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Daily Newsletter, Sunday, 04/13/2003

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The Option Investor Newsletter                   Sunday 04-13-2003
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: Great Expectations?
Futures Market: Funny Hats with Feathers
Index Trader Wrap: Mother of all Battle Plans
Editor’s Plays: No Brainer
Market Sentiment: Relationships Tested
Ask the Analyst: Calculating a % probability of Fed rate cut
Coming Events: Earnings, Splits, Economic Events

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


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 4-11         WE 4-04         WE 3-28         WE 3-21
DOW     8203.41 - 73.74 8277.15 +131.38 8145.77 -375.85 +661.91
Nasdaq  1358.85 - 24.66 1383.51 + 13.99 1369.52 - 51.65 + 80.84
S&P-100  440.97 -  5.72  446.69 +  8.75  437.94 - 18.43 + 32.30
S&P-500  868.30 - 10.55  878.85 + 15.37  863.48 - 32.41 + 62.62
W5000   8227.54 - 92.43 8319.97 +134.60 8185.39 -277.93 +566.83
RUT      371.30 -  1.98  373.28 +  4.58  368.70 -  7.53 + 21.84
TRAN    2194.56 +  6.28 2188.67 + 25.47 2163.20 -100.29 +236.40
VIX       28.27 -  4.53   32.80 +  0.62   32.18 -  1.44 -  2.71
VXN       39.62 -  2.83   42.85 -  0.24   43.09 -  2.69 -  0.02
TRIN       0.88            1.00            1.43            0.59
Put/Call   0.79            0.76            1.31            0.63
******************************************************************


Great Expectations?
by Jim Brown

What a difference a week makes. I was rereading my commentary
from last Sunday and realized we were just approaching Baghdad
when I wrote it. This week the war is almost over. What were your
expectations a week ago? War over? Positive economic reports?
Market rally? Iraqi invasion of Washington? I doubt very few
investors expected what we got and there are likely a few bulls
scratching their heads this weekend.

Dow Chart - 120 Min



Nasdaq Chart - 120 min




The week ended with an economic surprise, actually a couple of
surprises. The PPI report rose by +1.5%, much more than the
consensus of only +0.4%. This was due almost entirely to higher
energy prices which are already beginning to fall. This report
will be discounted completely and inflation will be deemed to
still be nonexistent. Excluding energy, prices rose only +0.7%
and most of that increase can be attributed to autos (+3.3%)
and trucks (+5.2%). You did not think those massive incentives
were free did you? Mark prices up so you can cover your free
interest loans. There is no free lunch.

Even more surprising was the jump in Retail Sales by +2.1%.
I mentioned on Thursday that there was likely to be a big
discrepancy in the Chain Store sales on Thursday and the
government Retail Sales report on Friday. First this report
is based on store sales open over one year. This takes out
volatility of new stores and closed stores. Also this report
compares March to February and is adjusted for the late
Easter week. February was very bad for retailers with sales
falling -1.3% due to terrible winter weather. Adjusting for
Easter falling in mid April and comparing against blizzard
conditions it is not surprising for sales to rise in this
report. It is all in how you manage the numbers. Remember
most major retailers warned that sales were below plan and
lowered estimates in the last couple weeks. Look for these
numbers to average out in the April report.

The last economic surprise was a jump in Consumer Sentiment
to 83.2 from 77.6 in March. In reality this is not much of
a surprise to anybody who thinks it through. In March we
were still in the uncertainty of the initial war and consumers
were concerned about the change in the terrorist alert to
orange and the potential challenges in the weeks ahead. Now
two weeks into April with the war almost over according to
most reports it appears consumers are breathing a sigh of
relief. The March levels were a nine-year low and a relief
bounce on good war news is only reasonable. With the potential
for lingering problems in Iraq and potential earnings problems
in equities this indicator is not going to rocket upward.

The markets gapped up on the economic news but quickly faded
despite some good news from some reported earnings. GE reported
earnings for the first quarter of 30 cents a share on lighter
than expected revenue and affirmed the outlook for all of 2003.
However, they also said the 2Q could drop -15%. With 30 cents
for the 1Q and estimates of 38 cents for the 2Q they will need
a huge bounce in the second half to make the consensus of $1.63
for the full year. Immelt said on the conference call they are
expecting a favorable comparison in the 4Q due to charges in
the same quarter of 2002 but I fail to see how that will raise
4Q earnings.

GE is a proxy for the economy with 13 diverse businesses from
manufacturing a wide variety of products to insurance to airline
maintenance and leasing. How GE sees the business environment
is a good read on the rest of the economy. GE may be insulated
to some extent from economic forces due to its monster scale.
GE said the cost for raw materials was down due to economic
factors and their buying power gave them added leverage. With
the worst over in the airline sector and lower oil prices helping
with their future plastics costs, GE may be in the best position
to profit from any recovery. Still Immelt said things were tough
and cost cutting would still be a priority. They made the numbers
but the outlook, while positive, was definitely not rosy.

On the brighter side Foundry raised guidance for the quarter
on strong equipment sales to the government. Juniper also
reported a net profit for the quarter and said revenues would
be flat to up slightly for the 2Q. Is this a glimmer of hope?
Even networker ETS rose despite a warning earlier in the week.
Analysts said sales of communication gear remained flat to
down and telecommunication spending remained the worst area
for capex. Enterprise customers, large corporations and
government agencies, are upgrading networks but only in small
increments. The positive comments from JNPR and FDRY are
welcomed and it may be the light at the end of the tunnel but
it is still a long tunnel.

Earnings this week were scarce but the same cannot be said
for the week ahead. IBM will be the cloud on the horizon on
Monday as traders wait for the company to announce earnings
after the close. INTC and MSFT both announce on Tuesday and
once those three companies report the rest of the tech sectors
fate should be known.

Next week should be hectic. It is a short week with the holiday
on Friday and it is an options expiration week. It is also the
biggest earnings week for the quarter in terms of the number
of blue chips reporting. The economic calendar is full with
Business Inventories on Monday, Industrial Production on
Tuesday, Housing and Permits and CPI on Wednesday. Thursday
closes with the Jobless Claims and the Philly Fed Survey. It
is going to be a very busy week.

Working against us next week is the melt down in Asia. The
Nikkei closed at 7816 on Friday and there appears to be no
end in sight. There was another 161 SARS cases on Friday
bringing the total to more than 2700. The region is in
serious economic trouble. With the focus off the war the
potential for a more inward focus is good and that focus
will not find anything to cheer about. Our U.S. economy
will continue to be impacted by events in Asia.

The war is over. Or is it? According to everyone the Saddam
regime is gone and there is a growing feeling that so has
Saddam. The day after the last decapitation attempt the
government disappeared. Despite conflicting intelligence
about several Saddam sightings in various parts of Iraq the
scuttlebutt is growing that he bought the farm last week.
With only two towns still fighting as I write this on Friday
night the large scale battles are almost over and they could
be over by Monday. That means the positive news from Iraq is
almost over as well. The only news we will be getting will be
negative. Suicide bombings, car bombs, failure to exercise
population control and the eventual infighting between factions
for control of the new government. In short the positive impact
on the market should be over. Traders should start looking at
earnings again and those earnings will be flying fast.

Most analysts think the earnings for this quarter are a
non-event. Everyone thinks they will be bad, very bad but
they are a result of the pre-war freeze in the economy.
Actually since nearly 60% of the S&P warned for the quarter
the expectations are so low a child's sidewalk Kool-Aid stand
could beat them. The potential for some earnings surprises
is good. However, it is not the current earnings that will
govern our future. As we all know it is the guidance. Yes
we know the last quarter was bad but what are you going to
do now that the war is over. Unfortunately nobody is going
to be able to tell. It is the third week of the quarter and
the war has been over for a day or two. Nothing has changed.
Companies will probably be hopeful but they will have
nothing concrete to point to for guidance. They are probably
not going to be glowing with optimism.

Traders are so confused they don't know whether to buy or
sell. The result is they are doing nothing. The NYSE only
traded 1.3 billion shares on Friday with 1.2 billion on the
Nasdaq. Remember this was a Friday before a short options
expiration week, with a huge number of earnings in the wings
and on positive economic data.  Except for the opening
irrational exuberance spike on Friday the Dow has traded in
an 80 point range for the last two days. After the spike
it traded in a 50 point range from 10:45 to the close on
Friday. Does this strike you are strange?

There are so many factors pulling the market in different
directions that it is going nowhere. Remember the post war
rally everyone expected? Where is it? The Dow hit 8388 as
the statue was about to fall. That was three days ago. We
closed at 8200 on Friday with no real threat to holding
stocks over the weekend. The lack of interest in the markets
appears to be growing now that investors have nothing to
look forward to. While everyone has been begging for a
return to a normal market the prospect of actually getting
their wish has made them nervous.

The post statue performance was not that dismal. It was just
that most traders had such great expectations. Therein lies
our problem. Expectations have been so bloated for weeks
that professional traders were ready for a sell the news
event. If -200 Dow points were all they could manage to
sell then things might not be as bad as the bears think. I
won't bore you with all the market technicals because Leigh
Stevens does a much better job in the Index Trader Wrap
elsewhere in the newsletter. Suffice to say we are still in
the trading range between 8150-8350 that I have been pointing
to all week. The Nasdaq is fighting to hold the lower end
of its trading range at 1350 and with IBM/INTC/MSFT earnings
in the next two days it is doing well under the pressure.

The one thought I will leave you with today is the VIX. I
know everyone gets tired of hearing about the VIX analysis.
Anyone wanting a full understanding of this indicator need
only look in the Traders Corner archives for Mark Phillips
great series of VIX articles. The bottom line remains it
closed at 28.27 on Friday. It set a new three-month low at
27.77 intraday and it is only two points away from a low
not seen since June 2002 at 26. The low for 2002 was 18.87
on March 28th. Just before earnings began. There is a pattern
here. The VIX tends to hit lows just before key earnings
weeks only to rocket a week or two later when those earnings
disappoint. Note the following charts. The first one compares
the DOW/VIX for March or 2002. The second is the current
chart. Compare the similarities. Also, note the market
relationship in December and January. What would your
conclusion be?

Vix/Dow Chart - daily (March 2002)




Vix/Dow Chart - daily (current)




On the last chart we still have the downtrend line from
November and the 200 EMA. I am not predicting a rally or
a dramatic crash. I am only pointing out that traders had
great expectations and many still do. Those expectations
may have been filled by that giant spike in March and a
lack of positive guidance over the next two weeks could
deflate those expectations. This does not mean we are
going to retest March lows. It may just mean we may not
rocket back above 8500 anytime soon.

Traders next week should be on the lookout for weakness and
be prepared to protect long positions. Should we get some
positive earnings surprises I would look for a critical
resistance test at Dow 8520. This has been the high for
March and April and a critical level any rally must conquer.
Load up on the caffeine on Monday. You will need it to keep
up with the frantic pace in the holiday shortened expiration
week.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Funny Hats with Feathers

Friday, April 11, 2003
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

> DOW
Last: 8203.41
Net: -17.92
High: 8337.65
Low:  8179.74

> YM 03M
Last: 8165
Net: -39
High: 8317
Low:  8153

> S&P 500
Last: 868.30
Net: -3.28
High: 883.34
Low:  865.92

> ES 03M
Last: 868.25
Net: -3.50
High: 883.50
Low:  864.75

> Nas 100
Last: 1026.15
Net: -6.99
High: 1051.88
Low:  1020.56

> NQ 03M
Last: 1028.50
Net: -9.50
High: 1054
Low:  1022

DAILY PIVOTS

> YM 03M
R2: 8364
R1: 8248
Pivot: 8200
S1: 8084
S2: 8036

> ES 03M
R2: 890
R1: 878
Pivot: 871
S1: 859
S2: 852

> NQ 03M
R2: 1065
R1: 1044
Pivot: 1033
S1: 1012
S2: 1001

Have you ever noticed how often the dress uniform for a given
military unit is often very silly looking?  You have these
extremely useful, practical military outfits for going out and
doing battle, but those dress uniforms are something straight out
of the Land of Absurd.  The more poor and destitute a country is,
the more odd their military uniforms become.  Now, I'm not going
to name names, but some of my favorite uniforms involve the
excessive use of Silly Hats, and the silliest are the short stubby
hats with the single, tall feathers sticking straight up.  I bring
this up because if you look at the daily charts of the futures,
you will note they contain a veritable parade of candles with
tails pointing to the sky, like a parade of soldiers, hats and
feathers in the air.   Perhaps I'm seeing things, or the war news
has finally gotten to me.  This hypnotic market has been putting
me into a trance daily, with the sameness of a loud metronome,
ticking back and forth.  And it even has me mixing metaphors. I
shudder to think what's next.

This is a market that can't go anywhere.  There are many prettier,
and wordier ways to put it, but they all come to the same point.
Why?  That too is very simple:  there is a lot of bullishness, but
the bulls can't push it higher, and they won't let the bears take
it lower. The alternate is that after being trounced for long, the
bears are too scared to try.  Again, say it any way you wish, but
the gist is the same.

Just when I think (and hope) that I've written my last wrap that
in essence says, "well, nothing's changed, but tomorrow it may," I
find that yet again, I'm faced with the same daily chart, which,
I'm not ashamed to say, is really starting to irritate me.  So
here goes:

The ES Daily chart has not changed.  It is split with conflicting
signals, some bullish and some bearish.  Macd has crossed down and
continues to make its way slowly toward centerline support.  RSI
is below the moving average, but today's strong gap up pulled it
upward. ADX still is showing buying overcoming selling, but this
is most likely skewed by the strong gap as well.  The 55 period
regression channel is pointing up purple), the 200 period is
pointing down (black), and the 78 period is nearly flat but is
slightly down (blue). All stochastics are pointing down.  Note: my
article this week in the Futures Corner will focus on how to read
this particular stochastic study.

ES Daily Chart:




The 270 minute chart shows how price gapped up over two trendlines
of resistance, and then sold off to below both of them.  This is
extremely bearish.  Yet.  Look what happens next:  oh my, price
rises and closes above the downtrend line that was resistance
yesterday, we gapped above this morning, sold through to create
that very bearish moment, and then we move back above it, which
one might think is bullish, but at this point I'm just rolling my
eyes.  The indicators are all still bearish with the exception of
the ADX which just seems a little confused, and almost like it
doesn't care what's going on.

ES 270 Minute Chart:




ES weekly chart is little better than the daily. A mighty attempt
was made this week to move above the downtrend line drawn from the
past two peaks, but it failed, and moved below last weeks close,
but above the close of the week before, and lower than the week
before that.  I know it's obvious, but stating it just shows how
indecisive we are even on a weekly basis.  Macd looks tired and
starting to bend over a bit, RSI is nearly flat, and ADX is doing
little, except erasing a little bit more bearishness from the
slope.  The only thing still obviously positive are the
stochastics which are still in an uptrend.

ES Weekly Chart:




NQ daily chart actually looks a little better to me.  I think it's
mostly due to how the candles look.  Here you have a lower top and
a selloff, but the selloff stops short of the recent lows and
bounces hard.  Today, we attempt to move much higher to continue
with the bounce, but we fail, still closing over the recent
downtrend line.  That line, however was too steep to hold, so a
break is no surprise.  So there are two ways to read this.  Either
we it's bullish, because we made a higher low and still closed
above recent horizontal support; or it's bearish, because we
closed in the lower 25% of the candle leaving a big tail above,
and closing below yesterday's closing price.  Stochastics are
still in a solid downtrend, Macd has broken below centerline, but
the slope is very tame.  RSI has stopped moving down and is above
the recent low, and ADX is confused, a theme among all these
charts, it seems.

NQ Daily Chart:




The NQ 270 minute chart shows how the broken downtrend line held
as support on the selloff from the gap.  There is now a slight
rising support trendline from the two most recent lows, and price
closed well above that.  Both regression channels are tilted up
showing a bullish bias over 78 and 200 periods.  Most of the
indicators are still in solidly bearish territory but the fast
stochastic has bottomed and looks like it is moving up.  Again,
this chart is saying that the selling has been strong, and that
price has not done enough to change the indicators, but that it is
holding support well.

NQ 270 Minute Chart:




The NQ weekly chart tried to move above the most recent downtrend
line off the recent highs, but failed and moved down sharply to
close near the lows of the week.  This close is the lowest of the
past month, although it has not broken the lows set last week.
There is a falling trendline of support that was broken four weeks
ago, and that is a logical place for a bounce the first time it is
tested.  Just below that is an uptrend line off the October lows
that should provide a lot of support.  Indicators have turned more
bearish this week, with stochastic about to cross down, and fast
stochastic already crossed over, although not aggressively.  RSI
still holding above the moving average and the centerline at 50,
and ADX shows selling has dropped off.

NQ Weekly Chart:





Like I said when I started.  A lot of indecision and mixed
signals.  All the candle tails tell us we can't seem to go up, but
the market cannot seem to go down.  A classic standoff that should
get very interesting next week with options expiry and big names
reporting their quarterly results.


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

Mother of all Battle Plans
By Leigh Stevens
lstevens@OptionInvestor.com

This past week brought success to General Tommy Franks' battle
plan (following the guidelines of Secretary Rumsfield no doubt)
as the Iraqi regime collapsed faster than most dared hope.  And,
as Vice President Chaney said, it was done contrary to the advice
of the retired military folks "embedded" in TV studios - who were
second-guessing our relatively small number of troops in country.
For battle, the numbers involved led to a brilliant execution -
for keeping order it was uncertain by week's end if the generals
had the right forces ready to roll.  Well, if this is the worst
thing to worry about currently, not so bad.

For the markets, a big uncertainty is over, which could be
bullish if only now the economy and earnings revive. General
Electric (GE) executed pretty brilliantly as the company recorded
a 20% increase in earnings (to $3 billion, versus $2.5B a year
ago) last week to 30 cents per share, versus 25 cents last year.
However, consensus estimates were for 32 cents.

Nevertheless, I thought it remarkable that 8 of 13 GE business
groups recorded double-digit earnings growth.  Well, the house
that Jack built is probably an exception to what corporate
America in general is doing or will be reporting in coming
weeks/months - especially out in techland. Hey, I now live near
the heart of techland - Silicon Valley that is.  I know traffic
is well under what it was a year, or two, ago. I'll let you know
when the traffic jams get as intense as they were - hopefully NOT
for the sake of my sanity on the way to San Fran.

THE BOTTOM LINE –
The market remains stuck in trading range on a near to
intermediate-term basis, with the major trend still down. It's
still a bear market unless prior rally highs are exceeded. The
sideways move going on for some weeks now could be basing action
of a bottom. However, so far there's no telling if the indexes
are consolidating prior to an eventual breakout above the key
200-day moving average in the S&P and Dow or to a further
sustained uptrend in the Nasdaq that would take out its double
top.

For index traders, there will likely be some price swings large
enough to exploit profitably - however, absent the war news and
before a significant economic upswing, there may be less of the
bigger moves. I'll be waiting for the larger overbought/oversold
extremes according to the daily charts or on the hourly charts
over a 2-3 day period.

FRIDAY'S TRADING ACTIVITY –
The big news - we consumers aren't as "dead" as the pundits were
thinking.  I know I still like spending those pieces of paper
with pictures of dead presidents on them.  (I have to confess,
that this is what my old PaineWebber colleague Art Cashin used to
say all the time about spending money.)

There was sharp first hour run up on the news from the Commerce
Dept. that said that U.S. retail sales rose 2.1% in March.  The
rally looked like it was driven by short-covering, because the
gains quickly faded when more buyers with deeper pockets failed
to step in.  It was all on light volume too.

Tech stocks lost more than the Dow (off by only 2 tenths of a
percent) as the Composite fell to 1358.8 - the widely followed
SOX index (Semiconductors) fell the most, at off 1.5%.

March retail sales was significantly stronger than economists'
estimates.  A big worrisome overhang in the market was something
like what if the CONSUMER stops spending because he or she is
worried about something like losing their job or WAR in the oil
patch.  Never underestimate the propensity of Americans to spend
spend spend.  (Well, we do have a lot of nifty things to buy here
and their all from China.)

The jump in March retail sales was the largest increase since
October 2001 when people went back to spending after laying very
low in Sept. 2001 - 0% financing on cars helped a lot too!

U. of M.'s consumer sentiment index which was released later in
the session showed some growing confidence - the index jumped to
83.2 in April, up from 77.6 in March, versus expectations of a
rise to 78.  Oh, those gloomy economists.  Some floor talk was
that a sentiment number closer to 90 would have gotten the market
more in gear to the upside.  Oh, those gloomy traders.

The Labor Dept. came out with its PPI report and this report
indicated that prices for finished goods rose 1.5% last month,
which was up from 1% in Feb. More than the half of the increase
was due to higher energy prices and any trips to the pump lately
will tell you that the oil price spike is coming back down.
Also, the winter from Siberia is over!  Hooray!!!

On a weekly basis, the S&P 500 lost less than 1/2 of 1 percent,
the Dow was off 0.89% and the Nasdaq dropped 1.8%.

EARNINGS concerns - remember those?  Back on traders and
investors' minds they are. Hey, we're back in earnings
(reporting) season next week.  I mentioned GE already and that
was a biggie. Boeing fell over 2% after the company said Thursday
(after the close) that is will record a big write off on the
value of its assets - well, at $1.2 billion pretax it seems like
a big number to me.

Microsoft, the company I love to hate - not really, I just sort
of hate their software sometimes - fell 1.6% to 24.20 after being
downgraded by First Albany.  They went from a "strong buy" to a
"buy" on concerns that the company may have more trouble renewing
maintenance contracts than originally thought - all this a drag
on the profit growth in their 2004 fiscal year.

Wal-Mart also drew a downgrade - to "hold" from "buy" - from some
yahoo analyst. Opps, I used to be one of those analysts.  Well,
the stock is only trading - as he put it - at "whooping" 27 times
20003 earnings estimates.  Wow, that (kind of multiple) used to
be cheap!

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily & Hourly charts:

SPX continues to find resistance at the key 200-day moving
average, as it's an area where traders naturally both take
profits and do some shorting - and, it is a technical (one of the
few) indicator that institutional money managers do watch.  They
have to be on a roll with stocks and possess a bullish outlook to
buy up stocks enough to push the index through this area - NOT! -
at least not yet and with key bellwether stocks like GE and
Microsoft faltering, not tomorrow either.





Key resistance continues to be in the 880-885 area on a closing
basis.  While the Dow - and that average can get pushed around
more - did close above its 200-day average on 2 consecutive days
(my usual "acid" test), not so the S&P 500.

The 50-day moving average, now at 848 (daily chart, left-above),
may provide a next level of support.  SPX needs to work higher in
the very near-term, like Monday, to continue to trend higher on
the hourly chart (right-above) - this trendline intersects in the
867-868 area currently. Stay tuned.

The longer hourly stochastic (length: 21) is oversold enough
that it could continue to climb higher at or above this line -
however, I'm not banking on it and would rather wait for a next
trade when the DAILY stochastic (middle chart, left-above) gets
to an oversold extreme again and is digging into some prior
support such as in the 860-850 area - the daily stochastic is in
midrange now and showing overall downward momentum.

The 10-day TRIN is at a more or less neutral reading.  We have
not seen sustained selling or buying lately in any kind of
extreme way.

I made a note in my past week's Trader's Corner article - see
http://www.OptionInvestor.com/traderscorner/tc_041003_2.asp
about how neatly the bull flag pattern seen on the hourly chart
above did exactly what the TA (technical analysis) textbooks (my
own included) say is a minimum upside objective when prices break
out above the "flag" pattern - namely, the next move will cover a
distance equal to the "flagpole" or the first spurt up.  So, in
the way I have marked it above, that's where a-b equals c-d.
Rather neat and provided all you OIN sharp eyed traders with a
good trading opportunity.

You even sharper eyed practitioners of TA will have also seen the
pronounced bearish price/oscillator (in my example above, the 21-
hour stochastic indicator) divergence that shaped up at the top
of that upswing, as the stochastic registered a significantly
LOWER low and thereby did NOT "confirm" the higher high - a sort
of screaming sell.

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

450 is the key near resistance - no change there from last week.
There was a minor Head & Shoulder's Top that formed on the hourly
chart, and the downside objective implied by that formation has
not quite been realized yet.

This thinking leads me to believe that the hourly up trendline is
not going to hold as support. Both hourly stochastic models are
nearly oversold readings, so it could happen that we get a bounce
from the 440 area, but I would rather buy puts at 450 than calls
at 440. There is the matter also of the downward momentum we
still see on the Daily stochastic (not shown with OEX, but on the
SPX chart above and the Dow chart below) and the absence of any
extreme in my chief "sentiment" indicator (see lower left on
chart) leads me to take a wait and see attitude.

Note how the last extreme (heavy PUT buying) forecasted the
bottom that came 1-day later.  Neat, when it works and it usually
works as an indicator, but the lead time does vary from 1-5
trading days.





An ideal successful test is if buying developed again on any move
back to the area of the prior 427 low when, at the same time, the
daily oscillators like the 14-day RSI and Stochastic model was
back at an oversold extreme.  That would be a place to take put
profits and purchase some of the index calls.  I favor the 427-
430 area as a possible buy zone, but will want to see how it all
looks if the OEX gets back into this area.

A decisive upside penetration of 450 would cause me to
protectively cover (exit) long puts.  It's not what I'm looking
for but all long-lasting traders with any flecks of grey hair (or
not) should always be prepared to be wrong.  If it were easy - to
profitably trade the indexes - we would all be rich or richer
than we are.

Dow Industrial (Dow 30) Average Daily & Hourly:

The Dow is simple - hey, its only 30 stocks - nothing is proved
on the bullish side without a breakout above 8350-8400 and there
is support in the 8000-8100 price zone.  Absent a close under
8000, I can't get real bearish either. Of course, I think we're
in trading range basically while the market waits to see if we're
going to see a pickup in business activity and earnings by
spring/summer.  Stay tuned.





There is also some technical support that may come in again in
the 81 area in DJX. However, all this is, is the lower end of the
hourly downtrend channel currently - not a lot to hang your hat
on.  If long puts, stay with em.

Nasdaq Composite Index (COMPX) – Daily & Hourly:

The Nasdaq presents a more bullish possibility if its 50 and 200-
day moving averages provides support in the 1337 area.  Of
course, we're looking a double top that is bearish, so I wouldn't
want to forget this either.

If there is close under the 1340 area I would look for a further
move lower.  Its a real mixed picture with stocks no matter
whether you look at them fundamentally or technically or with a
mix of both.





The hourly COMPX chart above is showing that there may be some
technical support and buying interest shaping up in the 1350
area, after the upside gap got "filled in" and after the "island
bottom" which I spoke about in a previous Index Trader
commentary.

With the Composite the basically sideways trend is causing the
stochastic to head lower and it may move back down that way to
register an oversold reading. Corrections, as I've often said,
are of two types - price and "time".

A price correction is where there is a move, then a retracement
of half or more for example.  A "time" correction is where the
market goes sideways after a move, up or down, then goes
sideways, which also causes the stochastic or RSI or whatever
indicator of this type (also, MACD) to get back to a neutral to
overbought/oversold level again.

Let me not forget to mention that the broader picture is still a
bear market in Nasdaq - as if you needed any reminding! We have
yet to see ONE instance of a higher rally high of any
significance.  However, on a trading basis I have interest in the
long side (buying calls) of the Nasdaq indices plus QQQ, if COMPX
appears to again find support in the 1340 area.  In which case
I'd exit puts.  Not so if there was a break of 1340-1337,
especially on a closing basis, as possible next support isn't
apparent until the low-1300 area.

QQQ charts - Daily & Hourly:

Near support looks to be 24.6-25.3.  A break of 24.6, especially
on a closing basis, would suggest staying short and/or long puts
if you got em.  On the upside, without a breakout above 27.4-27.8
there is no cause to buy back any short position.  This is the
are to short - there have been 3 tries to get through this area -
3 strikes and you're OUT!





What keeps me mildly bullish or willing to trade the long side in
the 24.7-25 area in the Q's is the fast approaching oversold
condition.  One more sideways to lower move may set up a bullish
trade.  Maybe we can just buy at 25, sell at 27.5 for the next
month - or, am I dreaming.  Trading range markets are ok - not as
great as straight-up or straight-down, but I'll take em.

In fact, on the historical average the market is only in a
definite and strong directional trend about 30% of the time.  The
rest of the time it is this back and forth stuff.


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

No Brainer

Choosing a play this week was a no brainer. The various options
and the various market expectations for next week made the
choice very simple. At least simple for me.

The market appears weak but appearances can be deceiving. However,
with IBM, INTC and MSFT all announcing earnings the first two
days of the week the direction for tech should be decided by
4:30 on Tuesday if not by 4:30 on Monday when IBM announces.

This is also expiration week. This affords us some very cheap
options to gamble with. I say gamble since any speculative
play with April options in expiration week is pure gambling.

The third time is the charm. The last two times I tried to play
the QQQ we had a market event at the open on Monday and the
plays should never have been entered. That could happen this
week as well but I am going to try it again.

I am going to use a QQQ strangle. The QQQ closed Friday at $25.51
and dead center between two strikes. The $26 April call closed
at 25 cents on Friday. The $25 April put closed at 30 cents.
These prices should be cheaper at the open on Monday. You should
be able to buy the strangle for 50 cents or less unless we have
another gap open on Monday.

The risk here is that the QQQ does not move more than $1 in
either direction. Since it is exactly between the strikes it
needs a 50 cent move to get TO THE MONEY and another 50 cent
move to get to breakeven on either side. Granted you can
probably play the spikes but don't count on it.

Personally I think somebody is going to stink up the place
and the QQQ could hit $24 by Thursday's close. THIS IS PURE
SPECULATION AND HIGH RISK. A drop to $24 would make the put
option worth $1.00 at expiration.

There are three ways to play this.

First, you could take the strangle mentioned above and spend
50 cents to potentially make 50 cents. The odds are good but
not guaranteed and high risk. This would not be my choice.

Second, you could just take the put side of the strangle at
30 cents or less and hope for an earnings disaster. The QQQ
would have to move -80 cents for you to break even by Thursday.

Third, and my preferred option, is to cheat. Buy the May $25
put which closed at 90 cents on Friday. This gives you an
entire month for the drop to occur. Read my market wrap for
Sunday and decide which direction you think we are going.
Then buy the April $26 call for 25 cents or less for insurance.
Your total cost is probably going to be around a dollar after
the premium decay occurs over the weekend. (assuming no market
gap open on Monday) If IBM/INTC/MSFT blows the doors off the
QQQ will likely spike and you cash your insurance call before
Thursday's close. You hold the May put for the eventual drop
into the summer doldrums.

Using option number three you are protected against the upside
potential and have a longer timeframe to profit from any
downside from negative earnings guidance.

April $25 put = QAV-PY $.30
April $26 call = QAV-DZ $.25
May $25 put = QAV-AY $.90
May $26 call = QAV-EZ $.90







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

Play updates:

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

ORCL - Put - $11.29
4/6/03 ($11.37 when recommended)

Thank you, thank you, thank you. The huge gap open on Monday
rocketed ORCL to $12.00 and lower the cost of the recommended
May $12.50 put from $1.50 to $1.10 at the open. This was as
close to a perfect entry as possible. ORCL sold off to $11.29
by Friday's close and appears ready to drop further. The
$11 area is holding as we wait for the MSFT earnings on
Tuesday. I doubt even good earnings will help ORCL but should
MSFT lower guidance again it could be a real problem. Looking
good!

QLGC - Qlogic Put - $38.00
3/23/03 ($39.98 when recommended)

We are just not getting any cooperation from QLGC, which appears
stuck at $38. I am closing this one today with only one week
left on the April option. The option closed Friday at .55 x.75
after trading as high as $1.60 this week. The price when
recommended on 3/23 was $1.65 and it traded as high as $2.05.
Sometimes things just don't go your way.

http://members.OptionInvestor.com/editorplays/edply_032303_1.asp


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

http://members.OptionInvestor.com/editorplays/edply_030203_1.asp


Microsoft Call - Feb-16th $24.21
(MSFT $24.15 when recommended)

I am closing the MSFT call play due to the poor performance by
the stock as we get closer to its earnings on Tuesday. It appears
somebody thinks we may get some bad news as it is well off the
$26.88 high from a couple weeks ago. The recommend July-$25 call
was $2.25 when recommended and traded as high as $3.20 since. It
closed at $1.60 on Friday. The performance of Microsoft could be
a leading indicator of our earnings week ahead.

http://members.OptionInvestor.com/editorplays/edply_021603_1.asp


EMC Call from Feb-2nd  $7.73
($7.70 when recommended)

http://members.OptionInvestor.com/editorplays/edply_020203_1.asp


Powerball - From 12/29/02

The warning by RFMD did not help this portfolio play over
the week and that single option represents 30% of the loss
year to date.

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





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

Relationships Tested
by Steven Price

The war is winding down and it appears the war trade is fading.
We have been left to decipher economics once again and this
morning gave us a clue as to just what will be needed to get a
rally in the equities.  The short answer is "a lot."  We got
better than expected data from the retail sector, with retail
sales coming in significantly above expectations for March.  The
Commerce Department adjusted the numbers for a late Easter and it
appears to have made an awfully big difference from the sales
reports we saw on Thursday. There were a slew of disappointing
individual results on Thursday, with below expected results from
Wal-Mart leading the pack, but the government's formula showed an
increase of 2.1% after a February decline. That increase was the
highest since the post - 9/11 October increase of 6.2%.  The
increase does seem curious; however, as we saw warnings and a
drop in same store sales at large department stores such as J.C.
Penney, Federated (Macys and Bloomingdale's) and a gain of only
0.7% at Wal-Mart. Much of the number was due to a larger than
expected increase in auto sales, but even without those sales,
there was an increase of 1.1%. The data was also enough to get
the markets on an early roll ahead of the Consumer Sentiment
release 15 minutes after the bell.

The Consumer Sentiment index rose to 83.2 in early April from an
end of March reading of 77.6.  While still historically low, it
was a big improvement over the previous month and well above
expectations for a reading of 79.5.  It was also the highest
reading since December. The main ingredients in the improvement
were falling oil prices and the progress in the war. After the
first Gulf War, consumer sentiment rose 17 points.   We still
need to keep this in perspective, however, and realize that we
are just coming off of 10-year lows and remain very low
historically. Half of the consumers surveyed still expect a
difficult economy in the next year and don't expect more hiring
in the coming months. That would seem to fit with Thursday's CEO
survey that indicated 45% expect to cut jobs in the next 6
months.

The data was enough to push the Dow to a triple digit gain to
start the day.  But as the Dow, OEX and SPX all ran into their
descending 200-dmas and the coinciding 38.2% retracement of the
Oct-Dec lo-hi range, they were hammered hard.  The intraday
reversal looked much like the ones we saw on Monday and
Wednesday, with traders selling into the rallies. The triple-
digit gain turned into a reversal of 150 points at one time. The
intraday action also led to some divergences that we haven't seen
in a while. The bond yields stayed positive, indicating selling
in the treasury market, which is usually bullish for stocks. In
fact, after a morning sell-off, they crawled higher all day, even
as stocks were taking out support and testing intraday lows. That
was probably a good indication that we wouldn't see a major
equity sell-off, as asset allocation was favoring the move out of
bonds and into stocks at that point.  Oil futures traded lower
for most of the day, also diverging from their recent
relationship to equities.  However, a late day rise in that
market kept the inverse relationship with stocks in tact at the
close.  Still, we are seeing less of a correlation as the war
comes to a close. The dollar stayed positive, in spite of stocks
falling, which was yet another divergence from the norm.

While we are seeing a number of relationships stretched and in
some cases broken, it simply underscores the lack of conviction
the past few days have brought.  It is as if now that the war is
coming to a close, traders are confused about just where to hang
their hats.  They will likely turn back to the economy and
unfortunately it doesn't look so good right now.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8203

Moving Averages:
(Simple)

 10-dma: 8209
 50-dma: 8002
200-dma: 8345



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  868

Moving Averages:
(Simple)

 10-dma:  871
 50-dma:  848
200-dma:  882



Nasdaq-100 ($NDX)

52-week High: 1573
52-week Low :  795
Current     : 1026

Moving Averages:
(Simple)

 10-dma: 1040
 50-dma: 1013
200-dma:  989



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

The Semiconductor Index (SOX): The SOX rolled over and headed
back below support at the 300 level on Friday. The low of 296
amounted to the third successful test of the 50-dma (currently
295) in as many sessions.  However, the action of the past two
days has violated an upward sloping trend line connecting the
February, March and early April lows, so a break below that 50-
dma could also be seen as confirmation of a bearish pennant
breakdown.

52-week High: 618
52-week Low : 209
Current     : 298

Moving Averages:
(Simple)

 21-dma: 314
 50-dma: 295
200-dma: 306


-----------------------------------------------------------------
Market Volatility

The VIX continued its slide from support in the 29-30% range.
This indicates a possible slide to the next support level at 26%
and that would equate to a rally in equities.  As mentioned
above, many intermarket relationships were stretched today, so
traders should view the break with skepticism.  However, it still
gives us bullish implications.


CBOE Market Volatility Index (VIX) = 28.27 -0.69
Nasdaq-100 Volatility Index  (VXN) = 39.62 -0.71

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.79        495,087       393,321
Equity Only    0.66        333,937       219,556
OEX            0.74         39,688        29,240
QQQ            0.97         42,308        41,132


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

Bullish Percent Data

           Current   Change   Status
NYSE          43.9    + 0     Bull Confirmed
NASDAQ-100    56.0    - 1     Bull Alert
Dow Indust.   43.3    + 0     Bull Alert
S&P 500       47.0    + 0     Bull Confirmed
S&P 100       45.0    + 0     Bull 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  1.28
10-Day Arms Index  1.26
21-Day Arms Index  1.26
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       1341           1437
NASDAQ     1395           1572

        New Highs      New Lows
NYSE        50               31
NASDAQ      70               42

        Volume (in millions)
NYSE       1,313
NASDAQ     1,198


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

Commitments Of Traders Report: 04/08/02

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

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

S&P 500

Commercials added to the long side and reduced short positions
for a net long gain of 4,000 contracts.  Small traders reduced
both sides for a net reduction of 3,000 contracts from the long
side.

Commercials   Long      Short      Net     % Of OI
03/18/03      483,224   490,582   ( 7,358)   (0.1%)
03/25/03      424,781   415,258     9,523     1.1%
04/01/03      417,637   409,332     8,305     1.0%
04/08/03      420,084   407,452    12,632     1.5%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   12,632  -   4/8/03

Small Traders Long      Short      Net     % of OI
03/18/03      184,907   153,400    31,507      9.3%
03/25/03      143,402   123,178    20,224      7.6%
04/01/03      143,580   126,594    16,986      6.3%
04/08/03      136,173   122,006    14,167      5.5%

Most bearish reading of the year:  14,167 - 4/08/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

The small trader change in data seems rather extreme from the
last report to this one and as a new addition to the newsletter,
we will wait to draw conclusions until we have a more reliable
data stream.

Commercials   Long      Short      Net     % Of OI
04/01/03       98,460   321,335    222,875  (53.1%)
04/08/03      114,210   344,961    230,751  (50.3%)

Most bearish reading of the year:  230,751  - 04/08/03
Most bullish reading of the year:  222,875  - 04/01/03

Small Traders Long      Short      Net     % of OI
04/01/03        2,296     1,146     1,150    33.4%
04/08/03      319,460    35,629   283,831    79.9%

Most bearish reading of the year:   1,150   - 04/01/03
Most bullish reading of the year: 283,831   - 04/01/03


NASDAQ-100

Commercials added 10% to the long contract position while leaving
shorts unchanged. Small traders added slightly more contracts to
 the short position.


Commercials   Long      Short      Net     % of OI
03/18/03       58,877     64,302   ( 5,425) ( 4.4%)
03/25/03       44,403     36,436     7,967    9.9%
04/01/03       40,493     36,893     3,600    4.7%
04/08/03       44,257     36,711     7,546    9.3%


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
03/18/03       37,097    26,951    10,146    15.8%
03/25/03       10,313    20,080   ( 9,767)  (32.1%)
04/01/03        9,771    13,306   ( 3,535)  (15.3%)
04/08/03       11,365    17,790   ( 6,425)  (22.0%)

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 positions relatively unchanged, while small
traders did the same.

Commercials   Long      Short      Net     % of OI
03/18/03       26,880    18,853    8,027      17.6%
03/25/03       19,752    10,212    9,540      31.8%
04/01/03       19,068    12,672    6,396      20.2%
04/08/03       18,566    12,616    5,950      19.1%

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
03/18/03        6,589     8,343    (1,754)   (11.7%)
03/25/03        5,076     7,721    (2,645)   (20.7%)
04/03/01        5,142     7,459    (2,317)   (18.4%)
04/08/03        5,886     7,964    (2,078)   (15.0%)

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

Calculating a % probability of Fed rate cut

When there is talk about the Fed cutting rates, how is that
percentage probability computed?  What's the formula?  Is there a
public site where anyone can see the raw figures and do the math
themselves?  Is there a site where the computed percentage can be
found?

We often hear reports where a probability of a Fed rate cut is
forecasted for a particular FOMC meeting.  You've heard it
mentioned on TV or radio, or read it in a newspaper or magazine.

Just how the heck is a probability assigned to such an event as a
rate cut or rate hike at one of Fed meetings where important
decisions are made as it relates to interest rates?  And why
should any trader or investor care about this futures contract to
begin with?

Believe it or not.... YOU or at least other traders in the
debt/interest rate markets, which is a BIG PART of the MARKET,
helps determine this "probability" of Fed action at one of their
meetings.

Traders will PAY ATTENTION to this futures contract as it gives
some INSIGHT into the MARKET's mindset.  The Fed raises or
loweres interest rates for two reasons.  One reason is to cool
down (raise rates) an economy as inflation often times results
from a surge in demand for products and goods if demand outpaces
supply goods and services, or try and stimulate (lower rates) an
economy by lowering the borrowing cost of capital that might have
businesses making purchases they might not otherwise make with
the cost of capital being deemed "too high."  The MAIN reason the
Fed will adjust its Fed Funds rate is to protect against
inflation, which in the end is simply a result of DEMAND
exceeding SUPPLY of a particular good or service.

How can you the trade/investor have impact on this probability?
By placing bets (bullish or bearish) in the Fed funds futures and
OPTIONS markets!  That right!  OPTIONS!  Did you know that the
Chicago Board of Trade just launched a new derivative that allows
traders to make bets on Fed action on interest rates and profit
from a correct prediction?  It's true!  The CBOT just launched
this new options product on March 14.
http://www.cbot.com/cbot/www/cont_detail/0,1493,10+24+109+11402,00.html

How is the probability calculated?  Once you get the hang of it,
it's really pretty easy.  All you have to know is two things.
The first item you must know is the CURRENT Fed Funds Rate.  A
neat site I found is Money-rates.com http://www.money-rates.com/keyrates.htm
 where the Fed Funds Rate is posted along with other key interest
rates.  This rate will be your "constant" from which you can
begin figuring out just what the probability of a rate cut will
be.

The second item you will need is the current (today's) Fed Funds
FUTURES contract trade.  This is a VARIABLE that can change
second-by-second, minute-by-minute or day-by-day.  This is the
VARIABLE where market participants will VOTE with their money on
just what they think the FOMC is going to do at the next Fed
meeting.  Here's a very interesting comment from the Fed dating
back to January 4, 2001 regarding the use and potential "misuse"
of the Fed funds futures.
http://www.clevelandfed.org/Research/Com2001/1001pr.htm

If you were a CFO of a large corporation and contemplating a
large purchase of equipment that you were going to finance with
borrowing, you might be keeping and eye on Fed Funds futures to
try and "time" or at use the potential change in interest rate
policy to influence the timing of your purchasing decision.

Now... here we are on Sunday, April 13, 2003.  I know, as do you,
that the current Fed Funds Rate is 1.25% (this is our CONTSTANT)
until the next FOMC meeting.  Yes... sometimes the Fed will give
us a "surprise" inter-meeting rate move, but this is where the
Fed Funds Futures comes in.

The Fed usually moves on interest rates in 0.25-point moves or
does nothing at all and keeps rates flat.  I use my q-charts
symbol (CBOT:ff03k) to get the May futures contract trade,
however, for the most part, it is sufficient to simply get an end
of day quote from the CBOT site
http://www.cbot.com/cbot/quotes/fin_futures/0,1860,FF+1,00.html
 and their symbol for 30 Day Federal Funds is (ff).

Once we have our CONSTANT (current) and our VARIABLE (futures)
Fed Funds Rates, we can begin working on how to assign a
probability and prediction of what the Fed will do.

Let's look at a chart of the May Fed Funds Futures contract
(ff03k) and it can be very interesting for traders to see what
the MARKET was thinking, perhaps why it was thinking the way it
was, and it may have actually had or have influence on what STOCK
traders are doing with their money based on Fed policy.  In the
chart below, I'm also going to show the equation for calculating
the actual Fed funds futures "interest rate."  You'll need to do
this in order to interpret the current trade of 98.795 in Fed
interest rate terms.  It's real easy.

May Fed Funds Futures Contract (ff03k) - Daily Intervals




From a base value of 100, we see that the MARKET is currently
predicting a Fed Funds Rate of 1.205% at the May 6th meeting.
Since the Fed usually moves its key rate of interest in 0.25
increments, one would either expect rates to remain unchanged
(current rate is 1.25%), with a slight probability of a rate
increase.  I'll discuss how we can assign a probability to this
in a minute.

I've made a couple of notes on the Fed Funds futures contract,
which really shoots a hole in some trader's theory that Fed rate
cuts are a "positive sign" for the stock market.  While Fed rate
cuts can create capital liquidity for a stagnate or slowing
economy by lowering interest rates, the fact that the Fed is
cutting rates gives the impression of future slowing where
stimulus is actually needed.

A market technician can perhaps see how a level of RESISTANCE was
broken to the upside on December 17th on a closing basis when the
May Fed Funds Futures contract (ff03m) broke above 98.75 on the
chart began moving higher.  Now... on November 6, 2002, the Fed
lowered rates by 50 basis points to 1.25%.  Was it a good sign
for the May Fed funds futures and MARKET to begin thinking the
economy needed ANOTHER rate cut in May?

From December 17 to March 10, the MARKET was now fully pricing in
another 25 basis point rate cut wasn't it?  See how the SPX
benchmarks from those dates had the SPX falling nearly 100
points?  Wow!  So much for rate cuts being a good sign for the
stock market.

Lets look at how we can perhaps assign and then follow a
"probabilities" forecast of Fed action as it relates to the
upcoming Fed meeting.  As each day passes, the MARKET gathers
more information from economic reports and global events to make
a decision on what the Fed will do and why the Fed might do what
is does, or doesn't do.

On the above chart, I market the "range" of 98.75 to 99.00 to
mark a 25 basis point or 0.25% range.

Did you find the tool in your toolbox that can help assign a %
probability to Fed action?  Retracement!  An excellent tool for
trading levels and breaking things up into ranges.  Check it out!

May Fed Funds Futures Contract (ff03k) - Daily Intervals




Using a retracement bracket from 98.75 to 99.00 and dividing this
RANGE into increments of 10%, all of a sudden, we can sound like
an overly astute TV commentator or "Fed Watcher" and say "the
market currently sees a less-than 20% chance of a Fed rate cut at
the May 6th meeting."

Heee, heee, heee.  I bet you thought somebody won a Nobel Prize
for mathematical computation and forecasting for this didn't you?

It can be "interesting" to look for "spikes" in the Fed Funds
futures contracts and look for DIVERGENCE to news events that may
give "clue" to stock market action.

For instance... on March 31 the Chicago PMI fell below the 50.00
level for the first time since October.  This "should have"
perhaps been viewed as a negative as it showed CONTRACTION at the
industrial level.  If the MARKET felt the economy was really
beginning to WEAKEN (bad for stocks?) then we might have expected
the May Fed Fund futures to rise back toward 99.00 and see an
increasing probability for a Fed rate cut to 1.00%.  Right?

But it didn't and over the next couple of days, started trending
back lower.  What happened?  Stocks rallied strong the following
sessions!

Gosh darned it!  I will admit I did not make this observation at
the time in my Index Trader Wrap.  I would have looked like a
"genius" if I had.  However, I did go back and look at my March
31st Index Trader Wrap and by golly, we were indeed looking to
take partial BULLISH positions in the indexes the next day in
some "zones of support!"

Anyway... I don't want this to get into a "market analysis" type
of article, but you now have some idea of how Fed Funds Futures
can be used to try and get inside the mind of the MARKET.  How a
"probability" of a rate cut is determined for a particular month,
and how that probability can change from day to day as the MARKET
gathers information from global events and domestic economic
reports that may impact Fed policy on interest rates.

If you decide to trade option on Fed Funds futures... think about
this.  Imagine from the above chart that you had made a bet a
couple of months ago that the Fed would cut rates by 25 basis
points at its May 6th meeting, which would have put the Fed Funds
Rate at 1.00%.  When the Fed Funds Futures contract got within
10% of YOU being correct, what was your further UPSIDE as it
relates to your DOWNSIDE?  If you held a BULLISH position in the
futures contract, or an options contract, are you holding out for
99.00?  He-double-toothpicks probably not, unless of course you
then thought the Fed might "surprise" and cut 50 basis points.

Jeff Bailey


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

==========================================
Market Watch for the week of April 14th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

ACN    Accenture             Mon, Apr 14  Before the Bell     0.24
BAC    Bank of America Corp  Mon, Apr 14  Before the Bell     1.48
BBT    BB&T Corporation      Mon, Apr 14  Before the Bell     0.71
CSL    Carlisle Companies    Mon, Apr 14  After the Bell      0.49
C      Citigroup Inc.        Mon, Apr 14  -----N/A-----       0.77
ETN    Eaton                 Mon, Apr 14  Before the Bell     0.96
FNM    Fannie Mae            Mon, Apr 14  Before the Bell     1.73
FTN    First Tennessee Natl  Mon, Apr 14  Before the Bell     0.81
FBF    FleetBoston Finl Corp Mon, Apr 14  Before the Bell     0.55
HU     Hudson United Bancorp Mon, Apr 14  Before the Bell     0.63
GMH    Hughes Electronics    Mon, Apr 14  Before the Bell    -0.07
IBM    Intl Business Mach    Mon, Apr 14  After the Bell      0.80
NVLS   Novellus Systems, Inc Mon, Apr 14  -----N/A-----       0.07
RMBS   Rambus Inc.           Mon, Apr 14  After the Bell      0.05
RPM    RPM, Inc.             Mon, Apr 14  Before the Bell     0.04
NYT    The NY Times Company  Mon, Apr 14  Before the Bell     0.42
UIS    Unisys                Mon, Apr 14  Before the Bell     0.12


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

ADO    Adecco SA             Tue, Apr 15  Before the Bell      N/A
ADTN   ADTRAN, Inc.          Tue, Apr 15  Before the Bell     0.24
ADS    All Data Sys Corp     Tue, Apr 15  -----N/A-----       0.15
DOX    Amdocs Limited        Tue, Apr 15  After the Bell      0.19
ASO    AmSouth Bancorp       Tue, Apr 15  Before the Bell     0.43
ONE    Bank One              Tue, Apr 15  Before the Bell     0.72
BLK    BlackRock, Inc.       Tue, Apr 15  Before the Bell     0.54
BRE    BRE PROPERTIES INC    Tue, Apr 15  After the Bell      0.60
BCR    C.R. Bard, Inc.       Tue, Apr 15  Before the Bell     0.88
CDN    Cadence Design Sys    Tue, Apr 15  After the Bell      0.03
CDWC   CDW Comp Centers, Inc Tue, Apr 15  After the Bell      0.48
CLS    Celestica             Tue, Apr 15  After the Bell      0.07
CHKP   CheckPoint Sftwr Tech Tue, Apr 15  Before the Bell     0.24
CYN    City National Corp    Tue, Apr 15  After the Bell      0.89
CNB    Colonial BancGroup    Tue, Apr 15  -----N/A-----       0.28
CBSH   Commerce Bancshares   Tue, Apr 15  Before the Bell     0.73
DCLK   DoubleClick           Tue, Apr 15  After the Bell      0.01
ET     E*TRADE Group, Inc.   Tue, Apr 15  -----N/A-----       0.10
FBAN   F.N.B. Corporation    Tue, Apr 15  After the Bell      0.53
FITB   Fifth Third Bancorp   Tue, Apr 15  Before the Bell     0.72
FULT   Fulton Financial      Tue, Apr 15  -----N/A-----       0.34
GCI    Gannett               Tue, Apr 15  Before the Bell     0.92
GM     General Motors Corp.  Tue, Apr 15  Before the Bell     1.55
GPT    GreenPoint Financial  Tue, Apr 15  Before the Bell     1.46
RX     IMS Health            Tue, Apr 15  After the Bell      0.20
INTC   Intel Corporation     Tue, Apr 15  After the Bell      0.12
JEF    Jefferies Group       Tue, Apr 15  Before the Bell     0.50
JNJ    Johnson & Johnson     Tue, Apr 15  Before the Bell     0.68
JCI    Johnson Controls      Tue, Apr 15  After the Bell      1.38
KRI    Knight Ridder         Tue, Apr 15  Before the Bell     0.62
KFT    Kraft Foods           Tue, Apr 15  After the Bell      0.48
LAB    LaBranche & Co Inc.   Tue, Apr 15  Before the Bell     0.07
LLTC   Linear Technology     Tue, Apr 15  -----N/A-----       0.19
MAN    Manpower              Tue, Apr 15  Before the Bell     0.19
MEL    Mellon Financial Corp Tue, Apr 15  Before the Bell     0.37
MTG    MGIC Investment Corp. Tue, Apr 15  Before the Bell     1.35
MSFT   Microsoft             Tue, Apr 15  After the Bell      0.24
MLNM   Millennium Pharm      Tue, Apr 15  After the Bell     -0.30
MIL    Millipore Corp.       Tue, Apr 15  After the Bell      0.41
MOT    Motorola Inc.         Tue, Apr 15  After the Bell      0.01
NTRS   Northern Trust        Tue, Apr 15  Before the Bell     0.44
NVS    Novartis Corporation  Tue, Apr 15  Before the Bell     0.46
JNC    Nuveen Investments    Tue, Apr 15  Before the Bell     0.34
PH     Parker Hannifin Corp. Tue, Apr 15  -----N/A-----       0.47
PII    Polaris Industries    Tue, Apr 15  Before the Bell     0.54
PP     Prentiss Properties   Tue, Apr 15  After the Bell      0.80
PEG    PSEG                  Tue, Apr 15  After the Bell      1.20
RJF    Raymond James         Tue, Apr 15  After the Bell      0.34
RHI    Robert Half Intl      Tue, Apr 15  After the Bell     -0.02
PHG    Royal Philips Elect   Tue, Apr 15  Before the Bell      N/A
STX    Seagate Technology    Tue, Apr 15  After the Bell      0.27
SKFR   SKF AB                Tue, Apr 15  -----N/A-----        N/A
SOV    Sovereign Bancorp     Tue, Apr 15  After the Bell      0.32
STT    State Street Corp     Tue, Apr 15  Before the Bell     0.46
TER    Teradyne Inc.         Tue, Apr 15  After the Bell     -0.28
TXN    Texas Instruments     Tue, Apr 15  After the Bell      0.06
ALL    The Allstate Corp     Tue, Apr 15  After the Bell      0.78
MNI    The McClatchy Company Tue, Apr 15  Before the Bell     0.56
TSFG   The South Finl Group  Tue, Apr 15  Before the Bell     0.38
TBL    The Timberland Co     Tue, Apr 15  Before the Bell     0.31
TRMK   Trustmark Corporation Tue, Apr 15  -----N/A-----       0.48
TSS    TSYS                  Tue, Apr 15  -----N/A-----       0.16
USB    U.S. Bancorp          Tue, Apr 15  -----N/A-----       0.47
WM     Washington Mutual     Tue, Apr 15  After the Bell      1.04
WBS    Webster Financial     Tue, Apr 15  Before the Bell     0.86
WFC    Wells Fargo           Tue, Apr 15  Before the Bell     0.87
WABC   Westamerica Bancorp   Tue, Apr 15  -----N/A-----       0.69


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

AMD    Advanced Micro Dev    Wed, Apr 16  After the Bell     -0.49
AKZOY  Akzo Nobel N.V.       Wed, Apr 16  -----N/A-----        N/A
AL     Alcan Inc.            Wed, Apr 16  -----N/A-----       0.36
MO     Altria Group, Inc.    Wed, Apr 16  Before the Bell     1.06
ASD    American Standard     Wed, Apr 16  -----N/A-----       0.87
APH    Amphenol              Wed, Apr 16  Before the Bell     0.53
AAPL   Apple Computer, Inc.  Wed, Apr 16  -----N/A-----       0.02
ATR    AptarGroup            Wed, Apr 16  After the Bell      0.49
ASML   ASML Holdings NV      Wed, Apr 16  -----N/A-----      -0.03
AVCT   Avocent Corporation   Wed, Apr 16  -----N/A-----       0.26
BXS    BancorpSouth, Inc.    Wed, Apr 16  After the Bell      0.37
BAX    BAXTER INTL INC       Wed, Apr 16  Before the Bell     0.37
BOKF   BOK Financial         Wed, Apr 16  -----N/A-----       0.61
BRCM   Broadcom              Wed, Apr 16  After the Bell      0.02
CAT    Caterpillar Inc.      Wed, Apr 16  Before the Bell     0.25
CNT    CENTERPOINT PPTYS TR  Wed, Apr 16  After the Bell      1.02
CF     Charter One Financial Wed, Apr 16  -----N/A-----       0.64
CMH    CLAYTON HOMES INC     Wed, Apr 16  Before the Bell     0.19
CMA    Comerica Incorporated Wed, Apr 16  Before the Bell     0.99
CBSS   Compass Bancshares    Wed, Apr 16  -----N/A-----       0.63
COT    Cott Corporation      Wed, Apr 16  Before the Bell     0.14
CR     Crane                 Wed, Apr 16  After the Bell      0.27
CREE   Cree Inc.             Wed, Apr 16  After the Bell      0.14
DPH    Delphi                Wed, Apr 16  Before the Bell     0.22
D      Dominion Resources    Wed, Apr 16  Before the Bell     1.25
DOV    Dover Corporation     Wed, Apr 16  After the Bell      0.24
DSL    Downey Financial Corp Wed, Apr 16  Before the Bell     1.14
EMC    EMC Corporation       Wed, Apr 16  Before the Bell     0.01
ESV    ENSCO International   Wed, Apr 16  Before the Bell     0.16
F      Ford Motor Company    Wed, Apr 16  -----N/A-----       0.22
GD     General Dynamics      Wed, Apr 16  Before the Bell     1.02
GNTX   Gentex                Wed, Apr 16  -----N/A-----       0.31
GENZ   Genzyme               Wed, Apr 16  Before the Bell     0.31
GDT    Guidant               Wed, Apr 16  -----N/A-----       0.57
HDI    Harley-Davidson       Wed, Apr 16  Before the Bell     0.50
HRS    Harris                Wed, Apr 16  After the Bell      0.33
HRH    Hilb, Rogal Hamilton  Wed, Apr 16  During the Market   0.52
HCBK   Hudson City Bancorp   Wed, Apr 16  Before the Bell     0.27
HBAN   Huntington Bancshares Wed, Apr 16  Before the Bell     0.36
IDPH   IDEC Pharmaceuticals  Wed, Apr 16  -----N/A-----       0.24
ITW    Illinois Tool Works   Wed, Apr 16  Before the Bell     0.65
N      Inco                  Wed, Apr 16  -----N/A-----       0.19
JPM    J.P. Morgan Chase Co  Wed, Apr 16  Before the Bell     0.51
KMP    Kinder Morgan         Wed, Apr 16  After the Bell      0.50
LRCX   Lam Research          Wed, Apr 16  After the Bell      0.00
LEA    Lear Corp.            Wed, Apr 16  Before the Bell     0.98
LEG    Leggett & Platt       Wed, Apr 16  After the Bell      0.25
LYG    Lloyds TSB Group      Wed, Apr 16  -----N/A-----        N/A
MYG    Maytag                Wed, Apr 16  Before the Bell     0.57
MEG    Media General         Wed, Apr 16  Before the Bell     0.10
MERQ   Mercury Interactive   Wed, Apr 16  After the Bell      0.20
MER    Merrill Lynch         Wed, Apr 16  Before the Bell     0.61
MGG    MGM MIRAGE            Wed, Apr 16  -----N/A-----       0.39
MHK    Mohawk Industries     Wed, Apr 16  After the Bell      0.61
MOLX   Molex Inc.            Wed, Apr 16  After the Bell      0.15
NCC    National City         Wed, Apr 16  Before the Bell     0.64
NYB    New York Com Bancorp  Wed, Apr 16  Before the Bell     0.61
NFB    North Fork Bancorp    Wed, Apr 16  -----N/A-----       0.67
BTU    Peabody Energy Corp.  Wed, Apr 16  Before the Bell     0.12
PBCT   People's Bank         Wed, Apr 16  -----N/A-----       0.27
PPDI   Pharm Prod Devel      Wed, Apr 16  After the Bell      0.38
PFGI   Provident Finl Group  Wed, Apr 16  -----N/A-----       0.54
RDN    Radian Group          Wed, Apr 16  After the Bell      1.13
RTRSY  Reuters Group         Wed, Apr 16  Before the Bell      N/A
COL    Rockwell Collins, Inc Wed, Apr 16  Before the Bell     0.31
RDC    Rowan Companies, Inc. Wed, Apr 16  Before the Bell    -0.12
SNDK   SanDisk Corp.         Wed, Apr 16  After the Bell      0.18
SKYF   Sky Financial Group   Wed, Apr 16  Before the Bell     0.42
SON    Sonoco Products       Wed, Apr 16  -----N/A-----       0.31
SOTR   SouthTrust            Wed, Apr 16  -----N/A-----       0.49
STJ    St. Jude Medical, Inc Wed, Apr 16  Before the Bell     0.40
SYK    Stryker               Wed, Apr 16  After the Bell      0.48
SNV    Synovus Financial     Wed, Apr 16  -----N/A-----       0.32
TCB    TCF Financial Corp    Wed, Apr 16  Before the Bell     0.83
TFX    Teleflex, Incorp      Wed, Apr 16  After the Bell      0.71
TLAB   Tellabs               Wed, Apr 16  Before the Bell    -0.06
TXT    Textron Inc.          Wed, Apr 16  Before the Bell     0.51
BK     The Bank of New York  Wed, Apr 16  Before the Bell     0.41
KO     The Coca-Cola Company Wed, Apr 16  Before the Bell     0.37
PGR    The Progressive Group Wed, Apr 16  After the Bell      1.09
TRB    Tribune               Wed, Apr 16  Before the Bell     0.39
UB     UnionBanCal           Wed, Apr 16  -----N/A-----       0.89
UNH    UnitedHealth Group    Wed, Apr 16  Before the Bell     1.23
UHS    Universal Health Serv Wed, Apr 16  After the Bell      0.83
UTSI   UTStarcom             Wed, Apr 16  After the Bell      0.28
GWW    W.W. Grainger         Wed, Apr 16  Before the Bell     0.57
WB     Wachovia              Wed, Apr 16  Before the Bell     0.77


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

ABK    AMBAC FINL GROUP INC  Thu, Apr 17  Before the Bell     1.24
ASBC   Associated Banc-Corp  Thu, Apr 17  -----N/A-----       0.73
AF     Astoria Financial     Thu, Apr 17  Before the Bell     0.68
ADP    Automatic Data Proc   Thu, Apr 17  -----N/A-----       0.52
BNK    Banknorth Group Inc.  Thu, Apr 17  -----N/A-----       0.53
BGEN   Biogen, Inc.          Thu, Apr 17  Before the Bell     0.48
POS    Catalina Marketing    Thu, Apr 17  -----N/A-----       0.40
CEN    Ceridian              Thu, Apr 17  Before the Bell     0.18
CL     Colgate-Palmolive     Thu, Apr 17  -----N/A-----       0.55
CFBX   Com First Bankshares  Thu, Apr 17  Before the Bell     0.50
ED     Consolidated Edison   Thu, Apr 17  -----N/A-----       0.74
CUM    Cummins Inc.          Thu, Apr 17  Before the Bell    -0.57
CYT    Cytec Industries Inc. Thu, Apr 17  After the Bell      0.46
DHI    D.R. Horton           Thu, Apr 17  -----N/A-----       0.76
DHR    Danaher               Thu, Apr 17  Before the Bell     0.64
DAL    Delta Air Lines       Thu, Apr 17  -----N/A-----      -3.49
DLX    Deluxe Corporation    Thu, Apr 17  Before the Bell     0.84
DO     Diam Offshr Drilling  Thu, Apr 17  Before the Bell    -0.06
FCS    Fairchild Semi Intl   Thu, Apr 17  After the Bell      0.03
FHR    Fairmont Htls & Rsrts Thu, Apr 17  -----N/A-----       0.12
FVB    First Virginia Banks  Thu, Apr 17  Before the Bell     0.65
FMER   FirstMerit            Thu, Apr 17  Before the Bell     0.44
FO     Fortune Brands        Thu, Apr 17  Before the Bell     0.67
FCX    Frprt-McMoRan Cop Gld Thu, Apr 17  Before the Bell     0.33
GPC    Genuine Parts         Thu, Apr 17  -----N/A-----       0.52
GP     Georgia-Pacific       Thu, Apr 17  Before the Bell    -0.01
GDW    Golden West Financial Thu, Apr 17  -----N/A-----       1.62
GGG    Graco                 Thu, Apr 17  Before the Bell     0.36
HSY    Hershey Foods Corp    Thu, Apr 17  Before the Bell     0.73
HIB    Hibernia Corp.        Thu, Apr 17  Before the Bell     0.42
HON    Honeywell             Thu, Apr 17  Before the Bell     0.33
IR     Ingersoll-Rand Co.    Thu, Apr 17  Before the Bell     0.61
IVC    Invacare              Thu, Apr 17  -----N/A-----       0.39
ESI    ITT Educational Serv  Thu, Apr 17  Before the Bell     0.18
JEC    Jacobs Engineering Gr Thu, Apr 17  Before the Bell     0.55
KEY    Keycorp               Thu, Apr 17  Before the Bell     0.53
MAT    Mattel                Thu, Apr 17  Before the Bell     0.03
NCF    Natl Comm Finl Corp   Thu, Apr 17  During the Market   0.38
NATI   National Instruments  Thu, Apr 17  -----N/A-----       0.12
NOK    Nokia                 Thu, Apr 17  -----N/A-----       0.17
ODP    Office Depot Inc.     Thu, Apr 17  Before the Bell     0.32
PCBC   Pacific Capital Banc  Thu, Apr 17  Before the Bell     1.00
PNR    Pentair, Inc.         Thu, Apr 17  Before the Bell     0.54
PEP    Pepsico               Thu, Apr 17  Before the Bell     0.42
PBI    Pitney Bowes Inc.     Thu, Apr 17  After the Bell      0.54
PMCS   PMC-Sierra, Inc.      Thu, Apr 17  After the Bell     -0.06
PNC    PNC Finl Services Grp Thu, Apr 17  -----N/A-----       0.93
PHCC   PRIORITY HLTHCARE     Thu, Apr 17  -----N/A-----       0.30
PUK    Prudential PLC        Thu, Apr 17  -----N/A-----        N/A
RG     Rogers Comm Inc.      Thu, Apr 17  Before the Bell      N/A
RCN    Rogers Wireless Comm  Thu, Apr 17  -----N/A-----        N/A
TSG    Sabre Holdings Corp.  Thu, Apr 17  Before the Bell     0.36
SAP    SAP AG                Thu, Apr 17  -----N/A-----       0.13
SFA    Scientific-Atlanta    Thu, Apr 17  After the Bell      0.16
S      Sears, Roebuck and Co Thu, Apr 17  Before the Bell     0.56
SEIC   SEI Investments       Thu, Apr 17  Before the Bell     0.32
SLM    SLM Corporation       Thu, Apr 17  Before the Bell     1.27
SII    Smith International   Thu, Apr 17  Before the Bell     0.22
STU    Student Loan          Thu, Apr 17  -----N/A-----        N/A
SY     Sybase                Thu, Apr 17  -----N/A-----       0.18
UPC    Union Planters Corp   Thu, Apr 17  Before the Bell     0.66
UBSI   United Bankshares     Thu, Apr 17  -----N/A-----       0.53
UTX    United Technologies   Thu, Apr 17  Before the Bell     0.98
VLY    Valley Natl Bancorp   Thu, Apr 17  -----N/A-----       0.40
WFSL   Washington Federal    Thu, Apr 17  Before the Bell     0.53
WTNY   Whitney Holding Corp  Thu, Apr 17  -----N/A-----       0.60
WL     Wilmington Trust      Thu, Apr 17  -----N/A-----       0.50
WIT    Wipro Limited         Thu, Apr 17  -----N/A-----       0.25
WIT    Wipro Limited         Thu, Apr 17  -----N/A-----       0.25
XLNX   Xilinx, Inc.          Thu, Apr 17  After the Bell      0.13
ZBRA   Zebra Technologies    Thu, Apr 17  Before the Bell     0.64
ZION   Zions Bancorp         Thu, Apr 17  After the Bell      0.93


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

None


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

Symbol  Company Name              Ratio    Payable     Executable

AVD     American Vanguard Corp.   3:2      Apr. 11th   Apr. 14th
TTC     Toro Company              2:1      Apr. 14th   Apr. 15th
WSB     Washington Savings        3:2      Apr. 23rd   Apr. 24th


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

Welcome to the 2003 Q1 earnings season.  If the conflict in
Iraq can simmer for a few days, Wall Street will be faced with
a heavy onslaught of first quarter numbers.  Expectations are not
high.  Click inside for this week's economic reports.

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

Monday, 04/14/02
----------------
Business Inventories(BB)Feb  Forecast:   0.2%  Previous:     0.2%


Tuesday, 04/15/02
-----------------
Industrial Prduction(DM)Mar  Forecast:  -0.2%  Previous:     0.1%
Capacity Utilization(DM)Mar  Forecast:  75.4%  Previous:    75.6%


Wednesday, 04/16/02
-------------------
Housing Starts (BB)     Mar  Forecast: 1.685M  Previous:   1.622M
Building Permits (BB)   Mar  Forecast: 1.725M  Previous:   1.811M
CPI (BB)                Mar  Forecast:   0.4%  Previous:     0.5%
Core CPI (BB)           Mar  Forecast:   0.2%  Previous:     0.2%


Thursday, 04/17/02
------------------
Initial Claims (BB)   04/12  Forecast:    N/A  Previous:     405K
Philadelphia Fed (DM)   Apr  Forecast:   -6.5  Previous:     -8.0


Friday, 04/18/02
----------------
Treasury Budget (DM)    Mar  Forecast:-$55.0B  Previous:  -$64.2B


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


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The Option Investor Newsletter                   Sunday 04-13-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: 1 Bearish, 3 Bullish
Daily Results
Call Play of the Day: UNH
Put Play of the Day: NOC
Dropped Calls: None
Dropped Puts: WHR


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**********
WATCH LIST
**********

Lockheed Martin - LMT - close: $44.11 change: -0.64

If you read the Market Posture then you'll know that the DFI
defense sector has produced a fresh triple-bottom breakdown on
its PnF chart.  Not surprisingly, shares of LMT have broken under
recent support as well.  The stock's MACD has rolled over and re-
crossed the zero line heading lower.  If you look at the weekly
chart, this stock looks like it's on a collision course with $40.
Be aware that earnings are expected on April 22nd.  FYI: Shares
of RTN, another defense stock, appear to be in the same boat.

Chart=


---

Trimble Navigation Limited - TRMB - close: $20.67 change: +0.64

TRMB makes the list as one of our bullish candidates.  The stock
has shown an incredible amount of relative strength.  Here's
why...Trimble makes GPS systems.  If you've been following the
war coverage then you know the military uses GPS for almost
everything.  However, what you may not know is that civilian
sales of GPS equipment are expected to more than double by 2008
to more than $10 billion.  Today's close above $20 for TRMB puts
the stock above multi-year resistance.  One thing to keep in mind
is options on TRMB are very lighted traded.  Use caution.  Wall
Street expects the company to announce earnings at the end of
April.

Chart=


---

Gap Inc - GPS - close: 16.20 change: +0.41

Surprise, GPS may be making a comeback and today it shows up on
the watch list as one of our bullish candidates.  One of our own
analysts turned bullish on GPS eight sessions ago when it broke
out of the four-month consolidation pattern but we just didn't
believe it.  That's what you get for not trading what you see!
Do you think it's possible that someone knew that GPS would turn
in outstanding same store sales numbers of +9 percent this week,
when most of the major outlet results were much poorer?  The
close over $16 is positive but more importantly, the $17 level is
multi-month resistance going back to the middle of 2001.  Trade
carefully, but if you choose to go long, we might suggest a
longer-term option like the June or Septembers.

Chart=



---

Quest Diagnostic - DGX - close: $59.87 change: +0.83

Rounding out this week's watch list candidates is DGX.  The stock
produced an incredible run from mid-March to early April.  Five
of the last six sessions has produced a classic pull back.  The
low on Thursday was a perfect bounce at the 38.2% retracement
level and Friday's positive close looked encouraging.  Here's
what has us hesitant to go long.  The stock could not maintain a
close above $60 on Friday.  Furthermore the MACD has produced a
bearish crossover (on the daily chart) and the weekly oscillators
are looking overbought and could roll as well.  The PnF chart has
rolled over into a column of O's but this is to be expected with
such a sharp round of profit taking.  Earnings are expected on
April 22nd.  We're going to keep our eye on this one to see if it
rebounds back above $60.  Should this occur then aggressive
traders using tight intraday stops could potentially target a
move back to the recent highs and beyond (maybe $65).

Chart=




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

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

CALLS              Mon    Tue    Wed   Thu  Week

AZO      75.24   -0.50  -0.79  -0.81  0.84 -1.87  New, Bouncing
BBBY     37.46   -0.55   0.73  -0.71  0.77  0.46  $38 trigger
BLL      57.21   -1.04  -0.02  -0.64  0.22 -0.99  21-dma bounce
LXK      68.45   -2.13  -0.78   0.49  1.39 -2.20  Held $68
MEDI     32.41   -1.17   0.31  -0.57  0.01 -1.63  Long-term
MMM     132.91   -2.39   0.92  -1.87  1.17 -2.04  $130 support
UNH      92.93   -0.60   1.27  -1.28 -0.78 -0.10  $94 next?
WFMI     56.49   -1.30   0.39  -0.25  0.59 -1.01  Higher low


PUTS

CDWC     39.80   -1.04  -0.59  -0.50  0.40 -2.79  sub-40 close
LLL      36.24   -0.71  -0.45  -0.37 -0.85 -2.76  trend lower
NOC      80.22    0.99  -0.30   0.20 -2.27 -2.79  relative low
WHR      51.74   -0.63   0.08  -0.57  0.60 -0.63  Drop, 200-dma


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

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

United Health - UNH - close: 92.93 change: +1.29 stop: 89.48

See details in play list




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

Northrop Grumman - NOC - close: 80.22 change: -1.16 stop: 88.02

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
^^^^^

None


PUTS
^^^^

WHR - Whirlpool - close: 51.95 change: +0.21 stop: 53.25

WHR finally traded back above the 200-dma we were using as a
gauge for its rollover. With that move and the indecisive market
action, we are going to let this one go.  While we have a hard
time seeing a reason for buyers in WHR, there has been enough
indecision to convince us not to waste any more time decay.
There is still significant overhead resistance in the $52-$53
range, so traders who would like to give it more time can use
this level to decide when the sentiment has turned bullish enough
to reverse the tide.


***********
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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The Option Investor Newsletter                   Sunday 04-13-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: AZO
Current Calls: BBBY, BLL, LXK, MMM, UNH, WFMI
New Puts: DOW (Where is the Dow Going?)


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

AutoZone, Inc. - AZO - close: 75.24 change: +0.34 stop: 72.00

Company Description:
AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its more
than 2900 stores in 42 states and Mexico carries an extensive
product line for cars, vans and light trucks, including new and
re-manufactured automotive hard parts, maintenance items and
accessories.  Approximately half of its domestic stores also have
a commercial sales program, which provides commercial credit and
prompt delivery of parts and other products to local repair
garages, dealers and service stations.

Why we like it:
After a couple years of truly stellar performance, AZO finally
got their comeuppance last fall, plunging from the high $80's to
below $60.  The majority of this selling pressure seemed to have
been prompted by some comments in the company's December earnings
report about rising inventory levels.  Well those comments were
like shouting fire in a crowded theatre and the downdraft was
swift.  Fast forward to today, and things are looking much
healthier.  After rebounding from its lows in late January, the
stock spent more than 6 weeks consolidating near the $65 level
and then exploded higher through the 50-dma on March 13th.  That
initial surge higher was capped by the $73 level (an important
level of support from last fall's slide), which was also just
below the 200-dma.  After pulling back to find higher support
near the 20-dma (then at $68.50), AZO took another run at the
200-dma in early April and absolutely smashed it, vaulting as
high as $79 before running out of fuel.

The pattern of higher lows continues though, with last week's
pullback coming to a halt just above $73.50.  Interestingly, that
is just above the 10-dma ($73.86), which is just crossing up
through the 200-dma (now at $73.10).  Taken together with the
rising 20-dma (currently $72.63), AZO should find strong support
in the $72.50-73.50 area.  The real key to AZO's recent strength
is seen in the PnF chart, which really changed in favor of the
bulls with the strong breakout in mid-March.  That column of X
extended from $63 to $73 before pulling back, generating a
vertical count of $96.  While that may not be achievable in the
near term, it certainly seems possible for the stock to challenge
the $80 level and quite possibly move into the November
consolidation zone between $80-85.

Because of the way AZO pulled back so sharply after its latest
breakout attempt, we want to avoid entering this play on a
breakout.  Rather, intelligently buying the dips seems to be the
strategy of choice.  A return to the $73.00-73.50 area seems to
be the best possibility for a solid entry, although an intraday
dip as low as the $72.50 level can still be considered a viable
entry.  Given the strength of support in the $72-73 area, it
seems like $72 is a good place to set our stop.  A close below
that level would be a clear indication that the bullish trend has
come to a premature end.

Suggested Options:

Shorter Term: The May 75 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week though, this option should
only be used by aggressive traders.

Longer Term: Traders looking to capitalize on a sustained
breakout move over the next few weeks will want to look to the
May 80 Call or even the July 80 Call.  These options are
currently out of the money, but should provide sufficient time
for the stock to move higher without time decay becoming a
dominant factor over the short run.

BUY CALL APR-75 AZO-DO OI=899 at $1.60 SL=0.75
BUY CALL MAY-37 BHQ-EU OI=288 at $3.40 SL=1.75
BUY CALL MAY-40 BHQ-EH OI=796 at $1.20 SL=0.50
BUY CALL AUG-40 BHQ-HH OI=427 at $2.35 SL=1.25

Annotated Chart of AZO:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/AZO041303.gif



Picked on April 8th at  $75.24
Change since picked:     +0.00
Earnings Date          06/03/03 (unconfirmed)
Average Daily Volume = 1.36 mln


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

Bed Bath & Beyond - BBBY close: 37.46 change: +0.33 stop: 35.00

Company Description:
Bed Bath & Beyond is an operator of stores selling predominantly
better quality domestics merchandise and home furnishings
typically found in better department stores.  As of May, 2002, the
company had stores in 44 states.  Domestics merchandise includes
bed linens and related items, bath items and kitchen textiles.
Home Furnishings include kitchen and tabletop items, fine tabletop
and giftware, basic housewares and general home furnishings.

Why we like it:
Even with the strong Retail numbers last week, the Retail index
(RLX.X) just can't break out of its funk.  Oh it is certainly
giving it a good college try, but that $290 resistance level
stopped the bulls cold again on Friday.  This lack of bullish
conviction is reflected clearly in our BBBY play.  Despite the
fact that the stock is trading near its all-time highs and showing
excellent strength relative to the RLX, it is perhaps telling that
the stock was unable to breach our $38 trigger on Friday, topping
out intraday at $37.97.  That isn't to say that it won't get the
job done (we think it will), but it continues to keep us cautious
on the play, especially with the potential for bearish divergence
on the Stochastics oscillator (see chart below).  On the more
positive side, we can take note of the way the converged 10-dma
($36.15) and 20-dma ($36.00) are rapidly rising towards what looks
like strong support in the $36.25-36.50 area.  Despite the bearish
tone on Friday, that had the RLX closing in the red, BBBY managed
to hold onto positive territory after hitting a new all-time
intraday high.  We want to continue to exercise patience on BBBY
because of that potential bearish divergence mentioned above, and
that means not making the play active until it can show us the
strength needed to trade $38.  Aggressive traders will want to
enter on the initial breakout, while those with a more
conservative style will want to wait for a subsequent pullback to
confirm support in the $37-38 area after the initial breakout.

Suggested Options:

Shorter Term: The May 37 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week, only the most aggressive
traders should consider using the listed April option.

Longer Term: Traders looking to capitalize on a sustained breakout
move over the next few weeks will want to look to the May 40 Call
or even the July 40 Call.  These options are currently out of the
money, but should provide sufficient time for the stock to move
higher without time decay becoming a dominant factor over the
short run.

BUY CALL APR-37 BHQ-DU OI=1755 at $0.85 SL=0.40
BUY CALL MAY-37 BHQ-EU OI=5455 at $1.85 SL=1.00
BUY CALL MAY-40 BHQ-EH OI=2357 at $0.80 SL=0.40
BUY CALL AUG-40 BHQ-HH OI=3322 at $2.20 SL=1.00

Annotated Chart of BBBY:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/BBBY041303.gif


Picked on April 8th at  $37.18
Change since picked:     +0.28
Earnings Date          07/02/03 (unconfirmed)
Average Daily Volume = 3.24 mln

---

Ball Corporation - BLL - close: 57.21 change: +0.49 stop: 55.50

Company Summary:
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:
Things were looking pretty tenuous for our BLL play by the middle
of last week, as the stock had pulled back significantly from
Monday's intraday high of $59.22.  But the bulls managed to save
the day by showing up with buy orders near the $56 level, which
also happened to be right near the rising 20-dma (currently
$56.19).  The pullback over the past week has allowed that moving
average to catch up and add to support near the $56 level, and
with daily Stochastics just starting to turn up, it looks like the
next upward leg is upon us.  Adding to that perception on Friday,
BLL gapped up over the 10-dma and managed to hold above that level
into the close.  Despite that encouraging sign, bulls can't be too
happy about Friday's candle pattern, where the stock surged as
high as $57.83, only to pull back to its opening level by the
close, leaving behind a gravestone doji, which is normally a
bearish pattern.  That leaves us with the impression that Friday's
gap is likely to fill early next week.  Dips to support above $56
are still buyable for those still looking to take a position, but
bear in mind that our BLL play is running out of time to make more
significant upward progress.  The company is due to report
earnings on April 24th, giving us just over a week before we'll be
forced to drop the play one way or the other.  Due to the way BLL
pulled back from last Monday's breakout move, we're not interested
in chasing momentum entries in BLL.  We'll have to settle for
buying the dips.  Maintain stops at $55.50.

Suggested Options:

Shorter Term: The May 55 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week, only the most aggressive
traders should consider using the listed April option.

Longer Term: Traders looking to capitalize on a sustained breakout
move over the next two weeks will want to look to the May 60 Call
or even the July 60 Call.  These options are currently out of the
money, but should provide sufficient time for the stock to move
higher without time decay becoming a dominant factor over the
short run.

BUY CALL APR-55 BLL-DK OI= 473 at $2.90 SL=1.50
BUY CALL MAY-55 BLL-EK OI=5190 at $4.00 SL=2.50
BUY CALL MAY-60 BLL-EL OI= 518 at $1.30 SL=0.75
BUY CALL AUG-60 BLL-HL OI= 519 at $2.90 SL=1.50

Annotated Chart of BLL:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/BLL041303.gif



Picked on March 21st at  $55.87
Change since picked:      +1.34
Earnings Date          04/24/03 (confirmed)
Average Daily Volume = 446 K

---

Lexmark Intl. - LXK - close: 68.45 change: -0.57 stop: 66.00

Company Description:
Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser cartridges
for the large installed base of a range of laser printers sold by
other manufacturers.

Why we like it:
When we initiated coverage of LXK on Thursday, we were hoping to
get a pullback to support in the $67-68 area to give us a better
entry.  Friday's session certainly got things going in the right
direction with a pullback to $68.02 before a very slight lift into
the close.  Recall that the $67-68 area held up as strong support
through the middle of last week and we're looking for it to
continue to do so next week, with the added support being provided
by the ascending trendline from the February lows now at $66.65
and the 20-dma ($66.98).  LXK has blazed a trail of impressive
revenue and earnings growth over the past year and that is a big
part of why the stock is once again testing multi-year highs.
Anticipation of another strong quarterly report on April 21st is
likely to keep the stock's uptrend intact over the next week.
Buying dips near support is our preferred entry strategy in
anticipation of a renewed assault on the $71 resistance level.
Traders that are set on taking a momentum entry will want to wait
for a volume-backed move above $71.50 (last Monday's intraday
high) before taking a position.  LXK's PnF chart is still quite
bullish, with a current price target of $79.  So a breakout above
Monday's highs could really gain some momentum heading into
earnings.  We're maintaining our stop at $66, just below major
support.

Suggested Options:

Shorter Term: The May 70 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week, only the most aggressive
traders should consider using the listed April options.

Longer Term: Traders looking to capitalize on a sustained breakout
move through expiration Friday without being subjected to the
spectre of time decay will want to look to the May 70 Call or even
the July 70 Call.

BUY CALL APR-65 LXK-DM OI=2908 at $3.90 SL=2.50
BUY CALL MAY-65 LXK-EM OI= 618 at $5.60 SL=3.50
BUY CALL MAY-70 LXK-EN OI= 372 at $2.55 SL=1.25
BUY CALL JUL-70 LXK-GN OI=1909 at $4.60 SL=2.75

Annotated Chart of LXK:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/LXK041303.gif


Picked on April 10th at  $69.02
Change since picked:      -0.57
Earnings Date          04/21/03 (confirmed)
Average Daily Volume = 1.58 mln

---

3M Company - MMM - close: 132.91 change: +0.13 stop: 129.75

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:
While MMM hasn't demonstrated the sustained buying interest that
we anticipated when we added the stock to our Call list, it has
held its ground quite well considering it is the highest priced
stock in the DOW.  While the opening euphoria last Monday
propelled the stock first through the $135 level and then to an
intraday high of $136.75, the broad market rally didn't last and
neither did MMM's.  The pullback saw the stock dropping into the
$131-132 area before finding support at the 20-dma (currently
$131.83).  One point of concern is the fact that daily Stochastics
are showing the possibility of bearish divergence, and this
potential weakness is confirmed by the MACD, which is just
starting to roll over, although still well into positive
territory.  Contrasting this weakness is the On Balance Volume,
which moved to its highest level since late November on Friday,
showing there is still strong buying interest in the stock.  For
now, we'll continue to focus on buying support in the $131-132
area, leaving our stop at $129.75.  For those traders that would
prefer to buy strength, another break above $135 (which provided
intraday resistance all last week) before entry.  Note that the
fuse is getting rather short on this play, as the company is set
to release earnings on April 21st, giving MMM just one more week
to prove itself.

Suggested Options:

Shorter Term: The May 130 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week, only the most aggressive
traders should consider using the listed April option.

Longer Term: Traders looking to capitalize on a move towards the
PnF target of $172 may want to look to the May 135 Call or even
the July 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=8534 at $3.70 SL=2.00
BUY CALL MAY-130 MMM-EF OI= 675 at $6.20 SL=4.25
BUY CALL MAY-135 MMM-EG OI=1233 at $3.30 SL=1.75
BUY CALL JUL-135 MMM-GG OI=2794 at $5.60 SL=3.50

Annotated Chart of MMM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/MMM041303.gif


Picked on March 27th at $131.66
Change since picked:      +1.25
Earnings Date          04/21/03 (confirmed)
Average Daily Volume = 2.37 mln

---

United Health - UNH - close: 92.93 change: +1.29 stop: 89.48

Company Description:
UnitedHealth Group is a diversified health and well-being
enterprise that provides a full spectrum of resources and
services to help people achieve improved health and well-being
through all stages of life. UnitedHealth Group is organized into
five businesses: UnitedHealthcare, Uniprise, Ovations,
Specialized Care Services, and Ingenix (source: company press
release)

Why we like it:

In Thursday's write-up, we discussed the possibility of entry on
dips above $90.  that strategy appears to have been sound, with
UNH's bounce once again this morning. the stock added $1.29 and
made another run toward the $94-$96 resistance area that we have
highlighted as its next test.  A broad market reversal kept an
anchor tied to the stock. However, it performed admirably and
made an argument that the outlier payments that hurt THC's
earnings and and have been a problem for that company for the
past year, don't seem to be an issue for UNH, or at least they
are not so far. Those issues dragged down the HMO.X on Thursday,
but the sector index rebounded from its 21-dma and made a run at
the 200-dma. The HMO finished just $0.02 below that 200-dma,
which sits at 530.13 and appears to have set a lower high on the
bounce, rebounding from previous resistance at 520. With earnings
due out in UNH on 4/16, we will be dropping the play for that
reason and will not be recommending new entries just ahead of
earnings.  However, those traders who are willing to assume the
earnings risk can continue to target new entries above $90,
knowing that the stock has yet to break through the $94-96
resistance. if it does, the $100 level looks like a reasonable
target and conservative traders can wait for a break above $96 to
play that move.

BUY CALL APR-85  UHB-DQ OI=3998 at $8.30 SL=4.10
BUY CALL APR-90 *UHB-DR OI=3414 at $3.80 SL=2.00
BUY CALL JUN-90  UHB-FR OI=4642 at $6.70 SL=3.30
BUY CALL JUN-95  UHB-FS OI=1465 at $3.80 SL=1.90

Annotated Chart of UNH:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/UNH041303.gif



Picked on March 25th at $90.66
Change since picked: +2.27
Earnings Date 04/16/03 (unconfirmed)
Average Daily Volume = 2.12 mln

---

Whole Foods - WFMI - close: 56.49 change: -0.31 stop: 55.00*new*

Company Description:
Whole Foods Market, Inc. owns and operates a chain of natural and
organic foods supermarkets in the United States.  As of September
2002, the company operated 135 stores in 25 states plus the
District of Columbia and Canada.  The company offers a broad
product selection with a heavy emphasis on perishable foods
designed to appeal to both natural foods and gourmet shoppers.
Its product categories include produce, seafood, grocery, meat and
poultry, bakery, prepared foods and catering, specialty (beer,
wine and cheese), whole body (nutritional supplements, vitamins
and body care), pet products and household products.

Why we like it:
What's it going to be?  While WFMI is holding at its ascending
trendline on the dips, the intraday highs have been dropping over
the past 8 sessions, building a short-term neutral wedge that
should break early next week.  In favor of our bullish play, the
intraday highs have been rising over the past 3 days, each time
bouncing at the ascending trendline (currently at $56.10), and
each time managing a close over the 20-dma (currently $56.47).
Oscillators are hard to read as they are in the middle of their
range, trying to turn up, but that hasn't occurred just yet.  So
WFMI remains alive, with the preferred entry strategy being to
target entering new positions on intraday rebounds from the
ascending trendline.  Just in case the current wedge breaks to the
downside, we're snugging up our stop to $55, right at critical
support from late March.  Should WFMI catch fire, a breakout over
the $58.25 level (representing a new all-time high) can be used
for entries by the momentum types.

Suggested Options:

Shorter Term: The May 55 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  With
April expiration looming next week, only the most aggressive
traders should consider using the listed April option.

Longer Term: Traders looking to capitalize on a move towards the
$60 level may want to use the May 60 Call or even the AUG 60 Call.
These options are currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.

BUY CALL APR-55 FMQ-DK OI= 525 at $2.05 SL=1.00
BUY CALL MAY-55 FMQ-EK OI=3911 at $3.20 SL=1.50
BUY CALL MAY-60 FMQ-EL OI= 621 at $0.95 SL=0.50
BUY CALL AUG-60 FMQ-HL OI=1169 at $2.65 SL=1.25

Annotated Chart of WFMI:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/WFMI041303.gif



Picked on April 1st at $56.42
Change since picked:    +0.07
Earnings Date        05/08/03 (unconfirmed)
Average Daily Volume = 905 K


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

Where Is The Dow Going?
By Steve Gould

On March 23, 2003, I wrote that the Dow was going to take one of
two paths.  Here is an excerpt of what I said.

**********

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

Chart: Scenario 1: Dow 3-21-03
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/DOW041303a.gif



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.

Chart: Scenario 2: Dow 3-21-03
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/DOW041303b.gif



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.

**********

As the baboon said to Simba in The Lion King, "It is time."

Looking at the current picture of the Dow, it is clear that the
Dow has traced out scenario 2.
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/DOW041303c.gif


Trade Setup

The larger wave, in green, is tracing out a 5 wave basic pattern
and is currently in the midst of a 3 wave.  Just as the larger 1
wave traced out a 5 wave basic pattern, now the 3 wave is tracing
out its 5 wave basic pattern.  Notice on the 1 wave, the (3) wave
was the longest wave.  This is a basic rule of Elliott Wave
Theory.  The 3 wave is always the longest wave.  This rule gives
us a clue that the (3) wave just now unfolding within the 3 wave
is going to be at least 1627 points (9043 – 7416).  This takes the
Dow down to at least 6893 (8520 – 1627), possible more.  In fact,
I would say definitely more.  Since the three wave could be 1.6X
the one wave, it would not be unreasonable to expect 5885 (8520 –
2635).  At that point, we would expect a wave 4 countertrend
rally.

This is a longer term trade and the options should reflect this.

Option

DJX Dec 03 Options

Sym     Strike   Type   Bid    Ask   Delta   Vol     OI
DJXXX     76     Put   4.00   4.20  -26.86  1483   85787


What If We Are Right

If the Dow falls to 6893 by the August expiration date, then the
option will be worth about 8.40 for a profit of 4.20 or 100% not
including commissions.  (Note:  The toolbox did not have a 76
strike, so the numbers may be a little off.)

Chart: DOW Position Analysis
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/DOW041303d.gif


What If We Are Wrong

If the Dow breaches the high of the current C wave, it is going to
trace out a slightly higher A-B-C pattern.  Close the trade if the
Dow pierces 8521.  We can reenter it once we know where the Dow is
going to top.

If the Dow rises above 9043, then our count is wrong and we need
to reevaluate it.  This is highly unlikely.

Chart: Dow Wrong Scenario
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/DOW041303e.gif


On a grander scale, I have this unpleasant thought.  The larger 1
wave traveled 3476 points (10,673 – 7197).  This means that the
larger 3 wave will be at least 3476.  This puts the end of the 3
wave at 5567 (9043 – 3476) or if the 3 wave is 1.6X the 1 wave
down to 3481 (9043 – 5561).


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The Option Investor Newsletter                   Sunday 04-13-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: CDWC, JCP, LLL, NOC
Leaps: Back To Reality?
Traders Corner: How About A Quickie?  I've Got The Time, If You
Have The Inclination
Traders Corner: It's Gotta Make Sense
Futures Corner: Stack Your Stochastic


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

CDW Computer Centers - close: 39.80 change: -0.97 stop: 43.25

Company Description:
CDW ranked No. 414 on the Fortune 500, is a leading provider of
technology solutions for businesses, government agencies and
educational institutions nationwide. CDW is a principal source of
technology products and services including top name brands such
as Cisco, Compaq, Computer Associates, Hewlett-Packard, IBM,
Intel, Microsoft, and Toshiba. CDW distributes contracts to end
users for customized and standardized on-site services supplied
directly by providers such as H-P Services and Unisys and for
training programs provided by firms such as KnowledgeNet and
Productivity Point International. (source: company release)
Why we like it:

CDWC continued its rollover from the recent lower high, and also
traded down through the $40 level that has provided closing
support the past few sessions.   The tech sector was once again
the weak link, but this time this tech retailer had the added
weight of the retailers heading lower. In spite of a positive
retail sales report, much of the retail sector headed down
following disappointing sales results on Thursday. The positive
data was largely the result of auto sales, so there was nothing
in the report that really favored the business model of CDWC.
The overall ex-auto increase was 1.1%, but the electronics &
appliance store sector posted a gain of only 0.6% from the
previous month.   CDWC was pushed to a sub-$40 close for the
first time since the middle of March.  We like the fact that the
stock was finally pushed below that level, but with earnings on
Tuesday, we will be dropping the play Monday night. Traders
willing to take on that earnings risk can think about entering on
the breakdown, but they'll be on their own after that.

BUY PUT APR-45  DWQ-PI OI=3807  at $5.30 SL=2.60
BUY PUT MAY-40  DWQ-QH OI=329   at $2.80 SL=1.40

Annotated Chart of CDWC:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/CDWC041303.gif



Picked on April 1st at $40.00
Change since picked:     -0.20
Earnings Date         04/15/03 (unconfirmed)
Average Daily Volume =  2.18 mil

---

Elliott Wave Play Updates
By Steve Gould

JCP

Chart: JCP 4-11-2003
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/JCP041303a.gif




JCP gapped down Thursday on news that comparable store sales
decreased 5.5%.  That brought the price of the stock down to
17.70, just .20 above the target.  If you did not exit then, then
this week should see a small continued downward movement as wave 3
of the 5 wave completes.  I would expect the stock to retrace
slightly to fill the gap and then complete the wave 5 leg down.

Chart: JCP projection
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/JCP041303b.gif


---

L-3 Communications - LLL - close 36.24 change: -0.24 stop: 38.50

Company Description:
As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

Why we like it:
Positive developments on the war front haven't been translated
into positive action in the Defense sector, with the DFI index
continuing to deteriorate throughout last week.  While the DFI
index managed to bounce from its intraday lows to eke out a close
over $440 on Friday, the trend is definitely down.  However, daily
Stochastics are starting to flatten out in oversold territory, so
the next bounce may not be far off.  Our LLL play has performed
like a champ over the past week, continuing to take out one
support level after another.  Our initial downside target of $37
was breached on Thursday and the stock inched a bit lower on
Friday, hitting an intraday low of $36.10.  Our final price target
for the play is $35.50, which provided rock solid support in late
February and early March, so now isn't the time to be
contemplating new entries.  It's all about managing open
positions.  Conservative traders should have their stops lowered
to $37 or perhaps just a bit higher, as this is the site of both
the aggressive descending trendline, as well as newfound
resistance (broken support).  Those traders willing to hold on for
one more dip will want to plan on exiting the play near $35.50.
Our official stop remains at $38.50, just above last week's
intraday resistance and the 10-dma ($38.43).

Suggested Options:
With this play already nearing its conclusion, only aggressive
traders should consider new entries.  If opening new positions on
failed rallies, the May 40 put will offer the best return on a
small move to our target at $35.50.  The May 35 put will offer a
greater percentage gain on a move to that target but carries
greater risk due to the fact it is still out of the money.

BUY PUT MAY-40 LLL-QH OI= 441 at $4.50 SL=2.75
BUY PUT MAY-35 LLL-QG OI=1062 at $1.55 SL=0.75

Annotated Chart of LLL:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/LLL041303.gif



Picked on April 3rd at $38.84
Change since picked:    -2.60
Earnings Date        04/23/03 (unconfirmed)
Average Daily Volume = 1.59 mln

---

Northrop Grumman - NOC - close: 80.22 change: -1.16 stop: 88.02

Company Description:
Northrop Grumman Corporation is a $25 billion global defense
company, headquartered in Los Angeles, Calif. Northrop Grumman
provides technologically advanced, innovative products, services
and solutions in systems integration, defense electronics,
information technology, advanced aircraft, shipbuilding and space
technology. With approximately 120,000 employees and operations
in all 50 states and 25 countries, Northrop Grumman serves U.S.
and international military, government and commercial customers.
(source: company release)

Why we like it:

NOC continued the end of week rollover, following Thursday's
$2.27 drop with another loss of $1.16.  As the war effort finds
little remaining resistance and the U.S. government has declared
the Iraqi regime dead, investors continue to file out of these
defense stocks. NOC dropped back through the $80 support level
that held on its last pullback, giving a fresh point and figure
double-bottom sell signal. It has extended the loss on a slight
volume increase since it consolidated in the $82.50-$84.50
trading range at the beginning of the week. The DFI also rolled
over and took out the 21-dma that had provided support on the
past few drops. It set a new relative low, but bounced near the
end of the day.  The next lower low in NOC does not come until
the stock breaks $78, but we have gotten another in a long series
of lower highs, this time using the 50-dma as the latest ceiling
on the stock. We like the intraday break below $80 and the new
PnF double bottom to initiate short entries, however, more
conservative traders may want to wait for a test of the relative
low at $78.

BUY PUT APR-85  NOC-PQ OI=2885  at $4.80 SL=2.40
BUY PUT MAY-90  NOC-QR OI=771   at $10.30 SL=5.20

Annotated Chart of NOC:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-13/NOC041303.gif


Picked on April 6 at $83.26
Change since picked: 3.04
Earnings Date 04/29/03 (unconfirmed)
Average Daily Volume = 1.57 mil


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*****
LEAPS
*****

Back To Reality?
By Mark Phillips
mphillips@OptionInvestor.com

"The war's over, let the rally begin!"  Well, wait just a minute.
Correct me if I'm wrong, but I think we already had the rally.  It
started on March 12th, and in a very short space of time, the DOW
vaulted higher to the tune of 14.9%.  Since then, the DOW has been
consolidating above the 50-dma, but below its 3/21 highs.  While
the numbers and levels are different on the other indices, the
story line is much the same.  Investors expended a tremendous
amount of energy trying to front-run the expected post-war rally.
This buying surge propelled the market off its mid-March lows and
now investors are sitting there asking themselves, where's the
rally, not yet quite aware that it is for all intents and purposes
over.  Now it is back to the reality of earnings and the economy,
and more than a few investors are hoping that 2003 isn't another
repeat of 2002.

Remember what happened last year around this time?  The end of
March turned out to be the end of the latest bear market rally,
followed by a fairly sedate decline into the beginning of May, a
slight pop and then carnage into the end of July?  Could it happen
again just like it did last year?  Actually, I'll give a qualified
"Yes".  You see, the market isn't termed "The Great Humiliator"
without reason.  While the cycle may be predictable, the points of
reversal and the timing are what really makes picking the tops and
bottoms so difficult.  Or put another way, the devil is in the
details.

Turning to the view provided by the bullish percents, it is clear
that the bulls still have the ball, with all of the major indices
either in Bull Confirmed or Bull Alert.  But they've only managed
to push the ball to midfield (near 50%) in most cases, and now the
economy and earnings are coming into full view, just ahead of the
"bad 6 months" for the market, from May-October.

I've written about the VIX quite a bit in recent months, trying to
determine how it is likely to resolve its year-long consolidation
pattern, and whether or not it is truly moving into a new and
permanently higher range.  Personally, I'm leaning towards that
being the case, based a lot on some extended analysis that I've
written about in past articles.  The VIX has been confined to a
broad triangle consolidation pattern over the past several months,
and we've noted that in here in the past.  Additionally, we have
the 200-dma hovering just below the 36 level, which is significant
insomuch as prior to last fall, the 200-dma for the VIX had never
so much as crept over 30!

In some recent articles, I referred to a calculation I had done
off the historical VIX data, where I had noted that at no point in
the past several years had the VIX ever fallen more than 17% below
the 200-dma.  It turns out, I made an error in my calculation and
fortunately one of my vigilant readers (Thanks NASO!) pointed out
the error for me.  When doing the calculation properly, I found
the correct calculated "floor" for the VIX should be 30-32% below
the 200-dma.  Running the numbers off of the current value of the
200-dma gives an expected floor of 24.40-25.20, which is just
below major support from last November and this January near 26.
Judging by the way fear seems to be draining out of the market,
with the VIX cracking below its ascending trendline on Friday, it
looks like that 26 level will likely be in play heading into
earnings season.  Call me a pessimist, but I think that
complacency is very misplaced considering the likely lack of good
news about to be released from Corporate America.

I know there are a lot of numbers in that paragraph above, and
given that some of them are corrections to some of my writing on
the VIX in the past, I've put together a chart that shows those
critical levels, which we can monitor together in the weeks ahead.

Daily Chart of the VIX




While I won't predict where the VIX is headed next (that violation
of the lower trendline could be promptly reversed on Monday), I
will say this.  The best case scenario for a bearish position
trade on the DOW, SPX or OEX would be to have the VIX falling into
the 24-25 area, while at the same time, bullish percents for those
indices rise closer to overbought territory, and at the same time
price on the SPX challenges the upper boundary of that descending
channel we've been talking about both here and in some of my other
weekly articles.  For the record, that upper channel line is
currently at 930 -- pull up a 6-month chart of the SPX, and I
think you'll see the significance of the 925-935 level.  I'm
betting there will be a lot of rejuvenated bears lurking near
there, looking for another feast as we head into the summer
months.  It may not set up just like that, but if it does, I'll
personally be leaning pretty heavily to the short side with LEAP
puts on the DJX.

I've mentioned in recent weeks that I'm targeting the middle to
the end of May as "decision time", where I think the current
consolidation patterns in both the VIX and the OEX will be
resolved.  That timeframe still looks like a viable timeframe for
the beginning of the next big move.  But until we see how things
play out during the upcoming earnings season and more things fall
into place, we'll have to settle for playing cautiously.  To see
how things are shaping up, let's move forward now, looking at our
severely shortened list of current plays.

Portfolio:

ADBE - despite the rather poor performance of the Software index
(GSO.X), which is just barely hanging onto support at the 200-dma
($100.81), our ADBE play is doing a good job of holding its
ground.  Over the past two weeks, the stock has been consolidating
its bullish move above the $30 level, finding support at the 20-
dma (now at $32.13).  However, I'm becoming concerned that the
odds of another powerful upward move are diminishing, with the
weekly Stochastics starting to look toppy and ADBE unable to
challenge its 3/21 high of $34.27.  Daily Stochastics are nearing
oversold, so we ought to get another upward push, but I want to
err on the side of caution, raising our stop to $31.50.  That is
just below the intraday lows of the past week and if violated on a
closing basis, should still ensure we exit with a decent gain.
Conservative traders that want to take a targeted gain should use
a rally into the $34-35 area to close the position, as I doubt
there is enough buying interest to sustain a move over the $35
level.

EMC - There was cause to get a bit excited about our EMC play last
Tuesday, as the company's bullish guidance (essentially just a
reaffirmation of prior guidance) had the bulls once again pushing
the stock over the $8 threshold.  Unfortunately, with the rest of
the Technology sector having a hard time holding altitude, EMC
fell back into its $7.50-8.00 range, where it sits this weekend,
awaiting the next bullish catalyst.  With earnings season kicking
off in earnest next week, there will certainly be plenty of
catalysts.  The big unknown is whether they'll be positive or
negative.  EMC will make its own appearance in the earnings parade
on April 16th before the opening bell, and the market's response,
not so much to the actual numbers but the forward guidance, should
give us a good feel as to the future of the play.  Conservative
traders might want to harvest gains ahead of the report, but the
LEAPS Portfolio is going to stand fast with our stop at $5.50.
The upward trend is still intact and it appears a breakout over
$8.50 could really get the stock moving.  The PnF chart is still
bullish, with a price target of $15.50, so the potential reward
definitely looks favorable compared to the potential risk.

Watch List:

NEM - It certainly looks like the gold market is trying to put in
a bottom with gold futures dancing between the $320-330 area,
signaling that the war premium has effectively been taken out of
this sector.  With earnings and economic reports once again taking
center stage, continued currency weakness should play into our
hands quite nicely in the months ahead.  That is if we can get an
entry into our NEM play.  The stock has really been resilient over
the past couple weeks after the company's upside surprise when it
announced earnings on March 28th.  Judging by the recent price
action, I'm increasingly convinced that we won't see a dip down to
the $24 level, so I'm raising our target for entry to the $24.50-
25.00 area.  Weekly Stochastics have started turning up and the
rising trendline is now over the $24 level.  Hmmm...I guess we
should have taken that entry a few weeks back when the stock
tagged an intraday low of $24.08!  Sigh...Any dip into to $25 or
below will be our trigger for entry, so long as the June Gold
Futures (GC03M) hold above the $320 level.  Our initial stop will
be set at $22.50, so as to give the play plenty of room to move
before the gold bulls really get frisky again.  Our initial target
will be a return to the $30 level, but I expect on the next move
that high, NEM will break out and at least test the $32 level,
possibly moving to new 5-year highs in the $35 area.

QQQ - Recent price action in the NASDAQ certainly isn't
encouraging for Technology bulls, as warnings and downgrades have
the QQQ sitting right on the $25.50 level this weekend and looking
vulnerable to more downside next week as earnings season kicks
into high gear.  Weekly Stochastics have clearly rolled over and
I'm thinking we could most definitely see a test of the 200-dma
($24.61) before any sustainable bullish action.  Note that the
recent highs in the QQQ (near $27.25) really don't give much
upside from current levels, and this is a big part of why I'm
willing to be patient and stingy about what I want for an entry
into the play.  Remember that gap up move on 4/02, and my aversion
to entering new plays on a gap?  Now you can see why, as QQQ is
now back to the bottom of that gap.  Note the lowered entry target
of $24.50-25.00.  I still like the potential for the QQQ given the
still strong appearance of the NASDAQ-100 Bullish Percent, but
there's no justification to get into a chase mode here.  After
entry, we'll set a fairly wide stop at $23, just below the
February lows.

GD - Close, but no cigar!  Pressured by the continued weakness in
the Defense Index (DFI.X) last week, shares of GD actually fell as
low as $52.20 on Friday before rebounding to close just below $54.
Could that have been the entry we are looking for?  Perhaps, but
I'm not yet convinced.  I think we'll likely see the DFI index
trading in the $425-430 area before things stabilize, and that
sector weakness should bleed into trading of GD and having trading
into the meat of our chosen $50-52 entry zone.  That low will
likely correspond with confirmation that the last major battle (in
Tikrit) of the Iraq campaign is over.  Then as the consummate
contrarians, we ought to be able to nab a solid entry into the GD
play, looking for a return to at least the $60 level and quite
possibly $65 in the months ahead.

"Be careful what you wish for", is certainly an apt saying for
investors right now.  I, along with many others have been saying
how we just wanted to get past this Iraq war, so we can refocus on
the underlying economic issues influencing our market.  Guess
what?  That picture hasn't gotten any clearer over the past 6
weeks, with a dismal employment picture, but the vaguest hints
that perhaps we're seeing some marginal improvement in areas like
Retail sales and Consumer Confidence.  The real litmus test is
coming in the weeks ahead though, with earnings season kicking off
next week and we'll each get to determine for ourselves whether we
think the mantra of "2nd half recovery" will finally stick or if
it will once again be proven that the emperor has no clothes.  I
think you know where I stand on that debate, even without seeing
any of the earnings results we're going to get over the next
several weeks.

Simply put, it's a bear market and there isn't anywhere near the
level of strength in any area of the economy to justify a
continued rally.  The bulls have driven the market higher in the
past month, not so much through sheer buying power, but through a
relaxation of selling pressure.  That's been just enough to get us
back to where we started the year.  The war fear has been taken
out of the market, but what now?  It's the economy and I can't say
I'm thrilled about the bullish prospects of this market, seeing as
how the good war news is quite clearly already factored into the
market, and we're still below the 200-dma on the DOW and SPX.
Watch those 3/21 highs and then the top of the descending channel
on the SPX.  If that level is reached (especially with the VIX
down in the mid-20s, I'll consider that a high-odds short and hold
signal.  But for now, we remain in the middle of the recent range
and volatility is likely to remain with us a while longer.

As promised, we've got a new Watch List play this weekend and
finally something for the bears to nibble on.  I had intended to
list two plays this weekend, but as you can see from the length of
the AMZN writeup, I simply ran out of time and space.  We'll have
more new candidates next weekend too!

In the meantime, manage your open positions aggressively!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
ADBE   02/28/03  '04 $ 30  LAE-AF  $ 4.70  $ 7.40  +57.45%  $31.50
                 '05 $ 30  ZAE-AF  $ 7.50  $10.40  +38.66%  $31.50
EMC    03/12/03  '04 $  7  LUE-AU  $ 1.40  $ 1.75  +25.00%  $5.50
                 '05 $  7  ZUE-AU  $ 2.15  $ 2.65  +23.25%  $5.50


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NEM    03/09/03  $24.00-25.00  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  $24.50-25.00  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  $50-52        JAN-2004 $ 60  KJD-AL
                            CC JAN-2004 $ 50  KJD-AJ
                               JAN-2005 $ 60  ZZJ-AL
                            CC JAN-2005 $ 50  ZZJ-AJ


PUTS:
AMZN   04/13/03  $27.50-28.00  JAN-2004 $ 25  LOH-ME
                               JAN-2005 $ 25  ZWE-ME




New Portfolio Plays

None


New Watchlist Plays

AMZN - Amazon.com $25.75  **Put Play**

It may seem a bit crazy to consider a new long-term bearish play
on a stock with such cult status as AMZN.  Afterall, look at what
has happened recently with the other surviving Internet stocks
YHOO and EBAY.  EBAY has defied the odds and continued to shine,
tagging a new multi-year high above $91 last week.  While its rise
has been more sedate, YHOO is setting new multi-year highs as
well.  Likewise, our targeted play, AMZN, recently hit the $28
level, its best level since late 2000.  So what is there about
AMZN that makes me think it is due for a stumble?  Quite simply,
it is the primary difference between the financials of AMZN and
the other two Internet darlings that most clearly demonstrates
what is wrong with AMZN.  EBAY may still have a triple-digit P/E
ratio, but given the fact that it is still growing revenues at a
breakneck pace and last quarter saw the company post its best
quarter ever, both in terms of revenue and earnings.  Likewise,
YHOO has really gotten its house in order, with revenues growing
and actual earnings growing as well.  On the other hand,
management at AMZN has made much of being profitable on an
operating basis, or when it is going to be cash-flow positive.  It
strikes me as more of the obfuscation we became familiar with over
the last few years.  AMZN is the hands down leader in the online
sales of stuff -- from books to clothes to electronics and
miscellaneous household supplies and has been growing its product
offerings and market presence for years now.  But guess what?  No
matter how you Jeff Bezos wants to spin reality, his company moved
just under $4 billion worth of merchandise over the last 12
months, all in the process of losing $150 million.  That's right,
I'm looking at the actual cashflow earnings, not EBITDA (Earnings
Before I Trick Dumb Accountants).  Go back and look at YHOO and
EBAY.  Do I think they're worth 100 times their respective
earnings streams?  No way!  But at least they have an earnings
stream on which the companies can be valued.  AMZN doesn't.  The
company has beaten all comers in the name of gaining market share
and they've won.  They sell more stuff over the Internet than
anyone, and they manage to lose money doing it.  Even if you give
AMZN the benefit of the doubt and calculate a P/E ratio off of
their EBITDA earnings, you get 142!  Sorry, I just can't see the
current price trend as being sustainable with that kind of lunacy
in the accounting office.

Now that we've laid the fundamental groundwork for why the current
pricing doesn't make sense, let's quickly look at the price action
and try to come up with a workable action plan.  AMZN has been
consistently working higher in an ascending channel for 18 months,
with the top of that channel just above $28 and the bottom of that
channel just below $21.  I don't expect AMZN to fall out of this
channel during the extent of our play, but a retracement to the
bottom of that channel certainly seems likely and given the
relatively cheap LEAP premiums a move from $28 to $21 should
produce a nice 100%+ return (at least based on the '04 strike
prices).  So we'll target an entry as close to $28 as we can get
it (preferably after the company announces earnings on April 24th)
and then look to ride the stock down to the bottom of the channel
near $21.  We could really get a gift of a breakdown to touch the
200-dma (currently $19.66), but we'll cross that bridge when/if we
get there.  Technically, there are a couple of other factors
working in our favor as well.  The weekly Stochastics (10,5,3) are
just starting to turn bearish and showing the slightest hint of
bearish divergence with higher price highs and lower Stochastics
highs.  Also, while the PnF chart hasn't yet given a Sell signal,
I'll point out that the column of X that launched this 18-month
bull run originally gave a bullish price target of $27 and the
stock just recently printed $28.  So that bullish target has been
achieved and slightly exceeded.  We know that PnF price targets
may not be achieved, or may be exceeded, but along with the
bearish fundamentals and technicals, the PnF chart gives us a good
idea of where to draw our line in the sand.  After entry, we'll
set our stop at $30.50.

BUY LEAP JAN-2004 $25 LOH-ME
BUY LEAP JAN-2005 $25 ZWE-ME

Drops

None


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

How About A Quickie?  I've Got The Time, If You Have The
Inclination
By Mike Parnos, Investing With Attitude

A quickie for a daytrader might be a two-minute trade.  However, a
quickie for a CPTI trader, can be four trading days.  Four days
allows for some foreplay, a little suspense, the risk of exposure,
and the ever-increasing heart pounding as the trade's climax gets
closer and closer.  It also allows more experienced practitioners
to apply a variety of techniques.

Whew!! Let's get on with it.  I'm beginning to perspire.  I'm
feeling a stirring in my brokerage account that I may not be able
to control much longer.
____________________________________________________________

It's That Time Of The Month
With only four trading days left, let's see if we can come up with
a way or two to squeeze a few bucks out of what's left of the
April option cycle.

The last few days prior to expiration, option premiums disappear
faster than a half-gallon of chocolate ice cream from my freezer.
How can we take advantage of that scenario?

We're in a trading range – with low volume to boot!  Buyers and
sellers are sparring.  The DOW is up 50 points one day on war new
and down 100 the next on accounting irregularities.  The NASDAQ is
up 15 points on positive earnings announcements one day and down
25 points the next, just for the hell-of-it.

Here are some ideas of the type of trades one might look at near
the end of an option cycle.  The numbers are current, but keep in
mind that these are hypothetical trades for educational purposes.
Also, if you're considering a trade, make sure the stock will not
be announcing earnings during these four days.
_______________________________________________________________

1.  RMBS Short Straddle
RMBS is trading at $15.44.  In this lackluster market, there's a
good bet that it will bounce around and end up pretty close to
where it is.  Lets:
Sell 10 contracts of RMBS April $15 calls for $.85
Sell 10 contracts of RMBS April $15 puts for $.45
Total credit is $1.35.  Profit range is $13.65 to $16.35
It might be a bit risky, but it's only for four days.  The one
thing we know for sure is that the $1.35 will be going into
someone's pocket.  Might as well be yours.
______________________________________________________________

2.  ADRX Put or Short
ADRX spiked up on news.  It traded as high as $14.95 and finished
Friday at $14.71.  It was up $1.91 for the day.  There's a good
chance profit takers will come in and ADRX might retrace about a
buck.
How can we take advantage of that scenario?
a)  We can short ADRX stock and participate penny for penny in the
stock's action.  This is one you have to pay close attention to.
Your stop should be put at about $15 – a nickel above Friday's
high.  Your risk would be about $.25 or $250 for a 1,000-share
position.  Watch the pre-market activity.  Often, before the
retracement begins, a stock will show a little follow through from
the big day.  You may then be able to short it at a higher price.

b)  We can buy an in-the-money $17.50 put for about $2.85.  Being
so close to expiration, there's very little time premium left and
you'd be able to participate close to penny-for-penny.  You still
have to have your mental stop and keep an eye on it.  Call it your
"stop-watch."  Your risk would be about the same for a 10-contract
position.

c)  The cheap-o way to play it would be to buy the April $12.50
put for $.15.  Twenty contracts would cost $300 (possibly only
$200 on Monday).  The ADRX $12.50 put has a delta of about 10%.
That means that ADRX would have to move a full dollar (and
quickly) to generate a $.10 move on the option.  It's like a
lottery ticket, but the return on investment can be huge if you
get the move – and your risk is limited.
______________________________________________________________

3.  MO Baby Short Strangle
Altria (Phillip Morris) finished at $30.10.  It's in an ascending
triangle and is likely to continue its slow move back up.  There
is resistance just above $32.  Sell 10 contracts of the MO April
$30 puts at $.85
Sell 10 contracts of the MO April $32.50 calls at $.35
Total credit of $1.20.  We have a maximum profit range of $30 to
$32.50.  Our safety range is $28.20 to $33.70.

If you don't have trading clearance to do a short strangle, you
can buy the $32.50 call and the $22.50 put for a total of $.20.
That still leaves a credit of $1.00.

I Hope It Was Good For You
There you have it – some relatively low risk quickie trades to
study for the more impulsive CPTI students.  It can be very
satisfying, but, if things don't go well, you have to know when to
pull out.
______________________________________________________________

Reminder
The markets will not be open on Friday (it's "Good" Friday).  How
"good" it is will depend greatly on how our plays work out on
Thursday (option expiration).  Either way, the markets will still
be closed on Friday.
_____________________________________________________________

CPTI Portfolio Update
Position #1 – OEX Iron Condor – closed Friday at $440.97.
We created 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.

The total credit for the Iron Condor position is $2.35.  With five
trading days left, we're looking real good!

Position #2 – BRCM Short Straddle – Trading at $13.08.
About three points ago we sold 10 contracts of BRCM April $15
calls and sold 10 contracts of BRCM April $15 puts for a total
credit of $2.60.  Our safety range is from $12.40 to $17.60.

On Monday, we were presented with an opportunity.  The market
spiked up.  BRCM traded as high as $13.90.  To buy back the $15
put would have cost $1.60.  There is heavy resistance at about
$14.  We decided that, if BRCM reversed, we would close out our
position.  When BRCM moved down to $13.80, we bought back the $15
put for $1.65.  We had taken in $2.60.  Our profit is $950.
Celebration may be a bit premature because we're still short the
April $15 call.  If we can buy it back for $.05 in the next few
days, we will.  If not, we'll just let it expire worthless.

Friday, BRCM traded as high as $13.30, which would have allowed
the alert trader to buy back the April $15 call for about $1.90 –
thereby locking in a profit of $700.

Position #3 – MMM Iron Condor – $132.91.
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, to finish anywhere
within the spread.

The market has gone up too far and much to fast.  We have only
four more days for calmer heads to prevail and return MMM, to a
more reasonable level (below $130).  We'll see if Fibonacci was
right.  We're getting down to the short hairs.  It looks like we
may be taking a small haircut on this one.  If we closed out the
MMM bear-call spread at current levels, we'd have to pay a net
$3.00.  That would be a loss of $1,450.

Ongoing Position #1 -- QQQ ITM Strangle – $25.51.
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.  Our cost basis for the position is $5.30.

Since premiums are so low, the chances of making a substantial
profit from this position are slim.  Plus, it ties up a lot of
money.  We closed this four-month position with a $400 profit.

Ongoing Position #2 – OIH - Diagonal Calendar Spread – $56.21.
We felt there was a great deal 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.

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 plan, the March $50 put expired worthless.  We then sold the
April $50 put for $.70 to bring our cost basis down to $3.15.

Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be prepared!
In trading, as in life, it’s not the cards we’re dealt. It’s how
we play them.

Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor


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

It's Gotta Make Sense
By Steve Gould

Last week I was listening to a polarizing radio talk show host.  He
relayed that the Iraqi propaganda minister, Muhammed Saeed al-Sahhaf,
just announced that Iraqi troops had invaded New York City and have
conquered Shea Stadium.  The troops were soon to be on their way down
Broadway where they would take control of the tickets to all the hot
Broadway shows.

Not much later a listener called in and said he had phoned his local
news station and asked them why he had not heard anything about this on
the news.  When asked where his source was, he mentioned the
controversial talk show host.  The news station said that they would
check into it.

As it turned out, the talk show host was illustrating absurdity with
absurdity.  I suspect that the news station found out that this was a
prank and did not broadcast the "news".

The news station was understandably a bit hesitant to broadcast such
news until they had confirming information that the story was true.
Otherwise they risked embarrassment and loss of credibility.

As a trader, you need to have confirming information that a trend is
true otherwise you stand to lose much, much more.  Namely your money.

Whether you use Elliott Wave analysis or your own mix of technical
indicators, you had better verify that the trend you are seeing is valid
in a longer time frame or you stand to make some very costly mistakes.
Looking at a graph in a longer time frame helps to verify that a trend
is really in effect.  The shorter time frame will help you find an
advantageous entry point.

For example, a stock may be rising on the daily chart, but the weekly
chart shows that the stock is still in a downtrend.  It would be
foolhardy to buck the larger trend and go long the stock.  However, you
may be able to use the shorter time frame trend to find the entry point
at the top of the longer time frame channel for a profitable short.

To illustrate this concept on an actual stock, take a look at the daily
chart of ADP starting at 3/8/2002.

Chart: ADP Type I Setup





On 8/27/2002, ADP displayed the classic Elliott Wave Type I setup
meeting the following criteria:

1. Wave 4 retraced about 38% of wave 3.
2. The oscillator retraced about 110%.
3. Wave 4 is a very recognizable A-B-C correction.
4. Wave C of the wave 4 correction subdivided into a 5 wave basic
pattern.
5. The wave 4 time frame is between 138 – 162% of wave 3.

I dream about these set ups.  In fact, it is so good, that I am drooling
all over my keyboard right now wanting to buy some $35 puts.

But if I did that, I would lose money.  Ideal as this set up seems, it
still fails one very vital criteria.  The weekly time frame does not
confirm the start of daily wave 5.

To see why, let's take a look at the weekly chart of ADP.

Chart: Weekly ADP





Comparing the weekly chart to the daily chart we can see a tremendous
amount of correlation.  In fact, the weekly 3 wave (blue circle) is the
daily 5 wave basic pattern unfolding.

What we see on the weekly is that it, too, is undergoing a wave 4
countertrend rally.  Except, it is no where near complete.  The
unfolding wave 4 has not yet retraced even 30% and the oscillator has a
long way to go before it retraces even 90%.

So, as much as the daily chart is screaming this is an ideal set up, the
weekly chart is whispering, nope, I am not quite done yet.

This is what the weekly ADP looks like two months later.

Chart: ADP Weekly 2 Months Later





We now see a much more favorable Elliott Wave Type I set up.

1. Wave 4 retraced about 52% of wave 3.
2. The oscillator retraced 100%.
3. Wave 4 is a very recognizable A-B-C correction.
4. Wave C of the wave 4 correction subdivided into a 5 wave basic
pattern.

In the meantime, let's see what the daily chart is up to.

Chart: ADP Daily 2 Months Later





The daily ADP played out exactly like we expected.  Sure it went down a
bit, and if you were nimble, you might have even made money on the $4
move down. But patience was the better choice here as it ultimately
moved up just as the weekly chart predicted.

Now, however, we have an important decision to make.  Both the daily and
weekly chart are signaling this is the moment to place the trade. But
the daily chart violates one of the criteria.  Namely, the oscillator
retraced more than 138%.  This is a warning sign that should be heeded.
However, everything else lines up quite nicely.  It would be hard to
pass this one up.

Our first target would be the low of the 3 wave which is $31.37.  ADP
could go as low as $29, but that is not much of a difference from $31.
My philosophy is to take the money and run rather than squeeze out every
last point in the trade.  The old adage, bulls make money, bears make
money, but pigs get slaughtered is just too true. In this scenario where
the difference between the two targets is small, I suggest using only
one target.

This would be a long term trade as other indicators suggest that the
target price may not be met until July.

Chart: ADP Weekly End





ADP hit the target around 3/7/2003, way ahead of schedule.  This is a
good point to take all the profits.  There are three reasons for this.
First, this was our original game plan and it is generally best to stick
with the plan.  Second, the 5 wave (blue circle) subdivides very nicely
into a well defined 5 wave basic pattern.  Once this pattern is
complete, ADP will reverse trends. Third, the oscillator is starting to
flatten out signaling a reversal of trends.  Since reasons two and three
confirm reason one, the trade should be exited.

(ADP went down to 27.24 the next week.  Even so, I still believe exiting
at 30.60 was the correct play.)

When placing trades, I admonish you to verify that the price pattern in
the next larger time frame confirms the price pattern of the smaller
time frame.  Only when two time frames correlate should you pull the
trigger on the trade.  Otherwise, the sound you hear could be the one of
you shooting yourself in the foot.

**********

Correction.  In last week's article I incorrectly stated that Fibonacci
was a 16th century mathematician.  Fibonacci was a 13th century
mathematician.


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

Stack Your Stochastic

I've been getting some emails asking for more information about
how I trade, what I look for, and how I've set up my trading
workspace.  This article started out trying to answer that
question, but as usual, I was waylaid by my own curiosity when I
started talking about stacking indicators.  I kept seeing charts
that I wanted to post showing what I had found, and it turned into
a specific discussion on stacking the stochastic.

The first thing I'd like to talk about is the stacking of multiple
indicators into one panel.  I started experimenting with this two
years ago, and have found some interesting patterns.  What I mean
by indicator stacking is the placement of several different
settings for an indicator on top of each other.  For example, many
people use stochastics, and there are some standard settings that
are used without question.  Each setting has its strengths and
weaknesses, with some being too slow, and others being too fast.
These settings can, and should be used according to the current
market.  Lately, the market has been in a rather tight range, and
I changed one of my slower setting of (27,9,4) to (17,7,3).  The
problem was that the slow setting was just sitting there, barely
moving, and giving me almost no useable information.  In markets
that whipsaw, a fast setting can also be rather useless as it
continues to move from overbought to oversold too fast, again, not
giving any useful information.

When it seems that Stochastics can be almost of no use at all due
to market conditions, I turn to stacking several different
settings on top of each other.  Most charting services allow this
stacking, and they all follow the same process:  first you create
several individual stochastics studies, and then you just lay them
on top of each other.  For example, in Esignal, you would hold
down the SHIFT key while dragging one indicator on top of the
other to merge them.  To unmerge the studies, just Right-Click on
the indicator pane, and select the Un-Merge-Studies label.

When I was first started out, the first thing that I tried was
putting together the settings of (21,3,1) and (11,11,1), which is
how Esignal displays it.  For QCharts users, these would be equal
to:
%K = 21, %D = 1, Smoothing = 3  (21,3,1)
%K = 11, %D = 1, Smoothing = 11 (11,11,1)

This produces a single line for each of the two indicators, and
the two stochastics are now a single indicator with two lines.

Dual Stochastic Setting Chart 1:




Rather than trying to use the crossovers of the %K and %D lines
for a single setting, I'm using the interaction of the two
indicators to each other for generating possible trade signals.
The vertical purple lines are there just to show where the
Stochastics values are with respect to price.

First look at the area labeled A.  Here you can see that both of
the lines are rolling over in unison from the overbought area of
80 (yellow line).  This uniformity of action is a fairly strong
signal, and can be traded.  The area labeled B shows where both of
the indicators are still in unison, and are crossing the
centerline, yet another trade signal, or one that keeps you in the
trade if you went short at 'A'.   Once the Stochastics gets into
oversold territory, below 20, once can pull out of their short
trade, or wait to see what happens from here (or cover half of a
position).

Now look at the area marked as C, where the (21,3) setting (red
line) crosses the centerline, but does so without the (11,11)
Stochastic.  In fact, they cross the centerline 5 bars apart, and
soon thereafter price fails in its move upwards.  The pattern that
I've noticed is this, if the two settings cross over together or
within 2 bars of each other, it is a fairly strong signal.  Once
the crossing is 3 bars apart the signal is weaker, and anything
over 3 bars often fails as a tradable signal, like in the chart
above.

Like any indicator, there are false signals and there are
exceptions to the rule, but as a whole, the 3-bar crossover rule
seems to work rather well.  Let's take a look at another example.

Dual Stochastic Setting Chart 2:




At area labeled A, you can see that even though both of the
settings were not working in tandem, they still crossed the
centerline together.  The crossover at A ended up being a good
signal for a long entry.  At area labeled B, you can see how the
two setting are working at cross purposes, with one rising, and
the other crossing down.  The start of the price rollover was
bought and the dual Stochastics kept you from a losing trade.

Dual Stochastic Setting Chart 3:




This dual setting works well with price that has some momentum
behind it, but in a very choppy, narrow range, they tend to lag
behind.  In the chart above, the vertical lines show where the
stochastics cross over the centerline in unison.  In both cases,
the signal was of poor quality.  The first one signals near the
top, and the second signal is given just before a strong rise that
would have stopped out anyone short.

So my search for a better stochastic for today's market was not
over.  I needed a better setup.  The next idea was to shorten the
settings, and to make them a little more similar to each other in
order to avoid the strange formations that the first attempt
seemed to produce.

The next chart shows a single pane with the following three
stochastic settings: (17,9,1), (13,7,1), (11,5,1).  This is in
Esignal format, for QCharts users this is equivalent to: (%K,
Smoothing, %D).

Three Stochastic Setting Chart 1:




I looked at months of data and noticed that a fairly persistent
pattern emerges.  The three lines give rather good signals when
they act, for a better word, cleanly.  Note how box A and B both
show a bottoming, and then a clean crossover as fast, slower,
slowest lines reverse and cross over each other one by one.  The
key in this pattern seems to be that once they cross, they either
continue to diverge from one another (pull apart), or they stay at
an equal length apart.  Even the large, red stick in the rise on
the right hand side doesn't change the general slope of the three
lines, although the fast line does turn down, it still stays
within the trend.  Also notice how the price chart shows the curve
of the rise in price increasing while the slope of stochastics
remains the same, and actually starts to curl over as it moves
into the overbought area.  Soon after, price rolled over hard from
such extremes.

The reversal patterns shown in the boxes above can give some good
signals, but they are not the cleanest or best signals.  In the
next chart below, is an example where a crossover like the ones
above, are actually messy compared to the base-and-reverse
pattern.

Three Stochastic Setting Chart 2:




The area marked 'Messy Top' in the stochastics pane gives a
reversal signal when all three lines cross and start to diverge.
Still, price had some unfinished business, as it tried to break
above recent highs several times.  Stochastics kept falling, and
only the fast (black) managed to cross over the other two lines,
with hardly any convergence of the other lines to show weakness,
one might have stayed in the short, but would most likely be
stopped out.  Look at the two arrows on the stochastics chart.
They point to lines that are both in overbought/oversold areas,
have gone flat and are basing, then all three diverge from each
other and point up, crossing the upper boundaries at 20 and 80,
and giving nice signals for a long and a short.

This idea of 'unison' with the three lines is an important aspect
in the reading of these stacked indicators.

Three Stochastic Setting Chart 3:




The first vertical line shows how the stochastics lines didn't get
to oversold, but they did get into that unison phase where they
were all together, crossed up and diverged from each other.  As
long as they are diverging and moving in the same direction,
crossover of the fast line over the centerline at 50 can be taken
as a signal.  The signal gave a nice rise up which actually formed
a bearish divergence at exactly the same time that the three
stochastics lines converged into a tight unison grouping in the
overbought level, a simultaneous crossover and rollover occurs and
gives a nice sell signal, which can be taken because we have:
1. Divergence
2. Complete convergence and unison in stochastics
3. Rollover from overbought
4. Divergence between the three lines (they are moving apart from
each other).

In the next crossover from the bottom, you can see that there was
no unity in the actions of the three stochastics lines, and a
crossover signal, while good for the overall trend change, came
from a messy setup, and would most likely have stopped out a long.

It all looks great, and the results are much more consistent than
in the first attempt at using twin stochastics lines.  While it
would probably be prudent to wait only for the best signals, such
as the unison-and-reverse pattern from above, you could lose out
on some nice trades while waiting for that perfect setup.

Three Stochastic Setting Chart 4:




The above chart shows a nice long rise in price that was not
preceded by a unison pattern.  Like all indicators, the multi-
stochastic cannot be used alone, and in order to have caught the
above move, we would have needed additional information. The next
chart adds RSI and a 78 period Regression Channel (standard
deviation 2) to the mix, and will help us either filter out some
bad signals, or verify some good signals from the multi-
stochastic.

In chart 5 you can see a nice setup where stochastics merged, and
then started to rollover just as the RSI crosses over and verifies
the short signal.  After a nice decline, you can see how price
pierces the bottom of the regression channel in chart 6, prints a
doji reversal candle, and stochastics start to converge in the
oversold area, giving you a good place to exit the scalp trade.

Three Stochastic Setting Chart 5:




Three Stochastic Setting Chart 6:




The following chart shows how even loose groupings of the multi-
stochastic can give good signals when used in tandem with other
indicators.

Three Stochastic Setting Chart 7:




At loose grouping B the vertical line is drawn just after price
gapped above the top of the regression channel.  Since I don't
like to take trades on indicator settings after gaps because they
are skewed, it would be best to wait.  As I watch, there is a
slight selloff, another push is made and is again repelled at the
upper channel.

Now you have a gap, a failure, a push into regression resistance,
and a stochastic which didn't react at all to the push up after
the gap was sold.  Not only that, RSI is still under the moving
average and Macd is moving down, and did not cross over on the
push up.  This second failure at the regression channel is a fine
place to go short.  Covering the short is easy as well, at the
bottom of the regression channel when stochastics has flat-lined,
and RSI is starting to turn up along with Macd (label Loose
Grouping 6).

The bounce up could be played long, or, since the slope of the
regression channel slope is pointing down, you can just wait for
another shorting opportunity. Once price reaches the upper
channel, there is another rollover by the indicators, but the
rollover at the area of Loose Grouping D, is very sloppy, with no
unison.  Even this leads to a decent selloff, but it is reluctant
selling, as is shown by the rather sloppy movement of the
stochastics, and sideways motion of the RSI.  If you chose to take
the signal at Grouping D, you would most likely have been stopped
out.  Again, once can choose to trade these signals, or wait for
the best setups with the highest probability.  It all depends on
the risk one is willing to take.

Three Stochastic Setting Chart 8:




One more chart to briefly discuss the centerline.  The vertical
line above marked 'A' shows where stochastics and RSI both give a
long signal, but since price is at the top of the channel, it is
not a good idea to go long at that point.  Stochastics pulls back,
but bounces at the centerline and starts to move in unison upward
just as RSI crosses the moving average giving a long signal.  With
room to go up to the top of the regression channel, you can go
long at vertical line 'B'.  The turn back down is a little sloppy
on the stochastic, but RSI crosses back down, and price has turned
over again from the upper channel, and with plenty of room to move
down to the other side of the channel, a short could be taken at
vertical line 'C'.  Keep in mind that the centerline is a place of
support/resistance.  For some indicators like the RSI, it is not
very strong support/resistance, and it is why I use a moving
average and trendlines on RSI.  However, for the stochastic, the
centerline plays a fairly key role, and it should be respected.

Three Stochastic Setting Chart 9:




The chart above shows how the centerline will act as support as
price continues to climb while pausing twice for a little profit
taking.

I've tried to give some ideas on what to look for, and how to use
this multi-stochastic setting.  It can be a valuable tool,
especially when used with other indicators for verification of
signals, or to keep you out of a trade due to a possible false
signal.  When used with support/resistance lines, trendlines, and
moving averages (for example, don't take a long signal when price
is just below a pivotal moving average), you can reduce the number
of imperfect trade signals, and increase your odds of a good
trade.

The examples above are all shown on 5 minute charts, but as with
any indicator or pattern, these carry over to any chart period
that you prefer.  Try a few different settings and see how they
act together at key reversals in price.  If you see a pattern
emerge, you may end up creating your own personal trading tool
that matches how you prefer to trade.

Vlada Raicevic


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The Option Investor Newsletter                   Sunday 04-13-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Covered-Calls On Portfolio Stocks
Naked Puts: Success Basics
Spreads/Straddles/Combos: Economic Woes Return To U.S. Equity Markets

Updated In The Site Tonight:
Market Posture: Who Said Range-bound?


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

Trading Basics: Covered-Calls On Portfolio Stocks
By Mark Wnetrzak

One of our readers is using this conservative strategy to recover
from the large declines in the stock market.


Attn: Covered-Calls Editor
Subject: Selling Calls On Long-Term Holdings

Hello Mark,

I have some blue-chip style stocks in my portfolio and I plan on
keeping them for the long-term.  With the market slump, many of
them have fallen in value so I have started selling covered-calls
to reduce my cost basis in each issue.  I was hoping you could
give me some guidelines or suggestions as to how to make this
strategy work best, such as which options (OTM/ATM) I should be
selling, how far out they should be, and what criteria I should
use to close an ITM option that might be exercised.  Thanks in
advance for any ideas or comments you have to offer.

OL


Regarding covered-calls on portfolio stocks:

Selling covered calls is one of the most popular option strategies
among conservative investors because income can be generated from
portfolio holdings and this income helps reduce the risk of stock
ownership.  The amount of money produced by a covered-call position
depends on how close the sold calls are to the current price of the
underlying issue.  As you know, writing in-the-money covered-calls
will yield the largest premium, but the gain comes at a higher risk
of being "called" and possibly having to sell the stock for a loss.
When choosing which call to sell, most investors gravitate to the
at-the-money strikes because they offer a equitable balance between
upside potential and downside safety in the overall position.  If
the implied volatility in a particular series is extremely high,
you may be able to move further in-the-money, using the inflated
time value to establish a more conservative risk-reward outlook.
The key to choosing the correct strike to sell lies in a comparison
of the various series and their related premiums, which will reveal
the best combination of risk (cost basis) and reward (potential for
profit) in the overall position.  With regard to the appropriate
time frame, it is unlikely you will be able to write front-month
options on a consistent basis because option premiums on blue-chip
issues are generally less robust.  You will probably need to use
options in the second and third expiration months, in order to
receive an acceptable premium for the written calls.

The biggest concern for an investor who sells covered-calls against
long-term portfolio stocks is the possibility of early exercise of
the short options.  If the share value rises substantially after
the calls are written, the easiest way to avoid assignment is to
adjust the position by "rolling" the calls up (or up and forward)
to a higher strike price.  When you roll up (buy-back the current
sold calls and sell higher strike calls), you increase the profit
potential of the position.  The catch, of course, is you surrender
downside protection.  The new (downside) break-even point will be
increased by the amount of money required to complete the roll-out
transaction; the cost of closing the sold calls minus the premium
received for selling the new calls.  Any time a debit is incurred
in a position adjustment, it is considered to be a negative move
because you placing more money at risk.  One way to offset this
effect is to roll to a future expiration date in the sold option.
Selling a longer-term option will reduce the cost required for the
new position, possibly even yielding a credit in the transaction.

Regarding early assignment: As long as there is time premium left
in the call, there is little risk of assignment.  However, if the
option is in-the-money, even slightly, and the expiration date is
near, it may be best to roll forward to reduce the likelihood of
the short options being exercised.  You can simply buy-back the
sold options and sell new, longer-term calls, either at the same
strike price or in a different series; whatever is consistent with
your outlook for the underlying issue.  The percentage of options
exercised prior to expiration is very low but when the time value
falls to zero (bid price at parity or a discount), there is a much
higher probability of arbitrage by floor traders.  If you encounter
this situation (little or no time value in the sold calls), you
should consider rolling the position up, or up and forward, to
prevent an unanticipated loss of your stock (and possibly your
portfolio capital).

Regards,

Mark
OIN



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

EP       5.20    6.25  APR  5.00  0.70    0.50*   9.7%
VRTS    17.93   18.55  APR 17.50  1.20    0.77*   6.7%
CPN      2.93    3.67  APR  2.50  0.60    0.17*   6.3%
ADLR    13.75   13.19  APR 12.50  1.60    0.35*   6.3%
MSCC    10.93   10.99  APR 10.00  1.30    0.37*   5.6%
MRVL    21.91   20.45  APR 20.00  2.65    0.74*   5.6%
DCLK     7.69    8.80  APR  7.50  0.55    0.36*   5.5%
OAKT     3.23    3.94  APR  2.50  0.90    0.17*   5.3%
IDCC    19.99   18.80  APR 17.50  3.30    0.81*   5.3%
FEIC    16.23   15.45  APR 15.00  1.75    0.52*   5.2%
WYNN    15.04   16.22  APR 15.00  0.55    0.51*   5.1%
VECO    15.91   15.15  APR 15.00  1.70    0.79*   4.8%
SOHU    11.73   12.21  APR 10.00  2.05    0.32*   4.8%
PEGS    10.90   11.45  APR 10.00  1.40    0.50*   4.6%
ILXO     8.40    9.59  APR  7.50  1.20    0.30*   4.5%
BCGI    16.14   16.08  APR 15.00  1.70    0.56*   4.2%
TELK    13.37   12.78  APR 12.50  1.20    0.33*   3.9%
ALTR    13.84   13.93  APR 12.50  1.80    0.46*   3.3%
ELBO    18.21   17.19  APR 17.50  1.10    0.08    1.0%
NLS     15.31   10.96  APR 15.00  0.95   -3.40    0.0%

NEOL    13.50   13.60  MAY 12.50  1.80    0.80*   5.0%
UNTD    19.23   19.67  MAY 17.50  2.80    1.07*   4.7%
COMS     5.17    5.16  MAY  5.00  0.45    0.28*   4.3%
MSCC    11.77   10.99  MAY 10.00  2.25    0.48*   3.7%

*   Stock price is above the sold striking price.

Comments:

Murphy's Law was in force this week as two of the previously
closed positions (listed below) rebounded while Nautilus Group
(NYSE:NLS) was hammered on Tuesday after issuing an earnings
warning (what happened to ignoring "bad" news?).  We will show
the position closed in the interest of capital preservation.
Two other positions on the "early exit" watch-list were closed
as they continued to deteriorate technically.  The next few
sessions should be interesting with April's option expiration
occurring on a 4-day trading week.  This current watch-list
includes:  Marvell Technology (NASDAQ:MRVL) - downgraded on
Tuesday; Veeco Instruments (NASDAQ:VECO) - earning due 4/28;
Telik (NASDAQ:TELK), and Electronics Boutique (NASDAQ:ELBO).

Positions Previously Closed:  Manugistics (NASDAQ: MANU), RSA
Security (NASDAQ:RSAS); both are now profitable (sigh), Sandisk
(NASDAQ:SNDK), and S1 Corp. (NASDAQ:SONE).


NEW CANDIDATES
*********

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

IMMU    2.95  MAY  2.50  QUI EZ  0.65  8      2.30  35   7.6%
CAL     5.68  MAY  5.00  CAL EA  1.00  552    4.68  35   5.9%
SEAC    7.80  MAY  7.50  UEG EU  0.75  19     7.05  35   5.5%
CTLM    5.18  MAY  5.00  UUM EA  0.45  12     4.73  35   5.0%
RINO   13.29  MAY 12.50  AGQ EV  1.40  118   11.89  35   4.5%
UNTD   19.67  MAY 17.50  QAB EW  2.95  218   16.72  35   4.1%
PLCE   13.34  MAY 12.50  TUY EV  1.40  24    11.94  35   4.1%
NEOL   13.60  MAY 12.50  UOE EV  1.65  34    11.95  35   4.0%


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).

*****
IMMU - Immunomedics  $2.95  *** Cheap Speculation! ***

Immunomedics (NASDAQ:IMMU) is a biopharmaceutical company focused
on the development, manufacture and marketing of monoclonal
antibody-based products for the detection and treatment of cancer
and other serious diseases.  The company has developed a number
of advanced proprietary technologies that allow it to create
humanized antibodies that can be used either alone in unlabeled
form or conjugated with radioactive isotopes, chemotherapeutics or
toxins to create highly targeted agents.  Using these technologies,
IMMU has built a broad pipeline of diagnostic and therapeutic
product candidates that utilize several different mechanisms of
action.  Its technologies are supported by an extensive portfolio
of intellectual property that includes approximately 80 issued
patents in the United States and 233 other issued patents worldwide.
Immunomedics has recently settled with CIS Bio International of
France regarding issues arising from past sales of Scintimun CEA
in relation to Immunomedics' carcinoembryonic antigen patents.
In addition to this settlement, Immunomedics' CEA patent portfolio
has been licensed to Beckman Coulter, Daiichi Pure Chemicals, Medix
Biochemica, and Dako.  This position offers traders a method to
speculate on the near-term performance of IMMU as the issue forges
a Stage I base.

MAY  2.50 QUI-EZ LB=0.65 OI=8 CB=2.30 DE=35 TY=7.6%


*****
CAL - Continental Airlines  $5.68  *** Bottom Fishing ***

Continental Airlines (NYSE:CAL) is a United States air carrier
engaged in the business of transporting passengers, cargo and
mail.  The company, together with its indirect 53.1%-owned
subsidiary, ExpressJet Airlines, and its wholly owned subsidiary,
Continental Micronesia (CMI), served 223 airports worldwide as
of January 31, 2003.  The company flew to 129 domestic and 94
international destinations and offered additional connecting
service through alliances with domestic and foreign carriers.
Continental directly served 15 European cities, seven South
American cities, Tel Aviv, Hong Kong and Tokyo as January 31,
2003.  It served 28 cities in Mexico and Central America.
Through its Guam hub, CMI provides service in the western
Pacific, including service to more Japanese cities than any
other United States carrier.  Pure speculation on a hammered
sector with a favorable cost basis in a basing stock.

MAY  5.00 CAL-EA LB=1.00 OI=552 CB=4.68 DE=35 TY=5.9%


*****
SEAC - SeaChange  $7.80  *** More Bottom Fishing ***

SeaChange International (NASDAQ:SEAC) is a developer, manufacturer
and marketer video storage servers that automate the management
and distribution of long-form video streams, such as movies or
other feature presentations, and short-form video streams, such
as advertisements.  The company sells its products and services to
cable system operators, telecommunications companies and broadcast
television companies.  Using its systems, the company customers
can increase their revenues by offering additional services, such
as video-on-demand movies and subscription video-on-demand
programming, both of which allow subscribers to watch content at
any time with pause, rewind and fast forward features.  With the
strong buying support near the cost basis (since July), this
position offers speculators a favorable method to "target-shoot"
an entry point in SEAC.

MAY  7.50 UEG-EU LB=0.75 OI=19 CB=7.05 DE=35 TY=5.5%


*****
CTLM - Centillium  $5.18  *** On The Move! ***

Centillium Communications (NASDAQ:CTLM) is a provider of highly
integrated silicon solutions that enable broadband communications
for homes and business enterprises.  CTLM designs, develops and
supplies communications semiconductor solutions for applications
in the DSL and voice over packet (VoP) markets.  The company's
DSL and VoP products include the CopperFlite CO (Central Office),
CopperFlite CPE (Customer Premises Equipment), Optimizer, Palladia
and Entropia families of products.  The company's DSL products are
based on a type of DSL technology known as asymmetrical DSL (ADSL).
ADSL technology provides substantially faster transmission of data
from the network to the end user than from the user to the network.
The company's VoP products, Entropia CO and Entropia CPE, are
positioned to support current and evolving VoP applications.  The
chart of Centillium continues to show improvement and the recent
move above the March high on heavy volume bodes well for the near
future.  Reasonable speculation on a recovering stock.

MAY  5.00 UUM-EA LB=0.45 OI=12 CB=4.73 DE=35 TY=5.0%


*****
RINO - Blue Rhino  $13.29  *** A Wal-Mart Boost? ***

Blue Rhino (NASDAQ:RINO) is a national provider of propane grill
cylinder exchange and complementary propane and non-propane
products to consumers through many retailers worldwide.  Uniflame
Corporation, the company's subsidiary, focuses on selling a wide
assortment of charcoal, electric and propane grills through
retailers and also sells propane-fueled outdoor patio heaters
and other outdoor hearth products that complement the use of
grills by extending outdoor living in cooler weather conditions.
Its branded propane grill cylinder exchange service is offered
at more than 26,000 retail locations in 48 states and Puerto Rico
at home improvement centers, mass merchants, hardware, grocery
and convenience stores.  The company's retail partners include
Home Depot, Lowe's, Wal-Mart, Sears, Kmart, Kroger, Food Lion,
Winn-Dixie, SuperAmerica, Circle K and ExxonMobil.  Wal-Mart
recently named Blue Rhino its supplier for the fourth quarter
ended January 31, 2003.  Does this bode well for RINO's earnings?
Apparently investors believe it will as the stock rallied sharply
off its recent lows.  Option traders can use the inflated premiums
to establish a (relatively) low-risk position in the issue.

MAY 12.50 AGQ EV LB=1.40 OI=118 CB=11.89 DE=35 TY=4.5%


*****
UNTD - United Online  $19.67  *** Rally Mode! ***

United Online (NASDAQ:UNTD) is an Internet service provider
offering consumers free and value-priced Internet access and
e-mail.  Its Internet access services are offered through its
NetZero and Juno subsidiaries under their brands, and are
available in more than 5,000 cities across the United States
and Canada.  In addition, the company offers marketers numerous
online advertising products, as well as online market research
and measurement services.  As of June 30, 2002, the company had
approximately 1.7 million subscribers to its pay Internet access
services and approximately 4.8 million active users, including
pay users.  Active users include all pay users and those free
users that have logged onto its services during the preceding
31-day period.  The company provides billable dial-up Internet
access services for $9.95 per month.  The recent price history
of United Online reveals one of the better charts we've seen in
the technology group (Uh oh, jinx?) and investors who want to
diversify their portfolio should consider this position.  The
company will report earnings before the opening on April 30.

MAY 17.50 QAB-EW LB=2.95 OI=218 CB=16.72 DE=35 TY=4.1%


*****
PLCE - The Children's Place  $13.34  *** Earnings Rally? ***

The Children's Place Retail Stores (NASDAQ:PLCE) is a specialty
retailer of apparel and accessories for children from newborn to
12 years of age.  The company designs, sources and markets its
products under its proprietary The Children's Place brand name
for sale exclusively in its stores and on its Website.  As of
March 15, 2002, the company operated 543 stores in 47 states,
located primarily in regional shopping malls.  The company's
merchandising strategy is built on offering a collection of
interchangeable outfits and accessories to create a coordinated
look distinctive to The Children's Place.  It offers a focused
assortment of styles in a variety of colors and patterns.  PLCE
divides the year into quarterly merchandising seasons: Spring,
Summer, Back-to-School and Holiday.  Within each season, the
company also introduces a new merchandise line each month.
PLCE rallied this week after reporting earnings that were above
expectations, even though same-store sales fell in March.  The
company also received several upgrades on the positive surprise
and this position offers excellent reward potential at the risk
of owning the issue at a favorable cost basis.

MAY 12.50 TUY-EV LB=1.40 OI=24 CB=11.94 DE=35 TY=4.1%


*****
NEOL - NeoPharm   $13.60  *** Own This One! ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  NEOL currently has a portfolio
of eight anti-cancer drugs, six of which are in clinical trials.
The company has built its drug portfolio based on its two novel
proprietary technology platforms: the NeoLipid electrostatic
liposome drug delivery platform and a tumor-targeting platform.
NeoPharm has developed an electrostatic liposome encapsulated
antisense cRaf oligonucleotide, LE-AON, which inhibits the
expression of the cRaf protein and thus may have potential to
enhance the effectiveness of radiation in the treatment of certain
cancers.  The company intends to develop LE-AON as a treatment
for radiation resistant tumors and as an enhancement to standard
chemotherapeutic agents.  NeoPharm recently announced that it has
reached an agreement with Pharmacia Corporation and Upjohn, to
settle pending lawsuits.  We simply favor the bullish move above
the 150-dma and the March high supported by heavy volume.  Traders
with a bullish outlook for the company will view any pullback as
a second chance to own NEOL at a reasonable cost basis.

MAY 12.50 UOE-EV LB=1.65 OI=34 CB=11.95 DE=35 TY=4.0%


*****


*****************
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   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

LGND    7.55  MAY  7.50  LQP EU  0.70  292    6.85  35   8.2%
MVSN   12.75  MAY 12.50  MVU EV  1.10  16    11.65  35   6.3%
BOBJ   18.25  MAY 17.50  BBQ EW  1.85  374   16.40  35   5.8%
FFIV   13.05  MAY 12.50  FLK EV  1.30  128   11.75  35   5.5%
TSO     7.50  MAY  7.50  TSO EU  0.45  1580   7.05  35   5.5%
SEPR   15.77  MAY 15.00  ERQ EC  1.65  799   14.12  35   5.4%
JBL    17.75  MAY 17.50  JBL EW  1.25  1613  16.50  35   5.3%
MSCC   10.99  MAY 10.00  QMS EB  1.55  0      9.44  35   5.2%
PHG    17.70  MAY 17.50  PHG EW  1.15  867   16.55  35   5.0%
RETK    5.94  MAY  5.00  QRD EA  1.20  72     4.74  35   4.8%
WYNN   16.22  MAY 15.00  UWY EC  2.00  278   14.22  35   4.8%
IGEN   34.75  MAY 30.00   GQ EF  6.30  128   28.45  35   4.7%
MU      8.37  MAY  7.50   MU EU  1.20  2526   7.17  35   4.0%



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

Options 101: Success Basics
By Ray Cummins

Knowing how to read a chart is the most basic skill of technical
analysis and it's a prerequisite to profits for option traders.

There are two major schools of thought when it comes to picking
stocks: fundamental analysis and technical analysis.  While many
investors believe that things like earnings growth, profit margin,
return on equity, and debt level determine the cost of a company's
shares, history suggests that short-term stock prices are based
more on the market's perception of what a stock should be worth,
rather than its actual value.  Technical analysis more accurately
reflects this perception (which is the public's immediate outlook
for an issue), because all of the "known" information about the
company is factored in the current market value of its stock.  In
addition, most option-trading strategies are based on time-frames
of three months or less, thus technicals-based analysis seems more
appropriate for the majority of participants in the derivatives
market.  For traders who focus on directional trends, one of the
easiest indicators to use, and profit from, is Relative Strength.

Relative strength is generally defined as how well a given issue
or instrument performs in relation to an industry average or the
overall market.  A favorable relative strength is indicated when
the stock achieves a higher rate of gain than the specific index
or market gauge.  The formula for measuring relative strength is
simply the price of the issue divided by the price of the average
and it can be calculated for any time period.  Momentum traders
should review various time periods to assess relative strength,
including monthly, weekly and daily charts.  Trend-lines as well
as moving averages of relative price can be used to help identify
break-outs and reversals.  Changes in a stocks' relative strength
are also important and that's why some traders focus specifically
on crossovers -- where abrupt increases or decreases in relative
strength can signal a sharp move in one direction or another.  In
short, if a stock has underperformed for a long period, but then
begins to outpace a major equity index such as the S&P 500, it
can presage a reversal and a long period of out-performance.  Here
is an illustration of that concept in a bullish technology issue:


RELATIVE STRENGTH CHART (JCOM)





All other things being equal, stocks with strong and/or improving
relative strength tend to outperform comparable issues in similar
markets.  At the same time, poor relative strength demonstrates
that the issue is an inferior performer compared to the industry
group or overall market and should not be considered for a long
position.  In those cases where relative strength is extremely
is favorable in the underlying issue, a bullish option position
can often be held through periods of widespread consolidation,
even when other forms of analysis suggest an early exit.

Good Luck!



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   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

NFLX    21.06   20.77  APR 17.50  0.40    0.40*   3.4%  11.0%
IMCLE   15.70   14.59  APR 12.50  0.50    0.50*   3.0%   9.9%
CREE    20.54   21.35  APR 17.50  0.50    0.50*   3.2%   9.6%
MOGN    10.96   12.26  APR 10.00  0.50    0.50*   3.8%   9.2%
XLNX    25.38   23.61  APR 22.50  0.75    0.75*   3.0%   8.1%
MVK     18.71   18.20  APR 17.50  0.35    0.35*   3.0%   7.7%
IDCC    22.69   18.80  APR 17.50  0.25    0.25*   2.1%   7.6%
AMZN    24.71   25.75  APR 22.50  0.65    0.65*   2.6%   6.8%
NVLS    30.87   26.65  APR 25.00  0.40    0.40*   1.8%   6.3%
ADTN    37.10   36.18  APR 30.00  0.35    0.35*   1.7%   6.3%
AMZN    27.93   25.75  APR 22.50  0.35    0.35*   1.7%   6.2%
MATK    25.32   27.85  APR 22.50  0.55    0.55*   2.2%   6.1%
CYBX    19.15   20.89  APR 17.50  0.45    0.45*   2.3%   6.1%
CVC     20.30   19.56  APR 17.50  0.30    0.30*   1.9%   5.8%
CYBX    21.26   20.89  APR 20.00  0.30    0.30*   2.2%   5.8%
OVTI    21.18   22.66  APR 15.00  0.30    0.30*   1.8%   5.7%
CMCSA   30.80   28.65  APR 27.50  0.50    0.50*   2.0%   5.7%
LLTC    32.58   30.48  APR 27.50  0.55    0.55*   1.8%   5.6%
YHOO    23.97   24.43  APR 20.00  0.30    0.30*   1.7%   5.5%
EXPE    37.14   52.00  APR 30.00  0.50    0.50*   1.5%   5.3%
JCOM    27.54   31.96  APR 22.50  0.30    0.30*   1.5%   5.2%
PSUN    19.73   21.20  APR 17.50  0.35    0.35*   1.8%   5.1%
JCOM    30.05   31.96  APR 25.00  0.25    0.25*   1.5%   5.0%
MEDI    30.68   32.41  APR 27.50  0.65    0.65*   1.8%   4.8%
IMCLE   18.36   14.59  APR 15.00  0.25   -0.16    0.0%   0.0%

RMBS    15.75   15.44  MAY 12.50  0.55    0.55*   3.3%  10.8%
NFLX    19.55   20.77  MAY 15.00  0.60    0.60*   3.0%   9.6%
EYE     11.96   11.75  MAY 10.00  0.35    0.35*   2.6%   8.0%
JCOM    32.12   31.96  MAY 25.00  0.75    0.75*   2.2%   7.6%
SEPR    16.35   15.77  MAY 12.50  0.35    0.35*   2.1%   7.0%
RIMM    14.88   13.95  MAY 12.50  0.35    0.35*   2.1%   6.5%
BOBJ    18.31   18.25  MAY 15.00  0.35    0.35*   1.7%   5.8%
CMCSK   28.44   27.50  MAY 25.00  0.60    0.60*   1.8%   5.1%

*  Stock price is above the sold striking price.

Stocks retreated this week amid renewed concerns about the U.S.
economy and the cost of the recent war with Iraq.  Share values
in the hi-tech segment were hardest hit and the bearish activity
did not help the majority of positions in our portfolio.  One of
the most surprising moves occurred in ImClone (NASDAQ:IMCLE),
whose shares were halted after the company said regulators were
investigating its failure to pay at least $60 million in taxes
on stock options.  ImClone said it will have to restate earnings
after the tax bill is settled and the delay has made the stock
subject to delisting from the NASDAQ because the company failed
to comply with filing requirements.  Rather than wait for the
situation to get sorted out, investors bolted for the exits and
that may be the best course of action in our positions as well.
Issues currently on the watch-list include: Xylinx (NASDAQ:XLNX),
Maverick Tube (NYSE:MVK), Novellus (NASDAQ:NVLS), Interdigital
Communications (NASDAQ:IDCC) and Comcast (NASDAQ:CMCSA).

Previously Closed Positions: International Rectifier (NYSE:IRF)


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 Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

FTS    10.06  MAY  7.50  FTS QU 0.25 400   7.25  35   3.0%   9.6%
WYNN   16.22  MAY 12.50  UWY QV 0.40 358  12.10  35   2.9%   9.5%
AVID   25.54  MAY 22.50  AQI QX 0.80 7    21.70  35   3.2%   8.7%
SEPR   15.77  MAY 12.50  ERQ QV 0.30 2529 12.20  35   2.1%   7.5%
GTRC   21.10  MAY 20.00  UGR QD 0.65 101  19.35  35   2.9%   7.1%
JCOM   31.96  MAY 22.50  JQF QX 0.50 92   22.00  35   2.0%   6.3%
NFLX   20.77  MAY 15.00  QNQ QC 0.30 501  14.70  35   1.8%   5.9%
ADRX   14.71  MAY 12.50  QAX QV 0.25 27   12.25  35   1.8%   5.5%


Company Descriptions

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

*****
FTS - Footstar  $10.06  *** Premium Selling! ***

Footstar (NYSE:FTS) is a holding company that, through its wholly
owned subsidiaries, owns the capital stock of the subsidiaries
that operate its discount and family footwear segment (Meldisco),
athletic footwear and apparel segment (Footaction and Just For
Feet) and its discontinued Thom McAn segment.  The company is
principally a specialty retailer conducting business in the
discount and family footwear segment through Meldisco, and in
the branded athletic footwear and apparel segment through its
Footaction and Just For Feet businesses.  The newly acquired J.
Baker licensed footwear departments have been combined with and
reported in the Meldisco segment.  Footstar recently announced
it would file its annual report about a month late because it
needs time to finish restating results in the wake of previously
disclosed accounting problems.  The news has caused speculation
among traders, including some "short" activity and higher volume
in FTS put options.  Traders who believe the delayed report will
offer no surprises can profit from that outcome with position.

MAY  7.50 FTS QU LB=0.25 OI=400 CB=7.25 DE=35 TY=3.0% MY=9.6%


*****
WYNN - Wynn Resorts  $16.22  *** Own This One! ***

Wynn Resorts (NASDAQ:WYNN) is constructing and will own and operate
Le Reve, a luxury hotel and destination casino resort in Las Vegas,
Nevada.  Le Reve will be situated on approximately 192 acres at the
site of the former Desert Inn Resort on the Las Vegas Strip.  The
facility will feature approximately 2,700 guest rooms and suites,
a casino featuring an estimated 136 table games and 2,000 slot
machines, a baccarat salon and private, high-limit gaming rooms;
an eight-story manmade mountain enclosing a three-acre lake in
front of the hotel and 18 dining outlets, including six fine-dining
restaurants; an 18-hole championship golf course on the premises; a
water-based entertainment production; on-site Ferrari and Maserati
dealerships and an art gallery.  The facility is scheduled to open
to the public in April 2005.  WYNN is a relatively new issue but it
has quickly become a favorite among Gaming and Entertainment sector
investors.  Traders can speculate conservatively on the company's
future share value with this position.

MAY 12.50 UWY QV LB=0.40 OI=358 CB=12.10 DE=35 TY=2.9% MY=9.5%


*****
AVID - Avid Technology  $25.54  *** New "All-Time" High! ***

Avid Technology (NASDAQ:AVID) develops, markets, and supports a
wide range of software, and hardware and software systems, for
digital media production, management and distribution.  Avid
Technology participates in two principal markets transitioning
from well-established analog content-creation processes to
digital content-creation tools.  Both of these markets, video
and film editing and effects and professional audio, are using
the worldwide web to collaborate and distribute video and audio
content.  The company's products, which are categorized into the
two principal markets in which they are sold, are used worldwide
in production and post-production facilities, film studios,
network, affiliate, independent and cable television stations,
recording studios, advertising agencies, government and also
educational institutions, corporate communication departments,
and by game developers and Internet professionals.  Quarterly
earnings are due on 4/17/03 and AVID investors are hoping for
favorable data.  Traders can speculate on the outcome of the
earnings report with this position.

MAY 22.50 AQI QX LB=0.80 OI=7 CB=21.70 DE=35 TY=3.2% MY=8.7%


*****
SEPR - Sepracor  $15.77  *** Drug Sector Speculation ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.  In
February, Sepracor was awarded a patent covering the use of Estorra
for the treatment of insomnia.  Earlier this month, Sepracor said
the FDA had filed the company's New Drug Application for Estorra
and last week, Merrill Lynch raised its rating on the company's
shares to "buy" from "neutral," saying the stock is "attractive."
Investors who wouldn't mind owning this popular drug stock near a
cost basis of $12 should consider this position.

MAY 12.50 ERQ QV LB=0.30 OI=2529 CB=12.20 DE=35 TY=2.1% MY=7.5%


*****
GTRC - Guitar Center  $21.10  *** Retail Of A Different Note! ***

Guitar Center (NASDAQ:GTRC) is a musical instruments retailer that
operates Guitar Center and American Music stores.  Guitar Center
stores are organized into five departments, each focusing on one
product category.  The American Music stores sell band as well as
orchestral instruments and related accessories, primarily to the
school band market.  In addition to its musical products, Guitar
Center offers, through its retail and direct response operations,
technical product information, confirmation of needs by a live
person and after-sale support from a musician-based staff.  The
company's Musician's Friend unit is an integrated e-commerce and
catalog business that offers an assortment of products and online
promotions throughout the year.  Standard & Poor's said Thursday
that it revised its outlook on Guitar Center to "positive," based
on the firm's improved operating performance and credit measures.
Investors can establish a low risk cost basis in a unique retail
issue with this position.

MAY 20.00 UGR QD LB=0.65 OI=101 CB=19.35 DE=35 TY=2.9% MY=7.1%


*****
JCOM - j2 Global Communications  $31.96  *** Entry Point! ***

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.  JCOM has been one of the best
performing technology issues over the past 12 months, with its
shares up over 200% from year-ago levels.  Investors are bullish
on the company's future and traders who believe the rally will
continue can speculate on that outcome with this position.  The
company's quarterly earnings report is due 4/21/03.

MAY 22.50 JQF QX LB=0.50 OI=92 CB=22.00 DE=35 TY=2.0% MY=6.3%


*****
NFLX - Netflix  $20.77  *** Move Over Blockbuster! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.
Netflix is becoming popular among home-movie watchers and their
subscription base is growing exponentially.  The solid fundamental
outlook for this up-and-coming company has translated into higher
share values and traders can profit from future upside activity in
the stock with this position.

MAY 15.00 QNQ QC LB=0.30 OI=501 CB=14.70 DE=35 TY=1.8% MY=5.9%


*****
ADRX - Andrx Corporation  $14.71  *** New FDA Approval! ***

Andrx Corporation (NASDAQ:ADRX) is a specialty pharmaceutical
company engaged in the formulation and commercialization of oral
controlled-release generic and brand pharmaceuticals utilizing
its proprietary drug delivery technologies.  Andrx also markets
and distributes pharmaceutical products manufactured by third
parties.  Andrx shares soared last week after U.S. regulators
approved its generic version of the hypertension drug Tiazac.
The decision ended a five-year legal fight against the original
manufacturer of the product, Biovail, and Andrx said the Tiazac
copy would be a "significant contributor" to its 2003 results.
Investors who want to speculate on a continued recovery in ADRX
shares can do so in a conservative manner with this position.

MAY 12.50 QAX QV LB=0.25 OI=27 CB=12.25 DE=35 TY=1.8% MY=5.5%


*****


*****************
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 Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

MSTR   26.13  MAY 22.50  EOU QX 0.90 93   21.60  35   3.6%  10.1%
SANG   13.71  MAY 12.50  QDY QV 0.55 11   11.95  35   4.0%   9.9%
OVTI   22.66  MAY 17.50  UCM QW 0.55 415  16.95  35   2.8%   9.4%
CREE   21.35  MAY 17.50  CVO QW 0.50 81   17.00  35   2.6%   8.4%
MMR    11.55  MAY 10.00  MMR QB 0.30 32    9.70  35   2.7%   7.7%
XLNX   23.61  MAY 20.00  XLQ QD 0.55 2340 19.45  35   2.5%   7.5%
CKFR   21.11  MAY 17.50  FCQ QW 0.45 1434 17.05  35   2.3%   7.4%
FLO    27.47  MAY 25.00  FLO QE 0.70 159  24.30  35   2.5%   6.6%
THOR   11.45  MAY 10.00  TQU QB 0.25 6     9.75  35   2.2%   6.4%
DSPG   18.59  MAY 17.50  DPQ QW 0.50 15   17.00  35   2.6%   6.3%


SEE DISCLAIMER IN SECTION ONE
*****************************


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

Economic Woes Return To U.S. Equity Markets
By Ray Cummins

Stocks finished lower Friday, despite an early morning rally, as
renewed concerns about the lackluster economy and the upcoming
earnings season created a "wait and see" attitude among investors.

The blue-chip Dow Jones industrial average ended down 17 points at
8,203 with Wal-Mart (NYSE:WMT) and Boeing (NYSE:BA) among the day's
big losers.  The NASDAQ Composite Index slid 6 points to 1,358 amid
a slump in semiconductor and software issues.  The broad Standard &
Poor's 500 Index slipped 3 points to 868 as losses in oil and gas
drillers and defense stocks outweighed gains in aluminum, hospital,
tobacco, publishing, utility, and apparel issues.  The number of
advancing stocks was roughly even with declining issues on both the
New York Stock Exchange and the NASDAQ.  Trading volume was light
with 1.1 billion shares changing hands on the Big Board, while 1.2
billion shares were swapped on technology exchange.  The treasury
was little changed as fixed-income investors awaited the results of
next week's earnings reports.  The benchmark 10-year note fell 9/32
as its yield rose to 3.97%.

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

AMGN    55.70  57.88  APR   47  50  0.25   49.75  $0.25  Open
EXPE    35.19  52.00  APR   27  30  0.30   29.70  $0.30  Open
APOL    47.44  51.52  APR   40  45  0.50   44.50  $0.50  Open
MMM    125.55 132.91  APR  110 115  0.50  114.50  $0.50  Open
FLR     32.11  35.00  APR   25  30  0.50   29.50  $0.50  Open
OEX    424.07 440.97  APR  375 380  0.45  379.55  $0.45  Open
CAT     52.55  52.98  APR   45  47  0.30   47.20  $0.30  Open
EXPD    37.68  33.87  APR   30  35  0.60   34.40 -$0.53 Closed
GILD    41.53  41.80  APR   35  37  0.35   37.15  $0.35  Open
ANSI    42.08  38.81  APR   35  40  0.45   39.55 -$0.74 Closed
BJS     35.08  36.11  APR   30  32  0.25   32.25  $0.25  Open
IBM     80.85  78.75  APR   70  75  0.60   74.40  $0.60  Open
AZO     76.38  75.24  MAY   65  70  0.55   69.45  $0.55  Open
BSTE    42.33  40.51  MAY   30  35  0.50   34.50  $0.50  Open
GILD    44.15  41.80  MAY   37  40  0.30   39.70  $0.30  Open
OIH     54.58  56.21  MAY   45  50  0.55   49.45  $0.55  Open

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

As noted last week, Expeditors International (NASDAQ:EXPD) is
testing support near $35 and conservative traders should exit
the bullish position.  Advanced Neuromo Systems (NASDAQ:ANSI)
should have been closed during Thursday's move below the sold
strike at $40.


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

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

TOT    65.30   65.79  APR   75  70  0.60   70.60  $0.60   Open
XAU    67.44   65.73  APR   80  75  0.50   75.50  $0.50   Open
ACS    44.26   41.43  APR   55  50  0.55   50.55  $0.55   Open
NOC    82.35   80.22  APR   95  90  0.60   90.60  $0.60   Open
SII    34.10   36.36  APR   40  37  0.25   37.75  $0.25   Open
FNM    66.70   69.01  APR   75  70  0.50   70.50  $0.50   Open
QLGC   38.22   38.00  APR   45  42  0.25   42.75  $0.25   Open
SYMC   40.25   39.75  APR   50  45  0.30   45.30  $0.30   Open
CAM    49.39   49.02  MAY   60  55  0.45   55.45  $0.45   Open
DRYR   67.40   63.69  MAY   75  70  1.10   71.10  $1.10   Open
HCA    37.70   36.44  MAY   45  42  0.25   42.75  $0.25   Open
VAR    49.04   53.26  MAY   60  55  0.60   55.60  $0.60   Open
OIH    54.58   56.21  MAY   65  60  0.50   60.50  $0.50   Open

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

Previously closed positions include: International Paper (NYSE:IP)
and Chiron (NASDAQ:CHIR), both of which are positive, and United
Health (NYSE:UNH).  Federal National Mortgage (NYSE:FNM) and Smith
International (NYSE:SII) are testing recent resistance areas and
any further upside movement would indicate a potential early exit
in each position.


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

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

STN     19.40  21.01  APR   17  20   1.60   19.10  0.90   Open
EBAY    83.91  88.29  APR   70  75   4.50   74.50  0.50   Open
PPD     18.16  18.55  APR   15  17   1.75   16.75  0.75   Open
LXK     67.80  68.45  APR   60  65   4.40   64.40  0.60   Open
BGEN    35.67  34.12  MAY   30  32   2.20   32.20  0.30   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

QLGC    39.98  38.00  APR   47  45   2.30   45.20  0.20   Open

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

The bearish spread in Federal Express (NYSE:FDX) has been closed
to limit potential losses.


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

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

MEDI    32.65  32.41   APR     35    30     0.10    0.70    Open?
ADTN    38.14  36.18   APR     45    30     0.10    0.60    Open?
OVRL    15.99  16.15   MAY     17    15    -0.15    0.00   No Play

Overland Storage (NASDAQ:OVRL) "gapped-up" at the open on Monday,
thus the bullish position was not initiated as the target price
was unavailable.  Medimmune (NASDAQ:MEDI) has achieved the target
exit profit as has Adtran (NASDAQ:ADTN).  The speculative position
in Multimedia Games (NASDAQ:MGAM) has been previously closed to
limit potential losses.


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

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

BMET    28.52  29.77   JUL-30C   APR-30C   0.80    1.40     Open
OTEX    29.29  27.99   MAY-25C   APR-30C   3.60    4.10     Open
ESI     29.11  27.86   OCT-30C   APR-30C   2.40    2.60     Open
OCR     27.07  26.75   JUN-27C   APR-27C   0.90    0.80     Open
MO      32.13  28.30   JUN-27P   APR-27P   1.25    1.60     Open

The positions in Altria Group (NYSE:MO) and Omnicare (NYSE:OCR)
were available at a higher-than-expected entry price, thus the
risk/reward outlook may not be as favorable.  Integrated Circuit
Systems (NASDAQ:ICST) has been previously closed to limit losses.


DEBIT STRADDLES
***************

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

MYG     20.28  21.05   APR    20    20    1.75     0.00   No Play
LNC     29.88  29.29   MAY    30    30    3.00     2.80    Open

Maytag (NYSE:MYG) "gapped-up" at the open on Monday, thus the
position was not initiated as the short-term straddle was not
available near the target price.


CREDIT STRANGLES
****************

No Open Positions


Questions & comments on spreads/combos to Contact Support
**************
READER'S WRITE
**************

Attn: Spreads/Combos Editor
Subject: Credit Versus Debit Spreads

Ray,

I am getting pretty well acquainted with credit spreads.  I really
like this strategy better than naked puts/calls.

Why would one trade debit spreads vs. credit spreads?  Is there a
certain type of market in which one type of spread works better
than the other?

I understand that you can make a better ROI on debit spreads as
the margin requirements do not apply.

BJN


Hello Again,

I hope the market is treating you well.  Stock and option traders
have endured some difficult conditions over the past month and few
have been very successful, regardless of the strategy they favor.

As far as the comparison between credit and debit spreads, I assume
you are referring to vertical spreads such as the Bull-Call and
Bull-Put spreads, not calendar or diagonal (time-selling) strategies.
In that case, the two approaches are similar because the theoretical
risk/reward outlook is the same and both techniques include one long
and one short option.  But, the ability to initiate these strategies
with the same (actual) risk/reward outlook is vastly different when
you move away from "at-the-money" options.  The two primary obstacles
are the large bid-ask spreads and the relative lack of premium in
"in-the-money" options.  A good example of that condition can be
seen in a comparison of an "in-the-money" debit spread (bull-call)
and an "out-of-the-money" credit spread (bull-put).  Rarely can these
two strategies be utilized with equal success in the derivatives
market because you simply can't find as many favorable opportunities
with debit spreads.  The few that do occur are generated by extreme
demand in a particular option series, or a premium disparity, both of
which are often suitable for spreading.


Regarding the collateral requirements:

As you know, a broker requires that you have enough collateral (cash
or securities or ?) to cover the maximum possible loss in a credit
spread position.  Using an example from a past newsletter:

OHP - Oxford Health  $42.62

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-32.50  OHP-VZ  OI=90   A=$0.30
SELL PUT  OCT-35.00  OHP-VG  OI=149  B=$0.60
INITIAL NET CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14%  B/E=$34.70

The maximum possible loss in a credit spread is the difference
between the two strike prices, minus the credit received in the
position.  In this case, the spread is $2.50 and the credit
received is $0.30.  The maximum loss is $2.20 (X 100) X number
of contracts.   If you traded 10 contracts in this position,
the collateral requirement would be $2200.  The maximum gain is
$300, so the potential profit is 13.6% (300/2200) and the point
at which the play starts to lose money (break-even) is at $34.70.

If this were an equivalent debit spread, it would look something
like this:

OHP - Oxford Health  $42.62

PLAY (conservative - bullish/debit spread):

BUY  CALL  OCT-32.50  OHP-IZ  OI=90   A=$10.10
SELL CALL  OCT-35.00  OHP-IG  OI=149  B=$7.90
INITIAL NET DEBIT TARGET=$2.15-$2.20
POTENTIAL PROFIT(max)=14%  B/E=$34.70

The maximum possible loss in a debit spread is the cost of the
spread; the difference between the option bought and the option
sold.  In this case, the cost is $2.20 and the potential profit
is $0.30.  Thus the maximum loss is $2.20 (X 100) X number of
contracts.   If you traded 10 contracts in this position, the
initial cost would be $2200.  The maximum gain is $300, so the
potential profit is 13.6% (300/2200) and the point at which the
play starts to lose money (break-even) is at $34.70.

As you can see, the risk/reward outlook is the same but the
difficulty in finding equivalent (ITM) debit spreads makes the
(OTM) credit spread a more viable technique for traders who use
high probability, low profit strategies.  Since you are familiar
with OTM credit spreads, and we have numerous candidates in that
category each week, you should have no problem finding some plays
for your options portfolio.

Hope that helps!

*************
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.

*****
MDT - Medtronic  $46.90  *** Trading Range? ***

Medtronic (NYSE:MDT) is a medical technology firm that provides
lifelong solutions for people with chronic disease.  With roots
in the treatment of heart disease, Medtronic has expanded beyond
its historical core business and provides a range of products
and therapies that help solve many challenging, life-limiting
medical conditions.  The company operates in five major business
segments that make and market device-based medical therapies.
These are: cardiac rhythm management, vascular, cardiac surgery,
neurological and diabetes and spinal and ear, nose and throat.

MDT - Medtronic  $46.90

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-42.50  MDT-QV  OI=5958  A=$0.45
SELL PUT  MAY-45.00  MDT-QI  OI=2515  B=$0.75
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$44.70


*****
NBR - Nabors Industries  $41.11  *** Bullish Oil Driller! ***

Nabors Industries (NYSE:NBR) is a land drilling contractor, with
over 550 land drilling rigs.  The company conducts oil, gas and
geothermal land drilling operations in the lower 48 states,
Alaska and Canada, and internationally, primarily in South and
Central America, the Middle East and Africa.  Nabors also is a
land well-servicing and workover contractor in the United States.
The company owns 745 land workover and well-servicing rigs, in
the southwestern and western United States, and 40 well-servicing
and workover rigs in certain international markets.  Nabors also
provides offshore platform workover and drilling rigs.  Nabors
markets 42 platform, 16 jackup and three barge rigs in the Gulf
of Mexico and international markets.  These rigs provide well
servicing, workover and drilling services.  The company also owns
and operates a net of nine rigs through an international joint
venture in Saudi Arabia.

NBR - Nabors Industries  $41.11

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-35.00  NBR-QG  OI=303  A=$0.45
SELL PUT  MAY-37.50  NBR-QU  OI=29   B=$0.75
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$37.20


*****
BAC  - Bank of America  $71.34  *** Trading Range? ***

Bank of America (NYSE:BAC) is a bank holding company and as well
as a financial holding company that provides a diversified range
of banking and non-banking financial services and products.  The
company operates in four major segments: consumer and commercial
banking, asset management, global corporate & investment banking
and equity investments.  Operations are conducted principally in
the mid-Atlantic (Maryland, Virginia and the District of Columbia),
the midwest (Illinois, Iowa, Kansas and Missouri), the southeast
(Florida, Georgia, North Carolina, South Carolina and Tennessee),
the southwest (Arizona, Arkansas, New Mexico, Oklahoma and Texas),
the northwest (Oregon and Washington) and the west (California,
Idaho and Nevada) regions of the United States and in selected
international markets.  Quarterly earnings are due 4/14/03.

BAC  - Bank of America  $71.34

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-80.00  BAC-EP  OI=15120  A=$0.15
SELL CALL  MAY-75.00  BAC-EO  OI=22684  B=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.75
POTENTIAL PROFIT(max)=14% B/E=$75.60


*****
GSK - GlaxoSmithKline  $38.09  *** Sell The Bounce! ***

GlaxoSmithKline plc (NYSE:GSK) is a research-based pharmaceutical
and healthcare firm that is engaged in the creation and discovery,
development, manufacture and marketing of pharmaceutical products,
vaccines, over-the-counter medicines and health-related consumer
products.  GlaxoSmithKline is committed to making products aimed
at improving the quality of human life.  GlaxoSmithKline also is
active in four major therapeutic areas: anti-infectives, central
nervous system, respiratory and gastro-intestinal/metabolic.  In
addition, it has a growing portfolio of oncology products.

GSK - GlaxoSmithKline  $38.09

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-42.50  GSK-EV  OI=397   A=$0.25
SELL CALL  MAY-40.00  GSK-EH  OI=4048  B=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$40.30


*************
LLL - L-3 Communications  $36.24  *** Sector Slump! ***

L-3 Communications Holdings (NYSE:LLL) is a merchant supplier of
sophisticated secure communication systems and other specialized
products.  The company derives all of its operating income and
cash flow from its wholly owned subsidiary, L-3 Communications.
The company produces secure, high-data-rate communication systems,
training and simulation systems, engineering development and
integration support, avionics and ocean products, fuzing products,
telemetry, instrumentation, space & guidance products and various
microwave components.  These systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems.  The company's systems
and specialized products are used to connect a variety of airborne,
space, ground- and sea-based communication systems, and are used
in the many transmission, processing, monitoring and dissemination
functions of these communication systems.

LLL - L-3 Communications  $36.24

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-45.00  LLL-EI  OI=614   A=$0.20
SELL CALL  MAY-40.00  LLL-EH  OI=1081  B=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$40.55


*****
OEX - S&P 100 Index  $440.97  *** Market "Bears" Only! ***

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

OEX - S&P 100 Index  $440.97

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-480.00  OXB-EP  OI=3152  A=$1.60
SELL CALL  MAY-475.00  OXB-EO  OI=1847  B=$2.15
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$475.55


*****
WLP - WellPoint Health  $76.80  *** Premium-Selling! ***

WellPoint Health Networks (NYSE:WLP) is a managed healthcare firm.
As a result of the January 2002 completion of its merger with
RightCHOICE Managed Care, the company has over 12 million members.
The company offers a broad spectrum of network-based managed care
plans, including preferred provider organizations (PPOs) and health
maintenance organizations (HMOs), as well as point-of-service (POS)
and other hybrid plans and traditional indemnity plans.  In addition,
the Company offers managed care services, including underwriting,
actuarial services, network access, medical cost management and
claims processing.  The firm also provides an array of specialty and
other products, including pharmacy, dental, workers' compensation
managed care services, utilization management, life insurance,
preventive care, disability insurance, behavioral health, COBRA and
flexible benefits account administration.

WLP - WellPoint Health  $76.80

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAY-90.00  WLP-ER  OI=94   A=$0.25
SELL CALL  MAY-85.00  WLP-EQ  OI=456  B=$0.70
INITIAL NET-CREDIT TARGET=$0.45-$0.60
POTENTIAL PROFIT(max)=9% B/E=$85.45


*************
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.

*****
WMT - Wal-Mart  $52.98  *** Slumping Retail Giant ***

With annual sales of $218 billion, Wal-Mart Stores (NYSE:WMT)
operates more than 2,800 discount stores, Super-Centers and
Neighborhood Markets, and more than 515 SAM'S CLUBS in the U.S.
Internationally, the firm operates over 1,200 units and employs
1.3 million associates worldwide.  Last year, Wal-Mart associates
raised and contributed $196 million to support communities and
local non-profit organizations.  FORTUNE magazine recently named
Wal-Mart the third "most admired" company in America and one of
the 100 best companies to work for in the U.S.  According to a
recent study, Americans say Wal-Mart is the company they think of
first in supporting local causes and issues, and that is one of
the main reasons people shop at Wal-Mart.

WMT - Wal-Mart  $52.98

PLAY (less conservative - bearish/debit spread):

BUY  PUT  MAY-60.00  WMT-QL  OI=95    A=$7.20
SELL PUT  MAY-55.00  WMT-QK  OI=3263  B=$2.85
INITIAL NET-DEBIT TARGET=$4.25-$4.35
POTENTIAL PROFIT(max)=15% B/E=$55.65


*******************
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.

*****
QQQ - Nasdaq-100 Trust  $25.51  *** Bearish Speculation Play! ***

The Nasdaq-100 Trust Series I is a pooled investment designed to
provide results that generally correspond to the price and yield
performance of the Nasdaq-100 Index.  The issue was created to
provide investors with the opportunity to purchase units in the
Nasdaq-100, representing proportionate undivided interests in the
portfolio of securities held by the Trust, which consists of
substantially all of the securities, in substantially the same
weighting, as the component securities of the underlying index.

QQQ - Nasdaq-100 Trust $25.51

PLAY (speculative - bearish/synthetic position):

BUY  PUT   MAY-24.00  QAV-QX  OI=58898  A=$0.55
SELL CALL  MAY-27.00  QAV-EA  OI=78575  B=$0.45
INITIAL NET CREDIT TARGET=$0.00-$0.10
INITIAL TARGET PROFIT=$0.35-$0.70

Note:  Using options, the position is similar to being short the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $920 per contract.  However, do not
open this position if you can not afford to purchase the tracking
stock (QQQ) at the sold put strike price ($27).


*****


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MARKET POSTURE
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