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Daily Newsletter, Thursday, 05/29/2003

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The Option Investor Newsletter                Thursday 05-29-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Markets Receive Pink Slip
Futures Markets: Banging its head
Index Trader Wrap: NASDAQ holds gains, but reversal of fortune for
others
Market Sentiment: By the looks of it...
Weekly Manager Microscope: Charles R. Dreifus: Royce Special
Equity Fund (RYSEX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      05-29-2003           High     Low     Volume   Adv/Dcl
DJIA     8711.18 - 81.90  8862.58  8679.60 2.20 bln 1703/1533
NASDAQ   1574.95 + 11.70  1591.26  1564.14 2.25 bln 1910/1358
S&P 100   477.42 -  2.23   484.13   475.50   Totals 3613/2891
S&P 500   949.64 -  3.58   962.08   946.23
W5000    9078.11 - 25.70  9185.93  9046.32
RUS 2000  432.64 +  2.16   435.12   430.01
DJ TRANS 2423.13 + 12.10  2431.84  2408.23
VIX        22.49 +  0.49    22.83    21.55
VXN        31.42 +  1.20    31.66    30.07
Total Volume 4,745B
Total UpVol  2,492B
Total DnVol  2,176M
52wk Highs  687
52wk Lows    26
TRIN       1.68
PUT/CALL   0.90
************************************************************

Markets Receive Pink Slip

Job worries finally took hold of Wall Street and the indexes
succumbed to some profit taking on multiple reports of weak
labor conditions. Serious economic reports looming in our
future may have hastened the exit. The drop did not occur
until news highs were hit on all the major indexes.

Dow Chart - Daily



Nasdaq Chart - Daily



S&P Chart - Daily




The morning started with the sixteenth consecutive week of
Jobless Claims over 400,000 with a higher than expected 424,000
workers filing new claims this week. The continuing claims rose
to 3.76 million with total unemployed reaching 9.2 million.
There are currently over 2.0 million workers whose benefits have
expired. The remaining workers were not eligible for benefits.
This is a huge number of unemployed and the odds are good for
another negative Jobs Report for May when announced next week.
The Jobs survey is conducted during the third week of the month
and the same week for today's Jobless Claims. This does not
paint a positive picture for those nonfarm payrolls. The
continuing claims are now far above the levels reached in the
1990-91 recession.

Adding to the negative jobs outlook was the April Mass Layoff
report which showed a 40% jump in announced mass layoffs. The
April report showed 161,095 jobs cuts were announced by major
companies. This was up significantly from the 112,914 announced
in March. The manufacturing sector showed a 50% increase in the
layoff rate. This is April data but it is announced layoffs over
the next 90 days not layoffs in April. This is a leading indicator
for Jobless Claims and the Nonfarm Payroll numbers.  This is not
a positive trend and it was the highest level since January.

Ok, we saw that new jobless claims are high and there was a 40%
increase in announced layoffs. Those new job hunters are going
to face a daunting task. The Help Wanted Index, a survey of job
ads in 51 of the nation's largest newspapers, showed a drop to
35 from 38 in March and a new low. The index declined in all
nine regions. This is the lowest level since the great depression.
The index peaked at 93 in 1999. Of the 51 cities only 20% (10)
reported a rise in job ads. In March that number was 43% (22).
To compare the current 35 level the index was at 47 at the end
of the 2001 recession when jobs are supposedly the hardest to
find. That means it is 25% worse now than it was then.

The three reports above all failed to show any improvement in
the business conditions after the end of the war which is nearing
eight weeks now. The rally on the expectations of a relief bounce
in the economy is getting shaky since that bounce has failed to
appear.

The GDP for the 1Q was revised upward to +1.9% from +1.6% but
was slightly worse than expected at +2.0%. The difference was
not material and I know many traders were relieved to see any
bounce from the initial number and not a downward revision. This
was the reason for the initial market gains at the open. Despite
the barrage of terrible job news traders felt they had dodged
the recession bullet and were now simply waiting for the stimulus
to filter though the system. Quarterly profits only increased
+1.0% in the 1Q compared to +3.3% in the 4Q. Many analysts were
rushing to spin it as "the second consecutive monthly increase",
which it was but it was still a 70% drop from the prior quarter.
I guess it depends on whether you are seeing the glass half empty
or half full. Equipment and software spending fell -6.3%, which
was the first decline in four quarters. In reality had it not
been for the +11% gain in fixed residential investment the
headline numbers would have been much different.

Adding to the confusion was the Chicago Fed National Activity
Index which fell to -0.85 in April and March was revised down
to -0.69. These readings have been negative for 7 of the last
8 months with only January being slightly positive. The 3-month
moving average fell to -0.90. A headline number below +0.20
indicates an increased risk of recession.

With four of the five economic reports negative today it is not
surprising that traders decided to take some profits before the
even more critical reports over the next two trading days.
Friday has Chicago PMI, New York NAPM, Michigan Sentiment and
Personal Income/Spending. Monday has the critical ISM report.
We saw a bounce in sentiment last time due to the war's end but
the odds are good that it will fall slightly due to no economic
bounce. Based on the CFNAI today and the huge drop in Durable
Goods yesterday the ISM is likely to be bearish. It has been
steadily declining since January and last month was not exciting.
This report covers the May period and is the first major look
at May numbers. The negative NY-NAPM could see a bounce as the
area is very influenced by the financial markets. With the
current rally the resulting financial services sentiment could
help lift it out of its steady decline.

Mutual fund flows for April showed a strong surge when the war
ended. $16 billion flowed into stock funds and $10.6 billion
into bond funds. We are all aware that those funds powered a
significant bounce in the markets. There was also a report that
the State of Illinois would be shifting $4-$6 billion from bonds
to stocks in the week of June 2nd and several other states would
be following suit in early June. Could it be that the long
awaited asset allocation event is about to begin? You could not
tell it from the buying in bonds since noon Wednesday. We had
two days of selling but those losses have been almost entirely
erased with the yield dropping to 3.34 at the close today.

After the bell today NVLS reaffirmed its lowered outlook for
the 2Q. It lowered estimates in April due to the economy and
the impact of SARS. NVLS said visibility was still poor and
they expect bookings to be down -23% from the 1Q. TECD warned
that profits would fall in the 2Q due to continued weak global
demand especially in the Americas region. IDTI also reaffirmed
guidance but for a gain of 2% to 4% in revenue for the 2Q. While
these companies were mixed the performance of Intel stock has
been stellar. It is up over +$2 since Tuesday morning and pressed
$21 twice today. It traded over 122 million shares on no real
news. MSFT on the other hand remains weak and is closing in on
$24 once again. The volume over the last two weeks has been
extreme and traders have begun to wonder if there is another
big seller besides CEO Steve Ballmer. MSFT and AOL settled an
antitrust suit after the bell with MSFT paying AOL $750 million
and agreeing to license the Explorer browser to them for seven
years.

The chip sector rose once again and finished near its high
despite the expected NVLS update. At 375 the SOX is very close
to strong resistance at 400 and with mixed news after the bell
it may not be the leader on Friday. Techs did finish strong
despite the -81 drop in the Dow. The real reason for the drop
in the broader markets today may not have been entirely due
to the coming economic reports. The S&P rose to a high of 962.08
today and only 62 cents below the August 2002 high close. This
may have been a technical sell signal for a market that has been
moving up steadily since March 12th. The S&P has rebounded +22%
since that March 12th low of 788. The Dow also failed again
today right at the same 8850 top from January. The double
test and double failure of the Dow/S&P was just too much for
technicians to ignore.

The good news for the bulls is simply more bad news in the
economy. This increases the chances for the Fed to make a rate
cut at the June meeting. The Fed Funds futures are showing a
68% chance of a 25 point cut. There are several analysts now
projecting a 50 point cut at that meeting to send a firm
message that the Fed is willing to go the limit to combat a
potential deflation. I personally think 50 point cut would be
extreme with money market funds paying so little already. The
Fed is worried about the economy but they are also worried
about the trillions of dollars in money market accounts.
Sending those companies into the loss column or risk investors
being charged to deposit money is not a risk the Fed wants to
take unless they are forced. That means the Fed will likely
cut rates a quarter and then move to add additional stimulus
in another way if needed. At some point the bad news bulls
may become allergic to more bad news if it becomes apparent
the economy is really headed down despite the Fed's tough talk.

Friday is the end of the month and if today is any indication
there could be some profit taking by funds with big gains.
However, there are still funds that are heavy in cash that
could be looking at the dips as opportunities. One fund manager
on CNBC today said his fund was sitting on a 40% cash position.
That has to be a painful position today with the markets up
+20% since March. The mixed markets provided some very strong
volume with 2.2 billion each on the NYSE and the Nasdaq. Dip
buyers met sellers and the high volume could be a critical sign.

Traders will probably be buying the dip again on Friday because
the first two days of June are historically bullish. Considering
June is the second worst month of the year for the Dow since
1950 and the 5th worst month for the S&P, those first two days
could be high volume if traders are looking for an exit. The
dip today could have been traders thinking I will exit on the
June opening bounce or the 12-month highs, whichever comes
first. With the indexes stalled at the highs at noon today the
final decision was easy. Make no mistake there is a risk of
being long at these levels next week and should the economic
reports be negative tomorrow that risk could accelerate.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Banging its head
Jonathan Levinson

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8934   8823   8751   8640   8568
COMPX     1589   1577   1577   1562   1550
ES03M      969    959    952    942    936
YM03M     8932   8821   8749   8638   8566
NQ03M     1213   1196   1183   1167   1154

That's what the market did today when it came up against its long
term resistance lines today.  NQ and ES failed at 1200 and 962.25
respectively, despite the high volume push across the indices.
While the ES closed in the red, NQ managed to eke out better than
5 points worth of green within a 30 point range. YM was the
weakest contract on what appeared to be an exit of foreign
dollars from the market.

Equities ramped up straight out of the gate, printed the day
highs, reversed to the day lows, and then flopped around
unchanged for the duration of the session.  The US Dollar spent
the day selling off, retesting the 92.50 support level.
Treasuries rallied lightly, climbing throughout the session to
close near their day highs, with FVX –7.7 basis points, TNX –9.2
and TYX –6.2 bps.  The fed drained for a second day in a row,
announcing 28 and 6 day repos, and then adding an overnight repo
as the morning progressed.  Despite the slight drain, the US
Dollar Index kept its appointment with gravity, trading 92.62 as
of this writing:


15 minute chart of the US Dollar Index




Daily chart of GC3M





June Gold got sold despite the weakness in the US Dollar, but
reversed course later in the morning, putting in a higher short
term low above the 358 support line profiled in this week's
futures wraps.  The commodity futures index, the CRB, was down a
point to the 234 level despite the dollar's weakness.

The long term charts of the NDX and SPX cash indices were not
altered by today's action, and for reference I've included them
verbatim.

5 year chart of the NDX cash (log scale)




On both the NDX and SPX cash indices, the long term head and
shoulders necklines, as well as the descending resistance lines
were tested.  The NQ and ES futures stopped dead and those levels
and reversed to their lows of the day from there.


5 year SPX cash (log scale)





Daily NQ3M candles




Tuesday's horizontal breakout was tested again on the NQ3M, and
provided support for the second day in a row.  The stochastic
uptrend is intact and appears intent on truncating the ongoing
downphase.  Although it's difficult to see in today's green
print, the daily candle was close to a shooting star doji, with a
long upper tail and a close near the bottom of the range.  This
is a classic topping pattern, but it's also the second in a row,
setting a higher high and higher close from yesterday.


30 minute 20 day chart of the NQ3M




On the 30 minute candles, we see little change from yesterday.
The ascending upper trending got taken out but the move was a
fakeout, with price closing well below it.  The rollover from the
top commenced a fresh downphase on the 10 period stochastic, but
the 78.6% fib retracement has so far supported it.


Daily ES3M candles




On the daily chart, the ES3M 950 level was retested and held on a
closing basis, while dipping below it intraday to 945.50. As with
the NQ, ES printed its second doji in a row, though it managed a
lower low and higher high, for a possible outside day reversal.
The oscillator uptrends are intact, and without being trite,
tomorrow will be a "critical" day in determining whether the
uptrend will continue.


30 minute 20 day chart of the ES3M




Possibly on the US Dollar weakness, the ES traded much weaker
than the NQ as seen here.  78.6% failed to provide support, and
the MacD uptrend was violated.  Combined with the daily outside
candle, we have the potential for a failure of 950 support at
tomorrow's open.


Daily YM3M candles





YM was clearly the weakest of the bunch, and this again coincides
with the weakness in the US Dollar, as the blue chips would be
the most popular holdings for foreign investors.  They were
selling dollars today, and it looks like they sold the stocks in
which those dollars had been invested.  Today printed a bearish
engulfing, and is headed for a retest of the 8600 level.

20 day 30 minute chart of the YM




On the 30 minute candles, the YM contract made it clear to the
61.8% retracement level and is testing horizontal support from 2
weeks ago.  The US Dollar Index overnight will give us a tell for
tomorrow's bias in the YM contract.


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

NASDAQ holds gains, but reversal of fortune for others

For a second consecutive session, the major indexes broke to the
upside and traded some upside levels of resistance in our pivot
matrix, but were unable to hold early gains.  While the indexes
were able to finish in positive territory yesterday, a mixed
close was found in today's session.

It's difficult to say that there was any type of "news driven"
data as the bulk of today's news came in the early going and
didn't appear to limit this morning's upside trade.

While an upwardly revised first quarter GDP reading helped offset
a still lackluster weekly jobless claims report, outplacement
firm Challenger, Gray and Christmas' report that planned job cuts
jumped 71% in April as business announced plans to eliminate
146,399 positions, may have been the "capper" on today's early
morning rally.

Today' trade saw the NASDAQ-100 Index (NDX.X) 1,181.82 +0.72% and
Tracking Stock (AMEX:QQQ) $29.31 +0.41% trade their MONTHLY R2s
in our pivot matrix, despite the more negative employments news.
While the S&P 500 Index (SPX.X) 949.64 -0.37% came within
decimals of its WEEKLY S2, the SPY $95.42 -0.26% was able to
pierce its WEEKLY S2 just after the Challenger report hit the
wires.  The Dow Diamonds (AMEX:DIA) $87.40 -0.68% also traded
above its WEEKLY R2 with a session high of $88.90.

Early in today's trade, I didn't think "too much" of the S&P
Banks Index (BIX.X) 296.99 -0.75% fractional gains when compared
to what we were seeing in the SPX and OEX, but when the sector
turned red just after lunchtime, that seemed to be just enough
lag to keep both the S&P 500 (SPX.X) 949.64 -0.37% and S&P 100
Index (OEX.X) 477.42 -0.46% from being able to achieve their
weekly R2s by session's end.

Here's a quick look at tomorrow's pivot matrix.  Again... WEEKLY
and MONTHLY levels will be changed at the conclusion of
tomorrow's trade.

Pivot Analysis Matrix




The "dashed red" boxes are those levels I would deem "tentative
resistance" for tomorrow's session as these levels saw trade
action today.  Shorter-term traders may want to monitor these
levels in the early part of tomorrows session as resistance, but
if broken to the upside then upside resistance assessed at
today's high or levels in the matrix.

An intra-day level I think traders may want to monitor for
resistance tomorrow morning, and will discuss later is in the OEX
at 480.6 (say 481 for round number).  This would also be a tie
(once again) with the S&P Bank Index (BIX.X) at 298-299.  It's
noteworthy the session high on the BIX was 300.89 and most likely
a move above 302 will be needed if a "blow off" bullish move for
the SPX/OEX is to be seen in the next couple of sessions.

Correlative support levels are highlighted in "solid green."

Dow Industrials Chart - 50-point box




The PnF chart of the Dow remains strong and the recent double-top
buy signal at 8,750 was the 5th consecutive buy signal on the
Dow's chart since its first buy signal at 8,000.  Traders may
note that I've "cheated" a bit with the WKLY R1 8,713 level and
placed it below the 8,700 (same with WKLY Pivot and S1).  The
reason I did this was to get a "view" of these level, but in the
context of past supply "O" and demand "X."  Today's close in the
Dow comes very close to WEEKLY R1 and would perhaps tie in with
the 8,700 level represented, where a "normal" 3-box reversal
comes 1-box below the recent double-top buy signal.  The first
sign of MEANINFUL weakness in the Dow would currently be a trade
at 8,400, which would be a double-bottom sell signal.  Longer-
term bulls that have their bullish stops set there, might look to
raise stops should the Dow once again see a 3-box reversal back
high, then their stop could come back up once the reversal higher
is seen.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still 70%.

S&P 500 (SPX) Chart - 5-point box




Major reversal in the SPX today?  I'm not sure about that, but
the SPX did look to be a little overextended as it relates to a
"bullish resistance" channel we had been monitoring.  Unlike what
I did in the INDU PnF chart, I did line up the current WEEKLY
pivot analysis levels on the SPX PnF chart.  The 2 question marks
would represent what took place after the SPX had traded the
960.00 level to chart another X in today's session.

One thing trader's might be on the lookout for tomorrow is a
"blow off top" type of move.  Last week when I profiled a bullish
trade in the SPX from the 922 level, that came a day after the
SPX had generated a double-bottom sell signal at 915.  I had
mentioned the old point and figure chartist saying that
"sometimes the first sell signal in the upward trend is a buying
opportunity."  Sometimes a trader will wait a day or two after
the sell signal occurs, and then look to play the reversal back
higher with the thought that some overly aggressive bears may
have shorted a "false signal" in an overly bullish market
environment.

You can perhaps see the "catapult" type of action that has taken
place since.  What could lend itself to a "blow off move" to the
upside is any type of "bullish" news that comes out once the move
is underway, which brings bears to a level of "capitulation."
While the SPX trade at 960 does have the chart printing X 3-boxes
above our pink trend, where we've been use to seeing 2 X's, a
"blow off" type of move would more likely be depicted by a more
exaggerated type of column of X, say to 970 or so.

It's notable that only the SPX and OEX were the only two major
indexes to not trade their WEEKLY R2s today and so far this week.
This would tie in with the thinking of how important the BIX.X as
a sector may be for traders, which also has come up just short of
its WEEKLY R2.  One day left and if the WEEKLY R2 are violated to
the upside tomorrow, that might be the trigger needed for the
aforementioned "blow off move."

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net gain
of 0.6%, so a net gain of 3 stocks to new point and figure buy
signals.  Bullish cycle high of 71.6%.

S&P 100 Index (OEX) Chart - 60-minute intervals




But to get a "blow off move" going, my OEX bullish trade from 481
yesterday morning has some major work ahead of itself.  I showed
several intra-day charts on 5-minute bars today.  The above chart
is a 60-minute time interval chart, and this afternoon the OEX
did look to find support at our "zone of support" and WEEKLY R1,
but the little bounce found suspicious selling back at our
MONTHLY 19.1% retracement of 480, which is coincidentally very
close to MONTHLY R1 of 480.6.  I profiled the OEX bullish trade
with a stop just below at 475, which I've marked on the charts,
but I think this trade is going to need some "good news early"
tomorrow morning in the economic data.  Friday's economic
calendar is available at this
http://www.OptionInvestor.com/comingevents/ce_052503_1.asp

Today's trade saw the S&P 100 Bullish % ($BPOEX) see a net gain
of 1 stock to a new point and figure buy signal.  This has the
bullish % for this index back at its high reading of 67% found
last week.

NASDAQ-100 Tracking Stock (QQQ) - 10-minute intervals




The QQQ and NDX traded to the top of our "bullish wedge" and
MONTHLY R2, which looked to be a target of bulls in Tuesday
evening's index wrap.  The QQQ closed right at its WEEKLY R2 and
leaves an almost perfect "stagger" with the INDU, SPX and OEX
finishing today's trade at their R1s.

I've place a couple of "dashed red" trends on the QQQ to try and
reflect how I think short-term bears may be continuing to attempt
and "pick a top," but when the trend is broken, run to cover and
a break to a new high appears to create a squeeze.

It's probably not a far-fetched observation to "look for bullish
leadership" from the NASDAQ and weakness from the INDU, SPX, OEX
as it relates to the pivot levels.

Today's trade saw a net gain of 2 stocks to new point and figure
buy signals in the NASDAQ-100 Bullish % ($BPNDX) and now grows to
80%!

Jeff Bailey


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

By the looks of it...
- James Brown

The huge rally on Tuesday and all of the upside breakouts it
produced probably had some traders thinking "this is it!"   Here
it is two days later and those same traders are wondering "is
that all?"

The markets have failed to follow through on Tuesday's big move.
Optimists see the last two days and think "at least we held these
gains."  Pessimists are looking at the last two sessions and
musing, "hmmm it looks like a failed rally."   The big volume
today on both exchanges smell like we're seeing a lot of
distribution at these levels.  It could be smart money unloading
some gains to those investors trying to buy the dip because they
missed the rally from early March.

This does not look like a good entry point for bullish positions
and with a weekend just a day away we could see more profit
taking tomorrow.

I want to bring your attention to the bullish percents again.
Remember that 70 and above is technically an overbought signal
and at these levels risk is in favor of the bears, not the bulls.
Currently the NASDAQ-100 is at 78.  The DJIA is at 70.  The S&P
500 just hit 71.  Can they go higher?  Sure they can.  However,
the risk-reward ratio is now in favor of the bears not the bulls.

Trade carefully and watch your stops!


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

Market Averages

DJIA ($INDU)

52-week High: 10042
52-week Low :  7197
Current     :  8711

Moving Averages:
(Simple)

 10-dma: 8637
 50-dma: 8427
200-dma: 8332



S&P 500 ($SPX)

52-week High: 1080
52-week Low :  768
Current     :  950

Moving Averages:
(Simple)

 10-dma:  937
 50-dma:  904
200-dma:  885



Nasdaq-100 ($NDX)

52-week High: 1238
52-week Low :  795
Current     : 1182

Moving Averages:
(Simple)

 10-dma: 1145
 50-dma: 1097
200-dma: 1014



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

Both the VIX and VXN closed higher today indicating a slight rise
in fear but nothing serious.  We still see them as big yellow
highway signs flashing "Significant Downturn Ahead".

CBOE Market Volatility Index (VIX) = 22.49 +0.49
Nasdaq-100 Volatility Index  (VXN) = 31.42 +1.20

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.90        562,612       506,196
Equity Only    1.63        471,254       289,492
OEX            1.72         17,979        30,927
QQQ            1.98         19,467        38,476


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

Bullish Percent Data

           Current   Change   Status
NYSE          62.4    + 1     Bull Confirmed
NASDAQ-100    78.0    + 0     Bull Confirmed
Dow Indust.   70.0    + 0     Bull Confirmed
S&P 500       71.0    + 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  1.01
10-Day Arms Index  1.23
21-Day Arms Index  1.14
55-Day Arms Index  1.15


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    1496      1795
Decliners    1353      1296

New Highs     218       260
New Lows       17         6

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

Total Vol.  2094M     2186M

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 MANAGER MICROSCOPE
*************************

Charles R. Dreifus: Royce Special Equity Fund (RYSEX)

Any fund symbol with the word "sex" in it has to be good, right?
Well, the Royce Special Equity Fund (RYSEX) is a solid small-cap
equity fund, not because of its ticker symbol but because of its
manager's (Charles Dreifus') stock picking prowess.  Mr. Dreifus,
a principal and senior portfolio manager with Royce & Associates,
has managed Royce Special Equity Fund since its inception (May 1,
1998).  A Chartered Financial Analyst (CFA), Dreifus has over 35
years of investment experience including five years with Royce &
Associates.

Before joining Royce & Associates in 1998, Dreifus was a general
partner and limited managing director of Lazard Freres & Co. LLC,
one of the industry's leading value-driven money managers.  Prior
to that, Dreifus was a limited partner and portfolio manager with
Oppenheimer & Co., and an executive vice president of Oppenheimer
Capital.  According to Morningstar's report, he managed money at
Oppenheimer using a similar "small-cap value" approach to the one
used to manage the Royce special equity portfolio.

The $219 million Royce Special Equity Fund is currently "open" to
new investors and requires a minimum initial investment of $2,000
($500 for IRA's).  The fund has a total expense ratio of 1.20%, a
little better than the average small-cap value fund, which stands
at 1.50% per Morningstar.  For further information or to download
a prospectus, go to the Royce Funds website at www.roycefunds.com
or call their toll-free number at 1-800-221-4268.

Investment Style/Strategy

Charles Dreifus' investment style/strategy is a modern adaptation
of classic "value" analysis.  He focuses on companies with market
capitalizations below $1 billion at time of purchase with special
emphasis on inexpensive companies with high returns on assets and
low leverage.  At April 30, 2003 Royce Special Equity Fund had an
average market capitalization of just $494 million, with 44.5% of
stock assets invested in micro-cap stocks per Morningstar.  Thus,
to call this fund a micro/small-cap value fund would be suitable.

He takes a "bottom-up" approach to equity selection, investing in
companies whose stock prices are trading at significant discounts
to their business (intrinsic) value.  If he can't find good value
opportunities in the market, the fund's cash level can rise.  For
example, nearly 19% of portfolio assets were invested in cash and
marketable securities at April 30, per Morningstar.  Putting some
assets in cash can help in market declines but it can cause total
return performance to lag in market upswings.  This year, Dreifus
has produced returns that rank in the bottom decile of the small-
cap value category, per Morningstar.

Because of its low average P/E and above-average cash levels, the
Royce Special Equity Fund has produced "low" risk relative to its
small-cap value category peers, according to Morningstar.  Return
performance, meanwhile, is rated as "high" relative to peers, for
a Morningstar best 5-star overall rating.  Because low P/E stocks
are often overlooked or out of favor when Dreifus buys them, fund
holdings can sometimes take a while to move higher in price; that
means investors in the fund should have a long-term horizon of at
least three years.

As you'll see, staying the course with this fund over longer time
periods can prove very beneficial.

Investment Performance

Dreifus' trailing 3-year and 5-year returns are among the best in
the diversified U.S. equity fund universe, with the fund's small-
cap value discipline representing the "sweet spot" of the market.
Below is a summary of average annual total returns through May 28
per Morningstar.

  3-Year Annualized Return/% Rank In Category:
  +19.7%  Royce Special Equity (RYSEX), 3rd Percentile
  + 9.9%  Morningstar Small-Cap Value Fund Average

  5-Year Annualized Return/% Rank In Category:
  + 9.2%  Royce Special Equity (RYSEX), 8th Percentile
  + 3.8%  Morningstar Small-Cap Value Fund Average

From 2000 to 2002, Dreifus shined.  In 2000, he produced a 16.3%
return.  In 2001, Dreifus generated a 30.8% return for investors,
following that up with a 15.3% total return in 2002.  Because of
those fine performances, the fund's trailing returns rank in the
top decile of the Morningstar small-value category.  During this
period, Dreifus' small-cap value portfolio was in the sweet spot,
capturing positive returns when other managers were sliding hard.

In 1999, when tech/growth stock funds were all the rage, Dreifus
produced a negative 9.6% return for shareholders, ranking in the
bottom decile of the small-value category.  Now that tech stocks
and growth funds are starting to recover in 2003, Dreifus' value
bias and large cash holdings are causing the fund to trail again.
Through May 28, 2003, Royce Special Equity Fund is up just 3.7%,
ranking in the bottom decile of the small-cap value category per
Morningstar.





A large cash balance has helped the fund stave off losses in the
past three years, but it has also limited returns in this year's
stealth stock rally.

Conclusion

Value funds can be less risky than growth funds due to their low
average price valuations, but they can find themselves "in favor"
or "out of favor" at any point in time.  Dreifus also does a bit
of market timing in the Royce Special Equity Fund, since he goes
to cash at times.  That can help in a declining market, but will
hurt relative performance in a rising market.  With stock prices
higher in 2003, Dreifus' relative performance has waned somewhat.

Still, Dreifus' 35 years of experience is worth a lot, and based
on his past performances, there is reason to be optimistic about
the fund's long-term prospects.  As the Royce Funds website says
you should have a long-term investment horizon of at least three
years (having a 5-year or 10-year horizon would improve the odds
of long-term success).  For complete information, or to download
a prospectus, log on to the Royce Funds at www.roycefunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

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


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The Option Investor Newsletter                 Thursday 05-29-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Daily Results
Call Play Updates: AMGN, DISH, OHP, QLGC, SPW
New Calls Plays: VRTS
Put Play Updates: ACS, AIG, FRE, HDI, LLL
New Put Plays: IBM


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

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


CALLS:
*****

None


PUTS:
*****

None


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

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

CALLS    LAST      Mon    Tue   Wed   Thu

AMGN     63.32    0.00   1.77  1.95 -0.43 Could pull back
DISH     32.22    0.00   1.26 -0.08 -0.34 Treading water
MEDI     34.69    0.00   1.87 -0.07 -0.74 Long-term, no update
OHP      36.63    0.00   0.43 -0.22 -0.60 Look for a dip
QLGC     49.36    0.00   2.04  0.02  1.52 Showing strength
SPW      36.78    0.00   1.11 -0.45  0.23 Holding steady
VRTS     27.24    0.00   2.03  0.09  1.29 New, Need a pullback

PUTS

ACS      45.10    0.00  -2.40 -2.30  0.53 Lower but bouncing
AIG      56.25    0.00   1.52 -0.22 -0.47 Still churning
FRE      59.04    0.00   0.40  0.93 -0.19 Looks like an entry
HDI      41.38    0.00   1.24 -0.81 -0.01 Intraday is weak
GM       34.58    0.00   1.64 -0.32 -0.12 Long-term, no update
IBM      87.36    0.00   3.18 -0.03 -0.21 New, relative weakness
LLL      43.18    0.00   0.39 -0.19  0.52 Need to see weakness


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

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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: 63.32 change: -0.43 stop: 61.00

What started out as a strong bullish breakout session for our
AMGN play, ended with a disappointing reversal, with the stock
closing in the red.  AMGN was looking pretty strong this morning,
charging to a new 52-week high of $64.89.  But with the broad
market beginning to weaken near the noon hour, AMGN began
retracing those gains and ended the day near its low, after
finding some support at the descending trendline connecting the
recent highs.  This level may or may not prove to be supportive
on Friday, but if it fails, conservative traders may just want to
harvest gains on a break below the $62.50 level.  The reason why
is that a break back below that trendline would introduce the
possibility of a retracement back to the 50-dma, which is
currently at $60.50.  We've already raised our stop to $61, as
that is just below last Friday's intraday low.  We're obviously
not looking to initiate new positions up here and are instead
focused on protecting gains in the event the stock continues to
deteriorate into the weekend.  Should support give way on Friday,
we may drop the play this weekend even if our stop is not
violated.

Picked on May 11th at    $61.24
Change since picked:      +2.08
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.3 mln
Chart link:


---

EchoStar Communications - DISH - cls: 32.20 chg: -0.34 stop: 29.99

There is still no company specific news for DISH and the stock
has spent the last two sessions trading sideways.  This sideways
consolidation is appearing on pretty low volume so bulls can have
faith in the current up trend.  However, if the markets decide to
pull back again then traders might get another opportunity to buy
shares on a dip near $30.00.  Enter passively.

Picked on May 21st at $31.10
Change since picked:   +1.10
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


---

Oxford Health - OHP - cls: 36.63 chg: -0.60 stop: 34.95

We're not surprised by the small amount of profit taking in OHP
today.  The stock has been up several days in a row and was
overdue.  What concerns us is that the sector leader, WLP appears
to have run out of steam and looks ripe for a sizeable drop (with
the close under $85...bears might target $80).  This will impact
shares of UNH and OHP.  On our play bulls can hope for $36.00 to
act as support but odds are OHP will retest the $35.00 level if
the rally fades.  That may not be a bad thing.  We would not
suggest new positions unless OHP offers a bounce from support.  A
dip to the $35.50 area would be attractive.  There has been no
new company specific news for OHP.

Picked on May 20th at $36.51
Change since picked:   +0.12
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:


---

QLogic Corp. - QLGC - close: 49.36 change: +1.52 stop: 46.00*new*

This has been a very bullish week for our QLGC play, as the stock
has moved up to and broken through formidable resistance at
$48.50.  The big question is how much more upside remains in the
play.  Volume has been on the rise as price has moved into the
upper half of the ascending channel and Thursday's bullish
session is particularly impressive due to the fact that the stock
closed near the top of its daily range and solidly above its
upper Bollinger band on the daily chart.  If you're thinking some
profit-taking is due, then we're of the same mind.  Conservative
traders may just want to harvest gains here and wait for a
pullback to re-enter the play, perhaps in the $47.50-48.00 area.
More aggressive traders will want to exit the play on a move up
near the top of the channel (currently $51), with formidable
historical resistance in the $51.50-52.50 area.  We still want to
give QLGC some room to move, but not so much as to take back all
the recent gains, so we're raising our coverage stop to $46
tonight, which is just below the 20-dma.

Picked on May 22nd at    $45.13
Change since picked:      +4.23
Earnings Date          07/29/03 (unconfirmed)
Average Daily Volume = 6.50 mln
Chart link:


---

SPX Corporation - SPW - close: 36.78 change: +0.23 stop: 35.25

If you're thinking SPW isn't really doing much, you've got it
just about right.  Added to the call list after Tuesday's solid
bounce off of the 20-dma (currently $36.09), the stock has really
done nothing but consolidate in a very tight range.  While it is
nice to see SPW closing in the green on a day that saw
significant profit-taking in the broader market, we'd really like
to see some concerted buying to provide evidence that Tuesday's
move was more than just a feeble bounce.  A dip and rebound from
the $36 level can be used for new entries, while those with a
more conservative approach will want to wait for a volume-backed
rally through the $37.50 resistance zone.  Maintain stops at
$35.25, just below the recent lows.

Picked on May 27th at    $36.86
Change since picked:      -0.08
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 1.03 mln
Chart link:



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

Veritas Software -VRTS - close: 27.24 change: +1.29 stop: 24.50

Company Description:
As an independent supplier of storage management software, VRTS
develops and sells products that protect against data loss and
file corruption, allowing rapid recovery after disk or computer
system failure.  The company's products provide continuous data
availability in clustered computer systems with shared resources.
This enables IT managers to work efficiently with large file
systems, making it possible to manage data distributed on large
computer network systems without harming productivity or
interrupting users.  VRTS provides products for most popular
operating systems, including UNIX and Windows NT, as well as a
full range of services to assist its customers in planning and
implementing their storage management solutions.

Why we like it:
The root word from which VRTS derives its name is "truth" and if
the stock's chart is telling the truth, then today's breakout is
a strong confirmation of its recent bullish trend.  VRTS had a
strong bullish run up until the middle of May, when a round of
profit taking drove the stock back down to its rising 20-dma
(then at $23.80).  After picking themselves up, the bulls charged
forward again, with Tuesday's sharp gains bringing the stock
right back to the $26 resistance level that held it back a couple
weeks ago.  After just one day of consolidation, the buyers voted
with their wallets, delivering a convincing breakout today on
volume that was 50% above the ADV.  Ending the day with a nearly
5% gain, VRTS seems intent on testing major resistance near $30
before this run is over.  The PnF chart confirms the stock's
strength too, with today's trade at $27 generating an ascending
Triple Top buy signal.

Given the extended nature of the market though, we're not wild
about chasing the stock higher, so we're going to wait for it to
come back to us.  If the breakout over $26 was for real, then
price ought to come back down to test that prior resistance level
as newfound support before continuing higher.  So we're going to
set a rather unconventional trigger on the play, requiring the
stock to drop back to the $26.00-26.25 level before recommending
entry.  Make sure to wait for a rebound from that level before
entry though, as we don't want to try catching a falling knife if
the rally comes to an untimely end.  Once the play is triggered,
we'll set a fairly tight stop at $24.50, just below the rising
20-dma (currently $24.70).

Suggested Options:
Shorter Term: The June 25 Call will offer short-term traders the
best return on an immediate move, as it is currently slightly in
the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the July 30 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
long-term traders should utilize the July 25 call.

BUY CALL JUN-25 VIV-FE OI=14012 at $2.85 SL=1.50
BUY CALL JUN-30 VIV-FF OI=  504 at $0.40 SL=0.20
BUY CALL JUL-25 VIV-GE OI=  570 at $3.40 SL=1.75
BUY CALL JUL-30 VIV-GF OI=   40 at $0.75 SL=0.35

Annotated Chart of VRTS:
Chart link:




Picked on May 29th at    $27.24
Change since picked:      +0.00
Earnings Date          07/23/03 (unconfirmed)
Average Daily Volume = 8.47 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

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


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

Affiliated Computer - ACS - cls: 45.10 chg: +0.53 stop: 47.25*new*

The negative reaction to Darwin Deason's dirty laundry being
aired in a local Dallas magazine continued on Wednesday for
shares of ACS, the company he founded and currently chairs.  The
stock produced a follow through move from Tuesday's close under
the 50 & 200-dma's.  Yesterday's close under $45.00 looked
equally promising for bears and shares continued lower this
morning before CIBC defended the stock.  We outlined on Tuesday
that any improprieties by Deason would likely have little affect
on ACS's revenues and CIBC said the same this morning.  Shares
bounced on the statement from CIBC and look ready to trade higher
tomorrow.  Still, shares look less than appealing here.  We're
going to lower our stop to $47.25, which is Wednesday's high and
above the 200-dma.  Traders looking for new entries may want to
wait and see if ACS offers a failed rally under the $47.00 mark
near its 50-dma.  We're going to officially set our target at
$42.00, which is the point-and-figure chart support for ACS.
Should the stock trade there, we'll close the play.

Picked on May 27th at $46.50
Change since picked:   -1.40
Earnings Date       07/22/03 (unconfirmed)
Average Daily Volume = 1.7 Million
Chart link:


---

American Intl Group - AIG - cls: 56.25 chg: -0.47 stop: $58.00

Once again the overhead resistance at $58.00 proved too tough for
shares of AIG.  The stock is creating a trend of lower highs and
the next hurdle for the bears will be a close under the 50-dma
currently at $54.63.  We thought there was an interesting Dow
Jones article out today about a dispute between U.S. Treasury
Secretary John Snow and AIG's chairman Maurice Greenberg.
Greenberg support the President's tax cut bill but had asked Snow
to make sure the bill doesn't "harm" annuities.  The life
insurance industry is the biggest sellers of annuities and AIG is
one of the largest.  Unfortunately for annuity holders the new
tax bill's reduction in dividend taxes and capital gains taxes
now removes a significant advantage to buy annuities.  This could
impact AIG's revenues but any negative effects may be longer-
term.  Meanwhile AIG's top brass are making some appearances
soon.  Vice Chairman, CFO and CAO Howard Smith will speak on June
3rd at the Standard & Poor's Insurance seminar.  Chairman Maurice
Greenberg will speak at another conference on Thursday, June 5th.
Currently, AIG still looks weak and a good candidate for a put
play but traders may best be served by waiting for a breakdown
under recent lows.

Picked on May 20th at $54.94
Change since picked:   +1.31
Earnings Date       04/24/03 (confirmed)
Average Daily Volume = 7.2 Million
Chart link:


---

Freddie Mac - FRE - close: 59.04 change: -0.19 stop: 60.51

Here we go.  If FRE looked like a good short at $58.00 then $59
could be an even better entry point.  The stock continued its
bounce from Tuesday but failed yesterday at $60.14 and failed
again today at $59.85.  Given our stop loss placement this is a
relatively low risk entry point for bearish plays.  However, it
may suit your stomach better if new entries are evaluated on a
move back below the 200-dma.

Picked on May 25th at $57.90
Change since picked:   +1.14
Earnings Date       07/00/03 (unconfirmed)
Average Daily Volume = 3.4 Million
Chart link:


---

Harley Davidson - HDI - close: 41.38 change: -0.01 stop: 43.75

Proving that Murphy is alive and well, HDI launched sharply
higher on Tuesday, the day after we initiated bearish coverage of
the stock.  Once the artificial lift of the broad market strength
was removed though, the stock has returned to its recent pattern
of weakness and is once again approaching the $40 support level.
Yesterday's weakness dropped HDI back under the 50-dma (currently
$41.84) and that average provided resistance on Thursday, a very
encouraging sign.  Not only that, but volume has continued to be
brisk, indicating that Tuesday's rebound was a one-day-wonder.
Traders that took advantage of that failed bounce near the $42.25
level likely got a solid entry and successive failures to push
through the 50-dma still look good for initiating new positions.
Traders that would prefer to enter on weakness will need to keep
their eye on the $40 level.  A break and close below that mark
should have the stock vulnerable to the $37.50 level in the near
term.

Picked on May 25th at   $40.81
Change since picked:     -0.67
Earnings Date         07/16/03 (unconfirmed)
Average Daily Volume = 2.59 mln
Chart link:


---

L-3 Communications -LLL - close: 43.18 change: +0.52 stop: 45.00

Almost as though it is defying our desires, LLL has been
relentlessly climbing higher over the past week, tracing out what
looks like a classic bear flag pattern.  The early strength in
the stock on Thursday brought it right up to test the broken
$43.50 support level, before weakening slightly into the
afternoon.  While aggressive traders can use failed rallies near
that broken support to enter the play, those with a more
conservative approach will need to wait for a confirmed breakdown
out of the bearish flag pattern, which will come with a drop
below $42.75.  LLL still appears to be a weak stock, but now we
need price action to prove us right.  The Defense index (DFI.X)
has been tracing out a similar price pattern over the past week,
so look for that index to break under $492 to confirm weakness in
LLL before entering new positions.

Picked on May 20th at   $41.94
Change since picked:     +1.24
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.35 mln
Chart link:



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

Intl Business Machine - IBM - cls: 87.36 chg: -0.21 stop: 90.25

Company Description:
Big Blue is being heralded as the world's largest technology
company.  Considering their massive hardware and software
business across the globe it's not surprising.  However, IBM's
services and consulting business is growing by leaps and bounds
and is a major source of revenues.

Why We Like It:
You might want to call this one a bit speculative but it's based
on IBM's relative weakness compared to the DJIA and other major
market averages.  Our personal bias on Big Blue is bullish.  They
are one of the few tech companies growing revenues and offering
investors quality earnings.  Their services division is doing
great and their chips business is really picking up.  The SCO-
Linux lawsuit may be unraveling so there really is nothing but
positive news for IBM.  So why then did the DJIA produce a new
relative high when IBM did not.  Even worse, this stock isn't
participating in the rally happening in its own sector, the GHA
hardware group, which just hit a new relative high today.  This
tech stock couldn't even break the $89 level much less try and
tackle its mega-resistance at $90 again.  We do think IBM will be
a stock to watch and play for the bulls but the next leg may be
down and we want to catch some of the move.  Shares of IBM have
support at $85.00 and again at $80.00.  We're going to consider a
short here at $87.36 while more conservative traders may want to
wait for a close under $85.00.

Suggested Options:
Typically, stocks tend to move down faster than they move up so
we're going to focus on the short-term June and July options.

BUY PUT JUN 90 IBM-RR OI= 9314 at $3.70 SL=1.75
BUY PUT JUN 85 IBM-RQ OI=30928 at $1.25 SL=0.00
BUY PUT JUL 85 IBM-SQ OI=31262 at $2.55 SL=1.25
BUY PUT JUL 80 IBM-SP OI=23737 at $1.30 SL=0.60


Annotated Chart for IBM:
Chart link:




Picked on May 29th at $87.36
Change since picked:   +0.00
Earnings Date       04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:



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

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

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


**************************************************************
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The Option Investor Newsletter                 Thursday 05-29-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

In Section Three:

Play of the Day: PUT - IBM
Traders Corner: Expensive Lessons – No Pain, No Gain, No Kidding!


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

Intl Business Machine - IBM - cls: 87.36 chg: -0.21 stop: 90.25

Company Description:
Big Blue is being heralded as the world's largest technology
company.  Considering their massive hardware and software
business across the globe it's not surprising.  However, IBM's
services and consulting business is growing by leaps and bounds
and is a major source of revenues.

Why We Like It:
You might want to call this one a bit speculative but it's based
on IBM's relative weakness compared to the DJIA and other major
market averages.  Our personal bias on Big Blue is bullish.  They
are one of the few tech companies growing revenues and offering
investors quality earnings.  Their services division is doing
great and their chips business is really picking up.  The SCO-
Linux lawsuit may be unraveling so there really is nothing but
positive news for IBM.  So why then did the DJIA produce a new
relative high when IBM did not.  Even worse, this stock isn't
participating in the rally happening in its own sector, the GHA
hardware group, which just hit a new relative high today.  This
tech stock couldn't even break the $89 level much less try and
tackle its mega-resistance at $90 again.  We do think IBM will be
a stock to watch and play for the bulls but the next leg may be
down and we want to catch some of the move.  Shares of IBM have
support at $85.00 and again at $80.00.  We're going to consider a
short here at $87.36 while more conservative traders may want to
wait for a close under $85.00.

Suggested Options:
Typically, stocks tend to move down faster than they move up so
we're going to focus on the short-term June and July options.

BUY PUT JUN 90 IBM-RR OI= 9314 at $3.70 SL=1.75
BUY PUT JUN 85 IBM-RQ OI=30928 at $1.25 SL=0.00
BUY PUT JUL 85 IBM-SQ OI=31262 at $2.55 SL=1.25
BUY PUT JUL 80 IBM-SP OI=23737 at $1.30 SL=0.60


Annotated Chart for IBM:
Chart link:




Picked on May 29th at $87.36
Change since picked:   +0.00
Earnings Date       04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:



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

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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

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


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

Expensive Lessons – No Pain, No Gain, No Kidding!

By Mike Parnos, Investing With Attitude

In Mafia days, they had a saying – "If you don't kill a guy when
he's out of line, how else is he gonna' learn?"  Well, apparently
there are still some "made men" wandering around disguised as
marketmakers.  Their mission?  Make traders p-a-y!!

There are contracts out there – not "option" contracts.  The
"hitman" kind of contracts.  It's open season.  The target?  YOU.
They want to kill your brokerage account.  When you make less than
wise choices, you become vulnerable.  As the police sergeant said
every morning in "Hillstreet Blues" – "Be careful out there."  The
money you save may be your own.
_____________________________________________________________

Greetings Mike,
My question is: Am I likely to be assigned if I'm holding June
$110 and $115 sold calls in this stage of the option cycle?  I
entered an iron condor on BBH BEFORE the gap up on Monday
following May option expiration.

Subsequently I sold more $115 calls and bought $120 calls.  There
are still $1-$1.50 of time premium left and I'd like to keep them
as long as possible, especially since there appears to be a
pending sell off following Biotech conference.  Thanks. I enjoy
your column immensely.

Response:
I'm glad you enjoy my columns immensely, but you may not like this
answer.  Did you place your order for the initial position on the
Friday before the gap up?  Most likely, it was Monday before the
open.  One of the most important rules is to NEVER NEVER NEVER
(did I say NEVER?) put in an order before the market opens.

Weird stuff happens (often) at the open and during the first hour
of trading.  That's why it's called amateur hour.  You want to be
watching – not clicking. I know that we teach "hands off" trading
strategies, but you GOTTA' BE THERE when you're putting on the
order.  No exceptions!

Now, let's get to it.  You put on the $110/$115 bear-call spread.
Then, when things went bad, you put on another $115/$120 bear-call
spread.  Right?  Let's assume you used the same number of
contracts for both spreads.  Look at your brokerage account.  If
you used the same number of contracts, when you sold the $115
calls in your second bear-call spread, you may have actually sold
the long $115 calls from the first $110/$115 spread.  That would
mean you now have a $110/$120 bear-call spread.

As I'm writing (Thursday's close), BBH is trading at $117.20.  If
you were to close your position (if it's as I described above),
you could buy back the $110 calls for $8.70 and sell the $120
calls for $2.20 for a debit of $6.50.  From that, you can subtract
the credits you've taken in from the initial spread (and the bull
put spread if you put on an iron condor) and the second spread
(you didn't provide that info).

Should you decide to hold the position, waiting for BBH to come
back down, your additional exposure (in a worst case scenario)
would be another $3.50.  Close it out or hold on?  That's a
decision you'll have to make.  The biotech sector seems to be
overbought and it seems to have moved up very fast, but who
knows?  Holding on would constitute a directional bet.  It would
also involve three weeks of sleepless nights -- and, unless you're
lying next to someone who can take your mind off of BBH . . .

Sorry you're in this position, but this is one of those expensive
lessons you hear about.  These are the lessons we need to learn.

At this juncture, with $1.20 of time value left in the option, the
chance of the option being exercised is practically nil.
______________________________________________________________

Mike,
I see COF is trading at $48.07 that is, as you know, above your
sold call ($47.50). What type of adjustment will you do if the
stock price continues to rise?

FYI ... I'm short the June $45 and long the $47.50 call. Looks
like I'm going to have to buy back my short or risk assignment!
As always, many thanks for sharing your wisdom....

Response,
My wisdom can be questionable at times (just ask my ex-wife #2),
but since you asked . . . I don't think you're at risk of having
the stock assigned to you until almost all of the time value is
gone from the option – and that should happen (if it happens) the
last week of expiration.

The odds are against COF coming back down below $45.  Holding on,
at this point, would constitute a directional bet (down).  We try
to keep the odds in our favor and they are no longer in your favor
in this position.

If you want to hang on, you're only risking another $.60. . . and
stranger things have happened.  If you closed the position now,
you'd realize a loss of $1.20.  The most you're risking is $1.80
($2.50 - .70).

It looks like taking of a loss here may be the prudent thing to do
and put your money to work somewhere else.  That "hopium" can
become addictive – and expensive.

By the way, it seems you put on the bear call spread with the
short option pretty close to where the stock was trading.  Be
careful.  Even though our strategies are relatively conservative,
you can get into trouble if you don't give the stock some room to
move.
_________________________________________________________________

CPTI JUNE POSITION UPDATE
June Position #1 – SPX Iron Condor – Currently at 949.64.
We sold 5 contracts of SPX June 995 calls and 5 contracts of SPX
June 895 puts.  For protection we bought 5 contracts of SPX June
1010 calls and 5 contracts of SPX June 880 puts.  Total net credit
of $2.90.

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

June Position #2 - BBH Iron Condor – Aborted.


June Position #3 – TOL – Bear Call Spread Plus – Currently at
$28.32
Sell 10 contracts of June TOL $25 calls @ $1.40
Buy 20 contracts of June TOL $30 calls @ $.15
Net credit of $1.10
We're slightly bearish on the housing market and believe TOL will
finish below $25.  But, just in case we're wrong, we're buying 10
additional contracts of the $30 calls to protect ourselves.  You
might even be able to get the $30 calls for $.10 instead of $.15
on Monday.  Maximum potential profit is $1,100.


June Position #4 – COF Iron Condor – Currently at $47.38
Sell 10 contracts of June COF $47.50 calls @ $1.55
Buy 10 contracts of June COF $50 calls @ $.95
Net credit of $.60
Sell 10 contracts of June COF $40 puts @ $1.05
Buy 10 contracts of June COF $37.50 puts @ $.65
Net credit of $.40
Total credit of $1.00.

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


June Position #5 – QQQ ITM Baby Strangle – Currently at $29.31
Buy 10 contracts of the July QQQ $30 puts @ $2.05
Buy 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.

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

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


Unofficial CPTI Replacement PositionQQQ Strangle
We bought 10 contracts of the QQQ June $31 calls @ $.10 and 10
contracts of the QQQ June $25 calls @ $.10.  Total debit is only
$200.

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

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


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


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

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


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

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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