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Daily Newsletter, Thursday, 03/27/2003

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The Option Investor Newsletter                Thursday 03-27-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Danger Zone
Futures Markets: Back From the Brink
Index Trader Wrap: (See Note)
Market Sentiment: Weary or Confused?
Weekly Manager Microscope: Multiple Managers: Vanguard STAR
(VGSTX)


Updated on the site tonight:
Swing Trader Game Plan: (See Note)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      03-27-2003           High     Low     Volume   Adv/Dcl
DJIA     8201.45 - 28.40  8251.80  8104.05 1.46 bln 1696/1518
NASDAQ   1384.25 -  3.20  1392.46  1369.31 1.41 bln 1584/1554
S&P 100   441.01 -  1.06   444.14   435.95   Totals 3280/3072
S&P 500   868.52 -  1.43   874.15   858.09
W5000    8224.04 -  8.80  8270.38  8128.09
RUS 2000  369.50 +  1.32   369.73   365.09
DJ TRANS 2183.05 - 20.80  2203.15  2169.09
VIX        32.15 -  0.01    33.94    31.50
VXN        43.87 -  0.07    45.62    43.67
Total Volume 3.107B
Total UpVol  1,294B
Total DnVol  1,716M
52wk Highs  142
52wk Lows   126
TRIN       1.43
PUT/CALL   0.79
************************************************************

Danger Zone

Multiple comments from various levels of the administration
as well as arm chair generals all say the war is entering a
dangerous period as the battle for Baghdad is about to begin.
This approach to the danger zone around Iraq pushed the Dow
to the danger zone around 8100. Fortunately both the Dow and
the Marines managed to avoid a disaster for one more day.

Dow Chart - Daily



Nasdaq Chart - Daily




The day started off with a serious drop on news in the
Washington Post that the war could take months and we were
about to see many more casualties. The Dow dropped -120 at
the open but managed to recover to positive territory by
mid afternoon. Traders kept asking why with economics still
getting worse.

The Jobless Claims fell to 402,000 but that is still the
6th week over 400K and still showing a contraction in the
labor market. The four-week moving average fell slightly to
423,000. Continuing claims fell to 3.521 million but remain
at levels higher than the 1990 recession. With the potential
for a multi month war this puts even more pressure on
employers to trim the workforce until conditions improve.
The Help Wanted Index for February fell back to 40 and only
one point from its cyclical low set in December. The lack
of hiring is shown in the lack of advertising. The ManPower
survey shows weakness continuing through the 2Q and saw
no hiring anywhere but Salt Lake City. According to the
survey there is expected to be some small gains in late
2003 but no major expansion until 2004.

We saw the impact of this unemployment rate on Wednesday
when Sears underwent plastic surgery to remove a major
pain in the neck. They announced they were selling their
credit card business and would be taking offers. They
are seeing a 20% charge off rate on their existing accounts.
That is 1 in 5 accounts. Think times are not tough?

The Chicago Fed National Activity Index fell into negative
territory again with only one positive month since last
July. The index fell to -0.62 from +0.53 last month. This
was due to drops in industrial production and a drop in
employment by -308,000 jobs. There is beginning to be more
fear that the economy is slipping back into recession. The
4Q GDP was finalized at a +1.4% annualized growth rate and
the first quarter is not shaping up to be a strong quarter
either. Many economists feel a multi month war will push
growth in the 2Q into negative territory. The big drop in
spending for durable goods, autos and now houses is now
mushrooming into a serious problem.

Part of the rally last week was attributed to the drop
in oil prices once the southern Iraq oil fields were
under coalition control. Prices fell to near $27 but
today prices were back to $30.37 due to instability in
Nigera, low inventory levels and the prospect of having
Iraq's production off line for months. Also a factor is
the massive use of fuel in the war. One defense dept
spokesman said the coalition is using the equivalent of
seven million barrels of oil a day. The front line ground
forces in Iraq are using one million gallons of diesel
and gasoline a day with all other ground forces using
another six million gallons. The fuel for the front line
combat troops has to be trucked up to 300 miles from
Kuwait. The tankers offload it and then make the return
trip to reload. The roads are cross-country in most cases
and not paved. Not a fun job. If the price of oil remains
over $30 the price premium will be extracted from the
stock market again.

Oil is not the only thing going up. Mortgage rates are
rising off their lows and with them the refi door is
closing. We saw new home sales drop this week -8.1%
and existing home sales fall -4.3% on Tuesday. This
does not bode well for any economic recovery. The big
hiss you hear is the air leaving the housing bubble.

Gold also rose today as Middle East investors took
delivery and began moving the actual gold to safer
climates. The anti US feelings are prompting the move
as well as fear of confiscation. When the US froze
Iraqi assets last week it put some fear into Arab holders
that their assets could be next. Since some inventory
gold is "loaned" to traders the removal of the actual
commodity from circulation forces traders to cover
elsewhere.

The markets slide into the early March lows was due
in part to the third consecutive month of outflows
according to ICI today. They said there was -$11.1
billion in equity fund outflows in February. At the
same time there was +$17.8 billion inflows into bond
funds. It appears there are a lot of traders expecting
more market troubles ahead.

A new threat to the market is coming from the new virus
out of Asia. The CDC says there are over 1700 confirmed
cases and probably thousands that have not yet been
diagnosed. It is spreading quickly and the Asian
economy is already suffering. Retail sales are down -2%
due to consumers not wanting to be in crowds. Hotel
bookings are down -5 to -7% and airline bookings have
dropped as much as -20% to Asian countries. Adding this
drop in commerce to the war impact and the global
loss could be substantial. DB has already predicted a
drop of -0.5% to the GDP of the Hong Kong area. The Asian
economies were not robust to begin with and a ramp in
the number of diagnosed cases could slow it even further.

In the US the major problem impacting Thursday's market
was the realization that the war could take months and
casualties could run in the multi thousands. I reported
a couple days ago a conversation by several analysts
with casualty estimates in the low range of 5,000 to
7,000 and a high range of 17,000 with no coordinated
surrender. Considering how the market reacted to the
deaths and capture in the last week they are not going
to react well to multiple hundreds killed in this and
that battle once the real war starts. There has only
been light resistance to this point. Saddam knew we
were coming and pulled all his major forces back to
the 50 miles around Baghdad. In war standards we have
not seen anything yet. Americans are spoiled by the
limited casualties in 1991 and the prospects for a
video game war. This is not it. Saddam has three times
more men on the ground than we do and air power can
only do so much once we get into the populated areas.
Americans are spoiled to instant gratification and
once they see it is not instant and not painless the
odds are good the market will reflect this change in
sentiment.

The Dow tested strong support at 8100 this morning
and came through with flying colors. The rebound
off 8100 powered the Dow from -120 to +22 by late
afternoon but the external forces were too strong.
We had a news release late in the afternoon that the
Iraqis were shooting down more missiles, drones and
helicopters than we had anticipated. Al-Jazzera ran
film of a downed drone and another downed helicopter
and the market tanked. According to the US military
it was the same helicopter from last week but they
admitted they had lost several drones. With Russian
and Iranian companies selling them antiaircraft and
antitank missiles it appears the odds are more evenly
matched than we thought. That news put more fear into
traders about the eventual human cost. Rumsfeld was
on TV numerous times with the longer, harder, costlier
war message and that did not help either. Still the
Dow managed a very respectable rebound from strong
support.

The Nasdaq tried valiantly to retest 1400 again but
fell short. The Russell was the only major index to
finish in the green. The markets are expected to drift
down overnight with problems in the Japanese banking
system. The fourth largest Japanese bank announced
after the close yesterday that they would lose money
for the third year in a row and a group of eight
largest banks would lose trillions of yen in 2003.
This was seen as pressure on the Nikkei for Friday
trading. This is the year-end in Japan and traders
felt there would not be any major selling until Tuesday.

That same scenario is alive and well in the US markets
and could have been instrumental in providing the big
rebound. We are only celebrating the end of a quarter
but funds still dress up their statements with a few
well placed buys. However, according to the Stock
Traders Almanac recent March trends have not been
exciting. Fear of April selling seems to be keeping
funds in the conservative arena. Another factor that
might keep funds from making a bull run is the recent
rally. They could have loaded up last week to avoid
missing the train and with negative fund flows have
no cash left for the actual month end. More likely
Friday support will come from shorts going flat before
the weekend to avoid any Saddam removal announcement.
Trade what you see not what you think.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Back From the Brink
Thursday, March 27, 2003
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

> DOW
Last: 8201.45
Net: -28.43
High: 82.51.80
Low:  8104.05

> YM 03M
Last: 8172
Net: -26
High: 8225
Low:  8080

> S&P 500
Last: 868.52
Net: -1.43
High: 874.15
Low:  858.09

> ES 03M
Last: 867.50
Net: -0.50
High: 873.50
Low:  856.75

> Nas 100
Last: 1061.93
Net: -4.37
High: 1070.67
Low:  1049.50

> NQ 03M
Last: 1061.50
Net: -8.50
High: 1074
Low:  1051.50

DAILY PIVOTS

> YM 03M
R2: 8307
R1: 8244
Pivot: 8162
S1: 8099
S2: 8017

> ES 03M
R2: 883
R1: 876
Pivot: 866
S1: 859
S2: 849

> NQ 03M
R2: 1085
R1: 1073
Pivot: 1062
S1: 1051
S2: 1085

For traders, today was a better day for trading.  There was a real
trend which lasted for the bulk of the day.  After the markets
opened with a good sized gap down, a brief attempt at filling the
gap failed, and selling took the futures down to the recent lows
of 856.75.  This area is now becoming a real shelf for price, with
four of the last eight days hitting a low in this area (856,
857.25, 856, 856.75).  There could be two ways to look at this.
Either one thinks that the market feels weak because it continues
to test these lows, or the market feels strong because continuing
tests of this area are holding.  The bullish view could be
supported by stating that on each of the days that this level was
tested, the futures then went on to close in the upper half of the
days range.  The bearish view is that it looks like we are forming
a bearish descending triangle, which is a pattern that often
breaks to the downside.

A descending triangle can be explained like so: traders are
willing to buy at a support level, but each subsequent purchase at
the support area leads to a lower high, making each subsequent
purchase more of a risk as the reward for purchasing in that area
continues to diminish.  Finally the buyers dry up, and selling
takes the upper hand.

As price approaches the apex of the triangle, the resolution of
the pattern becomes imminent.  How soon the resolutions happens
depends on how we draw the lines.  The following chart show a
couple different ways that we could draw the trendlines.  The
former shows that price needs to decide how the pattern will break
(up or down) within three more days.  If one draw the downtrend
line along today's highs, then there is plenty more room (a week)
for this pattern to continue to coil within the triangle.

ES Descending Triangle Pattern:




ES 15 Minute Pivot Chart:




The ES pivot chart shows how we had a trend up day within the
orange channel.  Pivot was resistance at first, then the halfway
point to R1 along with the green downtrend line from yesterday
served as resistance before the end of day selloff.  Although
price started off at S2, the second half of the day was spent
between the halfway points to both R1 and S1.  Note yesterday we
spent the entire day within these same pivot areas.

ES 270 Minute All Sessions Chart:





This chart shows how we are moving within the 270 periods
regression channel, and how today's lows were at the lower end of
the channel, this, together with horizontal support, is what
caused the move upward.  Even with the move up, indicators still
are bearish from the overnight selling, but they also are looking
up, with RSI looking to break above the downtrend line, OBV
looking to move back above the horizontal support line, and short
term Stochastic looking to turn up.  Macd however, is still well
below the trendline and the centerline but looks to turn up.  This
chart is bearish, with good potential for a turn up.

ES 60 Minute Chart:




This chart shows both Stochastic turning up, with the longer term
still well below the centerline, as is Macd.  RSI tried to move
above the centerline but failed and is now back below, and ADX is
still bearish.  CCI moved above its moving average and trendline,
but turned back down on end of day selling.  This chart remains
bearish, even with four solid hours of buying (green candles).  It
also shows that the market is neither overbought nor oversold, and
therefore has room to move in either direction.

ES Daily Chart:




The daily chart is not quite bearish, but the bullish tint has
definitely been tarnished.  Macd is crossing over, fast stochastic
is below slow stochastic.  However, CCI is still above 100 and
above it's moving average, RSI and Macd are still well above their
centerlines, and even slow stochastic can still bounce off the
centerline that it is approaching.

A note on the indicator that you may sometimes see on these charts
labeled WOVO:  this is an indicator which is good for trendlines,
and is derived by a simple calculation of the Open minus the Close
times the volume for a given period (candle).  It is then smoothed
for the number of periods shown (above it is smoothed over 21
periods).

NQ 270 Minute All Sessions Chart:




Generally trading sideways, NQ closed halfway between the two
horizontal areas of support/resistance.  The rising regression
channel is slowly bringing the lower line towards price, which
should then act as additional support in the 1050 area.  Most of
the indicators are flat again, with no real direction as obvious.
A closer look at price on the 60 minute NQ chart gives essentially
the same message: flat, no decisive information one way or the
other.

NQ Daily Chart:




The NQ daily chart is more bearish than the ES, with Macd having
crossed over two days ago and still dropping, and slow Stochastic
turning over, but not broken below its trendline (blue).  CCI has
broken below its moving average as well.  Still, as long as RSI,
Macd and slow Stochastic remain well above their centerlines,
these bearish elements can be considered part of a retracement,
rather than a change in trend.

So today we saw that the bulls are alive and well, buying the dip
and pushing the market back from the brink.  However, they were
not strong enough to breakout of the recent range.  Bears, having
been beaten silly over the past week, and having had their one day
on Monday to heal some wounds, are still tentative, and quick to
cover.  They did, however, show more resolve then has been
apparent recently as they continued to hit the futures at overhead
resistance.  The fight between these two camps is now a little
more even than it has been.


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_032703_1.asp


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

Weary or Confused?
- OI staff

Weary or Confused?  Market sentiment may be best classified as
mixed with traders not sure where to focus their attention.
Should investors continue to trade based the clearly fading signs
in the economy or the white-knuckled stories coming out of the
media blitz on Iraq?

There is plenty for them to focus on regarding the economy.
Jobless claims continue to run high and there's no signs that
employers are beginning to hire again.  Especially not with the
threat of a multi-month war looming on the horizon.  Should such
an event come to pass it will likely keep consumer spending to a
minimum.  Add to the mix that mortgage rates may not fall any
farther and investors have to consider a slowing home sales
market.  This could seriously impact the consumer durables
spending we have seen and would have a direct influence on this
country's GDP.

Also affecting the investor psyche was the rally in crude again.
This last year has been volatile for the group with the
Venezuelan oil crisis, the war premium based on the Iraqi
conflict being run up and then deflated, and finally new concerns
over Nigera.  Yes, that's right.  Nigerian oil production has
been cut nearly in half as ethnic clashes have forced companies
to slow or shutdown production facilities.  There are already
rumors of a cease-fire in the region but crude oil contracts for
May continued to climb and ended the day at $30.37, +1.74.

So far this stream of stories has been negative for investor
sentiment but the markets merely traded sideways - as if they
were merely consolidating some of last week's big gains.  Could
this be a sign of strength?  Not so fast!  The sideways action in
the markets today is probably being affected by the end of the
quarter close and most mutual funds tend to do some window
dressing for their statements to send to clients.  There are a
number of equities that have been able to maintain some of the
gains and money managers might stick their toe in the water to
make it look as if they owned those stocks prior to last week's
big rally.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8201

Moving Averages:
(Simple)

 10-dma: 8220
 50-dma: 8025
200-dma: 8413



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  869

Moving Averages:
(Simple)

 10-dma:  869
 50-dma:  850
200-dma:  889



Nasdaq-100 ($NDX)

52-week High: 1573
52-week Low :  795
Current     : 1062

Moving Averages:
(Simple)

 10-dma: 1068
 50-dma: 1008
200-dma:  992



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


The markets are definitely not seeing any real "fear" as both
the VIX and the VXN have dropped to new relative lows considering
the last several weeks.  The major tops in the Dow Industrials
back in December and January occurred when the VIX was near 26.
We're not even close to 26 but that doesn't mean the markets
can not experience more weakness.

CBOE Market Volatility Index (VIX) = 32.15 -0.01
Nasdaq-100 Volatility Index  (VXN) = 43.87 -0.07

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.79        428,847       338,271
Equity Only    0.63        321,184       201,839
OEX            0.90         20,811        18,645
QQQ            0.83         27,104        22,423


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

Bullish Percent Data

           Current   Change   Status
NYSE          40.6    + 0     Bull Correction
NASDAQ-100    49.0    + 0     Bull Alert
Dow Indust.   40.0    + 0     Bull Alert
S&P 500       41.6    + 0     Bull Confirmed
S&P 100       43.0    + 0     Bear Alert

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

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

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

 5-Day Arms Index  1.78
10-Day Arms Index  1.23
21-Day Arms Index  1.48
55-Day Arms Index  1.37


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       1512           1319
NASDAQ     1525           1473

        New Highs      New Lows
NYSE        53               37
NASDAQ      90               39

        Volume (in millions)
NYSE       1,445
NASDAQ     1,398


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

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 added 43,000 long contracts, while adding only 5,000
shorts.  Small traders took a reverse approach, adding 15,000
longs and 51,000 shorts.  Small traders, however, came into the
period much longer.

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 mirrored the action in the S&P, adding 15,000 longs,
to only 8,000 shorts.  Small traders also emulated their
counterparts, adding 10,000 longs, but 17,000 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 added 5,000 long contracts and 4,000 shorts,
staying relatively unchanged on their net.  Small traders
added 1,000 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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*************************
WEEKLY MANAGER MICROSCOPE
*************************

Multiple Managers: Vanguard STAR (VGSTX)

This fund of funds, managed by the Vanguard Quantitative Equity
Group, does not employ an investment advisor, but benefits from
the investment advisory services of the underlying Vanguard funds
in which it invests.  At $7 billion, it hails as the largest and
most successful "fund of funds" available to personal investors.
With its low annual expense, it's a great investment vehicle for
the "hands-off" investor, extols Morningstar.

The Vanguard STAR Portfolio seeks long-term growth of capital and
income by investing in other Vanguard funds.  It seeks to achieve
a target allocation of 60% to 70% stocks, 20% to 30% fixed income
securities, and 10% to 20% in short-term investments.  The fund's
primary investments include the following 11 Vanguard funds:

 Vanguard Windsor II
 Vanguard Windsor
 Vanguard U.S. Growth
 Vanguard PRIMECAP
 Vanguard Morgan Growth
 Vanguard Explorer
 Vanguard International Growth
 Vanguard International Value
 Vanguard Long-Term Corporate
 Vanguard GNMA
 Vanguard Short-Term Corporate

Because it consists of 11 big Vanguard funds, the STAR Portfolio
offers exposure to a range of investment classes, strategies and
styles.  The two Vanguard international funds were added in 2001,
providing further equity class diversification.  Accordingly, it
has the makings of a "one-stop" investment option.

The STAR Portfolio's average 30-day yield was 2.99% at month-end,
considerably higher than the average pure equity fund, adding to
its appeal.  Also adding to its appeal is its low annual expense.
At 0.40%, the fund's annual expense ratio is among the lowest in
the Morningstar domestic hybrid category (and the "fund of funds"
universe).

Vanguard STAR is designed to be an affordable investment.  Thus,
it has a low minimum initial investment of $1,000 for regular or
IRA accounts.  Additional investments may be made for only $100
($50 for automatic investment programs).

Investment Style/Strategy

As stated earlier, Vanguard STAR seeks long-term capital growth
(along with some current income) by investing in other Vanguard
funds to achieve a target allocation of 60%-70% stocks, 20%-30%
bonds, and 10%-20% in short-term investments.

The fund doesn't buy securities directly.  Rather, it invests in
other Vanguard funds including eight equity funds and three bond
funds.  Accordingly, the fund offers exposure to stocks across a
range of industry and capital sectors, as well as across "value"
and "growth" styles.  It also provides exposure to a diversified
group of bonds, and to short-term investments.  Fund allocations
are gradually adjusted based on Vanguard's outlook for the stock
and bond markets, the economy, interest rates, and other factors.

At the end of 2002, approximately 58% of assets were invested in
stocks, 34.9% in bonds, and 7.1% in cash/other, per Morningstar.
Foreign investments comprised about 14% of assets at December 31.

According to Morningstar, Vanguard STAR Portfolio had an average
market capitalization of $13 billion at year-end.  Nearly 25% of
stock assets were invested in giant-cap stocks at the time, with
39.7% in large-cap stocks, 25.8% in mid-cap stocks, and 9.6% in
small-cap stocks.  With its blend of value/growth styles styles,
the STAR Portfolio's equity portion has a "multi-cap core" feel.

However, at times the fund may shift a little to the left (value)
or to the right (growth).  For instance, in 2001, the fund had a
large-value style, according to Morningstar.  Since 2002, it has
landed in the large-blend style box.  For fund comparison/rating
purposes, Vanguard STAR is categorized as a domestic hybrid fund.

For the bond stake, fund assets were spread fairly equally among
the three Vanguard bond funds at December 31, providing exposure
to all sectors of the bond market.  Underlying holdings of these
three funds include government and agency debt securities, GNMAs,
corporate bonds of varying maturities.  The Short-Term Corporate
and Long-Term Corporate funds may also invest to a lesser degree
in high-yield bonds.  By mixing the short-term and the long-term
corporate funds, Vanguard STAR's average duration/maturity lands
in the "intermediate-term" style box.  So, the STAR fund's fixed
income allocation has a "core" bond feel.

Combine broad stock exposure and broad fixed income exposure and
you have the "well-diversified" Vanguard STAR Portfolio.  In the
next section, we see how well Vanguard STAR has performed versus
its domestic hybrid fund peers over the short term and long term.

Investment Performance

Since December 31, the Vanguard STAR Portfolio has lost just 0.7%
for shareholders, 0.1% better than the S&P 500 index of large-cap
stocks.  The fund's YTD performance places in the 56th percentile
of the Morningstar domestic hybrid category as of March 26, 2003.

For the trailing 1-year period, Vanguard STAR produced a negative
10.6% return, compared with a 22.3% 1-year decline by the S&P 500
index.  In shaving more than 50% off the stock market's loss, the
STAR Portfolio ranked in the 45th percentile of the hybrid group,
per Morningstar.  So, great numbers relative to the equity market
as a whole (S&P 500) and average numbers relative to other hybrid
funds over the short term.





While the fund's NAV does fluctuate along with the stock and bond
markets, it had only little more than a 10% standard deviation of
returns over the past three years, per Morningstar.  So, Vanguard
STAR has incurred limited volatility relative to the stock market
and pure stock funds.  Compared to its domestic hybrid peers, the
fund's volatility stays close to the category average, using data
from Morningstar.

In terms of relative downside risk, Vanguard STAR Portfolio looks
even better.  Morningstar gives the fund a "2" bear market decile
rating (1-best/10-worst).  Lipper gives the fund an above average
preservation rating.  Vanguard STAR is a mixed equity fund in the
Lipper classification system.  So, the benefit of diversification
in choppy markets is apparent here.

Next, we look at the fund's trailing 3-year and 5-year annualized
returns through March 26, and its trailing 10-year average annual
total return through month-end.  Using Morningstar's annualized
return numbers and rankings, we get the following results:

 Trailing 3-Year Performance (March 26, 2003):
 -1.2% Vanguard STAR (+14.7% to S&P 500)
 -5.3% Domestic Hybrid Fund Average
 Category Rank: 20th Percentile

 Trailing 5-Year Performance (March 26, 2003):
 +2.1% Vanguard STAR (+5.3% to S&P 500)
 -0.1% Domestic Hybrid Fund Average
 Category Rank: 24th Percentile

 Trailing 10-Year Performance (February 28, 2003):
 +8.7% Vanguard STAR (+0.0% to S&P 500)
 +6.4% Domestic Hybrid Fund Average
 Category Rank: 16th Percentile

As you can see, Vanguard STAR's annualized return performance was
significantly better than its domestic hybrid peers in all of the
longer time periods reviewed.  Over the long term (10 years), the
STAR Portfolio has generated an average annual return of 8.7%, on
par with the stock market (S&P 500) and 2.3% better per year than
the average domestic hybrid fund.

To put STAR's long-term performance into perspective, consider it
also outpaced the average diversified stock fund over the 10-year
period.  The fund's 8.7% 10-year annualized total return was 1.5%
better a year than the average diversified stock, using data from
Morningstar.

So, by building wealth in rising markets and preserving wealth in
falling markets, Vanguard STAR has achieved what pure stock funds
were unable to do, at least equal the return of the market, using
the S&P 500 index as the benchmark.

For each of these periods (3-year, 5-year, 10-year), Morningstar
gives the Vanguard STAR Portfolio an above-average return rating
and an average risk rating, for a "4-star" overall risk-adjusted
rating.  In other words, the fund's risk-adjusted performance is
"above average" relative to its category peer group according to
Morningstar.  This fund is also a Lipper Leader for total return
performance and consistency of returns (relative to mixed equity
funds).

Helping to keep the fund's returns in the first quartile are its
low turnover and expenses.  At 0.40%, the fund's average expense
ratio is less than a third of the category average, which stands
at 1.28% per Morningstar.  That represents a significant expense
advantage, increasing relative performance.

Conclusion

This week, we wrapped up our Schwab Select List review by taking
a look at the balanced fund group.   Since it invests in 8 stock
funds and 3 bond funds, Vanguard STAR offers broad exposure both
to stocks and bonds and has all the makings of a strong balanced
offering, one that could be used alone ("one-stop shop") or used
in combination with other stock and bond funds.

Fund investors seeking a reasonable level of income and long-term
growth of capital and income have a solid choice here.  Vanguard
STAR may not be suitable for investors with short-term investment
horizons (< 5 years), investors not willing to accept significant
fluctuations in share price, and those seeking maximum long-term
growth of capital.

For more information or to download a fund prospectus, go to the
Vanguard website located at www.vanguard.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 03-27-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: NOC
Daily Results
Call Play Updates: BCR, BLL, BRL, BVF, MXIM, STN, UNH
New Calls Plays: MMM
Put Play Updates: CB, OTEX
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

Northrup Grumman - NOC - close: 85.70 Change since picked: +0.75

As it turns out, that big drop last week appears to have been the
big move we were looking for.  After bottoming just above $80,
this defense stock has been consolidating between $83-85 all week
as investors have tried to make up their mind about the future for
Defense stocks in general.  That indecision seems to have been
resolved in favor of the bulls on Thursday, with NOC breaking
above the $85.50 level (our conservative stop) and closing at the
high of the day.  While there is certainly the possibility that
the stock could once again roll over at the descending trendline,
we're not convinced, with the daily Stochastics posting a short-
cycle bullish reversal.  We're dropping NOC tonight and are
recommending using any weakness on Friday as an opportunity to
exit the play at a more favorable level.


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

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

CALLS              Mon    Tue    Wed   Thu  Week

BCR      63.27   -1.19  -0.39   0.40  1.00 Nice Bounce
BLL      56.20   -0.08   0.36  -0.44  0.49 Hanging Tough
BRL      57.80   -2.23   2.47   1.50  0.38 Approaching Target
BVF      40.47   -0.97   1.57   0.35 -0.23 Stalling above $40
MMM      39.20   -0.44   0.86  -0.27 -0.03 New, From Support
MXIM     38.39   -0.89   0.25   0.03 -0.39 More Sideways
STN      20.86   -0.73   0.41  -0.46  0.24 Consolidating
UNH      89.73   -0.61   1.36  -1.05  0.12 Entry Point?


PUTS

CB       45.34   -1.56  -1.62  -0.09 -0.39 Descent Slowing
NOC      85.70   -1.83  -0.66  -0.08  2.01 Drop, No Faith
OTEX     28.51   -0.78   1.39   0.24 -0.39 Very Cautious


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

C. R. Bard, Inc. - BCR - close: 63.27 change: +1.00 stop: 61.40

It has been nip and tuck all week, but at last our patience with
BCR is being rewarded.  After charging to a new 52-week high last
Friday, a bit of profit taking was necessary and it arrived Monday
morning, driving the stock down to an intraday low of $61 on
Tuesday before buyers started nibbling again.  With the broad
market still under pressure, BCR wasn't able to make up much of
that lost ground, but the past 3 days have been encouraging in
that the stock has been posting higher intraday lows, finding
support at its 10-dma (currently $61.62).  Traders that took
advantage of that weakness are now anticipating a challenge of
last week's high of $63.56.  An intraday dip near the $62 level
can still be used for new entries, but with the strong move on
Thursday, the next solid entry may come on a breakout above
$63.75.  If taking the momentum entry, be aware that the highs
from late 2001 ($64.50-65.00) is likely to present solid
resistance.

Picked on March 18th at $61.05
Gain since picked:       +2.22
Earnings Date         04/16/03 (unconfirmed)
Average Daily Volume = 299 K

---

Ball Corporation - BLL - close: 56.20 change: +0.49 stop: 54.25

The closing numbers really don't tell the whole story of our BLL
play, as it has just barely crept higher throughout the week.  But
it is the way in which it has added those fractional gains that is
impressive.  Rather than embark on the roller-coaster ride being
"enjoyed" by the rest of the market, BLL has been building a
pattern of higher lows and looks like it is ready for another
strong move to the upside.  While last Friday's gap hasn't filled
in, it was impressive that Monday's dip found support right at the
top of that gap ($54.50) and that level has not been retested.
The 10-dma is rising to provide support, and we like new entries
on a dip and bounce from above that 10-dma.  Traders looking for a
momentum entry will need to wait for a trade above $57 before
taking the plunge.  Given the bullish action this week, it seems
safe to raise our stop to just below the week's lows, so we're
moving it to $54.25.

Picked on March 21st at $55.87
Gain since picked:       +0.33
Earnings Date         04/24/03 (unconfirmed)
Average Daily Volume = 417 K

---

Barr Labs - BRL - close: 57.80 change: +0.38 stop: 55.25

The BRL rocket is still on track as of Thursday's close.  Shares
of the drug company out performed the major indices by staying in
the green.  Meanwhile the drug sector DRG.X traded flat (+1.07)
closing at 302 and the biotech sector BTK.X traded flat (+4.56)
closing at 345.  The BTK is just a few points above its
descending 200-dma but remains below the 350 barrier.  The only
barrier overhead for BRL appears to be the $60 mark, where shares
failed multiple times in 2001.  Knowing such a strong overhead
resistance exists traders should begin planning their exit
strategies now.  Obviously, some short-term traders will try and
exit before the crowd as BRL approaches $59.00 and $59.50.  This
sounds like a great idea to us and our official exit price to
close this BRL play will be $59.50.  Should the stock trade there
intraday, we'll close the play that night.  Technically, the
stock looks very extended and shares could pull back to the 10-
dma without breaking the daily trend.  However, we would rather
not give back that much of the gains and we're setting our new
stop loss at $55.25.  Much more conservative traders (who aren't
taking some profits off the table already) might want to consider
using $55.90 as a stop loss to protect gains.

Picked on March 20th at $53.81
Change since picked:    + 3.99
Earnings Date:        01/21/03 (confirmed)

---

Biovail Corporation - BVF - close: 40.47 change: -0.23 stop: 38.50

Doesn't the action in BVF remind you of "The Little Engine That
Could"?  It is really trying to move higher, and to its credit, it
is holding above the $40 level, but it just can't seem to break
free.  Resistance near the $41 level has kept a lid on any bullish
attempts, but it is encouraging that the stock has managed to
ignore the wild gyrations in the rest of the market.  Dips near
the $39 level are still buyable, so long as BVF does not break
below Tuesday's intraday low of $38.55.  The rising 20-dma at
$38.64 should reinforce that support as well.  We're still looking
for the stock to break free of resistance and really catch a lift
once it moves into that fast-move area between $41-43.50.  Traders
looking for some bullish conviction before stepping into the play
will want wait for a trade above $41.10 (just above yesterday's
intraday high of $41.00) before entering.  To minimize our risk in
the play, we're raising our stop to $38.50 tonight..

Picked on March 14th at $39.06
Gain since picked:       +1.41
Earnings Date         04/25/03 (unconfirmed)
Average Daily Volume = 1.08 mln

---

Maxim Int. Prod. - MXIM - close: 38.39 change: -0.39 stop: 37.50

Despite the relatively healthy consolidation in the broader
markets this week, the Semiconductor index (SOX.X) just isn't
looking very healthy.  After holding above the $320 level earlier
in the week, the SOX lost that level of support on Thursday, saved
only by a rebound from the 200-dma ($311.88).  Any hope for a
continuation of last week's Chip rally is going to be dependent on
the SOX holding above this important level.  In light of the
sector weakness, it is really no great surprise, that our MXIM
play has been struggling all week.  After last Friday's push over
the $40 level (and the long-term descending trendline), MXIM has
lost both those levels, which will once again need to be scaled.
MXIM was really close to making the drop list on Tuesday, with its
intraday low of $37.50, which is also the site of our stop.  We
were tempted to cut the play loose tonight for non-performance,
but opted to give it one more chance to get moving in the right
direction.  A solid rebound from the $38 area can still be used
for new entries, as risk is quite easy to manage.  But we'll want
to look for strength in the SOX to confirm the wisdom of new
entries.

Picked on March 20th at $39.56
Gain since picked:       -1.17
Earnings Date         04/30/03 (unconfirmed)
Average Daily Volume = 8.01 mln

---

Station Casinos - STN - close: 20.86 change: +0.24 stop: 18.75

The consolidation continues for shares of STN.  This isn't a
surprise considering that the stock is at what appears to be all
time highs.  The bounce at $20 from Tuesday has marked new
support for us.  Traders looking for new entries may want to keep
an eye on another dip to $20.  Very conservative traders may want
to use $20 as a guideline for their stops.  What we're seeing is
normal consolidation after the big run up.  What helped
accelerate the weakness on Tuesday morning was a downgrade of IGT
by Merrill, saying demand had already been priced in.  Some of
the oscillators for STN are looking overbought so keep a tight
rein on your risk management.

Picked on March 15th at $19.86
Change since picked:    + 1.00
Earnings Date:        01/28/03 (confirmed)

---

UnitedHealth Group - UNH - cls: 89.72 chg: +0.12 stop: 85.99

If you were waiting for a dip to the 200-dma, today's bounce may
have been as close as UNH is going to get.  The stock traded down
to its 10-dma near $88.15 before bouncing higher and closing just
below the $90 mark.  It's 200-dma is currently at $87.63.  On
Tuesday we mentioned that UNH was part of the Forbes' list of top
performers for 2002.  Well, no surprise, BusinessWeek also put
UNH on their own BW50 top performers list for 2002.  However, UNH
took the #3 spot, running just behind Wellpoint Health Networks
(WLP) who took #2.  The article in BusinessWeek was very positive
for UNH and other health-insurers.  Considering that healthcare
costs are rising and employers "spending on staff health care
rose 14.7% on average in 2002" (BusinessWeek).  We like the
short-term trend for UNH and assuming the broader indices don't
crash on us then the stock and the group's relative strength
should do the bulls well.  Speaking of the group, the healthcare
sector's bullish percent just turned to a bull alert status
today.  That's more good news.  Depending on your own risk
tolerance entries could be taken here, or wait for a move above
$90 or even wait for a move above $91.  We're going to leave our
stop at $85.99 but more conservative traders could attempt to get
by with a stop under today's low.

Picked on March 25th at $90.66
Change since picked:    - 0.93
Earnings Date:        04/16/03 (unconfirmed)


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

3M Company - MMM - close: 131.66 change: -0.07 stop: 128.00

Company Description:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety of
industrial, consumer, and medical products.  Reflective sheeting
on highway signs, respirators, spill-control sorbents, and
Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products, making
it easier for food processors to test for the microbiological
quality of food.

Why we like it:
Just a week ago, bullish euphoria was breaking out all over.  But
that enthusiasm has certainly been tempered this week, as reality
has set in that the war with Iraq may take longer than initial
estimates.  Add in the negative implications of the cutbacks to
the President's stimulus plan, and it is no surprise the market is
retrenching a bit.  Now wait a minute!  Isn't this supposed to be
a call play?  What's with all the gloom and doom, you ask?  It is
against that backdrop that our new play really stands out.

It was 10 months ago when MMM first tested the $130 resistance
level for the first time, and it has been a hard-fought and
turbulent battle to finally get through that level.  There were
several short forays above that level last fall, but none had the
ability to stick for more than a day.  This time things look
different, as the initial breakout over that level stretched all
the way to $134.95 last Friday before a bit of the enthusiasm was
removed.  But rather than drop back under the $130 level as it did
last year, the stock is now finding support (on 3 separate
occasions this week) at that important level.  That hints that the
weakness this week is just a basing action ahead of the next
bullish move.  MMM is still working on a bullish target of $172,
derived from the PnF Buy signal generated last October.

A big part of the stock's continued price strength can be traced
right back to the company's financial performance.  MMM has
continued to grow both revenues and earnings throughout the
economic downturn.  The recent weakness in the dollar should only
serve to boost this multi-national company's bottom line, as that
weakness will serve to improve profit margins on overseas sales.
We'll get a peek at how the favorable exchange rate is impacting
the company's performance when it reports earnings on April 21st.

The only remaining question is how to navigate a favorable entry
into the play.  Given that the bulls have been defending the $130
level all week, another rebound from that level looks like a good
place to enter.  The 10-dma has now risen to $130.60 and we should
see it lend further support.  We don't want to give the play too
much room, as if this breakout is for real, the bears shouldn't be
able to pressure MMM under $128, which is where we are initially
placing our stop.  More aggressive traders can certainly target
shoot an entry on a bounce from above $128, but with the
understanding that it is a higher risk entry.  Traders looking for
an entry on strength will want to wait for a trade over $132.75,
as that would represent a break above the descending trendline (on
the intraday chart) from last Friday's high, as well as a break
above the intraday highs of the past couple days.  Our initial
objective will be a breakout over the $135 level and then round-
number resistance at $140.


Suggested Options:

Shorter Term: The April 135 Call will offer short-term traders a
solid return on an immediate move, with manageable risk.  The
April 130 Call offers more profit on a move higher, given the fact
it is currently in the money, but also offers more downside risk
if the stock pulls back.

Longer Term: Traders looking to capitalize on a move towards the
PnF target of $172 may want to look to the May 135 Call.  This
provides more time for the stock to move higher without time decay
becoming a dominant factor over the short run.

BUY CALL APR-130 MMM-DF OI=9169 at $4.50 SL=2.75
BUY CALL APR-135 MMM-DG OI=7844 at $1.85 SL=1.00
BUY CALL MAY-130 MMM-EF OI=  79 at $6.40 SL=4.50
BUY CALL MAY-135 MMM-EG OI= 115 at $3.70 SL=2.00


Annotated Chart of MMM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-27/MMM032703.gif



Picked on March 27th at $131.66
Gain since picked:       +0.00
Earnings Date         04/21/03 (confirmed)

Average Daily Volume = 2.20 mln


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

Chubb Corporation - CB - close 45.34 change: -0.30 stop: 48.00

Our bearish Insurance play on CB has gotten off to a slow start,
but at least it is headed in the right direction.  It would make
sense that after the big drop on Tuesday following the debt
downgrade from Standard & Poor's, investors are trying to evaluate
if there is more downside risk.  Obviously, we think there is, and
the slow deterioration in price hints that a break to test the
early March lows near $42 seems likely.  With CB now back under
the 20-dma ($46.26), that level should provide resistance going
forward.  A failed bounce attempt below that level can be used for
new entries.  When we began coverage, we were looking for a drop
under $45.75 (the site of the late-February low) to initiate new
momentum entries, and traders that took that entry are looking
good here.  The fact that there hasn't been any bounce to speak of
this week confirms the stock's weakness, and it seems safe to
lower our stop to $48, just below the plateau that formed prior to
Friday's surge higher and Monday's subsequent drop.


Picked on March 25th at $45.73
Gain since picked:       -0.39
Earnings Date         04/30/03 (unconfirmed)
Average Daily Volume = 1.39 mln

---

Open Text - OTEX - close: 28.51 change: -0.39 stop: 30.55

Take a step back and look at the following: the Nasdaq Composite,
the GSO Software Index and OTEX.  Did you notice how they're all
essentially trading sideways the last week (or two)?  We are a
little surprised at the strength in OTEX and suggest a wait and
see approach for traders right now.  Bears would like to see the
GSO fall below the 100 mark and OTEX fall under its 50-dma.
Bulls are looking at the stock ability to maintain its gains from
mid-March and could see it as building steam for an attack on
resistance at $29.00 and $30.00 overhead.  We may drop this play
soon if we don't get a sign of weakness in the next day or two.

Picked on March 21st at $28.21
Change since picked:    + 0.30
Earnings Date:        01/23/03 (confirmed)


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

None


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The Option Investor Newsletter                 Thursday 03-27-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - MMM
Options 101: Back to Basics

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

3M Company - MMM - close: 131.66 change: -0.07 stop: 128.00

Company Description:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety of
industrial, consumer, and medical products.  Reflective sheeting
on highway signs, respirators, spill-control sorbents, and
Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products, making
it easier for food processors to test for the microbiological
quality of food.

Why we like it:
Just a week ago, bullish euphoria was breaking out all over.  But
that enthusiasm has certainly been tempered this week, as reality
has set in that the war with Iraq may take longer than initial
estimates.  Add in the negative implications of the cutbacks to
the President's stimulus plan, and it is no surprise the market is
retrenching a bit.  Now wait a minute!  Isn't this supposed to be
a call play?  What's with all the gloom and doom, you ask?  It is
against that backdrop that our new play really stands out.

It was 10 months ago when MMM first tested the $130 resistance
level for the first time, and it has been a hard-fought and
turbulent battle to finally get through that level.  There were
several short forays above that level last fall, but none had the
ability to stick for more than a day.  This time things look
different, as the initial breakout over that level stretched all
the way to $134.95 last Friday before a bit of the enthusiasm was
removed.  But rather than drop back under the $130 level as it did
last year, the stock is now finding support (on 3 separate
occasions this week) at that important level.  That hints that the
weakness this week is just a basing action ahead of the next
bullish move.  MMM is still working on a bullish target of $172,
derived from the PnF Buy signal generated last October.

A big part of the stock's continued price strength can be traced
right back to the company's financial performance.  MMM has
continued to grow both revenues and earnings throughout the
economic downturn.  The recent weakness in the dollar should only
serve to boost this multi-national company's bottom line, as that
weakness will serve to improve profit margins on overseas sales.
We'll get a peek at how the favorable exchange rate is impacting
the company's performance when it reports earnings on April 21st.

The only remaining question is how to navigate a favorable entry
into the play.  Given that the bulls have been defending the $130
level all week, another rebound from that level looks like a good
place to enter.  The 10-dma has now risen to $130.60 and we should
see it lend further support.  We don't want to give the play too
much room, as if this breakout is for real, the bears shouldn't be
able to pressure MMM under $128, which is where we are initially
placing our stop.  More aggressive traders can certainly target
shoot an entry on a bounce from above $128, but with the
understanding that it is a higher risk entry.  Traders looking for
an entry on strength will want to wait for a trade over $132.75,
as that would represent a break above the descending trendline (on
the intraday chart) from last Friday's high, as well as a break
above the intraday highs of the past couple days.  Our initial
objective will be a breakout over the $135 level and then round-
number resistance at $140.


Suggested Options:

Shorter Term: The April 135 Call will offer short-term traders a
solid return on an immediate move, with manageable risk.  The
April 130 Call offers more profit on a move higher, given the fact
it is currently in the money, but also offers more downside risk
if the stock pulls back.

Longer Term: Traders looking to capitalize on a move towards the
PnF target of $172 may want to look to the May 135 Call.  This
provides more time for the stock to move higher without time decay
becoming a dominant factor over the short run.

BUY CALL APR-130 MMM-DF OI=9169 at $4.50 SL=2.75
BUY CALL APR-135 MMM-DG OI=7844 at $1.85 SL=1.00
BUY CALL MAY-130 MMM-EF OI=  79 at $6.40 SL=4.50
BUY CALL MAY-135 MMM-EG OI= 115 at $3.70 SL=2.00


Annotated Chart of MMM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-27/MMM032703.gif



Picked on March 27th at $131.66
Gain since picked:       +0.00
Earnings Date         04/21/03 (confirmed)

Average Daily Volume = 2.20 mln


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

Back to Basics
Buzz Lynn
buzz@OptionInvestor.com

Support, resistance, oscillators.  When we boil it all down, isn't
that what the mechanics of trading is all about (aside from the
primary directive of "preserve capital, make money")?

These concepts are so simple and yet so overlooked as the single
best trigger to get us in or out of a trade, whether it be stocks,
options, or futures.  They all rely, for the most part, on swings
of human emotion, which can be neatly condensed into one little
visual presentation.  So it has been throughout history.

Question:  When we hear the phrase, "This time it's different",
how different is it, really than previous swings of human emotion
at a different and perhaps even recent time in history?

Fundamentals Guy's answer:  Not so different that it will cause
oscillators to exceed 0% on the downside or 100% on the upside.
Markets do not go from 0 to 10,000, nor from 10,000 to 0
overnight.  They get there gradually over a long period of time.
In the grand scheme of things ranging in millenniums of time, it
really isn't different.  Business people do business, politicians
squabble, people fight, economies ebb and flow, central bankers
issue lots of paper currency, and unseasonable weather happens
everywhere.  One day at a time, that progress is reflected on a
chart in the form of price action according to the information
available at the time.

But while I will always remain true to fundamentals - guess I was
raised that way, I would never trade a thing without first
focusing on the basics, which can all be neatly summarized in a
simple chart.  Charts provide recognizable patterns for us to
follow if we would only choose to do so.  That involves cutting
out distractions that milk our trading account, or in short,
separating useful information from useless information.

What leads me here is the incessant rattle of the media offering
commentary on every SNAFU or success in the field of battle, every
packaged up economic report representing only a best guesstimate
on the part of the guesstimator, and a parade of so-called experts
that have been mostly wrong about productive ways in which to
invest capital over the last three years.  This is the useless
information, which while interesting, especially to me,
Fundamentals Guy, won't make me dime if I attempt to trade it.

Why won't it make me money?  Because if I got the information over
the net or on the airwaves, I can be pretty sure everyone else did
too, including the floor traders who got it 15 minutes earlier
than me and Jonathon Livingston Public. . .and gamed us in
anticipation.  News, unless we are the ones making it, is stale
upon arrival.  Using it is like trading with delayed quotes.
We'll be killed every time.

Charts on the other hand - as long as they are real time - tell
the whole story no matter what time frame or series of time frames
we use.  The candles from a printed trade will reflect the news
more quickly than we'll receive it over the airwaves.  Thus when
it comes to trading, just like flying an airplane, I trust my
instruments.  Everything else is useless information at worst, or
a distraction at best.

Useless distraction can often take the form of "misdirection" or
"disinformation".  Such is the case, I believe, with investors who
have been thrown off the scent of making money by believing that
the market rises and falls based on inclement weather, fudged
economic statistics, interest rates, or perceptions on how the war
effort is coming along.  While that stuff will mess with our
emotions on a momentary basis if we let it, the real issue will
ultimately be related to the strength or weakness of our currency.

That is especially true with the price of gold.  It has nothing to
do with the war effort, weather, statistics, or interest rates,
and everything to do with value of the Dollar compared to other
currencies, and what basket of goods gold will purchase.

As an aside, I find it interesting that an ounce of gold, if
converted at its exchange price during any point in history, will
buy approximately the same amount and quality of goods or services
that it did 100 or even 1000 years ago - a nice suit of clothing,
food for two weeks of survival, three to five days of basic labor.
Gold is the only money that ignores inflation and holds its value.
All un-backed paper currency floats around IT, not the other way
around.

Simplified into current day bumper sticker language, when it comes
to gold, "It's the Dollar, Silly" (although I don't think "Silly"
is the personal pronoun the phrase-coiners had in mind ).

"Wait a minute, F.G.  I thought you said we ought to only be
interested in instruments, aka charts, candles, and oscillators -
technical stuff."  True.  However, for the oscillators to give us
maximum bang for the buck, they ought to be in alignment with the
fundamental picture.  In similar vein, we should also make sure we
are looking west and not east if we are in search of a sunset!
For gold, the fundamentals are there for a bullish play.  Now we
watch the oscillators for a bullish entry.  Let's go back two
weeks and see the gold chart that I thought was setting up a nice
buying opportunity.

Gold - April Contract chart - GC03J (weekly/daily)
From March 13, 2003:




The following was the technical picture then:

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

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

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

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

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

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

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

OK, back to current day.  I believe this is a great time for even
a "timer" to begin accumulating a position.  Take a peek over my
shoulder at today's chart.

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





Notice that even the 10-period stochastic (bottom one) has entered
oversold, and the 5-period stochastic (top one) is in the single
digits.  Yes, it could stay oversold a while longer, but I note
with bullish enthusiasm that this bottoming happens to coincide
with a dead stop on the weekly ascending trend line, a point of
apparent good support.

Dovetailing this with the daily chart, we can see a stochastic
bottom on the 10-period oscillator and actual signs of life on the
5-period oscillator, as the latter arises from oversold.  Careful
on that part though.  While it appears to have emerged from
oversold, the most recent 30 days of candles have been erratic and
unpredictable - nice to see to rise, but not a sign of a sure-fire
winner when each of the other oscillators are still oversold, at
least not yet.

The other things I like about the daily chart are that the price
has stabilized and is hovering around the 200-dma (good support)
with the 50-dma finally beginning to close the gap with the 200-
dma.  The gap ought to narrow fairly quickly since the last 50
days of candles, some of which include the rapid gains through
February 5th, will soon no longer be calculated in the 50-dma.

Chart summary - weekly and daily stochastics buried with the first
sign of bullish life coming from the daily 5-period stochastic;
strong support and consolidation near the 200-dma; support at the
weekly ascending trend line.

Fundamental summary - It's the Dollar, Silly!  For more on this,
see March 13th, 2003, Options 101.

http://members.OptionInvestor.com/options101/opt_031303_1.asp

Support, resistance, oscillators.  That's the basics of what it
takes to successfully enter or exit a trade.  The rest is noise.
My take - Gold has been sold hard in the last few weeks, and now
appears to be a good time to begin an accumulation of the stuff
based on technical indicators.

Like any good pilot, trust your instruments!  Until next time,
make a great week for yourselves!

Buzz


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