., a provider of
distribution services and solutions for the hotel industry.
As a result of the REZ acquisition, Pegasus is organized into
two reportable segments, technology and hospitality.  Pegasus
has been forming a short-term base since October with support
near this position's break-even point.  Investors who want a
long-term holding in an industry-leading company can use this
position to establish a low risk cost basis in the issue.

APR 10.00 PUG DB LB=1.40 OI=310 CB=9.50 OI=35 TY=4.6%

SNDK - SanDisk  $19.11  *** Bottom Fishing: Data Storage ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from eight
megabytes to 1.2 gigabytes.  On Thursday, SanDisk introduced a
new line of single slot ImageMate(TM) card readers for a variety
of popular flash memory cards.  Timing is everything as shares
of SanDisk rallied sharply in tune to the major average's rebound.
The stock has been in a basing formation for over a year and more
recently has stayed above the JUN to OCT trend-line.  Favorable
reward potential at the risk of owning SanDisk near $17.

APR 17.50 SWQ DW LB=2.40 OI=2072 CB=16.71 OI=35 TY=4.1%

ALTR - Altera  $13.84  *** Revenue Outlook Up ***

Altera (NASDAQ:ALTR) designs, manufactures and markets high-
performance, high-density programmable logic devices (PLDs),
intellectual property cores and associated development tools.
The company's PLDs, which consist of field-programmable gate
arrays and complex programmable logic devices, are semiconductor
integrated circuits that customers can program using Altera's
proprietary software, which operates on personal computers and
engineering workstations.  Intellectual property cores are pre-
verified hardware description language (HDL), design files for
complex, yet commonly used system-level logic functions.  ALTR
rallied sharply this week when analysts raised their estimates
after Altera increased its 1st-quarter revenue outlook due to
strength in new and mainstream products.  We simply favor the
technical support area near $12 and this position offers a way
to speculate conservatively on the future movement of the issue.

APR 12.50 KKT DV LB=1.80 OI=1432 CB=12.04 OI=35 TY=3.3%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NWAC    7.64  APR  7.50   NAQ DU  0.85 1100   6.79   35    9.1%
OVTI   21.18  APR 20.00   UCM DD  2.70 441   18.48   35    7.1%
SMTC   15.32  APR 15.00   QTU DC  1.30 718   14.02   35    6.1%
MSCC   10.16  APR 10.00   QMS DB  0.75 166    9.41   35    5.4%
EXLT    7.76  APR  7.50   EQB DU  0.70 20     7.06   35    5.4%
NVDA   13.42  APR 12.50   UVA DV  1.65 4237  11.77   35    5.4%
BRCM   16.01  APR 15.00   RCQ DC  1.85 7062  14.16   35    5.2%
TNE     7.55  APR  7.50   TNE DU  0.45 284    7.10   35    4.9%
CD     12.49  APR 12.50    CD DV  0.65 1979  11.84   35    4.8%
MSTR   24.22  APR 22.50   EOU DX  2.85 741   21.37   35    4.6%
HSP    20.55  APR 20.00   HSP DD  1.55 6     19.00   35    4.6%
DGIN   12.99  APR 12.50   UGU DV  1.10 20    11.89   35    4.5%
CGNX   23.18  APR 22.50   QCG DX  1.60 10    21.58   35    3.7%


Options 101: Identifying Common Chart Patterns
By Ray Cummins

New readers are always asking for information on how we pick our
plays.  For short-term trading strategies, one of the principal
factors in position selection is the technical condition of the
underlying issue.

To determine the future trend (or character) for any stock, you
must be able to identify common historical chart patterns and
understand the implications of basic technical indicators.  A
large majority of bar-chart formations fall into the category of
area patterns and the underlying trends often have predictive
value.  With the editor of this section on a brief vacation, it's
a great time to review some of the most common bullish patterns.

Ascending Triangle:

Right-angle triangles are the most popular group of area patterns.
These patterns are easily identified; one of the two trend lines
is generally flat while the other points toward it.  When the top
trend line is horizontal and the lower trend line slants up and
to the right, meeting the upper line at an intersection beyond the
price, the triangle is ascending.  The outlook for this type of
formation is bullish and the continuation rally (after a break-out
has occurred), is generally of the same magnitude as the height of
the original triangle.

Ascending Triangle Chart:

Pennants and Flags:

In a flag pattern, the upper and lower boundary lines pattern are
generally parallel though both may slant up, down or sideways in
the trend.  In a bullish trend, the formation resembles a flag
flying from a mast.  This pattern tends to form during the middle
of a rally.  A pennant is similar to a flag.  The major difference
is a pennant has converging rather than parallel trend lines (much
like an ascending triangle).  It generally occurs in a period of
congestion.  The pattern is short-term and forms after a sharp
upward movement in price.

Pennants/Flags Chart:


The rounded bottom is a reversal pattern that reflects a gradual
and symmetrical change in trend from bearish to bullish.  The price
pattern (and often the volume pattern) will resemble a concave
shape similar to a bowl or saucer.  It can be either long-term or
short-term.  A series of rounding bottom formations can occur where
the rising end moves higher than the preceding top of the previous
pattern.  Individual formations are generally 1 to 2 months long
and the change in price can be up to 25% of the share value.  Here
is an example of a long-term saucer:

Rounded-Bottom Chart:

Head-N-Shoulders Bottom:

This formation is one of the most common reversal patterns.  The
first element is a pronounced sell-off in which volume increases
during the decline.  A brief recovery follows but the rally fails
near the support area of the previous range (prior to the initial
break-down).  Now the left shoulder and neckline are established.
A second sell-off drives the stock price to new lows but volume
quickly fades and a decisive reversal begins.  The lowest price is
the (inverted) head of the pattern.  The recovery again fails at
the neckline and with traders unwilling to commit fully to the new
trend, the stock fades to a short-term low; approximately equal to
the left shoulder.  The slump is brief and the change in direction
is once again decisive (often a hammer-bottom).  The new rally is
supported by a surge in volume and the momentum carries the issue
up and through the neckline (previous resistance) of the pattern.
At this point, a successful test of the neckline (now support) is
the final confirmation of a new trend.

Head-N-Shoulders Bottom Chart:

As with most forms of technical analysis, the key premise is that
past price behavior can be used to forecast future trends.  But,
as with any system, chart patterns should always be viewed with
regard to other indications from the instrument being evaluated.
With dedication and commitment, you will discover which patterns
work best for your style of trading and the market in which you

Good Luck!


The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Stock   Price   Last    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

MSTR    20.83   24.22  MAR 17.50  0.80    0.80*  12.0%   4.2%
RMBS    15.18   13.00  MAR 12.50  0.25    0.25*   9.9%   3.0%
MSTR    22.60   24.22  MAR 20.00  0.30    0.30*   9.7%   3.3%
CGNX    22.62   23.18  MAR 17.50  0.55    0.55*   9.4%   2.8%
MSTR    20.69   24.22  MAR 17.50  0.75    0.75*   9.3%   3.2%
CELG    24.00   24.50  MAR 22.50  0.35    0.35*   9.0%   3.4%
SRNA    15.07   14.92  MAR 12.50  0.30    0.30*   8.7%   2.7%
RMBS    13.69   13.00  MAR 10.00  0.30    0.30*   8.6%   2.7%
OVTI    16.55   21.18  MAR 12.50  0.35    0.35*   8.3%   2.5%
AFFX    26.92   27.10  MAR 25.00  0.35    0.35*   8.3%   3.1%
IART    19.39   20.26  MAR 17.50  0.35    0.35*   8.2%   3.0%
XLNX    23.04   25.38  MAR 20.00  0.50    0.50*   8.1%   2.8%
MDCO    16.92   18.27  MAR 15.00  0.60    0.60*   8.0%   3.0%
LRCX    12.56   12.47  MAR 10.00  0.25    0.25*   7.9%   2.2%
ANSS    22.20   23.30  MAR 20.00  0.80    0.80*   7.7%   3.0%
XLNX    22.90   25.38  MAR 20.00  0.35    0.35*   7.7%   2.6%
IRF     20.39   21.16  MAR 17.50  0.50    0.50*   7.5%   2.6%
MACR    15.22   15.03  MAR 12.50  0.25    0.25*   7.5%   2.2%
OVTI    16.83   21.18  MAR 12.50  0.25    0.25*   7.5%   2.2%
DIGE    15.54   16.47  MAR 12.50  0.30    0.30*   7.5%   2.1%
GILD    36.80   39.25  MAR 35.00  0.45    0.45*   7.3%   2.8%
CGNX    21.84   23.18  MAR 20.00  0.75    0.75*   7.1%   2.8%
ERES    22.46   24.44  MAR 17.50  0.30    0.30*   6.8%   1.9%
MDCO    18.94   18.27  MAR 17.50  0.30    0.30*   6.7%   2.5%
HHL     11.56   10.76  MAR 10.00  0.20    0.20*   6.7%   2.2%
SLAB    27.12   29.02  MAR 22.50  0.30    0.30*   6.7%   2.0%
CKFR    20.66   20.46  MAR 17.50  0.30    0.30*   6.0%   1.9%
AVCT    27.82   26.03  MAR 25.00  0.35    0.35*   5.9%   2.1%
EPIQ    19.10   18.95  MAR 17.50  0.25    0.25*   5.8%   2.1%
OTEX    27.14   27.25  MAR 25.00  0.75    0.75*   5.7%   2.2%
ADBE    27.43   30.79  MAR 22.50  0.40    0.40*   5.4%   1.6%
FAF     23.10   22.45  MAR 22.50  0.30    0.25    4.1%   1.6%

IMCL    15.70   14.99  APR 12.50  0.50    0.50*   9.9%   3.0%
MOGN    10.96   11.74  APR 10.00  0.50    0.50*   9.2%   3.8%
MEDI    30.68   32.65  APR 27.50  0.65    0.65*   4.8%   1.8%

*  Stock price is above the sold striking price.


The recent bullish market activity provided new hope to anxious
investors and despite the volatility in the equity averages, the
majority of positions in the naked-puts portfolio continue to
perform well.  Among the stocks on the "early exit" watch-list
are: Rambus (NASDAQ:RMBS), Hurricane Hydro (NYSE:HHL) and First
American (NYSE:FAF).

Previously Closed Positions: Possis Medical (NASDAQ:POSS) and
American Pharmaceutical Partners (NASDAQ:APPX), which are both
currently positive.


The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:



The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.


Sequenced by Maximum Yield (monthly basis - margin)
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

XLNX  25.38  APR 22.50 XLQ PX 0.75 1144  21.75  35   8.1%   3.0%
AMZN  24.71  APR 22.50 ZQN PS 0.65 5416  21.85  35   6.8%   2.6%
MATK  25.32  APR 22.50 KQT PX 0.55 0     21.95  35   6.1%   2.2%
CYBX  19.15  APR 17.50 QAJ PW 0.45 189   17.05  35   6.1%   2.3%
OVTI  21.18  APR 15.00 UCM PC 0.30 68    14.70  35   5.7%   1.8%
LLTC  32.58  APR 27.50 LLQ PY 0.55 211   26.95  35   5.6%   1.8%
EXPE  37.14  APR 30.00 UED PF 0.50 13965 29.50  35   5.3%   1.5%
PSUN  19.73  APR 17.50 PVQ PW 0.35 69    17.15  35   5.1%   1.8%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MY-Maximum Yield (monthly basis - using
margin), SY-Simple Yield (monthly basis - without margin).

XLNX - Xilinx  $25.38  *** Semiconductor Sector Soars! ***

Xilinx (NASDAQ:XLNX) is the world's leading supplier of complete
programmable logic solutions.  Xilinx develops, manufactures, and
markets a broad line of advanced integrated circuits, software
design tools and intellectual property.  Their customers use the
automated tools and intellectual property, which are predefined
system-level functions delivered as software cores, from Xilinx
and its partners to program the chips to perform custom logic
operations.  The semiconductor sector soared during the recent
rally and one of the best performing issues in the segment was
XLNX.  The stock has excellent upside potential and the company
said earlier in the month that it expects fourth-quarter revenue
to be at the high end of its estimated range of $285 million to
$295 million, due to strength in Europe and Asia.  Traders who
agree with a bullish outlook for the issue can profit from a rise
in the company's share value with this position.

APR 22.50 XLQ PX LB=0.75 OI=1144 CB=21.75 DE=35 MY=8.1% SY=3.0%

AMZN - Amazon.com  $24.71  *** New 2-Year High! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.  Amazon.com
shares rallied this week, in part due to short-covering but also
due to the bullish technical break-out amid anticipation of the
company's presentation at the Merrill Lynch Retailing Leaders
Conference in New York.  Investors who wouldn't mind owning the
Internet's retail leader near a cost basis of $22 should consider
this position.

APR 22.50 ZQN PS LB=0.65 OI=5416 CB=21.85 DE=35 MY=6.8% SY=2.6%

MATK - Martek Biosciences  $25.32  *** On The Rebound! ***

Martek Biosciences (NASDAQ:MATK) develops and sells products
made from microalgae.  Microalgae are microplants.  The firm
is engaged in the commercial development of microalgae into a
portfolio of high value products and new product candidates
consisting of Nutritional Products, Advanced Detection Systems
and Other Products, primarily Algal Genomics.  Their nutritional
products include nutritional oils for infant formula, dietary
supplementation and other products. Advanced Detection Systems
products include fluorescent dyes from various algae for use
in scientific applications for detection of certain biological
processes.  Earlier this week, Martek posted favorable quarterly
earnings with a robust revenue increase due to higher sales of
nutritional products to the company's infant formula licensees.
Investors who are interested in adding this unique biotechnology
company to their portfolio should consider using this position
to establish a conservative cost basis in the issue.

APR 22.50 KQT PX LB=0.55 OI=0 CB=21.95 DE=35 MY=6.1% SY=2.2%

CYBX - Cyberonics  $19.15  *** Technicals Only! ***

Cyberonics (NASDAQ:CYBX) was founded in 1987 to design, develop
and market medical devices for the treatment of epilepsy and
other debilitating disorders using a unique therapy, vagus nerve
stimulation.  VNS Therapy is delivered by the VNS Therapy System,
an implantable medical device similar to a cardiac pacemaker and
the company's initial market is epilepsy, the world's second most
prevalent neurological disorder.  VNS Therapy with the Cyberonics
VNS Therapy System was recently approved for sale in the European
Union and in Canada as a treatment of depression in patients with
treatment resistant or treatment of intolerant depressive episodes
including unipolar depression and bipolar disorder.  Cyberonics
holds numerous device and method patents covering the vagus nerve
stimulation method and the Cyberonics VNS Therapy System.  Shares
of CYBX are trading near the top of a recent range and the buying
support near the cost basis of this position provides a reasonable
downside margin for any near-term bearish activity.

APR 17.50 QAJ PW LB=0.45 OI=189 CB=17.05 DE=35 MY=6.1% SY=2.3%

OVTI - OmniVision  $21.18  *** New 2-Year High! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OVTI recently exceeded consensus quarterly
earnings estimates of $0.10 per share and revenue projections of
$22.2 million, aided by exceptionally strong demand from makers
of digital still cameras and cameras for cell phones.  The stock
has rallied to a new 2-year high on heavy volume, which suggests
higher prices in the near-term.  Investors can use this position
to speculate conservatively on the company's future share value.

APR 15.00 UCM PC LB=0.30 OI=68 CB=14.70 DE=35 MY=5.7% SY=1.8%

LLTC - Linear Technology  $32.58  *** A Rally In The Chips! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military and
space systems.  The chip sector has recovered in recent sessions
and LLTC has been one of the best performing issues in the group.
Traders can profit from continued upside activity in the stock
with this position.  Quarterly earnings are due 4/16/03.

APR 27.50 LLQ PY LB=0.55 OI=211 CB=26.95 DE=35 MY=5.6% SY=1.8%

EXPE - Expedia  $37.14  *** Post-Split Rally! ***

Expedia (NASDAQ:EXPE) is a provider of travel-planning services.
Expedia's online travel marketplace includes direct-to-consumer
websites offering travel-planning services located at Expedia.com,
Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it.
Expedia also provides travel-planning services through Voyages
sncf.com, as part of a joint venture with the state-owned railway
group in France.  In addition, the company offers travel-planning
services through its telephone call centers and through private
label travel Websites through its WWTE business.  WWTE is now a
division of Travelscape, one of Expedia's primary subsidiaries.
In February 2002, a controlling stake in the Expedia was acquired
by USA Networks.  Internet travel companies haves rebounded in
recent weeks and EXPE's post-split rally suggests the stock has
returned to favor among investors.  The inflated premiums provide
a low risk cost basis for speculative investors who want to own a
popular Internet issue.

APR 30.00 UED PF LB=0.50 OI=13965 CB=29.50 DE=35 MY=5.3% SY=1.5%

PSUN - Pacific Sunwear  $19.73  *** Rally Mode! ***

Pacific Sunwear of California (NASDAQ:PSUN) is a specialty
retailer of everyday casual apparel, accessories and footwear
designed to meet the needs of active teens and young adults.
The company operates three nationwide, primarily mall-based,
chains of retail stores: Pacific Sunwear (PacSun), Pacific
Sunwear Outlet (PacSun Outlet), and d.e.m.o. PacSun and PacSun
Outlet stores specialize in board-sport-inspired casual apparel,
footwear and related accessories catering to teenagers and young
adults. d.e.m.o. specializes in hip-hop-music-inspired casual
apparel and related accessories catering to teenagers and young
adults.  Despite the recent downturn in retail sales, PSUN has
performed well fundamentally with earnings up 63% to $23 million
in the last quarter on sales that grew nearly 28%.  Same-store
sales jumped 15% and the company generated $36 million in free
cash flow, helping it to pay off virtually all of its long-term
debt.  Investors who like the outlook for this fashion retailer
can establish a conservative cost basis in the issue with this

APR 17.50 PVQ PW LB=0.35 OI=69 CB=17.15 DE=35 MY=5.1% SY=1.8%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
Stock  Last   Option   Option Last Open  Cost  Days   Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp.  Yield  Yield

REGN  19.83  APR 12.50 RQP PV 0.70 56    11.80  35  13.0%   5.2%
IMCL  14.99  APR 12.50 QCI PV 0.50 305   12.00  35  10.8%   3.6%
CREE  18.08  APR 15.00 CVO PC 0.50 273   14.50  35   9.3%   3.0%
ALTR  13.84  APR 12.50 KKT PV 0.45 536   12.05  35   8.4%   3.2%
ELBO  16.35  APR 15.00 LQB PC 0.55 205   14.45  35   8.3%   3.3%
MSTR  24.22  APR 20.00 EOU PD 0.50 89    19.50  35   7.3%   2.2%
CNCT  15.86  APR 15.00 UXU PC 0.50 85    14.50  35   7.3%   3.0%
FLR   32.11  APR 30.00 FLR PF 0.70 110   29.30  35   5.3%   2.1%



Stocks Consolidate Amid Renewed Anxiety Among Investors
By Ray Cummins

Blue-chip shares edged higher Friday while technology issues ended
almost unchanged as buyers retreated in the wake of new concerns
about war and the economy.

The Dow Jones Industrial Average added 37 points to close at 7,859
on strength in McDonald's (NYSE:MCD), Hewlett Packard (NYSE:HPQ),
and Honeywell (NYSE:HON).  In the technology group, semiconductor
shares consolidated after Thursday's spirited rally, leaving the
NASDAQ almost unchanged at 1,340.  The broader Standard and Poor's
500-stock index edged up 1 point to 833 as airline, insurance and
gold stocks advanced.  Crude-oil futures slipped below $34 for the
first time in a month, increasing the downward pressure on stocks
in oil related industries.  Trading breadth was relatively neutral
as Big Board winners paced losers 18 to 14 while NASDAQ decliners
led advancers 16 to 15.  Trading volume was average with about 1.5
billion shares changing hands on the NYSE and about 1.6 billion
shares trading on the technology exchange.  Market experts noted
that the lack of significant corporate news and economic data was
cause for the lackluster session.  For the week, Trim Tabs said
that over $4 billion flowed out of funds investing primarily in
U.S. equities, while bond funds took in $2.3 billion.


The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


Symbol  Pick   Last  Month  LP  SP Credit   CB    G/L   Status

SYMC    46.09  44.99  MAR   35  40  0.50  39.50  $0.50   Open
COP     48.72  50.58  MAR   43  45  0.25  44.75  $0.25   Open
NKE     45.14  49.75  MAR   40  43  0.20  42.30  $0.20   Open
CAM     53.03  48.52  MAR   45  50  0.65  49.35 ($0.83) Closed
SII     35.34  32.61  MAR   30  33  0.25  32.25  $0.25  Closed
CMCSA   29.22  28.51  MAR   25  28  0.30  27.20  $0.30   Open
FIC     48.84  45.77  MAR   40  45  0.50  44.50  $0.50   Open?
AMGN    55.70  57.64  APR   48  50  0.25  49.75  $0.25   Open
EXPE    35.19  37.14  APR   28  30  0.30  29.70  $0.30   Open

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

As noted last week, traders should consider closing positions in
oil stocks Cooper Cameron (NYSE:COO) and Smith Intl. (NYSE:SII)
to protect profits and/or limit losses.  Fair & Isaac (NYSE:FIC)
fell below the sold strike on Wednesday and traders who did not
exit the play should keep the volatile issue on their watch-list.


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

BSC    59.90   62.07  MAR   70  65  0.50   65.50  $0.50   Open
BUD    47.70   47.70  MAR   55  50  0.45   50.45  $0.45   Open
MDT    44.15   44.45  MAR   50  47  0.25   47.75  $0.25   Open
PEP    39.86   39.00  MAR   45  42  0.25   42.75  $0.25   Open
BSC    61.69   62.07  MAR   70  65  0.55   65.55  $0.55   Open
NEM    27.51   25.09  MAR   32  30  0.25   30.25  $0.25   Open
PG     81.86   83.40  MAR   90  85  0.45   85.45  $0.45   Open
TRMS   40.02   41.05  MAR   50  45  0.50   45.50  $0.50   Open
CHIR   35.80   36.69  APR   42  40  0.25   40.25  $0.25   Open
IP     34.30   35.64  APR   40  37  0.25   37.75  $0.25   Open
TOT    65.30   63.71  APR   75  70  0.60   70.60  $0.60   Open
XAU    67.44   65.63  APR   80  75  0.50   75.50  $0.50   Open

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

The position in H&R Block (NYSE:HRB), although positive, has been
previously closed to limit potential losses.  The position in Bear
Stearns (NYSE:BSC) remains on the watch-list and Proctor & Gamble
may soon become a potential exit candidate as well.


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

AMGN    52.09  57.64  MAR   45  47   2.20   47.20  0.30   Open
EXPE    33.29  37.14  MAR   27  30   2.18   29.68  0.32   Open
NBR     40.13  38.10  MAR   35  37   2.20   37.20  0.30   Open?
STN     19.40  19.86  APR   17  20   1.60   19.10  0.76   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

Nabors Industries (NYSE:NBR) is suffering in conjunction with the
Oil Service sector and traders should consider closing the spread
in the interest of prudent money management.


Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

FDX     50.84  49.80  APR   60  55   4.50   55.50  0.50   Open

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss


Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

WPI     29.22  27.02   MAY     35    22    (0.10)   0.65   Closed
AFFX    27.14  27.10   MAR     30    25     0.15    0.15    Open
UOPX    37.38  38.89   MAR     40    35    (0.10)   0.25    Open

University of Phoenix Online (NASDAQ:UOPX) rallied this week and
the bullish play achieved a small profit when the issue hit $40.
Watson Pharmaceuticals (NYSE:WPI) was a big mover earlier in the
month after the won U.S. FDA approval for Oxytrol, a patch to treat
urinary incontinence.  Our bullish synthetic position has reached
favorable exit points twice since it was initiated in January.  The
position in Ultra Petroleum (NYSE:UPL) has slumped in conjunction
with the Oil Service sector and the play has been closed to limit


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

AXP     33.70  33.48   APR-30P   FEB-30P   0.75    1.20    Closed
CI      43.02  41.88   APR-45C   MAR-45C   0.85    1.00     Open
BMET    28.52  31.59   JUL-30C   MAR-30C   1.50    1.50     Open
WFT     40.55  37.50   MAY-45C   MAR-45C   1.25    1.40    Closed
OTEX    29.29  27.25   MAY-25C   MAR-30C   4.50    4.20     Open
CMVT    10.20  11.19   APR-7.5C  MAR-10C   2.20    2.20     Open
ICST    23.86  23.69   APR-22C   MAR-25C   2.10    1.90     Open

The bearish position in American Express (NYSE:AXP) has yielded
favorable short-term profits.  Weatherford (NYSE:WFT) has been
closed due to the slump in the Oil Service sector.  The bullish
play in Biomet (NASDAQ:BMET) may need an adjustment as the issue
spiked this week after Zimmer Holdings, an industry competitor,
said its first-quarter results would top consensus expectations.
Open Text (NASDAQ:OTEX) is the only disappointment, however the
issue has rebounded near technical support and market permitting,
will likely continue higher in the coming weeks.


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

ROOM    40.14  48.15   MAR    40    40    6.50    8.10     Open?

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

Questions & comments on spreads/combos to Contact Support


Readers Write E-mail Replies


Attn: Spreads/Combos Editor
Subject: Credit Spreads

Hello Ray,

What percentage of the credit spreads shown in OIN are successful,
do you know?


Regarding the past success of the (OTM) credit spreads on the OIN:

I do not know the exact percentage of successful plays however, it
could easily be determined by paging through the web-site archives
(for the two spreads/combos sections) on the options expiration
dates and simply making notes of the winning and losing positions.
I don't really think that is necessary though, because the approach
I use with that technique involves selecting positions with a 70%
or greater (statistical) probability of profit and with any stocks
that are trending (directional bias or range-bound), the winning
percentage is going to be slightly higher.  If I had to guess, I
would say about 4 out of 5 plays are profitable on an average basis.
But, that doesn't mean you won't lose money with the strategy or by
participating in all the credit spread candidates offered in the
OIN.  The key to success (as always) is how well you manage the
losing plays.  From a strictly historical perspective, the strategy
of writing "deep-out-of-the-money" credit spreads, when correctly
applied and diligently managed, provides a monthly (annualized)
return of approximately 2-5%.  Of course, the profits are larger if
you compound the earnings on a regular basis.

Are the premium-selling plays (Wednesday) tracked separately or
along with the Sunday combos?

Both of these sections are tracked separately, to allow more time
for research ahead of the publishing deadline (Saturday 6:00 PM EST
and Wednesday 8:00 PM EST).  The week-end edition (Spreads/Combos)
has its own summary, which is published with Saturday's new plays,
and the Wednesday edition (Premium Selling) has its own summary as
well.  We tried to put them together in the past but it was far too
time consuming to juggle the different formats and it resulted in
much less research for new plays, which is what most readers are
interested in anyway.  Investors know what positions are in their
portfolios, so they don't care as much about tracking any others,
but rather in finding new positions.

Which portfolio has done better lately (Wednesday or Sunday)?  I
am interested in credit spreads only right now...

There is no difference in the selection criteria for credit spread
candidates in the Wednesday and Saturday sections.  If one section
performs better than the other, it is likely due to the market
conditions (directional/range-bound, overbought/oversold, high/low
premiums, etc.) that are prevalent when the play selection occurs.
Regardless of what strategy you favor, you alone are responsible
to decide if the selections meet your criteria for potential plays.
Don't enter any of the positions without further "due diligence" as
they are simply candidates, based on technical trends and current
option prices, to supplement your search for profitable trading
positions.  Further research is always needed to identify adverse
fundamental issues as well as future events and other potential
catalysts that may affect the stock price.

As the disclaimer says: Only you can know what plays are suitable
for your personal skill level, risk-reward tolerance and portfolio
outlook.  In addition, you should avoid any trading techniques in
which you are not completely comfortable with the potential loss,
the necessary adjustments, and the common entry-exit strategies.

Hope that helps,



This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.


These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

APOL - Apollo Group  $47.84  *** All-Time High! ***

Apollo Group (NASDAQ:APOL) has been providing higher education
programs to working adults for over 25 years.  Apollo operates
through its subsidiaries The University of Phoenix, Institute
for Professional Development, The College for Financial Planning
Institutes Corporation, and Western International University.
The consolidated enrollment in its educational programs makes it
the largest private institution of higher education in the United
States.  Apollo offers educational programs and services at 64
campuses and 116 learning centers in 37 states, Puerto Rico and
Vancouver, British Columbia.

APOL - Apollo Group  $47.84

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-40.00  OAQ-PH  OI=174  A=$0.45
SELL PUT  APR-45.00  OAQ-PI  OI=269  B=$1.00
POTENTIAL PROFIT(max)=12% B/E=$44.45

MMM - 3M Corporation  $125.55  *** Back In A Comfort Range! ***

3M (NYSE:MMM) is a $16 billion diversified technology company
with leading positions in health care, safety, electronics,
telecommunications, industrial, consumer and office, and other
markets.  Headquartered in St. Paul, Minn., the company has
operations in more than 60 countries and serves customers in
nearly 200 countries.  3M businesses share many technologies,
manufacturing operations, brands, marketing channels and other
important resources.  3M, which marks its 100th anniversary this
year, is one of the 30 stocks that make up the Dow Industrial
Average and also is a component of Standard & Poor's 500 Index.

MMM - 3M Corporation  $125.55

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-110.00  MMM-PB  OI=4116  A=$0.90
SELL PUT  APR-115.00  MMM-PC  OI=5087  B=$1.35
POTENTIAL PROFIT(max)=11% B/E=$114.50

FLR - Fluor Corporation  $32.11  *** Rally Mode! ***

Fluor Corporation (NYSE:FLR) is a diversified industrial company
conducting business through five operating segments.  The Energy
and Chemicals segment provides design, engineering, procurement
and construction services on a global basis to a wide range of
oil, gas, refining, chemical, polymer and petrochemical clients.
The Industrial and Infrastructure segment provides services to a
broad base of businesses including general industrial, commercial,
institutional, manufacturing, infrastructure, telecommunications,
mining and technology customers on a worldwide basis.  The Power
segment designs, engineers and builds power facilities globally.
The Global Services segment provides operations and maintenance
support, temporary staffing, equipment and outsourcing and asset
management solutions to the firm's projects as well as to third
party clients.  The Government Services segment provides basic
administration and support services to the federal government
and other governmental parties.

FLR - Fluor Corporation  $32.11

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-25.00  FLR-PE  OI=289  A=$0.20
SELL PUT  APR-30.00  FLR-PF  OI=110  B=$0.70
POTENTIAL PROFIT(max)=12% B/E=$29.45

OEX - S&P 100 Index  $424.07  *** Market "Bulls" Only! ***

The Standard & Poor's 100 Index is a capitalization-weighted
index of 100 stocks from a range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is equal
to the share price multiplied by the number of shares outstanding.

OEX - S&P 100 Index  $424.07

PLAY (very conservative - bullish/credit spread):

BUY  PUT  APR-375  OEW-PO  OI=363   A=$3.30
SELL PUT  APR-380  OEW-PP  OI=4276  B=$3.70
POTENTIAL PROFIT(max)=9% B/E=$379.55

ACS - Affiliated Computer  $44.26  *** Trading Range? ***

ACS (NYSE:ACS) is a Fortune 1000 company with more than 38,000
people in 35 countries providing unique business process and
information technology outsourcing solutions to world-class
commercial and government clients.  From a single financial
industry client, ACS expanded into the energy, financial,
government, healthcare, retail, and transportation industries
and for the past five years, the company has achieved record
growth with revenues climbing 30% on an annual basis.

ACS - Affiliated Computer Services  $44.26

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-55.00  ACS-DK  OI=1967  A=$0.15
SELL CALL  APR-50.00  ACS-DJ  OI=1795  B=$0.65
POTENTIAL PROFIT(max)=12% B/E=$50.55

UNH - UnitedHealth Group  $83.64  *** Bearish Sector! ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  The firm's revenues
are derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes the UnitedHealthcare
and Ovations businesses; Specialized Care Services, and Ingenix.

UNH - UnitedHealth Group  $83.64

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-90.00  UNH-DS  OI=795   A=$0.30
SELL CALL  APR-85.00  UNH-DR  OI=1724  B=$0.85
POTENTIAL PROFIT(max)=11% B/E=$85.55


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

EBAY - eBay Inc.  $83.91  *** A New Trading Range? ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay Inc.  $83.91

PLAY (conservative - bullish/debit spread):

BUY  CALL  APR-70.00  QXB-DN  OI=11002  A=$14.60
SELL CALL  APR-75.00  QXB-DO  OI=13778  B=$10.10
POTENTIAL PROFIT(max)=11% B/E=$74.50


These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

MEDI - MedImmune  $32.65  *** Drug Stock Speculation! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with 5 products
on the market and a diverse product pipeline.  MedImmune is focused
on using advances in immunology and other biological sciences to
develop new products that address significantly unmet medical needs
in areas of infectious disease and immune regulation.  The company
also focuses on oncology through its wholly owned subsidiary,
MedImmune Oncology, Inc.  In addition, the company owns Aviron, a
biotech company.  In January 2002, MedImmune acquired Aviron, a
firm focused on the prevention of disease through vaccine technology.

MEDI - MedImmune  $32.65

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  APR-35.00  MEQ-DG  OI=290  A=$0.65
SELL PUT   APR-30.00  MEQ-PF  OI=235  B=$0.65

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $1,110 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($30).


Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

ETM - Entercom Communications  $44.77  *** Reader's Request! ***

Entercom Communications (NYSE:ETM) is a radio broadcasting company
in the United States.  The company has assembled, after giving
effect to the pending acquisitions of three stations in the Denver
market and two stations in the Greensboro market, a nationwide
portfolio of 100 stations in 19 markets.  Entercom operates a wide
range of formats in geographically diverse markets across the
United States.  The company's largest markets are Seattle, Boston,
Kansas City, Sacramento, Portland, New Orleans and Denver.

ETM - Entercom Communications  $44.77

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAR-45.00  ETM-CI  OI=963  A=$0.65
BUY  PUT   MAR-45.00  ETM-OI  OI=325  A=$0.85

BAX - Baxter International  $19.65  *** Downgrade = Sell-Off! ***

Baxter International (NYSE:BAX) engages in the global development,
manufacture and distribution of a diversified line of products,
systems and services used primarily in the healthcare field.  The
company manufactures products in 28 countries and sells them in
over 100 countries.  Healthcare is concerned with the preservation
of health and with the diagnosis, cure, mitigation and treatment of
disease and body defects and deficiencies.  The company's products
are used by hospitals, clinical and medical research laboratories,
blood and blood dialysis centers, rehabilitation centers, nursing
homes, doctors' offices and by patients, at home, under physician

BAX - Baxter International  $19.65

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAR-20.00  BAX-CD  OI=258   A=$0.60
BUY  PUT   MAR-20.00  BAX-OD  OI=1599  A=$0.95


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