Option Investor

Daily Newsletter, Thursday, 07/24/2003

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The Option Investor Newsletter                Thursday 07-24-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Surprised?
Futures Markets: Sellers return
Index Trader Wrap: Given a few more points, bear defended
Market Sentiment: Setting your sights
Weekly Manager Microscope: Martin Sosnoff: Atalanta/Sosnoff Funds

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
      07-24-2003           High     Low     Volume Advance/Decline
DJIA     9112.51 - 81.70  9281.42  9106.42 1.87 bln   1549/1670
NASDAQ   1701.42 - 17.80  1740.80  1700.29 1.87 bln   1512/1697
S&P 100   493.65 -  4.14   503.12   493.31   Totals   3061/3367
S&P 500   981.60 -  7.01   998.89   981.07 
W5000    9457.57 - 57.90  9612.58  9453.27
RUS 2000  465.26 -  0.88   472.51   465.25 
DJ TRANS 2592.95 + 20.80  2612.83  2571.09   
VIX        20.46 +  0.02    20.66    19.63   
VXN        31.45 +  0.67    31.68    30.10 
Total Volume 3,989M
Total UpVol  1,566M
Total DnVol  2,383M
52wk Highs  517
52wk Lows    26
TRIN       1.30
PUT/CALL   0.75


I was. Not that we had a big drop late in the afternoon but 
that we had the big bounce in the morning. Most bulls I know 
were scratching their heads at the close today the same way I 
was scratching my head on Tuesday afternoon. I was in denial 
all morning today and when the drop did begin it came so fast 
I immediately became suspicious despite feeling relief. Relief
that I was not losing my mind over my July analysis. We are a 
long way from proving that last statement but significantly 
closer tonight than we were this morning. 

Dow Chart

Nasdaq Chart

S&P Chart


The day got off to a flying start with the first Jobless Claims
number under 400,000 in 23 weeks. The 386,000 headline number
triggered massive short covering as surprised bulls started 
buying and surprised bears began running for cover. The general
consensus was that a real economic recovery had begun. Hold that
thought for a minute. If the Jobless Claims were really under 
400K would that mean a recovery had begun? No, just that the 
statistical anomaly of 22 weeks over 400K had finally run its
course. It would take a string of weeks under 400K with 
decreasing weekly numbers to even begin to indicate a jobs 
recovery had begun. Now the bad news. This was "seasonally
adjusted data." The raw number was still over 400K, way over at
423,972. The numbers are adjusted for a normal influx of workers
furloughed from automakers in the last two weeks of July while
the retooling process takes place. This is historically when this
takes place. However, things are a little more fluid this year
and the adjustment could be over done. With automakers cutting
production earlier and adjusting assembly lines to compensate
for the weaker demand we may not have the same worker fluctuation
that we have always had in late July. All this boils down to you
cannot trust the numbers and they really do not mean anything. 
It was one week and not a trend. 

Another jobs report, the Monthly Mass Layoff report, showed that
1,691 new layoffs were announced in June for 157,595 workers. 
This was only slightly below the 173,784 for May and 161,095
for April. Definitely no change in trend here. The manufacturing
sector continued to lose the most workers. Layoffs in California,
Pennsylvania, New Jersey, Florida, Texas, and Ohio accounted for 
58% of all layoff events and 55% of initial claims for unemployment
insurance in June. Granted this is a lagging report as it is 
layoffs announced in June but the actual layoffs occur over the
next 90 days from the announcement. That puts us right in the 
middle of the layoff period. 

Despite these reports the market charged off to within 38 points
of the high for the last 12-months at 9319. Did the economy suddenly 
improve overnight? Was there a flood of positive earnings guidance
from major companies? Did Saddam Hussein surrender? No to all of
those questions. In fact there were several high profile comments
to suggest otherwise. 

International Paper beat the street by two cents but warned that
they were seeing no improvement in the economy. They said they
were anticipating a very tough environment with demand remaining
flat. Sales were less than expected and prices are declining. FBN,
Furniture Brands International, the largest residential furniture
maker in the U.S. said it sees no signs of an economic rebound and
warned for the rest of the year. They said margins were compressing
and they were seeing increased promotional pressure. Whirlpool 
dropped -3.14 after beating the street mostly on gains in their
global businesses not the U.S. business. Investors were concerned
that the shrinking margins and lack of U.S. gains were a sign for
the future. 

After the close today VRSN posted earnings inline with estimates
but said the prolong slump in technology spending was continuing. 
The CEO said the information technology and telecom recovery has
not yet materialized. KLAC said they were not seeing a broad 
based increase in business activity but some of their customers
were reporting an upturn in their business that could produce an
upturn in sales in the future. Plenty of qualifiers in that 
sentence. Borland Software guided flat to down based on seeing no
improvement in the economy. FLEX announced results of +0.4% that
missed street estimates and warned that revenues would be lower 
due to weak demand. The FLEX CEO said it was difficult to know
if an upturn was under way. Let's see falling sales and lowered
guidance might be a clue. CLS also reported a loss of -18 cents 
when analysts were only expecting -4 cents. The guided lower for 
the next quarter and said they were going to layoff another 2000 
to 3000 workers. CLS and FLEX are two of the biggest electronics
manufacturers and if a recovery was underway they would be the
first to see it. 

JDSU, the largest supplier of fiber optic components said sales
going forward would be weaker. The JDSU CEO said the market remains
tough and we really do not have any visibility from our customers. 
NT reported a loss on $2.3 billion in sales and said the business
conditions remain difficult and their customers were continuing 
to spend cautiously. The said they remain cautious about the next
six months. TQNT warned that 3Q and 4Q revenue and earnings would 
be below prior estimates. Avaya posted a small profit on sinking 
sales but did say they were seeing some revenue stabilization and 
some positive signs that IT is strengthening. Also, very qualified.
Other companies that raised guidance included MSCC, PCLN and BNBN.    

EBAY posted its best earnings ever at 37 cents, raised guidance 
and announced a 2:1 split. EBAY dropped -$5.00 in after hours. 
Why? EBAY, like the market was priced to perfection and investors
expected EBAY to beat estimates by a wider margin. The company
said revenue could reach $2.75 billion, a jump of +$250 million.
EBAY is one of the highest priced Internet stocks with a PE over
120. Another problem was a reduction in guidance due to purchase
of the Chinese auction site EachNet. That will subtract -2 cents
in the 3Q and -1 cent in the 4Q. EBAY has a market cap of $37
billion, about one seventh of Wal-Mart's with revenue that is only
1% of Wal-Mart's. 

Gateway ended the earnings for the day with another loss of -22
cents on falling revenue. GTW back earlier guidance of -19 cents
for the next quarter although those numbers tend to fade around
mid quarter. They have lost money 10 of the last 11 quarters. 
GTW actually said that despite a decline in their PC sales 
they were seeing signs of life in the market. Considering they
are nearly giving away computers to maintain any market share in
the battle between Dell and HPQ they are probably finding a few
takers on their promotional products. 

After the smoke cleared today and the charts quit moving it was
pretty clear that a couple of buy programs, likely asset allocation
from bonds, and some serious short covering pushed the Dow back 
over 9250 but the plan ran out of steam trying to hold it there. 
When the S&P failed to hold the 994 level (992 for futures) the 
bottom fell out in a hurry. Considering it took until 2:15 for 
that failure to occur it was a pretty spectacular effort. After 
the morning bounce the war was waged in a very narrow range and 
the vultures lined up on the sidelines waiting to see up was 
going to get trampled. The bulls lost. There were multiple 
rumors helping to torch the rally. One had the terror alert 
level being raised due to a retaliation plot after the death of 
Udai and Qusai. Another had a single engine plane zooming in on 
a presidential motorcade. Still another had the big three 
brokerages Salomon, Goldman and JP Morgan dumping huge S&P sell
programs on the futures market. The last one may have some shred
of truth. 

The fact that the rumors were flying emphasized that some bears
were out on a limb. When they are about to go down for a big loss
some will resort to anything to try and stimulate the market in
their direction. If that was the intent they did a good job as 
the Nasdaq fell all the way back to 1700 once again and the Dow
is poised to break 9100 at the open if the negative futures
tonight hold until tomorrow. Helping mix things up will be 
Durable Goods Orders at 8:30 and Home Sales at 10:am. The real
economic problems don't begin until next week when the calendar
begins looking like a mine field in Korea. ISM, Confidence, Jobs,
Sentiment, GDP, PMI, ECI, Beige Book, Income, Spending. Put on
your flack jacket beginning on Monday. This could lead to some
more weakness tomorrow. The massive drop at the close that turned
a +100 point gain into nearly a -100 point loss has probably 
given some bulls indigestion. 60% of the S&P have now reported
earnings and 70% of the Dow. With the balance of the earnings
spread out over the next several weeks there is nothing anyone
will learn that they have not already heard. The recovery is
limping along at best and the markets have failed at higher 
levels four times since mid June. If they are going higher they
have a tough road ahead and a lot of traders to convince that
the July decline is not going to happen this year. 
Enter Very Passively, Exit Very Aggressively!

Jim Brown


Sellers return
Jonathan Levinson

The session began with an equities rally on the strength of the
initial claims data released at 8:30, followed by an uneasy 
trading range that lasted near the highs until just after 2PM, at 
which time they sold off sharply and continued to so for the 
balance of the session.  Gold was sold at the open but recovered 
quickly to new highs.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1005    993    986    973    966
YM03U     9330   9206   9143   9019   8956
NQ03U     1305   1280   1266   1241   1228

10 minute chart of the US Dollar Index

The US Dollar Index moved up sharply out of the gate but was 
rejected at 95.70.  Once again, precious metals closed higher,
and the commodities index, the CRB, added .96, led by by frozen 
concentrate OJ futures, cotton and crude oil.

Daily chart of August gold


The initial hesitation in gold on the strength of the jobs data 
and the US Dollar didn't last long, and the bull flag breakout 
resumed with August gold, HUI and the XAU printing new highs.  
HUI closed strongly near its highs, adding 4.16 to 163.45, the 
XAU +1.33 to 82.79, and August gold +2.80 to 361.50 with an 
intraday high of 363.70. 

Daily chart of the ten year note yield


Selling in treasuries resumed today, with the ten year note yield 
adding 3.8 basis points to close at 4.167%.  The Fed drained a 
whopping 9B in repos today, and judging by the action in equities 
this afternoon, more of it had been invested there than usual, 
with the selling in treasuries relatively light by comparison.

Daily NQ candles


The daily ascending trendline was not challenged by today's sharp 
selloff, but the closing gravestone doji on sell signals from the 
longer cycle left the Nasdaq futures on a bearish note.  There 
was a higher high and higher low compared with yesterday, but the 
rejection of the 1290 level felt very bearish, particularly on 
the heels of what looked like a bull wedge breakout this week.

30 minute 20 day chart of the NQ


Today's early morning rally was strong and convincing, but 
stopped at the descending trendline off last week's highs.  The 
oscillators are in full bear rolls, with the 1245 level next up 
for a test of the longer term ascending trendline.  The low VIX, 
QQV and VXN readings should give bulls some concern as to the 
solidity of that support line, as volatility has actually reached 
lower levels following the price down.  We saw the same action in 
the spring of 2002 before the sharp decline heading into the 

Daily ES candles


The action on ES was particularly bearish, again the same higher 
high and higher low, but the rising trendline is history now, 
with the bearish oscillators sticking to their bearish guns.

20 day 30 minute chart of the ES


The bears passed their test at the highs today, with the 
descending trendline holding back the advance.  Tomorrow is setup 
for the bulls, with the 977 level looming large.  The oscillators 
say lower lows, but the multiweek ascending trendline says 
different.  The overnight action from Europe could decide it, 
particularly as there's been a distinct lack of 3AM buyers all 
through the recent upphases.  If today's sharp selloff was simply 
related to the 9B repo drain from the Fed, the damage can easily 
be undone at the trendline, and another bounce will be in the 
works.  Tomorrow's session is shaping up to be very instructive 
as to the mid-term direction of the markets.

Daily YM candles


Same story on the YM.

20 day 30 minute chart of the YM


I've labeled the daily print as a doji, but it wasn't quite that.  
The DOH! Gee.. handwringing 180 degree reversal didn't occur 
today, and that's what a true doji is for me.  There was a slow, 
gentle, weakening top printed over a span of hours that got 
subsequently nuked by a series of violent, high volume selling 
frenzy.  Rumors abounded, but rumors don't move markets, they 
only expose weaknesses in the market.  Many bulls will be looking 
at the rising lower trendlines on the equity futures and seeking 
to buy the dip.  Bullish thoughts are the farthest thing from my 
mind, as the markets appear hugely overpriced to me.  But on a 
purely "follow the bouncing ball basis", I have to urge caution. 
Higher highs and higher lows were set on the equity futures, and 
so it wasn't an outside reversal day as of this writing (4:45 PM 
EST), but one gets the feeling that they were saved by the bell.

In the meantime, precious metals continue to fulfill the bullish 
chart patterns we've been following day-by-day.  Who was it who 
said that there's always a bull market somewhere?


Given a few more points, bear defended

A neck brace and hammer may have been a trader's most used tools 
in today's session as a jolt higher at the open on better than 
forecasted weekly jobless claims shook a hesitant bear out of a 
bearish trade in both the S&P 500 Index (SPX.X) 981.60 -0.7% and 
Dow Industrials (INDU) 9,112.51 -0.88% in the first hour of 
trade, but given more room, bears may have shown some sign that 
they are beginning to try and build a line of defense at SPX 
1,000 and Dow 9,300.

The bulk of the morning's gains were put in place in the first 
hour of trade on some economists' rethinking that despite the 
drop below 400,000 and lowest reading since February 8, 2003, the 
better than forecasted jobless claims report was due to 

It continues to amaze this technical analyst (Jeff Bailey) how a 
group of economists can forecast a potential outcome, but then 
create an excuse that explains the errant forecast on something 
they "knew" was going to create an opposite result.

I'm not being critical of economists, as trying to predict a 
weekly or quarterly economic number is difficult.  However, don't 
give the MARKET a number, then when you're off, tell the MARKET 
about certain seasonality patterns that may have created the 
"surprise" (up or down)."

Had I (Jeff Bailey) not "rethought" things from a point and 
figure chart perspective, I probably wouldn't have been needed a 
neck brace and spent an hour looking for a hammer when stopped 
out on the move higher, when a level of recent resistance found 
willing sellers again today.

A rather large sell program at 02:22 PM EST found the SPX 
breaking lower from the 995.5 WEEKLY pivot, where the SPX had 
hovered for the better part of the session.  From there, it was 
lower to the close, with the SPX then triggering a bearish 
profile I re-established in the indexes at SPX 983.00.

Here's a quick look at tomorrow's pivot matrix where INDU/DIA 
WEEKLY R1 came close to being traded, but wasn't, and may have 
been the most "meaningful" level in play today if bears were 
going to show a more aggressive stance toward the establishment 
of a resistance level.

Pivot Analysis Matrix 


There was no further technical damage done today than may have 
been done in early July, but if we're going to see any type of 
weakening trend begin, then bears need to break a bull's will and 
get some type of bearish continuation to the downside.  I'll make 
it short and simple in tonight's point and figure charts.

Dow Industrials Chart - Daily Interval


The reason I'm a "cautious bear," but still bearish the Dow 
Industrials at this point is the double-bottom sell signal at 
8,900 and inability at this point for the Dow to have set a 
higher high.  My "caution" comes from the higher lows since the 
July 1st trade at 8,900.  

What had me lowering a stop in this morning's 09:00 pre-market 
update was that Treasuries saw a pickup in selling (free up cash) 
and the U.S. Dollar Index (dx00y) 95.32 -0.12% was rebounding 
from its overnight lows on the jobless data.  

I was surprised at the rather steep fall-off in weekly jobless 
claims, and yes, while there may have been some "summer 
seasonality" in the numbers.  

A bar chart of the Dow Industrials shows it closing right on its 
21-day SMA (9,108.2) and rising 50-day SMA is currently rising at 
9,000.12, which I would tie in with the above PnF chart, where a 
trade at 9,000.00 would be a second consecutive sell signal.

To try and prevent being "shaken" out on the Point and figure 
chart, I'd suggest bears place a stop at 9,350 to prevent a 
potential "bull trap" pattern.

Today's trade saw no net change in the very narrow Dow 
Industrials Bullish % ($BPINDU).  Still "bull confirmed" at the 
bullish cycle high reading of 86.67.

3M (NYSE:MMM) 139.45 +0.43% and Eastman Kodak (NYSE:EK) $26.26

S&P 500 Index ($SPX.X) Chart - Daily Interval


Neck brace?  Yeah, there was some intra-day volatility, however I 
was looking for a hammer to take my frustrations out on something 
when the sell program hit and SPX gave up the 995 level in rather 
quick fashion into the close.

To make sure I wasn't being emotional once the decline was 
underway, I tried to "make the SPX get me bearish again" and set 
a bearish entry point back at 983.00, which was triggered at 
03:52 PM EST.

There's a saying that "the third time is a charm," and while 
bears met the challenge today and got a push back lower to the 
close, it will take a third sell signal at 975 to make for a 
lower low after the recent rebound from 985.

If this were baseball, it would be my view that the bulls are 
still at bat, with the bears pitching.  Full count at 3 balls and 
two strikes, and the pitcher is winding up.

I think "strike 3" is about to be called.

Today's trade saw no net change in the broader S&P 500 Bullish % 
($BPSPX) and stays at "bull correction" at 76.2%.

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


"Overlapping" resistance of 502 was violated to the upside by 
1.12 points and getting stopped above that level is enough to 
create frustration if a bear from yesterday was stopped out.  
Only alternative was to sulk a bit, or get back on the bike and 
ride if analysis for weakness was still in play.

BIG wedge forming and while bears may have defended at 502, bulls 
may now be tested back at 492 as the convergence of supply and 
demand builds pressure.

Today's trade saw no net change in the narrower S&P 100 Bullish % 
($BPOEX).  Still "bull confirmed" at the bullish cycle high 
reading of 84.00%.

I wanted to show the OEX bar chart to also make note that the OEX 
and SPX are the two major indexes at this point, which are 
closest to their 50-day SMA support, which will draw market 
technician's attention.  Some consider a close above or below 
this average on a DAILY interval basis as being either bullish or 
bearish.  Some consider a FRIDAY or weekly close above or below 
as having more weight.

I have little input on as to which is more important, but with 
the bullish % levels at such high levels right now, I'd expect 
the 50-day, which served support on the recent July 21 and July 
22 lows to be a moving average that will draw some attention and 
a close below that level will undoubtedly draw some negative 
commentary, if not reaction from technicians.

INDU has 50-day SMA at 9,002.  SPX's 50-day SMA at 978, NDX 50-
day SMA at 1,217 and QQQ 50-day SMA at $30.25.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval


I was rather "focused" on the SPX/SPY this morning and missed the 
action early after the QQQ pulled back to an early morning low of 
$30.72, which was 2 cents above a pullback entry point I 
discussed in the 09:00 pre-market commentary.  When the SPX moved 
above the WEEKLY pivot, the QQQ's had come back to a session 
high.  Certainly shorts would cover and push the QQQ to a 
euphoric move back to $32.40.  Stopped from that bullish profile 
at $31.56.

I've added what I consider an "aggressive bearish trend" in the 
QQQ, which I've attached to today's highs.  If bears are 
determined, this trend should hold resistance.

Today's trade saw a net loss of 1 stock to a point and figure 
sell signal in the narrow NASDAQ-100 Bullish % ($BPNDX) and slips 
back to 76%.  It would take a reading of 74% to reverse back into 
"bull correction" status and a reading of 72% for "bear 

My thoughts for adding the aggressive bearish trend is if we 
should see the QQQ turn "bear confirmed" at these high levels of 
bullish %, then that aggressive trend may indeed be in play.

Jeff Bailey

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Setting your sights 
Jonathan Levinson
The VIX broke below 20 today and stayed there for several hours 
today, as the price of gold broke 360.  In the meantime, the put 
to call ratio was looking moderate, the oscillators were edging 
toward possibly higher levels, and the US Dollar Index was 
rallying off its lows.  There was a bullish surprise in the jobs 
data as well, with initial claims falling below 400,000 for the 
first time in several months.  This last is news to cheer.
The markets put in a pattern of higher highs and higher lows this 
week, with a "senseless" rally on the news of Hussein's sons 
being killed.  Ben Bernanke held out the promise of a fresh 
assault on the value of the dollar, which would be as bullish for 
equities as it was the last time he did it during the fall of 
It's difficult to know which of our many indicators to follow in 
divining market direction.  Other than by trading mechanically, 
which many do, one must rely on a healthy dose of intuition in 
the attempt to "hear" the combined message of the indicators.  To 
practice this art requires not tighter focus, but distance from 
the screen.  Today's selling was "impulsive", insofar as it 
exceeded the speed and extent of the buying surges during recent 
sessions.  Once again, on a longer term basis, it feels as if the 
top of the rally is in.


Market Averages


52-week High:  9353
52-week Low :  7197
Current     :  9112

Moving Averages:

 10-dma: 9132
 50-dma: 9002
200-dma: 8482

S&P 500 ($SPX)

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

Moving Averages:

 10-dma:  990
 50-dma:  977
200-dma:  905

Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1253

Moving Averages:

 10-dma: 1269
 50-dma: 1216
200-dma: 1076


There was much commotion made today over the VIX finally piercing
its historical sell signal of 20 today.  Typically, when the VIX 
hits 20 it's a sign that the markets have topped and further weakness
is in store.  The VIX has been vacillating above 20 for so long that
many felt we may never actually see the 20 level hit.  Now just 
because the VIX hit 20 today doesn't mean the markets are going to 
drop tomorrow.  Using the volatility index is not an exact science.
We could easily see it trade down to 19 or lower, which usually 
means investor bullishness is reaching extremes.  However, we
can't ignore this signal and bullish traders are advised to monitor
their stop losses carefully.

CBOE Market Volatility Index (VIX) = 20.44 +0.00
Nasdaq-100 Volatility Index  (VXN) = 31.45 +0.67


          Put/Call Ratio  Call Volume   Put Volume

Total          0.75        653,637       488,014
Equity Only    0.64        515,611       332,345
OEX            0.59         33,358        19,567
QQQ            2.03         30,648        62,359


Bullish Percent Data

           Current   Change   Status
NYSE          69.5    - 2     Bull Confirmed
NASDAQ-100    76.0    - 2     Bull Confirmed
Dow Indust.   86.6    + 3     Bull Confirmed
S&P 500       76.2    + 0     Bull Correction
S&P 100       84.0    + 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  0.93
10-Day Arms Index  0.96
21-Day Arms Index  1.11
55-Day Arms Index  1.13

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1384      1443
Decliners    1463      1594

New Highs     105       185
New Lows       21        11

Up Volume    772M      748M
Down Vol.   1066M     1095M

Total Vol.  1846M     1858M

M = millions


Commitments Of Traders Report: 07/15/03

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

Stuck in limbo.  The large S&P contracts saw little movement by 
both the small traders and the large commercial traders.  
Investors could be waiting to get some sort of reading on trader 
sentiment after the first week of earnings has been completed.

Commercials   Long      Short      Net     % Of OI
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%)
07/15/03      414,020   453,033   (39,013)   (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
06/24/03      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%
07/15/03      148,716    70,279    78,437    35.8%

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

The S&P e-mini contracts saw more shuffling than the larger 
contracts (above) but overall there is little to discern.  Except 
for the slight less bearish bias in the Commercials who bumped up 
their long positions while scaling back a few of their shorts, 
which effectively reduced their net short to a meager 4500 
contracts.  Meanwhile the small traders lightened up on both long 
and short contracts but remain rather bearish.

Commercials   Long      Short      Net     % Of OI 
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%)
07/15/03      214,274   218,765    ( 4,491)  ( 1.0%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  ( 4,491)  - 07/15/03

Small Traders Long      Short      Net     % of OI
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%)
07/15/03       45,372    54,654    (9,282)   (9.3%)

Most bearish reading of the year: (15,696)  - 07/08/03
Most bullish reading of the year: 449,310   - 06/10/03


Much like the larger S&P futures there was little change in the 
NASDAQ 100 futures.  Yet we must note one exception.  The 
shuffling in the commercial long/short positions produced the most 
bearish reading in months.  Close a few long contracts here, add a 
few short contracts here and we have a new relative high in net 
short positions.  

Commercials   Long      Short      Net     % of OI 
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%)
07/15/03       28,467     49,154   (20,687) (26.7%)

Most bearish reading of the year: (20,687)  - 07/15/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
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%
07/15/03       26,489     8,004    18,485    53.6%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02


Somewhat interesting behavior by the commercials last week.  They 
scaled down their short positions, which significantly bumped up 
their net long holdings over all.  This is effectively telling us 
that institutions still think the Industrials well be stronger in 
the coming

Commercials   Long      Short      Net     % of OI
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%
07/15/03       21,607     7,855   13,752      46.7%

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
06/24/03        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%)
07/15/03        5,475     9,717   (4,242)   (27.9%)

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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Martin Sosnoff: Atalanta/Sosnoff Funds

Martin Sosnoff is founder, chairman, chief executive officer and 
chief investment officer of Atalanta/Sosnoff Capital Corporation, 
as well as portfolio manager of the Atalanta/Sosnoff Fund (ASFGX) 
and Atalanta/Sosnoff Value Fund (ASVFX).  Both Atalanta/Sosnoff 
funds seek to provide long-term growth of capital over time, but 
vary in their investment style.  The Sosnoff Fund (ASFGX), which 
started operations in June 1998, employs the firm's "core equity" 
philosophy.  Sosnoff Value Fund (ASVFX), which was launched July 
1999, invests in "undervalued" stocks.

Before founding the predecessor investment management business to 
Atalanta/Sosnoff Capital Corp. in 1968, Mr. Sosnoff was director 
of research with Starwood Corporation, a private investment firm, 
and a research analyst at E.F. Hutton.  He has about 35 years of 
investment management experience, is the author of two books and 
currently writes a column for Forbes Magazine.  Mr. Sosnoff also 
recently appeared on Louis Rukeyser's Wall Street Week (February 

Both Atalanta/Sosnoff funds require a minimum $5,000 investment 
to open a regular account.  The value fund product has a $2,000 
minimum initial investment to open an IRA account, according to 
Morningstar.  The Sosnoff Fund (ASFGX) is available on a no-load 
NTF basis through Schwab, TD Waterhouse and Bear Stearns, among 
other online brokers.  Sosnoff Value Fund (ASVFX) is less widely 
available.  You can invest with no transaction fees through Bear 
Stearns and TD Waterhouse's retail NTF networks.  Annual expense 
ratios currently stand at 1.50%, per Morningstar.

For more information or to download a fund prospectus, go to the 
www.atalantasosnoff.com website.

Investment Style

The Atalanta/Sosnoff Fund (ASFGX) is a large-cap U.S. stock fund 
that employs the firm's core equity philosophy.  It pursues long-
term capital appreciation through investments in common stock of 
companies that are entering into (or in) a period of accelerating 
earnings momentum.  Sosnoff operates this core/blend equity fund 
with a "growth" tilt.  Some call this style "growth at reasonable 
prices" or GARP for short.  It tries to capture the return of the 
traditional growth-driven fund, with less "price valuation" risk.  

Atalanta/Sosnoff Value Fund (ASVFX) also invests in a diversified 
portfolio of established, large-to-mid capitalization stocks, but 
employs "value" screens in the stock selection process.  It has a 
philosophy of investing in equity securities that are undervalued 
at time of investment.  Its most recent portfolio looks very much 
like its sibling, Atalanta/Sosnoff Fund.  Both portfolios have an 
average market capitalization of over $32 billion, characteristic 
of a portfolio of giant-cap and large-cap stocks.  Both funds are 
above the market (S&P 500) based on average P/E ratio and average 
earnings growth rate, putting them into the Morningstar large-cap 
growth style box.

The Atalanta/Sosnoff website states that the firm's views of the 
overall financial environment are incorporated in the sector and 
selection process.  In other words, Sosnoff blends macroeconomic 
forecasts with fundamental analysis.  They say they are "growth" 
managers, adding value by overlaying this discipline with a "top-
down," macro-economic point of view.  In the next section, we'll 
see how well the two funds have performed relative to their peer 
group (i.e. large-cap funds).  

Investment Performance

Per Morningstar's latest fund report, Martin Sosnoff has compiled 
an excellent record by blending top-down, macroeconomic views and 
bottom-up, fundamental analysis, giving the Atalanta/Sosnoff Fund 
its highest "5-star" overall rating for risk-adjusted performance 
versus category peers.  Morningstar says Sosnoff "shifts sectors 
freely," and maintains a balance between value and growth stocks.

Morningstar rates both funds five stars for risk-adjusted returns 
relative to category peers, with one fund rated against large-cap 
blend funds and one fund rated against large-cap growth funds due 
to their average investment style over the past three years.  The 
interesting part is that the Atalanta/Sosnoff Value Fund lands in 
the large-growth category, while the Atalanta/Sosnoff Fund, which 
has the slight growth bias, is put into the large-blend category.

Since both portfolios have similar portfolio characteristics, you 
can see how that affects relative risk.  In relation to large-cap 
blend funds, Sosnoff Fund has above-average risk.  In relation to 
its large-growth fund peers, Sosnoff Value Fund has below-average 
risk.  The portfolio characteristics and risk levels have all the 
makings of a large-cap "core growth" portfolio.

Both Atalanta/Sosnoff funds are ahead of the market in 2003 using 
the S&P 500 index as the market benchmark.  Atalanta/Sosnoff Fund 
has a YTD total return 16.2% while Atalanta/Sosnoff Value Fund is 
up 15.0% through July 22.  That compares to a YTD return of 13.4% 
for the S&P 500 index per Morningstar.  The trailing 1-year total 
returns of the two funds are also strong, with both funds up over 
23 percent, better than most large-cap blend and large-cap growth 
funds but lagging the S&P 500 index's 26.2% return for the 1-year 

Both funds came through the bear market in better shape than the 
market (S&P 500 index) and similar funds.  Below is a summary of 
trailing 3-year annualized total returns through July 23, 2003, 
per Morningstar.

  3-Year Average Annual Total Return:
  - 6.4%  Atalanta/Sosnoff (ASFGX)
  + 3.8%  Atalanta/Sosnoff Value (ASVFX)
  -11.3%  S&P 500 Index
  -11.1%  Morningstar Large-Blend Category Average
  -19.6%  Morningstar Large-Growth Category Average

You can see that Sosnoff excelled at preserving capital over the 
past three years relative to similar funds and the S&P 500 index, 
putting the two funds in good stead for this year.  The Atalanta/ 
Sosnoff Value Fund returned over 34 percent in 2000 then managed 
not to lose more than 15% in either of the next two years.  It's 
among the minority of large-cap funds to have produced a positive 
average annual return for the trailing 3-year period through July 

Atalanta/Sosnoff Fund (ASFGX), which has the longer track record, 
sports a positive annualized return of 3.1% for the 5-year period 
through July 22, 2003, ranking in the 7th percentile of the large 
blend category per Morningstar.  Over the same 5-year period, the 
S&P 500 index lost an average of 1.4 percent a year.  

In 1999, Sosnoff returned 40 percent for shareholders, showing he 
can capture returns in an up-market environment.  With the market 
up again this year, the two funds are performing well, generating 
above-market returns again.      


The Atalanta/Sosnoff funds offer strong return/risk tradeoffs for 
long-term growth investors.  Martin Sosnoff has performed well in 
both charges, enhancing value in both up and down markets.  Long-
term investors looking for a "core growth" portfolio have a great 
choice in the Atalanta/Sosnoff Fund.  Those that prefer to invest 
in undervalued stocks, may want to look at Atalanta/Sosnoff Value 

That may be six-of-one, half-dozen of the other at this juncture, 
with both funds displaying very similar portfolio characteristics 
per Morningstar's latest reports.  We'd tend to favor the Sosnoff 
Fund over the Sosnoff Value Fund now because its style box better 
reflects its true investment style and the fund sports the longer 
track record of performance.  But, it's hard to dispute the Value 
Fund's better trailing 3-year return.  

Steve Wagner
Editor, Mutual Investor

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The Option Investor Newsletter                 Thursday 07-24-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: FDX, GENX, LOW, SNPS
New Calls Plays: None
Put Play Updates: BBBY, FITB, HD, INTU, LEH, LEN, PGR, XL
New Put Plays: FRE


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.





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Fedex Corp - FDX - close: 64.55 change: -0.41 stop: 61.99

The wishy-washy market action hasn't done much for our play in 
FDX. Rival UPS recently announced strong earnings and both UPS 
and FDX have slipped slightly on the news.  Not helping the 
transports should have been the up tick in crude oil prices the 
last couple days, which can drive fuel costs higher.  Actually, 
the Dow Jones Transports index rallied early this morning up and 
over the 2600 level of resistance before slipping back under it 
in the afternoon market weakness.  We've been looking at bounces 
from the $64.00 level on FDX as an opportunity to enter bullish 
positions.  We saw one yesterday and from the looks of it we 
might see another tomorrow.  This doesn't look like a play that's 
going to "get away" from us so take your time in evaluating your 
entry point.  No change in our stop loss.

Picked on July 20 at $65.32
Change since picked:  -0.77
Earnings Date      09/23/03 (unconfirmed)
Average Daily Volume:  1.70 million  
Chart =


Genzyme Corp - GENZ - close: 49.46 change: -1.28 stop: 46.49

Our recently added call play in GENZ is working out pretty well.  
Shares rallied strongly on Wednesday moving up and through our 
trigger to go long at $50.05.  With the new strength we raised 
the stop loss to $46.49.  The 2.5% drop today looks like profit 
taking.  Given the market's weakness today we shouldn't be 
surprised.  Keep an eye on the BTK biotech index.  It looked 
rather weak in the last couple of hours in today's session and we 
would expect some follow through tomorrow.  A dip to the 450 
level in the BTK might bring a dip to the $48.00 level in GENZ.  
A bounce there would not be a bad spot to look for a new entry.  
The upside breakout on Wednesday produced a new double-top 
breakout buy signal in GENZ's P&F chart.

Picked on July 22 at $49.76
Change since picked:  -0.30
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  3.52 million  
Chart =


Lowe's Companies - LOW - cls: 47.10 chng: -0.40 stop: 45.60*new*

On Thursday, LOW once again showed the relative strength that 
we've been focusing on, rallying to a new recent high of $48.08, 
just barely eclipsing the 7/15 high of $48.05.  After several 
failed attempts to really break out through that level though, 
the stock succumbed to the broad market weakness in the 
afternoon, falling back to close just above $47.  Judging by the 
sharp increase in selling volume this afternoon, the play could 
be in trouble here.  The action witnessed today may be the 
completion of a double top at known resistance and bulls need to 
be careful.  Another pullback and rebound from above $45.70 can 
be used for fresh entries, but bear in mind that a break below 
that level would likely have bears targeting the $45 level at a 
minimum and quite possibly the 50-dma just below $44.  After 
trading through the $48 level again, that's more risk than we're 
willing to tolerate and we're tightening our stop to $45.60, 
which is just below the intraday low seen on Tuesday.  We're 
still expecting the stock to break out above $48 and run up to 
test the $50 level, but it will likely need broad market strength 
to pull it off.

Picked on July 13th at    $46.87
Change since picked:       +0.23
Earnings Date           08/18/03 (unconfirmed)
Average Daily Volume =  4.83 mln
Chart =


Synopsis, Inc. - SNPS - close: 60.02 change: -0.90 stop: 58.75

Thursday's sharp reversal in shares of SNPS is NOT what we wanted 
to see.  Everything was looking solid in the morning with the 
stock trading back over $62 and the Semiconductor index (SOX.X) 
testing resistance near $400.  But a major sell program hit in 
the final couple hours, slamming the SOX back for a more than 2% 
loss and SNPS just barely managed to hold onto support at $60, 
logging its own 1.47% loss.  While this could just be another 
entry point setting up, we're turning much more cautious on the 
stock with the close back under the 50-dma ($60.76).  Traders 
with the intestinal fortitude to buy the dip (not our favorite 
strategy right now) can look to enter on a rebound from above 
$59, but must rigidly adhere to a stop just below that double 
bottom level, at $58.75.  After Thursday's sharp reversal, our 
preference for new entries will be a rally back over the 50-dma.  
More conservative traders will even want to wait for a breakout 
over today's $62.25 intraday high before playing.

Picked on July 22nd at    $61.04
Change since picked:       -1.02
Earnings Date           08/20/03 (unconfirmed)
Average Daily Volume =  1.52 mln
Chart =




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Bed Bath & Beyond - BBBY close: 38.06 change: +0.96 stop: 40.50

The question of whether BBBY would find support for a bounce from 
the 200-dma ($36.31) was answered with a resounding "Yes" over 
the past two day.  Acting weak as we had expected, BBBY broke 
down below both horizontal and H&S Neckline support near $37.50 
yesterday, and traded to within a few pennies of the 200-dma 
before rebounding at the end of the day.  That rebound was 
followed by a sharp upward gap (on no news) today, with the stock 
extending its early strength to above $39 before the late-day 
weakness set in.  So, was it a reversal of the recent bearish 
trend or just an oversold bounce from a known support level.  
Based on the heavy selling volume in the afternoon, we're leaning 
towards the latter.  The stock came to rest just above $38 and 3 
cents below the opening price, setting up a potential entry in 
the morning.  Traders that faded today's early rally appear to 
have gotten a good entry into the play, and the next best 
opportunity will come on a decline below $37.75, which is just 
below today's intraday low.  That drop would put BBBY into its 
gap and it should then drop to fill its gap down to the $37 area.  
With the confirmed neckline break, we're now viewing failed 
rallies as an opportunity to enter on the rollover, ideally below 
the 20-dma (currently $38.90).  Keep stops set at $40.50 for now, 
as that is just above the known $40 resistance and the rolling 
50-dma ($40.19).

Picked on July 22nd at    $37.71
Change since picked:       +0.35
Earnings Date           09/17/03 (unconfirmed)
Average Daily Volume =  3.33 mln
Chart =


Fifth Third Bancorp - FITB - cls: 54.99 chg: -0.86 stop: 57.51

Both banking sector indices rolled over intraday today.  While 
neither are looking exceptionally weak, traders took advantage of 
the moves to short or sell into the strength of FITB earlier 
today.  This produced another failed rally at FITB's descending 
trendline of resistance.  It's easier to see on the stock's 30-
minute chart.  Coincidentally, its daily chart shows the top 
today under its simple 50-dma, another technical level of 
resistance.  The close under $55 is just another minor signal of 
weakness.  We suggested new bearish entries on a failed rally 
under $57.00 on Tuesday but now traders can look for entries at 
current levels or on a move under Monday's low.

Picked on July 17th at $55.26
Change since picked:    -0.27
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million 
Chart link:


The Home Depot - HD - close: 31.48 change: -0.64 stop: 33.25*new*

The key technical event for HD this week appears to have been 
Monday's breakdown below the 50-dma, currently at $32.35.  
Following that breakdown, the stock dropped to just above $31, 
rebounded and then rolled over at the 50-dma, finding resistance 
at that prior support level.  The picture became more bearish on 
Tuesday with the intraday trade below $31.50, and after a feeble 
bounce to just above the 50-dma, the stock rolled over sharply at 
the end of the day, posting its first close below $31.50 since 
late May.  At this point, failed rebound attempts below the 50-
dma look like the best strategy for new entries, with a breakdown 
under $31.40 (Tuesday's intraday low) running a close second.  
Once that tentative support gives way, we'll be looking at an 
almost-certain drop to test the $30 level, where we are once 
again expected a mild oversold bounce before continuing down to 
our $28 target.  Note that our stop has been lowered to $33.25, 
which is above the 10-, 20- and 30-dmas.

Picked on July 10th at    $32.43
Change since picked:       -0.95
Earnings Date           08/19/03 (unconfirmed)
Average Daily Volume =  9.54 mln
Chart =


Intuit Inc - INTU - close: 41.74 change: +0.44 stop: 42.51 *new*

Is this another chance to short INTU?  The stock bounced from the 
$40 level as we suspected it might and like clockwork it appears 
to be running into resistance under $42.50.  The stock is 
certainly "oversold" from its June highs and many of the 
oscillators are turning up with the three-day bounce but the 
stock has not yet broken its descending channel.  Looking at the 
intraday chart we suspect more weakness, thus this looks like an 
entry point for new bearish positions.  To reduce our risk on the 
play we're lowering the stop to $42.51.  Momentum traders may 
still want to wait for a close under the $40 mark.  Meanwhile, 
the initial rally on Wednesday morning (that quickly faded) was 
sparked by an upgrade from UBS Warburg.  UBS is basically betting 
on historical trends where INTU out performs in the fall quarters 
ahead of its strong January results.  They upgraded INTU from a 
"neutral" to a "buy".  As you can see, investor reaction was not 
very enthusiastic.  INTU also confirmed that they would release 
their year-end results (through July 31st) on August 19th.

Picked on July 8th at $43.35
Change since picked:   -1.61
Earnings Date       08/19/03 (confirmed)
Average Daily Volume =   4.1 million 
Chart link:


Lehman Brothers - LEH - cls: 63.18 chng: -0.52 stop: 66.50*new*

The bulls staged another rally attempt in the Broker/Dealer index 
(XBD.X)on Thursday, but met with stiff resistance just below 
$570, prior to a sharp decline into the close.  Maintaining its 
pattern of underperformance, LEH failed to gain much of a lift 
from the rebound in the XBD over the past couple days, finding 
consistent resistance just above $64.  The afternoon selloff 
dropped LEH under the $63.50 level for its worst close since May 
1st.  Thursday also delivered the first close below the 50% 
retracement of the May-June advance and it brings the 62% 
retracement ($60.40) into play on any continued weakness.  Isn't 
it interesting how that coincides with both the 200-dma ($60.05) 
and our $60 target?  Further weakness below $63 can be used for 
momentum entries on Friday, as those looking to fade any 
attempted rally likely took their shot earlier in the week near 
$65.00-65.50.  As the play is starting to move in our direction, 
we're snugging our stop down just a bit to $66.50 tonight.  That 
level is just above the 20-dma, as well as intraday resistance 
from the past 6 sessions.

Picked on July 20th at    $65.18
Change since picked:       -2.00
Earnings Date           09/18/03 (unconfirmed)
Average Daily Volume =  2.84 mln
Chart =


Lennar Corp. - LEN - close: 67.75 change: -0.33 stop: 71.50

Despite the still-bullish sentiment in the marketplace, the Home 
Building stocks are really fighting an uphill battle with 
mortgage rates continuing to rise, driven by bond yields pushing 
higher again on Thursday.  It appears that Ben (printing press) 
Bernanke did little to stem the exodus of bond investors and as 
long as rates are rising, Housing stocks should remain weak.  
Although the $DJUSHB index did manage a fractionally positive 
close, it looks far less constructive when taken in the context 
of a close at the low of the day after printing an ugly 
gravestone doji.  LEN caught quite the oversold bounce on Tuesday 
from just above $65 (as we thought it would) and surged as high 
as $70 yesterday before the sellers reappeared, knocking the 
stock sharply lower by the close.  An early rally attempt today 
met with the same fate, albeit from a lower level, and we now see 
the 50-dma ($69.89) starting to act as resistance.  Additional 
rally failures below $70 still look attractive for new entry 
points, as we await another test of the $65 level.  We still 
expect an eventual break of that level and when it comes, that 
will be the next opportunity for momentum investors to jump 
aboard for the expected ride down to our $59-60 target zone.

Picked on July 15th at   $71.12
Change since picked:      -3.81
Earnings Date          09/09/03 (unconfirmed)
Average Daily Volume =  1.68 mln
Chart =


Progressive Corp - PGR - close: 65.30 chg: +0.08 stop: 67.51

Our recently added put play in PGR is still consolidating in a 
very narrow range above support at $65.00.  Shares bounced early 
this morning but selling pressure held advances to the $66.50 
area before the afternoon weakness brought shares back towards 
$65 again.  This is a new lower high in its week-long 
consolidation and we expect a breakdown under $65.00 soon.  We're 
still suggesting that conservative traders and momentum players 
wait for a move under the $65.00 mark.  Consider using a trigger 
to leg you into the play.  Our initial target is $60.00 and its 
200-dma.  There is no new news.

Picked on July 23 at $65.22
Change since picked:  +0.08
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  941  thousand 
Chart =


XL Capital Ltd. - XL - close: 76.58 change: -0.51 stop: 

It sure was nice of the bulls to bid shares of XL higher after 
last week's breakdown under $80, wasn't it?  The stock surged to 
just below $82 (right in our targeted entry zone) on Tuesday, 
rolled over and plunged sharply lower yesterday.  The heavy 
selling volume sliced through the 200-dma ($78.60) like a hot 
knife through butter and the stock ended at its low of the day.  
The bulls tried for an oversold rebound today, but it wasn't to 
be, with resistance being found at the 200-dma, and then an 
afternoon rollover (on expanding volume) that drove XL to a new 
multi-month low.  While we're inching our stop down to $80.50 
tonight (just above the 2-week descending trendline), more 
conservative traders may want to use a stop at $78.50, just above 
today's intraday high.  Recall that our profit target for the 
play is in the $73-74 area, so we're reaching the point where new 
entries don't carry the same bang for the buck they did a few 
days ago.  Not only that, XL is set to release its quarterly 
earnings report in just one short week, so we're now focusing our 
attention on maximizing gains, rather than new entries.  For 
late-comers to the party, the best setup for new entries would be 
on a failed rebound below $78.00.

Picked on July 17th at   $79.64
Change since picked:      -3.06
Earnings Date          07/31/03 (confirmed)
Average Daily Volume =    752 K
Chart =


Freddie Mac - FRE - close: 50.33 change: -1.36 stop: 53.00

Company Description:
Freddie Mac (Federal Home Loan Mortgage Corporation) is a 
stockholder-owned corporation tht was established by Congress in 
1970 to support home ownership and rental housing.  FRE purchases 
single-family and multi-family residential mortgages and mortgage-
related securities, which it finances primarily by issuing 
mortgage passthrough securities and debt instruments in the 
capital markets.  The company guarantees these securities and 
mortgage lenders sell their loans to the company and use the 
proceeds to fund new mortgages, which in turn increases the money 
supply to homebuyers.

Why we like it:
There has been a lot of negative press surrounding the government 
sponsored entities (GSEs) FNM and FRE in recent weeks due to 
admissions that the company's have been a bit too cavalier in 
their approach to managing earnings.  In early June, FRE cratered 
down to the $50 level on news of the resignations of both the CEO 
and CFO, along with the termination of the COO.  BofA responded 
with a downgrade to Neutral and that was quickly followed by news 
of a formal SEC investigation into the company's accounting and 
management practices.  Needless to say, the month of June was not 
a pleasant one for FRE shareholders, as the company disclosed that 
it may restate from $1.5-4.5 billion for 2001-2002.  These are 
retained earnings, which were essentially being kept in reserve to 
smooth out any rocky spots.  While that means past earnings will 
likely increase, it also means future earnings are likely to be 
more volatile, particularly if there were to be a major change in 
the debt markets.  Well we've certainly seen a dramatic shift in 
the bond market in recent weeks, with bonds selling off hard and 
driving yields sharply higher.  Over the past few weeks, that has 
really put the kibosh on FRE's fledgling rally attempt, driving 
price right back down to that major $50 support area.

Looking at the PnF chart, we can certainly see that the early July 
rollover from the $55 level made sense, as that was right at the 
bearish resistance line.  FRE isn't yet on a Sell signal, as it 
will require a trade at $48 to get that job done.  But there's no 
question the stock looks weak and a break below $50 looks like it 
could garner some bearish follow through.  The last two forays 
below that level saw swift declines to $46.50 and $48.50 
respectively, but with the negative factors impacting the stock, 
we think it has much further to fall, especially if yields 
continue to rise, which will have a continued negative impact on 
the company's investment portfolio.  Our initial target will be 
for a drop to the $45 level, which may be substantial support.  
But we're also looking for a more severe decline to the $40 area, 
which was strong support in both 1998 and 2000.  Use an entry 
trigger of $50.00 and then target an initial move down to $45.  
More conservative traders may want to wait for a failed rebound 
after the initial breakdown before playing.  The $52.00-52.50 area 
is shaping up as strong resistance, reinforced by the 20-dma just 
above the top of that range at $52.58.  That allows us to set our 
stop at $53, just above known strong resistance.

Suggested Options:
Short-term traders will want to focus on the August 50 Put, as it 
will provide the best return for a short-term play.  Conservative 
traders entering on a bounce will want to utilize the September 50 
Put, while aggressive traders looking for a longer-term move down 
towards $45 or below will want to utilize the September $45 
contract, due to its greater insulation against time decay.  

BUY PUT AUG-50 FRE-TJ OI= 4180 at $1.50 SL=0.75
BUY PUT SEP-50 FRE-TU OI=  219 at $2.50 SL=1.25
BUY PUT SEP-45 FRE-UU OI=  361 at $0.95 SL=0.50

Annotated Chart of FRE:


Picked on July 22nd at    $50.33
Change since picked:       +0.00
Earnings Date                N/A
Average Daily Volume =  7.16 mln
Chart =

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The Option Investor Newsletter                 Thursday 07-24-2003
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: Elliott Wave Play Updates
Traders Corner: Taking A Cue From The QQQs


Fifth Third Bancorp - FITB - cls: 54.99 chg: -0.86 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)

- Most Recent Update (Sunday, July 13, 2003)-
Both banking sector indices rolled over intraday today.  While 
neither are looking exceptionally weak, traders took advantage of 
the moves to short or sell into the strength of FITB earlier 
today.  This produced another failed rally at FITB's descending 
trendline of resistance.  It's easier to see on the stock's 30-
minute chart.  Coincidentally, its daily chart shows the top 
today under its simple 50-dma, another technical level of 
resistance.  The close under $55 is just another minor signal of 
weakness.  We suggested new bearish entries on a failed rally 
under $57.00 on Tuesday but now traders can look for entries at 
current levels or on a move under Monday's low.

- Play of the Day Comments -
The new failed rally at descending resistance and its 50-dma, 
coupled with the drop back through the 200-dma and close under 
$55.00 looks like a new entry point.  Add the general market 
weakness today and the probability of more profit taking tomorrow
and FITB could be hitting new relative lows soon.

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

BUY PUT AUG 55 FTQ-TK OI=2062 at $1.20 SL=0.65
BUY PUT AUG 50 FTQ-TJ OI=1498 at $0.15 SL= --
BUY PUT SEP 55 FTQ-UK OI= 232 at $1.90 SL=0.95
BUY PUT SEP 50 FTQ-UJ OI= 120 at $0.55 SL= --
BUY PUT NOV 55 FTQ-WK OI= 439 at $3.10 SL=1.55
BUY PUT NOV 50 FTQ-WJ OI=7850 at $1.30 SL=0.70

Annotated chart:


Picked on July 17th at $55.26
Change since picked:    -0.27
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million 
Chart link:

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Elliott Wave Play Updates
By Steve Gould


Chart: T update 7/24/2003 


Not only did T hit our entry target of 20.20ish, but it blew right 
through it. T could go as high as 22.39 if the 4 wave is not yet 
complete. That is a bit of a concern, but since this particular 
play allows us to make money in either direction, if T continues 
its move higher, we will be OK.

Update the Aug 15 call to September to lower the risk of 
assignment and increase the number of October calls to purchase to 


T: $20.00

Pos  Num  Sym  Strike   Type   Bid   Ask   Delta   Vol   OI
Sell  1   TIC  Sep 15   Call  5.00  5.30   100     25    70
Buy   3   TJX  Oct 22.5 Call  0.50  0.65    31    368 10285

Credit: $305

Figure: T right


If we are right and T does head lower we reach our maximum profit 
at 15 and below.  This gives us some breathing room since the 
target is 12.00

Figure: T wrong 1


If we are wrong and T goes higher, the upside breakeven point is 
22.60 at the August expiration date.

Figure: T wrong 2


If T does not move at all, the options will be down $186 come 
September expiration.


Taking A Cue From The QQQs

By Mike Parnos, Investing With Attitude

Who says that size matters?  In one of life's contradictions, the 
bigger it is, the less interest it generates.  We're talking about 
the difference between strike prices, of course.

Taking A Cue from The QQQ
When it comes to strike prices, it seems that the trading 
exchanges have decided to experiment with one-dollar strike prices 
on a variety of low price stocks.  With the advent of Single Stock 
Future, the exchanges are trying to create a product that will 
generate more interest, and hence more volume, with option 

Apparently this happened a few months ago.  Okay, so I'm not 
always on the cutting edge.  Sometimes, my edge has been known to 
be a little dull.  That's a byproduct of too much exercise and not 
enough calories.  I'll do my best to remedy the situation.

One of the main reasons we like trading the QQQs, the DIAs and 
DJXs is the flexibility offered by their $1 strike increments.  
Now we have more toys to play with.  If you like playing covered 
calls, you have a wider choice of calls to sell.  If you use 
married puts, you can choose them close to the money and invest 
less in your insurance..

We'll try to perhaps come up with new strategies (or at least 
review some oldies but goodies) to see how we can best take 
advantage of the narrower strikes.

Here is a list of the stocks with $1 strikes that I've unearthed 
thus far. 
AOL (America Online), AMD (Advance Micro Devices), AMAT (Applied 
Materials), THC (Tenet Health Care), CE (Concord EFS), EP (El Paso 
Energy), SUNW (Sun Microsystems), XRX (Xerox), AMR (AMR Corp.), 
CPN (Calpine), EMC (EMC Corp.).

Where To Find Index Settlement Prices
Since we're destined to trade the SPX and DJX from time to time, I 
figured we should know where to find those sneaky official 
settlement prices.  The SPX settlement price reflects a 
calculation of all 500 of the opening prices of an index on the 
Friday morning following the close of trading on the third 
Thursday of the month.  Why do they do it this way?  WTFK.  But, 
if they do it to confuse people, it's working.  The same process 
holds true for the DJX.
Since, on Friday morning, it takes a while for all of the stocks 
within the index to open.  And since they're probably using an 
abacus and a crayon to figure it out, it seems the actual 
settlement number isn't available until after noon (EST).  

You can call the friendly, and very helpful, folks at 1-888-
OPTIONS.  They'll give you the settlement numbers when the numbers 
become available.  Or, you can pull them up on your quote system.   
For the SPX, they've come up with the symbol SET.  For the DJX, 
the symbol is DJS.  Now, depending on your quote system, you may 
have to use SET.X or possibly $SET.  You won't see a bid or an ask 
price – only the settlement price.

Revisiting CC & Friends

I was looking at your CC and Friends trade and trying to follow 
it..does this look correct?  Thanks for your guidance.
KLAC -- Stock cost $51.67.  Selling the August $55.00 calls @ 
Cov. call #1: $2.25   Cov. call #2: $2.25   Cov. call #3: 
$2.25     Total: $6.75    Maximum Range: $56.17     Minimum Range: 
1) Only one call is covered by the shares of stock. The second and 
third calls are not covered.  They're naked (uncovered). 
2) To figure the upside range, you would figure the total of your 
premium ($6.75).   Now, if the stock were to move up over the $55 
strike price, you would also have profited from the difference 
between $51.67 and $55, or an additional $3.33.  Now, your total 
credit thus far is $10.08 ($6.75 + $3.33).

Once KLAC moves above $55, you would have two naked $55 calls 
working against you.  Since you have a total of $10.08 in credit, 
you would then divide the $10.08 by 2 (=$5.04).  If you add the 
$5.04 to the $55 strike price, you now have a topside parameter of 
$60.04.  If KLAC trades near that price, you know it's time to get 
the hell out of the position.

You calculated the bottom parameter correctly.  You took the $6.75 
premium and subtracted it from the initial $51.67 purchase price.  
Your GTHO price would be $44.92.

On Wednesday
During trading on Wednesday, KLAC was trading at $52.40.  So, for 
example, you would buy 100 shares.  Then you would sell three 
Sept. $55 calls at $2.40.
You've taken in $7.20.  Your downside point is $45.20 ($52.40 less 
To calculate your upside, you would add the additional $2.60 of 
profit you get if KLAC moves over $55.  Now you have $9.80.   
You'd have 2 naked calls working against you, so, $9.80 divided by 
2 = $4.90.  Add the $4.90 to your $55 strike price and you have a 
topside parameter of $59.90.


August Position #1 – BBH Iron Condor – Closed at $132.40
Let's sell 10 contracts of BBH August $125 puts @ $1.45 and buy 10 
contracts of BBH August $120 puts @ $.80 for a net credit of $.60.  
Let's also sell 10 contracts of BBH August $140 calls @ $1.75 and 
buy 10 contracts of BBH August $145 calls @ $.85.
We have a maximum profit range of $125 to $140 with a total credit 
of $1,550.   Our risk is $3,450.  At $132.40, we could be better 
positioned – right in the middle of the range.

August Position #2 – LLTC Sell Straddle – Closed at $35.22
We're sold 10 contracts of LLTC August $35 call @ $1.45 and sold 
10 contracts of LLTC August $35 put @ $2.40 for a total credit of 
$3.45. Our maximum profit can be about $3,450 if LLTC finishes at 
$35.  Our profit range is from $31.55 to $38.45.  Our bail-out 
points are at the parameters of the profit range.  At $35.22, we 
couldn't be much better positioned – right in the middle of the 
range, but still a long way to go.

August Position #3 – SPX Iron Condor – Closed at 981.60
This is a slightly more aggressive position than usual.  Why?  The 
range is smaller.  Also, note the different number of contracts we 
use for the calls and the puts.  

We sold 3 contracts of the SPX August 1025 calls and bought 3 
contracts of the August 1050 calls for a net credit of $3.70 
($1,110).  Then, we'll sold 6 contracts of the August SPX 960 puts 
and bought 6 contracts of the August SPX 950 puts for a net credit 
of $2.00 ($1,200).  The total credit was $2,310 – and that's our 
maximum profit.  I reduced the number of contracts on the bear 
call spread because there's a $25 exposure.  As of Friday's close, 
SPX did not have call strike prices between 1025 and 1050.  
Monday, no additional strikes were opened, so we went with the 
original plan.  Thus far, no additional strikes, between 1025 and 
1050 have been opened.  The SPX closed at 981.60 – comfortably 
within the range.

More Words of Wisdom
They just keep coming in.  "Words of wisdom" can encompass almost 
anything – so don't be shy.  Send in your favorites. Don't worry, 
I won't reveal you as the source.  This is top secret stuff.

a) Before you criticize someone, you should walk a mile in his 
shoes. That way, when you criticize him, you're a mile away and 
you have his shoes. 
b) Do not walk behind me, for I may not lead. Do not walk ahead of 
me, for I may not follow. Do not walk beside me either. Just 
pretty much leave me alone.
c) If you're so damn smart, why aren't you rich? (I get asked that 
all the time)
d) If you lend someone $20 and never see that person again, it was 
worth it.

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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