Option Investor

Daily Newsletter, Monday, 08/18/2003

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The Option Investor Newsletter                   Monday 08-18-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Futures Wrap: Consolidation or Distribution
Index Trader Wrap: Power surge has Industrials above 9,400
Weekly Fund Wrap: Wall Street Ends Blackout Week Higher
Traders Corner: Elliott Wave Plays

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
     08-18-2003            High     Low     Volume Advance/Decline
DJIA     9412.45 + 90.76  9419.38  9320.59 1.40 bln   1052/ 331
NASDAQ   1739.49 + 37.48  1739.59  1706.93 1.48 bln   1273/ 183
S&P 100   502.79 +  4.49   503.39   498.30   Totals   2335/ 514
S&P 500   999.74 +  9.07  1000.35   990.67
RUS 2000  480.92 +  9.00   480.92   471.92
DJ TRANS 2643.83 + 20.17  2643.91  2623.32
VIX        19.28 -  0.92    20.30    19.06
VXN        26.62 -  2.59    28.55    25.94
Total Volume 3,115M
Total UpVol  2,515M
Total DnVol    548M
52wk Highs     585
52wk Lows       67
TRIN          0.65
PUT/CALL      0.72

SOX Soars & Retail Roars
by James Brown

It was another big day on Wall Street as equity bulls muscled out
another win and put another resistance level below them, at least
for the Dow Jones Industrials.  The $INDU added 90 points to
close above the 9400 level, a feat not seen for more than a year.
This is a clear breakout of the recent trading range and should
have the bears concerned as the bulls appear to be sharpening
their horns for an attempted break out above 9500.

The NASDAQ Composite out performed the Industrials with a gain of
2.2 percent.  This also appears to be a breakout of its bull flag
consolidation pattern.  Meanwhile the S&P 500 index added nine
points to close just a quarter point away from the 1000 mark.

Contributing to the moves in the U.S. markets were strong
performances by their overseas counterparts.  The Asian stock
markets were mostly higher with the NIKKEI putting in a strong
session adding 169 points or 1.72 percent to close at 10,032.
The Hang Seng added more than 100 points to close at 10,525.
European stocks also cast a positive glow as the FTSE 100 added
nearly 25 points to close at 4272 and the DAX 30 jumped 1.84
percent to close at 3507.  It's hard not to miss all the
psychological resistance levels falling under the hooves of this
late summer bovine buying spree.

There was plenty of speculation on what sparked the rally today.
Was it a positive sigh of relief that last week's blackout was
not a terrorist event?  Or maybe it was a delayed reaction to
last week's positive economic reports.  There were some comments
that it was money that moved out of bonds last week being put to
work in equities this week.  Except we did see bond yields dip
today indicating some buying pressure there.

Whatever case you make for starting the rally it quickly spread
to become a broad-based run across most sectors.  Advancing
stocks beat declining stocks 19 to 9 on the NYSE and 21 to 9 on
the NASDAQ.  New highs swamped new lows 406 to 23.  Up volume was
better than 3 to 1 over down volume on the NYSE and more than 7
to 1 on the NASDAQ.  Total volume was actually slightly better
than in recent sessions but we are still seeing very low volume
numbers, which is to be expected this time of the year.

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Hitting a new 52-week high was the S&P Retail Index (RLX), up
1.95 percent to 357.  Lifting the sector higher was a host of
earnings news.  However, probably the most significant news bit
came from Wal-Mart (WMT) who did not report earnings but did
report that its weekly August same-store sales numbers were
looking very good.  According to WMT management sales are
"tracking" in near the high-end of previous guidance of 3 to 5
percent, which has been fueled by the annual back-to-school
season.  This pushed shares of WMT to a new 52-week high just
under $59.

Shares of Lowes Companies (LOW) also hit a new 52-week high as
the stock gapped higher above major resistance at $50 to close up
6.25 percent.  The home improvement retailer announced earnings
this morning and the results blew away consensus estimates.  LOW
turned in net income of 75 cents a share, up 28 percent.
Analysts had been expecting 69 cents.  Revenues came in at $8.77
billion, beating estimates of just $8.5 billion.  The company
guided higher for the third quarter and raised their full year
guidance to $2.24 to $2.27 a share.

These positive announcements from major retailers like WMT and
LOW have many raising expectations for another round of strong
consumer spending throughout the rest of the third quarter and
into the fourth.  It will be interesting to hear from LOW's
bigger rival Home Depot (HD), also a Dow component, who announces
earnings tomorrow morning before the bell.  Current estimates for
HD are 54 cents a share.  Plus we have the delayed Michigan
Sentiment report that comes out tomorrow morning about 9:45 AM
ET.  As one of our commentators in the MarketMonitor mentioned
today, this could be a market mover.  Traditionally, stronger
consumer sentiment is translated into stronger consumer spending.

The SOX pitched a no-hitter against the bears today as all 18
components in the semiconductor index closed in the green.
Igniting today's tech rally were strong comments from the market
research firm Gartner, Wall Street broker/analyst Smith Barney
and an optimistic article in Barron's over the weekend.  Gartner
believes that environment for the chip sector has vastly
improved.  This was echoed by Smith Barney who claims that
stronger PC demand and improving order trends overall could be
forecasting a stronger recovery for the industry.  Meanwhile an
article in Barron's gave Advanced Micro Devices (AMD) a big push.
The column claims that AMD's new chips set to launch next month
could significantly increase its market share. AMD's stock gapped
up and traded higher throughout the day to close at $8.91, up 14
percent, the largest gainer in the S&P 500 for the session.
AMD's rival and Dow component Intel (INTC) also added 4.5
percent, which contributed to the SOX's 5.15 percent rally.  The
SOX closed at a new 52-week high above resistance at 400 and 410.
Many analysts believe that it is the chip sector that tends to
lead the NASDAQ higher (or lower) so this is a positive
development for tech.  Bulls might be looking for some follow
through tomorrow with tonight's positive news from Broadcom
(BRCM).  BRCM raised their guidance for the current quarter
claiming a new digital tuner would help push revenues higher by
10 percent.  The stock is up more than a dollar in after hours

The bulls may be looking gleefully for some positive follow
through on today's technical developments but we must caution
traders that it's still a dangerous world out there.  You've
heard us cautioning traders that the VIX and VXN, both of which
hit new lows today, have been flashing a warning sign for the
bulls.  Thus far the markets have ignored them both.  However,
today's drop in the VIX put it below the 20 level, which is a
strong historical indicator of market tops.  Now this is not an
exact science as the VIX can remain low (as we've already
witnessed) for some time and the market tops can be days away
from actually forming.  The chart below is a monthly chart of the
Dow Jones Industrials and the VIX.  I've drawn a pink line for
every time the VIX fell significantly below 20 and each time
there is a near perfect correlation of a top in the Industrials.

Chart of the VIX

I'm not suggesting the market can't go higher from here.  From
all indications is looks like it can and will.  The question is
how long can the market sustain these gains without a steep
correction phase.  Trade carefully.

Watch those stop losses.



Consolidation or Distribution
Jonathan Levinson

It was a very surprising session.  The US Dollar Index was up
strongly, gold and the miners corrected downward, treasury note
yields fell back below their rising trendline, the Nasdaq futures
rallied over 2.5%, the Dow futures over 1%, and the ES by just
under 1%.  Volume was very light, and the Nasdaq volatility
index, VXN closed at an alltime low of 26.62, down 2.59 on the
day, with the QQV down 1.77 to 22,.80.  The VIX made downside
waves as well, but not to the same eye-popping extent, -.92 to

150-tick chart of the ES

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

10 minute chart of the US Dollar Index

The US Dollar Index continued its bull run, breaking 97 with
authority and marching to an intraday high just north of 97.50
before pulling back.  The action was bearish for gold, but could
not keep a lid on commodities which saw overall gains on the CRB
led by the agriculturals.  The CRB closed higher by 90 cents at

Daily chart of December gold

December gold was sold to an intraday spike low of 358 before
rebounding back above 360, which held for the duration of the
session with the contract closing at 359.80.  Support is at 354,
followed by the lower trendline, currently just above 349.  The
HUI lost 4.36 to close at 177.86, while the XAU lost 1.19 to

Daily chart of the ten year note yield

The ten year note yield (TNX) broke below the trendline after
trading both sides of it on Friday, closing lower today by 4.9
basis points to 4.479%.  As of this writing, ten year treasury
futures were higher by .38%.  Without indulging in a discussion
of the fundamentals on treasury notes, we can observe that the
steep ascent on the TNX has begun to flatten somewhat.
Regardless of whether a ten year bond yielding 4.479% is
attractive on its own merits, technical traders can either play
the trendline, going long with stops on each downside break of
the trendline by the TNX, or, alternatively, can try the more
dangerous game of picking a top in the yield/bottom in treasury
notes.  Bulls will not want to see new highs made by then TNX on
its next bounce, and a failure from a lower high would be the
desired entry for countertrend knife-catchers.

Daily NQ candles

Just to remove any doubt amongst the chartists, the NQ broke
above the upper trendline on the bull flag we've been following
for over one month, closing at 1287 on a 2.59% rally today.  The
oscillators finally broke into full buy signals, and NQ seems
ready to try for a retest of the failed daily ascending
trendline.  The rally drove the Nasdaq volatility index to an
alltime closing low of 26.62, and while we expected some
surprises from the unwinding of options expiration week, this
move was still a shocker.  Whether options will become cheaper
still, or whether today was a blowoff spike, we will have to see
tomorrow.  Generally, downside extremes in the volatility indices
tend to precede downside moves on the underlying index, in this
case the Nasdaq.

30 minute 20 day chart of the NQ

The integrity bear flag on the 30 minute candles is getting
tested with the NQ's close right at the upper trendline.  An
upside breakout would be a bear flag failure, which is the less-
likely outcome, but today's close came very close.  The
oscillators are very toppy but not on sell signals yet, and
nothing prevents them from becoming pinned in overbought as the
market trends higher.  This, again, is the less likely outcome.
The NQ is overbought and should pull back, but so far there has
been no sign of its occurring.

Daily ES candles

The ES also gave us a bull flag breakout on the daily candles, on
firm oscillator buy signals.  The outlook is bullish on this
timeframe, with the sole proviso that we've seen trendline
fakeouts with increasing frequency this year.  As appears from
the short cycle 150-tick chart at the top of this page, the ES
had all afternoon to carry through on its breakout but could not
break 1000 for longer than a few seconds at a time.

20 day 30 minute chart of the ES

The move on the 30 minute ES was far less bullish than that of
the NQ, with no challenge to the bear flag whatsoever.  The air
became very thin above 1000, and the oscillators are on the cusp
of sell signals.  A correction is to be expected, and it will be
the quality of the bounce from the lower trendline that will tell
the story.  In light of the toppy oscillators, the brick wall
today at 1000.25, the bottomy VIX, and the narrow, listless
trading range all afternoon, I'm thinking that the ES is more
likely to pull back from here.

Daily YM candles 

The YM regained its failed ascending trendline and closing above
it.  Despite trailing the NQ today, the YM's chart continues to
appear to be the more bullish of the three equity contracts.  It
extended its oscillator buy signals today, posting a new year

20 day 30 minute chart of the YM

The YM actually posted sell signals on the 30 minute chart, but
no pullback was evident today.  We'll have to see how it does at
tomorrow's open.

Today gave us a higher dollar, lower gold, higher equities and higher
treasuries.  As Jeff Bailey correctly noted, the intermarket
relationships smacked of genuine foreign buying today.  Note that the
Fed drained a net 8B, with a 12B 3-day repo against 20B expiring from
Friday.  For tomorrow, I expect to see some sort of correction.  In
addition to the overdone breadth and volatility indicators today,
volume was again very light.  We have economic reports due, including
July housing starts and building permits scheduled for release before
the cash open, and the delayed Michigan preliminary sentiment data.
These reports could well get the market moving out of this afternoon's
Tedious range.


Power surge has Industrials above 9,400

While there were no circuit breakers needed in today's session,
traders returned from a 3-day weekend, in part due to Thursday
evenings blackout which had many traders taking Friday off, to
push the Dow Industrials above 9,350 resistance and to a new 52-
week closing high as chip-giant Intel (NASDAQ:INTC) $26.19 +4.55%
lead the Dow component gainers list, which had the Philadelphia
Semiconductor Index (SOX.X) 414.85 +5.15% also closing at new 52-
week highs.

While volume levels doubled from Friday's 620 million share rate
at the NYSE and NASDAQ's 630 million shares, which were the
lightest volumes of the year due to remaining power outages,
there were few sellers to be found in today's session, with only
the AMEX Gold Bugs Index ($HUI.X) 177.86 -2.39%, Utility Index
(UTY.X) 272.13 -0.6% and Pharmaceutical Index (DRG.X) 310.32
-0.06% posting losses.

Optimism in Japan toward a recovering U.S. economy boosted the
Nikke-225 above the 10,000 on a closing basis for the first time
in over a year and helped give lift to broader technology here in
the U.S. with the Semiconductor Index (SOX.X) 414.85 +5.15%
leading gains, Disk Drive Index (DDX.X) 117.37 +3.84%, Networking
Index (NWX.X) 192.23 +3.49% and CBOE Internet Index (INX.X)
141.32 all higher by more than 3%.

Today's gains were not just among technology sectors as the
Morgan Stanley Cyclical Index (CYC.X) 555.98 +1.63%, which has
set 3 consecutive 52-week highs did so again today, with Dow
components General Motors (NYSE:GM) $38.05 +2.56% and DuPont
(NYSE:DD) $44.75 +2.56% matching each other's percentage gains
with some analysts mentioning both stocks as more stable ways for
investors to play a longer-term trend in alternative power and
fuel cell technologies.

More speculative names like Ivanhoe Energy (NASDAQ:IVAN) $1.70
+68%, which provides technology to convert natural gas to liquid
form, along with Beacon Power (NASDAQ:BCON) $0.92 +142%, which
develops and provides power for communication networks, computers
and commercial facilities exploded on heavy volume with Ivanhoe
trading 43.6 million shares, just under one-half its public float
of 99.4 million shares, while Beacon Power challenged Intel
(INTC) and Lucent (NYSE:LU) $1.88 +1.62% for today's most active
with 49.4 million shares traded, enough to have that stock's
public float of 42.4 million shares and total shares outstanding
of 42.8 million trading hands in a single session!

The consumer-sensitive S&P Retailing Index (RLX.X) 357.07 +1.95%
rose to another 52-week high and closes in on the 365 level,
which this sector hasn't seen since March of 2002.  Retailing
giant and Dow components Wal-Mart (NYSE:WMT) $58.92 +1.41% gained
82 cents, moving to a 52-week high after saying a strong back-to-
school shopping season may have its same-store-sales for August
showing the biggest gain in 14-months, and while last week's
blackouts across Northeastern parts of the U.S. and Canada had
200 of its stores closing at the height of the power failure,
those closures would not hurt its sales or profit results.  Rival
Target (NYSE:TGT) $38.72 +2.37% also said same store sales at its
discount stores were tracking above its August plan for a gain of
4% to 5%.

Tomorrow's University of Michigan sentiment survey for August
will be scrutinized when it is released at 09:45 AM EST tomorrow
morning.  Investors and economists hopes it will add to a picture
of improving economic fundamentals.  The survey was originally
due last Friday, but was delayed due to the blackout that
affected parts of the United States last Thursday.  Economists
are forecasting a reading of 91.5, which would be above July's
final reading of 90.9.

Other economic data scheduled before tomorrow's opening bell
comes in the form of July Housing Starts (1.790 million annual
rate forecast) and July Building Permits (1.803 million annual
rate forecast).  Then at 02:00 PM EST, the Treasury budget is
expected to show a deficit of $53 billion in July, with outlays
rising 9% from a year ago due to increased defense and
unemployment spending, while receipts are forecasted to fall 7%
versus year-ago levels given tax cuts and reduced payroll

Despite expectations for a growing deficit, the U.S. dollar was
strong against major foreign currencies with the U.S. Dollar
Index (dx00y) 97.36 +0.73% looking to challenge its summer highs
of 97.55.  The September euro futures contract (eu03u) 1.1138 -
0.92% fell to its lowest level since mid-July, while September
yen futures (jy03u) 0.008374 -0.23% slipped more fractional as
Japanese investors look less willing to relinquish Japanese
assets on thoughts of an improving economy in the U.S.

Treasuries also found buying with the shorter-dated 5-year YIELD
($FVX.X) falling 3.9 basis points to 3.359%, with its September
futures contract (fv03u) 111'215 +0.16% gaining 6/32.  The
benchmark 10-year YIELD ($TNX.X) fell 5.1 basis points to 4.477%,
with its September futures contract (ty03u) 111'030 +0.33%
gaining 12/32, while the longest-dated 30-year YIELD ($TYX.X)
slipped lower by 4.3 basis points to 5.361% as its September
futures contract (us03u) 105'24 +0.62% gained 21/32.

Pivot Analysis Matrix

Many of the Dow Industrials (INDU) 9,412.45 +0.97% old economy,
or deeply rooted cyclical stocks trudged higher in today's
session, and has the Dow Industrials breaking out of its recent
2-month range.  In my opinion, this will have investor optimism
also breaking out of a range and at 52-week highs.  As it would
relate to any of the levels in the pivot matrix, in pink I've
highlighted all of our MONTHLY R1 pivots in the various equity
indices as being in play.  The S&P Banks Index (BIX.X) 305.16
+0.13% traded a 52-week high of 317.94 on July 14th.

The only sign of bullish caution I saw today was that financial
sectors lagged today's move higher, with more notable weekly
lagging among the two banking indices.  However, just as we've
seen the NASDAQ-100 Index (NDX.X) 1,284.81 +2.48% and its
Tracking Stock (AMEX:QQQ) $31.97 +2.56% rebound strong from last
week's relative lows, giving some power surge to the SPX/OEX and
Dow Industrials, a break above BIX.X 307.60 might be a shock that
bears can't withstand, even if market volumes are light.  I
currently consider the S&P Banks Index (BIX.X) 305.16 +0.13% as
having support at the 297-298 area, with resistance at MONTHLY
Pivot of 307.60 and WEEKLY R1 of 306.75.

Dow Industrials (INDU) Chart - Daily Interval

While the stronger dollar would tend to hurt some of the Dow
Industrials that have been benefiting from the weaker dollar in
recent months, its would certainly appear its this very index and
stocks within it, especially the deeper cyclicals that may be
attracting the bulk of foreign capital that has been coming back
into the U.S. markets.

It would be evident by today's trade and break to new highs that
higher Treasury YIELDS have had little negative impact on
investors hunger for many of the Dow components and while light
volumes give hint there's little interest in stocks at current
levels, the price action unfolding gives me the observation that
any disinterest is among sellers.

Today's trade saw no net change in the very narrow Dow
Industrials Bullish % ($BPINDU).  Still holding "bull correction"
status at 80.00%.

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

The SPX challenged the psychological 1,000 level all afternoon
and if not for some lagging in the financial sectors, most likely
would have closed the 1,004 level.

At the end of this weekend's "Ask the Analyst" column I posted
some data I had gathered from the Mortgage Bankers Association
and weekly mortgage survey statistics
 .  Now, I would think that the data shown in July, and slight
drop-off in mortgage applications, but still strong purchase
index reading for the MBA's July 16 and 23 reports may already
have been factored into tomorrow's releases of July new home
starts and for any type of indication of a NEGATIVE response to
that data, the SPX would have to fall back under the WEEKLY Pivot
of 989.

Today's trade saw a net gain of 1 stock to a point and figure buy
signal in the broader S&P 500 Bullish % ($BPSPX) as it inches
higher at 74.8%.  Still bull correction, but edging up from its
recent relative low reading of 73.4% set on August 7th and 8th.

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

Today's close above a downward trend we've been using for several
weeks gives a bullish look to the OEX.  The last time the OEX was
able to close above the 502.63 level came on July 25, when the
OEX faltered back to 497, made a spike move higher to 506.65,
just above our new WEEKLY R2, then got hit back lower to the
recent lows near MONTHLY S1 of 485.34.  With this past trade
action, I would now have to deem the WEEKLY R2 of 506.08 as a
rather critical near-term level of resistance for bears, if not
my recent thoughts that the SPX/OEX are to show a 1.5 step back
for every step forward.  Today's trade in the Dow Industrials
already has me questioning this type of move lower as many of the
deeply rooted economic sectors continue to power higher.

Today's trade saw no net change in the narrower S&P 100 Bullish %
($BPOEX).  Status remains "bull confirmed" at 82% for a third-
straight session, and would still take a reading of 78% to slip
lower into "bull correction" status.

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

I was much more amicable to a bullish trade in the QQQ from the
$30 level in "bear alert" status with the thinking the Q's were
near-term oversold and that some strength in the INDU/SPX/OEX
might have the QQQ getting a bounce back near $31.00, but
$31.97!?  No way!  I checked NASDAQ to see if I could get an up-
to-date reading on short interest, which had been building to
this year's high of 250 million shares.  While very hesitant to
trade the Q's bullish here, an aggressive bull looking for some
short-squeeze potential, with the Dow Industrials (INDU) breaking
to new highs would look for further bullishness in the Dow to
lend to positive market psychology, play the QQQ long above
$32.15, but follow with a trader's stop at $31.55, which would be
snug below this week's R1 of $31.63, where I was looking for FIRM

Bears looking for renewed weakness would also be looking for
bearish entry back at $31.55, with a stop just above $32.15.

In after-hours trade, the QQQ has been creeping higher, with last
tick at $32.05.

Today's trade saw a net gain of 2 stocks to point and figure buy
signals in the narrower NASDAQ-100 Bullish % ($BPNDX).  Still
"bear confirmed" at 67%, but off its recent August low readings
of 64%.  It would currently take a reading of 70% to reverse up
into "bear correction" status.

Jeff Bailey

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Wall Street Ends Blackout Week Higher

Reports of modest inflation and strong industrial output in July
fueled gains on Wall Street last week in spite of thinned volume
resulting from the worst blackout in U.S. history.  For the week
ended August 15, the S&P 500 large-cap index rose 1.3 percent in
price, while the Russell 2000 small-cap index posted a 4 percent
gain.  All of Lipper's equity indices were in the black over the
5-day period, led by technology sector funds, which returned 4.5
percent on average.

A surge in Pacific-region stocks pushed the MSCI EAFE developed
foreign market index higher by 2.8 percent last week, twice the
weekly total return of the S&P 500 index.  International equity
funds followed suit, returning 2.9 percent on average last week
using Lipper's numbers.

With money flowing back into the stock market, bonds closed the
week lower.  For the week, the LB Aggregate Bond index lost 1.1
percent, with losses increasing as you moved longer in maturity.
Vanguard's Long-Term Bond Index Fund, for example, declined 1.9
percent for the 5-day period through August 15.  The high-yield
bond market was also lower.

Short-term interest rates remain at "50-year" lows following the
Fed's decision last week not to lower rates again.  Money market
fund yields remain below 1.00%, per iMoneyNet.com.

Equity Funds

Below are selected Lipper equity fund indices for the 1-week and
year-to-date periods through August 15, 2003, per Lipperweb.com.

 Week   YTD    Selected Lipper Equity Indices
+0.7%  +9.4%   Balanced Fund Average
+1.1%  +11.1%   Equity Income Fund Average
+1.4%  +12.1%   U.S. Large-Cap (Core) Fund Average
+1.8%  +15.5%   U.S. Mid-Cap (Core) Fund Average
+3.2%  +20.2%   U.S. Small-Cap (Core) Fund Average
+1.8%  +15.5%   U.S. Multi-Cap (Core) Fund Average
+4.5%  +28.4%   Science & Technology Fund Average
+2.9%  +14.6%   International Fund Average

Stock mutual funds were generally higher last week and consistent
with what you'd typically see in the early stages of the economic
recovery, with returns increasing as you move down the market cap
range.  As you can see, small-cap funds averaged 3.2 percent over
the 5-day period, best among U.S. diversified equity funds, while
technology-driven funds were 4.5 percent higher to lead all stock
fund categories.  In terms of style, growth-oriented funds bested
their value-driven fund peers.

The week's top individual fund performers included three ProFunds
funds.  ProFunds UltraJapan, Semiconductor UltraSector and Ultra-
Small-Cap funds each returned more than 10 percent for the weekly
period.  Funds that leverage off of the Nasdaq 100, such as Rydex
Velocity 100 Fund and ProFunds UltraOTC, returned upwards of 8.0%
for the week.

Among popular funds with over $500 million in assets, three funds
returned over five percent last week.  Firsthand Technology Value
Fund led the way with a 1-week total return of 6.5 percent.  Next
was Fidelity's Select Electronics Portfolio, up 5.8 percent.  The
class A shares of Franklin Small-Cap Growth Fund II picked up 5.1
percent for the week.  Another 20 or so funds, mainly tech-driven
and small-cap funds, returned between 4-5 percent over the weekly

According to Lipper, five equity indices averaged over 3 percent:
emerging markets (+3.2%), mid-cap growth (+3.1%), small-cap value
(+3.3%), small-cap core (+3.2%) and small-cap growth (+3.8%).  So
a pretty good week overall for stock mutual funds and the markets
in which they invest.

Fixed Income Funds

Below are selected Lipper fixed income indices for the 1-week and
year-to-date periods through August 15, 2003.

 Week   YTD    Selected Lipper Fixed Income Indices
-0.9%  -0.7%   GNMA Fund Average
-1.1%  -1.3%   U.S. Government Bond Fund Average
-0.3%  +1.2%   Short Investment-Grade Fund Average
-1.0%  +1.3%   Intermediate Investment-Grade Fund Average
-1.0%  +1.0%   Corporate A-Rated Debt Fund Average
-0.4%  +13.1%   High Yield Fund Average
-1.0%  +4.9%   Global Fixed Income Fund Average
-1.0%  +6.1%   International Fixed Income Fund Average

With investors apparently becoming more optimistic about the U.S.
economic recovery, bond prices fell hard last week with the total
investment-grade bond market (LB Aggregate) off 1.1 percent.  The
average intermediate-term, investment-grade bond fund lost around
one percent, per Lipper.  Long-term bond funds experienced larger
weekly losses overall; short-term funds minimized losses relative
to other bond fund types.

The $22 billion Vanguard GNMA Fund, the largest fund of its kind,
tumbled 1.4 percent for the week to lead its category lower.  The
Fidelity GNMA Fund, on the other hand, lost only 0.6 percent over
the 5-day period, holding up better than its GNMA category peers.
America's largest fixed income fund, PIMCO Total Return, finished
the week 1.1 percent in the red.

Global and international fixed income funds didn't perform better
overall, losing around one percent on average for the week, using
Lipper's numbers.  So, all in all a tough week for most bond fund

Money Market Funds

Yield   Selected iMoneyNet Money Market Indices
0.51%   All Taxable MMF Average
0.33%   All Tax-Free MMF Average

The iMoneyNet.com all-taxable money market fund average slid two
basis points to 0.51% last week.  Any lower, and you may as well
stuff your money under the mattress.  PayPal's Money Market Fund
(402-935-7733) continues to offer the highest 7-day simple yield
(1.02%).  The $57.6 billion Fidelity Cash Reserves Fund and $47.4
billion Vanguard Prime Money Market Fund have 7-day simple yields
of 0.80% and 0.78%, respectively.

According to the iMoneyNet.com website, the money market industry
is witnessing its first casualty of the low rate environment with
the liquidation of the Munder U.S. Treasury Fund (A, K and Y fund
class shares).  The SEC filing states that this fund is currently
yielding just 0.01% (ouch).

Fund News, Etc.

In Morningstar.com fund news, Buffalo Small-Cap Fund has lost one
of its co-managers, Tom Laming, who will start his own investment
firm.  That departure prompted Morningstar to drop this small-cap
fund from its Fund Analyst picks.  Laming, who co-managed Buffalo
Small-Cap Fund (BUFSX) from its April 1998 inception, was one of
the architects of Buffalo's "theme-based" investment approach and
valuation models, Morningstar cited.  James McBride, one of three
equity analysts, left also to team up with Mr. Laming.

Laming's departure affects other funds as well, including Buffalo
Science & Technology Fund, which he managed since April 2003, and
five AFBA fund clones.  Morningstar noted that Laming's departure
isn't reason enough to caution investors to sell the fund.

In other news, The World Funds is launching a new "market-timing"
bond fund named Lara U.S. Treasury Fund.  Under normal conditions
this fund will invest at least 90% of its assets in U.S. Treasury
securities, Morningstar reports.  The World Funds is also home to
other innovative funds including the Genomics Fund (GENEX), Third
Millennium Russia Fund (TMRFX) and New Market Fund (AVMIX).

Steve Wagner
Editor, Mutual Investor
Matadors Mangled On Wall Street


Elliott Wave Plays
By Steve Gould

Company Profile

Watson Pharmaceuticals Inc. (WPI) is engaged in the development,
manufacture, marketing, sale and distribution of branded and off-
patent (generic) pharmaceutical products. The Company also
develops advanced drug delivery systems designed to enhance the
therapeutic benefits of existing drug forms. Watson operates
manufacturing, distribution, research and development and
administrative facilities primarily in the United States. It
operates and manages its business as two segments: branded and
generic pharmaceutical products. The Company started operations as
a manufacturer and marketer of off-patent pharmaceuticals. Through
internal product development and synergistic acquisitions of
products and businesses, Watson has grown into a diversified
specialty pharmaceutical company. As of December 31, 2002, the
Company marketed more than 30 branded pharmaceutical products and
approximately 130 generic pharmaceutical products.

Chart Analysis

Chart: Daily

WPI started a five wave basic pattern in March 2003 and is
currently in the process of completing the 4 wave.  The 4 wave
looks to be a flat correction.  The criteria for a flat are

1. The A-B-C waves segment into a 3 wave, a 3 wave and a 5 wave.

So far the A wave is a 3 wave, the B wave is a 3 wave and the C
wave is an incomplete 5 wave.  The hourly chart below shows where
WPI should bottom out.

2. The A wave and B wave are the same height (plus/minus 25%).

Right now the B wave is 78% of the A wave.

3. The A wave and C wave are the same height (plus/minus 25%).

At the anticipated pivot point the C wave will be 1.25 X A wave.

Chart Hourly

The hourly chart of WPI shows that WPI will decline to about 36.65
in the next few days as it completes the five wave basic pattern
of the C wave.  WPI should then reverse course back up.  At 36.50
the C wave will be equal to 1.25 X A wave.

Chart Weekly

The weekly chart shows that WPI is completing the 4 wave of a 3
year long five wave basic pattern.  However a case could be made
that the monthly chart supports a longer term up trend. If WPI
pierces 48.13 then the current labeling needs to be modified as
WPI is now in a five wave basic pattern up that started in mid
2002. In either case, WPI has more upward potential ahead.  It is
just a matter of how much.

Trade Setup

Wait until WPI reaches 36.65 before entering this play.  We will
buy straight calls with our target at 46 by 11/24/2003.  Purchase
the February 04 40 call to give a three months buffer.

Sym   Strike   Type   Bid    Ask   Delta   Vol   OI
WPIBH   40     Call   2.70   2.95    49     4    134

When WPI reaches $36.50 in the next few days, the option will be
valued at about 2.05.  This will decrease the risk and increase
the profit potential.

What If We Are Right

Chart: Position Analysis For The First Target

If WPI reaches 46 by 11/24/2003 the option will be worth 6.75.
Assuming we can purchase the option for 2.05 as WPI declines, we
will sell half the position when the value of the option reaches

What If We Are Wrong

Chart: Wrong Scenario

At 34.43, the A wave x 1.62 will equal the C wave.  If WPI extends
past that, something has gone wrong and we need to exit the trade.
If that happens within the next 2 months, the options will be
worth 0.85.


Elliott Wave Play Updates
By Steve Gould


Chart: TTWO daily update 8/18/2003

TTWO went down to $25 just as predicted.  A few days later, it
declined just a bit more.  The important thing is that we
purchased the option at $25 when the options were valued at about

TTWO is right on track and headed to about $35.  Hold.


The original option values on 8/4/2003 were

TTWO – $25.00


Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   10    TUOLF  Dec 03 30    Call  1.20  1.35    31     45

Current values on 8/18/2003 are

TTWO – $26.73

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   10    TUOLF  Dec 03 30    Call  1.50  1.70    38     44

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Contact Support
The Option Investor Newsletter                   Monday 08-18-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: EBAY, HIG, LLL, PCAR, SPW
Dropped Calls: None
Dropped Puts: BDK, IBM
Play of the Day: Call - PCAR
Watch List: A Few High Dollar Stocks

Updated on the site tonight:
Market Posture: Matadors Mangled On Wall Street

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EBAY - call
Adjust from $99.50 up to $103.50

HIG - call
Adjust from $51.00 up to $51.75

LLL - call
Adjust from $47.25 up to $48.00

PCAR - call
Adjust from $78.00 up to $80.00

SPW - call
Adjust from $44.00 up to $45.00




Black & Decker - BDK - cls: 41.11 chg: +0.34 stop: 41.01

After taunting us for over a week, our BDK play finally brought
our suffering to an end on Monday by pushing higher with the rest
of the market to close over $41 for the first time since breaking
below that level in late July.  Last Friday's close over the 200-
dma was a warning of this possibility and we've been cooling on
this play for several days now.  Even in the absence of any strong
volume, the stock has moved through several strong resistance
levels in the past few days and there's no way to paint the price
action in a bearish light.  With the strong upside earnings
surprise from home improvement retailer LOW this morning, the
bears never had a chance.  Any open positions should have been
stopped out on the opening surge, as we have no choice but to move
to the sidelines.

Picked on August 4th at  $39.99
Change since picked:      +0.61
Earnings Date          07/24/03 (confirmed)
Average Daily Volume:     718 K


Intl Business Mach - IBM - cls: 83.52 chg: +1.73 stop: 82.51

Positive comments in Barrons over the weekend related to AMD
seemed to light a fire in the Semiconductor sector on Monday and
that strength spilled over into Technology stocks in general.  IBM
rode the wave higher right from the opening bell.  After tripping
our $82.51 stop in the first 30 minutes of trade, the stock
consolidated and then pushed higher right into the closing bell.
While only a 2% move on the day, the fact that Big Blue managed to
push through both its 200-dma and 50-dma on solid volume bodes
well for the bulls.  Needless to say, this play is a drop,
following our stop being violated and any open positions should
have been stopped out early in the day.  Traders still holding
open positions should look at any early weakness on Tuesday as a
gift and exit the play.

Picked on August 5th at   $79.85
Change since picked:       +3.67
Earnings Date           07/16/03 (confirmed)
Average Daily Volume:   6.93 mln

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PACCAR - PCAR - close: 84.15 change: +2.51 stop: 80.00*new*

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

Why we like it:
Consistent as the sunrise, PCAR defied the odds on Friday and
charted to yet another new high and closed at its high of the day.
It is notable that although volume was on the light side (608K vs.
the 1.16 mln ADV), that still represented stronger volume than
what was seen in many other stocks and on the major exchanges.
The stock has been channeling higher between the upper Bollinger
band ($82.28) and the 10-dma ($78.76) for 8 days now and with
daily Stochastics stretched into overbought, we can't help but
feel that this trend is due for an adjustment and probably early
next week.  The trend is still strong, but conservative traders
should be taking advantage of further strength to harvest gains
and then look for another entry opportunity on the next pullback
to support.  With PCAR now $4.40 above our picked price, we feel
it is time to start getting a bit more aggressive with our stop,
so we're raising it to $78.00 this weekend.  Any mild pullback
should be halted by the 10-dma, so a trade at $78 would indicate a
potential end (even if just temporary) to this bullish trend.
Traders still looking for an entry will want to use the 10-dma as
their guide.  A dip and rebound above this average is a viable
entry setup, but only if the rebound is accompanied by rising

Why This is our Play of the Day
Normally, our Play of the Day is chosen from the current play list
as the play we like best for either new entries or for its
prospects over the next day or two.  Today, we're going to do
something different.  PCAR has been on the Call list for more than
two weeks, as we've waited for this bullish move to unfold.
Needless to say, the past 3 days have been truly exciting, as the
stock broke out over $80 and has continued to power higher.
Today's close just over $84 has the stock up more than $7 since
the latest round of profit taking, and we think it is due for a
rest.  That said, with the bullishness that engulfed the broad
market on Monday, we're not quite ready to pull the plug either.
Consider this a warning to snug up those stops and protect the
gains that have accrued in the past week.  Conservative traders
would be well served to close any open positions and harvest those
gains.  Traders willing to take a bit of risk for the potential of
another bullish day should consider raising stops to just below
today's intraday low of $81.61 (we're raising the official stop to
$80.00, the site of last week's breakout) and should look to exit
the play on strength if the bulls can power the stock into the
$85-86 area.

Suggested Options:
We are not recommending new positions at this time.  For those of
you that have enjoyed this bullish move over the past 2 weeks, it
is time to take the money and run!

Annotated Chart of PCAR:

Picked on July 31 at     $77.24
Change since picked:      +6.91
Earnings Date          07/24/03 (confirmed)
Average Daily Volume:  1.16 mln

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Watch List

A Few High Dollar Stocks

Northrop Gruman - NOC - close: 95.23 change: +2.25

WHAT TO WATCH: Building on its bounce from new support at $90.00
shares of NOC are leading the DFI defense sector to new highs.
The close over $95 for NOC has formed a fresh bullish-catapult
breakout on its P&F chart.  Bullish traders might want to keep an
eye on this one for an entry or evaluate short-term moves toward
next resistance at $100 now.



Procter & Gamble - PG - close: 88.40 change: -0.72

WHAT TO WATCH: PG has been a constant source of irritation for
bearish traders as it tends to catch short traders with a bear
trap.  However, we're seeing a steady trend of failed rallies
under its simple 50-dma and today's performance was not very
inspiring.  The stock's P&F chart is bearish but still has
support near $85.00.  Aggressive traders could try and play a
move to $85 while patient traders just might want to keep an eye
on it.  The $88 mark and its 200-dma are still technically



AutoZone Inc - AZO - close: 87.05 change: +0.22

WHAT TO WATCH: AZO has been a frequent candidate on the OI play
list and watch list.  This time we are noting its strong rally
has stalled right at previous resistance near $87.50 to $88.00.
We thought it interesting that today's comments from Raymond
James, who raised their price target on AZO from $96 to $105, was
not enough to pierce resistance.  AZO may need to consolidate
back to the $82.50-85.00 levels before building up enough steam
to hit new highs.  Definitely one to watch.



Omnicom Group - OMC - close: 75.83 change: +0.83

WHAT TO WATCH: Shares of OMC have formed a new "closing" 52-week
high (its intraday high is in mid-June).  The stock looks ready
to breakout to the upside from its recent trading range of $70 to
$75-76.  Another move higher and short-term traders could try and
scalp the move to $80, its next natural resistance level.  Most
of the stock's technical oscillators are bullish and its P&F
chart also shows the sideways consolidation that can now become a
new base to build on.



Matadors Mangled On Wall Street

To Read The Rest of The OptionInvestor.com Market Watch Click Here


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