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Daily Newsletter, Tuesday, 05/27/2003

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The Option Investor Newsletter                 Tuesday 05-27-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Anything but Boring
Futures Markets: Breakout or Fakeout
Index Trader Wrap: See Note
Market Sentiment: It's a Stampede
Weekly Fund Screen: Short Muni Funds We Like Now


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      05-27-2003           High     Low     Volume   Adv/Dcl
DJIA     8787.35 +179.97  8792.44  8540.59 1.86 bln 2073/ 969
NASDAQ   1556.69 + 46.60  1558.28  1504.22 1.89 bln 2254/ 851
S&P 100   478.99 +  9.24   479.70   466.54   Totals 4327/1820
S&P 500   951.48 + 18.26   952.76   927.33
W5000    9087.00 +170.77  9096.07  8868.09
RUS 2000  427.71 +  9.31   427.73   417.82
DJ TRANS 2383.36 + 33.49  2419.44  2370.48
VIX        21.77 +  0.39    22.77    21.17
VXN        29.28 -  0.45    30.67    28.61
52wk Highs  630
52wk Lows    13
PUT/CALL   0.63
************************************************************

Anything but Boring

After a boring Friday afternoon watching small-bodied candles
march in a straight row across trading screens, the markets
treated traders to a bout of volatility in Tuesday's early
trading.  While U.S. and U.K. markets closed on Monday, Asian and
other European markets traded.  Their trading, especially
Tuesday's move down on most foreign bourses, primed the U.S.
markets for a down opening.

The first three five-minute candles dropped the SPX to a low of
927.33 and the DJI to a low of 8540.73, but both indices started
their climbs off those lows during the formation of the third
five-minute candles.  The COMPX started sooner, dropping for five
minutes only.  The climbs were hesitant until the 10:00 am release
of April new home sales, April existing home sales, and May
consumer confidence numbers.  Then the indices cast aside their
hesitancy and moved up with only a minimal pause for breath during
the lunchtime lull and a brief pullback at the end of the day.

Breadth proved strong all day, alerting any who might be tempted
to short at resistance that today might not be the best
opportunity for that tactic.  Volume measured 1.5 billion on the
NYSE and an even stronger 1.9 billion on the Nasdaq.  Advancers
led decliners by a 2.4:1 ratio on the NYSE and by a 2.6:1 ratio on
the Nasdaq.  Up volume was 5.2 times down volume on the NYSE and
an even stronger 8.6 times down volume on the Nasdaq.  New highs
measured 701 to 15 new lows.

The extra boost to the early, tentative climb came from economic
numbers that showed the May New York Conference Board's consumer
confidence index rising to 83.8 from April's 81, and both April
new-home sales and existing-home sales rising more than expected.
April new home sales rose 1.7% to an annualized 1.051 million
rather than falling 2.7% as expected, and April existing-home
sales rose 5.6% to an annualized 5.84 million rather than to the
expected annualized 5.7 million.

Many market participants watch home-sales figures closely.  The
purchase of a new or existing home also predicts the purchase of
goods needed to furnish that home.  Many feel that low mortgage
rates, and the strong housing and refinancing markets they produce
have provided the support that has kept U.S. markets out of
recession.  With the peak season in the real-estate market upon
us, those low mortgage rates proved too tempting to pass up.  New
home sales rose in the Midwest, South, and West.  Inventories fell
to a 3.9-month supply, down from March's 4.1-month supply.

All was not rosy, however.  New home sales fell in the Northeast.
Across the U.S., median prices also fell, to $185,100 from March's
$185,400.  Median prices remained lower than last year's April
numbers, too, by 1.1%.

While April inventories of new homes fell, inventories of existing
homes rose to a 5.1-month supply, up from March's 4.9-month
supply.  Also in contrast to new-home sales, median prices of
existing homes rose 0.8% to $163,400.

With all the focus on the home-sales figures, the consumer
confidence number, and one component in particular, probably
figured more strongly in the positive sentiment powering the
markets higher today.  While the headline 83.8 number was inline
or even slightly lower than the 84.7 forecast, the component
measuring the confidence consumers feel in conditions six months
into the future rose to 94.4 from March's 84.8. The 94.4 number
was the highest it has measured since September.  The worst of the
fighting in Iraq has ended, crude oil prices have eased, and stock
markets have climbed.

Yet many questioned how long consumer optimism about the future
can be maintained without a turnaround in unemployment, with a
current unemployment rate of 6% and a May forecast of 6.1%.  A
study of the consumer confidence number also revealed that the
component measuring current conditions fell to 67.9 from April's
75.2.  Those indicating that business conditions were bad rose
while those indicating business conditions were good fell.  These
numbers indicate that the rising headline number was built on a
foundation of hopes for the future rather than solid confidence in
the present.

Companies reporting today included AutoZone (AZO, 87.41, up
$2.49), which gained more than 3% ahead of their earnings report
after the closing bell.  Initial reports show an EPS of
$1.30/share, higher than the expected $1.27 a share, with
estimates between $1.20 and $1.31.  Stores open at least a year
showed sales rising 2.8% from a year ago.  As of this writing, AZO
was giving back some of those gains, with a bid and ask of 86.66
and 87.12.

Other stocks in the news today included Altria (MO, 42.09, down
$0.22), one of the few stocks in the red today after a downgrade
to neutral from buy by a UBS Warburg analyst.  The downgrade was
based on recent share appreciation and Friday's decision by a
trial judge who refused to throw out key portions of a federal
deceptive-advertising lawsuit.  A%&T (T, 18.91, down 1.77%) also
fell after a downgrade, this one to a sell from hold by an A.G.
Edwards analyst on an unfavorable outlook for the company due to
deteriorating industry fundamentals.  Cell Therapeutics (CTIC,
13.05, up $1.09 or 9.11%) gained after revealing that its
multiple-myeloma Trisenox injection performed well in tests
involving five independent clinical studies and one case study.

A study of the charts should prove easy tonight, as they all show
the same thing:  a move up to strong resistance.  Moves over those
levels with appropriate volume patterns might be good for bullish
trades, keeping high bullish-percent levels in mind and following
with appropriate stops.  Declines from resistance with appropriate
volume patterns might be good for bearish trades, with the recent
buy-the-dip sentiment kept firmly in mind and appropriate stops
set.

Because it's the broadest of all our markets, the Wilshire 5000's
chart merits study.  To see the best overall view of the Wilshire,
we'll look at the weekly chart.

Weekly chart of the Wilshire 5000:





This weekly chart shows that today's move brought the Wilshire
5000 up to strong resistance, with the index ending the day at
9087, just below the August, 2002 high of 9096.27.  Today, the
Wilshire traded a high of 9096.07, just $.20 below that August
high.  A coincidence?  Not likely.  More likely, nervous bulls
hesitated to drive the index above that important resistance ahead
of the closing bell or bears felt confident enough to sell the
stocks composing the index.

Weekly ADX shows the Wilshire's trend declining to its current
20.35, just above the key 20 level that denotes a range-bound
rather than a trending market.  This is in keeping with the
Wilshire's trading pattern since last July, when it has been range
bound.  Both buying pressure (orange) and selling pressure (blue)
lines kicked up over the last days, indicating that perhaps there
will be a battle at hand as bulls and bears both defend current
levels.

Weekly RSI shows potential bearish divergence, but that bearish
divergence will be negated if the Wilshire pushes above the
current levels while RSI remains in overbought territory.  The
weekly 5(3)3 stochastic is deep in overbought territory, too, but
is somewhat inconclusive as yet.  In the interest of simplicity, I
have not included the 10-week and 30-week averages on the chart,
but they show a bullish crossing of the 30-week by the 10-week.

The daily Wilshire 5000 chart shows another interesting
characteristic.  The Wilshire fell below an ascending trendline on
5/19, and today's move brought it up to test the underside of that
violated trendline, now intersecting with that longer-term
horizontal resistance.

Daily chart of the Wilshire 5000:




The violation of the ascending trendline could not be considered
bullish, but it might not be as bearish a development as it
appears.  When a market ascends too quickly, it often violates a
first trendline and consolidates or forms a new trendline that
ascends less steeply.

The daily ADX had been dropping, but appears to be flattening,
perhaps indicating that although the rally has lost some strength,
this may not yet be a range-bound market on a daily basis.  It
certainly wasn't today!  Buying pressure has been increasing over
the last week as selling pressure decreased.  Yet both the RSI and
5(3)3 stochastics have moved up rather quickly on the recent move,
perhaps showing that much strength was expended getting the
Wilshire to this level.  Both also show a pattern of lower highs
recently, with that pattern about to be tested again as the
Wilshire tests that overhead resistance.

Based on these charts, there still appears to be some momentum
left to the current move, although the weekly charts predict that
the upside is somewhat limited, depending on your definition of
"limited," of course.  The sixty-minute chart (not shown)
indicates overbought conditions, but it also shows a strongly
trending market in which oscillators may not be particularly
useful as a guide to next action.

Perhaps of some importance, however, is the appearance of the
candle on the hourly chart.  That candle is a gravestone doji, a
candle that appears today on many hourly charts across the
indices.  A gravestone doji (in which prices closed at their low
of the period, also the opening value of the period) is commonly a
reversal signal.

Using the Wilshire as a proxy for the broader markets, all
possibilities remain open:  a move above resistance, with weekly
charts predicting a proportionately brief move up before a retest
of support; consolidation at current resistance; or a move down
from here.  The Wilshire 5000, like many of the other markets, did
not retrace even 38.2% of the March rally before climbing again,
with a 38.2% minimum retracement expected in even the strongest of
markets.  Therefore, I don't believe we've yet seen "the"
pullback.  Whether that occurs after a move above resistance or
before remains in question, but that gravestone doji indicates
that there might be at least some initial hesitancy before moving
above that level tomorrow.

What should traders do?  As much as I'm fearful that we're near an
intermediate-term market top, the only advice I can give is to
trade what you see.  That admonition must always include volume
patterns and other intermarket relationships in your vision, but
that's particularly important now.  This week, trading what you
see will mean trading bullish on moves above key resistance and
trading bearish on moves below, always honoring the stops that are
appropriate to your trading style.  Bullish traders should remain
cognizant of several market breadth indicators showing that risk
is shifting to those in bullish trades, while bearish traders
should remain aware of how swiftly further shortcovering could
turn a winning trade into a losing trade.  A special caution for
bearish traders remains in that hourly gravestone doji, as that
might predict a short-term move down, trapping bears, before the
bullish sentiment carries the indices higher again.

The two S&P's sport charts similar to the Wilshire's.

Daily chart of the SPX:




The upper blue line just under the border of the chart is the 965-
966 level.  This line marks the August, 2002 high of 965 and the
September, 2001 weekly low closing value of 965.80.  On this daily
chart, the SPX's violated ascending trendline has not yet
intersected with the horizontal resistance, hinting either that
horizontal resistance should more properly be placed at 960 or
that the SPX's daily oscillators might be predicting a further
rise before that joined resistance is hit.  It proves somewhat
more difficult then to pinpoint exact SPX resistance.

Note, however, the series of lower highs on the oscillators.  As
with the Wilshire 5000, that pattern will be tested at the same
time that the resistance is being tested.  An upside break in the
pattern might predict or confirm an upside break of resistance.  A
downturn in those oscillators might predict or confirm the
opposite.

The OEX chart shows similar characteristics, with OEX 487-490
being an appropriate action zone for this index.

The Dow Jones Industrials' chart appears somewhat different,
however, with the Dow lagging the S&P's in approaching the 9000-
9100 top of its July-to-present trading range.  That 9000-9100
level represents the March, 2001 monthly low; a S/R zone for the
DJI in October, 2001; and the August and December, 2002 tops.  The
8800 level appears to be next strong resistance for the DJI,
although a claim could just as easily be made for 8870, 8950, and
several other numbers between current levels and 9000.

Daily chart of the DJI:





When viewing this chart, please note that I've used the DJX as a
proxy for the DJI as Q-charts has skipped many daily candles for
the DJI and the listed fix hasn't repaired the problem.

As with the other charts, the DJI fell beneath an ascending
trendline and now rises to test the trendline again, at the same
time that it's testing that 8800 resistance.  On the DJI, however,
ADX has declined to a level that shows this to be a trending
market in which oscillators might be given more credence.  Those
oscillators move toward territory indicating overbought
conditions, but are not quite to those levels yet, so there might
still be more upside to the current movement.  The ADX also shows
buying pressure increasing again after having fallen.

Note that the daily 5(3)3 stochastics have been forming a series
of slightly lower highs and the RSI a series of equal highs, with
both those patterns soon to be tested again as the index tests
resistance.  As with the other indices, a break or continuation in
these patterns can predict or confirm the DJI's action near
resistance.  The DJI also did not retrace the minimum 38.2% amount
after the rally, so it's still due a pullback, perhaps after a
further move up.  Although the DJI did not print a gravestone doji
on its hourly chart, it did print a small-bodied candle that's
also indicative of a reversal pattern.

The NDX's chart appears different from that depicted on the other
charts, in that the weekly chart indicates that the NDX may be
forming a bullish right triangle, with a horizontal top near or at
current levels.  It's possible to place that top anywhere from
1160 to 1190.

Daily chart of the NDX:





This chart shows the upper resistance placed at 1160, but I would
consider a resistance zone from 1160-1190 rather than a strict
line of resistance at current levels.  Here, daily ADX had
declined, but appears to be flattening as buying pressure picks up
again and selling pressure declines again.  Oscillators move up.
As with the oscillators on other charts, a series of lower highs
has been forming, and it remains to be seen whether that pattern
will be broken as oscillators and prices turn up from here or if
it will continue as prices drop, too.

The NDX's hourly chart (not shown) also depicted a doji, although
not the gravestone doji seen on some other charts.  Bears should
be wary of jumping into bearish plays based on a possible reversal
as depicted by that hourly candle, however, as it may indicate
only a brief downturn.

If the indices turn down in concert with hourly, daily, and weekly
oscillators, especially if the daily oscillator pattern of lower
highs is maintained, I would again look for a 38.2% retracement
from current levels. If the indices instead sustain movements
above the named resistances, especially if the daily oscillators
break above their patterns of lower highs, I would expect bullish
sentiment to carry the indices higher before that downturn, at
which point I would begin watching retracement levels again.
Weekly oscillators predict limited upside, but they're slow to
turn.  SPX 1000, OEX 490-500, DJI 9000-9100, and NDX 1350 are not
out of the question if bullish sentiment continues, but I would
follow any bullish trade with close stops.  Bullish percent
numbers, imbalanced new highs vs. new lows, and strong resistance
levels combine to make me extremely nervous about bullish plays
while remaining aware that more upside is possible.

Tomorrow's economic releases include only one economic number, but
it could be a market mover.  The Census Bureau releases the April
durable goods orders number at 8:30 am ET, with a decline of 1-
1.2% forecasted.  The prior number was a 2.0% increase.

Although the durable goods orders number can be volatile and
subject to large revisions, it's considered a leading indicator.
Market participants closely study orders relating to non-defense
capital goods as this category gives market participants a first
glimpse into the producer's durable equipment portion of the GDP.
This number might be particularly important in this post-Iraq
climate as participants await signs of the fabled second-half
recovery.  Wednesday sees the preliminary GDP release.

Earnings releases tomorrow include Agile Software (AGIL, forecast
of -.08 eps, after market close), discount retailer Costco
(COST,.31, before the bell), homebuilder Toll Brothers (TOL, no
forecast, before the market opens), homebuilder and financial-
services provider Hovnanian Enterprises (HOV, 1.21, after market
close), oil-and-gas services provider Veritas (VTS, no estimate,
after market close), fragrance and cosmetics company Elizabeth
Arden (RDEN, -.90, before the market opens), Krispy Kreme Doughnut
(KKD, 0.20, before the market opens), and Whitehall Jewellers
(JWL, no estimate, before the market opens), among others.  While
the earnings calendar is light this week, this broad spectrum of
releases should at least give some insight into various areas of
the economy.

Linda Piazza


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

Breakout or Fakeout
Jonathan Levinson

I learned today that it's possible to believe and doubt
simultaneously.  I believe that this is a false, bear market
rally, but also believe that dip buying is far more profitable
approach to trading it than top shorting.  Equities opened at
their lows, and then launched, pausing briefly in mid-session
before breaking north again, setting new year highs.  We have
consistently seen this year that the real panics are to the
upside, with selling being more measured and gradual.  Today was
a prime example.


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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8957   8869   8705   8617   8453
COMPX     1594   1575   1540   1521   1486
ES03M      970    960    943    933    917
YM03M     8952   8856   8693   8597   8434
NQ03M     1210   1191   1157   1138   1104

The US Dollar Index got sold to a new bear market low at 92.20
this morning before staging an impressive recovery to resistance
in the 92.90 area.

15 minute chart of the US Dollar Index





The morning selloff jacked the June gold contract to 374.50, and
the subsequent rebound in the USDX brought gold to an intraday
low of 364.60, where it was trading as of this writing.  As
profiled on the weekend, 365 is our preliminary support level
before 360.

Daily chart of June gold




Gold looks pretty toppy on the oscillators.  The bullish read on
the chart is that it's still trading within its uptrend this
year, and is printing a potential cup and handle formation.
Below 360, that formation will look less likely, and the
ascending trendline will be in trouble.

The CRB got whacked on the US Dollar bounce, but recovered
toward the end of the session, closing with a –2.24 loss at
237.46.  Its leading components were live cattle futures,
platinum, wheat, copper, crude oil, soybeans and heating oil.

The equity futures paused at the open, as bears focused on the
extreme selloff in the USD Index and the steep yield curve.  The
thirty year t-note sold off right from the open, with the yield
climbing to its highs above a 10 basis point gain by session's
end.  The fives, on the other hand, were bought aggressively at
the open, sold off, and then bought back up to a flat close, down
0.2 bps on the day.  The fed was in with a 7.5B overnight repo,
which was a net addition of 2.5B against the expiring 5B weekend
repo. Despite this injection of 2.5B into the markets, treasuries
sold off heavily, leading me to conclude that the fed's
intervention money found its way into equities today.

Daily NQ3M candles




Today's long green candle, one of the larger single day gains of
this rally, started right at the ascending lower trendline, and
took out the upper horizontal resistance of the ascending
triangle.  This formation projects to higher highs, provided that
today's move doesn't get reversed back below the breakout zone.
The stochastic is trying to confirm the move with a truncation of
its downphase, and the respect of the trend of higher lows on the
oscillator is also bullish.  We see the same oscillator trend on
the MacD for all the equity futures contracts tonight.


30 minute 20 day chart of the NQ3M




Zooming in to the 30 minute candles, we see the failure of the
head and shoulders formation that was so nicely set up going into
the weekend.  We now have what Bulkowski terms a "megaphone" and
what I term a "bulloney bullhorn" formation.  The oscillators are
toppy on this timeframe, but the trend is ascending.  The weak
fundamentals, the countless compelling bearish arguments, all are
well and good, but on a technical basis, the bullish case is
growing ever more compelling.  Nevertheless, there's a longer
term level with which to be dealt- I have used the SPX cash index
to illustrate:

5 year SPX cash




The 960 level is going to be critical in determining the fate of
the current, admittedly impressive rally.


Daily ES3M candles




We see the same components on the daily ES candles as on the NQ
contract.  The 950 level was taken out, but it remains to be seen
whether the breakout can be maintained.


20 day 30 minute chart of the ES3M




The 30 minute candles have upper resistance at the long term 960
level, with the shorter term uptrend depicted by the upwardly
trending oscillators.


Daily YM3M candles





Nothing to add on the YM in either timeframe.


20 day 30 minute chart of the YM





For tomorrow, we will be watching the upper ascending trendlines
on the equity futures.  It's clear that it will take nothing more
than a test of long term resistance within the context of the
shorter term chart setups.  Given the extreme breadth readings,
the bulls are either spending their energy prematurely, or are
building up a tidal wave of buying to take out those multiyear
resistance areas.  As Jim has been noting, if bonds continue to
sell off, asset allocation programs could well provide the
necessary lift.  However, bonds have so far been trading parallel
to equities during this fed-fueled liquidity-based multiple-
asset-classed rally.  For this reason, it's impossible to know
whether that intermarket relationship is coming uncoupled or
simply lagging between asset classes.  One thing's certain-
tomorrow will be an interesting session.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_052703_1.asp


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

It's a Stampede
- James Brown

What can I say that the tape doesn't say better?  With the Dow
Industrials up 2%, the NASDAQ Composite up 3% and the S&P 500 up
another 1.95% it is hard not to describe the market as
unabashedly bullish.  There is no fear.  There is no caution.
There is no concern for the lack of corporate earnings that must
miraculously appear if stocks are going to retain these hefty
gains.

Maybe today's move was a subconscious reaction to the fact that
there were no terrorist attacks over the long Memorial day
weekend.  The consumer confidence numbers and the housing numbers
were just more concrete reasons to buy stocks.  That and the old
standby of fear and greed.  Fear that you're going to miss the
move and greed - well that's self-explanatory.

The list of bearish warning signs continues to grow longer but
traders are paying a blind eye to the signals.  Meanwhile the
market internals are overwhelming bullish.  The advance-decline
numbers were both 2 to 1 in favor of the bulls.  New highs are
growing.  Today's number was 630 new highs compared to just 13
new lows.  Up volume was better than 3:1 over down volume on both
exchanges.

As usual we will continue to trade what we see but maintaining
diligent stop losses and taking profits where it is reasonable to
do so is the prudent game here.  The optimists out there will be
encouraged by the break outs to new relative highs in indices
like the GSO software index, the SOX semiconductor index and the
BKX banking index.


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

Market Averages

DJIA ($INDU)

52-week High: 10353
52-week Low :  7197
Current     :  8781

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     :  951

Moving Averages:
(Simple)

 10-dma:  935
 50-dma:  901
200-dma:  885



Nasdaq-100 ($NDX)

52-week High: 1351
52-week Low :  795
Current     : 1173

Moving Averages:
(Simple)

 10-dma: 1139
 50-dma: 1093
200-dma: 1012



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

These traditional measures of investors fear continue to shout
that there is no fear on Wall Street.  Let buyer's beware.

CBOE Market Volatility Index (VIX) = 21.77 +0.39
Nasdaq-100 Volatility Index  (VXN) = 29.28 -0.45

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        681,427       426,148
Equity Only    0.59        426,148       196,412
OEX            0.46         19,418        30,552
QQQ            1.75         45,687        80,083


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

Bullish Percent Data

           Current   Change   Status
NYSE          61.4    + 1     Bull Confirmed
NASDAQ-100    78.0    + 0     Bull Confirmed
Dow Indust.   70.0    + 0     Bull Confirmed
S&P 500       69.8    + 1     Bull Confirmed
S&P 100       66.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  0.87
10-Day Arms Index  1.12
21-Day Arms Index  1.05
55-Day Arms Index  1.22


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    2073      2254
Decliners     969       851

New Highs     382       248
New Lows        9         4

Up Volume   1542M     1683M
Down Vol.    517M      472M

Total Vol.  1861M     1896M

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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******************
WEEKLY FUND SCREEN
******************

Short Muni Funds We Like Now

These short-intermediate municipal bond funds provide income that
is exempt from Federal income tax, while offering some protection
against the negative effects of rising interest rates.  They seek
higher yields than money market funds with modest fluctuations in
price by investing primarily in short/intermediate municipal debt
securities.  Keeping average maturity in the 2-5 year range makes
these funds less sensitive to interest rate movements (than funds
with longer average maturities).

In addition to maintaining a short/intermediate average maturity,
these funds lower "credit risk" by investing in high-quality debt
issuers (those rated AAA or AA by one or more major credit rating
agencies such as Moody's or S&P).  These funds typically will not
purchase municipal securities below investment grade (below BBB).


For our purposes this week we'll use Morningstar.com's basic fund
screener available at www.morningstar.com.  This tool permits you
to quickly hone in on funds that meet your specific criteria.  We
perform a simple but very effective screen that narrows the field
to a handful of potential best bets.  You can then pick from four
different views (performance, risk, etc.) and sort the results by
clicking data column headings.  Since the website is updated each
day, you get up-to-date performance information when you use this
tool.

Screening/Evaluation Process

Below is a summary of the screen criteria we set for this week's
screen report.

  Morningstar Category = Muni Short
  Manager Tenure > or = Category Average
  Minimum Initial Purchase < or = $10,000
  Expense Ratio < or = Category Average
  Star Rating = 4 (Above Average) or 5 (Highest)
  YTD Return > or = Universe Category
  1-year Return > or = Category Average
  3-year Return > or = Category Average
  5-year Return > or = Category Average
  10-year Return > or = Category Average
  Average Credit Quality = A or Higher
  Average Duration < or = 5 years

To reduce duration risk, we limited our search to the muni short
category.  That way, our results will be limited to funds having
short-term or short/intermediate average maturities (it says five
years or less but we want 4 years or less).  To curb credit risk,
we limited our search to high quality funds (it says A or better,
but we really want AA or better).  Bond funds that invest in the
top two tiers of the investment grade spectrum (AA/AAA) are "high
grade" funds.

We asked the screener to give us short muni funds that have fared
better than fund category peers over both near-term and long-term
trailing periods.  And, we asked for manager tenure to be greater
than category average so that we could associate the fund returns
and risks to its current manager/management team.  Since expenses
are part of the "return-risk-expense" triangle, we asked for muni
funds with below average expense ratios.

Our screen criteria yielded four results, including two national
muni funds and two single state muni funds, as follows:

 Limited Term NY Municipal (LTNYX), 4 Stars
 Schwab CA Short/Intermediate (SWCSX), 4 Stars
 T. Rowe Price Tax-Free Short-Intermediate (PRFSX), 4 Stars
 Vanguard Limited-Term Tax-Exempt (VMLTX), 4 Stars

If you are a resident of New York, the Limited Term NY Municipal
Fund (LTNYX) may be of interest to you.  Cali residents may wish
to consider the Schwab California Short/Intermediate Fund (SWCSX)
for their income goals.  The funds operated by T. Rowe Price and
Vanguard are national tax-free funds (income exempt from federal
taxes).  It's no surprise to see a low-cost Vanguard fund plus a
fund from T. Rowe Price, which also sports a solid reputation in
the mutual fund industry.

At this point, it looks like the T. Rowe Price and Vanguard funds
may be your best national tax-free muni funds based on our screen
criteria, especially if you desire a fund with a long-term record
of performance (10+ years).  Seasoned portfolio managers run both
funds.  Charles Hill has managed the T. Rowe Price Tax-Free Short
Intermediate Fund since January 1995 (8.3 years).  Vanguard Fixed
Income Group, headed by Ian McKinnon has managed Vanguard Limited
Term Tax-Exempt Fund since its inception (August 31, 1987).  Note
that McKinnon is expected to leave the Vanguard Group on June 30.
Pam Wisehaupt-Tynan has co-managed the fund since January 1, 1997
so McKinnon's departure should not have a material adverse effect
on performance.

Our Favorite Funds

Our nod this week goes to both T. Rowe Price Tax-Free (PRFSX) and
Vanguard Limited-Term Tax-Exempt (VMLTX).  Both funds have nearly
identical performance records and benefit from having low expense
ratios.  T. Rowe Price's expenses are a little more than Vanguard
but trailing 10-year after-tax returns are nearly identical.  The
Vanguard fund sports an annualized after-tax return of 4.7% while
the T. Rowe Price fund sports a 10-year average (after-tax) total
return of 4.6%.  That's good enough to rank both funds in the top
one-third of the Morningstar muni short category.






Vanguard Limited-Term Tax-Exempt Fund seeks to provide a high
level of income exempt from Federal income taxes by investing
primarily in high-quality municipal securities with an average
maturity of 2 to 5 years.  T. Rowe Price's fund seeks the same
goal, consistent with modest share price fluctuations.  Indeed,
both funds sport low average standard deviations (a measure of
volatility) near 2.3%.

Both funds earn their Morningstar 4-star overall risk-adjusted
performance ratings because fund returns have been higher than
category average through the years.  Having low expenses gives
these two funds a leg-up on the competition.  Below are 5-year
returns through May 26, 2003 and 10-year returns through April
30, 2003, per Morningstar.

 5-Year Annualized Total Return/% Rank in Category:
 +5.1% Vanguard Limited-Term T-E (VMLTX), 17th Percentile
 +5.0% T. Rowe Price Tax-Free S-I (PRFSX), 18th Percentile
 +4.4% Morningstar Muni Short Category Average

 10-Year Annualized Total Return/% Rank in Category:
 +4.7% Vanguard Limited-Term T-E (VMLTX), 28th Percentile
 +4.7% T. Rowe Price Tax-Free S-I (PRFSX), 31st Percentile
 +4.5% Morningstar Muni Short Category Average

You can see that the two funds have outperformed their category
peers over the trailing 5-year and 10-year periods with average
relative risk, earning them Morningstar 4-star ratings for risk-
adjusted performance versus their category peers.  Nothing very
flashy about these two funds but they don't have to be.  Having
low operating expenses means the managers of these two funds do
not have to assume greater risks to compensate for their fund's
higher expense.  All in all, you get more "bang" for your buck.

Conclusion

The short muni bond category is an area you may want to consider
if you're seeking higher returns than money market funds as well
as income exempt from Federal income tax.  For the higher return
potential, you must be willing to accept modest NAV fluctuations,
but at 2.3%, these two funds are very low in terms of volatility.
Volatility would likely increase if interest rates rise, but the
two funds should hold up better than longer duration funds in an
increasing rate environment.

Vanguard Limited-Term Tax-Exempt Fund and T. Rowe Price Tax-Free
Short-Intermediate Fund both sport high average credit qualities
and don't make major interest-rate bets.  That is "plain vanilla"
stuff, but that may be what short-term muni investors want, says
Morningstar, and we agree.  For more information, or to download
a prospectus, visit Vanguard at www.vanguard.com or T. Rowe Price
at www.troweprice.com, respectively.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

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


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The Option Investor Newsletter                  Tuesday 05-27-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: GS, JCI
Daily Results
Call Play Updates: AMGN, DISH, MEDI, OHP, QLGC, SPW
New Calls Plays: SPW
Put Play Updates: AIG, FRE, HDI, GM, LLL, MTG
New Put Plays: ACS


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

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


CALLS:
*****

None


PUTS:
*****

Goldman Sachs - GS - close: 78.48 change: +2.33 stop: 77.00

Solid economic reports this morning put the bulls in a buying
mood and they remained in that euphoric mood right through to the
closing bell.  Brokerage stocks were among the bullish favorites,
with the XBD index vaulting through resistance enroute to a 3.6%
advance.  Not to be left behind, our GS play stopped out at $77
just over an hour into the trading day and the stock continued
higher throughout the session.  Clearly with our stop broken and
the XBD index surging back through that $465 resistance level,
it's time to pull the plug on this play.  Any open positions
should have been stopped out this morning, but for those of you
still holding on, we're recommending using any early weakness in
the morning as an opportunity to get out.

Picked on May 8th at    $74.06
Change since picked:     +4.42
Earnings Date         06/19/03 (unconfirmed)
Average Daily Volume = 4.42 mln


---

Johnson Controls - JCI - close: 82.73 change: -2.03 stop: 83.00

While our official stop remains at $83, as discussed in recent
updates, the real line in the sand was the $82 level.  When JCI
broke below that level early last week, it was enough to motivate
us to initiate the play and the lackluster trade throughout the
week had us looking for an eventual breakdown under the $80
level.  That wasn't in the cards, as the stock repeatedly found
support above the 200-dma and Tuesday's 2.5% rally right through
tentative $82 resistance.  Now into its gap, it seems almost a
sure thing that the stock will fill that gap up to the $83.75
level and with daily oscillators turning solidly bullish, we just
can't justify keeping the play open.  Conservative traders should
use any early weakness on Wednesday to exit open positions, while
those with a more aggressive style may want to just maintain
stops at $83 on the off chance that the stock rolls over before
achieving that level.

Picked on May 18th at   $81.61
Change since picked:     +1.12
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 639 K



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

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

AMGN     63.56    0.00   1.77  Biotechs still strong.
DISH     32.75    0.00   1.26  Another 4% today
MEDI     35.71    0.00   1.87  Long-term, no update
OHP      37.35    0.00   0.43  Still drifting higher
QLGC     47.80    0.00   2.04  Bumping against resistance
SPW      36.86    0.00   1.11  NEW, bounce from the bottom


PUTS

ACS      46.50    0.00  -2.40  NEW, Chairman trouble
AIG      56.51    0.00   1.52  Another trip to $58.00 ?
FRE      58.30    0.00   0.40  Gap lower and rebound
HDI      42.05    0.00   1.24  Watch for entry
GM       34.90    0.00   1.64  Long-term, with update today
GS       78.48    0.00   2.33  DROP, Brokers too strong
JCI      82.73    0.00   2.03  DROP, could retest $86
LLL      42.82    0.00   0.39  Still relatively weak
MTG      45.45    0.00   0.40  Still relatively weak


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

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Here's a rare Real Estate offering, not yet listed. Ideal for
the successful trader who would like to live, work and play on
Maui - America's Magic Isle.

Maui's Most Private Property - A 4br country home surrounded
by 50,000 acres of pristine open space. Spectacular views of
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

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


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

Amgen, Inc. - AMGN - close: 63.65 change: +1.77 stop: 61.00*new*

The first day back after the long weekend found AMGN the source
of some amazing volatility.  After surging within a dime of the
$64 resistance level in the early going, the stock sold off
sharply during the lunch hour amid rumors of a possible merger
with CELG.  Apparently there wasn't any meat to the rumor and
after testing the $61.50 support level, the stock took flight
again, playing catch up with the Biotechnology index (+5.37% for
the day), ending very near its high of the day.  Today's action
finally broke the string of lower highs and the associated
trendline that began in late April.  The midday rumor likely
contributed to the heavy volume (60% above the ADV), but we sure
like the strong volume that accompanied today's solid bullish
move.  The next test for the bulls will be whether they can
propel the stock through the late April highs in the $64.00-64.25
area, but if successful, then AMGN ought to be on its way to the
next solid resistance in the $67-68 area.  Keep in mind that AMGN
has a pattern of not immediately following through on breakout
moves, so we continue to advocate entries on the pullbacks.  In
retrospect, Tuesday's plunge and bounce would have made for a
great entry for those traders bold enough to take it.  Traders
looking for another dip to use for entry into the play will want
to target another bounce from the vicinity of $62.  Given the
strength of today's intraday rebound, we're getting a bit more
aggressive with our stop, raising it to $61.

Picked on May 11th at    $61.24
Change since picked:      +2.41
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.8 mln
Chart link:


---

EchoStar Communications - DISH - cls: 32.75 chg: +1.26 stop: 29.99

There is no real news for DISH this week so far other than a
couple of articles reiterating the $5 million settlement that
DISH agreed to pay to 13 states on some customer handling issues.
Given the ebullient bulls today shares of DISH rallied with the
markets and added a clean 4% by the close.  More conservative
traders could tighten their stop a bit but we're going to leave
ours at $29.99 for the time being.

Picked on May 21st at $31.10
Change since picked:   +1.65
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


---

Oxford Health - OHP - cls: 37.35 chg: +0.43 stop: 34.95*new*

The long weekend was also a quiet one for OHP.  With little news
to drive share prices, investors were left to the path of least
resistance.  With the broader indices up strongly on the day, OHP
added a mere 1.16%.  This is not the strongest performance but
again, OHP and its brethren are seen more as "safe" stocks that
tend to out perform with the markets are going sideways to down.
At least that's the plan.  OHP is trading closer to potential
resistance/congestion in the $37.50-38.00 range where shares
stalled in December and January.  It wouldn't hurt to tighten
your stop.  We're going to inch ours up to $34.95.

Picked on May 20th at $36.51
Change since picked:   +0.84
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:


---

QLogic Corp. - QLGC - close: 47.80 change: +2.04 stop: 44.75*new*

It would have seemed strange to see such a strong rally in the
overall NASDAQ and not see a correspondingly strong rally in
shares of QLGC.  Fortunately, we weren't confronted with such a
scenario, as the stock surged at the open and kept chugging
higher right into the closing bell to post a closing gain of
4.45%.  More importantly, the stock ended with its first close
over the $47.50 level since May 27th of last year.  Tuesday's
gain propelled QLGC above the center of the ascending channel
that began in late February and the next upside objective will be
for a move to the top of that channel at $50.50, where historical
resistance will likely come into play.  A continuation of
Tuesday's rally to the top of that channel over the next 2 days
would be a strong signal to harvest gains on open positions.
Stronger resistance is then waiting up at the $52.00-52.50 level
and would be the most aggressive level we would consider
targeting for this play.  Traders still looking to get onboard
can use either a pullback to the $46 area or a volume-backed
breakout over $48 as their entry trigger.  With QLGC now holding
solidly above the $45 level and threatening to break out, it is
time to raise that stop.  Our new level is $44.75.

Picked on May 22nd at    $45.13
Change since picked:      +2.67
Earnings Date          07/29/03 (unconfirmed)
Average Daily Volume = 6.91 mln
Chart link:



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

SPX Corporation - SPW - close: 36.86 change: +1.11 stop: 35.25

Company Description:
SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology and
service solutions.  The company offers networking and switching
products, fire detection and building life-safety products,
television and radio broadcast antennas and towers, life science
products and services, transformers, dock products and systems,
cooling towers, air filtration products, valves, back-flow
protection and fluid handling devices and metering and mixing
solutions.  The company also provides specialty service tools,
diagnostic systems, service equipment and technical information
services.  SPW services a broad array of customers in a variety
of industries, including chemical processing, pharmaceuticals,
infrastructure, mineral processing, petrochemical,
telecommunications, financial services, transportation and power
generation.

Why we like it:
The past year has not been kind to shares of SPW, with the stock
tumbling from the $70 level through a series of lower highs and
lower lows until finally finding bottom near the $31 level last
month.  Just like each of the prior rebounds from new lows, the
one off the April lows appeared to be just another lower high.
At least until early May that is, when instead of rolling lower,
the stock held support and then launched upwards through its
descending trendline.  That move still looked a bit early to be
playing aggressively bullish, but the recent price action is
downright encouraging.  After crawling up to the $37.50 area,
there was a bout of profit taking that pushed the stock down to
the $35.50 area, but then for the first time in quite some time,
SPW held at a higher low, this time right on the rising 20-dma
(currently $35.79).  It appears the buyers were just waiting for
a catalyst to send in those orders and today's strong rally in
the overall market was just what they were waiting for.  SPW
advanced more than 3% and by the look of the upturned daily
oscillators a breakout over the early May highs may be just
around the corner.

The PnF chart shows a bullish picture as well, with the rally in
early May generating a new Buy signal and setting the stage for a
rally towards the $40 level and then possibly to the bearish
resistance line at $46.  Of course before we get ahead of
ourselves, we need to note that the 200-dma ($41.66) will present
at least a temporary barrier for the bulls.  The ideal scenario
for new entries would be a mild pullback near the $36 level and
then a rebound from there.  But based on Tuesday's action, a
continued rally actually seems more likely.  Those willing to
take a momentum entry will want to act on a rally through the
$37.50 level, which would represent a breakout through the early
May highs.  For those with a more conservative risk profile, a
subsequent pullback near the $37 level after the initial breakout
would present a favorable risk/reward scenario for new entries.
Given the tenuous nature of the bullish move up to this point,
we're actually starting with a rather tight stop at $35.25, which
is just below the intraday lows of last week.

Suggested Options:
Shorter Term: The June 35 Call or even the July 35 call will
offer short-term traders the best return on an immediate move, as
it is currently slightly in the money.

Longer Term: Traders looking to capitalize on a rally back
through resistance to test the $40 level and above will want to
look to the July 40 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.  More conservative traders may even want to consider
the September 40 Call, as it provides plenty of time for the
bullish move to unfold.

BUY CALL JUN-35 SPW-FG OI=1351 at $2.55 SL=1.25
BUY CALL JUL-35 SPW-GG OI=   0 at $3.00 SL=1.50
BUY CALL JUL-40 SPW-GH OI=  23 at $0.55 SL=0.25
BUY CALL SEP-40 SPW-IH OI= 536 at $1.60 SL=0.75

Annotated Chart of SPW:




Picked on May 27th at    $36.86
Change since picked:      +0.00
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 1.07 mln



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

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


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

American Intl Group - AIG - cls: 56.51 chg: +1.52 stop: $58.00

Unfortunately we're faced with more of the same for AIG.  Every
time the stock gets close to breaking down the market rallies and
traders buy the rally with AIG near support.  It's not
necessarily a bad play for the bulls if they have a tight stop
but AIG is relatively weak compared to the broader markets and
still has plenty of overhead resistance.  So it doesn't make the
best choice.  Today's strength will probably give more aggressive
bears a chance to enter new positions closer to resistance at
$58.00.

Picked on May 20th at $54.94
Change since picked:   +1.47
Earnings Date       04/24/03 (confirmed)
Average Daily Volume = 7.2 Million
Chart link:


---

Freddie Mac - FRE - close: 58.30 change: +0.40 stop: 60.51

Shares of FRE saw an interesting session today.  The overall
weakness in the stock had shares gapping lower to open at its 50-
dma down near $57.00.  Yet the extreme bullishness in the broader
markets lifted even FRE and the stock rocketed back above the
$58.00 level.  The stock remains below its 200-dma and despite
the intraday rebound we continue to see a number of bearish
developments in the technicals.  We'd look for a failed rally
around $59.00 to $59.50 as a new entry with our stop at $60.51.

Picked on May 25th at $57.90
Change since picked:   +0.40
Earnings Date       07/00/03 (unconfirmed)
Average Daily Volume = 3.4 Million
Chart link:


---

---------------------
LONG TERM PLAY UPDATE
---------------------

General Motors - GM - close: 34.90 change: +1.64 stop: 35.25*new*

Just when it looked like GM was about to give us the big
breakdown under the $33 support level, along comes a powerful
broad market rally that shoved just about everything uphill on
Tuesday.  GM saw a strong rebound from support, which was good
for nearly a 5% advance on much stronger than average volume.  So
why aren't we dropping the play tonight?  That's actually a very
good question and we probably would have, if not for the looming
resistance provided by the 50-dma at $34.98 and the 20-dma at
$35.19.  Conservative traders may very well want to exit the play
here, but we're looking for another reversal below resistance to
continue the pattern of lower highs.  That said, we're not
willing to give the stock very much room from current levels and
have tightened our stop to $35.25, just above the 20-dma.  If GM
continues Tuesday's rally, then we will definitely want to be out
of the play if that stop gets triggered.  Another important point
is that following today's strong rebound we are not advocating
new entries unless GM once again begins to exhibit the weakness
that first drew us to this play and that will likely require a
sharp decline back under the $34 level at the very least.

Picked on May 4th at    $35.80
Change since picked:     -0.90
Earnings Date         07/15/03 (confirmed)
Average Daily Volume = 5.41 mln
Chart link:


---

Harley Davidson - HDI - close: 42.05 change: +1.24 stop: 43.75

After the steep selloff in shares of HDI last Friday, we had a
pretty good idea there was an oversold rebound in store and
Tuesday's action certainly didn't disappoint.  The stock made up
all of its intraday losses from Friday on the morning ramp,
trading as high as $42.48 before drifting along in a listless
sideways manner for the remainder of the day.  The question now
is whether that gap from Friday will in fact provide the firm
resistance it should or if that was just a resting point.
Entries on weakness in that gap still look attractive, with a
stop at $43.75, which is above the top of Thursday's price range,
as well as the rolling lower 20-dma (currently $43.63).  Buying
puts into strength isn't the approach we're looking to employ
here.  Remember to wait for signs of weakness before taking the
plunge.

Picked on May 25th at   $40.81
Change since picked:     +1.24
Earnings Date         07/16/03 (unconfirmed)
Average Daily Volume = 2.65 mln
Chart link:


---

L-3 Communications -LLL - close: 42.82 change: +0.39 stop: 45.00

Underperformance is what we're looking for in put plays,
especially in a strong market environment as has been seen
lately.  LLL delivered on that count on Tuesday, advancing a
paltry 39-cents (0.91%) while the rest of the market soared.  Of
course the culprit behind that weakness could easily be seen to
be the relative weakness in the Defense index (DFI.X), which only
managed a 0.45% gain.  Daily Stochastics for LLL are trying to
turn bullish, but the lack of impressive price movement hints
that this rebound is likely to present a nice entry point on a
lower high failure, most likely below the $43.50 resistance
level.  We have time to be patient on this play, waiting for that
rollover.  When it does occur, look for confirmation of that
weakness in the DFI index before playing.  Maintain stops at $45.

Picked on May 20th at   $41.94
Change since picked:     +0.88
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.42 mln
Chart link:


---

MGIC Invest. Corp. - MTG - close: 45.45 change: +0.40 stop: 47.00

With strong data coming from the Housing reports this morning,
one might have expected a strong bullish move from our MTG play.
But it just wasn't there, with the stock not even able to put
together a 1% move and volume was anemic, at only 60% of the ADV.
Here we see relative weakness at work, with the stock remaining
pinned under its broken ascending trendline (currently $45.85)
and the declining 10-dma at $45.57.  To the bulls' credit though,
they did manage to push back over the 200-dma ($44.61), which has
been a frequent battleground over the past several sessions.
Failed rallies still seem to be the preferred entry strategy for
aggressive traders with any rollover below the $46 level looking
good for new positions.  Traders waiting for the (hopefully)
inevitable breakdown will need to see a drop under $44 before
playing.  Traders already in the play should maintain stops at
$47.

Picked on May 15th at    $45.21
Change since picked:      +0.24
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 1.09 mln
Chart link:



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

Affiliated Computer - ACS - cls: 46.50 chg: -2.40 stop: 50.00

Company Description:
ACS, a Fortune 500 company with more than 40,000 people
supporting operations in nearly 100 countries, provides business
process and information technology outsourcing solutions to
world-class commercial and government clients. ACS makes
technology work. (source: company press release)

Why We Like It:
The recent up trend in ACS started to break the same day the
markets headed south last week, which was a week ago Monday.
However, instead of rebounding late last week like the market,
shares of ACS continued to drift softly lower.  That was until
today.  The stock lost 4.9% on 5.1 million shares, which is more
than twice the average daily volume.  Why the downdraft in ACS?
Good question.  With tech stocks rocketing higher a company like
ACS, who is growing revenues by 25% a year with 95% recurring
revenues from its clients, should be doing great.  Recent
headlines have been nothing but new contract wins for ACS.

Well the poison apple for this Dallas-based company maybe its
founder and chairman Darwin Deason.  Over the weekend a very
revealing article about Deason and his business practices may
have shareholders shrinking away in apprehension.  Dmagazine.com
published the article "Lifestyles of the Rich and Shameless"
which proposes a number of questions that investigators at the
SEC and IRS are probably going to want answered.  Should the
article's allegations ring true, the financial amount is probably
not more than several million dollars, which is a drop in the
bucket for ACS who's sales are more than $5 billion a year.  Of
course the challenge for shareholders is that we don't know for
sure that the financial tomfoolery is limited to such a small
scope and it is that unknown that Wall Street hates the most.  To
steal an adjective from the article, in a post-Enron, post-Tyco,
post-Worldcom, (and I'd like to add) post-Adelphia world, the
market's reaction is going to be sell first and ask questions
later.

Shares of ACS closed below its 50-dma, its 200-dma and below the
$47.50 mark, which should have held as support.  We're suggesting
bearish plays at current levels but a failed rally at $48
wouldn't look bad either.  The daily chart suggests we can target
the $40.00 area but the point-and-figure chart says ACS might see
support at $42.00.  We'll start the play with a stop at $50.00
but we'll quickly adjust it lower once we see some confirmation.

Suggested Options:
Given that this is a news driven story we could see a quick
reaction from shareholders so our preference would be the June or
July options.

BUY PUT JUN 45 ACS-RI OI= 425 at $1.55 SL=0.75
BUY PUT JUN 40 ACS-RH OI= 205 at $0.45 SL=0.00 *riskier*
BUY PUT JUL 45 ACS-SI OI=7660 at $2.60 SL=1.30
BUY PUT JUL 40 ACS-SH OI=5085 at $1.10 SL=0.50
BUY PUT OCT 40 ACS-VH OI= 257 at $2.70 SL=1.35

Annotated Chart of ACS:




Picked on May 27th at $46.50
Change since picked:   +0.00
Earnings Date       07/22/03 (unconfirmed)
Average Daily Volume = 1.7 Million
Chart link:



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

Thinking of retiring to Hawaii? Or a second home in Paradise?

Here's a rare Real Estate offering, not yet listed. Ideal for
the successful trader who would like to live, work and play on
Maui - America's Magic Isle.

Maui's Most Private Property - A 4br country home surrounded
by 50,000 acres of pristine open space. Spectacular views of
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

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


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

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


**************************************************************
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Contact Support
The Option Investor Newsletter                  Tuesday 05-27-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - SPW
Futures Corner: The a/c/e’s Dirty Little Secret


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

SPX Corporation - SPW - close: 36.86 change: +1.11 stop: 35.25

Company Description:
SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology and
service solutions.  The company offers networking and switching
products, fire detection and building life-safety products,
television and radio broadcast antennas and towers, life science
products and services, transformers, dock products and systems,
cooling towers, air filtration products, valves, back-flow
protection and fluid handling devices and metering and mixing
solutions.  The company also provides specialty service tools,
diagnostic systems, service equipment and technical information
services.  SPW services a broad array of customers in a variety
of industries, including chemical processing, pharmaceuticals,
infrastructure, mineral processing, petrochemical,
telecommunications, financial services, transportation and power
generation.

Why we like it:
The past year has not been kind to shares of SPW, with the stock
tumbling from the $70 level through a series of lower highs and
lower lows until finally finding bottom near the $31 level last
month.  Just like each of the prior rebounds from new lows, the
one off the April lows appeared to be just another lower high.
At least until early May that is, when instead of rolling lower,
the stock held support and then launched upwards through its
descending trendline.  That move still looked a bit early to be
playing aggressively bullish, but the recent price action is
downright encouraging.  After crawling up to the $37.50 area,
there was a bout of profit taking that pushed the stock down to
the $35.50 area, but then for the first time in quite some time,
SPW held at a higher low, this time right on the rising 20-dma
(currently $35.79).  It appears the buyers were just waiting for
a catalyst to send in those orders and today's strong rally in
the overall market was just what they were waiting for.  SPW
advanced more than 3% and by the look of the upturned daily
oscillators a breakout over the early May highs may be just
around the corner.

The PnF chart shows a bullish picture as well, with the rally in
early May generating a new Buy signal and setting the stage for a
rally towards the $40 level and then possibly to the bearish
resistance line at $46.  Of course before we get ahead of
ourselves, we need to note that the 200-dma ($41.66) will present
at least a temporary barrier for the bulls.  The ideal scenario
for new entries would be a mild pullback near the $36 level and
then a rebound from there.  But based on Tuesday's action, a
continued rally actually seems more likely.  Those willing to
take a momentum entry will want to act on a rally through the
$37.50 level, which would represent a breakout through the early
May highs.  For those with a more conservative risk profile, a
subsequent pullback near the $37 level after the initial breakout
would present a favorable risk/reward scenario for new entries.
Given the tenuous nature of the bullish move up to this point,
we're actually starting with a rather tight stop at $35.25, which
is just below the intraday lows of last week.

Suggested Options:
Shorter Term: The June 35 Call or even the July 35 call will
offer short-term traders the best return on an immediate move, as
it is currently slightly in the money.

Longer Term: Traders looking to capitalize on a rally back
through resistance to test the $40 level and above will want to
look to the July 40 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.  More conservative traders may even want to consider
the September 40 Call, as it provides plenty of time for the
bullish move to unfold.

BUY CALL JUN-35 SPW-FG OI=1351 at $2.55 SL=1.25
BUY CALL JUL-35 SPW-GG OI=   0 at $3.00 SL=1.50
BUY CALL JUL-40 SPW-GH OI=  23 at $0.55 SL=0.25
BUY CALL SEP-40 SPW-IH OI= 536 at $1.60 SL=0.75

Annotated Chart of SPW:



Picked on May 27th at    $36.86
Change since picked:      +0.00
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 1.07 mln



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

Thinking of retiring to Hawaii? Or a second home in Paradise?

Here's a rare Real Estate offering, not yet listed. Ideal for
the successful trader who would like to live, work and play on
Maui - America's Magic Isle.

Maui's Most Private Property - A 4br country home surrounded
by 50,000 acres of pristine open space. Spectacular views of
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

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


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

The a/c/e’s Dirty Little Secret

The a/c/e has a dirty little secret that it does not want you to
know about. Especially if you use charts to trade the DOW e-mini
(YM). But before I get to the secret let me go into what the a/c/e
is first of all.

The future contracts Optioninvestor trades are the S&P e-mini
(ES), the Nasdaq 100 e-mini (NQ) and the DOW e-mini (YM). Most of
you probably know that they trade on different exchanges but for
those who were not aware of this fact the contracts trade like
this. The ES and the NQ are products of the Chicago Mercantile
Exchange (CME), the YM is a product of the Chicago Board of Trade
(CBOT) and each of these exchanges has an electronic trading
platform for on-line trading. The CME’s electronic exchange is
called GLOBEX and the CBOT’s electronic exchange is called a/c/e.
This is why when the GLOBEX went down a couple of weeks ago for
most of the day you were still able to trade the YM contract. The
GLOBEX was down but the a/c/e was not.

I used to trade YM with a mechanical system, which, of course, is
based on the charts.  I used triggers to set up my buy and sell
stop to open a position and, once filled, put in my limit and stop
orders. What started happening was my orders were been filled by
my broker without the market ever reaching the prices I had set.

The first time this happened I called my broker and got real
indignant with them. How could I be filled at a price when the
charts clearly showed that price was never traded? I even had time
and sales data to back me up. They said they would look into it
but if you have ever had a disagreement with a broker you know
your chances of winning are very very slim. Sure enough they said
because of something called “one second netting” they were right
and I was wrong.

The second time this happened I called them again and again I got
the same answer but this time I got a better explanation. They
said that in fast markets the a/c/e will “net” multiple
transactions in one price, which is the price that shows up on
your charts. Of course, the result is that you are trading with
incomplete data and incomplete charts, which in my world mean the
charts are wrong and can’t be trusted. Doesn’t that just tickle
your insides?

Not completely believing my broker (because I figure they will
tell me anything to make them right and me wrong) I called the
CBOT and talked to Brian Wade. He confirmed my worst fears but
assured me this would all be cleared up when the CBOT moves their
electronic trading platform to LIFFE in November!!!!!!!! November,
that helps me one heck of a lot now doesn’t it?

Needing to get further confirmation on this I sent an email to
Barbara Schmidt-Bailey of the Equity Business Development of the
CBOT and here is her answer, “a/c/e's little secret is a big part
of the reason that CBOT decided to leave the platform!  Starting
in November of this year, we will be migrating all CBOT electronic
trading to a new platform – Liffe Connect - which doesn't net.  In
the meantime, you're right – it's there, and for very active
traders it's an issue.”

Let me show you what happened the first time. This is the data
from my brokerage statement (you will need to add an hour to the
time).

03-04-14 13:41:43 YM JUN03 ACE 1    8303.0000    -2.40   O
03-04-14 13:57:36 YM JUN03 ACE -1   8261.0000    -2.40   C





I entered a long at 8303 and had my stop at 8262. I was filled at
8261 but the charts showed the low at that time was 8263. A/c/e
“netted” my transaction at 8261 into the 8263 price and used that
as the low. How many transactions were “netted”? Beats me! No way
of telling. What prices were “netted”? Beats me! No way of
telling.

So if I don’t know for sure what the low of that time is how can I
trade it with confidence. I also don’t know how many times this
happens for I am only aware of the times it has happened to me.
But I can assure you that it is not happening to me anymore. I ask
myself if the numbers are not right then why trade it?

I, therefore, only trade the ES and NQ and may start trading the
YM again in November.

Jane Fox


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

Thinking of retiring to Hawaii? Or a second home in Paradise?

Here's a rare Real Estate offering, not yet listed. Ideal for
the successful trader who would like to live, work and play on
Maui - America's Magic Isle.

Maui's Most Private Property - A 4br country home surrounded
by 50,000 acres of pristine open space. Spectacular views of
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

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


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

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


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

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

Contact Support

DISCLAIMER

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Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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