The Option Investor Newsletter Wednesday 05-28-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Five-Day Winning Streak? Futures Wrap: Distribution Index Trader Wrap: See Note Weekly Fund Family Profile: The Managers Funds & Managers AMG Funds Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 05-28-2003 High Low Volume Adv/Dcl DJIA 8793.12 + 11.77 8854.53 8773.93 1.85 bln 1628/1222 NASDAQ 1563.24 + 6.55 1571.85 1553.70 2.03 bln 1835/1302 S&P 100 479.65 + 0.66 483.15 478.38 Totals 3463/2524 S&P 500 953.22 + 1.74 959.39 950.12 W5000 9103.85 + 16.85 9156.47 9077.63 RUS 2000 430.48 + 2.77 431.34 427.71 DJ TRANS 2411.06 - 5.76 2426.01 2408.96 VIX 22.00 + 0.23 22.51 21.55 VXN 30.22 + 0.94 30.30 29.09 52wk Highs 416 52wk Lows 11 PUT/CALL 0.70 ******************************************************************* Five-Day Winning Streak? Barely. I spotted a headline about the five-day winning streak when preparing for this article. Indices closed in the green today, but only minimally, with the DJI closing up 11.80 points, the COMPX up 6.55 points, the SPX up 1.74 points, and the OEX up 66 points. Across the indices, daily charts sported doji's. In the case of the two S&P's and the DJI, those doji's formed gravestone doji's, doji's with a long upper shadow and no or little lower shadow. Doji's at resistance raise the possibility of a three-candle reversal signal known as an evening-star pattern, but that pattern requires confirmation from tomorrow's trading. We'll look at that possibility later when we examine the charts. This morning brought no hint of possible reversals, however. Before the bell, the release of the durable goods number showed April orders falling 2.4%, more than the expected 0.9% drop. Market participants ignored the report and its internals. Those internals revealed that April orders for core capital goods, those excluding defense goods and civilian aircraft, fell 3% from March's rise of 4.7%. While some felt that the small decrease was reassuring after March's gain, perhaps that core number should be the focus of more attention. It's a leading indicator for the producers' durable equipment (PDE) component of the GDP. With the PDE the largest component of business investment, today's number provides a glimpse into GDP growth in the coming quarters. That glimpse was not particularly reassuring. Orders for motor vehicles and parts dropped 3%, causing orders for all transportation equipment to fall 5.4%. Orders for civilian aircraft soared 48.6%, but orders for military aircraft dropped 26.4%. Perhaps these results prompted the Dow Jones Transportation Index's 5.79 drop on the day, one of the few indices to lose ground. Of particular interest to Fed watchers was the 0.1% drop in unfilled core orders. When that number rises, companies must increase production to meet the orders, but with a drop in the number, companies do not need to ratchet up production. The drop was minimal, but when testifying last week, Federal Reserve Chairman Alan Greenspan mentioned the previously rising unfilled core orders as a sign that the economy was recovering. Although one source characterizes the durable goods number as being a market mover, that didn't happen today. If global markets had primed the U.S. markets for a drop yesterday morning, they did the opposite today. The Nikkei climbed 1.4% and European markets traded in the green, already challenging important resistance as U.S. markets opened. Bonds dropped and the dollar rose ahead of the 9:30 open of the U.S. markets. Later, the FTSE 100 closed above the key 4000 level, at 4071, and both the CAC 40 and DAX closed above 2900. U.S. markets opened in the green, although perhaps more modestly than the performances of global markets and overnight U.S. futures led market participants to expect. Volume patterns confirmed the bullish tenor of the markets, with strong volume and with advancers leading decliners. Other intermarket relationships confirmed the bullish tenor, too. By 11:45 ET, indices broke through important resistance levels to trade at what would become their day's highs. The Wilshire 5000 broke through 9100, trading as high as 9156.47. The DJI broke through 8850, trading as high as 8854.50; and the SPX broke through 950, trading as high as 959.39, just below the 960-965 zone traders awaited. The COMPX achieved a 1571.85 high, and the NDX a 1181.93 high. As Jeff pointed out, the BIX also traded over 300, reaching a day's high of 301.42. As I mentioned in last night's wrap, though, bullish traders had reason to remain watchful, even in a seemingly bullish environment. As the markets moved into the lunchtime lull, a sudden decline sent them toward support levels. The markets tried twice more during the afternoon to reach those highs again, but failed each time. The DJI closed just below 8800, the BIX just below 300, and the OEX just below 480. The SPX managed a close just above 950, the COMPX a close just above 1520, and the Wilshire a close just above 9100. Those frequent inclusions of the word "just" were not accidental or a sign of lackadaisical editing, but rather were intended to emphasize the tenuousness of today's closes. There was nothing tenuous about volume patterns, however. Today's volume amounted to a strong 3.5 billion, with 1.5 billion shares traded on the NYSE and 2 billion on the Nasdaq. Advancers led decliners by identical 19:14 ratios on both the NYSE and Nasdaq. Up volume led on both the NYSE and the Nasdaq, although on the NYSE, up volume began losing ground to down volume as the day progressed. By day's end, up volume was a neutral 1.2 times down volume on the NYSE. New highs numbered 605 against 18 new lows. Sector gainers today were led by the Dow Jones US Home Construction Index (DJUSHB, up 3.12%). The airline index ($XAL, down 2.90%) led the decliners. Noteworthy stocks included Costco (COST, 37.35, up 1.43 or 4%), up after reporting Q3 earnings that rose 18% and sales that rose 11%. The earnings surprised to the upside, while sales came in slightly below forecasts. Krispy Kreme Doughnut (KKD, 34.18, up 2.32 or 7.3%), the short-seller's nightmare stock, jumped after reporting Q1 net income of $.22/share, above estimates and the year-earlier $.15/share. Sales increased 24%. Chip-maker Rambus (RMBS, 17.55, up 1.11 or 6.75%) rose after a judge dismissed a shareholder suit against the company. Toll Brothers (TOL, 28.50, up 1.05 or 3.83%) gained after Q2 net income climbed to $.72/share, higher than the expected $.68/share. Demand increased for TOL after weather conditions improved in April and May, and the war with Iraq concluded, the company said. Traders should note that this is a peak season for real-estate sales. Notable decliners included Altria Group (MO, 41.33, down .76 or 1.81%), falling despite the declaration of a regular quarterly dividend of $0.64/share; and Semtech (SMTC, 15.40, down 1.50 or 8.88%) down after reporting that Q1 net income declined while orders increased. Office Depot (ODP, 13.20, down $.50 or 3.65%) guided analysts to expect Q2 earnings of $.16-.18, rather than the average prediction of $.18. A company spokesperson reported no signs of significant economic improvement in North America or Europe. Last night, I began a study of the charts with a look at the Wilshire 5000, and that seems the appropriate place to start tonight, too, beginning with the daily chart rather than the weekly chart. Daily Chart of the Wilshire 5000: Last night's study of this chart determined that the Wilshire 5000 had nestled underneath the resistance provided by the violated ascending red trendline and the horizontal resistance at 9100. That remains true, with today's candle nudging up underneath that resistance, too. However, today's candle is a small-bodied candle with a relatively long upper shadow, a potential reversal signal. Another change appears on the chart. Last night, I mentioned that the oscillators had been forming a pattern of lower highs, and that traders could use a break or continuation of that pattern as a guide to entering trades today. RSI broke through that pattern this morning, confirming today's early rise. However, RSI has now flattened, and the 5(3)3 stochastics did not break through their pattern of lower highs. Both now move further toward overbought levels. Daily ADX continued to flatten while buying pressure continued to rise and selling pressure continued to fall. The changes in this chart's aspect prove subtle, but demonstrate increased risks to those in bullish plays across the markets, I believe. Weekly oscillators and ADX (not shown) confirm these conclusions, with weekly RSI now fully in territory indicating overbought conditions and higher than at previous moves to 9100. Weekly 5(3)3 stochastics and ADX flattened. The Wilshire's chart leads me to conclude that although I felt comfortable entering a bullish daytrade early this morning due to the positive market tenor, I would feel less comfortable tomorrow. Even today, I followed that trade with raised stops, letting the market take me out at a small profit. These chart developments do not preclude the possibility of further upside. The potential reversal signal requires confirmation tomorrow, confirmation that will not be determined until tomorrow's close. However, at this point, bullish traders might take steps to guard profits while bearish traders should remain aware that confirmation has not yet occurred. Those seeking bearish trades might seek confirmation, then, in market action and in intermarket relationships such as the performance of bonds and volume patterns, always prepared to exit on strength. Although the retracement levels cluttered the chart, I included Fibonacci levels on the chart to show where a typical retracement might take the Wilshire 5000 if the index turned down from current levels. The rally proved stronger than many expected, and now market wisdom predicts a shallow pullback. That shallow pullback should still retrace 1/3 to 1/2 of the rally, however. Market participants might begin looking for a steadying on a Wilshire 5000 move to its simple 200-dma at 8620, its 38.2% retracement of the rally at 8525, or its 200-ema at 8379, just above the 50% retracement at 8330. Of course, should the Wilshire confirm the break above 9100 by producing two or three daily closes above that level or a 3% move above it, bullish sentiment might carry the Wilshire toward 9325, at which point those retracement values would need to be recalculated. I've also included Fibonacci retracement values on the daily SPX chart. Daily chart of the SPX: Like the Wilshire, the SPX daily candle demonstrates a potential reversal signal, with the SPX printing a gravestone doji at resistance. Unlike on the Wilshire's chart, the RSI did not confirm today's move by a break through the pattern of lower highs. The daily 5(3)3 stochastics also did not break above their pattern of lower highs. ADX remains flat this week despite the increase in prices, showing that the upside trend does not yet regain strength. I reiterate the same cautions here as I did with the Wilshire. The potential reversal signal remains a potential signal only until tomorrow's trade either confirms or negates that potential. However, this potential reversal signal, the failure of the oscillators to break above that pattern of lower highs, and the positioning of those oscillators in overbought territory confirm the risk to those carrying bullish trades. The Fibonacci retracement levels show that if tomorrow's trading onfirms the reversal signal, a 38.2% retracement would take the index to the 894 level. On a pullback, traders might first begin looking for strength on a move down to the 200-ema at 911, the 38.2% retracement at 894, the 200-sma at 885, or the 50% retracement at 874. If the SPX should instead continue to move up, as is possible, traders should add today's high to possible resistance levels, as well as the known 960-965 resistance. Although a breakout above those levels appears unlikely at the moment, that breakout would see next resistance near 990 and then near 1000. The OEX daily chart shows similar characteristics: a gravestone doji, a flattening of RSI at the trendline delineating the pattern of lower highs, a failure of the 5(3)3 stochastics to break through its own trend of lower highs, and a flattening of the ADX. However, the daily ADX may be turning up slightly, although the movement proves far from conclusive as yet. The 5(3)3 stochastics still move up, however, as do the 21(3)3's, with the longer-term 21(3)3's not yet in territory indicating oversold conditions. On a pullback from current levels, traders should watch for strength or a steadying on a move down to the 200-ema at 461, the 38.2% retracement at 452, the 200-ema at 448, or the 50% retracement at 442. If the OEX should instead break above the current range, traders should add today's high to resistance levels to watch, as well as the known 487-490 and 500 levels. A move above 500, although appearing unlikely at the current time, might see a move up to next strong resistance near 550. A discussion of the OEX would not be complete without a mention of the VIX, as one reader reminded me today. The VIX and VXN gained today. The volatility indices sometimes do gain on a day when the indices trade near key support or resistance, as some fearfulness creeps into trading. Last week, the VIX touched the lower line of a descending trendline that has defined VIX lows since last July, and has begun moving up and away from that line, but it has not yet reached the sub-20 levels that marked the August and March lows for the VIX. Therefore, it's difficult to ascertain whether the VIX will continue up from current levels as indices turn down from resistance or follow the trendline down to the sub-20 level while the indices maintain levels above key resistance. As I did last night, I'm using the DJX's chart as a proxy for the DJI's, since Q-chart's DJI chart skipped some of the daily candles. Daily chart of the DJX: The DJX chart features the same gravestone doji under resistance as seen in the other charts. RSI flattens just beneath the line indicating overbought levels, at an equal high as that made during lower price highs. If this action continues, it indicates bearish divergence. The fast line of the 5(3)3 stochastics poked above the trendline of lower highs, but the slow line has not confirmed. ADX appears to have cupped up, but remains below the key 20 that indicates a trending rather than a rangebound market. Buying pressure has been moving up, but may be showing a tendency to flatten. These chart details lead me to reach the same conclusion as that reached with the other indices. If the DJI should confirm that evening-star formation, traders should begin watching for next strength or a steadying on a move to the 200-ema at 8502, the combined 200-sma and 38.2% retracement level at 8306, or the 50% retracement level at 8138. I would also add historical support levels at 8200 and 8250 to this list. If the DJI should instead move up, traders should look for next resistance at today's high, 8880, 9000, and 9050. Although a move above those resistance levels appears unlikely, such a move might initiate a new leg up, sending the DJI toward 9375. Yesterday, I noted the potential for a bullish right triangle formation on the NDX, although other writers have noted different, equally valid formations. On the following chart, I've indicated one possible top for the NDX bullish triangle, although as I stated yesterday, I would consider a 1160-1190 resistance zone for this top rather than the specific 1160 resistance. Daily chart of the NDX: On this chart, you'll encounter the same aspects as found on the other charts: a doji at resistance, RSI and stochastics staying beneath a pattern of lower highs, RSI flattening, and ADX remaining flat. Buying pressure may be flattening after its recent climb, too. If the potential evening-star formation is confirmed, traders should look for next strength or a steadying near the intersecting historical resistance at 1100 and the 38.2% retracement at 1089, the 200-ema and rising blue trendline at 1081, and the 50% retracement at 1060. If the NDX should instead move up, next resistance might be found at 1190 and the round-number resistance at 1200. Although an extended move up appears unlikely without a pullback occurring first, a move over 1200 might see a next leg initiated, with a rise to 1300 then made possible. As with the other indices, however, the risks now shift to those in bullish positions, while those seeking bearish trades should remain aware that the potential evening-star formation has not yet been confirmed. The appetite for tech stocks may continue, however. After the bell, Agile Software (AGIL, 8.10, up 0.38 or 4.92%) reported higher sales, resulting in a narrowing of the Q4 net loss from the same-period loss reported last year. That loss was $.06/share, less than last year's $.39/share. This report beat expectations. Although after-hours trading often proves unreliable, AGIL added to its gains in after-hours trading, with bids and asks of 8.95 x 9.05 at the time this article was written. Tech Data (TECD, 26, down 0.33 or 1.25%) extended its losses in after-hours trading, however, after reporting a smaller-than- expected net profit of $.38/share, 40% less than last year's $.60/share. At the time this article was written, bids and asks were 24.76 x 25. Tomorrow's economic calendar includes releases of initial and four-week jobless claims, Q1 preliminary GDP, corporate profits, the help-wanted index, natural gas inventories, chain deflator, and money supply. Initial claims will be released before the bell and will be closely watched. The preliminary chain deflator and Q1 preliminary GDP will also be released before the bell, while the help-wanted index will be released at 10 ET. Previous four-week jobless claims numbered 428,000. The previous initial claims were 433,000, and I've located predictions that vary from 420,000 to 435,000 for the current number. Although gross domestic product measures economic activity, of intense interest in the current climate, the preliminary Q1 GDP number to be released tomorrow might be discounted as old news, as the market has often discounted numbers collected while the U.S. dealt with the Iraq situation. The prior number was for 1.6% growth, with the forecasts for the current number between 1.8-1.9% growth. Earnings to be released tomorrow include Take-Two Interactive Software (TTWO, 26.25, up 1.26 or 5.04%) and Chico's (CHS, 21.60, up 0.59 or 2.81%) before the bell; and McData Corporation (MCDT, 11.05, down 0.45) and J.D. Edwards & Company (JDEC, 12.02, up 0.59 or 5.16%) after the close. See you tomorrow morning! Linda Piazza ************ FUTURES WRAP ************ Distribution Jonathan Levinson Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 DJIA 8888 8840 8807 8760 8727 COMPX 1581 1572 1563 1554 1545 ES03M 964 958 953 947 943 YM03M 8882 8827 8791 8736 8700 NQ03M 1196 1185 1175 1165 1155 Or consolidation. Today's was a tense session, with equity futures trading just under their critical resistance levels and above recent support levels throughout the session. Equities were either consolidating their recent gains and building support above resistance-turned-support, or being distributed near the top to latecomers to the rally. We won't know until either the buyers or sellers exhaust themselves. The session opened strong, dipped to its near lows immediately thereafter, chopped along in a range before setting the lows of the day, bounced to the highs, and then spent the afternoon in a range between the opening extremes. It was the perfect way to shake out bulls and bears alike without posting any meaningful progress in price. The US Dollar showed its first strength in days, and not surprisingly, the fed drained intervention money from the market for the first time in days as well, refunding yesterday's expiring 7.5B overnight repurchase agreement with a 4.75B 6-day repo, for a net drain of 2.75B on the day. The US Dollar Index was trading the 93.44 level as of this writing. 15 minute chart of the US Dollar Index Daily chart of June gold June Gold got sold on the strength in the US Dollar Index, finding support just below 360 at the horizontal line profiled here last night. It closed back at the level of this morning's breakdown, the upper horizontal s/r line. The commodity futures index, the CRB, finished down 1.69 at 235.77. I've focused on the charts of the long term NDX and SPX cash indices, because the long term picture is currently in play. 5 year chart of the NDX cash (log scale) On both the NDX and SPX (see below), we see the long term head and shoulders necklines being tested. Daily NQ3M candles On the daily NQ3M contract, yesterday's horizontal breakout level was tested successfully, with the NQ closing above the 1170 level despite an intraday low of 1165.50. The uptrend in the oscillators has so far held true. This would look like a "homefree" for the bulls, and indeed it might be, but the long term head and shoulders neckline and descending trendline have yet to be seriously tested. 30 minute 20 day chart of the NQ3M Today's activity added nothing to the 30 minute candle chart profiled last night, with today's action only consolidating yesterday's gains and printing a marginal new high at the open. Note that the oscillator uptrends are still intact, but it will take a big launch higher to avoid violating them tomorrow morning. 5 year SPX cash (log scale) The 960 level went unchallenged today. The descending upper trendline reinforces that level as the critical line for bulls. As with the NDX, this level has yet to be seriously tested. Daily ES3M candles On the daily chart, the ES3M 950 level was retested and held, which is a bullish sign. The daily candle appears as a gravestone doji, a bearish print, but rests on support. The oscillator uptrends are intact, though on the 30 minute candles, a break of the shorter cycle uptrends appears imminent if it is not already in progress: 20 day 30 minute chart of the ES3M Daily YM3M candles Nothing to add on the YM daily or 30 minute candles. We see the same setup as for the NQ and ES contracts. 20 day 30 minute chart of the YM As discussed in the intraday Market Monitor, treasuries traded weakly all through the session, with yields up strongly until their 3PM EST close. The selling in bonds seemed to relent as the session wore on, commensurate with the stochastic downphases picking up steam on the 30 minute NQ, ES, and YM stochastics. This points to weakness for equities at the open. Whether treasuries are trying to recouple to equities, or are simply leading a pullback in equities remains an important question for which I do not yet have an answer. ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_052803_1.asp ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity _ No hidden fees for limit orders or balances _ $1.50 /contract (10+ contracts) or $14.95 minimum. _ Zero minimum deposit required to open an account _ Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************************** WEEKLY FUND FAMILY PROFILE ************************** The Managers Funds & Managers AMG Funds The Managers Funds and Manager AMG Funds are no-load fund groups providing investors with access to some of the world's top money managers. Instead of seeking to enhance value through stock and bond selection, Managers Funds seek to enhance value by picking the most qualified managers in their respective investment areas and putting them under one umbrella. According to The Managers Funds website (www.managersfunds.com), this approach is designed to create a dynamic investment process that can offer significant advantages over traditional funds and is often available only to institutions and affluent individuals. The Managers Funds have low minimum initial investments of $1,000 or $2,000 and average operating expenses relative to other funds. Managers AMG Funds (www.amg.com) is a collaborative effort among The Managers Funds LLC and Affiliated Managers Group, Inc. (AMG). Managers AMG Funds is a no-load fund family managed/distributed by AMG subsidiary, The Managers Funds LLC and sub-advised by AMG investment affiliates. The fund family is comprised of different funds with distinct investment management objectives, strategies, risks and policies. These funds have minimum initial investment requirements of $5,000 or $25,000. Affiliated Managers Group Inc. (NYSE: AMG) is an asset management company, which through internal growth of existing affiliates and through investments in new affiliates now collectively manages in excess of $68 billion in total assets (March 31, 2003). The firm offers approximately 150 investment products across a broad range of investment styles and distribution channels today. Our report this week looks at both The Managers Funds and Managers AMG Funds groups. Fund Overview The Managers Funds lineup is comprised of 14 no-load mutual funds investing across the three major asset classes (stocks, bonds and cash). Eight additional funds are available through Managers AMG Funds, making a total of 22 no-load fund products to select from. That's a pretty good selection of money managers, the majority of which aren't accessible elsewhere in the retail fund marketplace. The Managers Funds: Equity Funds Value (MGIEX), Large-Cap Value Capital Appreciation (MGCAX), Large-Cap Growth Special Equity (MGSEX), Diversified Small Company Small Company (MSCFX), Diversified Small Company International Equity (MGITX), Developed International Equity Emerging Markets Equity (MEMEX), Emerging Markets Equity U.S. Stock Market Plus (MGSPX), Enhanced S&P 500 Index The Managers Funds: Fixed Income/Money Market Funds Money Market (MGMXX), Money Market Short Duration Government (MGSDX), Short-Term Government Bond Intermediate Duration Government (MGIDX), Intermediate Gov't Intermediate Bond (MGSIX), Intermediate Diversified Bond Total Return Bond (MTRFX), Intermediate Investment-Grade Bond Bond (MGFIX), Longer-Term Diversified Bond Global Bond (MGGBX), Global Investment Grade Bond Managers AMG Funds (All Equity Funds) Systematic Value (MSYSX), Large-Cap Value Rorer Large-Cap (MRLCX), Large-Cap Value Rorer Mid-Cap (MRMCX), Mid-Cap Value First Quadrant Tax Managed Equity (MFQTX), All-Cap Blend Frontier Growth (MFRGX), Mid/Large-Cap Growth Frontier Small Company Value (MGFVX), Small-Cap Value Essex Aggressive Growth (MEAGX), All-Cap Growth Burridge Small Cap Growth (MBRSX), Small-Cap Growth The Affiliated Managers Group (AMG) funds are an interesting lot. Essex Aggressive Growth Fund (MEAGX), an all-cap growth fund sub- advised by Essex Investment Management LLC, is the first fund in the family. It started operations on November 1, 1999 and seeks to provide long-term capital appreciation through investment in a diversified portfolio of securities. Rorer Asset Management LLC is sub-investment adviser of two value-driven funds, one mid-cap oriented and one large-cap oriented. Frontier Capital Management Company LLC serves as sub-adviser of Frontier Small Company Value Fund (MGFVX) and Frontier Growth Fund (MFRGX), a pro-growth style fund investing in mid-cap and large-cap sectors. For more detail see the www.amg.com website. The Managers Funds sport two Morningstar 5-star rated funds - the Managers Bond Fund (MGFIX) and the Managers Intermediate Duration Fund (MGIDX). Managers Bond Fund is managed by bond guru, Daniel Fuss, an executive vice president, director, and managing partner of Loomis Sayles & Company. Loomis Sayles has served as the fund subadvisor since its 1984 inception. Daniel Dektar, a principal, executive vice president and director of Smith Breeden Associates Inc., has been manager or co-manager of the Managers Intermediate Duration Fund since it started operations in 1992. Four more funds have above average or 4-star Morningstar ratings, as follows: Morningstar 4-Star or 5-Star Rated Funds: 5 Stars, Managers Bond Fund (MGFIX) 5 Stars, Managers Intermediate Duration Government (MGIDX) 4 Stars, Managers Short Duration Government (MGSDX) 4 Stars, Managers U.S. Stock Market Plus (MGSPX) 4 Stars, Managers Special Equity (MGSEX) 4 Stars, Managers Emerging Markets Equity (MEMEX) These funds may be your best bets on a risk-adjusted return basis but you may find other funds in the Managers Funds lineup to meet your financial goals and objectives. Note that the Managers U.S. Stock Market Plus Fund, subadvised by John Sprow of Smith Breeden Associates, is an enhanced stock index fund that actively manages a short duration bond portfolio and maintains positions in equity (S&P 500) futures, options and similar instruments. Sprow has 11 years of experience managing the fund. Over that time, Sprow has enhanced value over the S&P 500 index on a gross return basis but on a total return basis (net of expenses), returns slightly trail the equity index benchmark. In the next section, we tell you which funds we like the best now and why. Our Favorite Funds While we feel there are some Managers AMG Funds worth looking at, the higher initial investment minimums of $5,000 and $25,000 make them less affordable to the average retail investor. Thus, we'll let you explore them further at your leisure. The funds we favor the most now come from The Managers Funds group, and have initial investment minimums of just $1,000 or $2,000. If you are seeking a high level of current income, there are good options to consider here. The Managers Short Duration Government (MGSDX) and the Managers Intermediate Duration Government (MGIDX) funds have been managed or co-managed by Daniel Dektar with Smith Breeden Associates for 11 years. Both government securities fund products have above average risk relative to their category peers but in actuality, the funds are inappropriately categorized. For example, Managers Short Duration Government Fund looks more risky relative to its category peers (ultra short-term bond funds), but should be classified with other short-government bond funds. The Managers Intermediate Duration Government Fund seems riskier than its category peers (short-term bond funds), but should be grouped with other intermediate-government bond funds. Trailing 3-Year Average Annual Total Returns (May-27-03): +5.9% Managers Short Duration Government (MGSDX) +9.6% Managers Intermediate Duration Government (MGIDX) +8.9% Morningstar All Government Bond Fund Average Trailing 3-Year Average Standard Deviations (Volatility): 1.5% Managers Short Duration Government (MGSDX) 2.9% Managers Intermediate Duration Government (MGIDX) 3.7% Morningstar All Government Bond Fund Average You can see that over the past three years, the two Smith Breeden sub-advised government bond funds have produced competitive total returns for investors while actually minimizing risk (volatility) relative to the broad universe of government bond funds according to Morningstar. If you can tolerate the slightly higher level of risk (volatility) of mortgage-backed securities, the intermediate government fund has generated the better returns of the two Smith Breeden sub-advised funds over time. For the 10-year period thru April 30, Managers Intermediate Duration Government Fund produced an annualized total return of 6.9%, 0.7% a year better on average than the Lehman Brothers 1-5 Year Government index, using numbers from Morningstar. Investors seeking a high level of income through investment in a diversified portfolio of fixed income securities may want to look at the Managers Bond Fund (MGFIX) managed by Daniel Fuss, Loomis- Sayles & Company, for 19 years, amassing a fine long-term record. While Smith Breeden seeks to enhance value through their mortgage backed securities expertise, this fund seeks to add value through investments in medium-grade corporate bonds offering higher yield and total return potential (than high-grade bonds). The strategy produces more volatility than the two Smith Breeden funds, but in the long run, it has excelled at producing superior total returns for investors. For the 10-year period through April 30, 2003, Managers Bond Fund sports an annualized total return of 8.5%, 1.2% a year on average greater than the Lehman Brothers Aggregate Bond index, and strong enough to rank in the 1st percentile of the Morningstar long-term bond fund category. Fuss' trailing 10-year returns also outpaced the average general bond fund (+6.1%) by a wide margin, according to Morningstar. The fund takes on more credit risk than a lot of investment-grade bond funds, but over time shareholders have been well compensated. We also like Managers U.S. Stock Market Plus Fund (MGSPX) managed by John Sprow, Smith Breeden Associates, since 1992. It seeks to provide a total return exceeding the S&P 500 Index without taking additional stock market risk. Sprow invests primarily through an actively managed short duration fixed-income portfolio while also maintaining active positions in S&P 500 futures or swaps, options and similar instruments. As we saw with the two government funds sub-advised by Smith Breeden, the firm is capable of adding value over time, so over time, this enhanced equity index fund strategy is capable of producing excess returns to the S&P 500 index. Due to the fund's expense ratio (0.88%), total returns slightly trail the S&P 500 index. Over the 10-year period through April 30, the Managers U.S. Stock Market Plus Fund produced an average annual total return of 9.3%, ranking in the 27th percentile (near first quartile) of the large blend fund category, per Morningstar. If you do not want to risk losing money because of poor stock selection, this enhanced stock index fund may be worth considering further. PIMCO has a similar "stock plus" enhanced index strategy that you may want to compare this fund against. Conclusion We suspect that if you delve further into the Managers Funds and Managers AMG Funds lineups, you'll find other funds and managers worth looking at. Considering they provide different funds with distinct investment management objectives, strategies, risks and policies, investors have a broad variety of funds to select from, some of which you may not find elsewhere (in the retail market). The Managers Funds home page is www.managersfunds.com. For more information on Managers AMG Funds, go to the www.amg.com website. Steve Wagner Editor, Mutual Investor email@example.com ********************************************************************* 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 ********************************************************************* ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Wednesday 05-28-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: ACS Dropped Calls: None Dropped Puts: MTG Play of the Day: Put - HDI Spreads, Combinations & Premium Selling Plays: A "Real" Summer Rally?!? Watch List: Software, Banks & Burgers Updated on the site tonight: Market Posture: Markets Pause ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity _ No hidden fees for limit orders or balances _ $1.50 /contract (10+ contracts) or $14.95 minimum. _ Zero minimum deposit required to open an account _ Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** Affiliated Computer Services - ACS - close: 44.57 change: -1.93 NEW STOP: We're lowering our stop on ACS to $48.01. More conservative traders could use today's high, which is still above the 200-dma. ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ M G I C Investment Corp - MTG - close: 47.91 change: +2.46 stop: 47.00 As a mortgage insurer who deals significantly with Fannie Mae (FNM) and Freddie Mac (FRE) one would suspect that a big move in one might affect the other. Well FNM and FRE have been strong these last two sessions and it looks like the bears just got tired of holding the bulls near the $45 level in MTG. The stock gapped up (a small bit) and immediately traded higher on decent volume. While technically still under resistance at $48.00-48.25 we're stopped out with the move over $47.00, our new stop from Tuesday's newsletter. There was not MTG specific news we could uncover to explain the move. Picked on May 15th at $45.21 Change since picked: +2.71 Earnings Date 07/15/03 (unconfirmed) Average Daily Volume: 1.1 million Chart link: ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's _ $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees _ Easy screens for spreads, collars, or covered calls! _ Contingent, Stop Loss, Trailing stop, or OCO _ 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************* PLAY OF THE DAY - PUT ********************* Harley Davidson - HDI - close: 41.39 change: -0.66 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. Tuesday's Update (May 27th, 2003): After the steep sell-off 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. Play of the Day Comments: Well, we initially wanted a bounce back towards the 50-dma to buy puts near resistance. We got it. Then we wanted to see resistance at the bottom of the gap down hold. It did. Now we have further weakness on decent volume. It smells like a put entry point to us. Keep a tight stop on the play and see where she rides. The first obstacle is support at $40.00. 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=4125 at $2.10 SL=1.05 BUY PUT JUN-40 HDI-RH OI=3567 at $0.90 SL=0.45 BUY PUT JUL-40 HDI-SH OI=2363 at $1.60 SL=0.80 Picked on May 25th at $40.81 Change since picked: +0.58 Earnings Date 07/16/03 (unconfirmed) Average Daily Volume = 2.65 mln 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 ********************************************************************* ********************************************** SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS: ********************************************** A "Real" Summer Rally?!? By Ray Cummins Stocks continued higher Wednesday with the broader equity markets enjoying a fifth consecutive session of gains as investors showed their optimism over an improving economic outlook. The blue-chip Dow industrials added 11 points to 8,793, its best close in 4 months, on strength in Citigroup (NYSE:C), American Express (NYSE:AXP), Hewlett-Packard (NYSE:HPQ), Disney (NYSE:DIS), and McDonald's (NYSE:MCD). The NASDAQ composite rose 6 points to an 11-month high at 1,563 amid buying pressure in networking and computer hardware shares. The S&P 500 index added 2 points to 953, despite selling activity in paper, oil services, gold, telecom, and utility issues. About 1.5 billion shares were traded on the New York Stock Exchange while 2.0 billion shares swapped hands on the NASDAQ. Advancers outpaced decliners by almost 4 to 3 on both the Big Board and the technology exchange. U.S. treasuries slid lower as traders took profits from the recent rally. A benchmark 10-year note priced at 101-21/32 at the close, down 2/32, with its yield at 3.43%, up from 3.42% on Tuesday. *************** SUMMARY OF CURRENT POSITIONS - AS OF 5/27/03 *************** 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. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) 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 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 trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield APPX JUN 17 16.85 34.01 $0.65 8.35% 3.86% AVID JUN 22 22.10 31.19 $0.40 4.47% 1.81% BBY JUN 32 31.60 36.32 $0.90 5.14% 2.85% COF JUN 37 37.80 46.93 $0.70 4.58% 1.85% IMCLE JUN 15 14.65 24.60 $0.35 5.04% 2.39% MRVL JUN 20 19.50 31.99 $0.50 6.28% 2.56% SFNT JUN 20 19.65 30.94 $0.35 4.36% 1.78% OVTI JUN 20 19.45 33.60 $0.55 6.28% 2.83% APPX JUN 25 24.55 34.01 $0.45 6.54% 1.83% ANPI JUN 22 22.25 29.51 $0.25 4.20% 1.12% JCOM JUN 25 24.55 36.35 $0.45 6.55% 1.83% MO JUN 37 36.60 42.09 $0.90 5.92% 2.46% MRVL JUN 22 22.10 31.99 $0.40 6.03% 1.81% OVTI JUN 22 22.05 33.60 $0.45 7.31% 2.04% SHFL JUN 20 19.70 26.00 $0.30 4.90% 1.52% SNDK JUN 27 26.90 34.43 $0.60 6.56% 2.23% Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield DPMI JUN 22 22.85 19.60 $0.35 5.35% 1.53% PPDI JUN 30 30.60 26.75 $0.60 4.82% 1.96% BSTE JUN 50 50.60 42.00 $0.60 5.13% 1.19% ICST JUN 25 25.30 23.77 $0.30 6.06% 1.19% DCX JUN 32 32.95 31.14 $0.45 4.46% 1.37% IGEN JUN 42 43.25 36.12 $0.75 9.75% 1.73% Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status BJS 38.63 40.61 JUN 32 35 0.25 34.75 $0.25 Open LEH 65.32 70.30 JUN 55 60 0.55 59.45 $0.55 Open DNA 56.09 63.85 JUN 50 55 0.50 54.50 $0.50 Open BIO 56.70 57.82 JUN 50 55 0.45 54.55 $0.45 Open BZH 76.70 80.95 JUN 65 70 0.45 69.55 $0.45 Open Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status APC 44.40 49.74 JUN 50 47 0.35 47.85 ($1.89) Closed DVN 46.50 52.55 JUN 55 50 0.55 50.55 ($2.00) Closed FRX 51.18 51.17 JUN 60 55 0.50 55.50 $0.50 Open KKD 31.45 31.86 JUN 40 35 0.65 35.65 $0.65 Open ATK 51.65 51.36 JUN 60 55 0.45 55.45 $0.45 Open FNM 71.60 72.30 JUN 80 75 0.45 75.45 $0.45 Open IP 36.13 37.52 JUN 40 37 0.30 37.80 $0.28 Open Krispy Kreme (NYSE:KKD) will be "one to watch" as the company announces quarterly earnings Wednesday morning. International Paper (NYSE:IP) and Fannie Mae (NYSE:FNM) also deserve attention in the recent "bullish" environment. Short-term resistance for all of these stocks is near their respective (sold) strikes. As noted in last week's summary, Anadarko Petroleum (NYSE:APC) and Devon Energy (NYSE:DVN) were on the "early exit" list and these spreads have been closed (for losses smaller than the summary reflects) due to further upside activity. Synthetic Positions ******************* Symbol Pick Last Month L/C S/P Credit M/V Status GYI 32.43 37.61 JUL 35 30 (0.10) 3.20 Open? Getty Images (NYSE:GYI) has performed beyond all expectations, achieving sizable profits well in advance of the July options expiration. Debit Straddles *************** Symbol Pick Last Month L/C L/P Debit M/V Status SNE 24.74 26.10 JUN 25 25 2.90 2.70 Closed The "Reader's Request" straddle has been closed to limit losses. 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 new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED 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. ************** ANPI - Angiotech $29.74 *** Popular 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, agreed to a merger in which Cohesion will merge with a subsidiary of Angiotech, with Cohesion continuing as a wholly owned subsidiary of the company. ANPI - Angiotech $29.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 AUJ RX 913 0.50 22.00 10.3% 2.3% * SELL PUT JUN 25 AUJ RE 4,520 0.90 24.10 14.8% 3.7% ************** CELG - Celgene $32.30 *** 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. CELG - Celgene $32.30 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 LQH RX 732 0.25 22.25 4.9% 1.1% TS SELL PUT JUN 25 LQH RE 6,477 0.55 24.45 10.4% 2.2% * SELL PUT JUN 30 LQH RF 7,609 1.95 28.05 20.5% 7.0% Editor's note: Celgene (NASDAQ:CELG) traded lower after-hours on news of a $300 million offering of convertible notes, due 2008, to qualified institutional buyers. Traders should wait for the price to stabilize on Thursday before initiating new positions in the issue. ************** CREE - Cree Incorporated $22.98 *** Choice Chip Stock! *** Cree (NASDAQ:CREE) is engaged in the development and manufacture of compound semiconductor materials and electronic devices made from silicon carbide (SiC), and a developer and manufacturer of optoelectronic and electronic devices made from gallium nitride and related materials. The company also produces radio frequency power transistor components and modules for wireless infrastructure applications using silicon-based bipolar and laterally diffused metal oxide semiconductor process technologies. Cree operates its business in two segments, the Cree segment, which consists of its SiC-based products and research contracts, and the Cree Microwave segment, which consists of RF transistors and RF transistor modules based on a silicon platform. CREE - Cree Incorporated $22.98 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 20 CVO RD 5,738 0.35 19.65 7.1% 1.8% * SELL PUT JUN 22.5 CVO RX 1,973 0.95 21.55 13.0% 4.4% ************** IMCLE - ImClone $24.12 *** Drug Stock Speculation! *** ImClone Systems (NASDAQ:IMCLE) is a biopharmaceutical firm whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCLE - ImClone $24.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 17.5 QCI RW 3,131 0.35 17.15 8.9% 2.0% * SELL PUT JUN 20 QCI RD 2,121 0.90 19.10 18.5% 4.7% SELL PUT JUN 22.5 QCI RX 593 1.80 20.70 24.2% 8.7% ************** JCOM - j2 Global Communications $35.01 *** Volatile Issue! *** j2 Global Communications (NASDAQ:JCOM) provides outsourced value added messaging and communications services to individuals and businesses throughout the world. The company offers faxing and voicemail solutions, Web initiated conference calling, document management solutions and unified messaging services. j2 Global markets its services principally under the brand names eFax and jConnect. The company delivers its services through its global telephony/Internet protocol network, which spans more than 600 cities in 18 countries across five continents, including four capital cities in Latin America where j2 Global is in the process of launching its unique service. JCOM - j2 Global Communications $35.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 30 JQF RF 1,090 0.75 29.25 10.2% 2.6% * SELL PUT JUN 35 JQF RG 248 2.55 32.45 20.4% 7.9% ************** MIK - Michael's Stores $36.23 *** Earnings Speculation! *** Michaels Stores (NYSE:MIK) is an arts and crafts specialty retailer providing materials, ideas and education for creative activities. The company operates 770 Michaels retail stores in 48 states, as well as in Canada, offering a products for the do-it-yourself home decorator and arts and crafts supplies. The company also operates over 150 Aaron Brothers stores in nine states, with photo frames, a full line of ready-made frames, custom framing services and a wide selection of art supplies. In addition, the company owns and operates Star Wholesale, a single-store wholesale operation located in Dallas, Texas, offering merchandise primarily to interior decorators/designers, wedding/event planners, florists, hotels, restaurants and commercial display companies. Quarterly earnings are due on May 29, 2003. MIK - Michael's Stores $36.23 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 32.5 MIK RZ 547 0.45 32.05 5.3% 1.4% * SELL PUT JUN 35 MIK RG 661 1.25 33.75 11.4% 3.7% ************** MERQ - Mercury Interactive $39.20 *** A New 5-Month High! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2000 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $39.20 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 35 RQB RG 1,873 0.40 34.60 4.5% 1.2% * SELL PUT JUN 37.5 RQB RT 636 0.90 36.60 8.0% 2.5% ************** OVTI - OmniVision $34.20 *** Rally Mode! *** 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. OVTI - OmniVision $34.20 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 25 UCM RE 1,051 0.35 24.65 6.4% 1.4% * SELL PUT JUN 30 UCM RF 527 0.90 29.10 11.5% 3.1% ************** SEPR - Sepracor $23.00 *** 52-Week High! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $23.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 17.5 ERQ RW 2,130 0.15 17.35 4.2% 0.9% TS SELL PUT JUN 20 ERQ RD 6,137 0.60 19.40 11.7% 3.1% * SELL PUT JUN 22.5 ERQ RX 1,116 1.45 21.05 18.9% 6.9% ************** TTWO - Take-Two Int. Software $26.25 *** On The Move! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $26.25 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 TUO RX 1,557 0.35 22.15 6.5% 1.6% * SELL PUT JUN 25 TUO RE 1,767 0.95 24.05 12.3% 4.0% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** PLMD - PolyMedica $37.08 *** Favorable Earnings! *** PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer medical products and services, conducting business through its Chronic Care, Professional Products and Consumer Healthcare segments. The company sells diabetes supplies and products, and provides services to Medicare-eligible seniors suffering from diabetes and related chronic diseases through its Chronic Care segment. Through its Professional Products segment, it provides direct-to-consumer prescription respiratory supplies and services to Medicare-eligible seniors suffering from chronic obstructive pulmonary disease. It also markets, manufactures and distributes a broad line of prescription urological and suppository products. PolyMedica markets prescription oral medications not covered by Medicare to its existing customers through its Professional Products segment. PLMD - PolyMedica $37.08 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-30.00 PM-RF OI=2162 ASK=$0.30 SELL PUT JUN-35.00 PM-RG OI=4779 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$34.35 ************** CHIR - Chiron $44.12 *** New Trading Range? *** Chiron Corporation (NASDAQ:CHIR) is a global pharmaceutical firm that is focused on developing products for cancer and infectious disease. Chiron continues to build upon its cancer franchise, which has three dimensions, including immune system modulators, monoclonal antibodies and novel anti-cancer agents. In the area of infectious diseases, the company has a range of products. The company commercializes its products through three business units, which include biopharmaceuticals, vaccines and blood testing. Chiron Biopharmaceuticals discovers, develops, manufactures and markets a range of therapeutic products. The company's products include Betaseron, TOBI, Proleukin, PDGF for Regranex products and Procleix HIV-1/HCV Assay. CHIR - Chiron $44.12 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-40.00 CIQ-RH OI=1816 A=$0.35 SELL PUT JUN-42.50 CIQ-RV OI=4758 B=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=16% B/E=$42.15 ************** UNH - UnitedHealth Group $95.46 *** 2-For-1 Split Coming! *** UnitedHealth Group (NYSE:UNH) forms and operates markets for the exchange of health and well being services. Through its family of businesses, the company helps people achieve optimal health and well being through all stages of life. The firm's revenues are derived from premium revenues on insured (risk-based) products, fees from management, administrative and consulting services and investment and other income. It conducts its business primarily through operating divisions in the following business segments: Uniprise; Healthcare Services, which includes the UnitedHealthcare and Ovations businesses; Specialized Care Services, and Ingenix. UNH - UnitedHealth Group $95.46 PLAY (conservative - bullish/credit spread): BUY PUT JUN-85.00 UHB-RQ OI=2068 A=$0.45 SELL PUT JUN-90.00 UHB-RR OI=4430 B=$0.95 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$89.45 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option 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 options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very 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 price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond 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. *************** IGEN - IGEN International $35.79 *** Premium-Selling Only! *** IGEN International develops and markets products that incorporate its proprietary electrochemiluminescence (ORIGEN) technology, which permits the detection and measurement of various biological substances. ORIGEN provides a combination of speed, sensitivity, flexibility and throughput in a single technology platform. The product is incorporated into instrument systems and other related consumable reagents, and IGEN also offers assay development and services used to perform analytical testing. Products based on ORIGEN technology address the Life Sciences, Clinical Testing and Industrial Testing worldwide markets. IGEN - IGEN International $35.79 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 42.5 GQ FV 1,598 0.40 42.90 6.6% 0.9% * SELL CALL JUN 40 GQ FH 4,826 0.85 40.85 10.3% 2.1% SELL CALL JUN 37.5 GQ FU 2,501 1.50 39.00 14.1% 3.8% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** AZO - Autozone $83.74 *** Post-Earnings Slump! *** AutoZone (NYSE:AZO) is a specialty retailer of automotive parts and accessories primarily to do-it-yourself customers. During the fiscal year ended August 31, 2002, the company operated 3,068 auto parts stores in the United States and 39 in Mexico. It also sells parts and accessories online at autozone.com. Each auto parts store carries an extensive product line for cars, vans and light trucks, including new and remanufactured automotive parts, maintenance items and various accessories. AutoZone also has a commercial sales program in the United States, AZ Commercial, which provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers and service stations. In addition, the company sells automotive diagnostic and repair software through ALLDATA and through alldatadiy.com. AZO - Autozone $83.74 PLAY (conservative - bearish/credit spread): BUY CALL JUN-95.00 AZO-FS OI=1365 ASK=$0.15 SELL CALL JUN-90.00 AZO-FR OI=3441 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$90.45 ************** ITW - Illinois Tool Works $62.61 *** Resistance At $65? *** Illinois Tool Works (NYSE:ITW) is a manufacturer of engineered products that include plastic and metal components and fasteners. The company also designs and manufactures specialty systems such as industrial packaging equipment and plastic and steel strap, welding equipment and consumables and equipment and consumables that multi-pack cans and bottles for the food industry. Illinois Tool Works is also involved in leasing and investments including mortgage-related activities, equipment leasing, affordable housing limited partnerships, property development, and a venture capital fund. The firm has approximately 600 operations in 44 countries. ITW - Illinois Tool Works $62.61 PLAY (conservative - bearish/credit spread): BUY CALL JUN-70.00 ITW-FN OI=778 ASK=$0.20 SELL CALL JUN-65.00 ITW-FM OI=644 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$65.45 ************** MMM - 3M Corporation $125.01 *** Range-Bound Conglomerate? *** 3M Company (NYSE:MMM), formerly known as Minnesota Mining and Manufacturing Company, is an integrated enterprise characterized by intercompany cooperation in research, manufacturing and sale of products. 3M's business has developed from its research and technology in coating and bonding for coated abrasives, the company's original product. Coating and bonding is the process of applying one material to another, such as abrasive granules to paper or cloth (coated abrasives), adhesives to a backing (pressure-sensitive tapes), ceramic coating to granular mineral (roofing granules), glass beads to plastic backing (reflective sheeting) and low-tack adhesives to paper (repositionable notes). The company conducts business through six operating segments: Industrial Markets; Transportation, Graphics and Safety Markets; Health Care Markets; Consumer and Office Markets; Electro and Communications Markets, and Specialty Material Markets. MMM - 3M Corporation $125.01 PLAY (conservative - bearish/credit spread): BUY CALL JUN-135.00 MMM-FG OI=2797 ASK=$0.20 SELL CALL JUN-130.00 MMM-FF OI=5006 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$130.45 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Software, Banks & Burgers Adobe Systems - ADBE - close: 35.68 change: +0.33 WHAT TO WATCH: Despite a couple of recent downgrades shares of ADBE have rebounded from their simple 50-dma and appear ready for an assault on the $40.00 level, which is long-time resistance. A move over $36.00 might offer an easy trigger point to go long unless you prefer the dip in which case a move to $34.50 might be a good option. Short-term resistance is $38.00, the early May highs. The company recently reaffirmed Q2 estimates. Chart: --- Oracle Corp - ORCL - close: 13.26 change: +0.61 WHAT TO WATCH: Microsoft's biggest rival in the database industry, ORCL, gained 4.8 percent on rumors of a potential deal with a Russian company. Whispers on the street say the deal is worth more than $150 million. We're watching the $13.25-13.50 level, which has been resistance since March 2002. A breakout above this area could forecast a move to next resistance at $15.00 and beyond that $17.00. Chart: --- Citigroup - C - close: 41.14 change: +0.96 WHAT TO WATCH: Wow! Today's move in shares of C mark an upside breakout on both the daily and weekly charts. This money center bank might be able to trade up near the $45.00 area. However, chart readers will notice the descending trendline on C's weekly chart and it suggests that getting past $45.00 could be a very tough challenge. Fortunately for the bulls, the PnF chart looks much more encouraging. Chart: --- McDonald's Corp - MCD - close: 18.26 change: +0.49 WHAT TO WATCH: Whether you think MCD serves the best food or the worst food on earth you can't ignore that they serve a lot of it. Shares have rebounded from the mad cow scare last week and while the mad cow affect may not be over MCD has been resilient. We still believe this entire industry (fast food) could be headed into the same sort of litigation that has mired the tobacco sector but that could be years away. Right now MCD appears to be rebounding from support and bullish traders might want to trade the (very ugly) channel toward the $20 mark. There is minor resistance at $18.75. Chart: ************** MARKET POSTURE ************** Markets Pause To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_052803.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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