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Daily Newsletter, Sunday, 06/29/2003

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The Option Investor Newsletter                   Sunday 06-29-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: What Buyers?
Futures Market: Two moves and chop
Index Trader Wrap: Up into the expiration, down from there
Editor's Plays: High Odds Bets
Market Sentiment: Zooming out
Ask the Analyst: Shorting stocks that have come too far and too fast
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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        WE 6-27         WE 6-13         WE 6-06         WE 5-30
DOW     8989.05 -211.70 9200.75 + 83.63 9117.12 + 54.33 +212.53
Nasdaq  1625.26 - 19.46 1644.72 + 18.23 1626.49 -  0.93 + 31.51
S&P-100  491.61 - 10.78  502.39 +  4.57  497.82 +  2.15 + 12.47
S&P-500  976.22 - 19.47  995.69 +  7.08  988.61 +  0.85 + 24.17
W5000   9358.49 -153.14 9511.63 + 57.47 9454.26 +  1.72 +233.65
RUT      448.75 -  0.81  449.56 -  0.15  449.71 -  4.23 + 12.94
TRAN    2417.03 - 25.25 2442.28 - 13.28 2455.56 - 25.98 -  4.81
VIX       21.71 +  0.62   21.09 -  1.79   22.88 -  0.55 +  1.73
VXN       30.93 -  1.41   32.34 -  2.12   34.46 -  1.67 +  4.47
TRIN       1.93            1.00            1.23            1.06
Put/Call   0.99            0.51            0.73            0.78
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What Buyers?
by Jim Brown

A day that was supposed to be bullish turned into a rout as the
Dow gave up 9000 once again. End of quarter buying was nonexistent
along with volume as the indexes slipped into the red after lunch.
The Russell-2000 was the best performer but it also slipped
fractionally into the red just before the close. With the Fed
behind us and a shortened holiday week ahead we are entering into
a critical period for the markets.

Dow Chart - Daily


Nasdaq Chart - Daily



Friday was light economically but after the week we have had I
think traders welcomed the pause. Personal Income rose for the
seventh month with a +0.3% gain. This was inline with estimates
and April was revised to +0.2% from zero. Spending rose +0.1%
and posted its 3rd monthly gain. Disposable income is slowing
but the coming tax cut should boost that number slightly. One
more shot in the arm for the economy.

The Michigan Sentiment final for June rose slightly to 89.7 from
the preliminary of 87.2. This is still well below the euphoric
(just kidding) 92.1 post war number for May. The expectations
component was 86.4, down from 91.4 in May. The present conditions
component actually rose to 94.7 from May's 93.2. Evidently the
public is still convinced the post war rebound is underway but
are far less expectant that the golden promises of a roaring
4th quarter will come to pass. The discount sales at retailers
still trying to get out from under a load of spring merchandise
are helping consumers outlook. Buying cheap merchandise always
makes consumers happy. This is carrying over to the current
conditions component. The failure of the stock market to make
any gains over the last three weeks is causing those same buyers
to wonder if maybe we have over done it once again. That is
helping increase worry for the next six months.

The earnings warning from Nike on Thursday is one more example
that consumers are not stepping up to the cash register to pay
big bucks for premium merchandise. Wal-Mart however is doing
fine and taking market share from a diverse list of competitors.
Kroger, for instance, revised its earnings estimates downward
based on increased competition from Wal-Mart and other
discounters. Wal-Mart has over 1300 super centers open now with
over 200,000 sq ft of space including not only a complete grocery
store but a complete Kmart/Target mix of department store items
as well. The current unemployed generation is learning to pinch
those pennies and you can bet the discounters will see more of
the coming tax cut than Neiman Marcus and Lord and Taylor. It
is the economic ripple down effect all over again brought on by
fewer jobs.

Another change in the trend came this week when AMG Data reported
that equity funds saw outflows of -$1.6 billion. This is the first
week of outflows in several weeks. TrimTabs reported last week
that $11 billion flowed into equity funds over the prior three
weeks. Looks like the bloom is fading from the rosy outlook for
retail traders. Of course this could be simply fear of the Fed
and a dose of caution ahead of the Fed meeting this week.

The S&P posted the best month since the 4Q-2001 despite giving
up nearly -11 points for the week. Assuming the last day of the
quarter on Monday does not produce a monster drop then this would
be the 3rd biggest quarterly gain for the S&P in history. Think
about that. For this quarterly earnings cycle, which will begin
reporting in two weeks, 51% of the preannouncements have been
warnings. Last year, when we were in a recession the level of
warnings was only 37% for the same quarter. This anomaly could
have a lot to do with the weakness this week. Too far too fast
on too few facts. The euphoria over the Iraq war ending produced
the bounce but in reality there are as many soldiers getting
killed in post war Iraq as during the war and the numbers are
growing.

Another problem according to traders was the Fed decision and
the wording of that decision. The statement for the latest 25
point cut was almost exactly the same wording as the prior cut.
That was a 50-point cut in Nov-2002.

Nov-2002 statement - The Committee continues to believe that
an accommodative stance of monetary policy, coupled with
still-robust underlying growth in productivity, is providing
important ongoing support to economic activity. The Committee
believes that today's additional monetary easing should prove
helpful as the economy works its way through this current soft
spot.

June-2003 statement - The Committee continues to believe that
an accommodative stance of monetary policy, coupled with still
robust underlying growth in productivity, is providing important
ongoing support to economic activity. The Committee judged that
a slightly more expansive monetary policy would add further
support for an economy which it expects to improve over time.

If the statement is the same then why the negative reaction?
First that was a 50-point cut in November and only a 25-point
cut in June. Ok, so maybe the Fed thinks things are better now
than then. Hold that thought. In the June release the "risks
are balanced" comment from November was replaced with "The
Committee believes that the risk of an unwelcome substantial
fall in inflation exceeds that of a pickup in inflation and
is likely to predominate for the foreseeable future." (edited
for space and readability)

The bottom line was an additional cause for concern and a less
than aggressive response. After the minutes of the May meeting
were released this week there appeared to be more fear and less
ability to actually do anything about it among Fed members. The
market read between the lines and started taking chips off the
table. Ironically the bond market has sold off strongly since
the meeting. The Fed cut 25 basis points to keep rates low and
stimulate the economy but real rates as set by the bond market
actually ROSE by 50 basis points as of Friday's close. Even
more amazing, the cash coming out of the bond market did not
flow into the stock market. This is really causing concern
among equity traders.

One of the reasons for the shift was a debt offering by GM. The
company announced a $13 billion offering at the beginning of
the week. The demand was so strong for the paper the deal was
raised to $17 billion and dealers said they could have easily
sold over $30 billion. With yields on the government 30-year
closing Friday near 4.50% and the GM paper yielding 8.375% it
was a no brainer deal for bond junkies. It is no surprise that
the money was sidetracked on the way to the stock market. For
those still holding bonds next week will be another chapter in
the story. Do you continue to hold bonds as they free fall or
was the free fall caused by the massive surge in corporate
paper led by GM. Next week will be critical for the market
direction of both bonds and equities.

On Friday it was clear that some funds were locking in profits
for the quarter with the recent leaders in drugs, biotech,
semis and home builders giving up ground. Before you get the
wrong idea it was not a washout. Far from it. There was not
enough volume for a washout with only 3.2 billion across all
markets. This was the lowest volume day since April 28th. It
was not a case of a trend change more than just a case of
simple profit taking and a buyer boycott.

The $64 question is what happens now? I am not going to repeat
the entire historical trend conversation from my Tuesday wrap
but it is critical for understanding what is ahead of us. Read
it here if you missed it.
http://members.OptionInvestor.com/MarketWrap/mw_062403_1.ASP The bottom line is cash flow. Sellers for the end of the quarter were expecting to sell into funds trying to window dress their statements with uninvested cash. It was apparent on Friday there was no cash flowing into the markets. Are the funds going to wait until Monday and do all their buying at once? I seriously doubt it. While I, like other analysts, thought we would see some end of month gains it appears now that the funds were already in the market to profit from the pre Fed speculation. This sets up a serious potential problem of which Friday may have been a clue. If all the funds are all dressed up with nowhere to go then we could see them stripping down to their undies soon as they wait out the summer heat. The only thing between the funds and the summer doldrums is the influx of retirement cash over the next ten days. The midyear July cash flow is heavy and typically the first week of July is by far the strongest if not the only bullish week of the month. With the bond junkies running to the "safety" of corporate paper instead of the equity market then there must still be a perception by institutions that the economy is not recovering. Despite several glimmers of hope in recent economic reports is it that "substantial unwelcome fall in inflation" that is weighing on investors? Could be but I believe it is simple profit taking instead. It is not SARS impacting the market it is just a cold. That does not mean we may not spend some time resting once the fever rises. SPX Chart - Daily On Thursday I warned that the S&P had strong resistance at 988-990 and if we made it over that we could be ready to rock next week. Unfortunately the S&P made it to 989 and died. It closed at 976, -23 points lower. This puts us in a unique position. We are well off the highs and resting on solid support at 975. We can go either way without running into serious traffic for about 25 points. This sets up the potential for a very volatile Monday if not a volatile week. The Dow closed just barely under 9000, right on strong support and poised to either rebound or retest the next major support at 8500. This is not a cheerful thought but one all investors should consider. I suspect many of the funds considering end of quarter buying weighed the possibilities and decided the risk was too great. The potential for volatility next week is strong due to several different influences. The Russell-3000 is being rebalanced, which means nearly 500 companies are being added or subtracted from the indexes on Monday at the close. The S&P is also being adjusted and that could cause a considerable increase in volume. Companies like IBM, which increased its outstanding shares by +2.2% will have to be bought by index funds to increase their holdings by +2.2%. Conversely Comcast bought back 66 million shares an fund managers will have to reduce their holdings. Multiply this by several dozen companies in the S&P and around 500 in the Russell and you can see why Monday could be exciting. Rebalancing puts pressure on indexes because the stocks being deleted after the close are being sold during the day and the new stocks being added/bought do not influence the index until the following day. Beginning on Tuesday any fund that was holding winners over the 2nd qtr statement date may decide to dump those winners to lock in profits and then buy back on the annual summer dip. Considering how much profit we have in the last three months of gains this could produce a serious downdraft. Holding up this downdraft could be the influx of retirement cash in the first ten days of the month. The normally bullish holiday shortened week is also packed full of serious economic reports. Monday is PMI, Tuesday ISM and Thursday is the jackpot with Jobless Claims, Nonfarm Payrolls and ISM Services. This is not going to be a week for the feint of heart. NYSI Chart - Daily As traders we need to be prepared for either direction. The rising interest rates are going to impact stocks. Homebuilders are already starting to fall as mortgage rates did exactly the opposite of what the Fed wanted. The S&P is facing a crucial technical test at 950 which is the 50 DMA and a launching point for the June rally. In short the recent rally is weakening internally and this week will be a critical test. The market is due a rest and whether that rest begins on Monday or follows the historical norms for a drop later in the month, it will rest. My recommendation remains the same only from a lower level. Instead of going long if we broke resistance at S&P 990 as I suggested on Thursday I would go long on any dip on Monday as long as we stay above 950. Friday gave us the benefit of a lower entry at strong support if there is a rebound in our future. The last day of June down eight of the last eleven years. This is probably related to the index rebalancing and the selling of the stocks being deleted. If we do follow the July norms and move up be prepared to exit as we reach resistance points of 990, 1000 and 1015 if weakness appears. This is a critical period for the markets and one where a lot of money can be made if an investor is paying attention. It is not a buy and hold market and it could move very fast under the right conditions. Keep those stops in place regardless of your position. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Two moves and chop Jonathan Levinson That's what equity futures gave us on Friday, rallying 10 points off the morning low, drifting down from the top into a sideways chop and then collapsing in an intermittent plunge to the lows of the day. Treasuries opened strong but weakened through the session, and gold remained flat in positive territory. 3 minute ES candles Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 934 983 978 967 962 YM03U 9135 9043 8994 8902 8853 NQ03U 1244 1224 1211 1191 1178 10 minute chart of the US Dollar Index Other than a brief dip below the 95.00 level, the US Dollar Index remained strong throughout the session. Despite this, gold, the precious metals indices, and the CRB were all positive. Daily chart of August gold Support at 344 continues to hold for the August gold contract, as the oscillator downphases continue to play out. 230 support on the commodities index, the CRB, also continues to hold, with the CRB up 1.58 to 233 on Friday, led by cocoa, heating oil, platinum, cotton, crude and frozen concentrated OJ futures. Nevertheless, on the weekly candle chart, this week's print completed a bearish three black crows candle formation, suggesting that support may fail to hold at the current level. Daily chart of the ten year note yield There was a blowoff spike lower on treasury yields which reversed through the session, bringing yields to close positive again, with the five year yield (FVX) adding 4.4 basis points to close at 2.4943%, the ten (TNX) up 4.7 bps to 3.481% and the thirty (TYX) up 4.6 bps to 4.608%. The TNX closed on a weekly bullish hammer, indicating a potential key reversal this week. Daily NQ candles The NQ printed a higher high and higher low in Friday's session, but it didn't feel as bullish as it sounds. The day's action left the oscillators in downphases on the daily chart above and in the 30 minute candles below. But the daily uptrend remains to be seriously challenged, despite the failure of the NQ to advance this week, printing a red candle following last week's gravestone doji. 30 minute 20 day chart of the NQ We see the head and shoulders topping setup on the 30 minute candle chart, with a tentative neckline at 1190, tested Thursday but not on Friday. The stochastic downphase indicates that the downphase should be nearing its end at the neckline, unless it begins trending lower, setting us up for a battle royale at 1190. Daily ES candles ES failed to set a lower low during Friday's session, but the moves lower (profiled in detail at the top of this page) had a rapid, impulsive feel to them that downmoves have been lacking throughout the bulk of this year's rally. As with the NQ and YM, this was a negative week following last week's blowoff top, and the head and shoulders formation visible in the 30 minute charts will be a textbook top, if it plays out, 20 day 30 minute chart of the ES The session closed right at its lows, not 2 points above the low of the week, and on a clear downphase in the stochastics and confirmed by the MacD. I don't think the neckline is going to hold, but the oversold short cycle oscillators (in the 3 minute candlechart at the top of the page) could have an opening bounce in store for us on Monday. If my neckline is correct, the ES could be good for a 44 point drop on a neckline violation that fulfils the h&s pattern fully to the downside. Daily YM candles Same picture on the YM candles, except that Friday was a lower low for that contract, the only one of the 3 equity futures. 20 day 30 minute chart of the YM I don't personally agree with this interpretation, but the chart above bears it out. Putting on bullish goggles, we can see a bullish descending wedge, and an upside break of the upper descending trendline would project to the rally highs if the patter fulfils. The oscillators do not say that the closing low is the bottom, and I expect to see this wedge violated to the downside, but for variety and editorial neutrality, I could not resist inserting it. Friday's session completes a week of reversals, with treasury bonds jerking to the downside and printing a bullish hammer on the week's ten year yield candle chart, and equities printing bearish engulfings following last week's shooting star/gravestone doji candles. Gold continued its march lower but held at resistance, and the US Dollar Index continued its second successive positive week. Most notably, we are seeing treasury bonds and equities declining together, confirmation of my ongoing theory that this year's rallies in stocks and bonds were the result of massive injections of liquidity from the Fed. Note that while the Fed eased this week and added some substantial sums via daily open market operations, equities fell and treasuries tanked anyway. For next week, I expect to see more of the same: lower prices for bonds and equities. There's nothing bearish on the US Dollar Index, and nothing particularly bullish for gold and the CRB, other than its respect of support at higher lows so far. But the moves are not over, if the oscillators are any indication, and next week will be an important one for gold and commodity bulls in particular. I will also be interested to see what the Fed does about the selling in treasuries, because as we've discussed over the past year, a rally in yields would be disastrous for the credit bubble, with mortgage defaults and personal bankruptcies already at significant highs. I expect to see the Fed intervene to arrest the runaway in yields before it goes too far, based on the above and statements by the Chairman and Governor Bernanke in particular. As for equities, I'd be surprised if they're concerned about those markets one way or the other. ******************** INDEX TRADER SUMMARY ******************** Up into the expiration, down from there By Leigh Stevens Examples of things I've heard in the past from professional index option traders about an expiration: the way it was "set up" was that the it (the market) would be down into a major option expiration (a potential up from there was implied), or, like this last one, UP into the expiration, then down from there. No need to take out a conspiracy theory, but the aforementioned situation was simply a result of the reality of the market money flows - there was a lot of put selling as the floor saw that the institutions were buying stock and would into the Q2 end so they played the market to be up into the expiration and kept selling puts - mostly to individual speculators who were buying, although there was some portfolio hedging going on too. Hey, you get habituated to a bear market after 3 years! THE BOTTOM LINE - My short-term downside objectives were met last week, save one - the S&P 500 (SPX) got to 980 in SPX; to the 490-495 price zone in OEX; to 1600 in COMPX - the Nasdaq 100 (NDX) Index got into the 1180 "area" if you count an 1186 low, but I suspect we'll see 1180 this week (or lower). What now and would I play it further to the downside in puts? I took the money and ran myself. It looks that is some more (note the word "some") downside, especially apparent when I look at the QQQ chart. But, I myself don't see a further big down leg developing. We're in summer doldrums when the market tends to drift. Especially so since a good improvement in earnings in the second half is ALREADY priced into the indices. Q2 earnings announcements are still a ways off, so no help there, at least this coming week. When (Q2) earnings do start coming in, it seems likely that individual stocks will get plays on better or worst than expected numbers, but the overall market will likely tend to drift - sideways to lower, but not dramatically lower. It took me a long time to get the BOTTOM LINE with this, but I think the market is in a period of CONSOLIDATION and is giving back some gains from lows to the peaks to date - not surprising after such a good run. I'll visit specific numbers with the index charts below. LAST WEEK and FRIDAY'S TRADING - The Dow Jones Industrial Average declined about 90 points on Friday (to 8989) on low volume, while the Nasdaq Composite (COMPX) down about 9 points (to 1625.28.) The S&P (SPX) 500 Index was down 9.60 (to 976.22.) For the week, SPX was off 2%, the Dow industrials in line with this at 2.3%, and COMPX gave back 1.2%. With the Fed policy review over and some economic reports out of the way, market talk is that there is little incentive for much further buying by investors. ECONOMIC DATA RELEASED FRIDAY - The data overall gave some indications that consumers will continue to do their part - SPEND! - in helping boost the economy, but market participants were not listening. Just after the opening, my almost alma mater (I ended up going to Western Michigan University instead), the University of Michigan came out with stronger than expected consumer confidence survey numbers for June. The report came in at 89.7, higher than the June's preliminary reading of 87.2, but still below May's 92.1 reading. Personal income, which is a lagging figure, was released for May by the Commerce Department and that agency indicated income rising by 0.3% in May, which follows a revised 0.2% gain in April. April had first been reported as unchanged. The uptick in income gave a boost to Commerce's consumer spending estimate, which was indicated as rising by 0.1% after also increasing by a revised 0.1% in April. The April figure was initially reported as a decline of 0.1%. A consensus was for a 0.3% increase in incomes and a 0.2% increase in spending. SOME INDIVIDUAL STOCKS IN THE NEWS - Microsoft (MSFT) fell a half percent as tech stocks came under renewed pressure in afternoon trading. CS First Boston raised its Q4 earnings estimate based on stronger PC unit growth and gains in the server market. Hey, no news like good news - well, it was a down day. General Motors (GM) gained a half percent after pricing its record-setting corporate bond offering late Thursday. Nike (NKE) was a big story in an otherwise slow Friday and fell nearly 7% after announcing (late Thursday) its fiscal Q4 profit that was a bit less than expectations. Merrill cut its rating on NKE to "neutral" from "buy" following what it considered to be "disappointing results". The sneaker giant reported a 19% increase in earnings and only narrowly missed the Wall Street consensus. A strong rise in sales overseas offset declining orders in the U.S. Nike also blamed part of coming in under expectations to lower sales from rival Foot Locker. Hey, my dear ol pappy said that anytime you make even 10% more than before, pat yourself on the back - however, he didn't toil on the Street of Dreams. It's always about the expectations as the stock tends to get prices based on the consensus number. I had a stockbroker friend who used to keep select (consensus) numbers programmed into his watch. So it goes with the "funny"-mentals. OTHER MARKETS - The 10-year Treasury rose just under an eighth of a point ($1.25 per a $1,000 bond). The 10-year yield fell to 3.540%. The dollar closed against the Yen at 119.58, up from 119.40 late Thursday, while the euro rose against the dollar to $1.1430 from $1.1420 in the prior New York close. Since currencies trade 22 hours a day - why not 24? - another time grasshopper, but it has to do with the gap before the Kiwi (New Zealand) opening and the international date change line. Once again, I digress - since the buck trades round the clock (almost), you have to look at closes relative to the time zone you're in - at least that's the convention in the FX markets. I know currency traders who, when they can't sleep, perhaps do a little trading in Hong Kong. I prefer counting sheep! INDEX OUTLOOKS – GOLD - NO SUSTAINED BREAK OUT IN "XAU" AFTER ALL Opps! - looks like the prior week's "breakout" above the trendline per the Philly Gold and Silver Index (XAU) chart below, may have been a head fake. Now this doesn't surprise me, although I USUALLY figure that the charts are "telling" me something that I don't know, don't know yet, or WILL know later on. I mean, with very low inflation and with deflation as more of possibility, what incentive to buy gold?! - gold being traditionally a safe haven again puny financial assets (like stocks and money) that are prone to government foolery and devaluation. Of course there is the unrest and turmoil theory of gold's value, such as when undertaking cross border crossings in Afghanistan with gold in your pocket. Anyway, more traditional investors seemed to want to put some gold profits in the bank (under the matress?) after the run up of the past few weeks. Some sanity creeping in with the U.S. roadmap implementation between Israel and the Palestinians may have helped too. S&P 500 (SPX) - Hourly chart: Last week got us to the first area of technical support in SPX based on the low end of the uptrend channel - also, support implied by a 38% retracement. I think SPX can get down closer to 960 if the low end of the channel gets pierced - in which case the whole pattern looks like a complex Head and Shoulder's top. However, I just ain't that bearish to expect it - the sellers are just not going to be out in that kind of force absent some very unexpected negative like domestic terrorism over the 4th or something like it. On balance, I favor buying calls in the SPX 950-960 zone for a hold through the earnings period ahead. I would also do a smaller short-term put trade buy on rally failures to the 990 area. It continues to look that even 1000 mark is pretty tough resistance - its going a definitely improving economy to power the S&P 500 through 1000 - ditto, through 500 on OEX. S&P 100 Index (OEX) – Daily chart: The extreme reading in my CBOE call to put daily volume ratio both on a daily reading and on a 5-day basis, was the tip off in bullish "sentiment" that was too hot not to cool down. A high American Association of Individual Investors (AAII) percent - furgettabotit! Too hard to read these changes and I studied em for years trying to find correlations. No, daily call to put volume, CBOE equities - when the ratio of total call volume to total daily put volume gets close to 2.5, the market is "overbought" - down close to 1, the market is "oversold". Simple! - but of course, any such indicators needs to jive with what else is going on, such as the PRICE/RSI divergence seen below - Looks to me that the 470 to 480 price zone will be the area to buy calls again if this is realized over the next 2 weeks. Stay tuned. 500 looks to be an area where puts could be bought for a short- term down side play. When the RSI gets back to or near that green line - a reading in the 30/35 area - it becomes a technical consideration as the market is getting oversold at that point. Hard to say what price level, but a low RSI reading does indicate a potential to rally. Dow Industrials (INDU) Daily & Hourly (DJX.X) charts: 88-89 is suggested as support in DJX. 8750 is support implied by a "line" of prior tops in the Industrial average. This is an area where I will be evaluating for possibly call purchases again. The Dow especially - less so with SPX and OEX - is known for breaking trendlines, then reversing at some point that is not near any obvious support. On the other hand, for some weeks now, the Industrials have been trending upward within a well-defined channel. I suggest also watching the Dow's ability to hold its 50-day moving average (at 8775 currently) with a definite bullish plus if it does not pierce this value for more than a single day - the 200-day average is also key in a more major way and I think we can assume that we will not see the Dow below 8400 in the coming month (or wherever the average has risen to - rising or falling quite slowly of course). Nasdaq Composite Index (COMPX) – Hourly: The Nasdaq rose further on the run up and it should fall further on the pullback or in this consolidation. The below hourly chart continues to look bearish in its pattern. I think there is another downswing coming - perhaps to 1550, which I mark as support. COMPX would need to close above 1650, and stay above this area on subsequent pullbacks, to turn the chart more bullish for the short-term. I'll be looking to buy Nasdaq index calls like NDX around 1550 in the Composite and buy puts in the 1650 area, also keying off the COMPX chart levels. Nasdaq 100 Tracking Stock (QQQ) - Daily & Hourly: My target in the Q's has been for a move down to the 29 area at a minimum, with an outside chance of eventually slipping to more major support around 27.50-27.0. Hey, tech stocks are "rich" relative to earnings and the big money crowd is unlikely to step in and do wholesale buying of tech stocks while momentum is down as it is currently. 28.50 is a "minimum" downside price target implied by the bear flag on the QQQ daily chart, a target just under the 50-day average. I would happily take profits on short QQQ stock in this area. Good Trading Success! ************************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 ************************************************************** ************** Editor's Plays ************** High Odds Bets What a perfect week for a laddered entry on the market. The market is at critical levels and the last day of June has been down eight of the last eleven years. The indexes will be under pressure from the rebalancing and volatility could be rampant by days end. Beginning Tuesday we start the strongest ten days of July and the odds for another retest of the recent highs is a good possibility. As we near July 14th the odds are even better for a significant drop, maybe as far as Dow 8500. Now that we have the ideal scenario let's see how we can play it for maximum gain and minimum loss assuming it does not go according to plan. Normally if I am expecting the market to go up I would try to buy a call as insurance against the puts I am going to ladder into as the market rises. The index I am going to use is the DJX as it most represents the Dow. The DJX closed on Friday at 89.89 and the near the money July options look like this. July 90-call DJV-GL $1.45 July 91-call DJV-GM $0.90 July 92-call DJV-GN $0.65 We can expect some shrinkage in the July option prices over the weekend but not much. Assuming we do get a dip on Monday that would also help our cause. Pick whatever option you want but I am going to use the July-$91 call as the example because I think I can buy it for 75 cents on any Monday dip and I think the Dow could get back to 9100 in a perfect world. That would push the option back to about $1.40-$1.50 and nearly a 100% gain in price. If we are lucky enough to hit 9200 all the better. On the put side I would like to buy August puts for the extra time to get through the end of July. With only three weeks until July expiration that does not give us enough chance to fully benefit from a drop that might start around July 10th-14th. Looking at the Aug-90 put today gives us a clue as to what it will be worth on the next trip down. (assuming we do bounce) The Aug-$90 is $2.65 today. Also assuming the Dow will get back to 9200, (I know big assumption) we can look at the Aug-88 put today to see what the $90 put will cost at Dow 9200. It is showing $1.80 today after a -100 point Dow drop to pump up the price. I would bet that by the 10th we could buy that option between $1.25 and $1.40 or less IF the Dow gets back over 9150. (another big assumption) To reduce the cost of the play we are going to use the Aug-88 puts. Based on the historical July trends for the last five years we can easily deduce that 8500 is a potential target. That would be the perfect scenario. OK, so let's assume we want to end up with 12 contracts of the Aug-$88 puts. I am using 12 because it divides evenly into four units. You can use 16 or 20 or 40 or whatever turns you on. Using 12 I want to buy 3 contracts at each of four levels on the DJX. The reason we ladder the entry is that we do not know how high the Dow might bounce. It could stop anywhere and retreat suddenly. If we knew the top in advance then we would just wait and buy all 12 and ride them down. (If I knew the Dow was going to stop anywhere over 9000 and then fall to 8500 I would buy lots more than 12!) The problem is we do not know where it will stop OR if it will stop at all. The calls are our insurance against a Dow that does not stop. Here is the plan: On Monday we are going to buy the July-91 call and try to get them for 75 cents. We are going to buy 10 contracts for every 12 put contracts we are planning on buying. This call is for insurance ONLY. More later. On the puts we are going to set four levels to enter trades. At each level we are going to buy 3 contracts of the puts at MARKET. The option prices listed are only estimates for reference. Buy 3-Aug-$88 puts DJX-TJ at DJX 90.50 (est price $1.60) Buy 3-Aug-$88 puts DJX-TJ at DJX 91.00 (est price $1.45) Buy 3-Aug-$88 puts DJX-TJ at DJX 91.50 (est price $1.25) Buy 3-Aug-$88 puts DJX-TJ at DJX 92.00 (est price $1.10) Assuming you get triggered on each set you will be in at an average cost of $1.35 per share or about $1620 total for all 12 contracts. If you feel adventurous you can try lowering your average cost by unequally weighting the quantity at each level. Buy 2-Aug-$88 puts DJX-TJ at DJX 90.50 (est price $1.60) Buy 2-Aug-$88 puts DJX-TJ at DJX 91.00 (est price $1.45) Buy 4-Aug-$88 puts DJX-TJ at DJX 91.50 (est price $1.25) Buy 4-Aug-$88 puts DJX-TJ at DJX 92.00 (est price $1.10) Assuming you get triggered on each set you will be in at an average cost of $1.29 per share or about $1550 total for all 12 contracts. Buy 1-Aug-$88 puts DJX-TJ at DJX 90.50 (est price $1.60) Buy 2-Aug-$88 puts DJX-TJ at DJX 91.00 (est price $1.45) Buy 3-Aug-$88 puts DJX-TJ at DJX 91.50 (est price $1.25) Buy 6-Aug-$88 puts DJX-TJ at DJX 92.00 (est price $1.10) Assuming you get triggered on each set you will be in at an average cost of $1.24 per share or about $1485 total for all 12 contracts. You can see there is not a really material difference in the average cost and any failure to reach the DJX 92 level would actually reduce the amount of profit you can make. If you want to get wild and crazy just buy a three more at DJX 92 and don't tell your spouse. (just kidding) Now, here is how the insurance works. You buy the July $91 calls on any dip on Monday. (or whichever calls you like) I am hoping for Dow 8950 and I am going to make that my target for entry give or take a few cents. I am going to try and buy it for 75 cents or less but the important thing is to buy it. Do not get caught up trying to penny pinch and letting it get away from you. Whatever it is if the Dow bounces at 8950 is what I am paying. Let's assume we get it for 75 cents. Ten contracts would be $750. We are looking to pay somewhere in the $1500 for all the puts if we get lucky and all entry levels are hit. Now obviously we have a total out of pocket somewhere in the $2250 range. Can we lose it all? Sure but we would really have to be unlucky and work at it really hard. If you buy calls at 8950 and buy puts at 9200 then one side or the other should be profitable and defray the total cost. It is not my plan to end up with a combination play. Personally if everything went according to plan I would look to sell the calls immediately upon the last level of puts being filled at 9200. That would make my $91 call worth about $2.05 and reduce my total exposure to only $245 on 12 contracts of the puts. Obviously this is not going to happen. Something is going to fill differently and the numbers will be different but you get the idea. Also, obviously if the market was going up like a rocket when the 9200 level was hit I would wait until it slowed before selling the calls. Ideally we could hit 9300 and make a profit on the calls that exceeded our cost in the entire play and then have the Dow crash to 8500 as expected. I am not naove or stupid enough to think any play will go exactly as scripted in my lifetime. Something in the way I diagrammed this will go wrong. The most likely event will be a stall somewhere in the rebound and we will not fill all the puts. That means we are left wondering where to sell the calls. I say wondering because the market never tells us when it has reached a top. We always think it will bounce again to the next level. If you never sell the calls you can still make money. They only cost you $750 in the example. The key is to sell the calls once you have filled on ANY puts if the Dow drops below 9000 again. This removes your insurance but you have profitable puts should that happen. If the Dow rebounds over 9000 then you should consider buying them back again. This is a sample order entry at Preferred Trade where I am going to enter this trade. This triggers a market order to buy when the DJX hits 90.50. It is good until cancelled. Preferred Contingent on Stock Option Order Entry I will load up all four PUT orders on Monday and let the system do the work for me. The order for the calls I will enter manually as any dip progresses. Summary: We are going to buy the July-$91 calls on any dip on Monday. We are going to buy 12 contracts of the puts with 3 each at 90.50, 91.00, 91.50, 92.00. We will sell the calls at 92.00 unless the market is moving up fast but not below 92.00 if it rolls over. If we do not reach 92.00 then we will sell the calls as close to the last put strike filled as possible and cancel any remaining put orders. If the market is moving up strongly over 92.00 then we can continue to buy 3 contracts at each 50 point Dow increment as long as we are holding the calls as insurance. If the market fails to rebound on Monday/Tuesday we will exit the calls at 89.00 for a loss and cancel the play. Exit strategy: In theory the Dow COULD retest 8500 in late July or early August. I would plan on exiting the puts at 8600 if at all possible. Nothing ever goes completely according to plan so this part is very flexible. We will establish some stop losses once we get to the profit part to avoid problems then. If we were lucky enough to get filled at 92.00 and lucky enough to have sold our calls at the same time and lucky enough to have the Dow actually drop to 8600 then the 12 contracts of puts should be worth about $2 each or $2400 with a cost of less than $500. Obviously this is the perfect scenario and requires a perfect range of movement. We do not live in the town of perfect and I doubt you do either. I think I covered most of the possibilities but I am sure there is something I missed. I will update this play in the market monitor as each order is triggered. There is risk in this play. The risk can come in many different ways and you should not undertake this strategy if you do not understand and accept this risk. DJX Chart - 30 min ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. MSTR Call from June 22nd. Busted! This Russell shuffle candidate did not move up on Monday or Tuesday. With the directions to not play MSTR until it starts to move up again I wrote this one off on Tuesday. Wednesday it gapped up at the open but never confirmed. Writing this one off as busted. Evidently the suit verdict was more important than I thought. http://members.OptionInvestor.com/editorplays/edply_062203_1.asp MANU Call from June-8th $4.56 ($4.75 when triggered) The MANU play submitted by James Breeding two weeks ago finally drifted down to support and we entered the Jan-2004 $5 call for $1.05 when the stock hit $4.75. We lowered the entry point when the stock suffered after earnings this week. Unfortunately it kept dropping but appears to have held on support at $4.50. http://members.OptionInvestor.com/editorplays/edply_060803_1.asp EMC Call from Feb-2nd $10.29 ($7.70 when recommended) http://members.OptionInvestor.com/editorplays/edply_020203_1.asp Powerball Still holding up but the portfolio dipped back to just barely profitable on the market weakness. Without RFMD at -$1.70 it would still look significantly better. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Zooming out I read an excellent book entitled "Faster", all about time and the effect of its acceleration in our lives. One example was of traders, and how we have progressed from making mostly long term investments to trading very, very small increments of time. For leveraged traders, this is a matter of caution and survival, as time equals risk in the market, particularly if holding time- sensitive securities such as options. Nevertheless, we can lose focus this way, and it's useful to get some perspective on the longer time frames, best done outside the regular trading session. The monthly candle charts tell the story. We have gravestone doji prints for this month ending on the Dow and Nasdaq unless Monday sees a monster rally back to the year highs. This candle print is also known as a "blowoff top", in which the buyers evaporate at the very top, and the price tumbles quickly enough to leave only a spike top or "shadow" at the top of the candle body. We have the same formation in reverse on treasury note yields, which move inversely to treasury bond prices. In other words, we have both bonds and stocks topping on a blowoff spike this month. We have a bullish hammer with a spike bottom on the US Dollar Index. Because these formations are on monthly charts, in which each candle equals on month, it will take more than the usual intraday or multiday volatility to alter them. This is useful in formulating your short term trading bias, because it helps you see where the broader trend (or in this case, trend change) may be. If we do see large counter moves, we can go back to the long term charts to re-evaluate. In reviewing the various data below, keeping these broader price setups in mind should help round out your view of where the indices seem to be going next. ------------ Editor note: There were some drastic changes in the outstanding positions for the COT report this last week (reflecting the futures expiration last Friday). See the changes below. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9410 52-week Low : 7197 Current : 8989 Moving Averages: (Simple) 10-dma: 9158 50-dma: 8781 200-dma: 8374 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 976 Moving Averages: (Simple) 10-dma: 993 50-dma: 952 200-dma: 892 Nasdaq-100 ($NDX) 52-week High: 1265 52-week Low : 795 Current : 1205 Moving Averages: (Simple) 10-dma: 1218 50-dma: 1165 200-dma: 1040 ----------------------------------------------------------------- More of the same... volatility indices slipping lower. CBOE Market Volatility Index (VIX) = 21.71 +0.09 Nasdaq-100 Volatility Index (VXN) = 30.93 +0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.99 435,027 432,610 Equity Only 0.81 359,669 291,430 OEX 1.19 14,032 16,753 QQQ 1.75 21,943 38,444 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 71.2 + 0 Bull Confirmed NASDAQ-100 76.0 + 0 Bull CORRECTION Dow Indust. 83.3 + 0 Bull Confirmed S&P 500 78.8 + 0 Bull Confirmed S&P 100 81.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.57 10-Day Arms Index 1.31 21-Day Arms Index 1.23 55-Day Arms Index 1.16 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 1338 1398 Decliners 1494 1648 New Highs 79 116 New Lows 7 8 Up Volume 418M 553M Down Vol. 1002M 945M Total Vol. 1451M 1522M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 06/24/03 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 After last week's quadruple witching Friday rolled around, we witnessed a HUGE collapse in outstanding positions in both longs and shorts almost across the board. For the full S&P 500 contacts, the commercial long positions dropped 114 thousand to 405K and the shorts dropped 52 thousand to 447 K. This produced the first bearish net negative (more shorts than longs) in quite a while. Small traders saw significant drops of 42K in longs to just 159 thousand and 98K short positions evaporated to leave 85K. This produced a very strong net long position. Which is exactly how these COT reports are traditionally read. The Small Traders always tend to do the opposite of the "smart money" or Commercials. Unfortunately, it is the commercials who tend to be correct most of the time, and they're newly bearish on the S&P. Commercials Long Short Net % Of OI 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% 06/24/03 405,382 447,526 (42,144) (4.9%) 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 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% 06/24/03 159,405 85,182 74,223 30.3% 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 The same scenario took place in the S&P 500 e-mini contracts. There were massive drops in outstanding positions. Commercial traders dropped 156 thousand long positions and 459 thousand short positions. This drastic reduction has produced the most bullish reading of the year for the e-minis. As expected, the small traders took the opposite role and produced the most bearish reading. This was due to a massive reduction in outstanding long positions of 382K versus a drop of just 26K in small traders' aggregate shorts. Commercials Long Short Net % Of OI 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%) 06/24/03 150,208 201,724 (51,516) (14.6%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: ( 51,516) - 06/24/03 Small Traders Long Short Net % of OI 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% 06/24/03 84,081 44,347 39,734 30.9% Most bearish reading of the year: 39,734 - 06/24/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 The same disappearing act of outstanding positions occurred in the NDX 100 futures as well. Commercials dropped some 32K in long positions and 18K in short positions but this left them with their most bearish position in quite some time. Small traders, reacting in lock step mirror image, produced their most bullish net long position with a major drop in outstanding shorts. Commercials Long Short Net % of OI 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%) 06/24/03 28,780 47,425 (18,645) (24.4%) Most bearish reading of the year: (18,645) - 6/24/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 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% 06/24/03 24,519 7,064 17,455 55.2% 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 Small traders of the DJIA futures didn't do much other than reduce a good number of outstanding positions but it was the commercials who cut a number of shorts that produced a new relative high in outstanding longs. Commercials Long Short Net % of OI 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% 06/24/03 19,373 11,565 7,808 25.2% 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 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%) 06/24/03 5,950 7,442 (1,492) (11.1%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *************** ASK THE ANALYST *************** Shorting stocks that have come too far and too fast Jeff, If I expect a significant decline in the coming weeks, what are the best filters to pick stocks that have gone up too far and too fast? Are these the stocks that should fall the most? Is my thinking on the right path? It is so tempting for traders with a bearish outlook to trade short/put in stocks that LOOK like they've moved way to high in a rather short amount of time. Some stocks have done so which also LOOK to have less than spectacular fundamentals. I've seen and you probably have too, traders waist time and money when trying to trade short/put stocks that LOOK like they should be ready to fall, only to see the stock that has been in favor and actually leading a broader market advance, either extend gains when a broader market decline does take place, or hold steady when weaker stocks that lagged the broader market move higher become the "best performers" to the downside when the broader market decline takes hold. There are multiple screens a trader/investor can perform to find "tomorrow's losers" on thoughts a major decline is in the making. The BEST screen that I know of is relative strength. To be a believer in relative strength, you must believe the following. A stock with GOOD/STRONG relative strength when compared to a major index or comparable sector it is associated with, is a stock, for whatever reason (fundamentals, hope, momentum, cool product, trendy, etc.), is garnishing more buying than other stocks in the broader market (more than 50% of all stocks) and is IN FAVOR with the market and attracting BULLISH capital. A stock with POOR/WEAK relative strength when compared to a major index or comparable sector it is associated with, is a stock, for whatever reason (fundamentals, hope, momentum, boring product, not trendy, etc.), is not garnishing more buying than other stocks in the broader market (less than 50% of all stocks) and is OUT OF FAVOR with the market and may actually be attracting BEARISH capital, or short interest. I'm not going to go into great detail with Relative Strength in this column, as I would most likely just be repeating the basics discussed in my December 29, 2002 article "Relative strength, but with X's and O's." http://www.OptionInvestor.com/ask/ask_122902_1.asp I'm also not going to go into great detail regarding the sector bullish %, which will often give the trader/investor first indication of a GROUP of stocks, or sector, that is an early loser of favor after a broader market move higher, where suddenly, or even gradually, one-by-one, stocks within that sector begin giving sell signals and the sector bullish % begins to slip lower as if it were a fish swimming against the broader market's current. Why do stocks give point and figure sell signals? Because supply of stock is beginning to outstrip demand. Sector bullish % has been discussed as recently as March 16, 2003 in "Market, sector, stock, with the bullish percent distribution" http://www.OptionInvestor.com/ask/ask_031603_1.asp and we reviewed that later on June 1, 2003 in "Market, sector, stock and a March 16 review." http://www.OptionInvestor.com/ask/ask_060103_1.asp We also ran a basic "stock screen" for bearish stock candidates on June 1, 2003 looking for stocks that met the point and figure criteria listed in that Ask the Analyst column. The sector bullish % don't just "work on the way up," they work on the way down too! Now, I'm getting somewhere becomes the thought. Relative strength, or lack of relative strength in a stock, that's in a sector that may be losing favor? What a great idea. Since I am such a strong believer in sector analysis let's quickly get updated on the sector and major market bullish % bell curve. Here's a week-to-week comparison for week just ended June 27, 2003 and prior week ending June 20, 2003. Sector Bell Curve Comparison The first "screen" a bearish trader may look to use is a screen that says.... "give me all the stock within the precious metals, biomedical, building, pharmaceutical and real estate SECTORS." Another screen would be "give me all the stocks within the NASDAQ-100 Index." Now, we know for a fact that there are several "biomedical" stocks within the NASDAQ-100 don't we? With the BPBIOM now having fallen from a "bull confirmed" status and bullish % high reading of 76% at its peak, to a "bear alert" status of 68% and now 58.82% reading, it would be my thought that some of the stocks giving sell signals in the biomedical sector, which are components in the NASDAQ-100 Index have attributed to the recent reversal to "bull correction" status in the NASDAQ-100. This might go hand-in-hand with MARKET/SECTOR/STOCK theory, or STOCK/SECTOR/MARKET theory. Perhaps a bear feels he/she "missed the move" lower in biomedical stocks. If so, then they may not have read the June 01, 2003 Ask the Analyst column and taken note of how some sectors and market bullish % can run the gamut of moving from "overbought" 70% levels and above to "oversold" levels of 30% and below. But a bearish trader then at least has some "guinea pigs" that were "best performers" as it relates to a supply/demand pattern to then run some screens. It would be my best guess, that some of the "best" downside performers in the biomedical group are stocks that have given either a point and figure sell signal, and better yet, generated a relative strength sell signal versus the S&P 500 (SPX) to signal the stock was losing favor, or had already been showing relative strength weakness prior to the decline. The sector bullish % also shows a "tie in" with the pharmaceutical sector (BPDRUG). How does a drug become a drug without first going through some type of clinical trial or biomedical testing? While this would take more fundamental research as to a drug company relying more heavily on new drugs, there may be a fundamental screening that takes place here to generate a list of stock symbols that a technician would then begin analyzing. A sector that I've been discussing in rather great detail the past couple of weeks has been the homebuilders, and just this week we saw the "building" bullish % (BPBUIL) , which is tracked by Dorsey/Wright and Associates reverse lower to "bear alert" status. A tie in the "building" sector might also be made with the "real estate" sector bullish % (BPREAL), which has been moving higher with the other sectors, but still showing a "bear correction" status as if the sector is still "correcting" from a "bear confirmed" market and would need to exceed the April 2002 bullish high reading of 82% in order to turn back into a more bullish phase of "bull confirmed." It was in April of this year, 2003, that the real estate sector reversed back up from "bear confirmed" status to its current "bear correction" status at 52% bullish. The precious metals sector is also a sector that does exhibit a bearish posture, but as I've noted in prior commentary, this sector bullish % is rather narrow, and it was one stock, Randgold Resources (NASDAQ:GOLD) $16.90, which generated a point and figure sell signal at $16.50 on June 10th to have the sector bullish % reversing to "bear confirmed." That day, the stock also traded $16, and has traded between $16 and $17.91 since, without giving a reversing "buy signal" at $19.00. Since this sector bullish % is so narrow, and rather cluttered with micro- cap gold stocks, it is rather easy to keep track of. And this brings up an important point when looking to trade BEARISH in a stock or sector on thought that a major decline for the markets is at hand. Some thought to a stock screen might also be given as to sectors or stocks that might potentially "benefit" or be more defensive under the scenario of a broader market decline. "Defensive sectors" don't ALWAYS trade defensive, but often times, when money rotates "out" of a more overbought or now falling out of favor sector, it can rotate to a more "defensive" and perhaps less "overbought" sector. For instance. If you're a mutual fund manager and see a broad market decline coming. Would you rather just hold your hand in "overbought" sectors and stocks within those sectors and potentially experience a 10% decline for your shareholders, or move some of those profits into a more "defensive" or less "overbought" sector and stand the chance of gain or 5% decline? Of course, you'll stick with you highly profitable stocks that still have a very bullish scenario yet to reveal itself, but you will most likely be willing to part with 50% of a position if not all of it, if the stock has met the objective of your original scenario and target. And here, perhaps more important than anything, is where the relative strength comes in. I received multiple e-mail in the past 6 months regarding excellent opportunities to short some "internet" stocks. Names most often seen were eBay (NASDAQ:EBAY), Amazon.com (NASDAQ:AMZN) and Yahoo! Inc. (NASDAQ:YHOO). These were "popular" names among bearish traders to short, especially in February and March when the major market averages were declining. Unfortunately for bears in these three stocks, they were still holding "favor" as depicted by their relative strength charts and conventional point and figure charts too! So bearish was one subscriber in Amazon.com that a bullish profile given as the stock broke to a new 52-week high in March of this year, had the trader canceling their subscription as he/she could not subscribe to an investment letter that did not take into account such poor fundamentals and suggest a bullish position in the stock. Traders might take further note of how important relative strength is when screening for both bullish and bearish trade candidates. When looking at the Internet bullish % (BPINET) and looking back to March, it was "first observation" that this was a sector for bulls to be looking for bullish leadership names. But you will note that the BPINET hasn't moved all that far up the scale as one might think, when compared to how BULLISH EBAY, AMZN and YHOO have traded. This is perhaps indicative as to how a stock can gain favor, especially a "sector bellwether," where exposure to a sector move becomes more concentrated in the bellwether stocks. Look at the relative strength charts of any stock to see if it is IN or OUT of favor before trading it. A great screen is to at least look for relative strength on "sell signal." Some very simple screens that a trader can do is visit for FREE, http://www.stockcharts.com and when there, simply click their "Stock Scans" section under "Tools & Charts" One section is the Technical Indicators section. If I only looked at moving averages, I would see that the S&P 500 Index shows its intermediate-term 50-day SMA well above its longer-term 200-day SMA, where this "bullish crossover" took place on May 14, 2003. Might a BEARISH stock screen be to look for stocks where the 50-day SMA is crossing BELOW the 200-day? I'm not schooled in the art of Candlestick interpretation, but in the section just below "Technical Indicator" is a full list of Candlestick pattern. I see 5 different patterns listed under the "Bearish reversal Patterns." 19 NASDAQ and 19 NYSE stocks are listed as having given the "Bearish Engulfing" pattern. Heck, that just sounds bearish doesn't it? I wonder what shape some of those stocks' relative strength is in? "Bearish Harami?" What's that? 15 NASDAQ and 9 NYSE listed stocks gave that pattern. And my favorite! The section below has a bunch of Point and Figure Alerts and various patterns. From time-to-time, I get some time during a day to go hunting for bullish and bearish patterns. My main screen is to click the chart and look at the point and figure chart of that stock that is listed under the pattern. Sometimes I find that they are all "penny stocks" and will just move on to the next set of patterns. However, sometimes I'll find a stock like Maxim Integrated (NASDAQ:MXIM) $34.20, which is a "semiconductor" stock, giving a triple-bottom sell signal at $35.00 and showing a series of lower highs since May. Hmmmm.... that doesn't seem right I'll think to myself. The semiconductor bullish % has been moving higher and higher and higher. Why is this stock giving a rather negative sell signal after holding support at $36 three-previous times? Quick check of relative strength versus the SOX or the SPX, or the NASDAQ-100 shows the relative strength chart on "sell signal" versus all three. Could this be an "early leader" to the downside if the sector turns lower from "overbought" 70% levels, or index it is a component of (NDX) turns "bear alert?". Remember! When screening for bearish point and figure chart pattern and using Professor Davis' probabilities study, make sure that the SECTOR is in a BEARISH phase, and "bull correction" phase at high level of bullish risk (above 70%) before you start "relying" on Professor Davis' findings! Remember that a "bear market pattern" is just that and you really want/need the sector to be in a "bear" phase. If you find a stock that gave a bearish "pattern" a couple of days ago, or weeks ago and it looks like the stock has fallen too far and risk/reward in the trade isn't good right now, don't let the work you just did go without some type of reward. Make a note or set an alert at a level where you would still consider shorting the stock if it rallied back to $xx.xx. When it does, quickly check the relative strength of the stock again to make sure it hasn't suddenly given an "back in favor" relative strength buy signal, and sector status to make sure the sector hasn't become more bullish and perhaps gaining favor! You can create your own CUSTOM scans too based on indications you look for. I haven't used www.stockcharts.com custom scans tool, as I've become more comfortable with Dorsey/Wright and Associates scanning tool. Here... let's run the same exact "scan" I ran on the June 01, 2003 Ask the Analyst column and see what turns up. This is a scan to really try and give me the "weakest of the weak." Give me... (scan criteria) Price between $20 and $100 Stock trades with options (tend to be more institutionally held) Relative strength chart is sell Relative strength chart is O Trend is negative All sectors Sort by sector *** Note: Dorsey/Wright's relative strength scan compares the stock against the Dow Industrials. (I like to compare RS against the broader S&P 500) Today, I get 91 stocks that met my criteria, compared to 100 on June 1st. From the above sector bull curve, I could have limited my search further by precious metals, building, biomedical, pharmaceutical and real estate. Since these are the 5-sectors showing some weakness right now, here's a list of stock symbols that show up. All I really have to do now is look for some good BEARISH patterns from Professor Davis' Study, assess risk/reward in the trade and narrow down the list. Precious Metals ... No stocks found Building .......... TXI, YRK Biomedical ........ No stocks found Pharmaceutical .... BMY Real Estate ....... AIV, EOP, RA.B Hmmmm.... that doesn't give me that much does it? Let's loosen the criteria a bit. Instead of demanding that the relative strength be in a column of O, lets allow relative strength to be in a column of X, but still have to be on a "sell signal" and longer-term out of favor. I got 125 stocks (total) back on this scan. Precious Metals .... No stocks found Building ........... TXI, YRK, HD, WGO Biomedical ......... No stocks found Pharmaceutical ..... BMY, WPI Real Estate ........ AIV, EOP, RA.B, KRC, SFI Hmmmm.... a few more, but not a good enough selection. Boy! This has been a bullish market that has been lifting a lot of boats. Hey... that makes sense. The major market averages are all ABOVE trend, so lets further reduce our screen and take out "below trend" criteria. Maybe it's true that "a rising tide lifts all boats" and why it is so important to follow and understand the various MARKET bullish % indicators. Aha! 343 stocks total when removing trend criteria. Precious Metals .... RGLD Building ........... TXI, YRK, HD, WGO, ELK, HUG, MLM Biomedical ......... BGEN, CELG, CEPH, CHIR, IDPH, IVGN Pharmaceutical ..... BMY, WPI, ABC, ABT, ATRX, AVE, AZN, GSK, ................... LLY, MCK, MRK, NPSP, PFE Real Estate ........ AIV, EOP, RA.B, KRC, SFI, AMB, CLI, CLP, ................... HCN, LRY, SHU, SPG (Disclaimer: The following lists of stocks were generated using general search criteria and is not meant to imply a recommendation for or against that stock.) Now that I've "loosened" up my search criteria a bit, I have a broader list of stock to now look at their INDIVIDUAL charts and further "weed" out those that don't interest me at this point. What will have a stock NOT interesting me on the list is if the stock is trading ABOVE trend and currently has a "buy signal" and bullish vertical count associated with the stock. Why? What if, maybe, juuuust maybe the market knows something about that one stock in the weak sector, and still longer-term negative relative strength, that has that company in possession of THE ULTIMATE PRODUCT or BUSINESS MODEL that is going to blow away its competition in the future? "That's IMPOSSIBLE!" we might argue. Tell that to the Amazon.com (AMZN) $36.30 bear that was short the stock in August of last year when the stock broke above bearish trend at $15.00, gave a double-top buy signal and had a bullish vertical count of $19.00 associated with its chart. Since that day (August 16, 2002) AMZN's point and figure chart has yet to give a sell signal. Jeff Bailey ************* COMING EVENTS ************* ====================================== Market Watch for the week of June 30th ====================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ STZ Constellation Brds. Tue, Jul 01 After the Bell 0.48 EMMS Emmis Communications Tue, Jul 01 Before the Bell 0.02 CKR CKE Restaurants Tue, Jul 01 -----N/A----- 0.05 ----------------------- WEDNESDAY ----------------------------- BMET Biomet, Inc. Wed, Jul 02 Before the Bell 0.30 GUC Gucci Group NV Wed, Jul 02 -----N/A----- 0.35 ------------------------- THURSDAY ----------------------------- None ------------------------- FRIDAY ------------------------------- None ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable FLO Flowers Company 3:2 Jun 27th Jun 30th ARTNA Artesian Resources 3:2 Jun 30th Jul 1st UBMT United Financial 3:2 Jun 30th Jul 1st FRED Fred's 3:2 Jul 1st Jul 2nd IGT Intl Game Technology 4:1 Jul 2nd Jul 3rd MTLG Metrologic Instruments 3:2 Jul 3rd Jul 7th NTE Nam Tai Electronics 3:1 Jul 7th Jul 8th CSS CSS Industries 3:2 Jul 10th Jul 11th NCEN New Century Financial 3:2 Jul 11th Jul 14th CNTE Centene Corp 3:2 Jul 11th Jul 14th ANSI Advanced Neuromodulation 3:2 Jul 11th Jul 14th -------------------------- Economic Reports This Week -------------------------- The shortened holiday week still has plenty of economic reports. Tuesday will reveal the latest Auto & Truck sales data and the ISM index. Thursday has a full load just before the long three- day holiday. Expect more earnings warnings before the Q2 earnings season begins on July 7th. ============================================================== -For- Monday, 06/30/02 ---------------- Chicago PMI (DM) Jun Forecast: 52.0 Previous: 52.2 Tuesday, 07/01/02 ----------------- Auto Sales (BB) Jun Forecast: 5.3M Previous: 5.3M Truck Sales (BB) Jun Forecast: 7.6M Previous: 7.5M ISM Index (DM) Jun Forecast: 50.5 Previous: 49.4 Cnstrn Spending(DM) May Forecast: 0.40% Previous: -0.30% Wednesday, 07/02/02 ------------------- None Thursday, 07/03/02 ------------------ Initial Claims (DM) Jun Forecast: N/A Previous: 404K Nonfarm Payrolls(DM) Jun Forecast: -5K Previous: -17K Unemployment Rate(DM) Jun Forecast: 6.20% Previous: 6.10% Hourly Earnings (DM) Jun Forecast: 0.20% Previous: 0.30% Average Workweek(DM) Jun Forecast: 33.8 Previous: 33.7 ISM Services (DM) Jun Forecast: 55 Previous: 54.5 Factory Orders (DM) May Forecast: 0.70% Previous: -2.90% Friday, 07/04/02 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter                   Sunday 06-29-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: So Many To Choose From
Put Play of the Day: ICOS
Dropped Calls: LXK
Dropped Puts: None


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

Harley Davidson - HDI - close: 40.06 change: -0.74

WHAT TO WATCH: It looks like HDI may need an overhaul.  Shares
have failed for weeks at the $45 level and its 200-dma overhead.
This coincided with strong bearish resistance on its P&F chart.
Now shares of HDI are hovering just above the $40 support level.
A breakdown here could portend a move to the $35.00 level, near
its March 2003 lows.

Chart=


---

IDEC Pharmaceuticals - IDPH - close: 35.20 change: -1.36

WHAT TO WATCH: Wall Street doesn't appear to approve of IDEC's
merger/acquisition of BGEN.  Shares dropped five percent on the
news earlier this week.  It doesn't help that the biotech sector
has been under a lot of profit taking lately.  The breakdown
under the 50 & 200-dma's for IDEC don't look good. We'd consider
a possible short on a move under $35.00 and target the $30.00
area.

Chart=


---

Automatic Data Processing - ADP - close: 33.66 change: -0.65

WHAT TO WATCH: Shares of ADP have not only broken down through
the bottom of its three-month rising channel but have also
collapsed below its rising 50-dma and support at $34.00.  We also
noted that it failed twice at $36.00 in the last month, which
just happened to coincide with its bearish trend on ADP's weekly
chart.  Be careful choosing options as ADP tends to move somewhat
slowly.

Chart=


---

Kronos Inc. - KRON - close: 49.19 change: +1.09

WHAT TO WATCH: Wow! Here's a software stock that was green on
Friday.  Shares rallied more than two percent but failed again at
overhead resistance of $50.00.  This is also resistance on KRON's
P&F chart and a breakout would form a triple-top breakout (buy
signal).  Its MACD is about to create a bullish buy signal as
well.

Chart=


---

Hershey Foods - HSY - close: 69.82 change: +0.08

WHAT TO WATCH: It's back.  We just have a sweet tooth for HSY
even as the stock tends to move somewhat slowly.  The breakdown
under the $70.00 level looks pretty ominous but its rising 50-dma
could offer support. What's more distressing for the bulls is
HSY's failed rally and rollover at bearish resistance on its
ponit-and-figure chart.

Chart=


---

Johnson Controls Inc - JCI - close: 85.50 change: -1.20

WHAT TO WATCH: This last week shares of JCI have retraced from
$89 to support at $85.  A breakdown under $85 could forecast a
move to its 200-dma near $80.00 but bears have to contend with a
lot of congestion between here and there and its rising 50-dma
near $84.00.

Chart=



===================================
RADAR SCREEN - more stocks to watch:
===================================

EMC $10.30 - It's a bit cheap to play options on, but shares of
EMC have been bouncing from their rising 50-dma.  Its MACD is
about to produce a bullish reversal soon.  We'd consider a
possible long plays on a move over $10.50.

AVID $36.79 - This computer peripherals company has been forming
a bullish wedge under resistance at $38.00.  A breakout could
herald its next leg higher.

SLE $18.44 - This is another low dollar stock, so we'd be careful
buying options on it but the breakdown under $18.50 looks pretty
bearish.  SLE does appear to have potential support at $18.00 but
by the looks of its MACD it could see a sizeable retracement of
its April-June gains.

MYG $24.11 - Keep an eye on this one.  The breakdown under its
200-dma is bearish but we suspect buyers might defend it near the
50-dma at $23.00.  True support appears to be $22.00.

ETN $78.50 - The high volume breakdown under $80.00 three days
ago looks pretty bearish.  The failed rally at $80.0 on Thursday
and Friday seems to confirm the move.  Bearish play?  Maybe, but
watch out for the previous low near $76 and its 200-dma.

TIN $42.99 - Keep an eye on this one.  Shares have been slipping
and the close under $43.00 and its 200-dma are bearish.  A retest
of $40.00 looks like a good bet.

NBP $41.97 - We'd keep an eye out for a breakout above Friday's
high of $42.10.  Shares of this natural gas stock have been
relatively strong and a high volume breakout could put shorts on
the run.

ROH $31.06 - This chemicals manufacturer is hovering above
support at $31.00 and we don't think it's going to hold.
Thursday-Friday represents a failed rally at its 200-dma and the
$32 level.  While it could have support at $30.00 we wouldn't be
surprised to see a deeper selloff.

AMZN $36.30 - We're still watching AMZN for a breakout over
$37.00.  Its MACD is about to curl into a bullish buy signal.

GLK $20.27 - This is another chemical company that's been in a
terrible down trend for weeks (and months).  Currently near new
lows, a break under $20 might be playable.

AIG $55.69 - It could be bad news for insurance stock AIG.
Shares have been oscillating between support at $55 and
resistance at its 50 & 200-dma's.  A breakdown under $55 might be
playable.


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*******************
THE PLAY OF THE DAY
*******************

ICOS Corp - ICOS - close: 37.62 change: -1.39 stop: 40.01

Company Description:
ICOS is a product-driven company that has expertise in both
protein-based and small molecule therapeutics. ICOS combines its
capabilities in molecular, cellular and structural biology, high
throughput drug screening, medicinal chemistry and gene
expression profiling to develop highly innovative products
expected to have significant commercial potential. ICOS applies
its integrated approach to erectile dysfunction and other
urologic disorders, sepsis and inflammatory diseases. ICOS'
strategy targets multiple therapeutic areas with drugs that act
through distinct molecular mechanisms, increasing ICOS'
opportunities to market breakthrough products.

Why We Like It:
You could say we're hedging our bets in the biotech sector.  Many
stocks in the group have been very strong and real leaders in
this rally to new highs in the NASDAQ.  OptionInvestor is playing
some of them on our call list.  However, from the looks of the
BTK biotech index, gains in those stocks may have to come with a
disconnect from the wider markets and the BTK itself.

The biotech index, currently at 438, appears to be offering bears
a failed rally at the 450 level as a signal of more weakness to
come.  We're not surprised.  The group has rallied almost
straight up from 320 to more than 500 in two months time and
they're is still plenty of money on the table for profit taking.
Now we don't expect all the gains to fade as the move has been
fueled by plenty of very positive news in the sector.  However,
given the broader markets recent weakness and the upcoming Q2
earnings season, it could be a tough time for stocks again.

Shares of ICOS have mirrored the move higher in the BTK except on
a grander scale.  ICOS went from $15.50 at its March lows to
trade near $46.00 in mid-June.  The failed rally at 450 for the
BTK is showing up as a failed rally at 40.00 for ICOS.  Jut as
ICOS over exaggerated the BTK's move up, we suspect it will over
exaggerate the BTK's move down.

Part of the risk in choosing a bearish play on ICOS is the
headline factor.  The last couple of months have brought forth
some very positive news regarding the ICOS-Eli Lilly drug Cialis,
which is a competitor for Viagra, by Pfizer, and for Levitra,
produced by GlaxoSmithKline and Bayer AG.  Currently, Cialis is
available in 30 countries outside the U.S. and within 90 days of
marketing ICOS & Eli  Lilly claim that their drug has gained a
significant market share for erectile dysfunction.  ICOS & Eli
Lilly expect the U.S. FDA to approve the drug by the end of the
year.

So now that we know what the risks are what's our strategy?  We
like the failed rally at $40.00 for ICOS because it's the second
one in two weeks for the stock. There is obviously minor support
at $35.00 but there is also potential support at $34.40.  We're
going to aim for a move to the range between $34.40 and $30.75 as
indicated on the retracement tool (on the chart below).  Our
initial stop loss will be $40.01.  Earnings for ICOS are not
until August and earnings for its partner LLY are not until late
July.  Bears can take some comfort in know that the daily
Momentum, RSI and Stochastics (14,1,3) are all still negative
while the weekly RSI and Stochastics are rolling over from
overbought.  ICOS' point-and-figure chart is currently on a sell-
signal from overbought levels.

Suggested Options:
The July and October options appear to have the most open
interest as the August options probably just became available
this week.  We're prefer July and August because our time frame
is three to four weeks.

BUY PUT JUL 40 IIQ-SH OI=1626 at $4.00 SL=2.00
BUY PUT JUL 35 IIQ-SG OI=2311 at $1.50 SL=0.75
BUY PUT AUG 40 IIQ-TH OI= 176 at $5.50 SL=3.25
BUY PUT AUG 35 IIQ-TG OI= 128 at $2.90 SL=1.45
BUY PUT OCT 35 IIQ-VG OI= 524 at $4.50 SL=2.25

Annotated Chart:



Picked on June 29th at $37.62
Change since picked:    -0.00
Earnings Date        08/05/03 (unconfirmed)
Average Daily Volume =   2.63 million
Chart link:



**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

Lexmark Intl - LXK - close: 70.67 change: -1.98 stop: 71.00

We hate it when that happens!  LXK's point-and-figure chart when
from building a pennant formation, to producing the upside
breakout we were looking for (bullish triangle breakout), to
reversing it into a double-bottom breakdown (today).  Talk about
indecisive.  Shares broke down below their rising simple 50-dma
on volume of 1.8 million shares (average).  Our stop loss was
$71.00.  While we would expect the $70.00 level to act as new
support we're not willing to buy the bounce.  We couldn't find
any news to act as a catalyst for today's selling so it looks
like some big cap profit taking ahead of the weekend.

Picked on June 16th at $74.51
Change since picked:    -3.84
Earnings Date        07/21/03 (unconfirmed)
Average Daily Volume =   1.78 million
Chart link:



PUTS
^^^^

None

***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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**********
DISCLAIMER
**********

Please read our disclaimer at:



**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 06-29-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: ABC, AGN, AMGN, EBAY, IGT, LH, MRK, PGR, STJ
New Calls: None
Current Put Plays: COF, KSS, RYL, SIVB, WFMI
New Puts: ICOS


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******************
CURRENT CALL PLAYS
******************

AmerisourceBergen - ABC - close: 69.69 change:-0.31 stop: 66.00

Company Description:
AmerisourceBergen is a pharmaceutical services company dedicated
solely to the pharmaceutical supply chain.  The company markets
its products and services to hospital systems (hospitals and
acute care facilities), alternate care customers (mail order
facilities, physicians' offices, long-term care institutions and
clinics), independent community pharmacies, and regional
drugstore and food merchandising chains.  ABC also provides
outsourced pharmacies to long-term care and workers' compensation
programs.  ABC perates in two segments: Pharmaceutical
Distribution and PharMerica.  The Pharmaceutical Distribution
division is primarily the company's wholesale and specialty drug
distribution business, and PharMerica is the company's
institutional pharmacy business.

Why we like it:
Considering the across-the-board declines in the broad market,
we're actually pretty impressed with how well our ABC play held
up on Friday, only giving back 31 cents and still very much on
the cusp of a breakout.  Support remains quite strong near the
$67.50 level, and with the 20-dma rising to reinforce that
support, a dip and rebound from above that level early next week
looks like a gift of an entry point ahead of the expected
breakout.  Just to reiterate, we're not looking for any stellar
gains from the stock, just a quick pop through resistance and
then rally to the $74-75 area.  That will provide a nice, quick
gain during the first 10 days of July and we'll be happy to then
move to the sidelines.  Given the strength of the support near
$67.50, any dip below $67 will clearly be cause for concern and
force us to re-evaluate the play.  Traders that would prefer to
enter on strength will want to wait for a trade above $70.25
(just above Friday's intraday high) before initiating momentum-
based positions.

Suggested Options:
Shorter Term: The July 70 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 75 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders should utilize the August 70 call.

BUY CALL JUL-65 ABC-GM OI=2364 at $5.60 SL=3.50
BUY CALL JUL-70 ABC-GN OI=2649 at $1.75 SL=0.75
BUY CALL AUG-70 ABC-HN OI= 350 at $3.10 SL=1.50
BUY CALL AUG-75 ABC-HO OI= 177 at $1.25 SL=0.60

Annotated Chart of ABC:



Picked on June 26th at     $70.00
Change since picked:        -0.31
Earnings Date             07/24/03 (unconfirmed)
Average Daily Volume =    1.50 mln


--

Allergan, Inc. - AGN - close: 77.73 change: -1.01 stop: 75.25

Company Description:
Allergan is a technology-driven, global healthcare company that
develops and commercializes specialty pharmaceutical products for
the ophthalmic neurological, dermatological and other specialty
markets, as well as ophthalmic surgical devices and contact lens
care solutions.  Its revenues are principally generated by
prescription and non-prescription pharmaceutical products in the
areas of ophthalmology and skin care, neurotoxins, intra-ocular
lenses and contact lens care products.  The company's are sold to
drug wholesalers, independent and chain drug stores, pharmacies,
commercial optical chains, commercial optical chains, food
stores, hospitals and individual medical practitioners.

Why we like it:
Reversing course on Friday, AGN gave back all of its gains from
Thursday to end once again right at what is becoming significant
support just over $77.  After the mid-June surge to the $81-82
area, the stock has been gradually drifting lower on ever-
decreasing volume.  Friday's tally came in at a mere 591K shares,
less than half the ADV.  The pattern over the past week is
looking more and more like consolidation ahead of a resumption of
the 9-month uptrend, and we're expecting it to break to the
upside, quite possibly as early as Monday or Tuesday.  Intraday
dips near the $77 level look good for new entry points, as risk
is easy to control with our stop set at $75.25.  There is a
descending trendline that connects the highs of 6/18, 6/23 and
6/26, and that trendline currently rests at $78.60.  Aggressive
traders could consider entering on strength with a break above
that trendline, while slightly more conservative traders would
want to wait for a move above $78.90 (Thursday's intraday high)
before playing.  As a point of confirmation, look for a solid
rebound from the DRG index, ideally rebounding from the $328 area
before playing.

Suggested Options:
Shorter Term: The July 75 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the August 80 Call or even
the July 80 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 75
call.  Note that open interest is still very thin in the August
contracts.

BUY CALL JUL-75 AGN-GO OI=1747 at $4.30 SL=2.75
BUY CALL JUL-80 AGN-GP OI=1233 at $1.40 SL=0.75
BUY CALL AUG-75 AGN-HO OI=  12 at $5.40 SL=3.50
BUY CALL AUG-80 AGN-HP OI=   6 at $2.70 SL=1.25

Annotated Chart of AGN:



Picked on June 26th at     $78.74
Change since picked:        -1.01
Earnings Date             07/28/03 (unconfirmed)
Average Daily Volume =    1.19 mln


---

Amgen, Inc. - AMGN - close: 65.18 change: -1.14 stop: 62.95*new*

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:
It wasn't a particularly impressive week for the Biotechnology
index (BTK.X), but it wasn't a disaster either, as the bulls
managed to keep the loss to only about 11 points.  The rebound
from the $430 level was encouraging, but unfortunately had little
follow-through.  In light of that sector action, AMGN actually
did pretty well.  Sure the stock only tacked on a measly 21
cents, but at least it was a gain!  AMGN is once again riding
higher along its ascending 20-dma ($64.83) and as long as it
continues to do so, intraday dips to that average can be used for
new entry points.  Periodically over the past several months,
AMGN will dip to its 50-dma ($63.04) before catching a stronger
rebound.  While we don't expect to see a dip that low over the
near term, such a move would provide a solid entry point, at
least based on the trading pattern of the past 7 months.  We're
still looking for a breakout over the recent highs to extend up
to the $70 level, at which point there is likely to be another
bout of profit taking before the stock manages to reach the $72
level, which is both the PnF bullish price target and our
eventual target for this play.  Recall that we are avoiding
buying breakout moves, due to AMGN's propensity to follow each
new high with a profit taking pullback to a higher low.  The
high-odds entries are found on the bounce from that higher low,
and right now we have our eye on the $64.50 or possibly $63
levels.  Note that we've gotten just a bit more aggressive with
our stop this weekend, raising it to $62.95.

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=40843 at $5.70 SL=3.50
BUY CALL JUL-65 YAA-GM OI=31698 at $1.75 SL=1.00
BUY CALL AUG-65 YAA-HM OI= 3066 at $3.00 SL=1.50
BUY CALL AUG-70 YAA-HN OI= 4054 at $0.95 SL=0.50

Annotated Chart of AMGN:



Picked on June 24th at     $65.05
Change since picked:        +0.13
Earnings Date             07/22/03 (unconfirmed)
Average Daily Volume =   10.3 mln

---

eBay Inc - EBAY - close: 102.36 change: -0.76 stop: 99.99

Company Description:
eBay is the world's online marketplace(TM). Founded in 1995, eBay
created a powerful platform for the sale of goods and services by
a passionate community of individuals and businesses. On any
given day, there are millions of items across thousands of
categories for sale on eBay. eBay enables trade on a local,
national and international basis with customized sites in markets
around the world. (source: company press release)

Why We Like It:
As we just added EBAY on Thursday evening, there is little to
change from our original write up.  It follows with a few
comments regarding Friday's session below. Investors have been
hopping on the EBAY train for months now.  Shares of this
Internet auction giant have more than doubled from its October
2002 low of $50.00 and there appears to be no end in sight.
Today heralded the company's annual shareholder's meeting.  While
nothing too exciting or surprising came as a result of the
meeting, investor did not seem to mind that shareholders approved
the bigger employee stock options plan.  Shares have been
consolidating under overhead resistance at $104 for nearly a
month.  We think EBAY is getting ready to break out above this
level and begin its next leg higher.  The company is expected to
announce earnings on July 18th and J.P.Morgan just raised their
earnings estimates for the company two days ago.
Plus, there are rumors that EBAY might announce a stock split
with their earnings report.  However, let us repeat that's just a
rumor and a weak one at that.

Our Thursday write up outlined our strategy to go long EBAY when
shares traded at or above $104.05.  That occurred early Friday
morning when the bullish session from Thursday saw some follow
through at the open.  Shares popped up over $104 and traded to
$104.18 before selling pressure brought it back down.  This
created a new triple-top breakout on EBAY's point-and-figure
chart.  Our stop loss is now $99.99.  Our short-term target is
$110 and buying bounces from the $101 level looks like a decent,
relatively low risk endeavor.

Suggested Options:
Given that there could be a pre-earnings run, our suggestion
would be to play the July options but the August strikes are not
a bad play either.

BUY CALL JUL-100 QXB-GT OI= 8663 at $4.20 SL=2.10
BUY CALL JUL-105 QXB-GA OI=14507 at $1.60 SL=0.80
BUY CALL JUL-110 QXB-GB OI= 8250 at $0.50 SL= --
BUY CALL AUG-105 QXB-HA OI=  992 at $3.40 SL=1.40
BUY CALL AUG-110 QXB-HB OI=  332 at $1.70 SL=0.85

Annotated Chart:



Picked on June 27th at $104.05
Change since picked:     -1.69
Earnings Date         07/18/03 (unconfirmed)
Average Daily Volume =    6.76 million
Chart link:


----

Intl Game Technology - IGT - cls: 101.53 chg: +0.30 stop: 99.99*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)

Why We Like It:
The relative strength in shares of IGT is amazing.  The stock
resisted steep profit taking the week of June 16-20th.  Only to
be follow by this last week that has been almost non-stop
skyward.  Granted today's gains were a little muted but the
markets ended the day in the red.  IGT's ability to maintain its
position above the $100 mark has us raising our stop to $99.99.

There are only two days left before IGT's 4-for-1 stock split.
Traditionally, stocks that have a strong ramp up before their
split tend to see some post-split depression as momentum traders
exit the stock and seek their next trade.  It's quite possible
that those investors who would like to own IGT but don't want to
pay $100 per share might decide to move into it at $25.00.  Now
we know that's foolish because a split does nothing to the
company's underlying fundamentals but it's just human nature to
want to buy more when it appears "cheaper".  We've always said
the stock market is not based on reality but investor perception.
Something else to keep in mind is that investors have been
attracted to stocks with dividends now that the U.S. government
has passed the recent tax bill.  IGT is set to pay a cash
dividend of $0.075 a share on July 28th to shareholder on record
as of July 14.

We're certainly encouraged by the relatively strong volume this
last week to accompany its gains.  However, with just two trading
days left we would not recommend new bullish positions at this
time.  Instead we are encouraging investors to consider taking
profits and raising their stop losses to protect gains.

Suggested Options:
We are not suggesting new long positions at this time.

Annotated Chart of IGT:



Picked on June 10th at $91.87
Change since picked:    +9.66
Earnings Date        07/17/03 (confirmed)
Average Daily Volume =   1.22 million
Chart link:


---

Laboratory Corp - LH - close: 30.55 change: +0.32 stop: 29.00*new*

Company Description:
The first national clinical laboratory to fully embrace genomic
testing, Laboratory Corporation of America. Holdings (LabCorp.)
has been a pioneer in commercializing new diagnostic
technologies. As a national laboratory with annual revenues of
$2.5 billion in 2002 and approximately 24,000 employees, the
Company offers more than 4,000 clinical tests ranging from
routine blood analyses to sophisticated molecular diagnostics.
Serving over 200,000 clients nationwide, LabCorp combines its
expertise in innovative clinical testing technology with its
Centers of Excellence. The Center for Molecular Biology and
Pathology, in Research Triangle Park, North Carolina, offers
state-of-the- art molecular gene-based testing in infectious
disease, oncology and genetics. DIANON Systems, Inc., its
Anatomic Pathology Center of Excellence, is a leader in oncology
and genetic testing, and National Genetics Institute in Los
Angeles is an industry leader in developing novel, highly
sensitive polymerase chain reaction (PCR) methods for testing
hepatitis C and other blood borne infectious agents. LabCorp's
Minneapolis-based ViroMed offers molecular microbial testing
using real time PCR platforms, while its Center for Esoteric
Testing in Burlington, North Carolina, performs the largest
volume of specialty testing in the network. LabCorp's clients
include physicians, state and federal government, managed care
organizations, hospitals, clinics, pharmaceutical and Fortune
1000 companies, and other clinical laboratories. (source: company
press release)

Why We Like It:
Wow!  We almost got excited there for LH today.  Shares popped up
at the open on news that Deutsche Bank had initiated coverage of
LH with a "buy" and a price target of $38.00.  Unfortunately, the
enthusiasm couldn't get the stock to break above the $31.00
level.  Shares and their oscillators are still inching higher,
it's a painful process for anyone holding options that decay with
time.  We're still subscribing to the view that during any market
downturn investors will flee to the general safety of select
healthcare stocks and we might begin to see that soon now that
the DJIA is back under 9000.  Fortunately, shares don't seem to
be reacted to the number of class action lawsuits sprouting up
over its gap down from last October.

Traders can take them time waiting for the right entry point on
LH.  It's been vacillating for two weeks between $29.50 and
$31.00.  So whether you prefer to buy the dips near $29.50 or
wait for the breakout over $31.00 you have an option.
Personally, we're growing a bit impatient.  To reduce our risk
we're going to raise our stop loss to $29.00 as suggested in
Thursday's update.

Suggested Options:
We like the July 30's and the August 32.50s as they're not too
expensive and have decent open interest.

BUY CALL JUL 30.00 LH-GF OI=2805 at $1.45 SL=0.70
BUY CALL JUL 32.50 LH-GZ OI=1264 at $0.50 SL= --
BUY CALL AUG 30.00 LH-HF OI=3587 at $2.05 SL=1.00
BUY CALL AUG 32.50 LH-HZ OI=9132 at $0.90 SL=0.45
BUY CALL AUG 35.00 LH-HG OI= 484 at $0.40 SL= --

Annotated Chart of LH:



Picked on June 17th at $30.10
Change since picked:    +0.45
Earnings Date        07/28/03 (unconfirmed)
Average Daily Volume =   1.49 million
Chart link:


---

Merck & Company - MRK - close: 61.02 change: -0.98 stop: 59.50

Company Description:
MRK is a global, research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of
human and animal health products, directly and through its joint
ventures.  Additionally, the company provides pharmaceutical
benefit services through Merck-Medco Managed Care, LLC.  The
company's operations are managed principally on a products and
services basis and are comprised of two business segments.  Merck
Pharmaceutical is involved in marketing products, while Merck
Pharmaceuticals is focused on therapeutic and preventive agents,
sold by prescription, for the treatment of human disorders.  The
pharmaceutical benefit services provided by Merck-Medco include
sales of prescription drugs through managed prescription drug
programs as well as services through programs to manage patient
health and drug utilization.

Why we like it:
After finally cracking below the $62 short-term support, shares
of MRK have been gently drifting lower for the past week.
Looking at the daily chart, an argument can be made that the
stock is building a bull flag consolidation pattern before
resuming its march up the chart.  Declining volume has been
accompanying the drift lower in price and the pullback has
brought the stock back very close to an important support test.
Recall that the $60.50 level was strong resistance until MRK
broke through it a couple weeks.  As we know, broken resistance
often becomes new support.  Now all we need to see is
confirmation of that with MRK, and the rising 20-dma ($60.07)
should provide a nice little backstop for the bulls.  A rebound
from above $60 can be used for new entries into the play, but
make sure to keep your stops in place at $59.50, just in case
support fails to hold.  Traders looking to enter on renewed
strength will want to target a rise through $62.25, which would
represent an early bullish resolution to the flag pattern.  Our
initial target is still $64, with an outside chance for a
continued rally near $68.

Suggested Options:
Shorter Term: The July 60 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

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

BUY CALL JUL-60 MRK-GL OI=39431 at $2.00 SL=1.00
BUY CALL JUL-65 MRK-GM OI=17609 at $0.30 SL=0.00
BUY CALL AUG-60 MRK-HL OI= 1132 at $2.85 SL=1.50
BUY CALL AUG-65 MRK-HM OI=  870 at $0.75 SL=0.30

Annotated Chart of MRK:



Picked on June 17th at    $62.37
Change since picked:       -1.35
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.23 mln


---

Progressive Corp. - PGR - cls: 73.70 chng: -0.56 stop: 71.75*new*

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

Why we like it:
Once again, Insurance stocks appear to be losing their luster
with investors, with the IUX index dropping back to significant
support near $265 late last week.  Despite that sector weakness,
shares of PGR are still holding their own rather well, as the
stock continues to drift towards the bottom of its ascending
channel.  We've noted that channel again on the chart below, and
you can see how both the bottom of the channel and the 20-dma are
lined up near the $73 level.  Isn't it interesting how $73 also
happens to be the site of the stock's local peak in early June.
After much waiting, it looks like we're going to get that test of
old resistance to confirm that it is new support.  While we are a
bit disappointed with the fact that PGR couldn't buck the broad
market trend last week, we're encouraged with the slow rate of
decline on light volume, which seems to indicate it is nothing
more than regular profit taking before the next up leg.  We need
to exercise caution in opening new positions, but a rebound from
the vicinity of that $73 support zone should be a good point to
initiate new positions, especially with our new, tighter stop set
at $71.75.  This is just below the 30-dma ($72.19), which
provided the support for the latest rebound from the $70 level.
More conservative traders will want to wait for a rally back over
$75.30, which provided intraday resistance on Wednesday.

Suggested Options:
Shorter Term: The July 75 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 80 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 75 call.

BUY CALL JUL-70 PGR-GN OI=206 at $4.40 SL=2.75
BUY CALL JUL-75 PGR-GO OI=402 at $1.20 SL=0.50
BUY CALL AUG-75 PGR-HO OI=265 at $2.05 SL=1.00
BUY CALL AUG-80 PGR-HP OI= 37 at $0.55 SL=0.25

Annotated Chart of PGR:



Picked on June 15th a  $73.27
Change since picked:    +0.43
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =  951 K


---

St. Jude Medical - STJ - close: 58.57 change: -0.08 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:
So far so good.  We added STJ to the call list on the 24th
because we liked its relative strength, strong trend and bounce
from rising support near its simple 50-dma.  Add to that general
strength in the medical equipment/supplies sector and we're good
to go.  Since then shares have picked up a bit on news that STJ
will be highlighting several of its products at the Society of
Heart Valve Disease (SHVD) international meeting in Paris.  The
show begins June 28th and last through July 1st.  Any positive
announcements or positive brokerage comments emanating from the
show could boost the stock price even further.

Shares have now bounced from $55 towards the $60 level and are
due for a pull back.  The eight-cent loss on Friday was extremely
mild given the general profit taking across the markets.  Traders
looking for new entries might want to look for a bounce near the
$57.00 or $58.00 levels.  Once share breach short-term resistance
at $60.00 it should be a quick rally to $64-65 (our target).

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=1797 at $4.40 SL=2.20
BUY CALL JUL-60 STJ-GL OI=2783 at $1.50 SL=0.75
BUY CALL AUG-55 STJ-HK OI=   1 at $5.40 SL=2.70
BUY CALL AUG-60 STJ-HL OI=  65 at $2.50 SL=1.25
BUY CALL OCT-60 STJ-JL OI= 496 at $3.90 SL=1.80

Annotated Chart:





Picked on June 24th at $57.62
Change since picked:    +0.87
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =   1.56 million
Chart link:



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

*No new calls*

Check out this weekend's watch list for a ton of new trade
candidates and stocks to watch!


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*****************
CURRENT PUT PLAYS
*****************

Capital One Financial - COF - close: 48.88 chg: -1.07 stop: 52.51

Company Description:
Headquartered in McLean, Virginia, Capital One Financial
Corporation (www.capitalone.com) is a holding company whose
principal subsidiaries, Capital One Bank and Capital One, F.S.B.,
offering consumer lending products. Capital One's subsidiaries
collectively had 46.4 million managed accounts and $59.2 billion
in managed loans outstanding as of March 31, 2003. Capital One, a
Fortune 500 company, is one of the largest providers of
MasterCard and Visa credit cards in the world.

Why We Like It:
Thus far it's been a week of churning sideways for shares of COF.
The credit card lender has consolidated between $48.00 and $50.00
the last five days.  We're a bit surprised though.  The bearish
breakdown last Friday-Monday looked pretty good but there's been
no follow through.  We suspect it could have been from traders
waiting to see what the Fed would do.  Now that the Fed has cut
its interest rates by 25 bps, this is actually a good thing for
COF.  Yet surprisingly, shares have failed to react to it - at
least very strongly.  The lower rate should increase the spread
between what they charge consumers and what COF pays on the money
they lend out, thus giving them a little extra cushion.

The major financial indices (BIX, BKX, XBD) continue to hover
just above support and act like they are about to break down.
Meanwhile, COF's consolidation has been under resistance at the
$50 level.  More conservative traders can reduce their risk in
COF by lowering their stop to $52.00, $51.00 or even $50.11.  We
would grow concerned should COF actually close above $50 again.

If you prefer to enter on momentum then look for COF to trade
below the $48.00 level.  As expressed earlier we had suspected
COF would encounter some support near $47.50.  Maybe this support
we're seeing at $48.00 will suffice.  At any rate, the rising 50-
dma, currently at 46.47, could pose a hazard to bears.  Our
short-term target of $45.00 remains but we won't be surprised to
see steeper losses.

COF's point-and-figure chart is still showing a fresh sell signal
but last month (May) COF produced the same signal only to have it
reverse shortly thereafter.

Suggested Options:
The options available to us are July's and September's.  We're
going to list both but our preference will be for July 50s and
47.50s.

BUY PUT JUL 50.00 COF-SJ OI= 8868 at $2.85 SL=1.50
BUY PUT JUL 47.50 COF-SW OI=10049 at $1.60 SL=0.80
BUY PUT JUL 45.00 COF-SI OI= 3813 at $0.95 SL=0.50
BUY PUT SEP 47.50 COF-UW OI= 1047 at $4.00 SL=2.00
BUY PUT SEP 45.00 COF-UI OI=  802 at $3.00 SL=1.50

Annotated Chart of COF



Picked on June 22 at $49.64
Change since picked:  -0.76
Earnings Date      07/16/03 (unconfirmed)
Average Daily Volume: 4.3 million
Chart =


----

Kohl's Corp. - KSS - close: 50.91 change: +0.49 stop: 51.75

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

Why we like it:
One look at the daily chart of KSS and one is immediately struck
with a sense that the $51 resistance level is truly significant.
Each time the stock manages an intraday foray above that broken
support level, the bears knock it back.  That, along with the
anemic (and apparently failing) rebound in the Retail index
(RLX.X) gives the impression of a bearish resolution to the
current consolidation.  But the concern comes in when we look at
the hourly chart, as it shows a pattern of higher lows and higher
highs over the past week.  Either the apparent weakness in the
RLX (due in large part to a weakening consumer) is going to drag
KSS below important support near $48, or the stock is going to
reverse its recent pattern of relative weakness and start
outperforming the RLX to the upside.  We're still leaning to the
downside (otherwise we wouldn't still be updating this play), and
we'll continue to use the $51 level as our metric.  Adding weight
to this resistance level is the 20-dma ($51.18), which is helping
to keep any bullish moves in check.  Failed rallies below the
$51.50 level continue to look good for new entries, and risk is
quite easy to manage now with our closing stop only up at $51.75.
Traders with a more conservative trading style will want to wait
for a decisive move back under $49.50 before playing, preferably
in concert with a rise in selling volume and the RLX cracking
back under $320.

Suggested Options:
Short-term traders will want to focus on the July 50 Put, as it
will provide the best return for a short-term play.  Conservative
traders looking for a larger move down towards the $45 level or
below may want to utilize the August contract, which provides
greater insulation from the spectre of time decay.  Note that
there has been heavy volume in the July 45 Puts over the past
couple days, as open interest has surged sharply higher.

BUY PUT JUL-50 KSS-SJ OI=11305 at $1.65 SL=0.75
BUY PUT JUL-45 KSS-SI OI= 8639 at $0.50 SL=0.25
BUY PUT AUG-45 KSS-TI OI=  140 at $1.05 SL=0.50

Annotated Chart of KSS:



Picked on June 15th at   $49.45
Change since picked:      +1.46
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.45 mln


---


The Ryland Group - RYL - close: 70.68 change: -1.27 stop: 74.50

Company Description:
The Ryland Group is a homebuilder and mortgage-finance company
that has built more than 175,000 homes.  Additionally, the Ryland
Mortgage Company (RMC) has provided mortgage financing and
related services for more than 155,000 homebuyers. Currently,
Ryland homes are available in more than 260 communities in 21
markets across the United States.

Why we like it:
It certainly hasn't been an easy road for traders trying to
establish a winning short trade on the Homebuilders.  Last week's
FOMC meeting just adding more volatility to the mix as investors
had to contend with the issue of where interest rates are headed
in addition to the issue of whether the stocks are actually
overextended.  Based on the price action in the Dow Jones Home
Construction index ($DJUSHB) over the past few days, we're left
with the distinct impression that investors were really expecting
a 50 basis point cut, rather than the 25 that was delivered.  The
resultant rise in bond yields raises the specter of rising
mortgage rates and that isn't going to be a bullish factor.  RYL
has been all over the map over the past week, plunging below $70
on two separate occasions, only to pop right back up to
resistance in the $72.00-72.50 area.  Fortunately, each of these
rebounds has met fresh selling and RYL ended the week right in
the middle of its range.  That leaves us in between potential
entry points.  Failed rallies below the $73 level look good for
aggressive entries, while those traders looking for confirmation
before playing will want to wait for a break below $68.50 along
with the $DJUSHB cracking its own support near $436.  Maintain
stops at $74.50.

Suggested Options:
Short-term traders will want to focus on the July 70 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $65 level will want to
utilize the July 65 contract or even the August strike, the
latter of which provides greater insulation from the spectre of
time decay.

BUY PUT JUL-70 RYL-SN OI= 912 at $2.70 SL=1.25
BUY PUT JUL-65 RYL-SM OI=1537 at $1.20 SL=0.50
BUY PUT AUG-65 RYL-TM OI=  61 at $2.65 SL=1.25

Annotated Chart of RYL:



Picked on June 22nd at   $69.95
Change since picked:      +0.73
Earnings Date           07/23/03 (unconfirmed)
Average Daily Volume =    904 K


---

Silicon Valley Bancshares - SIVB - close: 24.10 change: +0.83
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:
Be careful what you wish for, you just might get it!  That's
certainly the case with our SIVB play, as we were looking for a
rebound near the $24 area to give us a solid entry on a rollover
from resistance (broken support).  Well, we got that rebound over
the past couple days, with the stock rising as high as $24.25 and
miraculously holding near the high of the day at the close, in
defiance of the weakness found in the rest of the market.  What's
going on?  In a perverse way, SIVB seems to be benefiting from
the Fed's smaller-than-expected interest rate cut.  Speculation
that the company would have problems with sharply falling
interest rates may have had investors dumping the stock ahead of
the FOMC meeting.  Then when the cut was smaller than expected,
investors are buying the "less bad" news.  Be that as it may,
we're still looking at a rollover from near current levels as a
viable entry point, as the 10-dma and 50-dma converging overhead
near $24.60 should present some formidable resistance.  Should
the bears once again flex their muscles next week, look for our
$20 target to be reached in due time.  But before that can
happen, a breakdown under $22 will be necessary.  Traders that
don't want to buy puts into strength may want to wait for that
breakdown before playing.  Maintain stops at $25.25

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= 25 at $1.55 SL=0.75
BUY PUT JUL-22 SQU-SX OI=  5 at $0.55 SL=0.25
BUY PUT AUG-22 SQU-TX OI= 70 at $1.00 SL=0.50

Annotated Chart of SIVB:



Picked on June 24th at   $22.82
Change since picked:      +1.28
Earnings Date               N/A
Average Daily Volume =    676 K


---


Whole Foods Market - WFMI - cls: 48.01 chg: -0.05 stop: 50.00

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

Why We Like It:
Recent brokerage downgrades? check.  Increasing competition?
check.  Lowered earnings outlook?  check.  Point-and-figure chart
sell signal?  check.

What else do we need?  How about fresh relative low?  Shares of
WFMI have been consolidating its losses for the last two weeks in
a sideways churn.  We'd like to see some new weakness.  If we
squint our eyes at the chart it almost looks like a flat bearish
flag.

We're not complaining as resistance at $49.00 has held.
Unfortunately, the pause in the selling has given the oversold
MACD a chance to curve up into a bullish crossover.  We're going
to leave our stop loss at $50.00 for now but it would be
perfectly acceptable to lower it just above $49.00.  Trader's
looking for new positions may want to wait for a break under
$47.00 but given our short-term target of $45.00 that doesn't
leave a lot of room to move.  Although entries here with a stop
at $49.00 doesn't sound too bad.

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

BUY PUT JUL 50 FMQ-SJ OI= 711 at $3.10 SL=1.55
BUY PUT JUL 45 FMQ-SI OI=1967 at $0.80 SL=0.40
BUY PUT AUG 50 FMQ-TJ OI=1285 at $4.00 SL=2.00
BUY PUT AUG 45 FMQ-TI OI= 692 at $1.75 SL=1.00

Annotated Chart for WFMI:



Picked on June 13 at $49.44
Change since picked:  -1.43
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

ICOS Corp - ICOS - close: 37.62 change: -1.39 stop: 40.01

Company Description:
ICOS is a product-driven company that has expertise in both
protein-based and small molecule therapeutics. ICOS combines its
capabilities in molecular, cellular and structural biology, high
throughput drug screening, medicinal chemistry and gene
expression profiling to develop highly innovative products
expected to have significant commercial potential. ICOS applies
its integrated approach to erectile dysfunction and other
urologic disorders, sepsis and inflammatory diseases. ICOS'
strategy targets multiple therapeutic areas with drugs that act
through distinct molecular mechanisms, increasing ICOS'
opportunities to market breakthrough products.

Why We Like It:
You could say we're hedging our bets in the biotech sector.  Many
stocks in the group have been very strong and real leaders in
this rally to new highs in the NASDAQ.  OptionInvestor is playing
some of them on our call list.  However, from the looks of the
BTK biotech index, gains in those stocks may have to come with a
disconnect from the wider markets and the BTK itself.

The biotech index, currently at 438, appears to be offering bears
a failed rally at the 450 level as a signal of more weakness to
come.  We're not surprised.  The group has rallied almost
straight up from 320 to more than 500 in two months time and
they're is still plenty of money on the table for profit taking.
Now we don't expect all the gains to fade as the move has been
fueled by plenty of very positive news in the sector.  However,
given the broader markets recent weakness and the upcoming Q2
earnings season, it could be a tough time for stocks again.

Shares of ICOS have mirrored the move higher in the BTK except on
a grander scale.  ICOS went from $15.50 at its March lows to
trade near $46.00 in mid-June.  The failed rally at 450 for the
BTK is showing up as a failed rally at 40.00 for ICOS.  Jut as
ICOS over exaggerated the BTK's move up, we suspect it will over
exaggerate the BTK's move down.

Part of the risk in choosing a bearish play on ICOS is the
headline factor.  The last couple of months have brought forth
some very positive news regarding the ICOS-Eli Lilly drug Cialis,
which is a competitor for Viagra, by Pfizer, and for Levitra,
produced by GlaxoSmithKline and Bayer AG.  Currently, Cialis is
available in 30 countries outside the U.S. and within 90 days of
marketing ICOS & Eli  Lilly claim that their drug has gained a
significant market share for erectile dysfunction.  ICOS & Eli
Lilly expect the U.S. FDA to approve the drug by the end of the
year.

So now that we know what the risks are what's our strategy?  We
like the failed rally at $40.00 for ICOS because it's the second
one in two weeks for the stock. There is obviously minor support
at $35.00 but there is also potential support at $34.40.  We're
going to aim for a move to the range between $34.40 and $30.75 as
indicated on the retracement tool (on the chart below).  Our
initial stop loss will be $40.01.  Earnings for ICOS are not
until August and earnings for its partner LLY are not until late
July.  Bears can take some comfort in know that the daily
Momentum, RSI and Stochastics (14,1,3) are all still negative
while the weekly RSI and Stochastics are rolling over from
overbought.  ICOS' point-and-figure chart is currently on a sell-
signal from overbought levels.

Suggested Options:
The July and October options appear to have the most open
interest as the August options probably just became available
this week.  We're prefer July and August because our time frame
is three to four weeks.

BUY PUT JUL 40 IIQ-SH OI=1626 at $4.00 SL=2.00
BUY PUT JUL 35 IIQ-SG OI=2311 at $1.50 SL=0.75
BUY PUT AUG 40 IIQ-TH OI= 176 at $5.50 SL=3.25
BUY PUT AUG 35 IIQ-TG OI= 128 at $2.90 SL=1.45
BUY PUT OCT 35 IIQ-VG OI= 524 at $4.50 SL=2.25

Annotated Chart:



Picked on June 29th at $37.62
Change since picked:    -0.00
Earnings Date        08/05/03 (unconfirmed)
Average Daily Volume =   2.63 million
Chart link:



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The Option Investor Newsletter                   Sunday 06-29-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: One More Bounce?
Traders Corner: The Bare Necessities Of Uncovered Trading
Traders Corner: Fibonacci Trading Days
Traders Corner: Elliott Wave Play Updates
Traders Corner: Where is the Dow Going?
Futures Corner: Steps to developing a Trading System


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*****
LEAPS
*****

One More Bounce?
By Mark Phillips

As expected, last week was all about the action of the Fed and how
much further they would reduce interest rates.  Recall last week I
made the case that enough stimulus had already been injected into
the system through other means, that Uncle Alan would not feel
compelled to cut by more than a quarter point.  Sure enough,
that's what we got and bond traders have been busy selling the
news ever since.  Last Friday, the Ten Year Note ended at 3.396%
after a strong week-long rebound in yields.  After a bit of
weakness early in the week, the Ten Year yield blasted higher into
the end of the week, ending at 3.581% and above the 50-dma for the
first time since early May.  By my read of the Fed Funds futures,
there is currently only a slight chance of another cut in
September, as investors and traders are confronted by the very
real possibility that the Fed is done on the interest rate front.
Other means (such as buying Treasuries) will now move to the fore
as this band of central bankers works to reinflate the economy.
Whether they will succeed is anyone's guess, but based on what I
see, an economy recovery is NOT waiting just around the bend.

Certainly there will be pockets of strength, notably in natural
resources (particularly Natural Gas), dividend payers like
Utilities and Tobacco producers and of course Health Care, which
seems to be one of the few areas of the economy with a strong
growth trend.  But on the whole, the domestic economy really
doesn't appear to have an engine for growth.  The Fed has made
obscene amounts of money available for business growth, but that's
not where it is going.  Jonathan Levinson provided a great
graphical picture of the evidence of this lack of business
stimulus in his Thursday Market Wrap.  The consistent growth of
the MZM over the past 15 months is in direct opposition to the
steady decline in Commercial and Industrial loan activity over the
same period of time.

Simply put, that additional cash is NOT being used to fuel
business growth and the proof of that is in the still abysmal
unemployment picture, which at best can be called flat at 6.1%.
But looking at estimates for the unemployment rate set to be
released next week, the consensus sees it climbing to 6.2%.  Until
we start to see some marked improvement in the Weekly Jobless
Claims (a string of sub-400K weeks) AND Unemployment dropping back
under 5.8%.  Until that happens, we'll still be operating in an
environment of hype and hope, as the pundits try to convince us
that there is a strong second-half recovery in store.  I'm not
saying it won't or can't happen, but right now I see ZERO evidence
of it.  In a different environment, I might be willing to believe
the analysts -- at least a little.  But the track record over the
past 3 years has been so abysmal, that I reminded of the story of
"The Little Boy Who Cried Wolf".  I'll stick with what I can see
and measure until such time as that fails to work, or there is
some evidence of recovery.

Turning to the market, even if we were in an economic recovery
scenario right now, I think there is very little to justify
further upside action right now.  The valuation in the S&P 500
really hasn't improved in 3 years of a bear market.  Certainly
prices have come down, but at the same time, earnings have fallen
precipitously as well.  The net result is that the aggregate P/E
ratio for the index is still north of 30 and that is not a level
from which new bull markets are launched.  The other measure is
dividend yield, and as long as the yield for the S&P 500 remains
in the 1.6-1.7% area, I will continue to view this as a frothy
market.  Can it go higher?  Absolutely, but it would not be a
healthy rise.

The price charts of the major indices finally gave us some
meaningful weakness last week, and they all finished on Friday
near their lows for the week.  That's actually a bit of a
divergence from what we expected as there is now only one day left
in the first half of the year -- apparently the fund managers
didn't have enough conviction to paint the tape bullish heading
into the weekend.  But I have strong doubts that this is the
beginning of a long slide through the remainder of the summer.  As
Jim Brown has pointed out recently, there is still a bullish
historical tendency for the first 8-10 days of July and I have a
sneaking suspicion that this trend will hold this year as well.
So how does that jibe with the primary technical indicators we've
been looking at here in recent weeks?  We've finally started to
see some weakening in the market internals, as demonstrated by
both the New High/New Low ratio that Jeff Bailey has been
tracking, as well as the Bullish Percents in the major markets
that we talk about each week.  While there is some weakening, as
yet, we're not seeing any sharp falloff from the very bullish
levels hit earlier this month.

Here's the update on the Bullish Percent table, and as you can
see, we're still deep into traditional overbought territory.

NASDAQ-100 - 76% Now in Bull Correction, down from the 91% high
NASDAQ Composite - 69.92% (just off the 71.75% all-time high)
DOW - 83.33% (Highest reading since 1/99 -- highs in 1998 = 92%)
S&P 500 - 78.80% (Cycle high of 82.80% - Still Bull Confirmed)
S&P 100 - 81% (Just below cycle high, 11/98 all-time high = 84%)

With the notable exception of the NDX, which has now reversed far
enough to go into Bull Correction, all the rest of the major
indices are holding very near their cycle highs and showing very
little indication of internal weakening.  That alone keeps me
thinking that this recent price weakness is just a bout of normal
profit taking and I'm looking for another bullish push, perhaps to
new recent highs over the next couple weeks.  But I will view that
rally as a higher odds setup for new longer-term bearish trade
entries into what I expect will be a rather weak remainder of the
summer.  Whether it turns out to be mild weakness or a real
monster slide depends on what type of news comes out of the July
earnings period.

Last week we took another look at the SharpChart for the NDX
Bullish Percent, and while I'm not going to duplicate it again
this week, the pattern of weakness is still intact, with the CCI
oscillator breaking below the -100 level for the first time since
the middle of March.  But we all know how the NDX tends to move
much more quickly then the rest of the market and a quick scan of
the other major Bullish Percent SharpCharts shows no other index
with this level of weakness.  The SPX has its CCI falling below
zero this week and challenging the -100 level and the COMPX CCI is
threatening to crack the zero level.  These three are the only
ones to have shown their Bullish Percent lines fall below the 10-
dma, but in every case, it looks to me like there will be another
test of the 10-dma before the decline begins in earnest.  Take a
look using the link below, which you should all be getting quite
familiar with by now.  I think you'll see the same thing I'm
seeing, with the distinct possibility/likelihood for another
bounce before the bears really get serious.

link

Here are the pertinent Bullish Percent symbols.

DOW - $BPINDU
SPX - $BPSPX
OEX - $BPOEX
NDX - $BPNDX
COMPX - $BPCOMPQ

The VIX is certainly not telegraphing any significant fear in the
market as its mid-week foray near 24 was quickly reversed and it
ended the week down at 21.71.  This is still in the complacency
zone, but not yet excessively so.  What I find interesting about
the action of the VIX last week is that it fell -0.06 from
Monday's open to Friday's close, while at the same time the SPX
declined from the 995 area to 976, nearly a 20 point slide.  The
lack of upside in the VIX keeps alive the complacent behavior
we've been noticing, indicating to me that the recent trend of the
market will end badly for the bulls, but the time of their
comeuppance is not yet at hand.

Judging by the still very bullish tilt to the Investors
Intelligence readings though.  While I couldn't access the latest
readings this week, I did find an interesting comment on
Briefing.com that I think nicely dovetails with my perception that
they are currently tilted much too far into the bullish camp to be
sustainable without a significant correction.

"Floor Talk: Speaking to an analyst who believes recent spike in
American Association of Individual Investors survey is a reason
for caution.  This individual notes that the last two times
bullishness reached similar levels was one week before the all
time high on the DOW and two trading days before the high that
preceded the 1987 downturn."

Certainly it is only one anecdotal piece of data, but I think
bulls would be well-served to heed the warning contained in that
quote.  The rally that took the market to new highs for the year
has been largely fueled on hopes for an improving economy into the
end of the year and if corporate leaders are unable to provide
some evidence that this scenario might come to pass during the
July confessional period, then I really have a hard time seeing
from where the fuel for additional upside is going to come.

Despite my bearish prognostications for the past two months now,
the broad markets have persistently chugged higher and the string
of higher lows and higher highs has yet to be broken.  Technically
the SPX would need to trade below 972 to give a lower high, but I
think we really need to see a break below 965 to call it a break
in the trend.  Sure the standard scale PnF chart issued a double
bottom Sell signal last week, but with the still elevated levels
of bullish percent, I think all that tells us is that it is now
just a bit safer to sell into rallies near resistance.  A return
to the SPX 1010 level looks like a good high-odds short for a
position trade, especially if we can get the VIX to cooperate and
finally dip under 20.

For all intents and purposes, the correction of the past couple
weeks remains just that.  A correction in a cyclical bull market,
that I believe is very near its zenith, at precisely the same time
when bearish sentiment is at its nadir.  Now is the time to start
picking off some weak stocks for position trades to the downside.
While there is the outside chance of a bullish continuation above
the recent highs, the risk reward ratio is shifting ever more
heavily in the bears favor.  So let's take a quick look at our
current plays and then see what we can stir up for new candidates.

Portfolio:

AIG - Well, this play certainly caused us a fair bit of
consternation earlier in the month, but if finally looks like
things may be going in our direction.  After topping out just
below our $61 stop, AIG has now punctured both its 200-dma and 50-
dma on the way back down.  A break below $54.50 would accomplish a
couple of important things, as it would take out what has been
strong support since late April, but would also probably give
enough of a downward tug on the 50-dma to have it rolling over
below the 200-dma again, one of the bearish developments I was
hoping would come to pass.  Remember that despite the fact the PnF
chart is in a column of O, it is still operating on the most
recent Buy signal.  We need a print at $54 to give a Sell signal
and really get things moving in our favor.  Maintain stops at $61
until we get that Sell signal.

GM - I know we dropped it last weekend due to the absolutely
irrational spike in price, but looking at the price chart on GM
this weekend is really irritating.  Almost to a "T" this is what
happened to us the last time we played GM to the downside.  We got
what I thought was a good entry, followed by an early drop.  Then
a news-related spike to just take out our stop and then the
decline begins in earnest.  For traders that held through the
recent volatility, I like the sharp drop off in the past several
days on strong volume.  If still holding on, I would consider
setting a stop at $39.75, just above last Friday's intraday high.
While old GM likely won't drop straight through the $30 level on
the first try, failed rallies in this stock continue to look
attractive to me.

AMGN - To be sure, AMGN is giving us a volatile ride, but
amazingly the stock just continues its relentless trek up the
chart.  Even with a fairly sharp pullback in the BTK index last
week, AMGN continues to find support at its 30-dma ($63.94) backed
up by strong support at the 50-dma ($63.04).  I have doubts as to
how much further the BTK index can push up the chart, but right
now, AMGN has a solid bullish trend and I'm willing to ride that
trend until it fails.  The slow and deliberate nature of AMGN's
advance makes the stock a perfect candidate for LEAPS players.
Maintain stop just below the 50-dma, and for this week, that means
our stop inches up to $63.

QQQ - We've certainly gone through our share of antacid tablets
with the QQQ over the past few weeks, as I clearly jumped the gun
on new entries.  I'm encouraged by the bears' ability to prevent a
close over $31 and with further deterioration in price last week,
things appear to be going our way.  However, I'm not overjoyed by
the picture on the weekly Stochastics -- they've dropped out of
overbought, but the shallow rate of descent hints to me that there
may be one more assault on the highs before the bulls finally give
in.  The bullish percent is looking bearish as well (as mentioned
above), but I don't expect an immediate and sharp decline.  I do
think failed rallies in the QQQ now make for more compelling entry
points, and target shooting in the $30.50 area would be my choice.
I'm still going to err on the side of caution with our stop
though, keeping it up at $32.25 until we see a close back under
$29.

Watch List:

DJX - I don't think it is any coincidence that the DOW ended the
week just above 8975, as that level looks like decent near-term
support.  Add in the fact that the daily chart of the past couple
weeks looks to me like a bullish descending wedge, and my
expectation is for another attempt on the highs.  But I think a
failed rally near those highs is likely to be about the best entry
point we're likely to see, ideally coinciding with the VIX
dropping under that magical 20 level sometime in the second week
of July.   I'm lowering the entry target to $93.50-94.00 this
weekend and if filled, we'll use a stop at 96.25, which is just
above the descending trendline that connects the highs of May 2001
and March 2002.

Radar Screen:

GS - Wow, that was quite a decline off the recent highs.  I should
have made this one a live play when it looked so bullish up there
above $90.  At this point, I don't think a decline much below $80
is in the cards, so I'm content to just watch.  But if we can get
a rally back into the $88-90 area, then look for GS to make its
transition onto the Watch List.

WMT - Continuing to look rather weak, WMT looks like it could be a
viable bearish play, but I want to see another failure up near
$56-57 first.  There's no need to get aggressive here just yet,
but I think an early July bounce could set things up nicely.

ADBE - Well, would you look at that!  ADBE actually showed us some
bullish action to round out the week and my thinking now is that
the bulls just might try to fill that gap.  My trigger to put it
on the Watch List will be when we get a close within that mid-June
gap and then we can look for an entry near the top of the gap at
$36.  For now, we continue to wait and watch.

LEN - With bond yields on the rise over the past couple weeks, it
is no great surprise that we're starting to finally see a bit of
weakness in the Housing stocks.  But we're still quite premature
to be jumping into new bearish long-term trades in the sector.
LEN is one of the few stocks in the sector that has LEAPS
available, so our choices are rather limited.  I'm going to be
watching the next attempt on new highs in LEN for an indication as
to whether the bullish enthusiasm is truly waning or if there's
another bullish leg in store.  When it does weaken, it could be
abrupt and sharp, but hopefully we'll get a favorable opportunity
to enter up near the recent highs.  Stay tuned.

BBH - As strong as the temptation is to short into the recent
rally in the Biotech sector, I can't justify it, especially when
we're already leaning bullish with our AMGN play.  I'm going to
keep BBH here though, because if the uptrend in AMGN fails, then I
think that will be a strong indication that it is time to shift
BBH to the Watch List.  Eager and aggressive traders might
consider an early play on another failure below the $135 level,
looking for a return back to the $100-110 area.

RIMM - With the strength in the Wireless and Internet space, RIMM
has had quite a run off of its March lows, consistently working
higher in a neat little ascending channel.  But that channel is
fast approaching some formidable resistance near $24.  I don't yet
see any signs of weakness on the chart, but the first indication
of such will be a break below the bottom of the channel.  The
strategy will be to wait for the breakdown and then look to enter
bearish positions on a failure to then get back into the channel.
This will still take a few weeks (I expect) to set up, but once it
does, RIMM could give us a very nice ride back to the $16-17 area,
which the most recent breakout took place.

GM - I just can't help myself, as the fundamentals on GM are too
ugly to ignore.  That insane rally that stopped us out just over a
week ago has now faded, and hard.  The one thing that kept me from
putting the stock right back on the Watch List this weekend was
the PnF chart, which is now on a new Buy signal.  I'm willing to
be patient, but not excessively so and I'll be looking for another
failure near the $39-40 level to indicate that it's time to shift
GM back over to the Watch List.

Closing Thoughts:

It seems that it has been months now (actually it has) that I've
been expecting this market to cave in and for the bears to have
another BBQ.  But so far, my expectations and $2 have only gotten
me my daily cup of coffee.  The decline off the recent highs has
been expected, healthy and I think a trap for over-eager bears.  I
don't expect to see much more downside until we get another push
back near the recent highs.  I expect that rally attempt to fail,
and that's where we'll be looking to put on some favorable bearish
plays.  By every metric I use, bulls are still skating on some
incredibly thin ice, and for that reason I suspect it will be some
time before I feel comfortable advocating new long-term bullish
trades.  But it's a screwy world and there's no telling what Mr.
Market has in store for us.  I'll continue to play cautiously
bearish until the market gives me some indication of which
direction it wants to have its next directional push.  Contrary to
the usual pattern, I think we could actually be setting up for an
exciting summer.  Make sure to take your Dramamine and fasten your
seatbelts.  It is likely to get a bit bumpy once those July
earnings reports start to flow.

Have a great weekend!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
AMGN   05/21/03  '04 $ 60  YAA-AL  $ 7.00  $ 9.20  +31.43%  $63.00
                 '05 $ 60  ZAM-AL  $10.90  $13.50  +23.85%  $63.00


Puts:
AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 4.80  -14.29%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 7.80  - 8.24%  $61.00
QQQ    05/27/03  '04 $ 27  KLF-MA  $ 1.70  $ 1.35  -20.59%  $32.25
                 '05 $ 27  ZWQ-MA  $ 3.10  $ 2.50  -19.35%  $32.25


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None


PUTS:
DJX    05/04/03  $94-95        DEC-2003 $ 92  DJV-XN
                               DEC-2004 $ 92  YDK-XN
HD     06/29/03  $34           JAN-2004 $ 32  HD -MZ
                               JAN-2005 $ 30  ZHD-MF
SMH    06/29/03  $30-31        JAN-2004 $ 30  SMH-MF
                               JAN-2005 $ 30  ZTO-MF


New Portfolio Plays

None

New Watchlist Plays

HD - Home Depot $32.47  **Put Play**

I've had my eye on shares of HD for the past couple months, as the
stock has consistently been working higher in an ascending
channel.  Waiting for the first sign of weakness proved to be a
prudent strategy, as I had initially thought a rollover near $30
would be a favorable spot to stake a bearish claim, and as you can
see, that was not the right action point, as the stock continued
up to a mid-June high just below $35.  It is no secret that I've
had a bearish outlook on the entire housing sector for quite some
time, but the factor that swamped such a bias was the incredible
flood of money that has continued to appear from wave after wave
of refinancing, as well as multi-decade lows in mortgage rates.
That has helped to fuel both home construction and home
improvement spending.  But judging by the recent action in the
bond market, I think that gravy train is coming to an end.  If
there was some economic growth in the form of improvements to the
employment picture, then perhaps the strength in the Housing
sector could continue.  But we've seen no signs of that, and I
think HD makes for a favorable and less risky way to dip our toe
into the water, looking for some significant downside heading into
the fall.  HD gave us the first real sign of weakness a week ago,
which the stock finally broke and closed below its ascending
channel on 6/23, when the bottom of the channel was at $32.75.
That wasn't the beginning of a waterfall decline though, as the
30-dma (currently $32.15) has been providing support, and HD has
been slowly rising along the bottom of its broken channel.  I
suspect a retest of the recent highs is just around the corner
(sometime in the next couple weeks) and then it should be party
time for the bears.  The note of caution comes from the PnF chart
though, as it is still on a strong Buy signal and the recent drop
may have just been a reaction to the first test of the bearish
resistance line at $35.  In favor of a bearish position though is
the weekly Stochastics which is just starting to roll over from
overbought territory, while at the same time weekly MACD is
flattening out and looking weak just over the zero line.  The next
upward surge that fails below $35 looks like a favorable entry
point for new bearish positions, and while we'll initially just
look for a drop back near $30, I think we could reasonably see a
fall back near the 200-dma, which is currently at $26.61.  I'm
setting the entry target at $34, and after entry, we'll set a
fairly liberal stop at $36.50, which is just above the 50%
retracement of the decline from 2/02 to 1/03.

BUY LEAP JAN-2004 $32  HD-MZ
BUY LEAP JAN-2005 $30 ZHD-MF

SMH - Semiconductor HOLDR $28.35  **Put Play**

I've been itching to find a viable bearish play in the
Semiconductor sector (SOX.X) for a few weeks now, and that search
has intensified since the rejection from the $400 resistance level
in early June.  The problem is that the SOX has yet to break down
out of its ascending channel, which began in early February.  From
everything I can find, there is really no sign of improving
fundamentals in this sector, as overcapacity continues to be
widespread and there is little indication of meaningful
improvement in the Book to Bill numbers.  The problem is in
finding the right stock in which to play and then determine a
favorable entry point in what is always a very volatile sector.
So I've chosen the easy way out, electing to use a broad-based
security to represent the sector, the SMH HOLDR.  The price
pattern in the SMH is very similar to the SOX, as it has been
pushing higher in its own ascending channel, the bottom of which
is currently $27.75.  While there was a mild rebound off the
bottom of the channel last week, I think there will be more
strength over the next week or so, leading up to the beginning of
July earnings.  Ideally a rebound should extend into the $30-31
area, and the exhibition of weakness near that known resistance
would make for a favorable bearish entry.  We have to keep in mind
that the bullish trend is still intact though, so more
conservative traders may want to wait for a close under the bottom
of the channel before considering entries into what I consider to
be a rather aggressive play on expectations that the second half
recovery will fail to appear.  After entry, we'll set our stop at
$33, which is just above the June 6th spike high of $32.47.  After
entry, we'll need to carefully monitor the SOX index, as a close
over $400 would indicate that perhaps our bearish stance is
premature.

BUY LEAP JAN-2004 $30 SMH-MF
BUY LEAP JAN-2005 $30 ZTO-MF

Drops

None


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

The Bare Necessities Of Uncovered Trading
By Mike Parnos, Investing With Attitude

We, at the CPTI, have been leading a pretty conservative
existence.  I know that everyone gets the urge, now and then, to
shed that which binds us and go skinny-dipping into the market.

It's Time To Get Nekked!
Let's stimulate your imagination a bit.  Picture an Iron Condor
without its wings.  If that image doesn't conjure up a few of your
playful demons, maybe the thought of Venus with arms will jiggle
your Jell-O.

The Nekked Strangle
The concept is pretty simple.  We're going to sell a naked put and
a naked call on the same stock.  The expiration will be the same
but the strike prices will be different.

The combination of these two naked options creates our "Nekked
Strangle."  Since we're just being a little aggressive and don't
have a financial death wish, we're going to write out-of-the-money
puts and calls.  Also, in order to make this position worthwhile,
we're going to have to go out at least a few months.

At this writing, MMM is trading at $129.41.  We'll use this for
our example. Let's:
Sell 1 MMM October $135 call @ $3.35
Sell 1 MMM October $115 put @ $2.65
We've generated $600 in premium ($6.00 x 100 shares)

Calculating Our Profit
If, at October expiration, MMM finishes anywhere between $120 and
$135, we will keep the entire $600.  The $600 we took in as credit
gives us some additional cushion.  We will make "some" profit if
MMM finishes between $114.00 and $141.00.

Covering Our Assets
We have to establish exit points at which we bid farewell to our
"Nekked Strangle."  We have to ADHERE STRICTLY to these exit
points to protect ourselves.  No hoping. No praying. No begging.
Just getting out when you're supposed to.  Our exit points should
be the short strike plus/minus the total premium taken in.  In our
example:
a) upside exit point = $141 ($135 strike plus $6 premium)
b) downside exit point = $114 ($120 strike less $6 premium)
If one of the outside parameters (exit points) is hit, you must
close out BOTH sides of the strangle.

If MMM should go astray later in the life of the strangle, the
loss will be relatively small because the option will already be
$6 in the money and will have less time value.

Picking Your Victims
I'm sure it's easier to pick people you'd like to strangle, but
that's a topic for another column.  Here, we're trying to find
stocks that have overpriced options.  At the same time, we would
like to use a stock with limited volatility – hence limited
movement.  We want to create Nekked Strangles with a wide enough
range to have a good chance of success.

Measure how large of a range the stock has.  If MMM has moved less
than 10-15% over a typical 3-4 month period, it would be an
excellent candidate for the Nekked Strangle.

Margin Requirements
You're not the only people worried when you trade uncovered
options.  Your broker is sweating it out right along with you.
For their own peace of mind, and for your own protection (we're
our own worst enemy), your broker will hold some money in your
account – just in case we're wrong (us? wrong? they must be
kidding!).

How do we calculate the margin requirement for our straddle?
According to the CBOE Margin Manual (which is commonly used among
brokers), the formula is:
a) 20% of the underlying, plus
b) the total amount of premium taken in, less
c) the amount the option is out of the money

Let's apply our position to this formula -- the $135 call:
a) 20% of $130 = $26 x 100 shares = $2,600, plus
b) $6.00 x 100 shares = $600
c) less $5.00 out of the money x 100 shares = $500
Total maintenance for the $135 call is $2,700 per contract

The $120 put:
a) 20% of $130 = $26 x 100 shares = $2,600, plus
b) $6.00 x 100 shares = $600
c) less $10.00 out of the money x 100 shares = $1,000
Total maintenance for the $120 call is $2,200 per contract

Remember, in the Iron Condor strategy, the requirement is applied
to both spreads.  If the bull put and bear call spreads are 5-
point spreads, the maintenance requirement is the total of BOTH
spreads – or 10 points.

One of the benefits of trading uncovered strangle positions is
that the margin requirement is only the greater requirement of the
two sides – NOT both sides.  Therefore, the maintenance for our
Nekked Strangle is $2,700 per contract – but, we're not done yet.
The $2,700 represents the initial maintenance figure.  As MMM
fluctuates up and down, so does the maintenance figure.

If MMM trades at $126 or $138 or $121, the figures change.  Each
day after the market closes, your broker recalculates the
maintenance.  If you do not have sufficient money (or marginable
securities) in your account, you will get a dreaded margin call
and you'll have to bring in enough money to cover the deficit.

The Return Of The Return
It's tough to figure our return on uncovered positions, because
the risks are virtually unlimited.  Many accepted calculations
base their percentage figure on the margin requirement – which, I
suppose, is as good as any.  In our MMM example above, we're
taking in $600 for our one contract.  The margin, per contract, is
$2,700.  Therefore, when we subtract the $600 from the $2,700 our
adjusted exposure is $2,100.  For our CPTI percentage junkies, our
$600 represents a 28.6% return.

Do You Have The Approval?
In order to trade Nekked Strangles, you will need a high approval
level from your broker.  Only experienced option traders with
substantial account sizes are normally permitted to trade naked
options.  Requirements vary according to the brokerage firm.

UPDATE OF JULY CPTI PORTFOLIO POSITIONS

July Position #1 – LLTC Baby Condor – Closed at $32.17
Sell 10 contracts of LLTC July $35 calls @ $1.05
Buy 10 contracts of LLTC July $37.50 calls @ $.45
Net credit is $.60
Sell 10 contracts of LLTC July $30 puts @ $.75
Buy 10 contracts of LLTC July $27.50 puts @ $.40
Net credit is $.35
Total credit of $.95.  Risk is $1.55 ($2.50 - $.95)
Linear Technology (LLTC) was one of our profitable quickies.  We
now want to try to establish a slightly longer relationship.
We've created a maximum profit range of $30 to $35 and a safety
range of  $29.05 to $35.95.  Maximum profit is $950.  So far, so
good.
_____________________________________________________________

July Position #2 – SPX Iron Condor – Closed at $976.22
Sell 4 contracts of SPX July 940 puts
Buy 4 contracts of SPX July 925 puts
Net credit: $1.50
Sell 4 contracts of SPX July 1025 calls
Buy 4 contracts of SPX July 1040 calls
Net credit: $2.55
Total credit: $4.05.  Risk is $10.95 ($15 - $4.05)
Here we go again.  The range is 940 to 1025.  I'm still
anticipating (what do I know?) that pullback we never really got
in June.  I've reduced the number of contracts to four to reduce
our exposure.  This still may be a bit aggressive for some of you.
Be careful and stay within your risk tolerance.
Maximum profit is $1,620.  Also, so far, so good.
______________________________________________________________

July Position #3 – DJX – Bear Call Spread – Plus - $89.89
We're due to experience the summer doldrums – and why shouldn't
the DOW participate?  We're going to establish a bear call spread
and use that money to buy some puts.  Here we go.
Sell 15 contracts of DJX July $90 calls @ $1.90
Buy 15 contracts of DJX July $92 calls @ $1.00
Net credit of $.90 X 15 contracts = $1,350

Now, you can just leave that position alone and, if the DOW
finishes below 9000 at July expiration, you keep the $1,350.
Your exposure would be $1.20 (9200 – 9000) X $1,800.  Your maximum
profit would be $1,350.  DOW moved down.  It's a start.
_____________________________________________________________

Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $29.83
In May we bought 10 contracts of the July QQQ $30 puts @ $2.05 and
bought 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.
The QQQs have made a big move up.  It's either going to break
through resistance or bounce off and head back down.  Our
objective is for a $3-4 move in the next month.  One of our long
options will hopefully pay for almost the entire position.  That
will leave our other long option, which is now practically free,
poised for the bounce back as the QQQs reverse.
Our exposure is only $1.85 because we have $2.00 of intrinsic
value.
______________________________________________________________

July Position #3 – RUT Iron Condor – Aborted.
We were going to put on an Iron Condor with a 420/480 range.
Either I was drunk when I came up with the numbers, or the
premiums changed dramatically on Monday morning.  Regardless, with
premium gone, the proposed position was aborted.
______________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?
Do you have questions about our plays or our
strategies?  Feel free to email me your questions.  An
excellent source for new students is the OptionInvestor
archives where we've been discussing strategies and
answering questions since last July.  To find past CPTI
(Mike Parnos) articles, look under
"Education" and click on "Traders Corner."  They're
waiting for you 24/7
______________________________________________________________

Happy trading! Remember the CPTI credo: May our remote
batteries and self-discipline last forever, but mierde
happens. Be prepared! In trading, as in life, it’s not
the cards we’re dealt. It’s how we play them.

Your questions and comments are always welcome.
Mike Parnos
CPTI Master Strategist and HCP


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

Fibonacci Trading Days
Steve Gould

I like to gamble.  Let me rephrase that.  I like to gamble and
win.  That is why I never gamble at a casino.  Gambling at a
casino is a losing proposition.  Long term, you can not win.  It
is mathematically impossible.  The odds are against you.  They may
not be against you much, but in the long run, you will have to
lose.

Some games have better odds than others.  For example, some slot
machines pay out 97% of the intake.  In other words, for every
$100 you deposit in a slot machine, over time, you will win back
$97.  Roulette, on the other hand, has much worse odds.  In fact,
I believe it is one of the worst games (for the gambler) along
with Keno.

If you could somehow manipulate the odds such that they were in
your favor, then over time, you, not the casino, would be the
winner.  Unfortunately, very few games allow you to have these
favorable odds.  Blackjack is one of them.  You have to count
cards and wait patiently for those exquisite moments.  Knowing the
number of tens in the deck gives you an advantage over the casino.
If you have ever taken an abacus into a casino, you will soon find
that the friendly staff is not so friendly anymore.  You had best
be able to do it all in you head.

The stock market is not so unfriendly.  If you could somehow find
an advantage and increase the odds of a profitable play in your
favor, there is no friendly staff telling you can not use every
advantage to your favor.

When finding entry points for stocks, you can do just that.  Lots
of tools are available to help you decide when to enter a trade.
I would like to discuss one of the many tools available to you
that will help you find pivot points on a stock.

A pivot point is a bar that prints out a reversal in a trend.  The
reversal can be long term or short term.  At that point, the trend
changes from either up to down, or down to up.

Chart: Pivot points




This is a daily chart of Microsoft for the last 6 months or so.
Every bar labeled with either a P or J is a pivot point.  Ps are
major pivot points, while the Js are minor pivot points.  Wouldn't
it be nice to know when to anticipate these points so that
strategic trades can be initiated?

Every trader uses various tools to help determine the movement of
a stock.  These tools can be indicators such as MACD or
stochastics, or they can be moving averages, or they can be
studies such as Bollinger Bands.  Personally, I do not think they
should be called tools.  I think they should be called ducks.
Indicators such as MACD, stochastics, etc. are useful but are
really meaningless unless confirmed by other ducks.  When several
of your ducks line up in a row, then the probability of an event
occurring increases substantially.  (OK, so I have a propensity to
be bizarre.)

The duck I would like to discuss is Fibonacci trading days.

A trading day is just that.  A day the market is open.  For the US
markets, that would be Monday through Friday excluding financial
holidays.  As an example, if today is Monday, then Tuesday is one
trading day away.  Wednesday is two trading days away.  Friday is
four trading days away.  The next Monday, although seven calendar
days away, is five trading days away.

Fibonacci was a 12th century Italian mathematician who is most
remembered for his Fibonacci sequence.  The sequence is a
mathematical series starting with 0, 1.  The last two digits are
added together to obtain the next digit.  This continues on to
infinity.  If we continue with the sequence, we would get

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, etc.

(The next digit would be 144 + 233 = 377)

These are good numbers to know as they can be used in all sorts of
studies.  I find them a hair more accurate.  Try using a 55 and
233 day moving average instead of the "industry standard" 50 and
200 day moving averages.  See if support and resistance lines
don't match up better.  Instead of the standard (12, 26, 9) MACD
try experimenting with (13, 21, 8).

Pivot points have a proclivity to occur on Fibonacci trading days
from previous pivot points.  Sometimes they are early, sometimes
they are late but not by much. If there is to be a pivotal day, it
will typically happen around a Fibonacci trading day plus or minus
2 days.

(Of course, this works in all time frames, so when I refer to
trading days, I actually mean trading periods.  If we were looking
at a weekly chart, then we would be talking about trading weeks.
On an hourly chart we would be discussing trading hours.  For the
sake of simplicity, we will confine our discussion to daily
charts.)

Let's look at some examples.

Chart: Pivot points bottom





Here is a daily chart of Microsoft from July 2002 until February
2003.  My charting program will count out trading days from a
selected point and display any desired values.  I chose the
Fibonacci numbers.

Note how on precisely the 21st trading day Microsoft printed a
top.  At 34 days, it printed a minor top.  Two days after the 89th
trading day Microsoft printed another top.

At 55 days, Microsoft began its ascent up.  Although this was not
a pivot point, it did come 8 days (another Fibonacci number) after
the pivot point.

Generally I find that bottom pivot points beget bottom pivot
points at Fibonacci numbers.  Top pivot points beget top pivot
points at Fibonacci numbers although as the above chart shows that
is not always the case.

Pivot points at Fibonacci numbers are not restricted to the first
few numbers in the sequence.  They extend out as far as you would
like to take them.  What generally happens is that a trading day
at 377 will overlap with one or more other Fibonacci numbers from
other pivot points.  When this happens, it just reinforces the
probability that a pivot point will occur around that day.

Chart: Pivot points All




Here is a daily chart of Boeing (BA) from August of 2001 to
September of 2002.  At each pivot point P, I inserted the
Fibonacci trading day count.  Each red arrow points to a peak (+/-
2 days) and each blue arrow points to a valley (+/- 2 days).

In general the peak pivot points begot peak pivot points at
Fibonacci numbers and the valley pivot points begot valley pivot
points at Fibonacci numbers although a few exceptions crept in.

Just eyeballing this chart, it looks like there is a greater than
50% hit rate that a Fibonacci trading day will represent some type
of a pivot point.

Confluence of Fibonacci numbers represent a higher degree of
confidence that a pivot point will occur but it is no guarantee.
The black lines represent a confluence where no pivot occurred.

As a final thought take a look at how pivot points can be used to
find the end of a wave.

Chart: Pivots and Waves




This is a daily chart of T for the last 7 months and it shows how
wave counts tend to end around a pivot point.  You can see from
count 1 that wave 1 ended on the 13th trading day +1.  Wave 2
ended on the 21st trading day + 2 from count 1 and the 8th trading
day + 1 from count 2.  Wave 3 looked like it could have completed
on the 55th trading day from count 2 but the oscillator did not
confirm it.  It actually did not fall on any Fibonacci day.  Wave
4 looks to have ended on the 34th trading day from count 4.

Use this technique with your other favorite indicators.  If you
are expecting a turning point, use the Fibonacci trading days and
see if a pivotal day is approaching, or better yet, if a
confluence of pivotal days is approaching.


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

Elliott Wave Play Updates
Steve Gould

DJX

Chart: DJX update 6/27/2003




The Dow has been moving down and I think we have finally seen the
top of this correction.  We will be taking partial profits along
the ride down to keep this a delta neutral trade.  As with the
QQQs, the first week of July may prove interesting as all the mid
year retirement money flows into the market.  We may see a surge
that could drive the Dow higher before coming back down.  If that
is the case, we will probably sell a few calls and take partial
profits.

Option

The original option values on 6/6/2003 were

DJX – 90.62

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy        DJVIN    SEP 92      Call  2.80  3.00    0.51   15
Buy        DJVUJ    SEP 88      Put   2.70  2.90   -0.33   23
                                      ----  ----   -----
                                      5.50  5.90    0.18

Current values on 6/27/2003 are

DJX – 89.89

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy        DJVIN    SEP 92      Call  1.90  2.10    0.41   16
Buy        DJVUJ    SEP 88      Put   2.45  2.70   -0.39   22
                                      ----  ----  ------
                                      4.35  4.80    0.02


QQQ

Chart: QQQ update 6/272003




There has been no real net movement of the QQQs.  The first week
of July may prove interesting as all the mid year retirement money
flows into the market.  We may see a surge that could drive the
QQQs higher before coming back down.  Aggressive traders may wish
to buy back the July 37 puts if the QQQs surge much higher in
response to this influx of money.

Option

The original option values on 6/13/2003 were

QQQ – 29.96

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   2    KLFME   Jan 04 31    Put   3.00  3.20   -0.44   32
Sell  1    QQQSK   Jul 03 37    Put   6.90  7.10    0.99   41

Credit: .50

Current values on 6/272003 are

QQQ – 29.83

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   2    KLFME   Jan 04 31    Put   2.95  3.10   -0.52   28
Sell  1    QQQSK   Jul 03 37    Put   7.10  7.20    1.00   44

Liquidation: -1.30 + .50 = -0.80


BA

Chart: BA update 6/272003




BA is continuing its wave 4 correction.  It is way too early to
know anything yet about the form of this correction but we will be
watching it to try and discern its type (zigzag, flat, etc).  The
oscillator is rapidly approaching zero but the retracement is far
from over.  Stochastics indicate we are due for an upward bounce.
This is normal and should not affect the wave count.

Option

The original option values on 6/17/2003 were

BA – 36.15

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     BAGF   Jul 03 30    Call  6.10  6.40   -99.5   29
Buy   2     BAAU   Jan 04 37.5  Call  2.70  2.85    52.6   25

Credit: 0.40

Current values on 6/20/2003 are

BA – 34.22

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     BAGF   Jul 03 30    Call  4.30  4.40   -91     41
Buy   2     BAAU   Jan 04 37.5  Call  1.60  1.70    37     29

Liquidation value: -1.20 + .40 = -0.80


T

Chart: T update 6/27/2003




T has not retraced as I had expected, but I think that was because
the 5 wave basic pattern was not yet complete.


Chart: T update hourly 6/27/2003




The hourly chart of T shows that the 5 (circle blue) wave to be
complete based on the following criteria.

1. The 5 wave oscillator peak is smaller than the 3 wave
oscillator peak.
2. The 5 wave is at the aqua/purple resistance bar
3. The 5 wave basic pattern shows a classic look.

The 5 wave could trace out to 18.85 and still not be longer than
the 3 wave, but the oscillator does not support this.

In any case, wait for the retracement back to around 20.75 before
initiating this play.  Update the July call to the August call
otherwise we are at too high a risk of assignment.  The new play
thus becomes

Option

T: $19.37

Pos  Num  Sym  Strike   Type   Bid   Ask   Delta   Vol   OI
Sell  1   TGC  Aug 15   Call  4.50  4.70   99.6     0    60
Buy   2   TJX  Oct 22.5 Call  0.70  0.90   36.0    328  9774

Credit: $270


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

Where is the Dow Going?
Steve Gould

Last week I declared (under my breath, with my fingers crossed and
a bible no where near me) that the bear was dead.  Bull markets
typically do not end until the very last bear gives up the ghost
and capitulates. Since I was one of the last remaining bears left,
I figured if I capitulated (or at least said I did) the market
would honor my intentions and head down.

Lo and behold, the market headed down.  In fact during this last
week the Dow (and the other indices, too) may have headed down in
such a way that we may indeed be seeing evidence that the bear has
been resurrected.  If I had only known it was that easy, I would
have done that months ago.

Chart: Dow Daily Big Picture 6/27/2003



First the bear case.

Last week I showed this chart and said there was no significant
change as all the Dow did was move up a bit more.  This week, the
Dow has taken a definite move down and it could be a significant
milestone. It appears that the C wave of the 2 wave may be finally
complete.

Last week's chart showed the Dow with a peak on 6/17 and a few
days of downward movement.  I showed that the Dow was at the 61.8%
retracement level of wave 1 and that the A wave and C wave were
almost identical in size thus satisfying a flat correction
criteria.  Nothing has changed since then to invalidate those
measurements.  As of right now, it appears that the A-B-C
correction of the 2 wave is going to end up as a flat.

What is it about this recent movement that leads me to believe
that the Dow is finally headed down?

A close up view of the above daily chart really doesn't show the
wave count very well.  However the hourly is very instructive.

Chart: Dow Hourly 6/27/2003




The hourly chart shows a clear 5 wave basic pattern down since the
peak on 6/17.  The 5 wave basic pattern down is significant
because all impulse waves, i.e. waves 1, 3 and 5, are 5 wave basic
patterns.  Right now, there is really no good way to count this as
an A-B-C 3 wave pattern.  This could very well mean that the 3
wave has finally started its descent.

Or not...

The (temporary) bull case

The possibility still exists, mind you, for the Dow to turn the 2
wave corrective pattern into an expanded flat. Expanded flats have
the same structure as flats except the C wave continues up. The C
wave could extend up to 1.6 x wave A.  Should this be the case,
the Dow could conceivably trace out a path to 10400 before
reversing course.

Why would this happen given all the bad economic data coming in?

I have been reading ubiquitous articles about all the mid year
retirement money that is going to be flowing into the market come
July 1.  Jim presented historical July charts for the last 5 or so
years.  Just about every one of them showed a beginning July
bounce before heading down.  Why would this year be different?
Hard to say, so I am going to keep open the possibility that a
July retirement money bounce could send the Dow to higher levels.

Technically if it did happen, it would look something like this.

Chart: Dow Retirement Money Bounce




The dark green arrows are not to scale.  It just shows the
movement possible for a final thrust up.  Currently the Dow is
heading down, but if the 5 wave basic pattern traced out on the
hourly chart is part of a larger corrective pattern, it could be
the A wave of a zigzag instead of the 1 wave of the next leg down.

Ultimately what I think is going to happen is the Dow is going to
indeed bounce, but as a correction to the i (circled) wave just
now complete.  A bounce to 9200 would represent 61.8% retracement
and would fit nicely with the current wave pattern.

Bottom line, I am still bearish and still hedging.  The Dow is
still at a juncture.  Arguments could be made for both directions.
The first week or so in July will be telling.  Should the Dow head
down significantly, then I would be more confident that the bear
is still alive and kicking.  Should the Dow move up significantly
but stay below 10400, the bear is still my first choice. If the
Dow goes higher than that, as Rickie Ricardo would say, "I have a
lot of 'splaining to do."


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

Steps to developing a Trading System
Jane Fox

Have you ever had a hard time pulling the trigger on a trade after
3 or 4 losing trades? Have you ever held on to a losing trade too
long until you just couldn't take it anymore? If you answered yes
to any of the questions above then you may be trading with emotion
and letting fear and greed rule your decisions. Mechanical trading
can stop this kind of trading.

What is mechanical trading? It is a trading with a system that
gives you triggers according to criteria that will skew the
probability of a profitable trade in your favor. And the purpose
of this article is to walk you through what goes into system
development and in future articles show you how to optimize them.

But before I get to that I would like to take a minute and talk
about the difference between a systematic trader and a
discretionary trader.

A discretionary trader uses a lot of "gut feel" and will takes
trades because he/she feels like it is a good trade. This is
perfectly OK if you have this feel for the market and what every
trader ultimately tries to attain. But if you have not developed
this talent then you should probably think about a system.

One trait often found in successful traders is that they
concentrate on what the market is doing this minute not what they
think the market will do or might do. This is where system trading
comes in, it is a way to objectively look at the market and know
how you will react if the market takes a certain course.

You have probably tested all sorts of combinations and
permutations of indicators and have found the ones that work best
for you. But you need a way of making the interpretation of them
automatic and not subject to your current emotion state. Why is
this you ask?

Let's build a scenario. Your favorite indicator just gave you a
trigger to go long in the S&P e-minis. Then someone in the Market
Monitor makes a bearish comment about the price formation and the
doubts start. Then another indicator you watch gives a short
signal. You get confused and decide to pass and you don't take the
trigger. It doesn't matter if the trade worked out or not, what
you have done is reinforced your mistrust of the indicator and if
you mistrust your indicator why are you using it? So you go
looking for another silver bullet only to have the process start
all over again. It has nothing to do with the indicator or how
well it works but everything to do with what is going on between
your ears. We are all subject to outside influences and it would
take a monumental effort to deflect them all. What do you do?

You build a system, a strategy based on indicators in which you
have faith, on the indicators you trust. Once you have done this,
you should have transferred the trust and faith of your indicators
to your complete trading system. Trust and faith in your system is
vital and is one of the cornerstones to good trading.

Why is it vital? Because if you don't have trust in your system
you won't take each and every trigger. This is called cherry
picking and your system then ceases to be a system and you are
back to discretionary trading. Consistency is what is important
when choosing a system, nobody is good enough to know in advance
which day is ideal, and which day will result in losses so you
trade each trigger mechanically.

A system is nothing more than a set of rules that determines when
to enter long or short and another set of rules as to when you
exit, at a loss or at a profit. These rules are based on your own
trading ideas or observations (or borrowed from others) that fit
your type of trading and knowledge base. Some may not like the ADX
system I am profiling because they are not comfortable with the
ADX so they will develop a set of rules based on his/her
particular own indicator (or group of indicators) with which they
are comfortable.

You may ask isn't using technical analysis to trade a system? The
answer to this question is; no it is not. Technical analysis is
not a system because it can leave so much up to your own
interpretation and when money is on the table and fear and greed
enter the equation objective judgement will fly out the window. A
system will leave nothing to your interpretation during market
hours; interpretation is only done during after hours when you can
look at the indicators with total objectivity.

A successful trading system has five basic components:

1. Market Action - this is where you identify which market to
trade. You probably want a market that is liquid for quick fills
and low slippage. I have chosen the S&P500 and Nasdaq 100 e-mini
futures for my ADX system. If anyone wonders why I don't include
the DOW e-minis just read my article on "a/c/e's Dirty Little
Secret" and you will know why.
http://www.OptionInvestor.com/futurescorner/fc_052703_01.asp

2. TimeFrame to Trade - this is the trading interval you will use,
1 min, 5 min or maybe daily charts. The timeframe component needs
you to answer the question; "What kind of trader am I"? If you
don't know then you can't define the time interval. This is a very
important question and needs some soul searching before answering.

I have a system that uses the daily charts for swing trades but I
need one that trades more often for daytrading so I use the 5-
minute charts.

3. Entering a position - This is where you set out the rules for
entering the market you identified in one. Typically you would use
a setup, filter and a trigger. For example, in my ADX system, my
setup is a bar trading above or below the 4MA, the filter is the
ADX >= 30 and the trigger is a trade one tick above the setup bar
on longs and one tick below the setup bar on shorts.

4. Exiting a Position - this component is a single condition or a
group of conditions you will apply to close out a position. These
conditions can be as varied as a change in the market, reaching a
established profit target, an "uncle" level where your money
management plan says you can no longer stick around or as simple
as elapsed time.

The exit conditions I use for my ADX system are actually very
simple. My stop is set above or below the setup bar, profits are
taken at two predetermined levels or a time elapsed condition, the
end of day.

5. Trade management is the component where money management comes
into play. It is an evaluation of the stop loss size and
determining how many shares/contracts to risk.

Let's see how a system can develop. You are a discretionary trader
and have not been having a lot of winning trades lately and you
know you need to do something before all your trading capital is
gone. You have very good ideas about technical indicators and
usually can read the market quite well but the losses lately have
been coloring your outlook and you find yourself making impulsive
decisions. You then read Mark Douglas' book Trading in the Zone
and decide you need a system. Where do you start?

I think you have most of the work already done. You probably
already trade markets that are liquid because you would naturally
gravitate to them for the quick and good fills. Number one is
taken care of.

Number two may be a little more difficult. I found with myself if
I didn't have enough trades in the day I would get bored and you
know the story about idle hands. The 1-minute for me was too quick
but the hourly was very boring. I found the 5 min to fit my style
nicely.

Number three I think is the easiest. I have noticed in the Market
Monitor how each of the contributors talk about his/her favorite
indicators and how comfortable they are with them. Ask anyone of
them about his/her favorite and I bet it would be a long
conversation.

Number four is where the stops and profit targets are determined.
Your system testing can help you a lot here. My system takes
profits in two increments P1 and P2. It does not matter how many
contracts you trade because 1/2 is taken at P1 and the other 1/2
is taken at P2. I did this because I am comfortable with taking
profits in two increments. Any more than that and I start to get
confused. It doesn't take much to confuse me so I keep things
simple.

Number five is based on your money management plan and the stop
loss generated from your system. For example if we entered an ES
long at 900 and the stop loss was way down at 896 your stop loss
is 4 points or $200/contract. That is a lot of risk for me so I
would probably only put on a 1/2 size but still trade enough to
make it divisible by 2 to take profits at P1 and P2.

Well that is enough for now. The next article will be addressing
the actual testing and what to look for in the Strategy
Performance reports generated by Tradestation.

Remember plan your trade and trade your pan.


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The Option Investor Newsletter                   Sunday 06-29-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: "Roll-Out" For Consistent Returns
Naked Puts: Options 101: Position Management Basics With Naked Puts
Spreads/Straddles/Combos: No "Window-Dressing" Rally Here!

Updated In The Site Tonight:
Market Posture: Window Undressing?


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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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*************
COVERED CALLS
*************

Trading Basics: "Roll-Out" For Consistent Returns
By Mark Wnetrzak

With the recent recovery in the stock market, many investors are
starting to use the covered-call strategy for long-term portfolio
issues.

Anyone who buys and sells stocks knows the market is unpredictable
and when it comes to selling covered-calls, a trader must always
be ready to make adjustments to keep a position profitable.  When
you use this strategy to generate income from the stocks in your
portfolio, a bullish issue can be just as bad as a bearish issue
if you don't know how to "roll" your options correctly, and in a
timely manner.  Rolling; buying back the current short calls and
selling new calls with a future expiration date and in many cases,
a different strike price, is a technique that experienced traders
utilize on a regular basis.  Those of you who are not familiar with
the basics of this method of position adjustment should review the
covered-call chapter in "Options As A Strategic Investment," by
Larry McMillan.

The most common time to roll-out to new options is just before the
current options expire, but that doesn't prevent you from taking
advantage of favorable moves in the stock or beneficial changes in
the option premiums.  The primary goal of any trade is to earn a
profit and by the same reasoning, any adjustment to a portfolio
position should attempt to improve its overall risk/reward outlook.
Some traders roll their positions when the new cycle begins (when
options two months out are posted) while others use the ratio of
time-value between the bought and sold options to determine the
timing of the transaction.  Another popular method is based solely
on the premium remaining in the short call, which is an excellent
indicator as it relates directly to the price of the underlying and
the time remaining until the option expires.  When this component
reaches a level near parity (most of the time value has dissipated
from the option's price) the position can generally be rolled to a
future expiration date for a substantial credit.  However, if you
wait too long to roll-out (when the option bid reaches parity or a
discount), there is considerable probability of early exercise by
arbitrageurs; exchange specialists and floor traders who don't pay
commissions trading.

In addition to understanding the different methods for timing the
trade, it is also important for an investor to establish realistic
goals in this strategy.  Experienced traders usually focus on the
annualized target return or a specific percentage gain in order to
determine the minimum profit required (in a given time period) for
a particular position.  Using this approach, a reasonable target
for adept covered-call writers might be as high as 4-6% (8-12% on
margin) monthly return on investment.  Even with this meager yield,
the long-term capital appreciation is excellent due to the unique
mathematics of compounding.  Obviously, some retail option traders
would regard this target as far too low however earning only 3% per
month, without the effects of compounding, equates to a 36% yearly
return.  That's really the key to success with this strategy -- it
allows investors to compound their returns on stock ownership each
month of the year.  The problem is, while most people begin selling
covered calls with the goal of growing their account on a regular
basis, many lose focus of the fundamental outlook of the strategy
(consistent, low risk profits) and begin to concentrate on higher,
single-transaction returns.  This is a common mistake and it can
substantially increase losses, even with proper money management
in a diverse portfolio.

One thing traders must always be aware of is "slippage" and in the
case of roll-out trades, the best way to avoid this problem is to
place the order as a spread.  To do this correctly, you should
first calculate the difference between the option you are buying
and the option you are selling.  Then you would place an order to
"buy-to-close" the short calls and "sell to open" the new options
for a specific price.  Once you have established this "net" credit
for the roll-out transaction, the composite order can be placed
with a "good-until-cancelled" contingency that allows it to remain
in effect until it is filled or modified due to changing conditions.
Another popular variation of this technique is used when closing a
losing covered-call play.  Similar to a "buy-write," an order is
placed to repurchase the sold option and sell the stock for a net
credit.  Again, the "net" amount is determined by the bid price of
the stock and the ask price of the short call.  Using this method
in conjunction with a discretionary order, allows the floor broker
added flexibility to fill the order and it often results in a better
outcome than if you tried to make the trades independently.

Next week, we will explore popular timing techniques for roll-out
strategies.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

MIR      2.78    2.50  JUL  2.50  0.65    0.37   15.1%
SUPG     5.86    5.32  JUL  5.00  1.20    0.34*   7.9%
BEAV     2.69    3.30  JUL  2.50  0.35    0.16*   5.9%
WEBX    13.90   13.96  JUL 12.50  2.10    0.70*   5.2%
RSYS    13.00   13.36  JUL 12.50  1.05    0.55*   5.0%
BLUD    22.02   21.70  JUL 20.00  2.85    0.83*   4.7%
MTON     5.60    5.33  JUL  5.00  0.90    0.30*   4.6%
ASIA     5.75    8.15  JUL  5.00  1.00    0.25*   4.6%
WEBX    14.45   13.96  JUL 12.50  2.45    0.50*   4.5%
RHAT     8.27    7.85  JUL  7.50  1.20    0.43*   4.4%
MHR      8.11    8.05  JUL  7.50  0.95    0.34*   4.1%
EDS     21.99   21.45  JUL 20.00  3.00    1.01*   3.9%
IMMU     6.91    6.25  JUL  5.00  2.15    0.24*   3.7%
SEBL    10.98    9.78  JUL 10.00  1.65    0.45    3.5%
SGR     12.62   12.09  JUL 12.50  0.90    0.37    3.4%
QSFT    12.58   12.12  JUL 12.50  1.00    0.54    3.4%
SEBL    10.85    9.78  JUL 10.00  1.40    0.33    3.0%
ASIA     5.97    8.15  JUL  5.00  1.15    0.18*   2.7%
OVRL    20.68   19.53  JUL 20.00  1.50    0.35    2.0%
Q        5.23    4.73  JUL  5.00  0.50    0.00    0.0%
DNDN     7.66    6.53  JUL  7.50  1.05   -0.08    0.0%

*   Stock price is above the sold striking price.

Comments:

The major averages dropped this week for a friendly (so far) test
of their 30-day MAs.  Will the market bounce and start a new leg
higher (like it did in May), or is it the final (third) leg of the
rally off the March lows?  Yes indeed, we are at a key moment.
The covered-call model portfolio has (so far) weathered the recent
consolidation as issues pulled back to test their support areas.
Monitor closely any stocks that act weaker than expected (fail to
hold support) and you do not wish to own.  Our early exit watch
list includes: MIR, RHAT, SEBL, OVRL, Q, DNDN.

Positions Previously Closed:  None


NEW CANDIDATES
*********

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

IBIS    7.95  JUL  7.50  UIB GU  0.85  96      7.10  21   8.2%
AMR    11.32  JUL 10.00  AMR GB  1.70  11859   9.62  21   5.7%
CNET    5.71  JUL  5.00  QKW GA  0.90  263     4.81  21   5.7%
GP     18.96  JUL 17.50   GP GW  2.05  7277   16.91  21   5.1%
USG    19.95  JUL 15.00  USG GC  5.40  8536   14.55  21   4.5%
OI     13.91  JUL 12.50   OI GV  1.75  4604   12.16  21   4.0%
BCGI   17.70  JUL 15.00  QGB GC  3.10  1286   14.60  21   4.0%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
IBIS - Ibis Technology  $7.95  *** On The Move! ***

Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets
SIMOX-SOI implantation equipment and wafers for the worldwide
semiconductor industry.  SIMOX, or Separation by IMplantation of
Oxygen, is a form of silicon-on-insulator (SOI) technology that
creates an insulating barrier below the top surface of a silicon
wafer.  SIMOX-SOI products are well suited for many commercial
applications, including servers and workstations, portable and
desktop computers, wireless communications and battery-powered
devices such as laptop computers, personal digital assistants
(PDAs) and mobile telephones, integrated optical components and
harsh-environment electronics.  Sales of 300-millimeter wafers
accounted for approximately 44% of the company's total wafer
product sales in 2002.  Shares of Ibis Technology have rallied
above their December high on heavy volume, which suggests further
upside potential.  Investors with a bullish outlook can use this
position to establish a favorable cost basis in the issue.
Earnings are due July 23.

JUL-7.50 UIB GU LB=0.85 OI=96 CB=7.10 DE=21 TY=8.2%


*****
AMR - American Airlines  $11.32  *** Cleared For Take-off! ***

AMR Corporation's (NYSE:AMR) operations fall almost entirely in
the airline industry.  American Airlines, Inc. is AMR's principal
subsidiary.  In April 2001, American Airlines, Inc. purchased
substantially all of the assets and assumed certain liabilities
of Trans World Airlines, Inc. (TWA).  At the end of 2001, AMR
provided scheduled jet service to more than 161 destinations
throughout North America, the Caribbean, Latin America, Europe
and the Pacific.  AMR is also a scheduled air freight carrier,
providing a full range of freight and mail services to shippers
throughout its system.  AMR popped higher this week after the
company reported a positive operating cash flow in May and June,
due to cost reductions and stronger revenue.  The company also
benefited from CSFB analyst James Higgins' upgrade on Thursday
to "outperform."   AMR appears to have averted bankruptcy in
the near-term and this speculative position offers a reasonable
reward for those who believe the airline stocks can fly higher.

JUL-10.00 AMR GB LB=1.70 OI=11859 CB=9.62 DE=21 TY=5.7%


*****
CNET - CNET Networks  $5.71  *** Rally Mode! ***

CNET Networks (NASDAQ:CNET), a global media company informing
and connecting buyers, users, and sellers of technology, produces
a branded, global Internet network, print publications and a
technology product database for both businesses and individuals.
Using unbiased content as its platform, the company has built
marketplaces for technology and consumer products, and, through
its CNET Channel division, is a provider of standardized product
information.  CNET, which has been in rally mode since March,
faltered after the company planned on a private placement of $100
million in convertible notes, but quickly dropped the deal.  CNET's
stock jumped this week after Smith Barney raised its investment
rating to "outperform" because of potential growth in advertising.
Our outlook is also bullish, due to the recent technical strength
and this position offers a reasonable cost basis in the issue.
Target shooting a lower "net-debit" will increase the potential
yield and downside protection in the position.

JUL-5.00 QKW GA LB=0.90 OI=263 CB=4.81 DE=21 TY=5.7%


*****
GP - Georgia-Pacific  $18.96  *** Asbestos Speculation! ***

Georgia-Pacific (NYSE:GP) is engaged in four principal business
operations: the manufacture of tissue products (including bath
tissue, paper towels and napkins) and disposable tabletop products
(including disposable cups, plates and cutlery); the manufacture
of containerboard and packaging (including linerboard, medium and
corrugated packaging); the manufacture of bleached pulp and paper
(including paper, market and fluff pulp, craft and bleached board),
and the manufacture and distribution of building products (including
plywood, oriented strand board, various industrial wood products and
softwood and hardwood lumber, as well as certain non-wood products,
including gypsum board, chemicals and other products).  GP's four
principal businesses are broken down into six operating segments:
North America consumer products, international consumer products,
packaging, bleached pulp and paper, building products manufacturing
and building products distribution.  Shares of companies with
asbestos liabilities have rallied sharply recently after legislative
progress raised the probability of a national fund to pay asbestos
injury claims.  Traders can use this position to speculate on the
outcome with a cost basis closer to near-term technical support.

JUL-17.50 GP GW LB=2.05 OI=7277 CB=16.91 DE=21 TY=5.1%


*****
USG - USG Corp.  $19.95  *** Asbestos Speculation: Part II ***

USG Corporation (NYSE;USG) produces a range of products for use
in new residential, new non-residential and repair and remodel
construction, as well as products used in certain industrial
processes.  Its operations are organized into three operating
segments: North American Gypsum, which manufactures Sheetrock
brand gypsum wallboard and related products in the United States,
Canada and Mexico; Worldwide Ceilings, which manufactures ceiling
tile in the United States and ceiling grid in the United States,
Canada, Europe and the Asia-Pacific region, and Building Products
Distribution, which distributes gypsum wallboard, drywall metal,
ceiling products, joint compound and other building products
throughout the United States.  Shares of companies with asbestos
liabilities have rallied sharply recently after legislative
progress raised the probability of a national fund to pay asbestos
injury claims.  Traders can use this position to speculate on the
outcome with a cost basis closer to near-term technical support.

JUL-15.00 USG GC LB=5.40 OI=8536 CB=14.55 DE=21 TY=4.5%


*****
OI - Owens-Illinois  $13.91  *** Asbestos Speculation: Part III ***

Owens-Illinois (NYSE:OI) is a manufacturer of packaging products.
The company manufactures glass containers in North America, South
America, Australia and New Zealand and Europe, and is a worldwide
manufacturer of plastics packaging.  Plastics packaging products
manufactured by Owens-IL include consumer products (blow molded
containers, injection molded closures and dispensing systems) and
prescription containers.  Owens-IL has acquired 18 glass container
businesses in 18 countries since 1991, including businesses in
North and South America, Central and Eastern Europe and the Asia
Pacific region, and seven plastics packaging businesses operating
in 12 countries.  Shares of companies with asbestos liabilities
have rallied sharply recently after legislative progress raised
the probability of a national fund to pay asbestos injury claims.
Traders can use this position to speculate on the outcome with a
cost basis closer to near-term technical support.

JUL-12.50 OI GV LB=1.75 OI=4604 CB=12.16 DE=21 TY=4.0%


*****
BCGI - Boston Communications  $17.70  *** Bracing For A Rally? ***

Boston Communications Group (NASDAQ:BCGI) provides real-time
subscriber management services to the wireless industry.  The
company's real-time subscriber management products include the
following: proprietary software applications, which include
extensive software suite to manage subscribers; hosting
environment, which is a real-time, large scale, micro-payment
transaction processing platform; Intelligent Voice Services
Network, which includes edge-of-network voice services and
Signaling System 7 call control; and Distribution Technology
Partnership Program, which is a national payment network for
cash collection.  Boston Communications shares rallied in April
after the firm reported it earned a profit in the first quarter
as legal costs fell and its customers added new subscribers.
The stock has been volatile recently as investors appear to be
moving into the stock and expecting "good" news when the company
reports earnings on July 16.  This position offers traders a
method to profit from the recent activity and "inflated" options
with a cost basis closer to support.

JUL-15.00 QGB GC LB=3.10 OI=1286 CB=14.60 DE=21 TY=4.0%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

MERX    7.60  JUL  7.50  KXQ GU  0.60  10      7.00  21  10.3%
NFLD    8.10  JUL  7.50  DHQ GU  1.00  615     7.10  21   8.2%
BONZ   12.82  JUL 12.50  QBN GV  0.95  423    11.87  21   7.7%
CHPC    7.53  JUL  7.50  AKQ GU  0.40  112     7.13  21   7.5%
AKSY   12.69  JUL 12.50  KQK GV  0.75  32     11.94  21   6.8%
PMRY   10.76  JUL 10.00  PBQ GB  1.15  87      9.61  21   5.9%
NSIT   10.16  JUL 10.00  QNT GB  0.50  61      9.66  21   5.1%
AMKR   13.19  JUL 12.50  QEL GV  1.10  751    12.09  21   4.9%
SNDK   41.20  JUL 37.50  SWQ GT  4.90  3074   36.30  21   4.8%
GIVN    8.41  JUL  7.50  QPG GU  1.15  77      7.26  21   4.8%
NXTL   18.49  JUL 17.50  FQC GS  1.55  20308  16.94  21   4.8%
IMMU    6.25  JUL  5.00  QUI GA  1.40  379     4.85  21   4.5%
PWAV    6.15  JUL  5.00  VFQ GA  1.30  1654    4.85  21   4.5%


*****************
NAKED PUT SECTION
*****************

Options 101: Position Management Basics With Naked Puts
By Ray Cummins

One of our new readers asked about the most common adjustment
strategies for a "naked" put when the underlying issue has
experienced a severe decline.

There are two basic strategies that traders use to profit from
the sale of naked puts.  The first technique involves writing
"at-the-money" puts to take advantage of a bullish movement in
the underlying stock for large, short-term profits.  The less
aggressive method involves writing "out-of-the-money" puts,
hoping that the sold position will expire worthless.  Either
technique can be used to take a position in a specific issue
but in most cases, our approach to naked put writing is applied
as a "deep-out-of-the-money" strategy in which the trader uses
the collateral value of his portfolio to return a consistent,
limited profit.

The strategy of selling out-of-the-money naked puts on bullish
issues is a relatively conservative technique but occasionally,
you will be faced with a position that is in-the-money as the
expiration date approaches.  One of the most common methods for
preventing a potential loss in this situation is the "roll-out"
and it is used when the underlying issue falls to (or below)
the strike price of the sold option.  Remember, selling a put
obligates the writer to purchase the underlying issue at the
sold strike price.  If the stock remains above the sold strike,
the writer retains the premium for the sold option.  However,
if the stock price falls, the writer may need to roll out and
forward in his position, to avoid potential assignment of the
stock.  He can repurchase the puts that were sold initially and
sell new longer-term options.  Generally, the new options are
written at the next lower strike price, or in greater quantity
so as to generate a credit.  In this simple recovery method, no
debits are incurred but a realized loss is taken in the short
term.  If the stock price continues to decline, the process is
repeated.  Eventually, the issue should stop falling and the
last set of written options will expire worthless.  At that
time, the traders' overall profit will consist of the sum of
all the previous credits.

There are two requirements for success in this strategy.  The
first prerequisite is that the underlying stock must eventually
rebound and the second condition is that the trader have enough
portfolio collateral to stay with the strategy even if the issue
falls significantly.  A large stock portfolio is best for this
type of trading because the collateral required for naked option
writing may be in the form of cash or securities.  There are no
margin interest charges and the positions in the portfolio are
unaffected unless there is a need for additional funds to close
the play prematurely.  This simple exit strategy offers a high
degree of (eventual) success although in some cases, there may
be an accumulation of losses before a profit is achieved.

One rule of thumb with any adjustment technique is that you can't
wait until the stock is well below the sold option's strike price
before initiating the roll-out.  The longer you wait the further
you will need to move into the future to achieve a lower cost
basis.  Experienced traders try to make the transition when they
can roll to next month out, where they can sell the highest
relative premium for a small credit and not commit to a long-term
position.  Occasionally, you will need to sell additional time to
offset the decline in the stock price, however investors should
be cautious when using this technique on all but the most high
quality (portfolio) issues as you can quickly run out of downside
margin if the stock falls further.  When the stock has moved well
below the sold strike price, this technique is not viable (you
have waited too long to act) and another form of loss control is
necessary.  Most importantly, you must understand that the success
of a limited profit strategy such as selling naked puts is based
primarily on limiting losses to a minimum.  There are never any
big winners to offset the big losers, so there can't be any big
losers.  Occasionally, a gapping issue will wipe out a sizable
portion of your gains and there is nothing you can do about it.
But, at the same time, you must attempt to manage every other
play in your portfolio effectively or there will be no profits to
offset the rare (catastrophic) losers.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

GNTA    14.21   13.13  JUL 10.00  0.50    0.50*   4.6%  13.0%
CBST    12.95   10.57  JUL 10.00  0.40    0.40*   3.6%  11.6%
FWHT    19.14   20.33  JUL 15.00  0.40    0.40*   3.0%  10.3%
ADVS    17.74   17.37  JUL 15.00  0.45    0.45*   3.4%  10.2%
KMRT    25.20   25.64  JUL 20.00  0.50    0.50*   2.8%   9.8%
AVCT    31.21   31.81  JUL 27.50  0.70    0.70*   2.8%   8.0%
CHKP    19.94   19.91  JUL 17.50  0.40    0.40*   2.5%   7.3%
AMLN    25.45   22.31  JUL 20.00  0.45    0.45*   2.0%   7.1%
MEDI    37.71   35.84  JUL 30.00  0.60    0.60*   1.8%   6.4%
SOHU    32.45   31.40  JUL 22.50  0.50    0.50*   2.0%   6.2%
CTSH    24.25   24.99  JUL 20.00  0.40    0.40*   1.8%   5.9%
PLMD    42.59   46.51  JUL 35.00  0.50    0.50*   1.6%   5.5%
NTES    33.70   34.00  JUL 25.00  0.45    0.45*   1.6%   5.4%
CVTX    34.43   30.12  JUL 25.00  0.45    0.45*   1.6%   5.3%
YHOO    32.14   32.22  JUL 27.50  0.40    0.40*   1.6%   5.0%

*  Stock price is above the sold striking price.

Comments:

The stock market lost some of its luster this week as investors
began to focus on the outlook for second-quarter earnings.  The
"all clear" bell has yet to sound and with very little accurate
guidance for the coming quarter, the recent bullish trend is
tenuous at best.  With that idea in mind, traders should check
their portfolio positions on a regular basis and close or adjust
any plays that have less than outstanding technical indications.
The candidates in that group are: Cubist (NASDAQ:CBST), Amylin
Pharmaceuticals (NASDAQ:AMLN), Core Therapeutics (NASDAQ:CVTX)
and Genta (NASDAQ:GNTA).

Previously Closed Positions: None


WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

FWHT   20.33  JUL 17.50  HFQ SW 0.45 141  17.05  21   3.8%  11.3%
OIIM   16.49  JUL 15.00  XQQ SC 0.30 8    14.70  21   3.0%   8.0%
ISIL   26.48  JUL 22.50  UFH SX 0.35 876  22.15  21   2.3%   7.3%
SNDK   41.20  JUL 32.50  SWQ SZ 0.40 1135 32.10  21   1.8%   6.7%
AAII   20.10  JUL 17.50  IUQ SW 0.25 104  17.25  21   2.1%   6.4%
MCHP   24.86  JUL 22.50  QMT SX 0.35 1627 22.15  21   2.3%   6.4%
JCOM   45.95  JUL 37.50  JQF SU 0.35 0    37.15  21   1.4%   4.9%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
FWHT - FindWhat.com  $20.33  *** The Rally Continues! ***

FindWhat.com (NASDAQ:FWHT) operates online marketplaces that
connect the consumers and businesses that are most likely to
purchase specific goods and services with the advertisers that
provide those goods and services.  Online advertisers determine
the per-click fee they will pay for their advertisements, which
FindWhat.com and its private-label partners such as Terra Lycos's
Lycos.com and HotBot distribute to millions of Internet users.
Their network includes hundreds of distribution partners, such as
CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile,
Go2Net and Microsoft Internet Explorer Autosearch.  FWHT shares
rallied recently after agreeing to merge with Espotting Media of
Europe to create an international group in the paid listings
sector, which the company said is the fastest growing segment of
Internet advertising.  FWHT also raised its earnings and revenue
guidance for the second quarter and full-year, and said it may
further increase its revenue forecast for the second half of 2003.
Traders who like the outlook for this unique company can profit
from future upside activity in the issue with this position.

JUL-17.50 HFQ SW LB=0.45 OI=141 CB=17.05 DE=21 TY=3.8% MY=11.3%


*****
OIIM - O2Micro  $16.49  *** Technicals Only! ***

O2Micro (NASDAQ:OIIM) designs, develops and markets innovative
power management and security components for mobile telecom,
communication, computer, information appliance, and LCD products.
Its unique products include AudioDJ, SmartCardBus for secure on
line e-commerce, Intelligent Lighting and Battery Management IC's.
O2Micro International also maintains an extensive portfolio of
intellectual property with 1079 patent claims granted, and over
3800 more pending.  O2Micro shares traded at a new 14-month high
this week and the technical indications suggest additional upside
activity in the near-term.  Traders can speculate conservatively
on that forecast with this position.

JUL-15.00 XQQ SC LB=0.30 OI=8 CB=14.70 DE=21 TY=3.0% MY=8.0%


*****
ISIL - Intersil  $26.48  *** Wireless Sector Rally! ***

Intersil Corporation (NASDAQ:ISIL), a world leader in the design
and manufacture of high performance analog and wireless networking
solutions.  Intersil's product portfolios address fast growing
markets such as flat panel displays, optical storage (CD and DVD
recordable), power management and wireless networking.  Intersil
brings added customer value in providing silicon, software and
reference design solutions to unique products that enhance the
computing experience for people wherever they live, work or
travel.  The wireless sector is performing well and this company
produces some of the major components for the industry.  Traders
who believe the bullish trend in the segment will continue can
speculate on that outcome with this position.

JUL-22.50 UFH SX LB=0.35 OI=876 CB=22.15 DE=21 TY=2.3% MY=7.3%


*****
SNDK - SanDisk  $41.20  *** "Short-Covering" Continues! ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from eight
megabytes to 1.2 gigabytes.  Sandisk shares moved to a multi-year
high Friday amid a new round of "short-covering" and traders are
speculating on the reason for the renewed buying pressure.  Some
are suggesting the patent-infringement case with Infineon is the
culprit but regardless of the reason, the stock is in a strong
uptrend and the option premiums offer a reasonable risk/reward
outlook for aggressive put-writers.

JUL-32.50 SWQ SZ LB=0.40 OI=1135 CB=32.10 DE=21 TY=1.8% MY=6.7%


*****
AAII - AaiPharma  $20.10  *** Up, Up And Away! ***

AaiPharma (NASDAQ:AAII) is a science-based specialty pharmaceutical
company that focuses on targeted therapeutic areas, to which the
company markets a growing portfolio of established branded products
and applies its technologies to increase the commercial potential
of these products.  At the same time, AaiPharma's R&D organization
is developing a pipeline of products to position the company for
near-term and long-term growth in its targeted therapeutic areas.
In addition to developing and marketing its own line of proprietary
pharmaceutical products, AaiPharma continues to provide contract
pharmaceutical development services through its AAI International
division.  AaiPharma rallied higher this week after the company
announced it has filed a supplemental new drug application for
Brethine Ampuls with the U.S. FDA.  The news comes on the heels of
an announcement that the firm is launching Darvon Compound 32, a
lower dose alternative providing physicians with more options to
aid in the management of headache pain.  Investors who like the
outlook for AAII can establish a conservative cost basis in the
issue with this position.

JUL-17.50 IUQ SW LB=0.25 OI=104 CB=17.25 DE=21 TY=2.1% MY=6.4%


*****
MCHP - Microchip Technology  $24.86  *** Recovery Mode! ***

Microchip Technology (NASDAQ:MCHP) develops and manufactures
specialized semiconductor products used by its customers for a
wide variety of embedded control applications.  The company's
product portfolio comprises field-programmable RISC-based
microcontrollers that serve 8- and 16-bit embedded control
applications, and a broad spectrum of high-performance linear
and mixed-signal, power and thermal management devices.  The
company also offers complementary microperipheral products,
including interface devices, serial EEPROMS, and its patented
KEELOQ security devices.  The firm markets its products to the
automotive, communications, computing, consumer and industrial
control markets.  Shares of MCHP have been in "recovery mode"
since late May and Soundview Technology finally recognized the
trend this week with an upgrade and a new price target of $29
for the company.  The brokerage firm said the semiconductor
maker has a reasonable valuation and a defensible long-term
business model and $22 seems like a reasonable cost basis for
the issue.

JUL-22.50 QMT SX LB=0.35 OI=1627 CB=22.15 DE=21 TY=2.3% MY=6.4%


*****
JCOM - j2 Global Comm.  $45.95  *** Rate Hike = Rally! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world.  The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services.  j2 Global
markets its services principally under the brand names eFax and
jConnect.  The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service.  Shares of j2 Global soared this
week amid the company's plans to raise rates on new customers.
Pacific Growth Equities analyst Joe Noel said the e-mail provider
would raise its price for all new customers by $3 a month, thus
boosting the company's bottom line revenue.  Investors who favor
the technical strength of JCOM should target-shoot a favorable,
low risk premium in this position to take advantage of the recent
volatility in the issue.

JUL-37.50 JQF SU LB=0.35 OI=0 CB=37.15 DE=21 TY=1.4% MY=4.9%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

OXGN   10.16  JUL  7.50  QYO SU 0.20 614   7.30  21   4.0%  13.0%
AMKR   13.19  JUL 12.50  QEL SV 0.40 168  12.10  21   4.8%  11.6%
KMRT   25.64  JUL 22.50  KTQ SX 0.60 40   21.90  21   4.0%  11.3%
NAUT   12.90  JUL 12.50  NQT SV 0.40 339  12.10  21   4.8%  11.2%
PRWK   19.25  JUL 17.50  QRZ SW 0.40 10   17.10  21   3.4%   9.1%
UNTD   25.31  JUL 22.50  QAB SX 0.40 382  22.10  21   2.6%   7.5%
GM     36.11  JUL 35.00   GM SG 0.65 5812 34.35  21   2.7%   6.7%
TRDO   16.13  JUL 15.00  UNC SC 0.25 0    14.75  21   2.5%   6.5%
ICOS   37.62  JUL 30.00  IIQ SF 0.35 2097 29.65  21   1.7%   6.4%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

No "Window-Dressing" Rally Here!
By Ray Cummins

Stocks moved lower Friday despite the much-anticipated quarterly
portfolio adjustments by fund managers and an unexpectedly strong
report on consumer sentiment.

The Dow Jones industrial average fell 89 points to 8,989 amid a
slump in Hewlett-Packard (NYSE:HPQ), Honeywell (NYSE:HON), SBC
Communications (NYSE:SBC) and International Paper (NYSE:IP).  The
tech-laden NASDAQ Composite lost 8 points to 1,625 with strength
in wireless stocks keeping the index from a larger decline.  The
broader Standard & Poor's 500 index finished down 9 points at 976
with biotechnology, drug, retail, and financial shares among the
worst performers.  Declining issues narrowly outnumbered advancers
on the major equity exchanges and volume was light at 1.22 billion
on the Big Board and 1.55 billion on the NASDAQ.  In the U.S bond
market, treasuries were mixed with benchmark 10-year notes closing
1/32 higher, yielding 3.54%, while 30-year bonds fell 9/32, with a
yield of 4.58%.

*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position or to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last   Month LP  SP  Credit  CB     G/L   Status

AGN     77.24  77.73   JUL  65  70   0.50  69.50  $0.50   Open
ERTS    72.35  76.02   JUL  60  65   0.55  64.45  $0.55   Open
UNH     48.93  50.22   JUL  42  45   0.60  44.40  $0.60   Open
BGEN    46.25  39.53   JUL  37  40   0.30  39.70 ($0.17)  Open
PRX     49.16  48.28   JUL  40  45   0.60  44.40  $0.60   Open
WLP     86.87  84.79   JUL  75  80   0.60  79.40  $0.60   Open
GILD    53.75  56.31   JUL  45  47   0.30  47.20  $0.30   Open
JCOM    44.35  45.95   JUL  30  35   0.60  34.40  $0.60   Open
MRK     62.59  61.02   JUL  55  60   0.50  59.50  $0.50   Open

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

The position in Biogen (NASDAQ:BGEN) should be closed on further
downside activity.  Watch-list issues include Merck (NYSE:MRK)
and Pharmaceutical Resources (NYSE:PRX).


CALL CREDIT SPREADS
*******************

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

APC     44.46   44.80   JUL   50  47   0.40  47.90  $0.40   Open
FNM     68.55   66.48   JUL   80  75   0.60  75.60  $0.60   Open
GDT     39.95   44.51   JUL   50  45   0.60  45.60  $0.60   Open
KSS     49.45   50.91   JUL   60  55   0.60  55.60  $0.60   Open
LOW     44.15   43.12   JUL   50  47   0.30  47.80  $0.30   Open
BZH     87.00   85.70   JUL  100  95   0.75  95.75  $0.75   Open
HOV     62.12   61.69   JUL   75  70   0.65  70.65  $0.65   Open
IBM     84.92   83.42   JUL   95  90   0.45  90.45  $0.45   Open

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

Guidant (NYSE:GDT) shares soared Thursday after the company said
it expects to meet or exceed the upper end of its previous outlook
for second quarter sales and earnings.  The issue was also raised
to a "Buy" at AG Edwards and with the up-trend resuming, traders
should consider closing the position to limit potential losses.


CALL DEBIT SPREADS
******************

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

NBIX    56.84  51.31  JUL   45  50   4.25   49.25  0.75   Open?
GILD    53.81  56.31  JUL   45  47   2.20   47.20  0.30   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

Neurocrine Biosciences (NASDAQ:NBIX) is "hanging by a thread" and
a close below the recent low (near $48.80) would signal our exit
in the position.


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E    G/L   Status

INTU    46.13  44.40  JUL   55  50   4.50   50.50   0.50   Open

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


SYNTHETIC (BULLISH)
*******************

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

QCOM    33.55  36.01   JUL     37    30     0.10    0.90    Open
SGR     12.62  12.09   OCT     15    10    (0.10)   0.00    Open

Qualcomm (NASDAQ:QCOM) has already offered a favorable profit for
short-term traders.


SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short   Current   Max.    Play
Symbol  Price  Price   Option    Option   Debit   Value   Status

NSM     21.80  21.50   JAN-25C   JUN-25C   2.10    2.50   Closed
VRTY    18.85  13.03   SEP-20C   JUL-20C   0.50    0.90   Closed
EDS     21.99  21.45   SEP-25C   JUL-25C   0.75    0.50   Closed
CHKP    18.05  19.91   OCT-20C   JUL-20C   0.10    1.30    Open
GDT     39.98  44.51   OCT-45C   JUL-45C   0.80    1.75    Open
BRCM    21.40  24.45   JAN-25C   JUL-25C   1.70    2.75    Open
SRNA    19.71  21.20   AUG-22C   JUL-22C   0.45    0.90    Open
VIA     44.95  43.58   AUG-47C   JUL-47C   0.70    0.40    Open
MCDT    13.47  14.00   OCT-15C   JUL-15C   0.70    0.90    Open
BEAS    11.08  11.30   SEP-12C   JUL-12C   0.65    0.55    Open
IR      47.95  46.97   SEP-50C   JUL-50C   1.20    1.10    Open

Positions in Electronic Data (NYSE:EDS), National Semiconductor
(NYSE:NSM), and Verity (NASDAQ:VRTY) have previously achieved
profitability.


CREDIT STRANGLES
****************

No Open Positions


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

TYC     17.27  19.20   JUL   17.5  17.5   1.80     2.70    Open?
RJR     36.19  37.25   AUG   37.5  35.0   3.15     3.70    Open
DG      18.64  18.00   AUG   20    17.5   1.20     1.30    Open
BSX     60.00  62.46   AUG   60    60     7.00     7.10    Open
MBI     50.24  49.10   AUG   50    50     5.20     5.00    Open

Tyco (NYSE:TYC) has achieved a favorable "early-exit" profit.

Questions & comments on spreads/combos to Contact Support
***********************
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*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
EBAY - eBay Inc.  $102.36  *** Online Auction Giant! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such as
collectibles, automobiles, high-end or premium art items, jewelry,
consumer electronics and a host of practical and miscellaneous
items.  The eBay trading platform is a fully automated, topically
arranged service that supports an auction format in which sellers
list items for sale and buyers bid on items of interest, and a
fixed-price format in which sellers and buyers trade items at a
fixed price established by sellers.

EBAY - eBay Inc.  $102.36

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-90.00  QXB-SR  OI=14459  ASK=$0.25
SELL PUT  JUL-95.00  QXB-SS  OI=13968  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=7% B/E=$94.65


*****
UNH - UnitedHealth Group  $50.22  *** Safety Stock? ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  The firm's revenues
are derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes the UnitedHealthcare
and Ovations businesses; Specialized Care Services, and Ingenix.

UNH - UnitedHealth Group  $50.22

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-45.00  UHB-SI  OI=2765  ASK=$0.45
SELL PUT  JUL-47.50  UHB-SW  OI=4854  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$47.25


*****
IGEN - IGEN International  $31.60  *** Premium-Selling Only! ***

IGEN Internationla (NASDAQ:IGEN) develops and sells products based
on its proprietary electrochemiluminescence (ORIGEN) technology,
which permits the detection and measurement of various biological
substances.  ORIGEN provides a combination of speed, sensitivity,
flexibility and throughput in a single technology platform.  The
product is incorporated into instrument systems and other related
consumable reagents, and IGEN also offers assay development and
services used to perform analytical testing.  Products based on
ORIGEN technology address the Life Sciences, Clinical Testing and
Industrial Testing worldwide markets.

IGEN - IGEN International  $31.60

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-37.50  GQ-GU  OI=2067  ASK=$0.55
SELL CALL  JUL-35.00  GQ-GG  OI=2375  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$35.30


*****
MHK - Mohawk Industries  $56.56  *** Trading Range? ***

Mohawk Industries (NYSE:MHK) is a broadloom carpet, rug and
ceramic tile manufacturer and sells carpet, rugs, ceramic tile
and other floor-covering materials throughout the United States,
principally for residential and commercial use.  The company's
primary operating subsidiaries are Mohawk Carpet Corporation,
Aladdin Manufacturing Corporation and Dal-Tile International
Inc.  Through the Mohawk segment, MHK designs, manufactures and
markets carpet and rugs in a broad range of colors, textures
and patterns, and is a producer of woven and tufted broadloom
carpet and rugs for principally residential applications.  The
company also markets and distributes hardwood, laminate, vinyl
and ceramic tile under its hardsurface line.  Through the Dal-
Tile segment, MHK designs, manufactures and markets a broad
line of wall, floor, quarry and mosaic tile products used in
the residential and commercial markets for both new construction
and remodeling.

MHK - Mohawk Industries  $56.56

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-65.00  MKH-GM  OI=530  ASK=$0.20
SELL CALL  JUL-60.00  MHK-GL  OI=195  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$60.40


*****
OEX - S&P 100 Index  $491.61  *** For "Bears" Only! ***

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.  Traders who favor
low risk credit-spreads often utilize S&P 100 options because they
generally contain more premium than options on individual stocks
and also provide an underlying instrument less prone to "gapping"
moves.

OEX - S&P 100 Index  $491.61

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-520  OEB-GD  OI=5695  A=$0.85
SELL CALL  JUL-515  OEB-GC  OI=4005  B=$1.20
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=8% B/E=$515.40


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
BSTE - Biosite  $48.96  *** Next Leg Up? ***

A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE)
is a unique research-based company dedicated to the discovery and
development of novel protein-based diagnostic tests that improve
a doctor's ability to diagnose debilitating and life-threatening
diseases.  The firm combines integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new diagnostic approaches that
improve health care outcomes.  Biosite's "Triage" rapid diagnostic
tests are used in approximately 50 percent of U.S. hospitals and
in approximately 40 international markets.

BSTE - Biosite  $48.96

PLAY (conservative - bullish/debit spread):

BUY  CALL  JUL-40.00  BQS-GH  OI=409   A=$9.50
SELL CALL  JUL-45.00  BQS-GI  OI=1551  B=$4.90
INITIAL NET-DEBIT TARGET=$4.45-$4.50
POTENTIAL PROFIT(max)=11% B/E=$44.50


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
OVER - Overture Services  $18.34  *** Road To Recovery! ***

Overture (NASDAQ:OVER) is engaged in the Pay-For-Performance
search on the Internet.  The company's search service is
comprised of advertiser's listings, which are screened for
relevance and accessed by consumers and businesses through
Overture's affiliates, a network of Web properties that have
integrated its search service into their sites or that direct
user traffic to Overture's own site.  In some cases, consumers
and businesses access the company's search listings directly
at its site.  The search listings are ranked by the advertisers'
bid; the higher the bid, the higher the ranking.  Advertisers
pay Overture the bid price for clicks on the advertisers' search
listing, click-through or a paid click.  As of December 31, 2002,
Overture and its wholly owned subsidiaries operated the search
service in the United States, United Kingdom, Germany, France
and Japan.

OVER - Overture Services  $18.34

PLAY (speculative - bullish/calendar spread):

BUY  CALL  NOV-20.00  GUO-KD  OI=974   ASK=$2.50
SELL CALL  JUL-20.00  GUO-GD  OI=7075  BID=$0.55
INITIAL NET DEBIT TARGET=$1.85-$1.90
INITIAL TARGET PROFIT=$0.50-$0.75


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
ESI - ITT Educational Services  $29.63  *** Strong Sector! ***

ITT Educational Services (NASDAQ:ESI) is a provider of technology
oriented postsecondary degree programs in the United States.  The
company offers associate, bachelor and master degree programs and
non-degree diploma programs to more than 33,000 students.  The
company has 74 institutes located in 28 states and each of its
institutes is authorized by the applicable education authorities
of the states in which they operate and recruit, and accredited
by an accrediting commission recognized by the United States DOE.
The company currently offers a variety of degree programs as well
as several diploma programs in various fields of study.  All of
its institutes offer degree or diploma programs for information
technology and electronics, and the majority of institutes offer
a degree or diploma program involving design.

ESI - ITT Educational Services  $29.63

PLAY (speculative - bullish/synthetic position):

BUY  CALL  OCT-35.00  ESI-JG  OI=26   ASK=$0.90
SELL PUT   OCT-25.00  ESI-VE  OI=256  BID=$1.00
INITIAL NET CREDIT TARGET=$0.15-$0.25
INITIAL TARGET PROFIT=$0.65-$0.90

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $825 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25).


***********************
STRADDLES AND STRANGLES
***********************

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

*****
AIG - American Intl. Group  $55.69  *** Probability Play! ***

American International Group (NYSE:AIG) is a holding company
that, through its subsidiaries, is engaged in insurance and
insurance-related activities, principally general insurance
and life insurance, in the United States and abroad.  The
principal general insurance company subsidiaries are American
Home Assurance Company; National Union Fire Insurance Company
of Pittsburgh, Pennsylvania; New Hampshire Insurance Company
Lexington Insurance Co.; The Hartford Steam Boiler Inspection
and Insurance Company (HSB); Transatlantic Reinsurance Company;
American International Underwriters Overseas, Ltd., and United
Guaranty Residential Insurance Company.  AIG's operations are
conducted principally through four business segments: general
insurance, life insurance, financial services and retirement
savings and asset management.

AIG - American Intl. Group  $55.69

PLAY (speculative - neutral/debit straddle):

BUY CALL  AUG-55.00  AIG-HK  OI=10606  ASK=$2.90
BUY PUT   AUG-55.00  AIG-TK  OI=7821   ASK=$2.15
INITIAL NET-DEBIT TARGET=$4.90-$4.95
INITIAL TARGET PROFIT=$1.40-$1.85


*****
FRE - Freddie Mac  $50.00  *** Reader's Request! ***

Federal Home Loan Mortgage Corporation (NYSE:FRE) or Freddie Mac,
is a stockholder-owned corporation that was established by Congress
in 1970 to support home ownership and rental housing.  Freddie Mac
purchases single-family and multi-family residential mortgages and
mortgage-related securities, which it finances mainly by issuing
mortgage pass-through securities and debt instruments in the
capital markets.  FRE guarantees these securities and mortgage
lenders sell their loans to the company and use the proceeds to
fund new mortgages, which in turn increases the money supply to
homebuyers.  FRE does not make loans directly to homebuyers, but
puts private investor capital to work for homebuyers in general.

FRE - Freddie Mac  $50.00

PLAY (speculative - neutral/debit straddle):

BUY CALL  AUG-50.00  FRE-HJ  OI=515  ASK=$2.65
BUY PUT   AUG-50.00  FRE-TJ  OI=434  ASK=$2.55
INITIAL NET-DEBIT TARGET=$5.00-$5.10
INITIAL TARGET PROFIT=$1.55-$2.10


*****


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

Window Undressing?


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_062903.asp


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**********

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