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Daily Newsletter, Tuesday, 07/08/2003

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The Option Investor Newsletter                 Tuesday 07-08-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Better Than Monday
Futures Markets: Higher highs
Index Trader Wrap: The "Sleeper"!
Market Sentiment: Surprising strength, puzzling options
Weekly Fund Screen: Bankerage Accounts


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-08-2003           High     Low     Volume Advance/Decline
DJIA     9223.09 +  6.30  9236.39  9162.94 1.91 bln   1807/1412
NASDAQ   1746.46 + 25.80  1747.44  1713.76 2.02 bln   2106/1144
S&P 100   506.34 +  0.84   507.06   502.52   Totals   3913/2556
S&P 500  1007.84 +  3.42  1008.92   998.73
W5000    9687.14 + 47.10  9697.35  9592.61
RUS 2000  473.97 +  8.26   474.13   465.13
DJ TRANS 2565.12 +107.00  2569.67  2466.08
VIX        21.40 -  0.65    22.31    21.11
VXN        33.49 -  0.02    34.79    32.91
Total Volume 4,170M
Total UpVol  2,807M
Total DnVol  1,282M
52wk Highs  975
52wk Lows    22
TRIN       1.01
PUT/CALL   0.63
************************************************************

Better Than Monday

No, we did not put more points on the board but we did exceed
Monday's volume by a fair amount. Is this a good thing for a day
where the Dow barely broke even? That $64 billion question will
be answered on Wednesday when the market will have to meet a much
higher standard just to break even.

Dow Chart - Daily



Nasdaq Chart - Daily




Economically the day was a pass with no material economic reports
and profit taking from Monday a much bigger concern. The leading
report Tuesday morning was Weekly Retail Sales which rose +0.7%
to a new high for this cycle. The sales were boosted by the July
4th promotions but traders could have cared less. This is not a
real market mover under normal circumstances and today was no
different. This weekly snapshot will take a backseat to the real
monthly numbers on Thursday. We will get to see if the high
inventories have burned off from the heavy discounting and what
stores are looking at for the balance of the summer. With consumers
getting a chunk of extra cash on their paychecks from the recent
tax cut, retailers will be slashing prices and running big ads to
get their share.

Those same consumers ran up their debt over the month of May with
a bounce in consumer credit to $7.3 billion from the consensus
estimates of $5.2 billion. However April was revised down to $7.8B
from the previously reported $10.7B. The biggest jump was in auto
debt which was prompted by continuing big incentives from the
major manufacturers. These gains were despite a refinance index
that is 400% higher than it was this time last year. Some
consumers are paying off debt at a record pace while others are
going deeper in debt due to unemployment.

The most positive report for the day was the Richmond Fed Survey
which came in positive, only +1 but we can't complain. This was
the first gain in five months and the first time the shipments
index has been positive since January. Unfortunately new orders
were flat and backlogs were severely negative at -15. The ISM
showed a minor contraction in June and this survey is only showing
a very minor improvement in the Richmond Fed region. The good news
is that we are not seeing an increase in the contraction but signs,
however slight, of continued improvement. Traders are unsure if
the minor improvements will be enough to maintain earnings through
the 3Q until the second half recovery begins.

The big story was the multiple merger/takeovers announced today.
The biggest impact to the market averages came from the Yellow
Roadway acquisition. The +$16 bounce in ROAD sent the Dow
Transportation index soaring +107 points and probably had a lot
to do with the positive mood on the Dow. While the indexes are
not directly related they are intertwined on a sentiment basis.
The Dow normally has trouble when the Transports fail to move in
the same direction. Traders seeing the large numbers on the TRAN
today could have gotten that warm fuzzy feeling about the market
in general. If so they did not get it until after 3:PM.

You wonder how many earnings warnings were ignored due to the
three takeovers and the positive press they received? If EMC thinks
LGTO is a bargain then are all techs a bargain? While I doubt it
that was the sentiment running rampant on Tuesday. The Nasdaq
roared to another +25 point gain and a high near 1750. Yes, 1750.
It is amazing that just a couple weeks ago we were agonizing over
a 1685 top and the potential for a drop below 1600 as a critical
event. Just yesterday FILE, SGP, WEN, RITA, SMG, SYBN and BMC
Software warned on earnings and this morning they were joined by
BMS and SCHL but the warning pace slowed dramatically as we move
into the earning cycle. The first Dow component announced tonight
and Alcoa beat the street by +3 cents. This is not likely to cause
a runaway market on Wednesday but traders hope it could become
contagious. The hopes are for better than average comparisons due
to the very weak Q2 in 2002. With over 55% of the S&P already
warning for the 2Q it is clear the load will have to be carried
by a very few stocks.

Earnings for the rest of the week include DNA and YHOO Wednesday,
ABT, JNPR, MTCH, MTIC, PEP, PWAV, PLUM, PTNX, SONS and SNUS on
Thursday. Friday we will get the big gun, GE, and traders are not
afraid they will miss but afraid they will say something negative
in their guidance. Economic reports are still slim until Friday
when we get the PPI. Next week we will get a strong pickup in both
earnings and economic reports and the market will have plenty to
mull over.

Microsoft made news at the bell by announcing they would no longer
give employee stock options as incentives. They are going to
establish a plan to award actual stock which will vest over a set
period of time. While the incentive to employees is approximately
the same the impact to MSFT books is substantial. The stock grants
will be expensed on MSFT financials in a dramatic departure from
the current practices of major companies. MSFT said the new plan
would take effect in September and be shown on the June-2004 end
of year financials. They said they would also expense the value
of previously granted stock options and restate past results to
show the impact of those changes. They also said employees with
options priced over the current stock price could now sell those
options to JP Morgan which effectively ends the current option
program for everyone. By taking this step MSFT is waging war on
the other major tech companies who have refused to expense options
in the past. Many of these companies would have never reported a
profit if the cost of their options had been included.

It has been rumored that Cisco earnings would be reduced by more
than half if their options were expensed. All the big techs will
be under fire including CSCO, DELL, INTC, AMZN, EBAY, YHOO and
ORCL if their earnings suddenly take a 50% dive. With the
standards board already coming up with an expensing rule this is
a preemptive step by MSFT to blunt the damage. MSFT said expensing
options in the 1Q would have cost $656 million and reduced earnings
from 25 cents to 20 cents. MSFT has an advantage because they are
so profitable. All the other companies have earnings that are a
fraction the size of MSFT but the options expenses are still very
high. This will be very interesting to see how it plays out. Did
PE values just double or will stock prices adjust? I think
investors will rationally consider the earnings in light of the
expensing but those PE numbers are going to be a constant
eyesore for years to come.

There were several news events impacting sentiment today. The
July-7th survey of newsletter writers showed that the number
bearish was at a 12 year low. The ratio of bulls to bears had
improved only slightly from the week before where conditions were
at the worst level seen since October 1987 and the week before
the crash. This is despite the PE on the S&P hitting 32 in recent
weeks. That is the same level it was in March of 2000 when the
bubble began to burst. Merrill Lynch said today that this was
the weakest recovery period on record. Makes you wonder what the
earnings are going to look like next week. Despite all the negative
news bond yields continue to rise. On June 16th the yield on the
ten year note was 3.08%. Today it traded at 3.75% despite a 25
basis point Fed cut in the middle. The Fed wanted to keep rates
down and bragged constantly about all the tools at their disposal
to do this. Did they lose the toolbox? The almost panic reversal
in bonds has puzzled many traders. Despite the gains on Monday
the bond money has not been finding its way into equities. Some
yes, but only a fraction of the money being raised. Where is it
going and why? Traders are now worried that the sell off will take
a life of its own and the Fed will not be able to slow the rate
increase. While the short-term inflow of some bond cash is positive
for the markets the long term impact of rising rates will be very
detrimental. We have had the equivalent of three 25-point rate
hikes in the last two weeks and the market is still climbing. Or
is it?

The volume on Monday was anemic considering the magnitude of the
market bounce. In reality the bounce was mostly short covering
produced by a giant bounce in the Asian markets and no terrorist
attack over the weekend. Retirement cash inflows supposedly made
up the rest. If you look at the chart below you can see the Dow
peaked at 10:25 in the morning at 9261 and has been down trending
ever since. Volume today was strong but that volume came on a flat
day for the Dow. Actually the Dow did not turn positive until 3:30
this afternoon. That means the high volume was on a down day. The
Nasdaq was the exception. Despite tech earnings warnings and the
impending potential for negative earnings surprises techs just
continue to gain. The Nasdaq is up nearly +150 points since July
1st. Does anybody think that is excessive? Volume on the Nasdaq
was over 2B shares. Today was a market full of divergences that
ended well. Tomorrow is the key to the week.

Dow Chart - 10 min




We begin to see real earnings accelerate and a slight pickup in
economic reports. These are real potential problems for stocks.
We are also likely to see the recent highs on the Dow and S&P
retested and that retest will be at the end of a multiple month
advance. It will also come at the same time as the typical July
peak. Nobody knows if the retest will fail or be successful but
the danger is real. In trading all the stars are aligned for a
major event. Not necessarily a crash but a consolidation period
of several weeks once the excitement of the current rally runs
its course. The S&P is up +27% from the March lows of 789. +27%
in a little over three months. That kind of gain is similar to
the gains in the S&P in 1998 which was not a recession year.
You can see what happened in 1998. The upward spike into the
July earnings is very similar.

SPX Chart - Daily




We are rapidly careening into the July earnings event and the
outcome is very uncertain. Even if earnings are good will they
be good enough to satisfy the huge gains since March? Will the
2Q retirement cash flow indefinitely? Will the bond market slow
the current crash or will the rapid escalation of interest rates
produce stock market uncertainty? Will the Fed appear any day
now and wave their magic wand to knock rates back into the
cellar. Do they know which wand to use since the last one had
the reverse effect. Somebody call Harry Potter because there is
a good chance we are going to need some real magic soon. Either
way be sure you have the right spell in place as we approach the
end of the week to protect yourself against any unplanned
retracements.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Higher highs
Jonathan Levinson

It was a listless session punctuated by some abrupt moves in both
directions, until an end of day frenzy drove the indices to new
highs.  The Nasdaq futures were the strongest among the equity
contracts, followed by the S&P and the Dow.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1016   1012   1004   1000    993
YM03U     9265   9237   9188   9160   9111
NQ03U     1320   1309   1291   1281   1263


10 minute chart of the US Dollar Index




The US Dollar Index set another relative high today, taking down
gold in the process but leaving the commodities index (CRB)
fractionally higher, led by natural gas futures.

Daily chart of August gold




Gold got clocked again today, but managed to hold the 343 support
level again.  The precious metals indices were lower as well,
with HUI dropping 2.30 to 151.66, and XAU down 1.54 to 77.30.

Daily chart of the ten year note yield




Treasuries got sold again, with the ten year note yield pulling
back intraday from Fibonacci resistance as shown above.  The five
year yield finished higher by 3.8 basis points to 2.594%, the ten
up 2.7 bps to 3.733% and the thirty down 0.2 bps to 4.726%.
Perhaps coincident with the selling in treasuries, equities
managed to rally at the end of the day.  Although it hasn't been
evident during weeks past, during the past few sessions we've
been seeing equities rally on treasury weakness.  While it's too
early to tell, we could be witnessing a trend change in this
intermarket relationship, favoring the "asset allocation" theory
discussed here in past articles.


Daily NQ candles




Another beautiful day for the Nasdaq futures, closing within a
hair of their high of the day.  A higher low, higher high,
closing on a bullish hammer, a new year high on an intraday and
closing basis, with the oscillators on confirmed buy signals.
Even the Nasdaq and NDX volatility indices closed negative after
staying stubbornly green for most of the session.

30 minute 20 day chart of the NQ




It's pretty difficult to find any weakness on the 30 minute
candle chart of NQ.  The best I can do is the lower high on the
stochastic, caused by the light pullback just before the session
closed.  Note that the Macd is in a bullish kiss well above the
zero line.  These are very bullish charts.  A pullback tomorrow
is implied by the stochastics, but given that its last downphase
was truncated above the 60 line, I could just as easily see the
move continue higher as the oscillators begin to trend in
overbought territory.

Daily ES candles




ES had a higher high and higher low, but did not come close to
challenging its year highs, significantly lagging the NQ
contract.  It too is on a stochastic buy signal, but the Macd has
yet to confirm.  GE spent the day getting sold off on higher than
average volume, closing lower by 1.61% despite all the
bullishness on the indices.

20 day 30 minute chart of the ES




Same cyclical story on the ES as on the NQ.  A lower high is seen
on the stochastic, and a pullback looks more likely here than on
the NQ, particularly given the relative weakness of this
contract.

Daily YM candles




The Dow futures were so weak that they actually printed an inside
day.

20 day 30 minute chart of the YM




While the weakness in GE was a key factor in the weakness of the
Dow relative to the S&P, and in their combined weakness relative
to the Nasdaq, I believe that the relationship between the
different contracts is telling.  The charts of the NQ, ES and YM
have tended to be similar in the past, but the NQ is now
completely unique from its "bluer" chip peers.  I believe we are
seeing a speculative race for performance, with the smaller
Nasdaq issues being traded for more for the short term technical
characteristics of their stocks than for their merits as
investments.  I find it difficult to believe any rally during
which GE is getting trashed for more than a percent during the
entirety of the session.

However, as we saw during the spring of 2000, the market can
remain irrational for irrational lengths of time.  Whether this
is a genuine tech-led recovery, which I seriously, doubt, or
whether it's beta-chasing by desperate fund managers
using other people's money, or short squeezes, the rules remain
the same.  We must assume that the fun can continue "too" long,
and that fundamentals will not matter in the short term.
However, with earning's season in the process of kicking off,
that last statement may well come back to haunt me.

Trade safe, respect your stops, and see you at the bell.


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

The "Sleeper"!

No, I'm not talking about the movie that starred Woody Allen, I'm
talking about Verne Gagne's wrestling hold he labeled "the
sleeper," which when properly applied with both arms round his
opponents head and neck would render the opposition defenseless
and vulnerable as he was put to sleep.

While my mind will sometimes wander during the day, especially
during a rather steady or sideways type of session, as an SPX put
holder that sees it slowly creeping back to the recent highs, I
feel like Verne Gagne himself has whipped me against the ropes,
and I've bounce right back into "the sleeper" hold as by bearish
energy is slooooowly be drained from my starting to weaken knees
and arms.

What was the savior for one of Verne's opponents that had the
physically debilitating hold slapped around his neck?  German
wrestler "Baron Von Raschke," a rather large man and evil
counterpart to Verne Gagne could sometimes reach the ropes, where
Verne's sleeper hold would have to be broken.  One match I
attended, Von Raschke had hidden is doubles partner "Mad Dog
Vachon" under the ring apron, and during a critical juncture of
the match, with Verne's sleeper hold firmly around the neck of
the Baron, Vachon came into the ring with referee not looking and
clawed the back of Verne Gagne with his razor sharp fingernails,
allowing Von Raschke time to catch his wits and apply his equally
debilitating "Claw" hold to Verne's forehead and temples to win
the match.

As a kid, I would leave the pro wrestling matches physically and
emotionally drained.  For the most part, the "good guys" won, but
there was always a match or two where the "bad guy" would pull
off the upset with some hidden surprise that would change the
course of the match to allow for an upset.

After watching today's trade, it would appear to me that bulls
have slapped "the sleeper" around a bear's neck, and there just
wasn't much fight to be found.  And right now, it would appear,
to keep the SPX, OEX or INDU from reaching their recent highs as
the NDX/QQQ moves further above its June's highs for a second
straight session, it would have to be some surprise of "bad news"
to change the course of a bullish outcome.

There were some "surprises" today, which did have impact on the
markets.  A bid by Yellow Corp. (NYSE:YELL) $23.35 -5.06% to buy
competitor Roadway (NASDAQ:ROAD) $46.10 +53.56% for $48 per share
in a stock/cash deal (a 59% premium to yesterday's close) sent
trucking stocks into high gear.

While it would be a stretch to say that every trucking stock is a
takeover candidate at such a handsome premium to current levels
of trade, only a bear holding shares of ROAD short could give
proper color for caution.  My younger sister might also be able
to give some insight as to the effect "the sleeper" or the "claw"
could have on a 10-year old, when applied with youthful
enthusiasm from her 14-year old brother.  I'll attest to the pain
from my mother's hairbrush striking my backside after such
wrestling holds were placed on "mom's little girl."

Aside from ROAD, three other 4-lettered trucking stocks in the
truckers held top spots for session gains as ABFS +17%, USFC
+12.18% and ODFL +10.57% helped keep the NASDAQ Composite (COMPX)
1,746 +1.49% in positive territory for the better part of the
session.  While a NASDAQ-100 Index (NDX.X) 1,298 +1.28% or
Tracking Stock (AMEX:QQQ) $32.28 +1.22% bull is pleased by
today's gains, I don't see any trucking stocks helping comprise
the NASDAQ-100.

Bears that may have been looking for their own "Mad Dog Vachon"
under the ring mat with an earnings report from aluminum producer
Alcoa (NYSE:AA) $25.81 +0.38% didn't find a bearish surprise as
the Dow component reported Q2 (June) earnings of $0.27 per share,
which was 2 cents better than consensus.  The company said
revenues rose 5.9% year-over-year to $5.46 billion, which was
also above consensus estimates of $5.34 billion.  In after-hours
trade, AA jumped 3.1% to $26.62 and sets off the earnings season
with a bullish tone.  Still, despite the upside earnings and
slight growth in revenue, the company said it doesn't see
anything at this point in its markets to signal an upturn in the
economy.  AA is component of INDU, SPX and OEX.

Market Internals




While today's major index action looked somewhat anemic if not
uneventful, some of the shift back toward bullish leadership
continued to build to the upside today.  So bullish in fact, that
the NASDAQ set a bull cycle high reading of 445 stocks trading
new 52-week highs and surpassed the 439 new highs from June 6th.
This has the 10-day ratio for NASDAQ NH/NL trending positive for
a second straight session.

For as "little" move as there seemed to be today, volume levels
were higher at both the NYSE and NASDAQ and continues to show a
high level of interest among market participants.  Eye-catching
to me is the 1.96 billion found at NASDAQ.

On Wednesday of last week (July 2) I profiled the bearish trade
in the SPX for partial positions from 980 and it is my current
observation that the NH/NL for the NYSE was tabulated at the
completion of that days trade, there's been a shift back toward
bullish leadership in the 10-day average and in part is what I
think has INDU, SPX and OEX bulls eyeballing the June highs, if
not higher by today's close.

And while the NH/NL categories are beginning to trend back higher
and indicate bullish leadership, today's action in the bullish %
charts shows more stocks beginning to once again generate new buy
signals where demand is outstripping previous supply resistance.

The NASDAQ-100 Bullish % ($BPNDX) saw a net gain of 2 stocks to
point and figure buy signals and now reads "bull correction" at
79%, but just one buy signal short of "bull confirmed" and 80%.

The also rather narrow S&P 100 Bullish % ($BPOEX) saw a net gain
of 1 stock to a point and figure buy signal and now moves to a
bull session high reading of 83%.

The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 8 stocks
to PnF buy signal, which is double that of yesterdays net loss of
4 stocks to sell signals.  This has the bullish % back up to
78.8% like that found from June 25-27.

The very narrow Dow Industrials Bullish % ($BPINDU) was unchanged
at 86.67%.

Both of the very broad NYSE Bullish % ($BPNYA) and NASDAQ
Composite Bullish % ($BPCOMPQ) reached new bullish cycle high
readings with more stocks giving new point and figure buy
signals.  While a rough estimate based on 3,000 stocks, the NYSE
would have added 18 new buy signals with bullish % rising to
72.62%, and the NASDAQ adding roughly 24 new PnF chart buy
signals with its bullish % growing to 71.78%.

One stock listed on the NYSE that I profiled as bullish today was
Autozone (NYSE:AZO) $79.26 +3.18%, but wanted to see the stock
trade $79 and generate a new PnF buy signal.  AZO is a component
of the S&P 500 (SPX.X)

S&P Depository Receipts (SPY) - $1 and $2 box




I'm still working off the SPX's bullish vertical count of $108 as
a potentially longer-term type of bullish objective for the S&P
500 Index (SPX.X) 1,007.84 +0.34% to 1,080.  My (Jeff Bailey)
biggest struggle with a bullish trade is the risk/reward, using a
bullish target of $108/1,080, with risk to a stop of $96/9,060 at
this point.  However, I'm also showing this chart to solidify my
belief at this point that a trader may want to honor a stop in a
bearish trade at $104 or SPX 1,020 as previously profiled in the
bearish trade.

While I don't like the risk/reward in a bullish trade, the
internals have me leaning in that direction.

In my own account, I'm adding bullish trades like AZO in attempt
to hedge, if not add a stock that I feel would outperform the SPX
to the upside, and "underperform" some type of unraveling in the
SPX at this point.  Still, I'm looking under he ring mat, and see
no sign of a "Mad Dog" Vachon.

S&P 100 Index (OEX.X) Chart - 3-point box




It's been awhile since we looked at the unconventional 3-point
box scale of the OEX.  After trading a bulls "finite stop" of 489
and falling to 486 intra-day on July 1st, it has been a move
higher since.  If bears are going to defend the high, and any
bulls that didn't like what they saw at 489 and 486 sell into the
rally, then I'd look for that to take place below 513, or 515 on
the conventional 5-point box, which would have the PnF chart
showing demand back in control.

Bears are going to be hesitant to short with little reason other
than a higher risk (bullish %) and good risk/reward trade with a
tight stop just above the highs.  Internals are strong and bears
aren't going to be overly aggressive.  Bulls might look to press
the OEX to new highs with leadership being found in the NDX/QQQ
and broader NASDAQ Composite making new highs.  There leverage
point may well be the psychological 500 level with the OEX having
shown support today at WEEKLY R1 of 503.36.

I've made note on the OEX chart that a bear looking for a entry
point on weakness may well be served to wait for a 3-box reversal
back lower on the above chart, which at this point would be 498.

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




The Q's moved right into a "zone of resistance from $32.14 to
$32.40.  In after-hours trade right here (as I type) the Q's tick
by at $32.14 after heavyweight Microsoft (NASDAQ:MSFT) $27.70
+1.02% (slipping back at $27.51 in after-hours trade) said it was
doing away with employee options and will expense stock to its
employees from here on out.  This will have MSFT writing down
some past earnings and did see some selling into the stock.

The only trade I feel "comfortable" with here is from a bulls
perspective that is holding long, to snug a stop at $32.10 (give
some room under $32.14) and see if the Nikkei-225 can't surge
another 300-point before tomorrow's open.  Then get ready to
reload for a potential bullish entry back near $30.30 and see if
DAILY Stochastics won't move back to "oversold" levels there.

I monitored several 4-lettered stock, especially a bullish trade
I was holding in non-NASDAQ-100 component Frontier Airlines
(FRNT) $13.02 +13.41%.  Not unlike the QQQ, FRNT opened lower,
and once that bugger ticked green, you could really see the
shorts come in and cover and this is on top of yesterday's 18.2%
rise in the stock.  It's this kind of action which has me very
hesitant to profile a bearish trade in the NDX/QQQ as a bear
really has little resistance to leverage off of, other than the
MONTHLY pivot.  I'd rather take my bearish chances where at least
a recent high might keep some other bears interested and cast
some resemblance of doubt to bulls.

A stock on my list for some potential "squeeze" action to the
upside tomorrow is Micron Technology (NYSE:MU) $14.00 +1.74%.
Right at the close, the stock traded $14.00 and that was enough
to generate a triple top buy signal and break the longer-term
bearish resistance trend on the PnF chart.  I looked at the
NASDAQ site for short interest and find May 15 short interest was
45.98 million shares, and by June 13 that had built to 63.07
million.  It's my best guess that bears may have been, or trying
to leverage off the $14.00 level.  I'm also thinking there might
be some "techy-bears" that have seen the QQQ do a little dance
higher the past couple of sessions that may look for the door
tomorrow morning.  I'd be looking to help them to the door with a
trade at $14.07 and stop just under yesterday's gap higher open
of $13.50.  In tomorrow morning's 09:00 Update, I'd also keep an
eye on Taiwan's Taiwan Weighted to see how it traded.  Many chip
foundries are in that part of the world and may give hint to
tomorrow trade in MU.

Dow Industrials (INDU) Chart - Daily Interval




Please note!  In last night's wrap, I had marked the WEEKLY R1 of
8,189.5 correctly, but I hadn't moved my horizontal red line up
to this level.  I couldn't figure out why this morning I was
getting a downside alert in the INDU at WEEKLY R1 when it wasn't
at my support level yet.  I figure it out eventually.

Sometimes I do believe I think too much, and when I do, things
don't make a whole lot of sense on a near-term basis.  After I
wrote last night's wrap, I cut out to grab a late dinner.
Wouldn't you know that I drive by a mall parking lot and what
grabs my attention?  One end of the mall's parking lot (corner of
University Blvd. and C-470) here in Denver is full of brand new
GMC pickups and sport utility vehicles.  Is a car dealer repaving
there parking lot, or is inventory overflowing?  Now wonder GM
couldn't get above it 200-day and 50-day SMA I begin thinking.

Then, wouldn't you know it, GM trades higher today after it
announces it updated July incentive policy (discounts, 0%
financing, etc.) and then the Dow trades with even breadth for
the bulk of the session, with GM +1.9% and HD +2.3% doing the
bulk of any bullish gains, while KO -1.62% slices below its 50-
day SMA to sit right on its 200-day SMA at the close.

As I look at the Dow's bar chart, Stochastics have me thinking
pullback to 9,030-9,063 with MACD not showing much sign by the
close of crossing above Signal.  While I personally "weight" MACD
20% and Stochastics 10% for any type of trade determination, I'd
need to see a move above today's high in the Dow to then think
MACD has a shot at crossing above signal.

While AA has moved off its March lows like most technology
stocks, they're making money in what still sounds like a
difficult cyclical environment, one that is deeply rooted to the
economy.

Using AA earnings as a potential catalyst for an upside move
(hey, maybe other stocks with earnings will have a few cents per
share upside) you could push me toward the bullish side, but I'd
also like to see SELLING in Treasuries on such a move above
today's highs in the Dow.

While the major indexes (excluding Russell-2000, NDX/QQQ)
struggled to show gains today, it wasn't until the bond market's
close (after seeing selling today) that the major indexes did
move higher to the close to finish positive.

When the Oscillator have me somewhat "neutral" going into a
session, I tend to look for other types of signs to push me one
way or the other.

Pivot Analysis Matrix




There are quite a few "early levels of support" correlation that
were traded through today, with most finding the associated index
closing above by today's close.

The $100 level in the SPY shows up across the
DAILY/WEEKLY/MONTHLY tomorrow and this isn't a stretch as today's
trade in the SPY was rather narrow, and most likely ties to SPX
1,000.

Jeff Bailey


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

Surprising strength, puzzling options
Jonathan Levinson

Today's session felt like the usual post flagpole rally
rangebound drift, where the buyers run out of either courage or
money, and the bears, emboldened by a return to relative
normalcy, begin to press.

Except that the Nasdaq drifted higher throughout the day,
punctuating its move with an end of day ramp, while the SPX and
Dow were relatively weaker, the Dow held back by GE in
particular, which closed lower by 1.61%.  It was nevertheless a
green day for all the indices following yesterday's impressive
gains.

The put to call ratio stuck to the middle of its neutral range
for most of the session, while the volatility indices were
positive until the last half hour for the NDX and COMPX.  The VIX
was negative throughout.  This action is puzzling, as the
stronger indices should have shown negative volatility, while the
weaker should have been higher.  Instead, we saw the reverse.

The only explanation I can propose is that the moves higher on
the NDX and COMPX were accompanied by relatively higher levels of
option buying, and the moves higher in the SPX and INDU were less
so.  Is it because some of the Nasdaq bullish speculation was
being executed with long option plays at an institutional level?
Or were institutions buying in their short contracts, willing to
pay extra for them?  We'll find out in tomorrow's session.


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

Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9223

Moving Averages:
(Simple)

 10-dma: 9087
 50-dma: 8866
200-dma: 8400



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     : 1007

Moving Averages:
(Simple)

 10-dma:  983
 50-dma:  958
200-dma:  894



Nasdaq-100 ($NDX)

52-week High: 1299
52-week Low :  795
Current     : 1299

Moving Averages:
(Simple)

 10-dma: 1227
 50-dma: 1183
200-dma: 1051



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


More of the same.  The VIX remains in its horizontal range of
investor complacency.  The VXN has actually continued its bounce
from the 30 level but may be setting a lower high.

CBOE Market Volatility Index (VIX) = 21.37 -0.68
Nasdaq-100 Volatility Index  (VXN) = 33.49 -0.02

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        655,944       414,796
Equity Only    0.48        561,053       268,383
OEX            1.18         15,133        17,860
QQQ            2.35         14,588        34,349

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

Bullish Percent Data

           Current   Change   Status
NYSE          72.6    + 1     Bull Confirmed
NASDAQ-100    79.0    + 3     Bull Correction
Dow Indust.   86.6    + 3     Bull Confirmed
S&P 500       78.8    + 1     Bull Confirmed
S&P 100       83.0    + 2     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  1.02
10-Day Arms Index  0.98
21-Day Arms Index  1.07
55-Day Arms Index  1.10


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    1672      2004
Decliners    1164      1056

New Highs     334       438
New Lows       10         11

Up Volume   1086M     1555M
Down Vol.    751M      426M

Total Vol.  1873M     1996M

M = millions


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

***NEW COT DATA and COMMENTARY***

Commitments Of Traders Report: 07/01/03

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

There doesn't appear to be much change in the commercial or
small traders positioning since the previous week's big move.
Big money remains net short while retail traders remain
heavily net long.


Commercials   Long      Short      Net     % Of OI
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%)
07/01/03      415,976   453,005   (37,029)   (4.3%)

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
06/10/03      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%
07/01/03      150,232    75,937    74,295    32.8%

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

Sometimes it is amazing how the relationship between commercial
traders and small traders continue to play out.  Traditionally,
institutional traders (commercials) are historically on the right
side of the trend week in and week out.  Despite this success
the small trader is generally on the opposite side.  This time
big money is showing their most bullish reading in quite some
time while the small traders is the complete opposite and
marking their most bearish reading in many a month.


Commercials   Long      Short      Net     % Of OI
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%)
07/01/03      175,893   216,993    (41,100)  (10.5%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  (41,100)  - 07/01/03

Small Traders Long      Short      Net     % of OI
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%
07/01/03       57,639    67,449     9,810     7.8%

Most bearish reading of the year:   9,810   - 07/01/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

It looks like the commercials have been caught off guard.
They are growing increasingly bearish on the NDX, which is
hitting new 52-week highs.  Either institutions are expecting
a reversal soon or this has been a painful bout of denial
as tech stocks continue to rally higher.

Commercials   Long      Short      Net     % of OI
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%)
07/01/03       28,662     48,265   (19,603) (25.5%)

Most bearish reading of the year: (19,603)  - 07/01/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
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    55.3%
07/01/03       26,777     8,498    18,279    51.8%

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

The action in the INDU futures remains somewhat dull after
watching the big moves in the e-minis above.  As expected
small traders are fading the commercials who are net long.


Commercials   Long      Short      Net     % of OI
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%
07/01/03       20,504    11,871    8,633      26.7%

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
06/10/03        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%)
07/01/03        5,799     6,822    (1,023)   ( 8.1%)

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

Bankerage Accounts

Conservative investors seeking a higher yield than is currently
offered by prime-retail money market funds may want to consider
the higher current yields offered by Internet banks.  With some
of these online banks, you can earn significantly more in yield
on your accounts than the national average.

Take, for instance, the NetBank NetVantage Money Market Account
(www.netbank.com), which currently sports an annual percentage
yield of 2.00%, more than twice the 0.97% national average, per
Bankrate.com (July 1).

In addition to higher yields, some online checking accounts and
money market accounts have low to no fees.  Using NetBank again
as an example, individuals can choose between a no-fee interest-
bearing checking account and a higher-yielding low-fee checking
account.  There is no minimum balance required to earn interest
and the bank offers free and unlimited online bill-pay services.
You can apply for a free ATM card and a VISA check (debit) card
as well.

NetBank, like other Internet banks, offers "24/7" account access
via wireless or World Wide Web, as well as access to hundreds of
ATM machines globally, many of which also accept deposits.  Best
of all, the bank is a member of the FDIC, which means your money
is protected up to $100,000 per depositor.  You are well advised,
however, to read and understand all terms, conditions, risks and
fees involved before investing.

Screening/Evaluation Process

Since we're moving out of the mutual fund universe into the land
of Internet bank deposits there is no Morningstar or Lipper fund
screener to help us narrow the list of potential bank candidates.
The July 2003 issue of Kiplingers Personal Finance rated various
"bankerages" on such things as synergy, bank fees, ATMs, CDs and
interest accounts.  In addition, Kiplingers rated each bankerage
on an overall basis, putting all things together.

In its survey, Kiplingers gave NetBank a 5-star (highest) rating
for interest checking account.  Below is a summary of the online
bankerages that are currently rated 5 stars (highest) or 4 stars
(above average) by Kiplinger for checking-account interest.


  5 Stars, NetBank (www.netbank.com) 888-256-6932
  4 Stars, Wells Fargo (www.wellsfargo.com) 800-869-3557
  4 Stars, E*Trade (www.etrade.com) 800-387-2331


Only three of 11 funds surveyed received 4 stars or 5 stars for
interest.  In addition to receiving the top rating for interest
on checking accounts, NetBank also scored well in terms of its
commissions, sweeps, and bill-pay services.

However, NetBank sports only an average 3-star overall rating by
Kiplingers, taking into consideration 1-star ratings for synergy,
research, and cost basis information.  Wells Fargo is also three-
star rated by Kiplingers, while E*Trade is rated 2 stars overall.

Wells Fargo is rated better than NetBank in the terms of synergy,
cost basis information and mutual fund costs.  If these are more
important to you than having the highest yield, you may find the
Wells Fargo interest checking accounts to be more suitable money
market fund alternative.

Our Favorite Bankerage

While Wells Fargo and E*Trade offer more in synergy than NetBank
does, NetBank's annual percentage yields are the highest that we
know of.  NetBank offers three types of interest accounts, which
vary in their rate (yield) and fees.

The no-fee NetBank NetValue Checking Account currently offers an
annual percentage yield (APR) of 1.40% compared to 0.29% for the
Bankrate.com national average.  It may be the best value of the
three accounts since there are no fees for online statements, no
fees for bill-pay services, and no charge for ATM and VISA cards.

The low-fee NetBank SuperValue Checking Account currently sports
an APR of 1.80% (versus 0.29% for the Bankrate national average).
There is a monthly service charge of $4.50 for checking accounts
that have an average daily balance of $100 or more.  The monthly
charge is $9.00 on checking accounts with average daily balances
under $100.

The high-yield NetBank NetVantage Money Market Account sports an
annual percentage yield of 2.00% today compared to 0.97% for the
Bankrate national average.  NetBank's website indicates that you
can also use this NetVantage account as overdraft protection for
your NetBank checking account.  They are also quick to point out
that the money market account is FDIC-insured up to $100,000 per
depositor.

Note that NetBank is currently offering a promotion that says if
you open and fund a money market and checking account, you'll be
eligible for a $75 bonus, first-time NetBank customers only.  To
receive this bonus, one has to maintain an average daily balance
of at least $1,500 in their checking account for a minimum of 30
days and average daily balance of at least $5,000 in their money
market account for a minimum of 30 days.  If you can comfortably
meet these requirements, a NetVantage Money Market Account might
be worth considering.

Conclusion

According to the NetBank website, the bank takes the monies saved
by being "branchless" and passes them on to individuals and small
businesses in the form of better rates, lower fees and more value
overall.  A Kiplinger 5-star highest rating for interest accounts
supports that notion.

Investors seeking an alternative to the low yields of money funds
may want to look at NetBank's NetVantage Money Market Account and
its 2.00% annual percentage yield.  For complete information, log
on to the NetBank website at www.netbank.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 07-08-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: MRK
Dropped Puts: ICOS
Call Play Updates: ABC, AGN, AMGN, DGX, EBAY, GS, HAR, PGR, PHM
New Calls Plays: PCAR
Put Play Updates: INTU, SIVB, WFMI
New Put Plays: BLL


****************
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:
*****

Merck & Company - MRK - close: 61.66 change: -0.23 stop: 59.75

In a strong bullish market, the rising tide often floats all the
boats.  But that dynamic certainly doesn't appear to be at work
in our MRK play.  The stock has gotten more volatile in recent
sessions, but really hasn't been able to make any upward progress
with the $62 level providing stubborn resistance.  Of course, the
breakout from this consolidation could be just around the corner,
but we've lost patience with the stock, especially with all the
other better opportunities out there.  Rather than wait and hope,
we're pulling the plug tonight to focus on stronger plays.
Traders remaining in the play should maintain stops just below
$60 at our featured stop of $59.75.

Picked on June 17th at    $62.37
Change since picked:       -0.71
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.10 mln
Chart link:



PUTS:
*****

ICOS Corp - ICOS - close: 41.21 change: +2.11 stop: 40.01

We've been extra cautious on this play ever since ICOS and LLY
announced their latest Cialis application to the FDA on July 2nd.
It looked like shares might failed again as it spent two days
consolidating under the $40.00 level of resistance but the
breakout today was too much.  We were stopped out at $40.01.  To
be honest, we're a little surprised at the big move for ICOS
today after its partner LLY was downgraded by Bernstein Research
this morning.  Bears need to be careful as ICOS and LLY will
probably rally strongly on the expected FDA approval of their
Cialis drug, which is expected anytime in the second half of
2003.

Picked on June 29th at $37.62
Change since picked:    +3.59
Earnings Date        08/05/03 (unconfirmed)
Average Daily Volume =   2.63 million
Chart link:



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

AmerisourceBergen - ABC - cls: 72.19 change:-1.11 stop: 69.95

After vaulting to a new high above $73 during Monday's runaway
bullish session, our ABC play was due for a bit of profit taking,
especially after closing well above its upper Bollinger band.  So
even though the broad market managed to edge just a bit higher,
ABC pulled back to find support near $72 by the end of Tuesday's
consolidation session.  The trend still looks quite bullish, but
a bit more weakness would not be out of the question before the
stock once again resumes its climb towards our $74-75 target.  A
rebound from $72 tomorrow might make for a decent entry, although
we wouldn't be surprised to see the $71 level tested as support
before the bulls regain control.  After serving as strong
resistance for several weeks, $70 should now be strong support,
backed up by the 10-dma, now at $70.36.  Keep stops set at $69.95
for now.

Picked on June 26th at     $70.00
Change since picked:        +2.19
Earnings Date             07/24/03 (confirmed)
Average Daily Volume =    1.46 mln
Chart link:


---

Allergan, Inc. - AGN - close: 81.51 change: +0.30 stop:
78.50*new*

Following the lead of the broad markets, AGN broke from its
recent consolidation with gusto on Monday vaulting over the $81
level and closing at a new 52-week high.  While today's
fractional gain paled by comparison, we certainly won't complain
about a new high today.  The stock looks like it could break out
again later this week, brining the $84-85 into play as the next
upside target, as that was the site of some significant
congestion in early 2001.  Aggressive traders can take advantage
of a break over $81.60 (today's intraday high) to enter new
momentum-based positions.  The early rebound from $80 on Tuesday
looked pretty convincing, and traders looking for an entry on a
pullback should look for a rebound from above that level.  We're
raising our stop again tonight, this time to $78.50, which is
just below Monday's opening level.

Picked on June 26th at     $78.74
Change since picked:        +2.77
Earnings Date             07/23/03 (confirmed)
Average Daily Volume =    1.10 mln
Chart link:


---

Amgen, Inc. - AMGN - close: 69.99 change: +1.08 stop: 67.50*new*

Nailing our initial upside target of $70 perfectly on Tuesday,
AMGN provided the perfect opportunity for conservative traders to
harvest profits Tuesday afternoon.  That was the advice provided
in Monday's Play of the Day writeup, as we've seen time and again
how the stock tends to run to a new high, consolidate at higher
support and then continue higher from there.  Recall that our
final target for the play is $72, which is also the bullish price
target from the PnF chart.  From Tuesday's close at $70, that
leaves just over $2 of upside potential to the point where we
want to exit any open positions.  So while the 50-dma ($63.73) is
probably still the point to look for strong support, it doesn't
seem wise to leave that much risk in the play, with such a small
amount of additional expected profit potential.  The $67.50
resistance was soundly broken on Monday's strong rally and we're
now going to set our stop there.  Even aggressive traders
shouldn't be taking more risk than that to achieve the $72 price
target.  AMGN is looking extended here and we expect a pullback
before additional gains are tacked on, so we aren't advocating
new positions, except perhaps on a pullback and rebound from the
$68.50 area.  Regardless of entry point, we're recommending
sticking with the tighter stop at $67.50.

Picked on June 24th at     $65.05
Change since picked:        +4.94
Earnings Date             07/22/03 (confirmed)
Average Daily Volume =   10.1 mln
Chart link:


---

Quest Diagnostics - DGX - cls: 67.95 chng: +0.12 stop: 64.50*new*

Coming to rest just below important support near $66 last
Thursday, DGX looked like it was primed for a strong breakout
from its long-term bullish triangle pattern and did it ever!
Starting with a solid gap up on the broad market strength
yesterday, the stock vaulted to just below $68 by the close.
That strength carried through to Tuesday's session, and the stock
managed an intraday high of $68.80 before gravity took hold and
pulled DGX back to earth.  That pullback should come as no
surprise to technicians, as today's high had the stock extended
nearly $1.50 above its upper Bollinger band.  Showing the bullish
undertones in the stock, DGX still managed to close well above
that band on Tuesday and is looking strong.  Traders that passed
on the early entry on Monday's breakout would be wise to exercise
caution in chasing the stock higher at this point, as a mild
pullback seems in order to allow the technicals to catch up.  The
best site for new entries at this point would be on a pullback to
the $65.50-66.00 area, as that level needs to be confirmed as
new-found support.  Note that we've raised our stop to $64.50,
which is below what should be strong support and the 10-dma
(currently $64.71).

Picked on July 1st at     $65.78
Change since picked:       +2.17
Earnings Date           07/22/03 (unconfirmed)
Average Daily Volume =     905 K
Chart link:


---

eBay Inc - EBAY - close: 113.80 change: -0.11 stop: 109.00

The bullish stampede on Wall Street has been led by the Internet
stocks and leading the net stocks is EBAY.  Shares have moved up
almost non-stop from their breakout above the $104 level last
week.  That was until today.  Tuesday's session actually saw EBAY
pause to digest some of its recent gains.  Goldman Sachs put out
a research note this afternoon wherein the broker expects strong
results from the Internet sector in the second quarter and
throughout the second half of 2003.  The last several days we've
been suggesting that traders with profitable positions take some
money off the table.  That's still a valid concern.  Meanwhile,
aggressive traders still looking for an entry point into any
remaining earnings momentum before EBAY's announcement might want
to look for a bounce from the $110.00 level.  At this point, the
play has moved from aggressive to high-risk and should be entered
cautiously.  Yesterday we raised our stop loss to $109.00 but
specifically stated that this may be too wide for many investors
and suggested tighter stops to protect profits.

Picked on June 27th at $104.05
Change since picked:     +9.75
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume =    6.76 million
Chart link:


----

Goldman Sachs Grp. - GS - cls: 88.06 chng: +0.32 stop: 84.50*new*

While much of the broad market was mired in a tight-range
consolidation session on Tuesday, the same can't be said of the
Brokerage sector (XBD.X), which vaulted higher by 2.90% and
closing at its high of the day, its best level since early 2001.
Now that's a breakout!  While it can't compare to that strength,
our GS play has had a solid week too.  The stock broke from its
recent consolidation yesterday morning with a strong gap and run
session that took it to just below $88 and the bulls followed
through today, managing a close just above that level.  The
question now is whether GS will be able to build on its recent
gains, taking advantage of the sector strength, and challenging
its June highs in the $91-92 area.  A pullback into the $86.50-
87.00 area looks good for new entries, while momentum traders may
want to consider new positions on a breakout over $88.75
(resistance in early June).  We're still maintaining a fairly
wide stop at $84.50, which is just below the bottom of Monday's
gap.

Picked on July 1st at      $85.85
Change since picked:        +2.21
Earnings Date             09/24/03 (unconfirmed)
Average Daily Volume =    4.38 mln
Chart link:


---

Harman Intl - HAR - close: 81.65 change: -0.75 stop: 77.75*new*

While news has been a bit quiet on HAR it hasn't stopped bullish
traders from pushing the stock higher.  Monday's big market rally
lifted HAR with a strong gap open near 81.40 and the intraday
buying appeared steady all day long.  Shares ended Monday at
$82.40.  This latest push sent HAR up towards the top of its
current channel.  Now there's nothing in the books that says it
can't pierce through the top of its channel and keep climbing but
the stronger bet would be to look for a pull back.  A dip and
bounce above $80.00 is probably the best entry for short-term
bulls.  More patient traders can still hope for a pull back to
the 21-dma, which has been more intermediate support and offers
the best risk-reward.  Meanwhile, we're raising our stop near the
simple 21-dma to $77.75.

Picked on July  6th at $80.26
Change since picked:    +1.39
Earnings Date        08/19/03 (unconfirmed)
Average Daily Volume =    321 thousand
Chart link:


---

Progressive Corp. - PGR - cls: 74.98 chng: +0.03 stop: 73.25*new*

After rebounding from the bottom of its longer-term ascending
channel near $72.50 last week, shares of PGR have managed to
advance a bit more this week, but the stock is definitely lagging
the action in the broader market.  The early surge yesterday
morning found resistance just below $76 and PGR quickly fell back
to the $75 area where it consolidated right into the closing bell
today.  One significant factor that is likely keeping the stock
from advancing significantly could be the lack of upside
conviction from the Insurance index (IUX.X), which is still
struggling beneath the $274-275 resistance zone.  A breakout of
the IUX over $276 might provide just the catalyst for PGR to
finally break free of its own resistance near $76.40 and advance
towards round number resistance at $80.  Another dip and rebound
from above the $74 level still looks good for new entries, as PGR
continues to hold near its all-time highs.  Those looking for
momentum entries will want to wait for both PGR to clear $76.40
and the IUX to crest $276.  Raise stops to $73.25 tonight, which
is essentially break-even and just below the lower channel line.

Picked on June 15th a  $73.27
Change since picked:    +1.71
Earnings Date        07/16/03 (confirmed)
Average Daily Volume =  912 K
Chart link:


---

Pulte Homes - PHM - close: 64.95 change: +0.48 stop: 60.50

We remain encouraged by the rebound in shares of PHM but it
appears Pulte is lagging sector leaders like Lennar (LEN), Beazer
(BZH) and Ryland (RYL).  There's been a lot of discussion about
the housing market and how the group will weather the second half
of the year considering its already strong performance for 2003.
Many proponents of the group continue to highlight the how much
the sector is undervalued on a P/E basis compared to the S&P 500.
With so much room for P/E expansion (a.k.a. share price
appreciation) investors should continue to push money into these
stocks.  The real test will be the Q2 earnings reports and
management's guidance going forward.  Meanwhile, competitor
Beazer Homes announced on Monday that preliminary orders for the
quarter ending in June were up 12%.  Focusing on PHM we like how
the stock has been hugging its 50-dma and using it as short-term
support.  Its MACD is about to produce a bullish buy signal (it
will probably take another couple of days).  More conservative
traders may want to see a strong move over $65 or $66 before
evaluating an entry.  Yesterday we raised our stop loss on the
stock to $60.50, which is just below the recent intraday low on
the 1st of July.

Picked on July 01 at $63.52
Change since picked:  +1.43
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:   767 thousand
Chart =



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

PACCAR Inc. - PCAR - close: 73.49 change: +0.84 stop: 69.00

Company Description:
PACCAR is a global technology leader in the design, manufacture
and customer support of high-quality, light-, medium- and heavy-
duty trucks under the Kenworth, Peterbilt, DAF and Foden
nameplates. It also provides financial services and distributes
truck parts related to its principal business. In addition, the
Bellevue, Washington-based company manufactures winches under the
Braden, Gearmatic and Carco nameplates.  (source: company press
release)

Why We Like It:
Auto-related stocks are en vogue this week, bolstered by the Dana
Corp - ArvinMeritor news today.  We're not suggesting PCAR is any
sort of takeover candidate or acquirer but it's one stock we've
been wanting to play.   The relative strength in this equity has
been nothing short of phenomenal.  The breakout over $50.00 in
March this year was the beginning of a very powerful new up
trend.  After peaking just above $72 around June 12th, shares of
PCAR slowly consolidated back to its rising 30-dma before
rebounding strongly back over the $70 mark last Thursday.  The
recent strength above the previous high should have shorts
running scared.

Dividend paying stocks are also drawing investors and PCAR
announced another quarterly dividend today.  The shareholder
record date is August 18 with a payable date of September 5th.
The only challenge here is the dividend is just 22 cents a share,
which doesn't equate to much of a yield on a $73 stock.  However,
we also suspect that momentum traders may be hoping for a stock
split announcement with PCAR's July 24th earnings report.  The
stock last split 3-for-2 on May 29th, 2002 in the $70 range.
Currently, PCAR has 116.2 million shares outstanding and
management is authorized to issue 200 million.  That's more than
enough for another 3-for-2 split.

We're suggesting new short-term long positions at current levels
with an eye on $80.00 as our short-term target.  However, if
given the opportunity a dip (and bounce) back near the $70.00
area would be the preferred entry point for bullish positions.
Our initial stop loss will be $69.00, which might be about $1 too
tight for more aggressive types.  Currently we do not plan to
hold over the July 24th earnings announcement but we'll
reconsider this position as it approaches.

Suggested Options:
Given our two-week time frame our choice of options would be
August strikes.  Those wishing for more time should look to the
November calls.  The 70 and 75 strikes are probably the easiest
to play.  The $80 strikes are new and should have bid/ask prices
soon.

BUY CALL AUG 70 PAQ-HN OI= 284 at $5.40 SL=3.00
BUY CALL AUG 75 PAQ-HO OI= 277 at $2.60 SL=1.40
BUY CALL AUG 80 PAQ-HP OI=   0 at $ --  SL= --  new option
BUY CALL NOV 70 PAQ-KN OI=2046 at $7.90 SL=5.25
BUY CALL NOV 75 PAQ-KO OI=  88 at $5.10 SL=3.00
BUY CALL NOV 80 PAQ-KP OI=   0 at $ --  SL= --  new option

Annotated Chart:
Chart link:





Picked on July 08 at $73.49
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.24 million
Chart =



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

Intuit Inc - INTU - close: 43.98 change: -0.87 stop: 45.55

Shares of INTU were looking pretty good to the bears this
morning.  The stock dropped quickly on no news after its third
failed attempt (on Monday) to breakout over the $45.50 level of
resistance.  The early weakness actually pierced INTU's rising
50-dma and traded to a low of $43.15.  This triggered us into the
play at $43.35.  While we are currently triggered we're cautious
on new positions.  The afternoon rebound in shares of INTU and
the general bullish environment make trading bearish plays rather
tough.  Nimble traders might want to try opening new bearish
positions on any new failed rally at $45.00 or $45.50 but we'd
actually suggest waiting for further weakness to confirm the new
trend lower.  Our stop is $45.55.  Be forewarned, INTU's many
oscillators are mixed but its MACD is hinting at a potential
bullish turn around.  New weakness under today's low would
certainly be comforting.

Picked on July 8th at $43.35
Change since picked:   +0.63
Earnings Date       08/13/03 (unconfirmed)
Average Daily Volume =   4.1 million
Chart link:


---

Silicon Valley Bancshares - SIVB - close: 23.97 change: +0.04
stop: 24.90*new*

Finding weakness in the current bullish market environment is not
an easy task, but our SIVB play seems to be performing fairly
well in that respect.  After rolling over from the site of the
50-dma last week, the stock has been trading in a fairly tight
range, between $24.25-23.50.  It is particularly encouraging that
the stock has not been able to benefit from the broad market
strength or the upside action in the Financials this week, and
should we see some significant weakness in that area of the
market, it could be just the catalyst to push SIVB below support.
The tight range over the past week also gives us some solid
action points to work with.  Failed rebound attempts below $24.25
can be used for new entries, as can a break below $23.40.  For
now, we're maintaining our stop at $24.90, which is below the 20-
dma ($24.72) as it crosses below the 50-dma ($24.85).

Picked on June 24th at   $22.82
Change since picked:      +1.15
Earnings Date          07/17/03 (unconfirmed)
Average Daily Volume =    709 K
Chart link:


---

Whole Foods - WFMI - cls: 47.55 chg: +1.32 stop: 48.26*new*

Holy Cow!  What's that?  Is there still life in this stock?
Shares of WFMI actually rallied some 2.85 percent on Tuesday
after completely ignoring the broad market rally in Monday's
session.  The stock had hit new relative lows on Friday and
Monday fueled by stronger than normal volume.  We were counting
on bears to finally pushing WFMI to its support at $45.00.  Alas
we'll have to wait.  The rebound today was on no news and we
couldn't find any positive news on any of its rival grocers.
We're going to lower our stop loss from $48.51 to $48.26.  An
alternative tighter stop at $48.01 isn't a bad choice either.  We
would expect the $48 level to act as new overhead resistance.
New positions are not recommended but aggressive traders might
consider a failed rally at $48.00.

Picked on June 13 at $49.44
Change since picked:  -1.89
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

Ball Corporation - BLL - close: 45.14 change: -0.85 stop: 47.50

Company Description:
Ball Corp. is a manufacturer of metal and plastic packaging,
primarily for beverages and foods, and a supplier of aerospace
and other technologies and services to commercial and
governmental customers.  Ball's principal business is the
manufacture and sale of rigid packaging products, primarily for
beverages and foods.  Polyethylene terephthalate packaging is the
company's newest product line.  The aerospace and technologies
segment includes civil space systems, defense operations and
commercial space operations.  The defense operations business
unit includes defense systems, systems engineering services and
advanced antenna and video systems, as well as electro-optics and
cryogenic systems and components.

Why we like it:
As hard as it is to find solid bearish plays in a bullish market
environment, we think we've got one here.  BLL first caught our
attention in the middle of May when it broke below support near
$55.  But we avoided adding it to the playlist due to all the
congestion resting in the $52-54 area.  Once that was broken, the
stock seemed to have a fair amount of support in the $46-48 area,
so we passed up another opportunity.  Well, over the past month,
the bears have chewed through even that level of support and it
looks like an imminent breakdown below $45 could be at hand.  The
PnF chart is totally bearish, with a price target of $34.
Realistically, if the $45 support fails, then BLL ought to seek
out next strong support in the $39-40 area, with support likely
to be found near the $38 bullish support line on the PnF chart.
One thing that is particularly appealing about this stock is the
way it has found strong resistance just over $46 over the past
couple weeks, indicating that this broken support level has left
behind a fair amount of supply.

Showing the strength of overhead resistance that has now built
up, yesterday's strong (volume-backed) rebound to the $46 level
was reversed just as sharply (on equally heavy volume) on
Tuesday.  There are a couple ways to play this one, with the most
obvious being to enter on a failed rebound near $46 or even as
high as $47, which should now be very strong resistance.  That
was intermediate support on the way down a month ago, and now the
20-dma ($46.81) and 30-dma ($47.39) are bearing down to reinforce
that resistance.  Momentum traders will want to enter on a break
below $44.25, which is just below the intraday low on July 1st.
There may be some mild historical support near $44 and then again
at $42, but we're looking for continued weakness to extend down
towards the $40 level before any significant buying interest is
found.  Unfortunately, our BLL play will have to be fairly brief,
as the company is scheduled to issue its July earnings report on
the 24th, which gives us just over 2 weeks to play.  Initial
stops should be placed at $47.50, just over the 30-dma.

Suggested Options:
Short-term traders will want to focus on the July 45 Put, as it
will provide the best return for a short-term play.  Conservative
traders looking for a larger move down towards the $40 level or
below will want to utilize the August 45 contract, which provides
greater insulation from the spectre of time decay.  Note that
July contracts expire next week.

BUY PUT JUL-45 BLL-SI OI=294 at $0.95 SL=0.50
BUY PUT AUG-45 BLL-TI OI=291 at $1.90 SL=1.00
BUY PUT AUG-40 BLL-TH OI=431 at $0.60 SL=0.25

Annotated Chart of BLL:




Picked on July 8th at    $49.45
Change since picked:      +0.00
Earnings Date          07/24/03 (confirmed)
Average Daily Volume =    586 K
Chart link:



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**********

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The Option Investor Newsletter                  Tuesday 07-08-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - PCAR

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

PACCAR Inc. - PCAR - close: 73.49 change: +0.84 stop: 69.00

Company Description:
PACCAR is a global technology leader in the design, manufacture
and customer support of high-quality, light-, medium- and heavy-
duty trucks under the Kenworth, Peterbilt, DAF and Foden
nameplates. It also provides financial services and distributes
truck parts related to its principal business. In addition, the
Bellevue, Washington-based company manufactures winches under the
Braden, Gearmatic and Carco nameplates.  (source: company press
release)

Why We Like It:
Auto-related stocks are en vogue this week, bolstered by the Dana
Corp - ArvinMeritor news today.  We're not suggesting PCAR is any
sort of takeover candidate or acquirer but it's one stock we've
been wanting to play.   The relative strength in this equity has
been nothing short of phenomenal.  The breakout over $50.00 in
March this year was the beginning of a very powerful new up
trend.  After peaking just above $72 around June 12th, shares of
PCAR slowly consolidated back to its rising 30-dma before
rebounding strongly back over the $70 mark last Thursday.  The
recent strength above the previous high should have shorts
running scared.

Dividend paying stocks are also drawing investors and PCAR
announced another quarterly dividend today.  The shareholder
record date is August 18 with a payable date of September 5th.
The only challenge here is the dividend is just 22 cents a share,
which doesn't equate to much of a yield on a $73 stock.  However,
we also suspect that momentum traders may be hoping for a stock
split announcement with PCAR's July 24th earnings report.  The
stock last split 3-for-2 on May 29th, 2002 in the $70 range.
Currently, PCAR has 116.2 million shares outstanding and
management is authorized to issue 200 million.  That's more than
enough for another 3-for-2 split.

We're suggesting new short-term long positions at current levels
with an eye on $80.00 as our short-term target.  However, if
given the opportunity a dip (and bounce) back near the $70.00
area would be the preferred entry point for bullish positions.
Our initial stop loss will be $69.00, which might be about $1 too
tight for more aggressive types.  Currently we do not plan to
hold over the July 24th earnings announcement but we'll
reconsider this position as it approaches.

Suggested Options:
Given our two-week time frame our choice of options would be
August strikes.  Those wishing for more time should look to the
November calls.  The 70 and 75 strikes are probably the easiest
to play.  The $80 strikes are new and should have bid/ask prices
soon.

BUY CALL AUG 70 PAQ-HN OI= 284 at $5.40 SL=3.00
BUY CALL AUG 75 PAQ-HO OI= 277 at $2.60 SL=1.40
BUY CALL AUG 80 PAQ-HP OI=   0 at $ --  SL= --  new option
BUY CALL NOV 70 PAQ-KN OI=2046 at $7.90 SL=5.25
BUY CALL NOV 75 PAQ-KO OI=  88 at $5.10 SL=3.00
BUY CALL NOV 80 PAQ-KP OI=   0 at $ --  SL= --  new option

Annotated Chart:
Chart link:





Picked on July 08 at $73.49
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.24 million
Chart =



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