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Daily Newsletter, Tuesday, 05/13/2003

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The Option Investor Newsletter                 Tuesday 05-13-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Call it a Draw
Futures Markets: Failed Retest or Rising Triangle
Index Trader Wrap: Gasping for Breadth
Market Sentiment: One Step Closer
Weekly Fund Screen: Single-Country and Regional-Stock Funds


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      05-13-2003           High     Low     Volume Advance/Decline
DJIA     8679.25 - 47.50  8723.29  8647.60 1.71 bln   1485/1731
NASDAQ   1539.68 -  1.70  1548.59  1529.56 1.82 bln   1670/1565
S&P 100   475.41 -  2.55   478.53   473.73   Totals   3155/3296
S&P 500   942.30 -  2.81   947.51   938.91
W5000    8973.54 - 20.50  9018.93  8941.65
RUS 2000  419.23 +  1.03   420.40   415.26
DJ TRANS 2476.90 - 12.60  2489.35  2468.19
VIX        22.03 +  0.61    22.91    21.57
VXN        32.84 +  0.26    33.87    32.28
Total Volume 3,735M
Total UpVol  1,951M
Total DnVol  1,724M
52wk Highs  545
52wk Lows    26
TRIN       0.96
PUT/CALL   0.67
*************************************************************

Call it a Draw

The markets traded on both sides of zero on Tuesday and after the
smoke cleared we were very close to where we started. The Nasdaq
and S&P closed within a couple points of flat with the Dow the
biggest loser at -47. Not even a dent in the bulls armor
considering the recent gains. For a few moments today the Wilshire
5000 traded over 9000 again. Can the Dow be far behind? The W5000
broader market index traded within a handful points of the Dows
low of 7197 in October and has outperformed the narrower Dow in
the rebound. This could be a leading indicator of the future.

Dow Chart - 240 min



Nasdaq Chart - 240 min





Before we get too carried away with bullish enthusiasm let's look
at a potential preview of the remaining economic reports for the
week. If the W5000 is a leading indicator for the Dow then today's
Richmond Fed Manufacturing Survey could be a leading indicator for
the flood of economic reports due out Thursday and Friday. The
Richmond Fed Survey dropped to -18 and the lowest level since
December 2001. This is an April not a March number and is the
first of the real post war reports. Shipments fell to -18, new
orders to -20, order backlog -36. Need more evidence the economy
did not bounce after the war? This was the third consecutive
monthly decline from the January high of +18 and a marked decline
from only -4 in March. The drop is accelerating in this sector.
Granted this is not a true picture of the entire U.S. but when
added to the last NY State drop it easily offsets the minor gains
in the Kansas City Survey. The Kansas survey rose +4 points to +15
overall but the new order component still fell -5 points. It would
be better to say there were pockets of weak growth rather than
pockets of recession. We will get the May NY State Survey on
Thursday along with the Philly Fed Survey. A key point in the
Richmond survey today was 21% more companies reported cutting jobs
than adding jobs for the month and the average work week is
dropping. That suggests further demand slippage and danger of more
job cuts ahead. This survey is done mainly in the last week of the
month meaning it had the farthest reporting time from the end of
the war. Participants also said they expected prices paid to
increase and prices received to continue to shrink.

On another front, despite the lower dollar the Trade Deficit rose
to its second largest level ever at -$43.5 billion. The largest
was the nearly $45 billion in December. Much of this increase was
in imported energy prices and the impact of the dollar's change.
The internal data is getting worse and the export numbers to Asia
are going to drop significantly over the next couple months due
to the SARS impact.

Chain Store Sales for the week fell -0.2% as the impact of severe
weather filtered through the system. This is only a weekly
snapshot and we will see the sales for all of April on Wednesday.
Wal-Mart reported weak Mother's Day sales and earnings that only
met the street estimates and fell -$4 billion short in revenue.
They said the weaker dollar and international sales helped them
make the target. They guided lower for the current quarter. ANF
also met estimates of 26 cents but guided lower due to a growing
weakness in the retail sector. They said it was very difficult to
predict future revenues due to the very volatile environment. They
projected earnings as low as 30 cents with the prior consensus at
34 cents.

Despite these events the markets managed to trade up intraday. Not
only the equity markets but the bond markets and oil markets. This
has confused traders completely. According to TrimTabs.com there
is $3 billion in new supply coming to market this week including
the IMPT IPO and new offerings from existing companies. This
additional supply was expected to depress the markets as old money
shifted and new money was put to work. Normally a new offering can
depress the price of a current stock as the equity is diluted.
Money going into these issues, while encouraging, does nothing to
buoy the indexes. Insider selling was also escalating with 70% of
insider trades over the last two weeks being sells. This is
normally not a positive sign.

According to Laszlo Birinyi the market is at record levels of
overbought as measured by the 10 day average of the net advances
and declines. He said long time traders were perplexed by the bond
advance and equity advance in such overbought conditions. Most
long time traders use the yield on the ten year treasury as an
indication of economic growth as the bond market normally is a
better predictor of the economy than stocks. According to Birinyi
the falling bond yields are pointing to little or no recovery for
the rest of the year.

The market did not care what Birinyi had to say or Merrill Lynch
or Wal-Mart. It continued to show a bullish bid most of the day.
Before the open CSCO was cut to underperform at Bernstein based
on valuation. They said the lack of a rebound made the consensus
estimates for longer-term growth and profitability unattainable.
Brave step there and right in the face of an upgrade on Cisco on
Monday. Obviously there are conflicting opinions on our future.
Merrill Lynch downgraded several chip stocks including NVDA, SMTC,
MXIM, ISIL, APOL and ATYT because the stocks have gotten ahead
of the broader market and the analyst does not believe business
conditions warrant a continued rise in the chip sector. Merrill
Lynch said the SOX near $360 at yesterday's close was 20% over
valued and could trade down to 270-280 by summer. They felt the
bounce in orders during the first quarter were prompted by a
supply chain anomaly rather than new demand. Low inventory levels
prompted a replenishment round to replace end of year inventory
depletion.

After the close today AMAT weighed in on the health of the semi
sector and posted earnings that beat the street by a penny. The
guidance did not beat and AMAT was trading down in after hours.
Q1 Orders of $971 million were weaker than revenue of $1.1
billion. They guided to the lower end of guidance at 3-4 cents for
Q2 when consensus was for 4 cents. They said the current
environment was lackluster and new orders were still volatile and
unstable. This is only one more chapter in the semi book with
upcoming highlights being the Intel mid quarter analyst meeting on
Thursday along with the semiconductor book-to-build report. Dell
also reports after the close on Thursday. Dell said today they
closed their Taipei office after a worker developed SARS.

2000 revisited? If you looked at the performance of the Internet
stocks today you would think the bubble was alive and well. EBAY,
YHOO and AMZN soared on no specific news with each hitting new
52-week highs. EBAY traded six cents shy of $98 and showed no
indications of pulling back. The company is well over its normal
split range between $75-$90 and could announce any day. For AMZN
and YHOO the gains are even more amazing. EBAY at least has strong
earnings to support its sky high PE of 98 which is something AMZN
cannot yet claim.

UBS, the tenth largest bank, went on record today as saying the
bear market may be ending. They said the conditions are tough and
will likely remain so after posting lower profits for the quarter.
The comment that drew attention was "While some further degree of
volatility cannot be excluded, we do feel that the downward
pressure on the industry - could be easing and the worst declines
are behind us." This is far from a new bull market comment but it
did prompt an early rally in the financial sector but it did not
hold. The UBS comment carried weight early only because of their
position in the industry.

The comments from Fed Governor Olson continue to make the rounds.
Olson is reported to have said the Fed is prepared to take
aggressive and unorthodox methods to prevent deflation. Those
methods are said to include more rate cuts, strong support of long
term bond rates and the potential for buying non-dollar assets.
While talk is cheap this table pounding by Olson and Ben (printing
press) Bernanke are giving the bulls confidence to buy into an
overbought market ahead of its fundamentals. Every time a little
weakness appears these comments are repeated on CNBC even though
they were initially made some time ago. Traders trying to fan the
flames back into the dying embers with a quick call to Bob (trader
talk) Pisani?

I mentioned last week that the Q1 earnings, after removing
windfall energy profits were far below the current market gains.
After another week of announcements those Q1 earnings have fallen
to only +4.7% after removing energy from the overall +11.5%
number. With 55% of the S&P already warning for the 2Q the
estimates for S&P earnings ex-energy are only +4.3% and still
dropping. This is far below the optimistic estimates of +13% to
+15% just a couple weeks ago. The Dow has rebounded +17% from the
March lows on hopes for a recovery. The Nasdaq has rebounded +23%
in the same period. Bears are scratching their heads and bulls are
unconcerned. This disconnection from reality along with the
continuing rise in bonds means either stocks or bonds are going to
end badly. One of them is wrong.

The market shook off the terrorist attacks in Saudi Arabia and the
simulated biological/radiological attacks in Chicago and Seattle.
There were emails from Al Quaeda claiming the start of a new round
of attacks and repeated pictures of bombed buildings overseas.
Traders paid no attention. It appears the markets are bomb proof.
Traders are imitating the three monkeys, deaf, dumb and blind and
continuing to buy the dips. This strategy will be tested again on
Thursday. Wednesday has a couple of economic reports, April Retail
Sales are expected to be flat and Import/Export prices, not
normally a market mover. Thursday is the big day with six major
reports. If good news is already priced in then the Richmond Fed
Survey this morning should have sown seeds of doubt. Apparently it
didn't. It appears traders are continuing to welcome bad news as
more evidence the Fed will have to act aggressively in the future.
This bad news is good news joke will be tested on Thursday when
the PPI is expected to show a drop of -0.7% and Jobless Claims
could exceed 450,000.

The Dow today failed again at the down trend line from last August
at 8725. It did not fail far with a close at 8679 and indicates a
continued bullish bid under the market. The Dow has plenty of room
to move with real support in the 8500 level. The Nasdaq does not
appear to be showing any weakness despite a slight loss at the
close. The Nasdaq traded to a new high intraday near 1550 before
dropping -10 points before the close. The Dow weakness on losses
from WMT, CAT, PG and MMM provided an anchor to the Nasdaq's rally
attempt. Yesterday the Dow was the leader and the Nasdaq was the
laggard.

Wilshire 5000 Chart - Daily




Wilshire 5000 - PNF Chart




Let me put on my bullish hat for a moment. The Wilshire 5000
charts above has broken both the down trend lines that have
been plaguing the Dow. It is also showing a classic triple-top
buy signal on a breakout over 9000. Conversely, a failure here
would be a clean signal to short. With the underlying bid to
the market there are going to be a lot of eyes on this broadest
indicator of market breadth. The PNF chart already shows a
classic PNF ascending triple top breakout in progress. If 9000
breaks we could be off to the races. We traded 18 points over
today but could not hold. The close at 8973 was also not a
convincing failure and could be just a step back to get another
running start.

My gut instinct is that the markets are due for a rest. However,
if you look at the internals and the sentiment the markets are
telling us they want to go higher. The technicals are grossly
overbought although the -47 point Dow loss may have eased that
somewhat. You could call this a consolidation day after two days
of +100 point gains. Wednesday should be another toss up day. The
economic reports are not market movers and the AMAT/NTAP/CSC
earnings tonight have not influenced the futures is either
direction. We have the potential for another day of gains before
the more serious economic reports on Thursday. Investors are
hoping for an economic surprise on Thursday and they may get one.
With the bad news is good news and good news is better news
outlook I am not sure what it would take to slow this rally down.
My LONGS are thriving but I keep thinking this cannot last much
longer. I have been thinking that for the last 500 points. I will
snug up the stops again tomorrow and keep watching for the sharp
objects in the road ahead. If this rally blows a tire at this
speed it could be spectacular.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Failed Retest or Rising Triangle
Jonathan Levinson

Daily Pivots (generated with a pivot algorithm and unverified):

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      87586  8719   8683   8644   8608
COMPX     1559   1549   1540   1530   1521
ES03M      952    947    943    938    933
YM03M     8742   8706   8665   8629   8588
NQ03M     1176   1165   1157   1147   1139

The markets gapped down, bounced to yesterday's highs, retested
the 15 minute candle ascending trendline off the lows, and closed
near flat in negative territory.  The failure to break out above
yesterday's highs was bearish, but the inability to set some new
lows was bullish and sets up a potential ascending triangle, as
the indices print higher lows toward a horizontal resistance
line.

Volatility saw some pickup on the COMPX and the SPX, while the
QQV closed lower by 0.92 at 27.83. Volume was moderate on the
NYSE but heavier than yesterday on the COMPX, with solid volume
coming in the afternoon following the failure at yesterday's
highs and the bounce just before the lows of the day.

The CRB index managed to hold yesterday's gains, closing above
the 240 level and finding strength in natural gas futures again
(+5.05%), heating oil (+4.91%), crude oil (+4.53%), and even
copper (+0.80%).  June gold managed to keep it together despite
what was to me a clear intervention in the US Dollar Index last
night by the Bank of Japan.  After awhile, those huge bullish
engulfing candles have come to all look the same to me.  June
gold closed at 350.20, down 1.70, but still above the
psychological round number.


Daily Chart of the QQQ




The Qubes gave us a bearish harami cross, depicting indecision
but to the downside.  We can see the horizontal resistance
capping the advance last week and this week. The higher close
will encourage bulls, just as the failure at the highs will
encourage bears, setting up the conditions for either a teeth-
grinding trading range for this op-ex week, or a violent
directional move in the event that either side blinks.  Support
should come at the 5 dma, with stronger suppot at the 13 dma.
We've been staring resistance in the face for the second day this
week.  There will be no doubt when the break comes to the upside,
whereas the different support levels may draw out the decline.


Daily chart of the NQ3M



We see the ascending wedge, as well as the strengthening trend in
the 10(5) stochastic on the daily candles.  While the stochastic
is trying to turn down, it has that pattern of higher lows
coincident with the rising wedge.  A break below the 50 line on
the stochs will be the first hint that a reversal is occurring.


60 minute chart of the NQ3M



The line sand for bulls could not be clearer, and if reached,
will coincide with an oversold 10(5) stochastic and support
within the daily rising wedge above.  The repeated failures just
above 1160 sets the line in the sand for bears with equal
precision, but this rising triangle against horizontal resistance
is generally bullish.  Bears will want to see that lower
ascending trendline taken out quickly to defeat the bullish
setup.


Daily chart of the ES



I'm as bored with writing about the bearish ascending wedge as
you no doubt are with reading about it.  Let's not even discuss
it from a trading perspective.  I've been listening to Elliott
Wavers argue about 954, 960, 970, endlessly.  What's of greater
concern is that all expect the pattern to break to the south.  As
the great humiliator, it's the market's job to make as many
traders wrong as possible.  Neverthless, there's a good deal of
overhead supply at current levels, and particularly during an
opex week with a great deal of call writers so far in losing
positions, it will interesting to see whether the bulls can hold
this rising pattern until Friday.


60 minute Chart of the ES



The hourly chart shows nothing new, beyond that higher low
printed today, and a bullish stochastic cross on the 10(5)
stochastic for good measure.  This should give us an upward bias
in the short term, though the after-bell-earnings announcements
likely skimmed some of the enthusiasm.


Daily Chart of the YM



There's little to add on the YM contract, except for a blinding
glimpse of the obvious:  the current level represents a critical
decision point for bulls and bears, with a convergence of daily
up and down trends within an ever-narrowing range.  When this
deadlock resolves, there won't be any doubt.


60 minute chart of the YM



Note the relative weakness in the YM contract compared with the
ES on the 60 minute view, with the 10(5) stochastic failing to
cross upward.  Nevertheless, the YM bounced from the middle
trendline and like the other contracts, is trading comfortably
within its ascending channel.

Some readers have been observing that we are witnessing a
simultaneous rally in bonds, equities and commodities, with the
only real weakness manifesting itself in the US Dollar Index.  I
don't believe that we are seeing a "breakdown" of our intermarket
relationships, but rather the effects of a concerted inflation of
the dollar, which liquidity is finding its way into all financial
assets, even those which have most often traded inversely to one
another.  On a short term trading basis, this makes no
difference, but seems to coincide well with the apparently
bullish but generally unsustainable bearish ascending wedge/ flag
formations printed on these charts over the past days and weeks.

If you're trading for the longer term and have been trying to
anticipate a trend change, I urge caution.  I also urge you to
check out my OEX:VIX and QQQ:QQV ratio charts in tonight's Index
Wrap for a sharper view on these relationships.

For tomorrow, bulls and bears are being forced ever closer on a
narrowing battlefield.  The battle may be delayed by option
expiration "pegging" at nearby strike prices.   Otherwise, I
expect to see a break, and given how long we've been watching
this formation set itself up, I expect the break to be dramatic.


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

Gasping for Breadth
Jonathan Levinson

Daily Pivots (generated with a pivot algorithm and unverified):

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8758   8719   8683   8644   8608
COMPX     1559   1549   1540   1530   1521
SPX        952    947    943    938    934
OEX        481    478    476    473    471
QQQ      29.18  28.92  28.73  28.47  28.28

In a repeat of yesterday's session, the markets opened on
weakness, faded lower, and then pushed to the day highs around
noontime, but unlike yesterday, the bulls couldn't hold it
together.  The fed added a moderate $2.25B in overnight repos
with no expiries, and there were clear signs of intervention in
support of the US Dollar last night and today, but the indices
closed lower than they opened.

The US Dollar Index printed a narrowing wedge or neutral pennant
on the 15 minute candles today, coiling around the 94.70 level,
while June gold futures managed to hold above 350 for most of the
session.  The CRB traded lightly negative for much of the day,
hovering around the 240 level.

Volume was lighter than yesterday for most of the session but
picked up toward the close, with 1.7B shares traded on the NYSE
and 1.8B shares on the Nasdaq.  As we discussed in the Market
Monitor, the lack of an acceleration of upward volume on the
failed retest of this potential swing high is a bearish signal.
The bulls pushed but couldn't recruit enough buyers to break
through.  However, volume analysis pales, in my opinion, in
comparison to oscillator and pattern analysis, so let's dive into
the charts:




Daily chart of the INDU


Today's closing candle printed what looks like a hanging man or
dragonfly doji, which is bearish in principle, but the lack of
followthrough to the downside after an lighter volume failed
breakout attempt doesn't have me snarling just yet.  As we
discussed in the intraday Market Monitor, there is the potential
for a bullish ascending triangle setup, as the lows print ever
higher toward the horizontal upper resistance.  So far, this
interminable, insufferable rising bearflag/wedge is continuing,
and while the twitching 10,1,5 stochastic is hinting at another
downside break, there's a rising trend on that oscillator
commensurate with the ascending wedge/flag.  Meanwhile, support
should come at the 5 dma, at 8612.

Weekly chart of the INDU




Again, no sell signals here as we zoom out to the weekly candles.
The stochastics look like they're getting ready to give us a
sell, but anticipating signal is hazardous to trading accounts.

Daily Chart of the SPX




The SPX tells the same story as the daily INDU, although the
upper candle shadow or spike shows a little less commitment to
the upside from the broader SPX.  The uptrend in the stochastic
is not present as it is the narrower INDU, and looks to be
putting in a lower high on this run.  A break below 934, the 5
dma, will give bears their first sign of confirmation of the
weakness they've been seeking.

Daily chart of the OEX




The OEX looks weaker than the SPX, and as the "leading" portion
of its parent index, this relative weakness is bearish.  Note
that the weakening trend in the stochastic is more pronounced
here, as well as the closing candle today being closer to its
supportive 5 dma.  Make no mistake-  this is a chart that is in
an uptrend, and a break higher on volume will erase a great deal
of short term bearish expectations.  However, the overbought
condition on the oscillators, combined with the bearish
wedge/flag setup is still convincing.

In case you missed it last night, I've begun tracking the daily
and weekly charts of the OEX:VIX and QQQ:QQV ratio.  As we've
been seeing with the put to call ratio.  My idea is to let the
machine and its hyperaccurate oscillators follow the
relationships that I normally try to intuit during the session
and at day's end.  We watch the VIX and QQV plummet to new or
relative lows, and try to guess when it will turn around,
signaling a trend change for the OEX or QQQ.  Instead, I've been
looking for that trend change by charting the QQQ relative to the
QQV, and OEX relative to the VIX, on a single chart.  Here are
the results:

Daily chart of OEX:VIX




As the OEX rises and the VIX decreases, the OEX:VIX ratio
increases, and vice versa.  Note that on the daily candles, the
ratio is far beyond its January peak level.

Weekly chart of the OEX:VIX




The weekly ratio chart brought us closer to a stochastic cross,
but it will take a spike in the VIX or a drop in the OEX to get
the ball rolling.  Tomorrow will be a telling day in this regard.

Daily chart of the COMPX




The COMPX printed a bearish candle, no hanging man, with the
candle body near the lower end of its day range.  Like the other
indices, there was no sell signal given, and bulls and bears
alike will be watching the 5 dma for a first hint of how this
week wants to close.


Chart of the QQQ




Like the OEX, the QQQ chart looks weaker than that of its parent
index.  Today printed a bearish harami cross, pure indecision but
with a downward bias.  The 5 dma is flattening, and a negative
close tomorrow could actually turn it down, which we haven't seen
in a month.

I've included the QQQ:QQV charts below:

Daily chart of the QQQ:QQV




The downward spike in the QQV reversed the %D line on the
stochastic, but the MacD sell signal is intact.  Whether Monday's
stochastic sell signal on this ratio gets reversed will be
decided by tomorrow's print.  A higher close for the QQV or a
lower close for the QQQ will strengthen what bears are hoping is
a trend chart being printed in this chart.


Weekly chart of the QQQ:QQV




Nothing to add on the weekly ratio chart.

The question posed by the current levels on the indices is
growing old, and a break would be expected tomorrow.  The
ascending triangle or the failure at horizontal resistance should
be decided, but then, this is options expiration week, a time
when prices have a nasty habit of pinning themselves in
impossibly narrow ranges near "convenient" strike prices.  For
this reason, I'm forced to rely on the trite, hackneyed mantra of
confused traders:  "Anything can happen."  If there is a break,
however, I expect it to be a big one, as traders hustle to get on
the right side of what should be a directional, trending move.
Watch the pivot levels and moving averages and trade safe.  See
you at the bell!


------------------------------------------------------------
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****************
MARKET SENTIMENT
****************

One Step Closer
- James Brown

What can you say?  Equity bears are going bug-eyed as bulls
refuse to slow down.  Q1 corporate earnings are essentially over
and over half the S&P 500 has pre-warned that the next quarter
looks flat to down.  Today's Richmond Fed Manufacturing survey
showed Wall Street that the economy has seen no post-war bounce.
Both oil and gold continue to climb off their lows and someone's
buying bonds like there is no economic recovery in site.

As Jim & Linda and the rest of the crew said on the MarketMonitor
today, something has to give soon.  We noticed that the put-to-
call ratios have once again given us a bearish divergence with
the equity only pcr at a bullish 0.56 and the index pcr's at a
somewhat bearish (not too terribly so) at 1.22 (OEX) and 1.23
(QQQ).  This is a "soft" indicator and a contrarian one at that.

The bullish percent charts continue to show the market creeping
ever higher into extreme overbought conditions.  Remember that
traditionally 70 and above is overbought and risk favors the
bears not the bulls.  As of today the Industrials bullish percent
is at 66.00, the NASDAQ-100 is at 79.00 and the S&P 500 is at
65.8.  Looking at a bullish percent chart and you'll see that the
NDX topped out at 82 last time and the S&P 500 is at descending
bearish resistance of 65-66.  These indicators are not screaming
"go long" here.

We continue to urge caution and monitor your stops closely.


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

Market Averages

DJIA ($INDU)

52-week High: 10353
52-week Low :  7197
Current     :  8679

Moving Averages:
(Simple)

 10-dma: 8570
 50-dma: 8238
200-dma: 8326



S&P 500 ($SPX)

52-week High: 1107
52-week Low :  768
Current     :  942

Moving Averages:
(Simple)

 10-dma:  929
 50-dma:  880
200-dma:  882



Nasdaq-100 ($NDX)

52-week High: 1351
52-week Low :  795
Current     : 1156

Moving Averages:
(Simple)

 10-dma: 1136
 50-dma: 1064
200-dma: 1002



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


The VIX and the VXN seem as confused as most bears in this market.
The major averages are significantly overbought and in need of
some consolidation but sellers have yet to appear in force.
How much longer can the market hold up?

CBOE Market Volatility Index (VIX) = 22.03 +0.61
Nasdaq-100 Volatility Index  (VXN) = 32.84 +0.26

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.67        703,421       468,959
Equity Only    0.56        508,874       283,551
OEX            1.22         30,301        36,851
QQQ            1.23         29,777        36,625


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

Bullish Percent Data

           Current   Change   Status
NYSE          58.1    + 2     Bull Confirmed
NASDAQ-100    79.0    + 1     Bull Confirmed
Dow Indust.   66.7    + 0     Bull Confirmed
S&P 500       65.8    + 2     Bull Confirmed
S&P 100       65.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  1.17
10-Day Arms Index  1.08
21-Day Arms Index  1.04
55-Day Arms Index  1.27


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    1379      1580
Decliners    1453      1450

New Highs     263       166
New Lows       14         5

Up Volume    827M     1103M
Down Vol.    846M      705M

Total Vol.  1697M     1824M

M = millions


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


Commitments Of Traders Report: 05/06/03

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

We knew it would be a quiet week on Wall Street last week,
aside from the FOMC meeting, and we see little change in
the Commercial's net-long stance.  There has also been little
change in the Small Trader's net long stance either.

Commercials   Long      Short      Net     % Of OI
04/15/03      424,219   409,853    14,366     1.7%
04/22/03      430,758   423,295     7,463     0.9%
04/29/03      432,710   419,245    13,465     1.6%
05/06/03      429,519   419,545     9,974     1.2%

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
04/15/03      148,434   137,680    10,754      3.8%
04/22/03      147,068   140,153     6,915      2.4%
04/29/03      149,616   154,782     5,166      1.7%
05/06/03      150,345   148,681     1,664      0.6%

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

It is the e-mini positions that we are seeing some shifts.
The Commercials have bumped up their longs by more than 30K
while reducing their shorts by about 25K.  Looks like money
is shifting sides here.  Small Traders have also shown a
small reversal with longs decreasing by almost 40K and shorts
jumping by more than 10%, but they remain significantly
net long while Commercials are exceedingly net short.

Commercials   Long      Short      Net     % Of OI
04/15/03      119,316   390,555   (271,239)  (53.2%)
04/22/03      124,200   437,597   (313,397)  (55.7%)
04/29/03      134,751   472,247   (337,496)  (55.6%)
05/06/03      169,388   447,330   (277,942)  (45.1%)

Most bearish reading of the year: (337,496)  - 04/29/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
04/15/03      365,876    44,137   321,739    78.5%
04/22/03      395,596    40,480   355,116    81.4%
04/29/03      459,687    50,030   409,657    80.4%
05/06/03      423,918    55,932   367,986    76.7%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 409,657   - 04/29/03


NASDAQ-100

It's pretty much dead-even on the Commercials positions
on the NDX.  Meanwhile the Small Trader has increased their
position sizes in both longs and shorts.


Commercials   Long      Short      Net     % of OI
04/15/03       44,976     37,929     7,047    8.5%
04/22/03       45,647     38,531     7,116    8.5%
04/29/03       45,497     37,557     7,940    9.6%
05/06/03       46,327     38,216     8,111    9.6%

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
04/15/03       11,182    17,438   ( 6,256)  (21.9%)
04/22/03       10,929    20,376   ( 9,447)  (30.2%)
04/29/03       11,219    19,760   ( 8,551)  (27.6%)
05/06/03       13,482    21,010   ( 7,528)  (21.8%)

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Again we're not seeing any big shifts of money or attitude
in the Commercials or the Small Traders.  The "smart" money
is still net long the Industrials and the small guy is just
barely net short.

Commercials   Long      Short      Net     % of OI
04/15/03       17,881    13,124    4,757      15.3%
04/22/03       16,942    14,750    2,192       6.9%
04/29/03       17,927    14,083    3,844      12.0%
05/06/03       16,772    13,568    3,204      10.6%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
04/15/03        7,748     8,704    (  956)   ( 5.8%)
04/22/03        8,081     8,275    (  194)   ( 1.2%)
04/29/03        7,081     8,604    (1,523)   ( 9.7%)
05/06/03        7,829     8,642    (  813)   ( 4.9%)

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 FUND SCREEN
******************

Single-Country and Regional-Stock Funds

Single-country funds are a type of international equity fund that
provides specific exposure to countries like Japan, Korea, China,
Russia and Brazil, while regional-stock funds provide exposure to
particular regions of the world such as Latin America, Europe and
the Asian tiger nations.  These specialty international funds are
riskier than diversified foreign equity funds because they hold a
higher percentage of assets in just one country or region.

With the unification of Europe, some experts question the need to
have country specific funds there.  However, there are many types
of European funds today, including those that invest primarily in
Eastern Europe and Russia and those that invest in small-cap Euro
stocks.  So, if you want to add some octane to your portfolio and
seek long-term growth through investments in a particular country
(say Brazil) or in a particular region (say Latin America), these
funds make it possible to do so.

Many of these funds are rallying strongly in 2003.  For instance,
the $17 million World Funds: Third Millennium Russia Fund (TMRFX)
is up 21.4% through May 11.  Scudder Latin America Fund S (SLAFX)
and T. Rowe Price Latin America Fund (PRLAX) have generated year-
to-date total returns of 18.9% and 17.7%, respectively.  Driehaus
European Opportunity Fund (DREOX) is 14.0% higher so far in 2003.

For the last three months, Korean funds have dominated.  Matthews
Korea Fund (MAKOX) is up 26% over the past three months while the
Korean Investment Fund A (AKIAX) has generated a YTD total return
of 24.8%.  Some European and Latin America stock funds have risen
by more than 20% during that time.  Which specialty international
funds should you consider?  We will screen for the best prospects
based on return, risk, expense, etc., and tell you which funds we
think may be worth considering further.


Screening/Evaluation Process


To arrive at our short list this week, we started with the basic
fund screener on the Morningstar.com website.  Here, we asked to
see all international stock funds with minimum initial purchases
of $10,000 or less, which are either rated 4-stars or 5-stars by
Morningstar (or unrated) and which have produced a YTD return of
more than the category average, as follows:

 Initial Morningstar Screen Criteria:
 Fund Peer Group = International Stock
 Minimum Initial Purchase = $10,000 or Lower
 Morningstar Rating = 4 Stars, 5 Stars or Unrated
 YTD Total Return = Category Average or Higher

Morningstar's screen results are conveniently sorted by highest
to lowest YTD returns, so we simply reviewed the list and noted
which funds have generated the highest returns so far this year,
excluding diversified international stock funds.  Foreign stock,
world stock and diversified emerging markets funds were removed
from consideration at this point, so we could focus our efforts
on single-country and regional-stock funds.

Below is a summary of the international funds so far on our list.

 Top YTD Returns: Single Country/Regional Stock Funds
 +21.4% Third Millennium Russia (TMRFX), 4-Stars
 +18.9% Scudder Latin America S (SLAFX), 5-Stars
 +17.7% T. Rowe Price Latin America (PRLAX), 4-Stars
 +14.0% Driehaus European Opportunity (DREOX), 4-Stars
 +13.6% Fidelity Canada (FICDX), 5-Stars
 +12.2% Commonwealth Australia/New Zealand (CNZLX), 5-Stars
 +11.7% Henderson European Focus A (HFEAX), Unrated
 +11.1% AIM European Small Company A (ESMAX), Unrated
 +10.3% Liberty European Thematic Equity Z (LSREX), Unrated

To make sure we didn't overlook a fund, we switched to the Fund
Finder on the marketwatch.nytimes.com website.  There, we asked
to see all "global" funds and then reviewed the list of highest
performing funds over the trailing year-to-date and quarter-to-
date periods through May 11, 2003.  Because of this, we added a
few funds that have performed well over the past 3-month period
and are not already on our short list.

 Top QTD Returns: Single Country/Regional Stock Funds
 +26.0% Matthews Korea (MAKOX), 5-Stars
 +24.8% Korean Investment A (AKIAX), 3-Stars
 +24.4% Fidelity Advisor Korea A (FAKAX), 3-Stars
 +22.8% ICON North Europe Region (ICNEX), 3-Stars
 +22.4% Rydex Large-Cap Europe (RYEUX), Unrated
 +21.8% Merrill Lynch Latin American A (MALTX), 3-Stars
 +21.6% Oppenheimer Europe A (OEFAX), 1-Star

In cases of load funds, we use the Class A shares for comparison
purposes.  Class A shares have front-end loads, but tend to have
the lowest expense ratio among the fund's different class shares.
One of the funds, Oppenheimer Europe Fund, Class A receives just
a 1-star rating, Morningstar's lowest overall rating, a red flag.

Having added some more single country and regional funds, we went
back to the Morningstar.com website and then entered all the fund
symbols into the Morningstar Fund Compare tool.  The tool permits
investors to compare funds based on return, risk and expense, and
other factors such as investment style and manager tenure.  There
we were reminded that four of the funds on the list currently are
rated 4 stars (above average) or 5 stars (highest) by Morningstar
as follows:

 Funds On List Rated 4-Stars or 5-Stars Overall:
 Commonwealth Australia/New Zealand (CNZLX), Pac/Asia ex. Japan
 Fidelity Canada (FICDX), Foreign Stock
 Matthews Korea (MAKOX), Pac/Asia ex. Japan
 Scudder Latin America S (SLAFX), Latin America Stock
 Driehaus European Opportunity (DREOX), Europe Stock
 T. Rowe Price Latin America (PRLAX), Latin America Stock
 Third Millennium Russia (TMRFX), Europe Stock

These seven funds may be your best bets overall on the list based
on risk-adjusted, cost-adjusted return performance versus similar
funds, if there are any.  We say that because the Fidelity Canada
Fund is compared to all diversified foreign stock funds but would
be better compared to other Canada stock funds.  Third Millennium
Russia is compared to all Europe equity funds but would be better
compared to other Russia stock funds.

The next thing we compared was expense ratios.  Most of the funds
on the list have current expense ratios in the range of 1.50% and
2.00%, which is what you'd expect from these types of funds since
they generally cost more to trade and operate, and have small net
asset bases.  Because of their relatively good ratings, you might
still want to look at Commonwealth Australia/New Zealand Fund and
the Third Millennium Russia Fund in spite of their higher expense
ratios.  At 5.63%, Commonwealth's expense ratio is extremely high
but represents one of the only ways to invest exclusively in that
continent (Australia/New Zealand).  Third Millennium Russia might
be rated 5 stars if it weren't for its 2.75% expense ratio but is
still maybe your best bet if you seek specific exposure to Russia
stocks.

Next we looked at average standard deviations over the past three
years to get a sense of how volatile returns have been versus the
other funds on the list.  To put this statistic into perspective,
consider that the average of all mutual funds is 13.2%, according
to Morningstar.  The funds with the least 36-month volatility are
as follows:

 Standard Deviation (%): Single Country/Regional Stock Funds
 17.6% ICON North Europe Region (ICNEX)
 18.3% Driehaus European Opportunity (DREOX)
 18.7% Oppenheimer Europe A (OEFAX)
 19.4% Fidelity Canada (FICDX)
 20.3% Commonwealth Australia/New Zealand (CNZLX)

Matthews Korea Fund has been the most volatile fund over the past
three years with a standard deviation of 41.3%.  Third Millennium
Russia Fund (38.8%), Fidelity Advisor Korea Fund A (38.0%), and
Korean Investment Fund A (36.6%) were the next three funds ranked
by highest volatility.  So these funds may be only be appropriate
for individuals who can tolerate very significant fluctuations in
share price.  If you don't think you can tolerate such volatility
then you may want to consider one of the less volatile offerings.

Next we compared portfolio characteristics.  The closest thing to
a large-cap core stock fund is Liberty European Thematic Equity Z
(LSREX) which has an average market cap of $30.9 billion, highest
by far among the funds on the list.  Still, it invests in all-cap
ranges, so to call the fund's structure "multi-cap" would not be
inappropriate either.  The same is true for the Fidelity Advisor
Korea Fund A (FAKAX) and the Fidelity Canada Fund (FICDX), which
fall into the Morningstar large-cap style box, but invest in the
mid-cap and small-cap sectors also.  Matthews Korea Fund invests
primarily in undervalued Korean stocks of companies with mid-cap
and small-cap values.  It has an average market cap of just $1.3
billion versus Fidelity Korea Fund's $10.5 billion median market
capitalization.

At 12 years, Robert Scharar has the longest manager tenure among
the funds on the list.  Scharar is president of FPA Corp., which
has served as investment advisor to the Commonwealth Australia &
New Zealand Fund since the fund's inception on November 25, 1991.
His trailing total returns for the past 1 year, 3 years, 5 years
and 10 years rank no worse than in the top 5% of its Morningstar
category (Pacific/Asia ex. Japan funds).  While we like the fund
and manager, the fund's expense ratio of 5.64% is excessive, and
more than twice the 2.32% category average, per Morningstar.  In
theory, the higher a fund's expenses, the harder it is to remain
competitive versus similar funds with lower expense, but Scharar
has proven that he can deliver significant alpha above the costs
and risks incurred.

The following portfolio managers have all spent at least 5 years
as the manager or co-manager of their respective fund as follows:

 Longest Manager Tenures: Single-Country/Regional Stock Funds
 Commonwealth Australia/New Zealand (CNZLX), Robert Scharar (12)
 Matthews Korea (MAKOX), G. Paul Matthews (8)
 Scudder Latin America S (SLAFX), Paul Rogers (7)
 T. Rowe Price Latin America (PRLAX), Benedict R. F. Thomas (7)
 Fidelity Canada (FICDX), Robert J. Haber (5)
 Third Millennium Russia (TMRFX), John Connor (5)

None of the other managers listed had more than three years with
their respective funds.  Since these funds target specific areas
of investment, whether it is a country or region, experience can
prove very helpful.  Accordingly, if you value having "seasoned"
judgment associated with a long-tenured equity manager, then one
of the above funds may be a suitable choice.

In the next section, we tell you which funds we favor most based
on the return-risk-expense and other factors.


Our Favorite Funds


While Korea stock funds have gotten hot lately, they don't rank
up there with the highest YTD return performers.  Therefore, we
would be more inclined to go with either a Europe stock fund or
Latin America fund.  Fidelity Canada Fund has done well, but it
invests in a country that represents only a small percentage of
the world's total market capitalization.  Many Americans may be
mad at Canada for their reported lack of support of the U.S. in
the Iraq war, but if you can get past that, this fund may offer
high return potential.

Fidelity Investments has a strong presence in Canada and knows
the Canadian equity markets.  Robert Haber, who has managed or
co-managed Fidelity Canada Fund since July 1998, seeks capital
appreciation over the long-term by normally investing at least
65% of total assets in securities (primarily common stocks) of
issuers that have their principal activities in Canada or that
are registered in Canadian markets.  Maxime LeMieux became the
fund's co-manager on November 1, 2002.







As you can see, Fidelity Canada Fund is trading well above its
50-day moving average and its 200-day moving average has moved
into an upswing.  So, from a short-term, technical perspective
the fund looks good.  The fund is up 13.6% on a YTD basis thru
May 11, ranking in the top 3% of the Morningstar foreign stock
category.  Due to strong showings in 2000, 2001, and 2002, the
fund's trailing total returns now rank in the category's top 5
percent.  Its trailing 3-year annualized return (1.2%) and its
trailing 5-year annualized return (3.8%) rank in the top 5% of
the foreign stock category.

Another fund we like is the Commonwealth Australia/New Zealand
Fund, managed by Robert Scharar with FCA Corporation.  We like
the fund and manager in spite of its 5.64% expense ratio since
they have generated high returns over the short- and long-term
with low risk versus other Pacific/Asia ex. Japan equity funds,
and represents a strong alternative to Pacific/Asia (including
Japan) funds.   It seeks long-term capital growth plus current
income by investing in equity securities, convertibles and debt
securities of issuers in Australia and New Zealand.  Originally,
the fund was known as the Capstone New Zealand Fund.





Commonwealth Australia/New Zealand Fund is up 12.2% in 2003, per
Morningstar, ranking in the 1st percentile of the Asia ex. Japan
category.  The fund's 1-year return of 26.7% and 3-year (average)
return of 13.9% also rank in the top 1% of the category.  For the
trailing 5-year period through May 11, the fund had an annualized
total return of 8.4%, ranking in the category's top 5%.  Over the
trailing 10-year period through April 30, 2003, the fund returned
an average of 3.4% a year, ranking in the category's top 1%, once
again.

You might want to discuss the fund's expense ratio with them, but
it's hard to dispute what Scharar has achieved in returns, net of
expenses.  However, should the fund's style/strategy and holdings
fall out of favor, its high expense ratio could really hamper the
fund's relative strength.  It would seem based on the performance
numbers that Scharar has more than adequately compensated for the
fund's highest expense.


Conclusion


If you are afraid of investing in a single country such as Canada
or in a single continent such as Australia/New Zealand, you might
want to look further at one of the Europe stock funds, which have
performed well in 2003.  Third Millennium Russia Fund has a 2.75%
expense ratio, but is up 21.4% on a YTD return basis as of May 11
and ranks in the top 1% of the Europe stock fund category.  Still
it may be too volatile for a lot of investors.

Other funds we think you may want to look further at include Icon
North Europe Region Fund, Driehaus European Opportunity Fund, and
Oppenheimer Europe Fund.  All three funds have been less volatile
than their category peers over the past three years and are among
the category performance leaders of 2003.  Funds with mid-cap and
small-cap growth styles such as AIM's European Small Company Fund
and Driehaus European Opportunity Fund have the potential to lead
in the next growth-led market advance.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 05-13-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Daily Results
Call Play Updates: ADTN, AMGN, IBM, KLAC, MEDI
New Calls Plays: None
Put Play Updates: AIG, GS, KSS
New Put Plays: PG


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

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


CALLS:
*****

None


PUTS:
*****

None


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

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

CALLS    LAST      Mon    Tue

ADTN     45.87   1.82  -1.08  Still strong
AMGN     61.50   0.75  -0.49  Watch the $60 level
IBM      89.98   1.45   0.98  Hitting new 52-week highs
KLAC     42.75   1.30  -0.88  Putting on notice!
MEDI     34.87   1.10  -0.13  Did you see the bounce?


PUTS

AIG      55.62   0.10  -0.73  Still not triggered
GM       36.30   0.72  -0.39  Long-term, no update
GS       74.95   0.49  -0.54  Looks tempting
KSS      54.24   2.80  -0.56  Earnings on Thursday
PG       87.81  -0.32  -1.07  NEW, big relative weakness


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

ADTRAN, Inc. - ADTN - close: 45.87 change: -1.08 stop: 45.00

After the impressive run from the bounce at $43, ADTN was looking
a bit extended as of Monday's close after a brief foray over the
$47 level.  That was our primary reason for listing the play as
our Play of the Day last night, to highlight that the stock was at
a good point for harvesting some gains ahead of expected profit
taking.  Sure enough, that's exactly what transpired on Tuesday.
Actually, we were looking for a surge up closer to $48 to provide
a better exit point, but that didn't happen, in large part because
of the degree to which the stock had become overextended on
Monday, ending up above the upper Bollinger band.  Despite the
broad market weakness on Tuesday, ADTN actually held up alright,
giving back just over half of Monday's gains.  We got aggressive
with our stop Monday night and raised it to $45 and still like
that level for an indication of whether we've outstayed our
welcome.  While aggressive traders can certainly consider new
entries on a rebound from above the $45 level, we're more focused
on exit strategy on ADTN right now.  A rally to or above Monday's
high ($47.11) should be considered an opportunity to harvest
gains.

Picked on April 29th at  $40.70
Change since picked:      +5.17
Earnings Date          07/15/03 (unconfirmed)
Average Daily Volume = 797 K
Chart link:


---

Amgen, Inc. - AMGN - close: 61.50 change: -0.49 stop: 58.75*new*

Profit taking was the name of the game on Tuesday, and amazingly,
it was pretty mild.  After rebounding from the $59.35 area last
week, AMGN ran as high as $62.47 this afternoon before pulling
back under the broad market weakness.  While AMGN did close at its
low of the day, it did so on rather light volume and the action
looks like normal consolidation.  Traders that missed an entry
early on Monday look to be getting a second chance right here.  A
further pullback into the $60.50-61.00 support area should afford
a solid entry into the play, provided the Biotechnology index
(BTK.X) doesn't weaken below the $380 level in the process.
Strong support still remains down near the $59 level and that
should provide a safety net on any more severe pullback.  We're
raising our stop just slightly tonight to $58.75, as that is below
the 50-dma, the lower Bollinger band and the ascending trendline.
Should all three of those support measures give way, we would
clearly want to take our leave of AMGN.

Picked on May 11th at    $61.24
Change since picked:      +0.26
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.5 mln
Chart link:


---

Intl Business Mach - IBM - cls: 89.98 chg: +0.98 stop: 85.95*new*

Wow! Big Blue reaches a fresh 52-week high while the Industrials
end a two-day winning streak and close down 47 points.  What's
driving the price of IBM higher?  It could be a number of
factors.  Leading the headlines this week was IBM's much heralded
unveiling of its latest mainframe computer, the first new model
in three years.  Weighing in with a starting price tag of $1
million per machine, the new eServer Z990 replaces the previous
Z900 machines.  The Z990 has been code named "T-Rex" and is three
times more powerful than its predecessor.  The Z990 can process
450 million e-business transactions a day, can turn its capacity
on and off and can run from one to all 32 of its processors
without having to power down.  IBM knows full well that customers
for the T-Rex are going to be big corporations, most likely in
the financial services industry, but the company has sold more
than 4,000 of its Z900 machines in the last three years.  The
name "T-Rex" is a spoof on rival Sun Microsystems (SUNW) who ran
ads back in March 2001 calling IBM a dinosaur who belongs in a
museum.  Potentially giving IBM a boost tomorrow will be IT
services rival CSC.  The computer services company announced its
earnings after the bell this evening and the results were
positive.  Actually, the headline EPS number was a penny shy of
estimates but revenues were up from a year ago so the results
were not just cost-cutting.  We'd like to raise our stop to
$88.00 but the current channel won't allow it just yet.  We are
going to bump our stop up to $85.95.  The $90 level is very
significant for IBM as shares have failed to rally past it since
the early April gap down in 2002.  If IBM can break this level we
could see a fill the gap move to $100 assuming the market
cooperates.  Even a strong stock like IBM will have a hard time
climbing if the broader indices are in consolidation mode.

Picked on May 4th at $87.37
Change since picked:  +2.61
Earnings Date      04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:


---

KLA-Tencor - KLAC - close: 42.75 change: -0.88 stop: 40.95*new*

Putting a crimp on the chip sector today was a research note from
Merrill Lynch's chip analyst Joe Osha.  Osha downgrade five semis
today on valuation concerns and claims the SOX could see a 20%
drop by the end of summer.  Those stocks he cut from "buy" to
"neutral" today were NVDA, MXIM, ISIL, SMTC, and ATYT.  Currently
he does not rate any chip stocks a buy.  Joe feels that the
industry growth isn't moving fast enough and the fabled second
half recovery may fail to show up again.  Comments in Applied
Material's (AMAT) conference call tonight after their earnings
report seem to support his claim.  AMAT is the largest chip
equipment maker on the planet and earnings were a loss over last
year's quarter.  AMAT said that next quarter would appear to be
flat to slightly down.  AMAT's CFO did say he expected some
improvement but not until early 2004 (they just keep pushing the
recovery back don't they?).  This news is contrary to recent
comments coming from Intel's President who was quoted as saying
they do expect a second half recovery THIS year.  Speaking of
Intel, the stock had its price target raised from $22 to $24 by
UBS Warburg who reiterated their "buy" on the stock.  Initially
the comments from Merrill Lynch weighed on the SOX but the group
rebounded like much of the market to close fractionally lower.
Shares of KLAC didn't quite bounce as they should have and we're
putting this play on notice.  Conservative traders may want to
raise their stop to $41.50, where we expect shares to bounce
next.  Officially we're raising our stop to $40.95, which puts
our risk at $1.20 in the stock.  Given the marginally red closes
on a day when the markets should have pulled back we're
encouraged but cautious.

Picked on May 4th at $42.15
Change since picked:  +0.60
Earnings Date      04/23/03 (confirmed)
Average Daily Volume = 11.4 Million
Chart link:



--- --- --- ---
LONG-TERM CALL
--- --- --- ---

MedImmune Inc - MEDI - close: 34.87 change: -0.13 stop: 31.99

MEDI is currently a long-term call play on OI, which is seldom
updated unless there is a reason.  The most recent update was
this weekend's newsletter.  Today's note is just to bring to your
attention of MEDI's bounce at the simple 50-dma yesterday.
Sunday we suggested that more conservative traders consider
putting their stop below the 50-dma.  Given the expectation for a
potential market pull back of significant size this still sounds
like a good suggestion.  The 50-dma is currently $33.25.

Picked on April 3rd at $34.31
Change since picked:    +0.56
Earnings Date        04/23/03 (confirmed)
Average Daily Volume = 3.9 Million
Chart link:



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

None


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

American Intl Group - AIG - cls: 55.62 chg: -0.73 stop: $58.00

We remain untriggered in this potential put play for AIG.
However, our instincts are suggesting that we could be triggered
soon.  The IUX insurance index has been relatively weak versus
the broader markets and some of the internal indicators we watch
are already suggesting a bearish crossover has occurred for the
IUX.  Meanwhile shares of AIG have been clear under performers
and while shares have not yet pierced the $55.00 level to the
downside, neither have they been able to bounce.  Our trigger at
$54.94 remains in effect and once triggered our suggested stop
loss will be $58.00.  As previously announced AIG's chairman, Mr.
Greenberg, spoke at the Goldman Sachs Financial Services
conference today.  Yet despite his positive comments that
insurance rates have been rising and should continue to rise into
2004 the stock (and the sector) did not react.

Picked on May Xth at $00.00
Change since picked:  -0.00
Earnings Date      04/24/03 (confirmed)
Average Daily Volume = 7.2 Million
Chart link:


---

Goldman Sachs Grp. - GS - close: 74.95 change: -0.54 stop: 78.25

Despite the fact that the stock has been weak over the past few
days, we'd sure like to see GS finally break down below that $74
support level to confirm our bearish bias on the stock.  Intraday
rallies have been failing at the 10-dma ($75.82), which today
crossed down through the 20-dma ($76.19).  So while we have the
$76 level shaping up as near-term resistance, there hasn't yet
been enough pressure to crack that $74 support.  Traders looking
to fade rallies should do well with entries near the $76 level,
while those looking for confirmation of weakness before playing
will want to wait for a trade below $74.  Our initial target on
the downside will be a test of the converged 50-dma ($71.98) and
200-dma ($71.82).  Until GS loses its current support, maintain
stops at $78.25.  The one major fly in the ointment for our GS
play is the fact that the Brokerage sector (XBD.X) is not
confirming the weakness in GS, as it continues to test the $463-
465 resistance area that served as a top last November.
Conservative traders looking to enter the play will want to see
the XBD falling back under the $447 level.

Picked on May 8th at    $74.06
Change since picked:     +0.89
Earnings Date         06/19/03 (unconfirmed)
Average Daily Volume = 4.23 mln
Chart link:


---

Kohl's Corp. - KSS - close: 54.24 change: -0.56 stop: 55.25

One thing about our KSS play, it as certainly been a bumpy ride!
Throughout all the gyrations though, the stock has continued to
trace out a pattern of lower highs and lower lows.  Last week's
drip near the $51 level was a screaming opportunity to harvest
some gains and look to play the downside again.  Sure enough, we
got the expected bounce, which topped out this morning at $55.11
(a mere 14-cents below our stop) before heading back down to close
just above the $54 level.  Odds seem good that the stock could
head down to test and perhaps break the recent lows over the next
week.  There's just one problem though.  KSS is scheduled to
report earnings on Thursday after the closing bell.  That means
that any open trades will need to be closed out before the end of
the day on Thursday.  Traders looking to beat the rush may want to
exit open positions on a drop back towards $52 on Wednesday,
instead of waiting for a pre-earnings drop on Thursday.  Due to
the proximity of that news event, we aren't advocating new
positions at this point.  From here on out, it is about managing
existing positions to make sure a winner doesn't become a loser.

Picked on April 27th at $55.02
Change since picked:     -0.78
Earnings Date         05/15/03 (confirmed)
Average Daily Volume = 3.98 mln
Chart link:



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

Procter & Gamble - PG - close: 87.81 change: -1.07 stop:

Company Description:
Two billion times a day, P&G brands touch the lives of people
around the world. Some of the nearly 300 P&G brands consumers
know and use with confidence in over 160 countries around the
world include: Pampers., Tide., Ariel., Always., Whisper.,
Pantene., Bounty., Pringles., Folgers., Charmin., Downy., Lenor.,
Iams., Crest., Actonel., Olay. and Clairol Nice 'n Easy.. The P&G
community consists of nearly 102,000 employees working in almost
80 countries worldwide. (source: company press release)

Why We Like It:
Believe it or not but even a "safe" stock like PG is offering
investors a reason not to like it.  The company has been getting
a lot of bad press lately.  Playtex, a rival for PG in the tampon
market, just launched its civil case against PG on Monday.
Playtex claims that PG used false advertising to lure Playtex
customers away.  Another court case, this one with Vidal Sassoon
is also flaring up.  Vidal is suing PG for fraud and breach of
fiduciary duty claiming that PG deliberately sabotaged the
Sassoon brand and relaunched a competing brand.  Considering the
fact that Mr. Sassoon gets a percentage of his products sales PG
does have a potential motive.  Adding more fuel to any investor
concerns is news that Wella shareholders, the German haircare
group, are asking PG pony up more money for its takeover bid for
the company.  Granted, all of these issues probably don't amount
to enough monetary value to seriously affect a company the size
of PG but it does not instill confidence in a still cautious
investor.  Probably the most revealing clue to PG's weakness is
its lack of participation in the market rally these last few
weeks.  Shares look like they have been forming a top during the
month of April.  These last two weeks of May have seen a slow and
steady series of lower highs.  Finally, in today's session the
stock broke down below the $88 level, which had been acting as
support.

Shares stopped at $87.85 on Tuesday, which is just above the
convergence of its simple 200-dma and 5-dma's.  We are going to
use a trigger at $87.45 to launch us into this play.  Only if
shares of PG trade at or below $87.45 do we suggest short
positions.  Once triggered we suggest an initial stop loss at
$90.00 although more conservative traders can probably get away
with something tighter.

Suggested Options:
Stocks tend to go down faster than they go up so we're going to
suggest June and July put options but Octobers are certainly
available.

BUY PUT JUN 90 PG-RR OI= 1440 at $3.40 SL=1.65
BUY PUT JUN 85 PG-RQ OI= 2787 at $1.20 SL=0.60
BUY PUT JUL 85 PG-SQ OI=10802 at $2.10 SL=1.00

Annotated Chart:



Picked on May Xth at $00.00
Change since picked:  -0.00
Earnings Date      04/28/03 (confirmed)
Average Daily Volume = 3.3 Million
Chart link:



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The Option Investor Newsletter                  Tuesday 05-13-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - PG


*********************
PLAY OF THE DAY - PUT
*********************

Procter & Gamble - PG - close: 87.81 change: -1.07 stop:

Company Description:
Two billion times a day, P&G brands touch the lives of people
around the world. Some of the nearly 300 P&G brands consumers
know and use with confidence in over 160 countries around the
world include: Pampers., Tide., Ariel., Always., Whisper.,
Pantene., Bounty., Pringles., Folgers., Charmin., Downy., Lenor.,
Iams., Crest., Actonel., Olay. and Clairol Nice 'n Easy.. The P&G
community consists of nearly 102,000 employees working in almost
80 countries worldwide. (source: company press release)

Why We Like It:
Believe it or not but even a "safe" stock like PG is offering
investors a reason not to like it.  The company has been getting
a lot of bad press lately.  Playtex, a rival for PG in the tampon
market, just launched its civil case against PG on Monday.
Playtex claims that PG used false advertising to lure Playtex
customers away.  Another court case, this one with Vidal Sassoon
is also flaring up.  Vidal is suing PG for fraud and breach of
fiduciary duty claiming that PG deliberately sabotaged the
Sassoon brand and relaunched a competing brand.  Considering the
fact that Mr. Sassoon gets a percentage of his products sales PG
does have a potential motive.  Adding more fuel to any investor
concerns is news that Wella shareholders, the German haircare
group, are asking PG pony up more money for its takeover bid for
the company.  Granted, all of these issues probably don't amount
to enough monetary value to seriously affect a company the size
of PG but it does not instill confidence in a still cautious
investor.  Probably the most revealing clue to PG's weakness is
its lack of participation in the market rally these last few
weeks.  Shares look like they have been forming a top during the
month of April.  These last two weeks of May have seen a slow and
steady series of lower highs.  Finally, in today's session the
stock broke down below the $88 level, which had been acting as
support.

Shares stopped at $87.85 on Tuesday, which is just above the
convergence of its simple 200-dma and 5-dma's.  We are going to
use a trigger at $87.45 to launch us into this play.  Only if
shares of PG trade at or below $87.45 do we suggest short
positions.  Once triggered we suggest an initial stop loss at
$90.00 although more conservative traders can probably get away
with something tighter.

Suggested Options:
Stocks tend to go down faster than they go up so we're going to
suggest June and July put options but Octobers are certainly
available.

BUY PUT JUN 90 PG-RR OI= 1440 at $3.40 SL=1.65
BUY PUT JUN 85 PG-RQ OI= 2787 at $1.20 SL=0.60
BUY PUT JUL 85 PG-SQ OI=10802 at $2.10 SL=1.00

Annotated Chart:



Picked on May Xth at $00.00
Change since picked:  -0.00
Earnings Date      04/28/03 (confirmed)
Average Daily Volume = 3.3 Million
Chart link:



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**********

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