Option Investor

Daily Newsletter, Sunday, 06/15/2003

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The Option Investor Newsletter                   Sunday 06-15-2003
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: Let the Fed-Guessing Begin
Futures Market: Friday the 13th
Index Trader Wrap: It's the jobs stupid - or, you can't fool the consumer
Editor's Plays: (See Note)
Market Sentiment: Confidence Drops The Market
Ask the Analyst: Sector/Index trading with HOLDRs and iShares
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 6-13         WE 6-06         WE 5-3          WE 5-23
DOW     9117.12 + 54.33 9062.79 +212.53 8850.26 +248.88 - 77.59
Nasdaq  1626.49 -  0.93 1627.42 + 31.51 1595.91 + 85.82 - 28.44
S&P-100  497.82 +  2.15  495.67 + 12.47  483.20 + 13.45 -  5.97
S&P-500  988.61 +  0.85  987.76 + 24.17  963.59 + 30.37 - 11.08
W5000   9454.26 +  1.72 9452.54 +233.65 9218.89 +302.66 - 73.62
RUT      449.71 -  4.23  453.94 + 12.94  441.00 + 22.60 +  3.73
TRAN    2455.56 - 25.98 2481.54 -  4.81 2486.35 +102.99 - 35.95
VIX       22.88 -  0.55   23.43 +  1.73   21.70 +   .32 +  0.37
VXN       34.46 -  1.67   36.13 +  4.47   31.66 +  1.93 -  1.29
TRIN       1.23            1.06            0.92            1.09
Put/Call   0.73            0.78            0.67            0.74
WE= Week Ending

Let the Fed-Guessing Begin

Market participants weren't quite sure what to expect as this week 
began.  Many indices ended the previous week with key reversal 
days, but the bulls weren't through yet.  Although key reversal 
days come after a seemingly never-ending rise or plunge, and so 
are closely watched, they're often minor reversal signals.  That's 
what last Friday's key reversal day turned out to be: a minor 
reversal signal.  

With most indices, the reversals stopped at the midline support of 
their ascending regression channels and the indices continued to 
find support there through the week.  Neither overbought 
conditions nor Thursday's worrisome four-week initial claims 
average could drive the indices back below midline support. 

In fact, up until Friday, trading felt like the old momentum days 
of late 1999 and early 2000, complete with news of mergers and 
acquisitions, and IPO's.  FormFactor (Nasdaq:FORM) began trading 
Thursday.  With MSDW as the underwriter, and Lehman, Bank of 
America, and Thomas Weisel as secondaries, 6 million shares were 
priced at $14.00, up from the 5.5 million originally priced at 
$11-13.  FORM designs, develops, and manufactures tools used in 
semiconductor manufacturing, specifically wafer probe cards that 
allow advanced tests and speed the manufacturing process.  The 
issue opened Thursday at $19, but ended the week at 16.50, still 
above its $14.00 pricing.

FORM's status as a semiconductor-related stock ties it to the 
performance of the semi industry and that industry's link to 
global economic recovery. This week, the price of the 256 Mb 400 
MHz DDR (double data rate) chip continued recent increases, with 
the price surging 5.5 percent on Thursday alone.  The 
Semiconductor Industry Association pegged the 2003 global chip 
sales growth rate at 10.1 percent, while forecasting 16.8 percent 
growth in 2004, 5.8 percent in 2005, and 7 percent in 2006.  

The semi news wasn't all good, however, perhaps producing the 
SOX's almost 30-point fall this week and an evening-star formation 
on the SOX's weekly, rather than daily, chart. While 2003 global 
sales are expected to grow, the SIA forecast 2003 Americas sales 
to decline 2.1 percent, with growth resuming in 2004 at a 15.7 
percent rate.  Deutsche Securities added further pressure to the 
semis with its downgrade of Intel (INTC) on valuation concerns. 
INTC fell 3.53 percent in Friday's trading.  

In addition, news surfaced late in the week that Taiwan 
Semiconductor (TSM) and STMicroelectronics (STM) were being added 
to the SOX, with Lattice Semiconductor (LSCC) being dropped.  This 
marked the first time the index would include U.S. shares of 
foreign companies.  Some market pundits at least partially 
attributed the SOX's weak performance this week to confusion as to 
how their inclusion would affect the index.

Of the mergers or acquisitions announced globally, Oracle's (ORCL) 
hostile bid for PeopleSoft (PSFT) probably drew the most press.  
Since announcing its cash takeover bid of PSFT the previous week, 
ORCL fielded questions about its intentions toward PSFT.  Analysts 
speculate that SAP might benefit if ORCL's bid succeeds and ORCL 
attempts to transition PSFT's customers to the ORCL products.  
This week, PSFT rejected the hostile bid and announced intentions 
to continue with its acquisition of J.D. Edwards (JDEC). ORCL 
moved up its earnings release, with many rightly speculating that 
ORCL would surprise to the upside.  ORCL closed the week at 13.48, 
up 0.62 this week.

Friday, the buoyant 1999-ish mood dipped as attention focused on a 
full slate of economic releases.  The before-the-bell releases 
included May's PPI and trade gap, and the 9:45 release featured 
June's preliminary consumer sentiment number.  The consensus 
forecast for the PPI number was a decline of 0.1 percent, with 
estimates as low as a decline of 0.3 percent.  The actual number 
fell to the lowest of the estimates, declining 0.3 percent.  

Economists predicted a 0.1 percent rise in the core number, with 
estimates ranging all the way to a 0.3 percent drop, with the 
actual number meeting the expected 0.1 percent rise.  April had 
seen a decline of 1.9 percent in the PPI number and a decline of 
0.9 percent in the core number.  Analysts surmised that Friday's 
PPI number left all options available to the Fed, as the low 
inflation risks allow a further easing in the rates.  

While the dollar's plunge should help narrow the U.S. trade gap, 
making our goods more attractive overseas, that effect was 
minimal, at least in this reporting cycle.  The April trade gap 
did narrow to $42 billion, as expected, down slightly from March's 
$43.5 billion, but still remains up 26 percent from last year's 
rate.  Exports fell 2.2 percent, but an April decline in crude oil 
prices also sent imports down 2.1 percent.  Economists predicted a 
trade gap of $42 billion, but estimates ranged as high as $46 
billion, with March's gap at $43.5 billion.  

Although this number isn't rated a market-moving number, 
economists do hope to see rising exports, a hope that was dashed 
in this reporting cycle.  Although the U.S. does not depend 
greatly on exports, rising exports can be seen as a sign of 
growing demand in other countries and a sign that their economies 
might be strengthening. 

The University of Michigan's U.S. consumer sentiment number 
attracted the most interest, however, both in the U.S. and 
globally, both before and after its release.  The June number 
disappointed, falling to 87.2.  The consumer sentiment number had 
been predicted to rise to 93.2 from May's 92.1, although forecasts 
ranged from 91 to 93.7. None of the forecasts ranged into the 
80's, however.

As Jeff Bailey mentioned in an intraday update Friday morning, 
consumer sentiment usually improves when stock markets gain, as 
ours have been doing.  However, consumers mentioned worries about 
job losses.  The component measuring future outlook also 
plummeted, to an unexpected 84.2 from the previous 91.4.    

The low employment figures and consumer sentiment number increase 
speculation on the size of the rate cut that might be expected at 
the June FOMC meeting.  Over the last weeks, Fed watchers have 
transitioned from asking whether there will be a cut to whether it 
will be 25 basis points or 50.  The May retail sales, released 
Thursday, helped boost the case for a Fed cut.  May retail sales 
met expectations, but the retail sales figures excluding autos 
were up only 0.1 percent, less than the projected 0.2 percent 
increase.  That turned out to be the best of both worlds, however, 
as the small increase still allows the Fed to lower rates again 
while being just large enough to support hopes of a recovery in 
progress.  Thursday's initial claims number demonstrated a 
continuing softness in employment, also buoying hopes for a rate 

Don't forget that economists across the globe will be debating the 
Fed's likely decision next week, and their markets' reactions can 
impact ours.  Global bourses have been building on the gains of 
the others as hopes have risen that economic recovery is either 
already underway or about to be seen.  For example, the Nikkei is 
up 15 percent since hitting new 20-year lows day after day in 
April, and it's gained 7 percent just this week. The FTSE 100, CAC 
40, and DAX have bounded above resistance level after resistance 
level, but they've based that energy on hopes of a U.S. recovery 
to a great degree.  To demonstrate the interdependence of the 
global bourses, European markets began falling as our economic 
numbers were released Friday morning and then followed the course 
of our markets to a great degree.  The performance of European and 
Asian markets Monday morning may govern the direction of our 
opening, too, although after U.S. trading begins, it's often our 
markets that guide the directions of the others, rather than the 
other way around.

While Friday's decline felt strong and created potential reversal 
signals on the daily charts, it didn't do much technical damage.  
Many, me included, await the natural and expected retracement or 
consolidation of strong gains, if only for new bullish entries, 
but we've waited in vain so far.  Many felt the retracement had 
begun in mid-May when the DJI fell more than 300 points in three 
days, but even as the DJI was plummeting, signs of renewed 
strength began appearing on the daily oscillators.  Those signs 
included an upturn in the RSI, often a leading indicator, and then 
an RSI breakout above its trendline of descending highs.  The 
daily chart depicts a bullish cross of the +DI and -DI lines on 
the ADX, and then an upturn above 20 on the ADX itself.  May 
market behavior is old news by now, except that many of those 
chart characteristics remain intact as depicted in the chart 

Daily Chart of the DJX, as a proxy for the DJI:

A study of the chart reveals that a potential reversal signal, an 
evening-star pattern, formed over the last three days' trading.  
It may portend a drop, but during this rally, the drops produced 
by the reversal signals themselves have often been the only 
declines seen.  Today the DJI bounced from above the midline 
support, hinting that the support could hold even if the DJI were 
to decline again on Monday.  

The DJI could fall as far as the 8880 level, another 300-point 
decline, and still remain within the ascending channel and above 
the rising 21-dma and the 8880 horizontal support.

A drop below 8800 would begin to damage investor sentiment and 
might predict a deeper drop, perhaps at least the 25-38.2 percent 
retracement we've all expected.  The shallower 25 percent 
retracement would bring the DJI back to the next support level at 

Currently, the ADX remains above 30, however, and it's rising, 
showing that the trend increases in strength for now.  For those 
not accustomed to studying the ADX, I believe Jane Fox is writing 
an article about the ADX for this weekend's newsletter.

The NDX daily chart demonstrates some of the same traits, although 
subtle differences appear.  As the NDX printed its own version of 
an evening-star pattern, it did not bounce from the midline 
support of its ascending channel, but rather closed right on that 
support.  RSI turns down more distinctly.  The 21-dma (pink line) 
rises higher beneath the NDX, so that a move to the bottom of the 
ascending channel would violate that rising 21-dma.  ADX still 
depicts a strengthening trend, as it did on the DJI. 

Daily Chart of the NDX:

A fall as deep as 1140-1160 would maintain the integrity of that 
ascending channel, although it might damage investor sentiment 
more since a fall that deep would also carry the NDX below its 21-
dma.  A study of the chart shows that this index has more 
routinely violated that dma during the rally than has the DJI, 

The downturn in the RSI, completing yet another instance of 
bearish divergence with prices, perhaps predicted today's 
downturn, but watch for a penetration of the rising RSI trendline 
for a first sign of a possible continued decline.  Those bearish 
divergences will eventually mean what they used to mean, but for 
now they tend to predict a pullback only as far as the bottom 
support of the regression channel.  

The OEX chart shows the same characteristics, with signs of 
renewed bullishness in mid-May as the OEX fell to the bottom of 
the regression channel and began moving up again, and with an ADX 
level that currently remains above 30.  

Daily Chart of the OEX:

While not as classic as that of the DJI, the OEX chart reveals a 
close approach to an evening-star pattern, but it also shows the 
OEX springing up from that midline support, as did the DJI.  
Although it's not included here for space reasons, the OEX's 60-
minute chart shows oscillators turning up out of levels indicating 
oversold conditions, too, hinting that the OEX could rise Monday 
morning if the performance of global bourses does not damage 
investor sentiment too strongly.

If those hourly oscillators and that spring from midline support 
send the OEX up on Monday, OEX 505 and then 507-508 might be 
appropriate places to watch for the next pullback toward the 
midline support of the OEX's regression channel.  OEX 507-508 
marks slight weekly support and resistance. 

The bullish outlook will be preserved if the pullback stops short 
of 489.  Because OEX 487-488 is such an important level, marking 
two interim-term tops on the OEX's weekly chart, I would give the 
OEX leeway to this level.  The rising 21-pma currently crosses at 
483.57 but might have risen to the 489-490 level by the time the 
OEX could decline that far.  

Although it's not as apparent on this chart as it is on intraday 
charts, the OEX's two forays toward 505 show up as potential 
double tops on intraday charts.  A move below 489 would 
technically confirm that double-top formation, predicting another 
15-point fall, although I would give the OEX leeway down to that 
487-488 level before considering that formation confirmed.
The daily SPX chart appears similar, although subtle differences 
show up here, too.
Daily Chart of the SPX:

The SPX chart may show more mixed signals than the OEX's.  The 
evening-star formation appears closer to the classic description. 
RSI turned down more distinctly, although it has not yet and may 
not violate its rising trendline.  Unlike the OEX, the SPX's two 
tops may have been far enough different in price to disqualify the 
pattern as a potential double top.  

However, ADX measures 39.32, showing an intact trend.  The SPX 
sprang up ahead of its midline support level.  

If Monday sees the SPX rise, the 1007.69 June 5 high might be the 
first place to watch for a pullback.  If the SPX instead falls 
through that midline support, the ascending channel's integrity 
would be preserved with a fall to a level as low as 965.  
Currently, the 21-pma rises underneath that channel, crossing now 
at 958.82 and perhaps rising to meet the SPX at the 965 level if 
the SPX should test the bottom of the channel.  Watch for a 
downturn in the ADX level and an RSI violation of the rising RSI 
trendline for first signs that a trend change has occurred.  

As we've seen over the course of the last months, sentiment can 
undo anything shown on the charts.  Serious Fed-guessing begins 
next week and much attention will focus on economic numbers.  
Looking ahead to the week's economic calendar shows a light day 
Monday, with only the NY Empire State Index and National 
Association of Homebuilders June Housing Market Index due, but the 
housing number might draw some interest.

Tuesday and Thursday's calendars prove full.  CPI and housing 
starts launch Tuesday's releases before the bell, with capacity 
utilization and industrial production released at 9:15.  

Both CPI and housing starts may be watched closely.  Worries about 
a housing bubble keep percolating, and many eyes focus on the 
housing numbers, watching for the first weakening pinprick.  
Earlier this week, homebuilder Lennar showed no such weakening.  
Shares rallied to a new 52-week high after the company announced 
Q2 earnings of $2.05/share, handily beating the year-ago earnings 
of $1.37/share and the forecasted earnings for this year.  The 
company also noted a favorable outlook for the homebuilding 
market, although the CEO did note pockets of regional weakness 
when he spoke on CNBC.

When discussing retail sales figures this week, one economist 
pointed to the cold, wet weather in much of the nation as one 
factor impacting retail sales.  The same weather conditions could 
impact housing starts, with the same reason giving to any 
disappointment in those figures.  In addition, the Mortgage 
Bankers Association of America released figures showing that the 
purchase component of its index of applications fell to 418.9 from 
the previous week's record high of 460.5.

Housing starts might just be lofted by the continued new lows in 
mortgage rates, however. This week, the average for a 30-year 
mortgage dropped to 5.21 percent. Perhaps the greatest impact in 
those lower mortgage rates will occur several months from now, 
with building permits, at least, usually increasing a few months 
after a drop in mortgage rates. Freddie Mac's chief economist said 
that Freddie Mac had raised their forecast for 2003 origination 
volume.  Today, the Dow Jones US Homebuilders Index fell only 0.15 
percent, against an $SPX decline of .99 percent and a Wilshire 
5000 ($TMW.X) decline of 1.03 percent, showing relative strength 
as compared to the broader markets.

CPI predicts inflation, or disinflation these days, and will be 
closely watched for that reason.  Economists forecast a decline of 
0.1 percent in May CPI, adding to the prior drop of 0.3 percent.  
Forecasts are for a 0.1 percent fall in the core number, slightly 
better than the prior 0.3 percent drop.  That core number includes 
breakdowns into apparel, tobacco, airfare, new car, and other 
components.  This week's inventory numbers showed a buildup in 
inventories of new cars, perhaps predicting lower numbers in that 

May industrial production forecasts range from 0.0 percent to 0.1 
percent growth, better than the prior 0.5 percent decline.  
Manufacturing production, one component of Tuesday's industrial 
production number, might be important to watch.  

Economists expect May capacity utilization component to measure 
74.4 percent, the same as the prior period.  Capacity utilization 
numbers over 85 percent are considered inflationary, but we're not 
likely to see a number that high in this report.  

Thursday sees the Q1 current account figure and initial claims 
before the bell, May's leading indicators at 10:00, the 
Philadelphia Fed's release at noon, and the treasury budget at 
2:00 ET.  The continuing claims number will likely draw the most 
attention, as this previous week's number showed the four-week 
average hitting a 20-year high, rising 2,250 to 433,750.  This 
four-week average smoothes out seasonal fluctuations and so is 
considered most trustworthy.  This week, initial claims dropped, 
with the 430,000 number still higher than expected, remaining 
above 400,000 for more than four months.
I'm tempted to propose that with markets being so overextended, 
any number that worsens hopes for economic recovery or else 
lessens hopes for a rate cut might be the impetus for that 
pullback we've all been awaiting.  However, if Friday's Michigan 
sentiment numbers weren't going to be that impetus, I don't know 
what will, and those numbers did not produce significant technical 
damage to the indices.  

This feels as if the markets want to charge right up into the FOMC 
meeting week after next.  On each chart, I've marked the likely 
levels where pullbacks might begin, and the levels to which the 
indices could pull back and still preserve bullish sentiment.  
Moves over those resistance levels might prompt a next leg up to 
next resistance, while a fall under the marked support levels 
might portend that the deeper pullbacks will begin.
Don't forget that in addition to the next week being option 
expiration week, June marks the end of quarter and end of half, 
too, and some end-of-quarter-and-half positioning might be 
occurring as we move into the second half of this month.  Fed-
guessing at full alert, triple expiration, extended markets, and 
the approach of the end of quarter and end of the half:  that 
sounds like a prediction of volatility to me.  Trade carefully.

Linda Piazza    


Friday the 13th
Jonathan Levinson

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03M     1009    999    991    980    972
YM03M     9277   9190   9121   9034   8965
NQ03M     1252   1231   1217   1196   1182

10 minute chart of the US Dollar Index

The US Dollar Index sold off heavily following the slight downside 
surprise in the 9:45 U. of Michigan consumer confidence number 
data.  The bounce at the bottom was lackluster to say the least.

Daily chart of June gold


August gold had a good day, closing 30 cents off its session high 
at 357.40, up 3.50 for the session.  The move was enough to turn 
the 10 day stochastic back up, though no buy signal has yet 
appeared.  Upside trendline resistance should be at 370 by the 
time it's tested, assuming, that a true reversal actually 
commenced today.  This is a very preliminary guess, given the 
absence of buy signals.  We'll first wait to see if the 61.8% 
retracement line gets surpassed.

Despite the strength in gold, the CRB was lower by 1.78 to 234.13, 
led down by weakness in grains and oil.  The weakness in oil was 
attributed to the International Energy Agency revising its count 
of existing worldwide oil stocks upward this morning by an 
historic amount as mentioned in the Market Monitor this morning.  
The July crude contract closed down 86 cents at $30.65 a barrel, 
down 63 cents for the week.

Daily chart of the ten year note yield


The ten year treasury note went ballistic, breaking to a new 
multidecade high and driving the yield to a new low, with the TNX 
closing down 6.4 basis points to 3.104% with several sustained 
spikes below the 3.10% level.  The combination of treasuries and 
gold rallying, equities and the US Dollar falling bodes ill for 
next week. 

30 minute 20 day chart of the NQ


September NQ futures tested the lower ascending trendline today, 
printing a low of 1204 and closing slightly above that level as 
illustrated in the 2 day 5 minute chart below.  It was the weakest 
of the indices, perhaps suggesting that it will be leading the 
others to the downside as the Nasdaq so often breaks fresh ground 
for its peers.  The lower ascending trendline has the feel of a 
sloppy "hunchback" head and shoulders formation.  The end of day 
rampjob, by now predictable, was sufficient to turn the 10 period 
stochastics higher and give a buy signal on that timeframe, while 
the slower MacD appears ready to follow along.  A break of the 
ascending neckline would imply approximately 70 points to the 
downside as a head and shoulders tarket.

2 day 5 minute NQ candles


The afternoon push is clear, but accomplished nothing but a close 
above the low of the day, whereas in previous sessions it's left 
us on more bullish notes.  The green volume spike at the 1204 
level could be hinting at stronger support from that level.  While 
the day had a bearish feel to it, and while I've characterized the 
rising support line on the 30 minute candle chart as a potential 
"neckline", note that it's still a rising support line.  Until it 
gets taken out, the uptrend remains intact.  That said, today's 
session cost the NQ's 27 points alone, and the week closed 
negative for the first time in several weeks, with a spinning top 
printed for the weekly candle.  Not bullish. 

20 day 30 minute chart of the ES


Once again, the ES contract was stronger than the NQ, never even 
coming close to testing its 61.8% retracement line.  On a weekly 
basis, the ES closed positive but also printed a spinning top, 
showing indecision at current levels.  The sloppy head and 
shoulders pattern noted on the NQ chart is so sloppy that I 
haven't bothered to draw it on ES.  A bounce from the secondary 
ascending trendline could easily take us to new rally highs, 
athough it would be within the context of a potential bearish 
expanding wedge or "bulloney bullhorn" formation.   Yet again, the 
market leaves us just enough for both bulls and bears to be on 
shaky ground.  A green open looks like a done-deal once again, 
with both the short cycle oscillators (below) and the 10 period 
cycle on the 30 minute candles (above) both in gear to the upside.

2 day 5 minute candles


Despite the rosy outlook for the ES discussed above, the closeup 
of the 2 day 5 minute candles is not without its challenges.  990 
is support-turned-resistance, just above the 38.2% short term 
retracement.  With the short cycle oscillator in topping 
territory, I don't expect to see 990 fail without a fight.

20 day 30 minute chart of the YM


The Dow futures have the most bullish setup, with the 78.6% fib 
line easily supporting the price today.  We have the same setup 
aiming for new rally highs on Monday, but again with those failed 
s/r lines now providing resistance.  The oscillator setup is 
bullish as well.

2 day 5 minute candles


The story all week has been the same for equity bulls and bears, 
and for the second week in a row I'm writing about how the bears 
survived another week in potential breakout territory.  Unlike 
last week, however, today's decline was not on large volume, and 
the gap and crap open did not have that violent "doji feel" that 
last Friday's reversal did.  The real action was not in equities 
but in treasuries, where traders and even casual observers are 
left gawking at the runaway in treasuries and the breakdown in the 
time-value of money.  While the equity charts are telling us what 
we already know, the US Dollar, treasuries and gold, which appears 
to be in the process of truncating a downphase in its early 
stages, should be putting bulls on full alert.  We know that the 
percentage of bearish advisors dropped to 16% for the last week, 
what I believe to be at or near an alltime low.  We know that the 
equity rally has shocked most market timers and persuaded most 
casual investors.  This may well be a new bull market underway, 
but the action of the larger forex and treasury markets are not 
jibing with that interpretation, and the strength in gold has 
historically not been good news for equities. 


It's the jobs stupid - or, you can't fool the consumer
By Leigh Stevens

Consumer sentiment, according to the U of M preliminary survey 
for June, fell to 87 from 92 in May, well below the forecasted 
93. One reason why market folks were surprised by this drop is 
that optimism usually has risen with a rise in the market - 
generally, consumer sentiment takes its cue from the markets, but 
Friday saw the market take its cue from consumer sentiment. Like 
the CEO surveys, consumers may have (again) turned more negative 
on the economic outlook.  One reason is the continued loss of 
jobs or no job growth. 

The Labor Department indicated this past week that the number of 
Americans who remain on unemployment benefits rose 120,000, to
3.8 million, the highest since April 1983 or going back 20 years. 

As OIN's Jeff Bailey suggested on Friday, those that believe 
psychology plays a role in how markets trade got some 
confirmation for their view, as a more bearish consumer 
"psychology" took the indexes down on Friday. I count myself as a 
true believer as I've long assessed that attitude about the 
market plays a major role in valuations. It's what can make the 
S&P multiple 20 versus 15.  

Right now, a further sustained rise in the market is counting on 
both the consumer to keep spending and businesses to also at 
least start in opening their checkbooks. People stop spending 
when they get worried about future income and fear may be on the 
rise again. 

The indices got rather far extended for the first up leg of a 
recovering market. I anticipate further corrective action - not 
necessarily a very steep decline, but with downside to perhaps 
960 in SPX, 480-485 in OEX, 1570 in COMPX and to 1185 or perhaps 
1165 in the Nasdaq 100 (NDX). 

The S & P 500 (SPX) finished the week with a gain of only 0.1%. 
The Dow fell nearly 80 points on Friday, to 9117.12 but was up 
slightly on the week, having a 6 tenths of a percent rise. The 
Nasdaq was lower by 0.1% (to 1626.49), breaking an eight-week 
winning streak. 

The Labor Department on Friday reported that producer prices fell 
0.3% in May, which was more than the forecast for a 0.2% decline.  
core prices (excludes food and energy) rose 0.1%, which was also 
just below a forecast of +0.2%.

A large decline was seen at the finished energy goods price 
level, which dropped 2.6%, as wholesalers continued to adjust 
prices lower after a run-up ahead of the Iraq war. 

Consumer expectations of inflation have also begun to fall off, 
according to the aforementioned University of Michigan study. 
This outlook, along with the drop in wholesale prices and other 
recent data, again raised concerns about the risk of deflation, 
something that the U.S. Federal Reserve has been increasingly 
concerned about in recent months.

So, while a decline in prices is normally a positive for the 
economy, too much of this is not good for the Market as an 
inability to raise prices keeps a lid on corporate earnings and 
also then on stock prices in general.  

Further economic data released Friday showed the U.S. trade
gap contracting 2% in April to $42 billion from March's record
$42.9 billion.  Despite a weaker U.S. dollar, exports fell 2.2%
to $81 billion, the lowest level in a year, while imports fell
2.1% to $123 billion, largely due to a decline in crude oil

So far in 2003, the trade deficit is up 26% from a year-ago. 
While the weaker dollar has yet to result in a more noticeable 
impact on the U.S trade deficit, consumer price sensitivity 
around the world tends to be a more gradual trend and the 
dollar's declining purchasing power for imported goods slowly 
starts having greater effect.

An interest-rate cut from the Fed at its policy meeting in later 
this month is looking to be on track. Friday's economic reports 
added more fuel to speculation that the Fed will cut the fed-
funds rate.  Futures market activity Friday suggested that most 
investors expect a cut of one-half percent. Virtually flat growth 
in May retail sales Thursday combined with only a slight drop in 
weekly new unemployment claims had already increased speculation 
that a rate cut will be forthcoming.

Government bonds advanced in price as yields fell, as the latest 
round of economic news reinforced hopes for a Fed rate cut.
The 10-year Treasury note climbed 15/32 to yield 3.11%, while the 
30-year government bond rallied 25/32 to yield 4.175 percent. 

In currency trading, the dollar was slightly lower against both 
the yen (-0.2% to 117.44) and the euro, which gained 0.8% to 


GOLD - If deflation is going to become a problem, we're not 
seeing it in gold prices, which have been quite buoyant. While 
much of the strength is likely due to the fall in the dollar - 
gold prices have to rise to keep the same value in dollar terms - 
it is unsettling in terms of thinking that equities have clear 
sailing ahead.  

The Philly Gold and Silver Index or XAU is near to a bullish 
breakout, but bullion prices in terms of the nearest futures 
(continuous) contract look like they're hitting resistance.  
What's it all mean?  Many explanations, none convincing, but I 
would normally expect to see less gold strength if we're heading 
into a bull market for stocks. 

Low interest rates are a factor also, as the "opportunity" cost 
of owning gold diminishes. Also, we can't discount the fear 
factor in the mid-east about U.S. intentions - gold may have 
become more attractive than owning dollars. 


S&P 500 (SPX) - Hourly chart:  

As anticipated, resistance developed on the rallies that carried 
above 1000.  Expect to see the same phenomena at Dow 10,000 and 
in the inability for the S&P 100 (OEX) to hold above 500.  There 
is something about those big round "milestone" numbers that cause 
traders to pause or take a wait and see attitude on further 
buying. It's sort of like Joe and Moe at the door saying: "you 
first", no "YOU first" ad infinitum. 

1020 is resistance implied by the top end of the broad hourly 
(uptrend) channel as shown on the hourly chart below, with 960 as 
potential support implied by the lower trendline boundary. The 
very steady and strong uptrend is especially apparent in the 
hourly closes going back to mid-March.  


The longer that we have such a strong rate of ascent, the greater 
the likelihood of a more prolonged correction - which is of 
course what oscillators like RSI, Stochastics and MACD attempt to 
highlight. These indicators "work" for the approximately 70% of 
the time that markets are not in one dominant trend. 

For the 30% of the time that indexes ARE in strong trends, forget 
about using oscillators as an automatic guide to buying puts or 
calls.  Eventually the law of averages catches up and we get a 
pattern like we see above in SPX - lower rally or upswing highs. 
Because of this I rate it more likely that SPX will reach 960 
than having a move above 1000 first. 
S&P 100 Index (OEX) – Daily & Hourly charts:

Bullish "sentiment" is still measuring in a neutral range as far 
as my CBOE equities (call volume relative to daily put volume) 
option indicator. However, quite bullish buying interest from big 
investors, fund managers mostly, has carried the S&P 100 steadily 
higher as can be seen in the daily chart below.   
The hourly chart highlights better the correction that is 
underway. It becomes a relatively shallow pullback if OEX stays 
at or above 490-492. If so, there could be a further attempt for 
a breakout type move to above recent highs in the 503-505 area.

What would be more "normal" corrective action such as in 
retracing half of the last upswing would be a retreat to the 480-
485 area, which is my best prediction of the unfolding pattern 
here. If you bought puts on the last failed rally attempt, my 
current trade objective would be 480, but with an exit point or 
stop at a new high daily close or at 505 anytime.           


While the RSI or stochastic can stay up near the extremes for a 
long time, eventually these indicators get back into the center 
of their range.  The most bullish action is when there is only a 
sideways correction before the index rallies again. However, OEX 
is pretty overdue for a pullback.  

A definite wild card in terms of some volatile price swings is 
triple expiration in the coming week, ahead of the FOMC (Federal 
Open Market Committee Meeting) in the following week. Maybe 
they'll keep the OEX up near 500 to cause the bears some more 

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

9200-9250 looks like the area where there is selling interest (or 
where buying tapers off) in the Dow Industrials. A daily close 
above this area is needed to suggest potential for another up leg 
ahead after only a shallow correction.  Hard to figure without 
further price action if there will be a deeper correction than 
has been seen so far in the strong rally since the March upside 

The 90 level in DJX could be key here as an area of prior highs - 
if the Index holds at or above this area, the correction remains 
shallow and suggests a still strong outlook on a technical basis.  
A daily close or two below 90 would suggest otherwise - I would 
then focus on the potential for a possible retreat to the 88 area 
at the daily uptrend line or perhaps to 87, at the lower end of 
the hourly channel.  

Eventually - especially if the Industrials stay above 9000 - a 
longer-term objective is for Dow 10,000.  As mentioned last week, 
2 consecutive closes under 9000 suggest that a top has formed for 
the time being. 

Nasdaq Composite Index (COMPX) – Daily & Hourly: 

Will history repeat itself in the tendency for COMPX to have 3 
upswings, followed by corrective action?  A key to this is what 
happens if/when the Index retreats to its 21-day moving average, 
which currently intersects at 1577.  If this moving average is 
pierced on a closing basis, it suggests that there will be 
another down leg, perhaps carrying the Composite to the 1500-1480 
area, where there is likely to be good buying interest again. 

Traders and investors may have gotten too bullish relative to the 
current earnings picture. If this is also too bullish for the 
future earnings potential will depend on whether there is some 
pick up in business spending, which will be better gauged in the 
next round of earnings announcements post-June.    


I find the hourly chart to be insightful if you go back a 100 
days and can find the broad boundaries of a trend channel. The 
one shown above for COMPX would suggest that the Composite could 
be headed back down to a test of the low end of the channel 
around 1570.  1550 also appears as a key area of potential 
technical support, as the "line" of prior hourly closing highs.  

A close above 1670 would re-confirm the bullish chart picture. 
1600 is near technical support and if any pullback holds at or 
above this area, this is also bullish as it marks a relatively 
shallow correction.      

Nasdaq 100 (NDX) Index (NDX) - Hourly: 

The NDX looks like it is headed lower still, perhaps to around 
1160 and completion of a 62% retracement.  The index would look 
stronger if it held around 1180 on any further drop. Resistance 
or selling interest is anticipated in the 1220 area. I would 
rather buy puts on a rally than calls on a decline.  However, a 
daily close above 1220 would suggest possible more upside and 
cause me to exit puts if there was follow through strength the 
following day.   


A note for affectionados of technical analysis - prior support 
often later "becomes" resistance and this includes trendlines. 
The move back up to the upper trendline had 3 moves to or above 
the upper trendline line, but NDX couldn't stay above it.  The 
third time marked the start of a correction when it gapped above 
the line, then immediately retreated.  

Nasdaq 100 Tracking Stock (QQQ) - Daily & Hourly: 

I mentioned shorting QQQ last week in the 31-32 zone. I continue 
to look for a pullback to the $29 area as a minimum downside 
objective.  If there was daily close under 29, the Q's look less 
bullish in its chart pattern. It looks like the 27.5 - 28 area is 
must hold support. 30.75 is my exit or stop out point currently 
for short stock or long puts.     


It now is looking like the recent spike up on daily trading 
volume, coinciding with the rally peak (so far), may have marked 
at least an interim top in QQQ.  Nasdaq traders could be thinking 
more about waiting for the next round of earnings announcements 
before doing much more scale up buying.        

There is downward momentum currently as suggested by the daily 
and hourly stochastic models.       

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Editor's Plays

No Editors Plays this Week


Confidence Drops The Market
By: Jonathan Levinson

Today's sudden drop at 9:45AM was attributed to the University of 
Michigan Consumer Confidence reading of 87.2 for May vs. 92.1 for 
April.  Evidently the market was hoping for consumers to be more 
resilient, presumably to run out and borrow against the Fed's 
anticipated rate cut at its June 24-25th meeting.  It seems like 
a deep thought for the Teflon Market to have, but indeed, if 
consumers are losing confidence, then the Fed may well find 
itself pushing on a string with its next cut.
Market breadth was distinctly bearish today, with decliners just 
about doubling advancers and declining volume more than tripling 
advancing volume for both the NYSE and the Nasdaq.
Also noteworthy today was the low put to call ratio throughout 
the session, which opened in full-on "buy the dip" mode at .46 
and crept up into the mid .70s for the remainder of the session, 
never touching .80.  The lack of bearish put volume showed, for 
the first time in weeks, a solid confidence in the firmness of 
the uptrend.  This is exactly what bears are waiting for, because 
it implies that the bulls are already committed and confident, 
and that there will be fewer "weak hand" shorts seeking to cover 
on the dips.
If this interpretation is correct, we should see weaker support 
than previously encountered during the rally.
While the price uptrends are well-established and far from 
failing, risk for the bulls remains relatively high, given the 
toppy levels depicted by the bullish percent indices.  By the 
same token, bears need to be patient and wait for a downturn in 
those bullish percents, and for the price supports to fail 
decisively to avoid "catching a falling knife" in reverse.


Market Averages


52-week High:  9733
52-week Low :  7197
Current     :  9117

Moving Averages:

 10-dma: 9050
 50-dma: 8604
200-dma: 8342

S&P 500 ($SPX)

52-week High: 1041
52-week Low :  768
Current     :  989

Moving Averages:

 10-dma:  982
 50-dma:  927
200-dma:  887

Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1212

Moving Averages:

 10-dma: 1212
 50-dma: 1130
200-dma: 1026


It remains strange to see the volatility indices only inching 
skyward when the entire market saw red today (save for the gold
index).  This indicates that we have yet to see any investor fear
and the pull back is just a pause in the climb higher.

CBOE Market Volatility Index (VIX) = 22.88 +0.55
Nasdaq-100 Volatility Index  (VXN) = 34.46 +0.45


          Put/Call Ratio  Call Volume   Put Volume

Total          0.73        629,281       462,071
Equity Only    0.59        505,247       297,774
OEX            1.41         24,438        34,564
QQQ            2.13$bpna         30,101        64,080


Bullish Percent Data

           Current   Change   Status
NYSE          70.6    + 0     Bull Confirmed
NASDAQ-100    87.0    - 2     Bull Confirmed
Dow Indust.   80.0    + 0     Bull Confirmed
S&P 500       81.4    - 1     Bull Confirmed
S&P 100       79.0    + 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  1.39
10-Day Arms Index  1.17
21-Day Arms Index  1.19
55-Day Arms Index  1.15

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers     944      1072
Decliners    1926      2039

New Highs     247       224
New Lows       16         4

Up Volume    377M      345M
Down Vol.   1174M     1442M

Total Vol.  1571M     1794M

M = millions


Commitments Of Traders Report: 06/10/03

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

This week brings us an interesting change in the commercials.  
Both the long and short positions jumped by 18K to 20K but the 
amount that the commercials are net long dropped significantly.
Could we be witnessing a precursor to a reversal next week?

Small traders also opened their wallets this week and bought 
plenty of new contracts pushing both long and short positions
to new four-week highs.  The amount that small traders are long
moved strongly ahead, which is closer to the historical norm.
(small traders tend to move counter trend to the commercials,
who tend to be correct when judging trends.)

Commercials   Long      Short      Net     % Of OI
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%
06/10/03      456,967   455,024     1,943     0.2%

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
05/20/03      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     0.7%
06/10/03      199,356   185,403    13,953     3.6%

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

Maybe all those full S&P contracts are being hedged here with
the e-minis (we doubt it) but the net short position for
the commercials jumped strongly this week.  Meanwhile, as if
on cue, the small traders grew excessively bullish.  Small
trader long contracts to short contracts is virtually 10 to 1.
If you're a contrarian, that smells like a top.

Commercials   Long      Short      Net     % Of OI 
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%)
06/10/03      270,359   543,221   (272,862)  (33.5%)

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
05/20/03      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%
06/10/03      498,999    49,689   449,310    81.9%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 449,310   - 06/10/03


Hmm....commercials bought more short contracts on the 
NDX this week and their net short position almost tripled.
As expected the small trader is thinking exactly the 
opposite with a jump in longs and a decrease in shorts.
This produced a big jump in their net long position.

Again, if you're a contrarian, this looks like symptoms
of a market top.

Commercials   Long      Short      Net     % of OI 
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%)
06/10/03       42,877     45,793    (2,916)  (3.3%)

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
05/20/03       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%
06/10/03       14,759     7,761     6,998    31.1%

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


While we do see a drop in long positions for commercials
and a drop in short positions for small traders (what a 
coincidence), the overall trend here is the same.

Commercials   Long      Short      Net     % of OI
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%
06/10/03       17,368    15,263    2,105       6.5%

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
05/20/03        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%)
06/10/03        7,968     8,316    (  348)   ( 2.1%)

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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Sector/Index trading with HOLDRs and iShares

Can you point me to some sectors and indexes that I could 
actually trade short/long based on the sector bell curve data you 
have shown in the past?  I'm interested in trading sectors on 
more of a swing-trade or intermediate-term basis as I can't watch 
the markets all that closely during the day.

It is rather amazing how many different products have been 
developed over the years that give investors and traders the 
opportunity to expose capital to "baskets of stocks."  The more I 
search the internet for sectors, the more products I find that I 
never knew existed for sector trading.

The most common sectors or indexes that traders know about are 
traded at either the Chicago Board Options Exchange (CBOE), 
NASDAQ, American Stock Exchange (AMEX), Philadelphia Stock 
Exchange (PHLX) in the form of index options.  These indexes are 
easily found by visiting their respective websites.

CBOE indexes http://www.cboe.com/OptProd/IndexOptions.asp
NASDAQ indexes http://quotes.nasdaq.com/asp/option_info.asp
AMEX http://www.amex.com
PHLX Indexes http://www.phlx.com/products/sectors.html

In this column, I'm going to focus on HOLding company Depositary 
Receipts, most commonly called HOLDRs.  These are securities 
traded on the AMEX that represent an investor's ownership in the 
common stock or American Depository Receipts of specified 
companies in a particular industry, sector or group.

Here's a picture of the HOLDRs that a trader/investor would most 
likely associate with some of the sector bullish % data.



On the far right of the chart, I've tried to associate some of 
Dorsey/Wright and Associates sector bullish % symbols that I we 
might associate with some of the HOLDRs.

I've footnoted the Broadband HOLDRS *(1) as some of this HOLDRs 
components have been "classified" by Dorsey's bullish % as being 
associated with different sectors.  For example, Broadband HOLDRs 
component Applied Micro Circuits (AMCC) is classified by Dorsey 
as "electronics" (BPELEC), HODLRs component CIENA (CIEN) is 
classified by Dorsey as "telephone" (BPTELE), while HODRs 
component PMC-Sierra (PMCS) is classified by Dorsey as 
"semiconductor" (BPSEMI).  Arguable, they all have some type of 
"telecom" association, but the group of stocks also have 
different function within the broadband industry and makes it 
difficult to really classify all the stocks to one particular 
industry.  There are 21 stocks that comprise the Broadband 

I've also footnoted the Utilities HOLDRS.  There are basically 
two type of utilities.  Gas and Electric.  Dorsey/Wright 
differentiates the two with their "electric utilities" bullish % 
(BPEUTI) and "gas utilities" (BPGUTI).  While the two sub sectors 
(gas/electric) tend to move in unison, during periods of extreme 
price fluctuation of the gas commodity, gas utilities may 
strengthen/weaken.  During periods of extreme price fluctuation 
of the coal commodity, electric utilities may strengthen/weaken.

The Wireless HOLDRS also see diverse sector association within 
Dorsey/Wright's sector bullish %.  AT&T Wireless (AWE) is 
classified as "telephone" (BPTELE), while Motorola (MOT) is 
classified as "semiconductor" (BPSEMI) and Netro Corp. (NTRO) is 
classified as "electronics" (BPELEC).  The bulk of Wireless 
HOLDRs are classified as "telephone" (BPTELE) and would most 
likely be the appropriate sector bullish % to use.

As it relates to other bullish % data sources, besides 
Dorsey/Wright.  Stockcharts.com does have some sector bullish % 
data.  Their sector bullish % data, with symbols are as follows.

S&P Consumer Discretionary ($BPDISC)
S&P Energy Sector ($BPENER)
S&P Financial Sector ($BPFINA)
S&P Healthcare ($BPHEAL)
S&P Industrial ($BPINDY)
S&P Info Tech Sector ($BPINFO)
S&P Materials Sector ($BPMATE)
S&P Consumer Staples Sector ($BPSTAP)
S&P Telecom Services Sector ($BPTELE)
S&P Utilities Sector ($BPUTIL)
Dow Jones Transportation Sector ($BPTRAN)

If a sector you're looking to trade isn't available among the 
HOLDRs, then perhaps the iShares has a sector fund you're looking 

A good starting point for a plethora of information and symbols 
for various iShares can be found at www.ishares.com

Options traders will note that options are traded on many of the 
iShare sectors.

The Networking Index (NWX.X) 186.02 -3.36%, doesn't trade options 
anymore, and I use this index' symbol in our intra-day updates to 
point out how the sector in general is doing.  The Networking 
iShares (AMEX:IGN) $19.86 -4.05% tends to track the NWX.X and 
would provide exposure to this sector.  This sector has become so 
narrow anymore, that many of the components have been 
consolidated into Dorsey/Wright and Associates "computers" 
bullish % (BPCOMP).

When traders/investor visit any of the sites "linked" above, they 
can actually view the components, or stocks, that comprise the 
HOLDRs and iShares.

Individual stock traders that WISELY use the sector bullish % 
data, will use the HOLDRs and iShare data compositions, to 
further define bullish and bearish looking stocks to trade within 
a sector, in an effort to pinpoint those stocks that are stronger 
in a recovery mode that might then "outperform" the sector, or 
identify weaker stocks from higher levels of sector risk that 
appear to be leading a potential sector decline.

Had I known that there was a iShare Networking sector (IGN), I'm 
just seeing it today, maybe I would have seen the "bullish 
triangle" unleashed at $17.50 back in May.  That's a rather 
powerful bullish chart pattern.  

ishare Networking Sector (ICN) - $0.50 and $1 box


www.stockcharts.com tracks the various iShares and allows for 
point and figure analysis that traders and investors will tie in 
with the major market and sector bullish %.  A trader that 
couldn't necessarily watch the markets intra-day, or even once a 
day may chose a "sector" type of security like and iShare or 
HOLDRs to spread some bets among various stocks linked to a 

While understanding "sector risk" as depicted by a sector bullish 
% isn't necessarily imperative, sector traders will use the 
sector bullish % to try and further define which sectors may 
outperform an advance or decline.

Still... many traders/investors will use the NASDAQ-100 Bullish % 
($BPNDX) as an indicator to get an understanding of 
strength/weakness and RISK.

While Professor Davis's study of probabilities was focused to 
individual stock patterns, that study showed the "bullish 
triangle" profitable under bull market conditions 71.4% of the 
time, for an average gain of 30.9% in 5.4 months.

A trader/investor that saw the NASDAQ-100 Bullish % ($BPNDX) 
reverse up to "bull alert" status in March from 30% to 36% and 
tied that in with the above chart (IGN) may have been "alert" to 
a bullish move.  From the triggering of the "bullish triangle" at 
$17.50, the IGN has/had advanced 25.7%.  With the NASDAQ-100 
Bullish % now at 87% after having been as high as 91% earlier 
this week, bulls might now be looking to protect some gains.

Browse around some of the site link above, you never know just 
what you might find.  

I just found the neatest "heatmap" at the NASDAQ site in their 
ETF section.  Check this out!

NASDAQ's ETF Dynamic Heatmap


The EWP is the Japan iShares and the EWO is the Austria iShares 
and looked to have fared better than others.  I see the NASDAQ-
100 Index Tracking Stock (QQQ) on the heatmap, down 2.25% today, 
with the Networking iShares (IGN) being one of the weaker 
performers in today's trade.

Boy there's a lot of stuff to trade isn't there?  I'd love to 
incorporate some of this stuff into an index trader wrap 
sometime.  I don't know if there's enough hours in my day to do 
it all, but maybe we can profile a "trade of the month" or "trade 
of the week" for a sector in the iShares or HOLDRs?

Jeff Bailey


Market Watch for the week of June 16th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

IBOC   Intl Bancshares       Mon, Jun 16  -----N/A-----        N/A

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

ASL    ASHANTI GLDFLDS LTD   Tue, Jun 17  -----N/A-----       0.05
CC     Circuit City Stores   Tue, Jun 17  Before the Bell    -0.24
FDS    FactSet Research Sys  Tue, Jun 17  Before the Bell      N/A
SJM    J. M. Smucker Co      Tue, Jun 17  Before the Bell      N/A
PIR    Pier 1 Imports, Inc.  Tue, Jun 17  Before the Bell      N/A
RHAT   Red Hat, Inc.         Tue, Jun 17  After the Bell       N/A
V      Vivendi Universal     Tue, Jun 17  Before the Bell      N/A

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

BSC    Bear Stearns          Wed, Jun 18  Before the Bell     1.72
BBBY   Bed Bath & Beyond     Wed, Jun 18  After the Bell      0.18
BBY    Best Buy Co., Inc.    Wed, Jun 18  Before the Bell     0.20
JBL    Jabil                 Wed, Jun 18  After the Bell       N/A
JWa    John Wiley & Sons     Wed, Jun 18  -----N/A-----        N/A
MWD    Morgan Stanley        Wed, Jun 18  Before the Bell      N/A
WOR    Worthington Ind       Wed, Jun 18  Before the Bell      N/A

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

COGN   Cognos                Thu, Jun 19  -----N/A-----       0.14
DRI    Darden Restaurants    Thu, Jun 19  -----N/A-----       0.34
GTK    GTECH Holdings Corp.  Thu, Jun 19  Before the Bell      N/A
KBH    KB Home               Thu, Jun 19  After the Bell       N/A
LEH    LEHMAN BROS HLDGS INC Thu, Jun 19  Before the Bell      N/A
SLR    Solectron             Thu, Jun 19  After the Bell       N/A
TIBX   TIBCO Software        Thu, Jun 19  After the Bell       N/A

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

KMX    CarMax, Inc           Fri, Jun 20  Before the Bell     0.34
UNEWY  United Business Media Fri, Jun 20  Before the Bell      N/A

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

CCBG    Capital City Bank Group   5:4      Jun  13th   Jun  16th
ODFL    Old Dominion Freight Line 3:2      Jun  16th   Jun  17th
JFBC    Jeffersonville            3:1      Jun  17th   Jun  18th
UNH     UnitedHealth              2:1      Jun  18th   Jun  19th
SLM     SLM Corp                  3:1      Jun  20th   Jun  23rd
FLO     Flowers Company           3:2      Jun  27th   Jun  30th

Economic Reports This Week

Economic reports this week have been divided up between Tuesday
and Thursday.  Look for the CPI, Housing Starts, Industrial 
production, leading indicators initial jobless claims and more.


Monday, 06/16/02
NY Empire St Index (BB) Jun  Forecast:     8.8  Previous:     10.6

Tuesday, 06/17/02
CPI (BB)                May  Forecast:   -0.1%  Previous:    -0.3%
Core CPI (BB)           May  Forecast:    0.1%  Previous:     0.0%
Housing Starts (BB)     May  Forecast:  1.700M  Previous:   1.630M
Building Permits (BB)   May  Forecast:  1.715M  Previous:   1.724M
Industrial Prod (DM)    May  Forecast:   0.10%  Previous:   -0.50%
Capacity Utilization(DM)May  Forecast:  74.40%  Previous:   74.40%

Wednesday, 06/18/02

Thursday, 06/19/02
Initial Claims (BB)   06/14  Forecast:     N/A  Previous:     430K
Current Account (BB)     Q1  Forecast:-$142.0B  Previous: -$136.9B
Leading Indicators (DM) May  Forecast:   0.60%  Previous:    0.10%
Philadelphia Fed (DM)   Jun  Forecast:     5.0  Previous:     -4.8
Treasury Budget (DM)    May  Forecast: -$90.0B  Previous:  -$80.6B

Friday, 06/20/02

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

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The Option Investor Newsletter                   Sunday 06-15-2003
Sunday                                                      2 of 5

In Section Two:

Watch List: Mostly Three-Lettered Stocks
Daily Results
Put Play of the Day: WFMI
Dropped Calls: None
Dropped Puts: LLL

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Watch List

Mostly Three-Lettered Stocks

Stryker Corp - SYK - close: 71.52 change: -0.14

WHAT TO WATCH: Shares of SYK have been very strong.  The stock 
remains in its short-term rising channel and a bounce from the 
$70.00 mark looks like a good spot to consider some swing-trading 
call positions.  Zimmer Holdings (ZMH) is in the same industry 
and shares of ZMH have rebounded to the top of its gap down.  
Look for a move over $47 for ZMH to target a rest of $50.00.



Intl Business Machines - IBM - close: 82.75 change: -1.20

WHAT TO WATCH: IBM has rebounded from the $80.00 level only to 
fail again at the 50-dma and the bottom of its gap down at 
$85.00.  Aggressive traders might want to consider bearish plays 
but the stock still has support at $80 and again at the 200-dma 
near $78-$79, which is also P&F chart support.  Don't forget 
about its SEC probe.



Ball Corp - BLL - close: 48.05 change: -1.05

WHAT TO WATCH: BLL has been in a terrible down trend since mid-
May.  The stock then crashed under the $50.00 mark only to retest 
it as overhead resistance.  The stock is so oversold that the 
oscillators are suggesting a possible bullish reversal but from 
the looks of it we suspect there is still more downside to go.



Synopsys Inc. - SNPS - close: 59.59 change: -1.46

WHAT TO WATCH: One of the leaders in the software sector, shares 
of SNPS have been on fire after their recent earnings guidance 
higher.  However, it looks like it ran into a wall of selling 
pressure right at $64.00.  From there the profit taking began and 
Friday's move brought it below the $60 level, which should spark 
even more selling.  Our short-term target would be $55.


RADAR SCREEN - more stocks to watch

MSTR $39.15 - We had MSTR on the watch list a few days ago.  The 
big failure on Friday looks like a tempting spot to consider some 
short-term bearish plays.  MACD is about to rollover.  

MRCY $19.00 - It's a little cheap at $19.00 to be playing options 
but shares are just barely holding on to support.  A break under 
$18.75 could lead to a test of $15.00 (or worse).

JNJ $52.56 - Shares of JNJ have been in a slow channel lower and 
Thursday and Friday's performance reflects a failed rally near 
the top of that channel.  A move back under $52 might herald a 
retest of the $50.00 mark.

GOLD $17.73 - Shares of Randgold Resources are not optionable but 
the do appear to be offering a tempting bounce for bulls to ride 
it back to the $20.00 mark and beyond.  


For Best Alignment view in Courier Ten Font

CALLS    LAST      Mon    Tue   Wed   Thu  Week

GENZ     43.60    0.00   1.19  1.72 -1.69  1.21  Bouncing
IGT      96.93   -1.14   1.26  2.50  1.36  5.43  STRONG
LXK      73.38   -0.83  -0.15  0.20  1.52  0.68  New, pennant
MERQ     41.00    0.00   1.71  0.88 -0.43  0.09  Cautious
PGR      73.27   -0.28   0.00  0.50 -0.01  3.25  New, Rocket


GS       89.17   -0.76   0.80  1.04  0.61  0.87  New, Fire
HCA      32.00    0.69   0.38 -0.36 -0.19  0.60  Weakness
KSS      49.45   -0.75  -0.34 -0.85 -1.08 -2.83  New, sour
LLL      44.04   -1.14   0.10  0.30  1.00  0.23  Drop, too much
WFMI     49.44    0.00   1.07  0.49  0.11  0.52  New, Failure

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Put Play of the Day:

Whole Foods Market - WFMI - cls: 49.44 chg: -1.35 stop: 52.00 

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.




L-3 Comms -LLL - close: 44.04 change: +0.13 stop: 44.70

We give up!  LLL has had us on a real roller coaster these past 
couple weeks as the stock has played ping-pong between the 50-dma 
and the 200-dma.  That battle seemed to finally shift in favor of 
the bulls on Friday, with LLL moving above its two previous 
intraday highs ($44.40 and $44.46) with an intraday high of 
$44.69.  Not only that, but the stock breached the 200-dma for 
the first time in a month.  While the stock did pull back to just 
above $44 at the close, we're willing to concede defeat and move 
on.  As noted in the market monitor on Friday, we now view 
weakness in the stock as an opportunity to exit losing positions, 
not to initiate new ones.

Picked on May 20th at   $41.94
Change since picked:     +2.10
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.31 mln
Chart link:


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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Contact Support
The Option Investor Newsletter                   Sunday 06-15-2003
Sunday                                                      3 of 5

In Section Three:

Current Calls: GENZ, IGT, MERQ
New Calls: LXK, PGR
Current Put Plays: HCA
New Puts: GS, KSS, WFMI

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Genzyme Corp. - GENZ - close: 46.30 change: -0.01 stop: 44.00*new*

Company Description:
Genzyme General, a division of Genzyme Corporation, is focused on 
developing innovative products and services to solve major unmet 
medical needs.  GENZ has nearly 600 products and services on the  
market and a strong pipeline of therapeutic products for the 
treatment of rare genetic diseases.  The Diagnostics business 
unit develops, markets and distributes in vitro diagnostic 
products and genetic testing services. With a solid, profitable 
revenue base, this research is intended to maintain the company’s 
high rate of earnings growth.

Why we like it:
In a nearly picture-perfect repeat of June 2nd, GENZ surged 
higher with the rest of the Biotechnology index (BTK.X) on 
Wednesday, just kissing the $48 resistance level before abruptly 
reversing course on Thursday and falling back near $46.  With a 
lack of meaningful news to explain the pullback, we can only 
assume that investors decided to harvest profits after the one-
day ramp following Wednesday's bullish analyst comments.  That 
sharp reversal aside, GENZ is still observing the bounds of its 
shorter-term ascending channel, closing back over $46 after 
finding support at the 20-dma (currently $45.22).  The sharp 
reversal from resistance is precisely why we didn't want to get 
caught chasing the stock higher with a momentum entry approach.  
Buying the dips back to support near $45 provides a much more 
palatable risk-control setup.  The one potential fly in the 
ointment is the action in the BTK, as it is also pressing against 
the bottom of its ascending channel (currently $465) and stronger 
support in the $458-460 area.  As long as that support doesn't 
break down, then GENZ ought to have the necessary fuel to both 
lift back to the $48 area and then above, working towards our $52 
target.  Look for strength in the BTK to confirm a rebound in 
shares of GENZ before entry.  Note that our stop is now set at 
$44, right at the site of the June 3rd intraday low.

Suggested Options:
Shorter Term: The July 45 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 next week.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the July 47 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 October 47 call.

BUY CALL JUN-45 GZQ-FI OI=1373 at $2.20 SL=1.00
BUY CALL JUL-45 GZQ-GI OI=2013 at $3.60 SL=1.75
BUY CALL JUL-47 GZQ-GS OI= 984 at $2.15 SL=1.00
BUY CALL OCT-47 GZQ-JS OI=2031 at $4.30 SL=2.75

Annotated Chart of GENZ:


Picked on June 8th at    $46.61
Change since picked:      -0.31
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 3.63 mln
Chart link:


Intl Game Technology - IGT - cls: 96.93 chg: +1.20 stop: 90.00

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:
OptionInvestor.com added IGT to our play list on Tuesday because 
we liked the strong bounce off the $90.00 level. Well, that and 
we expected a potential good old-fashioned split run.  Several 
days ago IGT announced a 4-for-1 stock split set to be payable on 
July 2nd, 2003.  On top of a 4:1 split, they also announced a new 
dividend, payable for later in July.  Investors are looking 
strongly at any stock with a decent dividend these days and we 
can't say the dividend-split news hasn't helped produce IGT's 
incredible relative strength.  

Shares of have produced a very strong stair step performance all 
week long and short-term traders have very identifiable levels to 
raise their stop losses.  However, picking that stop loss is the 
hard part.  The stock is up about $6.50 since Monday's low.  
While the rest of the market has been hit with some minor profit 
taking, IGT keeps climbing.  Yet sooner or later, IGT is going to 
give some back.  If we were extremely conservative and were 
already happy with the gains in the stock then we'd suggest a 
stop loss just under $96.00, where shares bounced twice on 
Friday.  A little less conservative would be a stop under $94.00-
95.00 but if you expect a pull back and still want to stay in the 
play then something closer to $92.50-93.00 might work best.  If 
you can really take the heat then just leave your stop under 
$90.00.  We're torn between our greed to reach $100 and what we 
see on the chart.  The daily chart is showing a nice gap up doji 
candlestick on Friday.  This typically represents indecision but 
if shares gap down on Monday and paint a red candle it would be a 
classic "evening star" bearish reversal pattern.  Honestly, if 
you're happy with the move in the options already it wouldn't be 
a bad idea to take some profits off the table now.  

We're going to bump our stop loss up to $92.90 and hope that any 
pull back is met by dip buyers at $95, $94, or $93.  IGT only has 
two weeks left before its split so bulls might be able to defend 
it even if the markets turn south for a few days (but that is 
still being optimistic).  WE WOULD NOT RECOMMEND NEW POSITIONS at 
this time.  Look for a pull back and the beginnings of a bounce 
before initiating any new positions.

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=2417 at $8.90 SL=5.00*on a dip*
BUY CALL JUL-95  IGT-GS OI=2285 at $5.70 SL=3.20
BUY CALL JUL-100 IGT-GT OI=1710 at $3.10 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:    +5.06
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million 
Chart link:


Mercury Int - MERQ - close: 41.00 change: -2.07 stop: 38.95*new*

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:
A failed breakout was exactly what we were concerned with on our 
MERQ play and precisely why we cautioned that a momentum strategy 
may not be the best approach given the stock's already extended 
condition.  Sure enough, MERQ broke out, tagged the $44 level and 
pulled back slightly on Thursday.  But the real show unfolded on 
Friday after after JMP Securities downgraded the stock with a 
price target of $38 on their belief that the company's customer 
base could contract.  Call us cynical, but it sounds to us like 
JMP just wants a better entry point and the firm didn't want to 
chase the breakout move higher.  A look at the annotated chart 
below certainly may shed some light on this speculation.  Note 
the ascending channel from the April lows, which has a lower 
bound just above $39.  Not only that, but we have the 20-dma 
resting at $39.05.  Could it be that this is the point where 
eager bulls will jump back into the stock after today's sharp 
4.8% plunge?  Only time will tell.  Recall that our stop was 
initially set at $39.95.  Upon noticing the strong support 
offered by the $39 level, we've opted to lower that stop to allow 
for a rebound from the bottom of the channel without stopping us 
out of the play.  We'd prefer to see a rebound from above the $40 
level as originally laid out, but are trying to cover all the 
bases.  Conservative traders that entered on the breakout earlier 
in the week may want to stick with the original stop.  For those 
still awaiting entry, a rebound from above $40 would be the 
preferred strategy, although a drop down to the vicinity of the 
bottom of that channel may turn out to be a gift of an entry.

Suggested Options:
Shorter Term: The July 40 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 next week.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the July 42 Call.  This 
option is currently slightly 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 aggressive 
long-term traders can utilize the July 45 call.

BUY CALL JUN-40 RQB-FH OI=1706 at $2.00 SL=1.00
BUY CALL JUL-40 RQB-GH OI=7564 at $3.70 SL=2.00
BUY CALL JUL-42 RQB-GS OI=3983 at $2.35 SL=1.25
BUY CALL JUL-45 RQB-GI OI=4331 at $1.35 SL=0.60

Annotated Chart of MERQ:


Picked on June 10th at   $42.62
Change since picked:      -1.62
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 4.43 mln
Chart link:


Lexmark Intl - LXK - close: 73.38 change: -0.62 stop: 69.00

Company Description:
Lexmark International, Inc. is a leading developer, manufacturer 
and supplier of printing solutions -- including laser and inkjet 
printers, multifunction products, associated supplies and 
services -- for offices and homes in more than 150 countries. 
Founded in 1991, Lexmark reported approximately $4.4 billion in 
revenue in 2002.  (source: company press release)

Why We Like It:
Opportunity is the word we'd like to use here.  The GHA hardware 
sector has been a leader in the market's rally to new relative 
highs.  While we think the GHA looks ready to dip to the 205 or 
200 level that doesn't mean we don't want to be ready for a dip 
in shares of LXK.  Actually, we're not so sure that dip is going 
to come for the inkjet cartridge and printing solutions supplier.  

Everyone knows that the big companies in the ink cartridge 
business have huge margins.  It appears that investors have 
rediscovered LXK and are slowly buying up shares.  Sure, the 
company has plenty of competition from the likes of Hewlett 
Packard, Canon, Epson and a host of Internet-based discounters 
trying to steal market share but that's not affecting LXK's 
monthly gains in share price.  

Both the daily and the point-and-figure chart are showing LXK in 
what appears to be a pennant shaped consolidation pattern.  It's 
easier to see on the P&F chart, which would indicate we still 
have a bit more consolidating to go before LXK breaks out one way 
or the other.  Typically a pennant pattern doesn't have a bias up 
or down on which direction the stock will break but looking at 
the weekly chart of LXK we're betting the breakout will be up.

OptionInvestor is going to use a hard trigger at 74.51 to leg us 
into the play.  Until LXK trades at or above 74.51, we are NOT in 
the play (yes, we're being redundant here).  However, more 
aggressive and nimble traders might want to look for a dip and 
bounce at the $70.00 area should such an opportunity occur.  
Hopefully, if the consolidation pattern holds up, LXK will not 
trade that low.  We're going to initiate the play with a stop 
loss at $69.00 but traders could easily consider stops at $70 or 
under the 50-dma.

Suggested Options:
We don't have a preference over July or October strike prices as 
the trend on LXK looks rather strong.  Still, it's a lot cheaper 
to play the July options.  The July 75s don't look too bad.

BUY CALL JUL 70 LXK-GN OI=2397 at $5.60 SL=3.25
BUY CALL JUL 75 LXK-GO OI=6110 at $2.65 SL=1.30
BUY CALL JUL 80 LXK-GP OI=1019 at $0.95 SL=0.00 *pretty risky*
BUY CALL OCT 75 LXK-JO OI=1681 at $5.50 SL=3.25
BUY CALL OCT 80 LXK-JP OI=1174 at $3.50 SL=1.75

Annotated Chart of LXK:


Picked on June 15th at $xx.xx
Change since picked:    +0.00
Earnings Date        07/21/03 (unconfirmed)
Average Daily Volume =   1.78 million 
Chart link:


Progressive Corp. - PGR - close: 73.27 change: +2.28 stop: 69.00

Company Description:
Traditionally a leader in non-standard, high-risk personal auto 
insurance, PGR has moved into standard-risk and preferred auto 
insurance, as well as other personal use vehicle coverage, such 
as motorcycles and recreational vehicles.  The company's 
property-casualty insurance products protect its customers 
against collision and physical damage to their vehicles and 
liability to others for personal injury or property damage.

Why we like it:
If it seems like it has been weeks that the Insurance index 
(IUX.X) has been stuck just below major resistance, that's 
because it has been.  Two, to be exact.  The $275 resistance 
level effectively kept a lid on the IUX from October through 
January, and it has been having the same effect since the first 
of June.  Despite the IUX being unable to crack resistance, 
shares of PGR are not content to just wait around.  The company 
has been continuing to deliver on the earnings front and 
investors have been rewarded for holding the stock.  After 
blasting to new all-time highs above $61 on April 1st, the stock 
never looked back.  Setting one new high after another, it 
stymied every one of the bears' attempts to pick a top, and 
serial short-covering likely played at least a small role in the 
stock's persistent rise.  But after stalling just below the $73 
level for the past couple weeks, PGR actually looks like it is 
ready to run again.  If the IUX can join in the party then the 
stock could really gain some altitude.  

We don't want to get overly aggressive though, as the stock has 
been working higher in an ascending channel for the past 6 weeks 
and given its already extended condition, we don't want to get 
caught chasing momentum.  Looking at the chart below, you can see 
that PGR is near the top of that channel, so it would take a 
pretty strong push for another strong surge to hold right here.  
So our preferred strategy will be to look for a pullback and 
rebound from the vicinity of $71, which also happens to be the 
site of the 20-dma.  The PnF chart is off the chart in bullish 
terms, with a bullish price target of $118!  It appears unlikely 
that we'll see that level anytime soon, but on a more micro 
scale, a trade at $74 will generate another Buy signal and likely 
give the stock more fuel.  Momentum traders can enter on a 
breakout over $74, but must be willing to accept the risk of a 
pullback to the bottom of the channel (currently $70.75) before 
the stock continues higher.  We're initially placing our stop at 
$69, just below last Monday's reaction low of $69.24.

Suggested Options:
Shorter Term: The July 70 Call will offer short-term traders the 
best return on an immediate move, as it is currently in the 
money.  Note that June contracts expire next week.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the August 75 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 70 call.

BUY CALL JUL-70 PGR-GN OI=163 at $4.40 SL=2.75
BUY CALL JUL-75 PGR-GO OI= 39 at $1.40 SL=0.75
BUY CALL AUG-70 PGR-HN OI=396 at $5.10 SL=3.00
BUY CALL AUG-75 PGR-HO OI=230 at $2.15 SL=1.00

Annotated Chart of PGR:


Picked on June 15th a  $73.27
Change since picked:    +0.00
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =  983 K
Chart link:

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HCA, Inc. - HCA - close: 32.00 change: +0.10 stop: 33.50*new*

Company Description:
HCA Inc. is a healthcare services company that, as of the end of 
2002, operated 179 hospitals, comprised of 166 general, acute 
care hospitals, six psychiatric hospitals, one rehabilitation 
hospital and six hospitals included in joint ventures.  In 
addition, the company operated 78 free-standing surgery centers.  
The company's facilities are located in 22 states, England and 
Switzerland.  The general, acute care hospitals provide a full 
range of services to accommodate such medical specialties as 
internal medicine, general surgery, cardiology, oncology, 
neurosurgery, orthopedics and obstetrics, as well as diagnostic 
and emergency services.

Why we like it:
Are you still awake?  It's been a tough week for traders 
following the HCA play, primarily because of the difficulty in 
staying interested.  After the rebound from just above $31 early 
in the week, the stock has been gradually losing ground again and 
ended right on the $32 level, posting a gain of a dime on Friday.  
What's encouraging about the play is that while the stock has 
been stalling under resistance, daily Stochastics have been 
rising towards overbought and appear to be starting to roll over.  
That would play very nicely into our hands, especially with 
critical resistance provided by the 10-dma ($32.29), the 20-dma 
($32.61) and the 50-dma ($32.94) dropping on a daily basis.  In 
fact it seems unlikely that HCA will be able to test the major 
resistance at $33.50 without a sharp shift in sentiment.  
Following the abrupt rejection at the top of last Thursday's gap, 
it seems safe to lower our stop to $33.50, thereby reducing our 
risk.  Traders still looking for an entry into the play will 
likely have to content themselves with looking for a failed rally 
below the 50-dma.  At this stage of the game, it seems like a 
momentum strategy is unlikely, but just in case, look for a break 
below $30.75 to signal an entry point.

Suggested Options:
Short-term traders will want to focus on the July 32 Put, as it 
will provide the best return for a short-term play.  Those 
looking for a larger move down below the $30 level will want to 
utilize the July 30 Put or even the August 30 Put, which provides 
greater insulation from the spectre of time decay.  Note that 
June contracts expire next week.

BUY PUT JUL-32 HCA-SZ OI=2261 at $1.65 SL=0.75
BUY PUT JUL-30 HCA-SF OI=3293 at $0.70 SL=0.30
BUY PUT AUG-30 HCA-TF OI=3658 at $1.15 SL=0.60

Annotated Chart of HCA:


Picked on June 3rd at   $31.45
Change since picked:     -0.55
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 5.95 mln
Chart link:


Goldman Sachs - GS - close: 89.17 change: -1.18 stop: 90.76

Company Description:
Goldman Sachs is a leading global investment banking, securities 
and investment management firm that provides a wide range of 
services worldwide to a substantial and diversified client base 
that includes corporations, financial institutions, governments 
and high net worth individuals. Founded in 1869, it is one of the 
oldest and largest investment banking firms. The firm is 
headquartered in New York and maintains offices in London, 
Frankfurt, Tokyo, Hong Kong and other major financial centers 
around the world. (source: company press release)

Why We Like It:
We have to admit right off the bat that we're playing with fire 
here.  What happens to most people who play with fire?  Easy, 
they get burned.  Thus we hope to limit our burnability by using 
a relatively tight stop loss.  We're going to classify this as a 
very aggressive play.

So why are we so eager to suggest puts on shares of Goldman 
Sachs?  Hmm... like many of the traders out there we're in shock 
at the nearly non-stop ramp up in GS since its late May breakout.  
Stocks, like markets, typically ebb and flow, up and down, that's 
just the nature of the game.  Well, GS has gone nothing but up 
for three weeks and its high time for some down.  Toss in a 
couple of key resistance levels, a market that's showing some 
minor weakness and the opportunity was just too tempting to pass 

First a couple of caveats.  GS is expected to announce earnings 
on Wednesday, June 25th.  Out of the entire brokerage group, 
analysts appear rather optimistic about GS.  That's not good for 
us because we're attempting to go bearish on a whole lot of 
strength.  The recent observations about rising trading volumes 
for the last couple of months may also help bolster the brokers 
earnings numbers and we're due to see a number of announcements 
in the next two weeks.  Coming up quickly is MWD who announces 
this week on June 18th before the bell.  Thankfully, MWD's 
earnings are expected to be significantly less than the first 
quarter and less than a year ago.  As long as they don't surprise 
to the upside their report shouldn't boost shares of GS.  The 
next report traders should be watching is LEH's earnings on June 
19th.  Now they're a potential hazard, as estimates are somewhat 
positive.  It will depend on what LEH has to say in their 
conference call.  The last (warning) but not least, we're 
essentially picking a top.  Just like picking bottoms, it can be 
hazardous to your trading account.  Speculation plays only, 

Now check out the GS chart.  The stock went from $61 to $78 
between mid-March and late April.  This produced a strong point-
and-figure chart buy signal with a potential target of $95.00.  
From late April the stock consolidated in a bullish flag pattern 
for about three weeks.  Then in late May the stock broke out from 
its flag pattern near $75 and has run straight to $90.00.  Most 
oscillators are pegged deep in overbought territory to they're 
little help until we see some consolidation.  Thankfully, the 
chart below suggests that its time for some profit taking in GS 
but we are being optimistic.  The multi-week rally in the XBD 
broker-dealer index from less than 350 to 550 lends credence to 
our stance that its time for a dip.  You'll also notice that the 
550 level was resistance for the XBD back in late December 2001-
to-very early January 2002.

We're going to initiate the play with a stop loss at $90.76.  If 
we're wrong, we're wrong and we want to be out quick.  Our 
short-term target $85.00.  More aggressive traders could 
potentially target $82.50.

Suggested Options:
Our time frame is relatively short-term so we're looking at the 
July strikes but we've listed an October for the more patient 

BUY PUT JUL-90 GS-SR OI=3404 at $3.80 SL=1.60
BUY PUT JUL-85 GS-SQ OI=5881 at $1.80 SL=0.90
BUY PUT OCT-85 GS-VQ OI=2769 at $4.30 SL=2.15

Annotated chart of GS:


Picked on June 15th at $89.17
Change since picked:    -0.00
Earnings Date        06/25/03 (unconfirmed)
Average Daily Volume =   4.57 million 
Chart link:


Kohl's Corporation - KSS - close: 49.45 change: -1.03 stop: 53.25

Company Description:
Kohl's Corporation operates family-oriented, specialty department 
stores, primarily in the Midwest.  The company's stores sell 
moderately priced apparel, shoes, accessories and home products 
targeted to middle-income customers shopping for their families 
and homes.  Kohl's stores have fewer departments than full-line 
department stores, but offer customers assortments of merchandise 
displayed in complete selections of styles, colors and sizes.  Of 
the 420 stores the company operates, 116 are takeover locations, 
which have facilitated the entry into several new markets, 
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston, 
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri, 
and the New York region.  

Why we like it:
The Retail index (RLX.X) may have been knocking on new multi-
month highs as recently as a week ago, but the same certainly 
can't be said about KSS.  The stock topped out at the 200-dma 
back in mid-April and aside from a brief spurt higher in early 
June, it has been all downhill.  The decline really seemed to get 
rolling on May 8th, when the company reported a 4% decline in its 
April comps vs. Prudential's estimate of a 3% gain.  After 
declining back near the $51 support level, KSS bounced again with 
the strength in the RLX, but that rebound was short-lived.  After 
running into firm resistance at the 50-dma, the stock once again 
began plunging a week ago Friday.  By this past Wednesday, KSS 
had reached a critical juncture, coming to rest just above the 
$51 level that had provided support through late May.  The bulls 
weren't so fortunate this time around, as the stock has plunged 
sharply below that level in the past two days, coming to rest on 
Friday very near its low of the day.  Confirming the bearish 
situation demonstrated by the price action, volume has been 
running well above average on this selloff and looks to be a 
harbinger of further weakness ahead.

You have to look pretty hard in this market to find a bearish 
looking PnF chart, but KSS fits the bill with its fresh Sell 
signal and $41 bearish price target.  We aren't going to be quite 
that aggressive, as the $45 level looks like a more reasonable 
target, nestled in between the October and March lows 
(incorrectly labeled on the chart).  There's likely to be some 
support found first at $47.50 and then again near $46, so a 
momentum strategy isn't our first choice.  Rather, we'd like to 
see a rebound back into the $51-52 area that gets knocked back by 
the imposing resistance of the 10-dma ($52.44) and 20-dma 
($52.22).  If we should get so fortunate as to have the RLX 
reverse lower, then it should act like a sledge hammer, driving 
KSS sharply lower in short order.  Place stops at $53.25, just 
above the bottom of last Monday's gap.

Suggested Options:
Short-term traders will want to focus on the July 50 Put, as it 
will provide the best return for a short-term play.  Conservative 
traders looking for a larger move down towards the $45 level or 
below may want to utilize the October contract, which provides 
greater insulation from the spectre of time decay.  Note that 
June contracts expire next week.

BUY PUT JUL-50 KSS-SJ OI=8476 at $3.10 SL=1.50
BUY PUT JUL-45 KSS-SI OI=4064 at $1.15 SL=0.60
BUY PUT OCT-45 KSS-VI OI=1761 at $2.90 SL=1.50

Annotated Chart of KSS:


Picked on June 15th at   $49.45
Change since picked:      +0.00
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.46 mln
Chart link:


Whole Foods Market - WFMI - cls: 49.44 chg: -1.35 stop: 52.00 

Company Description:
Founded in 1980 in Austin, Texas, Whole Foods Market is the 
world's largest natural and organic foods supermarket with $2.7 
billion in sales in fiscal year 2002. The company currently has 
143 stores and employs more than 27,000 Team Members in the 
United States and Canada. The motto, "Whole Foods, Whole People, 
Whole Planet"(TM) captures the company's mission to find success 
in customer satisfaction and wellness, Team Member excellence and 
happiness, enhanced shareholder value, community support, and 
environmental improvement. For six consecutive years, Whole Foods 
Market has ranked on Fortune's annual list as one of the "100 
Best Companies to Work For." Whole Foods Market, Bread & CircusŪ 
and Harry's Farmers MarketŪ are all registered trademarks owned 
by Whole Foods Market IP, LP. (Source: company press release)

Why We Like It:
From a technical perspective, it doesn't get much better than 
this for a suggested short play.  In early May, WFMI plummeted 10 
points over a two-day period.  WFMI then spent the ensuing month 
consolidating in a classic "b" distribution pattern.  That 
pattern usually predicts a fall equal to the fall that preceded 
it, which gives us 42 as an eventual target for this short play.  

There's more.  When WFMI broke out of that "b" distribution 
pattern on June 5 and 6, it fell below an ascending trendline 
that's been in place since April 2001.  It also dropped beneath 
its 200-dma.  WFMI spent this week retesting both that trendline 
and the 200-dma.  Friday, it failed that test.  

Oh, and while it failed that test and moved down, it also handily 
fell through the nice round number of 50, likely damaging 
investor sentiment.  WFMI is on a P&F sell signal with a target 
of 42, fitting nicely with the target predicted by the "b" 
distribution pattern.

What could be better than that?  How about an examination of the 
reasons behind WFMI's decline?

The two-day ten-point decline began with a McDonald Investment 
analyst's downgrade on valuation concerns ahead the earnings 
report on May 7.  The analyst thought that the company's premium 
valuation might subject the stock to profit taking on any bad 
news.  That bad news arrived that afternoon when WFMI guided 
expectations for fiscal 2003 and same-store sales to the low end 
of their previously stated ranges.  Q2 sales were 725.1 million, 
just below the expected $729.8 million, but earnings were 41 
cents per share, and in line with expectations.

The McDonald Investment analyst was soon joined by a U.S. 
Bankcorp Piper Jaffray analyst who lowered his estimates for the 
company.  Again, the problem seemed to be that the company's 
stores had been performing well: so well that earnings and sales 
couldn't continue to grow at their previous rate.  It was the old 
"priced to perfection" argument that used to target tech stocks.

When worries about mad cow disease surfaced in mid-May, WFMI 
temporarily benefited as the chain sells organically raised beef 
from U.S. livestock, not fed antibiotics or hormones.  A WFMI 
spokesperson said higher sales were not immediately expected as a 
result of the mad cow worries, however.  

Unfortunately for WFMI but not for new play, other grocers began 
reporting in early June, and the news was not good.  Albertson's 
(ABS) missed earnings, saying full-year earnings would be $1.70-
$1.75, far below the previous $2.04 consensus. Albertson's 
mentioned competitive pressures. Safeway (SWY) announced that it 
would cut more than 10 percent of its administrative personnel as 
it also coped with competitive pressures as well as plummeting 
profits. Winn Dixie (WIN) lowered guidance for its fourth 
quarter. Kroger (KR) announced an SEC information request related 
to its filings, although the company thought the request was just 
part of the SEC's regular activities.  

The sector dragged the just-recovering WFMI down with it.  This 
week's retail sales figures did their part, too.  Thursday's 
number showed a decline of 0.5 percent in food and beverage store 

The ideal entry would be a rollover beneath 50 or the 200-dma at 
50.78, but we may not get that entry.  Traders instead might 
enter on a move below Friday's 49 low.  Our first target is 45 
and our second is 42, with a stop at 52.  As great as this setup 
is, traders should probably expect some turbulence between 46.50 
and 47.50, the site of a gap up in February.  

Suggested Options:
We have plenty of options to choose from.  WFMI has Julys, August 
and November options already available.  We're going to suggest 
July 50 and 45 puts but the August 45s don't look bad either.

BUY PUT JUL 50 FMQ-SJ OI= 539 at $2.70 SL=1.35
BUY PUT JUL 45 FMQ-SI OI=1052 at $0.90 SL=0.45
BUY PUT AUG 50 FMQ-TJ OI= 913 at $3.40 SL=1.70
BUY PUT AUG 45 FMQ-TI OI= 396 at $1.50 SL=0.75

Annotated Chart for WFMI:


Picked on June 13 at $49.44
Change since picked:  -0.00
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =

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The Option Investor Newsletter                   Sunday 06-15-2003
Sunday                                                      4 of 5

In Section Four:

Leaps: This Is Not MOPO, Right?
Traders Corner: It's That Time Of The Month Again
Traders Corner: Elliott Wave Plays
Traders Corner: Elliott Wave Play Updates
Traders Corner: Where is the Dow Going?
Futures Corner: ADX Article I Have Been Promising

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This Is Not MOPO, Right?
By Mark Phillips

Giving credit where it is due, this week's title came from a long-
time reader.  He sent me an email on Friday with that subject line 
and the reason I highlight it is as much to comment on the state 
of the current market as to compliment that reader for the 
progress I've seen him make in his understanding of the market 
over the past couple years.  You see, in the past, I would have 
expected this individual to be blindly shorting into this recent 
rise in the market.  Not so, this time around.  He's learned to 
listen to the language of the market and based on the past few 
failed LEAPS Put trades, maybe a bit better than I!

This reader's question highlights his lack of belief that Friday's 
drop off in the broad market is not the beginning of a larger 
decline and I have to agree.  Let's revisit the premise of the 
MOPO setup and see what may be setting up in favor of that long-
awaited trade setup and what isn't.  For those new to the MOPO 
discussion, here's the background information, as we certainly 
don't need to take our time together this weekend to rehash it.

MOPO - Remember That Term?

Setting Up For MOPO

Further Reflections on MOPO

Clearly, with all of the major indices blowing through major 
resistance in recent weeks, the first ingredient of the MOPO setup 
has been removed.  The market's have broken their trend of lower 
highs and with all the indices more than 20% above their October 
lows, we have satisfied the 20% rule that says we're in a new bull 
market.  I certainly won't argue with that -- where I differ with 
many of the talking heads is in whether this is a cyclical or 
secular bull market.  By my definition, this market can't be 
considered to be a new secular bull unless the indices are able to 
take out their previous bull market highs.  Needless to say, there 
is a LONG ways to go before that becomes even a remote 
possibility.  But at the same time, with the March lows being 
higher than the October lows and the current highs having exceeded 
the peaks in August and December of last year, we have the 
beginning of a trend of higher lows and higher highs.  That flies 
directly in the face of what we want to see for a MOPO setup.  
Strike one for the bears.

Next up is the information delivered by the CBOE Volatility index 
or VIX.  Historically, the VIX has signaled a near-term market top 
whenever it has declined to 20 or below, while at the same time 
the market has either stalled or continued to rise.  Taking a look 
at a daily chart of the VIX vs. the SPX, and it becomes very clear 
that something is different than what we want for a MOPO setup.

Daily Chart of the S&P 500 vs. the VIX


This is actually bullish action, not the setup for a large bearish 
move in the broad market.  While the actual market has been 
rising, the holding action in the VIX indicates that there are 
just enough skeptics (like me) out there to continue to fuel the 
market's rise.  Remember that rallies need a wall of worry to 
climb, and it appears that market participants that don't believe 
in this rally have continued to provide legs for it to continue to 

This flies in the face of the latest numbers out of the Investor's 
Intelligence Survey, which shows the boat listing severely into 
the bullish camp.  The latest numbers show that 58.7% of advisors 
are bullish while only 16.3% are bearish.  The significance of 
this imbalance is that this is the lowest bearish reading in 16 
years!  I'm sorry, but I have a hard time believing that after 
only 3 years of a bear market, that suddenly the crowd is right.  
In my never-to-be-humble opinion, there is a big correction 
coming.  The $64,000 question is when and from what levels.  I 
remember reading of advisors in the middle of 1999 that were 
forecasting a major selloff in the stock market.  They were right, 
but I wonder how many traders went bankrupt trying to short into 
the rally from mid-1999 through March of 2000?  In this game, 
timing is everything!

So let's look at the third ingredient in our MOPO recipe, that of 
Bullish Percent (BP).  Recall that BP doesn't tell us where the 
market is headed, it just tells us whether the bulls or the bears 
are carrying most of the risk.  Look at our summary table below 
and I think you can easily surmise that the bulls are carrying the 
vast majority of the risk in this market.

NASDAQ-100 - 87% (6/03 high of 91%, 11/99 high of 92%)
NASDAQ Composite - 70.88% (new all-time high)
DOW - 80% (Same level as 3/00 and 5/01 -- highs in 1998 = 92%)
S&P 500 - 81.40% (6/03 high of 82.20%)
S&P 100 - 79% (New cycle high, 11/98 all-time high = 84%)

Except for a bit of weakness showing in the NASDAQ-100, we can see 
little signs of weakening in the bullish percent measures.  The 
bulls may be carrying the bulk of the risk in this market, but 
that certainly hasn't stopped them from repeatedly steam-rolling 
the bears at each new supposed resistance point.  Even the NASDAQ 
Composite now meets the standard definition of overbought as it 
crept over the 70% level last week.

I hesitate to show the following chart, as I have concerns that 
some readers will take it as the definitive sign of weakness and 
start shorting the NDX based on that perception.  Let me just say 
that based on what we see on this chart, such action would clearly 
be premature!  I've talked at great length about the SharpCharts 
version of the bullish percent charts and the interaction of these 
lines with their respective 10-dmas.  Up until recently, we really 
haven't had a hint of a bearish crossover on any of the major 
indices.  Based on the minor loss of strength on the NDX BP on 
Friday, we're finally getting that hint.

Bullish Percent SharpChart of the NASDAQ-100


As you can see, the BP line is crossing below the 10-dma here, but 
we still need the confirmation of the CCI dropping below the zero 
line.  Keep in mind, the NDX BP is usually the first to show an 
inflection and it is currently the most extended of any of the 
major indices.  Looking at a broader picture, the S&P 500 gives a 
more balanced picture.

Bullish Percent SharpChart of the S&P-500


We can see the BP line tipping a bit lower, but it still hasn't 
even touched the 10-dma, much less crossed over it.  And while the 
CCI line is starting to dip below 100, it is still nowhere near 
the zero line.  Of all the major indices the SPX and NDX are the 
closest to giving us a bearish signal, with the other indices 
still looking quite strong and bullish.  As I've mentioned over 
the past several weeks, I invite each of you to monitor these 
charts on your own over at StockCharts.com.  Here's the link I 
use, for your convenience.


Here are the pertinent Bullish Percent symbols.


I owe a great debt of thanks to one of my readers who introduced 
me to the above method of reviewing the bullish percent readings.  
Unfortunately, I can't remember who that kind soul was (as I get 
so many great emails each and every week), but you know who you 
are, and I thank you!

In each of the past 2 weeks, the bears have managed to turn back 
rally attempts from just above the 1000 level in the SPX, which 
has corresponded to the DOW pushing just over the 9200 level.  
What is so interesting and of a cautionary nature to bears is that 
the SPX seems to now be finding support above the 970 level, while 
the DOW is finding support above 8900.  It wasn't so long ago that 
we were using these numbers to define what we thought would be 
solid resistance!  

Does this continued rally make sense?  Well, yes and no.  From a 
fundamental standpoint, there's no leg for it to stand on, as 
valuations across the entire market are more ridiculous now than 
they were in the spring of 2000.  But there are two factors that I 
believe is floating the market higher.  The first is the rising 
tide of liquidity being provided by the Fed, both by continuing to 
hold interest rates at multi-decade lows and by running the 
printing press, making more dollars available.  Adding to this 
buoyant factor is the recently passed tax cut, which is expected 
to continue to aid the U.S. consumer in continuing to fuel the 
global economy.  Of course, don't forget that mortgage rates are 
continuing to fall, and it certainly looks like we're entering 
into the next wave of refinancing, which will only unleash more 
cash to be directed into either the real economy or the equity 
market.  With interest rates so low, investors looking for capital 
appreciation really have no other choice but to invest in the 
equity market, as money market and bond yields are so ridiculously 

The other factor driving the markets higher is future 
expectations.  While valuations at this point do not justify 
current equity prices, the consensus belief seems to be that this 
year the second-half recovery is for real.  Based on that belief, 
investors expect that even rising equity prices now will be 
justified towards the end of the year and into early 2004 as 
earnings catch up with expectations.  Those of you that have been 
with me for awhile know that I have no confidence the second-half 
is going to be any stronger than it has been over the past 3 
years.  There just isn't anything coming from the corporate arena 
to indicate that there is anything driving better earnings other 
than cost-cutting.  If companies aren't able to paint a rosy 
picture for investors in the upcoming July earnings cycle, I 
suspect it could make for a rough remainder of the summer.

As you can see, I have an expectation of much lower equity prices 
ahead, but just when such a correction might get underway, the 
tools I follow are not telling me anything other than "Possibly 
soon, but not yet".  Jeff Bailey did an excellent article last 
week in one of his market wraps and I hope all of you caught it 
because it dovetails nicely with our continuing search for where 
that elusive reversal point might be.  It was done Thursday night, 
and for those of you that may have missed it, I highly recommend 
reading through it this weekend.  Jeff played around with the 
settings on his PnF charts of the major indices, fine-tuning them 
to the point where they should signal when a real reversal does 
occur.  Here's the link in case you missed it.  

Looking for a "finite" level

As you can see by some of the bullish price targets that Jeff is 
working with, my speculation last week of the DOW potentially 
reaching 9500, the SPX 1100 and the NDX 2000 doesn't seem so far-
fetched.  In fact, in light of my possible upside targets for the 
SPX and NDX, maybe we're looking at the DOW working as high as 
10,000 before all is said and done.  Warranted?  No way!  
Possible?  Believe it or not, I think so.  Of course, the more 
elevated the market becomes, the more susceptible it is to a major 
correction.  But I don't think it makes sense to open positions in 
anticipation of that correction until there is some sort of 
technical confirmation that the correction has arrived.  That 
leaves us with what I feel is a very extended bull market cycle 
within an overall bear market.  Do we jump on the bandwagon and 
romp with the bulls?  Or do we wait patiently on the sidelines, 
sharpening our claws for the major decline we "know" is coming?  
Decisions, decisions...You'll note that shorting into every rally 
is NOT one of the choices that I'm willing to consider.  That 
would be the same as trying to convince the market to do what I 
want, and that is almost always a very painful and expensive 
lesson.  Join me below for a discussion of where we're going with 
the Portfolio and Watch List


AIG - Up, down, up, down.  In the past 6 weeks, AIG has gone 
absolutely nowhere.  The big question is whether that is good news 
or bad news.  Looking at a chart of the Insurance index (IUX.X) 
over the past several weeks shows another rather flat trend, 
helping to explain why AIG can't seem to gain any traction in 
either direction.  But with both the IUX and AIG underperforming 
the broad market, I continue to think this is one of the better 
plays for bears.  While still underwater from our entry point, I 
like the way the stock has been getting rejected from the $60 
level over the past couple weeks.  On the other hand, I'm 
concerned that former resistance at $58 now seems to be providing 
support, with the stock holding above the 200-dma for two solid 
weeks now.  That makes the longest period of time the stock has 
been over the 200-dma since late 2001.  Either we've picked a 
solid top for AIG or we'll be stopped out with a close over $61.  
I still favor new entries on failed rallies below $60, but more 
conservative traders will want to wait for a decline back under 
the 200-dma before playing.

GM - That was close, wasn't it?  GM continues to defy all rational 
thought, rallying on the sea of liquidity despite the dismal 
fundamental situation.  the company reaffirmed their Q2 outlook on 
Tuesday and that seems to have provided the necessary lift to 
challenge the descending trendline.  The stock rallied through the 
200-dma and descending trendline on Wednesday, and reached as high 
as $37.76 on Thursday before reversing to close just over $37.  A 
bit of bright news for our play emerged on Friday morning though, 
with Moody's downgrading the company's debt to Baa1 from A3.  That 
was enough to drop GM back under the $37 level, but I must say I 
was a bit surprised to see the damage so limited.  GM remains in a 
downtrend, but resistance is starting to weaken.  I still view 
this as one of the best potential bearish plays out there right 
now, but that doesn't mean we'll be proven right.  Nervous 
investors may just want to take advantage of the current weakness 
to exit open positions near par.  I'm going to stick by my guns, 
keeping stops set at $37.50, expecting any broad market pullback 
(which is long overdue) to have an outsized impact on shares of 

AMGN - Despite the pullback in the Biotechs last week, AMGN 
managed to hold its ground fairly well.  The stock didn't quite 
succeed in pushing to new highs, but holding onto the $65 level on 
Friday was encouraging.  Dips that find support above $62 still 
look attractive for new entries, as our eventual target is still 
the $72 level.  But as I've cautioned before, I don't recommend 
entering on a breakout to new highs.  AMGN has a habit of 
consolidating after each push to a new high before pushing higher 
again.  The best entry strategy is to take advantage of the lull 
between the highs.  Of course, in such an overextended market, 
there is the very real possibility that AMGN (along with the rest 
of the market) could top out at any time, so prudent use of stops 
is mandatory.  This week, I'm getting just a bit more aggressive 
and raising our stop to $61.40, which is just below the last 
reaction low, as well as the 50-dma.

QQQ - Are we topping out yet?  I hesitate to go that far, with the 
NDX still holding onto support at the 1200 level.  But it was 
encouraging to see a bit of weakness in the QQQ towards the end of 
the week, giving us a close back under the $30 level.  The bearish 
cross in the BP chart above is also encouraging, as is the steady 
rise in the VXN (NASDAQ Volatility index) over the past couple 
weeks.  But the bearish case is still far from conclusive.  For 
now, we just continue to look for failed rallies below $31 as 
potential entry points and maintain our stop at $32.  We'll need 
to see the QQQ break and close below $29 and a further weakening 
on the NDX BP before we'll really have any confidence that perhaps 
the scales are tipping in our favor.

Watch List:

DJX - More and more, the virtue of patience is being revealed to 
me.  The DOW just continues its relentless rise along with the 
rest of the market.  With the VIX continuing to hold up and no 
signs of weakness in the DOW's BP, it is really difficult to make 
the case for a solid bearish entry point.  I continue to believe 
it is near at hand, but it remains as elusive today as when we 
initiated this play over a month ago.  We'll stick with the higher 
entry target for now, although that may be subject to revision, 
depending on what transpires in the week ahead.

Closing Thoughts:

As you might expect after that rather long commentary above, I'm 
pretty much talked out for the week.  This continues to look like 
a top-heavy market to me, but I refuse to throw more bearish trade 
candidates out there without some indication from either the major 
indices or some internal weakness in the market that the bearish 
case holds more merit than it did 2 or 4 or 6 weeks ago.  At the 
same time, the only decent bullish candidates seem to be those 
that have already had quite a run, meaning that it is too 
difficult to quantify downside risk.  I looked through several 
hundred LEAP-able stocks this weekend, and I really can't find a 
single stock that I feel comfortable adding to the Watch List.  
But after not adding anything for the past couple weeks, I feel 
like I'm not giving you the product you deserve and want.  So I'd 
appreciate your thoughts on what you actually would like me to do.  

Do you want fresh candidates every week, no matter what the market 
conditions?  Or would you prefer that I only list candidates that 
I think look really strong?  I'll do my best to provide what the 
majority wants, but I need your input to figure out just what that 
ought to be.

As a sort of compromise this week, here is a short list of several 
of the stocks that I think may provide some solid bearish 
possibilities in the weeks ahead.  These are NOT Watch List plays 
just yet, but some of the leading contenders that I am watching 
for confirmation of my own personal bias.

HD - Looking for the rising channel to break down, likely on a 
rejection from long-term resistance in the $36 area.  This goes 
against the strength in the Housing sector, but recall that LOW 
has been a much stronger performer over the past year or so, and I 
think that bodes ill for HD long-term.

GS - This is really aggressive, but I'm looking for the stock to 
top out very near current levels.  The flag pattern that resolved 
to the upside in late May (stopping us out of our bearish play) 
has now reached its upside objective of $90 and there is some 
strong resistance in the $90-92 area.  I'm watching for a topping 
formation up here and then a decline all the way back into the 
upper $70s.

WMT - Something is wrong with WMT.  Despite the Retail index 
(RLX.X) continuing to look strong, this stock is definitely 
showing a lagging behavior.  Is it telling us something about the 
larger Retail picture?  Rally failures in the $57-58 areaare 
starting to look attractive for new bearish positions, but we are 
going to need to see some significant market weakness in order for 
LEAP Put plays here to yield fruit.

FNM - I've been watching this one for months now, looking for a 
favorable point to play.  The SEC investigation of FRE resulted in 
the big break lower before we could even consider adding it here.  
Now that the $71-72 support level has been broken, I'm wanting to 
see a failed rally back near the $70-71 area to convince me the 
downside here has merit.  The big thing about FNM/FRE that appeals 
to me from the bearish side is that I think this is potentially a 
time bomb waiting for the right catalyst.  If the debt bubble does 
start to implode, these two stocks are going to be ground zero.

ADBE - Did we pick the perfect bullish exit point from this play 
or what?  Since then, I've been looking for some definitive sign 
of weakness from the stock due to a host of very ugly fundamental 
factors.  Apparently last Friday was it, with the stock cratering 
more than 12% in response to the company's gloomy forecast for Q3.  
That drop came on a big gap.  I want to watch for that gap to fill 
in near the $36 level to give us a solid bearish play setup.

There are several others, but I think you get the idea.  It isn't 
locating the trade candidates that is the challenge.  It is in 
finding the entry setup that will work best in what continues to 
be a bullish market environment.  I'll likely start writing 
several of these as new Watch List plays in the weeks ahead IF 
they provide some favorable price action.  I think it is very 
unlikely that I'll be adding further bullish candidates, as I just 
can't see the favorable risk/reward ratio without a sizable 
pullback first.  Of course, I'm always open to new ideas and if 
you've got bullish candidates you think have merit (remember they 
have to have LEAPS available), send them along.  Maybe we can 
share them with the group and that way everyone wins.  In the 
meantime, I'll keep doing what I've been doing until I get a clear 
message from you telling me that we ought to make a change or from 
the market telling us that the bears are (finally) back in town.

Have a great week!


LEAPS Portfolio

Current Open Plays


AMGN   05/21/03  '04 $ 60  YAA-AL  $ 7.00  $ 9.80  +40.00%  $61.50
                 '05 $ 60  ZAM-AL  $10.90  $14.20  +30.28%  $61.50

AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 4.00  -28.57%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 7.00  -17.65%  $61.00
GM     05/13/03  '04 $ 35  LGM-MG  $ 4.10  $ 3.80  - 7.31%  $37.50
                 '05 $ 30  ZGM-MF  $ 4.60  $ 4.40  - 4.30%  $37.50
QQQ    05/27/03  '04 $ 27  KLF-MA  $ 1.70  $ 1.50  -11.76%  $32.25
                 '05 $ 27  ZWQ-MA  $ 3.10  $ 2.75  -11.29%  $32.25

LEAPS Watchlist

Current Possibles



DJX    05/04/03  $94-95        DEC-2003 $ 92  DJV-XN
                               DEC-2004 $ 92  YDK-XN

New Portfolio Plays


New Watchlist Plays



KO - $47.45 It's time to concede defeat on this failed Put play.  
After more than 2 weeks of holding just under the 200-dma after we 
initiated the Portfolio position, KO finally broke above that 
important measure and in hindsight, that should have been the 
signal to cut our losses and move on.  But stubbornness and 
disbelief kept me adhering to the original stop of $47, all the 
while expecting the fledgling rally to fail.  Alas, it never 
happened, as the stock has mirrored the relentless rise in the 
broad market, triggering our stop on Thursday.  Weekly Stochastics 
are the deepest into overbought they've been for the past 14 
months, but there's no point fighting the rally right here.  
Fundamentally, I still think KO should see significantly lower 
levels, but now we need to look for the technicals to confirm that 
bias before playing again.  Look for the $50 level to be the next 
major point of conflict between the bulls and bears.

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It's That Time Of The Month Again
By Mike Parnos, Investing With Attitude

Yes, it's that time of the month again.  No, put away the Motrin.  
If it was THAT time of the month, we wouldn't be able to do our 

Let's face it.  This month has been less than exhilarating.  We 
still have a week left to expiration.  Maybe we can make some good 
things happen
with our "pre-expiration" short term trades.

Remember, these "quickie" trades don't necessarily have to be held 
to expiration.  If you're in a position to lock in a reasonable 
profit – grab it.  

Quickie #1 – SMH Baby Iron Condor – Closed at $28.50
With only a week left, and the market poised to consolidate, let's 
see if we can entice the semiconductor holders (SMH) to stay in 
the $27.50 to $30 range.  Maximum profit is $1.15.  At risk is 
$1.35.  Adjust the number of contracts to your level of comfort.

Sell 10 contracts of the SMH June $27.50 puts @ $1.10
Buy 10 contracts of the SMH June $25.00 puts @ $.50
Net credit of $.60

Sell 10 contracts of the SMH June $30.00 calls @ $.90
Buy 10 contracts of the SMH June $32.50 calls @ $.35
Net credit of $.55
Total net credit of $1.15

Quickie #2 – QQQ Strangle – Closed at $29.96
Let's take a flyer.  Don't worry, this one is affordable.  We're 
going to play for a big move in one direction or the other – it 
doesn't matter.
Buy 10 contracts of the QQQ June $32 puts @ $2.05
Buy 10 contracts of the QQQ June $28 calls @ $2.05
We're actually only risking $.10.  There is an intrinsic value of 
$4.00 in this position that is never at risk.

We could have bought the $32 calls and $28 puts for a nickel each 
and risked the same dime.  However, by buying in-the-money 
options, we take advantage of a little extra delta.  We're only 
looking for a small profit, so don't get greedy!  If the QQQs move 
$1.50, take your profits because it may not be there for long.  If 
you can't be home to baby-sit the position, you might want to put 
in sell orders at $.35 or $.45 – whatever you're comfortable with.

The other difference is in the commissions.  If you just buy the 
out of the money options for a nickel each, you'll only have to 
deal with one commission to take your profits.  However, if you 
put on the position with in the money options, you'll need to 
close out both the puts and calls to make sure you get your 
intrinsic value.

Quickie #3 – LLTC Condor Sell Straddle – Closed at $32.05
Here is a relatively low risk trade on a stock (Linear Technology) 
that has moved down recently, but has support close by.
Sell 10 contracts of LLTC June $32.50 puts @ $1.05
Buy 10 contracts of LLTC June $30.00 puts @ $.25
Net credit of $.80
Sell 10 contracts of LLTC June $32.50 calls @ $.60
Buy 10 contracts of LLTC June $35.00 calls @ $.15
Net credit of $.45
Total credit: $1.25.  Total risk: $1.25
For one week, there's a pretty good chance that LLTC is going to 
hang around the $32.50 level.  We have a profit range of $31.25 to 
$33.75.  The closer LLTC finishes to $32.50, the more we'll make.  
Maximum profit is $1,250.  Again, as always, adjust the number of 
contracts to your comfort level.

June Position #1 – SPX Iron Condor – Closed at 988.61
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 gave 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.

We're right up at the top of the range.  Last week, when the SPX 
traded down to about 975, the timid had a chance to bail out.  

June Position #2 – BBH Iron Condor – Aborted

June Position #3 – TOL – Bear Call Spread Plus – Currently at
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.  The 
market has gone against us.  We have two weeks for TOL to move 
back down to $25 or up to $35.  Maximum potential profit is 

Yesterday morning (Thursday), when TOL popped up to $31.68, I used 
the opportunity to sell our extra 10 $30 calls for $1.80.  With 
the market trending up, I may live to regret that move.  However, 
by taking in the $1.80, if TOL finishes above $30, I have reduced 
my worst-case scenario loss to only $2.10 – a figure I can live 
with.  Hopefully, it won't come to that, but I have further 
defined, and limited, the maximum loss.

June Position #4 – COF Iron Condor – Currently at $52.93.
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 gave 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 $1.50 ($2.50 less our $1.00 credit).  If it works, it's an 
80% return on risk.

COF has gotten a bit carried away.  We have another week for it to 
come to its senses.  Our max loss could be only $1.50, but a lot 
can happen in a week.

June Position #5 – QQQ ITM Baby Strangle – Currently at $29.96
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.  

Last week, an opportunity.  When the QQQs traded at $31.47, we 
could have sold our long $28 calls for $3.70.  Then, when the 
market retreated, the $30 puts could have been sold for $1.35 – 
resulting in a profit of $1.20.

Unofficial CPTI Replacement Position—QQQ Strangle - $29.96
We bought 10 contracts of the QQQ June $31 calls @ $.10 and 10 
contracts of the QQQ June $25 calls @ $.10.  Total debit: $200.  
We're playing for a big move in the QQQs.  If the QQQs move $3-4, 
our long put or call could easily be worth $.75 - $1.25.  We're 
only risking $.20. 
Greater risk takers (speculators) could have bought closer 
strikes.  The $26 put and the $30 call would cost $.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.

Last week there were opportunities. The QQQs traded up to $31.47.  
Our $200 bet was worth $1,000.  A $400 bet was worth $1,700.  
Hopefully, traders took advantage of these opportunities to take 
their profits.

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


Elliott Wave Plays
By Steve Gould

Company Profile

The NASDAQ-100 Index is a modified capitalization-weighted index, 
which is designed to limit domination of the Index by a few large 
stocks while generally retaining the capitalization ranking of 

Representing 100 of the largest non-financial U.S. and non-U.S. 
companies listed on the National Market tier of The NASDAQ Stock 
Market, the NASDAQ-100 Index reflects NASDAQ's largest companies 
across major industry groups, including computer hardware and 
software, telecommunications, retail/wholesale trade and 

Through an investment in the NASDAQ-100 Index Tracking Stock, QQQ, 
investors can participate in the collective performance of many of 
the NASDAQ stocks.

Chart Analysis

Based on the analysis in "Where is the Dow Going?" for 6/13/2003 
we want to play a put but hedge our bets.  The NASDAQ mirrors the 
Dow, although sometimes it is a little out of sync.  The NASDAQ 
(as well as the Dow) appears to be at a crucial junction where it 
is going to make a move either up or down (versus remain flat). We 
need some type of play that will make money whether the NASDAQ 
moves up or moves down.  

Trade Setup

This is going to be a non-directional play in the sense that we do 
not care (really) which way the QQQs move, just as long as they 
move.  It is slanted more toward a move down, but the spread will 
protect us should we be totally wrong and the QQQs move up 

Even though we have a July expiration date, this is not a 5 week 
play.  We have until December for the QQQs to make their move, a 
very likely event.  We are only selling the July put as protection 
against being wrong.  Although we will need a larger move to make 
a profit, we will risk substantially less should our direction be 
wrong.  (This is going to be my new favorite play and I will be 
writing an article on it in the near future.)

Pos  Num   Sym   Strike     Type   Bid    Ask   Delta   Vol   OI
Buy   2   KLFME  Jan 04 31   Put   3.00   3.20  -0.51   500  777
Sell  1   QQQSK  Jul 03 37   Put   6.90   7.10  -1.00    21   57

Credit: .50

Pos  Num   Sym   Strike     Type   Bid    Ask   Delta   Vol   OI
Buy   2   QAVXD  Dec 03 30   Put   2.44   2.55  -0.45  2093 8154
Sell  1   QQQSJ  Jul 03 36   Put   5.90   6.10  -1.00     0   57

Credit: .80

Calculations are based on the first set of options.  I find that I 
can split the difference quite a bit on this stock, so if you can 
enter this as a spread order, you might be able to receive more 
than a $50 credit

What If We Are Right

Chart: Position Analysis For The First Target


Any move of the QQQs below 27.85 becomes profitable.  Since the 
maximum risk of this trade at this point is $69 (see What If We 
Are Wrong section), a move of the QQQs below 25 offers a 1-2 
risk/reward level.  Below 24 offers a 1-3 risk/reward level. 

The above calculations do not take into consideration that as the 
QQQs decline in value, the implied volatility will increase 
shifting the risk/reward plot up.

Chart: Position Analysis For The Second Target


Should the implied volatility increase to just 35, we hit the 1-3 
risk/reward level at 24.75.  Higher volatility means higher 

What If We Are Wrong

Scenario 1

Chart: Wrong Scenario 1


If by the Wednesday before July expiration the QQQs do not move at 
all or very little and close at 30, the July 37 put will be worth 
7.00.  Buy it back and sell the August 37 put.  The value of the 
options should be the same and the only cost will be the 

Scenario 2

Chart: Wrong Scenario 2


If the volatility of the QQQs decreases, the value of the OTM puts 
will also decrease.  Looking at a chart of QQQ volatility for the 
last 2 years show that the lowest volatility was within the last 
month and it was about 27.  This will not affect the long term 
aspect of the play at all. 

Typically the volatility will decrease when the stock is rising in 
value.  In this case, the QQQ will have to close above 33.60 to 
make a profit.  If the QQQs close at 37.00 then we will make the 
maximum profit of $160 as the July option will expire worthless 
and the January options will still have some value.  This would be 
a good time to close out this play and initiate a new one.


Elliott Wave Play Updates
By Steve Gould


Chart: DJX 6-13-2003 change from last week


The Dow has had a net movement up of about 54 points but nothing 
significant enough to alter the value of the play.

The original option values were

Sym   Strike   Type   Bid    Ask   Vol   OI
DJVIN SEP 92   Call   2.8    3.0    37  14836      
DJVUJ SEP 88   Put    2.7    2.9   348   5070
                     ----    ---
                      5.5    5.9

Current values are

Sym   Strike   Type   Bid    Ask   Vol   OI
DJVIN SEP 92   Call   2.95   3.20  254  16584      
DJVUJ SEP 88   Put    2.30   2.55   45   5374
                      ----    ---
                      5.25   5.75

There is no change and no action is necessary.

Note:  On 5/19/2003, I initiated another DJX put play with a stop 
loss at 8870.  I did not write a play update to close out the 
position when the Dow hit 8870.  You should have followed the plan 
and exited the play at that point.


Where is the Dow Going?
By Steve Gould

Last week I had a conversation with a colleague of mine and he 
commented that his company has lost subscribers because they are 
one of the 16% of the newsletters who are still crying bear.  I 
can relate that it is difficult to retain a following in the face 
of the market behaving in exactly the opposite manner that you are 
declaring.  It takes a certain amount of courage to stick with 
your convictions despite public opinion against you.  I certainly 
hope that I have not lost too many readers thinking that I will go 
to my grave crying bear.

I have said it once before and I will say it again.  We are in a 
bear market rally that is going to catch a lot of people off 
guard.  Although the top may not yet be in place, more evidence 
this week suggests that the Dow may have indeed hit a top, 
although I am still in the "hedge your bets" mode.  

It would be very easy for me to effect a top.  All I would have to 
do is sell all my puts and purchase calls.  The moment I do that, 
I know the market will come crashing down.  I just may be doing 
everyone a favor by remaining stubborn.

Chart: Dow 6/13/2003


Here is a daily chart of the Dow from January 2000 to the present.  
If you look at last weeks chart and this one, not a lot has 
happened. The general trend is still down and the Dow is currently 
undergoing an A-B-C correction.  Just how high will the C wave go 
is the question I would like to put to rest.  Let's examine this 2 
wave in a bit more detail.

Chart: Dow 6/13/2003 wave 2


The Dow inched one more step closer to the 62% retracement level.  
The Dow is already at a level where wave A equals wave C creating 
a flat type correction.  This creates a double resistance area.  
Should the Dow break through this level, the next level will be 
the 78.6% retracement level of 9935.

Chart: Dow 6/13/2003 wave A vs. Wave C


Right now, the Dow is only a few points away from where wave A 
would equal wave C (9264).  The Dow is close enough now to satisfy 
the requirement of a flat correction (see last week's article or 
Corrections Part I) and could start heading down any moment.  Or, 
the Dow could morph into an expanded flat and head toward 9968.  
Since this level is also close to the 78.6% retracement level, the 
range of 9935 – 9968 would be the next level of resistance.

Chart: Dow 6/13/2003 Wave C


Here is a close up view of the C wave.  In general, C waves 
subdivide into a 5 wave basic pattern.  So far, this C wave has 
completed waves (i) – (iv).  The final (v) wave does not look to 
be complete as of yet.  It looks like it will have one final 
thrust up and then be complete.  If this is the case, then the 
flat will be complete and the Dow will start heading down next 

If the Dow does continue higher into an expanded flat, then the 
wave count will need to be relabeled.  This will not invalidate 
the longer term wave count.  It will just delay the inevitable.

Bottom line, I still remain bearish the long term.  The Dow is 
currently at a resistance level.  If it breaks through, the Dow 
will head toward 10,000 before hitting resistance again.


ADX Article I Have Been Promising
Jane Fox

The ADX is a trend following method developed by Welles Wilder and 
explained in his book, New Concepts in Technical Trading Systems. 
It identifies trends and shows when a trend is moving fast enough 
to make it worth following. There are five parts to the 
calculation of the strength of the trend. (I will be using daily 
bars because it is easier to explain the concept with today, 
yesterday, etc.)

1.	Identify the Directional Movement (DM). 
DM is defined as the largest portion of today’s range that is 
outside the previous day’s range. It is always a positive 
number, the “+” or “-“ refers to the movement above or below. 

There are three types of DM:

A.	Today’s range is above yesterday’s range. DM = +
B.	Today’s range is below yesterday’s range. DM = -
C.	Today’s range is inside yesterday’s range or extends above 
	and below by equal 
D.	amounts. DM = 0

When I tried to figure this one out I got wrapped around an 
axle so I captured some data on the QQQs and drew the picture 
below. First of all here are the data I captured:

Date   High   Low   Range
06/06   31.47   30.02   1.45
06/09   30.22   29.53   0.69
06/10   30.20   29.68   0.52
And here is the picture I drew for myself.

The ranges of 06/06 and 06/09 overlap by .20. Since .49 of the 
06/09 range is below the range of 06/06 the DM=0.49 and is “-“ 
because it is below the 06/06 range (30.02-29.53). So are you 
wrapped around an axle yet? If not, you will be.

1.	Identify the True Range (TR). 

This is also an absolute number (has no + or -) and is the 
largest of the following three calculations:

A.	Today’s high minus today’s low
B.	Today’s high minus yesterday’s close
C.	Today’s low minus yesterday’s close

Let’s take the above data, add the close and calculate the TR: 

Date   High   Low   Close   A.   B.   C.   TR
06/05   30.68   29.97   30.42
06/06   31.47   30.02   30.13   1.45   1.05   -.40   1.45
06/09   30.22   29.53   29.73   0.69   0.09   -.06   0.69
06/10   30.20   29.68   30.12   0.52   0.47   -.05   0.52

1.	Calculate the Directional Indicators (DI)
	The DI is simply an absolute value found by the quotient of DM 
	divided by the TR. The “+” or “-” of the DM will determine the 
	“+” or “-“ of the DI. 
	The formula is:
	DI = DM
	The DI for 06/09 would be:
	DI = 0.49 = 0.710 and is “-” because the DM is “-”.
2.	Smooth the DI with a moving average and you have DMI.

You can pick any period for smoothing and, as with any moving 
average, the shorter the time frame the more movement you will 
get and the longer the time frame the less movement. The 
relationship between the positive and negative smoothed DI 
lines identifies the trend. If the DMI+ line is above the DMI–, 
the trend is up; if the DMI– line is above the DMI+, the trend 
is down. 

5. Calculate the Average Directional Index (ADX).

This unique component of the system will tell you the strength 
of the trend identified by the DMI- and DMI+ lines.

The ADX measures the spread between the positive and negative 
directional lines, sort of like the histogram of the MACD. It 
is calculated in two steps:

A.	Calculate the DX:
	DX = (DMI+)-(DMI-) * 100
	     (DMI+) +( DMI-)
B.	Smooth the DX with a moving average

As a trend proceeds and becomes stronger, the spread between 
the DMI+ and DMI-grows and the ADX rises. Please note here that 
the ADX is ALWAYS a positive number. It only measures the 
STRENGTH of the trend not if the trend is up or down. If you 
cannot determine from the price formation if the trend is up or 
down you can look at the DMI lines. If the DMI+ is above the 
DMI- then the trend is up and vice versa.

As Alexander Elder says in his book Trading for a Living, “The ADX 
tracks changes in mass bullishness and bearishness by measuring 
the capacity of the bulls and bears to move prices outside of the 
previous day’s range. If today’s high is above yesterday’s high, 
it shows that the market crowd is becoming more bullish. If 
today’s low is below yesterday’s low, it shows the market crowd is 
becoming more bearish.”

If you have slogged through all of this so far, I say you are a 
diehard technical trader and are to be commended for sticking with 
me. Let’s move on to how to use it, how we can become better 
traders with the ADX. 

How to Use the ADX

1.	Trade only from the long side when the +DMI is above the –DMI 
and the ADX is rising.
Trade only from the short side when the +DMI is below the -DMI 
and the ADX is rising.

2. When the ADX is below the +DMI and –DMI you have a 
   consolidation no trend. But get 
   ready because it is from these flat consolidations that large 
   moves can be made.

3. If the ADX rallies from below the two DMI lines, it istelling 
   us that a trend is starting and it is time to pay attention.

4. When the ADX is above both DMI lines and turns down it means 
   the trend is weakening and its time to take profits.

5. When the ADX is declining the market is becoming less 
   directional and it is better not to use a trend-following 
   method like the ADX.

The ADX has been popularized by Linda Raschke and Larry O’Connor 
in their joint venture, 

Street Smarts. They call it the  “holy grail” (tongue-in-cheek, of 
course, since there is no real 

holy grail) system. It’s quite simple, really – as many good 
systems are:

1.   Find a market (stock, index, futures) that is trending
2.   Wait for it to pull back to support
3.   Buy it when the trend resumes.

The system I am profiling in the Market Monitor is based on the 
ADX and I use an ADX of 30 or above to identify a trending market, 
then a pullback identified by the 5 min bar in relation to the 4 
period moving average and finally a resumption of that trend.

Hopefully this article did not get too heavy and was helpful

Remember plan your trade and trade your plan


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The Option Investor Newsletter                   Sunday 06-15-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Success With Covered Calls
Naked Puts: A Unique Approach
Spreads/Straddles/Combos: A Pause In The Rally!

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Trading Basics: Success With Covered Calls
By Mark Wnetrzak

This week, we continue our strategy introduction for new readers
of the Option Investor Newsletter.

If you are relatively inexperienced with options, you probably
think they are very risky.  However, you also know that people
regularly make money with options.  What makes these traders
successful while others fail?  As a group, profitable traders
have a number of things in common, the most important of which
is a sound and sensible method for managing the positions in
their portfolio.

The great thing about trading "covered" calls is almost anyone
can become an expert with this strategy, even with very limited
experience in options.  On a relative basis, it doesn't require
much time because once the position has been initiated, you can
place closing orders at key technical points in the price range
of the underlying issue, or you can watch the stock for changes
in trend or character, using a mental stop to signal exit trades.
Of course, losses will occur, despite the fact that the strategy
is conservative, and a painful lesson will transpire the first
time you delay your exit from a losing trade.  After you have
been around the options market for awhile, you will soon learn
that it doesn't matter what method you favor, losses are simply
part of the game.  One problem that new traders must overcome is
learning to close losing plays early, while the capital drawdown
is still relatively small.  The simple fact is, there is no good
reason to stay in a losing position when there are so many other
viable plays that deserve your time and money.  The best (and
most profitable) solution is to accept your losses, learn from
your mistakes and evaluate each one critically, then move on!
Success will not come immediately so you must have patience and
continue to work hard, learning the fundamentals of the options
market and gaining skills that other profitable traders exhibit
on a daily basis.  Indeed, too many new investors give up after a
few losing plays, long before they have time to learn (and absorb)
the various methods required for profitable trading.

Once you understand that losses are simply part of doing business,
you can move on to the "nuts and bolts" of position management.
With covered-calls, the key to success is keeping losses to a
minimum because there are never any big winners to offset the big
losers.  That is also why correctly managing your positions is one
of the crucial requirements for achieving consistent profits with
this strategy.  As I mentioned earlier, successful traders have a
number of common traits and by the same token, there is a reason
why the majority of people lose money with options.  Most of them
have yet to learn the #1 secret of profitable trading: The market
will always prevent the uneducated masses from making money while
consistently rewarding the astute professional minority.  If this
is the case (and I assure you it is), the first prerequisite for
long-term success is knowledge.  Buying and selling stocks may be
a simple technique but when you add options to the mix, the game
becomes much more complex.  A trader must completely understand
any strategy being used, including its advantages and weaknesses.
Obviously, you can't make good decisions without knowledge of the
mechanics of a specific technique and the best traders are those
who are acutely aware of how best to overcome the shortcomings of
their particular approach.  Since limiting losses is a major goal
for covered-call writers, it stands to reason that every position
should have a predetermined exit point.  The majority of market
professionals use protective stop-orders with their positions but
the retail trader is far less proficient in this practice.  Using
stop-orders eliminates the risk of emotional or reaction-based
judgments in difficult situations and removes fear, hope and greed
from the entire equation.  The consistent use of stop-orders also
provides a mechanical and disciplined method for achieving profits.
As you might expect, allowing the market to make the exit decision
is much more precise than relying on our complex human intuition.

Just as setting stops on each individual position is an absolute
must, a maximum allowable loss must be considered when managing
portfolio positions.  The rule is simple: Never trade with more
money than you can reasonably afford to lose and always maintain
a reasonable cash reserve.  When establishing position size and
collateral requirements, ensure that funds for active trades are
not co-mingled with capital for other functions.  It is also very
important to set a "loss limit" at the beginning of each month or
option expiration period.  When this level is breached, trading
should be halted for the duration of that period.  Of course if
your losses are consistently more than your gains, stop trading!
Step back and take some time off.  When you are ready to try
again, evaluate your current approach and review the steps that
will be taken to avoid losses.  When you begin to make money, put
some of the profits in a reserve account, just in case there are
any unexpected developments in the future.

Next week, we'll continue our discussion of position management
and the most common adjustment techniques for covered-calls.

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

SUPG     5.04    6.50  JUN  5.00  0.65    0.61*  20.1%
ARIA     3.37    4.40  JUN  2.50  1.05    0.18*  11.2%
LGTO     7.60    8.08  JUN  7.50  0.45    0.35*   7.1%
IPXL     7.86   11.21  JUN  7.50  0.80    0.44*   7.0%
PLUG     5.08    5.11  JUN  5.00  0.35    0.27*   6.4%
MOSY     7.50    8.12  JUN  7.50  0.60    0.60*   6.3%
IDNX     5.60    6.22  JUN  5.00  0.90    0.30*   5.5%
CBST    10.79   12.95  JUN 10.00  1.15    0.36*   5.4%
TER     13.06   16.53  JUN 12.50  1.40    0.84*   5.2%
FCS     12.55   12.55  JUN 12.50  0.60    0.55*   5.2%
OVER    14.55   16.68  JUN 12.50  2.75    0.70*   5.2%
OVER    17.80   16.68  JUN 15.00  3.30    0.50*   5.0%
MDR      5.08    6.00  JUN  5.00  0.40    0.32*   5.0%
AWE      7.64    7.51  JUN  7.50  0.45    0.31*   4.9%
PLUG     5.39    5.11  JUN  5.00  0.65    0.26*   4.8%
FEIC    17.65   18.55  JUN 17.50  0.85    0.70*   4.7%
FFIV    15.45   16.79  JUN 15.00  1.30    0.85*   4.4%
GNTA     8.78   14.21  JUN  7.50  1.70    0.42*   4.3%
MRVL    26.72   30.57  JUN 25.00  3.10    1.38*   4.2%
MLNM    15.55   16.82  JUN 12.50  3.40    0.35*   4.2%
CELG    31.48   33.83  JUN 30.00  2.80    1.32*   4.0%
GP      17.99   17.75  JUN 17.50  1.40    0.91*   4.0%
BRCM    21.40   24.65  JUN 20.00  2.25    0.85*   3.9%
ALKS    12.84   12.25  JUN 12.50  0.95    0.36    3.4%
PEGS    13.00   14.89  JUN 12.50  0.85    0.35*   3.2%
NOR      2.67    2.25  JUN  2.50  0.40   -0.02    0.0%

SEBL    10.98   10.85  JUL 10.00  1.65    0.67*   5.2%
MTON     5.60    5.34  JUL  5.00  0.90    0.30*   4.6%
RHAT     8.27    8.21  JUL  7.50  1.20    0.43*   4.4%
EDS     21.99   22.32  JUL 20.00  3.00    1.01*   3.9%
IMMU     6.91    7.59  JUL  5.00  2.15    0.24*   3.7%
ASIA     5.97    5.75  JUL  5.00  1.15    0.18*   2.7%
QSFT    12.58   11.99  JUL 12.50  1.00    0.41    2.6%

*   Stock price is above the sold striking price.


Is it profit-taking or is the recent wild-bull move nearing its
end?  Maybe both?  As always, the next few days should offer some
clues.  With one week until expiration, the June issues in the
model covered-call portfolio continue to benefit from the bullish
environment.  However, always monitor closely any issues that are
acting weaker than expected (especially if you do NOT want to own
the stock).  Our early-exit watch list includes:  NorthWestern
and Fairchild  Semiconductor (NYSE:FCS).  FreeMarkets (NASDAQ:FMKT)
is shown closed as the mid-week rally offered a reasonable chance
to exit the position painlessly.  As for the July positions, Quest
Software (NASDAQ:QSFT) continues to find resistance near $13.00 
problematic and could test near-term support around $11.50.  

Positions Previously Closed: FreeMarkets (NASDAQ:FMKT) and Abgenix
(NASDAQ:ABGX) -- a Murphy's Law contender as it remains profitable.


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

MIR     2.78  JUL  2.50  MIR GZ  0.65  6238    2.13  35  15.1%
DNDN    7.66  JUL  7.50  UKO GU  1.05  285     6.61  35  11.7%
BEAV    2.69  JUL  2.50  BQV GZ  0.35  309     2.34  35   5.9%
WEBX   13.90  JUL 12.50  UWB GV  2.10  649    11.80  35   5.2%
SEBL   10.85  JUL 10.00  SGQ GB  1.40  6828    9.45  35   5.1%
ASIA    5.75  JUL  5.00  EUJ GA  1.00  410     4.75  35   4.6%
MHR     8.11  JUL  7.50  MHR GU  0.95  75      7.16  35   4.1%

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).

MIR - Mirant  $2.78  *** Cheap Speculation: Part I ***

Mirant (NYSE:MIR) is a global competitive energy company.  The
company delivers value by integrating an extensive portfolio of
power and natural gas assets with risk management and marketing
expertise. Mirant has facilities in North America, the Caribbean,
Europe and Asia.  As of December 31, 2001, the company owned or
controlled more than 22,000 MW of electric generating capacity,
with approximately 6,800 MW under development.  On January 19,
2001, the company announced, as part of its separation from
Southern Company, that it was changing its name from Southern
Energy to Mirant Corporation.  Mirant is trying to complete a
debt exchange offer and a bank credit refinancing in an effort
to stave off bankruptcy amidst some resistance from bondholders
and creditors.  The stock continues to forge a Stage I base and
this position allows traders a reasonable way to speculate on
the company's future with a cost basis near technical support.

JUL-2.50 MIR GZ LB=0.65 OI=6238 CB=2.13 DE=35 TY=15.1%

DNDN - Dendreon  $7.66  *** Hot Sector! ***

Dendreon (NASDAQ:DNDN) is devoted to the discovery as well as
development of novel products for the treatment of diseases 
through its manipulation of the immune system.  Dendreon's 
product pipeline is focused on cancer, and includes therapeutic
vaccines, monoclonal antibodies and a pathway to small molecules.
Their most advanced potential products are therapeutic vaccines
that stimulate a patient's immunity for the treatment of cancer.
Provenge is a therapeutic vaccine for the treatment of prostate
cancer and is in Phase III clinical trials, the final stage of
product development.  The company is conducting Phase II clinical
trials for Mylovenge, its therapeutic vaccine for the treatment of
multiple myeloma, and Phase I clinical trials for APC8024, its 
therapeutic vaccine for the treatment of breast, ovarian and colon
cancers.  Shares of DNDN surged this week after the company said
U.S. regulators have agreed that a redesigned trial of its
experimental prostate cancer drug Provenge will serve as the
basis for a new drug application.  The company also raised $26.7
million in a stock sale, part of which will be used to develop the
company's investigational cancer vaccine, Provenge.  We simply
favor the break-out (on heavy volume) above resistance near $6.50,
which suggests further upside potential.

JUL-7.50 UKO GU LB=1.05 OI=285 CB=6.61 DE=35 TY=11.7%

BEAV - $2.69  BE Aerospace  *** Cheap Speculation: Part II  ***

BE Aerospace (NASDAQ:BEAV) manufactures cabin interior products for
commercial aircraft and business jets and distributes aftermarket 
fasteners.  The company sells its manufactured products directly to
most of the world's major airlines and airframe manufacturers, and
a variety of general aviation customers.  The company's major
product categories include commercial aircraft seats; aircraft food
and beverage preparation and storage equipment; both chemical and
gaseous aircraft oxygen delivery systems; business jet and general
aviation interior products.  The current technical outlook for BE
is "recovering" and our position offers speculators excellent
reward potential at the risk of owning this industry-leading issue
at a favorable cost basis.  Target-shooting a lower "net debit"
will raise the potential yield and lower the cost basis in the

JUL-2.50 BQV GZ LB=0.35 OI=309 CB=2.34 DE=35 TY=5.9%

WEBX - WebEx Communications  $13.90  *** On The Mend? ***

WebEx (NASDAQ:WEBX) develops and markets services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video 
services are also available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and 
deploying new services, expanding its sales and marketing 
organizations and deploying its global WebEx Media Tone Network.
The company sells WebEx Meeting Center, WebEx Meeting Center Pro,
WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition.  It also provides a service called 
WebEx Business Exchange to existing customers.  The company
recently announced a new deal with Yahoo (NASDAQ:YHOO) to 
integrate instant messaging into business applications and
allow them to be shared.  WebEx continues to forge a Stage I
base and the recent move back above its 150-day MA bodes well
for the future.  Investors can speculate on the company's share
value with this conservative position.

JUL-12.50 UWB GV LB=2.10 OI=649 CB=11.80 DE=35 TY=5.2%

SEBL - Siebel Systems  $10.85  *** Merger-Mania! ***

Siebel (NASDAQ:SEBL) is a provider of e-business applications
software and is principally engaged in the design, development,
marketing and support of Siebel eBusiness Applications.  This
family of enterprise applications software enables a company to
better manage its customer, partner and employee relationships.
Siebel eBusiness Applications are designed to meet the information
system requirements needed to manage these relationships for
organizations of all sizes, from small businesses to the largest
multinational organizations and government agencies.  With the
attempted buyouts by PeopleSoft (buying J.D. Edwards) and Oracle
(a hostile attempt for Peoplesoft -- who is buying J.D. Edwards),
speculators are betting on who is next.  This position simply
offers a way to profit from current bullish trend with a cost
basis near technical support.

JUL-10.00 SGQ GB LB=1.40 OI=6828 CB=9.45 DE=35 TY=5.1%

ASIA - AsiaInfo  $5.75  *** Bottom-Fishing ***

AsiaInfo Holdings (NASDAQ:ASIA) is a provider of telecommunications
network integration services and software solutions in China.  The
company's operations are organized as two strategic business units,
Communications Solutions and Operation Support System Solutions
(OSS).  The Communications Solutions business unit offers network,
service application, security and monitoring solutions.  The OSS
Solutions unit includes the AsiaInfo's highly scalable software,
which can automate a telecom carrier's key business processes such
as customer care and billing, order fulfillment and customer
relationship management.  ASIA conducts most of its operations
through two wholly owned subsidiaries, AsiaInfo Technologies (China)
and AsiaInfo Management Software.  AsiaInfo has rallied strongly
on no news and moved significantly above a resistance area near
$5.00 (and now a support area).  This position offers a method
to conservatively speculate on the reason for the huge move with a
cost basis near support.  Targeting a lower price in the stock or
a higher price in the option (legging-in) could offer a favorable
cost basis -- much better than the one listed below.

JUL-5.00 EUJ GA LB=1.00 OI=410 CB=4.75 DE=35 TY=4.6%

MHR - Magnum Hunter  $8.11  *** A Natural Gas Hedge ***

Magnum Hunter Resources (MHR:NYSE) is an independent energy
company engaged in the exploration, exploitation and development,
acquisition and operation of oil and gas properties with a
geographic focus in the mid-continent region, Permian Basin
Region, Gulf Coast Region and the Gulf of Mexico.  Hunter Gas
Gathering, a wholly owned subsidiary of the company, owns three
gas gathering systems located in Oklahoma, Texas and Arkansas,
none of which are subject to regulation by the Federal Energy
Regulatory Commission (FERC) and ownership interests in four
gas processing plants.  With three new field discoveries and
all the hype on the rising price of natural gas, this position
offers investors a method to hedge against the broader market
while obtaining a favorable cost basis in a bullish stock.

JUL-7.50 MHR GU LB=0.95 OI=75 CB=7.16 DE=35 TY=4.1%



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

IMMU    7.59  JUL  7.50  QUI GU  1.00  1390    6.59  35  12.0%
COB     8.40  JUL  7.50  COB GU  1.80  1570    6.60  35  11.9%
IPXL   11.21  JUL 10.00  UPR GB  2.00  339     9.21  35   7.5%
AZPN    5.01  JUL  5.00  ZQP GA  0.40  0       4.61  35   7.3%
ONXX   12.96  JUL 12.50  OIQ GV  1.35  1041   11.61  35   6.7%
HOFF    5.44  JUL  5.00  UHH GA  0.80  418     4.64  35   6.7%
MU     13.08  JUL 12.50   MU GO  1.40  24495  11.68  35   6.1%
NWAC   10.71  JUL 10.00  NAQ GB  1.35  525     9.36  35   5.9%
ULTE   13.00  JUL 12.50  QTQ GV  1.25  354    11.75  35   5.5%
MCDT   13.19  JUL 12.50  DXZ GV  1.40  2007   11.79  35   5.2%
CAL    14.54  JUL 12.50  CAL GV  2.75  587    11.79  35   5.2%
VANS    7.85  JUL  7.50  VQG GU  0.75  186     7.10  35   4.9%
SUNW    5.34  JUL  5.00  SUQ GA  0.60  65186   4.74  35   4.8%


Options 101: A Unique Approach
By Ray Cummins

One of our readers offered an interesting twist on the strategy
of writing "naked" puts.


You talk a lot about portfolio management and ways to exit naked
puts but one thing I rarely see is a discussion on entering new
positions.  Since this strategy is all about keeping gains and
limiting losses, I thought you might want to hear about a method
I use for selling puts.

The first thing you should realize is this technique is always
predicated on the fact that you might own the stock.  With naked
puts, I like to think I am an insurance salesman and I am paid
money for the possibility of buying the stock.  People might say
that is risky but it's no different than buying a stock outright
because it can go to zero whether you buy it with a limit order
or sell a put that is exercised.  The approach I take is sorta
like dollar cost averaging but with options instead of stocks.

First I pick the candidates for naked puts, then I place an order
to sell half as many contracts as I want for the entire position;
usually 5 contracts to start.  After the order is filled, I wait.
If these options expire, I move on to other stocks with cash in
my pocket.  On the other hand, if I get assigned I immediately
sell 5 more puts -- usually just out of the money.  I also sell
5 calls at the same time, also slightly out of the money.  The
puts are covered with collateral and the calls are covered with
the stock I just bought with the assigned options.  From there,
the outcome is fairly simple because the stock goes up or down.
If it goes up, my calls are assigned and my puts expire.  When
it goes down, at least I have some extra money to put against
the basis of the stock -- which I was willing to own anyway --
and I will continue to write calls against it until I recover my

This method has worked pretty well through the bear market, but
I will admit I still have some losers in my portfolio.  I also
think there comes a point when you have to cut your losses, no
matter what you think about the future of a particular company.
I just need to learn to do that more often with my own plays.
A combination of good money management, which you always stress
in your articles, and a consistent entry and exit system seems
to be the best way for people to be make money trading options.
I think this approach qualifies on both counts and it certainly
has helped improve my success rate with selling puts.

Let me know what you think -- I value your comments.


Hello PE,

Thanks very much for a wonderful explanation of systematic put
writing.  While not one of the most well-known techniques, the
strategy is a great way to sell puts with less risk, especially
on volatile issues that have high premiums.  There is also some
versatility to this method in that a trader can use different
time frames or strike prices to achieve a specific risk-reward
outlook.  Keep up the good work and I look forward to hearing
about any changes or variations that improve your results with
this unique approach to selling naked puts.

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

IMCLE   28.50   34.92  JUN 22.50  0.50    0.50*   3.3%  11.7%
USG     11.85   11.50  JUN  7.50  0.35    0.35*   4.3%  11.2%
CTIC    11.96   13.02  JUN 10.00  0.30    0.30*   3.5%  10.8%
ANPI    28.27   41.00  JUN 22.50  0.80    0.80*   3.2%  10.8%
IMCLE   38.39   34.92  JUN 30.00  0.40    0.40*   2.9%  10.8%
CTIC    10.21   13.02  JUN  7.50  0.25    0.25*   3.0%   9.5%
ANPI    25.20   41.00  JUN 17.50  0.75    0.75*   3.2%   9.4%
FLEX    10.50   10.26  JUN 10.00  0.25    0.25*   3.7%   9.2%
IMCLE   21.20   34.92  JUN 15.00  0.50    0.50*   3.0%   9.2%
CELG    34.76   33.83  JUN 30.00  0.40    0.40*   2.9%   9.1%
BRCM    26.01   24.65  JUN 22.50  0.30    0.30*   2.9%   9.1%
OVTI    28.64   29.15  JUN 22.50  0.80    0.80*   2.7%   8.9%
APPX    27.77   37.11  JUN 22.50  0.65    0.65*   2.6%   8.7%
SOHU    28.04   32.45  JUN 22.50  0.35    0.35*   2.3%   8.4%
CYMI    34.51   30.17  JUN 30.00  0.35    0.35*   2.6%   7.9%
NVDA    21.37   23.47  JUN 17.50  0.55    0.55*   2.3%   7.6%
CELG    27.42   33.83  JUN 22.50  0.70    0.70*   2.3%   7.5%
BSX     56.06   61.75  JUN 45.00  0.40    0.40*   1.9%   7.4%
OVTI    30.92   29.15  JUN 25.00  0.45    0.45*   2.1%   7.3%
ICOS    40.25   43.12  JUN 30.00  0.25    0.25*   1.8%   6.5%
OSIP    26.08   34.52  JUN 22.50  0.40    0.40*   2.0%   6.2%
SOHU    22.83   32.45  JUN 17.50  0.35    0.35*   1.8%   6.2%
ICST    26.05   27.68  JUN 22.50  0.30    0.30*   2.0%   6.1%
NVLS    34.67   35.29  JUN 30.00  0.40    0.40*   2.0%   6.0%
CELG    31.10   33.83  JUN 25.00  0.35    0.35*   1.6%   5.9%
ANPI    28.45   41.00  JUN 22.50  0.30    0.30*   1.5%   5.6%
SFA     20.29   23.60  JUN 17.50  0.35    0.35*   1.8%   5.4%
MERQ    42.26   41.00  JUN 37.50  0.30    0.30*   1.8%   5.2%
NVDA    21.26   23.47  JUN 17.50  0.30    0.30*   1.5%   5.2%
APPX    23.40   37.11  JUN 15.00  0.35    0.35*   1.7%   5.0%
APPX    32.20   37.11  JUN 25.00  0.30    0.30*   1.4%   5.0%
OVTI    35.89   29.15  JUN 30.00  0.70   -0.15    0.0%   0.0%
ITMN    23.89   16.93  JUN 20.00  0.60   -2.47    0.0%   0.0%
ITMN    25.76   16.93  JUN 22.50  0.60   -4.97    0.0%   0.0%

*  Stock price is above the sold striking price.


There was no "Joy in Mudville" Friday as the portfolio endured
it largest loss in many months.  The source of grief was none
other than Intermune (NASDAQ:ITMN), a biotechnology stock that
cratered on unfavorable news, losing a third of its value after
the company cut its 2003 sales forecast for their flagship drug,
Actimmune.  There was little indication of "bad" news prior to
the announcement and the sell-off was swift and severe.  Adept
traders were able to limit losses somewhat but the portfolio
summary reflects the potential outcome when you write "naked"
puts -- you may eventually own the stock, and at a price that is
far less than what you paid for it.  This is also a good example
of why it's important to have a diverse, well-balanced portfolio,
where one losing position loss does not offset all your previous
gains.  Candidates for early exit include Cymer (NASDAQ:CYMI) and
Omnivision (NASDAQ:OVTI).

Previously Closed Positions: Artisan (NASDAQ:ARTI) and Cyberonics
(NASDAQ:CYBX), both of which are profitable, and Genesis Microchip


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

GNTA   14.21  JUL 10.00  GJU SB 0.50 593    9.50  35   4.6%  13.0%
CBST   12.95  JUL 10.00  UTU SB 0.40 132    9.60  35   3.6%  11.6%
AMLN   25.45  JUL 20.00  AQM SD 0.45 405   19.55  35   2.0%   7.1%
MEDI   37.71  JUL 30.00  MEQ SF 0.60 2152  29.40  35   1.8%   6.4%
SOHU   32.45  JUL 22.50  UZK SX 0.50 5674  22.00  35   2.0%   6.2%
CTSH   24.25  JUL 20.00  UPU SD 0.40 3681  19.60  35   1.8%   5.9%
NTES   33.70  JUL 25.00  NQG SE 0.45 342   24.55  35   1.6%   5.4%
CVTX   34.43  JUL 25.00  UXC SE 0.45 74    24.55  35   1.6%   5.3%

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).

GNTA - Genta Incorporated  $14.21  *** Biotech Buying Spree! ***

Genta Incorporated (NASDAQ:GNTA) is a biopharmaceutical company
with a diversified product portfolio that is focused on delivering
innovative products for the treatment of patients with cancer.  The
company's research platform is anchored by two major programs that
center on oligonucleotides (RNA/DNA-based medicines) and small
molecules.  Genasense (oblimersen sodium), the firm's lead compound
from its oligonucleotide program, is being developed with Aventis
and is currently undergoing late-stage, Phase 3 clinical testing.
The leading drug product in Genta's small molecule program is
Ganite(gallium nitrate injection), which the company intends to
launch this year for treatment of cancer-related hypercalcemia that
is resistant to hydration.  GNTA shares have been "on the move" in
recent weeks, doubling in value since April.  Traders who want to
participate in the rally in a conservative manner can use this
position to establish a cost basis near $10 in the volatile issue.

JUL-10.00 GJU SB LB=0.50 OI=593 CB=9.50 DE=35 TY=4.6% MY=13.0%

CBST - Cubist Pharmaceuticals  $12.95  *** 52-Week High! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is focused on becoming a
global leader in the research, development and commercialization
of novel pharmaceuticals to combat serious and life-threatening
infections.  Cubist has submitted a New Drug Application with the
FDA for Cidecin (daptomycin for injection) for the treatment of
complicated skin and skin structure infections (cSSSI) and is
conducting additional Phase 3 studies under the FDA's priority
review status.  Cubist's pipeline includes multiple pre-clinical
candidates, including CAB-175, a next generation cephalosporin
antibiotic that has demonstrated unique in-vitro activity against
methicillin-resistant Staphylococcus aureus (MRSA), and an oral
version of ceftriaxone (OCTX), a broad-spectrum cephalosporin
antibiotic.  Cubist is another biotechnology stock with excellent
upside potential and traders can speculate on its future share
value with this position.

JUL-10.00 UTU SB LB=0.40 OI=132 CB=9.60 DE=35 TY=3.6% MY=11.6%

AMLN - Amylin Pharmaceuticals  $25.45  *** More Biotech ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm
engaged in the discovery, development and commercialization of
drug candidates for the treatment of diabetes and other metabolic
diseases.  The company has two lead drug candidates in late-stage
development for the treatment of diabetes, SYMLIN (pramlintide
acetate) and exenatide, formerly referred to as AC2993 (synthetic
exendin-4).  Amylin has received a letter from the FDA indicating
that SYMLIN is approvable for marketing in the United States as an
adjunctive therapy with insulin, subject to satisfactory results
from additional clinical trials.  The company's second candidate,
exenatide, is in pivotal Phase III clinical trials.  AMLN shares
have rallied over the past two weeks and part for the reason may
be the firm's upcoming investor conference in conjunction with
the 63rd Scientific Sessions of the American Diabetes Association.
Traders who like the outlook for the issue should consider this

JUL-20.00 AQM SD LB=0.45 OI=405 CB=19.55 DE=35 TY=2.0% MY=7.1%

MEDI - MedImmune  $37.71  *** FluMist Speculation! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of
unique products on the market and a diverse product pipeline.  The
firm is focused on using advances in immunology and other biological
sciences to develop new products that address significantly unmet
medical needs in areas of infectious disease, immune regulation and
cancer.  MedImmune actively markets three products, Synagis, Ethyol
and CytoGam and MEDI's Chief Executive David Mott expects the FDA to
approve its inhaled influenza vaccine FluMist sometime this quarter.
MedImmune will co-market the vaccine with Wyeth and the companies
expect to provide the vaccine initially to healthy people between 5
and 49 years old, which will mean a potential market of 160 million
people a year in the U.S.  FluMist could be the second blockbuster
product for MEDI and traders can speculate on its potential approval
with this position.

JUL-30.00 MEQ SF LB=0.60 OI=2152 CB=29.40 DE=35 TY=1.8% MY=6.4%

SOHU - Sohu.com  $32.45  *** 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.

JUL-22.50 UZK SX LB=0.50 OI=5674 CB=22.00 DE=35 TY=2.0% MY=6.2%

CTSH - Cognizant Tech.  $24.25  *** Solid Outlook! ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC
Bank and Royal & SunAlliance USA.  Cognizant recently published
data suggesting is enjoying a strong quarter and the firm also
revised its guidance upwards for the next 3 months.  The company
says it is also optimistic about growth prospects for the rest of
2003 and 2004 and anticipates that operating margins will remain
stable.  Investors with a similar outlook can establish a low
risk cost basis in the issue with this position.

JUL-20.00 UPU SD LB=0.40 OI=3681 CB=19.60 DE=35 TY=1.8% MY=5.9%

NTES - NetEase.com  $33.70  *** China Internet Revolution ***

NetEase.com (NASDAQ:NTES) is a China-based Internet technology
company that pioneered the development of applications, services
and other technologies for the Internet in China.  The NetEase Web
sites, operated by a company affiliate, organize and provide access
to 18 content channels through distribution arrangements with more
than one hundred international and domestic content providers.  In
addition, the NetEase Internet sites offer a variety of products and
services, including Instant Messaging (Popo), Dating, Love, Alumni
and Personal Home Page.  These products and services enable users to
communicate about interests and areas of expertise.  At the end of
March 2003, the number of registered users of the NetEase Web sites
reached 114 million with the average number of daily page views over
370 million.  Profits and revenue have been expanding rapidly for
NetEase.com due to the popularity of online games and activities in
China.  Net profit for the first three months of 2003 totaled $8.3
million, compared with a loss of $2.1 million a year earlier, while
revenue rose almost five-fold to $14.2 million.  Investors who like
the fundamental outlook for this company can speculate on its future
share value with this position.

JUL-25.00 NQG SE LB=0.45 OI=342 CB=24.55 DE=35 TY=1.6% MY=5.4%

CVTX - CV Therapeutics  $34.43  *** Rally Mode! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's New Drug Application (NDA) for Ranexa (ranolazine) for
the treatment of chronic angina has been filed at the U.S. FDA.
Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being
developed for the potential reduction of rapid heart rate during
atrial arrhythmias.  CVT-3146, an A2A-adenosine receptor agonist,
is being developed for the potential use as a pharmacologic agent
in cardiac perfusion imaging studies.  Adentri, an A1-adenosine
receptor antagonist, is being developed by the company's partner,
Biogen, for the potential treatment of acute and chronic congestive
heart failure.  CVTX also has several research and preclinical
development programs designed to bring additional drug candidates
into human clinical testing.  Shares of CVTX slumped Friday after
the company announced it will sell $100 million of 2.00% Senior
Subordinated Convertible Debentures due 2023 through a private
placement.  However, the issue is still in a strong upward trend
and traders who think the rally will continue should consider
this position.

JUL-25.00 UXC SE LB=0.45 OI=74 CB=24.55 DE=35 TY=1.6% MY=5.3%



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

ENZ    27.43  JUL 22.50  ENZ SX 0.75 195   21.75  35   3.0%   9.6%
PDLI   17.58  JUL 15.00  PQI SC 0.50 198   14.50  35   3.0%   8.8%
ICOS   43.12  JUL 35.00  IIQ SG 1.00 1680  34.00  35   2.6%   8.6%
BONZ   12.99  JUL 10.00  QBN SB 0.25 30     9.75  35   2.2%   7.6%
PSTI   11.01  JUL 10.00  MQA SB 0.30 0      9.70  35   2.7%   7.1%
IMCLE  34.92  JUL 25.00  QCI SE 0.60 4901  24.40  35   2.1%   6.9%
AGEN   15.45  JUL 12.50  QHL SV 0.25 15    12.25  35   1.8%   6.2%
TYC    19.30  JUL 17.50  TYC ST 0.45 20831 17.05  35   2.3%   6.1%
NPSP   26.62  JUL 22.50  QKK SX 0.45 25    22.05  35   1.8%   5.6%
TELK   17.28  JUL 15.00  ZUL SC 0.30 322   14.70  35   1.8%   5.3%
MSTR   39.15  JUL 30.00  EOU SF 0.45 399   29.55  35   1.3%   4.7%



A Pause In The Rally!
By Ray Cummins

A slump in consumer sentiment derailed the summer rally Friday,
with traders taking profits on news that Americans are guarding
their wallets until the U.S. economy shows tangible signs of a
The Dow Jones industrial average retreated 79 points to 9,117 on
weakness in AT&T (NYSE:T), SBC Communications (NYSE:SBC), General
Motors (NYSE:GM) and International Paper (NYSE:IP).  The NASDAQ
Composite ended down 27 points at 1,626 with computer hardware
and wireless shares among the worst performers.  The broader S&P
500-stock index slid 9 points to 988 as sellers emerged in auto
manufacturers, retail apparel, oil & gas services, tobacco, paper,
and aluminum shares.  Volume was active, with 1.26 billion shares
changing hands on the New York Stock Exchange while 1.82 billion
shares traded on the NASDAQ.  Declining issues outpaced advancing
issues by more than 2 to 1 in both markets.  U.S. Treasuries edged
higher as investors bet that the Fed would not only lower interest
rates further but keep them down for some time in the future.  The
pressure for a rate cut was most evident in the 2-year note where
yields slipped to 1.07%, a new all-time low.  The 30-year bond was
also higher at 119-23/32, taking its yield to 4.17% after hitting
another record low of 4.16%.


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  91.07   JUN  60  65   0.55  64.45  $0.55   Open
CECO    60.52  60.49   JUN  50  55   0.50  54.50  $0.50   Open
FDC     40.22  42.65   JUN  35  37   0.30  37.20  $0.30   Open
RCII    65.35  72.72   JUN  55  60   0.50  59.50  $0.50   Open
ADTN    45.05  53.56   JUN  35  40   0.45  39.55  $0.45   Open
KLAC    42.49  45.57   JUN  35  37   0.30  37.20  $0.30   Open
LLTC    36.34  32.05   JUN  30  32   0.30  32.20 ($0.15)  Open?
ROST    40.09  41.16   JUN  35  37   0.40  37.10  $0.40   Open
BSX     48.70  61.75   JUN  37  40   0.25  39.75  $0.25   Open
UNH     95.41 100.90   JUN  85  90   0.55  89.45  $0.55   Open
WLP     81.05  86.87   JUN  70  75   0.40  74.60  $0.40   Open
BSX     50.51  61.75   JUN  40  42   0.25  42.25  $0.25   Open
PHM     63.71  69.05   JUN  55  60   0.40  59.60  $0.40   Open
BSX     50.51  61.75   JUN  40  42   0.25  42.25  $0.25   Open
CYMI    33.31  30.17   JUN  25  30   0.50  29.50  $0.50   Open?
GILD    52.50  53.81   JUN  45  47   0.25  47.25  $0.25   Open
KLAC    46.23  45.57   JUN  40  42   0.30  42.20  $0.30   Open
PIXR    56.55  59.10   JUN  45  50   0.25  49.75  $0.25  No Play
MEDI    39.04  37.71   JUN  32  35   0.35  34.65  $0.35   Open
AGN     77.24  79.04   JUL  65  70   0.50  69.50  $0.50   Open
ERTS    72.35  72.53   JUL  60  65   0.55  64.45  $0.55   Open
MEDI    39.04  37.71   JUN  32  35   0.35  34.65  $0.35   Open
UNH     97.86 100.90   JUL  85  90   0.60  89.40  $0.60   Open

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

Linear Technologies (NASDAQ:LLTC) and Cymer (NASDAQ:CYMI) should
be closed on further downside activity.


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

PG      90.15   91.17   JUN  100  95   0.40  95.40  $0.40   Open
MMM    122.81  127.80   JUN  135 130   0.50 130.50  $0.50   Open
ANF     27.25   26.60   JUN   32  30   0.20  30.20  $0.20   Open
GM      34.41   36.20   JUN   40  37   0.25  37.75  $0.25   Open
JCI     81.61   85.49   JUN   90  85   0.55  85.55  $0.06   Open?
KSS     51.22   49.45   JUN   60  55   0.55  55.55  $0.55   Open
LLL     43.35   44.04   JUN   50  45   0.55  45.55  $0.55   Open?
APC     44.46   45.72   JUL   50  47   0.40  47.90  $0.40   Open
IBM     80.05   82.75   JUN   90  85   0.40  85.40  $0.40   Open

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

Positions in Nabors Industries (NYSE:NBR), which is positive, Barr
Laboratories (NYSE:BRL), Cabot Micro (NASDAQ:CCMP), and Goldman
Sachs (NYSE:GS) have previously been closed to limit losses.  L-3
Communications (NYSE:LLL) and Johnson Controls (NYSE:JCI) remain
on the "watch" list.


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

AXP     38.46  43.43  JUN   32  35   2.20   34.70  0.30   Open
GENZ    41.47  46.30  JUN   35  37   2.20   37.20  0.30   Open
BSX     46.91  61.75  JUN   37  40   2.25   39.75  0.25   Open
MERQ    35.75  41.00  JUN   30  32   2.25   32.25  0.25   Open
PNC     49.25  48.90  JUN   45  47   2.25   47.25  0.25   Open
NBIX    56.84  55.06  JUL   45  50   4.25   49.25  0.75   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  54.08  JUN   60  55   4.50   55.50   0.50   Open
HDI     40.81  43.72  JUN   45  42   2.10   42.90  (0.82) Closed

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

Harley Davidson (NYSE:HDI) was previously on the "watch" list and
the position should have been closed (or adjusted) when the issue
moved above the sold strike at $42.50.


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

SMH     26.43  28.50   AUG     30    22     0.10    3.10    Open?
MRVL    26.72  30.57   JUN     30    22    (0.20)   3.60    Open?
ICOS    29.85  40.25   JUL     35    25    (0.40)  12.00+   Open?
QCOM    33.55  32.99   JUL     37    30     0.10    0.40    Open?

The position in Icos Corporation (NASDAQ:ICOS) did not offer the
target entry price, but the play was incredibly profitable for
traders who paid a small debit to open the speculative synthetic
position.  Qualcomm (NASDAQ:QCOM) has offered a favorable profit
for short-term traders.  The Silicon Laboratories (NASDAQ:SLAB)
position, although profitable, 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  30.17   JUL-30C   JUN-30C  (0.70)   0.45    Open
ESI     29.11  26.90   OCT-30C   JUN-30C   1.35    1.60    Open
CHKP    18.05  18.84   OCT-20C   JUN-20C   0.70    1.60    Open
GDT     39.98  39.95   OCT-45C   JUN-45C   1.45    1.70    Open
NSM     21.80  21.51   JAN-25C   JUN-25C   2.10    2.50    Open
BRCM    21.40  24.65   JAN-25C   JUN-25C   2.15    3.25    Open
SRNA    19.71  20.76   AUG-22C   JUN-22C   0.70    0.90    Open
VRTY    18.85  19.20   SEP-20C   JUN-20C   1.00    1.25    Open
VIA     44.95  45.88   AUG-47C   JUN-47C   1.10    1.40    Open
SEAC    11.26  10.56   OCT-12C   JUN-12C   0.85    0.65    Open
MCDT    13.47  13.19   OCT-15C   JUN-15C   0.95    0.80    Open
EDS     21.99  22.32   SEP-25C   JUN-25C   1.00    1.00    Open
BEAS    11.08  11.31   SEP-12C   JUN-12C   0.95    0.90    Open

A very profitable calendar spread in Intl. Business Machines
(NYSE:IBM), as well as the Filenet (NASDAQ:FILE) position, have
previously been closed.


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

NXTL    13.60  14.47   JUN   15  12   0.75    0.30   0.45   Open?
MGAM    24.53  23.90   JUN   25  22   1.90    0.90   1.00   Open?

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

Traders should consider taking profits in these volatility plays.


Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status
TYC     17.27  19.30   JUL   17.5  17.5   1.80     2.70    Open
RJR     36.19  35.17   AUG   37.5  35.0   3.15     3.25    Open
Questions & comments on spreads/combos to Contact Support

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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.

BGEN - Biogen  $46.25  *** Bullish Biotech! ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and marketing
drugs for human healthcare.  The firm derives revenues from sales
of its Avonex (Interferon beta-1a) product for the treatment of
relapsing forms of multiple sclerosis (MS) and from royalties on
worldwide sales by its licensees of a number of products covered
under patents it controls.  In addition, Biogen has a number of
ongoing research programs and a pipeline of development-stage
products, the furthest along of which, Amevive (alefacept), is
being considered for approval by the United States Food and Drug
Administration and regulatory authorities in the European Union
and Canada for the treatment of moderate to severe psoriasis.

BGEN - Biogen  $46.25
PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-37.50  BGQ-SU  OI=1197  ASK=$0.65
SELL PUT  JUL-40.00  BGQ-SH  OI=1077  BID=$0.90
POTENTIAL PROFIT(max)=11% B/E=$39.75

PRX - Pharmaceutical Resources  $49.16  *** Rally Mode! ***
Pharmaceutical Resources (NYSE:PRX), a holding company, develops,
manufactures, and distributes generic pharmaceuticals through its
wholly owned subsidiary, Par Pharmaceutical.  Through its FineTech
unit, PRX also develops and utilizes synthetic chemical processes
to design and develop intermediate ingredients used throughout the
production of finished products for the pharmaceutical industry.
Pharmaceutical Resources currently manufactures and distributes
over 163 products representing various dosages of 61 drugs.

PRX - Pharmaceutical Resources  $49.16

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-40.00  PRX-SH  OI=36  ASK=$0.45
SELL PUT  JUL-45.00  PRX-SI  OI=21  BID=$1.00
POTENTIAL PROFIT(max)=14% B/E=$44.40

WLP - WellPoint Health Networks  $86.87  *** Safe-haven Sector? ***

WellPoint Health Networks (NYSE:WLP) serves the health care needs of
more than 13 million medical members and over 49 million specialty
members nationwide through Blue Cross of California, Blue Cross Blue
Shield of Georgia, Blue Cross Blue Shield of Missouri, HealthLink and
UNICARE.  WellPoint offers a broad spectrum of quality network-based
health products, including open access PPO, POS and hybrid products,
HMO and specialty products.  Specialty products include pharmacy
benefit management, dental, medical management, vision, behavioral
health, life and disability insurance, long term care insurance,
flexible spending accounts, COBRA administration and Medicare

WLP - WellPoint Health Networks  $86.87

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-75.00  WLP-SO  OI=1178  ASK=$0.50
SELL PUT  JUL-80.00  WLP-SP  OI=1476  BID=$1.05
POTENTIAL PROFIT(max)=12% B/E=$79.45

FNM - Fannie Mae  $68.55  *** Trouble For Brother Freddie! ***

Federal National Mortgage Association (NYSE:FNM), commonly known
as Fannie Mae, is a company that works to assure that mortgage
money is readily available for existing and potential homeowners
in the United States.  Fannie Mae does not directly lend money
to homebuyers, but works with lenders to ensure that there is no
shortage of funds available for mortgage loans.  The method in
which Fannie Mae accomplishes this is by purchasing mortgages
from a variety of institutions that make up the primary mortgage
market.  Primary market lenders include mortgage companies,
savings and loans, commercial banks, credit unions and state and
local housing finance agencies. These are the businesses where
the mortgages are originated and the funds are loaned directly
to the borrower.  Fannie Mae then purchases the mortgage, thus
allowing the primary market lender to replenish their funds and
lend more money to homebuyers.

FNM - Fannie Mae  $68.55

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-80.00  FNM-GP  OI=2732  ASK=$0.15
SELL CALL  JUL-75.00  FNM-GO  OI=4264  BID=$0.65
POTENTIAL PROFIT(max)=11% B/E=$75.50

GDT - Guidant  $39.95  *** Legal Worries? ***

Guidant Corporation (NASDAQ:GDT) pioneers lifesaving technology
for cardiac and vascular patients.  The company develops, makes
and markets a broad array of products and services that enable
less-invasive care for a number of the most threatening medical
conditions.  Guidant offers stent systems, as well as implantable
defibrillator systems, implantable pacemaker systems, implantable
cardiac resynchronization therapy, products for less-invasive
endovascular procedures, including the treatment of abdominal
aortic aneurysms, products to perform cardiac surgery procedures
such as Off-Pump Coronary Revascularization with EndoScopic vessel
harvesting and intravascular radiotherapy systems for artery

GDT - Guidant  $39.95

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-50.00  GDT-GJ  OI=0     ASK=$0.20
SELL CALL  JUL-45.00  GDT-GI  OI=1656  BID=$0.75
POTENTIAL PROFIT(max)=14% B/E=$45.60

Editor's note: Guidant has a conference call scheduled for Monday
morning to provide an update on recent developments.  The firm may
introduce new information during the meeting, thus traders should
evaluate the character of the issue before entering the position.

KSS - Kohl's Corporation  $49.45  *** Next Leg Down? ***

Kohl's (NYSE:KSS) operates family-oriented, specialty department
stores.  The company's stores sell moderately priced apparel,
shoes, accessories and home products targeted to middle-income
customers shopping for their families and homes.  Kohl's stores
have fewer departments than traditional, full-line department
stores, but offer customers assortments of merchandise displayed
in complete selections of styles, colors and sizes.  Since 1992,
the company has increased square footage an average of 22% per
year, expanding from 79 stores located in the Midwest to a total
of over 400 stores with a presence in six regions.  New markets
include Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

KSS - Kohl's Corporation  $49.45

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-60.00  KSS-GL  OI=6744  ASK=$0.25
SELL CALL  JUL-55.00  KSS-GK  OI=4745  BID=$0.80
POTENTIAL PROFIT(max)=12% B/E=$55.55

LOW - Lowe's Companies  $44.15  *** Trading Range? ***

With fiscal year 2002 sales of over $26 billion, Lowe's Companies
(NYSE:LOW) is a FORTUNE 100 company that serves approximately nine
million customers a week at more than 875 home improvement stores
in 45 states.  In 2003, FORTUNE named Lowe's America's Most Admired
Specialty Retailer.  Based in Wilkesboro, N.C., the 57-year old
firm is the second-largest home improvement retailer in the world.
A typical Lowe's home improvement warehouse stocks more than 40,000
items, with hundreds of thousands of items available through its
special order system, and each store carries a large selection of
brand-name merchandise.

LOW - Lowe's Companies  $44.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-50.00  LOW-GJ  OI=2093  ASK=$0.15
SELL CALL  JUL-47.50  LOW-GT  OI=3120  BID=$0.40
POTENTIAL PROFIT(max)=11% B/E=$47.75


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

GILD - Gilead Sciences  $53.81  *** AIDS Fighter! ***

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  $53.81

PLAY (conservative - bullish/debit spread):

BUY  CALL  JUL-45.00  GDQ-GI  OI=145  A=$9.70
SELL CALL  JUL-47.50  GDQ-GT  OI=115  B=$7.50
POTENTIAL PROFIT(max)=14% B/E=$47.20


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

DG - Dollar General  $18.64  *** Cheap Speculation! ***

Dollar General (NYSE:DG) is a Fortune 500 discount retailer with
stores in 27 states.  The firm is headquartered in Goodlettsville,
Tennessee, with distribution centers in Kentucky, Oklahoma, Ohio,
Virginia, Mississippi, Missouri, and Florida.  Through its stores,
Dollar General offers a focused assortment of consumable basic
merchandise, including health and beauty aids, packaged food,
home cleaning supplies, housewares, stationery, seasonal goods,
basic clothing and domestics.  Dollar General serves primarily
low-, middle- and fixed-income families.

DG - Dollar General  $18.64

PLAY (very speculative - neutral/debit strangle):

BUY CALL  AUG-20.00  DG-HD  OI=801  ASK=$0.60
BUY PUT   AUG-17.50  DG-TW  OI=582  ASK=$0.70

Editor's note: We received some positive comments on last week's
speculative strangle, so today we have another position with a
favorable risk/reward outlook for aggressive volatility traders.

EXPE - Expedia  $70.63  *** Expiration-Week Straddles! ***

Expedia (NASDAQ:EXPE) offers travel planning services in the United
States, the United Kingdom, Germany, Canada, France, Italy and the
Netherlands.  The firm offers airplane, hotel and car reservations,
trip cancellation waivers and numerous smaller vacation and business
travel services, such as Broadway shows and 24-hour business travel
support that make the company a one-stop travel shop for leisure and
business travelers.  Expedia offers travel planning tools that let
consumers compare the travel offerings of multiple suppliers and
make an informed decision as to which offering best suits their
individual needs.  In addition, it offers consumers access to a wide
range of published and negotiated rate offerings.  It sells travel
services of more than 450 airlines and 59,000 lodging properties,
major car rental companies, numerous vacation packages and cruise
lines and many destination-service merchants, such as restaurants,
attractions and local transportation and tour providers.

EXPE - Expedia  $70.63

PLAY (very speculative - neutral/debit straddle):

BUY CALL  JUN-70.00  UED-FN  OI=1461  ASK=$1.85
BUY PUT   JUN-70.00  UED-RN  OI=1761  ASK=$1.30


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