Option Investor

Daily Newsletter, Monday, 04/21/2003

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The Option Investor Newsletter                   Monday 04-21-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Dial "M" for Monday
Futures Wrap: Market Sings A Lullaby
Index Trader Wrap: Little volume, little change
Weekly Fund Wrap: Tech-Led Rally on Wall Street

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
04-21-2003                  High    Low     Volume Advance/Decl
DJIA     8328.90 -  8.75  8397.95 8301.94   1362 mln  1594/1246
NASDAQ   1424.37 -  1.13  1432.08 1413.71   1218 mln  1623/1399
S&P 100   453.06 -  0.65   456.30  450.97   totals    3217/2645
S&P 500   892.01 -  1.57   898.01  888.17
RUS 2000  385.30 +  1.60   385.30  382.89
DJ TRANS 2297.85 - 28.34  2326.19 2295.01
VIX        24.27 -  0.32    25.48   24.27
VIXN       35.49 -  0.39    37.72   35.43
Put/Call Ratio 0.71

Dial "M" for Monday

Earnings reports were the only events keeping Wall Street's
collective eyes open today.  Otherwise the session was a yawner.
The Dow Jones Industrial Average and the NASDAQ Composite both
traded higher very early morning only to quickly reverse lower.
By 10:40 AM the markets had established a 100-point trading range
on the Industrials and a 20-point range on the NASDAQ.  The rest
of the day was spent sideways oscillating on both sides of

Compounding the lack of direction was another session of light
volume with many traders still traveling home from their Easter
weekend.  Internally, advancing issues outpaced decliners almost
16 to 12 on the NYSE and 16 to 14 on the NASDAQ.  Up volume beat
down volume on both exchanges but the difference was rather
narrow on the NASDAQ.  The only broad market (U.S.) index closing
positive today was the Russell 2000 (RUT) with a negligible gain.

Compare the daily candlestick chart of the Dow Jones Industrials
(below) to the Point-and-Figure chart of the Industrials.  You
can see that both are painting the same consolidation pattern
with only slightly different levels of support and resistance.

Chart of the Dow Jones Industrials:

Point-and-Figure chart of the Industrials:

Glancing at the chart of the NASDAQ Composite there really isn't
much change from Thursday's session.  With a minus one point
tally on the day, I wouldn't expect much change.

Leading Indicators Fall Again

One of the big economic reports Wall Street was looking for this
week is the Conference Board Leading Indicators index.  The
numbers in March were not that encouraging with a 0.2% decline in
addition to a revised lower decline in February of 0.5%.  The
leading indicators index looks at 10 indicators of economic
growth and is designed to forecast trends three to six months in
advance.  As Jeff noted earlier in the intraday updates today,
this index has been relatively flat since December 2001.

Looking closer at the results we see that five of the ten
indicators they follow (building permits, jobless claims,
interest rate spreads, money supply and consumer confidence) were
lower in March.  So why didn't the market see more profit taking
or selling pressure on such negative economic news?  Probably
because the Conference Board also stated that current data for
April would indicate that we're not going to see a third month of
declines.  I'm sure Greenspan and the FOMC have their fingers

Speaking of Alan Greenspan, how would you feel if every financial
news outlet in the free world plastered your face under major
headlines about your upcoming prostrate surgery?  That's really
not something I would enjoy publicized.  However, considering
that he is one of the most powerful men in the world given his
guidance over interest rates and his position as Chairman of the
Federal Reserve one can begrudgingly see the interest by
reporters.  But honestly folks, do we really need to know if
they're using general anesthesia or not?  I don't think so.
Alan's staff says he plans to be back to work by the end of the
week and will be attending the upcoming May 6th interest-rate
policy meeting.  Which, by the way, will see a lot of focus as it
approaches since many analysts still believe the FOMC will cut
rates again by the end of the second quarter.

Earnings, Earnings and More Earnings

Headlining the earnings announcements today was drug giant, Merck
(MRK).  MRK turned in Q1 net income of $1.7 billion, 76 cents a
share.  Sales actually surpassed analysts estimates and came in
at $13.4 billion.  The company also reaffirmed its profit goals
for 2003 and reiterated their plans to spin off its Medco unit
some time in 2003.  We're going to see more big drug company
results tomorrow with Pfizer (PFE) and Eli Lilly (LLY) reporting.
The street expects a nickel increase in net income for PFE up to
44 cents a share while analysts look for LLY's numbers to be
inline with estimates near 58 cents.  The DRG.X drug index did
close in the green today but not by much.

Arguably the "biggest" earnings report today was MMM's.  This Dow
component turned in net income of $1.27 a share, or $502 million
with an 11 percent rise in sales to $4.32 billion for the
quarter.  This put their Q1 results near the top end of analysts
forecasts.  Previously, we noted that one analyst had cut their
full year numbers for MMM due to the SARS illness affecting sales
in Asia.  This report showed a 1.0 percent rise in sales in the
U.S. and a 19.5 percent rise in sales overseas.  MMM's strongest
geographic region was the Asia Pacific with volume up 19 percent
(Reuters).  Obviously, SARS has so far failed to affect the
company's sales.  Unfortunately, by the reaction in the stock
price, investors were not that convinced things were going to
stay this strong.  Shares of MMM were hammered hard on Thursday
ahead of the weekend in what looks like profit taking before
today's earnings report.  The stock held at the $128 level last
week before bouncing into Thursday's close.  Today's intraday
action and MMM's 15-cent loss looks like a mirror of the Dow
Jones Industrial average.   MMM is a very important component to
the DJIA since the average is dollar weighted with higher dollar
stocks having a bigger influence on the average's movement.

I've posted a point-and-figure chart of MMM below so you can see
the general long-term up trend and the stock's rising bullish
support.  So far the trend is for MMM to bounce off support and
this one stock has been a pillar of relative strength for the
DJIA.  Should it fail it will be a massive weight around the
Industrial's collective neck.

Point-and-Figure chart of MMM:

Earnings will remain in Wall Street's spotlight with fully one-
third of the S&P 500 expected to report this week alone.  The
market appears to be reacting favorably to the lack of any really
big misses by its larger companies.  What concerns me and most of
the staff here at OptionInvestor.com is the VIX.  This indicator
has been too right too many times to be ignored.  The volatility
index fell again today to 24.27.  According to Mark Phillip's
research, this should be a new absolute bottom for the index.
However, it's completely possible that the VIX will revert to its
more traditional trading range with market tops being signaled
when the VIX trades near 20.

As Jim said in the wrap on Sunday, this should take several more
big days of buying to push the VIX back down to 20.  An
alternative would be a slow and steady grind lower as the market
continues to churn sideways.  Or as Mark stated in his latest
LEAPS column, we could see this bullish atmosphere continue to
last another couple of weeks, which is just long enough to finish
the bulk of the Q1 earnings announcements.  Then when all the
news is out, the war is over and there's nothing left but murky
economic data and investors beginning to look toward the slow
summer months ahead.  This doesn't sound like a recipe for a new
bull market to me.

Don't get me wrong.  When I see the pattern of higher lows on the
S&P 500, I want it to breakout to the upside.  Maybe we can get
another leg higher.  However, I'd be extremely careful on any
long positions and keep those stops tight as the VIX continues to
slip lower.

James Brown


Market Sings A Lullaby
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

Last: 8328.90
Net: -8.75
High: 8397.95
Low:  8301.94

> YM 03M
Last: 8328
Net: +18
High: 8377
Low:  8280

> S&P 500
Last: 892.01
Net: -1.57
High: 898.01
Low:  888.17

> ES 03M
Last: 893
Net: +1.75
High: 897.75
Low:  886.75

> Nas 100
Last: 1081.04
Net: -2.52
High: 1089.71
Low:  1070.86

> NQ 03M
Last: 1084
Net: +1
High: 1092
Low:  1072.50


> YM 03M
R2: 8425
R1: 8376
Pivot: 8328
S1: 8279
S2: 8231

> ES 03M
R2: 903
R1: 898
Pivot: 892
S1: 887
S2: 881

> NQ 03M
R2: 1102
R1: 1093
Pivot: 1083	
S1: 1074
S2: 1063

At the risk of sounding repetitive: we had a whole lot of nothing
going on today.  In fact, let's amend that to: a whole lot more of
a whole lot of nothing.  We gapped up and sold off, but didn't
fill the gap, missing that target by .75, then there was some
strong buying which topped out at 897.75, followed by strong
selling which stopped at 886.75 at 10:40 a.m., at which point the
bulk of the trading for today ended.  Volume started dropping off
there, and small range chop ruled the remainder of the day.
Buyers managed to get price up to a double top at 894.25, and
another late day top at 893.50.  Most selling held around the 889
area, with local lows hitting 889.50, 888.75, 889.25 and 889.  So,
for most of the day the range was around 5 points.  Just enough
movement to let you know that the market was open for trading, but
hardly enough to be able to trade it even for small scalps.  Price
moved back and forth across the 50ema on the 5 minute chart
numerous times, and closed above/below that level 17 times!  The
200ema on the 5 minute chart was crossed 8 times, and price closed
above/below that level 6 times.  What does this mean?  It means
that today was a complete waste of time for anyone hoping that the
market would make a decisive move one way or the other.  Nasdaq
up/down volume was 5.8 to 5.3, and NYSE up/down volume was 7 to 6,
so bulls and bears were very evenly matched.  Bullish sentiment is
still very high, and there seems to be no fear, with the VIX
falling 1.3% and closing at 24.27, down .32 from Thursday's close.

In looking at the ES Daily chart we see a doji candle, which is a
reversal candle if the market was trending in either direction,
but when the market has been moving sideways, the doji just tells
us that the ES decided that the pressure to make a decision was
just too much, so it went off to the corner and took a nap.  We
still closed slightly green, and price traded the full day in the
upper half or higher of the previous day's range, and because of
this, indicators are still slightly up to flat.  Macd didn't
budge, but RSI nosed upwards a bit, stochastics are still mildly
bullish.  ADX continues to see selling evaporate, and the buyers
have held D+ close to its trendline.

ES Daily Chart:

The ES 135 minute chart shows price unable to get above the
downtrend line from the 4/7 highs, and Macd and RSI are both still
below their respective downtrend lines.  Stochastics show a
bearish divergence with price, and the Macd histogram shows this
divergence with the most clarity.  Price made an equal high with
the previous high, but indicators are making lower highs.
Divergences work best in a trending market, however, since there
is so little information to give us any insight into recent price
movement, we'll take this as a potential clue that the current
level of the ES might not be sustainable.  Also note that the D+
on the ADX has also made a lower high on this last push up.

There is no point in putting up the 60 minute chart, since the
last 11 bars have all been within a small range, and the
indicators have nothing to tell us.

ES 135 Minute Chart:

The NQ daily chart also painted a doji, but unlike the ES, the NQ
has been in a fairly nice trend up from the recent double bottom,
and a doji could be a sign that he current uptrend has ended.
However, this is the only sign that all is not as rosy as it
seems.  Indicators are all very positive, giving no sign of
negative divergences which might signal that this up-move is
terminal.  However, it is prudent to take note of a doji when it
appears against both horizontal and trendline resistance.

NQ Daily Chart:

The NQ 135 minute chart gives a different view than the daily.
Here you can see 5 attempts at breaking through that downtrend
line, with one attempt succeeding, but unable to hold above that
trendline.  Macd is close to rolling over, and Macd histogram is
showing a bearish divergence.  Stochastics are also shouldering
against potential overbought levels, with the fast stochastic
showing another bearish divergence.  ADX has D+ as breaking below
its uptrend line, but with buyers starting to dry up, there are
still no sellers to take their place, as D- continues to descend.
Which bearish divergences, price unable to get above the
descending trendline, the NQs are starting to look somewhat tired.

NQ 135 Minute Chart:

So, even though we had a flat day in the futures, there are some
cracks beginning to show on the charts.  Traders have had ample
opportunity to push prices higher, but have been unable to do so.
It is beginning to look like perhaps prices have stayed up because
of a lack of sellers, rather than because the buying has been so
strong.  The American Association of Individual Investors bullish
sentiment figure advanced to 46.3 percent from 38.4 percent last
week.  This is not an extreme reading, but it does show that
bullishness is quite high.  With short-sellers sitting on the
sidelines, it certainly looks like any real selling that hits the
markets may lead to a bit of a dump  without the normal short-
covering to help in easing the decline.  Just looking at the D- on
ADX would make me a rather nervous bull at this point.  So, while
market action today was like a soothing lullaby to put traders to
sleep, and keep bulls happy, it could be nothing more than the
calm before the storm.  I have a feeling that this week could get
very interesting.


Little volume, little change

The major indexes traded in a tight range today and volumes were
light despite the Conference Board reporting that its leading
indicator index for March fell 0.2%, which was inline with
economists forecast.

Similar to last week, economic data that gave little hint of a
resurgence in economic activity found little reaction from market
participants as the NYSE Composite (NYA.X) 5,004.98 -0.02% fell
just 1.34 points on light volume of 1.1 billion shares, while the
NASDAQ Composite (COMPX) 1,424.37 -0.07% edged down 1 point on
1.24 billion shares traded.

Breadth indicators for both the NYSE and NASDAQ finished modestly
positive with advancers outnumbering declines by a 9 to 7 margin
on the big board, while breadth at the NASDAQ showed 8 stocks
advancing for every 7 stocks declining.  The NYSE reported 136
stocks trading a new 52-week high (highest for the year) compared
to 14 stocks having traded a new 52-week low.  NASDAQ also
reported a new yearly high for 52-weekers at 147 compared to 31
stocks at new lows.

Potential bargaining by the Bush administration on proposed tax
cuts along with the government set to conduct its regular monthly
2-year note sale of roughly $27 billion had Treasuries along with
precious metals stocks seeing the bulk of today's action.

After a sharp round of selling at the opening of their trade,
Treasuries recouped nearly 1/2 of the day's losses by their close
with the 10-year June futures contract (ty03m) $114'005 -0.17%
finishing down just 6/32 after falling to as low as $113'205
earlier in the day, with the benchmark bond's YIELD ($TNX.X)
finishing up just 2 basis points to YIELD 3.979% at its close.

On April 10th, Dorsey/Wright and Associates' "precious metals
bullish %" (BPPREC) reversed back up into "bear correction"
status to 41.93% (needed 40% for reversal up from 34%) and
today's trade did have the Gold/Silver Index (XAU.X) 68.85 +2.74%
closing back above its 50-day SMA of 67.74 for the first time
since slipping below this intermediate-term 50-day SMA on
February 7th at 74.91.  Despite the strength in gold stocks, the
U.S. Dollar Index (dx00y) 99.55 +0.25% showed fractional gains as
the dollar gained ground against a basket of 7 major foreign
currencies, but still closed below its intermediate-term 50-day
SMA of 99.80 after a brief peak above this simple moving average
at 99.86, which came just minute prior to today's release of the
March leading indicators index.

In the coming sessions, trader may want to keep an eye on the
combined Treasury YIELD action, Dollar and Gold.  While the XAU.X
action can be correlated with a "defensive" market posture, an
"in unison" move higher in Gold/Dollar/Treasury YIELDS would most
likely be that of a market factoring in renewed economic growth
being somewhat "inflationary."  Conversely, negative action for
the major indexes may be coupled with LOWER YIELDS, LOWER dollar
and HIGHER gold/silver stocks.

Gold/Silver Index Chart - Daily Interval

Internals for precious metals stocks look to be improving with
the reversal up in the sector's bullish %, and outward appearance
also begins to show some signs of renewed bullishness.  Index
traders may once again add the Gold/Silver Index (XAU.X) to their
list of observations as it relates to the economy and perhaps
"inflation."  As you can see from the October-January time
periods, the XAU.X isn't necessarily a "contrarian" stock sector
that moves INVERSE the broader markets.  From October-December
the dollar firmed and edged higher, while the XAU.X along with
Treasury YEILDS moved higher.  So did the major equity indexes.
Our thoughts were that the MARKET was looking for some type of
"inflation" perhaps on the heels of a jump in economic growth!

I do think that Friday's monthly budget data issued by the
federal government that it remains on trace to record a fiscal-
year budget shortfall topping the $300 billion mark, brought some
buyer into gold stocks today and had the Gold/Silver Index
(XAU.X) winning today's sector gainer award.  If doom and gloom
is on the horizon, then the dollar should get crushed and perhaps
banks.  Both traded relatively unchanged with the dollar showing
fractional gains, while banks edged lower.

A key level of technical support for the U.S. Dollar Index
(dx00y) 99.59 +0.29% looks to be the 98.65 level, which served
support in January and February, was violated to the downside in
March, but has once again been serving support in March and

Remember, the term "inflation" isn't necessarily a "dirty word"
if used at what may be the END of a recession.

In today's 01:00 AM EST update, I discussed some of the news
hitting the wires regarding this week's Treasury auctions.  We
now understand that there will most likely be a LARGE $27 billion
auction (supply) of 2-year Notes for roughly $27 billion.
Analysts also predicted that the Treasury's regular sale (supply)
of 5-year and 10-year notes could reach $54 billion, which would
exceed a quarterly record of $44.5 billion set in 1996.

While it is difficult to say the price action in precious metals
stocks like gold is "doom and gloom" we can use that observation
along with the understanding that there is a lot of SUPPLY of
Treasuries coming to the market to understand this!  If
Treasuries continue to find buying after all of this supply comes
to the markets, then STOCKS become vulnerable.  My thinking here
would be "why is the market so attracted to such low YIELDS?"

Before traders begin yelling "the sky is falling for equities,"
we should note that the junk bond market (highest risk market
among bonds) has our Pacholder High Yield (AMEX:PHF) $8.25 +0.6%
closed-end fund (trades like a stock, but a basket of junk bonds)
at 10-month highs after today's trade.

I saw a "note" at Briefing.com discussing today's action in JP
Morgan's global high yield index (I'm trying to find the symbol
for this index), which at the time was up 0.9%.  This index
currently has a YIELD of about 10.3%, which compared to money
markets at approximately 1.15% and Treasuries along with stocks
is attracting capital.  Notes regarding a "positive tone" toward
junk bonds is limited SUPPLY and default rates look like they're
coming down.

Most of today's action looks to have been in the bond markets and
Gold/Silver Index (XAU.X).  In Friday evening's market monitor, I
made some notes regarding the "pinching" or narrowing of this
week's WEEKLY pivot analysis levels as our S2-R2 range narrows to
just 57 SPX points, compared to last week's 84 points.  Only the
10-year YIELD ($TNX.X) showed any type of "volatility" in the
matrix as it traded to its WEEKLY R1 after seeing a lower YIELD
trade last week.

Pivot Analysis Matrix

After Friday's observation regarding the "pinching" or
compressing of a range from WEEKLY S2-R2 (made some notes in
Friday's market monitor) I was/am looking for the major indexes
to trade their WEEKLY R1s in somewhat of a follow through higher
from last week's trade.  Things were looking good for the WEEKLY
R1s to be tested today as this morning's session began as the 10-
year YIELD, which finished Thursday's trade at 3.957%, jumped
above its WEEKLY pivot of 3.965% and "sprinted" to its WEEKLY R1
of 4.030% with a session high YIELD of 4.034%.  To be honest, I
do thing the 10-year YIELD is perhaps a little "out of whack"
with the major indexes in that YIELD was lower last week, while
equities were fractionally higher.  In essence, I think the 10-
year YIELD may have to reach the WEEKLY R2 level of 4.102% to
have the major indexes challenging, if not slightly above their

While major market index traders keep an eye on the Gold/Silver
Index (XAU.X) and its relationship with Treasuries and the
Dollar, the S&P Banks Index (BIX.X) 281.18 -0.23%, which traded a
tight 2-point range all day today remains interesting that this
index finds a correlative SUPPORT level still at its MONTHLY R1
as the BIX.X hovers at its still trending lower longer-term 200-
day SMA of 281.25 for a 4th consecutive session.  Today was the
first day the BIX.X did NOT break back below its "neckline" from
a reverse head/shoulder pattern discussed in last Monday's Index
Trader Wrap.

We find quite a bit of correlative support/resistance levels in
tomorrow's DAILY and WEEKLY levels, which still looks to have the
WEEKLY R1s in play.

S&P 500 Index Chart - 5-point box

Today's trade at 895 quickly reversed Thursday's 3-box reversal
lower to 880.  This sets the stage for a potential "bullish
triangle" with a trade at 900 and I would think that a trade at
900 brings in some jittery bears and short-covering, which would
most likely see a test at our WEEKLY R1 of 904.10.

Market internals continue to improve as Thursday's action saw the
broader S&P 500 Bullish % ($BPSPX) find a net gain of 2 stocks to
new point and figure buy signals, while today's action saw a net
gain of 5 stocks to new point and figure buy signals.  This has
the S&P 500 Bullish % still in "bull confirmed" status at 49.8%
and at a bullish cycle high reading of 49.8%.  Still some room to
the December high reading of 68% bullish.

Supply/demand traders can raise their stops from "Stop #2" of 860
to 875, which would be just under the WEEKLY S1 of 875.70.

Here's a quick look at the bar chart of the SPX with this WEEK's
retracement overlaid, along with CONVENTIONAL (pink) retracement
from the October lows to December highs.  I've also "turned on"
the Bollinger bands (21-day SMA, 2 std. deviations) as it allows
us to see how the upper Bollinger band has tended to serve
bullish resistance.

S&P 500 Index Chart - Daily Interval

The SPX has tended to show consolidation when the bullish % are
rising as the index itself tests the upper-end of the Bollinger
band with setting of 21-day and 2-std deviations.  This may have
some short-term bears looking to scalp a decline back near the
WEEKLY S1 of 875.70 and even the bullish side of me doesn't see a
real good risk/reward bullish entry point at current levels.

Stochastics are starting to turn down from the "overbought" level
on the daily chart, and here too, may have some bulls hesitant on
new entries.  However, a "gradual" pullback in the SPX into the
WEEKLY S1 of 875.7 with stochastics then "oversold" provides a
much more attractive bullish entry.  Especially if the bullish %
continues to show internal strength as it has in recent weeks.

Lets take a look at the very similar bar chart of the S&P 100
Index (OEX.X) 453.06 -0.14%.  Instead of looking at the
Conventional retracement, lets look at its chart with the MONTHLY
pivot analysis retracmement, which gives us some good "zones" of
support and resistance to be looking at.

S&P 100 Index Chart - Daily Interval

The MONTHLY R1 of 456.90 has served resistance on a closing basis
for certain, and looks to have come into play this morning.
Simialr to the SPX, stochastics on the OEX are rolling lower from
the "oversold" level.  Whey Stochastics can still mover
"overbought" from here, I'm thinking WEEKLY R1 would be good
bullish target.  I'm just not overly excited on a new bullish
position here with the upper Bollinger band so near and would
prefer a pullback near the WEEKLY S1 with the "zone of support"
of 441 as a springboard back higher to test upper Bollinger Band,
which should move higher as time passes.

Thursday's trade saw the narrower S&P 100 Bullish % ($BPOEX) see
a net gain of 2 stock to new point and figure buy signals and
today's trade saw a net gain of 1 stock to a new point and figure
buy signal.  This had/has the bullish % building to 48%, and a
new bullish cycle high for this indicator of market internals.
Still "bull alert" and it would now take a reversal low of 42% to
reverse back into "bear confirmed" status, while a reading of 62%
is needed for "bull confirmed" status.

Dow Industrials Chart - Daily Interval

The Dow Industrials (INDU) closed right at its WEEKLY pivot and
that's perhaps "smack dab" in the middle of what I'd consider to
be a "maximum" weekly range.  This is a very tough trade for new
entries here, as well as those holding positions as I really see
a 50/50 trade from current levels.  I like a bullish trade in the
Dow, but would want to get bullish entry from here as close to
8,200 as possible and play that as a bullish entry area.  I would
lean toward weakness from here.  While I'm not a "big fan" of
stochastics, this is about the only oscillator that hints of some
BEARISH divergence as this oscillator didn't see as high of a
trade when the Dow had matching 8,520 trades in late March and
early April.  The lower lows in the Stochastics is also
considered BEARISH divergence as the Dow Industrials themselves
saw a higher high.

Today's action saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still "bull alert" at 43.33%
and this indicator has been stuck at this reading for 10 sessions

NASDAQ-100 Index Chart - Daily Interval

Two weeks ago, the NASDAQ-100 and the QQQ "lagged" in the WEEKLY
pivots, and just like that they "lead" strength as the Dow
Industrials seems to soften a bit.  Bulls have had better success
in trading bullish by buying dips and selling rallies.  With
stochastics now "oversold" and starting to roll a bit, bulls may
look to trade for profits.

I'm still keeping an eye on PeopleSoft (NASDAQ:PSFT) $15.79
+0.38%, which is holding a $1.00 gain since its gap down on April
4th after warning on earnings the evening of April 3rd.  This is
slight hint perhaps that bears have been more eager to "buy the
bad news."  Either that, or bulls are really looking 6-months
ahead and better economic data.

Jeff Bailey

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Tech-Led Rally on Wall Street

It was a good week for stocks and stock mutual funds with the S&P
500 large-cap index up 2.9% and the Nasdaq composite index rising
4.1% for the week ended Friday, April 17, 2003.  The markets were
closed Friday.  Semiconductors, electronics and technology stocks
were among the week's highest performing industry sectors, with a
few tech-sector mutual funds gaining more than 10% for the 1-week
period.  An optimistic Philadelphia Fed survey Thursday helped to
fuel gains in the sector.

According to Lipper, diversified U.S. stock funds produced weekly
total returns of 2.5% to 3.0%, compared to the 2.9% weekly return
by the S&P 500 index (Vanguard 500 Index Fund).  Multi-cap growth
funds returned 3.1% on average last week, reflecting the strength
of tech stocks.  The average tech sector fund gained 5.7% for the
week, per Lipper, twice the return of many diversified U.S. stock
funds.  Balanced fund returns lagged those of all-equity funds in
the tech-led advance.

The U.S. fixed income market also advanced on the week, with the
Lehman Brothers Aggregate Bond index (Vanguard Total Bond Market
Index Fund) rising 0.3%.  The intermediate-term bond index ended
the week 0.4% higher, while the long-term bond index climbed 0.9%
for the week.  Most investment-grade bond funds produced positive
results for investors last week, but some sectors (short-term and
GNMA) struggled to stay above water.  The average high-yield bond
fund rose 1.0%, per Lipper, rising along with equities.

Only a few money market mutual funds offer 7-day simple yields of
more than 1.00% today, with short-term rates remaining at or near
historic lows.

U.S. Equity Fund Group

 Week   YTD
+2.9%  +2.1%  Vanguard 500 Index Fund (VFINX)
+2.6%  -1.3%  Vanguard MidCap Index Fund (VIMSX)
+3.3%  +0.5%  Vanguard SmallCap Index Fund (NAESX)
+2.9%  +2.0%  Vanguard Total Stock Market Index Fund (VTSMX)
+2.4%  +1.8%  Lipper Large-Cap Core Equity Fund Average
+2.7%  -0.1%  Lipper Mid-Cap Core Equity Fund Average
+2.9%  -1.0%  Lipper Small-Cap Core Equity Fund Average
+2.6%  +1.6%  Lipper Multi-Cap Core Equity Fund Average
+5.7%  +6.4%  Lipper Science & Technology Fund Average

Fidelity Select Electronics (FSELX) was the week's top performer
among funds with assets of $500 million or more, gaining 8.6% on
the week.  Alliance Technology Fund produced a 6.8% weekly total
return for investors, while Invesco Technology Fund finished the
week 6.6% higher.  So, a pretty good week overall for tech funds
and diversified U.S. stock funds with heavy tech exposure.  Take
for example the White Oak Growth Stock Fund, also up 6.6% on the

Small-cap/emerging-growth funds and over-the-counter stock funds
were superior performers also.  Rydex OTC Fund, for example, had
a 1-week return of 4.9%, while Buffalo Small-Cap Fund produced a
4.7% weekly gain.  Robertson Stephens Emerging Growth Fund ended
the week 4.6% higher.  The week's laggards included the Fidelity
Contrafund (+1.7%), Fidelity Growth & Income Fund (+1.8%), Janus
Twenty Fund (+1.8%), and Fidelity Aggressive Growth Fund (+1.7%).

International Equity Fund Group

 Week   YTD
+3.1%  -1.7%  Vanguard Developed Markets Index Fund (VDMIX)
+3.4%  +2.9%  Vanguard Emerging Markets Index Fund (VEIEX)
+3.1%  -1.4%  Vanguard Total International Stock Index (VGTSX)
+2.8%  -2.8%  Lipper International Fund Average
+3.6%  +1.9%  Lipper Emerging Markets Fund Average
+1.2%  -11.4%  Lipper Gold Fund Average

Global/international markets followed the U.S. higher last week,
with the MSCI EAFE index (Vanguard Developed Markets Index Fund)
up 3.1% in dollar-equivalent terms for the week.  As you can see,
the average international stock fund fell slightly short of that,
producing a 2.8% weekly return for investors per Lipper's report.
Tweedy Browne Global Value Fund returned just 1.1% over the week,
lagging its peers by a wide margin.

The week's top returns were produced by funds with big stakes in
international small-cap, emerging markets, Europe and technology.
Among funds with net assets of $500 million or more, the Longleaf
Partners International Fund (LLINX) was the week's best performer
with a 4.9% weekly total return.  Artisan International Fund rose
4.1%, as did Oakmark International Fund.  Fidelity, T. Rowe Price
and Vanguard's Europe stock fund returned about 4 percent.

U.S. Fixed Income Fund Group

 Week   YTD
+0.0%  +1.0%  Vanguard Short-Term Bond Index Fund (VBISX)
+0.4%  +1.9%  Vanguard Intermediate-Term Bond Index Fund (VBIIX)
+0.9%  +2.1%  Vanguard Long-Term Bond Index Fund (VBLTX)
+0.3%  +1.3%  Vanguard Total Bond Market Index Fund (VBMFX)
-0.0%  +0.9%  Lipper Short Investment-Grade Fund Average
+0.3%  +2.0%  Lipper Intermediate Investment-Grade Fund Average
+0.0%  +0.6%  Lipper U.S. Government Fund Average
+0.2%  +1.7%  Lipper Corporate A-Rated Debt Fund Average
+1.0%  +8.7%  Lipper High-Yield Fund Average

While the U.S. stock market seemed to shrug off any bad economic
news last week, the U.S. fixed income market responded favorably
to the week's economic reports.  U.S. government funds and short-
term bond funds weren't able to produce gains for investors, but
most other fixed income categories were higher on the week.  The
high-yield bond fund category remains the year's best performer,
up 1.0% on average for the week and up 8.7% on average on a 2003
YTD basis through April 17, per Lipper.

Among fixed income funds with net assets of $500 million or more,
the week's highest performer was the Fidelity Capital and Income
Fund, up 1.8% for the week.  Franklin AGE High Income Fund had a
weekly total return of 1.7%.  Only emerging-markets income funds
(see below) did better as a whole than domestic high-yield funds.

International Fixed Income Fund Group

 Week   YTD
+0.5%  +3.5%  Lipper Global Income Fund Average
+0.6%  +3.4%  Lipper International Income Fund Average

While global/international fixed income funds produced gains that
were similar to fixed income funds, emerging-markets income funds
produced high weekly returns for investors.  For example, the GMO
Emerging Country Debt Fund, Class IV Shares returned 2.1% for the
week, best among fixed income funds with assets of more than $500
million.  Fidelity New Markets Income Fund was 2.0% higher on the

Balanced Fund Group

 Week   YTD
+1.9%  +1.8%  Vanguard Balanced Index Fund (VBALX)
+1.7%  +1.4%  Lipper Balanced Fund Average

The average balanced fund returned about 1.7% last week, slightly
lagging the Vanguard Balanced Index Fund, a 60% equity, 40% fixed
income benchmark.  Oppenheimer Quest Balanced Value Fund posted a
3.8% return for the week, highest among balanced funds with $500+
million in assets.  Its sibling, Oppenheimer Growth & Income Fund
rose 5.4% for the week.  Vanguard Asset Allocation Fund generated
a 2.9% weekly return to match the S&P 500 large-cap index.

Mixed equity funds with huge fixed income stakes such as Fidelity
Income Fund and Vanguard Wellesley Income Fund returned less than
1.0% for the week.

Money Market Fund Group

0.97%  Vanguard Prime Money Market Fund (VMMXX)
0.73%  iMoneyNet All Taxable Money Market Fund Average

The average taxable money market fund has a 7-day yield of 0.73%,
per iMoneyNet's latest weekly survey.  Among "prime-retail" money
market funds with net assets of $100 million or more, the highest
7-day simple yield continues to be offered by PayPal Money Market
Fund (1.24%).  RBB MMP/Sansom Street Class is second with a 1.13%
current 7-day yield.

Mutual Fund News

The big story last week was Janus' announcement that Helen Young
Hayes, its managing director of investments and the lead manager
of the popular Janus Worldwide and Overseas funds, will retire
from her daily portfolio responsibilities on June 16, 2003 and
will leave the Denver-based fund family at year-end.  Lawrence
Chang and Brent Lynn, the current co-managers with Hayes on the
Worldwide and Overseas funds, respectively, shall take the lead
manager roles, according to Morningstar's news story.

Morningstar.com calls Hayes' departure "a big blow to the Janus
franchise."  The funds tracker credited Hayes with being one of
the people most responsible for building the Janus franchise in
the 1990s.  She had recently assumed the firm's chief investment
officer role in an effort to rebuild their "sliding reputation."
According to Morningstar, Hayes' departure "accelerates concerns
about the firm's ability to pull out of its current slump."

Janus shareholders may want to read Morningstar's report on what
Hayes departure means for Janus.  Janus' situation reminds me of
a professional sports franchise that has let its star players go,
and is now in a rebuilding process.  Its gunslinging days may be
over as well.  With Warren Lambert's and Helen Hayes' departures,
the last of 1990's big guns at Janus will be gone.

Steve Wagner
Editor, Mutual Investor

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Contact Support
The Option Investor Newsletter                   Monday 04-21-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - AZO
Market Watch: Four More

Updated on the site tonight:
Market Posture: Point-and-Figure Check Up

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Autozone - AZO - close: 75.79 change: -1.20 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.

Play-of-the-Day comments:
We like the consolidation pattern as AZO hovers just above the
$75 level.  Given our suggested stop at $72.00, risks should be
mitigated.  More conservative traders could attempt to reduce
risk further by placing their stop under the 200-dma near $73.  A
bounce from the $75 level would be our suggested entry point but
momentum traders may want to wait for a move above $77.

BUY CALL MAY-75 AZO-EO OI=614 at $3.10 SL=1.50
BUY CALL MAY-80 AZO-EP OI=874 at $0.90 SL=0.00
BUY CALL JUN-80 AZO-FP OI=520 at $2.15 SL=1.00

Annotated Chart of AZO:

Picked on April 8th at  $75.24
Change since picked:     +0.55
Earnings Date          06/03/03 (unconfirmed)
Average Daily Volume = 1.36 mln


Kohl's Corp - KSS - close: 59.15 change: -0.77

Same-store sales numbers are expected soon for major retailers
and we'll be watching to see how shares of KSS react to the news.
The stock has tried once again to breakout above the $60 level of
resistance and its 200-dma.  A move above $60.51 might be a
bullish entry point.



Ball Corp - BLL - close: 55.30 change: -0.72

Shares of BLL have pulled back to tentative support at $55.
Meanwhile, the daily and weekly oscillators look like they all
have farther to fall.  Should support at $55 break, this may be a
bearish play candidate if you're nimble.  Ball Corp is expected
to announce earnings Thursday this week.  We're not predicting
any disasters but if the stock should see a sell-the-news event,
we would look for a pull back to the $50 level, which also hosts
the 200-dma.  A bounce at $50 might be a buying opportunity.



PACCAR - PCAR - close: 57.19 change: -0.24

Speaking of sell-the-news, PCAR could see just such an event when
they announce earnings tomorrow.  The stock has been a bastion of
strength and hit a fresh 52-week high this morning.



Wellpoint Health Network - WLP - close: 73.07 change: -1.79

The profit taking in WLP continues.  Shares were hammered hard on
Thursday before the long weekend and the selling continues today
with shares closing at the low for the session.  WLP is resting
on its 200-dma and a drop from here could break the 38.2%
retracement the stock has seen from its recent highs.  Earnings
are in two days and we're curious to know if we'll see a reversal
or if the Q1 report will be a catalyst for more selling.  The PnF
chart is showing new support at $67.


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Point-and-Figure Check Up

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