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Daily Newsletter, Thursday, 07/31/2003

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The Option Investor Newsletter                 Thursday 07-31-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap:
Futures Markets: Round tripped
Index Trader Wrap: See Note
Market Sentiment: Reversal day on good news
Weekly Manager Microscope: Barbara Walchli, CFA: Aquila Rocky Mountain Equity Fund (ROCYX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      07-31-2003           High     Low     Volume Advance/Decline
DJIA     9233.80 + 33.80  9361.40  9199.28 1.92 bln   1531/1708
NASDAQ   1735.02 + 14.10  1757.37  1728.34 1.79 bln   1869/1362
S&P 100   499.27 +  1.98   506.65   497.29   Totals   3400/3070
S&P 500   990.31 +  2.82  1004.59   987.49
W5000    9555.05 + 28.50  9673.12  9526.57
RUS 2000  476.02 +  3.22   478.80   472.80
DJ TRANS 2623.92 + 17.70  2653.23  2606.31
VIX        21.24 +  0.52    21.44    20.40
VXN        31.22 +  0.36    31.67    30.23
Total Volume 3,999M
Total UpVol  2,628M
Total DnVol  1,321M
52wk Highs  553
52wk Lows    73
TRIN       0.62
PUT/CALL   0.68
************************************************************

Oops

The bulls were partying hard with a +160 point Dow gain and
a new 52-week high when somebody tripped. Tripped a breaker,
tripped over bags of money or tripped on a banana peel the
results were the same. The lights went out and the party was
quickly over. As if somebody yelled fire in a crowded theater
the rush for the exits was fast and furious. When the smoke
cleared the +160 point gain had turned into only +33 and the
tone of the market was significantly different.

Dow Chart



Nasdaq Chart 


S&P Chart 



How we went from 100% bullish at the open to the crash at the
close has probably got more than a few bulls scratching their
heads tonight. The morning began with another drop in Jobless
Claims to 388,000 and the second consecutive week under 400K.
A trend, a trend, (visions of Tatu pointing to the plane on
Fantasy Island) the bulls were shouting. Granted the first
number started with a 3 instead of a 4 but not by much. Still
the futures were spiking. The fact that the numbers were still
adjusted for the cyclical auto layoffs was lost on everyone.
Continuing claims increased to 3.65 million indicating that
jobs are still hard to find regardless of the adjustments.

The slam-dunk came in the form of the GDP at +2.4% for the 2Q.
This was a full +1.0% over the estimates and the crowd went
wild. Personal consumption rose +3.3% and non residential
investment rose +6.9%. Yee-Haw! Bulls began to party and
shorts began running for cover. The buying was sharp and quick
and futures were quickly +8 and climbing. Bulls pointed to
this report as signs of a real recovery in progress. Let's
not forget that this was for the 2Q which began with a war.
Remember the expected post war bounce in the economy? For
about six weeks we saw a light spurt in buying in anticipation
of a quick recovery. That recovery never came and we ended the
quarter with an unbroken string of Jobless Claims over 400K
for the entire quarter. Corporate earnings have already told
us there was a bounce in April that slowly died into June.
This is the evidence of that bounce. Much of the jump was
due to a +7.5% increase in government spending. One of the
best components was a decrease in inventories by $17.9 billion
which should indicate a bounce in manufacturing soon. This
assumes of course the goods were made in America and not
imported.

The Employment Cost Index came in slightly less than expected
at +0.9% and provided yet another warm fuzzy feeling for
traders. Costs are not rising and there is no inflation in
wages. With nearly 9 million workers currently unemployed it
would be tough to command a premium wage and signing bonuses
are a thing of the past. Wage growth actually slowed in the 2Q
which is detrimental to future consumer spending.

The Help Wanted Index rose to 38 in June from 35 in May and
was possibly the most bullish sign of an economic upturn.
Ads for workers rose in all regions except East South Central.
This was the first real improvement in months. 73% of the 51
newspapers surveyed showed ad traffic rising. While this is
a positive turn the headline number of 38 is still an indication
of a declining job market.

The most bullish report of the day was the PMI report which
came in at 55.9 compared to estimates of 53 and actual of 52.5
in June. While the GDP is seen as a lagging indicator the PMI
is seen as a current trend and an acceleration of three
consecutive positive months. May was the first positive month
at 52.2 and June barely squeaked higher at 52.5. The huge jump
in economic terms to nearly 56 was very positive. The market
immediately rocketed to higher levels. New orders jumped to
61.7 from 54.8, backlog rose to 49.4 from 45.8 and employment
rose to 46.0 from 43.8. Inventories showed a significant drop
to 39.4 from 48.8 indicating a replenishment cycle in our future.
The news orders at 61.7 was the highest reading since November
2002. This is the report for the Chicago region and traders
hope the National ISM report on Friday follows suit.

That hope suffered a setback with the NY-NAPM, which came in
at 224.9 and the sixth consecutive monthly decline. The
manufacturing conditions component dropped to 64.8 from 92.8
in June. This whopping decrease took the excitement out of the
previous reports and cast a shadow over the ISM for Friday.
Traders were left wondering if the ISM would follow the Chicago
PMI or the NY-NAPM. Since the ISM is actually the old NAPM on
a national basis it was a credible concern.

Part of the strong selling at the close had to be due to the
strong economic calendar for Friday. The previously mentioned
ISM plus Nonfarm Payrolls, Construction Spending, Personal
Income and Spending, Consumer Sentiment, Semiconductor Billings
and July Auto sales. It will be a busy day. The ISM has been
in negative territory since February and it is expected to jump
+2 full points from 49.8 to 51.9. Plenty of opportunity for
disappointment here. The Nonfarm Payrolls are expected to show
a jump of +13,000 jobs with a whisper number of +25,000 jobs.
Again, plenty of room for disappointment. Consumer Sentiment
is expected to rise to 90.8. Worries are that it could follow
the confidence earlier this week with a drop instead.

The market drop today on a full deck of strongly bullish
economic reports could be due to many reasons. Worry over the
reports on Friday may have helped but were not likely the
total reason. The best guess is interest rates. The 10-year
yield reached 4.56% today after being only 3.07% just six weeks
ago. This is a disaster in the bond market the likes of which
have not been seen since 1994. Back then the bounce was not as
bad but it had dire repercussions. Several major investment
houses folded and Orange County California went bankrupt due
to over leverage in the bond market. The rumor making the
rounds today is that there are one or more big investment
companies, maybe even FNM or FRE, in serious trouble. Major
insurers announced this week they were canceling bankruptcy
insurance for Merrill, Schwab and dozens of other institutions.
The insurance policies, which protect investors over the $500K
federal protection limit, have become too risky according to
Travelers, AIG and Radian Group. Sign of the future?

The rising rates, regardless of economic news, stock market
movement or Fed commentary has everybody baffled. Bonds
just keep going down and seldom pause for more than a few
minutes during the day. Confounding the constant selling is
a lack of money flowing into the stock market. Normally when
bonds sell off a large portion of the money moves into stocks.
It is not happening. Even given the large economic bounce at
the open today the volume was still only average and the market
breadth was terrible. On the NYSE decliners beat advancers by
nearly +200 issues. New 52-week lows rose to levels not seen
in months.

Not only are the interest rates a problem for the market the
30-year fixed mortgage hit 6.14% today. Refinance applications
have dropped -50% in the last four weeks. This is a major blow
to the consumer supported economy. Like financial junkies we
have been living off our equity for years and that equity just
dried up faster than a busted drug dealer. The shock to the
system will be strong and the tax cut/credit may not be able
to take up the slack. This shock to the economy has traders
talking of asset allocation programs again ONLY from stocks
to bonds. Boy, talk about full circle. There were several
rumors on the floor today about major institutions, fearing
for the future and dumping stocks. It was not hard to find
believers if you look at the major hits to the averages on a
blowout bullish day.

The Dow dropped -50 points on a sell program just after the
open with bullish news floating all boats. It fell -60 points
on another sell program right after the PMI was announced
with a huge bullish jump. Clearly the programs were keyed in
and waiting for the bullish news to break so they could sell
into the heavy volume. The Dow dropped -70 points at 2:25
on a very strong sell program from the highs of the day. The
last one came at 3:20 and knocked a full -100 points off the
Dow in a very short period of time. Think about this a minute.
On the most economically bullish day I can remember this year
four monster sell programs knocked -280 points off the Dow for
no apparent reason. There were plenty of buy programs as well
but those were to be expected. Why are the big guys selling?
What do they know that we don't? Did they find out Saddam has
a dozen clones?

Another factor, which should be considered, is the August record.
In the last 15 years August has been the worst performing month
for the Dow and S&P, period. With the big gains in stocks and
the sell off in bonds I could see where institutions may want
to asset allocate. They did it constantly on the way down when
bonds were growing to the sky and with them in the cellar and
August in front of us it would only be prudent to revise the
ratios again.

Personally I think the major reversal in the market today on
the most bullish news in months is very negative. It could
completely reverse again tomorrow and set another new high on
good ISM and Jobs data but tonight I am skeptical. I was ready
to join the bulls and party till January when the Dow hit a
new high today but the breadth kept bothering me. The sell
programs at the open bothered me. The rumors of a major fund
collapse worry me the most. I remember losing money on the
Russia default, the Brazil default, the Thailand default,
Long Term Capital and a dozen smaller financial events over
the last ten years. They all tend to appear just as the market
is about to hit new highs. It must be a karma thing or the
worlds biggest repeating coincidence. Either way Friday should
be exciting and I am sure we can expect some serious volatility
at the open. After that it is a coin toss on a summer Friday.
Volume is likely to die by noon as traders head for the beach
or the mountains to escape the heat. Look at the bright side.
We have the three most volatile months of the year beginning
tomorrow. If you can't make money trading over the next three
months you should find another hobby. I get excited just
thinking about it and I hope you do too.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Round tripped
Jonathan Levinson

Yesterday's inside day in equities played out as expected, with
wild upside and downside swings, but above yesterday's lows.  An
upside breakout printed, but not the breakaway that many would
have expected, followed by two sharp drops that flattened the S&P
and Nasdaq to the levels of their cash open at 9:30AM.
Treasuries, however, printed new year lows in a strong selloff
following upside surprises in the abundant economic data released
this morning.

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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1011   1000    993    981    974
YM03U     9415   9313   9240   9138   9065
NQ03U     1318   1299   1282   1263   1246

10 minute chart of the US Dollar Index




The US Dollar Index paused after gaining through the night, and
then rallied on the 8:30 GDP and initial claims data, both of
which surprised to the upside and constitute very good news.  97
resistance was the target, and as of this writing had not been
penetrated.  The action took over 1% of the September euro
futures, and had August gold testing its 354 support, which held.

Daily chart of August gold



Gold had a tumultuous session but managed to hold support at 354,
closing at 356.30, up .10, but printing a lower low and lower
high, and edging the oscillators closer to sell signals.  The HUI
added 1.94 to 164.04 and the XAU was up .48 to 81.12.

Daily chart of the ten year note yield



Bonds got sold to new lows today.  I have no desire to add my
voice to the chorus of confusion surrounding the rally in
treasury yields we've been following for over 1 month now.  Both
bulls and bears try to co-opt such moves, and I have no such
agenda.  It is important to note, however, that liquidity-wise if
the stock market is a lake, the bond market is an ocean, and the
move in treasuries has been huge.  What does it mean?  If
treasuries represent the safest debt, and the yield on that debt
is rallying, then the price of borrowing for even the safest
borrower is rising.  Whether one takes this to be bearish or
bullish for equities now is a matter of opinion, but  if the
yields on treasuries are rising, then other, riskier borrowers
must offer a greater yield to compensate for the additional risk.
If corporate finance costs are rising to keep pace with treasury
yields, then this cost must take a bite out of companies'
profitability, just as the drop in treasuries slammed the brakes
on home mortgage and refi activity in the latest week.  It is my
belief that equity bulls ignore this at their peril, but that is
my opinion only.  The counterargument would be that the price and
value of risk is increasing, except that equities are so far not
making new highs, and precious metals are rallying.  I do not
subscribe to the theory that assets are being reallocated from
bonds to stocks here, as the charts simply don’t support it so
far (see charts in last night's market wrap).  What should be
further considered is that, given the extent of leverage being
used, as noted by Greenspan and Buffet over the past months, the
huge move in treasuries poses great risk to all markets.  It will
difficult to see such an event coming before it arrives, but
traders need to be aware of the possibility.

Traders looking to play a reversal cautiously can wait for a
break of the rising trendline under the yield, such as drawn
above.  As equity bears learned, it's dangerous to pick a top on
a security in a rising trend.

Daily NQ candles



The gavestone doji on the NQ left a lot of bulls shaking their
heads.  The upward spike following the 10AM data gave us buy
signals on the sensitive stochastic, while the MacD merely
twitched.  If the NQ doesn't bounce from here, the ascending
trendline will be in trouble.

30 minute 20 day chart of the NQ



The rejection of new highs followed a fakeout above the pennant
discussed last night, and sets us up for a potential bear flag
failure.  The oscillators hit unequivocal sell signals following
the afternoon's sharp drop, and 1253 appears as key support on
the move, just below the rising trendline on the daily chart
above.

Daily ES candles



ES also got clocked on a gravestone doji print, with the same
tentative buy signal printed on the stochastic.  Today was a
lower high following a buying frenzy on excellent economic data.


20 day 30 minute chart of the ES



As noted in the futures monitor, the decline and subsequent
bounce sets us up for a potential head and shoulders projecting
to 972 support, coincidentally the low on this bear flag.  The
trendline support favors a bounce at 986, but the oscillators are
early in their downphases.

150-tick chart of the ES



Daily YM candles




Like the ES, the YM also finished just above key support on
stochastic and Macd downphases.

20 day 30 minute chart of the YM



There's a great deal of economic data due for tomorrow morning,
and as the market loves to do, we are left in a position that is
ripe for either a strong bounce or a sharp decline.  The
inability of bulls to hold the expected gains on the blowout
reports this morning was certainly disheartening, and the
character of the selling, sharp and on very high volume,
indicated big players getting out in a hurry.  Whether it was
isolated or indicative of an institutional desire to "feed the
hungry fish", we'll have to see tomorrow.  However, with today's
session being the last for end-of-month window dressing, bulls
will have to hope for positive data tomorrow morning.

See you at the bell!


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

Economy recovering, but rise in yields draws concern

The major indexes posted gains, with the bulk of today's action
taking place in the first 90-minutes of trade and then the final
hour as economic data, hard data, not surveys, showed the U.S.
economy growing at a faster pace than some had forecasted.  And
while a 2.4% annual rate of growth wouldn't be interpreted as
strong, the improvement from a 1.4% annual rate of growth from
the first quarter gave some vindication to the rise in equities
since March.

Ahhhh, but for every silver lining that reveals itself on the
economy, there will always be the cloud that surrounds the good
news as the continued selling in Treasuries, which would come
from a strengthening economy is looked upon as being negative.

We've discussed two potentially negative impacts that would be
created by the sharp rise in Treasury YIELDS, specifically the
10-year YIELD ($TNX.X) which jumped another 15.9 basis points to
4.474% and longest-dated 30-year YIELD ($TYX.X) surging 17.3
basis points to 5.410%.

Rising mortgage rates are one negative implication that could
create near-term negativity for an economy that looks to be
improving.  Despite some positive economic data today, the Dow
Jones Home Construction Index (DJUSHB) 416.14 -2.34% showed
little sign of bullishness during the peak of today's broader
market rally, but participated in some late afternoon selling,
which saw the S&P 500 Index (SPX.X) 990.31 +0.28% give back 14-
points from its session high to show a more fractional 2.8-point
gain by session's end.

Banks may also be another group that best represents the silver
lining of improved lending spreads being offset by the cloud of
rising consumer loan rates, whether it be mortgages or automotive
loans also on the rise, which can then find a narrower base of
consumers to lend money too at higher rates of interest.

If I were to put the rise of Treasury yields into perspective,
its that the bond market sees good things ahead for the economy
longer-term, say six to nine months out, but the sharp rise in
rates now begins to draw concern that a still weak labor market,
has many consumers unconfident that their job prospects will
improve, and less likely to borrow money for big ticket items in
the near-term at the higher rate of borrowing costs.

Yet some of the signs of economic growth we see from the second-
quarter GDP data, may indeed be starting to be reflected in the
labor markets.  For a second-straight week, weekly jobless claims
came in below the 400,000 level.  While not yet a longer-term
trend, as the 4-week average is still above the 400,000 level
where many economists benchmark an improving labor market, the
rate of layoffs looks to be abating for a second week.  While the
weekly jobless claims addresses layoffs and not building demand
for workers, today's release of the June Help Wanted Index showed
some improvement from the demand side of the equation, with a
pick up in job postings by employers.

One stock that is "jobs related" that we've discussed here at
OptionInvestor.com in recent sessions has been Monster Worldwide
(NASDAQ:MNST) $26.55 +13.3%.  While the stock has been quite
volatile in recent weeks, today's close above last Thursday's
close of $25.36 may give some indication that market participants
are beginning to bet on a labor market recovery.

I keep hearing that the labor market is a lagging indicator and
is usually the last economic indicator to show improvement and
I'd have to say that that has been a very accurate observation as
many economists continue to label the recovery as a jobless
recovery.  Does anyone remember a couple of years ago all of the
attention given to the very tight labor markets, when it was good
news to see the unemployment rates rise, which at the time would
cool fears of wage inflation?  Kids coming out of college with a
4-year degree and no prior business experience could easily pull
down a $50k per year salary.  If you were an engineer, you could
slap another $25K on top of that.

And I think that's where we're at right now.  Is the economy
surging, with a 2.4% annual growth rate?  No, but its better than
1.4% forecasted and will probably send some economists back to
the drawing board and calculator to figure out what happened.
I'm guessing there was some kind of seasonality that took place
in the second quarter of 2003, that usually doesn't show up on a
historical basis to account for the "error."  I think you and I
are rite on with the thought that it was the war in Iraq that
gave the boost.  Still... a dollar banked, is a dollar banked and
if it has created stability in the job market, then that counts
too.

And while I say there appears to be concern regarding the sharp
rise in Treasury YIELDS, I do think it was present again today.
Again, the Dow Jones Home Construction Index (DJUSHB) 416.14
-2.34% fell on the session, while both the S&P Banks Index
(BIX.X) 306.29 -0.47% and money center banks depicted by the KBW
Bank Index (BKX.X) 888.41 -0.55% appeared to lag the move higher
today, if not the S&P Banks Index (BIX.X) finding resistance at
the 310 level in today's session.

When the S&P Banks Index (BIX.X) and KBW Bank Index (BKX.X) both
turned lower in the session, I did some investigating.  Deutsche
Bank (NYSE:DB) $64.61 -3.56% was a leading percentage loser among
the money center banks.  Deutsche Bank, as you might guess, is
based out of Germany.  The only news I could find that would have
this bank declining more than other was that fellow German-based
banker HVB Group, said it lost 67 million euro ($76 million) in
the recent quarter due to bad loans.

As I think I've mentioned before, the U.S. economy, while not
robust, has been much stronger than many of the European
economies.  The thought I take away from the news out of Germany
is that focus now turns back to the consumer.  To get continued
build for economic growth, the consumer is still important.

I'd argue that if the economy were growing at a 5% clip, then a
6% mortgage would be overlooked and be moved to the back page of
newspapers, but with a still anemic jobs market and recent
decline in consumer confidence (July consumer confidence fell to
76.6 from June's 83.5) this sharp rise in Treasury YIELDS will
not get front page headlines.

Here's our updated pivot matrix with new MONTHLY levels now
established after today's trade.  The new MONTHLY levels are not
that far off from July's and gives me further impression that we
may well be set in a trading range through the remainder of the
summer, with the consumer and employment data getting the bulk of
the attention.

Pivot Analysis Matrix



The scenario of higher Treasury YIELDS now looking to "hurt"
banks may be starting to show up when we simply look at the
WEEKLY pivot analysis and what has been taking place between the
BIX.X and $TNX.X, this opposite poles type of trade where the
BIX.X has traded WEEKLY S1 while the $TNX.X has traded WEEKLY R2
gives the observation that higher YIELDS are having greater
negative impact as it relates to banks benefiting from a lending
spread, which is being negated by few loans being generated.  At
least, this is what the MARKET seems to be trading.  We have
perhaps noted a slight drag in the SPX and OEX, which is best
explained by the higher weighting of financials that these two
indexes have in relation to the Dow Industrials and NASDAQ-100,
which has zero, zip, zilch banking exposure.

While not in the pivot matrix, observations made a couple of
weeks ago regarding the home builders and the very early
observation of weakening adds to the thought that a higher YIELD
is becoming a concern, and would continue to be a concern until
more improvement is seen on the labor front.  I do not disagree
that a 6% 30-year mortgage rate isn't still very attractive, but
if your pool of borrowers is limited by incomes or their
confidence to borrow at some higher rates, then the net effect
will be negative.

Let's quickly take a look at the 10-year YIELD ($TNX.X) chart and
make some assumptions as it relates to potential impact on the
economy.

10-year YIELD ($TNX.X) Chart - Daily Intervals



We've looked at the major equity indexes long enough with MONTHLY
pivot analysis retrenchments overlaid, and we haven't seen this
type of wide range on any of them.  Jaws are dropping among bond
traders and Wall Street followers at the rate of increase in
YIELDS, caused by selling in just the past month.  Fed Chairman
Alan Greenspan expressed concern more than a month ago that the
Fed didn't see rising YIELDS being harmful if YIELD rose at a
gradual pace.  He was concerned about the housing sector and
potential negative implications if rates rose sharply.  At this
point, it would be my analysis that for yield rate fears to
subside, then we might pick the MONTHLY pivot as a starting
point.  If YIELDS progress higher still, then impact could be
negative near-term and have the economy beginning to weaken,
which stocks might then move in advance of.  On that type of
scenario, then the rush back into bonds, could come as quickly as
the money has come out, and if YIELD were to fall back below
3.904%, it becomes sign of trouble and defensive move from the
bond market.

When you read the above, think of a cycle, where you almost
think... "here we go again."  I will say right now, that I think
it a very SMALL likelihood that the 10-year YIELD goes back below
the 3.898% level in the next 10-years.

I'm not much for repeating rumors, but I've seen some postings in
today's Market Monitor and have heard similar rumors outside of
the OptionInvestor.com network that there may be a large bank
that is very sideways in bond position.  I will say, the
fractional weakness, but "lagging" that I was in the banks today,
and we've been noticing a bit in recent sessions is what had me
looking at some of the larger banking stocks, where my attention
was drawn to Deutsche Bank (DB) and its weakness relative to
other large banks.  I'm not saying that the rumor has any
credibility, but point and figure chartists will have made some
notes that a trade at $63 in DB would be a triple-bottom sell
signal and there looks to be some air to a past triple-top buy
signal at $57 and its longer-term bullish support trend of $50.

S&P 500 Index Chart - Daily Interval



"Bear-ly" alive is my thinking when the SPX broke free from its
WEEKLY pivot this morning, in what seemed like a delayed reaction
after the 10:00 economic data.  As noted in today's intra-day
commentary, the SPX didn't break free and make the move higher
until 10:35.  All be darned if our "old" trend didn't come into
play and hold as resistance, keeping the SPX from testing or
breaking above the upper end of our zone.

Is it coincidence where this index settled at the close?  Right
smack dab in-between the MONTHLY and WEEKLY pivot?  The SPX still
has that neutral look to it as the wedge still defines the range.
Daily Stochastics are working well, which Stochastics tend to do
in a range-bound type of trade.

The way I look to close out the previously profiled bearish trade
from SPX 983 is this.  If I get the break below 975, then I'm
going to guard the gain with a stop just above 977.

Then.... if that break does come, and Treasury YIELDS are just
holding steady, I'd look for support at/near the 968 level, and
then look to trade a partial bullish position back higher to 996.

Let's also keep an eye on the BIX.X as it was the only
observation I could make today to keep me from telling traders to
just stop out of the SPX, on thought that the SPX was eventually
going to work its way above trend and WEEKLY R1.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a
net gain of 3 stocks to point and figure buy signals.  This has
the bullish % edging up to 77.8% after a recent low reading of
76.00%.

Dow Industrials Chart - Daily Interval



I think it will be difficult near-term to get a Dow break back
under the WEEKLY S1 of 9,120.  While we will get new weekly
pivots at the conclusion of tomorrow's trade, current trade would
most likely have the weekly Pivot retracement moving modestly
higher.

The sharp move higher and break of my gradual bearish trend at
the 9,300 level gives hint that there is/was a great amount of
pressure built up that got released today and has the INDU
looking almost exactly like the SPX did back on July 14th, when
it matched a relative high, then pulled back into its WEEKLY S1
by July 21st.  Here's a link to that Index Trader Wrap of July
21st http://members.OptionInvestor.com/Itrader/marketwrap/iw_072103_1.ASP
and why I think in a range bound market, how Stochastics on the
Dow Industrials has me thinking a more likely level of support is
WEEKLY S1, with a 9,505 max downside on any type of panic move
lower near-term.  It is also notable how the SPX bounced from a
rising 50-day SMA, and the Dow's 50-day SMA is rising at 9,066.

As I write this evening wrap, I really get the feeling that it
may have to be weakness in banks, that leads to weakness in the
SPX/OEX, that then lends to weakness in the Dow and NDX.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU) and status remains "bull
confirmed" at 83.33%.  I made note yesterday that IBM (NYSE:IBM)
$81.25 gave a double bottom sell signal at $81.00 yesterday,
which had this bullish % slipping back 3.33% from 86.66%.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily interval



Last night I place a trend at Tuesday's high to try and depict a
bearish wedge, and it would have held by the close.  Instead of
having that trend on the chart, I'm placing a more "reasonable"
trend at today's high, where the QQQ did find some sellers just
below WEEKLY R1, and with an "old" downward trend in place, that
looks to have found support back near $30.68, we might get the
impression of a bearish channel starting to form.  I'll believe
it when I see it and perhaps get a "bear confirmed" reading in
the NASDAQ-100 Bullish % ($BPNDX) which holds unchanged again
today at 75% bullish, or at least find the QQQ breaking below its
still bullish channel.

There's another round of economic data due out tomorrow, and once
again... I'm expecting a high degree of volatility.

I run way late when I have to adjust the MONTHLY pivot
retracement during the week, but I'll have an OEX chart in
tomorrow morning's updated.

The OEX Bullish % ($BPOEX) remained unchanged at 83% bullish.

Jeff Bailey

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

Reversal day on good news
Jonathan Levinson

Equities looked set to launch today, buoyed by excellent economic
data before and immediately following the cash open.  The indices
were coiled within pennants, having printed inside days, and
exploded higher as might have been expected.   The TRIN and
TRIN.NQ were buried at extreme low levels, and bulls were
targeting the highs.

What followed was a valuable lesson for traders.  Price traded
sideways along the top of a narrow range near the highs of the
day, finding support close underneath.  After a number of
successful tests, the price broke south, bounced, and then dived
sharply.  My news ticker was still running stories about stocks
rallying on positive economic data as the price plunged.

The price of stocks, and stock indices, is determined by supply
and demand.  Outside influences, such as news stories or economic
data, may impact the demand for that paper, but supply is another
story.  Those with the greatest quantity of that paper cannot
sell to a thin market without collapsing the price, and so it's
precisely during buying frenzies such as we saw today that the
biggest sellers will be selling.  As an older broker once told
me, "When the fish are biting, feed them."

Just as the markets rallied through the spring on abysmal
economic and corporate data, it's possible that they will fall on
positive data.  Or, they may rally.  Whether Joe Granville's
"News is for suckers" line is true or not, I obey the charts and
the indicators in attempting to suss out where the big players
are seeking to go.  Be it rumors, economic or earnings reports,
let the charts and indicators guide your trades.  This year has
taught us that news is noise, and that supply and demand for the
securities we trade is the final arbiter.


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

Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9233

Moving Averages:
(Simple)

 10-dma: 9194
 50-dma: 9066
200-dma: 8523

S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  990

Moving Averages:
(Simple)

 10-dma:  989
 50-dma:  983
200-dma:  910

Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1277

Moving Averages:
(Simple)

 10-dma: 1266
 50-dma: 1230
200-dma: 1087


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


After all the fuss earlier this week about the VIX finally hitting
and closing under 20, we're still not seeing much movement in the
markets.  As we've always said, the VIX is more art than science
and traders should acknowledge the signals when they occur and
include them in their overall market evaluation.

CBOE Market Volatility Index (VIX) = 21.24 +0.52
Nasdaq-100 Volatility Index  (VXN) = 31.22 +0.36


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.68        646,507       437,626
Equity Only    0.55        476,800       263,649
OEX            0.98         38,368        37,903
QQQ            1.50         28,645        42,940


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

Bullish Percent Data

           Current   Change   Status
NYSE          69.9    + 0     Bull Confirmed
NASDAQ-100    75.0    + 0     Bull Confirmed
Dow Indust.   83.3    - 3     Bull Confirmed
S&P 500       77.8    + 0     Bull Correction
S&P 100       83.0    - 1     Bull Confirmed


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

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

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

 5-Day Arms Index  0.95
10-Day Arms Index  0.94
21-Day Arms Index  0.97
55-Day Arms Index  1.11


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    1414      1828
Decliners    1443      1256

New Highs     114       165
New Lows       41         6

Up Volume   1087M     1321M
Down Vol.    765M      477M

Total Vol.  1908M     1816M

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

Barbara Walchli, CFA: Aquila Rocky Mountain Equity Fund (ROCYX)

This week's investment manager profile looks at Barbara Walchli,
CFA, portfolio manager of the Aquila Rocky Mountain Equity Fund,
a successful and unique domestic equity fund that seeks capital
growth by investing primarily in the common stocks of companies
with a significant business presence in the U.S. Rocky Mountain
Region.  Aquila defines the Rocky Mountain Region as consisting
of the following states: Arizona, Colorado, Idaho, Montana, New
Mexico, Nevada, Utah and Wyoming.  Portfolio holdings generally
consist of common stocks, but may include other equity security
types.

Prior to joining Aquila Management Corporation in 1999, Walchli
was a portfolio manager with Banc One Advisors, and before that,
she was a senior vice president and director of equity research
with First Interstate Capital Management.  Her biography states
that she also served as vice president and director of research
at Valley Capital Management now part of Banc One.  Ms. Walchli
is a CFA ("Chartered Financial Analyst"), a key designation for
investment analysts and managers.

Ms. Walchli, an experienced investment professional with almost
two decades of analytical investment experience, co-managed the
Banc One Investment Advisors Large Company Growth Fund and Banc
One Advisors Income Equity Fund prior to coming to Aquila Funds.
The two Banc One funds Walchli co-managed had near $1.7 billion
in combined assets during her tenure there, per company sources.

The Aquila Rocky Mountain Equity Fund website indicates that Ms.
Walchli's home base in Arizona enables her to maintain "careful"
watch over the fund's portfolio investments.  She travels across
the region to kick the tires and to check on current/prospective
investments.  An Arizona resident for over 23 years, Ms. Walchli
is a current member of the Association for Investment Management
and Research, the Institute of Chartered Financial Analysts and
the Arizona Community Foundation Investment Committee.  She's a
prior president and director of the Phoenix Society of Financial
Analysts.

The minimum investment to open an account is $1,000 ($50 through
automated investment program).  Class A shares (ROCAX) date back
to July 1994.  Class C and Y shares were introduced in 1996, and
vary in their cost structure and availability.  Our focus herein
will be on the class A shares, which have a 4.25% front-end load
charge.  Ms. Walchli has been the fund's portfolio manager since
August 1999.  For more information or to D/L a prospectus, go to
the Aquila Funds website at www.aquilafunds.com.


Investment Style


According to the Aquila Funds website, the Rocky Mountain Equity
Fund is designed for long-term capital appreciation.  In pursuit
of the fund's investment objective, Walchli invests primarily in
growth oriented companies, which tend to reinvest their earnings
in the development of their businesses.  Thus, dividend income
isn't a primary consideration in the security selection process.

At mid-year, Walchli's fund had an average market capitalization
of $1.9 billion (mid-cap).  However, based on the fund's average
style for the past three years, the Aquila Rocky Mountain Equity
Fund is categorized by Morningstar as a "small-cap" growth fund.
Below is a breakdown of the fund's "cap" ranges at mid-year, per
Morningstar.


  Market Cap Weightings:
   2.8%  Giant-Cap
  20.1%  Large-Cap
  36.8%  Mid-Cap
  16.9%  Small-Cap
  23.4%  Micro-Cap


So, as you can see, Walchli's investment universe isn't limited
to mid-caps or small-caps, and is more representative of an all-
cap stock portfolio with a bias to the "extended market" beyond
the S&P 500 index.   According to Morningstar, the fund's price
valuations and earnings growth rates put it in the blend (core)
style box in 2000, but since 2001, the fund portfolio has found
itself in the mid-cap growth style box.  Lipper puts the Aquila
equity fund in the mid-cap core category.

At mid-year, the fund had an average price/prospective earnings
ratio of 19.8x and an average price/book ratio of 2.1x, in line
with the average mid-growth fund, per Morningstar.  The average
long-term earnings rate of 25% for the fund's portfolio is also
consistent with the mid-cap growth category average.  At end of
quarter, Aquila Rocky Mountain Equity Fund was invested in over
50 common stocks with no one holding representing more than 5.0%
of the value of total assets.

At 2%, the fund's portfolio turnover is very low, adding to its
appeal as a taxable or tax-deferred investment option.  The low
turnover ratio means that the fund may make less annual capital
gains distributions.  In the next section, we see how well the
Aquila Rocky Mountain Equity Fund has performed since Walchli's
arrival in August 1999.


Investment Performance


So far in 2003, Walchli has produced a YTD total return of 20.3%,
ranking in the 68th percentile of Morningstar's small-cap growth
category.  That's a 7.1% return advantage to the S&P 500 large-
cap index, but two full percentage points shy of the "extended"
market (next 4,500 stocks) using Vanguard Extended Market Index
Fund as the benchmark.

For the trailing 3-year period through July 30, manager Walchli
produced a positive annualized total return 2.3% compared to an
annualized loss of 10.1% for the S&P 500 index, per Morningstar.
In 2000, she held the fund's annual loss to 0.5 percent, and in
2001, she posted a positive 7.7% annual return for shareholders
to rank in the top 16% of the Morningstar small-growth category.

While Walchli lost 15.4% for investors in 2002, she constrained
the fund's annual losses relative to similar funds.  As a result,
the Aquila Rocky Mountain Equity Fund ranked in the first decile
(7th percentile) of small-cap growth category.

Put the last 3-4 years together since Walchli's arrival and you
have the makings of an equity portfolio on the right track.  In
the last three years, returns have been "above average" relative
to category peers, with "low" relative risk, using Morningstar's
return and risk ratings.  Overall, Morningstar awards the Aquila
Rocky Mountain Equity Fund four stars, signifying "above-average"
risk-adjusted returns relative to its category peer group.


Conclusion


The Aquila Rocky Mountain Equity Fund's year-to-date return thru
July 30 of 20.3% is slightly behind the average small-cap growth
fund this year, but still represents a sizeable return advantage
over the S&P 500 large-cap index.  So, if you are looking for an
equity portfolio that employs a growth-at-reasonable-price (GARP)
investment approach to Rocky Mountain Region stocks, and has the
potential to outperform the market (S&P 500) over time, then you
may want to take a closer look at the Aquila Rocky Mountain fund
managed by Barbara Walchli.



Steve Wagner
Editor, Mutual Investor




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The Option Investor Newsletter                  Thursday 07-31-2003
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: AZO, FDX, GDW, GENZ, LOW
New Calls Plays: PCAR, KSS
Put Play Updates: BDK, FITB, FRE, HD, LEN, MRK, PGR
New Put Plays: None


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

None


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Note: Options involve risk. Risk disclosure:

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


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

AutoZone, Inc. - AZO - close: 83.26 change: -0.32 stop:
80.50*new*

Try as it might, AZO just can't seem to push through resistance
near the $85 level, but it isn't for a lack of trying.  So far
this week we've seen two days with a convincing push over $84,
but without an ability to sustain that level and daily
Stochastics starting to roll bearish, it looks like we may be in
store for some profit taking.  Our initial profit target on the
play was $85 and conservative traders have certainly gotten an
opportunity to harvest some gains near that level.  We don't want
to consider new entries up here, as we need to see the depth of
the profit taking that materializes.  While there is possible
near-term support at $83, a more realistic support level looks to
be a pullback near $81.50.  While we're inching our stop up to
$80.50 tonight (just above break even and the 10-dma at $80.61),
individual traders may want to use a tighter stop at $82.75,
using a drop below that level to exit the play and look for re-
entry at a lower level.

Picked on July 27th at    $80.17
Change since picked:       +3.09
Earnings Date           08/26/03 (unconfirmed)
Average Daily Volume =  1.30 mln


---

Fedex Corp - FDX - close: 64.39 change: +0.56 stop: 62.99

Strong earnings from rival Airborne (ABF) did little to lift
shares of FDX or UPS.  Actually, shares of UPS continued to slump
and have broken through their simple 50-dma.  Any follow through
by the bears in UPS could weigh on FDX as well.  Fortunately, the
Dow Jones Transportation average continues to consolidate above
support at the 2600 level.  There has been some recent headlines
about a 2 1/2 year old dispute concerning the ownership of a
rival delivery service called Astar Air.  There was legal setback
for FDX and UPS who claim Astar is owned by a German company.
Currently Federal laws prohibit or limit ownership for domestic
ground cargo companies by foreign entities (Dow Jones News).  The
MACD on shares of FDX have rolled over into a bearish sell signal
but the stock's recent P&F buy signal is still holding.  We
suggest using the simple 50-dma as a litmus test for holding any
bullish positions.

Picked on July 20 at $65.32
Change since picked:  -0.93
Earnings Date      09/23/03 (unconfirmed)
Average Daily Volume:  1.70 million
Chart =


---

Golden West Fincl. - GDW - close: 82.60 chg: -1.00 stop: 80.99

Hmmm.. despite all the movement in the markets looking at the
daily chart one can see that the broader markets have essentially
gone sideways. The BIX and BKX banking indices have been
following although today's decline looks somewhat bearish for
investors.  Likewise the decline in shares of GDW, while not too
concerning, is not good news for bulls.  GDW is still out
performing the BIX and BKX throughout July and is building on a
series of higher lows.  However, should it break the simple 50-
dma we'd probably not suggest bullish positions. GDW's 50-dma is
currently at 81.47.  The last four sessions have been a slow ebb
lower and the MACD has now crossed into bearish territory again.
If we don't see a bounce at $82.00 we might call it quits and
cash out.

Picked on July 27 at $85.66
Change since picked:  -3.06
Earnings Date      07/21/03 (confirmed)
Average Daily Volume:  581  thousand
Chart =


---

Genzyme Corp - GENZ - close: 50.48 change: +0.28 stop: 47.49

This is either a new entry point for bulls or the pause before
GENZ's next consolidation.  Shares of GENZ have been true out
performers throughout the month of July.  Meanwhile the BTK
biotech index has spent the last three and a half weeks
languishing sideways.  Should we see a broad market turn lower
then GENZ could be singled out by investors for profit taking.
Shares have been climbing in a nice channel higher since July 1st
and the stock is near the bottom of that channel now.
Conservative traders not willing to risk a move to $47.50 could
try and circumvent any profit taking with a very tight stop under
$50.00.  The MACD is hinting that momentum in the rally is fading
while the stock's remaining oscillators have all been pinned at
overbought and are overdue for a pull back.  As we would rather
be cautious at this time, we're not suggesting new entries.

Picked on July 22 at $49.76
Change since picked:  +0.72
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  3.52 million
Chart =


---

Lowe's Companies - LOW - close: 47.56 change: +0.22 stop: 46.50

Another day and another failed rally near $48.  This time, LOW
only managed to rise to $48.50 before falling back with the rest
of the market in the afternoon, so we have the possibility of a
lower high being put in.  On the other side of the coin, the
stock continues to post higher lows as well, and yesterday's
sharp rebound from just above $46.75 is encouraging.  The 20-dma
has now risen to $46.50 and should reinforce support at that
level, so long as LOW is going to fulfill our expectations of a
continued rally up to the $50 level.  It should be clear that
entries taken on apparent breakouts are too risky an approach to
use.  Only the rebounds from support (like yesterday) appear
viable for new entries.  One other interesting observation is
that the 10-dma has been providing closing support over the past
couple weeks, and if that trend breaks, we may have to concede
the top is in and close the play.  Maintain stops at $46.50.

Picked on July 13th at    $46.87
Change since picked:       +0.69
Earnings Date           08/18/03 (unconfirmed)
Average Daily Volume =  4.84 mln



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

PACCAR - PCAR - close: 77.24 change: +2.91 stop: 72.99

Company Description:
PACCAR is a global technology leader in the design, manufacture
and customer support of high-quality light-, medium- and heavy-
duty trucks under the Kenworth, Peterbilt, DAF and Foden
nameplates. It also provides financial services and distributes
truck parts related to its principal business. In addition, the
Bellevue, Washington-based company manufactures winches under the
Braden, Gearmatic and Carco nameplates. (source: company press
release)

Why We Like It:
We are a little hesitant to be adding new bullish plays in the
current sideways/overbought market but it is hard to ignore
PCAR's incredible relative strength.  The company announced
earnings on July 24th and the numbers were positive.  Analyst had
been expecting 98-cents a share.  The company turned in $1.06
(per diluted share).  Revenues were 12 percent higher than the
same period last year at $2.0 billion.  Net income jumped by 68
percent to $124.1 million.  Management said things were improving
and the industry saw heavy-duty truck orders jump almost 10
percent in North America.  We're actually surprised that
management didn't announce another stock split.

The breakout over the $75 level of resistance is not only a new
yearly high but it's a new all-time high.  The burst higher was
on stronger than average volume and the stock's MACD has now
rolled back up into a buy signal.  Stochastics, momentum and RSI
are also creeping higher.  PCAR's P&F chart is also impressive.
The move today produced a fresh triple-top buy signal.  We
realize that shares look over-extended and due for a major pull
back, especially on the weekly chart.  However, as a short-term
options trader we think there is an opportunity to catch a move
to the $82.50 maybe the $85.00 level.  We're going to try and
reduce our risk with a stop loss at 72.99.  We're not opposed to
new positions at current levels but the best entry point would be
on a dip towards the $75.00-75.50 area (previous resistance).

Suggested Options:
PCAR currently has August, September, November and January
options available.  We're going to list August and September
strikes with a preference for September 75s and 80s.

BUY CALL AUG 75 PAQ-HO OI= 489 at $3.40 SL=1.70
BUY CALL AUG 80 PAQ-HP OI=  73 at $0.90 SL= --
BUY CALL SEP 75 PAQ-IO OI=  39 at $4.70 SL=2.75
BUY CALL SEP 80 PAQ-IP OI=  46 at $2.20 SL=1.00

Annotated Chart:



Picked on July 31 at $77.24
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.15 million
Chart =


---

Kohl's Corporation - KSS - close: 59.35 change: +0.95 stop: 56.50

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  The company's stores sell
moderately priced apparel, shoes, accessories and home products
targeted to middle-income customers shopping for their families
and homes.  Kohl's stores have fewer departments than full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

Why we like it:
In complete defiance of a lack of economic growth and flagging
consumer confidence, the Retail index (RLX.X) has continued to
hold up well in recent weeks.  Certainly, it is a bit off of its
highs set earlier in the month near $346, but rather than seeing
any significant weakness, the index has just drifted sideways in
the ascending channel that started back in early April.  As of
Thursday's close, the RLX is resting right on the bottom of that
channel and certainly looks primed for another rebound,
especially if we get some positive economic news tomorrow
morning.  After underperforming the RLX through late June, shares
of KSS have had a remarkable turnaround, helped along by a BofA
upgrade to Buy on July 10th.  Response to that upgrade shot the
stock through its near-term descending trendline and the 200-dma
all in one fell swoop.  The stock then pulled back, found support
just above the 200-dma and now looks ready to break out over
significant resistance just over $60.

KSS has been turned back from this level on several occasions
since the beginning of the year, but now that the 200-dma is in a
position to provide support rather than resistance, we're looking
for a breakout and some solid follow-through.  Thursday's trade
above $60 reinforced the current bullish picture by creating
another Buy signal on the PnF chart and on a breakout over the
4/07 intraday high of $60.55, the stock looks good for a quick
rally to the $63 resistance area.  That should just be a brief
rest area though, and we're looking for bullish continuation up
to the $66 area.  Note that the PnF bullish price target is
currently $74, so there's definitely some room to run.  But with
the company set to release earnings on August 14th, we probably
don't have enough time to contemplate such a lofty target.  We're
starting the play with a trigger at $60.60, and momentum entries
above that level look favorable.  More conservative traders may
want to wait for a subsequent pullback to confirm new-found
support in the $59-60 area before playing.  Set initial stops at
$56.50, which is just under both the 20-dma ($56.58) and
Tuesday's intraday low of $56.52.

Suggested Options:
Shorter Term: The August 60 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the September 65 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders can use the September 60 Call.

BUY CALL AUG-60 KSS-HL OI=7285 at $1.45 SL=0.75
BUY CALL SEP-60 KSS-IL OI= 424 at $2.90 SL=1.50
BUY CALL SEP-65 KSS-IM OI= 312 at $1.10 SL=0.50

Annotated Chart of KSS:



Picked on July 31st at    $59.35
Change since picked:       +0.00
Earnings Date           08/14/03 (unconfirmed)
Average Daily Volume =  4.56 mln



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Black & Decker Corp - BDK - cls: 40.86 chg: +0.10 stop: 42.01

A small bounce at the psychological level of $40.00 was not
unexpected and one of the reasons why we are using a TRIGGER to
open the play at $39.99.  Until shares of BDK trade at our
trigger or lower we're just spectators.  However, the stock did
failed again at the $41.00 level on Thursday.  $41.00 was
previous support so it's natural to see it now as resistance.
More aggressive traders might want to use today's action to jump
in.  Volume remains strong.

Picked on July 29 at $xx.xx
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  731  thousand
Chart =


---

Fifth Third Bancorp - FITB - cls: 55.01 chg: -0.23 stop: 57.01

Will our patience finally be rewarded with a big downside move in
FITB?  The stock has been churning between overhead resistance at
$56.50 and support near $55.00.  We get the feeling that today's
failed rally, while not much different than the last three or
four, might be worth watching.  Momentum traders or conservative
investors seeking more conviction by sellers can still wait for a
move under the relative low at $54.56.

Picked on July 17th at $55.26
Change since picked:    -0.25
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million
Chart link:


---

Freddie Mac - FRE - close: 48.85 change: -0.30 stop: 51.05*new*

While it seemed inevitable that continued rising bond yields
would exert further downward pressure on shares of FRE, the
extend of the rise in rates has been astounding, with another
staggering selloff in the bonds on Thursday.  Following the
breakdown under $50 earlier in the week, FRE tried to regain that
level this morning and the rollover there at the open certainly
reinforces our conviction in the play.  Note how the 10-dma
($50.52) has been consistently capping the intraday rallies over
the past couple weeks.  That pattern should continue, making new
entries favorable on successive failed rebounds below that moving
average.  FRE may find some mild support just below $48.50, as
well as $47.50-48.00 area, but once below those reaction lows,
the stock should be able to work steadily down towards our $45
target.  Lower stops to $51.05 tonight, as that is above both the
10-dma and Monday's intraday high.

Picked on July 22nd at    $50.33
Change since picked:       -1.48
Earnings Date                N/A
Average Daily Volume =  7.28 mln


---

The Home Depot - HD - close: 31.20 change: -0.10 stop: 32.50*new*

Can this decline possibly go any slower?  HD continues to look
weak, and shed another dime on Thursday, but the decline is
proceeding at a maddeningly slow pace.  We're still expecting the
$30 support level to be reached enroute to our eventual target of
$28.  The 10-dma ($31.84) continues to provide intraday
resistance and the $32 level is shaping up as fairly strong
resistance.  All the oscillators are telegraphing weakness, but
there just hasn't been the rush to the exits that we expected to
see once the stock broke below the 50-dma.  Conservative traders
should use a dip and rebound from the $30 level to harvest gains
ahead of an expected rebound and then look to re-enter on a
failure of that rebound.  As long as the pattern holds, the best
entry strategy will be to open new positions on failed rebounds
below the $32 level.  We're continuing to tighten the noose on
the play as well, lowering our stop to $32.50 tonight.  That is
near our break even point on the play, and above last Thursday's
intraday high.  Should HD rebound through that level, we'll know
conclusively that this painfully slow decline has come to an end.

Picked on July 10th at   $32.43
Change since picked:      -1.23
Earnings Date          08/19/03 (unconfirmed)
Average Daily Volume =  9.66 mln


---

Lennar Corp. - LEN - close: 65.19 change: -2.26 stop: 67.30*new*

It has been almost 2 weeks now that LEN has been trying our
patience, hinting at an imminent breakdown, but unable to do so.
Despite the sharp rise in bond yields, the stock had been
meandering gradually lower beneath the 10-dma ($67.29).  Helping
to keep the stock from breaking down was the Dow Jones Home
Construction index ($DJUSHB), which steadfastly refused to break
significantly from the $425 price magnet.  That all changed on
Thursday though, with another huge rise in bond yields finally
exerting some downward pressure on the $DJUSHB index, which fell
as low as $415 before stabilizing at the end of the day.  This is
very close to key support, as a breach of the 7/22 intraday low
of $411.87 should have the index vulnerable to next support near
$390.  Pressured by the negative sector action, LEN delivered a
nice little breakdown of its own...well almost.  After holding
near the $66.50 level through most of the day, the stock started
weakening in the early afternoon and really picked up steam in
the final 2 hours, first breaking $66 and then $65 enroute to its
intraday low of $64.76.  We've been waiting for the break under
$65 for what seems forever, and it was a bit disappointing to see
the late day pop back over that level.  Nevertheless, that break
appears significant, especially since it generated a fresh PnF
Sell signal.  LEN is now looking like it will go down and achieve
our profit target of $62-63 and negative economic reports in the
morning may be just the catalyst we need.  At this point, only
aggressive traders should be considering new entries on a break
below today's intraday low.  We're getting more aggressive with
our stop in case the bulls manage to defend $65 and stage a rally
from that level.  Lower stops to $67.30, which is just above the
10-dma.

Picked on July 15th at   $71.12
Change since picked:      -6.37
Earnings Date          09/09/03 (unconfirmed)
Average Daily Volume =  1.69 mln


---

Merck & Company - MRK - close: 55.28 change: -0.18 stop: 58.25

We didn't expect MRK to break down without one more bounce first
and we certainly weren't disappointed on Thursday.  Broad market
strength in the morning lent enough of a bid for the stock to
charge up to within spitting distance of the 200-dma ($56.67)
before the afternoon meltdown commenced, pulling the stock right
back to the $55 area where it was when we initiated coverage on
Tuesday.  Recall that initial writeup where we were looking for a
failed rebound in the $56.50-57.00 area to initiate new
positions.  Talk about getting what we asked for.  The next
hurdle is of course for the initial break below $55, which can be
used as an aggressive momentum entry.  Just keep in mind that the
really pivotal level is $54, as MRK needs to trade that level to
generate a new PnF Sell signal and break its bullish support
line.  Traders looking for confirmation of weakness before
playing will want to use that $54 level as their entry trigger.
Maintain stops at $58.25 for now.  Once MRK closes under $54 we
can start to get more aggressive with our stop, setting our
sights on that $50 profit target.

Picked on July 29th at    $55.39
Change since picked:       -0.11
Earnings Date           10/20/03 (unconfirmed)
Average Daily Volume =  6.24 mln


---

Progressive Corp - PGR - close: 65.94 chg: +0.34 stop: 67.26

Another play testing our patience is PGR.  Shares continue to
churn sideways between $67.20 and $65.00.  Meanwhile the reversal
pattern we noticed in the IUX insurance index on Tuesday did not
see any follow through.  Now bears have another failed rally
(today) to evaluate.  We're still suggesting that most traders
wait for a move under $65.00 before considering or opening
positions on PGR.

Picked on July 23 at $65.22
Change since picked:  +0.72
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  941  thousand
Chart =



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

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The Option Investor Newsletter                  Thursday 07-31-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: Revving the Engines (PCAR)
Traders Corner: Life's Tough, Wear A Cup Or Know When To Say "Enough"

**********************
PLAY OF THE DAY - CALL
**********************

PACCAR - PCAR - close: 77.24 change: +2.91 stop: 72.99

Company Description:
PACCAR is a global technology leader in the design, manufacture
and customer support of high-quality light-, medium- and heavy-
duty trucks under the Kenworth, Peterbilt, DAF and Foden
nameplates. It also provides financial services and distributes
truck parts related to its principal business. In addition, the
Bellevue, Washington-based company manufactures winches under the
Braden, Gearmatic and Carco nameplates. (source: company press
release)

Why We Like It:
We are a little hesitant to be adding new bullish plays in the
current sideways/overbought market but it is hard to ignore
PCAR's incredible relative strength.  The company announced
earnings on July 24th and the numbers were positive.  Analyst had
been expecting 98-cents a share.  The company turned in $1.06
(per diluted share).  Revenues were 12 percent higher than the
same period last year at $2.0 billion.  Net income jumped by 68
percent to $124.1 million.  Management said things were improving
and the industry saw heavy-duty truck orders jump almost 10
percent in North America.  We're actually surprised that
management didn't announce another stock split.

The breakout over the $75 level of resistance is not only a new
yearly high but it's a new all-time high.  The burst higher was
on stronger than average volume and the stock's MACD has now
rolled back up into a buy signal.  Stochastics, momentum and RSI
are also creeping higher.  PCAR's P&F chart is also impressive.
The move today produced a fresh triple-top buy signal.  We
realize that shares look over-extended and due for a major pull
back, especially on the weekly chart.  However, as a short-term
options trader we think there is an opportunity to catch a move
to the $82.50 maybe the $85.00 level.  We're going to try and
reduce our risk with a stop loss at 72.99.  We're not opposed to
new positions at current levels but the best entry point would be
on a dip towards the $75.00-75.50 area (previous resistance).

Suggested Options:
PCAR currently has August, September, November and January
options available.  We're going to list August and September
strikes with a preference for September 75s and 80s.

BUY CALL AUG 75 PAQ-HO OI= 489 at $3.40 SL=1.70
BUY CALL AUG 80 PAQ-HP OI=  73 at $0.90 SL= --
BUY CALL SEP 75 PAQ-IO OI=  39 at $4.70 SL=2.75
BUY CALL SEP 80 PAQ-IP OI=  46 at $2.20 SL=1.00

Annotated Chart:



Picked on July 31 at $77.24
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.15 million
Chart =



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

Life's Tough, Wear A Cup Or Know When To Say "Enough"

By Mike Parnos, Investing With Attitude

Why do we sometimes place Iron Condors and, other times, the Sell
Straddle?  It depends on how much brass you have – and I'm not
talking about musical instruments.

It's all about risk.  It's also about one's ability to monitor
your trades during the course of the day.  The Iron Condor offers
you a defined risk while the Sell Straddle has an unlimited risk.

Do you like playing naked options?  Are you into discipline?  No
boots and whips are necessary -- unless it's already part of your
lifestyle.  You should, however, handcuff yourself (you probably
have those, too) to your couch and have your computer close at
hand – just in case.

Brokerages will permit Iron Condors all day long – as long as you
have the assets in your account for the maintenance.  However, the
Sell Straddle will often require a higher trading approval level –
even if you do have the assets for maintenance.  They want you to
have significant trading experience to justify taking that kind of
risk.

CPTI (Couch Potato Trading Institute) students are encouraged to
"wear a cup" and use Iron Condors – at least until you develop the
discipline necessary to streak the market.
______________________________________________________________

Hi Mike,
Do you have a rule of thumb about how big a credit you want to
receive for an Iron Condor? I am using $2.00 (on $5 wings) as the
minimum, but it makes it harder to find trades. I like the 1/1-1/2
reward/risk ratio.

When primarily selling premium I have always been under the
impression that the expiration month should be as close as
possible. For example, right now I would only be looking for Iron
Condors with a September expiration. When there is less than two
weeks left, I would switch to the next expiration month.

Response:
I don't necessarily have a rule for them.  I like 1/1.5
risk/reward ratios too. But I’d also like to have a higher
metabolism, be the towel boy at Hugh Hefner's mansion, and wake up
next to Meg Ryan.  If I ever come up for air, I’d realize that I
was dreaming and that a 1/1.5 risk/reward ratio ain’t gonna’
happen too often.  I believe that if you're expecting to receive
$2, you will be limited to trades with very narrow range for the
stock/index to bounce around in.   The sold strikes would be very
close to where the stock is trading.  That trade has too much risk
and would require too much babysitting and adjustment.  Our
objective is to take in a reasonable amount of money and have a 
large a cushion as possible.

Regarding the “one month” exposure, I agree – if there is
sufficient premium to make it worthwhile.  If there is not enough
premium to be had using a range that would allow for some
volatility, you can consider expanding the range and going out
another month.  Yes, there is more time for things to go wrong,
but the additional range can, to a degree, balance out the risk.

We currently have a trade on BBH.  The $125 - $140 is comfortable
for August expiration.  However, if you were to put on that same
spread today, with two-plus weeks left, you could only take in
about $.50.  It's not worth it.

If you move it out to September, the same $125 - $145 Iron Condor
would bring in about $1.35 – a nice premium and a very nice (big)
20-point range.  The exposure is about seven weeks (September is a
five-week option month).

Our old friend, MMM, offers about $1.00 premium for a $130 - $150
range for the seven weeks of exposure to September expiration.
_____________________________________________________________

Hi Mike,
A question about the LLTC Straddle. I knew that earnings were
going to be released soon, so I waited to put on the straddle. The
earnings were announced, and the stock is up to $36.15 in after
market trading.  Would putting on a $37.50 Call/$35 Put strangle
seem more practical or safer than the $35 Call/$35 Put straddle?
We would get only about $1.35 for it, but there's a $2.50 profit
range.  Your thoughts and comments about this trade would be
welcome.

Thanks for the help and keep the money-making trades coming. I
like bringing in premium and letting time work for us!

Response:
Originally, the LLTC August $35 sell straddle was put on for
$3.45.  LLTC is certainly going to bounce around during a four-
week exposure.   We're hoping for it to settle back around $35.
We will profit from a close anywhere between $31.55 and $38.45.
The amount of profit will depend on just how close the $35 LLTC
closes.  However, the maximum potential profit is $3.45.  Remember
this, because it will become important.

Now, let's say we could have put on a sell strangle selling $37.50
calls and $35 puts and taken in $1.35.  Our maximum profit would
be $1.35 – if LLTC finished within the $2.50 range between $37.50
and $35.  Remember, our "potential" profit was $3.45.  The
important word here is "potential."

With the safety ranges approximately the same, I would rather have
the "potential" to make the maximum $3.45 (sell straddle) than a
wider range to make a maximum $1.35 (sell strangle).  Who knows?
Maybe we'll get lucky.  Stranger things have happened and you
never make any shots you don't take.
_________________________________________________________________

AUGUST CPTI PORTFOLIO TRADES

August Position #1 – BBH Iron Condor – Closed at $134.97
We sold 10 contracts of BBH August $125 puts @ $1.45 and bought 10
contracts of BBH August $120 puts @ $.80 for a net credit of $.60.
We also sold 10 contracts of BBH August $140 calls @ $1.75 and
bought 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 $134.97, we're comfortably
positioned – right in the middle of the range.

August Position #2 – LLTC Sell Straddle – Closed at $36.75
We 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 bailout
points are at the parameters of the profit range.  At $36.75,
we're still in good shape, but there's still a long way to go.

August Position #3 – SPX Iron Condor – Closed at 990.31
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 990.31 – comfortably
within our range.
______________________________________________________________

More Words Of Wisdom
It seems that our CPTI students are full of it – wisdom, of
course.   Here are some of this week's submissions.  Keep 'em
coming.

1. Always remember you're unique. Just like everyone else.
2. Give a man a fish and he will eat for a day. Teach him how to
fish, and he will sit in a boat and drink beer all day
3. The Universal Law of the Jungle: Everyone you see is someone
else's lunch.
______________________________________________________________

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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