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Daily Newsletter, Thursday, 08/14/2003

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The Option Investor Newsletter                Thursday 08-14-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Got Power?
Futures Markets: Critical Levels
Index Trader Wrap: See Note
Market Sentiment: Low Volatility
Weekly Manager Microscope: Tim Guinness: Guinness Atkinson Global
Innovators Fund (IWIRX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      08-14-2003           High     Low     Volume Advance/Decline
DJIA     9310.56 + 28.80  9334.57  9218.82 1.43 bln   1945/1238
NASDAQ   1700.34 + 13.73  1700.34  1681.52 1.30 bln   1877/1276
S&P 100   498.22 +  2.93   499.11   493.28   Totals   3822/2514
S&P 500   990.51 +  6.48   991.91   980.36
W5000    9540.78 + 59.51  9548.40  9449.91
RUS 2000  471.22 +  3.75   471.22   466.55
DJ TRANS 2621.90 + 23.02  2627.35  2596.08
VIX        20.51 -  0.11    21.53    20.22
VXN        29.27 -  1.00    31.59    29.10
Total Volume 2,933M
Total UpVol  1,893M
Total DnVol    973M
52wk Highs  388
52wk Lows    86
TRIN       1.09
NAZTRIN    1.05
PUT/CALL   0.80
************************************************************

Got Power?

If you live in the Northeast chances are you are reading this
newsletter a little later than usual due to the lack of power.
Fortunately the markets had closed when the disaster began and
the disruption was minimal. The disaster is going to occur on
Friday morning if the power does not come back online soon. The
challenge is not going to be the NYSE computer systems but the
massive dislocation of thousands of traders and support staff.

Dow Chart – Daily



Nasdaq Chart – Daily




When the lights went out in New York at the close on Wednesday
it immediately created an urge to exit the city even if walking
was the only mode of transportation. Trains, subways, airports
and communication were immediately knocked out and streets and
bridges were jammed with pedestrians moving quickly away from
town. Even cell phones ceased to function without base station
support. With hundreds of trains and subway cars stuck in
tunnels the urge to find ANY alternative exit in case it was
a terrorist attack was strong. People were literally running
away from the city. At one point authorities estimated there
were over 20,000 people jamming streets around a single ferry
terminal to New jersey.

New York is a commuter city and with no way out people were
literally lining up by the thousands at bus lines and ferries.
The problem will come tomorrow when these same people try to
get back into the city to pick up their lives where they left
off. Since the problem appears to be a grid failure from the
heat generated overload there is always the possibility of
another failure on Friday. That possibility may only be in
the minds of citizens but it could wreak havoc to the normal
business cycle. Many New Yorkers may simply decide to stay
home and that could be the best decision. This means that
trading on expiration Friday could be very hectic at the open
followed by very light trading the rest of the day. With many
funds and institutional traders in the New York area those
operations could be running with a skeleton staff. The city
of New York has assured everyone the power will be restored
sometime tonight but should it not return the sentiment impact
could be strong.

Because the outage covered multiple states there were about
a dozen airports closed. Some estimates were between 7-10%
of all U.S. airline traffic for the day was either delayed,
rerouted or cancelled. Planes headed for the Northeast were
rerouted to airports several states away in some cases. This
means those passengers will not make connections and not be
home until tomorrow night. Planes scheduled to be in some
other part of the country for the start of business tomorrow
will still be somewhere in the Northeast. Flights from Miami,
Dallas, LA etc will not be there because the planes were
grounded overnight in the Northeast. It could be Monday
before all the equipment can be rerouted to catch up with
their schedules.

The morning started off calmly with Jobless Claims rising to
398,000 and last weeks claims revised up by +6,000 to 396,000.
This was the fourth week under 400K but we are rising steadily
toward that number. In the last four weeks beginning with July
19th we had 391K, 392K, 396K and ending with 398K this week.
Analysts have made a big deal about the four weeks under 400K
but you can see by the numbers we are moving up again. Also,
the prior three weeks were adjusted to account for historical
automaker layoffs for retooling in July. Now that this period
is over we could see these numbers begin to rise again. The
four-week moving average rose to 3.63 million. 29 states
reported an increase in claims for the week.

The PPI came in as expected at +0.1% with the core rate at
+0.2%. Core intermediate prices fell slightly and have posted
no gains since the first quarter. This is normally a leading
indicator for consumer inflation and it is showing a move
toward deflationary conditions instead. Prices for finished
consumer goods also fell. There is nothing in this report to
excite either the bulls or the bears as the changes are minimal.

The minutes to the June FOMC meeting were released and the Fed
heads were pleased that their "unwelcome fall in inflation"
statement had pushed interest rates so low. The minutes showed
no indications that they had a clue rates would rebound so
quickly. They were confused as to why the economy had not
rebounded and felt sure it would soon. Still stuck in denial
it seems. The 25 point cut in June was not unanimous and
Parry voted for a 50 point cut and one member voted for no
cut. The main concern was the wording of the statement to make
sure they clearly expressed the reason for the cut. In other
words they spent a large amount of time trying to say deflation
without using the D word. We now know they miscalculated by
only cutting 25 points when the bond market clearly wanted a
50 point cut. When their actions failed to match their words
the bond market revolted.

The FOMC minutes did not excite the bond market and bonds
fell significantly. Yields on the 10-year rose to a new
52-week intraday high at 4.668% and closed at 4.586%. This
is much higher than the August 1st panic highs. This two-day
sell off after the FOMC meeting this week shows the bond market
is still not impressed with the Fed's action or lack of action.
The problem is still rampant selling or dumping of bonds by
mortgage lenders, funds, institutions and even countries.
There are rumors that the rising deficit, which could approach
a trillion dollars next year, has caused several countries to
dump debt. Rumors are that Japan and China have told the U.S.
they were not going to buy U.S. debt until the deficit is
under control. Suddenly there are only sellers and no buyers.
The 23 primary dealers that took down the majority of the
$60 billion in the bond auction last week at a 10-year yield
of 4.36% are seriously underwater.

Ten Year Yields




The markets performed very well despite several high profile
problems. TGT missed earnings by a penny before the open and
while that contributed to the morning dip it was quickly
shrugged off. MMM was cut by Smith Barney on valuation
concerns. CSFB cut techs in general on worries about demand
but the Nasdaq shook it off early. The Dow moved over 9300
and stayed there most of the day despite the soaring bond
yields. The Nasdaq closed back at 1700 with Dell earnings
looming over the market at the close. It was a very positive
day with a strong bid under the market but not enough volume
to push it higher.

Dell reported earnings inline with estimates but the entire
event was ignored due to the power outage which occurred
about 4 min later. Dell reported 24 cents and said demand
had stabilized but had not significantly improved. Michael
Dell said CEO optimism was increasing but not enough for him
to characterize it too strongly. He said it would take a
couple more quarters before he expected budgets to begin to
increase. Michael, would that be before the second half of
2005? Dell saw margins shrink due to a slowing in the rate
of decline in computer parts. Many components are already
selling for much less than the cost to manufacture them but
factories cannot afford to stop production due to the expense
of restarting and rehiring when demand returns. This means
costs are not going to get any cheaper and we could get a
further margin squeeze on any future demand.

When you can buy a 125GB Maxtor hard drive for $89 and 256MB
of DDR memory for $39 there is no margin left. When Dell
sells a 2.2GHZ Pentium IV with a free flat panel monitor for
$599 how much money do you think they make? Analysts think $20
bucks or less. They make their money on the laptops, servers
and accessories. It would not take much of a component cost
increase to put the squeeze on Dell. With computers now a
highly competitive commodity and consumers constantly being
bombarded with low price specials it will be difficult to
command higher retail prices when the trend changes. Most
consumers will balk before paying over $599 for a long time
after the costs change.

Volume continued to be extremely low with total volume under
3.0 billion for the 4th time in five days. The volume has
been under the 50DMA for 17 of the last 25 days. This is
summer when volume normally slows but it has been much
slower than normal. The good news is the steady climb in
the markets on this low volume.

Tomorrow we have some critical reports. The most critical for
me is the Capacity Utilization. It has been 74.3 for the last
two months and a low not seen since 1983. Analysts are hoping
for a bounce over 75% but will probably be happy with anything
higher than 74.3. Any drop in this number and bad things will
happen because it would indicate more potential layoffs and
a further unwelcome decline in inflation as competition
increases. It would mean no need to upgrade or buy new
equipment and no increase in capital spending. Also closely
watched will be the first Michigan Sentiment for August. The
final July reading was 90.9 and with other surveys showing a
drop in sentiment analysts are worried the headline number
could drop into the middle 80s. The New York Empire State Mfg
Survey also showed a drop last month to 22.6 and if it follows
the last NY NAPM report it could fall back below 20. All of
these reports are at a critical stage and this could be a
turning point for the markets if they were to show weakness.

Friday is also option expiration day and from the late reports
on the news it appears the markets will open for business at
the regular time. The maximum pain numbers where the most
options expire worthless are either at or below the current
market levels, OEX 495.00, QQQ 31.00 as examples. This should
keep the indexes pretty close to level unless the economic
news is very good. Expiration Fridays lately have been tame
but the economics at the open will rule. Might be a good day
for New Yorkers to stay home after all.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

Critical Levels
Jonathan Levinson

Treasuries almost broke down and gold almost broke out, while
equities added some more mileage to their recent sideways range in
a session that went from hectic to boring and back again.


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





10 minute chart of the US Dollar Index




The US Dollar Index failed at 96.80 in an impressive upside move
commencing at 5AM.  Surprisingly, gold went higher and bonds sunk
lower. The CRB dropped 68 cents to 236.52, led by crude oil, wheat
and gold futures.


Daily chart of December gold




December gold rallied to the upper trendline, printing an intraday
high of 368.50 in a potential doji top within its narrowing
pennant formation.  The upside shadow is mostly obscured by my
upper trendline, but it is there, just peeking its head above it.
The failure on the spike high is not bullish, but the end-of-
session rally off the lows gave bulls plenty about which to hope
for tomorrow's session.  The oscillators are on buy signals,
putting in higher lows on their previous downphases.  HUI finished
the day higher by 1.1 at 181.63, XAU +.58 at 87.95.


Daily chart of the ten year note yield




The ten year note yield (TNX) broke higher again today, setting a
new year high above 4.6% and closing at 4.586%, up 2.6 basis
points on the day.  The intraday high was 4.668% at 12:30 PM.  The
reversal off the highs left a doji top on the TNX as well, and ten
year treasury futures were slightly in the green as of this
writing.  As we saw earlier during this yield rally, bond bulls
need to be either very nimble or very patient as the yield remains
above the rising trendline- gaming a reversal in bonds is as
dangerous as catching falling knives in any security.


Daily NQ candles





There was not a great deal of action in equities, the most notable
of which being the crash in options volatility as measured by the
QQV, the NDX equivalent of the VIX.  For a more detailed
discussion of these events and their possible significance, see
tonight's sentiment wrap.  That said, this is second-to-last
session of options expiration week, and distortions in the put to
call ratios and options volatility are to be expected.

Aside from that, there will be little to report tonight because
little occurred in equity futures today.  Overnight strength was
met with opening selling following slightly disappointing initial
claims data, followed by a low just after the cash open, a rally
back to the overnight highs, and then an excruciating, nearly
untradeable range just below yesterday's highs.

The NQ inched slightly higher within its bull wedge and slightly
closer to buy signals on the daily oscillators.


30 minute 20 day chart of the NQ




The NQ crept higher along the lower ascending trendline of its
bear flag on the 30 minute candles.  Note that a bear flag within
a longer term bull flag is a recipe for confusion.  My gut feeling
is that the NQ will fail either at the upper trendline on the
daily bull flag, breaking out of its 30 minute flag to the
downside, or will break down prematurely and then test the lower
support line on the daily flag.  Either way, the toppiness on the
30 minute oscillators leads me to guess that the NQ will go lower
before it goes higher.

Daily ES candles




The ES managed to confirm its buy signals on the daily oscillators
despite its sideways move.  Volume on the equity indices was very
light, with little commitment in either direction shown by
traders.  Like the NQ, the bull flag on the daily candles has
price rising within a bear flag on the 30 minute candles as seen
below.

20 day 30 minute chart of the ES




The drift higher was sufficient to top out the oscillators at
lower levels (bearish), and the ES closed right on the lower
trendline of the bear flag.  The short term outlook does not look
bullish, but with options expiration week one day from complete, I
would not be surprised should the unexpected occur.

Daily YM candles





YM closed once again precisely on its rising trendline.  In all
other respects, it is in the same cyclical position as the ES,
overbought within its 30 minute bear flag.


20 day 30 minute chart of the YM




For tomorrow, all eyes will be on treasuries and, to a lesser
extend, on gold.  The upward move in gold against the US Dollar
Index could be a canary in a coalmine, signaling uncertainty or
worse in the financial markets.  The breakdown in treasuries is so
rife with implications that the two moves are most likely related.
The Fed stepped in with a net 6B in additional repo money today,
indicating that it too is alert to the dangers of current levels.

This remains an environment in which traders cannot be too
cautious.  Keep your stops active and trade safe!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_081403_1.asp


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

Low Volatility
Jonathan Levinson

Today gave us another light volume day, and a very low volatility
day.  The put to call ratio finished lower by .06 at .72,
indicating a predominance of calls over puts relative to
yesterday.

The VIX (S&P Volatility Index) was lower by .11 to 21.11, while
the VXN (Nasdaq Volatility Index) dropped 1 to 29.27, and the QQV
(NDX Volatility Index)  dropped a reported 2.14 or 8.81%, but
closed at 22.14, having opened at 29.79.  The closing value is an
alltime low for that volatility index.  I suspect that there is
bad data in play, except that we observed these readings for the
last hour of trading, and it appeared to be behaving as normal,
other than the low levels.  The intraday low was below 21.

Regardless of the actual levels, this being options expiration
week, it's possible to imagine almost any distortion within the
options market as commercial option traders position their
accounts for the expiry of August contracts.  As we discuss in
the Market Monitor every month, prices tend to gravitate toward
and eventually become pinned at or near the strike prices that
will cause the greatest value of puts and calls to expire
worthless.  For a few days of each month, it is clear that the
derivative "tail" wags the underlying "dog".

If the QQV values are correct, then traders were aggressively
dumping QQQ puts and calls, lowering their price and hence their
implied volatility.  This creates a buyer's market, as volatility
does not tend to remain at extreme low levels for long, and as it
increases, so necessarily does the price of QQQ options.


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

Market Averages

DJIA ($INDU)

52-week High:  9361
52-week Low :  7197
Current     :  9310

Moving Averages:
(Simple)

 10-dma: 9186
 50-dma: 9149
200-dma: 8565

S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma:  979
 50-dma:  989
200-dma:  914

Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1251

Moving Averages:
(Simple)

 10-dma: 1235
 50-dma: 1243
200-dma: 1100


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


The VXN dropped 1 point to 29.27, within half a point of its year
low.  The VIX as well is within 1 point of its year low.  As the
maxim goes, "When the VIX is low, it's time to go, when it's high,
time to buy."  This refers not to options, but to the underlying.
The current low levels on the VIX, VXN and QQV are extreme, and
indicate that the INDU, S&P and COMPX are toppy.

CBOE Market Volatility Index (VIX) = 20.51 –0.11
Nasdaq-100 Volatility Index  (VXN) = 29.27 –1.00


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.70        713,453       502,875
Equity Only    0.53        470,196       248,421
OEX            1.03         39,019        40,269
QQQ            1.20         35,518        42,473


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

Bullish Percent Data

           Current   Change   Status
NYSE          68.6    + 0     Bull Confirmed
NASDAQ-100    65.0    + 1     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       74.6    + 1     Bull Correction
S&P 100       82.0    + 2     Bull Confirmed


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

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

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

 5-Day Arms Index  0.84
10-Day Arms Index  1.01
21-Day Arms Index  0.98
55-Day Arms Index  1.10


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

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1803      1845
Decliners     999      1164

New Highs     173       181
New Lows       30        13

Up Volume    906M      828M
Down Vol.    466M      435M

Total Vol.  1400M     1286M
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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*************************
WEEKLY MANAGER MICROSCOPE
*************************

Tim Guinness: Guinness Atkinson Global Innovators Fund (IWIRX)

This week, we check out Tim Guinness and the Guinness Atkinson
Global Innovators Fund (IWIRX), a large-growth fund that seeks
long-term appreciation by investing substantially in securities
that comprise the "Wired" index and other stocks.  Before April
25, Doug Blatch with Investec Asset Management managed the fund
portfolio.

Effective April 25, 2003, the Investec Funds became the Guinness
Atkinson Funds.  At the time, Guinness Atkinson Asset Management
LLC assumed management responsibility for three Investec Funds:
China & Hong Kong Fund, Asia Focus Fund, and Global Innovators
Fund (formerly Wired Index Fund).  Tim Guinness has managed the
re-named wired index fund since April 2003.

Before the management change, the former Wired Index Fund tended
to follow a policy of full replication, allowing it to invest in
all 40 issues comprising the Wired index.  The fund portfolio was
weighted by market capitalization, with a ceiling of $10 billion
for each company.  Tech and teleco companies made up about 50% of
the index.

Investment Style/Strategy

Since assuming the fund's portfolio management responsibilities,
Tim Guinness has changed the fund's investment strategy from an
equity-index (passive) approach to an actively managed portfolio.
The Guinness Flight Global Innovators Fund intends to remain true
to its Internet and high-tech roots, one report says, but it will
seek companies that are using technology in new, innovative ways.

In July 2003, Tim Guinness spoke of the fund's old and new style
in a Wall Street Journal interview.  There, Guinness referred to
the Internet revolution as being down, but not out.  Originally,
the fund was an index of stocks selected by the editors of Wired
Magazine, he points out.  While the fund is not considered to be
an Internet fund, Guinness intends to "keep faith" as he puts it
with much of the original thinking that went into the creation of
the Wired index and fund.

In his view, the Internet is going to continue to offer big, new
opportunities for business to do things differently.  But beyond
that, Guinness intends to focus on stocks of companies that have
characteristics of innovation.  These include communications and
technology-related companies that are taking advantage of global
opportunities or using communication and technology in a cutting
edge way.

In the article, Guinness said he is staying the course with some
of the major components of the original Wired Index Fund because
of the lower valuations now and opportunity for long-term gains.
Ebay and Yahoo are two Internet companies he cites as being here
to stay.  Dell, Intel and Microsoft are three other companies he
says he might trade in/out of.

The Guinness Atkinson Funds website (www.gafunds.com) indicates
that the Global Innovators Fund's top 10 holdings as of July 31,
2003 were as follows:

  1. Cisco Systems (5.1%)
  2. Dell Computer (4.9%)
  3. Oracle Corp (4.6%)
  4. Vodafone Group (4.5%)
  5. EMC Corp (4.4%)
  6. Citigroup (4.0%)
  7. Microsoft (4.0%)
  8. Wal-Mart Stores (3.8%)
  9. FedEx Corp (3.7%)
  10. First Data Corp (3.6%)

As you can see, the fund portfolio includes companies like Wal-
Mart, FedEx and Citigroup, names you wouldn't necessarily think
of when you hear the term, Internet.  So, the Global Innovators
Fund is more than just a tech/Internet sector fund.  It invests
in domestic and foreign companies that are positioned to benefit
from one or more of the following:

  -Advances in technology
  -Advances in communications
  -Globalization
  -Innovative management

At July 31, about two-thirds of the fund portfolio was invested
in U.S. stocks, with the remained invested in foreign companies.
The GA Funds website provides a fund fact sheet that provides a
snapshot of the fund's industry sector and geographic weightings
if you would like to research further.  The information provided
vis-a-vis Morningstar.com and other fund websites is out of date
(as March 31, 2003) and reflects the fund portfolio prior to the
change from Investec Funds to Guinness Flight Funds.

Investment Performance

Since Tim Guinness took over the lead portfolio management role
in April 2003, a look at the fund's long-term performance track
record doesn't tell you a whole lot.  But, it still maintains a
large-growth style bias so you can expect return and risk to be
similar to that of its peer group.  Growth stocks offer greater
long-term appreciation potential than other types of stocks but
they are generally associated with higher short-term volatility.

As of August 13, the Global Innovators Fund had a year-to-date
total return of 19.0%, 4.1% more than the category average and
strong enough to rank the fund in the top 15% of the large-cap
growth category, per Morningstar.






As you can see, the fund's net asset value rose steadily during
the second quarter along with other large-growth funds and tech
funds in general.  Like its large-growth peers, net asset value
has declined since July, leaving some to speculate the market's
gains this year might be over.  For the trailing 3-month period
through August 13, the fund posted 5.2% total return, outpacing
the S&P 500 index by 0.3% and ranking in the 37th percentile of
the Morningstar large-growth category.

However, in the past 4 weeks, the fund is down 3.4% compared to
the 0.9% loss by the S&P 500 index.  A 91st percentile category
ranking suggests the Global Innovators Fund may slide more than
other large-growth funds in tech-led market declines.  But, the
contrary would appear to be true also, that this fund will rise
more than the market and category peer group in tech-led market
advances, like the one we saw in the second quarter 2003.  Thus,
your decision to invest or not invest in this fund may depend on
your long-term view of the market and "wired" companies.  If you
can't tolerate the higher volatility this fund is likely to have
over the short-term, then it may not be suitable fund investment
for you.

Conclusion

Guinness contends the Global Innovators Fund is a good place for
investors with an optimistic investment outlook, and we feel the
same way.  However, the fund's performance record under Guinness'
management is brief.  We like the fact the Guinness is working on
reducing the fund's operating expenses.  That will help this fund
over the long-term versus similar funds, but it doesn't guarantee
fund success.

Currently, the fund is rated only two stars by Morningstar.  Risk
is rated as "high" compared to other large-cap growth funds, with
below average relative returns.  However, much of that was due to
the fact that the original wired fund followed a passive approach
and was limited to stocks that comprised the Wired index.  So you
want to look at the Global Innovators Fund as a new fund, with no
ratings yet.

Suffice to say, this fund isn't for everyone.  It may be suitable
for long-term, risk-tolerant investors who seek long-term capital
appreciation through investments in large-cap growth stocks, many
of which are in the tech/telecom/Internet area.  You may not want
to invest if you don't share Guinness' optimistic view.  For more
information or to download a prospectus, go the Guinness Atkinson
Funds website at www.gafunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 08-14-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: EBAY, LLL, PCAR, STJ
New Calls Plays: HIG
Put Play Updates: BDK, IBM, PGR, YHOO
New Put Plays: None


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

None


------------------------------------------------------------
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Note: Options involve risk. Risk disclosure:

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


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

eBay, Inc. - EBAY - close: 102.70 change: +1.41 stop: 99.50

Tuesday's rebound in shares of EBAY proved to be too much to
sustain yesterday and the stock pulled back to just above $101 at
the close.  That provided the aggressive entry point we were
looking for this morning, as buyers appeared near that level,
sending the stock back above the 10-dma ($102.36) by Thursday's
close.  The ascending trendline is still in place, now at $100.70
and intraday dips and rebounds from above that level will still
provide favorable entry points.  Momentum traders will still want
to use a move over $104 as their entry trigger for the play,
keeping in mind that next resistance will come in near $106, which
is sandwiched between the 50-dma ($105.84) and the 20-dma
($106.63).  If EBAY is going to make another assault on the $110
level (as we expect), it will need to see stronger volume come in,
and with August options expiration tomorrow, it likely won't
arrive until next week.

Picked on August 12th at   $103.43
Change since picked:         -0.73
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =    6.82 mln


---

L-3 Communications -LLL - close: 49.55 change: +0.80 stop: 47.25

Well what do you know!  After just barely surviving that test of
support at the bottom of the 7/28 gap, the stock has staged a
pretty solid rebound over the past few days and it working its way
back to the $50 resistance that proved so formidable earlier in
the month.  Bulls will be encouraged to note that the rebound
commenced after the stock just tapped the 20-dma (then at $47.34)
and with that average now rising above $48, the bears shouldn't be
able to push the stock back under that level.  Dip buyers got
their opportunity to enter the play when LLL was vacillating near
its stop or on the break back over $48, even though entries at
that time didn't look to hot to us.  This brings us right back to
the scenario we contemplated when we initiated the play, that of
looking for a breakout over $50.50 for entry.  That still looks
like the best strategy, as it would force the stock to clear that
known resistance before putting capital at risk.  Leave stops in
place at $47.25 until we get that confirmed breakout.

Picked on August 3rd at    $49.90
Change since picked:        -0.35
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      939 K


---

PACCAR - PCAR - close: 80.87 change: +1.58 stop: 76.25*new*

It looks like we guessed right last night when we listed PCAR as
our Play of the Day, with the expectation of a breakout over the
$80 level.  That had been firm resistance since the beginning of
the month and the stock pressed right through it this afternoon to
close at a new all-time high.  Solidifying the bullish picture was
the fact that volume was stronger than on the past several
sessions, indicating buying interest is on the rise.  That 10-dma
(currently $78.29) continues to look like support for the stock,
as it hasn't even been tested since late July.  Rebounds from
above that average can still be used for entry into the play, and
support should now start to firm up near $79.  Momentum traders
can still enter on a break above today's high, but need to do so
carefully due to the stock's extended rise over the past week.
We're raising our stop to $76.25 tonight, keeping it just below
the 20-dma ($76.35), which should not be touched so long as the
uptrend remains intact.  Conservative traders that entered on the
latest dip near $76 may want to consider harvesting some partial
gains on a foray into the $82-83 area.

Picked on July 31 at    $77.24
Change since picked:     +3.63
Earnings Date         07/24/03 (confirmed)
Average Daily Volume:     1.16 mln


---

St. Jude Medical - STJ - cls: 54.00 chng: -0.24 stop: 53.50

This market is developing a nasty habit of producing failed
breakouts, and our STJ play is just the latest victim of that
pattern.  When the stock broke out on Tuesday, it looked good to
run up to our $59-60 target, but got slammed lower yesterday on no
news, but on stronger volume.  The stock remained weak on
Thursday, drifting down to the $54.00 level at the close and it
doesn't look healthy.  Making for an even more unwelcome picture,
daily Stochastics (5,3,3) have turned down again, showing clear
bearish divergence.  But we're going to stick with our guns,
looking for last week's support to hold.  Our stop is still set at
$53.50, so the risk is minimal from tonight's closing price.  We
are not recommending new positions unless STJ can get back over
$56.

Picked on August 10th at   $54.23
Change since picked:        -0.23
Earnings Date            10/15/03 (unconfirmed)
Average Daily Volume =   2.18 mln



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

Hartford Fin. Svcs - HIG - close: 54.14 change: +1.08 stop: 51.00

Company Description:
Hartford Financial Services Group is a diversified insurance and
financial services company.  The company provides investment
products, individual life, group life and group disability
insurance products, as well as property and casualty insurance
products in the United States.  HIG writes insurance and
reinsurance in the United States and internationally, and is
organized into two major operations: Life and Property & Casualty.

Why we like it:
While it hasn't been able to manage a breakout yet, the Insurance
index (IUX.X) has been impressive in its resilience over the past
several weeks, as it repeatedly bounces from its still-rising 50-
dma (currently $271.42).  But overhead resistance seems to be
weakening and a fresh assault on the $282-284 resistance looks
like it could be just around the corner.  In looking for pockets
of strength in the sector that might lead the way higher, we found
shares of HIG actually managed a slight breakout on Thursday,
closing at $54.14, which was its first close over the $54 level
since last July.  Over the past 2 months, HIG has been
consolidating in a tight range between $49.50-53.50.  Just when it
looked like a breakdown might be in the cards in early August, the
50-dma (now at $51) provided critical support and the stock shot
higher on August 7th following BofA raising their price target for
the stock to $61.  Positive reception of that news propelled HIG
to the top of its recent range and after holding very close to
that level for most of the past week, the stock managed its
breakout move today.

That trade at $54 created a fresh PnF Buy signal and with the
current bullish vertical count of $72, the BofA target seems
pretty reasonable.  Traders looking for a better entry point can
target intraday dips and subsequent rebounds from above the $52.50
level (the top of last week's gap) for entry into the play.  On
the other hand, traders looking to enter on strength can use a
move through $54.30 (today's intraday high) as a trigger for
entry.  If entering on strength, look for solid volume (which was
lacking on today's move), combined with continued strength in the
IUX index.  We're going to target a move up to $60 initially,
although there may be some resistance to contend with near $58.
Set stops at $51, the site of the 50-dma, which should continue to
provide strong support.

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

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the December 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 December 55 Call.

BUY CALL SEP-50 HIG-IJ OI=3010 at $4.80 SL=3.00
BUY CALL SEP-55 HIG-IK OI=1935 at $1.50 SL=0.75
BUY CALL DEC-55 HIG-LK OI= 354 at $3.30 SL=1.75
BUY CALL DEC-60 HIG-LL OI= 227 at $1.40 SL=0.75

Annotated Chart of HIG:




Picked on August 14th at    $54.14
Change since picked:         +0.00
Earnings Date             11/05/03 (unconfirmed)
Average Daily Volume =    2.82 mln



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


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

Black & Decker - BDK - cls: 40.25 chg: -0.22 stop: 41.01

Is this bounce finally starting to roll over?  We've been on pins
and needles for the past few days, as BDK has been vacillating
just above $40 and just below $41.  Thursday's session saw the
bulls push the stock back over the 200-dma ($40.55) at the open,
but that bullishness was short-lived, with BDK tracing out a
pattern of lower highs throughout the day, finally closing
fractionally negative for the day, back under the 200-dma.  Daily
Stochastics (5,3,3) are finally tipping bearish again and with the
20-dma ($40.88) finally below our $41.01 stop, it looks like the
scales are tipping back in our favor.  We're cautiously in favor
of new entries near current levels, although we'd feel better
about a drop back under $40 before playing.  More conservative
traders may even want to wait for a drop under $39.50 (getting
under Monday's intraday support) before adding new positions.

Picked on August 4th at  $39.99
Change since picked:      -0.25
Earnings Date          07/24/03 (confirmed)
Average Daily Volume:     729 K


---

Intl Business Mach - IBM - cls: 81.56 chg: +0.36 stop: 82.51

With the choppy oscillations in the broad market, it is really no
surprise that our IBM play is giving us fits as well.  After
confirming our bearish view and breaking below $80 last week, the
stock regained that level and has spent the bulk of this week
trading in a fairly narrow range between $80-82.  If you squint at
the daily chart, it looks like shares of Big Blue are starting to
roll over and we can see the same thing on the daily Stochastics,
which are just starting to tip bearish.  There should be strong
resistance near $82, and with the 200-dma ($82.07) just above that
level, we may finally be seeing that rollover get underway.  Also
of interest was IBM's inability to close over its 20-dma ($81.58).
DELL's earnings report wasn't particularly well-received and that
may also weigh on IBM on expiration Friday.  While aggressive
traders can consider entries on this fledgling rollover, we'd feel
better about seeing IBM back under $80 before putting further
capital at risk in the play.

Picked on August 5th at $79.85
Change since picked:     +1.71
Earnings Date         07/16/03 (confirmed)
Average Daily Volume:     7.06 mln


---

Progressive Corp - PGR - cls: 65.54 chg: +0.89 stop: 66.01

It has certainly been a bumpy ride waiting for PGR to give us some
followthrough weakness, as the stock has been mired in a very
tight range ($64-66) since we added it to the Put list last week.
Volume has been light, oscillators are mixed and price is holding
support.  Today's 1.37% gain put PGR just below its 20-dma
($65.56) and a close above that average will likely have our
$66.01 stop getting clipped.  We don't want to consider new
entries unless the stock breaks below the $64 level.  With opex
machinations likely to rule the day on Friday, a close near the
$65 level seems likely tomorrow.

Picked on July 23th at   $65.22
Change since picked:      +0.32
Earnings Date          07/16/03 (confirmed)
Average Daily Volume:     848 K


---

Yahoo! Inc. - YHOO - close: 29.77 change: +0.24 stop: 31.50

Mimicking the choppy trade in the rest of the market, YHOO seems
to be caught in limbo between $30 resistance and $29 support this
week.  Typical of expiration week action, it looks like the stock
wants to close out the week near the $30 level and we'll likely
have to wait for next week for normalcy to return.  The 10-dma
($29.74) acted like a price magnet into today's close and if YHOO
can move back over $30, then it is very possible we'll be looking
at a test of next resistance near $30.75 before YHOO rolls over
again.  Rather than try to outguess the market for tomorrow, we're
recommending that traders wait until next week before considering
new entries into the play.  The only exception would be if the
bottom falls out (not likely) tomorrow and momentum traders could
consider entries on a break below $28, just below Monday's
intraday low.  Maintain stops on current positions at $31.50.

Picked on August 7th at   $28.87
Change since picked:       +0.90
Earnings Date           10/08/03 (unconfirmed)
Average Daily Volume =  13.4 mln



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

None


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


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**********

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The Option Investor Newsletter                 Thursday 08-14-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - HIG


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

Hartford Fin. Svcs - HIG - close: 54.14 change: +1.08 stop: 51.00

Company Description:
Hartford Financial Services Group is a diversified insurance and
financial services company.  The company provides investment
products, individual life, group life and group disability
insurance products, as well as property and casualty insurance
products in the United States.  HIG writes insurance and
reinsurance in the United States and internationally, and is
organized into two major operations: Life and Property & Casualty.

Why we like it:
While it hasn't been able to manage a breakout yet, the Insurance
index (IUX.X) has been impressive in its resilience over the past
several weeks, as it repeatedly bounces from its still-rising 50-
dma (currently $271.42).  But overhead resistance seems to be
weakening and a fresh assault on the $282-284 resistance looks
like it could be just around the corner.  In looking for pockets
of strength in the sector that might lead the way higher, we found
shares of HIG actually managed a slight breakout on Thursday,
closing at $54.14, which was its first close over the $54 level
since last July.  Over the past 2 months, HIG has been
consolidating in a tight range between $49.50-53.50.  Just when it
looked like a breakdown might be in the cards in early August, the
50-dma (now at $51) provided critical support and the stock shot
higher on August 7th following BofA raising their price target for
the stock to $61.  Positive reception of that news propelled HIG
to the top of its recent range and after holding very close to
that level for most of the past week, the stock managed its
breakout move today.

That trade at $54 created a fresh PnF Buy signal and with the
current bullish vertical count of $72, the BofA target seems
pretty reasonable.  Traders looking for a better entry point can
target intraday dips and subsequent rebounds from above the $52.50
level (the top of last week's gap) for entry into the play.  On
the other hand, traders looking to enter on strength can use a
move through $54.30 (today's intraday high) as a trigger for
entry.  If entering on strength, look for solid volume (which was
lacking on today's move), combined with continued strength in the
IUX index.  We're going to target a move up to $60 initially,
although there may be some resistance to contend with near $58.
Set stops at $51, the site of the 50-dma, which should continue to
provide strong support.

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

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the December 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 December 55 Call.

BUY CALL SEP-50 HIG-IJ OI=3010 at $4.80 SL=3.00
BUY CALL SEP-55 HIG-IK OI=1935 at $1.50 SL=0.75
BUY CALL DEC-55 HIG-LK OI= 354 at $3.30 SL=1.75
BUY CALL DEC-60 HIG-LL OI= 227 at $1.40 SL=0.75

Annotated Chart of HIG:




Picked on August 14th at    $54.14
Change since picked:         +0.00
Earnings Date             11/05/03 (unconfirmed)
Average Daily Volume =    2.82 mln



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