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Daily Newsletter, Tuesday, 03/18/2003

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The Option Investor Newsletter                 Tuesday 03-18-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Confused? (Readers Write - Market Assessment)
Futures Markets: Consolidation
Index Trader Wrap: (See Note)
Market Sentiment: Tick, Tick, Tick
Weekly Fund Screen: Schwab Select List: Taxable Bond Funds


Updated on the site tonight:
Swing Trader Game Plan: Take a Deep Breath


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-18-2003           High     Low     Volume Advance/Decline
DJIA     8194.23 + 52.30  8209.36  8096.12 1.85 bln   1731/1494
NASDAQ   1400.35 +  8.30  1400.55  1378.83 1.57 bln   1788/1455
S&P 100   440.38 +  1.74   440.66   435.37   Totals   3519/2949
S&P 500   866.45 +  3.66   866.94   857.36
W5000    8200.32 + 37.20  8200.72  8114.52
RUS 2000  368.02 +  2.62   368.02   363.30
DJ TRANS 2129.02 + 35.00  2129.02  2086.54
VIX        35.78 -  0.68    37.47    35.19
VXN        48.02 +  1.35    50.36    48.02
Total Volume 3,721M
Total UpVol  2,643M
Total DnVol  1,024M
52wk Highs  151
52wk Lows   151
TRIN       0.59
PUT/CALL   0.61
************************************************************

Confused?

If so you are in good company. Even the Federal Reserve heads
cannot decide what is happening in the economy. The mixed
economic reports and the fog of war has everyone confused.
The recent rally in the markets has confused analysts as
well. The only people not confused appears to be retail
traders who are buying everything in sight.

Wilshire 5000 - Daily




Nasdaq Chart - Daily




The biggest economic news at the open was the -11% drop in
New Housing Starts. This was significantly below expectations
and significantly below last months -1% drop. This was the
third consecutive monthly drop in starts and they are
accelerating. The decline was broad based and not specific
to any particular region which negated the weather factors.
This was the largest drop since December 2000. A new factor
is the growing number of existing homes for sale which is
climbing rapidly. Rental vacancy rates are at an all time
high which shows weakness in the multifamily market.

Chain Store Sales were actually positive at +0.4% for a
change but most stores reported sales were flat or below
plan for the period. Unemployment, war worries, high gasoline
prices are still being given for the drop in consumer
spending.

The Semiconductor Book-to-Bill ratio came in at .99 and
an improvement over last months .94 level but they are
still booking less than they are shipping. The $781 million
in shipments in February is still less than the $826 million
they shipped in December. The trend is improving but it is
a long way from well. Part of the problem is the low profit
margins from vast overcapacity but SEMI said there were
over 20 new fabrication plants scheduled to begin production
in the next two years. These new enterprises are coming as
older companies are closing plants and laying off workers.
AMAT was the latest confirmation that this trend is
continuing. Still looks like tough times ahead to me.
MCHP warned after the bell that equipment manufacturers
were frozen in place and were continuing to cancel or
delay orders. They said they were going to delay opening
a new plant until demand returned. They said fears over
North Korea had caused a drop of -8% in Asian sales to
complicate the US picture.

The Fed met today to determine monetary policy and decide
if they needed to cut rates to stimulate the economy. Despite
the constant flow of negative information the Fed ended the
meeting without making any decision other than to wait another
30 days to see if the fog of war had lifted. The Fed heads in
all their wisdom could not decide if the economy was in the
tank due to economic reasons or war reasons or both. They
issued a strange post meeting press release saying they had
retained the bias at neutral with no changes in the interest
rate. They said "incoming economic data was mixed and the
labor market was disappointing. However, the hesitancy of the
economic expansion appears to owe importantly to oil prices
and geopolitical uncertainties. In light of the unusually
large uncertainties clouding the geopolitical situation and
their apparent effects on economic decision making the
committee does not believe it can usefully characterize the
current balance of risks to the economy." They will continue
to maintain "heightened surveillance". As opposed to the
partial surveillance that got us here? (grin) Basically they
dodged the bullet and use the "Iraq ate my economy" excuse
and left the markets hanging. Now investors are faced with
forming their own decisions about the value and prospect of
stocks.

Fidelity surveyed 300 fund managers and found that nearly
70% of fund managers thought the market was either fairly
valued or over valued at these levels. Only 12% thought stocks
would beat bonds for the rest of 2003. Now that is a scary
statistic. With earnings warnings rising and profits
falling it is not surprising that professional money
managers are skeptical about the rest of 2003.

There is starting to be more rumors that the last two days
of gains were due to some asset allocation shifts by a couple
large fund groups. Surprise! I wrote about this possibility
last Tuesday but it still caught me off guard. Now the
funds that missed the rocket launch are trying to decide if
it was real or just another bear market rally. With volume
shrinking again and new highs/lows only breaking even today
and not negative for the first time since March 3rd there is
no real confirmation. We had a nice 90% down day last week
and a 90% up day this week. Unfortunately it takes an average
of six 90% days to for a normal bottom. Two down, four to
go.

We are heading full speed into warning season and should
the war get launched this week it should not take long
before attention returns to those earnings only three
weeks away. One positive is the -3.26 drop in oil prices
to $31.67 today. The drop was on the fear that the US
would open the strategic petroleum reserves when the
war started to offset any drop in Iraqi production. The
lower oil prices will eventually result in a reduction in
costs for manufactured products but that could take a
couple quarters. Until we are in control of the Iraqi
oil fields there is no assurance that oil flow will
return to normal.

Another Dow problem today was the filing of a $289 billion
suit by the Justice dept to recover profits from tobacco
companies that was earned through deceptive advertising
according to their claims. The Justice Dept said new
evidence showed that the companies were manipulating
nicotine levels, lying to their customers about the
dangers of smoking and directing billions of dollars of
advertising at children. The government's case will take
years to prove and many claim it will be next to impossible
but the risk is there and tobacco stocks fell sharply.
Dow component MO dropped -2.08 on the news.

Oracle announced earnings after the close and beat the
street by a penny but warned that the current quarter
could fall below current estimates due to falling new
license revenues and the war climate. The new license
revenues are seen as an indicator for future revenues
due to follow on renewals and support. With new business
slowing future revenues may suffer.

Is it the economy or is it the war? Not even Greenspan
knows for sure so is it any doubt that average traders
are confused. The Dow has made an astounding bounce from
last weeks lows of nearly +800 points in five days. It
came to a stop today well out of the current range, over
8150 and right at light resistance of 8200. This +11%
bounce in five days has everyone expecting for a pullback.
The Nasdaq stopped right at a very strong resistance range
of 1400-1425. With the ORCL and MCHP warnings tonight I
would be surprised to see it break that level tomorrow.
Nasdaq futures are down -10.50 at 8:15PM and with a large
amount of rebound profit on the books it looks shaky for
Wednesday.

The general consensus of opinion is that nobody missed
the train. There is a growing feeling that the pattern
of the last Iraq war has already been broken and we will
not see a post war rally. I know this is heresy but that
is the feeling making the rounds. With the Fed giving
traders no assurances and warnings continuing to fly
the bulls will have to call in the reserves to push the
markets higher.

One positive event remains the growing number of Iraqi
soldiers trying to surrender. One instance today had
some Iraqi tanks flying white flags try to crash through
the lines to surrender. They had heard some gunshots from
troops taking last minute target practice and wanted to
surrender before the fighting got to them. The strangest
thing is the friendly forces told them the war had not
started and made them turn around and take the tanks
back with them. The next couple days are probably going
to get even stranger in the market.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


*************
Readers Write
*************

Market Assessment
Rick Utt

A while back I had written you regarding news events and how I
believe they are given much more credence in relation to the
market than they really deserve. A great example would be the
rally last week when it looked like the war would be postponed
and the rally this week when it looks like war is imminent. You
can't have it both ways and the way news events are attached to
market moves one would think a professional investor has a game
plan no longer than a CNN update.

I also wrote you at the time that the Dow had set up a target for
itself at 8150 and planned to use it. I pointed out it had
knocked a few times on the 8150 door and when it couldn't get
through it would probably retrace quite a bit so it could go down
and take a run at it. The 8150 mark was built from January 27th
thru February 5th and then it moved south to accomplish its
agenda. Today that agenda was filled.

Dow Jones Industrials 120 minute bar chart



The Dow is less prone to support and resistance than the other
indexes because its made of only 30 stocks, however it certainly
does offer a certain amount of support and resistance and you can
see how it got squeezed in between support and the resistance it
set up for itself in the process (far right red arrows). I said
at the time that sooner or later this resistance would come into
play because it was put there for a reason. I also speculated
that it was going to have to take quite a run at it in order to
break through. It took over a month and a half but that line of
resistance was finally dealt with. I can find no logical reason
for the placement of the latest bounce but I think since the Dow
is made up of equities in the other indexes that when the S&P
found support, the Dow since it shares stocks, had no choice but
to join in. I'm not saying this will lead to a break out of the
bear market, I'm simply saying that traders knew at the time that
this resistance was put there to be broken so they had no problem
running up prices until that happened. And I might add, they did
it quite handily.

As I've said many times the market is a well-choreographed event
and almost exclusively is impervious to news events. Even if you
go back to 9/11 you'll find we were on a course southward that
was picking up steam from the end of August. 9/11 just allowed
things to accelerate and when it's agenda was accomplished it
rallied from October all the way through January in spite
terrorist threats on the hour and every major public event being
cancelled because we didn't know who in the crowd was packing a
bomb.

The market didn't rally last week because of war or lack of war.
Let me show you why the market rallied.

S&P 500 120 minute bar chart



The S&P 500 hit the last bastion of support that went all the way
back to last July. It was rock solid and if anything was going to
provide a bounce, this was it. The first red arrow was the bottom
in July, the second red arrow was the last bounce it took prior
to the October low and the last red arrow is a reaction to those
two points of support. Any news that was pinned to the market
bounce was purely coincidental and not related to the war in the
least. The SPX had set a line of resistance up as a target for
itself and its agenda was to get enough momentum to allow it to
break through.

Nasdaq Composite index 120 minute bar chart



The Nasdaq also was able to find the last area of support at the
same time as the S&P. The first red arrow was a bounce we took at
the beginning of last August. The second red arrow was when the
Nasdaq came down on support in September. Notice at the open of
the next session we gapped lower. The third red arrow was after
the October low when the Nasdaq was halted at resistance and then
in the following session exploded over that resistance. And the
fourth red arrow was the last and most solid support before we
would go back to the October low. We still may be headed there
but this was the most logical place to bounce, also the strongest
and last chance we had. This will either propel us to higher
highs or its the last bounce before a new low. The trajectory of
the rise looks more like the last bounce before a new low and if
the market is truly based on momentum it fits that its going to
need all the height it can get before coming down hard enough to
break support. Of course the red line of resistance we recently
broke through was set up by the Nasdaq as a target to break
through almost a month ago. Again, I find it hard to believe that
any news event was tied to these areas of support.

Where we go from here is of particular concern because we also
have the Volatility Index to deal with and that is giving us some
strange signals as of late.


Volatility Index 120 minute bar chart



The VIX has been setting up a line of resistance as well since
the low we reached last July. The VIX can be charted with the
same breakout or breakdown patterns as a stock. As you can see it
is also momentum based and when it set up resistance for itself
in December it had to fall way back and get up enough momentum to
break through. Recently it set up a secondary resistance point
along with the sloping resistance line in progress since last
July. Notice the spike up under the blue arrow last week. It
immediately came down the next day, however yesterday with the
Dow rising close to 300 points and the Nasdaq over 50, the VIX
actually rose modestly. This was a phenomena and in normal
conditions with that type of rise in the indexes the VIX would
have fallen precipitously. The only thing we can read from the
fact that it isn't falling with over a 700 point rise in the Dow
is because its telling us this rally isn't for real and we're
going to see some lower prices ahead. The VIX is going up, not
down. By my estimation before we hit a bottom the VIX will rise
considerably over its most recent high in the upper 50's. And its
going to start heading there soon. This could lead to the true
capitulation event we have yet to see since this bear market
started.

This dissertation started because every time I hear a news event
associated with a market movement, I cringe. The market knows
what its doing, has an excellent memory and doesn't watch CNN or
CNBC. Things the market does today can be realized in weeks,
months and sometimes even years from now, but they are always
realized. People say the market is forward thinking. They may not
realize how true that really is and also not realize that they're
applying it to the wrong motives. It's forward thinking about
itself and not the economy or anything else.

Market makers control the market. Who says a stock is worth what
on a given day. If you want it you'll pay the price being asked
for it the same as you would a dinner when you dine out. What you
have to realize is the market maker is in this business to make a
profit. If he or she knows the market is going down, since he or
she is the one taking it there, then is it more profitable to let
it drift down and make some money along the way or run it up as
far and as fast as you can, short as much as you can and double,
triple or quadruple your profits. Greed drives everything
concerned with money!

Have you ever noticed how QCOM will fall three for four dollars
before it heads to the next higher level. Is because of extremely
greedy market makers and its also a dead giveaway to anybody that
follows the stock. How about SYMC (Symantec) trying to break
through the $48 barrier. On February 28th it dropped straight to
$40 on a "rumor" of accounting mismanagement. In the last two
weeks it has climbed back to $46 and will most likely now break
through $48. Did everyone forget about the accounting rumor? If
indeed there was a rumor it was started by the market makers so
they could grab all the shares they could at $40 and sell them
along the way to their new Ferrari's.

To the novice a drop like that means "run away". To the
professional it means "its money time!" The same as an extremely
sharp rise in a downtrend. To the novice it means the worries are
over and people must be buying like crazy. To the market maker it
means "short all you can, we're taking it down"

Again, if you can discount the news, and most of the time even
the economy and think ahead to "How will this move benefit me the
most in the future, you're starting to think like those that run
the market. And those who think the investor runs the market are
dead wrong. If that wasn't the case, why or how can it frustrate
the majority of its participants. The majority should always
rule, but it does not in the stock market. Market makers
maximizing movement to their advantage rules. This is why stocks
with infinite P.E.s can fetch high prices and markets rise with
no hope of earnings.

The mentality of what signals today will affect you tomorrow or
next week and a keen eye on stock movement and not on CNBC will
give you a heads up as to what is going to happen, and not on
what already has. .


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

Consolidation

Tuesday, March 18, 2003
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET


Contract	Last	Net	High	Low

Dow	8194.23	+52.31	8209.36	8096.12
YM 03M	8170	+68	8218	8067

Nas 100	1082.20	+5.19	1082.20	1063.02
NQ 03M	1087	+13	1089	1066

S&P 500	866.45	+3.66	866.94	857.36
ES 03M	866.75	+5.75	872.75	856.00


Daily Pivots

Contract	S2	S1	Pivot	R1	R2
YM 03M	8005	8094	8156	8245	8307
NQ 03M	1059	1075	1082	1098	1105
ES 03M	848.75	858.25	865.50	875	882.25

With the recent strong markets, and a Fed Meeting today, there was
expectation for wild swings and high volatility.  What we got was
a few feeble attempts to both break up and to break down, with the
net result of a mild gains across the board.  Look at the ES pivot
chart for today, and you'll see we just meandered around the
middle between Pivot (solid red line) and R1 (black dashed line).





If you look at the 15 minute chart of the ES, you can see that we
really haven't moved much from that 10:45 high of 859 set
yesterday morning.  In fact, after an early morning break of that
859 level, ES found buyers and then used that area as support for
the remainder of the day.  Price broke below it again with the
post-Fed announcement selloff, but the break never held, and the
futures in general just moved sideways for the rest of the day.

ES 15 minute Chart:
Big picture trendlines.




ES 15 minute Chart: Closeup
You can see how the blue trendline, which had been supporting
price since it was broken to the upside, was broken to the
downside, acted as resistance and then again was broken to the
upside at the end of the day.  There is support from the second
trendline off the 3/12 lows, and that trendline now sits at the
855.75 area, along with strong horizontal support.  That trendline
is rising roughly fifty cents per 15 minute period.  At the close,
a small run closed the ES at the highs of the day, against a
slightly rising line drawn along the three most recent highs.





Looking at the ES daily chart, I notice that RSI(10) is at 65.65,
recent peaks on this indicator were 64.82, 67.80, 68.90.  All of
these highs led to a minimum of two days of selling, sometimes
more.  On the ADX, D+ is at 30.17, with the recent highs for D+
being 28.66, the early January high, and 28.57, the November high,
and the highest reading for that late year run.  The actual
December high in price gave a reading of 25.69 on D+, and formed a
bearish divergence with the November high for that indicator.

With the modest rise today, the daily chart is still bullish, with
OBV breaking above a longer term trendline stretching back to the
December highs.  However, the high readings on the RSI and ADX
look like they're topping out, which goes along with the bearish
divergences on the 60 minute charts, and indicate that we are in
need of a pullback.  Whether this pullback will be just that, or
whether it becomes a turning point, will be determined by the
levels that we reach when the selling starts.

ES 270 Minute All-Sessions Chart:
RSI showing a bearish divergence.  Look at ADX, and where the
arrows are pointing.  The shape of D+ has a very strong similarity
to the 3/2 timeframe, only the magnitude is different.  Again,
noticing patterns and similarities on charts doesn't mean these
patterns will repeat, but they can give us clues.  For the moment,
this chart, which is situated between the daily and the 60 minute
charts, is showing some weakness, with the second Macd Wave
rolling over, and the Stochastic looking strong, but overbought.






Looking at the NQ daily chart, I note a couple of interesting
things:  RSI(10) is at a level that it hasn't been since mid-
November of last year. Since then, it has peaked below this level,
and after the peak it has sold of an average of 3 days minimum.
However, that high in November led to only a two day selloff, and
then was followed by another run upwards into the December highs
before rolling over.  That December high also gave a lower RSI
reading, forming a bearish divergence.

Also, on ADX, D+ is currently at 32.  For comparison, D+ reached
32.60 in the November high, and 33.88 at its December high during
last years bull run.  These high readings are similar to the ES
readings which show we may be topping in the near term.

NQ 270 Minute All-Sessions Chart:
All the comments for ES pertain to the NQ chart as well.





All comments for ES and NQ apply equally for YM.  So, we are at
the same point as we were yesterday.  Seeing divergences show up,
and telling us that we are topping out For The Short Term.  I
capitalized it because that's what divergences do, they give you
an insight into an imbalance with price movement and underlying
strength or weakness.  The lack of any real pullback means that
there hasn't been much profit taking.  A rollover from these
levels could lead to traders trying desperately to lock in
profits.

When we start selling off, the question is when will we stop?  The
following is a Renko chart, it prints a black box for every point
that the underlying equity moves up or down.  It does not depend
on time, just price, and hence is a very good chart to check for
support/resistance areas.  The sideways chop that can muddy
regular charts is gone.  I've added text indicating recent
tops/bottoms of price swings.  These should be considered when
looking at where we can pullback to.  The dashed red lines show my
standard 200 period regression channel.  I have set the chart up
for a 2 point box, so actual values will vary slightly, but it
does give you an idea of where price has stopped and reversed
within the past few weeks.  All values shown are on a closing
basis for that bar.

Daily Renko for ES:




Daily Renko for NQ:




Daily Renko for YM:
This one is a little more difficult.  I set the box size to 5
rather than 2, and I don't display the huge climb from the recent
rally (it would take up most of the chart).  With the larger box
size, the absolute numbers have a slightly larger margin of error.






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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_031803_1.asp


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

Tick, Tick, Tick
by Steven Price

48 hours.  Is that how long it will take before we see another
leg higher?  Or a reversal? It will likely depend on how
successful the U.S. is in its war plans and whether we get
retaliatory terror attacks in the U.S.  Of course a wait and see
approach doesn't do traders much good, since the recent moves
have been swift and large and by the time they've been obvious
they've seemed overdone.  So let's take a look at some important
levels to watch, which should at least give traders a roadmap to
when support and resistance come into play.

I drew a head and shoulders pattern back in January with a
downside Dow target of 7500, OEX of around 400 and SPX of 787.
Those objectives were hit almost exactly following the neckline
break that I had drawn at Dow 8200.  We have now seen a rebound
of 778 Dow points; but that rebound found resistance in the same
area it did in January when it was attempting a bounce from the
neckline break.  At that time it consolidated between a downside
floor of 7950 and an upside ceiling of 8160.   The rally added
some points to the upside this morning, getting above that 8160
high in the Dow, but falling below 8200 by the close.  More
importantly, the SPX also found resistance in the 865-868 area,
which corresponded with the Dow rally attempts at 8150-8160 in
January. The OEX finished right at the 440 level, which has been
pivotal as both support and resistance going back almost a year
now.  Picking an exact number in the Dow for support resistance
can be trickier than the SPX because the futures on the SPX are
so heavily traded and give institutions more control over picking
levels at which to buy and sell.  That resistance at 868 happens
to coincide with bearish resistance on the point and figure
charts, which appears to be the lone roadblock to the triple-top
buy signal given in the SPX on Monday's rally.  That buy signal
at 855 was confirmed with a trade of 860, which got the SPX
beyond the classic bear trap on the PnF.

The triple top in the SPX was accompanied by buy signals in the
Dow and OEX and maybe even more importantly the first upturn in
bullish percents since December.  The bullish percent charts show
a bounce in the Dow from a much oversold 10% up to 20%.  The NDX
shows a rebound from 30% to 44%.  The bullish percent shows the
number of stocks in an index giving PnF buy signals and 30% is
considered to be oversold territory (70% is overbought).
Certainly a bounce from bearish H&S objectives, accompanied by
point and figure buy signals and an upturn from oversold bullish
percents, would seem to indicate a very bullish reversal -
especially considering the 10% gain off the bottom form last
Wednesday.  But we also need to remember that we had fallen 1400
Dow points and so far the bounce of 778 points has taken us to
just below the neckline break. We have essentially retraced 50%
of the recent drop. Is that bullish?  Certainly a move back over
that neckline would register more than a 50% reversal, but then
we have yet another crucial level to look at.

Dow 8300 served as a closing support level for many months.  In
fact, it served as horizontal support on both the July-September
head and shoulders that eventually broke down and achieved its
objective of 7200 and again as horizontal support for the
November-January head and shoulders pattern.  The neckline sits
at 8200 because of the downward slope, but technicians can argue
that the first close below 8300 was the domino that started us
falling to last Wednesday's low.   8300 also happens to be the
location of the bearish resistance line on the Dow's PnF chart.

The OEX can be viewed with the traditional PnF chart or with the
2.5-box size, which has more closely mirrored action in the other
indices.  The OEX also topped out at 440 on the January rebound
attempts and today's high of 440.66 demonstrates that the level
remains as resistance.  The bearish resistance line here is
442.50 on the 2.5 point box and at 448 on the traditional chart.

Now that we are less than 48 hours from a possible invasion into
Iraq, we are entering a time in which the markets will be ultra-
sensitive to almost any world event that either hints at a
prolonged war, such as early setbacks for the U.S. in the
invasion, or any event that suggests terrorist retaliation.  I
think back to the refinery fire on Staten Island and remember the
sudden market drop and rebound. During war time, it seems likely
that the reaction to such events would be even more extreme and
traders looking to set stops need to decide whether they are
willing to give their positions room for larger moves, or if they
want to tighten things up to avoid any sudden reversals.  It
seems that anything in the middle is subject to whipsaws.

The economy got some more bad news last night and today.  The
tech sector continues to suffer, with Applied Materials (AMT)
announcing it will cut 14% of its workforce and close some of its
facilities.  It was the second round of job cuts for the chip
equipment maker in five months and signals that the company does
not see a recovery in the immediate future.  Gateway followed
with a similar announcement, saying it would cut 17% of its
workforce and close 76 of its retail stores.  The company is
aiming toward the fourth quarter of 2003 for a return to
profitability.  Tech Data also guided to the low end of first
quarter earnings expectations.  After the bell, Oracle released
its numbers as well.  The company beat expectations, but widened
its revenue and earnings estimates due to war uncertainty.
Investors punished the stock after hours, taking the NASDAQ
futures along with it. After closing at $12.25, it was last
trading $11.52 as of this writing.

Housing Starts were also released this morning and the picture
underscores January's drop and the input that many OI readers
gave us in an informal poll a couple of months ago. New
residential construction fell 11% in February to an annualized
rate of 1.622 million, which is the lowest rate since April 2002.
The percentage decline was the largest in nine years.  Although
Alan Greenspan said he thought there was no housing "bubble," he
did say that last years pace for new homes and mortgage
refinancing was unsustainable.  That appears to be the case after
a second straight monthly decline to start off 2003.  Some of
this can be blamed on seasonal patterns, but with interest rates
beginning to bounce, it seems that the trend has certainly pulled
back, if not reversed itself.

The relationship between oil and the equity market has remained
consistent.  Even when they don't behave as expected, they
continue to maintain an inverse relationship today.  I heard an
analyst equate a drop in oil from $31 to $24 per barrel to a 1%
increase in GDP as a result of savings to Americans.  That could
certainly be behind the relationship.  Since Monday's close,
crude oil futures have dropped 10%, due to the acceleration of
the war plan (which gets us closer to the end if it is short), as
the Dow gained more than 50 points.

Think traders are having a hard time figuring out the economy?
Apparently the Federal Reserve Open Market Committee doesn't have
a clue either.   They did not adjust interest rates, which was
expected, but also did not give an opinion on the economy, which
was unexpected.  Instead, the statement from the FOMC read "In
light of the unusually large uncertainties clouding the
geopolitical situation in the short run and their apparent
effects on economic decisionmaking, the Committee does not
believe it can usefully characterize the current balance of risks
with respect to the prospects for its long-run goals of price
stability and sustainable economic growth. Rather, the Committee
decided to refrain from making that determination until some of
those uncertainties abate. In the current circumstances,
heightened surveillance is particularly informative."    The
committee also said the labor market looked weak, but the
hesitancy of expansion was likely due to oil prices and geo-
political concerns.  In other words, until the Iraq situation
becomes clearer, they don't know what to expect either.

Tomorrow should get even more interesting, as we get closer to an
invasion.  Saddam has said he will stay and fight, but with
300,000 troops sitting on the border and the stated intention to
remove him from power, doesn't it make more sense for him to take
off with a couple billion dollars.  Of course the fact that he is
holding his ground may indicate that there are weapons of mass
destruction and that he is planning on using them.  If that is
the case, the war may not go as neatly as we are hoping and then
the recent bullishness may not last.  Certainly if the oil fields
begin to burn, the price of futures is likely to spike and if the
above relationship is consistent, then we should see an equity
drop.

The futures were slightly lower after the bell, following the
Oracle news. It could certainly lead to a pullback after a huge
up move that seems like it is due for some profit taking.
However, after hours activity is not always an indicator of the
following morning's sentiment.  While things feel awfully bullish
right now overall, anything can happen in the next few days and
traders should be managing their accounts in accordance with that
risk.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8194

Moving Averages:
(Simple)

 10-dma: 7785
 50-dma: 8091
200-dma: 8461



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  866

Moving Averages:
(Simple)

 10-dma:  829
 50-dma:  857
200-dma:  895



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1082

Moving Averages:
(Simple)

 10-dma: 1007
 50-dma: 1009
200-dma:  995



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

The Semiconductor Index (SOX): The SOX built on its 200-dma
breakthrough and is now approaching the 330-331 resistance level
from December that I've highlighted here recently.  It pulled
back this morning as the churning broader markets tried to pick a
direction. However, that pullback found support at the 200-dma -
a bullish sign that gave a reliable signal as the bounce took it
up 11 points.  Now that it is just points away from the next
resistance level, bulls can look for a break above 331 to next
test 350.  However, after the bell, Oracle dragged down the NDX
and the techs may get swept lower with a broad brush to start the
day, so watch that 200-dma to see if it continues to provide
support.


52-week High: 614
52-week Low : 214
Current     : 328

Moving Averages:
(Simple)

 21-dma: 75
 50-dma: 76

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

Market Volatility

The VIX once again found support at the 35% level and at its 200-
dma of 35.53.  With the exception of a breakout on March 12, it
has also found resistance at a descending trend line connecting
the highs of last July, October and this February. The rally in
equities has been impressive but will be even more promising if
the VIX can manage a close below its recent extreme of 34%.


CBOE Market Volatility Index (VIX) = 35.78 -0.68
Nasdaq-100 Volatility Index  (VXN) = 48.02 +1.35

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.61        785,908       479,523
Equity Only    0.46        545,384       249,910
OEX            1.04         39,275        40,909
QQQ            0.41         85,207        35,078


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

Bullish Percent Data

           Current   Change   Status
NYSE          37.1    + 2     Bull Correction
NASDAQ-100    44.0    +10     Bull Alert
Dow Indust.   20.0    +10     Bull Alert
S&P 500       34.2    + 6     Bull Confirmed
S&P 100       27.0    + 4     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  0.63
10-Day Arms Index  1.34
21-Day Arms Index  1.38
55-Day Arms Index  1.34


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

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

Market Internals

        Advancers     Decliners
NYSE       1593           1248
NASDAQ     1706           1362

        New Highs      New Lows
NYSE        46               35
NASDAQ      51               36

        Volume (in millions)
NYSE       1,838
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
shorts.

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
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

NASDAQ-100

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

DOW JONES INDUSTRIAL

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

Schwab Select List: Taxable Bond Funds

Week Four of the Schwab Select List fund review brings us to the
taxable bond fund group, which consists of government, corporate
and high-yield bond funds.  Bond funds offer a higher yield (and
greater total return potential) than money market funds, but are
subject to moderate fluctuations in NAV share price.  Generally,
they offer a risk-reward tradeoff that falls somewhere between a
money market fund and a stock mutual fund.

Bond fund investments are advantageous in a time of low inflation
and when the economy is slowing (and interest rates are falling).
However, bond funds generally don't offer much protection against
erosion of "buying power" in a time of rising inflation since the
bondholder gets the same amount of interest or dividends although
goods cost more.  In our opinion, we are in the "late innings" of
the bond market rally, so prudence is in order today.

Since bond funds tend to rise when the economy is contracting and
stock prices fall, they can offer long-term equity investors some
protection against market declines.  In other words, they can add
income and stability.  Bond funds may also be suitable for income
oriented investors who desire a current level of "monthly" income
(dividends are usually paid monthly) or investors who do not have
long-term investment horizons.

Within the taxable bond fund group, there's a range of styles and
strategies, offering investors various risk-reward tradeoffs.  In
general, high-yield funds and funds that seek "total return" have
more risk than high-quality funds and funds that seek only income
(don't look for appreciation opportunities).  Further, bond funds
with greater average durations/maturities tend to be riskier than
short-term bond funds, but they offer greater return potential in
the long run.

The Schwab Select List utilizes the Lehman Brothers Intermediate
Government Bond Index as the primary fund performance benchmark,
but the Lehman Brothers Aggregate Bond Index is perhaps the most
common benchmark for investment-grade bond funds.  Depending on
the type of bond fund, there may be other appropriate benchmarks.

Screening/Evaluation Process

The Schwab Select List includes 13 taxable bond funds that have
met their stringent criterion.  Below is a summary of the funds,
along with their Morningstar category.


 Schwab Select List: Taxable Bond Funds
 BBH Inflation-Index Securities N (BBHIX) Intermediate Government
 Dodge & Cox Income (DODIX) Intermediate Bond
 Vanguard GNMA (VFIIX) Intermediate Government
 Federated U.S. Government 2-5 Year (FIGTX) Short Government
 SSgA Bond Market (SSBMX) Intermediate Bond
 Federated Income (FICMX) Intermediate Government
 Vanguard Short-Term Federal (VSGBX) Short Government
 Payden Short Bond R (PYSBX)
 Turner Short Duration Fixed Income (TSDGX) Short Government
 Turner Ultra Short Duration Fixed Income (TSDOX) Ultrashort Bond
 Federated Government Ultrashort (FGUSX) Ultrashort Bond
 PIMCO Real Return D (PRRDX) Intermediate Bond
 PIMCO Total Return Mortgage D (PTMDX) Intermediate Government


As you can see, the bond fund list includes some well-known names
in the fixed income world: Dodge & Cox, PIMCO, Federated, Turner,
and low-cost provider, Vanguard.  No long-term bond or high-yield
bond funds are currently on the Schwab Select List.

As we have done in prior weeks, we took the 13 funds and put them
into Morningstar's system to get the latest fund data.  Using the
Fund Compare tool at www.morningstar.com, we compared these funds
on the basis of performance, risk, cost and other factors such as
management approach and tenure.

Using the Snapshot View, we compared YTD performance, expense and
Morningstar star ratings.  The two highest YTD performers are the
BBH Inflation-Index Securities Fund (BBHIX) and PIMCO Real Return
Fund D (PRRDX), two TIPS-focused portfolios.  The former fund has
increased in value by 3.1% since December 31, while the latter is
up 2.6% this year.  Seven of the 13 funds currently have a 5-star
rating for "risk-adjusted" performance relative to category peers
per Morningstar.  Another four funds currently receive 4 stars by
Morningstar for above-average, risk-adjusted returns within their
category peer groups.

The fund expense ratios of the two Turner bond funds are close to
that of the two Vanguard bond funds, which have the lowest ratios
in this group except for the Federated Government Ultrashort Fund
(FIGTX) which represents the fund's "institutional" class shares.

As in prior weeks, we went on to review the funds based on return
performance and risk over various time periods, and looked at the
funds' portfolio characteristics.  Over the past five years, none
of the funds holds a torch to the BBH Inflation-Index fund, which
produced an average annual total return through March 17, 2003 of
9.6% (1st percentile).  Dodge & Cox Income Fund has the next best
annualized return in the past five years of 7.5%, followed by the
Vanguard GNMA Fund which has averaged 7.1% per year over the same
time period.

Over the trailing 3-year period as of March 17, PIMCO Real Return
Fund (no 5-year record) is right up there with the BBH Inflation-
Indexed Securities Fund.  Both funds sport average-annual returns
of nearly 13 percent for the 3-year period, an exceptionally good
period for TIPS securities, with the economy sagging and interest
rates coming down.  Dodge & Cox Income Fund's 10.1% average total
return is also noteworthy.  But, you cannot discount the Vanguard
bond funds which produced near top-decile rankings for the 5-year
period and ranked in the top-quintile for the 3-year period as of
March 17, 2003.  Having lower expenses does not guarantee success
but it sure helps when it comes to bond fund investing.  Over the
trailing 10-year period, for instance, the Vanguard GNMA Fund has
a 7.1% annualized return, ranking in top 7% of its fund category.

It's also noteworthy that BBH and PIMCO's inflation-indexed funds
have incurred above average to high risk for the past three years
versus their category peers.  So, the old adage is true - greater
returns are normally associated with greater risks, something you
will want to keep in mind if you decide you like one of these two
TIPS-focused funds.  The Federated Income Fund and Vanguard's two
bond funds have incurred below average risk relative to peers for
an attractive risk-reward tradeoff.

In the Portfolio View, we looked to see which taxable bond funds
were of "high-grade" quality and all of them are.  So, each fund
invests primarily in "AAA" and "AA" rated debt securities, which
means they have less "credit" risk than similar funds.  That was
helpful last year with all the corporate debacles.  Many medium-
grade and low-grade funds got pummeled last year, when the bonds
they held went south due to all the corporate scandals.

Only one fund, PIMCO Real Return D, had an average duration that
was longer than the bond market.  That partially explains why it
has above average risk relative to similar funds.  Most funds on
the list have average portfolio durations that are less than the
broad fixed income market.  The top yielding funds over the past
year have been the Federated Income Fund, the Dodge & Cox Income
Fund and the Vanguard GNMA Fund.  Each fund had a trailing yield
of over 5 percent, per Morningstar.

Our Favorite Funds

Putting all the pieces of the puzzle together, the funds we like
the most now each have short-term maturity structures, which may
help them from declining too much if the economy improves in the
second half of 2003, and interest rates rise.  Funds with longer
average durations, such as the PIMCO Real Return Fund, could see
greater-than-average losses if interest rates do an "about-face"
and head upwards again.  We also have to rule out the Federated
bond funds since they have a minimum initial investment of $25k.

Dodge & Cox Income Fund (DODIX) is a great fund with experienced
management.  The Morningstar Fixed Income Manager of the Year in
2002 has produced top-notch results over both the short and long
term according to Morningstar by focusing on security selection.
It tends to favor high-grade government and corporate bonds, and
mortgage-related securities with limited "prepayment" risk.  Its
low expenses add to its appeal, says Morningstar.





The above chart shows how well the Dodge & Cox fund has performed
over the past six months with the economy slowing again.  But, it
is the fund's long-term performance that demonstrates its ability
to enhance value.  For the trailing 10-year period as of February
28, the fund had an average annual total return of 7.6%, beating
the LB Aggregate Bond index by an average of 0.34% a year during
that period.  That was strong enough to rank in the top 5 percent
within the Morningstar intermediate-term bond fund category.  Its
short-term stance today tells me it is guarding against a rise in
interest rates.

We also like the Vanguard Short-Term Federal Fund now, because of
its low expense, short duration and strong long-term track record
of risk-adjusted returns.  John Hollyer has managed the fund over
the past seven years, and has kept the fund's category ranking in
the top decile during his tenure.  For the trailing 5-year period
through March 17, the fund produced an annualized total return of
6.7% (10th percentile).  Its trailing 10-year average return thru
February 28 of 6.1% isn't quite as strong as the Dodge & Cox fund
but it was strong enough to rank in the top 10% of the short-term
government bond fund category, per Morningstar.

Conclusion

Investors seeking income and stability have a few good bond funds
on the Schwab Select List to choose from.  We would tend to favor
those funds that have short-term average durations and high-grade
average credit qualities today to minimize both duration risk and
credit risk.  We'd also tend to favor leading bond managers, such
as PIMCO, Dodge & Cox, and Vanguard.  They each have strong track
records of performance across various fixed income disciplines.

For more information, visit Schwab.com, Morningstar.com, and each
fund family's website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Take a Deep Breath

Looks like it was time for a deep breath. After a 700 point Dow
gain in four sessions, the prospect of war and an FOMC meeting in
which the Fed admitted even it didn't know what to expect, the
markets mostly churned on either side of unchanged. However, by
the end of the day, the bulls remained in control.


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


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The Option Investor Newsletter                  Tuesday 03-18-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: None
Dropped Puts: CEPH
Daily Results
Call Play Updates: BVF, ERTS, MME, STN
New Calls Plays: BCR
Put Play Updates: BAC, LLY, XL
New Put Plays: CAI


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

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


CALLS:
*****

None


PUTS:
*****

CEPH $47.30 +0.86 (+3.20) The strong rebound in the broad market
has driven the Biotechnology index sharply higher over the past
week and the Biotechnology sector has certainly gone along for
the ride.  Our CEPH play has continued to power higher as well,
with Tuesday's closing surge taking it through the 20-dma, as
well as our $47.10 stop.  Dropping the play tonight is a
no-brainer, as the recent strength is not what we want to see
in a bearish play.


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

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

CALLS              Mon    Tue

BCR      61.05    1.29   1.31  New, Quad top breakout
BVF      39.62    0.64  -0.09  Triggered Monday
ERTS     58.43    2.11  -0.10  Holding Monday Gain
MME      37.53    1.76  -0.18  Relative Intraday High
STN      20.37    0.70  -0.13  Support at $20 now


PUTS

BAC      68.34    1.81  -0.78  Look for 200-dma close
CAI      30.16   -0.83  -0.59  New, Under $30
CEPH     47.30    2.27   0.86  Drop, stopped
LLY      55.98    1.90   0.68  Can't hold $56
XL       69.19    2.22  -0.78  $70 too tough


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

BVF $39.62 -0.09 (+0.56) With a push and a shove early this
morning, the bulls managed to get BVF over our $40.10 trigger
point.  But without any follow through from the broad market,
there simply wasn't any staying power, and the stock fell back
to consolidate above the $39 level for the remainder of the day.
When all was said and done, BVF ended the day with a small
fractional loss, and now we're watching to see if the $39 level
does in fact provide support.  The month-long ascending
trendline is now at the $37.25 level and as long as that level
isn't broken, we still have a solid trend of higher lows to
work with.  A rebound from the $39 level tomorrow can be used
for new entries, although a dip and rebound from the $38 level
would make for an even better point to initiate new positions.
Traders looking to enter on strength will want to wait for a
volume-backed move through $40.25, just above Tuesday's morning
high.  We're raising our stop on the play to $37 tonight, as
the ascending trendline should provide strong support on any
more significant drop.

---

ERTS $56.43 -0.10 (-0.05) Considering the significant gains ERTS
has accrued in the past week, Tuesday's mild consolidation above
the $58 level is an encouraging sign for our play.  Looming just
overhead is the 200-dma ($60.08) and it will likely take another
concerted push up in the broad market to get ERTS through that
level.  It seems highly likely that we could get a dip back near
the $56.50 level (intraday support on Friday) before the next
strong bullish move, and that's where the dip buyers will want
to focus their efforts.  Yesterday, we raised our stop to $56,
as that level shouldn't be violated the bulls are going to mount
a serious assault on the $60 level.  Traders that prefer to enter
on strength will want to wait for the breakout over $60,
preferably with a trade of $60.25 before playing.  But keep in
mind, that this is a formidable resistance level, which has us
leaning towards taking entries on a pullback and bounce from
support.  If contemplating an entry on strength, be sure to use
broad market strength as a confirmation before entry.

---

MME $37.53 -0.18 (+1.83) While that $38 resistance level is
certainly a formidable obstacle for our MME play, that didn't
stop the bulls from making an assault on that level on Tuesday.
The stock actually managed a new intraday high of $38.29 this
morning before the buying interest dried up.  But even with the
broad market lacking for a bullish catalyst, MME didn't show too
much weakness, ending the day down only 18 cents.  After
yesterday's slingshot move through the $36 and then $37 levels,
we're left waiting for a break of the recent range.  Resistance
at $38 and support at $35.75 has kept MME confined for 2 weeks
now, and a break from this range seems imminent.  Traders that
took advantage of last week's dip back to support are in good
shape here, with stops set at $35.50.  Should MME find support
at the $37 level on this pullback, that can be used as an entry
point into the play at a higher level than what was offered last
week.  Taking an entry on strength though, will need to wait
for a volume-backed move over $38.50.

---

STN $20.37 -0.13 (+0.51 for the week)   STN finally got above the
$20 hump that has formed a top on the stock for the past three
years.  It not only crossed the $20 level, but added another box
on the point and figure chart with a trade of $20.50 on Monday.
The stock pulled back with some other casino stocks following the
announcement by Mandalay Bay Group that it would offer $350
million in convertible securities, in order to repay its
outstanding credit facilities.  However, STN held up quite well,
considering the sector pressure.  It found support over $20,
indicating that previous resistance may now put a floor under the
stock. Deutsche Bank also had some positive comments on the
sector today citing the 28% rise in casino stocks in the month
after the beginning of the Gulf War. They had been somewhat
beaten down before then, as well, but rebounded strongly during
the conflict.  We like long entries in STN now that it has broken
the $20 barrier.  If it fails to hold on a pullback then look for
support above $18.50 before entering.


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

BCR - C. R. Bard, Inc. $61.05 +1.31 (+2.65 this week)

Company Summary:
C. R. Bard, Inc. is engaged in the design, manufacture, packaging,
distribution and sale of medical, surgical, diagnostic and patient
care devices.  Hospitals, physicians and nursing homes purchase
approximately 90% of the company's products, most of which are
used once and discarded.  BCR's major product group categories
are: vascular diagnosis and intervention, urological diagnosis
and intervention, and oncological diagnosis and intervention.
In addition, the company maintains a fourth product group,
surgical specialties.

Why We Like It:
The past few days have seen some impressive bullish action
throughout the market, with many stocks in numerous sectors
posting impressive upward moves.  Many of those moves have seemed
to be largely short-covering related, but we've got a new play
tonight that is breaking out on what looks like good old-fashioned
organic buying.  The longer a stock takes to break out of a
consolidation pattern, the more powerful that move tends to be.
Well, BCR has been working its way higher since the July lows,
with each rally being stopped by the $60 resistance level.  But
not this time.  Monday's surge higher took BCR right to the edge
of that resistance again, and then despite the broad market
indecision on Tuesday, the bulls blasted through that level on
strong volume.  Closing just over the $61 and at the high of the
day, BCR posted its best closing price since January of 2002.
That move was good for a quad-top breakout on the PnF chart, and
the bullish price target is now tentatively set at $74.  BCR's
all-time high is just shy of $65, so achieving that target will
have the stock well into new high territory.  Following such a
strong breakout, it is entirely possible that BCR could continue
to power higher.  That means a continued breakout over today's
highs (as long as volume remains strong) can be used for new
momentum-based entries, using $61.25 as a trigger.  Of course,
the preferable entry point will come on a dip back to confirm
the $59-60 area as newfound support.  Place stops initially at
$57.75, just below recent support.

BUY CALL APR-60*BCR-DL OI=2246 at $2.20 SL=1.25
BUY CALL APR-65 BCR-DM OI=  70 at $0.35 SL=0.00
BUY CALL JUL-60 BCR-GL OI=1252 at $3.70 SL=2.00
BUY CALL JUL-65 BCR-GM OI=  38 at $1.50 SL=0.75

Average Daily Volume = 279 K




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

BAC $68.34 -0.78 (+1.03 for the week) BAC has not been one of our
better shorts in recent days, following financials higher during
the broad market rally. However, the stock continues to fail at
its 50-dma, which also sits just below the $70 resistance line.
It was one of the weaker stocks in the market today, giving up
$0.78 in spite of a gain in the Dow.  The S&P Banks Index (BIX)
also underperformed, with a small loss, but BAC underperformed
even the index. The stock did bounce from its 200-dma at $68.18
and we'd like to see a close below that level before recommending
new entries in the short play.  If it does fail it could follow a
market rollover and re-test $66 in a hurry, but we will likely
need to see broad market weakness for that to happen.

---

LLY $55.98 +0.68 (+2.00) Short-covering has lifted virtually
every sector of the market in recent days, and the Pharmaceutical
sector (DRG.X) is certainly no exception.  Buyers propelled the
DRG index through the 50-dma on Tuesday, but there is formidable
resistance looming at the year-long descending trendline, which
is sitting right on top of the 200-dma ($296).  LLY has been
driven upward by the buying pressure in the sector, but is
finding its own resistance near the $56 level, which is the
location of its own 20-dma.  A failure of the current rally
near this level is the best opportunity for new entries into the
play, and risk is quite manageable with our stop set at $57.10,
just above resistance that held back any bullish moves throughout
early March.  With Tuesday's tight consolidation range, momentum
traders can use a break below the intraday lows ($55.40) as an
entry signal.  The key here will likely be the action in the DRG
index, and we'll want to use a rollover in that index to confirm
weakness in LLY before playing.  Late breaking news tonight had
LLY's CEO warning that weakening patent protections or imposing
government price controls in the U.S. could lead to "a death
spiral" in the pharmaceutical industry's ability to develop
new medicines.   While this isn't really "new" news, it could
help to apply downward pressure, both on LLY and the DRG index
tomorrow.

---

XL $69.19 -0.78 (+0.69 for the week) XL continues to flirt with
our adjusted closing stop loss of $70.06.  It also continues to
fail its rebounds at that level. It is also struggling with its
descending 21-dma, which now sits at $69.64.  It was one of the
weaker stocks in the market today, giving up $0.78, in spite of a
continued rally in the broader indices and appears to again be
rolling over form an attempt at $70. The $70 level should
continue to be pivotal here, as it was the last level of support
before the recent PnF double-bottom sell signal at $69.
Aggressive bears can continue to target entries below $70, but
unless we get a rollover in the broader markets after the pre-war
rally, the financials may hang in there.  The exception for
insurers like XL may be some type of terrorist retaliation
involving large amounts of indemnification, or even the fear of
such acts.  We will continue to hold XL and let our stop
determine its fate, as its continued failure at $70 may simply be
giving those bears that didn't enter on the last failed rebound
at this level another chance.


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

CAI - CACI International, Inc. $30.16 -0.59 (-1.41 this week)

Company Summary:
CACI International delivers information technology (IT) and
communications solutions to clients through four areas of
expertise or service offerings: systems integration, managed
network services, knowledge management and engineering
services.  Through these service offerings, the company
provides comprehensive, practical IT and communications
solutions by adapting emerging technologies and continually
evolving legacy strengths in such areas as information
assurance and security, re-engineering, logistics and
engineering support, automated debt management systems and
services, software development and reuse, voice, data and
video communications and geo-demographic and customer data
analysis.

Why We Like It:
Despite the recent meteoric rise in the NASDAQ, it isn't all
good news in the land of technology.  Even a reaffirmation of
earnings guidance isn't enough to stem the selling in stocks
that are out of favor.  Shares of CAI got a small pop last week
with the rest of the market, but that bullish action was
promptly reversed yesterday following the company's
reaffirmation of earnings estimates.  The stock plunged back to
the $30 level in the early going before a quick bounce back and
slow bleed lower throughout the day.  That was in sharp contrast
to the action in the broad market, and that weakness persisted
on Tuesday.  CAI fell back to close just above that critical $30
level and looks poised for a breakdown in the very near future.
The PnF chart doesn't show much hope for the bulls either, as
the stock is currently on a Sell signal, below its bullish
support line, and the bearish price target works out to $25.
The standard price chart shows some very bearish indications as
well, with the selling volume running double the ADV and On
Balance Volume plunging to new lows on Tuesday.  Since we don't
want to get caught trying selling at the bottom on CAI, we're
setting a trigger of $29.50 on the play.  Momentum traders can
consider entries on the initial break below that level, while
more cautious traders will want to wait for a failed rebound
below the 10-dma ($30.98) to enter the play.  Once below our
trigger level, the next likely area of support will be $27.50,
the reaction low last September.  Stops should initially be
placed at $32, just above last week's intraday highs.

BUY PUT APR-30*CAI-PF OI= 359 at $1.65 SL=0.75
BUY PUT APR-27 CAI-PY OI=   1 at $0.75 SL=0.40

Average Daily Volume = 344 K



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


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

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


**************************************************************
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The Option Investor Newsletter                  Tuesday 03-18-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three:

Play of the Day: Call - BCR


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

BCR - C. R. Bard, Inc. $61.05 +1.31 (+2.65 this week)

Company Summary:
C. R. Bard, Inc. is engaged in the design, manufacture, packaging,
distribution and sale of medical, surgical, diagnostic and patient
care devices.  Hospitals, physicians and nursing homes purchase
approximately 90% of the company's products, most of which are
used once and discarded.  BCR's major product group categories
are: vascular diagnosis and intervention, urological diagnosis
and intervention, and oncological diagnosis and intervention.
In addition, the company maintains a fourth product group,
surgical specialties.

Why We Like It:
The past few days have seen some impressive bullish action
throughout the market, with many stocks in numerous sectors
posting impressive upward moves.  Many of those moves have seemed
to be largely short-covering related, but we've got a new play
tonight that is breaking out on what looks like good old-fashioned
organic buying.  The longer a stock takes to break out of a
consolidation pattern, the more powerful that move tends to be.
Well, BCR has been working its way higher since the July lows,
with each rally being stopped by the $60 resistance level.  But
not this time.  Monday's surge higher took BCR right to the edge
of that resistance again, and then despite the broad market
indecision on Tuesday, the bulls blasted through that level on
strong volume.  Closing just over the $61 and at the high of the
day, BCR posted its best closing price since January of 2002.
That move was good for a quad-top breakout on the PnF chart, and
the bullish price target is now tentatively set at $74.  BCR's
all-time high is just shy of $65, so achieving that target will
have the stock well into new high territory.  Following such a
strong breakout, it is entirely possible that BCR could continue
to power higher.  That means a continued breakout over today's
highs (as long as volume remains strong) can be used for new
momentum-based entries, using $61.25 as a trigger.  Of course,
the preferable entry point will come on a dip back to confirm
the $59-60 area as newfound support.  Place stops initially at
$57.75, just below recent support.

BUY CALL APR-60*BCR-DL OI=2246 at $2.20 SL=1.25
BUY CALL APR-65 BCR-DM OI=  70 at $0.35 SL=0.00
BUY CALL JUL-60 BCR-GL OI=1252 at $3.70 SL=2.00
BUY CALL JUL-65 BCR-GM OI=  38 at $1.50 SL=0.75

Average Daily Volume = 279 K



************************Advertisement*************************
”If you haven’t traded options online – you haven’t really traded
options,” claims author Larry Spears in his new compact guide book:

“7 Steps to Success – Trading Options Online”.

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

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


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

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


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

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

Contact Support

DISCLAIMER

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