Option Investor

Daily Newsletter, Sunday, 06/01/2003

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The Option Investor Newsletter                   Sunday 06-01-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Bears In Trouble
Futures Market: The Air Up There
Index Trader Wrap: ZIG INSTEAD OF ZAG
Editor's Plays: Homework Assignment
Market Sentiment: The End At Hand
Ask the Analyst: Market, sector, stock, and a March 16 review
Coming Events: Earnings, Splits, Economic Events

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 5-30         WE 5-23         WE 5-16         WE 5-09
DOW     8850.26 +248.88 8601.38 - 77.59 8678.97 + 74.37 + 18.92
Nasdaq  1595.91 + 85.82 1510.09 - 28.44 1538.53 + 18.38 + 17.27
S&P-100  483.20 + 13.45  469.75 -  5.97  475.72 +  3.47 +   .38
S&P-500  963.59 + 30.37  933.22 - 11.08  944.30 + 10.89 +  3.33
W5000   9218.89 +302.66 8916.23 - 73.62 8989.85 +106.51 + 49.28
RUT      441.00 + 22.60  418.40 +  3.73  414.67 +  1.14 +  5.86
TRAN    2486.35 +102.99 2383.36 - 35.95 2419.31 - 42.87 +  1.38
VIX       21.70 +   .32   21.38 +  0.37   21.01 -  1.03 -  1.57
VXN       31.66 +  1.93   29.73 -  1.29   31.02 -  1.07 -  0.27
TRIN       0.92            1.09            0.93            0.83
Put/Call   0.67            0.74            0.52            0.82

Bears In Trouble
by Jim Brown

Good news is breaking out all over. That may not be entirely true
but if you were a bear on Friday you probably felt that was the
case. Even the bad news was minimal and the spin-doctors were
doing a great job turning it bullish. What is a bear to do now?

Dow Chart - Daily

Nasdaq Chart - Daily

S&P Chart - Daily

After a banner week the hopes for a bearish summer may have dimmed
but they are a long way from extinguished. Bulls cheered the news
on the economic front and analysts were jumping at the chance to
predict good things for the second half of the year. While the bad
news bulls have been successful in powering the market to new highs
for the year will an over abundance of good news prove to be a
lethal overdose of an otherwise good thing?

Friday did not get off to an early start after the Personal Income
report showed a marked decrease in the recent upward trend. The
April report showed that income was flat compared to the consensus
for a small increase. This was the first time in eight months
that income did not increase. The report showed that they were
not spending what they were not making with spending dropping
-0.1% and down significantly from the +0.8% in March. The key
was the impact of the weak labor market and drop in hours worked.
With employment continuing to fall the odds are good this number
will continue to shrink. One offset to the drop in spending was
the drop in energy prices. We can all agree to spend less if
gasoline continues to fall and I doubt the economy will suffer.
The 25 million checks now being prepared as a result of this
weeks tax cut plan will help boost the spending over the next
several months.

Despite the drop in income and spending the Michigan Sentiment
held firm at 92.1 for May and only dropped -1.1 points from the
initial reading two weeks ago. This was up significantly from
April's 86.0 reading and did not show any deterioration from
the lingering affects of the war. There was a +12.1 point increase
in the expectations component which overcame a drop in the current
conditions to 93.2 from 96.4. It shows the belief in the second
half is still alive and well despite concerns about current
unemployment. The confidence numbers could be fragile in the
June report as there has been a growing concern over the last
week that employment is worsening. With three separate negative
employment reports last Thursday there is a strong possibility
the nonfarm payrolls next Friday will also be negative. Part of
the sentiment increase was the expectation of the tax cut. That
is now priced into the market.

The biggest positive for the day and possibly for the month was
the jump in the PMI number to 52.2 in May from 47.6 in April.
This was a huge spike and well over consensus at 49.0. There was
a strong bounce in production to 60.5 from 51.0 and new orders to
54.6 from 44.6 in April. These are huge gains and they offset a
small decrease in order backlog of -1.4 points. The production
and new orders components are at their highest levels since
February. This jump in the Midwest economy bodes well for the
national ISM report due out on Monday. The ISM is the key
economic report next week and the good news from the PMI helped
to close the markets at the highs for the year. Expectations
for continued good news are running very high.

Not all the Friday reports contained good news. While the PMI
showed bullish conditions rising in the Midwest the New York
NAPM report showed continued declines in the northeast. The
NAPM fell to 229.6 in May from 234.5 in April and marked the
fourth consecutive monthly decline. The six-month expectations
component rose from 56.3 to 61.1 but current sentiment is
negative. One of the problems in the northeast is the rapid
rise of local taxes as state and local governments try to offset
the impact of the economic decline. Unemployment in New York is
still falling but the rate of decline is slowing. The NY-NAPM
was seen as problematic to New York and the excesses of the
area along with lingering impact from 9/11.

The Nasdaq closed at 1595.91 and the highest close since May-31st
of 2002. Coincidence? This is a remarkable feat especially when
you realize it has been done on the back of the chip stocks and
the chip sector is not especially healthy. The semiconductor
billings for April were flat compared to March at $12.14 billion
and below expectations. Chip sales rose in Japan and Asia but
fell in Europe and the Americas. According to an industry
spokesperson the estimate miss was due to a slowdown in demand
for the final products including cell phones and computers. The
forecast for chip sales for the rest of 2003 is still declining
despite BEA data showing a +2.6% increase in IT spending in the
forecast. SIA reported that inventories are trending downward as
capacity increases for new technology which will ultimately lead
to more profits when the recovery does appear.

In the midst of the wildly positive PMI and the mildly negative
Income/Spending and the ignored NY-NAPM the markets roared off
to new highs for the year. This rally is being fed by a new
influx of retail cash according to US Bancorp Pipper Jaffray.
They claim +$2.8 billion in new cash flowed into the markets
over the last week as well as $16.8 billion coming out of money
market funds. That cash powered the Dow to a +250 point gain
and the Nasdaq to +85. Even more impressive to market technicians
was the +22 point gain on the Russell-2000. The percentage of
RUT/COMPX gains was the same at +5.5% but the Russell gain is
actually more important. The small caps lead out of bear markets
and they have definitely been leading. The Russell has posted a
+98 point gain since March and 22% of that gain came this week.
Clearly not only are funds spending some of their hoarded cash
but retail investors are also stepping up to the table to place
their bets.

Volume has been soaring with the Nasdaq posting the highest
volume day of the year on Thursday. 4.75 billion shares traded
hands across all markets on Thursday and 4.5 billion on Friday.
Up volume beat down by about 3:1 on Friday with a 12 month
record of 831 new 52-week highs compared to only 21 new lows.
The bullish factors are almost off the scale not only in the
overbought indicators but in investor sentiment. The summation
index below is literally off the chart and showing full bearish

NYSE Summation Index Chart - Daily

While this is causing the bears to toss in their sleep it is
giving the bulls cause to celebrate. The overbought conditions
are simply one more big brick in the current wall of worry the
bulls are scaling. Deflation fears seem to have evaporated and
the risk of recession is now only 9.7%, down from 35.1% in Oct
according to the Economy.com report released on Friday. Those
concerns are simply disappearing if you believe the PMI and the
May rally. SARS, terrorism and the jobless recovery appear to
be no match to the markets desire to shake off three years of
a bear market and forge ahead. The Dow has been positive for
three consecutive months, the Nasdaq four and that has not
happened since 1999. Does all this bullishness worry anybody?

The markets are priced to perfection and are currently assuming
a blockbuster second half with 4%-5% growth rates. The only
hurdles ahead are the ISM report on Monday and the Jobs report
on Friday. If you believe the analysts those will be positive
or at lease show significant improvements. Needless to say all
these expectations are priced into the current rally. You will
notice from the chart below, which compares the S&P with historic
PE values we are actually beginning to increase the gap not close

S&P-PE Chart

The markets have priced in a roaring recovery and the Dows +250
point gain this week has accelerated that pricing. The bulls are
obviously looking for more positive data and they will get that
chance next week. Monday has the ISM and Construction Spending.
Tuesday BTM, Wednesday Productivity, ISM Services, Thursday Jobless
Claims and Factory Orders. Friday we get the Nonfarm payrolls and
Consumer Credit. Easily the two most critical are the ISM and the
Payroll report. If the ISM follows the PMI then the bulls have a
good chance of breaking the current market top. That will give
them a week to worry about profit taking before a negative jobs
report. Once past that hurdle the economics will take a back
seat to the coming earnings warning season which starts the
second week in June. With "only" 54% of the S&P companies already
warned for the 2Q that leaves plenty more to confess. The bullish
view has many of those that already warned coming back with a
positive upgrade due to less war impact than previously thought.

The market has some technical hurdles to overcome as well. On the
earlier S&P chart you can see that it closed at a very bullish 965
and exactly at the intraday high from last August. This is a very
critical level but that level could be easily broken on short
covering if the ISM produces a positive surprise at 10:AM on
Monday. The Dow is facing the same problem at 8850. This is strong
resistance from January and it failed to hold over 8850 three times
last week but closed magically right at 8850.26 on Friday. So close
to real confirmation and again that confirmation could come at
Monday's open. The Nasdaq is the most extremely overbought with
a bullish percent at 84% but it is also the most likely to continue
the run. It is currently just below 1600 but once over that
psychological hurdle the next real resistance is a long way off
at 1750-1800. If you note the Nasdaq chart above you will see it
broke through the uptrend resistance in place since February.
With the BP at 84% and very extended I would be very surprised
if we did not see a pullback to the support line soon. It has
gone +100 points in only five days and that equals the rebound
gains on the March spike. It pulled back then as well. A slight
bout of profit taking next week could then set the stage for a
continued run. Overall the bulls are giddy with excitement as
they charge over the bears.

Considering there is a major bullish factor still to come into play
they may have reason to be excited. Despite the major market gains
this week the bonds closed almost exactly where they closed last
week. Yields are still near 45-year lows and there were only a couple
of minor selling spurts during the week. The asset allocation event
has yet to occur. Buckle your seatbelts. There was a news story on
Thursday that the State of Illinois was waiting for the ISM on
Monday to shift $4-$6 billion from bonds to stocks. Several other
states were also mentioned as potential targets for asset allocation
next week as well. The ISM was 45.4 in April and fell for the fourth
consecutive month. The estimate for Monday is 47.2. If the ISM is
positive or simply beats the 47.2 consensus estimate I think we
could see that allocation event begin. If the economy is apparently
back on track and recovering then the odds of a Fed rate cut on
June-25th become much slimmer. The risk of being in bonds instead
of stocks becomes increasingly higher.

I suggested last Sunday that we follow the internals not the indexes.
They were strongly positive and indicating that every dip was being
bought in volume. This week accelerated that trend. The internals
and the volume were much stronger despite several attempts to sell
off. The nearly -200 point drop from the intraday highs on Thursday
was bought strongly and we closed right back at the highs for the
week. The constant stream of bearish emails has dwindled and even
some diehards are starting to go long. This alone should be a sign
we are near a top. My outlook for the week is very mixed and mostly
dependent on Monday's ISM report. If it is bullish then we should
breakout. If bearish it may be hard for the bulls to maintain the
momentum at these extremely overbought levels without the support
of cash coming out of the bond market. The bottom line is trade the
trend and buy the dips until the trend changes. The first two days
of June are historically bullish but the ISM will control that next
week. After June 3rd the odds get worse on a historical basis as
June is not known for gains. Could be just one more brick in that
wall of worry and after the non typical May it is clear the bulls
are not watching the calendar.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


The Air Up There
Jonathan Levinson

Equities peeked up over those huge long term resistance lines,
looked around, and held on during Friday's session.  The
anticipated breakaway didn't come, but neither did the failure
and waterfall-style sellathon for which bears have been waiting
and which bulls have been fearing.  The two sides stared each
other down, with all committed participants heading uncertain
into the weekend.  ES failed at 965 and NQ at 1200, but managed
to close right at those levels.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8967   8909   8810   8751   8652
COMPX     1610   1603   1593   1586   1575
ES03M      976    970    960    955    945
YM03M     8965   8917   8819   8771   8673
NQ03M     1216   1208   1194   1185   1171

It was somehow another flagpole rally day right out of the
opening gate.  Volume was above 2 billion shares on the NYSE and
COMPX, once again indicating either a spectacular distribution
top or a consolidation base being printed.  We'll only know for
certain once either the bulls or bears blink, but bears were too
busy covering and shaking their heads in disbelief to give a good
indication of their intentions for next week.  The low put to
call readings indicated the same bullish consensus that gave us a
+157 gain on the YM.

15 minute chart of the US Dollar Index

In an awesome display of resilience, the US Dollar Index printed
a double bottom on this latest low and bounced from the 92.50
level to 93.35 as of this writing, slowing at the top in what
looks like the bull flag or wedge of a bullish cup and handle
formation.  Many have been anticipating a bounce in the oversold
US Dollar Index, and this could be the setup for it.

The fed drained a token 500M today, announcing a 3.5B weekend
repo.  Bonds sold off through the session, but only lightly,
closing near their highs of the day, with the FVX up just 1.2 bps
for the day. June gold dropped 8.10 today, closing at 361.50.

Daily chart of June gold

The June gold contract had been toppy and is leading the
oscillators toward classic sell signals, with the slower MacD
lagging the move.  Another down day will bring that indicator to
confirm the break.  I've applied the horizontal support levels to

Below are the long term charts of the NDX and SPX cash indices.

5 year chart of the NDX cash (log scale)

The NDX broke 1200 and closed above 1195, a clear break above the
long term resistance line, but not far enough to rule out a
throwback move back below the line.  The SPX also broke its
resistance line.  A bullish Monday would see these lines cleared
entirely or successfully retested.

5 year SPX cash (log scale)

On to the futures:

Daily NQ3M candles

The NQ contract put in a higher high and higher low, closing near
its high of the day on a 20 point gain to close at 1199.  The
pattern is again a bear wedge, building above the horizontal
resistance breakout point that formed our previous bullish rising
triangle.  The long term formation is bearish, but the week's
action within it looks entirely bullish to me.  The MacD issued a
buy signal after a very short downphase, well above the zero
line, in a clear upwardly trending move.  Similarly, the
stochastic is turning back up, barely making it to the midpoint
on its downphase.  It's not perfect, but if bulls are looking for
a setup to challenge the bearish ascending wedge into a bullish
failure of that pattern, this could well be it.  Next week will
tell the tale, but a break above that rising trendline will
convert a lot of bears to the other side.

30 minute 20 day chart of the NQ3M

This week's action is clearer on the 30 minute candles, with the
breakout over horizontal resistance and the pattern of higher
lows and higher highs.  Being at the top of the daily rising
wedge, its no wonder that the stochastic is trying to roll over.
Also, note that the stochastic is rolling from a lower high.
This is a shorter cycle oscillator and more fickle than the
longer cycle stochastic on the daily candles above, but it's
worth noting.

Daily ES3M candles

The ES contract added 15.25 to close at 964.50, just off its high
of the day as well.  The setup is the same as for the NQ, with
the oscillators trending bullishly on the daily candles.  950
will provide support on any pullback, and a bounce from that
level could provide the fuel for decisive break of the upper
ascending trendline, always assuming that the indices don't
simply gap up at the open on Monday.

20 day 30 minute chart of the ES3M

960 ES provided support on the afternoon pullbacks today, and
it's clear on the 30 minute chart.  Note that the oscillators are
again toppy, but within the context of the trending longer
cycles, these shouldn't provide much impediment if the overall
sentiment remains as bullish as it was all week.

Daily YM3M candles

YM closed up 146 points today, an entirely bullish close to a
good week.  The trend remains up.  As with its peers, the YM
chart is telling us a significant break lower could be expected.
The bearish ascending wedge tends to break to the downside nearly
75% of the time according to Bulkowski's Encyclopedia of Chart
Patterns, by now conventional wisdom.  If there was ever a setup
to fit into the 25% scenario, this is it.  The trending
oscillators show relentless buying pressure and plenty of
downside support to be tested.

20 day 30 minute chart of the YM

Bearish excuses abound.  This was the last day of the month, a
classic setup for mutual fund window dressing.  A classic stop
run above well-telegraphed, obvious resistance.  A mountain of
stranded longs overhead, waiting for a chance to unload.
Historical divergence of the VIX from its 200 dma.  Alltime low
readings on the QQV and VXN.  New-highs vs. new-lows at
historical extremes.  On and on it goes.  And on and on goes the
buying.  If this is the long-awaiting assertion of a secular
bullish trend, we'd expect to see sentiment readings off the
charts.  Who cares about the uncertain global and domestic
geopolitical and economic situations, the historically overvalued
equity prices, the looming credit bubble, the exhaustion of the
US consumer, the jobless, profitless recovery, famine,
pestilence, war, et cetera ad nauseum?  The charts were
incredibly bullish this week, and as always, price remains the
final arbiter.  Whether the bearish ascending wedges put a stop
to what bears consider "the madness" will almost certainly be
seen next week.


By Leigh Stevens

The market appeared poised to correct further coming into last
week, but zigged instead of zagged. I've had a bullish bias for
some time, but thought we would also see some further downside to
complete a "normal" (down-up-down) correction - WRONG! The market
loves to lay waste to our expectations when these shifts happen.
Biggest shift currently? - I have to go back to a premise about
CONTEXT here. In the context of very low interest rates, even
sluggish economic growth (jobless recovery, etc.) makes for an
attractive equities alternative, especially in the depressed tech
area. Therefore, professional money managers keep throwing money
at select stocks anticipated to have some earnings growth. We
index option players "time" the market, or try to, but not so
with portfolio managers.

The main indices are now "confirming" emerging bull market trends
as follows: the S&P 500 (SPX) with its weekly close above 960,
the area of the August and December intraday highs - there was
one new prior high weekly close, but it was followed by a
correction week before last. I often talk about a DECISIVE upside
penetration and we got that in the S&P and especially in the
(Nasdaq) Composite - the COMPX cleared its December peak in the
1520 area handily.

The Russell 200 (RUT) has been leading the market for some two
weeks now, showing us where money has been flowing.  Only the Dow
is a bit behind here, as it needs to clear 9000. With Microsoft
(MSFT) and some other key Industrial stocks lagging (even though
28 of 30 were up on Friday), this may take a while longer - but
at some point I anticipate we'll see a weekly Dow 30 close over
9000. (Even the long-struggling DJ Transportation average is back
to just under its long-term down trendline, as travel picks up.)

It could happen that the current rally falls apart and that this
is bull trap, but institutional money is following momentum here,
a tendency that is forced on them by report card time at the end
of each (performance) quarter and the next one is END of June.

There was a bunch of news events last week - the telling thing is
the shift in bullish sentiment on only so-so economic news, where
the market rallies anyway.

We began the week with May consumer confidence at 83.8 compared
to April's 81.0 reading slightly below the forecasted 84.0. But
the consumer base was gaining a more positive future outlook, as
the "expectations" index jumped to 94.4 from 84.8. Sales of
existing homes increased by 6%, the 5th strongest month in
history. And, new home sales ran up to $1.028 billion, relative
to March's $1.011.  Lower mortgage rates continued to pull in new
home-buyers accounting for a big area of the economy.

Thursday saw Commerce report economic growth at an upwardly
revised 1.9% Q1 rate (from 1.6%). Q1 GDP growth largely stemmed
from stronger consumer spending and higher levels of exports - of
course imports rose too and business investment was weak but the
market is just more hopeful.

FRIDAY - Commerce said personal incomes in April were unchanged,
as expected. Personal consumption dropped to -0.1% in April which
was equal to January's figure, but the biggest decline in
spending since the fall. However, some bullish positives were
taken from the numbers: adjusted for inflation, spending rose
0.1% after increasing 0.4% in March so the two months together
amount to a half percent - if this growth repeated for a year,
it's a 3% growth in spending. Hey, the market is tired of being

The inflation adjusted figures were the key bullish
interpretation - as prices for consumer products at the consumer
level have fallen, you would expect total consumer spending to
also fall, but when adjusted for inflation or lower prices,
spending rose a bit.

Despite the overall decline in personal spending, spending on
durable goods, items meant to last three years or more, rose 1.2%
in April, after a 2.9% rise in March.

The Price Index for April was up 1.3% from a year earlier on a
core basis, which excludes volatile food and energy prices.
This so-called "core deflator" is one of Alan Greenspan's closely
watched indicators.  It's been pointed out as the lowest year-
over-year gain in over 35 years. And while it does show that the
inflation rate is declining, it may not yet mean that we've
reached the deflation stage.

Fed chairman Greenspan has raised concerns in the market about
the possibility that the U.S. could face entrenched deflation,
which would be a widespread and prolonged decline in prices.
These concerns are why there is talk of an interest-rate
reduction in June. This prospect is fueling the rise in the
market also.

A report on the Chicago Purchasing Managers Index (PMI) showed
industrial expansion with a 52.2 reading, above the forecast of
49.0.  The key is to be above 50.0 - above that figure some
manufacturing expansion is happening.

For the week, the S&P 500 (SPX) was up 3.3%, the Dow Industrials
(INDU) by 2.9% and the Nasdaq Composite (COMPX) gained close to
6% - well, 5.7%.

For the month of May, SPX gained 5.1%, INDU tacked on 4.4% and
COMPX jumped a whooping 8.9%.

The 10-year T-Note fell 7/32, to yield 3.361%. The 30-year bond
was down 18/32, yielding 4.372%.

The dollar rebounded a bit - trading at 119.41 yen, up from
118.27 to the buck.  The Euro fell to $1.1767 from $1.1884.


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

My sentiment indicator has now had a couple of daily peak
readings above 2.2 (see lower left, below) in the past couple of
weeks, which is the approximate line where option traders are
getting overly bullish, as I measure it.  However, in a rising
trend that has some decent fundamentals driving the market up,
these extremes are not "automatic" sell signals - but such
extremes do highlight potential for good-sized reversal within 1-
5 days. Especially when there are other patterns and indicators
that support the same trading idea - example: the hourly "line"
of repeated tops showing resistance and selling interest prior to
the sharp reversal of week before last.

When the 5-day average of call to put volume also gets up toward
the line, this is a "confirming" event as to potential to reverse
- for example, in May.  This may not be a reversal of the
dominant trend of course, but it can be substantial move such in
the 10-15 point range.

Besides the sentiment getting a bit overdone, there is technical
chart resistance coming in around 485-487 based on trendlines and
prior daily price peaks.  Moreover, the oscillator type
indicators are not "confirming" the move to new highs.  The
question then becomes is this enough to keep on the put side or
buy puts into resistance?  The answer should come by whether OEX
can pierce those prior highs.

If yes, I get an objective to 492-495.  If it goes to 495,
there's a good chance that OEX will test 500. Anything around 500
would cause me to exit calls and look at buying puts as this is a
number where selling should come in.

If there's a pullback and minor reversal FIRST, look for support
in the 475-479 area; then, at 470. This might then be a place to
turn to the call side, but this is getting too far ahead.  On
balance, I look for a maximum 470-500 range in the week ahead.

Dow Industrials (INDU) Daily & Hourly (DJX.X) charts:

I haven't looked at the Dow index in a while and it often turns
up a somewhat different pattern or picture than the broader

There's a mixed picture technically, just like there is
fundamentally - huh, daaah! I get bearish when I see the failure
of the oscillators to confirm the new highs (in price).

Not an automatic sell either but it's a darn good signal usually.
I anticipate resistance coming in at 89 in DJX - if the Dow
breaks out above 8900, then there's a shot at 9000. If so, I
would exit any calls held in this area and will look to reversing
to puts.

Near support looks to be 86.5 - if exceeded, then next
anticipated support is 85.5 area.

I like trading the DJX at times as the Dow Industrials often
trades very "technically" - meaning it gets in these well-defined
price channels and trends well.  My maximum expected range on the
Dow is 8400-8450 on the downside, 9000 on the upside. Eventually,
maybe this month we could see a move to near 10,000.

Nasdaq Composite Index (COMPX) – Daily & Hourly:

1620 looks like key resistance on the Nasdaq Composite.  1550 is
key support - to maintain a bullish chart, COMPX needs to say
above this level. However, the dominant up trend is not violated
or broken unless there's a retreat to below 1520, especially on a
weekly closing basis.

Last weeks move through resistance at 1520-1530 is what suggested
the further upside. This area is where I would have renewed
buying interest in the option-able NASDAQ index options should
COMPX come back down to it.

The Semiconductor (SOX) index is the other key Nasdaq index to
watch - if it starts LAGGING the Composite, be alert for a
(downside) correction.

QQQ charts - Daily & Hourly:

My idea to short QQQ in the 28.5-28.75 area was shown to be wrong
when the "line" of resistance at just below 29 was pierced, as
can be seen on the hourly (close-only) chart below (right). A
good stop for a short QQQ position was just over 29.00; e.g., at
29.15. I like to short in resistance areas, rather than on the
way down, as with that strategy tight stops can be used to better
control risk.  Live to trade another day!

Key resistance now looks to be around 30.3-30.5 a the top of the
hourly trend channel.  Key near support is at 29.00.  Next lower
support is around 28.25 on a near-term basis.  More major
technical support is down in the 26.30-26.50 area, judging by the
daily up trendline.

A likely range this week could be 28.5 - 30.5 and I would trade
that range when selling and buying interest brings in repeated
highs or lows in those areas, accompanied by what momentum looks
like on the hourly and daily stochastics.

Right now, both hourly and daily stochastic models are saying
yellow, caution as they're again nearing overbought readings - in
synch with the current alerts from homeland security.  I don't
think they are correlated however!

Good Trading Success!

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Editor's Plays

Homework Assignment

On March 2nd when the market was in the tank I took a little
over $10,000 and bought a modified Powerball portfolio in an
account for my four children. It was not only a high risk
investment but an exercise in long term investing as opposed
to constant trading in this column. Here is the original article:


That play list looked like this when initiated.

Personal Powerball List - March 2nd.

As of Friday's close the portfolio looked like this.

Personal Powerball List - May-30th.

The symbols have changed as the leaps became regular calls.

The only addition was 10 contracts of the CHTR Jan-$2.50 leaps
at 25 cents to use up some odd change left in the account. The
"C" column is the cost of each contract. I bought 10 contracts
of each strike listed except SUNW which is 20 contracts.

I sold the XMSR leaps on the spike to $12 back on May 7th for
$4.40 each, well more than the 55-cent cost. Too much profit
to risk at the time.

The portfolio has more than doubled with the potential for a
real home run if the second half recovery does appear. My
dilemma is what to do now.

Will we have a July slump? Will a positive ISM on Monday produce
a spike that will power us to Dow 9000 and then prompt a sell
off to the July slump? Should I sell them all on any spike next
week or close my eyes and just hope the dip buyers continue to

What should I buy with the $4400 from the XMSR sale? Should I
buy now or wait for a potential market event. Should I buy puts
with the $4400 as insurance against a summer slump?

So many questions!

The Nasdaq is up +44% from the October lows, +27% from the March
lows. Ordinarily I would think the chances of a summer slump
are very good. However, it all depends on the ISM on Monday.
If the Dow can get over 8850 and the S&P 965 then the Nasdaq
has a good chance to make a serious run to 1750-1800 before the
July earnings slump.

My thought process is going something like this. If I buy puts
Monday morning and the market rallies to 1750-1800 then those
puts could lose a significant portion of their value. That
value is about 20% of the current portfolio. After looking at
the various index puts, DJX, OEX and QQQ I decided not to go
the put route. This was a lottery play to start with and the
concept was to hold until Jan-2004 and tough out things like
the October dips. This was not a trading play.

In reality this has already done better than I expected for
this early in the year. I am ahead of projections and therefore
I can afford to be more complacent about portfolio protection.

That leaves me with $4400 to invest on the long side. This gives
me a lot of options because I do not have to rush into anything.
Actually with everything so overbought at present I would like
to see a small dip to let me establish another 2-3 positions at
reasonable prices.

Now, here is the assignment.

I research stocks constantly and write about them in this
column. I always get emails about why I did or did not do
this or that with the stocks I pick and why did I not pick
XYZ stock instead.

Ok, here is the challenge. It is your turn to convince me.
You pick a stock, write a few paragraphs on why and how I
should play it in the portfolio.

I will profile the best ones in this article next week. I
will take the best plays and add them to the portfolio. If
I choose your stock and play description as the best I will
buy $1000 worth and give you any profits in January. If there
are multiple worthy additions I will come up with similar
arrangements for the runners up.

Here is your chance. Dust off those research skills, break out
those stock scanners and send me those write ups. You might be
able to join the lottery without spending any money. Who knows?
If you do a really good job I might find a place for you on
the payroll!

I know there are some great researchers out there. This is
your opportunity to show your stuff to everyone else. Do it
this weekend. It will be more fun than mowing grass and
much more profitable. One word to the wise. "BUY XYZ, it is
$5 and going to $100 before year end" is not a play write up.
You need to be a little more explanatory that that.

Send your suggestions to:



Play updates:

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

Remember the official play recommendation from last week was
FLAT. There was no play just screaming to be made. For those
diehards I suggested a DJX put. That would have been a quick
loser based on the Dow gains.

The other suggestion was a put on MRVL after the rocket gains
from the prior Friday. Surprise, MRVL actually trended down
all week despite the +100 points on the Nasdaq. There is no
rush but it is moving down. If you just had to make a trade
and chose that one you may end up a winner.

QCOM - Put $33.57
5/18/03 ($31.10 when recommended)

The Nasdaq bullishness was simply too strong for a Nasdaq put
despite the negative press on QCOM. Traders should have exited
when the $32 resistance level was broken on Thursday. Chalk
this one up as closed a bull market casualty.


CY - Cypress Semi Call - $11.05
3/2/03 ($6.41 when recommended)

I closed this play last week for a double with CY looking weak.
It chose this week to break out to a new high. Anyone not closing
with me should be even happier.


EMC Call from Feb-2nd  $10.81
($7.70 when recommended)

Fortunately I did not close EMC along with CY. The stock closed
at a 13 month high on Friday and has a strong chart.



Finally profitable! After enduring the Nasdaq drop to 1253 in
March the long-term outlook is finally paying off. After five
months the Powerball portfolio is profitable. Sure it is only
$20 but we have that roaring second half recovery in front of
us. (big grin) RFMD is still the major drag but TLAB and FLEX
have improved considerably.

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

Powerball Chart


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

Good Luck

Jim Brown


The End At Hand
- James Brown

If you listen to any of the financial media this weekend you
probably heard them declare the end of the bear market.  After
three very long and painful years they may be right.
Traditionally a new bull market is born when the indices have
rebounded more than 20% off its lows.  This week ended didn't
just close the month of May with banner results but set some
significant milestones as well.  The DJIA is now up 20% from its
October 2002 lows of 7286.  The S&P 500 is up 24% from its
October lows and the NASDAQ Composite is up more than 40% from
its 1114 low.

What powered these substantial gains and some strong percentage
moves last week?  It was the usual subjects of hope and tenacity.
Investors grabbed onto any glimmer they could that the economy
was indeed starting to improve.  It may not rebound as much as
previously expected but it looks like improvement nonetheless.
The jump in the PMI last week from 47.6 to 52.2 is a huge
confidence booster and allowed investors to look beyond the 1.1
point drop in the Michigan sentiment number to 92.1.  Bulls
positively grinned at the 12-point gain in the sentiment
expectations component.  Investors didn't even hiccup when the
personal spending numbers slipped 0.1 percent.

Underpinning traders' confidence was the lowered terrorist threat
level from orange to yellow.  What could be a potential turning
point were the positive inflows for equity funds of $2.6 billion
compared to outflows of $1.4 billion the week before.  Bolstering
the positive moves in the markets has been its internals.  The
volume this last week has been some of the strongest all year.
Furthermore, Friday's advance-decline ratio was 22 to 6 on the
NYSE and almost 22 to 9 on the NASDAQ.  Up volume was 3:1 over
down volume on the NYSE and nearly that strong on the NASDAQ.  We
continue to see new highs (528) completely overshadow new lows

The bulls do have reason to celebrate but I fear that in their
exuberance the bears might take another swipe at them.  So many
of the major market averages are overbought and extended that the
wrong news event or headline could easily become a reason to take
profits off the table.  Based on the underlying trend in the
markets I am bullish but even without a serious retracement the
major indices could easily see a 3 to 5 percent dip.  Such a move
in the major indices could quickly be exaggerated in many of the
overextended equities.  Of course the major influence on market
direction next week will be the Monday morning ISM report.  If
the ISM report confirms the increase we see in the PMI then bulls
could keep the bears on the run.

I'll run the risk of sounding like a broken record but the
bullish percent data is NOT suggesting this is a good time to
initiate new long positions.  The NASDAQ-100 has reached a new
2.5-year high at 84.  The last time it was this extreme was June
of 2000.  The S&P 500's bullish percent is reading a high of 74.
The SPX hasn't produced a reading this strong since early 2002.
Yes, they can keep inching higher but eventually they will
reverse.  This is not like a normal chart where the sky is the
limit.  They can only read from 0% to 100%.

We would continue to trade what you see but maintain vigilance on
your stops.  Don't force any new trades and we'd be hesitant to
take any new positions ahead of the 10:00 AM Monday morning ISM


Market Averages


52-week High:  9986
52-week Low :  7197
Current     :  8850

Moving Averages:

 10-dma: 8651
 50-dma: 8439
200-dma: 8334

S&P 500 ($SPX)

52-week High: 1070
52-week Low :  768
Current     :  964

Moving Averages:

 10-dma:  939
 50-dma:  906
200-dma:  886

Nasdaq-100 ($NDX)

52-week High: 1213
52-week Low :  795
Current     : 1198

Moving Averages:

 10-dma: 1148
 50-dma: 1099
200-dma: 1016


No change.  The volatility indices continue to churn sideways
as bulls have their way with the markets.

CBOE Market Volatility Index (VIX) = 21.70 -0.79
Nasdaq-100 Volatility Index  (VXN) = 31.66 +0.24


          Put/Call Ratio  Call Volume   Put Volume

Total          0.67        636,486       425,719
Equity Only    0.49        524,490       254,975
OEX            1.11         21,628        24,003
QQQ            4.35          8,951        38,941


Bullish Percent Data

           Current   Change   Status
NYSE          64.2    + 2     Bull Confirmed
NASDAQ-100    84.0    + 6     Bull Confirmed
Dow Indust.   70.0    + 0     Bull Confirmed
S&P 500       74.0    + 3     Bull Confirmed
S&P 100       68.0    + 2     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  1.09
10-Day Arms Index  1.25
21-Day Arms Index  1.12
55-Day Arms Index  1.14

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    2254      2185
Decliners     619       954

New Highs     308       220
New Lows       14         4

Up Volume   1515M     1641M
Down Vol.    545M      606M

Total Vol.  2095M     2262M

M = millions


Commitments Of Traders Report: 05/27/03

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

The large S&P futures contract is not showing much change
this week.  Commercials remain slightly bullish while
small traders just flipped from slightly bullish to
slightly bearish.

Commercials   Long      Short      Net     % Of OI
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%
05/27/03      435,195   423,474    11,721     1.4%

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
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%
05/27/03      147,687   149,344    (1,657)     0.6%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02

E-MINI S&P 500

We are seeing an increase in both long and short positions
for both the small trader and the commercial trader but
the overall sentiment remains unchanged.  Commercials are
net short and small traders are net long.

Commercials   Long      Short      Net     % Of OI
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%)
05/27/03      252,655   485,962   (233,307)  (31.6%)

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
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%
05/27/03      427,412    66,031   361,381    73.3%

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


The dead heat between long and shorts in the commercial
positions is narrowing.  Small traders have turned a bit
more bearish with a big increase in shorts compared to last
week's abnormally low reading.

Commercials   Long      Short      Net     % of OI
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%
05/27/03       40,999     41,491       492    0.6%

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
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%)
05/27/03       12,194    13,339   ( 1,145)  ( 4.5%)

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


DJIA futures traders still seem gripped by indecision.
The commercials inched up their short positions by more
than 1000 but remain net long.  The small trader effectively
maintains a net short position but not a very convincing one.

Commercials   Long      Short      Net     % of OI
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%
05/27/03       18,660    15,537    3,123       9.1%

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
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%)
05/27/03        8,225     9,316    (1,091)   ( 6.2%)

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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Market, sector, stock, and a March 16 review

Jeff:  It's been awhile since you've discussed some of the sector
distributions and with the major market bullish percent
indicators all at overbought levels, what sectors or stocks might
we be looking at from the short side of things?

This is a good question, and perhaps a very timely one.  I don't
save all my e-mail and I'm not sure if the above e-mail is from
the same trader/investor that stimulated a prior discussion on
the point and figure methodology back in mid-March, but I agree,
it has probably been too long since we've discussed the various
sector bullish percent, that some traders have come to know and

Wow!  Does time fly and can the markets move!  It was back on
March 16, 2003 when we last looked at the "sector bell curve"
bullish %, with the sector bullish percent from Dorsey/Wright and
Associates, and perhaps just when that column was thought to be
"timely," this week's question from a fellow trader/investor is
perhaps a great time to review, assess, and make some plans.

Is it true that a rising tide will lift all boats, when it comes
to thinking out price action and cycles for markets, sectors and

Can it be that a MARKET simply fluctuates up and down as risk is
built in and taken out of a market, sector, or stock?

Traders may want to go back and review the March 16, 2003 Ask the
Analyst column titled "Market, sector, stock, with bullish
percent distribution," as I think both of the question just posed
may well be answered with a resounding YES!

That was then... this is now

In order to keep from having to flip back and forth between the
article you're currently reading and the March 16, 2003 column,
I'm going to take the exact same sector bell curve graph I showed
that day, with certain remarks still intact, and we'll take a
little trip to current day.  As we do this, we'll follow the
sector bullish % action, and then look to see if there are some
sectors traders may be looking to trade, from the bullish and
bearish side of things.

March 16, 2003 Sector Bell Curve

I'll try and recap some of the observations made March 16, 2003
from left to right.  Let's start with the observations made as it
relates to RISK with the Wall Street Bullish % (BPWALL) and Dow
Industrials Bullish % ($BPINDU).  I'm going to associate the Wall
Street bullish % with the Securities Broker/Dealer Index (XBD.X)
which had closed at 360.53 on Friday, March 14th.  The Dow
Industrials finished their Friday trading session at 7,859.71.
Did bears have a high degree of risk at such "oversold" levels?

The Semiconductor Bullish % (BPSEMI) had evidently just reversed
back up into "bull confirmed" status.  On March 14th, the
Semiconductor Index (SOX.X) closed at 305.15 and the popular
Semiconductor HOLDRs (AMEX:SMH) closed at $23.98.  Was a "bull
confirmed" status at an "oversold" level an alert that the
NASDAQ-100 Index Bullish % ($BPNDX) might be expected to reverse
and give confirmation to the semiconductors?  Take note!  A
sector reversing up into the MOST bullish phase "bull confirmed"
from an "oversold" level below 30%!  While BULLISH traders lick
their lips for such opportunities, BEARISH traders look for "bear
phases" that develop from more "overbought" conditions after a
bull cycle move.

Now... take special note of the Internet Bullish % (BPINET) and
observations of a sector's internals "holding steady" when many
sectors were still falling or moving to the left of the bell
curve.  This was DIVERGENCE as internals held STRONG despite a
MARKET that was or had been moving lower, or to the left.  The
CBOE Internet Index (INX.X) closed at 94.60 on March, 14th.  The
Internet HOLDRS (AMEX:HHH) closed $27.79, the Internet
Infrastructure HOLDRS (AMEX:IIH) closed $2.33, while the Internet
Architecture HOLDRS (AMEX:IAH) closed at $25.75 on March 14th.
Did the DIVERGENCE pan out for bulls?

The Saving and Loan Bullish % (BPSAVI) was correcting from a bear
confirmed status at "bear correction" and while RISKY above 70%,
was showing remarkable levels of bullishness in what had been or
was a bearish market environment.  There isn't a sector that I
know of to trade, but a "popular name" in Washington Mutual
(NYSE:WM) had closed at $33.53 on March 14.  I don't know if any
of the mentioned "reasons" why the sector was holding up actually
came into play, but we'll look to see if any of the observations
above panned out.

Move forward, with a shift to the right!

To better understand what has happened and how we have gotten to
where we are, I think it is helpful to try and look at things
step by step.  Here a March 24, 2003 sector bullish % I put
together along with comments as it related to a comparison
against the above March 16th sector bell curve.  This was posted
in the OptionInvestor.com Market Monitor on March 25, 2003 at
01:18:13.  The comments were "Look for leadership groups that are
the FIRST to reverse up from oversold levels below 30%, or those
sectors turning bull confirmed.  Can see how sector bell curve
begins to shift to right."

Now, when you look at the sector bell curve, take notes as to the
change in "colors" of some sectors and major index bullish %.

BEARS!  Take note!  Not of what happened, but what you'll want to
look for as it relates to the future!

March 24 to March 14 Sector Bell Curve Comparison -

Six trading days had passed between the above sector bell curve
comparisons!  We could see a light "shift to the right" and some
removal of RED, or "bear confirmed" to either "bull alert" or
"bull confirmed."

Starting from the left, you bottom feeders may have traded some
partial positions when the Broker/Dealer Index (XBD.X) was
trading at 400.00 that day.

The Semiconductor Bullish % (BPSEMI) did indeed move above the
30% level with the SOX.X trading 325.

The NASDAQ-100 Bullish % ($BPNDX) from www.stockcharts.com was
indeed showing some "internal confirmation" as it moved to the
right in the sector bull curve and status had reversed from "bear
confirmed" to "bull alert".

The Internet Bullish % (BPINET) still appeared stuck, but the
CBOE Internet Index (INX.X) itself looked to be moving higher at

Maybe the Retail Bullish % (BPRETA) caught a bull's eye and the
Retail HOLDRS (AMEX:RTH) at $72.48.

I won't go through all the sectors, but you should be getting the
idea of a "rising tide" and then monitoring for sector
leadership, from which individual stocks, with strong relative
strength can be identified.

For a discussion on RELATIVE STRENGTH, we discussed one technique
in a December 29, 2002 Ask the Analyst column titled "Relative
strength, but with X's and O's."

Onward and upward, with a slight shift to the right!

Let's fast forward some more and look at a sector bell curve
after the conclusion of trade on March 28, 2003.  I posted the
following chart in the OptionInvestor.com Market Monitor on March
29, 2003 at 01:25:30.

March 28, 2003 Sector Bell Curve -

Comments from that day's Market Monitor post were... "The Sector
Bell Curve showed modest bullishness this week.  Restaurant
(BPREST) and Healthcare (BPHEAL) both reversed back up into "bull
confirmed" status this week, with Protection/Safety (BPPROT)
reversing up from "bear confirmed" to "bull alert."

One stock I've discussed in the restaurant sector in recent weeks
and had mentioned as "bullish on a break higher at $26.00, on
March 28th in the OptionInvestor.com 11:00 AM EST update was Yum!
Brands (NYSE:YUM).  On March 28th, the stock was trading $24.77
and a trade at $26.00 would have the stock trading a "triple-top
buy signal" and also have the stock breaking above its longer-
term 200-day SMA.

That same 11:00 Update, I made special note that I had previously
profiled a "healthcare" / "drug" related stock McKesson
(NYSE:MCK) and that it probably best for bears holding short/put,
"move to the sidelines" and close out the position as it was my
belief, based on past observation, that a rising tide in a sector
and MARKET tends to lift all boats.  MCK was trading at $25.36 in
that March 28, 2003 11:00 Update.

On April 4th, the sector's weren't fooling!

Moving forward, here's what the April 4th sector bell curves were
doing.  This chart was posted in the OptionInvestor.com Market
monitor on April 4, 2003 at 10:12:37 PM EST.

April 4, 2003 Sector Bell Curve -

Things were really starting to get "green" and a more pronounced
shift to the right was being seen from the sector bell curve.
The results of sector bullishness had the broader S&P 500 Bullish
% ($BPSPX) and VERY broad NASDAQ Composite Bullish % ($BPCOMPQ)
now turning "bull confirmed."  The narrower NASDAQ-100 Bullish %
($BPNDX) was on the move to the right in the 52%-56% bullish.

Warp speed to today!

Traders/investors should now have a pretty good grasp of what was
taking place.  Let's go warp speed and to get the full
perspective of how things have changed, let's compare how the
sector bell curve looks TODAY (May 30, 2003) and when we began
this exercise, with the March 16, 2003 bell curve.

May 30, 2003 and March 16, 2003 sector bell curve

Wow!  There's a lot of "green on the screen" and a pretty good
"shift to the right" has been seen.

With the major indexes now at either relative highs dating back
to December of 2002, it continues to amaze me how/when the MARKET
suddenly, but with notice, will systematically have the sectors
and indexes shifting left to right as it relates to RISK.  At
some point, but with notice, the higher levels of RISK will be
removed, in systematic fashion.

As it currently stands, I don't see any sectors/indexes at this
point that are exhibiting any weakness as it relates to their
internals as depicted by the bullish percent indicators.

Oh... there are some sectors/indexes that will be "ripe" for a
pullback, especially those that have moved from "oversold" to
"overbought."  It would make sense at some point that the "smart
money" that bought the lower risk levels, will eventually find
the "smart money" selling at the higher risk levels (from bullish

But just as we've seen the sectors move from left to right,
trader/investor once again see how that sector action moves the
major market bullish % like ($BPCOMPQ, $BPNYA, $BPSPX, $BPOEX,
$BPNDX) have moved right with the SECTORS driving the

At some point, the opposite will be true and it will be the BEAR
that picks up on the weakness, will look to attack that weakness

Just as a sector drives MARKET action, it will be a weak STOCK,
in a WEAK sector that best offers a BEAR and easy meal.

Still, we should understand just how a "rising tide tends to lift
all boats and currently, a BEAR that finds a weak stock, must be
aware that there are probably more and more bulls just showing up
to the party and looking for "cheap" stocks.  There's also some
BEARS that have seen enough losses mount since March, to be quick
to cover another potential loss as he/she can't afford another
hit to their account.

I ran a stock screen using Dorsey/Wright and Associates Point and
Figure charting system.

As a preliminary scan, I entered the following screen criteria,
to try and identify bearish candidates.  This stock screen was
very basic, but held the MAIN indicators I look for to begin
finding WEAKNESS.

Price between $20 and $100
Stock trades with options
Relative strength chart is sell (longer-term under performer)
Relative strength chart is O (intermediate-term under performer)
Trend is negative (stock traded below bearish resistance trend)
All Sectors
Sort by sector

(Note:  Price, Options and All Sectors no a bearish criteria).

This basic bearish search produced 100 stocks.

BPAERO (Aerospace/Defense/Airline) : (BA, DRS, GD, HON, TGI)
BPAUTO (Automotive) : (AXL, GM, TM)
BPBUIL (Building) : (MLM, TXI, YRK)
BPBUSI (Bus Pdcts) : (ADP, DNY, HEW, TXT)
BPDRUG (Drug) : (BMY)
BPEUTI (Elec. Util) : (AEP, POM)
BPFINA (Finance) : (IFIN)
BPFOOD (Food/Bev/Soap) : (CPB, MOND, RJR, TR)
BPFORE (Forest/Paper) : (BCC, KMB, PCH)
BPGUTI (Gas Util) : (GAS)
BPHOUS (Househld Gds) : (MYG, SNE)
BPLEIS (Leisure) : (EK)
BPMACH (Machinery) : (CR, DOV, HIT, PH, SPW)
BPMEDI (Media) : (SCHL)
BPOIL  (Oil/Gas) : (AHC, KMG)
BPOILS (Oil Serv) : (BHI, DO, NE, RIG)
BPPROT (Protect) : (INVN)
BPREAL (Real Est) : (AIV, RA.B)
BPREST (Restaurant) : (CEC, CPKI, JBX, KKD, LNY)
BPRETA (Retail) : (ABS, CVS, KSS, MAY)
BPSEMI (Semicon) : (DPMI)
BPSOFT (Softwre) : (INTU)
BPTRAN (Trans) : (USFC)
BPWALL (Wall St.) : (AGE, LAB)

(Disclaimer:  The following list of stocks was generated using a
general search criteria and is not meant to imply a
recommendation for or against that stock.)

Observations:  Computers, Chemical and Insurance seem to have
more stocks in the list than others right now.  Even under such
BULLISH market conditions.

Well.... It's late Friday evening and it has been a rather "long"
week for all of us.

I hope you found this article helpful, in perhaps understanding
how the sector and major market bullish % tend to move from
"oversold" to more "overbought" levels.

It never ceases to amaze me, how BULLISH a move can become and
continue to be, but how helpful the sector bullish % can be, in
actually seeing the market internals strengthen, and....
eventually weaken.  I've also been amazed at how BEARISH a move
can become and continue to be.

I will continue to monitor the sector bullish %, and try and
alert traders to any reversals in the various sectors listed

If we as traders/investors think the above display of "sector
bell curve" movement only takes place to the upside, then revisit
the March 16, 2003 Ask the Analyst article "Market, sector,
stock, with the bullish percent distribution.

Better yet!  Dorsey/Wright and Associates offers a FREE trial to
their point and figure database.  I (Jeff Bailey) nor
OptionInvestor.com or premierinvestor.net receive any fee from
any subscriptions Dorsey/Wright and Associates receives from our

Once you've signed up for your free trial, you should be able to
make some sector bell curve comparisons of your own by clicking
the "Database" tab, then in the "Database Reports" area, click
the "Sector Bell Curve" link.

You may note that Dorsey/Wright will change their horizontal
scale from time to time for their sector bell curve ranges.  When
you look at their current horizontal scale, it will be different
that what I've shown in the prior sector bell curves, as I am
limited on the width I can display on the web sites.  That's OK
though!  The point of all this is to understand how to use the
sector bell curve to identify sector/market strength and

Jeff Bailey


Market Watch for the week of June 2nd.

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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


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

BCS    Barclays Bank PLC     Tue, Jun 3  Before the Bell       N/A
BTH    Blyth Inc.            Tue, Jun 3  Before the Bell      0.37
CMVT   Comverse Technology   Tue, Jun 3  After the Bell      -0.08
PLL    Pall Corp.            Tue, Jun 3  After the Bell       0.30
RYAAY  Ryanair Holdings      Tue, Jun 3  Before the Bell      0.33

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

CWP    Cable & Wireless PLC  Wed, Jun 4  02:00 am ET           N/A
MDZ    MDS Inc.              Wed, Jun 4  Before the Bell       N/A
NMGa   Neiman Marcus Group   Wed, Jun 4  After the Bell       0.85
SFD    Smithfield Foods      Wed, Jun 4  Before the Bell      0.04
COO    The Cooper Companies  Wed, Jun 4  After the Bell       0.48

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

ABS    Albertson's           Thu, Jun 5  -----N/A-----        0.50
NSM    National Semicon      Thu, Jun 5  -----N/A-----        0.08
SIGY   Signet Group          Thu, Jun 5  Before the Bell      0.40
SZE    Suez SA               Thu, Jun 5  -----N/A-----         N/A

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


Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

CNBC    Center Bancorp            2:1      Jun   2nd   Jun   3rd
POG     Patina Oil Gas            5:4      Jun   4th   Jun   5th
FCN     FTI Consulting            3:2      Jun   4th   Jun   5th
ECL     Ecolab                    2:1      Jun   6th   Jun   9th
ATVI    Activision Inc            3:2      Jun   6th   Jun   9th
DF      Dean Foods                3:2      Jun   9th   Jun  10th
RYN     Fayonier Inc              3:2      Jun  12th   Jun  13th

Economic Reports This Week

This is a crucial week for the nascent bull market.  Will the
economic reports on Monday, Wednesday and Friday support the
hope of an improving economy?  Monday's ISM report is probably
the headline number to watch.


Monday, 06/02/02
Auto Sales (NA)         May  Forecast:    5.4M  Previous:    5.4M
Truck Sales (NA)        May  Forecast:    7.5M  Previous:    7.6M
ISM Index (DM)          May  Forecast:    48.5  Previous:    45.4
Construction Spnding(DM)Apr  Forecast:    0.2%  Previous:   -1.0%

Tuesday, 06/03/02

Wednesday, 06/04/02
Productivity-Rev. (BB)   Q1  Forecast:    2.0%  Previous:   -1.0%
ISM Index (DM)          May  Forecast:    51.0  Previous:    50.7

Thursday, 06/05/02
Initial Claims (BB)   05/31  Forecast:     N/A  Previous:    424K
Factory Orders (BB)     Apr  Forecast:   -0.9%  Previous:    2.2%

Friday, 06/06/02
Nonfarm Payrolls (BB)   May  Forecast:    -25K  Previous:    -48K
Unemployment Rate (BB)  May  Forecast:    6.1%  Previous:    6.0%
Hourly Earnings (BB)    May  Forecast:    0.2%  Previous:    0.1%
Average Workweek (BB)   May  Forecast:    34.2  Previous:    34.0
Consumer Credit(DM)     Apr  Forecast:   $3.0B  Previous:   %0.9B

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


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Contact Support
The Option Investor Newsletter                   Sunday 06-01-2003
Sunday                                                      2 of 5

In Section Two:

Watch List: More Than Enough To Watch
Daily Results
Put Play of the Day: BBY
Dropped Calls: QLGC
Dropped Puts: AIG, GM

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Watch List

More Than Enough To Watch

Wachovia Corp - WB - close: 40.18 change: +0.82

WHAT TO WATCH: With financial breaking out to the upside shares
of WB are doing their part to help.  Friday's rally pushed WB
above resistance at $40 and it looks like a great call play if
you have the patience.  Shares don't move much and it could take
a couple of months to reach $45.00.



United Health - UNH - close: 95.94 change: +0.89

WHAT TO WATCH: We mentioned UNH in the OHP call play update this
weekend.  Shares seem to be bouncing from minor support at $94
and its rising trendline of higher lows.  The close back above
$95 looks tempting.  The stock has a split coming in two weeks
and it could see a run towards the $100 mark.



Avon Products - AVP - close: 60.94 change: +2.08

WHAT TO WATCH: Maybe it's the Friday rally, maybe it's the warmer
weather (which means more AVP saleswomen out and about) but
shares of AVP have been hot this last several sessions.  The
stock has broken out of a consolidation phases and the close over
$60.00 looks tempting.



XL Capital - XL - close: 87.05 change: +3.11

WHAT TO WATCH: Shares of XL have broken out to new highs last
week.  The stock had been struggling with the $85-86 level but
Friday's strong close looks like a breakout.  The IUX insurance
index also broke out of a five-week trading range.  With XL's
MACD producing a bullish crossover a run to $90 looks like a good
bet and probably beyond.



C.H.Robinson Worldwide - CHRW - close: 37.26 change: +0.96

WHAT TO WATCH: Shares of CHRW appear to be following the
Transports.  Now that the round of profit taking is over the
rebound looks like a buying opportunity for the next leg up.



Electronic Data Systems - EDS - close: 20.15 change: +1.21

WHAT TO WATCH: Tech stocks are hot again and EDS broke out
strongly on Friday.  The 6.3% move put it above the $20 level and
its simple 200-dma.  Shares still have some resistance at $21 but
this equity may be watching.



Zions Bancorp - ZION - close: 51.05 change: +1.34

WHAT TO WATCH: Shares of ZION have been consolidating between $48
and $50 for weeks.  The breakout in the BIX over 300 helped ZION
breakout over the $50 mark.  The stock's MACD is about to produce
a bullish crossover and shares should be able to tag the $55
level if given enough time.



Hershey Foods - HSY - close: 71.10 change: +2.16

WHAT TO WATCH: We had HSY on the watch list on Wednesday and the
stock has since vaulted over resistance in the $69-70 range.  The
move came on very strong volume of 1.69 million shares and
traders might be aiming for a fill the gap type of move.  Watch
out for that PnF chart, which is showing HSY right at overhead



Whole Foods Market - WFMI - close: 54.64 change: +1.44

WHAT TO WATCH: Shares of this high-end grocer have bottomed at
$52.00 and are trying to break above resistance at $55.  Traders
can use a move over $55 as a trigger to go long and let WFMI fill
the gap to $60.00.


RADAR SCREEN - more stocks to watch

STJ $56.10 - This medical equipment & supplies maker just keeps
on climbing.  Aggressive traders willing to use a tight stop
might use this move over $56 as an entry.  We'd target $60 but it
might take a few weeks.

SBUX $24.67 - Shares of this coffee gourmand appear to have
bottomed near $23.00 and the rebound is on the way.  The close
over $24 and its 50-dma look like a signal to go long.  Our
target would be $26.50.

BBT $34.19 - This banking stock is another equity that appears to
have completed a multi-month bottom phase.  The breakout over
$34.00 looks positive.  Check out the trading range on the weekly
chart.  Maybe this is a covered call candidate.  Our target would
be $38.00.

RNR $44.70 - The profit taking appears to be over.  Shares of RNR
have bounced from the 50-dma and the stock's MACD looks ready to
curl higher from the zero line.  Traders can use a stop loss at
42.50 to 43.00.

RADAR SCREEN - more stocks to watch

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

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

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

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


For Best Alignment view in Courier Ten Font

CALLS    LAST      Mon    Tue    Wed   Thu  Week

AMGN     64.74    0.00   1.77  1.95 -0.43  3.04  Energizer bunny
BBY      38.70    0.00   1.00  0.45 -0.40  3.38  New, Go Retail!
DISH     33.10    0.00   1.26 -0.08 -0.34  1.71  Slow and sure
MEDI     35.41    0.00   1.87 -0.07 -0.74  1.74  Plodding along
OHP      37.03    0.00   0.43 -0.22 -0.60  0.41  Very cautious
QLGC     50.11    0.00   2.04  0.02  1.52  4.62  DROP, successful
SPW      38.53    0.00   1.11 -0.45  0.23  2.78  Nice move
VRTS     27.72    0.00   2.03  0.09  1.29  3.67  Untriggered


ACS      46.34    0.00  -2.40 -2.30  0.53 -2.46  Sit back/wait
AIG      57.88    0.00   1.52 -0.22 -0.47  3.23  DROP, too much
FRE      59.81    0.00   0.40  0.93 -0.19  2.81  Very cautious
HDI      42.16    0.00   1.24 -0.81 -0.01  1.36  Worth watching
GM       35.33    0.00   1.64 -0.32 -0.12  2.07  DROP, too much
IBM      88.04    0.00   3.18 -0.03 -0.21  3.53  Speculative
LLL      43.35    0.00   0.39 -0.19  0.52  0.94  Very cautious

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Call Play of the Day:

Best Buy Company - BBY - close: 38.70 change: +1.30 stop: 35.75

See details in play list


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


QLogic Corp. - QLGC - close: 50.11 change: +0.75 stop: 46.00

Seems like it is time to close out this successful play.  Our
initial target for QLGC was for a trade at $51 and it came really
close to that this morning with a high print of $50.97, right at
the top of the stock's ascending channel.  While it could
certainly continue higher on continued market strength, we're
going to err on the side of caution and take our gains here.
Traders opting to hold for another move higher will still want to
exit in the $51-52 area and should set tight stops at $49.50,
just under the afternoon low on Friday.

Picked on May 22nd at    $45.13
Change since picked:      +4.98
Earnings Date          07/29/03 (unconfirmed)
Average Daily Volume = 6.60 mln


American Intl Group - AIG - cls: 57.88 chg: +1.63 stop: $58.00

Call me chicken but we're throwing in the towel on AIG.  Shares
of this insurance giant have not yet touched our stop loss at
$58.00 but the close above its simple 200-dma is unnerving for a
bear on the stock.  Furthermore the IUX insurance index just
broke above five-week resistance at 265 on Friday and the
technicals for AIG are moving against us.  Look for two of AIG's
top brass to be speaking at seminars and conferences this coming

Picked on May 20th at $54.94
Change since picked:   +2.94
Earnings Date       04/24/03 (confirmed)
Average Daily Volume = 7.2 Million
Chart link:


General Motors - GM - close: 35.33 change: +0.75 stop: 35.25

As proof that a rising tide lifts all boats, GM continued its
persistent rise right into the closing bell on Friday.  No amount
of bad news from the company or negative analyst comments could
hold back the bulls as they bought even this out of favor DOW
component.  Ending the day over both the 50-dma and our stop was
enough to convince us that it is time to let this one go.  GM
still looks weak compared to the rest of the market, but there's
no sense butting our heads against the near-term uptrend.

Picked on May 4th at    $35.80
Change since picked:     -0.47
Earnings Date         07/15/03 (confirmed)
Average Daily Volume = 5.40 mln


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

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

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

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

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

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


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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



Please read our disclaimer at:


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

Contact Support
The Option Investor Newsletter                   Sunday 06-01-2003
Sunday                                                      3 of 5

In Section Three:

Current Calls: AMGN, DISH, OHP, SPW, VRTS
New Calls: BBY
Current Put Plays: ACS, FRE, HDI, IBM, LLL
New Puts: None


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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

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



Amgen, Inc. - AMGN - close: 64.74 change: +1.42 stop: 62.50*new*

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

Why we like it:
Between merger rumors and profit taking in the Biotechnology
index (BTK.X), our AMGN play had a volatile trading week.  But in
the end, the bulls prevailed, driving the stock to a new 52-week
closing high on Friday and it looks like we have another
confirmed breakout.  Before succumbing to the temptation to chase
the stock higher on Monday though, keep in mind that AMGN has a
pattern of breakout out to new highs and then consolidating those
gains before once again pushing higher.  There's no reason to
expect it to be any different this time and conservative traders
may want to take advantage of the current strength to harvest
gains and then wait for a pullback to support to re-enter the
play.  With the solid breakout over the short-term descending
trendline and horizontal resistance just below $63, we're now
looking for that level to become new support.  A pullback and
rebound from that level would make for another solid entry, but
note that we aren't giving the play a lot of wiggle room, raising
our stop to $62.50 this weekend.  Should AMGN break below that
level, it would introduce the risk of a retracement all the way
back to the 50-dma (currently $60.63) and that's more heat than
we ought to be prepared to take from current levels.  Recall that
the next significant level of resistance is at $66 and should
AMGN power up to that level early next week, we would recommend
harvesting gains there and looking for a new entry on the next
pullback.  The stock continues to look strong and with the
strength in the BTK index, our eventual target of $72 is still a
possibility.  But AMGN is not a stock that moves in a straight
line and harvesting gains along the way is the most prudent

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

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

BUY CALL JUN-60 YAA-FL OI= 6019 at $5.20 SL=3.25
BUY CALL JUN-65 YAA-FM OI=19992 at $1.50 SL=0.75
BUY CALL JUL-65 YAA-GM OI=27886 at $2.45 SL=1.25
BUY CALL JUL-70 YAA-GL OI= 9836 at $0.65 SL=0.30

Annotated Chart of AMGN:

Picked on May 11th at    $61.24
Change since picked:      +3.50
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.5 mln


EchoStar Communications - DISH - cls: 33.10 chg: +0.88 stop:

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

Why We Like It:
The quiet climb higher for EchoStar continues.  Shares added
another 2.7% in Friday's rally on volume of 5.2 million.  This
was about two million more than its average volume.  News for
DISH is still elusive but the investors are still buying the
trend.  The stock's daily MACD just produced a bullish crossover
and shares look ready to breakout over the $33 level that has
been acting resistance since the 22nd of May.  Our short-term
target remains near $35.00.  To reduce our risk we're raising our
stop to $30.90 though if you can stand the heat leaving it under
$30.00 is probably a smarter move.  The 50-dma has been support
for months and it is currently at 30.32.

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

BUY CALL JUN 30.00 UAB-FF OI=5459 at $3.30 SL=1.60
BUY CALL JUN 32.50 UAB-FZ OI=2798 at $1.45 SL=0.70
BUY CALL JUL 30.00 UAB-GF OI= 661 at $3.90 SL=1.80
BUY CALL JUL 35.00 UAB-GG OI=1201 at $0.95 SL=0.40
BUY CALL SEP 35.00 UAB-IG OI=1383 at $2.00 SL=1.00

Annotated Chart for DISH:

Picked on May 21st at $31.10
Change since picked:   +2.00
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


MedImmune - MEDI - close: 35.41 change: +0.72 stop: 32.50

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

Why We Like It:
Our longer-term play in MEDI continues to plod along.  We came
very close to being stopped out on the 21st of May but shares
rebounded off the bottom of its rising channel as expected.  The
stock is really fighting for each bit of ground gained which is
depressing for MEDI shareholders given the boom in biotech stocks
right now.  Traders are still waiting for word from the FDA on an
approval for MEDI's FluMist product.  The announcement is
expected by the end of June.  Several days ago MEDI reaffirmed
its full year guidance and the news helped fuel a move back over
the $35.00 level.  After looking at some of the technicals we
suspect that MEDI could be ready for another leg up but it would
take a move back over $36.00 to 36.50 to convince us.  Don't be
surprised to watch it trade sideways for another week or two.

We are still not suggesting any new positions at this time unless
you're willing to speculate with high risk capital on a positive
announcement for their FluMist product.

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

Annotated Chart of MEDI:

Picked on April 3rd at $34.31
Change since picked:    +1.10
Earnings Date        04/23/03 (confirmed)
Average Daily Volume = 3.9 million
Chart link:


Oxford Health - OHP - cls: 37.03 chg: +0.40 stop: 36.00*new*

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

Why We Like It:
We're growing increasingly cautious on our bullish OHP play.  We
knew that in a broad market rally other sectors might steal the
spotlight from healthcare and insurance providers like OHP.  Yet
we did not expect OHP and its group mates to lag behind the rally
this much.  The sector as whole continues to be one of growth and
we feel that bullish investors would do well to follow it
throughout 2003.  However, the technicals on OHP are starting to
look rather ominous and we're not suggesting new bullish plays at
this time.  If you do like the sector and are interested in a
long position look at United Health (UNH).  UNH has bounced from
the $94 level of minor support and with its stock split coming in
a couple of weeks the stock might see a run toward the $100 mark.
Meanwhile to put action behind our cautious words on OHP we're
going to raise our stop loss to $36.00.  As we said before, OHP
could easily dip back to support at $35.00 and its 200-dma but
we're just not willing to take the risk that it will bounce
there.  Let your own risk tolerance be your guide.

Suggested Options:
We really don't suggest new long positions in OHP at this time.
However, traders can look to the June and August options at the
$35 and $37.50 strikes as their best bets.

BUY CALL JUN 35.00 OHP-FG OI=2355 at $2.65 SL=1.30
BUY CALL JUN 37.50 OHP-FU OI= 947 at $1.05 SL=0.50
BUY CALL AUG 35.00 OHP-HG OI=3217 at $3.70 SL=1.80
BUY CALL AUG 37.50 OHP-HU OI=1445 at $2.15 SL=1.10

Annotated Chart of OHP:

Picked on May 20th at $36.51
Change since picked:   +0.52
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:


SPX Corp. - SPW - close: 38.53 change: +1.42 stop: 36.25*new*

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

Why we like it:
The first couple days of SPW being on the call list had us
questioning whether the stock was ever going to gain any
traction, as it vacillated below $37.  But Friday's action was
another ball game altogether, with the stock launching higher to
the tune of 4.75% on volume that was more than 40% above the ADV.
The early morning move took SPW very quickly to the $38 level
(successfully breaking $37.50 resistance), and after
consolidating near that level for the balance of the day, the
stock shot higher into the close on what looks like some late-day
short-covering.  Regardless of the root cause, the price action
looks very healthy and it appears that a test of next resistance
at $39.50 could be in the cards as early as Monday morning on any
bullish follow through.  With that resistance being so close, we
don't recommend new entries on a break above Friday's highs.
Rather, traders looking for a new entry should now look for a
pullback to test either the $38 or even $37.50 level as new
support.  A rebound from that level would confirm today's
breakout and set the stage for a renewed bullish move towards our
eventual target of $41.25.  Following Friday's strong breakout,
we're raising our stop to $36.25, which is just below the
supportive 20-dma.

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

Longer Term: Traders looking to capitalize on a rally to test the
$40 level and above will want to look to the July 40 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
traders may even want to consider the September 40 Call, as it
provides plenty of time for the bullish move to unfold.

BUY CALL JUN-35 SPW-FG OI=1535 at $3.90 SL=2.50
BUY CALL JUL-35 SPW-GG OI=  27 at $4.10 SL=2.50
BUY CALL JUL-40 SPW-GH OI=  82 at $1.15 SL=0.60
BUY CALL SEP-40 SPW-IH OI= 553 at $2.30 SL=1.25

Annotated Chart of SPW:

Picked on May 27th at    $36.86
Change since picked:      +1.67
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 1.04 mln


Veritas Software -VRTS - close: 27.72 change: +0.48 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:
No matter how you slice it, last week was a big victory for
Technology bulls with the NASDAQ Composite closing just a shade
below the critical 1600 resistance level.  Leading the way higher
to round out the week was our new Call play on VRTS.
Unfortunately, it didn't oblige on Friday to give us a buyable
dip.  Recall that we set a trigger on this play at $26.25, and
are then looking for a rebound from the $26.00-26.25 area to
provide a solid entry.  That was a solid resistance level and
should be tested on a pullback as new-found support before the
stock continues up towards are initial target of $30.  If the
stock just continues to power higher, then we'll let it go, as we
don't want to get caught buying a top near known resistance in
the $28-29 area.  If we do get the entry setup we're looking for
near $26, then stops should be placed at $24.50, just below the
rising 20-dma ($24.94).

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=13835 at $3.30 SL=1.75
BUY CALL JUN-30 VIV-FF OI=  759 at $0.40 SL=0.20
BUY CALL JUL-25 VIV-GE OI=  643 at $3.90 SL=2.50
BUY CALL JUL-30 VIV-GF OI=  382 at $1.05 SL=0.50

Annotated Chart of VRTS:

Picked on May 29th at    $27.24
Change since picked:      +0.48
Earnings Date          07/23/03 (unconfirmed)
Average Daily Volume = 8.66 mln


New Bullish Plays | June 1, 2003
While current conditions have not yet seen an improvement, the
latest Consumer Confidence report indicates that consumers are
much more optimistic about the future.  Even without heavy-weight
WMT participating, the Retail Index charge to new highs for the
year on Friday.

NEW CALL PLAY - Confident Consumers

Best Buy Company - BBY - close: 38.70 change: +1.30 stop: 35.75

Company Description:
Best Buy a specialty retailer of name-brand consumer electronics,
home office equipment, entertainment software and appliances.
The company provides a broad selection of models within each
product line in order to provide the customer with a meaningful
assortment, offering more than 5800 products, not counting
entertainment software titles.  Growing its store count by 15% in
fiscal year 2000, brought the grand total to more than 4000 in 41
states by year end.

Why we like it:
Shares of BBY have come a long ways in the past few months, now
up more than $12 (46%) since the end of March.  This 2-month
rally was triggered by strong earnings on April 1st, that beat
estimates by a penny.  More importantly, the company posted
record revenues for the quarter, and investors have been
confronted by the reality that consumers are still buying all
that cool technology that BBY is known for carrying.  The first
big wall of resistance that confronted this rally was at $38 and
the first attempt earlier this month led to a pretty sharp
pullback down to the $34 level.  But the bulls dusted themselves
off and started on the accumulation trail again.  A sharp mid-
week move brought the stock right back up to the $38 level, but
with a different result this time.  With the broad market
charging to new highs for the year, and the Retail index (RLX.X)
following suit, BBY scaled that level and looks to be in the
clear for another leg higher.

While there is some mild resistance in the $39-41 area, the more
likely upside target appears to be $44.  While the PnF chart
projects far above that with a bullish price target of $57.50,
there's no sense in getting greedy.  Daily Stochastics are well
on their way to overbought, but still have some room to run, and
hint that a near-term push to the top of that $39-41 area may be
in the cards.  A pullback to confirm the $38 level as new support
would be most welcome and a rebound from that level would make
for an ideal entry point.  That said, if the bulls decide to push
higher without a pause next week, then aggressive traders may
want to enter on a breakout over the $39 level.  The top of
Wednesday's gap at $37 should provide strong support, but we're
going to give BBY a bit more room to move by setting initial
stops at $35.75, which is just below the bottom of that gap, as
well as the rising 10-dma ($36.11) and the 20-dma ($36.04).  One
final note pertains to earnings.  While Briefing.com is reporting
the earnings date as July 1st, Yahoo! has the date listed as June
18th.  If the earlier date is correct, then this play will only
last a bit more than 2 weeks.  We'll clarify this issue as soon
as possible and report in a future update.

Suggested Options:
Shorter Term: The June 37 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 40 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders should utilize the July 37 call.

BUY CALL JUN-37 BBY-FU OI=5466 at $2.55 SL=1.25
BUY CALL JUN-40 BBY-FH OI=5463 at $1.25 SL=0.60
BUY CALL JUL-37 BBY-GU OI= 359 at $3.40 SL=1.75
BUY CALL JUL-40 BBY-GH OI= 715 at $2.00 SL=1.00

Annotated Chart of BBY:

Picked on June 1st at    $38.70
Change since picked:      +0.00
Earnings Date          07/01/03 (unconfirmed)
Average Daily Volume = 3.91 mln


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Affiliated Computer - ACS - cls: 46.34 chg: +1.24 stop: 47.25

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

Why We Like It:
As expected (and written in Thursday's newsletter) shares of ACS
traded higher on Friday.  The stock had broken down earlier this
week on a negative article about the company's founder and
chairman Darwin Deason.  The breakdown took it below the 200-dma
and then the follow through brought it below the $45 mark.  Both
declines were on strong volume.  However, in our original write
up we stated that the financial shennigans of Deason were very
unlikely to have any affect on ACS and our play's premise resided
in investor overreaction and fear of the unknown.  We've now seen
two brokers defend the stock stating similar beliefs that
Darwin's shady dealings would have extremely limited affect, if
at all, on ACS.  There has still been a lot of technical damage
done and we're going to wait and see if ACS can trade back above
the 200-dma and the $47.00 level before closing the play.  A
failed rally there might work as an entry for more aggressive
traders.  If you're not quick on the entry or the exit then ACS
is probably not the play for you, especially now that the
investor reaction may be over.  Our stop at $47.25 remains but it
wouldn't hurt to cinch it down to $47.00.  Our profit target of
$42.00 remains should the stock reverse course again.

Suggested Options:
Given that this is a news driven story we could see a quick
reaction from shareholders so our preference would be the June or
July options. *Given that the investor reaction may be played out
we're not suggesting new plays at this time.

BUY PUT JUN 45 ACS-RI OI= 769 at $1.25 SL=0.60
BUY PUT JUN 40 ACS-RH OI= 794 at $0.30 SL=0.00 *riskier*
BUY PUT JUL 45 ACS-SI OI=7868 at $2.25 SL=1.15
BUY PUT JUL 40 ACS-SH OI=5120 at $0.90 SL=0.45

Annotated Chart of ACS:

Picked on May 27th at $46.50
Change since picked:   -0.16
Earnings Date       07/22/03 (unconfirmed)
Average Daily Volume = 1.7 Million
Chart link:


Freddie Mac - FRE - close: 59.81 change: +0.77 stop: 60.51

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

Why We Like It:
It's tough being a bear when the market is closing at new
relative highs and hitting milestones that could potentially
signal the end of the bear market.  We initially added FRE as a
put play due to its breakdown out of its rising channel and a
close under its 200-dma.   This technical breakdown was caused by
investor concerns that FRE was losing market share to its main
rival Fannie Mae (FNM).  While FRE is doing what it can to remedy
the situation Wall Street has not put much faith behind its
efforts.  The rebound appears to be market participation only but
its painful for bears just the same.  The stock has not yet
triggered our stop loss at 60.51 but if the ISM data is positive
we would expect the markets to rally and expect FRE to rally with
it.  We would NOT suggest new plays at this time.

Suggested Options:
We are not suggesting new put positions at this time.

Annotated Chart of FRE:

Picked on May 25th at $57.90
Change since picked:   +1.91
Earnings Date       07/00/03 (unconfirmed)
Average Daily Volume = 3.4 Million
Chart link:


Harley Davidson - HDI - close: 42.16 change: +0.78 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:
Things aren't looking too good for our HDI play.  Despite the
poorly received news about the company's introduction of
aggressive financing incentives, the bulls bought that dip with
abandon the day after we began coverage.  Since then the stock
has been trading in a tight range and up until Friday it looked
like we'd get the expected rollover below the $42 resistance
level.  But the bulls were feeling frisky all day and pushed the
stock back through that level at the close, managing to generate
a close over the 50-dma ($41.89) in the process.  More
disconcerting is that the stock pushed back above the ascending
trendline from the March lows, leaving us with the very real
possibility that the bulls may attempt to push HDI higher from
here.  Resistance provided by the 5/23 gap is still strong,
giving us the possibility of a rollover from a higher level next
week.  Aggressive traders can enter new positions on a failed
bounce below the top of that gap ($43.28), but must be
comfortable with holding a tight stop at $43.75.  More
conservative traders will want to wait for a break and close
below Thursday's intraday low of $41.20 before playing.  The $40
level is still critical support and we won't have confidence that
this play is really going to go in our favor until HDI breaks
that level on solid volume.

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=4553 at $1.55 SL=0.75
BUY PUT JUN-40 HDI-RH OI=3674 at $0.60 SL=0.25
BUY PUT JUL-40 HDI-SH OI=  76 at $1.30 SL=0.75

Annotated Chart of HDI:

Picked on May 25th at   $40.81
Change since picked:     +0.11
Earnings Date         07/16/03 (unconfirmed)
Average Daily Volume = 2.64 mln


Intl Business Machine - IBM - cls: 88.04 chg: +0.68 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:
Ah.. while not quite controversial our put play on IBM did elicit
some reader feedback.  We're always happy to hear from our
readers so I'll try and answer questions here, in the play
update.  Thursday we added IBM not because it was fundamentally
weak but because the stock had been under-performing.  We're
actually bullish on IBM, especially if the markets can keep this
bull rally alive.  However, even bull rallies (and bull markets)
have pull backs and with IBM's under-performance we are
speculating that it might lead to the downside when the markets
do correct.  Our update stated that IBM is indeed trading between
huge overhead resistance at $90 and current support at $85.00.
While it would be safer to wait for a breakdown below $85.00
before buying puts the stock's under-performance compared to the
Dow Industrials, of which it is a component, is rather
significant.  This appeared to offer us an early warning and we
listed the play before any technical breakdown has occurred.  We
noticed that the Industrials had broken out to new relative highs
mid-week while IBM had not.  Friday offered even more
confirmation as the Industrials took off to add 139 points while
IBM added a mere 68 cents.  One of the readers asked about an
ascending triangle for IBM.  We've posted an image of the
triangle in IBM's chart below.  It is easier to see on the weekly
chart because it takes into account IBM's October lows and its
failures at the $90 resistance in December, January and May.  I
do indeed agree that it would be safer to wait for the move under
$85 before buying puts.  I also agree that if IBM breaks out
above $90 it would be a good spot to go long.  A breakout above
$90 could fill the gap to $97 and probably tag the $100 mark.
Until we get a decisive move one way or the other I will continue
to label this as a speculative play because we're basing it on
bearish technical divergences between IBM and the Industrials
(and the GHA hardware sector).

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= 9663 at $3.20 SL=1.60
BUY PUT JUN 85 IBM-RQ OI=31182 at $1.05 SL=0.50
BUY PUT JUL 85 IBM-SQ OI=32596 at $2.30 SL=1.15
BUY PUT JUL 80 IBM-SP OI=24035 at $1.10 SL=0.55

Annotated Chart #1 for IBM:

Annotated Chart #2 for IBM:

Picked on May 29th at $87.36
Change since picked:   +0.68
Earnings Date       04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:


L-3 Communications -LLL - close: 43.35 change: +0.17 stop: 45.00

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

Why we like it:
It was not a pleasant week for bearish traders in shares of LLL,
as the rebound that began at the 50-dma continued its relentless,
albeit slow rise.  If not for the intraday reversal from the $44
level, we would have been tempted to just pull the plug this
weekend.  There's no question, LLL is severely lagging the broad
market and the trading pattern over the past week looks an awful
lot like a bearish flag pattern.  The question that must be
answered though is whether the stock is going to break down from
that pattern (as we suspect) or defy logic and push up through
resistance.  We've been targeting failed rallies near the $43.50
level for new entries, and that still looks like a viable
strategy.  However, more conservative traders may want to wait
for a confirmed break below the bottom of the flag pattern with a
trade below $43 before playing.  The $43.50-44.00 turned out to
be solid resistance on Friday (backed up by the 20-dma at $43.88)
and we're looking for that level to hold back the bulls next
week.  If the expected breakdown does occur, keep a sharp eye on
the 50-dma ($41.87).  This average provided support for the
current bounce to commence and we must consider the possibility
that it could do so again.  Just in case resistance fails to hold
back the stock, maintain stops at $45, which is just above the
200-dma at $44.70.

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

BUY PUT JUN-45 LLL-RI OI= 471 at $2.40 SL=1.25
BUY PUT JUN-40 LLL-RH OI=1024 at $0.40 SL=0.20
BUY PUT JUL-40 LLL-SH OI= 636 at $0.90 SL=0.40

Annotated Chart of LLL:

Picked on May 20th at   $41.94
Change since picked:     +1.41
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.36 mln




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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

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



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The Option Investor Newsletter                   Sunday 06-01-2003
Sunday                                                      4 of 5

In Section Four:

Leaps: Faked Out!
Traders Corner: Gettin' In -- With Minimal Begging!
Traders Corner: Ooops
Traders Corner: Where is the Dow Going?

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Faked Out!
By Mark Phillips

That's certainly the way I'm feeling this weekend, after having
both of last week's two new bearish plays stopped out on Tuesday.
I suspect I'm not the only eager bear that has had to endure some
pain recently, as the broad market has continued its relentless
rise.  All of the major indices are looking quite bullish, with
the S&P 500 bettering its August closing highs and the NASDAQ
Composite coming very close to setting a new 52-week high.
Interestingly, the COMPX ended the week right at its descending
trendline connecting the May 2001 and January 2002 highs (LOG
chart).  In light of the recent market move, I think it would be
instructive to take another look at the respective weekly charts
and review where we are in pictorial form.

Weekly Chart of the NASDAQ Composite (LOG)

Weekly Chart of the S&P 500 (LOG)

In my opinion, those two charts tell the whole story, showing
both the SPX and COMPX butting up against very strong resistance,
with weekly Stochastics showing extreme overbought readings.
Either the bulls are going to elicit a real capitulation from the
bears, or this is where the top should be put in for this cycle.

What I find most interesting about the action in the broad market
is that it is coming in the face of continued weakness in the US
Dollar, as measured by the Dollar index (DX00Y), which is very
near its 1998 lows and showing very little indication of
reversing its recent slide.  Not only that, but bonds have been
very resistant to sell off at all, with yields once again very
near their multi-decade lows.  The yield on the benchmark 10-year
Treasury Note ($TNX) ended the week at 3.35%, not far above its
recent intraday low of 3.29%.  At the same time, Gold is not
showing the strength one might expect, finding consistent
resistance in the mid $370s.

Aside from the strong uptick in Consumer Sentiment early last
week, I find very little in the economy to justify this action in
the equity markets.  The only reasonable explanation that comes
to mind (other than end of quarter window dressing, a theory I
place very little stock in) is that investors are counting on
that fabled second-half recovery to materialize and break the
back of the 3-year bear market.  Could it happen?  Sure.  Is it
likely to be the end of the bear?  I find that likelihood to be
extremely remote.  No matter what contortions I go through, I
cannot force myself to see the "compelling valuations" that are
necessary to signal the end of the bear market.  They weren't
there last October and they certainly aren't there now with
valuations of most stocks even higher.  But there is one constant
in the marketplace and that is that markets fluctuate.  Exhale
and then inhale and right now the market appears to be near the
last stages of a big inhalation.  Poke it in just the right spot
and there it will be forced to begin the next exhalation process.
I've got a nice sharp stick and I've been poking the market with
it in the past couple weeks, all to no avail.  I obviously
haven't found the right spot yet.  But that doesn't mean I'm
going to quit poking!

Two of the major factors that I monitor to give me a read on the
market are bullish percents and the VIX.  Despite the fact that
the charts above show the markets to be very overbought, there
hasn't been an indication from either of these metrics to
indicate an imminent collapse.

Recall that we're looking for the VIX to fall below the 21 level,
preferably into the 19-20 range to indicate there is too much
complacency and a downside correction is ripe for the picking.
The VIX has been very resistant to falling under the 21 level,
which it has been using as support now for the past 3 weeks.

Turning to the bullish percent readings, we have a stark reminder
that overbought can always become more overbought.  I've been
listing a table showing the progress of these readings for the
past couple weeks and it seems worthwhile to continue doing so as
long as they continue to grind higher.

NASDAQ-100 - 84% (12/02 high of 82%)
NASDAQ Composite - 64.62% (new all-time high)
DOW - 70% (5/22/03 high = 73%, 11/02 = 73%, 4/02 = 76%)
S&P 500 - 74% (3/02 high of 77%, 5/01 high of $74%)
S&P 100 - 68% (12/02 high of 76%, 3/02 high of 79%)

In all cases, the major indices BP is either in or very near
overbought territory, but with further upside possible from a
historical standpoint.  The one notable exceptions is the COMPX,
which is currently sporting its highest BP reading ever.  One
thing that stands out as we examine these readings on a weekly
basis is the lagging nature of the OEX and the DOW.  We've seen
the DOW's price action lag the rest of the market and that is
also true in the BP readings, which haven't been able to advance
beyond the 70% level for the past 2 weeks.  I've noted the OEX
has shown less strength than the broader SPX, and I believe that
can be attributed to the reality that large cap stocks (which are
more dominant in the OEX) are underperforming small- and mid-cap
stocks.  That underperformance is confirmed by the OEX being the
only one of the major Bullish Percent readings that hasn't been
able to push into the normally overbought region over 70%.

I mentioned this last week, but I think it is worth repeating
verbatim again tonight.  I invite you to go over to stockcharts
and look at the SharpChart for each of these bullish percent
readings.  In almost every case, the bullish percent is
continuing  to push higher, and we have yet to see any of them
break below their respective 10-dmas.  As I've said before,
overextended, but not yet showing anything that can be termed
weakness.  Here's the link I use, for your convenience.


Here are the pertinent Bullish Percent symbols.


The bulls have pushed the bears right to the brink of
capitulation, but we haven't yet seen what I would term the
decisive tipping point.  The market's are all very extended, but
have yet to show any definitive signs of tipping over.  At the
same time, there hasn't been what I would call a decisive
breakout either.  The next couple weeks should be very
interesting, and I'll be on the edge of my seat waiting for the
resolution to this very interesting setup.

As noted at the top of my commentary, it was a less than stellar
week for the LEAPS Portfolio, as I got sucker punched on both the
AMZN and GS plays.  New to the Portfolio just last weekend, they
both found their way to the drop list this weekend.  Our other
bearish plays are being threatened by bullish price action to
varying degrees as well.  The blow by blow is contained below.


AIG - Despite the bearish fundamentals and new outbreaks of SARS
to deal with, AIG staged an impressive rally to end the week
right up against that strong $58 resistance level, and
fractionally above the 200-dma (currently $57.62).  A look at the
weekly chart, shows the stock nearing a test of major resistance
at the descending trendline (currently $58.90) that began with
the highs in late 2000.  Will the bulls be able to break out from
here?  It seems unlikely to me, with weekly Stochastics already
topped out in overbought territory and weekly MACD starting to
weaken as well.  But that doesn't mean it can't happen.  That's
what stops are for.  For traders still eyeing a bearish entry
into this play, taking a position in the $58-59 area still feels
like a good risk/reward move, with the bulls in this market
carrying the overwhelming majority of the risk.  Maintain stops
at $61.

GM - Don't fundamentals matter anymore?  Even after UBS Warburg
came out with bearish comments on the Big 3 Automakers last
Thursday, making comments about a 'major casualty' from the group
in the long-term, GM held its ground from Tuesday's sharp rise
and closed over the $35 level on Friday, just fractionally above
its 50-dma.  While the downtrend is still intact, it looks
entirely possible that we could see a test of that descending
trendline from the December and January highs.  That trendline is
currently at $37.35, and is reinforced by the 200-dma at $37.21.
My outlook for GM remains unchanged and I expect significantly
lower price levels in the months ahead.  Nonetheless, I am
reminded of the last time we played bearish on this stock and got
stopped out literally at the high back in January.  I don't want
a repeat of that performance, so I've done something that I am
normally loathe to do -- I'm actually raising the stop back above
that trendline where it was until recently.  The stop is now back
at $37.50 and it will remain there until we are either stopped
out or the stock closes decisively back under the $33 level.  I
would still recommend new entries into the play on a failure of
this rebound below the 200-dma.

KO - The price action with which KO rounded out the week was
certainly not what I expected to see.  After 3 weeks of stalling
below the descending trendline from the July highs as well as the
200-dma, a rollover from the $45 area seemed to be the natural
course that events would follow.  But the broad market strength
on Friday provided just the lift the stock needed and it broke
decisively through both of those measures of resistance.  Not
only that, but the buying volume over the past couple days has
been among the strongest seen for the past few weeks.  I can't
say for certain whether this breakout will continue, but I
continue to believe resistance is going to hold.  Turning to the
PnF chart for confirmation shows the bearish resistance line
resting right at $46.  So it should come as no great surprise to
have seen KO top out on Friday at $45.95.  For those looking for
a better entry into the play, I believe this rally is providing
it, with weekly Stochastics now topped out in overbought.
Maintain stops at $47 for now.

AMGN - To say I was feeling nervous about initiating this play
last week would be an understatement, given what I believed to be
a severely overbought market.  But the persistent and predictable
trend along with strength in the Biotechnology sector were just
too compelling to pass up.  Apparently, it was a good choice, as
AMGN broke out to a new 52-week closing high on Friday.  It
wasn't a straight line move over the past week though, with
plenty of volatility to deal with along the way.  Rumors of
mergers and profit taking had AMGN bouncing about quite a bit for
the first 3 days of the week, but in the end, the bulls
prevailed, giving us a bit of breathing room in the play.  The
next near-term objective will be for a move into the $66-68 area,
which ought to produce at least a near-term pullback from profit
taking.  Hopefully, we'll be able to ride the trend higher to the
PnF bullish price target of $72.  With the breakout to round out
the week, raising our stop to $60 (just below the 50-dma and the
rising trendline) seems a prudent course of action.  Keep the
Dramamine close at hand, as the next couple weeks are likely to
see a fair amount of volatility.  But we'll hold on for the ride,
as the trend looks like it has enough strength to power AMGN to
our $72 target, market willing.

QQQ - That didn't take long!  Apparently, I was a bit too
pessimistic with the entry strategy, because after entry on
Tuesday, the QQQ just continued higher to end very close to a new
52-week high.  This is a pivotal level and either I'll be proven
right in the weeks ahead or it will be another example of the
perils of trying to sell into strength.  Full details below.

Watch List:

NEM - I'm getting as tired of maintaining this play on the Watch
List as you are of reading about it.  Gold futures are looking
top-heavy here, especially with the Dollar index (DX00Y) acting
like it wants to head higher for a bit.  That should pressure
gold stocks lower over the next several weeks, but only time will
tell.  NEM is still trading right at the top of its year-long
neutral triangle, and appears it is being held back by that heavy
resistance near $30.  I wouldn't advocate bearish positions here
due to my long-term bullish view on gold stocks.  But neither is
it the time to be initiating bullish positions.  Just like I've
reported over the past several weeks, we wait and see on this
one.  If NEM decisively breaks out above the $31 level without
giving us an entry point, then I'll just drop the play as one
where I was correct on direction, but badly flubbed the entry.

DJX - A few weeks ago, it may have seemed like the DOW would
never make it to our $88-89 target area, but here we are right in
the middle of that zone, with the DJX ending at $88.50 on Friday.
So why isn't this an entry?  Primarily because there are really
no signs of weakness.  Bullish percents are still steaming higher
and the VIX is stubbornly refusing to break below the 21 level.
As much as I would like to see the DJX reverse right here at the
January highs, this market has the feel of one that is bound and
determined to test the August and December highs from last year
between $90-91.  So we adapt our strategy to that expectation.
If the market falls apart from here, then it is quite possible
that we'll miss the entry.  But the consolation will come from
the QQQ play, which transitioned to active status last Tuesday.
As can be seen by the action in our other bearish plays last
week, I believe patience is the appropriate strategy to employ
until more of the parameters I outlined in my recent series of
MOPO articles line up in our favor.

Closing Thoughts:

I really don't have a lot to add other than what I described
above.  The markets by all the measures I follow are looking very
overbought, but also at critical levels of resistance.  It is
make or break time for the bears.  At the same time, the VIX and
Bullish Percents are indicating that there shouldn't be much more
upside in store.  All in all, the month of June should be quite
instructive as to whether the pundits calling for the end of the
bear market will be hailed as geniuses or hung out to dry for
once again calling the end of a very young bear market.

Last week, I promised to detail the process by which the 2006
LEAPS would be rolled out from now until the end of July.  You
know what they say about the best of intentions.  I actually had
a nice little description put together to add to the end of this
week's column, but fate intervened on Saturday morning.  An ugly
system crash not only put me severely behind in terms of
schedule, but managed to corrupt that file.  It will have to be
recreated from scratch and there just isn't enough time to get it
done before I hit my publishing deadline.  So with apologies to
all, I'll have to postpone that description until next week.

Note that I haven't added any new Portfolio candidates this week.
This is partially due to running out of time, but more to the
point, it is because I want to see how the current situation
plays out in the broad markets first.  I can find lots of bearish
candidates, but then what's the point if I turn out to be wrong
and the markets defy gravity and head sharply higher.  On the
other hand, it is very hard to find bullish candidates that I
think make sense for initiating new long-term positions.  In my
opinion, this is a good time to just maintain current positions
and look for some sort of confirmation of where the market is
headed next.  If we get the rollover from resistance, then there
will be plenty of time to get on board the bearish train.  But if
they break out, then I believe it will demand a significant
change in strategy.  I'll be eagerly looking on with the rest of

Have a great week!


LEAPS Portfolio

Current Open Plays


AMGN   05/21/03  '04 $ 60  YAA-AL  $ 7.00  $ 9.30  +32.86%  $60.00
                 '05 $ 60  ZAM-AL  $10.90  $13.80  +26.61%  $60.00

AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 4.10  -26.79%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 7.20  -15.29%  $61.00
GM     05/13/03  '04 $ 35  LGM-MG  $ 4.10  $ 4.10  + 0.00%  $37.50
                 '05 $ 30  ZGM-MF  $ 4.60  $ 4.60  + 0.00%  $37.50
KO     05/15/03  '04 $ 40  LKO-MH  $ 1.70  $ 1.40  -17.65%  $47.00
                 '05 $ 40  ZKO-MH  $ 3.85  $ 3.40  -11.69%  $47.00
QQQ    05/27/03  '04 $ 27  KLF-MA  $ 1.70  $ 1.50  -11.76%  $32.25
                 '05 $ 27  ZWQ-MA  $ 3.10  $ 2.85  - 8.06%  $32.25

LEAPS Watchlist

Current Possibles


NEM    03/09/03   HOLD         JAN-2004 $ 25  LIE-AE
                            CC JAN-2004 $ 20  LIE-AD
                               JAN-2005 $ 25  ZIE-AE
                            CC JAN-2005 $ 20  ZIE-AD

DJX    05/04/03  $90-91        DEC-2003 $ 88  DJX-XJ
                               DEC-2004 $ 88  YDJ-XJ

New Portfolio Plays

QQQ - NASDAQ-100 Trust $29.10  **Put Play**

Suffice to say, this is not how I expected this play to be
initiated.  I was hoping for a push up to the $29 level and then
an exhausted roll over.  Instead, those crazy bulls launched the
NASDAQ higher on Tuesday, with the QQQ ending at $29.10.  Because
of the way I set up the entry strategy on this play, we're in the
play as of Tuesday's close, for better or for worse.  Instead of
weakening after that entry, the QQQ just powered higher into the
end of the week, as the NASDAQ-100 pressed up against the 1200
resistance level and the NASDAQ Composite ended just below the
1600 resistance level on strong volume.  These are critical
resistance levels and eager bears (myself included) just may be
in for some pain over the near term.  A breakout there could
really send the short covering and we could even see a
substantial move higher into the $31-32 area.  With the NASDAQ-
100 bullish percent hitting 84% on Friday and the NASDAQ
Composite hitting a new all-time high of 64%, there's no question
this market is very extended at this altitude.  But that doesn't
mean it can't go higher.

I believe this trade is correct, but the timing is obviously a
bit early.  For that reason, I'm starting out with a wider stop
than I would normally, setting it way up at $32.25.  For traders
that took the entry early last week that are uncomfortable with
that much risk, I would recommend sticking with the initial stop
I had mentioned at $31.  As mentioned last weekend, this is an
aggressive play, where we are attempting to pick a top in what
has lately been a strong market.  Both weekly and daily
Stochastics are buried in overbought territory, but weekly MACD
is still looking strong and has now moved to its highest level
since September of 2000 when the QQQ turned down from the $100
level!  If the NASDAQ does continue higher over the next week,
then I would say that I still favor new positions in the $30-31
area on any sign of weakness.  In fact, if this play is stopped
out, there is a very strong likelihood that I would consider a
new entry at higher levels.  Risk is very high for the bulls up
here, but it remains to be seen whether price action is willing
to obey the law of gravity.  Remember my comments from earlier in
the year, where I stated my belief that the NASDAQ would prove to
be the stronger area of the market this year?  Well that is
certainly proving out to be true right now, isn't it!  My primary
rationale for listing this play in the face of that relative
strength is based on the expectation that a significant
retracement of the gains from the March lows is long overdue.
Bears that would prefer to play in a weaker sector of the market
should focus their efforts on our DJX play, as the DOW is the
clear weakling in this rally so far.

BUY LEAP JAN-2004 $27 KLF-MA $1.70
BUY LEAP JAN-2005 $27 ZWQ-MA $3.10

New Watchlist Plays



AMZN - $34.85 That was just unpleasant!  In retrospect, when AMZN
pushed through the top of its channel after the company's latest
earnings report, I should have just pulled the plug on this play
due to the strong buying interest in the Internet sector.  I
still feel this sector is horrendously overvalued and AMZN is the
worst of the bunch, with a P/E ratio (based on phony EBITDA
earnings) of 118!  The company doesn't have a real P/E ratio
because in terms of actual cash flow, the company is still losing
money.  But I'm sure there were more than a few bears chewed up
by similar thinking in 1999-2000 as the stock rocketed above the
century mark (split-adjusted) on little more than hype.  In fact,
the action in the Internet space is starting to feel "bubblish"
to me again.  Weekly Stochastics are pegged at their highest
level EVER, but weekly MACD is looking very strong.  This is not
the place to continue fighting the tape and that's what stops are
for.  We were triggered into this play on the dip below $31.50,
which turned out to be a clear bear trap.  Last Tuesday's strong
rally through the $34.50 level (the site of our stop) was more
than enough to convince me of the error of my ways, and we closed
the play for a painful loss.  Sometimes we need a stark reminder
of the risks of fighting the tape.  That's what stop-losses are
for!  We'll be back for another bearish attempt on AMZN, but not
until there are some definite signs of weakness.

GS - $78.48 Bear traps were a common occurrence over the past
couple weeks, and sadly I took the bait.  GS' breakdown below the
$74 level on May 20th looked like the real deal, with the
Brokerage index (XBD.X) having shown some real weakness itself.
Wrong!  That end of day rebound should have been my clue, but I
really didn't see it having the ability to follow through.  Over
the past week, the bulls really went nuts, not only pushing the
XBD index back above the $465 resistance level, but through its
April and May highs from last year.  I saw the handwriting on the
wall with our GS play last Tuesday, with the stock surging
strongly higher to end at $78.48.  Sure that is a couple pennies
below our $78.50 stop, but the stock's ability to trade
fractionally above that level and end near the high of the day
did not bode well for bearish positions.  I'm glad I dropped it
there, as the rest of the week saw incredible strength in the XBD
sector and GS, with the stock closing out the week at $81.50, a
new high for the year, and interestingly, right at the August
2002 closing high.  Will it continue higher or reverse from here?
I wish I knew, but based on what I see on the charts, I would
expect further upside over the near term.  No question, I'll come
back to dip my toes in the water on a future bearish trade on GS.
But the time for tilting at that windmill is not right now.

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Gettin' In -- With Minimal Begging!

By Mike Parnos, Investing With Attitude

"Help!  Help!"  That's the familiar sound of a CPTI student who
has strayed from the path and finds himself up the creek without
a paddle.  He's losing money, confused, and doing a Linda Blair -
- spewing out Latin phrases backwards while his head does a 360.
Your "trading exorcist" is here.

A Bad Entry Can Lead To A Bad Exit
Often the problem is a result of how he entered the trade.  So,
today, we're going to examine the process.  There are a number of
ways to enter a trade – ranging from conservative to aggressive.
Most of our trades involve spreads.  Because we sell premium, we
often use indexes.  The SPX, OEX, XAU, RUT are indexes that trade
only on one specific exchange.

Hooray!  We Found a Trade!
After diligent research, hours of chart interpretation, two calls
to the Psychic Friends Hotline, three kamikazes, and the all-
important coin-flip, we've decided to put on a bull put spread on
the SPX.  We (and our other influences) decided that there is
significant support at the 920-925 level.

The Order
We're going to take advantage of the fact that the SPX is only
traded on the CBOE.  Some of those bid/ask spreads are
outrageous.  The size of the bid/ask spread depends on how close
the SPX is trading to the option, and the liquidity of the

The Bid / Ask Spread
Who pays those large spreads?  Not CPTI students!  Experienced
traders will try to shave off a nickel, dime or more from each of
these huge spreads.   As long as we don't get greedy, there's a
good chance we'll get filled at the prices we want.  Here are
some typical bid/ask spreads on current SPX options.

SPX June 925 puts   $5.00 x $5.70
SPX June 920 puts   $4.30 x $4.90
SPX June 915 puts	  $3.70 x $4.20
SPX June 910 puts	  $3.20 x $3.60

If you want to sell the 925 put as part of the bull put spread,
you need to recognize that there is a $.70 spread.  How much
should we ask for?  We can try for a $.15-.20 concession on the

Let's assume the other option, to complete the bull put spread,
would be the purchase of the June 910 puts.  The bid/ask spread
is $.40.  We can expect to shave off $.10 from the spread and
have a reasonable chance of getting filled.

Placing The Order
If you place the order as a spread order with a specific limit,
you will also increase your chances of getting filled.  Per the
above figures, if you were to place the order at posted prices,
the sale of the 925s and the purchase of the 910s would yield
$1.40.  If we add the additional amount ($.30) we have shaved
from the two bid/ask spreads, we now can place the spread order
at the CBOE with a credit limit of $1.70.

Our chances of being filled are quite good.  Why?  Because we
didn't get greedy.  We offer the marketmaker a substantially
larger chunk of the spread, so they're willing to compromise a

They probably won't fill you immediately.  When you're trying to
take a small slice of their pie, it's often near the end of the
day before you're notified of the fill.  If they don't get their
piece, they can't afford their limo payments.  They may find
themselves out of work and selling urinal cakes door to door.
Now, that's motivation!!

Other Submitting Alternatives
For the more aggressive trader who has the time to devote
attention to the market, there's a way to possibly gather a more
premium.  Notice that I said "possibly."

Here's the scenario.  Your support level has already been
established. The market opens and it appears the SPX is going to
go down significantly today.  Instead of entering the trade as a
spread, you might consider just buying the long option (SPX June
910 put) early.  Then you can wait for the SPX to move lower
before you fill the second part of or the bull put spread (SPX
925 call).

The Best:  If the SPX moves down significantly, you could
conceivably pick up an additional few dollars in time premium.
Another choice you would have is to sell a different strike
price.  Instead of the June 925, you could conceivably sell the
June 920 put without sacrificing premium credit.  That would
lower your exposure (and maintenance requirement).  If you have
the 920/910 bull-put spread, you're only exposed for 10 points as
opposed to a 15 point exposure for the 925/910.

The Worst:  The market gods have a strange sense of humor.  Your
risk is that the SPX picks that very moment to reverse and go in
the opposite direction.   You sit there, cursing in the language
of your choice, watching as your potential premium credit
seemingly disappears before your very eyes.  Keep in mind that
this reversal "may" be temporary.  There's no rule that says you
have to complete your spread that same day.  Perhaps it will
reverse again and move back down the following day.  But, when
you roll the dice, you take your chances.  That's why they call
is "craps."

Routing Your Order To A Specific Exchange – A Review
Most stock options are traded on multiple exchanges.  And the
prices on these exchanges are often different.  The ability to
see real time prices and to route your order allows you to get
your order filled at the best price available.  If you can save a
nickel or dime on every option trade you make, you wouldn't have
to make any profit.  These nickels and dimes add up to a nice
profit all by themselves.

There are actually five exchanges – Chicago (CBOE), American
(AMEX), Philadelphia (PHX), Pacific (PCX), and the Electronic
(ISE).  Not all stocks are traded on all of the above exchanges,
but most are traded on at least two or three.

Does your broker give you the ability to route your orders –
online or otherwise?  I sure hope so.  If not, you may be losing
potential profits.

June Position #1 – SPX Iron Condor – Currently at 963.59.
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 $29.03
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 $48.17
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 $29.79
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.

Unofficial CPTI Replacement PositionQQQ Strangle - $29.79
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.

With the continued move up, our $200 bet is now worth $250.  If
you bet $400, it's now worth $650.

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 click on "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


By Steve Gould

Ooops.  I made a mistake.  Not a terrible one, but one that needs
to be rectified.  This will also give me the opportunity to start
using some standards I should be using anyway.

Dale Carnegie in his excellent book, How to Win Friends and
Influence People, devotes an entire chapter to admitting your
mistakes.  This is a tough lesson for many people to learn as it
is just not in our nature to even conceive that we could possibly
imagine the improbable likelihood that we may even remotely be
maybe wrong.  The boss, the kids, the wife (he says under his
breath) just will not ever admit a mistake.

If you don't believe me, the next time you get into a
"disagreement" with your spouse, try using this line.  Say,
"Honey, I would agree with you, but then we would both be wrong."
This is a sure fire way to prove that you are right and they are
wrong.  Your spouse will undoubtedly instantly realize how wrong
he/she is and readily admit it.  Please report back on how
successful this useful technique is.  You will have plenty of
time to email me, because no one is going to be talking to you

Here is what I did wrong.  In my 5/4/2003 article, "Where is the
Dow Going?", I provided a monthly chart of the Dow from 1915 to
the present.  I did not label the chart correctly and I would
like to take this opportunity to set the record straight.  The
relabeling changes the analysis a bit, but the effect from the
January 2000 peak is essentially the same.

Here is the chart as I labeled it.

Chart: Dow Monthly since 1915

Since I only had data going back to 1915, I labeled it the way
that seemed reasonable at the time based on the available data.
I incorrectly reasoned that for the first 130 years of the US
stock market we were in a wave I and the stock market crash of
1929 was a wave II.

I subsequently did a little bit more research and found a chart
going all the back to 1789.  The chart fudges a little bit as it
used a constant dollar basis, whatever that is.  Also, I know
that Charles Dow did not start charting stocks until the late
1800s so I would imagine that the data was interpolated based on
comparable stocks that Dow would have used. The graph did look
reasonable, based on the above assumptions.

Using that particular graph, the I wave started at the birth of
the country (1789 for all you non-history buffs) and extended to
about 1835.  Wave II went until about 1860 and wave III extended
through the roaring 20s. The stock market crash of 1929 was
actually the IV wave.  From the 1930s until the year 2000 was the
V wave.  Based on this available data, the chart should have been
labeled this way.

Chart: Dow Monthly since 1915 relabeled

You will notice two things different with this relabeled chart.
First, the major trend is now labeled correctly.  Second, the
symbols used for the labels have been updated to be more
consistent with standard nomenclature.

Which brings me to the topic of proper wave nomenclature.

Every profession develops a unique language so that one person
can communicate with another person effectively.  Doctors have
their own language, lawyers have their own language.  Even stock
market analysts have their own language.  Elliott developed a
nomenclature to categorize his various degrees of subdivisions.
Each subdivision has a notation that an Elliottician can
instantly recognize and know exactly what degree of subdivision
the wave count is in.  I use Robert Prechter's notation as it is
probably the best out there.

Elliott recognized that there is one large trend and everything
else is a subdivision of that larger trend.  He named this large
trend the Grand Supercycle and subdivided subsequent wave degrees
in the following way:

Grand Supercycle

Figure 1: Wave degrees

Note the consistent pattern in the labeling.  Symbols start out
with a circle, progress to a parenthesis (a balding circle) and
then to a stand alone symbol (a completely bald circle).  The
degree labeling uses outline format starting with Roman Numerals
and progresses to Arabic numerals.

What this chart ultimately says is that the Grand Supercycle will
consist of a 5 wave basic pattern labeled with circled Roman
numerals.  After the 5 wave, the A-B-C correction will be labeled
with a circled a, b and c.  Within the  1, 3 and 5 wave of the
Grand Supercycle will be a Supercycle 5 wave basic pattern
labeled with Roman numerals in parentheses.  The Grand Supercycle
2 and 4 waves will be labeled (a), (b), (c) as they are the A-B-C
corrective pattern of the Supercycle.  This logic repeats
recursively to the smallest degree.

To illustrate this, let me relabel the Dow chart.  Since I do not
have the correct fonts for Grand Supercycle, I will start at the

Figure 2: Wave Degree Progression

Assuming that we are at a Primary degree (circled), the 5 wave
basic pattern of the 5 circle wave will subdivide using the
Intermediate labels.  The (3) wave will subdivide into a 5 wave
basic pattern using the Minor labels.  Looking at the wave degree
figure, following a Minor labeling of 1, 2, 3, 4, 5 for a 5 wave
basic pattern, we use A, B, C for the A-B-C correction.  This
takes a little getting used to as the first inclination is to use
the (A), (B), (C) labeling of the Intermediate degree.  We don't
use these labels until the (5) wave is complete.

My computer does not have the fonts necessary to label Grand
Supercycle, Primary and Minute degrees.  I searched through a CD
with 2000 fonts and nothing even came close.  I am going to have
to find some type of solution so that I can be consistent with
this labeling schema.  (If anyone has a font that I could use, I
would appreciate it if you could send it to me.)

The charting program I use does not use this system either.  The
program starts all waves as a Primary with the next subdivision
as a Minor and then to Subminuette.  This works for the short
term snapshots that we look at but keep in mind that it is not
"official" or consistent with smaller subdivision labeling.

When labeling the Dow, I will strive to use the official,
standardized notation.  When labeling a stock, I will use a
modified version of this notation as consistent as I can be.
Since all the stocks would not participate in the Grand
Supercycle degree, I would most likely adopt my charting
program's schema and start at the Primary degree.  This works as
long as I do not try to compare a weekly chart to a daily chart
to an hourly chart.

It is important to use correct nomenclature and notation so that
we can communicate without confusion with other Elliotticians our
analysis of a stock.


Where is the Dow Going?
By Steve Gould

Many years ago, the US government published a study on the bumble bee.
The conclusion of this multi-million dollar research project stated
that because of the bumble bee's size, weight, shape, wingspan,
drag/lift ratios and metabolism, it can not fly.  The bumble bee, not
having read the government's study, just keeps going from flower to
flower to flower to flower.

Because of the Dow's Elliott Wave count, Fibonacci time relationships,
overbought technical indicators and bullish sentiment the Dow cannot
continue to go up.  Yet, the Dow, not having read the white papers on
technical analysis continues to inch higher and higher and higher and

Will the Dow continue to go up, or is it just about to crash?  Every
technical indicator I see says the Dow is about to crash, yet the Dow
does not seem to be paying much attention to the technical indicators.
I fear though that a time will come very soon when the technical
indicators are going to catch up with the Dow's rebellious behavior and
a Dow crash is going to catch a lot of people off their guard.  Well,
with the bullish sentiment higher than it has ever been, that won't be
very hard to do.

Last week I was convinced that the Dow was headed lower.  Nothing like
a 300 point rally to quash your convictions.  The question remains,
where will the Dow go from here?

Chart: Dow Daily 6/1/2003

Here is a chart of the Dow since January 2000.  I have relabeled it
slightly to correspond more accurately with the correct labeling
terminology.  (See Trading Corner article "Ooops" written by me.)

The 2 wave is still intact but not by much.  It will remain intact
until it reaches 9043 which is the peak of the (2) wave.  Should it
breach 9043, then the Dow would be relabeled as follows.

Chart: Dow Daily Relabeled 6/1/2003

So what would change should the Dow breach 9043?  Should the Dow reach
9044, the wave (2) correction will morph into a flat and will be spaced
out a bit more.  The Dow will then take one of two paths. It could
continue to trend higher, conceivably up to 10500, thus forming a
zigzag or it could remain a flat and start the (3) wave.  Being at the
crossroads, it would be best to step back and wait for the trend to
reveal itself.  (An alternate strategy would be to buy a straddle.  Up
or down, you win.  Just not as much.)  In either case the long term
trend is still bearish.  It is just a matter of time.

But the Dow has not yet breached 9043.  What would transpire if it

If the Dow is going to peak, it must do so soon. In less than 200
points, it will breach the 9043 level and the wave count will have to
be relabeled.

Chart: Dow Daily Since August

I am looking at this daily chart and trying to get a rational labeling
for the 2 wave.  This is not an easy wave to label and all the
alternatives lack reasonableness.  It is still a valid wave count but I
am going to defer and see how the Dow plays out before trying to
anticipate the labeling.

Chart: Dow Hourly 6/1/2003

Looking at an hourly chart, a case could be made for the peaking of the
C wave.  The last run traces out an impulse pattern with a slight throw
over.  A throw over is where the v (five) wave extends past the blue
trend line and then returns backs.  Sort of like a false break out.  In
this case, the v wave may not yet be complete.  It may print out a few
more points and then head down.  Technically speaking, Elliott Wave-
wise, the Dow should not print out more than a few more points and then
start heading down. From an hourly chart perspective, it just doesn't
make sense for the Dow to head higher.  Should this be the case, we
would expect to see a new 5 wave basic pattern trace out heading down.

Bottom line is that the Dow can only trace higher about 150 more points
before the wave count must be relabeled.  Should it breach the 9043
level, it would be best to step aside and wait for the direction to
reveal itself.  Otherwise, it will head up for about 50 or so points
and then head down and with a pent up vengeance that will make the
bulls head spin.


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The Option Investor Newsletter                   Sunday 06-01-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Choosing The Best Option -- Part II
Naked Puts: Option Pricing Fundamentals
Spreads/Straddles/Combos: Rally In Progress!

Updated In The Site Tonight:
Market Posture: Still Going Strong

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Note: Options involve risk. Risk disclosure:



Trading Basics: Choosing The Best Option -- Part II
By Mark Wnetrzak

Last week's narrative on position selection with covered-writes
generated an interesting E-mail from one of our new readers.

Attn: Covered-Calls Editor
Subject: OTM Versus ITM Calls

Hello Mark,

I have used covered-calls in the past but only with some success
as the market has not treated my portfolio well over the past few
years.  I read your thoughts on selling in the money calls and I
like the fact that we have lots of downside with this method, but
it appear that there is little profit made when the stock is in a
bullish trend.  In a market like we have right now, it seems like
out of the money calls would be the best course of action and if
I am betting on the stock to go much higher, I might as well just
buy the stock and use a stop on the downside.  Also, I do not see
how you can do much with an in the money call if the stock rises
a lot.  You just lose all the upside potential.

Thanks for some great picks even if I don't always sell the calls!


Greetings KP,

The in-the-money approach to covered-writing is a relatively low
risk strategy for investors who want to earn income through stock
ownership.  The goal of this technique is to achieve acceptable
returns while still receiving an above-average amount of downside
protection for the underlying stock.  A profitable outcome is not
dependent so much on selecting a "bullish" stock but rather on
identifying situations where there is a high probability that the
issue will remain above the (position) cost basis until option
expiration.  Of course, the strategy isn't foolproof -- there is
risk in all trading -- but it does have less risk than outright
stock ownership.

At OptionInvestor.com, we favor a very conservative, in-the-money
approach and in my opinion, it has been the only viable method to
selling calls against portfolio stock in the recent "volatile"
market.  But, even in a bullish environment, we usually recommend
writing in-the-money covered-calls as we are not interested in
long-term stock ownership or share value appreciation, but rather
in a high probability of making a low yet reasonable return.  The
fact that we really can't predict stock movement reinforces our
reasoning for choosing to hedge stock ownership with ITM covered
writes.  If you find that you are lucky enough to own a rallying
stock after writing in-the-money calls, there are alternatives.

You can:

1) Allow the stock to be "called" and accept the original profit
   you established when you sold the options.

2) Close the position early -- if the call is near parity -- for
   a profit.  However, be sure to evaluate the extra commissions
   versus an increased annualized return.

3) Roll the calls forward, or forward and up to establish a new
   (higher) cost basis and maximum profit in the overall position.

In all cases, evaluate the risk-reward in each scenario and choose
the alternative that fits your outlook for the underlying issue.
Rolling up may seem like a good idea at first, but the catch (and
there is always a catch) is that you give up downside protection.
When a trader rolls-up a covered-call position, a debit is usually
incurred and this is often considered undesirable because you are
putting more money at risk in a previously profitable position.

Despite the "conservative" label on this strategy, it is possible
to lose money.  Prudent money management suggests you should have
mechanical (or mental) stop-loss order on the underlying issue to
limit draw-downs.  In addition, we recommend that you never invest
more than 10%-20% of your overall portfolio in one stock.  This is
a very important concept of money management because no one knows
what is going to happen in the future.  Diversity is paramount to
success with smaller portfolios and in simple terms, you do not
want to have "one ship that sinks the whole fleet."

Of course, you will almost always endure one or two unanticipated,
catastrophic events in a year, but we have found that a diversified
portfolio of ITM covered-calls, when implemented in a disciplined
manner and managed diligently, historically will generate a 15-30%
yearly return.  With this background in mind, the ITM covered-write
strategy seems appropriate for conservative investors who prefer to
focus on a high probability of obtaining an acceptable return, in a
stock-based portfolio that has relatively low tolerance for risk.

Trade Wisely!


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

Note:  Margin not used in calculations.

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

NOR      2.67    2.68  JUN  2.50  0.40    0.23*   8.8%
IPXL     7.86    8.50  JUN  7.50  0.80    0.44*   7.0%
ABGX    11.18   10.64  JUN 10.00  1.90    0.72*   6.7%
PLUG     5.08    5.43  JUN  5.00  0.35    0.27*   6.4%
MOSY     7.50    8.26  JUN  7.50  0.60    0.60*   6.3%
ALKS    12.84   12.89  JUN 12.50  0.95    0.61*   5.8%
IDNX     5.60    6.33  JUN  5.00  0.90    0.30*   5.5%
TER     13.06   17.15  JUN 12.50  1.40    0.84*   5.2%
FCS     12.55   13.98  JUN 12.50  0.60    0.55*   5.2%
OVER    14.55   17.80  JUN 12.50  2.75    0.70*   5.2%
MDR      5.08    6.07  JUN  5.00  0.40    0.32*   5.0%
AWE      7.64    7.77  JUN  7.50  0.45    0.31*   4.9%
PLUG     5.39    5.43  JUN  5.00  0.65    0.26*   4.8%
FEIC    17.65   20.25  JUN 17.50  0.85    0.70*   4.7%
FFIV    15.45   17.32  JUN 15.00  1.30    0.85*   4.4%
GNTA     8.78   11.62  JUN  7.50  1.70    0.42*   4.3%
MRVL    26.72   31.67  JUN 25.00  3.10    1.38*   4.2%
CELG    31.48   31.48  JUN 30.00  2.80    1.32*   4.0%
BRCM    21.40   24.51  JUN 20.00  2.25    0.85*   3.9%
PEGS    13.00   14.19  JUN 12.50  0.85    0.35*   3.2%
GP      17.99   17.30  JUN 17.50  1.40    0.71    3.1%

*   Stock price is above the sold striking price.


The Bulls continue to power the market higher as the Bears look on
in disbelief.  Will the bullishness continue unabated?  Only time
will tell, but next week should offer some clues.  The covered-call
portfolio remains in fine shape with only a few issues causing a
bit of "sellers remorse" such as Marvell Technology (NASDAQ:MRVL) -
up $5.00, or Teradyne (NYSE:TER) - up $4.00.  As for the early-exit
watch list, Abgenix (NASDAQ:ABGX) continues to act a bit suspicious
"technically" ahead of this week's American Society of Clinical
Oncology's annual convention.  Georgia-Pacific's (NYSE:GP) current
consolidation could make a move towards support at its 50- and 150-
day MAs near $16.30.  Alkermes (NASDAQ:ALKS) is selling off a bit
after the firm reported a wider loss on lower R&D revenues and a
pull-back towards its 30-day MA around $11.00 could be forthcoming.
Celgene (NASDAQ:CELG) dove somewhat drastically on Thursday after
announcing that it had sold $325 million of convertible notes due
in 2008, however some "good" news on Friday offered a small rebound.
A test towards the 30-day MA around $29.00 seems likely.

Positions Previously Closed: None.


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

SUPG    5.04  JUN  5.00  UQG FA  0.65  1297    4.39  21  20.1%
ARIA    3.37  JUN  2.50  UAQ FZ  1.05  8       2.32  21  11.2%
LGTO    7.60  JUN  7.50  EQN FA  0.45  2186    7.15  21   7.1%
FMKT    7.51  JUN  7.50  FAQ FU  0.35  451     7.16  21   6.9%
CBST   10.79  JUN 10.00  UTU FB  1.15  179     9.64  21   5.4%
OVER   17.80  JUN 15.00  GUO FC  3.30  5930   14.50  21   5.0%
MLNM   15.55  JUN 12.50  QMN FV  3.40  3130   12.15  21   4.2%

Company Descriptions

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

SUPG - SuperGen  $5.04  *** Drug Stock Speculation ***

SuperGen (NASDAQ:SUPG) is a pharmaceutical company dedicated to
the acquisition, development and commercialization of oncology
therapies for solid tumors, hematological malignancies and blood
disorders.  The company has 3 key compounds: Nipent, Orathecin
and decitabine.  Nipent is approved by the United States FDA and
marketed by SuperGen for the treatment of hairy cell leukemia.
Orathecin, its lead drug candidate, is close to completing three
randomized Phase III studies and has been submitted for two New
Drug Applications.  Decitabine is also in Phase III clinical
studies.  SuperGen's portfolio of products also includes generic
daunorubicin (leukemias), Mitozytrex (mitomycin for injection),
cancer vaccine Avicine, Partaject-delivered busulfan and inhaled
versions of Orathecin and paclitaxel.  SuperGen appears to have
broken through a resistance area near $4.50 on increasing volume.
Investors who have researched the company's drug-pipeline and
retain a bullish outlook can use this position to obtain a
favorable cost basis in the issue.

JUN-5.00 UQG FA LB=0.65 OI=1297 CB=4.39 DE=21 TY=20.1%

ARIA - Ariad  $3.37  *** Cheap Speculation ***

Ariad Pharmaceuticals (NASDAQ:ARIA) is engaged in the discovery
and development of breakthrough medicines that regulate cell
signaling with small molecules.  The company is developing a
comprehensive approach to the treatment of cancer.  It is mainly
focused on a series of product candidates for targeted indications:
AP23573 (in Phase I development) to treat solid tumors and other
malignancies; AP23464, to block the spread of cancer and to treat
certain forms of leukemia, and AP23841, to treat cancer that has
spread to bone, as well as to treat primary bone cancers, such as
osteogenic sarcomas.  Ariad's stock jumped Friday after the company
released promising preclinical data on its lead cancer product
candidate, AP23573.  Speculators can use the inflated premiums to
establish a bullish, low-risk position in the issue.  Trying to
target-shoot a lower "net-debit" will reduce the cost basis and
raise the potential yield in the position.

JUN-2.50 UAQ FZ LB=1.05 OI=8 CB=2.32 DE=21 TY=11.2%

LGTO - Legato  $7.60  *** On The Move! ***

Legato Systems (NASDAQ:LGTO) develops, markets and supports storage
software products and services worldwide.  The Company has three
product categories: Information Protection solutions, Application
Availability solutions and Content and Messaging solutions.  LGTO's
solutions protect and manage information, assure the availability
of applications and provide immediate access to business-critical
information in distributed open systems environments. Its solutions
provide enterprise level customers the business continuity and
operational efficiency to maintain a constant state of access to,
and availability of, business-critical information. The company's
products are mostly found in UNIX, Windows NT, Windows 2000 and
Linux server and storage computer systems.  Legato recently said
it is still comfortable with a 2003 revenue growth expectation of
20% as the company continues to reduce its work force.  We simply
favor the bullish breakout above resistance near $6.50 on heavy
volume.  Traders who believe the rally will continue can profit
from that outcome with this position at the risk of owning Legato
with a cost basis near $7.00.

JUN-7.50 EQN FA LB=0.45 OI=2186 CB=7.15 DE=21 TY=7.1%

FMKT - FreeMarkets  $7.51  *** Bottom Fishing ***

FreeMarkets (NASDAQ:FMKT) offers software, services and information
to help companies improve their sourcing and supply management
processes and enhance the capabilities of their supply management
organization.  The company's customers are buyers of industrial
parts, raw materials, commodities and services.  FreeMarkets'
solutions combine software, services and information to address
the global supply management market.  The company serves its
customers from 18 locations in 14 countries on five continents.
FMKT has been forging a Stage I base since last summer and the
stock's share price has recently moved above its 150-day MA.  The
stock appears poised to move higher in the coming sessions and
traders who believe the issue is destined for a future rally can
profit from upside movement with this position.

JUN-7.50 FAQ FU LB=0.35 OI=451 CB=7.16 DE=21 TY=6.9%

CBST - Cubist  $10.79  *** New Trading Range? ***

Cubist Pharmaceuticals (NASDAQ:CBST) is a pharmaceutical company
focused on the research, development and commercialization of
novel anti-microbial drugs to combat serious and life-threatening
bacterial and fungal infections.  Cubist is conducting multiple
Phase III trials for Cidecin, its lead product candidate in a new
class of anti-microbial drug candidates called lipopeptides.
The company is also conducting trials for oral formulations of
ceftriaxone and daptomycin, and initiated a lipopeptide program
aimed at discovering other clinically useful products.   Shares
of Cubist have rallied since February when US pharmaceutical
regulators said they would give priority to approving Cidecin,
Cubist's new antibiotic.  WR Hambrecht recently began coverage
of Cubist with a "buy" rating and a $14 stock price target.  The
technical outlook continues to improve and our position offers
excellent reward potential at the risk of owning the issue at a
reasonable cost basis -- just above an old trading range.

JUN-10.00 UTU FB LB=1.15 OI=179 CB=9.64 DE=21 TY=5.4%

OVER - Overture Services  $17.80  *** Buyout Potential? ***

Overture (NASDAQ:OVER) is engaged in the Pay-For-Performance
search on the Internet.  The company's search service is
comprised of advertiser's listings, which are screened for
relevance and accessed by consumers and businesses through
Overture's affiliates, a network of Web properties that have
integrated its search service into their sites or that direct
user traffic to Overture's own site.  In some cases, consumers
and businesses access the company's search listings directly
at its site.  The search listings are ranked by the advertisers'
bid; the higher the bid, the higher the ranking.  Advertisers
pay Overture the bid price for clicks on the advertisers' search
listing, click-through or a paid click.  As of December 31, 2002,
Overture and its wholly owned subsidiaries operated the search
service in the United States, United Kingdom, Germany, France
and Japan.  Overture continues to rally higher as the online
search companies gain further attention amid potential buyout
or merger speculation.  Overture is an ongoing candidate for an
acquisition by larger companies trying to compete with Google.
We simply favor the abrupt technical change and traders can
speculate on the outcome of the rumors with this conservative

JUN-15.00 GUO FC LB=3.30 OI=5930 CB=14.50 DE=21 TY=5.0%

MLNM - Millennium  $15.55  *** New Drug Approval ***

Millennium Pharmaceuticals (NASDAQ:MLNM) is a biopharmaceutical
company focused on developing and commercializing products in
several disease areas.  The company has a cardiovascular disease
product already on the market and a cancer product under review
for marketing approval.  Millennium also has potential products
in earlier stages of development in each of those areas and in
its inflammatory disease and metabolic disease areas.  Their
cardiovascular product, Integrilin (eptifibatide) Injection, is
approved for marketing in the U.S. for the treatment of patients
with acute coronary syndromes, which include unstable angina and
heart attack, and for use at the time of a percutaneous coronary
intervention.  Velcade is a novel drug candidate that may have
broad applications in the treatment of cancer.  MLNM jumped in
early May after the FDA granted approval for the therapy, Velcade,
to be used in multiple myeloma patients who've not responded to
other drugs.  Velcade is the first treatment in more than a decade
to be approved for patients with multiple myeloma -- a cancer of
the blood that afflicts about 15,000 people every year.  The sharp
rally continued this week and the move above the August high bodes
well for further upside potential.  Investors who agree with the
bullish outlook for Millennium can establish a reasonable cost
basis in the issue with this position.

JUN-12.50 QMN FV LB=3.40 OI=3130 CB=12.15 DE=21 TY=4.2%



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

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

AMCC    5.03  JUN  5.00  AEX FA  0.30  11837   4.73  21   8.3%
ONXX   10.10  JUN 10.00  OIQ FB  0.60  586     9.50  21   7.6%
NANX    5.36  JUN  5.00  NSY FA  0.60  70      4.76  21   7.2%
ISIS    6.39  JUN  5.00  QIS FA  1.60  693     4.79  21   6.4%
TSM    10.14  JUN 10.00  TSM FB  0.55  2738    9.59  21   6.2%
OIIM   15.38  JUN 15.00  XQQ FC  1.00  96     14.38  21   6.2%
UTEK   17.63  JUN 17.50  UQT FW  0.85  410    16.78  21   6.2%
SBSA    7.55  JUN  7.50  DFU FU  0.35  42      7.20  21   6.0%
CMVT   15.27  JUN 15.00  CQV FC  0.85  1452   14.42  21   5.8%
ICST   26.05  JUN 25.00  IUY FE  1.95  224    24.10  21   5.4%
RNA     5.08  JUN  5.00  RNA FA  0.25  1169    4.83  21   5.1%
ANT    25.07  JUN 25.00  ANT FE  0.85  31     24.22  21   4.7%
TLAB    7.92  JUN  7.50  TEQ FU  0.65  6087    7.27  21   4.6%
FEIC   20.25  JUN 20.00  FQE FD  0.85  89     19.40  21   4.5%
MBG    30.15  JUN 30.00  MBG FF  1.00  991    29.15  21   4.2%
UTHR   20.00  JUN 20.00  FUH FD  0.55  20     19.45  21   4.1%
SEPR   22.82  JUN 20.00  ERQ FD  3.30  2723   19.52  21   3.6%


Options 101: Option Pricing Fundamentals
By Ray Cummins

A successful trader will always seek to improve the risk-reward
characteristics of his position by looking for the trade with the
greatest possible margin for error.

In order to achieve this goal, a trader must be able to accurately
assess an option's value and one of the most important components
of option pricing is the mathematical concept of time decay.  Time
value and time decay are actually two of the easiest aspects of
option pricing to understand and this knowledge is a prerequisite
for premium-selling strategies such as writing "naked" puts.  The
time value of an option can be simply stated as everything but the
intrinsic value.  Intrinsic value in options is the "in-the-money"
portion of the option's premium.  For put options, it is simply the
difference between the strike price of the option and the current
stock price.  One feature that quickly becomes obvious to option
traders is: Time costs money and more time equals more money.  The
reason is, the amount of time value in an option's price declines
each day it is in existence.  Too make things worse, the closer it
gets to expiration, the faster the time value in the option decays.
In a strictly mathematical sense, time value decays at its square
root and this rate of decay is known as Theta.

Time is a commodity and there is one very important concept that
merchants of time (option sellers) must understand; the laws of
option pricing dictate that time value (or premium) is highest in
the at-the-money option.  Time value decreases as the strike prices
move in and/or out of the money and strike prices that are deep in-
and/or out-of-the-money have the lowest time value of all options.
Does this fact suggest that you shouldn't sell out-of-the-money put
options, where the probability of a profitable outcome is very high?
Of course not!  It simply means that option sellers (as well as
buyers) need to have a firm grasp of pricing theory before they
enter a position.  Remember, the main attraction of options to most
traders is they provide the buyer with leverage.  In fact, a trader
can realize a large percentage gain with only a modest change in the
stock price.  The concept of delta tells us that buying out-of-the-
money options offers greater reward potential if the stock moves
substantially while in-the-money options will perform better if the
stock only moves moderately, in a given period.  By the same logic,
the sale of out-of-the-money options offers more leverage, and a
much higher success rate when the stock trades in a relatively small

Choosing the correct time frame of a position also requires careful
analysis because options with more time until expiration have higher
"premium" and yet the more time value remaining in the option, the
greater the potential for adverse movement.  The actual amount of
time premium in an option is based in part on historical volatility
(past price movement of the underlying) and implied volatility, which
approximates how much the marketplace thinks prices will move in the
future.  As you might expect, the implied volatility of an option
is more important as it is the component that can help you identify
over-priced and under-priced options, and improve market timing in
entering/exiting positions.  It is a crucial element in determining
an option's fair value because it reflects the amount by which an
underlying asset is expected to fluctuate in a given period of time.
Since implied volatility is a computed value, it is best calculated
with the aid of software that can easily match theoretical option
prices with the current market prices of the option.  The formulas
for pricing options offer an acceptable estimate of the value of an
option but because they are highly leveraged instruments, options
can exaggerate the emotional optimism or pessimism of the market,
causing prices to vary widely from their true worth.  Examining the
difference between a stock's historical volatility and its implied
volatility can help you recognize when an option is favorably priced.
In short, if the option's implied volatility is higher than its
historical volatility, the option is theoretically overpriced and
traders should look for those types of opportunities to initiate
"premium selling" strategies.

All of these variables must be clearly understood for a trader to
profit on a consistent basis and for more information, consult the
bibles of option trading: "Option Volatility & Pricing: Advanced
Trading Strategies and Techniques" by Sheldon Natenberg, and also,
"Options As A Strategic Investment" by Lawrence G. McMillan.

Good Luck!


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

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

USG     11.85   11.64  JUN  7.50  0.35    0.35*   4.3%  11.2%
CTIC    11.96   12.50  JUN 10.00  0.30    0.30*   3.5%  10.8%
ANPI    28.27   29.79  JUN 22.50  0.80    0.80*   3.2%  10.8%
CTIC    10.21   12.50  JUN  7.50  0.25    0.25*   3.0%   9.5%
ANPI    25.20   29.79  JUN 17.50  0.75    0.75*   3.2%   9.4%
IMCLE   21.20   28.50  JUN 15.00  0.50    0.50*   3.0%   9.2%
OVTI    28.64   35.89  JUN 22.50  0.80    0.80*   2.7%   8.9%
APPX    27.77   29.24  JUN 22.50  0.65    0.65*   2.6%   8.7%
NVDA    21.37   26.17  JUN 17.50  0.55    0.55*   2.3%   7.6%
CELG    27.42   31.48  JUN 22.50  0.70    0.70*   2.3%   7.5%
OVTI    30.92   35.89  JUN 25.00  0.45    0.45*   2.1%   7.3%
ITMN    23.89   25.29  JUN 20.00  0.60    0.60*   2.2%   6.9%
ITMN    25.76   25.29  JUN 22.50  0.60    0.60*   2.4%   6.8%
OSIP    26.08   26.36  JUN 22.50  0.40    0.40*   2.0%   6.2%
SOHU    22.83   28.04  JUN 17.50  0.35    0.35*   1.8%   6.2%
CELG    31.10   31.48  JUN 25.00  0.35    0.35*   1.6%   5.9%
ANPI    28.45   29.79  JUN 22.50  0.30    0.30*   1.5%   5.6%
SFA     20.29   19.69  JUN 17.50  0.35    0.35*   1.8%   5.4%
NVDA    21.26   26.17  JUN 17.50  0.30    0.30*   1.5%   5.2%
APPX    23.40   29.24  JUN 15.00  0.35    0.35*   1.7%   5.0%
APPX    32.20   29.24  JUN 25.00  0.30    0.30*   1.4%   5.0%
CYBX    23.31   18.94  JUN 20.00  0.30   -0.76    0.0%   0.0%

*  Stock price is above the sold striking price.


Friday's blockbuster rally pushed the major equity averages to
the verge of a technical "break-out."  Is it too good to be true?
Is the bear market of 2000 really over?  Of course, I'm as hopeful
as anyone, but I prefer to remain cautious with a conservative
approach to portfolio management and a guarded outlook for all
new positions.  One portfolio stock that made the headlines this
week is Cyberonics (NASDAQ:CYBX) and the activity deserves mention.
Shares of CYBX, which makes a surgically implantable pacemaker-like
device to treat severe epilepsy, fell over 15% on Wednesday after
the company said earnings for the first quarter and the year 2004
would be at the low end of analysts' estimates.  The news came in
conjunction with the firm's quarterly report, which showed that
Cyberonics posted a profit in the latest quarter versus a loss a
year earlier, as strong sales of its products helped propel the
medical device company to its first profitable year.  After the gap
down, the issue showed no real signs of resiliency, but the current
range near $19 seems to be developing into a new "comfort zone" and
it will be interesting to see where the stock goes from here.  For
the record, our current (closed) position is approximately $0.70 in
the red and that's with a $5 drop in the price of the underlying.

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


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.


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

For more information on margin requirements, please refer to:



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


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

IMCLE  28.50  JUN 22.50  QCI RX 0.50 1005 22.00  21   3.3%  11.7%
OVTI   35.89  JUN 30.00  UCM RF 0.70 872  29.30  21   3.5%  11.1%
FLEX   10.50  JUN 10.00  QFL RB 0.25 1227  9.75  21   3.7%   9.2%
GNSS   19.02  JUN 17.50  QFE RW 0.40 367  17.10  21   3.4%   8.9%
SOHU   28.04  JUN 22.50  UZK RX 0.35 920  22.15  21   2.3%   8.4%
ICST   26.05  JUN 22.50  IUY RX 0.30 270  22.20  21   2.0%   6.1%
NVLS   34.67  JUN 30.00  NLQ RF 0.40 7663 29.60  21   2.0%   6.0%

Company Descriptions

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

IMCLE - ImClone  $28.50  *** Drug Stock Speculation! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company 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.  IMCL's shares rallied in early March amid optimism that
new data about the firm's experimental cancer drug Erbitux will be
released shortly and prove positive.  The rally continued after the
biotech firm received a $60 million cash payment from Bristol-Myers
Squibb under the companies' amended March 2002 agreement to develop
Erbitux.  Thus week, IMCL shares soared amid reports of the drug's
effectiveness in treating cancer patients.  Investors appear to be
optimistic about the rumors and traders wouldn't mind owning IMCLE
at a cost basis near $22 should consider this position.

JUN-22.50 QCI RX LB=0.50 OI=1005 CB=22.00 DE=21 TY=3.3% MY=11.7%

OVTI - OmniVision  $35.89  *** Onward And Upward! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OmniVision has been a solid performer in
recent months and on Friday the issue traded at a new "all-time"
high.  Investors can use this position to speculate on the firm's
near-term share value with the risk of owning the stock at a cost
basis below $30.

JUN-30.00 UCM RF LB=0.70 OI=872 CB=29.30 DE=21 TY=3.5% MY=11.1%

FLEX - Flextronics  $10.50  *** Earnings Speculation! ***

Flextronics International (NASDAQ:FLEX) is a provider of advanced
electronics manufacturing services to OEMs (original equipment
manufacturers), primarily in the hand-held electronics devices,
information technologies (IT) infrastructure, communications
infrastructure, computer and office automation and other consumer
devices industries.  The company provides a network of design,
engineering and manufacturing operations in 28 countries across
four continents.  The company's strategy is to provide customers
with end-to-end operational solutions where it takes responsibility
for engineering, new product introduction and implementation, supply
chain management, manufacturing and logistics management, with the
goal of delivering a complete packaged product.  Flextronics is due
to announce earnings next week and traders who think the bullish
chart pattern is an indication of the character of the upcoming
report should consider this position.

JUN-10.00 QFL RB LB=0.25 OI=1227 CB=9.75 DE=21 TY=3.7% MY=9.2%

GNSS - Genesis Microchip  $19.02 *** Rally Mode! ***

Genesis Microchip (NASDAQ:GNSS) designs, develops and markets
integrated circuits that receive and process digital video and
graphic images.  The company's ICs are typically located inside
a display device and process incoming images for viewing on that
display.  Genesis is targeting the flat-panel computer monitor,
flat-panel television and progressive scan cathode ray tube TV
markets and other potential mass markets.  The firm's products
solve input, resolution, format and frame refresh rate conversion
problems, while maintaining critical image information and also
improving perceived image quality.  Its products utilize patented
algorithms and IC architectures, as well as advanced IC design
and system design expertise.  Genesis operates through various
subsidiaries and offices in the United States, Canada, China,
India, Japan, South Korea and Taiwan.  Shares of GNSS have been
in "rally mode" this week and investors are optimistic about the
company's mid-quarter conference call, which will be broadcast
on Tuesday.  Traders who believe the recent upside momentum will
continue can profit from that outcome with this position.

JUN-17.50 QFE RW LB=0.40 OI=367 CB=17.10 DE=21 TY=3.4% MY=8.9%

SOHU - Sohu.com  $28.04  *** Another All-Time High! ***

Sohu.com (NASDAQ:SOHU) is an Internet portal in China.  The firm's
portal consists of sophisticated Chinese language Web navigational
and search capabilities, 15 main content channels, Internet-based
communications and community services, and a unique platform for
e-commerce and short messaging services.  Each of the company's
interest-specific main channels contains multi-level sub-channels
that cover a range of topics; news, business, entertainment, sports
and careers.  The firm also offers free Web-based e-mail.  Sohu.com
offers a universal registration system, and the company's portal
attracts consumers and merchants alike.  One of the key features is
a proprietary Web navigational and search capabilities that reflects
the cultural characteristics and thinking and viewing habits of the
People's Republic of China Internet users.  Internet use is growing
exponentially among foreign countries and China enjoys the largest
population in the world.  Investors who want to participate in the
country's Internet explosion should consider this position.

JUN-22.50 UZK RX LB=0.35 OI=920 CB=22.15 DE=21 TY=2.3% MY=8.4%

ICST - Integrated Circuit Systems  $26.05  *** Break-Out! ***

Integrated Circuit Systems (NASDAQ:ICST) supplies a broad line
of timing products for use in personal computer motherboards and
peripheral applications.  These silicon timing devices control
multiple processes by providing and synchronizing the timing of
the computer system, including signals from the video screen,
graphics controller, memory, keyboard, microprocessor, drives
and communication ports.  The company also designs, develops and
sells silicon-timing devices for non-PC motherboard applications,
such as digital videodisk players, digital set-top boxes, digital
cameras, laser printers, flat panel displays and digital TVs.  In
addition, it offers surface acoustic wave technology to develop
high-performance products for optical networking and wireless
infrastructure markets.  This week, shares of ICST used the rally
in technology issues to break-out of a multi-month trading range
near $23.  Traders who believe the upside momentum will continue
can profit from that outcome with this position.

JUN-22.50 IUY RX LB=0.30 OI=270 CB=22.20 DE=21 TY=2.0% MY=6.1%

NVLS - Novellus Systems  $34.67  *** Semiconductors Soar! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.  Novellus has always been a popular issue in the chip
sector and now that the stock is in a bullish trend, traders can
profit from any future upside activity with this position.

JUN-30.00 NLQ RF LB=0.40 OI=7663 CB=29.60 DE=21 TY=2.0% MY=6.0%



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

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

SEPR   22.82  JUN 20.00  ERQ RD 0.65 6191 19.35  21   4.9%  13.5%
MSCC   13.26  JUN 12.50  QMS RV 0.40 78   12.10  21   4.8%  11.7%
ENZ    25.42  JUN 22.50  ENZ RX 0.60 209  21.90  21   4.0%  11.1%
ULTE   10.66  JUN 10.00  QTQ RB 0.30 12    9.70  21   4.5%  11.1%
PCTI   13.30  JUN 12.50  UKC RV 0.35 57   12.15  21   4.2%  10.4%
SEAC   11.26  JUN 10.00  UEG RB 0.25 86    9.75  21   3.7%  10.4%
BRCM   24.51  JUN 22.50  RCQ RX 0.55 4191 21.95  21   3.6%   9.5%
INVX   10.68  JUN 10.00  IVQ RB 0.25 6     9.75  21   3.7%   9.4%
ADIC   10.53  JUN 10.00  QXG RB 0.25 42    9.75  21   3.7%   9.2%
NSM    24.96  JUN 22.50  NSM RX 0.50 1059 22.00  21   3.3%   9.0%
CVTX   32.39  JUN 30.00  UXC RF 0.70 0    29.30  21   3.5%   9.0%
TALX   18.03  JUN 17.50  TUB RW 0.40 0    17.10  21   3.4%   8.2%
PRGS   20.39  JUN 20.00  RGQ RD 0.45 0    19.55  21   3.3%   7.9%
MCDT   13.46  JUN 12.50  DXZ RV 0.25 95   12.25  21   3.0%   7.7%
NVDA   26.17  JUN 22.50  UVA RX 0.35 2495 22.15  21   2.3%   7.1%
SNDK   36.34  JUN 30.00  SWQ RF 0.35 1911 29.65  21   1.7%   5.9%



Rally In Progress!
By Ray Cummins

The major equity averages soared Friday with technology issues
leading the way as the first signs of an economic recovery gave
investors a good reason to buy stocks.

The tech-laden NASDAQ composite added 20 points to finish the
day at 1,595, its highest level in 12 months.  The blue-chip Dow
Jones industrial average jumped 139 points to 8,850, its best
close of 2003.  The Standard & Poor's 500 climbed 13 points to
963 in a third straight month of gains.  Winners tripled losers
on the New York Stock Exchange while advancers doubled decliners
on the NASDAQ.  Trading was very active with almost 1.7 billion
shares changing hands on the Big Board and over 2 billion shares
swapped on the technology exchange.  The rally in stocks erased
demand for safe-haven debt, sending 10-year Treasury notes down
6/32, with a closing yield of 3.36%.


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


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

BZH     71.80  84.80   JUN  60  65   0.55  64.45  $0.55   Open
CECO    60.52  61.39   JUN  50  55   0.50  54.50  $0.50   Open
FDC     40.22  41.42   JUN  35  37   0.30  37.20  $0.30   Open
RCII    65.35  66.29   JUN  55  60   0.50  59.50  $0.50   Open
ADTN    45.05  48.30   JUN  35  40   0.45  39.55  $0.45   Open
KLAC    42.49  46.23   JUN  35  37   0.30  37.20  $0.30   Open
LLTC    36.34  36.43   JUN  30  32   0.30  32.20  $0.30   Open
ROST    40.09  42.22   JUN  35  37   0.40  37.10  $0.40   Open
BSX     48.70  52.10   JUN  38  40   0.25  39.75  $0.25   Open
UNH     95.41  95.94   JUN  85  90   0.55  89.45  $0.55   Open
WLP     81.05  85.34   JUN  70  75   0.40  74.60  $0.40   Open
BSX     50.51  52.10   JUN  40  42   0.25  42.25  $0.25   Open
PHM     63.71  65.59   JUN  55  60   0.40  59.60  $0.40   Open

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


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

PG      90.15  91.82   JUN 100  95   0.40  95.40  $0.40   Open
GS      75.00  81.50   JUN  85  80   0.60  80.60 ($0.90) Closed
MMM    122.81 126.47   JUN 135 130   0.50 130.50  $0.50   Open
ANF     27.25  28.55   JUN  32  30   0.20  30.20  $0.20   Open
GM      34.41  35.33   JUN  40  37   0.25  37.75  $0.25   Open
JCI     81.61  83.25   JUN  90  85   0.55  85.55  $0.55   Open
BRL     52.56  52.75   JUN  60  55   0.70  55.70  $0.70   Open
CCMP    41.55  46.27   JUN  50  45   0.50  45.50 ($0.77) Closed
KSS     51.22  52.35   JUN  60  55   0.55  55.55  $0.55   Open

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

Conservative traders should consider closing positions in Cabot
Micro (NASDAQ:CCMP) and Goldman Sachs (NYSE:GS).  Virtually all
other bearish plays are "watch-list" members.  The position in
Nabors Industries (NYSE:NBR) has previously been closed to limit
potential losses.


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

AXP     38.46  41.66  JUN   32  35   2.20   34.70  0.30   Open
GENZ    41.47  47.39  JUN   35  37   2.20   37.20  0.30   Open
BSX     46.91  52.10  JUN   37  40   2.25   39.75  0.25   Open
MERQ    35.75  39.31  JUN   30  32   2.25   32.25  0.25   Open

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


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

WMT     52.92  52.61  JUN   60  55   4.50   55.50  0.50   Open
HDI     40.81  42.16  JUN   45  42   2.10   42.90  0.40   Open

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

Harley Davidson (NYSE:HDI) is now on the early-exit "watch" list.


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

SMH     26.43  29.95   AUG     30    22     0.10    1.90    Open
MRVL    26.72  31.67   JUN     30    22    (0.20)   2.50    Open
ICOS    29.85  31.65   JUL     35    25    (0.40)   2.00    Open

The position in Icos Corporation (NASDAQ:ICOS) did not offer the
target entry price, but the play was very profitable for traders
who paid a small debit to open the speculative synthetic position.
The Semiconductor Holdrs (AMEX:SMH) play has achieved a favorable
profit.  The position in Silicon Laboratories (NASDAQ:SLAB) has
previously been closed.


No Open Positions


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

BMET    28.52  27.51   JUL-30C   JUN-30C  (0.70)   0.40    Open
ESI     29.11  28.21   OCT-30C   JUN-30C   1.35    1.60    Open
FILE    13.75  16.69   JUL-15C   JUN-15C   0.10    0.25    Open?
IBM     87.57  88.04   JUL-90C   JUN-90C   0.25    1.30    Open
CHKP    18.05  18.78   OCT-20C   JUN-20C   0.70    1.10    Open
GDT     39.98  42.28   OCT-45C   JUN-45C   1.45    1.55    Open
NSM     21.80  24.96   JAN-25C   JUN-25C   2.10    2.50    Open
BRCM    21.40  24.51   JAN-25C   JUN-25C   2.15    3.15    Open
SRNA    19.71  19.78   AUG-22C   JUN-22C   0.70    0.85    Open
VRTY    18.85  20.80   SEP-20C   JUN-20C   1.00    1.25    Open
VIA     44.95  45.65   AUG-47C   JUN-47C   1.10    1.10    Open

Filenet (NASDAQ:FILE) should have been closed (or adjusted) when
the issue rallied above the sold strike on Monday.


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

NXTL    13.60  14.99   JUN   15  12   0.75   $0.70   0.05   Open

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


Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

TYC     17.27  17.70   JUL   17.5  17.5   1.80     1.75    Open

Questions & comments on spreads/combos to Contact Support


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


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

BSX - Boston Scientific  $52.10  *** Premium Selling! ***

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

BSX - Boston Scientific  $52.10

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-40.00  BSX-RH  OI=28101  ASK=$0.80
SELL PUT  JUN-42.50  BSX-RV  OI=9554   BID=$1.05
POTENTIAL PROFIT(max)=14% B/E=$42.10

CYMI - Cymer  $33.31  *** On The Rebound! ***

Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the
essential light source for deep ultraviolet photolithography
systems.  DUV lithography is a key technology that has allowed
the semiconductor industry to meet the exact specifications and
manufacturing requirements for volume production of advanced
semiconductor chips.  The firm's light sources are incorporated
into step-and-repeat (steppers) and step-and-scan (scanners)
photolithography systems for use in the manufacture of various
semiconductors with critical feature sizes below 0.35 microns.
Cymer's products consist of photolithography light sources,
replacement parts and service.  The firm maintains a worldwide
service organization that supports its installed base of light

CYMI - Cymer  $33.31

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-25.00  CQG-RE  OI=2058  ASK=$0.30
SELL PUT  JUN-30.00  CQG-RF  OI=4752  BID=$0.80
POTENTIAL PROFIT(max)=12% B/E=$29.45

GILD - Gilead Sciences  $52.50  *** Another All-Time High! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.

GILD - Gilead Sciences  $52.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-45.00  GDQ-RI  OI=6589  ASK=$0.35
SELL PUT  JUN-47.50  GDQ-RT  OI=1338  BID=$0.55
POTENTIAL PROFIT(max)=11% B/E=$47.25

KLAC - KLA Tencor  $46.23  *** Chip-Equipment Sector ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

KLAC - KLA Tencor  $46.23

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-40.00  KCQ-RH  OI=16077  ASK=$0.40
SELL PUT  JUN-42.50  KCQ-RV  OI=7153   BID=$0.65
POTENTIAL PROFIT(max)=14% B/E=$42.20

PIXR - Pixar  $56.55  *** "Finding Nemo" Premier! ***

Pixar is a digital animation studio with the creative, technical
and production capabilities to create a new generation of animated
feature films and related products.  The firm focuses on creating,
developing and producing computer-animated movies that appeal to
audiences of all ages.  The company has created and produced four
full-length animated feature films, Toy Story, A Bug's Life, Toy
Story 2 and Monsters, Inc., that were marketed and distributed by
The Walt Disney Company.  Pixary's fifth animated feature film,
Finding Nemo, is scheduled for domestic theatrical release May 30,

PIXR - Pixar  $56.55

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-45.00  PQJ-RI  OI=420   ASK=$0.30
SELL PUT  JUN-50.00  PQJ-RJ  OI=5563  BID=$0.80
POTENTIAL PROFIT(max)=12% B/E=$49.45

BRL - Barr Laboratories  $52.75  *** Same Play - Different Week ***

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

BRL - Barr Laboratories  $52.75

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-60.00  BRL-FL  OI=876  ASK=$0.15
SELL CALL  JUN-55.00  BRL-FK  OI=900  BID=$0.65
POTENTIAL PROFIT(max)=12% B/E=$55.55

LLL - L-3 Communications  $43.35  *** Trading Range? ***

L-3 Communications Holdings (NYSE:LLL) is a merchant supplier of
sophisticated secure communication systems and other specialized
products.  The firm produces secure, high-data-rate communication
systems, training and simulation systems, engineering development
and integration support, avionics, ocean and fuzing products,
telemetry, instrumentation, space & guidance products and various
microwave components.  These systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems.  The company's systems
and specialized products are used to connect a variety of airborne,
space, ground- and sea-based communication systems, and are used
in the many transmission, processing, monitoring and dissemination
functions of these communication systems.

LLL - L-3 Communications  $43.35

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-50.00  LLL-FJ  OI=671   ASK=$0.10
SELL CALL  JUN-45.00  LLL-FI  OI=3626  BID=$0.65
POTENTIAL PROFIT(max)=12% B/E=$45.55


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

PNC - PNC Financial Services  $49.25  *** Bullish Banker! ***

PNC Financial Services Group (NYSE:PNC) is a bank holding company
and its operating businesses engage in regional community banking;
wholesale banking, including corporate banking, real estate finance
and asset-based lending; wealth management; asset management and
global fund processing services.  The company provides financial
products and services nationally and in its primary geographic
markets in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky.
It also provides certain banking, asset management and global fund
processing services internationally.  PNC Financial's corporate
legal structure consists of two subsidiary banks, with their
subsidiaries and over 70 active non-bank subsidiaries.  PNC Bank,
National Association (PNC Bank), headquartered in Pittsburgh,
Pennsylvania, is PNC Financial's principal bank subsidiary.

PNC - PNC Financial Services  $49.25

PLAY (conservative - bullish/debit spread):

BUY  CALL  JUN-45.00  PNC-FI  OI=4051  A=$4.40
SELL CALL  JUN-47.50  PNC-FW  OI=4125  B=$2.10
POTENTIAL PROFIT(max)=11% B/E=$47.25


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

SEAC - SeaChange  $11.26  *** Recovery In Progress! ***

SeaChange International (NASDAQ:SEAC) is a designer, manufacturer
and marketer video storage servers that automate the management
and distribution of long-form video streams, such as movies or
other feature presentations, and short-form video streams, such
as advertisements.  The company sells its products and services to
cable system operators, telecommunications companies and broadcast
television companies.  Using its systems, the company customers
can increase their revenues by offering additional services, such
as video-on-demand movies and subscription video-on-demand
programming, both of which allow subscribers to watch content at
any time with pause, rewind and fast forward features.

SEAC - SeaChange  $11.26

PLAY (speculative - bullish/calendar spread):

BUY  CALL  OCT-12.50  UEG-JV  OI=124  ASK=$1.15
SELL CALL  JUN-12.50  UEG-FV  OI=93   BID=$0.20

MCDT - McData  $13.47  *** Solid Quarterly Results! ***

McData Corporation (NASDAQ:MCDT) is a provider of open-storage
networking solutions and provides highly available, scalable and
centrally managed storage area networks (SANs) that address
enterprise-wide storage problems.  The company's core-to-edge
enterprise solutions consist of hardware products, software
products and professional services.  Its SAN solutions improve
the reliability and availability of data, simplify the management
of SANs and reduce the total cost of ownership.

MCDT - McData  $13.47

PLAY (speculative - bullish/calendar spread):

BUY  CALL  OCT-15.00  DXZ-JC  OI=30   ASK=$1.15
SELL CALL  JUN-15.00  DXZ-FC  OI=120  BID=$0.25


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

QCOM - QualComm  $33.55  *** Reader's Request! ***

Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division
multiple access (CDMA)-based integrated circuits and system software
for wireless voice and data communications and global positioning
system (GPS) products.  Qualcomm offers complete system solutions,
including software and integrated circuits for wireless handsets and
infrastructure equipment.  This complete system solution approach
provides customers with advanced wireless technology and enhanced
component integration and interoperability, as well as reduced time
to market.

QCOM - Qualcomm  $33.55

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-37.50  AAW-GU  OI=10022  ASK=$0.55
SELL PUT   JUL-30.00  AAW-SF  OI=21706  BID=$0.50

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $1,050 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($30).


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

MGAM - Multimedia Games  $24.53  *** Premium-Sellers Only! ***

Multimedia Games (NASDAQ:MGAM) is a supplier of both interactive
electronic games and the electronic player stations on which the
company's games are played.  The Native American gaming market is
the firm's primary customer and the company delivers games to its
customers through a telecommunications network, which links EPS
located among gaming facilities, enabling all players to compete
against one another in the same game to win pooled prizes.  The
Multimedia Games group designs and develops software, content,
networks and systems that provide its customers with comprehensive
gaming systems.  MGAM has focused its development and marketing
efforts on Class II gaming systems and Class III video lottery
systems for use by Native American tribes throughout the United

MGAM - Multimedia Games  $24.53

PLAY (very speculative - neutral/credit strangle):

SELL CALL  JUN-25.00  QMG-FE  OI=2322  BID=$1.20
SELL PUT   JUN-22.50  QMG-RX  OI=299   BID=$0.60
UPSIDE B/E=26.90 DOWNSIDE B/E=$20.60



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