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Daily Newsletter, Thursday, 07/17/2003

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The Option Investor Newsletter                Thursday 07-17-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: KO, CAT, UTX
Futures Markets: Opex Earnings Season Tankage
Index Trader Wrap: See Note
Market Sentiment: Barometer Falling
Weekly Manager Microscope: Gary Tanaka & Alberto Vilar: Amerindo
Technology Fund D (ATCHX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-17-2003           High     Low     Volume Advance/Decline
DJIA     9050.82 - 43.80  9113.57  9017.84 2.01 bln    741/2464
NASDAQ   1698.02 - 50.00  1729.59  1693.47 1.89 bln    704/2522
S&P 100   494.80 -  6.27   501.07   493.10   Totals   1445/4986
S&P 500   981.73 - 12.36   994.00   978.60
W5000    9443.32 -136.00  9579.32  9418.10
RUS 2000  459.93 - 13.75   473.68   459.93
DJ TRANS 2543.34 - 54.20  2596.99  2539.01
VIX        22.82 +  0.53    23.47    22.34
VXN        35.47 +  1.48    36.35    34.74
Total Volume 4,221M
Total UpVol    614M
Total DnVol  3,565M
52wk Highs  280
52wk Lows    40
TRIN       1.19
PUT/CALL   0.89
************************************************************

KO, CAT, UTX

Nice try against overwhelming odds. Dow components KO +1.85,
CAT +4.90 and UTX +1.50 struggled vainly to keep the Dow from
crashing after IBM failed to paint a rosy picture with their
earnings on Wednesday night. IP and XOM were the only other
Dow stocks in positive territory but only fractionally. With
25 of the 30 stocks in the red it was remarkable the Dow only
lost -43 points.

Dow Chart



Nasdaq Chart




It was a good day economically but you could not tell from the
market direction. The Jobless Claims fell to 412,000 but still
extended its string of weeks over 400K to twenty-two. There was
an unexpected drop in continuing claims of -117,000 and the
prior week was revised down -47,000. Nobody appears to know
why but they are not complaining considering last weeks numbers
were near records. Analysts keep saying the last two weeks of
claims are skewed by auto plants being shut down for the summer
retooling and we will see a huge drop in the next couple of weeks.
They have no excuse for the prior 20 weeks or at least none that
holds water. Still 412,000 was a significant change from the
prior week's 441,000. Maybe things are getting better.

New residential construction soared to an annualized rate of
1.80 million units but this should not surprise anyone even the
analysts. With interest rates at 45 year lows a month ago and
expected to go lower it is a sure bet any builder with a lot was
starting to turn dirt. Strike while the iron is hot WOULD have
been the plan. With rates rocketing the demand for homes could
take a sudden downturn before those slabs are even dry. There
could be a glut of homes by fall. Look for Greenspan to pull
some rabbit out of his hat if rates continue to climb because
this would be a severe blow to the sputtering economy.

The strongest report came from the Philly Fed Survey which
jumped to 8.3 from 4.0 in June. This should have been a huge
positive for a market in the dumps but we saw an immediate sell
off. Why? The whisper number was over 10.0 and traders were
disappointed that conditions were not better. Remember, the
current market is priced to perfection and in some cases better
than perfection and traders are frustrated when that perfection
does not come to pass. There were some negatives with prices
paid dropping sharply as well as inventories. Prices received
still showed contraction and unfilled orders fell to 3.5 from
7.9. It was a positive report but still had some cracks in the
foundation.

While the economics were mildly positive the biggest influence
on the market was the lackluster guidance from IBM on Wednesday
night. According to analysts IBM missed earnings by a penny
despite their claims to the contrary. Almost every component of
the earnings announcement drew fire from analysts. They derived
strong gains from currency conversions and that is not a normally
recognized profit center. They continued to lose money in the
chip business and services bookings fell. One analyst said IBM
actually missed estimates by as much as -12% when all factors
were considered. That equates to a clean 85 cents when estimates
were for 98 cents. Other analysts view it differently but none
viewed it as strongly positive. All would have liked to see a
stronger top line. Without the currency gains the growth would
be an anemic +3% not 10% as claimed.

The real killer was their lack of optimism. CFO John Joyce said
demand is good but not robust and he was NOT holding out hope
for an economic recovery over the next five months. He also said,
"I don't have to remind investors that second-half recoveries were
expected in 2001 and again in 2002. We are going to take a more
pragmatic view." Turn out the lights the party's over. At least
that was the investor sentiment towards IBM on Thursday. The
stock lost -3.41 and led the Dow decline.

Helping the negative outlook was a warning from Nokia before the
open that knocked -3.55 of a $17 stock. There were numerous other
warnings as well as several strong reports as dozens of companies
announced. The mixed messages only succeeded in convincing many
traders that we may be seeing a stabilization of the economy but
we are NOT seeing a strong recovery. July is normally when
expectations meet reality and it is not a pretty picture. With
growth for the economy expected to be 3-5% for the second half
earnings are expected to be up significantly. With companies
still giving cautious guidance or worse now that they can see
order flow for the next quarter it simply drives home the no
strong recovery picture.

The Manpower CEO said today that they were seeing NO signs of an
economic recovery yet. They typically see job requirements 90-120
days in advance and there has not been any pickup in expectations.
The travel sector is still in the tank. The transportation sector
is losing ground. Boeing announced another 5,000 worker layoff
today. According to IDC PC demand in the 2Q was up +7.6% and
according to Gartner Group it was up +10.6%. This could actually
be bad news. The surge could have been in anticipation of a post
war rebound that fizzled. Also, where is the surge in profits
from the jump in PC demand? Answer: It is a buyers market and
there is no profit. Without a substantial increase in demand that
will support higher prices the tech companies could be left to
tread water until the 2H of 2004. There it is out, I said it.
I expect the term "second half recovery in 2004" to begin to
appear more often in the mainstream press over the next couple
months. It would be funny if it were not so painful.

I deviated from the topic above but the main problem with the
markets this week is simply "inline won't cut it." With the great
expectations for the 2003 recovery it does not excite investors
to hear inline or flat guidance. One trader said today after a
disappointing earnings release, "if this keeps up everyone will
be long on nothing." Bingo! In a market priced to perfection and
facing expectations that look like a ski jump from the bottom it
is rapidly becoming clear that those expectations may be
impossible to obtain. Not only are the earnings tough to produce
but the quality of earnings is being called into question even
quicker.

IBM was a prime example. Numerous earnings components were seen
by analysts as one time events or the product of cost cutting and
not repeatable. COF got killed after posting earnings of $1.23
and blowing away estimates of $1.11. Analysts said fears of losses
from the growing unemployment and a maturing loan portfolio were
to blame for the -$7 loss. COF committed the unforgivable sin of
not raising its guidance. Correct, it did not warn but simply said
they were comfortable with estimates. They said the effort to
attract better credit borrowers would offset gains in other areas.
Guilty, of giving accurate guidance, penalty -$7.

I am not trying to beat a dead horse here and I am sure you are
getting the picture. The economy is stable, maybe recovering but
recovering very slowly. It is not recovering at the pace that
would justify the recent 50% rally in tech stocks. This does not
mean we are not going to see a year end rally. It only means that
we should see the normal July adjustment period. As the July
earnings reality dawns, investors will continue to readjust their
valuations to fit that reality. If that means EBAY needs to trade
at $95 instead of $115 then it will eventually settle at $95. If
the 3% real growth for IBM is only worth $75 then it will be a
long time before it sees $87 again.

The Dow closed at 9053 today and over -200 points below the Monday
high. No big deal really. A 200 point drop from the high but only
-70 points from Friday's close. This is not a material drop, yet.
What was holding it up was the hope that earnings would surprise
to the upside. The hope that Intel would guide much higher. The
hope that IBM was setting the globe on fire. And finally the hope
that Microsoft would announce a windfall profit and strong
guidance. Intel "no recovery yet, no major upgrade cycle, no pickup
in IT spending." IBM "not holding out hope for a recovery over the
next five months." And finally Microsoft tonight, "not expecting
a marked improvement in the economic environment" and "we may be
seeing indications that the spending environment has stabilized
but IT budgets remain tight." They missed estimates by a penny
and guided lower by a penny for the next quarter. They also said
factors that helped profits in the past would disappear this year.
Could that be a pre-warning warning for future quarters? MSFT
closed the after hours up only +16 cents and S&P futures fell
from their post MSFT bounce at 982 to 978.50 as I write this.

Friday we get the Michigan Consumer Sentiment and Semiconductor
Book-to-Bill report and a handful of earnings before the market
opens. Last week we saw a relief rally after a four-day slide.
That rally was in anticipation of good news. Now that the news
is out I would doubt we get anymore rocket rides and instead
we could see some short covering or profit taking as the week
draws to a close. I do not expect to see 9250 again any time
soon and there is a good chance support at Dow 9000 is about to
break. With 70% of the S&P still to report there will still be
fireworks but they may have lost their market moving potential.
Technicians tell us that market drops on low volume are nothing
to worry about. Thursday's volume was above average and decliners
beat advancers 3:1. New 52-week lows rose to a level not seen
since May-23rd. New highs fell to only 25% of the July-14th level.
For those that are watching the internals are changing. Follow
the internals.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Opex Earnings Season Tankage
Jonathan Levinson

There was a sellathon in the Nasdaq futures, with a more orderly
decline on the S&P and Dow futures.  That notwithstanding, the
selling was sufficient to bring the Dow and S&P futures to close
below their daily ascending trendlines for the first time since
March.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U      997    989    983    974    968
YM03U     9148   9094   9038   8984   8928
NQ03U     1300   1278   1264   1242   1228


10 minute chart of the US Dollar Index




They liked the jobs data released this morning, and drove the US
Dollar Index vertical, making a lower high below 97.30 and
ultimately failing to hold the 97 level.  Gold got clocked on the
move, but returned to positive territory above 343 support,
bringing the XAU and HUI with it and giving a 1.11 boost to the
commodities index, the CRB, with natural gas, cocoa and wheat
leading higher.

Daily chart of August gold




The oscillator downphase hasn't managed to take out the lower end
of the bull wedge within the bull flag drawn on the daily candle
chart.  If this is the downphase, I'm looking forward to seeing
the up.  The Macd looks like it wants to turn higher, but today's
move up was insufficient to give us buy signals yet.

Daily chart of the ten year note yield




Treasuries closed lower today, once again related to the positive
employment data released today.  The oscillators are very toppy
on the ten year note yield, and if Tuesday was the top on this
move, we can expect higher prices for the ten year treasury note
from here.  That said, the action of equities today was
disconcerting, particularly for devotees of the liquidity theory
of this year's rally.  Equities and treasuries rallied together
on a flood of money.  Their declines should occur in tandem as
well.  If so, it implies that the pop in treasuries may be
temporary.  Note that the TNX has plenty of downside support from
its recent rally over the past month.


Daily NQ candles




The selling on the NQ futures accelerated today, giving us sell
signals on the daily oscillators.  The move never challenged the
ascending trendline as the Nasdaq futures rested on the laurels
of their impressive gains throughout the tail end of the rally.


30 minute 20 day chart of the NQ




On the 30 minute candles, the bear wedge downside break is clear
and was confirmed today.  All is not perfect in the bears' den,
however, because the move bottomed the shorter term oscillators,
portending a bounce within that timeframe and within the larger
topping cycles on the daily candles above.  It could take the
form of a sideways move, a weak bounce, or another push higher,
but the longer daily cycles are telling us that the top of the
rally has likely been seen.

Daily ES candles




The S&P futures lost their rising trendline on a closing basis
for the first time during this rally.  The oscillators are on
sell signals from lower highs below what I'd conservatively
consider to be critical support.


20 day 30 minute chart of the ES




Just as with the NQ futures, ES is at the bottom of its downphase
on the 30 minute chart oscillators.  Imagine different channels
of differing widths, with a narrow price channel oscillating
within a wider channel.  The wider channel, signified by the
daily oscillators, has flattened and is just turning down, while
the narrower channel is pointed downward but is bumping into the
lower band of the wider one.  That's what's happening here.  A
bounce of the 30 minute cycle could take us to the top of the
wider daily channel, but the oscillators on that longer timeframe
are telling us that it's likely topped.


150-tick chart of ES




The ES showed us an orderly decline today on the 150-tick
candles, stepping lower in a series of bear wedges and flags.
The upphase commenced approaching the cash close, but had not
reversed as of this writing.  The cycle on the 30 minute chart
could take it higher still, but tomorrow will have to tell.


Daily YM candles





Once again, the YM tells the same story as the ES.


20 day 30 minute chart of the YM





On the above interpretation, the oscillators are indicating a
short term bounce.  This assumes the roughly 75% likelihood (such
as I've heard anecdotally) that the they do not simply begin
trending lower.  As the longer cycles get moving to the downside,
they can squash the shorter period cycles into oversold territory
and keep them there indefinitely.  This is the low-odds outcome,
but given how overdone this rally became to the upside, my mind
remains open.

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_071703_1.asp


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

Barometer Falling

"On the djx daily candlesticks this looks like 3 black crows a
highly reliable bearish pattern. The BP% crossover yesterday is
glaring at me. Increasing volume on the declines is also
confirming. Better yet the vix is climbing. Looking very
bearish."

This email came in as I was looking over the daily charts for
material tonight.  Reader Dan managed to encapsulate exactly what
I see.  On the daily candles, we have the VIX and VXN crossing
above their 20 and 50 day MAs, with the BPSPX (bullish percent)
and BPCOMP right at the top, the former leading the latter off
their highs.  Other breadth indicators, including the McClellan
oscillator, are also sending bearish messages for equities.

Rather than rehash the data for you, I'll provide what is
hopefully some enlightenment on it.  As a novice, I used to look
at such data and begin planning my bearish trades immediately,
waiting for the charts to tank.  As a function of the greater
lesson of patience, I've learned to read the data in broader
terms.  Just as we had dips and corrections throughout the rally,
we will have spikes, bounces, and upside corrections on the way
down.

Experienced traders will not expect an immediate plunge or crash,
although such cannot be ruled out.  Instead, they will note that
the breadth, sentiment and volatility data are indicating the
beginning of a possible change in trend, with all that such
implies.  Just as a falling barometer doesn't mean that there's a
twister blowing in within the next minute, it does signal the
time to begin checking the windows, battening down the hatches,
and preparing for foul weather.

The various indicators we follow are issuing similar signals for
traders.  The actual timing and trading signals will have to come
from more accurate, minute indicators such as we follow in the
intraday Market Monitor and Futures Monitor.


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

Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9050

Moving Averages:
(Simple)

 10-dma: 9127
 50-dma: 8949
200-dma: 8445



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  981

Moving Averages:
(Simple)

 10-dma:  996
 50-dma:  972
200-dma:  901



Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1255

Moving Averages:
(Simple)

 10-dma: 1279
 50-dma: 1205
200-dma: 1065




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

There is little to say here regarding the volatility indices that
Jon didn't already cover in the commentary above.  We do indeed
see both rebounding from their lows but they have yet to make new
relative highs above the early June highs.

CBOE Market Volatility Index (VIX) = 22.82 +0.53
Nasdaq-100 Volatility Index  (VXN) = 35.47 +1.48

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.89        938,695       839,522
Equity Only    0.81        684,346       559,684
OEX            0.73         65,122        48,142
QQQ            3.49         47,057       164,665


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.9    + 0     Bull Confirmed
NASDAQ-100    81.0    + 0     Bull Confirmed
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       78.8    - 1     Bull Confirmed
S&P 100       83.0    + 1     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  0.99
10-Day Arms Index  1.11
21-Day Arms Index  1.18
55-Day Arms Index  1.14


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     700       617
Decliners    2126      2432

New Highs      54       130
New Lows       25         8

Up Volume    375M      170M
Down Vol.   1587M     1694M

Total Vol.  1975M     1874M

M = millions


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

Commitments Of Traders Report: 07/08/03

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 was little change last week in the large S&P contracts.
It appears both big and small traders are waiting to see how the
initial burst of Q2 earnings come in and how investors react to
them.


Commercials   Long      Short      Net     % Of OI
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%)
07/08/03      415,053   453,720   (38,667)   (4.5%)

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
06/17/03      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%
07/08/03      152,239    74,749    77,490    34.2%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

The same holds true for the commercials here in the e-minis,
as they appear to be waiting before making any big commitments.
However, we've seen a drastic turnaround in the small traders
sentiment going from extremely bullish to know the most bearish
in months.


Commercials   Long      Short      Net     % Of OI
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%)
07/08/03      192,815   224,124    (31,309)  ( 7.5%)

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
06/17/03      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%
07/08/03       56,394    72,090    15,696    12.2%

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


NASDAQ-100

NASDAQ futures remain in a holding pattern.  Commercials
remain net short and small traders remain net long.


Commercials   Long      Short      Net     % of OI
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%)
07/08/03       30,489     48,311   (17,822) (22.6%)

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
06/17/03       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%
07/08/03       26,136     9,035    17,101    48.6%

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

Ditto here too.  There's almost no change in the commercials'
net long position in the Industrial futures and there is
a small bump in the small traders net short position.


Commercials   Long      Short      Net     % of OI
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%
07/08/03       20,752    11,860    8,892      27.3%

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
06/17/03        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%)
07/08/03        5,005     8,093    (3,088)   (23.6%)

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

Gary Tanaka & Alberto Vilar: Amerindo Technology Fund D (ATCHX)

This week we look at Gary Tanaka and Alberto Vilar, co-portfolio
managers of the Amerindo Technology Fund, a non-diversified U.S.
equity fund that seeks long-term capital growth by investing in
common stock of technology companies whose primarily operations
are in either the technology or science areas.

Morningstar says the fund has huge positions in Internet stocks,
making it one of the most volatile funds out there.  Indeed, at
March 31, 2003, the Amerindo Technology Fund had 20.6% of total
holdings invested in Expedia Inc. and 20.1% in Ebay Inc.  So it
is willing to concentrate assets in Tanaka and Vilar's favorite
stocks.

Risk-hearty investors have been rewarded so far in 2003.  As of
July 16, this emerging technology fund is up nearly 77%, ranking
in the top 1% of the technology fund category, per Morningstar.
The fund's YTD Lipper ranking is an "A" (or 99%), comparable to
Morningstar's ranking.

Both investment managers are seasoned veterans of the investment
industry.  Tanaka is a principal portfolio manager with Amerindo
Advisors (U.K.) Ltd. and Amerindo Investment Advisors, (Panama),
his employer since 1980.  Previously, he was a portfolio manager
with Crocker Bank in San Francisco and before that, a consultant
to Andron Cechettini & Associates.

Vilar founded the predecessors of Amerindo Advisors (U.K.) and
Amerindo Investment Advisors Panama in 1979, and since then has
served as a principal portfolio manager.  He has co-managed the
Amerindo Technology Fund D since its inception in October 1996.
He started with Citibank in 1964, and between 1967 and 1971 was
portfolio manager, vice president and manager of the investment
management division of Drexel Burnham Lambert.

Management Style/Strategy

According to Morningstar, Amerindo Technology Fund's equity style
is best characterized as mid-cap, growth.  A forward P/E of 108.5
helps to explain the fund's high volatility, as does its holdings
concentration.  The fund's top 10 stock holdings represent 70% of
assets per Morningstar's latest report.  Expedia and Ebay made up
over 40% of total holdings as of March 31.

So, when the co-managers' favorite stocks perform well, this fund
rockets ahead.  But its heavy concentration in technology as well
as Internet stocks is not for the weak stomached.  When stocks go
south, and tech leads to the downside, the co-managers' high-risk
strategy can produce big capital losses.

According to Morningstar, Amerindo Technology Fund invests mainly
in mid-cap growth, tech stocks.  Overall, the fund had an average
market capitalization of $5.7 billion at year-end, befitting of a
mid-cap fund.  A closer look at the fund's stock holdings reveals
that nearly 40% of portfolio assets are invested in the large-cap
range at year-end.  Over 25% are invested in small- and micro-cap
stocks.  So, Tanaka and Vilar invest the fund's assets across the
entire capitalization range, not just emerging technology stocks.

In terms of value versus growth, this portfolio has consistently
landed in the "growth" style box per Morningstar.  Average price
valuations of its holdings are much higher than both the S&P 500
index and the average technology fund.  That means a higher risk
(volatility) level relative to similar funds but more risk, more
potential return theoretically.  Average "earnings growth" rates
are also higher than its category peers.

Investment Performance

A high-risk portfolio such as Amerindo Technology Fund hits home
runs, but can also strike out a lot, to use the baseball analogy.
In 1997 - the fund's first full year of operation - it lost 18.1%
for shareholders, but rebounded in 1998 to post a 84.7% gain that
year.  In 1999, the fund returned 248.9% for shareholders, but in
2000, it plunged 64.8% falling hard after the Technology/Internet
bubble burst.

In 2002, Tanaka and Vilar lost 31% for investors, but held losses
relative to category peers, ranking in the top decile of the tech
category peer group per Morningstar.  And, on a YTD basis through
July 16, the fund is up 76.8%, ranking in the first percentile of
the tech sector.  That is 62.8% better than the S&P 500 large-cap
index this year.  So, if you're looking for a fund that has "high
risk" and "high return" potential, Amerindo Technology Fund might
be suitable.





For the trailing 5-year period through July 16, 2003, Amerindo
Technology Fund has a positive annualized total return of 0.2%,
per Morningstar, ranking in the 27th percentile of the category
peer group for performance.

Overall, Morningstar rates the Amerindo Technology Fund D just
"2" stars, signifying below average, risk-adjusted performance
relative to category peers.  Overall, the fund generates above-
average returns in relation to its peer group, but higher risk
and downside volatility prevents it from earnings high ratings
for risk-adjusted relative performance.

At 2.25%, the fund's expense ratio is higher than the category
average of 1.97%.  But when you can return 248% in a year does
expense ratio matter?  Anyone that invests in this fund should
realize that it is a high-risk, high-cost fund that offers the
opportunity to generate huge returns in "up-market" conditions
and over the long term.

Conclusion

Tanaka and Vilar's aggressive growth style as applied to science,
technology and Internet stocks isn't for everyone, especially not
those with low risk tolerances.  The fund's best quarterly return
over the past five years was 104.2% and its worst quarter decline
was 56.5%, indications of its extreme volatility, both positive
and negative.

If you seek a "pro-growth" portfolio of technology and Internet
stocks and are willing to accept the much higher risk involved,
then Amerindo Technology Fund may be an appropriate fund option
for the aggressive portion of your portfolio.  If you could not
handle a 56.5% quarterly loss or a 64.8% annual loss, then this
portfolio is not right for you.

For complete fund information or to download a fund prospectus,
go to the www.amerindo.com website.  Please read the prospectus
carefully before investing, if you decide to do so.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 07-17-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: EBAY, HAR
Dropped Puts: None
Call Play Updates: AGN, GS, LOW, OMC, PCAR
New Calls Plays: None
Put Play Updates: HD, INTU, LEN
New Put Plays: FITB, XL


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

eBay Inc - EBAY - close: 110.18 change: -2.57 stop: 110.99

Every once in a while even the giants stumble.  Fortunately, for
EBAY investors the stock didn't stumble very far.  The wide and
sometimes deep profit taking that hit Wall Street today
eventually wore through EBAY's near impenetrable defenses and
sellers brought the stock back down a couple of points toward the
$110 level.  There are just a few days left ahead of EBAY's Q2
earnings report and we suspect most traders are sitting on the
sidelines waiting for the announcement.  What are they waiting
for?  They want to see if EBAY has any surprises for them.
Currently, estimates are for 35 cents a share although many
believe they will easily beat that number.  Still there are
plenty of folks that suspect EBAY will announce a stock split
with their earnings report and that's certainly a possibility as
their last split was in the $120 neighborhood.  The weakness
today stopped us out at $110.99 for a $7 move.  We would not
suggest any new positions except for the true gamblers out there.
Lately the trend has been "sell the news" no matter how good the
report is.

Picked on June 27th at $104.05
Change since picked:     +6.13
Earnings Date         07/24/03 (confirmed)
Average Daily Volume =    6.76 million
Chart link:


----

Harman Intl - HAR - close: 79.35 change: -1.85 stop: 79.49

We hate it when that happens!  When a profitable play turns sour
and you exit in the red, even though we reduced our risk with the
$79.49 stop, is still irritating to say the least.  On Wednesday,
one of the brokerage firms downgraded HAR on valuation concerns
saying it had surpassed their price target of $82.  Sure enough,
shares of HAR gapped down on Wednesday morning but the selling
pressure was not enough to break support at $80.00.  What became
our undoing was the broad-based selling as investors took money
off the table, primarily focusing on their biggest winners.
Considering the violent pull back we observed in several stocks
we're surprised the selling wasn't steeper in HAR.  We're closing
the play with a 77-cent loss in the stock but aggressive types
may want to monitor it.  Shares could rebound back over the $80
level and make another run if the markets don't continue melting.

Picked on July  6th at $80.26
Change since picked:    -0.91
Earnings Date        08/19/03 (unconfirmed)
Average Daily Volume =    321 thousand
Chart link:



PUTS:
*****

None


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

Allergan, Inc. - AGN - close: 79.20 change: -1.26 stop: 78.50

Expiration week has not been kind to the bulls and even
relatively strong stocks have come under solid selling pressure
over the past few days.  AGN is one of those that has been
dragged lower by the broad market weakness, leaving behind an
apparent double top just below $82.  After finding support just
above $79 on several occasions over the past couple weeks, the
stock actually cracked fractionally below that level today,
trading within 26 cents of our stop before a feeble final-hour
rebound allowed the stock to close just slightly above $79 again.
This support level is critical and if AGN breaks today's intraday
lows, it could be a quick trip lower to next support in the $76-
77 area.  But so long as support is holding, we've got to stick
with what has been a bastion of relative strength compared to the
rest of the market.  A solid rebound from this $79 level can be
used for aggressive entries, but the risk is higher than a week
ago, with daily oscillators in full bearish roll right now.  The
more conservative approach will be to wait for the stock to rally
back above $80, breaking the descending trendline that has kept
the stock under pressure this week, before initiating new
positions.  Maintain stops at $78.50.

Picked on June 26th at     $78.74
Change since picked:        +0.46
Earnings Date             07/23/03 (confirmed)
Average Daily Volume =    1.03 mln
Chart =


---

Goldman Sachs Grp. - GS - cls: 86.44 chng: -0.82 stop: 85.50

Despite the recent strength in the Brokerage sector (XBD.X), the
index really got hit hard on Thursday, giving up more than 3% by
the close and ending right at the critical $350 support level. GS
has been one of the stronger stocks in the sector lately and it
maintained that strength, losing less than one percent and
holding onto support at $86.  But our bullish play is right at a
critical inflection point here, as the XBD falling below today's
intraday low of $347 will likely generate enough weakness to
cause GS to test the top of its July 7th gap at $85.70.  It came
really close to that test today with an intraday low of $85.86,
but the bulls managed to successfully defend that support with a
weak bounce into the close.  This weakness may turn out to be a
solid entry point, but we're unconvinced with daily Stochastics
in a full bearish rollover right now.  For those traders tempted
to buy the dip, we would caution that in addition to a rebound in
the stock, we need to see the XBD rebounding back above the $355
level before adding new positions.  Keep those stops in place,
just in case the bulls lose their nerve on expiration Friday.

Picked on July 1st at      $85.85
Change since picked:        +0.59
Earnings Date             09/24/03 (unconfirmed)
Average Daily Volume =    4.38 mln
Chart =


---

Lowe's Companies - LOW - cls: 46.64 chng: -0.43 stop: 44.90*new*

Given the weakness in Housing related stocks this week, LOW has
been a nice pocket of relative strength following last week's
breakout over $46.50.  Over the past few days, the stock has been
testing that broken resistance as newfound support and it is a
testament to the stock's strength that it has so far survived
those tests.  But there are some troubling signs appearing, not
the least of which is the daily Stochastics finally dropping out
of overbought territory today.  That hints that there could very
well be some more weakness before we see the rebound that makes
for a solid entry point.  We'll continue to look for a dip near
the $45.50-45.75 area to give us a clear answer as to whether old
resistance will now provide support.  A solid rebound from this
area should be a solid entry, and the 10-dma ($45.60) should
reinforce that support.  Note that we've raised our stop again to
$44.90, which is just below what should be strong support, just
below the bottom of last Friday's gap.

Picked on July 13th at    $46.87
Change since picked:       -0.23
Earnings Date           08/18/03 (unconfirmed)
Average Daily Volume =  4.86 mln
Chart =


---

Omnicom - OMC - close: 71.82 change: -0.38 stop: 69.99

As would be expected the general market malaise affected shares
of Omnicom as well.  We're a little concerned that the media
stock has slipped below previous support of its rising 30-dma but
bullish traders who like to buy the dip might be looking towards
the chance to enter OMC on a bounce from its 50-dma instead.  The
50-dma, approaching $70.70, should bolster support at the July
1st slows near $70.70 (what a coincidence).  We would not suggest
new long positions until we see the bounce.

Picked on July 13 at $73.97
Change since picked:  -2.15
Earnings Date      07/29/03 (unconfirmed)
Average Daily Volume:  1.66 million
Chart =


---

PACCAR Inc. - PCAR - close: 72.08 change: -0.69 stop: 69.95

We're running out of time on PCAR.  There are four trading days
left ahead of PCAR's July 24th earnings report and we don't plan
on holding over the announcement.  This makes gauging new entries
tricky and given the bearish market environment this week
treacherous may be a better descriptor.  Shareholders are
probably encouraged that PCAR has managed this market weakness by
consolidating above support at the $70 level.  We would not
suggest new positions and those not wanting to back out
completely may want to consider upping their stops towards the
$71 level.  We're going to leave our s at $69.95.

Picked on July 08 at $73.49
Change since picked:  -1.41
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.24 million
Chart =



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

None


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

The Home Depot - HD - close: 33.10 change: -0.40 stop: 34.75

It appears that we've quite effectively bracketed the Home
Improvement group, with a bearish play on HD and a bullish one on
LOW.  Both have actually held up fairly well this week, and HD
has stubbornly held onto the $33 support level, despite the broad
market weakness.  Despite its refusal to break down (so far), HD
is building a nice pattern of lower intraday highs and it looks
like the breakdown we're awaiting could arrive any time.
Friday's session is unlikely to provide that resolution, as
market makers are likely to try to pin the stock near the $32.50
strike for expiration.  But if that does in fact occur, it may
provide for an aggressive entry point, as a trade below $32.75
would break the trendline connecting the higher lows of the past
week.  So the strategy remains pretty much the same -- initiate
new positions either on a rollover below $34 or a break of the
$32.75 level, targeting an initial move to the $30 level.  For
those entering on a breakdown below the trendline, keep in mind
that the 50-dma ($32.11) is still looming as a potential bounce
point.  Maintain stops at $34.75 until the current consolidation
pattern breaks decisively.

Picked on July 10th at   $32.43
Change since picked:      +0.67
Earnings Date          08/19/03 (unconfirmed)
Average Daily Volume =  9.47 mln
Chart link:


---

Intuit Inc - INTU - close: 41.10 change: -1.47 stop: 44.01*new*

Undermining any support for software stocks was a heavy decline
in the NASDAQ composite of 2.85% and a drop of 3.65% in the GSO
software index.  The GSO's drop stalled at its rising 50-dma but
from its close near the lows of the day it's probably not prudent
to bet on a big bounce, especially with all the confusion over
MSFT's earnings numbers after the bell.  INTU followed the
markets and tech sector lower today dropping as far as $40.31
before bouncing back in the last couple of hours.  The $40 level
is easy psychological support and short-term traders might want
to consider taking profits on another test.  What to do now?  We
suspect that any bounce in techs or INTU could have the stock
rising back towards the $42.50-42.00 area.  A roll over/failed
rally here would be a decent place to consider new put positions.
Otherwise, traders may need to wait for a close under the $40
level.  Our eventual target will be the $37.00-38.00 area.
Meanwhile, we're dropping our stop loss to $44.01.

Picked on July 8th at $43.35
Change since picked:   -2.25
Earnings Date       08/13/03 (unconfirmed)
Average Daily Volume =   4.1 million
Chart link:


---

Lennar Corp. - LEN - close: 69.23 change: -2.56 stop: 73.75*new*

Is this breakdown for real?  How many times have we asked that
question in our attempts to play the downside in the Housing
sector in recent weeks?  Too many.  But LEN's breakdown on
Thursday certainly looked good on the surface, with the nice
break under the $69.75 level that provided support on July 1st.
That was in spite of strong Housing Starts released before the
opening bell.  Unfortunately (but not unexpectedly), the stock
did find closing support above the 50-dma ($68.92) and this
support will need to break if the play is to really gain any
traction.  Until it does, we need to remain on guard for another
bounce.  That bounce (if it comes) should allow us to gauge
whether we've caught some early weakness or another bear trap.
Look for a failed rebound at either the $70.50 level (intraday
support earlier in the week and the site of the short-term
descending trendline), or $72 (resistance on the last failed
bounce) to provide the next solid rebound.  If that upper level
fails to provide resistance, then we'll need to consider the
possibility that the bulls haven't given up just yet.  Just to be
on the safe side, we're lowering our stop tonight to $73.75,
which is just above the curling lower 10-dma ($73.30) and 20-dma
($73.61).

Picked on July 15th at   $71.12
Change since picked:      -2.33
Earnings Date          09/09/03 (unconfirmed)
Average Daily Volume =  1.62 mln
Chart link:



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

Fifth Third Bancorp - FITB - cls: 55.26 chg: -0.98 stop: 57.51

Company Description:
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. The Company has $88 billion in
assets, operates 17 affiliates with 943 full-service Banking
Centers, including 132 Bank Mart. locations open seven days a
week inside select grocery stores and 1,883 Jeanie. ATMs in Ohio,
Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and
West Virginia. The financial strength of Fifth Third's affiliate
banks continues to be recognized by rating agencies with deposit
ratings of AA- and Aa1 from Standard & Poor's and Moody's,
respectively. Additionally, Fifth Third Bancorp continues to
maintain the highest short-term ratings available at A-1+ and
Prime-1 and is recognized by Moody's with one of the highest
senior debt ratings for any U.S. bank holding company of Aa2.
Fifth Third operates four main businesses: Retail, Commercial,
Investment Advisors and Fifth Third Processing Solutions.
(source: company press release)

Why We Like It:
Sometimes picking on the under-performer when the markets decide
to rollover can be a profitable way to catch the general trends.
With the INDU and COMPX suffering set backs and investors selling
their winners the banking sector, which has been one of the
aforementioned winners (since its March low), is a prime
candidate for some serious profit taking.  The BKX index has
fallen back under the 900 level and looks ready to retest the
late June support of 850 (currently at 882).  Meanwhile, shares
of FITB peaked weeks ago in early June (compared to the BKX which
peaked a few days ago) and FITB has been suffering a slow decline
ever since.  Now that selling pressure appears to be outweighing
buying pressure we could see FITB's decline pick up speed.

So far this month (July) shares of FITB bounced three times at
support near $56.00.   That support, which also included the
simple 50 & 200-dma's, failed today with the last half hour
really going to the bears.  The company announced their Q2
earnings two days ago when shares were near $58.00.  As you can
see the results didn't inspire much faith.  According to the
press releases, FITB's Q2 saw its profits rise eight percent over
last year's bolstered by stronger loan growth.  Wall Street had
been looking for 74 cents a share and FITB reported 75.  While it
was a positive surprise the stock has obviously been unable to
maintain any strength.

We're encouraged by the technical breakdown that is strengthened
by the bearish oscillators on both its daily and weekly charts.
A trade under the $55 mark would produce a fresh double-bottom
sell-signal in FITB's P&F chart.  We're going to suggest new
positions at current levels (under $56) but more cautious traders
may want to wait for a move under $55, which appears to be
significant support/resistance on its weekly chart.  Our first
target will be the $51-50 area.  We'll initiate the play with a
stop at 57.51 even though the month-long trend of lower highs is
suggesting a stop at just above $58.00.

Suggested Options:
We're going to list August and November strikes with a preference
for the $55 and 50 puts with the 50 puts being the riskier bet.

BUY PUT AUG 55 FTQ-TK OI=1669 at $1.50 SL=0.75
BUY PUT AUG 50 FTQ-TJ OI=1214 at $0.30 SL= --
BUY PUT NOV 55 FTQ-WK OI= 329 at $3.20 SL=1.60
BUY PUT NOV 50 FTQ-WJ OI=7817 at $1.55 SL=0.80

Annotated Chart:





Picked on July 17th at $55.26
Change since picked:    -0.00
Earnings Date        07/15/03 (unconfirmed)
Average Daily Volume =    2.4 million
Chart link:


---

XL Capital Ltd. - XL - close: 79.64 change: -0.59 stop: 83.00

Company Description:
XL Capital Ltd. provides insurance and reinsurance coverages and
financial products and services to industrial, commercial and
professional service firms, insurance companies and other
enterprises on a worldwide basis.  Insurance business written
includes general liability, other liability, professional and
employment practices liability, environmental liability,
property, program business, marine and energy, aviation and
satellite, as well as other product lines.  Reinsurance business
written includes treaty and facultative reinsurance to primary
insurers of casualty and property risks, as well as life
reinsurance, primarily European term assurances, group life,
critical illness coverage , immediate annuities in payment and
disability income business.

Why we like it:
While most of the attention has been focused on Housing stocks in
the wake of the sharp selloff in Treasuries in recent weeks,
another area of the market that likely will encounter problems
from rising rates are Insurance companies, particularly those
involved in the reinsurance business.  Interest-rate sensitive
investments are likely to take a hit, cutting into these
companies' profits, but that isn't the only rate pressure this
group is feeling.  They're also under increasing pressure not to
raise premiums in an increasingly competitive marketplace, so
their profits are going to be squeezed from both ends.  Ever
since gapping up above the $80 level in late April, shares of XL
have been building a broad topping pattern above that level.  The
final bullish push came in mid-June as the stock printed a double
top near $88 and price has been steadily deteriorating ever
since.  After a brief bounce just above $81 earlier in the week,
XL rolled over again, breaking that level yesterday and
generating a new PnF Sell signal.  That Sell signal gives a
tentative bearish price target of $71.  Adding to the bearish
tone, the stock deteriorated further on Thursday, closing below
$80 for the first time since gapping higher in late April and
setting the stage for a steeper decline.

While the $71 price target from the PnF chart looks tempting,
that may be a bit aggressive for our play, as we've only got a
couple weeks to play ahead of the company's earnings report on
July 31st.  Instead, we're going to target a move down to the
$73-74 support area, which was prior resistance and then support
beginning in early April.  Aggressive traders can certainly
consider new positions on a drop under $79.50 (just below today's
intraday low), but they must be aware of the potential for an
oversold rebound from the 200-dma ($78.45).  The higher odds
strategy right now is to look for a failed rebound, ideally in
the $81-82 area, before entering the play.  Note that the 10-dma
is just now crossing the $82 threshold and it should provide
solid resistance to any half-hearted bullish moves.  The 20-dma
($82.80) provided a firm lid on the early July rebound attempt,
so we're setting our stop initially at $83.00, which also happens
to be the bottom of the 7/10 gap.

Suggested Options:
Aggressive short-term traders will want to focus on the August 80
Put, as it will provide the best return for a short-term play.
While we've listed the $75 strike, note that it has just been
listed and does not yet have any open interest or a valid quote
yet.  Aggressive traders looking to use this strike will need to
wait for open interest.  Traders with a more conservative
approach will want to utilize the October contract, as it should
not be subject to the same time decay issues as the August
contracts over this week's expiration event.

BUY PUT AUG-80 XL -TP OI= 476 at $2.85 SL=1.50
BUY PUT AUG-75 XL -TO OI=   0 at $0.00 SL=0.00
BUY PUT OCT-80 XL -VP OI= 590 at $4.70 SL=2.75

Annotated Chart of XL:



Picked on July 17th at   $79.64
Change since picked:      +0.00
Earnings Date          07/31/03 (confirmed)
Average Daily Volume =    762 K
Chart link:



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DISCLAIMER
**********

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http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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For more information on advertising in OptionInvestor Newsletter,
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Contact Support
The Option Investor Newsletter                 Thursday 07-17-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: PUT - FITB
Traders Corner: A Little Older, A Little Wiser, But Still Not
Little
Traders Corner: A Change of Pace


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

Fifth Third Bancorp - FITB - cls: 55.26 chg: -0.98 stop: 57.51

Company Description:
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. The Company has $88 billion in
assets, operates 17 affiliates with 943 full-service Banking
Centers, including 132 Bank Mart. locations open seven days a
week inside select grocery stores and 1,883 Jeanie. ATMs in Ohio,
Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and
West Virginia. The financial strength of Fifth Third's affiliate
banks continues to be recognized by rating agencies with deposit
ratings of AA- and Aa1 from Standard & Poor's and Moody's,
respectively. Additionally, Fifth Third Bancorp continues to
maintain the highest short-term ratings available at A-1+ and
Prime-1 and is recognized by Moody's with one of the highest
senior debt ratings for any U.S. bank holding company of Aa2.
Fifth Third operates four main businesses: Retail, Commercial,
Investment Advisors and Fifth Third Processing Solutions.
(source: company press release)

Why We Like It:
Sometimes picking on the under-performer when the markets decide
to rollover can be a profitable way to catch the general trends.
With the INDU and COMPX suffering set backs and investors selling
their winners the banking sector, which has been one of the
aforementioned winners (since its March low), is a prime
candidate for some serious profit taking.  The BKX index has
fallen back under the 900 level and looks ready to retest the
late June support of 850 (currently at 882).  Meanwhile, shares
of FITB peaked weeks ago in early June (compared to the BKX which
peaked a few days ago) and FITB has been suffering a slow decline
ever since.  Now that selling pressure appears to be outweighing
buying pressure we could see FITB's decline pick up speed.

So far this month (July) shares of FITB bounced three times at
support near $56.00.   That support, which also included the
simple 50 & 200-dma's, failed today with the last half hour
really going to the bears.  The company announced their Q2
earnings two days ago when shares were near $58.00.  As you can
see the results didn't inspire much faith.  According to the
press releases, FITB's Q2 saw its profits rise eight percent over
last year's bolstered by stronger loan growth.  Wall Street had
been looking for 74 cents a share and FITB reported 75.  While it
was a positive surprise the stock has obviously been unable to
maintain any strength.

We're encouraged by the technical breakdown that is strengthened
by the bearish oscillators on both its daily and weekly charts.
A trade under the $55 mark would produce a fresh double-bottom
sell-signal in FITB's P&F chart.  We're going to suggest new
positions at current levels (under $56) but more cautious traders
may want to wait for a move under $55, which appears to be
significant support/resistance on its weekly chart.  Our first
target will be the $51-50 area.  We'll initiate the play with a
stop at 57.51 even though the month-long trend of lower highs is
suggesting a stop at just above $58.00.

Suggested Options:
We're going to list August and November strikes with a preference
for the $55 and 50 puts with the 50 puts being the riskier bet.

BUY PUT AUG 55 FTQ-TK OI=1669 at $1.50 SL=0.75
BUY PUT AUG 50 FTQ-TJ OI=1214 at $0.30 SL= --
BUY PUT NOV 55 FTQ-WK OI= 329 at $3.20 SL=1.60
BUY PUT NOV 50 FTQ-WJ OI=7817 at $1.55 SL=0.80

Annotated Chart:





Picked on July 17th at $55.26
Change since picked:    -0.00
Earnings Date        07/15/03 (unconfirmed)
Average Daily Volume =    2.4 million
Chart link:



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A Little Older, A Little Wiser, But Still Not Little

By Mike Parnos, Investing With Attitude

“Too many people are thinking of security instead of opportunity.
They seem more afraid of life than death” -- so sayeth the
speculators.  Those are the words of traders who bet on a roll of
the dice, buying puts and calls and saying a little prayer.

Why do most of our CPTI strategies involve "selling" rather than
buying?  Because we want to be the casino -- NOT the gambler.
Why?  Because casinos win most of the time.  These are some of the
things you learn as you get older.  Here are a few other things
you learn as you get older:

a) If God wanted me to touch my toes, he would have put them on my
knees.
b) If you want to avoid shark attacks this summer, dive with a
briefcase. Sharks may mistake you for a market maker and leave you
alone out of professional courtesy.
c) Never underestimate the power of very stupid people in large
groups.
d) The perfect lover is one who turns into pizza at 4am.

What have you learned over the years?  Send me some of your words
of wisdom that we can share with our CPTI students.
____________________________________________________________

How did our "quickies" work out this month?  Well, the jury is
still out, but things look promising.  Here's a quick review.

1)  SPX Iron Condor with a range of 965 to 1025 – Credit of $2.30
The SPX closed today, it's last day of active trading, at 981.73.
We have a nice cushion, but, as we learned last month, it "ain't
over till the fat lady sings."  And the "fat lady" ain't singin'
until all 500 S&P stocks in the index are open tomorrow morning.
Then, and only then, will we know the "official" closing figure.
Since the SPX is a cash settlement index, your brokerage account
will reflect the results on Monday.  So, unless they find Sadam
Hussein and Osama Bin Laden together in a no-tell motel tonight, I
think our SPX play is safe.

2)  QQQ Lottery Strangle – Bought the $31 put and $33 call – Cost
of $.30

The QQQs closed today at $31.18. The NASDAQ closed down a whopping
50 points.  During the day, the $31 puts could have been sold for
$.20.  They're still at $.15.  It looks like the market will open
up tomorrow – as a result of positive Microsoft earnings, so that
$.15 might disappear pretty quickly.  But, again, all kinds of
strange things can happen over night – and on expiration Friday.

3)  BBH Sell Strangle – with a range of $130 to $135 – Credit of
$2.05

BBH closed today at $132.62 – about the middle of our range.
Looks good.  One day left.
_____________________________________________________________

Hi Mike,
AFFX @ $21.75 provides an example of two questions I have been
wondering about.  This is the kind of stock I like for Iron
condors, but there is no $27.50 strike available.  If a $27.50
call existed, it would probably be $.30 x $.35.  I could buy it
and sell the $25 call (along with a similar position in the $15 &
$17.50 puts) making my Iron Condor's net credit about $.65.
Risking $1.85, that's a little under 3:1, with a $7.50 point max
profit range, extending 14.9% to the upside and 19.5% to the
downside. My safety range would be 17.9% up & 22.5% down.  Seems
safe.  Since there is no $27.50 call available, I see three
choices.

1.  I could sell the $25 calls naked and sell the put spread.  My
net credit goes up to 1.00, but my risk to the upside is uncapped.
2.  I could buy the $30 call and make a $5.00 strike spread with
calls and $2.50 with puts, but that Aug. $30 would only insure me
against a rally of 37% or more by august expiration.  I don't
expect to see that.  The naked call would only tie up about
$800 more than the call spread (10 contract position).
3.  I could blow it off and go to another stock because it doesn't
meet my Iron Condor requirements.  Also, AFFX announces earnings
next Wednesday.  Do you generally avoid Iron Condors on stocks
with upcoming earnings? Your thoughts??? Scott.

Hi Scott,
You've thought this through very well.  There's another
alternative you may want to consider.  It's a little riskier,
though.  You could put on a "sell strangle" – simply selling both
the August $17.50 puts and the $25 call.  At Thursday's closing
prices you'd take in $1.10.  I like the $7.50 range and the chart
looks pretty good too!  You would want to bail out of the trade if
it traded at $17.50 or $25.

Concerned about earnings?  Well, AFFX is a biotech stock.  It's
not the earnings that concern me as much as some FDA announcement
regarding one of its drugs that may be up for approval.  You
might, before you would put on a trade, venture a phone call to
the Investor Relations department at AFFX and ask if any such
announcements are anticipated in the near future.
______________________________________________________________

JULY CPTI PORTFOLIO POSITION UPDATE

July Position #1 – LLTC Baby Condor – Closed at $34.69
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 in the range and one trading day to go.
_____________________________________________________________

July Position #2 – SPX Iron Condor – Closed at $981.73
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've reduced the
number of contracts to four to reduce our exposure.  Maximum
profit is $1,620.  The SPX closed comfortably in the range.  The
trading part is over.  All we have left to sweat is tomorrow's
opening – we learned that the hard way last month.  I like our
chances.
______________________________________________________________

July Position #3 – DJX – Bear Call Spread – Plus - 90.51
We're due to experience the summer doldrums – and why shouldn't
the DOW participate?  We established a bear call spread.
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

If the DOW finishes below 9000 at July expiration, you keep the
$1,350.   Your exposure would be $1.10 (9200 – 9000) X $1,900.
Your maximum profit would be $1,350.  The DJX closed at 90.51.
The DJX works the same way as the SPX.  Therefore, we have to wait
until the 30 DOW stocks open Friday morning before we can
determine how we did.
_____________________________________________________________

Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $31.18
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 for a 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.

We sold the July $28 call for $3.80.  We now own the July $30 put
at a cost of $.05.  If the QQQs move down a few points, we might
just make a few bucks.  Unless the QQQs take a big dip tomorrow,
we'll end up losing a nickel.
______________________________________________________________

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

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

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

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


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

A Change of Pace
by Mark Phillips
mphillips@OptionInvestor.com

For several weeks now, we've been going through the details of the
trading approach I've put together for trading the e-mini index
futures.  It has been a pretty intensive discussion and I still
feel there's a lot of good subject material to cover.  But this
week, I need to step away from it, at least in this forum.  There
are a couple of reasons for this little diversion -- the first is
that I was away from the markets on Monday and Tuesday and didn't
see the sort of price action on Wednesday that I want to discuss
for our next series of examples.  I don't feel it does anyone any
good to dissect price action and tell you how you could have
traded it, when looking at it in hindsight.  Anyone can do that --
in fact, if that was all that was necessary, I could have my wife
sit down and write this article and nobody would be the wiser.
But that's not the sort of service I try to provide and I hope it
isn't what you expect.

But there's another reason I've put the futures discussion on hold
this week, and that's because I have other things on my mind.  If
I don't get them out in an organized manner soon, they're likely
to just escape into thin air and I'll forget to ever write about
them.  I'll warn you right now, that this is liable to be a rather
disjointed discourse -- my wife would call it a rant.  So with my
thanks in advance for your indulgence this evening, here goes.

The Fed IS Impotent

Over the past year, I think I've heard a couple dozen different
viewpoints on why the Fed will be able to avoid deflation and
counter-arguments about why they won't.  Regardless of which side
of the argument you come down on, I think the one reality is that
Greenspan and company really have no power to control economic
growth at the present time.  It has been pretty much accepted that
the Fed no longer has the ability to drop short-term interest
rates, as they are now at 1.00% and it appears unlikely that they
will be raised anytime in the near future.  Much has been made of
the fact that the Fed has a printing press and isn't afraid to use
it.  In fact, we can see the effects of its use in the mushrooming
liquidity in the economy.  It is really starting to get out of
hand again, and here's a statistic to put a face on it.  In just
the last 3 weeks, the Fed has increased the M3 Money Supply by
more than $100 billion.  Doing the math, that comes out to a
whopping $1.7 trillion on an annualized basis.  That's huge!

The problem is that they can't control where it goes or how it
gets used.  Jonathan has done a great job in recent weeks (and I
suspect will touch on the topic again in his Wrap tonight)
demonstrating how the incredible surge in liquidity is finding its
way everywhere EXCEPT where the Fed wants it, which is into
business loan growth.  All the new money has been finding its way
into consumers' pockets via revolving (credit card) debt and cheap
home and auto loans.  The excess cash generated from cash-out
refinancing has been used to fuel lifestyle expenditures, keeping
the economy afloat, even though business has shown no inclination
to spend on expansion.

The real problem is becoming clear this week though, with the
vertical rise in bond yields.  In just the past month, the yield
on the 10-Year Note is up nearly a full 1.0% and it is really
going to spell major problems if this rise continues.  Basically
bond investors have thumbed their collective noses at Alan
Greenspan and given a vote of "No Confidence" that he'll be able
maintain low rates AND stimulate economic growth.  The selloff in
bonds is a vote by the smartest group of investors out there that
interest rates are going up, because the spectre of inflation is
on the horizon.  Normally that wouldn't be a problem, as the Fed
can just raise interest rates to slow down inflation.  But when
interest rates rise, we all know what happens.  It puts a damper
on business loan generation as well as the willingness of
consumers to take on more debt.  Well the latter is precisely what
has kept the economy from slipping into the abyss over the past
year.  And if the Fed is priming the money pump in an effort to
get business growth going again, the last thing they're going to
want to do is anything that would hamper business spending growth.
What happens when you kill that 'stimulus' in an economy that is
clearly NOT growing and with unemployment continuing to rise?  Why
you get stagnant or non-existent growth.

You see, the Fed has been making noises about the various
"unconventional" means that they can use to stimulate the economy.
But I beg to differ, as every tool currently at their disposal has
the effect of increasing the money supply, devaluing our currency,
but without one whit of control as to whether any of that
additional "money" creation will provide any direct economic
growth.  It is the difference between the growth of money and the
velocity of money.  Just because the money is created out of thin
air doesn't have anything to do with whether there is any economic
growth taking place.  Economic growth occurs when more money is
exchanged for goods and services than in a prior period.  Unless
you can stimulate the demand side of the equation, then all you
have is this great sea of liquidity sloshing around, with nowhere
productive to go.  Put another way, money creation may be high,
but the movement of that money may be negligible and that speaks
of stagnation to me.

So how does the Fed get some stimulus on the demand side of the
equation?  They can't!  The tools at their disposal are lowering
interest rates and creating new greenbacks out of thin air.  They
can probably intervene directly in the Treasury market by buying
government bonds too, but in the end that is no different that
just printing more dollars.  These tools are designed to stimulate
business spending to increase production capacity to meet
increasing demand.  But there's already a glut of capacity in the
global economy and companies have ZERO incentive to increase their
already excessive capacity.  The end result is that the Fed cannot
coerce business to spend, and the desired growth never happens.
There are some severe excesses that were created in the late 1990s
and until they are worked off, there will be no incentive to take
on additional debt for new expansion.

So let's review.  The Fed has been priming the monetary pump for
the better part of two years through interest rate cuts -- all to
no avail.  So they upped the ante back in November and started
really running the printing presses to get some stimulus going.
As before though, it just keeps flowing into revolving credit
creation, auto loans and home loans, with very hardly anything
finding its way into the business community.  That leaves the
consumer the continuing backbone of the economy, and if we falter,
then bye-bye economic growth.  Things were cruising along alright
until the bond crowd started getting nervous and that nervousness
hit a crescendo yesterday while Greenspan was speaking and they
were literally dumping bonds.

With rates rising sharply, I think we can safely conclude that
consumers are not going to be fueling their lifestyle through
another round of home equity loans and that removes one area of
stimulus for the economy.  Then if we factor in rising
unemployment, we have yet another pocket of weakness to contend
with.  In short, the economy and the market has been floating on
the Fed-induced sea of liquidity, but it has been wholly
artificial.  The bond crowd poked a big hole in the life raft this
week and I believe it was the equivalent of giving Greenspan's Fed
a "No Confidence" vote with respect to being able to get the
economy growing.

So here are the questions that are plaguing me tonight.  If the
Fed can't stimulate the economy with either money creation or
decreasing interest rates, what CAN they do that can have a
beneficial impact on economic growth.  My best guess/answer is
"nothing".  The other doozy of a question is where all the money
(and there's a lot of it) that is coming out of the bond market is
going?  It clearly hasn't been flowing into the equity market.  Is
it being repatriated overseas or is it sitting in a big slush fund
waiting the right opportunity to be plunged into equities?  I
don't have any of these answers, but as you can see, the questions
are allowing me to get plenty of mental exercise.

Next week, I've got another interesting topic I want to delve
into, but I'll keep you in suspense for now.  We'll be back on our
normal Monday schedule next week.  As always, if anyone has any
great words of wisdom pertaining to the questions I've raised here
tonight, please feel free to send them along.  Who know, we may be
able to get a lively and productive discussion going and we might
just all learn something together.  Now that sounds like fun!

Have a great week!

Mark


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