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Daily Newsletter, Sunday, 03/23/2003

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The Option Investor Newsletter                   Sunday 03-23-2003
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: Shock and Awe
Futures Market: Things Couldn't Be Better
Index Trader Wrap: LIFT.
Editor's Plays: Now What?
Market Sentiment: Awe, Shocks - It's Just Another Rally
Ask the Analyst: Take It or Leave It?
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: No Sign of Weakness


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 3-21         WE 3-14        WE 03-07        WE 02-28 
DOW     8521.62 +661.91 7859.71 +119.68 7740.03 -151.05 -127.03  
Nasdaq  1421.17 + 80.84 1340.33 + 35.04 1305.29 - 32.25 - 11.48 
S&P-100  456.37 + 32.30  424.07 +  3.95  420.12 -  5.24 -  4.51 
S&P-500  895.89 + 62.62  833.27 +  4.38  828.89 - 12.26 -  7.02 
W5000   8463.32 +566.83 7896.49 + 39.17 7857.32 -115.30 - 63.35 
RUT      376.23 + 21.84  354.39 +   .21  354.18 -  6.34 -  3.84 
TRAN    2263.49 +236.40 2027.09 - 15.39 2042.48 -  6.57 - 47.36 
VIX       33.62 -  2.71   36.33 +  0.68   35.65 +  1.50 +  0.01 
VXN       45.78 -  0.02   45.80 -  0.59   46.39 +  0.74 -  0.45 
TRIN       0.59            1.11            1.29            0.84   
Put/Call   0.63            0.70            0.75            0.59   
*****************************************************************


Shock and Awe
by Jim Brown

Yes, I am shocked and awed but by the moves in the market not
the bombs in Iraq. Without showing extreme vertical spurts of 
buying and even with intraday drops and periods of inactivity 
the Dow has managed to produce more shock than the war in Iraq.
Numerous record book entries were created and support and
resistance points rewritten. 

Economic reports on Friday were bland with the CPI rising 
slightly due mostly to high oil prices. Real inflation
remains tame despite gas prices being up +43% over last year. 
That high priced energy component is about to change with the
June contract for oil dropping to $26 a barrel and well below
the $39.99 price paid a month ago. This should add +1.25% to 
the GDP for the 2Q. This is the removal of the -1.25% impact 
that will be felt in the 1Q GDP when finalized. The lowered 
energy prices are very bullish for the stock market as lower 
costs are passed through in manufactured items. It is good 
for the market because the consumer feels better paying less 
for gas and will be spending that money on other things to 
benefit the economy. 

The Weekly Leading Indicators fell slightly on the basis of
jobless claims, a falling money supply and selling in bonds.
The leading indicators and the economy appear to be in a 
wait and see mode as the war progresses. 

Mutual Funds saw the first inflow of funds in eight weeks
as the war appeared to be going well and the prospect of 
a new bull market looms. The +$900 million of inflows for
the week ended Thursday was but a trickle compared to the
-$4.9 billion that flowed out the week before. Remember 
the 90% downside volume day last week? Evidently that was
a capitulation day and the flood of money out of funds
was the evidence of capitulation by many investors.

What a week! I am still spinning in disbelief. The Dow 
turned in its best week since 1982, a 21 year record. It
is now positive for the year and has gained over +1100 
points since the low for last week at 7400. Yes, +1100
points in eight days. This is the biggest gain since 
Dec-1998. It is an amazing feat, especially when you 
consider the major resistance levels that were passed
with barely a pause. 7900, 8050, 8150 and 8350 are just
blips on a chart now but they were major battle lines in
the past. The Dow is above all averages now except the 
200 day EMA. This average has stopped the last two major
rallies in their tracks but I am not sure anything can
stop this train. 

Dow Chart - Daily


   

The Nasdaq performed admirably but significantly less 
convincingly than the Dow. The Nasdaq closed over 1400
but only managed +19 points compared to the +235 for the
Dow. Problems for the Nasdaq included CSCO, which was weak
on the rumor that JNPR would warn next week. The same 200
EMA that stopped the Dow and the Nasdaq in the past was
1416 at Friday's close with the Nasdaq at 1421. This
technical break was encouraging for the bulls but there
was little real difference. 

Nasdaq Chart - Daily


 
 
The S&P, a broader indicator of market strength than the
Dow, has not reached the same levels of bullishness as the
Dow or the Nasdaq. The S&P is below the 200 EMA at 912 and
horizontal resistance at 950 and down trend resistance at
900 and 923. I am not claiming that any of these levels will
stop the advance but the picture for the S&P is clearly more
challenging than that for the Dow.



 

For an even broader look at the markets we can look at the
Wilshire 5000. This broader look takes out the confusion of
the Dow 30 where one or two major stocks can influence the 
entire average and indirectly the market reaction to the
the Dow gains. We can't ignore the Dow but for real market
breath the Wilshire is a better indicator. Notice on the
chart below the confluence of resistance at 8675 and the
200 EMA at 8613. This will be a serious problem for the
broader market to overcome. 

Wilshire-5000 Chart - Daily


 

I definitely do not want to claim a sell off is imminent. 
I have been expecting it for several days based on the 
unsupported spike and terrible economic conditions but
obviously the market has a mind of its own. The war and
the perception of the war is controlling our destiny. We
have rallied on hopes that the war was going to be delayed,
on hopes it would be sooner, on expectations that it would
be quick and we even rallied on statements from Bush that
it would be longer and more difficult than previously
thought. We have alternately rallied on bombs falling and 
sold off on bombs falling. We rallied when Saddam was killed
and rallied again when it appeared he wasn't.

The bottom line is we rallied. Good news or bad news from 
the war, good news and bad news from the economy. We rallied
because everybody thought we should rally. Traders had been
condition to expect a war rally just like they were conditioned
to sell on uncertainty before the war. Nearly $5 billion in
cash left equity funds last week on fear of the war. The
Dow has rallied +15% from last weeks low when that cash 
was flowing out of the market.   

Is this rational buying? Not in any market I have ever
seen. We have these big spikes but they very seldom stick. 
They are reactions to extremes in the market. We were 
extremely oversold last week. We are extremely overbought
this week. There has to be an equalization of pressures 
where reality comes back into the market. Maybe Monday,
maybe next week, maybe in a couple weeks but it will
eventually correct. 

Remember this was a quadruple option expiration Friday
in a month/quarter where there were extreme market moves. 
Art Cashin said on Friday night that the type of orders
appeared to be option related not buying from Ma and Pa
Investor. Volume across all markets was 4.3 billion shares
and very strong but only 2:1 advancers to decliners. The 
2.1 billion on the NYSE came in two buying spurts with 
500 million in the first 45 min and another 500 million 
in the last 90 min. The rest of the day was quiet and 
trending lower except for a 45 min buy program at 11:50 
that triggered some short covering.

I went back and looked at some similar rebound streaks 
over the last couple years. There were more than I 
expected but all had the same result. They streaked into
the stratosphere only to pause and retrace much of their
gains before moving up again. The biggest problems with
streaks like this is not the massive individual streak 
itself but the dozens of less spectacular rebounds that 
only lasted 3, 4 or even five days before rolling over. 
Those dozens of bounce and roll rebounds are quickly 
forgotten as traders chase stock prices to either catch 
the speeding train to add to long positions or by shorts 
just waiting for it to slow so they can jump off. Those 
who remember the 3-4 day bounces have been waiting 
patiently for the retracement for a week to no avail.

Combo Chart - Dow


 


What should investors do? Investors are faced with a tough choice. 
Wait for a pull back that may never come or jump on the speeding
train. There are plenty of reasons to buy including the potential
for the war to be over next week. The massive 20,000 vehicle US
advance is moving at high speed toward Baghdad but when they get
there the war could be over. With the surrender of the 51st
Iraqi division on Friday the incentive for other commanders to
follow suit is growing. With massive destruction of everything
related to Saddam in Baghdad it will quickly be obvious that
clinging to past hopes is a losing battle. IF the war is over
next week the market could add another 1000 points on happy
thoughts alone. This would be especially true if the troops
were greeted in Baghdad as liberators as they have been in the
towns already passed. This continued rally would be emotional
only and could push the indexes to even more unsupported heights. 

Should the war turn into a street fight where high tech cruise
missiles and laser guided bombs are useless then the TV sound
bites could turn into Mogadishu type pictures of US wounded
and dead civilians. The administrations hopes are built on the 
war being over before the street fight begins. They are almost
begging everyone to surrender to prevent having to fight in
Baghdad. A street fight could turn this rally into a rout 
very quickly. 

As traders we need to remain focused and trade what we see. 
I have not been successful in that recently. My remembrance
of the dozens of bounce and rolls is much more vivid than
the half dozen 7-8 day spikes over the last several years. I
know many traders are not saddled with this affliction and
I am envious. I have bought so many breakouts over the years
that turned out to be tops that I have an instinctive fear
of unsupported rallies. 

I understand that markets sometimes make major moves on 
nothing and that appears what is underway now. The earnings
picture is terrible with almost every guidance announcement
negative. Traders have decided momentum is more important 
than fundamentals and until that momentum fades the earnings
and the economy will be a footnote. On the positive side a
quick war with minimum casualties will do wonders for 
consumer sentiment. Once families of servicemen hear the 
fighting has stopped and they are no longer in immediate
danger several million relatives will rejoice. With nearly
500,000 military personnel in theater counting the shipboard
crews that will be one big sigh of relief. 

If the collective sigh of relief carries over to consumers
and the wallets are opened then a recovery can begin. This
does not mean it will be instant. The summer months are
normally a drag on the economy and the market. Offsetting
this drag could be the successful passage of the $700
billion stimulus package. The house passed it on
Friday but the Senate has put off the vote until next
Wednesday. There could also be a rush of government spending
to replace equipment used in the war and buy new equipment
with enhancements from lessons learned in the war. 

Still we are faced with a tough decision. Do we jump on the
speeding train knowing there is a bridge out up ahead just 
not how far ahead? Or do we wait for the pull back and for
fundamentals to catch up with the market. It is a tough call.
If the current rebound continues like the October rebound
then it could be a month or more before weakness appears. 
If it is like the July rebound then weakness could hit next
week. If you are an agile trader then jumping on the train
is not risky as long as you keep your eye on the exit. It 
is the market timing thing that becomes risky. Is this the
drop or a pause? Is this the next wave up or just a spike. 
Get in, out, in, out, etc. 

With any positive news over the weekend the rally should
continue as any remaining shorts bite the bullet and exit. 
Investors who took $5 billion out of the market last week
may also decide to put it back in +15% higher. Investors
on the sidelines may read the paper this weekend and see
a 21 year record for the Dow and start looking for the
mattress money to put back in the market. In short until
the fog of war clears and the heightened uncertainty of
market direction fades we are likely to see continued
unexpected moves. 

Next week we should see an increase in earnings warnings
but they will likely be overshadowed by events in Iraq.
They are important and whether the market pays attention
next week or not they will come back to haunt us in April. 

With the quadruple expiration Friday behind us we will 
have one more day of nervous trading as exercised options
are settled on Monday. Another factor will begin to take
control soon and that is end of quarter window dressing. 
Especially after the big rally equity funds will be hard
pressed to go into the quarter end with cash on the books. 
With investors getting statements after such a big market
event they will be looking for signs that their fund owns
the winners. Ironically, those, which are currently heavy 
in cash will be trying to doctor those statements to show
they participated in the rebound even if it means buying
at the current inflated prices. 

Next week should be a key week for the markets. If they 
can retain the momentum through the end of March then 
we could see some significant gains from train chasers. 
If this momentum fades next week then we could see three
weeks of consolidation until April earnings give us our
next direction. Either way next week should not be dull.
Just don't let your bias get in your way. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


**************
FUTURES MARKET
**************

Things Couldn't Be Better
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET


Contract    Last         Net         High        Low

Dow         8521.97      +235.37     8522.18     8290.38
YM 03M      8463         +201.00     8499.00     8239.00

Nas 100     1093.12      +12.88      1099.61     1078.64
NQ 03M      1094.50      +13.00      1103.50     1078.50

S&P 500     895.90       +20.06      895.90      877.65
ES 03M      893.25       +18.50      895.75      873.00


Daily Pivots

Contract    S2         S1       Pivot       R1        R2
YM 03M      8156      8333      8416       8593      8676
NQ 03M      1068      1082      1093       1107      1118
ES 03M       866       882       889        904       912


These futures wraps are meant to give you an idea of what is 
happening in the world of futures trading.  Using technical 
analysis, and a little bit of news or sentiment, we can generally 
understand the lay of the land.  Today, however, it appears that 
I'm at a loss for words. 

If we look at sentiment, over the past few weeks we have slowly 
built into a bullish market based on news of no war, then news of 
war.  We rally when the bombs are about to drop, and when the 
bombs drop.  We rally with wave after wave of bad economic news 
getting worse, and we rally when terrorist dangers become more 
heightened.  We rally on news Saddam may be dead, and continue 
rallying when we're told he's not.  Ahead of the weekend, on the 
hopes that the war may be quick and decisive, we rally, even 
though the president was on TV yesterday saying that the war 
could drag out and not be so decisive.

On the technical side, we have resistance falling like autumn 
leaves, extremely overbought markets which refuse to pullback for 
any reason.  Technical indicators are pegged at highs they 
haven't been to for quite some time, but no selling appears to 
relieve the pressure.  Bearish divergences are present on all 
time frames.  

If one steps back and tries to remove all emotion from their 
bodies, and any preconcieved ideas they may have, and just looks 
at the market today, there is little doubt that they would be 
looking for a strong pullback.  I use the word strong, because a 
mild pullback would have been good for the market, but now that 
the bullishness has gotten so extreme, the greed so violent in 
its expectations, that the only thing that I can see to help this 
market is a strong pullback.  Without that pullback to reset 
indicators, and to dull expectations, any bad news that actually 
sticks in the minds of traders could cause a huge rush out the 
door.  Can this market continue up?  Sure it can.  Can you 
stretch the rubber band further? Of course, but eventually that 
rubber band will break.  The farther out that it is stretched, 
the more violent and painful the sting when it breaks.

This is not the rise of a healthy market.  Straight shots upward 
have ALWAYS ended badly.  Please, don't take my word for it, but 
pull up a daily chart and look for yourselves.  At times like 
this, the only thing we can do is look at the past, and try to 
find correlations.  In a healthy bull move, the market goes up, 
then pulls back to allow some profit taking, and allows shorts to 
exit, and others to get in long.  This 'ratcheting' effect 
creates a strong bullish case, much like building a good 
foundation for your house out of cement, rather than out of 
tupperware.

This works both ways.  Strong selling with no moves upward 
creates a sucking sound that eventually implodes and stops the 
selling.  Longs can't get out, new shorts can't get in.  All in 
all its called imbalance.  This can happen for any number of 
reasons, and it doesn't happen too often.  External events, like 
last years Enron-induced fears, just feed a fire which human 
nature could not handle well.  That human nature is blinded by 
both extreme joy and by extreme fear is not new or news, and 
doesn't require a doctorate in psychology.  All you need to do is 
look at a daily chart of your favorite stock or index to see that 
mass hysteria does, and the results that follow.

What IS surprising, however, is that each time this happens, 
traders run around screaming, bumping into walls, thinking either 
the end is near, or DOW 12,000 is just around the corner again.  
It seems that human nature has an attention span equal to the 
expiration date of the lunchmeat in my fridge.  

It is absolutely critical that traders understand when to stand 
aside, and to understand that these extremes can feed on 
themselves, and that any normal analysis is nearly impossible.  In 
fact, to enter the fray when emotions are this high is to allow 
yourself to be sucked into these emotions, which lead to bad 
decisions and poor trading.  

ES daily: Here are some numbers: RSI has only been this high once 
(last March) in the past 3 years.  CCI has not been this high in 
the past 3 years. Fast Stochastic has been this high once (last 
March again), and slow Stochastic is bearish divergent as it is 
not even remotely as high as other recent bull runs. For example, 
Slow Stoch is now 71, last March it was 90, and this past Oct it 
hit 91.  The large rise this past October was 4 days, followed by 
a day of profit taking, followed by three more days up, followed 
by long consolidation before another move up.  Look at previous 
runs, the pattern is clear, rise, then pullback or consolidate, 
then rise.  Eight straight days without pullback is not healthy.

Don't get me wrong, I am not trying to build a bear case here.  I 
have no wish to fight the market, only to profit from it.  To do 
so, I have to use what I know.  This is what the technicals tell 
me, and what previous market behavior tells me.  Feel free to 
think that the market is in a new phase, where old patterns don't 
work anymore.  Just remember that was the mantra at the top of the 
bull market a few years back: "we are in a new phase, the old 
rules don't apply anymore".  To watch traders buying with both 
fists on a Friday afternoon after a 1000 point Dow rally in 8 
days is, well, is surprising (I have other words on the tip of my 
tongue, but nevermind).  I am waiting with baited breath for this 
'interesting' rally to resolve itself.

I'll post only one chart tonight, the ES 270 minute all sessions 
chart:

Chart of the ES Futures contract:


 


Price is at the upper channel of the 78 period regression 
channel, and Far above the upper tine of the 200 period 
regression channel, a sure sign price has gotten ahead of itself.  
Note the Macd and Stochastic, which are well below their highs 
even though price has continued to move up.  The CCI moving 
average ha actually rolled over and is pointing down.  When I 
look at NQ, YM, ES, or for that matter any stock that I'm 
tracking, this is the kind of divergence that I see.  

Have a great weekend, and let's hope a tiny bit of sanity returns 
to the markets next week.

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

Renko Charts.
These will be updated when necessary.

Daily Renko for ES:
chart link:


 

Daily Renko for NQ:
chart link:


 

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.

chart link:


 


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

LIFT 
By Leigh Stevens
lstevens@OptionInvestor.com 

It only took the initial lifting of the uncertainty about an Iraq 
conflict to unleash significant buying and short-covering last 
week. And you thought traders would stand aside to see what 
happened when U.S. forces got closer to a possibly tougher fight 
around Baghdad? Wrong!

Saddam is not the only master of the unexpected, as the market 
never fails to be the mother of all surprises. The buying was 
institutionally dominated as money managers are forced in as soon 
as the crowd speculates on victory - buy the fact, sell the 
rumors or unknown, just as oil bought the scare and sold the 
reality 

THE BOTTOM LINE – 
The S&P is leading and the Composite lagging so short the Nasdaq, 
such as QQQ in the 27-28 price zone. There may be some tougher 
periods ahead and the market has gotten ahead of itself - the 
indexes are overbought near-term, suggested by the short-term 
oscillators and bullish extremes in my trader "sentiment" 
indicator. 

Meanwhile, it was a nice week to be long calls - just take some 
(all) of the profits and run! This is not to say that there will 
be a sharp collapse, judging by some strong underlying buying 
interest by the pros.  What we have is the common run the market 
up quick and fast while main street investors stand back from 
much new buying.  

FRIDAY'S TRADING ACTIVITY –
Unlike Thursday, when the market got off to a tough start (the 
Dow fell 135 points in the morning) there was steady strength all 
day as there was more certainty about how the U.S. was faring tow 
days into the strikes. (Thursday's tone was all set somewhat by 
President Bush's speech on Wednesday night, when he warned that 
the war may be "longer and harder" than some people have 
predicted.)

Given the spectacular nature of the strikes again Baghdad, 
traders found continued encouragement that the war wouldn't be 
too drawn out.  By the week's close, many if not most market 
participants appeared at least somewhat optimistic that military 
action was progressing in a favorable way. 

Traders are also concerned that there is a turbulent time ahead 
for stocks and bonds. 

Major players in the market have been hedge funds and shorts, as 
everyone else is probably too scared to do much of anything new. 
The public will likely take its "usual" 6 months to come back in 
the market.  

Of course, many figure that the recent strong rally signals that 
the market is too optimistic about the shape the war in Iraq will 
take. There is the fear that the economy and corporate earnings 
will continue to stay lackluster once the war is over.

Some thinking in traders I talked to or heard on Friday say that 
a resounding win in Iraq is already priced into stocks, per a 
repeat of 1991's Gulf War rally, when stocks rebounded some 18.5 
percent in 15 trading after the action started.  

So, buyers were getting in ahead of the expected war rally in a 
classic buy the rumor, sell the news gambit, suggesting that as 
the conflict winds down, traders will then take profits.
The market in terms of its public focus on the Dow average, has 
gained nearly a 1000 points off its low, up some 13% and 
represents the longest winning streak since August of 2000. 

While many analysts and the other media news talking heads 
continue to caution that the U.S. economy remains sluggish, many 
traders were betting that the so-called war rally may be their 
best opportunity of the year for big gains. And once the guns 
fall silent, there is a fear that the rally may fade as well. 
Nobody wanted to be short was the long and the short of it, pun 
intended. 

OTHER MARKETS – 
Gold continued to fall with nearby futures reaching the 327 area, 
down some $10 from the prior week close at $337 in terms of the 
nearby COMEX gold futures.  Oil prices were the most encouraging 
news as nearby futures fell sharply last week. 

One report I noted last week was that between Tuesday and 
Thursday of the prior week, investors took out $2.61 billion from 
stock mutual funds, while adding $1.38 billion to bond funds. 
Bonds are seen as the dominant "safe haven" - much more so than 
gold which is a non-interest earning asset.  In fact, it costs to 
store it.    

MY INDEX OUTLOOKS – 
If you are interested in the BIG picture, you may be interested 
to know that the mother of all market theories has never given a 
sell signal.  Dow theory would expect to the Industrials to go to 
a new closing monthly low relative to its low before the big 2000 
top - the idea being that the Dow 30 should "confirm" the lower 
lows in the Dow Transportation average to confirm a major bear 
trend. Anyway, of passing interest per the chart below:      

Chart of the Dow Industrials:



 

Of course the market has lost a lot since the top 3 years ago but 
the bigger picture view offers the possibility of a market 
rebound in coming months - hope springs eternal for my retirement 
account!
 
S&P 500 Index (SPX) – Daily chart:

The S&P benchmark, the S&P 500 or SPX, did something that we 
haven't seen in a year by closing above its 200-day moving 
average which stood at 892 on Friday.  Last March, SPX managed to 
get above this key average for all of 2+ weeks, before the 
relentless bear market dragged stocks down again.  

Chart of the S&P 500 (daily #1)



 

Stopped out of my first foray into puts, I also speculated that a 
close or two above 850 would suggest upside potential to 870 at 
least, where I would drool over the put potential again - WRONG 
or early on that thought as SPX blasted through 880!  And, I 
thought I was being outrageous by suggesting 870 as a target.  

What now market?  I can forecast that the market is vulnerable to 
any bad news given the fact that SPX is now both fully overbought 
on price and "sentiment" terms - for that I have another chart 
view below.  Bullish sentiment is ahead of the fundamentals if we 
look at the still-sluggish state of the economy and actual 
earnings.  At 900, the S&P is up to the upper moving average 
envelope that suggests that prices are extended (a push to far) 
relative to the 21-day moving average trading "mean". So, whether 
SPX extends its gains to next resistance in the 912 to 920 zone, 
or makes a sky shoot to the 930 area, a setback is coming.    

Chart of the S&P 500 Index (SPX) – (Daily #2)



 

My other key indicator here is the Equities call to put daily 
volume ratio - as call volume ran more than double put volume at 
week's end, a clear "danger ahead" sign.  

The lead time to a top is typically 1 to 5-days once this kind of 
extreme is seen.  Get ready, get set, to take out some put 
insurance to the risk that the market is ahead of itself.  
Baghdad or bust is not going to suddenly mean a booming economy.   

Dow Industrial Index (DJX) – Daily chart:

In terms of the Dow, significant resistance or selling interest 
can be expected at 8800, if not sooner.  But just on the chart, 
and basis the overbought stochastic reading, a sell off is 
getting closer.   

Chart of the DJX



 

What we do NOT have shaping up is the mother of all technical 
sell signals - well, at least a pretty reliable one - when a new 
high is made WITHOUT a confirming higher high (relative to the 
prior peak) in the oscillator type indicators.  

For example, note the picture perfect bullish technical 
divergence above when, at the 7500 bottom (a new low), but with 
the stochastic making a HIGHER low.  Love those divergences as I 
wrote about in my last week's Trader's Corner article.  See - 
http://www.OptionInvestor.com/traderscorner/tc_032003_2.asp

If I just did heavy buying of puts or calls when these divergences 
happen a few times a year - well, I could retire on the Spanish 
(not French) Mediterranean that much sooner. 

Dow Industrial Index (DJX) – Hourly:

The Dow has made a nice move since getting above the "line" of 
resistance as shown on the hourly chart below.  The upper 
boundary of the steep up trend channel also suggests that 
resistance will get more significant around 88 on DJX.  I 
anticipate good support at those prior highs - resistance 
"becomes" support - in the 81-80.80 area.  This area would be a 
good profit target for puts bought on a further extension of the 
current advance. 

Chart (HOURLY) of the Dow Jones Industrials:



 

I especially would welcome another 200 point gain - like Friday's 
- to do some new put buying in DJX.  Watch, now the market fall 
apart on Monday!  There is this validity to a close above the 
200-day moving average not being "confirmed" so to speak UNTIL 
there is a second consecutive close above the 200-day.  Stay 
tuned.     

S&P 100 Index (OEX) – Daily and Hourly charts: 
 
I was being cautious I thought to suggest OEX put purchases in 
the 440 area (risking to 445), but the bulls had all this pent up 
fury.  Maybe they heard too many gold bugs saying financial 
assets were finished, done, kaput.  463-465 is where I peg next 
resistance.  

Meanwhile there is an HOURLY non-confirmation in the latest push 
to a new price peak. This divergence on the 60 min charts, while 
never as important as such a signal on a DAILY chart basis, is 
often the early warning that a move has gotten ahead of itself - 
a bridge too far.        

Daily & Hourly chart of OEX:



 

475 is the next BIG potential resistance on the S&P 100 and would 
represent a complete retracement of the last big down swing.  It 
could happen - unless traders head those warnings by the 
Commander in Chief that the next or further stages of the Iraqi 
conflict may not be so easy as the romp through the desert.  But 
all good wishes to the troops for great good fortune.  
 
NASDAQ Composite (COMPX) Weekly chart – 

Just a point on the bigger picture in the Nasdaq, as prices at 
least achieved an upside penetration of the weekly down trendline 
as you see in our next chart.  However, as always, the proof of 
the staying power of a rally is the ability to pierce the prior 
rally peaks - in this case that is COMPX above 1467, then 1520.   

Weekly chart of the COMPX



 

If the Nasdaq continues to push higher we'll soon see the 8-week 
Relative Strength Index (RSI) registering an overbought reading 
at 70. If so and there was a move that took this Index up toward 
he 1500, take a strategy contrary to that trend by booking call 
profits and taking out puts.  I favor selling into rallies in 
this way.  

QQQ Daily charts - two views:

My next shorting target in QQQ was on a move to and above $27.  I 
still favor this trade as the Q's bump up against the upper 
envelope line that often has suggested that the Nas 100 tracking 
stock has reached an area where selling will push the stock back 
down.  Significant technical support can be surmised as occurring 
on a drop back to the 25-25.50 area.  At 28.50, an arrested 
(stalled) rally is a potential double top.   

Side by side view of the QQQ:



 


There are not divergences yet shaping such as a lack of 
confirmation in volume or things of this sort.  All we can say 
for SURE is that the market reacts more bearishly to negative 
news when an advancing trend is steep enough to cause the 2-week 
stochastic or RSI to reach the upper end of its typical range. 

My profit objective on long stock and long calls was, it turns 
out, pretty conservative at 25.5-26.00.  Maybe the Q's will reach 
29 on this run, but that's the long shot - such as if the recent 
consolidation was a bull flag or about midpoint in a move.   




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**************
Editor's Plays
**************

Now What?  

What do you do when every play you look at looks like a 
put play and the market continues to go up? This was my
challenge for this weekend. The easy play would be to 
take any index and list puts on it but with the potential
for further irrational exuberance next week that could
be dangerous. 

Instead I searched for some stocks that had failed to 
go up last week for some unexplained reason. Most stocks
were either going vertical to the upside of continuing 
their downward drift. The ones drifting down could be
seen as value buys at any time once the general advance 
slows. 

The stock I ended up with was QLGC. This stock spiked on
the big gap open last Monday and then flat lined at $40
for the rest of the week. Perfectly flat with no upside
indications. It almost looked like an anomaly as one of
the only tech stocks not to rise. BRCD had an almost 
identical pattern but at $5 is not a candidate for any
downward move. The longer term down trend from the May
2002 high of $52.50 is still intact and it looks like we
could be entering at the cycle high. 

I checked the news and it was less than exciting. There
was a downgrade on Monday from overweight to equal weight 
and before that the last coverage initiated was at
under perform. The entire sector appears to have dropped
into a hole and been forgotten. EMC was downgraded 
on Friday after a negative article on the data storage
sector. My analysis is that if QLGC could not rally 
during the best week in 20 years then what would happen
if the market turned south again. Even if the market did
continue upward would QLGC attract attention? This appeared
to be a relatively low risk play. 

I am recommending the April $37.50 PUT (QLC-PU) which 
closed on Friday at $1.65. The target price is $35 on
QLGC.   

This is not rocket science but it looks to have a decent
chance of success and does not depend on the market 
crashing. 

Chart of QLGC



 


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

Play updates:

I am only listing the current recommendations with a 
link to the initial write up and unless the play changed 
substantially. 

QQQ - Puts - March 16th. 

Scratch that one up as a loser before it got started. The
NDX gapped up from 1020 to 1070 at the open on Monday and
negated the play concept in the first 20 min. 


DJX - Laddered Calls - $85.19
Mar-9th ($77.40 when recommended)

This was another play that did not get triggered last week. 
The laddered calls from the prior week went on to spectacular
success but no new positions were triggered. The DJX-DZ calls
finished the week at $7.50 and up form the average entry price
of $1.95. This play is now over and we will consider this 
one a winner. 

click here for details:
http://members.OptionInvestor.com/editorplays/edply_030903_1.asp


CY - Cypress Semi Call - $7.56
3/2/03 ($6.41 when recommended)

click here for details:
http://members.OptionInvestor.com/editorplays/edply_030203_1.asp


Microsoft Call - Feb-16th $26.57
(MSFT $24.15 when recommended)

click here for details:
http://members.OptionInvestor.com/editorplays/edply_021603_1.asp


EMC Call from Feb-2nd  $7.34
($7.70 when recommended)

click here for details:
http://members.OptionInvestor.com/editorplays/edply_020203_1.asp

NEM Put from Jan-26th $24.44
($30.15 when recommended)

No problems here. NEM dropped back to near its lows from 
last week and appears headed for our target at $22.00. The
March $27.50 put closed at $3.10 on Friday and well over the
$1.10 price when recommended. The June put closed at $4.10
on Friday and up from the $2.25 recommended price. Gold is
still falling and an end to the war next week should close
this play. Close the put at a NEM trade at $22.00.

click here for details:
http://members.OptionInvestor.com/editorplays/edply_012603_1.asp


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

Kiss this one goodbye.  We have gone from feast to famine
several times and after a drop to $52.50 last week the
sector has caught fire and BZH shorts have been scrambling
to cover. Despite bad housing data from several sources
this sector is evidently seen as safe for bounce investing. 
BZH hit our stop loss of $60.50 and we are done. 

click here for details:
http://members.OptionInvestor.com/editorplays/edply_020903_1.asp


Powerball - From 12/29/02

The PowerBall Lottery play jumped again in value this week
as the rally continued. Corning was joined by CMVT as the
only winners 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 still cussing RFMD.  

It would cost you about $950 to buy one contract of each 
today. Any one contract could repay that $950 by 12/31/03 
leaving the rest as profit. It is a high risk "LOTTERY" 
play but then $950 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

Matrix of current Portfolio:



 

click here for details:
http://members.OptionInvestor.com/editorplays/edply_122902_1.asp

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

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

Good Luck

Jim Brown  




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

Awe, Shocks - It's Just Another Rally
by Steven Price

The bombs keep coming, Iraqis keep surrendering and the market 
continues to bet on an economic recovery as a result.   We saw 
significant levels tested in most of the broader indices and 
those levels were mostly taken out to the upside, giving us 
little reason to pick a top just yet.  

We have been hearing plenty of bearish comments from companies 
giving full year or quarterly outlooks, but most of those 
comments have cited economic uncertainty due to geo-political 
concerns as a big reason for those outlooks.  Now that the war 
has begun with little opposition and the price of oil has dropped 
significantly, much of that uncertainty seems to have been 
removed. The question now is whether it will bring back corporate 
spending. While it would be nice to see companies benefiting from 
lower fuel costs, therefore having more money to spend on 
expansion and hiring, we have to remember the position we were in 
before the Iraq situation began to heat up last year.

We were creeping and crawling out of a recession and we 
repeatedly got profit warnings and signals that a recovery was 
not on the immediate horizon. Once the possibility of war began 
to increase, attention turned to the international arena and most 
companies began targeting that possibility as the reason that 
spending was on hold.  There is certainly something to be said 
for certain industries having greater exposure to war.  Airlines 
and other travel related stocks come to mind, as travelers 
refrain from making overseas (or even domestic) travel plans.  
Certainly transportation stocks, which can only pass along so 
much of increased fuel costs to customers, would also suffer.  
Those transportation cost certainly affected almost every 
business sector that has goods to ship, as well.  Now that those 
fuel costs will be coming down, it's a good bet to see 
improvement in the bottom lines of those industries.

May crude oil futures finished below the 200-dma for the first 
time since November and also below the $27 per barrel mark for 
the first time since December.  The drop followed news that the 
U.S. forces had taken control of oil fields in southern Iraq and 
that the fires that had been set in the north were not as 
numerous as expected. The May contract has dropped almost $10 per 
barrel since march 12, while the April contract has dropped 
almost $13 form its February 27 high and $11 in the past seven 
sessions. 

However, are we going to see an upturn in demand for technology?  
Intuit (INTU) is obviously not seeing an upturn (see sector 
report on GSO below). Certainly if companies begin hiring once 
again, there may be a need for new computers.  If unemployment 
drops, we may also see the demand for PCs grow in the consumer 
sector as new hires have more disposable income to invest.  Lower 
gas prices will have an immediate effect on disposable income and 
the effects may be seen in the retail sector sooner rather than 
later. Still, we need to be aware that the sales expectations for 
many retailers have been dialed down considerably over the past 
year and even if they are able to beat recent forecasts, we still 
have a ways to go before we see a recovery.  Wal-Mart is an 
example of a store that had given traditional monthly same store 
sales growth guidance in the 4-6% range for several years, but 
throughout last year, dropped that guidance to around 2-4% in 
most months. Seasonal purchasing has lead to estimates that are 
much higher for April, but we need to be looking back a couple of 
years for comparison before deciding if the economy has come 
back.  

It may be hard to imagine a rally of over 1000 Dow points in a 
week not experiencing a pullback, but most of the technical 
indicators are telling us to buy that dip.  It has been almost 
year since the Dow and SPX crossed their 200-dmas and exactly a 
year since the OEX dropped through its 200-dma for the last time. 
Those averages have been falling dramatically since then.  The 
levels on the last cross were SPX 1140, Dow 9885 and OEX 586.  
Just to measure how far we've fallen, the current readings that 
we crossed today were SPX 892, Dow 8440 and OEX 450.  Still, we 
have made several attempts to cross those levels and shorts have 
successfully defended each attempt. Not today. Each of those 200-
dmas coincided closely with the daily pivot matrix levels we have 
been posting in the Index Trader Wrap.  The daily R2 in the SPX 
was 892, the daily R1 in the OEX was 449.9 and the daily R2 in 
the Dow was 8433.  All of those 200-dmas were broken decisively 
on today's rally.   Once those levels broke, we stalled for a 
while and then found legs for another run higher. The Dow cruised 
all the way past 8500 and has now made up 2 moths of losses in 
seven sessions. The pace certainly seems unsustainable, but we 
have yet to see any signs of weakness. 

This was the largest one-week percentage gain in the Dow since 
1982 and the first time since 1998 we have seen eight straight 
gains.  There were undoubtedly plenty of bears picking tops and 
thinking there had to be a pullback, with that type of history to 
look back on. 

For those traders following the point and figure charts, they 
will note that the rally over the past week took us through the 
bearish resistance lines in the Dow, SPX and OEX. We not only 
crossed those lines, but established full breakthroughs with 
additional boxes above them.

With earnings reports still several weeks away, there may be time 
for some of the fuel cost savings to make its way into the bottom 
lines.  However, it is more likely that we will get a wake up 
call that the economy has not all of a sudden turned around.   
The key will once again be future guidance. In January, we began 
to get fourth quarter earnings reports that in many cases were 
much better than expectations.  It was the accompanying outlooks 
that sent us rolling downhill.  This time around we could see the 
reverse if companies say they are seeing a turnaround beginning 
to develop. Once the war is past, we should also see a pick-up in 
consumer confidence, which is hovering at ten-year lows. 

Traders can jump on if they like, but the extreme bullishness of 
the past week will be hard to match.  With a quick war now a 
foregone conclusion, what will fuel the rally further?  Maybe the 
conclusion to the war over the weekend will continue to drive us 
higher on Monday.  But it seems that any complications at all 
would take some shine off the enthusiasm.  So far it looks like 
there will be few complications and that Baghdad will be a 
cakewalk.  However, it seems too easy and it is likely Saddam 
Hussein will have some type of surprise waiting as troops close 
in (whether he is still alive, which is uncertain at this point, 
or not).  By the time this article is published, the conflict may 
be over and there may be no reason to be cautious about that 
situation. However, even if things do go exactly as planned, 
there are still some economic landmines out there and once the 
war is over, we'll be faced with assessing the health of business 
within our own borders.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8522

Moving Averages:
(Simple)

 10-dma: 7974
 50-dma: 8070
200-dma: 8440

chart link:


S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  896

Moving Averages:
(Simple)

 10-dma:  845
 50-dma:  855
200-dma:  893

chart link:


Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1093

Moving Averages:
(Simple)

 10-dma: 1036
 50-dma: 1010
200-dma:  993

chart link:


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

The Software Index (GSO):  The GSO was one of the few weak spots 
in today's broad market rally.  For those investors/traders 
holding calls on recent winners such as ADBE, SYMC and INTU, the 
culprit for today's sell-off was the last in that line.  Intuit 
lowered its second-half growth outlook and reduced its full year 
2003 guidance from a range of $1.38-$1.42 to $1.30-$1.35 on 
revenue that was dropped from $1.71-1.77 billion to $1.65-1.69 
billion.  The stock was pummeled losing $12.17.  It was also 
downgraded by Prudential, which said the early signs of sales of 
its tax software have been weaker than expected and that IRS 
website might actually be taking some of its business.  It was 
enough to put an anchor on the entire sector and turned the GSO 
into a 2.2% loser.

52-week High: 180
52-week Low : 77
Current:      101

Moving Averages:
(Simple)

 21-dma: 103
 50-dma:105
 200-dma: 101


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


The Market Volatility Index (VIX) has finally indicated a 
significant drain of fear out of the market.  After holding up 
above 34% on a closing basis since January 24 (with the exception 
of a close of 33.98 on Feb 3), it finally broke down on today's 
rally, finishing the day at 33.28.  It had been giving us mixed 
signals all week as the fear of something going wrong on the war 
front has kept option premiums pumped up.   However, now that a 
quick end to the war seems to have been priced into the equity 
market, we are getting similar signals from the support break in 
the VIX.


CBOE Market Volatility Index (VIX) = 33.62 -1.64
Nasdaq-100 Volatility Index  (VXN) = 45.78 -2.70

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63       1,228,293      775,231
Equity Only    0.42        982,344       415,052
OEX            0.93         70,515        65,771
QQQ            0.72        112,180        80,403


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

Bullish Percent Data

           Current   Change   Status
NYSE          40.4    + 2     Bull Correction
NASDAQ-100    48.0    + 3     Bull Alert
Dow Indust.   40.0    +10     Bull Alert
S&P 500       41.2    + 5     Bull Confirmed
S&P 100       43.0    + 8     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  0.57
10-Day Arms Index  1.29
21-Day Arms Index  1.32
55-Day Arms Index  1.28


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       2093            774
NASDAQ     2005           1080

        New Highs      New Lows
NYSE        87               32
NASDAQ      85               39

        Volume (in millions)
NYSE       2,149
NASDAQ     1,851


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

Commitments Of Traders Report: 03/18/02

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 reduced the short position significantly, adding 43K 
long contracts and only 5K shorts, also registering the most 
bullish reading of the year. Small traders took the opposite 
approach, adding 15K long contracts and 51K shorts for the most 
bearish reading of the year.  Notice, however, small traders 
seemed better equipped coming into the rally.

Commercials   Long      Short      Net     % Of OI 
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%)
03/18/03      483,224   490,582   ( 7,358)   (0.1%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: (  7,358) -  3/21/03

Small Traders Long      Short      Net     % of OI
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%
03/18/03      184,907   153,400    31,507      9.3%

Most bearish reading of the year:  31,507 - 3/21/03
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials reduced the short position here, as well, adding 15K 
longs and 8K shorts. Small traders reduced overall long
 positions, adding 10K long contracts, but also adding 17K
 shorts. 


Commercials   Long      Short      Net     % of OI 
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%)
03/18/03       58,877     64,302   ( 5,425) ( 4.4%)

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
02/25/03       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%
03/18/03       37,097    26,951    10,146    15.8%

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 left the overall position close to unchanged by 
adding 5K long contracts and 4K shorts.  Small traders reduced 
the overall short position slightly by adding 1K long contracts 
and only 600 shorts.

Commercials   Long      Short      Net     % of OI
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%
03/18/03       26,880    18,853    8,027      17.6%

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
02/25/03        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%)
03/18/03        6,589     8,343    (1,754)   (11.7%)

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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***************
ASK THE ANALYST
***************

Take it or leave it?

I paid $2176 for a Mar15 call on VRTY.  I can take the stock, put 
a stop loss on it and hope for improvement, or I could sell the 
call ($1.40) and take the loss. Is there something else?

Hope?  Hope for improvement?  Hope it will turn in our favor?  
Let's first scratch that word from our investment/trader 
vocabulary.  It's the word "hope" that has turned a lot of 
investors/traders in Enron and many other stocks into harder 
working, delayed-retirement, Treasury bond-holding, certificate 
of deposit-loving, money market-stashing, cash hording 
"investors" that now make up the better part of the U.S. 
population.  I'm not trying to knock anyone here, but it is the 
truth.  We looked an Enron's p/f chart in the past and there were 
a lot of sell signals given before the rats were revealed.

Now that I've got that off my chest and we've scratched the word 
"hope" from our vocabulary, lets address the question at hand.  
While stock option expiration passed on Friday, I responded back 
to the subscriber, but with some questions of my own that only he 
could answer.  However, I'm going to walk through the process, 
that I think is a process that EVERY trader/investor hold a stock 
or option should do at least once a week when reviewing their 
account.

Don't think of my response as it pertains to a stock option and 
exercising the option to take possession of the stock.  I did 
like the fact that that the trader evidently didn't OVERLEVERAGE 
in the option and now has the ability to take possession of the 
stock should he wish to and is still able to let the trade work 
if the stock still fits his initial criteria for purchasing the 
call option.

I couldn't ascertain when or how many calls the trader had 
purchased.  I'm assuming that he bought 10 contracts (1,000 
shares) and paid $2.176 or the calls, so if he chooses to 
exercise his option, which gives him the RIGHT, but not the 
OBLIGATION to buy 1,000 shares of VRTY at $15.00.

The first question I always ask myself when reviewing a 
trade/position is.  Why did I buy this call?  Was it for 
fundamental reasons (revenues, earnings, products)?  Was it for 
technical reasons (the chart)?  Then I ask the most important 
question..... ARE THE REASONS THAT I BOUGHT THE CALL OPTION STILL 
INTACT?

Since I (Jeff Bailey) believe more in technical analysis than I 
do fundamental (the chart doesn't lie, but sometimes the 
fundamentals will), I tried to answer the traders question from 
the technical side of things.  I should probably preface my 
comments regarding "the cart doesn't lie" with my belief that a 
chart won't lie as the stocks chart should reflect the MARKET'S 
knowledge of facts as it relates to the stock or underlying 
company's fundamentals that the stock represents.

So lets start with the FACTS and the trader's position.  The fact 
is, that when he paid $2.18 for that call option, he thought the 
stock would be worth a MINIMUM of $17.18 by March expiration, 
which was on Friday, March 21, 2001.  On March 21,2003 shares of 
Verity Inc. (NASDAQ:VRTY) $16.89 +3.93% is just under where the 
trader/investor thought the stock might be.  Not bad!  Not bad at 
all!  Good forecast in my opinion.

What does Verity do?  They make infrastructure software that 
powers corporate portals and e-commerce sites, as well as 
business applications.  To me (Jeff Bailey) they sound a bit like 
an "internet/software" type of company.  Keep this in mind, and 
perhaps review last week's "Ask the Analyst" column when 
assessing what "sector" you might try and link VRTY with.

Since I'm a "technician" and believe in the charts, I'd first 
have to check the p/f chart of VRTY and see if it is worth 
holding a stock that I'm going to end up holding with a cost 
basis of $17.18, or should I take my loss in the option and move 
on.  In essence, is there a better opportunity for my money 
elsewhere?

Dorsey/Wright and Associates has Verity (VRTY) classified as a 
"software" stock and places VRTY's chart in its Software Bullish 
% (BPSOFT) which is currently "bull correction" status at 30%.  
Since this isn't a "really bullish" phase at this point I'm 
rather lukewarm on the sector or stock's associated with the 
software sector at this point.  However, as noted above, the 
company's software also seems to have an "internet" theme to it 
and I would be swayed a bit toward the bullish side with that 
sector's bullish % (BPINET) in "bull confirmed" status.

Still, what do you think VRTY's chart would look like considering 
the SECTOR is "bull correction?"  I associate "bull correction" 
in my minds eye with a stock that should be pulling back from a 
recent relative high, which should have been found in December 
(red C on a point/figure chart) when the software sector bullish 
% reversed lower from 50% to 44%, and has continued lower to 30% 
as more and more "software" stocks have been generating sell 
signals.  I say this now, then look at the chart to see if the 
MARKET agrees with this type of thought.

Verity Inc. (VERTY) - $0.50 and $1.00 box



 

Either I don't understand what "bull correction" status is for 
the software sector bullish %, or the MARKET finds something 
bullish in VRTY, as the supply/demand chart of VRTY looks nothing 
like a stock that would be in a bull correction phase.  In mid-
December (after red C) the software sector entered "bull 
correction" phase, but VRTY shows that demand is still in control 
of the stock.

Now... do you sell the option, take the loss, or is their still 
reason to "hang in there?"  In the lower left corner of the 
chart, I establish a risk/reward profile for the trade.  The 
bullish vertical count of $26.50, which was established back in 
November currently hints at $26.50.  With a cost basis of $17.18, 
risk/reward is still about $1/$3 and I deem that pretty good.  
Check your own business plan for MINIMUM risk/reward, but general 
rule is that a stock must have at LEAST $1/$2 for most 
traders/investor to be interested.

With the software sector still "bull correction" status, I can't 
really use Professor Davis' study of probabilities, which found 
the triple-top buy signal (see it at $16.50?) being profitable 
87.9% of the time for an average gain of 28.7% in 6.8 months.  If 
the software sector bullish % (BPSOFT) from Dorsey/Wright and 
Associates will reverse up to 36%, then I'd feel even more 
bullish for VRTY and could begin targeting a 28.7% gain from 
$16.50, which would be $21.23.

So... my conclusion based on Jeff Bailey's risk/reward profile, 
would be to exercise my option to buy the stock at $15, establish 
a cost basis of $17.18.  I deem VRTY to be a LEADING stock in a 
rather WEAK sector at this point.

Now... the p/f chart looks compelling for a bull.  Doesn't it?  
The only thing "wrong" I see is that VRTY is associated with the 
software sector and the sector seems to be "holding it back" a 
bit.  Doesn't every bull wish they owned a stock that was moving 
higher when the sector and the market was more bearish from 
December-March?  

I might not want to own a "full position" of VRTY in a still weak 
sector at this point, but this week's reversals up in the NASDAQ-
100 Bullish % ($BPNDX) and S&P 500 Bullish % ($BPSPX) now have 
the MARKETS showing internal strength building.  There's nothing 
that says a trader might not look to SELL a covered call on 1/2 
(500 shares) or 1/4 (200 or 300 shares) of the position if the 
trader decided to take possession of the stock, at least until 
the sector reverses back up into the most bullish phase of "bull 
confirmed."  

Think about this when you near option expiration and need to make 
a decision on either taking possession of a stock or closing out 
the option position.  Is there anything that says you can't take 
possession of the stock if it still meets your bullish or bearish 
criteria, and then begin selling options against it to perhaps 
work down your cost basis, while continuing to give the trade 
time to work?  This can be an important strategy, especially in 
the above example and trader's predicament.  Should he consign a 
loss in his options?  Or should he take possession of the stock, 
and perhaps write a covered call, work down his cost basis and 
perhaps end with a "break-even" or profit?

The VRTY April $15 calls (YQVDC) are bid $2.10, while the VRTY 
April $17.50 calls (YQVDW) are bid $0.55.

I tell you what.... I "like this stock" for a bull.  I do, I 
really do.  I don't like it "full position," but I like this 
stock.  

I have to use the point and figure chart to properly ascertain 
risk/reward in the stock and the bullish % to ascertain risk in 
the sector.  But there's some things in the bar chart that would 
also have me looking to at least take possession of the stock 
upon option expiration.  Check this out....

When I first started learning technical analysis, I was taught to 
look for volume spikes at the longer-term 200-day SMA.  I still 
look for them today.  It will often times hint of some type of 
longer-term shift in sentiment toward a stock and it works both 
ways.... up and down!

Verity Bar Chart - Daily Interval



 

The "long column of X" in the point and figure chart, which gives 
us the bullish vertical count of $26.50, is well represented in 
the bar chart too.  On November 14th shares of VRTY gapped higher 
above its longer-term 200-day SMA on impressive volume of 2.04 
million shares.  Did you know that the point and figure vertical 
counts are derived by the science of ballistics?  Think of that 
volume spike and price action being a "powder keg" that was lit 
and the "explosive" upward price action, being the projectile 
"price" being launched.  The "density" of the air, which is the 
SECTOR and MARKET bullish % has been rather thick or more bearish 
since November, but as things appear to be "lightening up" a bit 
and getting more bullish, at least for the MARKET, the air should 
be thinning and have the PRICE/Projectile of VRTY's price making 
further gains.

I like to look at bar charts and will often times focus on what a 
stock traded on the volume side when it crossed above or below a 
longer-term SMA like the 200-day.  The "gap" from the lows hints 
of a "break away" gap, where shares of VRTY got some market 
participants interest.  There's an old trader's saying that 
"volume exceeds price movement."

Now... just recently, on March 13th, after the close of trading, 
VRTY reported Q3 earnings of $0.13 per share, which was 2-cents 
better than consensus estimates.  Earnings didn't appear to be 
solely attributed to cutting of costs as revenues rose 11.2% 
year-over-year.  Oracle (ORCL) recently reported that its 
revenues rose just 2.4% year-over-year.

On March 14th, VRTY traded heavy volume in a range of $16.97-
$15.82.  That day's price action saw the stock open at $16.96, 
trade $16.97, fall to $15.05 before closing back at $15.82.  This 
gives the impression that there was definitely some "selling the 
news" and may indeed have been by some of those fortunate bulls 
from November 14th.

I've looked at a lot of stock charts in recent months, and to 
find many that have been trending higher above short-term 21-day 
SMA and intermediate-term 50-day SMA, not to mention longer-term 
200-day SMA has been far and few between.

I've also pointed to the "gap" from November 14th, and this looks 
to be that of a "break away" gap, where the stock "breaks away" 
from a rather large base of consolidation from $9-$13.  With the 
stock certainly looking like its been in a zone of consolidation 
from $14-$17, a bull might eventually look for a "running gap" 
where an event takes place that sees the stock gap higher from 
consolidation, and begin a second leg of run higher.  This would 
be looking down the road at some point.

I also mention an "exhaustion gap."  This is a gap higher that a 
stock will sometimes makes as a third and final leg of its 
bullish run when the "last bit of good news" comes into the 
stock.  Trader/investors that have been watching the stock for 
months as it trades higher and higher eventually get on the 
bandwagon as the news is so good.  However, it can be at that 
time that bulls that actually bought the stock in the first two 
legs say "goodbye" as all the good news is out and time to move 
on.  If you see a "exhaustion gap" (third gap from consolidation) 
anywhere close to a bullish vertical count, a bull might look to 
take some profits off the table.  Especially if the sector/market 
bullish % is overbought!

Lessons learned?

Critiques:

I don't know when the trader bought these calls.  However, if 
they were bought less than a month ago, maybe we can see how the 
trader may not have bought enough time to allow the trade two 
work, or give the sector bullish % time to turn higher.

My guess is that the trader had wisely identified the stock as 
bullish, perhaps took action in the $15 calls when the stock 
triggered a triple-top buy signal at $16.50.  Again, problem 
being that at that time, not enough time was given consider 
MARKET/SECTOR bullish % were/are showing weakness at time of 
trade entry.  Right NOW the MARKET bullish % are bullish, while 
the sector bullish % is still weak.

Success:

If entry was indeed taken when stock traded $16.50, then the 
purchase of in-the-money options gave the trader/investor the 
OPPORTUNITY to at least have an OPTION to take possession of the 
stock, now that the MARKET bullish % are showing signs of 
internal strength.  If the out-the-money $17.50's were purchased, 
I wouldn't have received the trader's question.

By NOT OVERLEVERAGING, the trader can take full possession of the 
underlying stock with funds available.  With the stock still 
looking bullish and demand in control, how frustrating would it 
be to have to consign a loss in the option, simply because the 
trader over leveraged on the trade and is forced to sell a loss 
as time has run out?  Congratulations are in order to the options 
trader that doesn't allow his actions to be dictated by improper 
account/trade management.

Strong stocks in a weak market are the better "bets" for a 
bullish trader than are weak stocks in a weak market.  In late 
February, when VRTY was breaking to a new relative high at 
$16.50, the GSTI Software Index (GSO.X) was setting new relative 
lows as was the broader S&P 500 Index (SPX.X).

Here is the subscriber's reply to my e-mail, which was not nearly 
as comprehensive as the above.  

Jeff:  Thanks for your comments.  I appreciate your ability to 
correlate the technical with the business plan (which I sometimes 
lose sight of in the fear of the moment).

Hey!  We all get emotional from time to time.  Keep that business 
plan by you and review it from time to time.  It will instill in 
you the "conviction" you need and provides the continued "tests" 
that you put every trade/investment in your account against as 
the trade unfolds.

By my count, there are 9 more option expirations this year many 
more over our trading/investment careers.  Hang in there and have 
a greet weekend!

Jeff Bailey



*************
COMING EVENTS
*************

==========================================
Market Watch for the week of March 24th
==========================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

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

UL     Unilever PLC          Mon, Mar 24  During the Market   0.54
WAG    Walgreen              Mon, Mar 24  -----N/A-----       0.36


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

APOL   Apollo Group          Tue, Mar 25  -----N/A-----       0.20
L      Liberty Media Group   Tue, Mar 25  -----N/A-----      -0.09
LNR    LNR Property          Tue, Mar 25  After the Bell      1.04
MKC    McCormick & Company   Tue, Mar 25  Before the Bell     0.26
RHAT   Red Hat, Inc.         Tue, Mar 25  After the Bell      0.01


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

CEO    China Natl Offshr Oil Wed, Mar 26  -----N/A-----        N/A
SID    Comp Sider Nacional   Wed, Mar 26  After the Bell      1.34
ERJ    Emb-Emp Brasil Aero   Wed, Mar 26  After the Bell      0.50
SIGY   Signet Group          Wed, Mar 26  Before the Bell     2.57
SCM    Swisscom AG           Wed, Mar 26  Before the Bell      N/A


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

CAG    ConAgra Foods, Inc.   Thu, Mar 27  Before the Bell     0.30
EN     Enel S.p.A.           Thu, Mar 27  -----N/A-----        N/A
FIA    Fiat S.p.A.           Thu, Mar 27  -----N/A-----        N/A
GUC    Gucci Group NV        Thu, Mar 27  -----N/A-----       0.80
TKA    Telekom Austria AG    Thu, Mar 27  Before the Bell      N/A
VIP    Vimpel Communications Thu, Mar 27  During the Market    N/A


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

BNG    Benetton Group        Fri, Mar 28  -----N/A-----        N/A


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

ANPI    Angiotech Pharm           2:1      Mar. 21st   Mar. 14th
PSS     Payless Shoe              3:1      Mar. 27th   Mar. 28th
UGI     UGI Corp.                 3:2      Apr.  1st   Apr.  2nd
CTSH    Cognizant Technology      3:1      Apr.  1st   Apr.  2nd


--------------------------
Economic Reports This Week
--------------------------

Can you imagine Wall Street watching any else but the War
Coverage on Iraq next week?  Maybe during a lull in the T.V.
coverage analysts will key in on the Consumer Confidence 
numbers, home sales, and Personal income and spending reports.

==============================================================
                       -For-           

Monday, 03/24/02
----------------
None


Tuesday, 03/25/02
-----------------
Consumer Confidence(DM) Mar  Forecast:   63.0  Previous:     64.0
Existing Home Sales(DM) Feb  Forecast:  5.85M  Previous:    6.09M


Wednesday, 03/26/02
-------------------
Durable Orders (BB)     Feb  Forecast:  -1.0%  Previous:     2.9%
New Home Sales (DM)     Feb  Forecast:   928K  Previous:     914K


Thursday, 03/27/02
------------------
Initial Claims (BB)   03/22  Forecast:    N/A  Previous:     421K
GDP-Final (BB)           Q4  Forecast:   1.4%  Previous:     1.4%
Chain Deflator-Final(BB) Q4  Forecast:   1.6%  Previous:     1.6%
Help Wanted Index (DM)  Feb  Forecast:     40  Previous:       40


Friday, 03/28/02
----------------
Personal Income (BB)    Feb  Forecast:   0.2%  Previous:     0.3%
Personal Spending (BB)  Feb  Forecast:  -0.1%  Previous:    -0.1%
Mich Sentiment-Rev.(DM) Mar  Forecast:   75.0  Previous:     75.0


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


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*********************
SWING TRADE GAME PLAN
*********************

No Sign of Weakness 

The massive rally of the past week continued forcefully Friday, 
in anticipation of a quick U.S. victory in Iraq. Oil and gold 
futures continued their steep drop and the Dow/SPX/OEX and COMP 
all continued through significant levels of resistance. If there 
was any doubt about whether the Dow could run higher, after a 
gain of more than 800 points in 7 sessions, Friday's action 
answered with a decisive "YES!" 


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




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

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Contact Support
The Option Investor Newsletter                   Sunday 03-23-2003
Sunday                                                      2 of 5

In Section Two:

Daily Results
Call Play of the Day: BLL
Put Play of the Day: OTEX
Dropped Calls: ERTS
Dropped Puts: LLY


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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS              Mon    Tue    Wed   Thu  Week

BCR      63.56    1.29   1.31   0.30  0.95  5.11  Adding On
BLL      55.87    1.56   0.32   0.46 -0.52  3.76  New, Quad top
BRL      55.67    1.92  -1.03   0.72  1.00  5.20  $56 next
BVF      40.30    0.64  -0.09   0.20 -0.15  1.23  Back over $40
ERTS     59.22    2.11  -0.10   0.22  0.45  2.80  Drop, Profits
MME      39.50    1.76  -0.18   1.16 -0.36  3.55  Above Nov top
MXIM     40.51    2.25   0.44  -0.03  0.00  3.29  Close over $40
STN      21.62    0.70  -0.13   0.28  0.61  1.82  10% so far


PUTS

LLY      58.20    1.90   0.68   0.55 -0.17  4.80  Drop, stopped
NOC      82.35    1.77  -0.19  -0.20 -2.50 -2.05  Nice start
OTEX     28.21    1.74  -0.01  -0.43  0.36  1.46  New, weak GSO


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

BLL - Ball Corporation $55.87 (+3.76 last week)

See details in play list




Put Play of the Day:
********************

OTEX - Open Text Corp - $28.21 -0.45 (+0.96 for the week)

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS
^^^^^

ERTS $59.22 (+2.74) It's been a quick run since we added ERTS
to our Call list last week.  Propelled higher with the surging
market, the stock has moved up to the $60 level faster than we
expected.  Providing the final burst this morning was a Bear
Stearns upgrade.  That sent the stock surging as high as $59.99,
but the combined effect of the descending trendline, the bearish
resistance line and the 200-dma clustered at that level managed
to keep a lid on the stock all day.  Had ERTS been able to break
through this level on Friday, we might have considered keeping it
alive into next week.  But the fact that a strongly positive
market couldn't produce a breakout has us thinking the stock is
vulnerable to a rollover here next week.  Take advantage of any
strength early on Monday to exit open positions.


PUTS
^^^^

LLY $58.20 (+4.22) So much for resistance.  After creeping
through resistance first at $55 and then $56 last week, our LLY
play gapped up through strong resistance at $57 and our $57.10
stop at the open on Friday.  After a brief pullback to find
support at $57 in the morning, the stock turned north and
plowed substantially higher right into the closing bell.  We
knew that $57 level was going to be important and apparently we
weren't the only ones as the breakout today was likely fueled by
other shorts pulling the plug after that level was broken to the
upside.  As noted on Thursday, the close above our stop has us
dropping our LLY play this weekend.


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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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**********

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The Option Investor Newsletter                   Sunday 03-23-2003
Sunday                                                      3 of 5

In Section Three:

New Calls: BLL
Current Calls: BRL, BCR, BVF, MME, MXIM, STN
New Puts: OTEX
Current Put Plays: NOC


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

BLL - Ball Corporation $55.87 (+3.76 last week)

Ball Corp. is a manufacturer of metal and plastic packaging,
primarily for beverages and foods, and a supplier of aerospace
and other technologies and services to commercial and
governmental customers.  Ball's principal business is the
manufacture and sale of rigid packaging products, primarily
for beverages and foods.  Polyethylene terephthalate packaging
is the company's newest product line.  The aerospace and
technologies segment includes civil space systems, defense
operations and commercial space operations.  The defense
operations business unit includes defense systems, systems
engineering services and advanced antenna and video systems, as
well as electro-optics and cryogenic systems and components.

Why We Like It:
The past 2 weeks have seen some impressive moves in the equity
markets, first with a plunge near the October lows and the
resultant war rally that has erased the losses of the past 2
months.  Many stocks saw severe selling and then explosive
rallies off the recent bottoms, making them very difficult to
trade with any kind of control of risk.  But our new play on
BLL is different.  Despite the volatility in the broad market,
this stock has been consolidating between $49-54 since early
January.  The recent lift in the markets pushed BLL up to the
top of that range by early last week and then things began to
change.  Rather than rolling over from resistance like it has
for the past few months, BLL inched through the $54 level and
then broke out with conviction on Friday, ending at the high of
the day.  The trade at $55 generated a quad-top Buy signal on
the PnF chart, along with a tentative bullish price target of
$66.  Since Friday's price represented a new all-time high,
this looks like a good setup for momentum traders, as a
continuation of Friday's strong buying volume (50% above the ADV)
should continue to drive the stock to new highs.  Consider new
momentum entries on a break above the $56 level.  More cautious
traders will want to look for a pullback near the $53.50-54.00
support level for a lower risk entry on the subsequent rebound.
We're initially setting our stop at $52.50, just below the
upturned 10-dma ($52.71) and 20-dma ($52.55).

BUY CALL APR-55*BLL-DK OI= 453 at $2.50 SL=1.25
BUY CALL APR-60 BLL-DL OI=   0 at $0.55 SL=0.25
BUY CALL MAY-55 BLL-EK OI=5100 at $3.30 SL=1.75
BUY CALL MAY-60 BLL-EL OI= 225 at $1.05 SL=0.50

Average Daily Volume = 398 K



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******************
CURRENT CALL PLAYS
******************

BRL - Barr Labs - $55.67 +1.86 (+5.04 for the week)

Company Summary:
Barr Laboratories, Inc. is a specialty pharmaceutical company 
engaged in the development, manufacture and marketing of generic 
and proprietary pharmaceuticals.

Why We Like It:
We got a nice start to the BRL play with a $1.86 gain on Friday. 
While there is a bad tick on the charts with a high of $56.60, 
the high of the day was actually $56.  That trade was still 
enough to add another box to the point and figure chart and add 
to the bullish pennant breakout. While the rising tide lifted 
most boats today, BRL actually out performed the major indexes, 
as well as the Biotech Index (BTK) and Pharmaceutical Index (DRG) 
with its 3.45% gain. A look at the intraday chart shows repeated 
tests of that $56.00 ceiling, giving us another level of 
resistance to target for new entries.  The pullback of only $0.33 
from its high shows that while it was unable to get over the next 
hump, the bulls kept it supported after a gain of almost $2.  
Today's boost also came on the second straight day of increased 
volume, following the gains yesterday. New entries can target a 
momentum move with a trigger of $56.25, or wait for a pullback to 
support above $54. We are raising our stop on the play to $51.75, 
just below Thursday's low of the day.

BUY CALL APR-50 *IOB-DJ OI=48   at $6.30 SL=3.00
BUY CALL APR-53  IOB-DY OI=352  at $3.50 SL=1.75
BUY CALL MAY-53  IOB-EY OI=1032 at $4.40 SL=2.20
BUY CALL MAY-55  IOB-EK OI=15   at $3.20 SL=1.60

Average Daily Volume = 965 K


---

BCR - C. R. Bard, Inc. $63.56 (+5.16 last 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:
Now that's a powerful breakout.  Remember a few days ago when we
were looking for BCR to push through the $61.25 level for new
bullish entries into the play?  Once that level cracked, the
bulls really got adventurous, propelling the stock higher on
ever-increasing volume.  Friday's session was no exception to
that rule, with a gap up open, and then a continuous march up
the chart from there.  BCR is now closing in on its all-time
highs, just shy of the $65 level and after the strong rally last
week, it seems likely that there will be some profit-taking once
that level is reached.  So for those traders already in the
play, harvesting some gains in the $64-65 area seems to be the
prudent course of action.  We don't want to consider new
momentum-based entries until BCR trades new highs above $65.25.
After such a sharp rise, managing the gains in the play should
be our primary consideration, as we don't want to give back those
gains.  We're getting aggressive with our stop this weekend,
raising it to $61.40, Wednesday's closing price and just above
our initial trigger into the play.  A shallow pullback to the
$62.00-62.50 area is really the only possibility we see for a
fresh entry into the play early next week, but make sure not to
catch a falling knife if the selling is more severe than would
be indicated by simple profit taking.

BUY CALL APR-60 BCR-DL OI=2244 at $4.20 SL=2.50
BUY CALL APR-65*BCR-DM OI= 265 at $1.05 SL=0.50
BUY CALL JUL-60 BCR-GL OI=1302 at $5.40 SL=3.50
BUY CALL JUL-65 BCR-GM OI=  75 at $2.55 SL=1.25

Average Daily Volume = 285 K


---

BVF – Biovail Corporation $40.30 (+1.24 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:
After a tenuous breakout over the $40 level early last week, our
BVF play needed to gather its strength for a sustained move
through that level by consolidating above the $39 support level
(prior resistance).  The bulls needed the help of a strongly
positive broad market to get the job done, but by midday on
Friday, BCR had climbed back over that $40 level and this time
it closed there.  Can it keep going?  It certainly looks that
way, with only mild resistance between here and the bottom of
the late April gap at $43.66.  We've been targeting new entries
near the bottom of the recent consolidation range and another
pullback into the $39.00-39.50 area may be the last chance to
get on board before this train leaves the station.  Should BVF
push higher out of the gate on Monday, momentum traders can
consider entries on a push above $40.75.  Friday's gains in the
broad market seem to have factored in the belief that the Iraq
war will end this weekend, and if it does, we could get a
powerful follow-through rally both in the broad market, as well
as our BVF play.  The 5-week ascending trendline has now risen
to $38.30, and that trendline should hold on any significant
pullback.  So let's raise the stop to $38 this weekend.

BUY CALL APR-40*BVF-DH OI=6800 at $2.00 SL=1.00
BUY CALL APR-45 BVF-DI OI= 725 at $0.45 SL=0.25
BUY CALL JUL-40 BVF-GH OI=1696 at $4.10 SL=2.50
BUY CALL JUL-45 BVF-GI OI= 889 at $1.90 SL=1.00

Average Daily Volume = 1.05 mln


---

MME – Mid Atlantic Medical Services $39.50 (+3.50 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:
Our MME play had a pretty good week, after finding support just
below the $36 level.  Further supported by the rising 20-dma, the
stock participated in the broad market rally, first cresting the
$38 level on Wednesday and then pushing through the $39 level on
Friday.  Pullbacks during the week were brief and came on
relatively light volume, while the price advances came on
relatively strong volume, bringing the stock within striking
distance of our initial target of $40 by the close on Friday.  If
the bulls' hopes of an end to the Iraq war this weekend come
true, then MME could get a nice shove through the $40 level on
Monday.  The strength of that move will tell us whether it makes
sense to harvest gains or if we ought to hold on for a continued
move up to the next level of resistance in the $42-43 area.  MME
is up significantly since our initial entry trigger down at
$35.25, so it seems prudent to tighten our stop so as to preserve
a portion of those gains, while at the same time leaving room for
some mild consolidation ahead of another move up the chart.
We're raising the stop to $37.50 (just below Wednesday's intraday
low) this weekend, as a break below that level would indicate the
trend is weakening.  On the other hand, a brief dip near the $38
level could be just the ticket for initiating new bullish
positions ahead of the anticipated breakout over the $40 level.
If buying the dip though, look for light volume on the pullback
to confirm that the weakness is only profit taking and not more
concerted selling.

BUY CALL APR-35 MME-DG OI=  35 at $5.20 SL=3.25
BUY CALL APR-40*MME-DH OI= 193 at $1.70 SL=0.75
BUY CALL JUN-40 MME-FH OI= 145 at $3.20 SL=1.50
BUY CALL JUN-45 MME-FI OI= 101 at $1.40 SL=0.75

Average Daily Volume = 439 K


---

MXIM – Maxim Integrated Products $40.51 (+2.98 last week)

Company Summary:
MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

Why We Like It:
Relaxing a bit from its recent leadership role, the Semiconductor
index (SOX.X) posted a rather sedate gain of just over 2% on
Friday, as it is now coming up on the $340-345 resistance level.
Should the optimists get their wish for a swift end to the war
this weekend, then momentum bulls will likely focus their efforts
on the SOX again early next week.  The SOX is now solidly over
the 200-dma ($314) and all of the shorter-term moving averages
are turning up in bullish fashion.  Our MXIM play certainly
struggled with the $40 level on Friday.  After an early surge to
$40.66 (satisfying our $40.50 entry trigger), the stock pulled
back a bit.  But the $40 level served as support on that
pullback, and the afternoon push took the stock up to close just
below its high of the day.  Now that MXIM has moved through our
trigger point, aggressive traders will want to wait for a breakout
over the $41 level before playing.  Conversely, those traders
looking for a "bargain" will want to watch for an intraday
pullback into the $39-40 level, entering on the rebound from
support.  Continued strength in the sector will be key to the
play, so confirm strength in the SOX before initiating new
positions.  We're raising our stop just slightly this weekend
to $37.50, just below the 10-dma ($37.64).

BUY CALL APR-40*XIQ-DH OI=3316 at $3.00 SL=1.50
BUY CALL APR-45 XIQ-DI OI=1586 at $0.90 SL=0.40
BUY CALL MAY-40 XIQ-EH OI=4471 at $4.10 SL=2.50
BUY CALL MAY-45 XIQ-EI OI=3564 at $1.90 SL=1.00

Average Daily Volume = 7.64 mln


---

STN - Station Casinos- $21.62 +0.41 (+1.76 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:
STN has been steadily climbing since breaking through the $20 
mark.  The stock actually lagged the market early on, but bounced 
nicely after a morning pullback, and eventually added to its 
recent 10% gain.  The sector remains strong, with MMG adding to 
recent gains, as well and entering a gap that took all of the 
stocks in the sector down on that company's warning. Other stocks 
in the sector showing decent gains were IGT and MBG. The sector 
continues to follow the 1991 blueprint, where it posted a 28% 
gain following the beginning of the Persian Gulf War.  We are 
using a target of $25 on this play, which amounts to a gain of 
25%.  It may take more than just a couple of days to achieve that 
target (the PnF count is $30), so we will leave our stop below 
the 21-dma at $18.75.  However, more conservative traders can 
either target an exit at $22 with a 10% gain, or place stops just 
below $20, which was multi-year resistance and should hold up as 
support on a pullback. 

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



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

OTEX - Open Text Corp - $28.21 -0.45 (+0.96 for the week)

Company Summary:
Since 1991, Open Text Corporation has delivered innovative 
software that brings people together to share knowledge, achieve 
excellence, deliver innovation, and enhance processes. Its legacy 
of innovation began with the successful deployment of the world's 
first search engine technology for the Internet. Today, as the 
leading global supplier of collaboration and knowledge management 
software for the enterprise, Open Text supports six million seats 
across 4,500 corporations in 31 countries and 12 languages 
throughout the world. As a publicly traded company, Open Text 
manages and maximizes its resources and relationships to ensure 
the success of great minds working together. (source: company 
release)

Why We Like It:
It was tough to find weakness in today's market, with the Dow 
gaining almost 3% and the COMP jumping through its 200-ema and 
adding 1.3%.  However, one sector that was noticeably weak was 
the software sector.  The GSO dropped more than 2% after a profit 
and revenue warning from Intuit (INTU), which was taken to the 
woodshed with a $12 loss.  That warning was ominous, as the 
company said, "We're disappointed to see a sluggish economy 
worsening in the past few weeks with a further decrease in 
customer spending in all our categories. This is not an issue 
with just one of our businesses -- all our businesses have been 
affected."  This is not good news for software makers that had 
enjoyed a nice gain last week, but already had begun to show 
cracks the past few days.  

OTEX was one of those stocks that seemed to find a top and had 
already begun to roll over from previous resistance at $30. The 
stock made its most recent run at $30 in late February, but saw 
its last bounce end at $29 over the past few days. It has been 
setting a series of lower highs the last three sessions (today's 
high at $29.67 was a bad tick) and stochastics have rolled over 
into a sell signal from overbought territory. The most recent 
analyst rating came from Fulcrum on February 27.  The firm 
reiterated its sell rating with a $13 price target, citing OTEX's 
acquisition of Corechange.  It said the acquisition was one with 
a low quality of earnings and unsustainable growth.  It also said 
OTEX trades at a premium to more established companies that won't 
be impacted by increased competition in the collaboration space, 
and said that OTEX shares justify a  discount to peers because 
its 2003 estimates are at substantial risk. If INTU was the first 
domino to fall, then based on that rating, OTEX's future could 
certainly be tenuous. 

Our pick is based more on relative weakness in the stock and the 
sector and the rollover from resistance, than an analyst 
recommendation, but in a world in which most analysts are pumping 
stocks that are weak, it's encouraging for bears to see some 
honesty.  We like entries in the play below today's low of 
$28.15, with a trigger of $27.98; but more conservative traders 
will want to wait for a break below the 21-dma (currently 
$27.68), where the stock bounced on Thursday.  Our initial target 
will be a move to $25, where there is strong support from January 
and the beginning of the march.  However, a move below that level 
could be seen as a head and shoulders breakdown and would likely 
lead to a test of the 200-dma (currently at $23.18).  Our stop 
will be placed at $30.55, just above recent highs.

BUY PUT APR-30*QFT-PF OI=72 at $2.65 SL=1.30
BUY PUT APR-30*QFT-QF OI=25 at $3.30 SL=1.75

Average Daily Volume = 304 K




*****************
CURRENT PUT PLAYS
*****************

NOC - Northrup Grumman Corp. $82.35 (-2.05 last week)

Company Summary:
Northrup Grumman is a defense company that provides products,
services and solutions in defense and commercial electronic,
systems integration, information technology and nuclear and
non-nuclear shipbuilding and systems.  NOC has operations in 44
states and 25 countries, serving United States and international
military, government and commercial customers.  In December 2002,
the company merged with TRW, a provider of technology products
and services for the aerospace, information systems and
automotive markets.  As a result, TRW became a wholly owned
subsidiary of NOC and in March 2003, the company sold the
automotive business of TRW, while retaining a 19.6% equity
interest.

Why We Like It:
That sure didn't take long!  With the initial weakness that
appeared in Defense stocks on Thursday as the Iraq war kicked
off in earnest, we initiated bearish coverage of NOC with the
view that a smooth war operation could have the stock testing
its recent lows over the next couple weeks.  That move got
started first thing on Friday morning, with the stock plunging
under the $84 level at the open and continuing down to an
intraday low just above $80, as reports continued to roll in
concerning the impressive "Shock and Awe" war campaign.  The
speed of the military advance seems to confirm that the war will
fail to have a significant impact to the revenue stream of the
major defense contractors, and that pressured the Defense index
(DFI.X) as low as the $441 level.  By midday though, buyers
appeared, helping to lift the DFI index and NOC off their lows
into the close.  While it was definitely a bearish day for NOC,
it is interesting to note how the stock found support above the
$80 level, and despite the rollover in daily Stochastics, we
need to at least consider the possibility that the stock won't
be able to break down below that level.  Clearly, momentum
entries don't make sense right now, and our best shot at new
entries will dome on a rollover from the $84-85 resistance
zone.  The rollover in the stock this week came right at the
descending trendline (currently $87.50) connecting the January
and February highs, giving us a perfect location to set our
stop.  But for traders that entered the play on Friday's
breakdown, that's too much risk to take, and we are suggesting
those traders use an alternate stop at $85.50.  Remember,
NOC's bearish price target from the PnF chart is $79, and we
aren't expecting a significant break below that level.  Use a
drop near that level to lock in gains and then wait for a new
entry point.

BUY PUT APR-85*NOC-PQ OI=2650 at $4.80 SL=3.00
BUY PUT APR-80 NOC-PP OI=1150 at $2.30 SL=1.25

Average Daily Volume = 2.82 mln





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The Option Investor Newsletter                   Sunday 03-23-2003
Sunday                                                      4 of 5

In Section Four:

Leaps:          Shock and Awe
Traders Corner: 1,800 McChicken Sandwiches For Our War Chest
Traders Corner: Where is the Dow Going?
Traders Corner: The Characteristics of Elliott Waves
Futures Corner: Harmonic Trading With Gartley Patterns


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*****
LEAPS
*****

"Shock and Awe"
By Mark Phillips
mphillips@OptionInvestor.com

Anticipating a successful war campaign in Iraq, the bulls
launched their own "Shock and Awe" campaign against the bears
last week, and from the broad market's relentless advance right
up to the closing bell on Friday, we can only assume that the
bears are feeling rather shell-shocked.  It is hard to make an
argument that there is much short-covering propelling this
current rise, as any bearish positions should have been shaken
out several hundred DOW points ago.  

As I noted in my Options 101 article on Wednesday, I expect that
this bullish move still has some room to run.  That said, I have
to confess my own amazement at how far the market has advanced
in such a short period of time.  I heard a report on Friday after
the close that last week's advance in the DOW was the largest for
one week since 1982.  Now that's powerful!  This is a perfect
example of what is meant when we talk about the bears holding
most of the risk with the bullish percents so deep in oversold
territory.  The slightest catalyst can set off an asset
allocation shift from bonds back into equities, and that seems
to be what has been going on since the bottom on March 12th.

Bonds have seen heavy selling, corresponding to the heavy buying
in equities.  Now we have all the bullish percent charts
reversing sharply higher, PnF Buy signals across all the major
indices, and the bulls are clearly in charge.  That said, I don't
want anyone to lose sight of the fact that this is just the
latest bear market rally.  The catalyst may be different than
what we witnessed last July and October, but I believe the
eventual outcome will be the same - failure.  I don't expect
that failure to come anytime soon, due primarily to the internal
strengthening that is seen in the bullish percent charts.  Let's
see what we can infer about the potential upside from here, based
on the rally off the October lows.

After the bottom from the October lows, the DOW advanced 1300
points in almost a straight line in 8 days.  Then it took another
6 weeks for the DOW to gain an additional 500 points to its
December high just over 9000.  In the past 8 days, the DOW has
advanced just under 1100 points, and while additional gains are
certainly likely, I expect the market to be more grudging in
giving up the next 400-500 points to the 8900-9000 resistance
level.  

We're likely to see an upside bias continue as long as the war
effort goes well, and we near the end of the first quarter of
2003.  But then we have the looming April earnings season, and
investors will have to once again confront economic reality,
which really hasn't improved at all.  This rally has been driven
by both technical and emotional factors, but fundamentals can
only be ignored for just so long.  But until reality comes back
to the forefront of investors' minds, up is the direction of
least resistance.  One notable difference between this and the
past 2 bear-market rallies is the fact that all the major indices
(DOW, SPX, NDX) have plowed through their respective 200-dmas. 
That is a powerful sign that there is actually some strength to
this rally.  How far can it extend?  I've got some targets in
mind, but of course, it is just my best guess based on chart
patterns and other technical studies.

Looking first at the SPX, I view the $940-950 area to be major
overhead resistance.  The most recent top in early December
occurred at 954, and the January move topped out near 935.  Add
in the August high of 965, and we can draw a descending trendline
that equates to roughly 920.  That trendline will be the first
area of strong resistance from this point forward.  I expect the
bulls will eventually clear that level, but will expend a lot of
energy in doing so.  We'll then have that much more difficulty
when we reach the 940-950 area, which is now the site of the top
of that long-term descending channel I've been talking about for
over a year now.

The picture is similar over on the DOW, with Friday's surge
breaking through the 200-dma and the first area of solid
resistance will be the corresponding trendline (connecting the
highs in August, December and January), which is currently near
the 8750 level.  Looming just above that level is the year-long
descending trendline at 8900 and the double top (August and
December) just over 9000.  By the time these upper levels are
tested (if at all), we'll likely see the bullish percents topping
out in overbought again and it will be time to repeat the whole
process.  Any bets on whether that setup will coincide with the
heart of earnings season, when investors are forced to confront
another dismal set of corporate results?  GRIN

That brings us to the NASDAQ, and here I'm looking at the COMPX,
rather than the NDX, because of its greater breadth.  In contrast
to the other broad indices, the COMPX broke through its year-long
descending trendline line last week, another measure of its
improving relative strength.  As a side note, I sure wish I had
added the QQQ Watch List play a couple weeks earlier!  Resistance
for the COMPX comes first at the January high (1467) and then at
the December high (1521).  If the COMPX can clear these two
levels, then we'll have a real difficult job for the bulls in
challenging very strong resistance at 1600, which is both strong
historical resistance, as well as the site of the descending
trendline (actually 1575 now) that began in May of 2001.

So what do the PnF charts have to say about any of this?  In
short, all the PnF charts (via their current bullish price
targets) are telling me that I'm being far too conservative in
my estimates for the market's potential upside.  The DOW has a
tentative price target of 10650, while the SPX has a target of
1110, and the COMPX has a target 2250.  Pull up a PnF chart of
any of these indices on Stockcharts.com and you'll see that
trying to short into this market right here makes about as much
sense as Don Quixote tilting at windmills.  As I said on
Wednesday, the bears will get their chance again, but now is
not that time.  I personally don't expect any of those bullish
targets to be achieved during the life of this rally, but eager
bears should be forewarned of the power of this rally.

The one rogue element in this whole equation is the VIX, which
is still stubbornly holding well above the 30 level.  First the
VIX refused to move higher as the broad market sold off, and
now the VIX is refusing to drop while the market strings
together an impressive rally.  Sure the VIX has fallen back
from the 40 level, but look at the drops in the VIX following
the bottoms in July and October of last year, and even in
September of 2001.  The rebounds off of each of those lows in
the broad market produced a sharp drop in the VIX, which we just
haven't seen this time around.  Part of the cause is (I believe)
the elevated level of the 200-dma, but I view this as abnormal
right now.  If this war rally is going to continue, then the VIX
needs to break down, preferably below the 30 level.  Just
remember from our prior conversations that I view the current
floor for the VIX near the 29 level, based on the position of
its 200-dma.  

Another interesting note is the large consolidation wedge that
is building in the VIX.  we've been talking for some months now
about the descending trendline connecting the VIX highs from
last July and October.  But there's another important trendline
to look at too.  That's the trendline connecting the lows since
last March.  Together, these trendlines describe a large
neutral triangle that comes to a point at 30 right around the
end of May.  I don't have an opinion about which way the VIX
will break out of this pattern, but I think it will prove
quite instructive as to the longer term future, both for the
equity markets, as well as our interpretation of the VIX.

Putting it all together, my short-term view is up, the
intermediate-term is down, and the long-term is that the bears
will come out for another feast when this rally has run its
course.  So that tells us that the current bullish bias in our
Portfolio and Watch List continue to make sense.  So without
further ado, let's go check out the plays.

Portfolio:

QCOM - While I would have liked to have seen QCOM able to break
above the $40 level, given the strength in the rest of the
market, I'm pretty happy with the way it broke over its
descending trendline last Monday and then held that level ($38)
as support on Thursday.  Clearly the $40 level is the next major
obstacle on the upside, as it is both historical resistance, as
well as bearish resistance on the PnF chart.  While a trade at
$40 will put the PnF chart back on a Buy signal, QCOM won't be
completely out of the bears' clutches until it can clear the
December highs near $43.  For now, we'll rely on the 50-dma
($36.57) and 20-dma ($36.03) to provide support on any subsequent
pullbacks, although we'd prefer to see the $38 level do that job.
Weekly Stochastics are now into a nice bullish ascent, and with
the NASDAQ in strong rally mode, QCOM ought to have more room to
run on the upside before running out of steam.  But just in case
of the unexpected, let's raise our stop to $36, ensuring that we
can't lose on the play.

DJX - Talk about being saved by the bell!  Well actually, we were
saved by the fact that the bell DID NOT ring on Wednesday, March
12th, when the DJX was bouncing from just above the $74 level.
At that time our closing stop was set at $74.50 and I was pretty
sure we were going to be stopped out.  Oh contraire!  The past 7
market days have been truly astounding, with the play reversing
from a pretty substantial loss to now showing a gain of more
than 35%, even on the '05 LEAP.  That's pretty decent,
considering the abysmally early entry we took.  For those of you
that got a better entry, your bottom line is looking even better.
Take this war rally as a big gift and don't allow those gains to
slip away.  I'm raising our official stop to $81 this weekend to
ensure that we can't lose on the play.  If your position reaches
the point where you're looking at a 100% (or greater) gain early
next week, I would highly recommend harvesting those gains and
looking to re-enter on a pullback to support, now in the
vicinity of $82-83.

MSFT - Mr. Softee isn't setting any land speed records, but it
is consistently moving in the right direction.  After a bit of
indecision when the stock flirted with the $23 level after we
initiated the position a few weeks back, MSFT finally pushed
back above the ascending trendline and then launched higher
with the rest of the market over the past 7 days.  The stock is
now back over the 50-dma ($24.77), critical resistance at $25
and the 200-dma ($25.47).  Friday's session was pretty
encouraging with the stock bucking the weakness throughout the
Software sector to move into the gap left behind on January
17th.  There's still lots of overhead resistance and we'll need
to see a trade at $30 before the PnF chart will issue a Buy
signal, but things are looking good so far.  Weekly Stochastics
are really getting with the program, in their bullish ascent,
and a brief pullback near the $25 level can be used by
late-comers to enter the play.  Since we're targeting a move
into the $30-35 range, I don't want to get too aggressive with
the stop just yet, but we will raise it to $24.50 this weekend.
That is just below the 50-dma, but above our entry point,
keeping us from taking the risk of losing on the play.

ADBE - I was starting to wonder when that meteoric rise was ever
going to end.  After a pretty impressive earnings report on March
13th, ADBE soared through resistance near the $30 level and by
last Thursday was sitting above the $34 level.  We may not have
gotten the BEST entry, but right about now, it is looking like
it was good enough.  Of course, things were looking a lot better
Thursday night before the Friday morning downgrade to Hold from
WR Hambrecht, complete with a price target of $29.  That took
the wind out of the bulls' sails, and ADBE led the Software
sector lower throughout the day, losing nearly 6% on volume that
more than tripled the ADV.  So is the selling frenzy over, or
will we need to endure some more pain.  I actually think we've
got some more weakness to deal with, but expect another higher
low to keep the trend bullish.  There are multiple levels of
support to help us out, with historical support just above $30,
the top of the March 14th gap ($30.28) and the 10-dma ($30.36).
So we'll raise our stop to $30, guaranteeing that we keep at
least a portion of the gains, even if things completely fall
apart from here.  That isn't an event I anticipate, but it never
hurts to be prepared.  

BEAS - I wouldn't call last week's action in our BEAS play a
breakout, as the stock is still languishing under the $12 level,
but the upward move certainly was bullish.  After taking our
entry point at $10, BEAS surged through the 20-dma, which is
now attempting to turn back up and provide support.  The next
challenge will be for the stock to get through the $12 level
enroute to the real milestone of $13.50.  You see, BEAS needs
to reach that level before the PnF chart will be back on a Buy
signal, erasing the current bearish price target of $5.50.  A
big part of the stock's weakness on Friday was sector related,
with the Software index notably weak in the wake of ORCL'
earnings and the downgrade to ADBE.  But in the big picture,
the stock held up fairly well, building that intraday support
near the $11 level.  It's going to take some time to get
through overhead resistance, but it now seems safe to tighten
our stop at least to break even.  The official stop moves to
$10.25 this weekend.

AA - What happened??  If you recall from my initial writeup on
AA, I characterized this play as a speculative bottom-fishing
play, and therefore carrying higher risk.  Well, it looks like
that extra risk paid off for those willing to take it!  The
listed 2004 LEAP is up a whopping 160% since AA moved to the
Portfolio 8 short market days ago.  In that time, the stock
has only moved up about $3, but that's what you get when you
play with out of favor options just ahead of a significant
move.  And I see no reason why AA can't make a run at least
up to the 200-dma just below $24.  Of course, if you've got a
better than 100% gain in the trade and don't want to risk
giving it back, then by all means close the trade.  LEAPS
trades are meant for the longer term, but that doesn't mean we
can't harvest those gains when they get delivered in a hurry.
Our official stop moves up to $19.75 this weekend, still
relatively loose in order to give the stock some room to
consolidate ahead of the next upward move.  Traders still
wanting to enter the play should look for a dip and rebound
from the vicinity of $20.25-20.50, as this is the current site
of the clustered and upward-turning 10-dma, 20-dma and 50-dma.

EMC - Uh-oh!  Up until Friday morning, EMC looked like it was
going to reclaim the top side of its ascending trendline
(currently $7.85), but that was before Deutsche Securities
downgraded the stock to Hold, based on valuation and
uncertainties in business trends.  The firm issued an $8 price
target and that was enough to knock the legs out from under the
bulls.  EMC slid back more than 5% by the close, but did manage
to hold above both the 10-dma and 20-dma.  Any follow-through
selling early next week will likely have the stock retesting
the 200-dma, and another rebound from that level can still be
used as a solid entry into the play.  While the downgrade on
Friday can be ostensibly blamed for Friday's decline, I don't
think it is a coincidence that the reversal came right at the
descending trendline that began back in November of 2001.  We
knew that barrier was going to be a tough one to cross, and
didn't expect to break through it on the first attempt.  We'll
let this decline run its course and as long as our $5.50 stop
isn't violated, the next rebound from support (ideally near the
200-dma again) should make for a winning entry point.

Watch List:

NVDA - As proof that you can't win them all, NVDA has continued
to evade our attempts at gaining a decent entry into the play,
consistently rebounding from above our entry target.  But that
isn't a reason to chase it higher.  While the stock has continued
to move higher along with the rest of the market, with weekly
Stochastics now topped out in overbought territory, we need to
be cognizant of the higher risk associated with new entries at
this point.  The stock pushed through the 200-dma last week and
the PnF chart is now flashing a new Buy signal, with a tentative
bullish price target of $25.  While encountering some resistance
near the $15 level, the real battle for the bulls will come near
the $18 level, the site of both the bearish resistance line, as
well as the December highs.  While it may not occur early next
week, NVDA is due for some profit taking and we'll continue to
look for attractive entries on a pullback near support.  Ideally,
that will occur with a pullback and rebound from the $13.00-13.50
area.  The top of the most recent gap is $12.90, with further
support from the 20-dma ($13.03) and 10-dma ($13.51).

NEM - As the broad market continues its amazing advance, "safe"
money is flowing out of gold and gold-related stocks, exactly as
we expected.  We wanted to wait for the Iraq war to get underway
before entering this play, and with that process going smoothly
so far, gold futures have come under pressure, falling to $326
(basis the April contract) and breaking below the 200-dma
($331.05) on Friday.  Following this trend, NEM has fallen back
under the $25 support level and is nearing the long-term rising
trendline at $23.85.  I'm looking for continued good news from
the war front to drop the gold futures near the $320 level
(strong support) which ought to correspond to NEM falling into
our entry zone of $23.50-24.00.  Remember, we don't want to
enter the play, just because that price level is achieved, as
we don't want to catch a falling knife.  We will need to see
confirmation of buying interest via a bounce in price from
support before entering the play.  The primary reason for this
caution is that the PnF chart is now back on a Sell signal,
currently showing risk to the $19 level.  Our primary premise
here is that once the momentum traders in this area of the
market have been shaken out, the strong hands will step forward
to defend both gold and gold stocks at important support.

QQQ - As pointed out in several articles in recent months, the
NASDAQ is really starting to show its relative strength, as
compared to the rest of the market.  Unfortunately, I waited a
week too long to list this QQQ call play, as it surged sharply
higher at the open last Monday, leaving us standing on the
sidelines.  That's no reason to go chasing it higher though.
The market is due for a bit of a pullback and with so many nice
winners on the Portfolio right now, if we don't get an entry
into this play, then so be it.  With last week's strong upward
move, the QQQ now appears to have strong support in the
$25.00-25.50 area.  The 20-dma at $25.18, the 50-dma just below
at $25.12 and the historical support at $25.30, should all work
to support the stock on the next significant pullback.  We'll
raise our entry target to $25.00-25.50, and gladly take an entry
into the play on a dip and rebound from that area.  Initial
stops after entry will be set at $23, just below the February
lows.

LEAPS are normally a tool used to capture outsized gains over a
period of time measured in months, not weeks or even days.  But
the broad market action of the past couple weeks has
demonstrated how this vehicle can truly provide a pleasant
surprise.  We caught some great entry points into several
bullish plays near major levels of support, just in time to
participate in an explosive war-related rally.  The broad market
action looks very bullish and could very well continue for
awhile, at least based on the PnF cha Bullish Percent charts.
But I have no illusions that this rally represents any sort of
long-term market bottom.  For that reason, traders should be
aggressive about protecting gains accrued over the past 2 weeks.
After a more than 1000 point DOW rally in 8 days, we are overdue
for some profit taking, so caution is definitely warranted here.
As noted above, I certainly wouldn't argue with any trader that
wants to harvest gains on plays that have performed well so far.
At a minimum, those stops ought to be tightened up to the point
that none of those gains can turn into a loss.  That is reflected
by the tightened stops in our Portfolio.

Have a great week!


Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
QCOM   02/14/03  '04 $ 40  LLU-AH  $ 4.60  $ 6.40  +39.13%  $35.50
                 '05 $ 40  ZLU-AH  $ 7.90  $ 9.80  +24.05%  $35.50
DJX    02/25/03  '03 $ 80  DJX-LB  $ 6.40  $ 9.40  +46.88%  $81
                 '04 $ 80  YDJ-LB  $ 9.30  $12.50  +34.41%  $81
MSFT   02/27/03  '04 $ 25  LMF-AE  $ 3.20  $ 4.80  +50.00%  $24.50
                 '05 $ 25  ZMF-AE  $ 5.10  $ 7.10  +39.22%  $24.50
ADBE   02/28/03  '04 $ 30  LAE-AF  $ 4.70  $ 7.30  +55.32%  $30
                 '05 $ 30  ZAE-AF  $ 7.50  $10.40  +38.67%  $30
AA     03/12/03  '04 $ 22  KJP-AX  $ 1.15  $ 3.00  +160.9%  $19.75
                 '05 $ 25  XAP-AE  $ 1.50  $ 3.30  +120.0%  $19.75
BEAS   03/12/03  '04 $ 12  LZP-AV  $ 1.55  $ 2.50  +61.29%  $10.25
                 '05 $ 12  ZWP-AV  $ 2.75  $ 3.90  +41.82%  $10.25
EMC    03/12/03  '04 $  7  LUE-AU  $ 1.40  $ 1.70  +21.43%  $5.50
                 '05 $  7  ZUE-AU  $ 2.15  $ 2.60  +20.93%  $5.50


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NVDA   02/02/03  $12           JAN-2004 $ 12  KMF-AV
                            CC JAN-2004 $ 10  KMF-AU
                               JAN-2005 $ 12  XMF-AV
                            CC JAN-2005 $ 10  XMF-AU
NEM    03/09/03  $23.50-24.00  JAN-2004 $ 25  LIE-AE
                            CC JAN-2004 $ 20  LIE-AD
                               JAN-2005 $ 25  ZIE-AE
                            CC JAN-2005 $ 20  ZIE-AD
QQQ    03/16/03  $25.00-25.50  JAN-2004 $ 26  KLF-AZ
                            CC JAN-2004 $ 22  LKF-AU
                               JAN-2005 $ 26  ZWQ-AZ
                            CC JAN-2005 $ 22  ZWQ-AU
GD     03/23/03  $49-50        JAN-2004 $ 60  KJD-AL
                            CC JAN-2004 $ 50  KJD-AJ
                               JAN-2005 $ 60  ZZJ-AL
                            CC JAN-2005 $ 50  ZZJ-AJ


PUTS:
None


New Portfolio Plays

None


New Watchlist Plays

GD - General Dynamics $57.12  **Call Play**

Going against the crowd has been working well for us lately, so
we might as well continue that behavior pattern.  As the Iraq war
effort has gotten underway, there are few areas of the market
that look as week as the Defense sector (DFI.X), as investors
have fled that sector on the belief that the war will have little
or no material impact to the bottom line of the major defense
contractors.  Last week's rebound in the DFI index from the $415
level showed us where the likely bottom for the sector, and I
think now is the time to go bottom-fishing in this sector.  We
were clearly early when we started looking bullish on shares of
GD a few months ago, as that consolidation pattern between $75-85
was clearly a continuation pattern of the initial drop from
$110-80.  The measuring objective once that consolidation pattern
broke to the downside was equivalent to an equal move to the
downside as the original move.  Doing the math, $30 from $80
gives a downside target of $50, and isn't it interesting that
the intraday low on March 12th was exactly $50!  You see, this
looks like a case of the worst case being factored into this
stock and sector ahead of the Iraq war, and this bottoming
process should give us a solid entry over the next few weeks
ahead of the expected recovery.  GD's P/E ratio has now fallen
to only 11, yet revenue and earnings have not shown the sort of
deterioration that would be expected, given the stock being cut
in half over the past 9 months.  In fact, revenue has continued
to grow.  With weekly Stochastics starting to turn up, the next
time the daily Stochastics bottom, we ought to get a slightly
higher low and a great entry point.  The very long-term (12 year)
ascending trendline for GD is currently at $49.50, adding to the
strength of that support.  This play will likely take much longer
to come to fruition than some of our other recent bullish plays,
but that's how LEAPS plays are supposed to play out.  We're
looking to grab an attractive entry point when the stock and
sector are out of favor.  Our initial entry zone will be $50-52
(although we may have to modify it over the next couple weeks.
Look for the DFI index to hold above its recent low to confirm
the wisdom in going bottom-fishing in this area of the market.
After entry, we'll set a rather tight stop at $48.50.

BUY LEAP JAN-2004 $60 KJD-AL
BUY LEAP JAN-2004 $50 KJD-AJ **Covered Call**
BUY LEAP JAN-2005 $60 ZZJ-AL
BUY LEAP JAN-2005 $50 ZZJ-AJ **Covered Call**


LEAP Drops

None



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

1,800 McChicken Sandwiches For Our War Chest

By Mike Parnos, 
Investing With Attitude

OK, so our war chest looks a lot like a refrigerator.  Counting 
our chips is my favorite time of the month – both Pringles and 
poker chips.   This month we're going to see if new Couch Potato 
Trading Institute members can count to 1,800 profit without 
taking off their shoes.  Established CPTI students are old hands 
at it.  Hell, most of them don't even wear shoes anymore.  

Our running profit balance is now $16,010.  Let's round it off to 
an even $16,000.  CPTI students have reputations as big tippers.  
Just ask the Hungry Howie's delivery guy.

Well, the market had its best week in years – up about 900 
points.  This is euphoria.  It borders on insanity (and Turkey). 
This will be known as the war bubble.  This week investors were 
hitching their wagon to a Tomahawk missile -- and no matter where 
it lands, it will be in a sand trap of some sort.  It may take 
Tiger Woods to get investors out of this kind of trap.  I hope 
they're buying protection, because short sellers are out there 
salivating – just waiting for the market to roll over.  Profits, 
as we all know, can dissipate faster than flatulence in an Iraqui 
sand storm.

Who is kidding whom?  The economy hasn't changed.  It's still 
lousy.  But look at the people who, this week, have been throwing 
their money at just about everything.   They don't want to miss 
the next bull market.  Maybe we'll let them throw some our way.  
In this month's new trades, we're going to position ourselves to 
take advantage of a pullback.   
____________________________________________________________

RECAP OF MARCH POSITIONS

Position #1 – OEX Bull Put Spread – Trading at $456.37.

Believing the market was 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.

The OEX tested the 400 level last week, but bounced up nicely and 
the entire position expired worthless – which was the objective.  
Our profit:  $1,400.
____________________________________________________________

Position #2 – XAU Iron Condor – Trading at $63.15.

We created an Iron Condor with a 15-point range $65 to $80 for 
March.  We placed spread orders and took 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 had been hovering around the sold 
strike for awhile.  The breakeven level was $63.60.  With a 
$63.15 close, CPTI students who hung in there till the bitter end 
may have experienced a small loss.
_________________________________________________________________

Position #3 -- OIH -- Diagonal Calendar Spread – Trading at 
$55.31. (See discussion below under "Ongoing Positions")
____________________________________________________________

Position #4 -- QQQ ITM Strangle – Currently trading at $27.16.
(See discussion below under "Ongoing Positions")
____________________________________________________________ 

Position #5 – MMM Iron Condor – Currently trading at $134.37.
(See discussion below under "Ongoing Positions")
____________________________________________________________

NEW POSITIONS FOR APRIL

Position #1 – OEX Iron Condor – closed Friday at $456.37.

We're going to create an Iron Condor with a 70-point range of 420 
to 490 for April.  The objective is for the OEX, at April 
expiration, to finish anywhere within the spread.  

Sell 10 contracts of the April 420 puts for $4.00
Buy 10 contracts of the April 410 puts for $3.10
The posted credit is $.90, but place a spread order for a credit 
of $1.20.  The bid/ask spreads are wide enough to be able to work 
inside of them.

Sell 10 contracts of the April 490 calls for $2.80
Buy 10 contracts of the April 500 calls for $1.70
The posted credit is $1.10, but place a spread order for a credit 
of $1.30.  Again, the bid/ask spreads are wide enough to be able 
to work inside them.

The total credit for the Iron Condor should be about $2.50.  If 
you come within $.10 or $.15 of the $2.50, it's still a good 
trade.  Our profit target is $2,500 for 10 contracts.  Our safety 
range is 417.50 to 492.50.

Position #2 – BRCM Short Straddle – Trading at $15.96

While the market has been enjoying this war-driven ride up the 
flagpole, Broadcom (BRCM) has lagged.  They lost a lawsuit last 
week and it looks like BRCM will open closer to $15.  It's been 
trading in a range and it looks like it should remain there.  
We're going to:

Sell 10 contracts of BRCM April $15 call @ $1.80
Sell 10 contracts of BRCM April $15 put @ $.80
The total credit will be about $2.60.  Remember, there's a good 
chance BRCM will open closer to $15 on Monday.  It's the total 
credit we're looking for.  If we take in $2.60, our safety range 
is from $12.40 to $17.60.  We make the most if BRCM finishes at 
$15.  Our maximum profit potential is $2,600.  Maintenance 
requirement should be about $4,000.

You have to have a higher trading approval level at your 
brokerage firm to trade this strategy.  Contact your broker 
before you attempt to place the trade to confirm your trading 
level.  I'll go over the entire Short Straddle strategy – 
including the potential adjustments -- in this week's column.
_________________________________________________________

ONGOING POSITIONS
Ongoing Position #1 – MMM Iron Condor – Trading at $134.37.

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.

With the pre-war and war rally, MMM has violated our $130 short 
call.  I'm prepared to be a little patient with this position.  
The market has gone up much too far and much to fast.  We have a 
month for calmer heads to hopefully prevail and return MMM, among 
many other stocks, to a more reasonable level.  This entire move 
up has been purely emotional.  The companies haven't changed a 
bit.  The companies didn't warrant higher prices before and their 
financial stories haven't changed a bit.  What goes up must come 
down.  Let's just hope that it will happen by April expiration. 
 
Ongoing Position #2 -- QQQ ITM Strangle – Trading at $27.16.

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 to generate some 
extra premium.  Our new cost basis for the position is $5.30.

Ongoing Position #3 -- OIH -- Diagonal Calendar Spread – 
Trading at $55.31.

We thought that there was about $8-10 of uncertainty built into 
the price of a barrel of oil.  When, and if, the war is resolved, 
the price of oil should work its way down, along with the price 
of oil stocks.  

We bought 10 contracts of the July OIH $55 puts and sold 10 
contracts of the March OIH $50 put at a debit of $3.85.  
According to our plan, the March $50 put expired worthless.

A week ago OIH was trading $53.20. We were sitting with $1.00 
profit with OIH seemingly on its way down – which would have 
generated substantially more profit.   We didn't take the profit 
at the time.  Well, so much for logic.  OIH bounced up to about 
$57.50.  

As of Friday's close, the July $55 put can be sold for $4.40.  
Our cost basis is $3.85.  That would give us a profit of $.55 or 
$550 for the month.  Not bad.  But, for a couple of reasons, 
we're going to sell the April $50 put for $.70 and bring our cost 
basis down to $3.15.  Why?  Because there was no good reason for 
the run-up last week and because, in addition to making money, 
continuing with this trade will provide a good learning 
experience to the legions of CPTI students.  We have CPTI 
students in Germany, the UK, and Australia.  I guess you could 
call them our Foreign Legion.
____________________________________________________________

Food For Thought – Dog Food
"Outside of a dog, a book is man's best friend.
Inside of a dog, it's too dark to read."
____________________________________________________________

A Reminder
Remember that I'm out of town. I will be able to respond to my 
backlog of emails on Wednesday.  Don't hesitate to send them.  I 
want to address any questions you may have.

If you're interested in organizing your trading life, don't 
forget to send me your requests for the trading spreadsheet I 
discussed in Thursday evening's column.  I'll be sending them out 
soon.  For CPTI students, this spreadsheet is a must.  It's right 
up there with your Doritos, your Salsa dip, your Atkins diet book 
and, of course, your subscription to OI.
___________________________________________________________

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




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

Where is the Dow Going?
By Steve Gould


The Swiss Army has a saying.  It goes like this: if the map and 
the terrain don't agree, go with the terrain.  Sage advice.


Up until the last 8 trading days, the Dow was behaving in a 
classic Elliott Wave basic 5 wave pattern.  (See Introduction to 
Elliott Waves.)  This is what the Dow looked like on 3/14/2003.


Chart of the Dow Jones Industrials (#1):





 

From its high in March until its low in October, the Dow 
progressed perfectly through a basic 5 wave pattern.  From 
October until December, the Dow traced out a classic A-B-C 
correction.  Starting in December, the Dow has unfolded another 
classic start to a 5 wave pattern.  Even with the 500 point gain 
over the last two days, the 3 wave was still intact.

Ah, but what a difference a week makes.  This is why we don't 
place trades in 3 waves.  Over the next 5 days, the Dow gained 
another 700 points.  Although our map says we are in a wave 3 
down, the terrain speaks otherwise.  Here is what the Dow looks 
like as of 3/21/2003.

Chart of the Dow Jones Industrials (#2)




 


Let's take a step back, look at the bigger picture and discuss 
two possible scenarios.

Scenario 1

Chart of the Dow Jones Industrials (#3):




 

The move down from March until October is still a 5 wave basic 
pattern, but now let's considered it the 1 wave of a larger wave.  
The move from October until 3/21/2003 has been relabeled a 2 wave 
going through an A-B-C correction.  If this is the case, then the 
move we are in right now is the completion of the C wave and 
could go as high as 9500.  Then the 2 wave will be complete and 
the Dow will continue to head down as it starts the 3 wave.

Scenario 2

Chart of the Dow Jones Industrials (#4):



 


Again, the move down from March through October is a wave 1.  In 
this scenario, just the move from October through December is a 
wave 2.  At this point, the Dow began a wave 3.  Since each 1, 3 
and 5 wave will subdivide into a 5 wave basic pattern, the Dow 
just completed the 1 wave (green) of the overall 3 wave (red).  
The Dow will finish its wave 2 up (green) by completing the A-B-C 
correction (blue) and then start the wave 3 down (green and 
blue).  I believe this is the more likely scenario.

So what will happen next?  Well, until proven otherwise, it looks 
like the Dow is going to retrace the last gains we had, perhaps 
around 380-620 points (wave B) and rally again to complete the 
wave C.  After that rally, the Dow will head back down.

How to play it.  As stated in this week's Trader's Corner on The 
Characteristics of Elliott Waves, it is best not to make a play 
here.  But for those who are a bit more on the aggressive side, 
anticipate a 500 point (plus or minus 120 point) move of the Dow 
(either scenario) and then another rally.  If any rally (perhaps 
on news like we find Saddam dead) breaches the top of the wave 2 
(9043) then scenario 1 is in effect.  We get a bigger rally but 
the Dow still continues down.  Just a little bit later.

The correction should take a week or so.  This is a very short 
term play.  We do not want to go so far out that we are paying 
for only time, yet we don't want to be so near that we lose any 
profit to theta decay.  A three month out option with a delta 
just above .25 should work nicely.

Symbol  Strike   Type   Bid   Ask   Delta  Volume  OI
DJXRB   June 80  Put  2.300 2.400   -27.3   669   10573


What if we are right

If we are correct, the option will be worth about $3.70 after a 
400 point move down.  That is the exit price.

Options Toolbox Screenshot:



 


What if we are wrong

Exit the trade if the option falls to 1.60.  This gives us a 1.6 
reward/risk ratio.

Reward       1.30
----     =   ----
Risk          .80


As of this writing, the war in Iraq is going quite well.  If I 
may take a moment to be political here, I just want to say, that 
we have, beyond a shadow of a doubt, the strongest military in 
the world capable of defeating any enemy.  I heard critics say 
that there is no way we could win a war in Iraq.  Comments such 
as the military is not capable of fighting in the Iraqi desert 
heat, the Republican Guard is better trained and highly 
motivated, and we would suffer devastating losses should we 
engage the Iraqi Army are just trash talk.  I just want to 
express my appreciation for the men and women of the US Military 
who are defending this country.  My hat is off to you.  (Try not 
to notice the bald spot.)



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

The Characteristics of Elliott Waves
by Steve Gould

I am the proud father of two wonderful children ages 13 and 11.  
I also serve as a counselor for the 4th, 5th and 6th graders 
during our church's summer camp.  Surprise, surprise. Children in 
this age group constantly try to pull things over on me.  It 
rarely works.  They get busted and walk away flabbergasted that 
their little schemes failed.  You see, I have a secret that they 
just do not know about.  I will tell you what it is, but please, 
if you are under 18 years old, skip the next paragraph. Knowing 
this insider secret would give you a tremendous edge.  

What these precious little darlings don't know is that I used to 
be 11 years old.  I know what it is like.  I was there.  I did 
those stunts.  I can accurately predict their behavior based on 
my past experiences.  I can easily identify certain actions that 
are pathognomonic of devious activity.

Elliott Waves are no different.  Each wave segment has a 
particular characteristic and behavior.  Once I am able to 
understand it and identify it, I can accurately predict what the 
future movement will be based on past experience.

Let's quickly review the basics of Elliott Waves.  

As the market progresses, it will unfold in waves.  A wave 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 5 wave 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.

Wave Cycle (chart):



 

If we just look at the waves themselves, we can never be quite 
sure where we are until after the waves have completely numbered.  
By that time it is way too late.  We need some type of internal 
indicator to tell us just how strong each movement is and give us 
a better indication as to what wave segment we are in.

The charting program that I use was specifically developed to 
analyze stocks using Elliott Waves.  It has a proprietary 
oscillator that is basically a MACD.  I played around with it a 
bit and could come up with an approximation that will work.  If 
you wish to tweak it a bit and discover a more accurate 
representation, I would appreciate knowing the values you used.

Chart of the Dow Jones Industrials:




 


The blue histogram is the official oscillator.  The green 
histogram is a MACD set at 20, 136, 20.

In the meantime, I will use the oscillator provided by the 
program to interpret the wave.

I was searching for a bull market example, but could not find the 
perfect chart.  It is important to learn on the classic example 
so that you can see exactly how the wave is supposed to behave.  
The best example I could find is the Dow over the last year.  
(See chart below.)  I have actually printed this one out, 
measured it, marked it and annotated it as a reference as to how 
all Elliott Waves should ideally behave.

Chart of the Industrials with Wave identifiers:





 

It is easy in retrospect to look at this graph say, "look, on 
July 25, we are in a wave 4."  The trick is to be able to look at 
July 25 on July 25 and know how to say we are in a wave 4.  I 
want to step through the five wave progression and point out the 
wave structure and characteristics as it develops in "real time". 
Waves can fool you and you have to wait until you can be 
reasonably sure where you are to place a high percentage trade.  
Keep in mind the completed chart above as we progress through 
each wave.

Wave Five image:




 


On 3/19/2002 the Dow completed a wave 5.  At this point, I will 
not go into the characteristics of the end of a 5 wave.  Suffice 
it to say that we suspect that the direction is about to change 
and we are watching to see if we are starting a 5-wave pattern 
down or just an A-B-C correction.  

Note that the oscillator peaked a few days earlier and is 
starting to show signs of losing momentum.  This is a Type 2 set 
up and a possible tradable moment.

Type 2 Set up (chart):




 


This is what the wave labeling would be like on 5/20/2002.  As 
the Dow continues to trade lower, look at the oscillator under 
wave C.  It has peaked and reversed, crossing the zero line.  
Currently the retracement from wave C to the current bar is at 
62%.  Although this is a perfect set up for a wave 1 - wave 2 
combo, we just do not know which way the Dow will move next.  An 
argument could be made either way and both would be correct 
without further information. 

Chart:






 


Well, as it turned out, the Dow did continue lower after a 
perfect 62% retracement.  As wave 3 progresses, see how the 
oscillator increases in force and depth.  Eventually, the rally 
(or anti-rally in this case as we are in bear market mode) loses 
steam and will retrace.

Chart:



 

On 6/25/2002, we can be confident that our wave count is correct 
based on several factors.  

1. Wave 1 segmented very nicely into a 5 wave basic pattern.  

2. The oscillator peaked at wave 1 and retraced as wave 2 started.  

3. Wave 2 segmented into a 3 wave correction pattern.  

4. Wave 2 retraced 62%. 

5. The oscillator retraced and peaked around the peak of wave 2.  

6. Wave 3 is starting to segment into a 5 wave basic pattern.  
(Remember that each 1, 3 and 5 wave will segment into a 5 wave 
basic pattern.)


Unfortunately, it is too late to make a trade.  We just do not 
know how much further wave 3 will go.  3 Waves will be anywhere 
from 1X the length (in price) of wave 1 to 2.62X the length.  75% 
of the time it will be somewhere between 1.6X and 2.62X.  At this 
point in time, the Dow is only 1.5X the length of wave 1.  The 
Dow could reverse into a wave 4 now or at 8079.  There is really 
no way to know.  If you are aggressive, you can take that chance.  
But, it is best to wait. 

Here is the chart as it looks on 7/8/2002:




 


At this point, it looks like wave 3 has peaked and we are 
entering wave 4.  The first clue is that the oscillator has 
peaked and is starting to retrace.  To be officially classified 
as a wave 4, the oscillator must retrace to the zero line (+90%, 
-38%). The second clue is that wave 3 has segmented into a nice 5 
wave basic pattern.

Now let's look at a chart at 7/29/2002:



 

For all the same reasons, we can point to 7/25/2002 as the end of 
the 3 wave.  I showed this to illustrate that we really can not 
know where the wave 3 will end and although it is painful to miss 
a 1000 point move in the Dow, until it is confirmed, we just want 
to wait until we know where that sweet spot is.


Chart:



 

A Type 1 trade occurs after the 4 wave is complete.  A wave 4 
will have three important characteristics.  First, it will 
retrace 38-62% of wave 3.  Second, the oscillator will retrace 
somewhere between +90 and -38% of the wave 3 peak.  Lastly, a 
wave 4 will segment into a nice A-B-C correction.

Look at what the Dow did.  

1. It retraced about 53%.  

2. The oscillator retraced 1.382% or -38.2%.  
It is a minus because, it crossed the zero line.  Although it is a 
little hard to read, the 90% retracement is the purple line just 
below the zero line.  The oscillator needs to fall within that range 
to satisfy an orderly profit taking requirement.

3. We see an almost perfect A-B-C correction.  

This is such a perfect set up, I get goose bumps just writing 
about it.  At the end of the day on 8/28/2002, we would buy puts.  
We would expect a move to at least the low of the wave 3, 
possibly lower.

Chart:



 


The Dow continued down until 9/30/2002.  At this point we reached 
several important milestones.  First, the wave 5 price broke 
through the wave 3 low. (Remember we are talking bear here.  It 
would be just the opposite for a bull move.) Second, the peak of 
the wave 5 oscillator is lower (smaller) than the wave 3.  This 
is critical.  3 Waves will ALWAYS have the tallest oscillator 
peak.  This is called oscillator divergence and is a vital clue 
to tell us when the 5 wave is actually complete.  Third, we can 
count a definitive 5 wave basic pattern within the 5 wave.  

Right here would be a good time to take some profits.  The Dow 
may continue lower, or it may reverse.  We just don't know.  
Let's not be greedy.  A good rule of thumb would be to sell half 
the positions and see what happens.

Chart:




 

Well as it turns out, the Dow did go lower, but then came roaring 
back.  Note the same characteristics listed above.  It is time to 
sell the remaining positions.

Each wave displays unique and identifiable characteristics.  
However, it is only the 4 wave and 5 wave that allow us to be 
sure of our count and place trades.  Aggressive traders may try 
to second guess the market by placing trades at less than optimal 
positions.  If so, I would highly recommend keeping a close watch 
on your stops.  It really isn't necessary though.  There are over 
2000 optionable stocks.  At any time, we can find some stock that 
is at the wave 4 sweet spot.  Stocks are like buses.  If you miss 
the first one, another one will come along.  



**************
FUTURES CORNER
**************

Harmonic Trading With Gartley Patterns

Options traders have their various butterflies, and as it 
happens, so does the technical charting world.   Known as 
Harmonic Price Patterns, these are different from basic trading 
patterns like wedges and flags.  There is a visual pattern, but 
there is also some math involved.  Fibonacci ratios are applied 
to the shape in order to verify its authenticy.   During the 
1930's, this technique was developed by H.M. Gartley, and has 
recently been somewhat popularized by Larry Pesavento and Scott 
Carney.  While there are several different patterns, today we 
will discuss the Bearish and Bullish Gartley Pattern.

These patterns can be quite powerful, and often give you 
straightforward entry and exit points when the patterns begin to 
form..  We are looking to apply specific fibonacci  retracements 
and extensions to a price structure.  At first it may seem like a 
dark magic, needful of long robes and strange shoes to practice, 
but if you've ever seen large swings in price and wished you 
could put a 'face' on it, then you may be surprised at what 
appears from the price swings.  It's really not very difficult, 
it just requires a few specific steps.  Since this is something 
that can't really be discussed in the abstract, let's just jump 
in and see how to spot and build one of these patterns.

Build a Bullish Gartley:

We'll look at a recent Bullish Gartley on the Dow.  The first 
step is to spot an impulsive move upwards in a given stock or 
index.  Prefereably, this move should be from a true move down, 
rather than from a rangebound market, but it is not necessary.  
We label the bottom of the move as 'X' and the top of the move as 
'A'.  Once this impulsive move up has a pullback, and then starts 
to rise again, we label that low 'B'.  Here is what you initially 
see:

Chart of the Dow Industrials:




Then put in X to A.
Chart of the Industrials (#2)




The pullback is labeled 'B'.  The Gartley pattern is strengthened 
if the move from A to B is retraced at the 50% fibonacci level.  
Here, the move was not a perfect .500 retrace of the move from X 
to A but it was close enough to label it as such.

Chart of the Industrials (#3)




Now, as price rises off of B we look to build leg 'C'. In order 
to build  a valid Leg C it will need to retrace the fall from A 
to B with one of the key fibonacci levels: (.382, .500, .618, or 
.786).  In this case, C was equal to .786 of the move from A to 
B.  

Chart of the Industrials (#4)




And the pullback of C is a perfect .786 retrace.

Chart of the Industrials (#5)




Perhaps the first thing you are thinking is, why is this a 
Bullish pattern?  Looks like the retrace of C might give you a 
good short entry once C starts to breakdown.  I, in fact, use it 
this way.  When you see a 50% retrace of an impulse move which 
then retraces at .618 or .786 and fails, and you have a fairly 
good probability of a short.  It is not how this pattern is meant 
to be viewed or traded, but this in itself is a useful setup.

To continue, you now assume that prices are going to trade below 
B, and you are going to calculate the range of where the decline 
may stop, which we will label 'D'.  Don't let the following scare 
you, It's just a few simple math calculations.

Range for possible lows is calculated by multiplying the 
difference from B to C  by key Fibonacci Derived Ratios numbers 
[1.27, 1.41, 1.618, 1.786] and [2.0, 2.24, 2.618, 3.14, 3.618].

Range = (C-B) *  derived_ratio(1...n)

and then subract Range from the C high.  So first you calculate 
the range of potential lows like this:
C = 8869
B = 8242
C-B = 630

C - (630* 1.27) = 8069
C - (630* 1.414) = 7979 
.
.
C – (630* 2.0) = 7609
C – (630* 2.27) = 7438

Once you have these numbers, you look at fibonacci retrace 
numbers for the run from X to A.  The .786 retrace of the run 
from X to A happens to be around 7593, which is near enough to 
the 2.0 extension calculated above, so now we can finish drawing 
the Bullish Gartley: 

Chart of the Industrials (#6)




Finished Bullish Gartley:
Chart of the Industrials (#7)




Not too bad, with the projected value being off by 19 points.  At 
this point we would consider the Gartley complete.  The reason 
this is considered a Bullish Gartley is that now one can consider 
going long, and sure enough price bounced up 448 points to 8076, 
which itself is almost .382 retrace of the move from C to D.

A bounce of over 400 points is not to be sneezed at, however, for 
this particular example, we can see that nothing is perfect, 
because price turned back over and made new lows to 7416.  If you 
look at our calculations above, you can see that the calculated 
extension of 2.27 of BC was 7438, again off only by 22 points.   
Updated Gartley:

Chart of the Industrials (#8)




I hope I haven't lost you.  As you can see, building these is 
actually fairly simple, all you need to do is snap fibonacci 
levels onto price, and do a few calculations.   I can see virtual 
brows furrowed out there in the readers, and believe me, I too 
was skeptical when I first came upon these.  I ignored them for 
quite some time, but I'm slowly becoming a true believer.   Let's 
look at the NDX during this same period.

Chart of the Industrials (#9)




Here is one of the Dollar from last July.
Chart of the Dollar:




These patterns work on everything from Monthly charts to 5 minute 
charts.  You can play the short side off the C retrace, or even 
on a break of B for a shorter term signal.  Sixty minute charts 
can be used for shorter swing trades.  

The Bearish Gartley is just the inverse of the Bullish Gartley 
discussed above.  The shape is just inverted, the calculations 
are the same.  Here is a 15 minute chart of the ES from 2/7/03 to 
2/11/03.

15-minute chart of the ES:




You can see how XA is from a high to a low, the reverse from the 
Bullish Gartley, and that there is a nearly perfect retrace of 
.618 to form B, then a nearly perfect .618 retrace to form C.  
The calculation to form D was (C + ((B-C) * 1.618)) = 842.15, 
which was nearly perfect for the high which peaked at 842.75.  
The only thing which did not line up so well, was the actual 
retrace of XA which was a full two points over .786, but it does 
show us how we cannot look for absolute perfection.  Overthrows 
and underthrows are common on any chart pattern one follows, and 
the Gartleys are no exception.

This is merely the tip of the iceburg when discussing Harmonic 
Trading patterns.   Other patterns include the Butterfly, Crab 
and Bat, as well as the Three Drives pattern.  There are multiple 
patterns which build on top of, or next to each other and form 
strong turning points for both bulls and bears.  Look through 
your charts and see if you can spot any Bullish or Bearish 
Gartleys, draw a few lines and Fibonacci levels, and see if they 
work out.  You may be surprised at what you find.

Vlada Raicevic


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The Option Investor Newsletter                   Sunday 03-23-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls:            Covered-Call Adjustments
Naked Puts:               Naked-Put Entry Strategies
Spreads/Straddles/Combos: Stocks Soar Amid Rockets' Red Glare

Updated In The Site Tonight:
Watch List:   Breakouts Everwhere.
Market Posture: Resistance Falls


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offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or 
stock
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.

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*************
COVERED CALLS
*************

Trading 101: Covered-Call Adjustments
By Mark Wnetrzak

The bearish market activity earlier this month inspired one of
our readers to ask about a speculative strategy for adjusting
covered-call positions.


Attn: Covered-calls editor
Subject: Covering a losing position

Hi Mark,

I have been trading stocks for a few years and writing "covered"
calls is one of the foundation strategies in my long-term stock
portfolio.  I also buy and sell calls and puts and roll into
spreads when necessary for losing plays.  With that in mind, I
had an idea about a fairly aggressive method to bail out of a
covered-call that has gone bad.  I plan to sell the stock when
it falls below the sold strike price, but leave the short call
open.  I would buy the stock back if and when it moves above the
strike price?  What do you think about this approach?  Would it
work in the current bearish conditions or is the volatility too
great to risk the potential upside loss?

Thanks for your thoughts!

TR


Hello TR,

There are a few things to consider.  First, getting approval to
write cash-secured (naked) calls usually requires a substantial
account size ($100,000 at Preferred) and the highest experience
level.  Many brokerages, E-trade for example, do not even offer
the option to sell naked calls because of the high risk involved.
After you sell the stock and the calls become uncovered (naked),
your risk becomes unlimited as the stock can climb to infinity.

Obviously, the primary purpose of an exit or adjustment strategy
is to reduce or limit risk, not increase it.  In most cases, when
you become bearish on an issue, it is better to simply close the
play and devote your capital to more deserving positions.  Also,
if the stock price declines to the cost basis and the calls are
"out-of-the-money," they will be relatively inexpensive to buy
back, thus allowing you to sell the stock without any additional
obligation.  Another thing to consider is that the cost basis in
a conservative covered-call is generally within or just below a
technical support area (in a perfect world, this is an area where
you would expect the stock to stop falling and resume its bullish
trend), there is a high probability of being whip-sawed, possibly
more than once.  Of course, there are other techniques to adjust
a losing play or take protective action in a suspect issue, such
as buying puts.  This method can protect against further downside
movement in the stock price and it works well in most situations,
depending on how badly you want to hold on to the issue and how
much insurance (the cost of the puts) you're willing to pay for.
Rolling down (buying back the sold calls and selling lower strike
calls) and/or forward (moving to a future expiration period) can
lower your basis in an issue for the current correction but could
also lock-in a loss if the issue rebounds before the option expires.

Rolling down generally reduces the maximum profit potential of the
covered write, but this is not a crucial drawback when obtaining
additional downside protection is the more pressing concern.  The
use of a distant expiration month (including LEAPS) should also be
considered when planning a roll-out strategy and some investors may
want to adjust only a portion of the covered call position, to allow
for increased profit potential in future trades.  The problem, of
course, is that by using a distant expiration option, an investor
reduces his profit potential for a longer period of time.  Again,
that could be of secondary concern, depending on the situation, and
a combination of the two time-frames; rolling down one-half of the
position near term and the other half to a longer-term option will
allow an investor to obtain maximum protection on at least part of
his investment and still retain reasonable upside potential.

In all of these situations, one generally has a bullish long-term
outlook for the underlying issue and keep in mind, these adjustment
strategies require choices that only you can make, depending on what
you believe is best for your investment portfolio.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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   12.70  MAR 12.50  1.80    1.23*  11.9%
CBST     7.57    8.11  MAR  7.50  0.75    0.68*  10.8%
IMCL    13.33   16.22  MAR 12.50  1.50    0.67*   8.2%
MSTR    21.28   25.45  MAR 20.00  2.60    1.32*   7.7%
IMCL    13.72   16.22  MAR 12.50  2.00    0.78*   7.2%
FEIC    15.70   17.16  MAR 15.00  1.40    0.70*   7.1%
CD      12.51   13.95  MAR 12.50  0.40    0.39*   7.0%
JDSU     2.68    3.09  MAR  2.50  0.40    0.22*   7.0%
GLW      5.18    6.12  MAR  5.00  0.55    0.37*   6.9%
SEPR    11.17   14.65  MAR 10.00  1.90    0.73*   6.8%
RSAS     5.90    8.02  MAR  5.00  1.25    0.35*   6.5%
CMCSA   28.14   30.80  MAR 27.50  1.40    0.76*   6.2%
ASKJ     5.86    6.70  MAR  5.00  1.25    0.39*   6.1%
MCDT     8.42    9.37  MAR  7.50  1.30    0.38*   5.8%
MRVL    20.60   20.21  MAR 20.00  1.35    0.75*   5.6%
OVTI    19.00   23.45  MAR 17.50  2.15    0.65*   5.6%
ANPI    20.10   22.33  MAR 20.00  0.60    0.50*   5.6% **
OVTI    16.83   23.45  MAR 15.00  2.55    0.72*   5.5%
RMBS    14.76   13.90  MAR 12.50  2.85    0.59*   5.4%
MVL     12.70   13.40  MAR 12.50  0.50    0.30*   5.3%
NFLX    14.24   18.55  MAR 12.50  2.30    0.56*   4.1%
DISH    28.75   30.40  MAR 27.50  1.75    0.50*   4.0%

MANU     2.56    2.77  APR  2.50  0.35    0.29*   9.5%
OAKT     3.23    4.01  APR  2.50  0.90    0.17*   5.3%
EP       5.20    6.13  APR  5.00  0.70    0.50*   9.7%
SONE     5.20    5.29  APR  5.00  0.55    0.35*   6.5%
CPN      2.93    3.25  APR  2.50  0.60    0.17*   6.3%
VECO    15.91   17.40  APR 15.00  1.70    0.79*   4.8%
PEGS    10.90   11.10  APR 10.00  1.40    0.50*   4.6%
SNDK    19.11   20.47  APR 17.50  2.40    0.79*   4.1%
ALTR    13.84   15.20  APR 12.50  1.80    0.46*   3.3%

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

Comments:

The major averages continue to explode higher as the bulls run
wild down Wall Street.  Too much bullish exuberance can become
a call-writer's bane: the pain of capped profits can cause a
lapse in discipline and a move towards "aggressive" positions.
Generally, seeking higher rewards requires higher risk.  As
for the model covered-call portfolio, even a couple of the
previously closed March positions returned to profitability
at expiration.  It happens!  As for April, even Manugistics
(NASDAQ:MANU) has moved out of danger, at least for the time
being.  In any case, let's hope they get the job done in IRAQ
and get everyone home safe and soon!

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


 
NEW CANDIDATES
*********

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    8.30  APR  7.50   NAQ DU  1.30 1441   7.00   28   7.8%
DAL    11.25  APR 10.00   DAL DB  1.90 10406  9.35   28   7.6%
RSAS    8.02  APR  7.50   QSD DU  0.95 862    7.07   28   6.6%
DCLK    7.69  APR  7.50   QWE DU  0.55 682    7.14   28   5.5%
IDCC   19.99  APR 17.50   DAQ DW  3.30 346   16.69   28   5.3%
ILXO    8.40  APR  7.50   IUE DU  1.20 70     7.20   28   4.5%
BCGI   16.14  APR 15.00   QGB DC  1.70 150   14.44   28   4.2%

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).

*****
NWAC - Northwest  $8.30  *** Bottom Fishing Airlines: Part I ***

Northwest Airlines (NASDAQ:NWAC) is engaged in the business of
transporting passengers and cargo.  Northwest's business focuses
on the development of a global airline network through its
strategic assets, including domestic hubs in Detroit, Michigan;
Minneapolis/St. Paul, Minnesota, and Memphis, Tennessee; an
extensive Pacific route system with a hub in Tokyo, Japan; a
trans-Atlantic alliance with KLM Royal Dutch Airlines, which
operates through a hub in Amsterdam, the Netherlands, and a 
global alliance with Continental Airlines, Inc.  Northwest
has been forging a Stage I base for several months and it
appears to have made a successful test of the October low. 
A speculative position that offers a favorable reward at the
risk of owning the stock near recent technical support.

APR 7.50 NAQ DU LB=1.30 OI=1441 CB=7.00 DE=28 TY=7.8%


*****
DAL - Delta  $11.25  *** Bottom Fishing Airlines: Part II ***

Delta Air Lines (NYSE:DAL) is a major air carrier that provides
scheduled air transportation for passengers and freight throughout
the U.S. and around the world.  As of February 1, 2002, Delta, 
including its subsidiaries Atlantic Southeast Airlines and Comair,
served 208 domestic cities in 45 states, the District of Columbia,
Puerto Rico and the U.S. Virgin Islands, as well as 46 cities in
31 countries in Europe, Latin America, the Caribbean, Canada and 
Asia.  For the year ended December 31, 2001, passenger revenues
accounted for 93% of Delta's consolidated operating revenues.
Cargo revenues and other sources accounted for 7% of Delta's
consolidated operating revenues for the same period.  Delta
has been forging a Stage I base for several months and it
appears to have made a successful test of the October low. 
A speculative position that offers a favorable reward at the
risk of owning the stock near recent technical support.

APR 10.00 DAL DB LB=1.90 OI=10406 CB=9.35 DE=28 TY=7.6%


*****
RSAS - RSA Security  $8.02  *** Electronic Security ***

RSA Security (NASDAQ:RSAS) is a provider of electronic security
(e-security) solutions that are designed to help organizations
ensure the authenticity of the people, devices and transactions
involved in e-business.  The company's core competencies are in
two-factor user authentication solutions, Web access management
software, digital certificate management solutions and encryption
software.  Through its RSA SecurID, RSA ClearTrust, RSA Keon and
RSA BSAFE product lines, the company directly addresses critical
e-security requirements for e-business.  Shares of RSAS slumped
in late January after the company announced losses for the fourth
quarter and all of 2002.  However, the E-security company also
posted a sequential growth in revenue and a favorable order rate
as bookings exceeded revenue by approximately 10% for the fourth
quarter.  The current technical outlook is recovering and our
position offers excellent reward potential at the risk of owning
this industry-leading issue at a favorable cost basis.

APR 7.50 QSD DU LB=0.95 OI=862 CB=7.07 DE=28 TY=6.6%


*****
DCLK - DoubleClick  $7.69  *** On The Move! ***

DoubleClick (NASDAQ:DCLK) is a provider of products and services
that enable direct marketers, publishers, advertisers and agencies
to market to consumers in the digital world.  DCLK's products and
services help its customers optimize their advertising and 
marketing campaigns on the Internet and through other media. 
The company offers a broad range of technology, media, data and
research products and services to its customers to allow them to
address all facets of the digital marketing process, from pre-
campaign planning and testing to execution, measurement and 
campaign refinements.  DoubleClick operates three business units:
TechSolutions, Media, and Data; all of which work with thousands
of publishers, advertisers and direct marketers every day.  DCLK
has been stuck in a trading range since October and the recent
rally on heavy volume has pierced near-term resistance.  Traders
can speculate on the near-term performance of the issue with this
conservative position.

APR 7.50 QWE DU LB=0.55 OI=682 CB=7.14 DE=28 TY=5.5%


*****
IDCC - InterDigital  $19.99  *** Patent Victory Celebration ***

InterDigital Communications (NASDAQ:IDCC) specializes in the
architecture, design and delivery of wireless technology and
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library of
digital wireless systems experience and know-how, and holds an
extensive worldwide portfolio of patents in the wireless systems
field.  InterDigital markets its technologies and solutions 
primarily to wireless communications equipment producers and 
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access
patents to equipment manufacturers worldwide.  On Monday, shares
of InterDigital soared after the company said it reached a patent
and royalty settlement with Ericsson.  The agreement calls for
Ericsson and Sony Ericsson Mobile Communications AB to pay about
$34 million through the end of 2002.  Sony Ericsson will pay a
royalty on each licensed product sold through 2006.  The recent
price history of IDCC reveals one of the better charts we've seen
and the jump to a 2-year high on extremely heavy volume suggests
further upside potential.

APR 17.50 DAQ DW LB=3.30 OI=346 CB=16.69 DE=28 TY=5.3%


*****
ILXO - ILEX Oncology  $8.40  *** Rally Mode! ***

ILEX Oncology (NASDAQ:ILXO) is a product-driven oncology-focused
pharmaceutical company that develops and commercializes a portfolio
of novel treatments for both early and late stage cancers.  The
company is leveraging its core competencies in clinical drug
development to identify, develop and commercialize its proprietary
product candidates.  The company's lead product, Campath, has been
approved in the United States and Europe for treating patients with
refractory chronic lymphocytic leukemia, and is distributed by
Schering AG and its U.S. subsidiary, Berlex Laboratories, Inc. In
addition, the ILEX has five oncology product candidates in clinical
trials and three others that it is considering for further clinical
development, as well as several active preclinical programs.  ILEX
was upgraded on Tuesday by Lehman Brothers to "overweight" and the
stock promptly jumped out of its recent consolidation phase.  The 
move above the 150-dma on heavy volume bodes well for the future
and this position offers a method to participate in the movement
of the issue with relatively low risk.

APR 7.50 IUE DU LB=1.20 OI=70 CB=7.20 DE=28 TY=4.5%


*****
BCGI - Boston Comm.  $16.14  *** Own This One! ***

Boston Communications Group (NASDAQ:BCGI) provides real-time 
subscriber management services to the wireless industry.  The
company's real-time subscriber management products include the
following: proprietary software applications, which include
extensive software suite to manage subscribers; hosting 
environment, which is a real-time, large scale, micro-payment
transaction processing platform; Intelligent Voice Services
Network, which includes edge-of-network voice services and
Signaling System 7 call control; and Distribution Technology
Partnership Program, which is a national payment network for
cash collection.  Boston Communications exceeded earnings
estimates in early February and said "We have ended 2002 with
the momentum necessary to deliver strong growth and earnings
in 2003."  We simply favor the bullish breakout above near-term
resistance (on heavy volume) and investors who want a long-term
position in an industry-leading company can use this play to
establish a low risk cost basis in the issue.

APR 15.00 QGB DC LB=1.70 OI=150 CB=14.44 DE=28 TY=4.2%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

ADLR   12.70  APR 10.00   UAH DB  3.50 306    9.20   28   9.4%
NFLX   18.55  APR 17.50   QNQ DW  2.15 213   16.40   28   7.3%
EP      6.13  APR  5.00    EP DA  1.40 28596  4.73   28   6.2%
MSCC   10.57  APR 10.00   QMS DB  1.10 168    9.47   28   6.1%
OVTI   23.45  APR 20.00   UCM DD  4.50 493   18.95   28   6.0%
GT      5.35  APR  5.00    GT DA  0.60 5110   4.75   28   5.7%
ASML    8.35  APR  7.50   MFQ DU  1.20 1275   7.15   28   5.3%
ATYT    5.38  APR  5.00   QFY DA  0.60 339    4.78   28   5.0%
ALXN   13.42  APR 12.50   XQN DV  1.45 97    11.97   28   4.8%
SONE    5.29  APR  5.00   FBZ DA  0.50 597    4.79   28   4.8%
SMTC   16.61  APR 15.00   QTU DC  2.20 990   14.41   28   4.4%
JCOM   27.54  APR 25.00   JQF DE  3.50 142   24.04   28   4.3%
ADIC    7.97  APR  7.50   QXG DU  0.75 572    7.22   28   4.2%



*****************
NAKED PUT SECTION
*****************

Options 101: Naked-Put Entry Strategies
By Ray Cummins

With the recent bullish activity in the stock market, selling puts
in once again a popular strategy and this week's guest writer has
some helpful hints for using this technique to earn consistent
profits.

On any day when I meet someone new and tell him or her I am an 
Investment Broker, they always ask me when the market is going to
get better.  For the most part, I explain the current environment
and realize, as their eyes glaze over, that they don’t understand
or believe a word I'm saying.  The average person out there doesn’t
believe that there are securities on the rise and methods to make
money.  Because many don’t understand the strategies, they think
I am "full of it" and don’t believe that making money is possible.
The investing public doesn’t realize what many of you do; that
there are various investment strategies to take full advantage of
markets that are "stuck in the mud" and there are many stocks or
indexes that defy the market’s drowning effect.  Why am I talking
about selling "naked" Puts, a traditionally bullish strategy?
Because there are still some up-trending and/or consolidating
stocks and indexes out there.  I am also determined to educate
investors so they can earn consistent profits in any environment.

I prefer to sell Puts "out-of-the-money" as a precautionary manner.
I usually sell the strike price at or below a support level.  Some
may choose to sell in-the-money in order to gain the "delta" effect.
Before you do this, always calculate the margin requirement versus
the cash requirement of buying the stock or in-the-money Calls.
I sell Puts with the preconceived notion that I want to actually
own the stock but just because you have a different reason for
selling options, don’t stop reading.  I plan on covering entry
strategies that will help no matter what your trading preference.

In keeping with my KISS (Keep it Simple Silly) approach, I will give
just a few indicators to follow.  Everyone has different parameters
that they use and someone out there might even have "tweaked" the
numbers better than me.  I prefer to use Bollinger Bands with 20
periods and a standard deviation of 2.  Many charting programs use
this as the default.  I also use Fast Stochastics with an 8:3:3 for
the basic (Period:SK;SD) settings.  I find these two indicators work
well together and confirm tops and bottoms more frequently than other
indicators.  Many of the other indicators are hard to read and can be
interpreted to support one’s emotional perception instead of the
actual reading.  For oversold conditions, I look for the Stochastics
to break below 20 and the stock price must also drop to the bottom
Bollinger envelope line (preferred) or the 20-day moving average and
bounce.  Both indicators must hold up.  A near-term bottom must be
confirmed by the security’s price moving up from the lower Bollinger
Band while the Stochastics line moves back up through the 20 level.
Some up-trending security’s Stochastics lines don’t always drop down
to 20 or lower.  Look for the average low.  This is also true with
the Bollinger Bands.

When the above indicators reach "oversold" conditions, I look for
upward confirmation and then sell the Puts.  As I stated before,
because I believe the security is oversold, I may choose to sell in-,
at-, or out-of-the-money Puts.  I can always "buy-to-close" if I am
right and lock-in the profit (preferred).  The latter technique is a
good practice in an uncertain market.  It frees up cash, which may be
applied to the same security, if it drops down again and there is
still sufficient premium to warrant a new position.  In some cases,
it is better to look for a completely different security.

The important thing to remember when selling naked Puts is finding a
security that is either consolidating or up-trending over the long
term.  Exit strategies are also important.  If the stock moves up and
then gives a "head fake" and goes down past the recent low, close the
position!  Another exit strategy on out-of-the-money Puts is to close
the position if it doubles in price.  This means taking a loss, but
it usually preserves capital.  If the Put is in-the-money, then the
premium received is usually larger than the out-of-the-money premium
and a different approach is needed.  The stop-loss amount depends on
one’s personal risk tolerance and investment goals.  For example, one
could place a percentage (buy-to-close) stop on the Put at 10%, 20% or
30% etc.  To illustrate, let’s assume you write an in-the-money Put
for $15 per contract and place a 25% stop-loss on it.  You would close
out the position if the Offer (Ask) hit $18.75.  As stated before, if
the stock moves up, the option may move down in price enough to close
it out at a decent profit.  The key is to always protect your profits
and limit your losses...

Happy Trading!

Robert J. Ogilvie, ROP

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

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   25.45  MAR 17.50  0.80    0.80*  12.0%   4.2%
RMBS    15.18   13.90  MAR 12.50  0.25    0.25*   9.9%   3.0%
MSTR    22.60   25.45  MAR 20.00  0.30    0.30*   9.7%   3.3%
CGNX    22.62   24.10  MAR 17.50  0.55    0.55*   9.4%   2.8%
MSTR    20.69   25.45  MAR 17.50  0.75    0.75*   9.3%   3.2%
CELG    24.00   26.66  MAR 22.50  0.35    0.35*   9.0%   3.4%
SRNA    15.07   16.35  MAR 12.50  0.30    0.30*   8.7%   2.7%
RMBS    13.69   13.90  MAR 10.00  0.30    0.30*   8.6%   2.7%
OVTI    16.55   23.45  MAR 12.50  0.35    0.35*   8.3%   2.5%
AFFX    26.92   27.82  MAR 25.00  0.35    0.35*   8.3%   3.1%
IART    19.39   23.56  MAR 17.50  0.35    0.35*   8.2%   3.0%
XLNX    23.04   26.73  MAR 20.00  0.50    0.50*   8.1%   2.8%
MDCO    16.92   19.45  MAR 15.00  0.60    0.60*   8.0%   3.0%
LRCX    12.56   13.56  MAR 10.00  0.25    0.25*   7.9%   2.2%
ANSS    22.20   24.11  MAR 20.00  0.80    0.80*   7.7%   3.0%
XLNX    22.90   26.73  MAR 20.00  0.35    0.35*   7.7%   2.6%
IRF     20.39   23.26  MAR 17.50  0.50    0.50*   7.5%   2.6%
MACR    15.22   12.99  MAR 12.50  0.25    0.25*   7.5%   2.2%
OVTI    16.83   23.45  MAR 12.50  0.25    0.25*   7.5%   2.2%
DIGE    15.54   15.54  MAR 12.50  0.30    0.30*   7.5%   2.1%
GILD    36.80   41.53  MAR 35.00  0.45    0.45*   7.3%   2.8%
CGNX    21.84   24.10  MAR 20.00  0.75    0.75*   7.1%   2.8%
ERES    22.46   25.40  MAR 17.50  0.30    0.30*   6.8%   1.9%
MDCO    18.94   19.45  MAR 17.50  0.30    0.30*   6.7%   2.5%
HHL     11.56   10.65  MAR 10.00  0.20    0.20*   6.7%   2.2%
SLAB    27.12   28.05  MAR 22.50  0.30    0.30*   6.7%   2.0%
CKFR    20.66   23.26  MAR 17.50  0.30    0.30*   6.0%   1.9%
EPIQ    19.10   18.88  MAR 17.50  0.25    0.25*   5.8%   2.1%
OTEX    27.14   28.21  MAR 25.00  0.75    0.75*   5.7%   2.2%
ADBE    27.43   32.07  MAR 22.50  0.40    0.40*   5.4%   1.6%
FAF     23.10   23.49  MAR 22.50  0.30    0.30*   4.9%   2.0%
AVCT    27.82   24.09  MAR 25.00  0.35   -0.56    0.0%   0.0%

IMCL    15.70   16.22  APR 12.50  0.50    0.50*   9.9%   3.0%
MOGN    10.96   12.36  APR 10.00  0.50    0.50*   9.2%   3.8%
XLNX    25.38   26.73  APR 22.50  0.75    0.75*   8.1%   3.0%
AMZN    24.71   27.93  APR 22.50  0.65    0.65*   6.8%   2.6%
MATK    25.32   27.91  APR 22.50  0.55    0.55*   6.1%   2.2%
CYBX    19.15   20.00  APR 17.50  0.45    0.45*   6.1%   2.3%
OVTI    21.18   23.45  APR 15.00  0.30    0.30*   5.7%   1.8%
LLTC    32.58   34.91  APR 27.50  0.55    0.55*   5.6%   1.8%
EXPE    37.14   54.09  APR 30.00  0.50    0.50*   5.3%   1.5%
PSUN    19.73   20.90  APR 17.50  0.35    0.35*   5.1%   1.8%
MEDI    30.68   33.44  APR 27.50  0.65    0.65*   4.8%   1.8%

*  Stock price is above the sold striking price.

Comments:

The onset of war, however appalling it might be, brought the
market out of its recent doldrums and the resultant rally was
the best bullish activity seen in months.  The optimism among
investors turned to ebullience on Friday afternoon and stocks
soared amid the tremendous upside bias.  Our portfolio was a
beneficiary of the bullish trend with all of the March plays
finishing positive save one; Avocent Corporation (NASDAQ:AVCT).
In addition, there are no issues on the "early exit" watch-list.

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


WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

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.


MARGIN REQUIREMENTS

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:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

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.


NEW CANDIDATES
*****

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

CREE  20.54  APR 17.50 CVO PW 0.50 303   17.00  28   9.6%   3.2% 
IRF   23.26  APR 20.00 IRF PD 0.40 152   19.60  28   6.7%   2.2% 
NVLS  30.87  APR 25.00 NLQ PE 0.40 7596  24.60  28   6.3%   1.8% 
AMZN  27.93  APR 22.50 ZQN PS 0.35 7426  22.15  28   6.2%   1.7% 
CVC   20.30  APR 17.50 CVC PW 0.30 3499  17.20  28   5.8%   1.9% 
CMCSA 30.80  APR 27.50 CCQ PY 0.50 3587  27.00  28   5.7%   2.0% 
YHOO  23.97  APR 20.00 YHZ PD 0.30 21119 19.70  28   5.5%   1.7% 
JCOM  27.54  APR 22.50 JQF PX 0.30 57    22.20  28   5.2%   1.5%

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).

*****
CREE - Cree Incorporated  $20.54  *** No Dip In The Chips! ***

Cree (NASDAQ:CREE) is engaged in the development and manufacture
of compound semiconductor materials and electronic devices made
from silicon carbide (SiC), and a developer and manufacturer of
optoelectronic and electronic devices made from gallium nitride
and related materials.  The company also produces radio frequency
power transistor components and modules for wireless infrastructure
applications using silicon-based bipolar and laterally diffused
metal oxide semiconductor process technologies.  Cree operates its
business in two segments, the Cree segment, which consists of its
SiC-based products and research contracts, and the Cree Microwave
segment, which consists of RF transistors and RF transistor modules
based on a silicon platform.  Chip-equipment stocks are in "rally
mode" and the volume-supported ascent in CREE's share value has
helped the issue emerge near the top of a number of our technical
analysis scans.  Traders who agree with a bullish outlook for the
stock can profit form further upside activity in the issue with
this position.

APR 17.50 PUT CVO-PW LB=0.50 OI=303 CB=17.00 DE=28 MY=9.6% SY=3.2%


*****
IRF - International Rectifier  $23.26  *** New Trading Range? ***

International Rectifier (NYSE:IRF) is a designer, manufacturer
and marketer of power management products and a global supplier
of a unique type of power semiconductor, MOSFET (a metal oxide
semiconductor field effect transistor).  Power semiconductors
process electricity into a more usable form for electrical
products.  The company's products are divided among three broad
product categories: analog integrated circuits and advanced
circuit devices, power systems and power components.  Its many
products are used in a range of end markets, including consumer
electronics, information technology, automotive, aerospace and
defense, communications and industrial systems.  Despite the
recent bearish trend in the stock market, shares of IRF have
remained in a relatively stable trading range from $19 to $22
since late last year.  Now the issue is testing the upper limits
of its lateral price pattern and the current technical indications
suggest further upside potential in the near-term.
  
APR 20.00 PUT IRF-PD LB=0.40 OI=152 CB=19.60 DE=28 MY=6.7% SY=2.2%


*****
NVLS - Novellus Systems  $30.87  *** Premium Selling! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.  Novellus is one of the more volatile issues in the chip
equipment segment, thus its options premiums are always robust.
This position offers excellent reward potential at the risk of
owning an industry-leading issue near a cost basis of $25.

APR 25.00 PUT NLQ-PE LB=0.40 OI=7596 CB=24.60 DE=28 MY=6.3% SY=1.8%


*****
AMZN - Amazon.com  $27.93  *** Another Multi-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 continued to rally this week after an impressive technical
break-out amid anticipation of the company's presentation at the
Merrill Lynch Retailing Leaders Conference in New York.  Traders
who foresee further upside activity for the issue should consider
this position.

APR 22.50 PUT ZQN-PS LB=0.35 OI=7426 CB=22.15 DE=28 MY=6.2% SY=1.7%


*****
CVC - Cablevision  $20.30  *** Media Sector Rally! ***

Cablevision Systems (NYSE:CVC) is a cable operator in the U.S.
through its wholly owned subsidiary, CSC Holdings.  CVC also 
has investments in cable programming networks, entertainment
businesses and telecommunications companies.  Through Rainbow
Media Holdings, the company owns interests in and manages 
numerous national and regional programming networks, the 
Madison Square Garden sports and entertainment business, and
cable television advertising sales companies.  With Cablevision
Lightpath, the company provides switched telephone services and
high-speed Internet access to the business market.  The company
also owns or has interests in several complementary businesses 
and companies that include The WIZ, Clearview Cinemas, and 
Northcoast Communications.  After a long consolidation in the
$17 range, CVC shares are once again in an up-trend and the
bullish activity in the media-cable TV sector should help the
issue move higher in the coming weeks.

APR 17.50 PUT CVC-PW LB=0.30 OI=3499 CB=17.20 DE=28 MY=5.8% SY=1.9%


*****
CMCSA - Comcast  $30.80  *** Rally Mode! ***

Comcast (NASDAQ:CMCSA) is a cable operator involved in three
principal lines of business: cable, through the development,
management and operation of broadband communications networks;
commerce, through QVC, its electronic retailing subsidiary; and
content, through its consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports
Southeast, E! Entertainment Television, The Golf Channel, Outdoor
Life Network, G4 Media, and through other programming investments.
The company has deployed digital cable applications and high-speed
Internet service to most of its cable communications systems.
The media-cable TV sector is "hot" and Comcast has been one of the
best performing issues in the group over the past week.  Investors
who wouldn't mind owning this bullish issue near a basis of $27
should consider this position.

APR 27.50 PUT CCQ-PY LB=0.50 OI=3587 CB=27.00 DE=28 MY=5.7% SY=2.0%


*****
YHOO - Yahoo!  $23.97  *** New 2-Year High! ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.  Shares of YHOO
are "on the move" with a recent surge in buying interest on heavy
volume and the technical support area near the cost basis of this
position offers a reasonable downside margin for any near-term
bearish activity.

APR 20.00 PUT YHZ-PD LB=0.30 OI=21119 CB=19.70 DE=28 MY=5.5% SY=1.7%


*****
JCOM - j2 Global Communications  $27.54  *** All-Time Highs! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world.  The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services.  j2 Global
markets its services principally under the brand names eFax and
jConnect.  The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service.  In February, j2 Global set new
annual and quarterly records for revenue, net income and earnings
per share as it announced its 23rd consecutive quarter of growth.
For the full year 2002, revenue increased 45% to $48.2 million
compared to $33.3 million in fiscal 2001.  Investors were elated
with the news and the buying activity has pushed the issue to a
test of its all-time highs near $28.  Traders who believe the
rally will continue can profit from that outcome with this play.

APR 22.50 PUT JQF-PX LB=0.30 OI=57 CB=22.20 DE=28 MY=5.2% SY=1.5%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

NFLX  18.55  APR 15.00 QNQ PC 0.45 103   14.55  28  11.3%   3.4% 
SRNA  16.35  APR 15.00 NHU PC 0.55 0     14.45  28  10.4%   4.1% 
MSTR  25.45  APR 22.50 EOU PX 0.70 418   21.80  28   9.6%   3.5% 
NAV   27.51  APR 25.00 NAV PE 0.80 2208  24.20  28   9.4%   3.6% 
IMCL  16.22  APR 12.50 QCI PV 0.30 408   12.20  28   9.2%   2.7% 
OVTI  23.45  APR 17.50 UCM PW 0.40 418   17.10  28   8.5%   2.5% 
PHG   18.68  APR 15.00 PHG PC 0.30 1526  14.70  28   8.0%   2.2% 
CKFR  23.26  APR 20.00 FCQ PD 0.45 62    19.55  28   7.5%   2.5% 
RECN  21.40  APR 20.00 QRG PD 0.45 33    19.55  28   6.4%   2.5%



************************
SPREADS/STRADDLES/COMBOS
************************


Stocks Soar Amid Rockets' Red Glare
By Ray Cummins

The major equity averages surged higher Friday as optimism for a
quick and decisive victory in Iraq boosted investor confidence
about the recent recovery in share values.

The Dow jumped 235 points to 8,522, its highest level since early
January, on strength in DuPont (NYSE:DD), Caterpillar (NYSE:CAT),
General Electric (NYSE:GE), JP Morgan (NYSE:JPM) and Walt Disney
(NYSE:DIS).  The NASDAQ added 18 points to 1,421, despite sizeable
losses in Intuit (NASDAQ:INTU), which warned of a sales slowdown,
and Adobe Systems (NASDAQ:ADBE), which was downgraded by analysts
at WR Hambrecht.  The S&P 500-stock index added 19 points to 895
with airline and healthcare companies among the best performers.
In the major commodities, gold continued to decline and crude oil
prices fell below $27 a barrel for the first time in three months.
Advancing issues outpaced losing issues by roughly 2-to-1 on both
the NYSE and the technology exchange.  Trading volume was robust
with over 1.8 billion shares changing hands on both the Big Board
and the NASDAQ. The benchmark 10-year Treasury note fell almost a
point to yield 4.09%, up from 3.95% in the previous session.  Trim
Tabs reported Thursday that $900 million flowed into equities in
the week ended March 19, reversing a portion of outflows totaling
$4.9 billion seen during the prior week.  Equity funds that invest
primarily in U.S. stocks had outflows of $500 million, compared
with outflows of $4.3 billion the prior week.

*****************
PORTFOLIO SUMMARY
*****************

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.


PUT CREDIT SPREADS
******************

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

SYMC    46.09  42.56  MAR   35  40  0.50   39.50  $0.50 Closed
COP     48.72  51.65  MAR   42  45  0.25   44.75  $0.25 Closed
NKE     45.14  53.30  MAR   40  42  0.20   42.30  $0.20 Closed
CAM     53.03  49.68  MAR   45  50  0.65   49.35  $0.33 Closed
SII     35.34  34.10  MAR   30  32  0.25   32.25  $0.25 Closed
CMCSA   29.22  30.80  MAR   25  27  0.30   27.20  $0.30 Closed
FIC     48.84  47.38  MAR   40  45  0.50   44.50  $0.50 Closed
AMGN    55.70  58.56  APR   47  50  0.25   49.75  $0.25  Open
EXPE    35.19  54.09  APR   27  30  0.30   29.70  $0.30  Open
APOL    47.44  50.78  APR   40  45  0.50   44.50  $0.50  Open
MMM    125.55 134.37  APR  110 115  0.50  114.50  $0.50  Open
FLR     32.11  34.99  APR   25  30  0.50   29.50  $0.50  Open
OEX    424.07 456.36  APR  375 380  0.45  379.55  $0.45  Open

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

Previously closed positions in Cooper Cameron (NYSE:COO) and
Smith International (NYSE:SII) finished the expiration period
profitably.


CALL CREDIT SPREADS
*******************

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

BSC    59.90   67.74  MAR   70  65  0.50   65.50 ($2.24) Closed *
BUD    47.70   48.40  MAR   55  50  0.45   50.45  $0.45  Closed
MDT    44.15   47.42  MAR   50  47  0.25   47.75  $0.25  Closed
PEP    39.86   41.50  MAR   45  42  0.25   42.75  $0.25  Closed
BSC    61.69   67.74  MAR   70  65  0.55   65.55 ($2.19) Closed *
NEM    27.51   24.37  MAR   32  30  0.25   30.25  $0.25  Closed
PG     81.86   88.90  MAR   90  85  0.45   85.45 ($3.45) Closed *
TRMS   40.02   42.26  MAR   50  45  0.50   45.50  $0.50  Closed
CHIR   35.80   39.66  APR   42  40  0.25   40.25  $0.25  Closed
IP     34.30   37.99  APR   40  37  0.25   37.75 ($0.24) Closed
UNH    83.64   89.90  APR   95  90  0.55   90.55  $0.55  Closed
TOT    65.30   64.15  APR   75  70  0.60   70.60  $0.60   Open
XAU    67.44   63.15  APR   80  75  0.50   75.50  $0.50   Open
ACS    44.26   48.02  APR   55  50  0.55   50.55  $0.55   Open

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

The losses published in the summary do not reflect timely exit
trades in Bear Stearns (NYSE:BSC) and Proctor & Gamble (NYSE:PG),
both of which were identified as "early exit" candidates.  The
position in H&R Block (NYSE:HRB) has been previously closed to
limit potential losses and based on the bullish market activity,
conservative traders should likely do the same with International
Paper (NYSE:IP), Chiron (NASDAQ:CHIR) and United Health (NYSE:UNH).


CALL DEBIT SPREADS
******************

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

AMGN    52.09  58.56  MAR   45  47   2.20   47.20  0.30  Closed
EXPE    33.29  54.09  MAR   27  30   2.18   29.68  0.32  Closed
NBR     40.13  38.80  MAR   35  37   2.20   37.20  0.30  Closed
STN     19.40  21.62  APR   17  20   1.60   19.10  0.90   Open
EBAY    83.91  89.79  APR   70  75   4.50   74.50  0.50   Open

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


PUT DEBIT SPREADS
*****************

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

FDX     50.84  57.26  APR   60  55   4.50   55.50 (1.76) Closed *

The loss published in the summary does not reflect a timely exit
trade in the position.
                        
LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss


SYNTHETIC (BULLISH)
*******************

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

AFFX    27.14  27.10   MAR     30    25     0.15    0.45   Closed
UOPX    37.38  38.89   MAR     40    35    (0.10)   3.50   Closed
MEDI    32.65  33.44   APR     35    30     0.10    0.50    Open

University of Phoenix Online (NASDAQ:UOPX) soared this week and
the bullish position achieved an outstanding profit as the issue
vaulted above $40.  Affymetrix (NASDAQ:AFFX) reached profitability
during Tuesday's upside activity and the new position in Mediimune
(NASDAQ:MEDI) has already posted a favorable gain.  The previously
closed position in Watson Pharmaceuticals (NYSE:WPI) was a winner
earlier in the month after the company won U.S. FDA approval for
Oxytrol, a patch to treat urinary incontinence.  The position in
Ultra Petroleum (NYSE:UPL) slumped in conjunction with Oil Service
stocks and the play was closed early to limit losses.


CALENDAR & DIAGONAL SPREADS
***************************

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

CI      43.02  46.28   APR-45C   MAR-45C   0.85    1.30    Closed
BMET    28.52  31.00   JUL-30C   APR-30C   0.80    1.00     Open
OTEX    29.29  28.21   MAY-25C   APR-30C   3.60    3.50     Open
CMVT    10.20  12.05   APR-7.5C  MAR-10C   2.20    2.50    Closed
ICST    23.86  23.50   APR-22C   MAR-25C   2.10    2.00     Open

Cigna (NYSE:CI) finally broke to the upside and after closing the
short option (MAR-$45C), the net value of the long call offered a
favorable profit for conservative traders.  The previously closed
position in American Express (NYSE:AXP) yielded short-term gains
earlier in the month as did Weatherford (NYSE:WFT), which was also
closed early due to the slump in oil service stocks.  The bullish
spread in Biomet (NASDAQ:BMET) was rolled to April options in the
short call (MAR-$30).  Open Text (NASDAQ:OTEX) climbed to a recent
high Friday, offering a great opportunity to transition to April
options (short) in the bullish diagonal spread.  The position in
Comverse Technology (NASDAQ:CMVT) finished at maximum profit, but
Integrated Circuit Systems (NASDAQ:ICST) needs to move higher in
the coming month to achieve profitability.


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

ROOM    40.14  60.05   MAR    40    40    6.50    20.00   Closed
ETM     45.45  45.76   MAR    45    45    1.30     1.10   Closed
BAX     19.65  20.47   MAR    20    20    1.35     1.15   Closed

The Hotels.com (NASDAQ:ROOM) straddle was the biggest winner in
this section in recent months, with a 300%+ profit on the initial
investment.  However, the speculative "Reader's Request" plays
did not fare well at all, despite the volatility in the broader
equity markets.

Questions & comments on spreads/combos to Contact Support

*************
NEW POSITIONS
*************

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.

**************
CREDIT SPREADS
**************

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.

*****

CAT - Caterpillar  $52.55  *** New 10-Month High! ***

Caterpillar (NYSE:CAT) manufactures and markets construction,
mining, agricultural and forest machinery; engines for on-highway
use and locomotives, as well as for electrical power generation
systems and other applications, and provides financing for the
purchase and lease of its equipment.  The company operates three
principal lines of business: machinery, engines and financial
products.  The company designs, manufactures, markets, finances
and provides support for its Caterpillar, Cat, Solar, Perkins, FG
Wilson, MaK, and Olympian brands.

CAT - Caterpillar  $52.55
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-45.00  CAT-PI  OI=1393  A=$0.50
SELL PUT  APR-47.50  CAT-PW  OI=1728  B=$0.75
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$47.25



*****

EXPD - Expeditors Intl.  $37.68  *** Transport Sector Rally! ***

Expeditors International of Washington (NASDAQ:EXPD) is engaged
in the business of providing global logistics services.  The
company offers its customers a seamless international network
supporting the movement and strategic positioning of goods.  The
company's services include the consolidation or forwarding of air
and ocean freight.  In each U.S. office, and in many overseas
offices, the company acts as a customs broker.  The company also
provides additional services including distribution management,
vendor consolidation, cargo insurance, purchase order management
and customized logistics information.

EXPD - Expeditors Intl.  $37.68
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-30.00  URP-PF  OI=0   A=$0.15
SELL PUT  APR-35.00  URP-PG  OI=13  B=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$34.50



*****

GILD - Gilead Sciences  $41.53  *** Drug Stock Speculation! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.

GILD - Gilead Sciences  $41.53
    
PLAY (less conservative - bullish/credit spread):

BUY  PUT  APR-35.00  GDQ-PG  OI=328  A=$0.50
SELL PUT  APR-37.50  GDQ-PU  OI=569  B=$0.80
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$37.20



*****

NOC - Northrop Grumman  $82.35  *** Sector Slump! ***

Northrop Grumman (NYSE:NOC) is a global defense firm that provides
unique technologically advanced products, services and solutions
in defense and commercial electronics, defense systems integration,
information technology and nuclear and non-nuclear shipbuilding
and systems.  Northrop Grumman has operations in 44 states and 25
countries, serving U.S. and international military, government and
commercial customers.  Northrop Grumman is aligned into six main
business sectors: Electronic Systems, Information Technology,
Integrated Systems, Ship Systems, Newport News and Component
Technologies.

NOC - Northrop Grumman  $82.35

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-95.00  NOC-DS  OI=2850  A=$0.30
SELL CALL  APR-90.00  NOC-DR  OI=2321  B=$0.70
INITIAL NET-CREDIT TARGET=$0.45-$0.60
POTENTIAL PROFIT(max)=9% B/E=$90.45



*****

SII - Smith International  $34.10  *** Trading Range? ***

Smith International (NYSE:SII) is a worldwide supplier of premium
services to the oil and gas exploration and production industry,
the petrochemical industry and other industrial markets.  The firm
provides a comprehensive line of technologically-advanced products
and engineering services, including drilling and completion fluid
systems, solids-control equipment, waste-management services,
three-cone and diamond drill bits, fishing services, underreamers,
casing exit and multilateral systems, packers and liner hangers.
The company also offers supply-chain management solutions through
an extensive branch network providing pipe, valve, tool, safety
and other maintenance products.

SII - Smith International  $34.10
  
PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-40.00  SII-DH  OI=653  A=$0.20
SELL CALL  APR-37.50  SII-DU  OI=676  B=$0.45
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.75




*************
DEBIT SPREADS
*************

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
position.

*****

PPD - Pre-Paid Legal Services  $18.16  *** Bottom Fishing! ***

Pre-Paid Legal Services (NYSE:PPD) designs, underwrites and
markets legal expense plans.  The company's legal expense plans
(referred to as Memberships) provide for a variety of legal
services in a manner similar to medical plans.  In most states
and provinces, standard plan benefits include preventive legal
services, motor vehicle legal defense services, trial defense
services, IRS audit services and a 25% discount for most legal
services.  Additionally, in approximately 37 states, the Legal
Shield rider can provide members with 24-hour access to a toll
free number for attorney assistance if the member is arrested
or detained.  Pre-Paid's other services include Canadian Family
Plan, Specialty Legal Service Plans, Business Owners' Legal
Solutions Plan, Law Officers Legal Plan, Commercial Driver Legal
Plan, Home-Based Business Rider and Comprehensive Group Legal
Services Plan.

PPD - Pre-Paid Legal Services  $18.16

PLAY (aggressive - bullish/debit spread):

BUY  CALL  APR-15.00  PPD-DC  OI=82   A=$3.50
SELL CALL  APR-17.50  PPD-DW  OI=921  B=$1.60
INITIAL NET-DEBIT TARGET=$1.75-$1.90
POTENTIAL PROFIT(max)=31% B/E=$16.90



*****

QLGC - QLogic  $39.98  *** Rally...What Rally? ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $39.98
  
PLAY (conservative - bearish/debit spread):

BUY  PUT  APR-47.50  QLC-PW  OI=83   A=$7.90
SELL PUT  APR-45.00  QLC-PI  OI=610  B=$5.60
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$45.25




****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial costs and large potential profits.

*****

ESI - ITT Educational Services  $29.11  *** Speculation Only! ***

ITT Educational Services (NASDAQ:ESI) is a provider of technology
oriented postsecondary degree programs in the United States.  The
company offers associate, bachelor and master degree programs and
non-degree diploma programs to more than 33,000 students.  The
company has 74 institutes located in 28 states and each of its
institutes is authorized by the applicable education authorities
of the states in which they operate and recruit, and accredited
by an accrediting commission recognized by the United States DOE.
The company currently offers a variety of degree programs as well
as several diploma programs in various fields of study.  All of
its institutes offer degree or diploma programs for information
technology and electronics, and the majority of institutes offer
a degree or diploma program involving design.  The company's
quarterly earnings are due 4/17/03.

ESI - ITT Educational Services  $29.11

PLAY (very speculative - bullish/calendar spread):

BUY  PUT  OCT-30.00  ESI-JF  OI=150  A=$3.70
SELL PUT  APR-30.00  ESI-DF  OI=147  B=$1.25
INITIAL NET DEBIT TARGET=$2.40-$2.45
INITIAL TARGET PROFIT=$0.75-$1.10




*******************
SYNTHETIC POSITIONS
*******************

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.

*****
ADTN - Adtran  $38.14  *** Telecom-Equipment Rally! ***

Adtran designs, develops, manufactures, markets and services a
broad range of high-speed network access products utilized by
providers of telecommunications services and corporate end users
to implement advanced digital data services over both public and
private networks.  The company's business is arranged with two
divisions, the Carrier Networks Division (CN) and the Enterprise
Networks Division (EN), to enable it to quickly respond to the
needs of the two important market segments that its products
address.  These two market segments are CN products for use in
the service provider's Local Loop, including central office,
remote terminal and customer premises, and EN products for use
at enterprise headquarters, remote offices and telecommuting
locations.  Adtran offers more than 500 products built around a
set of core technologies, and developed to address high-speed
digital communications over the last mile of the Local Loop.
The company's quarterly earnings are due on 4/15/03.

ADTN - Adtran  $38.14

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  MAY-45.00  RQA-EI  OI=27   A=$1.00
SELL PUT   MAY-30.00  RQA-QF  OI=595  B=$0.80
INITIAL NET-CREDIT TARGET=$0.00-$0.10
INITIAL TARGET PROFIT=$0.45-$0.75

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $850 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($30).



*****

MGAM - Multimedia Games  $21.85  *** On The Rebound! ***

Multimedia Games (NASDAQ:MGAM) is the leading U.S. supplier of
interactive electronic games and player stations to the rapidly
growing Native American gaming market.  The company's games are
delivered through a telecommunications network that links its
player stations with one another both within and among gaming
facilities.  Multimedia Games designs and develops networks,
software and content that provide its customers with unique and
comprehensive gaming systems.  The company's development and
marketing efforts focus on Class II gaming systems and Class III
video lottery systems for use by Native American tribes across
the United States.

MGAM - Multimedia Games  $21.85
  
PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JUL-25.00  QMG-GE  OI=250  A=$2.20
SELL PUT   JUL-20.00  QMG-SD  OI=62   B=$2.05
INITIAL NET-CREDIT TARGET=$0.00-$0.10
INITIAL TARGET PROFIT=$0.90-$1.25

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $900 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($20).




*****




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

Breakouts Everywhere.

Plenty to watch on the OI watch list:


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_032303.asp


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

Resistance Falls

Well, what can we say, other than just about everything was up 
on Friday. And not just up a little. Resistance levels fell like 
Iraqi lines of defense and that was pretty much the key to it 
all. As Iraqi troops surrendered and U.S. troops took control of 
oil fields, the market just kept climbing... 


To Read The Rest of The OptionInvestor.com Market Posture Click Here
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DISCLAIMER
**********

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