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Daily Newsletter, Tuesday, 07/29/2003

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The Option Investor Newsletter                 Tuesday 07-29-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Saddam Put
Futures Markets: Consumers drop the ball
Index Trader Wrap:
Market Sentiment: Intermarket signals
Weekly Fund Screen: Good Growth Funds in Fidelity FundsNetwork NTF


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-29-2003           High     Low     Volume Advance/Decline
DJIA     9204.46 - 62.10  9289.69  9168.26 1.71 bln   1218/2001
NASDAQ   1731.37 -  4.00  1744.60  1713.21 1.69 bln   1564/1630
S&P 100   497.85 -  3.64   502.92   495.41   Totals   2782/3631
S&P 500   989.28 -  7.24   998.64   984.15
W5000    9542.12 - 54.30  9618.71  9489.23
RUS 2000  473.60 -  0.23   476.04   469.70
DJ TRANS 2618.37 -  4.40  2635.90  2609.36
VIX        20.23 +  0.30    21.07    19.96
VXN        30.16 -  0.24    31.82    29.81
Total Volume 3,683M
Total UpVol  1,312M
Total DnVol  2,309M
52wk Highs  456
52wk Lows    67
TRIN       1.31
NAZTRIN    1.24
PUT/CALL   1.01
************************************************************


Saddam Put

The Saddam put overruled the Consumer Confidence short this
morning and continued to rule all day. The disaster in the
economic numbers was ignored once when rumors of a Saddam
capture filtered through the markets. I am going to check
EBAY tonight and see if I can find a used "rumor mill" of
my own.

Dow Chart


Nasdaq Chart



Despite the improved guidance from Wal-Mart this week the Chain
Store Sales snapshot fell -0.3% following three weeks of gains.
Food, drugs and seasonal goods helped hold the line but apparel
weakened. Warmer weather, as in blistering in the southwest, has
helped power the seasonal product sales. We are rapidly entering
the back to school phase and consumers should be receiving tax
credit checks and more take home pay by now. This should help to
maintain the consumer sales for the next month. The downside is
the drop in refi applications and the drying up of the home
equity pipeline. The higher interest rates will not immediately
hit Wal-Mart shoppers but major appliances, autos and big ticket
goods could be softer soon.

The biggest shocker of the day was the dramatic drop in the
Consumer Confidence to 76.6 from 83.5. The index hit a plateau
at 83.5 for May/June and it appears the bloom is off the rose.
The rising interest rates, volatility in the market and higher
unemployment continues to drag on optimism. This was the lowest
level since March and countered expectations for a small gain.
The biggest drop was in the expectations component, which fell
-10 points to 86.4 and erased the majority of the gains from
May/June. The present situations component dropped for the third
month in a row. The current conditions component is at the
lowest level since 1994. If the Jobless Claims on Thursday and
the Nonfarm Payrolls on Friday show increases in unemployment
the confidence numbers could get ugly fast. Everyone is betting
on the post war rebound and that rebound is turning into more
tortoise than hare.

On Wednesday we will get the Fed Beige Book, Chicago Fed National
Activity Index, Mortgage Applications and the Consumer Comfort
Index. The CFNAI has been negative for nine of the last ten
months and it is expected to be negative again tomorrow. The May
Beige Book had shown some limited postwar improvement with the
main support in the housing market. Despite the pickup the
overall tone was somber and the outlook is for more of the same
this month. The Comfort Index was trending down for the past two
weeks and it will be interesting to see if the trend accelerates
or breaks in light of the Consumer Confidence. The mortgage
application index has also been trending down since the May-30th
number of 1,856 with a 1,284 last week. It is doubtful it has
improved much in a week with 30-year mortgages back at 6.0%.

Needless to say there may not be much economic excitement on
Wednesday but there is the potential for upside surprise. Since
the outlook is not exciting any negative news could be covered
by the Saddam put and we continue to trade sideways. Our enemy
is not Saddam any more but the bond market. The ten-year yield
closed at 4.4% and a 52-week high. This bond disaster is going
to continue to spiral out of control until something happens
to break the trend. The terrible Confidence number today only
slowed the selling for a few minutes before it promptly began
again in earnest. The good news is that some of the money is
finding its way into the stock market. The bad news is that the
rapidly rising interest rates could produce a death blow to the
barely conscious recovery.

The earnings parade continues and as of last night 326 S&P
companies have reported earnings. According to First Call 66%
beat estimates, 22% were inline and only 12% missed estimates.
Earnings are showing around +15% growth and slightly better than
the +14% estimates. Those would be very good numbers if they
were actually from sales. The majority of earnings gains have
been from cost cutting and not repeatable. Another significant
source of earnings surprises have been currency gains due to
the weak dollar. This is also not repeatable. With warnings
for the 3Q running 2:1 over positive guidance it is not a
positive picture.

Some of those warnings are coming from companies that touch all
of the American economy. Jones Apparel warned today that consumer
spending was very uncertain and earnings would be down for the
quarter and the year. ADP, a nationwide payroll processor,
warned that they were seeing very little improvement in the
economy. The largest furniture maker in the country, FBN, also
warned last week that they were seeing no improvement in the
economy. FedEx was cut today based on falling small package
deliveries. NVDA missed estimates and said the next quarter
will be below estimates. Positive performance came from MCD,
DD, ALA and AHC with TYC posting a profit and restating earnings
again going back to 1998.

Other negative news included a warning from the State Dept that
Al-Queda is planning more suicide hijackings of airliners before
the end of the summer. Quoting specific and credible information
from detainees and corroborated by other intelligence they said
the attacks could take the form of flights coming into the U.S.
from other countries. They suspect five person teams with weapons
hidden in things like cameras and laptops. With the anniversary
of 9/11 quickly approaching I would not doubt the threat exists.
However, the market ignored the warning due to the Saddam put.

Basically most traders believe that Saddam will be caught/killed
in the next several days. We are getting constant chatter out of
Iraq that the noose is tightening and he is running out of places
to hide. Every day more contacts are arrested, today was his
personal bodyguard and hundreds of tips are reported received
daily since Udai and Qusai were killed. Traders expect the event
to produce an instant market rally that could add +300 points
and push us over the current 9300 ceiling. With this event
expected any day there is no interest on the part of the bears
to short aggressively. Bulls are buying the dips on the hope of
quick profits on the bounce. Thus, the market has an insurance
put in the form of an expected Saddam capture. That expectation
was responsible for a vertical +100 point rebound off the Dow
bottom today when a brief rumor hit the floor that Saddam had
been killed. There was a brief bout of selling when the news
turned out to be a new Saddam tape calling his sons martyrs
instead but the selling was brief. It showed the put was alive
and well and had not expired.

The trend was broken today. For the first time in 10 weeks the
Nasdaq closed negative on a Tuesday. It was not a major loss,
only -4 points. The Dow has closed negative for two consecutive
days. That is about the only negative points I can make. The
market action is very bullish and the Dow held 9200 with fierce
determination at the close. Same with Nasdaq 1725. They refuse
to give up the gains from the last couple weeks and the Dow
has now traded within arms length of 8300 each of the last four
days. It is building a very impressive bullish wedge at 9300
and were it not for the Confidence today we could have easily
broken out. I say easily but there is strong resistance at that
level which must first be overcome. The more important levels
are S&P 1000 and 981. This is the broad market support and
resistance which must be overcome before the market can make
any major moves. 981 is the 50 DMA on the S&P.

S&P Chart



With the Saddam put in place any negative economic news on
Wednesday is likely to have limited impact. That may not be
true on Thr/Fri when the economic reports are critical and
plentiful. We will have the GDP, ECI, PMI, Help Wanted Index
and Jobless Claims on Thursday. Friday has Nonfarm Payrolls,
Michigan Sentiment, ISM, Personal Income/Spending and
Construction Spending. It is going to take a lot more specific
and credible rumors to protect the bulls if those reports turn
negative like Consumer Confidence did today. The markets are
poised to move big and the only question is which way. The
trading range is slowly narrowing and the breakout in either
direction could be sharp and quick. Keep those stops in place
regardless of the direction you are expecting.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Consumers drop the ball
Jonathan Levinson

It was an exciting session, with treasuries setting a year low,
equities trading wild swings, and precious metals correcting some
of their recent gains.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1006    998    990    981    973
YM03U     9332   9261   9200   9129   9068
NQ03U     1305   1289   1273   1257   1241

10 minute chart of the US Dollar Index




The US Dollar Index made a spectacular round trip today, with the
sellers mobilized by the 10AM Consumer confidence disappointment,
followed by a miraculous stick save minutes later.  Gold, silver,
and US treasuries did not recover, though the CRB managed to add
29 to close at 234.71, led by cocoa, coffee and sugar futures.
I expect numerous emails on this easy conceptual top-spin lob :)

Daily chart of August gold




August gold found sellers today, with the August contract
bouncing from a low of 360.80 to close at 361.70  The steep
uptrend we've been following was not violated, with 360 seen as
support on this move.  The metals indices got sold, with HUI down
2.61 to 163.87, XAU –1.62 to 81.44.


Weekly chart of the ten year note yield




I've included a weekly chart of the ten year note yield to
provide some context on today's 11.4 basis point jump to 4.398%.
The move in treasuries got attention today as the TNX cleared
resistance and hit levels not seen since last summer.


Daily chart of the ten year note yield




The bullish hammer on the daily chart is no surprise to those
following this uptrend for the past month and change.  What is
more surprising is the inaction of the Fed and its dealers in the
face of this rally in yields.  Despite $9B in overnight repos
today, treasury bonds sold off.  Given the immense debt exposure
of corporations and consumers in the US, the action from the bond
market is disconcerting.  Add to this the apparent obliviousness
of the equities markets, with the ongoing bullish saturation in
breadth, sentiment and low volatility, and the conditions look
dangerous for the immediate future.



Daily NQ candles




Today's print followed as expected on yesterday's shooting star
doji.  The oscillators depict a hesitant downward bias, which
coincides well with the action we saw today, with equities
whipping down on the 10AM Consumer Confidence dataq, bottoming
gradually, rallying on yet another Saddam rumor, and selling off
again to a higher low in the afternoon before drifting upward
into the close.


30 minute 20 day chart of the NQ




Today's selloff brought the 30 minute Nasdaq futures back into
the pennant, and the upside breakaway was deferred for another
day.  The uptick heading into the cash close gave us a buy signal
on the short cycle oscillators.  The trouble with rangebound
trading is that, after awhile, conflicting chart patterns begin
to emerge.  The reverse head and shoulders pattern got a lot of
attention intraday, but the upper descending trendline managed to
contain it.  When in doubt, it's safer to make your decisions at
the upper and lower trendlines only, set your stops, and watch
for the other line.  Patience and disciple are most important in
such an environment.

Daily ES candles




The S&P futures failed to regain the rising trendline and are
back within the longer cycle oscillator downtrends.  We had a
lower high and lower low printed today.


20 day 30 minute chart of the ES




I found two competing flags in the ES range, and the test of the
bear flag within the larger bull flag will come at 982-3.  The
end-of-day tape painting left ES on a buy signal, with narrowing
range resistance at 996.  It's obvious that this range won't last
forever, and given the numerous upside tests of the descending
upper trendline, as well as the tumultuous activity in the
treasury and precious metals markets, my guess would be that 982-
983 will fail.


Daily YM candles





YM traded more bullishly than ES, with the oscillators on the
daily candles on buy signals.  Nevertheless, this week has shown
us a pattern of lower highs.


20 day 30 minute chart of the YM





The most bullish thing I can think to say about equities is that
they've shown a susceptibility to bounces.  I don't consider
myself to have particularly sophisticated taste, but the "We got
Saddam, again" rumor is wearing very, very thin, particularly
given that I've been unable to discern what actual threat he
poses to US markets at this point, having been chased into
hiding.  I freely admit that I may be naove, but the rumor mill
is growing increasingly tiresome, and I find it depressing that
the best that equities can muster is a repeat rumor with dubious
financial pertinence.

That said, there are more serious reasons to be wary of equities.
The rally in treasuries makes yields more attractive, and, more
to the point, will serve to pound the brakes on mortgage and refi
activity.  Insofar as the origination of these debts is an
important component in the liquidity machine, I see rising yields
posing a multipronged threat to the fragile US consumer, debt-
ridden corporations, local, state and federal governments, as
well as to the equity markets directly.  The VIX, VXN and QQV
remain very low, and bullishness continues to abound.  Markets
can go up in such an environment, but they don't tend to stay
up.

On this basis, I continue to be wary of bounces for whatever
reason, but am seeking to stay short equities at current levels.
At what point the Fed will consider stepping in to make good on
Governor Bernanke's comments about "extraordinary measures" is
anyone's guess, and this could put a strong bid under treasuries.
I'm frankly surprised that the rally in yields has come this far.
Whether there will be intervention in equities is another
question for which I am answerless.  We'll have to let the charts
tell us and our stops protect us.


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


Data points, not surveys

The major indexes witnessed another seesaw intra-day session to
close lower after the Conference Board's Consumer Confidence
Index, which polls 5,000 households, fell in July, as consumers
expressed skepticism toward a jobless recovery.

An early afternoon rally, spurred by rumors of Saddam Hussein's
capture helped lift the major indexes from their lows, but those
gains faded quickly when the Pentagon said it had no information
to validate the reports.

While the economic report, which some traders discarded as "a
survey and not hard data" brought a negative reaction from the
stock market upon first release, and found some correlative
defensive buying in treasuries, by session end the bond market
took more of an "its not worth the paper it was written on"
approach as Treasuries saw another sharp round of selling by with
the longest-dated 30-year YIELD ($TYX.X) jumping 8.4 basis points
to close at an 11-month high.  The benchmark 10-year YIELD
($TNX.X) rose 10.7 basis points to 4.391%, with its September
futures contract (ty03u) 111'195 -0.63% falling 23/32.

And while I would agree that Treasuries look vastly oversold
compared to much of the economic data on hand, bond bulls are
either hesitant to step in front of the recent decline, or the
bond market has suddenly become aware of some resurgence in
economic growth, which some Fed officials have been hinting
toward months ago.

Tomorrow's release of the Fed's Beige Book will provide anecdotal
economic observations from the Federal Reserve Bank districts,
but if traders are truly waiting on some "hard data points,"
before making any type of meaningful decision toward equities,
like bond traders seem to be willing to make toward Treasuries,
then I'd look for another "range-bound" session tomorrow until
Thursday's pre-market release of weekly jobless claims (consensus
400K), employment cost index (consensus +1%), advanced Q2 gross
domestic product (consensus +1.5%), advanced Q2 chain deflator
(consensus +1.4%).  If that's not enough "hard data" for traders
to digest, then the 10:00 AM EST release of the June Help-wanted
index (consensus 37) and the July Chicago PMI (consensus 53.8)
should have traders pouring a stiff drink after all data is
analyzed.

I (Jeff Bailey) continue to lean toward the bearish camp, but
will admit the strong selling in Treasuries and still rather
firming dollar as depicted by the U.S. Dollar Index (dx00y) 95.43
+0.38% have me still hesitant to be overly bearish as cash has to
be piling up on the sidelines.

Pivot Analysis Matrix -



My main observation again tonight is some of the divergence seen
between the S&P Banks Index (BIX.X) 308.03 -0.63% and still
rising 10-year YIELD ($TNX.X) which we discussed last night
regarding a more favorable spread between loans and borrowing
costs potentially being negatively offset by fewer loans being
generated as a result of higher interest rates for the consumer.

Based on the pivot matrix, I'm currently left with the impression
that WEEKLY S1 and WEEKLY R1's define the trading range, but with
a bearish slant toward things at this point I'm looking to
capture bearish gains on a decline to WEEKLY S2's.

I've "dashed red" the SPX and OEX at DAILY and WEEKLY pivots for
tomorrow, as both indexes traded either side of these levels to
only give me the impression that they would serve tentative
resistance in tomorrow's trade.  While the S&P Banks Index
(BIX.X) did trade 310.66 has a session high, there may have been
more sellers lined at the WEEKLY pivot and a level an SPX/OEX
trader might look to use as a more meaningful level of resistance
for tomorrow's trade.

Dow Industrials (INDU) Chart - Daily Interval



What a perplexing group of stocks the Dow currently holds.
McDonalds (NYSE:MCD) $22.15 +4.18% may be the "turnaround" story
of the year a as quarterly sales trends look to be improving.
Meanwhile, Merck (NYSE:MRK) $55.39 -2.24% extends losses and
breaks below its 200-day SMA and Boeing (NYSE:BA) $32.05 -2.19%
looks like it wants to test its 200-day at $30.87.  Then there's
"Mr. T" which jumped above its 200-day SMA yesterday, on
speculation that any further discovery of wrongdoing haven taken
place by Worldcom may have long-distance carrier closing its
doors for good and never coming out of bankruptcy, leaving a
large number of customers for a new long-distance service
provider.

I'm left with the impression that the Dow is range-bound from
9,050 to 9,350 for now, and would look to trade that type of
range.

Stockcharts.com did make the corrections to their very narrow Dow
Industrials Bullish % ($BPINDU) chart, and that is good as it
lessens confusion.  No change today and still "bull confirmed" at
86.67%.

S&P 500 Index ($SPX.X) Chart - 5-point box size



Yesterday's trade at 1,000.68 was enough to get a double-top buy
signal generated on the SPX, while today's trade at 984.15 sees a
3-box reversal.  The trade at 1,000 is bullish enough to have a
bear looking to take a profit on a decline back to 970, but bears
need to break 975 to get it.

I'm still keeping a close eye on the number of 52-week lows among
NYSE listed stocks and today's NH/NL ratio was 139:56 (10-day
average is 79.4% and lowest since 04/21/03 when it was trending
higher).  The 56 new lows is the highest number of new lows since
late March and still has me leaning more toward the bearish side
in the SPX as there is sign among 1, 2 and 3-lettered stocks that
there is some softening at the bottom and bullish leadership
isn't as strong as the NASDAQ, where today's NH/NL ratio was
227:13 (10-day average is 94.4%, but yet to show needed reversal
reading of 92% from 98%).

Today's trade saw a net loss of just 1 stock to a point and
figure sell signal as the broader S&P 500 Bullish % ($BPSPX)
slipped 0.2% to 77.2%.

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



For the purposes of the Index Trader Wrap, I'd still consider the
trading range of the OEX from 507 to 488, while a tighter range
of trade can be found from 495 to 502 and be inside the "wedge."
My only "bearish indication" in the OEX right now is that the OEX
has found some resistance holding at 502 as Stochastics begin to
reach the "overbought" level.  Meanwhile, MACD is still advising
bullish caution as it has yet to see a bullish crossover with
MACD above signal.  I would think a bear in the OEX gladly covers
some profits on any type of break back near 488 as that most
likely finds buyers while MACD is above the zero level and I'd
envision Stochastics nearing "oversold" on OEX consolidation
there.  By no means am I currently "counting" on an OEX decline
to 488 as the rising 50-day SMA and my "dashed pink" trend need
to be broken first.

Today's trade saw no net change in the narrower S&P 100 Bullish %
($BPOEX) and still holds at 84% bullish.

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



The Q's have been "sloppy" at the various levels of pivot
analysis retracement with exception of "extreme" spikes lower.
Tomorrow's DAILY R1 of $32.04 does tie in with some recent
relative highs of $32.02 found this morning and then on July
24th.  If looking for any type of resistance level that has shown
some significance near-term, then that would be the level to
watch just ahead of tomorrow Beige Book Report for any type of
selling into some gains as Stochastics approach "overbought."
I'd have to view support at/around WEEKLY S1 of $30.93 to $30.75.

Today's trade saw no net change in the narrower NASDAQ-100
Bullish % ($BPNDX) and status still remains "bull confirmed" at
75% for a third-straight session.

Jeff Bailey


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

Intermarket signals
Jonathan Levinson

We've been following the "bottomy" volatility indices and "toppy"
bullish percents for weeks.  We can add intermarket analysis to
help supplement the picture.

Treasury bonds sold off today, reaching lows not seen since mid-
2002, and while gold and silver corrected today, they are in
strong recent up trends and breaking out in bullish chart
patterns.  Through it all, equities have remained firm at current
levels, and fear remains low.

As the spring rally in treasuries progressed, I recall hearing
talk that falling yields were bullish for stocks, because the
growth and yield prospects of stocks increased relative to
bonds.  I've been hearing none of this as bonds have continued to
sell off sharply for over 1 month, and equities have managed to
hold relatively firm despite strongly rising yields.

Throughout the year, many have speculated that money flows from
stocks to bonds and back again, but this hasn't been supported by
the trend.  In fact, equities and bonds rallied together all
through the spring.  With treasuries correcting sharply and
yields printing year highs day after day, equity bulls have
reason to be concerned.

The action in the precious metals market is also significant, as
gold and silver tend to be viewed as a "put" on the financial
system, to quote an author whose name escapes me.

While neither of these intermarket relationships will generate
specific buy or sell signal on its own, in combination with the
low VIX, VXN and QQV, high bullish precents and overall bullish
market sentiment, bullish traders should be exercising caution.


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

Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9204

Moving Averages:
(Simple)

 10-dma: 9165
 50-dma: 9037
200-dma: 8509



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  989

Moving Averages:
(Simple)

 10-dma:  989
 50-dma:  881
200-dma:  908



Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1275

Moving Averages:
(Simple)

 10-dma: 1266
 50-dma: 1224
200-dma: 1083



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

Despite the markets weakness in Tuesday's session the volatility
indices barely budged and remained near yearly lows.  Essentially,
they are telling observers that investors are still too bullish.

CBOE Market Volatility Index (VIX) = 20.23 +0.30
Nasdaq-100 Volatility Index  (VXN) = 30.16 -0.24


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.01        494,015       497,136
Equity Only    0.92        390,495       358,803
OEX            0.75         26,017        19,428
QQQ            6.93         24,971       173,067


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

Bullish Percent Data

           Current   Change   Status
NYSE          69.7    + 0     Bull Confirmed
NASDAQ-100    75.0    + 0     Bull Confirmed
Dow Indust.   86.6    + 7     Bull Confirmed
S&P 500       77.2    + 2     Bull Correction
S&P 100       84.0    + 2     Bull Confirmed


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

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

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

 5-Day Arms Index  1.04
10-Day Arms Index  0.96
21-Day Arms Index  1.02
55-Day Arms Index  1.10


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

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1150      1505
Decliners    1688      1526

New Highs     109       146
New Lows       32         6

Up Volume    542M      736M
Down Vol.   1107M      928M

Total Vol.  1676M     1685M

M = millions


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

Commitments Of Traders Report: 07/22/03

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

Not much new for us to decipher in the full contracts of the
S&P 500 futures.  Commercials remain slightly next short and
the small traders remains significantly net long, expecting
the markets to rise.


Commercials   Long      Short      Net     % Of OI
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%)
07/22/03      411,206   442,131   (30,925)   (3.6%)

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
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%
07/22/03      155,891    76,466    79,425    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

In contrast to the full size S&P contracts above, the E-minis
is showing a drastic change.  Commercial traders have been
moving from net short to net long the last four weeks and
the longs have finally out numbered the shorts.  Right on
cue, the small traders have turned the most bearish they
have been in months.


Commercials   Long      Short      Net     % Of OI
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%)
07/22/03      249,392   249,386          6     0.0%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:        6   - 07/22/03

Small Traders Long      Short      Net     % of OI
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%)
07/22/03       45,945    76,071   (30,126)  (24.7%)

Most bearish reading of the year: (30,126)  - 07/22/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

There is little change in the NDX futures by the commercial
traders or small traders.


Commercials   Long      Short      Net     % of OI
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%)
07/22/03       32,502     48,139   (15,637) (19.4%)

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
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%
07/22/03       27,321     8,844    18,477    51.1%

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

Commercial traders are becoming even more bullish on the
Industrials while small traders are slowing increasing
their net short positions.


Commercials   Long      Short      Net     % of OI
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%
07/22/03       22,198     8,176   14,022      46.2%

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
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%)
07/22/03        6,110    10,898   (4,788)   (28.2%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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******************
WEEKLY FUND SCREEN
******************

Good Growth Funds in Fidelity FundsNetwork NTF

This week, we identify high-rated growth funds that are available
on a no-transaction fee ("NTF") basis through the Fidelity Retail
FundsNetwork.  These long-term growth funds were selected from a
universe of more than 1,100 funds in the Fidelity retail network
(www.fidelity.com).  Each of these funds has passed specific fund
performance criteria, has been around for at least five years and
has other desirable characteristics.

Screening/Evaluation Process

To help us narrow the field quickly, we used the fund screener on
the Fidelity.com website, called Fund Evaluator.  Our fund search
criteria is shown below for your convenience.

  Fund Preferences:
  Show Only Open Funds (Checked)
  Show Only NTF Funds (Checked)

  Fund Performance:
  YTD Return > 15%
  1-Year Return % > 0%
  3-Year Annualized Return % > 0%
  5-Year Annualized Return % > 0%

  Investment Objective:
  Stock Funds = All Domestic Stock Funds

  Morningstar Rating:
  4 Stars (Above Average) or Higher

  Equity Style Maps:
  Large-Cap Value: No
  Large-Cap Blend: Yes
  Large-Cap Growth: Yes
  Mid-Cap Value: No
  Mid-Cap Blend: Yes
  Mid-Cap Growth: Yes
  Small-Cap Value: No
  Small-Cap Blend: Yes
  Small-Cap Growth: Yes

  Nuts and Bolts:
  Expense Ratio < 1.50%
  Equity Turnover Ratio < 150%
  Manager Tenure > 5 Years


This stringent screen criterion yielded only seven fund results,
as follows:


  Fund Screen Results:
  Baron Growth (BGRFX), Growth
  Excelsior Midcap Value (UMVEX), Growth
  Heartland Value (HRTVX), Small Company
  Liberty Acorn Z (ACRNX), Small Company
  Liberty Acorn USA Z (AUSAX), Small Company
  Matrix Advisers Value (MAVFX), Growth & Income
  Neuberger Berman Socially Responsible (NBSTX), Growth


You can see that our screen yielded three growth objective funds,
one growth and income objective product, and three small company
stock funds.  Each fund is up over 15% in 2003, after holding up
relatively well versus similar funds over the past three to five
years through the market correction.  However, the total returns
presented in Fidelity's Fund Evaluator are through June 30, 2003.

To continue our evaluation, we entered the seven fund symbols in
the "Fund Compare" tool on the Morningstar.com website.  That'll
let us see performance results through July 28, 2003 and compare
the seven funds on other things, such as relative risk, expenses,
manager tenure, and portfolio characteristics.

The Snapshot View showed us that three funds are currently rated
5 stars by Morningstar, the fund tracker's highest overall grade
for "risk-adjusted" return performance relative to fund category
peers.  Baron Growth Fund and Liberty Acorn Fund, Class Z Shares
are both "5-star" rated in the Morningstar small-growth category.
Matrix Advisors Value Funds receives 5 stars for its performance
in the Morningstar large-blend category.  The other funds on the
list are "4-star" rated by Morningstar, signifying above average,
risk-adjusted returns relative to category peers.

In the Performance View, we see that the Heartland Value Fund is
up 35.2% as of July 28, 2003, more than double the return of the
market as measured by the S&P 500 index.  Its 1-year, 3-year and
5-year annualized total returns rank in the top 10% of the small
value category, per Morningstar, while at the same time, holding
up significantly better through the market downturn of 2000-2002.

Because it invests in undervalued stocks, the fund's value style
may at times be out of favor with the market.  In 1998 and 1999,
two pro-growth years, Heartland Value Fund lost 11.5% and gained
25%, respectively.  Large cash inflows may have hurt performance
in 1998, following two 20-percent return years in 1996 and 1997.

Excelsior Midcap Value Fund, the two Liberty Acorn funds and the
Matrix Advisors Value Fund are each up over 20 percent this year
through July 28.  Matrix Advisors Value Fund has produced a 9.9%
annualized total return over the past five years, ranking in the
top 1% of the Morningstar large-blend category.  Still, three of
the equity funds on this short list have done better in absolute
terms over the trailing 5-year period, including Liberty Acorn Z
(+10.4%), Baron Growth (+10.5%) and Heartland Value (+12.4%), so
our short list includes some durable performers from both "value"
and "growth" camps.

In terms of risk and tax data, we saw that Neuberger and Berman's
Socially Responsible Investment Trust (NBSTX) had the lowest risk
(volatility) of the seven funds over the past three years with an
average standard deviation of just 18.1%.  The standard deviation
percentages for Baron Growth Fund and Liberty Acorn Fund are both
just above 20 percent, low-to-below average relative to small-cap
funds overall.  Funds with above average risk levels versus their
category peers include the Excelsior Midcap Value Fund, Heartland
Value Fund and Matrix Advisors Value Fund.

The Portfolio View showed us that each of the funds has portfolio
turnover ratios of less than 100 percent.  These funds don't turn
the portfolio over as much as some stock mutual funds, helping to
control fund costs.  Baron Growth Fund's average P/E ratio of 31x
is the highest of the seven short-list funds, while Excelsior Mid
Cap Value Fund has the lowest average P/E (20x), per Morningstar.
The two Liberty Acorn funds sport relatively high 3-year earnings
growth rates in the 15%-17% range.  Baron Growth, Heartland Value
and Liberty Acorn each have more than $1 billion in total assets.

Favorite Funds

Our favorite funds on this 7-fund short list are the Baron Growth
Fund (BGRFX) and Liberty Acorn Fund Z (ACRNX).  Both equity funds
seek to provide long-term appreciation through investments mainly
in small company stocks.  Both stock funds are currently included
in the Morningstar small-growth category based on their "average"
investment style over the past few years.  However, Liberty Acorn
Fund has sometimes drifted into the small-blend style box or mid-
growth style box, per Morningstar.  That's not a big deal though,
as Baron's style tends to stay toward the lower right-hand corner
of the style box.

Morningstar says Baron Growth Fund favors small, rapidly growing
companies with talented management, and it is not afraid to load
up on its favorite stocks.  Ronald Baron has managed this growth-
driven fund for over eight years, producing a strong performance
record in relation to other small capitalization funds.  Liberty
Acorn Fund's long-time manager, Ralph Wanger is retiring but the
fund remains in the capable hands of co-manager, Charles McQuaid
(since May 1995).  Morningstar.com says the Acorn Fund remains a
force to be reckoned with in the small-cap fund group.

So far in 2003, the Baron Growth Fund has returned 19.3% to rank
in just the 79th percentile of the small-cap growth category per
Morningstar.  That is still a full five percentage points higher
than the S&P 500 large-cap index this year.  Baron Growth Fund's
trailing 3-year annualized return of +6.7% compares to an annual
equivalent loss of 9.8% for the S&P 500 index.  And its trailing
10-year average annual return of 10.5% through mid-year compares
to an annualized decline of 1.1% for the S&P 500 index benchmark.

Liberty Acorn Fund has produced a YTD total return through July
28 of 22.5%, 8.2% better than the market as measured by the S&P
500 index.  Like Baron Growth, Liberty Acorn Fund has done well
this year, but some "small-growth" funds have generated greater
returns for investors in 2003.  Still, we appreciate that these
two funds are still capturing a fair share of the market return
this year, while also sporting a superior long-term performance
record.

Over the trailing 3-year, 5-year and 10-year periods, Liberty's
Acorn Fund, Class Z has generated returns that rank in (or near)
the top decile of the Morningstar small-growth category.  Its 5-
year annualized return through July 28 of 10.4% ranks in the top
14%, while its 10-year annualized return (12.5%) through June 30
ranked in the category's top 12 percent.  Since 1996, the fund's
annual (year-to-year) returns have ranked in one of the two best
quartiles for performance, except for one year 1999, when it was
up only 33.4% for the year (66th percentile).  Some other growth
funds that year produced staggering, but unrealistic returns for
shareholders.

Conclusion

This week we used Fidelity's fund screener/evaluator to identify
some strong funds in the Fidelity Retail FundsNetwork.  A few of
them may also be available on a no-load, no-transaction fee (NTF)
basis through other brokerage networks and distribution channels.

We discussed two small-cap funds we favor, Baron Growth Fund and
Liberty Acorn Fund.  Both have participated in the market's rise
in 2003 and have held up relatively well compared to some growth
funds through the 2000-2002 market downturn, putting them in good
stead for the next advance.

Long-term, risk-tolerant investors wanting to add some small-cap
growth exposure their stock portfolio have two fine choices here.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                  Tuesday 07-29-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: none
Dropped Puts: BBBY
Call Play Updates: AZO, FDX, GDW, GENZ, LOW
New Calls Plays: TTWO
Put Play Updates: FITB, FRE, HD, LEH, LEN, PGR, XL
New Put Plays: BDK, MRK


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

NONE


PUTS:
*****

Bed Bath & Beyond - BBBY cls: 38.83 chng: -0.17 stop: 40.25

Sometimes things just don't work out.  When we initiated coverage
of BBBY last week, we were looking for a breakdown under $37 and
were quite pleased to get it in short order.  But the strong
rebound from the 200-dma was not in the plan.  After that
rebound, the stock has spent the past 3 days stubbornly refusing
to break back under the $38 level.  While BBBY has still failed
to close over its aggressive descending trendline from the early
June highs, the stock's failure to show any follow through
weakness has us getting very cautious.  Rather than wait for the
trendline break, we're recommending an exit from the play on any
weakness on Wednesday.  Traders still willing to hold open
positions should ratchet stops down to $39.50, as that is just
above the trendline, the last two day's intraday highs, as well
as the resistive 30-dma.

Picked on July 22nd at    $37.71
Change since picked:       +1.12
Earnings Date           09/17/03 (unconfirmed)
Average Daily Volume =  3.36 mln




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


AutoZone, Inc. - AZO - close: 83.75 change: +0.78 stop:
79.75*new*

There's nothing like a shot of adrenaline to get a new bullish
play off to a great start.  Apparently Friday's breakout over $80
and the 50-dma was significant, because the stock charged higher
right out of the gate on Monday.  Momentum entries were the only
way to go, as AZO broke through $81 shortly after the open and
never looked back, ending just below $83.  That buying spree
continued on Tuesday, with the stock hitting an early high
($84.70) just below our initial target of $85.  There hasn't been
any news to explain the strongly bullish move, as this appears to
be simply a rebalancing of supply and demand as the stock
successfully pushed through a major resistance level.  Today's
consolidation after the early bullish move hints that there may
be a bit more of a pullback before the next leg higher.  That
will be our opportunity to enter new positions on a rebound from
new support.  Aggressive traders can target a rebound from the
$83 area, although the better spot to game a bounce appears to be
on a rebound from the $81.50-82.00 area.  With price extended
above the upper Bollinger band now, we have no interest in
chasing AZO higher until that requisite pullback.  In fact,
another push up near $85 and rejection there should be used to
harvest some gains and look for a pullback to re-enter the play.
Raise stops to $79.75, just below the 50-dma.

Picked on July 27th at    $80.17
Change since picked:       +3.58
Earnings Date           08/26/03 (unconfirmed)
Average Daily Volume =  1.30 mln



---


Fedex Corp - FDX - close: 64.83 change: -0.33 stop: 62.99 *new*

Just as Linda stated in her market wrap on Monday, the markets
are set up for a bullish move higher but traders just aren't
biting.  Or they're missing the cues like the one we're following
here with the new relative highs in the Transportation index.
The Dow Jones Transportation average has managed to maintain its
gains above 2600 but stocks like FDX and UPS can't seem to catch
any rally higher.  As a matter of fact shares of UPS look like
they're about to roll over and are currently perched on their 50-
dma.  A breakdown in UPS could affect investor sentiment towards
FDX.  We're not quite willing to pull the plug on FDX yet but
we're not suggesting new entries either.  To reduce our risk
we're raising our stop loss to $62.99, which is under the simple
50-dma for FDX (currently 63.35).

Picked on July 20 at $65.32
Change since picked:  -0.49
Earnings Date      09/23/03 (unconfirmed)
Average Daily Volume:  1.70 million




---

Golden West Fincl. - GDW - close: 83.93 chg: -0.84 stop: 80.99

The strong rally in the financial sector last Friday appears to
have faded.  Following in the footsteps of the BIX and BKX
banking indices, shares of GDW have slipped backwards from its
recent breakout over $85.00.  This may not necessarily be bad
news.  Traders who prefer to target shoot their bullish entries
on dips toward support can look for GDW to slip towards the
$83.00 level.  A bounce there looks like a tempting entry point.
Should GDW slip under the $83 mark then we'll start to turn
pretty cautious on the play and suggest traders wait before
entering bullish positions.

Picked on July 27 at $85.66
Change since picked:  -1.73
Earnings Date      07/21/03 (confirmed)
Average Daily Volume:  581  thousand




---

Genzyme Corp - GENZ - close: 51.94 change: -0.38 stop: 47.49 *new*

Bullish movement in the markets may have slowed but not for
shares of GENZ.  The biotech/drug company is outpacing both the
BTK biotech index and the DRG drug index.  Last week's move over
resistance at $50 was fueled higher by an S&P upgrade of the
company's credit rating from BBB- to BBB.  That's positive news
for GENZ and a stamp of approval to make investors feel better.
Today's action saw some profit taking back to the $50 level but
dip buyers quickly stepped in.  Positions at current levels still
look good but take care to place your stop carefully.  We're
raising ours to $47.49.

Picked on July 22 at $49.76
Change since picked:  +2.18
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  3.52 million



---

Lowe's Companies - LOW - cls: 47.50 chng: -0.84 stop: 46.50*new*

Back and forth, LOW has been crossing over the $48 level with
increasing frequency over the past week.  Traders in this bullish
play obviously want to know whether it is going to solidify here
and make a run at our $50 target and so do we!  We knew this was
going to be a solid level of resistance, but we're ready for the
stock to get this show on the road.  It is encouraging to see
support apparently building above $47 and the 10-dma ($47.16) has
now risen to help reinforce that support.  Traders still looking
for new entries can consider rebounds from above the 10-dma as a
viable trigger.  We're leaning a bit more cautious on the play
due to the series of lower intraday highs over the past couple
days and today's close right at the $47.50 support level.  Also
somewhat disconcerting are the large volume spikes on the large
sell candle at 10am ET and at the close today.  Those two 5-
minute bars accounted for a total of nearly 1.7 million shares,
36% of the day's total.  So we need to be careful about buying
this dip.  The more conservative entry strategy would be to wait
for a rebound back over the very short-term trend connecting the
intraday highs of the past two days and that would come with a
trade of $48.30.  Note that we're raising our stop to $46.50
tonight, which should be strong support.

Picked on July 13th at    $46.87
Change since picked:       +0.63
Earnings Date           08/18/03 (unconfirmed)
Average Daily Volume =  4.81 mln





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

Take-Two Interactive - TTWO - close: 26.72 chg: +0.10 stop: 23.90

Company Profile:
Take-Two Interactive Software Inc. (TTWO) is an integrated global
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the PC,
PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo
GameCube, Nintendo Game Boy Advance and the Xbox. The Company
publishes and develops products through various wholly owned
subsidiaries including Rockstar Games, Rockstar Studios,
Gathering, Joytech, PopTop, Global Star and under the Take-Two
brand name. The Company maintains sales and marketing offices in
Cincinnati, New York, Toronto, London, Paris, Munich, Vienna,
Copenhagen, Milan, Sydney and Auckland.

Chart Analysis


Chart: Daily




TTWO has been in a five-wave basic pattern incline since March.
Currently TTWO is undergoing the 4-wave retracement and has yet to
complete it.  TTWO should complete the 4-wave retracement in a few
days when it hits 25 at which point the target will be 34.

The Type I setup meets the following criteria:

1. The 4 wave has already retraced about 58% and should retrace
about 63% when the 4 wave is complete.

2. The 4 wave segments nicely into a zigzag.

3. The oscillator has peaked at the zenith of the 3 wave and has
retraced about 150%.


Chart: Weekly




The weekly chart of TTWO shows that TTWO has just finished a five
wave basic pattern that completed at the end of 2002.  TTWO could
be in the midst of an A-B-C correction or it could be completing
the five wave basic pattern.  The oscillator is ambiguous at this
point.  This pattern is very similar to the one for the 5 wave of
the last five wave basic pattern.  If that is the case, then the
oscillator is going a bit lower as the 4 wave completes and then
rise again being almost an exact duplication of the previous five
wave basic pattern.

Chart Hourly




The hourly chart of TTWO shows TTWO to be in the process of a 4-
wave retracement of the daily C wave.  It is not entirely clear as
to whether TTWO will first rise to about 28.60 first or head
straight down to 25.  In either case, we are going to wait for $25
as an entry point which should occur sometime late in the day on
7/30/2003.

Trade Setup

TTWO should reach $34 by October.  The December options should
give us plenty of time to complete the trade.  We're going to
suggest the December $30.00 strike.  When TTWO hits $25, the Ask
should be about $1.35.


Option
Sym   Strike   Type   Bid    Ask   Delta   Vol   OI
TUOLF 30.00    Call  1.90   2.05    41     12   239


What If We Are Right

Chart: Position Analysis For Target



On 7/30/03 with TTWO down to $25, the options are worth about
$1.35.  If TTWO reaches $34 by September expiration, the option
will be worth $5.35.  We will sell half the position at $2.70
(somewhere are around $29 at August expiration) thus making this a
risk free trade.  We will let the remaining options ride to $34.


What If We Are Wrong

If TTWO goes below $23.90 or the oscillator breaches the 161%
retracement, then something has gone wrong and we will exit the
trade.  This will most likely happen within the next month.

Chart: Wrong Scenario




If TTWO continues to go down to $23.90, then the options will be
worth about $0.80 at August expiration.  Since we will have
purchased them for about $1.35, we will be down about 40%.



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

Fifth Third Bancorp - FITB - cls: 55.23 chg: -0.57 stop: 57.01

It's been ten days and we're right back where we started from.
Shares of FITB have failed at overhead resistance again but
paused just above the $55 level.  The trend of lower highs is
good news for the bears and should produce the downside breakout
we're looking for.  Sometimes the key is patience.  The more this
stock churns between $55 and its 50-dma the more it looks like a
bear flag pattern (which should produce the breakdown we're
waiting on).  We've mentioned it before, the stall in FITB's
descent has some of its oscillators curling up from oversold in a
bullish manner.  It's going to take a move over $57.00 to
convince us the short-term downtrend is over.  Aggressive traders
can reconsider new bearish positions now.  Conservative traders
may want to wait for a new relative low (a move under the July
low).

Picked on July 17th at $55.26
Change since picked:    -0.03
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million



---

Freddie Mac - FRE - close: 49.38 change: -1.23 stop: 52.50*new*

It looks like the third time's the charm!  After probing below
the $50 level on Friday and Monday and rebounding swiftly on both
occasions, today's break under that critical level suddenly found
insufficient buying interest to propel the stock back up.  After
a feeble midday rebound attempt, the stock rolled over into the
close, ending just above its low of the day.  Another strong
round of selling in the Treasury market certainly had its effect,
and FRE looks to be mid-way through the breakdown we're looking
for.  Look for continued weakness in the bond market to exert
further downside pressure on shares of FRE.  With a successful
close under the $50 level, resistance should be strong in the
$50-51 area and an oversold rebound that rolls over in that area
can be used for fresh entries.  Momentum traders will want to
keep an eye on the $49 level, as that was the site of yesterday's
early rebound.  A break below there can be used for aggressive
entries enroute to challenging the June lows and then working
down to strong support near $45.  Lower stops to $52.50, just
above last Wednesday's intraday high.

Picked on July 22nd at    $50.33
Change since picked:       -0.95
Earnings Date                N/A
Average Daily Volume =  7.21 mln



---

The Home Depot - HD - close: 31.57 change: -0.18 stop: 33.00*new*

Is that pesky support ever going to break?  From the looks of
things, HD is continuing to weaken, and Tuesday's close near the
low of the day looks encouraging.  The daily chart presents what
looks like a "b" distribution pattern over the past couple weeks
and with the 10-dma ($32.25)and 20-dma ($32.82) curling lower to
provide stronger resistance, the bears seem to have the upper
hand.  Failed rebounds below the 10-dma have been providing solid
entries into the play, and we'll stick with that strategy until
either it fails to work or we get the decisive breakdown below
$31.  Normally, we'd consider a break under the bottom of the
recent consolidation ($31.24) as a viable momentum entry, but
with our initial profit target at $30, it may not provide enough
bang for the buck.  Even though our eventual target for the play
is $28, more conservative traders may want to consider harvesting
partial gains at $30, as that support is likely to provide at
least a short-term rebound when hit.  Lower stops to $33.00.

Picked on July 10th at   $32.43
Change since picked:      -0.86
Earnings Date          08/19/03 (unconfirmed)
Average Daily Volume =  9.59 mln



---

Lehman Brothers - LEH - cls: 62.96 chng: -0.32 stop: 64.50*new*

It took over a week of grunting and straining to get the job
done, but the bears finally managed to post a sub-$63.00 close
for LEH.  It was only a small fractional loss on the day, but the
moral victory hints that perhaps the second leg of the breakdown
in this weak Brokerage stock is about to get underway.  The stock
is continuing to be pressured by its descending trendline
($64.40) and the 10-dma ($64.04) and so far intraday rebounds
near the 10-dma have proved to be favorable entry setups.  That
once again proved true on Tuesday, with the stock swiftly
rejected from its attempt to reach the $64 level near midday.
Traders that have entered on one of these failed rallies should
now tighten stops to $64.50, which is just above that descending
trendline from the mid-June highs, as well as the intraday highs
over the past week.  Traders looking for a momentum entry can
consider a break under $62.75 (today's intraday low), but only if
we're seeing renewed weakness in the XBD index, preferably
breaking below that stubborn $550 support level.

Picked on July 20th at    $65.18
Change since picked:       -2.22
Earnings Date           09/18/03 (unconfirmed)
Average Daily Volume =  2.86 mln



---

Lennar Corp. - LEN - close: 66.78 change: +0.20 stop: 68.50*new*

It is getting very close to make or break time for our LEN play,
as the bulls have managed to stubbornly defend the $66 support
level, while at the same time, the declining 10-dma ($68.13) is
continuing to put ever-lower pressure on each rebound attempt.
With rising interest rates due to the continuing selloff in the
bond market, we're leaning towards an impending breakdown.  But
with the way in which the Housing stocks have been so stubbornly
strong in recent months, we want to err on the side of caution.
Aggressive traders can still use failed rebounds below the 10-dma
to enter the play, but be aware that we're getting really stingy
with our stop.  It moves lower to $68.50 tonight, as a break
above that level would indicate an end to the current downtrend
and have us moving to the sidelines.  The more prudent way to
game new entries at this point may be to wait for the breakdown
under $65 in conjunction with the $DJUSHB index finally losing
the $414 support level.  Our eventual profit target is still $62-
63 as that former resistance is likely to provide a solid (even
if transitory) floor for a rebound.

Picked on July 15th at   $71.12
Change since picked:      -4.78
Earnings Date          09/09/03 (unconfirmed)
Average Daily Volume =  1.68 mln



---

Progressive Corp - PGR - close: 65.98 chg: -0.89 stop: 67.26 *new*

It's been eight trading days since investors hammered shares of
PGR on its earnings news.  While we've not yet seen a bounce
traders have been unable to spark any more selling.  The $65
level remains short-term support but we've also noticed how
shares have not traded above $67.20 since July 21st.  Given the
recent failure near that level again we're going to slip our stop
loss down another 25 cents to $67.26.  Investors might notice
that the IUX insurance index has just produced a three-day
bearish reversal pattern near the 280 level.  Sector wide selling
pressure could help push PGR through $65.00 and towards our
target near $60.00.  This is a good spot for aggressive traders
to consider new entry points but conservative traders may want to
wait for a more convincing move under $65.00.

Picked on July 23 at $65.22
Change since picked:  +0.76
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  941  thousand



---

XL Capital Ltd. - XL - close: 78.05 change: -0.85 stop:
79.50*new*

We would be really excited about today's rollover in shares of XL
if there was more time left to play.  Just as expected over the
weekend, we were looking for a rollover from last week's oversold
rebound in the $79-80 area, and the stock nailed the middle of
that range almost perfectly, with an  intraday high of $79.45 on
Monday before commencing the rollover from the 10-dma ($79.03)
this morning.  Volume continues to be above average, and XL looks
like it is vulnerable to a near-term drop to the $73-74 target
area that we highlighted when we began coverage just under 2
weeks ago.  The problem is that there just isn't enough time left
before the company releases its earnings report on Thursday after
the closing bell.  That means there are only 2 trading days left
to be out of any open positions.  Aggressive traders can still
consider fading another failed bounce below the 10-dma, but need
to realize we need to be less tolerant of any rebound through
near resistance with the proximity of earnings.  Conservative
traders will want to use a decline back into the $76.50-77.00
area to harvest at least partial gains.  We're lowering our stop
tonight to $79.50, which is just above yesterday's intraday high.
One way or the other, we'll be dropping coverage of XL tomorrow
night.

Picked on July 17th at   $79.64
Change since picked:      -1.59
Earnings Date          07/31/03 (confirmed)
Average Daily Volume =    752 K




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

Black & Decker Corp - BDK - cls: 40.50 chg: -0.99 stop: 42.01

Company Description:
Black & Decker is a leading global manufacturer and marketer of
power tools and accessories, hardware and home improvement
products, and technology-based fastening systems.
(source: company press release)

Why We Like It:
It appears we have a reversal of fortunes here for BDK.  The
stock, which had been building a series of higher highs from mid-
May, has now broken down after their earnings report came out
last week.  Profits were higher on the quarter but only due to
cost cutting as sales declined 5%.  Management tried to reduce
the bad news with a dividend announcement of 12 cents per share
payable in late September but it doesn't appear to be helping.

The stock is seeing declines on strong volume.  Today's volume
was twice the norm as shares dropped another 2.3%.  Not only was
today's move a breakdown under support of $41.00 but the stock
closed below its simple 200-dma.  There was an intraday bounce
but it rolled over under $41.00 to close near its lows for the
session.  We suspect there will be some follow through on the
breakdown.  We're going to use a TRIGGER at $39.99 to open the
play for us.  If BDK trades at $39.99 or below then we'll be
"officially" open.  More aggressive traders can evaluate bearish
positions now under $41.00.  Looking at the weekly chart we see
significant support near $35.00.  Hence, we'll make that our
target.  However, the daily chart does show some previous
resistance at $38.00 so we can expect that to act as support on
the way down.  We'll initiate the play with a stop loss at
$42.01.

Suggested Options:
We're going to list the August & September strikes but BDK also
has November and Februarys available.  Open interest is a little
low on the Septembers.  Either wait for some interest or only
consider lots of 10 or less.

BUY PUT AUG 40 BDK-TH OI=342 at $0.80 SL= --
BUY PUT AUG 35 BDK-TG OI=427 at $0.25 SL= --
BUY PUT SEP 40 BDK-UH OI= 20 at $1.45 SL=0.70
BUY PUT SEP 35 BDK-UG OI=  0 at $0.35 SL= --

Annotated Charts:



Picked on July 29 at $40.50
Change since picked:  -0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  731  thousand



---

Merck & Company - MRK - close: 55.39 change: -1.27 stop: 58.25

Company Description:
MRK is a global, research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of
human and animal health products, directly and through its joint
ventures.  Additionally, the company provides pharmaceutical
benefit services through Merck-Medco Managed Care, LLC.  The
company's operations are managed principally on a products and
services basis and are comprised of two business segments.  Merck
Pharmaceutical is involved in marketing products, while Merck
Pharmaceuticals is focused on therapeutic and preventive agents,
sold by prescription, for the treatment of human disorders.  The
pharmaceutical benefit services provided by Merck-Medco include
sales of prescription drugs through managed prescription drug
programs as well as services through programs to manage patient
health and drug utilization.

Why we like it:
After topping out in the middle of June, the Pharmaceutical index
(DRG.X) has been working lower in a very methodical and steady
manner.  After breaching the 50-dma a couple weeks ago, the
downtrend only intensified and there are it looks like a test of
the 200-dma ($308) and the year-long ascending trendline ($303)
is in store sooner, rather than later.  In the department of
relative weakness though, MRK is really making a splash, leading
the DRG index lower.  Things started to get a bit ugly for the
stock on Monday, when the bears managed to press the stock under
its year-long trendline, but the bulls managed to save face a bit
by pushing MRK up to close fractionally above the 200-dma
($56.60).  That victory was short-lived on Tuesday though, with
MRK falling more than 2%, solidifying the breakdown under the
trendline with a close under the 200-dma.  While there haven't
been any significant news catalysts this week, the stock is still
likely feeling the pain from a disappointing earnings report on
July 21st.  Obviously there were more than a few traders watching
the stock today and they piled on to produce a daily volume tally
that nearly doubled the 7.16 million share ADV.

While we're looking for significantly more downside in the near-
term, there are a couple of obstacles that the bears will need to
overcome in the process.  First up is the $55 level that managed
to prop the stock up on Tuesday, and a quick look at the PnF
chart explains why -- it is the site of the bullish support line.
Aggressive traders might be tempted to enter the play on a
decline under that level, but the more conservative approach
might be to wait for a break under the $54 support area, which
would also deliver a break of the bullish support line and
generate a new PnF Sell signal.  That breakdown should clear the
way for MRK to work its way down towards our target of $50, which
should be firm support.  There appears to be solid resistance in
the $56.50-57.00 area now, and a failed rebound in that area
would make for the lowest-risk entry into the play, with a stop
set at $58.25, just above the intraday resistance established
last week.

Suggested Options:
Short-term traders will want to focus on the August 55 Put, as it
will provide the best return for a short-term play.  Aggressive
traders looking for a sustained move down towards our $50 target
will want to utilize the September 50 contract, while more
conservative long-term traders will want to focus on the
September $55 strike.

BUY PUT AUG-55 MRK-TK OI= 4384 at $1.10 SL=0.50
BUY PUT SEP-55 MRK-UK OI= 1330 at $2.10 SL=1.00
BUY PUT SEP-50 MRK-UJ OI= 1648 at $0.60 SL=0.25

Annotated Chart of MRK:



Picked on July 29th at    $55.39
Change since picked:       +0.00
Earnings Date           10/20/03 (unconfirmed)
Average Daily Volume =  7.16 mln




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The Option Investor Newsletter                  Tuesday 07-29-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: BDK


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

Black & Decker Corp - BDK - cls: 40.50 chg: -0.99 stop: 42.01

Company Description:
Black & Decker is a leading global manufacturer and marketer of
power tools and accessories, hardware and home improvement
products, and technology-based fastening systems.
(source: company press release)

Why We Like It:
It appears we have a reversal of fortunes here for BDK.  The
stock, which had been building a series of higher highs from mid-
May, has now broken down after their earnings report came out
last week.  Profits were higher on the quarter but only due to
cost cutting as sales declined 5%.  Management tried to reduce
the bad news with a dividend announcement of 12 cents per share
payable in late September but it doesn't appear to be helping.

The stock is seeing declines on strong volume.  Today's volume
was twice the norm as shares dropped another 2.3%.  Not only was
today's move a breakdown under support of $41.00 but the stock
closed below its simple 200-dma.  There was an intraday bounce
but it rolled over under $41.00 to close near its lows for the
session.  We suspect there will be some follow through on the
breakdown.  We're going to use a TRIGGER at $39.99 to open the
play for us.  If BDK trades at $39.99 or below then we'll be
"officially" open.  More aggressive traders can evaluate bearish
positions now under $41.00.  Looking at the weekly chart we see
significant support near $35.00.  Hence, we'll make that our
target.  However, the daily chart does show some previous
resistance at $38.00 so we can expect that to act as support on
the way down.  We'll initiate the play with a stop loss at
$42.01.

Suggested Options:
We're going to list the August & September strikes but BDK also
has November and Februarys available.  Open interest is a little
low on the Septembers.  Either wait for some interest or only
consider lots of 10 or less.

BUY PUT AUG 40 BDK-TH OI=342 at $0.80 SL= --
BUY PUT AUG 35 BDK-TG OI=427 at $0.25 SL= --
BUY PUT SEP 40 BDK-UH OI= 20 at $1.45 SL=0.70
BUY PUT SEP 35 BDK-UG OI=  0 at $0.35 SL= --

Annotated Charts:



Picked on July 29 at $40.50
Change since picked:  -0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  731  thousand




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


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**********

Please read our disclaimer at:



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