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Daily Newsletter, Tuesday, 07/01/2003

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The Option Investor Newsletter                 Tuesday 07-01-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: 180 Point Rebound
Futures Markets: Reversal of Fortune
Index Trader Wrap: Gravedigger shows up, but bulls say ...
Market Sentiment: Timeframes
Weekly Fund Screen: Can You Hear Me Now?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-01-2003           High     Low     Volume Advance/Decline
DJIA     9040.95 + 55.50  9050.82  8871.20 1.75 bln   1918/1246
NASDAQ   1640.06 + 17.30  1641.77  1598.92 1.68 bln   1656/1565
S&P 100   494.90 +  4.51   495.46   484.41   Totals   3574/2811
S&P 500   982.31 +  7.81   983.26   962.10
W5000    9409.81 + 66.90  9416.50  9227.55
RUS 2000  449.17 +  0.80   449.24   441.22
DJ TRANS 2416.30 +  3.40  2421.03  2370.58
VIX        21.29 -  0.33    23.11    21.18
VXN        30.22 -  1.01    32.46    30.02
Total Volume 3,715M
Total UpVol  2,440M
Total DnVol  1,216M
52wk Highs  324
52wk Lows    26
TRIN       1.15
PUT/CALL   0.96
************************************************************

180 Point Rebound

If you just looked at the closing numbers you would get a very
wrong impression of the day's activity. The Dow's closing gain
of a mere +55 was decent but that was nearly +180 points off the
morning lows. Bad news abounded from ISM, Construction Spending
and auto sales but the bulls were not going to be deterred.

Dow Chart - Daily


Nasdaq Chart - Daily



The day started off negative with the Chain Store sales which
fell -0.5% shocking analysts. This was the largest drop in months
and negated the +0.6% gains from last week. With the sun out in
the north east consumers went back outside to play and avoided
the stores for anything other than seasonal merchandise. Strong
sales of swimwear did little for overall store sales. Most
retailers are just trying to hang on until the tax cut checks
begin appearing in the mail box of consumers. Those and the lower
withholding will help put additional cash in store registers.
Unemployment is still holding back gains in year over year sales.

Good news for those consumers came from the Challenger Layoff
Report today, which showed the lowest number of announced layoffs
since November 2000. Only 59,715 job layoffs were announced in
June and the second monthly drop. This is only slightly above
the rate which employers announced during the boom years of the
1990s. Challenger was very bullish about the coming prospects
for the second half and said this was the first really positive
signs of a recovering economy. For the first half of 2003 there
were 630,532 announced layoffs.

The excitement was tempered by the ISM results. The ISM for June
was a serous disappointment when it came in at 49.8 compared to
the consensus of 51.0. While it did not reach the consensus it
did barely eek out a gain over last months 49.4. Traders were
not excited and the market tanked on the news to dip under 8900
before recovering. While the headline number was indicative of
a continuing decline in the economy there were some rays of
hope. New Orders, Production and Employment rose and inventories
dropped. If production is increasing and inventories are
dropping then it would not take much to deduce a potential
pickup in demand. This is only conjecture but traders were ready
to grab at any straw when trading below 8900. New export orders
jumped to 54.4 from 50.8 and the highest level since February.

Construction Spending came in at -1.7% compared to estimates of
+0.4%. This also surprised analysts especially when April was
revised down from -0.3% to -0.7% as well. That makes this month's
drop -2.1% from the previously announced April numbers. This is
a huge number and it is the third consecutive monthly decline.
This was the largest drop in spending in over a year. Private
construction dropped -1.7% and public works construction -1.8%.
The public sector may have topped out with state and local
governments scrambling to raise taxes and cut services just to
break even. There are no funds to expand in all but the rarest
of cases.

Economics were not the only market movers today. JPM cut estimates
on GE for 2004 to become the lowest estimate at $1.66 for the
full year. The consensus is $1.74. AMAT was weak after rumors
made the rounds speculating on an earnings warning. There is
concern that they were scrambling to make the end of the quarter
and weak chip sales in June were causing another delay in chip
equipment orders. IDC also added to this overhanging gloom with
comments that they would be revising their estimates of global
PC sales down from the current +2% for the year. They said the
lack of a tech rebound and the SARS scare was continuing to
depress the tech sector.

There were also several mentions of technical sell signals being
generated by weak performance in several Dow components. Those
components were DD, EK, XOM, IBM, IP, GE, JNJ and PG. Also,
cyclicals like CAT, IP and WY, to name only a few, were weak
on a decreasing outlook for a second half recovery. Copper
prices, a raw component in almost every electronic component
and electrical device sold, has been dropping. This indicates
there is no demand for copper and projects a weak cycle for
manufacturers and retailers. Even the bulletproof homebuilders
started the day off in the cellar.

Traders feared the vehicle sales numbers would fall off the cliff
after the close after Ford announced a -7.7% drop in sales for
June. When the AutoData was finally released it showed an adjusted
rate of 16.4 million units, up slightly from the May numbers of
16.1 million units. Removing the seasonal adjustment and sales
dropped -4.3% overall. In the brand wars GMC rose +18%, Cadillac
dropped -17%, Oldsmobile fell -33%, Pontiac -8.6%, Saturn -20%
and SAAB rose +6.7%. Ford -6.6%, Mercury -36%, Lincoln +5%,
Jaguar -4%, Volvo rose +22% and Land Rover -16%. Jeep +2%, Dodge
+6%, Chrysler +9%, Mercedes +6.7%, except that the M-class SUV
dropped -33%. Nissan rose +22% and Infinity +43%. You could make
a case that expensive cars were slipping but Porsche rose +27%.
It is not an apples to apples comparison since Porsche only sold
around 5000 cars. BMW sold nearly 25,000 vehicles for an +11%
increase. While the headline numbers show gains across all the
car companies there are clearly some mixed results in the details.
The incentives are continuing and car makers are still holding
to a hopeful outlook for the second half.

The most positive news today came from the financial sector.
A 96-year-old judge threw out a class action case against
Merrill Lynch. Investors had sued to recover losses which they
said were due to tainted advice. The judge said investors were
too naove and handed the big broker a win that could impact all
the other class action suits currently in progress. He also said
the ruling would apply to suits against MWD, GS and CSFB. The
financial sector cheered with billions in potential liability
possibly lifted from their shoulders. Citigroup gained +1.01,
GS +2.10, MWD +1.44, LEH +1.25 and BSC +1.28. These gains are
impressive only when you realize they were rebounds from
significant early morning losses. These rebounds started exactly
at 12:45 and you could easily point to an intraday Dow chart and
see the beginning of the afternoon rally on the announcement.

When the market jumped initially the news was not attributed to
the court decision and shorts tried to jump back in at a higher
level but the deck was stacked against them. Not only did the
financials spark the market but bonds began to sell off once
again and early retirement cash was being put to work. Don't
buck the bulls on the first day of July. The first day of July
has been up 13 of the last 14 years including today. The influx
of retirement cash and late buying by index funds, who missed the
cutoff on the rebalancing, help to power the July bounce. Today
historically begins a bullish ten day period despite July being
the start of the worst four months of the year.

If the markets are going to rally they got the best possible
start on Tuesday. The Dow dropped back to support at 8900,
actually slightly below stronger support at 8950 but either way
the weak holders were flushed at the open. The Nasdaq dropped
back to very strong support at 1600 and rebounded strongly to
close at 1640 and right in the middle of its trading range.
Make no mistake. The economic news was bad regardless of how
you spin it. There were positive internals but it came in below
expectations. There were earnings warnings and downgrades to
major estimates. There were repeated references to a second half
recovery being weaker than expected or even AWOL one more time.
Still the market rallied and rallied strongly bouncing +180
points off its lows. It is not a rally. It is just a one-day
reversal but coming at the beginning of the strongest week in
July it has all the earmarks of a potential bullish move.

I suggested on Sunday to buy any dip above S&P 950 and the
S&P bottomed at 962 on Tuesday before rebounding to close at
982. Now we are in that confirmation stage. If we go up from
here I would continue to remain long. I would use 960 as my
stop loss. A drop under 960 for the rest of the week would be
very negative and could break the historical July trend. Even
if the market continues to rise we need to remember this is
only a trading rally and not the next leg in a new bull market.
Just like the first week of July is normally bullish the last
two weeks of July are normally bearish. We will begin to see
a flood of earnings and there are some serious concerns that
they will not be good. The concern is that the earnings gains
have come from continued cost savings and job cuts and not from
top line sales. This will be key this cycle. If there is no
sales growth and no improved guidance then the fears of a
fourth year with no second half recovery will soar. We are
approaching a very critical period in the market. The next two
weeks will be key to direction and many feel that even decent
earnings and guidance will not be enough to justify the gains
from the last four months.

The July trends I have been discussing did not occur overnight.
They have been created by innumerable cycles of hoping for a
strong second half, even during boom years. The summer quarter
is known for its tech depression cycle. That cycle comes from
the earnings guidance in the July reporting. Tech companies
look at the 2Q results, at orders for the 3Q and typically
revise guidance for the rest of the year. They trade the first
half of the year on hope and the last half on reality. That
reality is about to appear, good or bad. The key this year is
"will it be good enough" not just will it be good. The Nasdaq
is up +48% from the October lows. That is not a good year, it
is a good couple of years. How good will earnings have to be to
sustain a continued rally from here? If the ISM had blown the
doors off at 55 or 60 and showed a strong surge in orders then
we could expect another quarter on hope. Instead it showed a
continued economic decline.

The rest of the week, both days, have serious economic reports.
Wednesday has Factory Orders and Mortgage Applications but
Thursday is the killer. Nonfarm Payrolls, ISM Services and
Jobless Claims. This could make or break the July trend. If
the Jobless Claims come in under 400K and the Nonfarm Payrolls
show any improvement over May then we could be ok for another
week. In April jobs were revised to zero loss and in May the
number came in at only -17,000. This was significantly better
than the -151,000 and -121,000 the prior two months. Could we
be in for a positive jobs report? Could be. The official
consensus is for a gain of +1,000 jobs. Nothing like hedging
your bets and not going out on a limb. That sets us up for a
potential surprise in either direction. The bottom line is a
potentially rocky road ahead but one that is typically bullish
due to retirement cash flowing into funds. Once that cash tapers
off the outlook could change substantially.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Reversal of Fortune
Jonathan Levinson

The Fed announced an $8.75B overnight repurchase agreement this
morning, refunding yesterday's expiring 4.75B overnight repo and
leaving an additional 4B in the hands of its primary dealers.
They either bought equities or treasuries with it, and treasuries
closed in the red.

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      997    989    975    967    953
YM03U     9149   9085   8966   8902   8783
NQ03U     1253   1238   1208   1193   1164


10 minute chart of the US Dollar Index




The US Dollar Index got hammered until just after the
disappointing ISM report, when it became a buy just after 10:15
EST.  Nevertheless, gold and the miners were particularly strong
all day, and the CRB added another .72 to close at 234.50.


Daily chart of August gold




August gold retook the 350 level today and held it throughout the
session, finding resistance at the 50% retracement from its
February high to the March low.  The miners were very strong as
well, with HUI gaining over 4.50 to close above 154, XAU up
nearly 2.50 to close above 81.


Daily chart of the ten year note yield




Treasuries got off to a good start, with early buying that
reversed shortly after the disappointing 10AM ISM data.  The
selling began just after 10:15AM EST, and drove the ten year note
yield to a close just below its high of the day.  The TNX is just
below its March bottom, which is so far serving as strong
resistance.  Combined with its toppy stochastic, and we could be
seeing the first signs of a return to buying in treasuries.


Daily NQ candles




It looked like the sky was ready to fall this morning, but at
10:15 the price began to climb, and other than some brief
declines and pauses, the trend was up, as reflected in the
bullish hammer printed today.  By putting in a lower low and
closing at a higher high by half a point, the NQ can be said to
have technically put in a key reversal.

30 minute 20 day chart of the NQ




The vertical blast off this afternoon left the oscillators on
strong buy signals, with a possible bull wedge breakout following
the head and shoulders downside fakeout.  However, the descending
trendline is very close, and a "return to the scene of the crime"
cannot be ruled out.

Daily ES candles




We have the same bullish hammer on the ES, except that
yesterday's high was not touched or exceeded today, and so we're
left with a lower low and lower high, despite the bullish close.
The successful test of the trendline will have bulls smiling
tonight.

20 day 30 minute chart of the ES




How quickly things change!  The ES fell below the neckline, and
then bounced nearly vertically from its low of 960.25.  The
oscillators are now on buy signals, and the bullish descending
wedge interpretation is definitely in play.  If so, this move
projects to the rally high if the pattern fulfils.  Note that the
44 point drop implied by the fulfillment of head and shoulders
neckline failure did not occur.  Again, the proximity to the
upper descending trendline makes it impossible to rule out a
reversal back down, further implied by the toppy short cycle
oscillators in the chart at the top of this page.  What it does
on that return to the trendline will be critical.


Daily YM candles




Same picture on the YM as for the ES.


20 day 30 minute chart of the YM





Today was a day of surprises.  I won't count the ISM report,
which wasn't surprising given the data we've been following
during the past weeks.  But the buying of dollars and selling of
treasuries following the release of that report was
counterintuitive to say the least.  Other than treasuries
selling, today was a perfect return to the trends we saw during
the rally: Fed adding liquidity, dollar falling, gold rising,
stocks rising.  I still cannot understand why treasuries declined
today, but we'll watch for clues tomorrow.

Today's incredible series of launches on the equity futures was a
tonic for the bulls, and those who had the courage to be buyers
just below the neckline of the head and shoulders patterns on the
30 minute charts were well-rewarded, as were gold investors who
bought the 344 support level.  Where the market wants to go in
light of the aberrant selling in treasuries today will be on my
mind tonight.  Perhaps it was foreigners liquidating US assets in
light of the poor economic data, but then, the rise in the US
Dollar Index refutes that.

In the meantime, while today was a great boost for bulls,
yesterday's high on ES was 982.75, NQ 1222 and YM 9043.  NQ was
the only contract to print a "key reversal", breaking yesterday's
high by a point and a half and closing above it.  For the other
equity futures, with those highs holding, today was still lower
high and a lower low.


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

Gravedigger shows up, but bulls say ...

The gravedigger may have shown up to dig his first scoop of soil
in an attempt to bury the bullish rally from the March lows, but
bulls fought back into the close as if to say, "don't throw dirt
on me just yet!"

Traders will pick a reason for the push back into positive
territory by session's end despite economic data still showing
that an economic recovery still remains anemic as the latest June
ISM Index still showed contraction in the manufacturing sector
with a reading of 49.8, while construction spending fell for a
third-straight month in May by falling 1.7% from the previous
month at a seasonally adjusted annual rate of $869.8 billion,
which was well below economists' forecast for a 0.3% gain.

Asset allocation from Treasuries into equities.  A favorable
ruling for the brokers when a judge dismissed an investor lawsuit
against Merrill Lynch (NYSE:MER) $48.20 +3.25% that the firm's
analysts mislead investors.  Market history in play with
the Dow Industrials finishing the first day of the third quarter
up 12 of the last 13 year, make that 13 of the last 14 years the
reason that the markets were destined to finish with a gain.  All
three could be argued.

Still, if based on some work we did in the June 12th Index Trader
wrap regarding "finite levels" where the indexes and QQQ tracking
stock "shouldn't trade," the "gravedigger" may have indeed shown
up in this morning's early trade to signal that supply may indeed
be outstripping demand.

Are stocks the "lesser of two evils" when considering an
alternative investment in Treasuries?  One has to wonder as
today's economic data did find some defensive buying in
Treasuries earlier in the morning, which reversed to selling as
the session wore on as YIELDS finished higher in the 5, 10 and
30-year maturities.

Gold stocks as depicted by the Gold/Silver Index (XAU.X) 81.07
+3.07% and AMEX Gold Bugs Index (HUI.X) 154.22 +3.19% were the
morning's only sectors showing gains, and by the close were edged
out by the Disk Drive Index (DDX.X) 108.09 +3.35% for today's
sector winner, with the bulk of equity sectors finishing today's
session's with gains (Oil Service (OSX.X) 90.44 -1.25% was the
only sector to fall more than 1% today).

With the major equity indexes all reversing morning losses, but
the early bid in gold stocks holding through their close, I'm
still going to interpret this intra-day action that thoughts of
"deflation" resurfaced on the still contractionary June ISM Index
reading, which held into today's close.  I would have thought the
early DIVERGENCE between gold stocks and the major market indexes
would have seen similar DIVERGENCE taking place with gold giving
up gains as stocks recovered.

Again... one day doesn't make a trend, but the bullish side of me
begins to be outweighed by bearish thoughts as all of my "finite
levels" of support were traded this morning, and have me looking
for bulls to begin using rally opportunities to lighten up their
exposure.  For now, the "main test" will be to see that the
recent relative highs hold as resistance, and violations of
today's lows, be violated further in the weeks to come begin to
set a pattern of lower highs and lower lows.

As a quick review of our "finite levels" of support, I had the
Dow Industrials (INDU) on conventional 50-point box scale having
the 8,900 level as "finite," which was traded today with a
session low being 8,871.20.  The S&P 500 Index (SPX.X) on
unconventional 6-point box scale with "finite" level being 972.00
and session low today of 962.10 and narrower S&P 100 Index
(OEX.X) unconventional 3-point box scale with "finite" level
being 489.00, with session low of 484.41.  I had also shown the
NASDAQ-100 Tracking Stock (AMEX:QQQ) with unconventional $0.35
box size establishing a "finite" level of $29.40, which was
traded with a QQQ session low of $29.26.

Again... these were levels simply identified where we "made the
point and figure charts" look as bullish as we could, and not
show a single sell signal since the March lows, and if we did see
a sell signal on these charts, would give first hint that supply
was beginning to outstrip demand.

I'm not going to look at all of these point and figure charts
tonight as I want to show the bar charts with their new WEEKLY
and MONTHLY Pivot analysis retracement on them, but I will show
the unconventional 6-point box chart of the S&P 500 Index (SPX.X)
982.32 +0.8%.

To be truthful, I wanted to profile a bearish trade in the SPX
this morning on the initial break at 972, but with yesterday's
"historical" trade lower, the only reason I didn't profile a
bearish trade at 972 and waited until later at 980 to profile a
bearish trade in the SPX was simply on "fear" of a bullish
session based on the previously mentioned Stock Trader's Almanac
notes discussed last week.

S&P 500 Index (SPX.X) - 6-point box size




On our unconventional 6-point box chart of the SPX, it has now
given its first sell signal since giving a buy signal on March
17th at 858, which was one day prior to the bullish % indicator
reversing up to "bull confirmed" status.

I've made some notes on the above chart as it relates to the
bullish % back in December, and traders/investors can perhaps tie
that trade action on the 6-point box scale with the bullish %
readings found during that time.

A bear should now be looking to enter bearish positions in the
SPX with RISK to a stop being assessed to 1,020.  This would be
little different in my opinion to a bear entering a trade back in
December at SPX 912 and assessing risk to a stop at 960.

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net loss
of 5 stocks to new point and figure sell signals.  This has the
bullish % slipping an additional 1% to 77.60%.

S&P 500 Index Chart - Daily Interval




The SPX did more than violate some correlative support between
its WEEKLY (blue) 80.9% retracement and WEEKLY S1 of 968.12
earlier this morning.  Program trading curbs were not in place,
and I'm thinking that if computers were set for buying regardless
of what hit them on the sell side, we shouldn't have seen such a
violation of that 968 level.  I found myself "wishing" I had
taken a bearish trade earlier this morning.  Sometimes the MARKET
gives a trader a second chance, which I thought bears should take
on the SPX rally back to 980 and just below the WEEKLY Pivot.
Sometimes the MARKET gives a bull a second chance to get out of a
trade he/she has been watching slowly slip lower and I'm looking
for resistance back at WEEKLY R1 of 990 to provide resistance.
Based on the above point and figure chart, a rebound back to 990
(if seen) might then have a more RISK AVERSE bear looking for at
least a 6-poin decline back lower to then put on a bearish trade,
using today's "sell signal" at 972 as an observation of weakness
that leads to a lower low.

S&P 100 Index (OEX.X) - Daily Interval




I readjusted my upward trending regression channel (2 Std. Dev.)
as I had been using an older regression channel.  By now setting
the regression channel from the March lows to recent June 17th
highs, I'm in essence "saying" that I think the OEX high for this
bull cycle is in at 511.73.  One could say that tomorrow is a
"pivotal" day for the OEX based on the above chart as it managed
to rally back to its WEEKLY Pivot of 494.83 and lower end of
regression channel.

I like a partial bearish in the OEX, similar to that profiled in
the SPX, and one thing I would monitor the next several days is
this.  A bear wouldn't be overly concerned if the OEX inches
higher along the broken lower part of trend (trading either
side), but I do think a bear wants to see the 502-503 zone
provide the "ultimate resistance."

I think this 502-503 zone will indeed be the more formidable
resistance as I'm going back to the bullish OEX trade profiled
from 497, where I saw the OEX make ultimate gain back to 500.76,
only to then get stopped out at 491.00 with a June 28th session
low trade of 490.85.  As "weird" as it may seem, the OEX came
back to bullish entry of 497 and has now seen a lower low of
484.41.  In essence, while I'm disappointed that I took a loss at
491, I haven't really seen enough bullishness from the OEX to
make me wish I was still holding long at 487.  Maybe other market
participants feel the same way?

Today's action saw no net change in the S&P 100 Bullish %
($BPOEX) and bullish % stands at 81% for the 6th consecutive
session and still just off its bull cycle high reading of 82%.
These internals should still have a bear cautious.  It becomes
rather apparent after the seeing the OEX recent pullback from the
June 17th high, that there are a lot of large cap stocks that
were probably quite far from a level where a "sell signal" on
their point and figure chart would have been found.  This may
have stock traders looking for some large-cap stocks that are
showing a supply/demand pattern of lower highs, but steady lows,
which would now set up a "sell signal" as good stocks to monitor
for relative strength softening, where a sell signal could find
the stock sharply lower if consolidation support lies "way
below."

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval




Were the QQQ a "bargain" between WEEKLY 80.9% retracement and
WEEKLY S1 of $29.34 on weaker-than forecasted economic data?
There isn't a "broker/dealer" in the bunch.  Today's increase in
volume, when compared to a building short interest, especially
the 32.4% jump in short-interest from April 15th to May 15th
hints to me that bears short below $28.90 took the opportunity to
try and cover a mistake made in from April 15-May 15th, but I
think market participants that have seen $30.64-$30.75 will be
sellers after seeing today's lows.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) see a net
loss of 1 stock to a point and figure sell signal.  This has the
bullish % slipping further to 74% after a bull cycle high reading
of 91%.

Dow Industrials (INDU) Chart - Daily Interval




22 of the 30 Dow components finished in positive territory, but
that wasn't enough to get the Dow back above its December highs
of 9,043 and WEEKLY/MONTHLY pivots.  From an economic point of
view, it remains perplexing to me how the Dow Industrials, which
holds some of the biggest US-based companies with exposure to
various economic sectors trades "technically" weak (using the
December highs as a benchmark) to the other indexes, where many
company's in those indexes actually "rely" on Dow components for
future business.

The "fundamentalists" are currently saying it's not the economy
that will be key to stock prices holding in, but upcoming
quarterly earnings.

June auto sales from the "Big 3" totaled 5.5 million autos
(consensus was 5.5 million) with truck sales of 7.5 million
(consensus 7.6 million) for a total of 13.0 million (consensus
12.9 million).  Dow component General Motors (NYSE:GM) $35.74
-0.72% did battle back from its lows of $35.00, but closed below
its still trending lower 200-day SMA ($36.07) and starting to
round flat 50-day SMA ($35.99).

If an old market saying of "as GM goes, so goes the market" is
true, then Dow bulls and perhaps major index bulls want to see
the stock get back above its 50-day SMA soon.

One bullish % indicator that Dorsey/Wright and Associates tracks,
is the percentage of stock that are trading above their
respective 50-day SMA's (an intermediate-term moving average)
This indicator recently reversed into "Bear Confirmed" status at
80% recently after reaching bull cycle high readings of 90% twice
(March lows were 26%).  As it relates to the bar charts of the
indexes, traders might assess downside near-term to the 50-day
SMA's.

Stock traders may look for stocks breaking below their 50-day
SMA's to identify stocks that are "leaders" to the downside as
they are among just 20% of stocks slipping below their 50-day
SMAs.

Pivot Analysis Matrix




Q-charts and several other data sources show the SPY having
traded as high as $98.85 in today's trade.  However, I looked at
the intra-day chart of the SPY and can only find a high trade of
$98.66, which I'm using for tomorrow's DAILY levels.

"Early support" from matrix correlations looks to be in the
NDX/QQQ at DAILY Pivot and WEEKLY pivot, while QQQ does show
correlative resistance at $31.18 from MONTHLY R1 and DAILY R2.

There's no economic data due out tomorrow, but several economic
reports are due out on Thursday.

Jeff Bailey


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

Timeframes
- Jon Levinson

Those of you who follow the live action in the Market Monitor and
Futures Monitor and trade the market intraday are aware of the
flightiness of the shorter period charts and indicators.  My
primary trading window is based on 3 minute candles, though I
often switch to a 50-tick view as well to change perspective.

This focus has evolved to fit my own trading style, which has
evolved to fit my personality and its numerous psychoses and
idiosyncrasies.  Under most circumstances, the oscillators
indicators I follow on that timeframe allow me to see and react
to the trade setups that serve me best.

Other times, they do not, such as today.  As I type, my useless
26-3-18 stochastics are flatlined above the 80 level on this 3
minute chart, as the longer cycles within which it is nested push
higher.  Like your kids' face smushed against the side window as
you drive along a highway rotary, pulling maximum G's, my little
2.6 hour cycle oscillator is smushed against the bottom of the
longer cycles which bottomed just after 10AM.

2 lessons:  watch the oscillators on longer timeframes to
contextualize the timeframe that you're trading, and always use
stops. I was sloppy with the one but not with the other today.
In reviewing the data below, keep in mind that it's end-of-day
data, and will fit best with your daily candle charts.


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

Market Averages

DJIA ($INDU)

52-week High:  9410
52-week Low :  7197
Current     :  9041

Moving Averages:
(Simple)

 10-dma: 9096
 50-dma: 8808
200-dma: 8381



S&P 500 ($SPX)

52-week High:  993
52-week Low :  768
Current     :  982

Moving Averages:
(Simple)

 10-dma:  986
 50-dma:  956
200-dma:  893



Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1217

Moving Averages:
(Simple)

 10-dma: 1212
 50-dma: 1170
200-dma: 1043


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


The rebound in the broader markets today reinforces the feeling
that bulls are still in control for now.  This had the VXN falling
another 3.2% just above the 30 level and fast approaching its all
time lows.  The VIX remains pegged near the bottom of its sideways
channel between 21 and 24.

CBOE Market Volatility Index (VIX) = 21.29 -0.33
Nasdaq-100 Volatility Index  (VXN) = 30.22 -1.01

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.96        474,338       456,893
Equity Only    0.90        340,986       307,233
OEX            0.85         26,004        22,128
QQQ            3.13         21,594        67,647

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

Bullish Percent Data

           Current   Change   Status
NYSE          70.9    + 0     Bull Confirmed
NASDAQ-100    74.0    - 2     Bull Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       77.6    - 1     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  1.33
10-Day Arms Index  1.33
21-Day Arms Index  1.21
55-Day Arms Index  1.13


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    1708      1636
Decliners    1113      1417

New Highs     116       132
New Lows        6        14

Up Volume   1047M     1136M
Down Vol.    659M      505M

Total Vol.  1728M     1671M

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: (222,875)  - 04/01/03

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


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

Can You Hear Me Now?

These mutual funds outperformed their communications sector fund
peers in the second quarter 2003, no small feat considering that
specialty-communications funds returned 21.4% on average to lead
all Morningstar domestic stock fund categories.  This week we'll
explore these funds and tell you which ones we like now based on
return, risk, expense and other factors such as investment style
and strategy.

Specialty-communications funds seek to provide long-term capital
appreciation by investing primarily in common stock of companies
in the communications sector.  The 11 communications funds shown
below each outperformed the 21.4% category average in the second
quarter 2003.  Note that some of these funds have multiple share
classes.  In those cases, we will use each fund's class A shares,
which have a front-end load (sales charge), but beyond that tend
to have to lowest operation expenses (hence, better performance).


  +31.5% ProFunds Ultra Wireless Inv (WCPIX)
  +26.9% ProFunds Ultra Telecommunications Inv (TCPIX)
  +26.6% Fidelity Select Multimedia (FBMPX)
  +25.8% Fidelity Select Wireless (FWRLX)
  +24.7% T. Rowe Price Media & Telecom (PRMTX)
  +24.6% Gabelli Global Telecommunications (GABTX)
  +24.4% Scudder Flag Communications A (TISHX)
  +23.9% Hartford Global Communications A (HGCAX)
  +23.7% Gabelli Global Growth (GICPX)
  +23.5% Lindner Communications Inv (LDUTX)
  +21.9% Fidelity Advisor Developing Communications A (FDMAX)


It's no surprise to see these fund families represented.  T. Rowe
Price, Fidelity and Gabelli are well-recognized names in the fund
industry, with good long-term track records of performance versus
the competition.  So, this group of 11 funds makes an appropriate
starting place (short list).  We will look at quarterly and year-
to-date performance to help us judge short-term relative returns,
but we'll also look at each fund's long-term performance relative
to category peers to give us a sense of whether the recent return
performance is a fluke.

In the end, we'll tell you which one or two funds we believe have
the potential to continue to lead the communications group, based
on their historical performance.

Screening/Evaluation Process

As we often do here, we entered the fund symbols for these funds
in Morningstar's Fund Compare tool online at www.morningstar.com.
The fund compare tool allows you to compare a set of funds based
on returns, risk, expense, manager tenure and other factors, and
to "score" the funds based on your own specific criteria and the
importance you assign to each one.

Once we got our comparison results, we reviewed each fund's star
rating from Morningstar, YTD total return, and operating expense
ratio using the Snapshot View provided.  One of the funds on the
list, Fidelity Select Multimedia (FBMPX), has a 5-star (highest)
overall rating based on risk-adjusted performance in relation to
category peers.  Both Gabelli Global Growth (GICPX) and Gabelli
Global Technology (GABTX) are 4-star rated by Morningstar (above
average overall), as is T. Rowe Price Media & Telecommunications
(PRMTX).  Lindner Communications Inv (LDUTX) and Scudder Flag
Communications (TISHX) have 3-star ratings (average).  The rest
of the funds on the list are not rated.

The group's largest fund based on total assets is T. Rowe Price
Media & Telecom ($501 million).  All of the 4-star/5-star rated
funds have at least $100 million in assets.  The top YTD return
belongs to ProFunds Ultra Wireless Inv (WCPIX), up 31.5% in the
second quarter and up 34.5% on a YTD basis through June 30, 2003.
It's snapping back from a disastrous 2002 that saw the fund post
a negative 80.4% return.  That followed a 41.7% loss in calendar
2001.  We feel a better alternative to this fund may be Fidelity
Select Wireless (FWRLX).  It lost less in 2001 and 2002, and has
a YTD total return of 28.4%, not too far below the ProFunds fund
this year.

Fidelity Select Multimedia (FBMPX), which sports a 5-star rating,
also sports the lowest fund expense ratio (1.10%).  T. Rowe Price
Media & Telecom (PRMTX) has an annual expense ratio of 1.15%, not
bad either.  Gabelli Global Telecommunications Fund has an annual
expense ratio of 1.66% while its sibling, Gabelli Growth Fund has
a 1.75% expense ratio, reasonable for a sector fund.

Next, we went to the Nuts & Bolts View, and looked at each fund's
manager tenure.  Bruce Behrens, a vice president with Alex. Brown
Investment Management, has been involved in the management of the
Scudder Flag Communications Fund for 19 years and has 31 years of
investment experience.  Marc J. Gabelli, a managing director with
Gabelli Funds, has served as manager or co-manager of the Gabelli
Global Telecommunications Fund and Gabelli Growth Fund for 10 and
7 years, respectively.  Robert Gensler has spent three years with
the T. Rowe Price Media & Telecom Fund.

In the Portfolio View, we saw that ProFunds Ultra Telecom (TCPIX)
sports the highest average market capitalization ($81 billion) of
the funds on the list, times the category average.  It invests in
companies comprising the Dow Jones U.S. Telecommunications Sector
Index, including Verizon Communications (33.7% of the index), SBC
Communications (23.3% of the index) and Bellsouth Corp. (14.1% of
the index), per the ProFunds website.  In relation to the average
fund in the category, TCPIX has a large-cap "value" equity style.

The other funds on the list all have average market caps that are
below the $20.4 billion category average per Morningstar, so they
dip down in market cap more than the average communications fund.
That provides more octane (higher long-term growth potential) for
investors, but normally higher returns are associated with higher
risks.  These funds are leading to the upside in part because mid
and small capitalization stocks have generally done better in the
second quarter rebound than large-cap stocks.

In the next section, we tell you which funds we like now based on
past and recent performance, taking into consideration risk, cost
and expense, as well as manager tenure and style.

Our Favorite Funds

Among large-cap funds, we like T. Rowe Price Media & Telecom Fund
(PRMTX), which seeks long-term capital appreciation by investing
at least 80% of assets in the common stocks of companies engaged
in any facet of media and telecommunications (publishing, movies,
cable TV, telephones, cellular services, technology, and telecom
equipment).  Typically, the fund invests a portion of its assets
in the mid-capitalization range, but focuses mostly on the large-
cap and mega-cap sectors.  Recently, the fund had 26.9% of stock
assets invested in the mega-cap range, 46% in the large-cap range
and 22.2% in the mid-cap range.  With its growth style, the fund
has the makings of a fine multi-cap growth offering specializing
in media and telecommunications.

In addition to providing exposure to three capitalization ranges,
the fund also provides foreign exposure.  Recently, the fund had
nearly a third of assets invested in foreign securities; so, the
fund seeks higher long-term growth potential through investments
in the mid-cap range and investments abroad.  This fund may have
above average risk relative to the average communications sector
fund, according to Morningstar, but overall it has produced high
relative returns for investors.  The fund's 5-year average total
return through June 30, 2003 of 5.4% ranks in the category's top
4 percent.  Much of the credit goes to portfolio manager, Robert
Gensler, who has guided T. Rowe Price Media & Telecommunications
Fund since January 14, 2000.

In the mid-cap range, we like Fidelity Select Multimedia (FBMPX)
the only Morningstar 5-star rated fund in our comparison results.
Brian Kennedy took over the reins on March 1, 2002, and over the
past year has produced a 37.4% return for investors, ranking the
fund in the category's top 6 percent.  That includes a 26.6% net
return for the second quarter 2003.  Since 2000, relative return
performance has been top quintile (top 20%).  The fund's mid-cap
growth style has produced high returns overall relative to other
communications funds, but it has kept risk to average within the
category.  The result, a Morningstar 5-star (highest) rating for
risk-adjusted return performance versus peers.

Conclusion

The two mid-cap offerings from Gabelli Funds also look like they
warrant consideration.  Between the two, we favor Gabelli Global
Telecommunications Fund because it is a purer bet on the telecom
sector, and the Gabelli Growth Fund may have moved on, investing
heavily as of May 31 in healthcare and consumer goods securities.
It's more of a go-anywhere growth fund than a pure sector bet on
telecom stocks.

Go to www.troweprice.com for further information on T. Rowe Price
Media & Telecommunications Fund.  Go to www.fidelity.com for more
information on Fidelity Select Multimedia.  Go to www.gabelli.com
for more information on the Gabelli asset management firm and its
mutual fund products.  Investors seeking specific exposure to the
telecommunications sector may want to start with these three fund
families.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 07-01-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: IGT, LH
Dropped Puts: None
Call Play Updates: ABC, AGN, AMGN, EBAY, MRK, PGR, STJ
New Calls Plays: GS, PHM
Put Play Updates: COF, ICOS, KSS, RYL, SIVB, WFMI
New Put Plays: None


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

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


CALLS:
*****

Intl Game Technology - IGT - cls: 102.42 chg: +0.09 stop: 99.99

It appears that IGT can do no wrong.  The company announced a
$130 million acquisition of Acres Gaming (AGAM) on Monday and
shares traded higher!  The stock (IGT) is set to split 4-for-1
tomorrow, which should mean its opening price will be near
$25.60.  Normally stocks that have a strong ramp up into their
split are prone to some post-split depressions (a.k.a. weakness)
as momentum traders move out of the stock and into their next
play.  We suspect that IGT might be one of the few stocks that
does not suffer from the traditional post-split selling but we're
closing the play at $102.42 for a move of more than $10.  Keep in
mind that the company is set to announce earnings on July 17th
and that the shareholder record date for the July 28th cash
dividend payment is July 14th.  If you still hold options, odds
are your option symbol may change tomorrow just as the number of
contracts and value of each contract reflects the 4:1 split.
Please check with your broker.

Picked on June 10th at $91.87
Change since picked:   +10.55
Earnings Date        07/17/03 (confirmed)
Average Daily Volume =   1.22 million
Chart link:


---

Laboratory Corp - LH - close: 29.67 change: -0.48 stop: 29.00

That's it!  We're cutting LH from the call list for lack of
performance.  Shares have been hovering on either side of $30.00
for more than two weeks.  While the stock has not yet broken the
lower border of its rising channel we're not going to wait for it
to occur.  Last week we raised the stop loss to $29.00.  Those
traders who are not yet ready to call it quits but might want to
reduce their risk can look at raising their stop to just under
$29.50, a level of support that hasn't been broken since we
picked the stock as a play.

Picked on June 17th at $30.10
Change since picked:    -0.43
Earnings Date        07/28/03 (unconfirmed)
Average Daily Volume =   1.49 million
Chart link:



PUTS:
*****

None


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

AmerisourceBergen - ABC - cls: 70.13 chng:+0.78 stop: 67.50*new*

While the broad market seemed to get the week started in bearish
fashion, ABC really showed its relative strength by holding tough
above support.  This morning's dip below $69 was eagerly bought
by the bulls, as they propelled the stock right back to strong
resistance just above $70.  Traders that have taken advantage of
the recent dips near $69 appear to be well positioned for the
breakout over $70 when it comes, possibly as early as Wednesday.
The pattern of higher lows that caught our attention last week is
still intact, and the spring is continuing to coil tighter and
tighter.  When the stock finally does break above $70.25 with
conviction, it could unleash a wave of buying that takes the
stock quickly to the $74-75 area.  We're using $70.25 as the
trigger for new momentum entries, as that is just one penny above
Tuesday's intraday high.  With the tight consolidation pattern
near the recent highs, it seems safe to raise our stop to $67.50,
which is below both the 20-dma ($68.20) and the intraday lows for
the past 2 weeks.

Picked on June 26th at     $70.00
Change since picked:        +0.13
Earnings Date             07/24/03 (unconfirmed)
Average Daily Volume =    1.48 mln


--

Allergan, Inc. - AGN - close: 77.53 change: +0.43 stop: 75.25

If it walks like a duck and quacks like a duck, then it must be a
duck.  Well, AGN is certainly giving all appearances that today's
dip to the $76 level (actually $76.01) was the entry point we've
been waiting for.  After hitting that level shortly after the
open, the stock found eager buyers to propel it more than $1.50
above that intraday low and it closed just barely below its high
of the day.  After pulling back from its foray over $80 a couple
weeks ago, AGN has been building a gently-descending bull flag
formation, the bottom of which was tested again this morning
before the rebound.  Confirmation of this bullish formation will
come on a break above the top of the pattern, which is currently
at $78.30.  For those that didn't take the plunge on the rebound
from $76, a break above the top of that flag looks like a solid
entry ahead of a surge back to the recent highs near $81-82.

Picked on June 26th at     $78.74
Change since picked:        -1.21
Earnings Date             07/28/03 (unconfirmed)
Average Daily Volume =    1.16 mln


---

Amgen, Inc. - AMGN - close: 65.85 change: -0.09 stop: 63.25*new*

Continuing in its resilient bullish pattern, AMGN keeps finding
support at the rising 30-dma, and Monday's early dip was just the
latest proof of that.  The stock fell with the rest of the
Biotechnology index (BTK.X) early in the day and when the BTK
held support near $430, AMGN launched higher in the afternoon,
ending near its intraday high.  The BTK index broke support this
morning, but AMGN refused to go along with the group, and closed
just below $66 after finding intraday support near the $64.75
area.  As we've been noting for some time now, AMGN seems to be
the steadiest bullish play in the group, as it continues its
trend of higher lows, using the 30-dma ($64.32) as support.  We
continue to favor new entries on dips near that support level, as
breakouts tend to be short-lived, requiring another rebound from
higher support for continuation.  At this point, the $64.00-64.50
area seems to be the best location to target new entries ahead of
an expected push to new highs over the next couple weeks.  Recall
that the 50-dma (currently $63.38) is our last line of defense on
the downside, so stops rise again tonight to $63.25.

Picked on June 24th at     $65.05
Change since picked:        +0.80
Earnings Date             07/22/03 (unconfirmed)
Average Daily Volume =   10.4 mln


---

eBay Inc - EBAY - close: 106.60 change: +2.60 stop: 102.00*new*

One of the big winners today was EBAY.  Shares added 2.5 percent
on strong volume of 8.5 million shares.  Propelling it higher
were positive comments from Prudential and First Albany.  Monday,
Prudential raised their price target on EBAY from $108 to $120.
The financial firm believes that EBAY continues to represent an
alluring growth model.  This news comes directly after EBAY wraps
up its weekend PowerSeller's meeting.  OptionInvestor.com
suggested EBAY might be able to run to the $120 level, which
represents the next significant level of historical overhead
resistance from the April 1999 highs near 117 and the March 2000
highs above $120.  Our short-term target remains $110 and at this
rate it won't take long to get there.  The comments from First
Albany hit the newswires today as one of their analysts
speculated that EBAY will exceed current Q2 estimates of 35 cents
a share and potentially do better than First Albany estimates of
37 cents a share.  The best place to consider new bullish entry
points would probably be on a pull back to $104 or $105 but its
entirely possible EBAY won't pull back.  We're going to raise our
stop loss to $102.00 but more conservative traders could use a
stop under $104.

Picked on June 27th at $104.05
Change since picked:     +2.55
Earnings Date         07/18/03 (unconfirmed)
Average Daily Volume =    6.76 million
Chart link:


----

Merck & Company - MRK - close: 61.47 change: +0.92 stop: 59.50

On a pure price basis, MRK hasn't exactly been a stellar
performer for us, as the stock has been consistently drifting
lower over the past couple weeks.  But stepping back a bit and
looking at the bigger picture shows the stock has been moving
lower in what looks like a solid bull flag consolidation pattern.
That pattern appears to have hit its low point today, trading an
intraday low of $59.71 (just above our $59.50 stop) and bouncing
strongly into the close.  Not only did the afternoon rebound
produce an bullish engulfing candle (totally encompassing
Monday's candle), but the close above $61.25 yielded a breakout
above the top of the flag pattern.  Traders that took advantage
of the rebound from Tuesday's lows got a great entry point into
the play and with daily Stochastics starting to turn bullish, we
can now turn our attention to the upside.  If you missed today's
entry point, look for a secondary entry setup on a dip and
rebound from the vicinity of $61, which is now the top of the
flag.  If your preference is to enter on strength, then look for
a rally through the 10-dma ($61.90) or even intraday resistance
at $62.25 before playing.  Next major resistance comes in around
$63.50 (the mid-June highs), then $64.40.  A breakout over that
level will have our upside target of $68 looking quite
achievable.

Picked on June 17th at    $62.37
Change since picked:       -0.90
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.22 mln


---

Progressive Corp. - PGR - cls: 73.76 chng: +0.66 stop: 72.40*new*

The corrective move in the broad markets over the past couple
weeks has produced a preponderance of bull flag consolidation
patterns.  Our PGR play appears to be delivering just that, while
remaining in its overall ascending channel that began in mid-
March.  The bottom of that channel at $73 got a solid test over
the past couple days, but the bulls successfully defended that
level and PGR rebounded into the close of trading on Tuesday.
While that looks good, the stock hasn't yet been able to break
free from the gently descending flag pattern that has been
building over the past couple weeks.  In order to accomplish that
bullish feat (and provide a solid bullish entry point), PGR needs
to rally through the $74 level, which interestingly enough is
just a nickel above Tuesday's intraday high.  While more
aggressive traders can still look at rebounds from the $72.50-
73.00 area as viable bullish entry points, we'd prefer to wait
for the breakout above that flag before committing fresh cash to
the play.  Once again, we're raising our stop tonight, this time
to $72.40, which is just below both today's intraday lows and the
supportive 30-dma ($72.44).

Picked on June 15th a  $73.27
Change since picked:    +0.49
Earnings Date        07/16/03 (confirmed)
Average Daily Volume =  943 K


---

St. Jude Medical - STJ - close: 57.03 change: -0.47 stop: 54.95

Believe it or not, we're suddenly a little concerned about our
bullish play on STJ.  The up trend remains in effect but shares
lost 47 cents on very strong volume of 3.8 million shares (more
than double the norm).  Late last night STJ announced that it had
received both regulatory and reimbursement approval from Japan's
Ministry of Health, Labor, and Welfare for STJ's Integrity(r)
Micro family of pacemakers.  This should have been very good news
for STJ.  It's possible that traders are just "selling the news"
and if so bulls might be encouraged that the "sell-off" was less
than 50 cents.  Cautious investors might want to wait for a move
back over $58 before evaluating new positions.  Actually, per our
previous suggestions for cautious traders, waiting for a move
over current resistance at $60 is not a bad idea either.
Obviously for more aggressive traders, this pull back is a
potential entry point.  In our Sunday update we outlined a
possible bounce at $57 or $58 would be a decent entry.  Now all
we need is to witness the "bounce" part of that equation.

Picked on June 24th at $57.62
Change since picked:    -0.59
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =   1.56 million
Chart link:



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

Goldman Sachs Grp. - GS - close: 85.85 change: +2.10 stop: 81.95

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
If you look through a smattering of recently strong stock charts,
one observation that is sure to surface is that there is an
uncommonly high number of bullish consolidation patterns to be
found.  Among the most common is the bullish flag pattern,
closely followed by the bullish wedge or pennant formation.  We
were astounded throughout the recent rally in the Brokerage
sector (XBD.X) at just how powerful the rally was from late May
to the middle of June.  With hardly a pause, the XBD launched
higher to the tune of 22% in 3 short weeks before topping out and
undergoing some much needed profit taking.  News this morning
that a shareholder lawsuit against Merrill Lynch was thrown out
by the presiding judge seemed to inject new life into the sector,
as it rebounded from a morning low of $508, to end at $523, a
nearly 3% rise from the lows.  Of course, it doesn't hurt that
reports have been surfacing recently that the strong performance
in the equity market has led to improved trading levels, which is
bound to help in the revenue and earnings department.  One of the
strongest Brokerage stocks during the May-June rally was GS and
the stock didn't disappoint today, delivering a 2.50% gain on the
day on robust volume.  More importantly, today's rebound
delivered a very bullish resolution to the bullish descending
wedge pattern that has been building for the past couple weeks.

Another bullish factor was last week's earnings report, where the
company beat estimates by 17 cents and doubled the quarterly
dividend.  Now that the profit taking is out of the way, the
bulls may just be ready for another romp.  We're looking for a
fairly quick return to the recent highs near $92 as funds put new
cash to work at the beginning of the second half.  What is really
encouraging about this rebound is that it began near the $82
level, prior resistance that now appears to be solid support.
Bullish price action that takes GS through the $86 level early
tomorrow can be used for aggressive momentum entries, although
traders looking for a bit more confirmation may want to wait for
the stock to clear mild resistance at $87 before chasing the
stock higher.  A better entry may be available near $84 if the
stock drops back to confirm support before continuing its
breakout move.  We're initially placing our stop at $81.95, as a
close below that level would be a clear indication that today's
rally was a one-day wonder.  We're playing GS for a quick return
to its recent highs, so we'll be quite happy to take our gains
and run if GS can get back to the $91.50-92.00 area.

Suggested Options:
Shorter Term: The July 85 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 90 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 85 call.

BUY CALL JUL-85 GS-GQ OI=15889 at $2.40 SL=1.25
BUY CALL JUL-90 GS-GR OI=21479 at $0.65 SL=0.30
BUY CALL AUG-85 GS-HQ OI= 1260 at $3.80 SL=2.25
BUY CALL AUG-90 GS-HR OI=  785 at $1.50 SL=0.75

Annotated Chart of GS:



Picked on July 1st at      $85.85
Change since picked:        +0.00
Earnings Date             09/24/03 (unconfirmed)
Average Daily Volume =    4.50 mln


---

Pulte Homes - PHM - close: 63.52 change: +1.86 stop: 59.99

Company Description:
Pulte Homes, Inc., (www.pulte.com) based in Bloomfield Hills,
Michigan, has operations in 44 markets across the United States.
Under its Del Webb brand, the Company is also the nation's
leading builder of active adult communities for people age 55 and
older. Over its history, the Company has constructed more than
330,000 homes and has been named Builder of the Year for 2002 by
Professional Builder magazine. Pulte Mortgage LLC is a nationwide
lender committed to meeting the financing needs of Pulte Homes'
customers by offering a wide variety of loan products and
superior customer service. (source: company press release)

Why We Like It:
We're hedging our bets again and this time it's on the home
builders.  Currently we have a short play on Ryland Homes (RYL).
As many of the stocks in the homebuilding sector have more than
doubled from their early 2003 lows, the temptation to take
profits is a big one.  Of course the reason many investors do not
take more money off the table is that mortgage rates remain near
45 year lows and the FOMC isn't against additional interest rate
cuts should the economy need it.  Now the FOMC doesn't set
mortgage rates but the Fed's interest rate policies do affect the
bond market, which affect the rates home lenders can offer.

There is growing skepticism and concerns that the homebuilders
may not be able to keep up the torrid pace they've been setting
the last year or so.  Plus, there are plenty of stories going
around about all the deals that builders are offering to buyers
just to move inventory.  Hence our put play on RYL.  However, if
investors keep the perception that the sector will be able to
deliver on these strong earnings expectations then shares do have
a reason to rally.  Furthermore, if there is going to be a second
half recovery it's going to need to include some job growth.
Stronger job growth should be a benefit for the homebuilders as
consumers regain their confidence.

There are plenty of economists, analysts and more importantly,
investors that believe the home builders can keep their sales
growth inline.  That means there is still room for share price
appreciation.  You may have read that historically the sector
trades around 10 to 12 times future earnings.  Currently, they're
closer to 8 to 10 times future earnings.  A few sector analysts
believe that in an expanding economy the builders might trade
between a range of 12 to 15 times earnings, allowing for a
prolonged period of price appreciation.  Just a few weeks ago,
Lehman Brothers raised their (12-month) price target on PHM from
$73 to $83.  Of course at the time shares were trading near $66.

We noticed that the profit taking in PHM, which has been strong,
just might have hit its bottom.  We're a little aggressive on
this entry point but yesterday's close and today's rebound
represents a nice bounce from PHM's 38.2 percent retracement of
the March-June rally (see chart).  We're going to suggest call
plays on PHM at current levels but more conservative traders can
wait for shares to clear the $64.00 or $65.00 levels before
evaluating entry points.  Our target is current highs near $72.00
but should PHM stall near $70 we may take an early exit.  We're
initiating the play with a stop just under $60.00.

Suggested Options:
Our broad market view is not very bullish through the second half
of July and into August through September.  This bias has us
looking more favorably at the July call options but August
options will certainly work.  Note: the July 70s are cheap for a
reason!

BUY CALL JUL 60 PHM-GL OI= 951 at $4.60 SL=2.30
BUY CALL JUL 65 PHM-GM OI=1143 at $1.65 SL=0.85
BUY CALL JUL 70 PHM-GN OI=1117 at $0.30 SL= -- *riskier*
BUY CALL AUG 60 PHM-HL OI=  81 at $5.90 SL=4.00
BUY CALL AUG 65 PHM-HM OI= 883 at $3.20 SL=1.60
BUY CALL AUG 70 PHM-HN OI=  65 at $1.30 SL=0.65
BUY CALL OCT 65 PHM-JM OI= 776 at $4.80 SL=2.40

Annotated Chart:



Picked on July 01 at $63.52
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume: 767 thousand




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PLAY UPDATES - PUTS
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Capital One Financial - COF - cls: 48.97 chg: -0.21 stop:
50.51*new*

Our bearish play for COF can be summed up in one word: caution.
The intraday bullish reversal in the broader markets was not lost
on the financial sector.  The BKX bank index bounced nicely from
its support near 850 and the BIX S&P banks index followed suit
with its own bounce from its rising simple 50-dma.  Shares of COF
under-performed them both but it certainly produced its own
intraday bounce just above its 50-dma and the 47.35 level.  We
would NOT suggest new bearish positions on COF at this time.  We
suspect the stock will once again retest overhead resistance at
$50.00.  Now a failed rally there is a low risk entry point for
new positions but this time it might pierce it.  Because we're
trying to swing trade this stock, we're lowering our stop loss to
50.51.  Worse case scenario is that shares of COF trade up and
through our stop before rolling over and eventually fulfilling
our expectations for a test of the $45.00 level.  However, we'd
rather be stopped out at $50.51 than wait for COF to rally back
to $54-55 before pulling the trigger on a late exit.  If anyone's
watching, the lower low today did further reinforce the COF sell
signal on its P&F chart but it's not doing anything to relieve
our apprehension of a multi-day bullish reversal just around the
corner.

Picked on June 22 at $49.64
Change since picked:  -0.67
Earnings Date      07/16/03 (unconfirmed)
Average Daily Volume: 4.3 million



----

ICOS Corp - ICOS - close: 37.67 change: +0.80 stop: 40.01

Sure enough, both ICOS and the BTK biotech index followed through
on the failed rally witnessed in Friday's session.  Monday were
declines for both and Tuesday morning saw additional weakness
before the broader market rebound lifted the BTK from its lows
near 415 and lifting ICOS from current support near $35.00.  Thus
far the trend of lower highs for ICOS remains intact but traders
may want to look for another failed rally near $39.00 or a move
under $35.00 to evaluate new entries.  Currently, shares of ICOS
were trading higher in after hours ($38.10) on news that the FDA
has accepted the ICOS-Ely Lilly filing for the impotence drug
"Cialis" without requesting further information.  Last year the
two companies tried to submit Cialis to the FDA but the
government agency had asked for additional info.  Today's
announcement further supports the expectation that the FDA will
finally approve this new impotence drug by the end of 2003.

Picked on June 29th at $37.62
Change since picked:    +0.05
Earnings Date        08/05/03 (unconfirmed)
Average Daily Volume =   2.63 million
Chart link:


---

Kohl's Corp. - KSS - close: 51.46 change: +0.08 stop: 51.75

After more than 2 weeks on the playlist, KSS has yet to deliver
the breakdown we've been expecting.  It hasn't been able to break
out of its bearish multi-month trend yet, but the relative
weakness that first attracted us to the play appears to be
fading.  Rather than continue southward regardless of sector
action, KSS has been gradually drifting higher over the past
several days in tandem with the Retail index (RLX.X), which has
gradually clawed its way back from the $320 support level.  After
dropping back near that level this morning, the RLX rallied hard
in the afternoon, getting very near the $328-329 resistance that
has been holding over the past week.  Going along for the ride
today, KSS bounced back from its early dip to close just below
$51.50.  While this is still below our $51.75 stop (just barely),
today was the second consecutive close over the 20-dma ($51.03),
the first time KSS has managed that feat in nearly a month.  So
until we see some more concerted weakness from both KSS and the
RLX, we want to be very careful with new entries.  For those
traders still on the sidelines, look for KSS to fall back under
$50.20 (just below the past two days' intraday lows and the
bottom of the 2-week bear flag pattern.  For traders already in
the play, keep a sharp rein on those positions, keeping stops in
place at $51.75.

Picked on June 15th at   $49.45
Change since picked:      +2.01
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.44 mln


---

The Ryland Grp - RYL - close: 70.02 change: +0.62 stop: 73.00*new*

The one constant in the Housing sector over the past couple weeks
is that volatility is still very much intact.  Each rally attempt
in RYL is being met by willing sellers, while each attempt at a
breakdown appears to be met by willing buyers.  The net result is
that the stock remains in its relatively roughly $4.50 trading
range (excluding today's early dip).  Even this morning's
apparent breakdown below $68.50 was a fakeout move, as the buyers
stepped in at $67 support and drove RYL higher by more than $3
from its intraday low by the closing bell.  Despite that rebound,
we got a nice bearish confirmation on the PnF chart, as the trade
at $68 generated another Sell signal.  Recall that the Sell
signal generated last month gave us a bearish price target of
$59.  The stock has been looking weak lately, but the bears won't
be able to breathe easy until the bears can manage a close under
$68.  Failed rallies in the $71-72 still look attractive for new
entries, but we're getting a bit stingier with our stop.  With
the recent changes on the PnF chart, a trade at $73 would
generate a new Buy signal and we would want to pull the plug
there.  So our stop drops fractionally to $73 tonight.

Picked on June 22nd at   $69.95
Change since picked:      +0.07
Earnings Date           07/22/03 (confirmed)
Average Daily Volume =    914 K


---

Silicon Valley Bancshares - SIVB - close: 23.81 change: +0.00
stop: 25.25

We've certainly had our nerves tested in our bearish SIVB play,
especially with Monday's early surge to just below $25.  But as
strong as that rally attempt looked at the time, some serious
selling volume came in near the end of the day, pushing the stock
back under $24 by the closing bell.  That price action left
behind a pretty convincing bearish reversal candle pattern, with
the 50-dma ($24.77) providing firm resistance as we expected
(hoped) it would.  Traders with courage should have been able to
get a favorable entry on yesterday's sharp rollover and break,
back under $24.50, and now we have an idea of just how much
bounce SIVB had in it.  Successive rally failures near $24.50
look good for new entries, although more cautious traders may
want to wait for a break under $23.45 (just below today's
intraday low) before taking a position.  Maintain stops at $25.25
for now.

Picked on June 24th at   $22.82
Change since picked:      +0.99
Earnings Date           07/17/03 (unconfirmed)
Average Daily Volume =    717 K


---

Whole Foods Market - WFMI - cls: 47.75 chg: +0.22 stop: 50.00

Slowly but surely shares of WFMI continue to slip lower.  Well,
maybe not lower but the trend of lower highs is still there.  The
next entry point looks like a move under $47.00 although that
doesn't leave a lot of room between entry and our short-term
profit target of $45.00.  The last several weeks have seen the
stock under-performing its competitor Wild Oats (OATS) as well as
larger chains like KR and SWY.

Picked on June 13 at $49.44
Change since picked:  -1.69
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million




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

None


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The Option Investor Newsletter                  Tuesday 07-01-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Call - GS


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

Goldman Sachs Grp. - GS - close: 85.85 change: +2.10 stop: 81.95

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
If you look through a smattering of recently strong stock charts,
one observation that is sure to surface is that there is an
uncommonly high number of bullish consolidation patterns to be
found.  Among the most common is the bullish flag pattern,
closely followed by the bullish wedge or pennant formation.  We
were astounded throughout the recent rally in the Brokerage
sector (XBD.X) at just how powerful the rally was from late May
to the middle of June.  With hardly a pause, the XBD launched
higher to the tune of 22% in 3 short weeks before topping out and
undergoing some much needed profit taking.  News this morning
that a shareholder lawsuit against Merrill Lynch was thrown out
by the presiding judge seemed to inject new life into the sector,
as it rebounded from a morning low of $508, to end at $523, a
nearly 3% rise from the lows.  Of course, it doesn't hurt that
reports have been surfacing recently that the strong performance
in the equity market has led to improved trading levels, which is
bound to help in the revenue and earnings department.  One of the
strongest Brokerage stocks during the May-June rally was GS and
the stock didn't disappoint today, delivering a 2.50% gain on the
day on robust volume.  More importantly, today's rebound
delivered a very bullish resolution to the bullish descending
wedge pattern that has been building for the past couple weeks.

Another bullish factor was last week's earnings report, where the
company beat estimates by 17 cents and doubled the quarterly
dividend.  Now that the profit taking is out of the way, the
bulls may just be ready for another romp.  We're looking for a
fairly quick return to the recent highs near $92 as funds put new
cash to work at the beginning of the second half.  What is really
encouraging about this rebound is that it began near the $82
level, prior resistance that now appears to be solid support.
Bullish price action that takes GS through the $86 level early
tomorrow can be used for aggressive momentum entries, although
traders looking for a bit more confirmation may want to wait for
the stock to clear mild resistance at $87 before chasing the
stock higher.  A better entry may be available near $84 if the
stock drops back to confirm support before continuing its
breakout move.  We're initially placing our stop at $81.95, as a
close below that level would be a clear indication that today's
rally was a one-day wonder.  We're playing GS for a quick return
to its recent highs, so we'll be quite happy to take our gains
and run if GS can get back to the $91.50-92.00 area.

Suggested Options:
Shorter Term: The July 85 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 90 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 85 call.

BUY CALL JUL-85 GS-GQ OI=15889 at $2.40 SL=1.25
BUY CALL JUL-90 GS-GR OI=21479 at $0.65 SL=0.30
BUY CALL AUG-85 GS-HQ OI= 1260 at $3.80 SL=2.25
BUY CALL AUG-90 GS-HR OI=  785 at $1.50 SL=0.75

Annotated Chart of GS:



Picked on July 1st at      $85.85
Change since picked:        +0.00
Earnings Date             09/24/03 (unconfirmed)
Average Daily Volume =    4.50 mln



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