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Daily Newsletter, Sunday, 08/10/2003

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The Option Investor Newsletter                   Sunday 08-10-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Bond, Treasury Bond
Futures Market: Weekly treasuries and metals gain, equities mixed
Index Trader Wrap: BORING
Editor's Plays: Follow the Trend
Market Sentiment: Breaking Ranks
Ask the Analyst: Observe it, test it, then predict it (Pivot 
   Analysis)
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-08         WE 8-01         WE 7-25         WE 7-18 
DOW     9191.09 + 37.12 9153.97 -130.60 9284.57 + 96.42 + 68.56 
Nasdaq  1644.03 - 71.59 1715.62 - 15.08 1730.70 + 22.20 - 25.43 
S&P-100  493.80 +  0.16  493.64 -  9.30  502.94 +  1.44 -   .98 
S&P-500  977.59 -  2.56  980.15 - 18.53  998.68 +  5.36 -  4.82 
W5000   9392.73 - 61.43 9454.16 -145.20 9599.36 + 52.70 - 64.23 
RUT      453.94 - 14.14  468.08 -  0.80  468.88 +  4.12 -  9.01 
TRAN    2579.03 - 16.88 2595.91 - 19.88 2615.79 + 39.50 + 30.71 
VIX       21.29 -  1.49   22.78 +  2.84   19.94 -  1.42 +   .64 
VXN       32.03 -  0.45   32.48 +  2.44   30.04 -  3.37 +   .61 
TRIN       0.87            1.08            0.67            0.60  
Put/Call   0.81            0.91            0.67            0.61  
Avg Highs   189             462             365             522  
Avg Lows     86              72              31              29  
******************************************************************

 
Bond, Treasury Bond
by Jim Brown

Not quite the catchy moniker that James Bond uses and attractive
double agents don't swoon when they hear it but it still controls
our fate. As much as I hate to keep writing about it I hate more
watching the markets tick up or down in lock step with changes 
in the bond market. That was exactly what happened this week 
with the closing rebound on Friday only coming after the bond
market closed. 

Dow Chart - Daily


 
Nasdaq Chart - Daily


 
S&P Chart - Daily


 
Wilshire 5000 Chart - Daily


 

It has been a pattern all week with the market making major 
moves after the bond market closed and the perceived danger 
passed. I am going to try and explain the problem with
pictures and I promise I will be brief. The yields on bonds
have gone from abnormally low levels to abnormally high levels
and it caught the stock market off guard just like it caught
bond traders off guard. While everyone was pleased to see 
yields fall this week after the three day bond auction they
did not drop far. They also did not drop below support at 
4.20%. The stock market watched the yields with a nervous 
twitch all day Friday to see if the panic selling in bonds 
was over. The yield rise into the close was disturbing but 
the Dow managed to close with a +30 point spurt on short
covering and possible Saddam speculation. 

10-year Treasury Yields - 60 min


 

While the markets were pleased to see the drop from the 4.95%
high on August 1st the drop to 4.28% on Friday was really just
an oversold correction and not meaningful in the long term
scheme. The chart below shows how minor the drop was this week.  

10-year Treasury Yields - Daily


 

Why do we care what is happening in the bond market? Because
the bond market yields impact the economy and stocks and they
are permanently linked. I will get to the details in a minute
but suffice to say if yields go down (bonds up) the economy
benefits and the market rises. Conversely if yields go up the
economy suffers and the market falls. This chart shows the 
relationship between the S&P (red) and 10-year yield (black).
Note the basic divergence in March and April and then the 
extreme divergence in June. In June the extremes in yield 
lows and market highs were abnormal. Now that yields have 
risen and do not appear to be falling the natural tendency
would be for the S&P to revert back to the historical 
divergence and move to a lower level. 

10-year Treasury Yields/S&P - Daily


 


Now that I have totally bored you I will try and wrap this up
quickly. The market direction is locked to the bond yields
because the cost of borrowing affects everything we do. Costs
for new equipment, inventory, office buildings, computers and
home mortgages all depend on rates. Every quarter point has an
impact as we have seen from Fed rate changes over the years. 
We have had the equivalent of four 25-point rate hikes over
the last six weeks. This is far faster than the Fed has acted
in recent memory. Image the carnage in the market if the Fed
had announced a surprise 25 point rate hike four times in the 
last six weeks. The Dow would be trading at 8000 instead of 
9000. Now I ask you, what is the difference? The rates still 
changed and the market has not yet reacted. It is as if the 
market is hoping to wake up on Monday and find out it was just
a nightmare. Don't hold your breath. 

According to bond junkies this has been the worst quarter for
bonds since 1987 and we all know what happened then. While the
conditions are considerably different in 2003 the damage may
take some time to work out of the system. Traders simply do 
not know what to expect. Everyone is looking at everyone else
for direction. 

While indecision is running rampant there is a stealth bear
market in techs hiding behind the major indexes. The Nasdaq
has traded down five of the last six days and lost -71 points
for the week. Why you ask? First because the techs were up as
much as 50% since the lows and funds eager to show gains and 
unsure of the future are locking in profits. In any bull move
and especially one as strong as we have had there is normally
a 10% correction or better when the move runs out of steam. 
It appears the Nasdaq is feeling this pain especially after
Cisco failed to encourage investors. 

Secondly there may still be some potholes in the recovery
road. Taiwan Semiconductor reported a revenue decline due to
seasonal inventory adjustments by its customers. Not a big
deal but any decline in revenue is cause for concern by 
investors today. NVDA warned that sales for the next quarter
would be less than expected and gross margins were shrinking. 
NVDA is a big customer of TSM and that drove TSM even lower. 
UMC reported a 40% drop in earnings for the 2Q and said it
expects 3Q shipments to drop 10%. These concerns drove the 
SOX to an -11.84 loss for the day and a four-week low. The 
SOX is still very extended from its 260 low in February and
a +57% gain to the July high of 408. It is already -10% off 
its high with support in the 360 range. 

SOX Chart - Daily


 


Also discouraging is the Russell-2000, which has dropped -28
points from its July highs and is still some distance from
support at 440. The Russell is the best indicator of fund
direction. When conditions are seen to be improving funds
venture away from large cap safety and into the small cap
market where the really large gains can be made if they pick
a winner. If they see weakness ahead they abandon the small
caps and run back to big cap liquidity and perceived safety. 
This week we saw small caps and techs drop and the Dow rise
as money flowed back into the safety of cyclical big caps. 

Russell-2000 Chart - Daily


 


Cluttering the field of vision is the global outlook. Italy
announced it was in recession for the first time in eleven
years on Friday. Not that Italy is a huge world economy but
it is another domino in the economic chain. According to the 
chip companies Asia has not recovered completely from SARS 
yet. Oil prices continue to hover at $32 a barrel with no 
relief in sight. No earthshaking problems but still smoke on
the horizon. 

Next week we have to deal with a Fed meeting on Tuesday. We 
are expecting nothing out of the Fed meeting except a rewording
of the last policy statement which was a rewording of the last
statement before that. The Fed funds futures are showing a
zero chance of a rate cut. There is a good possibility retail
traders will still buy the rumor in hopes of a surprise. The
Fed has repeatedly said they are very accommodative and do 
not think another cut is needed. The wild card here is the
bond yields. Greenspan has got to be wringing his hands over
the spike in rates just when he was promising to keep rates
low for the duration of his term. He has to weigh the potential
risk to the stock market with the need to do/say something to 
scare the bond market. Should they decide to say something
deflationary (sorry, unwelcome disinflation) they could knock
bond yields back into June but it could create a stock market
panic. Now, do they want to risk the market falling under the
weight of rising yields along with the economy OR give bonds
a swift kick and then prop up the market with some fedspeak 
the following week? The multitude of possibilities is dizzying.

Next week starts out slow economically with nothing on Monday
and only the FOMC meeting on Tuesday. The rest of the week is
packed full of reports but after the Fed statement they may
not matter. You do not want to hear this but with earnings 
over gentlemen prefer bonds. I know, it is a corny line but
it is the truth. They will watch the bonds more than the
economics next week. Conservative pension funds typically
switch from stocks to bonds when the yields reach 4.50%. We
saw some of those asset allocation programs early this week. 
We closed on Friday at 4.28% and not very far away from the
magic number. We also have $60 billion in new supply on bond
dealers books and they will be trying to dump that off to the
end buyers. This will also depress cash flow available for
stocks. 

Last Sunday I mentioned the potential for a roller coaster 
ride and this week certainly followed through on that 
prediction. The high for the week was 9209 and the low 8997 
with plenty of spikes and dips in the middle. The coming week
should not change. I expect more of the same as we continue 
to test the highs and the lows of our trading range. We have 
been locked in the 9000-9300 range since July 1st and have 
resisted all attempts to trade lower despite historical
precedent. The longer we stay in this range the better the 
chance of a very strong and lasting move when we break out.
Unfortunately that break could go either way. If the economics
continue to line up positively then the longer we stay in this
area the better chance of an upside break. The Dow closed 
right in the middle of the range on Friday and is in neutral 
territory. The Nasdaq, Russell and SOX are not so safe and 
could test their support levels early next week. With INTC,
MSFT, ORCL, DELL, QCOM and SUNW all threatening to break
support I would say it was a safe bet but Fed meetings have
a funny way of impacting the market. Check out the declining
new highs and increasing new lows in the statistics header of
this commentary. Keep those seatbelts fastened, this roller 
coaster has plenty of ride left. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


**************
FUTURES MARKET
**************

Weekly treasuries and metals gain, equities mixed
Jonathan Levinson

Friday saw treasuries initially trading strong, adding to 
Thursday's gains until sellers aggressively returned toward the 
end of the session.  Equities were again mixed with the Nasdaq 
futures leading to the downside.


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


10 minute chart of the US Dollar Index




The US Dollar Index continued its rise from Thursday, breaking 
96.30 resistance.  Surprisingly, the action failed to faze gold 
or the commodity index, with gold having a very bullish day, the 
CRB losing 23 cents, and precious metals stocks in particular 
posting huge gains on Friday.  For the week, the US Dollar Index 
printed a bearish harami cross, with a lower high and higher low 
closing lower than the previous week.


Daily chart of December gold


 

December gold broke above the 354 resistance level in another 
strong day countertrend to its ongoing oscillator downphase, 
adding 4.10 to close at 358.20.  This impressive gain was 
eclipsed by large upside moves in the mining stocks, with the 
AMEX Goldbugs Index, the HUI, adding 8.49 to close at a new 
multiyear high of 177.12.  The XAU added 3.81 to 86.44.  For the 
week, gold printed a bullish harami, and the HUI a bullish 
engulfing candle.

Daily chart of the ten year note yield


 


The daily chart of the ten year note yield closed on a bullish 
dragonfly doji in a sharp, sudden rally as ten year notes, which 
had seen moderate buying all through the session, got sold off 
aggressively in the last hour of trading.  The ten year treasury 
auction was on Thursday, and I had wondered whether the 
bullishness of the day would survive Friday's trading.  Like the 
five year notes auctioned the previous day, ten year notes got 
sold off Friday, the ten year note yield closing higher by 6 
basis points to 4.289%.  The FVX was down -.6 bps, and the TYX +2 
bps.  Notwithstanding the move higher in the ten year yield, the 
rising trendline that broke down in Wednesday's trading was not 
touched by today's move.  Combined with the oscillators on strong 
sell signals, the outlook remains bullish for treasury bond next 
week, with the TNX printing a bearish harami for the week.


Daily NQ candles


 

The NQ closed lower by 9.50 points in a narrow session on Friday, 
printing a bearish engulfing candle and going out 6 points above 
its session low.  As we saw yesterday, the close remains 
uncertain, with the NQ resting on key support within a 
potentially bullish chart pattern.  Nevertheless, the oscillators 
remain on clear sell signals, and the price is below its 21 and 
50 day EMAs. 

30 minute 20 day chart of the NQ


 

The 30 minute candles provide more insight.  The weakness on 
Friday  left the NQ above the steeply declining upper trendline 
of the dubious bull wedge I observed on Thursday, but failing to 
break to the upside as implied by the pattern.  The parallel 
trendline to the lower support line forms a bull flag, which fits 
price action and illustrates the riskiness implied by the NQ's 
proximity to the lower support line on the daily chart above.  
The oscillators on the 30 minute chart are suggesting a bounce on 
Monday, barring any bad news over the weekend.

Daily ES candles


 

The ES, on the other hand, added 3.50 today, closing 2 points 
below its session high, and leaving the ES closer to its upper 
bull flag resistance line.  A bounce from the Nasdaq on Monday 
could help propel a bull flag breakout on the ES, but note that 
the NQ printed a "2 black crows" candle pattern on this very 
negative week, and on that timeframe, I'd be surprised by 
anything more than a merely technical bounce on these shorter 
ones.

20 day 30 minute chart of the ES


 

The 30 minute ES failed one point below the upper resistance 
line, and looked clear for a failure within its cycle downphase 
until the end-of-session buying spree that reversed the 
oscillators in mid-run.  The short cycle oscillators on the 150-
tick chart below illustrate the action, and suggest a mild-bounce 
and retest of 981 resistance on Monday.  The R2 value of 984.50 
coincides with a resistance zone stretching to 987, and it will 
take a great deal of commitment from the bulls to get us past it.



 


Daily YM candles



 


The YM was the most bullish of the equity futures, and also 
suggests a test of resistance on Monday.

20 day 30 minute chart of the YM


 

The picture painted by equities is mixed because of the bullish 
Dow and the bear Nasdaq, with the SPX trapped in the middle.  
Friday's session muddied the picture considerably on what would 
otherwise have been a down-week for the indices, led by the NQ.  
That said, Friday was a light-volume session following the 
quarterly treasury auction, and I'm tempted to shrug it off and 
wait to see what Monday brings.

That said, the reversal in bonds and the strong rally in gold and 
the precious metals indices puts the weak equity gains into 
perspective.  It's difficult to be bullish on tech stocks or even 
blue chips when bonds, gold and gold miners are rallying 
together.  However, if we are seeing a renewal of the liquidity 
surge that drove all in the Spring Rally, then equities may 
simply be taking their time.  We'll have to see Monday.


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

BORING 
By Leigh Stevens
lstevens@OptionInvestor.com 

Market Analysts and pundits try to find something interesting to 
say about the market even when its not doing much - but the plain 
simple truth of it is that it's a bit boring right now as the 
market has been in a relatively tight (trading) range.  It then 
requires significant patience for the active trader types to wait 
for a move to the upper or lower end of the range, such as was 
the case last week.  Predictably enough a rally developed after 
the S&P & Dow indices found support or buying interest at the low 
end of their ranges.    

The big cap blue chip Dow closed up on Friday along with the S&P 
Indices, helped by McDonald's (MCD), a recent strong performing 
Dow 30 stock. However, the Nasdaq Composite was down for the 6th 
day running, as the important bellwether semiconductor group got 
hit - a sharp drop in Nvidia pulled the semis lower, making it 
the worst performing tech sector. 

Optimism about consumer spending fueled a continued rise in 
retail stocks, as well as airlines.  Gold stocks continued higher 
per the technical breakout seen on the charts with the Philly 
Gold and Silver Index (XAU). 

THE BOTTOM LINE -
Last week the S&P 100 (OEX) fell again to 485, the lower lower 
end of its broad price range and equal to the late-June low, 
presenting another buying opportunity for long calls.  Those 
selling premium - a good idea in a trading range market - could 
have sold the puts. The S&P 500 (SPX) dipped to the 960 area, 
approximately equal to its 7/1 low and in the area of the August 
TOP of last year - resistance "becomes" support. The Dow Index 
(DJX) fell to 90 which makes now 3 "touches" to this area since 
early-July.  

The Composite fell to around 1641, almost filling in the upside 
gap from early-July that I mentioned last week as possibly 
marking a low.  The jury is out on that as the tech heavy Nasdaq 
did not show the same propensity to rebound as the S&P. It went 
up more, now its correcting more and is consistent in that. 

Looking the most bullish in the summer doldrums is the Dow, then 
the S&P.  QQQ may hold the 30 area, a 50% retracement of the last 
up move, but I'm not stepping up to the buyer's plate yet as the 
Q's could still slip to 29 where I would be more willing to buy 
the stock.  

What will it take to propel stocks into another up leg? - 
probably a bond market rally at some point and some further signs 
of job creation, as I've been saying in my commentaries and of 
course as suggested by many others.
  
The recent run up in bond yields and mortgage rates had raised 
some fear with market participants that the less than robust U.S. 
economic recovery would falter, causing consumers to spend less 
and businesses to cut back on the limited new capital spending 
they've been doing so far in 2003. However, a rebound in bond 
prices and resulting drop in yields, somewhat calmed these 
concerns.  

A view of the continuous benchmark weekly bond chart versus 
equities - 



 

Note: A "continuous" contract price series strings together the 
nearest futures contract until shortly before it expires, then 
uses the next most-active contract and so on.  This is the only 
way to get a longer-term price perspective of the benchmark bond 
by using the futures contracts.  

A further background note - since the Federal government stopped 
borrowing so much a few years ago, the 10-year Treasury note 
sometimes now called a bond even though that used to be for 
maturities beyond 10 years), has become the benchmark for longer-
term debt securities. The "benchmark" may of course change back 
to the 30-year bond if the government goes back to running big 
deficits again; i.e., its favorable to sell more 30-year paper if 
the borrowing needs are major and this is especially true in a 
low interest rate environment such as we have currently.        

LAST WEEK - 

We had mostly positive economic news coming into Friday and some 
earning's bright spots. June factory orders were up by 1.7% and 
better than expected (+1.5%).  I said "mostly" and this report 
showed that businesses were not building much in the way of 
inventories.  However, low inventories also mean that an increase 
in demand will lead to more production right away, with little 
lag time.  The July ISM index of manufacturing activity had shown 
a rise above 50 (to 51.8) - as reported prior to last week - the 
index above 50 is defined as showing economic expansion. There's 
still little sign of more jobs being created however.  

There was also a much talked about report from a big outplacement 
firm that companies had stepped up their pace of planned layoffs 
in July - however, for the year, layoffs are down some 12% for 
the first 7 months relative to 2002.  

Weekly jobless claims fell some and stayed under 400,000 again. 
The important 4-week average also dropped below 400,000 to 
397,000.  And U.S. productivity took a big jump, unlike what had 
been seen in Europe - Italy "officially" slipped into recession - 
with a sizable 5.7% gain. Of course workers groups will also 
point out that producing more with LESS employees is not great 
for putting the unemployed back to work.  

Equity funds continued to see net inflows of money for the week 
ending midweek - August 6th. 
 
FRIDAY'S TRADING - 

The S&P 500 Index (SPX) was up 0.4% on Friday to 977.6, with the 
narrowly based Dow (30) higher by .7% or +64 points to 9191. The 
tech-heavy Nasdaq Composite Index fell 8 points (-0.5%) to 1644. 
(For the week the Dow was up 0.4%, but the (Nasdaq) Composite 
fell by 4%.)  

The retail sector made some further gains following upbeat same-
store sales results from most retailers on Thursday. Rating 
agency Fitch issued a report of caution on the retail group 
however: ".....retailers are being hurt by merchandise deflation 
and a lack of new products to spur shopper interest,". Deflation 
- there's that word again!  We could just call it the "D" word 
instead. 

By the way, here's the "J" (Jobs) word again - Fitch's report 
said that a sustained turnaround should depend on faster job 
creation, which will require a further pickup in economic growth.

There was somma good, somma bad news - ok, a bad attempt at ethic 
humor - relating to individual companies.

Helping the old economy big cap indices like the Dow, was 
McDonalds (MCD), which was up some 7% to $23.65 after the company 
that invented the Big MAC, said that July US same store sales 
were well above expectations. In fact, a nearly 10% jump in sales 
was reported and tied to its Big Mac promotion. Hmmmm - that 
would also be the big cholesterol hamburger, so guess it's not 
for me.

Bank of America raised its EPS estimates for MCD for Q3 also, 
which suggests that its analyst anticipates the company making 
gains in same store sales comparable to August/September. B of A 
said its report that it believes there may be further upside to 
come. Their Q3 EPS estimate went up to 39 cents, from 38. Oh, for 
every penny that MacDonald's takes in a week!

Graphics chipmaker Nvidia (NVDA) was off sharply after the 
company reported Q2 earnings on Thursday night that beat Street 
estimates - but, the company also warned that Q3 gross profit 
margins would remain flat to slightly down and that operating 
expenses were expected to rise 5%-10%, putting pressure on 
earnings.  NVDA said it expected revenues to increase 5%-6%, but 
this was under their Q3 consensus numbers.  Tech can still be a 
heck of a wreck! 

INDEX OUTLOOKS – 

Readers of my prior columns may remember this chart below of the 
Semiconductor Index (SOX), with its Price/RSI divergence and sell 
signal highlighted that shaped up at the top. This bellwether 
component sector to Nasdaq is so important that we can't really 
expect the Composite to do much with the drag of the all-
important semiconductor/chip maker group.  

SOX reflects the very anemic flow of business capital spending 
coming in - not enough yet to continue to boost these stocks when 
they get "ahead" of themselves or overvalued.  You can see this 
technically when the advance took the Index so far about the 
dominant up trendline.   



 

For more on the use of the RSI Indicator and its very important 
use in seeing occasional reversal tops (or bottoms) forming, you 
can go back to a Trader's Corner article on the following page - 
http://www.OptionInvestor.com/traderscorner/080102_1.asp
 

S&P 500 (SPX) - Daily chart:  

I said before that the chart pattern would stay bullish overall 
as long as there was no decisive downside penetration of the 970 
area. I could have said 960 if I thought that SPX would test its 
absolute low since the summer correction began.  Note that this  
"line" of support around 960 that has developed so far is equal 
to the Sept. 2002 low to the far left of the chart (and is not 
far above the following rally spike peak in Nov.) - a case, to 
date anyway, where prior resistance is now showing up as support. 

While its possible that a deeper correction will be seen, even 
back down to the 200-day moving average over time - SPX is 
already trading under its 50-day - I see nothing just ahead that 
would suggest it from the current more optimistic economic 
outlook. Of course in this new millennium, there are also other 
threats that are wild cards after 9/11, which took the then 
downturn substantially lower.    



 

A deeper correction, such as to the 940 area, can't be ruled out 
if 960 if pierced.  However, the risk to reward of buying in the 
960 area was very favorable; i.e., risk to 955, upside back up to 
980 at least, probably higher, given the oversold reading 
registering on the 14-day stochastic model.  
 
S&P 100 Index (OEX) – Hourly chart:

The range on the downside in the OEX got extended back to the 
prior low at 485 - I though it might hold the 490 area, but it 
went to the next lower support implied by that earlier 
downswing low, which was a possibility also noted last week.  

For those who bought OEX calls on the dip per my suggestion, it 
was tempting to take the profit that developed.  However, as the 
alternate chart (pattern) interpretation is that of a downtrend 
channel, a reasonable expectation is to anticipate a move 
sometime ahead to at least the 500 area and this would then 
become a place to exit. The hourly down trendline intersects in 
the 503 area currently, but the slope of the line will take it 
closer to 500 by midweek.  

The prior upswing high at 506 should be an area of selling 
interest and next resistance.  The broader interpretation of the 
still-lateral sideways trading range, suggests that major 
resistance would develop around 510-511.  

I continue to like buying puts on further rallies toward the 
upper end of the projected ranges: specifically, buying puts in 
the 506 to 511 zone if OEX gets into this area this week - my 
downside objective would then be to 485 again. 



 

Or, alternatively, take the rest of August off - be like the 
Italians - opps! maybe not, given that their country has slipped 
into recession.  Things are bad enough with a slow-growth economy 
here in the U.S. of A.

Dow Industrials Hourly (DJX.X) chart: 

Picture perfect - the Dow comes down to 9000 support and wham-o, 
back up it goes! Wish all the markets and stocks were as "easy" 
as the Dow Industrials were sometimes when they trade so 
"technically" perfect.  

Well, when the average of those 30 stocks get into a range, they 
have institutional buying support at certain levels - and, then 
the same buyers tend to back off when the key stocks get back up 
to their recent upper range.  Especially in the summer doldrums 
and especially when higher valuation (multiples) are not seen as 
warranted without the economy going into second or third gear.   



 

As suggested, I bought DJX Index calls in the 90 area and will 
look to take profits on a move to 93. I will also exit at a 
breakeven or better stop at 90.5 currently.  Puts still look 
attractive to me in the 93-93.5 area.  

In between the aforementioned "extremes" I don't find an 
attractive risk to reward outlook in being long options. I also 
suggested selling puts at the low end of the range as I think 
that the Dow will hold 9000, absent some extreme event. 

A daily close over 93.5 would then suggest a further upside 
objective to the 95 area which is where I peg the next technical 
resistance. Conversely, a break of 90, would set up a next target 
to 89.    

Nasdaq 100 Index (NDX) – Hourly: 

1190-1195 looks to be support, as implied by both the cluster of 
prior hourly closing lows and the area of a 38% retracement.  I 
calculate that even better support in the NDX will be found if 
there should be an eventual move to the 1160 area, representing a 
50% retracement. A daily close under 1200 or better, two 
consecutive close below 1200, would suggest this kind of further 
downside potential.     



 

On the bullish side, I would rather trade the QQQ's as I like the 
risk to reward better in owning the stock if it gets to 29.  
However, I may also take a small trade in NDX calls in the 1190 
area if reached, but not hold them past 1185.  

I would trade out of calls at 1240 and consider puts in this 
area. 
  
Nasdaq 100 Tracking Stock (QQQ) - Hourly: 

I suggested shorting the Q's in the 32 to 32.75 zone and would 
stay with this position and look to buy back the stock in the 29 
area rather than at 30 as suggested previously.  

If 29 gives way, next lower support looks like down around 27.50. 
For that reason, will only risk to 28.50 on any stock purchases 
if an entry at 29-29.25 becomes available this week. 
Alternatively, just wait for a next dip and then see where 
"basing" action develops.



 


Good Trading Success!


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**************
Editor's Plays
**************

Follow the Trend

I hate to constantly be the one recommending put plays but I
honestly could not find any calls. I was going to break the
cycle and find a bullish play but my bias keeps getting in the
way. We are closer to the top of the range than the bottom
except in the case of the Nasdaq. 

The QQQ (NDX) is made up of 100 companies each market cap 
weighted. The top ten companies make up 42% of the weighting
of the index. The top five companies make up 27%. It does not
take a rocket scientist to realize that those top five companies
control the destiny of the other 95. If all ten line up on the
same side of the boat it is going under. 

I was doing some research for another project today and the
more Nasdaq stocks I looked at the worse it looked. Now I am 
going to be the first to tell you that the Nasdaq is oversold
on a short term basis. It may have a long way to go on a long
term basis as August profit taking continues but we could see
a relief bounce next week. We could also see a total washout 
and retest of 1600 on Monday. I would not count on that with
a Fed meeting on Tuesday. 

Still, I think the Nasdaq has further to fall and all the kings
economic reports may not put the Nasdaq back together again 
before it happens. How do we play this?

I had a reader on Friday ask me about an August straddle at 
$30 on the QQQ and in the heat of battle I told him I did not 
think the risk reward was worth it. The $30 call/puts were 
trading for 45 cents each. I did a quick check of the max-pain
number and saw it was $31, the number where the most options
expire worthless. On the surface it did not appear worth it. 

After looking at the charts of the top ten NDX stocks I 
still think it is risky. They are very oversold but most are
threatening to break support and begin a new leg down. We may
break any day or we could wait until after expiration. Still
the potential for profit intrigued me. I pencil whipped it
every way I could and the best alternative to me was the 
September $30 put for $1.15 and not the straddle. 

August and September are the two worst months of the year for
the markets and we are barely into August. Using the September
puts gives us six weeks of time for the earnings warnings to 
begin and the economics to worsen if they are going to do it.
They could also get better but that is what makes a market. 

For those that think we are due for a relief bounce you can
protect yourself with an August $31 call for 15 cents. Yes, 
15 cents. Before you back up the truck you need to realize
the QQQ would have to go to $31.50 to make it worthwhile 
before next Thursday. That is not likely to happen. 
 
Buy the Sept-$30 PUT QAV-UD $1.15, maybe less at the open.
Set a profit target of 50% and a stop at $31 and let it ride. 

QQQ Chart


 

Weighting of the top ten NDX/QQQ stocks.

MSFT 9.52
INTC 5.81
CSCO 4.87
AMGN 4.16
QCOM 3.53
DELL 3.20
CMCSA 2.92
ORCL 2.63
EBAY 2.52
IACI 2.48

MSFT Chart


 
INTC Chart


 
DELL Chart


 
CSCO Chart


 
ORCL Chart


 
SUNW Chart (not in top ten anymore)


 
EBAY Chart


 
QCOM Chart


 
IACI Chart


 
CMCSA Chart


 



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

Play updates:

I am only listing the current recommendations with a 
link to the initial write up and unless the play changed 
substantially. 

DJX Puts 

Is that the fat lady I hear singing. Baring a sudden reversal
of fortune the Dow does not appear headed for 8600 over the
next four days. It is totally possible but not likely. The
rebound at the close on Friday sealed our fate and without a
-200 point day in our near future the curtain is about closed.
The initial play back in July had a cost basis of 44 cents and
the options traded in a range of 30-50 cents this week. If
you wanted out for a breakeven the opportunity was offered. 


Powerball 

The Nasdaq decline let the air out of the tech portfolio and
we dropped about -200 from last week. Still six months to go
and if the recovery is for real this should turn out ok.  

It would have taken $1,255 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 12/31/03 

Powerball Chart 


  

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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Breaking Ranks
Jonathan Levinson
 
Given the exciting intermarket action this past week, I've been 
looking forward to reviewing the weekly closing candle charts to 
see how our recent trends have progressed.  There are some 
surprises on the weekly charts.
 
For most of 2003, we have seen treasuries and equities trading 
together on what I have interpreted to be a generalized rising 
tide of liquidity.  This "hot money" was chasing stocks, bonds, 
gold and other currencies, and the US Dollar Index was the most 
bearish chart of the bunch.
 
Last week, we observed that treasuries had been sinking for 
several weeks, and equities were weakening but relatively 
stronger.  We saw that trend reverse this week, as treasuries 
began rallying on Wednesday with the 5-year note auction, and 
continued through to Friday.  On the ten-year note yield, we had 
a bearish harami, printing an inside week within last week's 
bullish candle and breaking the rising bullish trendline on the 
TNX daily chart.   This is bullish for bonds.  Meanwhile, the 
Nasdaq was the weakest of the equity indices, printing the second 
of two black crows on a break below its ascending trendline for 
the first time since the spring rally began.  The Dow and S&P 
came close to printing the second of two black crows, but the 
declines were less extended and the end-of-Friday buying pushed 
the candle formation closer to a more bullish dragonfly doji 
star.
 
The US Dollar Index printed a bearish harami cross, and 
conversely gold gave us a bullish harami, with a positive inside 
week following last week's bearish engulfing candle on the 
December gold contract.  This is not as decisive a pattern as the 
two black crows on the Nasdaq, and the US Dollar Index could well 
resume its uptrend next week.  Nevertheless, this week was 
negative for the US Dollar Index.
 
We are therefore left with the US Dollar Index bearish for the 
week, gold bullish, equities bearish, led by the Nasdaq to the 
downside, and bonds bullish.  The picture is one of liquidity 
beginning to contract, with traders moving to the "quality" of 
bonds and gold.


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

Market Averages

DJIA ($INDU)

52-week High:  9361
52-week Low :  7197
Current     :  9191

Moving Averages:
(Simple)

 10-dma: 9166
 50-dma: 9121
200-dma: 8547



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  977

Moving Averages:
(Simple)

 10-dma:  981
 50-dma:  987
200-dma:  912



Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1207

Moving Averages:
(Simple)

 10-dma: 1249
 50-dma: 1240
200-dma: 1095



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

We're still seeing some odd action in the volatility indices.
Normally, as the markets slip the VIX and VXN rise.  The S&P 100,
which the VIX is based on (actually on the option premiums for
the OEX), did bounce the last couple of sessions.  So the drop
in the VIX is no surprise.  However, the NDX has been slipping
lower so why is the VXN moving in concert with it?

CBOE Market Volatility Index (VIX) = 21.29 -0.60
Nasdaq-100 Volatility Index  (VXN) = 32.02 -2.00


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        522,821       422,526
Equity Only    0.63        386,796       243,811
OEX            1.01         23,861        24,096
QQQ            0.83         36,418        30,237


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

Bullish Percent Data

           Current   Change   Status
NYSE          67.9    + 0     Bull Confirmed
NASDAQ-100    64.0    - 2     BEAR CONFIRMED
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       73.4    + 0     Bull Correction
S&P 100       80.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  1.13
10-Day Arms Index  1.09
21-Day Arms Index  1.01
55-Day Arms Index  1.09


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    1742      1437
Decliners    1056      1540

New Highs      68        92
New Lows       28        11

Up Volume    817M      516M
Down Vol.    429M      786M

Total Vol.  1288M     1327M
M = millions


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

Commitments Of Traders Report: 08/05/03

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

Commercial traders appear to be pruning some long positions and
moving that money to the short side.  As expected we see just
the opposite from the small trader.


Commercials   Long      Short      Net     % Of OI
07/15/03      414,020   453,033   (39,013)   (4.5%)
07/22/03      411,206   442,131   (30,925)   (3.6%)
07/29/03      405,429   445,114   (39,685)   (4.7%)
08/05/03      395,633   450,988   (55,353)   (6.5%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03
 
Small Traders Long      Short      Net     % of OI
07/15/03      148,716    70,279    78,437    35.8%
07/22/03      155,891    76,466    79,425    34.2%
07/29/03      155,216    73,030    82,186    36.0%
08/05/03      159,971    72,951    87,020    37.4%

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


E-MINI S&P 500

The bulls in the commercial group continue to add to their
positions here but we did see an increase in short positions
as well.  This is the most bullish the commercials have been
in quite some time.  Meanwhile the large spread between longs
and shorts for the small traders narrowed a bit.


Commercials   Long      Short      Net     % Of OI 
07/15/03      214,274   218,765    ( 4,491)  ( 1.0%)
07/22/03      249,392   249,386          6     0.0%
07/29/03      272,659   216,166     56,493    11.6%
08/05/03      310,662   249,004     61,658    11.0%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:   61,658   - 08/05/03

Small Traders Long      Short      Net     % of OI
07/15/03       45,372    54,654    (9,282)   (9.3%)
07/22/03       45,945    76,071   (30,126)  (24.7%)
07/29/03       44,437    93,144   (48,707)  (35.4%)
08/05/03       56,663    95,919   (39,256)  (25.7%)

Most bearish reading of the year: (48,707)  - 07/29/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

"Smart" money didn't do much last week as positions remain
relatively the same but we saw some small traders eliminate
a few long positions in the NDX.


Commercials   Long      Short      Net     % of OI 
07/15/03       28,467     49,154   (20,687) (26.7%)
07/22/03       32,502     48,139   (15,637) (19.4%)
07/29/03       31,456     50,294   (18,838) (23.0%)
08/05/03       32,813     52,383   (19,570) (23.0%)

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
07/15/03       26,489     8,004    18,485    53.6%
07/22/03       27,321     8,844    18,477    51.1%
07/29/03       25,691     7,810    17,881    53.4%
08/05/03       22,188     7,783    14,405    48.1%

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

More shades of limbo here as well with the commercials
not making any new commitments and the small traders
holding steady going on a month now.


Commercials   Long      Short      Net     % of OI
07/15/03       21,607     7,855   13,752      46.7%
07/22/03       22,198     8,176   14,022      46.2%
07/29/03       23,696     9,572   14,124      42.5%
08/05/03       23,981     9,264   14,717      44.3%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
07/15/03        5,475     9,717   (4,242)   (27.9%)
07/22/03        6,110    10,898   (4,788)   (28.2%)
07/29/03        5,744    11,601   (5,857)   (33.8%)
08/05/03        5,716    10,422   (4,706)   (29.2%)

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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***************
ASK THE ANALYST
***************

Observe it, test it, then predict it (Pivot Analysis)

I have been using a extended version of your pivot matrix for 
quite some time now and would like to point something out that I 
think could possibly come into play and tie in with what you have 
been talking about in relation to the 10 Yr note and the SPX or 
equities in general. .....  (I work another job full time) I tend 
to focus on longer time frames than you do.  I use weekly, 
monthly, QUARTERLY, and ANNUAL.

Wow!  I got a rather long, but very interesting e-mail from this 
trader and while I have never used a time frame longer than 1 
month, the trader's question really got my juices flowing.

While I didn't start on this column until after Friday's close 
and have a deadline of 02:00 AM EST that I've got to meet, I 
couldn't cover many of the observations and question in this 
trader's e-mail.

Now I'm laughing at myself.  Actually, the trader didn't really 
have that many question, but I sure did after reading his e-mail.  
Here are some of his observations he made in an e-mail dated 
August 5, 2003.

The current QUARTERLY pivot for the SPX is 945.89 and the ANNUAL 
pivot is 941.81. These levels also show some historical price 
significance by my read. Also in the TNX the ANNUAL pivot is 
4.278%, the very place where today's bounce occurred. If you 
could find the time to look at these price areas and let me know 
what you think as to whether or not they may be of significance 
in your opinion, I would appreciate it very much.

My initial response back to the trader was that I would put more 
weight in the quarterly analysis than the yearly analysis.

The reason for my thinking is based on my original thoughts of 
why the major indexes tend to show significant levels of trade 
around the various levels.

And here's where my juices got flowing, where much of my thinking 
comes from risk management at the institutional level, and 
managing that risk with either index futures or index options.

Most institutions manage risk in their stock inventory on a 
quarter-to-quarter basis.  I should probably say... most 
institution's COMPUTERS manage risk on a quarter-to-quarter 
basis.  And the emphasis on COMPUTERS is where I believe the 
pivot analysis matrix come into play.

How does one manage risk on a quarter-to-quarter basis?  Do you 
only manage risk at the end of each quarter?  I think not.  And 
if you or I were to try and begin dissecting a quarter (3 months) 
we'd probably start fine tuning things on a MONTHLY basis, then 
dissect that on a WEEKLY basis, with further fine-tuning taking 
place occasionally on a DAILY basis.

Now, in the OptionInvestor.com nightly Index Trader Wraps, I post 
the MONTHLY, WEEKLY and DAILY pivot analysis levels.  I will say 
that while I may focus attention on shorter-term time frames of 
1-month, I'm always taking in a much larger time frame with my 
point and figure chart analysis and bullish % data, which often 
times encompasses the past three years.  I also feel/believe a 
longer-term trend/level has more significance/meaning/influence 
that a short-term trend/level has significance/meaning/influence.

Now I don't have enough time tonight to try and tie in Treasury 
YIELD analysis, but hopefully after I do cover the SPX chart with 
quarterly pivot analysis, traders may pursue similar analysis 
with bonds.

As I read the trader's e-mail, I also wanted to test something.  
Are option traders thinking what I'm thinking?  One question I 
get most often and especially about a week before option 
expiration is... "where do you think the expiration level will 
be?"

Here's a data set I put together using recent quarterly date, 
where a quarter was measured in terms of January 1 to March 31.  
Given time, I would also like to take a data set that runs from 
quarter-to-quarter option expiration and back test some levels as 
we're going to do in a moment.

S&P 500 Index (SPX.X) - Quarterly pivot levels


 

The data set above covers the past six quarters for SPX Q3 (2003) 
I'm using last quarter's (April 1 to June 30) high, low and close 
where I hope to back test some levels from the recent three 
quarters to see if there is anything notable from this type of 
longer-term pivot analysis.  I've placed little pink vertical 
bars within each quarterly matrix, to mark an approximate level 
where quarterly option expiration actually took place to see if 
there might be any pattern as to expiration.

I've also tried to color code the recent three quarter's pivot 
levels in blue, brown and red, in order to be able to better 
separate these quarterly retracement levels for back testing 
efforts.

Now, I'm doing all this on the fly, so I don't know what the 
answer to the trader's question really is, and when I'm done, you 
and I can judge for ourselves if there is any significance to be 
found.

First, lets state two different hypothesis and then test them.

Hypothesis number 1

By using quarterly pivot analysis and retracement, it is evident 
that the S&P 500 Index (SPX.X) does show technical significance 
within quarterly pivot analysis.

Hypothesis number 2

By using quarterly pivot analysis and retracement, it is possible 
to predict quarterly option expiration.

Test number 1

I would have loved to perform multiple period back testing, but 
with limited time I'm going to start with the SPX Q4 (02) and SPX 
Q1 (03) pivot levels, to see if they may have had any influence 
as to how the SPX traded in the second quarter of this year.

Since we would consider this intermediate to longer-term 
analysis, I'm going to show the bar charts on weekly interval 
time frame.  A time frame a trader "with a job" that can't check 
in on things but once a week might use.  I'm also going to place 
my cursor on the weekly interval bar that marked the most recent 
quarterly option expiration of June 20, 2003.  (Seriously... 
check this out!)

S&P 500 Index (SPX.X) - 2002 Q4 and 2003 Q1 pivot analysis


 

The above chart was designed to test if there was any technical 
significance given to prior two quarters pivot analysis levels, 
for the recently completed 2003 second quarter (April 1 to June 
30), while ONLY using quarterly pivot analysis from Q4 2002 and 
Q1 2003.

While open to interpretation, I do think some of the "zones" 
colored in yellow and levels present did come into play on a 
weekly CLOSING basis, and at times, even on an intra-week basis.

One question a trader/investor might ask is.  While there does 
seem to be some significance to the levels, how could I have used 
this to make money?

One way, and we're going to test this, is to use the If, then, 
else method of trading levels.  For example.  Let's say a trader 
just rolled out of his/her March expiration options at 895, 
perhaps having picked up some calls in the 811-824 zone of 
support when the Bullish % charts neared "oversold" levels and 
lower levels of risk.  

Once the trader placed the above levels on his weekly bar chart, 
on April 1, he might have seen that the S&P 500 Bullish % 
($BPSPX) had reversed up into "bull alert" status.

IF SPX closes above "blue 50%" retracement of 863, then trade 
long the SPX, else, do nothing, as bullish % ($BPSPX) is "bull 
confirmed."  IF long on continued WEEKLY bar chart close above 
863, then target current quarter R1 (967), or upper zone of 
resistance 983-998.

As trader went long, a couple of weeks pass.  IF SPX closes above 
prior quarter (blue) R1 (948), which the SPX has NOT been able to 
do, then look for further strength, check bullish %, but look to 
average up into position, target current quarter R1 (967), or 
upper zone of resistance (983-998).

You get the feel for this don't you?  Now, if you trade stops in 
option, put together an exit plan with just the opposite approach 
in mind.

In mid-April, I think we all predicted an SPX settlement in the 
983-998 area and made oodles of money.

Are any premierinvestor.net subscribers perhaps getting a feel 
for how they might trade the DIA, SPY, QQQ, or from time to time 
get a sense of potential market direction?

Like I said, I'd need much more than the above back test to ever 
have the confidence to predict an outcome, or place a large bet 
on future quarterly expiration.

So let's do this.  I'm going to add the SPX Q2 (03) "red" 
quarterly pivot retracement to the SPX chart.  As I do this, I'm 
going to stagger the retracement brackets a little, shift the 
older blue retracement to the left.  Let's pretend that 
institutions had taken care of (02) Q4 quarterly inventory risk 
and they're working more closely, fine tuning things if you will, 
with the "brown" and "red" levels.

S&P 500 Index (SPX.X) - (02) Q4, (03) Q1, (03) Q2


 

We're not through yet as I'm still going to add the current 
quarter's pivots, but note the additional level of resistance 
that has suddenly become present with Q2 (2003) pivot retracement 
and its Q2 (03) R2 of 1,004.

Now, the "zone of support" I've colored yellow from Q2 (03) R1 of 
926 to 948, would have actually been a "zone of resistance" into 
the June 20 quarterly expiration.

A trader might begin building a direction bias at this point, to 
the downside, with the S&P 500 Bullish % ($BPSPX) having recently 
reversed into "bull correction" status.  My bias might be...

IF the SPX closes below 967 on WEEKLY close, then WEAKNESS, as 
SPX appears to be having trouble with a WEEKLY close above 1,004.

Let's remove the "blue" retracement at now, as it is three 
quarter old, and add our "black" retracement for current quarter.

S&P 500 Index (SPX.X) - (03) Q1, (03) Q2 and (03) Q3


 

Well... here's the final chart of the SPX with the current 
quarter's retracement (black) overlaid.  A new "sliver" from 982 
to 985 is currently in play.  And, since the S&P 500 Bullish % 
($BPSPX) reversed into "bull correction status three weeks ago, 
the SPX has had some trouble closing back above this sliver of 
support, but holding the 967 level on a closing basis.

Hmmmm.... this week I profiled a bullish trade for the SPX in 
OptionInvestor.com's Index Trader Wrap (based on WEEKLY and 
MONTHLY pivot retracement) at 965 with a bullish target back near 
989, which would be back up in a wider zone of resistance.  I 
should probably use the WEEKLY/MONTHLY levels to guide that trade 
and snug a stop, as main thinking was we might look for a bounce 
in a rather range-bound market trade.

In the above chart, the data box in the lower right corner was 
placed right in the middle of the yellow highlighted zone of 926 
to 957, which might be on projection of the rising 200-day SMA.

With the S&P 500 Bullish % ($BPSPX) in "bull correction" status I 
might look for an SPX trade back lower to 906-911 zone, and 
perhaps a quarterly expiration settlement at 936, maybe 935 for a 
nice round number.

Anyway.  What do you think?  Do these quarterly levels seem to 
have significance?  I think so.

Could a trader using the quarterly build a "longer-term" picture 
of levels to then get a better feel for the MONTHLY, WEEKLY and 
DAILY levels to narrow down potential entry and exit points or 
identify more powerful levels of support and resistance by which 
institutional computers might be set to trade?

Here's the DAILY, WEEKLY and MONTHLY Pivot analysis retracement.

Pivot Analysis Matrix - (Monday's DAILY), WEEKLY and MONTHLY 


 

Starting in the DAILY levels, I could see how DAILY R2 comes into 
the mix on Monday as an important DAILY level within the 
quarterly chart of the SPX.  A short-term trader that may be long 
the SPX at 985 might set that as a test on Monday, where he/she 
wants a DAILY CLOSE above that level in order to have a shot at a 
target near 989.

989 is correlative resistance at the MONTHLY Pivot and our newly 
established WEEKLY R1 of 988.61.  This would tie in with my 
bullish bounce target from SPX 965 entry.  Correlative support in 
the matrix presents itself at MONTHLY S1 and WEEKLY S1.  

In the MONTHLY matrix, I've highlighted in "pink" the MONTHLY S2.  
I doubt it has much significance, but I swear, I only noticed 
this level AFTER I placed my cursor in the prior SPX between the 
wider range of the potential zone of support from 926-945.  
Besides, the MONTHLY levels shown above are for August, not 
September.  Still... to get a SPX settlement near 936 or round 
number 935, the SPX has to break lower.  Right?

Then at MONTHLY R2 of 1,042, that might tie in with the current 
quarterly R2 of 1,044.

Something to follow for a longer-term trader/investor to say the 
least.

I'll have to present this in the Index Trader Wrap.

Excellent question from the trader.  I'm not sure I really know 
the true answer, but this exercise has been eye opening indeed!

Jeff Bailey


*************
COMING EVENTS
*************

==========================================
Market Watch for the week of August 11th
==========================================

-----------------
Earnings Calendar
-----------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

CFFN   Capitol Federal Finl  Mon, Aug 11  -----N/A----        0.16
CPG    Chelsea Property Grp  Mon, Aug 11  After the Bell      0.81
DADE   Dade Behring          Mon, Aug 11  After the Bell      0.26
DQE    DQE                   Mon, Aug 11  After the Bell      0.23
JHX    James Hardie Ind      Mon, Aug 11  -----N/A----         N/A
OSIP   OSI Pharmaceuticals   Mon, Aug 11  After the Bell     -0.98
PSUN   Pac Sunwear CaliforniaMon, Aug 11  After the Bell      0.24
PRGO   Perrigo               Mon, Aug 11  Before the Bell     0.05
PBR    Petrobras             Mon, Aug 11  -----N/A----        1.34
PUB    PUBLICIS Groupe SA    Mon, Aug 11  Before the Bell      N/A
LQU    Quilmes Industrial    Mon, Aug 11  After the Bell       N/A
SYY    SYSCO Corporation     Mon, Aug 11  Before the Bell     0.35
VAL    Valspar               Mon, Aug 11  -----N/A----        0.76
WRI    Weingarten Rlty Inv   Mon, Aug 11  -----N/A----        0.85


------------------------- TUESDAY ------------------------------

ANF    Abercrombie & Fitch   Tue, Aug 12  After the Bell      0.33
ANPI   Angiotech Pharm       Tue, Aug 12  After the Bell     -0.20
AMAT   Applied Materials     Tue, Aug 12  After the Bell      0.04
AXA    AXA                   Tue, Aug 12  01:30 am ET          N/A
BSY    Brit Sky Broadcasting Tue, Aug 12  05:00 am ET          N/A
CLX    Clorox                Tue, Aug 12  Before the Bell     0.68
CSC    Computer Sciences CorpTue, Aug 12  -----N/A----        0.51
DE     Deere & Company       Tue, Aug 12  Before the Bell     0.83
ESPD   eSpeed, Inc.          Tue, Aug 12  After the Bell      0.14
FOSL   Fossil, Inc.          Tue, Aug 12  Before the Bell     0.20
JCP    JC Penney             Tue, Aug 12  Before the Bell    -0.05
LZB    La-Z-Boy Inc.         Tue, Aug 12  Before the Bell     0.18
MVL    Marvel Enterprises    Tue, Aug 12  Before the Bell     0.31
MXIM   Maxim Integrated Prod Tue, Aug 12  After the Bell      0.24
MDT    Medtronic Inc.        Tue, Aug 12  -----N/A----        0.37
OMX    Officemax             Tue, Aug 12  Before the Bell    -0.13
PTP    Plat Underwriters HoldTue, Aug 12  After the Bell      0.33
REG    REGENCY CTRS CORP     Tue, Aug 12  Before the Bell     0.69
RRI    Reliant Resources     Tue, Aug 12  -----N/A----        0.19
TECH   Techne                Tue, Aug 12  Before the Bell     0.30
IPG    The Interpublic Grp CoTue, Aug 12  After the Bell      0.15
MAY    May Department Stores Tue, Aug 12  -----N/A----        0.27
TJX    The TJX Companies Inc Tue, Aug 12  Before the Bell     0.23
WGR    Western Gas Resources Tue, Aug 12  Before the Bell     0.53
WMB    Williams Companies    Tue, Aug 12  -----N/A----       -0.03


-----------------------  WEDNESDAY -----------------------------

ANN    AnnTaylor Stores      Wed, Aug 13  After the Bell      0.40
ATO    Atmos Energy Corp     Wed, Aug 13  After the Bell      0.00
BRCD   Brocade Comm Sys Inc. Wed, Aug 13  After the Bell      0.01
CAI    CACI International    Wed, Aug 13  After the Bell      0.41
RIO    Comp Vale Rio Doce    Wed, Aug 13  -----N/A----        1.45
DISH   EchoStar Comm Corp.   Wed, Aug 13  Before the Bell     0.19
EP     El Paso Corp.         Wed, Aug 13  Before the Bell     0.13
EQR    Equity Residential    Wed, Aug 13  -----N/A----        0.56
FD     Federated Department  Wed, Aug 13  -----N/A----        0.54
FOX    Fox Entertainment Grp Wed, Aug 13  Before the Bell     0.24
HMY    Harmony Gold Mining   Wed, Aug 13  02:00 am ET         0.09
MLS    Mills Corporation     Wed, Aug 13  Before the Bell     0.82
NTLI   NTL INC               Wed, Aug 13  Before the Bell      N/A
QTRN   Quintiles Transnatl   Wed, Aug 13  -----N/A----        0.14
NWS    The News Corporation  Wed, Aug 13  Before the Bell     0.16
TIF    Tiffany & Co.         Wed, Aug 13  Before the Bell     0.24
UBS    UBS                   Wed, Aug 13  01:00 am ET          N/A
WMT    Wal-Mart Stores Inc.  Wed, Aug 13  Before the Bell     0.50


------------------------- THURSDAY -----------------------------

AZ     Allianz AG            Thu, Aug 14  -----N/A----         N/A
AEOS   American Eagle Outfit Thu, Aug 14  Before the Bell     0.11
AMLN   Amylin PharmaceuticalsThu, Aug 14  Before the Bell    -0.36
ADI    Analog Devices Inc.   Thu, Aug 14  After the Bell      0.21
BEAS   BEA Systems           Thu, Aug 14  After the Bell      0.07
BE     BearingPoint, Inc.    Thu, Aug 14  Before the Bell     0.15
BRP    Brasil Telecom Partic Thu, Aug 14  -----N/A----        0.49
CXR    COX RADIO INC         Thu, Aug 14  Before the Bell     0.17
DELL   Dell, Inc.            Thu, Aug 14  After the Bell      0.24
DT     Deutsche Telekom      Thu, Aug 14  02:00 am ET          N/A
EON    E.ON AG               Thu, Aug 14  Before the Bell      N/A
GMST   Gemstar-TV Guide Int  Thu, Aug 14  After the Bell     -0.05
ING    ING Groupe NV         Thu, Aug 14  06:00 am ET          N/A
KSS    Kohl's                Thu, Aug 14  4:00 pm ET          0.31
L      Liberty Media Group   Thu, Aug 14  After the Bell       N/A
MTA    Matav                 Thu, Aug 14  -----N/A----         N/A
TGT    Target Corporation    Thu, Aug 14  Before the Bell     0.40
EL     The Estée Lauder Co   Thu, Aug 14  Before the Bell     0.26
TKC    Turkcell Iletsim      Thu, Aug 14  -----N/A----         N/A
UBB    Unibanco - S.A.       Thu, Aug 14  -----N/A----        0.62
UCOMA  UnitedGlobalCom, Inc. Thu, Aug 14  -----N/A----         N/A


------------------------- FRIDAY -------------------------------

CEP    Centerpulse AG        Fri, Aug 15  Before the Bell      N/A
NAV    Navistar Intl         Fri, Aug 15  Before the Bell     0.25


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

RARE    Rare Hospitality          3:2      Aug  11th   Aug  12th
ODSY    Odyssey Healthcare        3:2      Aug  12th   Aug  13th
OSK     Oshkosh Truck             2:1      Aug  13th   Aug  14th
REBC    Redwood Empire            3:2      Aug  13th   Aug  14th
SCHN    Schnitzer Steel           2:1      Aug  14th   Aug  15th
RNT     Aaron Rents               3:2      Aug  15th   Aug  18th
ARRO    Arrow Intl                2:1      Aug  15th   Aug  18th
JEF     Jeffries Group            2:1      Aug  15th   Aug  18th
GPT     GreenPoint Financial Corp 3:2      Aug  20th   Aug  21st
TSCO    Tractor Supply Company    2:1      Aug  21st   Aug  22nd
TTI     Tetra Technologies Inc    3:2      Aug  21st   Aug  22nd
CECO    Career Education Corp     2:1      Aug  22nd   Aug  25th


--------------------------
Economic Reports This Week
--------------------------

Earnings continue to dwindle, and most of the major market movers 
have already announced.  Economic reports will likely overshadow 
earnings this week as we have a full house of economic reports 
with Retail Sales, CPI, PPI, Production and Utilization, and 
Michigan Sentiment.  However, the major meeting this week will be 
the FOMC meeting on Tuesday.  


==============================================================
                       -For-           

----------------
Monday, 08/11/03
----------------
None


----------------
Tuesday, 08/12/03
----------------
FOMC Meeting  (DM)


-------------------
Wednesday, 08/13/03
-------------------
Business Inventories(BB)Jun  Forecast:  -0.10%  Previous:   -0.20%
Retail Sales (BB)       Jul  Forecast:   0.80%  Previous:    0.50%
Retail Sales ex-auto(BB)Jul  Forecast:   0.50%  Previous:    0.70%
Export Prices ex-ag.(BB)Jul  Forecast:     N/A  Previous:   -0.10%
Import Prices ex-oil(BB)Jul  Forecast:     N/A  Previous:    0.50%


------------------
Thursday, 08/14/03
------------------
Initial Claims (BB)   08/09  Forecast:    395K  Previous:     390K
Trade Balance (BB)      Jun  Forecast: -$41.5B  Previous:  -$41.8B
PPI (BB)                Jul  Forecast:   0.20%  Previous:    0.50%
Core PPI (BB)           Jul  Forecast:   0.00%  Previous:   -0.10%
FOMC Minutes (DM) 


----------------
Friday, 08/15/03
----------------
NY Emp State Index (BB) Aug  Forecast:    20.5  Previous:     22.6
CPI (BB)                Jul  Forecast:   0.20%  Previous:    0.20%
Core CPI (BB)           Jul  Forecast:   0.10%  Previous:    0.00%
Indl Production (BB)    Jul  Forecast:   0.20%  Previous:    0.10%
Capacity Utilization(BB)Jul  Forecast:  74.40%  Previous:   74.30%
Mich Sentiment-Prel.(DM)Aug  Forecast:    91.0  Previous:     90.9


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 08-10-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Breaks, Bumps and Bounces
Put Play of the Day: KLAC
Dropped Calls: None
Dropped Puts: None


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**********
Watch List
**********

Breaks, Bumps and Bounces

Netease.com - NTES - close: 44.79 change: +2.48

WHAT TO WATCH: The Internet bubble is back but this time it's in 
Chinese Internet stocks.  NTES is one of these high flyers.  
After gapping higher in late July profit taking brought it all 
the way back down to support near $40.  That's where over-eager 
bulls and dip buyers shot the stock back up from its lows (and 
its rising 50-dma).  This would be a very high-risk play but it 
looks like NTES could retest $50.00.

Chart=


---

XL Capital - XL - close: 79.70 change: +1.35 

WHAT TO WATCH: XL is another insurance stock on the list.  After 
failing hard last week at the $80 level shares have spent the 
last several days recouping those losses.  Now the stock is back 
above its 200-dma and aiming to break out back above the $80 
mark.  There is probably some resistance near $82.50 but bulls 
might aim for a test of $85 (after a breakout of course).

Chart=


---

ManuLife Financial - MFC - close: 29.60 change: +0.14

WHAT TO WATCH: The gains appear rather slowly but the bullish 
trend is hard to argue with on MFC.  The stock is building up 
steam for a breakout over major resistance of $30.  This could 
fuel a quick move to all times highs near $32.50.  One to watch.

Chart=


---


Amgen Inc - AMGN - close: 66.82 change: -0.20

WHAT TO WATCH: The biotech giant AMGN is a favorite on the watch 
list.  The stock recently broke down through its rising 50-dma 
but bounce from the $65.00 level.  Friday's move looks like a 
failed rally at $68.00 indicating it will retest $65 again.  Will 
$65 hold or will the stock break, potentially bringing with it a 
host of new bearish interest?

Chart=




===================================
RADER SCREEN - more stocks to watch
===================================

LMT $50.59 - Can shares of Lockheed hold steady above the $50 
mark?  Will it bounce higher from is 200-dma?  Or will bears pull 
it down.  Thursday's decline saw strong volume but so did 
Friday's bounce.

WHR $67.44 - Not the most alluring stock in the world but WHR has 
been slowly climbing higher and has set new relative highs.  Will 
it break $70.00?

MET $29.28 - This insurance stock has been consolidating under 
major resistance of $30 for a long time.  A break out could be an 
entry point for a quick move to $32.50 and on to $35.00.

TMK $40.62 - Yet another insurance stock on the list tonight.  
This one has a very bullish trend from July 1st and the breakout 
and consolidation above $40 looks very tempting.  However, there 
is a lot of congestion between $40 and $42.50.  Tight stops are 
suggested.

URBN $43.44 - Up, up and away! Strong July sales numbers have 
pushed URBN to new highs.  We'd keep an eye on it for a pull back 
to $40.


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********************
THE PLAY OF THE DAY
********************

Put Play of the Day:
********************

KLA-Tencor - KLAC - close: 48.04 change: -1.72 stop: 50.05

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

None


PUTS
^^^^

None


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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**********
DISCLAIMER
**********

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 08-10-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: KSS, LLL, PCAR
New Calls: STJ
Current Put Plays: BDK, FITB, FRE, IBM, PGR, YHOO
New Puts: KLAC


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******************
CURRENT CALL PLAYS
******************

Kohl's Corporation - KSS - close: 60.55 change: +0.60 stop: 58.00

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:
It took long enough to get the job done, but KSS finally broke 
out above our $60.60 trigger on Wednesday, as traders were 
apparently looking for a positive same store sales comparison on 
Thursday morning.  KSS delivered on those expectations, with a 
6.7% increase in July comps vs. the First Call consensus of 
+1.6%.  That shot the stock up to just below $62.50 just after 
the open, but there was a flood of sell orders waiting up there 
and the stock crumbled all the way back to $59.95 by the closing 
bell.  The bulls managed to pick themselves up on Friday, 
gradually pushing up for a close at $60.55, which exactly matches 
the intraday high from April 7th.  Dips into the $59.50-60.00 
area still look good for new entries, although it might be better 
to wait for a move above Friday's intraday high ($60.79) before 
entry.  Based on the quick reversal on Thursday, we can expect 
that there will be resistance found near $62.50, but once through 
that level, KSS should be good to run towards our $66 target.  
Note that our stop is now set at $58, as if this breakout is the 
real deal, the stock shouldn't break below either the 20-dma or 
the bottom of the 7/31 gap again.

Suggested Options:
Shorter Term: The September 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 October 60 Call.

BUY CALL SEP-60 KSS-IL OI=1762 at $3.40 SL=1.75
BUY CALL SEP-65 KSS-IM OI=1571 at $1.20 SL=0.60
BUY CALL OCT-60 KSS-JL OI=2673 at $4.20 SL=2.50
BUY CALL OCT-65 KSS-JM OI=3811 at $1.95 SL=1.00

Annotated Chart of KSS:

 

Picked on July 31st at    $59.35
Change since picked:       +1.20
Earnings Date           08/14/03 (confirmed)
Average Daily Volume =  4.58 mln
Chart =


---

L-3 Communications -LLL - close: 47.80 change: -0.36 stop: 47.25

Company Description:
As a leading supplier of sophisticated secure communication 
systems and specialized communication products, LLL provides 
critical elements of virtually all major communication, command 
and control, intelligence gathering and space systems.  The 
company's high data rate communication, avionics, telemetry and 
instrumentation systems and components are used to connect a 
variety of airborne, space, ground-based and sea-based 
communication systems.

Why we like it:
Our LLL play just hasn't been going our way over the past week, 
and the series of lower highs certainly doesn't look encouraging.  
Even the top of the 7/28 gap at $48 failed to hold the stock up 
on Friday and it closed below that level for the first time this 
month.  Despite that disappointing action, the stock has managed 
to not trip over our stop at $47.25, which is just below the 
bottom of that gap.  The 20-dma ($47.16) is rising to meet price 
and by Monday should be above our stop.  We're going to give the 
bulls one more chance to buy this dip before pulling the plug.  
Only aggressive traders ought to consider trying to pick the 
bottom on this decline.  We need to see some evidence of price 
strength before charging into the breech, and at a minimum that 
would be a rally back over the $48.75 level that has been 
providing intraday resistance over the past few days.  More 
conservative traders will still want to hold out for the breakout 
over $50.50 before playing.

Suggested Options:
Shorter Term: The September 45 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.  

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the September 50 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 will want to use the October 50 Call.

BUY CALL SEP-45 LLL-II OI= 265 at $3.90 SL=2.50
BUY CALL SEP-50 LLL-IJ OI=1056 at $1.10 SL=0.50
BUY CALL OCT-50 LLL-JJ OI=2270 at $1.65 SL=0.75
BUY CALL OCT-55 LLL-JK OI= 208 at $0.40 SL=0.20

Annotated Chart of LLL:


 

Picked on August 3rd at    $49.90
Change since picked:        -2.10
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      963 K
Chart =


---

PACCAR - PCAR - close: 77.65 change: +0.02 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:
Thus far our call play in PCAR has been another exercise in 
patience.  For some short-term traders that may mean exiting the 
play and looking for something that's actually moving.  Overall, 
given the market's sideways action we can't be too disappointed 
with the sideways consolidation in PCAR.  As long as the stock 
remains above new support between $74 and $75 we should be fine.  
As a matter of fact traders looking for new entries can keep an 
eye open for a dip to the $75.00 level, although we'll be 
surprised if shares of PCAR actually trade under $76.  Momentum 
traders may want to wait for a breakout over $80.

We do realize that the stock looks overbought and its condition 
is making many of its technical oscillators somewhat hard to read 
(or worthless).  Yet we can't argue with PCAR's relative strength 
and should the markets hold up then the prevailing trend in PCAR 
should work in our favor. Speaking of relative strength PCAR's 
point-and-figure chart is very bullish and it's still showing a 
triple-top breakout buy signal.  We did see a little news earlier 
in the week when Prudential raised its price targets for several 
stocks in this industry based on rising fundamentals.  Prudential 
raised PCAR's price target from $72 to $87.

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

BUY CALL SEP 75 PAQ-IO OI=  66 at $5.00 SL=2.75
BUY CALL SEP 80 PAQ-IP OI= 133 at $2.20 SL=1.20
BUY CALL NOV 75 PAQ-KO OI= 351 at $7.10 SL=5.00
BUY CALL NOV 80 PAQ-KP OI=  67 at $4.40 SL=2.25

Annotated Chart:

 


Picked on July 31 at $77.24
Change since picked:  +0.41
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.15 million  
Chart =



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

St. Jude Medical - STJ - close: 54.23 change: +0.64 stop: 52.50

Company Description:
St. Jude Medical is engaged in the development, manufacturing and 
distribution of medical technology products for the cardiac 
rhythm management, cardiology and vascular access and cardiac 
surgery markets.  The company has two principal business 
segments, Cardiac Rhythm Management (CRM) and Cardiac Surgery 
(CS).  The CRM division is focused on bradycardia pulse generator 
and tachycardia implantable cardioverter defibrillator systems, 
interventional cardiology catheters and vascular closure devices.  
The CS group provides mechanical and tissue heart valves and 
valve repair products as well as suture-free devices to 
facilitate coronary artery bypass operations.

Why we like it:
After peaking near $64 in the middle of June, shares of STJ were 
overdue for a bout of profit taking, but investors weren't quite 
prepared for the staggering 24% slide that took place over the 
next month.  After reaching bottom near the $48 level, the stock 
rebounded and has been consolidating in the $53-55 area for the 
past 2 weeks.  This sideways consolidation looks like a 
continuation pattern, and when it breaks to the upside, it should 
have room to run to the $60 area.  Of course, it won't be a cake 
walk, as there is potential resistance layered at $57 and then 
again at $59.  But before we can start looking for upside 
objectives, the stock will need to break from its current 
consolidation pattern.  The 50-dma ($55.73) provided solid 
resistance on Friday, as the stock was quickly turned back from 
an attempted rally through that level.  Looking at the PnF chart, 
it becomes clear that $56.00 is a formidable obstacle and the 
stock will need to trade $57.00 to generate a new Buy signal and 
give us the 'green light' for a bullish play.  

We're going to sneak our entry trigger a bit below that level 
though, looking for a break above $56.05 before considering the 
play live.  Momentum traders will want to enter on the initial 
breakout, looking for a quick move upward.  More conservative 
traders will want to look for a pullback after the initial 
breakout, looking to buy a dip and rebound in the $54.50-55.00 
area.  Because of the tight consolidation over the past couple 
weeks, we can set at tight stop at $52.50, just below the 20-dma, 
which appears to be bottoming at $52.73.

Suggested Options:
Shorter Term: The September 55 Call will offer short-term traders 
the best return on an immediate move, as it will be in the money 
when the play is triggered.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the September 60 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 will want to use the October 60 Call.

BUY CALL SEP-55 STJ-IK OI= 266 at $2.05 SL=1.00
BUY CALL SEP-60 STJ-IL OI= 446 at $0.55 SL=0.25
BUY CALL OCT-60 STJ-JL OI= 785 at $0.95 SL=0.50

Annotated Chart of STJ:

 

Picked on August 10th at   $54.23
Change since picked:        +0.00
Earnings Date            10/15/03 (unconfirmed)
Average Daily Volume =   2.19 mln
Chart =



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CURRENT PUT PLAYS
*****************

Black & Decker - BDK - cls: 40.20 chg: +0.96 stop: 41.01 

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:
You hear it preached all the time.  Emotion has no place in a 
successful trader's plan of action (unless they're playing off 
the other guy's emotion).  Yet when we see a successful play turn 
against us it does get irritating.  We first added BDK because 
the stock has been falling as investors reacted negatively to 
their earnings report.  The break under its 200-dma and new 
relative low several days ago looked very appealing.  Yet we 
weren't quite convinced and set a trigger to open bearish plays 
as BDK traded under $40.00.  We listed an alternative entry for 
more aggressive traders to consider going short at a failed rally 
under $41.00.  Both opportunities occurred and the stock fell as 
expected.  When BDK approached the $38.00 level we expected a 
bounced and suggested traders prepare for it.  Unfortunately, the 
stock has now bounced much higher than we anticipated.  The move 
back over $40, what should now be resistance, is a concern.  
Shares still have overhead resistance at their 200-dma and our 
stop loss is about 25 cents beyond that level.

Friday's performance could just be an overreaction, possibly by 
shorts covering previous positions.  However, we are not going to 
suggest new positions until we see if BDK can roll over back 
under the $40 mark.

Suggested Options:
We are not suggesting new positions at this time.

Annotated Chart:


 

Picked on August 4 at $39.99
Change since picked:   +0.21
Earnings Date       07/24/03 (confirmed)
Average Daily Volume:   731  thousand 
Chart =
 

---

Fifth Third Bancorp - FITB - cls: 54.11 chg: +0.24 stop: 55.01 

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

Why We Like It:
It has been somewhat of an interesting last several days for FITB 
and the banking sectors.  The BIX, BKX and FITB all broke down 
below significant support in the first couple of days of August.  
This was a foreboding development for the markets and the 
financial sector and good news for our bearish play in FITB.  
Unfortunately for the bears all three have found support and 
stalled their descent.  The BKX has found support above 850 and 
is trying to bounce back above its 50-dma.  The BIX made a new 
relative low but found support just south of the 300 mark.  It 
too is trying to bounce but appears to have minor resistance at 
305.  Following suit but exaggerating its losses is FITB.  Shares 
of this banking stock dropped strongly at the beginning of the 
month but have bounced with the banking sectors. Yet it remains 
below resistance near $55 (and our stop loss at 55.01).  Volume
has been pretty light on the bounce we doesn't suggest a lot of
new buying interest.

FITB's daily chart almost appears to be descending in a channel 
pattern.  If this is the case we could see another small bump 
higher and then a rollover or it could just churn sideways before 
slipping lower again (see chart).  We're not suggesting new plays 
but traders can watch for a failed rally under $55 as possible 
entries. 

Suggested Options:
We're not suggesting new plays but will list the September and 
November puts as a reference for aggressive traders. 

BUY PUT SEP 55 FTQ-UK OI= 686 at $2.50 SL=1.25
BUY PUT SEP 50 FTQ-UJ OI= 559 at $0.70 SL= --
BUY PUT NOV 55 FTQ-WK OI= 450 at $3.80 SL=2.00
BUY PUT NOV 50 FTQ-WJ OI=8016 at $1.70 SL=0.85

Annotated Chart:


 

Picked on July 17th at $55.26
Change since picked:    -1.15
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million 
Chart link:


---

Freddie Mac - FRE - close: 49.35 change: -0.05 stop: 50.25

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

Why we like it:
Talk about indecision!  FRE gave us that nice breakdown under 
$50, found solid support at $48 and has been wiggling around 
between those two levels for most of the past week.  On 2 of the 
past 3 days, FRE has made an intraday push over $50, but in each 
case has fallen short of our $50.25 stop, falling back to end the 
day near the $49.50 level.  That looks bearish.  But on the other 
side of the coin, the past two days have resulted in closes above 
the 10-dma (currently $49.13) and that is a shift from the 
behavior over the past several weeks, which seems bullish.  The 
bottom line is that the stock looks too strong to recommend 
opening new positions, but not quite strong enough to give up on 
the downside.  the only way we'd consider new positions now is on 
a break below $48, which we could take as a sign that things were 
weakening again, bringing our $45 target back into play.  More 
conservative traders may want to just take advantage of intraday 
weakness to exit the play for a minor gain.  Maintain stops at 
$50.25.

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

BUY PUT SEP-50 FRE-UJ OI= 2057 at $2.75 SL=2.50
BUY PUT SEP-45 FRE-UI OI= 4208 at $1.00 SL=0.75
BUY PUT OCT-45 FRE-VI OI= 8304 at $1.65 SL=0.75

Annotated Chart of FRE:


 

Picked on July 22nd at    $50.33
Change since picked:       -0.98
Earnings Date           07/15/03 (confirmed)
Average Daily Volume =  7.49 mln
Chart =


---

Intl Business Mach - IBM - cls: 80.88 chg: +0.19 stop: 82.51

Company Description:
Big Blue is being heralded as the world's largest technology 
company. Considering their massive hardware and software business 
across the globe it's not surprising. However, IBM's services and 
consulting business is growing by leaps and bounds and is a major 
source of revenues.

Why We Like It:
Friday's performance was actually a relief.  We were a bit 
concerned to see shares bounce back above the $80 level on 
Thursday, of course the Industrials rallied on Thursday so IBM 
was just playing "follow the index".  We suspected that the 
rebound may have scared some of the bears out of the stock and 
into covering some positions.  Thankfully, Friday's 19-cent gain 
was rather lackluster.  

If the Dow Industrials continue to trade sideways it could 
undermine our expectations for a drop in IBM.  However, if the 
stock can roll over again at the simple 200-dma then we should 
get another chance to play the breakdown.  We're also keeping an 
eye on the GHA hardware index, which is perched precariously on 
the 200 level and looks ready to drop any day now.  

Big Blue's P&F chart looks pretty ominous as well so bears 
playing the breakdown in support still look good.  We'd suggest 
new entries on failed rallies under $82 or on moves back under 
$80.  Our short-term target remains $75.

Suggested Options:
Our preference will be for the September and October puts.  The 
80 and 75 strikes look like a good bet.

BUY PUT SEP 80 IBM-UP OI= 9661 at $2.35 SL=1.15
BUY PUT SEP 75 IBM-UO OI= 7617 at $0.90 SL=0.45
BUY PUT OCT 80 IBM-VP OI=28466 at $3.60 SL=1.80
BUY PUT OCT 75 IBM-VO OI=15983 at $1.70 SL=0.90

Annotated Chart of IBM


 

Picked on August 5 at $79.85
Change since picked:   +1.03
Earnings Date       07/16/03 (confirmed)
Average Daily Volume:   8.2  million  
Chart =


---

Progressive Corp - PGR - close: 65.13 chg: +0.52 stop: 67.01 

Company Description:
The Progressive group of insurance companies ranks third in the 
nation for auto insurance based on premiums written, offering its 
products by phone at 1- 800-PROGRESSIVE, online at 
progressive.com and through more than 30,000 independent 
insurance agencies. (source: company press release)

Why We Like It:
Patience is becoming our motto on this PGR play.  Normally, if we 
don't get a favorable move after this long we tend to just close 
the play for lack of interest.  Yet PGR continues to slip lower 
just very slowly.  The lack of any new follow through on the mid-
July drop has most of the stock's oscillators all suggesting 
bullish reversal even though shares are still setting lower lows 
and lower highs.  

We have been watching the IUX insurance index to see how PGR is 
trading in relation to the sector.  Thus far the IUX has bounced 
up off its rising simple 50-dma - a stunt it has done numerous 
times over the past few weeks.  The close at 275 for the IUX also 
looks, dare we say it, bullish.  This actually highlights the 
relative weakness in shares of PGR so bears shouldn't be too 
worried just yet.  

We did consider adjusting our stop loss but $67.01 still looks 
like a good bet.  More conservative traders may be interested to 
know that PGR has not traded above $66.10 in six days.  That 
might be a good warning trigger for bearish investors.  New 
entries are probably best considered on failed rallies under $66 
or moves below $64.50.

Suggested Options:
PGR has plenty of options to choose from.  Currently there are 
August, September, November and Februarys to choose from. Our 
preference will be for the September-November strikes with an 
emphasis on September 65's.


BUY PUT SEP 70.00 PGR-UN OI= 15 at $5.60 SL=3.25
BUY PUT SEP 65.00 PGR-UM OI=133 at $2.15 SL=1.15
BUY PUT SEP 60.00 PGR-UL OI=445 at $0.65 SL= --
BUY PUT NOV 65.00 PGR-WM OI=300 at $3.60 SL=1.75
BUY PUT NOV 60.00 PGR-WL OI=200 at $1.75 SL=0.90

Annotated Chart for PGR: 


 


Picked on July 23 at $65.22
Change since picked:  -0.09
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  941  thousand 
Chart =
 

---

Yahoo! Inc. - YHOO - close: 29.00 change: +0.13 stop: 31.50

Company Description:
Yahoo! Inc. is a global Internet company that offers a 
comprehensive branded network of properties and services to 
consumers and businesses worldwide.  The company's properties and 
services for consumers and businesses reside in five vertical 
areas: Search and Marketplace, Information and Content, Network 
and Platform Services, Enterprise Solutions and Consumer 
Services.  YHOO's basic products and service offerings are 
available without charge to its consumers.  The company also 
offers a variety of fee-based premium services that provide its 
consumers access to value-added content or services.

Why we like it:
A perfect day of indecision is what shares of YHOO 'enjoyed' on 
Friday, as investors tried to decide if this breakdown has 
further to run.  In reality, the probable cause for the stock's 
bifurcated action (a small range doji candlestick) is the 
bifurcated markets, with the DOW and the S&Ps moving up and the 
NASDAQ moving down.  Of course there's also the matter of the 
lower Bollinger band, which the stock has been tapping for the 
past 3 sessions.  But that band is starting to tip over again, 
making room for further downside.  Failed rallies in the $30-31 
area look like solid entries into this play, especially now that 
the PnF chart has generated a Sell signal with a downside price 
target of $24.  Momentum entries can be considered on a break of 
$28.60, with the understanding that at least a short-term rebound 
is likely from the $27.50 support level enroute to our exit 
target at $26.  Maintain stops at $31.50.  Look for weakness in 
the other two major Internet stocks (EBAY and AMZN) to confirm 
weakness in YHOO.

Suggested Options:
Aggressive short-term traders will want to focus on the September 
30 Put, as it will provide the best return for a short-term play.  
More conservative traders will want to utilize the October 27 
contract, which even though it is currently out of the money, 
should provide sufficient time for to move in the money before 
time decay becomes a significant factor.

BUY PUT SEP-30 YHQ-UF OI= 3930 at $2.40 SL=1.25
BUY PUT SEP-27 YHQ-UY OI= 1439 at $1.20 SL=0.60
BUY PUT OCT-27 YHQ-VY OI= 7641 at $1.85 SL=0.90

Annotated Chart of YHOO:

 

Picked on August 7th at   $28.87
Change since picked:       +0.13
Earnings Date           10/08/03 (unconfirmed)
Average Daily Volume =  13.4 mln
Chart =



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

KLA-Tencor - KLAC - close: 48.04 change: -1.72 stop: 50.05

Company Description:
KLA-Tencor is the world leader in yield management and process 
control solutions for semiconductor manufacturing and related 
industries. Headquartered in San Jose, Calif., the company has 
sales and service offices around the world. An S&P 500 company, 
KLA-Tencor is traded on the Nasdaq National Market under the 
symbol KLAC. (source: company press release)

Why We Like It:
It's about time!  We're surprised it's taken investors this long 
to take profits in certain tech stocks.  KLAC only met investor 
expectations for earnings in July and that was a major decline 
form a year ago period.  Net income came in at $29 million or 15-
cents compared with $47 million or 23 cents a year ago.  
Estimates for July's announcement were 15-cents.  What's worse is 
KLAC lowered their guidance for the next quarter to 16-17 cents a 
share compared to current estimates of 18 cents.  KLAC's CEO said 
they were "cautious about the timing of a sustained recovery" in 
the company's conference call.

Really impacting shares of KLAC was a bearish move in the SOX 
semiconductor index.  The SOX dropped more than three percent on 
Friday and closed below its 50-dma.  The next move for the SOX 
appears to be a retest of support near 350.  We suspect that such 
a move will coincide with a retest of support for KLAC near the 
$45 level.

KLAC's P&F chart is still in a bullish pattern but its daily 
chart has broken its simple 50-dma like the SOX.  Our first 
target will be $45 although some suggest targeting $42.50 or even 
the 200-dma.  We'll initiate the play with a stop loss at $50.05.

Suggested Options:
We're going to suggest using September and December options for 
KLAC with a preference for the September 50s, 47.50s, and 45s as 
we don't expect to be in the play that long.

BUY PUT SEP 50.00 KCQ-UJ OI=3823 at $4.00 SL=2.25
BUY PUT SEP 47.50 KCQ-UT OI=4495 at $2.60 SL=1.30
BUY PUT SEP 45.00 KCQ-UI OI=6141 at $1.65 SL=0.85

Annotated Chart:

 

Picked on August 10 at $48.04
Change since picked:    -0.00
Earnings Date        07/24/03 (confirmed)
Average Daily Volume:     9.6  million  
Chart =



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The Option Investor Newsletter                   Sunday 08-10-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Stuck In Limbo
Traders Corner: It's Time For A Quickie – Or Two – Or Three


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*****
LEAPS
*****

Stuck In Limbo
By Mark Phillips
mphillips@OptionInvestor.com

Just when it looked like the market was finally going to give up 
the ghost in the middle of last week and break down from the 
incessant trading range in which it has been mired since early 
June, the dipsters came back in to push us back into the middle of 
that range to close out the week in the same state of limbo that 
we have endured these past two months.  With August options 
expiration this week, I don't hold any great hopes of the range 
decisively breaking this week either.

Last week, I included a chart showing both the simple and 
exponential 50-dmas for the SPX, on the thought that even a break 
of the simple average wouldn't be the key, as it was still within 
the trading range.  Well the exponential average was broken at the 
close on Tuesday and it certainly appeared the jig was up.  But 
the bulls bought the apparent breakdown and the SPX managed to 
close back over that average (currently $976), but just barely.  
In perusing the other major averages, it seems I was focused on 
the wrong 50-dma, as it was the exponential 50-dma (then at 9036) 
that seemed to provide the critical support for the mid-week 
rebound.

The action in the SPX really seemed interesting, especially as the 
week drew to a close, with Friday's trading range being centered 
right on the pivotal 975 level.  Neither the bulls or the bears 
were able to sustain much of a move off of that price magnet, 
ending just above the 50-ema (976), but well below the simple 50-
dma (now up at 987).

Once again, the bullish percent readings seem to be telling us 
something important, as the reading for the DOW is showing the 
most resilience of those BP readings that we follow.  As we've 
been doing these many past weeks, let's take a look at our Bullish 
Percent table and we can see where the relative weakness and 
strength lies.

NASDAQ-100 - 64% Now Bear Confirmed
NASDAQ Composite - 67.88% (well off the 73.50 all-time high)
DOW - 80% (Still in Bull Correction)
S&P 500 - 73.40% (Cycle high of 82.80% - Still Bull Correction)
S&P 100 - 80% (Just below cycle high, still Bull Confirmed)

It doesn't take a rocket scientist to see that the most 
significant relative weakness is being found in the NASDAQ 
markets, and not surprisingly followed up by the rather broad S&P 
500.  But the OEX and the DOW are holding up remarkably well, with 
the former still in Bull Confirmed and the latter in Bull 
Correction.  Taking a look at the Bullish Percent SharpCharts, we 
have very clear Sell signals for both the NDX and the COMPX, a 
weak and meandering Sell signal on the SPX, with the OEX and DOW 
hinting at Sell signals but not yet showing any real conviction.  

One very encouraging development though is that in all cases, the 
bullish percent line is below the 10-dma and all of the CCI 
oscillators are buried below -100.  That's the most conclusively 
bearish situation we've seen in many moons.  I haven't included 
any charts this week, but I encourage you to click on over using 
the following link and see for yourself.  This is what we've been 
waiting for, and along with the deterioration in the New High vs. 
New Low picture, I feel the tide is definitely shifting in favor 
of the bears.

http://stockcharts.com/def/servlet/SC.web?c=$bpspx,uu[w,a]dacaynay[dd][pb10][iLd20]&pref=G

Here are the pertinent Bullish Percent symbols.

DOW - $BPINDU
SPX - $BPSPX
OEX - $BPOEX
NDX - $BPNDX
COMPX - $BPCOMPQ

This week's excitement wasn't just confined to significant moves 
in price and bullish percent though, as the CBOE Volatility index 
($VIX) went on a wild ride of its own.  Remember a couple weeks 
ago when the VIX dipped below 20?  Well apparently a bit of fear 
crept into the market last week and the VIX shot up to a high of 
25.88 on Wednesday before plunging right back to "Complacency 
Central" just above 21 by the end of the week.  I looked at my 
long-term VIX chart towards the end of the week and noticed 
something rather interesting.  

Remember that descending trendline we drew last year connecting 
the July and October VIX highs?  Well, I still have that trendline 
in place, and as of Wednesday it had fallen to 26.15.  Once again, 
it looks like Linda's habit of keeping old trendlines in place is 
sage advice!  Wednesday's sharp ramp in the VIX was promptly 
turned back just below that trendline, resulting in a close below 
23.50.  We'll eventually break decisively from this descending 
wedge pattern that has been building for over a year, but that 
event hasn't occurred just yet.  The 19-20 area is still an 
important area to watch, and I feel that stepping into long-term 
index puts on rally failures in price with the VIX in that area is 
a prudent and potentially quite profitable strategy.

Where do we go in the week ahead?  Quite honestly, I haven't a 
clue.  It's expiration week and we could retest the top of the 
range, break down from the range or remain mired in the middle.  
Sure there's the outside chance of a bullish breakout from the 
current range, but I place the odds of that just slightly below 
Gray Davis managing to remain California's governor through the 
end of the year.  If I had to stick my neck out with a prediction, 
it would be for the range to hold for one more week and that means 
SPX = 960-1015 and DOW = 8985-9360.  The NASDAQ is a different 
kettle of fish altogether, as it has already clearly broken down.

As has been the case over the past few weeks, we had a lot of 
action on the playlist this week and we have 2 new Watch List 
candidates to boot.  So without further ado, let's jump right in.

Portfolio:

HD - Well, I hope you took advantage of that dip to the $30 level 
to close out your HD position for a nice gain, because it came 
right back in our faces by the end of the week.  Fortunately our 
stop had been tightened sufficiently to allow us to get out with a 
small gain.  Details on the drop below.

SMH - I love it when a plan comes together like that.  Well, to be 
entirely honest, I wasn't thrilled with the 3 weeks of the SMH 
flirting with our $33 stop, but in the end it looks like we nabbed 
a favorable entry point and picked the right stop as well.  The 
Semiconductor index (SOX.X) finally broke down out of its 
ascending channel late last week, violating its 50-dma ($381) in 
the process.  Not only that, but the SOX finally generated a PnF 
Sell signal (confirming the $340 bearish price target) and 
smashing through the bullish support line that had held up in the 
face of so many tests since February.  But I'm not yet willing to 
either declare victory or lower the stop because of the slightly 
different picture provided by the SMH.  Not only has the SMH not 
yet given a Sell signal on the PnF chart, but it is still within 
its ascending channel (albeit just above the $30.00 bottom) and 
managed to close right on the $30.50 50-dma.  Put simply, the SMH 
has not yet broken down, but it will likely do so in the not-too-
distant future.  A rebound from here ought to find resistance near 
$32 and I still favor new entries there.  We'll maintain our stop 
at $33 until we get that decisive breakdown, with the SMH closing 
under $29.50.  Keep in mind that the SMH will need to trade $27 in 
order to give a PnF Sell signal, so we're still in aggressive 
territory for now.

ADBE - No breakdown yet, but I certainly wouldn't call shares of 
ADBE strong, as the stock continues to meander ever so slightly 
downwards.  The $30-31 support area is going to be staunchly 
defended by the bulls (as expected), but once that support fails 
(as I expect), then we'll be targeting a decline to the $26-27 
area, with a possible short-term bounce from the bottom of the 
mid-March gap near $28.50.  Note that while the PnF chart is 
currently on a Sell signal (bearish price target of $21), the 
bullish support line at $31 seems to be providing support.  ADBE 
will need to trade $30 to decisively break that line and generate 
another Sell signal, so that level remains critical.  Even though 
the 50-dma ($33.50) appears to be providing solid resistance, I'm 
still keeping a rather wide stop at $36.  Note that it would 
require at trade of $36 to produce a new Buy signal and negate our 
current bearish vertical count.

DJX - By mid-week last week, I was actually contemplating the 
possibility of lowering our stop on our bearish DJX play, with the 
index threatening to break the critical $90 level.  But it wasn't 
to be, as the bulls once again stepped in at critical support, 
pushing back over the violated 50-dma and keeping the trading 
range alive.  Last week, I mentioned the exponential 50-dma with 
respect to the SPX and we can see that the exponential 50-dma on 
the DJX came into play on Wednesday, as the index rebounded from 
its intraday violation of that MA to close just above it.  The DJX 
is still very much in the trading range that has held on a closing 
basis since early June and we won't have any resolution to the 
debate over Top vs. Consolidation until we see either a close over 
$93.23 or under $89.85.  Dow Theory is still working on a bearish 
non-confirmation, with the Industrials failing to close above 
their June high, even though the Transports have managed to do so.  
That keeps the scales tilted in favor of the bears, but only 
slightly so until the range decisively breaks.

Watch List:

LEH - As you can see by the rebound in LEH and the Broker/Dealer 
index (XBD.X) regaining the $550 support/resistance level, it is 
still a bit early to be getting aggressive with bearish plays in 
this arena.  LEH still exhibits the best relative weakness of the 
stocks in this sector, but with the XBD refusing to really fall 
apart, it is targeting failed rallies that will provide the best 
position trades.  LEH is already on a PnF Sell, but has reversed 
into a column of O's.  Major resistance now looms just above our 
targeted $67-68 entry zone and if we can get an entry there, it 
should provide for a very nice risk reward.  We can place our stop 
at $70, as a trade at that level would generate a new Buy signal, 
negating the current bearish vertical count of $52.  Patience is 
the watch word here, as we should have plenty of time to enter the 
trade and have it work in our favor ahead of the company's 
earnings report in mid-September.  It is at that point that we'll 
get to see if there really was any damage inflicted to the 
company's bottom line from the recent gyrations in the bond 
market.

BBH - It looks like we may have been just a bit too late in adding 
BBH to the Watch List, as last week saw some pretty significant 
weakness, slamming the BBH below $125 before a tepid end-of-week 
rebound.  I still like our prospects for nabbing a solid entry on 
the next failed rally, but there's no need to chase.  Even with 
last week's violation of the 50-dma, I wouldn't be at all 
surprised to see one more trip up near the $135 resistance area.  
Let's lower our entry target just a bit to $132-135, where we can 
look for entry on the next rollover.  That will have us working 
with a somewhat lower stop as well, initially at $138, just over 
the recent highs.  Using the PnF charts for our guide presents a 
bit of a mixed picture, as the BTK index is clearly on a Sell 
signal, but nearing the bullish support line at $408, while at the 
same time the BBH has yet to give a corresponding Sell signal 
(requiring a trade at $120).  That bifurcation should keep us on 
the conservative side with respect to initiating a position.

WMT - That's exactly why I've been so cautious about adding WMT to 
the Watch List!  It was almost as though the market was waiting 
for me to add the play in order to generate a decent round of 
buying.  The catalyst for WMT's strength last week seems to have 
been the positive round of July comps, which not only propelled 
the stock right up to resistance near $58, but sparked a real 
turnaround in the Retail sector, with the RLX vaulting back inside 
its violated channel.  Along with better than expected July comps 
along with WMT boosting its profit outlook for the second quarter 
look to have the bulls eyeing a breakout leading up to the 
company's earnings report on Wednesday.  We obviously don't want 
to step into the fray ahead of that earnings report and will 
likely be focused on a failed rally near the $60 long-term 
descending trendline for an entry.  If that trendline is broken, 
then clearly, we'll need to reevaluate the play.  We don't want to 
be aggressive here until we see some solid price weakness after 
earnings are announced.

One final note on the Watch List.  You'll notice that I've removed 
all the listed 2004 LEAPS from the Watch List below.  With August 
expiration looming this Friday, that puts the '04 strikes 5 months 
from expiration and that is just too close for our purposes.  Our 
anticipated play durations may run as long as 4-6 months (although 
that hasn't been the case lately), and during that amount of time, 
theta decay is just too large a detrimental factor to tolerate. 

Radar Screen:

Idle

Closing Thoughts:

I started listing plays on the Radar Screen several weeks back as 
a sort of stop-gap measure to share with you my thoughts on play 
candidates that had captured my attention, but weren't quite ripe 
for a full-fledged Watch List play.  If you recall, this was in an 
extended period where I wasn't adding new plays and wanted to make 
sure to preserve the value of this column during that period of 
time.  Over the past few weeks though, those candidates have 
either been eliminated from consideration or have made it onto the 
Watch List.  I think the Radar Screen is still a useful tool 
during those periods where the action on the Portfolio and Watch 
List is rather light.  But due to time constraints, when we're 
adding a couple plays a week like we've been doing lately, I don't 
feel it is really necessary.  So I'll leave the header there for 
the time being and we'll place plays there as circumstances 
dictate.

As noted above, we will no longer be listing the 2004 strikes on 
new Watch List plays, although we will continue to track those 
strikes in plays that are already open in the Portfolio.  Traders 
in those plays that want to reduce their exposure to time decay 
should consider rolling out to the 2005 strikes at favorable price 
points over the next few weeks.

As denoted above, it is my belief that the rampant bullishness 
that brought the markets to their recent highs is finally 
beginning to wane.  The majority of the weakness is being seen on 
the NASDAQ, but the sharp rebound in the DOW from Wednesday's low 
should make it clear that the dip-buyers haven't given up.  
Traders looking to put on medium- to long-term positions should 
still be focused on the downside, but we want to make sure and 
focus our efforts on pockets of weakness, and even there we need 
to be targeting entries on the failed rallies, not on breakdowns.  
I think we're starting to get a decent bearish Portfolio put 
together and so long as my perception that the top is in is 
correct, the next few months should be rather enjoyable.

Have a great weekend!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
SMH    07/09/03  '04 $ 30  SMH-MF  $ 2.70  $ 3.10  +14.81%  $33.00
                 '05 $ 30  ZTO-MF  $ 5.00  $ 5.30  + 6.00%  $33.00
ADBE   07/17/03  '04 $ 35  AEQ-MG  $ 4.20  $ 5.60  +33.33%  $36.00
                 '05 $ 35  ZAE-MG  $ 7.20  $ 8.20  +13.89%  $36.00
                 '06 $ 35  WAE-MG  $ 9.00  $10.00  +11.11%  $36.00
DJX    07/31/03  '03 $ 92  DJV-XN  $ 3.80  $ 4.70  +23.68%  $95.50
                 '04 $ 92  YDK-XN  $ 8.20  $ 9.10  +10.98%  $95.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None


PUTS:
LEH    07/20/03  $66-67        JAN-2005 $ 65  ZHE-MM
                               JAN-2006 $ 60  WHE-ML
BBH    08/03/03  $132-135      JAN-2005 $125  XBB-ME
                               JAN-2006 $120  YEE-MD
WMT    08/03/03  $60           JAN-2005 $ 55  ZWT-MK
                               JAN-2006 $ 55  WWT-MK
GM     08/10/03  $38-39        JAN-2005 $ 35  ZGM-MG
                               JAN-2006 $ 35  WGM-MG
QQQ    08/10/03  $31.50-32.00  JAN-2005 $ 30  ZWQ-MD
                               JAN-2006 $ 30  WD -MD


New Portfolio Plays

None


New Watchlist Plays

GM - General Motors $36.98  **Put Play**

I've made no secret of my disdain for GM over the past several 
months, as the company's financial condition has continued to 
deteriorate.  Between the declining profits from its automotive 
operations to its looming and extremely large under-funded pension 
liabilities, it is only a matter of time until the company's 
profits take a serious hit.  The company has been able to prop up 
its earnings over the past couple years via the huge profits from 
its financing arm, but with the popping of the bond bubble over 
the past several weeks, that gravy train is fast coming to an end 
as well.  Taking a look at the company's Q2 profit statement shows 
the problems lurking under the hood.  While GM managed to top 
profit expectations, but only because its finance unit produced a 
record result.  For the quarter, the carmaker reported overall 
earnings of $901 million, while profits from its worldwide 
automotive operations plunged by nearly $1 billion to a paltry 
$140 million.  On the other hand, the profit from the finance 
portion of the business mushroomed to $834 million.  It isn't just 
car financing that is boosting the company's bottom line either, 
as $415 million of that profit came from the company's mortgage 
operations.  So here's the $64,00 question.  What happens to this 
car company as interest rates rise and the refi market dries up?  
Either profits are going to drop sharply or GM is going to have to 
find away to start making money by building and selling cars 
again.  In the increasingly competitive global marketplace, that 
seems like an awful long shot!  This is a very different play than 
we've recently been featuring here, as it is a longer-term 
proposition, where we're looking for the longer-term effects of a 
changing business dynamic to come home to roost.  It is far less 
rooted in the technical analysis side of the game.  Nonetheless, 
GM's price chart seems to be forecasting a decline as well, as the 
consistent pattern of lower highs is very much intact over the 
past year.  The key to success for this play will be in picking a 
favorable entry price and holding on for the decline I expect.  
First up is the entry point, and looking at the price chart, I can 
connect the last three highs (December, January and June) and 
produce a descending trendline that currently rests just below 
$39.  So our targeted entry will be for a failed rally in the $38-
39 area.  We'll use an initial stop at $42, which is just over 
last December's intraday high.  So how far should we look for the 
stock to drop?  My initial target is for a retest of the March 
lows near $30, but I think that will just be a waypoint enroute to 
the next low, which could be as low as $20.  While the standard 
scale PnF chart currently shows the stock on a Buy signal, I 
flipped over to the 2-point box scale for the longer-term view.  
there we can see GM is still on a Sell signal, with a bearish 
price target of -- get this -- $12!  I sure like that for a risk 
reward ratio!  It likely won't be a quick trip, but this is the 
sort of play perfectly suited to a LEAPS trade where we can take a 
position at an advantageous price point and then let time take 
over from there.

BUY LEAP JAN-2005 $35 ZGM-MG
BUY LEAP JAN-2006 $35 WGM-MG



QQQ - NASDAQ-100 Trust $30.07  **Put Play**

It's back!  I can no longer stay away from what appears to be an 
ideal setup for another broad market bearish position trade.  The 
key that has pushed QQQ back into the spotlight is the action on 
the bullish percent charts.  The NDX bullish percent has now 
fallen to 64%, clearly in bear confirmed territory, and the COMPX 
bullish percent, while still bull confirmed at 67.88%, is sharply 
off of its cycle high and nearing a 3-box reversal into a column 
of O's, which will occur at 66%.  The NASDAQ significantly under-
performed the rest of the market last week, led lower by weakness 
in the Semiconductor sector and the 1200 level on the NDX 
(corresponding roughly to $30.00 on the QQQ) will likely be a 
critical support test next week.  While support could fail, I 
sense there is another rebound coming as selling pressure still 
hasn't picked up much and it is on the failure of that rebound 
that we want to consider new entries.  Looking at the daily chart, 
the $31.50-32.00 area now looks like solid resistance and that's 
where we'll look to take our entry.  Make no mistake about it, 
this is an aggressive play, especially with the PnF chart still on 
a Buy signal and the cause of the recent weakness likely related 
to hitting the bearish resistance line at $33.  So clearly, the 
last time we played it, we were too early and had our stop set 
just a bit too tight at $32.50.  This time we should be catching 
it on the way down and we can use a tighter stop at $34.  A trade 
at $34 would not only break the bearish resistance line (and 
surprise the daylights out of me!), but would represent a breakout 
above the May 2002 highs as well.  On the downside, the first real 
support to contend with will be at $28, but I'm looking for a 
retracement down into the $25-26 area to retest that major support 
area.  Note that the PnF chart won't generate a Sell signal until 
the QQQ trades $23, so there is lots of downside room before the 
PnF chart will provide any solid guidance as to long-term 
direction.  On the other hand, we can look at the 2-point box size 
(like we did on the GM play above) and see that not only is QQQ on 
a long-term Sell signal, but it hasn't had a Buy signal since 
January of 2001.  The big picture still says down and it appears 
we're picking an advantageous point to enter for a downside play 
as the bullish action that has brought us this far is beginning to 
wane.

BUY LEAP JAN-2005 $30 ZWQ-MD
BUY LEAP JAN-2006 $30 WD -MD



Drops

HD - $32.72 There's a reason I got aggressive with the stop on our 
HD play, and quite simply it is because of a fear that something 
like the past 3 days could materialize.  The stock was really 
stingy about sliding downhill and when CIBC came out on Wednesday 
saying the selloff was overdone, I expected a bit of a pop.  First 
off, a drop from $34.75 to $30.00 in a period of a month is NOT 
overdone, and to regain more than half that in 3 days IS overdone.  
But no matter.  As I've been talking about in recent weeks, the 
bullish sentiment in this market is still alive and well and this 
is just the latest irrational rebound.  Fortunately, we had the 
stop set tight enough to get us out with a small gain.  I wouldn't 
have felt comfortable with a wider stop, as a close back over the 
50-dma negated a lot of the weakness that has developed in the 
past couple weeks.  Time to move on.



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

It's Time For A Quickie – Or Two – Or Three
By Mike Parnos, Investing With Attitude

Life and trading have a lot in common.  Both are a series of 
trial-and-error experiences. We are taught something by a teacher, 
and then we try to do it ourselves. The first time we do it we 
probably don't get the results we want. So we try again, and 
again, and again. With practice we either get better or decide to 
take up Parcheesi instead – if we can afford it.   

Then we push ourselves as we try to do something that's a little 
bit more difficult. As we succeed, our expectations increase, and 
so does the satisfaction that comes from the feeling of a job well 
done.

So we set our sights a bit higher-to improve our results as 
compared to what we've done before.  We continue to push ourselves 
to new heights.

When we succeed, we raise the bar again.  It's OK to raise the bar 
– even belly up to it from time to time – as long as you can still 
reach your drink.  However, it's more important to get comfortable 
with one trading style – knowing the whys the whens and hows.  
Concentrate on the steak – not the peas and you get your T-bone 
instead of getting T-bagged.
_____________________________________________________________

One Week Left
With only a week remaining before expiration, we'll see if we can 
pick up a few extra dollars by putting on some short-term trades.  
Last month, our Quickies made us almost $2,000.  Let's see if we 
pick up where we left off.  Remember to adjust the number of 
contracts to fit your risk tolerance.  Here are a few ideas.  Be 
careful.  Remember, the money you trade may be your own.  

August Quickie Trade #1 – OEX Iron Condor – Closed @ 493.80
Sell 10 contracts of August OEX 500 calls @ $2.15
Buy 10 contracts of August OEX 510 calls @ $1.00
Credit of $1.15
Sell 10 contracts of August OEX 490 puts @ $3.30
Buy 10 contracts of August OEX 480 puts @ $2.10
Credit of $1.20
Total net credit of $2.35.   Maximum profit range of 490-500.  
Safety range 502.35 to 487.65.  Maximum potential profit of 
$2,350.

August Quickie Trade #2 – QQQ Lottery Strangle – Closed at $30.07
It's cheap, the risk is low, and we're looking for a $2-3 move in 
the QQQs.
Buy 10 contracts of August QQQ $29 put @ $.15
Buy 10 contracts of August QQQ $31 call @ $.15
Total debit of $3.00 ($300).  Profit potential is unlimited.  But, 
let's be reasonable. A $.60 profit would give us $600.  That would 
be nice.  We can't expect to hit our version of the "lottery" too 
often.  With the market trading in a range, this is also a kind of 
insurance that will bring in a few dollars if the market breaks 
out of the range – and we don't particularly care which direction 
it takes.

August Quickie Trade #3 – EBAY Sell Strangle – Closed at $100.50
Sell 10 contracts of August EBAY $100 calls @ $1.95
Sell 10 contracts of August EBAY $100 calls @ $1.35
Total net credit of $3.30.  Maximum potential profit, of $3,300.  
We've received a maximum profit if EBAY closes at $100.  The 
safety range is $103.30 and $96.65.  If EBAY trades at these 
safety parameters, you should exit the trade.

August Quickie Trade #4 – RUT (Small Cap Index) Iron Condor – 
Closed at 453.94
Sell 10 contracts of August RUT 460 calls @ 1.75
Buy 10 contracts of August RUT 470 calls @ $.70
Credit of $1.05
Sell 10 contracts of August RUT 450 puts @ $2.60
Buy 10 contracts of August RUT 440 puts @ $1.05
Credit of $1.55
Total net credit of $2.60. Maximum profit of $2,600.   Maximum 
profit range of 450-460.  Safety range 462.60 to 447.40. 
 
Let's hope the market stays in a range and so we can pick up some 
loose change.  We need every penny.  McDonalds recently raised the 
price of their Big & Tasty.  Is nothing sacred anymore?
_____________________________________________________________

AUGUST CPTI PORTFOLIO TRADES

August Position #1 – BBH Iron Condor – Closed at $126.34
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.  BBH tested the lows and almost 
got down on all fours, but bounced up a bit.   If you want your 
maintenance money for the bear call portion of the spread to use 
for something else, you can buy back the $140 call for a dime – 
possibly a nickel on Monday.

August Position #2 – LLTC Sell Straddle – Closed at $35.13
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 $35.13, 
we're in pretty good shape, but there's still a long way to go.

August Position #3 – SPX Iron Condor – Closed at 977.59
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 has still not opened call strike prices between 1025 and 1050 
(and probably won't).  The SPX closed at 977.59 – still within our 
range.  Support is at about 960.

______________________________________________________________

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. Eagles may soar, but weasels don't get sucked into jet engines
2. If you think nobody cares, try missing a couple of payments.
3. There are two theories to arguing with women. Neither one works
4. A closed mouth gathers no foot.
______________________________________________________________

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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The Option Investor Newsletter                   Sunday 08-10-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Who Trades Covered-Calls?
Naked Puts: Q&A With The Naked Puts Editor
Spreads/Straddles/Combos: Blue-Chips Drift Higher During 
Lackluster Session!

Updated In The Site Tonight:
Market Posture: Posture Adjustments


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*************
COVERED CALLS
*************

Options 101: Who Trades Covered-Calls?
By Mark Wnetrzak

One of our readers asked about the use of covered-calls by
fund managers and other institutional traders.

Attn: Covered Calls Editor
Subject: Strategy Selection

Mark,

I read about a new index on the CBOE called the "Buy-Write" or
BXM.  It's based on selling the near-term, at-the-money S&P 500
index call option against the S&P 500 stock index portfolio.
Since there are no options for this index, why would anyone care
about it?  The explanation says that "general interest" from
institutional customers caused them to create this index but I
can't believe there are really that many professional traders
using covered-calls?  Is this a much used strategy among the
fund managers and brokerages?

LW

Regarding The Use Of Covered-Calls:

Surprisingly, buying stock and writing calls against that stock
is a popular strategy for managed funds and other institutional
traders.  Covered-calls are utilized by these groups both as a
hedging technique and as a vehicle for achieving conservative,
long-term returns in neutral to bullish markets.  Fund managers
understand that the risk/reward characteristics of this approach
can often be better than owning the stock outright or speculating
on directional trends with options.

There are a number or reasons why professional option writers use
the covered-call strategy to achieve above-average returns.  One
motivation to sell call options comes from the fact that they are
generally overpriced.  Whether due to supply and demand factors or
simple speculation, it’s common for traders to pay more for call
options than they are worth.  When options are sold at a premium,
covered-call writers benefit by increasing their potential gains
and even a fairly small difference in premium can result in a 3%
to 5% increase in the annual returns from this strategy.

The basic techniques that fund managers use when implementing this
strategy can be beneficial to retail investors as well.  One of the
most common traits is selling short-term options to obtain higher
relative time values.  In many cases, longer-term series have much
less premium (proportionally) in the option price due to a smaller
demand from traders.  Fund and pension-plan buyers generally select
quality stocks and sell in- and at-the-money options for increased
probability of assignment.  When compared to outright ownership,
this method is almost equal to "pre-selling" the issue at a profit.

In covered-write positions, the owner retains any dividends issued
on the stock before the option is exercised.  Profits from regular
dividends can increase the annual return of the position as much
as 5%.  For this reason, hedge-fund managers like to sell options
on stocks with favorable dividends and the recent tax law changes
have renewed interest in this technique.  In some instances, the
early exercise of options (dividend capturing) will prevent an
investor from receiving this added premium but the effect can be
offset by reinvesting the funds in another profitable position.

Institutions also use the popular buy-write technique when placing
orders.  Designating the net cost of the combined position when the
order is placed eliminates price risk and affords the fund manager
with an opportunity to negotiate a favorable basis.  A block trader
will often agree to these terms in order to unload large amounts
of the stock with only a small premium concession from the current
market price.

Institutional traders generally utilize only the most successful
long-term strategies to guarantee a consistent rate of return.  Any
method that produces less than profitable results will inevitably
lower their supply of funds.  The covered-call strategy is commonly
used to generate moderate (compound) returns over a complete market
cycle while avoiding the potential of large portfolio losses.  It
appears this may be the safest way to outperform all but the most
aggressive techniques in the majority of market conditions.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

SLNK    15.40   16.67  AUG 15.00  1.15    0.75*   7.6%
DIGE    32.50   30.74  AUG 30.00  3.40    0.90*   6.7%
IMCL    39.86   38.23  AUG 35.00  6.40    1.54*   6.7%
BEAS    12.79   12.60  AUG 12.50  1.00    0.71*   6.5%
CYBX    23.38   26.71  AUG 20.00  4.40    1.02*   5.8%
SSTI     5.47    5.73  AUG  5.00  0.75    0.28*   5.2%
DRIV    21.98   21.06  AUG 20.00  2.80    0.82*   4.6%
MOGN    31.97   36.85  AUG 30.00  2.90    0.93*   4.6%
EXTR     5.75    5.90  AUG  5.00  0.95    0.20*   4.5%
CY      13.84   12.80  AUG 12.50  1.95    0.61*   4.5%
NAV     40.59   39.59  AUG 40.00  1.75    0.75    4.2%
RFMD     5.89    7.19  AUG  5.00  1.15    0.26*   4.0%
ANEN    10.75   10.14  AUG 10.00  1.10    0.35*   3.9%
CHIC    12.51   12.10  AUG 12.50  0.55    0.14    2.5%
ROXI     7.99    7.19  AUG  7.50  0.90    0.10    2.0%
ISPH    12.75   12.06  AUG 12.50  0.80    0.11    2.0%
AFFX    23.30   21.60  AUG 22.50  1.45   -0.25    0.0%
IMGN     5.05    4.28  AUG  5.00  0.50   -0.27    0.0%
INSP    15.52   14.01  AUG 15.00  1.20   -0.31    0.0%
DPMI    20.43   18.88  AUG 20.00  1.10   -0.45    0.0%
CHINA   13.48    9.03  AUG 10.00  4.00   -0.45    0.0%
BONZ    15.28   13.74  AUG 15.00  0.85   -0.69    0.0%

*   Stock price is above the sold striking price.

Comments:

The Nasdaq Composite Index fell out of bed this week as the Dow
Jones 30 and S & P 500 indices flirted with their 50-day EMAs.  
As next week is expiration week for August options, it is once
again time to re-evaluate any positions that are acting weaker
than expected and act accordingly.  Cypress Semiconductor (NYSE:
CY) is at a key moment -- its 50-day EMA and the trend-line from
the March low.  Roxio (NASDAQ:ROXI) did manage to stay above 
last Friday's low and could be a candidate to hold into the 
September series, but the technical signals look rather bleary.
With the market outlook a bit worrisome as we head into September,
it may be wise to be more defensive and protect one's capital. 
Besides Roxi and CY, other early-exit candidates could include
those issues above that are negative, depending on your long-term 
outlook and near-term risk tolerance.  

Positions Previously Closed:  Boston Communications (NASDAQ:BCGI),
O2Micro (NASDAQ:OIIM), Thoratec (NASDAQ:THOR), Abgenix (NASDAQ:
ABGX), Stellent (NASDAQ:STEL), Instinet (NASDAQ:INET), and Allied
Waste (NYSE:AW).  


 
NEW CANDIDATES
*********

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

WAVX    3.46  SEP  2.50  KWW IZ  1.20  2099   2.26  42   7.7%
XOMA    8.09  SEP  7.50  MBU IU  1.30  408    6.79  42   7.6%
NWAC    8.30  SEP  7.50  NAQ IU  1.40  420    6.90  42   6.3%
NEOF   12.45  SEP 12.50  QZX IV  0.90  32    11.55  42   5.6%
USG    14.11  SEP 12.50  USG IV  2.35  284   11.76  42   4.6%
ISIS    5.33  SEP  5.00  QIS IA  0.60  221    4.73  42   4.1%
SNIC   11.18  SEP 10.00  QNI IB  1.70  42     9.48  42   4.0%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
WAVX - Wave Systems  $3.46  *** Intel Deal! ***

Wave Systems (NASDAQ:WAVX) is a development-stage company that
develops, produces and markets hardware- and software-based
digital security products for the Internet and e-commerce
through encryption.  At the heart of Wave's technology is the
EMBASSY (Embedded Application Security System) Trust System 
(the ETS), a combination of client hardware and software and
a back-office infrastructure that manages Wave's security
functions.  The client hardware consists of the EMBASSY 2100
security chip which may be embedded in user devices such as
computer keyboards, smart card readers, PC motherboards, PC
and/or cable modems, PDAs, cable set-top boxes and potentially
a wide variety of other user devices.  The EMBASSY chip is
used to securely store the user's personal information.  Wave
surged last month on news of an Intel (NASDAQ:INTC) deal which
will enable Intel to bundle Wave's software and services with
a future Intel desktop motherboard.  We simply favor the 
bullish breakout supported by heavy volume which suggest 
further upside potential.  Investors can use this position
to speculate on the company's future.  Target-shooting a lower
net-debit would lower the cost basis as well as raise the
potential yield in the position.

SEP-2.50 KWW IZ LB=1.20 OI=2099 CB=2.26 DE=42 TY=7.7%


*****
XOMA - XOMA Limited  $8.09  *** Expecting Good News! ***

XOMA (NASDAQ:XOMA) is a biopharmaceutical company that develops
and manufactures products to treat cancer, immunologic and
inflammatory disorders and infectious diseases.  The company's
products are in various stages of development and all are
subject to regulatory approval before it or its collaborators
can commercially introduce any products.  In addition, XOMA has
proprietary technologies relating to recombinant antibodies and
proteins, including bacterial cell expression systems and the
Human Engineering method for creating human-like antibodies,
both of which are available for licensing.  XOMA also uses these
technologies in developing its own products.  XOMA rallied sharply
after New data showed that Genentech's (NYSE:DNA) experimental
psoriasis drug Raptiva works better over the long term.  The FDA's
dermatologic and opthalmic drugs advisory committee will review on
Sept. 9 Genentech and partner Xoma's biologics license application
for Raptiva.  Investors who expect good news can speculate on that 
outcome with this position.

SEP-7.50 MBU IU LB=1.30 OI=408 CB=6.79 DE=42 TY=7.6%


*****
NWAC - Northwest  $8.30  *** Bottom-Fishing: Airlines ***

Northwest Airlines (NASDAQ:NWAC) is engaged in the business of
transporting passengers and cargo.  Northwest's business focuses
on the development of a global airline network through its
strategic assets, including domestic hubs in Detroit, Michigan;
Minneapolis/St. Paul, Minnesota, and Memphis, Tennessee; an
extensive Pacific route system with a hub in Tokyo, Japan; a
trans-Atlantic alliance with KLM Royal Dutch Airlines, which
operates through a hub in Amsterdam, the Netherlands, and a 
global alliance with Continental Airlines, Inc.  Northwest
operates substantial domestic and international route networks
and directly serves more than 175 cities in 24 countries.
Northwest has been forging a Stage I base for almost a year
and once again is nearing a strong support area.  A speculative
position that offers a favorable reward at the risk of owning
the stock near technical support.

SEP-7.50 NAQ IU LB=1.40 OI=420 CB=6.90 DE=42 TY=6.3%


*****
NEOF - Neoforma  $12.45  *** Stage I Speculation ***

Neoforma  (NASDAQ:NEOF) is a provider of supply chain management
solutions for the healthcare industry.  Through a combination of
technology, information and services, the company's Web-based
supply chain management solutions are designed to enable effective
collaboration among hospitals and suppliers, helping them to reduce
operational inefficiencies and lower costs.  Through its Healthcare
Products Information Services business unit, Neoforma also offers
market intelligence services and through its Med-ecom business unit,
it offers contract management and administration services.  Traders
cheered the news in July that Neoforma would acquire I-Many's 
(NASDAQ:IMNY) Health & Life Sciences business for $20 million in
cash and stock.  The company said that it expects the acquisition
to accelerate its growth and customer diversification.  We favor
the year-long basing formation with improving technicals and this
position simply offers investors a reasonable entry point from
which to speculate on the company's future share value.

SEP-12.50 QZX IV LB=0.90 OI=32 CB=11.55 DE=42 TY=5.6%


*****
USG - USG Corp.  $14.11  *** Asbestos Speculation ***

USG Corporation (NYSE;USG) produces a range of products for use
in new residential, new non-residential and repair and remodel
construction, as well as products used in certain industrial
processes.  Its operations are organized into three operating
segments: North American Gypsum, which manufactures Sheetrock
brand gypsum wallboard and related products in the United States,
Canada and Mexico; Worldwide Ceilings, which manufactures ceiling
tile in the United States and ceiling grid in the United States,
Canada, Europe and the Asia-Pacific region, and Building Products
Distribution, which distributes gypsum wallboard, drywall metal,
ceiling products, joint compound and other building products
throughout the United States.  Shares of companies with asbestos
liabilities rallied sharply this year after legislative progress
raised the probability of a national fund to pay asbestos
injury claims.  The stocks have moved in tandem to the latest 
progress on the bill.  Traders can use this position to speculate
on the outcome of the legislative process with a cost basis closer
to near-term technical support.

SEP-12.50 USG IV LB=2.35 OI=284 CB=11.76 DE=42 TY=4.6%


*****
ISIS - ISIS Pharma  $5.33  *** Bottom-Fishing: Pharmaceuticals ***

ISIS Pharmaceuticals (NASDAQ:ISIS) is a biopharmaceutical company
exploiting proprietary RNA-based drug discovery technologies to 
identify and commercialize novel drugs to treat important diseases.
With its main technology, antisense, the company creates inhibitors,
or oligonucleotides, designed to hybridize, or bind, with high
specificity to their RNA target and modulate the production of
proteins associated with diseases.  ISIS has 12 antisense products
in its development pipeline with eight in human clinical trials
designed to assess safety and efficacy.  The company's products
in development address numerous therapeutic areas, including 
inflammatory, viral, metabolic and dermatological diseases and
cancer.  Investors were apparently pleased with ISIS' earnings
report on August 5 as the stock rallied on increasing volume 
back over its 50-day EMA.  The next test will be the earl-July
highs and investors who believe the stock is destined for higher
prices can use this position to speculate on that outcome.  Target
shooting a lower net-debit increase the downside protection as
well as raise the potential yield in the position.

SEP-5.00 QIS IA LB=0.60 OI=221 CB=4.73 DE=42 TY=4.1%


*****
SNIC - Sonic  $11.18  *** Earnings Rally! ***

Sonic Solutions (NASDAQ:SNIC) develops and markets computer-based
tools that enable the creation of digital audio and video titles
in the CD-Audio and DVD-Video formats, and in related formats.  
The company also licenses the software technology underlying its
tools to various other companies to incorporate in products they
develop.  It has 3 business units: professional products, desktop
products and technology products.  Sonic's professional products
consist of advanced DVD-Video creation tools, which are intended
for use by high-end professional customers.  Its desktop products
include software-only DVD-Video creation tools, DVD-Video playback 
software, software-only CD-Audio, CD-ROM and DVD-ROM making tools,
as well as data backup software.  The Technology Products category 
includes software that the company licenses to other companies 
for inclusion in their DVD or CD creation and recording products.  
Sonic has rallied sharply after the company raised its fiscal 2004
outlook and reported 1st-quarter results that met estimates.  The
solid fundamental outlook has translated into higher share values
and investors who wouldn't mind owning the issue near a cost basis
of $9.50 can profit from future upside activity with this position.

SEP-10.00 QNI IB LB=1.70 OI=42 CB=9.48 DE=42 TY=4.0%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

CLZR   13.50  SEP 12.50  UKZ IV  2.00  8     11.50  42   6.3%
MVIS    7.60  SEP  7.50  QMV IU  0.70  162    6.90  42   6.3%
GSIC   10.51  SEP 10.00  UGF IB  1.30  13     9.21  42   6.2%
MCDTA  11.00  SEP 10.00  MQG IB  1.70  31     9.30  42   5.5%
RIMM   24.61  SEP 22.50  RUL IX  3.60  3596  21.01  42   5.1%
ISRG   15.10  SEP 15.00  AXQ IC  1.05  86    14.05  42   4.9%
PDII   24.25  SEP 22.50  PKU IX  3.10  30    21.15  42   4.6%
PGNX   15.90  SEP 15.00  GUB IC  1.75  15    14.15  42   4.4%
MRN     7.59  SEP  7.50  MRN IU  0.50  302    7.09  42   4.2%
GNTA   11.69  SEP  7.50  GJU IU  4.60  42     7.09  42   4.2%



*****************
NAKED PUT SECTION
*****************

Options 101: Q&A With The Naked Puts Editor
By Ray Cummins

This week's question concerns exit and adjustment strategies for
uncovered puts.


Attn: Naked-Puts Editor
Subject: Strategies For Limiting Losses

Ray,

It's interesting that your last column deals with the subject of
losers. It would be nice to have some specific ideas on how to
deal with them. I have been trading naked puts and spreads for
about 6 months with a lot of success, but some additional wisdom
wouldn't hurt. Today I had a stock (CVTX) drop 25%. I put on this
trade July 21st, selling the Sept 30 Put for 3.20. At the worst
of the day today, the option was as high as about $4.10. I did
nothing because the loss was small compared to the stock move,
but I would like to know what you might do in this situation.

Further, what I have been doing when a trade breaks a strike in a
naked trade, I have been buying long options in the direction of
the break, buying more long options than those sold short (like
if I'm short 10 contracts, go long 15 or 20). My thinking being
that if the trend continues, I not only reverse the loss, but
have a good chance to make a profit in the end. I have had mixed
results with this concept, sometimes the stock returns back to the
correct side of the strike and finishes with a profit on the naked,
but I end up losing on the long side, especially when I pay too
much due to the increase in premiums buying the long. I am about
ready to try just closing the trade when the strike is hit and
move on to a new position.  What are your thoughts on this concept?
I read your column regularly and use your stock picks as a base
for my analysis.  Have had very good results, with 90 to 100%
successful trades. I usually end the month with 30 to 40 positions;
CVTX being the worst situation so far.
 
Regards,

PM
 

Hello PM,

Thanks for the generous comments concerning the positions offered
in the OIN.  If more readers realized that the newsletter plays
were simply candidates, and did their own due diligence before
entering positions, they would have a much higher success rate in
their trading.

Regarding your request for information such as "specific ideas"
and "additional wisdom," there are numerous articles on spread
trading and premium-selling techniques, portfolio management
strategies, and position exit/adjustment methods in the archives
of the OIN's Education section.  Literally hundreds of articles
have been written on a variety of subjects by some very experienced
traders and all of these narratives are available for you to review
in your spare time.  One other area of the newsletter that warrants
regular attention is the Commentary section.  Here you'll find
timely analysis on the current condition of the financial markets
including recent news and events as well as fundamental outlooks
and directional forecasts for individual sectors and industry
groups.  All of these components are necessary to make good
judgments about individual positions in your portfolio.

Since all of the common strategies concerning exit/adjustment
techniques are described on the web-site, I won't waste your time
with a "cut-n-paste" reply regarding position management for naked
puts.  Rather I'll comment on your unique approach from my personal
experience, which has become biased over time due to a seemingly
endless number of conversations with OIN readers about limiting
losses in option trading.  The "recovery" method you described has
its merits but as you mentioned, it will be successful only "if the
[new] trend continues."  If a reversal in the primary trend is the
basis for using the technique, you must determine if there is a high
probability of that outcome.  A thorough review of the technical
condition of the underlying issue should answer that question, but
you must assess the data with an impartial attitude that embraces
no existing prejudice or disposition.  In truth, that's the way you
should evaluate any position adjustment; each one should be reviewed
and appraised as if it were a new trade.  Of course, that can be
very difficult to do as there is generally the "specter of loss"
hanging over the play.  In all cases, the success of the strategy
will determine its usefulness and in light of your "mixed results,"
it appears the technique, while undoubtedly useful, will be a viable
solution only in specific situations.

Hope that helps!

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

AMLN    23.48   22.29  AUG 20.00  0.35    0.35*   3.9%  12.1%
AMLN    22.97   22.29  AUG 20.00  0.55    0.55*   4.1%  11.8%
RIMM    27.28   24.61  AUG 22.50  0.35    0.35*   3.4%  11.7%
LEXR    12.76   10.75  AUG 10.00  0.30    0.30*   3.4%  11.4%
ALGN    13.38   11.13  AUG 10.00  0.35    0.35*   3.2%  10.1%
OSIP    32.70   29.85  AUG 25.00  0.30    0.30*   2.6%   9.5%
OVTI    40.03   40.13  AUG 35.00  0.45    0.45*   2.8%   8.6%
BLUD    23.10   23.12  AUG 20.00  0.65    0.65*   2.9%   8.3%
BOBJ    25.00   23.95  AUG 22.50  0.45    0.45*   3.0%   8.2%
CYBX    23.72   26.71  AUG 20.00  0.60    0.60*   2.7%   8.2%
KOSP    28.29   33.45  AUG 25.00  0.45    0.45*   2.7%   7.7%
UNTD    29.39   30.04  AUG 25.00  0.40    0.40*   2.4%   7.5%
MRVL    35.32   32.58  AUG 32.50  0.40    0.40*   2.7%   7.4%
SIE     25.36   23.25  AUG 22.50  0.35    0.35*   2.3%   6.6%
SNDK    54.98   47.90  AUG 42.50  0.70    0.70*   1.8%   6.5%
UNTD    33.64   30.04  AUG 30.00  0.30    0.30*   2.2%   6.4%
MSTR    43.68   34.90  AUG 35.00  0.75    0.65    1.6%   5.9%
AMAT    19.30   17.88  AUG 17.50  0.25    0.25*   2.1%   5.9%
NFLX    26.49   23.49  AUG 20.00  0.35    0.35*   1.5%   5.4%
SHPGY   22.05   22.60  AUG 20.00  0.35    0.35*   1.9%   5.3%
DRIV    23.05   21.06  AUG 17.50  0.30    0.30*   1.5%   5.3%
TRN     21.93   22.94  AUG 20.00  0.35    0.35*   1.9%   5.3%
SNDK    48.18   47.90  AUG 37.50  0.60    0.60*   1.4%   5.1%
MRVL    38.10   32.58  AUG 32.50  0.60    0.60*   1.6%   5.1%
CELG    32.18   33.51  AUG 25.00  0.30    0.30*   1.3%   4.8%
MNST    26.15   21.26  AUG 22.50  0.30   -0.94    0.0%   0.0% **
CLZR    17.05   13.50  AUG 15.00  0.25   -1.25    0.0%   0.0% **
SOHU    40.90   30.46  AUG 35.00  1.20   -3.34    0.0%   0.0% **

*  Stock price is above the sold striking price.

Comments:

Technology stocks retreated for a sixth-straight session Friday
after chip designer Nvidia (NASDAQ:NVDA) warned about profit
margins.  As noted last week, the recent downward trend in share
values was expected, however it doesn't make position management
any easier.  Plays closed earlier this week (** for smaller than
published losses) include Sohu.com (NASDAQ:SOHU), Microstrategy
(NASDAQ:MSTR), Candela (NASDAQ:CLZR), Lexar Media (NASDAQ:LEXR),
and Monster Worldwide (NASDAQ:MNST).  Positions on the "early
exit" list include Applied Materials (NASDAQ:AMAT), United Online
(NASDAQ:UNTD), Marvell Electronics (NASDAQ:MRVL), and Align Tech
(NASDAQ:ALGN).
 
Previously Closed Positions: Rowan Companies (NYSE:RDC) and BJ
Services (NYSE:BJS), both of which are currently profitable.



WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The Simple Monthly Yield is based on the cost of the underlying
issue (in the event of assignment), including the premium from
the sold option, thus it reflects the maximum potential loss in
the position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

RIMM   24.61  SEP 20.00  RUL UD 0.75 3521 19.25  42   2.8%   9.1%
THER   13.93  SEP 12.50  UKT UV 0.55 10   11.95  42   3.3%   8.5%
BLUD   23.12  SEP 22.50  QMQ UX 1.00 30   21.50  42   3.4%   7.5%
SEPR   21.76  SEP 17.50  ERQ UW 0.50 592  17.00  42   2.1%   7.3%
TKLC   13.73  SEP 12.50   KQ UV 0.45 2    12.05  42   2.7%   6.9%
JDAS   13.90  SEP 12.50  QAH UV 0.40 7    12.10  42   2.4%   6.4%
PDII   24.25  SEP 20.00  PKU UD 0.50 0    19.50  42   1.9%   6.1%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
RIMM - Research In Motion  $24.61  *** Speculation Only! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.  RIMM shares slumped this week, despite
the ongoing buyout rumors, after a U.S. court issued an injunction
banning sales of its BlackBerry e-mail device, but also stayed the
order pending an appeal.  The announcement, which was expected in
light of ongoing litigation with U.S.-based patent holding company
NTP Inc., puts RIMM in a difficult position, however some analysts
believe there is no reason for the company to settle the case soon
because the disputed patents are being re-examined by the patent
office.  Traders who want a little excitement in their portfolio
should consider this position.

SEP-20.00 RUL UD LB=0.75 OI=3521 CB=19.25 DE=42 TY=2.8% MY=9.1%


*****
THER - TheraSense  $13.93  *** Diabetes Monitoring Device ***

TheraSense (NASDAQ:THER) develops, manufactures and sells easy to
use glucose monitoring systems that dramatically reduce the pain
of testing for people with diabetes.  The company began selling
its first product, the FreeStyleR blood glucose monitoring system,
in June 2000.  The FreeStyle system has wide distribution in the
U.S. through national retailers including Walgreens, Wal-Mart,
CVS, Eckerd and Rite Aid.  The FreeStyle system is also distributed
in various European countries and in Japan.  Shares of THER jumped
in late July after the maker of a popular blood-glucose monitoring
system posted a narrower-than-expected loss for its second quarter.
The company also predicted a profit for the third quarter, due to
rising demand for its FreeStyle monitor, and investors who wouldn't
mind owning the stock near a basis of $12 should consider this
position.

SEP-12.50 UKT UV LB=0.55 OI=10 CB=11.95 DE=42 TY=3.3% MY=8.5%


*****
BLUD - Immucor  $23.12  *** What's Up BLUD? ***

Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete
line of reagents and automated systems used mainly by hospitals,
clinical laboratories and blood banks in a range of tests used
to detect and identify certain properties of the cell and serum
components of human blood prior to blood transfusion.  Immucor
also markets a complete family of automated instrumentation for
all of their market segments.  During the past year, the company
resolved the remaining performance issues relating to its ABS2000
instrument and launched new software for the product.  The company
has recently signed an agreement with the University of Vermont to
commercialize an in-vitro diagnostic test to measure platelet
markers useful in anti-platelet pharmacological drug development
and potentially to improve real-time treatment of cardiovascular
disease.  BLUD appears to be back in favor with investors after
the issue rose sharply on Friday.  There is no "public" news to
explain the activity but the heavy-volume rally suggests further
upside potential.  Traders who agree with a bullish outlook can
speculate conservatively on the future share value of BLUD with
this position.

SEP-22.50 QMQ UX LB=1.00 OI=30 CB=21.50 DE=42 TY=3.4% MY=7.5%


*****
SEPR - Sepracor  $21.76  *** Drug Stock Speculation! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.  SEPR
shares rallied in late July after the company announced it had
narrowed its second-quarter loss on increasing revenues, due to
strong product sales.  The stock has consolidated since the news
and now investors are awaiting the results of application for
Estorra, a treatment for insomnia, which was submitted to the FDA
earlier this year.  Traders who think SEPR has upside potential
with reasonable downside risk should consider this position.

SEP-17.50 ERQ UW LB=0.50 OI=592 CB=17.00 DE=42 TY=2.1% MY=7.3%


*****
TKLC - Tekelec  $13.73  *** Telecom Sector Speculation ***

Tekelec (NASDAQ:TKLC) is a leading developer of telecommunications
signaling solutions, packet-telephony infrastructure, network
monitoring technology, and value-added applications.  Tekelec's
innovative solutions are widely deployed in traditional and next
generation wireline and wireless networks and contact centers
worldwide.  TKLC was recently upgraded by Deutsche Securities and
Advest Inc., after the company reported sequential increases of 14%
in revenue and 18% in orders.  Tekelec also completed a refinancing
of its convertible debt under terms that will lower annual pretax
interest expense by about $5.5 million and yearly cash interest
payments by about $1.5 million.  Apparently, analysts believe the
fundamental outlook for the company is favorable and investors who
agree with that assessment should consider this position.

SEP-12.50 KQ UV LB=0.45 OI=2 CB=12.05 DE=42 TY=2.7% MY=6.9%


*****
JDAS - JDA Software  $13.90  *** An Old Favorite!

JDA Software Group (NASDAQ:JDAS) is a provider of sophisticated
software solutions designed specifically to address the demand
and supply chain management, business process, decision support,
e-commerce, inventory optimization and collaborative planning and
forecasting requirements of the retail industry and its suppliers.
The company's solutions enable its customers to collect, manage,
organize and analyze information throughout their retail enterprise,
and to interact with suppliers and customers over the Internet at
multiple levels within their organization.  JDA's customers include
retail, manufacturing and wholesale organizations and the company's
software solutions business is enhanced and supported by its retail
specific professional services.  JDAS shares rallied in mid-July
after the company reported second quarter earnings that exceeded
analyst expectations due to higher software license sales than the
previous quarter.  Product revenue, which includes licenses and
maintenance services, totaled $32.8 million, a 36% increase from
the first quarter and slightly above last year.  Traders who think
the recovery will continue can establish a low risk cost basis in
the issue with this position.

SEP-12.50 QAH UV LB=0.40 OI=7 CB=12.10 DE=42 TY=2.4% MY=6.4%


*****
PDII - PDI Incorporated  $24.25  *** Rally Mode! ***

PDI, Inc. (NASDAQ:PDII) is a commercial sales and marketing firm
serving the biopharmaceutical and medical devices and diagnostics
industries.  The company creates and executes sales and marketing
campaigns intended to improve the profitability of pharmaceutical
or MD&D products.  PDI does this by partnering with companies that
own the intellectual property rights to the products and recognize
PDI's ability to commercialize these products and maximize their
sales performance.  The company offers a variety of contracts for
partner companies, from fee-for-service arrangements to equity
investments in a product or company.  Shares of PDI have been in
"rally mode" since the company posted favorable results for the
second quarter.  Net total revenue for the quarter was 7% higher
than net total revenue for the same period last year and operating
income was $4.5 million, compared to an operating loss of $14.9
million for the quarter ended June 30, 2002.  Investors seem to be
pleased with the news and traders who believe the upside activity
will continue should consider this position.

SEP-20.00 PKU UD LB=0.50 OI=0 CB=19.50 DE=42 TY=1.9% MY=6.1%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

GFI    12.55  SEP 12.50  GFI UV 0.70 430  11.80  42   4.3%   8.9%
IMCL   38.23  SEP 30.00  QCI UF 1.00 778  29.00  42   2.5%   8.4%
AU     35.34  SEP 35.00   AU UG 1.80 220  33.20  42   3.9%   8.4%
BDY    20.65  SEP 20.00  BDY UD 1.00 4    19.00  42   3.8%   8.4%
CRAY   10.56  SEP 10.00  HQC UB 0.45 30    9.55  42   3.4%   7.9%
PCLN   31.11  SEP 25.00  PUZ UE 0.75 63   24.25  42   2.2%   7.7%
INVX   13.55  SEP 12.50  IVQ UV 0.50 5    12.00  42   3.0%   7.4%
TRN    22.94  SEP 22.50  TRN UX 0.95 60   21.55  42   3.2%   7.1%
SIL    17.99  SEP 17.50  SIL UW 0.60 3    16.90  42   2.6%   5.9%
ATN    22.00  SEP 20.00  ATN UD 0.60 252  19.40  42   2.2%   5.9%
SMMX   21.75  SEP 20.00  OFU UD 0.60 22   19.40  42   2.2%   5.8%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Blue-Chips Drift Higher During Lackluster Session!
By Ray Cummins

Industrial stocks ended on a bullish note Friday with McDonald's
at the forefront of the upbeat activity after the fast-food giant
announced that sales for July jumped over 4% amid brisk demand
for new products.

The Dow Average climbed 64 points to finish at 9,191 with solid
performances coming from Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD),
International Paper (NYSE:IP) and computer-maker Hewlett-Packard
(NYSE:HPQ).  The technology-laden NASDAQ Composite continued its
losing ways, down 8 points to 1,644 on weakness in semiconductor
shares.  The broader Standard & Poor's 500 Index added 3 points
to finish at 977 as investors shopped for bargains in restaurants,
footwear, healthcare facilities, wireless services, gold, banks,
broadcasting & cable TV shares.  Trading was moderate, with about
1.1 billion shares changing hands on the Big Board and almost 1.3
billion shares traded on the NASDAQ.  Advancers outpaced decliners
3 to 2 on the NYSE but on the technology exchange, losers exceeded
winners by a small margin.  Treasuries were higher with the price
of the benchmark new 10-year note up one tick, sending its yield
down to 4.28%.

 
*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position or to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last   Month  LP  SP  Credit  CB     G/L   Status

IRF     28.00   30.09  AUG   22  25   0.25  24.75  $0.25   Open
MER     49.25   51.76  AUG   42  45   0.25  44.75  $0.25   Open
EBAY   113.07  100.50  AUG   95 100   0.50  99.50  $0.50   Open
GENZ    44.02   43.38  AUG   35  37   0.20  37.30  $0.20   Open
MEDI    39.01   36.05  AUG   32  35   0.25  34.75  $0.25   Open
SYMC    45.65   46.75  AUG   35  40   0.55  39.45  $0.55   Open
CCMP    57.61   59.09  AUG   45  50   0.55  49.45  $0.55   Open
GILD    66.52   62.25  AUG   55  60   0.55  59.45  $0.55   Open
SII     37.87   36.89  AUG   32  35   0.25  34.75  $0.25   Open
AMZN    41.60   39.15  AUG   35  37   0.25  37.25  $0.25   Open
NTES    42.07   44.79  AUG   30  35   0.50  34.50  $0.50   Open
ADI     39.51   36.03  SEP   30  35   0.65  34.35  $0.65   Open
BOW     38.57   39.44  SEP   30  35   0.60  34.40  $0.60   Open
MXIM    39.11   37.21  SEP   30  35   0.65  34.35  $0.65   Open
IMCL    39.86   38.23  AUG   30  32   0.00  32.50  $0.00  No Play

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Positions in Yahoo! (NASDAQ:YHOO) and Garmin (NASDAQ:GRMN) have
been closed to limit potential losses.  Spreads on the "early
exit" list include eBay (NASDAQ:EBAY) and MedImmune (NASDAQ:MEDI).
Some stocks to "watch" closely are Amazon.com (NASDAQ:AMZN) and
Analog Devices (NYSE:ADI).  There was no play initiated in ImClone
as the $32.50 strike was posted in error by the OCC/ISE.


CALL CREDIT SPREADS
*******************

Symbol  Pick    Last   Month  LC  SC  Credit  CB     G/L   Status

ACS     45.06   44.12   AUG   55  50   0.65  50.65  $0.65   Open
BBBY    38.59   39.85   AUG   45  42   0.35  42.85  $0.35   Open
ICUI    27.90   25.15   AUG   35  30   0.60  30.60  $0.60   Open
PG      88.56   89.08   AUG   95  90   1.25  91.25  $1.25   Open
BGEN    40.05   36.77   AUG   47  45   0.30  45.30  $0.30   Open
NVLS    35.70   33.32   AUG   42  40   0.30  40.30  $0.30   Open
BSTE    46.06   42.08   AUG   55  50   0.60  50.60  $0.60   Open
BVF     41.60   39.65   AUG   50  45   0.50  45.50  $0.50   Open
FNM     62.35   63.82   AUG   70  65   0.50  65.50  $0.50   Open
INTU    42.86   42.30   SEP   50  47   0.30  47.80  $0.30   Open
JPM     33.36   32.99   AUG   37  35   0.25  35.25  $0.25   Open
CI      44.49   44.48   AUG   55  50   0.30  50.30  $0.30  No Play
BRL     59.25   65.03   AUG   70  65   0.00  65.00  $0.00  No Play

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

Federal National Mortgage (NYSE:FNM) is on the "early-exit" list.
Bearish spreads in Barr Labs (NYSE:BRL) and Cigna (NYSE:CI) were
not initiated as both issues "gapped" at the open on the day after
the plays were offered.  The position in 3M Corporation (NYSE:MMM)
has previously been closed to limit potential losses.


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

TECD    31.03  29.90  AUG   25  30   4.20   29.20  0.70   Open?
EBAY   110.02 100.50  AUG   95 100   4.60   99.60  0.40   Open?
RGLD    23.94  23.36  AUG   20  22   2.20   22.20  0.30   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

eBay (NASDAQ:EBAY) and Tech Data (NASDAQ:TECD) are on the "early
exit" list.  Conservative traders should consider closing these
positions on further downside movement.  Royal Gold (NASDAQ:RGLD)
has recovered with the recent rally in gold prices and the bullish
trend appears to be intact.


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E    G/L   Status

LXK     73.50  61.14  AUG   85  80   4.80   80.20   0.20  No Play
BRCM    22.76  20.24  AUG   27  25   2.30   25.20   0.20   Open
KBH     55.84  58.88  AUG   65  60   4.60   60.40   0.40   Open?

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss

KB Homes (NYSE:KBH) is on the "early exit" list.  There was no
position initiated in Lexmark (NYSE:LXK) as the issue "gapped"
lower prior to the open on the first trading day after the play
was offered.


SYNTHETIC (BULLISH)
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial   Max.   Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

SHPGY   22.77  22.60   JAN     30    17     0.00    0.00    Open
AVCT    27.83  26.31   SEP     30    25    (0.10)   0.00    Open
      
ITT Educational Services (NYSE:ESI), which has previously been
closed, was one of the best plays this the month with a potential
gain of $5 (or more) for speculative traders.

    
SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short   Current   Max.    Play
Symbol  Price  Price   Option    Option   Debit   Value   Status


GP      19.25  21.64   OCT-20C   AUG-20C   0.90    1.00    Open
MSFT    27.31  25.58   JAN-27C   AUG-27C   1.40    1.50    Open
NE      34.86  34.57   DEC-37C   AUG-37C   1.40    1.40    Open
ING     19.07  19.62   JAN-20C   AUG-20C   0.90    1.00    Open
SPW     44.65  45.63   DEC-47C   AUG-47C   2.50    2.50    Open
NSM     22.77  21.90   JAN-20C   SEP-25C   3.90    3.75    Open

Bullish traders in the Georgia-Pacific (NYSE:GP) position had a
great opportunity this week to transition to a diagonal spread
(OCT-20C/SEP-22C).  The speculative play in Netscreen Technology
(NASDAQ:NSCN) has previously been closed to limit losses.


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status
  
OVER    23.68  22.20   SEP   25    22     1.50     1.60    Open
SNE     30.74  29.72   OCT   30    30     3.75     3.60    Open

American International Group (NYSE:AIG) was the big winner this
month, offering up to $5.10 profit on $4.90 invested in less than
three weeks.  Straddles on R.J. Reynolds (NYSE:RJR) and Freddie Mac
(NYSE:FRE) have previously achieved favorable "early-exit" profits.
Positions in MBIA Inc. (NYSE:MBI), which will likely be profitable,
Dollar General (NYSE:DG), and Boston Scientific (NYSE:BSX) have
previously been closed to limit losses.


CREDIT STRANGLES
****************

No Open Positions

Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
BBY - Best Buy Company  $47.90  *** Hot Sector! ***

Best Buy Company (NYSE:BBY) is specialty retailer of consumer
electronics, personal computers, entertainment software and
appliances.  Best Buy operates retail stores and commercial
Websites under the brand names Best Buy, Media Play, On Cue,
Sam Goody, Suncoast, Magnolia Hi-Fi and Future Shop.  The firm
operates three segments: Best Buy, Musicland and International.
Best Buy is mainly a specialty retailer of consumer electronics,
home office equipment, entertainment software and appliances.
Also included in the Best Buy segment is Seattle-based Magnolia
Hi-Fi, a high-end retailer of audio and video products.  Their
Musicland segment is primarily a mall-based retailer of movies,
prerecorded music, video games and other entertainment-related
products.  The International segment consists of Future Shop, a
specialty retailer of consumer electronics, home office equipment,
entertainment software and appliances with operations in Canada.

BBY - Best Buy Company  $47.90

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-40.00  BBY-UH  OI=5450  ASK=$0.45
SELL PUT  SEP-42.50  BBY-UV  OI=6545  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$42.20


*****
JCI - Johnson Controls  $96.49  *** Safety Stock! ***

Johnson Controls (NYSE:JCI) is engaged in automotive systems and
facility management and control.  In the automotive market, the
company is a major supplier of seating and interior systems, and
batteries.  For non-residential facilities, Johnson Controls also
provides building control systems and services, energy management
and integrated facility management.  Johnson Controls conducts its
business in two operating segments: Controls Group and Automotive
Systems Group.  The Controls Group is a global supplier of control
systems, services and unique integrated facility management to the
non-residential buildings market.  The Automotive Systems Group
makes automotive interior systems for OEMs (original equipment
manufacturers) and automotive batteries for the replacement and
original equipment markets.

JCI - Johnson Controls  $96.49

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-85.00  JCI-UQ  OI=25  ASK=$0.60
SELL PUT  SEP-90.00  JCI-UR  OI=67  BID=$1.25
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$89.35


*****
MBI - MBIA Incorporated  $53.13  *** New Trading Range? ***

MBIA Incorporated (NYSE:MBI) is engaged in providing financial
guarantee insurance, investment management services and municipal
services to public finance clients and financial institutions on
a global basis.  Financial guarantee insurance provides customers
an unconditional and irrevocable guarantee of the payment of the
principal of, and interest or other amounts owing on, insured
obligations when due.  The firm conducts its financial guarantee
business through its wholly owned subsidiary, MBIA Insurance,
which is the successor to the business of the Municipal Bond
Insurance Association that began writing financial guarantees for
municipal bonds in 1974.  MBIA is the parent of MBIA Insurance of
Illinois and Capital Markets Assurance Corporation, both financial
guarantee companies that were acquired by MBIA Corp.  MBIA also
owns MBIA Assurance S.A., a French insurance company, which writes
financial guarantee insurance in the countries of the European
Community.

MBI - MBIA Incorporated  $53.13

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-45.00  MBI-UI  OI=381   ASK=$0.40
SELL PUT  SEP-50.00  MBI-UJ  OI=1363  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$49.35


*****
WMT - Wal-Mart  $57.77  *** Rallying Retailer! ***

With annual sales of $218 billion, Wal-Mart Stores (NYSE:WMT)
operates more than 2,800 discount stores, Super-Centers and
Neighborhood Markets, and more than 515 SAM'S CLUBS in the U.S.
Internationally, the firm operates over 1,200 units and employs
1.3 million associates worldwide.  Last year, Wal-Mart associates
raised and contributed $196 million to support communities and
local non-profit organizations.  FORTUNE magazine recently named
Wal-Mart the third "most admired" company in America and one of
the 100 best companies to work for in the U.S.  According to a
recent study, Americans say Wal-Mart is the company they think of
first in supporting local causes and issues, and that is one of
the main reasons people shop at Wal-Mart.

WMT - Wal-Mart  $57.77

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-50.00  WMT-UJ  OI=15791  ASK=$0.25
SELL PUT  SEP-55.00  WMT-UK  OI=10984  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$54.45


*****
DB - Deutsche Bank  $59.64  *** Consolidation Underway ***

Deutsche Bank (NYSE:DB) ranks among the world leaders in corporate
banking and securities, transaction banking, asset management, and
private wealth management, and also has a significant private and
business banking franchise in Germany and other selected countries
in Continental Europe.  With roughly euro 802 billion in assets and
approximately 70,900 employees, Deutsche Bank offers its 13 million
clients unparalleled financial services in 76 countries throughout
the world.  The Bank aspires to be a leading global provider of
integrated financial solutions for demanding clients as well as the
pre-eminent bank in Germany, generating exceptional value for its
shareholders and customers.

DB - Deutsche Bank  $59.64

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70.00  DB-IN  OI=41  ASK=$0.25
SELL CALL  SEP-65.00  DB-IM  OI=27  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$65.55


*****
ESRX - Express Scripts  $62.23  *** Sector Slump! ***

Express Scripts (NASDAQ:ESRX) is one of the largest pharmacy
benefit management companies in North America.  Express Scripts
provides integrated PBM services, including network pharmacy
claims processing, mail pharmacy services, benefit design
consultation, drug utilization review, formulary management,
disease management, medical and drug data analysis services and
medical information management services.  The firm also provides
distribution services for specialty pharmaceuticals through its
Specialty Distribution subsidiary.

ESRX - Express Scripts  $62.23

PLAY (speculative - bearish/credit spread):

BUY  CALL  SEP-75.00  XTQ-IO  OI=280   ASK=$0.50
SELL CALL  SEP-70.00  XTQ-IN  OI=3667  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$70.55


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
MWD - Morgan Stanley  $48.54  *** Bullish Broker! ***

Morgan Stanley (NYSE:MWD) is a preeminent global financial
services company and a market leader in securities, asset
management, and credit services.  The company's top-ranked
research, along with world class product origination, asset
management and other extensive resources create a unique
combination of capabilities that provide both individual and
institutional clients with access to the most comprehensive
array of high quality products and services in the financial
services industry today.  The company has offices in New York,
London, Tokyo, Hong Kong and other principal financial centers
around the world and has 475 branch offices serving individual
investors throughout the United States.

MWD - Morgan Stanley  $48.54

PLAY (conservative - bullish/debit spread):

BUY  CALL  SEP-40.00  MWD-IH  OI=29    ASK=$8.90
SELL CALL  SEP-45.00  MWD-II  OI=1619  BID=$4.40
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$44.45


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
BDY - Bradley Pharmaceuticals  $20.65  *** Technicals Only! ***

Bradley Pharmaceuticals (NYSE:BDY), along with its subsidiaries,
markets over-the-counter and prescription pharmaceutical and
health related products.  The company's product lines include
dermatological brands, marketed by its wholly owned subsidiary,
Doak Dermatologics, and nutritional, respiratory and internal
medicine brands marketed by its Kenwood Therapeutics division.
Bradley is actively promoting products in dermatology and
gastroenterology, and, to a lesser extent, nutritional markets.
All of its product lines are made and supplied by independent
contractors that operate under the company's quality control
standards.  Its products are marketed primarily to wholesalers,
which distribute the products to retail outlets and healthcare
institutions throughout the United States and international
markets.

BDY - Bradley Pharmaceuticals  $20.65

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JAN-22.50  BDY-AX  OI=454  ASK=$1.85
SELL CALL  SEP-22.50  BDY-IX  OI=2    BID=$0.50
INITIAL NET DEBIT TARGET=$1.25-$1.30
INITIAL TARGET PROFIT=$0.55-$0.80


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
AMTD - Ameritrade  $10.00  *** Cheap Speculation! ***
 
Ameritrade Holding Corporation (NASDAQ:AMTD) is a provider of
securities brokerage services and technology-based financial
services to retail investors and business partners, primarily
through the Internet.  The firm also provides trading execution
and clearing services for its own broker-dealer operations and
for unaffiliated broker-dealers through its major subsidiaries,
Ameritrade and iClearing LLC.  The company's new structure has
two principal business units, a Private Client Division and an
Institutional Client Division.  The Private Client Division
provides brokerage services directly to individual investors.
The Institutional Client Division provides clearing services,
brokerage capabilities and advisor tools as co-branded or
private-label products to partners and their customers.

AMTD - Ameritrade  $10.00

PLAY (very speculative - neutral/debit straddle):

BUY CALL  SEP-10.00  TQA-IB  OI=1516  ASK=$0.70
BUY PUT   SEP-10.00  TQA-UB  OI=268   ASK=$0.80
INITIAL NET-DEBIT TARGET=$1.40-$1.45
INITIAL TARGET PROFIT=$0.45-$0.75


*****
TRI - Triad Hospitals  $30.50  *** A Reader's Request ***

Triad Hospitals (NYSE:TRI) provides healthcare services through
hospitals and ambulatory surgery centers that it owns and manages
in small cities and urban markets, primarily in the southern,
mid-western and western United States.  The company's hospital
facilities include approximately 50 general acute care hospitals
and 15 ambulatory surgery centers located in Alabama, Arizona,
Arkansas, California, Indiana, Kansas, Louisiana, Mississippi,
Missouri, Nevada, New Mexico, Ohio, Oklahoma, Oregon, South
Carolina, Texas and West Virginia.  Included with these facilities
is one hospital operated through a joint venture, one hospital
under construction and two hospitals that are leased to third
parties.

TRI - Triad Hospitals  $30.50

PLAY (speculative - neutral/debit straddle):

BUY CALL  NOV-30.00  TRI-KF  OI=405  ASK=$2.75
BUY PUT   NOV-30.00  TRI-WF  OI=332  ASK=$2.10
INITIAL NET-DEBIT TARGET=$4.65-$4.75
INITIAL TARGET PROFIT=$1.85-$2.10


*****


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