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Daily Newsletter, Monday, 06/16/2003

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The Option Investor Newsletter                   Monday 06-16-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Start Spreading The News
Futures Wrap: New highs
Index Trader Wrap: (See Note)
Weekly Fund Wrap: Stock Funds Slip; Bond Funds Rip
Traders Corner: Painting A Picture


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
06-16-2003                  High    Low     Volume Advance/Decl
DJIA     9318.86 +201.84  9318.96 9117.56   1583 mln  2154/ 729
NASDAQ   1666.58 + 40.09  1667.77 1629.59   1883 mln  2024/1090
S&P 100   509.33 + 11.51   509.42  497.82   totals    4178/1819
S&P 500  1010.74 + 22.13  1010.86  988.61
RUS 2000  457.47 +  7.76   457.47  449.71
DJ TRANS 2495.46 + 39.90  2495.46 2453.32
VIX        22.24 -  0.64    23.40   21.65
VIXN       33.76 -  0.67    35.34   30.46
Put/Call Ratio 0.66
*******************************************************************

Start Spreading The News
by James Brown

"Start spreading the news...I'm leaving today.
  I want to be a part of it, New York, New York..."

The bulls were singing in unison on Wall Street today.  The 107-
year old Dow Jones Industrial Average sang a lively tune as it
added more than 201 points or more than 2.2 percent to close
9318.  Chiming in was the NASDAQ Composite with a 2.46 percent
gain to close above 1660 for the first time in over a year.
Meanwhile the S&P 500 index offered investors a standout
performance with its own melody adding 2.2 percent to close above
the 1000 mark for the first time June 20th, 2002.

Today's session marks the first time the DJIA has closed over the
9300 level since early July of last year.  Pushing it higher was
a chorus of support from all thirty components trading in the
green today.  That's right.  Not one Dow component slipped lower
today.  Giving them something to sing about was the New York
Empire State Index, which in essence is a manufacturing survey.
Last month's May reading showed an increase to 10.6.  Numbers
over zero translate into a majority of businesses surveyed
reported an improvement in business.  Expectations had been for a
slip backward to a reading between 9.6 and 10.1.  Surprise,
surprise, the report this morning showed vast improvement with a
June reading of 26.8.  This is the highest level on record in the
index's two-year history.

According to the official report "virtually every index
improved."  The new orders and shipment index jumped above 15
while the unfilled orders index moved above zero for the first
time in over a year.  The report went on to say that expectations
remained positive.  This is a HUGE preliminary indicator in favor
of the bulls because it reflects exactly what the markets have
been praying for - a sign that the economy really is turning
around for the better.  Posted below is a chart from the report.


General Business Conditions (chart):




A few economists commenting on the results were quick to point
out that after two months of strong gains we should expect a pull
back in July to balance out the trends.  You can read the full
report here:
http://www.newyorkfed.org/rmaghome/regional/mfg_survey/6_2003.pdf


This positive economic news lit a fire under investors and nearly
every market sector was positive today.  The tech sector saw some
of the strongest gains with the DDX disk drive index adding more
than three percent, the SOX semiconductor index jumped three
percent, the INX internet index and the GSO software index both
added more than 2.3 percent.  Even the GHA hardware index added
2.4 percent after a Merrill Lynch analyst downgraded the entire
sector.  Financial stocks also participated with strong gains but
they were overshadowed by big moves in biotechs and drug stocks.

That's right, drug stocks, who have been lagging the overall
market gains for the last few weeks, roared back to life today
after Pfizer (PFE) announced that preliminary studies showed
diabetic patients who took PFE's cholesterol-lowering Lipitor had
fewer heart attacks, strokes and other complications than those
who did not.  Lipitor is already the best-selling prescription
drug in the world with more than $2.1 billion in sales for the
first quarter alone.  Shares of PFE rallied by more than 4.5
percent to close at $34.60, breaking out above eight month
resistance at $34.00.  The DRG drug index added 3.2 percent and
the BTK biotech index added 3.7 percent.

Monday's rally was so strong that up volume beat down volume by
more than 5-to-1 on the NYSE and more than 2-to-1 on the NASDAQ.
There were 21 advancing stocks for every 7 losers on the NYSE
while the NASDAQ's advance/decline ratio was nearly 2-to-1.  New
52-week highs hit 702 while new 52-week lows rang in at 18.
Total volume was decent with 1.58 billion on the NYSE and 1.88
billion on the NASDAQ.

Adding even more fuel to the fire was Wal-Mart's (WMT) June same-
store sales numbers.  The world's largest retailer reported that
June (same-store) sales were on track to meet its expectations
for a 2% to 4% increase for the five weeks ending July 4th.
Contributing to the strength in retail was Kmart's first quarter
earnings numbers.  Kmart Holding Corp (KMRT), which just came out
of bankruptcy last month, reported a better than expected loss
that sent shares of its stock soaring by more than 20 percent.
The No. 3 retailer in the U.S. turned in a Q1 loss of $862
million, which was significantly lower than the $1.44 billion
lost the same quarter last year.  Same store sales still slipped
but investors were impressed by the company's improved gross
margins.

Equally impressive is how strongly mutual fund managers are
putting investor money to work in equities.  It's been three
months since the market's March lows and the DJIA is up more than
23 percent, the NASDAQ composite is up 30 percent, and the S&P
500 is up more than 25 percent.

Chart of the DJIA



Chart of the NASDAQ



Chart of the SPX




Last Wednesday marked the 13th week in a row that equity funds
have reported inflows of cash.  It's a nice change after months
of outflows and now they need to put it to work.  Many believe
that the end of the quarter "window dressing" by fund managers
has already begun.  Whether they have or have not participated in
this rally from March, their investors are going to want to see
some winners in their portfolio.  This means that recent winners
that are overbought are likely to become even more overbought and
there is going to be a reluctance to sell and take profits until
after the 30th.

Keep in mind that there is always a chance for some event or
"headline risk" to spark a round of selling but other than a
terrorist event on home soil, we can't imagine what it could be.
The bulls have been buying bad news and buying more on good news.
Tomorrow will see the CPI, Housing Starts and Building permits
before the bell tomorrow.  Plus, the markets will get to digest
the Industrial production numbers and the Capacity Utilization
report, which both release during market hours.  Nearly all the
forecasts are slightly positive except for the building permits,
which economists believe will be fractionally lower.

Be extremely careful entering new positions and don't forget to
adjust your stop losses!


************
FUTURES WRAP
************

New highs
Jonathan Levinson

The indices treated bulls to an unfilled upside breakaway gap
today, and up $8.75B worth of net repurchase agreements from the
Fed, broke to upside out of intraday bearish chart formations to
close at their highs of the day and highs of the year.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03M     1026   1018   1002    993    977
YM03M     9448   9373   9224   9148   9000
NQ03M     1275   1260   1233   1218   1191


10 minute chart of the US Dollar Index




The US Dollar Index rose from its early morning lows below 92.00
 (a new bear market low) to its previous support area just below
92.50.  The action should have been bearish for precious metals,
yet August gold closed up 2.60 to 359.80 after breaking 360
during the afternoon.  While I am following August gold, my data
provider could only pull up a chart of June gold today:

Daily chart of June gold




The close just below 360 is a knock on the door at a strong
resistance level.  The action in the miners, HUI +1.93 and XAU
+1.08, was very strong, however, and with the abrupt termination
of gold's oscillator downphase, goldbugs have a decent setup on
which to hope.

Daily chart of the ten year note yield




Today's candle on the ten year note yield is very bullish, having
printed a new low at the open and spending the remainder of the
session moving higher to close at 3.17%, just off its high of the
day.  The oscillator setup is bullish but early, and still
subject to further downside in the yield.  Like with equities,
however, the trend on this chart is well-established for the time
being.

Daily NQ candles




We've been discussing the resilience of the uptrend for weeks
now, and today was a fine example, with the stochastics and MacD
reversing back up before any significant selling commenced.

30 minute 20 day chart of the NQ




The NQ is at mid-channel resistance with today's action, and the
oscillators are not signaling imminent selling to come.  If you
squint at the last 5 days (I've zoomed in on this for the ES
contract a few charts down), you'll see a possible reverse head
and shoulders formation that should be good for a move to just
above the upper channel line on this chart.

Daily ES candles




A higher low and higher high for the September ES contract,
closing on a bullish hammer.

20 day 30 minute chart of the ES




The 20 day 30 minute candles depict today's new high with what
appear to me to be the most likely channel targets.  The toppy
stochastic says that the price should roll over from here, while
the MacD has room to run, possibly to the highest ascending
channel line.  Having watched the market tick-by-tick today, I
can say that there was absolutely no suggestion of weakness, as
we see from the chart of the ES at the top of the page.  This is
a dip-buyer's market until something resembling strong selling
occurs from longer than 2 days.  As we were seeing last week,
there was significant risk of a large downside move or of further
upside.  Despite toppy bullish percents, excessive bullish
investor intelligence and sentiment, and overdone market breadth,
we got the latter.

5 day 10 minute chart of the ES




The 5 day view of the ES contract shows us a potential reverse
head and shoulder pattern nested within the longer term ascending
channel profiled above on the 20 day chart.  If it fulfills, it
should easily blast the ES 20 points higher from here.  Although
it hardly bears mention at this point, the oscillators are all
trending, buried in overbought territory.  One of these so far
useless sell signals from overbought will just keep on going
instead of reversing early back into overbought, but there's no
telling which or when it will be.

Daily YM candles





We see the same setup on the Dow futures as well.

20 day 30 minute chart of the YM





One would expect that today's session demoralized a lot of bears,
but I suspect that there are very few left.  Just as during the
2002 equities wipeout we saw the difficulty of buying dips, so
has 2003 shown us the danger of shorting tops.  The winning long
trades in 2002 were those entered at extreme downside spikes,
such as we saw at SPX 775.  Shorting on a peaceful, toppy day in
this rally is a recipe for disaster.  Safer to follow the trend,
which is to buy the dips.  However, the various toppy readings
indicate the downside risk for bulls- so when buying, let your
stops protect you.

I feel anything but bullish about the current market action.
Today's rally was preceded by a large infusion of money by the
fed, and the overall trend from the fed has been strongly up,
despite the minor drainings seen over the past weeks.
Furthermore while the equities rally has been impressive, it has
been accompanied by a strong rally in the precious metals indices
and gold.  With bonds rallying to record highs and gold doing
well against a falling dollar as the fed pumps in fresh money
daily, the equities rally does not seem healthy or sustainable.
But, when holding open positions in or against equities, short
term price is all that matters.  Until this trend reverses, it
remains unequivocally up, and my concerns about breadth and
intermarket relationships should be treated as mere bricks in a
wall of worry.  Bullish markets climb those, just as this one is
doing.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_061603_1.asp


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****************
WEEKLY FUND WRAP
****************

Stock Funds Slip; Bond Funds Rip

Bond mutual funds rose sharply last week, with high-yield funds,
global/international bond funds and emerging-market fixed income
funds leading the advance.  Meanwhile, U.S. stock funds produced
modest losses for the week ended Friday, June 13, using Lipper's
weekly averages while gold funds, international equity funds and
emerging-market equity funds finished the week higher.  A weaker
dollar buoyed the reported total returns of international equity
and fixed income funds (vs. similar U.S. products).

Traders and investors don't like unexpected negative surprises
and that is what they got Friday when an unexpected decline in
consumer sentiment prompted some profit taking.  Weak economic
news (i.e. weaker wholesale prices) reinforced the belief that
the Fed may lower rates yet again this month.  It was economic
news like that spurred bond prices higher, while knocking down
U.S. stock prices and the dollar.



For the week ended Friday, June 13, the S&P 500 large-cap index
produced a scant but positive 0.1% return, while the next 4,500
stocks (as measured by the Wilshire 4500 index) lost about 0.1%
over the 5-day period.  Most large-cap and mid-cap equity funds
held up all right, while small-cap funds produced weekly losses
of around 0.5% per Lipper.  Science and technology funds closed
the week down 1.7% on average.

European stocks rose 0.7% in dollar-equivalent terms during the
weekly period, while Pacific stocks climbed 2.5% in U.S. dollar
terms, using Vanguard's Europe and Pacific stock index funds as
the benchmarks.  International markets outperformed U.S. stocks
as the dollar declined in major currency markets.  According to
Lipper, the average international equity fund rose 1.2% for the
week, while the average emerging-market equity fund gained 1.7%.

International investments provided currency diversification last
week while bond investments provided asset class diversification
to U.S. equity fund investors.  The total U.S. bond market (i.e.
LB Aggregate Bond index) advanced by 0.9% over the 5-day period,
with general bond fund returns returning 0.8% to 1.0% on average
for the week per Lipper.  High yield bond funds did even better,
returning 1.2% on average last week, but the week's best returns
were found in the global/international fixed income group, where
the average international income fund gained 1.6% due in part to
dollar weakness.

Equity Fund Group

 Week    YTD    Selected Lipper Equity Indices (Jun-13)
+0.3%  +10.2%   Balanced Fund Average
-0.2%  +11.1%   Equity Income Fund Average
+1.2%  +11.5%   International Fund Average
-0.1%  +11.6%   U.S. Large-Cap (Core) Fund Average
-0.1%  +14.6%   U.S. Mid-Cap (Core) Fund Average
-0.5%  +14.1%   U.S. Small-Cap (Core) Fund Average
+0.1%  +14.4%   U.S. Multi-Cap (Core) Fund Average
-1.7%  +22.3%   Science & Technology Fund Average

Stock funds investing in China, Korea and "New Asia" markets were
among the week's best performers, as evidenced by the 3.0% weekly
return for the T. Rowe Price International: New Asia Fund (PRASX)
and the 2.5% weekly gain on the Vanguard Pacific Stock Index Fund
(VPACX).  Among funds of any size, ProFunds Europe 30 (UEPSX) had
the week's highest return, rising 8.0% on the week.  The Alliance
Funds: Greater China 97 Fund, Dreyfus Premier: Greater China Fund
and Fidelity Advisor: Korea Fund each returned more than 5.0% for
the 1-week period.

Balanced funds also performed relatively well last week with bond
price gains more than offsetting stock price losses.  The average
balanced fund rose 0.3% for the week, per Lipper, with some funds
returning more than 2 percent.  Mercury QA Strategy Series Growth
& Income Fund and CGM Mutual Fund, two balanced funds, had weekly
total returns of 2.5% and 2.2%, respectively.  Gabelli Comstock
Strategy Fund and Westcore Flexible Income Fund, two flexible
income funds, returned 2.1% and 1.7%, respectively, on the week.

Fixed Income Fund Group

 Week    YTD    Selected Lipper Fixed Income Indices (Jun-13)
+1.1%   +6.1%   Corporate A-Rated Debt Fund Average
+0.0%   +1.3%   GNMA Fund Average
+1.4%  +11.2%   Global Income Fund Average
+1.2%  +15.3%   High Yield Fund Average
+1.6%  +12.3%   International Income Fund Average
+0.9%   +6.1%   Intermediate Investment Grade Fund Average
+0.8%   +4.0%   U.S. Government Bond Fund Average

The year's highest performing categories were last week's best
performers also.  Domestic high-yield funds returned 1.2% over
the 5-day period, per Lipper, while global income funds gained
1.4% and international bond funds rose 1.6% on average.  There
were several long-term bond funds and international bond funds
were weekly total returns in excess of 2 percent.  For example,
Western Asset Non-U.S. Fixed Income Fund (WAFIX) returned 2.9%,
while Vanguard Long-Term Corporate Bond Fund (VWESX) produced a
weekly total return of 2.7%.

Loomis Sayles Investment Grade Fixed Income Fund (LSIGX) picked
up 2.3% for one of the better 5-day returns among "medium-grade"
bond funds.

Money Market Fund Group

Yield   Selected iMoneyNet Money Market Indices
0.68%   All Taxable MMF Average
0.57%   All Tax-Free MMF Average

The iMoneyNet.com All Taxable MMF Average slid two basis points
to 0.68% last week as the Fed moves closer to another potential
interest rate easing, later this month.  Fidelity Cash Reserves
Fund, the nation's largest retail money market fund has a 7-day
simple yield of 0.94%.  Only about a dozen "prime retail" money
market funds sport a higher yield than that today.

PayPal Money Market Fund (402-935-7733) has the nation's highest
yield among prime retail funds.  Its 7-day simple yield is 1.19%.

Fund News, Etc.

Morningstar analysts offered up their views and opinions on the
status of the mutual fund industry last week.  Among the trends
and developments in the industry are changes in regulation that
require mutual fund companies to provide greater disclosures on
hidden fund costs, such as trading costs.  Transaction costs do
not show up in a fund's expense ratio but are deducted from the
fund's reported total return.  Go to www.morningstar.com to see
Morningstar's State of Fund Industry report.

A $1.4 billion surge in assets this year has caused Vanguard to
temporarily shut the doors of the Vanguard High Yield Corporate
Bond Fund (VWEHX).  According to Morningstar, Vanguard said the
fund would remain closed for at least three months and will not
reopen until cash flows in the high-yield sector have slowed to
more moderate levels.  The Vanguard Group announced the measure
was necessary to curb the potentially harmful effects of short-
term trading in and out of the fund (which can result in higher
transaction costs and taxable-gains distributions).

Steve Wagner
Editor, Mutual Investor


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

Painting A Picture
by Mark Phillips

I must admit, this project of describing a futures trading plan
from start to finish has been a much larger undertaking than I
initially estimated it to be.  But by the end of last week's
article, I think we had sufficiently laid the groundwork so that
we could start talking about the meat of what gets us into trades,
what gets us out and all of the little nuances along the way.  I
fully understand that the trading system/plan I'm in the process
of laying out won't work for everyone -- in fact it may only work
for me.  But I guess the point I'm trying to make in all of this
is that all we need to put together is a system that works for
ourselves.  It doesn't matter if your trading mentor or partner
says it won't work.  If you have put together a system that makes
sense to you and you've convinced yourself through sufficient
paper trading that it should work, then go with your system.  If
your experience is like me, you'll find pieces of it that must be
tweaked, things that must be thrown out and other things that must
be added as you proceed to the phase of trading live money in the
futures arena.  A trading plan should never be carved in stone.
It must be flexible enough to change with changing market
conditions.  But I can't stress this enough -- decisions about
changing some part of your trading plan should NEVER be made
during market hours.  Evaluation of the system is always done when
the emotions involved in a particular trade are incapable of
influencing your analytical decision-making process.

Before I forget, I know there will be readers just tuning into our
discussion here.  For the newcomers, you'll want to take the time
to catch up with our discussion at the following links from the
archives.

The Case For Futures
http://www.OptionInvestor.com/traderscorner/tc_050503_1.asp

Planning For The Future(s)
http://www.OptionInvestor.com/traderscorner/tc_051203_1.asp

Back To The Future(s)
http://www.OptionInvestor.com/traderscorner/tc_060203_1.asp

Getting Ready To Launch
http://www.OptionInvestor.com/traderscorner/tc_060903_1.asp

We've now completed the portion of this project that is easily
conveyed without the aid of graphics, and lots of them.  In order
for you to understand what I'm describing, you need to be able to
look at what I'm looking at so that we have a common frame of
reference.  Never has the saying about a picture being worth a
thousand words ever been more true.  I struggled a fair amount
this past weekend in trying to determine the best way to show you
what it is that I watch each day.  Aside from all the news and web
related information, just my chart window covers two 21" screens.
How can I take a picture of that, compress it down to a 5 1/2"
wide graphic and have you be able to even read it, let alone make
sense of it?  Short of transporting everyone into my office, I
decided the best solution was to give you an overview of all the
things I'm looking at on the charts, then describe each piece in
detail.  It is a less than ideal situation, but I think it will
suffice to convey the necessary information.

I know some traders can just have one primary chart where they put
all the information that is pertinent to a given instrument they
have chosen to trade.  That doesn't work for me.  I need different
views and different perspectives to try to assimilate all the
disparate factors influencing the day's market action.  Actually,
I have to scroll to the left on my chart setup to see the big
picture view, but I look at that rather infrequently during the
day.  Alright, let's see if I can convey this picture to you in an
understandable manner.

My left screen is broken up into 8 panels, as follows.  Across the
upper two-thirds of the screen, I have a 10-minute, 5-minute and
2-minute chart, each of which display Stochastics (10,5,3), MACD
(8,18,6) and CCI (20).  Additionally on the 5 and 10 minute
charts, I have added the standard Bollinger bands, as I have found
that frequently the B-band will provide support/resistance that
must be retreated from and then run at again to finally get some
directional action going.  As if that weren't enough, I also place
the S/R and Pivot Point lines on the 5-minute chart.  These are
the same values listed at the top of the Futures Wrap every night.
There are also a myriad of lines drawn on these charts every day
in my attempt to determine the trend at the time, along with my
best guesses for where that trend might run into trouble.

Across the bottom third of the screen, I have a Time&Sales window,
a quote sheet with the major indices and subsectors listed, and
then I have a 5-minute chart for each of the 30-year Treasury Bond
Index (TYX.X), the 10-year Treasury Note index (TNX.X) and the 5-
year Treasury Note index (FVX.X).  I don't use any indicators on
the yield charts, as I'm strictly looking for price movement and
how it might influence action in the equity market.

Any one of those top three charts would fill the width of this
column, so I decided to limit myself to the 5-minute chart, today.
As you can see from the chart below, there's a LOT of information
to go over, and this is just one of the charts I watch.  One
caveat to the rest of our discussion is that there are several
other things I'm looking at during the day that we haven't yet
gotten to.  I'll mention them in passing as we go along and then
hopefully tie them in with a detailed discussion later on.  Make
no mistake, we won't finish this discussion today!

September ES Futures - 5 Minute Chart




Since there's obviously a lot to cover on that chart, let's start
with the beginning of the day and move forward from there.  First
off, we have a gap open and then a dip shortly thereafter that
only partially filled in the gap.  Should we short the initial
rollover?  How about the drop into the gap?  Do we wait for the
gap to fill before initiating a long?  So many decisions, and
fortunately I have a couple secret weapons.  Well, actually they
aren't so secret, but they do help me immensely on a day-to-day
basis.

The first one is the pivot/S/R levels that are shown as (PP, R1,
R2) on the chart.  I've noticed an interesting phenomenon lately
with the strong bullish tone to the market.  A dip to touch the PP
is usually a solid buy, and a drop under the PP and then rally
back through it is a strong buy.  With this knowledge in the back
of my mind, I was not looking for a complete fill of the gap and
was expecting the PP to be bought.  Sure enough, the buyers were
so eager, they wouldn't even let the pivot get touched before they
started buying, with the low for that dip being 991.25.  That's
close enough for me and sure enough, that was the low of the day.
Once the ES worked through the 995-997 zone, someone launched a
buy program and by the time it had run its course, the ES had
visited the 1000 level for the last time of the day.

But wait a minute.  Looking at the oscillators on the chart above,
there was no Buy signal.  Stochastics was already overbought, MACD
was bullish but looking a bit extended and while CCI was in the
green, there wasn't anything on that indicator that would have
signaled a long entry point.  This trade entry is not the sort I
normally like to take, as I tend to favor oscillator entries when
they can be had.  The important point here is that oscillators
didn't offer ANYTHING in the way of futures trade entries on
Monday.  Either we have an alternate entry method or we have to
wait for the oscillators to signal a trade setup.  That brings us
to my second "secret weapon", which I have talked about a fair
amount over the past year or so -- it is the ADVDECV indicator,
which is the result of subtracting all the declining volume from
all the advancing volume on the NYSE.

This gets into what is on the right hand screen.  I have 6 chart
windows shown there, with the left hand side devoted to a 3-minute
chart of the ES, ADVDECV.NY and TICK.NY.  The right hand side is a
mirror image devoted to the NASDAQ market, with 3-minute charts of
the NQ, ADVDECV.NQ and TICK.NQ.  This portion of my trading screen
is my principal trade filter.  If I have a bullish picture
presented by the ADVDECV indicator, then no matter what shows up
on the price chart of the ES, I refuse to take any short trade
entry.  I noted on the chart above that the rollover on the
oscillators (Stochastics and MACD) just before noon was not a good
short trade setup.  Let's take a look at the ADVDECV chart, and I
think you can see why.

ADVDECV.NY - 3 Minute Chart




We started out with a positive bias (above the zero line) and by
the end of the first 30 minutes, the most severe dip of the day
was over.  From there it was all about following a steady
ascending trend.  This is not the picture you want to see for
initiating successful shorts, so by the time the oscillators
finally rolled over after 11am ET, I had already ruled out the
potential for any short trade entries unless the bottom of the
channel was broken decisively.  That means aside from the early
long from just above 991, the only other viable trade entries were
a long from 1002-1003 shortly after 1pm ET and then another long
near 1005 right after 3pm ET.  One other thing I want to point out
on that first chart is the center line of the 3-week ascending
channel.  Note how the ES repeatedly banged against that line
throughout the day until finally breaking free.  Perhaps that
helps to explain the way the intraday highs were just gradually
working higher, but without the ability to break out with any
clarity.

We've only just barely scratched the surface here in terms of the
system that I employ in trading futures, but I wanted to delve
into an actual trade setup or two.  As usual, I ran out of time
and space far too soon this afternoon.  Next week, I'll finish
describing what is in the rest of my charting setup and we'll lay
out the parameters for trade selection.  I know it may seem a bit
fragmented right now, but we'll get some things tied together for
next week.

See you then!
Mark


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The Option Investor Newsletter                   Monday 06-16-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: GENZ, IGT, PGR, LXK
Dropped Calls: None
Dropped Puts: GS
Play of the Day: Call - GENZ
Watch List: Drugs, Sweets, and Telephones

Updated on the site tonight:
Market Posture: It's a Market Stampede



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*****************
STOP-LOSS UPDATES
*****************

GENZ - call
Adjust from $44.00 up to $45.00

IGT - call
Adjust from $90.00 up to $92.00

PGR - call
Adjust from $69.00 up to $71.00

LXK - call
Adjust from $69.00 up to $71.00


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

Goldman Sachs - GS - close: 91.50 change: +2.33 stop: 90.76

Play with fire, and you're likely to get burned.  That was
certainly the case with our very aggressive GS play.  While our
stop wasn't violated in the first hour, it quickly became clear
that this play wasn't going to work out.  Following the gap up, GS
shot up to the $90.80 level with the strong surge across the broad
market and then continued to walk higher throughout the day,
ending right at the day's high.  There really wasn't any time
during the day that looked like even a marginal entry point into
the play, so we'll count ourselves lucky in having only our pride
bruised.  Clearly with the stock ending at a new 52-week high,
we're dropping it tonight.

Picked on June 15th at   $89.17
Change since picked:      +2.33
Earnings Date          06/25/03 (unconfirmed)
Average Daily Volume = 4.57 mln



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

Genzyme Corp. - GENZ - close: 48.11 change: +1.81 stop: 45.00*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.

Why This is our Play of the Day
Adding to the feeling that it is a new bull market, the
Biotechnology index (BTK.X) vaulted higher to the tune of 3.7% on
Monday, making it the best performing sector on a day that saw a
lot of green.  That sector strength was enough to propel our GENZ
play higher as well, and after stalling near the $47.50 area for
most of the day, the final burst into the close took the stock
through the $48 level for the first time since June 6th.  The
important difference this time is that the bulls managed a close
over that level and our $52 target is looking more reasonable by
the day.  Those converged channels provided strong support last
Friday and today's surge has GENZ back in the upper half of the
steeper, shorter-term channel.  For traders that were waiting for
a breakout to enter new positions, today's closing action looks
like it.  A continuation higher on Tuesday should see the $50
level tested, although a straight shot to $52 seems a bit much to
hope for, with the top of the channel currently at $50.50.  At
this point, a pullback into the $47.00-47.50 area looks like the
best we'll see in terms of a dip to buy.  With support holding
above the $45 level after last Monday's dip, it seems safe to
raise our stop to that level, since it is not only below the
bottom of the channel, but also the 20-dma ($45.66).

Suggested Options:
Shorter Term: The July 47 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 on Friday.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the July 50 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 50 call.

BUY CALL JUL-47 GZQ-GS OI= 966 at $2.85 SL=1.50
BUY CALL JUL-50 GZQ-GJ OI=5329 at $1.75 SL=0.75
BUY CALL OCT-50 GZQ-JJ OI=1771 at $3.80 SL=2.25

Annotated Chart of GENZ:




Picked on June 8th at    $46.61
Change since picked:      +1.50
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 3.65 mln



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**********
WATCH LIST
**********

Pfizer Inc. - PFE - close: 34.60 change: +1.52

WHAT TO WATCH: Shares of PFE rose 4.59 percent to close above
long-time resistance at $34.00 today.  The surge higher was
fueled by very positive news for its Lipitor drug.  Cholesterol
reducing Lipitor is currently the top-selling prescription drug
in the world.  That number one spot for Lipitor might be
solidified after PFE reported that diabetic patients who took
Lipitor had fewer heart attacks, strokes and complications than
those who did not take the drug.  Interested traders might want
to consider long positions on the breakout or look for dips back
to $34.  However, keep in mind that the point-and-figure chart is
showing over head resistance at $35 and it maybe better to wait
for some follow through by the bulls.

Chart=


---

Tootsie Roll Industries - TR - close: 32.37 change: +1.12

WHAT TO WATCH: TR isn't a very fast mover and options are lightly
traded but the move today looks pretty sweet.  Shares have
recently reacquired their $30.00 level and broke out over its
200-dma a couple of weeks ago.  Volume is normally light but it's
been strong the last couple of days.  We were impressed by the
big breakout over the $32.00 mark today.  Shares have fought with
resistance at $32 for months and today's rally could spark
additional short covering.

Chart=


---

Nextel Communications - NXTL - close: 15.84 change: +1.37

WHAT TO WATCH: Shares of NXTL have been consolidating between
$14.00 and $15.50 for a few weeks but that appears to be coming
to a close.  The stock made a move for the $16 level tonight.
Both the daily and the weekly chart look ripe for an upside
breakout but don't be fooled into trading without a stop loss.

Chart=


---
Chinadotcom - CHINA - close: 6.73 change: +1.57

WHAT TO WATCH: Wow!  Talk about your rallies.  Shares of CHINA
ran for more than 30 percent today.  The company announced good
news regarding four new territories for their SMS product and
investors applauded.  We would not suggest new bullish positions
at this time but a bounce off the $6.00 level might be tempting.
Shares do have options but volumes tend to be low.  This would be
a highly speculative play.  Take some time and do your homework.

Chart=



**************
MARKET POSTURE
**************

It's a Market Stampede

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_061603.asp


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