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Daily Newsletter, Tuesday, 06/10/2003

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The Option Investor Newsletter                Tuesday 06-10-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: 9000 Rules
Futures Markets: Higher low, lower high
Index Trader Wrap: See Note
Market Sentiment: Bulls mount a charge
Weekly Fund Screen: Good "Seasoned" Funds


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      06-10-2003           High     Low     Volume Advance/Decline
DJIA     9054.89 + 74.90  9059.29  8980.65 1.65 bln   2284/ 958
NASDAQ   1627.67 + 23.70  1627.77  1606.08 1.81 bln   2117/1182
S&P 100   496.09 +  4.75   496.10   491.34   Totals   4401/2130
S&P 500   984.84 +  8.91   984.84   975.93
W5000    9418.53 + 88.60  9418.53  9329.90
RUS 2000  450.96 +  6.17   451.05   444.79
DJ TRANS 2458.43 + 11.00  2466.55  2444.30
VIX        22.13 -  1.58    23.49    21.99
VXN        34.00 -  3.43    37.61    33.99
Total Volume 3,707M
Total UpVol  2,645M
Total DnVol    993M
52wk Highs  629
52wk Lows    11
TRIN       1.03
PUT/CALL   0.78
************************************************************

9000 Rules

Dow 9000 continues to be support and very tough support at that.
The market has clung to this level for a week and every attempt
to sell it off is met with failure. A soaring bond market and
multiple earnings warnings may have kept it trapped in a very
narrow range but the end result was another banner day on strong
internals.

Dow Chart - 60 min



Nasdaq Chart - 90 min




The economic calendar was very light with the only real report
the Richmond Fed Manufacturing Survey which came in at -5 for May
and much improved over the -18 for April. Any negative number
indicates contraction but it slowed significantly from last
months drop. All the manufacturing components remained negative
including shipments, new orders and backlogs with only the six
month outlook positive at 42. The improvement in the internals
was dramatic with order backlog improving +20 points, new orders
+15 points and shipments +13 points. All were still negative but
greatly improved. The -5 headline number returned to near the same
level as March at -4 which indicated the -18 in April could have
been a numerical fluke or a direct relation to the war worries.
Either way this report was seen as a positive improvement. Lower
energy was helping relieve companies of the pre war cash crunch
and while they are not seeing a large pickup in demand the pain
of internal costs were easing. Pay attention to the "was".

The only other economic report was the weekly Chain Store Sales
which fell -0.3% for the week ended June-7th. Year over year
growth dropped -1.0% due to cool weather and steep discounting.
Ah, yes, the discounting spiral. I wrote about this several times
over the last couple months that due to the excess inventory the
retailers had been reporting they would have to offer strong
discounts to move it. The Mothers Day and Easter weekends were
dismal in many areas with cold, rain and even tornados depending
on your state. The excess inventory must now be dumped and that
makes the sales comparisons more difficult. It will also cut
into profits for the current quarter. This is not necessarily
bad news. Consumers will feel better about getting more bargains
for less money and consumer sentiment will improve. Also the
bargains will draw money out of the wallets of those tight
fisted consumers who were worried about war and unemployment.

On Wednesday we will get the Fed Beige Book and the Mortgage
Application Survey. The Beige Book measures economic conditions
across the different Fed districts and could be a market mover.
With every economic report recently showing signs of improvement
there is the potential for a negative report to take some wind
out of our sales. This report covers the late April and May
period. The prior report was mostly negative and the odds are
good traders are expecting better news this time around.

The markets shook off the warning from Motorola and accounting
clouds from FRE and started off on the positive side. The
incentive appeared to come from various comments from Fed
officials that there was still aggressive stimulus in the
pipeline. Kohn said that inflation was falling faster than the
Fed models had predicted. (Since inflation is near zero already
any continued falling would mean deflation.) He said that while
the Fed preferred conventional methods for dealing with economic
stress a Fed Funds rate of zero might constrain the Fed's efforts.
If he is thinking that an interest rate of zero is going to
possibly constrain the Fed then he could be telegraphing a
stronger than expected rate cut. He repeated the Fed's ability
to use "other" instruments to direct policy but their choice
would be to NOT use them. Again, the potential for an aggressive
rate cut in our immediate future. Lyle Gramley, a former Fed
Governor, spoke out against deflation today saying it was very
remote. One Fed head says the rate of inflation is dropping
rapidly and the other (former) says deflation is remote. Either
way there is definitely a rate cut in our future.

The next Fed meeting is a two day affair on June 24-25th and
as of the close today there was a 100% chance of a 25 point cut
and a 30% chance of a 50 point cut. If they do not cut by 50
points at this meeting there is a 77% chance of another rate
cut by the September meeting. There was a rumor all day that the
FOMC was holding an emergency meeting and a rate cut was imminent.

Greenspan also spoke today on natural gas prices and energy in
general. Natural gas has risen in price by 75% this year and oil
is back up to $32 a barrel. Before, during and after the war
Greenspan was on record that energy prices would fall once
the war was over and that would help take the pressure off
manufacturing costs and provide a boost to the economy. Today he
said there was no near term relief and implied the higher energy
prices would be a damper to the economic recovery. Oops! Energy
costs rising with no relief in sight? Sounds like yet another
case for more stimulus to offset the energy gains. We may not
be floating on a sea of oil but on a flood of dollars.

The bond market hit yet another new 45-year low with the yields
on the ten year treasury closing at 3.19%. Is there no end in
sight? It appears not as long as the Fed keeps talking about a
zero fed funds rate and using "other" instruments to keep rates
down. With the huge spike in bonds it is a miracle the stock
market did not implode. If I was a bettor I would look for a
monster bond sell off if the ten-year yield dips below 3.00%.

Instead the Dow got help from GM, which took the unusual step of
suggesting that analysts get out of "chicken little" mode because
things were not as bad as they were reporting. GM affirmed
estimates for $1.20 for the 2Q but said their full year estimates
for $5.00 were uncertain due to the unstable economy. Maybe you
can speak out of both sides of your mouth at the same time. They
have continued to raise incentives to attract buyers with very
lukewarm results. The stock did well today and helped power the
Dow out of some midday doldrums. However, it may not last as all
the car companies are faced with rising inventory levels and a
model year coming to a close. There is going to be a gunfight
during the summer as competing 2003 models duke it out for the
few remaining buyers. Buy one get one free works for me.

The market struggled all day to remain positive with the bond
market soaring. However, a couple of severely beaten stocks
rallied to provide support. MSFT suddenly came alive and rocketed
from yesterday's low of $23.60 to close at $24.68. MSFT said
they were going to acquire the antivirus assets of GeCAD Software
to enable Microsoft to offer their own antivirus solution. MSFT
will integrate the technology into their various platforms and
extend support to other antivirus vendors to combat the problem.
The announcement, which provides MSFT a much needed boost in the
virus arena, caused it to gap up at the open. This prompted a
bout of short covering that ran into the close.

IBM also gapped up at the open on a continued relief rally from
the SEC inquiry news last week. After a strong day Monday the gap
up provided an exhaustion top and the trend was down the rest of
the day. Still the morning bounce helped pull the Dow out of its
slump until the Fed jawboning could take control.

After the close TXN joined the SARS ate my earnings crowd and
warned that they would post six cents instead of the expected
eight for the quarter. They joined TQNT, MOT and NOK in singing
the SARS blues. They said cell phone chip demand had weakened
and wireless chip sales could drop -10%. Micron surprised
traders earlier in the day with comments that the quarter was
going a little better than expected. They said customers were
shipping more computers than expected. Hello, George McFly?
More computers shipping than expected? Suddenly there is a real
light at the end of the tunnel. Lest we get carried away let's
remember MU has had nothing positive to say for years and a
"little better than expected" is not exactly a ringing
endorsement. Some of their improved guidance is coming from
restructuring and that MU was ahead of its targets to cut costs
by 40% per megabit in 2003.

The market day boiled down to a war between 9000 and 9050 with
only very small excursions on either side of those lines. That
50 point range smells like consolidation basing to me after two
days of drops. Yes, I count Friday as a drop since 10:15 was the
high of the day. The Nasdaq traded in a 13-point range until the
final minutes. That afternoon bounce had everyone guessing.
Exactly at 3:PM the Dow slipped below 9000 to the afternoon low
of 8992 when a strong buy program triggered that set off a wave
of short covering right into the close. The Dow closed only seven
points below the high of the day. At the close everything was
pointing to a positive open tomorrow but the TXN warning has
soured the futures in after hours. It does not appear serious
but there is a slow bleed.

For Wednesday the key will be 9000 once again. Except for Monday
afternoon the Dow has traded above and clung to 9000 despite
various attempts to sell it off. If the futures can hold the line
overnight we have a good chance of moving up again. The market
has strong support at 9000 and strong Fed incentive to keep
going at least until June-25th. The fly in the soup is the Beige
Book but it is not until 2:PM so the morning direction could be
rocky. If I had to bet I would lean toward a positive buy the
rumor move that the Beige Book could surprise. The market has
shaken off the FRE cloud, the IBM SEC investigation, the MOT
earnings warning and several other SARS related warnings. It is
not showing the weakness you would expect. The internals were
better than the indexes are showing with advancers beating
decliners 2:1 and there were still 629 new highs. Until the
internals change we will continue to buy the dips.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Higher low, lower high
Jonathan Levinson


The indices gapped up and spent the better part of the day glued
to the upper channel intraday resistance lines discussed
yesterday.  The failure to break away looked increasing bearish,
as did the configuration of the sharply dropping volatility
indices combined with relatively low put to call readings
throughout the session.  The kicker came at the end of the day on
a sharp rally commencing just after 3PM EST.


Intraday ES3M





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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03M      993    989    983    979    973
YM03M     9115   9088   9036   9009   8957
NQ03M     1227   1220   1207   1200   1187


10 minute chart of the US Dollar Index




The US Dollar Index had reached 93.53 by the time of this
writing, a surprisingly small move in light of the phenomenal
breakout in treasuries discussed below.

Daily chart of June gold




June gold finally got sold, coming to rest on its 353 support
line.  The downphase shows no sign of bottoming, and 345 is the
next support level of significance.  The commodity futures index,
the CRB, closed higher by .94 to 237.62.

Daily chart of the ten year note yield




Yields collapsed to new lows, with the five year note yield
closing at 2.085%, the ten year note yield falling 8.5 bps to
3.194 and the thirty down 8.1 bps to 4.258%.  Note the gap down
well below support.  The fed's 3B overnight repo was inexplicable
in light of the open for treasuries, and this followed the large
5.75B 3-day repo from yesterday.  My only conclusion is that the
FRE news scared the Fed, whose unsubtle methods lead to the kind
of shocking moves depicted in today's breakaway gap in
treasuries.


Daily NQ candles




Nasdaq futures had a good day, but you wouldn't have known it had
you missed the last hour.  As discussed yesterday, the selloff
from Friday was dramatic and on high volume, but barely disturbed
the longer term price trend.  Today's bullish hammer, closing
near the highs of the day at 1214.50, is proof of that.
Nevertheless, the stochastic downphase is established, and volume
declined on the COMPX at 1.78B shares.  The lower volume inside
day is not the most bullish of configurations, but the close near
the highs left the shorter cycle oscillators on a high, if
possibly toppy note as seen below.

30 minute 20 day chart of the NQ




Support held just below 1200.  It looks bullish, as indicated by
the oscillators, but note the potential head and shoulders setup
along the 50% retracement neckline at the lows of the day, 1194
NQ.  Along with the relatively lighter volume, I'm far from
bullish here, but the up move and its setup for a bullish open
must be respected.

Daily ES candles




A higher low/ inside day was printed for the ES as well, but the
1.65B NYSE volume was notably lighter than yesterday and is a
feeble show of strength from bulls.  The longer cycle oscillator
downphase is in full swing, and after tomorrow's continuation of
the closing upswing depicted on the 30 minute candle chart, I
expect this longer cycle trend to reassert itself.

20 day 30 minute chart of the ES




We see the same setup as on the NQ, but slightly weaker, with the
MacD already kissing below the zero line.  The head and shoulders
neckline at 61.8% is the support to watch- a failure would imply
30 more points to the downside and inflict significant technical
damage.

Daily YM candles




We have the same setup on the YM contract- an inside day,
portending potentially higher prices short term but within a
decline on the daily chart oscillators.

20 day 30 minute chart of the YM




Today's session was ambiguous, leaving bears frustrated and bulls
hopeful, with all participants nervous.  The lower high and
higher low implies escalating tension and sets the stage for a
decisive move tomorrow.  With the opposing oscillator cycles, we
could see further sideways chop.  Monday's high and low levels
will be the significant resistance and support levels to watch
for the break.  That break should be tradeable on a momentum
basis.  See you at the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_061003_1.asp


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

Bulls mount a charge
- Jonathan Levinson

While Chairman Greenspan discussed the fundamentals affecting the
natural gas market and irreverent readers sent me the predictable
jokes about all that such implies, bulls mounted a charge from a
passionless, trendless session.  They could not do better than an
inside day, but the sheer slope of the late-afternoon advance was
impressive.

Breadth was quite positive, with NYSE advancers more than
doubling decliners, and Nasdaq volume almost accomplished the
same, while advancing volume almost tripled declining volume on
both indices.

The volatility indices all printed bearish engulfing candles,
once again telegraphing the day's outcome well in advance.  The
low put to call readings in the morning gave the appearance of
institutional dumping of calls on unsuspecting bulls, but the end
of day rally refuted that interpretation, at least for the time
being.

The bullish percent indices slid sideways, with the BPNDX,
BPCOMPQ and BPINDU all unchanged, and the BPSPX down .20.  These
bullish percent measures all remain deep within topping
territory, but have yet to commence their moves back down.

The most bearish aspect to today's session was that the upmove
occurred on declining volume, showing a lack of commitment.
However, those shares that did commit were indisputably bullish,
and for the time being at least, the bulls remain in control.


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

Market Averages

DJIA ($INDU)

52-week High:  9759
52-week Low :  7197
Current     :  9055

Moving Averages:
(Simple)

 10-dma: 8935
 50-dma: 8541
200-dma: 8338



S&P 500 ($SPX)

52-week High: 1041
52-week Low :  768
Current     :  985

Moving Averages:
(Simple)

 10-dma:  960
 50-dma:  914
200-dma:  886



Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1213

Moving Averages:
(Simple)

 10-dma: 1201
 50-dma: 1119
200-dma: 1023



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

A couple of big red candles for both the VIX and VXN.  By the looks
of these declines you'd think the Dow was up 200 points on the day.
Investors are showing no fear and the short-term trend is probably
up again.

CBOE Market Volatility Index (VIX) = 22.13 -1.58
Nasdaq-100 Volatility Index  (VXN) = 34.00 -3.43

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.78        609,336       474,892
Equity Only    0.67        518,396       346,246
OEX            1.47         14,667        21,498
QQQ            1.16         89,401       103,508


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

Bullish Percent Data

           Current   Change   Status
NYSE          69.4    + 0     Bull Confirmed
NASDAQ-100    91.0    + 0     Bull Confirmed
Dow Indust.   80.0    + 0     Bull Confirmed
S&P 500       81.8    + 0     Bull Confirmed
S&P 100       78.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  1.14
10-Day Arms Index  1.18
21-Day Arms Index  1.12
55-Day Arms Index  1.20


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    2037      2005
Decliners     831      1082

New Highs     268       147
New Lows        7         2

Up Volume   1133M     1258M
Down Vol.    435M      470M

Total Vol.  1595M     1759M

M = millions


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


Commitments Of Traders Report: 06/03/03

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

Ah...now we're seeing some action in the big S&P futures
contracts.  After weeks of slowly creeping higher, the
commercials have reached their most bullish reading of the year
with a net long of 15,500 contracts.  Small traders are also
net long but this is reversing a small net short position from
the previous week.

Commercials   Long      Short      Net     % Of OI
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%
06/03/03      438,228   422,722    15,506     1.8%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   15,506  -   6/3/03

Small Traders Long      Short      Net     % of OI
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%)
06/03/03      169,650   167,172     2,478      6.8

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

Continuing the contrary trend we've seen between the
e-minis and the full S&P contracts above, the commercial
traders have increased their long positions but they've
also increased their short positions, which boosted their
net short posture overall.  Running true to form, the
small trader's net position is opposite of the commercials.
The small trader has significantly increased their long
positions while simultaneously closing some shorts to
give us the most bullish reading of the year.

Commercials   Long      Short      Net     % Of OI
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%)
06/03/03      267,680   512,648   (244,968)  (31.4%)

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
05/16/03      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%
06/03/03      470,655    58,420   412,235    77.9%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 412,235   - 06/03/03


NASDAQ-100

Big money (the commercials) remain completely undecided
for the third week in a row with almost a dead heat between
long and short positions.  Small traders are also flip
flopping around and have reversed a small net short to
a small net long.

Commercials   Long      Short      Net     % of OI
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%)
06/03/03       42,232     43,217      (985)  (1.2%)

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
05/16/03       11,706    16,104   ( 4,398)  (15.8%)
05/20/03       11,024     9,965     1,059     5.0%
05/27/03       12,194    13,339   ( 1,145)  ( 4.5%)
06/03/03       11,407     9,092     2,315    11.3%

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

DOW JONES INDUSTRIAL

We see little change in sentiment for either the smart money
or the retail trader.  Commercials are net long while small
traders are net short.

Commercials   Long      Short      Net     % of OI
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%
06/03/03       19,480    15,282    4,198      12.1%

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
05/16/03        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%)
06/03/03        7,948     9,353    (1,405)   ( 8.1%)

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

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


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

Good "Seasoned" Funds

These eight mutual funds began operations more than 20 years ago,
have generated an average annual total return of 10% or more over
the trailing 10-year and 15-year periods, and currently receive a
1 (highest) overall rank per Value Line.  Like Morningstar, Value
Line ranks funds on the basis of risk-adjusted return relative to
similar funds, with a "1" Value Line overall rank, the equivalent
of a Morningstar 5-star (highest) overall rating.

We used an advanced fund screen tool (investor.stockpoint.com) to
arrive at our short list of eight funds.  We asked for funds with
inception dates of greater than 20 years, with Value Line overall
ranks of 1.  These funds have been through multiple market cycles
and have weathered many financial storms, including the 1990-1991
recession and the painful 2000-2002 correction.  Investors in IRA
accounts and retirement plans that have very long-term investment
horizons may want to consider one of these top-rated equity funds
for their long-range plans.

Below is a summary of the eight top-rated funds, using Value Line
trailing 10-year and 15-year annualized average total return data
per the investor.stockpoint.com website.

 20+ Year Old Funds With Value Line Overall Ranks of 1-Highest
 American Funds AMCAP F (AMPFX) 10Yr +11.7%, 15Yr +12.1%
 American Funds Endowments G&I (ENDIX) 10Yr +10.4%, 15Yr +11.5%
 Eaton Vance Tax Managed Growth (EITMX) 10Yr +11.3%, 15Yr +11.7%
 FMI Common Stock Fund (FMIMX) 10Yr +11.4%, 15Yr +11.1%
 MainStay MAP Fund (MUBFX) 10Yr +12.5%, 15Yr +13.0%
 Mairs & Powers Balanced (MAPOX) 10Yr +10.5%, 15Yr +11.0%
 Mairs & Powers Growth (MPGFX) 10Yr +15.9%, 15Yr +15.8%
 RSI Retirement Value Equity (RSIVX) 10Yr +10.8%, 15Yr +10.4%

In the next section, we describe the process we used to evaluate
these eight funds.

Screening/Evaluation Process

After obtaining our short list of eight funds using Value Line's
data, we put the eight symbols into Morningstar's system, to get
the latest return, risk and expense figures, and to validate the
1-highest overall rank per Value Line.  In that regard, we found
that all of the funds are currently rated 4 stars (above average)
or 5 stars (highest) per Morningstar.  The Class F shares of the
American Funds: AMCAP Fund are relatively new and not yet rated
by Morningstar but other share classes of the fund are currently
5-star (highest) rated.

American Funds: Endowments Growth & Income Fund (ENDIX) is sold
to qualified investors only and has a minimum initial investment
of $50,000, so we dropped it from the list.  The RSI Retirement
Trust Value Equity Fund (RSIVX) is qualified investors only, but
may be purchased on a no-load NTF basis through Schwab OneSource
and other online NTF networks, so it remains.

The Eaton Vance Tax Managed Growth 1.1 Fund I (EITMX) is sold to
institutional investors only; personal investors may buy Class A,
B or C shares of the fund.  However, the Growth "1.1" product is
now closed to new investment.  So, we're going to substitute the
Tax-Managed Growth "1.2" product, Class A (EXTGX), which has the
same portfolio manager as the 1.1 product, and is currently open
to new investors.  Eaton Vance doesn't make it easy, do they for
investors?

MainStay MAP Fund I (MUBFX) is also institutional investors only,
but, in this case, we won't substitute the fund's Class A shares
since a different manager runs the retail class share portfolios.

The two Mairs & Powers funds have limited brokerage availability
but you may purchase shares directly from Mairs and Powers Funds.
A Mairs and Powers' representative can tell you the options that
are available to you (800-304-7404) or you can get complete fund
info at the Mairs & Powers (www.mairsandpowers.com) website.

In the next section, we tell you which of these funds we like now
based on management style and tenure, performance, risk, cost and
other factors.  We'll pick one "load" fund and one "no-load" fund
for your consideration.

Our Favorite Funds

Among load funds, the American Funds are difficult to beat across
a wide range of investment products.  The AMCAP Fund, which comes
in A, B, C, and F share classes, is managed by Capital Research &
Management Co., one of the oldest and largest investment advisers
in the business.  The American Funds rank "third" in total assets
behind Fidelity Investments and the Vanguard Group.

American Funds AMCAP F (AMPFX) seeks long-term growth of capital,
primarily through investments in common stocks of issuers located
in the United States.  However, it may also purchase convertibles
and high-quality fixed-income obligations.

The team-managed AMCAP Fund does not maintain strict percentages
of any particular type of investment.  It invests in established
growth companies of any size with proven track records of steady,
above-average earnings and a growth rate faster than that of the
general equity market.  Special focus is given to companies with
rapid growth potential in expanding sectors of the U.S. economy.

The American Funds' website (www.americanfunds.com) describes it
as a multi-cap core stock fund, although Morningstar categorizes
it a large-cap growth fund.  Because the fund's adviser (Capital
Research & Management Co) seeks growth issues that display value
characteristics, it is really a growth-at-reasonable-price (GARP)
style fund, landing somewhere between a typical blend fund and a
typical growth fund.  As a result, it exhibits a lower risk level
than other large-growth funds.





There wasn't a chart for the Class F shares, so we show you the
fund's Class A shares of the AMCAP Fund above.  So far, in 2003,
the fund is up 14 percent, ranking in the first quartile of the
Morningstar large-cap growth category.  The Class F shares don't
have a long history, but the fund's Class A shares show that the
fund's top quartile YTD rank is not a fluke.

The trailing 3-year, 5-year and 10-year annualized total returns
for the AMCAP Fund A (AMCPX) rank in the category's first decile.
The fund's trailing 10-year annualized return per Morningstar of
11.96% outperformed the S&P 500 index by an average of 2.03% per
year over that time period, and outpaced the Russell 1000 Growth
index by an average of 3.92% a year.  If you're looking for long-
term growth of capital, this offering has a solid reputation for
delivering consistent long-term investment results.

Among no-load funds, our favorite is Mairs & Powers Growth Fund
(MPGFX) which has been managed or co-managed by George A. Mairs
III since 1980.  William Frels has assisted Mairs since the end
of 1999.  This growth fund invests in companies with reasonably
predictable earnings, above average ROE's, market dominance and
financial strength.  It may invest a portion of assets in money
market instruments and expects to maintain a low turnover ratio
relative to similar growth funds.

Like American Funds' AMCAP product, Mairs and Power Growth Fund
has characteristics of multi-cap core, growth-equity investment.
Morningstar categorizes it as a large-cap blend fund.  Compared
to other large-cap blend/growth funds, the fund has historically
maintained a below average level of risk, resulting in a strong
return-risk profile for investors (similar to the AMCAP product).





On a year-to-date basis through June 9, the Mairs & Powers Growth
Fund has produced a 9.85% total return for investors, lagging the
S&P 500 index by 1.91%.  Still, we are very willing to give Mairs
the benefit of the doubt here, considering his superior long-term
performance record.

For the trailing 10-year period, Mairs & Powers Growth Fund has a
15.93% annualized total return, six full percentage points a year
better than both the S&P 500 and Russell 1000 indices.  It should
be noted, however, that Mairs' conservative style isn't always in
sync with the market.  In bull markets, more aggressive funds can
do better.

Conclusion

If you're looking for core growth exposure, American Funds' AMCAP
product is tough to beat, delivering consistent returns over time
with less risk and expense that the average large-cap growth fund
per Morningstar.  Its Morningstar 5-star rating and Value Line 1-
highest overall rank are indications of the fund's superior risk-
reward tradeoff.

Mairs & Powers Growth Fund has done particularly well compared to
other large-cap funds through the 2000-2002 market correction but
may lag more aggressive offerings in "growth-led" market advances
where the market favors earnings over valuations.  Still it looks
like a long-term winner with George Mairs at the reins, something
he has been doing since 1980.

RSI Retirement Trust Value Equity Fund (RSIVX) looks like a solid
value-driven large-cap fund, but we'll leave it for you to pursue
further.  For more information, visit the various fund family web
sites.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 06-10-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: RYL
Daily Results
Call Play Updates: DISH, GENZ, OHP
New Calls Plays: IGT, MERQ
Put Play Updates: ATH, HCA, LLL, NOC
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

The Ryland Group - RYL - close: 70.40 change: +2.46 stop: 73.00

So much for the weakness we saw last Friday!  After a bit of
encouraging downside action on Monday, RYL did an abrupt about
face on Tuesday and headed sharply higher in response to a sector
upgrade from Lehman this morning.  After moving up to the $69.75
resistance level early in the day, the bulls just kept on
charging, closing the session just below the intraday high on
strong relative volume.  While we have our stop set at $73 and it
hasn't yet been challenged, the strong rebound after a fairly
minor dip has us thinking the prudent move is to cut our losses
here and get out.  Traders with open positions can either exit on
early weakness tomorrow or may want to consider a tight stop just
over today's intraday high of $70.84.  Today's sharp rebound is a
clear reminder of the risks inherent in trying to pick a top in a
strong stock or sector.

Picked on June 8th at   $69.74
Change since picked:     +0.66
Earnings Date          07/23/03 (unconfirmed)
Average Daily Volume =   782 K
Chart link:



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

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

CALLS    LAST      Mon    Tue

DISH     33.30    0.00   0.27  Holding at support
GENZ     46.28    0.00   1.19  Biotechs ready to bounce
IGT      91.87   -1.14   1.26  New, 4-for-1 split coming
MERQ     42.62    0.00   1.71  New, Software is strong
OHP      38.78   -0.41   0.49  Positive, but no new plays


PUTS

ATH      74.38   -0.84   1.22  We're very cautious
HCA      32.45    0.69   0.38  Still under resistance
LLL      42.61   -1.14   0.10  Watch the 50-dma
NOC      85.12   -1.90   1.62  $111 million settlement
RYL      70.40   -1.80   2.46  Drop, Upgrade Scare


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

EchoStar Comm. - DISH - cls: 33.30 chg: +0.27 stop: 32.49*new*

Real news on DISH appears to be few and far between but we're
very encouraged by the stock's ability to hold above the $32.80
level.  Shares have bounced there twice in the last two days.
Furthermore, volume has been very light on the pull backs, which
would indicate this is just lack of buying pressure while the
markets dips.  On Sunday we suggested avoiding any new positions
because we were expecting a sharper decline due to what we
thought would be a steeper drop in the indices.  The afternoon
bounce might see some follow through tomorrow and aggressive
short-term traders might consider July call options to capture
any bounce.  We will officially exit this play should DISH trade
at or above $36.00.  Our new stop loss is $32.49.

Picked on May 21st at $31.10
Change since picked:   +2.20
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


---

Genzyme Corp. - GENZ - close: 46.28 change: +1.19 stop: 43.50

Just as expected, the confluence of those two ascending channels
near $45 provided solid support on Monday, and GENZ caught a
solid rebound from that level today.  In actuality, the rebound
got started midday on Monday, but the action didn't really turn
bullish until Tuesday's open when GENZ gapped higher at the open
and then spent the remainder of the day crawling through and then
consolidating above $46.  Yesterday's rebound from just below $45
produced a nice double-bottom formation along with the dip on
June 3rd and a rally and close above $48 will confirm the
validity of that formation.  For now, the best approach for
initiating new positions seems to be entering on rebounds from
support near $45.  Given the way Friday's early rally above $48
was summarily squashed, traders entering on another breakout
above that level need to understand the inherent risk that comes
with such an entry in an extended market.  If entering this play
on strength, look for the BTK index to confirm that strength with
a rally back over $470.

Picked on June 8th at    $46.61
Change since picked:      -0.33
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 3.61 mln
Chart link:


---

Oxford Health - OHP - cls: 38.78 chg: +0.49 stop: 37.65 *new*

Ah, finally a little bit of news for OHP.  As previously
discussed, OHP's CFO spoke at the Goldman Sachs 24th Annual
Healthcare Conference today.  He told analysts and investors that
membership rose slightly to 1.59 million at the end of the first
quarter (-Dow Jones).  The article also stated that the CFO
reiterated OHP's earnings for 2003 to be in the range of $4.17 to
$4.27 a share.  However, there will be a 32-cents-a-share charge
for legal settlement costs.  The stock bounced from the $38.00
level on the news and closed near its highs.  We still feel the
stock is extremely overbought and considering that our target and
overhead resistance at $40.00 is so close, initiating new
positions would not be wise.  We will officially exit the play if
OHP trades at or above $39.75.  Our new stop loss is $37.65, just
under the rising 10-dma.  More conservative traders could use a
stop just under $38.00.

Picked on May 20th at $36.51
Change since picked:   +2.27
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:



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

Intl Game Technology - IGT - cls: 91.87 chg: +1.26 stop: 89.00

Company Description:
IGT is a world leader in the design, development and manufacture
of microprocessor-based gaming and lottery products and software
systems in all jurisdictions where gaming and lotteries are
legal. (source: company press release)

Why We Like It:
In this market we can't think of anything more bullish than a
stock split and a dividend increase except maybe a very strong
broker upgrade.  Oh, and lest we forget, how about great relative
strength.  If you're looking for those four factors then IGT has
it all.  The stock price had been doing pretty well.  Shares
consolidated under the $80.00 level for months before breaking
out to the upside in mid-March.  The rally faded and IGT
consolidated back to its rising 50-dma before the stock took off
again with the broader market rally.  Then after hitting
resistance at $90.00 in late May, shares faded back to the 50-dma
again by June 2nd.  This coincided with a retest of short-term
support at $85.00.  About that time CIBC world markets upgraded
the stock on valuation.  The next session IGT's management
announced that its board of directors had approved a stock split
and a cash dividend.  The dividend-split news drove IGT from $85
to $93 in two sessions.

The stock split is a 4-for-1, which is sure to draw momentum
traders into what could be an old-fashioned split run.  The
payable date is July 2nd so IGT just under three weeks to go.
The cash dividend is payable post-split in late July.  We like
how the stock has pulled back to the $90.00 level but held
support there.  The midday bounce on Tuesday looked good although
volume was a lot lighter than we would have liked.  We're going
to suggest call options on the bounce with a stop at $89.00.  If
IGT trades back under $90.00 we're going to want out.  One note
of caution, the point-and-figure chart and the weekly chart of
IGT look extremely overbought and near their rising trendlines
(of resistance) but then that seems to be en vogue these days.
Use your best judgement.

Suggested Options:
Our strategy is to play IGT for any potential split run.  With
the split on July 2nd, it doesn't make sense to buy options
longer than July's but we're going to list an October for those
who are interested.

BUY CALL JUL-90 IGT-GR OI=1738 at $5.40 SL=3.20
BUY CALL JUL-95 IGT-GS OI=1698 at $3.00 SL=1.50
BUY CALL OCT-95 IGT-JS OI= 651 at $5.80 SL=3.50

Annotated Chart of IGT:



Picked on June 10th at $91.87
Change since picked:    +0.00
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million
Chart link:



---

Mercury Interactive - MERQ - cls: 42.62 change: +1.71 stop: 39.95

Company Description:
As a provider of integrated performance management solutions that
enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including Internet
companies such as Amazon.com and America Online, infrastructure
companies Ariba and Oracle, as well as Apple Computer, Cisco
Systems and Ford Motor Company.

Why we like it:
We've had our eye on shares of MERQ for awhile now, wondering
whether the stock would be able to break out over its 2002 highs
or if the bears would turn it back.  Today we got that answer, as
the stock vaulted higher to the tune of more than 4%.  The
breakout really got started last week as MERQ began edging
through strong resistance near $40, and the strength of that
breakout was confirmed yesterday, as the stock dipped to just
above that level and bounced.  The continuation of that bounce
and breakout to new 52-week highs just adds to the bullish
conviction.  While the Software index (GSO.X) managed a
respectable 1.84% gain, it's going to need a bit more juice to
challenge last Friday's intraday high just below $137.  Edging
over $130 at the close on Tuesday, the GSO index is moving into
that huge gap left at the open on Friday and looks like it has
the ability to at least challenge those highs.  What we have is a
strong stock in a strong sector, that is just breaking out to new
highs for the year.  Looks like a good bullish momentum play,
don't you think?

The PnF chart is pretty with its vote, as the breakout above $39
generated another in a long string of Buy signals.  The first one
in this series was last October and it created a vertical count
of $70!  While we don't have any designs on MERQ challenging that
level any time in the near future, the recent price action
certainly hints that there is more upside in store.  Looking at
the long-term chart, next resistance comes in around $48 and it
looks like MERQ has a better than even chance of reaching that
level by the time this rally has run its course.  Owing to the
already extended condition in the stock, we'd obviously prefer to
capture an entry on a pullback in the $40.50-41.00 area.
Accepting that with the stock and sector's recent strength, we
may not get so lucky, we want to look for a breakout over $42.75
as a viable momentum entry.  Regardless of the chosen entry
strategy, look for strength in the GSO to confirm bullishness in
MERQ before playing.  While it isn't shown on the daily chart,
MERQ actually traded as high as $44.10 last Friday, and so there
will likely be some resistance found near that level on a retest.
This is obviously an aggressive play, where we're looking to jump
into a mature trend, we should be able to set a fairly tight
stop.  We've selected $39.95, as that is just below the critical
$40 level and just below yesterday's $40.17 intraday low.

Suggested Options:
Shorter Term: The June 42 Call will offer short-term traders the
best return on an immediate move, as it is currently slightly in
the money.  Note that June contracts expire in less than 2 weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the July 45 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 42 call.

BUY CALL JUN-40 RQB-FH OI=1386 at $3.40 SL=1.75
BUY CALL JUN-42 RQB-FS OI=1275 at $1.70 SL=0.75
BUY CALL JUL-42 RQB-GS OI=3841 at $3.30 SL=1.75
BUY CALL JUL-45 RQB-GI OI=2551 at $2.05 SL=1.00

Annotated Chart of MERQ:



Picked on June 10th at   $42.62
Change since picked:      +0.00
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 4.47 mln
Chart link:



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

Anthem, Inc. - ATH - close: 74.38 change: +1.22 stop: 75.50

Proving that bullish sentiment is still alive and well, the
Health Care Payor's index (HMO.X) shot higher again on Tuesday,
just fractionally setting a new all-time closing high.  That
doesn't bode well for our bearish ATH play, as it is stubbornly
holding above the $74 level, that we had originally thought would
be a solid resistance level.  Each of the last three days have
seen tests of the $75 level, but the bears have teen lying in
wait to turn those rebounds back.  With the strength in the HMO
index, we want to be cautious about initiating new positions
right here.  The most prudent entry strategy right now appears to
be to wait for a decline under the 30-dma (currently $72.38) that
holds on a closing basis.  That average provided support on the
last decline and we need to see it break to confirm real weakness
before entering.  More aggressive traders can use another failed
rebound under the $75 level as their entry trigger, but given the
sector strength, this appears to be a lower odds approach right
now.  In either case, look for confirming weakness from the HMO
index before playing.  Maintain stops at $75.50.

Picked on June 3rd at   $72.38
Change since picked:     +2.00
Earnings Date         07/30/03 (unconfirmed)
Average Daily Volume = 1.17 mln
Chart link:


---

HCA, Inc. - HCA - close: 32.45 change: +0.38 stop: 34.00

As Health Care stocks continue their relentless ascent, HCA is
starting to find buyers and that doesn't bode well for our
bearish play.  After a brief hiatus, buyers once again flocked to
the HMO index on Tuesday, squeaking out a fractional new all-time
closing high at $686.  That buying interest leaked over to HCA,
which built on yesterday's gains, surging higher at the open and
reaching as high as $32.75 in the early going.  Fortunately, the
20-dma (currently $32.76) did its job and acted as resistance.
But the rebound so far this week is not encouraging to the bears.
Despite this strength, the stock remains below strong resistance
in the $33.50 area, and that resistance will be reinforced by the
50-dma, which has now declined to $33.22.  The other factor in
our favor is that the buying volume this week, has been well
below the selling volume levels seen last week and appears to be
falling off.  While aggressive, the best setup for new entries
appears to be a failed rally below the 50-dma, but we need to see
weakness in the HMO index to confirm a rollover in shares of HCA.
The current rebound got underway from the $31.40 level, so
momentum-based entries will need to wait for a decline back under
that level, preferably on expanding volume.

Picked on June 3rd at   $31.45
Change since picked:     +1.00
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 5.73 mln
Chart link:


---

L-3 Communications -LLL - close: 42.61 change: +0.10 stop: 44.70

Is the third time going to be the charm for our LLL play.  If it
seems like we've been here before, it is because we have.
Another rally attempt was turned back from the 200-dma (currently
$44.45) last week and we were greeted with another big downside
move on Monday.  But that decline has once again stopped short of
breaching the 50-dma (now at $42.14) and until that level is
broken, the stock remains in an ever-tightening range.  Daily
Oscillators are once again turning bearish, but we really need to
see a break and close below $42 to have confirmation that our
bearish bias is correct.  Additionally, we have the last two
intraday lows to contend with at $41.76 and $41.40, so that means
the best approach for initiating new positions on a breakdown
will be to enter after a drop under $41.35.  Another failed rally
below the 200-dma is the best approach for more conservative
entries.

Picked on May 20th at   $41.94
Change since picked:     +0.67
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.34 mln
Chart link:


---

Northrop Gruman - NOC - cls: 85.12 chg: +1.62 stop: 87.05 *new*

Could it be a case of buyer's remorse?  Shares of NOC suffered on
Monday and broke down even further on news that it would pay $111
million in a civil suit to settle allegations that its recently
acquired subsidiary TRW overcharged the government.  NOC
completed its acquisition of TRW in December 2002 and
contemplated the potential civil settlement costs in its offer to
buy the company.  What should have investors on the run is that
Monday's settlement closes only one of four federal suits by the
Justice Department, of which the Wall Street Journal speculates
could add up to $1 billion in damages.  Still, despite the legal
storm shares of NOC bounced today adding 1.94%.  The DFI and DFX
defense indices both added 2.1% and 2.7% respectively and both
closed above their 200-dma's.  Traders in NOC need to be careful.
While we expect resistance at $86.00 to hold, a strong sector and
a bullish market could make it tough to be a bear even with a
relatively weak stock like NOC.  We're going to lower our stop
loss to $87.05.

Picked on June 6th at $85.74
Change since picked:   -0.62
Earnings Date       07/29/03 (unconfirmed)
Average Daily Volume = 1.6 million
Chart link:



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

None


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**********

Please read our disclaimer at:
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For more information on advertising in OptionInvestor Newsletter,
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Contact Support
The Option Investor Newsletter                  Tuesday 06-10-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Intl Game Technology


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

Intl Game Technology - IGT - cls: 91.87 chg: +1.26 stop: 89.00

Company Description:
IGT is a world leader in the design, development and manufacture
of microprocessor-based gaming and lottery products and software
systems in all jurisdictions where gaming and lotteries are
legal. (source: company press release)

Why We Like It:
In this market we can't think of anything more bullish than a
stock split and a dividend increase except maybe a very strong
broker upgrade.  Oh, and lest we forget, how about great relative
strength.  If you're looking for those four factors then IGT has
it all.  The stock price had been doing pretty well.  Shares
consolidated under the $80.00 level for months before breaking
out to the upside in mid-March.  The rally faded and IGT
consolidated back to its rising 50-dma before the stock took off
again with the broader market rally.  Then after hitting
resistance at $90.00 in late May, shares faded back to the 50-dma
again by June 2nd.  This coincided with a retest of short-term
support at $85.00.  About that time CIBC world markets upgraded
the stock on valuation.  The next session IGT's management
announced that its board of directors had approved a stock split
and a cash dividend.  The dividend-split news drove IGT from $85
to $93 in two sessions.

The stock split is a 4-for-1, which is sure to draw momentum
traders into what could be an old-fashioned split run.  The
payable date is July 2nd so IGT just under three weeks to go.
The cash dividend is payable post-split in late July.  We like
how the stock has pulled back to the $90.00 level but held
support there.  The midday bounce on Tuesday looked good although
volume was a lot lighter than we would have liked.  We're going
to suggest call options on the bounce with a stop at $89.00.  If
IGT trades back under $90.00 we're going to want out.  One note
of caution, the point-and-figure chart and the weekly chart of
IGT look extremely overbought and near their rising trendlines
(of resistance) but then that seems to be en vogue these days.
Use your best judgement.

Suggested Options:
Our strategy is to play IGT for any potential split run.  With
the split on July 2nd, it doesn't make sense to buy options
longer than July's but we're going to list an October for those
who are interested.

BUY CALL JUL-90 IGT-GR OI=1738 at $5.40 SL=3.20
BUY CALL JUL-95 IGT-GS OI=1698 at $3.00 SL=1.50
BUY CALL OCT-95 IGT-JS OI= 651 at $5.80 SL=3.50

Annotated Chart of IGT:



Picked on June 10th at $91.87
Change since picked:    +0.00
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million
Chart link:



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