The Option Investor Newsletter Monday 04-28-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: A Great Start To The Week Futures Wrap: Drive to the Top Index Trader Wrap: Dow presses 8,500 once again Weekly Fund Wrap: U.S. Equity Funds Move Higher Traders Corner: MOPO - Remember That Term? Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 04-28-2003 High Low Volume Advance/Decl DJIA 8471.61 +165.26 8501.66 8305.03 1362 mln 1594/1246 NASDAQ 1462.24 + 27.70 1465.40 1436.35 1218 mln 1623/1399 S&P 100 464.78 + 8.58 466.80 456.20 totals 3217/2645 S&P 500 914.84 + 16.03 918.15 898.81 RUS 2000 395.20 + 6.70 395.20 388.50 DJ TRANS 2398.31 + 45.70 2399.68 2350.59 VIX 23.05 - 0.85 23.69 22.65 VIXN 32.68 - 1.02 34.14 32.56 Put/Call Ratio 0.76 ******************************************************************* A Great Start To The Week Early morning headlines had traders reading a positive spin on earnings announcements from Dow components McDonalds (MCD) and Procter & Gamble (PG). This overcame some mixed economic news and more SARS coverage by the media. That positive attitude had the Industrials vaulting out of the gates and the DJIA closed up 165 points, almost two percent to 8471. The NASDAQ Composite followed suit with a 27-point gain, or 1.93%. The NASDAQ-100 surpassed them both with a 2.2% gain and the S&P 500 added 16 points to close at 914, up 1.78%. Market Internals Market internals were very encouraging today. Advancing issues out paced decliners by large margins. Stocks closing in the green tallied more than 2100 on the NYSE and more than 2,000 on the NASDAQ. Stocks losing ground today numbered 703 on the NYSE and 970 on the NASDAQ. 52-week highs continue to overpower 52- week lows at 254 to 49, respectively. A very good sign for investors was the up volume compared to down. Up volume on the NYSE was 1.3 billion with only 180 million in down volume. The NASDAQ turned in 1.1 billion over 271 million. Maybe we should just start reporting up and down volume in this format: 1308/180 (read as 1308 million over 180 million). Sort of like the market's blood pressure reading. Economic News Just as traders find it essential to monitor the market's blood pressure, larger moves in the financial markets forecasted by moves in the economic blood pressure of the U.S. and global economies. This morning's consumer spending and income numbers were somewhat positive. Adjusted for inflation, consumers' income rose 0.4 percent, which matched consumers spending rise of just 0.4 percent. However, peel away the numbers and real consumer spending only rose 0.1 percent in March. This is pretty slow but it reversed two months of declines. This week will provide plenty economic data for investors to sift through with the Employment Cost Index (ECI) report tomorrow and the Consumer Confidence report again. The Confidence number is expected to come in around 71. Given the estimates being raised for a rebound, should there be a negative surprise, the markets could react sharply to the downside. On Wednesday we have the Purchasing Managers Index (PMI), which is expected to show a contraction in this country's manufacturing sector. Wall Street will also be listening for any hints from Fed Chairman Alan Greenspan's appearance on Wednesday. Thursday and Friday will be busy with the Jobless Claims, Productivity, Construction Spending, the Job's report and the ISM. The ISM is actually expected to rise slightly from 46.2 to 47.1 while the April Job's report is expected to show a rise in unemployment. Despite all these potential landmines for the markets, everything depends on how investors interpret the data. It's possible that the rally today was boosted by the conclusion of the SEC's two- year investigation into Wall Street's practices. Should investor sentiment remain positive then nothing will stand in the bull's way. SEC Settlement It's been a long time coming but the SEC and State Attorneys offices from around the country have finally finished their negotiating with the top ten firms on Wall Street. After all the haggling was finished the SEC proudly proclaimed victory with a $1.4 Billion settlement, the largest in SEC history. There was plenty of delays and word-smithing by the two sides as the brokers didn't want the SEC to use the word "fraud" in their final statements. To do so would only empower the herd of class- action lawsuits many of them already face over these same issues. Despite their pleas, the SEC did charge three firms with fraudulent practices but on a civil basis and not a criminal one. The three firms with the big scarlet "F" on their chest are Merrill Lynch, Credit Suisse First Boston, and Citigroup's Salomon Smith Barney. The ten firms who are coughing up the $1.4 billion are Citigroup (C), Credit Suisse (CSR), Goldman Sachs (GS), Merrill Lynch (MER) and Morgan Stanley (MWD). These five are paying the heftiest fines. The second half includes Bear Stearns (BSC), J.P.Morgan (JPM), Lehman Brothers (LEH), UBS Warburg (UBS), and U.S. Bancorp Piper Jaffray (USB). Also getting hit with some large monetary fines were infamous stock analysts Henry Blodget and Jack Grubman. Merrill's Blodget will have to cough up $4 million in fines and Salomon's Grubman will be writing a check for $15 million. By paying the fines neither analyst is admitting or denying any wrongdoing but both are banned for life from operating in the securities industry. There are plenty of voices on Wall Street and Main Street that say the $1.4 billion these firms are being fined is pocket change compared to what investors lost. This may be true but if anyone is still seeking restitution they'd better get in line behind the class-action suits. More Earnings News They don't call them earnings "seasons" for nothing. They just seem to go on and on and on. This is the third heavy week for earnings announcements but the pattern appears to be in place. Wall Street analysts had lowered the bar so low, spurred on by mid-quarter guidance and pre-earnings warnings from corporations, that the sudden trend is for most companies to meet or beat the estimates. Gosh, this quarter wasn't so bad after all now was it? Helping perpetuate the myth was McDonalds, who announced prior to the bell this morning. After three weeks of trading sideways under resistance at $16.00 the stock exploded higher today and closed at $16.93, plus seven percent on its earnings results. Estimates had been for 28-cents a share and Ronald McDonald's employer managed to beat by a penny. Net income rose to $327.4 million compared to just $253.1 million the same quarter last year. Revenues rose six percent to $3.8 billion, which beat First Call's estimates. In an industry that is facing stiff competition, a more educated consumer, and a product line with a $1 menu, we're wary of any long-term appreciation. Yes, the stock is oversold and short-term traders might do well to consider watching it but there is growing speculation that the fast-food industry will come under the same sort of litigation pressures that the tobacco industry did. Another Dow component to announce this morning was Procter & Gamble (PG). Excluding a $66 million restructuring charge, PG turned in 96 cents a share, which was inline with consensus estimates. Last year the company earned 74 cents a share. This was PG's third quarter and profits rose 23 percent with strong sales of Crest toothpaste and Pampers diapers. Total revenues came in at $10.7 billion, up eight percent. The stock added $1.55 or 1.73 percent to close at $90.69. Shares remain stuck in their four-week range of $88 to $91 with significant resistance overhead between $92.50 and $93.00. Making headlines after hours was news from Intuit Inc. (INTU). The tax-preparation software designer was hit hard today on worries that its most important tax-season quarter would be weaker than expected due to a number of factors. Shares were down 6.6 percent to $34.79 but up significantly off its lows for the session. The bounce continued after hours when the INTU spin cycle hit the wires with word that sales were great but net earnings would still come in at the low-end of guidance. How this shakes out tomorrow will be interesting for short-term traders and OI readers. The company is expected to announce earnings on April 15th. Newsworthy Adding some oomph to the tech rally on Monday was a bullish report from the Semiconductor Industry Association (SIA). SIA proclaimed that chip sales for the first quarter of 2003 were up 13 percent over last year and sales were up 2.6 percent in March. The $SOX index rose 2.5 percent, which lifted a number of chip stocks with it. Unfortunately for tech bulls the good news is potentially overshadowed by the fact that chip sales fell 3.2 percent from the fourth quarter. Furthermore, the SIA also lowered their growth forecasts from 19% to a more conservative 10% to 15% for 2003. Chip analysts appeared rather ho-hum about the report and many remain cautious on the sector's outlook. Given the current state of I.T. spending and the detrimental impact SARS will have on the production line for many of these companies industry watchers sounded skeptical. The Charts Investors have to take into account all the factors but one that's hard to avoid is the charts themselves. The rebound in the DJIA is encouraging but the Industrials remain under resistance. The trend on the NASDAQ composite looks a lot more tempting for the bulls as do the NDX and the S&P 500. But remember, Jim outlined the importance of the 920 area for the SPX in the weekend wrap and the market has yet to break above this crucial level of resistance. Chart of the Dow Jones Industrials: Chart of the NASDAQ Composite: Chart of the S&P 500 (SPX): Don't forget - tomorrow will be the ECI report and fresh Consumer Confidence numbers and a full day of corporate earnings. James ************ FUTURES WRAP ************ Drive to the Top Jonathan Levinson Daily Pivots (generated with a pivot algorithm and unverified): R2 R1 Pivot S1 S2 DJIA 8622.29 8546.29 8425.66 8349.66 8229.03 COMPX 1483.71 1472.97 1454.66 1443.92 1425.61 ES03M 931.58 922.41 908.83 899.66 886.08 YM03M 8622.33 8536.66 8395.33 8309.66 8168.33 NQ03M 1132.33 1119.16 1100.33 1087.16 1068.33 Today caused massive gnashing of teeth for bears licking their wounds from last week, and for bulls who targeted last week's rally highs but fell just short despite an encouraging flagpole rally just after the opening bell. The indices closed just below their highs of the day on decent but light volume than Friday, with the COMPX trading 1.53B shares and the NYSE 1.54B. Treasuries saw some selling, except for the thirty year bond which was bought, with the five year yield up 1.8 bps, the ten up 1.4 bps, and the thirty year yield down 0.4 bps. To provide some context, here's the daily chart of the SPX: Chart of the SPX The bearish ascending wedge on the daily candles has so far been playing out as expected. Higher highs are certainly possible without violating either the formation or its target of SPX 800ish. Now, on to the shorter timeframes: Chart of the INDU Despite the doubtless existence of endless buy-stop orders (and long buy orders) above Friday's highs, the INDU just couldn't make it, and brought the 10(5) stochastic back up to top of its range. Make no mistake that today's action was a victory for the bulls, as the INDU brought in a 1.98% gain, triggering upside trading curbs. However, unless the upper resistance line can get taken out with authority, today will be remembered only as a lower high. Today's print brings in the possibility that the above chart is a bullish ascending triangle, albeit a sloppy one. Again, the upper resistance line remains key. With the VIX lying like roadkill at 23.05, down .85 today, I see more potential to the downside to than to the upside. Chart of the COMPX The COMPX has shown more strength than the INDU during the past weeks, and today's action was a fine example of a "return to the scene of the crime" rally. Price came right back up and tested the failed ascending trendline, the scene of Friday's breakdown. Upper resistance from last week was not penetrated, though it came close enough for bears' liking. While the QQV was up .48 at 28.55, the VXN was down 1.02 to 32.68. These remain extremely low volatility readings for QQQ and the COMPX, but the strength in the QQQ volatility index could be signaling some anticipatory volatility increases from the traditionally "leading" index. If so, then the bearish cross in the 10(5) stochastics above can be given more weight. We'll find out tomorrow. On to the futures contracts: YM3M The YM contract led the INDU, and my comments with respect thereto apply equally here. Today just looked like a lower high to me, and reaffirmed the flat resistance line just above. A break above will imply that this formation was a sloppy but valid ascending triangle, with the last leg of it depicted here as a reverse head and shoulders for good measure. We'll see tomorrow, but for the moment the battlefield appears to be a 200 point range between 8300 and 8500. ES3M The ES contract printed an intraday high of 918, just below last week's 919 and change high. The expanding wedge, or as Bulkowski calls it, the "megaphone" formation, or as I call it, the "bulloney bullhorn" is generally thought of as a "chaotic" pattern. I don't have my trusty "Encyclopedia of Chart Patterns" with me, but each time I've looked up the bulloney bullhorn, it's been during a nerve wracking, difficult market. This one is no different. It's a low odds pattern, not bullish and not bearish, but given the other equity markets, I'll lean bearish here. Support is just below 900 on this chart, and we can see that the 10(5) stochastics are toppy. NQ3M The NQ contract is doing the same as the COMPX, but with that bearish cross a little more advanced than for the broader COMPX, which coincides with the QQV vs. VXN- again, the NDX is leading the broader market down. Note the potential for a reverse head and shoulders formation if last week's high gets taken out. I don't think of reverse h&s patterns occurring near tops, but there appears to be that potential from the above chart on an upside breakout. For tomorrow, I will be watching the trendlines on the above charts. A break above last week's highs, kissing distance from today's peak, will have significant bullish implications. However, we also know how the market loves to run stops before reversing. For this reason, traders need to be nimble here. We're either right under a significant top, or at the beginning of a strong wave higher, punctuated by panic short covering, momentum buying, and all of that fun stuff- a flagpole rally, such as we've been seeing all year. Either way, tomorrow will complete an important piece of the puzzle. ******************** INDEX TRADER SUMMARY ******************** Dow presses 8,500 once again For the fourth time in just over a month, the Dow Industrials (INDU) 8,471 +1.98% recouped Friday's losses and once again traded the 8,500 level, but bulls ran out of time, and perhaps cash in an attempt to get this widely quoted index to the 8,550 level. Dow breadth finished today's session with all 30-components in the green as better-than-expected quarterly earning's from McDonald's (NYSE:MCD) $16.93 +7.08% brought some strength from the bottom, while some resumption of longer-term strength from 3M (NYSE:MMM) $126.80 +3.17% after 5-consecutive sessions of declines last week, and a downgrade on Friday by Bank of America, helped lift the Dow from its longer-term 200-day SMA of 8,300 and rising shorter-term 21-day SMA 8,290. Trading curbs were in place at approximately 11:00 AM EST when the Dow traded 150-points above Friday's close, and while volumes waned from last week's levels, the NYSE still managed to trade just over 1.25 billion shares, while the NASDAQ came close to Friday's 1.49 billion volume at 1.43 billion shares. Market breadth was positive at the NYSE with advancers outnumbering decliners by a 3 to 1 margin. Meanwhile, 156 stocks traded new 52-week highs compared to 21 stocks trading new 52- week lows. The most bullish readings for 52-week high/low indications came on Tuesday of last week when the NYSE Composite closed at 5,101.81 and bulls most likely want to see further improvement in the 52-week high/low indicators (still quite strong) with the NYSE Composite ($NYA) finishing up 90-points (+1.8%) at 5,108 in today's trade. The NYSE Bullish % ($BPNYA) saw a net gain of 0.55% new point and figure buy signals in today's session, which has this VERY BROAD indicator of market internals growing to a bull cycle high of 50.55% and nearing January's cycle high levels of 53%. NASDAQ breadth showed advancers outnumbering decliners by a 2 to 1 margin, with 147 stocks reaching new 52-week highs compared to 20 stocks trading new 52-week lows. On Wednesday of last week, the NASDAQ reported 162 new highs and 24 stocks at new 52-week lows. Today's 147 new high rivaled last Monday's 147. The NASDAQ Composite ($COMPX) finished today's session with a 27.7-point gain (+1.93) at 1,462 and just off Wednesday's highest close of the year of 1,466. A move above Wednesday's 2003 high of 1,468.08 still has the the January 13th relative high of 1,467.35 still has the December highs of 1,521.44 in play, and a move above that level would have a "technical" bull market in play as a series of higher highs and higher lows would have been traded. The VERY BROAD NASDAQ Composite Bullish % ($BPCOMPQ) saw a net gain of 0.35% and builds to a bull cycle high reading of 50.55%. Current levels of bullishness match those found in late November, but still off the 56% levels of bullishness found in May of 2001 and January of 2002. A stronger U.S. dollar as depicted by the U.S. Dollar Index (dx00y) 98.64% showed some foreign assets being converted back into dollar-denominated assets couldn't have hurt equities today, while some slightly stronger selling in the shorter-dated 5-year bond, which had the June 5-year Treasury futures contract (fv03m) $113'135 -0.09% seeing more selling than the 30-year June futures (us03m) $113'130 (unch), finds a flattening YIELD curve in today's trade, which tends to bode well for equities. Dow Industrials ($INDU) Chart - 50-point box The Dow Industrials (INDU) 8,471 +1.98% finished just off their session highs of 8,501.66 and resistance below the 8,550 level remains intact into today's close. First sign of weakness would be a trade at 8,250. Bulls that played the "bullish triangle" pattern break higher at 8,450 can raise stops from 8,200 to 8,250. Bulls willing to give a little more room can match up the 8,200 level with this WEEK's WEEKLY S1 of 8,204. Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull alert" at 50% and would still take a reading of 62% to achieved "bull confirmed" status (each stocks chart is equal to 3.33%) while a reversal back down to 46% would be "bear confirmed." S&P 500 Index ($SPX.X) Chart - Daily Interval The SPX tested and traded through our correlative DAILY R2 and WEEKLY R1 intra-day, but wasn't quite able to hold that level into the close. With Treasuries finishing basically unchanged to modestly lower, I was impressed that the SPX was able to trade its WEEKLY R1 to begin with. In Friday's market monitor, I was looking for a morning trade near 894 then a rebound tomorrow back near 910. I do like bullish entries on a pullback near 884 as SPX internals continue to improve. A trade at 920 would be another "double-top buy signal and a break much above 922 leaves WEEKLY R2 in play. Stochastics are trying to roll from "overbought" and hints a pullback is coming. Bears say it can't come soon enough! Note: "Pink" retracement is conventional (October low-December highs). "Blue" retracement is this WEEK's, while Red is this MONTH's (April) retracement from pivot analysis. Today's trade saw a net gain of 3 stocks to new point and figure buy signals. Add that to Friday's net gain of 2 stocks and we've got the S&P 500 Bullish % ($BPSPX) growing 1% since Thursday's close of 54.20. This has the SPX bullish % growing to a bull cycle high of 55.2%, but still off the December high reading of 68%. S&P 100 Index ($OEX.X) Chart - Daily Interval Three levels appear at the 469 level tomorrow as resistance. The overlapping WEEKLY and Conventional (pink) retracement along with the DAILY R1 of 469.0. Last week we did see the OEX close just above current levels, then fall back into Friday's close. Key economic number tomorrow morning at 10:00 AM EST will be the Conference Board's April consumer confidence with is forecasted at 70.00, compared to March's 62.5 reading. I've seen some economist's forecast as high as 76 and it might take that type of confidence reading to get the OEX above the 469 level. The bears have come out of hibernation and they look hungry to cover positions when new relative highs are violated to the upside. Aggressive bulls will press the issue on a move above 469. Today's trade saw a net gain of 2 stocks to new point and figure buy signals. Add this to Friday's net gain of 1 stock and the narrower S&P 100 Bullish % ($BPOEX) grows to a bull cycle high of 55% at today's close. Still "bull alert" here and needs a reading of 62% to achieve "bull confirmed." Treasuries sure seemed to find modest selling as stocks continued to bid as the session progressed. With Stochastics approaching "oversold" on the YIELD charts (overbought for price) something has to give as the equity indexes and YIELDS have been stretched apart. NASDAQ-100 Tracking Stock (QQQ) - Daily Interval Similar to the above chart of the S&P 100 (OEX.X), a "sliver of resistance" is in play in the QQQ and NDX near-term, just above WEEKLY R1 of $27.51, which was traded above, but not held at today's close. But this "sliver" comes from MONTHLY and WEEKLY pivot analysis retracement. The only level of resistance from conventional retracement is the December highs of QQQ= $28.79 and NDX= 1,155.68. Tentative near-term support (tentative as it was resistance today that was traded through to the upside) is the WEEKLY pivot of $27.19, with more formidable support at the WEEKLY S1 of $26.62 and overlapping of the WEEKLY 80.9% retracement. Keep this level in mind when considering current levels of bullish %. Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 23 stocks to new point and figure buy signals. This has the bullish % "bull confirmed" (was "bull alert" after reversing up to 36% on Monday, March 21). While the bullish % can grow to 100%, we are now nearing a more "overbought" 70% level of bullishness and bulls are advised to exhibit caution on new bullish positions. While the bullish % are not very good at predicting price forecast, but are EXCELLENT in depicting market risk, I've tried to show relative high and low reading of the last bull to bear cycle. I would "eyeball" a level close to the WEEKLY R2 of 28.08 as being in between the two recent relative high bullish % readings of 76% and 66% (split the two for 71%) and this would be a level if achieved, a bull would be well advised to get from full positions to 50% position. If you're holding 1/2 bullish position, then par back to 1/4. In December the NDX took a wild "plunge" lower from 76% (was risk too high, or was it "news" driven?) fell to 60% bullish, then had a little "pop" back to 66% bullish before eventually falling to a bear cycle low of 30%. I see a pretty good tie in with this WEEK's WEEKLY S2 of $26.30, which I would deem to be reasonable BULLISH risk at this point. With this bullish % now near 70%, I wouldn't rule out a test of the December highs or even the MONTHLY R2 of $29.23, just understand that at those levels, this MARKET (NDX/QQQ) would most likely be EXTREMELY overbought and RISKY. Pivot Analysis Matrix In an attempt to get the Index Trader Wraps out on a more timely basis, detailed reviews of the pivot matrix will be limited. Weekly S1 and pivots are deemed support, while upper levels of resistance, while correlative begin to serve as trading exit points for bulls to then look for pullback entry levels. The Dow Industrials (INDU) MONTHLY R1 has yet to be traded and that level is withing 10-points of DAILY R1. As shown in the first chart of tonight's wrap, Dow has found sellers below the 8,550 level on recent rallies. A break of that level (8,550) should then give further upside potential to WEEKLY R2 and DAILY R2 near 8,620. Jeff Bailey ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ **************** WEEKLY FUND WRAP **************** U.S. Equity Funds Move Higher Most diversified U.S. equity funds produced gains for the weekly period ended Friday, April 25, 2003 with the S&P 500 and S&P 400 indices up 0.6% and 1.3%, respectively, on the week. Funds with mid-cap and small-cap biases outperformed their large-cap equity peers. Value-driven funds did a little better overall last week than pro-growth funds, with financials and utility stocks higher and tech stock prices lower on the week. As you can see, stocks are higher today (Monday), following last week's net gains. It was a volatile week that saw equity prices rise sharply earlier in the week, only to give back a portion of those gains later in the week. Uncertainty about where the U.S. economy is headed did not help matters in the equity market, but it did contribute to price gains in the U.S. fixed income market. For the week, the Lehman Brothers Aggregate Bond Index rose 0.6%, with the intermediate-term and long-term bond indices doing even better, finishing the week up 0.9% and 1.3%, respectively. High- yield bonds extended their year-to-date advance, with the average high yield producing a 1.6% weekly total return according to data from Lipper. With both stock and bond prices higher on the week, some balanced funds produced 5-day total returns of 1 percent or more depending on their asset mix and portfolio characteristics. U.S. Equity Fund Group Week YTD +0.6% +2.7% Vanguard 500 Index Fund (VFINX) +1.3% +0.0% Vanguard MidCap Index Fund (VIMSX) +1.3% +1.8% Vanguard SmallCap Index Fund (NAESX) +0.7% +2.7% Vanguard Total Stock Market Index Fund (VTSMX) +0.3% +2.1% Lipper Large-Cap Core Equity Fund Average +1.0% +1.0% Lipper Mid-Cap Core Equity Fund Average +1.1% +0.1% Lipper Small-Cap Core Equity Fund Average +0.6% +2.2% Lipper Multi-Cap Core Equity Fund Average -0.2% +6.2% Lipper Science & Technology Fund Average According to Lipper, the average tech sector fund lost 0.2% last week, while the average large-cap growth fund lost 0.1%, so some diversified stock funds struggled to finish the week in positive turf. Mid-cap growth funds did not keep pace with other mid-cap styles, averaging only 0.45% for the week per Lipper. All three small-cap fund styles (value, core and growth) rose by more than 1.0%, led by small-cap growth funds up 1.5% on average for the 5- day period. Volatility in the tech sector last week did not apply to biotech funds, which were the week's highest performing U.S. subcategory. World Funds' Genomics Fund rose 8.9% last week, with three other funds (Munder Funds, ProFunds and John Hancock) in that group up 7% or higher for the 5-day period. ProFunds' Telecommunications fund generated a 1-week return of 8.3%, among the week's highest performers also. The mutual fund profiled in our weekly manager microscope report last week, Fidelity Leveraged Company Stock Fund produced a 6.1% weekly return to lead the mid-cap group higher. The Legg Mason Value Prime Fund returned 3.4% on the week for one of the better relative performances in the large-cap peer group. Its sibling, Legg Mason Opportunity Fund produced a 3.8% weekly total return, one of the better weekly performances in the mid-cap peer group. International Equity Fund Group Week YTD -0.4% -2.1% Vanguard Developed Markets Index Fund (VDMIX) -3.7% -0.9% Vanguard Emerging Markets Index Fund (VEIEX) -0.5% -1.9% Vanguard Total International Stock Index (VGTSX) +0.0% -2.8% Lipper International Fund Average -2.0% -0.1% Lipper Emerging Markets Fund Average -1.8% -12.9% Lipper Gold Fund Average International equity funds were generally lower last week, with the Pacific Stock index 1.3% lower for the week in dollar terms. Funds investing in emerging Asia and in Korea were particularly hard hit. For instance, Fidelity Southeast Asia Fund lost 6.7% last week, while its sibling, Fidelity Advisor Korea Fund had a 1-week loss of 9.1%. The Korean Investment Fund lost 10.0% for the week, the worst performing fund in the peer group last week. On the bright side, funds investing in Eastern Europe and Russia posted solid gains. ING Russian Fund, for example, returned 6.5% for the weekly period, followed by Third Millennium Russia Fund's 4.8%. U.S. Global Investors Eastern Europe Fund produced a 5-day total return of 3.3%. Latin American funds also enjoyed gains on the week, as evidenced by the 1.5% weekly returns from Van Kampen and T. Rowe Price. Gold funds lost 1.8% on average per Lipper, increasing their YTD average decline to 12.9%. U.S. Fixed Income Fund Group Week YTD +0.5% +1.5% Vanguard Short-Term Bond Index Fund (VBISX) +0.9% +2.8% Vanguard Intermediate-Term Bond Index Fund (VBIIX) +1.3% +3.4% Vanguard Long-Term Bond Index Fund (VBLTX) +0.6% +1.9% Vanguard Total Bond Market Index Fund (VBMFX) +0.3% +1.2% Lipper Short Investment-Grade Fund Average +0.7% +2.6% Lipper Intermediate Investment-Grade Fund Average +0.5% +1.1% Lipper U.S. Government Fund Average +0.7% +2.4% Lipper Corporate A-Rated Debt Fund Average +1.6% +10.4% Lipper High-Yield Fund Average Do you see that? High-yield bond funds are now up over 10% on a year-to-date basis through April 25, 2003, per Lipper, including the group's 1.6% average return last week. Fidelity Capital and Income Fund managed by David Glancy (see also Fidelity Leveraged Company Stock Fund) had a 5-day return of 2.2%, best among fixed income funds with $500+ million in assets. Franklin High Income Trust: AGE High Income Fund generated a 2.8% weekly total return. With the high-yield sector performing well, investment-grade bond funds that include some high-yield exposure outpaced those, which have little or no exposure to the sector. For instance, American Funds' Bond Fund of America produced a 1-week return of 1.1%, one of the better relative returns on the week among investment-grade funds. It generally invests a portion of assets in lower-quality securities for their greater yield and total return potential in the long term. Vanguard Long-Term Treasury Fund returned 1.0%, one of the better weekly returns among government bond funds with over $500 million in total assets. International Fixed Income Fund Group Week YTD +0.8% +4.3% Lipper Global Income Fund Average +0.8% +4.2% Lipper International Income Fund Average As you can see, global/international fixed income funds produced solid gains on the week, rising about 0.8% on average per Lipper. The week's top performers included Loomis Sayles Global Bond Fund (+1.4%), American Century International Bond Fund (+1.4%) and the American Funds' Capital World Bond Fund (+1.3%). A few more were over 1 percent for the week. Balanced Fund Group Week YTD +0.7% +2.4% Vanguard Balanced Index Fund (VBALX) +0.5% +2.0% Lipper Balanced Fund Average The week's top performer last week in the mixed equity group was Wells Fargo Funds Trust: WealthBuilder Growth Balanced Portfolio, up 2.7% for the 1-week period. Among mixed equity funds with at least $500 million, Oppenheimer Capital Income Fund produced the week's top return, up 2.1% on the week. It invests in bonds and convertibles. Speaking of convertibles, they did well last week too as evidenced by the 2.3% weekly total return recorded by the Ariston Convertible Securities Fund. Franklin Income Fund, an income-oriented hybrid with exposure to high-yield securities, which performed relatively well last week, posted a 1-week return of 1.95%. Balanced funds with pro-growth styles such as Janus Balanced Fund lagged a little bit last week. It rose just 0.1% for the week. Money Market Fund Group Yield 0.71% iMoneyNet All Taxable Money Market Fund Average The average taxable money market fund's trailing 7-day (simple) yield fell two basis points last week, to 0.71%, per the latest MMF survey by iMoneyNet. PayPal Money Market Fund continues to sport the highest current yield at 1.22%. Only a dozen "prime" retail money market funds yield 1.00% or higher today according to iMoneyNet. A 7-day yield of 1.07% offered by the Vanguard Admiral Treasury Fund is the highest 7-day yield today among "government" retail money markets funds. Vanguard Tax-Exempt Money Market Fund has an average 7-day yield of 1.12%, better than most taxable money market funds. The nation's largest retail money market fund, the $58.4 billion Fidelity Cash Reserves Fund, has a current 7-day yield of 0.96%. Mutual Fund News According to Morningstar.com, the Vanguard Group has added 2.0% redemption fees (on shares sold within 60 days) for nine of its international equity funds to encourage long-term investing and discourage short-term trading. Vanguard's Global Equity (VHGEX) and Tax-Managed International (VTMGX) funds already have short- term redemption fees in place. Morningstar noted that Vanguard is taking the step to thwart arbitrageurs who hop in and out of foreign stock funds (to exploit pricing differences between U.S. and foreign markets). Fidelity Investments' Fergus Shiel has left the firm "to pursue other business opportunities." Shiel ran Fidelity Independence (FDFFX) since June 1996, and had managed Fidelity Advisor Fifty (FFYAX) since June 2002. The former fund has lost 20.6% in the past 12 months, ranking toward the bottom of the third quartile of the Morningstar large-cap growth category. Shiel's departure is the latest in a series of managers to leave Fidelity in recent years, according to Morningstar. See their Fund Times report for more details (www.morningstar.com). Steve Wagner Editor, Mutual Investor email@example.com ************** TRADERS CORNER ************** MOPO - Remember That Term? by Mark Phillips mphillips@OptionInvestor.com I think it was Buzz Lynn that first coined the term MOPO in reference to "The Mother Of Put Opportunities", speaking of that situation that presents itself when the major the VIX reaches the lower end of its historical range, at the same time the major indices are running out of steam near major resistance. The last time we were presented with that sort of setup was over a year ago -- ancient history to many of us. I've talked a lot (perhaps too much) about the VIX over the past few months, trying to determine whether a new, higher range was in effect or if it was just a very long-lived excursion out of that range. Well, with the VIX now probing below the 23 level and looking like it could fall further, I have no recourse except to concede that the latter case is in fact what we witnessed over the past 10 months. The VIX is falling back towards its historical floor (19-21), and appears close to giving us a great MOPO setup, perhaps sometime in the next 2 weeks. The war in Iraq is over, at least as far as the market is concerned, and is no longer having a material impact on the direction of the market. This is the last major week of the April earnings season, and while not a disaster, neither has it been a screaming success. Most companies are managing to come in close to their lowered estimates, but it is the forward guidance that is key. You see, many company's got a free-pass of sorts for this quarter, as they were able to use the "Iraq ate my earnings" excuse, foregoing the "day of reckoning" for one more quarter. The popular prediction seems to be that economic growth will be back into the 4% area for the second half of 2003. Just last Thursday, Fed Governor Ben Bernanke parroted this line. If that name sounds familiar, it is because of his comments last November that the Fed can print a virtually unlimited amount of money to ward off the deflation monster. Whether we next confront inflation or deflation and what the Fed is likely to do to confront it is a topic best left to brighter minds than mine. What I find most interesting is that economists and analyst actually have the unmitigated gall to trot out the "second half recovery" story in a manner that indicates they don't think we have the benefit of memory. I know my memory is fading as time passes, but I seem to recall hearing of the fabled second half recovery in 2000, 2001 and 2002. Is there something different this year that should lead us to buy into it? Those of you that are familiar with my writing know the answer before I state it. In short, I don't see how. From a fundamental standpoint, I think this market is a pig and will see substantially lower lows before seeing anything approaching just its 2002 highs. But it is in picking the technical entry points that the rubber meets the road. Anecdotally, we recall that the end of April earnings season ushers in the bad six months of the year for the stock market as investors hang up their mice in favor of enjoying the fun and sun of summer. So is it time to start getting heavily short the market? While I do think we're close, I think we still may have a bit more upside in store before that occurs. It is the basis for my hesitancy that I want to discuss here today. Rather than forcing you to interpret what I'm talking about, I'm going to rely heavily on some charts, as I think they convey the message much more clearly than the printed word. We'll stick with the S&P 500 (SPX.X) for our discussion today, as I think it provides the best measure of the broad market, while still giving us access to some of the ancillary indicators I want to talk about. First up is the weekly chart of the SPX which I posted last weekend in the LEAPS column. Weekly Chart of the S&P 500 We're certainly getting awfully close to either a failure or breakout at those two converging trendlines. I peg that critical resistance in the $920-925 area. So if we break out above $925, does that mean we ought to abandon any bearish aspirations we might have for the broad market? No, I really don't think so. Look at what happened with the violation of the bottom of that channel in September of 2001. After breaking out of the channel to the downside, the market promptly reversed and headed steadily higher for the next 3 months. The channel isn't so much a line on the chart as it defines an area that will be important to the market. The recent action in the market certainly seems to be confirming the importance of this level as we have twice approached the $920 level in just the past week. The other thing to keep in mind is that just clearing $920 doesn't get the SPX in the clear, as there is significant overhead resistance in the $930-940 area from January, and then again at $940 (November/December 2002 highs) and then $960-965 (August 2002 peak). Then of course, we have the formidable resistance at $970, left behind from the September 2001 lows. Needless to say, there are a lot of obstacles in the way of a continued bullish rise. At the same time, the VIX (as mentioned above) is fast approaching \the lower end of its historical range, which has always preceded market tops. Take a look at the weekly chart of the VIX and you can see the lower end of its range defined as roughly 19-21. The last time it was in that area was in late March and early April of last year. As we can see Stochastics are well into oversold territory, but not yet showing any sign of turning up. Also, today's close at 23.05 still gives substantial downside to the 20 level, so the high odds shorting opportunity (MOPO) isn't quite here yet, at least based on the VIX. Weekly Chart of the Market Volatility Index (VIX) On numerous occasions in the past we've looked at variations of these two charts and while they do show us one picture, I don't think they tell the whole story. Readers that have been with us for awhile know the importance of looking at the Bullish Percent (BP) charts to determine where the bulk of the risk lies (either for the bulls or bears) at any given point in time. The SPX BP is currently registering in Bull Confirmed territory at 54%, and that is still a ways off from overbought territory at 70%. Sometime last year, a reader did me the great favor of suggesting that I look at the BP charts in a standard line chart format instead of the more conventional PnF format. He suggested using a 10-dm with confirmation from the CCI oscillator as a method for picking the turns in the market. So I took another look at that view of the BP this afternoon and I made some interesting observations. Bullish Percent Chart of the S&P 500 First off, I looked at the historical validity of the crossovers of the bullish percent line (black/red) with its 10-dma (blue). I've highlighted each of them on the chart above and you can see that each of those crossovers did a good job at forecasting a substantial move in the market. The confirmation from the CCI oscillator shown at the bottom shows the strength of each of these reversals, as well as shows the weakness of the attempted bullish reversal in January. As you can see, we don't yet have a hint of a bearish reversal in the SPX BP chart above, with both lines still pointing northward. We can also see that the CCI oscillator is well above the +100 line as well, so the confirming weakness we want to see has yet to present itself. At a minimum, I would like to see the BP reach the 60% level (where it reversed last August) before heading south. That isn't yet to overbought territory, but there is historical precedent that it doesn't have to go that far. The other thing that caught my eye is the possibility of a long-term Head & Shoulders pattern in the BP chart above, which I've highlighted with 3 little "hats". Technical analysis junkies like myself tend to see H&S patterns everywhere nowadays, but I think this one bears watching. Another important indicator that I follow is the NYSE McClellan Oscillator ($NYMO) and the related NYSE Summation index ($NYSI). The only place I know of where I can access these values is on the StockCharts.com website, and like the bullish percent, they are only updated at the end of the day. So let's take a look there as well. NYSE McClellan Oscillator ($NYMO) It is clearly apparent that the NYMO oscillator hasn't yet been able to decisively break above the 50 level, but at the same time, it is persistently holding its trend of higher lows since late January. No weakness there yet. NYSE Summation Index ($NYSI) Things look even stronger on the NYSI chart, which has pushed to new 2-year highs over the past couple weeks. Certainly it could turn at any time, but we are not yet seeing any tangible signs of weakness yet. So let's review. Starting with the SPX price chart we can see some formidable resistance that is currently confronting the bulls, and the VIX is nearing a level that has historically presented a solid bearish entry point for a position trade. But at the same time, we are not yet seeing the necessary weakness in the Bullish Percent, McClellan Oscillator or Summation Index. To my way of thinking, that makes us premature in our search for that elusive MOPO opportunity. But we know things can change a lot in a very short period of time. Our next goal is to define what to watch for from each of these market indicators we've reviewed today and how best to capitalize on the opportunity. I've taken longer than intended to get to this point in our discussion and I'm out of time for today. I think we've laid some good groundwork though and we can pick up where we left off on Wednesday. See you then! Mark ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. 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The Option Investor Newsletter Monday 04-28-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: AZO, ERTS, INTU Dropped Calls: OMC Dropped Puts: None Play of the Day: Puts - INTU Market Watch: Mostly Bullish Updated on the site tonight: Market Posture: A bullish day all around ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** AZO - call Adjust from $74.75 up to $76.75 ERTS - call Adjust from $57 up to $58 INTU - put Adjust from $40 down to $39 ************* DROPPED CALLS ************* Omnicom Group - OMC - close: 63.29 change: +1.15 stop: 59.50 Despite behaving rather well during its short tenure on the Call list, we have to bid farewell to our OMC play tonight in deference to the company's earnings release, which is scheduled for Tuesday before the opening bell. The stock has continued to work its way higher, periodically using the 10-dma as support for the next bounce, most recently on Friday. Despite the $64 level capping the price last week, OMC still looks like it could push through $65 and then on to our target of $68. Alas, we don't have the time to stick around, as we need to close the play ahead of earnings as a matter of discipline. As noted today in the Market Monitor, traders adhering to that discipline should have closed any open positions ahead of tonight's closing bell. Picked on April 15th at $61.30 Change since picked: +1.99 Earnings Date 04/29/03 (confirmed) Average Daily Volume = 2.18 mil ************ DROPPED PUTS ************ None ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************* PLAY OF THE DAY - PUT ********************* Intuit Inc. - INTU - close: 34.79 change: -2.45 stop: 39.00*new* Company Summary: Intuit Inc. is a leading provider of business and financial management solutions for small businesses, consumers and accounting professionals. Its flagship products and services, including QuickBooksR, QuickenR and TurboTaxR software, simplify small business management and payroll processing, personal finance, and tax preparation and filing. ProSeriesR and LacerteR are Intuit's leading tax preparation software suites for professional accountants. Founded in 1983, Intuit has annual revenue of more than $1 billion. The company has nearly 7,000 employees with major offices in 13 states across the U.S. and offices in Canada and the United Kingdom. (Source: company press release) Why We Like It: One look at Intuit's chart and you're likely to say "ouch". Shares were in a very strong recovery mode from its February lows and the stock had successfully broken back above the $50 level when management came out with an earnings warning. Earnings for fiscal 2003 were going to be about 5% below estimates. However, Wall Street tends to overreact and investors hammered the stock for a 24 percent loss or $12.17 to $38.72 on the news. There was a minor bounce back to $40 before failing again. Investors now worry that further slowdowns in sales of its TurboTax and Quickbooks software could be an issue. Now INTU has tried multiple times to rebound and the stock just can't seem to break above the bottom of its gap down. The latest sell-off from the $41 area started a couple of sessions before the Thurs-Friday weakness in the broader markets. We see this relative weakness as a bad sign for its short-term future. Here's the plan: Traders have two ways they can try and enter this play. First would be a failed rally at $38 or possibly $39. Second would be a break below its March 31st, 2003 low of 36.72, but more aggressive traders could just target a move under $37.00. The MACD is rolling over again, daily stochastics are falling and still have farther to drop. The point-and-figure chart looks terrible and after $37, the next serious support looks like $30. We're going to start the play with a stop at $40.00 but $39.00 doesn't look too bad either. There is one caveat. Earnings are coming up on May 15th, 2003. This last quarter is probably their strongest of the year given the April 15th tax deadline. However, seeing how they have already pre-warned lower earnings we doubt there will be any pre- earnings run up. Keep an eye on the GSO software index as well. A pull back to the 100 level could certainly weigh on INTU too. Why This is our Play of the Day We love it when one of our plays roars out of the gate like INTU did on Monday. Bulls weren't happy with the direction of the move, but it certainly worked in our favor, with the stock plunging early and hard, satisfying the momentum entry target at $37 in the opening minutes of trade. Trader talk was that it was rather disconcerting to have not heard anything from the company (as is the normal practice) after the conclusion of tax season. The uncertainty fed on itself, sending the stock down to an intraday low of $33.30 before a mild rebound that lifted INTU back to consolidate for the rest of the day between $34.50-35.00. Traders thinking that this was the only decent entry into the play just might get a pleasant surprise tomorrow, as it looks like we could get a push back up near the $37 level in response to some late-breaking news tonight. The company released the results of its consumer tax division (up 20% year-to-date) and forecast earnings at the high end and revenues at the high end of guidance. That has the stock active in the after-hours session near the $36.25 area after initially probing slightly above $37. So the strategy is to look for new entries on a rally failure tomorrow near the $37 area, as old support should now behave as new resistance. We're cautiously lowering our stop to $39 tonight, and will look to tighten it further after seeing how the stock trades during tomorrow's session. Suggested Options: Short-term traders are probably better off playing the Mays or the Junes while longer-term traders can look to July or Octobers. BUY PUT MAY-40 IQU-QH OI=5648 at $5.70 SL=3.75 BUY PUT MAY-35 IQU-QG OI=4018 at $1.95 SL=1.00 BUY PUT JUL-35 IQU-SG OI=1110 at $3.40 SL=1.75 BUY PUT OCT-35 IQU-VG OI= 878 at $4.70 SL=2.75 Annotated Chart of INTU: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-28/INTU042803.gif Picked on April 27th at $37.24 Change since picked: -2.45 Earnings Date 05/15/03 (confirmed) Average Daily Volume = 4.53 mil ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************ MARKET WATCH ************ Mostly Bullish Automatic Data Processing - ADP - close: 34.16 change: +1.06 Shares of ADP have been able to maintain their strength over recent resistance at $33. Now shares are pushing hard against resistance at $34.25. Shares don't move that fast but we like the relative strength. This is one to watch for its next move higher. Chart= http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-28/ADP042803.gif --- Amylin Pharmaceuticals - AMLN - close: 18.46 change: +0.60 This biopharmaceutical company has been incredibly strong in recent sessions and is quickly approaching all-time highs. A move above $19 would be blue-sky territory. Earnings are May 7th. Chart= http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-28/AMLN042803.gif --- Garmin - GRMN - close: 38.70 change: -0.30 This navigations and communications equipment maker has been an incredible winner for investors over the last several months. Shares have been struggling with the $40 level but resistance was expected there. Earnings are due on out on April 30th. We're going to watch and see how shares react. A bounce at the 50-dma has been profitable in the past. Chart= http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-28/GRMN042803.gif --- CheckFree Corp - CKFR - close: 27.38 change: +1.27 The $24 level was major resistance for CKFR and since the breakout shares have been moving steadily higher. We know nothing moves in a straight line so we'll be watching for a pull back for potential long plays. Chart= http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-28/CKFR042803.gif ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- TRMB $23.50 - No stranger to the watch list, this global- positioning equipment company rocketed 8.7% higher today with no news. Could it be someone has foreknowledge of the company's earnings report, which is due out on April 30th? ************** MARKET POSTURE ************** A bullish day all around To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_042803.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** 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
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