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Daily Newsletter, Thursday, 07/10/2003

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The Option Investor Newsletter                Thursday 07-10-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: No Recovery, No Kidding
Futures Markets: Selloff
Index Trader Wrap: (See Note)
Market Sentiment: Trend change
Weekly Manager Microscope: Don & Craig Hodges: Hodges Fund (HDPMX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-10-2003           High     Low     Volume Advance/Decline
DJIA     9036.04 -120.20  9154.53  8996.76 1.78 bln    916/2273
NASDAQ   1715.86 - 31.60  1735.13  1707.49 1.72 bln   1090/2132
S&P 100   497.09 -  6.54   503.63   494.38   Totals   2006/4405
S&P 500   988.70 - 13.51  1002.21   983.63
W5000    9523.27 -129.40  9652.71  9480.09
RUS 2000  469.03 -  7.96   476.99   467.61
DJ TRANS 2538.45 - 24.00  2561.94  2529.26
VIX        21.53 +  0.50    22.30    21.34
VXN        33.66 +  0.44    34.55    33.00
Total Volume 3,779M
Total UpVol    656M
Total DnVol  3,072M
52wk Highs  528
52wk Lows    20
TRIN       1.88
PUT/CALL   0.73
************************************************************

No Recovery, No Kidding

The market lost ground today after economic reports and several
corporate executives suggested the recovery may not happen until
2004. Where have I heard that before? Maybe in July 2000, 2001
and 2002. It is the month where expectations meet reality and
for the last three years it has been the blind date from hell.

Dow Chart - Daily



Nasdaq Chart - Daily Bar



Nasdaq Chart - Daily Candle




The string is unbroken at 21 weeks and it does not look like it
will change anytime soon. The Jobless claims soared to 439,000,
+14,000 over consensus estimates and last week's number was
revised up to 434,000. Continuing claims rose to 3.82 million
and a level not seen since the early 1980s. This 20-year high
was not received well by Wall Street. The insured jobless rate
rose to 3.0%. Analysts trumpeted their seasonality claim for the
increase this week. They have been trying to find an excuse for
each of the last 21 weeks to no avail as the numbers continue to
disappoint each week. This is also setting up another negative
number in the Jobs Report for July. The lack of a recovery is
being shown in the lack of jobs and the continued layoffs by
companies still trying to cut costs from lack of demand.

Chain Store Sales showed a slight improvement of +2.4% but the
gains were not broad based. WMT sales rose +2.7% but TGT only
gained +0.8%, JCP +0.1% and KSS fell -2.4%. Several retailers
issued profit warnings today after a lackluster month. The survey
showed that most gains came from heavy promotional selling with
high discounts which could hurt the bottom line as we saw with
the earnings warnings. Additionally much of the sales gains came
from the Harry Potter book and several new video releases. Those
are one time events, not month to month improvements in general
volume. Barnes and Noble said half of their +10.5% sales increase
was due to the Potter book. Most retailers said their inventories
are above plan which means they have not sold as much as expected
and that old inventory will have to be heavily discounted to make
way for the fall merchandise. Tax rebate checks and lower tax
withholding beginning in July should help retailers get rid of
the excess inventory but unemployment is still a problem.

Import/Export prices were about the only friendly report today
with Import prices rising +0.8% and export prices falling by
-0.2%. This is due to falling energy prices and the falling
dollar. Considering the May import number was revised down to
a drop of -0.8% the gain for June only produced a breakeven.
Still the report was seen as evidence that deflation is less
of a problem than earlier thought.

The MAPI Survey today fell to 60 for the 2Q, down from 63 in Q1
and 67 in Q4. The new orders index fell to 53 from 67. While this
still shows growth most would argue that the magnitude of the
drop is significant and could be seen as a warning for Q3. 77%
of the survey participants reported operating under 85% of
manufacturing capacity. The capital-spending component fell to
54 from 62 and indicates the potential for limited spending in
the 3Q. While the overall survey still showed limited growth it
did show that that growth was continuing to slow.

As if these economic reports were not enough we had Greenspan
testifying before Congress on energy prices. The bottom line to
the speech was don't expect them to improve anytime soon and high
energy prices could be detrimental to the potential recovery. The
speech was soft peddled by the press but the outlook was clear.
There is no light at the end of the energy tunnel and the recovery
has one more unexpected obstacle in its path. It was assumed the
soaring energy prices would return to lower levels once the war
was over and Iraq resumed production. After a brief dip to $25
at the end of the war oil has resumed its rise and closed on
Thursday near $31 a barrel.

The earnings parade is beginning and already we have some no shows
and several predictions of negative events ahead. JP Morgan said
the semiconductor sector was "rich" and warned that they were ripe
for the traditional summer drop. They fear the guidance from semis
for the 3Q could disappoint. Cisco CEO John Chambers said in Europe
on Wednesday that he saw a pickup in IT spending 2-4 months AFTER
any pickup in the economy. Assuming the economy picked up in the
3Q, not likely since it is traditionally the weakest quarter of
the year, then the IT spending would not occur until December or
sometime in early 2004. If the recovery does not appear until
the 4Q then IT spending would be late Q1-2004 or later. Intel
CEO Craig Barrett said today that he expects growth in the
semiconductor sector to slow several percentage points. Not a good
indication for their earnings guidance next week. The President of
UBS said the recovery in the markets exceeded the recovery in the
economy and the current rally did not smell like a new bull market.
This was not the outlook investors were expecting. After all just
a couple weeks ago the number of analysts surveyed by Investors
Intelligence was near 80% and at five-year highs.

The most current barometers for the tech sector were the earnings
by YHOO and JNPR. Both beat the street but both suffered strong
losses in heavy trading. Neither warned but the performance and
guidance was less than investors expected. JNPR said today that
the 3Q would be flat due to seasonal weaknesses. The keywords here
were "seasonal weakness". Investors have been expecting a strong
3Q as the economy begins its recovery. Very few companies have
actually said they were seeing any recovery. Remember, this is
only the first week or earnings and a light week at that.
Investors are now seeing the potential for even more serious
questions next week and are becoming more cautious. On Friday
morning we get GE earnings and while nobody expects them to miss
there are plenty of analysts that think GE will try and talk down
estimates for 2003 AND 2004. GE is very good at spinning their
earnings and I do not expect a major event tomorrow. They
typically dribble out negative comments in measured doses
throughout the quarter it order to manage expectations. Still
most analysts will be using their microscope tomorrow to try
and derive the state of the economy from the GE comments.

The Dow traded below 9000 once again today and well off the highs
from Monday at 9261. The Nasdaq traded down to 1707 and well off
its 1758 high from Wednesday. While the selling was anticipated
I did not think we would see 9000 until next week. The Dow 9000
support level is strong and it withstood a concentrated attack
today. That does not mean it will hold. Remember we traded down
to 8871 just a week ago and could easily return to that level or
lower as the earnings begin to flow. I am not going to repeat the
justifications for my outlook as you will get the expanded and
updated version with this weekends newsletter. Suffice to say
that there is nothing "surprising" in the earnings for investors
to cheer about and the markets are still priced for perfection.
The worry today was that history was repeating itself again. Not
that we would see a dip in July but that the second half recovery
was going to be missing in action for the fourth consecutive year.
To investors that thought is worse than any Freddy Kruger movie
and could be appropriately named "Nightmare on Wall Street
Chapter IV". This week's sneak preview of 2Q earnings was not
met with rave reviews and today traders reviewed their investment
"Matrix" to decide which positions should be "Terminated". The GE
earnings tomorrow will be the last chapter for the week and the
potential for a positive surprise ending is close to zero. With
the flood of mid year retirement cash slowing to a trickle
remember to keep those stops tight if you are long.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Selloff
Jonathan Levinson

Equity futures sold off overnight, and continued throughout the
session until a bounce that began just after 2:30 EST.

150 tick chart of ES3U




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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1006    997    990    981    974
YM03U     9198   9107   9039   8948   8880
NQ03U     1303   1288   1275   1260   1247


10 minute chart of the US Dollar Index




The US Dollar Index sold off again at noon, only this time the
move was more precipitous than yesterday.  The move bottomed at
95.35 before bouncing.  The action spared gold what look to be
decisive break of its 343 support line, while the CRB sold off
more than 2 points to 234.73, with Natural Gas futures leading to
the downside.


Daily chart of August gold




Gold got clocked in early trading today, sinking as low as 340.70
before bouncing to a high of 346 on the August contract, settling
at 345.70 as of this writing.  Unsurprisingly, its jump coincided
with the selloff in the US Dollar Index at noon.  HUI closed up
44 to 151.82, XAU +.24 to 77.50.


Daily chart of the ten year note yield




Treasuries printed a lower high and lower low, still not breaking
the uptrend but bringing the oscillators closer to a sell signal
after its sharp runup.  I believe that we'll see this uptrend
violated, and while the pattern is sloppy, it implies a move to
the low as a potential downside target.  Either way, with the
oscillators positioned as they are on the daily candles for the
TNX above, long yield plays will not be for the faint of heart.
The five year note yield closed lower by 4 basis points to
2.528%, then TNX lower by 2.9 bps to 3.677%, and TYX lower by 0.2
bps after trading in the green for much of the session.

Daily NQ candles




The afternoon bounce did some excellent patchwork on the Nasdaq
futures.  The uptrend wasn't even close to being tested, and
bullish oscillator configuration confirms it.  The only hint of
trouble in paradise, other than today's lower high and lower low,
is the beginning of a downtick in the Macd histogram above.

30 minute 20 day chart of the NQ




The bounce was sufficient to turn the oscillators on the 30
minute candles back into upphases, and while the chart remains
open to interpretation pattern-wise, it continues to look like a
downside break out of a bear wedge formation as drawn above.  If
so, the real test will come at the failed trendline above 1300,
27 points north of today's close.

Daily ES candles




The S&P futures did test the daily ascending trendline, and the
bounce was heartening for bulls.  However, cyclically, the
oscillators look far less assertive to the upside than on the NQ
contract, with the MacD looking bearish and the stochastic
hesitating midway through its upphase.  Today saw a considerably
lower low and a lower high.

20 day 30 minute chart of the ES




The bearish ascending wedge breakdown is clearer on the ES, and
the most bullish scenario would have the current bounce continue
to a trendline retest above 1000.  The oscillators flipped to buy
signals on the end-of-day bounce, portending upside for
tomorrow's open, barring any surprises before then.  982 support
held as expected at the 38.2% Fibonacci retracement level.


Daily YM candles





Same picture on the Dow futures as for the ES futures above.

20 day 30 minute chart of the YM




Today's session qualifies as a correction within an uptrend for
the equity futures, but a failure at ES 982 and YM 8970 would
have put that in jeopardy for bulls.  The NQ remains in a world
of its own due to the spectacular buying it's seen over the past
weeks.

We saw treasuries trade modestly higher and equities trade lower,
giving the asset-allocation theorists another session's worth of
confirmation.  I noted in the Market Monitor at several points
that the thirty year yield was in the green, and it closed lower
by a mere 0.2 of a basis point.  Given the Fed's repo drain of
3.25B today, I'm not surprised by either the selling in the
thirties or the selling in equities.

For tomorrow, we'll watch to see how far the bounce predicted by
the oscillators on the 30 minute ES, NQ and YM charts takes us.
An early failure of the bounce should target a fresh trendline
retest for ES and YM.  See you at the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_071003_1.asp


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

Trend change
Jonathan Levinson

"Catching the turns" is one of the most valuable, and possibly
the most dangerous activities in which traders engage.  Trying to
"catch a falling knife" is a well-worn and appropriate clichi.
Nevertheless, reward rarely comes without risk, and for traders,
managing that risk against anticipated rewards is the name of the
game.

We've been watching countless breadth and price oscillators and
indices set records and remain in territory usually associated
with market tops, with numerous false signals during the past
weeks.  Although much of this data based on today's closing
values has yet to be released, today's tape felt reminiscent of
last summer's, indicating a possible trend change.  The short
cycle stochastics and MACD had very little price traction to the
upside, and price rolled over to new lows for most of the
downphases.

Without seeing the updated bullish percents and breadth indices,
I can tell that today's downside break represented a different
trend than that which brought the indices to their highs
yesterday, based solely on the action of the oscillators.
Despite the bounce off the lows in the late afternoon, the
indices all printed lower highs and lower lows.  Note further
that the Nasdaq futures, which led this leg of the rally to the
upside, underperformed both the Dow and S&P futures today.

In planning your trades, allow your market bias to follow the
trend, and let the data guide your trading style.  And when it
feels wrong or you feel confused, wait until you're not before
jumping in.


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

Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9036

Moving Averages:
(Simple)

 10-dma: 9094
 50-dma: 8890
200-dma: 8412



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  988

Moving Averages:
(Simple)

 10-dma:  990
 50-dma:  966
200-dma:  897



Nasdaq-100 ($NDX)

52-week High: 1307
52-week Low :  795
Current     : 1268

Moving Averages:
(Simple)

 10-dma: 1246
 50-dma: 1190
200-dma: 1055



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


While we're finally starting to see some (small) gains in the
volatility indices but they continue to remain way too low.  Frankly
their lack of reaction to the weakness today does not denote much
fear in the markets at all.  Oddly, the VIX is struggling with
overhead resistance at its simple 50-dma but I doubt there is
much significance in that observation.

CBOE Market Volatility Index (VIX) = 21.53 +0.50
Nasdaq-100 Volatility Index  (VXN) = 33.66 +0.44

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.73        626,187       457,730
Equity Only    0.65        478,079       309,311
OEX            0.75         34,660        26,037
QQQ            3.28         25,446        83,353

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

Bullish Percent Data

           Current   Change   Status
NYSE          72.6    + 0     Bull Confirmed
NASDAQ-100    80.0    + 1     Bull Correction
Dow Indust.   86.6    + 0     Bull Confirmed
S&P 500       79.0    + 0     Bull Confirmed
S&P 100       83.0    + 0     Bull Confirmed


Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.25
10-Day Arms Index  1.19
21-Day Arms Index  1.20
55-Day Arms Index  1.15


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers     795      1012
Decliners    2035      2055

New Highs     145       267
New Lows       18         8

Up Volume    320M      290M
Down Vol.   1438M     1400M

Total Vol.  1764M     1714M

M = millions


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

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 MANAGER MICROSCOPE
*************************

Don & Craig Hodges: Hodges Fund (HDPMX)

Donald W. Hodges and Craig D. Hodges are co-portfolio managers of
the Hodges Fund, a $24 million "non-diversified" U.S. equity fund
that has been performing very well in 2003.  Through July 3, 2003
the fund is up 43.4%, ranking in the top 1% of the mid-cap growth
category per Morningstar.  The fund's 43.4% return this year also
leads the S&P 500 index by a healthy margin (+12.7% vs. S&P 500).





The fund's YTD return of 43.4% also looks good relative to its
Lipper peer group average (in this case, multi-cap core funds).
According to Lipper, the fund's YTD return through July 3, 2003
is 13.3% above the peer group average, for a Lipper YTD ranking
of A.

This non-diversified stock fund isn't limited to one particular
area of the market.  The Hodges Fund implements a unique equity
strategy that balances investments in core-growth companies and
contrarian-type stocks as well as momentum-type stocks.  Though
the Hodges Fund is put in the mid-cap range by Morningstar based
on its average market capitalization ($1 billion), the fund's co-
managers seek out value and growth opportunities in all "capital"
sectors.

Don Hodges is president of Hodges Capital Management, Inc., the
fund's advisor.  Before launching his own asset management firm,
he was president of a large regional securities firm.  Don's bio
says that he has 42 years of investment industry experience, and
uses his seasoned judgment to spot true value.  He has been lead
manager of the Hodges Fund since its October 1992 inception date.

According to the Hodges Fund website, Craig Hodges brings a knack
for timing.  Craig is a senior vice president with Hodges Capital
Management.  His bio indicates that he has 16 years of experience
including management of both retail and institutional investment
portfolios.  Craig has co-managed the Hodges Fund since April 20,
1999.

The Hodges Fund has a low minimum initial investment of $250 for
both regular and IRA accounts, and is offered by some of the NTF
networks, including Accutrade NTF and E*Trade NTF.  For complete
fund information or to D/L a prospectus, go to the Hodges website
at www.hodgesfund.com.

Management Style/Strategy

Don and Craig Hodges seek growth of capital over the long run and
gear their non-diversified equity fund to the "serious" investor.
Stock investments will typically be made in one of four "capital"
sectors (large-cap, mid-cap, small-cap, and micro-cap).  At March
31, the portfolio had an average market capitalization of roughly
$1 billion, landing it in the Morningstar mid-cap range, but fund
holdings were actually spread across all cap ranges.

At the end of the first quarter, this portfolio had nearly 25% of
stock assets invested in giant/large-cap stocks.  Another 38% was
invested in mid/small-cap stocks, with the remaining 37% of stock
assets invested in the micro-cap range.  In equity selection, Don
and Craig Hodges seek to implement an investment strategy, which
balances core growth companies, contrarian type stocks currently
out-of-favor, and "momentum" holdings.   Momentum companies and
industries represent unusual "market interest" and "appreciation
potential" they say.

Some portfolio holdings are held for an extended period of time,
while other investments may be held for only a short-term period.
According to Morningstar's report (3/31/03 data), the Hodges Fund
had 35 stock holdings and an annual turnover rate of 132%.  So it
turns over the portfolio roughly every 9-10 months, an indication
of a more near-sighted perspective.  Top holdings as of March 31,
2003 were Dwyer Group (8.5% of assets), Corrections Corp (6.8% of
assets), and Pre-Paid Legal Services (6.7% of assets).

Investment Performance

According to Morningstar, the Hodges Fund's long-term performance
and risk have been "average" relative to its category peer group
(mid-cap growth funds).  While the fund's trailing 10-year annual
average return of 8.7% through June 30, 2003 lagged the S&P large
cap index by an average of 1.4% per year, it outpaced the Russell
Midcap Growth Index by 0.2% a year over the same period.

For the trailing 5-year period thru July 3, 2003, the Hodges Fund
produced a negative 0.1% annualized total return for shareholders
versus a 1.6% annual-equivalent decline by the S&P 500 index.  So
it has limited losses relative to the large-cap equity index over
the past five years, through a turbulent period for momentum-type
stocks.

The fund's trailing 3-year annualized loss of 3.6% is much better
than the S&P 500's 11.2% average annual decline.  And, its 1-year
total return of 26.7% through July 3rd tops the S&P 500 by 21.5%,
ranking the Hodges Fund in the top 2% of the Morningstar "mid-cap
growth" category.

A look at year-to-year performance shows that returns have been a
little inconsistent.  In 1996 and 1997, the fund's annual returns
ranked in the mid-growth category's top decile.  In 1999 and 2000
however, the Hodges Fund ranked in the bottom decile of the group
per Morningstar.  The Hodges portfolio bounced back in 2001 for a
positive total return of 11.2%, ranking in the category's top 1%.

The fund's year-to-date return of 43.4% ranks in the top 1% again
within the mid-growth category.  Lipper awards the Hodges Fund an
"A" YTD ranking relative to multi-cap core funds, its Lipper peer
group.

Conclusion

With portfolio holdings rapidly changing, it is hard to pin this
fund down in terms of capitalization ranges and value and growth
characteristics.  Its non-diversified fund status allows Don and
Craig Hodges to invest a higher percentage of assets in favorite
stocks.  But with a turnover ratio of 132%, you won't likely see
the same names in the portfolio a year from now.

The fund's focused approach means returns can be hit or miss and
the year-to-year returns support that notion.  In some years the
Hodges Fund is in the top decile of its Morningstar category and
in some years the fund ranks in the category's bottom decile for
performance.  Although Hodges Fund is up 43.4% thus far in 2003,
long-term investors may want to focus more on the fund's returns
and volatility over the long term.

For further information or to download a prospectus, log on to
the www.hodgesfund.com website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 07-10-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ABC, PGR
Dropped Puts: None
Call Play Updates: AGN, AMGN, DGX, EBAY, GS, HAR, PCAR, PHM
New Calls Plays: None
Put Play Updates: BLL, INTU, SIVB, WFMI
New Put Plays: BVF, HD


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

AmerisourceBergen - ABC - cls: 69.02 change:-2.04 stop: 69.95

Hindsight being 20/20, it is now perfectly clear that last week's
breakout over $70 was a bull trap.  Well to be perfectly fair, we
won't know that for certain until the stock breaks below strong
support near $67.75, but after trading over $73 earlier this
week, the sharp slide lower on expanding volume the past few days
is very discouraging.  Adding insult to injury, the stock broke
below its 20-dma ($69.56) this morning and couldn't mount even a
feeble bounce off its lows near $69.  With daily Stochastics in
full bearish roll, support broken and our stop violated, there
just isn't much positive to say.  A rebound from here should be
viewed as an opportunity to exit open positions at a more
favorable level, not a justification for new entries.

Picked on June 26th at     $70.00
Change since picked:        -0.98
Earnings Date             07/24/03 (confirmed)
Average Daily Volume =    1.45 mln
Chart =


---

Progressive Corp. - PGR - cls: 73.30 chng: -1.15 stop: 73.25

The relative strength that first drew us to our bullish play on
PGR seems to have waned significantly this week, as the stock
first put in a lower high just below $76 on Monday and then today
broke below the bottom of the channel that has been providing
support for more than 3 months.  The stock gapped below that
lower channel line this morning, then headed straight south, not
pausing until hitting its intraday low of $72.60.  That was just
above the intraday lows seen on the first of July, but this time,
the channel support is gone.  That makes today's afternoon
rebound suspect and despite the close a nickel over our stop,
we're going to err on the side of caution, dropping the play
before things get worse.  Traders still holding open positions
should use a rebound to the $74 area as an opportunity to gain a
more favorable exit.  PGR's relative strength and supporting
price pattern have all but disappeared and that should be taken
as a big warning to the bulls.

Picked on June 15th a  $73.27
Change since picked:    +0.03
Earnings Date        07/16/03 (confirmed)
Average Daily Volume =  902 K
Chart =



PUTS:
*****

None


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

Allergan, Inc. - AGN - close: 79.76 change: -1.07 stop: 78.50

As strong as AGN was looking on Tuesday with that impressive
intraday rebound from the $80 level, the stock just couldn't buck
the trend in the broad markets over the past couple sessions.
After a second rejection from the $81.50 resistance level and
today's close back under $80, traders should be concerned that
AGN may have put in a top.  But then there's the solid rebound
from the day's lows -- that rebound came right at the converged
10-dma and 20-dma just over $79 and it is good to see that former
resistance now apparently serving as support.  Traders looking
for new entries may have gotten just what they were looking for
with today's rebound from the $79 level, which is just
fractionally above our $78.50 stop.  Upward continuation heading
into the weekend will confirm that today's rebound was the solid
entry point that we think it was.  At this point, those looking
for a momentum entry will just have to wait for AGN to break out
over $81.70, which is just over this week's intraday highs.
Above that level, look for next resistance in the $84-85 area,
where we would recommend exiting the play.

Picked on June 26th at     $78.74
Change since picked:        +1.02
Earnings Date             07/23/03 (confirmed)
Average Daily Volume =    1.08 mln
Chart link:


---

Amgen, Inc. - AMGN - close: 69.51 change: -0.44 stop: 67.50

Despite our concerns that AMGN's strong breakout through $67.50
resistance and trade above $70 would be followed by a swift bout
of profit taking, it just hasn't happened.  Even with the
Biotechnology index putting in a lower high and starting to
weaken again on Thursday, AMGN has been holding tough near its
recent highs and showing very little sign of wanting to fill in
the range between its breakout level and yesterday's intraday
high of $70.40.  Be that as it may, we're still expecting more
weakness from the stock and as a way to protect ourselves in case
that weakness gets carried away, we've gotten more aggressive
with our stop, lifting it to $67.50, which is currently right at
the 10-dma.  We're still not interested in new entries near
current levels.  If the stock pulls back to give us a bounce from
above $68, then that can be used for new entries into the play.
With our defined exit target at $72, there just doesn't seem to
be enough reward in momentum entries at this point, so we'll
leave that strategy alone.  We're most of the way to our goal, so
clearly the lion's share of our efforts should now be focused on
maximizing our gains.

Picked on June 24th at     $65.05
Change since picked:        +4.46
Earnings Date             07/22/03 (confirmed)
Average Daily Volume =   9.99 mln
Chart link:


---

Quest Diagnostics - DGX - cls: 67.65 chng: -0.82 stop: 64.75*new*

The past couple days may have inflicted some severe damage in
other areas of the market, but select medical-related stocks are
actually holding up fairly well.  That's certainly been the case
with DGX, as the stock built on Monday's strong breakout,
stretching briefly above $69 yesterday before falling a bit under
the weight of the broad market weakness.  That weakness seemed to
grip the stock at the open today and the stock fell back to just
above $67 early in the day, where it spent the remainder of the
day consolidating in a tight range.  It certainly wouldn't be
surprising to see a bit more weakness, with DGX coming back to
confirm new-found support in the $65.50-66.00 area (near the 10-
dma at $65.69) before continuing higher.  Recall that this was
the top of the bullish wedge pattern from which the stock broke
on Monday and it would make sense to test that breakout level
before continuing the bullish trend that has been building for
the past 4 months.  Traders still looking for an entry will want
to target a dip and rebound from that $65.50-66.00 area, looking
for an upside target of $74 after the bulls manage to scale
intermediate resistance first at $70 and then $72.  Move stops up
slightly to $64.75 tonight.

Picked on July 1st at     $65.78
Change since picked:       +1.87
Earnings Date           07/22/03 (unconfirmed)
Average Daily Volume =     905 K
Chart link:


---

eBay Inc - EBAY - close: 112.08 change: -2.76 stop: 109.00

The reaction to Yahoo's earnings news last night turned out to be
a good excuse to take profits across the Internet sector as a
whole.  YHOO met the estimates of 8 cents with revenues rising
more than 42% year over year.  Whisper numbers were about 9
cents.  The company seemed to give an upbeat conference call for
the rest of the year but suddenly everyone seemed to care about
YHOO's valuations, when it didn't matter a week ago.  Valuation
arguments could have been bad news for EBAY (with a P/E of 114),
who is in a much stronger position and business model than YHOO's
but amazingly enough, shares of EBAY dropped less than 2.5% in
today's pull back.  The auction giant gapped down and traded to a
low of $111.66, remaining above what we see as new psychological
support of 110.  With the market in pull back mode, bulls might
be looking for the right dip to jump on the EBAY train.  The
challenge, as always, is picking that critical entry point.  We
would remain cautious as EBAY's earnings are just 12 days away.
Conservative traders with winning positions who have not chosen
to take profits might do well to consider that idea now.  Tighter
stops near $110 or even $111 are not bad choices either.  Our
stop remains at $109.

Ebay in the news: You may have heard that Warren Buffet is
auctioning a lunch in New York for you and seven of your friends
on EBAY.  The bidding started at $10,000 and ends in less than 6
hours from now.  What is amazing is that in the last 20 minutes
we've seen the bidding jump $35K to more than $175,000.  Buffet
will be donating all proceeds to the GLIDE charity.  You can view
the auction here:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=2543576557&category=26261

Picked on June 27th at $104.05
Change since picked:     +8.03
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume =    6.76 million
Chart link:


----

Goldman Sachs Grp. - GS - cls: 86.55 chng: -1.68 stop: 84.50

With the broad market taking another shellacking on Thursday and
the Brokerage index (XBD.X) getting hit for a 3% loss, suddenly
the 1.9% slide in GS doesn't look so bad.  There's no question we
would have liked to see the stock just build on its gains above
the $88 level heading into the weekend, but that wasn't the hand
we were dealt.  Today's sharp pullback looks to have Monday's gap
in play as the next likely level of support.  Depending on the
bullish conviction in the rest of the Brokerage sector, that
means we'll be wanting to look for the next rebound to occur
either from the top of the gap ($85.70) or on a complete gap fill
down at $84.88.  In either case, if our bullish objective for a
return to the $91-92 area that provided resistance in mid-June,
we'll need to see GS observe what should be strong support above
$84.75.  Maintain stops at $84.50 in case that support fails.

Picked on July 1st at      $85.85
Change since picked:        +0.70
Earnings Date             09/24/03 (unconfirmed)
Average Daily Volume =    4.38 mln
Chart link:


---

Harman Intl - HAR - close: 80.60 change: -1.18 stop: 77.75

Essentially shares of HAR continue to demonstrate their strength.
Despite a broad-market pull back and news that HAR has acquired
another company the share price remained above the $80.00 level.
The company announced late this afternoon that Harman would be
acquiring Wavemakers, Inc.  Wavemakers is a "leading developer of
processors and software algorithms which optimize voice quality
and speech recognition in automotive environments", according to
the press release.  There was no comment as to the purchase price
or how it would affect HAR's earnings.  This pull back to $80
looks like a tempting entry point for new call positions however
it may be best to wait and watch the broader markets for new
strength.  Even the strongest stocks can go south when the
markets are falling.  Should HAR fall below the $80 mark, we'll
be looking for a bounce in the $78.50 to $79 area.

Picked on July  6th at $80.26
Change since picked:    -0.20
Earnings Date        08/19/03 (unconfirmed)
Average Daily Volume =    321 thousand
Chart link:


---

PACCAR Inc. - PCAR - close: 71.34 change: -0.72 stop: 69.00

Our recently added long play in PCAR is holding up rather well
with the NASDAQ down 1.8% and the Industrials down 120 points.
PCAR has slipped back towards the $70.00 level and may still slip
even closer but doing so only allows us a better entry point for
new long plays.  We suggested that our preferred entry would be
on a dip near the $70 level.  The question now is whether or not
the markets rebound tomorrow or continue sinking and if they sink
will PCAR draw even closer to $70?  There is no reason to rush
into a play.  Traders are better off waiting to see how the
market reacts to the PPI data and GE's earnings tomorrow and then
gauge an entry in PCAR.  Waiting till Monday isn't a bad idea
either if you're playing August options as you'll avoid two days
worth of time decay.

Picked on July 08 at $73.49
Change since picked:  -2.15
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.24 million
Chart =


---

Pulte Homes - PHM - close: 62.26 change: -1.75 stop: 60.50

Danger signs are flashing as we look at the homebuilding group.
The DJUSHB home construction index has rolled over from the 460
level and the close under 450 is a psychological breakdown.
Pundits are calling Thursday's market decline a round of profit
taking.  If investors are going to sell their winners to take
some money off the table, then the homebuilders are a prime
target!   Today's break under PHM's simple 50-dma is not a good
sign for bulls either.  We would not recommend new long positions
at this time and conservative traders may want to snug up their
stops tighter than our $60.50 stop.  We did find it interesting
that investors appeared to ignore the news out today that PHM
would be awarded $48.7 million from the U.S. in a breach of
contract dispute with the government.  Maybe it's because PHM was
denied its claim for lost profits during the breach of contract.

Picked on July 01 at $63.52
Change since picked:  -1.26
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:   767 thousand
Chart =



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

None


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

Ball Corp. - BLL - close: 44.10 change: -0.60 stop: 47.00*new*

Talk about your fortuitous timing!  We added bearish coverage on
BLL on Tuesday, based primarily on the stock's extended and
consistent downward trend over the past couple months.  Well that
trend hasn't come to an end just yet, as the broad market
weakness over the past couple days has only added more weight for
the bulls to bear.  Yesterday's opening pop fell short of the $46
resistance and provided a decent opportunity for a fairly low-
risk entry.  We were hoping for something in the $46-47 area, but
clearly that just wasn't offered.  Following through to the
downside on Thursday, BLL broke to new 11-month lows before
finding support just above $43 and bouncing smartly through the
afternoon session.  Now we know where that support lies and
traders looking for another viable entry will do well to target
failed rallies below yesterday's opening highs.  Looking at an
intraday chart, it looks like resistance is likely to be strong
in the $45-46 area, so that is the place to focus our efforts on
new entries.  Momentum traders will likely want to play
cautiously after today's rebound from the lower Bollinger band.
Selling into the failed rallies is a safer way to go right now.
Note that we've slightly lowered our stop to $47, which is right
on the 30-dma and just above what should now be very strong
resistance.

Picked on July 8th at    $45.14
Change since picked:      -1.04
Earnings Date          07/24/03 (confirmed)
Average Daily Volume =    606 K
Chart =


---

Intuit Inc - INTU - close: 43.16 change: -1.21 stop: 45.55

Under-performing is the kind of action we like to see in a put
play.  The NASDAQ lost 1.8 percent, the GSO software index lost
2.15 percent and INTU lost 2.7 percent in today's sell-off.
Resistance for the stock at $45.50 has held and today marks the
first close under the simple 50-dma since late May 2003.  All we
can say is so far so good.

Picked on July 8th at $43.35
Change since picked:   -0.19
Earnings Date       08/13/03 (unconfirmed)
Average Daily Volume =   4.1 million
Chart link:


---

Silicon Valley Bancshares - SIVB - close: 23.61 change: -0.92 stop: 24.90

Is it going to be different this time?  SIVB has certainly given
us more than its fair share of whipsaw moves and the past two
days are just the latest example.  The stock continued to see
fairly strong buying volume as it vaulted yesterday to its
highest close since breaking down on June 23rd.  That bullish
action was then promptly reversed today, with the stock sliding
lower by 3.75% to end just above what has been rather solid
intraday support near $23.45.  Daily oscillators are trying to
tip bearish and with the sharp reversal from the site of the 20-
dma (currently $24.48), it looks like this may be the bearish
move that finally sticks.  Aggressive traders got their entry
opportunity as the stock rolled back under $24.50 this morning
and then next likely place to enter the play will be on a break
below $23.45, just below the intraday lows of the past several
sessions.  There is likely to be some support found again in the
$22.50 area, but once below the 6/25 low of $22.30, SIVB will be
well on its way to achieving our ultimate target of $20, which
would be a fill of the mid-April gap.

Picked on June 24th at   $22.82
Change since picked:      +0.79
Earnings Date          07/17/03 (unconfirmed)
Average Daily Volume =    717 K
Chart =


---

Whole Foods - WFMI - cls: 47.07 chg: -0.24 stop: 48.26

The decline in WFMI, while apparently disconnected from the
market's big drop today, is still slow and sure.  Shares had
rallied back to the $48 level on Wednesday but failed intraday to
close off its highs.  Today's drop, while rather mild continues
to support the bearish trend.  There's been little price moving
news for WFMI but S&P did recently release some comments on
grocers KR, SWY and ABS.  KR got an credit upgrade while ABS was
downgraded.  Meanwhile the slow crawl we're seeing in WFMI is
turning us off to adding new positions, especially with support
right there at $45.00.  If WFMI can reach $45 we'll probably
close the play.

Picked on June 13 at $49.44
Change since picked:  -2.37
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

Biovail Corp - BVF - close: 44.01 change: -2.07 stop: 46.01

Company Description:
Biovail Corporation is an international full-service
pharmaceutical company, engaged in the formulation, clinical
testing, registration, manufacture, sale and promotion of
pharmaceutical products utilizing advanced drug delivery
technologies. (source: company press release)

Why We Like It:
Investors have forgiven BVF after its latest earnings report.
Late April the company reported 39 cents a share, a penny ahead
of estimates on Q1 revenue of $191 million, which was a 23%
improvement.  Despite the positive numbers, traders hammered BVF
with losses and eventually the stock fell from $42 to $35 in
three days time.  But this was before the BTK biotech index
rallied 20 percent in the month of May.  BVF bounced strongly as
investors perceived it at a discount and the stock added more
than 30 percent during the month.  The rally for both continued
into early June before the sector saw some profit taking.  BVF
held up pretty well.

But now the stock market is pulling back a little and investors
are taking some money off the table.  Quarterly winners are being
hit first and BVF is on the list.  June was a month of
consolidation with lower highs and support at $45.  That support
and its simple 50-dma broke down today on strong volume of 2.8
million shares.  We suspect this technical breakdown will afford
bears a chance to play a pull back to the $40.00 level of
support.  Our view is supported by the P&F chart which shows a
fresh triple-bottom breakdown sell signal and bullish support at
$39.  We're going to suggest new positions at current levels with
a profit target of $40.00.  Our initial stop loss will be $46.01.

Keep in mind there is ALWAYS headline risk when trading a drug or
biotech stock.  BVF has issued its share of press releases and
news headlines but the chart is pointing to some short-term
weakness.

Suggested Options:
We're going to list August and October strikes with 45s and 40s
as our preference.

BUY PUT AUG 45 BVF-TI OI=1959 at $3.50 SL=1.75
BUY PUT AUG 40 BVF-TH OI= 625 at $1.45 SL=0.75
BUY PUT OCT 45 BVF-VI OI= 797 at $4.80 SL=2.50
BUY PUT OCT 40 BVF-VH OI=2778 at $2.75 SL=1.40

Annotated Chart:




Picked on July 10 at $44.01
Change since picked:  -0.00
Earnings Date      07/29/03 (unconfirmed)
Average Daily Volume:  1.95 million
Chart =


---

The Home Depot - HD - close: 32.43 change: -1.06 stop: 34.75

Company Description:
A home improvement retailer, The Home Depot operates more than
1500 stores throughout the United States.  The do-it-yourself
warehouse retail stores offer building materials, home
improvement products and related furnishings.  Additionally, the
company provides lawn and garden products and an assortment of
services to both individual home-owners and independent
contractors.

Why we like it:
While HD has been riding the Housing boom higher throughout the
past few months, we've had our eye on the stock for a few weeks
now, looking for a solid bearish setup.  The early signs of the
weakness we wanted to see arrived in late June when the stock
broke below the bottom of its multi-month ascending channel near
$32.50 at the time.  Over the past couple weeks, HD has been
working its way higher, right along the underside of that very
same channel and on Tuesday the stock broke back inside that
channel, ending just fractionally below $35.  The intraday high
is important, as it was $34.70, just 2-cents below the 6/16
intraday high.  Fast forward to today's session and we can see
the stock has had a powerful reversal from that double top, and
volume has been expanding significantly running 20% above the
ADV.  To what can we attribute this recent bout of weakness?
Perhaps it is as simple as some heavy profit taking, or maybe it
is related to the weakness in the Dow Jones Home Construction
index ($DJUSHB).  But the other possibility is that investors are
coming to grips with the reality that there might not be another
wave of refinancing activity and that means less money to do home
improvements, which translates directly into lower profits for
the likes of HD.  So much for the second half recovery!

After such a strong run over the past few months, we don't expect
new lows in HD any time soon.  But the picture is starting to
turn a bit ominous, with the sharp slide of the past two days
putting price right back at major support near $32.  This level
has been providing support since early June, and if it fails (as
we expect), then it could be a quick slide down to the $30 level
and then to our eventual $28 target for a gap fill.  There are a
couple ways to play it at this juncture.  A rebound back near the
$33 area could provide a better entry point, with the 10-dma
($33.22) and 20-dma ($33.15) likely to present a stiff barrier to
any rebound.  However, traders looking for some confirmation
before playing will want to wait for a break below the 50-dma
($31.64) or even $31.50 (just below the 6/23 low) before playing.
Stops should initially be placed at $34.75, which is just above
the double top shown on the chart below.

Suggested Options:
Aggressive short-term traders will want to focus on the July 32
Put, as it will provide the best return for a short-term play.
With July contracts expiring next week though, conservative
traders will want to utilize the August 32 contract, which
provides greater insulation from the spectre of time decay.

BUY PUT JUL-32 HD-SZ OI=4202 at $0.65 SL=0.30
BUY PUT AUG-32 HD-TZ OI=4715 at $1.35 SL=0.75
BUY PUT AUG-30 HD-TF OI=4564 at $0.50 SL=0.25

Annotated Chart of HD:




Picked on July 10th at   $32.43
Change since picked:      +0.00
Earnings Date          08/19/03 (unconfirmed)
Average Daily Volume =  9.61 mln
Chart =



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The Option Investor Newsletter                 Thursday 07-10-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - BVF
Traders Corner: Tell Mom The Babysitter's Not Dead, Just A Little
Pricey


*********************
PLAY OF THE DAY - PUT
*********************

Biovail Corp - BVF - close: 44.01 change: -2.07 stop: 46.01

Company Description:
Biovail Corporation is an international full-service
pharmaceutical company, engaged in the formulation, clinical
testing, registration, manufacture, sale and promotion of
pharmaceutical products utilizing advanced drug delivery
technologies. (source: company press release)

Why We Like It:
Investors have forgiven BVF after its latest earnings report.
Late April the company reported 39 cents a share, a penny ahead
of estimates on Q1 revenue of $191 million, which was a 23%
improvement.  Despite the positive numbers, traders hammered BVF
with losses and eventually the stock fell from $42 to $35 in
three days time.  But this was before the BTK biotech index
rallied 20 percent in the month of May.  BVF bounced strongly as
investors perceived it at a discount and the stock added more
than 30 percent during the month.  The rally for both continued
into early June before the sector saw some profit taking.  BVF
held up pretty well.

But now the stock market is pulling back a little and investors
are taking some money off the table.  Quarterly winners are being
hit first and BVF is on the list.  June was a month of
consolidation with lower highs and support at $45.  That support
and its simple 50-dma broke down today on strong volume of 2.8
million shares.  We suspect this technical breakdown will afford
bears a chance to play a pull back to the $40.00 level of
support.  Our view is supported by the P&F chart which shows a
fresh triple-bottom breakdown sell signal and bullish support at
$39.  We're going to suggest new positions at current levels with
a profit target of $40.00.  Our initial stop loss will be $46.01.

Keep in mind there is ALWAYS headline risk when trading a drug or
biotech stock.  BVF has issued its share of press releases and
news headlines but the chart is pointing to some short-term
weakness.

Suggested Options:
We're going to list August and October strikes with 45s and 40s
as our preference.

BUY PUT AUG 45 BVF-TI OI=1959 at $3.50 SL=1.75
BUY PUT AUG 40 BVF-TH OI= 625 at $1.45 SL=0.75
BUY PUT OCT 45 BVF-VI OI= 797 at $4.80 SL=2.50
BUY PUT OCT 40 BVF-VH OI=2778 at $2.75 SL=1.40

Annotated Chart:




Picked on July 10 at $44.01
Change since picked:  -0.00
Earnings Date      07/29/03 (unconfirmed)
Average Daily Volume:  1.95 million
Chart =



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

Tell Mom The Babysitter's Not Dead, Just A Little Pricey

By Mike Parnos, Investing With Attitude

I suppose some traders (even CPTI traders) may actually have to
work.  Not all traders have the luxury of sitting in their Fruit-
Of-The-Looms on a cushy sofa in front of their digital TV.  I know
it's the ultimate goal, but, for the time being, we must
persevere.  Eureka!! We may have discovered a solution for the
"absentee" trader – a "trade-sitter."

An Opportunity Is A Terrible Thing To Waste
A lot can, and does, happen in the markets during trading hours.
There are breakouts and spike downs.  Even though CPTI strategies
are largely "hands-off" strategies, sometimes there will be intra-
day moves or opening gaps that provide entry and exit
opportunities.  When they're gone, they're gone.

In the past, I've preached about using brokers that offer online
trading with the capabilities of electronically sending your
orders to the exchange with the best bid or ask.   Many of these
offer commissions of under $20 for a 10-contract position.

That's all well and good if you're near your computer, have the
knowledge, the awareness, and the discipline to make your trades.
If not, you're S.O.L. – or, at least you used to be.

Babysitters Don't Come Cheap
A few weeks ago I related a story about Joe Krutsinger who offered
to charge those in his audience $75 for a system stock trade --
$15 for the actual trade and $60 for the discipline to pull the
trigger.  There may be an alternative.

For those who are not available to monitor your trades or lack the
discipline to execute, you might consider OneStopOptions.  These
are LIVE brokers.  At least the one that I talked to, Alan
Knuckman, seemed to be alive.  He seems like a pretty sharp guy.
He assured me that his associate, Andy Aronson, was as well.  They
both also have a comprehensive knowledge of option trading –
including the many strategies we discuss at the CPTI.  As a matter
of fact, these guys probably have more experience with options
than I do. (They're not nearly as funny, though.)

Alan Knuckman explained that OneStopOption clients can call him,
or Andy Aronson, with specific questions at any time.  He also
said that OptionInvestor (and, of course, CPTI students) can
arrange for him to place their orders.   If you choose to place
trades discussed in my columns, they have a program called
"Autotrade."  They're also Licensed Option Principals.  I'm not
sure what that means.  Maybe they wear little tags or something,
but it's supposed to be a good thing.

You can give them the parameters of your trade and they'll execute
stop orders and OCO (one cancels the other) order.  They will
provide the discipline you may not have along with the account
supervision to take advantage of opportunities that present
themselves.

Keep in mind that a good babysitter doesn't come cheap.  Neither
does a knowledgeable broker who will do all the work for you –
including some teaching.  If you want your money supervised by
people who care, you'll need to ante up.   It's about $5 per
contract, but it's worth it, considering the alternatives.
Actually, it should also provide you with some peace of mind –
knowing that you have a solid resource at your disposal to answer
your questions about strategies – especially those "what if"
questions.

OneStopOptions can be contacted by calling 888-281-9569 or go to
their website at (what a surprise) www.OneStopOption.com.  Contact
them and see if you like what they have to say.  You have nothing
to lose.
_____________________________________________________________

Our Adjustment
In case you missed our "Position Adjustment" on Monday, here's a
brief recap of what we did with the QQQ Baby Strangle position.

On Monday, we got the move we were looking for.  The QQQs, along
with the rest of the market, took off and never looked back (but
it will, hopefully).  We sold the July $28 call at $3.80.  That
means we still own the July $30 put at a cost of only $.05.  Now,
we still have seven trading days for it to reverse and head back
down.  Wouldn't it be nice to see the market give back three
points?  Since the market is going up for no apparent reason, it
makes sense that it will come back down for the same lack of
reason.  It's that "random walk" or "chaos" thing playing itself
out.  Basically, we have a free trade and seven days to enjoy, and
hopefully profit from, it.

For those who selected the alternative of hanging onto the July
$28 call, the QQQs continued its move up and traded as high as
$4.40 before the market started to retreat.  That would have been
a $.60 profit plus what was leftover in value of the $30 put.

_____________________________________________________________

JULY CPTI PORTFOLIO POSITIONS

July Position #1 – LLTC Baby Condor – Closed at $35.26
Sell 10 contracts of LLTC July $35 calls @ $1.05
Buy 10 contracts of LLTC July $37.50 calls @ $.45
Net credit is $.60
Sell 10 contracts of LLTC July $30 puts @ $.75
Buy 10 contracts of LLTC July $27.50 puts @ $.40
Net credit is $.35
Total credit of $.95.  Risk is $1.55 ($2.50 - $.95)
Linear Technology (LLTC) was one of our profitable quickies last
month.  We now want to try to establish a slightly longer
relationship.  We've created a maximum profit range of $30 to $35
and a safety range of  $29.05 to $35.95.  Maximum profit is $950.
LLTC is going in the right direction.
_____________________________________________________________

July Position #2 – SPX Iron Condor – Closed at $988.67
Sell 4 contracts of SPX July 940 puts
Buy 4 contracts of SPX July 925 puts
Net credit: $1.50
Sell 4 contracts of SPX July 1025 calls
Buy 4 contracts of SPX July 1040 calls
Net credit: $2.55
Total credit: $4.05.  Risk is $10.95 ($15 - $4.05)
Here we go again.  The range is 940 to 1025.  I'm still
anticipating (what do I know?) that pullback we never really got
in June.  I've reduced the number of contracts to four to reduce
our exposure.  This still may be a bit aggressive for some of you.
Be careful and stay within your risk tolerance.
Maximum profit is $1,620.  So far, so good.
______________________________________________________________

July Position #3 – DJX – Bear Call Spread – Plus - $90.36
We're due to experience the summer doldrums – and why shouldn't
the DOW participate?  We're going to establish a bear call spread
and use that money to buy some puts.  Here we go.
Sell 15 contracts of DJX July $90 calls @ $1.90
Buy 15 contracts of DJX July $92 calls @ $1.00
Net credit of $.90 X 15 contracts = $1,350

Now, you can just leave that position alone and, if the DOW
finishes below 9000 at July expiration, you keep the $1,350.
Your exposure would be $1.10 (9200 – 9000) X $1,500.  Your maximum
profit would be $1,350.  Seems to have reversed and is heading in
the right direction – at least for the moment.
_____________________________________________________________

Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $31.60
In May we bought 10 contracts of the July QQQ $30 puts @ $2.05 and
bought 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.
The QQQs have made a big move up.  It's either going to break
through resistance or bounce off and head back down.  Our
objective is for a $3-4 move in the next month.  One of our long
options will hopefully pay for almost the entire position.  That
will leave our other long option, which is now practically free,
poised for the bounce back as the QQQs reverse.
Our exposure is only $1.85 because we have $2.00 of intrinsic
value.  See adjustment information described above.

We now own the July $30 put at a cost of $.05.  If the QQQs
continue this slide, we might just make a few bucks.
______________________________________________________________

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

Did You Notice?
Wednesday night on CBS, a show called "Cupid" premiered.  It's one
of those reality shows.  It is produced by Simon Cowell, the Brit
who gave us "American Idol."  This show involves suitors who are
trying to impress a nubile brunette.  The point to this nonsense
is that two of the male contestants, drooling over the brunette,
were identified as "Option Traders."

They were obviously looking forward to some new naked options in
their future.  I think the winner gets $1,000,000 – and, perhaps,
the girl.   Funny, they never contacted me . . .  I could use
both.  Those pretty boys wouldn't have stood a chance. Oh, well .
 .
_____________________________________________________________

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

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

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


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