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Daily Newsletter, Tuesday, 06/24/2003

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The Option Investor Newsletter                 Tuesday 06-24-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Before The Storm
Futures Markets: Inside chop
Index Trader Wrap: See Note
Market Sentiment: Nothing Day
Weekly Fund Screen: Morningstar 401(k) Funds We Like


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      06-24-2003           High     Low     Volume Advance/Decline
DJIA     9109.85 + 36.90  9140.81  9057.89 1.70 bln   1712/1514
NASDAQ   1605.51 -  5.20  1622.47  1598.25 1.61 bln   1670/1552
S&P 100   496.49 +  0.72   498.94   494.32   Totals   3382/3066
S&P 500   983.44 +  1.80   987.84   979.08
W5000    9387.95 + 17.90  9426.19  9343.61
RUS 2000  440.90 +  1.49   442.40   437.20
DJ TRANS 2389.11 -  5.60  2400.50  2383.70
VIX        22.76 +  0.10    23.03    22.06
VXN        32.43 +  0.63    32.86    31.56
Total Volume 3,555M
Total UpVol  1,516M
Total DnVol  1,992M
52wk Highs  276
52wk Lows    31
TRIN       1.01
PUT/CALL   0.15
************************************************************

Before The Storm

Finally the big day will dawn tomorrow. The Fed is huddled
together to wring their hands, cuss the economy and argue
semantics while the market churns in place. Antacid abounds
as traders try to decide to buy or sell before the announcement.
Pundits have taken up the challenge to verbally joust on every
major TV station with views from no cut to major cut and the
reasons why each is the right cut. Are we trading stocks or
bond futures here?

Dow Chart - Daily


Nasdaq Chart - Daily



You would think the sun will not rise on Thursday if the Fed
fails to cut 50 points if you listen to some analysts. Others
claim a 50 point cut would shock the market and produce a
terror filled sell off on worries about what the Fed knows that
we don't. Regardless of your position in this debate the Fed
announcement at 2:15 Tuesday afternoon will control your
investing fate. More on this later.

The morning started off well economically with Chain Store Sales
posting a strong +0.6% for the second consecutive week. The
strong sales were due to the release of the Harry Potter book
and continued rainy weather in the East which prompted shoppers
to head into the malls instead of the beach.

The bigger report for the day was the Consumer Confidence for
June. This report dropped a miniscule -.01 to 83.5 for the
month. Estimates were for 82.8 but the whisper number was well
over 85. The market rallied on the news for about five minutes
then headed for the lows of the day. The problem was the present
conditions component which FELL to 64.9 from 67.3. Every major
component fell except for the expectations index which rose to
95.9 from 94.5. Everybody has bought the promise that the 4th
quarter will be strong. Unfortunately the current conditions
are still falling. Consumers planning to buy a home fell to a
three year low at only 3.0. Those planning to buy autos fell to
5.9 from 7.7 and major appliances to 28.2 from 31.6. This was
not a good report and should give the Fed even more problems to
discuss.

AMD also shocked the market this morning with a drastic profit
warning citing weak sales of computers and mobile phones in
Asia due to the SARS outbreak. The stock dropped to a two month
low after saying sales would fall to $615 million from the $715
million estimate. "The anticipated global sales improvement in
June did not materialize as we had anticipated," said the AMD
CFO. AMD would not comment further and would not give future
guidance. Banc of America said AMD was also hurt by slowing
sales of clone PCs and inventory buildup across the spectrum.
We all know AMD is not the market leader here but could this
be a leading indicator of other tech earnings coming out in
the next couple weeks?

FedEx posted earnings that rose +17% but cautioned that June
shipments were falling below management's expectations. They
said the economy was poised for a recovery but volume trends
were disturbing. CNF warned after the close that demand for
freight shipments was VERY weak in North America and their
earnings were going to suffer. They could drop as much as -47%
below the forecast from April. Add the plastics warning from
GE last week and there is cause from concern on a broader level.
The FedEx, CNF and GE warnings are reflective of business in
general not a specific company or a specific sector. Are you
listening Mr. Greenspan?

The Fed is on center stage, the curtain is about to rise and the
spotlights are focused. Not just U.S. traders but the eyes of
the world are focused on 2:15 tomorrow. What they do/say will
determine if foreign investors pull money out of the U.S. or
put it back in. The Fed funds futures are showing a 100% chance
of a 25 point cut and a 52% chance of a 50 point cut. That means
the Fed cannot afford to not cut at all or a significant drop
would occur. They have telegraphed a coming cut for a month and
it is clearly priced into the market. The problem for us and the
Fed is the 50-point cut potential. They have vowed to "do whatever
it takes" to defeat deflation before it starts. 25 points is
already a given and a purely psychological move at this point.
A 50-point cut would take interest rates below 1.0% and while
it could actually help in some areas it could be very bad in
others. But would the negative result be worse than deflation?
No chance. While it would hurt banks, brokerages, money funds
and people that pay interest on deposits it would help insure
one more refinance cycle.

Last week there were a couple news articles suggesting the Fed
could cut 50 points and we actually got some selling instead of
excitement. The problem is expectation. The market has been rising
on the expectation of an economic recovery that the Fed has been
promising for months. If the Fed decides to cut 50 points then
they will have to say something in their guidance about why they
see the economy as weaker than current expectations. It is the
"kings X" statement. We "the Fed" were just kidding about the
economy getting stronger. Or, we think the deflation monster is
closer than we expected and we are going to bring out the big
guns to defeat it. Most analysts expect a 50-point cut to contain
a statement about being ready to use alternate means to continue
the fight and that will also be seen as negative to the market.
Yes, the Fed has a tough decision to make. Do they continue to
dribble out reluctant 25 point cuts until they run out of ammo?
Or, do they take it on the chin and blast out a 50 point cut and
take a strong stance about protecting our future?

12 of the 22 primary treasury dealers expect a 50-point cut. The
futures are showing a 52% chance of a 50 point cut. The more than
$10 trillion in interest bearing accounts will cuss another rate
cut, especially 50 points. Many banks and funds will have to
change the way they do business with a 50 point cut. Many could
actually cease paying any interest at all on accounts. The dollar
would suffer and we could see the flight of foreign money back to
countries with much higher rates. It is not just the stock market
that will react to the news. Most analysts expect massive selling
in the bond market after a 50 point cut if the guidance is not
worded so specifically that there is the threat of even lower
rates ahead OR at least no change in rates for a very long period
of time. Being guaranteed a 3% return for the next couple of years
would not be a bad thing for bond junkies. If the Fed reinforces
a no hike posture for the next year or more as many expect then
the bond market could remain stable. Many expect the Fed to not
raise rates until after the election to insure a strong bounce
out of this three year recessionary environment. They have seen
Japan and the disaster deflation caused and they do not want to
go there.

They are stuck between a rock and a hard place. 25 points is the
political solution. Bonds will not tank because they will expect
a potential further cut at the next meeting. The stock market will
not tank (as bad) because the economy must be ok or the Fed would
have taken stronger action. But, 25 points is only a psychological
move now because the market has priced it in for over a month. A
move that will have little on no impact on the economy and little
or no impact on the next wave of refinancing. Remember, the
Consumer Confidence today showed that new home prospects had sunk
to a three year low. Another 25 points will not change that. The
Fed is stuck. They needed a two-day meeting this month to puzzle
their way out of this quandary.

I am split on the outcome just like the rest of the world. So,
as a trader what do I think will happen to the market? I don't
think there is but one outcome. It is not up. 25 points are
priced in with hopes by retail traders for a 50 point pop. They
do not realize what the 50 point decision could cause. A 25-point
cut could produce trader depression and a sell the news drop. Do
you really think the market will go up on old news? A 50-point cut
would have to contain that negative guidance about the economic
outlook and that would tank the market. Oh my gosh, you mean the
recovery is not already in progress? Most traders are not stupid.
They see the warnings by GE, THC, AMD, EK, CNF and FDX as the
hand writing on the wall that may be leading indicators that all
is not well. The Fed announcement is simply the focal point and
the hoped for cure all.

The Dow struggled to hold on to 9100 this afternoon and this is
significantly below the 9300 highs. The Nasdaq is struggling to
hold 1600 and especially after the AMD warning this morning. The
markets have not sold off and I believe it is due to the end of
quarter window dressing and inflows of cash from retail traders
who think the Fed is going to save the economy this week. TrimTabs
said funds saw an inflow of $11 billion in cash over the last
three weeks and that was the largest inflow since March 2002.
Margin balances among the top brokers increased +7.7% in May and
that was the largest increase since March 2000, the beginning of
the current bear market. TrimTabs also said corporate and insider
selling reached $20 billion in the last three weeks and that was
the highest since March 2002. Ponder this thought. If insiders
and institutions are normally on the right side of the market and
retail traders normally buy the tops and sell the bottoms, there
is an alarming trend here. The new retail cash along with huge
first half retirement contributions is currently being put into
the market and that retirement flood will end after the first week
in July. There is also a good chance the window dressing from funds
will be stripped back out once the quarter is over.

If we look at the March 2002 period where all those conditions
existed before we will see the S&P was up over +24% after the
bottom in September. Everyone was talking about the new bull
market. The coming second half recovery was just over the hill.
Instead July earnings came in less than expected and it was all
down hill from there. Moving forward to June 2003 we are up
between +22 to +31% depending on which bottom you use. Earnings
are beginning to smell and the 25 point rate cut is already
priced in. The second half recovery is just over the hill. Are
we in any better shape than we were in 2002?

March 2002 SPX Daily


June 2003 SPX - Daily



If we move further backwards in time to a point before the bear
market we may see a better picture of what July is likely to bring.
We can go back to 1998 when we were coming out of a serious dip
and had a strong rebound to new highs in July. That rebound was
a +38% gain from the prior September lows. Unfortunately July
earnings again came in less than expected and the S&P dropped
-22% from the mid July top.

But, surely 1999 and 2000, the boom years were better, right?
Yes they were. 1999 saw a gain of +53% from the prior lows and
only sold off -13% from the July highs. Not bad but still -13%
sell off in the middle of a vertical market.

July 2000 was less pronounced because there was only a +23% gain
from the prior lows and the market was moving sideways as the big
crash began. Still the July drop accounted for -7% of the S&P
before one last gasp in August and the bear market began.

July 1998 SPX


July 1999 SPX


July 2000 SPX



The point I want to make tonight is not that we are doomed to
hit new lows or the rally has failed. THE ONLY POINT I WANT TO
MAKE is that July is not a friendly month. The first week of
July is the best week and normally leads to new highs. Once
the retirement cash ceases to flow around the 10th the summer
doldrums begin. Just look at the charts, boom years and bust
years are both the same.

Now, if you are a big money manager what would you do? If you
have 20% gains in the market from the recent bottom, maybe more
and a lot more if you were aggressive and bought the right stocks,
would you hold them? Sure some might, some might feel like heroes
and bail to lock in gains others are only hoping for. The bigger
point traders should ponder is timing. How many years does a
trend have to repeat itself before money managers begin front
running it? Two? Three? Five? Eventually it becomes a flashing
"sell me" sign that is begging to be hit. Will this be the year
that the managers begin early AND will the Fed meeting trigger
it? Nobody knows but as you can see from the charts above that
even in the best of years the 10th-15th of July is a jumping
off point. Using the 10th of July as the last target to be out
of long positions there are only ten trading days left. With
the retirement contributions providing lift in the first week
of July there is plenty of incentive for the funds to wait until
after the 4th as long as they have not decided to leave early
and be safe. Or as long as the Fed does not scare them tomorrow.
Or, I might mention that next week has PMI, ISM, NonFarm
Payrolls, Factory Orders and ISM Services all packed into a
holiday shortened week. The Fed is not the only pothole this
week. We still have Durable Goods and Home Sales tomorrow, GDP,
Jobless claims and Help Wanted Index on Thursday and Personal
Income/Spending and Michigan Sentiment on Friday. Just how far
do you think those funds want to stretch their luck before
hitting an economic landmine?

The wildcard is still the bonds. If the Fed says something that
makes bond holders think bonds have seen the highs then that
flood of cash could break the July trend. I do not see this
happening tomorrow. The Fed is more likely to say they are
planning on buying bonds as plan B instead of cutting rates
any further. They want the long-term interest rates to be low
to support the economy. They have no more real cuts left and
they have to avoid a spike in yields to keep the housing market
liquid. Whether they actually plan on buying bonds or not they
have to play that bluff in hopes of keeping that money in place.
Are we having fun yet? Nobody ever said investing would be easy,
at least not over the last three years.

I should think the game plan is clear. Remain long ONLY if you
have stops in place and are prepared to honor them. We are
approaching treacherous times over the next three weeks and we
need to keep our seatbelts fastened and our eyes on the road.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Inside chop
Jonathan Levinson

Today gave us an inside day in equity futures, with a lower high
and higher low from yesterday, a selloff in gold futures, and a
higher high in treasuries.

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      992    987    982    977    972
YM03U     9174   9130   9076   9032   8978
NQ03U     1223   1210   1200   1186   1176


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



Today’s closing print left the ten year note yield on support at
3.265%.  Note the potential reverse head and shoulders bottom
should the ten year note sell off.  Without guessing at the
fundamental event that could set up such a selloff, the chart is
pointing out the potential imbalance in pricing that could lead
to a spike in the yield.  Given that the Fed has told us that it
seeks to avoid a surge in yields, it’s an interesting setup and
nothing more for the moment.  The neckline to kick off the spike
is the fib resistance line at 3.43%.  For the day, the five year
note yield finished down 5.1 basis points to 2.158%, the TNX was
down 5 bps and the TYX down 5 bps as well to 4.344%.


10 minute chart of the US Dollar Index




The US Dollar Index had a dramatic day, bouncing off 93.90
support and taking a rocket ride to 94.60 before setting back.
It spelled bad news for gold and to a lesser extent, commodities.

Daily chart of August gold



Support at 345 was not tested today, but the depth of the selloff
was surprising.  XAU and HUI, the precious metals indices, got
sold less than one would have expected with HUI –2.53 to 145.87
and XAU –1.74 to 76.39.  Commodities also got off easy, with the
CRB finishing down .61 to 232.99.  I hate to attribute market
moves to intervention but such is a fact of life, and I find it
peculiar that gold was sold more heavily than the commodities
index and the precious metals indices on day one of the scheduled
Fed meeting.  While on the subject, the Fed added 3.75B in 2 day
repos, with no expiries.  This follows yesterday’s large 8.75B
worth of repos, and thus it appears that the draining campaign on
which the Fed had embarked last week is over for the moment.  I
find it odd that the US Dollar Index has continued to gain today
in light of this.


20 day 30 minute NQ3U candles



Fibonacci support at 1190 NQ continues to hold, as does the
downward trend as reflected in the price and its oscillators.
The break of the uptrend is now a done deal, and it will take
serious gumption to get the price back above the ascending
trendline, which is now in the neighbourhood of 1230 NQ.

5 day 10 minute chart of the NQ3U



The support today was somewhat surprising given the downphase on
the oscillators within the descending channel.  However, given
the much anticipated Fed announcement due tomorrow, it’s actually
surprising that we did not see greater volatility today.  We can
expect to see that tomorrow.

20 day 30 minute ES3U candles



The S&P futures showed us good strength within their steeply
descending channel, but that strength appears have topped out the
oscillators early in their upphase.  This small bear flag printed
this week has taken a great deal of energy, and this chart looks
like an accident waiting to happen.  That could just be me,
though- a move above the ascending trendline would change my mind
in a hurry, just north of 1000 ES.

5 day 10 minute chart of the ES3U



The short cycle oscillators have more room to run and imply a
retest of the descending channel upper trendline.  A failure at
or slightly above 984 will imply a plunge to lower lows in the
960 area.

20 day 30 minute YM3U candles



We see the same picture on the Dow futures, with hints of more
short term upside within the descending channel.

5 day 30 minute YM3U candles



The Fed announcement is due tomorrow, as we await further
confirmation of the central bank’s ongoing debasement of the
currency.  The markets appear to be trading more on the basis of
money supply and liquidity than the by-now tired promises of a
second-half recovery for the third year in a row.  It’s actually
surprising, given the enormous inflow of liquidity, that we
haven’t seen better results, but the employment data tells the
story in terms to which all can relate.  As leveraged
speculators, it is important that we trade the charts, and not
our fundamental bias.  Over time, fundamentals will bias the
charts, but in the short term, they have a nasty tendency to blur
our vision.

For tomorrow, we have the setup, both news-wise and technically,
for a wide ranging day.  With last week’s gravestone doji and
today’s inside day heading into the Fed announcement, we have the
potential for a large move, very possibly to the downside.  I’ve
learned to follow my stops to limit risk and swing for singles.
Tomorrow promises to be exciting.  See you at the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_062403_1.asp


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

Nothing Day
- Jon Levinson

Today's higher low and lower high did little but set us up for a
big move tomorrow.  We saw some large put positions taken for a
change, with the CBOE total put to call ratio breaking 1.0 early
in the session before settling back down to a more moderate
readings in the low .70s, and then edging higher into the close.

Advancers led decliners slightly on the NYSE and Nasdaq, with
declining volume nearly doubling advancing volume on the Naz but
actually slightly lower than advancing volume on the NYSE.  I
hope that this was not merely because I was busy trying to short
the S&P futures, but also because of the bad news from AMD in the
morning.  The tech recovery continues to appear elusive.

The bullish percents began to roll yesterday, led by the BPNDX.
As many readers already know, the Nasdaq 100 tend to lead the
market, followed by the broader Nasdaq.  Such was the case with
the BPNDX losing 5 points yesterday vs. the BPOEX which was flat.

It's a curious phenomenon, but most bears with whom I correspond
agree that the markets will not drop when everyone's bearish.
Tops get formed when all are bullish, and bottoms occur when
everyone is bearish.  I've been thinking recently in terms of
bullish trades far more than I used to, though I'm only executing
bearish trades,  guided by the toppy breadth, bullish percent and
sentiment data.  Nevertheless, it's illustrative of our instinct
to follow the herd, even when we think we know better.


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

Market Averages

DJIA ($INDU)

52-week High:  9370
52-week Low :  7197
Current     :  9110

Moving Averages:
(Simple)

 10-dma: 9200
 50-dma: 8739
200-dma: 8367

S&P 500 ($SPX)

52-week High: 1002
52-week Low :  768
Current     :  983

Moving Averages:
(Simple)

 10-dma:  997
 50-dma:  946
200-dma:  891

Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1192

Moving Averages:
(Simple)

 10-dma: 1223
 50-dma: 1156
200-dma: 1037


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


There was very little action in the volatility indices today as
the markets wait in limbo before the FOMC meeting tomorrow.

CBOE Market Volatility Index (VIX) = 22.76 +0.10
Nasdaq-100 Volatility Index  (VXN) = 32.43 +0.63

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.85        559,868       476,589
Equity Only    0.76        456,289       347,225
OEX            1.38         10,525        14,596
QQQ            3.78         31,137       117,747

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

Bullish Percent Data

           Current   Change   Status
NYSE          71.1    + 0     Bull Confirmed
NASDAQ-100    76.0    - 6     Bull Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       79.2    - 2     Bull Confirmed
S&P 100       81.0    - 1     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  1.28
10-Day Arms Index  1.21
21-Day Arms Index  1.24
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
points.

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1547      1563
Decliners    1305      1475

New Highs      65        56
New Lows        9         4

Up Volume    874M      530M
Down Vol.    795M     1032M

Total Vol.  1682M     1594M

M = millions


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


Commitments Of Traders Report: 06/17/03

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

The large S&P contracts continue to see more buying as Commercials'
long positions have hit highs not seen in a while.  Short positions
took a significant jump higher as well but big money is
expecting strength.

Commercials   Long      Short      Net     % Of OI
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%
06/17/03      519,887   501,401    18,486     1.8%

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03

Small Traders Long      Short      Net     % of OI
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%
06/17/03      202,040   184,028    18,012     4.6%

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

In contrast to the full S&P contract data above, the S&P e-mini
contracts are showing the most bearish reading in a long time,
at least from the Commercial traders.  We saw significant jumps
in both long and short positions but Commercials or "smart money"
are exceptionally bearish on the e-minis.

Commercials   Long      Short      Net     % Of OI
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%)
06/17/03      306,279   661,114   (354,835)  (36.6%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
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%
06/17/03      466,837    70,609   396,228    73.7%

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


NASDAQ-100

Again, we're seeing large increases in the number of contracts
outstanding for both commercials and small trades but there is
no discernable change in investor sentiment here.

Commercials   Long      Short      Net     % of OI
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%)
06/17/03       60,964     65,561    (4,597)  (3.6%)

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

Small Traders  Long     Short      Net     % of OI
05/27/03       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%
06/17/03       29,400    23,232     6,168    11.7%

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

DOW JONES INDUSTRIAL

No change in investor sentiment here either, despite increases
in the number of contracts outstanding.

Commercials   Long      Short      Net     % of OI
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%
06/17/03       20,625    18,593    2,032       5.1%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
05/27/03        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%)
06/17/03        9,092     9,398    (  306)   ( 1.6%)

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


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

Morningstar 401(k) Funds We Like

This week, we look at the 17 mutual funds that Morningstar offers
to its 401(k) plan employees and tell you which funds we like now
based on return, risk, cost and other factors, such as investment
style and manager tenure.  As a former plan sponsor, I understand
the challenges that face plan fiduciaries.  How many funds should
be offered in the plan?  Which fund families and individual funds
should be offered?  Are they the best managers and funds in their
respective asset class or investment style?  Do the funds offered
in the plan cover all levels of risk and reward?  What benchmarks
should be used to analyze return and risk performance?  When does
a fund or manager get replaced?

The list goes on and on and when you're a plan fiduciary you have
the burden of picking funds on behalf of all employees (and their
beneficiaries) that will stand the test of time, something that's
not easy to do.  In Morningstar's case, their 401(k) plan options
receive a lot of attention because of who they are, arguably, the
leading independent mutual-funds tracker in the U.S.  Many people
today are familiar with Morningstar's fund reports, opinions, and
analysis.  So, having analyzed all mutual funds, you would expect
Morningstar's 401(k) plan to provide nothing but the best mutual
funds for its plan participants, funds which have performed well
in the past and have what it takes to perform well in the future.


  Mutual Funds Offered in Morningstar's 401(k) Plan:
  American Funds New World () Emerging Markets
  Brandywine () Mid-Cap Growth
  Fidelity Low Priced Stock () Small-Cap Blend
  Gabelli Asset () Mid-Cap Blend
  Harbor Capital Appreciation () Large-Cap Growth
  Morgan Stanley Inst. US Real Estate () Real Estate
  Oakmark Select I () Mid-Cap Value
  PIMCO High Yield () High-Yield Bond
  PIMCO Total Return () Intermediate-Term Bond
  Selected American () Large-Cap Blend
  T. Rowe Price Small-Cap Stock () Small-Cap Blend
  Turner Midcap Growth () Mid-Cap Growth
  Tweedy, Browne Global Value () Foreign Stock
  Vanguard 500 Index () Large-Cap Blend
  Vanguard Calvert Social Index () Large-Cap Blend
  Vanguard International Growth () Foreign Stock
  Vanguard LifeStrategy Growth () Large-Cap Blend


Above is a list of the 17 mutual funds offered in the Morningstar
401(k) plan.  Turner Midcap Growth (TMGFX) recently replaced the
Morgan Stanley Institutional Mid Cap Growth Fund.  American Funds
New World Fund (NEWFX) recently replaced the Templeton Developing
Markets Fund.  So, in this case, Morningstar made the decision to
replace two funds, rather than add two more options.

Some of the funds provided in Morningstar's 401(k) plan have more
than one share class.  Where there are institutional class shares
available, we assume that's the share class that Morningstar uses
in its plan.  However, since you don't have the collective buying
power of a 401(k) plan, you will most likely need to consider one
of the funds' other share classes, which vary in cost and expense
structure.  Some of these 17 funds may not look quite so great if
their costs and expenses were higher.

Screening and Evaluation Process

To compare these 17 funds, we entered the ticker symbols for each
fund in the Fund Compare tool on the www.morningstar.com website.
For multiple-share class funds, we put in all of the fund symbols
to see how much cost/expense and performance/ratings varied among
the different share classes of the fund.

The first thing we did was look to see which funds if any are now
closed to new investors.  We found one, Oakmark Select I (OAKLX).
Oakmark Funds has several very successful fund products and would
be worth considering on your own time (www.oakmark.com) but we'll
eliminate the Oakmark Select I Fund from further consideration in
this report since it's currently closed.

In the cases of PIMCO, Morgan Stanley, T. Rowe Price and Vanguard
we presume that Morningstar 401(k) plan participants may purchase
institutional or administrative class shares of the funds but you
would most likely have to consider the A, B, C or D shares of the
fund.  For example, investors that use financial advisors may buy
class A, B or C shares of the fund through their financial broker
while direct investors may purchase no-load class D shares, which
are offered at Charles Schwab or other no-load NTF fund networks.

Of the 17 funds, 12 are U.S. equity funds (11 diversified, 1 non-
diversified specialty), three are international equity funds, and
two are U.S. fixed income funds.  U.S. stock fund choices include
two equity index funds, one of which uses a social screen to weed
out firms that have unacceptable products, services or practices.

So, there are actively managed and passively managed equity funds
in the 401(k) lineup, something you may want to consider for your
own financial plan.  Many experts believe it makes sense to start
with an index fund like Vanguard 500, and then add funds that you
believe are capable of adding value (outperforming the S&P index)
over time.

Morningstar's plan offers at least one large-cap fund, one mid-
cap fund, and one small-cap fund.  In addition, it provides at
least one value-driven fund and one growth-oriented fund in its
401(k) lineup.  Since capital sectors and equity styles lead or
lag at different times, many long-term investors like to invest
in funds with different styles and strategies to gain diversity
and lower overall portfolio risk.

Two of the three international stock funds offered in the 401(k)
plan are value-driven in their style/strategy.  One focuses more
on the developed foreign markets and the other invests primarily
in the developing (emerging) foreign markets.  The Vanguard fund
recently underwent a management change in January 2003 and has a
more growth-oriented style today, says Morningstar.

Only two bond funds are offered and man, are they superb.  PIMCO
Total Return, an investment-grade intermediate-term fund, is the
nation's largest fixed income fund, with $75.8 billion in assets.
PIMCO founder, Bill Gross, is to bond funds what Peter Lynch was
to stock funds, a living legend.  He's managed the flagship bond
fund since its May 11, 1987 start date.  PIMCO High Yield Fund's
$6.8 billion portfolio has been run by Ray Kennedy since April 1,
2002.

In the next section, we tell you which funds we like the most of
these 17 funds based on overall return, risk and expense (versus
similar funds).

Our Favorite Funds

If you are looking for a good bond fund, then you have to look no
further than the PIMCO Total Return Fund run by bond guru William
Gross since 1987.  Class D shares of the fund have a 0.75% annual
expense ratio versus 1.02% for the average intermediate-term bond
fund, and are offered on a no-load no-transaction fee (NTF) basis
through leading brokerage fund networks such as Schwab OneSource,
Fidelity FundsNetwork, Vanguard NTF, and TD Waterhouse NTF.

Over the past five years, PIMCO Total Return Fund, Class D has an
annualized return of 8.1%, per Morningstar, ranking in the top 3%
of the intermediate-term bond category.  The fund's institutional
share class sports one of the best long-term track records in the
fixed income investment world.  For the longest time, the product
was not available in a no-load format, but now it is and it comes
with a very reasonable 0.75% expense ratio.  For more information
on the PIMCO Total Return Fund, go to www.pimco.com.

In the domestic equity fund group, starting with the Vanguard 500
Index Fund (VFINX) makes a lot of sense to me.  Over the past ten
years, the nation's largest index fund has produced a 9.9% annual
equivalent return, ranking in the top quintile or 18th percentile
of Morningstar large-blend category.  It can serve well as a core
equity investment since it invests in 500 large, established U.S.
companies and maintains a blend style of value and growth stocks.

Among mid-cap and small-cap U.S. equity funds, we favor Fidelity
Low Priced Stock Fund (FLPSX), managed by Joel Tillinghast since
December 1989 inception.  Tillinghast was Morningstar's domestic
equity manager of the year in 2002, and boasts one of the finest
long-term records among small-cap funds.  Tillinghast curbs risk
by diversifying across hundreds of securities and staying on the
left side of the equity style box (value-to-blend style overall).

Tillinghast has proven through the years that he can produce top
returns while adequately managing cash flows.  Although the fund
has swelled to $15.7 billion in net assets, its trailing 10-year
annualized return of 14.7% topped the S&P 500 large-cap index by
an average of 4.8% a year over the same time period, ranking the
fund in the top 1% of the Morningstar small-blend category.  Not
bad for a small-cap fund that supposedly should have closed long
ago.  For more information, go to www.fidelity.com.

Turner Midcap Growth Fund (TMGFX) may be a good investment today
if you believe we are in the early stages of a recovery and bull
market cycle since Turner utilizes a pro-growth investment style,
which can lead in a market advance.  Indeed, the fund's YTD 2003
return of 19.7% as of June 23, 2003 ranks in the 11th percentile
of the Morningstar mid-cap growth category.  Its trailing 5-year
average annual total return of +5.1% ranks in the category's top
16%.  In 1999, the fund returned 125.5%, so it can lead in stock
market advances.

If you're looking for a great all-in-one stock fund you may want
to consider Vanguard LifeStrategy Growth Fund (VASGX).  It makes
investments in other Vanguard index funds.  At the end of March
2003, 50% of assets were invested in Vanguard Total Stock Market
Index Fund, 25% in Vanguard Asset Allocation Fund, almost 15% in
Vanguard Total International Index Fund, and 10% in the Vanguard
Total Bond Market Index Fund.  With a portfolio like that, it is
less risky than the average large-cap blend fund.  You may think
of it as an aggressive balanced fund as well, since it maintains
a modest fixed income allocation.

Conclusion

Morningstar's 401(k) plan has a number of top-notch managers and
funds in its lineup.  The 17 funds at the least would serve as a great
starting place in your search for the right mutual fund(s).
If you have a long-term investment horizon, you may want to look
at some of the funds in Morningstar's 401(k) plan or use them as
the standards to which other funds may be measured.

Steve Wagner
Editor, Mutual Investor


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The Option Investor Newsletter                  Tuesday 06-24-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: MERQ
Dropped Puts: None
Call Play Updates: AZO, IGT, LH, LXK, MRK, PGR
New Calls Plays: AMGN, STJ
Put Play Updates: COF, KSS, RYL, WFMI
New Put Plays: BRCM, SIVB


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

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


CALLS:
*****

Mercury Int - MERQ - close: 39.38 change: -0.26 stop: 38.95

Enough is enough!  We've given MERQ every opportunity to straighten
up and fly right, and all we've gotten for our troubles is a
disappointing break of support and two consecutive closes below the
bottom of the ascending channel.  While the stock did manage to
close fractionally above our stop, the intraday drop to the $38.50
area along with the first close under the 30-dma ($39.53) since
early April leaves us with no choice but to pull the plug and admit
defeat.  While a rebound could be just around the corner, there's
been enough technical damage done this week that such a rebound
should be used to gain a more favorable exit, not consider new
entries.

Picked on June 10th at   $42.62
Change since picked:      -3.24
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 4.20 mln




PUTS:
*****

None


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

AutoZone, Inc. - AZO - close: 76.07 change: -0.89 stop: 74.95

While there has been no discernable rebound in shares of AZO,
neither has there been a breakdown in price either.  The stock
seems to be biding its time, hugging that 200-dma (now $75.76).
Tuesday's action had the stock briefly dipping below our stop, but
there were eager buyers lurking just below the $75 level and the
AZO recovered to back above $76 after that early dip.  This is
either the optimum time to be establishing new bullish positions or
it is the calm before the breakdown.  In either case, the risk-
reward setup remains quite favorable.  A solid rebound from current
levels should see a nice rebound to at least the $80 level, while
risk is easy to control with a stop just under $75.  Aggressive
traders can continue to target entries on rebounds back over the
200-dma, while those with a more conservative approach will want to
wait for a rally through $77.35, just above the recent intraday
highs, before playing.

Picked on June 22nd at     $76.65
Change since picked:        -0.58
Earnings Date             08/26/03 (unconfirmed)
Average Daily Volume =   1.33 mln

----

Intl Game Technology - IGT - cls: 98.40 chg: +0.28 stop: 94.99

Monday was a welcome day for shareholders in IGT.  The stock
rallied strongly in the face of broad market weakness and ending
four sessions of light profit taking.  Volume was strong and
continued to be strong today.  IGT traded as high as $98.90
midday before pulling back only to have dip buyers step in a
drive the stock higher again.  IGT is quickly approaching our
short-term target of $100.00 and traders should re-evaluate their
exit plans.  We suggest taking some profits off the table as IGT
nears the $100 level, which is usually a strong psychological
support/resistance level (in this case it is resistance).  It is
true that IGT still has several days left before its July 2nd, 4-
for-1 stock split and shares may continue to climb into the
split.  That's why traders may want to consider leaving a small
position open should momentum stay strong into its split.
Yesterday we raised our stop loss to $94.99.  More conservative
traders can get even tighter to protect their trade.  News note, we
almost neglected to mention that Standard & Poors has raised
their credit rating on IGT from BBB- to BBB.  This is in effect
an "upgrade" and Wall Street should react to it as such.

Picked on June 10th at $91.87
Change since picked:    +6.53
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million
Chart link:


---

Laboratory Corp - LH - close: 29.93 change: +0.28 stop: 28.00

Shares of LH may be trading sideways but given the terrible
earnings warning from Tenet Healthcare (THC) yesterday, LH is
holding up pretty well (not to mention the market selloff on
Monday).  Of course LH is in a different healthcare sector than
THC but these days investors tend to sell first and ask questions
later.  Given how the market is prone to trade sideways ahead of
any Fed meeting, the chop we're seeing in LH is expected.  New
positions might be considered on bounces from $29.00-29.50 or
"breakouts" above $31.00.  Our short-term target remains $34-$35
and our stop loss remains at $28.00.

Picked on June 17th at $30.10
Change since picked:    -0.17
Earnings Date        07/28/03 (unconfirmed)
Average Daily Volume =   1.49 million
Chart link:


---

Lexmark Intl - LXK - close: 74.08 change: +0.44 stop: 71.00

It was somewhat of a disappointing day for LXK.  The stock had
continued to slip on Monday, which isn't a surprise given the
broad market pull back during the session.  However, we were
encouraged that support above the 50-dma did hold.  Tuesday's
session started out pretty well and it looked like investors
would display a vote of confidence by bidding up LXK ahead of the
Fed meeting.  Unfortunately, the afternoon took back most of its
gains.  Aggressive traders can still use these levels just north
of the simple 50-dma as an entry point but given the expectation
for a "sell the news" event with tomorrow's interest rate
decision it may be better to take a wait and see approach.  More
conservative traders might feel better with a tighter stop at
$72.00 or $72.50.  We're going to leave ours at $71.00.

Picked on June 16th at $74.51
Change since picked:    -0.43
Earnings Date        07/21/03 (unconfirmed)
Average Daily Volume =   1.78 million
Chart link:


---

Merck & Company - MRK - close: 62.15 change: +0.04 stop: 59.50

After breaking out above $60 resistance early last week, shares of
MRK have been doing an admirable job of defying gravity, stubbornly
holding onto the $62 level as support.  Traders looking for a
decent entry point into this play have had slim pickings indeed,
with the stock unable to produce either much of a dip or
continuation of the breakout.  They likely got a decent opportunity
this morning though after news broke about the Justice department
joining the Medco lawsuit.  The WSJ reported that the Justice
Department joined an ongoing lawsuit that alleges the company's
pharmacy benefits subsidiary (Medco) used an 'aggressive profits
before patients policy'.  According to the suit, this particular
approach resulted in a 'dangerous' lack of oversight when it comes
to filling prescriptions and higher pharma costs for the federal
government.  That news was enough to produce a dip at the open to
just above $61.  But the buyers were waiting and eagerly bought the
dip, driving MRK back over $62 by midday and kept it there into the
close.  Dips near the $61 level continue to look like attractive
entry points and we're still looking for a breakout over $64.50 to
set the stage for a continued advance up towards the $68 area.
Support should be very strong just above $60, hence our still-tight
stop at $59.50.

Picked on June 17th at    $62.37
Change since picked:       -0.22
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.28 mln

---

Progressive Corp. - PGR - close: 74.72 change: -0.18 stop: 71.00

Astounding!  That's about the only word we can find to describe
PGR's price action.  After rallying strongly since mid-January with
hardly a pause for any real profit taking, last week's run to new
all time highs just over $76 has only met with enough selling to
knock the stock back to just under the $75 level.  The ascending
channel that has been in effect since late March is still intact
and the bottom of that channel is now just over $72.  A decline
near that area would make for a very nice entry point on a rebound,
as it would confirm old resistance as new support.  But the way PGR
is trading, we may have to content ourselves with entering the play
on a rebound from the $74 level, which the bears have been unable
to breach over the past few days, even with the broad market
weakness.  Our approach remains unchanged -- take entries on
rebounds from support, (the closer to the bottom of the channel the
better) looking for PGR to continue working higher in that channel,
the top of which is now just above $78.  Maintain stops at $71 for
now.

Picked on June 15th a  $73.27
Change since picked:    +1.45
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =  958 K


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

Amgen, Inc. - AMGN - close: 65.05 change: +0.93 stop: 62.40

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

Why we like it:
After a stellar rally off the April lows, the Biotechnology index
(BTK.X) finally ran into stiff resistance near $490 and succumbed
to a stiff round of profit taking over the past week, falling all
the way back to the $430 support area.  The index is looking like
it is ready for another leg to the rally, although the potential
exists for a bit more weakness first.  In the universe of
Biotechnology stocks, few are exhibiting the strength of sector
bellwether AMGN, which is continuing its pattern of higher lows and
higher highs.  There hasn't been more than a brief intraday
violation of the 50-dma (currently $62.66) since December, and the
it is encouraging to see that it hasn't really been tested since
5/21, over a month ago.  The intraday low on June 9th came in at
$62.45, just above the 30-dma and yesterday's dip found willing
buyers just above $63, very near that 30-dma again.  The pattern of
higher lows continues.  With daily oscillators trying to turn
bullish again, it looks like it just may be time to game AMGN to
the upside again, targeting a breakout to new highs and a potential
run at the PnF bullish price target of $72.

Another dip and rebound from above the $64 level is probably the
best we can due for new entries on a dip, while traders looking to
enter on continued strength will want to wait for a move back over
$66, which would represent a breakout of the past several days'
intraday highs.  There will doubtless be some resistance found near
the $67.50-68.00 area, but if the bulls can push through there,
then $70 may be achievable on the next breakout move.  Based on the
stock's trading pattern of the past several months, it will likely
require another rally, pullback and then rally to achieve our final
target of $72.  The strategy of buying the dips and harvesting
gains on the breakouts that we've employed in the recent past
should continue to work well with AMGN in the near term.  If buying
into strength (a lower odds approach than buying the dips), make
sure to confirm strength in the BTK first.  We're initially placing
our stop at $62.40, which is below both the 50-dma and the 6/09
intraday low.

Suggested Options:
Shorter Term: The July 65 Call will offer short-term traders the
best return on an immediate move, as it is currently at the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the August 70 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 August 65 call.

BUY CALL JUL-60 YAA-GL OI=41206 at $5.60 SL=3.50
BUY CALL JUL-65 YAA-GM OI=31184 at $1.90 SL=1.00
BUY CALL AUG-65 YAA-HM OI=  873 at $3.00 SL=1.50
BUY CALL AUG-70 YAA-HN OI=  162 at $1.05 SL=0.50

Annotated Chart of AMGN:



Picked on June 24th at     $65.05
Change since picked:        +0.00
Earnings Date             07/22/03 (unconfirmed)
Average Daily Volume =   10.5 mln


---

St. Jude Medical - STJ - close: 57.62 change: +0.90 stop: 54.95

Company Description:
St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design,
manufacture and distribution of innovative medical devices of the
highest quality, offering physicians, patients and payers
unmatched clinical performance and demonstrated economic value.
(source: company press release)

Why We Like It:
Entry point is everything when you're trading options.  Right now
it looks like STJ is offering bulls a great entry point for its
next leg higher.  For the last six months this has been a very
steady performer for investors and buying on dips to its simple
40-dma (forty) has been a solid strategy.  Of course every
strategy is not without risks.  These last six months have seen a
number of upgrades for STJ.  Now that the stock is performing so
well, we've already witnessed at least one downgrade on valuation
concerns and there could be more.  A few days ago CIBC world
markets felt that the stock might be feeling pressure from
competitors MDT and GDT.  The stock pulled back from all-time
highs on the downgrade.  Meanwhile, a competing analyst at J.P.
Morgan was suggesting that investors buy the stock on this
weakness, believing that STJ would provide strong revenue and
earnings growth for the next couple of years.

The stock's technical signals are a little mixed.  STJ's P&F
chart is still on a buy signal but it has certainly pulled back
from its highs and a single trade at $55.00 or below would
produce a new sell signal.  Its MACD is also increasingly bearish
while STJ's Stochastics, and momentum indicators have all turned
bullish from oversold.  We're going to suggest new bullish
positions at current levels with a stop just under $55.00.

Suggested Options:
Given the entry point that STJ is offering we like the July
options.  The July 60 looks very tempting.  August options are
brand new and don't have much volume or open interest yet.

BUY CALL JUL-55 STJ-GK OI=1701 at $4.00 SL=2.25
BUY CALL JUL-60 STJ-GL OI=2799 at $1.45 SL=0.75
BUY CALL AUG-55 STJ-HK OI=   0 at $4.90 SL=2.50
BUY CALL AUG-60 STJ-HL OI=  40 at $2.35 SL=1.15
BUY CALL OCT-60 STJ-JL OI= 404 at $3.50 SL=1.50

Annotated Chart:



Picked on June 24th at $57.62
Change since picked:    +0.00
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =   1.56 million
Chart link:



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

Capital One Financial - COF - close: 49.50 chg: -0.93 stop: 52.51

The markets are in a holding pattern as we wait for the FOMC
decision on interest rates.  There is no other sector more
closely tied to this event than banking.  Both the BIX and the
BKX banking indices bounced into the green today but the gains
were very minor.  Shares of COF followed suit with its own
bounce.  Yet bears can remain somewhat calm that COF did not
regain its $50.00 level.  A rollover from here would look like a
very tempting entry point for new bearish positions.  We're
leaving our stop at $52.51 but more conservative traders might be
able to sneak buy with a tighter stop.  Expect some volatility
tomorrow directly after the Fed announcement.

Picked on June 22 at $49.64
Change since picked:  -0.14
Earnings Date      07/16/03 (unconfirmed)
Average Daily Volume: 4.3 million
Chart =



----


Kohl's Corp. - KSS - close: 50.20 change: +0.33 stop: 52.25

Well, it certainly seems that the battle lines have been drawn on
KSS.  The bulls are persistently buying the dips below $49 and the
bears are stubbornly selling into each rally near the 20-dma
(currently $51.46).  That moving average is continuing to drop on a
daily basis, and that is continuing to put downward pressure on the
stock.  Something should give way soon, and the outcome of
tomorrow's FOMC meeting may just be the catalyst we've been waiting
for.  The strategy remains quite simple:  Target new entries on
failed bounces below the 20-dma and look for an eventual drop down
to the $46 area, using a stop at $52.25.  KSS is one of the weaker
stocks in the Retail sector (RLX.X), so any weakness in the RLX
should be amplified in shares of KSS.  Since intraday support has
been coming in near the $48 level, we aren't recommending new
positions on a breakdown under this level due to its proximity to
support in the $46-47 area.  Maintain stops at $52.25.

Picked on June 15th at   $49.45
Change since picked:      +0.75
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.45 mln

---

The Ryland Group - RYL - close: 71.44 change: +1.82 stop: 75.25

Like the Energizer Bunny, the Housing stocks keep going and going.
Late last week, the group looked like it had started a process of
weakening that we expected to continue through the FOMC meeting and
then pick up speed.  Contrary to that expectation, the DJUSHB index
held its ground on Monday while the rest of the market headed
sharply higher and then managed a better than 1% rebound on
Tuesday.  Going along with the sector, shares of RYL bounced
smartly from the $68.50 level (just above the intraday support
found in early June) and tacked on 2.6% to close very near the high
of the day.  Did we get suckered again?  Only time will tell, but
the price action so far this week is demonstrating precisely why we
mentioned the possibility of a pre-FOMC rebound with the
possibility of a subsequent sell the news drop.  We're getting that
rebound and RYL stalled on Tuesday right at that first potential
resistance of $71.50.  A rollover from there tomorrow may make for
a solid, if aggressive entry point.  Traders looking for a better
entry may be able to take advantage of a failed rally up near the
$73.50 area.  Clearly, risk-averse traders will need to wait until
after the FOMC announcement tomorrow before taking a position and
may want to wait for RYL to decline back under $68.50 before
playing.  Regardless of entry strategy, look for confirmation of
weakness from the DJUSHB index breaking below the $440 support.
Until we see how the post-FOMC action is going to shake out, we'll
continue to work with a wide stop at $75.25.

Picked on June 22nd at   $69.95
Change since picked:      +1.49
Earnings Date           07/23/03 (unconfirmed)
Average Daily Volume =    880 K

---

Whole Foods Market - WFMI - cls: 48.41 chg: +0.65 stop: 50.00

It should come as no surprise that shares of WFMI are ticking
higher today.  We've been expecting a bounce and given the
general market's state of limbo ahead of the Fed we see WFMI
inching higher due to sellers sitting on the sidelines waiting
for tomorrow.  The oscillators, like the stock price, are very
oversold so this pause on the way down has several of them
curling closer to a bullish crossover.  We've been watching the
simple 10-dma as the bears' first line of defense.  Shares of
WFMI traded above this moving average intraday but they didn't
close above it.  While we can view this as a minor victory, we
would not be surprised to see another day or two of dip buying
before the next leg down.  This is a good spot to take a wait and
see approach before considering new entry points.

Picked on June 13 at $49.44
Change since picked:  -1.03
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

Broadcom Corp - BRCM - close: 24.13 chg: -1.40 stop: 26.05

Company Description:
Broadcom Corporation is the leading provider of highly integrated
silicon solutions that enable broadband communications and
networking of voice, video and data services. Using proprietary
technologies and advanced design methodologies, Broadcom designs,
develops and supplies complete system-on-a- chip solutions and
related hardware and software applications for every major
broadband communications market. Our diverse product portfolio
includes solutions for digital cable and satellite set-top boxes;
cable and DSL modems and residential gateways; high-speed
transmission and switching for local, metropolitan, wide area and
storage networking; home and wireless networking; cellular and
terrestrial wireless communications; Voice over Internet Protocol
(VoIP) gateway and telephony systems; broadband network
processors; and SystemI/O(TM) server solutions. These
technologies and products support our core mission: Connecting
everything..  (source: company press release)

Why We Like It:
The chip sector has been rather weak lately and contributing to
the group's decline today are shares of BRCM, which dropped 5.48
percent.  The breakdown under the psychological $25.00 mark and
its rising 21-dma certainly look like bearish developments that
short-term traders may try to capitalize on.  The SOX
semiconductor index was the second worst performer among the
major sector indices today, dropping 2.06 percent and closing
below the 360 level of support.  The big catalyst was not BRCM's
drop in share price but AMD's earnings warning.  AMD slashed its
Q2 sales forecasts as improvement in June was a no show.  BRCM's
rally from $12.50 to $28.00 makes it a prime suspect for profit
taking and it looks like it has begun.  However, BRCM did manage
to stall its decline right on its rising 30-dma and the $24.00
level.  Therefore we're going to use a TRIGGER to leg us into
this play.  Only when shares of BRCM trade at $23.84 or lower
will we officially "open" our put play.  More aggressive traders
may want to look for a failed rally under the $25.00 level.  Once
we are triggered we'll start with a stop loss at $26.05.

More conservative traders may want to add another stipulation and
not only wait for BRCM to trade at or below $23.84 but to wait
for the SOX to trade below its 50-dma or the 350 level.

Suggested Options:
This should be a rather quick play as we don't plan on holding
over BRCM's mid-July earnings announcement.  Thus, July options
look the most tempting but we'll list a couple of August strikes
too.

BUY PUT JUL 25.00 RCQ-SE OI=6703 at $2.25 SL=1.00
BUY PUT JUL 22.50 RCQ-SX OI=3817 at $1.10 SL=0.55
BUY PUT JUL 20.00 RCQ-SD OI=2787 at $0.40 SL=0.00*looks riskier*
BUY PUT AUG 25.00 RCQ-TE OI=1764 at $3.00 SL=1.75
BUY PUT AUG 22.50 RCQ-TX OI=1077 at $1.80 SL=0.90
BUY PUT AUG 20.00 RCQ-TD OI=2989 at $1.00 SL=0.50

Annotated Chart:



Picked on June 24 at $24.13
Change since picked:  -0.00
Earnings Date      07/16/03 (unconfirmed)
Average Daily Volume: 14.0 million
Chart =


---

New Bearish Plays | June 24, 2003
It has been no great surprise to see some profit taking in the
Banking stocks leading up to the FOMC meeting that concludes
tomorrow.  The big question is whether the weakness has run its
course, or if this has just been a warm up.

NEW PUT PLAY - Lower Rates Not Helping
============

Silicon Valley Bancshares - SIVB - close: 22.82 change: -1.13 stop:
25.25

Company Description:
Silicon Valley Bancshares is a bank holding company and a financial
holding company.  The company's principal subsidiary is Silicon
Valley Bank.  SIVB serves more than 9500 clients across the country
through 27 regional offices.  The company has 11 offices throughout
California and operates regional offices in Arizona, Colorado,
Florida, Georgia, Illinois, Massachusetts, Minnesota, New York,
North Carolina, Oregon, Pennsylvania, Texas, Virginia and
Washington.  The company serves emerging-growth and mature
companies in the technology and life sciences markets, as well as
wineries.  The company is organized along five lines of banking and
financial services: commercial banking, investment banking, private
banking, merchant banking and other business services.

Why we like it:
In anticipation of more interest rate cuts from the  Federal
Reserve tomorrow, Financial stocks have had an impressive run over
the past 3 months.  But the past week has been less impressive,
with both the KBW Banking index (BKX.X) and the S&P Banks index
(BIX.X) seeing some concerted profit taking.  Obviously the big
question is whether the Fed will cut rates again tomorrow and if
so, by how much.  But even more important to traders is the
question of whether a cut will provide fuel for another rally or an
excuse for more selling.  Regardless of the outcome of those
weighty questions, there are some Financial stocks that seem to be
showing excessive weakness compared to the rest of the sector.
Shares of SIVB are one such example, as the stock has seen
increasingly heavy selling over the past four days, with today's
4.7% loss coming on volume that more than tripled the ADV.  The
stock started weakening near the $26.50 area (forming a nice double
top) and crashing through the $24 support level yesterday
(confirming the double top) and closing under the 50-dma ($24.46)
for the first time in 3 months.  After that violation, we might
have expected a bit of a rebound today, especially after the close
right on the lower Bollinger band.  It wasn't to be, as the selling
party continued on Tuesday, gapping down and continuing lower
throughout the session to close near the low of the day.

The stock appears overdue for a bit of a rebound, but with all the
technical damage done over the past couple days, that rebound is
likely to be short-lived and only set up the bears with another
solid entry point.  A bounce up into the $24.00-24.50 area looks
like a dream of an entry point, as there are likely to be a lot of
willing sellers at the top of today's gap ($23.95) and then at the
50-dma.  Adding to resistance in this area is broken support near
$24.25 from late May, as the breakdown below this level yesterday
confirmed the double-top formation.  A big part of what has us
avoiding entries on further weakness is the degree to which the
stock is already stretched below the lower Bollinger band,
currently $23.56.  Fade the rally and then look for an eventual
decline down to the $20 area, which is the bottom of the mid-April
gap, the site of solid support (broken resistance), backed up by
the 200-dma at $19.55.  Initial stops are in place at $25.25, just
above intraday resistance from last Friday.

Suggested Options:
Short-term traders will want to focus on the July 25 Put, as it
will provide the best return for a short-term play.  Those looking
for a larger move down towards the $20 level will want to utilize
the July 20 contract or even the August strike, the latter of which
provides greater insulation from the spectre of time decay.  Note
that Open Interest is highest for the August strike, so entry and
exit will likely be the easiest with these contracts.

BUY PUT JUL-25 SQU-SE OI= 40 at $2.55 SL=1.25
BUY PUT JUL-22 SQU-SX OI=  0 at $0.95 SL=0.50
BUY PUT AUG-22 SQU-TX OI= 81 at $1.35 SL=0.75

Annotated Chart of SIVB:



Picked on June 24th at   $22.82
Change since picked:      +0.00
Earnings Date               N/A
Average Daily Volume =    633 K



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The Option Investor Newsletter                  Tuesday 06-24-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: 40-dma Entry Point!

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

St. Jude Medical - STJ - close: 57.62 change: +0.90 stop: 54.95

Company Description:
St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design,
manufacture and distribution of innovative medical devices of the
highest quality, offering physicians, patients and payers
unmatched clinical performance and demonstrated economic value.
(source: company press release)

Why We Like It:
Entry point is everything when you're trading options.  Right now
it looks like STJ is offering bulls a great entry point for its
next leg higher.  For the last six months this has been a very
steady performer for investors and buying on dips to its simple
40-dma (forty) has been a solid strategy.  Of course every
strategy is not without risks.  These last six months have seen a
number of upgrades for STJ.  Now that the stock is performing so
well, we've already witnessed at least one downgrade on valuation
concerns and there could be more.  A few days ago CIBC world
markets felt that the stock might be feeling pressure from
competitors MDT and GDT.  The stock pulled back from all-time
highs on the downgrade.  Meanwhile, a competing analyst at J.P.
Morgan was suggesting that investors buy the stock on this
weakness, believing that STJ would provide strong revenue and
earnings growth for the next couple of years.

The stock's technical signals are a little mixed.  STJ's P&F
chart is still on a buy signal but it has certainly pulled back
from its highs and a single trade at $55.00 or below would
produce a new sell signal.  Its MACD is also increasingly bearish
while STJ's Stochastics, and momentum indicators have all turned
bullish from oversold.  We're going to suggest new bullish
positions at current levels with a stop just under $55.00.

Suggested Options:
Given the entry point that STJ is offering we like the July
options.  The July 60 looks very tempting.  August options are
brand new and don't have much volume or open interest yet.

BUY CALL JUL-55 STJ-GK OI=1701 at $4.00 SL=2.25
BUY CALL JUL-60 STJ-GL OI=2799 at $1.45 SL=0.75
BUY CALL AUG-55 STJ-HK OI=   0 at $4.90 SL=2.50
BUY CALL AUG-60 STJ-HL OI=  40 at $2.35 SL=1.15
BUY CALL OCT-60 STJ-JL OI= 404 at $3.50 SL=1.50

Annotated Chart:



Picked on June 24th at $57.62
Change since picked:    +0.00
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =   1.56 million
Chart link:



************************Advertisement*************************
If you trade options online, then you need an online broker that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and more;
call 1-888-889-9178 or click for more information.

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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