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Daily Newsletter, Monday, 06/23/2003

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The Option Investor Newsletter                   Monday 06-23-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Getting An Early Start
Futures Wrap: Down
Index Trader Wrap: Warnings gave little reason for gains
Weekly Fund Wrap: Bond Funds Retreat; Stock Funds Net Gains
Traders Corner: Elliott Wave Plays


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
06-23-2003                  High    Low     Volume Advance/Decl
DJIA     9072.95 -127.80  9199.70 9038.29   1632 mln   676/2170
NASDAQ   1610.75 - 33.97  1643.21 1601.45   1661 mln   758/2365
S&P 100   495.77 -  6.62   502.39  493.29   totals    1434/4535
S&P 500   981.64 - 14.05   995.69  977.40
RUS 2000  439.41 - 10.15   449.78  439.17
DJ TRANS 2395.30 - 48.19  2441.94 2394.27
VIX        22.66 +  1.57    23.02   21.32
VIXN       31.80 -  0.54    33.02   31.67
52wk Highs  137
52wk Lows    19
TRIN       2.30
Put/Call Ratio 0.66
*******************************************************************

Getting An Early Start
by James Brown

Investors are getting an early start on Wednesday's Fed
announcement.  That's right, in Sunday's wrap Jim suggested that
no matter what the FOMC announces at the end of their two-day
meeting, whether it be a 25 bps cut or a 50 bps cut, that the
likely reaction would be "sell the news".  Today looks like
investors are getting a head start on the action and are taking
some money off the table, which isn't a bad idea.

Helping traders in their decision making to sell stocks were a
few earnings warnings.  We knew this was going to be a tough week
for stocks given that it's prime time earnings warning or
"corporate confession" season before the July Q2 earnings
announcements.  Batting first for this week's warnings were Tenet
Healthcare (THC), Avery Dennison (AVY), and Rohm & Haas (ROH).


Market internals were very negative as one might expect with the
DJIA down triple digits and the NASDAQ composite slipping more
than two percent.  Volume on the NYSE was 1.6 billion matching
the 1.6 billion on the NASDAQ.  More importantly, the markets
witnessed down volume that was almost eight times up volume on
the NYSE and almost five times up volume on the NASDAQ.  The
advance decline ratio was about six advancing issues for every 21
decliners on the NYSE and approximately 7 advancing stocks for
every 23 losers on the NASDAQ.  New highs, which have been
extremely strong for weeks, slipped to just 137 across the two
exchanges compared to 19 new lows.

Chart of the Industrials:



Chart of the NASAQ Composite:



Chart of the S&P 500:



Topping the list of headlines today was an earnings warning from
an already beleaguered Tenet Healthcare (THC).  Shares dropped
another 26 percent today ($4.22) to close at $12.01 after the
company announced that its Q2 and full-year performance would be
bleaker than anticipated.  Analysts had been guesstimating THC's
full-year earnings would ring in around $1.45 a share.  Tenet now
sees those results coming in between $0.80 to $1.00 a share for
the year beginning July 1st.  The company didn't exactly warn for
this (second) quarter but THC did state that earnings for the
first two months (April & May) were about $0.02 a share.  Compare
that to what analysts had been looking for near $0.34 and one can
see why shares experienced a knee jerk reaction.  It's been an
extremely painful six months for THC shareholders.  Late October
to early November 2002 shares of THC plummeted from the $50's to
$16 after Wall Street discovered that the company had been
fraudulently billing the U.S. government for Medicare payments.

Not quite matching THC's percentage drop, shares of Avery
Dennison, the labels-packaging-consumer products manufacturer,
dropped almost $5.00 today for a 9 percent loss.  Shares closed
at $49.37.  The stock was taken to the woodshed after lowering
its Q2 outlook.  The company is claiming slow sales in N. America
and higher costs related to its recent acquisition as some of the
factors for its poor performance.  Previously the company had
forecast 77 to 82 cents a share with analysts consensus numbers
near 79 cents.  Now AVY expects their Q2 earnings to fall between
68 and 72 cents a share.  It is interesting to note that AVY
specifically cites weak economic conditions in America and a weak
market in Europe.  This may be a company specific concern but it
doesn't sit well with investors expecting an economic recovery.

Comments from chemical producer Rohm and Haas Co (ROH) sound
eerily similar to AVY's.  ROH's Q2 results won't miss quite as
badly and the chemical company expects results around 39 cents a
share compared to estimates of 42 cents.  The stock dropped 2.5
percent.  More important were statements from ROH's management.
Total sales are actually up 8 to 10 percent but overall global
business is rather "stagnant".  ROH's chairman said that early in
the quarter there were "indications that things might be
improving, however demand in late May and early June has not
shown the same momentum..."  That's exactly what investors do NOT
want to hear.

Failing to stall the Biotech index's 3.9 percent decline today
was news of a merger "of equals" between Biogen (BGEN) and IDEC
pharmaceuticals (IDPH).  The merger was seen as a defensive move
for two biotech companies who are struggling against the
competition.  Both have "blockbuster" drugs but sales are
slipping.  BGEN is better known for its multiple sclerosis drug,
Avonex, and IDPH is known for its non-Hodgkin's lymphoma
treatment, Rituxan.  Wall Street discounted the deal and shares
of both stocks slipped five percent.  The deal, which is expected
to close in the late third quarter or early fourth, would produce
a new entity to be called Biogen Idec Inc., which will have
revenues around $1.55 billion a year.

Continuing with the theme of "sell the news" shares of Barnes &
Noble (BKS), Barnes&Noble.com (BNBN) and Scholastic (SCHL) were
all hit with profit taking today.  Oddly enough, shares of
Borders Group (BGP) and Amazon.com (AMZN) remained green.  What
do these have in common?  They're all participants in the biggest
book event in history.  Of course I'm referring to the launch of
"Harry Potter and the Order of the Phoenix" by J.K. Rowling.
This is the fifth book in the series and the 870-page tome went
on sale at 12:01 AM Saturday morning.  Of the 8.5 million copies
printed by its U.S. publisher, Scholastic estimates that 5
million copies were sold on the first day.  Barnes & Noble said
it sold 286,000 books in the first hour.  That equates to 80
books a second.  I went to my local Borders and the local Barnes
& Noble on Friday night and both were completely overrun with
costumed fans of all ages.

So why do I mention Harry after the all-day media coverage last
Friday?  Because it's the best segue I can muster into what will
need to be some FOMC magic.  Alan & Company will take center
stage for the next two sessions despite tomorrow's consumer
confidence report and Wednesday's new and existing home sales
reports.  I wouldn't be surprised to see the market's stall ahead
of the Fed decision but if the earnings warnings continue at
their current pace investors may continue to sell first and ask
questions later.  Besides, we've already witnessed that Wall
Street is in a sell the news mood.  What's going to stop them come
Wednesday?


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

Down
Jonathan Levinson

Equity futures dropped from the open and fell into a narrow range
for the duration of the session, with tensions running as high as
price action ran low.

6 minute ES3U candles



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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1000    991    983    973    966
YM03U     9223   9140   9076   8993   8929
NQ03U     1239   1222   1207   1189   1174


3 month daily candles of the ten year t-note yield



Treasuries traded higher today, with yields falling from Friday’s
close, with the five year note yield falling 8.6 basis points to
2.209%, TNX –8.1 bps to 3.315% and TYX down 6.5 bps to 4.394%.


10 minute chart of the US Dollar Index




The US Dollar Index fell off its highs to close at 94.10 support.
Note that the Fed added reserves for a change, and with the
expiring reverse repos from Friday, there was a net addition to
liquidity in the amount of $8.75 billion in open market
operations.  It’s no surprise that the US Dollar Index was lower,
or that treasuries were higher, as this new injection of money
lowered relative demand for dollars and sought out treasury bonds
in which to be invested.  Surprising, however, was the bearish
action in gold.

Daily chart of August gold




August gold got clocked, taking out the rising support line but
closing above its lows, right on the 50% fib retracement line.
The weakness here was surprising given the US Dollar Index
weakness and strength in treasuries.


20 day 30 minute NQ3U candles



The downside action in equities was surprising in light of the
action in treasuries and the dollar.  One would think that with
8.75B of Bernankes, I mean dollars, the 22 primary dealers who do
the Fed’s bidding would have invested some of it in equities as
well.  Perhaps they did, which could account for the
excruciatingly narrow range that they printed this afternoon (see
6 minute ES3U candle chart above).

As you can see above, there’s clearly some poetic license to my
selection of the trendlines on the Nasdaq 30 min futures candles.
But, we see that we’re within a descending channel, possibly a
bullflag, with the stoch and MacD oscillators at the beginning of
an upphase.

5 day 10 minute chart of the NQ3U



Zooming in on that channel, with the upper descending trendline
closer down, we see the first resistance zone, violated by
today’s opening plunge.  This level is being tested afterhours as
I type.

20 day 30 minute ES3U candles



Because the opening plunge was less pronounced, the SPX futures
were easier to fit into that descending channel.  Again, the
upphase is clearly underway, projecting to the top of this
channel or flag.

5 day 10 minute chart of the ES3U



Again, the action today was puzzling in light of the injection of
funds by the Fed.  However, I expect that we’re seeing
significant distortions from the hangover of opex week, and
anticipation of the Fed’s 2 day meeting kicking off tomorrow.


20 day 30 minute YM3U candles




We have the same picture painted on the Dow futures.

5 day 30 minute YM3U candles




On the heels of last week’s gravestone doji closing print, it’s
tempting to break out the pompoms and do some cheerleading for
the bearish case.  However, if this year has taught me anything,
it’s not to cheer.  There are minefields of support for the ride
down, and with the Fed in town starting tomorrow, last week’s
opex wearing off, and this week’s end of month tape painting by
the fundies, there will be no shortage of opportunities for
surprise speeding trains to be dodged.  We already see hints of
it in the action in gold today, which sold off in US Dollars
despite the US Dollar Index trading weakly.  For tomorrow, I
expect to see some upside followthrough on the oscillator up-
cycles, but if the equity contracts don’t get more significant
lift from this move, they could be setting up for the next
plunge.  For what it’s worth, I believe the Fed to be far more
concerned with treasuries (and FRE and FNM) than with the broad
equity markets, if today’s action is any indication.


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

Warnings gave little reason for gains

Less than positive quarter earnings warnings from Biogen
(NASDAQ:BGEN) $41.55 -5.13%, Rohm and Haas (NYSE:ROH) $31.97
-2.53% and Tenet Healthcare (NYSE:THC) $12.01 -26% set the tone
for declines early this morning, but a slight bounce near the
close found the major indexes and bulk of sectors finishing just
off their lows.

While Rohm and Haas (ROH) may not be a "top of mind" stock,
today's warning from the specialty materials company that
manufactures products sold for use in the personal care, grocer,
home, construction and electronics market, left few sector bulls
much of a reason to step in and buy stocks on weakness until the
close of today's session neared.

A slight lift from the session lows for the major indexes in the
last 30-minutes of trade didn't help bulls much, but gives some
thought that the bullish run for stocks since the March lows may
still have some fight left in the bull, which by all accounts
deserves a rest.

With Triple Witch expiration having come to an end Friday,
volumes at both the NYSE and NASDAQ were brisk, but below levels
that tended to build higher into Friday's trade.

For a fourth consecutive session, breadth at the NYSE was
negative with decliners outnumbering advancers by a 3 to 1
margin, while NASDAQ breadth was negative at 3 to 1 for a third-
straight trading session.  I'm make not of the consecutive
session negative breadth, as this is something we haven't seen
for months.  While I tend to "discount" Friday's Triple Witch as
institutions tend to be taking off some prior hedge strategies at
quarterly expirations, this broader indicator of negative breadth
is sign that market participants are stepping up some profit
taking as the quarter nears and end and Wednesday's FOMC
decisions on interest rates nears.

Here's a quick look at the daily breadth indicators since May
27th, where we're also monitoring the number of new 52-week highs
and 52-week lows for both the NYSE and NASDAQ.

Market Breadth - May 27 - June 23, 2003



For the first time in months, Advance/Decline breadth for the
NYSE and NASDAQ reached a 1:3 ratio.  Prior negative breadth
sessions (06/13 and 06/19) were 1:2, and today's trade would give
indications that bulls are stepping up their profit taking
activity.

With the NYSE Composite (NYA.X) 5,549.09 -1.46% falling 82 points
and declining for 3 out of its last 4 sessions from a high of
5,739.03 set on Tuesday of last week, it is not surprising to see
a lessor number of new 52-week highs, but the daily NYSE NH/NL
Ratio of 87.8% today does have this narrower breadth indicator's
10-day NH/NL avg. falling to 97.0%.  It would still take a
reading of 92% to have its 2% box scale chart reversing back
lower, but a slight lack of leadership from new 52-week highs and
steady number of new lows shows that bullish leadership is waning
a bit, and advises caution to bulls.

The NASDAQ Composite (COMPX) 1,610.75 -2.06% fell 33.97 points in
today's trade, and after closing at a 52-week high on Wednesday
of last week at 1,677 has declined for three consecutive
sessions, but managed to hold above its June 9th relative low of
1,597.32.  We can perhaps benchmark today's breadth data with
some focus on the NH/NL breadth to see a lesser number of new 52-
week highs and still rather steady new 52-week lows.

It would be my analysis from the breadth data that rally attempts
are not going to be as "ferocious" as they have in recent weeks,
with the tapering off of NH/NL 10-day ratios.

While I'm looking for some slight bullishness into the FOMC
meeting, the market internals are beginning to show a bullish run
beginning to look tired.

The NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $29.91 almost
tempted me into a bullish profile at the $29.82 when the QQQ were
able to get back above our WEEKLY S1 level of support (viewed as
intra-day resistance when broken to the downside earlier today).
Current levels of trade seen today were identical to that found
on June 9th.  However, the bid back above the WEEKLY S1 of $29.79
came after the 04:00 PM EST closing of the NASDAQ-100 Index
(NDX.X) 1,200.17 -1.87% and I thought it best to wait until
tomorrow morning's open to see if there is a trade with our daily
interval bar chart Stochastics now approaching the "oversold"
level after cycling back lower from "overbought" on Friday of
last week.

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval



The QQQ traded back into a very similar "zone of support" found
back on June 9th, and from the 03:30 PM EST mark, did find buyers
into its close of 04:15 PM EST.  I've noted the June 9th low, but
also the June 6th high.  Should the QQQ get a bounce going back
above the 21-day SMA, I think it has "rebound" potential back
into the $30.51-$30.60 level.

One trade I'm looking at for a bearish entry is for Thursday when
the FOMC is expected to make its decision on interest rates.  I'd
like to see the QQQ rally back near the $30.60 level tomorrow,
then build some type of anticipatory gains ahead of the FOMC
meeting toward WEEKLY R1 of $31.02.  I would then look for some
type of "sell the news" type of trade with the QQQ falling back
below the WEEKLY Pivot of $30.51 to then eventually bring
weakness back toward $29.58.

Per our Thursday June 12th Index Trader Wrap, today's low in the
QQQ was $29.56 and that wasn't low enough at this point to have
our "finite stop level" for bulls of $29.40 to give a "sell
signal" on the unconventional $0.35 box size.

Friday's trade saw the NASDAQ-100 Bullish % ($BPNDX) hold at 81%,
but today's trade saw the NASDAQ-100 Bullish % see a net loss of
5 stocks to sell signals.  This has the bullish % falling from a
bull cycle high of 91% to current reading of "bull correction"
and 77%.  To reverse back up to "bull confirmed" status we would
need to see a reading of 84%, while further decline to 68% would
be "bear alert" status.  It is my feeling, based on observation
and past experience, that the NASDAQ1-100 Bullish % ($BPNDX) will
be hard pressed to reach 92% this bull cycle and even if reached,
will most likely be short-lived.

Note:  When you look at the NASDAQ-100 Bullish % ($BPNDX),
remember that we could see it reverse back up into "bull
confirmed" reading at 84%, but if it then reversed back lower to
76%, this would be "bear confirmed" status at an extremely high
level of bullish %.  As noted last week, bulls should be no more
than 75% bullish weighting in the QQQ/NDX or technology stocks in
their portfolios.  If 75% or higher, we might then look for
selling into rallies as other market participants look to lighten
up on tech exposure.

A final note made on the QQQ is that per NASDAQ, the QQQ short
interest as of June 13th (most recent data published) has grown
to a 7-month high of 223.4 million shares.  With average daily
volume of 84.3 million share, this has the days to cover (dtc) at
2.65, which is actually less than the 2.91 dtc for May 15.

As I flipped my Stock Trader's Almanac calendar forward a couple
of weeks, I find a note in it that June ends NASDAQ's "Best Eight
Month."  With the bullish % starting to show internal weakening,
the NASDAQ-100 may well be the first major index to take a more
meaningful rest, with a summer siesta starting to take hold!

S&P 100 Index Chart - Daily Interval



The S&P 100 Index (SPX.X) 495.77 -1.31% wasn't "as bad" as I
would have thought it would be considering the financial sectors
were down approximately 1.6% on average (BIX.X -1.4%, BKX.X -
1.66%, XBD.X -3.12% and IUX.X -0.93%).  While the OEX does look
near-term vulnerable to the December highs of 487.94 and WEEKLY
S2 of 489.44, I would think the pullback from the recent highs is
going to press some mutual fund managers that have been sitting
on cash with the second-quarter drawing near.  With the QQQ
finding some late session buying into today's close, I'd monitor
the QQQ/NDX for strength early tomorrow, and like the OEX.X for a
rebound back near the WEEKLY pivot of 504.29.  If long on a break
above OEX 497, I would then raise stop to break-even on OEX trade
at round-number 500.00 or "zone of resistance" 500-502.

Today's trade saw no net change in the S&P 100 Bullish %
($BPOEX).  Still "bull confirmed" at a bull cycle high of 82%,
but with the also narrow NASDAQ-100 Bullish % starting to show
internal damage, will to only trade the OEX long for some near-
term scalping.

Per our June 12th Index Wrap, the OEX's "finite" bullish stopping
point of 489.00 on untraditional 3-point box scale was not traded
today.  A 3-box reversal back higher to 504 would make for a
lower high at this point, but also allow a bull to raise his/her
bullish stop to 492, IF 504 were traded.

I was looking at the Stock Trader's Almanac this week and next.
This week shows little historical significance, but next Monday,
which is the last day of second quarter, the Dow Industrials has
shown historical tendency to trade down 8 of it last 11 "last day
of second quarter."

S&P 500 Index Chart - Daily Interval



Broad sector weakness looks to have had a greater impact on the
SPX and the OEX as it relates to the WEEKLY pivot levels.  As
such, to try and trade the SPX bullish over the OEX, I would
really have to give more focus to the QQQ/NDX in an SPX trade.

The reason I say this is that what we're seeing from the bullish
% is a starting to soften up NASDAQ-100 Bullish % (more tech
stocks giving sell signals) and today's action also saw the S&P
500 Bullish % ($BPSPX) see a net loss of 1.4% or net loss of 7
stocks to new point and figure sell signals.  Compare this to the
narrower S&P 100 Bullish % ($BPOEX).

If looking to trade a "bounce" higher in an S&P index, I'd have
to defer to the OEX, which still seems to at least be holding
some support levels in the components point and figure charts.

While program trading curbs were in place when the SPX violated
the overlapping 983 level in the WEEKLY/MONTHLY retracement, I do
view the breaking of that support, and on a closing basis rather
negative.  I've tried to tie in the "finite" bullish stopping
level discussed in our June 12th Index Wrap for the SPX at 972
with this WEEK's WEEKLY S2 of 973.16.

One thing I also see in the SPX bar chart is a POTENTIAL
head/shoulder top pattern forming, where we could be seeing the
"neckline" forming right here.  "Left shoulder" would be at
1,006, "head" just above WEEKLY R1 of 1,012.

As it relates to a "rally into the FOMC and then sell the news"
type of trade, I would watch for the "sell the news" part back
near 1,006.

Dow Industrials ($INDU) Chart - 50-point box



The current 300-point pullback from the recent high of 9,350 is
considered "normal" at this point, but a trade at 8,900 in the
Dow would be a signal to longer-term technical weakness.  The 50%
retracement of the last column of X (9,000-9,350) is now
considered a "high pole" warning and does hint that bulls aren't
quite as aggressive to buy "smaller pullbacks."

I've placed 3 "red dots" in downward trend fashion to signify the
potential makings of a downward trend.  We've done this before at
lower levels of bullish %, and the Dow has managed to break above
these little trends.  Still, at these levels of bullish % (NDX,
OEX, SPX and INDU) any bull holding 75% or 100% bullish positions
is "too bullish" in my opinion and I would think be lightening up
on any type of rally back near 9,200 and correlative resistance
found in the WEEKLY Pivot and MONTHLY R2 of 9,214-9,223.7.

Today's action saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still bull confirmed at a
bullish cycle higher reading of 83.33%.

Here's a quick look at tomorrow's Pivot Analysis Matrix.  Note we
have new levels for the WEEKLY levels after the conclusion of
Friday's trade.

Pivot Analysis Matrix



The S&P Banks Index (BIX.X) 302.23 -1.4% looks short-term
oversold, but SPX/OEX bulls will monitor the 300 level early
tomorrow for support.  OEX bulls will tie in the 492 level from
MONTHLY R1 and DAILY S1 correlative levels.

NASDAQ-100 Index (NDX.X) gets thrown off a little in the matrix
with the QQQ, as the QQQ showed some recovery in its final 15-
minutes of trade.  Here though, traders will most likely rely on
the OEX/BIX support levels outlined at 492/300 to be the NDX
correlative type support, with NDX resistance overlap showing at
DAILY R2 and MONTHLY R1 of 1,235.

The "shorter-term" upside trigger for the indexes aside from the
NDX/QQQ bidding early, is found in the SPX at DAILY pivot of
984.91, WEEKLY S1 984.42 and MONTHLYR R1 985.  In tonight's wrap,
I placed the upside move at 987.

Jeff Bailey


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

Bond Funds Retreat; Stock Funds Net Gains

Stocks and stock mutual funds rallied sharply Monday, then held
on to post small gains for the 5-day period ended June 20, 2003.
For the week, the S&P 500 index of U.S. stocks rose 0.7% as did
the average large-cap core equity fund, per Lipper.  The week's
highest performing equity fund objectives were emerging-markets
equity funds (+1.5%), gold funds (+1.9%), and technology sector
funds (+1.8%), according to the Lipper fund mutual fund indices.




The MSCI EAFE index of developed foreign markets climbed 0.9% for
the week (in dollar terms).  The average international stock fund
picked up 0.7% for the week, slightly lagging the EAFE benchmark.
Emerging-markets equity fund returns were upwards of 2.0% for the
week.

The investment-grade bond market cooled off last week, while high
yield bonds and funds extended their year-to-date gains.  For the
week, the LB Aggregate Bond index, representative of the total US
investment-grade bond market, declined 0.9%.  The long-term index
lost 3.0% for the week.  U.S. government/corporate bond funds had
losses in the neighborhood of 1.0% for the week, per Lipper, with
global/international fixed income funds off between 1.5% and 2.0%
for the week.

Equity Fund Group

 Week    YTD    Selected Lipper Equity Indices (Jun-20)
+0.1%  +10.3%   Balanced Fund Average
+0.5%  +11.6%   Equity Income Fund Average
+0.7%  +12.3%   International Fund Average
+0.7%  +12.3%   U.S. Large-Cap (Core) Fund Average
+0.4%  +15.0%   U.S. Mid-Cap (Core) Fund Average
+0.6%  +14.8%   U.S. Small-Cap (Core) Fund Average
+0.7%  +15.1%   U.S. Multi-Cap (Core) Fund Average
+1.8%  +24.5%   Science & Technology Fund Average

Among equity funds with over $500 million in assets, the highest
performing fund last week was AIM Global Health Care (GGHCX), up
3.4% for the week.  In second and third place were two small-cap
funds: Longleaf Partners Small Cap (LLSCX) +2.9% and Baron Small
Cap (BSCFX) +2.6%.  Putnam Utilities Growth & Income Fund (PUGIX)
had a 1-week return of 2.5%.

Fidelity Leveraged Company Stock Fund (FLVCX), a high-performing
mid-cap core stock fund we've covered on this website, picked up
another 2.4% last week, and is now up 50.5% for the year-to-date
period through June 20, 2003.  Another mid-cap core fund we like,
Legg Mason Special Investment Trust (LMASX), had a weekly return
of 2.3%.

Domestic/global technology funds were also hot again as evidenced
by the 2.4% weekly return on T. Rowe Price Science and Technology
Fund (PRSCX).  Alliance Technology (ALTFX) rose 2.3% as did Janus
Global Technology Fund (JAGTX).  Fidelity's Select Technology and
Electronics Portfolios generated weekly total returns of 2.2% and
2.1%, respectively.

Fixed Income Fund Group

 Week    YTD    Selected Lipper Fixed Income Indices (Jun-20)
-1.0%   +5.1%   Corporate A-Rated Debt Fund Average
-0.1%   +1.2%   GNMA Fund Average
-1.6%   +9.4%   Global Income Fund Average
+0.7%  +16.1%   High Yield Fund Average
-2.0%  +10.1%   International Income Fund Average
-0.8%   +5.2%   Intermediate Investment Grade Fund Average
-1.0%   +2.9%   U.S. Government Bond Fund Average

High-yield funds continue to generate equity-style returns, with
the average fund up 0.7% last week and 16.1% on a YTD 2003 basis
through June 20, per Lipper.  American Express (AXP) Extra Income
Fund (INEAX) produced a 1-week return of 1.2%, highest among bond
funds with over $500 million in net assets.  The high-yield funds
from Fidelity Advisor, Goldman Sachs and Federated Funds each had
1-week returns of 1.0% or better.

Investment-grade funds, especially those with longer durations or
maturities, sold off sharply last week, giving back much of their
gains from the prior week.  Kudos to three intermediate-term bond
funds for bucking the negative trend: Thompson Plumb Bond (THOPX)
up 0.4%, Turner Total Return Fixed Income (THQFX) +0.2% and Metro
West Total Return (MWTRX) +0.0%.

Bond fund laggards last week included the American Century Target
Maturity 2030 Fund (ACTAX), which had a negative weekly return of
8.4%.  Its 2025 and 2020 fund siblings lost 6.1% and 5.3% for the
week, respectively.  Some other U.S. government funds lost around
4.0%-5.0% on the week.  Long-term bond funds such as the Vanguard
Long-Term Corporate Bond Fund (VWETX) lost around 3.0% last week.
So, bond funds with the highest interest rate sensitivity had the
week's steepest declines.

Money Market Fund Group

Yield   Selected iMoneyNet Money Market Indices
0.67%   All Taxable MMF Average
0.56%   All Tax-Free MMF Average

The iMoneyNet.com All Taxable MMF Average slid 0.01%, to 0.67%,
last week as yields continue to drift lower.  The country's top
retail money fund based on assets, Fidelity Cash Reserves Fund,
currently sports a 7-day (simple) yield of 0.95%.  The low-cost
Vanguard Prime Money Market Fund currently has a 7-day yield of
0.89%.

PayPal Money Market Fund (402-935-7733) continues to occupy the
number one position for highest 7-day simple yield (among prime
retail money funds).  Only three other prime retail funds sport
current yields of 1.00% of better now: Bunker Hill Money Market
Fund 1.07%, Invesco Treasurers: MM Reserves 1.04%, and McMorgan
Principal Preservation Fund, 1.01%.

Fund News, Etc.

In Morningstar news, fund-giant Fidelity Investments has removed
the sales charges associated with some of its diversified equity
funds.  However, two of them will remain closed to new investors.
The following funds no longer impose a front-end sales charge (or
load):

  Fidelity Magellan (FMAGX) Closed to New Investors
  Fidelity New Millennium (FMILX) Closed to New Investors
  Fidelity Low Priced Stock (FLPSX) Open to New Investors
  Fidelity Contrafund (FCNTX) Open to New Investors
  Fidelity Contrafund II (FCONX) Open to New Investors

Fidelity Contrafund had already been waiving its front-end load
since earlier in the year.  Fidelity said it has no plans to re-
open Magellan or New Millennium.

Curious to know what funds are offered in the Morningstar 401(k)
plan?  Last week, one Morningstar analyst wrote about their plan
investment options, the ones they are "banking" their retirement
on.  You may want to have a look since you would think that they
(Morningstar) would do a superior job of analyzing the offerings,
being the nation's leading funds tracker.

Steve Wagner
Editor, Mutual Investor


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**************
Traders Corner
**************

Elliott Wave Plays
Steve Gould

Company Profile

AT&T Corp. (T) is engaged in providing voice and data
communications services to large and small businesses, consumers
and government entities. AT&T and its subsidiaries furnish
domestic and international long distance, regional, local and
Internet communications services. The Company's primary lines of
business are AT&T Business Services and AT&T Consumer Services.
AT&T Business Services offers a variety of global communications
services to over four million customers, including large domestic
and multinational businesses, small and medium-sized businesses
and government agencies. AT&T Consumer Services is a provider of
domestic and international long distance and transaction-based
communications services to residential consumers in the United
States.

Chart Analysis


Chart: T Daily 6/23/2003




T has been in a 5 wave basic pattern down since December 2002.  T
is now undergoing a wave 4 correction that looks to be complete
based on the following criteria:

1. Wave 4 has retraced about 60% of wave 3
2. The oscillator has retraced 138% but has not exceeded it.
3. Wave 4 has traced out an A-B-C correction pattern.  This
pattern appears to be a zigzag.
4. Wave C has completed a 5 wave basic pattern. (i – v)
5. The time frame of wave 4 falls within 1.38 – 1.62 of wave 3.
Combining the price retracement with the time frame puts the peak
of the 4 wave right in the middle of the black square.
6. The PTI is at 46.  Anything higher than 35 signals a new low
below the 3 wave.

T appears to have started the first leg down and has completed
wave 1.  T should now retrace around 50% to 20.80.  This will be
our entry point.

Chart: T Hourly 6/23/2003




The hourly chart of T shows that the 5 wave basic pattern of the
first wave should be complete.  Look for a retracement level to
the level of the last 4 wave at 20.80.


Chart: T Weekly 6/23/2003




The weekly chart of T shows that it has already completed a 5 wave
basic pattern.  If that is indeed the case, then it will next
undergo an A-B-C corrective pattern.  This could very easily be
the A wave up and T is ready for the B wave retracement.  Note how
the A wave has bounced off the 55 period moving average.


Trade Setup

We are going to play T to go down by using a bear call spread
(sort of).

The first target is the bottom of the 3 wave at 13.81 but T could
go as low as 12.19 by November.

Option

T: $19.83

Pos  Num  Sym  Strike   Type   Bid   Ask   Delta   Vol   OI
Sell  1   TGC  Jul 15   Call  4.70  5.00   99.6     2   3695
Buy   2   TJX  Oct 22.5 Call  0.90  1.00   36.0    38   9684

Credit: $270

Wait for T to retrace to about 20.83.  If it appears to be headed
higher, do not be in a hurry to purchase the options.  See how
high it goes.  If it pierces the current wave 4 peak at 21.84, the
4 wave may not be done yet.  If it turns around before the 50%
retracement of 20.80, we may want to reevaluate which options to
purchase as the deltas and volatility will change.  We will have
to do a risk analysis on the July 17.50 call and October 25 calls.
That may be a better play at that point.

What If We Are Right

Chart: Position Analysis For The First Target



The ideal scenario would be for T to close below 15 by July
expiration.  The July call would expire worthless and we would be
able to keep the premium and sell the October calls for whatever
value they have left.  Because falling prices generally increase
volatility, we could net over $300.  There is no advantage to
holding this position below 15 as the October options would just
lose more value.

According to this risk curve, the October calls are worthless with
an implied volatility of 35.  Should that be the case, it would be
best to hang on to them and see if they gain value as the C wave
develops.


What If We Are Wrong

Scenario 1

Chart: Wrong Scenario 1




If T moves up and closes around 21.50, buy back the July 15 call
and purchase the August 15 call.  We will wait another month.


Scenario 2

If T has not actually completed the 4 wave, it could conceivably
go as high as 25.10 and still maintain a valid wave count.  If T
does go to 25, we will be in a break even position.  As T goes
higher, the trade actually becomes more profitable.  Buy back the
July 15 call.  For the conservative trader sell the August 15 call
and wait one more month.  For the more aggressive traders, let the
two October calls ride.

Scenario 3

Chart: Wrong Scenario 3



The only other factor that can work against this play is if the
implied volatility decreases.

Over the last year, the lowest the implied volatility for T has
been has been about 35.

If T closes at 22 on the Wednesday before July expiration the play
is down $142.  The strategy is still the same.  Buy back the July
15 call and sell the Aug 15 call.


Margin requirement

Because the difference in strike prices is 7.50, you will need
$750 of margin.


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The Option Investor Newsletter                   Monday 06-23-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: IGT
Dropped Calls: ADI
Dropped Puts: None
Play of the Day: Call - IGT
Watch List: More Bearish Candidates

Updated on the site tonight:
Market Posture: Broad Market Rout



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

IGT - call
Adjust from $93.00 up to $94.99


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

Analog Devices - ADI - close: 33.05 change: -0.94 stop: 33.00

We turned somewhat cautious on ADI in our Sunday update, and
rightly so.  The stock had closed below its rising 50-dma after
falling back from a failed rally at $36.00 in Thursday's session.
The market's Friday afternoon profit taking has carried over into
Monday and the tech sector is feeling the brunt of the selling.
Even Intel's announcement over the weekend for their faster P4
chips and ADI's announcement for their new amplifiers did not
deter investors from selling shares.  The chip sector (SOX) fell
more than two percent while shares of ADI dropped almost three
percent trading below our stop loss at $33.00.  Our loss in the
stock is $2.17.

Picked on June 19th at    $35.17
Change since picked:       -2.12
Earnings Date           08/13/03 (unconfirmed)
Average Daily Volume =  4.00 mln




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

None


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

Intl Game Technology - IGT - cls: 98.12 chg: +2.65 stop: 94.99*new*

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)

(Most Recent Update - Sunday, June 22nd, 2003)
We're down to the last seven trading days before IGT splits 4-
for-1 on July 2nd, 2003.  Shares have held up admirably during
this recent market volatility and profit taking in certain
sectors.  Dip buyers have been defending the stock at $95.25 and
above but a quick look at the intraday chart does show some
selling near $96.00.  So someone is taking profits here but
there's been enough buying interest to keep shares propped up.
Honestly, the stock looks tired and the rally appears to be
running out of steam but with just seven days left before the
split there may be a home stretch ramp up by the momentum
traders.  Oscillators are still overbought and looking ready to
roll over (actually some have already turned bearish).
Conservative traders can try and protect some profits with a
tighter stop loss.  The $95.00 and the $94.00 levels look like
prime candidates for a tighter stop.  We're going to leave our
stop at $92.00 because we expect some volatility next week and
don't want to be stopped out prematurely.  Our short-term target
is still $100 and if IGT gets close to it start planning your
exits.  Something to consider is what will happen to shares after
the split.  Normally, stocks tend to go through a post-split
depression as the momentum traders move on to other plays.
However, every once in a while there is so much interest in a
stock that new investors are drawn to it due to its "cheaper"
price.  Considering that IGT still has a dividend payment on July
28 for shareholders on record as of July 14th there may be plenty
of interest left for bulls to hold shares a couple of weeks
longer.

Play of the Day comments - Monday, June 23, 2003
We're making IGT our play of the day for tomorrow (Tuesday) based
on two concepts.  No. 1, if you've been bullish on the stock with
us then any move to $100.00 will be a prime time to take some
money off the table and collect some profits.  Sure, it is okay
to keep a small position but protect the majority of your gains.
No. 2, for anyone still looking for a momentum driven ride
higher, this volume boosted gain today might have a few more days
left.  IGT still has till the 2nd of July and momentum-traders
might (and I repeat "might) be able to keep the rally running in
IGT despite the broad market weakness and the concerns over the
Fed decision, economic reports, earnings warnings, etc.  Thus,
this could be a new entry point for very aggressive, very short-
term traders.

*We are raising our stop loss to $94.99 as of today.

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.

*FYI the August options are brand new with zero open interest and
they look a little expensive.

BUY CALL JUL-95  IGT-GS OI=3067 at $5.90 SL=3.00
BUY CALL JUL-100 IGT-GT OI=3123 at $3.30 SL=1.60
BUY CALL AUG-95  IGT-HS OI=   0 at $7.20 SL=4.50
BUY CALL AUG-100 IGT-HT OI=   0 at $4.80 SL=2.40
BUY CALL OCT-95  IGT-JS OI= 745 at $7.70 SL=4.50
BUY CALL OCT-100 IGT-JT OI= 216 at $6.80 SL=3.40

Annotated Chart of IGT:



Picked on June 10th at $91.87
Change since picked:    +6.25
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million


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and clicking on the link to the book on its home page.

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


**********
Watch List
**********

Health Care - CVH - close: 43.31 change: -2.41

WHAT TO WATCH: The Tenet news today put the entire healthcare
sector on the defensive.  Shares of CVH have nearly doubled from
their February lows and skittish investors are probably thinking
really hard about taking some of those gains off the table.
Today's drop broke its ascending channel and a retest of $40.00
looks like a good bet (at least the 50-dma).

Chart=


---

Universal Health Services - UHS - close: 39.93 change: -1.40

WHAT TO WATCH: Following the same line of thought above, the THC
news will undermine investor confidence in the healthcare sector.
What better place to look for a possible bearish play than a
stock that's already on the decline.  Shares of UHS have been
falling all month and just close underneath psychological support
of $40.00.

Chart=


---

Garmin Ltd - GRMN - close: 39.93 change: -4.17

WHAT TO WATCH: Some negative news for GRMN over the lost of a
potential client and the expectation that new business with Ford
may not follow through has investors taking profits.  The drop
today looks painful and we'd be hesitant to chase it but the
close under $40.00 is a bad sign.  Aggressive traders might
consider shorts at current levels or a move under the 100-dma.

Chart=


---

Lehman Brothers - LEH - close: 69.00 change: -1.60

WHAT TO WATCH: The XBD broker-dealer index appears to be in full
retreat after a stunning run up.  Shares of LEH are participating
in the pull back and the close under $70 is good news for the
bears.  Unfortunately, the stock bounced from its lows off the
rising 50-dma.  Traders may want to look for a failed rally near
$71.00 or a move under the 50-dma.  Our first target would be the
$65.00 level.  Be forewarned that GS announces earnings on June
25th and the expectation is for good news.  Of course recently
the mood is sell the news so it may not matter.

Chart=



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

Broad Market Rout

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_062303.asp


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