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Daily Newsletter, Sunday, 05/25/2003

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The Option Investor Newsletter                   Sunday 05-25-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Picnics and Taxes
Futures Market: Holding up
Index Trader Wrap: Correction time
Editor's Plays: I Give Up
Market Sentiment: A Losing Week
Ask the Analyst: Measuring new high and new low breadth
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-23         WE 5-16         WE 5-09         WE 5-02
DOW     8601.38 - 77.59 8678.97 + 74.37 8604.60 + 18.92 +276.33
Nasdaq  1510.09 - 28.44 1538.53 + 18.38 1520.15 + 17.27 + 68.34
S&P-100  469.75 -  5.97  475.72 +  3.47  472.25 +   .38 + 15.77
S&P-500  933.22 - 11.08  944.30 + 10.89  933.41 +  3.33 + 31.27
W5000   8916.23 - 73.62 8989.85 +106.51 8883.34 + 49.28 +308.17
RUT      418.40 +  3.73  414.67 +  1.14  413.53 +  5.86 + 19.17
TRAN    2383.36 - 35.95 2419.31 - 42.87 2462.18 +  1.38 +108.19
VIX       21.38 +  0.37   21.01 -  1.03   22.04 -  1.57 -  0.29
VXN       29.73 -  1.29   31.02 -  1.07   32.09 -  0.27 -  1.34
TRIN       1.09            0.93            0.83            0.66
Put/Call   0.74            0.52            0.82            0.71
******************************************************************



Picnics and Taxes
by Jim Brown

Friday was another humdrum day with the averages ending only
fractions from old support levels. Thoughts were on picnics,
taxes, racing, golf or just three days away from the market.
After the market closed I discovered that the day was not as
boring as I thought, which leads me to believe that next week
could be exciting.

Dow Chart - Daily



Nasdaq Chart - Daily




There were no material economic reports on Friday with the Weekly
Leading Index ticking only slightly lower due to lower bond yields
and a drop in mortgage applications. The six-month projected
growth rate did rise to +3.2%. This matches several high profile
estimates this week for growth in the second half of 3% to 4%.

Another obscure economic report showed the Internet E-commerce
sector continued to expand rapidly in the 1Q with $11.9 billion
in sales. This represented 1.54% of all retail sales and showed
an almost imperceptible dip from the 1.59% 4Q rate. This was the
second highest quarter ever and not normally a strong quarter.
The growth rate slowed but the sector is continuing to expand.
The news powered YHOO and NTES to new highs for the year but did
not help EBAY, AMZN or BGP, which you would have thought would
have benefited from the news.

The big news for the day was the final vote on the tax cut bill
by the Senate. We got a final burst of buying on news and dividend
stocks added another round of gains. Utility stocks like FPL
gained +2.59 on the news. A $50 stock paying a $2.30 annual 4.6%
dividend yielded +2.6% after taxes under the old plan. Under the
new plan that after tax yield jumped to +3.9%. Even Altria gained
another +1.26 to $42.30.

Microsoft CEO Steve Ballmer announced he was selling some of his
471 million shares. He did not say how many but most commentators
believe he had to go public because of a 70 million share block
that has been shopped all week. Rumor had it that one of the eight
largest shareholders was making the sale. Odds are now good that
it is Ballmer. He said this was part of his diversification
program. Another Microsoft billionaire, Paul Allen, announced he
was cutting 20% of the staff at Vulcan Ventures due to the slow
economy. Puts a crimp in the net worth when your majority of your
stock holdings were in a $60 stock (presplit $120) that is now
selling for $24. If Steve and Paul need help adjusting to a lower
lifestyle I am sure Ted Turner is available for a price to consult.
His $100 stock is now trading for $14 without a split. That is a
painful $8 billion loss. Brings new meaning the term grumpy old
man.

Speaking of fortunes lost, Union Finance and Investment filed
suit in Los Angeles against Michael Jackson claiming he is near
bankruptcy. The 44-year old singer has reportedly blown through
a $500 million fortune and has been living on a line of credit
for months. Jackson is said to be sitting on nearly $500 million
in song rights including 200 titles from the Beatles, Elvis and
other top stars. However, he reportedly has no income after the
sales of his recent albums fell flat. Michael Jackson broke?
Toto, we really are in never-never land.

The big three automakers came under pressure after Goldman Sachs
said the companies will post disappointing results for May and
cut production by 10% in the 3Q. They said negative headlines
about sales and production cuts and high inventory are likely to
weigh on those stocks. Incentives are having to be increased and
sales are slowing while inventories are expected to be as much as
+35% above normal levels.

Another vehicle maker landed a huge $16 billion deal to lease
tankers to the Air Force. Boeing will lease 100 modified 767 jets
to the Air Force as aerial gas stations beginning in 2006 and
adding 20 planes a year for five years. The lease has a $4 billion
purchase option at the end of the lease for a total of $20 billion.
The planes could have been purchased outright for $8 billion.
Needless to say there has been quite a controversy over the big
difference in price. Personally I think there has to be something
not visible on the surface to justify the difference in the price.
Do the leases included any maintenance, insurance, upgrades, etc.
Enquiring minds want to know why BA got such a sweetheart deal.

If you looked at the close on Friday with the Dow +7, Nasdaq +2
and the S&P +1 you would have a very wrong impression of the day.
With the markets finishing basically flat you may be surprised
to learn the advances beat decliners severely 4489 to 2731 across
all markets. Even more remarkable was the new 52-week highs which
came in at 660 compared to only 47 new lows. This was in a week
where the major averages lost ground instead of gained it. The
660 new highs was the largest reading of the year. You could
easily form two entirely different opinions about next weeks
market direction, maybe three. If you just looked at the rounding
top rebound on the Dow from the last two days and seeing the
flat close on Friday you would think we were about to start the
next leg down.

If you looked at the internals I mentioned above you should be
pounding the table making the case for the bulls. If you are a
technician the VXN close at an all time low of 29.73 on Friday
with the VIX at the second lowest close for the year you would
be backing up the truck to load up on puts. I kept seeing the
potential for Mark's MOPO event behind every tree.

The economy is not well but everyone says it is getting better.
You can believe the economic reports or the spin doctors or
ignore them both and just go with the market. The Feds would have
you believe the economy is poised to explode in the 2H but that
would need a jump in consumer spending. With unemployment rising
and benefits expiring there are about to be 2.5 million workers
with no jobs and no income. Jonathan sent me this chart today.
Note that since 2001 the unemployment rate has risen +50% from
4% to 6% and in the same period consumer debt has increased
over 10% in percent of the GDP. With employment still dropping
there are two choices. We will either have another huge spike
in debt as the unemployed live off their credit cards prior
to bankruptcy or the rate of consumer spending will slow
substantially. Neither is market friendly.

Unemployment/Debt Chart




 I mention this because it runs completely contrary to the current
market trend. The markets are moving up like the recovery is
guaranteed.

Friday was a slow news day and the research urge hit me once
again when I saw the bullish internals. I have shown these charts
before but since this is the critical date I feel the need to
show them again. The top chart is the S&P for May of 2002 compared
to the bottom chart which is May-2003. The comparisons are simply
amazing. Very seldom does history repeat itself so closely. Same
dips, same peaks, same trend, same VIX.

S&P Charts - May 2002/2003




The $64 question is what will happen next. In 2003 the pre Memorial
day dip bounce was the first in a series of painful dip/bounce
patterns as we drifted into summer. The charts below illustrate
that pattern.

S&P Charts - June 2002/2003




There are many differences in the underlying markets. The May-2002
new 52-week high/lows were split 50/50 at about 200 each, not
660/47! The Q1 GDP was only 1.3% when reported in May-2002. Oops,
Q1 is only expected to be 1.6% next week! Ah but, Q1-2002 GDP was
5.0% so the drop from 5.0% to 1.3% was a real shock. Going from
Q1-1.6% to Q2-1.6% in 2003 should not be such a shock to the
system. The unemployment in 2003 has seen three months of losses
for more than 500K jobs. Sounds pretty grim for the 2003 outlook.
In May 2002 there was an explosion of new jobs, +41,000. That may
not sound like much but after eight straight months of job losses
ending in March-2002 totaling -1,260,000 jobs that +41K number
was a breath of fresh air. The ISM in April-2002 was 53.9 after
climbing out of a hole in Oct-2001 under 40. In 2003 the ISM for
April was 45.4 after falling from a high of 55.2 in December.
The Dow was 10350 the week before the holiday in 2002 and only
8743 in 2003. Interest rates had already been cut to 1.75% in
2002. Oil in Q2-2002 was $28, today $28. Confused yet?

The differences between May-2002 and May-2003 are vast in some
numbers but not really that different. The GDP is about the same
at +1.3%-1.5%. The unemployment is coming out of a 3-month hole
in 2003 and an 8-month hole in 2002. The ISM was rising in 2002
and falling in 2003. The markets were 20% higher. Earnings were
falling in 2002 and despite massive cuts in estimates for Q1-2003
a full 55% of the S&P have already warned for Q2. Interest rates
are only 50 basis points lower now than then. The tax cut passed
this week was the third tax cut for this administration in three
years so that factor is also mitigated. If anything 2002 was in
better shape than 2003. What is it that is different?

I listen to talking heads all day long that say the market is
going up for this or that reason. I personally see several that
I believe are powering this rally. First I do not see a recovery
yet. It may be coming but the signs are so faint that it would
take a stethoscope to hear them. Two of the major factors which
are powering this market are bonds and sentiment. The yield on
the 30-year was 5.75% in May-2002. The 30-year closed at a new
45-year low on Friday at 4.25%. Even more amazing is the 10-year
at 5.25% in 2002 and 3.33% today. The after tax yield is even
lower. Greenspan was quizzed severely this week about the impact
of another rate cut on the money market industry. At what rate
do they begin losing money and how long before the industry
implodes. He said the Fed had spent considerable time and
research in trying to determine that impact but gave no answer.
With financial rates so low there is simply no incentive for
retail investors to park money in stagnant accounts.

That brings us to the second reason, sentiment. The market was
supposed to go up. That is what investors were conditioned to
think. We won a war and the threat to peace has vanished. They
can look back to 1991 for a quick history lesson and pattern
for the market. The economy was coming out of a soft patch then
and again now. Technology triumphed over evil and the retail
investor voted with their dollars. Did it make economic sense?
No, it was sentiment, plain and simple. The economic cloud was
lifted. Is this a justification for continued investment? No,
but then retail investors do not need justification. They
normally vote with their emotions.

Traders tell me the market can't go higher because the economy
is in the tank and dropping. Others tell me that the second
half recovery is going to power the techs to huge earnings
gains. I agree, just like the second half recovery of 2001 and
2002. If it come it will power them to huge earnings because of
significant cost cuts just to stay alive over the last two years.
Is it coming? Intel, Cisco and Microsoft all said "no recovery
in sight" in so many words. If companies were taking bids for
infrastructure components for the second half, which is only
25 trading days away if you are counting, then these big tech
companies would be seeing those bids. If you are GE you don't
just call HPQ and say I need 150,000 PCs and here is how I want
each of them configured and where I want each one shipped. Can
I get a price tomorrow for shipment on June 15th? The procurement
process for any orders of scale takes months of details, bids,
adjustments, rebids, etc. Let's be generous and just say the
odds are slim for any major change in the 3Q. Not impossible,
just slim.

That puts us back to what now and why. Can May/June 2003 end
up like May/June of 2002? Maybe. The only two major components
that are really different are bonds and sentiment. Investors
are thinking "what is my risk?" Leaving the cash in a money
market is about as profitable as a mattress. The markets have
rebounded +20% but so what. Stocks are rising from the dead.
Lucent hit $2.50 after trading at 55 cents. BRCM is $22 after
trading under $10. JNPR is $13 after trading at $4. EBAY $100
and YHOO $28.50 are setting new 52-week highs. YHOO was $9.
Retail traders see this and instead of thinking "I will wait
for the summer pull back to buy some" are instead thinking
"I have to get YHOO before it breaks $30."

Fund managers are buying in self-defense. If XYZ fund performs
better than me I could lose my bonus and/or my job. Yes, the
market should trade lower during the summer but what if I wait
and it doesn't? I could be fired. They cannot afford to wait in
cash or bonds with the markets continuing to move up. I am not
saying they wont be the first to sell if it begins to roll over
but right now they have to buy in self-defense.

Even the conservative funds are being forced to buy. Have you
seen the dividend stocks this week? You cannot tell me a
million retail investors suddenly got the urge to buy Florida
Power and Light (FPL) today. Funds bought it because it pays
a big dividend and it is stable. With the ten-year treasury
yielding 3.33% they are not going to win many customers with
their end of quarter statements. With only 25 trading days
left in the quarter they are in a pinch.

There is an estimated $5.5 trillion in cash and money markets
that is waiting for a sign. Next week begins the road signs for
May. The economic calendar was nearly void this week but the wait
is over. The battle cry of "it takes May data to play" is about
over. That May data begins on Tuesday with Consumer Confidence
and Home Sales. Wednesday has Durable Goods and Thursday GDP,
Jobless Claims and the Help Wanted Index. Friday closes with
Personal Income/Spending, Michigan Sentiment and PMI. This week
is just a warm up for the first week of June and ISM, Productivity,
Construction Spending, Factory Orders, Nonfarm Payrolls and
Consumer Credit. The May data mystery will be solved over the
next nine trading days and we will finally know if the war cloud
has lifted.

Institutional investors and mutual funds are hoping for the best
as the bullish scenario is spun over and over on stock TV. If
you are hoping for the best then you don't wait until after the
data to buy. You buy before the data and then be prepared to
bail if it is wrong. If you are right then you could be up +10%
over those funds that waited. If you are wrong you may not have
lost anything if the market continues to rise into the reports.
It is the perfect greater fool theory. John Doe fund manager is
buying to beat Bill Smith fund manager to the punch. Bill Smith
is buying to beat Bob Brown who is trying to beat John Doe. If
the data is bad they all dump simultaneously and we get a crash.
Everyone is hoping the very high 55% prewarning rate was excess
caution and we will start getting more positive confessions than
negative when the warning season for July starts soon.

As informed traders we are faced with trading our bias or trading
the market. My bias has been biting me lately so I am going with
the market. With the new highs running 14:1 over new lows the
market is trying to tell us something. With the advances beating
declines 2:1 on the NYSE on Friday despite only a seven point
Dow gain there is a message. With the Russell-2000 posting its
first six week gain in three years everyone should take note.
The major indexes closed the week with a loss, a minor loss.
Considering the drop last Monday this was still bullish. Whether
this was another consolidation week or the first week in a repeat
of 2002 we will not know until next Sunday. Remember that asset
allocation shift I mentioned last week? It has not happened yet.
Bonds are still soaring to new highs on the hopes for another
Fed rate cut to combat the "D" word. Every piece of bad data and
every mention of deflation spurs another round of bond buying.
If we get a couple of positive reports next week and those bonds
begin to fall the last ten paragraphs are immaterial. Once the
trend breaks the rush could be strong.

I know I alienated many people today. There is a large contingent
of traders constantly pointing out every potential chart pattern
that could be even remotely suggesting a crash next week. I have
to admit there are some good ones. I also have to admit we could
easily test the bottom of that 8200-9000 trading range I suggested.
We came close to 8400 this week but closed exactly in the middle
at 8600 on Friday. There is no crystal ball and anything is
possible. I look at those comparison charts for May/June and my
gut reaction is look out below. On Friday the internals were
telling us something else. Bear markets are built on the slippery
slope of hope and bull markets climb over the wall of worry built
by disbelieving bears. Just don't fight the trend. Follow the
internals not the points.

Just to prove I have not lost my mind I will leave the bulls
with the following NYSI chart updated from last week.

NYSE Summation Index Chart




The NYSI has stalled at the 1215 high from last Sunday, which
is the highest (most overbought) since Feb-1999. The MACD has
broken beneath the zero line and based on this chart alone I
would be very bearish. However, remember the -200 point drop
on Monday? It did not even cause a blip on the chart. Bullishness
remained very high.

NYSE New Highs/Lows




Another reading of overbought conditions is the NYSE new high/low
chart at +355. This level has only been reached three times in the
last four years. VERY overbought.

My parting thought is that these extreme indicators are one more
reason why the market should and may go down next week. They are
also very strong reasons why the bears will be shorting every top
and then buying back those shorts in disbelief if the markets
continue up. Over the last five years we have seen some serious
market extremes. Who is to say these overbought conditions cannot
become even more extremely overbought? At 21.38 the VIX is in the
danger zone but still well above its historical YEARLY low of 19
for each of the last three years. In 1998 it dropped into the 16s
three times. Never say the market can't go any higher. It may not
but then again we could be surprised. I looked at a lot of Dow
stocks Friday night and there were very few I would buy. Just
look at charts of IBM, MMM, WMT, GM, JNJ, CAT, GE, MRK, INTC,
MSFT, DD and AA and you will see why the Dow closed flat on Friday.
You will also see the reason why the bulls could have trouble
next week. Big caps are under pressure while small caps were still
moving up. There are mixed messages under every chart and behind
ever indicator. Next week should definitely be interesting.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Holding up
Jonathan Levinson

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8639   8620   8607   8588   8575
COMPX     1518   1514   1510   1506   1503
ES03M      940    936    931    928    923
YM03M     8666   8631   8582   8547   8498
NQ03M     1143   1137   1131   1125   1119

Today was another inside day, but it's easy to miss the sheer
teethgrinding narrowness of the session, with the Dow traveling
less than 80 points and the COMPX less than 9 points.  As
expected ahead of this holiday weekend, volume was lighter, with
1.49B NYSE shares and 1.43B COMPX shares changing hands.

The sheer boredom and lack of pullback dealt another blow to the
volaitility indices, with the VIX dropping .24 to 21.38, the VXN
-.38 to an alltime closing low of 29.73, and the QQV -.89, with
this latter index spiking down intraday to within a fraction of
its alltime low.


Daily QQQ chart




Today's daily print was a doji star, with QQQ closing unchanged
and trading between its 5 and 13 day simple moving averages.

Weekly QQQ chart




The weekly candle was a weak hangman doji.  More significantly,
this week printed a lower low and lower high, which points to a
possible change in trend.  Nevertheless, the QQQ 28 and 27.89
levels will have to be taken out first before testing the 13 week
moving average at 26.73.

QQQ:QQV chart




Today's QQV wipeout drilled the QQQ:QQV ratio to a new daily high
for this move, and to within a hair of its alltime high printed
in March 2002.  I believe that, unless QQQ is in a new bull
market(which I don't), this ratio is signaling a very significant
top that is or possibly already has printed.

Weekly QQQ:QQV ratio




The US Dollar Index got smoked last night and was then drilled
this afternoon to a new closing low for this bear market below
93.00.


10 minute chart of the US Dollar Index





This violent selloff did surprisingly little for gold or the CRB,
with the latter closing up a mere .14, below the pivotal 240
level, while June gold closed at 369.10.  Natural gas, crude oil,
sugar and cocoa led the CRB.

Daily chart of June gold




Zooming out on gold, we see the stochastics trending, buried in
overbought territory, while the MacD continues higher.  The
formation looks to me to be a bullish cup and handle, and
projects higher on a resolution of the bull flag which is in its
very early stages.  If I'm correct, I expect a light pullback
before the price moves higher.  I have highlighted horizontal
downside support.

The equity futures were about as exciting as the cash markets
today, and that's saying very little.  The daily and weekly QQQ
charts above provide the context for the 30 minute candle charts
below.  I've added a year-to-date daily candle view of ES3M as
well:


30 minute 20 day chart of the NQ3M




The 30 minute NQ changed little today, other than extending
yesterday's move.  I speculated in last night's wrap that we
could be witnessing the formation of the right shoulder of a head
and shoulders formation, and nothing I saw today caused me to
change my mind.  The 1136-1140 resistance  zone was never
seriously challenged, and that level remains the key level to
watch on Tuesday.  The downsloping neckline moved a little lower
to the 1100 area given today's sideways action.


Daily candles ES3M




Today's daily ES candle did nothing to change the outlook on ES
either.  The longer cycle stochastic remains in its downphase,
with yesterday's and today's prints causing it no more than
pause.  An up day on Tuesday could change all that.


20 day 30 minute chart of the ES3M




Meanwhile, the 30 minute ES candles brought to 300 minute
stochastic back into a down phase, and with the longer cycle and
shorter cycle both in gear to the downside, I expect to see lower
prices on Tuesday.  Given that today was an inside day, I expect
the move to pack a punch, but the market has had a habit of
disappointing bears expecting explosive downside.  935 resistance
remains key, and the neckline has crept down to the 911 level.


20 day 30 minute chart of the YM




The YM paints the same picture on the 20 day 30 minute chart as
we see on the ES and NQ contracts.

For Tuesday, the outlook remains difficult, principally because I
hesitate to sound like a broken clock.  Other than the QQQ:QQV
ratio chart which gave us "buy signals" for the QQQ today, we
have a consensus of stochastic and Macd sell signals on the daily
and 30 minute timeframes for QQQ and the equity futures, and the
weekly QQQ, while not giving us confirmatory bearish crosses,
remains toppy.  Today and this week saw significant sums of money
added by way of repo agreements by the fed, with today's 5B
weekend repo on top of yesterday's 7.75B 7-day repo adding plenty
of liquidity to assist the different markets.  It's difficult to
speculate as to the impact of such interventions on the markets,
and the projected impact of their being returned to the fed when
they mature next week.  However, the bearish chart patterns and
oscillator setups are clear- until the upper resistance lines
discussed above are taken out, it looks like down from here.
This is how my account is positioned.


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

Correction time
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
Not Miller Time!  This past week's correction to the several week
 rise in the indices looks set to continue with another downswing
ahead. The typical pattern is for a sharp 1-2 day drop, then a
rebound that might retrace 50-60% of the fall, followed by
another decline that will typically take out the prior correction
low.

This view fits with the current fundamentals.  The rebound off
the Fall lows was in response to a possible better economy after
the Iraqi conflict. And, earnings were not too bad, based on
continued tight control of costs.  Now, the market is waiting for
a further improvement and a trend of better numbers. With the
next round of earnings reports still some way off and with the
move into summer, we're into the doldrums for a while. Absent new
bullish news, the market is prone to fall some more.

FRIDAY'S TRADING ACTIVITY –
Except for a strong utility sector that pays the biggest stock
dividends, stocks ended mostly unchanged - the boost in the utilities
was of course due to the passage of the new tax bill, with its
centerpiece tax break for stock dividends.

The benchmark S&P 500 and the Dow Industrials broke a 3-week
winning streak. Some blame was laid to nervousness on Monday and
Tuesday over a string of terrorist attacks in Morocco, Saudi
Arabia and Israel. Lets not forget our Moo faced friends in
Canada who went a bit mad.  Yes, Mad Cow disease, really no
laughing matter, was afoot in Canada.

For the week the Dow fell about a percent - for the day on
Friday, ahead of the 3-day Memorial Day holiday, the Industrials
were up some 7 points and climbed back above 8600 - just barely
at 8601.  The Nasdaq composite also rebounded slightly, gaining 2
and 1/2 points to 1510, just above near support in the 1500 area.
COMPX was down a bit less than 2% on the week.

The $350 billion tax-cut package that was passed by the House and
the Senate reduces the top rate on dividends and capital gains to
15% and was the prime driver for utilities.  American Electric
Power (AEP) was up over 4%, Southern Co. tacked on 5% and Public
Service Enterprise was also up close to 5%.

Individual investors tend to buy these stocks for their safety
and predictable dividends and the companies are of greatest
interest when their costs fall, the biggest part of which is
energy costs which are falling of late.  Also, other interest
rates have been declining in a significant way.  Yields of 5%,
with only a 15% top tax rate are looking pretty attractive versus
the 10-year government Note priced to yield 3.3% at Friday's bond
market close.

The other big news was the continued fall of the dollar - I
commented last week on the bullish gold charts and bullion
rallied even more sharply this week in reaction to the dollar's
fall.  With gold still mostly priced in global markets in
dollars, its price will rise if its going to maintain its value
in dollar terms.

The Euro ran up for week to a 4-year high, closing at 1.1837. I
can't believe this bit of minor good fortune as I keep getting
distracted from converting (to dollars) a yearly rent that I get
paid in Euros - my resolution at the moment is to, without fail,
get that done in the coming week.  Hey, I was happy with $1.10!

Recent comments were made by some key United States officials
that they wouldn't try to prop up the dollar, which led to
accelerated selling of the greenback. Moving to a still further
price extreme is not atypical in the currency markets.  The
dollar was quite overpriced last year and these markets like
others - think stocks - tend to move from one extreme to the
other over time. Fundamentally, much of the pressure has stemmed
from all the recent concern of a possible U.S. deflation trend
and the possibility of a double dip recession because of it.

After this correction runs its course, I think we will work
higher in stocks - multinational earnings looks like they'll rise
partly due in fact to a weaker dollar and the Federal Reserve's
increase in the money supply due to falling interest rates.  Fed
funds, now at 1.25%, could fall by late-June to .75% - this is
the current expectation, for the Fed to push its benchmark rate
down by a 1/2 percent.

OTHER MARKETS -
Hey, if you're a gold bug, it's a great looking chart! The
reaction low held right where I would have looked for support -
at a level line from the apex of the triangle.  Better to have
owned calls on gold itself, as the XAU or Philly Gold Index has
not done as well as the metal itself.






MY INDEX OUTLOOKS –

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

Don't say I didn't warn you - about technical resistance in the
950 to 960 area that is.  It became a showstopper in the S&P 500
(SPX) by the Monday opening last week.  What now?  You got
another chance to buy puts from my reading of the charts.  935-
940 looks like the area - perhaps the hourly chart "gap" will get
entirely filled in by a move up to about 945.  Anything over 940
is a "gift" in my book and a good entry for put purchases.

What would suggest that SPX was back on a bullish track? - simply
to clear a well-defined "line" of resistance by closing over 948-
950.





On the downside, as discussed above, I think we'll see a dip to
below this past week's (down) swing low around 915.  Perhaps SPX
will not re-test 900, but it could get close, say to 905, at
least once between now the June expiration.

While I am not a strident bear and am mildly bullish for the
longer term, I still point out that the end of the current bear
market isn't really "confirmed" until we see SPX close above 960
on the week and then maintain that level, as support, on
subsequent pullbacks. While institutions will bury significant
money in key COMPX biggies, the S&P 500 is the biggest draw for
money managers to put the most money to work and they're not
convinced yet.

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

Repeating the daily chart twice here, in order to show the OEX
envelopes I use and the overall bullish upside momentum by the
fact of the upside crossover of the 50 day above the 200-day
moving average in the S&P 100 (OEX). There is a tendency for a
move back below the 21-day average however, once there is dip
below it - that's the center line on the lower chart.

Upper left shows two interesting technical patterns.  One is the
fact that OEX cleared its prior 475 peak for the week - the fact
that this was followed by a sharp drop was largely unpredictable
expect for my (largely) unfailing indicator of "sentiment": the
line that plots daily equities total call option volume relative
to total equities put volume on the CBOE.

I got bearish prior to last week based on the chart patterns I
highlighted, the overbought indicators and by a bearish price/RSI
divergence. I have to keep up my favorite "sentiment" indicator -
my Call to Put ratio - by manual entry.  While I thought it was
up to date last week, something went awry and the chart didn't
show the jump in the "needle" to a bearish extreme of 2.5, as is
circled below.

Friday the 16th saw CBOE equities call volume surge to 851
thousand contracts, versus put volume of 340 thousand. I'm glad
to know that this indicator continues so reliably to predict
downside reversals within 1-5 days of such extremes.
Fortunately, many OIN subscribers have picked up the habit of
checking this ratio and pointed out the extreme that can now be
seen under the lower left OEX chart.





Another thing that I would point out about when you have
overlooked some single factor is what I call the "Tree of
Indicators & Patterns" concept.  If you follow enough of the
right things, you will rarely fail to see a correction coming
even though a particular single indicator or pattern does not
develop as expected or you just overlook seeing it.

Enough hindsight and on to foresight - I think OEX is due or
nearly due for its next fall and would get ready to be in puts to
capture this.  472-475 is my most favored price zone to enter
into some (put) buying.  If 475 is pierced, 480 looks to be the
next key resistance.

My outlook is for new lows below 460, perhaps to around 445-450
again, support implied by the 200-day moving average. The lower
envelope "band" relative to the 21-day average in the lower daily
chart, intersects in the 440 area currently - however, I rate the
chance of seeing OEX down this far as being slim.  Note the prior
recent trend of a decline RSI trend while prices were going
sideways, as forewarning of the price break of early last week.

After the current correction runs its course, OEX could reach
500, but that would probably could not happen before the next
earnings announcement window in July - and, of course, earnings
would have to be good.

Nasdaq Composite Index (COMPX) – Daily & Hourly:

I highlighted in the daily Nasdaq Composite chart - left, below -
my expectation for a common or "typical" corrective pattern that
would see another downswing ahead, suggesting a possible move
back down to the 1450 area.

1550 is resistance in the COMPX.  1480 is near support.

The Composite has retraced now about 50% of its decline from
recent high to recent low.  I don't envision the current rebound
carrying much higher than 1525 at the most optimistic - the
pattern says more correction or downside ahead in my estimation.


What would begin to convince me otherwise is a close back above
1530. Resistance and selling interest can be anticipated in the
1530-1540 price zone.





Both the daily and longer hourly oscillator indicators are
suggesting either continued downside momentum (daily chart RSI)
or another overbought extreme in the case of the hourly
stochastic.

Similar to my suggestion last week, I again suggest bearish
trading strategies by buying NDX or QQQ puts on further rallies
in the Composite.  On to the Q's! Wish I were sailing on the new
QE2, but will have to settle for QQQ.

QQQ charts - Daily & Hourly:

QQQ could be re-shorted in the 28.5-28.75 resistance zone,
anticipating a move back to below recent lows around 27.5,
perhaps to the 26-26.50 area where the longer term up trendline
intersects on the daily chart currently.

The daily chart has a bearish rising wedge pattern to some
degree. A few such technical considerations are pointing to
another downswing ahead that is tradable.

After further corrective action however, I could see QQQ reaching
30 again, at the top of its current hourly uptrend channel. The
very next move looks to be down however.  My expected maximum
price range over the next 2-4 weeks is 26 or perhaps a bit lower
on the downside, to 30 on the upside.





Knowing that any imagined outlook can be wrong, a move to 29 or
above, especially on a closing basis in the upcoming 4-trading
day week, seems the least likely next move in the Q's.  But a
rally to this extent would suggest an upside "breakout" and
renewed upside price momentum.

The downside seems the path of least resistance just ahead as the
stock has had a decent advance off its lows - some pause and a
further pullback would be normal at this juncture.

Good Trading Success!


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

I Give Up

On Friday night I looked at several hundred stocks for this
section and I simply could not find one I would put my money
on. Sometimes FLAT is a position.

I looked for put plays, call plays, strangles and straddles
and I could not find anything I would feel comfortable
recommending.

There were plenty of plays in both directions but I could
find no compelling reason to play them.

I looked at WMT as a put play. The turkey is dropping like a
rock and I can find no good reason.

I looked at AMZN, which has a shareholder meeting this week
and a triple top at $33. The meeting could be contentious but
it could also be another spin event for Bezos. No clue as to
direction.

I looked at EBAY with a strong double top at $100 as a likely
put candidate but the potential for a stock split or a rally
off some AMZN meeting news kept me from going in that direction.
The options are also very expensive.

I looked at TSCO, PII, TTC for put plays on the HDI news from
Friday. PPI had already died along with TTC and TSCO has got
a strange chart. It looks like there is strong pressure and
$43 will break soon but there is no clue to direction. Options
are expensive as well.

I spend an hour looking for stocks suffering from the new
asbestos like plague, silicosis. Linda and I were talking about
the thousands of cases gearing up for class action status but
all the companies I could find were already approaching penny
stock status.

I was dying to short/put the BBH but I can't recommend a put
play on an index that finished at the high of the day and
the year on Friday.

I looked at index plays, ladder plays, strangles and straddles
on the DJX/DIA/QQQ but none were attractive.

I looked for naked puts, covered calls, naked calls, combination
plays and kept drawing a blank.

In all I looked at several hundred charts, read dozens and
dozens of news articles and came up empty.

My official recommendation is FLAT. However I know almost
everyone would take offense at that position. So, in the
interest of keeping the peace I give you these two possibles.
Not recommendations just suggestions.

Despite my market wrap today my gut still tells me we are
going down. I look at those extreme overbought readings and
cringe. That leads me back to the DJX and the $84 put. My
suggested short term trading range between 8200-9000 gives us
plenty of room for a drop. The DJX June $84 put was $1.05
on Friday night. It should be less on Tuesday due to decay
if there is not a gap down open. Try to buy for $1.00 and
sell for $1.50.

The second candidate is MRVL. The stock reported good earnings
and raised guidance on Thursday. It spiked +4.50 on Friday on
short covering. I would be surprised if there was any follow
through and despite the spike the options were reasonable.
The June $32.50 put is only $1.85 or the $30 put is only 85
cents. Both have about equal risk/reward ratios for a drop
back to $30. Take your pick.

MRVL Chart - Daily





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

Play updates:

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

QCOM - Put $30.89
5/18/03 ($31.10 when recommended)

It was an exciting week for QCOM. They gapped open on Monday
after affirming their guidance for the quarter in the face of
the new competition. They introduced several new products
during the week and found some bargain hunters coming to their
aid. On Friday SG Cowen downgraded them on excess inventory,
stronger competition and weak sales of their higher priced
components. That put them right back where they closed the
prior Friday after giving us a great entry point on Monday.
Both puts profiled opened -25 cents lower than the price
when recommended.

IVX - Calls - $17.28
4/27/03 ($15.28 when recommended)

Bummer! We got stopped out on the dip below 16.75 on Tuesday
and the stock is looking strong again. The KIV-AC calls were
trading at $3.20 when stopped compared to $2.10 when recommended.

http://members.OptionInvestor.com/editorplays/edply_042703_1.asp


CY - Cypress Semi Call - $9.60 ($9.95 week high)
3/2/03 ($6.41 when recommended)

CY is not looking healthy. We have seen a sharp drop in the stock
from its $11.15 high two weeks ago. Granted it is not much but
the Jan-$7.50 calls profiled at $1.45 have dropped from their
high of $4.00 to only $3.20. Still a double but slipping. I am
going to take profits here and close this trade today.

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


EMC Call from Feb-2nd  $9.58 ($9.85 week high)
($7.70 when recommended)

EMC is also well off its highs but I want to give it one more
week. If it drops below $9.00 I am going to close it. I have
faith in the network storage sector but I do not want this once
profitable play to turn into a loss.

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


Powerball

No material change in this lottery play. RFMD, TLAB and FLEX
remain the biggest drag but still eight months to go.

It would have taken $1,255 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03





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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown


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

A Losing Week
 - James Brown

The markets may have snapped their recent winning streak with a
down week but the bears certainly can't claim any big victories.
Other than the big, triple-digit down day on Monday, most of the
market either traded sideways or hit new relative highs.  All of
this on top of a string of suicide bombings last weekend, a mad
cow disease scare in Canada and more concerns over the d-word
(deflation).

It's been said before...this market wants to go higher.  The
passing of the tax-cut bill has at least two sectors trading
higher - the utilities and the housing sector.  The dividend tax
cut is already showing its impact on share prices.  Add all-time
lows for home mortgage rates and home sales continue to run strong
despite the soft labor market.  Next week we'll see the latest new
and existing home sales numbers.  You can bet with homebuilding
stocks as high as they are there will be a lot people watching
those reports for any weakness.

I noticed a ton of stocks that had pulled back to minor support
levels as if waiting for their next cue.  Do we rebound higher
again?  Or do we break support and begin a significant
consolidation?  There have been many comments about the breadth of
this market's rally.  In truth, the broadness of the rally is
truly encouraging.  However, without their "generals" the "troops"
tend to move with less efficiency and can meander off course.
Those generals I'm talking about are the mega-caps like GE, MSFT,
MMM and WMT, just to name a few.  Looking at the charts of these
three giants you won't see strength but weakness.  In GE it's been
a slow bleed lower.  In MSFT and WMT the pull has been much
sharper.  What could be bad news for the retail sector is the
close under the 200-dma for WMT.   MMM has been unable to bounce
back above its own 200-dma and its point-and-figure chart looks
poised for a big drop downward.  As the highest dollar stock in
the Industrials it has a unique position to put the great weight
(up or down) on that index.

I continue to suggest caution in both your play selection and your
stop loss management.  It is a market maxim that stock's move in
cycles and that means that any one trend will eventually reverse.
I think the OptionInvestor.com play list offers both bullish and
bearish opportunities but you can tell from the number of put
plays on the list we're betting with our bearish bias that this
short-term up trend could be close to over.


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

Market Averages

DJIA ($INDU)

52-week High: 10348
52-week Low :  7197
Current     :  8601

Moving Averages:
(Simple)

 10-dma: 8614
 50-dma: 8385
200-dma: 8331



S&P 500 ($SPX)

52-week High: 1107
52-week Low :  768
Current     :  933

Moving Averages:
(Simple)

 10-dma:  935
 50-dma:  899
200-dma:  884



Nasdaq-100 ($NDX)

52-week High: 1313
52-week Low :  795
Current     : 1130

Moving Averages:
(Simple)

 10-dma: 1138
 50-dma: 1089
200-dma: 1010



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


Yet another new all-time low for the VXN.  The VIX lost another 1%.
These continue to flash major warning signs to any who would read
them.

CBOE Market Volatility Index (VIX) = 21.38 -0.24
Nasdaq-100 Volatility Index  (VXN) = 29.73 -0.38

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.74        430,326       319,365
Equity Only    0.59        330,919       196,412
OEX            1.67          6,383        10,651
QQQ            7.83          4,749        37,185


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

Bullish Percent Data

           Current   Change   Status
NYSE          60.9    + 1     Bull Confirmed
NASDAQ-100    78.0    + 0     Bull Confirmed
Dow Indust.   70.0    - 3     Bull Confirmed
S&P 500       68.2    + 0     Bull Confirmed
S&P 100       66.0    - 1     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  1.45
10-Day Arms Index  1.12
21-Day Arms Index  1.13
55-Day Arms Index  1.23


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    1882      1784
Decliners     969      1261

New Highs     331       177
New Lows       22        10

Up Volume    906M     905M
Down Vol.    517M     472M

Total Vol.  1467M     1412M

M = millions


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


Commitments Of Traders Report: 05/20/03

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're still not seeing anyone place any big bets one way or
the other in the full S&P 500 futures contracts.  Number of
contracts increased but no significant changes in sentiment
here.

Commercials   Long      Short      Net     % Of OI
04/29/03      432,710   419,245    13,465     1.6%
05/06/03      429,519   419,545     9,974     1.2%
05/16/03      429,028   419,553     9,475     1.1%
05/20/03      438,238   426,569    11,669     1.3%

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
04/29/03      149,616   154,782     5,166      1.7%
05/06/03      150,345   148,681     1,664      0.6%
05/16/03      151,883   148,479     3,404      1.1%
05/20/03      157,034   154,980     2,054      0.7%

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

In the E-minis we see a strong jump in number of contracts.
Plus, we notice that the commercials made a much bigger
percentage increase in their long positions while the
small traders make a bigger percentage increase in their
short positions.  This is what we would expect.  One moving
counter to the other.  Not in a contract for contract basis
but in a bullish or bearish sentiment basis.

Commercials   Long      Short      Net     % Of OI
04/29/03      134,751   472,247   (337,496)  (55.6%)
05/06/03      169,388   447,330   (277,942)  (45.1%)
05/16/03      178,679   452,727   (274,048)  (43.4%)
05/20/03      232,184   468,006   (235,822)  (33.7%)

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
04/29/03      459,687    50,030   409,657    80.4%
05/06/03      423,918    55,932   367,986    76.7%
05/16/03      421,540    57,483   364,057    75.9%
05/20/03      422,555    62,580   359,975    74.2%

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


NASDAQ-100

We have a dead heat in the commercials with a nearly
even number of long and short positions.  This doesn't
do us any help unless you surmise that the "smart"
money is just as confused about the direction of the
Nasdaq as everyone else is.

Commercials   Long      Short      Net     % of OI
04/29/03       45,497     37,557     7,940    9.6%
05/06/03       46,327     38,216     8,111    9.6%
05/16/03       43,539     39,046     4,493    5.4%
05/20/03       42,864     42,040       824    1.0%

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
04/29/03       11,219    19,760   ( 8,551)  (27.6%)
05/06/03       13,482    21,010   ( 7,528)  (21.8%)
05/16/03       11,706    16,104   ( 4,398)  (33.0%)
05/20/03       11,024     9,965   ( 1,059)  ( 5.0%)

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

DOW JONES INDUSTRIAL

We have almost no change in the commercials' positions
while we see a small increase in bullishness for the small
trader but not enough to bring them to a net positive for
longs.

Commercials   Long      Short      Net     % of OI
04/29/03       17,927    14,083    3,844      12.0%
05/06/03       16,772    13,568    3,204      10.6%
05/16/03       18,265    14,396    3,869      11.8%
05/20/03       18,028    14,108    3,920      12.2%

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
04/29/03        7,081     8,604    (1,523)   ( 9.7%)
05/06/03        7,829     8,642    (  813)   ( 4.9%)
05/16/03        7,873     9,058    (1,185)   ( 6.9%)
05/20/03        8,378     9,922    (1,544)   ( 8.4%)

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

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


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***************
ASK THE ANALYST
***************

Measuring new high and new low breadth

Jeff:  I've really enjoyed and my account has benefited from the
bullish percent charts and point and figure charting in general.
I've got a question regarding the 52-week high/low indicator and
how it is supposed to help alert me to a change in the market's
direction quicker than the bullish percent?

I edited out some of this trader/investor's question, as it was
lengthy, but the general question is how a trader/investor would
utilize the number of stocks trading new 52-week highs versus the
number of stocks trading new lows, put the data into a form that
the human mind can better understand, and then interpret.

The number of new highs versus new lows is thought to be an
indicator of leadership for the markets.  When I use the word
"leadership," don't necessarily thing "up," but also think
"down," as it relates to where the leadership is coming from.

For instance... it could be that a market environment that has
been trending lower over the course of a year (52-weeks) we would
expect a growing number of 52-week lows.  If the number of 52-
week lows grows each day, or over the course of several days,
then we could say, "leadership is coming from the downside."

Conversely, "leadership" can come from the upside, with a greater
number of stocks hitting new 52-week highs, than stocks hitting
new 52-week lows.

Once again, we see two indicators, that definitely play into the
measurement of supply and demand, where the point and figure
charting methodology can serve yet another purpose.  The thought
is, if the number of 52-week highs begin outpacing the number of
new 52-week lows, then "upside" leadership, where buying (demand)
from buying has more stocks pushing higher, than selling (supply)
has stocks falling lower.

Now, there are times when both new highs and new lows will show a
growing number.  When we see a growing number of stocks hitting
both 52-week highs and lows, think of this as a rubber band being
stretched at both ends.  Similar to a rubber band that continues
to stretch, at some point, we'd look for something to either
"snap!"  The "snap" can come from an "inflection" point and can
take place at a market low, or a market top.

I'll show how the point and figure chartist will look to measure
the 52-week highs and lows and then look to interpret this type
of data.  It's rather simple, and by building a ratio and
tracking that ratio on a 10-day average, we can build a
supply/demand chart to measure "leadership" in a market.

The number of 52-week highs compared to the number of 52-week
lows being traded in a particular day is very difficult in itself
to make any type of meaningful interpretation.

Calculating a ratio and establishing a trend along with MOMENTUM

To better understand why trader/investors will follow the number
of new highs and new lows in a market, it also important to
understand that the number of new highs and new lows by
themselves can be misunderstood as it relates to price level for
a market.

For instance, on December 2, 2002 the NASDAQ Composite (COMPX)
traded a high of 1,521.44 and the number of stocks that traded
new 52-week highs totaled 114, while the number of stocks that
traded new 52-week lows totaled 26.  On Friday, May 23, 2003 the
NASDAQ Composite (COMPX) traded a high of 1,514.49 and the number
of stocks that traded a new 52-week high totaled 154, while the
number of stocks that traded new 52-week lows totaled 14.

We can see from the above that the "value" of the NASDAQ
Composite was similar, but the number of new 52-week highs and
new 52-week lows are markedly different.  It would be an error to
simply assume that just because there's a greater number of new
highs compared to new lows on any given day or date in time,
would be indicative of a market's value.

To really be able to interpret two separate numbers (highs and
lows), its helpful to establish a ratio.  If I read yesterday's
Wall Street Journal and saw that 50 stocks traded new 52-week
highs and 100 stocks that traded new 52-week lows, that by itself
is of little use.  My mind can process the information and see
that there was "leadership" from the downside by a 2 to 1 margin,
but that's it.

The next day, I might see that 60 stocks traded new 52-week
highs, compared to 100 stocks trading new 52-week lows.
Suddenly, I see the RATIO change where "leadership" is still from
the downside by a 5 to 3 margin, but I perhaps sense a "shift"
taking place.

What becomes difficult to track day after day is how each days
number of new highs and new lows begins to "stack up" and
eventually build some type of trend, or where a "change in
"leadership" might be taking place.

By establishing a RATIO, we're able to understand a "range" of 0
to 100, and then place our data point (the ratio) on a chart and
better understand and interpret that data point and series of
data points as time passes.

Day to day changes in the number of stocks trading new 52-week
highs and new 52-week lows can vary and so can the "ratio."  To
try and interpret this type of breadth on a day-to-day basis is
practically impossible.  Therefore, it's helpful to AVERAGE the
ratio and then chart the AVERAGE.

A bar chartist will measure the MOMENTUM of an index or stock's
price movement with a 5, 10, 21, 50 or 200-day moving average.
The RATIO of new highs against new lows can also be interpreted
using the AVERAGE of several observations.

Before we begin creating moving averages, lets quickly review how
the RATIO is calculated.  It's a simple mathematical equation
whereby we divide the number of 52-week highs, by the number of
new highs plus the number of new lows, and then multiply that
number by 100, to get a percentage or RATIO.

RATIO = (52-week highs / (52-week highs + 52-week lows)) x 100

Let's take a look at a data set.  The following table is a
tabulation of current market data to May 23, 2003 where each day,
I gather the number of stocks trading new 52-week highs and new
52-week lows on both the NYSE and NASDAQ.  Then, using the RATIO
formula above, calculate ratios for both exchanges.  I also take
the average of the last 10-days, to create a 10-day average, that
I will then plot on a point and figure chart, using the
conventional 3-box reversal technique of charting RATIO change.

NYSE and NASDAQ high/low data




I've highlighted in "dashed pink" some data from April 1 - 8 that
I wanted to draw attention to.  I don't know about you, but if I
only looked at the new highs (NH) and new lows (NL) each day, I'd
have a difficult time trying to interpret "what end" leadership
was coming from.  It's "shocking" to compare Aril 7 and April 8
new highs and new lows.  Obviously something drastic happened
that day as new highs fell substantially from the day before in
both the NYSE and NASDQ, while new lows also grew from the day
before.  This is a day-to-day observation, and something that can
be difficult to interpret, and may be initially thought of as
"noise."

As we moved to the right of the data set, this is where we begin
our calculation of RATIO between the new highs and new lows.
Hopefully we can see that by putting two separate numbers (new
highs and new lows) into "one number" and creating a ratio, it
becomes a little easier to understand breadth.

For instance, lets look at the NYSE new high/new low (NYSE NH
Ratio) for April 1.  Of the 98 stocks (70+28) that either traded
a new 52-week high or 52-week low, 71.4% of the total were stocks
trading new 52-week highs.  That's pretty STRONG isn't it?  And
showing some BULLISH leadership?  Yes!  for that DAY.

But as your eyes move down the NYSE NH/NL Ratio column or the
NSDQ NH/NL Ratio column you'll see some rather sharp fluctuations
in the day-to-day ratios won't you?  As we AVERAGE these
observations with a 10-day AVERAGE, the day-to-day volatility, or
noise of the RATIO begins to be smoothed out (10-day average).

Why do I use a 10-day average you might ask.  I'm using a 10-day
average, so that I'm charting the same value as Dorsey/Wright and
Associates.  Several OI and PI subscribers are using Dorsey's
point and figure charting system and this keeps us on the same
page.

I've sent a question to www.stockcharts.com in regards to their
NYSE and NASDAQ highs-lows charts, to try and figure out what
type of value they are calculating and charting.

For now, let's look at a point and figure type chart, where I'm
going to plot the 10-day average for the NYSE NH/NL ratio.  For
those traders/investors that use the bullish % charts for the
major market indexes, you should immediately recognize what this
chart tends to reflect.  I'm also going to annotate the chart as
to how this chart is interpreted.

NYSE NH/NL Ratio - 2% box scale




Woooeee!  By charting the 10-day average of the NYSE new high/new
low ratio, we can build a chart somewhat similar to a bullish %
chart.  In a minute, we're going to see of a 52-week High/Low
chart is a "faster moving" indicator to alert us to a shift in
leadership.

I've use some of the market condition slogans like "bull alert,"
"bull confirmed," "bear alert" and "bear confirmed" like we will
use in the bullish % charts, that would have this indicator of
leadership perhaps saying some of the same things a bullish %
chart would "say."

Again, time reference is Jan.-Sept. (1-9) with Oct.-Dec. (A-C) so
take note when we use the High/Low Ratio with a bullish % chart.

Is this indicator bullish right now?  You better believe it is!
Is risk for bulls high right now?  You better believe it is!  Is
there some bullish leadership being found in the NYSE right now?
You better believe there is!

Let's try and compare the above NYSE NH/NL chart with that of the
S&P 500 Bullish % ($BPSPX) from www.stockcharts.com. And see if
the NYSE NH/NL chart is "faster moving" and perhaps gives an
"early" alert to changes in bullish or bearish leadership and how
BOTH the NYSE NH/NL and S&P 500 Bullish % ($BPSPX) chart should
be used together!

I will say this right now.  The BULLISH % CHART should be the
PRIMARY indicator used in assessing market RISK and internal
strength, with the high/low indicator being used to assess change
in leadership and breadth at "both ends" of a market, which can
eventually lead to market direction!

S&P 500 Bullish % (BPSPX) - 2% box scale




I tried to build a chart where we could look at both charts side-
by-side, but width limitations had that type of comparison
unreadable.

The "faster moving" observation is made by noting that in the
directly above S&P 500 Bullish % ($BPSPX) we see 11 columns of
alternating X's and O's since 2002, whereas in the NYSE High/Low
chart, we count 17 columns of alternating X's and O's.

What a trader/investor looks to do is compare each chart against
the other and look for SIMILARITY, but attempts to use the
"faster changing" or more volatile high/low indicator to alert
the trader to a shift in "leadership" that might then be
reflected in the BROADER and slower moving bullish %.

A most recent example would have been in March (red 3 on a PnF
chart) the High/Low indicator had already reversed up into a
"bull alert" type of reading on its chart.  Yet the Bullish %
Chart was still falling at 32% as the broader market internals
were still weakening as more and more stocks continued to give
point and figure sell signals.

But what did we "know" about RISK from both indicators?  When
both indicators were reaching the more "oversold" level of 30%,
we "knew" that RISK for BEARS was HIGH.  Still.... the High/Low
chart was alerting us to a shift in leadership based on the
plotting of the 10-day average.

Then, the High/Low indicator did reverse back into a column of
"O" briefly (40-32) as the broader and more IMPORTANT bullish %
still told us the market internals were weak.

But then... suddenly... the High/Low reversed back up again and
at a 44 reading, turned that indicator "bull confirmed."
Suddenly, a greater RATIO or percentage of stocks began setting
new highs compared to new lows as if a more MEANINGFUL shift in
BULLISH leadership was being found!

Then... suddenly... the broader market internals as depicted by
the bullish % ($BPSPX) reversed up.  Here too, more and more
stocks began generating point and figure buy signals and
bullishness appeared to be spreading, not just from the ratio of
new highs/new lows, but to the broader market as depicted by the
S&P 500.

Just as we can tie in "bullish ties" between the high/low
indicator and the bullish %, we can make "bearish ties" between
these to indicators.

June of 2002 is perhaps the perfect example of this.  From
January to April (red 1 to red 4) both the High/Low and Bullish %
had reached more "overbought" levels at or above 70%.

The faster moving and more volatile high/low indicator was
setting a pattern of higher highs and higher lows during that
time.  A BULLISH trader "knew" internals were still strong, but
RISK for BULLISH trades was HIGH.  By May (red 5) the high/low
indicator showed a lower high on its chart at an OVERBOUGHT
level.  A comparison with the S&P 500 Bullish % chart (red 5)
showed a "bear alert" status already having been issued.

It was in June (red 6) that the High/Low indicator would have
issued a "bear confirmed" type reading as suddenly, a shift
toward BEARISH leadership had the number of new LOWS skewing the
ratio to a level of BEARISH leadership.  Soon after early June,
the Bullish % Chart ($BPSPX) also gave the "bear confirmed"
reading!

Do you sense that when you get two somewhat "different"
indicators that do monitor the market internals, but to different
degrees start "saying" the same thing, that larger moves tend to
take place?

Print both of these charts out in the not too distant future and
lay them side by side.  Then, go to www.stockcharts.com and print
out a FREE point and figure chart of the S&P 500 Index (SPX.X) on
its conventional 5-point box.

Lay all three charts out side-by-side and begin circling areas
where you find CONFIRMING signs of strength and weakness.

Market internals are important to understand, and give the
trader/investor observations of the "guts" or internals of the
market.  This can differ from what the externals are showing.
The internals give the trader/investor a look at the
strength/weakness of the market.

Those subscribers that have seen me mention how the market tends
to move like a "snake" or an "inchworm" will associate the
High/Low indicator as being the "head" and "tail" of a market.
The new highs are the strength of the head compared to the new
lows being the strength of the tail.

Now, here's my NASDAQ High/Low chart.  Print this one out too.
If you're a NASDAQ-100 Index (NDX.X) trader, then you may want to
also print out a FREE NASDAQ-100 Bullish % ($BPNDX) chart from
www.stockcharts.com.  Make sure your box size is set at 2, not
the default of 1.

NASDAQ NH/NL Ratio - 2% box scale




Starting in October of 2001 (Red A lower left corner) I started
highlighting every different stage for the six degrees of risk or
"market cycles" as it would relate to the NASDAQ High/Low ratio.
I did not do this for the NYSE High/Low ratio.

Try saying them out loud as you follow the chart from left to
right.  It can help you "feel" they cycles, like you're on a
roller coaster.

When you're doing this, think RISK as being higher or lower for
BULLS as you move back and forth from 70% to 30%.

I read it like this.  Bull alert, bull confirmed, bull
correction, bear alert, bull confirmed, bull correction, bull
confirmed, bull correction, bear confirmed (feel the shift?),
bull alert, bear confirmed, bull alert, bear confirmed, bull
alert, bull confirmed (feel the shift?), bull correction, bear
alert, bull confirmed, bull correction, bear alert, bear
confirmed (feel the shift?) bull alert, bull confirmed (feel the
shift?).

There are "Six Degrees of Risk" or "cycles" in a market, as
depicted by the bullish %.

I've tried to associate some of these "cycles" in the above
charts.  For a more thorough explanation of how to identify
these "cycles", please go to the "Bailey's Basics" section of the
site, and look for the November 8, 2001 article titled
"Understanding Risk is key."

Jeff Bailey


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

==========================================
Market Watch for the week of May 26th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

None


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

AZO    AutoZone Inc.         Tue, May 27  After the Bell      1.27
BMO    Bank Of Montreal      Tue, May 27  -----N/A-----        N/A
BNS    Bank of Nova Scotia   Tue, May 27  -----N/A-----        N/A
DCI    Donaldson             Tue, May 27  After the Bell      0.53
SMTC   Semtech               Tue, May 27  After the Bell      0.11
TKA    Telekom Austria AG    Tue, May 27  Before the Bell      N/A
VOD    Vodafone Group Public Tue, May 27  -----N/A-----        N/A


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

COST   Costco Wholesale Corp Wed, May 28  Before the Bell     0.31
RDY    Dr. Reddy's Labs      Wed, May 28  -----N/A-----        N/A
HOV    Hovnanian Enterprises Wed, May 28  After the Bell      1.21
KKD    Krispy Kreme Doughnut Wed, May 28  Before the Bell     0.20
LZB    La-Z-Boy Inc.         Wed, May 28  After the Bell      0.39
PFP    Premier Farnell Plc   Wed, May 28  Before the Bell      N/A
ROP    Roper Industries      Wed, May 28  After the Bell      0.45
TECD   Tech Data Corporation Wed, May 28  -----N/A-----       0.40
TOL    Toll Brothers         Wed, May 28  Before the Bell     0.68


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

CHS    Chico's FAS           Thu, May 29  Before the Bell     0.28
DG     Dollar General Corp.  Thu, May 29  Before the Bell     0.16
DLTR   Dollar Tree Stores    Thu, May 29  -----N/A-----       0.27
OTE    Hellenic Telecomm     Thu, May 29  Before the Bell      N/A
JDEC   J D EDWARDS & CO      Thu, May 29  After the Bell      0.01
MBG    Mandalay Resort Grp   Thu, May 29  After the Bell      0.78
MCDTA  McDATA Corporation    Thu, May 29  After the Bell      0.05
MIK    Michaels Stores       Thu, May 29  -----N/A-----       0.29
PETM   PetsMart              Thu, May 29  Before the Bell     0.16
Q      Qwest Communications  Thu, May 29  Before the Bell    -0.09
TTWO   Take-2 Interact Sftwr Thu, May 29  Before the Bell     0.35
VIP    Vimpel Communications Thu, May 29  -----N/A-----        N/A

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

BFb    Brown-Forman Corp     Fri, May 30  Before the Bell     0.91
PNY    Piedmont Natural Gas  Fri, May 30  -----N/A-----       1.28
RY     ROYAL BK CDA MON QUE  Fri, May 30  -----N/A-----        N/A


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

Symbol  Company Name              Ratio    Payable     Executable

FNF     Fidelity National         5:4      May  23rd   May  27th
AMN     Ameron Intl               2:1      May  27th   Apr  28th
AMFC    AMB Financial             5:4      May  29th   Apr  30th
FLIR    FLIR Systems              2:1      May  29th   May  30th
ERES    eResearchTech             2:1      May  29th   May  30th
CNBC    Center Bancorp            2:1      Jun   2nd   Jun   3rd
POG     Patina Oil Gas            5:4      Jun   4th   Jun   5th
FCN     FTI Consulting            3:2      Jun   4th   Jun   5th
ECL     Ecolab                    2:1      Jun   6th   Jun   9th
ATVI    Activision Inc            3:2      Jun   6th   Jun   9th


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

Investors can enjoy the long weekend because when they get back
there is a host of economic reports that could move the markets.
Just to name a few, we've got Consumer Confidence, Home Sales,
GDP, Help Waned, Personal Income and Spending and more!

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

Monday, 05/26/02
----------------
None


Tuesday, 05/27/02
-----------------
Consumer Confidence(DM) May  Forecast:    83.0  Previous:    81.0
Existing Home Sales(DM) Apr  Forecast:   5.70M  Previous:   5.53M
New Home Sales (DM)     Apr  Forecast:    980K  Previous:   1012K


Wednesday, 05/28/02
-------------------
Durable Orders (BB)     Apr  Forecast:   -1.0%  Previous:   -2.0%


Thursday, 05/29/02
------------------
Initial Claims (BB)   05/24  Forecast:    N/A  Previous:     428K
GDP-Prel. (BB)           Q1  Forecast:   1.8%  Previous:     1.6%
Chain Deflator-Prel.(BB) Q1  Forecast:   2.5%  Previous:     2.5%
Help Wanted Index (DM)  Apr  Forecast:     37  Previous:       38


Friday, 05/30/02
----------------
Personal Income (BB)    Apr  Forecast:   0.0%  Previous:     0.4%
Personal Spending (BB)  Apr  Forecast:   0.1%  Previous:     0.4%
Mich Sentiment-Rev.(DM) May  Forecast:   92.7  Previous:     93.2
Chicago PMI (DM)        May  Forecast:   49.0  Previous:     47.6


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


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The Option Investor Newsletter                   Sunday 05-25-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Little Bit of Sweet & Sour
Daily Results
Put Play of the Day: FRE
Dropped Calls: None
Dropped Puts: None


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**********
Watch List
**********

Little Bit of Sweet & Sour

Hershey Foods - HSY - close: 68.65 change: +0.30

WHAT TO WATCH: Shares of the famous chocolate maker are about to
move into the gap from last September.  Once above the $69.00
mark it could try and fill that gap.  Traders looking to jump the
gun can target dips to $68.00 with tight stops.

Chart=


---

Vodafone - VOD - close: 20.94 change: +0.56

WHAT TO WATCH: A previous high-flying telecom from the bubble-
years, this British mobile-service giant just broke out to the
upside from a multi-month consolidation.  It's point-and-figure
(PnF) chart also looks bullish.  Check out the weekly chart.
Tally ho!

Chart=


---

Lexmark - LXK - close: 69.37 change: -0.58

WHAT TO WATCH: LXK is trying very hard to hold on to that $70.00
mark and its 50-dma but bulls should be concerned. Friday's close
put it below both.  There have been some negative comments out on
the stock recently and the latest price target is $55.  Bears
could target a move to the $60.00 level, where LXK has natural
support and its 200-dma.

Chart=


---

Apollo Group - APOL - close: 52.40 change: -0.89

WHAT TO WATCH: The profit taking for one of the strongest sectors
the last couple of years, schools, may have begun.  APOL's short-
term channel was broken a few sessions ago and the selling
pressure has been too much for it.  We suspect it will target a
move to the $46.00 area, while pausing to consolidate some near
$50.00.  Check out the weekly chart and the point-and-figure
chart in addition to the daily and you'll see why.

Chart=


---

Citrix Systems - CTXS - close: 20.59 change: +0.19

WHAT TO WATCH: The incredibly strong CTXS just continues to build
on its recent trend of higher lows.  A move over today's high
could launch it into its next leg higher.  Granted this would be
for aggressive traders only as the stock looks terribly
overbought from its mid-April breakout.

Chart=




====================================
RADAR SCREEN - more stocks to watch
====================================

NXTL $14.88 - We continue to watch NXTL.  The breakout back over
$14.50 looks attractive but shares could easily pull back.  Maybe
a bounce at $14.00 for aggressive bulls.

CYMI $27.09 - Check out this chip stock.  It's been ignoring any
strength in tech the last week and closed under its 200-dma.
Could a retest of April lows be far behind?

JPM $30.90 - Thus far the financials have managed to hang in
there.  Notice how JPM has been bouncing along the $30.00 level?
Look for a break one way or the other.

SMG $50.30 - Keep an eye on Scotts. The stock has been holding at
support near $50 and its 200-dma for the last four days. Will it
hold or will it break?


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

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

CALLS    LAST      Mon    Tue    Wed   Thu  Week

AMGN     61.88   -2.04   0.76  0.53  1.17 -1.00  Trend intact
DISH     31.49   -0.65  -0.03  0.51  1.14  0.55  Look for a dip?
MEDI     33.84   -0.48   0.42 -0.93  1.45 -0.75  Do or die.
OHP      36.92   -0.66   1.32  0.15  0.15 -0.66  Drift higher
QLGC     45.76   -1.52  -0.30  0.41  0.26 -0.10  Looks strong.


PUTS

AIG      54.99   -2.09  -0.44  0.43  0.37 -2.31  Could be soon
FRE      57.90   -0.47  -0.09 -0.45 -0.70 -3.43  NEW, marketshare
HDI      40.81   -0.55   0.00  0.10  0.57 -2.19  NEW, broken
GM       33.26   -0.80  -0.28  0.20  0.07 -1.15  No update
GS       76.15   -2.35   0.10  0.70  0.93 -0.55  Needs to fail
JCI      80.70   -0.96  -0.13 -0.37  0.80 -0.80  No bounce
LLL      42.43   -0.69  -1.29  0.05  0.66 -1.49  No bounce
MTG      45.05   -1.01  -0.12  0.41 -0.01 -0.65  Treading water


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***************
PLAY OF THE DAY
***************

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

Freddie Mac - FRE - close: 57.90 change: -1.45 stop: 60.00

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

None


PUTS
^^^^

None


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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pastures, cane fields, ocean and three islands.

Described as the "Crown Jewel of Privacy" you can be here for
months and never see a soul!

The land adjoins a 600-acre pasture where Jimmy Hendrix held his
last concert. Look out the windows in the early morning and you'll
see a herd of cows, wild boar, axis deer, circling owls and
hundreds of pheasant - but no people.

Four phone lines, DISH, Sky Fiber broadband and Roadrunner available.

For more on Maui's ultimate retreat see http://www.mauimansions.com/OIN

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


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The Option Investor Newsletter                   Sunday 05-25-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AMGN, DISH, MEDI, OHP, QLGC
New Calls: None
Current Put Plays: AIF, GM, Gs, JCI, LLL, MTG
New Puts: FRE, HDI


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

Amgen, Inc. - AMGN - close: 61.79 change: -0.08 stop: 59.75

Company Description:
The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and Johnson &
Johnson.

Why we like it:
With the spotlight still on shares of DNA on Friday, the
Biotechnology index (BTK.X) surged to $433, it's best close in
over a year.  But our AMGN play really didn't make much headway,
remaining pinned just below the $62 level.  Looking at the chart
below, you can see that the stock is sandwiched between strong
support provided by the 50-dma ($60.19) as well as the ascending
trendline at $59.85, and the short-term descending trendline at
$63.  we're still looking for AMGN to continue its longer-term
upward trend, but heading into the long weekend, the bulls just
didn't have the conviction to get the job done.  Dips back near
the $60 level still look good for traders seeking a new entry
point, with stops set just below the ascending trendline.  We
still need to see AMGN move and hold above the $63 level for
confirmation that the bulls are willing to drive the stock to new
highs for the year.  The real key will be for a return of volume
when traders get back to business as usual following the long
weekend.

Suggested Options:
Shorter Term: The June 65 Call will offer short-term traders the
best return on an immediate move, but this is a higher risk
approach due to AMGN's slow-moving nature.  Traders with less
tolerance for risk will want to use the June 60 Call.

Longer Term: Due to the slow and deliberate price action for
which AMGN is known, traders looking to capitalize on a breakout
move above $64 will want to look to the July 65 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.

BUY CALL JUN-60 YAA-FL OI= 6692 at $2.95 SL=1.50
BUY CALL JUN-65 YAA-FM OI=18363 at $0.55 SL=0.25
BUY CALL JUL-60 YAA-GL OI=41856 at $3.90 SL=2.50
BUY CALL JUL-65 YAA-GM OI=28418 at $1.30 SL=0.75

Annotated Chart of AMGN:




Picked on May 11th at    $61.24
Change since picked:      +0.55
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.7 mln
Chart link:


---

EchoStar Communications - DISH - cls: 31.49 chg: -0.75 stop:
29.99

Company Description:
EchoStar Communications Corporation, through its DISH
Network(TM), is a leading U.S. provider of satellite television
entertainment services with 8.53 million customers. DISH Network
provides advanced digital satellite television services to the
home, including hundreds of video, audio and data channels,
personal video recording, HDTV, sports and international
programming, professional installation and 24-hour customer
service. (source: company press release)

Why We Like It:
The relative strength shown in shares of DISH are pretty
impressive.  In six months time, the stock has appreciated by
more than 50% and the trend doesn't show any signs of abating
just yet.  The stock broke out above the $30 level in early May
just prior to its Q1 earnings report.  The report was positive
and a huge improvement over a year ago period.  The stock spiked
up again but then spent the next couple of weeks digesting gains.
Considering that the broader markets were also consolidating some
of their own gains, the weakness in DISH was rather muted.  The
stock eventually dipped to the $30 level again, but this time the
level acted as support.  Plus, bulls had the benefit of DISH's
rising channel and its rising simple 50-dma.  The stock bounced
as expected.

The dip on Friday looks like an entry point for new bullish
positions.  Yet if we're looking to buy the dip, considering
looking for another pull back to the $30.00-31.00 area.  This
would significantly reduce any exposure with a stop at $29.99.
Bulls also had reason to buy the stock yesterday after the
company came to an agreement with 13 states over customer
processing and advertising practices.  Sure, EchoStar paid $5
million to make this decision but it probably saved them from a
long and costly court battle.

Suggested Options:
We're going to list June, July and September call options but our
favorites would probably be the July's as DISH's rising trend can
be slow at times.  Unfortunately, open interest appears to be
rather small on July's right now.

BUY CALL JUN 30.00 UAB-FF OI=5506 at $2.30 SL=1.15
BUY CALL JUN 32.50 UAB-FZ OI=2671 at $0.90 SL=0.45
BUY CALL JUL 30.00 UAB-GF OI= 661 at $2.95 SL=1.50
BUY CALL JUL 35.00 UAB-GG OI= 579 at $0065 SL=0.00
BUY CALL SEP 35.00 UAB-IG OI=1351 at $1.50 SL=0.75

Annotated Chart for DISH:




Picked on May 21st at $31.10
Change since picked:   +0.39
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


---

MedImmune - MEDI - close: 33.84 change: -0.39 stop: 32.50*new*

Company Description:
MedImmune is a leading biotechnology company focused on
researching, developing and commercializing products to prevent
or treat infectious disease, autoimmune disease and cancer.
MedImmune currently markets three products, Synagis.
(palivizumab), Ethyol. (amifostine) and CytoGam. (cytomegalovirus
immune globulin intravenous (human)), and has 10 products in
clinical testing. MedImmune employs approximately 1,600 people,
is headquartered in Gaithersburg, Maryland, and has additional
operations in Frederick, Maryland, as well as Pennsylvania,
California, the United Kingdom and the Netherlands (source:
company press release)

Why We Like It:
Initially, back in early April, we started MEDI as a "long-term"
call play based on its steadily rising channel and the
expectation that when the FDA approved its FluMist product the
stock would appreciate even more.  So far we're still waiting on
that FDA approval, which is expected by the end of June.
Unfortunately, the stock is starting to falter.  It remains
inside its rising channel but Wednesday's low was a bounce off
the bottom and within 65 cents of our stop.  Most of the
technical indicators are negative and we don't like how it has
fallen back under the $35 level.  We are raising out stop to
$32.50 and we're not suggesting any new plays unless shares close
back above $35.00.

Suggested Options:
We're not suggesting any new plays at this time.

Annotated Chart of MEDI:




Picked on April 3rd at $34.31
Change since picked:    -0.47
Earnings Date        04/23/03 (confirmed)
Average Daily Volume = 3.9 million
Chart link:



---

Oxford Health - OHP - cls: 36.92 chg: +0.22 stop: 34.50*new*

Company Description:
Founded in 1984, Oxford Health Plans provides health plans to
employers in New York, New Jersey and Connecticut, through its
direct sales force and through independent insurance agents and
brokers. Oxford's services include traditional health maintenance
organizations, point- of-service plans, third-party
administration of employer-funded benefit plans and
Medicare+Choice plans. (source: company press release)

Why We Like It:
The path of least resistance appears to be "up" for OHP.  The
stock is sort of drifting higher as volume steadily declined
ahead of the long holiday weekend.  We're still positive on the
stock but patient traders may want to wait for another dip before
evaluating new long positions.

We introduced the play last Tuesday evening after the entire
group began showing incredible strength in the face of the
broader market's weakness last Monday.  OHP continues to show
strength and it has the fundamentals to back it up.  The latest
earnings report gave management a chance to raise their full year
guidance from $4.00-4.10 to $4.17-4.27.  OHP claims recent trends
have been positive with higher premiums and lower than expected
medical costs.

Our short-term target remains overhead resistance on the point-
and-figure chart near $40.00 but we're raising our stop loss to
$34.50.  The $35.00 level was resistance the first half of May
and shares bounced there once after breaking above its simple
200-dma.  Another dip between $35.00 and $36.00 might be an
effective entry point.

Suggested Options:
We're going to suggest June and August options.  July options
exist but the open interest has improved from almost zero to just
a few dozen.  This is one time we are going to list the 37.50
strikes instead of passing over them for round-number alternatives.

BUY CALL JUN 35.00 OHP-FG OI=2340 at $2.65 SL=1.30
BUY CALL JUN 37.50 OHP-FU OI= 499 at $1.15 SL=0.50
BUY CALL AUG 35.00 OHP-HG OI=3219 at $3.60 SL=1.80
BUY CALL AUG 37.50 OHP-HU OI= 757 at $2.20 SL=1.10

Annotated Chart of OHP:





Picked on May 20th at $36.51
Change since picked:   +0.41
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:


---

QLogic Corp. - QLGC - close: 45.76 change: +0.63 stop: 43.00

Company Description:
Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives, removable
disk drives and RAID (redundant array of independent disks)
subsystems.  The company is also the market share leader in Fibre
Channel host bus adapters, a market segment that is receiving
tremendous attention from investors.

Why we like it:
Sometimes, timing is everything.  After initiating coverage of
QLGC on Thursday due to the bullish manner in which the stock has
been trading, Morgan Keegan lent some support to the buyers this
morning.  The firm said its channel checks indicate a strong up-
tick in Fibre Channel HBAs in the distribution channel.  The firm
stated that all the distributors with which it talked, said tht
they have seen a willingness by customers to close large sized
deals during the second quarter.  Wow, maybe demand IS on the
rise.  That seems to have been the thought with investors on
Friday, as the pushed the stock fractionally higher, even though
the NASDAQ really made no discernable progress.  Looking at the
channel drawn on the chart below, it does seem that there are
willing buyers, as they stepped up at the $44 level last week and
kept the stock in its persistently rising channel.  Subsequent
pullbacks near the $45 level (also the site of the 20-dma) should
provide solid entries into the play ahead of a continued rise
towards our initial $48 target.  Until QLGC can close back over
the 10-dma ($45.83) and into the upper half of its channel, we're
maintaining stops at $43.

Suggested Options:
Shorter Term: The June 45 Call will offer short-term traders the
best return on an immediate move, as it is currently at the
money.

Longer Term: Traders looking to capitalize on a rally back to the
May highs and above will want to look to the July 47 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.

BUY CALL JUN-42 QLC-FV OI=1146 at $4.20 SL=2.50
BUY CALL JUN-45 QLC-FI OI=6694 at $2.40 SL=1.25
BUY CALL JUL-45 QLC-GI OI=3876 at $3.60 SL=1.75
BUY CALL JUL-47 QLC-GW OI=2925 at $2.40 SL=1.25

Annotated Chart of QLGC:




Picked on May 22nd at    $45.13
Change since picked:      +0.63
Earnings Date          07/29/03 (unconfirmed)
Average Daily Volume = 6.82 mln
Chart link:



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

None


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pastures, cane fields, ocean and three islands.

Described as the "Crown Jewel of Privacy" you can be here for
months and never see a soul!

The land adjoins a 600-acre pasture where Jimmy Hendrix held his
last concert. Look out the windows in the early morning and you'll
see a herd of cows, wild boar, axis deer, circling owls and
hundreds of pheasant - but no people.

Four phone lines, DISH, Sky Fiber broadband and Roadrunner
available.

For more on Maui's ultimate retreat see http://www.mauimansions.com/OIN

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


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

American Intl Group - AIG - cls: 54.99 chg: -0.81 stop: $58.00

Company Description:
American International Group, Inc. (AIG) is the world's leading
international insurance and financial services organization, with
operations in approximately 130 countries and jurisdictions. AIG
member companies serve commercial, institutional and individual
customers through the most extensive worldwide property-casualty
and life insurance networks of any insurer. In the United States,
AIG is the largest underwriter of commercial and industrial
insurance and a top-ranked life insurer through AIG American
General. AIG's global businesses also include financial services,
retirement savings and asset management. AIG's financial services
businesses include aircraft leasing, financial products, trading
and market making. AIG's growing global consumer finance business
is led in the United States by American General Finance. AIG also
has one of the largest U.S. retirement savings businesses through
AIG SunAmerica and AIG VALIC, and is a leader in asset management
for the individual and institutional markets, with specialized
investment management capabilities in equities, fixed income,
alternative investments and real estate. AIG's common stock is
listed on the New York Stock Exchange, as well as the stock
exchanges in London, Paris, Switzerland and Tokyo.
(source: company press release)

Why We Like It:
Hmmm... we could be getting close.  Bears probably smell a drop
just around the corner.  Shares of AIG have been stuck in a tight
range, running along support for the last four sessions.  Another
move under $54.50 and we may have a winner.  Of course there is
the 50-dma to deal with, which is rising fast to meet AIG near
$54.25.  Yet if the stock can weaken enough to trade $54.00 then
the crack in its armor may widen even more as a new PnF chart
sell signal would emerge.

Both AIG and the IUX insurance index have been trading sideways
the last few weeks.  This is a noticeable contrast to the bullish
trends in the rest of the market.  Multiple times now AIG has
failed at its 200-dma but the $55 level has been support and
limited losses.  Sellers are working hard at that support and it
could give way soon enough.

We would not suggest any new plays unless you preferred a break
down under the 50-dma or yet another failed rally near $58.00.

Suggested Options:
AIG has been rather hesitant to give up and break support but it
is weakening.  We're going to list the June's and an August as
the July options still have low open interest.

BUY PUT JUN 55 AIG-RK OI=7985 at $1.75 SL=0.85
BUY PUT JUN 50 AIG-RJ OI=7300 at $0.40 SL=0.00
BUY PUT AUG 50 AIG-TJ OI=8089 at $1.55 SL=0.75

Annotated Chart of AIG:




Picked on May 20th at $54.94
Change since picked:   -0.05
Earnings Date       04/24/03 (confirmed)
Average Daily Volume = 7.2 Million
Chart link:


---

Goldman Sachs - GS - close: 76.15 change: +0.12 stop: 77.00

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
Stalled at resistance again, it is make or break time for our GS
play.  Last week's break below the $74 level looked like the
technical sign of weakness we'd been waiting for, but the eager
dip buyers thwarted any early bears.  Over the past few days, the
stock has been creeping back up to descending trendline
resistance just below $77, and with the lack of volume in
Friday's session, we're left with a rather muted picture to
contemplate over the weekend.  If GS rolls over here, it would be
the 3rd consecutive lower high in as many weeks, confirming the
premise of the play.  The action in the Broker/Dealer index
(XBD.X) seems to confirm a weakening picture, as this latest
rebound seems to be stalling below that pivotal $465 level.
Aggressive traders can consider new entries on another rollover
below resistance, but must be cognizant of the proximity of our
$77 stop.  Note the location of the 50-dma on the chart below,
which seems to indicate that was what provided support for the
latest bounce.  That means that traders looking to enter on a
breakdown will want to see a violation of both $74 and the 50-dma
before taking the plunge.

Suggested Options:
Short-term traders will want to focus on the June 80 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the early April gap will
want to utilize the June 75 Put or even the July 75 put, which
provides greater insulation from the spectre of time decay.

BUY PUT JUN-80 GS-RP OI= 802 at $4.60 SL=2.75
BUY PUT JUN-75 GS-RO OI=6070 at $1.70 SL=0.75
BUY PUT JUL-75 GS-SO OI=8626 at $2.80 SL=1.40

Annotated Chart of GS:



Picked on May 8th at    $74.06
Change since picked:     +2.09
Earnings Date         06/19/03 (unconfirmed)
Average Daily Volume = 4.38 mln
Chart link:


---

Johnson Controls - JCI - close: 80.70 change: -0.43 stop: 83.00

Company Description:
Johnson Controls, Inc. is engaged in automotive systems and
facility management and control.  In the automotive market, the
company is a major supplier of seating and interior systems and
batteries.  For non-residential facilities, JCI provides building
control systems and services, energy management and integrated
facility management.

Why we like it:
After the big selloff early last week on the downgrade of the
auto supplier stocks, it seemed JCI would see its price fall into
the $70s before the week was out.  But the dip-buyers are still
out in force, and they staked their claim in the stock at the
200-dma near $80, providing a mild bounce.  Over the past few
days, the stock has been chopping along between $80-82.  that
range was even tighter on Friday, as volume came in at an anemic
30% of the ADV.  The tight price action produced an inside day,
and the direction that price breaks from that pattern next week
should be instructive.  A failure to move through the $82 level
can be used for aggressive entries, while those looking for
confirmation before playing will want to see a breakdown under
$79.80 (under both last week's intraday low and the 200-dma).
Until price action unfolds next week, we're maintaining our stop
at $83.

Suggested Options:
Short-term traders will want to focus on the June 85 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $78 level will want to
utilize the July 80 Put, which provides greater insulation from
the spectre of time decay.

BUY PUT JUN-85 JCI-RQ OI=  30 at $5.00 SL=3.00
BUY PUT JUN-80 JCI-RP OI=1660 at $1.90 SL=1.00
BUY PUT JUL-80 JCI-SP OI= 160 at $2.80 SL=1.40

Annotated Chart of JCI:




Picked on May 18th at   $81.61
Change since picked:     -0.91
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 636 K
Chart link:


---

L-3 Communications -LLL - close: 42.43 change: -0.12 stop: 45.00

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

Why we like it:
As the week went out with a whimper, our LLL play spent the day
drifting in a minuscule 55-cent range on anemic volume.  It's
hard to draw any conclusions from that sort of price action, and
hopefully the return of volume next week will provide the
necessary clarity.  LLL still looks weak, as it never really
staged a meaningful rebound from the breakdown under the $43.50
support level.  Despite that lack of strength, the 50-dma
($41.64) did provide support over the past few days and we'll
need to see a breakdown under that average to confirm a
continuation of the fledgling downward move.  Our entry strategy
remains unchanged, as we want to take advantage of a failed
rebound below $43.50 to initiate new positions.  Alternatively, a
breakdown under $41.60 can be used for momentum entries, with an
initial target of $40.  Until LLL breaks from its current
consolidation, we're maintaining a liberal stop at $45, just over
the 200-dma.

Suggested Options:
Short-term traders will want to focus on the June 45 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $40 level (or below)
will want to utilize the July 40 Put, which provides greater
insulation from the spectre of time decay.

BUY PUT JUN-45 LLL-RI OI=482 at $3.20 SL=1.50
BUY PUT JUN-40 LLL-RH OI=951 at $0.70 SL=0.35
BUY PUT JUL-40 LLL-SH OI=639 at $1.20 SL=0.60

Annotated Chart of LLL:




Picked on May 20th at   $41.94
Change since picked:     +0.49
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.41 mln
Chart link:


---

MGIC Invest. Corp. - MTG - close: 45.05 change: +0.00 stop: 47.00

Company Description:
MGIC Investment Corporation is a holding company that, through
its wholly owned subsidiary, Mortgage Guaranty Insurance
Corporation (MGIC), is a provider of private mortgage insurance
coverage in the United States to the home mortgage lending
industry.  Private mortgage insurance covers residential first
mortgage loans and expands home ownership opportunities by
enabling people to purchase homes with less than 20% down
payments.  Private mortgage insurance also facilitates the sale
of low down payment mortgage loans in the secondary mortgage
market, principally to the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.

Why we like it:
In what is becoming a rather annoying habit, MTG continues to
vacillate about its 200-dma (currently $44.68) on light volume.
this incessant choppy trade will eventually come to an end, and
based on the stock breaking and staying below its ascending
trendline last week, we continue to think down is where it is
headed.  That said, the stock is going to need to break below the
$44 level to provide confirmation of its bearish intentions.
Traders still looking for an entry into the play will want to
look for a failed rebound below the broken trendline (now at
$45.65) and just below the site of the declining 10-dma ($45.77).
MTG is at a crossroads and now we wait for price action to either
prove our view correct or incorrect.  Patience with entries is
warranted.  Stops are still set rather wide at $47.

Suggested Options:
Short-term traders will want to focus on the June 45 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $40 target will want
to utilize the September 45 Put, which provides greater
insulation from the spectre of time decay.  Note that the open
interest is largest on the June 45 strike, so that one will
likely provide the best liquidity.

BUY PUT JUN-50 MTG-RJ OI=  5 at $5.40 SL=3.50
BUY PUT JUN-45 MTG-RI OI=611 at $2.00 SL=1.00
BUY PUT SEP-45 MTG-UI OI= 82 at $4.00 SL=2.50

Annotated Chart of MTG:




Picked on May 15th at    $45.21
Change since picked:      -0.16
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 1.08 mln
Chart link:



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

Freddie Mac - FRE - close: 57.90 change: -1.45 stop: 60.00

Company Description:
Freddie Mac is a stockholder-owned corporation chartered by
Congress in 1970 to create a continuous flow of funds to mortgage
lenders. By supplying lenders with the money to make mortgages
and packaging the mortgages into marketable securities, Freddie
Mac sustains a stable mortgage credit system and reduces the
mortgage rates paid by homebuyers. Over the years, Freddie Mac
has opened the doors for one in six homebuyers in America and two
million renters. (source: company press release)

Why We Like It:
Normally, one would think that a mortgage lender like FRE would
be benefiting from the low mortgage rates, high number of
applications and refinancings.  Actually, those refi's are
hurting FRE's business.  Freddie Mac's main rival is another
government-sponsored lender, Fannie Mae (FNM).  FRE has been
losing market share to FNM.  One analyst speculated that FNM took
in 74% of the new business in April.  Plus, FRE's MBS (mortgage-
backed securities) are facing a higher rate of early payments.
Without going into too much detail, when FRE's home loans get
paid back early due to refinancing their MBS become less
attractive to the bond investors who buy them because these
investors lose out on the expected interest income.  FRE's two
biggest lenders have been aggressively encouraging their
customers to refinance.  Fannie Mae works with a larger number of
lenders so the refi-boom doesn't hurt it quite as badly.


Wall Street has been well aware of the difference between FRE and
FNM lately and shares of FRE show it.  Freddie Mac actually tried
to soothe investor's fears with a three-part strategy to address
the market share issue.  It seemed almost humorous to see FRE try
and scare up new business with a round of press releases a few
days later.  These releases were warning U.S. banks that they'd
better prepare for the inevitable rise of interest rates in the
next 9 to 12 months and FRE will be here to help them by buying
their mortgage loans.  Investors appear to be ignoring the new
strategy.

The stock has been in a rising channel (like most of the market)
since early March.  The stock tried to remain in that channel on
Thursday with a nice bounce off the bottom and its 200-dma.
Unfortunately, that failed with a gap down today and a close
under the 200-dma and under the $58.00 level.  The stock's PnF
chart also looks pretty negative with a clear failure at overhead
resistance and plenty of room to fall.  The stock's 50-dma might
offer some support but shares have pretty much ignored it for the
last few months.  Our short-term target would be $54.00 but if
you look at the weekly, shares may have farther to go.  We'll
start the play with a stop at $60.51.

Suggested Options:
We're going to list June, July and October options but our
suggestion would probably be the July's.  This give us more time
and the strikes have higher open interest.

BUY PUT JUN 60 FRE-RL OI= 704 at $3.00 SL=1.50
BUY PUT JUL 60 FRE-SL OI=1565 at $3.70 SL=1.70
BUY PUT JUL 55 FRE-SK OI=1530 at $1.40 SL=0.80
BUY PUT OCT 55 FRE-VK OI=1290 at $2.75 SL=1.35

Annotated Chart of FRE:




Picked on May 25th at $57.90
Change since picked:   -0.00
Earnings Date       07/00/03 (unconfirmed)
Average Daily Volume = 3.4 Million
Chart link:



---

Harley Davidson - HDI - close: 40.81 change: -2.47 stop: 43.75

Company Description:
Harley Davidson is best known for its popular line of touring,
custom and performance motorcycles.  The Motorcycle and Related
Products division designs, and sells the popular line of
motorcycles, as well as a complete line of motorcycle parts,
accessories and general merchandise.  HDI's other segment,
Financial Services, engages in the business of financing and
servicing wholesale inventory receivables and consumer retail
installment sales contracts (primarily motorcycles).
Additionally, this division acts as an agency for certain
unaffiliated insurance carriers to provide property/casualty
insurance and extended service contracts to motorcycle owners.

Why we like it:
In the wake of the 9/11 attacks, the major auto manufacturers
ushered in a series of incentives to keep consumers buying their
products.  In the past 20 months, these companies have figured
out that they can't relax the incentives without losing market
share.  At the same time, they are finding that they can't raise
prices enough to offset the additional costs, with the result
that profits have been falling.  Investors couldn't help feeling
that they were experiencing a bout of deja vu on Friday as shares
of HDI were down sharply following a research note out from UBS
Warburg.  In a survey this weak of 20 dealers, the firm learned
of a financing promotion being offered across the US - 0% down on
V-Rods.  So it appears that the spending slowdown in the consumer
sector is even starting to be felt by manufacturers of high-end
products that have normally been more economically insensitive.

The price chart speaks volumes, with Friday's 5.7% decline
slicing through the $42 support level, the 50-dma ($41.73) and
the ascending trendline from the March lows (currently $41.25).
While the selloff wasn't quite enough to create a new PnF Sell
signal, it was close.  For that development, HDI will need to
trade $40, and Friday's intraday low was $40.24.  The gap left
behind on Friday should present solid resistance in the $42.25-
43.00 area, and a reaction bounce anywhere near that level would
be a gift of an entry point.   More realistically, we'll likely
have to settle for a bounce failure near the 50-dma.  Due to the
fact that HDI has already penetrated its lower Bollinger band,
chasing the stock lower at this point does not make sense -- we
need to wait for the rebound first.  Once below $40, HDI will
likely find some mild support near $39 on its way to our eventual
target in the 436-37 area, where the stock found support in March
and April.  Our stop is initially set at $43.75, just above
Thursday's intraday high and the 10-dma.

Suggested Options:
Short-term traders will want to focus on the June 42 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down below the $40 level will want to
utilize the July 40 Put, which provides greater insulation from
the spectre of time decay.

BUY PUT JUN-42 HDI-RV OI=3465 at $2.50 SL=1.25
BUY PUT JUN-40 HDI-RH OI=2259 at $1.20 SL=0.60
BUY PUT JUL-40 HDI-SH OI=  71 at $1.80 SL=0.90

Annotated Chart of HDI:




Picked on May 25th at   $40.81
Change since picked:     +0.00
Earnings Date         07/16/03 (unconfirmed)
Average Daily Volume = 2.55 mln
Chart link:



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The Option Investor Newsletter                   Sunday 05-25-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Complacency Reigns
Traders Corner: Trading's Defective Detective Searches For
Potential Trades
Traders Corner: Alternation
Traders Corner: Where is the Dow Going?
Futures Corner: The Good and Bad of Scalping Futures


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*****
LEAPS
*****

Complacency Reigns
By Mark Phillips
mphillips@OptionInvestor.com

What other explanation can there be for the action in the broad
markets last week?  Bond yields plunged to new 45-year lows, while
the dollar index (DX00Y) tanked to its lowest level since late
1998 on Friday.  How did investors respond?  By buying the dips
aggressively and driving the VIX back near the 21 level (actually
21.38) at Friday's close.  Every talking head I listened to over
the past few days was pounding the table about how we are in a new
bull market.  Maybe we are, but I'm going to require a lot more
proof than what I've seen lately.

Apparently, it is deemed that all the economic stimulus, along
with the approved tax cut and super-low interest rates (which are
expected to go lower soon) is supposed to be enough to stimulate
improved business spending, hiring and improved profits due to
something other than reducing expenses (read: firing employees).
Call me a jaded cynic, but I've heard this same song and dance too
many times in the past few years to believe it quite so easily.
There is just no evidence that economic conditions are doing
anything better than just "not getting worse".

Sure the market is a discounting mechanism, so it is looking
forward to future growth that maybe we can't see, but it has done
that on several occasions in the past 3 years, and in every case
it has been a painful experience for those that have heeded the
siren's song.  I've harped on this a lot lately, but we've got
elevated bullish percent readings, a VIX which is very near levels
that indicate a near-term market top, all the major indices have
weekly Stochastics oscillators that are looking toppy in
overbought territory and sentiment is skewed way too far into the
bullish camp.  As of last week, the latest from Investor's
Intelligence shows the bullish advisors registering at 56%, while
the bearish contingent has dropped to 20.9%.  That's the most
bullish reading for this group in 15 years!

Just in the way of providing the updated benchmark on bullish
percents, here's where the major indices rest as of Friday's
close.

NASDAQ-100 - 78% (12/02 high of 82%)
NASDAQ Composite - 60.50% (highest reading going back to 1996)
DOW - 70% (5/22/03 high = 73%, 11/02 = 73%, 4/02 = 76%)
S&P 500 - 68.2% (12/02 high of 68%, 3/02 high of 77%)
S&P 100 - 66% (12/02 high of 76%, 3/02 high of 79%)

In all cases, the major indices BP is either in or very near
overbought territory, but with further upside possible from a
historical standpoint.  The one notable exceptions is the COMPX,
which is currently sporting its highest BP reading ever.  I've
mentioned this before, but I invite you to go over to stockcharts
and look at the SharpChart for each of these bullish percent
readings.  In every case, the bullish percent is starting to
flatten out, and is threatening to cross down below the 10-dma.
Here's the link I use, for your convenience.

http://stockcharts.com/def/servlet/SC.web?c=$bpspx,uu[w,a]dacaynay[dd][pb10][iLd20]&pref=G

Here are the pertinent Bullish Percent symbols.

DOW - $BPINDU
SPX - $BPSPX
OEX - $BPOEX
NDX - $BPNDX
COMPX - $BPCOMPQ

As we've been discussing lately, I believe the markets are very
near an important top (if they haven't already printed their
highs) and it is time to position for the impending decline.  As
the old saying goes, "a picture is worth 1000 words" and I think
this chart of the S&P 500 (which we've looked at numerous times
over the past couple months) does a great job of conveying the big
picture.

Weekly Chart of the S&P 500




As you can see, we have yet to actually touch the top of that
long-term descending channel (Log chart) and the weekly
Stochastics are now deep into overbought territory.  Potentially
tilting things even further in the bears' favor, the higher high
in the oscillator has not been confirmed by a higher high in
price.  That's classic bearish divergence, and now the SPX would
have to trade an intraday high of at least 954.29 to break the
divergence setup.  Combined with all the other indications of a
top-heavy market, there's very little to be gained by trying to
play the upside in this market, except perhaps in some very narrow
areas like the Biotechs, which are less sensitive to the overall
economy and market fluctuations.  As such, that is the way we've
positioned our Watch List and Portfolio, with AMGN being our one
remaining bullish play.

Portfolio:

AIG - I was feeling a bit nervous about AIG last weekend, as I
noted in my commentary.  And why not?  The stock was pressing
right up against the $58 level and threatening to challenge its
recent highs.  But then came Monday's selling frenzy, driving the
stock back under $56 and I could breathe a sigh of relief.  I like
the way the 200-dma provided a firm top on the latest rebound
attempt, but what I like even better is the way AIG diverged from
the rest of the market in the latter half of the week.  The SPX
pushed back over the 930 level, and AIG closed back under $55,
it's lowest close since April 25th.  There's still some downside
work to be done before we can start getting comfortable, but
things are starting to work in our favor, especially with the
weekly Stochastics now rolling down out of overbought territory.
Next we need to see a close under $54.50, but the real test will
come at the 50-dma (currently $54.21).  A close below that level
will give us the ability to tighten our stop to $59, just above
the April highs.

Watch List:

NEM - There's nothing much to say here.  We missed what I think
was the ideal entry point back in the $25 area, and the stock has
continued its relentless climb without us.  For those that may
have taken an entry into the play, I would suggest keeping stops
rather tight (no lower than $28), as the stock is currently
testing major resistance at $30.  Not only that, but there is
bearish divergence showing up on the daily Stochastics.  I'm still
going to leave NEM on the Watch List so that we can enter on the
next oversold alignment on the Weekly Stochastics, but no entry
action is advised until we see the next round of profit taking
play out.

AMZN - Finally, an entry.  See below for details.

DJX - The DOW was certainly looking a bit top-heavy a week ago,
and the expected decline unfolded on Monday.  But that was about
all the bears could manage and the DJX spent the rest of the week
clawing its way back up the chart.  That plays right into our
strategy, as next week could see the index pushing up into our
desired entry zone.  DOW Bullish Percent is getting extended here,
dropping back from 73% to 70% on Friday and the VIX is back near
the 21 level.  All we need is one more surge higher and our entry
target will be achieved.  I don't expect the DJX to immediately
fall apart, as there is still too much bullishness in the market,
but a surge up to the $88-89 area should provide a very favorable
long-term bearish entry point.

GS - Still weakening and the decline early in the week was enough
to trigger entry.  Details below.

AMGN - That didn't take long!  A perfect entry setup on Wednesday
was just too good to pass up.  See below for all the details.

Closing Thoughts:

It was a very busy, although somewhat trying week with volatile
chop in both directions, but in the end all of the major indices
lost ground.  Not much and we really haven't seen any significant
internal weakening, as bullish percents remain quite high, as does
the ratio of new highs to new lows that Linda and Jeff have been
analyzing for us in the past week or so.  Just to provide some
perspective on my state of mind, here's a snapshot of what I've
been doing with my own investments.  I took advantage of the
recent market strength to make some important moves in my own
long-term holdings, as well as those of my family.  All of the
equity holdings (except for those related to gold and utilities)
in my IRA, my wife's IRA, and my mother's 401K were moved to cash
last week.  Additionally, I finally convinced my dad to sell a
sizeable chunk of his CSCO that he's been holding since the top in
2000.

I don't mean this as a call to everyone to go out on Tuesday and
liquidate all their equity holdings.  What works for me, may not
be appropriate for you.  But I provide this personal snapshot in
hopes that it will allow you to gain a greater understanding of my
thinking.  While I could be absolutely wrong and the market's are
setting up to continue up the charts, in my opinion the risk of
remaining in bullish long-term positions under the current
extended technical conditions far outweighs the potential
opportunity cost of a continued rally from here.  Having that part
of my financial life taken care of gives me the peace of mind and
clarity of thought to pursue the more aggressive strategies that
we employ here in the Land 'O LEAPS.

One more thing before I sign off.  You may start to notice some
symbol changes on the '04 LEAPS either in the past couple weeks,
or in the one to come.  This is being done to make way for the
2006 LEAPS, which ought to begin to be issued in the next week or
so.  I need to do some digging next week to determine what the
actual schedule will be this year, and I'll provide a complete
roadmap next weekend.

Have a great and safe weekend and don't forget to give thanks for
those that have gone before us, ensuring that we have the freedom
to pursue all the wonderful opportunities provided in this great
country!

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
AMGN   05/21/03  '04 $ 60  YAA-AL  $ 7.00  $ 7.60  + 8.57%  $58.50
                 '05 $ 60  ZAM-AL  $10.90  $12.20  +10.66%  $58.50


Puts:
AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 5.50  - 1.79%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 8.50  + 0.00%  $61.00
GM     05/13/03  '04 $ 35  LGM-MG  $ 4.10  $ 5.30  +29.27%  $36.50
                 '05 $ 30  ZGM-MF  $ 4.60  $ 5.60  +21.74%  $36.50
KO     05/15/03  '04 $ 40  LKO-MH  $ 1.70  $ 1.85  + 8.82%  $47.00
                 '05 $ 40  ZKO-MH  $ 3.85  $ 4.00  + 3.90%  $47.00
AMZN   05/20/03  '04 $ 30  ZQN-MF  $ 4.10  $ 3.60  -12.20%  $34.50
                 '05 $ 30  ZWE-MF  $ 6.90  $ 6.50  - 5.80%  $34.50
GS     05/20/03  '04 $ 75  KGS-MO  $ 7.20  $ 6.50  - 9.72%  $78.50
                 '05 $ 75  ZSD-MO  $11.80  $10.50  -11.01%  $78.50



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NEM    03/09/03   HOLD         JAN-2004 $ 25  LIE-AE
                            CC JAN-2004 $ 20  LIE-AD
                               JAN-2005 $ 25  ZIE-AE
                            CC JAN-2005 $ 20  ZIE-AD
AMGN   05/18/03   $59-60       JAN-2004 $ 60  YAA-AL
                            CC JAN-2004 $ 55  YAA-AK
                               JAN-2005 $ 60  ZAM-AL
                            CC JAN-2005 $ 55  ZAM-AK


PUTS:
DJX    05/04/03  $88-89        DEC-2003 $ 84  DJX-XF
                               DEC-2004 $ 84  YDJ-XF
QQQ    05/25/03  $29           JAN-2004 $ 27  KLF-MA
                               JAN-2005 $ 27  ZWQ-MA


New Portfolio Plays

AMGN - Amgen $60.69  **Call Play**

That was a bit quicker than expected, but AMGN provided the
perfect entry point on Wednesday, and it was too good to pass up.
We were looking for a rebound from the $59-60 area, and with a dip
to $59.89 and rebound back over $60, AMGN looked solid in a rather
weak market.  Of course it didn't hurt that the rebound came right
at the 50-dma (then at $59.96) and just above the 8-month rising
trendline, which is now at $59.85.  Helping out the bulls last
week was the Biotechnology index (BTK.X), which vaulted to a new
high for the year ($433) on Friday after confirming the $400 level
as new-found support.  With weekly Stochastics already turning
down from overbought, this play is a deviation from our normal
strategy in the LEAPS column, which is to buy when the oscillators
are turning bullish.  But every prior bearish Stochastics signal
since last spring has been an invitation for the bulls, with each
successive dip growing shorter and shallower.  AMGN looks like it
still has room to run, especially now that it is solidly above its
long-term descending trendline.  There is substantial resistance
to deal with, first at $64, then $67-68 and finally at $70.  The
PnF chart is still bullish, with a price target of $72, and we're
going to see if it can get there.  Due to the aggressive nature of
the play and the possibility for some near-term weakness, I'm
setting a fairly wide stop at $57, just below the consolidation
zone from March.

BUY LEAP JAN-2004 $60 YAA-AL $7.00
BUY LEAP JAN-2005 $60 AZM-AL $10.90


AMZN - Amazon.com $31.56  **Put Play**

Ah, regret.  Last week, I decided to set a lower entry target on
our AMZN play, just so we wouldn't miss out on our entry.  well
Monday's selloff did the trick, dropping the stock below the
support that had built up the prior week and it looked like the
selloff was underway.  But the dip buyers showed up, seemingly
without a care in the world and by the end of the week had pushed
AMZN back near the $33 level.  Despite the fact we may not have
gotten the best entry point, I still like this as a point to stake
our claim on the downside.  Traders that didn't take the entry on
that breakdown can look to enter on any signs of weakness next
week.  Make no mistake, this is an aggressive play, as we're
attempting to pick a top in a stock that has shown a lot of
technical strength for the past several months.  But it is deep in
overbought territory as measured by weekly Stochastics and has
gotten a bit far ahead of its 50-dma, which is clear down at
$28.13.  A retracement back to that level (also the top of the
post-earnings gap) will be our first target, and then we can re-
evaluate its further downside potential.  Note that the symbol has
changed for the '04 LEAP.  This was done by the CBOE to make way
for the issuance of the '06 LEAPS, which should be showing up in
the next week or so.  Our initial stop will be set at $34.50,
which ought to provide enough room for the stock to vacillate near
its recent highs (and possibly exceed them slightly) without being
stopped out before the decline begins in earnest.

BUY LEAP JAN-2004 $30 ZQN-MF $4.10
BUY LEAP JAN-2005 $30 ZWE-MF $6.90


GS - Goldman Sachs $74.35  **Put Play**

False breakdowns were more common than ants at a summer picnic
last week, as Monday's decline caused a lot of apparent breakdowns
that were subsequently bought by eager bulls.  Our GS play was
just one of the many, as Monday's slide looked like the real deal.
Follow through selling on Tuesday finally breached the $74 level,
but buyers snapped up shares at the end of the day, levitating
price back over that $74 level.  In retrospect, it appears the 50-
dma ($73.36) was the trigger point for the buyers to come in and
we'll need to see a close below that average before the decline
can really get underway.  Despite that temporary setback, there
are several encouraging signs for our play.  First off, the
pattern of lower highs from late April is still intact and weekly
Stochastics have already entered their bearish decline phase.
Additionally, the action last week in the Broker/Dealer index
(XBD.X) looks supportive of the bears' case, as after Monday's
plunge, the index was unable to reclaim the $465
support/resistance level.  Light volume throughout the latter half
of last week does make the price action rather difficult to read,
but we should get some confirmation over the next week.  Traders
still on the sidelines may want to use another failure near $77
with the XBD holding below $465 to initiate new positions early
next week.  While it is a bit more liberal than I normally like, I
don't want to be prematurely stopped out of this play, so I'm
setting the stop initially at $79, just above the April intraday
highs.

BUY LEAP JAN-2004 $75 KGS-MO $ 7.20
BUY LEAP JAN-2005 $75 ZSD-MO $11.80


New Watchlist Plays

QQQ - NASDAQ-100 Trust $28.13  **Put Play**

Judging by the amount of email on the subject, many of you are
wondering why we don't have a QQQ Put play on the Watch List to go
along with the DJX play.  Well, wonder no more!  As noted several
times in recent months, I expect the NASDAQ to perform better than
the rest of the market for the remainder of the year.  But that
doesn't mean QQQ won't be susceptible to the downside over the
near to intermediate term.  With price testing its recent highs,
the NDX bullish percent starting to look top-heavy just below 80%
and the VXN (NASDAQ Volatility index ) closing at a new all-time
low of 29.73 on Friday, conditions seem ripe for a bearish play in
the Technology sector.  Picking the entry point is always a
challenge, but I think we can apply the same strategy as we've
focused on for the DJX.  Weekly Stochastics are already starting
to show a bit of weakness up in overbought and weekly MACD is
starting to flatten just above the zero line.  There is
significant historical resistance in the $28-30 area, and with the
QQQ already so overbought and bullish percent so high, this looks
like a good area in which to target new entries.  The $30 level
roughly equates to 1600 on the NASDAQ Composite, which is a
pivotal level as well, going all the way back to the summer of
1997.  Lacking a strong catalyst, the NASDAQ should not be able to
sustain a move above this area without a substantial pullback
first.  Note that we're going to be more aggressive with our entry
strategy on this play, looking to enter into strength rather than
wait for a decline to prove weakness before entry.  I'm looking
for a move back to the $29 level to signal an entry point, and
we'll set a rather liberal stop up at $31.

BUY LEAP JAN-2004 $27 KLF-MA
BUY LEAP JAN-2005 $27 ZWQ-MA


Drops

EMC - $9.30 After numerous forays above the $10 level, taunting us
with the prospect of a move higher up the chart, EMC finally
succumbed to weakness on Monday, falling under the weight of the
broad market.  While I won't complain too loudly after a solid
play like that, I do wish it would have given us that one more
push up towards $11 first.  But our position management approach
worked like a charm.  As we got closer and closer to our desired
profit target, we kept tightening the stop, forcing EMC to either
pop to the target or stop us out.  Either way, we win.  The stock
only moved $2.34 between our entry point and exit point, but it
really puts things in perspective when you realize that was a 34%
rise in the stock.  Boy, I wish I could do that every week!  But
it feels good, regardless of the regularity.  Let's go find
another one!


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pastures, cane fields, ocean and three islands.

Described as the "Crown Jewel of Privacy" you can be here for
months and never see a soul!

The land adjoins a 600-acre pasture where Jimmy Hendrix held his
last concert. Look out the windows in the early morning and you'll
see a herd of cows, wild boar, axis deer, circling owls and
hundreds of pheasant - but no people.

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


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

Trading's Defective Detective Searches For Potential Trades
By Mike Parnos, Investing With Attitude

I'll order a MACD with extra cheese.  When on vacation, I may surf
an Elliott Wave (with my water wings, of course) and dine on some
Fibonacci pasta (with Alfredo sauce).  I may go to a Bollinger
Band concert.  I'll take a walk on the Wilder's Index side. I'll
decline any advance lines.  My relatives have no strength and I
try to slow down my Stochastics (I'm not as young as I used to
be).

Many readers have inquired about how I select CPTI trades – the
process and methods of entry.  Well, like everything else in life,
I try to keep it simple.  There's no secret ingredient.  It's not
an exciting process.  If there was, I'd bottle it and sell it.  If
people will pay $6 for a bottle of water and $5 for a cup of
coffee, just think what they'd cough up for a magic trading
formula.
______________________________________________________________

Let The Games Begin
I don't have any of those sophisticated software programs that
have elaborate screens that tell you the top ten of this or the
bottom five of that.  Granted, it's nice to have, but there's
plenty of free information on the Internet.  It may take a few
extra clicks, but so what?  Call me a cheap S.O.B.  I've been
called worse (and often).

Each Stock Chart Is Like A Painting
Like many of you, I only have very basic charting knowledge and
I'm a very visual guy.  I can recognize support and resistance
lines.  I can draw a mean trend line (up OR down. I'm very
versatile).   I've been known to look at moving averages – some
simple, and even some exponential (when I'm in the right mood).  I
know about ascending and descending triangles.  I can see
consolidations and breakouts.   All of the above pieces of
information help us paint a picture – worth 1,000 words.  These
pictures can have predictive qualities.  If the planets align, the
chart can give us a glimpse into the future.  But, beware!
They've been known to speak with forked tongue.  Therein lies the
risk.

Free Internet Charts
Three of the easy to use free (the price is right) charting sites
I use are:
www.askresearch.com
www.bigcharts.com
www.stockcharts.com
These are interactive charts that enable you to put in various
moving averages and some of those other complicated indicators.
Plus, these sites have links to other valuable information about
the stocks or indexes you're checking out.  There are other sites
as well.  Just do a little Googling and clicking.

Getting Familiar With Your Underlying (it's OK if you do it in
private) You'll notice that, in the CPTI portfolios over the past
months, we have a tendency to use many of the same stocks/indexes
again and again.  Why?  Because by watching the day to day
movement of a stock or index, you get a feeling for how they react
to the markets, the daily trading ranges, likelihood of gaps, etc.
You'll get to know them better than your spouse(s).  Then, though
they may be tempermental and have monthly mood swings, you can
choose your time and level of involvement – with no hard feelings
or child support should you choose to exit early.

We've used indexes (SPX, OEX, QQQ, BBH, SMH).  Why?  Because of
their diversification, they're less vulnerable to severe movement
– which is ideal for our conservative neutral premium selling
style of trading.  Certain stocks are slightly more predictable
than others (MMM, MSFT).

So, I first look to our old favorites to see if they're at one end
of their trading range or the other or in the middle.  Then I look
to see if there are any visible patterns – either formed or
forming.  There's a good chance that one, or more, of them can be
considered.

Next, I do some numbers crunching to see which strategies make
sense and which one will give me the best return along with a
minimal amount of risk.  You'll find end of day option quotes at
www.cboe.com (an excellent and informative site).  What strategy
should we use?  Iron condor, baby condor, minage-a-qua, straddle,
strangle, horizontal calendar spread, diagonal calendar spread.
They're all possibilities.   If you've been following the CPTI
columns, you should be pretty familiar with our strategies.  If
not, we'll be going over them again and again until you're
comfortable with each one.

Into The Confessional I Go
OK.  Let the truth be known.  I watch CNBC sometimes.  I also
watch the Fox News Network on Saturday mornings from 10-12 a.m.
(Eastern Time). I listen for ideas.  There are usually plenty of
them.  I make notes.  Then I pull up the charts and make my own
decision.  They're leads, that's all.  Only a few pan out.

In Summary
I told you it wasn't complicated.  It might take some time going
through the charts, but it's based on some basic chart reading.
Either get up off the couch or slide the computer over.  Order
some Chinese food and go to work.   Look for areas of strong
support or strong resistance in the stocks (or indexes).  If you
find both on one chart, you may be able to put on an iron condor –
if the premiums are worthwhile.

You know the criteria for the other strategies.  Look at the
charts one by one.  Take your time.  Don't ever force a position
or compromise and put on a position because it offers a lot of
premium.  That's a tragedy waiting to happen.  Remember that
safety should be our primary consideration.
_____________________________________________________________

Unofficial CPTI Replacement Position
QQQ Strangle
Let's have some fun – some cheap fun.  We haven't done this
before.  Cheap fun is usually the best kind.  If it doesn't cost a
lot, we don't have unrealistic expectations.
Buy 10 contracts of the QQQ June $31 calls @ $.10
Buy 10 contracts of the QQQ June $25 calls @ $.10

Total debit is only $200.  Pretty cheap, huh?  We're playing for a
big move in the QQQs.  If the QQQs move $3-4 in the next few
weeks, our long put or call (depending on the direction of the
move) could easily be worth $.75 - $1.25.  We're only risking a
total of $.20.  That would be a nice return – IF it happens.  If
not, que sera sera – whatever will be will be.

For greater risk takers (speculators), you can buy closer strikes.
The $26 put and the $30 call would $.20 each or a total of $.40
($400 for 10 contracts.  The benefit is that the delta is slightly
higher and a smaller move would be necessary to get into the
profit zone.

This is not an official CPTI position.  We'll go with the four we
have remaining.  But this could be fun – and profitable.
______________________________________________________________

CPTI JUNE POSITION UPDATE

June Position #1 – SPX Iron Condor – Currently at 933.22.
We sold 5 contracts of SPX June 995 calls and 5 contracts of SPX
June 895 puts.  For protection we bought 5 contracts of SPX June
1010 calls and 5 contracts of SPX June 880 puts.  Total net credit
of $2.90.

We're giving the S&P 500 a 100-point range.  We'll get our maximum
profit of $1,450 if SPX closes within a huge 895 to 995 range.
Our exposure is $12.10 ($15 points less the $2.90 credit).  If it
works, it's about a 24% return on risk.
____________________________________________________________

June Position #2 - BBH Iron Condor – Gapped up Monday before the
open and was aborted.
_____________________________________________________________

June Position #3 – TOL – Bear Call Spread Plus – Currently at
$27.53
Sell 10 contracts of June TOL $25 calls @ $1.40
Buy 20 contracts of June TOL $30 calls @ $.15
Net credit of $1.10

We're slightly bearish on the housing market and believe TOL will
finish below $25.  But, just in case we're wrong, we're buying 10
additional contracts of the $30 calls to protect ourselves.  You
might even be able to get the $30 calls for $.10 instead of $.15
on Monday.  Maximum potential profit is $1,100.
______________________________________________________________

June Position #4 – COF Iron Condor – Currently at $44.95
Sell 10 contracts of June COF $47.50 calls @ $1.55
Buy 10 contracts of June COF $50 calls @ $.95
Net credit of $.60

Sell 10 contracts of June COF $40 puts @ $1.05
Buy 10 contracts of June COF $37.50 puts @ $.65
Net credit of $.40

Total credit of $1.00.   We're giving COF a $7.50 range.  This is
a credit card stock that appears to have topped out and there's
support around $40.  We'll get our maximum profit of $1,000 if COF
closes between $40 and $47.50.  The nice part is that our exposure
is only $1.25 ($2.50 less our $1.00 credit).  If it works, it's an
80% return on risk.
______________________________________________________________

June Position #5 – QQQ ITM Baby Strangle – Currently at $28.10
Buy 10 contracts of the July QQQ $30 puts @ $2.05
Buy 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.

The QQQs have made a big move up.  It's either going to break
through resistance or bounce of and head back down.  Our objective
is for a $3-4 move in the next month.  One of our long options
will hopefully pay for almost the entire position.  That will
leave our other long option, which is now practically free, poised
for the bounce back as the QQQs reverse.

Our exposure is only $1.85 because we have $2.00 of intrinsic
value.  This worked quite well in the past for us.  It will take
some time to play out so be a little patient. For those who want
to review how this strategy works, go to:
http://members.OptionInvestor.com/traderscorner/tc_082502_1.asp
______________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our plays or our strategies?  Feel free to email
me your questions.  An excellent source for new students is the
OptionInvestor archives where we've been discussing strategies and
answering questions since last July.  To find past CPTI (Mike
Parnos) articles, look under "Education" and then click "Traders
Corner."  They're waiting for you 24/7.
______________________________________________________________

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

Your questions and comments are always welcome.
Mike Parnos
CPTI Master Strategist and HCP


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

Alternation
By Steve Gould

I have these delusions of one day becoming a consummate public
speaker.  Don't laugh!  It could happen.  Speaking well is an
acquired skill.  I have been studying several high profile people
trying to discern patterns and techniques.  I have come to this
conclusion.  It is not so much what they say, but how they say it
that makes them good.

For example, I have noticed this one intriguing pattern,
particularly in a guest pastor at our church and a renowned stock
market radio show host.  What I have observed is that the speaker
will be explaining an idea and right in the middle of that
explanation, he will mention an ancillary concept.  Not wanting to
go on a rabbit trail to explain the ancillary idea, he will just
give a fast 10 second elucidation and then continue on with the
original thought. I personally find this technique quite
effective.

Unwittingly, I find myself doing that in my writing.  For example,
in my article on corrections, I took a paragraph to explain the
rule of Alternation.  It was something I noticed on the chart as I
was writing and I thought it deserved some clarification.

I would like to expand upon this rule a bit more as it really does
deserve a bit more "air time".

The Rule of Alternation is not really a rule.  It is more of a
guideline.  A rule, as the name implies, always applies to a wave.
There are no exceptions.  If a wave labeling breaks a rule, then
the wave will have to be relabeled in such a way as to not break
any rules.

A guideline, on the other hand, is more of a frequently observed
pattern.  It is not necessarily required to label a wave, but the
labeling is more preferred if guidelines are met.  If a guideline
is not adhered to, the wave count could still be valid.  Given two
wave counts, both satisfying all the rules, the preferred count
will go to the wave labeling that satisfies the most guidelines.

So even though I will speak of the Rule of Alternation, it is
actually a guideline.  Somehow the Guideline of Alternation just
doesn't flow as nicely as the Rule of Alternation.

The Rule of Alternation states that whatever happens in one type
of wave will not be expected to happen again in the next
incarnation of the same type of wave.

If I went up to my daughter and asked her if she wanted to go to
the mall for 4 hours with her friends and I would let her buy
anything she wanted on my credit card, I could pretty much expect
to get the exact same answer every time I asked.  It wouldn't
matter what day of the week or what time of day I asked her.
School night, weekend, morning, noon, evening, the answer would
always be the same.  The Rule of Alternation does not apply to
teenage daughters.  (Honey, if you are reading this, don't get all
excited.  It won't happen.)

In the stock market things are a little bit different.  The only
criteria that we need to meet is that the waves must be of the
same genre.

Waves come in basically two flavors, motive waves and corrective
waves.  Motive waves move in the direction of the overall trend.
Waves 1, 3, 5, A and C are motive waves.  Corrective waves, on the
other hand, move counter the overall trend.  Waves 2, 4 and B are
corrective waves.

A wave 1 is not the same type of wave as a wave 2.  Wave 1 is a
motive wave in the direction of the overall trend.  Wave 2 is a
corrective wave counter to the overall trend.  The Rule of
Alternation would not apply.

Not all motive waves are the same type of wave.  A wave 1 is not
the same type of wave as a wave A.  Wave 1 is a motive wave within
a 5 wave basic pattern.  Wave A is a motive wave within an A-B-C
corrective pattern.  The Rule of Alternation would not apply.

Nor are all corrective waves the same type of wave.  A wave 2 is
not the same type of wave as a wave B.  Wave 2 is a corrective
wave within a 5 wave basic pattern.  Wave B is a corrective wave
within an A-B-C corrective pattern. The Rule of Alternation would
not apply.

But, wave 2 and wave 4 are the same type of wave.  Both are
corrective waves within a 5 wave basic pattern.  Wave 1, wave 3
and wave 5 are also the same type of wave.  All are motive waves
within a 5 wave basic pattern.  Wave A and wave C are the same
type of wave.  They are both motive waves within an A-B-C
corrective pattern.  Waves A, B and C are also considered as one
group when applying the rule.

Even though we have narrowed down the wave types of the same type
to three main groups, Waves 2 and 4, Waves A, B and C, and  Waves
1, 3 and 5, the Rule of Alternation really only applies to the
corrective waves.  Rather than apply the Rule of Alternation to
wave 1, 3 and 5, Ellioticians look at each of the motive waves in
terms of personalities.  That, however, is a discussion for a
different day.

Let's look at each of the corrective waves.

Wave 2 and wave 4 are both going to correct a 5 wave basic
pattern.  Generally there are only two types of corrections
observed, a sharp correction or a sideways correction.  If wave 2
is a sharp correction, expect wave 4 to be a sideways correction.
Alternately, if wave 2 is a sideways correction, expect wave 4 to
be a sharp correction.

Chart: Dow Monthly since 1915





This is an exponential chart of the Dow on a monthly basis from
1915 to the present.  This chart illustrates a classic expression
of the Rule of Alternation.  Look at the 5 wave basic pattern
within the III wave.  Wave 2 is a sharp correction.  Wave 4 is a
sideways correction.

Now look at wave II.  Notice how sharp it is.  Using the Rule of
Alternation, we can expect wave IV to be a sideways correction.

This example was for a monthly chart spanning almost 100 years.
But we could have just as easily looked at a daily, hourly or even
a minute chart. The Rule of Alternation works on all levels.

Chart: Footstar Alternations





Here is a daily chart of Footstar (FTS) from the early part of
2001.  Take a look at the 2 wave and 4 waves at all levels of
division.  Although some 2 and 4 waves appear to be not obeying
the guideline, I would suspect that if we looked at hourly data,
we could see a better differentiation.  However, let me point out
a few conforming examples.  Within the blue circle 3 wave, the 2
wave is a sharp correction while the 4 wave is a sideways
correction (1).  Within the blue circle 5 wave, the 2 wave is
sharp while the 4 wave is sideways (2).

Let's now see how the Rule of Alternation applies within the A-B-C
corrective pattern.

In general, what traces out in wave A will be different than wave
B, and wave C will not replicate either wave.  If wave A is a
zigzag, expect wave B to not be a zigzag.  If wave A is a flat,
expect wave B to not be a flat.  If waves A and B are simple
waves, expect wave C to be complex.  If wave A is simple, expect
wave B to be more complex and wave C to be even more complex.


Chart: Dow Monthly since 1915 with A-B-C Labels





Here is the Dow chart with the subdivisions of the corrective
waves labeled.

Within the wave 2 correction, the A wave is a sharp, short 5 wave
basic pattern.  The C wave, in contrast, is a flatter, longer
(time-wise) 5 wave basic pattern.

Within the wave 4 correction, the A wave is a mildly complex,
expanded flat pattern.  Wave B is a simpler zigzag while the wave
C is a very complex contracting triangle.

The Rule of Alternation is a useful predictive tool.  It will not
tell us what is going to happen in so much as it will tell us what
will probably not happen.  That in and of itself can be very
valuable information.


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

Where is the Dow Going?
By Steve Gould

I sort of have mixed feelings about what happened in the Dow this
week.  On one hand, I am happy that I was correct and the Dow is
now headed lower.  Much lower.  On the other hand, I really would
like to see this economy improve and have stocks going up.  But
reality being what it is, I, unlike some New York Times Reporters,
am going to report what I see.

Let's start with the small picture and work our way up.

Chart:  Dow Hourly 5/23/2003





The wave pattern on the hourly chart is a bit clearer now than it
was last week.  I was thinking that the v (five) wave ended where
the arrow is pointing because of the throw over. If that were the
case, then the Dow would have already traced out a i, ii, iii, iv
wave.  However, that interpretation is not consistent with the
oscillator. The oscillator under the arrow traced out the tallest
peak more consistent with a 3 wave.  Also remember that there must
be divergence in the oscillator between the 3 wave and 5 wave in
order to signal the end of a 5 wave basic pattern.  We did not get
the divergence needed until 5/16 (where the current v wave is).

The Dow ended the C/v/ii wave on 5/16 at 9:30.  The labeled v wave
is actually a hair lower in price than where the arrow is
pointing.  The labeled v traced out a failed 5th wave and marked
the end of the v wave

The Dow has now started on the next 5 wave basic pattern down.
The i wave is complete and we are toward the end of a wave ii
correction.

Chart:  Dow Hourly 5/23/2003 wave ii





The ii wave is already up against the 62% Fibonacci retracement
level.  I suspect that Tuesday the Dow would not trace much higher
before it starts the wave iii down.  (I am praying it is not
because of a terrorist attack.)

As a side note, see how the i wave traced down just past the
previous iv wave.  In general, the first target once the trend has
changed is the last 4 wave of the old trend.  Also note how the i
wave traced out a near classic 5 wave basic pattern.  I will leave
it to the reader to label it as an exercise.

Stepping back for a moment to look at the bigger picture, here is
a chart of the Dow since January 2000.

Chart: Dow Daily since January 2000





The Dow has been in a bear market since January 2000.  The (up to
now) 2 wave bear market rallies have only served to lure unknowing
investors back into the market.  The Dow just finished the latest
of its bear market rallies and is now primed to head further down.
The Dow is just now starting the (iii) wave of the (3) wave of the
3 wave. This next wave should be sharp and decisive.


Chart: Dow Daily Since October 2002






By zooming in on the last several months we see that the daily
chart confirms the wave pattern in the hourly chart.  Waves 1 and
2 are in.  Since the 1 wave was about 350 points, the Dow is
positioned for a 3 wave down of at least 350 points.  Following
the 4 wave retracement, we should see new lows come summer time.

Unless of course the Dow goes up.

The President's tax cut passed through Congress on Friday.  Friday
was a light day as most traders were no doubt starting the 3 day
weekend a bit early.  Tuesday could see a spike up in the Dow as
investors realize that dividends are going to be taxed less and
they start buying dividend paying stocks.  Some of my friends are
concerned about this, yet they did not sell their Dow puts.  I
guess they are not that concerned.


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

The Good and Bad of Scalping Futures
by Alan Hewko

Abbreviations used in this article:

                                    Ticker $ move per index pt
ES = E-mini SP500   June futures  ES03M    $ 50 per ES pt
YM = E-mini Dow $5  June futures  YM03M    $  5 per YM pt
NQ = E-mini NDX 100 June futures  NQ03M    $ 20 per NQ pt



Title: The Good and Bad of Scalping Futures

Before I begin my article on something seemingly trivial by
comparison, I would like to use this public space to extend a most
sincere thank you to all those brave men and women who have served
this country in its military. I preface this by saying I lack the
word skills to reflect how sincerely I mean that.

Memorial Day is a time to reflect upon what those few braves souls
have done for us. How the sacrifices of a few have protected so
many. Until 9-11-01, I would guess I was like most people. I had
not served in the military myself, and only knew a few friends who
were in. I might stop and think about their lives and what they do
for the greater “us” at times, but not very often. 9-11 changed
that for most of us. We certainly now are so much more mindful of
how they really do protect our borders – our citizens – our
children.

I say thank you’ to all those who ever have proudly worn a US
Military uniform, from the recent action in Iraq all the way back
to the American Militia in the 1770s.

We talk about Wall Street. I would like to talk about another
WALL.

If you ever find yourself in Washington DC : go to the Vietnam
Wall around sunset on a nice spring evening when the smell of the
famous Washington DC cherry trees are filling the air with their
smell, when you have someone walking with you that you care deeply
about emotionally, when you are dressed well and feeling on top of
the world. If you are lucky, you will do as I did: know you were
heading in the direction of the Wall, but actually stumbling onto
it by accident and starting at the lower section, with the
earliest years names of the US soldiers who died in the Vietnam
War. You walk that wall slower and slower, and notice how the wall
height grows higher and higher as more died as the years passed;
until you get to the very end. You notice how all the flowers and
letters and things left by loved ones is so much more impactful in
person that what you may have seen on TV. You notice all the
people touching names on the wall with tears in their eyes. You
notice military people in uniform giving tribute to fallen
comrades.

There is a special kind of silence there, in that very small
physical space. Those young men and women had so much to live for.
Just as I did the first time I visited it – a person I cared about
on my arm, so much enjoying the day, looking forward to a
wonderful spring evening and to the future. Just like all those
soldiers once had also been. Yes, people die every day but usually
from illness or accidents, not from dying for their country. You
find yourself overcome with tears and emotions by the time you
reach the end of that Wall; and for me, that was perhaps the first
time I ever had a better understanding of what Memorial Day is
about.

Professional soldiers hate and despise WAR more than we do, for
they know much better how truly terrible it is.

I was not in the military, and I have enough intelligence to
respect that no words or movie could possible capture the horror
of war and combat. I don’t think I ever had a true sense of how
simply terrible it is until the film Saving Private Ryan’ and
those scenes in that film. Most military people I have known have
an honor and sense of duty that is much higher than average.

Thank you one and all for going in Harm’s Way to protect this
great country. Thank you to those have given the ultimate
sacrifice of their lives for this country.

Not many months ago, Colin Powell was in Europe on some political
discussion back when the UN was talking about taking any action to
stop the killing in Iraq. The room seemingly was full of top level
politicians from all civilized countries and one of them accused
Mr. Powell that the USA was acting in a very aggressive manner,
almost as if the USA was excerting its superpower influence to
take over any country it now felt like.

I paraphrase, but Mr. Powell said something like “In the last 100
years, the United States of America has sent its young men and
women to all corners of the earth to fight in wars, to fight and
die in foreign countries to protect peace and keep the world a
safer place. The ONLY land that the USA has ever asked for or
taken, was land we asked for to bury those young sons and
daughters who died in that foreign country.” And this silent
respectful hush fell over those politicians.

(I wish I could find the direct quote for it was so much better
spoken than my memory of them). Thank you for reading my above
words.


The Good and Bad of Scalping Futures

The last article was about using Size as a Trade Tool; that is
deciding how many contracts to decide to put on the current
particular trade entry.

This article shall be about electing whether or not you at times
will intentionally enter a trade with the desired goal of only +1
to +1.50 ES points.

Trades of this nature are called SCALPS for obvious reasons.

Allow me to say that in no way am I suggesting you should or
should not scalp. That is a decision only you the reader can make.

In a perfect world, we would start a new day by going Long ES at
920 right at the Open, hold the trade all day and sell the Long at
928 around 330pm for +8 pts. Then the next morning right at the
open, we would Short ES at 931 and hold it all day and cover the
short near the close at 923 for another +8. And then do these type
trades each and every day. Back in year 1999 and 2000, one could
hold trades for weeks! (it’s true, really [smiles]).

We no longer live in a trading world such as that and this past
week provided my thought for this article. This past week, each
trade day provided no more than one or two “clean” great entries,
often either right at the open or shortly after it. If one missed
that entry, or (even worse) had been wrong and lost a few ES pts;
then you had a harder trade day.

Every day this week, over one-half of the entire trade day was
more or less spent going sideways often in 3 and 4 pt ES ranges.
No more, no less. Often, that range occurred during known trade
pivots and everyone was waiting for breakouts or breakdown and
often they did not, and just stayed in that thin range.

The close on Friday was a great example: the tape stayed right
between 935 and 931.50, never going under 931.50 nor over 935.

Very often, after the tape has made that big morning move, it
settles down into some type of trade range, usually between prior
trade pivots that usually get identified in the Intraday Futures
Monitor.

You the reader are then forced to make a decision. Do I try and
SCALP here or do I decide to simply not trade at all, and simply
await the next big move. There is no right or wrong answer here,
it is something only you can decide what to do.

My own definition of a Scalp is goal of anywhere from +1 to +1.50
ES points. Usually, scalp entry trades will be entered with a 1
point stop loss. One small help if you goal right on this short
from 923.00 is only +1 is to immediately enter a cover bid at
922.00 which gets your order in-line so to speak.

If scalps are done with some careful focus on where the trade
pivots are, one greatly increased the risk/reward odds of taking a
winner vs. having your stop hit.

As usual, this is often easier to show with some charts from this
week from Wednesday May 21.

Here is the ES chart from Wed May 21 from the Open to the Close.

There were two good larger-possible-gain trade entries that day.
There was a Long immediately at the open at 915-6, which would
have given a 30minute gain of +5 to +7. After that, there was an
immediate 10am reversal short entry at 923s which would have been
good for +5 pts if the entry/exit was perfect.






Frankly, if I would have done both those trades that perfectly and
just made 12-4 ES points in under 2 hours, I would probably just
take the rest of day off [grins]. As we all know, it is very easy
to look at a chart afterwards and play arm-chair quarterback
saying xyz trades would have been done. It is obviously a
different matter actually trading it realtime live.

Lets assume some bad things. Such as one shorted shortly after the
open and took a 2 pt loss. Then you re-entered the short a second
time and this time took a 1 pt loss. When the pop at 923 occurred,
which you know to be a trade pivot. You consider another short,
but your confidence is down and you wait until ES hits 920 before
going short and are much quicker to cover at 917.

Perhaps you simply were not at the computer until 12am and by then
those two large moves were already over and done with. And as
often can happen, by the time you play chart catchup, you have now
just missed the next move from 918 to 922; and as time ticks by,
the tape settles down and you quickly realize the tape is now
going to be rangebound perhaps in the 919-923s range.

By this time, perhaps you’ve lost some money in the morning, or
missed the morning trades and are now faced with only two
decisions after realizing the tape is going to be in a tight 919s-
923s range:

1.	Do nothing at all for the last 3 hours of the trade day

OR
2.	Decide to do Scalp Trading into the close within that range.







Ok, this article is not about how one figures out why you suspect
the trade range is going to be 919s-923. As mentioned earlier,
those pivots are discussed frequently throughout the trade day in
the OI Futures Monitor.

So you realize 919 is the bottom and 923 is the top with 922 right
in the middle (see above chart). Every time ES dips to 920 area,
you enter a LONG scalp and immediately park an offer for +1 to
+1.50. When ES upticks to 923, you take a Short Scalp entry and
immediately park a cover bid at 922 for the same +1 goal.

SCALP GOAL : +1 to +1.50
SCALP STOP : 1 point

Stop is 1pt each time; and 99% of the time, do not even consider
allowing a wider stop for intentional scalp trading for that is
where large losses can occur.

Look again at the above afternoon chart and ask yourself if you
might have been able to execute a few successful scalp trades
there.

One important comment: there are times when a normal (non-scalp)
entry is made (LONG 925) and your goal might be 928-930 but if the
tape stalls at 926.50 and you exit at 926 for a profit of 1 rather
than the desired goal of 3-5 pts I would not label this a scalp,
but simply a normal trade that made a small profit after not
hitting the desired goal.















After reviewing the three above charts on a smaller time frame, I
would re-ask the same question; namely, how many scalp points do
you think you might have been able to take out that tape? Would 3
or 4 +1 be possible? Perhaps 3 winners and 1 loser? One could
actually find 8-10 possible scalp trades on this particular
afternoon if you look hard enough. Would any of these trades
provided more than 3 pts? Not really. In fact most of them would
probably hit the breakeven stop or a -1 stop if you had entered
the trade seeking 4 or 5 points.

It would not help you very much watching the Futures Monitor as
watching scalp entries occurring after you can possible enter
them; HOWEVER, there are often times when the trades are coming
within pivots, so it becomes possible to make trade posts such as
“ES is chopping here at 921-22, seek a 923 short and if filled, go
for a +1 scalp”

So what’s the catch?

     Commissions are obviously a factor to your final profit.
     You will have stop very fast -1 pt stop losses hitting;
sometimes within minutes of your entry which is never fun.

Since we are taking about doing counter-trend entries here, such
as shorting 923 and going long at 920s. If those two levels are
indeed large support and resistance levels, it is very possible
that a breakout over 923 might occur, or a breakdown under 920.

Lets look at either happening:

You take a short entry at 923 and then 5 minutes later, the tape
rockets higher over that 923 resistance onward to 926s – but your
1 pt stop would have hit before then. RESULT -1

You take a long at 921 and before you can type in your exit at
922.50 for your +1.50 scalp goal – out of nowhere comes a rocket
higher spike (something we have seen occur a great many times) and
before you can even blink, ES has broken out over that known 923s
resistance and it trades all the way to 928 and you take a trail
stop exit at 927s for +5s. RESULT +5

Since no one knows for 100% certainity if a breakout or breakdown
will occur, you have 50/50 odds of being on the right side of the
trade when it occurs.

Since these scalp entries use a tight 1pt stop; and there is a
50/50 chance of either having that -1 stop occur OR a profit of +5
if you happen to be holding the position when that breakout
occurs.

I am not a gambler, but 50/50 odds of -1 vs +5 in my view is good
money management.

So why not just wait until that breakout or breakdown occurs and
then enter into a position?

Assume you were flat and waiting for this breakout.
It trades over 923s and by the time you notice it, it’s trading at
925 and you are faced with that tough decision to chase it or not
as you know there’s a small pivot at 925-6 – sometimes chasing it
works and sometimes it does not. Especially when we have seen
trading like we have this last week.

SUMMARY:

By no means do I start out each trading day with the desire to do
scalps.

Far from it, I would rather take that morning entry and ride it
all day long for a nice gain. However, and not to be boring, but
this week probably spent one-half the entire week caught in 3-4 pt
very tight ranges offering nothing but scalps during those multi-
hour periods. There truly is nothing wrong with doing nothing
during those periods; however, there is also nothing wrong with
taking 1 to 3 scalps during periods such as those either.

Very warmest,

Alan Hewko


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The Option Investor Newsletter                   Sunday 05-25-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Choosing The Best Option
Naked Puts: Success With Naked-Puts
Spreads/Straddles/Combos: Time For A Holiday!

Updated In The Site Tonight:
Market Posture: Treading Water


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

Trading Basics: Choosing The Best Option
By Mark Wnetrzak

One of the most common questions among new readers concerns which
option to sell in a covered-call position.

The #1 goal for most option traders is correctly predicting the
future movement of the underlying stock or index.  This fact also
holds true for covered-call writers but after the decision to buy
a particular stock has been made, the average investor will have
trouble choosing which option to sell.  To be successful in the
derivatives market, you must be able to select the most favorable
positions based on theoretical pricing and the time horizon of the
play.  The knowledge of option pricing comes from a study of the
various mathematical relationships that exist between an option's
fundamental components (the greeks) and the way they are affected
by market factors such as supply and demand (implied volatility).
The time frame of the position is important because it determines
the amount of profit that must be earned to achieve a specific
return on investment.  The type of analysis that will be utilized
in predicting the trend of the underlying issue should also be
considered as some techniques require long periods for an accurate
forecast.  For example, investors who use fundamental valuations to
predict future share prices would generally write out-of-the-money
options with 2-3 months of time-value remaining, in order to reduce
the overall basis in the underlying issue.  In contrast, a trader
who uses charting or sentiment analysis in would likely sell short-
term, in-the-money options on technically favorable stocks.

For those who choose long-term covered-call positions, the goal
is to reduce the overall cost of the stock with the income from
monthly sales of near-term options.  Investors who participate in
this strategy generally use out-of-the-money calls to reduce the
chance of having their short positions exercised (in which case
delivery of the underlying issue would be required).  The problem
with this technique is that when one sells an out-of-money option,
the overall position tends to reflect more of the result of the
stock price movement and less of the benefits of writing the call.
This occurs because the premium from the out-of-the-money call is
relatively small and the overall position is very susceptible to
loss if the underlying stock declines.  Conservative traders may
find that a better alternative is to commit half of the position
to in-the-money options and the other half to out-of-the-money
options.  By spreading the options among different strike prices,
the call writer can acquire more favorable return potential as
well as establishing adequate downside protection.

Investors who have large positions in a specific stock can choose
even greater diversification by spreading the sold calls over time
as well as different strike prices.  One can gain several benefits
by writing a portion of the calls near-term and the remaining calls
further in the future.  In the event of large, unexpected move in
the stock, the combination of time frames in each position reduce
the need to make immediate adjustments.  This type of activity may
include buying-back one written call and selling another or simply
having the stock called away, but with a mixture of sold options,
all of the different positions will not need to be adjusted at the
same time.  Another advantage to this technique is that the level
of option premiums may become more favorable than when the original
series of calls were written.  At worst, only one group of options
would be sold when the premiums are small and hopefully they would
increase in value before the next expiration period.  This type of
diversification will also allow you to establish various positions
at different strike prices, smoothing the portfolio balance as the
market fluctuates cyclically.  It also prevents all of one's stock
from being committed at a single price.

Traders who choose (as we do) to concentrate on near-term options
in covered call positions must still decide which option to sell.
In most cases, short-term plays are much more successful if you
write in- or at-the-money options.  In this conservative approach,
you should strive for position that return a minimum of 3%-5% per
month while retaining downside protection of at least 10% of the
current stock price.  The overall position that is constructed with
these guidelines will be a relatively low risk play (regardless of
the volatility of the underlying stock) since the absolute levels
of protection will be large and there is still the expectation of a
reasonable return.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

NOR      2.67    2.56  JUN  2.50  0.40    0.23*   8.8%
ABGX    11.18   11.21  JUN 10.00  1.90    0.72*   6.7%
MOSY     7.50    8.00  JUN  7.50  0.60    0.60*   6.3%
IDNX     5.60    5.91  JUN  5.00  0.90    0.30*   5.5%
TER     13.06   15.32  JUN 12.50  1.40    0.84*   5.2%
OVER    14.55   15.60  JUN 12.50  2.75    0.70*   5.2%
MDR      5.08    6.05  JUN  5.00  0.40    0.32*   5.0%
PLUG     5.39    5.08  JUN  5.00  0.65    0.26*   4.8%
FFIV    15.45   16.01  JUN 15.00  1.30    0.85*   4.4%
GNTA     8.78   10.32  JUN  7.50  1.70    0.42*   4.3%
MRVL    26.72   32.10  JUN 25.00  3.10    1.38*   4.2%
CELG    31.48   31.10  JUN 30.00  2.80    1.32*   4.0%
BRCM    21.40   22.03  JUN 20.00  2.25    0.85*   3.9%
GP      17.99   17.17  JUN 17.50  1.40    0.58    2.5%

*   Stock price is above the sold striking price.

Comments:

The major averages stumbled on Monday as the dollar fell to
new lows, though they did manage to rebound as the Memorial
Day weekend approached.  The covered-call portfolio weathered
the pull-back fairly well and may even be causing some "call
selling" regret in a few issues, notably; Marvell Technology
(NASDAQ:MRVL), which exploded higher after reporting earnings
on Thursday.  Two issues will be on the watch list going into
next week as they consolidate towards support and should be
monitored closely: Abgenix (NASDAQ:ABGX) and Georgia-Pacific
(NYSE:GP).

Positions Previously Closed: None.


NEW CANDIDATES
*********

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

IPXL    7.86  JUN  7.50  UPR FU  0.80  463     7.06  27   7.0%
PLUG    5.08  JUN  5.00  PQL FA  0.35  589     4.73  27   6.4%
ALKS   12.84  JUN 12.50  QAL FV  0.95  460    11.89  27   5.8%
FCS    12.55  JUN 12.50  FCS FV  0.60  465    11.95  27   5.2%
AWE     7.64  JUN  7.50  AWE FU  0.45  24987   7.19  27   4.9%
FEIC   17.65  JUN 17.50  FQE FW  0.85  220    16.80  27   4.7%
PEGS   13.00  JUN 12.50  PUG FV  0.85  5      12.15  27   3.2%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
IPXL - Impax Labs  $7.86  *** Next Leg Up? ***

Impax Laboratories (NASDAQ:IPXL), formerly known as Global
Pharmaceutical Corp., is a technology-based, specialty
pharmaceutical company focused on the development and
commercialization of generic and brand name pharmaceuticals.
In the generic pharmaceuticals market, the company is mainly
focusing its efforts on selected controlled-release generic
versions of brand name pharmaceuticals.  In the brand name
pharmaceuticals market, the company is developing products
for the treatment of central nervous system (CNS) disorders.
Impax's initial brand name product portfolio consists of
development-stage projects to develop differentiated, modified
or controlled-release versions of marketed drug substances.
The company intends to expand its brand name products portfolio
primarily through internal development, and, in addition,
through licensing and acquisition.  IPXL continues to rally off
the March lows on heavy volume and the issue recently moved
above resistance near $7.  Traders who believe the rally will
continue can profit from that outcome with this position.

JUN-7.50 UPR FU LB=0.80 OI=463 CB=7.06 DE=27 TY=7.0%


*****
PLUG - Plug Power  $5.08  *** Cheap Speculation ***

Plug Power (NASDAQ:PLUG) designs, develops and manufactures on-
site electric power generation systems utilizing proton exchange
membrane (PEM) fuel cells for stationary applications.  Plug's
initial product is a fully integrated, grid parallel 5-kilowatt
fuel cell system that operates on natural gas.  This initial
product is intended to offer quality power while demonstrating
the market value of fuel cells as a preferred form of alternative
distributed power generation.  The company's R&D facility contains
over 150 test stations where its conduct design optimization and
verification testing, rapid-aging testing, failure mode and
effects analysis, multiple technology evaluations, and endurance
testing in the company's effort to accelerate the development and
commercialization of its fuel cell systems.  Shares of several
fuel cell developers rallied recently on no news.  Plug Power has
been forging a Stage I base near $5 for almost a year and traders
can use the inflated premiums to establish a bullish, low-risk
position in the issue.  Target-shooting a lower net-debit will
reduce the cost basis and raise the potential yield in the play.

JUN-5.00 PQL FA LB=0.35 OI=589 CB=4.73 DE=27 TY=6.4%


*****
ALKS - Alkermes  $12.84  *** On The Move!  ***

Alkermes (NASDAQ:ALKS) is a pharmaceutical company developing
products based on applying its sophisticated drug delivery
technologies to enhance therapeutic outcomes.  The company's
areas of focus include controlled, extended-release of injectable
drugs using its ProLease and Medisorb delivery systems, and the
development of inhaled pharmaceuticals based on its proprietary
Advanced Inhalation Research pulmonary delivery system.  Alkermes
partners its proprietary technology systems and drug delivery
expertise with many other pharmaceutical companies, and it also
develops novel, proprietary drug candidates for its own account.
The company has a pipeline of products in various stages of
development.  Alkermes recently received about $24 million from
Johnson & Johnson's Janssen Pharmaceutica as a prepayment of the
first two years of the minimum revenue guaranteed under an
agreement between the parties over the manufacture of Risperdal
Consta.  There's not much news on Alkermes to explain the recent
rally but it appears the issue has completed its consolidation
phase and is poised for future gains.  In addition, the fundamental
outlook for the company is excellent and the drug sector continues
to perform very well; both factors that lead to a bullish position
in the issue.  Due diligence is a must!

JUN-12.50 QAL FV LB=0.95 OI=460 CB=11.89 DE=27 TY=5.8%


*****
FCS - Fairchild  $12.55  *** Bottom Fishing: Part I ***

Fairchild Semiconductor (NYSE:FCS) designs, develops and markets
analog, interface, discrete, standard logic, non-volatile memory
and optoelectronic semiconductors through its subsidiary, Fairchild
Semiconductor Corporation.  The company is focused solely on multi-
market products that are building block components for virtually
all electronic devices, from sophisticated computers and Internet
hardware to telecommunications equipment to household appliances.
The company's products are organized into 4 product groups:  analog
and mixed signal products, discrete products, logic and memory
products and optoelectronics products.  Fairchild has been in a
recovery mode since the rally off the October low and speculators
looking to "bottom-fish" in the semiconductor industry can use this
position to obtain a cost basis in the issue near technical support.

JUN-12.50 FCS FV LB=0.60 OI=465 CB=11.95 DE=27 TY=5.2%


*****
AWE - AT&T Wireless  $7.64  *** Buyout Target? ***

AT&T Wireless (NYSE:AWE) operates as a wireless communications
service provider in the United States.  The company provides
wireless voice and data services over two separate, overlapping
networks.  One network uses time division multiple access (TDMA)
as its signal transmission technology.  It also provides voice
and enhanced data services over a separate network that uses the
signal transmission technology known as global system for mobile
(GSM) communications and general packet radio service (GPRS).
As of December 31, 2002, AT&T Wireless's two networks covered an
aggregate of approximately 213 million population, or 74%, of the
U.S. population, and operated in 83 U.S. metropolitan areas.
There have been rumors that AT&T Wireless is up for sale or may
be a buyout target.  AT&T Corp. is talking to cable operators and
wireless carriers about partnerships to resell their services, and
may have a deal for a cable offering before the end of the year,
according to John Polumbo, president of the company's consumer
services division.  We simply favor the bullish technical signals
and our conservative position offers a method to participate in
the future movement of the issue with relatively low risk.

JUN-7.50 AWE FU LB=0.45 OI=24987 CB=7.19 DE=27 TY=4.9%


*****
FEIC - FEI Company  $17.65  *** Bottom Fishing: Part II ***

FEI Company (NASDAQ:FEIC) is a supplier of equipment and solutions
to the high-growth segments of the semiconductor, data storage and
industry and institute markets.  The company's solutions are based
on a combination of patented and proprietary technologies that
produce highly focused electron and ion beams.  These solutions
enable FEI's customers to view and analyze structures in three
dimensions and to measure, analyze, diagnose and modify sub-micron
and atomic structures below the surface in semiconductor wafers and
devices, data storage components and biological and industrial
materials.  This enables the firm's customers to develop products
faster, control manufacturing processes better and improve their
production yields.  FEI's Structural Process Management Solutions
include focused ion beam equipment, scanning electron microscopes,
transmission electron microscopes and also DualBeam systems, which
combine the various microscopes on a single platform.  In January,
FEI and Veeco Instruments (NASDAQ:VECO) terminated their $1 billion
merger due to difficult market and economic conditions and traders
reacted favorably to the news.  The stock continues to forge a
Stage I base with technical support near the cost basis of this
position.  This position offers traders a good "target-shooting"
opportunity in a stock with superb upside potential.

JUN-17.50 FQE FW LB=0.85 OI=220 CB=16.80 DE=27 TY=4.7%


*****
PEGS - Pegasus  $13.00  *** Hotel Sector Recovery? ***

Pegasus Solutions (NASDAQ:PEGS) is a provider of hotel room
reservation services, reservation technology systems and hotel
representation services for the global hotel industry.  The
company's customers include a significant number of world-wide
travel agencies, more than 46,000 hotels around the world and
more than 1,000 travel-related Websites.  On April 3, 2000,
Pegasus completed the acquisition of REZ, Inc., a provider of
distribution services and solutions for the hotel industry.
As a result of the REZ acquisition, Pegasus is organized into
two reportable segments, technology and hospitality.  Pegasus
has been forging a Stage I base since October and rallied this
week on an upgrade at Thomas Weisel.  Analysts believe the
the hotel industry may finally be in recovery mode and traders
who agree can use this position to establish a low risk cost
basis in the issue.

JUN-12.50 PUG FV LB=0.85 OI=5 CB=12.15 DE=27 TY=3.2%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

OVER   15.60  JUN 15.00  GUO FC  1.60  7781   14.00  27   8.0%
CPN     5.10  JUN  5.00  CPN FA  0.40  53216   4.70  27   7.2%
GNTA   10.32  JUN 10.00  GJU FB  0.85  2800    9.47  27   6.3%
NEOL   16.32  JUN 15.00  UOE FC  2.05  321    14.27  27   5.8%
TER    15.32  JUN 15.00  TZY FC  1.05  1862   14.27  27   5.8%
ADPT    7.54  JUN  7.50  APQ FU  0.40  270     7.14  27   5.7%
MEDX    5.29  JUN  5.00  MWM FA  0.50  521     4.79  27   5.0%
MACR   17.80  JUN 17.50  MRQ FW  1.05  1148   16.75  27   5.0%
SOHU   24.48  JUN 22.50  UZK FX  2.90  1105   21.58  27   4.8%
AVID   30.42  JUN 30.00  AQI FF  1.65  190    28.77  27   4.8%
GERN    5.30  JUN  5.00  GQD FA  0.50  2813    4.80  27   4.7%
DAL    13.55  JUN 12.50  DAL FV  1.55  4390   12.00  27   4.7%
TALX   14.89  JUN 15.00  TUB FC  0.55  153    14.34  27   4.3%
SCSS   15.62  JUN 15.00  QSL FC  1.15  378    14.47  27   4.1%
MCDTA  10.66  JUN 10.00  MQG FB  1.00  1738    9.66  27   4.0%
ICN    13.08  JUN 12.50  ICN FV  0.95  1014   12.13  27   3.4%



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

Options 101: Success With Naked-Puts
By Ray Cummins

With the number of new subscribers growing in recent weeks, it's
a good time to review the fundamental goals of this section and
the selection process we use to identify favorable candidates for
the strategy of selling puts.

First, thanks to all the subscribers who read this section on a
regular basis.  Our target audience is primarily new traders as
they need simple strategies.  To generate the majority of plays,
we search through lists of issues with overpriced options (the
OTM positions), reviewing the technical outlook of the underlying
and its industry group/sector.  If we feel the issue has bullish
potential and there is a fair risk-reward outlook, then it goes on
a final list of candidates.  After we have all the possible plays
for a specific day, we simply choose those which (in our opinion)
appear most favorable.  In most cases, we try to achieve a 4-6%
monthly return (based on the minimum collateral requirements) with
at least 15-20% downside protection.  Of course, if the options
market has relatively low implied volatility, that can be a very
difficult task.  In addition, writing "covered" calls and selling
"naked" puts are generally not favorable strategies for a bearish
market but we produce the section every week as most readers want
plays regardless of the overall trend.  One thing you can be sure
of: If we don't have confidence in what we have to offer, it won't
be published, and that's the overriding measure of any position we
list in the section.

We also provide a selection of additional candidates to supplement
the search for profitable positions.  For one reason or another,
they simply did not make the final list; which is usually limited
to 7 or 8 candidates.  Obviously, the process of selecting the
"published" plays is very subjective and there are always other
issues that warrant consideration.  That is why we include some of
the stocks that just missed our final list (for various reasons),
so that YOU may decide if they meet your criteria for a favorable
play.  Remember, our job is to provide a list of potential plays,
greatly reducing your research time.  Your job is to decide which
positions fit your risk-reward profile and hopefully (with further
scrutiny and analysis far beyond that which we can provide in the
few hours between Friday market close and the Saturday publishing
deadline), you will select only those that are winners.

As far as ongoing position management, we try to monitor the plays
in the section regularly but we do not make specific suggestions
about when they should be closed or adjusted.  Again, our job is to
provide candidates for your (more thorough) examination and also to
identify positions that have a favorable risk-reward outlook.  The
determination to trade is solely yours.  We will however, attempt
to point out those occasions when a play offers a favorable "early
exit" return, or when we see an issue that has reversed direction
and may require closure or adjustment of the underlying position.
Keep in mind that we usually have over 100 plays in four sections
to track on a daily basis and we may not always notice the crucial
turning point or "change in character" of a specific issue.  The
weekly "comments" section is not intended as a substitute for your
own trading techniques nor does it replace your duty to manage the
positions in your portfolio.  In addition, any actions taken based
on the commentary would be far too late to be effective.  As far
as the target success ratio/average returns; this strategy, when
employed correctly and managed diligently, can yield a 4-8% monthly
(annualized) profit.  Regardless of how you utilize our research,
we hope you will eventually benefit from some of the plays offered
in this section.  At the same time you must remember, they are all
just candidates and should only be considered with respect to your
personal risk-reward attitude and trading style.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

USG     11.85   10.25  JUN  7.50  0.35    0.35*   4.3%  11.2%
ANPI    28.27   28.45  JUN 22.50  0.80    0.80*   3.2%  10.8%
CTIC    10.21   11.96  JUN  7.50  0.25    0.25*   3.0%   9.5%
ANPI    25.20   28.45  JUN 17.50  0.75    0.75*   3.2%   9.4%
IMCLE   21.20   19.85  JUN 15.00  0.50    0.50*   3.0%   9.2%
OVTI    28.64   30.92  JUN 22.50  0.80    0.80*   2.7%   8.9%
APPX    27.77   32.20  JUN 22.50  0.65    0.65*   2.6%   8.7%
NVDA    21.37   20.87  JUN 17.50  0.55    0.55*   2.3%   7.6%
CELG    27.42   31.10  JUN 22.50  0.70    0.70*   2.3%   7.5%
ITMN    23.89   24.03  JUN 20.00  0.60    0.60*   2.2%   6.9%
ITMN    25.76   24.03  JUN 22.50  0.60    0.60*   2.4%   6.8%
SOHU    22.83   24.48  JUN 17.50  0.35    0.35*   1.8%   6.2%
SFA     20.29   19.12  JUN 17.50  0.35    0.35*   1.8%   5.4%
NVDA    21.26   20.87  JUN 17.50  0.30    0.30*   1.5%   5.2%
APPX    23.40   32.20  JUN 15.00  0.35    0.35*   1.7%   5.0%
ARTI    22.75   19.95  JUN 20.00  0.50    0.45    1.7%   4.8%

*  Stock price is above the sold striking price.

Comments:

Friday's lackluster activity held few surprises for investors,
despite the approval of President Bush's $350 billion tax-cut
package.  Comments overheard among market bulls suggest that
the favorable effects of the legislation, which lowers the top
tax rate on dividends and accelerates scheduled income tax cuts,
were already "factored-in" to current share values.  If that is
the case, the recent rally in stock prices may be due for some
"backing and filling."  Traders are encouraged to be vigilant in
their position management and discerning in their play selection.
Issues on the "watch" list include Intermune (NASDAQ:ITMN) and
USG Corp. (NYSE:USG).

Previously Closed Positions: Artisan (NASDAQ:ARTI), which is
currently profitable.


WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

CTIC   11.96  JUN 10.00  CUC RB 0.30 2004  9.70  27   3.5%  10.8%
OVTI   30.92  JUN 25.00  UCM RE 0.45 1143 24.55  27   2.1%   7.3%
OSIP   26.08  JUN 22.50  GHU RX 0.40 1127 22.10  27   2.0%   6.2%
CELG   31.10  JUN 25.00  LQH RE 0.35 6287 24.65  27   1.6%   5.9%
ANPI   28.45  JUN 22.50  AUJ RX 0.30 890  22.20  27   1.5%   5.6%
CYBX   23.31  JUN 20.00  QAJ RD 0.30 96   19.70  27   1.7%   5.4%
APPX   32.20  JUN 25.00  AQO RE 0.30 1416 24.70  27   1.4%   5.0%


Company Descriptions

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

*****
CTIC - Cell Therapeutics  $11.96   *** The Rally Continues! ***

Cell Therapeutics (NASDAQ:CTIC) develops and commercializes novel
treatments for cancer.  The firm's lead product is called arsenic
trioxide (Trisenox), which was acquired in January 2000.  Trisenox
is marketed for patients with a type of blood cell cancer, called
acute promyelocytic leukemia, who have relapsed or failed standard
therapies.  The company is also developing a new way to deliver
cancer drugs more selectively to tumor tissue in order to reduce
the toxic side effects and also improve the anti-tumor activity of
existing chemotherapy agents.  In addition, the firm has identified
a novel drug target, lysophosphatidic acid acyltransferase (LPAAT-_)
that, when inhibited, has been shown to reduce tumor cell growth in
preclinical models.  CTIC shares vaulted to another 52-week high
this week on heavy volume and the break-out from a 2-month trading
range (near $9) suggests further upside potential in the near-term.
This conservative position offers a way to participate in the future
movement of the issue with relatively low risk.

JUN-10.00 CUC RB LB=0.30 OI=2004 CB=9.70 DE=27 TY=3.5% MY=10.8%


*****
OVTI - OmniVision  $30.92  *** Onward And Upward! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OmniVision has been a solid performer in
recent months and on Friday the issue traded at a new "all-time"
high.  Investors can use this position to speculate on the firm's
near-term share value with the risk of owning the stock at a cost
basis below $25.

JUN-25.00 UCM RE LB=0.45 OI=1143 CB=24.55 DE=27 TY=2.1% MY=7.3%


*****
OSIP - OSI Pharmaceuticals  $26.08  *** Drug Speculation! ***

OSI Pharmaceuticals (NASDAQ:OSIP) is a biotechnology firm focused
on the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life for
cancer patients worldwide.  OSI has created a balanced pipeline of
oncology drug candidates including both next-generation cytotoxic
chemotherapy agents and mechanism-based, gene-targeted therapies.
OSI's most advanced drug candidate, Tarceva (erlotinib HC1), is a
small-molecule inhibitor of the epidermal growth factor receptor.
The protein product of the HER1/EGFR gene is a receptor tyrosine
kinase that is over-expressed or mutated in many solid tumors.
Shares of OSIP have been active recently on speculation over the
prospects for its cancer drug Tarceva.  Traders who have a bullish
outlook on the issue can speculate on OSIP's future performance
with this position.

JUN-22.50 GHU RX LB=0.40 OI=1127 CB=22.10 DE=27 TY=2.0% MY=6.2%


*****
CELG - Celgene  $31.10  *** Bullish Biotech! ***

Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical
company.  The company is primarily engaged in the discovery,
development and commercialization of small molecule drugs that
are designed to treat cancer and immunological diseases through
gene and protein regulation. Small molecule drugs are man-made,
chemically synthesized drugs that, because of their relatively
small size, can typically be administered orally.  The firm's
drugs are designed to modulate multiple disease-related genes,
including cytokines (which are proteins) such as Tumor Necrosis
Factor alpha, or TNF(alpha), growth factor genes such as those
that control angiogenesis, blood vessel formation and apoptosis
genes.  Because the company's drugs can be administered orally,
they have the potential to advance the standard of care beyond
current injectible protein drugs that inhibit TNF (alpha) and
other disease-causing cytokines.  Celgene expects to meet or
exceed 2003 financial targets, as its new cancer drug Thalomid
propels the company to profitability.  Celgene also recently
said it has discovered a new class of anti-cancer compounds and
is in the early stages of developing them in the lab.  Investors
who wouldn't mind owning the stock near a basis of $25 should
consider this position.

JUN-25.00 LQH RE LB=0.35 OI=6287 CB=24.65 DE=27 TY=1.6% MY=5.9%


*****
ANPI - Angiotech  $28.45  *** Stent-Coating Maker ***

Angiotech Pharmaceuticals (NASDAQ:ANPI) is engaged in the fusion
of medical device technologies and pharmaceutical therapies.  The
company's first product was a drug-coated stent.  Angiotech's goal
is to develop other products to enhance the performance of medical
devices and biomaterials through the use of pharmatherapeutics.  In
September 2002, the company and Cohesion Technologies, Inc. agreed
to a merger in which Cohesion will merge with a wholly owned
subsidiary of Angiotech, with Cohesion continuing as a wholly owned
subsidiary of the company.  Angiotech shares rallied at the end of
February after announcing a strategic alliance with Baxter and a
submission by its partner Boston Scientific, of the first module of
Boston's PMA application for its TAXUS paclitaxel-eluting coronary
stent system.  A 12-month study on a Boston Scientific drug-coated
coronary stent, Taxus II, is expected to bolster already strong
sales of the newly introduced device in Europe.  The mid-week move
to a new yearly high suggests further upside potential and traders
can profit from that outcome with this position.

JUN-22.50 AUJ RX LB=0.30 OI=890 CB=22.20 DE=27 TY=1.5% MY=5.6%


*****
CYBX - Cyberonics  $23.31  *** Testing 52-Week Highs! ***

Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and
markets the NeuroCybernetic Prosthesis, an implantable medical
device that delivers a novel therapy, Vagus Nerve Stimulation,
for treating epilepsy and debilitating neurological, psychiatric
diseases and other disorders.  In July 1997, the NCP System was
approved by the United States Food and Drug Administration for
commercial distribution in the United States for the treatment
of epilepsy, which the firm sells using its own employee-based
direct marketing organization.  In addition, the NCP System is
marketed internationally for the treatment of epilepsy (mainly
in Europe) using a combination of Cyberonics' own direct sales
organization and independent distributors.  During fiscal 2001,
the firm obtained approval for commercial distribution of the
NCP System for the treatment of depression in Europe and Canada.
CYBX is in a bullish sector and the company has a product that
is proven and well known for treating epilepsy.  In addition,
the firm's fundamentals are improving with 6 straight quarters
of 20% or better revenue growth.  Investors can establish a cost
basis near $20 in the issue with this position.

JUN-20.00 QAJ RD LB=0.30 OI=96 CB=19.70 DE=27 TY=1.7% MY=5.4%


*****
APPX - American Pharmaceutical  $32.20  *** Premium Selling! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
pharmaceutical company that develops, manufactures and markets
injectable pharmaceutical products.  The firm produces over 100
generic injectable pharmaceutical products in more than 300
dosages and formulations. Its primary focus is in the oncology,
anti-infective and critical care markets.  The company makes
products in all of the three basic forms in which injectable
drugs are sold: liquid, powder and lyophilized (freeze-dried).
APPX continues to be a popular stock among speculative traders
and the inflated option premiums offer a good opportunity for
investors who wouldn't mind owning the issue at a substantially
reduced cost basis.  Due diligence is a "must" with this issue.

JUN-25.00 AQO RE LB=0.30 OI=1416 CB=24.70 DE=27 TY=1.4% MY=5.0%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

LGND   10.78  JUN 10.00  LQP RB 0.35 547   9.65  27   4.1%  10.2%
CPTS   13.70  JUN 12.50  UCP RV 0.40 30   12.10  27   3.7%   9.6%
MLNM   14.26  JUN 12.50  QMN RV 0.35 1807 12.15  27   3.2%   9.2%
VGR    15.98  JUN 15.00  VGR RC 0.45 40   14.55  27   3.5%   8.6%
AAPL   18.32  JUN 17.50  AAQ RS 0.45 3459 17.05  27   3.0%   7.3%
SOHU   24.48  JUN 20.00  UZK RD 0.35 614  19.65  27   2.0%   7.0%
MRVL   32.10  JUN 30.00  UVM RF 0.70 312  29.30  27   2.7%   6.9%
ISIL   21.72  JUN 20.00  UFH RD 0.40 943  19.60  27   2.3%   6.1%
IGEN   35.54  JUN 27.50   GQ RY 0.35 1745 27.15  27   1.5%   5.3%


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


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

Time For A Holiday!
By Ray Cummins

The major equity averages ended higher Friday amid optimism over
the new tax-cut legislation and its future affects on the health
of the U.S. economy.

The Dow Jones Industrial Average climbed 7 points to 8,601 on
strength in AT&T (NYSE:T), Altria Group (NYSE:MO) and Eastman
Kodak (NYSE:EK).  The NASDAQ Composite Index added 2 points to
close at 1,510 with shares of Marvell Technology (NASDAQ:MRVL)
among the best performers.  Shares of MRVL soared over 15% after
the firm announced favorable first-quarter sales and projected
strong growth for the second quarter amid increased demand for
its gigabit Ethernet and storage chips.  The Standard & Poor's
500 Index added 1 point to end at 933 with biotech and utility
issues enjoying increased buying pressure.  Trading volume was
under 1.2 billion shares on the New York Stock Exchange, below
the average of about 1.4 billion, and just over 1.4 billion on
the NASDAQ.  Winners outnumbered losers by a 2 to 1 margin on
the Big Board, and by 3 to 2 on the technology exchange.  The
bond market was upbeat as prices rose, driving the yield on the
10-year note down to 3.30%.  With regard to money flows, Trim
Tabs estimated that equity funds had outflows of $1.4 billion
over the week ended May 21, compared with outflows of only $300
million in the prior week.  Bond funds had inflows of $2 billion
for the second consecutive week.


*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position or to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last   Month LP  SP  Credit  CB     G/L   Status

BZH     71.80  81.33   JUN  60  65   0.55  64.45  $0.55   Open
CECO    60.52  57.40   JUN  50  55   0.50  54.50  $0.50   Open
FDC     40.22  40.16   JUN  35  37   0.30  37.20  $0.30   Open
RCII    65.35  64.71   JUN  55  60   0.50  59.50  $0.50   Open
ADTN    45.05  45.40   JUN  35  40   0.45  39.55  $0.45   Open
KLAC    42.49  39.92   JUN  35  37   0.30  37.20  $0.30   Open
LLTC    36.34  33.65   JUN  30  32   0.30  32.20  $0.30   Open
ROST    40.09  40.08   JUN  35  37   0.40  37.10  $0.40   Open
BSX     48.70  50.51   JUN  38  40   0.25  39.75  $0.25   Open
UNH     95.41  95.48   JUN  85  90   0.55  89.45  $0.55   Open
WLP     81.05  84.80   JUN  70  75   0.40  74.60  $0.40   Open

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

Career Education (NASDAQ:CECO), KLA-Tencor (NASADQ:KLAC) and
Linear Technology (NASDAQ:LLTC) are now on the "watch" list.


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

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

PG      90.15  89.80   JUN  100  95  0.40  95.40  $0.40   Open
GS      75.00  76.15   JUN   85  80  0.60  80.60  $0.60   Open
MMM    122.81 123.50   JUN  135 130  0.50 130.50  $0.50   Open
ANF     27.25  26.63   JUN   32  30  0.20  30.20  $0.20   Open
GM      34.41  33.26   JUN   40  37  0.25  37.75  $0.25   Open
JCI     81.61  80.70   JUN   90  85  0.55  85.55  $0.55   Open

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

The Nabors Industries (NYSE:NBR) position has previously been
closed to limit potential losses.


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

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

AXP     38.46  39.99  JUN   32  35   2.20   34.70  0.30   Open
GENZ    41.47  44.86  JUN   35  37   2.20   37.20  0.30   Open
BSX     46.91  50.51  JUN   37  40   2.25   39.75  0.25   Open
MERQ    35.75  36.36  JUN   30  32   2.25   32.25  0.25   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

WMT     52.92  52.00  JUN   60  55   4.50   55.50  0.50   Open

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


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

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

SMH     26.43  27.03   AUG     30    22     0.10    1.20    Open
MRVL    26.72  27.98   JUN     30    22    (0.20)   2.50    Open

Marvell Technology (NASDAQ:MRVL) did not offer the target entry
price, but the position was very profitable for traders who paid
a small debit to initiate the play.  The Semiconductor Holdrs
(AMEX:SMH) play has achieved a favorable profit.  The speculative
position in Silicon Laboratories (NASDAQ:SLAB) has previously
been closed to limit potential losses.


SYNTHETIC (BEARISH)
*******************

No Open Positions


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

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

BMET    28.52  28.43   JUL-30C   JUN-30C  (0.70)   0.40    Open
ESI     29.11  26.72   OCT-30C   JUN-30C   1.35    1.60    Open?
FILE    13.75  15.72   JUL-15C   JUN-15C   0.10    0.20    Open
IBM     87.57  85.26   JUL-90C   JUN-90C   0.25    1.20    Open?
GDT     39.98  42.18   OCT-45C   JUN-45C   1.45    1.55    Open
NSM     21.80  22.43   JAN-25C   JUN-25C   2.10    2.40    Open
BRCM    21.40  22.03   JAN-25C   JUN-25C   2.15    2.40    Open
SRNA    19.71  18.38   AUG-22C   JUN-22C   0.70    0.60    Open
VRTY    18.85  19.63   SEP-20C   JUN-20C   1.00    1.15    Open

The speculative calendar spread in SRNA is the only position of
immediate concern as the issue fell almost 7% after the company
said its current quarter's profit could fall shy of consensus
estimates.  Our "time-selling" position expires in August, but a
continued retreat in the issue's share value will make it very
difficult to achieve a profit in the play.  With that outlook in
mind, traders are reminded to use sound money-management to limit
potential losses in the position.


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

Symbol  Pick   Last   Month  SC  SP  Credit   C/V    G/L   Status

NXTL    13.60  14.88   JUN   15  12   0.75   $1.10  (0.35)  Open

SC = Short Call SP = Short Put C/V = Current value G/L = Gain/Loss


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

No Open Positions

Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
BSX - Boston Scientific  $50.51  *** New All-Time High! ***

Boston Scientific (NYSE:BSX) is a global developer, manufacturer
and marketer of less-invasive medical devices.  The firm's unique
products are offered by two major business groups, Cardiovascular
and Endosurgery.  The Cardiovascular segment focuses on products
and technologies for use in the firm's interventional cardiology,
interventional radiology, peripheral vascular and neurovascular
procedures.  The Endosurgery organization focuses on products and
technologies for use in oncology, vascular surgery, endoscopy,
urology and gynecology procedures.

BSX - Boston Scientific  $50.51

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-40.00  BSX-RH  OI=24180  ASK=$1.05
SELL PUT  JUN-42.50  BSX-RV  OI=7836   BID=$1.35
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$42.10


*****
PHM - Pulte Homes  $63.71  *** Homebuilders Rally! ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The company's direct subsidiaries include Pulte Diversified
Companies, Inc. (PDCI), Del Webb Corporation and others that
are engaged in the homebuilding business.  PDCI's operating
subsidiaries include Pulte Home Corporation (PHC), Pulte
International Corporation and other subsidiaries that are
engaged in the homebuilding business.  The company also has a
mortgage banking company, Pulte Mortgage Corporation, which is
a subsidiary of PHC.

PHM - Pulte Homes  $63.71

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-55.00  PHM-RK  OI=1071  ASK=$0.25
SELL PUT  JUN-60.00  PHM-RL  OI=349   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$59.50


*****
BRL - Barr Laboratories  $52.56  *** Drug Sector Sell-Off! ***

Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical company
primarily engaged in the development, manufacture and marketing of
generic and proprietary prescription pharmaceuticals.  The company
manufactures and distributes more than 100 different dosage forms
and strengths of pharmaceutical products in core therapeutic
categories, including oncology, female healthcare (including
hormone replacement and oral contraceptives), cardiovascular, anti
infective and psychotherapeutics.  In addition, the company has a
proprietary, novel vaginal ring drug delivery system it is using
to develop products intended to address a variety of female health
issues and unmet medical needs.

BRL - Barr Laboratories  $52.56

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-60.00  BRL-FL  OI=832  ASK=$0.25
SELL CALL  JUN-55.00  BRL-FK  OI=818  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$55.65


*****
CCMP - Cabot Microelectronics  $41.55  *** Trading Range? ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called chemical
mechanical planarization (CMP).  CMP is a polishing process used
by IC device manufacturers to planarize or flatten many of the
multiple layers of material that are built upon silicon wafers
and necessary in the production of advanced ICs.  Planarization is
a polishing process that levels, smoothes, and removes the excess
material from the surfaces of these layers.  CMP slurries are
liquid formulations that facilitate and enhance this polishing
process and generally contain engineered abrasives and proprietary
chemicals.  CMP enables IC device manufacturers to produce smaller,
faster and more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $41.55

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-50.00  UKR-FJ  OI=843   ASK=$0.10
SELL CALL  JUN-45.00  UKR-FI  OI=1484  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$45.45


*****
KSS - Kohl's Corporation  $51.22  *** Retail Sector Slump! ***

Kohl's (NYSE:KSS) operates family-oriented, specialty department
stores.  The company's stores sell moderately priced apparel,
shoes, accessories and home products targeted to middle-income
customers shopping for their families and homes.  Kohl's stores
have fewer departments than traditional, full-line department
stores, but offer customers assortments of merchandise displayed
in complete selections of styles, colors and sizes.  Since 1992,
the company has increased square footage an average of 22% per
year, expanding from 79 stores located in the Midwest to a total
of over 400 stores with a presence in six regions.  New markets
include Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

KSS - Kohl's Corporation  $51.22

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-60.00  KSS-FL  OI=3685  ASK=$0.15
SELL CALL  JUN-55.00  KSS-FK  OI=4636  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$55.45


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
HDI - Harley-Davidson  $40.81  *** Demand Waning? ***

Harley-Davidson (NYSE:HDI) operates in the motorcycles and other
related products segment and the financial services segment.
The motorcycles and related products segment includes the group
of companies doing business as Harley-Davidson Motor Company,
subsidiaries of H-D Michigan, and Buell Motorcycle Company LLC.
The motorcycles segment designs, manufactures and sells primarily
heavyweight touring, custom and performance motorcycles, as well
as a complete line of motorcycle parts, accessories, clothing and
collectibles. The financial services segment consists of the firm's
subsidiary, Harley-Davidson Financial Services, and its various
subsidiaries.  HDFS is engaged in the business of financing and
servicing wholesale inventory receivables and consumer retail
installment sales contracts (primarily motorcycles and aircraft).

HDI - Harley-Davidson  $40.81

PLAY (moderately aggressive - bearish/debit spread):

BUY  PUT  JUN-45.00  HDI-RI  OI=3342  A=$4.40
SELL PUT  JUN-42.50  HDI-RV  OI=3465  B=$2.30
INITIAL NET-DEBIT TARGET=$2.05-$2.10
POTENTIAL PROFIT(max)=19% B/E=$42.90


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
VIA - Viacom  $44.95  *** Back In A Comfort Zone? ***

Viacom (NYSE:VIA), together with its subsidiaries, is a widely
diversified worldwide entertainment company.  The company owns
and operates advertiser-supported basic cable television program
services through MTV Networks and BET: Black Entertainment TV and
and premium subscription television program services through the
Showtime Network in the United States and internationally.  The
Television segment consists of the CBS and UPN television networks.
Infinity's operations are focused on "out-of-home" media with
operations in radio broadcasting.  The Entertainment segment's
principal businesses are Paramount Pictures, which produces and
distributes motion pictures.  The company operates in the home
video retail business, which includes both rental and sale of
videocassette and DVD products.  The company also publishes and
distributes consumer hardcover books.

VIA - Viacom  $44.95

PLAY (conservative - bullish/calendar spread):

BUY  CALL  AUG-47.50  VIA-HW  OI=426  ASK=$1.60
SELL CALL  JUN-47.50  VIA-FW  OI=203  BID=$0.40
INITIAL NET DEBIT TARGET=$1.10-$1.15
INITIAL TARGET PROFIT=$0.45-$0.70


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
ICOS - ICOS Corporation  $29.85  *** Speculation Only! ***

ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products
with significant commercial potential by combining its unique
capabilities in molecular, cellular and structural biology,
high-throughput drug screening, medicinal chemistry and gene
expression profiling.  The firm applies its integrated approach
to erectile dysfunction and other urologic disorders, sepsis,
pulmonary arterial hypertension and cardiovascular diseases, as
well as inflammatory diseases.  The company has established
collaborations with pharmaceutical and biotechnology companies
to enhance its internal development capabilities and to offset
a substantial portion of the financial risk of developing its
product candidates.

ICOS - ICOS Corporation  $29.85

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JUL-35.00  IIQ-GG  OI=812   ASK=$0.85
SELL PUT   JUL-25.00  IIQ-SE  OI=1796  BID=$0.85
INITIAL NET CREDIT TARGET=$0.10-$0.20
INITIAL TARGET PROFIT=$0.55-$0.80

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $800 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25).


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
TYC - Tyco International  $17.27  *** Reader's Request ***

Tyco International (NYSE:TYC) is a diversified manufacturing and
service company.  Tyco is the world's largest manufacturer and
servicer of electrical and electronic components; the largest
designer, manufacturer, installer and servicer of undersea
telecommunications systems; the largest manufacturer, installer
and provider of fire protection systems and electronic security
services and the largest manufacturer of specialty valves.  The
Electronics segment designs, manufactures and distributes various
electrical and electronic components and designs, manufactures,
installs, operates and maintains fiber-optic undersea telecom
communications systems.  The Healthcare and Specialty Products
segment designs, manufactures and distributes medical devices and
supplies and other specialty products.  The Engineered Products
and Services segment designs, manufactures, sells and services
engineered products including industrial valves and controls and
steel tubular goods and provides environmental consulting services.

TYC - Tyco International  $17.27

PLAY (speculative - neutral/debit straddle):

BUY CALL  JUL-17.50  TYC-GT  OI=49667  ASK=$0.85
BUY PUT   JUL-17.50  TYC-ST  OI=19068  ASK=$1.10
INITIAL NET-DEBIT TARGET=$1.80-$1.90
INITIAL PROFIT TARGET=0.40-$0.75


*****


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MARKET POSTURE
**************

Treading Water


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