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Daily Newsletter, Thursday, 04/24/2003

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The Option Investor Newsletter                Thursday 04-24-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Help Wanted Signs
Futures Markets: Pause to Reload?
Index Trader Wrap: (See Note)
Market Sentiment: Love To Turn In.
Weekly Manager Microscope: David Glancy: Fidelity Leveraged
Company Stock Fund (FLVCX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      04-24-2003           High     Low     Volume   Adv/Dcl
DJIA     8440.04 - 75.60  8512.44  8395.70 1.83 bln 1318/1882
NASDAQ   1457.23 -  8.90  1465.92  1448.05 1.65 bln 1961/1229
S&P 100   462.95 -  4.36   467.31   460.17   Totals 3279/3111
S&P 500   911.43 -  7.59   919.02   906.69
W5000    8636.64 - 69.80  8706.43  8599.13
RUS 2000  392.27 -  2.70   394.97   392.08
DJ TRANS 2366.35 -  7.70  2381.08  2352.78
VIX        23.29 -  0.20    24.48    23.04
VXN        33.68 +  0.55    34.43    33.40
Total Volume 3,737B
Total UpVol  1,341B
Total DnVol  2,319M
52wk Highs  365
52wk Lows    70
TRIN       1.43
PUT/CALL   0.80
************************************************************

Help Wanted Signs

Evidently there are no help wanted signs or newspaper ads either
as the numbers today came in very bad. The Jobless Claims also
rose significantly and for once the market reacted negatively
to negative news. The Dow gapped down but stopped at a 50%
retracement of the gains since Tuesday's lows.

Dow Chart - Daily



Nasdaq Chart - Daily




The Jobless Claims came in +33,000 higher than expected at
455,000 and the number for the prior week was revised
upward to 447,00. The positive corporate earnings are coming
at the cost of jobs and those job cuts are increasing rapidly.
The 4-week moving average rose to 439,250 and is only -11,000
away from a normal historical number of 450,000 which indicates
a recession in progress. Lost jobs is the price of profits in
an economic downturn and corporations are scrambling to cut
costs to make the already lowered estimates.

Showing the same trend as Jobless Claims was the Help Wanted
Index which came in at 38 today and at a 40-year low. This
index peaked at 92 during 1999 and has been trending down since.
The volume of help wanted ads in 51 newspapers across the nation
are tabulated monthly by the Conference Board and the numbers
reported as an indicator of future employment trends. This trend
is not showing any signs of changing since the war ended.
According to the report labor markets are still declining in
the Midwest, Pacific Coast states and the South. It appears
to have bottomed in the New England and South Atlantic states.
Only the Mountain States have shown any improvement. The
combination of the two employment related reports sank any
hopes of any new highs today.

On the flip side the Durable Goods Orders rose significantly
higher than expected at +2.0% and significantly over the -1.5%
drop last month. Nondefense Capital Goods and Computers led
the core gains. Defense rose another +16.1% with a +100% gain
in aircraft orders. As we have seen in the last several months
this headline number has vacillated in a wide range from month
to month with sharp swings. Last month the index indicated an
economy heading into recession and this month surprised with
positive gains. Replacement of Y2K computers may have begun
on a limited scale and this is the tidal wave many traders
have been expecting. I suggest it may be more of a bathtub
ripple based on fewer, smaller and leaner companies implementing
the replacement on a staged basis as needed. We do not have
a date deadline to replace these dinosaurs as we did in Y2K.

Merrill Lynch just finished a study of CIOs of major companies
and they said the war had little impact on their budgets. They
said the 2Q could see slight gains in capex spending but overall
the rest of 2003 could be tough. The general consensus of opinion
was for an increase in capex spending of 1.5% to 2% for the full
year. This is very anemic and should not produce any significant
recovery on its own.

The better read on the tech sector came from KLAC on Wednesday.
The company beat the street by two cents but guided lower. The
company said cost reductions had enabled them to manage their
earnings but orders would remain flat through the June quarter.
KLAC predicted the chip equipment makers could see an increase
of +5% in 2003 after losing ground for two years. Yes, the
bottom may be behind us but the rebound may be slower than
many investors think. Microsoft CEO, Steve Ballmer, said on
CNBC on Thursday the turnaround in the IT sector would take
another year or TWO before IT spending returns to where people
want it to be. He also said, "We'll continue to see lower
growth than people might otherwise have anticipated for at
least another year or two."

After the bell today AMZN blew the doors off their earnings
beating the street by a whopping six cents. Analysts had
expected four cents and AMZN managed ten. This is a huge win
for AMZN and will doubtlessly provide yet another short
covering bounce on Friday. The stock was up +$3 in after hours.
To add even more shock and awe they raised guidance for this
quarter for $1 billion in revenue. They said full year they
would have revenue of $4.7 billion. They are still burning
cash with a draw down of -$252 million for the quarter. Most
of the cash was used to shrink accounts payable from $618
million to $393 million at quarters end. They are planning
on retiring $277 million in 5% notes but will still have
over $2 billion in long term debt. Even with operating income
of $50 million a quarter as AMZN expects it will take a long
time to pay that $2 billion. Regardless of the fundamentals
the market impact on Friday should be clear. With AMZN up
+3, EBAY +1.50, YHOO +1, etc, the Nasdaq Compx should open
up strongly tomorrow. Problems on the Nikkei overnight could
weaken that surge before the open.

Problems with the Nikkei are two fold. The SARS epidemic is
growing with over 5,000 cases now. This is a number that has
doubled in the past week. Multiple airlines are canceling
flights to and inside Asia with one company canceling all
flights for 30 days. Beijing sealed up a 1200 bed hospital
including guests, doctors, patients and 2000 workers due to
an influx of cases and the potential for spreading the disease.
Residents of the city are fleeing to the countryside fearing
even wider quarantines where they could be exposed to
individuals already infected with the disease. Trade shows
have been cancelled, shortened or postponed. Conventions are
being cancelled daily. Toronto is reporting conventions being
cancelled not only for the next couple months but for the
next couple years. Airlines report passenger traffic into
Toronto below 10% of capacity even with the large number of
cancelled flights. This problem is not going away and it is
only a matter of time before the same explosion of cases
appears in some US city.

Another problem for Asia was the pronouncement today from
North Korea that they had nuclear weapons. They had completed
processing 80% of their fuel rod inventory to produce more
weapons grade plutonium. They were prepared to use nuclear
weapons if no agreements could be reached. They were prepared
to sell weapons to others as well. They are flying combat
fighter patrols to protect their airspace and keep spy planes
from collecting data. This series of in your face threats
cancelled the peace talks according to some reports and cast a
pall of fear over countries in the region. Colin Powell thought
the threats serious enough to go on TV with a "don't tug on
superman's cape" message and a not so implied warning that
threats could be dangerous to North Korea. It is not surprising
the US markets were not able to pull out of their slump today.

The news that Tariq Aziz had given up to US forces failed to
spike the after hours futures more than a couple points as
traders looked ahead to the potential losses in those Asian
markets.

Only two weeks before the FOMC meeting the Fed heads have
been very active. Fed Governor Ben Bernanke said investment
by business in new equipment is likely to grow in the latter
half of the year. "Most factors point to a moderate pickup
in business investment and economic growth in the second
half of 2003 and in 2004. He also warned that the mindset
of executives will be an "important wild card" that could
derail that forecast. He said there was an undercurrent of
pessimism that was persisting among business leaders. He
said "this pessimism does matter, if for no other reason
than because it has the potential to be self-fulfilling."
Chicago Fed President Michael Moskow also made statements
about the expected increase in the rate of growth later in
the year. The trend in speeches was clear, pump up expectations
but the focus was "later" in the year with multiple references
to the 4Q and 2004.

William Poole said inflation was stable and the financial
system was in good shape. He said the strength in the system
had limited the impact of the recession and was helping to
support the current equity market. Greenspan sent a letter
to Congress warning them to keep a close eye on FNM/FRE
due to the risks they pose to the US financial system. He
stressed that the companies needed adequate capital to
withstand sudden changes in interest rates, market disruptions
and credit losses. He said the investors have trouble gauging
risk to these GSE companies and that risk may be higher than
most think. He said he feared market distortions created by
those companies. Separately, Greenspan also said he would
agree to accept a 5th term.

The markets tried to reach levels touched yesterday but the
NDX was the only index that was successful. The negative
jobless news put a damper on buyers and after two strong
days the market simply took profits. The Dow failed again
at the 200 EMA of 8484 in the afternoon rally attempt. This
has been strong resistance that had been broken on Wednesday
but came back to haunt us today. The Nasdaq bounced off
strong support at 1448 and then failed just below the January
high once again. I think this was another bullish day. We
were due for profit taking and we got it. Very light and
there was a definite barrage of dip buyers intraday. The
key for me is still Dow 8520 but there are key levels on
all three indexes. Dow 8520, Nasdaq 1467, S&P 920. These
are all strong resistance levels and exactly where we failed
for two days now. The AMZN news could provide lift on Friday
along with mainstream realization that Tariq Aziz is in custody.
Not because he knows that much but he may know where Saddam
is hiding.

S&P-500 Chart - Daily




My admonition from Sunday is still intact. Be prepared to
exit on weakness at Dow 8500. I would only add to that to
be prepared to go long over 920 on the S&P. The chart above
shows multiple levels of resistance at 920 and a break over
that level would be strongly bullish. Conversely 920 may be
a tough nut to crack. Either way it is a clear indicator that
everyone can see and the implications are clear. This is the
test the market must pass or be doomed to repeat the last
quarter over again.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Pause to Reload?
By Jim Brown

      04-24-2003           High     Low
DJIA     8440.04 - 75.62  8512.44  8395.70
NASDAQ   1457.23 -  8.93  1465.92  1448.05
S&P 500   911.43 -  7.59   919.02   906.69
NDX      1108.12 -  4.81  1115.36  1097.19
ES03M     909.75 -  7.75   918.50   905.50
YM03M    8410.00 - 81.00  8480.00  8373.00
NQ03M    1108.50 -  5.00  1118.00  1098.50

Daily Pivots (rounded to nearest point)
           R2     R1    Pivot   S1     S2
DJIA      8566   8503   8449   8386   8333
COMPX     1475   1466   1457   1448   1439
ES03M      924    917    911    904    898
YQ03M     8528   8469   8421   8362   8314
NQ03M     1128   1118   1108   1099   1089

After such a banner day on Tuesday and a definitely bullish day on
Wednesday the markets rested today. The morning started off with a
trio of economic reports showing conflicting signals but a strong
and rising jobless claims. If the recovery is underway it is doing
so with cost cutting instead of rising sales.

The ES opened the regular session at 911.50 and closed it at
909.75. That pretty well indicates what type of day it was. We saw
a sharp move up to 914.50 after the initial dip and during a
speech by President Bush. That spike crashed immediately after the
speech and the ES traded in a six point range until 1:45 when a
strong buyprogram pushed the markets back up to the morning highs.
That spike could not hold and we drifted back down to close flat
with the opening gap. Futures were still dropping in after hours
untilthe news broke that Tareq Aziz had been captured. They spiked
to 911.50 on the news before then began dropping again.

Strong resistance remains at 920 with weaker resistance at the R1
of 917.00. Initial support is in the 904-906 range.

ES03M Chart - 15 min




The NQ reached the same highs at 1118 that it reached yesterday
but could not hold it. Support remains 1100 with the Pivot at
1108. On Friday the NDX should react strongly to the AMZN earnings
and the gains by Internet stocks in after hours trading. We have
yet to see if these gains will hold over night with the Nikkei
expected to trade down sharply due to SARS events overseas.

NQ03M Chart - 10 min




The Dow futures appear to be bleeding back to uptrending support
at 8362. The AMZN earnings should not have a major impact on the
Dow futures but a rising Nasdaq could keep the Dow from sinking
much further. Strong resistance remains 8500 with support at 8350.
The Pivot is 8421.

YM03M Chart - 30 min




The Dow cash still controls our fate regardless of how much
analysis we do of the individual futures contracts. The Dow could
be influenced by the Nasdaq on Friday but overhead resistance is
strong at 8485 and again at 8520. It may take more than AMZN
earnings to provide motive power here. Support is 8400 which is
the 50% retracement level for the gains off Tuesday's lows.

Dow Chart - 15 min




The Nasdaq cash is struggling with 1467 which was the high back in
January. This is formidable support and the attempt today failed
at 1466 and was the second lower high since yesterday morning.
Strong support at 1448 (38% retracement) held the intraday dips.
The pivot for tomorrow is 1457. The AMZN earnings have powered the
Internet stocks with AMZN trading up over $3 in after hours. EBAY
gained +1.50 on the news. This should pop the Comp tomorrow but
Asia is expected to sell off overnight. They could equalize each
other before the open.

Nasdaq Chart - 15 min





No change on these longer term resistance charts. The resistance
still exists at 8500 for the futures and 8520 for the cash. This
is a critical level for the rest of the week.

Dow Futures - 240 min




Dow Cash - 240 min




The MOST critical resistance is the longer term down trend on the
S&P cash that is resistance at 920. There is considerable interest
in shorting that level. Each time we get close the number of
sellers rise dramatically.

If I had to pick one critical point to watch it would be this one.
Without a breakout here we are not going up on any index.


S&P Cash - Daily




The game plan for Friday would be to remain SHORT under ES 906 and
stay LONG on any bounce over 920. Anything in the middle is
dangerous chop.

Jim Brown


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_042403_1.asp


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

Love To Turn In.
James Brown

The bulls have to be pretty happy with today's performance.
We've seen almost two weeks of slow and steady advances in the
markets and the first sign of profit taking is pretty mild.  The
NASDAQ-100 (NDX) remains above the 1100 mark and the Composite
(COMPX) only lost 9 points to close at 1457.  On top of it all
the Biotech group (BTK) actually broke out above the 360 level of
resistance.  It was not a bad day.

However, with the weekend in front of us, the profit taking could
continue into Friday's session.  Earnings focus seemed to take a
back seat as the world media machine blasted its SARS coverage on
every channel.  Sensationalistic reporting of entire blocks and
buildings being quarantined in China and the city of Toronto,
Canada getting the big travel warning by the World Health
Organization could have investor sentiment quickly turning sour.

As I scan the markets I'm still acutely aware of how many stocks
continue to look strong and how many sectors remain in bullish
patterns.  As I've said before the crowd is usually right in the
middle of the trend, not at the top and the bottom.  We could
still have a bit higher to go but I don't have a lot of faith
that a new bull market is among us.  Today's negative numbers in
the major indices could not abate the slide in the VIX.  The
volatility index's march lower remains a blister yet to be popped
by the market.

I would love to turn in my bearish fur for some nice shiny new
horns but what would start to convince me is a consolidation that
remains mild and a steady climb higher over the next few months
without earnings news to power the market's enthusiasm.  This
would truly be impressive given the SARS epidemic and things
heating up over N. Korea.  Hitting new relative highs and
breakouts above previous peaks in the Industrials and the S&P 500
would do a lot to sharpen those horns as well.  This doesn't mean
I'm not willing to trade bullish.  Quite the contrary.  I trade
what I see but traders should maintain vigilant stops on all
their positions both long and short.

For those of you also cautious on this market, here's a couple of
bits to warm your fur.  The 5-dma on the ARMS index is just
starting to turn bearish.  These signals tend to be a bit early
so we'll have to see.  Plus, as of the time of this writing, the
Japanese NIKKEI 225 index is trading lower Friday morning.
Currently, the NIKKEI is down 90 points to 7765 and kissing fresh
20-year lows again.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8440

Moving Averages:
(Simple)

 10-dma: 8354
 50-dma: 8070
200-dma: 8314



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  911

Moving Averages:
(Simple)

 10-dma:  892
 50-dma:  857
200-dma:  879



Nasdaq-100 ($NDX)

52-week High: 1573
52-week Low :  795
Current     : 1108

Moving Averages:
(Simple)

 10-dma: 1070
 50-dma: 1031
200-dma:  992



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


The CBOE Volatility index (VIX) can't stop falling despite a down
day in the broader markets.  Bulls beware.  A market top
approaches.

CBOE Market Volatility Index (VIX) = 23.29 -0.20
Nasdaq-100 Volatility Index  (VXN) = 33.68 +0.55

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.80        626,388       503,084
Equity Only    0.68        532,257       362,183
OEX            1.05         15,552        16,350
QQQ            0.74         51,511        38,079


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

Bullish Percent Data

           Current   Change   Status
NYSE          49.8    + 1     Bull Confirmed
NASDAQ-100    65.0    + 4     Bull Alert
Dow Indust.   50.0    + 3     Bull Alert
S&P 500       54.2    + 2     Bull Confirmed
S&P 100       52.0    + 2     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  0.85
10-Day Arms Index  0.93
21-Day Arms Index  1.15
55-Day Arms Index  1.30


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

            -NYSE-   -NASDAQ-
Advancers    1130      1307
Decliners    1711      1701

New Highs      92       164
New Lows       30        26

Up Volume    573M      687M
Down Vol.   1192M      887M

Total Vol.  1781M     1615M

M = millions


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

Commitments Of Traders Report: 04/15/02

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

It would appear that the Commercials or the "smart money" has
increased their long positions in the S&P 500 futures.  This
is the "most" bullish we've seen them yet in a very, very long
time.  Meanwhile the small traders, or the retail investor,
has increased their bearish positions to the biggest extreme
in a long time.  The small trader remains "net" long but the
increase in bearish positions is not a positive for the little
guy.  This is a bullish sign as the big money tends to be right.

Commercials   Long      Short      Net     % Of OI
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%
04/15/03      424,219   409,853    14,366     1.7%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   14,366  -  4/15/03

Small Traders Long      Short      Net     % of OI
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%
04/15/03      148,434   137,680    10,754      3.8%

Most bearish reading of the year:  10,754 - 4/15/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Contrary to the full S&P contracts above, the data below
suggests that the Commercials are strongly net-short the
market with this report being the most bearish.  Just as
expected, the retail investor is on the wrong side with
a strong net-long position.

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%)
04/15/03      119,316   390,555   (271,239) (53.2%)

Most bearish reading of the year: (271,239)  - 04/15/03
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%
04/15/03      365,876    44,137   321,739    78.5%

Most bearish reading of the year:   1,150   - 04/01/03
Most bullish reading of the year: 321,739   - 04/15/03


NASDAQ-100

Hmmm.. there appears to be little change among positions
in the NDX future between the commercials or the small
traders.


Commercials   Long      Short      Net     % of OI
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%
04/15/03       44,976     37,929     7,047    8.5%

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
03/25/03       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%)
04/15/03       11,182    17,438   ( 6,256)  (21.9%)

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

Other than the drop in overall positions for the commercials
the trend remains the same.  Big money is net-long the
Industrials and retail traders are net-short, although their
long positions did jump significantly as of this report.

Commercials   Long      Short      Net     % of OI
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%
04/15/03       17,881    13,124    4,757      15.3%

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
03/25/03        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%)
04/15/03        7,748     8,704    (  956)   ( 5.8%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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*************************
WEEKLY MANAGER MICROSCOPE
*************************

David Glancy: Fidelity Leveraged Company Stock Fund (FLVCX)

David Glancy is one of Fidelity's rising stars, having performed
well as the manager of the Fidelity Capital & Income Fund (since
1996) and as the manager of this relatively new and unique stock
fund, Fidelity Leveraged Company Stock Fund (since 2000).  It is
unique in that it emphasizes the common stock of leveraged firms;
those that issue low-quality, high-yield debt securities as well
as those with leveraged capital structures.

But, this segment of the market isn't unique to David Glancy.  As
the manager of the Fidelity Capital & Income Fund (FAGIX), Glancy
invests in equity and debt securities, including those in default
with an emphasis on speculative-grade debt securities.  So, since
1996, he has been investing in companies in troubled or uncertain
financial condition and in domestic and foreign issuers.  In 1997
Glancy returned 14.7% for the year, ranking in the first quintile
of the Morningstar high-yield bond category.  His performances in
1998 and 1999 ranked in the high-yield category's top decile.

In December 2000, Glancy was given another assignment, to run the
new Fidelity Leveraged Company Stock Fund (FLVCX).  The principal
difference between the two funds is that for the Capital & Income
Fund, Glancy seeks to provide a combination of income and capital
growth and for the Leveraged Company Stock Fund, he seeks capital
appreciation as the primary objective (income is secondary).  So,
while the new fund doesn't have a long-term performance record to
rely upon, you can look at Glancy's successful record on Fidelity
Capital & Income Fund for a sense of how well he might do on this
fund in the long run.

The $130 million Fidelity Leveraged Company Stock Fund requires a
minimum initial purchase of $10,000 to open a regular account but
costs just $500 to establish an IRA.  Investors can buy this fund
directly from Fidelity Investments (800-544-8888) or from certain
brokerage networks on a no-load basis.  The fund doesn't charge a
front-end or back-end load, but it does impose a 1.50% short-term
trading fee on shares redeemed within 90 days.  The fund's annual
expense ratio at January 31, 2003 was 1.12% - reasonable for this
fund type.  For more information, or to download a prospectus, go
to the www.fidelity.com website.

Investment Style/Strategy

The Fidelity Leveraged Company Stock Fund seeks to provide long
term capital growth consistent with the preservation of capital.
To achieve the fund's growth objective, Glancy invests primarily
in common stocks of domestic and foreign issuers; current income
is a secondary goal.  Generally, Glancy invests at least 85% of
assets in common stocks of leveraged firms that issue low credit
quality debt securities and/or have leveraged capital structures.
Holdings consist primarily of stocks of companies with mid-sized
market capitalizations, domestic and foreign.  Securities may be
"growth" or "value" or a mixed stock.

Glancy uses fundamental analysis to select securities to include
in the portfolio.  That means Glancy analyzes balance sheets and
income statements of companies in order to forecast their future
stock price movements.  Appraising a firm's prospects isn't easy
especially when it involves leveraged companies since such firms
are often in troubled or uncertain financial condition.  However,
for Glancy, it is his niche.  Being both a CPA (Certified Public
Accountant) and a CFA (Chartered Financial Analyst) helps Glancy
to understand companies from both an "accounting" and "investing"
perspective.

At March 31, 2003, the fund's top 10 holdings represented 40% of
portfolio assets, with 78 holdings total.  Three "communications"
companies - Echostar, Level 3 and Nextel - were among the fund's
top 10 holdings at quarter-end.  The fund's five major sectors of
investment were consumer discretionary, energy, financials, tele-
communications services, and utilities, according to the Fidelity
report online.  Stock investments represented 88% of total assets
at quarter-end, with 12% of assets in cash and other investments.

Currently, the Fidelity Leveraged Company Stock Fund is showing a
mid-cap blend style bias.  Occassionally, it has shifted to value
or to growth, but on average it has maintained a blend/core style
overall.  Glancy also maintains the fund's mid-cap bias.  At Jan.
31, the fund had an average market cap of $2.5 billion with 45.8%
of stock holdings in mid-caps.  Large-cap stocks comprised 28% of
assets at the time, with the remaining 26.2% in small- and micro-
cap stocks.  Accordingly, holdings are diversified across capital
sectors as well as across investment styles.

In the next section, we see how well Glancy's "leveraged company"
stock investment strategy has performed relative to other mid-cap
blend funds.

Investment Performance

In 2001, the fund's first full year of operation, Glancy produced
a positive annual total return of 3.2% compared to a loss of 0.2%
for the average mid-cap blend fund.  That year, the S&P large-cap
index lost 11.9% per Morningstar.

In 2002, Glancy lost just 1.8% of the fund's value for investors,
compared to a 15.9% negative return by the average mid-cap blend
fund, per Morningstar.  The S&P 500 index declined 22.1% in 2002.





You can see from the chart above, that since the fund's price
bottomed near $7 in October 2002, it has moved beyond the $11
mark in April 2003.  Suffice to say performance over the past
year has been quite strong.  According to Morningstar, Glancy
returned 17.3% over the past year to rank in the top 2% of the
mid-cap blend category.  The feat is even more impressive when
you consider that the S&P 500 index lost 15.1%% over this time
period.

Since the fund inception (December 2000) Glancy has produced a
positive average annual total return of 2.85% through March 31,
2003 in what has otherwise been pretty poor conditions for the
stock market.  Glancy's 15.7% return over the past year on the
Fidelity Capital & Income Fund is also very strong, ranking in
the top 1% of the Morningstar high-yield bond category.  There,
Glancy has produced a trailing 5-year average annual return of
2.0% to rank in the category's top quartile.

It's interesting to note that when the stock market was hot in
the late 90s, Glancy was delivering top decile fund returns in
the high-yield category.  So, he has performed relatively well
through both bull and bear stock market conditions, seeking out
yield and appreciation opportunities in telecom, media and other
market sectors.

Conclusion

Glancy sticks to his knitting.  His investment domain includes
companies in troubled or uncertain financial condition, but he
has proven on both the Capital & Income Fund and the Leveraged
Company Stock Fund that he can hit his mark more often than he
misses.  His security analysis is supported by one of the best
equity research and high-yield bond research teams in the fund
industry, enhancing the fund's long-range prospects.

Glancy's near-term performance is impressive.  Considering what
he's done on the Fidelity Capital & Income Fund, there's reason
to be optimistic about the long-term prospects of the Leveraged
Company Stock Fund.  Long-term investors seeking a mid-cap blend
fund to play a supporting role in their stock portfolio may want
to give Glancy's leveraged company stock fund a further look.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 04-24-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: WFMI
Dropped Puts: None
Daily Results
Call Play Updates: AZO, BBBY, BBOX, ERTS, IMDC, MEDI, MXIM, OMC, WFMI
New Calls Plays: None
Put Play Updates: None
New Put Plays: FITB


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

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


CALLS:
*****

Whole Foods - WFMI - close: 56.96 change: +0.21 stop: 56.00

We've given WFMI every opportunity to prove itself in recent
weeks and it is looking less likely that the bulls will be able
to stage a sustained move higher.  The ascending trendline had
been supporting the stock up until earlier this week, but even
that consistent support began to weaken on Tuesday.  The bears
solidly broke WFMI below that line yesterday, and then the 20-dma
gave way as well, changing to resistance today.  While our $56
stop hasn't yet been violated, the technical picture is starting
to turn negative and we're going to get while the getting is
good.  Take advantage of any strength on Friday to exit open
positions and look to redeploy cash into stronger plays.

Picked on April 1st at $56.42
Change since picked:    +0.54
Earnings Date        05/08/03 (unconfirmed)
Average Daily Volume = 911 K


PUTS:
*****

None


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AZO      79.31   -1.20   2.71   1.52 -0.69  Hanging in there
BBBY     38.72   -0.33  -0.20  -0.24 -0.05  $38 is crucial
BBOX     32.10   -0.24   0.98   0.41 -0.70  Not bad
ERTS     59.99    0.33   1.11  -0.71 -1.00  Possible entry?
IMDC     36.52   -0.62   1.02   0.90  0.02  Very strong
MEDI     35.55    0.07   0.57   0.84  0.55  Long-term
MXIM     40.81   -0.07   1.36  -0.01 -0.34  Watch the SOX
OMC      63.43   -0.85   1.72   0.66  0.34  Very strong
WFMI     56.88   -0.74   0.22  -0.90  0.13  DROP, sideways


PUTS

FITB     47.73                       -1.04  NEW, bear trend


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

AutoZone, Inc. - AZO - close: 79.31 change: -0.69 stop: 74.75

That's what we were looking for in our AZO play!  Blasting higher
with the rest of the market on Tuesday, the stock followed
through yesterday, reaching our first profit target of $80.  As
pointed out in the Market Monitor, that was a great point for
conservative traders to harvest some gains, as a pullback was
likely to follow.  In light of the strong bullish move so far
this week, Thursday's pullback was actually pretty mild and it
was nice to see that it came on rather light volume.  The
question now is whether the bulls can manage to push decisively
above the $80 level and challenge higher levels of resistance.
There will be some mild resistance at $81.50-82.00, which should
start to get pretty strong by the $84 level.  Traders looking for
new entries will want to wait for a bounce from support, most
likely in the $77-78 area.  Note that the rising 10-dma ($77.01)
should once again help to support the stock.  We'll look to close
out the play in the $83-84 area if reached.  While we're leaving
our stop at $74.75, more conservative traders may want to use a
tighter stop near $76.50.

Picked on April 13th at  $75.24
Change since picked:     +4.07
Earnings Date          06/03/03 (unconfirmed)
Average Daily Volume = 1.28 mln

---

Bed Bath & Beyond - BBBY cls: 38.72 chg: -0.05 stop: 37.75*new*

While our BBBY play hasn't been able to take advantage of the
advance in the broad market this week, the pullback in price
looks more like consolidation, rather than a weakening in the
stock.  Our ascending trendline (currently $38.10) still has not
been violated and despite intraday violations the past two days,
the 10-dma (currently $38.59) once again held as closing support.
On the negative side of the coin, oscillators like MACD and
Stochastics are starting to roll in bearish fashion, so that
could be taken as a warning sign of pending weakness.  A rebound
from above the $38 level can be used for initiating new positions
ahead of another push up towards the $40 level, but this should
now be viewed as an aggressive strategy.  Conservative traders
will still want to use a rally up near the $40 level as an
opportunity to harvest gains, unless the move comes on much
stronger volume than what we saw today.  Note that we're getting
aggressive with our stop, raising it to $37.75 tonight.  A
violation of that level would likely indicate that the bullish
trend is coming to an end.

Picked on April 8th at  $37.18
Change since picked:     +1.54
Earnings Date          07/02/03 (unconfirmed)
Average Daily Volume = 3.33 mln

---

Black Box Corp - BBOX - close: 32.10 change: -0.70 stop: 30.90

There is still no new news for BBOX but bulls should be
encouraged to see the stock move higher on Wednesday adding some
follow through to Tuesday's big session.  In our original write
up on Tuesday we listed a potential pull back to the $32.00 to
$31.50 area as a possible entry point.  BBOX gave us that pull
back to $32 today.  However, for traders who have still not
initiated a position, we would wait and see how the market reacts
tomorrow morning.  Hopefully, the strong AMZN earnings tonight
will power the techs higher and BBOX will join them.  Remember,
we're using a relatively tight stop at $30.90 to reduce risk.

Picked on April 22nd at $32.39
Change since picked:     -0.29
Earnings Date         05/07/03 (confirmed)
Average Daily Volume = 2.8 million

---

Electronic Arts - ERTS - close: 59.99 change: -1.00 stop: 57.00

Holy Round Trip Batman!  ERTS gave us a nice quick surge higher
from the $60 level earlier this week, only to retrace every last
penny of those gains over the past two days, coming to rest right
back where it was when we initiated coverage last Friday.  The
difference is that it has now reached the $60 level as support,
rather than resistance.  Will this level hold up for a bounce?
Probably not.  You see, the resistance was more of a zone between
$59-60 on the way up, reinforced by the declining 200-dma, which
has now fallen to $59.49.  Additionally, the broken descending
trendline (currently $59.40) along with the 20-dma ($59.31)
should reinforce this zone of support.  So traders looking for an
entry on this pullback will want to look for a rebound from this
area, confirmed by a return of the strong volume seen on Tuesday.
Momentum traders will need to wait for a breakout over the $62
level before committing fresh capital to the play.  We are
maintaining our stop at $57 until we see how that support holds
up on Friday.

Picked on April 20th at  $59.99
Change since picked:      +0.00
Earnings Date          05/08/03 (unconfirmed)
Average Daily Volume = 3.14 mln

---

Inamed Corp - IMDC - close: 36.52 change: +0.02 stop: 32.86

While "news" continues to be scarce for IMDC we did read a very
interesting article from Forbes on medical device stocks and
specifically IMDC.  The article was initially cautionary, almost
negative, before expounding on IMDC's business.  Something of
interest for long-term investors is the fact that IMDC and other
stocks in the group have what Forbes called a "tailwind"
demographic of millions of babyboomers headed toward their golden
years.  Forbes went on to report that IMDC's sales show that 1/3
of the company's revenue is from overseas and with a weak dollar
that boosts sales.  The article also said that analysts polled by
Thomson First Call believe that IMDC will see annualized growth
rate of 17% over the next three to five years.  Additional
research shows that IMDC looks cheap and despite its hefty
advance the last few months remains below the sector's average
P/E.  IMDC has a P/E of only 15 (on earnings for the next 12
months) while the medical device stocks in the S&P have an
average multiple of 23.  This gives the stock plenty of room to
play catch up.  This article came out yesterday and may have
helped keep IMDC's relative strength alive.  The markets may have
felt a little profit taking today, but not IMDC.  Shares are
getting close to their old highs in April 2002.  New positions
are probably best created on a pull back to $35 or a move over
$37.00.

Picked on April 17th at $35.00
Change since picked:     +1.52
Earnings Date         02/25/03 (confirmed)
Average Daily Volume = 215 K

---

Maxim Integrated - MXIM - cls: 40.81 chg: -0.34 stop: 38.00

Despite two days of consolidation we're still in the green for
MXIM.  Shares pulled back to the $40 level and anyone brave
enough to go long is probably in a decent spot to capture any new
appreciation.  This is, of course, assuming the market can keep
the rally going.  The chip sector stalled as makers of flash
memory and flash chips traded lower on pricing pressure concerns.
Shares of MXIM trade very closely with the SOX chip index.
Should the SOX fall under the 340 level then MXIM will likely
drop under its own $40 mark.  Keep this in mind when monitoring
positions.

Picked on April 22nd at $40.51
Change since picked:     +0.30
Earnings Date         04/29/03 (confirmed)
Average Daily Volume = 8.30 mil

---

Omnicom Group - OMC - close: 63.43 change: +0.34 stop: 59.50*new*

Relative strength can be crucial in tough markets.  Most media
stocks were lower today but OMC managed a small gain despite the
market-wide profit taking.  That doesn't mean we don't expect to
see some selling pressure in OMC.  Per our recent comments, we do
plan to see a pull back.  A dip to $60-61 might be a good entry
point for new positions.  Given the stock's strength, we're going
to raise our stop to $59.50.  More conservative traders might be
able to get away with something tighter.

Picked on April 15th at $61.30
Change since picked:     +2.13
Earnings Date         04/29/03 (confirmed)
Average Daily Volume = 2.18 mil


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

None


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

None


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

Fifth Third Bancorp - FITB - cls: 47.73 change: -1.04 stop: 50.25

Company Description:
Fifth Third Bancorp is a registered financial holding company and
a multi-bank holding company.  At the end of 2001, the company's
wholly owned second tier holding company, Fifth Third Financial
Corporation, had 11 wholly owned direct subsidiaries, consisting
of banks in Florida, Kentucky, Indiana and Michigan, as well as
Fifth Third Community Development Corporation, Fifth Third
Insurance Services, Fifth Third Investment Company, and Heartland
Capital Management.

Why we like it:
It is common knowledge that any broad market advance needs the
participation of the Financials in order to be sustainable.  In
that vein, it has been impressive how the KBW Banks index (BKX.X)
has recovered strongly from its March 12th low ($657.51) to
gently probe the $800 level (actually $799.69) yesterday.
Traders with a long memory will recall how this was a stubborn
level of resistance for the index going all the way back to last
August.  Clearly if the broad market rally is going to continue,
the BKX needs to move and stay above that level, and Thursday's
1.7% loss was not encouraging.  In other words, the BKX is
looking a bit top-heavy right here.

That just sets the stage for our new put play on FITB.  While the
BKX has been working higher, this stock has been working its way
lower and rather than testing resistance, the stock is
threatening to break down below major support at $47.  FITB hit
an intraday low of $47.05 on 3/12 and after bouncing with the
rest of the sector for just over a week, it has been back to its
old pattern of lower highs and lower lows.  Even meeting earnings
estimates just over a week ago couldn't break the stock out of
its funk and it rolled over right at the $50 level after being
deflected by the 20-dma (currently $49.51).  With the descending
trendline from the January highs just now crossing $50, that
level is looking like pretty formidable resistance.  The risk
we're taking with this play is that we're looking to play the
downside in a weak stock within a relatively strong sector.  If
the BKX were to take off through the $800 resistance level, odds
are good that FITB could get dragged higher.  So we're setting an
entry trigger at $47.  If that level breaks, then FITB ought to
seek out its next strong level of support near $44.  And if the
BKX does roll over, then it should act as a sledge hammer,
driving FITB ever lower.  The PnF chart certainly paints a
bearish picture, with the January Sell signal generating a
bearish price target of $33, which is still in play.

Eager and aggressive traders can enter the play on that initial
breakdown below $47, looking for a quick move lower.  Bear in
mind that there could be some mild support near $46, so the safer
entry may be to wait to enter when that bounce fails near the
$48.00-48.50 area, which should be shaping up as solid
resistance.  We're initially placing our stop at $50.25, which is
just above the intraday highs posted in mid-April, as well as the
descending trendline shown on the chart below.  Note also that
the daily Stochastics are just starting to roll bearish without
even entering overbought territory, which just underscores FITB's
relative weakness.

Suggested Options:
Short-term traders will want to focus on the May 50 Put, as it
will provide the best return for a short-term play.  Those
looking for additional staying power to hold through the recent
(and expected future) volatility will want to use the June 45
strike.

BUY PUT MAY-50 FTQ-QJ OI=2663 at $2.60 SL=1.25
BUY PUT MAY-45 FTQ-QI OI=1267 at $0.35 SL=0.00
BUY PUT JUN-45 FTQ-RI OI=  23 at $1.00 SL=0.50

Annotated Chart of FITB:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-24/FITB042403.gif



Picked on April 24th at $47.73
Gain since picked:       +0.00
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 2.63 mln


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


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

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


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

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

Contact Support
The Option Investor Newsletter                 Thursday 04-24-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - FITB
Traders Corner: An Opportunity in Sheep's Clothing
Traders Corner: Putting it all together: chart puzzles


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

Fifth Third Bancorp - FITB - cls: 47.73 change: -1.04 stop: 50.25

Company Description:
Fifth Third Bancorp is a registered financial holding company and
a multi-bank holding company.  At the end of 2001, the company's
wholly owned second tier holding company, Fifth Third Financial
Corporation, had 11 wholly owned direct subsidiaries, consisting
of banks in Florida, Kentucky, Indiana and Michigan, as well as
Fifth Third Community Development Corporation, Fifth Third
Insurance Services, Fifth Third Investment Company, and Heartland
Capital Management.

Why we like it:
It is common knowledge that any broad market advance needs the
participation of the Financials in order to be sustainable.  In
that vein, it has been impressive how the KBW Banks index (BKX.X)
has recovered strongly from its March 12th low ($657.51) to
gently probe the $800 level (actually $799.69) yesterday.
Traders with a long memory will recall how this was a stubborn
level of resistance for the index going all the way back to last
August.  Clearly if the broad market rally is going to continue,
the BKX needs to move and stay above that level, and Thursday's
1.7% loss was not encouraging.  In other words, the BKX is
looking a bit top-heavy right here.

That just sets the stage for our new put play on FITB.  While the
BKX has been working higher, this stock has been working its way
lower and rather than testing resistance, the stock is
threatening to break down below major support at $47.  FITB hit
an intraday low of $47.05 on 3/12 and after bouncing with the
rest of the sector for just over a week, it has been back to its
old pattern of lower highs and lower lows.  Even meeting earnings
estimates just over a week ago couldn't break the stock out of
its funk and it rolled over right at the $50 level after being
deflected by the 20-dma (currently $49.51).  With the descending
trendline from the January highs just now crossing $50, that
level is looking like pretty formidable resistance.  The risk
we're taking with this play is that we're looking to play the
downside in a weak stock within a relatively strong sector.  If
the BKX were to take off through the $800 resistance level, odds
are good that FITB could get dragged higher.  So we're setting an
entry trigger at $47.  If that level breaks, then FITB ought to
seek out its next strong level of support near $44.  And if the
BKX does roll over, then it should act as a sledge hammer,
driving FITB ever lower.  The PnF chart certainly paints a
bearish picture, with the January Sell signal generating a
bearish price target of $33, which is still in play.

Eager and aggressive traders can enter the play on that initial
breakdown below $47, looking for a quick move lower.  Bear in
mind that there could be some mild support near $46, so the safer
entry may be to wait to enter when that bounce fails near the
$48.00-48.50 area, which should be shaping up as solid
resistance.  We're initially placing our stop at $50.25, which is
just above the intraday highs posted in mid-April, as well as the
descending trendline shown on the chart below.  Note also that
the daily Stochastics are just starting to roll bearish without
even entering overbought territory, which just underscores FITB's
relative weakness.

Suggested Options:
Short-term traders will want to focus on the May 50 Put, as it
will provide the best return for a short-term play.  Those
looking for additional staying power to hold through the recent
(and expected future) volatility will want to use the June 45
strike.

BUY PUT MAY-50 FTQ-QJ OI=2663 at $2.60 SL=1.25
BUY PUT MAY-45 FTQ-QI OI=1267 at $0.35 SL=0.00
BUY PUT JUN-45 FTQ-RI OI=  23 at $1.00 SL=0.50

Annotated Chart of FITB:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-24/FITB042403.gif



Picked on April 24th at $47.73
Gain since picked:       +0.00
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 2.63 mln


************************Advertisement*************************
If you trade options online, then you need an online broker that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and more;
call 1-888-889-9178 or click for more information.

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


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

An Opportunity in Sheep's Clothing
By Mike Parnos, Investing With Attitude

Opportunities are everywhere.  You have to keep your eyes open,
have the awareness to recognize them, and the ability to act when
they present themselves.

Recently I was in a pet store buying some warm and fuzzies (for my
cats, really).  I noticed a display of "Political Pet Toys."
They're little rubber squeaky things created in the likeness of
political figures – George W. and, of course, a terrorist looking
image.  A dog in the pet store was in heaven – chewing on George
W., salivating, and squeaking.  I even recognized George W's
squeak.   The slogan for the product is – "You Can't Get Even, But
Your Pet Can."

The sales clerk said that the George W. chew toy was flying off
the shelf.  I said that, with George W's C average, he couldn't
even fall off the shelf without help.  I'm going to find out the
name of the manufacturer.  Maybe we'll all have an opportunity to
invest in this company.  I'll keep you posted.

Would You Pick It Up?
If you saw a quarter on the ground, would you stop to pick it up?
Just what would it take to get you up off the couch? – besides
needing a slice and a beer, of course?  The CPTI code of behavior
mandates that you get off your cushion – if for no other reason
than to lose your one-calorie quota for the day – and get that
quarter.

Let's explore how we might locate an opportunity to pick up a few
extra dollars.  Opportunities don't last long – especially the
one's in sheep's clothing.  Why?  When farmers get lonely, they
aren't very discriminating.
_____________________________________________________________

Dividend Arbitrage
Let's explore the world of "arbitrage."  Although it may sound
like it, arbitrage is not an invasive medical procedure requiring
plastic gloves, a large tube and a lot of Vaseline.  Basically,
and arbitrage can happen when you recognize a price discrepancy
between entities.  You have to buy and sell before the discrepancy
repairs itself.

For our example, we'll use Altria Corp. (MO) -- formerly Phillip
Morris – at this writing is trading at $32.96.  Investors who own
Altria hope the stock will appreciate in value.  But, there's a
bonus.  While they're waiting (and hoping) for the stock to move
up, they're also collecting a healthy yearly dividend of $2.56.
That's a yield of 7.83%.

A Little Research Goes A Long Way
First of all, it doesn't really matter what MO is trading for.  It
can be $28 or $35.  The amount of dividend remains the same until
the Board of Directors decides to increase it or decrease it.  So,
every three months, the stockholder will receive 1/4th of $2.56 or
$.64.  For our calculations below, in order to make life easier,
we're going to use a share price of $30

The rule of thumb is that, on stocks that pay dividends, their
puts should always have time value at least equal to the quarterly
dividend – even the deep in-the-money puts.  If that's the case,
if MO is trading at $30, the June $50 put would have to have at
least $.64 of time premium in addition to the $20 of intrinsic
value.  Normally, a stock $20 in-the-money might only have a
nickel or dime of time premium remaining.  The difference is the
dividend.

Again, this is a rule of thumb – which means that occasionally
things don't line up exactly.  If you watch the options, you may
be able to take advantage of a pricing discrepancy.  A $20 put –
that should be priced at $20.65 – priced at $20.25.

What do you do?  You quickly buy the stock and the put.  If you do
it properly, you can lock in the $.40 difference.  On 1,000
shares, that would be $400.

Here's The Scoop
Let's assume that MO closes at $30 but will pay a $0.64 dividend
tomorrow. Therefore a $50 put should trade for at least $20.64.
How do we arrive at this figure?  Take the put's strike price
($50) and subtract the stock's closing price ($30) and then adding
in the dividend amount ($.64).   The  $.64 is the minimum amount
that the stock will likely drop the day following the ex-dividend
day.

However, if the put's time value is less than the amount of the
dividend, then an arbitrage opportunity exists. Let's suppose that
the $50 put option is selling at $20.20 while the stock is trading
at $30 and about to go ex-dividend by $0.64.  The arbitrage
dividend trader would buy the put at $20.20, buy the stock at $30,
and then exercise the put at $50 when the stock goes ex-dividend.

Here are the numbers:
Sold shares of MO through exercise of ITM put:        $50.00
Bought shares of MO to set up arbitrage:              $30.00
Collect dividends from holding MO:                    $  .64
Total proceeds collected:                             $20.64
Less proceeds paid for $50 put:                       $20.20
Profit from arbitrage:                                $  .44

Why Not Just Buy The Put?
If you just own the put, what happens if the stock rallies to $33?
If you don't own the stock to participate in this upward move, you
be sitting there with a long $30 put that cost you $30.20 and now
has a value of only about $27.  That's not good.

Can You Use Calls In A Dividend Arbitrage?
No.  Because the stock will drop in price after the dividend and
the price of the calls will drop.

_____________________________________________________________

May CPTI Portfolio Positions

Position #1 -- SMH Baby Condor.  Thursday's Close: $27.19
SMH is the Semiconductor Holder Trust.  We feel that semiconductor
stocks have moved up a little too far and too fast.  We created a
baby condor by selling the May SMH $25 calls and $27.50 puts.  For
protection, we bought the May $22.50 puts and $30 calls.  The net
credit is $1.05

Our maximum profit range is $25 to $27.50.  We're only exposed for
the 2 1/2 point difference between the strikes ($25/$22.50 or
$27.50/$30) less what we've taken in ($1.05) = $1.45.  Maximum
potential profit is $1,050.
____________________________________________________________

Position #2 – BRCM Short Strangle
The market saved us again.  It seemingly saved us from ourselves.
We were going to put on a sell straddle – selling the $15 May puts
and $17.50 May calls for a credit of $1.25.  On Monday, before we
could even put on the position, BRCM was already trading near the
$17.50 parameter.  We let discretion rule and did not put on the
position – even though there's still a reasonably good chance BRCM
will pull back and finish between the original parameters.
_____________________________________________________________

Position #3 – SPX Iron Condor.  Thursday's Close: 911.43
We believe the market may be a bit extended so we gave it a big
sandbox to play in.  We sold the SPX May 825 puts and the May 950
calls.  Then we bought the SPX May 800 puts and May 975 calls for
protection.  The net credit was $2.95.  Our exposure is a little
more than usual – 25 points less the $2.95 we took in = $22.05.
That's why we're only doing five contracts. Our maximum potential
profit is $1,475.
______________________________________________________________

Position #4 – MSFT Minage-A-Qua – Thursday's Close: $25.49
Microsoft just came out with respectable earnings and
unenthusiastic guidance.  We believe that MSFT will finish at or
around $25.  We sold the May MSFT $25 puts and calls for a credit
of $1.80.  We bought the $27.50 calls and $22.50 puts for
protection at a cost of  $.45 – yielding a net credit of $1.35.
Our maximum profit occurs if MSFT closes right at $25.  Our profit
range is from $23.65 to $26.35.  Our risk is only $1.15 with the
potential to make $1.35.  Maximum potential profit is $1,350.
_____________________________________________________________

Sunday Preview
On Sunday we'll come up with a new position to replace the BRCM
position that was not established.

Easter Mix-Up
Unfortunately, there was no newsletter published on Sunday due to
the holiday. I understand my column was made available during the
trading day on Monday.  As a result, it may have been difficult
entering some of the May trades.  However, even if you came close
to getting the discussed premium, things should still work out.
_____________________________________________________________

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

Putting it all together: chart puzzles
By Leigh Stevens
lstevens@OptionInvestor.com

I wrote some number of articles on pulling together all
technical analysis tools and techniques with the most important
"reference" Trader's Corner being found at -
http://www.OptionInvestor.com/traderscorner/tc_022703_2.asp

Something I did in my book was present a series of charts from
some past price moves of different types using individual stocks
(more possible examples) that showed how I first analyzed what
was happening (and what might be next), versus what actually
happened.  Believe it not folks there were actual differences.

Anyway, promise NOT to jump ahead to quickly to the "what came
next" chart - scouts honor! The idea is to think about how YOU
figured the further trend would be - based on what patterns,
markings (e.g., trendlines, etc.), indicators, and volume
information is shown first.

To better simulate the real-world of market analysis, with
subsequent favorable and unfavorable outcomes, the following
charts present my technical analysis at the time with a chart
that is updated - the same stock for a later period.

Such a treatment will demonstrate not only how the price pattern
unfolded after the original outlook, but also presents a further
analysis and/or the lesson presented by the winning or losing
trade – lessons from incorrect or losing choices being especially
valuable. Hey, I learn more from my loses than my profitable
trades - when I make money I'm too busy thinking about how smart
I am/was!

Study the chart, indicators and the entry rationale presented and
see if you agree or disagree with the first analysis and why,
before scrolling down to see how market action unfolded.   You
could even first go back to one of my prior Trader's Corner
(using the A-Z Trader's Corner columns within the one noted
above) to study the chart pattern or indicator as to what that
pattern or indicator will typically suggest for the future. This
can be compared to what happened on the "outcome" chart.

Suggested market action and rationale -- ORCL chart
Short (buy puts) in the $34 area with an objective for a new low
under $22 -




RATIONALE:
Stock is in a bear trend suggesting a future decline to well
under prior lows and by the 3-part down swing to point A,
suggesting a new primary downtrend.

A recovery rally from a first down leg will often stall at about
1/2 or 50% of the prior downswing.  Intraday highs stopped 4
times at the 34 level.

In addition the RSI indicator seen above went sideways to lower
on the most recent rally shown, which is bearish divergence. The
next decline after this would typically make a lower low than
previously.  Place stops just above 36 as prices are not expected
to get back above the 200-day moving average.

Mr. chart man -
You weren't supposed to look right away! Just taking away the
possible TEMPTATION!






NEXT chart = subsequent price action after what's shown first -




OUTCOME -
Stock bought back on a further dip to $15.
There was a further move down to the 11-12 area in the period
shown in the chart above.  Short covering at 15 was warranted due
to the sideways trend and oversold reading in terms of the slow
stochastic, suggesting that the further downside potential might
not be that great.

If staying in, exiting stops should now be just above resistance
implied by prior low at A.

CHART EXAMPLE 2 -
Suggested market action and rationale -- BA chart;
Buy the stock and/or calls with stock in $53 area





RATIONALE:
Short covering and profit taking on calls suggested by
anticipating that a bottom was made in the area of the prior
March low and based on the bullish RSI divergence, at an oversold
level to boot.

Most recent RSI low was above its prior low, contrary to price
action.
Stops should be set at 51, not far below the potential double
bottom at 52.

Mr. Chart Man SPACE holder -





NEXT BA chart = subsequent action after first chart above
Stop elected at an approximate $2 loss on short positions in the stock
and at the level at the time on call options



NOTE ON OUTCOME -
This trade was one looking for a COUNTERTREND move, as the dominant
trend remained down which is a higher risk trade.

There were some important lessons here which can be seen ABOVE:  1) The
minor upswing did not hold above the most recent low – a better trading
strategy would have been to wait to see if prices held above this area
on pullbacks.

2) Trade Volume did not surge on the advance and was very light,
suggesting that the rally stemmed from short-covering and an absence of
selling as prices got back to the low end of a broad trading range.

3) While the RSI had reached an oversold 30, this is no guarantee of
price support being found – instead, this stock went on to get much
MORE oversold.


EXAMPLE 3 -
Suggested market action and rationale -- CSCO chart
Buy the stock/buy calls at $29 and add to position at $36




RATIONALE:
First purchase is on the triangle breakout and second is on
bullish breakout above the downward sloping broad flag pattern. I
don't usually consider a flag to be this long, but the pattern
was sure of the that type - where the correction slopes down.

There is an uptrend channel that is traced out as the advance
progresses.  Since the lower (up) trendline is well defined,
placement of a trailing stop (gradually moved higher) is
established under this line – just below the key downswing lows
made as the trend progresses.

MACD confirms the upside momentum at key points.

THINK IF YOU AGREE -




NEXT chart = subsequent price action after chart ended above -




OUTCOME -
Hopefully - staying long the stock in the big up move and the
strong trend. Maybe rolling out of the calls and into a new month
and strike once or twice.

One possibility for an upside objective could have been looked at
in terms of the upside gap in the $36 area - if this gap was a
"measuring gap", it would occur about midway in a price move and
suggest an upside price target to at least $72.

A discussion of some other technical factors that would have
suggested when and what price the trend was vulnerable to a
reversal, is noted after this next chart -





It would have been a good strategy to 1) Take profits on earlier
purchases (at $29 and 36) on the advance above $75 and
2) Short the stock/buy puts on the rebound to the $70 area

WHY - The last rally, before prices began coming off highs in the
$80 area, was accompanied by a failure of either RSI or OBV to
"confirm" the new relative high, which warranted profit taking.

The subsequent break of the up trendline suggested a reversal of
trend, as did the break below the 50-day moving average.  The
rally back to the trendline would likely supply tough resistance
at what I sometimes have called the "kiss of death" trendline -
the move back to this area was a put buying opportunity after the
bearish divergences.

OK, ONE more chart using an (Elliott) wave idea relating to a
possible wave interpretation on what happened to Cisco after
making that top - see the Trader's Corner article noted at the
top on where to find the articles on the wave principle - look at
the bottom on the list shown there, under "wave" principle.

EVENTUAL HOPED FOR OUTCOME -
Brilliant traders that we are, we took profits on short stock
positions and puts when the stock finally got to $15!





FURTHER NOTES -
The end of that last down leg in CSCO should be labeled "C" in
the chart above. The steep decline came after repeated rally
failures at resistance in the $70 area, providing ample
opportunities to exit out of any calls or long positions in the
stock.

The wave structure of the down move after the rebound to "B"
would typically be that of three distinct downswings and the
overall decline would typically be longer than the first decline
to point "A", which is how the bear trend unfolded.

The downside price gap in the $17 area, after such a steep
decline already, marked a possible exhaustion gap suggesting that
prices might be nearing a bottom.

So much for the past! - on to the future and to what happens THIS
week in April 2003 - I'll tune in and step up to the plate
prediction-wise on my next Index Trader wrap.


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