Option Investor

Daily Newsletter, Wednesday, 07/09/2003

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The Option Investor Newsletter                Wednesday 07-09-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Correction
Futures Wrap: Higher treasuries, lower equities
Index Trader Wrap: Almost like the Three Stooges
Weekly Fund Family Profile: Safeco Mutual Funds
Traders Corner: A Day In The Life

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
     07-09-2003           High     Low     Volume Advance/Decline
DJIA     9156.21 - 66.88  9229.11  9108.24 1.99 bln    974/ 988
NASDAQ   1747.46 +  1.00  1758.18  1735.30 2.17 bln   1385/ 742
S&P 100   503.63 -  2.71   508.25   501.73   Totals   1359/1730
S&P 500  1002.21 -  5.63  1010.43   998.17
RUS 2000  476.99 +  3.02   477.88   470.50
DJ TRANS 2562.41 -  2.71  2575.07  2552.50
VIX        21.03 -  0.37    22.22    20.88
VXN        33.22 -  0.27    34.06    32.60
Total Volume 4,415M
Total UpVol  2,436M
Total DnVol  1,902M
52wk Highs     872
52wk Lows       19
TRIN          0.88
PUT/CALL      0.72

Jonathan Levinson

The indices pulled back to their ascending trendlines today in a
much anticipated and long-awaited correction.  Although there was
an "impulsive" feel to the selling, the bounces came on schedule
at the lower ascending trendlines.

30 minute 20 day candle chart of the INDU

30 minute 20 day candle chart of the COMPX

The Commerce Department announced that US wholesale inventories
dropped 0.3% in May, following a decline in the same amount in
April.  Wholesale sales dropped 0.5%.  The inventory-to-sales
ratio remained at 1.24, just above its record low of 1.21 posted
in March.  This negative economic news, a downside surprise
against expectations of gains in both inventories and sales,
sparked a selloff when it was released at 10AM, but within
minutes it was bought on huge volume in the futures pits.

The American Petroleum Institute reported a 3.97 million barrel
increase in crude inventories for the week just ended, while the
Energy Department reported a mere 100,000 barrel gain. The API
reported that gasoline inventories fell by 2.5 million barrels,
while the Energy Department reported a gain of 500,000 barrels.
Nothing like a disagreement on the facts.  Crude and heating oil
futures both finished higher, with the market apparently ignoring
both, judging that in any event, the data was bullish for these

The Mortgage Bankers Association (MBA) announced that seasonally-
adjusted demand for mortgage refinancings, the MBA refinancing
index, dropped 21.3% for the week ended July 4.  Demand for loans
with which to buy homes, the Purchase index, dropped 5.5%. The
MBA's market index, an overall measure of mortgage activity,
dropped 17.7%.  The average interest rate for a 30-year fixed
rate mortgage rose to 5.37% from 5.23%.  Reports cited rising
interest rates and a shortened holiday week.

For the past several weeks, I have been discussing the impact of
money supply on the prices of paper assets.  This past week saw a
slight downtick in the overall money supply as measured by the
MZM money supply, coincident with the downtick in mortgage

MZM chart

The previous week had seen a downtick in mortgage activity as
well.  We also saw lower prices in equities and treasury bonds.
While these data are coincident, I do not believe that they are
coincidences.  My premise is that the overall levels of debt are
directly correlated to overall levels of liquidity.  Debt is
liquidity - the more debt, the more liquidity and hence, higher
asset prices.  The reverse appears to be true as well, as we've
seen in the downtick in mortgage activity, money supply, bond and
stock prices.  Note that the Fed, whose ostensible mission is to
promote stability in the financial markets, has been fighting
this downtick in liquidity by dramatically increasing its levels
of open market operations over the past weeks (see chart below).
We track the Fed's daily open market operations in the Market
Monitor, and my very first article on this website (in Traders
Corner) attempts to explain how open market ops function.

Chart of overnight and term repurchase agreements (repos)

We have seen that despite the dramatic inflation of the money
supply by the Fed, the money (or rather, the debt) has managed to
miss commercial and industrial borrowers, flowing into the hands
of individual borrowers instead.  The data shows that they have
used this debt for the purchase of houses (mortgages),
automobiles (auto loans and leases), and other consumer products
(home equity loans, lines of credit and credit card debt).

Chart of Real Estate Loans

Chart of Total Consumer Credit

Unfortunately, as the ongoing record-breaking current account
deficit has been telling us, the bulk of the economic stimulus
from the Fed's operations has been in foreign countries, and this
is confirmed by the rising unemployment rate at home in the US.

Chart of Unemployment Rate

Lastly, the selling in treasuries since the Fed's last quarter-
point rate cut has caused a spike in yields. In light of the
rising number of bankruptcies during the past year and the 45
year low federal funds rate, I believe that the single greatest
current danger to the economy is higher interest rates.  Given
the Fed's strong words about its intention to keep rates down, I
do not expect the selloff in treasuries to go much further.

5 year weekly chart of the ten year note yield

The President named his remaining top treasury officials today,
adding Susan Schwab, former dean of U. of Maryland, as deputy
Treasury secretary and Kenneth Leet, former Goldman Sachs
executive, to replace outgoing domestic finance undersecretary
Peter Fisher.  Fisher is best known for having phased out the
thirty year bond.  The new appointees join John Snow as Treasury
secretary, Stephen Friedman as White House economic advisor and
Gregory Mankiw as chairman of the council of economic advisors.

In corporate news, it was announced that the SEC has launched a
formal probe of THC, sending a subpoena requesting documents
relating to Medicare payments and other disclosures going back to
May 1997.

LOGI got clocked today after warning that fiscal Q4 operating
income would be between $7 million and $8 million, far below its
its goal of $14 million. It cited weak demand and intense
competition for decrease.

Techs got a lift in the afternoon after it was reported that
Gartner Group expects worldwide semiconductor capital spending
to grow 7.9% in 2003 after dropping 38% percent in 2002.

After the bell, DNA beat estimates, reversing a loss from
Q2 2002 and announcing pro forma earnings of $163.5 million, or
31 cents per share excluding special charges.  Estimates were for
26 cents per share.

The much-anticipated YHOO earnings release was poorly received by
the market, cratering QQQ afterhours to below 32 as of this
writing and reversing a positive close by over one dollar for
YHOO.  The company reported that Q2 earnings were  $50.8 million,
or 8 cents per share, up from $16.48 million, or 3 cents per
share, in Q2 2002. It missed its earnings projection of 9 cents
per share by a penny.

For tomorrow, we have the following economic data due before the

              Report                     Briefing  Market   Prior
                                         Expects   Expects
Jul 10 8:30 AM Export Prices ex-ag. Jun - NA       NA       -0.1%
Jul 10 8:30 AM Import Prices ex-oil Jun - NA       NA       -0.2%
Jul 10 8:30 AM Initial Claims 07/05 -     420K     420K      430K

For tomorrow, we can expect further tests of the bullish
trendlines on the major indices.  I am very far from caring about
YHOO's financial well-being one way or the other, but the action
following its earnings release is relevant for the broader market
as we approach earnings season.  Bulls have amassed fat profits
this year, and the mighty Nasdaq is sitting near the top of a
very steep ascending trendline as we head into earnings season at
the start of the summer.  We had a small correction today.  A
profit-taking event would have a distinctly deleterious effect on
bull accounts, and for that reason, we should be attentive to the
current support levels.  Bulls should set appropriate stops and
be alert.  While the rally can certainly march higher, the risk-
reward balance has become lopsided, and it appears to me to favor
the downside.


Higher treasuries, lower equities
Jonathan Levinson

Treasuries actually saw some buying today, while equities saw
some selling.  Neither moves were sufficient to reverse their
recent trends, and were by-now expected.

150-tick candle chart of ES3U

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     10167  1009   1002    995    988
YM03U     9266   9203   9142   9079   9018
NQ03U     1320   1308   1298   1286   1275

10 minute chart of the US Dollar Index

The US Dollar Index sold off all night, bounced until noon, and
fell again to just below support in the 95.60 area.  Gold sold
off gradually for most of the session, bouncing from just below
343 support in mid-afternoon to close positive by 10 cents at

Daily chart of August gold

The action in gold did little to alter the longer term view as
depicted by the daily candles.  Despite the action in gold, the
precious metals spent the day hovering along both sides of
unchanged, closing negative by pennies, -.02 on the XAU and -.23
on the HUI.  The CRB added 1.28 to close above 237.

Daily chart of the ten year note yield

Treasuries saw some buying today for a change, with treasury
yields dropping modestly.  The five year note yield was lower by
2.6 basis points to 2.568%, the ten by 2.7 bps to 3.706% and the
thirty by 1.5 bps to 4.711%.  The Fed added a small 1.75B
overnight repo, which no doubt contributed.  While the pullback
broke the recent trend, the uptrend on the daily chart was not
challenged by today's action.

We saw buying in treasuries and selling in equities today,
although the Nasdaq futures were stronger than the other indices.
Nevertheless, it's another notch in favor of the "asset
allocation" theory that bonds will resume trading inversely to
equities.  Through the duration of the recent rally, bonds and
equities rallied together.  Whether selling in bonds will lead to
the proceeds pouring into equities is anyone's guess, although I
personally don't expect to see it.

Daily NQ candles

The NQ closed on a near-gravestone doji, with a blowoff spike and
close nearer to its low of the day.  It remains nevertheless on
clear oscillator buy signals, well above its ascending trendline.

30 minute 20 day chart of the NQ

Zooming in to the 30 minute candles, we see the first cracks in
the NQ's armor, with a spike below the steep rising lower
trendline.  As of this writing, NQ was trading near its session
lows at 1289.  A breakdown from a bearish ascending wedge implies
a move to the bottom of the formation, if it plays out, which in
this case would be 1180.  The oscillators are on sell signals
here, pointing to lower prices during tomorrow's session.

Daily ES candles

The S&P futures put in an outside day but refused to pick a
direction, whipsawing to the downside and the upside and closing
lower on the day.  Like the NQ contract, it is still on buy
signals and above its ascending trendline, but as discussed in
last night's Futures Wrap, it's lagging the NQ considerably.

20 day 30 minute chart of the ES

The relative weakness in ES is demonstrated by the weaker angle
of the rising wedge.  As of this writing, it was trading 998.50,
also in breakdown territory.  The implied downside target of this
formation is 960.

Daily YM candles

Helped along by MO and GE, the Dow futures were very weak today,
and while ES and NQ are on Macd buy signals, this signal appears
to be failing to print the daily YM contract.  The daily uptrend
is still intact, but it continues to lag both the ES and the NQ.

20 day 30 minute chart of the YM

Today's action actually put the YM on buy signals based on the
recovery up to 3:30PM EST.  The move higher failed at the broken
lower trendline of a bear wedge, but the trendline was
editorially placed in position, and would have fit as the lower
end of a bear flag to contain the price instead.  As a bear
wedge, the downside target is 8840, but as a bearflag, its target
will be significantly lower, always assuming that we see a
breakdown instead of a bounce.

Today's session saw a higher high and higher low on the NQ
contract, a lower high and lower low on the YM, and ES gave us a
higher high and lower low.  All closed in negative territory.  GE
got croaked again, dropping 1.46% and closing within 2 cents of
its day low.  The tale of two markets continues, with the Nasdaq
leading bullishly higher, and the Dow unable to pull itself
together.  The reversal in equities off their noon lows coincided
with a reversal in the US Dollar Index off its noon high, and was
followed 10 minutes later by a flurry of buying in treasuries.
This was the signature of the "liquidity rallies" we saw all

For tomorrow's session, I expect further downside as implied by
the shorter cycle oscillators.  I do not expect the bear wedges
to break down all at once, but we may be seeing the beginning of
a trend reversal to bring us to an eventual test of the rising
trendlines on the daily charts.


Almost like the Three Stooges

It's not the least bit funny to a Dow bull, but while most comic
film aficionados know that there were actually four "stooges"
that comprised the wild and crazy "Three Stooges," it was MOe's
turn (Altria (NYSE:MO) $44.00 -5.92%)) to trip in what seems to
be a continued bungling among certain Dow components that has
some hecklers beginning to think there might be 30 stooges that
just can't seem to get their act together for a push higher.

One trader quipped in an e-mail that tobacco giant Altria (MO)
should be given the name "Mad Dog von Altria" as it relates to
last night's wrap and impact on today's Dow trade.

Renewed concerns were raised by several brokers that an Illinois
lower court judge may not have had the authority to change terms
of a $12 billion bond (reduced to $6 billion), which the company
had been required to secure after Circuit Court Judge Nicholas
Byron ruled in March that the company has mislead Illinois
smokers into thinking that its "light" cigarettes were somehow
safer than its regular smokes.

In recent weeks, several brokers issued favorable upgrades on MO
and the markets listened on thought that the $6 billion bond
ruling lifted some legal concerns, but today's revelation had
those same brokers back on the defensive as MO had stated in the
past that a $12 billion bond requirement could drive the company
into bankruptcy.

For me (Jeff Bailey) this now becomes one of those situations
where the eventual outcome becomes very unpredictable, and while
I've been bullish the stock based on technicals in recent weeks,
this now becomes a situation where I rely on the "when in doubt
get out" rule of trade and would look elsewhere on an individual
stock basis.

The major indexes looked to finish today's session stronger than
at the mid-point of today's trade, but a late round of selling,
which some floor traders said was created by some sell on close
trade imbalances, left all but the NASDAQ Composite (COMPX)
1,747.46 +0.05% and the smaller-cap Russell-2000 Index (RUT.X)
476.99 +0.63% finishing in the red.

Treasuries found modest buying for the bulk of today's trade and
finished with fractional gains, and my only thoughts toward the
sell on close trade imbalance might have been due to some fine
tuning toward asset allocation.  After a YIELD gap lower at the
open in the benchmark 10-year YIELD ($TNX.X) to 3.695%, it traded
between 3.673% and 3.72% to finish down 3 basis points at 3.703%
and right in the middle of its daily range of trade.

I looked at 10-minute interval bar chart that shows a potential
head/shoulder top formation forming this week, where a break much
below the 3.670% YIELD level may have some near-term negative
implications for equities, as this YIELD objective on break of
neckline at 3.670% would give a lower YIELD objective of 3.58%.
This would be a suspicious YIELD target as this 3.58% YIELD level
is right where the 10-year YIELD was trading just minutes before
it gapped higher on some strong selling on July 3rd, which was
Thursday of last week, at the 10:00 AM EST mark.  This is right
when the June ISM Services Index was released and showed a
bullish surge to 60.6, which was well above economist's forecast
of 55.0, and showed building optimism from May's 54.5 reading.

The S&P Retail Index (RLX.X) 338.85 -1.47% ended the session as
today's sector loser after setting a 52-week high yesterday.  I
do think that today's economic data and May wholesale sales data
influenced some profit taking among retailers as May sales fell
0.5% to $233.43 billion, extending a 2.5% decline from April.
Still, I tend to think of the May data as now being "older news,"
and I don't think I'm going out on a limb saying this.  I'm not
discounting the May sales data, which shows things were still
slow at the wholesale level, but the June ISM Services Index, a
little more recent, did show more optimism that may be reflected
in the June wholesale data.  We shall see.

Dow Industrials ($INDU) Chart - Daily Interval

Dow breadth was negative at 19 to 11 by sessions-end.  Take MO's
-5.9% decline away and the Dow probably finished with a 20-point
loss.  Still, that's not the way the game is played is it?  We
can't just "exclude" one stock's performance or potential
bullish/bearish implications one or two of its components can
have on things.

Does Altria (NYSE:MO) $44.00 -4.92% face potential bankruptcy if
it has to post a $12 billion bond?  While I'm smart enough to
know that a "light cigarette" is no-less harmful than a regular
"cancer stick," regardless of what a print ad might suggest, I'm
not smart enough to know if company officials are telling the
truth about a $12 billion bond having bankruptcy potential for
its Philip Morris unit.

One thing I did make note of in today's Market Monitor is how
close, "but no cigar" the Dow came to trading 9,100.  While the
9,100 level isn't really a "key level" that shows up, it would be
a 3-box reversal lower in the Dow's point and figure chart, and
could see some downside momentum build if traded.  The reason I
made the note, is that we did set a "finite stopping point" for
bulls in the Dow's PnF chart at 8,900, which was traded on July
1st (first lower low we've seen in the Dow since March's reversal
higher), and the recent rally back to 9,250, while strong, would
be a lower high on a 3-box reversal back lower at 9,100.

Per last night's Index Wrap, if there is a "Mad Dog Vachon" in
the Dow right now, it may well be Altria (MO) that jumps from
under the ring mat and releases the sleeper hold that bulls have
had on bears.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU) and status remains "bull
confirmed" at 86.67%.

S&P 500 Index (SPX) Chart - Daily Intervals

I'm looking for signs of weakness to present themselves tomorrow
in the following fashion.

10-year YIELD ($TNX.X) below 3.670% (buying in Treasuries) and a
break of SPX at 996 to get some short-term bearish momentum for a
drive back into 981-984.49.

However, to get that type of technical scenario together, it is
probably going to "depend" on the WEEKLY Initial jobless claims
data due out at 08:30 AM EST, with consensus at 420,000 for the
week, which would be better than the prior week's 430,000.  As
such, it may take a 440,000 type of number to get a move lower.

Now, I'm not counting on this type of trade at this point, but I
think this "bearish" technical setup is in play.

Despite some selling in Yahoo! (NASDAQ:YHOO) in after-hours,
which "amazingly" even has some semiconductor and other
technology stocks lower in after-hours, S&P futures are holding
above today's lows and steady at 998.  Futures traders don't seem
to care that much about YHOO action and they seem to be waiting
for tomorrow's employment data before futures bulls throw in the
towel on inline numbers from YHOO.

The catalyst for an upside move for the indexes is also present
in the employment data, which to this point of the impressive
rise for equities hasn't shown much improvement at all.  A
surprise type of reading of 410,000 is going to give the near-
term look that the employment picture is improving, and a move
above today's highs in the SPX may have the MACD crossing above
Signal, creating the "bullish crossover" on this indicator.

I've marked on the above chart a very SIMILAR oscillator setup as
to that found at the close of May 29th, where on May 30th, the
move came to the upside.  As it stands tonight, bulls want to see
SIMILARITY to the past, while bears look for DIVERGENCE!

Internals remain strong, and I will have to think that BEARS are
keeping their fingers crossed for a bad employment number to
surprise the markets as the S&P 500 Bullish % ($BPSPX) saw a net
gain of 2 stocks to new point and figure buy signals and has the
bullish % inching up to 79.2%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

While Yahoo! Inc. (NASDAQ:YHOO) $35.29 +0.54% gained 19 cents
during today's regular session, and would not be among any
bullish trader's list of "stooges" this year, its inline
quarterly earnings report found the stock falling to $33.25 (-
5.7% from close) in after-hours trade, and gives a somewhat sour
look to the NASDAQ-100 Tracking Stock (AMEX:QQQ) $32.20 -0.24%
which slipped 8 cent lower in today's session, as the Q's now
tick by at $32.00 in the after-hours session, but still holding
above today's intra-day low of $31.93 as if there's some bears
still looking to get things squared up after another 52-week high
today at $32.49.

I'm still seeing some individual stocks that look to be finding
some eager buyers (shorts covering or momentum bulls) and after a
test of upper regression, YHOO's inline earnings and solid
guidance finds this stock's after-hours action having negative
psychological impact on just about every other type of technology
stock.  Evidently, after-hours traders (usually retail traders
like you and I) just weren't satisfied.

One trade I like is a QQQ pullback on weakness near WEEKLY R1,
especially if weekly jobless claims aren't more than 10,000 off
of economist's forecast.  I'm still seeing enough action to the
upside in many stocks to have me thinking that there's going to
be support on a pullback to $31.44-$31.37 area from sideways
bears for a decent trade back to a $32.15 target.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net
gain of 2 stocks to new point and figure buy signals, and this
now has the bullish % reversing back up to "bull confirmed" from
"bull correction" status at 81% bullish.

I still think it VERY important for new bullish entries to be
done with partial positions, ESPECIALLY IN THE NASDAQ-100, as the
bullish % chart is now set up to read "bear confirmed" should
this bullish % fall back to a reading of 72%.

Now... here comes the BIGGER test for some of the above and I'm
going to start with my bond YIELD comments.  I'm just testing
this in the matrix, to see if anything makes sense.

Pivot Analysis Matrix

I started out with an observation of a potential intra-day
head/shoulder top formation in the TNX.X with neckline at 3.670%
and I do find DAILY S1 of 3.675 as a level tomorrow that might
serve YIELD support just above the 3.670% neckline.

Thinking is, if jobless data are positive, the shouldn't see
bonds trade strong, so YIELD shouldn't go below 3.670%, or

Now, if YIELD does break lower, and head/shoulder top and its
bearish shorter-term type of objective of 3.58% YIELD does come
to fruition, then this may "make sense" as to the WEEKLY Pivot of

OK.... if the indexes were to trade in unison with TNX.X WEEKLY
Pivot, that has the SPX right back at 980.93, which is where some
may still hold previously bearish profiled partial positions in
SPX puts, where stop was profiled at SPX new highs, which haven't
quite been traded yet.

But, this may also have the QQQ/NDX back at their WEEKLY pivots,
but as we see in the WEEKLY and MONTHLY trade, its the NDX/QQQ
which has been about "1 level" in the pivot stronger on the
upside move.  This perhaps gives some credence to the thought
that WEEKLY R1 in the NDX/QQQ may be a near-term support level,
where the other indexes, which have been "weaker in the pivots"
find near-term support at their WEEKLY pivots with a 10-year
YIELD lower trade.

Anyway.... this is something I'll be monitoring against early
tomorrow, but we will have the weekly jobless data before the

Jeff Bailey

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Safeco Mutual Funds

The Safeco Mutual Funds is a family of 18 mutual funds investing
across all asset classes and offering exposure to both value and
growth equity management styles, and both taxable and tax-exempt
fixed-income investments.  Safeco also has partnerships with two
asset management firms that excel in their own equity investment
styles.  All Safeco Funds seek to deliver consistent returns for
investors over time for the risks assumed.

Safeco Asset Management, advisor to the Safeco fund family, is a
Northwest-based investment firm, which traces its origin back to
1932 with the introduction of the Safeco Equity Fund.  Note that
effective October 1, the fund's name will change to Safeco Large
Cap Core Fund to better reflect its core equity investment style.
It seeks long-term capital growth plus reasonable current income
by investing in household names such as Pfizer, Citigroup, Wash.
Mutual, AIG, and GE.  Richard Meagley has managed (or co-managed)
the portfolio since January 1995.

Key members of the Safeco management staff are: Kevin A. Rowell,
president of Safeco Mutual Funds; Ronald L. Spaulding, chairman
and chief investment officer of Safeco Asset Management; Darcy S.
Maclaren, vice president and director of Safeco equity research
since 1994.  Darcy Maclaren oversees Safeco's equity department,
portfolio managers, analysts and traders.  She's now listed as a
co-manager of the Safeco Equity Fund (since July 2003).

Altogether, there are 10 equity funds, 7 fixed income funds, and
one money market fund to select from, giving investors a variety
of investment choices.  Note, however, that on June 27, 2003, the
board of trustees of the Safeco Taxable Bond Trust voted to merge
Safeco Intermediate-Term U.S. Treasury Fund with/into Safeco U.S.
Government Fund.  In addition, Safeco Small Company Growth Fund's
prospectus supplement indicates that Safeco Small Company Growth
Fund and Safeco U.S. Value Fund will cease operations on or about
September 8, 2003 and will not be offered for sale after July 15,

A "no-load" investor share class of the Safeco funds is no longer
offered.  Retail investors must now purchase Safeco funds through
their financial advisor and choose either A, B or C class shares.
Class A shares have front-end loads of 5.75% but beyond that have
the lowest annual operating expenses of the three "load" classes.
For complete information or to download a fund prospectus, go to
the Safeco Funds website at www.safecofunds.com.

Mutual Fund Overview

Excluding the Safeco funds that will merge or cease operations in
the near future, investors have 15 Safeco investment products now
to choose from across various asset classes and investment styles
and strategies.

Safeco's most successful stock funds in terms of total assets are
Safeco Equity Fund ($705 million) and Safeco Growth Opportunities
Fund ($459 million).  Safeco Equity Fund falls into the large-cap
blend style box per Morningstar while Safeco Growth Opportunities
Fund is a small-cap blend fund that seeks capital growth.  Based
on its average investment style over the past three years, Safeco
Growth Opportunities Fund is categorized as a "small-growth" fund
by Morningstar.  So, Safeco Equity Fund can serve a "core" equity
role in one's portfolio, while Safeco Growth Opportunities can be
used in an "explore" role.

Safeco Dividend Income Fund, a $139 million fund, seeks high and
steady income by investing in large-cap "dividend-paying" stocks
purchased at attractive valuations.  This equity income fund may
be suitable for investors seeking a steady income with potential
for capital growth over time.  Note the fund will change its name
to Safeco Large-Cap Value Fund on October 1, 2003.

Safeco's most successful fixed income fund based on total assets
is the $98 million Safeco California Tax-Free Income Fund.  This
single-state municipal bond fund seeks to provide a high a level
of current income (exempt from federal income tax and California
state personal income tax) consistent with relative stability of
capital.  Stephen C. Bauer has managed or co-managed the CA bond
portfolio since October 1983.

Safeco High-Yield Bond Fund and Intermediate-Term Muni Bond Fund
have less than $50 million in net assets as does Safeco Balanced
Fund.  In the next section, we look at how well Safeco's class A,
B and C shares have performed in relation to their category peer

Mutual Fund Performance

Note that only one of Safeco's mutual funds is currently rated 4
stars or better by Morningstar for risk-adjusted returns versus
category peers, and that is the investor class shares of Safeco
California Tax-Free Income Fund (SFCAX).  However, Class A and B
shares of the fund are only 2-star rated overall by Morningstar,
reflecting below average risk-adjusted returns versus comparable
funds.  Higher operating expenses are the main cause of variance
between share class performance ratings.

Likewise, the class A and B shares of Safeco Equity Fund are only
rated 1-star or 2-stars, respectively, whereas the investor class
shares of the fund receive 3 stars (average) currently.  So, fund
performance has generally been a little weaker on the Safeco load
funds relative to the no-load investor share class (due primarily
to higher annual operating expenses).

Below is a performance summary for the Class A shares of Safeco's
mutual funds (unless otherwise noted) using Morningstar's numbers
through July 6, 2003.

  5-Year Annual Average Return/Category Rank % (Jul-06-03)
  +1.6%  Safeco Balanced A (SABAX) 44th Percentile
  +5.3%  Safeco CA Tax-Free Income A (SCXAX) 34th Percentile
  -6.0%  Safeco Dividend Income A (SFOAX) 99th Percentile
  -5.0%  Safeco Equity A (SAEAX) 89th Percentile
  -4.9%  Safeco Growth Opportunities A (SFGAX) 84th Percentile
  -2.2%  Safeco High-Yield Bond B (SAHAX) 84th Percentile

Of these six Safeco funds, none ranked in the top third of their
respective Morningstar category for trailing 5-year performance.
Two ranked in the "second" third of their respective categories,
while four ranked in the "bottom" third of their category group.

No wonder then that many Safeco funds have recently experienced
management additions or changes (July 2003).  It seems Safeco's
mutual fund lineup is undergoing some revamping with many funds
changing their name effective October 1, 2003 to better reflect
their investment styles and strategies.

On a YTD 2003 basis, a couple of the Safeco bond funds are doing
relatively well.  Safeco CA Tax-Free Income A (SCXAX) is up 4.1%
on a YTD basis through July 6, ranking in the top 1% of its peer
group.  Safeco High Yield A (SAHAX) sports a YTD return of 18.1%
to rank in the top quartile (15th percentile) of the Morningstar
high-yield bond category.

The YTD return performance of the Safeco Equity Fund and Safeco
Growth Opportunities Fund ranks toward the middle of their fund
categories.  So, they are at least keeping pace with their peer
groups.  Safeco Equity A (SAEAX) has risen 12.3% through July 6,
while Safeco Growth Opportunities A (SFGAX) is up 18.7% through
the 6th of July.  Those are respectable numbers.

Opinion & Analysis

Some no-load fund families have converted from no-load funds to
load fund structures in recent years.  Safeco Mutual Funds fall
into that category.  Newer, load class shares haven't performed
as well as their (now closed) no-load share peers, largely as a
result of higher relative annual operating expenses.  While the
fund advisor currently caps 12b-1 and other expenses at 0.4% of
assets per annum, the annual expense ratios of some Safeco load
funds are still up there.  Safeco's Class B shares have expense
ratios of over 2.00%, according to Morningstar.  The result has
been less consistent total returns.

Investor class shareholders have no reason to jump ship but new
investors may want to wait and see if recent management changes
produce better relative results.  The higher expense associated
with the load share classes makes them less appealing for "new"
shareholders.  Still, two of their bond fund products are doing
very well in 2003 and two equity funds are participating in the
2003 stock rally, so there is reason to be hopeful.

With the recent fund mergers and liquidations, manager changes,
etc. at Safeco, you may want to tread lightly, and wait and see
if performance becomes stronger, more consistent.  For complete
fund information, or to download a prospectus, go to the Safeco
Funds website at www.safecofunds.com.

Steve Wagner
Editor, Mutual Investor

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A Day In The Life
by Mark Phillips

Over the past 2 months, we've been building up to this point in
our ongoing discussions on a futures trading plan.  We first
covered all the "boring" but very important issues of the basic
strategy, account management, broker selection and myriad other
issues in preparation for dissecting an actual day in the life of
a futures trader.  What I've been building up to is showing how
the system I've developed for my own use came into being and then
showing how I apply that in one day of trading.  While the
cornerstone of my trading approach boils down to intraday
oscillators and price patterns, I think you will see that there
are numerous nuances covered in today's installment that we
haven't yet really covered in great detail.  The great challenge
in this process is being able to describe what I see during the
day and communicate how that translates into trade decisions.

As I mentioned last week, the further we go in this discussion,
the more critical it becomes that all those just joining us have
access to the prior installments in this series so that we're all
talking the same language.  If you're one of those newcomers,
please take the time to catch up using the links below.

The Case For Futures

Planning For The Future(s)

Back To The Future(s)

Getting Ready To Launch

Painting A Picture

Discipline Failure

As I mentioned last week, we've really reached the point in this
series where pictures (i.e. intraday charts) are really going to
provide the lion's share of the communication, as trying to
describe things using the printed word will become rather
cumbersome.  So what I've attempted to do here today is show, with
the aid of several intraday charts, how my trading in the ES
unfolded today.

I start each day with a look at the big picture, to get a feel for
what I think ought to be the overall direction for the day.  That
comes from the daily, hourly and 30-minute charts.  Starting with
the daily chart, we can see that Tuesday's close at 1007.50 had
the ES very close to strong resistance at 1010, and while daily
Stochastics were still in bullish ascent, they were already
entering overbought territory.  That gave me the early bias that
unless I saw overwhelming strength at the open, I would be looking
to fade a rally failure near that known resistance.  Adding to my
conviction that this resistance should prove formidable was the R1
level from the pivot levels provided every night in the Futures
Wrap, which was set at 1012.

ES Daily Chart

With the daily view still looking somewhat bullish, but with
strong overhead resistance and a toppy-looking oscillator, we next
turn to the 60- and 30-minute charts.  It is this view that will
primarily determine my trade bias going into the first half of the

ES 60- and 30-Minute Chart Montage

Here we can see a still-bullish picture, but with both sets of
Stochastics oscillators looking a bit extended in or near
overbought territory, my predisposition to short a failed rally
near the 1010 level looks like a solid strategy heading into the
opening bell.  At this point, I am done looking at these longer-
term charts for the next few hours.  My focus now moves to the
more micro view using primarily the 5-minute chart.  While I will
monitor both the 10-minute and the 2-minute charts, the core of my
trading decisions will be made using the 5-minute view.  So let's
see how things shaped up in that view.

Trade Setup #1

This is one of my favorite setups for a trade entry, because I
have so many different factors lining up to tell me that a short
trade should work quite nicely.  Bearish divergence on the 5-
minute Stochastics, with Stochastics starting to roll bearish near
10:30am ET is the final piece of the puzzle.  Recall that prior to
the open, I was looking to short a rally failure near 1010, and
isn't it amazing how 1010.00 was the high tick?  Aggressive
traders may have gotten an exceptional entry by placing a resting
order to short 1010.  I'm a bit more conservative and would have
wanted to see the confirmation from the oscillator rolling
bearish, so my entry would come in the 1007-1008 area.  Note that
I made no mention of what the root cause was of either the early
ramp or the failure.  Quite honestly, I couldn't care less.  All I
care about is the technical setup and then the resultant follow-
through.  The why is not nearly as critical on an intraday basis,
which allows me to focus my efforts primarily on what I see on the

So let's see how that one played out, shall we?

Trade #1 Exit

Now that's precisely how these trades are supposed to work out --
nice and quick.  The ES melted down right to 1000 before finding
any semblance of support.  Remember that when I enter a trade, I'm
looking for a gain of 8-10 points, taking risk to my initial stop
of 3-4 points.  Note that my stop was never threatened during the
slide lower and given the choppy range of the past couple days, it
is a no-brainer to harvest the 7-8 points from the conservative
entry point.  Confirming that a bounce was imminent was the
Stochastics oscillator bottoming out in oversold.  It might not
bounce, but what we have here is a high-odds profitable exit point
and I almost always take those when they're offered.

As you'll see in the next chart, I didn't catch the bottom of that
move, but after trading the 1000 level, I would have lowered my
stop to 1003, which would have just barely gotten clipped on the
bounce before ES continued down to the day's low of 996.

Trade #2 Setup

Here again, we have divergence setting up on the Stochastics
oscillator, but this time it is in the bulls' favor.  By now, the
30-minute Stochastics (not shown) is nearing oversold territory,
so I'm willing to entertain bullish entries.  With the strength of
the bounce off 996 and bullish divergence setting up, a long off
the 998-999 area looks attractive with an initial stop set 3.5
points below entry.  As it turns out, that stop was not challenged
either and when ES broke above 1002, I was able to trail that stop
up to 998.50 (3.5 points below the local high), and I've got a
free trade working in my favor -- worst cast on this one will be a
gain of 0.5 points, which would cover my transaction costs.

Trade #2 Exit

That rebound just before 2pm Et from just above 999 gave me the
ability to snap a rising trendline from the 996 low and in
conjunction with the trend of higher lows on the oscillator, I've
got a nice guide for managing this long play as well.  It should
be clear that this is definitely counter-trend to the dominant
trend of the day, and for that reason I wasn't at all surprised to
see the up-move proceeding at a more pedestrian rate than the
morning's slide.

Note how by the time ES traded the 1004 level, I would have
trailed my stop to 1000.50, and that just barely held at the
trendline just after 2:30pm ET.  From there, the bulls once again
pushed through resistance and the ES traded its afternoon highs
just under 1007 about 40 minutes before the close of the cash
session.  Referring back to my stated goal of 8-10 points from
each trade that I enter, I took advantage of the +8 unrealized
gains (1006-998) and exited the trade at that point.  But there
would be nothing wrong with using either the trailed stop approach
or waiting for the trendline break either.  One aspect of the
trailed stop approach that I don't think I've covered here is that
I tend to get more aggressive with my stop the closer I get to my
exit target.  So on this particular trade, once the ES moved over
1004, I was working with only a 2 point stop.  So the notation on
the chart above about stopped at 1002.75 refers to the trendline
break.  If I had still been using a trailing stop to get me out,
then the exit would have come at 1004.75, which was 2 points below
the local high of 1006.75

I know there are a ton of factors and potential issues that I
either didn't discuss here or that weren't relevant to the day's
trading.  Hopefully by next week, we'll have a different-looking
day to dissect and maybe we can pull some of those other factors
into the mix.  One glaring omission today was that I really didn't
use the ADVDECV indicator for any of my trade decisions.  Remember
I said it was a secondary trade filter, and I use it predominantly
to keep me from fighting a strong trend day.  We didn't have that
on Wednesday, so that indicator just didn't come into play.

I hope you found this as useful as I found it fun.  Next week,
I'll see if I can find another day to dissect, hopefully with a
losing trade to balance out today's success.



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The Option Investor Newsletter                Wednesday 07-09-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: PUT - BLL
Spreads, Combinations & Premium-Selling Plays: Entry Point Or Time
    To Sell?
Watch List: Mix and Match

Updated on the site tonight:
Market Posture: Testing Trendlines

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Ball Corporation - BLL - close: 44.70 change: -0.44 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.

- Most Recent Update (Tuesday, July 8, 2003)-
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
P&F 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 P&F 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.

- Play of the Day Comments -
BLL continue to be weaker than we expected.  The failure to break
over the $46 level earlier this week is seeing additional follow
through by sellers.  The volume has been strong the last three
days with today's decline coming 909 thousand shares.  Average
volume is just 586 thousand.  The move back under $45 may be
enough to satisfy some traders for an entry point but as we
mentioned earlier, momentum traders might want to see the current
low near $44.26 broken first.

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 specter of time decay.

! WARNING -- July contracts expire next week. --

BUY PUT JUL-45 BLL-SI OI=293 at $1.05 SL=0.55
BUY PUT AUG-45 BLL-TI OI=308 at $2.05 SL=1.10
BUY PUT AUG-40 BLL-TH OI=431 at $0.65 SL=0.30

Annotated Chart of BLL:

Picked on July 8th at $45.14
Change since picked:   -0.44
Earnings Date       07/24/03 (confirmed)
Average Daily Volume =   586 K

Chart =

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Entry Point Or Time To Sell?
By Ray Cummins

Stocks ended lower Wednesday as investors remained unconvinced
that the recent rally will lead to a long-term bullish cycle.

Industrial shares slumped with the Dow Jones Industrial Average
dropping 66 points to 9,156 amid losses in Altria Group (NYSE:MO),
Alcoa (NYSE:AA) and Home Depot (NYSE:HD).  The NASDAQ continued to
show strength, closing unchanged at 1,747 as networking companies
were buoyed by positive comments from Cisco Systems (NASDAQ:CSCO),
which said it sees a rebound in information-technology spending.
The S&P 500 slipped 5 points lower to 1,002 as banking, insurance
and retail shares slumped while oil service and gold stocks saw
limited buying pressure.  Decliners outnumbered advancers 6 to 5
on the New York Stock Exchange but the ratio was reversed on the
NASDAQ, where winners edged past losers by a very small margin.
Trading volume on the Big Board was 1.6 million and 2.1 billion
on the technology exchange.  In the bond market, Treasurys gained
traction as money flowed out of stocks.  The 10-year note added
5/32 to yield 3.69%, down slightly from 3.73% on Tuesday.




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


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

Naked Puts

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

BGEN     JUL    37    36.90  42.85   $0.60   4.59%   1.63%
CVTX     JUL    25    24.45  33.28   $0.55   4.93%   2.25%
MERQ     JUL    40    38.30  43.08   $1.70   7.53%   4.44%
NVDA     JUL    20    19.60  24.77   $0.40   4.97%   2.04%
AMHC     JUL    25    24.65  36.75   $0.35   4.99%   1.42%
ARTI     JUL    20    19.70  24.30   $0.30   5.63%   1.52%
AVCT     JUL    27    27.05  32.61   $0.45   5.32%   1.66%
GILD     JUL    42    42.00  58.98   $0.50   4.49%   1.19%
MERQ     JUL    35    34.50  43.08   $0.50   5.25%   1.45%
MVSN     JUL    17    17.25  22.74   $0.25   5.11%   1.45%
NVDA     JUL    20    19.60  24.77   $0.40   7.38%   2.04%
OVTI     JUL    25    24.45  38.56   $0.55   7.88%   2.25%
YHOO     JUL    27    24.80  35.10   $0.45   5.32%   1.81%
QCOM     JUL    32    32.00  39.49   $0.50   4.38%   1.56%
ARTI     JUL    20    19.75  24.30   $0.25   5.45%   1.27%
AVCT     JUL    27    26.90  32.61   $0.60   8.19%   2.23%
GILD     JUL    47    46.90  58.98   $0.60   4.96%   1.28%
ICST     JUL    25    24.75  32.75   $0.25   4.42%   1.01%
IMCLE    JUL    25    24.65  33.77   $0.35   6.83%   1.42%
JCOM     JUL    37    37.05  51.26   $0.45   5.97%   1.21%
OVTI     JUL    25    24.70  38.56   $0.30   5.93%   1.21%
RIMM     JUL    20    19.50  23.55   $0.50   9.72%   2.56%
SNDK     JUL    30    29.65  46.81   $0.35   5.51%   1.18%
YHOO     JUL    27    27.10  35.10   $0.40   5.82%   1.48%
AVCT     JUL    27    27.15  32.61   $0.35   7.25%   1.29%
AVID     JUL    35    34.65  40.68   $0.35   5.86%   1.01%
IVGN     JUL    40    39.70  47.15   $0.30   4.31%   0.76%
JCOM     JUL    40    39.60  51.26   $0.40   6.46%   1.01%
MATK     JUL    40    39.60  46.41   $0.40   5.68%   1.01%
MERQ     JUL    37    37.05  43.08   $0.45   6.64%   1.21%
NFLX     JUL    22    22.25  27.43   $0.25   7.36%   1.12%
NTE      JUL    11    11.56  18.50   $0.30   5.69%   2.60%
OSIP     JUL    25    24.75  34.14   $0.25   6.94%   1.01%
OVTI     JUL    30    29.60  38.56   $0.40   7.34%   1.35%

Conservative traders should probably have closed the Biogen
(NASDAQ:BGEN) position, and possibly a few other suspect
issues, during the recent market slump.

Naked Calls

Stock  Strike Strike Cost  Current   Gain     Max    Simple
Symbol Month  Price  Basis  Price   (Loss)   Yield   Yield

LLTC     JUL    37   38.30  36.14    $0.80   5.98%   2.09%
XLNX     JUL    32   33.05  28.67    $0.55   5.77%   1.66%
IGEN     JUL    45   45.90  33.68    $0.40   5.71%   0.87%
CNF      JUL    30   30.45  27.84    $0.45   5.02%   1.48%
TRMS     JUL    55   55.75  48.21    $0.75   5.65%   1.35%
AFFX     JUL    22   22.85  21.64    $0.35   7.97%   1.53%
DCTM     JUL    22   23.05  17.35    $0.55   12.14%  2.39%
HCA      JUL    35   35.45  32.10    $0.45   5.89%   1.27%
CERN     JUL    22   23.00  21.97    $0.50   15.56%  2.17%
CUM      JUL    40   40.25  38.77    $0.25   3.93%   0.62%
GM       JUL    37   37.80  36.58    $0.30   4.35%   0.79%

Almost all of the bearish plays in our portfolio are on the
watch-list, but Affymetrix (NASDAQ:AFFX), Linear Technology
(NASDAQ:LLTC), Cerner (NASDAQ:CERN) and General Motors (NYSE:GM)
appear to be the most critical positions and those plays should
be closed on further upside activity.

Put-Credit Spreads

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

CMCSA   32.85  32.94   JUL   27  30  0.20  29.80  $0.20   Open
IDPH    40.29  37.96   JUL   30  35  0.65  34.35  $0.65   Open
IGT     23.59  25.97   JUL   20  21  0.15  20.85  $0.15   Open
CCMP    52.60  57.11   JUL   40  45  0.50  44.50  $0.50   Open
CECO    69.32  74.60   JUL   55  60  0.50  59.50  $0.50   Open
LXK     76.99  76.29   JUL   65  70  0.50  69.50  $0.50   Open
BVF     46.00  47.00   JUL   35  40  0.30  39.70  $0.30  No Play
IGT     23.59  25.97   JUL   21  22  0.10  21.90  $0.10   Open
PRX     49.21  48.90   JUL   40  45  0.50  44.50  $0.50   Open
QLGC    50.25  52.66   JUL   45  47  0.25  47.25  $0.25   Open
SNDK    42.75  46.81   JUL   35  37  0.25  37.25  $0.25   Open

The position in Nike (NYSE:NKE) has previously been closed for
a small loss.

Call-Credit Spreads

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

CEPH    45.33  46.20   JUL  55  50   0.60  50.60  $0.60   Open
CI      49.61  48.66   JUL  60  55   0.55  55.55  $0.55   Open
MXIM    36.51  38.12   JUL  45  40   0.60  40.60  $0.60   Open
ADBE    32.07  34.93   JUL  40  35   0.50  35.50  $0.50   Open
CEPH    44.59  46.20   JUL  55  50   0.60  50.60  $0.60   Open
HDI     40.19  39.33   JUL  45  42   0.30  42.80  $0.30   Open
MDC     46.94  52.21   JUL  55  50   0.50  50.50 ($1.71) Closed
TIN     43.56  43.56   JUL  50  45   0.50  45.50  $0.50   Open
DNA     73.52  76.49   JUL  85  80   0.45  80.45  $0.45   Open
NOC     88.00  86.68   JUL  95  90   0.60  90.60  $0.60   Open

As noted last week, MDC Holdings (NYSE:MDC) moved through near
term resistance (and our sold call strike) at $50 and the close
above that price on heavy volume was our exit signal in the
play.  Maxim Integrated (NASDAQ:MXIM), Adobe (NASDAQ:ADBE) and
Genetech (NYSE:DNA) are on the early-exit "watch" list.

Synthetic Positions

No Open Positions

Debit Straddles

No Open Positions

Questions & comments on spreads/combos to Contact Support


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.



All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.


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

AMLN - Amylin Pharmaceuticals  $23.18  *** Diabetes Drugs! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm
engaged in the discovery, development and commercialization of
drug candidates for the treatment of diabetes and other metabolic
diseases.  The company has two lead drug candidates in late-stage
development for the treatment of diabetes, SYMLIN (pramlintide
acetate) and exenatide, formerly referred to as AC2993 (synthetic
exendin-4).  Amylin has received a letter from the FDA indicating
that SYMLIN is approvable for marketing in the United States as an
adjunctive therapy with insulin, subject to satisfactory results
from additional clinical trials.  The company's second candidate,
exenatide, is in pivotal Phase III clinical trials.

AMLN - Amylin Pharmaceuticals  $23.18

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 22.5  AQM SX     301    0.45  22.05  16.8%   2.0%
SELL PUT  AUG 20    AQM TD      36    0.70  19.30   8.5%   3.6% *
SELL PUT  AUG 22.5  AQM TX   1,010    1.40  21.10  11.5%   6.6%

AVCT - Avocent  $32.61  *** Another New High! ***

Avocent Corporation (NASDAQ:AVCT), together with its wholly owned
subsidiaries, designs, manufactures and sells analog and digital
KVM (keyboard, video and mouse) switching systems, as well as serial
connectivity devices, extension and remote access products and also
display products for the computer industry.  The firm's switching
and connectivity solutions provide information technology managers
with access and control of multiple servers and network data centers
from any location.

AVCT - Avocent  $32.61

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 30    QVX SF     991    0.35  29.65  11.0%   1.2% *
SELL PUT  AUG 25    QVX TE   1,328    0.25  24.75   3.0%   1.0% TS
SELL PUT  AUG 30    QVX TF     327    1.15  28.85   8.2%   4.0%

ELBO - Electronics Boutique  $25.20  *** Bullish Retailer! ***

Electronics Boutique (NASDAQ:ELBO) is a specialty retailer of
electronic games.  The company sells video game hardware and
software, PC entertainment software and related accessories and
products.  The company operates stores primarily under the names
Electronics Boutique and EB GameWorld, in Australia, Canada,
Denmark, Germany, Italy, New Zealand, Norway, South Korea, Sweden
and the United States.  The company also operates a commercial
Website under the URL address, www.ebgames.com.  The company
carries game titles that are compatible with all major video game
hardware systems and PCs. In addition to video game titles and PC
entertainment software, it offers a complementary line of PC and
video game accessories and peripheral products, including various
controllers, joysticks, memory cards, remotes, books and magazines.

ELBO - Electronics Boutique  $25.20

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 25    LQB SE      91    0.50  24.50  16.3%   2.0%
SELL PUT  AUG 22.5  LQB TX      15    0.40  22.10   4.2%   1.8% *
SELL PUT  AUG 25    LQB TE      62    1.10  23.90   8.2%   4.6%

IVGN - Invitrogen  $46.98  *** Premium Selling! ***

Invitrogen (NASDAQ:IVGN) develops, manufactures and sells research
tools in kit form and provides other research products, including
informatics software to customers engaged in life sciences research
and the commercial manufacture of genetically engineered products.
The company supplies research kits and reagents that simplify and
improve gene cloning, gene expression and gene analysis techniques.
In addition, Invitrogen sells sera, cell and tissue culture media
and reagents used in life sciences research, as well as in other
processes for growing cells in the laboratory and producing major
pharmaceuticals and other materials.

IVGN - Invitrogen  $46.98

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 45    IUV SI     262    0.70  44.30  13.5%   1.6%
SELL PUT  AUG 40    IUV TH     363    0.55  39.45   3.7%   1.4% TS
SELL PUT  AUG 45    IUV TI      21    1.80  43.20   8.0%   4.2%

JCOM - j2 Global Comm.  $51.92  *** All-Time High! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world.  The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services.  j2 Global
markets its services principally under the brand names eFax and
jConnect.  The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service.

JCOM - j2 Global Comm.  $51.92

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 45    JQF SI     483    0.20  44.80   4.8%   0.4% TS
SELL PUT  AUG 40    JQF TH     174    0.70  39.30   5.2%   1.8% *
SELL PUT  AUG 45    JQF TI     172    1.65  43.35   8.8%   3.8%

MERQ - Mercury Interactive  $43.42  *** Testing Recent Highs! ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2000 companies enhance the user
experience by improving the performance, availability, reliability
and scalability of their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $43.42

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 40    RQB SH   4,368    0.45  39.55  10.6%   1.1% *
SELL PUT  AUG 35    RQB TG     304    0.50  34.50   4.4%   1.4%
SELL PUT  AUG 37.5  RQB TT     335    0.90  36.60   6.0%   2.5%

NFLX - Netflix  $27.56  *** Beating-Up On Blockbuster! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.

NFLX - Netflix  $27.56

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 25    QNQ SE   1,681    0.30  24.70  11.6%   1.2%
SELL PUT  AUG 20    QNQ TD     227    0.35  19.65   4.9%   1.8% *
SELL PUT  AUG 22.5  QNQ TX     367    0.70  21.80   8.6%   3.2%

NVLS - Novellus Systems  $38.15  *** A Big Day! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous

NVLS - Novellus Systems  $38.15

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 35    NLQ SG   9,108    0.30  34.70   8.2%   0.9% *
SELL PUT  AUG 30    NLQ TF   1,400    0.35  29.65   3.6%   1.2% TS
SELL PUT  AUG 32.5  NLQ TZ     372    0.70  31.80   5.6%   2.2%

OVTI - OmniVision  $38.54  *** Multi-Year High! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.

OVTI - OmniVision  $38.54

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 35    UCM SG   1,766    0.35  34.65   9.7%   1.0% *
SELL PUT  AUG 30    UCM TF     295    0.50  29.50   5.0%   1.7%
SELL PUT  AUG 35    UCM TG     149    1.70  33.30  10.3%   5.1%

POWI  - Power Integrations  $28.18  *** Break-Out! ***

Power Integrations (NASDAQ:POWI) designs, develops, manufactures
and markets proprietary, high-voltage, analog integrated circuits
for use primarily in alternating current to direct current power
conversion.  The firm's products address market segments including
communications, consumer, computer and industrial electronics.
The company's high-voltage power conversion ICs include TOPSwitch,
TinySwitch, LinkSwitch and DPA-Switch.  Since introducing its
TOPSwitch family of products in 1994, the company has shipped into
the market approximately 890 million ICs.  These ICs achieve a high
level of system integration by combining a number of electronic
components into a single IC.

POWI  - Power Integrations  $28.18

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 25    QPW SE     220    0.15  24.85   6.2%   0.6% TS
SELL PUT  AUG 22.5  QPW TX      45    0.30  22.20   4.2%   1.4% *
SELL PUT  AUG 25    QPW TE      30    0.70  24.30   6.5%   2.9%

SNDK - SanDisk  $46.45  *** The Rally Continues! ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from eight
megabytes to 1.2 gigabytes.

SNDK - Sandisk  $46.45

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  JUL 40    SWQ SH   1,650    0.30  39.70   8.2%   0.8% *
SELL PUT  AUG 35    SWQ TG     653    0.45  34.55   3.8%   1.3%
SELL PUT  AUG 37.5  SWQ TT     817    0.75  36.75   5.9%   2.0%



These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

AGN - Allergan  $80.83  *** Durable Drug Stock! ***

Allergan (NYSE:AGN) is a technology-driven, global healthcare firm
that develops and commercializes specialty pharmaceutical products
for ophthalmic, neurological, dermatological and other specialty
markets, as well as ophthalmic surgical devices and contact lens
care solutions.  Its worldwide consolidated revenues are primarily
generated by prescription and non-prescription pharmaceutical
products in the areas of ophthalmology and skin care, neurotoxins,
intraocular lenses and other ophthalmic surgical products, and also
contact lens care products.  The company's products are sold to drug
wholesalers, independent and chain drug stores, pharmacies, optical
store chains, opticians, mass merchandisers, food stores, hospitals,
ambulatory surgery centers and medical practitioners, including
neurologists, dermatologists and plastic surgeons.

AGN - Allergan  $80.83

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-70.00  AGN-TN  OI=49   ASK=$0.45
SELL PUT  AUG-75.00  AGN-TO  OI=295  BID=$1.05
POTENTIAL PROFIT(max)=14% B/E=$74.40

CDWC - CDW Computers  $50.04  *** On The Rebound! ***

CDW Computer Centers (NASDAQ:CDWC) is a direct marketer of various
brands of computers and related technology products and services.
CDW's extensive offering of products, including hardware, software
and accessories, combined with its service offerings, provide
comprehensive solutions for its customers' technology needs.  The
company offers more than 80,000 products, which include a wide
range of product types from manufacturers such as Cisco, Compaq,
Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba, among
others.  The company's value-added services include its ability to
custom-configure multi-branded solutions for its many customers
and offer technical support 24 hours a day, seven days a week.
The company has two main operating segments, corporate, which is
comprised of business customers, but also includes consumers, and
public sector, which is comprised of federal, state and local
government and educational institutions who are served by CDW
Government, a wholly owned subsidiary.

CDWC - CDW Computers  $50.04

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-40.00  DWQ-TH  OI=500   ASK=$0.55
SELL PUT  AUG-45.00  DWQ-TI  OI=1535  BID=$1.10
POTENTIAL PROFIT(max)=14% B/E=$44.40

ICST - Integrated Circuit Sys.  $34.20  *** New Trading Range? ***

Integrated Circuit Systems (NASDAQ:ICST) supplies a broad line
of timing products for use in personal computer motherboards and
peripheral applications.  These silicon timing devices control
multiple processes by providing and synchronizing the timing of
the computer system, including signals from the video screen,
graphics controller, memory, keyboard, microprocessor, drives
and communication ports.  The company also designs, develops and
sells silicon-timing devices for non-PC motherboard applications,
such as digital videodisk players, digital set-top boxes, digital
cameras, laser printers, flat panel displays and digital TVs.  In
addition, it offers surface acoustic wave technology to develop
high-performance products for optical networking and wireless
infrastructure markets.

ICST - Integrated Circuit Sys.  $34.20

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-25.00  IUY-TE  OI=20   ASK=$0.25
SELL PUT  AUG-30.00  IUY-TF  OI=127  BID=$0.65
POTENTIAL PROFIT(max)=9% B/E=$29.55



Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.


The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

KO - Coca-Cola  $43.88  *** Sell-Off In Progress! ***

The Coca-Cola Company (NYSE:KO) is primarily engaged in the
manufacture, distribution and marketing of nonalcoholic beverage
concentrates and syrups in markets across the world.  The firm
manufactures and markets soft drink and noncarbonated beverage
concentrates (sometimes referred to as beverage bases) and syrups,
including fountain syrups.  The firm also manufactures and sells
finished beverages, both carbonated and noncarbonated, including
certain juice and juice-drink products and water products.  In
addition, the firm has ownership interests in numerous bottling
and canning operations, including Coca-Cola Enterprises, Coca-Cola
Hellenic Bottling Company, Coca-Cola Amatil Limited, Panamerican
Beverages, and Coca-Cola FEMSA, S.A. de C.V.

KO - Coca-Cola  $43.88

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 45    KO GI     4,715  0.30  45.30   6.1%   0.7% *
SELL CALL  AUG 45    KO HI    21,265  0.85  45.85   4.0%   1.9% TS

MO - Altria Group  $44.00  *** Legal Woes! ***

Altria Group (NYSE:MO), formerly Philip Morris Companies, is a
holding company and the parent company of Philip Companies.  The
company's wholly owned subsidiaries, Philip Morris USA (PM USA),
Philip Morris International (PMI) and its majority-owned (84.2%)
subsidiary, Kraft Foods (Kraft), are engaged in the manufacture
and sale of various consumer products, including cigarettes,
foods and beverages.  Philip Morris Capital Corporation (PMCC),
another wholly owned subsidiary, is primarily engaged in leasing
activities.  The company's former wholly owned subsidiary, Miller
Brewing Company, was engaged in the manufacture and marketing of
various beer products prior to the merger of Miller into South
African Breweries plc in 2002.

MO - Altria Group  $44.00

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 45    MO GI    15,647  0.60  45.60  11.8%   1.3% *
SELL CALL  AUG 47.5  MO HW     5,490  0.65  48.15   3.6%   1.3% TS
SELL CALL  AUG 45    MO HI     1,741  1.50  46.50   6.8%   3.2%

PPD - Pre-Paid Legal  $24.38  *** Mediocre Quarterly Results! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.

PPD - Pre-Paid Legal  $24.38

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  JUL 25    PPD GE    1,033  0.40  25.40  14.2%   1.6%
SELL CALL  AUG 27.5  PPD HY      863  0.60  28.10   6.8%   2.1% *
SELL CALL  AUG 25    PPD HE      876  1.35  26.35  10.6%   5.1%



All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

ATK - Alliant Techsystems  $51.36  *** Trading Range? ***

Alliant Techsystems (NYSE:ATK) is a supplier of aerospace and
defense products to the U.S. government, America's allies and
major prime contractors.  ATK also is a supplier of ammunition
to federal and local law enforcement agencies and commercial
markets.  ATK designs, develops and produces rocket propulsion
systems for a wide variety of U.S. Government and commercial
applications.  The firm is also the sole supplier of the reusable
solid rocket motors used on NASA's Civil Manned Space Launch
Vehicles.  ATK designs, develops and manufactures small, medium
and large caliber conventional munitions for the U.S. and allied
governments as well as for commercial applications.  The company
manufactures and develops small-caliber ammunition for the U.S.
military and its allies, federal and local law enforcement, and
commercial markets.

ATK - Alliant Techsystems  $51.36

PLAY (very conservative - bearish/credit spread):

BUY  CALL  AUG-60.00  ATK-HL  OI=665  ASK=$0.20
SELL CALL  AUG-55.00  ATK-HK  OI=856  BID=$0.60
POTENTIAL PROFIT(max)=9% B/E=$55.45

LMT - Lockheed Martin  $47.89  *** No Offense In Defense Stocks ***

Lockheed Martin (NYSE:LMT) is a customer-focused, global enterprise
primarily engaged in the research, design, development, manufacture
and integration of advanced technology systems, products and
services for government and commercial customers.  The company's
core business areas are systems integration, aeronautics, space and
technology services.  The company's Systems Integration segment is
engaged in the design, development, integration and production of
electronic systems for undersea, shipboard, land and airborne
applications.  Space Systems is engaged in the design, development,
engineering and production of commercial and military space systems.
Aeronautics designs, researches and develops, produces and supports
combat and air mobility aircraft, surveillance, reconnaissance,
platform systems integration and advanced development programs.
Technology Services provides information management, engineering,
scientific and logistic services.

LMT - Lockheed Martin  $47.89

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-55.00  LMT-HK  OI=169   ASK=$0.20
SELL CALL  AUG-50.00  LMT-HJ  OI=1642  BID=$0.75
POTENTIAL PROFIT(max)=14% B/E=$50.60




Watch List

Mix and Match

Bank of America - BAC - close: 81.85 change: +0.37

WHAT TO WATCH: BAC has earnings on Monday next week so it will be
interesting to watch how shareholders react.  The stock has done
well since its March lows near $65.  The upward trend looks
strong but the stock tends to move somewhat slowly for option
traders.  The recent bounce (today) off previous resistance, now
support, of $80.00 might be worthwhile for an interested bull.



Mercury Interactive - MERQ - close: 43.31 change: +0.23

WHAT TO WATCH: The GSO software index is nearing recent highs and
MERQ is joining the group.  Recent resistance has been just over
$44.00.  A move above $44.25 might be a decent trigger to go
long.  If shares can pierce the $45 level it would be a fresh
triple-top breakout on its P&F chart.  Earnings are July 16th.



H&R Block - HRB - close: 44.49 change: -0.71

WHAT TO WATCH: The next earnings report for HRB is in September.
While this is typically a seasonal play around tax time the stock
has fought back to overhead resistance near $45.  Actually its
$45 to $46 that appears to be the obstacle.  Bullish traders can
look for a confirming breakout or bears can look for a possible
failed rally before evaluating new positions.



General Dynamics - GD - close: 75.13 change: -0.27

WHAT TO WATCH: June was a good month for GD.  Shares broke out
over resistance at $70 and its 200-dma.  Wall Street reacted
favorably to their merger-acquisition of Veridian (VNX) and
shares consolidated slowly back to the $71 level as if
shareholders were loathe to part with their stock.  Now GD has
broken its two-week consolidation pattern and looks ready to
mount a new assault to the $80 mark.  Unfortunately, the $78 may
be tougher resistance than it looks.



St. Jude Medical - STJ - close: 53.25 change: -2.28

WHAT TO WATCH: Some negative comments from SG Cowen on STJ's ICD
market started the week off on the wrong foot.   Both Monday and
Wednesday (today) has seen very strong volume declines.  Today's
decline confirmed the breakdown under the rising 50-dma and broke
the $55 level as support.  Bears need to watch for support at
$52.50 (lots of congestion there from late April-early May) and
the $50.00 mark, which was overhead resistance from late March
through the first half of April.  Earnings are expected on July


RADAR SCREEN - more stocks to watch:

VRSN $15.60 - Bullish traders can target a move over $16.16 or a
bounce from $15.00 as potential entries for new long positions.

KSS $54.00 - Kohl's has rallied right back to the top of its
descending channel and overhead resistance at its 200-dma.  Bulls
can wait for a breakout while aggressive bears can show the
failed rally today.  Otherwise, look for a move back under the


Testing Trendlines

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